Clear Channel Outdoor Holdings, Inc.

2023 third quarter earnings conference call. During the presentation, you can register to ask a question by pressing star followed by one on your telephone keypad. I will now turn the conference call over to your host, Eileen McLaughlin, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining our call. On the call today are Scott Wells, our CEO, and Brian Coleman, our CFO. They will provide an overview of the 2023 third 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. After an introduction and a review of our results, we'll open the line for questions. And Dustin Cochran, CEO of Clear Channel UK and Europe, and Dave Thaler, CFO of Clear Channel Outdoor Americas, will join Scott and Brian during the Q&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 could 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 findings with the SEC. During today's call, we will also refer to certain measures that do not conform to generally accepted accounting principles. We provide schedules that reconcile these non-GAAP measures with our reported results on a GAAP basis as part of the earnings presentation. Please note that the information provided on this call speaks only to management views as of today, November 8, 2023, and may no longer be accurate at the time of a replay. Please turn to slide four in the earnings presentation, and I will now turn the call over to Scott.

Good morning, everyone, and thank you for taking the time to join us today. We're pleased to report we delivered consolidated revenue of $517 million for the third quarter, excluding movements in foreign exchange rates, reflecting a 2.7% increase as compared to the prior year. This revenue is within our guidance after excluding Europe South, which was moved to discontinued operations. Airports in Europe North stood out with the America segment lagging, as anticipated when we provided third quarter guidance in August. Brian will go deeper on the drivers in America, but the combination of soft national sales and our market mix drove the challenge. We are seeing improving trends domestically and believe we'll have a better performance in the U.S. in the fourth quarter. While we knew 2023 would be a challenging year for several reasons, including unwinding COVID renovations and absorbing higher costs on a large roadside contract, as previously described, We expect our full year 2023 results to be within the guidance we provided in February, excluding Europe South, and are excited about the trajectory we are on as we head into 2024. As we've discussed previously, our management team and board are focused on driving meaningful deleveraging over the near to medium term. There are two key levers to affect this. One, continue to execute our operating plan to organically grow adjusted EBITDA and improve free cash flow, including taking action to further optimize our cost structure, and two, methodically working to monetize our European assets while we focus on our higher margin markets. With our recently completed sale of our business in France, we have made significant progress on our portfolio this year, selling or agreeing to sell all of the businesses in our Europe South segment. In addition, we have commenced the process to sell the businesses in our Europe North segment, and potential buyers are reviewing preliminary information. We have also initiated a strategic review of our businesses in Latin America and have hired an advisor to explore options for these businesses. While we can't guarantee the outcome of either process, we are confident that upon the sale of these assets, we will be a more focused U.S.-centric out-of-home operator with less debt and enhanced optionality to become a REIT. We also know that we must increase our adjusted EBITDA in order to meaningfully reduce our leverage multiple. So while we are executing our international divestiture processes, we are simultaneously continuing to focus our energies on executing our operating plan, including growing adjusted EBITDA organically, expanding our advertiser base, optimizing our deployment of capital, and reducing corporate expenses. These actions include things like growing key verticals in the US, developing multiple channels to advertisers, turning around challenged markets conducting a zero-based budget review of corporate expenses as our portfolio simplifies, and the deployment of proceeds from our divestitures to improve our liquidity position, reducing debt. We believe these actions provide the roadmap to achieve meaningfully lower leverage multiples over the next few years, which in turn should enable us to generate stronger free cash flow to support further deleveraging and to unlock shareholder value. Let me share a few proof points that support our belief in our ability to deliver. In the second quarter of 2022, I stated that we were pivoting on our plan to sell all of Europe with the intention to sell the lower margin, lower priority European assets first, with the remaining businesses expected to have substantially higher adjusted EBITDA minus CapEx margins. As you can see from slide five, which compares fiscal year 2022 actual results for the combined Europe North and Europe South segments to the Europe North segment guidance for fiscal year 2023, We now have a business that is more digitized with higher segment adjusted EBITDA minus CapEx margins as compared to our combined European businesses in 2022. These results demonstrate our team's ability to execute our strategy, including expanding our digital footprint and programmatic platform and underscore the strength of the out-of-home industry. We believe we now have a much more valuable and attractive Europe North business. And while we are committed to selling these assets, we will be disciplined in doing so to maximize value. Second, let me share some insight on the fourth quarter. We expect two of our fastest-growing verticals in the U.S. will be pharma and packaged goods. These are verticals we've called out as opportunities for several quarters, and our sales teams are making good inroads in building business in both areas. In addition, we continue to see success in building our programmatic platform. Following a strong September, October has been our best month to date. Finally, let me return to where I started and call out that we believe our 2023 results will be within the guidance range we provided in February after excluding the Europe South segment. Looking forward, we believe we are poised for significant organic adjusted EBITDA growth in 2024, and we will provide an in-depth outlook for 2024 on our Q4 fall in February. So we know we have a lot of work ahead of us. but we believe we have the right team and strategy in place to deliver the full value we believe is inherent in our business. And on this score, I would like to share our appreciation for all the work our global team is doing as we focus on achieving our objectives. With that, let me hand the call over to Brian.

