Q3 2019 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the 2019 third quarter earnings Conference call for clear channel Outdoor holdings Inc. all lines have been placed on mute to prevent any background noise.
After the speaker's remarks, there will be a question and answer session.
He would like to ask a question. During this time simply press Star then the number one on your telephone keypad. If your question has been answered and you wished removed yourself from the Q press the pound the key.
I ask that you. Please pick up your handset to provide optimal sound quality I'll now turn the conference over to your host Eileen Laughlin Vice President Investor Relations. Please go ahead.
Good morning, and thank you for joining clear channel outdoor holding.
2019 third quarter earnings call on the call today, our William Eccleshare worldwide, Chief Executive Officer, and Brian Coleman, Chief Financial Officer clear Channel Outdoor Holdings Inc. In addition, Scott well CEO clear channel outdoor Americas is on the call will provide.
Hi, good overview of the 2019 third poor operating performances of clear channel Outdoor Holdings, Inc.
After an introduction and review at the quarter well open up the lines for questions.
Before we begin I'd like to remind everyone that this conference call includes forward looking statements. These statements include managements expectations beliefs and projections about performance represents management currently there can be no assurance that managements expectations beliefs or projections will be cheap or that actual results will not different than next thing.
Asian leads to be the statements of risk contained in our earnings press releases and filings with the FCC.
During today's call will provide certain performance measures that do not coupon to generally accepted accounting principles. We provide schedules that reconcile these non-GAAP measures with our reported results on GAAP basis as part of our earnings press releases and earnings conference call presentation, which can be found in the financial section of our web site.
Www Dot investor Dot clear channel Dotcom. Please note that our earnings release on this slide presentation are also available on our website.
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Integral to our earnings conference call.
They provided detailed breakdown of foreign exchange and noncash compensation expense items as well as segment revenues operating income I know I began among other important information.
That reason, we ask that you view each side as well even brine comments on them.
Also please note that the information provided on this call speaks only to management views as of today November six 2019, and they no longer be accurate at the time number replay with that I will now turn the call a richer William Eccleshare.
Thank you Charlie good morning, everyone and thanks for taking the time to participate in today's cool.
As we discussed this summer our vision is to create a unique mass reach global media platform delivering all client messages across our distinctive portfolio of digital and traditional display.
With that in mind, given that it is O'neill first full quarter reporting all financial results as an independent company I want to take this opportunity to explain all business.
Current market.
No plans to execute on our vision and create shareholder value.
Not only is 29 Tina transition year for us in terms of separation from Whitehall. We believe it represents the transition in terms of operating performance as well.
With challenging results in our international Division this year due to the unprecedented difficulties in our China investment on some contractual known reveal non renewals in Europe . We are optimistic going forward based on our belief that the market is red bar and represents a significant growth opportunity from the difficult 2019 performance.
Is there.
When you combine this view with our expectation for continued growth in the U.S., which represents approximately two thirds Navarro I'd be than we are excited about executing the plan the reduces leverage through organic growth augmenting it with internal growth investments funded with cash flow.
Of course, as we've indicated in the past two the extension opportunity presents itself to accelerate this pop to bodies on Friday reflects the future value of a business or region. We are open to that as well.
We intend to provide more clarity on this line by providing guidance for 2021 out Q4 cool in February .
Please turn to page four at the Investor presentation.
We have four key pillars that are guiding our strategic decision making.
The first is growing the inherent strength of the out of high medium.
We continue to see strong demographic trends that increased our audience reach.
In order to capitalize on these great friends, we continue to build our unique global footprint in key markets around the world.
The second is leveraging our leadership in technology and data.
Through our consumer data analytics, we are making out of home investment even easier to plan and by enhancing our ability to demonstrate the superior reset on investment to buy medium.
We're also focusing on digital displays does enable greater flexibility for advertisers and allow additional creativity to engage consumers.
The thought that it developing our distinctive customer focus.
We remain focused on maintaining sales excellence with sophisticated tools to optimize the yield device that thing.
And finally, a full set up is continuously improving our capital structure to enable us to make accretive investments to our business.
With that said, Brian and I are excited to update you today on the progress we're making in these areas by providing highlights of our results for the quarter.
On a consolidated basis revenue decreased 1.6% to $653 million.
After adjusting for the impact from foreign exchange rate fluctuations consolidated revenue increased no 0.6%.
This was driven by continued strong revenue growth in our Americas segment.
In the international segment, the strength in a highly digitized European and Latin American markets, including the UK was more than offset by the continued weakness in China as consumer economy.
