Clear Channel Outdoor Holdings, Inc. (CCO) on Q2 2021 Results - Earnings Call Transcript

Operator: Ladies and gentlemen, thank you for standing by. Welcome to the Clear Channel Outdoor Holdings, Inc.’s Second Quarter 2021 Earnings Conference Call. I will now turn the conference over to your host, Eileen McLaughlin, Vice President, Investor Relations. Please go ahead. Eileen McLaughlin: Good morning and thank you for joining Clear Channel Outdoor Holdings’ 2021 second quarter earnings call. On the call today are William Eccleshare, Chief Executive Officer of Clear Channel Outdoor Holdings, Inc.; and Brian Coleman, Chief Financial Officer of Clear Channel Outdoor Holdings, Inc., who will provide an overview of the second quarter 2021 operating performance of Clear Channel Outdoor Holdings, Inc. and Clear Channel International BV. After an introduction and a review of our results, we will open up the line for questions and Scott Wells, Chief Executive Officer of Clear Channel Outdoor Americas, will participate in the Q&A portion of the call. William Eccleshare: Good morning, everyone and thank you for taking the time to join today’s call. I am pleased to report that we are seeing a substantial rebound in our business, not only in the second quarter but into the balance of the year we have strengthened the top line and improved profitability. With advertisers returning, we believe we are in a stronger position to capitalize on the growth potential of our out-of-home platform, including continued investments in technology to drive growth in our higher margin market, particularly in the Americas, while maintaining our financial flexibility and objective to de-lever the balance sheet and unlock shareholder value. With the business showing clear signs of recovery, I have decided that now is the right time to implement our succession plan and for me to transition from the operational leadership of the company. I will be assuming the new role of Executive Vice Chairman starting January 1, 2022 and will be supporting the management transition and leading the strategic M&A activity in our ongoing efforts to optimize our portfolio. I am also delighted to announce that Scott Wells will take over as CEO, while continuing in his current role as CEO of Clear Channel Outdoor Americas, and he will join me on the CCO Board. Scott and I have worked together in a variety of roles since the day I started at Clear Channel, when he was an Operating Partner at Bain Capital, our former PE sponsor. I know that many of you on this call have had the opportunity to speak to Scott in his role as CEO of our Americas business and are familiar with his deep knowledge of our business and the support he and his team have delivered in the Americas division over the past 7 years. Scott has outstanding previous experience and a proven track record in leading the Americas segment’s technology and data-driven transformation strategy, resulting in strong growth prior to the onset of COVID. Brian Coleman: Thank you, William. Good morning, everyone. Thank you for joining our call. As William mentioned, we saw a substantial rebound in our business in the second quarter, with June revenue for Americas and Europe combined about 90% of 2019 revenue, excluding FX in China, and we are optimistic about our growth through the balance of the year. However, we continue to manage our cost base, including negotiating rent abatements in some of the markets most affected by COVID-19 as well as strengthening our capital structure. Moving on to the results on Slide 4, in the second quarter, consolidated revenue increased 68.6% to $531 million. Adjusting for FX in China, revenue was up 63.4%. Consolidated net loss in the second quarter was $124 million compared to a consolidated net loss of $143 million in Q2 of 2020. Consolidated adjusted EBITDA was $97 million in Q2 of 2021, a substantial improvement over Q2 2020, which was negative $63 million. Adjusting for FX, consolidated adjusted EBITDA was $99 million in Q2 of 2021. Please turn to Slide 5 for a review of Americas’ second quarter results. The Americas segment revenue was $272 million in the second quarter of 2021, up 36% compared to the prior year and at the high end of the guidance we provided in May. Digital revenue rebounded strongly and was up 73.8% to $85 million. Local continues to rebound faster than national and was up 39.7%, with national up 30.2%. Direct operating and SG&A expenses were down 5.7%. The decline is due in part to a 14.2% decline in site lease expense as a result of negotiated rent abatements. Additionally, credit loss expense was reduced due to improved collections and outlook. These were partially offset by higher compensation costs, driven by improvements in operating performance. Segment adjusted EBITDA was $127 million, up 170.6% compared to the second quarter of last year, with segment-adjusted EBITDA margin well above-average due in large part to nonrecurring items, including the negotiated rent abatements. Please turn to Slide 6. This slide breaks out our billboard and transit revenue. Billboard and other was up 42.6%, while transit was down 4.2%, with airport display revenue down 4.7% to $25 million. Turning to Slide 7 for a bit more detail on billboard and others Q2 revenue performance. Digital revenue from billboards, street furniture and spectaculars rebounded strongly in Q2 and was up 97.6% to $75 million, with non-digital up 27.1%. William Eccleshare: Thanks, Brian. The recovery is now well underway across our markets, and we are continuing to see solid revenue momentum in the second half of the year, with several of our markets ahead of 2019. We remain focused on strategically investing