Q2 2023 Clear Channel Outdoor Holdings Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
Welcome to clear channel Outdoor holdings 2023 second quarter earnings Conference call My.
My name is Mary and I'll be operating your call today.
During the presentation you can register to ask a question by pressing star one on your telephone keypad.
I will now turn the conference over to your host Eileen Mclaughlin, Vice President Investor of Investor Relations. Please go ahead.
Good morning, and thank you for joining our call on the call today are Scott wells, our CEO and Brian Coleman, our CFO , who will provide an overview of the 2023 second quarter operating performance of clear channel Outdoor Holdings, Inc.
Clear channel International BV.
We recommend you download the earnings presentation located in the financial section on our Investor website and review the presentation. During this call after an introduction and a review of our results well open the line for questions and Dustin Cochrane CEO of clear channel U K and Europe will join Scott and Brian during the.
Q&A portion of the call before we begin I'd like to remind everyone that during this call. We may make forward looking statements regarding the company, including statements about its future financial performance and its strategic goals. All forward looking statements involve risks and uncertainties and there can be no assurance.
That management's expectations beliefs, or projections will be achieved or that actual results will not differ from expectations.
Please review the statements of risks contained in our earnings press release, and our filings with the SEC.
During today's call. We will also refer to certain 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 the earnings presentation.
Also please note that the information provided on this call speaks only to management's views as of today August seven 2023 and may no longer be accurate at the time of a replay.
Please turn to slide four and the earnings presentation, and I will now turn the call over to Scott.
Good morning, everyone and thank you for taking the time to join today's call we.
We delivered consolidated revenue of $636 million during the second quarter, excluding the movements in foreign exchange rates, which was in line with our guidance and up three 5% as compared to the prior year, excluding the movements in foreign exchange rates and the sales of our former businesses in Switzerland and Italy.
In addition, since our last quarterly call. We made notable progress on several facets of our strategic plan.
Our results continued to be led by our digital assets, which accounted for 48% of our consolidated second quarter revenue and increased seven 3% compared to the prior year, excluding movements in foreign exchange rate and sold businesses I'd.
I'd like to thank our global team for their efforts running our business. Despite the ongoing strategic reviews and a more difficult operating environment. Your focus remains a critical ingredient for our success.
And our America reporting segment revenue was up compared to the prior year with higher revenue in most markets, partially offset by continued weakness in San Francisco.
We continue to make inroads with new advertisers and categories during the quarter, particularly pharma due in large part to our investments in data analytics. In addition, our airports reporting segment rebounded robustly as advertisers tap into our dynamic platform to target millions of consumers on the move.
And we saw continued strength in several markets in Europe , North segment, including in Belgium, and the UK.
At the heart of our strategy, we remain committed to becoming a visual media powerhouse by understanding our customers' needs strengthening our digital capabilities and securely tapping into the right kinds of data to help our clients plan measure and optimize their campaigns.
We continue to believe this is elevating our role within the advertising ecosystem and increasing the range of advertisers we can pursue.
And a first for our industry. We recently entered into several partnerships aimed at integrating our radar data platform with best in class data clean room for Dci applications and services to enable brands to utilize first party data matching for out of home in the U S.
The marketers that leveraged <unk> and the budgets that fund. These first party data driven programs typically are separate from out of home budgets.
Many users of <unk> are not traditional buyers of out of home we.
We believe these integrations will open more doors for us with digital first brands by allowing them to leverage our scale and creative impact to run the most relevant ads and understand and analyze audience behaviors all in a privacy conscious and secure manner.
Since our last call. We also took several important steps with regard to our plan to optimize our portfolio. We closed on the sale of Italy on May 31, and we expect to close on the sale of Spain in 2024 upon satisfaction of regulatory approval and other customary closing conditions.
We also entered into exclusive discussions to sell our business in France and are aiming to complete the proposed transaction in Q4 2023 subject to an information and consultation process with clear channel. France is employee works council execution of a share purchase agreement and the satisfaction of customary closing conditions.
We were able to move forward with these agreements during a difficult environment for transactions, including tightened credit markets and the increased cost of financing.
I'd like to thank our team and advisors for their diligence and hard work in executing on our business sales efforts.
We expect the sales of our businesses in Switzerland, Italy, as well as the anticipated sale of our business in Spain will generate approximately $175 million in gross total proceeds if and when completed.
These transactions together with France will enable us to exit markets that have historically demonstrated a greater degree of volatility in our portfolio, which we believe will improve our risk profile and elevate our ability to drive positive cash flow.
Consider that our remaining European businesses encompassing our Europe North segment on a trailing 12 month basis as of June 32023 delivered revenue of $577 million.
Segment, adjusted EBITDA of $102 million and invested $34 million in Capex.
Consistent with the vision, we laid out in our Investor Day last September the European markets, which currently comprise our Europe North segment have delivered higher margins and better financial metrics overall have a higher degree of digital penetration that have less volatility than the businesses in our Europe South segment and importantly.
