Clear Channel Outdoor Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 7, 2023

There are 11 speakers on the call.

Operator

Hello, everyone, and thank you for standing by. The Clear Channel Outdoor Holdings Conference Call will begin shortly. Our host for today will be Eileen McLaughlin. Ladies and gentlemen, thank you for standing by. Welcome to Clear Channel Outdoor Holdings 2023 Second Quarter Earnings Conference Call.

Operator

My name is Bruno, and I'll be operating your call today. I will now turn the conference over to your host, Eileen McLaughlin, Vice President of Investor Relations. Please go ahead.

Speaker 1

Good morning, and thank you for joining our call. On the call today are Scott Wells, our CEO and Brian Coleman, our CFO. They will provide an overview of the 2023 Second Quarter operating performance of Clear Channel Outdoor Holdings Inc. And Clear Channel International B. V.

Speaker 1

We recommend you download the earnings presentation located in the Financial section in our investor website And review the presentation during this call. After an introduction and a review of our results, we'll open the line for questions. And Justin Cochran, CEO of Clear Channel UK and Europe will join Scott and Brian during the Q and A portion of the call. Before we begin, I'd like to remind everyone that during this call, we may make forward looking statements regarding the company, including statements about its Future financial performance and its strategic goals. All forward looking statements involve risks and uncertainties, And there can be no assurance that management's expectations, beliefs or projections will be achieved or that actual results will not differ from expectations.

Speaker 1

Please review the statements of risks contained in our earnings press release and our filings with the SEC. During today's call, We will also refer to certain measures that do not conform to generally accepted accounting principles. We provide schedules that reconcile these non GAAP measures with our reported results on a GAAP basis as part of the earnings presentation. Also, please note that the information provided on this call Speaks only to management's views as of today, August 7, 2023, and may no longer be accurate at the time of a replay. Please turn to Slide 4 in the earnings presentation.

Speaker 1

And I will now turn the call over to Scott.

Speaker 2

Good morning, everyone, and thank you for taking the time to join today's call. We delivered consolidated revenue of $636,000,000 During the Q2, excluding movements in foreign exchange rates, which was in line with our guidance and up 3.5% As compared to the prior year, excluding the movements in foreign exchange rates and the sales of our former businesses in Switzerland and Italy. In addition, since our last quarterly call, we made notable progress on several facets of our strategic plan. Our results continue to be led by our digital assets, which accounted for 40.8% of our consolidated second quarter revenue An increase 7.3% compared to the prior year, excluding movements in foreign exchange rate and sold businesses. I'd like to thank our global team for their efforts running our business despite the ongoing strategic reviews and a more difficult operating environment.

Speaker 2

Your focus remains a critical ingredient for our success. In our America reporting segment, revenue was up compared to the prior year With higher revenue in most markets, partially offset by continued weakness in San Francisco. We continue to make inroads with new advertisers and categories during quarter, particularly pharma, due in large part to our investments in data analytics. In addition, our airports reporting segment rebounded robustly As advertisers tap into our dynamic platform to target millions of consumers on the move, and we saw continued strength in several markets in our Europe North segment, including in Belgium and the U. K.

Speaker 2

At the heart of our strategy, we remain committed to becoming a visual media powerhouse By understanding our customers' needs, strengthening our digital capabilities and securely tapping into the right kinds of data to help our clients plan, Measure and optimize their campaigns. We continue to believe this is elevating our role within the advertising ecosystem And increasing the range of advertisers we can pursue. In a first for our industry, we recently entered into several partnerships Aimed at integrating our radar data platform with best in class data clean room or DCR applications and services To enable brands to utilize 1st party data matching for out of home in the U. S. The marketers that leverage DCRs And the budgets that fund these 1st party data driven programs typically are separate from out of home budgets.

Speaker 2

And many users of DCRs are not For digital buyers of out of home, we believe these integrations will open more doors for us with digital first brands by allowing them to leverage our scale and creative impact To run the most relevant ads and understand and analyze audience behaviors, all at a privacy conscious and secure manner. Since our last call, we also took several important steps with regard to our plan to optimize our portfolio. We closed on the sale of Italy on May 31, and we expect to close on the sale of Spain in 2024 upon satisfaction of regulatory We also entered into exclusive discussions to sell our business in France And are aiming to complete the proposed transaction in Q4 2023 subject to an information and consultation process with Clear Channel France's employee works counsel, execution of a share purchase agreement and the satisfaction of customary closing conditions. We were able to move forward with these agreements during a difficult environment executing on our business sales efforts, we expect the sales of our businesses in Switzerland, Italy as well as the anticipated sale of our business in Spain We'll generate approximately $175,000,000 in gross total proceeds if and when completed.

