Edited Transcript of CCO.N earnings conference call or presentation 6-May-20 12:30pm GMT

Also, please note that the information provided on this call speaks only to management’s views as of today, May 6, 2020, and may no longer be accurate at the time of replay.

With that, please turn to Page 3 in the presentation, and I will now turn the call over to William Eccleshare.

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Christopher William Eccleshare, Clear Channel Outdoor Holdings, Inc. – CEO-Worldwide, President & Director [3]

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Thank you, Eileen, and good morning, everyone, and thank you for taking the time to join today’s call. I’d like to start by saying that I hope you and your families are well and safe and that you are managing to adapt to the extraordinary world in which we now find ourselves. As I assume many of you are doing, Brian, Scott and I are conducting this call remotely today, so please bear with us in case there are any technical issues during the call.

It’s been just over a year since we began executing our vision as an independent company. And I can truly say that it has been an incredibly transformative journey for Clear Channel Outdoor. The strength of our global platform, combined with our focus on the 4 key pillars of our strategy: growing the out-of-home medium; technology leadership; customer focus; opportunistic expansion, has continued to deliver the flexibility and creativity that our customers want. Our investments in technology leadership, both in our digital network and our RADAR platform continue to drive growth, particularly in our U.S. business.

However, as we all know, the spread of COVID-19 in the last few months has affected the general economic climate with an impact upon businesses in every sector, including ours. The impact in Q1 was largely on our European businesses and, of course, in China. Due to the continued global spread of the virus, including throughout the United States, we anticipate significant impact on our results throughout our business during the second quarter and for the rest of the year as more customers defer buying decisions and reduce marketing spend.

We should acknowledge though that as the situation continues to evolve, the full magnitude and duration of the downturn and its impact on our results is difficult to predict. We monitor the situation on a daily basis and flex our plans according to the latest market intelligence. We have therefore taken a number of actions to enhance liquidity, preserve our financial flexibility and support the continuity of our platform and operations, including implementing extensive cost-saving initiatives. Brian will discuss the details of our plan in greater detail shortly, but be assured the actions we are taking are extensive.

We are targeting over $100 million reduction in operating costs in Q2 and at least $25 million reduction in capital expenditures in the second quarter. Our focus is on positioning Clear Channel to manage through the economic downturn, leveraging the work we have done to transform our business over the last year as well as our ongoing initiatives to reduce costs and improve liquidity. Before going into more detail on the current environment and our response, I do want to provide some positive highlights from the first quarter.

As we indicated in an earlier press release, the Americas segment, which accounted for approximately 70% of segment adjusted EBITDA in fiscal year 2019, has delivered another strong quarter, with revenue up 8.5% and adjusted EBITDA up an exceptional 18.5% in the first quarter of 2020. This is on top of the 6.6% top line growth in the first quarter of 2019, so truly delivering on our aspiration of growth on growth. Our investments in digital continue to drive growth, accounting for approximately 1/3 of the Americas total revenue and increasing 20% in the quarter.

Additionally, as I have said, a key part of our strategy is to explore opportunistic transactions that help strengthen our balance sheet by improving our financial flexibility and enabling us to invest in the continued transformation of our business. In March, I was pleased to announce that following a strategic review of our investment in China, we reached an agreement to sell our 51% stake in the Clear Media business to a consortium called Ever Harmonic.

The successful agreement to sell Clear Media demonstrates the fundamental strength of the out-of-home medium, even during difficult market conditions and at this most challenging period in China’s recent history. We have formally accepted Ever Harmonic’s offer and expect to receive the proceeds of approximately USD 253 million later this month. We plan to use the net proceeds of approximately USD 220 million to improve our liquidity position and increase financial flexibility.

The success that we achieved prior to the COVID-19 crisis could not have been accomplished without the hard work and dedication from our teams around the globe. With that said, we are now in an entirely unprecedented environment for our business. As a global organization, our employees, customers and suppliers have been impacted by COVID-19 in every country in which we operate. Our top priority is the health and safety of our employees in the face of evolving challenges.

We have made an unequivocal commitment to make the well-being of our people, their families and their colleagues our first priority at this extraordinary time. And as we do so, our team continues to show remarkable flexibility and professionalism in adapting to the current environment. From our initial transition of employees to work from home in Italy in early March to a firm-wide global deployment by the end of March, our teams were able to make the shift seamlessly. And we’re proud that our inventory has been able to facilitate messages of support to frontline medical teams, the first responders, the delivery professionals and food service workers every day in all parts of our world as well as being used by local and state and national government to remind citizens to stay at home and how to stay safe.

Looking ahead, our strategy remains focused on growing out-of-home share of total media spend by leading the technology-driven transformation of the medium and to grow our share of total out-of-home spending by leveraging our distinctive asset base. With that said, however, we have seen a significant decline in our customers’ near-term demand given the current circumstances. The impact of COVID-19, with shelter-in-place protocols implemented around the world, is significantly affecting the behavior and movement of consumers and target audiences. The scale and speed with which near-term demand has declined and request to either defer or cancel current contracts is unprecedented.

