Yahoo Finance Clear Channel Outdoor Holdings, Inc. (NYSE:CCO) Q1 2024 Earnings Call Transcript
Clear Channel Outdoor Holdings, Inc. (NYSE:CCO) Q1 2024 Earnings Call Transcript May 10, 2024
Clear Channel Outdoor Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Eileen McLaughlin: Good morning and thank you for joining our call. On the call today are Scott Wells, our CEO and David Sailer, our CFO. They will provide an overview of the 2024 first quarter operating performance of Clear Channel Outdoor Holdings, Inc., and Clear Channel International B.V. 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 Cochrane, CEO of Clear Channel U.K. and Europe, will join Scott and Dave during the Q&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. Please review the statements of risk 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, May 9, 2024, and may no longer be accurate at the time of a replay.
Please turn to Slide #4 in the earnings presentation, and I will now turn the call over to Scott.
Scott Wells: Good morning everyone, and thank you for taking the time to join us today. We delivered consolidated revenue of $478 million for the first quarter, excluding movements in foreign exchange rates, reflecting a 9.3% increase as compared to the prior year. Many of the trends we saw in the fourth quarter continued into the first quarter. These results, which were in line with our guidance, reflect record first quarter revenue for America, Airports and Europe-North excluding sold markets and movements in foreign exchange rates. We remain focused on delivering on our strategic plan, which is aimed at enhancing the profitability of our business, focusing on our higher margin U.S. assets, and integrating the right technology into our platform to strengthen our ability to serve a broader range of advertisers.
In our America segment, during the first quarter, digital continued to grow and print bounced back nicely, driven in large part by growth in our local sales channel, including secondary locations, which helped margins. Performance was broad-based across the majority of our markets. Verticals that delivered the most growth include business services, amusements and media entertainment. We continue to develop ways we can proactively bring new national brands into the sector against a backdrop of mixed inbound demand. Our national sales team continues to generate incremental revenue in both pharma and CPG. And programmatic is performing very well, delivering a double-digit increase in the first quarter, with very strong growth in the current quarter.
Supporting our efforts, we’re continuing to enhance our sales teams including attracting sales professionals directly from the key verticals we’re targeting. We believe this will have a positive impact and drive incremental revenue. Overall, we believe we’re effectively playing offense in pursuing business across a number of channels. For example, our RADAR data solutions continue to bring innovation into the out-of-home marketplace, opening doors to new advertisers and verticals, by providing previously unavailable insights to customers on how their out-of-home campaigns are performing. We are piloting a new approach where customers are starting to get weekly updates on campaign performance, initially around how Clear Channel’s media is driving visits into restaurants and stores that advertise in our markets.
Regular delivery of campaign performance data is a critical step in moving us closer to the experience that advertisers expect from digital media. We also continue to innovate around out-of-home’s impact on mobile app behaviors and how our media drives measurable performance. For example, we completed a study in Q1 for a mobile audio entertainment platform that demonstrated that consumers exposed to one brand’s ads in our airports were more likely to try the app and were more deeply engaged with the app’s content. It’s encouraging progress that reinforces the importance of leveraging data as a way of working with more digital marketers and accessing incremental budgets. Turning to Airports, our business remains robust, driven by continued strength across multiple verticals.
We’re leveraging the premium nature of our inventory to drive campaigns for major brands looking to connect with millions of travelers. We continue to invest in digital displays across our airports, including in the New York and New Jersey airports. We recently installed a mix of highly visible dynamic digital platforms that are providing us with additional premium inventory in these key high-volume locations to sell, allowing us to take greater advantage of strong demand. Europe-North is also continuing to deliver great results, with the second quarter on track, to continue the strong momentum seen in the first quarter as well as last year, with growth continuing in the largest markets, the UK, Sweden and Belgium. The momentum in the second quarter has been buoyed by advertiser commitments around the European Football Championship.
The continued strength in the business has been particularly impressive given the ongoing M&A efforts. Moving to our balance sheet, in March, we announced the refinancing of our term loan and the CCIBV notes that extended our 2025 and 2026 maturities, and created flexibility, supporting the M&A process in Europe. Dave will go through the details, but I do want to congratulate the team on successfully executing these transactions at, what we consider, favorable rates in a volatile market. With regard to our guidance, Dave will also expand on the details later but I want to highlight we are confirming our full year revenue guidance, which is expected to increase mid single-digits over last year, excluding movements in foreign exchange rates. So overall, we’re pleased with our performance.
In addition to benefiting from the overall growth of the economy, we’re seeing positive impacts on various levels from our investments in digital, in our sales teams, in our new website, and of course, in programmatic and data analytics. These initiatives all bode well for our longer term growth profile. On the M&A front, we are in negotiations on the sale of our Europe-North segment and we continue to engage with potential counterparties in LatAm. We will update the market as and when we’re able. With that, let me hand the call over to Dave. As you may know, Dave was promoted to CFO on March 1. He has made a seamless transition, and I look forward to a strong partnership with him as we move forward in executing our strategic plan.
