Hi. My name is Richard Choe. I'd like to welcome everyone to JP Morgan's 51st annual Global Tech Media and Communications Conference. I'd like to welcome Brian Coleman, CFO of Clear Channel Outdoor, David Sailer, CFO of the Americas, and Bob McCuin, CRO of the Americas. Thank you for being with us today.
You bet. Thanks for having us, Richard.
I just wanted to start off with you, Brian. If you could kind of give people, who are not as familiar with Clear Channel an overview of your four different segments and what drove the, I guess, re-segmenting and breaking out? I think the businesses were always run this way, but in terms of the reporting, what kind of drove that change?
Yeah, I'll answer the latter part of the question first, because I think it's a natural lead in to talk about each of the segments, but it really is driven by how you manage these organizations. We have constant dialogue with our auditors. Based on how we manage each of these businesses, how we look at them from a financial metric evaluation standpoint, how we allocate capital, these kind of things drove the ultimate decision to re-segment. The new segments are America and airports, which were traditionally Americas. Those are two new segments. Then in Europe, we divided Europe operations into Europe North and Europe South.
The one other change was Singapore, which was part of Europe, from a reporting standpoint, moved over to other, which probably makes sense just on the surface. In terms of America and airports, one of the good things about separating them is you get a view of the traditional outdoor business that you perhaps didn't get before when you combined it with airports. Airports is managed up through a airports leader who then reports into our CEO. It does have a different management layer. In Europe, there's a distinction between the northern markets and the southern markets, not only geographically, but more importantly from how management reporting and capital allocation, capital is allocated to those groups.
We felt it was important to be transparent and to reflect kind of the new orientation in our segment reporting.
Great. Something that I guess has been in the news, more recently and gotten a lot of questions, I'm not sure how much you can say about it, but as much as you're comfortable in talking about, there's been an activist investor who wants you to, I guess, look at a sale of part of the business or the whole business, which doesn't seem all that new since you're already in the process on the European side. Can you give us an idea of your thinking on their comments and if you've had any discussions with them?
We're open to constructive dialogue with all of investors, including Legion, who we've had dialogue with. They've been an investor for a while. I look at the statements that have been made, and I think about it. At its core, what we're getting to is our share price reflective of the value of the organization? I think we all agree that it's not in terms of the company and, you know, investors. We start there. Then I think it's all about, you know, what is the company trying to achieve and what is the path to achieving it. I think the key thing is we are absolutely focused on value creation.
We are focused on it through demonstrating profitable growth, simplifying our portfolio, demonstrating the operating leverage that exists in our business, and ultimately strengthen our balance sheet through this process. How we do that, you know, is partially seen through the announcement of the strategic review in Europe. We do think a U.S.-centric business, and we've stated that we wanna become a U.S.-centric business, but we feel that that is the right direction for the company. While we have valuable assets internationally, we feel they would be more valuable in the hands of others. We began a process, you know, over a year ago.
Unfortunately, almost shortly after it was launched, there were some geopolitical events, including the invasion of Ukraine, that caused us to pivot on the process we were undergoing and prioritize, you know, the lower margin, non-core to Europe businesses, which we continue to look at. In fact, we successfully closed the sale of Switzerland at the end of March. We are very much focused on continuing the strategic review process. We think the way we've broken it down is deliberate, thoughtful, and we wanna continue on that path. As additional markets are sold, we think this process will accelerate. Part of what we're up against, of course, are things that are beyond our control.
The, you know, the invasion of the Ukraine, the M&A financing markets in Europe, the ability and willingness of buyers at certain times. We'll continue to lean into it. We'll continue to focus on the lower margin, non-core businesses. We've had some success. I hope that we will continue to have success. Look, as things accelerate, we may do things differently in Europe. I think there's also been discussion around, you know, how do you look at other things, other potential transactions. I think it's important to communicate that the management's open-minded. We wanna have dialogue. We wanna look at all options and try to evaluate them. Suggestions such as, "Well, you should take a look at Latin America." Well, that makes sense.
It's, it's as you think about the US-centric orientation, all of our international business should be something that, at the appropriate time, should be things that are considered. The focus is Europe. That actually can move the needle. There's substantial value there. We're not holding out for last dollar, but we don't wanna also give value away. We don't think that's in the best interest of our shareholders. When you talk about potential US asset sales, I think you have to think about what is the totality of the transaction? What are the attributes of any potential transaction? Have you taken into consideration tax benefits, strategic fit? Is it deleveraging? Does it provide, you know, liquidity?