Thank you, Scott. Good morning, everyone, and thank you for joining our call. Please turn to slide six. As Scott mentioned, Europe South is now included in discontinued operations as announced on October 31st, 2023. During the third quarter of 2023, our plan to sell the businesses comprising the Europe South segment met the criteria to be reported as discontinued operations. As a result, each of the Europe South segment businesses has been reclassified to discontinued operations in our financial statements for all periods presented, resulting in changes in presentation of certain amounts from prior periods. As a reminder, During our discussion of gap results, I'll also talk about our results excluding movements in foreign exchange rates, a non-gap measure. We believe this provides greater comparability when evaluating our performance. Direct operating expenses and SP&A expenses include restructuring and other costs that are excluded from adjusted EBITDA and segment adjusted EBITDA. And the amounts I refer to are for the third quarter of 2023, And the percent changes are third quarter 2023 compared to third quarter 2022, unless otherwise noted. Now on to the third quarter reported results. Consolidated revenue for the quarter was $527 million, a 4.7% increase. Excluding movements in the foreign exchange rates, consolidated revenue for the quarter was up 2.7% to $517 million. The third quarter consolidated revenue guidance we provided in August included a range of 70 to 80 million for France and Spain in the Europe South segment. Excluding the Europe South segment, our third quarter consolidated revenue was within the adjusted guidance range of 500 to 520 million. If we had included the Europe South segment, consolidated revenue, excluding movements in foreign exchange rates, would have been 596 million, also in line with the guidance we provided in August of 570 to 600 million. The loss from continuing operations was $51 million, an increase over the prior year's loss from continuing operations of $19 million. The consolidated net loss of $263 million included a $201 million net loss on disposal of assets related to the sale of grants. Adjusted EBITDA was $139 million, up 0.9%. Excluding movements in foreign exchange rates, adjusted EBITDA was down slightly. As you will see in our results, renovatements, which were down $11 million this quarter, continued to create a headwind. AFFO was $25 million in the third quarter, down 27.3%. Excluding movements in foreign exchange rates, AFFO was down 33.5%. On to slide seven for the America segment third quarter results. America revenue was $279 million, down 1.9%. driven by weakness in our media entertainment vertical in the San Francisco Bay Area market. Digital revenue, which accounted for 35% of America revenue, was up slightly to $98 million. National sales, which accounted for 32.7% of America revenue, were down 14.9%. Local sales showed strength and accounted for 67.3% of America revenue, rising 6%. Direct operating and SG&A expenses were up 1.7% to $157 million. The increase is primarily due to a 10.4% increase in site lease expense to $90 million, driven by lease renewals and amendments, as well as lower rent abatements, partially offset by lower property taxes related to illegal settlement and lower credit loss expense. Segment adjusted EBITDA was $121 million, down 6.4%, with a segment-adjusted EBITDA margin of 43.5%, down from Q3 of 2022. Please turn to slide eight for a review of the third quarter results for airports. Airports revenue was 76 million, up 21.2%. The robust increase in revenue was driven by increased demand due to the continued recovery of air travel after COVID-19 and investment in digital infrastructure. Digital revenue, which accounted for 55.3% of airport's revenue, was up 15.6% to 42 million. National sales, which accounted for 56.8% of airport's revenue, were up 25.1%. Local sales accounted for 43.2% of airport's revenue and were up 16.6%. Direct operating and STNA expenses were up 27% to 60 million. The increase is primarily due to a 47.9% increase in site lease expense to $47 million, driven by lower renovations and higher revenues. Segment-adjusted EBITDA was $16 million, up 3.1%, with a segment-adjusted EBITDA margin of 20.5%, which remains a bit elevated compared to normalized levels due to renovations. Next, please turn to slide 9 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. Europe North revenue increased 4.5% to $142 million, driven primarily by higher revenues in the UK, Belgium, and Denmark, partially offset by lower revenues in Sweden and Norway. Digital accounted for 55.8% of Europe North total revenue and was up 8.5% to $79 million. Europe North direct operating and SD&A expenses were up 3.7% to 115 million. The increase is due to higher electricity prices, rental costs for additional digital displays, and higher property tax. Site lease expense was down 0.7% to 53 million, driven by a contract renegotiation. Europe North segment adjusted EBITDA was up 9.2% to 26 million, And the segment-adjusted EBITDA margin was 18.7% up from the prior year. Moving on to CCI BV on slide 10. Clear Channel International BC, referred to as CCI BC, is an indirect fully-owned subsidiary of the company and the issuer of our six and five-eighth senior secured notes due 2025. It includes the operations of our Europe North and Europe South segments, as well as Singapore. which following the changes to our reporting segments in the fourth quarter of 2022 is included in other. As the businesses in our Europe South segment are considered