Clear Channel Outdoor - Earnings Call - Q2 2020

Transcript

Speaker 0

Ladies and gentlemen, thank you for standing by, and welcome to the Clear Channel Outdoor Holdings twenty twenty Second Quarter Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. I would now like to hand the conference over to your speaker today, Eileen McLaughlin, Vice President, Investor Relations, Clear Channel Outdoor Holdings. Thank you.

Please go ahead.

Speaker 1

Good morning and thank you for joining Clear Channel Outdoor Holdings twenty twenty second quarter earnings call. On the call today are William Eccleshare, Chief Executive Officer of Clear Channel Outdoor Holdings, Inc. And Brian Coleman, Chief Financial Officer of Clear Channel Outdoor Holdings, Inc. Who will provide an overview of the second quarter twenty twenty operating performance of Clear Channel Outdoor Holdings Inc. And Clear Channel International BV.

After an introduction and a review of our results, we'll open up the line for questions. And Scott Wells, Chief Executive Officer of Clear Channel Outdoor Americas will participate in the Q and A portion of the call. Before we begin, I'd like to remind everyone that this conference call includes forward looking statements. These statements include management's expectations, beliefs and projections about performance and represents management's current beliefs. There can be no assurance that management's expectations, beliefs or projections will be achieved or that actual results will not differ from expectations.

Please review the statements of risks contained in our earnings press releases and filings with the SEC. During today's call, we will provide certain performance measures that do not conform to generally accepted accounting principles. We provided schedules that reconcile these non GAAP measures with our reported results on a GAAP basis as part of our earnings press releases and the earnings conference call presentation, which can be found in the Financials section of our website, investor.clearchannel.com. Additionally, when we reference our business in China, we are referring to our 51% investment in Clear Media Limited, a public company that trades on the Hong Kong Stock Exchange. Please note that our earnings release and the slide presentation are also available on our website investor.clearchannel.com and are integral to our earnings conference call.

They provide a detailed breakdown of foreign exchange and non cash compensation expense items as well as segment revenues and adjusted EBITDA among other important information. For that reason, we ask that you view each slide as William and Brian comment on them. Also, please note that the information provided on this call speaks only to management's views as of today, 08/07/2020, and may no longer be accurate at the time of a replay. With that, please turn to Page three in the presentation, and I will now turn the call over to William Eccleshare.

Speaker 2

Good morning, everyone, and thank you for taking the time to join today's call. Once again, we're conducting this call remotely today, so please bear with us in case there are any technical issues during the call. I'd like to start by saying that I hope you and your families are well and safe. This has certainly been an unprecedented quarter for Keohsiang Outdoor and indeed most businesses around the world and it's one that I don't anticipate repeating. Although our sales were significantly impacted by the COVID-nineteen pandemic, we are pleased that we are now beginning to see improvement in travel patterns, consumer behavior and economic activity in varying degrees across our platform.

As a result, we are seeing sequential improvement in our business performance. In the third quarter, we expect consolidated company revenues percentage decline to be in the low 30s as compared to the same quarter last year, with Europe performing slightly better than The U. S. As it emerges sooner from the pandemic lockdown. And as we consider the longer term, we're confident in our strategy and the resilience of our business.

We believe that the strength of our liquidity position and our financial flexibility will continue to support the continuity of our platform and operations through the current environment. Before I get into more detail on our business performance, I want to take this time to thank our employees for their resilience and commitment leading our business through this challenging period. I believe we as a company can feel proud of what we've done to manage through these unprecedented circumstances. Moving on to Slide four, I'll provide an overview of our business, the current environment and views on where the out of home market is headed from here. Since March, the implementation of lockdown measures to slow the spread of the COVID-nineteen outbreak resulted in a significant decline in out of home advertising as our audience stayed inside and our customers deferred buying decisions and reduced marketing spend.

In The U. S, revenue was down almost 40% in the second quarter as compared to the prior year. As you can see in the chart on the slide, based on Geopath, the out of home industry organization that provides third party traffic data, daily average miles traveled was down about half of where it was pre COVID-nineteen. In Europe, revenue was down over 6% as compared to the second quarter in twenty nineteen. With most of our markets in lockdown, our audience paid home as indicated in the chart on this slide and our advertisers pulled back their spending.

Anticipating the downturn, we focused on preserving liquidity including targeting cost cuts of over $100,000,000 and capital expenditure savings of $25,000,000 to mitigate the impact to our business for the second quarter of twenty twenty. Our team has fully delivered on these initiatives and achieved the target. We've taken additional steps to strengthen our liquidity. Brian will go into greater detail regarding our financial position shortly, but I do want to highlight that through the issuance of the new $375,000,000 CCIBB senior secured notes, we increased our available cash. If you include the net proceeds from this transaction, our cash increases to $975,000,000 as of 06/30/2020.

Importantly, we have not lost sight of a key part of our strategy to further improve our capital structure, pay down debt and unlock shareholder value. As and when economies rebound, we will continue to evaluate potential transactions, including dispositions as long as they fairly reflect the future value of a business or region. Our focus remains on continuing to own, operate and enhance the value of our businesses in order to drive shareholder value. Now I will discuss what we're seeing in the third quarter as well as actions we are taking to best position Clear Channel as economies in our markets begin to rebound. So far in the first quarter, we are experiencing positive customer activity, which is reflected in our guidance for revenue to be down in the low 30s, which is a material improvement over the second quarter, which was down 55% as compared to 2019.

In The U. S, as you can see on the graph, traffic is back up to about 95% of the pre COVID-nineteen levels in most of the country with traffic on weekend closer to 100% of pre COVID levels according to Geopark. National advertising continues to be weaker than local. National advertisers have been very tentative about committing to major campaigns while the virus has been in So there are substantive conversations in flight. A key for this part of our business will be the full upfront, with many of our national advertisers set their plans for the following year.