You will recall that we own just over 50% about Chinese investment claim media limited, but consolidate 100% of itself on the U.S. GAAP.
These results keep us on track to deliver on the guidance we provided in August and reflect the momentum we're seeing in our Americas business. That's what is the continued strong execution of our strategic growth initiatives globally.
As a reminder, the outlook we provided in August so the second half of 29 team was for America's revenue on a live it onto increased mid to high single digit.
And for our international business is revenue and a wider than excluding China and the impact of foreign exchange rate to be up low single digits.
As Brian will discuss in more detail. We're also taking important steps regarding our capital structure.
This past summer, we completed a series of financing transactions that immediately resulted in him in an improved balance sheet, reducing our net leverage on cash interest payments.
As a result of these financing transactions, we strengthened our strategic flexibility and increased a free cash flow generation.
We now have a runway to fully focused on executing our business strategy and elevating our operating performance to further drive free cash flow.
We will continue to take advantage of opportunities to strengthen our balance sheet going forward.
Since becoming a newly independent company earlier. This year, we have continued off transformation into a re energized and ambitious organization.
We're focused on leveraging our technology investments to further bolster our value proposition and grow our customer base in the global out of home advertising sector.
Moreover, we are executing our plan during a period of renewed growth for the out of home industry in both our call Americas region, and in Europe , where ability to deliver a unique combination of reach together with targeted activation is ensuring that out of home is the fastest growing traditional medium.
Well its biggest brands, including leaders in technology, Andy Kaufman, our increasingly acknowledging and turning to the outdoor medium to drive awareness of that brands.
We are seeing increasing evidence that the weighed which out of home enhances the value of all that meet your activity. For example, Facebook recently released to study when how combining out of home with Facebook advertising can help brands reach a broader a younger audience at all stages of the sales funnel.
Moving on to slide five Oh diverse portfolio now spent 450000, Princeton digital displays reaching millions of people monthly across the globe, making clear channel outdoor one of the worlds largest outdoor advertising companies.
In the United States, we installed 18, new digital billboards during the quarter and now more than 1300 digital boards and more than 1600 digital display which represents approximately 32% of our Americas revenue in the third quarter.
I'd now international markets, we installed approximately a thousand new digital displays for a total of more than 15000, which represented approximately 27% of international revenues during the quarter.
Excluding China, which has limited digital displays digital revenues accounted for 32% of total international revenues.
Please turn to slide six.
We are focused on expanding the value and revenue generating ability about considerable assets by creating CCOH rate all integrated platform that officially leverage is data analytics to deliver a highly targeted and measurable advertising solutions.
And we are continuing to invest in our programmatic alpha to simplify the placement of out of home advertising.
In other words, we are making it easier to plan and by investments while at the same time tapping into data to provide customers with proof of campaign delivery and return on investment.
We are evolving omni channel suite of solutions, including our first to market radar platform right on leverage is aggregated anonymized opt in datasets gel advertises understand consumers behavior on travel patterns in order to best reach the right audience segments in ways that deliver measurable results.
No.
We expect to loan tradeoff set of solutions in Europe , and 2020 , starting in the UK, Sweden and Spain.
These efforts are resonating with advertisers and how they view on medium at a specific product suite, which is supporting our growth momentum I doubt promising long term outlook, we're demonstrating the creativity of our medium and driving engagement among target audiences at the right time, finding the right place and this.
As a very important position to be in because it increasingly it gives us a central seat at the table as brands evaluate how to fully leveraged a mixed meet your approach to driving results.
Turning to recent developments in Americas, Please turn to slide seven.
In the Americas region, our local business continues to deliver healthy growth.
We are continuing to see strength in the national out of five market as well as we leverage the strategic initiatives, we've been developing over time.
Major advertisers are continuing to shift from other media two out of home in the larger markets as they learn about the effectiveness of our medium and our in house targeting and data analytics capabilities.
We continue to develop scalable solutions that address the needs of our advertisers, including introduction of new capabilities through radar.
Right. Okay channel can now measure the impact of out of home in driving consumer behavior, whether that be an app downloads viewing of TV content touches in consumer goods automotive sales and more.
You know quest to capture and increasing share of advertising spend we're also continually evaluating ways to enhance the value of our existing displays.
Just a month ago, we announced the launch of the nation's but all digital U.S. Airport media network with the groundbreaking transformation of our out of time footprint in the San Jose International Airport.