discontinued operations, results of these businesses are now reported as a separate component of consolidated net loss in the CCIBV consolidated statements of loss for all periods presented and are excluded from the discussion below. CCIBV results from continued operations for the third quarter of 2023 as compared to the same period of 2022 are as follows. CCIVD revenue increased 10.3%, so $154 million from $140 million. Excluding the $8 million impact of movements in FX, CCIVD revenue increased 4.6%, primarily driven by higher revenue in our Europe North segment, as I just mentioned. Singapore represented less than 3% CCIVD revenue from continuing operations, so the three months ended September 30th, 2023. CCIDV operating income was $9 million compared to $3 million in the same period of 2022. Now moving on to slide 11 and a review of capital expenditures. CapEx totaled $33 million in the third quarter, a decrease of $5 million over the prior year due to a reduction in airports and Europe North CapEx. Airports CapEx was down due to large investments in the digital network in the prior year. Now on to slide 12. In June, we amended and extended our revolving credit lines, and in August, we issued 750 million aggregate principal amount of 9% senior secured notes due 2028. We used a portion of the net proceeds from the note offering to prepay 665 million of outstanding principal on the term loan facility, which we repurchased at a 1% discount. We incurred debt issuance costs of 12 million, related to these transactions, and we intend to use the remaining proceeds of approximately $76 million for general corporate purposes. Additionally, our next debt maturity, the CCIBV note, and the amount of $375 million is in August of 2025, with our next debt maturity, the term loan, in August of 2026. Our liquidity was $531 million as of September 30th, 2023, up $80 million compared to liquidity at the end of the second quarter due to the increase in cash and cash equivalents. During the third quarter, cash and cash equivalents increased by $85 million to $313 million, and our debt was $5.6 billion as of September 30, 2023, a $71 million increase since June 30. These increases were driven in large part by the note offering I just mentioned. In September, We repurchased in the open market, 5 million of the CCOH seven and three quarters senior notes and 10 million of the CCOH seven and a half senior notes at a discount, resulting in a gain on extinguishment of 3 million. The repurchase notes remain outstanding. Cash paid for interest on debt was 81 million during the third quarter, a 25 million increase compared to the same period in the prior year, primarily due to higher interest rates on our term loan facility and the timing accrued interest payments. Our weighted average cost of debt was 7.5%, slightly above the weighted average cost of debt as of June 30, 2023. As of September 30, 2023, our first lien leverage ratio was 5.59 times, calculated based on continuing operations, a slight increase as compared to June 30, 2023. The credit agreement covenant threshold is 7.1 times. Moving on to slide 13 and our guidance for the fourth quarter and the full year of 2023. All consolidated guidance and Europe North guidance exclude movements in foreign exchange rates, with the exception of capital expenditures and cash interest payments. Please note, our consolidated guidance has been adjusted to exclude the Europe South segment. For the fourth quarter, we believe our consolidated revenue will be between 591 and 618 million. We expect America revenue to be between $293 and $305 million. And Air Force revenue is expected to be between $100 and $105 million. Another really strong quarter as compared to the prior year. Europe North revenue is expected to be between $170 and $180 million, an increase over the prior year. Moving on to our full year guide. Given the change as a result of the Europe South segment moving to discontinued operations, we thought it would be helpful to show the detail of how we adjusted the guidance we provided in August. As you can see on the slide, now that we are close to the end of the year, we have tightened the range for consolidated revenue. We expect consolidated revenue to be between 2.091 and 2.118 billion. As Scott mentioned, this is also still within the guidance range provided in February, excluding discontinued operation. America revenue is expected to be between $1.095 and $1.107 billion. Airports is ending the year stronger than expected, with revenue expected to be between $300 and $305 million. Europe North revenue is expected to be between $604 and $614 million, also an improvement over the August guidance. On a consolidated basis, we expect adjusted EBITDA to be between 520 and 542 million, a slight improvement over the guidance we provided in August, including discontinued operation. AFFO guidance is 67 to 80 million. Capital expenditures are expected to be in the range of 143 and 161 million, with a continued focus on investing in our digital footprint in the U.S. Additionally, Our cash interest payment obligations for 2023 are expected to be approximately $405 million, up over the prior year due to higher floating rate interest on our Term Loan B facility, but down versus the August guidance due to timing of interest payments related to the transactions I described earlier. We expect $121 million of cash interest expense to be paid in the fourth quarter. This guidance assumes that we do not refinance or incur additional debt. Let me turn the call back to Scott for his closing remarks.

