Clear Channel Outdoor Holdings, Inc. (CCO) Q3 2015 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the 2015 Third Quarter Earnings Conference Call for iHeartMedia Inc. and Clear Channel Outdoor Holdings Inc. At this time, all phone lines are in a listen-only mode. [Operator Instructions] As a reminder, today's conference call is being recorded. And with that, I will now turn the conference over to your host, Effie Epstein, Head of Investor Relations. Please go ahead.

Good morning and thank you for joining our 2015 third quarter earnings call. On the call today are Rich Bressler, President, Chief Operating Officer and Chief Financial Officer; and Brian Coleman, Senior Vice President and Treasurer. We'll provide an overview of the third quarter 2015 financial and operating performances of iHeart Media Inc. and its subsidiaries, iHeartMedia Capital One LLC and iHeartCommunications Inc. and Clear Channel Outdoor Holdings Inc. For purposes of this call when we describe the financial and operating performance of iHeartMedia Inc. that also describes the performance of its subsidiaries iHeartMedia Capital One LLC and iHeartCommunications Inc. After an introduction and review of the quarter, we'll open up the line for questions. Before we begin, I would like to remind everyone that this conference call includes forward-looking statements. These statements include Management's expectations, beliefs and projections about performance and represent Management's current beliefs. There can be no assurance that Management's expectations, beliefs or projections will be achieved or that actual results will not differ from expectations. Please review the statements of risk contained in our earnings press releases and filings with the SEC. Pacing data will also be mentioned during the call. For those of you not familiar with pacing data, it reflects revenue booked at a specific date versus the comparable date in a prior period and may or may not reflect the actual revenue growth rate at the end of the period. During today's call, we will provide certain performance measures that do not conform to Generally Accepted Accounting Principles. We provide schedules that reconcile these non-GAAP measures with our reported results on a GAAP basis as part of our earnings press releases and a slide presentation, which can be found on the investors section of our website iheartmedia.com and clearchanneloutdoor.com. Please note that our two earnings releases and the slide presentation provide a detailed breakdown of foreign exchange and non-cash compensation expense items as well as segment revenues and OIBDAN. Please note that the information provided on this call speaks only to Management's views as of today, November 05 and may no longer be accurate at the time of the replay. With that, I will now turn the call over to Rich Bressler.

