Clear Channel Outdoor Holdings, Inc.

Ladies and gentlemen, thank you for standing by. Welcome to Clear Channel Outdoor Holding Inc's 2022 First Quarter Earnings Conference Call. My name is Alex, and I'll be coordinating the call today. If you'd like to ask a question at the end of the presentation, you can press star 1 on your telephone keypad. If you'd like to withdraw your question, you may press star 2. I'll now turn the conference over to your host, Eileen McLaughlin, Vice President 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. Scott and Brian will provide an overview of the 2022 first quarter operating performance of Clear Channel Outdoor Holdings, Inc. and Clear Channel International, BD. We recommend you download the investor presentation located in the financial section on our classroom site and review the presentation during this call. After an introduction and a review of our results, We'll open the line for questions, and Justin Cochran, CEO of Clear Channel Europe, will participate in 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 risk contained in our earnings press release and our filings with the SEC. During today's call, we will also refer to certain performance measures that do not conform to generally accepted accounting principles. We provide schedules that reconcile these non-GAAP measures with our reported results on a GAAP basis as part of our earnings release and the earnings conference call presentation. Also, please note that the information provided on this call speaks only to management views as of today, May 10th, 2022, and may no longer be accurate at the time of a replay. Please turn to page four in the investment presentation, and I will now turn the call over to Scott Wells.

