Okay, great. Hi, everyone. I'm Lance Vitanza, Senior Media Analyst here at TD Cowen. Delighted to have the Clear Channel team here with me: Scott Wells, of course, CEO; Dave Sailer, CFO. Why don't we just jump right in? I always like to start sort of at the macro level and then kind of get more and more narrowly focused as we go. The question that we get all the time is, what are you guys seeing over the past couple of weeks? We heard you a month ago on your earnings call. We heard you at JP Morgan a couple of weeks ago. Any change in the tone from advertisers as you think about what's going on in the world from a macro perspective?
First, thanks for having us, Lance. It's good to see you.
To answer your questions, jumping right in, we really have not seen a change in things at this point. The marketplace still seems to be running campaigns. The most responsive thing we have in programmatic continues to perform well. So we're feeling good.
Great. Just is the clock, I want to make sure that I have a sense for how much time we have left. I do not see that running. Is that going to start? Yeah, that is ok. Thanks. All right, thanks, guys. ok, let's talk about then the traditionally, I would say, historically, out-of-home has held up relatively well in recessions, right? We have gone back and we have looked from the early 1990s through the early aughts, relatively modest compression, relatively quick recovery, COVID aside, of course, and the Great Recession aside. A lot has changed with the medium. If we were to experience another sharp economic downturn, how do you think out-of-home would fare relative to how out-of-home has fared in the past?
When you think about things like increased digital penetration, when you think about things like social media no longer being in its infancy but now being much more mature, how do those factors play in?
Yeah, first off, we do not see any sign of a recession. You stressed if, and I will stress if right back at you. I think it is interesting. I think that lessons were learned in COVID by advertisers, and that might be part of the reason why we have been so rock solid right now, because a lot of people canceled things. When they came back, the stuff they wanted was not available or it was a lot more expensive. That was the silver lining in the midst of everything else that went on, everything else went on with COVID. I do think you are right in differentiating the print and digital sides of the business. It is sort of, it would stand to reason that you are going to have a little bit of a different behavior by the two parts of it.
I've said in a variety of settings, when COVID happened, programmatic literally just turned off. It was also the first thing that came back. The bull case in this one, and I'm going to choose to be bullish, is that we maintain the nice stability with the long-term print contracts. We have the faster in, faster out going on in the digital side of it and manage to work our way through. If we've learned nothing else, and this is a management team that has a lot of experience with downturns, going back to the dot-com bubble, we have people leading chunks of our business who were active during that. That had its own disruptions at the time. It was nothing like the Great Financial Crisis or COVID for our industry.
Obviously, it was really rough in a variety of other places. Given that experience, I feel good about our ability to navigate it. I do think one of the biggest things, and I've been a broken record on this, I can't seem to get it through the investing public's mind, but the degree to which we've de-risked this business is enormous. We should be getting a lot more credit for that than we are.
Part of that was selling the international businesses.
Yes.
How does that sort of affect the volatility or the variability of the business going forward in your mind?
I think most of the time that we've talked about the variability of it, we have had a U.S.-centric view, which is why COVID was such an ugly surprise for some investors on our side, just because you hit all these minimum guarantees. In many geographies, you did not get relief. The way we managed it, if you think about the airports business, we often say, well, it is kind of similar to the European business. It really is not, because the airports are actually a lot more negotiating in their relief. I mean, if you look at what we paid in rent in kind of the first full year out of COVID, and you look at the amount of relief we got, those of you who are following our stocks know that we had a lot of relief come back.
We probably got 70% or 80% of one year's rent at a normal run rate back over four or five years after COVID. That did not happen in Europe. It particularly did not happen in Southern Europe. That has a lot to do with why, as a highly levered company, those businesses did not make a lot of sense in our portfolio. They are perfectly fine businesses. They are going to do great with their new ownership, I am sure. For some company that has the interest obligations we have, it never made sense to have those kind of businesses in our portfolio.
You know, it's interesting. I think there was a comment that you made maybe on the earnings call where your airports revenue is up like 10x over so many years. Obviously, traffic through the airport over that same period is up something much less than 10x. You have become much more, the yield on your passenger traffic has gone way up. What do you think is driving that? How do you expect that to sort of look as we think about the coming 10 years versus the past 10 years?
