Clear Channel Outdoor Holdings Inc (CCO) 2011 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Clear Channel's Second Quarter Earnings Call. For the conference, all the participants are in a listen-only mode. There will be an opportunity for your questions. (Operator Instructions) As a reminder, today's call is being recorded.

And with that being said, I'll turn the conference over to the Head of Investor Relations, Mr. Randy Palmer. Please go ahead, sir.

Thank you for joining us for our second quarter 2011 earnings call. Joining me today for the call are Tom Casey, Executive Vice President and Chief Financial Officer and Brian Coleman, Senior Vice President and Treasurer. On today's call, Tom will provide an overview of the second quarter financial and operating performances of CC Media Holdings, Clear Channel Communications and Clear Channel Outdoor Holdings. For purposes of this call, when we describe the financial and operating performance of CC Media Holdings, we are also describing the performance of its subsidiary, Clear Channel Communications. After Tom's comments, we'll open up the lines for questions.

Before we begin, I would like to remind everyone that this conference call may include forward-looking statements that involve uncertainties and risk. There can be no assurance that the management's expectations, beliefs and projections will result, or be achieved, or that actual results will not differ from expectations. Please see our annual reports on Form 10-K and our quarterly reports on Form 10-Q filed with the Securities and Exchange Commission for a discussion of important factors that could impact our actual results.

Pacing data information may be mentioned during this call. For those not familiar with pacing data, it reflects revenues booked at a specific date versus the comparable date in the prior period and may or may not reflect the actual revenue growth at the end of the period. The Company's revenue pacing information includes an adjustment to prior periods to include all acquisitions and exclude all divestitures in both periods presented for comparative purposes. It also excludes the effects of foreign exchange movements.

During today's call, we will provide certain performance measures that do not conform to Generally Accepted Accounting Principles. We have provided schedules to reconcile these non-GAAP measures with our reported results on a GAAP basis, as part of our earnings press releases, which can be found on the Investor section on our websites.

A webcast of this call and the earnings press releases that were issued today can be found on the Investor section of our websites at clearchannel.com, clearchanneloutdoor.com, or ccmediaholdings.com. A replay of this conference call will be available for a period of 30 days.

And with that, I will now turn the call over to Tom Casey.

Thank you, Randy, and good morning, everyone. My comments today will be focused on three areas. I'll review CC Media Holdings and Radio results, then review Clear Channel Outdoor Holdings, including the Americas and International results, and finally, I will review our capital spending and liquidity profile.

In the second quarter, CC Media Holdings revenue increased 8% to $1.6 billion. Our revenues would have increased 4% excluding the effects of foreign exchange rates for the quarter. This marked our sixth consecutive quarter of increased topline results. Our performance is primarily driven by growth at our Outdoor operations, particularly from ongoing growth from our digital assets.

The advertising recovery moderated during the quarter and we continue to benefit from the global diversification of our portfolio, as well as the leadership position of our assets. We also continue to benefit from our streamlined organization and our focus on aggressively managing our expenses. We generated OIBDAN of $503 million during the quarter, a strong 10% increase over the second quarter of 2010.

We clearly have strong operating leverage in our model, affording us the ability to convert a substantial portion of our topline gains into improved cash flows from our business operations. At the same time, we have the flexibility to continue to strategically invest in our digital assets, principally our digital boards in the US, the roll-out of our iHeartRadio digital platform and key contract wins in our International operations. We believe these investments will strengthen our strategic position and revenue outlook over time.

Now, let me turn to our Radio business. During the second quarter, our Radio revenues increased 4% to $781 million, reflecting the acquisition of Westwood One's traffic business along with an increase in our digital revenues. We have continued to focus on our national platform encompassing national reach with great local brands and personalities. This revolves around our strong ratings and improved market share due to our market footprint, our yield management systems, our digital platform and being wherever our customers are with the products and services they expect and want. Categories that performed well during the quarter include food and beverage, financial services, media and home improvement.

We continue to focus on our digital business where we again saw an increase in revenue during the quarter. Across our digital business, we are continuing to see positive momentum. A total of approximately 31 million downloads of our iHeartRadio application, up sequentially from 26 million downloads at the end of the first quarter 2011. And monthly uniques, which include online mobile business, of over 30 million, up from 29 million uniques last quarter.

During the second quarter, we were clearly impacted by the slow growth in the US economy. In particular, we saw some declines in some key verticals, including auto, telecom and retail to name a few.