Thank you, Effie, and good morning, everybody. We delivered another quarter of top line growth across our business segments as we continue to build on the power of sound, the power of outdoor and the power of mobile to create powerful marketing solutions for our partners. In an advertising marketplace that continues to evolve, we believe we are in a leadership position as the world begins to recognize radio and outdoor for what they are, digital mediums. We are investing our capabilities to automate the sales process, analyze unique data we have on our consumers, and provide programmatic buying. We believe that simplifying the buying process for agencies and advertisers provides us with a competitive advantage against both traditional and digital-only media companies. As one advertising agency executive recently told me, and I quote, "You can't be in the advertising business without being in the data business." When we look at companies with major audiences in this country, in our view there are three. Facebook, Google and iHeartMedia, and we are bringing both the iHeartMedia and outdoor businesses into the digital age through the development of data-infused solutions for advertisers that we believe will provide the efficiency and ease of automated buying. Both radio and outdoor are true mass-market mediums, and with recent studies showing the audience declines in television, which I will expand on shortly, we believe that our platform and our partners stand to benefit from the key consumer trend of spending more time out of the house. Our diverse portfolio of assets, digital, broadcast, at home, mobile, social, event and more, enables us to connect advertisers and brands to consumers in innovative and exciting ways. A great example of how we use our assets together is the work we are doing with our long-time advertising partner Coca-Cola most recently on their successful Share a Coke outdoor campaign and now on branded content. Coke and iHeartMedia partnered to take advantage of our SoundBoard initiative announced earlier this year by launching a podcast called and I quote, iHeartRadio First Taste Fridays with Coca-Cola. It's targeted specifically at teens to help them discover and debate new music with their friends and of course over an ice-cold Coke. Through SoundBoard, we give brands the opportunity to develop original content programs from the ground up to help them tell their story to the right audience at the right time. Podcasts are exciting and unique but historically they haven't been distributed at scale. By using both our digital and broadcast assets, we are able to solve this by creating unique and original content and then delivering elements of these podcasts and promoting them through the mass reach of broadcast radio. Our success in the marketplace is a testament to the hard work, dedication and creativity of our employees across the board. We have some of the best operators, salespeople, technologists and developers in the business and we continue to attract top-level talent to the company. Last month, we announced that Steve Mills, the former Chief Information Officer of Motorola Mobility, joined the company as Chief Information Officer. Steve will oversee all aspects of the information technology structure for both iHeartMedia and Clear Channel Outdoor. During the quarter, we hosted our fifth annual iHeartRadio Music Festival in Las Vegas, where both our iHeartMedia and Clear Channel Outdoor leadership teams hosted key advertisers, brand partners and agencies. As always, the event attracted some of the biggest names in music and added significant presence on social media generating over 7.3 billion social impressions, nearly 50% higher than last year's festival. We garnered more social media impressions than the big game halftime show for the third year in a row and we are also ahead of the Academy Awards. Twitter was the most popular platform for fans and viewers and #iHeartRadio trended worldwide, nationally and locally across more than 80 cities. Around 60% of social media users posting content around the festival were millennials, ages 18 to 34. Events continue to be an important embedded part of our sales strategy as they have a positive impact on advertiser and consumer relationships and provide great promotion and brand building opportunities for our stations. We're leveraging these events at a significant differentiator from the sales, branding and promotion perspective, and events continue to be a key revenue driver for us. As we tell you often, radio is the most under-monetized advertising medium in the U.S. and our mission is to close the gap between radio's consumer engagement and its much lower share of advertising spend. Radio engages audiences across the country and ratings continue to grow. For example, we saw a 10% year-over-year increase in our broadcast ratings in September. It is no surprise that media consumption habits are changing, which we highlighted when we told you about the results of Nielsen's total audience report earlier this year. Then in early October, the New York Times published a piece titled and I quote, Millennials and Cutting the Cord, Discussing the Decline In Traditional TV Viewership Among Millennials, under the subheading, And the Winning Medium Is... Radio? A graphic showed that among 18 to 34-year olds TV's weekly reach dropped to 76%. Radio's weekly reach is 93% among the same age group and that excludes digital listening and satellite radio. And radio's reach is even higher than smart phones at 80%, personal computers at 49%, and tablets at 42%. Bottom line, more adults and more millennials use AM/FM radio than any other media type. In addition, last month Nielsen published results of a sales effectiveness study measuring return on radio advertising spend across four retail categories. The result of the study affirmed what we all know and believe in. When brands invest in radio advertising, they experience higher consumer engagement including increased sales, foot traffic and dollars spent by shoppers. This latest research, combined with the results of last year's ROI study conducted by Nielsen Audio and Nielson Catalina Solutions that showed a 6 to 1 return on radio advertising dollars further demonstrates that radio presents a huge opportunity for advertisers to connect with consumers through audio. On the outdoor front, we continue to innovate both in our Americas and international businesses. We reached millions of people through our global footprint including more than 640,000 displays in over 40 countries with 1,220 digital billboards in North America and over 5,000 digital displays in our international markets. With the growth of social media or mobile and the fact that 70% of consumers' time is spent out of home, more and more advertisers demand the flexibility to coordinate their outdoor spend with real-time events and product launches throughout the year. With our strength across broadcast radio, outdoor, mobile, social, events and digital, we continue to solidify our position as a leading media and entertainment company by leveraging our unique portfolio of assets to attract local, national and global brands that partner with us to help them build meaningful relationships with consumers. Now let's turn to slide 4 and review our key financial highlights. As we've done in the past, when discussing our financial results on this call, I will refer to all results excluding the impact of FX as a strengthening of the dollar against other major currencies we transact in has affected the comparability of our numbers on a reported basis. You can find our reported numbers in our earnings releases and SEC filings. In addition, as we noted in our press release, our OIBDAN calculation excludes the incremental lease expense from the sale lease-back transactions related to our tower portfolio and San Antonio office buildings. In the third quarter, in spite of this being a non-political year, consolidated revenues were slightly up. At iHeartMedia, reported revenues were up 2% year-over-year and up 3% when excluding political advertising revenue. We also grew both our Americas outdoor and International outdoor businesses by approximately 1%. Consolidated OIBDAN was down 3.6%. I will provide additional detail on these results as we discuss each segment's financial performance later in the call. Now let's review our key non-financial highlights. Starting with slide 5, at iHeartMedia, we continue to focus on being everywhere our listeners are with the products and services they expect. In the quarter, we announced iHeartRadio's launch on Windows 10 and we also became the first ever digital radio service to partner with Groove, Microsoft Music Service available on Windows devices, Xbox consoles and Android and iPhone handsets. We also announced a new multiyear agreement with The CW for them to remain the exclusive television broadcaster of our two-day iHeartRadio Music Festival and also exclusively telecast the annual holiday iHeartRadio