Q2 2020 Clear Channel Outdoor Holdings Inc Earnings Call
At this time all participants are they listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you need to press star one on your telephone if you acquire any further assistance press Star Zero I would now like to hand, the conference over to your speaker today.
Lee Mclaughlin, Vice President Investor Relations clear channel outdoor holdings. Thank you. Please go ahead.
Good morning, Thank you for joining clear channel outdoor holding 2022nd quarter earnings call on the call today are really nickel share Chief Executive officer of clear channel Outdoor holdings, Inc. and Brian Coleman, Chief Financial Officer clear Channel Outdoor holdings Inc. will provide an overview of the SEC.
Third quarter 2020, operating performing a clear channel outdoor holdings, Inc. and clear channel International BV. After an introduction and review of our results well open up the line for question.
Well Chief Executive Officer clear channel outdoor American will participate in acumen, a portion of the call before we begin I'd like to remind everyone that this conference call include forward looking statements. These statements include managements expectations beliefs projections about women and represents managements.
Currently there can be no assurance that management expectations.
Or projection well be cheap, but the actual results will not differ from expectations. Please review the statements of risk containing our earnings press releases and buying for the FCC.
During todays call will provide certain performance measures that do not conform to generally accepted accounting principles. We provided schedules that reconcile these non-GAAP measures without report results on a GAAP basis.
<unk> earnings press releases and the earnings conference call presentation, which can be found in the financial section of our web site Investor Docs clear channel Dotcom. Additionally, we reference our business in China, we're referring to our 51% investment nuclear Meaty limited a public company that trade on the Hong Kong sockets States.
Please note that our earnings release and the slide presentation are also available on our website investor Dotzler channel Dot com.
Our integral to our earnings conference call. They provided detailed breakdown of foreign exchange and noncash compensation expense item was segment revenues and adjusted EBITDA. Among other important information that reason, yes, each site as William and Brian comments on that also please note that the information provided on this call speak only.
And then she views as of today August 720, 20, and May no longer be accurate at the time every place with that.
Please turn to page three in the presentation and I will now turn the call over to William Eccleshare.
Good morning, everyone and thank you for taking to tell him to join debates cool.
So again, we're conducting that's cool like piece today, please bear with US okay, great because he sees true.
I'd like to fill it by saying that I hope you and your families a well looks like.
Yes, it's certainly been an unprecedented quarter for catch on idle and indeed, most businesses around the world and it's one that I don't anticipate repeating.
There's a lot sales was significantly impacted by the Kebede 19 pandemic, yes. Please.
Beginning to see improvement in travel gotten consumer behavior and economic activity varying degrees across all platforms.
As a result, we all think sequential improvement.
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In the third quarter.
Very good company revenues percentage decline to be a nice sexy as compared to same quarter last year with Europe performed slightly better than the U.S. I'd imagine soon enough in the pandemic not.
And if it does the longer so we're confident that our strategy on the resilience about business. We believe the strength of our liquidity position not financial flexibility will continue to support the continuity of a platform and operation through the current environment.
Before I get into more detail then I'll begin to performance I want to take time to thank our employees. So that resilient committee meeting all business through this challenging period.
I believe we as a company can feel proud of what we've done some money through these unprecedented senses.
Moving on slide four I'll provide an overview of our business current environment and views on where the out.
Yes.
[laughter] watch the implementation of look down measure is slated to spread to the 'cause. It 19 outbreak resulted in a significant decline how dependent advertising about what do you say inside and out customers buying decisions and reduced marketing spend.
In the U.S. revenue was down almost 40% in the second quarter as compared to prior year.
You can see in the choke on this slide makes sung Ji hotel the identified an industry organization that provides that thought he tropic nature daily average miles traveled has done about Oh, where it was pretty centric 19.
In Europe revenue was down.
And as compared to second quarter in 29 team.
It makes about market they look down audience paid.
As indicated in the charts on the slide on our advertising pulled back that spending.
Anticipating the downside, we focus on preserving liquidity, including Cogs in cost cuts of over 100 million dollar and capital expenditures savings of $25 million to mitigate the impact to our business in the second quarter and Twentytwenty.
Our team is fully delivered on these initiatives and the cheat the target.
We've taken additional steps to strengthen our liquidity, Brian will go into in greater detail regarding our financial position shortly but I do want to fight like through the issuance of the new $375 million Cc I'd be senior secure nice we increased our available cash.
You include the net proceeds from this transaction, Oh, gosh, increasing to $975 million as I'm sure that you have 2020.
Importantly, we have not looks like as a key part at all strategy.
Further improve all capital structure pay down debt and unlock shareholder value.
When economies rebound, we will continue to evaluate potential transactions, including disposition as long as they paddy reflects a feature the value of the business or region.
I'll focus remains on continuing to an operation in hopes about you about businesses.
What does it drive shareholder value.
Now I will discuss what we're seeing the third quarter as well as actions, we're taking to best position clear channel as economies in all markets begin to rebound.
So far this quarter, we are experiencing positive customer activity, which is reflected in our guidance for revenue to be down to the notes assay, which isn't a chair and improvements at the second quarter, which was down 55 as compared to 29 team.
In the U.S. as you can see on the girl traffic back up to about 95% of the pre credit 19 levels in most of the country.
I think a weekend takes it to 100% Creek has been done them. According to <unk> Paul.
National advertising continues to be weaker than local [laughter] could be very tend to pick about committing to major campaigns, while the virus.
But oh substantive conversations in flight.
A key for this thought about business will be before offering in many of our national advertising set that plans in the fall that again.