There's a variety of things that have happened. I think a big part of it has been a specific choice. The shout-out to Morten Gotterup, our leader in that business, for staking this strategy out of kind of fewer, bigger, better and focusing on larger airports. If you look at our airport count, it's many fewer than what we had a decade ago. We're generating substantially more revenue off of it because we have brought more of a sponsorship and kind of ownership, brand ownership mentality, which is giving us, in addition to the normal people that just want to be in an airport for a product launch or for some sort of event, there's kind of a normal churn of advertising that you're going to get no matter what.
If you happen to have that particular airport and Dreamforce is happening, you're going to get people who want to reach people going to Dreamforce. That kind of advertising is kind of always there. What we have really done in the last five or six years is we've gone in and we've targeted verticals, gone very deep with the verticals on what ownership of a terminal or ownership of a security area or pick your inventory piece could mean for them. That has led to larger, longer contracts. It is a lot easier to grow a base if you have two- or three-year contracts instead of all two-month contracts. That has been the key. I think it also has been very good for the airport authorities.
Just on the whole recession point a minute ago, got to give a shout-out to Memorial Day weekend. It was like the biggest Memorial Day weekend in history. It was one of the top three days in the last.
Yeah, it was tough.
And.
Yeah. I mean, we had across the U.S., there was roughly 14 million passengers went through. One day, there was in excess of 3 million in a day. Normally, you are at a 2 million run rate, a little over 2 million. It was very, very busy.
How sensitive, generally, are your airport contracts to changes in foot traffic? Is there any sensitivity?
I mean, clearly, there is a sensitivity, particularly, again, COVID being an extreme example. God willing, we won't have something like that any time soon. All out-of-home got painted with a brush of everybody's in their houses. That was true for about 10 minutes. Everybody got painted with that, and it took a while to reverse that. I don't think passenger traffic is important at a level. Much more important is the kind of passenger demographic.
The profile.
As long as that profile is skewing the way it's skewing now, that is very desirable to a number of verticals that our biggest contracts are in airports. Even though it's a much smaller line of business, our biggest customers, individual customers, reside in the airports division because there are advertisers who are just deeply convicted with what that opportunity to brand does for them, what that opportunity to reach that audience does for them.
You talked about verticals. I guess the four verticals that I'd like to discuss with you are the AI that's going on in San Francisco, tech, I guess, and the market of San Francisco. Media and entertainment ties into the market of Los Angeles, where I know you have a big presence as well. Auto insurance, which had been returning after a very long, lengthy depression almost. Lastly, I would say Pharma, which is kind of a newer developing opportunity for you. Maybe could you just give us an update on each of those four?
Sure. AI, it's obviously still early days. It's not just San Francisco. San Francisco is the most prominent. If you cross-tab the vertical with the market, that would be where most of it is. I just had one come through my email right before I walked in here where somebody's actually trying to reach Spain as an AI company.
Oh, interesting.
Which we still have Spain, so we can help them out. I think the thing that's interesting on AI is it's following the pattern that emerging tech companies have had in terms of using out-of-home to punch above their weight early in their development. To push their AI stories too. It's the emerging growth ones that I think are the big opportunity right now. Media and entertainment, the slate looks really strong. The studios appear to be planning to support the slate. Everything we're seeing there looks encouraging, particularly for the second half.
Is it still the case? I'm sorry to interrupt.
Yeah.
Is it still the case that the movies, though, versus TV, scripted TV shows generate the lion's share of the spend in that category? The reason I ask is because, and again, I'm not studying this daily, but I'm a little surprised to hear that you're excited about the building slate. At the same point, it just seems like the volume of streaming content is just growing by leaps and bounds every day, seemingly. Do you participate in that?
We do. I mean, we participate across. It is nothing like it was five years ago at the outset of streaming when, I guess, 2019 was probably the year that we saw the biggest streaming war activity when everybody was trying to do their studio plus launch and whatnot. That is not as heavy. I was going to contrast kind of movies versus more traditional television because I do think that is a vertical that we do not participate that heavily in but that really tends to like transit. You see, because they really like reaching the full scale, it is kind of a numbers game at some level. We participate less in the television part of it. Streaming is kind of closer to movies.