<unk>, we believe Europe north is in a stronger position to meet its own cash needs are.
Our board is continuing to conduct its review of strategic alternatives for our remaining businesses in Europe as well as evaluating a range of other strategic opportunities to enhance value.
We remain focused on delivering profitable growth strengthening our balance sheet and further demonstrating the operating leverage of our model. In addition, we intend to meaningfully restructure our corporate expense as our footprint simplifies.
Now turning to our outlook.
Looking ahead, our visibility is somewhat reduced but we are not seeing an uptick in cancellations and we remain within our annual financial guidance ranges after adjusting for sold businesses.
However, we did tightened the high end of our guidance range, we're closely monitoring monitoring business trends in reducing cost and capex as appropriate while operating in a disciplined manner as we execute on our strategic plan.
We're in fact benefits from this cost discipline in our Q2 results.
Brian will go through the guidance in detail and as you might've seen in the earnings release, we are expanding our guidance by providing revenue guidance for America airports in Europe , North for the third quarter and fiscal year. In addition to the consolidated guidance we have provided in the past.
In our Americas segment, we started to see the market softening in June resulting in a slightly lower Q2.
This trend has continued into the third quarter and is mostly national and includes media and entertainment auto and technology.
This is disappointing given the strong start of the year, we had with our upfront, but what we are hearing from certain advertisers and agencies is that some brands are pausing with an intention to spend in the fourth quarter. So we remain optimistic.
As anticipated our airports business rebounded strongly and we're seeing continued momentum with the potential for revenue to grow at an even faster rate in the third quarter as compared to the prior year than it did in the second quarter.
In Europe North currently we are seeing continued strength in the U K, our largest market driven in part by the strength of our digital footprint somewhat offset by tougher comps in certain markets due to the timing of the COVID-19 rebound last year.
As we execute our plan we are keeping a close eye on advertiser sentiment, while operating in a disciplined manner and with that let me now turn it over to Brian .
Thank you Scott good morning, everyone and thank you for joining our call.
Please turn to slide five.
As Scott mentioned, the second quarter reflects a mix of results, but overall, our second quarter consolidated revenue was in line with our guidance.
As a reminder, during our discussion of GAAP results 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.
Direct operating expenses and SG&A expenses include restructuring and other costs that are excluded from adjusted EBITDA and segment adjusted EBITDA and.
And the amounts I referred to over the second quarter of 2023, and the percent changes or the second quarter 2023, compared to the second quarter 2022, unless otherwise noted.
It has been a busy period since our last call with the sale of Italy.
Our agreement to sell Spain, and our entry into exclusive discussions on France, including Switzerland. These are all of the businesses within the Europe South reporting segment.
When we report our third quarter results all businesses within Europe , South are expected to be considered discontinued operation in all periods presented.
In addition, when I refer to results, excluding the sold businesses I am referring to Switzerland, and Italy. The sales of Switzerland on March 31 in Italy on May 31 are impacting comparability to prior periods.
Now onto the second quarter reported results.
Consolidated revenue for the quarter was $637 million a 1% decrease.
Excluding movements and foreign exchange rates consolidated revenue for the quarter was $636 million in line with the second quarter guidance, we provided in may and within the guidance range of $629 million to $654 million after adjusting for the sale of Italy.
Lastly, excluding movements in foreign exchange rates and sold businesses.
Consolidated revenue was up three 5%.
Net loss was $37 million an improvement over the prior year's net loss of $65 million.
Included in net loss was $19 million related to an increase in our legal liability for the previously disclosed investigation into our former joint venture in China, which relates to conduct occurring prior to our separation.
Adjusted EBITA was $146 million down 10, 9% excluding movements in foreign exchange rates and sold businesses adjusted EBITDA would be down seven 2%.
<unk> was 31 million in the second quarter.
On to slide six for our Americas segment second quarter results.
America revenue was $288 million up <unk>, 9%, reflecting higher revenue in most markets, partially offset by the impact of the weakness in our San Francisco Bay area market.
Digital revenue, which accounted for 34, 2% of America revenue was up two 4% to $98 million.
National sales, which accounted for 35% of America revenues were down one 5% local sales accounted for 65% of America revenue and continued to deliver growth up two 2%.
Direct operating and SG&A expenses were up four 4% to $158 million. The increase is primarily due to a six 8% increase in tight lease expense to $86 million driven by lease renewals and amendments, including the large lease renewal that has been creating a headwind since Q4 of 2000.
'twenty, two as well as lower rent abatements.
Segment, adjusted EBITDA was $130 million down three 3% with the segment adjusted EBITA margin of 45% down from Q2 2022.
The renegotiation of a large existing site lease contract I, just mentioned and the decline in rent abatements resulted in the margin declining this quarter as compared to the prior year.
Excluding rent abatements and the impact of the lease renewal the margin would have been at pre COVID-19 levels.