Great continues to hold up better than digital due to longer term contracts.
In New York has not gotten some lifted many of them all could have seen a strong rebound in bookings from the day sorry, let is the second quarter well that we still have challenges like something infection rates the could continue to occur.
As you can see on the charts on that side driving walking is close to being back to pre k. the levels with trends, it's still lacking.
We are seeing the strongest for turning bookings in countries, where lumped on restrictions would eat you and when do you imagine plan to well orchestrated Switzerland. For example is one of the first markets. We open that's posted positive year on year Grayson bookings wouldn't call six week.
We're also seeing improvement in from hundreds restrictions in the UK and it seems like being a significant new breed pipeline compared to the second quarter.
About two thirds about revenue in Europe, and some street furniture and Billboard we should we think.
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Great to 15 prevented emboldened supermarkets supermarkets have remained stable throughout the pandemic wallboard being slow to come back.
10% about European businesses in transit, which is being slightly to recover.
As we emerged from long time with the various levels bounce back in certain verticals in some of 'em watches markets in Europe.
That's a big repeat bookings from advertising and package goods telecom infection and DC.
Travel Peck and entertainment Flemish overcome.
The cautiously optimistic about the future with the varying degrees of improvements in trouble patent consumer behavior, but economic activity across all platforms combined with the positive customer activity we are experiencing.
However, our visibility beyond the third quarter is limited.
It's unclear when a sustainable economic recovery will take hold.
We currently expect sequential improvements in revenue performance through the balance of the yes, well the levels no other 29 team.
Given the bearing I've looked by market, we expect implement further cost savings initiatives, including permanent cost reduction through the remainder of the yes.
Our continued focus is on aligning our operating expense base revenues to provide additional financial flexibility that circumstances warrant.
In addition, we will continue to be flexible in front footed.
We knew maneuver through the impact to the pandemic working closely with advertising partners.
Seeking new ways, we believe will serve us well in the long run.
Now please move to slide five.
In the U.S., we've expanded our actually built a recommendation Brent.
That's it into the aid in the sales and the price that's a bill talked about technology could benefit of offline.
Notably radar is helping but some ability.
Yes levels itself.
Well, we did see though and how they're coming back we believe the depth about digital inventory provides the flexibility to quickly ramp up advertising campaign and most effectively target the likes audiences at the bright side.
Recently, we expanded our radar proved to be two separate partnerships.
We partnered with light jets markets to improve wholesale marketing at U.S. travelers are expected to take more rate trips. This summer.
Alright approved tool is not able to ship it looks like either have a outside of AD campaigns deliver sales.
A recent campaign you can write out proof, we were able to demonstrate a 15% increase due the brand sales driven by the outside campaign.
Working with arrival list, we are providing hospitality and travel brands measurable consumer insight into performance analysis for that same advertising campaign.
In a campaign for theme Park, we were able to show that the advertising campaign Dread the 66% average increase in visits and just one thing Paul.
In technology, we're working with our partners to create deepening because that buying system I.
We continue to enhance our programmatic value proposition.
We recently announced a partnership we price exchange, providing digital media BACE program I think accessed clear channel outdoor digital out of time displays true omni channel DSP.
Europe, we're continuing to focus on employing data and technology in order to enhance our revenue in campaign management too.
We've accelerated our ability to provide our clients granular data and insights accurate to demonstrate wouldn't exposure to individual advertising panels.
Okay channel laid out is not being tested in the UK, Spain and if it's similar convenience launch later this month.
In the UK, we launched the return audience.
I'll take it partners.
The help monitors the huge anonymized medical datasets, Cologne and doesn't make sure I'd say at least lingering audiences and pet pre built I know.
Hello demonstrate probability pages of adapted by simple off the shelf somebody should.
Advocate I used by the old getting comfortable.
The helping them see the customer feedback Fritz accessibility accuracy and good to see.
Additionally, recycling some shortened we'd never taxability of digital to respond last minute request.
Moving on now to slide six.
We talked about our resilience during the crisis, we also want to focus on the future and what comes next.
More than anything during this process, we've not the importance of flexibility.
Thanks optimistic about the long term prospects for our business and our ability to return to growth.
I had a problem its favorite be placed in a highly fragmented media market.
We continue to believe along with industry focuses.
Let me industry will continue to grow faster than traditional media. We did you slide if I'm driving that growth.
I mean that in mind, we continue to believe the technology investments made before the pandemic like what it says we continue to make.
But if it too and it's funny how digital footprint.
That's a position of businesses can meet outcome of me.
Before I turn to Brian because it's got the financials in more detail.
Highlights that I corporate social responsibility.
Responsibility initiative.
Made an important part about culture.
Let me global Health crisis, Acos with social political 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.
Let us need to do more continue improving and evolving as an organization.
Most importantly, we remain committed to accomplish and deliver a leading platform in the industry and I'm confident the fundamentals.
The strength of our portfolios and the strategic steps, we've taken to bolster our financial position will continue to support occasional outdoor loan performance and our ability to drive Buddy.
Good luck.
Brian because of stuff, a second quarter Twentytwenty financial results.
Thank you William Good morning, everyone. Thank you for joining our call. This morning.
Please turn to slide seven.
You can see from our earnings release issued this morning, and this slide as expected the quarter second quarter was very difficult.
As 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 firmly focused on building on our books preserving liquidity teams focused on managing operating cost and capital spend has been critical and preserving liquidity.
Today, given the ongoing uncertain ongoing uncertainties and the fact that most of you are likely more focus on the steps, we're taking to improve liquidity in our capital structure I will focus only on the highlights for second quarter results and not provide detail on the performances in Americas in Europe as I've done in the past you can obtain additional details.