Print continues to hold up better than digital due to longer term contracts. In Europe, as lockdowns have lifted, many of our markets have seen a strong rebound in bookings from the very historic lows for the second quarter, although we still have challenges as spikes in the infection rate continues to occur. As you can see on the chart on this slide, driving and walking is close to being back to pre COVID levels with transit still lagging. We are seeing the strongest return in bookings in countries where lockdown restrictions were eased the earliest and where the emergence plans were well orchestrated. Switzerland, for example, was one of the first markets to reopen and has posted positive year on year growth in bookings for the past six weeks.

We're also seeing improvement in France and as restrictions in The UK are lifted, we're seeing a significantly improved pipeline compared to the second quarter. About two thirds of our revenue in Europe is from street furniture and billboards, which is where we're seeing audience pick up fastest. Close to 15% is in malls and supermarkets. Supermarkets have remained stable throughout the pandemic, while malls have been slower to come back. Just over 10% of our European business is in transit, which has been slow to recover.

As we emerge from lockdown, we're seeing various levels of bounce back in certain verticals in some of our largest markets in Europe. Notably, we've seen good bookings from advertisers in packaged goods, telecom and fashion and beauty. Travel, tech and entertainment have been slow at a return. We're cautiously optimistic about the future with the varying degrees of improvement in travel patterns, consumer behavior and economic activity across our platform combined with the positive customer activity we are experiencing. However, our visibility beyond the third quarter is limited and it remains unclear when a sustainable economic recovery will take hold.

We currently expect sequential improvement in revenue performance through the balance of the year, although at levels lower than 2019. Given the varying outlook by market, we expect to implement further cost savings initiatives, including permanent cost reductions through the remainder of the year. Our continued focus is on aligning our operating expense base with revenues to provide additional financial flexibility as circumstances warrant. In addition, we will continue to be flexible and front footed as we maneuver through the impact of the pandemic, working closely with our advertising partners and adapting in new ways that we believe will serve us well in the long run. Now please move to Slide five.

In The U. S, we have expanded our efforts to build direct relationships with brand owners, invested in tools to aid in the sales and lead process and built out our technology to better serve our clients. Notably, RADAR is helping with the mobility data as audience levels picked up. We know where audiences are and how they are coming back and we believe the depth of our digital inventory provides the flexibility to quickly campaigns and most effectively target the right audiences at the right time. Recently, we expanded our radar proof tool with two separate partnerships.

We partnered with IHS Markit to improve auto marketing as U. S. Travelers are expected to take more road trips this summer. Our RADAR proof tool is now able to show auto dealers how their out of home ad campaigns deliver sales. In a recent campaign using RADAR proof, we were able to demonstrate a 15% increase in dealer brand sales driven by the out of home campaign.

Working with Arrivalist, we are providing hospitality and travel brands with measurable consumer insights and in-depth performance analysis for their out of home advertising campaigns. In a campaign for a theme park, we were able to show that the out of home campaign drove a 66% average increase in visits to just one theme park. In technology, we're working with our partners to create deeper links to their buying systems and we continue to enhance our programmatic value proposition. We recently announced a partnership with Place Exchange, providing digital media buyers with programmatic access to Clear Channel Outdoor digital out of home displays through omnichannel DSPs. In Europe, we're continuing to focus on employing data and technology in order to enhance our revenue and campaign management tools.

We've accelerated our ability to provide our clients with granular audience data and insights that accurately demonstrate audience exposure to individual advertising panels. Clear Channel RADAR is now being tested in both UK and Spain ahead of the simultaneous launch later this month. In The UK, we launched the return audience hub with our data partners AdSquare. The hub monitors a huge anonymized mobile data set to learn and openly share how the portfolio is delivering audiences compared to pre lockdown levels. The hub also demonstrates how mobility behaviors have adapted and provide simple off the shelf solutions to help advertisers utilize audience hotspots.

The hub has received fantastic customer feedback for its accessibility, accuracy and simplicity. Additionally, as booking cycles have shortened, we've leveraged the flexibility of digital to respond to last minute requests. Moving on now to Slide six. We talked about our resilience during the crisis, but we also want to focus on the future and what comes next. More than anything during this process, we have learned the importance of flexibility and we remain optimistic about the long term prospects for our business and our ability to return to growth.

Out of home is favorably placed in a highly fragmented media market. We continue to believe along with industry forecasters that the out of home industry will continue to grow faster than traditional media with digital out of home driving that growth. And with that in mind, we continue to believe that the technology investments made before the pandemic as well as those we continue to make, specifically in expanding our digital footprint, will serve to better position our businesses to meet our customers' needs. And before I turn to Brian to discuss the financials in more detail, I want to highlight that our corporate social responsibility initiative remains an important part of our culture. Amidst the global health crisis and calls for sociopolitical change we've seen play out in all corners of the world, we have reinforced our commitment to our people and to promote diversity and inclusion as well as the need to do more to continue improving and evolving as an organization.

Most importantly, we remain committed to our vision to deliver a leading platform in the industry. And I'm confident that the fundamentals are out of home, the strength of our portfolio and the strategic steps we're taking to bolster our financial position will continue to support Clear Channel Outdoor's long term performance and our ability to drive value. Now I'd like to turn it over to Brian to discuss our second quarter twenty twenty financial results.

Speaker 3

Thank you, William. Good morning, everyone. Thank you for joining our call this morning. Please turn to Slide seven. As you can see from our earnings release issued this morning in this slide, as expected, the second quarter was very difficult for us as it was for many media companies.

I would like to echo William's comments earlier and thank our operating teams. During the past several months, we've had to move quickly from a focus on building on our growth to preserving liquidity. The team's focus on managing operating costs and capital spend has been critical in preserving liquidity. Today, given the ongoing uncertainties and the fact that most of you are likely more focused on the steps we are taking to improve liquidity and our capital structure, I will focus only on the highlights of our second quarter results and not provide detail on the performances in Americas and Europe as I've done in the past. You can obtain additional detail from the earnings release and 10 ks we filed this morning and of course you are always welcome to reach out to the team with any additional questions you may have.

