Q4 2019 Earnings Call
Quarter and full year earnings conference call for clear channel Outdoor holdings Inc. all lines have been placed on mute to prevent any background noise.
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I'll now turn the conference over to your host Eileen Mclaughlin Vice President Investor Relations. Please go ahead.
Good morning, and thank you for joining clear channel outdoor holdings 2019 fourth quarter and full year earnings call on the call today, our William Eccleshare worldwide, Chief Executive Officer, and Brian Coleman, Chief Financial Officer clear channel outdoor holding.
Ill provide an overview of the fourth quarter and full year operating performances of clear channel outdoor holdings Inc. for 2019 after introduction than we do you have ourselves well open up the line for question, Scott well, keeping chief Executive Officer clear channel outdoor knocking will participate in the Q and a portion of the call.
Before we begin I'd like to remind everyone that this conference call include forward looking statements. These statements include management expectations beliefs. Some production about wanting some represents managements current believes it can be no assurance that management expectations beliefs projections will be achieved with a three actual results will not different than expectation.
Please forgive the statements of risk contained in the earnings press releases and buying for the FCC.
During today's call will provide certain performance measure that do not conform to generally accepted accounting principles.
Schedules that reconcile these non-GAAP measures with our reported results on a GAAP basis.
Our earnings press.
And the earnings conference call presentation, which can be found in the financial section of our website www dot investor dots clear channel Dot com.
Finally, let me reference our business in China, we referring to our 51% investment in clear media.
The company the trade on the Hong Kong sockets.
Please note that our earnings release in the slide presentation are also available on our website www dot investor dots their channel Dotcom and are integral to our earnings conference call. They provided detailed breakdown of foreign exchange and noncash compensation expense items as well segment revenues operating income in only began among other important information for that reason yeah.
You view each side is lean Brian comments on that also please note that the information provided in this call speaks only to management's views as of today February 27 2020.
No longer be accurate at the time reclaimed wood that please turn to page three in the presentation and I will now turn the call over 2 billion.
Thank you I'd good morning, everyone and thank you so much for joint taking the time to join todays call.
Please turn to slide pool, and the Investor presentation.
As many of you know 29 team with the transformative year occasional idle as we separated from Iheartmedia.
In the 10 months since we separated and became an independent publicly traded company, we have strengthened clear channel's capital structure deliberate exceptionally strong results in our Americas Division, which now accounts for about 70% of why didn't I believe a 7% revenue, 16% operating income a 9% delighted on growth and 29 team.
And established a new platform, which we believe will position the company for long term success.
These achievements could not have been accomplished without the contribution from our teams around the globe.
Through that unwavering dedication talent and hard work they have positioned us to achieve our vision.
As a unique mass reach global media platform that deliver dot com messages across our distinctive portfolio digital and print to display we've been able to capitalize on the expansion of the automotive industry, particularly in the U.S. as wetter than some of our largest international markets.
We believe the strength in these key market is the result of the progress we've made on the full key pillars of our strategy.
In the out of home medium.
Technology leadership.
So my focus an opportunistic expansion.
Turning to slide number five.
And we had good reason to be optimistic about the out of time industry based on data from Magna and 29 teams. The U.S. idle time industry increased over 6% the UK was up 8% and the global market grew 6%.
And the industry outlook is strong as well Magna believe out of home will continue growing faster than traditional media and digital out of home will grow faster than online advertising.
Globally out of home is projected to grow at 4% CAGR from 220, 20 to 2024 and digital out of home is expected to grow at 14%.
And the U.S. magner expect out of home to grow at a 3% Cagar and digital out of home to grew 14% from 2020 to 2024.
In addition group and the world's largest advertising media company expect global spending on outdoor advertising, excluding China, and Japan to grow faster than any other medium other than online advertising.
With them expects outdoor AD spending in the U.S. took a mid single digits over the next five years expanding it chef table ad spend.
Please turn to slide six.
Our strategy is first and foremost to grow out of timeshare Tesla media spend by leading the technology driven transformation of the medium.
And to grow our share of total I, just I'm spending by leveraging our distinctive asset base.
Oh digital network is that dynamic medium, which enables our customers to engage in real time tactical contextual and flexible advertising.
We believe digital display technology opens out of home to new emphasizes increases spend from brands that already emphasize is with us and enables yield maximization.
And our results to pull the strategy.
Without technology investments driving notable growth and 29 T.
Digital which accounts for about one third of total revenues, excluding China, which has limited digital was up 14%.
