Q2 2022 Clear Channel Outdoor Holdings Inc Earnings Call
Talks with potential acquirers regarding the disposition of certain of our lower margin or lower priority European assets.
If we are able to complete those types of sales, we expect our remaining European perimeter to have substantially higher EBITDA minus capex margins that our current European business does and to be more able to meet cash needs.
So if we're able to complete those types of sales, we believe that our remaining European perimeter could be helpful in bringing our leverage down over time through the generation of net free cash flow and net sales proceeds for potential dispositions, if and when the deal making environment improves.
We cannot guarantee the timing or success of our efforts to dispose of those lower margin or lower priority assets and we will communicate further details as and when we are able.
With that let me turn it over to Brian to discuss our financial results as well as our guidance.
Thank you Scott good morning, everyone and thank you for joining our call.
Scott mentioned, we had another great quarter, and we remain optimistic about our business in the second half of the year. However, we do recognize the market is concerned about a potential softening in the business environment and we believe we are ready to respond as appropriate.
Moving on to the results on slide five.
Before discussing our results I want to remind everyone that during our GAAP results discussion I'll also talk about our results excluding movements in foreign exchange rates non-GAAP measure.
We believe this provides greater comparability when evaluating our performance.
Avoid reputation we announced our reported for the second quarter of 2022 and.
And the percent changes, our second quarter 2022, compared to the second quarter of 2021, unless otherwise noted.
Consolidated revenue was $643 million, a 21, 1% increase excluding movements in foreign exchange rates consolidated revenue was up 27, 9% to 679 million exceeding our consolidated revenue guidance.
Consolidated net loss was 60, ultimately compared to a net loss of $124 million in the prior year.
Adjusted EBITDA was $164 million up substantially compared to $97 million in the second quarter of 2021.
Excluding movements and foreign exchange adjusted EBITDA was slightly higher at $169 million.
Please turn to slide six we'll review of the Americas second quarter results.
Americas revenue was $346 million up 27, 4% and even more significant surpassed pre COVID-19 revenue levels with revenue up five 8% compared to Q2 of 2019.
We continue to see increases in revenue across most of our products, primarily driven by airport displays and Gulf ports.
Digital revenue, which accounted for 38% of Americas revenue was up 53, 2% to $103 million driven by both airports and billboards.
National sales, which accounted for 38, 6% of Americas revenue was up 30% with local sales accounted for 61, 4% of Americas revenue and up 25, 9%.
Direct operating and SG&A expenses were up 36, 4%.
The increase is due in part to a 49, 4% increase in slight lease expense to $114 million driven by higher revenue, primarily in our aircraft business and a $17 million decline and negotiated rent abatements.
In addition compensation costs were higher due to improved operating performance increased head count as well as higher credit loss expense related to higher current year revenue.
In prior year reductions in the allowance for credit losses.
Segment, adjusted EBITDA was 149 million up 16, 9% with segment adjusted EBITDA margin of 43%.
Turning to slide seven.
This slide breaks out our Americas revenue into a Billboard and other and transit.
Billboard in other which primarily includes revenue from bulletins posters Street furniture displays spectacular and Waltz case was up 14, 9% to $281 million. This performance was driven by higher revenue yields and digital Billboard deployments with all our regions driving growth with particular strength in our.
California and southwest regions.
Transit was up 146%.
But are four display revenue up 148, 6% to $61 million.
Report revenue was helped by the rebound in airline passenger traffic.
Yes.
Now on to slide eight for a bit more detail on Billboard.
Goodwill and other digital revenue continued to rebound strongly in the second quarter and was up 28, 3% to $96 million and now accounts for 34, 1% of total Billboard and other revenue an increase over Q1.
Non digital Billboard and other revenue was up 9%.
Next please turn to slide nine we'll review of our performance in Europe in the second quarter.
Commentaries on results that have been adjusted to exclude movements in foreign exchange rates.
Europe revenue increased 27, 8% driven by improvements across all products, most notably street furniture, and transit and almost all countries led by France, Sweden and the UK.
Europe revenue for the second quarter was also compared to the 2019 comparable period, excluding movements in foreign exchange rates.
Digital accounted for 38% of your total revenue and was up 56% driven by an increase in digital revenue across all markets.
This growth in digital was primarily driven by the UK, France and Sweden.
Direct operating and SG&A expenses were up two 1%. The increase was driven in part by increased slightly expense, which was up 13, 2%, resulting from higher revenue and a $3 million reduction and negotiated rent abatements as well as the lower government subsidies.
In addition compensation costs were higher driven by improvements in operating performance. These were partially offset by lower costs for our restructuring plan to reduce head count in Europe .
