Clear Channel Outdoor Holdings\' (CCO) Management On Q2 2017 Results Earnings Call Transcript

Clear Channel Outdoor Holdings, Inc (NYSE:CCO)

Q2 2017 Earnings Conference Call

August 03, 2017 08:30 AM ET

Executives

Eileen Mclaughlin - Vice President of Investor Relations

Rich Bressler - President, Chief Operating Officer and Chief Financial Officer

Brian Coleman - Senior Vice President and Treasurer

Analysts

Avi Steiner - J. P. Morgan

Jason Kim - Goldman Sachs

Lance Vitanza - Cowen & Company

David Phipps - Citigroup

Aaron Watts - Deutsche Bank

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the 2017 Second Quarter Earnings Conference Call for IHeartMedia and Clear Channel Outdoor Holdings, Incorporated. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, today's call is being recorded.

I'd now like to turn the conference over to your host, Eileen Mclaughlin, Vice President of Investor Relations. Please go ahead.

Eileen Mclaughlin

Good morning, and thank you for joining our second quarter 2017 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 second quarter of 2017 financial and operating performances of iHeartMedia, Inc. and its subsidiaries, iHeartMedia Capital I, LLC, iHeart Communications, Inc., Clear Channel Outdoor Holdings, Inc. and Clear Channel International, B.V.

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 I, LLC, iHeart Communications, Inc. and Clear Channel Outdoor Holdings, Inc. After an introduction and a review of the quarter, we'll open up the line for questions.

Before we begin, I'd like to remind everyone that this conference call includes forward-looking statements. These statements include management's expectations, beliefs and projections about performance and represents management's current beliefs. There can be no assurance that management's expectations, beliefs or projections will be achieved or that the actual results will not differ from expectations. Please review the statements of risks 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 the orders booked at a specific date versus the comparable date in the 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 provided schedules that reconcile these non-GAAP measures with our reported results on a GAAP basis as part of our earnings press releases and the earnings conference call presentation, which can be found on the Investors section of our website, iheartmedia.com and clearchanneloutdoor.com. Please note that our 2 earnings releases and the slide presentation are available on our website, www.iheartmedia.com and www.clearchanneloutdoor.com, and are integral to our earnings conference call.

They provide a detailed breakdown of foreign exchange and non-cash compensation expense items as well as segment revenues, operating income and OIBDAN, among other important information. For that reason, we ask that you view each slide as Rich comments on it. Also, please note that the information provided on this call speaks only to management's views as of today, August 3rd, and may no longer be accurate at the time of a replay.

With that, I will now turn the call over to Rich Bressler.

Rich Bressler

Thank you, Eileen, and good morning, everyone. Thanks for joining us for our second quarter earnings conference call. Our reported consolidated revenues declined in the quarter with the last year's sale of certain International Outdoor businesses. Adjusting for these sales and the impact of foreign exchange rate fluctuations, our consolidated revenues were up 1.7%, with both the IHeartMedia and International Outdoor segments contributing to the increase. To date, the IHeartMedia segment has delivered 17 consecutive quarters of year-over-year revenue growth. Consolidated operating income also increased in the quarter, although consolidated OIBDAN declined due in part to investments in our businesses and a weaker-than-expected advertising market. However, in this quarter, we were able to make significant progress in reducing our consolidated OIBDAN decline.

Before getting into the details of our second quarter financial performance, I want to underscore the powerful fundamentals of our core businesses as well as our latest initiatives. Let me start with the IHeartMedia segment. IHeartMedia is build on the power of sound and the power of broadcast radio, and we continue to build that our capabilities has a true 21st century multi-platform media and entertainment company. Based on our monthly reach, IHeartMedia is the number 1 media company in the U.S., with over 0.25 billion listeners over the age of 6 to our broadcast radio assets alone. In fact, among media companies, only Google and Facebook come close, each reaching more than 200 million people monthly in the U.S.

What sets us apart from these and other companies is the scale and strength of our more than 850 broadcast radio stations and the other platforms we've built using that base. We have created a powerful national footprint and the ability to provide local execution to our clients. This is unique not just to the radio business, it's unique to the entire media segment. This network lets us provide innovative custom marketing solutions for our advertising and marketing partners across the entire country. And this network has a reach greater than the broadcast TV networks that have traditionally received this advertising revenue.

Furthermore, we believe iHeart is the only media company successfully utilizing a master brand strategy, much like what Pixar does for motion pictures. IHeartRadio is our Pixar brand, and our station brands like Z100, or Kiss FM are the equivalent of Finding Nemo. The halo of the IHeartRadio master brand is each station uniqueness and signals additional quality in the minds of consumers.

At our broadcast stations, our industry leading personalities are on the frontline connecting with their audiences across all of our platforms and building strong, engaged relationships with all listeners, which we then use for the benefit of our advertisers. Our personalities are the listeners' close friends and companions, in the kitchen with them when they are making their morning coffee or sitting in that empty seat next to them in the car during their daily commute. Broadcast radio continues to hold its unparalleled position as the number 1 mass market reach medium in the U.S., reaching 93% of all people over 18 on a weekly basis. By comparison, among all adults, the weekly reach of TV and smartphones is 89% and 83%, respectively.

While radio is still undermonetized given its reach, its strong connection to important and hard-to-reach audiences enables us to present a significant and valuable opportunity to our advertisers. Among Millennials ages 18 and 34, the most difficult demographic group to reach, radio reaches 92% weekly, even ahead of smartphones at 91%, while TV trails at 79%. Radio's reach among teens ages 12 to 17 is even higher at 95% monthly, with live TV at 86%.

