Our next fireside is with Clear Channel Outdoor, and we're joined by Scott Wells, the CEO. Scott, thanks for joining us today.
Thanks for having me.
We can dive right in. So, I think you said that the Americas market was firming up as of the last quarterly call. You know, my sense was that your implication is that you kind of reached trough levels and some improvement was beginning. So would love to start off with just your latest view on how the ad market is performing as we get close to 2024?
Yeah, no, I think, you know, always, always nervous about calling anything troughs or peaks or.
Yeah
... anything, especially peaks. But I do think the market situation's improving for us. You know, we really made a point of calling out that we had such a great upfront last year. The thing we've been watching all year is cancellations, and we haven't seen the spike in cancellations. We had heard a lot of talk about people holding money until after Labor Day, and that has proven to be the case. Things have, you know, the end of summer was not particularly robust, but people are spending now. I think that the completion of the various strikes is a bullish signal downstream. I think the work we've been doing in category development, you know, is an important part of it.
And, I think, you know, we're seeing some signs of life in San Francisco, which has been our kind of toughest market all year. I don't think we're gonna see, you know, a big, huge, you know, V-shaped recovery kind of thing, but it definitely seems to have stabilized and started moving in the right direction. So all those things taken together make us feel good about where things are right now.
If we could maybe even go a little bit deeper. So, I know that LA is your biggest market and was obviously impacted by the strikes, both for media and entertainment, but also just the larger impact that it had on the local economy. It sounds like San Francisco, which I believe is still a top 10 market, is seeing an improvement that's less tied to anything going on in the entertainment side of things. So do you think that there's a canary in the coal mine with San Francisco? Is there kind of a bigger picture of economic recovery here, or how do you kind of characterize what, what you're seeing?
You know, the thing, the thing about San Francisco, we talk about San Francisco, but our market spans from San Jose to, you know, Oakland.
Mm-hmm.
So it's a lot of geography, and it's behaved in a bit of a split way. So the billboards on highways and the areas around, you know, the suburbs have actually performed well and have kind of continued to do pretty well. The challenge has been in the city and particularly on our transit assets in the city center.
Mm-hmm.
We have the bus shelter contract in San Francisco, and that has been a challenge. The challenge is there's a San Francisco part of it, but there's a tech part of it, too, 'cause you can't talk about the San Francisco ad market, at least for outdoor, without also talking about tech. And the fact that a number of the big tech players had kind of targeted this year to pull back-
Yeah
... definitely was a contributing factor, and I think we're starting to see... We're definitely hearing dialogue for 2024, that we're gonna see that start to reverse. It may not go snapping back fully, but I think that is something that you'll see work out. And, you know, San Francisco has gotten serious about trying to get their downtown... You know, it's like anything in the U.S., that something bad happens, it gets really fluffed up to where it's, you know, catastrophic-
Yeah
... maybe beyond, you know, it gets oversold, maybe beyond where it was. You start to get the opposite reaction. Things start getting cleaned up, and you start to see-
Mm-hmm
... the ball move in the other direction. And I think we're at, you know, touch wood, we're at that point-
Yeah
... with that, with that market. And there are a lot of companies that care a lot about that city, and part of caring a lot about that city is showing your support of it in advertising, and so that's like a dialogue we're having with people, too.
Mm-hmm.
So, you know, we'll see how it plays out. And it is. It's not just a top 10 market. It's our number two or number three market. I mean, I think if you looked in 2022, it was our number two market, and this year it'll be our number three, 'cause it's been moving in the wrong direction, obviously.
You know, when you and I talked at the beginning of the year, I think it was after your Q1 results, you talked about some slowing in national-
Mm
... that was starting to creep in. So maybe even stepping back from LA and San Francisco and some of their more idiosyncratic qualities, when you look at the broader Americas picture, can you help us understand what those trends are as well? You know, similarly, are you seeing some signs of broader improvement?