Radio OIBDAN was $309 million for the second quarter of 2011 compared to $313 million in the second quarter of 2010. This decline was primarily driven by the increase in expenses associated with the Westwood One traffic business, digital initiatives and some prior period adjustments.

Turning to the third quarter, bookings in our Radio business have continued to be challenging and visibility remains limited. We also entered the quarter understanding that, as the quarter progresses we will not have the same benefit that we had last year from [political sector].

However, we do currently see a rebound in some of our verticals such as oil. As of the end of last week, we are pleased with overall Radio revenue pacing out at approximately 3% for the third quarter, as compared to the prior year period.

Now, I will turn to our Outdoor business beginning with the recap of the overall Outdoor company performance. Clear Channel Outdoor Holdings reported revenue of $789 million in the second quarter of 2011, a 13% increase from $701 million reported for the second quarter of 2010. Excluding the effects of movements in foreign exchange rates, the revenue increase would have been 6%.

As a result of higher revenues and a more efficient infrastructure, Clear Channel Outdoor Holdings' OIBDAN grew 28% over the second quarter of 2010. OIBDAN was $210 million for the second quarter of 2011, compared to $164 million for the second quarter of 2010. Clear Channel Outdoor Holdings' OIBDAN, as a percent of revenue, improved to 27% from 23% in the second quarter of 2010.

During the second quarter, Americas Outdoor revenues increased 5% to $341 million, reflecting growth across bulletin, airport, and shelter display types, particularly our digital displays. Americas OIBDAN rose 17% to $138 million. We had solid performance across many of our markets for the quarterly period with a mix of both large and small markets performing well. Categories that were particularly strong for the second quarter include banking and financial services, telecommunications, healthcare and business services.

As of June 30, we had deployed 711 digital displays in 37 US markets, including 96 displays that were installed during the first half of 2011. Over the past 12 months, we have installed nearly 190 digital displays. We were actively managing our digital deployment and continue to see opportunities to grow our footprint. Based on our view today, we now expect that we will be deploying 160 or more digital displays this year. This is up from the target of 120 that we noted early in the year.

Looking ahead, during the current quarter, visibility remains limited, as we continue to witness a gradual recovery in the US economy. As of the end of last week, Americas Outdoor revenues were pacing up approximately [3%] for the third quarter as compared to the prior year period.

Now, let me turn to our International operations. Our International Outdoor revenues for the second quarter increased 19%. And excluding the impact of foreign exchange, International revenues for the second quarter rose 6%. Revenue growth at our International business during the second quarter was primarily driven by growth from street furniture across most of our markets, including such countries as China, Sweden, Switzerland, Australia and New Zealand.

As a result of our revenue growth and the improved margins across a number of our countries, International OIBDAN saw a significant increase of 36% in the second quarter of 2011, as compared to the second quarter of 2010. Excluding the impact of foreign exchange, International OIBDAN for the second quarter of 2011 rose by 25%. International OIBDAN, as a percent of revenue and excluding the effects of foreign exchange, improved to 22% from 19% in the second quarter of 2010.

Our International operations had a very good quarter, both from a revenue and OIBDAN perspective even when adjusting for the benefit of foreign exchange. We're pleased with the performance delivered by our International team, as we continue to see the benefits of restructuring efforts and the success we have seen in winning several new contracts across some of our markets.

During the third quarter, our International businesses continue to attract demand from advertisers, with street furniture continuing to lead the way. However, economic uncertainty does still persist in some of our markets and visibility does remain limited. As of the end of last week, International Outdoor revenues were pacing up approximately 2% for the third quarter as compared to the prior year period.

Looking at our total capital spending for the second quarter, CC Media Holdings spent $76 million, compared to $48 million in the second quarter of 2010. Much of this spend, $59 million, was in the Outdoor business and included the ongoing build-out of our digital board footprint and various street furniture and transit contracts. At the beginning of this year, we noted that we expected to deploy approximately 120 digital displays during 2011. And we expect CC Media Holdings' capital expenditures to be in the range of $275 million to $325 million and we expected 75% of that to 80% of that spend to be the Company's Outdoor business.

As I noted earlier, we now expect that we will be deploying 160 or more digital displays this year and that CC Media Holdings' CapEx spending will be in the range of $300 million to $350 million, with 80% to 85% of that expected to be in the Outdoor businesses. This increase in CapEx reflects the additional digital displays opportunities along with some strategic street furniture contract wins that I mentioned earlier.