Breaking that down a bit further in the U.S., we have increased the number of digital billboards by 35 during the quarter a 92 over the course of 29 team.
We now have more than 1400 digital billboards in the U.S., including Street furniture displays there are more than 1700 digital displays.
Digital revenue accounted for approximately 32% of our Americas revenue and without 15% in 29 team.
You know international markets, we installed 792, new digital display during the quarter and 2103 over the course of 29 team for a total of more than 15000.
Digital revenue accounted for approximately 31% total international revenue and was up 12% in 2019, excluding China.
Moving to slide seven in the Americas business.
What about strategic pillars customer focus remains a key differentiator for us within the U.S.
Not only in winning and renewing contracts, but also as we build out our advertising technology platforms like Ccs write off.
As a reminder, CCOH rate all he's a proprietary suite of solutions that efficiency leverage is aggregated anonymized opt didn't move all data analytics to deliver a highly targeted inseparable advertising campaigns.
Radar solution, what we pay saw Rightside digital and print it displays and are available today across our entire rightside footprint.
Right all has evolved over the last few years and with the use of mobile analytics across the out of home industry growing we are seeing increasing adoption of our industry, leading solutions across a broad array of verticals and among new and existing national and local advertisers.
Notably even certain technology companies a utilizing radar for example, radar think which offers brands the ability to seamlessly integrate underline that own data into the out of home planning process enabled us to secure a recent depend by from a leading digital streaming service.
By leveraging our radar solution to drive App downloads and awareness. This specific customer learnt how out of home performs when compared to other digital and performance marketing channels.
In the end the campaign, so 50% of App downloads coming from devices sold its place I just time.
Meaning that on its own out of home was able to drive measurable behavior in the digital world.
In programmatic, we continue to see triple digit growth, although off a small base still in its early stages, but delivering real functionality and revenues. Our programmatic platform enables markets is to buy out of home inventory audience base packages, giving them the ability to manage that campaigns on it.
Self study basis.
We believe programmatic buying empowers our clients with the level of flexibility places to online platforms, among traditional media and we intend to focus on further developing it.
Of course, while technology remains central to our transformation, we continue to improve our printing business, which generated mid single digit growth in 29 team.
This includes a premier panels, which address emphasize is growing demand for large scale printed street level out of time media.
As brands continue evaluating ways to better leverage a mixed meet your approach to drive results. We are positioning ourselves at the center of that discussion with tangible and impactful solutions with I thought digital and print it inventory supported by our radar solution.
We also continue expanding the technology Airport authority partners can use to measure performance in November clear channel Apple launched an industry first web app.
<unk> financial and occupancy reporting.
The U.S. Apple media partners.
Now on to slide eight.
You know international business, we still continued momentum in a variety of international markets. These opportunities to expand our digital offerings breakthrough winning contracts I'm continuing our judicial rollout.
In the UK, we continue to benefit from the strength of our digital platform, which accounted for approximately 60% of revenues and 29 team.
Based on the most recent inflammation.
I'm industry in the UK grew 8% faster than traditional AD spending and he's taking a bigger share with the AD dollars driven in large part by the Grayson digital out of home, which was up 15% in 29 team.
With our most recent win in the UK, we will operate one of its biggest digital mobile advertising networks is 700 screens across 57, leading UK move winning this Hamilton contract will expand our moves like network with 223 full motion digital advertising screens across thomason.
12 flagship UK shopping malls beginning in June 2020.
We also won contracts that will expand our digital presence in key cities in many of our international markets, including 24 digital screens into your Switzerland, and 20 digital screens in Seville, Spain.
And in Brazil, we want a 20 year Street furniture contract in Porto Alegre, which will include 168 clogs 50 of wage digital.
As we continue to increase the number of digital screens in our international business, we've been able to use our expanded digital platform to transform our media proposition.
Our digital strategy is mold and building displays it is part of a broader strategy that includes automating the sales process developing tools to manage campaign performance revenue management to optimize the yields from my assets and working with our partners and out besides is to leverage the use of digital screen capabilities.
And even more flexible and creative ways.
We now have the ability to sell flexible campaign solutions based on audience, enabling advertisers to do that to deliver contextually relevant and targeted messages at the right time in the right place to the right audience optimizing how inventory is used.
You automation technology, which allows us to sell flexibly continues to be developed across the European region.
During the fourth quarter, we launched the first campaigns for our New Street furniture displayed in the city of Paris.
This is one of the largest contracts in Europe and provides a French team with the opportunity to transform our business in France.
