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

You noted a success in pulling in certain verticals, pharma, for instance, that's been nascent in Outdoor prior. I know you touched a little bit on the execution. Any other kind of under-indexing categories that maybe you see the potential to kind of get over?

So there's a number. Look, I think that for us, we prioritize pharma because it is the one of the biggest ones that's at most of the national agencies and on television. I think they're vulnerable, and I think we have great solution. That's taken a couple years and we're moving forward. But to David's point, the capabilities and the way we execute a pharma campaign can be applied to auto, right? So auto for our book is not a big part of it. You might have some Tier 3, but the Tier 2 and the Tier 1s are not our biggest customers. If you apply the same approach that we're talking about with pharma to IHS Polk to understand exposure to out-of-home and then actually conversion, that does change the conversation. So I do think auto is one. Right now, we're prioritizing food and beverage, and it's a very, very big opportunity for us. We've got somebody that is running that vertical for us and understanding it, and I think that's going to pay off well, so.

Political election dollars, relatively smaller category for you. But if we look at the kind of very large pricing growth that you see on television, certainly Q3, Q4, does that create a situation ever where some of that money spills over into billboard? And what's the gating factor? Is it just that, like, there's so much message you can kind of push across in a billboard or so much negative message about your opponent?

Do you want to jump in on this?

I couldn't hear that.

Yes, so the question on political, so I'd say that the opportunity for us in political, there really is 2 paths, and I think I'll kind of, I think, I'll get the second part of the creative bit. We don't do a tremendous amount of candidate or issue business in our book. It's very, very small. We do think there's a bigger opportunity this year, so it'll be an ad, but I don't think it's going to be enough. We do have people deployed against it. I do think the opportunity -- there's a real opportunity in a number of our markets where traditional local advertisers are going to be displaced. And I do think out-of-home offers that visual solution they're looking for. And we're -- right now, we've got our teams deployed against the largest customers that buy both out-of-home and TV, having conversations now about what likely will happen when these things kind of get going and the money gets dropped in. We've looked back at the mid-terms. We looked in some of our markets where 50% of the ad spend on a TV station is political. And what that does for us, again, if we get in front of it like we are now, we have a conversation with the marketer and we talk about, look, if you want to see the light of day in the fall and you want to be in the right environment where it's not going to follow something that's may or may not be positive, let's lock you in. And those conversations are very positive and that is actionable. Again, while we run down both of the paths. You had a question about the creative? Is that part of it too?

No, I was just saying, like, what -- is there a limiting factor in the sense that there's only so much of a message that a politician can maybe get across about himself in the frame of the billboard?

If you keep it simple -- and I think that's for our medium or any other medium, if you keep it simple, people are going to remember that. The more complicated you make it, more complicated [indiscernible]. You can do a lot in 7 words less in a video. Look, we have to remember where our inventory is in the public space. We don't support attack ads. We have to attribute everything. So we have to be very mindful of that. I would say getting the message out in out-of-home, even for political, is not the challenge. It's what is that message and how does that feel with our community standards and things like that.

In terms of digital conversions, I think the target's 90 to 120 per year. What kind of governs the growth rate there and factors like regulatory supply factor into it? And kind of stepping back, where are you on that digital conversion journey?

Sure. I mean, I'll talk to kind of the growth rate. When you're looking at our digitals, a lot of it, I mean, I compare it almost to sales. Everyone understands from sales, there's a pipeline of your sales activity. We do the same thing from a real estate standpoint. We're looking at our digitals across our portfolio and across our markets. And you're seeing, what is that pipeline? And it's -- when you're converting a digital asset, it's not, you start and you're going to get that in the ground in 3 months. It's a couple of years. So it's a long process. Finding the right locations. There's also the regulatory aspect of permitting. And the regulatory is definitely different across the country. So that is definitely a gating factor on how many digitals you're going to put in. But I think the run rate we had, we did a little over 100 last year. We're probably in the 90 to 100. I think that's the right range. The second part of your question, when you're talking about, where are we in the journey and where are we from a digital standpoint. I'll talk to the America segment first. Right now, roughly 35% of our revenue is digital. It's only 5% of our assets. So I think there is a lot of runway for future growth, either on conversions or organic builds. And when you look at it from a specific, every market's a little bit different. We're at 35%, so obviously you have some markets that are higher. So you take a market like Atlanta, we're probably in the 50% of revenue in Atlanta or somewhere around there. We got 200 plus digital boards, but there's more than double that in the market. So -- and that is a market where digital is still growing. So there's still runway there. I can compare it to overseas. We have markets overseas that are at 70%. So I feel like there is definitely room when you look at, it's only 5% of our assets. We're at 35%. I think there's still a long runway from an America standpoint to continue that digital pathway. Airports is a little bit different. When you think about our Airport segment, from the numbers, they're roughly like 55% of digital revenue. It's a little bit less than 20% of our assets. And really how that number is going to grow over time is every time you reup a contract with an airport, with the authority, they're usually 10 or 15-year contracts, so they cycle in over time. When you reup for either a new airport or you're getting a renewal on a current airport, you're coming in and you're going to upgrade that inventory. And the preference is to put in more digital. As a company, we like the digital and so does the Airports. And that over time will increase the percentage of digital in Airports. Is there a specific number? I don't have that in my head today, but I still know from an Airports and Americas, I can say it for both segments, there's still a lot of runway left from a digital standpoint.