Speaker 2

These transactions together with France Will enable us to exit markets that have historically demonstrated a greater degree of volatility in our portfolio, which we believe will improve our risk profile and elevate our ability to drive positive cash flow. Consider that our remaining European businesses encompassing our Europe North segment On a trailing 12 month basis as of June 30, 2023, delivered revenue of $577,000,000 Segment adjusted EBITDA of $102,000,000 and invested $34,000,000 in CapEx. Consistent with the vision we laid out in our Investor Day last The European markets, which currently comprise our Europe North segment, have delivered higher margins and better financial metrics overall, Have a higher degree of digital penetration and have less volatility than the businesses in our Europe South segment. And importantly, We believe Europe North is in a stronger position to meet its own cash needs. Our Board is continuing to conduct its review of strategic alternatives For our remaining businesses in Europe, as well as evaluating a range of other strategic opportunities to enhance value, We remain focused on delivering profitable growth, strengthening our balance sheet and further demonstrating the operating leverage of our model.

Speaker 2

In addition, we intend to meaningfully restructure our corporate expense as our footprint simplifies. Now turning to our outlook. Looking ahead, our visibility is somewhat reduced, but we are not seeing an uptick in cancellations and we remain within our annual financial guidance ranges after adjusting for sold businesses. However, we did tighten the high end of our guidance range. We're closely Monitoring business trends and reducing costs and CapEx as appropriate, while operating in a disciplined manner as we execute on our strategic plan.

Speaker 2

There were in fact benefits from this cost discipline in our Q2 results. Brian will go through the guidance in detail. And as you might have seen in the earnings release, We are expanding our guidance by providing revenue guidance for America, Airports and Europe North for the Q3 fiscal year In addition to the consolidated guidance we have provided in the past, in our Americas segment, we started to see the market softening in June, resulting in a slightly lower Q2. This trend has continued into the 3rd quarter And it's mostly national and includes media and entertainment, auto and technology. This is disappointing given the strong start of the year we had with our But what we are hearing from certain advertisers and agencies is that some brands are pausing with an intention to spend in the 4th quarter.

Speaker 2

So we remain optimistic. As anticipated, our airports business rebounded strongly and we're seeing continued momentum with the potential for revenue Grow at an even faster rate in the Q3 as compared to the prior year than it did in the Q2. In Europe North currently, we are seeing continued strength in the UK, our largest market, driven in part by the strength of our digital footprint, Somewhat offset by tougher comps in certain markets due to the timing of the COVID-nineteen rebound last year. As we execute our plan, we are keeping a close eye on advertiser sentiment, while operating in a disciplined manner. And with that, let me now turn it over to Brian.

Speaker 3

Thank you, Scott. Good morning, everyone, and thank you for joining our call. Please turn to Slide 5. As Scott mentioned, the 2nd quarter reflects a mix of results, but overall, our 2nd quarter consolidated revenue was in line with our guidance. As a reminder, during our discussion of GAAP results, I'll also talk about our results excluding movements in foreign exchange rates, a non GAAP measure.

Speaker 3

We believe this provides greater comparability when evaluating our performance. Direct operating expenses and SG and A expenses Include restructuring and other costs that are excluded from adjusted EBITDA and segment adjusted EBITDA. And the amounts I refer to are for the It has been a busy period since our last call with the sale of Italy, our agreement to sell Spain And our entry into exclusive discussions on Trans, including Switzerland, these are all the businesses within the Europe South reporting segment. When we report our Q3 results, all businesses within Europe South are expected to be considered discontinued operation in all periods presented. In addition, when I refer to results excluding sold businesses, I am referring to Switzerland and Italy.

Speaker 3

The sales of Switzerland on March 31 and Italy on May 31 are impacting comparability to prior periods. Now on to the 2nd quarter reported results. Consolidated revenue for the quarter was $637,000,000 a 1% decrease. Excluding movements in foreign exchange rates, consolidated revenue for the quarter was $636,000,000 in line with The Q2 guidance we provided in May and within the guidance range of $629,000,000 to $654,000,000 after adjusting for the sale of Italy. Lastly, excluding movements in foreign exchange rates and sold businesses, consolidated revenue was up 3.5%.

Speaker 3

Net loss was $37,000,000 an improvement over the prior year's net loss of $65,000,000 Included in that loss was $19,000,000 related to an increase in our legal liability for the previously disclosed into our former joint venture in China, which relates to conduct occurring prior to our separation. Adjusted EBITDA was $146,000,000 down 10.9 percent excluding movements in foreign exchange rates and sold businesses, Adjusted EBITDA would be down 7.2%. AFFO was $31,000,000 in the 2nd quarter. On to Slide 6 for Americas segment 2nd quarter results. Americas revenue was 288,000,000 Up 0.9%, reflecting higher revenue in most markets, partially offset by the impact of the weakness In our San Francisco Bay Area market, digital revenue, which accounted for 34.2% of America revenue, Was up 2.4 percent to $98,000,000 National sales, which accounted for 35% of America revenue, We're down 1.5%.

Speaker 3

Local sales accounted for 65% of America revenue and continued to deliver growth, up 2.2%. Direct operating and SG and A expenses were up 4.4 percent to $158,000,000 The increase is primarily due to a 6.8% increase in tight lease expense to $86,000,000 driven by lease renewals and amendments, including the large lease renewal that has been creating a headwind since Q4 of 2022 as well as lower rent abatements. Segment adjusted EBITDA was $130,000,000 down 3.3% with the segment adjusted EBITDA margin of 45%, Down from Q2 2022. The renegotiation of a large existing site lease contract I just mentioned And the decline in rent abatements resulted in the margin declining this quarter as compared to the prior year. Excluding rent abatements And the impact of the lease renewal, the margin would have been at pre COVID levels.