Jingle Ball Concert. This year's Jingle Ball Tour returns across 11 cities, two more than last year and is sponsored by Capital One. This is the first time ever the tour carries a national title sponsor and we are thrilled to work with Capital One. Additional sponsors across various markets include Allstate Insurance Company, Macy's, The CW, Ulta Beauty and Verizon. Consumer engagement across our platforms continues to grow and we are delivering record-setting growth at iHeartRadio surpassing 75 million registered users, faster than any other radio or digital music service, even faster than Facebook. Total listening hours also continues to grow increasing 21% year-over-year in the third quarter and over 60% of those listening hours were over mobile. Radio is a truly mobile medium. Today 66% of usage of what is generally referred to as mobile is consumed in the home while radio is the opposite. Two thirds of its usage is out of the home delivering on the true promise of mobile as an advertising vehicle. We continue to take this message to advertisers as we help them build their sound strategy. On the people side, we are building out our political team and strategy to gear up for the 2016 election cycle. As previously announced, we hired Kenny Day as SVP, Political Sales and Strategy to lead iHeartMedia's political and advocacy efforts. He is building a Washington D.C.-based team working with political and issue advertisers as well as advertising agencies to create custom strategies, campaigns and content that leverage the unparalleled reach and power of iHeartMedia. So as you can see, we are investing for growth and I'm excited by what we've done so far and what we plan to do next. Let me provide update on our programmatic efforts. Data driven solutions are transforming the way we deliver new value to our marketing partners providing the ease, measurability and precision of digital marketing at the incredible scale of broadcast. We believe this is a step towards putting us on-par with major digital players. We've made data and ease-of-buying a top priority to help us close that gap. Programmatic is already an important and expected method of ad buying in the digital space. Through our partnerships with Jelli, Unified and AdsWizz, we can bring broadcast radio into that world at scale that like no other digital audio provider can offer. The rollout of our programmatic platform is on schedule and we are in the early days of using the automated buying and selling functionality on a national level. We expect to make the platform available on a market level early next year. In addition, back in September, Expressway from Katz, the programmatic buying exchange we designed to include all radio broadcasters, did a pilot with Geico, Horizon Media, and Entercom, were in the first ever live programmatic transaction for spot radio. We are leading the way in helping advertisers buy radio as seamlessly and efficiently as possible. Moving to slide 6, our key initiatives and partnerships have demonstrated our focus on innovation technology as we continue to transform our company. At outdoor Americas, we partnered with Vistar Media, an advertising platform that helps media buyers identify which out-of-home inventory is best situated to reach targeted consumers. This targeted uses location data for mobile devices to undertake consumer behavior and then delivers relevant messages to the consumers using an ad-serving platform. Through this partnership, we were able to offer media agencies access to select out-of-home inventory across the U.S., including digital roadside billboards, airport media and transit shelters. This partnership underscores our dedication to using technology and data to serve agency and advertisers. We also launched multi-year partnerships with Vertical Bridge for the management and marketing of antenna and small cell site deployment on billboards and other out-of-home assets across the country. This enables wireless carriers to enhance wireless service for mobile customers and provides an opportunity for us to further monetize our valuable portfolio of assets. On the people side, we hired Dan Levi, former CMO of Captivate as Chief Marketing Officer for Americas outdoors leading the business' overall marketing strategy and execution. In a relatively short amount of time, Americas' CEO Scott Wells has structured a team that has a strong mix of traditional and digital expertise as we continue to focus on providing clients with unparalleled out-of-home advertising and marketing solutions. At International outdoor, we created some of the longest digital out-of-home advertising sites in Europe. The site in London is nearly 80 yards along with six consecutive screens sold together as a single advertising opportunity. Microsoft was the first advertiser to leverage these boards so creatively using them as part of their Windows 10 launch campaign. I was just looking at pictures the other day and the site and the Microsoft advertisement were both impressive and innovative. In addition, just earlier this week we announced that we won two contracts in Switzerland, the Lucerne Street Furniture contract which will launch in the first quarter of 2016, and the Zurich Transport contract is scheduled to launch early 2017. We continue to demonstrate that outdoor represents the convergence of the mobile, social, digital and physical worlds. Now let's review our segment financials. Starting with iHeartMedia on slide 7, revenues were up 2% in the third quarter even against the backdrop of tough political comps last year. Excluding political advertising spend, our revenues were up 3% in the quarter. Key performance drivers include higher sponsorship dollars related to our iHeartRadio Music Festival, digital revenue and barter and trade. Partially offsetting the growth was a decline of political advertising revenues as well as lower court broadcast radio revenue. We've seen lines getting increasingly blurred between local, regional and national spending across all disciplines, spot, digital and events, and we believe we are well-positioned to benefit from this trend as we are for advertising solutions across the board. The advertising categories with the strongest year-over-year dollar growth included telecom, home building and improvement, as well as medical and healthcare. We once again outperformed the radio sector as measured by Miller Kaplan. Our outperformance is a testament to the unique value proposition iHeartMedia offers our advertising partners and our talent is a core pillar of that. As we shared with you earlier this year, we've made major moves to transform our LA station cluster by bringing national hip-hop icon Big Boy down to our new hip-hop and R&B Station, Real 92.3. Within its first month, Real 92.3 became the number two station in LA in the 18 to 34 age group, second only to our own KISS-FM. This has been a huge win for our LA market and now we have the top urban station in the top three radio-metro areas in the country, LA, New York and Chicago. We are also growing our country platform iHeartCountry. In August, we announced Rod Phillips one of our veteran programmers and one of the developers of the Bobby Bones show would lead iHeartCountry out of Nashville. iHeartCountry is the largest country broadcast radio group in the U.S. with more than 140 country broadcast radio stations reaching more than 97 million country music listeners per month. Moving to expenses, we continue to grow our national digital business and as such continued investment in our platform is important. Our expenses were up 3% in the quarter primarily driven by investments in national and digital sales capabilities. We've hired additional sales people to join our national team and we continue to invest in our technology. Our expense drivers include higher sales compensation expense, including commissions related to higher revenue. Barter and trade expenses were also up in the quarter. From a content cost perspective, our music licensees and royalty payments are up year-over-year driven by the growth in listening hours on iHeartRadio. On a reported basis, our OIBITDA was basically flat year-over-year reflecting revenue growth and continued investment. As we make our transformation into a sophisticated data-driven company, we will invest in our platform but will continue to do so through a lens of financial discipline and tight expense management. If I look at the investments we've made in the last five years in building our iHeartRadio brand, our national sales efforts and our events platform, these are some of the reasons why we've been able to consistently outperform the radio industry and grow the business even in a tough radio environment. Historically, the way radio companies outperform one another was driven by share gains. Our view is that just fighting for a share of radio dollars is no longer a winning strategy. Long-term success will come from bringing new revenue into the sector that was not earmarked for