David Sailer: Thanks, Scott. Good morning, everyone. I’ve appreciated the support all the teams have provided me as I transitioned into this new role. Please see Slide #5 for an overview of our results. As a reminder, Europe-South is included in discontinued operations. Additionally, during our discussion of GAAP results, I’ll also talk about our result excluding movements in foreign exchange rates, a non-GAAP measure. We believe this provides greater comparability when evaluating our performance. Direct operating expenses and SG&A expenses include restructuring and other costs that are excluded from adjusted EBITDA and segment adjusted EBIT. The amounts I referred to are for the first quarter of 2024 and the percent changes are first quarter 2024 compared to the first quarter of 2023, unless otherwise noted.
Now on to the first quarter reported results. Consolidated revenue for the quarter was $482 million, a 10.1% increase. Excluding movements in foreign exchange rates, consolidated revenue for the quarter was $478 million, up 9.3%. Loss from continuing operations was $89 million, an improvement as compared to the prior year. Consolidated net loss, which includes the loss from discontinued operations, was also $89 million. Adjusted EBITDA was $97 million, up 53.6%. Excluding movements in the foreign exchange rates, adjusted EBITDA was up 53%. The increase is largely driven by America and Airports. AFFO was negative $16 million in the first quarter, an improvement of 62.6%. Excluding movements in foreign exchange rates, AFFO was up 61.6%. Onto Slide #6 for the America segment for first quarter results.
America revenue was $250 million, up 5.8%, reflecting increased revenue in all regions. Billboard revenue was higher, driven by increased demand and digital deployments, with growth both in print and digital bulletins. Digital revenue, which accounted for 33.7% of America revenue, was up 7.9% to $84 million. National sales, which accounted for 34.5% of America revenue, were up 5.5%. Local sales accounted for 65.5% of America revenue, and were up 6%. Direct operating and SG&A expenses were flat, with 2023, at $155 million. Higher compensation costs largely driven by increased headcount, and pay increases, are offset by lower credit loss expense. Site lease expense was down slightly, driven by the renegotiation of an existing contract. Segment adjusted EBITDA was $95 million, up 17.3%, with a segment adjusted EBITDA margin of 38.2%, an improvement over the prior year.
The improvement in segment adjusted EBITDA margin was driven by the strong revenue performance in addition to the lower credit loss expense and favorable revenue mix. Please see Slide #7 for a review of the first quarter results for Airports. Airports revenue was $77 million, up 43%, with strong demand across the portfolio. Digital revenue, which accounted for 55.4% of airports revenue, was up 44.1% to $43 million. National sales, which accounted for 55.2% of Airports’ revenue, are up 25.5%. Local sales accounted for 44.8% of Airports’ revenue, and were up 72.8%. Direct operating and SG&A expenses were up 21.9%, to $58 million. The increase is primarily due to a 21.4% increase in site lease expense to $44 million, driven by higher revenue and an increase in compensation costs largely driven by higher sales commissions.
Segment adjusted EBITDA was $19 million, up 204.6%, with a segment adjusted EBITDA margin of 24.8%. The improvement in the segment adjusted EBITDA margin is driven in large part by the increase in revenue in the quarter. On to the Slide #8. For a review of our performance in Europe-North, my commentary on Europe-North is on results that had been adjusted to exclude movements in foreign exchange rates. Europe-North revenue increased to 5.9% to $136 million due to higher revenue in the UK, Sweden and Belgium, driven by increased demand and digital deployments, partially offset by the loss of a transit contract in Norway. Digital accounted for 52.4% of Europe-North total revenue and was up 9.1% to $71 million. Europe-North direct operating and SG&A expenses were down slightly to $121 million due to a decrease in site lease expense, which was down 5.8% to $53 million, driven by the contract loss in Norway.
This was partially offset by higher compensation costs. Europe-North segment adjusted EBITDA was up 92.5% to $14 million, and the segment adjusted EBITDA margin was 10.1%, an improvement over the prior year. The first quarter historically has the lowest segment adjusted EBITDA, resulting in margins being more sensitive to fluctuations in revenue and contract mix. Moving onto CCIBV on Slide 9, Clear Channel International B.V. or CCIBV, an indirect wholly-owned subsidiary of the company and the borrower under the CCIBV term loan facility, includes the operations of our Europe-North and Europe-South segments as well as Singapore, which is included in other. The financial results of Singapore have historically been immaterial to the results of CCIBV, and revenue and expenses for this business were further reduced in the first quarter of 2024 due to the loss of a contract.
As the current and former businesses in Europe-South segment are considered discontinued operations, the results of these businesses are reported as a separate component of consolidated results in the CCIBV consolidated statement for all periods presented and are excluded from the discussion below. CCIBV results from continuing operations for the first quarter of 2024 as compared to the same period of 2023 are as follows: CCIBV revenue increased 3.8% to $140 million from $134 million. Excluding the $3 million impact of movements in FX, CCIBV revenue increased 1.4%, as higher revenue from our Europe-North segment, as I just mentioned, was partially offset by the loss of a contract in Singapore. CCIBV’s operating loss was $7 million compared to the operating loss of $18 million in the same period of 2023.
