Good morning, everyone. My name is Avi Steiner, and I cover the media sector along with my associate, William Gorman, here at J.P. Morgan. It's my pleasure to have with me again management from Clear Channel Outdoor. To my immediate right, for those of you in the room, we have Scott Wells, Chief Executive Officer. To his right, David Sailer, Chief Financial Officer. They are going to take some questions from me over the next, call it, 25-ish minutes, and then we'll open it up to the floor for some Q&A and maybe come back to me, depending on how things go. Thank you both for being here. And with that, I'm just going to hop right into it, if that's okay. Be efficient. So you just reported earnings, and I don't want to drone too much on the past. I want to look forward.
Can you talk about the macroeconomic backdrop, how it's impacting the company's core U.S. market? That's what we're going to try and focus on most today. The inflation backdrop, I think we'd say, is still running a little hot, which seems to be weighing on consumers and customers alike. But at the same time, the economy is still seemingly chugging along. How do those headwinds, seemingly competing headwinds, impact your business and what you're seeing out there?
Yeah, I don't know. I definitely agree with you. The economy still seems to be running hot and that inflation is still a thing. But I think it's also a moment in time where people are looking to grow their businesses. And whenever people are looking to grow their businesses, it's a good time for our business. Our conversations with advertisers are still constructive. People are still looking to get their brands out there. They're still looking to drive new product introductions, looking to drive innovation. We've got interesting things going on in technology. We've got interesting things going on in crypto. We've got interesting things starting to bubble up in media and entertainment. So I think from our perspective, while everything you said is true about the macro environment, we are actually not perceiving it as a headwind.
Fantastic. And you just touched on media and entertainment. So I don't know if you can size the category for us, but I think at least last year was weaker than we had expected. And then if you look at box office estimates this year, it certainly calls for growth, and the backdrop seems more positive. Just talk about that category a little bit more since you touched on it yourself.
Yeah, sure. No, media and entertainment is a very important category for us. There's a couple of things going on in it, obviously. A lot of transition in different types of media. Streaming continues to expand and is being bundled in different ways. All of those things require some level of promotion, and so that creates opportunities for us. The full-on streaming wars from the early days are not going on anymore, but streamers are still very much promoting things. Movie releases are getting more creative in how they're coming to market. Historically, and for us, movies and streaming are bigger than television, just within media and entertainment, because there are a lot of subcategories. We tend to skew more toward movies and streaming. When I think about the pool that we fish in, we grew in 2024. It was not stellar growth relative to what we might have hoped.
Certainly, we look at the release schedule and we look at what's going on with the streamers and how some of the rebundling is going on. We think that there's going to be some good opportunity and we're quite confident we'll grow in media and entertainment this year. One of the big things we're looking to do is to get the media and entertainment companies to broaden their scope beyond New York and L.A. They tend to present, for the categories we're in at least, they tend to present the majority of their advertising in New York and L.A., which is great. But there are an awful lot of audiences in places like Miami, places like Atlanta, Dallas, etc. , that we want to get folks to. So we think there's real opportunity in that as well.
Terrific. And just touching on the markets, since you've led me nicely down that path, I want to touch on two, if we can. One is San Francisco, which I know has improved off the lows, but if you can talk about that. And then Los Angeles, which some of us had an opportunity to see in person, is an important market for the company, but also went through the devastating fires. And I'm curious how that might impact the business.
Sure. Well, let me start with San Francisco. So those of you who follow us closely know that 2023 was kind of the year of us throwing San Francisco under the bus on our earnings calls. And apologies to the team there for it. It was earned. But still, it wasn't fun for them. It certainly wasn't fun for us. 2024, San Francisco grew and was moving in the right direction. But I think the important thing is 2024, you saw a lot of momentum build for reform and for some new direction in how the city's being managed. And what we're seeing now is that advertisers are absolutely coming back. The way San Francisco is loading for the year is really encouraging. Tech being back, they were one of our biggest growers as a category last year. And San Francisco is certainly still a really important hub for that.
