Clear Channel Outdoor Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 9, 2024

Key Takeaways

  • Consolidated Q1 revenue of $478 million (+9.3% ex-FX) and record Q1 revenue in Americas, Airports and Europe North, driving adjusted EBITDA up 53.6% to $97 million.
  • Digital and programmatic offerings led growth, with U.S. digital revenue up 7.9%, programmatic rising double digits, and innovative data solutions (e.g., weekly radar and mobile app performance insights) enhancing advertiser engagement.
  • Successfully refinanced senior secured notes and term loans, extending maturities into 2027–2030, reducing 2024 cash interest payments by $18 million, and improving first-lien leverage to 5.38x.
  • Confirmed full-year 2024 guidance with revenue growth of 3–6% to $2.20–2.26 billion, adjusted EBITDA of $550–585 million, and CapEx of $130–150 million, reflecting confidence in strategic investments.
  • Management is negotiating the sale of the Europe North segment and engaging potential buyers in LatAm as part of a strategy to streamline operations and focus on U.S. and airport assets.
AI Generated. May Contain Errors.
Earnings Conference Call
Clear Channel Outdoor Q1 2024
00:00 / 00:00

There are 11 speakers on the call.

Operator

Good morning, and thank you for joining our call. On the call today are Scott Wells, our CEO and David Saylor, our CFO. They will provide an overview of the 20 20 4th quarter operating performance of Clear Channel Outdoor Holdings Inc. And Clear Channel International BV. We recommend you download the earnings presentation located in the Financial section in our Investor website and review the presentation during this call.

Operator

After an introduction and a review of our results, we'll open the line for questions and Justin Cochran, CEO of Clear Channel UK and Europe will join Scott and Dave during the Q and A portion of the call. Before we begin, I'd like to remind everyone that during this call, we may make forward looking statements regarding the company, including statements about its future financial performance and its strategic goals. All forward looking statements involve risks and uncertainties, and there can be no assurance that management's expectations, beliefs or projections will be achieved or that actual results will not differ from expectations. Please review the statements of risk contained in our earnings press release and our filings with the SEC. During today's call, we will also refer to certain measures that do not confirm to Generally Accepted Accounting Principles.

Operator

We provide schedules that reconcile these non GAAP measures with our reported results on a GAAP basis as part of the earnings presentation. Also, please note that the information provided on this call speaks only to management's views as of today, May 9, 2024, and may no longer be accurate at the time of a replay. Please turn to Slide 4 and the earnings presentation, and I will now turn the call over to Scott.

Speaker 1

Good morning, everyone, and thank you for taking the time to join us today. We delivered consolidated of $478,000,000 for the Q1, excluding movements in foreign exchange rates, reflecting a 9.3% increase as compared to the prior year. Many of the trends we saw in the Q4 continued into the Q1. These results which were in line with our guidance reflect record Q1 revenue for America, airports and Europe North excluding sold markets and movements in foreign exchange rates. We remain focused on delivering on our strategic plan, which is aimed at enhancing the profitability of our business, focusing on our higher margin U.

Speaker 1

S. Assets and integrating the right technology into our platform to strengthen our ability to serve a broader range of advertisers. In our America segment, during the Q1, digital continued to grow and print bounced back nicely driven in large part by growth in our local sales channel including secondary locations which helped margins. Performance was broad based across the majority of our markets. Verticals that delivered the most growth include business services, amusements and media entertainment.

Speaker 1

We continue to develop ways we can proactively bring new national brands into the sector against a backdrop of mixed inbound demand. Our national sales team continues to generate incremental revenue in both pharma and CPG and programmatic is performing very well, delivering a double digit increase in the Q1 with very strong growth in the current quarter. Supporting our efforts, we're continuing to enhance our sales teams including attracting sales professionals directly from the key verticals we're targeting. We believe this will have a positive impact and drive incremental revenue. Overall, we believe we're effectively playing offense in pursuing business across a number of channels.

Speaker 1

For example, our radar data solutions continue to bring innovation into the out of home marketplace, opening doors to new advertisers and verticals by providing previously unavailable insights to customers on how their out of home campaigns are performing. We are piloting a new approach where customers are starting to get weekly updates on campaign performance initially around how Clear Channel's media is driving visits into restaurants and stores that advertise in our markets. Regular delivery of campaign performance data is a critical step in moving us closer to the experience that advertisers expect from digital media. We also continue to innovate around out of home's impact on mobile app behaviors and how our media drives measurable performance. For example, we completed a study in Q1 for a mobile audio entertainment platform that demonstrated that cut consumers exposed to 1 brand's ads in our airports were more likely to try the app and were more deeply engaged with the app's content.

Speaker 1

It's encouraging progress that reinforces the importance of leveraging data as a way of working with more digital marketers and accessing incremental budgets. Turning to airports, our business remains robust, driven by continued strength across multiple verticals. We're leveraging the premium nature of our inventory to drive campaigns for major brands looking to connect with millions of travelers. We continue to invest in digital displays across our airports, including in the New York and New Jersey airports. We recently installed a mix of highly visible dynamic digital platforms that are providing us with additional premium inventory in these key high volume locations to sell, allowing us to take greater advantage of strong demand.