Our sales teams are working around the clock to protect revenue and doing what they can to alleviate the short-term impact. However, there can be no question that we are going to have a challenging revenue performance in the second quarter.

Focusing first on the U.S. We started to see the downturn at the end of March. Fortunately, the quarter started off very strongly, and this mitigated the impact of the slowdown in the full quarter. As the shelter-in-place rules expanded across the United States, our team quickly built a playbook to create a process for having customer conversations in a more consistent manner while focusing on landing on a solution that fits their unique situation.

Our focus on the customer and our ability to understand the real need behind their request remains critical to our success. We’re only 1 month into the second quarter, and given the uncertainty in the marketplace, it is difficult to extrapolate the declines in April into the full quarter and the balance of the year at this time. At this point, May and June also look challenging. But it’s still too early to comment on the positive impact we may see as the markets start to reopen.

I can’t stress enough how diverse the impact has been around the U.S., which makes generalizing very difficult. From a customer group perspective, national declined more than local in April, and we’re seeing substantial declines across all product lines so far in the quarter. Our strong foundation of iconic and permed inventory alleviates some of the downward pressure, but Q2 will certainly be a challenged quarter, and we are pulling all available levers to bring costs in line with declining revenue.

Now moving to the International business. We’re seeing an even more dramatic decline in customer demand in our European markets as a result of COVID-19. This is partly due to the earlier and more severe lockdowns imposed by European governments, and also due to the nature of our city-based formats. We’ve already taken, and will continue to take, appropriate steps to ensure the continuity of our platform and operations to serve our customers as the European countries gradually reopen their businesses and lift shelter-in-place mandates.

We started seeing the downward impact across some European markets in early March, in line with when government advice on lockdowns hit markets such as Italy, France and Spain. And that downward impact continued across all European markets through April.

In France, our largest market in Europe, the lockdown was announced mid-March, resulting in a sharp downturn in advertising spend at the end of the first quarter, offsetting the revenue from the Paris street furniture contract. The lockdown has been extended to May 11, at which time France plans to progressively lift restrictions on travel and business. In April, we experienced a substantial decline in revenue in France.

In the U.K., our second largest market in Europe, the team was able to deliver another quarter of top line growth in the first quarter, driven in large part by our continuing investments in digital. However, with the country in full lockdown since the last week of March, the second quarter will be challenging. In April, the U.K. was down significantly. We expect to see some partial lifting of the lockdown by the end of May.

It is still early in the quarter, and we still don’t know when and how the market will rebound from the impact of COVID-19. Throughout our Americas and International businesses as well as at the corporate level, we are taking a highly disciplined approach in managing our use of cash through this period while preparing for the other side of this crisis. At the same time, we’re also taking the appropriate steps to help position us to effectively support advertising partners that would want to quickly take advantage of renewed opportunities for connection with their customers after lengthy shelter-in-place orders begin to relax.

Our sales teams are in active discussions with our customers to develop advertising plans as restrictions are lifted. Importantly, we believe the technology investments we have made, specifically in expanding our digital footprint globally and building out our RADAR platform in the U.S., position our businesses to meet our customers’ needs as we all move through this unprecedented economic downturn.

We are pleased that our customers continue to use RADAR as a vital tool, allowing brands to effectively plan and measure their out-of-home campaign against specific audience segments, and in particular, for certain businesses such as grocery stores or pharmacies, experience not only sustained activity but an increase in overall visitations. In particular, we are leveraging our mobility data to gain greater insight into traffic pattern when consumers start returning to public life.

And we believe the depth of our digital inventory provides the flexibility to quickly ramp up advertising campaigns and most effectively target the right audiences at the right time. It is, of course, still early, and we expect challenges as we work to better align certain aspects of our business to best serve our customers in this new environment. Above all, our team remains committed to executing our vision to deliver a leading platform in the industry, and I remain confident in the fundamental strength of out-of-home, our distinctive portfolio of digital and printed displays and Clear Channel’s ability to drive long-term value creation when the economies rebound.

Now I’d like to turn it over to Brian to discuss our first quarter 2020 financial results.

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Brian D. Coleman, Clear Channel Outdoor Holdings, Inc. – CFO & Treasurer [4]

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Thank you, William. Good morning, everyone, and thank you for joining our call this morning. As William mentioned, we have seen a significant impact to our business as a result of the shelter-in-place orders in our markets. However, we believe the initiatives we are taking will strengthen our financial position and support the continuity of our platform and operations as we work through the economic downturn.

Before discussing the details of the steps we are taking to increase liquidity and preserve financial flexibility, I do want to review our first quarter results. As William mentioned, the Americas team delivered a tremendous quarter, demonstrating the effectiveness of our strategy prior to COVID-19 and what we believe will help us manage our business now and best position Clear Channel once we are beyond this crisis.

Moving on to the results on Slide #4. As in the past, during our GAAP results discussion, I’ll also talk about our results adjusting for foreign exchange, which is a non-GAAP financial measure. We believe this improves the comparability of our results to the prior year. As I mentioned last quarter, beginning in 2020, we are transitioning to a new reporting metric, replacing OIBDAN with adjusted EBITDA, as we believe this metric is more useful to the investment community.