Segment, adjusted EBITDA was $50 million, a substantial improvement over the $2 million in Q2 of 2021 second.
Segment, adjusted EBITDA margins rebounded and are in line with pre COVID-19 levels in Q2 2019.
Moving on to CIBC.
Our Europe segment consists of the businesses operated by <unk> and its consolidated subsidiaries.
Accordingly, the revenue for our Europe segment is the same as the revenue for <unk>.
Europe segment adjusted EBITDA, the segment profitability metric reported in our financial statements.
Not including allocation Ccitt's corporate expenses that are deducted from Ccitt's operating income and adjusted EBITDA.
Europe , and Ccitt revenue increased $33 million during the second quarter of 2022 compared to the same period of 2000 $21 million to $280 million.
After adjusting for a $35 million impact from movements in foreign exchange rates, Europe , and CCI DB revenue increased $69 million.
<unk> operating income of $16 million in the second quarter of 2022 compared to an operating loss of $40 million in the same period of 2021.
Let's move to slide 10, and a quick review of other which consists of our Latin American operations.
In order to Europe My commentary on the results that have been adjusted to exclude movements in foreign exchange rates.
Other revenue was up 38, 1% driven by improvements in all countries.
Operating SG&A expenses were up 16, 6% driven by higher site lease expense related to higher revenue.
In addition compensation costs were higher driven by increased head count.
And segment adjusted EBITDA was $2 million an improvement over the prior year segment, adjusted EBITDA of negative $1 million.
Now moving to slide 11, and a review of capital expenditures.
Capex totaled $45 million, an increase of $13 million compared to the second quarter of the prior year as we ramped up our spending particularly on digital in the Americas.
In addition to our capital expenditures I also want to highlight that during the second quarter, we made several asset acquisitions totaling $22 million in our Americas segment.
Now on to slide 12.
Year to date cash and cash equivalents declined 96 million to $350 million as of June 32022.
And during the second quarter cash and cash equivalents declined $117 million.
Adjusted EBITDA of $164 million contributed positively to our cash balance for the quarter and was more than offset by cash interest payments net capital investment and networking capital requirements.
Our debt was $5 6 billion as of June 30.
Slight decline from year end, primarily due to scheduled quarterly principal payments on our term loan facility.
Cash paid for interest on the debt was $110 million during the second quarter, an increase of $43 million compared to the same period in the prior year, primarily due to the timing of interest payments related to the refinancings, we completed in 2021.
Our weighted average cost of debt of 6%.
Slight increase from year end due to the increase in LIBOR rates.
Our liquidity is $528 million as of June 30th down compared to liquidity at year end, primarily due to the reduction in cash.
As of June 32022 are first lien leverage ratio was four nine times well below the covenant threshold of seven six times.
Moving on to slide 13, and our outlook for the business for Q3.
At this point in time, we believe our consolidated revenue will be between $625 million and $645 million in Q3 2022, excluding movements in foreign exchange rates.
Americas revenue is expected to be between $340 million and $350 million.
And Europe's revenue is expected to be between 270 and $280 million excluding movements in foreign exchange rates.
Based on month in July exchange rates foreign currency could result in a low to mid teen percent headwind to year over year revenue growth and Europes third quarter.
We expect consolidated capital expenditures to be in the $185 million to $205 million range in 2022.
The slight decrease compared to the guidance, we provided during our first quarter earnings call.
This is due in part to movement in foreign exchange rates as well as changes in project timing.
We expect to spend approximately 60% related to the Americas, 40% related to Europe .
We anticipate roughly 70% of these expenditures in capex to grow the business, including expenditures made of deploying new structures or displays primarily digital.
To renew existing contracts.
Additionally, we anticipate having approximately $341 million of cash interest payment obligations in 2022.
Including a $180 million in the second half of this year and $372 million of cash interest obligations in 2023.
Assuming current interest rates remain in that we do not refinanced or incur additional debt.
And now let me turn the call back to Scott for his closing remarks.
Thanks, Brian .
Advertising demand remains healthy and we're pleased with the positive trends, we're seeing in our business and our industry in the current quarter as.
As you May have seen this morning, we announced our first Investor day will take place in New York City on September eight.
I look forward to seeing many of you in person and having an opportunity to discuss our strategy for the Americas business in more detail as well as our expanded financial disclosure and financial outlook.
And now let me turn over the call to the operator for the Q&A session and Dustin Cochrane, our CEO of Europe will join us on the call.
Thank you.
Thank you very much.
Question. Please press star one on your telephone keypad.
If you change your mind, please brushed off lease pace.
We're preparing to ask your question. Please ensure that your guidance lightly.
Our first question comes from Steven Kwok from <unk>.
Wells Fargo Stephen Please go ahead.