Speaker 1

Europe North is also continuing to deliver great results with the 2nd quarter on track to continue the strong momentum seen in the Q1 as well as last year, with growth continuing in the largest markets, the UK, Sweden and Belgium. The momentum in the second quarter has been buoyed by advertiser commitments around the European Football Championship. The continued strength in the business has been particularly impressive given the ongoing M and A efforts. Moving to our balance sheet. In March, we announced the refinancing of our term loan and the CCIBV notes that extended our 2025 2026 maturities and created flexibility supporting the M and A process in Europe.

Speaker 1

Dave will go through the details, but I do want to congratulate the team on successfully executing these transactions at what we consider favorable rates in a volatile market. With regard to our guidance, Dave will also expand on the details later, but I want to highlight we are confirming our full year revenue guidance, which is expected to increase mid single digits over last year, excluding movements in foreign exchange rates. So overall, we're pleased with our performance. In addition to benefiting from the overall growth of the economy, we're seeing positive impacts on various levels from our investments in digital, in our sales teams, in our new website, and of course in programmatic and data analytics. These initiatives all bode well for our longer term growth profile.

Speaker 1

On the M and A front, we are in negotiations on the sale of our Europe North segment and we continue to engage with potential counterparties in LatAm. We will update the market as and when we're able. With that, let me hand the call over to Dave. As you may know, Dave was promoted to CFO on March 1. He has made a seamless transition and I look forward to a strong partnership with him as we move forward in executing our strategic plan.

Speaker 2

Thanks, Scott. Good morning, everyone. I've appreciated the support all the teams have provided me as I transitioned into this new role. Please see Slide 5 for an overview of our results. As a reminder, Europe's South is included in discontinued operations.

Speaker 2

Additionally, during our discussion of GAAP results, I'll also talk about our results excluding movements in foreign exchange rates, a non GAAP measure. We believe this provides greater comparability when evaluating our performance. Direct operating expenses and SG and A expenses include restructuring and other costs that are excluded from adjusted EBITDA and segment adjusted EBITDA. The amounts I referred to are for the Q1 of 2024 and the percent changes are Q1 2024 compared to the Q1 of 2023 unless otherwise noted. Now on

Speaker 1

to the Q1 reported results.

Speaker 2

Consolidated revenue for the quarter was $482,000,000 a 10.1% increase. Excluding movements in foreign exchange rates, consolidated revenue for the quarter was $478,000,000 up 9.3%. Loss from continuing operations was 89,000,000 dollars an improvement as compared to the prior year. Consolidated net loss, which includes the loss from discontinued operations was also 89,000,000 dollars Adjusted EBITDA was $97,000,000 up 53.6 percent. Excluding movements in the foreign exchange rates, adjusted EBITDA was up 53%.

Speaker 2

The increase is largely driven by America and airports. AFFO was negative $16,000,000 in the 1st quarter, an improvement of 62.6%. Excluding movements in foreign exchange rates, AFFO was up 61.6%. On to Slide 6 for the Americas segment for Q1 results. American revenue was $250,000,000 up 5.8%, reflecting increased revenue in all regions.

Speaker 2

Billboard revenue was higher driven by increased demand and digital deployments with growth both in print and digital bulletins. Digital revenue, which accounted for 33.7 percent of America revenue, was up 7.9 percent to $84,000,000 National sales, which accounted for 34.5 percent of America revenue were up 5.5 percent, local sales accounted for 65.5 percent of America revenue and were up 6%. Direct operating and SG and A expenses were flat with 2023 at 155,000,000 dollars Higher compensation costs largely driven by increased headcount and pay increases were offset by lower credit loss expense. Site lease expense was down slightly driven by the renegotiation of an existing contract. Segment adjusted EBITDA was $95,000,000 up 17.3 percent with a segment adjusted EBITDA margin of 38.2%, an improvement over the prior year.

Speaker 2

The improvement in segment adjusted EBITDA margin was driven by the strong revenue performance in addition to the lower credit loss expense and favorable revenue mix. Please see Slide 7 for a review of the Q1 results for airports. Airports revenue was $77,000,000 up 43%, with strong demand across the portfolio. Digital revenue, which accounted for 55.4 percent of Airports revenue, was up 44.1% to 43,000,000 dollars National sales, which accounted for 55.2 percent of airports revenue, were up 25.5%. Local sales accounted for 44.8 percent of airports revenue and were up 72.8%.

Speaker 2

Direct operating and SG and A expenses were up 21.9 percent to $58,000,000 The increase is primarily due to a 21 point 4% increase in site lease expense to $44,000,000 driven by higher revenue and an increase in compensation costs largely driven by higher sales commissions. Segment adjusted EBITDA was $19,000,000 up 204.6 percent with a segment adjusted EBITDA margin of 24.8%. The improvement in the segment adjusted EBITDA margin is driven in large part by the increase in revenue in the quarter. On to Slide 8. For a review of our performance in Europe North, my commentary on Europe North is on results that have been adjusted to exclude movements in foreign exchange rates.

