joining us. My name is Marlene Puffer. I am the high yield cable and media analyst here at Bank of America. Today, we're very happy here to have with us from Clear Channel Outdoor, Brian Coleman, CFO of Clear Channel Outdoor Holdings, as well as David Sailer, Chief Financial Officer of Clear Channel Outdoor Americas. Thank you for joining us today.
Thank you, Marlene. You know, first, I want to thank everybody for being here and being in attendance, and I'm sure asking great questions. And Marlene, thank you for having us. As I look at the sign in front of me, I think it kind of looks a little odd, two CFOs at the same conference, so I thought I'd explain that a little bit. I think most of you are aware of the company's strategy going forward, how internationally, most of our assets are either under strategic review, in the process of being sold, or in fact, have been sold. And what that leads to strategically is an Americas-centric business. Dave has been the longtime Chief Financial Officer of the Americas business.
And so while we talk about the business going forward, I think Dave is very close to a lot of the operational aspects of the business and is best fitted, actually, to answer some of the operational questions. So I don't think there'll be any problem dividing up the questions. David also oversees corporate development, and so anything that we talk about about investments or M&A activity, I think he can share his thoughts on as well. So that's the reason why you have us both here, and hopefully, we can cover everything, Marlene.
Great. Thank you. So I think we will start with, you know, the strategic review, you know, kind of the asset sales that we've seen on the European side. So, you know, at a high level, can you just discuss and remind us what's sold, you know, and what's next and left to do in Europe right now?
Why don't I hit the high level, Dave, and you kind of take over?
Sure.
So we focused on Europe South first. That has been completed in the sense that Switzerland has been sold, Italy has been sold, France has been sold. Spain, we have an agreement to sell. It's going through regulatory review, and we hope to close that sometime in 2024. So that is all done and behind us, assuming Spain goes forward as planned. We've now shifted our focus to Europe North. And Dave, you're working on that, so I'll turn it over to you.
Sure. Thanks, Brian. I probably would want to go back to Europe South first. When you think about the process that we embarked upon about two years ago, when we were going to sell the entire perimeter of Europe, obviously, that process didn't go through for a multitude of reasons. Obviously, it was very different, the environment, when we started that process until towards the end of it. But we then embarked on the process to sell Southern Europe, which, you know, we've been very successful.
I think by selling those assets, and I'd probably call out France, probably in particular, which is a tough business, to get those assets sold, for us now to start working on Northern Europe is very important because the assets we now have in Northern Europe, it is a very good business, and it is very different than the platform that we brought to market two years ago. When you look at the perimeter then and where we are today, the business today is more digitized. The EBITDA, the CapEx ratio is much better. Currently, the business is performing really well in Northern Europe. And when the plan that we had put out in place when we went to market originally, we're actually beating that plan.
So some of the buyers that, you know, we're into the process today, and some of the buyers that, you know, they're very familiar with the business, that they've seen it a couple of times. And, you know, I think they're pleasantly surprised that we have exceeded, you know, what we said we were going to do a couple of years ago. So we're off into that process. You know, it's a mix of strategics and non-strategic buyers. I think so far, the conversations are going well. I think the assets are positioned very well. The businesses are performing very well. So we're kind of looking forward to, you know, from an execution standpoint, to move forward with it.
I mean, do you envision selling Europe North as a whole, or more opportunistically by country?
I mean, right now, our goal is to sell it as a platform. And I think it is a platform. I think that the Northern Europe assets fit in quite nicely. There's a corporate structure that we have that run those assets, and right now we are selling it, you know, as a platform. You know, if we need to adjust and shift our focus, and if it did go, you know, a couple of countries here and there, we would adjust, and we would look at it that way. But as of today, we are looking at it as a platform and selling it as one transaction.
Yeah, I think you'll hear us talk about being open-minded to different things, and I think that this is one of the areas where that's the case. We're going to be open-minded, but as Dave said, the preference is a platform sell. It's quicker, and we think it fits that profile.
It might be, you know, a bit early to, you know, contemplate this, but how should we think about multiples, you know, for Europe North, maybe versus Europe South, or, you know, just, you know, regionally, you know, by country or, you know, or for the platform as a whole?