Not only do we have the numbers on our side, we also have strong engagement. The consumer uses IHeartRadio 31 minutes a day, compared to 30 minutes for Facebook and only 14 minutes for NBC. And radio is more mobile than was traditionally considered to be mobile. Today, in the U.S., there are 1 billion radios compared to a little over 200 million smartphones, and 2/3 of broadcast and two-thirds of broadcast radio use is actually out-of-home compared to one-third of smartphone use that's out-of-home. And with people spending more and more time out-of-home, the value of radio as the most mobile of mass reach media can't be underestimated as the last point of contact before shopping.

IHeartMedia is uniquely able to extend the power of audio and our consumer relationships beyond broadcast and digital radio to multiple platforms, including our marquee live events, social media, mobile, podcast, voice-activated devices, videogame consoles and in-car infotainment systems. Our live events is some of the most talked about, strengthening our partnerships with artists and music companies, serving as an important part of our sales strategy and providing great promotion and brand-building opportunities for our stations as well as our advertising and marketing partners. The power of our multiple platforms also gives us the unique ability to extend their impact.

In the quarter, the value of our live events as sponsorship vehicles was highlighted by the Fourth Annual iHeartCountry Festival, a music experience by AT&T in Austin and the iHeartSummer '17 Weekend by AT&T at Fountain Bleu in Miami Beach. In addition to being broadcast live on our stations, both events were streamed as well as televised on the Audience Network from AT&T via DIRECTV and U-verse. The significant media impact that these events achieved highlights how unique and powerful our multi-platform approach is. These events also has significant social media impact. The iHeartCountry Festival generated nearly 30% more social impressions than the previous year, and the iHeartSummer '17 Weekend delivered almost 200% more social impressions than last year's summer event.

We have also established a strong position in the fast-growing world of podcast. Today, nearly a quarter of all Americans listen to podcast based on most recent data. And our IHeartRadio platform podcast listening has grown 20% year-over-year. We now have more than 7,500 podcast publishers distributing their content across 17 different categories, from business and finance to comedy and entertainment. Among those podcasts is Label Defiers with ZICO Coconut Water, which is produced through a marketing partnership between IHeartMedia and Coca Cola that features well-known IHeartMedia personality, Elvis Duran of Z100 and the syndicated stations doing one-on-one interviews with popular artists.

Just yesterday, People Magazine reported on Elvis' interview with Demi Lovato for Label Defiers in which she discusses the importance of using her powerful voice to bring attention to mental health issues. We make news with our podcasts just like we do with our events and on-air. Voice-activated platforms are increasingly emerging as exciting digital opportunities for us. In addition to a strong position for our radio stations on Amazon Echo and Google Home, we're starting to capitalize on the interactivity of these devices in innovative ways. For instance, earlier this year, users were able to vote through Google Home for the most powerful female voice at the iHeartRadio music awards.

Moving from the home into the car, iHeartRadio Plus and iHeartRadio All Access are now available on Android Auto and Apple CarPlay. All of these platforms continue to expand IHeartMedia's ability to reach our listeners, wherever and however they want, and we use these opportunities to drive additional growth. We can now begin marketing conversations with our biggest advertisers using any one of these platforms as the foundation, and we can integrate others as needed to achieve our advertiser goals. We believe no one in the media business has the kind of flexibility and range of opportunities for advertisers.

As part of our continuing transformation to a 21st century multi-platform media and entertainment company, we continue to grow and expand our programmatic platform, both in terms of the number of advertisers using it and the products and services we offer. This provides even more reasons for advertisers to use us and to make us fit into the new digital-centric advertising world.

In today's gold rush to data, we are leading the way for the industry with our data-rich ad-buying solutions, which gives IHeartMedia capabilities once just available through digital-only products. We believe our unique platform will make us as integral to today's digital advertising landscape as we are to the radio landscape.

As an example of our commitment to continuing to develop best-in-class programmatic solutions for our advertising partners, earlier this year, we introduced SmartAudio, the latest feature of our groundbreaking SoundPoint programmatic platform. SmartAudio combines the massive scale of our broadcast radio reach with the power of digital data and more informed audience targeting, all of which advertisers expect today.

Now brands and agencies can buy broadcast radio from us much the same way as they buy digital media. Based on digital data from more than 100 million registered IHeartRadio listeners and the tens of millions who use the IHeartMedia radio station website, SmartAudio can provide hundreds of robust audience segment profiles, such as business travelers, business and health enthusiasts and auto intenders. SmartAudio also offers dynamic creative capabilities that enable advertisers to serve different creative based on real-time triggers like the weather, sports scores and stock market performance.

In this quarter, we announced the expansion of SmartAudio to Smart A/V Audiences. By combining data sets from both IHeartMedia and Fox Network's group, this brand new platform will offer a suite of ad products that will bring the value of digital advertising to the scale of broadcast radio and television. Building on SmartAudio's capabilities, Smart A/V Audiences will enable advertising partners to leverage audio and visual as one integrated platform, target custom audiences and deliver more compelling creative.

Before turning to Outdoor, let me share with you a few additional IHeartMedia highlights from the quarter. IHeartRadio continues to reach user milestones at a rate faster than any other digital music service, with over 100 million registered users. Our cumulative downloads and upgrades of the iHeartRadio app topped 1.5 billion in the quarter. And total listening hours were up 2% as compared to the prior quarter, while mobile accounted for 75% of the total listening hours.