Yeah, national's such a tricky thing with without a home. I mean, if you look at our print for Q3, for national in roadside, it was down mid-teens%, and if you looked at it for airports, it was up in the twenties%. And that's using the same metric that's looking at the large advertisers. And that kind of speaks to the weird year that it has been with advertiser behavior, in that the run for super premium audiences, super premium assets, has been unlike anything we've seen. And so in our roadside business-...
the spectaculars , you know, things on Sunset Strip, things on Times Square, some things in Miami, some things in various city centers around the country, have been red hot and have, you know, seen really nice rate appreciation, have not had any downtime, you know, have just been performing brilliantly. That's how airports has been, too. While the kind of mainstream, bread and potatoes or meat and potatoes, roadside, you know, not, not as much. And so it's hard to attribute that to... I mean, national advertising, you just don't have many advertisers, I don't know if there ever were in out-of-home, but there certainly haven't been in recent years, that buy 150 DMAs.
Mm-hmm. Right.
They buy ten-
They're national level.
... if it's like a really big.
Yeah.
You know, set aside a couple of the brewers and things like that, there just aren't companies that buy that way. So, if you looked at our numbers, we were kind of down a lot in Q1 nationally on roadside. We were up in Q2, we were down a lot in Q3, and, you know, Q4, we'll see, we'll see where we are, but we're feeling pretty good. And so it's just been a strange year.
Yeah.
You know, to me, the key for 2024 is we need to take care of business with our core advertiser base. So that's getting media and entertainment back, that's getting tech back. Frankly, it's getting auto insurers back because they have continued-
Mm-hmm
... even though you see them, you can't watch football without seeing 50 auto insurance.
Yeah.
They have not come back to out-of-home yet. I think we'll see that start to happen. So that's key, and then also our category development with pharma and with CPG. Those are the things that are gonna drive 2024.
Mm-hmm. Let's talk about maybe digital a little bit. So I think you had your best ever programmatic month in October. Can you talk about everything from investments to digital, to what you're seeing from a pricing and demand perspective, and how that's trended throughout the year, and then how you expect overall digital to continue to grow as a percentage of Americas?
I mean, digital, we're adding substantial inventory, so it should be a growth driver for us. We expect it to be a growth driver for us, you know, over the medium term. I think there's a few things going on in your question. So programmatic, you're absolutely right, we had a very strong quarter. It hasn't gotten big enough yet to where we're disclosing it, but I think it's starting to get toward that level. You know, whether it's next year or the year after, I would expect we'll probably start to talk about it. But programmatic and automation is a big deal. Broadly, the agencies and advertisers are all looking for efficiencies, and that's one of the ways-
Mm-hmm
... that they do it, because you can make the buys very much... You know, I mean, programmatic, the word is you have a program that drives what it is you're buying-
Yeah
... and sets the parameters. Pricing has been pretty good. Again, programmatic's a premium product, and so that's held up really, really well. The markets are a little all over the map, depending on supply, demand, and local markets, how pricing has gone. It's a more normal market. That's how our business always works. That's why we have to be as agile as we are, sort of city to city, because the demand profile ends up different. But overall, I think we continue to feel good about digital as a growth driver for the business. We feel good continuing to drive conversions. You know, we just, we need to get a steadier, particularly what we were talking about a minute ago, we need to get a steadier flow of the large advertisers to help smooth some of the bumps.
When we think about digital growing as a bigger percentage of the business over time, does that increase operating leverage? Does it decrease it? You know, no, no big change?
It should be... I mean, a lot of it depends on how... So, like, if you looked at our digital and aggregate in the U.S. this year, you would see that we had a ton of digital growth in airports. And if you unpacked... I don't think we do this in our reporting, but if you unpack the spectaculars versus-
Mm-hmm
... main roadside, so this year was kind of like the opposite of an operating leverage year because the airports business is a lower margin business.
Mm-hmm
... as are the spectaculars .
Yeah.
So it's really key for us to get demand moving back to the-
Mm-hmm
... you know, fixed rent type properties, you know, billboards. It's not that we haven't had any demand on those at all. Obviously, we've done a lot of business on those, but I'd like to see the mix shift back in that direction.
Yeah.
That's something that we're consciously working on as we drive our demand.