In the US, you have to think about those things. Where is your tax basis? How does a sale impact the remainder of the portfolio? Are you looking for something that is deleveraging? Are you looking for something that is liquidity accretive? You know, I think that's the question you have to ask yourself. As we've done that, we've continued to focus on the international business. I think. Look, these are things we're working on. We're taking the path that we think is the right path. Should the environment change, we'll be ready to address that. I think management is being thoughtful about the process that we're in.
Great. To follow up on that a little bit, I guess, Bob, as Chief Revenue Officer, do you see, I guess, a benefit to having a portfolio of a bunch of assets in the Americas business, whether it's, in different markets, including airports? Or are these separate assets that could perform equally well separately?
I think the portfolio we have, to have the diversity, to have airports, to have roadside, definitely benefits us with certain customers. To leverage that scale in front of national customers is important. There is absolutely a benefit to it. Look, I like the profile that we have. I like the fact that we have various formats to work with different customers. I think what we focus on is building up our data and analytics suite to understand more about mobility, whether they're in front of a billboard on a road or in an airport. Right? What do we know about that customer that client is trying to go after? That applies not just nationally, that's also locally.
I think that it's important to have a mix, a healthy mix of different formats, but what's really important is how we leverage the understanding of the audience and where they go, and then therefore we can work with customers in a unique way.
Great. I was gonna hit this a little bit later, but since you're bringing it up, and I think it's important. Where are you in the process of generating the data and analytics for your assets in that it seemed like out-of-home had this issue with trying to get that information and put it in the hands of potential customers? Can you talk a little bit about?
Sure.
Where you've been and what you're doing?
Sure. It's, it's been a journey. I'll kind of start with that. Seven years ago, I believe it was about seven years ago, we launched RADAR, which is our real toolkit to work with customers in a similar way that digital marketers can, and that allows us to plan out-of-home with audiences, right. To start to get towards attribution and to do simplification as well as some other things. I think that has accelerated nicely in our business. I think for Clear Channel and the industry at the same time, the industry has evolved from a very kind of more linear counting of cars on the road to understanding more about to understanding more about people who go by the board. That's what the industry is doing.
What we've done is we've built this RADAR platform to allow us to go deeper with customers who may wanna work with first-party data, who wanna plan out-of-home against the same segments they buy digital. We're in market with that. We're making real progress. We have our local teams working with that on our data visualization. It's called RADARView. We have that with them. We also have RADARProof, which allows us to understand the return on ad spend with a customer. We can go in and we can talk about the person was exposed to an out-of-home, what do they do after exposure? Which is really where a lot of these marketers wanna go.
The final piece of it that's been exciting is to think about, it's a product we have called RADARSync, which allows us to work with people in their own data sets. That's really kind of, when you think about what's going on with privacy right now, it puts us in a really unique spot. It's going in the right direction. We're excited about it. We think that's gonna have an impact on national business as we get to climb the stack, and we start talking to more of these national advertisers on how we can shift dollars over. We're seeing it, pharma category, CPG. Those are categories in the U.S. that are not spending much in out-of-home, and we need data to unlock that.
No, that makes sense, and it seems like a initiative that could bear fruit over time and increase CPMs. In the first quarter, this is for Brian or David, national advertising was a little soft. We had talked about it, I guess, when you reported fourth quarter. Can you walk through what you're seeing today, why things were a little soft in the first quarter, and what gives you confidence that national will improve for the rest of the year?
Yeah. No, absolutely. Bob, you can chip in too, as Bob does run our national team. The first quarter, it was soft, and then I can even talk about it from an airport standpoint and from a national standpoint. From an airport standpoint, we had a few clients that came out. They probably, they pushed some of their spend that they had in the first quarter into the second half of the year. There were a few clients that were heavy in the first quarter of last year and throughout 2022. When it came to 2022, then when they pushed their dollars out into the second half of this year, it just didn't give us enough time to backfill those clients in that short amount of time. As we're getting into the second quarter, we see
Those clients being backfilled from an airport standpoint, so that seems, and I think that will go sub-sub-- in the next couple of quarters will get better. From a national standpoint, outside of airports, it's probably best, Bob, if you answer that.