Speaker 3

Now please turn to Slide 7 for a review of the 2nd quarter results for airports. Airports revenue was $71,000,000 up 16.3%. The robust increase in revenue was driven by increased demand Due to recovery in air travel after COVID-nineteen and the timing of campaign spending, digital revenue, which accounted for 59.3

Speaker 4

We're up

Speaker 3

31.6%. Local sales accounted for 40.3% of airports revenue and were down 0.8% due to Exiting a few regional airports. Direct operating and SG and A expenses were up 18.1 percent to 55,000,000 The increase is primarily due to a 24.7% increase in site lease expense to $43,000,000 driven by lower rent abatements and higher revenue. Segment adjusted EBITDA was $16,000,000 up 10.5%, but the segment adjusted EBITDA margin of 23%, which is a bit elevated compared to normalized levels due to rent abatements. Next, please turn to Slide 8 for a review of our performance in Europe North.

Speaker 3

My commentary on Europe North and Europe South is on results that have been adjusted to exclude movements in foreign exchange rates. Europe North revenue increased 4.5 percent to $152,000,000 driven primarily by higher street furniture revenue. Revenue was up in most countries, most notably Belgium and the U. K. And Denmark, partially offset by lower revenue in Sweden and Norway.

Speaker 3

Digital accounted for 52.8 percent of Europe North total revenue and was up 6.2% to $80,000,000 Europe North direct operating and SG and A expenses were up 6.9 percent to $126,000,000 The increase is due to higher rental costs related to additional digital displays and higher labor costs and electricity prices. In addition, site lease expense was up 3 4% to $60,000,000 mainly driven by higher revenue and new contracts. Europe North segment adjusted EBITDA was down 5% to $26,000,000 and the segment adjusted EBITDA margin was 17.4%, down from the prior year, primarily due to the increase in expenses that I just mentioned. Now on to Slide 9 for our performance in Europe South. Europe South segment revenue decreased 20.6% $104,000,000 Sales of our former businesses in Switzerland and Italy resulted in an FX adjusted decrease of $28,000,000 Additionally, higher revenue from Spain related to the continued recovery from COVID-nineteen was partially offset by lower revenue from France Due to weaker demand as a result of civil unrest and protests as well as billboard takedowns.

Speaker 3

Europe South segment adjusted EBITDA was 2,000,000 Moving on to CCIBV on Slide 10. Clear Channel International BV, referred to as CCIBV, As an indirect wholly owned subsidiary of the company and the issuer of our 6.5.8 percent senior secured notes due 2025. It includes the operations of our Europe North and Europe South segments as well as Singapore, which, following the changes to our reporting segments And the Q4 of 2022 is included in other. CCIBV revenue decreased 6.8% $261,000,000 from $280,000,000 Excluding the $100,000 impact from movements in foreign exchange, CCIBV revenue decreased 6.9%, driven by the sales of our former businesses in Switzerland and Italy, which resulted in an FX adjusted decrease of $28,000,000 This was partially offset by higher revenue from many of our remaining European businesses, as I just mentioned. Singapore represented less than 2% of CCIBV revenue for the 3 months ended June 30, 2023.

Speaker 3

CTIBV operating income was $13,000,000 compared to $16,000,000 in the same period of 2022. Now moving to Slide 11 And our review of capital expenditures. CapEx totaled $37,000,000 in the second quarter, a decrease of $9,000,000 over the prior year due to timing. On the Slide 12, our liquidity was $456,000,000 as of June 30, 2023, Down $89,000,000 compared to liquidity at the end of the Q1 due to lower cash and cash equivalents, Partially offset by higher availability under our credit facilities driven by an increase in our total borrowing limit. As you may know, in June, we were able to amend and extend our revolving credit line, which we believe strengthens our liquidity profile Given the significant market volatility and tightened credit availability.

Speaker 3

During the Q2, cash and cash equivalents declined by 107,000,000 to $233,000,000 driven by net operating cash outflow and capital expenditures. The net operating cash outflow was driven by cash paid for interest and other changes in working capital, primarily accounts receivable. Our debt was $5,600,000,000 as of June 30, 2023 basically flat with March 31. Cash paid for interest on debt was $130,000,000 during the 2nd quarter, An increase compared to the same period in the prior year due to higher interest rates on our term loan facility. Our weighted average cost of debt was 7.4%, a slight increase compared to the weighted average cost of debt as of March 31, 2023.

Speaker 3

And as of June 30, 2023, our 1st lien leverage ratio was 5.52 times, a slight increase as compared to the March 31, 2022. The credit agreement covenant threshold is 7.1 times. Moving on to Slide 13 And our guidance for the Q3 and the full year of 2023. As you can see on this slide, we have expanded our revenue guidance For both the Q3 and the full year to include revenue guidance on America, airports and Europe North. Spain and France are still in our consolidated guidance along with other, but Europe South is expected to be considered discontinued operations We report our Q3 results and therefore we are not providing separate guidance.