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. Additionally, we tendered our shares in Clear Media on April 28 and therefore have only included Clear Media's results for the month of April. Consolidated revenue for the quarter decreased 54.9% from last year to $315,000,000 Adjusting for foreign exchange, it was down 54.4%. The Americas segment revenue was down 39% and Europe segment revenue was down 62% adjusting for foreign exchange during the second quarter as compared to the prior year.

Consolidated net loss increased $131,000,000 from $11,000,000 in the 2019 to $143,000,000 in the second quarter of twenty twenty. Adjusted EBITDA was a loss of $63,000,000 in the quarter and excluding FX was a loss of $67,000,000 and this compares to adjusted EBITDA of $180,000,000 in the second quarter of twenty nineteen. Americas adjusted EBITDA was $47,000,000 in the quarter compared to 137,000,000 in the second quarter of twenty nineteen. Europe's adjusted EBITDA was a loss of $69,000,000 in the quarter and excluding FX was a loss of $71,000,000 compared to adjusted EBITDA of $47,000,000 in the second quarter of twenty nineteen. As William mentioned, we recently issued senior secured notes through our indirect wholly owned subsidiary Clear Channel International B.

V, which we refer to as CCIBV. Our Europe segment consists of the businesses operated by CCIBV and its consolidated subsidiaries. Accordingly, the revenue for our Europe segment is the revenue for CCIDV. CCIDV revenue decreased $183,000,000 during the 2020 compared to the same period of 2019 to 107,000,000 After adjusting for a $2,000,000 impact from movements in foreign exchange rates, CCIDV revenue decreased $181,000,000 CCIDV operating loss was $99,000,000 in the 2020 compared to operating income of $17,000,000 in the same period in 2019. Now on to Slide 11 to discuss CapEx.

Capital expenditures totaled $23,000,000 in the second quarter of twenty twenty, down $28,000,000 from the prior year as we proactively reduced our capital spend to preserve liquidity. Even with the substantial reduction, we did continue to invest in digital in key locations with 19 new digital billboards in The U. S. And over 100 new digital displays in Europe. Now on to Slide 12.

Third Channel Outdoor's consolidated cash and cash equivalents as of 06/30/2020 totaled $662,000,000 including $317,000,000 of cash held outside The U. S. By our subsidiaries. Cash balance includes the $253,000,000 we received from the sale of Clear Media. Our debt was $5,300,000,000 up $194,000,000 as a result of our drawing on the cash flow revolver at the March and exchanging a promissory note in the principal amount of $53,000,000 for the company's Series A perpetual preferred stock.

Cash interest payments for debt during the second quarter were $9,000,000 This was down compared to the prior year due to the timing of interest payments. The company anticipates having approximately $166,000,000 of cash interest payments obligations in the 2020 and $360,000,000 in 2021, including the interest on the new CCIBV secured notes, which have its first interest payment in April. Moving on to Slide 13. Over the past year, we've taken several steps to improve our capital structure and liquidity. Deleveraging continues to be a priority for the company.

It's the reason we took the steps last year to push out our material long term debt maturities and create a line of sight to free cash flow generation. When the pandemic happened, we had to pivot our focus to liquidity. Our priority now is to keep the flexibility necessary to return to a path of debt reduction and free cash flow generation. As we noted in our last earnings call, we drew down $150,000,000 from our cash flow revolver at the March. We also received the approximately $253,000,000 in cash from the sale of our stake in Clear Media.

We met our cost savings goals of $100,000,000 and our CapEx reduction goal of $25,000,000 for the second quarter of twenty twenty. As I stated last quarter, we focused on three areas, site lease, compensation and discretionary spending. About 50% of the cost savings we achieved in the second quarter are site lease savings and about 30% are compensation with the balance of discretionary spending and other costs. As previously announced, on July 12, we amended our credit agreement in response to the uncertain macroeconomic environment. The amendment suspends the spring financial covenant, which requires that the company's first lien net leverage ratio not exceed 7.6 times from the 2020 through the second quarter of twenty twenty one.

During the suspension period, the company is required to maintain minimum liquidity of $150,000,000 including cash on hand and availability under the company's receivable based credit facility and its revolving credit facility. Finally, as William mentioned, this week we issued $375,000,000 in CCIBV senior secured notes to further bolster our liquidity position. The notes have a coupon rate of 6.8% and mature in five years. They also contain a short dated eighteen month call protection provision. We believe the CCIBV notes offering serves as affirmation from the market of the strength of the out of home industry in general and our business in Europe specifically, as well as our ability to manage through the pandemic.

A portion of the proceeds from the CCIBV notes were used to pay down the CCIBV promissory note in full in the amount of $55,000,000 After giving effect to the $313,000,000 of net proceeds from the new CCIVV senior secured notes as of 06/30/2020, cash and cash equivalents would have been $975,000,000. Total debt would have been $5,600,000,000 and net debt which hasn't really changed sits at $4,600,000,000 From a liquidity standpoint and given what we know today, we believe that we have sufficient liquidity to fund the needs of the business as the economy recovers. And now, please turn to Slide 14 and let me turn the call back to William for his closing remarks.

Speaker 2

Thank you, Brian. As I mentioned, our team has worked tirelessly to adapt adapt to new working environments and new working relationships. From the start, we've been nimble and taken actions required at the moment. And as a result, we've delivered on our short term priorities. And we continue to explore creative opportunities to reduce costs while remaining focused on winning new business and building out our network.

Importantly, our investments prior to the pandemic combined with the strength of our platform and our focus on the key pillars of our strategy have positioned Clear Channel Outdoor to manage through this period of uncertainty. We remain focused on the strong medium and long term opportunities within our sector, including investments in technology and expanding digital, and we think Clear Channel is optimally positioned to benefit from these tailwinds. As I conclude my remarks, I want to reiterate the following. First, as Brian said, we believe we have sufficient liquidity to fund the needs of the business as the economy recovers. Second, we are seeing near term signs of improvement in our business, which is reflected in our guidance for revenue to be down in the low 30s, which is a material improvement over the second quarter, which was down 55% as compared to 2019.