The ability to expand our asset enhances our strong national footprint as well as given appetizers, a highly compelling premium position in Paris.
We look forward to continuing working with the city of Paris, as we stand off footprint.
Looking ahead, our top priorities within our international business, a winning new contract expanding our digital capabilities to more effectively address consumer demand built on a expertise and to drive growth.
Brian will go through the financials in more detail, but as he will discuss the exceptional results. We delivered as a result about digital investments in execution, primarily in the Americas, that's been offset by the impact of the continued weakness in China is consumer economy, Oxy media with their revenues down 20% in 20.
He 19.
As reported intermediates trading update issued this morning, they expect corrective hours could further flow China's economic growth and negatively impact consumer advertising spend in twentytwenty.
Now before handing the call over to Brian.
I do want to update you on all global strategy and plans to improve our capital structure, which should be an ongoing since we separated from iheartmedia.
As you May know clear media has already disclosed that we have initiated a strategic review of our investment in China at all continuing discussions with potential purchaser.
As of today No decision has been made no definitive agreement has been entered into.
But in addition to that to further improve our capital structure pay down debt and unlock shareholder value. We were actively evaluate additional opportunities including potential dispositions to the extent, we have an opportunity to accelerate this talk to value that's fairly reflect the future value of a bit.
For region.
Our focus is on taking the necessary set to de lever off balance sheet.
Hotspot financial flexibility.
And invest in technology to drive growth in Ohio margin markets, particularly in the United States.
Now I'd like to turn over to Brian to discuss fourth quarter and food, Yeah, 2019 result, Brian.
Thank you William.
Good morning, everyone and thank you for joining our call. This morning.
As William mentioned it has certainly been a handful and transformational year for the company. We are excited about the future.
We believe we are taking the right steps to strengthen our capital structure and provide strategic flexibility delivered strong results, while continuing to invest in our business.
And as William stated, we remain open to all options to strengthen our balance sheet, including possible dispositions to the extent that any potential transaction fairly reflects the future value of that business or region.
Moving onto the results on slide nine.
As in the past during our GAAP results discussion I'll also talk about a results adjusting for foreign exchange. We believe this improves the comparability of our results to the prior year.
I will refer to these results as adjusted revenues adjusted expenses and adjusted OIBDA.
As I mentioned last quarter. This will be the last quarter, we use for the Don.
In 2020, we are transitioning to a new reporting metric, replacing weighted on with adjusted EBITDA. As we believe this metric is more useful to the investment community.
A full reconciliation of adjusted EBITDA for each quarter and the full year 2019 is available on slide 22, and 23 in the Investor presentation for your reference however, the difference between these two metrics is restructuring and other costs, which had been included in a way the Don but are not included in adjusted EBITDA.
As we have seen throughout the year are excellent results in the Americas had been offset by decline in international due to the impact of the continued weakness in China's consumer economy unclear media Limited's revenue in a way to Don.
In the fourth quarter consolidated revenue decreased slightly by 23% to 745 million adjusting for foreign exchange revenue was up 1%.
The increase in adjusted revenue was due to continued strength in the U.S. offset by decline in China's revenue.
Consolidated operating income decreased 2.4% to $114 million in the quarter.
Consolidated adjusted weighted Don was up 1.1% with growth in Americas, offset by continued weakness in international due to China.
For the full year consolidated revenue decreased 1.4% to 2.7 billion.
Solid adjusted revenue increased 1.2%.
America's delivered an exceptional year, 7% growth, which was offset by the decline in international due to the weakness in China, which was down 20%.
Consolidated operating income was up 4% to 253 million.
Consolidated adjusted OIBDA, Don was up 0.7% with over 9% growth in Americas, largely offset by China.
Please turn to slide 10 for a review of the Americas results.
In the fourth quarter Americas delivered another strong performance with revenue of 345 million an increase of 4.5%.
The increase on the quarter was driven by digital which is what will which was up 10.8% and accounted for 34% of total revenue as a result of both new digital displays and organic growth.
National was up 3.8% local was up 4.9%, which is impressive given the performance delivered by most other traditional media companies.
We believe our strength and local is due in large part to the Americas team's ability to deliver value to the customer through enhanced service faster posting cycles and more sophisticated revenue management tools.
Team remains committed to strengthening relationships with our local advertisers to further promote a better understanding of the out of home medium.
And our other solutions.
The combination of the changing media landscape, our innovative tools and customer centric teams are fueling our momentum.