Thanks, Brian. Looking ahead, we remain confident in our annual guidance. We continue to execute on our plan to streamline our business, concentrate on our domestic assets, and position our organization for growth and improved profitability. We believe the steps we are taking to modernize our organization and elevate our position as a visual media powerhouse will only strengthen our ability to drive revenue and adjusted EBITDA growth. As we progress in the sale of our Europe North businesses and the strategic review of our businesses in Latin America and work on organically growing adjusted EBITDA, we believe we will ultimately begin to reduce our indebtedness and deliver improved free cash flow and drive material equity value creation. And now let me turn over the call to the operator for the Q&A session. And Justin Cochran and Dave Saylor will join us on the call.

Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star 1 on your telephone keypad. That's star 1 on your telephone keypad. You withdraw the question, star followed by 2. And please do also remember to unmute your microphone when it's your turn to speak. You have our first question comes from Abby Steiner from JP Morgan. Abby, your line is now open. Please proceed.

Thank you, and good morning, everyone. I just want to start with the ad environment if I can. And if you could just discuss maybe X and Fran, what you're seeing in this fourth quarter and any material differences in airports versus your traditional city boards. And then I've got a couple of follow-ups. Thank you.

Hey, Avi. Thanks for the question. You know, this has been a really strange ad market year. And so I'm a little hesitant to give you two sweeping of generalizations. If you just look at what we reported nationally for our roadside business in America versus nationally for airports, you can see one of the strange dynamics that has been going on, which kind of has been going on all year, the whole focus on super premium assets. It's been a very premium market this year, and we're seeing that continue into Q4. I think, you know, big picture, We think media and entertainment, now that the writers are back working, and I know the actors aren't there yet, but we'll hopefully see some progress there. Obviously the auto strikes have cleared up. That's not a huge vertical for us, not a huge impact. And we're starting to get to a point where we're seeing tech companies talking about investing in their brands a little more aggressively. I think there are a number of things that suggest we're headed in a good direction. For us specifically, I do think the trends that we've seen year to date of some challenges in the Bay Area and, frankly, California and the Midwest more generally have been not great markets, whereas we've seen a lot of goodness in Texas and Florida and along the East Coast. But it's a much more, I think I've referred to this on some other calls, it's a much more normal market in that you have normal local dynamics driving what's going on. So it's a tough market to generalize on, Avi, but I'd say that in general I'd characterize it as firming up and that there are indications that there's some strength in categories that had pulled back this year and then obviously in the call we referred to seeing some growth in areas we've been investing in with pharma and CPG. So hopefully that gives you a flavor.

Very helpful. Appreciate it. And then if I could turn to the expense side and corporate, if I could. I believe it was down almost 14% this quarter, adjusted corporate expenses. You can correct me if I'm wrong. But as we think about this line item going forward, I know Europe South has now discontinued. There's some moving pieces. But how should we think about corporate? And then if you can remind us what corporate savings will come through once Europe North is sold. And then I've got a couple more. Thank you.

Sure, Avi, I'll take that one. You know, a lot of the reduction you're seeing this year is unfortunately, you know, a variable compensation expenses as business hasn't performed as expected in and particularly in America. But I think the bigger question about corporate expenses, we are looking to reduce it. We look at opportunities to make savings, and that's kind of regardless of activities that are that are going on within the business. You pointed to divestitures. That is something that will be a catalyst for further examination of corporate expense. We've said in the past with the divestiture of the international businesses, we would expect at least $30 million of corporate expenses to be reduced. That doesn't include shared cost or embedded cost in the corporate center that also will need to be examined, but may take a longer period of time. to extract from the business. So that's why we use the at least kind of qualifier there. But look, I think over time, we'll have a little bit of headwinds next year as we hope the business will rebound a little bit in that variable compensation expense, which we'll be happy to pay if the business does rebound, comes back. But working the other way will be a sharp focus both on corporate expenses, expense reduction in general, as well as capturing corporate expense that are tied or related to the divestitures.

Super helpful, and I certainly agree with that last one. Happy to pay when the revenue is coming in. Two more for me. The first, Brian, I think you'd historically said you would only buy back bonds when you had comfort around liquidity and the outlook. I just want to make sure I heard that right, and we should read the buyback as such. And I know it's not a big number, but $15 million is the first we've seen in a bit. And on the buyback side, I'm curious what the rationale is for keeping those bonds outstanding and not retiring them. Is that a covenant liquidity or other consideration? Thanks.

