Clear Channel Outdoor Q1 2025 Earnings Call Transcript

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May 1, 2025

There are 5 speakers on the call.

Operator

a reminder, this conference is being recorded. It's now my pleasure to turn the call over to your host Eileen McLaughlin, Vice President, Investor Relations.

Operator

Eileen, please go ahead. Good morning and thank you

Speaker 1

for joining our call. On the call today are Scott Wells, our CEO and David Saylor, our CFO. Will provide an overview of the twenty twenty five first quarter operating performance of Clear Channel Outdoor Holdings Inc. We recommend you download the twenty twenty five first quarter earnings presentation located in the Financial Information section of 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.

Speaker 1

Before we begin, I'd like to remind everyone that during this call, we will make forward looking statements, including statements about the company's future financial and operational performance and the company's strategic goals, the out of home industry and the economy. All forward looking statements involve risks and uncertainties that may be out of the company's control, including the macroeconomic environment. There can be no assurance that management's expectations, beliefs or projections will be achieved or that actual results will not differ from expectations. 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.

Speaker 1

We provide schedules that reconcile these non GAAP measures with our reported results on a GAAP basis as part of the earnings presentation. When reviewing our earnings presentation, it is important to note that as of 12/31/2024, we classified our Europe North segment and Latin American businesses as discontinued operations for all periods presented. The twenty twenty five first quarter discontinued operations include sold businesses up until their sale date 02/05/2025 for Mexico, Chile and Peru and 03/31/2025 for Europe North. Additionally, the business in Spain was classified as discontinued operations in 2023. The consolidated results include the America and Airport segments and Singapore.

Speaker 1

Also please note that the information provided on this call including guidance is based on information currently available to management and speaks only to management's views as of today 05/01/2025 and may no longer be accurate at the time of a replay. Please see slide four in the earnings presentation and I will now turn the call over to Scott.

Speaker 2

Good morning, everyone, and thank you for taking the time to join us today. We are excited to speak with you about our progress as a newly U. S.-focused business. As such, we're going to take a slightly different approach than we've typically taken on earnings calls and focus more on where we're going than on where we've been. We'll be happy to follow-up and drill into the past, but today we're focused on talking about the future and why we're optimistic about it.

Speaker 2

Before we get to that, we know people have a lot of questions about tariffs and the possibility of a recession. We are not macro forecasters, but I want to register several key points relevant to this question. As for recession risk, we believe we provide cost effective accountable reach to brands in a world where that is increasingly hard to find. We are also making real strides in selling direct to large advertisers partly on the back of our robust planning and attribution tools. We will provide more context on this and other initiatives at our Investor Day in September.

Speaker 2

We derisked our portfolio. If you look at the COVID downturn, an extreme example, in 2020 and 2021, our European businesses declined substantially more than The Americas declined, largely driven by France. Further, if you look at The U. S. Out of home market in prior non pandemic downturns, you see The U.

Speaker 2

S. Market's resilience clearly. For instance, in the 1991 and 02/2001 downturns in The U. S, you saw growth slow or modestly decline during the downturn only to return to growth shortly thereafter. Whatever disruption may occur, we believe our risk is greatly reduced.

Speaker 2

We have begun to meaningfully reduce interest expense. This has been both the result of the prepayment of the CCI BV term loans and our open market repurchases of bonds. Collectively, this reduces our annualized interest by $37,000,000 We expect to continue to deploy proceeds from the asset sales or other available cash on hand to reduce debt in the most advantageous way contributing to AFFO and cash flow growth as permitted under our debt agreements. As promised, we have successfully eliminated approximately $35,000,000 of annual corporate expenses and we expect we can take that further over the next couple of years. We expect to benefit notably from the recovery of San Francisco this year, our third largest market in America, where it was a substantial headwind in 2023, declining double digits and dropping from our second largest market to third, it is currently setting up to be a tailwind this year with the city cleaning itself up and reemerging as a destination.

Speaker 2

We are seeing increased interest by national advertisers there and AI is emerging as a new revenue vertical that is complementary to other tech budgets. We believe that this will likely play out to a decent degree regardless of the macro environment with bookings up double digits so far this year. Finally, this management team is battle hardened on cost takeout. We have experienced dating back to the .com bubble as well as the great financial crisis and COVID along with experience running a very leveraged company through a variety of environments. We have shown we can be agile adjusting to the environment.