We are very bullish that San Francisco is going to be a tailwind for our business this year. Los Angeles, obviously, the fires were really traumatic, but Los Angeles had a pretty tough year last year as well. It was partly because of the media and entertainment dynamic we were talking about that it didn't roar back quite as much, partly just because the California economy has been complicated. We think that there is some pent-up opportunity there. Obviously, coming out of the gate with the fires and the terrible tragedy happening has put all of that a little bit on hold. We are optimistic. What we're seeing right now, I mean, I guess at a 50,000-foot level, Los Angeles is our biggest market. Again, those of you who follow us would know that. It was not damaged terribly. Our assets were not damaged.
Obviously, the city was damaged terribly, but our assets were not damaged terribly in the fires. We were fortunate. Only a few structures were damaged, and we've been able to fix most of what's been damaged already. So actually, the wind event before the fires was probably a bigger deal for us because it blew out a lot of our signage. Not knocking it down, but just getting the vinyls flapping in the wind. Those of you who were there probably saw some of that. That all got rectified quickly. I think the impact on us in the short term will be a little bit of a headwind because people were focused on things other than buying ads in January in Los Angeles, and clearly, there's a lot to be done in terms of getting the rebuilding going and so forth.
We are very bullish that the governments will do the right thing in terms of enabling the rebuilding. We think that that rebuilding in and of itself should create some opportunities, possibly in other parts of our portfolio. We're certainly looking at helping the city get contractors and things like that from other parts of the Southwest to get in because they're going to need kind of every person with a backhoe within 1,000 miles to be headed that way and have the incentives to head that way. So hopefully, they're going to do the policy things to make that happen. I think as that goes, when I look at the tone from advertisers, they're looking to bring things back to normal as quick as they can is the tone.
So, I'm optimistic that it's not going to start the year coming out of the gate rapidly, but I think as the year builds, it's going to be just fine.
Terrific. David, we're not ignoring you, but we are ignoring you for right now. So just to keep it tight, we'll be back. Scott, many companies are now back to mandatory five days a week in the office. How has that benefited or has it benefited Out- of-H ome demand in any discernible way? Do you think that provides a lift this year?
You know, the narrative on it certainly helps. I think as advertisers here, people are out commuting, that helps. But I think, again, those of you who follow our company know traffic has been above 2019 levels since really like 2021. So it's not that people weren't out and about, and we were able to get that message out. You know, there are certain locales where it's particularly been acute. Washington, D.C., probably one of the most within our portfolio. We have the street furniture in Washington, D.C., which is a set of assets that support the buses. And so having the federal workers working remotely for as long as they did definitely put a little bit of a damper on that particular contract. But that's small within the whole thing. That's probably the most tangible example I can point to.
In most of the big cities, traffic was back, and we've been able to prove that to our advertisers. And going to five days a week will be helpful. I think for people who have more transit, it's a bigger deal. But that is not the majority of our asset base.
I'm not going to ask the DOJ Washington impact questions. I'm going to keep moving on here. So I just want to shift to the airports business if I can. It seems like peak business travel is back, which I think you've talked about in the past as being more important than just leisure travel. But you can talk to that. And then I guess asking the question differently, beyond pricing and general business efficiencies, is there room for above-market growth in airports?
I mean, airport has been growing above market for a number of years now. And shout out to the team on some great execution because it's not just in fact, I won't say it's the opposite of, but the passenger count matters, but the actual advertising opportunity matters more. And what that team has done is they have created some incredibly compelling assets. Whether certainly if you travel through the New York airports, you see how we've worked with the Port Authority to kind of reimagine airports' signage. There are fewer bigger signs. The signs are formed at places that get great audiences. And I think our execution on building out that Port Authority contract in New York across the three big airports is a real feather in the cap of the airports team. You're right on business travel.
We think that this year, so contrast this with automobile traffic. Business travel will come close to the 2019 peak this year, so even though we've all been on a lot of crowded planes, the airlines have actually just gotten a lot better at managing their load factors, and the peak travel, we probably won't even hit what the 2019 level was for business. From a revenue perspective, I think it is higher because of inflation and the other things that have gone on. Again, the airlines being better at managing their load factors, but I think there remains upside there. Airports remains an incredibly attractive audience.