So on the buyback, I think you're correct in characterizing it as something that we wouldn't spend the liquidity on unless we thought it was worth the return. And buying back bonds are a function of a number of things, including what is the return, your comfort with liquidity, availability of bonds or the liquidity of bonds in the marketplace. We also have to be very mindful of the windows of opportunities for us with a number of strategic activities going on, including the divestiture process of Europe South and now the process that's been undertaken in Europe North. There are only a few windows where we are not in possession of MNPI and would be comfortable buying back bonds. And I think that also the disciplined approach to an acceptable return and the limited windows of opportunity kind of limit the amount of bonds you can buy back. And so that's, you know, that's, that's part of the reason why there's only $15 million of repurchase, $15 million repurchase. So with respect to not retiring, that's not a requirement. I mean, we could have the option to retire them. That's final. You know, once you're in retirement, you can't, you can't un-retire them. So I think, I think just holding onto them for now gives us more optionality, whether or not ultimately that, that leads to anything else I think is undetermined at this point. For accounting purposes, they'll be, you know, eliminated upon consolidation, so you will see a positive benefit in that the debt will come off the balance sheet and the interest expense associated therewith will also come out of the income statement. I think I answered all your questions, but if I didn't, feel free to.

Hey, Avi, I'd just chip in one other thing about the confidence and liquidity profile. The technical way that we paid off the term loan We actually generated about $6.5 million of savings in that, and we also avoided payment of amortization to the tune of about $20 million a year. So that's really how to think about, you know, the kind of sources, the uses, obviously. We're doing everything Brian just described.

Terrific. And my last question, and I really appreciate the time. Scott, and for you, Brian, if you'd like, but you – Clearly have a methodical plan here to move the chains, as it were. But as kind of I build my bridge from where Clear Channel is today to where the company would like to get to leverage-wise, even with asset sales, EBITDA growth in the core, U.S. business, and the debt buybacks reported today, it seems like maybe a little bit more work needs to be done. And I'm curious, among the many of options you're clearly looking at and thinking about, has the company had discussions with some of its bigger debt and equity holders around perhaps raising equity-like instruments or entertaining debt-for-equity swaps at all, or is it just a little too early? And again, appreciate the time as always. Thank you.

Yeah, I'll take a stab at that and then have Scott or Dave weigh in if they want to go into more detail. Look, you hit upon some of the things that we're looking at. So taking a step back, You know, our strategy, I'll put in three categories. One is, you know, EBITDA growth. You mentioned that. That's certainly something we're focused on. That's at the core of everything we do. And ultimately, you know, we need to drive growth in the businesses to change our leverage profile going forward. You mentioned M&A. So I think another category is M&A, but I would look at it in a broad way, a broad sense. It not only includes what we've done in Europe South, the process we've launched in Europe North, the strategic review we've announced in Latin America. But it could be further expanded into, okay, consideration with respect to US markets, which we've talked about and are very sensitive to. Maybe the way we look at future investments, maybe we do that in a partnership where it requires less capital. So it can have a much broader meeting than some of the things we're talking about. It's a little more difficult to talk about the third bucket, the liability management activities, because It can mean a lot of things, and maybe some of those things you don't want to talk about before you implement them. But you've seen some baby steps in the debt repurchases we've talked about. We'll obviously have proceeds that are coming in from some of the divestitures, and what are the optimal ways to apply those proceeds to reduce debt or otherwise invest in the business? But to get to, I guess, the point of your question, have we had conversations with our investor base about other alternatives. I think the fair way to answer that, Avi, is we always have conversations with our investors. And some of those have been inbounds and some of those have been just the questions and responses and working through ideas that are out there. Nothing is tangible enough that we would be required to make any kind of disclosure on it. Nothing really has rinsed into the point where it's worth talking about. But I think we're always in dialogue with our investors, and that's not new. That's something that the company has always been open to. And so we're happy to have that dialogue, listen to creative ideas. And if something is interesting, we'll certainly give it thought. Scott or Dave, I don't know if you have anything to add. No, I think you captured it.

I was told I said I appreciate the time too many times, so thank you for the minutes allocated. I will go back in the queue.

Thanks, Bobby.

Thanks, Bobby.

Our next question comes from Richard Coe from JP Morgan. Richard, your line's not open. Please go ahead.

Hi. I wanted to follow up. The guidance applies ramping to 4Q. Just wanted to get a sense of what you're seeing now. And I know it's a little early, but how are you feeling about the Americas and Air Force business going to next year?

Okay. Thanks, Richard. I'll take this. And again, if Brian, Dave have anything to add, we can we can do so. You know, we talked a lot in August about how the couple of things we were looking for was, were we going to see an uptick in cancellations? That would be on the negative side, obviously. And were we going to actually see people step back into the market post Labor Day, which is what the buzz had been? And I'm pleased to report that we didn't see the uptick in cancellations, and we did see people step back into the market. And it is a more constructive market right now than what we were looking at in August. So that's all to the good. On the second part of your question, in terms of looking at 2024, we are only just now beginning our upfront process. The dialogues that we've had to date are encouraging. I referenced an obvious question that, you know, we are hearing some tech companies that have been a little more circumspect on investing coming back in. We are excited about the progress we're making in some of the categories that we've been trying to track, crack. And we feel good about what's happening in the programmatic marketplace. And there is definitely a buzz among CMOs that programmatic out of home is going to be a thing in 2024. I'm not sure I'm going to believe it until I see it, because we definitely have heard positive things before. But I think in an environment where you've got an ad market that is going to have political consuming a lot of You know, the scatter and upfront markets and other media, I think out-of-home is going to be positioned really well in that we've been doing enough test and learns with brands that suggest they're getting good return on using our out-of-home assets in that way that that could be a positive. But this is speculation at this point, Richard. We don't have enough money in the books to be declaring anything. But I would characterize the outlook for 2024 as positive. Anything you'd add, Brian or Dave?