Speaker 2

All that said, I'm pleased to say that at this point, we are not seeing cancellations or hearing about campaigns being scaled down. Our focus is on cash generation as measured by AFFO and we are confirming the guidance ranges for revenue and adjusted EBITDA we provided in February and increasing AFFO guidance to reflect debt repurchases. So that's why we are confident in our company. Now we'll briefly cover Q1 and go deeper into our future vision. For Q1, we delivered consolidated revenue growth of 2.2% in line with our guidance in what is always our smallest quarter.

Speaker 2

Our consolidated revenue growth was impacted by February, which had one less selling day in the Super Bowl that wasn't in one of our roadside markets. For January and March only, our Q1 revenue growth was twice that of the entire quarter. Also in Q1 and into April, we delivered. We signed and closed the sale of Mexico, Chile and Peru. We signed the sale of our Europe North segment and closed it faster than we'd even anticipated.

Speaker 2

Note that our sales to date have amounted to approximately $745,000,000 in purchase consideration. We prepaid the $375,000,000 CCIBV term loans in full. We repurchased approximately $120,000,000 in face value of bonds, resulting in a guaranteed weighted average yield of approximately 14%. We launched the sale process for our business in Spain, which continues to perform well. Dave will go into more detail on the results, but let me reiterate that the first quarter was in line with our expectations.

Speaker 2

We are confirming our guidance for the full year and we remain focused on positive cash generation period. As for the future outlook, we believe that it is bright for out of home advertising in The U. S. In general and Clear Channel in particular. Here's why.

Speaker 2

The simplification of our business is allowing us to reduce interest and corporate expenses. As those come down, we expect to be able to routinely reduce our debt, which is a priority. It is also allowing us to devote more energy to identify creative options to improve leverage using our strong operating and media assets. Since we announced our openness to pursue creative solutions last quarter, we have seen substantial interest from potential counterparties. Nothing to report here yet, but we are actively exploring options that could validate the strategic importance of our hard to replicate assets and accelerate our deleveraging efforts.

Speaker 2

As we have previously emphasized, our visibility into the year is good. We have the majority of our 2025 revenue guidance already booked and a strong pipeline in place for the balance of the year. Also over 85% of the second quarter revenue guidance is in the books. Our direct outreach efforts to target verticals are yielding fruit. This is from a combination of radar analytics and domain savvy salespeople and makes us more confident in our ability to grow these categories.

Speaker 2

In 2024, we successfully reduced customer churn due to the enhanced tools we've put in place to focus our sales effort on vulnerable spots and from conscious efforts to proactively grow our best customers. We'll share more on this at our Investor Day, but we currently believe that this is a material opportunity on top of ordinary growth efforts. AI is one of the capabilities fueling that effort and it is proving to be an asset across many parts of our business. For example, AI helped our inside sales team deliver double digit percent improvement in productivity. We are now actively deploying large language models on activities ranging from customer targeting to creative development.

Speaker 2

We believe that as these programs are implemented, they should provide tailwinds to our margins and our leading productivity in out of home. Also thinking about AI, we believe it is going to have a tendency to make many types of advertising more invasive for consumers, potentially leading to backlash. That likely means it will also be used to make ad blockers more powerful. We believe our presence in the physical world with physical context, coupled with strong insights on aggregate audience delivery should help our medium capture greater share of ad budgets. When you put all this together, the path we've been describing of positive AFFO growth coupled with targeted investment in our business leading to reduction of leverage before we explore any creative solutions makes us very excited about the future.

Speaker 2

With that, I'll hand the call over to Dave.

Speaker 3

Thanks, Scott. Please see slide five for an overview of our results. The amounts I refer to are for the first quarter of twenty twenty five and the percent changes are first quarter twenty twenty five compared to the first quarter of twenty twenty four unless otherwise noted. Consolidated revenue for the quarter was $334,000,000 a 2.2% increase which was in line with our guidance. Loss from continuing operations was $55,000,000 Adjusted EBITDA for the quarter was $79,000,000 down 12.5%, driven in part by the expected decline in our airports rate abatements and the planned ramp up in the MTA roadside billboard contract.

Speaker 3

AFFO was negative $23,000,000 within our expectations. On to slide six for the Americas segment first quarter results. America revenue was $254,000,000 up 1.8% in line with guidance. The increase was primarily driven by the MTA roadside billboard contract with digital revenue up 6.4%, local sales up 2.2% and national sales up 1% on a comparable basis. This is the sixteenth consecutive quarter local has grown year over year.