Additionally, we have changed our segment information to reflect changes in the way business is managed and how resources are allocated by the company’s chief operating decision maker. Effective January 1, 2020, there are 2 reportable business segments: Americas, which hasn’t changed; and Europe, which consists of operations in both Europe and Singapore. Our remaining operating segments are China and Latin America, which do not meet the quantitative thresholds to qualify as reportable segments and are disclosed as other. Of course, China will no longer be included in our results following the sale of Clear Media.

Consolidated revenue decreased 6.2% to $551 million. Adjusting for foreign exchange, it was down 4.7%. The strong performance in the Americas segment was offset by declines in both Europe and China primarily as a result of COVID-19. Consolidated net loss increased from $170 million in 2019 to $289 million in 2020. Adjusted EBITDA, excluding FX, declined 47%, with growth in Americas offset by weakness in Europe and China.

Normally, I would now take some time to discuss our Q1 results for our businesses in greater detail. However, as William spoke to earlier, the results in Q1, particularly the growth we saw in the Americas, are not reflective of what we are seeing in Q2. As such, I’m going to focus the remainder of my remarks on our current financial position as well as our efforts in Q2 to mitigate the impact of the downturn. For more detail on our Q1 results, I’ll refer you to Slides 5 through 7 of the presentation, the earnings release we issued and our 10-Q, which has been filed with the SEC today.

Now on to Slide 8 to discuss CapEx. Capital expenditures totaled $36 million in the first quarter of 2020, or $16 million in our Americas segment and $10 million in our Europe segment, primarily from constructing and sustaining our billboards, street furniture and other out-of-home advertising displays, including digital. Most of this was spent before we started seeing the impact of COVID-19 in March. The majority of other CapEx relates to our investment in China, corporate CapEx of $4 million primarily relates to equipment and software purchases.

Now on to Slide 9. Clear Channel Outdoor’s consolidated cash and cash equivalents totaled $372 million as of March 31, 2020. This balance included $69 million of cash held outside of the U.S. The cash hold by Clear Media Limited of $31 million is now included in assets classified as held for sale and not included in the consolidated cash and cash equivalents number.

Our debt was $5.2 billion, up about $150 million as a result of our drawing on the cash flow revolver at the end of March. The weighted average cost of debt was 6.4% in the first quarter of 2020, down from the prior year due to the refinancings we completed in 2019.

Cash interest payments for the debt — for debt during the quarter were $146 million. This was up as compared to the first quarter of 2019 due to the timing of payments. The company anticipates having approximately $175 million of cash interest payment obligations throughout the remainder of 2020. The springing first lien net leverage ratio is 5.37x as of March 31, 2020, below the requirement of 7.6x. However, we expect the ratio to increase during Q2, both as a result of reduced operating performance and the loss of Clear Media’s consolidated adjusted EBITDA following its sale. Consequently, the company is actively considering options with respect to additional liquidity measures and/or covenant flexibility.

Moving on to Slide 10. In light of the rapidly evolving impact of COVID-19, we have implemented a number of actions to improve our liquidity position and provide us with additional financial flexibility to manage through the economic downturn. As previously announced on March 24, we made a cautionary draw of $150 million under our revolving credit facility.

In addition, on March 30, we announced that we had entered into an agreement to irrevocably sell our stake in Clear Media. Although the sales process started well before the impact of the pandemic, we expect the net proceeds of approximately $220 million will provide us with additional liquidity to support our business during this time. On April 28, we tendered our shares to Ever Harmonic Global Limited and expect to receive the proceeds later this month.

As William discussed, we anticipate significant adverse effects on our results throughout our business during the second quarter. In response, we initiated aggressive cost-cutting initiatives focused on capital expenditures, fixed site lease expenses, compensation and discretionary spending. The team worked early and quickly to identify opportunities to delay capital expenditures with discretionary growth CapEx largely deferred.

We are renegotiating certain contracts for committed CapEx and are closely evaluating all sustaining CapEx projects for potential deferral. We believe we can reduce our planned capital expenditures for the balance of the year by more than 1/2 from our plan.

Site lease expense accounted for about 50% of our total operating expenses, and the majority of these expenses are fixed, so it was important that we immediately start working with our various landlords to align fixed site lease expenses with the revenue during the economic downturn. Our focus initially was on the minimum annual guaranteed payments, most often part of street furniture and transit contracts, but it expanded to include certain billboard contracts. These are complicated negotiations, but we are achieving success in both Europe and the U.S.

In April, we initiated temporary salary reductions at all levels of the organization, including 30% reductions for both William, our Global CEO; and Scott Wells, our Americas CEO. We have also furloughed employees based on market conditions and have initiated a hiring freeze.

We are also aggressively cutting discretionary spending. As William said earlier, our goal is to achieve operating cost savings in excess of $100 million and capital expenditure savings in excess of $25 million during the second quarter of 2020.

