Clear Channel Outdoor Holdings, Inc. (CCO) Earnings Call Transcript & Summary

Hi. My name is Richard Choe. I'd like to welcome everyone to JPMorgan's 51st Annual Global Tech, Media and Communications Conference. I'd like to welcome Brian Coleman, CFO of Clear Channel Outdoor; David Sailer, CFO of the Americas; and Bob Mccuin, CRO of the Americas. Thank you for being with us today.

You bet. Thanks for having us, Richard.

I just wanted to start off with you, Brian. If you could kind of give people who are not as familiar with Clear Channel an overview of your 4 different segments and what drove the, I guess, resegmenting and breaking out. I think the businesses were always run this way, but in terms of the reporting, what kind of drove that change?

Yes. I'll answer the latter part of the question first because I think it's a natural lead-in to talk about each of the segments, but it really is driven by how you manage these organizations. And so we have constant dialogue with our auditors. And based on how we manage each of these businesses, how we look at them from a financial metric evaluation standpoint, how we allocate capital, these kind of things, drove the ultimate decision to resegment. And the new segments are America and airports, which were traditionally Americas. So those are 2 new segments. And then in Europe, we divided Europe operations into Europe North and Europe South. And then the one other change was Singapore, which was part of Europe from a reporting standpoint, moved over to Other, which probably makes sense just on the surface. In terms of America and airports, one of the good things about separating them is you get a view of the traditional [ outboard ] business that you perhaps didn't get before when you combine it with airports. And airports is managed up through a airports leader who then reports into our CEO. So it does have a different management layer. In Europe, there is a distinction between the northern markets and the southern markets, not only geographically, but more importantly, from how management reporting and capital allocation -- capital is allocated to those groups. So we felt it was important to be transparent and to reflect kind of the new orientation in our segment reporting.

Great. And something that I guess has been in the news more recently and gotten a lot of questions, I'm not sure how much you can say about it, but as much as you're comfortable in talking about, there's been an activist investor who want you to, I guess, look at a sale of part of the business or the whole business, which doesn't seem all that nuisance. You're already in the process on the European side, right? Can you give us an idea of your thinking on their comments and if you've had any discussions with them?

So we're open to constructive dialogue with all of investors, including Legion, who we've had a dialogue with. They've been an investor for a while. And I -- kind of I look at the statements that have been made and I think about it. At its core, what we're getting to is our share price reflective of the value of the organization. And I think we all agree that it's not in terms of the company and investors. So we start there. And then I think it's all about what is the company trying to achieve and what is the path to achieving it. And I think the key thing is we are absolutely focused on value creation. We are focused on it through demonstrating profitable growth, simplifying our portfolio, demonstrating the operating leverage that exists in our business and ultimately strengthen our balance sheet through this process. And how we do that is partially seen through the announcement of the strategic review in Europe. We do think a U.S.-centric business, and we've stated that we want to become a U.S.-centric business, but we feel that, that is the right direction for the company. And while we have valuable assets internationally, we feel they would be more valuable in the hands of others. We began a process over a year ago. Unfortunately, after -- shortly after it was launched, there was some geopolitical events, including the invasion of Ukraine, that caused us to pivot on the process we were undergoing and prioritized the lower-margin noncore to Europe businesses, which we continue to look at. In fact, we successfully closed the sale of Switzerland at the end of March. But we are very much focused on continuing the strategic review process. We think the way that we've broken it down is deliberate, thoughtful and we want to continue on that path. And as additional markets are sold, we think this process will accelerate. Part of what we're up against, of course, are things that are beyond our control, the invasion of the Ukraine, the M&A financing markets in Europe, the ability and willingness of buyers at certain times. So we'll continue to lean into it. We continue to focus on the lower-margin noncore businesses. We've had some success. I hope that we will continue to have success. And look, as things accelerate, we may do things differently in Europe. I think there's also been discussion around how do you look at other things, other potential transactions. And I think it's important to communicate that the management is open-minded. We want to have dialogue. We want to look at all options and try to evaluate them. Suggestions such as, well, you should take a look at Latin America. Well, that makes sense. It doesn't really move the needle. But it's non -- as you think about the U.S.-centric orientation, all of our international business should be something that, at the appropriate time, should be things that are considered. But the focus is Europe. That actually can move the needle. That's a substantial -- there's substantial value there. We're not holding out for last dollar, but we don't want to also give value away. We don't think that's in the best interest of our shareholders. When you talk about potential U.S. asset sales, I think you have to think about, what is the totality of the transaction? What are the attributes of any potential transaction? Have you taken into consideration tax benefits, strategic fit? Is it deleveraging? Does it provide liquidity? And so in the U.S., you have to think about those things. Where is your tax basis? What -- how does the sale impact the remainder of the portfolio? Are you looking for something that is deleveraging? Are you looking for something that is liquidity accretive? So I think that's the question you have to ask yourself, and as we've done that, we've continued to focus on the international business. So I think, look, these are things we're working on. We're taking the path that we think is the right path. Should the environment change, we'll be ready to address that. But I think management is being thoughtful about the process that we're in.