Fully integrated with our radar solution suite, the AD network, which spans 82, new digital screens will be made available exclusively to foundation sponsors beginning with Google cloud in Alaska Airlines as well as a limited number of other appetizers.
Continuing to build on our real time digital capabilities. We recently activated the first whether shrinkage programmatic AD campaign in times square in airports and across our Rightside inventory. This enables advertisers to reach consumers with relevant products.
It didn't centric and contextually relevant way depending on weather conditions.
Well digital remains central to our transformation. We also continue to develop new avenues to innovate our classic print board and expand the revenue potential of operating footprint.
All our radar tools that equally applicable to print as well as digital signs and we're seeing good growth in our print revenue this year.
Earlier this month, we devotees over 1300, new visually striking printed identified and displays across the U.S. aimed at meeting appetizers growing demand for large scale printed street level I just have media.
These new premier panels bring nearly bullets in size media, Don to us, but even greater visibility engagement in highly trafficked of an upscale not not areas.
Further highlighting the strength of our traditional printed business in the media mix during the past month, we partnered with a major movie studio to develop an advertising campaign that expanded beyond the traditional movie launch footprint in New York in L.A., where the campaign that included 161 bulletins across 16 markets, many of which leaned into the create.
Steve uses extending the bulletins for an even larger impact.
All of these and other initiatives underway reflect the breadth of our outdoor offerings and our efforts to maximize the creativity flexibility and reach of our platform.
Now please turn to slide eight.
On the international front, we are close to completing the rollout of our New Street furniture network in Paris, and already have prominent brand advertising campaigns in place, including Eric Bomba, Nash Chanel, Netflix tuba, Coca Cola and Calvin Klein.
As we previously noted our partnership with the city of Paris, which runs through 2020 full represent a transformative win for our French operations and is one of the largest out of home contracts in Europe .
In addition to covering the French capital, we over 1600 Street furniture units will also now be able to deliver a national network campaign Alpha, giving appetizers access to more than 26 million French residence every week.
Outside of Paris. We also recently won the contract to set up the to lose subway Wonder France's largest metropolitan areas.
Launching in January the 60, a contract includes abroad, Digitization initiative, which will increase the subway digital screen footprint from 30 to 95, while decluttering print side from 450 to 332.
In September we celebrated installation of the 2000, that's your lives screen in the UK.
Digital Street furniture products, which cemented actual lied network position as the UK largest individual digital I, just I'm network by reach.
Our 2000, Adshel live screens provide appetizers with the opportunity to deliver approximately 17 million daily impacts, reaching 38% to the UK population weekly across 100 towns and cities.
In Sweden, we've continued to execute on our national digital expansion efforts and recently reached a milestone of a thousand digital screens across the country bigger cities Soco Melmar guttenberg until now.
We are the only out of home provider to offer appetizers Digital Street furniture solutions in the countries top three cities.
So in summary, we are continuing to make notable progress in executing globally across all facets of our strategic plan.
With our largest business America's revenues of over 8% and a wide bid on over 10% in the quarter and year to date, including double digit growth in digital revenue.
We believe we will continue to benefit from our technological transformation, particularly the development of our proprietary radar tools and the positive audience trends for the outdoor medium.
And now if you can please turn to slide nine I'll turn the call over to Brian for the financial review.
Thank you and good morning to everyone.
It has certainly been an eventful quarter for our business segments and it was also a very productive one for financial team as we completed a series of capital market initiatives aimed at strengthening our financial position.
I'd also like Echo Williams optimism about our opportunities going forward in a robust market with significant growth opportunities above and beyond the challenging 2019 performance.
First I will review our third quarter results, followed by a review of our capital structure.
As in the past during our GAAP results discussion also talk about our results adjusting for foreign exchange. We believe this improves our comparability of our results to the prior year.
I will refer to these results as adjusted revenues adjusted expenses and adjusted 11 yet.
Our results this quarter reflect a continuation of what we saw in the second quarter.
Two very different stories.
The Americas segment continues to deliver strong gross color international results continue to be impacted by the substantial decline in revenues from clear media limited our investment in China.
Consolidated revenue decreased 1.6% to $653.4 million after adjusting for the impact from movements in foreign exchange rate consolidated revenue increased 2.6%.
0.6% increase in adjusted consolidated revenues due to 8.2% growth in our Americas segment.
Partially offset by the 5.8% decline in international.
Consolidated operating income was down 6.8% in the quarter to $47.7 million.
Adjusted consolidated EBITDA declined 5.3% with growth in Americas, offset by a decline in international primarily due to China.