Since most of those companies are trying to get to profitability now, and most of them have established, I mean, there are so many cross-links where you can get the content of one studio from every platform now, which was not the case a number of years ago. I think they're using a somewhat different model. We do see some activity in there. It's just nothing like what it was in 2019.
That makes sense. The advertising for streaming is not really born around specific content entrants so much as it is the platforms themselves.
It's around the platforms. I mean, you can see if you go out to the Sunset Strip, which I know you do, it's not just Netflix that has branded their signs. Other people have sub-branded other people's signs so that streamers are kind of owning locations in parts of Los Angeles. I'm not sure how broad it's gone in other parts of the country. Going back to your original question, you'd asked about auto insurance. Auto insurance was a terrible desert for us for a while. It is coming back. It's not anything like its full potential. I'm encouraged to see the advertisers coming back. We always had kind of local agent business still going on. The national parts of insurance are coming back. We're encouraged by that.
Again, a lot farther to go to get it back to anything like what it was at peak. Then Pharma, Pharma is one we have been pursuing pretty aggressively. It's a great intersection of the kind of inventory we have with the data and analytics that we do. That is really, really promising. It is hard. It is because they are very metric-driven. They're very methodical. You kind of go through the test cycle with them. You do a full campaign. You assess the full campaign. You work on getting in the budget cycle for the next year. It's a journey. It's a journey that we're more than a few steps down the road on.
When you think about your verticals and your exposure there, are there any that worry you with respect to tariffs? I am not talking about the general macro sense of people just spending less because of tariffs. Specifically as a response to higher input costs, do you see any?
Sure. No. From a tariff standpoint, I do not think we have a ton of exposure. I think it is more on the whole macro when I just think about ad sales in general. The two I would point out, one would be auto. We will see where that goes. It seems to be getting pushed off, which is good. We actually probably saw good advertising when the tariffs first came out because the auto companies were trying to beat that.
To beat that, yeah.
You saw a little bit of that. And retail to a certain extent. It depends on the client. It depends on the advertiser. You're going to see that as tariffs come along. Those are probably the two areas I'd say the most we would have exposure.
You mentioned you still have Spain. Just to sort of shift gears here a little bit and talk about the refocusing of the company. You sold Brazil recently, small transaction, obviously, of course. Was there any cash that came in from that transaction? Or was it just sort of like you take the assets and we'll.
It hasn't closed yet.
Yeah, it hasn't closed yet. No. But cash will come in. And there was a purchase price that was out there. That was roughly about $32 million, which included cash that came in that was really trapped in the business. And there'll be fees and expenses that will go against that. But no, it's a transaction. There's definitely value in that business. On the flip side, we still have Spain. We were in contract with JCD for roughly $65 million. That business has performed very, very well over the last couple of years. I expect that transaction as we're in the middle of that process. When that kind of goes through, I will expect that to be definitely higher than what it was before from JCD. Looking forward to that.
Great. I guess maybe to come back to the U.S., the MTA contract that you recently took on right here, could you sort of talk a little bit, any update about the revenue ramp versus the MAGs that you have in the beginning of the year and the negative margin pressure and so forth?
Sure. I mean, just to talk about it from a margin standpoint for a contract. I guess the first thing I'd say about that contract, excited about it. It's going to be a very good contract for the company. It opens up New York. It gives us a lot of coverage and a very big DMA that we didn't have in the past. Obviously, we had signs in New York. It just gives us such a great platform, especially for our national ad sales. It will be both national and local. Looking forward to it. It's roadside, above ground, just to be clear on the assets that we have. Going back to your question, from a margin standpoint, that contract started on November 1st. We kind of negotiated pretty much like into October. When that contract starts on day one, your MAG starts.