Clear Channel Outdoor Holdings' net debt stood at $1.94 billion and leverage under its indentures stood at 3.3 times as of June 30, 2011, compared to 3.7 times as of June 30, 2010.

As we look at CC Media Holdings' net debt as of June 30, 2011, it stood at approximately $19 billion. Clear Channel's senior secured leverage as defined under its credit agreement was at 7.1 times as of June 30, 2011 compared to 7.3 times as of June 30, 2010.

During the second quarter, Clear Channel repaid at maturity approximately $140.2 million in aggregate principal amount of its 4.4% senior notes. In addition, in June 2011, Clear Channel issued an additional $750 million in aggregate principal amount of 9% priority guaranteed notes due 2021. I pointed to additional details regarding the priority guaranteed notes and the debt repayments are provided in the SEC filings included in our second quarter 10-Q.

We feel good about our progress managing our liquidity and maturity profile, and CC Media Holdings ended the quarter with approximately $1.2 billion of cash on the balance sheet. We will also have very little in the way of debt maturing over the next two years. You should expect that we will continue to evaluate our capital structure going forward, which includes addressing Clear Channel's future maturities primarily in 2014 and 2016, while continuing to focus on growing our business operations.

So to recap our results and outlook, the overall ad market recovery moderated during the second quarter, but we grew our topline for the sixth consecutive quarter and we drove further improvements in our margins, highlighting the global diversity of our portfolio, the operating leverage in our model and the execution of our strategic initiatives.

Looking ahead, while the economic recovery has been slower than expected, we remain optimistic and we believe that we can continue to drive returns from our business given the leadership position of our assets, the innovation we are driving across our portfolio and our commitment to managing across and further enhancing our profitability.

That ends my prepared remarks. Operator, we are now open for questions.

(Operator Instructions) James Dix, Wedbush Securities.

Good morning, gentlemen. Just a couple questions on the Outdoor business. First, any color you could give on the difference between national versus local growth in the second quarter and in your third quarter pacing? And then secondly, any [impact] that you've seen [in any particular] categories, in particular, auto or anything else due to the supply chain disruptions from Japan? And then I had one follow-up on operating expense.

Okay. Well, thanks, James. Just on Outdoor, for the quarter, locally -- local actually outpaced national growth in the quarter mostly due to some tougher comparisons. We did see some downturn in auto, but the way as we looked at the third quarter, we're actually seeing national bouncing back nicely. So in Outdoor, we feel pretty good about our national business.

As I mentioned in my prepared remarks, for the second quarter, we saw a strength in banking, financial services, telecom, healthcare and business services. As we look to the third quarter, where we see some strength is in business services, media and entertainment, and healthcare are some of the ones that stand out right now.

Okay, great. And then just on operating expense, I mean, obviously the operating leverage for the Outdoor business has been very strong. I mean, are you expecting relatively similar trends in operating expense growth for the balance of the year, anything we should be thinking about in terms of either comps or anything that would change that? Thanks.

I think both our International and Americas businesses are both focused on margins and performing at very, very high levels of operating margin. So I would see a continued stability in that area. Clearly, quarter to quarter we may have higher expenses coming through, but overall, we feel very good about our expense base and the operating margins [we see].

Great. Thank you.

Marci Ryvicker, Wells Fargo.

Hi. This is [Kevin Bisant] for Marci. I have just two questions. First, JCDecaux talked about rationalizing inventory in France. So what exactly are they doing with that and how is this going to -- what are you doing to respond to that and how is it going to impact your numbers? And then one follow-up on digital, if you don't mind.

Yes. With regard to prints inventory, we've commented on that in the past, we've been doing that over the last couple of years. We think that we'll continue to improve the yields in that market and we saw favorability from our activities and would expect that could be a benefit going forward.

Okay. And on the digital, the new boards that are going up, are you putting more in the same markets that you're already in or are you exploring new markets and starting new markets on a digital strategy?

With regard to digital, as I think we've commented before, we are actively pursuing a host of opportunities in many, many markets, both building out our existing networks that we have, as well as entering into new markets. So that the effort is really in both areas. Clearly, as we've recalled -- commented before, we're working through all the regulatory issues that are required to get those networks up, but we are working both in new markets, as well as building out our existing.

Great. Thank you very much.

David Miller, Caris & Company.