The personal travel, as well as business travel, one of the things the team has done the best job selling in is the notion that even when people are traveling for personal travel, the audience is still an audience that has a lot of business decision-makers in it, which we all know is true, and that has been a very effective part of how they sold, so I think the airports, the business is going to normalize just because it's not taking on as much inventory as it did during the Port Authority build-out and a couple of other airport build-outs the last few years, so you're going to see the growth rate kind of normalize, but I think they can still drive a nice growth rate through better execution and continuing to push the attractiveness of that audience.
Terrific. And then you touched on the MTA. So let's go there. You won a 15-year roadside contract with the MTA end of last year. Just remind the audience the particulars of that, how that will contribute this year. And are there, if I can add, any similar opportunities, or was that just unique based on your positioning already in the market?
Sure. So I'm always cautious, especially after the initial reception when we announced we had won the MTA roadside. This is all above-ground assets. These are signs on trestles alongside highways, but they're on MTA rights of way. I'll answer the second question first, which is there are some contracts like that in other places, but the size and scope of the one in New York is pretty unique. I mean, it is going to be a couple of points of revenue growth for us this year as we onboard it. It is a few hundred signs, a little less than 300 signs in the kind of corridor around Manhattan. So kind of up Long Island and toward Westchester, it reaches up toward Connecticut. It reaches down into New Jersey, and it reaches a little bit into Connecticut.
It's a very robust footprint, and it gives us a much stronger presence in New York. It will take us a couple of quarters to fully ramp it. It was a contract that was awarded in October, and we took it over in November. That's a very short transition time for that sort of scale. Our New York team is doing a great job of onboarding it and getting things going. We think it's going to be a great opportunity for us over time. It gives us a much better New York presence that helps with some of our national selling efforts. We're very optimistic on it.
Terrific. And maybe the last one before I start my CFO questions. T-Mobile bought Vistar sell-side platform, I think it closed earlier this year, if I'm not mistaken, not long ago. I'd love to know what your thoughts are behind that transaction, if you can. Are there synergies or something we might be missing between the mobile phone screen and outdoor? And we can leave it at that and open-ended for you.
I think there are a number of elements that are exciting here. But I think number one, it is a great validation of Out-of-Home by a very sophisticated marketer. So the fact that they paid a very to all external appearances, I don't have visibility to Vistar's financials. But they paid a very good price for a digital Out-of-Home supply-side provider who's also a demand-side provider and also a software player. And I think the synergy, so I guess at a 50,000-foot level, we have been selling mobile ads alongside billboard ads for years. It's our RADAR Connect product is what that is.
What we've been able to demonstrate time and time again is that if you coordinate your creative between billboards and what's on the small screen, you're able to get a significant uplift in terms of click-through rates and action being taken, whether that's downloading an app or going to a website or various things. That's been true all along. I think T-Mobile perceives that. They're in a unique spot. I mean, they have with their retail locations already thousands of screen digital signage business. They had acquired an out-of-home business that is in, I think, Ubers and Lyfts. It might just be Ubers, but a company called Octopus they had acquired a little bit before this. So they have been dabbling with the small screens.
As a bandwidth provider and also a sophisticated marketer and a data resource, I think there's a lot of synergies for them across this. There'll be positives and negatives, I'm sure, as with any transition. We are an important strategic partner with Vistar. They're an important strategic partner to us, and we're certainly going to support them as they integrate with T-Mobile. Again, we think it's a great validation of our medium.
Perfect. Okay. Some balance sheet stuff for you. Easy ones first. Walk the audience through the net proceeds, if you can, of Europe North and just the waterfall from that.
Sure. I mean, it's nice to be answering that question. I feel like for the last couple of years, we've been talking about our strategic review. So every time I walk into a setting like this, I get the question, when is that transaction going to take place? What's the progress? So it's great that we've made progress on the sale of Europe North. For those of you who don't know, and I'm making the assumption most do, we signed a deal a few weeks back or a month back on selling our Europe North business for $625 million to Bauer Media. And I'm thrilled to kind of get over that hurdle. That $625 is from a proceeds standpoint, for the cash that we'll receive from that transaction. I mean, you'll have your normally customary working capital adjustments, obviously fees to the bankers.