We made some major announcements about our events in this quarter. On July 18, we announced our lineup for the Seventh Annual 2017 iHeartRadio Music Festival, which will be hosted by Ryan Seacrest on September 22 and 23 in Las Vegas. Headlining the festival will be artists including Coldplay, The Weekend, Chris Stapleton, Lorde, Kings of Leon, Big Sean and Miley Cyrus, as well as more of today's hottest performers.

At the iHeartRadio Music Festival Daytime Village presented by Capital One, we'll feature performances by a number of popular emerging artists, including Halsey, Migos and Niall Horan. We've also announced the return of the Fifth Annual iHeartRadio Music Awards on March 11, 2018. It will be televised live on Turner's TBS, TNT and truTV, broadcast live on IHeartMedia radio stations nationwide and streamed live on iHeartRadio.

Now for Outdoor. As one of the world's biggest out-of-home advertising companies, our Clear Channel Americas Outdoor and International Outdoor businesses together have more than 585,000 displays in 34 countries across 5 continents, including 43 of the 50 largest U.S. markets, and we're driving a technology fueled transformation that's enhancing our ability to monetize this growing digital inventory both in the U.S. and internationally.

More than ever, we're focused on strengthening our innovative data analytics and programmatic automated ad-buying offerings to maximize the value of our out-of-home digital reach. Our learnings in IHeartMedia have been helpful in giving us a leadership position in this area in Outdoor. At Americas Outdoor, for example, we expanded and enhanced Clear Channel Outdoor RADAR's out-of-home advanced advertising platform with the addition of Cuebiq's location intelligence and attribution solutions. RADAR's suite of research, data and analytics tools helps brands and agencies more effectively plan and buy our out-of-home inventory to reach their target audiences and measure the impact of their campaigns. Since we launched RADAR more than a year ago, a diverse mix of national brands have successfully used radar to measure double-digit lift in their out-of-home campaigns.

Now by leveraging Cuebiq's location insights and footfall attribution analysis based on aggregated and anonymized mobile location data, we can identify audiences for our advertising partners that are exposed to both printed and digital billboards more precisely than ever. At International Outdoor, technology is transforming our business model and strategic focus. In some markets, including the U.K., almost half of our revenue is now coming from digital displays. Following the acquisition of Arqiva's phone box subsidiary and its continued roll out of digital assets, our U.K. businesses outperformed the market based on the most recent data. In the first half of this year, its revenues were actually higher than in 2015 before the loss of our London bus shelter contract. With more than 12,800 digital displays already in place internationally, we announced our investments to develop national digital presence and build out our scale, particularly in Spain and France.

Digital out-of-home has transformed our sales value proposition, and we are seeing increasing numbers of advertisers taking advantage of the flexibility offers. It allows them to place ads on different days of the week and at times of day to reach audiences at exactly the time that's right for them. And earlier this year, we introduced programmatic buying, making our out-of-home media simpler to plan, buy, optimize and measure through well-known buying technologies that offer data field audience-based solutions. That's how we'll stay at the forefront of the outdoor industry, by offering advertisers the measurability, creativity and flexibility that they demand. Ultimately, we believe this strategy will make our Outdoor business integral to their ad campaigns.

Here are several other Outdoor highlights from the quarter. We installed over 200 new digital displays on North America and International Outdoor markets. That gave us a total of 1,175 in Americas Outdoor markets and more than 12,800 across International Outdoors markets as of June 30. Both Americas Outdoor and International Outdoor continue to sign new contracts, expanding their digital platforms around the world. Americas Outdoor announced new agreements with the airports in Corpus Christi and Des Moines as well as the Dominican Republic.

International Outdoor has entered into new contracts in France to strengthen its presence in shopping malls and in April, launched Latvia's first digital out-of-home shopping malls network. In Spain, we'll be installing over 300 modernized digital screens across 130 shopping sites. And in Switzerland, we have been awarded contracts that will complement our existing Zurich transit offer. All in all, we believe we're making great progress in positioning both our iHeartMedia and Clear Channel Outdoor businesses with continued sustainable success.

Now let's turn to slide 4 and review our key financial results. Before we begin, I'd like to remind you that as part of our GAAP results discussion, I will also talk about our results after adjusting for foreign exchange and excluding the impact of the International Outdoor businesses we sold in 2016. We believe this improves the comparability of our results to the prior year. I'll refer to these results as adjusted revenues and adjusted OIBDAN, and I'll talk about the direct operating and SG&A expenses as expenses.

Consolidated revenues were down 1.5%, with the growth of 1.9% at iHeartMedia, offset by the declines in Americas Outdoor and International Outdoor. Adjusted consolidated revenues grew 1.7%, driven by the increase at iHeartMedia in addition to a 5.1% growth in International Outdoor, with a slight decline of 0.6% at Americas Outdoor.

Operating income increased 22.9% due primarily to 2016 net losses on the sale of operating assets, including the sale of our Outdoor business in Turkey. Adjusted OIBDAN declined 4.1%, with adjusted OIBDAN down in all segments. I'll provide some additional detail on these results when we discuss each segment's financial performance later in this presentation.

Now on to the review of our business segment results, starting with iHeartMedia on Slide 5. In the second quarter, IHeartMedia's reported revenues were up 1.9%. Excluding political, revenues grew 2.1%. As I mentioned earlier, IHeartMedia's revenues have increased in each of the last 17 quarters. The 2.1% growth in revenues is attributed to increases in national revenue and other revenue, partially offset by lower local revenue. National revenue grew in response to our national sales initiatives and investments as well as increased programmatic buying in addition to an increase in national trade and barter. This growth was partially offset by a lower national traffic and weather revenue and lower revenue due to the timing of the iHeartRadio Music Awards show, which was included in the 2016 second quarter results.