in our technology, including expanding our digital platform, further strengthening our data analytics capabilities and building our programmatic resources, with the aim of broadening our presence among a greater number of advertisers and increasing our market share. Our business is soundly rebounding. Our organization is energized, and we are very excited about the growth trends that are building across our markets. As we invest in our platform, we will also continue to carefully manage our costs, supporting our efforts to drive profitable growth over the long-term, as well as maintaining our financial flexibility and objective to de-lever the balance sheet. As I mentioned earlier, I’m very excited about the future of the company and look forward to speaking with many of you over the next few months as we prepare for the leadership transition, with Scott taking over as CEO at the end of the year. And now, let me turn over the call to the operator for the Q&A session. Operator: Your first question comes from the line of Steven Cahall with Wells Fargo. Steven Cahall: Yes, thanks. So, maybe first for Scott, it looks like the Americas Q3 guide is pretty close to 2019, as you mentioned. It sounds like airport is better, but probably still down. And I’m wondering if street furniture probably is, too, in places like . So just wondering how you think about the recovery in sort of the bits of weakness. And if we do see those get back to prior levels, how do you think about the EBITDA power in the Americas business as that’s done? And should we expect any lumpiness to expenses due to rent abatements in the back half of the year? And then, William, in Europe, maybe you could discuss a little bit of what sort of margins do you start to expect as you get to full run-rate revenues. I think of that as sort of a mid-teens margin business. So just wondering, given all the cost work that you’ve done, how you think about it. And then lastly Scott, just maybe what’s next in terms of financial management, maybe you could discuss a little bit the covenant springing suspension and what you expect for free cash flow in the back half of the year and liquidity? Thank you. Scott Wells: Hey, Steve. Thanks for the questions. I think Brian will take that covenant one, though, so we will let him get to that one. On your question, I do think Q3 is looking like it’s going to be pretty close to its counterpart in 2019. The things you named, airports and street furniture, are the things that will probably lag. We still do have the dynamic that some cities are recovering slower than other cities in the mix. New York is actually recovering quite nicely. We don’t have much in the way of street furniture there, but the Times Square area is recovering nicely, and the airports are recovering nicely, along with the roadside that’s done well. In terms of the margins, I think there is going to be some lumpiness in our margins for a bit. I mean, you witnessed it to the positive this quarter. We’ve kind of been consistent in talking about these negotiations are often for relatively big chunks of money, and they are hard to predict. And we’re never 100% sure how they are going to come in. I think a couple of things will happen over the next three or four quarters. One is we are still working on some relief on contracts that looking back even over last year. I think the other thing to happen is you’ll see some of the relief that we’ve gotten come out. And so the margins will be – it will take a bit of time for us to get to what we’d call steady-state margins, but I don’t think it’s going to be wildly dramatic either. Hopefully, that answers your question on the U.S. margin recovery. Steven Cahall: Yes. William? William Eccleshare: Yes, I’ll take the European question. I’m not going to give you any kind of guidance on what may or may not happen to margin over the coming months and years, Steven, and I don’t think you’d expect me to. We will continue to be very vigilant on costs across the European business. I think we’ve done some excellent work that we’ve talked about on previous calls in terms of the cost reduction program and the restructuring, and that will continue to have impact in the coming years. But obviously, we can’t predict is the impact of some of the changes in inventory that we may see in the months and years ahead. So I think I’ll just leave it at that on margin, unless Brian wants to add anything before he takes on the covenant question, as well. Brian Coleman: No. The only thing I would add is, as the recovery continues and incremental revenue is added, that’s obviously going to be beneficial. And I think we’re seeing that in Europe. So hopefully, that’s helpful, Steve. I think we feel pretty good about the direction we’re headed. On the covenant question, I think the two key things to think about are, one, the relief that we got with respect to the springing covenant itself goes through the end of the year. And so we will report our first covenant calculation at our March 31 compliance date. And the second piece of the was a pushback of the step-down in the springing covenant measurement. And that push-down was out to September of 2022. So I think those are the two things to think about. In exchange for that, we do have to maintain $150 million minimum liquidity. But I think you can see, from our liquidity guidance, we feel very comfortable about that. The trajectory of the business, we’ve actually upped our liquidity guidance to $475 million to $525 million by the end of the year. So I think we feel pretty good with where we are with respect to the covenant relief. And I would add, it’s a springing covenant, so we could always pay off the drawn