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Presentation

Eileen McLaughlin: Good morning, and thank you for joining our call. On the call today are Scott Wells, our CEO, and Brian Coleman, our CFO. Scott and Brian will provide an overview of the 2023 first quarter operating performance of Clear Channel Outdoor Holdings, Inc. and Clear Channel International BV. We recommend you download the earnings conference call investor 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 UK and Europe, will participate in 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 performance 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 our earnings release and the earnings conference call investor presentation. Also, please note that the information provided on this call speaks only to management’s views as of today, May 9, 2023, 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 today’s call. Our solid first quarter consolidated results reflect continued strong execution by our team, combined with overall healthy demand from advertisers, particularly for our digital assets. We delivered consolidated revenue of $561 million, excluding movements in foreign exchange rates, in line with our guidance and up approximately 6.6% as compared to the prior year period. The trends we saw in the fourth quarter largely continued into the new year, with the out-of-home industry demonstrating resilience. Advertisers are looking to tap into our growing audiences, while recognizing the benefits stemming from our industry’s embrace of digital technology.

I’d like to call out our team for their focus and contributions as we continue to progress in leveraging the scale of our platform and technology strategy to make our solutions more data driven, easier to buy and faster to launch. We believe these efforts, combined with the breadth of our footprint, have strengthened our ability to drive business even as parts of our business come under pressure as we engage with a greater and more diverse pool of advertisers. During the quarter, we saw some weakness in revenue within the US due to a few specific issues impacting certain national accounts. These include accounts doing layoffs, select categories like crypto and emerging tech, and select markets like San Francisco and Chicago rather than broad macro events.

Regardless, we are dissatisfied with the results in the US and believe that we can improve as the year develops. Part of what gives us this belief is the good progress we’ve made in building our presence in the CPG arena, as well as in the pharma category where we have room to grow in the America segment. Business services, QSR and amusements are all categories that remain notably strong as well. Further, in Europe North, we continue to experience healthy demand for our digital assets and our programmatic platform. Digital revenue accounted for 51% of Europe North’s revenue and grew 16% compared to the first quarter of last year, excluding movements in foreign exchange rates. So we believe we are benefiting from a more stable and attractive business platform as we integrate the right kinds of digital technologies into how we operate and serve our customers.

During the first quarter, digital accounted for 38% of our consolidated revenue and rose 9.7% compared to the first quarter of last year, excluding movements in foreign exchange rates. As we execute our operating strategy, we are also continuing to evaluate paths that we believe will enable us to enhance our balance sheet and maximize the value inherent in our business. We recently completed the divestiture of our business in Switzerland, generating $94 million in gross proceeds and we plan to use the net proceeds from this transaction to improve our liquidity position. Additionally, we continue to review our low margin and our low priority European businesses. Turning to our outlook, as I mentioned, we are not seeing signs of broad macro-related pullback in our industry, and advertising demand remains healthy.

However, at the country level, growth rates are expected to vary as the year develops. In our America segment, dialogues with advertisers remain positive, and we are encouraged by the trends we’re seeing which bodes well for the rest of the year. Thus far, the second quarter revenue is looking better than the first quarter in terms of year-over-year growth, and we anticipate the third and fourth quarters will perform better as well. We also believe airports revenue should rebound strongly from Q1 and perform well for the rest of the year and beyond. In addition to the rebound in leisure travel, business travel continues to recover. And a recent study we conducted confirms that frequent fliers are highly engaged with our advertising platforms.

We’re providing brands with a very effective and efficient channel to influence these coveted audiences as they travel. In Europe, we’re also continuing to see healthy demand across the majority of our markets, with no indication of a slowdown due to macro concerns. Europe North, which turned in a strong revenue performance in Q1, reflecting continued strength in certain markets, as well as a post COVID rebound in our transit business is expected to have tougher comps and, therefore, a slower growth rate in Q2. And Europe South, which also delivered a solid top line revenue performance in Q1, is expected to have tougher comps due in large part to the sale of Switzerland, as well as the business trends normalizing in the unrest in France. Taken together, despite the slow start to the year in the US, overall, we’re encouraged by what we’re seeing at this point, particularly given the macro uncertainties.

Our full year guidance remains within the range we provided in February, with the exception of adjusting for the sale of Switzerland and reducing capital expenditures. As we execute our plan, we’re keeping a close eye on trends across our markets and remain optimistic about our business. Brian will provide our guidance for both the second quarter and the full year. And with that, let me now turn it over to Brian.

Brian Coleman: Thank you, Scott. Good morning, everyone. And thank you for joining our call. Please turn to slide 5. As Scott mentioned, our first quarter results are in line with our guidance and we remain optimistic regarding our outlook for the balance of the year. 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. 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 EBITDA. And the amounts I refer to are for the first quarter of 2023 and the percent changes are first quarter 2023 compared to first quarter of 2022, unless otherwise noted.