Yeah. I think there's a few categories that really impacted us. Well, first of all, Q1 2022 nationally was incredibly strong, and our national business recovered nicely through COVID, and that really drove through Q1. There was emerging tech. We talked about crypto and the exposure we have. You know, that definitely impacted us. It impacted us in a few markets, and if you look at San Francisco as one of the markets we've called out, they had a disproportionate amount of that national business, and it's our second largest revenue market, so it has a big impact. I mean, the Q1 performance is not at all acceptable to us, and we're working hard to improve it.
I think the dynamics that we saw in Q1, we feel strongly will improve as we move forward. We think that, you know, working with some of the things we just talked about, in terms of the category development will help us and starting to bear fruit, and that's what we're excited about moving forward.
I guess the part of the business that was strong is local business generally seems to be a lot more stable and reliable. Brian, can you talk a little bit about what drives local and how you see it playing out for the rest of the year?
Well, I'll turn it to Dave-.
Okay.
Because we're talking about Americas.
Yeah, no, absolutely. The local business is definitely a resilient, you know, part of the business. We had a good first quarter, and we will continue, I think to see that as we get into, you know, second, third, and fourth quarter. Overall, there's really not one thing I kind of put my hand on that I would say, "Oh, this is why the local business did well." From a national standpoint, what Bob said before in a couple of verticals that were a little bit soft. From a local standpoint, it's been pretty strong.
Mm-hmm.
I'll just jump in for a second. It was strong during COVID too. When you looked at our performance and some of our competitors who might have more exposure locally, we performed well. Part of it, I think, is the relationship that out-of-home has with that business owner. For them, it is a critical piece of their growth versus on the national side, you have some exposure to campaigns coming in and coming out as part of a bigger media mix. On the local side, it's a bigger part of what their advertising is, and I think that helps make it a little bit more stable at times like this.
Mm-hmm.
Something I'll wrap. To kind of finish up on the Americas or talk about it, you mentioned some markets that are soft and others that were stronger. Do you see that changing over the next few quarters, or, is San Francisco and Chicago gonna kinda be weak? On the flip side, any markets that were particularly strong in the first quarter?
I mean, San Francisco is definitely, I would say, more of an anomaly. I think it's just the city itself. If you've been in San Francisco, there's definitely more crime, and it's definitely a different city than it was a few years back. I think that will come back over time. But when you look at the assets that we do have in San Francisco, the assets outside of San Francisco by the Bay Bridge, some of your bigger roadside billboards on the highways have actually done pretty well. It's more of some of our shelters and our bus shelters and signs within the city have been tough. There's been, you know, some unemployment. A lot of people are still working from home. That's kind of been an anomaly, I'd say, in San Francisco.
Do I think that's gonna get fixed overnight? I don't. I think over time, it will. Another market that we had mentioned was Chicago that had a tough first quarter, and it has over the past probably two or three quarters. As I look into the sceond quarter, that is starting to get better. On the bright side, you know, markets that have done well, in the Northeast has done well. Texas has done well. I can see that continuing, you know, moving forward. I think overall, the Americas business will get better, you know, each quarter throughout this year.
The question I get pretty often is that right now, some of the more traditional media views are in decline with cable TV, radio, newspapers. Do you see out-of-home picking up share, whether it's eyeballs or in advertisers' mindset, and where do you think that will trend?
May I answer? I'll take that one. I'll take that one gladly.
That's something I'm proud of.
Look, I think that I'm excited about the opportunity for us to, first of all, you know, grow the category largely from some of the folks you're talking about. I think the core product of out-of-home is growing. If you think about that, and you think about the relationship we have with technology, that it is a friend of ours, that it helps do some of the things we were just talking about doing, planning out-of-home, using digital tools, it's exciting. You put the backdrop on, you know, whether it's, it's going on with privacy, deprecation of the cookies. You know, that's where some of our revenue is on the local side. We can get some of that back, I believe that. I believe that's really possible.
I mean, out-of-home is still, you know, 5% of the ad spend. We have tremendous upside. I think the key thing to your point about comparing some of the other industries, you know, our core product is strong. The audience is growing. Technology helps us to do things we haven't done. I think that's a big difference and something that we're excited about.