amounts under the facility, and we are looking like we have the liquidity to do that, should we choose that path, as well. Steven Cahall: Thanks and congrats Scott and William. Scott Wells: Thank you. Operator: Your next question comes from the Lance Vitanza with Cowen. Lance Vitanza: Hi. Thanks guys for taking the question and great job on the quarter. William thanks for your leadership. Obviously, been a difficult time. My question for you is it sounds like your new role, I think you mentioned it would include the evaluation of strategic considerations, i.e., M&A. So I am wondering can you give us an update on what the M&A environment looks like today with the COVID recovery so well-developed? I’d imagine it’s possible to buy and sell assets again. Am I right about that? I mean, away from Clear Channel, are you seeing deals get done? And then, if you could comment perhaps on whether you’ve ruled out any types of transactions, or perhaps you could help us focus on what types of transactions we would be most likely to see, buy or sell region versus region, size, core versus non-core, that kind of thing? William Eccleshare: Right. How much detail do you really want me to give you? Let me say, first, away from Clear Channel, as you say, I think the M&A environment is certainly getting more active. People are undoubtedly seeing markets return, valuation gaps are narrowing, and there is a lot more going on right now than there was this time last year for very obvious reasons. So yes, it’s more active. And yes, my new role certainly will involve me in looking at strategic opportunities for the business across our footprint. I don’t really think you would expect me to give any kind of indication of where we might be looking to transact or what kinds of transactions we might look at. We are very conscious that, in February of last year, we said on our earnings call then that we would look to focus the business more on the higher-margin assets, and that remains our strategy. So, that can lead you to some fairly obvious conclusions, I would think, about the geographies that we would be looking at. But as to timing, I don’t think we would want to say anything more at the moment other than that things are certainly getting more active, and we will continue to evaluate all opportunities as they appear and as we would consider that they would deliver shareholder value. I think I should just leave it at that. Thanks. Lance Vitanza: That’s great. And my another question is just and not to be the pepper in the punchbowl here, but what about the Delta variant? I mean, it doesn’t sound like you are worried about it, but why doesn’t that risk derailing the recovery, in your view? William Eccleshare: Yes, I mean, I think I am, what I would say, appropriately worried about it. Any variant of this virus is concerning to us. And we have all seen too much over the last 15 months, 16 months to be in any way complacent. What I would say is what I have observed, and we have had more experience of it in Europe than in the U.S so far. What I have observed and what I think is confirmed by all of the analysis, although the delta variant is highly infectious, it does appear that the vaccines do offer some significant resistance and are resulting in significantly lower hospitalizations as a result of . As a result of that, I think it is highly probable that governments will continue to resist imposing any further restrictions. And as you all know, in the UK, which has been the most affected by the Delta variants so far. In the UK, our government has taken a very conscious decision to unlock the economy and remove restrictions at the very time that infections from the Delta variant were increasing. And they have done that because they feel confident around the hospitalization rate. So look, I am not an epidemiologist. I am not an expert on the topic. But I would say, based on what we know today, our views about the second half of the year stand as stated and reflect a confidence in the recovery. If something changes in the way in which the vaccines protect against the Delta variant, then all bets are off. But that’s how I see it at the moment. Lance Vitanza: Thank you so much guys. Operator: Your next question comes from the line of Jim Goss with Barrington Research. Jim Goss: Thank you. I have a couple of question also. First, going back to the margin question, would you say the domestic margins should have a sustainable target level north of 40% as things recover in all areas and you have got the benefit of digital, and you also have potentially some cost and expenses that may have been cut during the pandemic that you might be able to keep under control in the future? That would be the first question. Scott Wells: Brian, do you want me to speak to that or do you want to take that one? William Eccleshare: I think Brian is going to take it. Brian Coleman: Yes, sorry. Scott, I will take it, and then, obviously, you can have some color and add in, if you would like. Look, 40% sounds like pre-COVID level margins in the U.S. And I think that that’s certainly something we will strive for. We do have some tailwinds from cost-saving initiatives that we have put in place and other things, but we also have headwinds from such things as portfolio mix. So, I think the first thing that has to happen is we have to get back to the revenue level. But even once we get back to the revenue level, we will really need to work on keeping the cost savings in place to get back to that 40% level, because we do have to make up for some portfolio mix changes. And that’s just the nature of the business. That even if revenues go back to 2019, it doesn’t mean your business make-up