10-Q: Quarterly report pursuant to Section 13 or 15(d)
Published on May 10, 2021
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2021
FOR THE TRANSITION PERIOD FROM TO
Commission File Number
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | ||||||||||
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(Address of principal executive offices) | (Zip Code) | ||||||||||
(Registrant's telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of Exchange on Which Registered | ||||||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ Accelerated filer ☒ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☒ No ☐
Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.
Class | Outstanding at May 6, 2021 | ||||
- - - - - - - - - - - - - - - - - - - - - - - - - - | - - - - - - - - - - - - - - - - - - - - - - - - - - | ||||
Common Stock, $0.01 par value per share |
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
TABLE OF CONTENTS
Page Number | ||||||||
PART I—FINANCIAL INFORMATION | ||||||||
Item 1. | ||||||||
Item 2. | ||||||||
Item 3. | ||||||||
Item 4. | ||||||||
PART II—OTHER INFORMATION | ||||||||
Item 1. | ||||||||
Item 1A. | ||||||||
Item 2. | ||||||||
Item 3. | ||||||||
Item 4. | ||||||||
Item 5. | ||||||||
Item 6. | ||||||||
1
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CLEAR CHANNEL OUTDOOR HOLDINGS, INC.
INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Page Number | |||||
Financial Statements: | |||||
Condensed Notes to Consolidated Financial Statements: | |||||
2
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data) | March 31, 2021 |
December 31, 2020 |
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(Unaudited) | |||||||||||
CURRENT ASSETS | |||||||||||
Cash and cash equivalents | $ | $ | |||||||||
Accounts receivable, net | |||||||||||
Prepaid expenses | |||||||||||
Other current assets | |||||||||||
Total Current Assets | |||||||||||
PROPERTY, PLANT AND EQUIPMENT | |||||||||||
Structures, net | |||||||||||
Other property, plant and equipment, net | |||||||||||
INTANGIBLE ASSETS AND GOODWILL | |||||||||||
Indefinite-lived permits | |||||||||||
Other intangible assets, net | |||||||||||
Goodwill | |||||||||||
OTHER ASSETS | |||||||||||
Operating lease right-of-use assets | |||||||||||
Other assets | |||||||||||
Total Assets | $ | $ | |||||||||
CURRENT LIABILITIES | |||||||||||
Accounts payable | $ | $ | |||||||||
Accrued expenses | |||||||||||
Current operating lease liabilities | |||||||||||
Accrued interest | |||||||||||
Deferred revenue | |||||||||||
Current portion of long-term debt | |||||||||||
Total Current Liabilities | |||||||||||
NON-CURRENT LIABILITIES | |||||||||||
Long-term debt | |||||||||||
Non-current operating lease liabilities | |||||||||||
Deferred tax liabilities, net | |||||||||||
Other long-term liabilities | |||||||||||
Total Liabilities | |||||||||||
Commitments and Contingencies (Note 5) |
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STOCKHOLDERS’ DEFICIT | |||||||||||
Noncontrolling interest | |||||||||||
Common stock, par value $ |
|||||||||||
Additional paid-in capital | |||||||||||
Accumulated deficit | ( |
( |
|||||||||
Accumulated other comprehensive loss | ( |
( |
|||||||||
Treasury stock ( |
( |
( |
|||||||||
Total Stockholders' Deficit | ( |
( |
|||||||||
Total Liabilities and Stockholders' Deficit | $ | $ |
See Condensed Notes to Consolidated Financial Statements
3
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
(UNAUDITED)
(In thousands, except per share data) | Three Months Ended | ||||||||||
March 31, | |||||||||||
2021 | 2020 | ||||||||||
Revenue | $ | $ | |||||||||
Operating expenses: | |||||||||||
Direct operating expenses (excludes depreciation and amortization) |
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Selling, general and administrative expenses (excludes depreciation and amortization) |
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Corporate expenses (excludes depreciation and amortization) |
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Depreciation and amortization | |||||||||||
Impairment charges | |||||||||||
Other operating expense, net | |||||||||||
Operating loss | ( |
( |
|||||||||
Interest expense, net | ( |
( |
|||||||||
Loss on extinguishment of debt | ( |
||||||||||
Other income (expense), net | ( |
||||||||||
Loss before income taxes | ( |
( |
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Income tax benefit (expense) | ( |
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Consolidated net loss | ( |
( |
|||||||||
Less amount attributable to noncontrolling interest | ( |
( |
|||||||||
Net loss attributable to the Company | $ | ( |
$ | ( |
|||||||
Net loss attributable to the Company per share of common stock — basic and diluted | $ | ( |
$ | ( |
|||||||
See Condensed Notes to Consolidated Financial Statements
4
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
(In thousands) | Three Months Ended | ||||||||||
March 31, | |||||||||||
2021 | 2020 | ||||||||||
Net loss attributable to the Company | $ | ( |
$ | ( |
|||||||
Other comprehensive loss: | |||||||||||
Foreign currency translation adjustments | ( |
( |
|||||||||
Reclassification adjustments | |||||||||||
Other comprehensive loss | ( |
( |
|||||||||
Comprehensive loss | ( |
( |
|||||||||
Less amount attributable to noncontrolling interest | ( |
( |
|||||||||
Comprehensive loss attributable to the Company | $ | ( |
$ | ( |
|||||||
See Condensed Notes to Consolidated Financial Statements
5
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(UNAUDITED)
(In thousands, except share data) | |||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended March 31, 2021 | |||||||||||||||||||||||||||||||||||||||||||||||
Controlling Interest | Total | ||||||||||||||||||||||||||||||||||||||||||||||
Common Shares Issued | Non-controlling Interest | Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Loss | Treasury Stock | |||||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2020 | $ | $ | $ | $ | ( |
$ | ( |
$ | ( |
$ | ( |
||||||||||||||||||||||||||||||||||||
Net loss | ( |
— | — | ( |
— | — | ( |
||||||||||||||||||||||||||||||||||||||||
Exercise of stock options and release of stock awards |
— | ( |
— | — | ( |
( |
|||||||||||||||||||||||||||||||||||||||||
Share-based compensation |
— | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Payments to noncontrolling interests |
( |
— | — | — | — | — | ( |
||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | ( |
— | — | — | ( |
— | ( |
||||||||||||||||||||||||||||||||||||||||
Balances at March 31, 2021 | $ | $ | $ | $ | ( |
$ | ( |
$ | ( |
$ | ( |
(In thousands, except share data) | |||||||||||||||||||||||||||||||||||||||||||||||
Three Months Ended March 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
Controlling Interest | Total | ||||||||||||||||||||||||||||||||||||||||||||||
Common Shares Issued | Non-controlling Interest | Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Accumulated Other Comprehensive Loss | Treasury Stock | |||||||||||||||||||||||||||||||||||||||||
Balances at December 31, 2019 | $ | $ | $ | $ | ( |
$ | ( |
$ | ( |
$ | ( |
||||||||||||||||||||||||||||||||||||
— | — | — | ( |
— | — | ( |
|||||||||||||||||||||||||||||||||||||||||
Net loss | ( |
— | — | ( |
— | — | ( |
||||||||||||||||||||||||||||||||||||||||
Exercise of stock options and release of stock awards |
— | — | — | ||||||||||||||||||||||||||||||||||||||||||||
Share-based compensation |
— | — | — | — | |||||||||||||||||||||||||||||||||||||||||||
Payments to noncontrolling interests |
( |
— | — | — | — | — | ( |
||||||||||||||||||||||||||||||||||||||||
Other comprehensive loss | ( |
— | — | — | ( |
— | ( |
||||||||||||||||||||||||||||||||||||||||
Other | — | — | — | — | — | ||||||||||||||||||||||||||||||||||||||||||
Balances at March 31, 2020 | $ | $ | $ | $ | ( |
$ | ( |
$ | ( |
$ | ( |
See Condensed Notes to Consolidated Financial Statements
6
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In thousands) | Three Months Ended March 31, | ||||||||||
2021 | 2020 | ||||||||||
Cash flows from operating activities: | |||||||||||
Consolidated net loss | $ | ( |
$ | ( |
|||||||
Reconciling items: | |||||||||||
Depreciation, amortization and impairment charges | |||||||||||
Non-cash operating lease expense | |||||||||||
Loss on extinguishment of debt | |||||||||||
Foreign exchange transaction loss (gain) | ( |
||||||||||
