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

My name is Marlane Pereiro. I'm the high-yield cable and media analyst here at Bank of America. I'm pleased to have with us from Clear Channel Outdoor, David Sailer and Jason Menzel. Thank you so much for being with us today.

Sure. Thanks for having us.

So I want to just start with advertising trends. What gives you confidence that strong ad trends can continue into '26? And are there any signals that you're seeing from renewals that you can share with us?

Sure. As we end 2025, and I think we're ending on a good note, during our earnings, we mentioned we had 90% -- this is back when we did our earnings for the third quarter, early November. We had 90% of our ad sales booked for the fourth quarter. And that's a good number going in November for the year. And I think that's kind of the start as we get into next year. And the bookings and the conversations have been strong. The upfront, which is what we call the upfront in the out-of-home industry, more on a national scale is where we have a lot of our large national advertisers doing their placements for the next year. It starts in September and that rolls through February. And those conversations have been strong. They have been positive. On our premium assets, there are definitely rate increases. And when you think about a market or even the businesses more on the Americas segment, our premium assets, which is a smaller percentage of the overall assets, drive a much larger share of the dollars. So when you're getting that increase in price on those assets, that's a big deal, and it's good momentum as we get into the year. And also, when I think about 2026, FIFA is going to be obviously a major sporting event in the United States and the locations of those events match up very well with our assets, both on the airport side and the Americas segment in cities like Philly, where we have a large asset base. We have the airports that will be in L.A., New York, Atlanta, Miami. So it really molds well with our asset base. And in addition to that, I think events have become a big component of sales in the U.S. and even conferences like Dreamforce in San Francisco next year, we have the Super Bowl in San Francisco. So as I see it today and the bookings that we're looking at as we get into '26 have been strong. The conversations have been strong, both on a national and local level. So I feel good as where we're going into 2026 from a net sales standpoint.

Great. And how do current price increases compare with prior periods?

Definitely more of a position of strength this year. When I think about where we were last year at this point in time, I think the elections actually had an impact on the first half of last year. The uncertainty of the elections, I think uncertainty for advertisers, for business, just in general, is never good. And I think the RFP volume that we were seeing coming out of '24 into '25 was weaker. And I think that had an impact on the first half of 2025. The fires in L.A. obviously didn't help. But the -- and the year played out very similar in '25. As we said, when we were having these conversations last year, the year started off slow and we expected it to increase throughout the year, and it did. And as we are here today and moving into 2026, when you're in more of a position of strength in the ad sales market, I think, is more robust than it was last year. And as I mentioned earlier, in your larger -- your more -- your premium assets are driving a larger scale of your business as you're getting rate increases on those and you're filling up the bucket, your less premium inventory as the premium inventory is filled up, advertisers go to those boards as well, and that's going to drive occupancy. And that's kind of how I see us going into the year. I think we had increases year-over-year last year, but I think it's a little bit stronger as we go into 2026.

Great. And as we think about specific categories heading into '26, which do you see as potential leaders and laggards. So for example, if we think about political, we think about pharma, if we think about auto, tech.