Okay.
Good morning, So maybe first just.
A couple of questions on Europe , and the strategic review there could you remind us maybe of some of the major markets that you play in in Europe and.
Any sense of how much the markets that you are considering divesting could represent of that business and if maybe that's a bit too specific could you comment on whether or not you would expect potential transactions to be deleveraging, especially when including maybe some of the overhead costs that that might go away.
Hey, Steve Thanks, Thanks for the question.
Just in terms of the big markets that we're in.
We have a big business in France, we have a big business in the UK.
We have meaningful businesses across the nordics.
Italy and Spain.
We have a good presence in Benelux.
In Switzerland.
And then a little bit in eastern Europe .
As well, but but the big ones or the first half dozen that bill mentioned.
In terms of your in terms of your question. We've kind of told you. What we can kind of feel like we actually went out on a limb a fair bit, but we know there's been a lot of chatter and we know it's been a long time. So we wanted to get some sense of how the strategy was evolving but I think we've kind of given you what we can get you on.
The strategy you can imagine there are a lot of.
Different moving pieces that make it very hard to answer specific questions about about that.
Sure.
And then maybe just on on Americas. The digital growth was really strong as that continues to be a bigger percentage probably over time of America's revenue, maybe first how do we think about what sort of pricing you're seeing on digital inventory versus print.
And as that mix shift goes more to digital how should we think about the margins of the Americas business is it structurally higher restructure and a little more pressured maybe with a little bit better kind of growth algorithm. So would just love to think about that transition.
Yes.
It's a good question.
The thing about digitally we're seeing really strong digital growth across the portfolio. So.
Not all of it has the same margins a digital roadside sign is a very different margin structure from a digital sign in an airport because of the nature of the contracts and how things how things underlie.
So how that mix plays out over time is going to be important and you still are seeing and I think we will probably get other questions on this is.
As we dig in I'll, just I'll answer a question you didn't ask.
But airports is still comping against in Q2 airports is still comping against a pretty soft numbers and.
So airports is differentially influencing.
The mix is it as it gets to sort of normalize and frankly really really performed really quite strongly at this point. So I think as you think about it over over multiple years, it will be a tailwind for margins, but it won't be the tailwind for margins you might you might imagine I guess there was a.
Pricing question in there as well and I would just say that we're kind of seeing the premium pricing in digital kind of get back to where it historically has been I don't think that we've seen.
Digital pricing get way out of line from where it was kind of pre pandemic I think that address the set of things remind me if I may spend the other part of your question.
Steve are you there.
To be drawn.
Alright that was great yeah. Thank you Scott.
Thanks, Steve.
Thank you.
Our next question comes from Cameron <unk> from Morgan Stanley Camry. Please go ahead.
Hi, good morning.
Curious if you guys are seeing any softness as you look ahead in the U S market familiar with that market.
And how are you thinking about net working capital for the year now that we are halfway through.
So I'll comment on the market conditions, and let Brian take the net working capital.
Our market.
Outlook right now is pretty strong we have not really seen softening I think that I've been I've been paying attention to everybody as earnings announcements and I think that everybody is trying to piece together, what actually is happening in the AD market and it's it's been a it's been a bit of a mixed bag and I think.
One of the things to watch out for at least as it pertains to out of home I'm pretty sure. This will apply to some of my competitors as well is that really in the second half of this year is when youre going to see us comping against.
Really strong numbers.
Q2 of 'twenty, one was when we were just starting to see things come things come out of the pandemic chat.
Challenges that the industry had that we had.
And that's not uniform across the world. There are parts of the world that are still not recovered 2019 level certainly in the U S. We've long since kind.
Kind of eclipsed eclipsed that in much of our business, but.
As you as you look at our numbers youre going to see the percentage growth rates come down, but I would urge you not to just immediately say all of that is because of the AD market softening because from our perspective of the dialogue, we're having with advertisers.
We're not we're not seeing that at this moment, we're not seeing a bunch of cancellations come in we're not seeing things that usually harkins to when people are really an pullback mode and I am sure thats unique to out of home in some ways, but it's an important distinction.
Particularly given the volatility of the last couple of years, Brian want you take the.
Net working capital sure.
Working capital, we continue to believe as the underlying business.
Normalizes on the tailwind of the Covid as we get through 2022, we will see working capital start to normalize vis vis working capital history now Theres two components to that one is one of the seasonality in our business is very seasonal so a quarter to quarter shifts can.
Can be dramatic in Q2 was a strong quarter.
There's also the element of the unwind from the post Covid environment and so when you look at things in Q2 like.
You see a large buildup in NAR.
A function of seasonality, but also a function of.
Underlying business performance recovery post Covid increase in revenues and the consequential increase in both.