Visibility beyond the third quarter remains limited, but we are expecting continued sequential improvement in quarter four. Third, given the resilience of our team, investments in our business and strength of our platform, we are cautiously optimistic and believe we will return to growth in 2021, dependent of course on the trajectory of the pandemic and the economies in which we operate. And lastly, as we've stated in the past, we remain open to dispositions and opportunities that accelerate our path to creating enhanced value for shareholders. However, given the current economic environment, our focus remains on continuing to own, operate and enhance the value of the current portfolio of assets in order to drive shareholder value until such a time as the economies rebound. I look forward to providing updates regarding our progress.

And now Todd will join Brian and myself in taking your questions. Operator?

Speaker 0

Your first question comes from the line of Stephen Cahall with Wells Fargo.

Speaker 4

Thanks. Good morning. Interesting to see those charts in the presentation about the foot traffic and the miles driven and they're not too far off of COVID level pre COVID levels. How are you thinking about what marketers need to see to start returning? You talked about seeing a little bit of green shoots in bookings.

So just wondering how we think about sort of the lag between that data and what marketers actually do?

Speaker 5

William, why don't I take that

Speaker 2

from this? Go ahead. Okay. Well, let me just make a general comment, which is because I think we've seen a we're at the earliest stages of recovery. We've seen the early first stages of recovery in Europe of The U.

S. And I think what's driven the recovery in Europe is seeing advertisers kind of seeing the data and seeing with their own eyes, people returning to the streets, returning to cities, returning to stores. And as that has happened, so the advertising has strengthened and the bookings have come back. So I think it is the thing that is driving the return is the return of audiences to the Street. And the encouraging thing certainly that we've been seeing in some of the European markets, as we mentioned, is that it does seem that there is some real pent up demand that is coming back pretty quickly as the lockdowns are lifted.

And that does give us significantly more encouragement for Q3 than maybe we had a couple of months ago. Scott, do want to add from The U. S?

Speaker 5

I mean, I think the only thing I'd add William is that it is varied very much by sector and that the traffic coming back is very important to the businesses that are open and operating normally or close to normally. But you think about some of the businesses that are big partners of ours, like entertainment, retail, where they might not be operating normally, that's going to have to make progress as well to see the money come back. But I'd agree with William's assessment overall of how the dynamic is working.

Speaker 4

And then Brian, I think free cash flow came in nicely positive in the quarter. Can you maybe speak a little bit to the cash flow dynamics? Is free cash flow more resilient than EBITDA during this downturn? And maybe an outlook on how you're managing CapEx would be helpful.

Speaker 3

Sure, Steve. Thanks for the question. I think when it comes to how we look at free cash flow or EBITDA, what we saw in the quarter was a pretty significant benefit, I guess, the way you would characterize it from working capital shifts, largely in the form of accounts receivable going down being a source of liquidity, being a source of free cash flow because of the kind of the reduced level of business we have out there. Also, you'll see a large amount of rent deferrals generating an increase in our short term liabilities. So what I would tell you is there's no magic behind this really.

This is reflective of the current environment we're in, how it impacted working capital. Largely, we would expect that, again, that benefit to unwind as the business starts to recover, as receivables start to build and as these deferred payments will the ones that we're not able to get permanent relief from are paid out in the second half of the year. Your second question talked about CapEx. In Q2, we had a pretty narrow aperture as we looked at new investments that came across the investment committee's desk. I would tell you though that there wasn't a whole lot going on.

I think a lot of municipalities that would have otherwise had tenders and in many cases deferred those to later periods. And then the ones we did see, obviously, we were they had to be extremely worthy in order to invest a whole lot of money. So we've kept a pretty tight view on it. What you did see come through in Q2 was largely sustainable CapEx that needed to be made or committed CapEx from prior periods that we weren't able to defer. I think going forward, our CapEx philosophy is going to be similar, although we want to make sure that we adjust according to the recovery curve.

And as we see things improve, the aperture may open a little bit and there may be other opportunities. But first and foremost, and I hope it came through in the opening dialogue from William and myself, the focus is on liquidity. We feel like we're in a good spot. And so we're not going to do things that jeopardize that position. At the same time, there's going to be necessary investment to be made in the business both to preserve the current plant and to continue growth.

And so we'll continue to look at those as those opportunities come up.

Speaker 4

Great. Thank you.

Speaker 0

Your next question is from Kennen Vigasishwari with Barclays.

Speaker 6

Thank you. A couple if I could. So firstly from a working capital perspective, obviously you guys have raised a lot of money and the balance sheet seems to be in a comfortable place from a liquidity position. But could you give us a sense of cash burn as the recovery happens? Because you had a big working capital tailwind last quarter.

And I'm assuming as you go through the recovery cycle and as activity picks up that reverses to some extent. So if you could just give us some context around the liquidity on the balance sheet and the

Speaker 3

cash burn that would be great.

Speaker 6

And then I have a follow-up.

Speaker 3

Sure. I think on the first point, I actually touched upon a little bit on Steve's question. You're right, I think we would expect what we've seen on the working capital side to reverse itself over time. But again, just given the nature of what generated that working capital movement, that largely will reverse itself as the business starts to recover. As receivables grow because we're doing more business or as improvements in the second half of the year cause our counterparties under various contracts to say, okay, the deferral we made because times were bad, times aren't so bad anymore and you'll need to make these payments.

Those largely will kind of go hand in hand and consequently, the underlying cash flow performance or EBITDA performance of the business will be improved. So hopefully, will offset and that our operating gains will be greater than the working capital moves. That being said, I think on the international side, they were hit harder. And while they've shown significant improvement in Q3 and we would expect sequentially that to continue to Q4, it's not likely that they'll be adjusted EBITDA positive through the rest of the year. And so we need to be thoughtful and careful about how we manage CapEx and other liquidity levers that we have.

The U. S. Business wasn't hit as hard, a little slower on the recovery curve, but again, positively sloping in Q3 when we would expect that through Q4. So hopefully I've answered your question, maybe provided a little bit more color than I intended to, but I'm happy to either follow on on that or go to your next question.