radio, developing solutions for clients that support allocating advertising dollars to radio from other mediums. We believe we've been successful in tracking new dollars because we deliver a truly differentiated value proposition for advertisers and it has contributed to our outperformance relative to our peers. Now let's review our fourth quarter pacings. These pacings are just a snapshot in time and certainly don't include anything we do – everything we do as a company. Our fourth quarter pacings at iHeartMedia through the end of last week were up 2.8%. In terms of political advertising revenue, last year we had approximately $26.5 million of political advertising revenue in the fourth quarter. About 70% of those revenues came in during October of last year, so those are already baked into the pacings. The remaining 30% was booked in November. Turning to Americas outdoors on slide 8, our quarterly revenues were up 1% driven primarily by higher revenues for our Times Square spectacolor business, as well as our domestic street furniture assets and strength across our Latin America business. Revenue growth was partially offset by lower advertising revenue from our billboard business across both static and digital driven by weakness in national. Local advertising revenue was up in the quarter. Our top categories in the quarter included Internet and eCommerce, electronic equipment and business services. Operating expenses increased 1% during the third quarter primarily driven by higher variable expenses related to higher revenues and OIBDAN was up 1.5%. This is the fourth consecutive quarter of bottom line growth in the business, but we recognize we still have a ways to go and our effort is to revitalize the organization, and that is what our leadership team is working on. In a very short amount of time, our new President of Sales, Bob McCuin, has made meaningful progress in improving our sales process and introducing a new level of sophistication to our marketing efforts. As a former radio executive, Bob is partnering closely with iHeartMedia national sales team on strategic opportunities giving select agency and client partners the opportunity to utilize our entire platform across outdoor and radio. Also with the proliferation of digital and mobile, there are big opportunities to create new customer segmentation attribution models for outdoor advertising as well as further develop ROI analytics for our clients. We think this is particularly relevant for national advertisers as they think about getting the highest return on their advertising spending. This is an important time period for national advertisers as they think about the 2016 budget allocation, and as we believe that our team is driving meaningful progress with large national partners that should position us well for next year. As for our pacings, which again reflect just one point in time, our fourth quarter pacings are up 3.6% as of the end of last week with growth in local, national, digital and Latin America. Excluding Latin America we are pacing up 2%. I'd like to call out that in Q4 of last year, we booked a production deal with one of our advertising partners totaling approximately $3 million which will not recur this year. Turning to slide 9, our International team grew top line for the sixth consecutive quarter. Revenues were up 1.3% in the quarter driven by growth in Europe including the UK, Norway and Italy. Our growth was partially offset by weakness in France where our billboard business declined year-over-year. Our malls business and street furniture were both up in the quarter. Expenses grew 4% in the quarter resulting in an OIBDAN decline of 13%. We've taken a hard look of course across our International outdoor business and made deliberate moves this quarter to exit certain low margin contracts primarily in the UK. The lease termination fees associated with these contracts and other costs related to strategic revenue and efficiency initiatives were the largest driver of expense increases in the quarter, representing approximately 40% of total increase or approximately $5 million of the $14 million increase. We are always examining our portfolio of assets to ensure that we are allocating capital and resources in the most efficient way. We believe the very strategic revenue and efficiency initiatives we've undertaken will be beneficial in future periods. Other expense drivers in the quarter included higher variable expenses related to higher revenues as well as higher compensation expense. As we mentioned last quarter, we have grown our sales teams in key markets over the last year to help fuel future growth. We have also added some additional headcount in the quarter. Our fourth quarter pacings for International outdoor are up 3.7% with strength in Northern Europe as well as Australia and New Zealand. Once again pacings are a point in time metric and as you would expect there's an inherent level of volatility week-to-week. On slide 10, we showed some of the add-ins that affected year-over-year comparability. On consolidate expenses, we incurred approximately $17 million of cost related to strategic revenue and efficiency initiatives in the third quarter compared to approximately $18 million in the third quarter 2014. These costs declined at iHeartMedia and Americas outdoor and increased in International outdoor as a result of lease termination fees I mentioned earlier. On the iHeartMedia side, we closed on our previously announced sale of the majority of our tower portfolio and as a result are no longer generating co-location revenues from tenants. For reference, last year we generated approximately $2.5 million of tenant revenue in the third quarter. In addition at iHeartMedia, we generated approximately $10 million of political advertising revenue last year in the third quarter compared to only $4 million this quarter. Katz, our media representation business included in other, generated approximately $7 million in political advertising revenue in the third quarter of 2014 compared to only $1 million this quarter. Turning to slide 11, capital expenditures for the quarter were approximately $68 million compared to $54 million last year. The increase is largely driven by increased spending in International outdoor specifically in China and the UK. Moving to debt on slide 12, we are staying focused on maximizing the value of our business and improving our capital structure and liquidity through capital markets and strategic transaction. As of September 30, iHeartMedia Inc. debt net of cash totaled approximately $20 billion. During the third quarter, we borrowed $190 million under our receivables based credit facility. We continue focusing on growing the top and bottom lines across our business segments and taking disciplined proactive steps to address our capital structure needs, interest expense payments and liquidity needs. Our consolidated weighted average cost of debt is 8.4% as of September 30 compared to 8.1% as of December 31, 2014. Now we turn to our balance sheet information and the debt ratios on slide 13, iHeartMedia's cash totaled approximately $383 million at September 30 and our secured leverage ratio was 6.6 times. The largest use of cash during the quarter was related to interest payments which totaled $556 million. Due to the timing of semiannual interest, the first and third quarters have disproportionate amount of interest payments. We expect fourth quarter interest to total approximately $314 million. Our primary uses of cash include capital expenditures and funding of working capital needs. The increase in working capital in the third quarter was driven primarily by an increase in accounts receivable in our international outdoor business, specifically the UK and China. The UK issue was due to temporary delay of payment at one of our agencies which is expected to be resolved in the fourth quarter. In China, the economic slow-down has resulted in slower payments by some large customers. Clear Channel Outdoor ended the quarter with $173 million in cash with a senior leverage ratio at 3.7 times and its consolidated leverage ratio at 6.7 times. So before opening up for the questions, I want to thank you again for joining us this morning. We continue to strengthen our position as a leading media entertainment company and are pleased with the progress we've made to build out our capabilities. Our business model is simple. Create deep relationships with the consumers and then rent the use of those relationships to advertisers. Our platform is truly a unique avenue for advertisers, agencies and brands to engage with the right audiences at the right time with a level of cost efficiency no other major media company can offer. We believe that both radio and outdoor are under-utilized and under-monetized by advertisers, and we are taking aggressive steps to change that, as one of our biggest growth opportunities is better monetizing our existing portfolio of assets. Now let's open the line up for questions.