As you bring more agencies and big advertisers online in programmatic, is there additional infrastructure investments you need to make, you know, in the technology platform or in those relationships?
Not too much. So we are in the midst of updating our ad serving platform. That's gonna be a pretty meaningful project, but it's not a capital-intensive project because we're moving to a service provider. So it's a matter of just sort of changing how the OpEx is managed there. But no, really not. I mean, we did a lot of the plumbing for this that, were we to see a big uptick in programmatic, we'd be able to scale with it without a bunch of incremental investment.
Do you find much higher category concentration in programmatic? I'm thinking maybe media in particular, but maybe something like technology products as well. But, but I'm not sure. What are some of the categories-
No, you know, the interesting thing is it has been probably the primary way we've been reaching back to packaged goods companies. Because they have really embraced the kind of pay for performance, and so it's just very natural for them to look at buying things that come along with data that either we or the DSPs are providing them, or the agencies are providing them. There are multiple places they can go for data. That's probably the unique one that stands out, but it's relatively broad-based, you know, a variety of consumer durables, consumer discretionary, business services. It's a pretty diverse group of advertisers.
As I recall, there's one very large technology company that's a very big outdoor advertiser. Not just in total dollar terms, but I think as a percentage of budget, it's one of the highest-
Yeah
In for Apple. Have you seen that trend continue into other use cases, whether that's Google, as they get more into the handset side? I think you mentioned pharma as an area where you're making investments as well. So do you think out-of-home can grow within particular sectors as-
Oh, no, no, no question. I think the thing that we have not exploited as well as, as an industry as we can, and it's not, it's not for lack of talking about it and lack of white papers, but we just haven't managed to land it, is just how much more effective our medium makes other media. If you're spending a bunch of money on TikTok or Facebook and you're not spending money on out-of-home, you are missing out on a multiplier effect that is basically free money. We can run the math for people to demonstrate what that is, and I think that's gonna be a key area of focus for our sales teams, is trying to get...
As more advertisers get more focused on the whole ROI aspect of their spend, it's important for us to be fluent, to have the right tools to have that conversation. 'Cause we do make those media in a way that I don't think other legacy media amplify. I think we're pretty unique in that because we reach everybody. And that's partly how we're having success with pharma, is we're targeting drugs that have broad-based application, where reach really matters. And it's the superpower of out-of-home, the reach that we deliver, because we really can reach, you know... Just with our assets, we can reach 75%-80% of adults in the U.S. Obviously, with other people's out assets, you can reach everybody, but or just about everybody.
I'm sure there's some corner of New Hampshire or Hawaii that-
Yeah
... would be unreached by out-of-home, but, but you'd be able to reach everybody else.
Then as you think about America's margins for next year, I think the site lease expense that you had, that you have in 2023 was probably the biggest negative surprise on margin. Anything to be aware of? You know, so I know that the revenue growth is the biggest determinant of future margin. We've talked a lot about the revenue trajectory, but any other things on the cost side we should think about for margin expansion?
Yeah. So we've lapped the big increase in site lease we had, that I think for, in aggregate, it was $12 million or $13 million impact in 2023. We've lapped that, and so that will not be a headwind in 2024.
Mm-hmm.
So that'll help. We also are almost to the point where we're out of abatements. Basically, on the roadside business, we are in America. We're just about out of abatements entirely. In airports, they'll probably be a little bit. The next couple of years, that'll continue to distort the numbers a little, but it won't be as much of an effect. I think, you know, we've been pretty consistent saying we're kind of a low- 40s margin in America, and we're, you know, high teens in airports at run rate, and I think those numbers hold up well. If we can optimize that mix to the fixed site locations and get some real nice revenue growth, you know, maybe we can push those numbers a little bit higher, but that's the right general way to think about them.
Maybe you can just kind of touch on airports holistically for a bit. So, you know, from the analyst's perspective, I wouldn't say this came out of nowhere. We knew you always had a healthy airport business, but then all of a sudden, you started to break it out. You won some contracts, especially in the New York area, and then it just seems like the travel hasn't just been good from an outdoor and airport traffic perspective, but it seems like kind of a secular tailwind. We're in this post-COVID period. People want to do things. The percentage of wallet that's probably going to travel seems like it's higher than it's ever been. So how do you think about the longer-term runway of airports?