Great. Okay. Great. And is there anything on the programmatic side that you could do to maybe prep for higher demand, or will that kind of take care of itself?

The beauty of programmatic is it is highly scalable. So we've done, you know, if you think back to when we first started this, there was a lot more manual intervention on our part to make it work. It's still not perfect, but we are in position to absorb demand as it goes. And, you know, I dream about a world where I'm so constrained on capacity that I'm having to tell, you know, programmatic people that we're not able to fulfill their demand because that'll only help us on the direct business.

No, that would be Great position to be in. Last one for me. Europe North continues to outperform and do well. How is that impacting the strategic review and the way maybe other bidders are looking at the process and how you're viewing the business at this point? Because it seems like it's doing pretty well.

So it is doing pretty well. I actually think it's worth, Justin, maybe saying something about the why on that, but let me answer your question first. You know, when we pivoted the middle of last year to doing the tough markets first and to cleaning up the portfolio, that was with an understanding with the Europe North team that the focus that they would have and that You know, the continued digital conversion, the continued investment in Launchpad and programmatic tools, things along those lines would help them achieve what's been achieved when you look at our page five of our slide deck. I can't speak to what potential buyers are thinking as they see it, but the kind of basic feedback that we've gotten is that people appreciate that we have adapted our portfolio. They appreciate the work that we've done with our portfolio, and that they're impressed with how Europe North has over-delivered relative to the SIP that we published in January of 22. And that's about all I can say on the process at this point. It is still early days. But Justin, why don't you give us just 30 seconds on drivers and the performance, because it's been pretty special.

Yeah, sure. Thanks, Scott. Well, I think the biggest driver is continued digital rollout, and that's especially across what we're doing on the roadside, assets, mainly street furniture, and in markets like the UK where we've continued with the plan and continue to see growth. Programmatic is small, but has had quite a big impact because most of the revenue we take there is incremental. And when you have that alongside a digital footprint that's growing, that really helps the business. So I think there's a There's a couple of things that have really helped drive that. It can only be good for the process, I'm assuming. But yeah, so a strong continued digital rollout with programmatic adding a bit extra on top.

Thanks, Justin. And thank you, Richard. Appreciate the questions.

Our next question comes from Cameron McPhee from Morgan Stanley. Cameron, your line's now open. Please go ahead.

Hi, thanks. Just a couple. On the Europe North point, I noticed there's over 50% of revenue is from digital. Curious how you guys are thinking about digital conversions, I guess, in the U.S. going forward and what the ideal revenue contribution is both for the U.S. and airports.

Thanks, Cameron. Let me start with the America business. The US is really a patchwork of regulatory environments. We have a number of markets that are similar in profile to our Europe North business in that they're producing 40 to 60% of their revenue digitally. We also have markets that are zero because of the regulatory environment. the way that this has played out over years, I think that there's a long-term trend to being able to digitize. But I think the likely outcome in America is probably not as high as it is globally until you think about a very long time away from now, just because of the regulatory constraints and the challenges there. In airports, I think it's different. And you've seen our digital business grow really, really rapidly. Anybody who's traveled through the New York airports, which are our most contemporary airport implementation, has seen just how much digital we use within it. And it really lends itself to the airport environment. Not to say that there's not plays for static in places where static could make sense. But the operational flexibility of the digital and the immediacy of it is extremely attractive in that environment. So, you know, we're already in the 50s in the airport in terms of digital penetration, and I could definitely see that going higher. And the pacing on that will be, you know, refreshes of airports, And frankly, where it makes sense, because, you know, while digital has gotten cheaper, the kind of implementations we're doing at JFK and LaGuardia are not going to make sense at regional airports. And so there's a balance to be struck. But I do think that you'll see digital as a higher proportion of that airport space. Hopefully that addresses your question.

Definitely. Thanks. And then last one, just on the renovations, How much longer do you guys expect to continue receiving these abatements?

Thanks. I'll take a stab, and then, Dave, you can come in on America's. I think we're seeing them cycle through. We haven't seen anything in Europe. I think we're done on the America side. We continue to pursue what we can, but we're also seeing the business cycle through that. I think most of them are largely in the airport business, but I'll turn it over to Dave Saylor, CFO of Americas, to talk about that.