You mentioned before a little bit about different verticals. Have the verticals that have ever used out-of-home changed dramatically over time? Are there any categories that are a little bit weaker today that might come back? Are you seeing any shifts?
I'll jump on this for a second. The one I'll call out is insurance, and that's been a tough one for us. That was a very large vertical for the industry, for Clear Channel, and that's.
That has been a pretty significant headwind for us for the last couple of years. You know, we're working with those partners trying to get them back. That's part of a challenge is what's going on in their business, not out-of-home. The QSR has been very strong with us, media entertainment, very strong with us. That continues to grow. I haven't seen a lot of shifts other than the one I mentioned before. I did, you know, mention earlier, we talked about emerging tech, you know, brands that were getting funded and they wanted to get noticed, went to out-of-home in a big way. You know, that's something that's continues to be a challenge. You know, we can crack CPG, we can crack pharma. Those are two of the biggest advertising categories in the world.
When we do that'll be a significant improvement for us, and that'll benefit the industry. I mean, Clear Channel is leading the way, but, you know, this is something we have to do as the industry.
Got it. I assume that it takes time to develop those relationships and get mind share of those budgets.
It does. It takes time really for two things. One is to understand really what their needs are and what the opportunity is. If you're with the planning team at an agency, large whole co, really getting to understand where the opportunity is, two, it's finding the solution. If it's a data solution being able to understand that they wanna measure, you know, store visitations, how do we do that? If it's auto, understanding how they need to have an integration with, you know, with Polk data to understand conversions at the dealership. That takes a while and takes that climbing the stack. We had our investor day, I talked for a bit about the different sales channels we've built.
I have a team dedicated to, you know, talking to CMOs, talking to the various levels at agencies to unlock the opportunity and then inform our data and analytics team on how to act on it.
Lastly, I on Americas and move to airports after this, but ground lease expense was up 13%. It's a little bit higher. How should we think about ground lease expense kinda for the rest of the year? Are you seeing kind of some inflationary costs? Is there ability to kinda maybe raise price to help offset some of this cost that people are seeing?
Yeah. When you look at our site lease expense year-over-year, I'd probably say there's probably two or three factors that really are coming into play. One is you did have abatements last year, so there was site relief from COVID in various parts of the country. You had good guys last year. That's not gonna repeat going forward. COVID is over, so that's kind of a headwind for you. We did have, this has been mentioned before, we did have one large contract that got renegotiated the third into the fourth quarter of last year. It was a long-term deal that we've had for probably 20 years-25 years. It was very favorable. It's now at market rates.
When you take those two items combined together, it's really a headwind as you get into this year, and that will last, you know, that major contract will normalize in the fourth quarter, and we did get COVID relief all of last year. That will be a headwind as we get into this year. As far as just a normalized view on site lease, look, we have thousands and thousands of leases, and obviously we're renegotiate or they come up, you know, a certain amount come up each year, and we're constantly renegotiating or extending those deals. From a pricing standpoint, we have been able to absolutely offset that cost.
Our top line, you know, will grow higher than the rate of the of those renewals, you know, with our landlords. They're all obviously seeing the effects of inflation, and there was COVID relief. You know, in the short term, you know, those are some tough negotiations.
Got it. In moving to airports, I guess you noticed some campaigns or mentioned some campaigns being pushed, but it seems like airport traffic or passenger traffic stays very strong.
Yes.
I think this is almost, like, too good of a problem to have, that people think it's peak demand, but it doesn't seem to be subsiding. From your perspective, do you feel like there's some room for growth there, or you're just happy kind of maintaining this level? I was at Terminal A in Newark, and saw the Clear Channel sign. It was really nice, and it seems like there's a lot of opportunity that could still be there. Just wanted to get your sense of, is this peak airport or?
No. I wouldn't absolutely say it's not the peak from an airport standpoint. I think we're obviously past where we were in 2019, and COVID was really tough on the airports. Obviously, travel went down and then passenger traffic has gotten back too, and I'd say in 2022 we were probably in the 90% range. You know, now this year we're definitely over 100%. I wouldn't say you needed to get back to 100% on passenger traffic to get to 100% of revenue of 2019. I don't see the airport demand slowing down from a passenger standpoint, from everything that you read. From an advertiser standpoint, it's actually really strong. The one thing I'd say...