Yes. Hey, guys. Just a question on your digital business, could you guys just break out how the digital outdoor business did in the second quarter relative to your United States performance in the second quarter? And then also, Tom, on the guidance, Americas revenues currently pacing up 3%, we know you guys include sort of the Latin American platform in that. Can you just sort of break out how the United States platform is pacing versus the rest of the Americas platform as whole? Appreciate it. Thank you.

Yes. With regard to digital, we do not break out specifics, but suffice it to say that digital performance is strong. We're obviously adding more capacity in that category. So clearly that's helping the growth rate. But overall, we feel very good about all of our display types in the Americas. And I feel pretty good about that, but clearly digital is a new medium and clearly seeing higher growth than our traditional business.

With regard to Latin America, again we don't break that out, but it's obviously a -- it's a smaller piece of our business and I don't see any differentiation, significant differentiation between what we're seeing as a whole. Clearly within Latin America, there is obviously some pockets are stronger than others, but overall we're not seeing any one area differentiate [in effective] total numbers.

Operator, next question?

Bishop Cheen, Wells Fargo.

Hi, everyone. Thank you for the update. Just on the page for the reconciliation of covenant EBITDA to OIBDAN I guess. And then looks like it's about $117 million add back LTM, am I doing that right? I'm trying to determine the covenant EBITDA.

Yes, I think that's right, Bishop.

Okay. All right. And secondly on housekeeping, you expect to file the Q when, this week?

Today.

Okay. And then last, got a little jump up when you're talking about -- you're upping your deployment of digital boards for the year. So can I just go over that again real quickly? The goal now 160 for the whole year?

That's correct.

96 has already been deployed.

That's correct.

Okay. And then you've upped the CapEx for the year to $300 million to $350 million, of which I think you said 80% will be Outdoor?

Yes, 80% to 85%.

80% to 85%, that's correct.

85%. Okay, that's it. I feel back to the line of scrimmage. Thank you.

Stacey Finerman, Goldman Sachs.

Hi. Thanks for taking my question. You briefly mentioned that you look at the 2014 maturities. Can you give us any update on that?

Well, as we've commented in the past, we've been focusing on our liquidity and capital position really since the beginning of the year with our first offering in February and then following on in June. My comments about 2014 is, is that really is the next significant maturity profile that we need to address. The maturities that we have between now and 2014 are -- either have been pre-funded already or are pretty manageable with our cash balances. So I think what we're trying to do is we've said before is, position the Company to start to deal with the 2014 and 2016 maturity stacks.

And will you -- I mean, are you going to try and just go after the 2014 first, or go after them both? How do you think about that?

I think it's a little premature to comment on exactly how we'll address it, but I think we're focused on it and we want to do it in the most efficient way. And I think our activities in the last six months indicate our position on that. So, I don't have anything to share with you today on how we would address each of those, but clearly, we've got those in our sights and we're actively thinking through the alternatives.

Okay. Thank you.

[Tim Daggett], Citigroup.

Hi. I've got two questions for you. Did you guys have any restructuring charges in the quarter? And how much of the revolver did you pay down in June? Thanks.

Yes, we had no really significant restructurings for the quarter at all. And, Brian, do you want to talk about the revolver?

Yes, We paid down $500 million on the cash flow revolver and then prior to and in connection with the June offering, we completely repaid our ABL and I believe the amount outstanding was in the $300 million to $330 million range. So in total in June, about $830 million of revolver pay-down. Those pay-downs were not permanent and those amounts are available under those facilities to re-draw subject to any restrictions in any other debt agreement. Did that answer your question, Tim?

Oh, yes. Great. Thanks. Actually, one last question, the $23 million of charges that were in the acquisition of Westwood One, was that a one-time charge or is that just charges associated with the revenue that you got from that business?

Yes. Those include the operating expenses of the acquisition, plus some transaction costs that we incurred for the transaction itself. But that is the operating expense predominantly.

Thanks.

Doug Arthur, Evercore.

Yes. Good morning. Just on Outdoor internationally, 6% growth ex FX in Q2, you're guiding to 2% in Q3 if I heard you correctly. Can you sort of flesh that out a little bit in terms of where you're seeing the slowdown?

Doug, just to keep my word, it's not a guidance, it's just the pacings where we are today.

Right.

So that's one important piece. I think what we're seeing is that there's still quite a bit of uncertainty in certain markets in Europe, particularly the UK, that we're seeing some slowdown. So we are hopeful that that pacing number will grow for the quarter, but we also want to recognize that certain countries in our international operations are performing stronger than others. Obviously, there's lots of concerns in Europe and that's obviously affecting our business.