Now please turn to slide seven for a review of the second quarter results for airports.
Airports revenue was $71 million up 16, 3%.
Robust increase in revenue was driven by increased demand due to recovery in air travel after COVID-19, and the timing of campaign spending.
Digital revenue, which accounted for 59, 3% of airports revenue was up 22, 5% to $42 million.
National sales, which accounted for 59, 7% at airports revenue were up 31, 6% local sales accounted for 43% at airports revenue and were down 8% due to exiting a few regional airports.
Direct operating and SG&A expenses were up 18, 1% to $55 million. The increase is primarily due to a 24, 7% increase in site lease expense to $43 million driven by lower rent abatements and higher revenue.
Segment, adjusted EBITDA was $16 million up 10, 5% with segment adjusted EBITDA margin of 23%, which is a bit elevated compared to normalized levels due to rent abatements.
Next please turn to slide eight for a review of our performance in Europe North <unk>.
My commentary on Europe , North and Europe , South is on results that have been adjusted to exclude movements in foreign exchange rates.
Europe , North revenue increased four 5% to $152 million, driven primarily by higher Street furniture revenue.
Revenue was up in most countries, most notably, Belgium, and the U K and Denmark, partially offset by lower revenue in Sweden and Norway.
Digital accounted for 52, 8% of Europe , North total revenue and was up six 2% to $80 million.
Europe , North direct operating and SG&A expenses were up six 9% to $126 million the.
The increase is due to higher rental costs related to additional digital displays and higher labor costs and electricity prices. In addition site lease.
<unk> was up three 4% to 60 million, mainly driven by higher revenue and new contracts.
Europe North segment, adjusted EBITDA was down 5% to $26 million and the segment adjusted EBITA margin was 17, 4% down from the prior year, primarily due to the increase in expenses that I just mentioned.
Now on to slide nine for our performance in Europe South.
Europe , South segment revenue decreased 26% to $104 million sales of our former businesses in Switzerland, and Italy resulted in an FX adjusted decrease of $28 million.
Additionally, higher revenue from Spain related to the continued recovery from COVID-19 was partially offset by lower revenue from France due to weaker demand as a result of civil unrest in protest as well as Billboard takedowns.
Europe South segment, adjusted EBITDA was $2 million.
Moving on to <unk> on slide 10.
Clear channel International BV referred to as CCI BV is an indirect wholly owned subsidiary of the company and the issuer of our six and five eight senior secured notes due 2025.
It includes the operations of our Europe , North and Europe , South segments, as well as Singapore, which following the changes to our reporting segments in the fourth quarter of 2022 is included in other.
<unk> revenue decreased six 8% to $261 million from $280 million.
Excluding the $1 million impact from movements in foreign exchange <unk> BV revenue decreased six 9% driven by the sales of our former businesses in Switzerland, and Italy, which resulted in an FX adjusted decrease of $28 million.
This was partially offset by higher revenue from many of our remaining European businesses as I just mentioned.
Singapore represented less than 2% of <unk> revenue for the three months ended June 32023.
<unk> operating income was $13 million compared to $16 million in the same period of 2022.
Now moving to slide 11, and our review of capital expenditures.
Capex totaled $37 million in the second quarter, a decrease of $9 million over the prior year due to timing.
On to slide 12.
Our liquidity was $456 million as of June 32023 down $89 million compared to liquidity at the end of the first quarter due to lower cash and cash equivalents, partially offset by higher availability under our credit facilities driven by an increase in our total borrower.
As you May know in June we were able to amend and extend our revolving credit line, which we believe strengthens our liquidity profile given the significant market volatility and tightened credit availability.
During the second quarter cash and cash equivalents declined by $107 million to $233 million.
Driven by net operating cash outflow and capital expenditures.
The net operating cash outflow was driven by cash paid for interest and other changes in working capital primarily accounts receivable.
Our debt was $5 6 billion as of June 32023, basically flat with March 31.
Cash paid for interest on debt was $130 million during the second quarter, an increase compared to the same period in the prior year due to higher interest rates on our term loan facility.
Our weighted average cost of debt was seven 4% a slight increase compared to the weighted average cost of debt as of March 31 2023.
And as of June 32023 are first lien leverage ratio was 552 times, a slight increase as compared to the March 31 2022.
The credit agreement Covenant threshold at seven one times.
Moving on to slide 13, and our guidance for the third quarter and the full year of 2023.
As you can see on this slide we have expanded our revenue guidance for both the third quarter and the full year to include revenue guidance on America airports and Europe North.
Spain, and France are still in our consolidated guidance along with other but Europe South is expected to be considered discontinued operations. When we report our third quarter results and therefore, we are not providing separate guidance all consolidated guidance in Europe , north guidance excludes movements in foreign exchange rates with the exception of capital expenditures.
Cash interest payments.
For the third quarter, we believe our consolidated revenue will be between 570 $600 million.