is the same. And so those are kind of the pushes and pulls. We likely will need to continue to work at it to get back to the 40% level, but we won’t be far off as we continue to recover from COVID. Scott, do you have any additional color you would like to add? Scott Wells: I mean, I think the only other thing I would call out is that seasonality does matter in this business, and so it may not be 40% every quarter as we think about that as things play out. But I think your answer is right on. Jim Goss: Okay. Thanks though. And one other thing maybe I will touch on. The increase for digital was significantly greater than the increase for billboards, and more than would be accounted for by platform changes. And I am wondering if there are certain advertisers who are considering both formats in various areas? And what are the factors behind your decision-making? And as to what which appropriate for them? And is this starting to create a little better pricing power on the digital side as you are seeing that utilization improve? Scott Wells: So, I will take a run at this from the U.S., and then, William, if you want to add anything internationally, we can touch on that, as well. So I guess, first and foremost, as you look at the recovery, you got to remember how things fell, too, because our printed assets did not fall nearly as far as digital did. And so part of why you are seeing the big growth in digital now is because it’s comping against significantly worse numbers. If you go back and look at our Q2 of last year, digital was hit much harder than printed. In terms of your question about advertisers making decisions, I think there is a variety of things going on and foremost, digital has an immediacy to it. And so, with advertisers reacting to things rolling out across the country, digital has given them a very convenient way to activate in markets as markets get more secure, more stable, and people get out on the streets more and things like that. I think we are developing different use cases for digital, whether it’s in the programmatic use case or roadblocks, or something that we are doing more and more of. There are just different use cases for it that advertisers use, whether it’s for a film release or for a new product launch or trying to sustain momentum in a place like a CPG-type product where they are looking to heavy up. Digital gives them the ability to do it. So, I do think digital, it has been a premium product since we developed it. It remains a premium product. It’s on some of our best locations that we have converted to digital. And so I do think it’s something that we receive very attractive economics for. And in this business, whenever you have demand strong, you see that dynamic. William, I don’t know if you would add anything incremental to that, as well. William Eccleshare: No, I think you have nailed it, Scott. Thank you. Jim Goss: Okay. And lastly, are there any broad categories showing greater resilience? You have mentioned a couple of the consumer technology, media. Are there some that are really driving the recovery right now for you? Scott Wells: Again, sort of from a U.S. perspective, we went out and got a number of new categories active during COVID. And what we are seeing now, as things build back, is some of the industries that were hit really hard during COVID are coming back. So, theatrical is probably the most obvious in terms of film releases. We have had a number of good, strong film releases this year and a really good pipeline of film releases coming. So, they have come back. Amusements have come back. You have seen travel and leisure come back. Those are all categories that were hit really hard, and that’s building on top of some things like in home improvement, real estate, categories that we actually were able to develop pretty successfully during COVID. So, it’s a good time in the business right now, having traditional advertisers coming back, building on top of some new categories that we have done a lot to develop during COVID. Jim Goss: Okay, thanks and congratulations, Scott. That’s it. Thanks. Operator: Thank you. There are no additional questions at this time. I would like to turn it back over to Mr. Eccleshare for closing remarks. William Eccleshare: Thank you and thank you everyone for joining our call today. I just wanted to end by just making a few comments as we announced the CEO transition today. I don’t step down until the end of the year, and I will continue to serve the company, as you know, as Executive Vice Chairman into 2022. But I would just like to say it has truly been a great honor for me to lead this business over the last few years, to lead the digital transformation of the greatest mass reach medium of them all. To take this company into full public ownership with a full NYSE listing, it was a fantastic step for this business. To lead this business through the pandemic and see the resilience of our people and I have enormous pride in the way that our people stepped up and continued to drive and develop the business in really tough circumstances. And finally, to say that the pride I have in handing over to Scott as my successor, who I know will continue to build the business, to grow the business and to develop it and build on all of the things that we have done over the last years. So, just thank you to everybody. You will continue to hear my voice on this call certainly for the next earnings call and thanks everybody for joining us. Operator: Thank you. This concludes today’s conference call. You may now disconnect.
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Clear Channel Outdoor Holdings, Inc. (NYSE: CCO) Surpasses Q1 Financial Expectations