I don't expect a ton of tax leakage from that deal. So I expect the proceeds to be around that number, give or take the adjustments that I spoke about. As far as the walking through kind of like the debt agreements and how that will work from a debt paydown, the first $375 will be used to pay down the term loans at par. The remaining proceeds will flow through our asset covenant in our credit agreements. We have an investment basket where for 18 months, we can utilize the proceeds for capital or acquisition. So that frees up liquidity to potentially pay down debt. Once you get through the capital expenditures and the acquisitions, you would do a pro rata asset sale for the first lien debt holders of those proceeds. But when I look at our credit agreements, I think it provides us the flexibility.
I think we mentioned on the earnings call, we're going to prioritize some paydown of debt, and I think our agreements allow for that.
Perfect. And then just very quickly on the three Latin American markets, that really doesn't hit any asset sale thresholds. Am I correct about that? It's small dollars and then.
I like questions where you answer the question.
Okay. Good.
You're absolutely correct. It's de minimis to our debt agreements. I think it's great for the business. I think it de-risked the business. I think that's a big part of it. And it also will provide liquidity to the business as well because those assets were valuable.
Okay, and then this is to maybe both of you, but we've got Brazil and Spain left. I don't know if we can put Brazil in context. I think it's larger than the other three markets, but someone can correct me, and then is Singapore just a wind down?
From Brazil, from a revenue standpoint, it's probably about one-third of what's in Latin America. So your question before on Chile, Peru, and Mexico, it's the same thing from a credit standpoint. I think it's a good de-risking for the business. It'll bring liquidity into the company, which I think is great. Singapore is in other for the group here. Our segments, now that we're a smaller U.S., or shouldn't say smaller, more simplified business. In the U.S., we have an airport segment. We have an America segment. Singapore is in other. What used to be in other prior to that was Latin America as well. We had a large contract that went away in Singapore at the end of 2023. There's still a small couple of contracts that we're operating, and over time, we'll figure out exactly where we'll go with Singapore.
But it's small to the business in our other segment.
Great. I mean, of the things you asked about, the exciting one is Spain. Again, those of you who follow the business know that we had a deal for Spain that the regulators ended up making impossible to consummate. And so we are in the process of bringing it back to market. But the team has done a fabulous job there. There's more EBITDA there now than there was when we signed the last deal. And we feel really good about the interest that we're seeing in that. So of the transactions you talked about, Spain is the one that'll be most interesting to this audience. And I would expect it'll go through the same rigor that David talked about with the Europe North proceeds.
Perfect. And then a couple more corporate. I think the initial guidance was $31 million. I asked about it yesterday on the conference call. I think you upped the corporate savings. But if you can just walk us through that. And then as these last assets hopefully get sold, could there be upside?
Yeah. First thing, actually, yeah, I answered on the earnings call. It's very similar. But what I do want to convey to this group, just so we're all crystal clear on it, when we talk about the $31 million that we went out with when we first started this process, that's on the overall corporate expense. And when I say that, that's corporate expense that covers the U.S. business and the European business. So the corporate expense, that's $135 million+ . When you look at our financials today, those numbers are a little bit different because Europe North is in discontinued ops. So there's a corporate number there. And then for the U.S. business and continuing ops, there's so that $135 million has been split. When I'm talking about that $31 million, that's for the overall business, the $135 million.
As we're going through this process, and obviously as Latin America has been put into the strategic review, the expenses that we see today are probably in the mid-30s, roughly $35 million, $36 million that will go out. As we move forward and we become a more simplified U.S. business, things along the lines of compliance, legal, reporting. I mean, right now, we're still a global company, and we're still doing all the work of a global company from a compliance to a reporting. But as those transactions take place, we will see more savings. Do I have a specific number in mind? No. But those savings will come out towards the end of 2025. And I'd say more into 2026, you'll see that.
Yeah. And we announced in the Q&A of our earnings call yesterday that we'll be doing an investor day at the end of the summer. And one of our big focuses in that will be shedding light on what we're doing on corporate expense because it is going to be a very different platform that we have when we're done. And there'll be a lot of benefits from simplifying the business. And so we'll be excited to share that when all that work is pulled together.