Moving on to Slide 10, I will discuss America's results.
The Americas business had a very strong quarter with revenue of 328.3 million up 8.2% over the prior year.
This positive growth was driven by improvements across all of our channels with strong growth both national and local businesses.
National which accounts for 40% of revenues was up 10% with growth in both digital and print.
Our national business is benefiting from the overall strengthen the economy with major advertisers reevaluating their media mix and returning to allophone. The insurance sector was the largest driver of growth and as a great example, advertisers returning to the sector.
We're also seeing growth from new technology, driven businesses, including fruit food delivery services streaming and virtual meeting services.
Local continues to deliver solid growth across our markets, increasing 7% with strength in California, and the south.
Total digital was up 17.6% to $104.4 million and accounted for 32% of total revenues benefiting from a 19.3% growth in digital and street furniture, driven by a combination of organic growth and the deployment of new digital displays.
Although it is still in the early stages, we are starting to see a measurable impact from programmatic, which enables advertisers to narrow we target audiences, they're looking to reach.
Print revenues were up mid single digits print continues to be a viable option for advertisers given the quality of the print vinyl and our ability to develop creative and impact of impactful visuals.
Total operating expenses were up 6.6% direct expenses were up 4.4%, primarily due to site lease expenses, including variable site lease expenses related to higher revenues as DNA expenses were up 12.5% largely due to higher employee compensation expense, including variable incentive.
Compensation.
Operating income increased 18%.
And waited on was up 10.5% with an improvement in margins due in large part to the strong revenue growth.
As we continuously evaluate our financial markets Communications, we have made the decision to replace our comments on pacing during the earnings conference call with an updated outlook.
We are confirming the outlook, we provided in August and anticipate Americas revenues in a way baton to increase mid to high single digits in the second half at 29 team.
Since separation, we've considered alternatives to our existing non-GAAP measures that better reflects our ongoing performance and compare ability to other similar companies.
With our yearend earnings release, we expect to provide annual guidance for 2020, using these new measures.
On to slide 11, and our international results.
Our international business delivered mixed results during the quarter.
Reported revenue was down 9.7% to 325.2 million.
Adjusting for foreign exchange revenue declined 5.8%.
We continue to experience the substantial decline in China combined with the headwinds created by the non renewals of the contracts in Barcelona in Rome, partially offset by increases in revenues from digital display expansion and other international markets.
Given the success of our digital initial initiatives and multiple markets, we remain optimistic regarding the opportunities in our international business.
Digital revenues in our international business increased 17.4% in the quarter as compared to the prior year and account for 27% of total revenues, excluding China, which has limited digital digital revenues accounted for 32% of total revenues.
In markets, where we have made significant investments in digital such as the UK, we're seeing strong growth in revenues attributed to digital conversions.
Adjusted operating expenses were down slightly 2.1 million or 0.7% adjusted direct operating expenses increased slightly but higher site lease expenses in countries experiencing revenue growth, partially offset by lower site leasing lease expenses in Italy, and Spain due to nonrenewal of contracts.
Adjusted SGN, a expenses were down largely due to decreased cost in Spain related to the non renewal of contracts.
The international segment generated an operating loss of $4 million in the quarter as compared to operating income in the prior year 13.7 million I.
Adjusted OIBDA was down 37%, primarily due to China.
Looking ahead in our international business, excluding China, and the impact of fluctuations in foreign exchange rate. We reiterate the outlook. We provided in August with both revenue and OIBDA and expected to be up low single digits with seasonal strength coming in the larger and more impactful fourth quarter.
Before I move on I do want to talk about our investment in China clear media, which has delivered exceptional results for a number of years. However, starting with the fourth quarter of last year. It has experienced flat to declining revenue due to the weakness within the consumer economy in China.
Through the first nine months of this year revenues are down approximately 19%.
In order to address this clear media remains focused on implementing its plan to broaden its customer base and reduce dependence on large customers from e-commerce and industries, while implementing cost savings initiatives given the challenging trading conditions.
For media recently issued a trading and business update stating that in the absence of any significant improvement in the fourth quarter of 2019. The sales for the full year 2019 are expected to record a double digit decline as compared to 2018.
Also taking into account the increase in cost and expenses and the adoption of Hong Kong FRS 16 for leases. The group currently expects to record a loss for the full year 2019.
Please turn to slide 12.
Capital expenditures totaled 139.7 million year to date through September Thirtyth of 29.