Finally, I want to remind everyone that the foregoing initiatives are in addition to the steps we completed last summer that extended the maturity profile of our debt and reduced cash interest payments. We believe that these initiatives as well as the net proceeds from the sale of Clear Media and cash on hand will provide us with the liquidity and the financial flexibility to enable us to meet our working capital, capital expenditure, debt service and other funding requirements for the next 12 months. However, we may take further cost-cutting measures beyond those discussed above to increase financial flexibility and generate liquidity in the event of an unanticipated need for cash.

In addition, we regularly consider and enter into discussions with our lenders related to potential financing alternatives, which may include supplemental liquidity through issuance of secured and unsecured debt or other capital raising transactions as well as, given the current environment, negotiating further financial flexibility via potential amendments to our debt agreements.

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

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Christopher William Eccleshare, Clear Channel Outdoor Holdings, Inc. – CEO-Worldwide, President & Director [5]

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Thank you, Brian. As you can see, our team have been actively responding to this crisis from an operational, financial and strategic perspective. Looking ahead, I’m confident that we’re taking the right steps to protect our global team, preserve our financial flexibility and ensure that we are in the best possible position for success when we emerge from the COVID-19 crisis.

We’re moving forward with an aggressive targeted approach to executing our short-term strategic priorities, and I’m confident that the resilience of our business and the agility of our teams that represent the company’s unique and fundamental strength. We have firm plans in place to capitalize on the gradual rebound and are actively working with brands to ramp up advertising for post-COVID campaigns. Throughout all of this, we continue to prioritize the health and safety of our employees. I look forward to providing updates regarding our progress.

Now Scott will join Brian and myself in taking your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question will come from the line of Kannan Venkateshwar with Barclays.

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Unidentified Analyst, [2]

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This is [Dave] on behalf of Kannan. I just have a couple of questions. The first one is, it seems that your filing today mentioned some material adverse change language around some liquidity issues. And I just wanted to understand if you can elaborate around how are you thinking about meeting your obligations going forward.

And the second follow-up is around the Q2 impact around top line. How should we think about this? And going forward, even if the shelter-in-place restrictions is down, there will be some social distancing for the foreseeable future, so how should we think about this recovery period for the rest of 2020 looking like?

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Brian D. Coleman, Clear Channel Outdoor Holdings, Inc. – CFO & Treasurer [3]

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I’ll tell you what, I’ll try and…

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Christopher William Eccleshare, Clear Channel Outdoor Holdings, Inc. – CEO-Worldwide, President & Director [4]

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You want to go first, and then I’ll pick up on revenue?

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Brian D. Coleman, Clear Channel Outdoor Holdings, Inc. – CFO & Treasurer [5]

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Perfect. That’s exactly what I was going to say, William. Thank you. So when I think about the language you’re referring to, I’d kind of like to first focus on — we do make a statement about how we feel about liquidity for the next 12 months, and we are comfortable that we have sufficient liquidity.

I think the cautionary language you see, while new in this filing, won’t be uncommon for companies that are impacted by COVID-19. And so it is additional language. It’s cautionary language. I don’t think it will be uncommon, but I don’t want it to replace the importance of the statement that we’ve made in our filings and also on this call that we think we’ve done the things we need to do to meet our obligations for the next 12 months, and we’ll continue to try to improve upon that. We understand the value of liquidity and we’ll do everything we can to make sure that we have it.

So I wouldn’t focus on the additional language. There’s nothing meant in terms of signaling by the inclusion of it. It’s cautionary language, and I would take it in balance with the other statements we’ve made.

William, I’ll let you talk a little bit about the second part of the question.

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Christopher William Eccleshare, Clear Channel Outdoor Holdings, Inc. – CEO-Worldwide, President & Director [6]

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Yes. Thanks. And thanks, [Dave], for the question. I mean I think as we look into Q2 and as we start to see some of the lockdowns being lifted, there clearly is a sense that our audiences are returning to the street. And therefore, our signs and our boards are getting visibility from our customers. But I think what is impossible to say at the moment is whether our audiences, whilst they are returning, whether they are going to be there in the same strength as they were immediately before lockdown. And I think we see very different situations in different parts of the world and frankly in different parts of the U.S.

So I think, Brian, who lives in Texas, will probably say things are returning to normal pretty quickly. I think if you live in New York City, you wouldn’t be saying that. Similarly, Zurich is returning to a kind of normality, London definitely isn’t. So there’s a very varied picture across the world. And whilst our audiences for our billboards and our signs are certainly returning, I think it’s going to take some time before you would say it had returned to normal. That’s one side of it.

The other side of it is whether advertisers are going to be returning to advertising spend as quickly as perhaps we would wish because there is no doubt that the damage to the global economy caused by the lockdown has been pretty significant. And again, of course, it varies market by market. But I think what I said earlier in the prepared remarks, I would just repeat, that we are monitoring this on a daily basis. We are keeping a very, very close eye on our pipeline, and we are adjusting our cost base accordingly.

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Operator [7]

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Our next question will come from the line of Avi Steiner with JPMorgan.

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Avi Steiner, JP Morgan Chase & Co, Research Division – Executive Director and Senior Analyst [8]

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I’ve got a couple here. And I apologize, I’ve been in and out because of the super busy earnings morning, and I hope you’re all staying healthy and well. With that, can you remind us of the transit versus non split in your 2 major reporting segments now? And do you think transit, and particularly airports, will perform materially worse than the traditional billboard business?