Additionally, the sale of our Switzerland business was concluded on March 31, 2023, and is included in our first quarter operating results, but will not be included in our results going forward. Lastly, as we mentioned during our fourth quarter earnings call, we expanded the segments and our reported results. We now have four reportable segments, America has been separated into America and Airports. Europe is now Europe North and Europe South, with Singapore included in Other, along with Latin America. This is the first quarter we will provide the quarterly results with the new segment reporting. We have added a new feature to our investor website under the Financials tab, called the Interactive Analyst Center. You can find our reported results for fiscal years 2019 through 2022 and 2022 quarterly results based on the new reporting segments on this site, as well as in our filings with the SEC.

Now, on to the first quarter reported results. Consolidated revenue for the quarter was $545 million, a 3.8% increase. Excluding movements in foreign exchange rates, consolidated revenue was up 6.6% to $561 million, at the high end of our consolidated revenue guidance of $540 million to $565 million. Net loss was $35 million, an improvement over the prior year’s net loss of $90 million. Adjusted EBITDA was $52 million, down 20.6%. Excluding movements in foreign exchange rates, adjusted EBITDA was $51 million, down 22.3%. The decline reflects the impact of increases in fixed site lease expense due to various factors, including new contracts, lower abatements, and the renegotiation of a large existing site lease contract as well as revenue mix.

AFFO was negative $57 million in the first quarter and negative $58 million excluding movements in foreign exchange rates. On the slide 6 are America segment first quarter results. America revenue was $236 million, down 1.3%, reflecting a pullback in media and addition to telco and banking. However, as Scott mentioned, we continue to broaden our customer base as we leverage our investments in technology. And these efforts partially offset the overall impact of the aforementioned category-specific reductions on our overall America performance during the quarter. Digital revenue, which accounted for 33.1% of America revenue, was up 3.6% to $78 million. However, this increase was more than offset by declines in printed formats. National sales, which accounted for 33.1% of America revenue, were down 8.7%, primarily due to tough comps.

Local sales accounted for 66.9% of America revenue, and continued to deliver growth up 2.7%. Direct operating and SG&A expenses were up 11.1% to $155 million. The increase is primarily due to a 13.3% increase in site lease expense to $83 million, driven by new and amended contracts and lower renovations. Higher credit loss expense was driven by specific reserves for certain customers, and in our view is not an indication of a broader weakness. In addition, higher compensation costs were driven by increased headcount. Segment adjusted EBITDA was $81 million, down 19%, with segment adjusted EBITDA margin of 34.5%, down from Q1 2022. Adjusting for the renegotiation of a large existing site lease contract we called out on our previous earnings call, margins would be close to pre-COVID levels.

Please turn to slide 7 for a review of the first quarter results for Airports. Airports revenue was $54 million, down 3.7%. The decline in revenue was driven primarily by the timing of specific campaign spending. Digital revenue, which accounted for 55% of Airport revenue, was down 3.3% to $30 million. National sales, which accounted for 60.1% of Airport revenue, were up 4.9%. Local sales accounted for 39.9% of Airports revenue and were down 14.4%. Direct operating and SG&A expenses were up 3.4% to $48 million. The increase was primarily due to a 4.7% increase in site lease expense to $36 million, due in part to a normalization of airport payment terms. Segment adjusted EBITDA was $6 million, down 36.9%, with segment adjusted EBITDA margin of 11.6%.

Next, please turn to slide 8 for a review of our performance in Europe North. 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 14.9% to $140 million. Revenue was up across all products and in all countries, most notably Belgium, Sweden, and the United Kingdom, driven by increased demand in new contracts. Digital accounted for 51.1% of Europe North total revenue and was up 16.1% to $71.6 million, driven by growth in most countries, with the largest increase in the UK. Europe North direct operating and SG&A expenses were up 15% to $133 million. Site lease expense was up 13.6% to $62 million, mainly driven by higher revenue and new contracts.

In addition, a mix of other operating expenses increased in the quarter due in part to higher prices and increased sales activity. Europe North segment adjusted EBITDA was up 11.1% to $8 million and the segment adjusted EBITDA margin was 5.5%, in line with the prior year. Now on to slide 9 for our performance in Europe South. Europe South segment revenue increased 25% to $112 million. As this segment has continued to recover from the adverse effects of COVID-19, we have seen increases in revenue, driven by increased demand across all of our products, most notably street furniture and in all of the countries in which we operate. Digital accounted for 20.3% of Europe South total revenue and was up 35.3% to $23 million, driven by increases in all countries, with the largest growth in Spain.