Deferred taxes | ( |
||||||||||
Other reconciling items, net | |||||||||||
Changes in operating assets and liabilities: | |||||||||||
Decrease in accounts receivable | |||||||||||
Increase in prepaid expenses and other operating assets | ( |
( |
|||||||||
Decrease in accounts payable and accrued expenses | ( |
( |
|||||||||
Decrease in operating lease liabilities | ( |
( |
|||||||||
Decrease in accrued interest | ( |
( |
|||||||||
Increase in deferred revenue | |||||||||||
Increase (decrease) in other operating liabilities | ( |
||||||||||
Net cash used for operating activities | ( |
( |
|||||||||
Cash flows from investing activities: | |||||||||||
Purchases of property, plant and equipment and concession rights | ( |
( |
|||||||||
Other investing activities, net | ( |
||||||||||
Net cash used for investing activities | ( |
( |
|||||||||
Cash flows from financing activities: | |||||||||||
Draws on credit facilities | |||||||||||
Proceeds from long-term debt | |||||||||||
Payments on long-term debt | ( |
( |
|||||||||
Debt issuance costs | ( |
( |
|||||||||
Other financing activities, net | ( |
||||||||||
Net cash provided by (used for) financing activities | ( |
||||||||||
Effect of exchange rate changes on cash, cash equivalents and restricted cash | ( |
( |
|||||||||
Net increase (decrease) in cash, cash equivalents and restricted cash | ( |
||||||||||
Cash, cash equivalents and restricted cash at beginning of period | |||||||||||
Cash, cash equivalents and restricted cash at end of period | $ | $ | |||||||||
Supplemental disclosures: | |||||||||||
Cash paid for interest | $ | $ | |||||||||
Cash paid for income taxes, net of refunds | $ | $ |
See Condensed Notes to Consolidated Financial Statements
7
CLEAR CHANNEL OUTDOOR HOLDINGS, INC. AND SUBSIDIARIES
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 – BASIS OF PRESENTATION
Preparation of Interim Financial Statements
The consolidated financial statements include the accounts of Clear Channel Outdoor Holdings, Inc. and its subsidiaries, as well as entities for which the Company has a controlling financial interest or is the primary beneficiary. Intercompany transactions have been eliminated in consolidation. All references in this Quarterly Report on Form 10-Q to the “Company,” “we,” “us” and “our” refer to Clear Channel Outdoor Holdings, Inc. and its consolidated subsidiaries.
The accompanying consolidated financial statements were prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) and, in the opinion of management, include all normal and recurring adjustments necessary to present fairly the results of the interim periods shown. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) have been condensed or omitted pursuant to such SEC rules and regulations. Management believes that the disclosures made are adequate to make the information presented not misleading. Due to seasonality and other factors, the results for the interim periods may not be indicative of results for the full year. The financial statements contained herein should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s 2020 Annual Report on Form 10-K, filed on February 25, 2021.
Certain prior period amounts have been reclassified to conform to the 2021 presentation.
Recent Developments
COVID-19
In March 2020, the World Health Organization categorized coronavirus disease 2019 (“COVID-19”) as a pandemic. The duration and severity of the effects of the pandemic remain uncertain. The Company has taken and continues to take actions, including cost reduction initiatives such as contract renegotiations, application for governmental aid and reductions in headcount, to strengthen its financial position and support the continuity of its platform and operations.
•The Company continues to complete contract negotiations with landlords and municipalities to better align fixed site lease expenses with reductions in revenue. Where applicable, the Company has applied the April 2020 supplemental Financial Accounting Standards Board (“FASB”) staff guidance regarding accounting for rent concessions resulting from COVID-19. During the three months ended March 31, 2021, the Company recognized reductions of rent expense on lease and non-lease contracts due to negotiated rent abatements of $22.7 million. Negotiated deferrals of rent payments did not result in a reduction of rent expense.
•During the three months ended March 31, 2021, the Company received European governmental support and wage subsidies in response to COVID-19 of $4.7 million, which have been recorded as reductions in compensation and rent costs.
•The Company continues to execute upon its restructuring plan to reduce headcount in Europe. During the three months ended March 31, 2021, the Company incurred restructuring and other costs pursuant to this plan of $1.7 million in its Europe segment and $0.9 million related to Corporate operations. Refer to Note 9 to the Company’s Condensed Consolidated Financial Statements for further details.
Disposition
On April 28, 2020, the Company sold its 50.91 % stake in Clear Media Limited (“Clear Media”), a former indirect, non-wholly owned subsidiary of the Company based in China.
8
Use of Estimates
The Company’s consolidated financial statements presented herein reflect estimates and assumptions made by management that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and reported amounts of revenue and expenses during the periods presented. Such estimates and assumptions affect, among other things, the Company’s goodwill, long-lived assets and indefinite-lived intangible assets; operating lease right-of-use assets and operating lease liabilities; assessment of the annual effective tax rate; valuation of deferred income taxes and income tax contingencies; defined-benefit plan obligations; the allowance for credit losses; assessment of lease and non-lease contract expenses; and measurement of compensation cost for bonus and other compensation plans. The Company’s assessment of conditions and events, considered in the aggregate, indicates that the Company will be able to meet its obligations as they become due within one year after the date of these financial statements. There continues to be uncertainty in estimating the expected economic and operational impacts relative to COVID-19 as the situation continues to evolve. The estimates and assumptions used in these financial statements may change in future periods as the expected impacts from COVID-19 are revised, resulting in further potential impacts to the Company’s financial statements.
New Accounting Pronouncements
New Accounting Pronouncements Recently Adopted
The Company adopted the guidance under Accounting Standards Update (“ASU”) 2019-12, Simplifying the Accounting for Income Taxes, as of January 1, 2021 on a prospective basis. This update, which simplifies the accounting for income taxes by removing certain existing exceptions to the general principles in Topic 740, does not have a material impact on the Company’s consolidated financial statements or disclosures.
New Accounting Pronouncements Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, in order to ease the potential burden of accounting for reference rate reform initiatives, an ongoing effort amongst regulators, standard setters, financial institutions and other market participants to replace the London Interbank Offered Rate (“LIBOR”) with alternative reference rates. The update provides temporary optional expedients and exceptions for applying GAAP contract modification accounting to contracts and other transactions affected by reference rate reform if certain criteria are met and may be applied through December 31, 2022. The Company is currently assessing whether it will use these optional expedients and exceptions but does not currently expect adoption of this guidance to have a material impact on the Company’s consolidated financial statements or disclosures. In March 2021, the ICE Benchmark Administration, LIBOR’s administrator, announced that it will cease publication of certain LIBOR rates after December 31, 2021 and that USD LIBOR rates that do not cease as of this date will continue to be published through June 30, 2023. The Company is evaluating its debt agreements and commercial contracts that may utilize LIBOR as the reference rate and will continue to monitor and assess regulatory developments during the transition period.