I mean, when you look at when we sold the assets in the South, they were one-off country sales. They went to strategic buyers. Switzerland went to a strategic buyer, and so Italy and Spain with JCDecaux. You know, France was more of a non-strategic. But selling those individual countries, they. We had good multiples for them. They were good operating businesses. But when you start getting into a platform, it's a much bigger process. I wouldn't sit up here and say we're gonna get X multiple, but your best proxy out there is probably a JCD, you know, and everyone kind of knows that they're trading kind of in the sevens. But we'll see what the process plays out. I think we have a very good. We have very good assets.
They're performing well, and we'll see where that process goes.
Great. And can you remind us if there's any, you know, limitations or restrictions on how the proceeds from the Europe sale, you know, would be applied, and especially any implications for the European bond?
... We do have restrictions in our indentures, and I think the one to start with is the CCIBV notes, and so they sit upon the European assets and also Singapore, which was, interestingly enough, part of Europe, and we did the note offering, but don't tell my geography teacher. So in that indenture, proceeds will have to be applied to repay those bonds. That wasn't the case with the sale of Switzerland 'cause we were able to take advantage of reinvestment baskets. But substantial asset sales in Europe, those proceeds would need to go to pay those bonds.
So if you think of a platform sale, think of proceeds being applied to repay the CCIBV notes, and then excess proceeds moving up in the system and then having to follow the CCOH indentures, which also have reinvestment provisions, and we would likely avail ourselves to those, or they would have to be used to pay down secured debt at par, I think, pro rata across the secured bonds and the term loan. I'm looking at our treasury. He's nodding his head. So that looks good.
But, like I said, I think we would try to optimize our flexibility, use the reinvestment basket capacity, and likely take the funds then that would have otherwise been used to fund those investments and go into the open market and buy back bonds at a discount, perhaps use that cash to help facilitate a term loan extension, pay down term loan, you know, possibly reinvest some of the proceeds in the business on specific projects that we want. So I think that's kind of the waterfall from proceeds from the divestiture of Europe North.
Great, that's very helpful. And then shifting gears to the U.S. business, you know, can you talk about the strategy there in terms of growth drivers? Should we also think about potentially any non-core assets that could also be monetized, you know, just at a high level as you start to remove yourself or move away from Europe, you know, and the focus shifts to the U.S.? What are the priorities there?
I mean, look, I'd say the first priority is to grow EBITDA. I mean, that's probably the number one focus. It's probably... It is why we're going through the asset sales, you know, overseas, is to become a US-centric business, and the goal is to grow that business. And some of the avenues, you know, first and foremost, is our digital strategy. Obviously, optimizing the capital that we're spending on our digital boards, both on the roadside business and in the airports business. And then when you go further into the business, it's really, you know, how do we grow our advertiser base?
And we talk a lot about our verticals, and, you know, if we talked about certain quarters this year, which verticals are down, you know, our goal is how do you grow some of those verticals? We've talked on our earnings calls about, you know, getting, you know, growing our pharma vertical, which is something we've been trying to crack for a while, and I think we're making good progress there. Packaged goods, we've talked about. So some of those initiatives is really, but at the core of it, is how do you grow the top line to grow EBITDA? As far as what you mentioned earlier on asset sales in the U.S., look, as Brian said earlier, we're open to anything.
We're always thinking about how do you grow shareholder value, but I think it makes sense to kind of go with the process where we're trying to become that U.S.-centric business. You know, we're going through the process overseas in Europe. You know, we mentioned on our earnings call, we're looking at strategic initiatives in Latin America.
Mm-hmm.
So, I think as we kind of go through those processes, you know, see where things settle, and then, you know, we'll figure out kind of what avenues and tools we'd have available, because obviously, at the end of the day, it is to lower the leverage of the company.
Great. And then, you know, obviously, you know, the advertising environment has been lackluster this year, you know, as we head into 4Q into next year. So, one, you know, what do you see as potential growth drivers for advertising as we head into next year? And can you also discuss any, you know, material difference, if there is one, in fact, versus, you know, if we think about airport versus traditional city boards, and then also static versus digital?
Sure. Sure, I mean, I'll, I'll start with your, your second question first. I mean, it's interesting when you look at our roadside business. It has struggled this year, and a big part of that has been the national business on roadside on our America segment. But when you look at airports, national has been very strong. In the third quarter, you know, we were up, you know, close to 20%, and the business has been growing.