  • Clear Channel Outdoor Holdings, Inc. (NYSE: CCO) reported Q1 EPS of -$0.17, surpassing analysts' expectations and indicating improved profitability amid industry challenges.
  • Q1 revenue of approximately $481.75 million exceeded estimates, showcasing CCO's sales generation capabilities and financial resilience.
  • Despite a year-over-year revenue decline, CCO's strategic focus on high-margin markets, technological investments, and financial stability positions it for sustainable growth and success in the advertising industry.

On Thursday, May 9, 2024, Clear Channel Outdoor Holdings, Inc. (NYSE: CCO) reported its financial results before the market opened, revealing earnings per share (EPS) of -$0.17, which was better than the anticipated EPS of -$0.18 by analysts. This performance indicates a notable improvement in the company's profitability, despite the challenges it faces in the outdoor advertising industry.

Additionally, CCO reported revenue of approximately $481.75 million for the first quarter ended March 2024, surpassing the estimated revenue of roughly $478.55 million. This achievement demonstrates the company's ability to generate higher sales than expected, contributing positively to its financial health.

The reported revenue of $481.75 million, although representing an 11.7% decrease from the same period last year, still exceeded Wall Street expectations. The Zacks Consensus Estimate had pegged the revenue at $480.69 million, making CCO's actual revenue 0.22% higher.

This slight beat in revenue expectations, coupled with the EPS outperforming the consensus estimate of -$0.18 by 5.56%, highlights Clear Channel Outdoor's resilience in navigating the market's challenges. The company's ability to surpass analyst expectations in terms of both revenue and earnings per share underscores its operational efficiency and strategic planning.

Despite the year-over-year decline in revenue, CCO's management has been focusing on areas that promise higher profitability and growth. CEO Scott Wells pointed out the record first-quarter results, especially in the America, Airports, and Europe-North segments, attributing this success to an improvement in demand among advertisers across all regions.

This strategic focus on enhancing profitability through prioritizing higher-margin U.S. markets and investing in technology and sales resources is pivotal for the company's future growth. It reflects a deliberate effort to expand its advertising capabilities and adapt to evolving market demands.

Financial metrics such as the price-to-sales ratio (P/S) of approximately 0.34 and the enterprise value-to-sales ratio (EV/Sales) of 3.41 provide insights into how the market values CCO in relation to its sales. While the P/S ratio suggests that investors are paying $0.34 for every dollar of sales, indicating a potentially undervalued stock, the higher EV/Sales ratio points to a more substantial valuation when considering the company's debt and equity structure.

Despite the negative earnings yield of -0.46%, which signals that the company is not generating positive earnings relative to its share price, CCO's current ratio of 1.03 indicates its capability to cover short-term liabilities with its short-term assets, showcasing its financial stability.

In summary, Clear Channel Outdoor's first-quarter financial results for 2024 reflect a company that is strategically navigating its way through the challenges of the outdoor advertising industry. By exceeding analyst expectations for both revenue and EPS, focusing on high-margin markets, and maintaining financial stability, CCO is positioning itself for sustainable growth. The company's strategic investments and operational efficiency are key factors that could contribute to its continued success in the competitive landscape.