I'll talk political first, and it gets a lot of conversations. It's not a huge vertical for us. It actually was very strong in 2024. It was helpful. I think the presidential elections, we actually got more impact from political spend than we normally do. And I think we'll get some share of that spend, but I don't think it will be a huge driver, but it will be helpful in 2026. And overall, we've really -- we've talked about our vertical strategy. And I'd say some of the verticals that are very strong right now that I would expect to continue into next year. The banking and financial services sector has done well, both across America and airports, technology driven by AI specifically in San Francisco has been very strong, actually stronger than we expected this year. I expect that to continue into next year. It seems like we're even booking dollars into other markets from an AI perspective. Pharma is a vertical that our company has crafted for the out-of-home industry 5, 6 years ago, you didn't have pharma advertising. And that really came out of our direct-to-client business where we had an individual with the team that really got that skill set, and we had one client. We had one pharma client 4 or 5 years ago, and we -- from the RADAR platform, the behavioral attribution of that platform where we're able to talk about script download -- scripts that are written both in exposed and unexposed. And we went from one client 4 or 5 years ago. Now we're having conversations with almost a dozen clients as we go into 2026. So I expect that vertical to grow. It's been a very good vertical in 2025. I expect that into 2026. Auto insurance is a vertical that was very strong for us pre-COVID, and that really went from a very big vertical and that went down as you progress through COVID and that's starting to come back. I think the auto -- I think it's a great advertiser -- you're in your car. For car insurance, I expect that to come back. It's been very strong this year. I expect that to continue. And we talk about the vertical strategy of pharma. We're looking and we've talked about this hiring someone within our company to go after auto. That's something we're still -- it's a pretty big vertical for us. We want to drive additional growth to the Tier 3 advertising. Something that's very strong from an airport standpoint, travel has been very strong for airports, not as strong on the Americas segment. That's something that we're going to actively look at next year and think about campaigns of come to our city. And that usually was driven through search, and that's something we want to go after within the cities that we're at and driving that type of advertising and to complement what they spend in search to kind of amplify that with our product offering for certain cities. So those are probably some of the major ones. I don't think anything else. And there are a few that haven't performed as well. at the local level, retail and restaurants kind of been up and down throughout the year. The conversation always talks about media and entertainment, still a large vertical, hasn't grown like we have liked. That's probably more of a product of L.A. But you're starting to see media and entertainment starting to book in other cities as production facilities are moving outside of L.A. So that could be helpful, but it's still a vertical that it's not growing like we would want.

Great. And then touching on airports, how impactful will the new JFK and other terminal openings be in '26? And obviously, airports has been very strong. So how sustainable is that? And what are really the key drivers of that?

Sure. I mean the airports business has been great. The team has executed wonderfully across our portfolio of assets. If you walk through an airport several years ago as to today, as we're renewing airports or extending airports and you put in -- you mentioned new terminals in JFK. As you put new assets in, really, the strategy has been going with big impactful signs as opposed to a lot of smaller signs and the advertisers have really responded to it. We've done category exclusives in a lot of our airports. If you walk through -- I was just out in Detroit, if you go in there, you'll see Michigan all over the place, the University of Michigan, you'll see it Rutgers in New Jersey. Those category exclusives, like you're going to pay extra for owning that space. We do it with health care within the airports. And just the programs themselves, they're becoming more digital. When I think about JFK, we have the Disney Tunnel. I mean that's something you go from one terminal to another, where we've built that with having conversations with the advertising knowing that Disney was going to sponsor that. So like that's kind of the Disney tunnel. So it's a premium buy. The demographics that are flowing through the airports is highly what the advertisers are looking for. It's a great demographic. And the airports are busy. I mean the traffic is up. As far as the growth that we've seen, we're not going to have 16%, 20% growth in the airports year-over-year into next year. That will come down to a more sustainable level. But I still think that's a mid- to high single-digit number from an airport standpoint.

Great. And then shifting to digital, what share of revenue do you expect digital represent, let's say, by '28 versus today? And which markets offer the most upside for digital penetration?

I mean the digital investment is still just a great capital project for us. When we convert a sign, you're going to get in the 4 to 5x uplift in revenue, and that's been tried and true over many years. We watch that very closely, constantly reviewing year-over-year, looking at that uplift. Organic builds are great as well, a little more -- slightly more expensive, but it gives you coverage in an area you're normally not in. As far as growth rates, look, I think there's a lot of runway to continue investing in digital across both airports and America. In the Americas segment, we're roughly 5% or 6% of our assets are digital, but the revenue is 35%, 36%. Airports is north of that from a percentage of revenue. We have -- being at 36% in the Americas segment, we have several cities that are plus 50% in revenue, Phoenix, Atlanta. And I do think when you get to that 50% and above, and we saw this in Phoenix, and it's not just us that has boards. Obviously, there's a lot of digital boards in Phoenix. When you start getting to that 50%, it does take the market a little bit of time to absorb that inventory. But we sort of once that market absorbs that inventory, you really can get scale now. I mean you can do campaigns across that market, really covering the entire market from a digital standpoint. I think that is something that's going to be beneficial as you put in more digital boards. But then you have markets, Houston, L.A., Philly that are below 30%. So there's room for those markets to grow. That's probably more of a regulation within those cities and you work on those to open up more digital boards. People will say, well, what do you think you can get to? When we owned our European business, there were some countries that were north of 70%. We're at 36% in America. Overall, we're probably about 40% with airports. That will slowly tick up over time, probably a percentage point or 2 a year. But they're great investments, 30 -- actually higher than a 30% return on those boards, and we still have a lot of inventory to continue that playbook. And that's definitely when I think about the Investor Day and if folks were at Investor Day, glad you're able to attend. If not, it's definitely online to listen to. But the story that we're talking about at Investor Day is growing the top line 4% to 5%, the bottom line, 6% to 8% over that time period, reducing our leverage from where we are today at 10x levered to more 7 or 8x by 2028, that digital program is definitely a large part of that process.