Speaker 6

All right, that's helpful. We can follow-up more in detail offline, if that's okay. And then the other question was largely around the cost levers. You guys indicated that there's more cost cutting measures that you're working through. Could you give us a sense of the fixed versus variable cost mix?

I mean, I'm assuming you've done a lot of the hard work already and you've cut a So lot of given the drop in activity, is it fair to assume that the OpEx that we see in your income statement in 2Q is basically in some ways mostly fixed costs or is there some variable costs still there? If you could just walk us through the cost components and what levers you have going forward. Thanks.

Speaker 3

Yes, I think first just a general statement on costs. We have pulled a lot of levers. A lot of them were temporary in nature. And I think that while the business continues to look at ways to optimize our cost structure and may need to take more permanent actions just to kind of right size the business for where we are and what we're seeing, Largely, what we saw were deferrals on compensation, rent deferrals, although there were certainly we were able to capture some permanent rent abatements as well. So I'm not sure it's fair to say that the current cost is the fixed cost that all the variable kind of got squeezed out.

I mean, we still had revenue, so we still had variable expense. And in a lot of cases, converted fixed to variable expense on a temporary basis and that may reconvert back to fixed or may be permanent depending on the underlying contract itself. Not sure that's the right way to look at it. I think that's the most color I can give you on the fixed cost base side.

Speaker 2

All right. Can I ask

Speaker 3

one more, sorry, as a follow-up? Sure.

Speaker 6

As you look at your business, obviously historically the outdoor business in city centers and densely populated areas had a different dynamic versus suburbs. Now with potentially more work from home and so on, is there any permanent change that you foresee in the flow of business? And how that changes your footprint in terms of presence? Thanks.

Speaker 2

Let me try and take a stab at that because I think it's an interesting question, Kennen. But I really think it is really far too early to say whether there's going to be any permanent change. It does seem to me that we are already seeing in some markets where lockdowns have been lifted and where the pandemic has been well controlled, we're seeing a pretty rapid return to the pre COVID ways of operating and behaviors of people in cities and in workplaces. So whilst I do think there will be some long term impacts and probably a greater mix than there's been in the past in terms of people working remotely. But it will be a hybrid.

It won't be one way or the other. And I don't really foresee any significant structural change in the way our business operates. On the contrary, in a sense, I think the momentum that this business had when we went into the pandemic, And that was a global momentum. I mean, pretty much every market in the world, outdoor has been gaining share from traditional media. You saw our very strong performance in Q1 in The United States.

It seems to me to be every reason to believe that, that will come back and very few reasons to believe that there's really going to be a permanent change in the nature of our business. Thank you.

Speaker 0

Your next question comes from the line of Avi Steiner with JPMorgan.

Speaker 4

Good morning and thank you for taking the questions.

Speaker 7

I had heard Q3 revenue declines expected in the low 30s, which is a noted improvement from the second quarter. And if you gave this, I apologize, but how should we think about the underlying expense base? I don't want to get quarter to quarter perhaps, but I'm just trying to think through what you may see in the near term as we try and think through EBITDA here. Then I've got a couple more questions. Thank you.

Speaker 3

I'm sorry, Avi, could you repeat that?

Speaker 7

Sure. Just relative to the 30% decline in low-30s revenue decline expected for the third quarter, should we think about associated or underlying expenses in the quarter, if you can help us there?

Speaker 3

Yes. We continue to take a hard look at the expense line. We didn't provide any guidance in Q3 because a lot of in Q2 without visibility really into where or how dramatic the decline would be, we knew we had to respond aggressively on the cost side. As you think about Q3 and Q4, we're starting to see a recovery curve positively sloping and we want be sure that we can benefit that recovery and that's why we didn't make a lot of permanent cost reductions in Q2. It's positively sloping.

It's still considerably negative than it was last year. We find ourselves in a strange position where down 30% sounds pretty good because of Q2, but in the scheme of things, it's still something we have to respond to. So I think the right way to think about it, Avi, without providing hard numbers is while we see improvement in Q3 and sequentially, I think, to the rest of the year, we're probably still a ways off from returning to normality or returning to 2019 levels. Consequently, company will have to continue to make decisions on the cost side. So nothing to announce at this point in time, but I think you should expect the company to continue to be aggressive on the cost side and that some of the future initiatives may be more permanent in nature than what you saw in Q2.

Speaker 7

Thank you. And then in the release, you talk about deferred, revised and canceled sales contracts. Is the deferral a meaningful piece of the revenue hit? And any visibility as to at all as to when that might come in? It seems perhaps a little more positive than outright cancellations.

I'm trying to understand how that may flow through. Thank you.

Speaker 5

Let me take a run at that and Brian or William you can jump in as well. We really I mean think about a movie release that was scheduled originally for April, got moved to July, maybe got moved to November, and then maybe got moved to 2021. That that would be multiple deferrals. I guess what my what my point would be is that quantifying that is is really quite difficult for you. I guess what I'd characterize is that you should think about the pressure on our revenue side in two ways.

There are sales we didn't make because we were busy renegotiating contracts, particularly during the early part of the crisis, that affects downstream time because we do front load a fair bit of our sales. And then there's the actual movement, within a quarter. I think that the biggest movement within a quarter in terms of cancellations and deferrals is probably behind us, know, touch wood. But that other factor of sales we didn't make during those times because we were busy moving things, you know, has a has a lag on effect. And that's gonna be one of the things that, you know, is a a force against rapid revenue recovery.

So sorry I can't quantify that for you, but hopefully, it gives you a feel. I don't know, Brian or William, if you'd add anything.

Speaker 2

No. I think the only thing I would add from what we've been seeing in Europe is that there undoubtedly has been some pent up demand that has been deferred from quarter two and is being is part of the strengthening that we're seeing in quarter three. But again, I would reiterate, it's very hard to quantify how much of that is deferred and how much of it is new money coming in.

Speaker 7

Fair enough. And lastly for me and thank you for the time. So beyond operational improvements and asset sales, I'm wondering if you can talk about maybe other paths of reducing leverage and whether that be winning new business, which maybe has been obscured a little bit just in the midst of the pandemic and then potentially if it were to avail itself discounts being able to take a potential discounts on debt levels if available. And maybe relatedly just back to the potential of winning new business, does your liquidity position make you I guess more likely to be active on the new business opportunity front in terms of bidding for contracts? Are you going to maintain your normal discipline?