Direct operating and SGN expenses increased 4.1% driven by higher site lease expense related to higher revenue and a slight increase in both employee compensation and property taxes operating income increased 7.7% to 107 million and or the Don increased 5% to 145 million.
Fourth quarter margins were up slightly driven in large part by topline growth.
And the second half a 2019, we met our revenue guidance range of mid to high single digits growth in revenue and OIBDA growth in the Americas with revenue up 6.2% and oil up 7.6%.
In the full year Americas revenue was 1.3 billion up 7% driven by a 15% increase in digital revenues, which accounted for 30% of revenue.
Digital digital saw more organic growth than new digital deployments national which accounted for 39% of revenue was up just over 9% in the year with local up 5.7%.
Direct operating and ask DNA expenses increased 5.7% as a result of higher site lease expenses in part driven by higher revenues and higher compensation expense.
Operating income was up 16.3% to 347 million and will be done increased 9.1% to 507 million margins were up about 70 basis points due primarily to the increase in revenues.
Next please turn to slide 11, 40 International segment.
As we mentioned the weakness and the consumer economy in China has had a negative impact unclear Media's result, with the remaining markets international up slightly.
More specifically revenue of 400 million was down 4.1% in the fourth quarter with adjusted revenue down 7 million or 1.7%.
Our adjusted revenue from China was down $14 million.
Excluding China adjusted revenue increased as a result of growth from new contracts in France, and digital expansion in various markets, including the UK and was partially offset by the impact from the nonrenewal of certain contracts and several international markets digital which accounted for 34% of revenues, excluding China was up 11.
0.8%.
Adjusted expenses were basically flat.
Operating income was down 20% to 47 million and adjusted weighted down declined 8.8% 85 million.
Due to China.
And the second half of the year adjusted revenue was up 1.2% and achieve the guidance. We set in August of low single digit growth. However.
We did not achieve our adjusted international oil bid on guidance of low single digits.
Adjusted OIBDA, Don was down, 1.8%, which is lower than we expected due to a three and a half million dollar increase in the reserve related to the Italy investigation.
For the full year International revenue of 1.4 billion was down 7.9% and adjusted revenue was down $51 million or 3.3%.
Adjusted revenue was down due to the due to the 54 million decline in adjusted revenue from China, Excluding China adjusted revenue was up.
The increase is attributed to revenue from just digital display expansion in various markets, particularly the UK and new contracts in France.
This was partially offset by the nonrenewal of certain contracts and several international markets.
Digital revenue was up 12% and accounted for 31% of revenue excluding China.
Adjusted direct operating and SGN expenses were flat operating income at 65 million was down 44% and adjusted OIBDA down to 212 million was down 19% due to China.
Turning to slide 12 to discuss Capex.
Capital expenditures totaled 232 million in 2019, which is in line with our guidance of $225 million to $235 million.
Our capital expenditures and our Americas segments of 83 million, mainly consist of construct and thats constructing and sustaining our billboards and other out of home advertising displays including digital Billboards.
In our international segment, we spent 136 million constructing in sustaining our street furniture and other out of home advertising displays including digital displays as a reminder, I wrote reported Capex includes 100% of China's capex.
Corporate Capex, a 14 million primarily relates to the build out of the new San Antonio Office and infrastructure, which is a result at the separation from Iheartmedia.
Now on to slide 13.
Clear channel outdoor is consolidated cash and cash equivalents totaled 399 million as does as of December 30, Onest 2019.
This balance includes 111 million up cash held outside of the U.S. fire subsidiaries, a portion of which is held by not home not wholly owned subsidiaries or otherwise subject to certain restrictions and not readily accessible to us.
As we discussed earlier this year, we successfully reduced our total debt from 5.3 billion to 5.1 billion due to the net proceeds from the capital market transactions last summer.
The weighted average cost of debt was 6.8% in 2019.
Down from the prior year due to the refinancings, we completed in 2019.
Cash interest payments for debt for the year were 321 million. This was lower than the prior year due the timing of cash payments following the separation from Iheartmedia and.
And the subsequent refinancing completed in the third quarter.
Lastly, looking at Slide 14, let me discuss our guidance for 2020.
We expect Americas revenue to grow mid single digits and adjusted EBITDA to grow mid to high single digits. In 2020. This is on top of a very strong 2019.
International revenue and adjusted EBITDA, excluding foreign exchange in China exist is expected to grow low to mid single digits.
We are anticipating capital expenditures excluding China.
To be between 202 hundred 10 million.