The increase in other revenue included approximately $4 million cash payment received in satisfaction of an agreement related to prior years. Local revenue declined as a result of lower spot revenue, partially offset by an increase in local trade and barter. And once again, we outperformed the radio industry in revenue as measured by Miller Kaplan.

We believe our continued outperformance is driven in part by our ability to offer an innovative suite of advertising solutions and tightly integrated multi-platform campaigns to advertisers. And our national scale and reach, with our ability to execute locally, make those capabilities even more valuable.

Expenses increased 7.8% during the past quarter as compared to the second quarter 2016 due primarily to higher trade and barter, investments in national and digital sales capabilities, higher content and programming costs, higher variable expenses, including sales activation and commissions and higher spending on strategic revenue and efficiency initiatives. Because of these higher expenses, operating income declined 7.2%, and OIBDAN was down 7.1%.

As we said at the beginning of Q1, we had anticipated a more robust advertising market this year and decided to make investments for future growth commensurate with how we thought the ad market and our revenue would be growing. Given the realities of the slower-than-expected advertising market, we are slowing these investments to reflect the current advertising climate. We are focused on driving revenue, but we are also committed to making sure that we have the right cost structure for that revenue. We are making significant progress with our decline in Q2 OIBDAN at 7.1% compared to our decline of 15% in OIBDAN in Q1, and we will continue to actively manage our cost.

Now let's review our third quarter pacings for 2017, which include all of our markets. As you've heard me say before, these pacing are just a snapshot in time and certainly don't include everything we do as a company. iHeartMedia's third quarter pacings at the end of last week are down 1.6%. Keep in mind that these pacings include this year's reduction in political revenue.

Now on to slide 6 and Americas Outdoor financials. Americas Outdoor reported revenues declined slightly in the second quarter. Adjusted revenues were down 0.6%, due primarily to a $2.9 million decline in revenue resulting from the exchange of Outdoor markets in Indianapolis and Atlanta and a decrease in print display revenues. This was partially offset by increased revenue from digital billboard as well as higher revenue from new print wall displays. Reported expenses were up 1%, and adjusted expenses increased 0.8% or $1.7 million in the quarter. The increases in expenses resulted mainly from the impact of a $2.9 million early termination lease payment received in 2016 and higher fixed site lease expenses, partially offset by lower marketing, bad debt and bonus expenses. Operating income was down 1.7%, and adjusted OIBDAN declined 2.9%. Our third quarter pacings, which have been adjusted for foreign exchange, are up 2.7%. Again, as a reminder, pacing data reflects a point in time.

Turning to slide 7 and our International Outdoor financials. In the quarter, our reported revenues were down 8.9% as a result of selling certain businesses in Australia and Turkey. Excluding the impact of these sales of businesses and foreign exchange rate fluctuations, adjusted revenues grew 5.1%. The increase in adjusted revenues is primarily due to growth across several markets, including Spain, Switzerland, the U.K. and China, in large part due to new contracts in digital expansion. Expenses during the quarter were down 7.8% on a reported basis and up 6.8% on an adjusted basis. The increase in expenses is due mainly to higher site lease expenses in countries experiencing revenue growth. Operating income decreased 9.2% in the quarter, while adjusted OIBDAN declined 0.6%. Included in these higher site lease expenses are fixed rent fees from new contracts, including the Greater Barcelona, which had a negative impact on our margins in the quarter.

Our third quarter pacings for International Outdoor were down 2.1% last week. Once again, pacings are a point-in-time metric. The pacing data has been adjusted to exclude the impact of businesses we sold in 2016 as well as foreign exchange rate fluctuations. Before we go on to the rest of the slides, I would like to make a few comments on CCIBV's results. For the second quarter, CCIBV's consolidated revenue totaled to $278.8 million, a $36.3 million decrease. Excluding the impact of movements in foreign exchange rate of $12.5 million and the $36.1 million decrease resulting from the sale of our Australia and Turkey businesses in 2016, CCIBV revenues increased $12.3 million during the second quarter. CCIBV's operating income in the quarter was $17.1 million, as compared to an operating loss of $39.1 million in the prior year's quarter.

On to slide 8. This highlights the items affecting comparability of our results. I won't read through all the numbers now, but as you can see, our International Outdoor operations were affected by foreign exchange rate fluctuations of just over 4% both revenues and expenses in the quarter. And the International Outdoor results were impacted by the sale of the businesses in Australia and Turkey. Lastly, as expected, political revenues were down in the quarter at both iHeartMedia and catch media.

Turning to Slide 9. Capital expenditures totaled $137 million in the 6 months ended June 30, with $86 million in second quarter. The iHeartMedia segment's capital expenditures were primarily leasehold improvements in IT infrastructure. At Americas Outdoor, the majority of capital expenditures were digital billboards. And Internationals Outdoor capital expenditures included mainly street furniture and transit advertising structures. This year, we expect capital expenditures to be in the range of $300 million to $325 million.

Moving to debt on Slide 10. As of June 30, iHeartMedia's debt was $20.4 billion, basically flat with year-end 2016. iHeartMedia's consolidated weighted average cost of debt was 8.7% as of June 30. Cash interest expense through the first 6 months of the year is $876 million, and we expect cash interest expense in 2017 to total $1.8 billion, including $549.9 million in the third quarter and $337.4 million in the fourth quarter.