But the International business was able to have a great quarter managing through the slowdown we saw in 2Q. And so, we're encouraged by the performance of the International operations. We think they're terrifically positioned to weather these types of challenges with their diverse portfolio across the globe and the work they've done on their expenses, the margins are up nicely year over year. So we're feeling pretty good about our International business.

Yes, now, the second quarter number was tremendous. In terms of the potential slowdown, as you talk about pacings, does that change -- and you sort of answered this before, but does that change your -- how you view operating expenses internationally in the quarter coming up?

Yes, I think the international business has done a wonderful job of managing their expenses. You may recall we did significant restructurings in the last couple of years and you're seeing the benefit of that, with the margin expansion they're seeing, they're managing their expenses in line with the revenue that they're generating. And that's, as you can see, again, coming through in the margins. So we're very, very pleased with the focus and the discipline of the international team on growing the topline. And that you saw this quarter we're also managing their expenses throughout the challenging environment.

Great. Thank you.

Operator, we'll take one more question.

Lance Vitanza, CRT Capital Group.

Hi, guys. Thanks for taking the question. I'm going to actually try to get three in here if I can. The first on the Outdoor side, I'm glad to see the increase in the planned digital boards. I know you talked a little bit about this earlier in the call, but are you seeing any change either favorable or unfavorable in the regulatory posture around the country in terms of the length of time that it takes you to get through that process and get these boards installed?

Lance, not really. I mean, clearly by geography, there's a very local process that needs to be choreographed with the local regulatory authorities. And so, we're not seeing any difference there. Our teams are focused on growing our digital footprint, we're obviously increasing our number so we've had a very good success in the first half. We'd like to continue that success, but it's challenging to know precisely when you're going to be receiving your permits. Once we do receive the permits, we move quickly to put the board up and get it lit up. So, I would say that really no change from what we've seen in the past. It's just a matter of getting these approvals and then executing.

Okay. On the Radio side, I think it was in early June when you put out the 8-K suggesting that Radio was pacing up about 2 points, I think it was at the time. Obviously, given the flat results for the quarter, June must have been down a lot year over year. And so, is June the biggest month in Q2 for you generally, and could you discuss what happened to drive this result? And then, now that pacings are back up, I mean, we've only just gotten through July and pacings are back up to plus 3 again. So it seems like there's been a real swing there. Any comments there?

Yes. Clearly, June's going to be one of the bigger months in the quarter, and we did see some decline. For the most part, we had anticipated and saw auto continue to be strong, but auto clearly was a decline really in the second quarter that we did not anticipate obviously with the things going on with Japan put some pressure on the auto industry. The good news is we are seeing that recovery come through in 3Q and we're hopeful that that momentum continues. But that was, for the most part, the biggest driver of the delta from the 2% we provided to around 1% what we came out with. So auto was a pretty big piece of that.

Great. Thanks. And then lastly, just on the liquidity, just a follow-on on the earlier comments, I heard the pay-downs that Brian walked us through. Could you just tell me where does that leave us as of the end of the quarter in terms of what was drawn on the revolver?

Let's see. I think we have nothing drawn on our ABL facility and then on our primary revolver, we divide it into two parts. So we have -- I guess the sum of those two parts is $1.27 billion, about $1.3 billion.

Okay. Just rounding out to $1.3 billion and that's a $2 billion facility, so perhaps $700 million plus of availability there. And then is the AR line, is that still a $625 million facility?

It is. The one thing I would caution, Lance, is we used the primary revolver as -- to issue LCs, so we actually disclosed in the footnotes in the Q both what is outstanding and what is available. So I think the number that is available under the revolver is something in the range of $580 million.

On the ABL, while it's a $625 million facility, keep in mind that is also limited by our borrowing base. So it's been lesser than the two numbers. We don't disclose the borrowing base. So when you think about liquidity, I think it's fair to say we have $580 million under the revolver, plus the lesser of $625 million or a borrowing base under the ABL available to us.

Plus the $1.2 billion of cash?

Plus the $1.2 billion of cash.

Okay. Great. Thanks, guys.

Okay, thanks. Thanks everyone. That completes today's conference call. We appreciate each of you joining us today. If you do have follow-up questions over the next week or so, please feel free to contact us.

Thank you very much.

Ladies and gentlemen, that does conclude your conference. Thank you for your participation. You may now disconnect.