Earnings release, and 10-K, we filed this morning and of course, you are always welcome to reach out to the team with any additional questions you may now.
In the past during our GAAP results discussion I'll also talk about a results adjusting for foreign exchange, which is a non-GAAP financial measure. We believe this improves the comparable year results the prior year.
Additionally, we tendered our shares and clear media on April 28, and therefore have only include the clear Media's results for the month of equal.
Consolidated revenue for the quarter decreased 54.9% from last year to 350 million.
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, that's compared to prior year.
Consolidated net loss increased 131 million I'm 11 million in the second quarter 2019 to 143 million in the second quarter 20 Twond.
Adjusted EBITDA was a loss of 63 million on a quarter and excluding FX was a loss of 67 million. This compares to adjusted EBITDA of 180 million and the second quarter 2019.
Americans adjusted EBITDA was 47 million in the quarter compared to 137 million and the second quarter 2017.
Group's adjusted EBITDA was a loss of 69 million in the quarter. Excluding FX was a loss of 71 million compared to adjusted EBITDA of 47 million.
Second quarter 29 team.
Well you mentioned, we recently issued senior secured notes through our indirect wholly owned subsidiary clear channel International TV, which we refer to as Cc RGB.
Our Europe segment consists of the business is operated by Cc RGB and its consolidated subsidiaries accordingly.
Revenue for Europe segment is the revenue for ceasing IDV.
See I D. D revenues decreased 183 million during the second quarter 2020, compared to the same period of 2019 107 million.
After adjusting for 2 million impact from movements in foreign exchange rates. She C.I.D.V. revenue decreased 191 million.
She CRT D operating loss was 99 million in the second quarter 2020, compared to operating income of 17 million the same period and 21 team.
Now on to slide 11 to discuss Capex.
Expenditures totaled 23 million in the second quarter of 2020 down 28 million from the prior year.
We proactively reduced or capital spend to preserve liquidity.
Even with the substantial reduction we get continue to invest in digital and key locations with 19, new digital billboards in the U.S. and over 100, new digital displays in Europe.
Now on the slide 12.
Her channel outdoors consolidated cash cash equivalents as of June Thirtyth, 2020 totaled 662 million, including 370 million of cash held outside the U.S. fire subsidiaries cash balance includes the 253 million received from the sale of quarter media.
Got it was 5.3 billion up 194 million as a result of our drawing on the cash flow revolver at the end of March and exchanging a promissory note in the principal amount of 53 million for the company series, a perpetual preferred stock.
Cash interest payments for debt during the second quarter were 9 million.
Was down compared to the prior year due to timing of interesting.
The company anticipate having approximately 166 million of cash interest payment obligations and the second half the 2020.
And 369 and 2021, including the interest on the news since Yagi secured notes, which had its first interest payments in April 2021.
Moving on to slide 13.
Over the past year, we've taken several steps to improve our capital structure and liquidity.
Leveraging continues to be a priority for the company. It's the reason we took the steps last year to push out or material long term debt maturities and create a line of sight your free cash flow generation.
The pandemic happened we had to pivot are focused.
To liquidity.
<unk> a priority now is to keep the flexibility necessarily get returned to a path of debt reduction and free cash flow generation.
As we noted in our last earnings call, we drew down 150 million for my Castle revolver with you. The March. We also received the approximately 253 million cash from the sale of course, they can clear media.
We met or cost savings goals of 100 million and our Capex reduction goal of 25 million for the second quarter 2020.
As I stated last quarter, we focused on three areas.
Hi lease compensation.
Discretionary spend.
About 50% of the cost savings, we achieved in the second quarter or slightly savings and about 30% for compensation, but the balance discretionary spending and other cost.
As previously announced on July 12, we amended our credit agreement in response to the uncertain macroeconomic environment.
You amendments to since the spring financial covenants, which requires that the company's first we net leverage ratio not exceed 7.6 times.
The third quarter 2020 through the second quarter 2021.
During the suspension period, the company's required to maintain minimum liquidity of $150 million, including cash on hand in availability or the company's receivable based credit facility and its revolving credit facility.
Finally, as William mentioned this week, we issued 375 million since he IDV senior secured notes to further bolster our liquidity position.
No several coupon rate 65, 8% immature in five years.
Also contain a short dated 18 month call protection provision.
We believe the CCBT notes offering serves as affirmation from a market of the strength of the Oklahoma industry in general and our business in Europe specifically.
Well what is our ability to manage through the pandemic.
A portion of the proceeds from a CCBT notes were used to pay down the C.T.I.B.B. promissory note and pool and the amount of 55 million.
After giving effect to the 313 million of net proceeds from the new Cc IDV senior secured notes as of June Thirtyth 2020, cash and cash equivalents would have been 975.
Total debt would have been 5.6 billion net debt, which hasn't really changed sits at 4.6 billion.
From a liquidity standpoint, given what we know today.
We believe that we have sufficient liquidity to fund the needs of the business and the economy recovers and now please turn to slide 14, and let me turn the call back to William for his closing remarks.
Thank you Brian.
As I mentioned, our team has worked tirelessly to adopt the new working environment and you working relationship.
So we'd be nimble and taken actions required at the moment and as a result, we delivered on our short term fraternities.
And we continue to explore creative opportunities to reduce costs.
Mainly focused on winning new business and building out on network.
Importantly, our investment products in the pandemic combined with the strength of all comfortable enough focus on the keep it as a strategy a position clear channel outdoor can manage through this period of uncertainty.