Scott Wells Good morning, everyone, and thank you for taking the time to join today's call. The acceleration in the recovery of our business that we saw during the fourth quarter of last year continued into the first quarter. We delivered consolidated first quarter revenue of $526 million, a 42 percent increase over last year's first quarter. Excluding movements in foreign exchange, first quarter revenue was up 45 percent, a solid performance despite the Omicron challenges we saw in January. We also delivered a that Brian will discuss later in the presentation. Our strong top-line performance reflects continued broad-based demand from advertisers, with particular strength across our digital footprint in the Americas and Europe. I'd like to thank our team members around the world for their commitment to building our business. We appreciate their great work. Underlining the recovery in our business coming out of the pandemic, we're continuing to make progress in leveraging our technology investments to innovate and modernize the solutions we offer and expand the pool of advertisers we can pursue. We believe that through becoming a data-driven visual media powerhouse, we can strengthen our financial position as well. During the first quarter, digital revenue rose 68% in the Americas and was up 99% in Europe. excluding movements in foreign exchange rates compared to the first quarter of last year. Our digital footprint has been particularly valuable during recent periods where uncertainty has been elevated among advertisers. Our digital boards have provided them with the flexibility to book later in the cycle, while we've benefited from our ability to move quickly to launch campaigns and lock in business with shorter lead times. Looking at our digital footprint, in the U.S., we deployed 13 large format digital billboards during the quarter, adding to our total of more than 1,500 digital billboards. Combined with our smaller format digital displays at airports and on shelters, we have a total of more than 3,900 digital displays domestically. And in Europe, we added 979 digital displays in the first quarter for a total of over 18,500 displays now live. As I mentioned on our last call, I want to share some color on the two pillars of our strategy centered on improving customer centricity and driving executional excellence. Our customers are focused on faster, easier, and data-driven campaigns. We developed Radar, which we've highlighted in the past, to deliver the suite of data-driven solutions our customers demand. We've made our business easier to buy through our investments in programmatic solutions, opening up our platform to a broader base of digital media buyers. And throughout the pandemic, we focused on utilizing technology to make the processes involved in winning and launching campaigns faster. On that point, we're automating the processes involved across the campaign cycle, from identifying opportunities all the way through installation or activation of the creative, which is significantly reducing the time involved in pursuing, winning, and executing on contracts. For example, we continue to improve and modernize the system software and process infrastructure supporting the installation of campaigns, from optimizing installation routes to updating the proof of performance tools that provide our customers with the ability to verify in real time that their print and digital campaigns have been executed. This not only creates efficiencies in our organization, but it also allows us to deliver value faster to our customers. Looking ahead, in the current quarter, we're seeing healthy demand across our business. In the U.S., our bookings are strong, and we are seeing growth in all regions, as well as in our airports business. Both national and local are pacing up double digits, and we are well ahead of 2019 performance. In Europe, since January, the revenue in each month has improved when compared to 2019, and we expect that to continue in Q2, with revenue approaching pre-COVID levels. Brian will provide an overview of our second quarter guidance in his prepared remarks. Finally, as we execute on our core operating strategy, we're also evaluating creative token acquisition opportunities that will further strengthen our presence in the U.S., while moving forward in evaluating strategic alternatives for our European business as part of our focus on optimizing our portfolio. And with that, let me now 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. As Scott mentioned, we had a good first quarter, even with a slow start in early January. Looking forward, we're optimistic our business will continue to strengthen throughout the year. 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 and non-GAAP measure. We believe this provides greater comparability when evaluating our performance. To avoid repetition, the amounts I refer to are for the first quarter of 2022, and percent changes are first quarter 2022 compared to the first quarter of 2021, unless otherwise noted. Consolidated revenue was $526 million, a 41.7% increase. Adjusting for movements in foreign exchange, consolidated revenue was up 45.3%, $539 million in line with our guidance. Consolidated net loss was $90 million compared to a net loss of $333 million in the prior year. Adjusted EBITDA was $66 million, up substantially compared to negative $33 million in the first quarter of 2021. Excluding movements in foreign exchange, adjusted EBITDA was slightly lower at $65 million. Please turn to slide six for a review of the America's first quarter results. America's revenue was $295 million, up 39.3%, and even more significant, we returned to pre-COVID revenue levels with revenue up 8% compared to Q1 of 2019. Revenue was up across all products, most notably airport displays and billboards. Digital revenue, which accounted for 36% of America's revenue, was up 68.3% to $106 million, driven by both airports and billboards. The rebound in digital is in large part due to the flexibility and ease of buying digital, as well as the rebound in airline traffic. National sales were up 46.9%, accounting for 38.9% of revenue, with local sales up 34.8% and accounting for 61.1% of revenue. Direct operating and SG&A expenses were up 24.5%. The increase is due in part to a 29.4% increase in site lease expense