Good segue to Airports. National demand there, Q1, was outsized relative to billboard. I think you said 5x. Might have been some comp issues, but any other factors to kind of explain that divergence, what's driving that demand at Airports?

I mean, I'll start, and Bob and I go into the specifics. The first quarter of 2023 for Airports, it was a tough quarter. We had a lot of clients actually push dollars out into Q2 through Q4 last year, and we grew double digits in each of those quarters. The first quarter was definitely depressed in 2023, but that momentum has continued to build, and it goes to the fact that the inventory that we're putting in, we were talking about digital before, we're kind of lapping in the New York airport some inventory that went in after the first quarter, so there was definitely a help from an inventory standpoint, but right now the Airports business, it's a high premium buy. It is definitely in a good position. From an America standpoint, it's obviously, there is more inventory when you're looking at comparing America and Airports, but it's definitely a different buy. And from a national standpoint, yes, Airports was higher, but I would still look at the growth that we had on America which was up 6%. I think they both did well in the first quarter. Airports was just a little stronger.

Look, I'd say, just to add a couple things. One is the reception from marketers to airport advertising is as strong as we've ever seen. I mean, they recognize that business travel is back, personal travel is business, and just the airports, as we all know as travelers, are very, very busy. So marketers are prioritized in that experience. It is an exclusive environment. So what we're doing, one thing I'd add to what David had said, is we are thinking about how we bring those assets to market, how we sell that space differently. Thinking about it more like a sponsorship model. If we have that environment exclusive to Clear Channel, what can we do there that allows that kind of immersive experience to come to life for the marketers? And you'll come through some of our airports, you'll see brands that own tunnels. So think about kind of concept exclusivity. We have category exclusivities and things we've done and worked through with partners. So really how we bring the assets to market I think has changed pretty dramatically in a very positive way. The other part of it is we have our dedicated Airports team and they do a tremendous job on the sales side. But we've also opened up our entire team to sell these assets. So if you think about a local seller who has a very strong relationship in a market, leveraging that relationship to sell more products has been very, very positive. And that's had a pretty material impact on our business. So we're encouraged with where it's going with Airports for sure.

David, you are in a active process to sell your North business. I wanted to check if there's any update you could provide there, any update on timing. And then you talked about Latin America briefly. Just refresh where you are with that.

Sure. Absolutely. From a Europe process, we mentioned on our earnings call. We are in negotiations for our Europe-North segment. And at this point in time, as we have more information, we will definitely come to the table with it. But that's kind of where we are with that process, which I think is a good development. From a Latin American standpoint, we are in talks with several counterparties for those assets. And we're still looking at that. Is that going to be -- we have counterparties that are interested in that platform from a -- in the entire platform, all 4 countries, or there are also counterparties that are looking at it in chunks or in countries. So that's definitely a little bit further behind. That process started after the European process, but that's kind of where we are at the moment.

I think in the past you spoke to a potential $30 million-ish of cost -- corporate cost savings coming out of the sale of these businesses. You did say you would sharpen your pencil as you got closer. You're closer. Any update to provide there?

No, I mean, those plans that we're -- I still look at it as when we're a smaller, more U.S.-centric company, and we do the transaction in Europe and Latin America, yet $30 million of corporate costs that are mostly attributable to those segments obviously will come out. But there are other things that will probably take a little bit longer. It's going to take time. Because when you think about it from a corporate standpoint, we're still going to be doing taxes on those transactions. There's still reporting that's going to be filed. So yes, the $30 million will come out. But when I say sharpen your pencil, there will be other areas that we're going to look at that's going to take a little bit of time. I mean, if you think about when you sell those businesses, there will be transition services agreement, and granted, we'll probably get paid for that. But there is still work that's going to get done. So it will take time to get those expenses out, but I still think that's a good range at this point in time.

With the recent refinancing of the company's front-end debt, Clear Channel Outdoor has no maturities until 2027, arguably 2028, assuming the successful completion of the Europe-North assets. Can you discuss what sort of flexibility this provides the company with respect to any subsequent strategic [ action ]?