And I'd say probably your difference there in why one is growing and one is not. It's more of a—I think the market, and we've talked about this, I feel like the market this year has been strange, and if I went through the year, started off slow, started to pick up a little bit in the second quarter, and then the third quarter was really tough. But I'd say it's been a pretty strong premium market all year, and our airports division is more of a premium buy. When you look at our roadside business, our iconic Las Vegas, New York type of assets have actually sold pretty well. But going to your first question, as far as, you know, what do I look at next year and, you know, where do I see some bright spots?
Look, it's some of the things I said earlier, some of the verticals that we're going at, they're pharma, packaged goods. You look at the verticals that have struggled this year and what really hurt us in the third quarter, especially in our national business, media and entertainment has been tough. Obviously, the strikes have hurt us. As the writers and the actors come back and content starts being created, they're going to advertise for it, so I see that vertical coming back. Technology has been tough this year, and we're starting to, you know, see signs of that coming back to life a little bit in the fourth quarter, so I look at that as we get into next year.
Programmatic, we mentioned on our earnings call, in September, that channel really started to kick in, and we had a really good October. That has continued into November. You know, we're hearing signs that that's gonna continue into next year. I mean, there's not a lot on the books today for 2024, so it's really tough to project. But the conversations, I think the advertisers, there's good dialogue. When we were talking in third quarter, it was pretty quiet. The RFP volume has picked up as we've gotten into the fourth quarter, so I think those are good signs. I mean, nothing's set in stone, but I think it's pointing in the right direction.
And then, you know, turning to your free cash flow profile, like, what do you really see as the drivers of positive free cash flow over the next few years? Is it top line? Is it, you know, streamlining the business? Is it a combination of both?
Yeah, I think it's a combination. I think it's a combination of both. As Dave mentioned, the fundamentals are take care of your business first, grow EBITDA. And for us, you know, it's a function of growing the top line, because each incremental dollar of revenue disproportionately contributes in an increasing way to the bottom line. So if we can capitalize on the initiatives that we've invested in the Americas business, we expect to grow revenue, we expect to grow EBITDA, disproportionately. So that's fundamentals. I do think some of the M&A activity helps to clarify things. I don't think the asset sales will be materially deleveraging, but, you know, they will have proceeds that you'll apply to reduce the aggregate amount of debt.
You will reduce committed capital obligations that's required in the capital-intensive international businesses. You do clarify and focus management activity on the U.S. business. And so I think there's an alignment, you know, in all these things and the strategy we're going down, and I think they do lead to, you know, an America-centric business focused on growth, and that growth will help lead ultimately to deleveraging of the business. Free cash flow generation, and ultimately, deleveraging of the business.
Great. And that was actually kind of the next follow-on, right? Is, you know, what really drives leverage, you know, meaningfully lower, and overall, what is your balance sheet strategy as you think about it?
Yeah, I think it makes sense to execute on these plans and see where you are. Now, I don't expect them to be, again, materially deleveraging in the short run. So you will have to take a look at, okay, where are we at the end of these processes? What's the trajectory of the business, and what options are available to us at that point in time? It doesn't mean we're not thinking about things today, but it seems a little premature to execute on anything until you've actually, you know, done these things first. I do think sequencing is an important part of the initiatives that we've laid out. Ultimately, where do we want to be?
Well, I think we've said that eventually, we want to be in a position to have the option to convert to a REIT. That's a much lower leverage profile than where we are today, maybe in the 4-5 times range, looking at some REIT comps that are out there. But we're not in any hurry to do that. You know, the biggest advantage of being a REIT has to do with, you know, tax payments, and we benefit from that currently through the elections that we've made. And so, we've got a few years until we generate enough taxable income where that would become an issue. We happen to have a few years of runway with respect to our capital structure.
And so I think over those few years, once we're on the other side of some of the initiatives we're working on, we'll have to make those decisions on how do we get to that position where we can be in a position in a few years to convert to a REIT, that being in a position to convert before you have sizable cash tax consequences of not doing so.
Great, and that was actually the next question, is the, you know, -
I'm reading your mind, Marlene.
Very much.
It's like I've seen the questions.
Exactly. You know, there have been some headlines about shareholder... What's the right word? Interest-
Interest
In the company, and you know, talking about, you know, maybe pursuing a strategic review or different types of reviews. So if you can, you know, how are you thinking about that? Does that really influence anything in terms of what you're already executing on? Is it noise? You know, is it something you're, you know, focused on?