You talked about some of the margin differential between Americas and airports, so would love to get a kind of bigger picture perspective on that business.
Yeah, I mean, we've always liked the airport business.
Mm-hmm.
And what's been interesting watching the New York build-out is just how in sync with what marketers want to do right now, premium airports are. So it's a good audience-product experience match. And in aggregate, this year, when the dust settles, air travel in the U.S. is gonna be up in the mid-teens, and our airports business is gonna be up a similar amount. But it's not a pure one-to-one. It's broad-based, what's happening, but the particular outperformance, particularly last quarter and the quarter we're in right now, is definitely heavily influenced by the New York build-out. And so it'll revert to a-
Yeah
... more normal growth rate over time, I would expect. You know, kind of the more the GDP plus, because the air travel will likely revert to that as well. It can't continue to grow-
Yeah
... in mid-teens. I mean, just-
Yeah
... just, it can't, in all likelihood. But I think we have learned a lot about how to connect with advertisers about that audience and how to monetize it better.
Mm-hmm.
And so there are some structural things that I think position us well. The thing about the airports business is it's always gonna have lumpy aspects to it, where you win or lose contracts. You've seen the win side with New York. You know, we'll lose big - I mean, we've definitely lost other contracts. It, it's kind of, you know, we have around a hundred airports, and there's always churn in that base. But you're always gonna have those times-
Mm
... where you lose a big contract, and
Yeah
... it sets you back for a year, and then you get, you know, you win a big contract, and on you go. But it's a nice business. It's reasonably capital-intensive, but it's not capital-intensive in the way that some of the tougher businesses in Europe were.
Yeah.
So we think it's a good part of the portfolio, and we think it's an area that, you know, we can use. The great thing about airports is it gives you a vehicle to create one-to-one relationships with actual advertisers. The agencies are involved, but the advertisers are spending enough that they, you know, personally get involved, which then gives us opportunities to sell in other media to them.
And I don't know if you all have done any work, but, I mean, is airport upgrades or at least domestic airport upgrades a current tailwind? I'll just speak personally that Delta has a fancy new terminal at LAX.
Mm-hmm.
Then you've got what's going on at JFK. LaGuardia is now done and is in a completely other world from the LaGuardia-
It's almost done.
We all knew for a long time.
There's still a little Terminal B work-
Yeah
to go, but it's mostly done.
But, but do you see a big kind of tailwind in airport upgrade, which then, I imagine, makes the advertising environment for out-of-home far more sophisticated, impactful, digital, all of those things?
Yeah, I mean, it's tricky, right? Because not every airport has the flow that JFK or LAX-
Mm-hmm
... does.
Mm-hmm.
You know, somebody... I'm not gonna denigrate any city, but if somebody in small city A-
Yeah
... updates their airport and expects they're gonna get the LaGuardia package-
Yeah
... they're gonna be disappointed.
Right.
And so that's a, that's a tension, that's a tension in the business.
Yeah.
But I think it's for us, it's more about the life cycle of the contracts.
Mm-hmm.
We're in a relatively benign period on the contract-
Mm
base, where there's not a lot of big ones that are in play.
Yeah.
But that'll change over the next few years, and LAX-
Mm
... is, is slated to come up. That we're not the incumbent there, but that's slated to come up in a couple of years. Chicago has been due to come up for a while, and we are the incumbent there. So there are things, but none of those are in the kind of next 12-month time horizon.
And maybe before we talk about some of the non-core assets, so putting all of this together, I mean, what's your outlook for how Clear Channel can drive free cash flow in the coming years in Americas plus airports?
Yeah, I mean, that obviously is a huge priority for us.
Mm-hmm.
The interest rate environment has been a challenge. You know, I think when the dust settles this year, we'll be up $70 million or $75 million in interest expense, which, you know, I mean, that's almost as big as our, our domestic corporate expense. It's a, it's a very big, it's a very big number.
Yeah.