Sure. No, I mean this was great. In March, we went to the capital markets. They were strong, and we were able to refinance our term loan, which was $1.2 billion, and we pushed out roughly $800 million to 2030 in notes, and the remaining came in the term loan, which is due in 2028. And while we are doing that, and roughly almost in that same week, the interest in the notes and the term loan was strong, that investors were asking us about the BV notes. At that same time, we then refinanced the BV notes and we push those out to 2027. Obviously, that's something that will get tied to the sale of the European business from a proceeds standpoint. But to me, pushing out those maturities, our first near-term maturity is in 2027. That just really gives us the flexibility and the runway to really do what we need to do from a business standpoint. And that really is to grow the top line of the business, to grow EBITDA, to grow cash flow. In the meantime, we will be focusing on the transactions we're talking about. And obviously those proceeds, as I said before, a certain amount will go to the BV notes. And then after that, we do have investment baskets as far as in CapEx and potentially acquisitions to kind of shelter the proceeds that come in. And then from there, we'll figure out, are there investments that we'll be looking at from an EBITDA standpoint? Will there be liability management on the pay down of the debt? So I think pushing out those maturities just really gave us kind of the flexibility of growing the business and really looking at the leverage as we get through the transactions that we talked about earlier. So I've been really happy though. I mean, extremely happy with the outcome of those transactions. Definitely would want to thank the teams that worked on them to do those back-to-back transactions of the term loan and then the BV notes. And we also refinanced some of the term loan back in August of 2023, so really good execution.

Could I push you a little bit on paths you can take for the company to reduce leverage further?

I mean, just building on what I said before, when you think about the leverage of our company, the process that are going on overseas and when we transact on that, it's less of a deleveraging event from where we are today from a leverage standpoint, but it will be the pay down of absolute debt, which I think is very important. But I think what it does do, as we simplify the business, we become a U.S.-centric business, higher-margin business, I think it will give us the currency. It's probably a higher multiple when you think about multiples of out-of-home businesses in the U.S. versus multiples of out-of-home businesses overseas, I think it'll increase the value of our company. Maybe on the equity side as well, that might give us flexibility on using that as a currency to go after debt. Obviously, there's always -- as we grow the business, there's organic every $25 million of EBITDA is half a turn. But I think even above and beyond organically growing the business and all the things that Bob is talking about, when we get through these transactions, it's also going to free up, and we have a lot of resources right now that are focused on selling those businesses. When our entire corporate development team, when we kind of get through those transactions, that team along with -- we're also looking at it today, we'll be focusing on that leverage equation. Like I said before, will our equity be worth a little bit more? Are there things to do there? Maybe there's some kind of JV type arrangement, some kind of financing. I think there are tools in the tool shed that we can utilize once we do get past the transactions that are on the table to really work on the debt. I mean, it's a key, obviously, initiative for the business from a non-operating standpoint.

As you become more U.S. focused, is there any evaluation of the domestic portfolio? Does it make sense at certain prices to think about possible asset divestitures, or is that not on the table?

No, I mean, look, we'll always entertain anything. And when -- we talk to our shareholders all the time and our investors. But when you think about the U.S. business, the one thing that I think that we've talked about, yes, we have high leverage, but also, we have low basis on a lot of our assets in the U.S. So depending on the situation, but selling a U.S. asset, it's almost like you're descaling the business. It's probably not the best course of action. But like, we'll see how things progress. But right now, that's probably not something we're thinking about. But as I said before, as we're looking at our leverage, we'll entertain all ideas we're always thinking. But the low tax basis, that is a gating issue there.

Maybe just one more on margins. How do you think about both billboard and airport factors to think about in terms of mix of revenue versus the costs that are in your control?

Absolutely. From a margin standpoint, the first quarter was great from a margin standpoint when you think about our Airports business and also from America in the first quarter, where we were in the first quarter of last year. We had COVID relief -- and I'll talk to the Airport segment, I guess, first. We had COVID relief in the first quarter of last year. We're continuing to get that into this year. I think that will slow down into 2025, but that's definitely a push on margins from a COVID standpoint. But the real margin driver, I would say, in the Airports business when you put that COVID relief on the side is really just revenue growth. It is -- the expenses from the Airport standpoint, a lot of it is tied to revenue. So as your revenue grows, your expenses grow with it. And then your next highest expense is really salaries. But the margin expansion we got in the first quarter was really based on revenue. We were roughly in the $50 million range of revenue in the first quarter last year. That went into the high $70 million-s. Site lease COVID relief was roughly the same. that margin flew through the bottom line. So as we get forward, as revenue grows on the Airports segment, you will get some margin expansion. From an America standpoint, a little bit different. We did have margin expansion in the first quarter, and that was kind of a result of higher revenue in the first quarter of 2024, and also just savings from an expense standpoint. We had some credit loss savings in the first quarter of this year, which -- so you have expense saving, revenue growth, that was really driving margins. The pronouncement and the growth of the margins in Americas will be slightly less than what you're going to have on Airports just because it's more EBITDA. So from a margin expansion, you'll get it, but a little bit, I would say, less from an airport standpoint, if that makes sense.A little tongue-tie there at the end. Said margins too many times.

Yes, I can relate. With that, we're out of time. Bob, David, thank you.

Great, thank you.