We remain focused on the strong medium and long term opportunities within effect.
Including investments in technology, and expanding digital and we think that channel.
You positioned to benefit from the tailwind.
That concludes my remarks, I want to reiterate the following.
But as Brian said, we've been beach, we have sufficient liquidity to fund the needs of the business at the economy recovers.
Second we are seeing if any signs of improvement in our business, which is reflected in our guidance of revenues to be done in them exactly who just the material improvement over the second quarter, which was down 55% that's compared to 29 team.
Visibility beyond the third quarter remains limited, but we are expecting continued sequential improvement in quarter four.
Hi, good given the resilience of our team investment in our business I just think about platform. We are cautiously optimistic I believe we will return to growth in 2021 dependent of course on the trajectory of the pandemic and economies in which we operate.
And lastly, as we've stated in the Paul we remain open to dispositions and opportunities that accelerate top off the creating enhanced value for shareholders.
Given the current economic environment I'll focus remains on continuing to Oh, right I mean hall.
Article phase of asset.
What is to drive showed a body until such a tie in with the economies rebound.
I look forward to providing updates when causing our progress nascobal joined Brian and myself and taking your question.
Operator.
At this time, if he would like to ask your question. Please press Star then number one on your telephone keypad again that start then the number one and your telephone keypad to ask a question.
Your first question comes from a line of Stephen K whole with Wells Fargo.
Thanks, Good morning interesting to see those charts in the presentation about the foot traffic in the miles driven and they're not too far off of cope with level three cobot 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.
Well you wanted I can let me take all that does she went god okay.
Well, that's going to just make a general comment which is because I think we we've seen a whereas earlier stages of recovery Sina studies, but stages of recovery in Europe ahead of the head of the U.S. and I think what what's driven the recovery in Europe. It.
Being advertised it's kind of seeing the seeing the data and seeing very nice people returning to the streets reciting societies pretending to be which turned into stores on that has happened to so didn't have exciting.
Has strengthened and the bookings have come back. So I think you need the thing that is driving be there were times. It's the return of audience Street and 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, but is coming back pretty quickly as the lufthansa lifted.
It does give us.
Significantly more encouragement for Q3 them then maybe we had a couple of months ago.
Got you went away from the U.S.
I mean, I think the only thing I'd add William instead, it is very very much by sector and that the traffic coming back is very important to the businesses that are open and operating.
Normally are close to normally but you think about some of the businesses that are big partner as far as like entertainment retail where they might not be operating normally that's gonna have to make progress as well to see the money come back, but but I'd agree with Williams Scotsman overall of how the dynamics working.
Great 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 then EBITDA during this downturn and maybe an outlook on how you're managing capex what would be helpful.
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 it the way you would characterize it from from working capital shifts are 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 ltwos level of business, we have out there.
Oh, so you'll see a large amount of rent deferrals generating an increase in a short term liabilities. So what I would tell you is there's no no magic behind this really this is this is reflective of the current environment. We're in how it impacted working capital and you look.
Originally we would expect the that again that benefit to unwind as the business starts to recover as receivables start to build and ask is deferred payments will the ones that were not able to to get permanent really from or paid out in the second half a year.
Your second question <unk> talked about Capex in Q2, we had a pretty narrow aperture as we looked at you know new investments that that came across the the investment committees desk I would tell you, though that there wasn't a whole lot going on I think a lot of.
A lot of municipalities that that would have otherwise had tenders in many cases deferred dose to later periods.
And then the ones. We did see you know obviously, we were they had to be.
Extremely.
Worthy in order to invest a whole lot of money. So we've kept up a pretty tried do you on what you did she come through in Q2 was largely a sustainable capex that needed to be made or committed capex from prior periods that we weren't able to differ.
I think going forward, our Capex philosophy is gonna be similar although we want to make sure that we adjust according to the recovery curve and as we see things improve.
They aperture may open little bit and then maybe other opportunities, but you know first and foremost and I hope it came through in the and 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 jeopardizes that position at the same time, there's going to be necessary investment to be made in the business.
Most to preserve the current plans and to continue growth and so we'll continue to look at those as those opportunities come up.
Great. Thank you.
Your next question is from Canada, because <unk> with Barclays.
Thank you a couple if I go.
From a you know working capital perspective.
Obviously that the result of money and the balance sheet seems to be in a comfortable leads from our liquidity position, but could you give us a sense of.
And as the recovery happens because you had a big working capital of people went last quarter and I'm, assuming that your go to get it called recycling as activity picks up that divorces to some extent.
So if you could just give us some convicts coming down the liquidity on the balance sheet cash burn.
That will be paid a and then I have a follow up.
Sure I think on the on the first point actually touched upon a little bit on Steve's question, Yeah, you're right I think we would expect what we 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 movements.
Mordantly will reverse itself.
As the business starts to recover so as receivables grow because we're doing more business.
Or as you know improvements and the second half the year cause our counterparties under various contracts to say, okay. The deferral. We made because time is for bad times aren't so bad about anymore, and and Youre willing to make these payments.
There was largely will kind of go hand in hand, and pop sequential consequently, the underlying cash flow performance or EBITDA performance of the business will be improved so hopefully those those will offset and and that our operating gains will be greater than the working capital movements.
You know I that being said I think on the international side, they work get harder and you know while they've they've shown significant improvement in Q3, and we would expect sequentially that to continue into Q4, I'm, it's not likely that there will be adjusted EBITDA positive through the rest of year and so we need to be fall.
Foreign careful about how we manage capex and other liquidity levers that we have.