to $108 million, driven by higher revenue and lower rent abatements. In addition, compensation costs were higher due to improved operating performance. Segment-adjusted EBITDA was $110 million, up 71.8%, with segment-adjusted EBITDA margin of 37.4%. Excluding one-time items in the quarter related to COVID, margins would have been closer to the segment-adjusted EBITDA margins we reported in the first quarter of 2020. Turning to slide seven. This slide breaks out our America's revenue into billboard and other and transit. Billboard and other, which primarily includes revenue from bulletins, posters, street furniture displays, spectaculars, and wall scapes, was up 23.9%. to $236 million. This performance was driven by improvements across all our regions, with particular strength in the Northeast and California. Transit was up 176.2%, with airport display revenue up 186.6% to $56 million. Airport revenue was helped by the rebound in airline passenger traffic. Now on to slide eight for a bit more detail on billboard and other. Billboard and other digital revenue continued to rebound strongly in the first quarter and was up 33.7% to $75 million and now accounts for 31.9% of total billboard and other revenue. Non-digital revenue was up 19.8%. Next, please turn to slide 9 for a review of our performance in Europe in the first quarter. My commentary is on results that have been adjusted to exclude movements in foreign exchange. Europe revenue increased 53.9%, driven by improvements across all products, most notably street furniture, and in all countries, led by the UK and France. Digital accounted for 37% of total revenue and was up 98.9%, driven by an increase in digital revenue across almost all markets, including our largest markets in the UK and France. Direct operating and SG&A expenses were up 12.1%. The increase was driven in part by increased site lease expense, which was up 13.3%, resulting from higher revenue, lower negotiated rent abatements, and lower government rent subsidies. Production, maintenance, and installation expenses were also higher. Additionally, compensation was higher due to the improved operating performance and lower government support and wage subsidies. Segment adjusted EBITDA was negative 15 million after adjusting for FX and improvement over the negative 68 million in Q1 of 2021. Moving on to CCI BV. Our Europe segment consists of the businesses operated by CCI BV and its consolidated subsidiaries. Accordingly, the revenue for our Europe segment is the same as the revenue for CCI BV. Europe segment adjusted EBITDA The segment profitability metric reported in our financial statements does not include an allocation of CCIBV's corporate expenses that are deducted from CCIBV's operating income and adjusted EBITDA. Europe and CCIBV revenue increased $68 million during the first quarter of 2022 compared to the same period of 2021 to $217 million. After adjusting for a $13 million impact from movements in foreign exchange rates, Europe and CCIBV revenue increased $81 million during the first quarter of 2022 compared to the same period of 2021. CCIBV operating loss was $48 million in the first quarter of 2022 compared to an operating loss of $100 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. Similar to Europe, my commentary is on the results that have been adjusted to exclude movements in foreign exchange. Other revenue was up 43.3% driven by improvements in all countries. Direct operating expense and SG&A was up 7.4% driven by higher site lease expense related to higher revenue. And segment adjusted EBITDA was negative $1 million, a $3 million improvement over the prior year. Now moving to slide 11 and our review of capital expenditures. CapEx totaled $36 million, an increase of $18 million compared to the first quarter of the prior year, as we ramped up our spending, particularly on digital and the Americas. Now on to slide 12. During the first quarter, cash and cash equivalents increased $21 million to $432 million as of March 31, 2022. The increase in cash during the quarter, when compared to the same period in the prior year, was driven by improved operating performance and reduced cash interest paid during the quarter. Our debt was $5.6 billion, a slight decline from year end due to the scheduled quarterly term loan amortization payment of $5 million. Cash paid for interest on debt at March 31st, 2022 was $52 million during the first quarter. The cash paid for interest was down $94 million compared to the same period in the prior year, due primarily to the timing of interest payments related to the refinancings we completed in 2021. Our weighted average cost of debt was 5.6% in line with December 31st, 2021. Our current liquidity is 648 million, a slight increase compared to liquidity as of year end due to the improved cash position and marginal increase in availability under our receivables-based credit facility. In June of 2020, and again in May of 2021, we entered into amendments to our senior secured credit agreement, providing for a waiver of the springing financial covenant. With the expiration of the waiver after December 2021, we are again required to comply with the springing financial covenant. As of March 31st, 2022, our first lien leverage ratio was 5.4 times, well below the covenant threshold of 7.6 times. Moving on to slide 13 and our outlook for the business. At this point in time, we believe our consolidated revenue will be between $655 million and $675 million in Q2 of 2022, excluding movements in foreign exchange rates. America's revenue is expected to be between $340 million and $350 million, and Europe's revenue is expected to be between $300 million and $310 million excluding movements in foreign exchange rates. We are increasing slightly our expectations for consolidated capital expenditures to be in the $195 to $215 million range in 2022. Consistent with our plans to accelerate our digital transformation, we expect around 60% of this amount will be spent on digital assets across our portfolio. Additionally, we anticipate having approximately $333 million of cash interest payment obligations in 2022, including $282 million in the last nine months of this year, assuming current debt levels and interest rates. And now, let me turn the call back to Scott for his closing remarks. Thanks, Brian.