[Operator Instructions] And our first question comes from the line of Jason Kim, please go ahead.

Hey, good morning. First question for either Rich or Brian. Can you talk about the working capital trends thus far this year? I know it is a volatile line item but so far it's been a bit of a tracking cash flow, so I was wondering if you can give us some color on any particular drivers and can you comment on how much incremental senior debt capacity you currently have, pro forma, for the ADR usage during the quarter?

Yes, I will take those in reverse order. With respect to incremental senior debt, we don't really update baskets under the various debt agreements that we have. But we have provided guidance in the past that we preserve enough senior debt capacity under our most restrictive indenture to be able to borrow under the ABL. And I think it was in December of 2013 we had $250 million drawn under the ABL and there hasn't been any material change in the quantum of senior secured debt. So I think it's safe for the market to assume that we have at least $250 million of ABL capacity. So we've drawn $190 million. There's at least $250 million, and that's not a definitive. That's at the least how much we can draw. But I think that's the information that's in the public domain so you should assume that there is at least $250 million minus the $190 million of availability, so at least $60 million if my quick math is right. With respect to working capital, one of the things that we've been focused on over the past couple of years is improving our accounts receivable collection processes and our payable systems. We've invested a lot of time and a lot of resources and we've seen a lot of success over the past couple of years. What we've seen I think the past couple of quarters here is an increase in working capital usage, particularly with respect to accounts receivable. It was more acute last quarter. This quarter, I think Rich addressed in his opening remarks that it was largely driven by some spoke international activity, at least with respect to the UK where we had an agency that was slow pay which has subsequently been resolved. In China, we've seen an economic slowdown string out payments and increase AR. I think it's certainly something we keep our eyes on because we have had such success over the past couple of years. Our comparables year-over-year may not be as interesting, and sequentially we have seen an increase in working capital. We are focused on working capital. We're focused on liquidity. And as working capital is a component of liquidity, we will remain focused and continue to improve things. And when we are off target, we'll do our best to explain why that is, and it rose to the level of significance that Rich even addressed in his open remarks.

Understood. I know this question comes up every quarter but any updates on the LA digital board situation can you provide for us?

No. There's really – and as the answer has been since the last couple of quarters, we always say, I think probably the smartest thing I did when I came in a couple of years ago was say that I wasn't going to predict the timeframe here. I'm still not going to predict the timeframe. So there's really no update to what we've said in the past. We are continuing with the city on legislative solutions that allow us to have the digital boards back within the LA city limits. We're still expecting a couple more hearing for those of you that all follow this closely, before the next City Council votes on the ordinance. That's likely to be early next year. This process does take time for better or worse and in the interim, I think as we mentioned on the last couple of calls, we've converted all the boards back to static mostly through wrapping the boards over the existing digital faces, and just as a quick reminder we currently have 37 digital boards in the LA metropolitan area.

Got it. And then my last question is I was just curious to hear your thoughts about your general views about future liability management strategy. Obviously you've cleared all of your 2016, banked the maturities proactively, and earlier this year you even bought back some of the 2018 unsecured notes that are at a discount. The market conditions had been pretty weak and a lot of your bonds are trading at prices lower prices now. So at least at the moment, simply pushing out maturities is not as straightforward as it has been in the past few years. But at the same time, your trading levels of your debt decreased some other opportunities from a liability management side. And I know that's a long-winded question, but I was just wondering what your thought process and views on how the capital structure evolves from here?

You had me at liability management, Jason. I totally get it. The conflict that we have is of course our focus on liquidity and ensuring that we can continue to fund operations, fund debt maturities. We've built a liquidity runway and we're trying to grow operations during that period of time. Refinancing capabilities in this marketplace particularly at the unsecured level is something that we may not be able to rely upon if the markets continue to be weak into the future. We can't predict that but we always have to err on the side of conservatism. That being said, it is not lost on us where debt trading levels are and given excess liquidity or sufficient liquidity, we do feel there are opportunities for liability management activities. As you mentioned, we were active in late Q3 and Q4 of last year and should things line up where we have excess liquidity and there are opportunities as there are today to execute or effectuate some liability management activities, it is a nice way to reduce leverage by managing the debt side of the equation while 99.9% of the rest of the company that is working on growing the EBITDA side of the equation. So I guess what I can say to you is, we are aware of the opportunity. We have to balance liquidity with liability management activity. There may be ways that we can effectuate liability management activities that is liquidity neutral or doesn't have a material impact on liquidity, and that's certainly something that we are considering, but that's the challenge that we have and so we recognize the issue. We want to be optimistic we have in the past, but I don't really have any plans to unveil to you at this point in time.

Thanks for your thoughts.

And we do have a question from the line of Avi Steiner, please go ahead.

Thanks for taking the question and I apologize if we are going to continue on this theme here, but Brian maybe you could talk to how you get to that excess liquidity point. Can you talk to your comfort with your liquidity with respect to 2016, and again I realize some of this is repetitive. Your comfort with liquidity going into the first quarter which I think is historically been your seasonally low point in terms of cash generation, and then I've got a couple more – or high point of cash use I should say.