Europe South direct operating and SG&A expenses were up 12.8% to $125 million. Site lease expense was up 13.2% to $58 million, mainly driven by new contracts and higher revenue in addition to other operating costs. Europe South segment adjusted EBITDA was a negative $13 million, an improvement over the prior year’s negative $22 million. Moving on to CCI B.V. on slide 10. Clear Channel International B.V., referred to as CCI B.V., is an indirect, wholly owned subsidiary of the company and the issuer of our 6.625% senior secured notes to 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 in the fourth quarter of 2022, is included in Other. CCI B.V. revenue increased 11.7% to $242 million from $217 million.

Excluding movements in FX, CCI B.V. revenue increased 18.8%, driven by increased demand and, to a lesser extent, new contracts. Singapore represented less than 3% of CCI B.V. revenue for the three months ended March 31, 2023. CCI B.V. operating income was $66 million compared to operating loss of $48 million in the same period of 2022, with the change primarily driven by a $96 million gain on the sale of our business in Switzerland. Now moving to slide 11 and a review of capital expenditures. CapEx totaled $38 million in the first quarter, an increase of $3 million over the prior year. We increased spending in America, Airports and Europe North largely related to digital investments. CapEx spend in Europe South declined due to decreased investment in France and Spain, largely related to street furniture assets.

Now on to slide 12. During the first quarter, cash and cash equivalents increased $53 million. The improvement was in part due to the cash proceeds received from the sale of Switzerland, adjusted EBITDA contribution and lower working capital use, partially offset by higher cash interest and capital investments. Our liquidity was $545 million as of March 31, 2023, up $44 million compared to liquidity at the end of the fourth quarter due to the increase in cash partially offset by the seasonality in our borrowing base. Our debt was $5.6 billion as of March 31, 2023, basically flat with December 31. Cash paid for interest on the debt was $72 million during the first quarter, an increase compared to the same period in the prior year, primarily due to higher interest rates on our term loan facility.

Our weighted average cost of debt was 7.2%, a slight increase compared to the weighted average cost of debt as of December 31, 2022 due to the increase in floating rates. As of March 31, 2023, our first lien leverage ratio was 5.25 times, a slight increase as compared to December 31, 2022. The credit agreement covenant threshold is 7.1 times. Moving on to slide 13 and our guidance for the second quarter and the full year 2023. At this point in time, we believe our consolidated revenue will be between $635 million and $660 million in Q2 of 2023, excluding movements in foreign exchange rates. We have updated our full year guidance to adjust for the sale of Switzerland. Excluding that change, our guidance remains within the range we provided in February, with the exception of a lower projection for CapEx spend.

We expect revenue to be between $2.5 billion and $2.625 billion, with adjusted EBITDA between $525 million and $585 million, both excluding movements in foreign exchange rates. AFFO guidance to $65 million to $115 million excluding movements in foreign exchange rates, down from fiscal year 2022 due primarily to increased interest expense. Capital expenditures are expected to be in the range of $165 million and $185 million, with the continued focus on investing in our digital footprint in the US. Additionally, our cash interest payment obligations for 2023 are expected to be approximately $414 million, 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.

And now let me turn the call back over to Scott for his closing remarks.

Scott Wells: Thanks, Brian. Looking ahead, we continue to expect a positive year for our business, and we remain well on track with regards to the annual guidance, as Brian noted. On the operating side, we remain focused on improving execution, investing in our digital transformation and continuously improving the customer experience. At the same time, we remain committed to enhancing our balance sheet, including taking steps to support the cash generation of our business and ultimately reduce our debt. Before going to Q&A, I want to highlight our new Clear Channel Outdoor website on slide 14. This site is designed to be a strong lead funnel for our sales teams. As well, the enhanced user experience makes it easy for visitors to find the valuable information they’re looking for from CCOA.

The site highlights our new branding, visually shows the power of our medium, and tells users how they can get more by working with us versus other media companies. I encourage you to log on and experience the site. And now, let me turn the call over to the operator for the Q&A session. And Justin Cochrane will join us on the call.

Operator: [Operator Instructions]. First question today comes from Richard Choe from J.P. Morgan.

Operator: Our next question comes from Avi Steiner from J.P. Morgan.

Operator: Our next question comes from Steven Cahall from Wells Fargo.

Operator: Our next question comes from Cameron McVeigh from Morgan Stanley.

Operator: Our next question comes from Aaron Watts with Deutsche Bank.

Operator: Our next question comes from Jim Goss with Barrington Research.

Operator: Our next question comes from Lance Vitanza with TD Cowen.

Operator: This concludes our Q&A. I’ll now hand back to Scott Wells, CEO, for any final remarks.

Scott Wells: All right. Thank you very much. And thank you all for the questions. Look, as we look out at the year, we feel good about where our business is headed. We feel good about our ability to bring in revenue and to drive growth over the course of the year. And as we look forward, we’re hoping that we will be in a position to provide some updates on our European process in the coming quarters, and we appreciate everyone’s engagement, but the bottom line is that we look forward and we feel good about our business. Have a great day, everyone.