Both of them both in.
In the Americas, and Europe, I would also throw the unwinding of deferred payments into that its a much smaller percentage in terms of the impact on working capital, but it is something as we clear through kind of a post COVID-19 environment.
That really is getting flushed out of the system. So as we progress through 2022, I think working capital movements will start to normalize to beat Covid patterns and I think we're seeing that shift right now.
Great. Thank you.
Right.
Thank you. Our next question comes from Richard <unk> from JP Morgan, which please go ahead.
Great. Thank you just wanted to follow up on the one question on the U S business and then particularly European question.
On the U S business can you talk a little bit about since you mentioned that were coming out of this.
Easier comp period to a more difficult one in your third quarter guidance like what.
Seasonal trends are impacting that guidance versus like with secular trends that we should be.
That's moving.
Offsetting any seasonal weakness or comping issues.
On a year over year basis.
So.
I'll take a run at this and Brian why don't you listen closely and see if I Miss anything important and you can you can weigh in.
Seasonality operates pretty differently across the across the global portfolio.
Q3 is usually a.
A pretty strong quarter for us I think it's in the U S. It's the third strongest in Europe , I think it might be it's probably also the third strongest and how and how and how things go but when we when we do our guidance. We are actually looking a lot more at what we see right in front of us.
So while seasonality might play a role in how we like have our forecasting models and things like that the guide that we give is based on a lot of data that we have in terms of how bookings are playing because a lot of these campaigns get booked in advance, especially in the U S.
So we have we have that.
Don't think that we actually.
Consciously do a lot of secular <unk>.
Factoring in.
Is that kind of gets baked into what we see right in front of us. So like right now we've talked the last couple of quarters about how auto insurance has been soft that's a known thing and thats in our bookings and we are very aware of it. So it's not like we're making a lot of.
I mean, when we when we give this guidance, we're already well into the quarter and have a fair bit of data in front of us. So.
It's not it's not a big Econometric model I guess is on the how I'd characterize it Brian if theres other color you'd add.
The only thing I would add.
I agree with what you said is.
The business was starting to recover.
Q3 of last year, and so you are going to see tougher comps.
One of the things that we did to help.
Analysts take a look at the.
The component of that that was.
Unusual or one time as we did break out in our reporting.
Rent abatements, and we broke it out by segment and hopefully that will be helpful. As you think the number one time benefits last quarter that we will not see in future quarters at least certainly not see to the extent that we saw them.
And you can kind of help understand the patterns moving forward, but we are going to comp against tougher quarters, and we want to manage expectations, but we still feel very optimistic about the second half of the year.
And are excited to get there.
Great and then on Europe . The margin was very strong both in local and despite FX headwinds how should we think about.
The margin in that business over the next few quarters.
Well I'll hit it at a high level and then I'll, let Justin Cochrane, who runs the European business, winning and I think we will.
A positive sign this quarters, we see margins in the European business can come very close to 2019 levels and so we are back to pre COVID-19 levels based on the strong rebound and recovery in Europe.
Adjustments if you wanted to provide a little more color or detail on how you see margin performance going.
Forward.
Yes, I think the thing I'd say Brian .
As Scott said.
The European business is picking up is pretty similar to the U S. But it's appropriate slightly more extremes Q4 is our biggest quarter Q2 is the next biggest in Q3 and in Q1.
Cost base by fixing up 75% fixed 25% variable so as revenue goes through that seasonal curve that the margin the margin changes through the course of say Q4 was our strongest Q2, the next and so on but I think the point now where you can see I think we can expect to see margin similar to what they were in 2019.
Excluding the one offs that Brian was mentioning so we still maybe compared to 2021, we still had some one off or at least some COVID-19 coming through because some of the rental payments came through quite late so any of those things.
Seeing them in the third quarter in 'twenty, one so there'll be some certainly on a year on year comparative, but excluding that we're pretty much back to a normal margin profile.
Great. Thank you.
Thank you. Our next question comes from Lance Vitanza from Cowen. Please go ahead.
Hi, guys. Thanks for taking the questions and nice job on the quarter, Let me start in the Americas seeing good airport growth could you talk about how much impact you you felt from the New New York, New Jersey Port Authority deal in.
Any help in thinking about <unk>.
All it like for like growth I mean, how the rest of the portfolio kind of grew organically.
Well, let me start there.
So.
Thanks, Lance thanks for the question.
The New York, New Jersey Port Authority has been in our portfolio for a year and a half now and so we are overlapping.
<unk>, we're going to be building out.
Inventory over the first number of years of that contract. So there will be expansion in the footprint of it but the actual contract has actually been baked in and we're overlapping.
New York, New Jersey Port Authority numbers.