Sure, Avi, I think I got one question last quarter, so I'm feeling honored on this call. I'm going to address what I think I heard is your question and then if I missed anything we can kind of circle back. I think ultimately all the questions are going to surround our ability, our comfort level with respect to liquidity. I am comfortable with respect to liquidity, and let me tell you why? I think first and foremost as Rich talked to, the underlying fundamentals of the business seem pretty sound. It's a tough operating environment, but when you look at us and how we've been able to differentiate ourselves from “peers”, I think we're doing the right thing, we're making the right investments and we will continue to grow the business. I also look at, is there any near-term liquidity concern. We don't have any debt maturities until December of 2016 and it's $197 million because we've already proactively addressed $20 million of it. We do have higher interest expense and we do burn cash between now and then, but it's because we continue to invest in the business and we intend to grow the business in that period of time and narrow that cash burn. We need to make sure that we have a liquidities bridge from here to there, and I think we do, because I think my third point is we have numerous liquidity levers. So let's talk about those. I don't think any these are going to be new. But it may be a good refresher to think about it. One is to continue to improve free cash flow. As I mentioned earlier, 99% of the business is focused on that. And I think again, that's where the focus needs to be. But from our perspective, there are other things we can do. We have additional amounts under the ABL we use. $190 million this quarter in Q2 we paid off because we used it the prior quarter. In the first and third quarter when have the larger debt service expenses, you can expect ABL usage, and you saw it this quarter. But we still have availability there. We also have availability under the CCOH revolver. We have capacity to issue debt at various subsidiaries, iHeart, CCOH now. I want to caveat that anything we would do at outdoor would be subject to CCOH board approval. I also look at given kind of liquidity constraints, possibilities to have extensions or exchanges with respect to debt maturities and that would be liquidity generative. We always talk about the sale of additional non-core assets. We've done some in the past. We are large company. There is lots of opportunities. We continue to look at and evaluate our portfolio of assets. Rich calls this optimizing the balance sheet, but ultimately the ability to monetize company assets through alternative financing structures like we've done with sale on lease-back on the San Antonio corporate offices or like we did with the tower portfolio. Things like that are certainly on the list. As I said, we're a big company. We've lots of different types of assets, and if so there's a way to effectively construct a financial transaction around those, it certainly something that should be on the sheet in the playbook. One thing we've mentioned in the past which I think has less of a priority today in terms of just straight sales is our portfolio of repurchased debt that we hold in a restricted subsidiary. I think that's less of a priority or less interesting today just because of where debt is trading. But that doesn't mean it can't be a currency that could be packaged together and used in some type of exchange as opposed to an outright issuance. So I think there is a host of categories of things that we can look at to generate liquidity. Like I said, big company, lots of things we can look at, and that really gives me the comfort that we can do what we need to do to ensure that we have liquidity over the near-term.

Avi, it's Rich. Let me add two things, a couple of things on operating basis. Without saying anything or predicting anything about our results going forward, you can see a bunch of operating and financial metrics in terms of the momentum of the overall business. I'm sure [indiscernible] get some questions or not, but I spoke about things like programmatic and we're in the early days of using buying and selling functionality on a national level. We expect to roll it out early next year. And remember, our platform is unique. The investments we have in the iHeart brand, national sales team, events platform are paying off. We are starting – and you're seeing it bring new dollars to the sectors out there. 2016 is a political year just as a reminder to all of us. I'm not going to comment anything specific to iHeart, but you saw it was in the press this morning actually pretty widely reported that Trump has started to spend money on radio advertising. I think in the radio trades today, I'm not – but it was impressive it was as widely reported as it was, Ted Cruz is starting spend money on radio advertising today. Inside Radio published some numbers about expectations for radio with research from Burrell for 2016 that the expectation of political and pies is going to be somewhere like $827 million to be exact. A significant amount of money that they are predicting will go into radio and again, that's one of the reasons we bought Kenny Day in, who I mentioned in my remarks is leading our efforts and his background. He's a digital programmatic ad buying guy. It's going to be integral to our ability to provide the campaigns and the national campaigns and to deal with the issues in a way that we believe will well position us to maximize our share of the pie out there. And just as reminder in 2012 with a total spending that was estimated to be dramatically less than 2016, we took in $105 million in political.

I appreciate that color, Rich. Certainly political in 2016 isn't lost on me. A couple more here and thank you for the time. And maybe sticking on a liquidity asset sale theme perhaps. I think your competitor just sold some assets in Latin America to [indiscernible], and I'm curious if there's anything to read from that with respect to you, and maybe more pointedly from my seat. I think you have a $900 million assets sale basket, Brian, and can you tell us much how much of that is used and specifically I'm referring to the basket that if you sold assets out of – I'm getting this right non-guaraned subs you don't have to pay down the bank debt first. I hope I got that right, but go ahead.

I will let Brian address the second part of your question. Look, no surprise I think to any of us in the industry about the upfront Latin American sale to the co [ph] seems consistent I don't know anything than that other than you guys know that you've read, but it does seem consistent with their desire to remain focused primarily on REIT-able assets there.

And you talked a little bit about disposition baskets and use of proceeds and stuff, so I'm not sure I’m going to get the answer completely right, so we can come back to it. But what I did hear was a question about the $900 million disposition basket under our credit agreement, that's accurate. We don't refresh what's outstanding under the basket but I think I can say that most of the asset sales that we've done have either been deminimus, and so they didn't count against that basket or it's been structured in such a way it was an investment to an unrestricted subsidiary. And we like that technique because investment basket is refreshable, so we can move assets in the unrestricted subsidiary, we have greater flexibility to do the proceeds and we have a lot of value that we've built up in the unrestricted subsidiary so we can pull cash or other assets back into the restricted group to refresh the investment basket. The one exception that I can think of, Avi, was the disposition of our Australia-New Zealand radio business. And I don't remember the number but it was plus $200 million. That was done within the restricted group and would have impacted that basket. So think if you take the $900 million and take away the $220 million, that's probably a pretty good estimate based on public information of what's available.

I will turn it over. Thanks for the time gentlemen.

Thanks, Avi.

And our next question comes from the line of Lance Vitanza, please go-ahead.