Great. And to follow up on that a little bit, I guess, Bob, as Chief Revenue Officer, do you see, I guess, a benefit to having a portfolio of a bunch of assets in the Americas business, whether it's in different markets, including airports? Or are these separate assets that could perform equally well separately?

So I think the portfolio we have to have the diversity, to have airports, to have roadside, definitely benefits us with certain customers. To leverage that scale in front of national customers is important. So there is absolutely a benefit to it. Look, I like the profile that we have. I like the fact that we have various formats to work with different customers. I think what we focus on is building up our data analytics suite to understand more about mobility, whether they're in front of a billboard on a road or in an airport, right? What do we know about that customer that, that client is trying to go after? And that applies not just national. That's also locally. So I think it's important to have a mix, a healthy mix of different formats. But what's really important is how we leverage the understanding of the audience and where they go, and then therefore, we can work with customers in a unique way.

Great. I was going to hit this a little bit later, but since you bring it up, and I think it's important, where are you in the process of generating the data and analytics for your assets in that it seemed like out-of-home had this issue with trying to get that information and put it in the hands of potential customers? Can you talk a little bit about what -- where you've been and what you're doing?

Sure. It's been a journey. I'll kind of start with that. So 7 years ago, I believe it was about 7 years ago, we launched RADAR, which is our real toolkit, to work with customers in a similar way that digital marketers can, and that allows us to plan out-of-home with audiences, right, to start to get towards attribution and to do some amplification as well as some other things. And I think that, that has accelerated nicely in our business. And I think for Clear Channel and the industry at the same time, the industry has evolved from a very kind of more linear accounting of cars on the road to understanding more about -- to understand more about people who go by the board. So that's what the industry is doing. What we've done is we've built this RADAR platform to allow us to go deeper with customers who may want to work with first-party data, who want to plan out-of-home against the same segments they buy digital. And we were in market with that. We're making real progress. We have our local teams working with that on our data visualization. It's called RADARView. We have that with them. And then we also have RADARProof, which allows us to understand the return on ad spend with the customer. So we can go in and we can talk about the person was exposed to an out-of-home. What do they do after exposure? Which is really where a lot of these marketers want to go. And the final piece of it that's been exciting is to think about it's a product we have called RADARSync, which allows us to work with people in their own data sets. And that's really kind of -- when you think about what's going on with privacy right now, puts us in a really unique spot. So it's going in the right direction. We're excited about it. And we think that's going to have an impact on national business as we get to climb the stack and we start talking to more of these national advertisers and how we can shift dollars over. And we're seeing it pharma category, CPG, those are categories in the U.S. that are not spending much in out-of-home, and we need data to unlock that.

No, that makes sense. And it seems like an initiative that can bear fruit over time and increase CPMs. In the first quarter, this is for Brian or David, national advertising was a little soft. We had talked about it, I guess, when you reported fourth quarter. But can you walk through what you're seeing today, why things were a little soft in the first quarter? And what gives you confidence that national will improve for the rest of the year?

Absolutely. And Bob, you can chip in, too, as Bob does run our national team. The first quarter, it was soft, and then I can even talk about it from an airport standpoint and from a national standpoint. From an airport standpoint, we had a few clients that came out. They probably -- they pushed some of their spend that they had in the first quarter into the second half of the year. There were a few clients that were heavy in the first quarter of last year and throughout 2022. When it came to '22, that when they pushed their dollars out into the second half of this year, it just didn't give us enough time to backfill those clients in that short amount of time. As we're getting into the second quarter, we see those clients being backfilled from an airport standpoint, so that seems and I think that will go -- in the next couple of quarters, will get better. From a national standpoint, outside of airport, it's probably best, Bob, if you answer that?

Yes. So I think there's a few categories that really impacted. So first of all, Q1 2022 nationally was incredibly strong. And our national business recovered nicely through COVID, and that really drove through Q1. but it was emerging tech, we talked about crypto and the exposure we have, that definitely impacted us, and it impacted us in a few markets. And if you look at San Francisco as one of the markets we've called out, they had a disproportionate amount of that national business, and it's our second largest revenue market. So it has a big impact. I mean the Q1 revenue, the Q1 performance is not at all acceptable to us, and we're working hard to improve it. But I think the dynamics that we saw in Q1, we feel strongly will improve as we move forward. We think that working with some of the things we just talked about in terms of the category development will help us and starting to bear fruit, and that's what we're excited about moving forward.