We expect America revenue to be between 273, and 283 million a decline compared to the prior year, driven primarily by softness in national and.
In airports revenue is expected to be between $73 $78 million, a 17% to 25% increase over the prior year potentially offsetting the decline in America.
Europe , North revenue is expected to be between $130 million to $142 million based on the average foreign exchange rates in June 2023, there could be an FX benefit in the quarter of about 5% or $7 million.
Now that we're halfway through the year and based on our current visibility we have updated our full year guidance previously reported in may to reflect the sale of our former business in Italy, and a tightened the high end of the ranges provided.
For the full year, we expect consolidated revenue to be between $2 46, five and 253 $5 billion.
America revenue is expected to be between $1 95, and $1 115 billion.
And airports revenue is expected to be between 285 and $295 million.
Europe , North revenue is expected to be between 590 and $610 million.
On a consolidated basis, we expect adjusted EBITDA to be between 522 and $552 million.
<unk> guidance of <unk> $62 million to $82 million.
Capital expenditures are expected to be in the range of 163 and $183 million with a continued focus on investing in our digital footprint in the U S.
Additionally, our cash interest payment obligations for 2023 are expected to be approximately $416 million an increase over the prior year as a result of higher floating rate interest on our term loan b facility.
This guidance assumes that we do not refinance or incur additional debt.
Lastly, as part of our review of strategic alternatives for our remaining European businesses and assume disposition of those businesses, which is uncertain would be expected to ultimately reduce our corporate expenses by at least $30 million annually.
And now let me turn the call back over to Scott for his closing remarks.
Thanks, Brian .
Looking ahead, we continue to be optimistic about our outlook.
Within the U S. The American National business remains challenged while local continues to grow and airports is experiencing strong growth.
In Europe Europe , North continues to deliver solid results, we remain within our annual financial guidance ranges after adjusting for sold businesses as well as tightening the high end of our ranges.
And we will take further steps to address our costs if necessary.
Additionally, assuming a stable macro environment and continued progress in the execution of our strategic review process and successful application of resulting net sales proceeds we believe the company will reduce its indebtedness.
And in 2024 meaningfully grow <unk> fair.
Further and as previously mentioned, we anticipate that the assumed disposition of our remaining European businesses would enable us to lay out a timeline for material corporate cost reductions.
We continue to believe these actions will ultimately drive value for our shareholders.
And now let me turn over the call to the operator for the Q&A session and Justin Cochrane will join us on the call.
Thank you Les.
Ladies and gentlemen, if you would like to ask a question. Please press star followed by one on your telephone keypad.
Thats Star followed by one on your telephone keypad.
To withdraw your question. Please press the star followed by two I'm pleased to also remember too and mutual microphone when did you turn to speak.
Our first question comes from Ben Swinburne from Morgan Stanley . Your line is now open. Please proceed.
Yeah.
Thank you good morning, Hey, guys hope you're doing well.
Scott maybe just one for you.
Think about the categories that are under pressure that you called out in your prepared remarks, what are you thinking or are seeing from that as you look into the fourth quarter, you've obviously got a fourth quarter sort of implied in your full year guidance in your Q3 guidance I'm just wondering if you think this.
Weakness sort of continues on or get any visibility to improvement or further decay.
Just a conversation about the weaker categories would be helpful.
And then Brian anything you want to highlight on expenses in the second half.
Whether it's year over year comparisons to renovate mentioned thinking about the Americas segment.
Or anything else you'd want to call out in terms of cost action as we think about opex in the second half of the year. Thank you Paula.
Thanks Ben.
First off on the categories.
The behavior of the market has been.
A little eclectic of late.
And the categories that we called out are the ones that were weakest.
But there is there's definitely been some.
Account campaign activity being held over the course of the summer we really saw it start happening.
In June and it was pretty broad based the ones that we called out were the ones that were the weakest.
As we think about how things are going to build.
We always have pretty good visibility, we talked about our upfront and I referenced being disappointed that we're not seeing the growth that we thought we might see in Q3, when we saw what our upfront looked like.
That's really what continues to give us confidence in Q4 also just looking at the current booking activity.
That Q4 is going to be stronger than what Q3 is going to be.
But it is always very difficult to tell when people start going into this mode. The thing that we're hearing from a lot of our agency partners is that.
There are the pipeline of activity for Q4 is really strong.
It's a question of whether people are going to hit go buttons towards the latter part of August early part of September that's when we're really going to know for sure how things how things bill, but the book has the strength to deliver the guidance that we've put in and then some I think.
And I think as this plays out.
It does seem like there may be some shifting of seasonality and I don't want to read too much into this because I think tech in particular have been working on their P&L. This year and have really been quite pausing in their in their campaigns.
Media and entertainment, who knows where the writers and actors strikes go.
TV is less important part of media and entertainment to us than movies and movies are not going to be as impacted if this doesn't go on a super long time, So I guess, what youre getting for me is we've given a guide we feel very good about.