Hi, thanks. I was looking at the other segment. Could you talk a little bit about what's going on there? I know it's not huge, but revenue and EBITDA were down a lot there. A little clarity would help.

Sure, a couple of things. That's primarily Katz and just a few things as a reminder, just first actually last year in the third quarter we recorded approximately $12 million in revenue in that line with respect to cash flow. It's an early termination fee for the termination for a representation contract that we had last year. And second, we're striving not to have a lack of political dollars as we all know this year compared to last year. Last year cash generated approximately $7 million of political advertising revenue in the third quarter compared to approximately $1 million this quarter.

Okay, thanks. So then when will we expect to sort of lap the negative impact of that agreement? Was it just in this quarter or?

Yeah. For the point I just mentioned to, I'm sorry just to be clear, that was in Q3 of last year comparing it to Q3 of this year 2015.

Okay, perfect. That's helpful. Just to confirm the iHeart Music Festival, was that in the same period last year?

Yes. It's always in the third quarter of each year.

Okay. Were there any other timing related swings that might have impacted that or was that a clean comp?

No. Nothing on the iHeartMedia level, it's a clean comp.

Okay. And then can you help us – how do you define excess liquidity with respect to bond repurchases, and do you intend to repay the ABL with the proceeds – presumably with the excess cash flow that you generate in the fourth quarter?

Okay. I think two very different questions. I think excess liquidity is a bit of an abstract but it really is, do we feel comfortable spending cash that we have to repurchase debt out in the future in a way that doesn't create a liquidity event between now and then. Because certainly if we wouldn't want to accelerate any kind of liquidity concern and so that's really how we define excess liquidity. I think a great example is the action we took at the end of last year whereby we had visibility into a liquidity event. It was the tower monetization so we were comfortable at that point in time expending excess liquidity. Had we not had visibly in that transaction, I'm not sure we would have done. With respect to the ABL, it depends on a number of things. I wouldn't just naturally assume that we're going to draw and repay the ABL in the first and third quarters and I guess repay in the second and the fourth. I think it depends also on what other cash we have available and where it's available. And certainly that's where we have greater liquidity pressure because of the larger interest payments that happened during the quarter. But we have cash that sits in unrestricted subsidiaries. And if there's investment basket to be refreshed, we'll pull cash out. And if we feel like we are re-characterizing cash in a negative manner, we may be more inclined to use the ABL. Now, to offset that, there is a cost to using ABL. I think it's 200 basis points spread to LIBOR, so it's an inexpensive source of financing but it's still incremental cost versus using cash from the balance sheet. So I think we have to weigh the facts and the circumstances at the time and make that decision. What you've seen so far this year is to draws in the quarters where we've had net-large interest expense and repayments would have been when we didn't. But I don't want to say that is an indicator of how we'll behave in the future.

That's helpful. I appreciate it. And one last question from me, just actually back on the iHeart TV deal with the CW network. Could you talk a bit about the process by which you chose CW? Was that competitive? Did the other networks bid for that business?

For this, for the CW, it happened to be a renewal. But by definition, we're looking for the right partner that first and foremost is going to be – help drive our profitability and give us the maximum benefit for our stakeholders. That also works for them. And what I would point to by when you think about competitive, if you look at the iHeart Music Awards we're now going to put that on – we're now with Turner this year, TBS and TNT, which is that first weekend in April sandwiched in-between the semifinals and the finals of the NCAA. The prior years that was on NBC, prior to year NBC was a great partner. We were able to win prime time for them those years, first year even during sweeps we won, so obviously they were very, very pleased with that partnership. So you can imagine the terms that work for both of us for TBS and TNT that we were able to move it over to those guys and they will now be great partners there, so there are always competitive bidding processes. And just make sure we line up with the right partner for them, our demographics with the see - they line up very well. So it's important for them.

Thanks very much guys.

And our next question comes from the line of Marci Ryvicker, please go ahead.

Good morning. This is Stefan Beson on for Marci. I had a question on pacings and then one on the larger business as a whole. You had mentioned that Americas was up 3.6% but there was a $3 million booking that wasn't going to recur. Is that included in the 3.6%, or do we need to adjust for that?

It's not all included. So November, December booking and I said it was a just to be clear 3.6% and excluding Latin America was up 2% and just for as always, for total transparency just wanted you to know that that was coming. That was in last year's numbers.

Great, no problem. And then on the larger business, do you guys have any interest in expanding transit maybe in particular the New York MTA contracts? Any thoughts there?

Look, from us, from an outdoor competitive stand take, we are always looking to get good products that meets need for the advertisers, so I'm not going to comment on any one particular discipline but for the focus is, we're always looking for ways to reach younger audiences out there. We've had a bunch of great successes with startups and campaigns around Tom's and Hourly Nerd and Snapchat and things like that. We just did a great Share a Coke campaign that I think I spoke a little bit about in my opening remarks using the Times Square digital board that was activated through Twitter. So I think we're being super creative but what it really is, is looking for and bidding on things in particular that gives us the opportunity in outdoor, that place in the trend of the mobile consumer particularly in the integration of the social and mobile elements. It's really interesting. Now with Bob McEwen on board, I mentioned both in the last sales call and this one and running on national efforts, and again Bob was with us before at iHeartMedia then was with another company, has come back for us. What he's finding in his overall client discussions is everybody's looking for better targeting and insights that are available with mobile data as you get all the share shift that you all know about on the call from TB. And our ability – I think what people don't realize we have the ability with outdoor applying these digital insights to the physical nature of our Clear Channel Outdoor board is a giant topic with key partners, key advertisers, looking to have better targeting and attribution opportunities. Do that and then have a digital medium so they work in tandem. So we're are as excited about the outdoor business and Bob's role there as we can be and the future.