It's our biggest contract within airports.
Sure.
Reasonable chunk of the airports business.
But I don't think we've actually disclosed it from <unk>.
Percent of the overall, but it is our largest contract I'll leave that one at that.
Sure and I know you mentioned in the prepared remarks that passenger loads, obviously were a factor.
Could you could you go into a little bit more detail there I'm wondering because I guess in the past and maybe this is no longer relevant but in the past, we really we kind of cared about overseas travel more than we cared about domestic travel business travel maybe versus vacation travel my sense is that international.
Overseas business travel is still down a lot from pre COVID-19 levels and I'm wondering number one is that right number two does it matter as much as we thought it would and is there additional upside in airports to come to the extent that overseas business travel continues to recover.
Right. So youre there are two paths that we've talked about I don't actually know that we have a good data source for the intersection of those two cuts, but you are talking about international travel and Youre talking about business travel and so I'm going to I'm going to address those two things separately, because I don't think I have the cross.
Tab on the two of them.
In terms of in terms of international travel with the Covid requirements, Covid testing requirement going away and frankly with currency being where it's been.
International travel is back beyond 2019 levels at this point. So it has if you just look at pure number of overseas departures.
Now I can't tell you how much of that is business and how much of that is.
Consumer, but presumably there is a mix and even even within the consumer part of it. It's a very very very premium part of the marketed deals.
Some of our most premium airports.
And so it's a that that recovery is playing an important role in the recovery of our airports business overall and I would tell you that probably we will see some tailwind from that its still is the minority of the revenue that we get but that tailwind probably won't be fully cleared out until the end of Q1.
On next year.
But again, it's the it's the minority of the revenue is international on business travel.
We do have some sources for domestic business travel and our expectation there is that that will be in the 80% to 85% pre pandemic level.
This is what we're seeing in the sources that we've got.
It's kind of I mean, I imagine that you travel a fair bit Lance I know I do.
It has gotten a lot harder to get an upgrade has gotten a lot harder to get the claims are all very very full and my sense is is that.
Just from my Street.
Travel is the business traveler is back in a pretty meaningful way at least on the routes.
I am traveling on and again, our data sources externally suggests that we're going to see that in the 80, 85% pre pandemic level. So the point of all is that airports as a <unk>.
Channels for advertising are back and I think one of the things that has happened with some of our advertisers who did pullback during the pandemic is that they've seen.
Degradation in their performance and their conviction and the importance of airports in their mix is.
Is greater than it might have been before and so I'll just I'll leave that at that and see if that answers your question.
Yes. It certainly does thank you and then turning to Europe .
Digital revenue, obviously grew 50% ex FX that's great performance.
I'm wondering if you could talk a little bit about I know you called out the number of digital displays that you added I think but I'm, just wondering sort of the percentage growth in digital displays presumably that's up a lot less than the 50% revenue growth and I guess I'm just trying to get at.
If we think about that revenue growth how much of that was sort of improved yield versus just.
Better penetration of digital displays.
Sure well I'll, let Justin I'll, let Justin address that one one comment I'd just make in general though is that yes, our growth in digital is going to exceed the growth in panels pretty much in every in every geography, but just why don't you talk a little bit about some of the drivers of that growth.
The question he is asking about margin how that flows through.
Sure. So if you look at what we disclosed last year's Q2 'twenty. One we had 16600 screens Q2, 'twenty 218000 days from just 13% one 3% increase in screen. So obviously you are right. The digital revenue growth is far in excess of the digital screen growth I think there's still some noise in there.
In the numbers because when you think back at Q2 'twenty. One we still had some COVID-19 restrictions in place in certain markets, especially somebody like France, where we have things like shopping malls with still still closed.
During Q2 'twenty one so there's still some noise in the numbers and somebody like moves its way over highly digital so.
You won't really see.
Some really.
More useful comps until we get into Q3 and Q4, what's going on with digital because of that noise of COVID-19.
Say is digital as we as we deploy more in markets as we get to scale across different markets. It becomes stronger and stronger proposition and that generally helps you grow your yields across across digital and as we start to go down a programmatic journey in Europe . You also start to see some strong sales on digital so it was a bit of noise in the numbers still.
But obviously the percentage revenue increase far outweighing the growth in screens once that noise is removed.
Close to the real quick, but I hope that helps in overall comments.
It does thank you and then just to finish up for me back on the asset sale front I'm just wondering.
So it's more complicated than this but.
If you Couldnt find a buyer at a price that you would like for all of Europe is it realistic to think that youll be able to find buyers for the less profitable portions of Europe , and what am I missing there.
Yes, I think we've kind of said what.
Like I said to Steve Lance.