Yeah, look, I think we're pretty open to dialogue with our shareholders, and you know, I think we have a good dialogue with most of our shareholders. If we don't have that dialogue, it's a decision by the shareholders, I would say. And we have had some, you know. I mean, there's been an activist letter that's out there, there's been different conversations, and I think I would characterize that as being, at the end of the day, what everybody is saying is that the value of these assets isn't being fully reflected in the share price. I couldn't agree more, right? I think we all agree. I think the issue is: how do you get it to be reflected in the share price? Excuse me.
There's nothing really new in these ideas. I think a lot of it really has to do with we've thought about them, we've talked about them with investors, we've talked about them at investor conferences. It's just a matter of what you're executing and when. And so for a long time, because there is a long lead time, we've been looking at a strategic review and/or divestiture of our international businesses. So, none of that was stimulated by any kind of outside influence. We have looked at, you know, and are open-minded to potential, you know, divestitures of outdoor assets. I just think that it makes more sense to sequence it in a way where you're creating that core U.S.-centric business first.
And you also have to consider what are the implications of a sale of U.S. assets. You know, you have to consider tax consequences. You have to consider impact upon the platform. So I think in summary, I would say we are in full agreement that the value of the business isn't being fully reflected in the share price. We agree on many of the avenues that can help get you there. It's just a matter of prioritization and kind of that sequencing of events. And that's where we are today. We think we're doing the sequencing in a way that makes the most sense, and we are doing it as fast as we can.
I don't want anybody to think that, you know, for some reason, we lack bandwidth or we can't execute. We're putting the resources we need to get as fast as possible. It's just that some of these things take a long time, and we're continuing to push on it, and, you know, we'll continue to let folks know, and have that disclosure when it's appropriate to do so.
Great. Just gonna turn it over and see if anyone has any questions from the audience. Okay. I do have more in case there's... Great.
What's going on with pricing these days? Is there sort of, less demand, or are you, are you still able to drive price increases going forward?
It really depends on the product we're selling and the inventory that you're looking at. If I talk about the, you know, the premium from an airport standpoint, some of the premium products in our airports, yeah, we were still driving price. From a roadside standpoint, I'd say back 2 years ago, we were probably driving price on all the inventory. Now it's probably more on the premium inventory that we're really driving price, and the non-premium, you're probably driving a little bit more from an occupancy standpoint. It's not at the level that we had, you know, coming out of COVID, which you would not expect, just because of how far down it is. But no, we still have. We are still driving price on some of our inventory, and especially the premium, iconic-type stuff.
Can you give us a sense of the differential in CPMs, you know, for static versus digital, you know, also airport versus non?
Sure. I mean, we're we more sell in four-week periods, so it's less of a CPM type of purchase. I mean, you can convert it, but we do sell in four-week buys. So if you come and buy a static or a digital board, you're gonna pay a four-week rate, and most purchases are for more than four weeks. I mean, you could do it if you come into a splash for two weeks, you can do that. It really depends. It's hard to answer that question 'cause it really depends on where that asset is. I mean, our assets are. I mean, we're priced based on where it is. Location is a big part of it. Where does that board index on what audiences?
The demand for that inventory, is it sitting, you know, on a highway versus a surface street? So it's hard to kinda give that flavor. And when you convert a board that's a printed board, and you're converting it to a digital board, now you're selling it eight times. So maybe that slot, that one slot, might be less on from a digital standpoint, but you're selling it eight times. So it's a kind of a tough comparison. From an airport standpoint, it's very similar. You know, an asset sitting, you know, above security or down the terminal in JFK is gonna be a much higher price point than a board, you know, you know, coming through with the Miami Beach or Fort Lauderdale.
Still very good airports, but it really depends on how much traffic is flowing through. And obviously, buying in New York, people wanna be, like, that is, that is a high premium sell versus, you know, maybe a regional type airport. But they're tough comparisons, and there's also more traffic going through a larger airport, so you're gonna pay for that.
Got it. And then, you know, when you do convert, you know, from static to digital, how do we think about, you know, the uplift or the impact on margin when the conversion happens?