Speaker 2

Europe North revenue increased 5.9% to $136,000,000 due to higher revenue in the UK, Sweden and Belgium, driven by increased demand and digital deployments, partially offset by the loss of a transit contract in Norway. Digital accounted for 52.4 percent of Europe North's total revenue and was up 9.1 percent to $71,000,000 Europe North direct operating and SG and A expenses were down slightly to $121,000,000 due to a decrease in site lease expense, which was down 5.8% to $53,000,000 driven by the contract loss in Norway. This was partially offset by higher compensation costs. Europe North segment adjusted EBITDA was up 92.5 percent to $14,000,000 and the segment adjusted EBITDA margin was 10.1%, an improvement over the prior year. The Q1 historically has the lowest segment adjusted EBITDA, resulting in margins being more sensitive to fluctuations in revenue and contract mix.

Speaker 2

Moving on to CCI BV on Slide 9. Clear Channel International BV or CCIBV, an indirect wholly owned subsidiary of the company and the borrower under the CCIBV term loan facility includes the operations of our Europe North and Europe South segments as well as Singapore, which is included in other. The financial results of Singapore have historically been immaterial to results of CCIBV and revenue and expenses for this business were further reduced in the Q1 of 2024 due to the loss of a contract. As the current and former businesses in Europe South segment are considered discontinued operations, the results of these businesses are reported as a separate component of consolidated results in the CCI BV consolidated statement for all periods presented and are excluded from the discussion below. CCIBV results from continuing operations for the Q1 of 2024 as compared to the same period of 2023 are as follows: CCIBV revenue increased 3.8 percent to $140,000,000 from 134,000,000 Excluding the $3,000,000 impact of movements in FX, CCIBV revenue increased 1.4% as higher revenue from our Europe North segment, as I just mentioned, was partially offset by the loss of a contract in Singapore.

Speaker 2

CCIBV's operating loss was $7,000,000 compared to the operating loss of $18,000,000 in the same period of 2023. Now moving to Slide 10 and our review of capital expenditures. CapEx totaled $24,000,000 in the first quarter, a decrease of $9,000,000 over the prior year due to timing of CapEx spend in both America and airports. Now on to Slide 11. During the Q1, cash and cash equivalents decreased by $58,000,000 to $193,000,000 primarily as a result of $127,000,000 in cash interest payments, which included an additional $48,000,000 in payments due to timing.

Speaker 2

Specifically, the cash paid for interest during the Q1 increased $55,000,000 compared to the same period in the prior year. Approximately $48,000,000 of this increase is related to the timing of interest paid early as a result of the debt refinancing transactions in March 2024 and the payment of the 1st semiannual interest payment on the CCOH 9% senior secured notes issued in August 2023. The remaining increase is due to higher interest rates on the term loan facility. Our liquidity was $389,000,000 as of March 31, 2024, down $97,000,000 compared to liquidity at the end of the Q4 due to the decline in cash and cash equivalents as well as the decrease in the availability under the receivable based credit facility due to lower net receivables at the end of the quarter. Our debt was $5,700,000,000 as of March 31, 2024, a slight increase compared to December 31, 2023 due to the refinancing in March.

Speaker 2

As Scott mentioned, we successfully executed debt transactions with favorable terms during the quarter that improved our balance sheet by deferring our near term maturities and reducing our anticipated cash interest payments in 2024 by approximately $18,000,000 as a result of the refinancings. On March 18, 2024, we issued $865,000,000 aggregate principal amount of 7.875 percent senior secured notes due 2,030 and used a portion of the proceeds therefrom to prepay $835,000,000 of borrowings outstanding under our term loan facility. At the same time, we amended our senior secured credit agreement to, among other things, refinance the $425,000,000 remaining principal balance on the term loan facility and to extend its maturity date from 2026 to 2028. On March 22, 2024, CCIBV entered into a credit agreement comprising 2 tranches of term loan totaling an aggregate principal amount of $375,000,000 which mature in 2027 and use the proceeds therefrom to redeem all of the outstanding CCIBV 6.625 percent senior secured notes due 2025. Our weighted average cost of debt was 7.4%, a slight improvement over year end.

Speaker 2

As of March 31, 2024, our first lien leverage ratio was 5.38x, an improvement over year end. The credit agreement covenant threshold is 7.1x. Now on to Slide 12 and our guidance for the Q2 and the full year 2024. All consolidated guidance in Europe North guidance excludes movements in foreign exchange rates with the exception of capital expenditures and cash interest payments. For the Q2, we believe our consolidated revenue will be between $547,000,000 $572,000,000 representing a 3% to 8% increase over the Q2 of 2023.

Speaker 2

We expect America revenue to be between $290,000,000 $300,000,000 and airports revenue is expected to be between $82,000,000 87,000,000 dollars Europe North revenue is expected to be between $155,000,000 $165,000,000 Moving on to our full year guidance. We are confirming the full year guidance for revenue, adjusted EBITDA and CapEx provided in February. Cash interest payments, loss from continuing operations and AFFO have been revised to reflect the recent refinancings and other updated information. We expect consolidated revenue to be between $2,200,000,000 $2,260,000,000 representing a 3% to 6% increase over 2023. America revenue is expected to be between $1,135,000,000 $1,165,000,000 dollars Air Force revenue is expected to be between $345,000,000 $360,000,000 Europe North revenue is expected to be between $635,000,000 $655,000,000 On a consolidated basis, we expect adjusted EBITDA to be between $550,000,000 $585,000,000 AFFO guidance is $80,000,000 to 105,000,000 dollars Capital expenditures are expected to be in the range of $130,000,000 $150,000,000 with a continued focus on investing in our digital footprint in the U.