U.S. business wasn't hit as hard I'm, a little slower on a recovery curve, but again positively sloping a in Q3, one would expect that through through Q4, hopefully I've I've answered. Your question, maybe rise a little bit more color that I intend to do but I'm happy to either follow on on that or go to your next question.
Hi, that's that's helpful. We can.
Well go up more and he did off line of that's Okay. And then you know the other question was largely around the cost snowbirds, you've indicated that you know that more cost cutting measures I'm glad you're working through.
Could you give us extends to the six towards is reasonable cost mccrimmon I'm, assuming you've done a lot of the hard work already and you talked a lot of cost.
So given the drop in activity the trade with you on that the Opex that we see a net income statement into Q is basically in some ways. Most fixed cost one is that some variable costs still there, but you could just walk us through the cost components and walk never do you have going forward.
I think first just a general statement on on costs. We have we have pulled a lot of lovers. Yeah. A lot of them were temporary in nature, and and I think that while the business. You know continues to look at ways to optimize our cost structure and may need to take.
Take more permanent actions just to kind of Rightsizing. The business work for you know, where we are and what we're seeing largely what we saw you know were deferrals you know.
On on compensation, a rent deferrals, although there were certainly you know we were able to capture some permanent.
That's a as well so I'm not sure it's fair to say that you know 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 a lot of cases.
We you know we converted.
Fixed to variable expense on a temporary kind of basis and that may reconvert back to fix or or or maybe permanent depending on the contract underlying contract itself. So I'm not sure. That's the right way to look at it I think that's the that's that's much color I can give you one.
Fixed cost base side.
Right.
One more so you had the follow up I'm sure.
You know I've heard.
If you look at your business, obviously that started to be outdoor business in city centers and you know densely populated areas had.
A different dynamic where's the suburbs.
Now with potentially a more work from home and so one.
Is there any permanent change that you foresee in the flow of business.
And you know how that changes your footprint.
Okay.
Okay.
Let me try it and take a stab at that because I think that it's an interesting question, Kevin but I really think it. It is it is really far too early to say, whether there's going to be any permanent change.
It does seem to me that you know, where we're already seeing in some markets where.
Look down could be lifted it and where the pandemic could be well controlled we're seeing a pretty rapid return to the pre k. They.
Ways of operating behavior. The people in cities I mean, what places there wasn't I do think there will be felt in the long term impacts and.
Probably a grayson mix and that being in the Paul in terms of people working remotely, but it'll be it'll be a hybrid it wouldn't be one way or the alba.
And I don't really foresee any significant structural change in the way all business outbreak.
In there on the country in a sense I think the momentum that this business had when we went into the pandemic and that was a global momentum in pretty much every market in the world outdoor had been gaining share from traditional media.
You saw Ah.
Very strong performance in Q1 in United States and seems to me to be every reason to believe but that will come back and very few reason committee that is really going to be a permanent change in the nature of our business.
Thank you.
Your next question comes from the line up Avi Steiner with JP Morgan.
Good morning, Thank you for taking the questions [laughter].
I had heard Q3 revenue declines expected in the low Thirtys, which was noted improvement from the second quarter.
And if you gave us I apologize, but how should we think about the underlying expense base I don't Wanna get quarter to quarter, perhaps but I'm just trying to think think through what you may see in the near term as we try and think through EBITDA, you're in that I've got a couple more questions. Thank you.
Oh, sorry, I'll be could you repeat that [laughter].
Sure I.
Just relative to the 30% decline and ret low thirtys.
Revenue decline expected for third quarter, how should we think about associated or underlying expenses in the quarter. If you can help.
Yeah, you know.
We continue to take a hard look at the expense line, we didnt, we didn't provide guidance in Q3 because.
You know a lot of [noise].
Q2, without visibility really into where or how dramatic the decline would be.
We knew we had to respond aggressively on the on the cost side.
As you think about Q3 in Q4, we're starting to see a recovery curve.
Positively sloping and we want to we want to be sure that weekend.
No benefit that recovery and that's why we didn't make a lot of permanent cost reductions in Q2.
It's it's possibly sloping it's still.
Considerably negative interest and then it was last year it find ourselves on strange position were down 30 sounds pretty good Q2, but then the scheme of things is still something we have to respond to.
So I think though the right way to think about it obviously without providing worked hard numbers is while we see improvement in Q3 and sequentially I think to the rest of the year.
We're pretty well probably still ways off from returning to normality are returning to 2019 levels and consequences. Consequently, the company well, we'll have to continue to make.
Decisions on the cost side, so nothing nothing to announce at this point in time, but I think you know you should expect the company to continue.
To be aggressive on the cost side and that you know some of the future initiatives, maybe more permanent in nature than what you saw in Q2.
Thank you and then in the release.
You talk about deferred revised capital sales contract.
It's a deferral.
A meaningful piece of the revenue hit in any of the visibility as to at all as to when that might come in seems perhaps a little more positive than outright cancellations kinda.
And how that may flow through thank you.
But let me take a around it that Brian or William you can you can jump in as well.
We really.
I mean, <unk> 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 well my point would be is that quantifying that is is really quite difficult for you.
I I guess, what I'd characterize is that.
Yes, you should think about you should think about the pressure on our revenue side in two ways. Their sales, we didnt make because we were busy renegotiating contracts, particularly during the early part of the crisis.
That affects downstream time, because we do frontload a fair bit of our sales and then there's the actual movement within a quarter I think that the the biggest movement within a quarter in terms of cancellations and deferrals is probably behind us touch wood.
But.
That other factor or sales, we didnt make during those times because we were busy moving things you know has a has a lag on effect and that's going to be one of the things that.