We've kind of gone out on a limb being as descriptive as what we were.
On what we're doing and why but let me just assure you we were very diligent and thorough.
And.
Shook every tree and we learned a lot in that.
We have learned a lot and are continuing to learn a lot in the strategic process that we've done and.
We feel good about what we what we messaged.
Well and to that point I mean, Europe would appear to have some real momentum right. So I guess it begs the question why you're in such a big hurry to get rid of that in the first place.
I understand that the business doesn't have the margin structure that you have in the U S. Given the asset mix, but that's always been the case and it just seems like with the increasing digital penetration and the growth rates.
It would appear that there is there is there something I'm missing on that front.
Well I think we've talked about the importance of focus and we've talked a lot about digital transformation and how running digital transformation in one country well is a large execution challenge and when you get into trying to do it across a really broad set of platform.
<unk>, you dilute expertise and resources pretty quickly. So I think the reasons that we had for embarking on the strategic process are sound and they are the right reasons. The marketplace was not in a place that we were able to.
Giftware as we as we said in our comments, so I think that.
I think we've said a lot on this on this topic I think our strategy remains to focus.
I think thats.
That's pretty much what we can share with you Lance.
Thank you very much guys I appreciate it.
Thank you. Our next question comes from Jason Kim from Goldman Sachs. Please go ahead.
Great. Thank you very much can you talk about yield management and your ability to get higher pricing its been a strong environment for your business and outdoor advertising in general.
Given the current macro picture are you seeing any pushback in terms of price increases.
Yeah.
So.
Price is always something you negotiate on.
If it was if it was easy we'd have even more than what we than what we have.
So I think you should you should assume that our counterparties are thinking.
<unk> aggressively about value on the dollar that theyre receiving.
And I think.
You touched on measurement measurement is one of the tools by which we demonstrate value of.
What we're what we're delivering to advertisers.
We have had a very object lesson I referred to this in airports, but it's true.
In road side, as well where people saw impacts on their results and on their brands by having pulled out of out of home and now they have conviction on it.
And I would tell you that out of home remains.
Kind of the best value play in media So of course, there's pushback on pricing.
If it was easy.
Our results would be even greater than what they are but.
I think we have a very sound footing the stand on as we're pricing for the value of our inventory hopefully that hopefully that addresses a it is a huge array of.
Conversation is very different when you're talking about.
In rural sign versus something that sits on the Lincoln Tunnel for instance, so scarcity matters a great deal in this business.
Thank you that's helpful and then.
Regarding the European asset sale, so to the extent the size of that divestiture is smaller.
What are you thinking about addressing the the CCI EV bond maturity in 2005, it's a fairly small bond, but they are the first maturity for the company and maybe just more broadly for Brian Good business fundamentals continue to be strong, but capital markets have become more volatile this year, you've got good liquidity position.
I just wanted to get a sense of your general outlook for your balance sheet strategy, just given the state of the market.
Well were somewhat in the fortunate position that we don't have any major maturities for a while and that was that was by design. When we refinanced a lot of it definitely did post separation.
The first material maturity would be the CCI BBB BB notes that can spoke up and then kind of pre current marketing conditions. I think we were pretty relaxed about those sit on top of a discrete stream of cash flow and it would be refinanced whatever mid market rates would be.
We still have time, and so I'm not sure. It's fair to think about or extrapolate current market conditions to that future point in time, but I also think we have the strategic review going on.
And some of the outcomes of that review may impact our philosophy on the notes.
I think in general as the European perimeter and thus the cash flow stream. That's of course, those notes shrink either at that time or at the time of refinancing.
The size of the note issuance with either shrink proportionally.
And that can be a function of sales proceeds being directed to or being required to be directed to the pay down of reinvested EBITDA producing assets.
Within the perimeter.
But look by and large I think I think we're keeping our eye on it it's not huge it does set upon upon a discrete cash flow stream.
It can be financed in the European markets that can be financed in the U S markets are both I think.
We have a lot of options.
It's not something we're worried about right now unless unless we trigger something under the repayment provisions.
Think we feel pretty good about being able to refinance it if we want to.
Or being able to address it by a repayment or for repayment equiniti.
Great. That's helpful. Thanks, very much <unk> Investor day in September .
Okay.
Thank you.
Question comes from Jim Goss from Barrington Research Jim. Please go ahead.
Good morning.
Couple of things, but.
One more about the.
Separation.
Does it require that.
We sold or as spin off of some of the assets a possibility.
Within the context of that strategic review.
And thanks for their focus on digital transformation I think for very good clients to raise for just providing the nature of the company.
Great well I think on the on the strategic review I think we we've taken a broad look and I think we've kind of said what we're what we're able to say at this time on it Jim.