Speaker 2

S. Additionally, we anticipate having cash interest payment obligations of $436,000,000 in 20.24 $425,000,000 in 2025. The expected increase in cash interest payments in 2024 compared to the prior year is largely due to differences in the timing of interest payments. We expect $93,000,000 of cash interest to be paid in the 2nd quarter. This guidance assumes that we do not refinance or incur additional debt.

Speaker 2

And now, let me turn the call back to Scott.

Speaker 1

Thanks, Dave. To recap, we're positive about the trends we're seeing in our business and our team's disciplined focus on executing our plan. Our performance is broad based across the portfolio and our outlook remains positive. In the U. S, we're making good progress in leveraging the investments we're making to modernize our platform and expand the range of advertisers we can serve.

Speaker 1

At the same time, we remain committed to streamlining our organization with a focus on our America and airport segments. Summing up, with our operating progress and the refinancings, we've reduced exposure to rate hikes, retained optionality to hedge down or refinance as rates move down and created room for adjusted EBITDA growth by moving our maturities out. And if you take our full year AFFO guidance and include our discretionary CapEx, we expect to be close to positive cash flow in 2024. Looks like pretty good progress from our point of view. Many thanks to our company wide team for their ongoing contributions as we pursue growth this year.

Speaker 1

And now let me turn over the call to the operator and Justin Cochran will join us on the call.

Speaker 3

Thank you. At this time, we'll be conducting a question and answer session. The first question today comes from the line of Cameron McVeigh with Morgan Stanley. Please proceed with your questions.

Speaker 4

Hi, guys. Thank you. Scott, I thought it was interesting your Americas performance in national and local versus some of your peers. I was hoping you could discuss maybe in your view why there is a divergence and any other color on your view of the current state of the ad market? And then secondly, how would you suggest we think about AFFO growth beyond 2024?

Speaker 4

Thank you.

Speaker 1

Thanks, Cameron. Yes, I mean, think there's a lot of things going on and it's always hard to bridge with the competitor where we don't know exactly how they calculate the numbers and how they choose to report them. I think as we've said and I do think this is pretty consistent, what we call national is tied to the biggest agencies and the business placed by the biggest agencies. That's how we get at the metric. And as we look at it, I mean, I think you can see a couple of things just in our numbers.

Speaker 1

If you look at America versus airports, National grew to the challenge of thinking of national as like a singular thing. So it's a hard number to compare. I do think we have some things flowing through there that are probably differential, particularly related to pharma vertical. I think we are having success in that and are blazing the trail in that and that we probably don't have our competitors probably don't have as much of that flowing through. I don't have I think probably the only other thing I'd call out that's tangible is, you may recall from Q1 last year, we had a pretty rough Q1 last year and that was at least partly because of challenges in California, particularly in Northern California and that has stabilized and started to move in the other direction.

Speaker 1

I won't say that it's fully where it needs to be, but it's in a significantly better place than last year. And I think that that probably colors those numbers as well. Those would be the things that I would pick off. I don't know Dave if there's anything that jumps to your mind.

Speaker 2

No, no, I think that covers it.

Speaker 1

And then do you want to take the AFFO?

Speaker 2

Yes. When you're thinking about AFFO as we're moving forward, the components of AFFO when you think about our interest and what we did in the month of March, which I was very pleased with the pushing out of our maturities for our notes that we're doing 2025 and 2026 and they were pushed out to 2027 2028 and some of the term loan was pushed out to 2,030 with the notes that we issued. But from an AFFO standpoint, I feel like a lot of the components interest maintenance capital will should be pretty similar to where we are this year. I think the growth in our EBITDA is really going to drive our AFFO higher as we get into next year.

Speaker 1

Yes. And Cameron, you had asked about the general ad market. I'm sorry, I left that one off in my opening, trying to bridge to numbers that I don't know what I'm bridging from. So just in terms of the ad market, I think I'd characterize it as the local market remains strong and pretty broad based. Business services, amusements, really a number of retail, a number of verticals doing really well in that space.

Speaker 1

In national entertainment is picking up, media is picking up. I think tech is picking up. So I think there are a number of things moving in the right direction. We had hoped to see more activity in auto insurance this year and that has not come together so far. There have been a lot of conversations, but no significant orders.

Speaker 1

I think the broader healthcare set aside pharma, the broader healthcare space, which is partly local, partly national, but a lot of cross market, a lot of kind of regional healthcare that hasn't been great. So it's a mixed market. I mean, we're trying to characterize it down the middle of the fairway here and not get over excited about the relative Q1 performance and trying to focus on bringing in incremental business as the year goes on. So I think that's kind of the best snapshot I can give you at this point. Hopefully that helps.

Speaker 4

Definitely. Thank you both. Thanks Cameron.