And I guess the part of the business that was strong as local, and local business generally seems to be a lot more stable and reliable, Brian, can you talk a little bit about what drives local and how you see it playing out for the rest of the year?

I'll turn it to Dave since we're talking about Americas.

Yes. No, absolutely. The local businesses is definitely a resilient part of the business. And we had a good first quarter, and we will continue, I think, to see that as we get into second, third and fourth quarter. Overall, it's really not one thing I kind of put my hand on that would say, oh, this is why the local business did well from a national standpoint, what Bob said before, in a couple of verticals that were a little bit soft. But from a local standpoint, it's been pretty strong.

And I'll just jump in for a second. It was strong during COVID, too. When you looked at our performance and some of our competitors who might have more exposure locally, we've performed well. And part of it, I think, is the relationship that out-of-home has with that business owner. So for them, it is a critical piece of their growth, versus on the national side, you have some exposure to campaigns coming in and coming out as part of a bigger media mix. On the local side, it's a bigger part of what their advertising is. And I think that helps make it a little bit more stable at times like this.

And to kind of finish up on the Americas or talk about it. You mentioned some markets that are soft and others that were stronger. Do you see that changing over the next few quarters or San Francisco and Chicago are going to kind of be weak? And on the flip side, any markets that were particularly strong in the first quarter?

I mean when -- San Francisco is definitely, I would say, more of an anomaly. I think it's just the city itself. If you've been in San Francisco, there's definitely more crime, and it's definitely a different city than it was a few years back. And I think that will come back over time. But when you look at the assets that we do have in San Francisco, the assets outside of San Francisco, by the Bay Bridge, some of your bigger roadside billboards on the highways, they actually have done pretty well. It's more of some of our shelters and our bus shelters and signs within the city have been tough, and there's been some unemployment. A lot of people are still working from home. So that's kind of been an anomaly, I'd say, in San Francisco. And do I think that's going to get fixed overnight? I don't, but I think over time, it will. Another market that we had mentioned was Chicago that had a tough first quarter, and it has over the past probably 2 or 3 quarters. But as I look into the second quarter, that is starting to get better. And then on the bright side, markets that have done well in the Northeast has done well. Texas has done well. I can see that continuing moving forward. And then overall, the Americas business will get better each quarter throughout this year.

And the question I get pretty often is that right now, some of the more traditional media views are in decline with cable TV, radio, newspapers. Do you see out-of-home picking up share, whether it's eyeballs or an advertiser's mindset? And where do you think that will trend?

Yes. I'll take that one. I'll take that one gladly. It's something I'm proud of. So look, I think that I'm excited about the opportunity for us to, first of all, grow the category largely from some of the folks you're talking about. I think the core product of out-of-home is growing. And if you think about that, when you think about the relationship we have with technology, that it is a friend of ours, that it helps do some of the things we were just talking about doing, planning out-of-home, using digital tools. It's exciting, and then you put the backdrop on whether it's going on with privacy, deprecation of the cookies, that's where some of our revenue is on the local side. So we can get some of that back. I believe that. I believe that's really [ pause ] -- I mean out-of-home is still 5% of the ad spend. So we have tremendous upside. So no, it's -- I think the key thing to your point about comparing some of the other industries, our core product is strong. The audience is growing and technology helps us to do things we haven't done. And I think that's a big difference. It's something that we're excited about.

And you mentioned before a little bit about different verticals. Have the verticals that have used out-of-home changed dramatically over time? Are there any categories that are a little bit weaker today that might come back? Or are you seeing any shifts?

I'll jump on this for a second. So the one I'll call out is insurance, and that's been a tough one for us. That was a very large vertical for the industry and for Clear Channel. And that's -- that has been a pretty significant headwind for us over the last couple of years. We're working with those partners, trying to get them back. That's part of a challenge as what's going on in their business is not out-of-home. But the QSR has been very strong with us, media entertainment very strong with us. That continues to grow. So I haven't seen a lot of shifts other than the one I mentioned before. I did mention earlier, we talked about emerging tech. Brands that were getting funded and they wanted to get notice went to out-of-home in a big way. That's something that continues to be a challenge. But we crack CPG, we can crack pharma. Those are 2 of the biggest advertising categories in the world. When we do that, that will be a significant improvement for us. And that will benefit the industry. I mean Clear Channel is leading the way, but this is something we have to do as the industry.

Got it. And I assume that it takes time to develop those relationships and get mind share of those budgets?