But there wasn't anything that was not on the table.
As we as we contemplated.
Option.
Okay.
The address this also but in terms of the guidance for the third quarter.
The domestic.
Operations didn't seem out of volume with what we were looking at.
But the international is softer and I wondered if.
Did you mean to imply that it's more of a comps issue.
Then.
Yes.
Relative weakening there relative to in the United States.
Uh huh.
I think I heard the question I'm going to answer it and then if I'm not answering it let me know, but I think the question is.
Third quarter guidance for Europe , maybe a little softer than we were anticipating.
I'll have an answer let's make sure we're on track of ingestion plan, if you'd like to.
I think we feel pretty good about Q3 now keep in mind the seasonality of the different businesses.
In Q3 as is the third strongest quarter. So we're coming off a strong quarter for Europe and they were heading into in Q4, a very strong quarter for Europe , and so Q3 seasonality.
As part of the minutes I also remind you and you mentioned that the recovery for Europe .
Again in earnest quite frankly in Q3 of last year. So I think we are heading up against strong comps I would emphasize those comments over any perceived weakness that we're seeing in the European markets, but again for that one I will certainly want to turn it over to Justin who is much closer than I am Justin do you have kind of in.
I think to add.
Yes, sure I mean, I think what I'd say is kind of what Scott said about about the Americas.
We're not right now we're not seeing any weakness into Q3.
We're seeing.
Our strong Q3.
As Brian said, it looks worse than Q2, because of the seasonality of the business, but in the comparative 2019 be as strong or stronger.
Currently we are not seeing any weakness into Q3 and I think it's just because you're comparing it to Q2, which is a stronger quarter.
Jim.
Is it really that address your question.
Question.
Yes. It does I was just looking back at the year ago quarter, and it seemed like that some improvement.
But perhaps.
It was in line with what you are just saying that that's around the pickup began to occur.
We're just.
Unduly.
Expect a more I guess.
The last one I'd say is in the.
Yeah.
Airports business.
Do you think it.
The future of that sector could be I know, it's a smaller business relatively speaking vis vis the rest of your business, but is it.
The greater profitability potentially a bigger in the future so that it could have a greater impact in the <unk>.
Future and is there are there any other.
Airports that.
Not aware of that are coming up for bid over in the next.
And the next year.
Finally, with the traffic issues, we've had in their approaches lately.
We have a time spent listening measure.
Or is there a time spent in airports measure that would improve.
To improve the.
The value of those displays at the moment just because of.
People are spending more time trying to get through the airport.
Sure so.
In terms of.
Contract renewals, we have a pretty steady set of contract renewals are at any given time.
Certainly nothing material is is in the cards.
But that's not something that we do a lot of disclosing on.
For reasons I'm sure you can imagine.
Relating to relating to trying to get extensions, if you're the incumbent or.
Working on ways to acquire the airport if youre not so.
Really nothing in the in the portfolio other than just to affirm that.
Report Rfps are happening again.
We are rotating the portfolio over time, and there'll be there'll be ins and outs.
And any of the larger ones, we will certainly.
Announce as they as they come up whether they are wins or losses.
<unk>.
With regard to monetization.
So there's kind of there's kind.
Two parts to your question part one is.
Ken the media owners, who target airports.
Evolve contracting in ways that make them inherently more profitable and I would say that there is a.
Constant innovation in terms of contract terms and in terms of contract structure.
That has an eye on that but but I also think you are dealing with.
Large municipal government organizations.
There's going to be a limit to it.
I don't foresee a time when airports profitability is going to be good as good as what we have.
And the roadside business, but I think can we improve it over time.
What yet but are we going to be able to light.
<unk> or something like that.
It's not going to be that kind of improvement is going to be more and more on the increment.
On the revenue side, which is sort of the second part of your question, which is around measurement.
There is a lot of innovation going on within that space. Both in terms of the actual planning type metrics.
Metrics as well as.
Attribution techniques and things that you can do around attribution and Thats and Thats part of our revenue growth strategy.
In the in the medium term.
It is still.
Sure.
In the relative relative to what we're able to do roadside airports is earlier in its development, but it is moving down the same curve and I would expect that our.
Measurement capabilities bear will expand nicely and that will provide provide some support both on pricing as well as just getting people into the category. So hopefully that answers your question.
Very helpful and thank you very much.
Thanks Chip.
Thank you. Our next question comes from Aaron Watts with Deutsche Bank. Please go ahead.
Yeah.
Hi, everyone. Thanks for having me on covered a lot of ground today.
So.
I just had two quick.
To wrap up here I guess.
First on political and I apologize if I missed it in the U S. We've heard from.
Youre media peers that spending.