Speaker 3

Our next question is from the line of Daniel Ossley with Wells Fargo. Please proceed with your question.

Speaker 5

So we were impressed with margins across segments in the quarter, but we were also a bit surprised that the strength in flow through to full year EBITDA raise. Were there any timing related factors that impacted the quarter? And can you help us to generally impact some of the margin puts and takes between sales build outs, side lease negotiation and contract losses? Thank you.

Speaker 1

So why don't I hit on part of this and then I'll have Dave add in some of the detail on margins. When we do our annual guidance, we have pretty good visibility to where Q1 is going to come in. And so, I mean, I'm intrigued with I think the core issue here is just that particularly in Europe and to a degree in airports, Q1 is always such a small part of the annual number that the percentages can get pretty gaudy pretty quickly. Last year in airports in particular that worked against us. This year it worked in favor of us and international also worked in favor of us.

Speaker 1

So, I guess what I'd tell you is we had pretty good visibility to where Q1 was going to be when we guided. And so there wasn't a sense on our side of needing to up the guide at this point. This was not particularly surprising from where we sat as we look at the full year. I don't know Dave if you want to talk about the puts and takes part of the question?

Speaker 2

Yes, absolutely. And when I think about the guidance from a revenue standpoint, we were within our guide in Q1. But Q1, as Scott mentioned, is it's a smaller EBITDA amount in each of our segments. So if you get a couple of one timers going each way or a little bit of favorability, it is going to have a bigger impact on your margins in the Q1 as opposed to the Q2 through Q4. If I kind of unpack it by segment, for America,

Speaker 4

we were up

Speaker 2

6%. Q1 of 2023 wasn't the strongest. And I'd probably say the biggest impact is when we had we have growth of 6% and expenses are roughly flat because of a credit loss. We had savings there. We some bad debt in the Q1 of last year that obviously didn't repeat in the Q1 of this year for America and collections were actually very strong.

Speaker 2

That's probably driving that increase. Airports is different. We had our tough Q1 in 2023 and for 2024 we were up 43% and we're continually to get COVID site lease, very similar to what we got last year in Q1. So when you have that incremental revenue growth, that's really going to have a big impact on your margins. And when you think about airports going forward, I know this question will come up, the margins will be elevated in 2024, similar to 2023 because site relief, COVID relief is still going to trickle in.

Speaker 2

We're not 100% sure what quarters it will fall in, but we do expect to get some. So we always talk about our airports business that it's a high teens business. As revenue grows, you're going to get to the higher teens, up to about 20%, but this year you'll be higher just because of the relief you're getting. And for Europe North, their EBITDA is smaller in the Q1. They obviously grow throughout the year, and each quarter gets stronger.

Speaker 2

But with 7 $1,000,000 of EBITDA in the Q1 of 2023, they had very good top line growth. We spoke about earlier lost contract in Norway. So when your site lease goes down and their expenses are roughly flat and they have top line growth, that's really what's driving that margin impact, especially because the numbers are small, it's going to be definitely a little bit higher. Thank you.

Speaker 3

Our next question is from the line of Avi Steiner with JPMorgan. Please proceed with your question.

Speaker 6

Thank you very much. I've got a couple here. One, just given the markets you're in and I think Scott you may have touched on this, but curious how you think about the media and entertainment category and particularly as we kind of move to the second half of the year and we kind of lap some the impact of strikes and some other issues? And then I've got a couple more. Thank you.

Speaker 1

Yes, I mean I think media and entertainment obviously slowed us down in Q4. It was doing kind of okay in Q1 and that was off of not great comps in Q1 of 'twenty three. That was before the strikes, but it just that had not been a particularly strong quarter. And I think as it builds, I think we're going to see it continue to perform. There's nothing that we're hearing that suggests a lot of softness there, but or a lot of what's the right word.

Speaker 1

It is so you don't have the streaming wars going on right now. That was a high point in media and entertainment time. So it's not going to be as vibrant as that era. But without the strikes going and with a pretty good release schedule, the movie part of media and entertainment looks like it should be solid through the year. I think the streaming content and television parts of it are a little more idiosyncratic and you kind of have to get company by company and the book of product that each of those companies have.

Speaker 1

And so you're going to puts and takes within that. But I think it will be a growth category for us this year, Avi. That would be top line how I characterize it.

Speaker 6

Appreciate that. And then just on Europe North even with some puts and takes, it seems to be performing quite well. Comments in the opening about some buoyancy there. And I'm just curious how that backdrop might be impacting the process you're going through there, if at all, and how you think about those assets? And then I have one more and thank you.

Speaker 1

Yes, I mean, I think I would not look at near term or short term performance being a direct factor in how things sort out. If anything, it supports the dialogue. It makes the perceived value of the assets to us go up every time that the performance goes up. And so that's a factor that comes into play. But we've been real clear that our intention is to become a U.

Speaker 1

S. Focused business. So the fact that it's performing well, and I'm extrapolating from your question a little bit, Avi, the things you've asked me in times past, it hasn't at all in any way changed our intention on that. And as I said in the opening script comments, we are in negotiations with a buyer at this point. And I'm not going to go into any more detail on that in case anyone else wants to ask on that one that's what you're getting.