Yeah, sure. I'll start on the airport segment. They're definitely starting to trickle off as we further get away from COVID. But I'd probably point out in the third quarter of 2022, there definitely was a lot, there was a more significant amount of relief as we get into 2023. And that's going to roll off over time. But the airports group, they're still trickling, some in Q4 and some into 2024, but we're definitely at the tail end of it. On the American front, we're definitely seeing the end of the relief from a COVID standpoint. And when you think about our slight lease, I mean, I'd probably say our biggest headwind as we got into this year, and we've mentioned this before, was really that one large contract that we kind of renegotiated, and that's going to roll off at the end of the third quarter. So, As we get into next year, a little bit more left on airports, but I think we've seen the end of that rope from an America standpoint.

Great. Appreciate the color. Thanks. Our next question comes from Lance Vitanza from TD Cohen. Lance, your line's now open. Please proceed.

Thanks for taking the questions, and nice job on the quarter. Scott, I think you said that October was maybe the best month this year after a strong September. I'm wondering if you could just refresh what you said there and then comment on whether that's just sort of the favorable seasonality that we'd expect as we get into the fourth quarter. Or would you say there's real improvement on, you know, if we were to sort of think about a seasonally adjusted kind of the series, would we still feel that October is kind of the best month year to date? Thanks.

So, Lance, the comment was directed at programmatic. It was our best month ever in programmatic. So, that was not indicative of the overall business. So, it was a little narrower, I think, than you might have interpreted.

And then is the momentum that you're taking, you know, that you're seeing, is that, are you taking share from other out-of-home advertisers, or is the out-of-home medium taking share from other media, or are you just sensing a general improvement in ad spending than you had forecast?

So, I do think that out-of-home, certainly relative to traditional media, is gaining share relative to traditional media. You know, you've heard the digital companies report, and they've had pretty good results. So not going to say that we're taking a lot from that channel. But I think it's an optimization thing. We are a relatively small part of the media ecosystem, and advertisers are very much trying to figure out the optimal mix of media. And What we have is a high reach, hardworking medium that a lot of advertisers know us well and use us in that regard. And they're seeing the synergies that we've called out with digital media in particular pretty regularly. And so we're seeing ourselves get included in campaigns alongside those sort of media. And I think that's an important growth driver for us going forward. But it's very hard to generalize across the thousands and thousands of advertisers. I do think that we're well positioned as a hardworking, high-reach medium.

And then the last one for me, just to come back to airports for a second, you mentioned that you're ending the year stronger than you'd expected. I'm just wondering if we could sort of think about what the drivers are there. I see three sources of potential upside, right? More displays in place than you thought, more passengers passing through the airports than you thought, or advertisers just embracing the medium more so than perhaps you'd budgeted. So of those three, or maybe there are others that I'm missing here, but how would you sort of attribute the relative strength that you're seeing versus what you had been thinking earlier in the year? Thanks.

Thanks, Lance. Look, I think it's all three, but let me unpack it just a little bit for you. I'd add a fourth, which is just timing of inventory deployment. So we knew this year was going to be strong for airports because we had very, very strong build-out. You just look at the CapEx that we deployed in your airports the prior periods. We've had very strong build-out, particularly in our New York franchise. And so part of it is just mainstreaming a bunch of inventory that's come online in the last 12 months. But when I think about it, airport traffic is up double digits relative to 2022. It's really left 2019 in the dust at this point. That was what we used to really fixate on. It's really now growing in its own right. So it's up double digits. The digitization has continued, and we talked about that a minute ago. And just in terms of advertisers, it's been well-suited to the advertising market. I've referred a number of times to how 2023 has been a super premium market, which means spectaculars, it means airports, it means iconic locations in iconic places, you know, whether that's in New York or Miami or LA or Vegas. That part of the market has been red, red hot, and airports has benefited from that dynamic. But I think those three things that you named all contributed along with us bringing online a lot of great inventory in New York. Thanks again for the discussion.

Thanks, Lance.

Our next question comes from Stephen Cahal from Wells Fargo. Stephen, your line is now open. Please go ahead.

Thank you. And sorry if I missed this earlier, but I was wondering if you could just talk a little bit to performance in your Los Angeles market. I think that's your largest market pretty significantly and related. I know M&E has been a bit of a drag. Obviously, the reasons for that are clear with the strikes. It looks like those are going to be solved relatively soon. So how can we think about maybe what the improvement could be in 2024 if you just see M&E and or LA kind of getting back to normal. And then maybe to follow up on some of the Europe North questions, assuming that you do get to a successful resolution of that process, excluding what you might be divesting in Europe North, do you have additional corporate or overhead costs that you might be able to also unwind once you finish that asset? Just trying to understand some of the overall impact on EBITDA. Thank you.