NOTE 2 – SEGMENT DATA
The Company has two reportable segments, which it believes best reflect how the Company is currently managed – Americas and Europe. The Americas segment consists of operations primarily in the United States (“U.S.”), and the Europe segment consists of operations in Europe and Singapore. The Company’s remaining operating segments do not meet the quantitative thresholds to qualify as reportable segments and are disclosed as “Other.” Each segment provides out-of-home advertising services in its respective geographic region using various digital and traditional display types, consisting primarily of billboards, street furniture displays and transit displays.
Segment Adjusted EBITDA is the profitability metric reported to the Company’s Chief Operating Decision Maker (“CODM”) for purposes of making decisions about allocation of resources to, and assessing performance of, each reportable segment. Segment Adjusted EBITDA is calculated as revenue less direct operating expenses and selling, general and administrative expenses, excluding restructuring and other costs, which are defined as costs associated with cost-saving initiatives such as severance, consulting and termination costs and other special costs. Segment information for total assets is not presented as this information is not used by the Company’s CODM in measuring segment performance or allocating resources between segments.
9
The following table presents the Company’s reportable segment results for the three months ended March 31, 2021 and 2020:
(In thousands) | Three Months Ended March 31, | ||||||||||
2021 | 2020 | ||||||||||
Revenue | |||||||||||
Americas | $ | $ | |||||||||
Europe | |||||||||||
Other(1)
|
|||||||||||
Total | $ | $ | |||||||||
Capital Expenditures | |||||||||||
Americas | $ | $ | |||||||||
Europe | |||||||||||
Other(1)
|
|||||||||||
Corporate | |||||||||||
Total | $ | $ | |||||||||
Segment Adjusted EBITDA | |||||||||||
Americas | $ | $ | |||||||||
Europe | ( |
( |
|||||||||
Other(1)
|
( |
( |
|||||||||
Total | $ | ( |
$ | ||||||||
Reconciliation of Segment Adjusted EBITDA to Consolidated Net Loss Before Income Taxes | |||||||||||
Segment Adjusted EBITDA | $ | ( |
$ | ||||||||
Less reconciling items: | |||||||||||
Corporate expenses(2)
|
|||||||||||
Depreciation and amortization | |||||||||||
Impairment charges | |||||||||||
Restructuring and other costs(3)
|
|||||||||||
Other operating expense, net | |||||||||||
Interest expense, net | |||||||||||
Other charges(4)
|
|||||||||||
Consolidated net loss before income taxes | $ | ( |
$ | ( |
(1)Other includes the Company’s operations in Latin America and, for periods prior to the disposition of the Company’s stake in Clear Media on April 28, 2020, China.
(2)Corporate expenses include expenses related to infrastructure and support, including information technology, human resources, legal, finance and administrative functions of each of the Company’s reportable segments, as well as overall executive, administrative and support functions. Share-based payments and certain restructuring and other costs are recorded in corporate expenses.
(3)The restructuring and other costs line item in this reconciliation excludes those restructuring and other costs related to corporate functions, which are included with the Corporate expenses line item.
(4)Other charges includes Loss on extinguishment of debt and Other income (expense), net.
10
NOTE 3 – REVENUE
The Company generates revenue primarily from the sale of advertising space on printed and digital out-of-home advertising displays. Certain of these revenue transactions are considered leases for accounting purposes as the contracts convey to customers the right to control the use of the Company’s advertising displays for a period of time. The Company accounts for revenue from leases in accordance with the lease accounting guidance under Accounting Standards Codification (“ASC”) Topic 842; all remaining revenue transactions are accounted for as revenue from contracts with customers under ASC Topic 606.
Disaggregation of Revenue
The following table shows revenue from contracts with customers, revenue from leases and total revenue, disaggregated by segment, for the three months ended March 31, 2021 and 2020:
(In thousands) | Revenue from contracts with customers | Revenue from leases | Total Revenue | ||||||||||||||
Three Months Ended March 31, 2021 | |||||||||||||||||
Americas(1)
|
$ | $ | $ | ||||||||||||||
Europe | |||||||||||||||||
Other(2)
|
|||||||||||||||||
Total | $ | $ | $ | ||||||||||||||
Three Months Ended March 31, 2020 | |||||||||||||||||
Americas(1)
|
$ | $ | $ | ||||||||||||||
Europe | |||||||||||||||||
Other(2)
|
|||||||||||||||||
Total | $ | $ | $ |
(1)Americas total revenue includes revenue from transit displays of $21.4 million and $55.5 million for the three months ended March 31, 2021 and 2020, respectively, including revenue from airport displays of $19.5 million and $51.9 million, respectively.
(2)Other includes the Company’s businesses in Latin America and, for periods prior to the disposition of the Company’s stake in Clear Media on April 28, 2020, China. Total revenue for the Company’s Latin America business was $18.5 million for the three months ended March 31, 2020.
Revenue from Contracts with Customers
The following tables show the Company’s beginning and ending accounts receivable and deferred revenue balances from contracts with customers:
Three Months Ended March 31, | |||||||||||
(In thousands) | 2021 | 2020 | |||||||||
Accounts receivable, net of allowance, from contracts with customers: | |||||||||||
Beginning balance | $ | $ | |||||||||
Ending balance | $ | $ | |||||||||
Deferred revenue from contracts with customers: | |||||||||||
Beginning balance | $ | $ | |||||||||
Ending balance | $ | $ |
During the three months ended March 31, 2021 and 2020, respectively, the Company recognized $28.0 million and $40.8 million of revenue that was included in the deferred revenue from contracts with customers balance at the beginning of the respective year.
The Company’s contracts with customers generally have terms of one year or less; however, as of March 31, 2021, the Company expects to recognize $113.9 million of revenue in future periods for remaining performance obligations from current contracts with customers that have an original expected duration greater than one year, with the majority of this amount to be recognized over the next five years .
11
NOTE 4 – LONG-TERM DEBT
Long-term debt outstanding as of March 31, 2021 and December 31, 2020 consisted of the following:
(In thousands) | March 31, 2021 |
December 31, 2020 |
|||||||||
Term Loan Facility(1)
|
$ | $ | |||||||||
Revolving Credit Facility | |||||||||||
Receivables-Based Credit Facility | |||||||||||
Clear Channel Outdoor Holdings |
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Clear Channel International B.V. |
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Clear Channel Outdoor Holdings |
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Clear Channel Worldwide Holdings |
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Other debt | |||||||||||
Original issue discount | ( |
( |
|||||||||
Long-term debt fees | ( |
( |
|||||||||
Total debt | $ | $ | |||||||||
Less: Current portion | |||||||||||
Total long-term debt | $ | $ |
(1)In March 2021, the Company paid $5.0 million of the outstanding principal on the term loan facility (“Term Loan Facility”) in accordance with the terms of the senior secured credit agreement ("Senior Secured Credit Agreement") governing the senior secured credit facilities, which consist of the Term Loan Facility and the revolving credit facility (“Revolving Credit Facility”).