Now we'll turn to our balance sheet information and the debt ratios on Slide 11. iHeartMedia's consolidated cash totaled approximately $260.5 million as of June 30. Our secured leverage ratio was 7.5 times with total leverage at 12 times. Clear Channel Outdoor ended the quarter with $163.1 million in cash, with its senior leverage ratio of 4.4 times and its consolidated leverage ratio at 8.3 times. The largest use of cash for iHeartMedia in the 6 months ended June 30 was for interest payments, which totaled $876 million. During the 6 months ended June 30, Clear Channel Outdoor used $183.4 million in cash for interest and paid dividends totaling $282.5 million, including $254 million received by iHeartMedia.

Before taking your questions, I want to thank you again for joining us this morning. We continue to build the true 21st century multi-platform media and entertainment company that can compete effectively in an increasingly digital world fueled by data. At iHeartMedia, we remain the number 1 provider of audio programming by far, and we continue to invest to widen the gap between us and others both in traditional and digital media, including leading the way for our industry in the development of programmatic solutions that reflect the way advertisers do business today.

Even with the pending Entercom-CBS merger, we will still have more than 3 times the number of broadcast radio stations than the industry's new number 2 player, and our reach will be almost twice the size of theirs. We think our assets make us a truly unique platform and one that also benefits the entire radio industry as we continue to bring new advertising revenue to our sector.

As you know, we believe that our assets are undermonetized, particularly considering radio's continued superior engagement and reach with all audiences and the new platforms we're developing at both iHeartMedia and Clear Channel Outdoor. We'll continue to work to extend the power of audio across all our platforms, including broadcast radio, data, digital, live events, social media, mobile, podcast, voice-activated platforms, video game consoles, and in-car infotainment system to ensure we're everywhere our listeners and advertising partners expect us to be. And our Outdoor businesses are continuing to expand our digital reach and data capabilities around the world. We believe that we're taking the right steps to position our businesses for sustainable success in the future.

Now let's open the line for questions.

Question-and-Answer Session

Operator

[Operator Instructions]. Our first question comes from the line of Avi Steiner from J. P. Morgan.

Avi Steiner

I've got a couple on business, and then balance sheet, liquidity, et cetera. Just on the business side, Rich, I think you've noted that with costs up and a different ad revenue environment, you're now going to actively manage it. And I'm wondering if you can get back to historical trends and maybe get operating expenses, particularly in the M&E business, ex barter, down.

Rich Bressler

Great, Avi. Thanks. Appreciate the question. So a couple of things. Maybe just take a step back for a second, and we are actively managing expenses. I think if you look at the decline we had in the first quarter in our margin, we improved significantly from that. And just that one data point, I think if you look at our margins compared to any of our peers or the peer set for the U.S. advertising industry we're significantly higher than anybody else to start with. Having said that, we did, and I talked about this a little bit in the first quarter, we anticipated a more robust advertising market, quite frankly, this year, and we had made some investments for future growth and we thought our revenue would even be growing more. And just given the reality that the market advertising market has been slower than we expected, we're continually focused to right-size the overall core estates of the company to deal with the advertising revenue that's there.

Then if you drill down a little bit further on that, so expenses were up about $40 million, $41 million in the quarter. About one-third of that's in direct, about two-third of that is SG&A. You highlighted, as you noted them in the question, some of it relates directly to the mix of revenues, in terms of some of it relates to higher content and programming costs and a piece relates to as we invested in the future for our national business, which again if you look at our disclosure what I mentioned in my remarks and if you look at our 10-Q disclosure is really reading our growth. And some relates, as I said, to some increases in trade and barter and higher cost for sales and commission expense.

The one thing I just want to spend a second on is when we talk about expenses and growth for the future, one of the things we've started to see some revenue is [indiscernible] material yet to the company, where we have to invest is in digital and is in programmatic. And if you take a step back, think about digital as one more radio for the consumer and I want just to put this in context, with advanced listening, it's why we continue to see healthy listening numbers that we have, enables us to maintain our consumer relationship and it adds to our broadcast platform and I touched upon things like SmartAudio and the Sound Point platform in my opening remarks.

And maybe most importantly, one is we're able to follow the consumers wherever they go; and two, from an advertiser standpoint, it's absolutely critical, and I'd say Critical with a capital C, to do business with advertisers in the same way that the digital advertising does today. And that's what's going to ensure our revenue growth and helping hands our revenue growth. And we've got one simple goal, which is to provide a frictionless programmatic solution to advertisers that makes it look like they're buying digital advertising to them and integrates seamlessly into their planning and buying system, but we give them the enormous reach of broadcast radio in iHeartRadio.

So that's what makes us so unique. You get truly the best of both worlds. You have the ability to target and an extrapolated scale and now, we're giving advertisers the ability to buy and plan as easily as they can on digital but at much greater scale. And so the investments that you see, a part of that and what we're planning for the future is to invest in things to allow things like planning algorithms, like cloud-based network across all of our broadcast radio and broadcast radio inventory by making it feel like digital, and then delivering the highly optimized plans that takes -- that allows our advertisers to take better advantage of all of our radio stations, all 850 of our radio stations, all of the day parts and all of the inventory. So maybe I'll pause there, but I just want to give a little more context to the word investment and why it's so critical for us to make these investments for the future.