Speaker 1

But the process is progressing. I think strong performance supports that as we work through it, but it's not going to change the answer or the viewpoint on what our portfolio should look like downstream.

Speaker 6

That's a great place for me to leave and I'll turn it over. Thank you very much for the time everyone.

Speaker 1

Thanks Avi.

Speaker 3

Our next questions are from the line of Lance Vitanza with TD Cowen. Please proceed with your question.

Speaker 7

Hi. Thanks for taking the questions and great quarter. The Norway contract loss that you called out in the prepared remarks, could you give us just a little bit more detail? I mean, I know that this asset is ultimately going away, but I'm just curious what was this contract? Who'd you lose it to?

Speaker 7

Had the contract been profitable? Did you let the contract go? Or was this a disappointing loss for you? And then maybe most importantly, does it impact your ability to sell Norway one way or the other? Thanks.

Speaker 1

So I'm going to ask Justin to opine on Norway and on that particular contract.

Speaker 8

Yes, sure. Thanks, Scott. So this was a transit contract centered around the Oslo Metro. So it was a relatively big contract for us, relatively low margin. We lost it in a public tender.

Speaker 8

It's always the case with a contract. You're only willing to bid the level to which you're willing to bid to make it worthwhile doing it. We bid to the level that we were very happy with. We didn't win the contract. The contract was won by J.

Speaker 8

C. Deco. And we then move on to our plan B and to grow the business. So like I said, it was a lower margin contract. We have plans to replace it with smaller higher margin contracts, and those plans are going well.

Speaker 7

Great. Thanks. And then Scott, you talked quite a bit about Hollywood, but the Bay Area and Silicon Valley, I think, had also been a particular soft spot for advertisers as of late, but likely recovering or how far back is your business in that region? Is it 80% back? Is it 90% back?

Speaker 7

And if you could distinguish between what you saw in the Q1 and then what you're seeing today as we sit here in May, if there has been any additional change? Thanks.

Speaker 1

Yes. I mean, we have a really enormous footprint over the Bay Area, all the way from Silicon Valley up through San Francisco into Oakland, and then into the surrounds. And I'd tell you that when you talk about percent back, it's been a little bit I mean, throughout its history, San Francisco has been a boom and bust city and it busted hard in COVID, but it actually came back and it really boomed when it came back and it came back very strong in 2021 2022 until the latter part of 2022. And then you started having the whole narrative about downtown San Francisco and homelessness and lawlessness and shoplifting and retailers leaving and all those kind of things, that kind of came out in late 2022 into early 2023. And the city has done a number of things since then, including a number of ballot initiatives passing, increasing policing and working to get streets cleaned up.

Speaker 1

I think that to characterize it as like a percentage back is hard for me to do because it is not anywhere near its full potential right now. But it is it's back to growing and it's moving in the right direction. And I would tell you that tech in particular that vertical in the city is coming back very nicely and that we're definitely seeing positivity from out of that market. But I think it's going to be a little while still till national advertisers decide that they want to weigh in. And national advertisers have always been an important part of the media mix there.

Speaker 1

I mean, it's really interesting dynamic because if you think about where a lot of our like street furniture assets are in the city, which are some of the assets that have been hit hardest, the neighborhoods in San Francisco are actually doing incredibly well. The like main streets in Noe Valley or in the Marina or you know, Cowls Hollow, the various neighborhoods are doing really, really well where there's a perceived softness and there's some actual softness. Although I go to San Francisco a couple of times every year and I'd tell you it is considerably better now than it was 2 years ago. So I feel good about the trend line that the city is on. I feel good that our team, our local team in particular has really stepped up and is taking on the challenge of covering for those national advertisers not being as vibrant there.

Speaker 1

And I think we see good things ahead for San Francisco.

Speaker 7

Great. Thanks so much.

Speaker 3

Thanks, Lance. Our next question is from the line of Aaron Watts with Deutsche Bank. Please proceed with your question.

Speaker 9

Everyone, thanks for having me on. One follow-up on the national ad performance, which obviously was quite good in the quarter. I'm curious, Scott, your view on the recent introduction of several ad supported streaming offerings providing more targeted video inventory. Do you see that as a potential headwind at all for your business here in the

Speaker 1

U. S? I don't think so. And part of why I don't think so is because I think they're an enormous threat to linear TV and linear TV is struggling. I think what they might do is they might prevent us participating in the transition of advertisers out of linear TV as much as we might have otherwise.

Speaker 1

So I guess in that regard, it is a bit of a challenge. But overall, I don't think that they're a particular threat aimed us. I think they just speak to and it's one of the real frustrations in the U. S. Because that linear TV transition in the rest of the world, it's true in LatAm, it's true in Europe.

Speaker 1

We are seeing money coming out of linear TV and going on to our assets in international markets to a degree that we are not seeing it as much here. We're seeing some here, but the magnitude of it in international markets more in other markets than the U. S. Some of it is, more in other markets than the U. S.

Speaker 1

Some of it is they do like the street furniture asset that's a little closer to point of sale. But when we look at it analytically, the impact of the roadside is similar to what the impact of street furniture is for many use cases. So it's a little bit of a head scratcher to us that more of that linear TV money doesn't come here in the U. S, but that's the dynamic. So I don't think it's a huge threat and it is in some ways an opportunity because they are promoting these ad served businesses on our signs.