There's probably many things that COVID did from an airport standpoint. Prior to COVID, airports was mostly a B2B sale. As COVID kind of went through, you know, we kind of shifted and we're still doing B2B, but we're also doing B2C. It's actually opened up an opportunity in the sales channel. I don't. We're definitely not at the high point. I think sales will definitely continue. There's a lot of inventory in the airports, and I think there are also some of our iconic signs. As you can see in the airports, there's a lot more digital. As you went through Newark, if you went through, obviously terminal is a bad comparison, but airports a couple of years ago wasn't as much digital.
As they're digitizing, the airports, there's even more opportunity to grow that pie.
Great. In terms of the margin for the airports business, it bounces around and obviously depends on the level of revenue, but how should investors view a normalized kind of margin for airports?
Yeah. I would say now that we have the four segments, you obviously can see the airports numbers in total, what you see in the last couple of years is definitely an anomaly. You know, you had lower revenue 'cause of COVID. We had a lot of site lease or rent abatements that just artificially inflated the margins of airports. If you kinda go back, when I look at it in 2019 and moving forward, I think high teens is probably the right number. Over time, when airports is a cost structure where there...
It's a percentage of site lease, so as you grow revenue, your margins will grow, but not at the rate that they could do from like, from the Americas business, which is more of a fixed site lease versus airports, which is a percentage site lease.
Got it. Since make sure we hit the other segments and spend a lot of time in the U.S. In breaking out Europe North, and then we'll talk about Europe South. In breaking out Europe North, it seems like the business has recovered nicely. FX has, you know, become less of an issue versus what it was last year. Can you give us an update on the Europe North business and how you're seeing things today?
Well, sure. We're pretty pleased with the Europe North performance. Europe altogether. The Europe North business shares characteristics in that, you know, they have positive EBITDA. They have high digital penetration. They have new contracts that have rolled on that have helped contribute, particularly in the Benelux and Danish arenas. The UK, which is one of our largest markets, the largest market in Northern Europe, has performed really well on demand across their digital network. We feel really good about the Northern European business, its recovery. Having a, you know, quarter after quarter of success in that business, I think will help in kind of this overall strategic review.
We're focusing on the lower margin, non-core business first, we wanna keep our eyes on the opportunity to look at the other business, either as a platform, or as separate sales, because it is part of, and an important part of, the strategic review.
I'm sure it might vary a little bit from country to country, but how much, I guess. How should investors view the margin for the Europe North business? Is it similar to airports or is it more of a fixed scenario or mixture of the two?
It is similar to airports. I mean, if you think about the underlying business is a portfolio of contracts with municipalities or quasi-municipal entities. mags, revenue shares, it is very similar to what you see in the airports business. Now, the assets themselves are dissimilar, but it's largely similar. Thus, I would expect margins in the high teens for the Europe North business is a reasonable place to be on a normalized basis.
Got it. In Europe South, now that Switzerland's gone, or sold, the remaining parts, can you talk a little bit about how France, Spain, and Italy are doing and what the important dynamics there are for investors in looking at that business?
Sure. you know, Europe South did pretty well in this quarter, too. That's at least partially attributable to they had a tough Omicron quarter a year ago, you're seeing that kind of recovery. The growth quarter-over-quarter or year-over-year, sorry, for the quarter was pretty good. It is country by country specific. I know in Spain we've won some contracts and that business is performing well. you know, France, they had a good Q1, they've had some social unrest in Q2, that probably is a headwind going into Q2. Look, these are businesses that have lower digital penetration. The political environment is a little different than, say, the North. There are different characteristics in each country.
You can look at historically, they haven't always been EBITDA positive as a segment. I do think that we'll continue to operate those businesses as best we can, but also as part of the strategic review, we're looking to extract fair value for them.
I guess also, are there any capital commitments remaining in either Europe North or South that are substantial, that if you sold the business that you wouldn't be wearing that responsibility anymore or not really?
Yeah, I mean, there's I think what you're getting to, are there any, like, major contracts that you'd have huge capital commitments that you'd have to, like, pay somebody else to take off your hands?
Mm-hmm.
You know, I wouldn't say there was.
Mm-hmm.