But it is very hard to create the straight line between exact categories and exactly where that guide as Brian you want to take the expenses sure. Thanks Ben.
Second half of the year, we're going to continue to.
Monitor operations closely in fact, I think you probably heard in the script. The prepared remarks that we are seeing the benefit of some <unk>.
Cost reductions, even even in Q2, even though there wasn't a lot of elaboration so <unk>.
Certainly monitoring operations through the second half of the year and will adjust as appropriate.
Statements, they kind of continue to roll away from the prior year.
[laughter] chunky, but.
As we lap the loss of last year, where we had a lot of abatements I think we'll continue to see those fall away. We are still seeing the impact from.
From a large.
Contract that we've talked about that will roll away. After Q3 of this year and so the comps will normalize.
I'd also mentioned that you likely saw capex down this quarter versus the same quarter in the prior year. Some of that is timing and deferrals. Some of that is reduction I think.
What I would characterize all of this is saying is we're closely monitoring operations and to the extent performance is under what under what we're expecting.
We will continue to use cost levers.
Capital levers as appropriate to ensure adequate liquidity.
Thanks, guys.
Thanks Pat.
Our next question comes from Steven Cahall from Wells Fargo.
Steven Your line is now open. Please proceed.
Thank you.
Maybe first Scott if you could talk a little bit about the differences in local versus national we heard from some TV broadcasters on Friday that local was quite strong, especially in auto.
Does it seem like that national is a leading indicator for local right now, but historically, sometimes we have seen local kind of catch up to national trends and maybe you can kind of compare and contrast, what you're seeing in local demand versus what youre seeing in national demand and how you see those two trending with a little bit of.
Our split between how much of your business is local and national.
And then on airports would just love some color on the strength there and Brian is it correct that you do have a tough rent abatement comp in the third quarter in airports just thinking about how we might.
Model that that EBITDA. Thank you.
Thanks, Steve.
I'll start with the local national roughly where 60% local 40% national it fluctuates, a little quarter to quarter, but that's a reasonable way to think about our mix.
And it definitely is the case.
For Q2 and for our guide that local is more reliable than the national and it has been really really since the start of Covid.
The two markets really.
Split there was a stretch where national came came roaring back after Covid and then that has that has abated somewhat in more recent time and as I was mentioning to ban the tech companies in particular, we know that they've been working on their P&L and pulling back on AD spending.
And we've seen we've seen the impact of that as we as we look forward.
I would definitely say that that local looks better.
The National certainly for Q3, Q4 could be a little bit of a could be a little bit of a toss up again I have some expectation that we're going to see some campaigns come off the sidelines.
But it is.
It is it is a very inexact thing to forecast exactly how the advertising you're going to go so that's local national on airports.
We are still benefiting from the build out of the New York contract.
We had Newark come online this year Laguardia came online sort of second half of last year parts of Laguardia Laguardia has been coming online for a while.
So those are those are some of the things driving driving the strength in it I think obviously the air travel is driving the strength and there are a lot of advertisers are interested in that.
Premium audience, that's very very active this summer Brian you want to take the bait on the question sure.
Steve I know, we had some airport abatement in the second half of last year I can't exactly remember the timing I think we disclose when that is.
And we should expect a reduction as we kind of lapse those renovate them. So it could lead to a tough comp it really the only thing I'd say and counter to that is airports and Americas is the one place where we are continuing to seek some relief.
And I don't know, if and when that will come through but that could be an offset.
I wish I could be more specific but that's probably about as much detail as I can give you to help with your model.
So.
Hopefully, it's something to work with.
Okay. That's helpful and maybe just a quick follow up on Europe , I mean, so you've got a lot of Europe South done now effectively all of Europe , South done now I think Europe , North, which you said is both kind of a better business and maybe also is the print hub for a lot of Europe . So.
Im wondering if there is any benefit to revenue or EBITDA as a supplier to the divested European south and kind of more strategically how do you think about Europe north in terms of keeping it in the portfolio versus strategic alternatives for it. Thank you.
Well the strategic review is definitely ongoing.
Youre right Europe , North is where a fair bit of our corporate team ultimately sits although there is a fair bit of corporate distributed around the country is obviously a lot of the budgets.
A lot of the countries have their own have their own corporate overhead.
Need to have a country lead you have technology in the country. There is.
Certain financial and legal and other other sorts of overhead that would be in the countries.
I think you should just think of our processes ongoing we've been very clear that we're a long term exeter of of Europe .
We think that that's an important part of our REIT conversion.
Ultimate Ultimate plan and there is there is nothing.
The thing I would really emphasize of what we've accomplished so far is we've done some of the toughest dealmaking to create the ability.
To have a much derisked European platform, I think thats, how I'd characterize it Steve.
And Steve just to add on the.
The expense side keep in mind that while.
We have these countries in a couple of cases, Switzerland, Italy sold in the other cases agreements.