And cash interest payments are expected to be 347 million in 2020.
Now before I turn the call back to William I do want to comment on the plan change in our U.S. tax filing status.
When we file our 2019 taxes later this year, we plan to make the election to be an operator, if real property assets for purposes of federal income tax.
This status was created in the tax cuts in job acts passed in 2019 2018.
This code section will allow us to treat certain billboards is real estate as real property in all debt related to the real property assets is not subject to the interest expense deduction limitation.
As a result of this planned election, we did not pay cash taxes in the U.S. in 2019, although we did have cash taxes of 25 million related to our international operations.
In 2020, we expect a small amount of cash taxes in the U.S.
As we look to strengthen our cash flow.
This will be in addition to the cash taxes, we will pay in our international operations.
Now, let me turn the call back to William for his closing remarks.
Thank you Brian.
I continue to be confident about 2020.
The long term outlook for our company.
As Brian stated, we anticipate our Americas segment will deliver mid single digit growth in revenue and mid to high single digit growth in adjusted EBITDA.
That is growth on top of the 7% revenue and 9% why but then growth that we delivered in 2019.
We have a unique value proposition as a mass reach medium and confidence in the fundamental strength and growth drivers in our industry and our ability to capitalize on them.
We're focusing on driving continued revenue growth by building out our technology technology capabilities through platforms like rate, all as well as our programmatic offering.
Through our investments we are continuing to improve audience insights and data solutions to unlocked significant value as well as empowering plan with a level of flexibility cliffs is to online platforms among traditional media.
The same time, we continue to be opportunistic about chances to further strengthen our capital structure and what you saw net leverage. This may include potential disposition. If these transactions provide us with greater financial flexibility to further invest in our higher margin businesses, particularly in the U.S.
As we are maintaining our disciplined approach to drive sustainable profitable value for our shareholders.
In short we continue to recognize the inherent strength to Vodafone as a brand building medium and are committed to executing our vision to deliver a leading platform in the industry and Twentytwenty. We plan to continue transforming our business and I look forward to providing regular updates regarding our program.
And now Scott will join Brian I myself in taking your question.
Thank you answered mind or if he 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.
Hey, guys. It was good for your on behalf of common Oh. So one question for BOE, and then I'll follow up for Brian.
Can you compare and contrast, the UK and the U.S. due to market I'm, just trying to understand from a longer don't perspective is it possible for the U.S. digital penetration to be reaching something like the UK or are there any structural differences from midmarket better should we thinking about.
Well, the they're up by structural and format differences.
I would say and thanks for the question, Dave I mean, I think they the U.S. digital market is a large format in markets, where the in Europe. We are generally speaking talking about a smaller format or roadside digital the two square meter signs.
And the real difference in terms of penetration of screen is around permitting and availability of sites to condemn convert to digital in the U.S.
So they are that structurally different in terms of the the way the markets would would operate so I'd like to thank you can directly compare them.
The the way in which the the markets operate orangeade formats that we're operating.
Could I had one thing on that well, yes, its it's Scott in your debt.
Yes.
Williams exactly right on the regulatory aspect.
But I think we have mentioned this on on prior calls as well, we do have markets individual markets within the U.S. that are north of 50% in terms of digital revenue. So the ability to get to those kind of levels is certainly not something that's impossible here. The issue is one of the ability to get.
The permitting and the ability to convert the quality of assets.
Hi, Thanks, Thanks for all program and Oh and been one for Brian I think one thing we tried to on defending how much flexibility you have both in Opex and Capex in case, the and because the girl no widen spreads more broader am in the you went from Europe, and how should we think of though margin.
I went back tomorrow.
Well look at you know we have a great deal of flexibility and Capex, there's a certain amount that could be committed due to contract concessions that you one previously but by and large a significant percentage of the Capex is is discretionary and so.
You can see us manage that in fact, we excluded clear Media's capex guidance just for that reason I think in this current environment.
They're they're gonna be are separate publicly traded company I don't want to speak for the rehab, but there are obviously going to be very thoughtful about how they commit and deploy capex. We can do the site.
You know opex, we we manage that on ongoing basis, and we have to be flexible we have plans in place as as.
Anticipated.
Economic macroeconomic changes occur we need to be flexible and we have some flexibility there, but particularly on capex a great deal of discretion. The majority of our Capex is discretionary and so I think we can have both those levers and can pull them if we need to.
Thanks.
Your next question comes from the line of Steven Cahall of Wells Fargo.