And we will still expect our full year capex to be in the range provided in August from $225 million to $235 million.
Our capital expenditures in Americas segment, a 46 and a half million dollars were primarily for constructing and sustaining our billboards and other out of home advertising displays including digital billboards.
In our international segment, we spent $82.7 million for constructing and sustaining our street furniture and other out of home advertising displays including digital displays the increase in Capex was primarily attributable to Paris, and the build out of additional bus shelters in China.
Corporate Capex, primarily relates to the build out and the new San Antonio office and infrastructure due to the separation from Iheartmedia.
Now on slide 13.
Before we move to the balance sheet I wanted to take a moment to review the various capital markets and financing initiatives, we completed during the third quarter.
Through these initiatives, we've improved our balance sheet, reducing our net leverage and significantly extended our maturity profile with our next maturity in 2024 and strengthen our free cash flow generation with 63 million dollar reduction in cash interest payments.
In July we issued 100 million shares of common stock we use the net proceeds from the sale to redeem approximately 333 and a half million dollars of our highest interest nine in a quarter percent notes.
This resulted in a credit upgrade which enabled us to efficiently refinanced all of our senior debt by accessing both the bank and the bond markets at more favorable rates.
We then issued 1.25 billion of 5.1% to 5% senior secured notes and $2 billion of seven year term loan b.
And redeem the 375 million Cc BB senior notes due 2020, and the $2.7 billion senior notes due 2022.
Following the redemption of the CCTV senior notes, we will no longer provide cc Ivy financial results.
Now onto slide 14 in the balance sheet.
Clear channel outdoor is consolidated cash and cash equivalents totaled 341.8 million as of September Thirtyth 2019.
This balance includes $130.4 million of cash held outside the U.S. fire subsidiaries, a portion of which is held by non wholly owned subsidiaries or is otherwise subject to certain restrictions and not readily accessible to us.
We were able to reduce total debt from 5.3 billion to 5.1 billion with a net proceeds from the capital market transactions.
The weighted average cost of debt was 6.9% for the third quarter.
Year to date, the cash interest payments were 293.4 million.
This is higher than previous years due to timing of certain interest payments.
We expect cash interest payments in 2019 to be approximately 321.8 million with fourth quarter cash interest payments of 28.4 million.
In 2020, we expect cash interest payments to be 354.3 million, an increase compared to 2019 due to the timing of cash interest payments in 2019.
Before I conclude my formal remarks I wanted to say, we're excited about the future of our business and can see a path whereby.
We believe the company can generate in excess of $100 million, a free cash flow and have net leverage ratio of approximately six and a half times by the end of 2021.
We believe this is achievable through growth and the business combined with the early refinancing of our nine on a quarter percent notes, which become callable in February of 2021.
Also we think it's important to provide a bit more color on how we think about available free cash flow as well as how we plan to deploy it in the future.
A substantial portion of our available cash flow after capital expenditures for sustaining our existing plant.
As available for redeployment and a significant amount is currently being used and is expected to be used to invest in attractive new assets that we believe will generate significant returns for our business.
Management and the board of directors takes a disciplined approach to capital allocation as a part of an overall strategy to further strengthen our business.
While the company has significant opportunity to invest for growth. Our current stock valuation is not lost on us.
And share repurchases may at some point represent an attractive investment alternatives.
We believe that when you exclude the enterprise value of our China investment the remaining value of our businesses trade at multiples less than where our competitors trade.
We regularly evaluate all options for shareholder value creation, including investing in growth of our business and paying down debt as well as exploring other avenues of growth and value creation.
I will now turn the call back to William.
Thank you Brian .
The long term outlook for our company is strong as we continue to lead the tech fuel transformation of the out of high medium and fully capitalize on a global footprint to deliver measurable results for our appetizers to a innovative services and capabilities.
The initial steps, we've taken to address our capital structure and reduce on net leverage having a positive impact as we benefit from improved cash flows and enhance strategic flexibility.
The fundamental strength of our industry combined with our strategic investments in Digitization and data analytics would allow us to focus on optimizing outperformance and creating enhanced value for our shareholders.
We look forward to updating you on our plan and ongoing progress and that's got wells will join broader myself in taking your questions.
Thank you answer reminder, if you would like to ask a question. Please press Star then the number one on your telephone keypad. If your question has been answered and you wish to remove yourself from the Q press. The pound key our first question comes from the line of Kannan Venkateshwar of Barclays.
Hi.
Just a quick question.
Basically when do you think about this particular quarter it looks like there's been a lot of strength.