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Christopher William Eccleshare, Clear Channel Outdoor Holdings, Inc. – CEO-Worldwide, President & Director [9]

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Thanks, Avi, and thanks for the question. Brian, do you have — do we have the split of transit and nontransit by division? Do we provide detail on that?

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Brian D. Coleman, Clear Channel Outdoor Holdings, Inc. – CFO & Treasurer [10]

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There is some disclosure in the 10-K. We don’t update it in the 10-Q. So you can look and see in terms of the overall business what the split is. I think what might be helpful is if Scott talks a little bit about airports and — which is the most significant kind of nonbillboard activity in the U.S. and you can speak a little bit to the transit as a proportion of the business in general terms. But for specifics, Avi, I’d refer you back to the 10-K.

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Scott R. Wells, Clear Channel Outdoor Holdings, Inc. – Executive VP & CEO of Clear Channel Outdoor Americas [11]

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Yes. It’s Scott here. Thanks, Brian. Airports is less than 20% of the U.S. We’ve disclosed that in prior roadshow documents and things like that. As far as its performance, it has actually held up pretty resiliently. I mean you’re comparing it to a very difficult situation across all. But I would not think of airports as catastrophic relative to the challenges that we’re facing in other inventory. I think the thing you’re going to see in that business is that it will be probably the last part of our business that snaps back aggressively because of the hit on audiences. But because that is very premium inventory with a premium audience that is still moving through the airports, albeit with smaller levels than historically, it has held up reasonably well.

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Avi Steiner, JP Morgan Chase & Co, Research Division – Executive Director and Senior Analyst [12]

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That’s great. And then on the $100 million of cost cuts. And again, if you mentioned some of this detail, I apologize, but can you flesh out the sources of where that’s coming from? And maybe relatedly discuss progress with leaseholders, landlords, et cetera, and forbearance.

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Brian D. Coleman, Clear Channel Outdoor Holdings, Inc. – CFO & Treasurer [13]

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Well, I can speak to the main categories, and then I’ll turn it over to Scott and William for the color. The site lease expense is our largest cost category, over 50% of our operating expense, the majority of which is fixed. And so in order to be impactful, you have to focus on your leases. The company has done that, and we started very early in Europe because we were hit there first. And so I’ll let William and Scott talk about progress.

The next largest operating expense is human capital, compensation expense. And we’ve talked a little bit about that. So both those are significant portions of $100 million.

In addition to that, we should also talk about discretionary expenses. And in this time period, we can be very focused on certain categories, and we are. So those are 3 main buckets. They would comprise most of the $100 million.

And I think with respect to site lease, the most important one, we can provide a little extra color. I think we provide a lot of color on CapEx, so not on the expense side, but to the extent that it’s discretionary CapEx or something that can be deferred. Very focused on it. There are certain investments we’ll continue to make because they do make sense. But as you can see from the dramatic decline in capital expenditures, we’re taking it very serious.

William and Scott, did you have additional comments you want to make maybe on the site lease and the compensation expense?

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Christopher William Eccleshare, Clear Channel Outdoor Holdings, Inc. – CEO-Worldwide, President & Director [14]

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Sure. Scott, do you want to go first for Americas and then I’ll make some European comments as well?

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Scott R. Wells, Clear Channel Outdoor Holdings, Inc. – Executive VP & CEO of Clear Channel Outdoor Americas [15]

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Yes. Absolutely. Thanks, William. So we have thousands of landlords. And the process of engaging is one that you need to do kind of landlord by landlord. We can send bulk letters out to initiate the process but these are all bespoke individual negotiations. I would tell you that we are seeing good partnership with our municipal lease portfolio pretty much across the board. Because this is a government-inflicted challenge to a degree, obviously, not the virus, but the shutdowns, the governments are taking accountability for having done that and are working with us.

The private landlords’ process, they obviously are not accountable in the same way and are facing this challenge across their portfolios, and we are working with them. We are seeing success, but it is slower. And because of the distributed nature of it, that’s one of the reasons why we did salary reductions and furloughs and things along those lines that we’re able to see savings immediately on because the site lease is a much bigger part of our expenses, but there’s a lead time to getting it. But we’re seeing success really across the board, and I think we’re going to be taking substantial cost out in that area. William?

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Christopher William Eccleshare, Clear Channel Outdoor Holdings, Inc. – CEO-Worldwide, President & Director [16]

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Yes. Let me just add a couple of things, Avi, on this. I mean I think on the site lease point — and much of what Scott has said absolutely applies in the rest of our world as well. And the truth is that I think our landlords would be surprised if we were not negotiating at this stage or renegotiating at this stage. That is absolutely the expectation and the conversations that we’re having. As Scott said, across thousands of landlords across our world, those conversations are being productive and collaborative as we work across this process.

The other thing I wanted to say was the speed with which leaders across our businesses pivoted to this process of renegotiation was truly remarkable and impressive. And I think that the impact that we’ve been able to deliver in the second quarter of the target that we talked about of $100 million savings in the quarter on OpEx, I think that’s a very impressive response to this crisis.