Sure. It takes a little bit of time. Like, you'll convert that board. There's a little bit of a ramp time, but once it's, you know, it, it's being fully sold, there is definitely a margin impact because you're driving more revenue. And as Brian said earlier, you know, most of our inventory from a roadside standpoint, a lot of our leases are fixed. So if you drive more revenue to that board, it's going to be a... It's, it's gonna be margin accretive to the business. You know, from an uplift standpoint, I mean, it's probably in the neighborhood of 4-5 times from a revenue standpoint. You know, some being higher, some maybe a little bit lower, depending on the location, but on average, that's probably fair.
Great. Can you just... Do you know, are there any expectations for what political could be? I mean, I know we talk about it more in the context of broadcasting and radio.
Yep.
But for outdoor, just a sense of where you think it could be in versus 2020, for example?
I was actually gonna bring this up, when we were talking about, you know, upside to the business and when you're thinking about next year, and I look at political a little bit differently. We're gonna sell political, and I know we'll sell more political ads, you know, in 2024 than we did in 2022 or in 2020. But it's not a huge vertical for us, and it's not a huge vertical for the outdoor space. But what political is gonna do next year is there'll be, you know, money will come into the marketplace from a political standpoint, and it's gonna tighten up the inventory across a lot of products and a lot of media out there, which I think will drive dollars to our space and to our company.
So I do think it is a tailwind for us as we get into next year. Less about the actual dollars coming in for political, but what it could do to the environment and the atmosphere.
Great. Any other questions from the audience? Great. So my final question to you is, unless there's another question out there, you know, what do you ultimately see as the biggest opportunities and challenges for the business?
I'll start on opportunities, maybe pass to Brian on the challenges. Look, from an opportunity standpoint, I mean, when I think about the out-of-home space, it's the only traditional medium that's been around, obviously, for a very long time, that's still growing. All the other traditional media are declining. So with the assets that we have, the attribution that we provide to our clients through RADAR, I mean, we can prove to our clients how it drives people in their stores or it drives their products.
We need to do more of that with our clients, but the opportunity I see is what's—when Scott talks about cracking the pharma vertical or the packaged goods vertical, when you think about the overall advertising pie, you know, there's 65% of the clients of that pie advertising out-of-home, but they advertise probably 5-6%. They under-index on out-of-home. Our goal is: how do you get them to spend more? And I think it's through the tools that we have, whether it be programmatic or a direct sell, or through, or through RADAR. And then the other opportunity I look at is that 35 that are not buying out-of-home, and why they're not buying out-of-home. And that—and these are the two areas we've been focusing on, and we, and we're making definite progress.
On the 35% that are not spending on out-of-home, we have a sales channel dedicated to that to go direct to the client, and we've made some really good inroads over the last several years on bringing clients to the space. And I got a kick out of this when the sales guys come back, and, you know, one of the things I hear all the time is when we're talking to those clients, they'll say, "Oh, wow, I didn't know out-of-home could do this," or, "Wow, I didn't realize you can do that." So to me, that's, that's the opportunity, and that's where I can see our medium will continue to grow.
Great.
Oh, on the challenge side, I think, look, leverage is a challenge. I recall coming over to the company in 2019, having the leverage that we had as part of the separation. The company was burdened with this balance sheet. It's a ... I've used this internally to describe it. It's a company with great operations and a bad balance sheet. And that leverage we inherited, you know, we thought we had tackled in 2020. And since, we refinanced the whole capital stack, we captured low rates. We were on a path to free cash flow generation. You know, we had done the things that we needed to do. And then COVID hit. It was not anybody's fault. It happened. It set us back, and our runway has narrowed.
But we still have a runway. The business still has great operations. We can still grow this business, but what we're challenged with now is it's a high degree of leverage, a finite runway. And even if we can refinance the debt maturities that we have in 2026, 2027, 2028, we're likely to refinance it at higher rates. And so we've gotta, we've gotta adjust to that environment and do the right things over the next few years, and that will set us up to grow into that capital structure. And that's through, you know, growth of our at the top, from our core business, application of sale proceeds from divestitures, and whatever else that we're gonna need to do. So that's the challenge.
I would say the good thing is we're sitting on some great assets to help us get there, but we've gotta figure out the leverage problem.
Great. Well, thank you very much for joining us, Brian and David. It's been a pleasure.
Okay. Thank you for having us.