Yeah. Thank you.
Maybe first Scott on the guidance so.
Let's just say EBITDA, it's kind of flat to up this year, you've got capex going down I think your cash interest is maybe slightly up and cash taxes, maybe slightly up anything else. We need to think about as were bridging 2020 free cash flow from 2019.
I'm going to I'm 100, Jack just for a second because it may not have been clear with who we don't get our Capex guidance. We included we excluded China. Stephen So I think if you looked at Capex for the remaining business.
Eric as an international it's actually going up and we do see an opportunity in the U.S. relate to invest in the business. So I want to make sure you had the right base it might might not have been clear, but the guidance for Capex. This year excludes China.
Gotcha Okay.
And then maybe that that leads me to my second question. So.
How should we think about the cash that's going to work coming out of China at the moment as that market is under a bit more pressure is clear media limited sort of a ring fenced entity, but how much flexibility do you have on a that cash coming in and out of China.
No there hasn't been a lot of distributions from China over the past couple of years when they were when there historically there had been and they go through a budget cycle in to the extent they built up cash they can make a an annual dividend and historically I can remember a couple occasions, where cash and build up and they made a special dividend, but you know over the past couple of years.
Irrs and certainly given the more recent economic climate. They havent made distributions to shareholders, which is how we would receive cash out of China, you mentioned cash going into China. We don't we don't fund China, China as its own separate public company.
And while again I don't want to speak for them. They they are looking at I'm sure there liquidity position. They they have the same.
Levers they can pull with respect to capex and Opex and I'm sure. There. The management team. There is no thinking very carefully about the environment are operating in.
Great and then last one I it seems like maybe your comments on potential divestitures or maybe a I don't know a little media than what they've been in the past it sounds like maybe the pipeline could potentially be a little more active so anymore color you can give there and if we think about the transaction pipeline you know as it is it a lot of potential.
Smaller transactions are there are potential for big transactions any color would be appreciated. Thank you.
Right well first of all I would say I think your interpretation is a pretty fast one in terms of what you said at the start of that question.
I don't want to get into any any further detail in terms of of which markets and whether that will be.
Good morning, all large once we have any news on that you will be that you will be the first to know, but as I said we are.
Turning to evaluate opportunities to sports outbreak in the high margin businesses and I really want to say more than that at this point.
Great. Thank you.
Your next question comes from the line of Lance Vitanza of Cowen.
Good morning. This is Chris on for land. Thanks for taking my questions I have two on on China and the tax status you had just talked about distributions.
Capacity for distributions to and from China, and if you're not if you're not really funding clear media than how are you thinking about.
The possibility if at all of losing a majority interest in that entity. If they were to seek third party funding or are they thinking about liquidity issues and the need for third party funding or thinking about months left of cash and how to meet those those significant fixed cost obligations.
Any anything you can speak to that that effect would be helpful. And then on the the tax status and the potential savings there.
Let me back into this how much interest where you not able to deduct before making this election and what exactly would that save you. If you already weren't paying cash taxes in the U.S. as does it just increase your ability to to accumulate ano wells from here is that it.
That's all for me thank you.
Yeah, I'll take to two very different questions I will I'll take the first one and again I'd like to.
Ah reiterate.
Clear media as a separate leap publicly traded company on the Hong Kong stock Exchange say before management team and I'm sure they're all over.
Our liquidity risks.
China has been a challenging environment.
Their board and management team is actively monitoring the situation I previously mentioned they have levers and their business much like we haven't ours with respect to Capex and Opex remediation.
And I don't know that I can speak much more than that obviously, we're watching it but but that's their company and I'm sure. They are watching it very.
Very closely.
The second question about taxes I.
I think the way I'll respond to that or is.
The new tax law limited interest deductibility and for a highly levered company like ourselves.
There was a significant amount of of interest.
Expense that we could not we cannot shelter our income wet.
What what.
This election will do is.
Enable us to lift the interest deduction cap on the amount of of of interest expense that we have that is ratably associated with the percentage of business, we have as real property. So.
Our U.S. Billboard plant, a significant percentage of our business.
The interest expense related to that and this is this is a non tax person description, but this is what you get.
Is no longer capped and as a result, whatever you modeled for cash taxes in the U.S.
You know is zero.
And so I think that this is this is a positive election for the company from a free cash flow perspective.
And I think most people who had done their calculations and it.
You know cash taxes in the U.S.
And take those out this year, and then take all but but a small amount out for next year and that is a significant election, it will contribute to free cash flow.