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Avi Steiner, JP Morgan Chase & Co, Research Division – Executive Director and Senior Analyst [17]

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Appreciate those comments. I’ll end it here, and appreciate the time. Brian, you touched on the menu of additional liquidity options. I think you said secured, maybe unsecured. I want to make sure I heard that correctly. And then with LATAM and the, I guess, other segment now, and I’ve been around when it’s been everywhere at this company, should we think about that as potentially up for sale and another liquidity lever? And with that, I’ll turn it over.

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Brian D. Coleman, Clear Channel Outdoor Holdings, Inc. – CFO & Treasurer [18]

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Yes. Well, the move to Latin America to the other segment was driven really by how our chief operating decision-maker, William, manages the business and in consultation with our auditors. I think we’ve kind of realigned everything. So it’s not specifically tied to any view on our feelings toward asset monetization. That being said, I know William has spoken on prior calls about focusing on the higher-margin businesses. And I don’t think it’s any secret, our U.S. portfolio of businesses are the higher-margin businesses, our core billboard businesses, our digital billboards, very high margin. And we have expressed an openness with respect to kind of the non-higher-margin businesses.

We entered into an agreement to sell our interest in China. A lot of people have taken that comment really to mean European assets. But I would put Latin America in that bucket as well. Now again, there’s not a for sale sign up for Latin America, but we operate in 4 countries. They are successful businesses, but I would not call them core to our operations. And I would not put them in the higher margin kind of category.

So while I wouldn’t say this movement into other is an indication that we have changed our view with respect to those assets, I do think that we’ve made other statements that do indicate how we’re thinking about the high margin versus the non-high-margin businesses, if that is helpful to you.

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Operator [19]

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The next question will come from the line of Steven Cahall with Wells Fargo.

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Steven Lee Cahall, Wells Fargo Securities, LLC, Research Division – Senior Analyst [20]

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Sorry if I missed some of these answers. But maybe just first on M&A. You got a deal done in China, and I think we were all kind of surprised and impressed by the ability to do that in these volatile times. And maybe in retrospect, it seems like China was starting to trend towards reopening, and that probably provided your buyer with some of the clarity that they needed. So if we start to think about Europe along those lines, can you give us a sense of maybe where you think you are in the reopening process in some of your major markets? And maybe help us just think about what the M&A environment might look like in those markets and whether potential buyers feel like they have any line of sight yet, maybe as it compares to the pace of where things have gone in China. And then I have a follow-up.

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Christopher William Eccleshare, Clear Channel Outdoor Holdings, Inc. – CEO-Worldwide, President & Director [21]

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Okay. Thank you. And thanks for the question, and thanks for the comments on the China sale, which I think was a positive outcome for everybody. In terms of the reopening of Europe, I would say it is truly, literally, very early days. I mean as I mentioned, there’s been some opening up in Switzerland. There’s been some relaxing of the rules in Italy, some relaxing in Spain. In the U.K., we’re expecting an announcement from our Prime Minister on Sunday. And France has announced a kind of program of stages of relaxation of the rules. But there is no sense that a switch is being flipped and markets are suddenly returning to normal at the moment.

So I think it would be really too early to say that there are any signs of recovery yet within the European markets. I don’t want to sound downbeat about it, I’m very optimistic about the strength of our medium and the momentum that we have in the business. And I do believe that once audiences start returning to the street, we will be in a very good position, particularly with the increased volume of digital inventory that we have, I think we’ll be in a very good position to bring revenues back.

But in terms of M&A, I would absolutely stand by the statement that we made in February that we will actively evaluate all opportunities to enable us to support the growth in the higher-margin businesses, particularly in the U.S., but there is no indication at the moment that the markets in Europe are returning to normal. And clearly, that makes M&A more challenging.

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Steven Lee Cahall, Wells Fargo Securities, LLC, Research Division – Senior Analyst [22]

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Great. And then just a follow-up on the cost initiatives that you outlined, maybe what sort of pace could we expect that $100 million of run rate to start to kick in? Like could we see that being realized by end of the second quarter? Does it take a little longer to roll all of that through? And what I’m kind of getting at with all of this, where I think a lot of investors are wondering is, you have a lot of cash on the balance sheet after what you’ll get from Clear Channel — Clear Media Limited. And you’ve taken these cost initiatives that should give you some runway to go through a tough environment and burn a little cash in the short term. When you kind of do your conservative modeling, I guess, just how worried are you about that runway? Or do you really feel like you have ample liquidity unless this downturn is very, very prolonged?

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Brian D. Coleman, Clear Channel Outdoor Holdings, Inc. – CFO & Treasurer [23]

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So a couple of pieces to that question, and it’s a good question. It’s actually kind of the question. So from a liquidity standpoint, I do think we feel like we’re in a reasonable position, as I think I answered on an earlier question. We actually made the statement that we are comfortable with our liquidity position for the next 12 months. That being said, there’s just such a lack of visibility in the operating profile of the company, and this could be more prolonged than we expected. You could get the virus behind you, but then are you — how badly were your customers impacted? And how quickly do they come back?