I mean, you know, surely as you talk about it, there may be something that's outstanding and that'll be factored in the sale price, but they are not material to the overall transaction. In all fairness, there are markets in Europe that I would think of as this is kind of a restructuring opportunity. Those are markets that, you know, we probably don't wanna be in the position of funding that restructuring. We'll let the buyer do that, and I'm sure that'll be reflected in the sales price. I don't think there are material contractual obligations in terms of capital commitments that really impact any of these potential transactions.
Got it. We mentioned a little bit about digital and RADAR, in terms of, I guess, for Americas and airports, kind of taking out Europe for now, what % of revenue would you consider to be digital and where should that go and how much can you push that over time, knowing that the billboard side is a little bit harder because it takes a while to transform. I guess a lot of people kind of understand that it seems like digital is a better revenue generator and margin potentially.
Yeah, I mean, look, I'd say, you know, certain advertisers love their printed signs, so I love them both, digital and printed. If I'm just talking about on the printed... I'm on the digital side for the Americas, the America segment, and when you look at our total inventory from a revenue standpoint, digital is 30% of our revenue or roughly 30%, but it's less than 5% of our assets. There's a huge amount of opportunity, right there. When you look at that roughly 30%, we have a market or two that are around 50, and then obviously you have markets that are much less than 30%, you know, single digits to teens.
There's a ton of opportunity, and there's a ton of inventory that you can convert to digital, and if you do it at the right locations, you can convert, and we also build organically. Whatever fits what makes the most sense for that inventory. From an airports segment, they're higher from a, from a digital standpoint, but I still feel as you start renewing contracts, 'cause the contracts we've renewed recently, you're putting when you put that program together, there's a lot more digital going into those airports today than there was five years ago. As new contracts come due and we either extend or we win RFPs, more digital is gonna go into those airports.
Digital is gonna grow at a faster clip than it would from a printed standpoint, even though I love both formats. There's a lot of opportunity there.
Great. Now that we're getting to the end of our time, one of the questions that I guess from an overall perspective is, some of your debt is trading below par. It's expensive debt that could be taken out, I guess, at a lower price. Does it make sense to issue equity or is there something you can do to potentially address those pieces of debt? Is it better to just kind of keep the cash hold it and kind of provide optionality?
I think our first objective is to ensure we have sufficient liquidity. With the macro overhang, there was focus on that. It is the reason why the Swiss asset sale proceeds, we kept on the balance sheet utilizing the reinvestment baskets under the indentures, and those proceeds will be reinvested in the business and then the operating free cash flow that would have otherwise been used, is available to us, under much more flexible terms, including potentially going in the open market and, you know, buying back some of the BV notes. I think that first provides the cushion. Richard, I really look at, you know, potential future asset sales proceeds first in terms of raising capital to buy back debt.
I think where our share price is today, we opened this discussion talking about how we feel our, the value of the business is not fully reflected in the share price. I don't think right now under the set of facts and circumstances that we're operating under that it would make sense today. I do think the focus is on, you know, the strategic review, bringing in assets or proceeds, potentially using those proceeds to pay down debt. I think once we have visibility in that process and, you know, a couple of quarters of performance of the Americas business under our belt, we can take another look at it. I don't think issuing equity is something we're really on the...
I want to say everything is on the table, but that one's probably not in the front.
You have a significant CapEx budget, $165 million-$185 million. It's safe to assume that you're spending that because there's a substantial value in return on that. How should investors kind of view that level of spending versus saving that to not be as aggressive in that CapEx spend?
It's a toggle that we have, and it's one that we've used in the past when we've needed to. That being said, I don't think we've ever foregone investments like digital conversion just because it's a high rate of return, and it's a short payback, so we'll almost always do that, particularly in Americas. I would view the capital spend as either being investments in digital in the U.S., maybe some in Northern Europe, less so in Southern Europe. Although if we win an accretive contract, we'll do what we need to do to fulfill our capital commitments there. Or a certain level of replacement maintenance type of CapEx, which is flexible, and can, you know, be deferred.
You can't defer it forever, but you can manage it. We did bring down our CapEx guide for the year. Part of that was the sale of Switzerland, but part of it was also managing, you know, a capital spend as we look at the performance of the business and our liquidity goals.
Great. I think we're out of time. Thank you for coming.
Well, thank you for the question, Richard.
You're welcome.
Thank you, everyone.
Thanks, everybody.