So we're certainly enthusiastic about the talk about, you know, maybe there are some rate cuts on the horizon, and maybe there's, you know, maybe we actually pull this soft landing out. I think the outlook for the business, I feel good about the development that we've done, the categories that we're working on, the fact that auto insurance is still out there as a big advertiser. And it's funny because auto itself was actually a reasonable advertiser for us in Q4 last year, and it's not gonna be this year. So when you see our Q4 results, it's gonna be overcoming the fact that we didn't have much auto because of the strikes. We had some good stuff teed up, but it got delayed.
So like, you think about we're growing pharma, we're making progress with getting packaged goods like it is in Europe. It's nowhere close at this point. We've got auto insurance on the horizon. Auto is still a category, you know, potentially. And then you have all of the legacy things that are good advertisers for us.
Mm-hmm.
A lot of that adds up, and you put in that on top of a political year, where TV is gonna be constrained. And while we're gonna try like the dickens to get political money for ourselves, we're not gonna, we're not gonna count those chickens. But we know, we know that TV is gonna be stretched, which then is gonna push other advertisers to need other ways to reach their audiences. So that should be a tailwind for us. So I feel pretty good about, you know, how, how 2024 is racking up.
And then, so Europe South is now effectively sold. Europe North is on the blocks. Do you now feel like you're starting to free up some management resources to move away from the constant kind of investor push to streamline the portfolio? That must be very taxing to work through from your corporate and legal teams to just the operational disruptions. So what inning do you feel like you're now in the Europe divestitures?
Well, you know, I'm not gonna say anything too optimistic on this, given our track record with, you know, wars breaking out and inflation and other things like that. But I do think what I said on the last earnings call is right on, which is, we have delivered the vision we laid out. The Northern European business, I mean, frankly, it is a good business if we didn't have the balance sheet we have. And it's, you know, you say investor-driven, this is something we were committed to well before any of our-
Yeah
... investors started talking about it.
Yeah.
It's the right thing for a balance sheet like ours should not have assets like that on it-
Mm-hmm
... just because of the asymmetry of them that we all witnessed in COVID.
Mm-hmm.
So we were committed to exiting. It's the right thing for the business as well. I do think we're seeing... I mean, look, we have a good team, and we have good advisors. We have had a few of us that have been more focused on Europe than ideally we would be, but that shift has started already.
Mm-hmm
... you know, frankly, probably by the time we got France done, is when we really started-
Yeah
... to see some dividends in terms of time. And you're gonna see us, you know, our team is gonna see us a lot more, you know, a number of us who have been very heavily involved in that, and that'll help. And we, frankly, we have to get focused on the next thing in terms of getting the business sized right, getting the right support levels in place, and making sure that we've got all of our markets growing consistently, 'cause we don't have that right now, and so-
Mm
... we've got a lot of work to do.
That's kind of my next question. I mean, how do we think about an appropriate level of corporate overhead, once you are potentially past divesting all of the European portfolio?
Yeah, and all, all of this stuff will have a tail to it because inevitably there'll be transition services. Now, we will get paid for that, so it's a, it's a little bit of a, a wash. But I would think, you know, we've said we're gonna take at least 30 out as a result of, of simplifying the portfolio and, and that is before any dividend from LATAM.
Mm-hmm.
I think that there's room to go there. I think one of the things I frankly wanna do is I wanna really dig in on how everybody else in the industry is reporting corporate as well, and I'd like to get us on the same page.
Mm-hmm.
We'll be very transparent about what changes we make as that, but I think we tend to hold more things in our center than other people-
Yeah
... in our space do. I think that, you know, it obviously creates... So we just have to get the transparency on what's in corporate cost-
Mm-hmm
... and, you know, perhaps have some of it, over time, migrate more to the business. Obviously, that would then-
Yeah
... there's no free lunch. That would mean lower margins-
Mm
... in the operating units.
Right. Right.
But that's the right thing. We should burden the operating units-
Mm-hmm
... for the stuff that they need to, you know, keep the lights on.
If, you know, there is future opportunity to do something with LATAM, does that create some further tailwind to the corporate cost down, too?
It does.