It was a a force against rapid revenue recovery, so sorry, I can't quantify that 40, but hopefully it gives you a feel I don't know, Brian or when and if you that anything.
No I think the anything I would add from from what we've been seeing in Europe is that there are undoubtedly has been some pent up demand that is being deferred from quarter to.
And is it be.
Pardon me 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 deciding how much of it is new money coming in.
Sure enough and and lastly from 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 that's been obscured little but just in the midst of the pandemic and then.
Actually if it were to avail itself discounts being able to take it kind of discounts on debt levels. If available maybe related Lee just back to the potential winning new business.
So is 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 or normal.
Discipline and again, thank you all for the <unk>.
Sure, obviously I'll I'll I'll respond initially then Scott William feel free to chime in I think first side, you know and hopefully came out through the comments that we've made up come out our focus has been on liquidity there was a real pivot from.
You know, where we were at the end of the summer. After you know recapitalizing the company and and you know I felt like we had line of sight to to a path to de leveraging.
Coated and that much like it impacted a lot of companies is derailed us a little bit on that journey.
But you know as as we as we pool, but once we needed to do as we built up liquidity and as we see recovery in the business. We do need to look no further further out and part of that is going back to our our core position of.
Wanting to generate no additional free cash flow and de lever.
It starts with fundamentals and that's that's focusing on the business and an important part of that will be being disciplined but choosing the right investments to grow the business and we've done a lot of work whether that be contract wins or digital conversions on investment in technology that we think.
No will improve the value of the business and our ability to deliver no benefits to our customers. That's first and foremost when you mentioned you mentioned asset dispositions I think we've been unclear and communicated that were open much like you know whether you're a.
Hi are looking to acquire businesses or or a seller looking to sell businesses. This is a this is a challenging time, there's there's no significant valuation gap and and so that's probably something we'll we'll we'll wait and see but but as the recovery improves and we get back to historic levels I suspect that something that will.
Well, we eat up a little bit.
Yeah.
Not saying a lot of discounts and on debt you certainly if it's you know that opportunity exist did that that may be a good use of excess liquidity I'm not sure. After just having built the the you know the balance that we have that we would be in a position the call any of that excess but at the same time you know as as we start to realize what we believe is the.
The recovery curve in front of US you know, we may change or mines about that and.
Utilize excess cash in one way or the other so I think it in a lot of ways, but still the options that we had in front of us <unk> pre pandemic. It's just that you want to be very careful and thoughtful and make sure you you you're on the other side of this thing before you do anything.
Jeopardizes the comfort of the position that you currently find yourself and others.
Well, the William or or Scott, if you haven't thing to add but that's kind of Mike Yeah. I just I just had one thing I just had one thing for the for the avoidance of any died that maintaining our discipline in or even increasing the discipline that we we apply baked in looking at new contract new business any new opportunities, but also the discipline around any day.
Both old and ensuring that we get the right value that will absolutely be be apart all how we how we move this business forward. So I think the there the rigorous discipline that we have applied in the Paul will be if anything ratcheted up which we as we move forward.
Thank you for the time.
Good.
Your next question comes from a line of Lance Vitanza with Cowen.
Hi, guys. Thanks for taking the questions and I'm, sorry, if I Miss on the call, but with respect to 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 here and then I have another question as well.
Yeah no.
We are now just finalizing kind of the stages of exit from the but the transition services agreement that we had with high heart and so what you may be seeing some.
You know the final spend in getting the infrastructure largely technology related kinda up and running.
But I do I do think that you know at the end of August we will you know like <unk>, that's our anticipated exit data from the T. assays, you'll see a more normalized.
Corporate expense profile I would I would say that being a 110 to 150 million range on a go forward basis. Once we kind of flush through these <unk> you know.
Last final stages of or the exit.
That's significantly lower than than what you know was a run rate corporate expense 2018 of course that included the a the coffee like see I'm. So we feel pretty good about where we landed some some incremental costs above you know what what would have been.
You know the corporate expense run rate no less.
The the transit the the rights the rights agreement the trademark license agreement elements that we had.
And that largely just reflects certain costs that related to to stand up you know it's a separate business. There are certain technology certain you know executive fees that you have.
You didn't have before but that amount offset by certain efficiencies that you found but I think I think the 110 to 115 per annum is probably a good run rate and as an if that changes will be sure it's going to take that.
Perfect. Thanks, Brian that's helpful and then William you'd mentioned toward the end of your prepared remarks, if I got it right. The your open to accretive dispositions that would perhaps help you de lever the balance sheet more rapidly could you talk in general about the environment for M&A right now our deals getting done have sellers.
Just kind of capitulated on valuation or our buyers comfortable paying pre coated prices.
It's a great question and I I think the the truth is I would say it is a it is a difficult environment for M&A and certainly in house that I've not seen a great level of activity since the since the pandemic started.
And frankly, I would be I would be supply in the current environment or that would deals being done because the challenges around valuation as you as you imply so short answer is I don't think there's a lot of activity going on at the moment or and I got the will be.
Hey, until we start to see consistency in the the timing and scale that the recovery.
Makes sense one quick last one if I could actually I forgot on the interest expense forecast I think it's up about 40 million year on year as we think about 2021 I know obviously, you've got the BV notes that adds about 25 million to the run rate, but whereas the extra 15 million coming from.
Yeah, I'd I'd have to compare our different views on it but I guess is its a long interest payment date on the C.C. I'd be denotes our first interest payment is in April and so that will include not only your your 2020 interest expense, but your <unk> I'm, sorry, Oh, you're 2020.