And again, thank

Speaker 6

you all for the time.

Speaker 3

Sure, Avi. And I'll respond initially, Scott and William, feel free to chime in. I think first hopefully it came out through the comments that we've made up to now, our focus has been on liquidity. There was a real pivot from where we were at the end of the summer after recapitalizing the company and felt like we had line of sight to a path to deleveraging. COVID, much like it impacted a lot of companies, has derailed us a little bit on that journey.

But as we've pulled the levers we needed to do, as we built up liquidity and as we see recovery in the business, we do need to look further out. Part of that is going back to our core position of wanting to generate additional free cash flow and delever. It starts with fundamentals and that's focusing on the business. An important part of that will be being disciplined by choosing the right investments to grow the business. We've done a lot of work, whether that be contract wins or digital conversions or investment in technology that we think will improve the value of the business and our ability to deliver benefits to our customers, that's first and foremost.

When you've mentioned asset dispositions, I think we've been clear and communicated that we're open. Much like whether you're a buyer looking to acquire businesses or a seller looking to sell businesses, this is a challenging time. There's significant valuation gap. And so that's probably something we'll wait and see. As the recovery improves and we get back to historic levels, I suspect that's something that will heat up a little bit.

Not seeing a lot of discounts on debt. Certainly, that opportunity existed, may be a good use of excess liquidity. I'm not sure after just having built the balance that we have that we would be in a position to call any of it excess. But at the same time, as we start to realize what we believe is the recovery curve in front of us, we may change our minds about that and utilize excess cash in one way or the other. So I think in a lot of ways, it's still the options that we had in front of us pre pandemic.

It's just that you want to be very careful and thoughtful and make sure you're on the other side of this thing before you do anything that jeopardizes the comfort of the position that you currently find yourself in. I don't know, William or Scott, if you have anything to add. But that's kind of my question.

Speaker 2

Yes, I'd add one thing for the avoidance of any doubt that maintaining our discipline or even increasing the discipline that we apply both in looking at new contracts, new business, any new opportunities, but also the discipline around any disposals and ensuring that we get the right value. That will absolutely be a part of how we move this business forward. So I think the rigorous discipline that we have applied in the past will be, if anything, ratcheted up as we move forward.

Speaker 7

Thank you for the time.

Speaker 6

Thank you.

Speaker 0

Your next question comes from the line of Lance Vitanza with Cowen.

Speaker 8

Hi, guys. Thanks for taking the questions. Sorry if I missed this on the call, but with respect to the segment operating results, I was a little surprised to see corporate expenses up year over year. I was wondering if there's any color there and what we should expect directionally as we think about the back half of the year? And then I have another question as well.

Speaker 2

Yes.

Speaker 3

We are now just finalizing kind of the stages of exit from the transition services agreement that we had with iHeart. And so what you may be seeing is some, you know, the final spend in in getting the infrastructure largely technology related kinda up and running. But I do think that at the August, we will that's our anticipated exit date from the TSA. You'll see a more normalized corporate expense profile. I would say that'd be in the 110,000,000 to $115,000,000 range on a go forward basis once we kind

Speaker 9

of flush through

Speaker 3

these last final stages of the exit. That's significantly lower than what was a run rate corporate expense in 2018. Of course, that included the copyright fee. So we feel pretty good about where we landed. Some incremental costs above what would have been the corporate expense run rate less the rights agreement, the trademark license agreement payments that we had.

And that largely just reflects, you know, certain costs that related to to the the stand up. You know, it's a separate business. There are certain technology, certain, you know, executive fees that you have that you didn't have before, but that amount offset by certain efficiencies that you found. But I think the 110 to 115 per annum is probably a good run rate. And as and if that changes, we'll be sure to communicate that.

Speaker 8

Perfect. Thanks, Brian. That's helpful. And then William, you had mentioned toward the end of your prepared remarks, if I got it right, that you're open to accretive dispositions that would perhaps help you delever balance sheet more rapidly. Could you talk in general about the environment for M and A right now?

Are deals getting done? Have sellers kind of capitulated on valuation? Or are buyers comfortable paying pre COVID prices?

Speaker 2

It's a great question. And I think the truth is, I would say, it is a difficult environment for M and A. And certainly, in our sector, I've not seen a great level of activity since the pandemic started. And frankly, I would be surprised if in the current environment, there were deals being done because of the challenges around valuation as imply. So short answer is, I don't think there's a lot of activity going on at the moment.

And I doubt there will be until we start to see consistency in the timing and scale of the recovery.

Speaker 8

Makes sense. And one quick last one if I could, actually I forgot. On the interest expense forecast, I think it's up about $40,000,000 year on year we think about 2021. I know obviously you've got the BV notes that adds about $25,000,000 to the run rate, but where is the extra $15,000,000 coming from?

Speaker 3

Yes, I'd have to compare our different views on it, but my guess is, it's the long interest payment date on the CCIBD notes. Our first interest payment is in April, and so it will include not only your your $20.20 interest expense, but your your I'm sorry. Not only your twenty twenty one interest expense, but your twenty twenty interest expense. So that long interest payment date probably just off the top of my head, it probably accounts for the majority of the $15,000,000

Speaker 8

Makes sense. Okay. Thanks, guys.

Speaker 0

Your next question comes from the line of Aaron Watts with Deutsche Bank.

Speaker 10

Hi everyone. Thanks for having me on. A couple of questions for me. I guess first encouraging to see the step in the right direction on kind of your revenue performance from 2Q to 3Q. Are you able to put any goalposts around where The U.

S. Falls within that guidance and where Europe is trending?

Speaker 3

I'm sorry, Aaron. I misheard or I didn't hear the whole question. It's the second time I've had to ask somebody to repeat it and I apologize. But could you repeat the question?