Or movement toward an agreement.
We still got to manage these businesses for example, Spain actually won't close of 2024. So we've tried to provide some guidance on corporate expense reduction after the process is complete.
But it will there is a lag in achieving those obviously, we will continue to reduce costs.
And when we can but we've also got to do it at the right time as these businesses are either still operating or maybe maybe theres a service agreement in place for a period of time.
Thank you.
Our next question comes from Richard <unk> from JP Morgan Richard Your line is now open. Please proceed.
Hi, I just wanted to follow up a little bit on I guess, the airports as international travel.
Supported the strength there or is it just the build outs.
Our continuing to help.
Twofold.
Yes, Richard International travel certainly.
Certainly has contributed.
It's hard to isolate.
Probably the way the way, we mostly see international travel I think back to when Covid.
Came on the scene and international travel stopped.
Certain individual airports like JFK or like San Francisco.
Or like Atlanta, and our portfolio of Chicago.
Our portfolio those airports all suffered a lot.
With both international and business travel shutting down during Covid and they've definitely helped.
As things have rebounded, but it's difficult to isolate.
Specific to two international travel beyond kind of the airports that have.
A good exposure to it and we definitely have seen that's been supporting of the broader thesis people have had in buying airport inventory.
Got it and then on the digital side continues to be strong how much of that is from.
<unk> versus.
Strengthen the business and are you seeing any weakness there.
And is there potential.
The potential to have left or is there less visibility there. So is that a bigger question Mark.
Yes, I mean, you have you have digital playing a role in every element of our business. So if I think about the.
The European business digital continues to be strong and it's and it's it's a central part of the trading there.
In airports.
A lot of the inventory that we're building is digital.
As these airports modernize and everything like that.
So those are the two Europe and <unk>.
Airports are where the proportion of digital revenue has been growing the strongest I suspect. The root of your question is the U S digital business a lot of our investors are very interested in that.
It grew but not that robustly and I think it is because.
Because it is the kind of late booking part of our portfolio. It can be the most volatile part of our portfolio and when we get to.
A little bit of pauses in demand or or where the spot market isn't as rich as it is usually.
You see that do you see that down, but I think we continue to be very bullish on doing the digital conversions.
But it is something we watch very closely does that get to the root of your question.
Yes.
A little open ended just to kind of see.
Yeah.
Okay.
Give us a little more color on the strength and maybe trends just because it is.
Obviously, a large part of all your businesses, but just a follow up lastly on the national softness.
And the overall environment, I guess youre characterizing them more as a pause and not cancellations and is that the best way that we should be approaching the rest of the year at this point.
Or is it a little bit worse than that or different than that.
So it's a it's a really hard question to give you a really hard really firm answer on exactly.
Is it a pause or is it or is it not the behavior.
Certainly.
If you think about the year January and February were rough and then things really got on a very steady state of improvement and actually really strength by the time Youre talking about.
Sort of May.
And then June it just wasn't as good.
You think about this business so much of the concern it's interesting the concern on recession has diminished.
But when you think about this business going into recession. That's when you really see the cancellation activity and Thats why we called it out as we've tried to be very transparent about this that.
We haven't been seeing cancellation activity in cancellation activity is what usually is the precursor.
Real downturns in our business and we're not seeing that and we have continued to not see that.
What we have seen is a lot of campaigns getting plan and then people, saying Oh, well, we'll launch that in August we will launch that in September and so we're in a little bit of that holding pattern right now and it's it's very hard to generalize and know exactly how that takes off but if you think about our business, we always have the load.
We get from the upfront that gives us a sense of where we are kind of year on year with with pretty good visibility and then we're working on trading in the spot market and that's where that digital stuff.
Really comes into play in the spot market in June and into July It actually got got somewhat better as July progressed.
That's what that's what's behind our guide I mean, obviously, we do our guide at the very last minute before we have to have to do the earnings calls and so I would characterize it as its behaving the way that we think it's going to behave but marketers or an unpredictable bunch and it's hard.
No exactly how it how it will all land.
No that's very helpful. Thank you.
Our next question comes from Andrew <unk> from Jpmorgan your.
Your line is now open. Please go ahead.
Thank you good morning, a couple here just first on free cash flow.
A little bit higher than I was looking for.
I think I understand cash interest and Capex I'm just wondering if there's anything else, we should be thinking through for the back half of the year, whether it's working capital or anything else on that I've got a follow up thank you.
Yes, you've mentioned the big drivers of interest expense and investment in the business through Capex, even though we bring it in a little bit this quarter I think on the working capital side, there was a big Ah.
Build it.
And so I think those patterns.
We will continue going forward.
Quarter to quarter.
But it was a big it was a big number this quarter and so that may be kind of.
The difference and so I would characterize kind of those three items impacting free cash flow in the overall backdrop.
A little softer quarter than we had hoped for.
I appreciate that and then.
Scott a couple for you if I could.