Speaker 3

All consolidated guidance and Europe North guidance Excludes movements in foreign exchange rates with the exception of capital expenditures and cash interest payments. For the Q3, we believe our consolidated revenue will be between $570,000,000 $600,000,000 We expect America revenue to be between $273,000,000 $283,000,000 a decline compared to the prior year, driven primarily by softness in national. And airports revenue is expected to be between $73,000,000 $78,000,000 a 17% to 25% increase over the prior year, potentially offsetting The decline in America. Europe North revenue is expected to be between $132,000,000 142,000,000 Based on the average foreign exchange rates in June 2023, there could be an FX benefit in the quarter of about 5% or $7,000,000 Now that we are halfway through the year and based on our current visibility, we have updated our full year guidance previously reported in May to reflect the sale of our former business In Italy and to tighten the high end of the ranges provided. For the full year, we expect consolidated revenue to be between 2.465 And $2,535,000,000 America revenue is expected to be between 1.095 And $1,115,000,000 and Airports revenue is expected to be between $285,000,000 $295,000,000 Europe North revenue is expected to be between $590,000,000 $610,000,000 On a consolidated basis, we expect adjusted EBITDA To be between $522,000,000 $552,000,000 AFFO guidance is $62,000,000 to $82,000,000 Capital expenditures are expected to be in the range of $163,000,000 $183,000,000 with a continued focus on investing in our digital footprint in the U.

Speaker 3

S. Additionally, our cash interest payment obligations for 2023 are expected to be approximately 416,000,000 An increase over the prior year as a result of higher floating rate interest on our Term Loan B facility. This guidance assumes that we do not refinance or incur additional debt. Lastly, as part of our review of strategic alternatives for our remaining European businesses, An assumed disposition of those businesses, which is uncertain, would be expected to ultimately reduce our corporate expenses by at least $30,000,000 annually. And now, let me turn the call back over to Scott for his closing remarks.

Speaker 2

Thanks, Brian. Looking ahead, we continue to be optimistic about our outlook. Within the U. S, the American national business remains challenged, While local continues to grow and airports is experiencing strong growth, in Europe, Europe North continues to deliver solid results. We remain within our annual financial guidance ranges after adjusting for sold businesses as well as tightening The high end of our ranges and we'll take further steps to address our costs if necessary.

Speaker 2

Additionally, Assuming a stable macro environment and continued progress in the execution of our strategic review process and successful application of resulting net sales proceeds. We believe the company will reduce its indebtedness and in 2024 meaningfully grow AFFO. Further, and as previously mentioned, we anticipate that the assumed disposition of our remaining European businesses Would enable us to lay out a timeline for material corporate cost reductions. We continue to believe these actions will ultimately drive value for our shareholders. And now let me turn over the call to the operator for the Q and A session and Justin Cochrane will join us on the call.

Operator

Our first question comes from Ben Swinburne from Morgan Stanley. Ben, your line is now open. Please proceed.

Speaker 5

Thank you. Good morning. Hey, guys. Hope you're doing well. Scott, maybe just one for you.

Speaker 5

As you think about the categories that are under Pressure that you called out in your prepared remarks. What are you thinking or seeing from them as you look into the Q4? You obviously got The 4th quarter sort of implied in your full year guidance and your Q3 guidance. I'm just wondering if you think this weakness sort of is Continues on or gets any visibility of improvement or further decay. I mean that's just a conversation about the weaker categories would be helpful.

Speaker 5

And then, Brian, anything you want to highlight on expenses in the second half, whether it's year over year comparisons to rent abatements and thinking about the Americas Segment or anything else you want to call out in terms of cost action as you think about OpEx in the second half of the year? Thank you both.

Speaker 2

Thanks, Ben. First off on the categories, The behavior of the market has been a little eclectic of late. And the categories that we called out are the ones that were weakest, But there's definitely been some account campaign activity being held Over the course of the summer, we really saw it start happening in June and it was pretty broad based. The ones that we called out were the ones that were the weakest. As we think about how things are going to build, We always have pretty good visibility.

Speaker 2

We talked about our upfront and I referenced being disappointed that we're not Seeing the growth that we thought we might see in Q3 when we saw what our upfront looked like, that's really what continues to give us Confidence in Q4 also just looking at the current booking activity that Q4 is going to be stronger than what Q3 is going to be. But it is always very difficult to tell when people start going into this mode. The thing that we're hearing from a lot of our agency partners Is that there are the pipeline of activity for Q4 is really strong. It's a question of whether people are going to hit go buttons toward the latter part of August, early part of September. That's when we're really going to know For sure how things build, but the book has the strength to deliver the guidance that we've put and then some, I think.

Speaker 2

And I think as this plays out, it does seem like there may be some shifting of seasonality. And I don't want to read too much into this Because I think tech in particular have been working on their P and Ls this year and have really been quite Pausing in their campaigns, media and entertainment, who knows where the writers and actors strike go. Television is less important part of media and entertainment to us than movies, and movies Are not going to be as impacted if this doesn't go on a super long time. So I guess what you're getting from me is We've given

Speaker 3

a guide we feel very good about, but it is very hard to create the Straight line between exact categories and exactly where that guide is. Brian, you want to take the expenses? Sure. Thanks, Ben. For the second half of the year, we're going to continue to monitor operations closely.