Okay
... because it requires, anytime you're in multiple countries, there's a significant overhead associated with compliance, legal, tax, finance, all of the, you know, managing currencies, all that stuff.
Mm-hmm.
It's not-
Yeah
... it's not huge because LATAM isn't that big, but it's-
Yeah
... relative to its size, it's more than, you know, ideal. So as we become a U.S.-focused business, we're gonna have the ability-
Mm
... to bring down that cost.
It seems like the European market for selling assets reestablished itself relatively quickly, which has allowed you to move forward on Europe South and Europe North. Is LATAM to a similar point of kind of post-pandemic maturity that's ready for those discussions? It seems like-
Yeah. Yeah, I mean, we're-
more volatile, but-
... we're doing our terminology for it, and some people noticed this and called me about it. We're doing the review there as opposed to a full-on sales process, but-
Okay
... but I think that a sales process could well be the net effect of it. You know, those markets are not back anywhere like they were before COVID-
Yeah
... but they've also realigned post-COVID, and we've got... I mean, it's, it's interesting, our LATAM business is more digital than any other part of our business. We're very digital there.
Mm-hmm.
That actually should bode well as we think about, you know, a process there, because those markets really value the digital assets.
So lastly, I mean, we've talked through a lot, the organic side of the Americas business, a lot of potential divestitures and corporate cost opportunities. You know, as these things, which require a great amount of work, come together, what do you see as the other than compelling opportunities to either grow the business or de-leverage, once that kind of chapter begins to get complete?
Well, we talked about getting to free cash flow positive. So free cash flow positive is gonna be really important.
Mm-hmm.
You know, we took a hit from the ratings agencies in COVID, and now that COVID is clearly no longer with us in the same way... I recognize COVID exists, so any of you who, well, I'm not saying COVID does not exist, but we're back to more normal.
We'll do that panel next.
Yeah, that's the next panel. We'll cover that one. But we never got the like, "Oh, yeah, COVID's over, we'll mark you up." Focusing on getting that-
Mm
... rating uplift is gonna be important because how we refinance our debt stack, and you know, I think we've talked about this a lot, but obviously, first and foremost, free cash flow, EBITDA growth, those things, you know, our operating business is the number one, two, and three priority. But then we have how we manage the actual debt stack, you know, what we're doing as we start to approach the refinancings. And our first couple ways of refinancing, set aside Europe, which we'll either take care of in Europe or we'll just roll it in some form or fashion if that takes longer, but I don't-
Mm
... I don't think that'll be the case. Our first, our first couple years of refinancings are all secured, and I think we demonstrated in August our ability to, like, get secureds done. And so then you're really talking about what's the re-rate on the unsecureds look like? And, and, you know-
Yeah
... Those are, those are, you know, three, four years away. So you tell me what the interest rate environment is then, you know, you maybe have a new career ahead of you in terms of-
Right
... how to make a living. So we're gonna be very focused on getting to cash flow positive. We're gonna be very focused on doing the tactical things-
Mm-hmm
... that we can do, to enhance things, being very smart about how we spend CapEx. Aiming for getting that re-rating to position ourselves-
Mm-hmm
... for the refinancings that are going on. Those are the kind of things that we're focused on.
I know you report AFFO now.
Mm-hmm.
Is it fair to characterize that a REIT structure is sort of a strategic North Star for everything you're doing, but probably not-
It's not imminent.
... near medium term?
Yeah. No-
Yeah
... it's not imminent. I mean, we are definitely not looking to be a hyper-levered REIT. It's been fun enough being a hyper-levered public company. We're not looking to add the hyper-levered REIT.
Mm-hmm.
I do think, I do think as we get to cash flow positive and as we get to some of these other milestones that we're talking about, you start to then have a business case, 'cause at some point, we become a taxpayer, too.
Mm-hmm.
When you become a taxpayer, your business case on REIT status is very different than what our business case is for it now.
Yeah.
You know, I could imagine a variety of different ways you could accelerate getting there.
Yep, yeah. Great. Well, thank you for the time.
Thank you, Steve. Good to catch up.
Yeah.