Got it. And then on the small cell deployment, is there any kind of timeline that you might be able to share with us? Are we talking multiple years?

It's early days. We are excited about it, we have a great partner in Vertical Bridge. We partnered with the Vertical Bridge guys on the towers deal. And the small sales stuff I know everybody's talking about, the other companies are talking about it, but it is – it really is as we look at our 640,000 boards displayed around the world, it's really too early to make a call how that's going to really be transformative or not. It's an opportunity both from the technology perspective, the business model. It's a great way for us to create new revenue streams and maximize another way to maximize our existing asset base. But having said all that, it's really very early days.

Got it. Thanks so much.

Our last question of the day comes from the line of Aaron Watts, please go-ahead.

Guys, thanks for taking the question. Just a couple from me. I guess first, Rich, you mentioned programmatic and you touched on that a bit on this call. The industry has had a bit of pricing pressure over the years, what's your view on what programmatic does to the pricing environment for radio going forward?

Look, this is clearly not a race to the bottom. This is about adding value. This is about – if you look what's happening in the world that we all live in and just to take a step back, I'm not sure you could look at programmatic in a vacuum away from everything else. I talked about in my opening remarks the data that's out there that came from Nielsen and really for those of you that have not read the New York Times piece, I would strongly encourage you to go read the New York Times piece which talks about – and really for the first time in my career where – which is definitive about old is you've see a lot, is the fact that television is no longer the mass reach media. We're at 93%. Television is at 87% or so. And then when you go to millennials, we're still at 93% and television is like 75%, 74%, 75% out there. And I think that smartphones is at 80%. So I think it kind of starts with the fact that we really are in North America the last reach beam out there. The second thing is there's going to be and I covered this briefly in my remarks, but it's worth repeating. There are going to be three in our opinion – there are three great large platform companies out there in North America. It's going to be Facebook, it's going to be Google, and it's going to be ourselves with our reach of 245 million people and our ability, and our listening on broadcast we mentioned we're up about 10% for this year on broadcast. We're up more overall on listening on digital. The numbers have never been higher in terms of the power of sound. I think streaming is up 54%, Podcasts are up 75%, Concerts and festivals up 34%. So the numbers are there. And then you couple that with all the changes that are going on in the advertising industry, whether advertising agencies are great partners at the agencies or our great partners that are advertisers, we need to provide value efficient solutions for them to drive their ROI, because that's what it's all about. You're going to hear all these stats out there as go forward, a lot of confusion, it's about ROI, return on investment, and our average is the advertiser gives us $1 and our average is we give them back $6. So now what we need to do, to get – the last part can really get to your question with that as background, is to leverage technology to add to the efficiency to purchase up radio and digital inventory and data driven solution with all of that in the background, why I put us in the category of iHeart, in the category Facebook and Google out there, is we're transforming the way we are delivering marketing solutions to partners. And with Bob and I say, inside the Company is our goal over the next year, 18 months, is we are as is easy to buy and we look like Facebook and Google to our advertising partners and providing the same ease and measurability and precision of digital marketing as they do, which also we are so optimistic as we go into next year about the political side of things.

That’s helpful. And then just maybe as a tack on to that. My second question was as I think about your top line growth, you're making good progress on digital and your events business. But the core radio broadcast business obviously remains a little challenged on an industry basis. How do you grow the business profitably or should we assume margin compression as revenues grow in the future?

No, you shouldn't assume margin compression. I think as you go back over the last couple of years and quarters and if you look at both Bob and I assisting over time and how other companies have been, we are laser focused on bringing more dollars to the bottom line and having margin expansion. And just as a reminder in 2014, as we focused on efficiencies and prepared allocation of research to iHeartMedia, an increase in operating revenue leverage, excuse me I can't even speak English, we delivered significant margin expansion kind of the second half of that year. In the third quarter, and you're going to see this periodically in quarters, we had continuing to grow in the full year effective some of our ads we made last year on our national digital team. We had some barter and trade stuff and we had contact course out there. And the other thing I would say is just, I don't think I covered it on this quarter, but I've said this before. The lines are continuing to blur. Forget about our lines are continuing to blur. We have to meet the needs of our advertisers. We have to meet the needs of our advertising agencies. Their lines as they look at buying whether it's national, local, broadcast, digital, you look at all those lines out there, those lines are continuing to blur. And when our advertisers and agencies are going to come back to our line, care more and more about – it doesn't matter kind of where it's bought or how it's bought or what you call it, it's about return on investment. And that's why we're saying that's that simple measure, and the reason why we are so optimistic and I've never been more optimistic about our asset base is in terms of generating value for all of our stakeholders and profit for all of our stakeholders, is because you look at all the data that I just went through and all the studies that are out there and all the proof points that are out there and you go back to television, like I said, as being the last national medium, and then you couple that with our ability to do targeting at scale. Remember about a third of our broadcast audience also listens to digital. We capture all the information on that third, no different than really Facebook. You take that. You extrapolate over the broadcast audience whether you do that on a national basis, whether you do that on a local basis, we are able to deliver value to our clients. And the difference for programmatic here, because I know people have the concept of programmatic, it's about value. The mistake people made in display is when we all remember when programmatic hit display, that was a race to the bottom. This is not a race to the bottom. This a race to deliver value to our advertisers and to be where our consumers are. So listen, guys, I want to thank you all. Everybody on the call, thanks for all the questions. I'm actually in Detroit today doing this – in Detroit have a bunch of meetings with the OEMs and car companies and I'm going to talk to all our OEMs in Detroit and different partners down here. So thank you all very much.

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