Speaker 3

In fact, I think you probably heard in the Script the prepared remarks that we are seeing the benefit of some cost reductions even in Q2, even though there wasn't a lot of elaboration. So Certainly monitoring operations through the second half of the year will adjust as appropriate. Abatements, They kind of continue to roll away from the prior year. It's a bit chunky, but as we lap the last year where we had a lot of abatements, I think we'll continue to see those fall away. We are still seeing the impact from the large contract that we've talked about.

Speaker 3

That will roll away after Q3 of this year and so the comps will normalize. I'd also mention that you likely saw CapEx Down this quarter versus the same quarter in the prior year. Some of that is timing and deferrals, some of that is reduction. I think What I would characterize all this is saying is we're closely monitoring operations and to the extent Performance is under what we're expecting. We will continue to use

Operator

Our next question comes from Steven Cahall from Wells Fargo. Steven, your line is now open. Please proceed.

Speaker 6

Thank you. Maybe first, Scott, if you could talk a little bit about the differences in local versus National, we heard from some TV broadcasters on Friday that local was quite strong, especially in auto. It doesn't seem like The national is a leading indicator for local right now, but historically, sometimes we have seen local kind of catch up to national trends. Maybe you can kind of compare and contrast what you're seeing in local demand versus what you're seeing in national demand and how you see Those 2 trending, with a little bit of a split between how much of your business is local and national. And then on airports, We just also love some color on the strength there.

Speaker 6

And Brian, is it correct that you do have a tough rent abatement comp In the Q3 in airports, just thinking about how we might model that EBITDA. Thank you.

Speaker 2

Thanks, Steve. I'll start with the local national. Roughly, we're 60% local, 40% national, it fluctuates a little quarter to quarter, but that's a reasonable way to think about our mix. And it definitely is the case For Q2 and for our guide that local is more reliable than national and it has been Really since the start of COVID, the 2 markets really split. There was a stretch where National came roaring back after COVID and then that has abated somewhat in more recent time.

Speaker 2

And as I was mentioning to Ben, The tech companies in particular, we know that they've been working on their P and Ls and pulling back on ad spending. And we've seen the impact of that. As we look forward, I would definitely say That local looks better than national certainly for Q3. Q4 could be a little bit of a toss-up. Again, I have some expectation that we're going to see some campaigns Come off the sidelines, but it is a very inexact thing to forecast exactly how the advertising is going to go.

Speaker 2

So that's local, national. On airports, we are still benefiting from the build out of the New York contract. We had Newark come online this year. LaGuardia came online sort of second half of last Here parts of LaGuardia. LaGuardia has been coming online for a while.

Speaker 2

So those are some of the things driving the strength in it. I think obviously the air travel is driving the strength and there are a lot of advertisers interested in that real premium audience that's very, very active this summer. Brian, you want

Speaker 3

to take the abatement question? Sure. Steve, I know we had some airport abatements in the second half of last year. I can't Exactly. Remember the timing.

Speaker 3

I think we disclosed when that is. And we should expect a reduction as we kind of lapse Those rent abatements, so it could lead to a tough comp. Really the only thing I'd say encountered to that is airports In Americas is the one place where we are continuing to seek some relief and don't know if and when that will come through, but that could be an offset. I wish I could be more specific, but that's probably about as much detail as I can give you to help with your model. So hopefully it's something to work with.

Speaker 6

That's helpful. And maybe just a quick follow-up on Europe. I mean, so you've got a lot of Europe South done now, All of Europe South done now. I think Europe North, which you said is both kind of a better business and maybe also is the print hub for A lot of Europe. So I'm wondering if there's any benefit to revenue or EBITDA as a supplier the divested European South and kind of more strategically, how do you think about Europe North in terms of keeping it in the portfolio versus Strategic alternatives for it?

Speaker 6

Thank

Speaker 2

you. Well, the strategic review is definitely ongoing. You're right. Europe North is where a fair bit of our corporate team ultimately sits. Although there is a fair bit of corporate distributed around the countries, obviously, a lot of the budgets around a lot of the countries have their own corporate overhead.

Speaker 2

You need to have a country lead, you have technology in the country, there's certain financial and legal and other sorts of overhead that would be in the countries. But I think you should just think of our processes ongoing. We've been very clear that we're a long term exeter of Europe. We think that that's an important part of our REIT conversion ultimate plan. And there's nothing the thing I would really emphasize of what we've accomplished so far is we've done some of the toughest deal making To create the ability to have a much de risked European platform, I think that's how I'd characterize it, Steve.

Speaker 3

And Steve, just to add on kind of the expense side, keep in mind that while we have these countries, in a couple of cases, Switzerland, Italy sold and the other cases, Agreements or movement toward an agreement. We still got to manage these businesses. For example, Spain actually won't close till 2024. So We've tried to provide some guidance on corporate expense reduction after the process is complete, But it will there's a lag in achieving those. Obviously, we'll continue to reduce costs if and when we can, but we've also Got to do it at the right time as these businesses are either still operating or maybe there's a service agreement in place for a period of time.