Great. And what regulatory or other barriers potentially limit digital conversion?

Well, there are some areas where you can't build digitals. Tucson is a market that we have where we don't have digital signage. And everyone knows within L.A. and certain areas of L.A., where our digital boards were turned off. On top of that, we definitely have built out a very good market within L.A. Houston is a city where there isn't digital within the city. If that jurisdiction, that regulations we're able to put digital in there, we would go in and definitely over-index the amount of boards we do in a year for something like that. But overall, across our portfolio, there is run room. And if something opened up in a specific city, we would obviously build more. That's definitely an investment for the future. We did it in Dallas several years ago. I mean, it's probably about 10 years ago, where digital was opened up in the city of Dallas, we moved in, and we probably have today over 100 digital boards in Dallas.

Great. And how does programmatic fit into your broader digital strategy?

It's another channel that we sell across our portfolio. We have our local channel, national, direct-to-client, programmatic, our inside sales channel. And look, programmatic is another way and another advertiser to go after. When we first started selling programmatic, it definitely was a different budget. It was -- you were going after a different -- at the agency, a different bucket of dollars from an advertising standpoint. And that's still the case. But there are still some clients that are direct to our business that are moving in from a programmatic standpoint. It's a smaller channel. It's not a giant channel when you think about our $1.5 billion business, but it's growing very fast. And it gives the advertisers an opportunity to come in and out a little bit quicker. You can buy the inventory in and out a little bit quicker, a little bit easier. Where I see programmatic going for our business is our product called ClearCast Digital, which is really a way of buying impressions, which is how programmatic is sold, but buying it directly through our business as opposed to going through the DSPs and the SSPs because the margins on a programmatic buy is less for us because you are paying the SSPs and the DSPs. But I feel like that ClearCast Digital is definitely a way where you can efficiently sell your inventory, where a lot of our assets, especially the premium assets are bought at a more of a location type buy, where through ClearCast Digital, you're buying impressions, and we can really optimize our inventory, that's where you can grow occupancy and margins and whatnot. So it's all part of the sales engine that we spoke about on Investor Day.

And then MTA, that contract has done very well, seems to outperform expectations. Can that momentum continue?

Absolutely. Look, the MTA, it played out. I mean we actually beat the plan that we had in place, which was aggressive the first year. It's going to be cash flow positive in the first year and it has a sizable Mag in year 1. It's very good inventory. It's premium inventory. We talked about the U.S. Open during our earnings call where we're able to utilize our inventory, MTA and New York inventory along with our airports inventory in New York, where you would get folks coming in for that event, you're getting them going to the airports, driving into the city around the city, around the venue. that's a huge selling point to customers. Do I see the MTA continuing to grow? Absolutely. We got that contract where we were awarded that contract on November 1, 2025. We signed the contract in October. So the ramp-up on that -- on those boards was a little bit slower in the sense that we started selling in October and you inherited it in November. So that was really why the margins had a margin impact on our business because the site lease on day 1 is the same as the site lease 10 months later. But now as I talked about the strength going into 2026, and the MTA is a part of that. Now that's part of the process as we're selling our upfronts for the next year. That wasn't there last year. I expect the MTA to continue to have the progress that it's having. This year, as we get into 2026, we'll start to see the margins improve on the Americas business because we have absorbed the MAG and the site lease of the MTA, but that will continue to grow from a revenue standpoint. And it's a great buy. It's done very well. It's helped the national sales team in 2025 into '26, but it's also a very good local buy. So it's been very productive for the business. And it's also the type of product before we had the MTA, we had an okay inventory in the New York market. We were probably a little scaled more in New Jersey. But having that MTA, when we have large national RFPs coming through that include New York, it just makes us that much stronger. And if it's a multi-market deal, that helps the business overall. And we spoke about that when we were signing that MTA contract, and that has come played out in reality, which has been great.