So I don’t think you can have too much liquidity in this environment. That’s why we did implement and focus very intently on the cost-savings initiatives. That $100 million number is what we expect to attain in Q2. And I think as we move forward and get more visibility into both the severity and the length of kind of the impact of the pandemic, we’ll have to continue to adjust that cost base to match the operating performance.

So I think we’ve done what we feel like we need to do today, but the book isn’t closed. We need to continue to remain focused, make sure that we aligned our cost base with the business and continue to look for additional opportunities. Again, I think, we feel good about the liquidity today but the book is not closed. We’re going to continue to look at opportunities to increase liquidity and make sure that the expense base of the business is rightsized for the operations.

Scott, William, I don’t know if you have anything else to add, but that’s how I would respond.

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Christopher William Eccleshare, Clear Channel Outdoor Holdings, Inc. – CEO-Worldwide, President & Director [24]

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I think it’s a very good answer.

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Steven Lee Cahall, Wells Fargo Securities, LLC, Research Division – Senior Analyst [25]

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And maybe just the last one then on that, Brian, I assume that there are additional levers you could pull on CapEx if you reassess the environment at a later time.

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Brian D. Coleman, Clear Channel Outdoor Holdings, Inc. – CFO & Treasurer [26]

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I think there’s additional levers in OpEx and CapEx. Should the environment continue to persist, instead of furloughing employees, you may make a more permanent decision in certain cases. Instead of deferring lease benefits, you may have to completely realign the cost or defer them further out.

On the CapEx side, you may just stop doing anything other than what you actually have to do for the safety of your employees. So I think we’ve taken the costs we feel are appropriate at this point in time. But yes, we can always — if we need to adjust, we could.

We also want to remain flexible so that if things do start to come back, we haven’t made costs that impair our ability to recover. So a lot of it really is decided by our visibility. And every day that goes by and every week that goes by, we learn more, and we want to remain flexible to adjust to what we’re seeing.

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Operator [27]

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Our next question will come from the line of Lance Vitanza with Cowen.

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Lance William Vitanza, Cowen and Company, LLC, Research Division – Former MD and Credit & Cross-Capital Structure Analyst [28]

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Most of them have actually been answered, but perhaps just back on the efforts to negotiate with your landlords, and you mentioned that you’ve got thousands of them. The $100 million of cost savings for the second quarter, to what extent does that depend on additional lease negotiations that you haven’t yet gotten done? Or is that $100 million sort of represent changes that as we sit here today in early May have already been put into place? And then I have a follow-up.

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Christopher William Eccleshare, Clear Channel Outdoor Holdings, Inc. – CEO-Worldwide, President & Director [29]

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So let me go first on that. I mean I would say we are very confident of achieving the target that we’ve set out today. If we weren’t confident in setting that $100 million target in terms of the savings for the quarter, we wouldn’t have put it out there. We are still in very active negotiations with those thousands of landlords that we talked about, but we believe that saving is achievable.

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Lance William Vitanza, Cowen and Company, LLC, Research Division – Former MD and Credit & Cross-Capital Structure Analyst [30]

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Okay. And then just to sort of follow up on that. Where you have already been successful, how do you define success? I mean are these reductions sort of proportionate with the revenue reductions? Are they true discounts? Or are you deferring the lease expense into subsequent periods? Any color on that would also be helpful.

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Christopher William Eccleshare, Clear Channel Outdoor Holdings, Inc. – CEO-Worldwide, President & Director [31]

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Yes. I mean I think there’s a range of answers to that question and none of them are entirely precise. We are negotiating hard on the fixed side, the fixed lease cost expenses, we are seeking to convert those minimum annual guarantees that we talked about earlier, converting those from fixed to variable so that they reflect the changed revenue environment that we are operating. And of course, there are very significant differences in terms of the kinds of negotiations that we have with our municipalities versus with private landlords.

So I think success comes in different ways and each one — each contract brings a different set of challenges and opportunities as we go into those renegotiations. So there isn’t a kind of one size answer to that question, I don’t think.

Scott, do you want to add anything from a CCOH perspective on that?

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Scott R. Wells, Clear Channel Outdoor Holdings, Inc. – Executive VP & CEO of Clear Channel Outdoor Americas [32]

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No. I’d agree with you, William. I think it is absolutely a mixture of all those. And where there is a contract that has a substantial fixed portion and then a variable portion, we are trying to turn it to variable. But that is not the majority of the U.S. revenue, at least. I’m not sure how that would stack up around the world. But we do that when we can, where we variabilize where we can, but that’s a minority of our arrangements.

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Operator [33]

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Our next question will come from the line of Stephan Bisson with Wolfe Research.

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Stephan Edward Bisson, Wolfe Research, LLC – Research Analyst [34]

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I know it’s really hard to kind of look into the current environment and kind of see things as they develop, New York Times today said that they’re expecting revenue declines on the advertising side of 50%. I think broadcast TV is anywhere between 30% and 40% from this morning’s releases. Can you give us any quantification at all as to where in that range you might expect to end up from the second quarter?