(2)On February 17, 2021, the Company issued $1.0 billion in aggregate principal amount of 7.75 % Senior Notes due 2028. On March 4, 2021, the Company used the net proceeds from this issuance to cause Clear Channel Worldwide Holdings, Inc., a subsidiary of the Company, to redeem $940.0 million aggregate principal amount of its 9.25 % Senior Notes due 2024 (“CCWH Senior Notes”) at a redemption price equal to 104.625 % of the principal amount thereof, plus accrued and unpaid interest to the redemption date. As a result of this partial redemption, the Company recognized a loss on debt extinguishment of $51.1 million during the three months ended March 31, 2021.
The aggregate market value of the Company’s debt based on market prices for which quotes were available was approximately $5.7 billion and $5.6 billion as of March 31, 2021 and December 31, 2020, respectively. Under the fair value hierarchy established by ASC 820-10-35, the market value of the Company’s debt is classified as Level 1.
CCOH 7.75 % Senior Notes Due 2028
On February 17, 2021, the Company completed the sale of $1.0 billion in aggregate principal amount of 7.75 % Senior Notes due 2028 (the “CCOH Senior Notes”) in a private placement to qualified institutional buyers under Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and to persons outside the U.S. pursuant to Regulation S under the Securities Act.
On the same date, the Company entered into an indenture, dated as of February 17, 2021 (the “Indenture”), by and among the Company, the subsidiaries of the Company acting as guarantors party thereto (collectively, the “Guarantors”), and U.S. Bank National Association, as trustee.
The CCOH Senior Notes mature on April 15, 2028 and bear interest at a rate of 7.75 % per annum. Interest on the CCOH Senior Notes is payable to the holders thereof semi-annually on April 15 and October 15 of each year, beginning on October 15, 2021.
The CCOH Senior Notes are guaranteed on a senior unsecured basis by certain of the Company’s wholly-owned existing and future domestic subsidiaries. The CCOH Senior Notes (i) rank pari passu in right of payment with all existing and future senior indebtedness of the Company; (ii) are senior in right of payment to all of the future subordinated indebtedness of the Company and the Guarantors; (iii) are effectively subordinated to all of the Company’s existing and future indebtedness secured by a lien, to the extent of the value of such collateral; and (iv) are structurally subordinated to any existing and future obligations of any existing or future subsidiaries of the Company that do not guarantee the CCOH Senior Notes, including all of the Company’s foreign subsidiaries.
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The Company may redeem all or a portion of the CCOH Senior Notes beginning on April 15, 2024 at the redemption prices set forth in the Indenture. Prior to April 15, 2024, the Company may redeem all or a portion of the CCOH Senior Notes at a redemption price equal to 100 % of the principal amount of the CCOH Senior Notes plus the “make-whole” premium described in the Indenture. The Company may redeem up to 40 % of the aggregate principal amount of the CCOH Senior Notes at any time prior to April 15, 2024 using the net proceeds from certain equity offerings at 107.75 % of the principal amount of the CCOH Senior Notes.
The Indenture contains covenants that limit the Company’s ability and the ability of its restricted subsidiaries to, among other things: (i) incur or guarantee additional debt or issue certain preferred stock; (ii) redeem, purchase or retire subordinated debt; (iii) make certain investments; (iv) create restrictions on the payment of dividends or other amounts from the Company’s restricted subsidiaries that are not Guarantors; (v) enter into certain transactions with affiliates; (vi) merge or consolidate with another person, or sell or otherwise dispose of all or substantially all of the Company’s assets; (vii) sell certain assets, including capital stock of the Company’s subsidiaries; (viii) designate the Company’s subsidiaries as unrestricted subsidiaries; (ix) pay dividends, redeem or repurchase capital stock or make other restricted payments; and (x) incur certain liens.
Letters of Credit, Surety Bonds and Guarantees
As of March 31, 2021, the Company had $43.2 million of letters of credit outstanding under its Revolving Credit Facility, resulting in $1.8 million of remaining excess availability. Additionally, the Company had $60.6 million of letters of credit outstanding under its receivables-based credit facility, which had a borrowing base less than its borrowing limit of $125.0 million, limiting excess availability to $24.8 million. Access to availability under these credit facilities is limited by the covenants relating to incurrence of secured indebtedness in the indenture governing the CCWH Senior Notes. Additionally, as of March 31, 2021, the Company had $94.4 million and $32.0 million of surety bonds and bank guarantees outstanding, respectively, a portion of which was supported by $8.7 million of cash collateral. These letters of credit, surety bonds and bank guarantees relate to various operational matters, including insurance, bid, concession and performance bonds, as well as other items.
Amendment to Senior Secured Credit Facilities
In June 2020, the Company entered into an amendment to the Senior Secured Credit Agreement, thereby suspending the springing financial covenant through June 30, 2021 and delaying the scheduled financial covenant step-down until March 31, 2022. In May 2021, the Company entered into a second amendment to the Senior Secured Credit Agreement to, among other things, extend the suspended springing financial covenant through December 31, 2021 and further delay the scheduled financial covenant step-down until September 30, 2022. Under the Senior Secured Credit Agreement, as amended, the Company is required to maintain minimum cash on hand and availability under the Receivables-Based Credit Facility and Revolving Credit Facility of $150 million for all reporting periods through March 31, 2022.
NOTE 5 – COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company and its subsidiaries are involved in certain legal proceedings arising in the ordinary course of business and, as required, have accrued an estimate of the probable costs for the resolution of those claims for which the occurrence of loss is probable and the amount can be reasonably estimated. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in the Company’s assumptions or the effectiveness of its strategies related to these proceedings. Additionally, due to the inherent uncertainty of litigation, there can be no assurance that the resolution of any particular claim or proceeding would not have a material adverse effect on the Company’s financial condition or results of operations.
Although the Company is involved in a variety of legal proceedings in the ordinary course of business, a large portion of the Company’s litigation arises in the following contexts: commercial disputes, employment and benefits related claims, land use and zoning, governmental fines, intellectual property claims and tax disputes.
China Investigation
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The Company advised both the SEC and the United States Department of Justice ("DOJ") of the investigation at Clear Media and is cooperating to provide documents, interviews and information to the agencies. Subsequent to the announcement that the Company was considering a strategic review of its stake in Clear Media, in March 2020, Clear Channel Outdoor Holdings received a subpoena from the staff of the SEC and a Grand Jury subpoena from the United States Attorney's Office for the Eastern District of New York, both in connection with the previously disclosed investigations. On April 28, 2020, the Company tendered the shares representing its 50.91 % stake in Clear Media to Ever Harmonic Global Limited ("Ever Harmonic"), a special-purpose vehicle wholly owned by a consortium of investors which includes the chief executive officer and an executive director of Clear Media, and on May 14, 2020, the Company received the final proceeds of the sale. In connection with the sale of its shares in Clear Media, the Company entered into an Investigation and Litigation Support Agreement with Clear Media and Ever Harmonic that requires Clear Media, if requested by the SEC and/or DOJ, to use reasonable efforts to timely provide relevant factual information to the SEC and/or DOJ, among other obligations.
The Clear Media investigation could implicate the books and records, internal controls and anti-bribery provisions of the U.S. Foreign Corrupt Practices Act, which statute and regulations provide for potential monetary penalties as well as criminal and civil sanctions. It is possible that monetary penalties and other sanctions could be assessed on the Company in connection with this matter. The nature and amount of any monetary penalty or other sanctions cannot reasonably be estimated at this time and could be qualitatively or quantitatively material to the Company.