Spending is quite robust I'm, just curious how you're stacking up versus maybe your last mid term election in digital has helped boost at all just given that being probably a more palatable outlet for some of the politicians.
Sure.
I know the competitor whose enthusiasm on political.
Although I think he also always emphasize that small part of his book he just loves to talk about it because of those local elections in small towns are a great source of out of home activity, we skewed a larger towns and so.
We kind of need the.
DCC the RCC the RNC DNC, we need those guys to make the leap and it's not.
For lack of trying.
And there is there has been some innovation.
Round some of the big conferences, both the views of the Ars have used some digital out of home and we're educating them constantly on the abilities of it.
I'm not going to call that we're going to have a big political year.
Until we actually have a big political year in that.
That hasnt happened so I assure you we work on it but it is not something that.
We think it's going to be a big driver this year.
<unk>.
If and when we crack the code on it it'll be digital that is the vehicle I'm sure.
Okay, That's fair and then.
Secondly.
On M&A, we've heard your U S peers talk about a fairly active pipeline for the year.
The latest you're seeing and does your current liquidity and the outlook you laid out for us.
Allow you to participate.
We have been active participant and Scott I may jump in ahead of you I think we did about $20 million, but I'll, let you talk about your view on M&A activity, but yes, there is.
There is certainly opportunities out there.
And.
To your point, we're not as active in it at a aggregate level as our competitors and that is driven by constraints.
Constraints that we constraint that we have that's part of the answer to one of the earlier questions about.
<unk>.
Why why would we want to focus one of the one of the benefits of focus would be the ability to focus.
Focus more energy on.
On U S M&A.
It's a good environment there are definitely assets for sale, we definitely have.
Our pipeline, but were also definitely very aware of our constraints on our Brian what are the other things I think that's right. It's the balance of going out there and.
Executing upon the acquisitions in the U S that makes sense, but also balancing that with our liquidity position.
Okay, Great I appreciate the time as always.
Thanks Darren.
Thank you final question comes from Courtney Bollman from Barclays can you. Please go ahead.
Hey, Brian I mean, Scott. Thanks, so much for the question and congratulations on the results one really quick one for me moving forward, regardless of the potential sale of the European assets you mentioned.
In terms of capital deployment, you guys have done a really good job in digitizing the footprint, obviously shifting to a generally higher margin profile, how should we be thinking about the balance between for Digitization and leverage reduction in the absence of the sale I guess Relatedly. How are you guys thinking about longer term leverage and a potential sweet spot for the <unk>.
Any that we should be thinking about in the longer term.
So let me take a run at this and then Brian can add in if I Miss things or don't don't get the right type of leverage.
I think we've been very consistent on particularly in the United States on roadside digital conversion. The primary gating factor there is legislative and just all you have to do.
Due to get permission.
To be able to make those those.
Those conversions and that we're going to continue to proceed on that as fast as we can.
And we're constantly working on things that led us.
Chunkier.
Cities in situations, where we're able to we're able to be blocks of lots of conversions, but that gets harder as the years go by because you've kind of end up against the municipalities that have more structural resistance to digital conversion. So we really.
That is a core part of our growth strategy and Thats something that.
We haven't had really any offsets.
The economics of those conversions are such that you don't want to constrain.
That type of activity.
I think I think there are a bunch of digital vectors that we've got beyond just the conversion.
And we were talking about some of this a minute ago in terms of measurement, helping to make the assets more valuable because you can demonstrate the impact of them.
Creating purchasing environment.
Those are those are sort of things that come into play I am sorry did you have something to add.
Yeah.
No nothing at all that makes perfect sense.
Yes.
Yes, I think the only thing I would add is the path to deleveraging, which is key for us.
And the function and is likely a function of both increasing EBITDA and focus on those.
High returning investments, whether they be digital conversion or tuck in M&A that we're doing.
And we do some debt and we just have to balance every time, we have a decision to make whether it's in.
And our capital investment and M&A activity.
The opportunity to reduce debt.
Look at all of that and I actually don't think that our goal to delever is going to change because of what's going on in Europe .
Showing at the factoring whats happening, but at the end of the day, we recognize that leverage needs to be reduced and it's likely that we'll work on both sides of the fraction to be to.
To be successful in getting there.
Thank you anything else coordinate that yourself.
Yes.
Now the end of the Q&A session I will now hand, you back over to Scott <unk> closing remarks.
Great. Thanks, Thanks, Laura and thanks, everyone for listening and I just would emphasize we feel really good about the business and where it is we think we've got strong growth prospects and we're really looking forward to seeing folks at our Investor day on September eight so thank you all and have a good.
Rest of the week.
This concludes today's call. Thank you for joining you may now disconnect your lines.
Yeah.
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