Speaker 10

No trouble. So I'm just curious that within the low 30% guidance for 3Q, are you able to put any goalposts around where The U. S. Is falling within that and where Europe is trending within that?

Speaker 3

Yeah. You know, we didn't we didn't come out and and give any specific color on the on the two different operating groups. I think you can you can from what we did say and and what we're talking about that the improvement is a little clearer in the European side. They were more greatly impacted, but they were also kind of we're seeing signs of recovery that's a little more rapid. So I think the 30% zip code is pretty good for both entities, but just kind of using the information that we've talked about, it's probably Europe's a little better.

They're emerging a little faster from the lockdowns and there may be a little more pressure kind of on The U. S. Who obviously didn't have the quite as significant as a drop in Q2. But you live in The U. S, you read about some of the things that are impacting it, including the strong position we had in the South and in the West and kind of some of the pandemic issues that are going on there.

So I think as much as I can say is that's a good number for the consolidated entity. And if you were to ask me kind of how the segments look, I'd say Europe is probably a little on the strong side of that and The U. S. Is a little bit on the other side of that, but all within a very, very narrow band.

Speaker 10

Okay. That's helpful context. And then maybe focusing on The U. S, any kind of themes you can call out or talk to around pricing and occupancy on the billboard business perhaps over these last few months or what you're seeing in the next couple of months relative to what you experienced during the last recession?

Speaker 5

So I'll take a run at this one and Brian and William you can chime in after. I mean I think the thing to keep in mind is this recession and this downturn is entirely different than the last one. The speed with which we went in, the broad the breadth of going in initially, and then the diversity of verticals based on who's having a good COVID and who's having a bad COVID, are all really different. And then you factor on top of that, programmatic out of home didn't exist, the last time. You had a very different dynamic in terms of how much of our base was digital.

And so I think it's really hard to look for answers to what's going on this time by looking back at what happened last time. And I think the other thing that I just really emphasize is we don't really we've never really we haven't talked about rate and occupancy for years. It's because we are very focused on yield management and that is, you know, it was obviously incredibly challenging during the sort of March April timeframe. That dynamic is getting better and we are working very hard to strike deals that make sense for both parties as we work through this. And it really is not something I mean, we've really never given any historical guidance that would help you bridge to anything I was going to tell you about this environment.

But you can imagine that it's a very tough negotiating environment, and I think that probably gives you, you know, as much as I'm I'm gonna be able to give you on that one. But it's very different than o eight, o '9. I mean, I lived through it in o eight, o '9, and and it that was a very different dynamic than what we have right now.

Speaker 10

Understood. Okay. And maybe just one last one for me. Appreciate that the airport business is a smaller piece of your overall pie, but curious, just as maybe we start to get some green shoots and return to travel and some travel more travel being allowed, are do you have any pent up demand for that inventory? Or any kind of things you can talk about as you sit today with how that business might cover?

Speaker 5

So the airports is an interesting business because it's like our traditional roadside business, there's multiple segments of it. You have an installed base that's actually pretty stable and has been stable throughout that is doing advertising on things like hotel rooms and car services and things like that. You then have a segment that is focused on luxury goods. You have a segment that is focused on reaching high end business travelers. And I guess what I'd say is that the sort of endemic travel related part of the business has been hit less than the luxury or business travel oriented parts of those businesses.

And I think that we're going to need to see some rebound in air travel before we see a lot of it's not the first place in our portfolio that people are looking to place money right now. That is certainly the case.

Speaker 10

Okay, great. Thanks for the time.

Speaker 0

Your next question is from with Wolfe Research.

Speaker 4

Good morning. I was hoping you guys might be able to drill down a little bit in terms of underlying categories. I think clearly things like traveler especially hurt. But what really needs to recover to accelerate and bring the recovery into focus? And then any color on geographic trends, large markets versus small markets perhaps?

Speaker 3

Do you want to take

Speaker 2

it to The U. S, Scott, and I'll come in behind on Europe.

Speaker 5

Sorry, sorry I was talking to mute. William, I'll be happy to give the first wave here. In terms of the things that need to come back for recovery entertainment, amusements, retail, those are sectors that are important sectors for us. I mean, food to a degree, but probably probably entertainment, amusements and retail are the ones that we most are looking for rebound to help truly say that we have a recovery going overall. Technology has been mixed.

There have been a number of players that have sustained their investment or even increased it. There have also been a number that have pulled back pretty aggressively. So, you know, it's really when we get to a mode where amusements are open and theaters are are are open and, you know, we're promoting those businesses that way that we'll we'll see the the the recovery really really starting to to engage. William, I don't know if there's things you'd you'd add internationally.

Speaker 2

No. I mean, I think internationally, it's probably fair to say that the kind of the star performer has been automotive, which I think reflects both the fact that our car dealerships were closed the pandemic and wanted to get customers kind of back in their showrooms and that perhaps people are more interested in car travel than they were were prior to the pandemic for obvious reasons. So that's been a still outperforming category. And packaged goods have held up very well across Europe. Grocery retail sustained some during the period and packaged goods have been supporting that as well.

So those are the main issues. And I think I'd agree with Scott in terms of the categories that you need to see to return before you feel you've got a full recovery underway.

Speaker 4

Understood. And then I guess lastly, you guys are in a unique position of having the global assets and it sounds like Europe is a couple maybe one step ahead in terms of the recovery process. Are you guys learning anything from Europe that might be able to help you in The States just in terms of timing and how best to serve those customers as the recovery takes hold?

Speaker 2

Yeah. I mean, I think the I think the the one thing you're learning is that the the the the positive, I guess, that you're learning is that as the lockdowns are lifted, as people return to the streets. So advertisers are coming back into the markets. And I think any concerns we had that this would be in any sense a permanent state have been allayed. We're seeing our audiences return and we're seeing advertisers come back once those audiences are back.

I think the other thing that we have perhaps underestimated in the past was that, you know, one of the things we've learned about the pandemic, about the virus is that you're much safer outdoors than you are inside. You're much safer out of home than you are in home, and we are an out of home medium. And I think that is playing to our strength because throughout Europe as the lockdowns have lifted, you've seen people returning to high streets, returning to outdoor environments and that obviously plays to our strength. And then the final thing I would say in terms of the activities that we've been undertaking and we're doing this as S.