Speaker 1

So there's opportunity in there too.

Speaker 9

That's helpful perspective. If I could ask one last question just around the capital structure. You've highlighted all the work you've done to extend out maturities. You've got a clear runway for the next couple of years. Given the current rate environment, do you take a pause on that front now?

Speaker 9

And then relatedly, any other levers aside from growth in the business that we should be thinking about over the near term horizon to accelerate

Speaker 2

the deleveraging process? From what BB notes to 2020 on in the month of March pushing out BB notes to 2027 which obviously would be tied to the process that we're running overseas in Europe that Scott mentioned earlier. But look, we're always going to monitor the market and we saw that opportunity in March and we went for it and I think it was very successful from our standpoint, where rates have honestly have gone since that point in time, the opportunity is not there. But look, we will monitor the market. If there's an opportunity to lower our cost of debt, we'll obviously we'll look at it, but the economics have to be compelling.

Speaker 2

When you're thinking about deleveraging, obviously pushing out our maturities 2027 into 2028 that really gives us that runway from an EBITDA standpoint to really grow the business. And as we go through the process in Europe and as those proceeds come out, some of those proceeds will obviously go to the BBB notes or the BBB term loan as it is today. And then the remaining proceeds can be we have 18 months to kind of reinvest in the business either through CapEx or acquisitions. So I think there'll be options at that point in time to kind of take a look at it. Yes.

Speaker 1

And I think to the other part of your question of what to look for, I think we've been pretty clear that we've had a lot of our kind of structuring and deal creativity focused on Europe and on the international divestitures for the last couple of years. As we successfully work our way through those processes, that capacity will become available to us in the U. S. And there's a lot of interest in this sector and a lot of different ideas that come our way. And I think as we simplify and clarify the business, our ability to do something creative is good.

Speaker 1

But I'm not going to direct you as to what that creative thing might be because as you are very well aware, the variety of things that we could do is broad. And you should just expect that the creative energy that we've been expanding to position ourselves for the divestitures we've been working on is energy that we'll be able to deploy on working on structuring things here in the U. S. Downstream.

Speaker 9

Great. Thanks, Scott. Thanks, Dave.

Speaker 3

Our next question comes from the line of David Kamovsky with JPMorgan. Please proceed with your question.

Speaker 5

Hi, thank you. This is Ted on for David. I have two questions. The first is on the 2024 AFFO guide. Just wanted to ask about the source of the upside there relative to keeping revenue and EBITDA the same.

Speaker 5

Is that primarily from Q1 flowing through to the full year? Or is there anything?

Speaker 10

No, there's

Speaker 2

really nothing major there. It's just us refining our estimates. There is really an adjustment in our deferred tax asset, which kind of flows through to that calculation. From an overall tax standpoint, our cash taxes, which are minimal for the year, mostly focused around some in international and in the U. S, local and state, I don't see any major differences from what we paid last year from a cash standpoint and our projections are 2024.

Speaker 5

Got it. Thank you. And then I wanted to ask on programmatic. Just wanted to ask about the source of strength for the quarter and expectations moving forward.

Speaker 3

Ladies and gentlemen, please stand by. We're experiencing technical difficulties. Our conference will resume momentarily. Once again, please remain on the line and Once again, thank you for joining us and our conference will resume momentarily. Then please stand by.

Speaker 3

Please continue with your questions.

Speaker 1

Hey, Ted, sorry, we lost you as you were starting your second question. I'm not sure we had a little power surge or something knocked us out off our line, but we're back.

Speaker 5

Okay. Great. Yes, the question was basically about Q1 programmatic strength and the source of that and what your expectations are for programmatic for the rest of the year?

Speaker 1

So, programmatic has been ramping pretty well since kind of September, October last year. And there's a variety of drivers behind it. At least one of the growth programmatic accounts right now is actually coming off of direct business. And so that's something we haven't seen broadly. And so there's a little bit of it's coming out of the left pocket into the right pocket and that is part of what's going on.

Speaker 1

But I think the broader thing is that you've had The Trade Desk mainstream out of home and DB360 is in the process of mainstreaming out of home. And what that means is that your 2 biggest omnichannel DSPs are offering out of home digital out of home in their base trading platform. And so we get consideration that way and I think that's at least part of what's going on in addition to outreach to clients, there are a number of partners that we've had some really good success bringing new advertisers to the category. So it's a variety of factors behind it. I don't think that the growth rate will stay as high as it's been the last couple of quarters for the whole year.

Speaker 1

But I do think we expect it will be a double digit growth rate. It just won't be as high as it's been in Q4 and Q1.

Speaker 3

Thank you. Our final question is from the line of Jim Goss with Barrington Research. Please proceed with your questions.

Speaker 10

All right. Thank you. The movie advertising is going to be very immediate, obviously. Just coming out of CinemaCon, there's a lot of enthusiasm for 'twenty five and 'twenty six with return of film flow, but a very current tough environment over the next couple of quarters. I'm wondering how big a drag you think that can be and what's your business for next year?