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Christopher William Eccleshare, Clear Channel Outdoor Holdings, Inc. – CEO-Worldwide, President & Director [35]

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I honestly feel that every day I read a different forecast from a different journalist or from a different consultancy firm, and every day they’re different. And the honest truth is nobody knows. They really don’t. I don’t see how they can know, given that we don’t even yet know what the timing of the end of the lockdowns in different states or different countries are going to be. And we don’t yet have any real sense of what the damage to the economies are going to be. And we don’t yet know how advertisers are going to respond to this.

There will be some advertisers who will learn from previous downturns that it’s — the wisest thing is to continue to support their brands and continue to advertise. There will be others who retrench and cut those budgets. But the truth is nobody knows at the moment. That’s why we are, as I said, being vigilant in keeping a daily eye on our pipeline. As I said in an answer to an earlier question, in some cases, there are signs of a positive pipeline building as things return to normal, but it’s way too early to call a number for Q2, I’m afraid. I wish that could be more helpful.

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Stephan Edward Bisson, Wolfe Research, LLC – Research Analyst [36]

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It’s an unprecedented environment. Thanks so much for all the color you guys gave.

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Operator [37]

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Next question will come from the line of Jim Goss with Barrington Research.

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James Charles Goss, Barrington Research Associates, Inc., Research Division – MD [38]

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I’ve got a couple also. You have given a lot of color, especially in terms of the European markets, and which ones are coming back sooner rather than later. Have you — is there anything you can say about the key domestic markets in terms of the importance to you relative to how that mix in this uneven opening might match up with your business?

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Christopher William Eccleshare, Clear Channel Outdoor Holdings, Inc. – CEO-Worldwide, President & Director [39]

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Scott, do you want to take that?

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Scott R. Wells, Clear Channel Outdoor Holdings, Inc. – Executive VP & CEO of Clear Channel Outdoor Americas [40]

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Yes. Thanks, William. I’ll take a run at that. We are a large DMA business. We are experiencing this. William said this in the upfront comments as a pretty diverse experience. It’s challenged across the country, but we have a very strong business in Florida, a very strong business in Texas, very strong business in the Southwest. All of those regions have been impacted less than the coasts, and the Midwest is sort of in between.

And so as we look to things building back, the 2 variables William described earlier are exactly the critical ones. Variable one is the build back of audience, which in those markets, the car culture in the United States is such that it’s not like our audiences went to 0 during this, not even close. And that’s something that we’ve actually been able to keep a pretty good eye on with our RADAR tool, and we’ve been able to engage customers on how that has played out and how it’s starting to build back. And we’ve had a couple of weeks of audiences building back across the country, but particularly in those stronger areas that I’ve talked about.

The second part of it, as William said, is how much fundamental damage has been done to our customer base. And I don’t think we’re going to know the answer to that for some time now as we work through this. But we are a very local-intensive advertising medium, and we’re working very closely to support our advertising partners, but it’s really hard to know how the snapback is going to happen, but the downturn was not uniform across the country. That’s for sure. Does that answer your question?

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James Charles Goss, Barrington Research Associates, Inc., Research Division – MD [41]

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Yes. That gets to some of that. And maybe a couple of other things. M&A, you’ve talked about potential sales or maybe even some tuck-ins. I would imagine there are some challenged smaller players who might be receptive to potential sale. Is that something you’re pretty actively exploring right now to round out in certain markets?

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Brian D. Coleman, Clear Channel Outdoor Holdings, Inc. – CFO & Treasurer [42]

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Well, I think right now our focus is on liquidity. And in the current environment, it may be challenging to make that type of investment. That being said, if the right opportunity came along, I think we certainly want to take a look at it. But again, it’s got to fit within what we’re seeing and experiencing. And right now, we’re just challenged with the lack of visibility. So I would never say never, but I think right now we’re focused on building liquidity. And so I think, like many others, we’d have to look very hard at what kind of benefit any type of tuck-in or M&A opportunity really brings to the table.

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James Charles Goss, Barrington Research Associates, Inc., Research Division – MD [43]

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Okay. And one final one, sort of a blue sky one. We’ve seen broadcast where there are Zoom meetings, Zoom broadcast from homes and that sort of thing. Are there any other use cases for home displays that you’ve started to think about within the crisis?

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Christopher William Eccleshare, Clear Channel Outdoor Holdings, Inc. – CEO-Worldwide, President & Director [44]

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Well, I think what we’ve learned in the last few weeks is that the value of our inventory has been very significant in terms of being able to deliver messages around safety, around the spread of the virus in different markets and ensuring that we keep our public informed. So I think we have learned to be very flexible, and we’ve learned the value of our inventory in terms of getting messages across. I don’t think there’s anything more that I can say, though, in terms of how we see the future at the moment.

Thank you. And thank you, everybody, for joining this call this morning. We appreciate your interest and your support during this extraordinary period in our global history. So thanks to everybody for joining, and stay safe. Thanks.

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Operator [45]

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This does conclude today’s conference call. We thank you for your participation and ask that you please disconnect your lines.