Speaker 3

Segment adjusted EBITDA was $88,000,000 down 8% as expected with a segment adjusted EBITDA margin of 34.6%, driven by the increase in site lease expense primarily related to the MTA contract and challenging revenue comps in February as Scott mentioned. Please see slide seven for a review of the first quarter results for airports. Airports revenue was $80,000,000 up 4%, also in line with guidance. The increase was driven by a 20% increase in national sales, partially offset by a 16.4% decline in local sales on a comparable basis. Digital remains an important driver and was up 15.6%.

Speaker 3

And airports did benefit from the Super Bowl, was held in New Orleans this year. Segment adjusted EBITDA was $14,000,000 down 25% with a segment adjusted EBITDA margin of 17.9%. As we have talked about before, the decline is largely attributable to lower rent abatements. Moving on to slide eight. CapEx totaled $13,000,000 in the first quarter, a 17% increase.

Speaker 3

Now on to slide nine. We ended the quarter with strong liquidity of $568,000,000 which includes $4.00 $1,000,000 of cash and $166,000,000 available under the revolvers. This includes the proceeds from the sales of our international businesses. The cash balance also reflects the prepayment of the $375,000,000 CCI BV term loans in full. It does not reflect potential proceeds from Spain or Brazil.

Speaker 3

And as Scott mentioned, we repurchased approximately $120,000,000 of bonds for approximately $100,000,000 in cash on the open market in April and we'll look to continue to capture attractive discounts going forward. We have reduced our annualized interest expense to $381,000,000 saving $37,000,000 Now on to slide 10 and our guidance for the second quarter and the full year of 2025. For the second quarter, we expect our consolidated revenue to be within $393,000,000 to $4.00 $8,000,000 representing a 4% to 8% increase over the same period in the prior year. As you can see, this is meaningful improvement over the first quarter. We expect America revenue to be within $3.00 2,000,000 to $312,000,000 and airports revenue is expected to be within 91,000,000 to 96,000,000 As Scott mentioned, we are confirming our full year guidance provided in February for revenue and adjusted EBITDA and we are increasing full year AFFO guidance to be within 80,000,000 to $90,000,000 representing an increase of 36% to 54% over the prior year and reflecting lower interest expense related to the bond repurchases we conducted in April.

Speaker 3

Additionally, we anticipate having cash interest payment obligations of $4.00 $2,000,000 in 2025 and $381,000,000 in 2026. This guidance has been updated to reflect the prepayment of the CCI BV term loans and the repurchase of bonds in April and does not assume that we repay, refinance or incur additional debt. And now, let me turn the call back to Scott.

Speaker 2

Thanks, Dave. I know we've reiterated this a couple of times, but I can't emphasize enough that Q1 came in as we expected and we have seen nothing in the marketplace to date that causes us to change our guidance for the year. This is not to say that we're ignoring the headlines and sentiment in the macro economy. We are absolutely planning for contingencies and will pivot should the facts on the ground change. We believe this is a good environment for us to gain media share and we believe our medium coupled with the sophisticated data analytics and selling work we've been pursuing is gaining traction.

Speaker 2

So we're excited about our transition into a newly U. S. Focused business and the opportunities that are emerging across our company and our industry. Our focus is on driving the performance of our higher margin U. S.

Speaker 2

Assets, including continuing to broaden our revenue streams, while reducing our corporate expenses. We expect to deliver mid single digit growth in consolidated revenue and adjusted EBITDA this year with significant compound growth in AFFO. If you take our guidance for 2025, apply a reasonable roll forward to AFFO in 2026 for interest savings from further debt reduction and growth in adjusted EBITDA and look at our current market valuation, we believe CCO is a big opportunity. We are committed to delivering on this opportunity for our shareholders. We have a very bright future and I'd like to thank our company wide team for their continued contributions to our success as we move to the next stage of our plan and pursue value creation for our investors.

Speaker 2

And now let me turn over the call to the operator.

Operator

Thank you. We'll now be conducting a question and answer session. Our first question today is coming from Cameron McVeigh from Morgan Stanley. Your line is now live.

Speaker 3

Thanks. Good morning.

Speaker 2

Good morning, Cameron.

Speaker 3

Good morning, guys. I was curious if you could touch further on maybe just your visibility levels into the back half of the year and how that might be trending on a national versus local basis? And then secondly, I wanted to ask where you're seeing further opportunities for some of these corporate expense reductions? Thanks.

Speaker 2

Thanks, Cameron. I think we aim to address the first one in our script. But what I'd tell you is this is a business that always has pretty good visibility. I mean, think we described this most quarters and we tried to dimensionalize it a little bit more given environment. The things that I would call out that are giving us a lot of confidence as the year ramps in addition to what I said in the script, which was quite a lot.