The strategic review language, maybe it's just me, but it looks have changed a little bit from prior releases to read that as well as Europe , maybe Europe maybe.
Maybe but you are evaluating a range of other strategic opportunities to enhance value.
I don't know if possible, but to the extent possible. Perhaps you can elaborate on that and then I've got one last one and thank you.
Yeah, Amit I think.
We are always striving to be as.
Disclose save and transparent as we can be.
But you may be reading, a little more into that one then then.
Then merits, but.
We've been we've been pretty clear I think I guess I would go back to first principles on this one that we ultimately see this as a U S focused business and we have assets in various parts of the world that are not the U S.
And.
I think.
Strategically, we're considering the right time and the right opportunity for.
<unk>.
Making those those divestitures as it makes sense, but I don't know that there was anything intentional in our and our write up on that I don't know, Brian if you'd.
Other than we always keep an open mind and look at exactly alternatives, but nothing specific.
Fair enough and let me ask one last question, if I can and I appreciate the time as always.
I know the moderating outlook AD outlook is temporal in nature.
But maybe given the lower equity valuations of at least one of your REIT peers I'm.
I'm wondering if your thoughts about potentially driving towards a REIT conversion.
Conversion, which you had mentioned earlier might've changed at all.
And if there are any other options.
That might be attractive to the company. Thank you very much for the time.
Yes, obviously, it's a great. It's a great question I think our view on REIT.
Is driven by the benefits that REIT status ultimately give.
Those benefits to work.
Maximally you have to have the right capital structure associated with it. So I think if theres anything I would characterize is that this just redoubled our commitment that we need to get our balance sheet in the right place before we pull the trigger on on becoming a REIT I don't know, Brian If you would add anything to that.
I think that's exactly right Scott.
Thank you all.
Thanks Avi.
As a reminder, if you'd like to ask a question. Please press star followed by one on your telephone keypad.
Followed by one on your telephone keypad.
Our next question comes from Jonathan <unk> from TD Cohen Johnson. Your line is now open. Please go ahead.
Hey, good morning, Thanks for taking my call.
Indeed, the first one is on.
Regarding airports, so could you speak a little bit about when that volume start picking up within that maybe towards the end of may.
And has that type of volume continued or has it increased EBIT and a follow up to that is.
With airports are you seeing any indication that.
Is it the volumes will continue to pick up into the fourth quarter or do you have any insight into the fourth quarter as of now.
Sure. Thanks, Jonathan.
We spent a lot of time in our Q1 call trying to explain what happened in airports and I think that.
I'll just I'll just reiterate it just to be just to be clear we had a very large campaign move from Q1 to later in the year.
And part of what Youre seeing in the strengthen in Q2 and in our outlook is the benefit of that campaign running through and that had that had dropped late enough.
That decision to drop late enough that we were not able to backfill because it is a very substantial contract and so youre seeing that play out airports has a relatively.
Long lead time going into it varies by location and it varies by campaign, but people tend to plan fairly well in advance and by fairly well in advance and so the guide that we are sharing with you reflects are up to the minute view of that.
We will we will see the tailwind of Laguardia coming online abate as the year goes and as we get into 2024, the tailwind from Newark coming online will abate.
There is still more.
Build out activity and things like that and we'll have the normal puts and takes on contracts, but the New York airports really do.
Exercise a differential impact.
<unk>.
What the guide that we've provided is what we feel very good about.
As of as of today.
Okay.
Follow up is on just on <unk>.
America in terms of timing and invest in this asset.
How are you thinking about that or would you prefer to.
To complete the Europe strategic.
The first and then focus on Latin America.
I think.
We are as Brian said always looking at the market and always looking at where the where the opportunity is.
While there'll be some overlap and the resources, we need to run a process it wouldn't be a 100%. So it's not impossible for us to do that but.
But I think we we need to.
Work the timing on that as the market conditions put us in position for that to make sense I think that's how I would characterize it.
Okay, and the last one and again, perhaps I am reading too much into the language in the release, but.
When you guys described.
Spain, Italy, too you guys describe it celebrates whereas for the defense business you guys used the word diverse just wondering like can this cause.
Disney put forward.
Expecting any any proceeds for the France business or am I reading too much into it.
I think it's code for we're not we're not done because we are in the midst of.
The works Council review, we're not done with the process, but I think we have been clear that our expectation is it would be a closure in Q4.
Presuming that that works council process goes well and I think we have to we have to honor that process and so we're.
We're not really able to give a lot of detail on the terms at this point.
Okay. Thank you.
Thank you.
Our next question comes from Jim Goss from Barrington Research Jim. Your line is now open. Please proceed.
Thank you.
I was curious.
Not that clear channel, who would like to be a U S focused operation, but the northern European operations are doing fairly well is there any potential consideration of spinning that off as a separate company rather than selling them individually.
And Dave a couple of others.
Sure Jim I mean, I think when we when we talk about our strategic review.