Great. And how will Americas margins expand as those MTA costs normalize?

They'll expand year-over-year. Like we were down probably 0.5 percentage point from a margin standpoint, maybe a little bit more. You'll start to see that grow back. In the fourth quarter, we'll see margin expansion on our Americas business, and that will continue as you get into the first, second and third quarter, which definitely would be nice to talk about as opposed to the margins going the other way. We knew that was going to happen. We told everyone, but there was a reason for it. But at the end of the day, it's also driving margin dollars in addition to the percentages next year. So overall, from a strategic standpoint, the MTA has been a good property for us.

Great. And you mentioned earlier, David, some of the targets you laid out at your Investor Day. So 4% to 5% revenue CAGR, 6% to 8% EBITDA growth through '28, also reaching $200 million AFFO, 7 to 8x leverage. on the flip side, what are some risks that could potentially derail that plan? And how might you mitigate them?

Sure. I mean, look, overall, I think the plan we laid out on Investor Day is an aggressive plan. I think it's reasonable. We're growing the business 4% to 5% on the top line for the next 3 years is absolutely attainable. And I think there's a potential to actually overdeliver that plan if certain things fall into place in the right way, and we went through that in detail during Investor Day. But as far as the risk that happens, we are an ad sales business, any kind of macro could have an impact on the business. I think we do have sticky assets in the sense that we talk about us being a location buy. And what we saw even during certain parts of COVID is folks that have perms, our business is sold in the sense that on the Americas business, probably a little less than half of our business are perms. And what that means is advertisers are buying the full year. It's really a calendar year, but throughout the year, they're re-upping for 12 months, and it's pretty steady throughout the year. It's probably in the high 40s. Our airports business, their perm business is probably closer to 60%. So when you do have a downturn, there are assets that folks don't want to -- they don't want to abandon that space because they look at it as they own that location. And that helps us during a downturn. And even when that happens, if someone does drop that board, usually, you'll get a pretty good price increase because someone wants to go after it. But obviously, an economic impact would hurt the business. But where we are today, if we were having this conversation 2 years ago, I have a much different answer. When we owned our international businesses, a downturn was I want to say scary, but it was quite impactful. The businesses over there, especially France, like during COVID, burned a lot of cash. Those businesses are much higher Mags more from a rev share standpoint, where today, we're more of a simplified derisked business where we can absolutely weather a downturn from a cash standpoint much easier than we could prior. So I think as a business, we're set up in a much better way. And we would utilize the normal triggers as far as you would look at your capital spend, you would look at your expenses and whatnot. But we can definitely weather a downturn better today than we could a year ago or 2 years ago.

Great. And shifting to the balance sheet and your capital structure in particular. How do you think about addressing the '28 and '29 unsecured maturities and kind of what creative options could accelerate that delevering?

Sure. I'll bring Jason into the fold, and I can always come on top, but if you want to start.

Yes, I think, our view of the 28 maturities are they're in focus, right? We were able to go to the markets and push out all the maturities that stood in front of them. So now those are out in 2031 and 2033. So we are solely focused on the unsecured notes. And we're addressing those as we laid out in the Investor Day through asset sale proceeds and free cash flow generation. And I think the trading levels of those bonds, while we can't capture discount anymore because I think they're near par at this point. There's been kind of a sentiment change to where we feel, at least, and we feel internally for sure, that those are more addressable in kind of the normal way capital markets, especially if we continue to delever and take those balances down by the time we have to deal with them, which would be sometime likely in 2027 at the latest point, right? But we do get a lot of creative ideas coming through. I mean everybody has a way to handle those. And I think if we determine that they are beneficial kind of to the long-term cost of our capital, we take a look at them. But today, as we sit here, I think turning through those with our free cash flow generation and paying them down and monitoring the capital markets from here until that point and taking something -- looking at things that are opportunistic has suited us pretty well, but we're not closing our eyes to any creative ideas that are out there.

Great. And can you remind us what your current secured capacity is? And also, is there an appetite for any ABS financing?