Our business momentum has continued into the second quarter, and we're pleased with the breadth of demand we're seeing across categories and markets, particularly with regard to our digital assets. The visibility we have with advertisers remains robust despite various macro challenges. We believe this continues to demonstrate the resiliency of our business. We're focused on utilizing the right technology to elevate our digital and print assets, expand and deepen our client relationships, and operate efficiently. I would like to thank our team for their dedication and focus as we seek to strengthen our business in the year ahead. And now let me turn over the call to the operator for the Q&A session. And Justin Cochran, our CEO of Europe, will join us on the call.

Thank you. As a reminder, if you'd like to ask a question, that's star 1 on your telephone keypad. If you would like to withdraw your question, you may press star 2. Please ensure you're unmuted locally when asking your question. Our first question for today comes from Steve from Cahill from Wells Fargo. Stephen, your line is now open.

Thanks. Good morning. Scott, within the guidance, you said you're seeing healthy demand. Sounds like bookings are very strong with the double digit pacing across the board. Still, I think, of course, the question is whether you've seen any change in behavior in the way advertisers are acting in light of this macro backdrop. So we just love some additional color there. It seems like transport is recovering really strongly. Digital is very strong, but maybe you could go a few layers down. and just talk about any additional non-transport trends that you're seeing and just anything else we should be aware of as we think about the year. And then on the European Strategic Review, I think your assets are a lot more Western than Eastern. Just curious if there is any kind of spillover effect from what's happening in Ukraine. Is there any delay to that process or is it proceeding along as far as you can say? And on the M&A front, you mentioned some US tuck-ins. What kind of things really fit well into your portfolio on the US tuck-in side? Thanks.

Thanks, Steve. Appreciate the questions. In terms of the change in behavior, you know, we're really not seeing a change in advertiser behavior right now. dialogues that we're having both at the national and local level are strong. People are looking to invest in the business, in their businesses. They're looking to drive demand. And I believe that the U.S. consumer remains in a pretty decent place despite all of the inflation. Now, we can talk about how does that change or how does that shift, but I can't tell you that there's anything we're seeing right now in what our advertising partners are saying to us And I think we've actually made real progress as a medium in terms of demonstrating how we amplify other media. And as you know, everyone advertises all got quite overexposed to digital during COVID. I think part of what you're seeing right now is a little bit of a rotation to have some of the things that have that nice amplification effect. And that's part of what's behind it. I'm going to hand it to Brian to talk about the European strategic process. Yeah. Hey, Steve.

On the process, we really aren't making any comments less than until the board approves a course of action. But the comment you made about our presence is accurate. We are largely in Western Europe. Our largest markets are France and the UK. We have no presence in Russia. We have no presence in the Ukraine. Very, very small presence in the Baltics and some in Poland and Finland. But really, you know, not much of a – majority of our presence in Western Europe.

Yeah, and then on your final part of the question about M&A tuck-in, you know, for us, the thing that we're really looking for are assets that complement our base. You know, we are realistic about our balance sheet, so our ability to go after, you know, really big targets is probably not what it might ideally be. So the thing that looks good to us is something that is adjacent to the place that we operate currently, something that we think that we can bring revenue upside to, something that maybe we can bring some operating efficiency to. But we have a good working list of opportunities, a good pipeline, and feel like there's good prospects for us to continue on that path. So thanks for the questions.

Thank you all.

Thank you. Our next question comes from Cameron McFay from Morgan Stanley. Cameron, your line is now open.

Thanks, guys. So inflation has been top of mind. I'd be curious about your ability to increase rates and if there has been any pushback from advertisers on that front. And then secondly, if you could speak to the growth in programmatic and the interest in that channel from advertisers. Thanks.