Speaker 2

I'll mention San Francisco again because we suffered with that in 2023 and I think it is going to be a real help to us this year. But it's not just San Francisco. We're seeing good progress in a lot of markets this year. And as we look across verticals, we think media and entertainment is going to be solid. We are seeing auto insurance coming back to our medium and that is a very welcome development.

Speaker 2

We continue to develop our pharma profile. And so the way I'd characterize it is that as a proportion to guidance, we're modestly ahead of where we would typically be this time of year, but not wildly so. But the pipeline is strong across a number of those fronts. And both myself and our CRO, Bob McKeown, have been talking to our largest advertisers. And while everybody is paying attention to the macro, we're feeling good about people's commitment to out of home as part of their media mix.

Speaker 2

And I think it's because of a number of the things that I mentioned in the script. So hopefully that gives you a sense. Not really going to characterize national versus local in any detail other than just to say that both are looking positive on balance of the year. In terms of opportunity for cost reduction, we are going to have transition services agreements for quite some time that are going to require us to continue to keep higher levels of a variety of services, everything from managing the financials to taxes to legal and compliance. So there's a lot of things that are going to continue as those things wind down that should be something that helps us.

Speaker 2

And then as said before, as we get to the end of those TSAs, we are aiming to have a zero based budget view that's comprehensive to everything in The U. S. So this isn't just corporate expenses. We're looking at everything that should give us some opportunity. We're not really at a point that we're ready to give a target on that.

Speaker 2

I think that's something you should expect when we're together in September at our Investor Day.

Speaker 3

Great. That's helpful. Thanks, Scott.

Operator

Thank you. Our next question today is coming from Daniel Ostlie from Wells Fargo. Your line is now live.

Speaker 3

Thank you. Good morning. Good morning. I thought the forward looking commentary was helpful and wanted to dig into that a little more. So can you speak to the typical cancellation terms you provide to advertisers?

Speaker 3

And does that differ between local and national advertisers? And then as a follow-up, does the low end of the guide contemplate any weakness from a macro slowdown? Thank you.

Speaker 2

Okay. So first off on terms, that of course is a very involved question and I'm going to give you a 50,000 foot answer on it. But our standard terms, cancellations are a sixty day notice period. That is our standard terms and that's for printed. With digital, it varies and it varies depending on whose paper you're on.

Speaker 2

But generally, in our space, there are cancellation terms that give us some decent visibility when things are shifting. And again, as I noted in the script, we're not seeing that at all in this current space. In terms of the low end of the guide, we did not attempt to give a sort of full fan of outcomes of all the possible things that could happen. The low end of our guide is based on what we're seeing right now. So we not you would have seen a much broader range of guidance if we were trying to give a full view of what might possibly happen.

Speaker 2

So hopefully that addresses that question.

Speaker 3

That's helpful. Thank you.

Operator

Thank you. Next question is coming from Avi Steiner from JPMorgan. Your line is now live.

Speaker 3

Thank you. Good morning. I've got a few questions here. Just maybe circling back on that last one. I'm curious because you did talk about past dislocations and outdoors performance.

Speaker 3

How do you think your asset base, which I think now is more digital might behave now versus those historical periods? And then I've got a few more. Thank you.

Speaker 2

Sure. I mean, think there's no question that being more digital would give us if you think if you pull the camera way back, Avi, and I know you know this, outdoor was always seen as being kind of last to go into a dislocation and first and last to come out because of the time line associated with our inventory. And with digital that window is I think a little different. I don't think we've had a normal dislocation since more than a quarter of the revenue has been digital. So the honest answer is we don't know.

Speaker 2

But I think the thing that we saw in COVID that is notable is we did see digital come down first, but it came back way faster than the printed. And particularly the automated verticals really showed or the automated customers, the ones coming through programmatically and in other automated ways, showed the closest tracking to the sort of market sentiment. And we are not at all observing anything in that space right now. I mean, thought long and hard about taking as positive a view as we did on our call, but we're doing it from a place of very strong data and a number of factors that I've enumerated in earlier answers in the script that give us that confidence.

Speaker 3

Appreciate that very much and appreciate the Q2 acceleration and the reiteration of guide. I want to approach it from maybe the expense side if I could. How should we think about site lease expenses as we roll through the year? And maybe the better question is if we can give us a flavor or sense of margin cadence as we move through the year please? Look from a site lease standpoint, I think it's everything we've been talking about in the past.