Non interest expense, which are 2020 interest expense that long.
Probably just off the top of my head it probably accounts for the majority of the 50 million.
Makes sense, okay. Thanks, guys.
Your next question comes on the line of Aaron Watts with Deutsche Bank.
Everyone. Thanks for having the on a couple of questions for me I guess first encouraging to see that step into right direction on kind of your revenue performance from Twoq to Threeq you.
Are you able to put any goalposts around where the U.S. falls within that guidance and where Europe is trending.
I'm, sorry, here and I I'd I'd I'd I'm I Miss heard or didn't hear the whole question at the second time I've had to ask somebody repeated and I apologize, but could you repeat the question.
No trouble so I'm, just curious that within the low 30% guidance for Threeq. You are you able to put any goal posts around where the U.S. is falling within that and where Europe is trending within that.
Yeah, you know, we didn't we didn't come out and give any specific.
Colour on the on the two different operating groups.
Thank you. Good you can tell from what we did say and what we're talking about that.
The improvement is a little clearer and be and the European side. They they you know they were more greatly impacted.
But they've also kind of ER, we're seeing signs of recovery.
It's a little more rapid so I think 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 it's probably Europe see a little better they are emerging a little faster from lockdowns.
And there maybe a little more pressure kind of on the U.S.. So obviously didn't didn't have the there quite a significant as a drop in Q2, but you know you live in the U.S. Yoo you read about you know that you some of the things that are impacting it includes including you know the strong position we had in a in a in the south and and on the West.
Kind of some of the pandemic issues that are going on there. So I think you know as much as I can say is that's a good number for the consolidated entity and if you were to ask me you know kind of how the segments look I'd say Europe is probably yeah, a little level.
On a on a strong side of that in the U.S. is a little bit on the other side of that but all within a very very narrow band.
Okay. That's helpful context.
And then maybe focusing on the U.S.
And any kind of themes, you can call out or talk to around pricing.
And occupancy on a billboard business or 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.
So I'll take a run at this one and and Brian and William you can chime in after I think the thing to keep in mind is this the recession in this downturn is entirely different than the last one speed with which we went in.
The brought the breadth of going in initially and then the diversity of verticals based on who's having a good covidien, whose having a bad cove it.
Our all really different and then you factor on top of that programmatic out of home Didnt exist or the last time, you you had a very different dynamic in terms of how much of our base was digital.
And so I think it's 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 emphasizes 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 manage.
Women and that is you know he was obviously incredibly challenging during the sort of March April.
May timeframe.
That dynamic is getting better and we are we are working very hard to strike deals that make sense for for both parties as we work as we work through this and it really is not something I mean, we've really never get any historical guidance that would help you bridge to anything I was going to tell you.
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 gonna be able to give you on that one but it's very different than a wedo nine I mean I lived through it no ido nine and that was a very different dynamic than what we had right now.
I understood, Okay, and maybe just one last one for me I appreciate that the the airport business. It 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 add from travel more travel being allowed.
Are you 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 recover.
So the airports is an interesting business, because it's like like or our traditional roadside business theres 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 a 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 is that the the sort of endemic travel related part of the business has been hit less than the luxury or business travel or <unk> or in parts of those businesses and I think that we're going to need to see.
Some rebounded in air travel.
Before we see a lot of.
It's not the it's not the first place in our portfolio that people are looking to place money right now, but that is certainly the case.
Okay, great. Thanks for the time.
Your next question is from Stephens bus on with Wolfe Research.
Good morning, I was hoping you guys might be able to drill down a little bit in terms of underlying categories. I think you know clearly things like traveler, especially hurt.
But what really needs to hover to accelerate and bring the recovery into focus and then any color on geographic trends large markets or is a small markets perhaps.
During the ticket the U.S. Skus and I'll come in behind on Europe.
Uh huh.
Ah, Yes, sorry, sorry, I was talking talking to me I, William I'll I'll be happy to give the first a.
The first wave here in terms of the things that need to come back for recovery.
<unk> 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 to help truly say that we have a recovery going going overall.
Technology has been mixed there have been a number of players that have have sustain their investment or even increase that.
There have also been a number that does that have pulled back I would have pulled back pretty aggressively.
So you know, it's really when we get to a mode, where amusements are open and theaters or or our open.
And you know, we're promoting those businesses that way.
Well, we'll see the the recovery really really starting to to engage William I don't know Theres things you you'd add internationally.
No I don't think internationally.
To be fair to say that kind of the self perform as being a automated.
Which I think were flat, but the fact that a car dealerships were closed during the.
During the time Bennett and wanted to get customers kind of back in May showrooms and that perhaps people are more interested in income travel than they were what products will depend Bennett for obvious reasons that's bad.
That's performing category and package could cause held up very well across Europe.
Yeah.
Race weekend.
Though.
I mean.
During the period and package good because of being in that as well.
This is the main maintenance season, I think I'd agree with golf into the categories that you need to.
The to return before you before you feel you got a full recovery underway.
Understood and then I guess lastly, you guys are in unique position of having the global assets and it sounds like Europe is a couple of yeah. 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 surface customers as the recovery pixel.
Yeah, I mean, I think the I think the the one thing you're learning is that.
The the policy of I guess that you're learning is that as the.
Knockdowns all lifted as people returned to the street.
So advertisers are coming back into the markets and I think you know any.
He concerns we had that this would be in any sensei a permanent state have been have been allowed age where thing we're seeing our audiences were to with being advertisers come back once they lillian back I.
I think the other thing that we have.
I have to underestimated in the POS was that one of the things we've learnt about the pandemic.
Chris is that.