Avi Steiner

Thank you. And turning to liquidity. You've outlined upcoming interest payments provide a picture of the cash needs. Can management tell us what the company's current cash position is as of today and should we expect working capital to turn positive in the second half, and if you could discuss liquidity levers that you may be able to pull?

Brian Coleman

Avi, I don't know I'm able to give you a cash balance as of today, I think. You've seen the cash balance in our financial report as of the end of the quarter. The 2 biggest events subsequent to the quarter are public. We had a large cash interest payment at the beginning of August, which is public. We drew down under our ABL facility $60 million. That's also in our financials. So you can do some quick math and get a pretty good estimate. But no, we're not going to provide a cash balance as of today. I'm not even sure our accounting systems could get it to me as of today. So yes, that's the cash balance.

In terms of liquidity and liquidity levers, we've added a lot of disclosure to the financial statements about the efforts that the company undertakes with respect to creating additional liquidity. We certainly are aware of liquidity situation, but I'm not going to get in any specifics beyond the disclosure that is -- the additional disclosure that's been put in our financial statement. Suffice it to say, the company continues to focus on its levers. We've looked at liquidity and addressed the issue for a number of years, and we'll continue to do what we can to ensure that there's adequate liquidity going forward to the extent we can. You asked several questions. Beyond that, I think I forgot what the question was. So what did I miss?

Avi Steiner

That's good. I'm going to move on because I've got 3 more I want to get through. You've got two maturities coming up. This is all one question. Is company is so confident that it can extend its receivables base facility. And then turning to Outdoor and the promissory note, which I believe also matures December of this year between Outdoor and iHeart, is an extension there simply an Outdoor board decision? How do we think about that?

Brian Coleman

Yes. So I'll take those on reverse order. With respect to the inter-company note, I would expect that note to be extended. We continue to work at it. Obviously, the Outdoor board is part of that negotiation and will have to approve it as well. But I think at this point in time, we anticipate being able to extend that note prior to its maturity. With respect to the ABL, nothing really has changed since the last earnings call. We believe that the ABL, given the nature of that facility, is something that can be extended and we'll continue to work toward extending it prior to its maturity.

Avi Steiner

Two more left. The first is, am I right that given the balance under the 10s is now below $100 million if that security for whatever reason was not repaid, it wouldn't be a cross default?

Brian Coleman

That may technically be correct. I haven't thought of it that way. I wouldn't say that the recent transaction where we brought it down below $100 million was in any way designed, it's still below $100 million. So I think the answer is yes. A cross default in our major debt agreements is $100 million, so it being less than $100 million would not create a cross default. I believe that is correct.

Avi Steiner

Okay. And I'll end on this, Rich, for your and/or Brian. I think we all understand the company is engaged with discussions around the existing capital structure, but we have never heard your view, I guess, on what you see is an appropriate capital structure and what it should look like to achieve sustainability.

Brian Coleman

Yes. I appreciate the question. You're probably going to understand the answer. There's, we talk about the desire of the company to have a sustainable capital structure post any discussions that we have. We haven't defined those metrics, and I don't think it's a point, I think it is probably a range, but that's not something I think we're prepared to discuss at this point in time.

Operator

Our next question is going to be from the line of Jason Kim from Goldman Sachs.

Jason Kim

Coming back to the margin side of things a little bit. So you mentioned this in your prepared remarks, in answering the prior question as well, but just, can you just talk about the level of flexibility you think you have to manage your expenses as an aggregate through the balance of the year? And specifically, I'm referring non-barter expenses, so your core business OpEx. And I know these are, that there a lot of moving parts, but what was the ballpark dollar amount of the investments in the business that you were planning to make at the start of the year when the top line environment seem more robust?

Rich Bressler

Thanks. Jason, it's Rich. So a couple of things. Well, first of all, in the second question, we're not going to talk about that publicly other than to say that clearly, as I said before, the environment, we expected it to be stronger. We still expect it to be stronger as the years gone on, and that has not materialized. Even with our significant outperformance than everybody else, it's still not at a level we thought it was going to be. In terms of managing expenses, variable expenses, the one thing I will tell you, and those of you that know us and the company and Bob or myself and followed us throughout our careers, we are actively managing expenses. That's what I'll tell you. There are certain expenses, obviously, that are fixed.

There are certain expenses, you said ex trade and barter, that I went through a few minutes on, that's just to give you a flavor of the type of things we're investing for the future. I think if you go back to prior periods of time, we invested, around 2012, '11, '12, and then you saw growth happen. After that, as we, and I think our jobs are in a very challenging and very fast-paced changing advertising environment that constantly evolve and change and evolve and change so we can meet the needs of our advertisers and follow our listeners wherever they are. And that's what we're doing. But I promise you that we're actively managing those. I'm not going to ballpark that, but rest assured, we're not trying to waste $1 here.

Jason Kim

Okay. And then on the balance sheet and liquidity side, so looking at things historically, a question for Brian, is it fair to say the borrowing base of your ABL facility typically is stable or even grows in third quarter and fourth quarter from June levels? And in terms of some of the shorter-term initiatives you could be pursuing to bolster your liquidity, is it fair to say that you are not really looking into the Outdoor side of the business for any liquidity measures? Thank you.

Brian Coleman

So the borrowing base is tied to the receivables of our media and entertainment business. And so to the extent that there's greater revenues in the first -- I'm sorry, the third and fourth quarters. And I think that's generally accurate, then you would expect the borrowing base to increase. So the answer to the first question is a yes.