Speaker 10

And also the mix of small screen versus big screen in terms of importance to your markets? I think it's mostly big screen, but tell me otherwise.

Speaker 1

Thanks, Jim. Yes, no, you're absolutely right. We are more big screen oriented. We get some small screen, but not that's not the prevalent part of our mix. I think we your characterization of the release schedule is maybe a little darker than what I hear, but that I'm not disputing that 24 will not be as good as 25.

Speaker 1

So I do think that this is something that can be a multi quarter positive category for us. It's not an enormous part of our book. So I don't think I would characterize it as it's going to make or break how 2024 goes or what 25 can be. But with a political year where we don't get a ton of direct political, although we are working very hard on that, but we don't have a lot of direct political built into our guide. So that would be upside for us in 2024 if we actually crack that one.

Speaker 1

But with a year that has political, we're going to see overflow coming to us of people that are getting crowded out in the TV space or that want to find other ways to reach audiences that are fatigued with the 17th political ad in a row on the breaks in their sports that they're watching. So movies can be a welcome growth driver in 2025. And I think we share your optimism for how that release schedule is going to look and that should help offset some of the political comp that we build this year into next year. But again, it's not going to make or break our business.

Speaker 10

Okay, thanks. The other area I'd like to touch on briefly, if I got it straight, you said airport margin should probably be high teens business in general, but can vary quite a bit. And I wonder if you might talk a little about the drivers you think are important in terms of either travel trends, the volume of the travelers, business versus personal and how that's going to affect

Speaker 6

the

Speaker 10

revenue side and what you think might be impactful in terms of the expense side?

Speaker 1

So let me start on the revenue side and then I'll let Dave dig in on the expense side. We really have changed how we sell airports over the last few years. We have become more focused on creating experiences particularly compelling for advertisers, whether that's doing sampling or other on-site experiences, taking over different assets like tunnels between terminals. We've done that in a number of airports. And so what you've seen in the last kind of 18 months has been the progression of us just getting better at monetizing those assets.

Speaker 1

And that's something that I'm challenging the team to apply some of that same kind of thinking to our roadside assets. And we're starting to see some experiments along those lines playing out. But I think that the driver so building out New York fully was a big part of the driver. New York is largely built, although there will be meaningful projects as LaGuardia some of the LaGuardia terminals finish, some of the JFK terminals finish, because there's still renovation going on there. So there should be some more juice in just the expansion of that footprint.

Speaker 1

We've gotten much more strategic about where we deploy assets in different airports and that's been a tailwind of what's going on. And you're going to have that pretty consistently. And until we get to where we have the next big step back in airports will be when we lose a big contract, which inevitably at some point we will. There's nothing that we can see in front of us right now that we think is headed that way. And we've had good fortune doing direct extensions.

Speaker 1

But that's the nature of that business. At some point, we will take a step back in one of the big airports that we're in and that'll be a headwind. I think in terms of the actual travelers and who the advertisers are trying to reach, we had done a really nice job of getting people bought into the idea that even if people were pleasure travelers, they still represented very attractive demographics within business decision making. And as business travel has come back and business travel is getting back close to where it was pre pandemic, that has been like a cherry on top for us because it for certain airports gives you really nice uplifts as the business traveler comes back. And so that's been part of the revenue story too.

Speaker 1

But those are the big drivers sort of different selling, ongoing expansion of our digital assets and the traveler continuing to come back and continuing to be a super attractive premium target. Dave, you want to talk to expenses? Sure.

Speaker 2

Expenses, I would say, it's definitely simpler than from a revenue standpoint. Obviously, there's a lot of drivers going into the fantastic revenue growth we've been seeing over the last several quarters. But from an expense standpoint, when you the airports business, their biggest expense is site lease. What we pay to the airport authorities for the assets that we have in the airports. And when you think about that site lease, some of our most of our contracts are a percent rent.

Speaker 2

The larger airports have a higher percent rent, lower the smaller airports is slightly lower. So your revenue mix actually has a big component of what your margins are going to be. And right now, I mean, we're performing really well across all those factors, which is really helping from a margin standpoint. And we also have a few airports that are it's a fixed mag. So you drive revenue above that, that's going to drop right down to the bottom line.

Speaker 2

We definitely experienced that in the Q1. And then I'll go back the relief that we're continually getting and we're going to get that throughout 2024 to a lesser extent than we had in 2023. But those are 2 of the main factors that are really driving it from an expense standpoint. But as that revenue grows, you are going to have margin expansion and even though that's what we've been seeing.

Speaker 10

All right. Thank you very much. Appreciate it.

Speaker 1

Thank you, Jim.

Speaker 3

Thank you. At this time, I'd like to turn the floor back to Scott for closing comments.

Speaker 1

Great. Thank you, Rob, and thank you to all of our questioners and for putting up with our little technical glitch there. Sorry for that brief window of silence. We appreciate your attention. We feel good about the year look forward to seeing you all or many of you in upcoming events in the coming weeks.

Speaker 1

Take care.

Speaker 3

Thank you. This will conclude today's conference. You may disconnect your lines at this time. We thank you for your participation and have a wonderful day.

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