In connection with this investigation, the SEC has also requested information regarding the Company’s historical oversight of its business in Italy and the misstatements and related forensic investigation, as described below. The Company is cooperating to provide documents and information responsive to the SEC inquiries and is voluntarily sharing the documents and information with the DOJ.
Italy Investigation
During the three months ended June 30, 2018, the Company identified misstatements associated with VAT obligations in its business in Italy, which resulted in an understatement of its VAT obligation of $16.9 million as of December 31, 2017. Upon identification of these misstatements, the Company undertook certain procedures, including a forensic investigation. In addition, the Company voluntarily disclosed the matter and findings to the Italian tax authorities in order to commence a discussion on the appropriate calculation of the VAT position.
In February 2021, the Company negotiated a final settlement with the Italian tax authorities to repay a substantial portion of the VAT previously applied as a credit in relation to the transactions under investigation, amounting to, at current foreign exchange rates, approximately $21.7 million, including penalties and interest. The Company had previously made payments of $8.1 million and applied VAT recoverable of $1.7 million against the outstanding balance. During the first quarter of 2021, the Company paid an additional $3.5 million, with the majority of the residual amount to be paid in quarterly installments over the next four years .
NOTE 6 – INCOME TAXES
Income Tax Benefit (Expense)
The Company’s income tax benefit (expense) for the three months ended March 31, 2021 and 2020 consisted of the following components:
(In thousands) | Three Months Ended March 31, | ||||||||||
2021 | 2020 | ||||||||||
Current tax benefit | $ | $ | |||||||||
Deferred tax benefit (expense) | ( |
||||||||||
Income tax benefit (expense) | $ | $ | ( |
The effective tax rates for the three months ended March 31, 2021 and 2020 were 7.9 % and (5.8 )%, respectively.
The effective tax rate in the first quarter of 2021 was primarily impacted by the valuation allowance recorded against current period deferred tax assets resulting from losses and interest expense carryforwards in the U.S. and certain foreign jurisdictions due to uncertainty regarding the Company’s ability to realize those assets in future periods.
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NOTE 7 – PROPERTY, PLANT AND EQUIPMENT
The Company’s property, plant and equipment consisted of the following classes of assets as of March 31, 2021 and December 31, 2020:
(In thousands) | March 31, 2021 |
December 31, 2020 |
|||||||||
Structures | $ | $ | |||||||||
Furniture and other equipment | |||||||||||
Land, buildings and improvements | |||||||||||
Construction in progress | |||||||||||
Less: Accumulated depreciation | |||||||||||
Property, plant and equipment, net | $ | $ |
NOTE 8 – INTANGIBLE ASSETS AND GOODWILL
Intangible Assets
The following table presents the gross carrying amount and accumulated amortization for each major class of intangible assets as of March 31, 2021 and December 31, 2020:
(In thousands) | March 31, 2021 | December 31, 2020 | |||||||||||||||||||||
Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | ||||||||||||||||||||
Indefinite-lived permits | $ | $ | — | $ | $ | — | |||||||||||||||||
Transit, street furniture and other outdoor contractual rights |
( |
( |
|||||||||||||||||||||
Permanent easements | |||||||||||||||||||||||
Trademarks | ( |
( |
|||||||||||||||||||||
Other | ( |
( |
|||||||||||||||||||||
Total intangible assets | $ | $ | ( |
$ | $ | ( |
The Company performs its annual impairment test for indefinite-lived permits as of July 1 of each year, and more frequently as events or changes in circumstances warrant. The Company tested its indefinite-lived permits for impairment during both the first quarters of 2021 and 2020 due to indicators of impairment, specifically, due to an increase in the discount rate during 2021 and due to expected negative financial statement impacts from COVID-19 during 2020. This testing in both quarters indicated impairment of indefinite-lived permits, resulting in charges of $119.0 million and $123.1 million recorded during the three months ended March 31, 2021 and 2020, respectively.
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Goodwill
The following table presents changes in the goodwill balance for the Company’s segments during the three months ended March 31, 2021:
(In thousands) | Americas | Europe | Other | Consolidated | |||||||||||||||||||
Balance as of December 31, 2020(1)
|
$ | $ | $ | $ | |||||||||||||||||||
Foreign currency | ( |
( |
|||||||||||||||||||||
Balance as of March 31, 2021 | $ | $ | $ | $ |
(1)The balance at December 31, 2020 is net of cumulative impairments of $2.6 billion, $191.4 million and $90.4 million for Americas, Europe and Other, respectively.
NOTE 9 – COST-SAVINGS INITIATIVES
During 2020, the Company committed to restructuring plans to reduce headcount in the Americas and Europe segments as well as in Latin America, primarily in response to the impact of COVID-19. The Americas plan and the Latin America portion of the international plan were completed in 2020.
In Europe, the Company is continuing to make relevant announcements to employees on a country by country basis and is continuing consultations with the works council, employee representatives, unions and other relevant organizations regarding the intended reduction in force and related cost reduction and restructuring actions. In April 2021, the Company revised its international restructuring plan to reflect delays in implementing the Europe portion of the plan and additional headcount reductions in Europe. The Company expects this revised plan to be substantially complete by the end of the first quarter of 2023 and estimates that total charges for the Europe portion of the international restructuring plan, which includes charges already incurred, will be in a range of approximately $51 million to $56 million. As of March 31, 2021, the Company had incurred a total amount of $10.0 million in costs in its Europe segment in connection with the Europe portion of the restructuring plan, including $1.7 million during the three months ended March 31, 2021. Substantially all charges related to this plan were or are expected to be severance benefits and related costs.
The following table presents changes in the liability balances related to these restructuring plans during the three months ended March 31, 2021:
(In thousands) | Americas | Europe | Other | Corporate | Total | ||||||||||||||||||||||||
Balance as of December 31, 2020 |
$ | $ | $ | $ | $ | ||||||||||||||||||||||||
Costs incurred and charged to Direct operating expenses(1)
|
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Costs incurred and charged to Selling, general and administrative expenses(1)
|
|||||||||||||||||||||||||||||
Costs incurred and charged to Corporate expenses | |||||||||||||||||||||||||||||
Costs paid or otherwise settled | ( |
( |
( |
( |
|||||||||||||||||||||||||
Balance as of March 31, 2021 | $ | $ | $ | $ | $ |
(1)Costs are categorized as Restructuring and other costs and are therefore excluded from Segment Adjusted EBITDA.
In addition, during the three months ended March 31, 2021, the Company incurred $1.4 million of restructuring costs in Corporate related to termination benefits associated with a cost-savings initiative outside of the aforementioned restructuring plans, which was substantially completed and paid as of March 31, 2021.
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NOTE 10 – NET LOSS PER SHARE
The following table presents the computation of net loss per share for the three months ended March 31, 2021 and 2020:
(In thousands, except per share data) | Three Months Ended March 31, |
||||||||||
2021 | 2020 | ||||||||||
Numerator: | |||||||||||
Net loss attributable to the Company – common shares | $ | ( |
$ | ( |
|||||||
Denominator: | |||||||||||
Weighted average common shares outstanding – basic | |||||||||||
Weighted average common shares outstanding – diluted | |||||||||||
Net loss attributable to the Company per share of common stock: | |||||||||||
Basic | $ | ( |
$ | ( |
|||||||
Diluted | $ | ( |
$ | ( |
Outstanding equity awards of 25.9 million and 13.4 million shares for the three months ended March 31, 2021 and 2020, respectively, were not included in the computation of diluted earnings per share because to do so would have been anti-dilutive.