Speaker 3

Thank you.

Operator

Our next question comes from Richard Choe from JPMorgan. Richard, your line is now open. Please proceed.

Speaker 7

Hi. I just wanted to follow-up a little bit on, I guess the airports, has international travel supported the strength there or is it just the build outs that Are continuing to help. And then I have a few follow-up.

Speaker 2

Yes, Richard, international travel Certainly has contributed. It's hard to isolate probably the way we most International travel, I think back to when COVID came on the scene and international travel stopped. Certain individual airports like a JFK or like San Francisco or like Atlanta in our portfolio, Chicago, in our portfolio, those airports all suffered a lot, with both international and business travel Shutting down during COVID and they've definitely helped as things have rebounded. But it's difficult to isolate Specific to international travel beyond kind of the airports that have a good exposure to it. And we definitely have That's been supporting of the broader thesis people have had in buying airport inventory.

Speaker 7

Got it. And then on the digital side, continues to be strong. How much of that is from the build outs Versus strength in the business and are you seeing any weakness there? And is there Potential to have less or is there less visibility there? So is that a bigger question mark?

Speaker 2

Yes. I mean, you have digital playing a role in every element of our business. So if I think about The European business, digital continues to be strong and it's a central part of the trading there. In airports, a lot of the inventory that we're building is digital, as these airports Modernized and everything like that. And so it's those are the 2 Europe and airports Are aware the proportion of digital revenue has been growing the strongest.

Speaker 2

I suspect the root of your question is the U. S. Digital business, a lot of our investors are very interested in that. And it grew, but not that robustly. And I think it is Because it is the kind of late booking part of our portfolio, it can be the most volatile part of our portfolio.

Speaker 2

And when we get A little bit of pauses in demand or where the spot market isn't as rich as it is usually, You see that down, but I think we continue to be very bullish on doing the digital conversions, But it is something we watch very closely. Does that get to the root of your question?

Speaker 7

Yes. I left it a little open ended just to kind of see where you could give us a little more color on strength and maybe trends just because It is obviously a large part of all your businesses. But just to follow-up lastly on the national softness And the overall environment, I guess you're characterizing it more as a pause and not cancellations. And is that the best way that we should Be approaching the rest of the year at this point, or is it a little bit worse than that or different than that?

Speaker 2

So it's a really hard question to give you a really hard a really firm answer on exactly Is it a pause or is it not? The behavior certainly, If you think about the year, January February were rough. And then things really got on a very steady state Of improvement and actually really strength by the time you're talking about sort of May. And then June, it just wasn't as good. When you think about this business, so much of the concern, it's interesting, the As we've tried to be very transparent about this that we haven't been seeing cancellation activity and cancellation activity is what usually is the precursor So you know real downturns in our business and we're not seeing that and we have continued to not see that.

Speaker 2

What we have seen is a lot of campaigns Getting planned and then people saying, oh, we'll launch that in August, we'll launch that in September. And so we're in a little bit of that holding pattern right now. And it's very hard to generalize and know exactly how that takes off. But if you think about our business, We always have the load that we get from the upfront that gives us a sense of where we are kind of year on year with pretty good visibility. And then we're working on trading in the spot market and that's where that digital stuff really comes into play.

Speaker 2

And the spot market in June And into July, it actually got somewhat better as July progressed. That's what's behind our guide. I mean, obviously, we do our guide at the very last minute before we have to do the earnings calls. And so I'd characterize it as it's behaving the way that we think it's going to behave, but Marketers are an unpredictable bunch and it's hard to know exactly how it will all land.

Speaker 7

No, that's very helpful. Thank you.

Operator

Our next question comes from Avi Steiner from JPMorgan. Avi, your line is now open. Please go ahead.

Speaker 8

Thank you. Good morning. A couple here. Just first on free cash flow, a little bit higher than I was looking for. I think I understand Cash interest and CapEx, I'm just wondering if there's anything else we should be thinking through for the back half of the year, whether Working capital or anything else on that, I've got a follow-up.

Speaker 8

Thank you.

Speaker 3

Yes. You've mentioned the big drivers Interest expense and investment in the business through CapEx even though we reigned it in a little bit this quarter. I think on the working capital side, there was a big AR builds, it's seasonal. And so I think those patterns will continue going forward Quarter to quarter, but it was a big number this quarter and so that may be kind of The difference. And so I would characterize kind of those 3 items impacting free cash flow in the overall backdrop A little soft quarter than we had hoped for.

Speaker 8

Appreciate that. And then, Scott, a couple for you, if I could. The strategic review language, maybe it's just me, but looks have changed a little bit From prior releases to read that as well as Europe's maybe Europe maybe, but you are evaluating a range of other strategic opportunities to enhance value. I don't know if possible, but to the extent possible, perhaps you can elaborate on that. And then I've got one last one.

Speaker 8

Thank you.

Speaker 2

Yes, Avi, I mean, I think we are always striving to be as disclosive and transparent as we can be. But you may be reading a little more into that one than merits. But We've been pretty clear, I think. I guess I'd go back to first principles on this one that we ultimately see this as a U. S.