As we are anywhere else is just maintaining those dialogues with our advertisers, with their agencies and continuing to look for flexible ways in which we can encourage them back into the market and that is certainly paying off for us as we see things coming back.

Speaker 4

Great. Thanks so much.

Speaker 0

Your next question is from Jason Bazinet with Citi.

Speaker 11

Just one quick question. If we look at the dichotomy in the top line between Europe and The U. S, is it fair to say that the vast majority of that is a function of the asset mix that you have, meaning billboards, street furniture, transit and the link to those traffic numbers you talked about and very little of it has to do with differences in exposure by vertical? Thanks.

Speaker 2

I think that's a fair characterization. Certainly I don't think the difference is around the different advertiser base that we have. I think it's significantly to do with the inventory that we have, the sharper decline in Europe versus The U. S. In quarter two.

The European inventory, as I think we've said before, the European inventory is primarily small format street furniture in city centers, whereas in The U. S, we're much more the big billboards on the highways and that traffic has held up better in The U. S. During the pandemic. So I think it is much more inventory based.

We also have a higher proportion of digital in Europe than we do in The U. S. And that made it easier for advertisers both to stop activity more quickly and equally at the other end to come back into the market more quickly and we're seeing that reflected now.

Speaker 11

That's super helpful. Thank you.

Speaker 0

Your next question is from Jim Goss with Barrington Research.

Speaker 9

Okay. Thank you. Just one thing. There is sort of a disconnect between traffic and the ability and willingness of advertisers to allocate funds that would be dependent on end market demand. I'm wondering if you could talk about how this situation has been more extreme in this particular case and how you think that might then create the ability to snap back a little bit more?

Speaker 5

Are you asking in contrast to 'eight, 'nine? Is that

Speaker 9

No, no. Even just in terms of normal times, I think you do have you've talked about the entertainment retail amusements coming back. I think national probably has a potential to come back. But a lot of one of the issues has been availability of impressions and now that you've talked about the traffic coming back quite a lot, but it maybe that's not been enough because the advertisers have either looked at end markets that are that they have some concern about or their own budgets and costs they want to manage. I'm just wondering if how those dynamics are playing out in terms of your ability to improve your profitability again?

Speaker 5

Sure. Well, I'll give a run at it from a U. S. Perspective and William or Brian you can pile on with other views for other geographies. I think we actually talked about this a lot on our Q1 call, that there were two things that were in play this time, which is different from a typical recession.

Thing one was the fact that so much traffic was reduced so much and businesses were closed and had a very different dynamic than you usually don't have a recession start on a date that you can name. This you could absolutely name dates in March by each geography that that things got shut down. And I think at that early stage, people were very hopeful that it was gonna be, you know, temporary, a short thing. It was gonna, you know, pass through, and and we would we would bounce back. And I think what's happened over time is that some of the things you refer to in terms of people looking at their budgets and looking at their P and Ls has come into play.

And you've gone from what was a dislocated crisis driven by, you know, things being shut to people realizing that their individual businesses may not come back as quickly. And again, there are people who are having a very good business during COVID. I think you've seen that during this earnings season that there's there are businesses that are profiting mightily during this time. So I do think that we have an ability I think given the momentum that we had fundamentally in the marketplace heading into this and given the momentum that outdoor as a category has and some of the things William was just talking about in terms of it's better to be out than in, those are all things that that work to our favor. But I think what we're going to be fighting against is going to be people managing P and Ls.

And at least in The United States with the spiking in the South and West that came in sort of late June and early July, that took the wind out of the sales of a number of advertisers that we're thinking about coming back in. And we've kept in tight dialogue and I expect that they will be coming back into the marketplace, but we kind of need to see cases coming down across the country to have some of those big advertisers come back. So I think the potential is there, but I do think that people have shifted their focus to more conventional recession thinking than to crisis mode. William, I'll hand it to you there.

Speaker 2

I think that's right. I mean, would just underline again that it's true throughout history that no two recessions are alike. But I think it's even more true this time around. I don't think it is technically obviously a recession, but I don't think it has very much in common with anything we've seen before. And I certainly don't think it has very much in common with 02/1929.

It's totally different in terms of focus causes and the way it's going to play out from everything that we're seeing. I think that was the last question. So thank you for that. I just wanted to conclude with a couple of thoughts. First of all, to thank everybody for joining this call, for your attention and for the excellent questions that you've asked.

I think we, without a doubt, are glad to put Q2 behind us. I think everybody and almost any business around the world will be glad, would have been glad to see the end of that quarter. I think we are encouraged by what we're seeing in Q3. We've made that very clear in terms of the guidance that we've given. I think the way the pandemic is playing out, Europe was first in and has been first out.

And I am significantly encouraged by what we're seeing in the European market. As Brian said, a decline of 30% or 25% isn't something to celebrate, but it's clearly significantly better than a decline of 50, 55%. So we are cautiously optimistic, as we said in the opening remarks, about the way in which the resilience of our business and the way in which as our audiences return to the streets, our advertisers are returning to our Boards and that is good news. I would say any recovery is hugely dependent upon the way in which the pandemic is controlled. We've seen that, as Scott just referenced, we've seen that in The U.

S. As we've had some spikes, we've seen advertisers retreat again. And so any forecast, any prediction, any comments we make about the future are inevitably going to be dependent upon the way in which the governments behave and the way in which the pandemic behaves as a result of that. So it's very tough in any position like this to be so dependent on things that are outside of your control. I think we have been very controlled in the way that we have managed our cost base in Q2.

And as we said in answer to our earlier question, we will continue to be utterly vigilant on costs as we go through this uncertain period. So I think with that, I will say thank you all very much indeed for joining our call. We look forward to keeping you updated in the coming weeks and months. Thank you very much.

Speaker 0

Thank you. This concludes today's conference call. You may now disconnect. Speakers, please hold the line.