Sure. So on inflation, this has been a good rate environment for us. People are seeing costs across their portfolio. And when we talk about the need for us to increase our rates, it's something that is not out of alignment with what they're seeing in other areas. And it's also coming out of a time when, you know, we had been depressed a bit, you know, during COVID. I mean, we are still, it's going to take a few more quarters for us to get to where we have a, you know, quote unquote, clean comp that'll give you, you know, a really, really pure look on how the pricing, you know, power dynamic is playing out. But I don't think that we're seeing, you know, inordinate pushback. Of course, there's always pushback whenever you want to have a conversation about raising prices. But in our case, a big part of the dialogue is about the value that we bring. And we actually are continuing to bring more value. The things I talked about on the call in terms of our improved operations and transparency are just some of the things that we're able to talk about in terms of the improved value and also the inherent scarcity of a lot of our assets. It makes that a conversation we're able to have. And when I look at our yields, the thing that's encouraging is I see upticks on both the occupancy aspect and the rate aspect. So this is not just a pure price play that's going on right now. It is a good pricing environment, but we are seeing occupancy come up as well, which is encouraging. As for programmatic, that is a channel that is still emerging. It's a channel that the standards are still evolving. There's a lot of different players in it in terms of the supply side partners and the demand side partners. And you're in that stage where people are starting to differentiate themselves. Some are getting traction, some are having a harder time. We're getting a better feel for what works, but it's still definitely early innings in the development of it. I do think that it's a channel that a lot of advertisers prefer because they like to have the flexibility. You know, we saw... In early January when Omicron was a big deal, we saw programmatic slow down. That's not great for our business, but it's fantastic from the advertiser's perspective because they're able to just come in and come out. And so striking that balance between how much of our book is programmatic and how much of it is direct and how much of it is short-term versus long-term is something we're still working on exactly the optimization and how that works. But I think programmatic is going to be a long trend story in this industry. I think it's something that creates another way to buy that advertisers are interested in. I don't think it becomes, you know, I mean, even in the digital media, there's still a healthy direct business where things get locked in and positions get secured on longer term contracts. So I would expect that, you know, it's a long time from where programmatic is the majority of the business. but I think that programmatic is going to be an important part of the business. Hopefully that answers your question.

Definitely. Thank you.

Thank you. Our next question comes from Avi Steiner of J.P. Morgan. Avi, your line is now open.

Thank you, and good morning. A couple here. I just went on the earlier inflation question, if I could take it from the other side. Are there any site lease agreements or if you can somehow characterize it, that are indexed to inflation here or potentially more likely in Europe? And then I've got a couple more. Thank you.

Sure. So on site lease, it is not the case that many are indexed to inflation. I'm not even sure, Brian. I mean, do you know? Is that something that's a thing?

It is, I think, in Europe, and maybe we let Justin respond. I think in the U.S., we don't have a lot of it in our portfolio. Justin, your thoughts on Europe, and is there a material amount of contracts? We're a portfolio with lots of contracts. I'm sure there are some, but I'll turn it over to you for the European view.

Yeah, thanks. Morning, everyone. So we've got, obviously, a big range of contracts in Europe. There is a lot of fixed rents, and it does increase in some of the contracts over time. Some of it is just a stipulated straight percentage. Some of it is related to inflation. It tends to happen on the anniversary of a contract, so you don't just suddenly see it all come into the business in one go. you won't see a sudden increase in our rent expense because of inflation being high. It will be the inflation at the date of the contract anniversary, and that's only for a limited number of contracts. So we don't believe it's a material number for the business.

Terrific. So I don't think it's a big concern overall across the whole portfolio, Avi.

I appreciate that. Thank you. And then, Scott, in your opening remarks, you talked about automating all parts of the campaign cycle, and obviously that seems like a powerful tool when fully implemented. But I'm wondering... I think you mentioned efficiency, and I'm curious, you know, maybe this is not a today discussion or impact, but I'm curious if there's a cost-saving element as you move in that direction.

Sure. So when you think about the efficiency, there's a lot of ways that we can drive efficiency through technology. We can drive it by having fewer visits to the location. So if at one point We needed to have an installer go to a location to hang a sign, and then a photographer go to take the picture. By having the installer take the picture, you get productivity that way. You can get productivity by, you know, route optimizing. I mean, some of our plants are very large, and you might be 400 miles from the center to the periphery, and so getting the scheduling of putting the installs in place right and staging them and even frankly selling them in a way that you do that to optimize the windshield time is important. And we're doing all of those things. From a cost-based perspective, you should think about that. I think about good manufacturers that I worked with in earlier stages of my career. And generally what good manufacturers strive for is to have productivity cover their inflation. And that's kind of how I would think about productivity in our install process. It is not a huge driver in our overall P&L. And so what we're looking for and frankly what we generally have achieved over time is keeping that cost per install, cost per campaign in a tighter place. And the other thing that comes into play that makes this something that I don't know how helpful it's going to be for your models is that while we still have lots and lots of long-term contracts the general contract length has shortened and that's been a many many many year trend and so you end up with more installs um you know in in the mix and so that's also part of the inflation you're trying to keep down by by having better productivity so i don't think you should think of it as being something that um you know, dramatically lowers our cost over time, but you should think of it as the toolkit we have to manage our cost per install and keep that in line and keep that from, you know, eating into margins.