Speaker 2

Focused business. And we have assets in various parts of the world that are not the U. S. And I think strategically we're considering the right time and the right opportunity for Making those divestitures as it makes sense, but I don't know that there was anything intentional in our write up on that. I don't know, Brian, if Other

Speaker 3

than we always keep an open mind and look at all alternatives, but nothing specific.

Speaker 8

Fair enough. And let me ask one last question if I can and I appreciate the time as always. I know the moderating outlook, ad outlook is temporal in nature. But maybe given the lower equity valuations of at least one of your REIT peers, I'm wondering if your thoughts about potentially driving towards a REIT Conversion, which you had mentioned earlier, might have changed at all. And if there are any other options that might be attractive to the company.

Speaker 2

Yes, Avi, it's a great question. I think our view on REIT Is driven by the benefits that REIT status ultimately give for those benefits to work Maximally, you have to have the right capital structure associated with it. So I think if there's anything I'd characterize is that this Just redoubles our commitment that we need to get our balance sheet in the right place before we pull the trigger on becoming a REIT. I don't know, Brian, if you

Speaker 3

would Add anything to that? I think that's exactly right, Scott.

Speaker 6

Thank you all.

Speaker 9

Thanks,

Operator

Our next question comes from Jonathan Navarat from TD Cowen. Jonathan, your line is now open. Please go ahead.

Speaker 9

Hey, good morning. Thanks for taking my call. The first one is on regarding airports. So could you speak a little bit about when did volumes start picking up, was it like maybe towards the end of May? And has that Type of volume continued or has this increased even?

Speaker 9

And the follow-up to that is, with airports, are you seeing any Indication that the bonds will continue to pick up into the Q4? Or how should do you have any insight into the Q4 as of now?

Speaker 2

Sure. Thanks, Jonathan. We spent a lot of time in our Q1 call trying to Blaine, what happened in airports and I think that I'll just reiterate it just to be clear. We had a very large campaign move from Q1 to later in the year. And Part of what you're seeing in the strength in Q2 and in our outlook is the benefit of that campaign running through.

Speaker 2

And that had dropped late enough that decision had dropped late enough that we were not able to backfill because it was a very substantial contract. And so you're seeing that play out. Airports has a relatively long lead time going into it. It Varies by location, it varies by campaign, but people tend to plan fairly well in advance and buy fairly well in advance. And so the guide that we are sharing with you reflects our up to the minute view of that.

Speaker 2

And We will see the tailwind of LaGuardia coming online abate as the year goes. And as we get into 2024, the tailwind from Newark coming online will abate. There is still more Build out activity and things like that and we'll have the normal puts and takes on contracts, but the New York airports really do You know, exercise a differential impact. And, you know, what the guide that we provide is what we feel very good about As of today.

Speaker 9

Okay. Follow-up is on just on Latin America. In terms of timing and investment this asset, how are you thinking about that? Or would you prefer To complete the Europe strategic review first and then focus on Latin America.

Speaker 2

I think we are, as Brian said, always looking at The market and always looking at where the opportunity is, while there'd be some overlap in the resources we'd need to run a process, It wouldn't be 100%. So it's not impossible for us to do that. But I think we need Work the timing on that as the market conditions put us in position for that to make sense. I think that's how I'd characterize it.

Speaker 9

Okay. And the last one, and again, perhaps I am reading Too much into the language in the release, but when you guys describe to Spain, Italy to You guys described it as SL, right? Whereas for the French business, you guys used the word the best. So I'm just wondering like Can this be code for like we're not expecting any proceeds for the France business or am I reading too much into it?

Speaker 2

I think it's code for we're not done because we are in the midst of The Works Council review, we're not done with the process, but I think we have been clear that our expectation is It would be a closure in Q4, presuming that that works council process goes well. And I think We have to honor that process. And so there's we're not really able to give a lot of detail on the terms at this point.

Speaker 9

Okay. Thank you. Thank you.

Operator

Our next question comes from Jim Gloss from Barrington Research. Jim, your line is now open. Please proceed.

Speaker 4

Thank you. And I was curious to the extent that Clear Channel would like to be a U. S. Focused operation, But the Northern European operations are doing fairly well. Is there any potential consideration of spinning that off as a separate company Rather than selling them individually, and I do have a couple of others.

Speaker 2

Sure, Jim. I mean, I think when we talk about a strategic review, implicit in that is that we're going to look for the highest and best use for Any asset that we're thinking about separating from, that is not that's not A structuring thing or an avenue that I'm in any position to speculate on right now, but As we highlighted in their LTM Financials, this is a business that is a business that can sustain itself or we believe can sustain itself. And that would be a possible avenue if that seemed like that was the value maximizing Avenue, but I can't really comment on it beyond that.

Speaker 4

Okay. And one other thing is you mentioned Belgium, UK and Denmark We're doing reasonably well, but Sweden and Norway, we're having more challenges. And I'm wondering what would What would be distinguishing factors between those markets? Are there specific market by market issues? Or is there something broader And that we might look at.