Yes I think secured capacity, I think we've stated this before, we're around $500 million to $600 million of total secured capacity. We do like to reserve some of that capacity for draws on revolvers, and we don't anticipate a need for those with our liquidity position today. But that is -- it's not enough to say we get questions, do you have enough secured capacity to take care of the unsecured. And the answer to that question is no today. And then as we think through the ABS, that is a type of secured financing, and we obviously take a look at it. But again, using secured capacity, especially on contracts that we have that have really nice cash flows, we just want to make sure that it makes sense over the long term, right? So the cost of that financing, which we've seen historically has been at the same rates as we would likely see a high-yield offering. So we definitely monitor it and are taking a look at it. But we would want to make sure that it's efficient to the capital structure in the long term, and it doesn't throw anything into the mix that we wouldn't otherwise be able to do in kind of the high-yield markets, which have been very efficient for us.

The REIT topic comes up often. So what conditions need to be met for a REIT conversion? And realistically, when could something like that occur?

Look from a REIT standpoint, that for our vantage point, that's really a tax play. And as of today, like we're not a material federal taxpaying entity. That will change over time. It's not happening in the immediate future. But for a REIT really to make sense and if you look at some of our counterparts, you probably need your leverage in that 5x area for it to make sense. In the short term, from a tax planning standpoint, that's not something that we're looking to do. But over the long term, as you get past our -- at the end of the Investor Day period, that is a viable option. But to get down to that 5% leverage ratio, I think through our Investor Day. I think the 7 to 8x is absolutely attainable. If we overdeliver that plan, you could probably get into the 6s. But if you do that, I think the value you're going to create over that time period, paying down debt, as Jason mentioned earlier, it's probably another $400 million of debt, which obviously you could get that transfer of value from equity -- I mean, from debt to equity as you grow the business over that time frame, and we've talked about this over that LRF period is probably $100 million, $115 million of EBITDA. And if you don't even think about it from a multiple expansion, if you look about where we are today and where we trade, that's probably $1.5 billion, $1.6 billion of value from an equity standpoint. And then your stock price is different than where it is today, and maybe you can utilize that currency to further delever the balance sheet. So the tools and the options that we have available to the business today are so different than where it was 2 years ago when we were trying to sell our European business. So I feel good when you bring up the REIT conversation, yes, that is something we could do down the road. You asked me that question a couple of years ago, it would have been harder to imagine, but now that we sold that business, the value that we can create, it kind of opens the doors. And that could be helpful also from -- when Jason talks about our leverage and our senior notes coming due in '27. So there's definitely more options on the table for us.

And I would just add, I mean, the 2 roadblocks to REIT conversion were the international assets, which are non-REITable and leverage, and we've addressed one of them. So we're hoping to address the next.

When we think about M&A, industry consolidation, also asset sales is the other side of that, how are you more holistically thinking about that from an industry perspective, where you could fit into that? And also, what are some of the limitations we should be mindful of, specifically from a tax perspective that could hinder some larger transactions that people might speculate would be beneficial.

Sure. I mean, from an M&A standpoint, we're very realistic of our capital structure. So we're not out there going after a large acquisition where we are from a leverage standpoint. But on the flip side, we have talked about creative solutions, maybe that's a JV structure, we bring in a partner. That's something that we're absolutely exploring where we would contribute assets, they contribute cash and then you can go out and purchase something. And obviously, that grows your EBITDA, that helps you from a leverage standpoint. Look, the industry as a whole, we expected 2025 probably to be a little more robust from an M&A standpoint, and it wasn't with the new administration coming in, folks expected more. You're still seeing the 10 boards being picked off here and there by certain companies. But I think over the next several years, you'll probably see some larger type transactions. Do I know what they are today? No. But the out-of-home space, the top 3 are probably 65% of the industry. So there's another 35% of some pretty large out-of-home companies down to small ones and twosies. And it's kind of been an out-of-home strategy of doing acquisitions over the time. We did it years ago. Obviously, Lamar does that as well. So we'll see how that plays out. We'll look at smaller acquisitions where it makes sense. But from a more larger scale, that's probably something we would do from a partner standpoint. But again, that's another tool for us. But when I think about just what we went through on Investor Day and the road map that we laid out, like that strategy of just operating the business, growing EBITDA, we'll be able to reduce our leverage to that 7 to 8x range, which I think is a big deal from where we are today at 10x, but that will happen over the next couple of years.

Great. Well, we're out of time. So thank you. Helpful and informative as always.

Thank you.

Thanks for joining us.

Appreciate it.