NOTE 11 — OTHER INFORMATION
Restricted Cash
The following table provides a reconciliation of cash, cash equivalents and restricted cash reported in the Consolidated Balance Sheets to the total of the amounts reported in the Condensed Consolidated Statements of Cash Flows:
(In thousands) | March 31, 2021 |
December 31, 2020 |
|||||||||
Cash and cash equivalents in the Balance Sheet | $ | $ | |||||||||
Restricted cash included in: | |||||||||||
Other current assets | |||||||||||
Other assets | |||||||||||
Total cash, cash equivalents and restricted cash in the Statement of Cash Flows | $ | $ |
Accounts Receivable and Allowance for Credit Losses
The following table discloses the components of “Accounts receivable, net,” as reported in the Consolidated Balance Sheets:
(In thousands) | March 31, 2021 |
December 31, 2020 |
|||||||||
Accounts receivable | $ | $ | |||||||||
Less: Allowance for credit losses | ( |
( |
|||||||||
Accounts receivable, net | $ | $ |
Credit loss expense related to accounts receivable was $(0.7 ) million and $3.7 million during the three months ended March 31, 2021 and 2020, respectively.
Other Comprehensive Loss
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s discussion and analysis of our financial condition and results of operations (“MD&A”) should be read in conjunction with the consolidated financial statements and related notes contained in Item 1 of this Quarterly Report on Form 10-Q and the Company's 2020 Annual Report on Form 10-K. All references in this Quarterly Report on Form 10-Q to the “Company,” “we,” “us” and “our” are to Clear Channel Outdoor Holdings, Inc. and its consolidated subsidiaries, and all references to “CCOH” are to Clear Channel Outdoor Holdings, Inc. without its consolidated subsidiaries.
The MD&A is organized as follows:
•Overview – Discussion of the nature, key developments and trends of our business in order to provide context for the remainder of the MD&A.
•Results of Operations – Analysis of our financial results of operations at the consolidated and segment levels.
•Liquidity and Capital Resources – Discussion of our cash flows, anticipated cash requirements, sources and uses of capital and liquidity, debt covenants and guarantor subsidiaries.
•Critical Accounting Estimates – Discussion of accounting estimates that we believe are most important to understanding the assumptions and judgments incorporated in our consolidated financial statements.
This discussion contains forward-looking statements that are subject to risks and uncertainties, and actual results may differ materially from those contained in any forward-looking statements. See “Cautionary Statement Concerning Forward-Looking Statements” contained at the end of this MD&A.
OVERVIEW
Description of Our Business
Our revenue is derived from selling advertising space on the displays we own or operate in key markets worldwide, consisting primarily of billboards, street furniture and transit displays. We have two reportable business segments, which we believe reflect how the Company is currently managed: Americas, which consists of operations primarily in the U.S., and Europe, which consists of operations in Europe and Singapore. Our remaining operating segments, which include China for periods before its sale on April 28, 2020 and Latin America, do not meet the quantitative thresholds to qualify as reportable segments and are disclosed as “Other.” Each segment provides out-of-home advertising services in its respective geographic region using various digital and traditional display types.
Macroeconomic Indicators, Seasonality and Recent Developments
Advertising revenue for our business is highly correlated to changes in gross domestic product (“GDP”) as advertising spending has historically trended in line with GDP, both domestically and internationally. Additionally, our international results are impacted by the economic conditions in the foreign markets in which we have operations and fluctuations in foreign currency exchange rates.
We typically experience our lowest financial performance in the first quarter of the calendar year, which is generally offset during the remainder of the year as our business typically experiences its strongest performance in the second and fourth quarters of the calendar year. However, as described below, our financial performance in 2020 and the first quarter of 2021 was severely impacted by COVID-19. The extent to which COVID-19 will impact our results for the remainder of the year will depend on future developments, which remain uncertain.
COVID-19 Update
As described in our 2020 Annual Report on Form 10-K, COVID-19 has had a significant adverse impact on our results of operations starting in March 2020. Due to the timing and nature of the geographic spread of COVID-19, the adverse impacts to our results of operations for the three months ended March 31, 2020 were primarily limited to our operations in China and certain markets in Europe that experienced the most concentrated outbreaks during this time. During the remainder of the year, due to the continued global spread of COVID-19, including throughout the U.S., we experienced significant adverse effects on our results of operations throughout our business, with the severity of the negative impacts on out-of-home metrics, travel patterns, consumer behavior and economic activity fluctuating based on the evolving nature of COVID-19 developments in each geographic region.
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During the first quarter of 2021, we continued to see revenues remain significantly below historic norms throughout our business:
•In our Americas segment, our airport display revenue was the most significantly impacted. The U.S. experienced a decrease in reported daily COVID-19 cases and improvement in mobility levels during the first quarter of 2021 as compared to the fourth quarter of 2020.
•In Europe, an increase in reported daily cases and hospitalizations resulted in the reinstatement of mobility restrictions in certain countries which created significant volatility in our Europe segment booking activity, particularly in France and the United Kingdom (“U.K.”). Additionally, mobility levels remained significantly below pre-COVID-19 levels.
Both our Americas and Europe segments continue to experience customer advertising buying decisions later in the buying cycle, which can delay bookings and may cause performance to vary from our current expectations. Latin America bookings continue to be severely constrained.
Since the onset of the pandemic, we have taken various measures to increase our liquidity and preserve and strengthen our financial flexibility, including aggressive operating cost and capital expenditure savings initiatives, restructuring plans to reduce headcount and other targeted liquidity measures, and we continue to consider other cost savings initiatives in order to better align our operating expense base with revenues and to provide additional financial flexibility as circumstances warrant. However, the duration and severity of COVID-19 continue to evolve and remain uncertain. The extent to which COVID-19 will ultimately impact our results will depend on future developments, and the curtailed customer demand we have experienced and are continuing to experience could materially adversely impact our business, results of operations and overall financial performance in future periods.
Executive Summary
The key developments in our business during the three months ended March 31, 2021 are summarized below:
•Consolidated revenue decreased 32.7% during the three months ended March 31, 2021 as compared to the same period of 2020. Excluding the impact from movements in foreign exchange rates, consolidated revenue decreased 34.8%. This was primarily driven by COVID-19 and its extensive impact on the global advertising market, which severely reduced our performance in both Americas and Europe, as well as the sale of our Clear Media business on April 28, 2020.
•In February, we issued $1.0 billion aggregate principal amount of 7.75% Senior Notes due 2028 (the "CCOH Senior Notes"). In March, we used the net proceeds from this issuance to redeem $940.0 million aggregate principal amount of the 9.25% Senior Notes due 2024 (the “CCWH Senior Notes”) issued by Clear Channel Worldwide Holdings, Inc. (“CCWH”).
•We recognized reductions of rent expense on lease and non-lease contracts due to negotiated rent abatements of $22.7 million. We also received European governmental support and wage subsidies in response to COVID-19 of $4.7 million, which have been recorded as reductions in compensation and rent costs.