You start paying for it. The way you account for that MAG is you straight line it throughout the year. The MAG that you're paying in January is the same that you're paying in December. The revenue is a little bit different. When you get that contract in November, that's going to ramp up over time. Your ad sales in the first quarter are going to be very different from what they're going to be in the second, third, and fourth quarter. What we're seeing right now, it's actually ramping very well. I like what I see about the MTA. We're building on the first quarter. It's a lot higher in the second quarter. I see that continuing throughout the year for that contract to be profitable in 2025. At this point in time, I feel really good where we are with that contract.
Oh, you know what? Actually, you reminded me speaking about bookings, right? You've talked about this quite a bit recently. The bookings seem to be very strong. I think you've said that 85% or more of 2Q has sort of come in. Maybe that's higher today. I don't know if you can update us on that number. Regardless, the majority of the revenue for 2025 as it relates to your guidance has come in as well. How do those figures compare with what you would have seen last year, the year before? Are you seeing any change in the timing of booking relative to what you've seen historically?
I mean, not particularly. Every year has a little bit of a different rhythm. Obviously, programmatic as it grows, that tends to be back end. You're getting those dollars. You're kind of recognizing them right up to when the day, the quarter closes. That changes the rhythm of it a little bit. It's not so big as to distort the whole thing. The lay-in is pretty consistent. I mean, we're always going against what our budget is, which is in excess of our guidance, just to give a little inside baseball. We're not crazy. When we think about how we're sitting for the balance of the year, we feel like we're in the hunt. There's nothing that has changed to cause us to think differently than what we said at our last earnings call.
I guess I was thinking that given that you've got so much more of your revenues today coming from digital versus static, that the digital would tend to book later perhaps just given the wider use cases. In other words, I realize that I've got more tickets to sell for the big event at the concert hall. That's not going to show up on the booking six weeks ago. It might show up in revenues today.
There's some of that. It isn't enough. I mean, I think, so look, we were early to building digital within the space. I think we went through a lot of that timing shift a number of years ago. Now, yeah, as programmatic grows, there is the later booking that comes into play. It's not causing us forecasting trauma. I mean, Dave and this team are pretty good at nailing the forecasts.
That's something we've done for years. I mean, we've been putting in digitals. We know how many we're going to put in the ground. We have a pretty good feeling of what they're going to book that next year, the current year. That's all accounted for.
Are IRRs for digital conversions still holding with historical norms and 30%, I think, is what you sort of said?
Yep. Yep.
Are you prioritizing digital conversions differently in different markets? I mean, where are you seeing the biggest opportunities right now? And how much of that is a function of advertiser demand versus permitting environment and so forth?
I think it's a combination of all those things you're talking about. I mean, we have 27 markets. We'll be developing signs across all our markets. Really, you're looking at locations. You'll look where you think you're going to get the demand. Can you put a new board in where you don't have coverage in the past? Regulatory plays in it. That's probably the biggest area, is how many can you put in. I think we have a pretty good system across our markets of where we want to put digitals, where we want to put either organic build or conversion. I mean, really, I guess the thing where you would see something big is would an ordinance open up in a certain market where you can put more digitals in and spend a little bit more?
From a normal year- over- year, we're kind of in that 70 markets-90 markets range that we're looking at conversions and organics. There is a wide range of reasons why you're going to put in a board in certain locations and whatnot. We manage that through our infrastructure of our business.
That regulatory point is really big. You are getting to a point now where you are having markets north of 50% digital revenue. You are having markets that are sub 20%. When you have a big market that is in the 20s, that is the place that you would love to convert. The reason that you cannot is because the regulatory is not there. It is a never-ending story. We are always working on it. That is when you would see us really flex up on doing digital conversions. Turning everything digital in a market that is north of 50% may be a great long-term goal. It is not the most efficient deployment of capital in the short term. You want to lock in the locations that are strategic. You want to build scale because markets behave differently when they get north of 40% digital.
You get a different kind of cadence with the advertisers. You see advertisers coming onto the medium that maybe did not come onto it when it was 20% digital. It is important to get to that level of penetration. With our 27 markets, our gating factor is regulatory at this point, not capital.
Roughly what proportion of your markets are you at that 40% threshold level, would you say?
Overall, we're obviously in the 30%s. So we're roughly at 35% from a revenue standpoint. There's probably three or four above 50%. And then your lion's share is going to be between middle 20%s to roughly 45%. But not like a specific.