Across the entire outdoor segment, including you guys.
In terms of gross media bills, if it would just help us understand.
Other variables that she has a different forces prior years is that any new cohort of advertisers that you guys are seeing and within your numbers is there. If you could just help us think through different categories like translate for example, and billboards in terms of where the strength is coming from thanks.
Thanks. Thanks for the question, it's Scott Wells here and I'm going to answer this from a us perspective, because I think that's what you're primarily thinking about here, but if you want us to expand.
Internationally I can add it to William at the end.
It has been a good year for the category.
This is something that we have spoken about for quite some time in terms of the opportunity it out of home. It is under invested in.
As a media category within the United States relative to other markets around the world.
And at least part of what's going on is money coming in reflecting that.
I think the things that have been unique about this year from our perspective are that we have seen.
Really good growth across all all channels in all product lines.
So you've seen the national Advertiser spending more you've also seen the local advertiser spending more.
We've seen growth in Billboards, we've seen growth in transit.
Digital has obviously been very very strong for us across the portfolio.
And.
Things are being impacted by by the moves that we're making that William referred to on the call up things like adding data via our radar tools that things like trading programmatically up but they are also being driven by things that are happening in the larger advertising market.
As well as Jean Yves see out of home getting a lot of attention.
From the thought leaders in in media and.
There was a very.
Interesting study done by Facebook in in Europe , and South Africa.
Demonstrated the impact of adding out of home to a campaign.
Where do you saw the reach of the campaign expand substantially and when you have competitors and we certainly think a Facebook as competitor.
Putting forth.
Studies demonstrate the efficacy of your medium.
Your.
You take that seriously and you and you value it so.
Macro we think Theres a.
Large move toward out of home that's happening across a bunch of different different categories. If you drill down into it because I know part of your question was what categories we've seen.
There have been a number of things sort of played out this year I think we've talked about insurance as a category that has.
Historically been a good out of home Advertiser has really taken it to the next level. This year, we've seen movement in technology, we've talked a lot about the fact that some of the technology companies are our biggest advertisers and that they actually over index I spent substantially more.
Than the average 4% of their out of home or their media budgets on out of home.
Oftentimes up into the teams and Twentys in terms of the percent of spend that they're they're putting forth. So technology has been a big deal we've seen a lot of activity in food delivery. This year, that's been a big deal. So number of a number of things driving it but the really great.
Strength across the medium is just seeing it really across all the all the products and all the categories did you want us to comment on international I'll throw it back to you.
No I my question was broadly it on the U.S. numbers.
The because that's been a trend across all the U.S. theaters as well.
I do have a follow up on the U.S. business, though which is on the EBITDA decided you guys are growing I think your growth was the fastest amongst your peers. So we just want is is there something you guys are doing differently versus the others. If you could just explain if it's just a function off maybe the mix or is there something on the cost side.
And how should we think about a this going forward. Thanks.
Sure no. Thanks, Thank you for that question as well the.
I can't really give a.
Detailed bridge between us and our competition, but the drivers in our case. Our this business has a lot of operating leverage.
When you see the growth coming and again I mentioned before it's coming across all channels, but we see growth differentially in the digital part of it that's a good margin business in general.
It does vary depending a lot of on a lot of circumstances, but.
Seeing strong growth in digital will typically lead to pretty good operating leverage.
Frankly, its focus area for us we.
Ill spend a lot of time thinking about how we keep our our costs.
Very modest and we keep our cost structure focused so.
But I think if you've heard me speak at any of the Investor conferences, you'll hear me say that when we start getting up into the mid single digits growth you should expect that we're going to be seeing good operating leverage in this business and so it's a nature of the the mix up there really wasn't anything.
Particular about our product mix in Q3.
Other than that digital comment that that I'd call out in terms of something growing growing substantially faster.
And in terms of in terms of moving forward I mean, I think the we fully expect the operating room.
Operating leverage relationship to hold and that as we see.
Good good growth rates, the topline pulsing good growth rates to the bottom line.
Thank you.
Your next question comes from the line of Stephen K Hall of Wells Fargo.
Thank you, Brian maybe a couple for you maybe to start off with if you think about where rates are now what's your expectation for foreign exchange pressures next quarter or fourth quarter and then at the current rates is there a point in 2020, when these really abate or even turn into a tailwind and then.
Your comment on the buyback or a potential buyback was interesting so based on where the stock prices. Today can you just tell us the way that the company is thinking about putting incremental free cash flow to debt reduction versus the value of your own shares. Thanks.