You much safer I'd doors than you are inside your much safer out ahead of them. Then you are in home and we are an out of high medium and I think that is playing to our strength because you know a true out throughout Europe has the look down 58, and you've seen people returning to high Street returning to.
Two.
That that to outdoor environments and that obviously play twok strength.
And then to find the thing I would say intensive activity that we'd been undertaking and doing it.
Action in the U.S. as we are anywhere else it just maintaining that dialogue with our advertisers with their agencies and continuing to look for flexible ways in which we can encourage them back into the market that is certainly paying paying off for us as we see that's me see see things coming back.
Great. Thanks, so much.
Your next question is from Jason Bazinet with Citi.
Just one quick question is if we look at the dichotomy in the topline between Europe and the U.S. is it fair to say that the vast majority of that as a function of.
The asset mix that you have meaning Billboard Street furniture transit.
And the link to those traffic numbers, you talked about and very little of it has to do differences and exposure by vertical.
Yeah.
I think that's a characterization I couldn't be discussing the differences is around the different appetizer base that we had I think it.
Significant need to do with the inventory that we had the declines the the shelf the decline in Europe, but you asked him in quarter two.
The European inventory is I think we've said before the European inventories primarily small format.
Street furniture in City Center is where the U.S. with much more the big Billboards on the highway sense that traffic has held up better.
The last year and during the pandemic. So I think it it much more inventory base. We also have a higher proportion of digital in Europe than we do in the U.S. and that made it easier so advertising like too.
Stop activity more quickly and equally at the other end to come back into that market more quickly and we're seeing that reflected not.
That's super helpful. Thank you.
Your next question is from Jim Goss with Barrington Research.
Okay. Thank you.
Just one thing the.
There is a sort of a disconnect between.
Traffic and the there is the ability and willingness of advertisers to allocate funds that the would be depended on end market demand I'm wondering if you could talk about how the situation has been more extreme and this particular case and how you think that might have them create the ability to snap back.
A bit more.
Are you asking in contrast to a way to nine is that.
No no even the just in terms of normal times I think you do have if you've talked about the entertainment retail amusements coming back I think national probably as a potential to come back rollout at one of the issues has been availability of impressions and now that you've talked about the traffic coming back.
Quite a lot.
So is that it maybe that's not been enough because the advertisers have either with the end markets that are.
That they have some concern about or their own budgets and cost they want to manage I'm, just wondering if or how those dynamics are playing out.
In terms of your ability to improve the your profitability again.
Sure well I'll give a run out it from a U.S. perspective, and William or Brian you can couldn't can pile on with other other views for other geographies.
You know I think we actually talked about this a lot on our Q1 call, but there were 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 traffic was reduced so much and businesses were closed and you had.
You had a very different dynamic than usually don't have a recession start on a date, but 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, we're very hopeful that it was going to be.
You know temporary a short thing it was going to 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 piano tiles has come into play and you've gone from what was a dislocated crisis driven by you know things being shot.
People realizing that you know their individual businesses may not come back as quickly and again there are people who are having a very good.
Business during covered I think you've seen that during this earnings season, there's there their businesses there profiting mightily you know 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 but outdoors category has in some of the things William was just talking about in terms of it's better to be out and.
Those are all things that that work to our favor, but I think what we're gonna be fighting against is gonna be people managing p. at ALS and you know at least in the United States with the spiking in the South and West that came in sort of late June in 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 and type 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 some more.
Our conventional recession thinking then too.
You know crisis mode, William I'll hand, it to you there.
I think that I think I think that's right I mean I would just.
Underlying again that.
It's it's true throughout history that no two recession, all alike, but I think it even more true this time around and I don't think disease, you need technically obviously, a recession, but I don't think it has very much in common with anything we've seen before and I certainly didn't think it has very much in common with 2008 nine.
<unk>.
Totally different in terms of both it's cool is underway, it's going to play out from everything that we're seeing.
I think that was the last question sorry. Thank you for that I just wanted to conclude it up with a couple of fill accessible to thank everybody for joining this call your attention and for the for the excellent questions that that you asked.
I think we without a doubt.
Glad to put Q2 behind us.
I think.
Everybody at home as any any business around the world will be will be granted the being bad at the end of that Coursa.
I think we are encouraged by what we're seeing in Q3, we've made that very clear in terms of that the guidance we've given.
I think the way the pandemic. He is playing out Europe was first then and has been for <unk>.
And I am significantly encouraged by what we're seeing in the European market.
As Brian said you know.
A decline of 30% or 25% isn't something to celebrate but it's clearly significantly better than a decline at 50, 55%. So we are we all.
Cautiously optimistic as we said in the evening remarks about the way in which the resilience of our business and the way in which as our audience is return to the street appetizers returning to a board.
You know that is that is good news I would say any recovery is hugely dependent upon the way in which the pandemic it's controlled.
We've seen that it's got just reference you know we've seen that in the U.S. as as we've had some bikes we've seen advertisement retreat again.
And so.
Any any any full cost any prediction any comments, we make about the future oh inevitably going to be dependent upon the way in which the government's behave.
The way in which depend dentek behaves as a result of that.
So yes. It is very tough in any position by that could be so dependent on things that are outside if you will control I think we have been very controlled and the way that we manage our cost base in Q2, and as we said enough into.
A question, we will continue to be Austin, the vigilant on on call as we go through this uncertain period.
So I think with I. I will say, thank you very much in d. for joining a cool.
Well what to keeping you updated in the coming weeks and months. Thank you very much.
Thank you. This concludes today's conference call you May now disconnect speakers. Please hold the line.