I think on the Outdoor side, the right way to characterize our look at liquidity levers is nothing's off the table, we're looking across the companies. That being said, there are some limitations at Outdoor, including we would need board approval to continue everything there, a lot of the RP basket that was under the ventures that's public but that has been utilized. So I wouldn't limit it to say that anything is off-limits. I think we're looking at everything we can do, but obviously, we have certain things to consider with respect to the Outdoor group.

I also have -- I'm sorry. I also have a comment on the previous cross default question. It was a great question by Avi, but it caught me a little offguard. We actually do have $57 million of indebtedness under the 2016 legacy notes that used to be included in the computation of the cross acceleration trigger. So Avi asked a good question. I didn't answer it properly. But hopefully, that clarifies that of the $100 million, we have actually have a forbearance against $57 million. And so the number is actually smaller than $100 million.

Operator

Our next question then is going to come from the line of Lance Vitanza from Cowen.

Lance Vitanza

Hi, thanks for taking the question. First, I wanted to go back to the investments that you're making. I mean, it reminds me, the investments in the P&L, it reminds me a lot of what you guys did back in 2012. You made a lot of investments and strategic initiatives in digital and so forth, which at that time depressed EBITDA but proved absolutely essential and were largely responsible for the significant outperformance in revenue and EBITDA that you went on to post over the 2013 to 2016 period. So honestly, coming in today's earnings, I was worried that you might sacrifice the future of the business to some extent in favor of short-term EBITDA targets. So I just -- I want say I applaud you for sticking with the investments despite the soft revenue. I think it's absolutely going to prove to be in the best interest of the stakeholders at the end of the day. Now that said, radio pacing down 1.6%, it doesn't sound good, but if remember correctly, you were pacing down 3% or so as of the first quarter earnings call. Obviously, you came in plus 2%. So rather than focus on pacings, could you just describe the advertising environment today versus what you saw in the first quarter, better, worse or about the same?

Rich Bressler

Great. Well, first of all, Lance, really, we very much appreciate your opening comment and the confidence that you've expressed to the management team and quite frankly, the confidence you have in us in the judgments that we're making. Your memory is correct in terms of pacing. And I probably think I said this 3 times in my opening remarks, and I probably say it 3 or 4 times in every single call, and everybody around the table here is laughing when I say the old time's about, that pacing is just a point in time.

And quite frankly, because of -- and I made this comment earlier, because of the fact that we are in an environment and have been in an environment, I don't expect it's going to change that advertising gets placed closer and closer to the airing days. I think that's happening quite frankly with the entire industry. And it goes back, again, just to tie together why it's so important that we make investments to meet advertisers' needs and I talked about programmatic and ad-based serving technology and cloud computing and everything I mentioned before, that all enables people. One, it enables us to meet the needs of our advertisers and more targeting; but two, quite frankly, it probably enhances the ability to do things later.

So I would say absolutely, I think pacings are less important and more a point in time than they have ever been before. And I think we, particularly in our businesses, so I think we evidenced that every quarter that goes by. In terms of the advertising market, just a couple of things. It continues to be extremely competitive. You've seen some of the large digital players, which have just had extraordinary growth like Facebook and Google, and I applaud them. And at the same point in time, I think our performance, whether you compare us to the rest of the radio industry and be rated by Miller Kaplan, we're significantly outperforming the rest of the radio industry, and I think we're significantly outperforming most advertising fee U.S.-based media company, again, excluding the 2 big digital players.

I would say in terms of environment that's out there, maybe it strengthened a little bit but pretty much the same as it's been in the first quarter, which is why I said when we look at the investment and there was an earlier question about variable cost, it's a balance, right? It's looking to make sure that we manage the variable cost and don't have a cost structure, or have a cost structure that's built for the advertising environment. And then as you note in your opening remarks, make sure we're investing for the future because absolutely, our world that we live in is going to more automated buying and selling. So, and it's also, by the way, last thing I'd say, it's the reason why we talked about that, but again, the multi-platform, things like live events, I noted in my opening remarks, podcast, voice-activated platforms, we've got to be in every one of those and continue to transform our company so we can meet the needs of our advertisers and follow our listeners.

Lance Vitanza

And then just one last question from me regarding the recent $16 million bond exchange. And I'm sorry if I missed this earlier, but did that exhaust your ability to move unsecured debt up into the secured level of the cap structure? Or do you have additional room there?

Rich Bressler

Yes, that actually didn't impact the debt baskets because the senior debt that was used as exchange currency was in an unrestricted subsidiary. So it was neutral with respect to the baskets.

Lance Vitanza

Okay, great. So in theory then, with respect to, I guess I'm just trying to get to is could you essentially, if you have willing participants, could you satisfy the rest of the maturity or the rest of obligation in that fashion?

Robert Pittman

Well, I guess it would depend on exchange ratio but at par, yes, we could.

Brian Coleman

If certainly we had willing participants.

Lance Vitanza

Well, great, which brings me to, were any of the $16 million that got exchanged in July, were any of those held by iHeart subsidiaries?

Rich Bressler

No. This was a reverse inquiry from a third party on a privately negotiated exchange.

Operator

We have a question from the line of David Phipps from Citigroup.

David Phipps

A couple of things on CCO. When you look at the International, the FX impact for the third quarter and fourth quarter, it seems like it's improving. Is that part of what you would expect for the business?