Sure on the first one I don't have a lot for you. We don't we don't typically comment on foreign exchange I know, it's a it's a it's a modeling issue, but we don't we don't we don't put in balance sheet hedges and we don't provide guidance on foreign exchange and so.
Ftes off line, we can talk a little bit more about how we think about it but it's not something we generally.
Comment on on the on the earnings call.
I want to spend a little time I'm talking about the share repurchase comment.
I think we just.
We just think about the best return for our shareholders and as we look as a team across all our investment opportunities.
Given where our share price currently as it's something that has to be considered at some point, we're not announcing a share buyback program. Today. We don't have won in place, but ultimately the company and its management needs to look at all options to create shareholder value and given where our share share prices today, it's certainly something that we'll have to keep our eye on.
Going forward.
So I'll leave it at that Thats, probably all I should say again, we have no program in place, but it just something we're looking at and something we have to compare and been use as a benchmark against all the invest other investments we make.
And then maybe just a quick follow up first Scott.
Are you all talked a lot about the pie growing and outdoor the channel versus you know your share of the pie.
So between what's going on with digital and radar versus just market share shift how do we kind of characterize the strong growth you've had this year between those two buckets. Thank you.
Sure I mean, I think that.
If you if you look at the year to date certainly nobody is reported on on Q3, yet we've been growing just a little bit faster than the market as a whole the market is pretty broadly defined in that it includes a very small screens in place based all the way through.
Our our large roadside format. So it's a it's a diverse mix of product.
That goes in there, but we've been growing.
Faster than than the market by a little bit odd in that regard.
So that that is that as a part of it I think the drivers underneath that.
Come down to our investment policy. The places that were doing digital conversion the new airports that we're picking up.
Things along those lines those have contributed this has not been it particularly big year.
And incremental inventory.
We have been steadily adding capacity through our through our digital conversion plan that we feel good that we're choosing strong locations to do that and I do think the programmatic and radar investments are things that are helping us in in gathering share as it goes so it's a it's a blend of things that are that are pure mark.
But driven versus versus initiatives does that answer your question.
That does thank you very much.
Thank you.
Your next question comes from the line of Lance Vitanza of Cowen.
Hi, guys. Thanks for taking the questions.
I guess first I wanted to ask you on the corporate expense. It came in about $5 million higher than we had modeled and in fact, it was up a little bit year over year, given that the ending of the royalty payment. We had expected corporate expense would be down year over year and I'm. Just wondering if three Q was a was a blip or are we just.
Fundamentally misunderstanding something in need to adjust our thinking going forward.
I don't know that I'd call. It a blip it did have.
For a significant amount of separation costs I call it around 5 million.
Many maybe something that.
I hate to sing not recurring but.
As something that will continue to exist forever or are some significant investigation costs. We've we've incurred some cost as it relates to operations in China, given current some costs as it relates to Italy as those close out those will go away or about $4 million. So.
I think if that is helpful to you that may account for some of the differences.
Hopefully, we'll wind up those investigations and those costs will go away, but we have significant amount impact corporate expense this quarter.
That's very helpful. Thanks, and then if I could just a follow up could you comment Brian further on the new metrics that you plan to feature beginning with the fits with the 2020 guidance.
Yes, we haven't we haven't finalized the decision at this time, but we have looked at what our competitors provide and what would be most useful to the investment community. So I would expect.
Beginning in Q4 will have some version of a free cash flow metric along with some type of adjusted EBITDA figure that's more helpful. I think too.
The investment community.
Okay, and then just to clarify lapped last for me just could you clarify the comment you made regarding free cash flow of 100 million and leverage down to six and a half times by 2021, and I don't remember exactly how you phrased. It what was that by the end of 2021, that's correct and does.
That comment the end or 21 refer only to the six and a half times leverage or also building to the 100 million a free cash flow. It's above I think that as we continue to invest and accretive assets and continue to grow this business.
Organically that we operate to plan.
We are successful in refinancing the nine in a quarter percent notes, which are callable in February of 2021.
That we can reach a free cash flow number in the $100 million range.
I have leverage down to six and a half times by the end of 2020 more.
Okay. Thanks, guys appreciate it.
Your next question comes from the line of Marci Ryvicker Wolfe research.
Good morning, Stefan from Marci I.
I was hoping you might be able to give us a little bit more color on international regions, Excluding China are things typically getting better or worse anything standing out in particular.
Yeah, Thanks for that I.
I mean, apart from China, I think we had a.