And it is something that we will benefit from for the next couple of years now obviously.
It's a complicated formula.
Or the amount of real property you have effects the formula the amount of cash interest expense you have affects the formula.
But for next couple of years, we will be a beneficiary of this election.
That's helpful. Thank you.
Your next question comes from the line of Jim Goss with Barrington Research.
Thanks.
A couple more things and the guidance it.
You're indicating basically margin improvement in the United States, but.
Margins flat.
The lower growth level internationally wondering within the international markets.
Are there certain markets within international space that are or.
There are driving the C concerned about lower margins and then related to the FX a challenge.
Yes, typically a the revenues and expenses have had sort of offsetting factors. So it hasn't really come it's sort of come out in the wash, but are there any comments you can make us to.
The exchange rate stayed at current levels, what those impacts might be on your overall international business.
Yeah, I'll I'll tell you what I will take 'em I'll take a stab at the international margins William May add some color and then I'll come back to the FX question.
On the international margins I wouldn't I wouldn't assume just because of the way we provide guidance that.
Because the revenue in the adjusted EBITDA part in the same low to mid single digit ranges that there isn't a margin or that there is margin.
Depression there.
You can be at one end of the spectrum and the other and still being the same range I expect that we'll continue to see.
Margin improvement internationally. It just happened on the America side, there was a break and yeah. We could say revenues came in at one place and and you saw a margin improvement, but the way that we provide guidance. She I don't think you can just default to one has margin improvement in one does that I think we will see positive margins in both business and continue to work to improve.
Of those margins and William I didn't know if you had a any input on like what countries maybe are driving that obviously, the Paris contracted yeah, I would just that Jim that but yeah. We as you know we talked many times in the past we run the the international business. It's a portfolio of businesses operating in a in a number of market than a number of confident.
So so you did that the overall pick a hide them some pretty significant variations in performance than we saw some very strong performances on margin improvement.
Some significant market.
Towards the end of 2019 and into this year.
I called out, particularly the UK, where we had an exceptional year in 19, a at a very strong finish a strong performance in Spain strong performance in England, and Switzerland, and others as well. So it is a very picture across the portfolio.
And then Jim on the on the FX question I think it's probably worthwhile to kind of explain how we think about it and that it really isn't.
You know the translation risk on where foreign ex Forex is moving on our on our balance sheet. It really is to the extent that we have free cash flow in a foreign currency that we anticipate utilizing somewhere else in a different currency that that's the real exposure that we look out into the extent, we would hedge we we would hedge that that exposure.
But your question I think is where we operate do we see FX headwinds.
Look I I, if I could predict where FX rates were going I'd, probably be in a different job, making more money I.
I think that.
Euro exposure as a significant amount of the exposure we have so your view on euros could help guide you to what kind of headwinds, we see but again our focus is on making sure we don't have exposure to.
Cash flow not not balance sheet risk.
Okay, maybe one separate question or is there an optimal balance between print and digital displays you're increasing your digital exposure, but at some stage.
Maybe print is still going to be more appropriate to certain applications.
Or do you think that's not true that.
Everything eventually goes to digital displays.
Hey, Jim It's Scott here I'll take a crack at that give the other guys a chance to to chip and we think friends are very important part of our business I and we think that there is absolutely a balance the earlier question, where I was referring to some of our markets have gone to to more than 50%.
Digital revenue, we still have very meaningful print physicians and there are definitely advertisers that prefer that format. They like to quote on quote on a location. So I think that you're going to see us working to optimize across those two and that that will be up sort of a perpetual feature.
For the business over the next next budget years, I don't see print.
Being something that we would we would be looking to take a step back because customers do value it.
Yeah, I definitely I hear that I mean, there across the crux of global footprint print is that the Vietnam. The heart of our business. The represents in the sense the core values of out of home and being a mass reach medium duty so add value in some cases that we we certainly to the of the coming out of one onto the vintages.
Business.
Okay. Thank you.
Your next question comes from the line of Stephan Bisson Wolfe research.
Good morning, first behind the strong Americans guide are you going seeing really any kind of dichotomy in performance of markets are larger markets doing better than smaller markets as local had a national and are there any categories that are particularly strong.
So.
From from a guidance perspective.
We are looking at.
Our channels, we're looking at our product lines and we're looking at you know our geography trends I think what we have been seeing over the last 18 months has been a strength across across the channels, so airports national and local or.
Paul.
Seeing us seeing good strength.
We've seen strength across both print to digital and as Weve as we've looked at guidance.