Rich Bressler

Yes, I mean, look, we've got, and I think you see it -- you saw it in the results, and you see in the pacing, we operate, quite frankly, in a lot of different countries outside the U.S. We've seen -- it's interesting, we've seen some strength in the overall business, particularly like in places like the U.K., in Spain and in Switzerland. We've seen some nice increases in the overall business. And actually, I think I mentioned in my opening remarks our U.K. business is performing incredibly well and even at a higher level than since we lost the London underground, which turned out to be an incredibly prudent and smart financial decision recommend by William Eccleshare and his team.

And we've also seen the benefit of investing in our digital billboard network, advertisers and particularly outside the United States. And again, I think the U.K. is a great example. If you look at what we're doing in the U.K., we're significantly outperforming our competitor. And the reason why is because we've built these digital networks that the U.K. team has done a great job presenting to advertisers. So those environments have paid off. And usually, and we'll see if this follows through, the U.K. tends to be a little bit of a leading indicator in Western Europe in terms of the advertising revenues there and the advertising environment. So I'm hoping that follows, the rest of the countries follow as we go forward.

Brian Coleman

The thing I would add to Richard's comments is keep in mind, we reinvest a lot of the excess free cash flow that comes out of International back into the International business. So while FX fluctuations affects the reported numbers, there isn't a whole lot in terms of impact on actual cash movement back and forth.

David Phipps

And does -- so if CCO were to sell some assets in the near term, would they have capacity to continue to dividend out those, some of the asset proceeds?

Rich Bressler

The restricted payment capacity under the Outdoor venture is all but exhausted.

David Phipps

Okay. And then finally, congrats on the radio business. It was a tough quarter for the rest of the industry, certainly better than the industry. Are there any things that are unusual in this third quarter as compared to the last third quarter. So something that might be in there that wasn't in there last year or vice versa as we think about the third quarter.

Rich Bressler

You mean think about the third quarter coming up…

David Phipps

Yes, the quarter, like a special event side, yes?

Rich Bressler

Yes. No, no, we had some -- if you remember, last year, in the third quarter, we had some contract reserve reversals for some talent last year in the third quarter that we talked about and if you go back and look at our third quarter earnings call last year, but that's the only thing that came out -- that comes to mind of any size and scale. And also, don't forget, last year, we had about 11 -- I'm going to say about $11 million, if I remember it correctly, of political revenue last year in the third quarter, which obviously we're not going to have this year in the third quarter. So that reserve on the expenses accrued in the talent and not having political revenue are -- state the obvious in that $11 million.

David Phipps

And then finally, on the International Outdoor business, you had rising revenues and declining expenses in that business, so it had some nice margin pick-up in that. Was there anything particularly unusual about this quarter? Is that something that you're starting to gain operating leverage on in the International markets?

Rich Bressler

Yes, yes. Again, I just -- it's just, quite frankly, just a really great management. And I don't mean just ourselves. I mean, our team over there just in terms of focusing, rightsizing the business, in terms of the revenue that was anticipated. And again, I think, starting to see the fruits of, I think London is the best example, where we walked away from some business that wasn't going to be profitable, built out a different digital network and we're reaping the benefits now of that.

Operator

And our final question comes from the line of Aaron Watts from Deutsche Bank.

Aaron Watts

Just 2 from me. One on the app. Any color in terms of the 104 million registered users on the uptake your getting with some of your streaming subscription offerings that you launched earlier this year. Just trying to think about monetizing that big user base. And then Rich, secondly, I know this is a touch one, but any specific factors you can call out that you think dragged down on radio on an industry performance this year-to-date and caused it to be a little softer than you had initially thought? And any reason to be optimistic towards the tail end of this year into 2018 on why that can get a little better?

Robert Pittman

Sure. So a couple of things. Thanks for the question. Remember, just, again, just to level set on, and I think the question really relates to iHeartRadio Plus and iHeartRadio All Access, the way to think about this is it's a great example of how we can add additional products and value to our listeners by introducing new revenue streams. And so far, the performance is right in line with our expectation. And again, just go back to the theme of what I keep saying. Our job is to continue to invest to meet the needs of our advertisers and then we rent our consumers to our advertisers. That's what generates our advertising revenue. And therefore, we need to follow our consumers wherever they go.

The financial impact to us at this point is not significant. What's great about our 2 in-demand subscription services and what's so much different from our competitors is our business model is not entirely based on streaming service. This is an add-on, again, to meet the needs of our consumers. So we don't, we're seeing the detailed subscription numbers. And I'm going to say, we're not going to be the same thing financially and the financial back is not material, but we feel great about the service. In terms of ourselves and the industry. I really can't comment about the rest of the industry and their overall performance. What I can say is that I do think everything we're going to build out a multi-platform, we say those words all the time and you guys may get maybe not sick of hearing them, but say, okay.

Here he goes again, talking about multi-platform 21st century media entertainment company. But again, that's what we're doing, just constantly expand our offerings. And yes, I think, I'm not going to predict what advertising revenue is going to be, but I think we are still wildly under-monetized. Our ROI, as measured by Nielsen, is 6:1. So our advertisers continue to get great value. And if you look at where our growth is coming from, and again, it's outlined in the 10-Q, as of today, it's from the national platform. So we're getting lots of big, blue-chip advertisers in lots of different categories and continuing to drive our local business. So I think we have every reason to be optimistic because of the value proposition that we deliver to advertisers and the way we meet the needs of our consumers, our listeners.

Eileen Mclaughlin

All right. Thank you, everybody for participating in the call today. We really appreciate it. And as in the past, Brian and I will be available to take any calls today and tomorrow. Thank you.

Operator

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.

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