Hey, good quarter in international we saw excellent growth in the UK good growth in a number of of the European markets at a very strong performance in Latin America, as well I mean across Europe , I would say, we feel particularly good as we go into 2020 and we see the Paris contracts coming online.
On the from the end of this year.
I'm very strong plans for the international business, particularly in Europe for 2020 and beyond.
So it's really the China issue that is affecting impacting on the overall international position as we as we stated in the in the statement.
Understood and I was wondering if we could put a little bit of a finer point on the guidance for Q4, and Americas I know mid single digits to high single digits for.
The second half, but given the Q3 results that kind of leads us anywhere from.
Kind of low single digits to high single digits on the revenue line and then a little bit of deceleration on the OIBDA is there any additional color you could you give us there for the fourth quarter.
You know I don't know that I want to give a whole lot of additional color on the on the guidance that we were thoughtful about providing and then affirming.
The comps for the U.S. business in particular get tougher in the fourth quarter, but.
But I think we hold to our guidance and if anything feel you know feel more strongly given the range that we've provided.
Great. Thanks, so much.
Your next question comes from the line of Jim Goss Barrington Research.
Thanks, a one thing you brought up was the San Jose All digital Airport I wondered if you could go into that a little bit more is this a potential.
Uplift for a testing or are you consolidating previously tested concepts and how how broadly do you roll this out into other other areas.
Thanks, Jim It's Scott here I'll take that one.
This this program is definitely new to the world on a few levels I mean first off its 100% digital.
Second off we've we've gone with a sponsorship model essentially where.
There are anchor advertisers that committed.
To be part of the program as we were developing the program.
It was done in conjunction with very strong partnership with the with the airport.
I think there a number of things unique about San Jose that makes it a really good fit.
In terms of its location in the in the Tech community.
The nature of how the airport flows in that they have a very centralized security up so lots of good flow characteristics as you think about.
Places where advertising can be placed effectively.
And I was again it was a partnership that I would not have impossible without the vision that ideas in the San Jose team.
At the airport operating team as well as well as our team working together to develop it I do think it's something that we will consider rolling out into other geographies.
But I don't think you should think that this is what our airports model shifts to a 100%.
Just given some of the characteristics of the physical plant in San Jose and also the nature of the Advertiser base.
But in the sort of areas surrounding San Jose So hopefully that gives you just color on Jim.
Yeah, and it does sound the more unique to that area.
Although one I have another set of questions, but one unrelated to that that potentially you also talked about doing more with the movie industry and I wondered if in the areas where you can have full motion video say in a fixed location like that with the theatrical sector.
Are these the studios.
Provide movie trailers or even.
Trailers adapted to a specific location as one of the areas, where there might be another opportunity for you.
Yes, I mean, our asset base that can do full motion video is fairly limited airports is definitely one of the areas where it fits I mean, I I think with that category of advertiser like like all advertisers, they're trying to hit the sweet spot between how the assets overlap with their audience and how.
The use case, how to use case fits.
They have a variety of places where theyre able to do the sort of trailer type.
Advertisement and we certainly done that in places like times square Im not sure if airports would be a priority air area Forum, but it's.
The possibility.
Okay and one other area.
It sounds like the mostly compression in the international sector margin related to China.
And that you talked about value creation priorities and I Wonder if that also includes considering divesting the China position I think we've talked about this in the past, but and I understand it's a large and growing market, but as a combination of a large fully consolidated exposure potentially less control and your part, especially in China.
The environment.
The type of fit you really want to have.
Yeah, I mean, we we're obviously looking very very hard at the China business at the moment. It's the it's no secret that China economy is going through a bit of up a bit of a readjustment at the moment GDP was the slow it's a 30 years last quarter. So when we're looking closely at our investments in China.
Looking at every option going forward, but no news of the moment.
Okay. Thanks very much.
Okay.
That was our final question for today ill now turn the call to management for any additional or closing comments I.
Okay. Thank you very much and thank you everybody for joining.
Obviously 2019 was a very important transition year for for this business as I said at the start the call we have very exciting plans for 2020 and beyond.
We'll be talking about on our next call as we give you guidance for 2020, when we get onto the Q4 earnings call. Early next year. So we remain absolutely focused on delivering shareholder value in 2020 and beyond and we look forward very much see joining us on the next call. Thanks very much everybody.
Thank you for participating in the 2019 third quarter earnings conference call for clear Channel Outdoor Holdings Inc. You may now disconnect your lines and have a wonderful day.