Feel free to share it now. You've got a great audience. Okay. I've got three more questions, and then I'm going to open it up to the audience. Maybe last one for you, David. It's hard to escape the fact that interest rates are still pretty elevated here. The company's done an excellent job, my words, of fixing most of the debt stack. But how do you think about the rising rate environment or the current rate environment and potential future refinancing you might need or want to undertake?
I'll agree with your question in the sense that I think the team, the Treasury team, we've done a really nice job managing our capital structure. I feel like over the last couple of years, we've gone to market at the right time. I think it's been very beneficial to the company. When you look at our weighted average cost of debt, when we separated from iHeart, it was higher then than it is now. I mean, now we're at roughly 7.4%. So the team has done a good job. As far as the rate environment, yeah, it's higher for longer. I'm not sure how that will be three or four years from now. But I'd point out to the fact from an operating standpoint, over the last two or three years, our interest has gone up $100 million as rates have gone up.
The business has been able to service that debt. As we become a more focused U.S. business, as we grow the bottom line organically, as we get into 2025, it's like we're going to be free cash flow positive. As we get proceeds from the sale of some of these assets and we start to go after the debt and lower leverage and pay down debt, there'll be less interest for the company to grow and organically improve cash flow. As I look at what happened over the last three years and we were able to handle that debt service, as I look into the future and where I think rates will be, I do think we're in a place where we'll be able to handle that debt load and grow the business.
Okay. Scott, back to you. The company is super close to its goal of shedding non-core assets, focusing on the U.S. business, and this is more of a strategic question of what you might be able to do now that you're this core U.S.-centric business that maybe you couldn't have done before with a multi-market platform at your fingertips.
There's some really mundane stuff that are benefits that I'll start with. I'll start with the mundane stuff, and we'll get to the more exciting stuff. The mundane stuff, we already talked about corporate expense. These transactions fundamentally are about creating optionality and de-risking the business. Any of you who followed us through COVID saw the implications of having a bunch of minimum guarantee contracts in Europe and what happens in a downturn. For a 10x levered business, with the turnaround that we've accomplished in Europe North, a lot of people ask me, "Well, why are you even selling it at this point? The business is doing terrific." It's true. They've done a fantastic job, and I really appreciate the way that team has rallied.
But the reality is they are always going to be more capital- intensive, more cash flow- intensive, more cash- consuming, as it were, than the other businesses. By shedding those, we do a few really nice mundane things. We're going to no longer have trapped cash. Whenever we would talk about cash in the business, we always had to be careful in characterizing things because at any given time, there were double-digit millions sitting in Latin America, double-digit millions sitting in Europe that were not easy to repatriate to the U.S. That will be gone. Our Treasurer's job, he's sitting in the room here. Jason, you're welcome as we work on that. I already talked about the de-risking is an important part.
And by being U.S.-focused, we're going to be able to operate the business with less cash that we're holding because we're not going to have the same capital spikes that we had as a business that was operating in these very capital-intensive markets. And so that means that we'll be able to use that money either to do more investing in our business or to pay down debt and further reduce the interest so that we what we're focused on is the cash generation, the organic cash generation growth, AFFO growth. That is what we are aiming for. And it is tantalizingly close at this point in terms of that being positive and growing quite nicely. The cash flow AFFO is already positive. So when I think about beyond that, it's interesting. You haven't touched on this, Avi. I'm kind of surprised.
But I go to an equity conference, I get about 20% the audience that I've got here, so thank you for loving us. We appreciate that you love us, but it's really important for us to get our equity to love us too, and so part of what we're going to be doing as we drive our organic story, and there's a lot that we can do in the organic story, as you've seen with our track record of absorbing that $100 million of interest the last couple of years, we are going to be focused on how do we do things that are good for the three main constituencies we're worried about, and that's the company itself, our creditors, and our equity holders.
I think some people heard my comments to your question yesterday, Avi, and were like, "Oh, what does he mean when he says they're going to be creative?" What I mean by that is we are going to look for things that are win-win-wins across all three of those groups. And we're going to exhaust the win-win-wins before we get to anything. Because look, I sit in a room with equity holders, and they're all waiting for me to say, "Oh, we're doing this thing that's going to dilute you." I sit in a room with creditors, and you're wondering what kind of terrible things we're going to do to our creditors. Our goal is to do good things for everybody. And so the good news is we believe there is a good array of things that are available to us to do that.