Thank you. A couple more here. Scott, a couple of other mediums, and this is just maybe repeating a theme, but that we follow have talked about a bit of a slowdown, and it sounds like you're not seeing any, certainly in America's And I'm curious why you think the outdoor medium is just holding up so well on an absolute and a relative basis, just again, particularly given what some other mediums are saying out there.

Yeah, it's a great question. I do think the amplification point I made before is important because I think we actually have seen through case studies that we've done, that our competitors have done, and frankly, some other media have done, there's a lot of evidence in the marketplace of how out of home makes other media more efficient. And that is something that we are certainly selling to. It's something that seems to be very much resonating in the market. I think that's a factor. I think the fact that people are clearly out and about, I mean, those of you that are airport travelers know that the airports now are dramatically different from what they were four months ago. And that aspect, everybody sees that and they want to be getting their brands out and they want to be getting their opportunities out in front of those folks as they go out in the world. And so us being a, you know, in real life medium is a big factor. You know, we were hit hard in COVID. I think there's an effect here of recovery. You know, I'd love to tell you that airports, you know, doubling and tripling elements of their inventory year on year is something that we could do forever. But I would never tell you that because, you know, that's not realistic. It's not going to happen. But it is happening right now because of that dynamic that I just described of people being out and about again. So I think there's a lot of things that are unique to us, and I think that this is one of those places that us being a small part of the media mix actually can be helpful to us because we're able to pitch how we help the other media perform better, but we're not super – we don't have to land huge portions of the budget to see incremental growth in our business. So all of those things, I think, are combining. It's a good environment, and I think you've heard it in the other out-of-home reports that have come, that this is not a Clear Channel-specific thing. It is out-of-home more broadly is benefiting from these dynamics.

Absolutely, and thank you. And then last one, because I don't want to ignore Brian, and while I'd love to ask about Europe, I'll hold off. Brian, how does the company think about its floating rate debt in the context of this kind of rising interest rate environment we're in and maybe any potential ways to mitigate that? And thank you all for the time. I appreciate it.

Yeah, it would be a rainy and sad day if you forgot about me. So I do appreciate the question. I think the first thing I want to do is put this in the right context. The company has about two-thirds of its debt, 66% fixed rate. And that was by design. Since separation, we refinanced at lower rates over long term, pushed out the maturity profile, and locked in low rates. And so we feel pretty good about our fixed floating mix. I also go back to the history of the outdoor business and how it's done pretty well adjusting to rising interest rate environments and growth environments. So I would say we think about it. We continue to monitor interest rate exposure in the operating environment. But we feel pretty good about where we are. But that all being said, should opportunities present itself to lock in lower rates or be opportunistic and reduce interest costs by repurchasing debt or whatever, these are things we'll continue to monitor and look at. I would remind everyone we do have about $400 million of cash, which is a floating rate asset, which can be thought of as an offset to some of the floating rate liability exposure. But I think overall we feel pretty good, and we'll continue to monitor the situation.

Appreciate the time, everyone. Thank you. Thanks, Avi.

Thank you. Our next question comes from Lance Vitanza from Cohen. Lance, your line is now open.

Thanks, guys. Question on digital displays. Coming out of COVID, we saw digital campaigns come back on stream very quickly. So your strong exposure to digital in the UK, for example, was a real plus. Why doesn't that cut both ways? In other words, to the extent the economy does or the consumer does begin to deteriorate, why won't those digital campaigns be shut down as quickly as they were started? And couldn't that be a headwind for you?

