Relevant Documents:Presentation10-Q
On a call to review
first-quarter results today, Clear Channel Outdoor management said it is “encouraged” by the start to 2018, with revenue increasing 9.9% year over year, driven by the international business and due in part to foreign exchange impact. The international segment’s first quarter was “phenomenal,” commented company CFO Richard Bressler. Clear Channel’s strategic investments continue to focus on expanding the company’s digital network, enhancing programmatic solutions and data analytic capabilities and winning new contracts, Bressler said at the start of the call.
Bressler noted that iHeartMedia will not be holding a conference call to review its own results and that he cannot answer questions about iHeartMedia’s operations or its bankruptcy process, but he did respond to an analyst question by saying that iHeart’s
recent motion for approval of a DIP facility has not changed Clear Channel’s thinking about what needs to be done at the outdoor business. The parties “continue moving through the bankruptcy process as quickly as possible” and look forward to exiting with a capital structure that matches iHeartMedia's “impressive operating business,” Bressler said. Although he said he could not discuss iHeart’s results, Bressler noted that iHeart had filed its
10-Q this morning to report results.
In terms of the company’s balance sheet, Clear Channel has a revolver maturing in August and management said the company is in advanced negotiations to refinance the facility and hopes to do something with that facility, which was undrawn at quarter end, in the relative near term. The 10-Q notes these discussions are with existing lenders.
Bressler noted the company does have a large portion of subsidiary notes due in early 2020, and said that is something the company needs to be thinking about, particularly in terms of it being “in conjunction with everything else that's going on with outdoor including potential separation of the business and the capitalization at that point in time.” That maturity is on the company’s radar screen, added the CFO, but “if we did anything, we'd have to make sure that it made sense and it didn't disrupt anything else.” While the senior subordinated note maturities in 2020 are in the relative near term, the company feels like it will have “plenty of time” to address those maturities, according to Bressler.
Bressler also responded to a question about the $57 million decline from Dec. 31 in the intercompany note balance to $154.8 million, saying that a large portion of the decline reflects net funding from the parent down to Clear Channel. He added that a $21.3 million reserve was recognized in relation to interest incurred in the first quarter. Clear Channel’s 10-Q filed this morning notes that pursuant to a final order in the Bankruptcy Court, as of March 14, the actual pre-bankruptcy balance of the intercompany note is frozen, and intercompany allocations that would have been reflected in adjustments to the balance of the "due from iHeartCommunications" note are instead reflected in a new intercompany balance “that accrues interest at a rate equal to the interest under the Due from iHeartCommunications Note.”
The 10-Q adds that, as an unsecured creditor of iHeartCommunications, “the Company does not expect that the Company will be able to recover all of the amounts owed under the Due from iHeartCommunications Note upon the implementation of any plan of reorganization that is ultimately accepted by the requisite creditors and approved by the Bankruptcy Court.” The “final settlement amount of the Due from iHeartCommunications note is expected to be negotiated as part of iHeartCommunications' bankruptcy proceedings,” the 10-Q states.
If Clear Channel “does not recognize” the expected recovery under the note, or cannot obtain that amount on a timely basis, “the Company could experience a liquidity shortfall,” the quarterly filing warns (emphasis added). Any repayments that the company received on the note “during the one-year preference period prior to the filing of the iHeart Chapter 11 Cases
may potentially be avoidable as a preference and subject to recovery by the iHeartCommunications bankruptcy estate, which could further exacerbate any liquidity shortfall,” says the filing (emphasis added).
Returning to results in the quarter, the Americas segment reported OIBDAN of $82 million in the quarter, up 2.4% compared with the prior-year period when adjusting to exclude the sale of the Canada business and the impact of forex. The company attributed a 0.1% adjusted revenue increase to growth in digital and print, partially offset by a decline in airports. When excluding D&A, Americas direct operating and SG&A expenses were down 4% due to the company’s revenue mix, management said. Pacings data in the Americas segment were up 1.7% as of last week, but company management noted that pacing data show orders booked at a specific date versus a comparable date.
The international segment reported a 34% year-over-year OIBDAN increase to $29.1 million, or a 24.9% year-over-year increase to $27.1 million when adjusting to exclude forex impact. Bressler attributed the segment's 20.6% year-over-year revenue improvement to growth in China, Switzerland, Spain and Sweden, among other countries; when adjusted to exclude the impact of forex, revenue was up 8.3% year over year. The 19.5% increase in direct operating and SG&A expenses excluding D&A was due to higher site lease expense primarily from new deployments, the CFO added. International segment pacings were up 1.1% as of last week and, when asked about the disparity between first-quarter growth and second-quarter pacing data, Bressler said he believes that pacing could be less of an indication of where the business will wind up in the quarter because the nature of the advertising business has trended toward the placement date being closer to the execution date and the airing date.
Bressler noted that, consistent with comments on the call to review full-year earnings, the company expects capital expenditures in 2018 to be in the range of $200 million to $220 million. First-quarter capex was down 20.9% year over year to $28.7 million and Bressler said capex expense is lower than it has been in recent years. The slight decline in 2017 was due to “successful completion” of installations in Spain and the company is seeing the benefits of that, according to the CFO. From an overview standpoint, most of the company’s capex is primarily from international outdoor and primarily for new and renewed contracts. Winning new contracts and increasing digital inventory “are opening new pools of revenue across our businesses,” Bressler commented, adding that, in expanding the company’s programmatic airline platforms and enhancing data analytics and attribution solutions, Clear Channel can “provide the technology and advertising solutions our advertising and marketing partners expect.”