Now moving to Slide 10 and our review of capital expenditures. CapEx totaled $24 million in the first quarter, a decrease of $9 million over the prior year due to timing of CapEx spend in both America and Airports. Now onto Slide 11. During the first quarter, cash and cash equivalents decreased by $58 million to a $193 million, primarily as a result of $127 million in cash interest payments, which included an additional $48 million in payments due to timing. Specifically, the cash paid for interest during the first quarter increased $55 million compared to the same period in the prior year. Approximately $48 million of this increase is related to the timing of interest paid early, as a result of the debt refinancing transactions in March 2024 and the payment of the first semiannual interest payment on the CCOH 9% Senior Secured Notes issued in August 2023.
The remaining increase is due to higher interest rates on the term loan facility. Our liquidity was $389 million as of March 31, 2024, down $97 million compared to liquidity at the end of the fourth quarter, due to the decline in cash and cash equivalents, as well as the decrease in the availability under the Receivables-Based Credit Facility due to lower net receivables at the end of the quarter. Our debt was $5.7 billion as of March 31, 2024, a slight increase compared to December 31, 2023, due to the refinancing in March. As Scott mentioned, we successfully executed debt transactions with favorable terms during the quarter that improved our balance sheet by deferring our near-term maturities and reducing our anticipated cash interest payments in 2024 by approximately $80 million as a result of the refinancing.
On March 18, 2024, we issued $865 million aggregate principal amount of 7.875% Senior Secured Notes due 2030, and used a portion of the proceeds there from to prepay $835 million of borrowings outstanding under our term loan facility. At the same time, we amended our Senior Secured Credit Agreement to, among other things refinance the $425 million remaining principal balance on the term loan facility and to extend its maturity date from 2026 to 2028. On March 22, 2024, CCIBV entered into a credit agreement comprising 2 tranches of term loan, totaling an aggregate principal amount of $375 million, which mature in 2027, and used the proceeds there from to redeem all of the outstanding CCIBV 6.625% Senior Secured Notes due 2025. Our weighted average cost of debt was 7.4%, a slight improvement over year-end.
As of March 31, 2024, our first lien leverage ratio was 5.38x, an improvement over year-end. The credit agreement covenant threshold is 7.1x. Now onto Slide 12 and our guidance for the second quarter and the full year 2024. 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 second quarter, we believe our consolidated revenue will be between $547 million and $572 million, representing a 3% to 8% increase over the second quarter of 2023. We expect America revenue to be between $290 million and $300 million, and Airports revenue is expected to be between $82 million and $87 million. Europe-North revenue is expected to be between $155 million and $165 million.
Moving onto our full year guidance, we are confirming the full year guidance for revenue, adjusted EBITDA and CapEx provided in February. Cash interest payments, loss from continuing operations and AFFO have been revised to reflect the recent refinancings and other updated information. We expect consolidated revenue to be between $2.2 billion and $2.26 billion, representing a 3% to 6% increase over 2023. America revenue is expected to be between $1.135 billion and $1.165 billion. Airports revenue is expected to be between $345 million and $360 million. Europe-North revenue is expected to be between $635 million and $655 million. On a consolidated basis, we expect adjusted EBITDA to be between $550 million and $585 million. AFFO guidance is $80 million to $105 million.
Capital expenditures are expected to be in the range of $130 million and $150 million with a continued focus on investing in our digital footprint in the U.S. Additionally, we anticipate having cash interest payment obligations of $436 million in 2024 and $425 million in 2025. The expected increase in cash interest payments in 2024 compared to the prior year is largely due to differences in the timing of interest payments. We expect $93 million of cash interest to be paid in the second quarter. This guidance assumes that we do not refinance or incur additional debt. And now let me turn the call back to Scott.
Scott Wells: Thanks, Dave. To recap, we’re positive about the trends we’re seeing in our business and our team’s disciplined focus on executing our plan. Our performance is broad-based across the portfolio and our outlook remains positive. In the U.S., we’re making good progress in leveraging the investments we’re making to modernize our platform and expand the range of advertisers we can serve. At the same time, we remain committed to streamlining our organization with a focus on our America and Airport segments. Summing up, with our operating progress and the refinancings, we’ve reduced exposure to rate hikes, retained optionality to hedge down or refinance as rates move down and created room for adjusted EBITDA growth by moving our maturities out.
And if you take our full year AFFO guidance and include our discretionary CapEx, we expect to be close to positive cash flow in 2024, looks like pretty good progress from our point of view. Many thanks to our company-wide team for their ongoing contributions as we pursue growth this year. And now let me turn over the call to the operator, and Justin Cochrane will join us on the call.
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