Speaker 2

Justin, do you want to comment on that one?

Speaker 10

Yes. I think the simplest way to think about it is the only difference in those markets maybe is we've got a higher degree of transit and transit took longer So bounce back from COVID. So I think in those markets, you saw a bigger bounce back in the middle of 2022. So on a comparative basis, they've got a harder comparative than other markets I don't think there's anything else particularly that distinguishes them. It's probably more just a function of timing.

Speaker 4

Okay. And one last thing. You also mentioned that you felt you're strengthening digital capabilities. We're helping potentially, including planning and measurement, we're helping broaden the range of Advertisers you can serve. And I wonder if you might talk a little bit more about that.

Speaker 4

What types of additional advertising Advertisers you might be able to access, whether it might change your national and local mix to any great extent. And I guess that's the

Speaker 2

only answer. It's a great question, Jim, and it gets to the root of what We're working on in the U. S. Of becoming a more modern medium. I think there's a couple of avenues Stuart, I think first off, we've called out that we're seeing growth in Pharma And that is directly related to analytic capabilities that we have developed and that We have demonstrated the efficacy of we've been working with that vertical for some time.

Speaker 2

Now is when we're talking about it because we're in the midst of renewals with a key partner and Seeing the results kind of compound and that's a direct result of the kind of analytics. I think Related to that, the CPG category is a phenomenal advertiser globally, But not very good in the U. S. And part of the reason in the U. S.

Speaker 2

Is the lack of data. Part of the reason is that the assets Not as close to point of sale as like street furniture is, but you've got advertisers that spend Meaningfully in out of home in Europe or Latin America that do not spend in the U. S. That we have seen some traction, with the data that we've got. And then I think the final piece is We really do perceive opportunity in the digital first advertisers and there's a lot of them.

Speaker 2

And you saw our announcement on data clean rooms. That is something that we think is going to pay real dividends for us Over the medium term because it enables us to be in dialogue and in partnership With companies that frankly don't use traditional media hardly at all. And so it's all three of those areas that we're seeing opportunity in. Marketers do move fairly slowly. And so the way that it works typically is You do test budgets, you go through a cycle that might take 6 months, 9 months, and that's Setting aside whatever it took you to sell in the idea to begin with, which is not a short sale.

Speaker 2

And then once you've had the test, You start to get the renewals and you start to get the upsizing of the budgets. And so this is a compounding process. It's not a fast process, But it's something we very much believe is, a key to the future of this industry and, we're aiming to be at the forefront of it. So hopefully that gives you some more color.

Speaker 4

It does. And it sounds like if you're discussing pharma and CPG That would tend to tilt a little more toward national, if that's a fair assumption.

Speaker 2

Yes, I think certainly Pharma, at CPG, yes, I mean, there are knock ons. Some CPG budgets get activated locally and that ends up Looking more like local spend, so that's a little less one for 1. But yes, on the margin, you're probably right that it probably is a little bit more national. I don't think in the kind of planning horizon, I don't think that that will dramatically change our sort of sixty-forty split We're also doing a lot of things to develop in our local business, different sales force tactics, using inside sales, various things like that. So We're striving to drive growth across our portfolio of customers.

Operator

We currently have no further questions. So I would like to hand over the call back to Scott Wells for closing remarks. Please go ahead.

Speaker 2

Great. Thank you, Bruno, and thank you for all of our questions. I'll just leave you with three thoughts. This is a time There's a little bit of a pause in the marketplace and it's not entirely clear of where the market is going to go, But this business remains a very good business with attractive economics and it's a business that we are in the midst, which is our second thought. We are in the midst of derisking it and we're making material progress on that, which should be something that pays real dividends over time.

Speaker 2

And look, we're an LBO publicly. And LBOs typically are private, and they get to do a lot of things behind the scenes That are hard things that are hard to talk about until they're done. But when you have them done, you're really glad that they're done. We are striving to be as transparent as we can be, but these are some of these transactions are pretty difficult. So We're striving to be transparent.

Speaker 2

We think we're making great progress and this business remains a good business. So thank you for your interest in us And we'll look forward to catching up and giving updates as we continue to make progress. Take care.

Operator

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines. Thank you.

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Key Takeaways

  • Consolidated Q2 revenue was $636 million, in line with guidance and up 3.5% ex-FX and divestitures, led by digital which accounted for 40.8% of revenue (+7.3% yoy).
  • Americas segment revenue rose 0.9% to $288 million, driven by local ad growth and new Pharma clients, while national sales softened and San Francisco remained weak.
  • Airports revenue jumped 16.3% to $71 million with digital up 31.6%, benefiting from the post-COVID travel rebound and new installations at key airports like Newark and LaGuardia.
  • Clear Channel closed its Italy sale, expects Spain to close in 2024 and is in exclusive talks for France, aiming to generate ~ $175 million in proceeds to reduce European volatility and boost cash flow.
  • New partnerships will integrate its radar data platform with leading data clean rooms, enabling secure first-party data targeting to attract digital-only brands.
AI Generated. May Contain Errors.
Earnings Conference Call
Clear Channel Outdoor Q2 2023
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