That could be kind of managing other people's capital, which creates optionality for us. So think of us potentially doing a venture where we partner with, say, a sponsor, and we go buy outdoor assets, maybe for a sponsor that's looking to get into the Out-of-Home business. That's what I alluded to on the call yesterday, that there's a lot of research going on. People are curious about this business. They're curious about the cash generation profile of it. Why wouldn't we invest alongside said sponsor? And maybe enough to consolidate, maybe not enough to consolidate. I don't know exactly the structuring. This is why we have to refocus the M&A capability that's been focused on Europe and LATAM on doing things creative in the U.S.
But you could imagine something where we get a very nice management fee at the very least, and maybe we get optionality to acquire a bunch of other assets at some future point and pull that into our business. So that's like a concept that we're going to be looking at. Another concept that we're going to be looking at, we have an incredibly valuable currency that we don't consume 100% of, and that's our advertising space. We consume a lot of it, but we don't consume 100% of it. Is there an opportunity where we could look at somebody coming in and doing a deal where essentially they would prepay or do some other sort of structure for a number of years of advertising capacity in return? So almost a financial instrument, but based on actually trading on inventory.
That would be a huge win-win-win for all three of those constituencies. I can't promise you we're going to do that, but I'm trying to put a little bit of meat on the bones. And the point I would have you all take is getting these deals done, particularly the Europe North one, required a lot of creativity, a lot of patience, and a lot of steadfastness. These are all things that are enormously helpful as we talk about the kind of opportunities that lay ahead for us in the U.S. And so we're going to bring that same kind of approach to finding ways to try to accelerate the deleveraging. Because when I sit in a room of equity holders, that's what they're all focused on, is how do you get that debt multiple from 10 to 6 as quickly as possible?
Because at 6, a lot of other things start to happen in terms of other equity holders can suddenly invest in the company. You're getting close then to being able to convert to a REIT, which is an important part of our long-term strategy. So again, the goal is going to be how do we make that window as tight as we can? I'm not going to give you any target dates because we got to do the work to figure out just what the art of the possible is. But that is what our focus is.
That is a lot of meat on the bone. Thank you. I'll probably be asking more questions later. There's two minutes left. Is there anybody in the audience that wants to ask a question? Because I've monopolized this right there. Go ahead, sir.
Hi. Morning, so the transactions in Europe actually increased your leverage, right? Pro forma.
Which we said all along, by the way.
So now you talk about these cost savings you're going to have at corporate for just being a U.S. structure. So conceptually, if you add those cost savings to your remaining EBITDA, your leverage would go down. Can you get to a point where using this pro forma leverage, you basically are could it become leverage neutral? Do you see what I'm saying?
I don't know if there's enough there. I think we're going to have to say it's going to take us a little bit of time to get there just through organic growth. But we can certainly make progress on it. I just can't promise we can get all the way there.
Okay. Thank you.
One minute left. Any other questions in the room? Don't be shy. Oh, one there on your left.
What are your thoughts on corporate-level M&A?
Tell me more.
So would you consider combining with another operator?
Oh, I see what you're saying. So you're saying for the Remain Co. Look, I think we will consider everything. There is not. I think when you look at that, the first question you always have to ask yourself is who? Because you must be an equity investor too because that's what the equity guys always want to speculate on. The reality is we are a very regulated business that the DOJ has a very strong opinion about your ability to consolidate. And just facts, when we did a swap with Fairway in 2015 of some of our assets in Indianapolis for some of their assets in Georgia, we spent a year fighting with the DOJ and had to divest a whole bunch of stuff on 20 signs. So if you start talking about 30,000 signs, you can imagine full employment for quite a while.
I'm happy to speculate that if there's a counterparty that is a suitable counterparty that's looking to get into out-of-home, excellent. I think for somebody within out-of-home, it's a pretty tough putt. It's not impossible, but it's a pretty tough putt.
It's a great place to stop. Thank you so much for coming. We appreciate it. Thanks.