Speaker 3

If I talk about it for airports, I mean, we've mentioned this probably numerous times. We're obviously not going get the relief that we've gotten in the last several years. I mean that that fund definitely is complete. So the margins will be different for airports. I mean, we were in the 20s.

Speaker 3

I mean, I think the first quarter of last year for airports, we were close to 25% and that was really driven I was on good performance of the business, which we're still seeing for airports, which is great, but you're not going to get that extra ump from slightly relief that we've gotten from COVID. So I think it's going go back to what we've been talking about from an airport standpoint around twenty percent, which is historically higher than it was prior to COVID. So that business has really performed the top line. That business has really increased the margins in that business. So that's been really solid.

Speaker 3

And I'd also say for both segments. In the first quarter, the margins are always going to be lower. It's just the media industry. There's less ad sales in the first quarter as it is second or fourth quarter. So that's going to drive your margins as well.

Speaker 3

For America, I mean the biggest one we've talked about is really the MTA contract, which look that contract is going to be great for the business. It's just in the early stages of the contract. And we've mentioned this before that contract is going to ramp that's going help us as we get down the road. But that has a little bit of effect on our margins in the short term and especially in the first quarter. Appreciate that very much.

Speaker 3

And maybe sticking with you if I can. Two questions around the debt. Can you remind us what gave you the flexibility to buy back senior versus secured? And can you speak to why you left that debt outstanding as opposed to retiring those loans? Sure.

Speaker 3

I mean look it really comes down where we're going to get the best yield as we're looking at our capital structure. And look, with the transactions moving forward, I mean, it's great for the business to see the liquidity that we have. At the end of the first quarter, had cash on the balance sheet is $400,000,000 liquidity is in excess of $550,000,000 So when we're looking at our capital structure, we're really looking at what is the best yield, what would give us the greatest discount as we're looking at our capital structure. For me, it's just great to see that we're bringing down our debt. To pay down the BB notes with the proceeds from Europe of three seventy five million dollars And in addition to that paying down another $120,000,000 of the bonds, think is really fantastic.

Speaker 3

As far as the reason we're able to do that is really the reinvestment provisions in our debt agreements allow us an eighteen month reinvestment period to go after the debt. So that's really how that played out. Okay. One very last one if I can. I think you teased that one by saying and I'm trying to quote you here substantial interest from potential counterparties.

Speaker 3

I don't know if you can or want to frame up maybe some of the creative things you're looking at and how that might help drive valuation and help the company delever? And thank you all for the time.

Speaker 2

Thanks, Avi. Yes, I know you're curious about this one. We have been pleased with the affirmation of what we perceived to be the assets we were bringing, which is that we're a good operator with very strong assets. We've gotten validation on that by the interest that we've seen and it is just way too early to talk about any specific resulting opportunities, but we're encouraged.

Speaker 3

Thank you all.

Operator

Thank you. Next question is coming from Lance Vitanza from TD Cowen. Your line is now live.

Speaker 4

Thanks guys. At both America and Air Airport, it looks like the static and print revenues were actually down a little bit year on year. I'm wondering is that evidence that digital is to some extent cannibalizing the print revenue? Or is that the wrong conclusion? And maybe more specifically, do you expect print revenue to return to growth in either the second quarter or the second half of the year?

Speaker 4

Thanks.

Speaker 2

Hey, Lance. I think every quarter there's some variant of this question and it is just idiosyncratic. I would expect print will be a grower over the course of the full year. I think we had some campaign unique drivers in it. So I'm not at all in a place where I'm thinking print is imperiled by digital at all.

Speaker 2

They're a little bit of different use cases.

Speaker 1

Thanks.

Operator

Thank you. Next question today is coming from Aaron Watts from Deutsche Bank. Your line is now live.

Speaker 3

Hey, everyone. Thanks for having me on. Just two questions. First, a clarifier on your America growth. Curious what the impact is of the new MTA contract on the 1Q growth of 1.8% and the 2Q guidance where you're calling for four to 8% growth.

Speaker 3

Just trying to get a sense of the underlying market strength as you move from 1Q into 2Q.

Speaker 2

Great. So I think we dimensionalize the MTA as a couple of points on the full year. And I think that's a reasonable thing overall. I wouldn't draw a lot of conclusions about market strength in Q1 looking at our numbers because of the dynamics we called out in February because that was a pretty meaningful difference, the extra day last year plus the Super Bowl. So again, I think the point we were trying to make about where April or excuse me, where March and January were in the script is the more relevant

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Clear Channel Outdoor Q1 2025
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