•We continued to execute upon the Europe portion of our international restructuring plan to reduce headcount and incurred $1.7 million in restructuring costs pursuant to this plan during the quarter. In April, we revised the Europe portion of this plan to reflect delays in implementation and additional headcount reductions. We expect the revised plan to be substantially complete by the end of the first quarter of 2023 and estimate that total charges for the Europe portion of the plan, including charges already incurred of $10.0 million, will be in a range of approximately $51 million to $56 million. Substantially all charges related to this plan were or are expected to be severance benefits and related costs.
RESULTS OF OPERATIONS
The discussion of our results of operations is presented on both a consolidated and segment basis.
•Our operating segment profit measure is Segment Adjusted EBITDA, which is calculated as revenue less direct operating expenses and selling, general and administrative expenses, excluding restructuring and other costs, which are defined as costs associated with cost-saving initiatives such as severance, consulting and termination costs and other special costs. The material components of Segment Adjusted EBITDA are discussed below on both a consolidated and segment basis.
•Corporate expenses, depreciation and amortization, impairment charges, other operating income and expense, all non-operating income and expenses, and income taxes are managed on a total company basis and are, therefore, included only in our discussion of consolidated results.
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Revenue and expenses “excluding the impact of movements in foreign exchange rates” in this MD&A are presented because management believes that viewing certain financial results without the impact of fluctuations in foreign currency rates facilitates period-to-period comparisons of business performance and provides useful information to investors. Revenue and expenses “excluding the impact of movements in foreign exchange rates” are calculated by converting the current period’s revenue and expenses in local currency to U.S. dollars using average foreign exchange rates for the comparable period.
Due to seasonality and uncertainty surrounding COVID-19, as previously described in the "Overview" discussion, the results for the interim period are not indicative of expected results for the full year.
Consolidated Results of Operations
The comparison of our historical results of operations for the three months ended March 31, 2021 to the three months ended March 31, 2020 is as follows:
(In thousands) | Three Months Ended March 31, |
% | |||||||||||||||
2021 | 2020 | Change | |||||||||||||||
Revenue | $ | 370,908 | $ | 550,809 | (32.7)% | ||||||||||||
Operating expenses: | |||||||||||||||||
Direct operating expenses (excludes depreciation and amortization) |
283,290 | 350,269 | (19.1)% | ||||||||||||||
Selling, general and administrative expenses (excludes depreciation and amortization) |
97,570 | 123,704 | (21.1)% | ||||||||||||||
Corporate expenses (excludes depreciation and amortization) |
34,042 | 36,338 | (6.3)% | ||||||||||||||
Depreciation and amortization | 61,852 | 75,753 | (18.4)% | ||||||||||||||
Impairment charges | 118,950 | 123,137 | (3.4)% | ||||||||||||||
Other operating expense, net | 117 | 6,021 | (98.1)% | ||||||||||||||
Operating loss | (224,913) | (164,413) | (36.8)% | ||||||||||||||
Interest expense, net | (92,693) | (90,142) | |||||||||||||||
Loss on extinguishment of debt | (51,101) | — | |||||||||||||||
Other income (expense), net | 6,554 | (18,889) | |||||||||||||||
Loss before income taxes | (362,153) | (273,444) | |||||||||||||||
Income tax benefit (expense) | 28,697 | (15,779) | |||||||||||||||
Consolidated net loss | (333,456) | (289,223) | |||||||||||||||
Less amount attributable to noncontrolling interest |
(1,103) | (11,732) | |||||||||||||||
Net loss attributable to the Company | $ | (332,353) | $ | (277,491) |
Consolidated Revenue
Consolidated revenue decreased $179.9 million, or 32.7%, during the three months ended March 31, 2021 compared to the same period of 2020. Excluding the $11.9 million impact of movements in foreign exchange rates, consolidated revenue decreased $191.8 million, or 34.8%, primarily due to the significant adverse impacts of COVID-19 on our business. Also contributing to the decrease in consolidated revenue was the sale of our Clear Media business on April 28, 2020.
Consolidated Direct Operating Expenses
Consolidated direct operating expenses decreased $67.0 million, or 19.1%, during the three months ended March 31, 2021 compared to the same period of 2020. Excluding the $13.8 million impact of movements in foreign exchange rates, consolidated direct operating expenses decreased $80.8 million, or 23.1%, largely due to lower site lease expenses throughout our business, mainly driven by lower revenue and renegotiated contracts with landlords and municipalities to better align fixed site lease expenses with reductions in revenue. We recognized reductions of rent expense on lease and non-lease contracts due to negotiated rent abatements of $22.7 million during the three months ended March 31, 2021. Additionally, we received European governmental support and wage subsidies totaling $3.5 million during the three months ended March 31, 2021. Also contributing to the decrease in consolidated direct operating expenses was the sale of our Clear Media business.
Restructuring and other costs included within consolidated direct operating expenses were $0.9 million and $0.3 million during the three months ended March 31, 2021 and 2020, respectively. Included within restructuring and other costs for the three months ended March 31, 2021 were severance costs of $0.3 million related to the restructuring plan to reduce headcount in our European business.
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Consolidated Selling, General and Administrative (“SG&A”) Expenses
Consolidated SG&A expenses decreased $26.1 million, or 21.1%, during the three months ended March 31, 2021 compared to the same period of 2020. Excluding the $3.9 million impact of movements in foreign exchange rates, consolidated SG&A expenses decreased $30.0 million, or 24.3%, largely due to lower employee compensation costs driven by operating cost savings initiatives implemented by the Company in response to COVID-19, lower revenue, and European governmental support and wage subsidies totaling $1.2 million during the three months ended March 31, 2021. Also contributing to the decrease in consolidated SG&A expenses was the sale of our Clear Media business.
Restructuring and other costs included within consolidated SG&A expenses were $1.8 million and $1.6 million during the three months ended March 31, 2021 and 2020, respectively. Included within restructuring and other costs for the three months ended March 31, 2021 were severance costs of $1.4 million related to the restructuring plan to reduce headcount in our European business.
Corporate Expenses
Corporate expenses decreased $2.3 million, or 6.3%, during the three months ended March 31, 2021 compared to the same period of 2020. Excluding the $0.7 million impact of movements in foreign exchange rates, corporate expenses decreased $3.0 million, or 8.3%. This decrease was primarily driven by lower employee health benefit costs and lower variable incentive compensation expense resulting from declines in operating performance due to COVID-19.
Restructuring and other costs included within corporate expenses were $4.7 million and $5.2 million during the three months ended March 31, 2021 and 2020, respectively. Included within restructuring and other costs for the three months ended March 31, 2021 were severance costs of $0.9 million related to the restructuring plans to reduce headcount.
Depreciation and Amortization
Depreciation and amortization decreased $13.9 million, or 18.4%, during the three months ended March 31, 2021 compared to the same period of 2020. Excluding the $1.6 million impact of movements in foreign exchange rates, depreciation and amortization decreased $15.5 million, or 20.5%, primarily driven by the sale of our Clear Media business, with the remaining decrease due to lower capital expenditures.
Impairment Charges
During the three months ended March 31, 2021 and 2020, we recognized impairment charges of $119.0 million and $123.1 million, respectively, on indefinite-lived permits in multiple markets of our Americas segment. The impairments during both periods were driven by increases in the discount rate and reductions in projected cash flows related to the expected negative financial statement impacts from COVID-19.
Interest Expense, Net
Interest expense, net, increased $2.6 million during the three months ended March 31, 2021 compared to the same period of 2020, primarily driven by the issuance of the Clear Channel International B.V. 6.625% Senior Secured Notes due 2025 (the “CCIBV Senior Secured Notes”) in August 2020 and, to a lesser extent, the overlapping period between the issuance of the CCOH Senior Notes in February 2021 and the partial redemption of the CCWH Senior Notes in March 2021. These increases were partially offset by lower interest on the Term Loan Facility due to quarterly payments of principal and a favorable change in the interest rate.