We have to take into account you know supply demand balance and things things along those lines as well as we're looking downstream, but theres not a theres not a particular category or a particular a product line that that's coming to play certainly our I anticipated digital conversion.
As something that that we take into account and.
We're expecting our level of conversion in the states to be the same or maybe a little bit higher than it was that it wasn't 29 team.
But there's not there's not any one particular thing that that's driving the business. The the key to having the business performed well and you saw it in our 2019 results, we talked a lot about our digital conversions and the things we were doing with data, but we also talked about what we did with premier panels and converting that and so innovate.
Question across the whole product line is important to keep the customers engaged.
And what were what we're looking at as we guide.
Is the the combination of what we're able to see in terms of deals that we've always done what we know we're going to do in terms of product innovation and capacity and what we believe in terms of how.
The market is going to develop over the course of the year hopefully that that shed some light for you.
That does and then would it be fair to assume that most of the revenue growth is driven by pricing rather than occupancy.
I wouldn't say that that's that that's fair to to assume we we do focus on yield, particularly at the business becomes more digital and we were 34% digital in the in Q4.
The concept of yield.
<unk> is a more driving concept than focusing just on price or just on occupancy because you can do different things with the product. So.
As I look back at 2019, and really the last couple of years, it's been a balanced growth driver that we've had because we've seen.
Both occupancy and and are cheap rates.
Go up and frankly, we don't really focus on that we focus on on the yield aspect.
Got it thank you so much.
Once again, if you'd like to ask your question. Please press star one toward next question comes from the line of Alexia Quadrani JP Morgan.
Hi, This is and I was all on for let's see I. Thank you so much for the question.
Upon the previous question did you see any strengths or weaknesses in any particular verticals such as you know technology retail financial services or any other.
So are you asking from 2019 are you asking as we sort of look at 2020 ahead.
For 2019, particularly in the Americas business.
Okay. So in 2019, our biggest category growth.
Was in insurance and that was very strong category technology was a very strong category business services performed well food and food products performed well on entertainment was a good category for us. So those are the ones that were leading and I'm sure you're related question would be what were the.
The ones that were lagging and the ones that were most challenged in 2019 work travel and transportation telecom and and beverages beyond that it starts to be pretty small and was it was a pretty strong your across all the categories that are growers greatly exceed.
Ceded are shrinking ours.
Which was obviously key in delivering the result.
Great. Thank you for that and just as a follow up impact have you seen so far from that kind of ours across your business segments and does your guidance incorporate any potential hits as a result, and what gives you confidence in the full year outlook.
So I think on Corona virus. The the tree that this is a rapidly evolving situation and with obviously monitoring it very closely with particularly concerned about any of our people who might be infected both in China I find elsewhere.
It is moving very quickly I would say at and we have save up as we announced this morning from China, We've certainly seen an impact on the that China business in the first quarter.
We have seen some limited instances of it having an impact in a small number at the European markets to date.
But it really I think way too early to try to evaluate what the what the impact would be a across the full year.
Understood. Thanks.
At this time there no further questions on our turn the call to management for any closing comments.
Thank you I'm going to ask the question that that wasn't asking that as you know how do you intend to attack your your leverage profile and I want to talk about that a minute first and foremost fundamentals we want to grow the business, we want to manage cost effectively and by that I mean, we're going to continue to invest in the high bar Hi, Mark.
In operations, particularly in the U.S.
We have opportunities for opportunistic refinancings.
The term loan b market as attractive, but primarily I'm, referring to the opportunity in February of next year to refinance our expenses nine in a quarter percent notes if the market environment that we have today holds until then that's a significant amount of of savings that we can we can achieve and grow free cash flow.
You've seen effective tax planning strategies, we're implementing that that also increases free cash flow and as William mentioned and I kind of weighed in on as well the potential for accretive dispositions.
It is something that we are we are.
Littering as long as we get.
Fair value for whatever it is that we're looking at so in closing I wanted to kind of point that out and William I'll turn it over for you. If you have any remarks, thank you Brian.
Underlining so it's really important point, but I think we have made it very clear the direction. We're moving in I think we've given very clear sense of the huge momentum that we have in in the business, particularly in the United States and really appreciate everybody joining the call and your interest in the company and we don't.
For two updating you through the year. Thank you very much and good morning.
Thank you that does conclude that 2019 fourth quarter and full year earnings conference call for clear channel Outdoor holdings Inc. You may now disconnect your lines and have a wonderful day.
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