Implicit in that is that we're going to look for the highest and best use for it.
Any asset that we're thinking about separating from.
That is not.
That's not a structuring thing or.
And Avenue that I'm in any position to speculate on right now, but as we highlighted in their LTM financials. This is a business that has.
Business that can sustain itself or we believe can sustain itself.
And.
That that would be a possible avenue if that seemed like that was the value maximizing avenue, but can't really comment on it beyond beyond that.
Yes.
Okay.
One other thing as you mentioned, Belgium.
In Denmark, we are doing reasonably well, but Sweden and Norway.
We're having more challenges and I'm wondering what would what would be a distinguishing factors between those markets.
Are there specific market by market issues.
Is there something broader than that we might look at.
Justin do you want to comment on that one.
Yes.
I think the simplest way to think about it.
Is there any difference in those markets might be as we've got a high degree of translates in transits at longer sort of bounce back from Covid. So.
And those markets you saw it pick a bounce back in the middle of 2022, so on a comparative basis that got impacted by the.
The markets would have other.
Is there anything else, particularly that distinguishes them, it's probably more just a function of timing.
Okay.
And then one last thing.
You also mentioned that you felt your strengths and digital capabilities.
Uh huh.
We're helping potentially.
<unk> plan planning and measurement, we're helping broaden the range of advertisers you can surf and I'm wondering if you might talk a little bit more about that what what types of additional advertising advertisers you might be able to access whether it might change your national and local mix to turn a great extent.
I guess, that's mainly it.
That's a great question, Jim and it gets to the root of what we're working on in the U S of becoming.
A more modern modern medium I think theres a couple of avenues to it I think first off.
We've called out that we're seeing growth in pharma.
And that is directly related to analytic capabilities that we have developed and that.
We have we have demonstrated the efficacy of we've been working with that vertical for some time.
Now is when we're talking about it because we're in the midst of renewals with a key partner and seeing the results.
Compound.
And that's a direct result of the kind of analytics I think.
<unk> to that.
The CPG category is a phenomenal advertiser globally, but not very good in the U S and part of the reason in the U S is the lack of the lack of data that part of the reason is that the assets are not as close to point of sale is like street furniture is but <unk>.
Got advertisers that spend meaningfully in out of home in.
Europe or Latin America that that do not spend in the U S that we have seen some traction.
With the data that we've got and then I think the final piece is we really do perceive opportunity in the digital first.
Advertisers and Theres a lot of them.
And you saw our announcement on data clean rooms that is something that we think is going to pay real dividends for us over the medium term because it enables us to be.
It enables us to be in dialogue and in partnership with companies that frankly don't use traditional media hardly at all and so it's all three of those areas that we're seeing opportunity in marketers do move fairly slowly and so the way that it works typically is.
You you do you do test budgets you go through a cycle that might take six months nine months.
And that's setting aside whatever it took you to selling the idea to begin with which is not a short sale and then once you've had the test you start to get the renewals and you start to get the upsizing of the budgets and so this is a key.
Compounding process, it's not a fast process, but it's something we very much believe is a key to the future of this industry and.
We're aiming to be at the forefront of it so hopefully that gives you some more color.
Okay.
It does and it sounds like if youre discussing pharma and CPG.
Would tend to tilt a little more toward national.
That's fair assumption.
Yes, I think I think certainly pharma.
At CPG, Yeah, I mean, there are knock on some some CPG budgets get activated locally and that ends up looking more like local spend so that's a little less one for one but yes on the margin you're probably right that it probably is a little bit more national I don't think.
But in the kind of planning horizon, I don't think that that will dramatically change our sort of 60 40 split because we're also doing a lot of things to develop and our local business.
Different salesforce tactics using inside sales various things like that so we're striving to drive growth across our portfolio of customers.
Alright, Thank you very much.
Thanks, Jim.
We currently have no further questions. So I would like to hand over to call back to Scott Wells for closing remarks. Please go ahead.
Great. Thank you Bruno and thank you for all of our questions I'll. Just leave you leave you with three thoughts. This is a time that theres a little bit of a pause in the marketplace and it's.
It's not entirely clear of where the market is going to go but this business remains a very good business with attractive economics, and it's a business that we are in the midst, which is our second thought we are in the midst of derisking, it and were making material progress on that.
It should be something that pays real dividends over time.
And look we were an LBO publicly and <unk> typically are private and they get to do a lot of things behind the scenes that are hard things that.
Our hard to talk about until they're done, but when you have them done youre really glad that they are done.
We are striving to be as transparent as we can be but these are some of these transactions are pretty difficult. So we're striving to be transparent we think we're making great progress in this business remains a good business. So.
Thank you for your interest in Us and we'll look forward to catching up.
And giving updates as we continue to make progress take care.
Ladies and gentlemen. This concludes today's call. Thank you for joining you may now disconnect your lines. Thank you.
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Okay.
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Yeah.