Loss on Extinguishment of Debt
During the three months ended March 31, 2021, we recognized a loss on extinguishment of debt of $51.1 million related to the partial redemption of the CCWH Senior Notes. We did not extinguish any debt during the three months ended March 31, 2020.
Other Income (Expense), Net
For the three months ended March 31, 2021 and 2020, we recognized other income, net, of $6.6 million and other expense, net, of $18.9 million, respectively, primarily related to net foreign exchange gains and losses recognized in connection with intercompany notes denominated in foreign currencies.
Income Tax Benefit (Expense)
The effective tax rates for the three months ended March 31, 2021 and 2020 were 7.9% and (5.8)%, respectively.
The effective tax rate in the first quarter of 2021 was primarily impacted by the valuation allowance recorded against current period deferred tax assets resulting from losses and interest expense carryforwards in the U.S. and certain foreign jurisdictions due to uncertainty regarding the Company’s ability to realize those assets in future periods.
21
The effective tax rate in the first quarter of 2020 was primarily impacted by the valuation allowance recorded against current period deferred tax assets resulting from losses and interest expense carryforwards in the U.S. and certain foreign jurisdictions due to uncertainty regarding the Company's ability to realize those assets in future periods. Additionally, as a result of entering into the agreement to irrevocably tender to sell its 50.91% stake in Clear Media, the Company recorded deferred tax expense and an associated deferred tax liability of $44.8 million during the three months ended March 31, 2020.
Americas Results of Operations
(In thousands) | Three Months Ended March 31, |
% | |||||||||||||||
2021 | 2020 | Change | |||||||||||||||
Revenue | $ | 211,884 | $ | 295,787 | (28.4)% | ||||||||||||
Direct operating expenses(1)
|
105,831 | 135,223 | (21.7)% | ||||||||||||||
SG&A expenses(1)
|
42,855 | 53,329 | (19.6)% | ||||||||||||||
Segment Adjusted EBITDA | 64,220 | 107,958 | (40.5)% | ||||||||||||||
(1)Includes restructuring and other costs that are excluded from Segment Adjusted EBITDA.
Americas revenue decreased $83.9 million, or 28.4%, during the three months ended March 31, 2021 compared to the same period of 2020. Revenue was adversely affected by COVID-19 during the first quarter of 2021, resulting in decreases in revenue across all our products. The largest decline was in revenue from airport displays, which decreased 62.4% to $19.5 million during the three months ended March 31, 2021, as compared to $51.9 million during the same period of 2020. Total digital revenue decreased 36.3% to $62.9 million during the three months ended March 31, 2021, as compared to $98.8 million during the same period of 2020. Digital revenue from billboards, street furniture and spectaculars was $56.3 million during the three months ended March 31, 2021, as compared to $74.2 million during the same period of 2020. Digital revenue from transit displays, including airport displays, was $6.6 million during the three months ended March 31, 2021, as compared to $24.6 million during the same period of 2020. Revenue generated from national sales comprised 36.0% and 37.7% of total revenue for the three months ended March 31, 2021 and 2020, respectively, while the remainder of revenue was generated from local sales.
Americas direct operating expenses decreased $29.4 million, or 21.7%, during the three months ended March 31, 2021 compared to the same period of 2020 primarily due to lower site lease expenses related to lower revenue and renegotiated contracts with landlords and municipalities. Americas site lease expense, which includes rent expense on both lease and non-lease contracts, decreased 22.6% to $83.4 million during the three months ended March 31, 2021, as compared to $107.7 million during the same period of 2020.
Americas SG&A expenses decreased $10.5 million, or 19.6%, during the three months ended March 31, 2021 compared to the same period of 2020 largely due to lower employee compensation costs driven by operating cost savings initiatives and lower revenue.
Europe Results of Operations
(In thousands) | Three Months Ended March 31, |
% | |||||||||||||||
2021 | 2020 | Change | |||||||||||||||
Revenue | $ | 149,524 | $ | 211,690 | (29.4)% | ||||||||||||
Direct operating expenses(1)
|
169,482 | 173,596 | (2.4)% | ||||||||||||||
SG&A expenses(1)
|
49,367 | 53,131 | (7.1)% | ||||||||||||||
Segment Adjusted EBITDA | (67,629) | (14,111) | (379.3)% |
(1)Includes restructuring and other costs that are excluded from Segment Adjusted EBITDA.
Europe revenue decreased $62.2 million, or 29.4%, during the three months ended March 31, 2021 compared to the same period of 2020. Excluding the $12.4 million impact of movements in foreign exchange rates, Europe revenue decreased $74.6 million, or 35.2%, with the largest revenue reductions occurring in France, the U.K, Sweden and Spain. Revenue was adversely affected by COVID-19 in each country in which we operate as mobility restrictions and lockdowns in Europe occurred throughout the first quarter of 2021, whereas government lockdowns during the comparable period of 2020 did not begin until March. Europe digital revenue decreased $21.6 million, or 33.6%, to $42.6 million during the three months ended March 31, 2021 as compared to $64.2 million during the same period of 2020. Excluding the $3.4 million impact of movements in foreign exchange rates, Europe digital revenue decreased $25.0 million, or 38.9%.
22
Europe direct operating expenses decreased $4.1 million, or 2.4%, during the three months ended March 31, 2021 compared to the same period of 2020. Excluding the $14.3 million impact of movements in foreign exchange rates, Europe direct operating expenses decreased $18.4 million, or 10.6%. Direct operating expenses decreased in most of the countries in which we operate, with the largest decreases occurring in France, the U.K., Sweden and Spain. The largest driver of these decreases was lower site lease expense driven by lower revenue and renegotiated contracts with landlords and municipalities. Europe site lease expense, which includes rent expense on both lease and non-lease contracts, decreased 1.6% to $101.6 million during the three months ended March 31, 2021, as compared to $103.2 million during the same period of 2020. Excluding the $8.8 million impact of movements in foreign exchange rates, Europe site lease expense decreased $10.4 million, or 10.0%. Lower production, maintenance and installation expenses driven by lower revenue and the receipt of governmental support and wage subsidies also contributed to the decrease in direct operating expenses.
Europe SG&A expenses decreased $3.8 million, or 7.1%, during the three months ended March 31, 2021 compared to the same period of 2020. Excluding the $4.2 million impact of movements in foreign exchange rates, Europe SG&A expenses decreased $8.0 million, or 14.9%. SG&A expenses decreased in most of the countries in which we operate, with the largest decreases occurring in France, the U.K. and Sweden. These decreases are largely due to lower employee compensation expense related to lower revenue, operating cost savings initiatives and governmental support and wage subsidies received.
Other Results of Operations
(In thousands) | Three Months Ended March 31, |
% | |||||||||||||||
2021 | 2020 | Change | |||||||||||||||
Revenue | $ | 9,500 | $ | 43,332 | (78.1)% | ||||||||||||
Direct operating expenses(1)
|
7,977 | 41,450 | (80.8)% | ||||||||||||||
SG&A expenses(1)
|
5,348 | 17,244 | (69.0)% | ||||||||||||||
Segment Adjusted EBITDA(2)
|
(3,825) | (15,187) |