Thanks, Steve. And the LA question is very specific. I'm going to try to answer it, but I'm going to try to answer it in a way that I can. And then I'm going to hand it to Brian to talk about the corporate costs. You know, on LA, the media and entertainment strikes have, the writer's strike and the actor's strike have impacted not just media and entertainment, which they have impacted media and entertainment, but they've also impacted just general activity in LA with all of the folks impacted by those strikes. Advertisers have potentially been a little less, and this is local as well as national advertisers, a little less inclined to maybe be launching campaigns into that environment. We are seeing that abate in Q4, but I think about LA in the context of California. So California is very complicated relative to auto insurers. California is important for technology, and technology has been a down category much of this year. And then you have the media and entertainment impacts. So there have been a lot of things impacting it, and you're right. It's our largest market. San Francisco is our third largest market. So you combine the impacts of those verticals, the impacts of California dynamics, you know, that's that's explanatory of, of the vast majority of our challenges this year. And we are seeing signs that those things will, will be moving in a better direction going forward. I think getting the writers back to work will really be helpful. Hopefully the actors, you know, we'll, we'll get, we'll get through and, and we'll be able to pick that up. But I, I feel like, you know, it's always, it's always hard to call a trough moment, but I think Q3 has, uh, indicators that it could be a trough moment for, for our challenges in California and LA. Um, Brian, why don't I hand it to you on the corporate costs part?

Sure. Thanks. Um, and we talked a little bit about this earlier, but, but I think, I think your question really goes to, um, the company said that, you know, we could take out at least 30 million, um, post international divestitures. And, and I think the way to think about it is that 30 million are kind of the direct costs that are easily identifiable. That'll leave at or around the time of the divestiture. And then the at least in that statement is other opportunities that we see. And so when we drill down into that, if you think about, okay, well, there's kind of the corporate overhead that's directly related to the European business that goes, that's easy to think about. It's easy to segregate. What is the other part? And that other part of the costs that are kind of intertwined or embedded in the top level corporate structure. An example might be there's a corporate treasury staff, for example. They would not necessarily be needed. They would go with the business, but they're not direct corporate overhead that's associated with that business. There may be people that work on international things, but at the corporate level, and maybe after those things unwind after a period of time, they would need to go. I think it's important to point out some new language that we introduced in the script about zero-based analysis, cost-based analysis, when we take a look at this. So post-investiture, we're going to take a hard look. We're going to build up from the bottom. We're going to make sure we capture all those costs that are in that structure.

Thank you. Our next question comes from Aaron Watts from Deutsche Bank. Aaron, your line's not open. Please go ahead.

Hi, thanks for getting me in. Just two questions for me. We covered a lot of ground today. In the U.S., what are some of the key factors driving the relative softness of the print format versus digital? Is that being driven by some of the specific verticals you've called out that are soft at the moment or the specific markets you've talked about? that are maybe weighted more towards print?

So, that's a very micro question. I'm going to give you a macro answer because of time and also I don't know that it'll actually help that much. The drivers of what's going on in print are It's the overall factors that we've got going on. The markets that are down are a little more weighted to print than other markets. I think a lot of not having auto insurance come back as much as we had hoped for this year has been a drag on print. That would be the only incremental thing I'd name to the kind of overall challenges in the US. But we look at this very closely market to market, and I think those macro characterizations are the big ones.

Okay, got it. And then secondly, as you close out 23 and roll into 24, and as digital continues to expand in importance, can you remind us how to think about the margin profile of digital versus the legacy static boards for the Americas platform? And at this stage of the rollout, should we think about each new digital board added as margin accretive? Or if not, what are the mitigating factors there?

So, yeah, I mean, digital, there's a lot packed into that as well. But we always do try to secure the ground underneath our digital signs and or get a long-term lease when we convert them They are inherently a higher margin product. But, you know, our roadside business, our America business is a high margin product overall, you know, outside of the spectaculars and a few urban locations. So you should think of it as a margin tailwind, but it's not a tsunami. I guess that's the pithy way to put that one. All right, I think we are going to shift. Oh, go ahead, operator, please.

Yes, I was just going to comment. We don't have any further questions, so I will hand back to you for closing remarks. Thank you.

Great, and thank you, everyone, for joining us today. I know that we've been able to say we're improving our guidance on the strength of airports in Northern Europe, and our investors are most interested in America. When I look at year-to-date in America, I just want to remind everyone of a couple things. On the revenue side, more than half our markets have grown for the year, and one market accounts for almost twice of our total decline year-to-date. That's one market is accounting for twice the total decline. In addition, we're seeing double-digit growth in programmatic for the first time since early this year, and category this is moving in the right direction. On the EBITDA side, we're coming out of the long absorption of the large contract that we refreshed this year, and have almost fully lapped the one-time abatements related to COVID. So couple that with the demonstration of our ability to get hard things done in our portfolio, the performance of our airports and Northern Europe teams, and the focus areas we shared throughout the call, we believe there's a lot of reasons to see brighter days ahead for CCO. With that, we'll wrap it up. Thank you all, and we'll talk with you again next quarter.

Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.