A lot of opportunity there, it sounds like.
Absolutely.
That is how we do the annual cadence that we are doing. Because again, we were early to building out this footprint. That has been great for us. There are markets where we have very unique digital presence because we were early and put that footprint down.
What proportion of your digital inventory is currently monetized by programmatic?
We have all of it. All of the roadside is available programmatically, most of the spectaculars, and a decent portion of airports. It is a lot.
What is the gating factor there? Why isn't it 100%? Or will it ever be 100%? Or is there some structural reason?
It's usually tech or, in the case of an airport, complex copy approval rules. Because getting copy approval done in the cadence of programmatic can be some airports are much more difficult than others on what they'll accept. Because all of them pretty much prohibit advocacy and political advertising. Some airports want to sign off on everything. That makes them not a great candidate for programmatic.
OK. We have a few more minutes. I want to shift gears and talk about the cost side and maybe the balance sheet quickly if we can. On the cost side, $35 million in corporate cost savings already achieved. What additional levers do you see at your disposal in 2025, 2026?
Absolutely. I mean, when you think about where our company was when we got $35 million out, those are directly attributable to selling Europe, selling Latin America. We still have an infrastructure of a global company because we still have the TSAs on both sides in the South and also in Europe. As those start to run down, when you think about finance, audit, legal, compliance, tax, we are going to take a look at the business. Right now, our corporate infrastructure, even with that $35 million out, is set up as a global company. We are going to sit down as we get through the TSAs. We are doing that honestly right now, really zero base it and see if you are going to build it today, what do you need to run this business? I mean, our corporate costs were roughly $135 million. We got that $35 million out.
We're kind of in the high 90s. There's additional costs that will come out. You'll see probably a lot of that trickle out a little bit in 2025, but mostly in 2026 as the TSAs run off and we kind of set up with the company going forward. There is more opportunity.
On the balance sheet, I think you have about $300 million of cash currently on hand that's taking into account some payments that you made post-quarter. What's the new baseline liquidity level you're comfortable with? How do you think about cash versus availability under your credit facilities and so forth?
It's nice you're asking these questions. Because in the past, it would have been when you sell in Europe. We always had more liquidity because of what Scott said earlier. The company has been de-risked in the sense that if you did have that downturn, you wanted that cash on hand. While being just a U.S. business, it is a much more de-risked business. From a cash standpoint, I think the focus now is, and you saw what we did coming out of the close where we had $400 million of cash on the balance sheet, obviously a result of the sales. That was after paying down the B.V. Notes. We spent $100 million to pay down debt. We're going to continue that process. We want to look at our capital structure and start paying down debt, obviously in the best interest from an interest standpoint.
Going back to your question, in the past, we used to probably have at least $150 million of cash on hand. I think we'll need less than half that. It will be a combination of cash on hand and then using our revolvers and our ABL more in the normal sense as opposed to just having it on the side. Definitely a lot less than that $150 million. As I said before, probably less than half that.
Interesting. As you think about your capital allocation priorities over the next 12 months, 18 months, debt repayment, obviously. We also have digital conversions. We also have acquisitions potentially. I do not know if that is something that you would consider at this stage with the leverage where it is. How should we think about what we are likely going to see?
I mean, look, from a capital allocation, we're going to continue to do digitals. They're great investments, as you said before. They're a 30%+ return. We're going to continue that program going forward. Debt pay down is obviously very, very important. As we get the cash flow positive this year, I mean, if you think about the interest expense of where we're going to be going forward, we're going to be closer to $350 million than the $425 million we had last year. We're not quite there yet. As interest goes down, that's going to free up cash flow as we're generating free cash flow from an operational standpoint. You're paying less interest. You can then start paying down the debt in addition to the proceeds that we're going to receive.
When I'm thinking about our capital allocation, we're going to continue to do digitals, chip away at the debt, utilize the proceeds from Spain to look at the debt. That's going to drive down your interest expense, which is really the cycle that we want to get into.
Great. I think we're out of time. So thank you again, David and Scott.
Thanks, Lance.
Appreciate you being here with us.
You're welcome. Thanks for having us.