Hey, Lance, it's Scott here. On the digital, I mentioned before that during the Omicron fear, programmatic, which is 100% digital, did slow down. So you're right that that can cut both ways. What I just tell you is we are not seeing that right now. It's not to say that it won't happen at some point in the future in some environment in the future, but that is not the environment that we're seeing in front of us right now. I think the other part of it is that digital, it can cut both ways, but the other thing it does is it gives you a ton of agility in terms of your ability to have layers of prospective backup contracts that you can work with. There's almost always, with the kind of inventory we have, a market clearing price that we can work out. And that's the job that we've gotten increasingly sophisticated at as the years have gone by. So while that dynamic is there, I don't think we would trade that agility for anything.

So in a way, the agility allows you to capture, to better capture whatever demand looks like at the moment as opposed to potentially being priced out of the market, so to speak, with static displays. Is that fair? Exactly, exactly, exactly. Yeah, that makes sense. Okay, and then so with respect to the CapEx budget, could you perhaps break that out or even just in rough percentage terms, the amounts that you would think that that will be for digital displays versus digital let's call them the radar type initiatives where you're kind of extending the efficacy of the medium into other channels and then just the sort of the plain old, you know, static board maintenance type CapEx. Thanks.

Yeah, we never, we've never really, well, at least not in recent times, broken out the CapEx into different buckets. And I think traditionally people have asked about maintenance versus growth. We also have what we kind of categorize as sustainings. And so we haven't broken it down, and we can think about how best to respond, but I don't know off the top of my head kind of what portion of that is radar-related or in the broader IT space. So a little bit of a non-response there, Lance, but let us think a little bit about it. Part of the corporate expense growth since separation clearly has been directed toward IT. And so whether it's a function of CapEx or a function of OpEx, It is something that we continue to invest in and build out. And I also would say, just on the CapEx point, it wasn't part of your question, but I think it's important. We are ramping up CapEx. A majority of that new CapEx is going to be directed to digital in the Americas as part of the digital transformation. But it is also something that has a large discretionary component. And you saw that during COVID. We were able to dial back. I think our Q1 CapEx is twice what it was in the quarter a year ago. And so we do have flexibility. And given what we're seeing today, we're opening up the spigot, so to speak, and we are reinvesting in the business given the trajectory of the business and what we see. So I went a little broader than your question because I wasn't really able to answer the question, but hopefully I gave you a little bit of data.

No, you did. And then just maybe to finish up for me, and you started to go there, Brian, but I did want to ask you, it looks like corporate expense did tick up a fair bit. And I'm wondering, you know, as we think about the balance of the year, should we think about that as kind of a run rate? Or were there some sort of factors that led that to be a little bit higher than typical in Q1? Thanks.

Yeah, look, I think the growth in corporate expense in Q1, you can kind of divide into two buckets. And one is the restructuring bucket, which I don't think repeats itself. And that was largely related to general restructuring and other costs, including an increase to our legal liabilities. Then I think the other half is something that you'll continue to see because it's largely related to compensation benefits due to the operating performance. If we can continue the COVID recovery and growth we're seeing in the business, that's an expense we're likely to see, and it's a high-class problem to have.

Got it. Thank you.

Thank you. Our next question comes from Richard Cho of JP Morgan. Richard, your line is now open.

I just wanted to follow up on, I guess, the margin side of the business. It seems like given the revenue guidance for the second quarter that Europe should turn to positive and that America should improve. Can you kind of give us a little bit of color on where margins should go in the two segments through the year and maybe starting with the second quarter it seems like low 40s is a good range for the americas and then europe should be flat if not positive and then i have a few more all right hi richard thanks i will um i'll take the americas and then i'll flip it over to justin for uh european commentary um

I think in the Americas, given what we're seeing, it is reasonable to assume margins in the low 40s area, particularly if the business continues to perform as it has. I would remind folks that we are still receiving some COVID-related rent abatements and relief. That will continue to unwind. And so while I think we feel pretty good about kind of that margin forecast for the rest of the year. As we start 2023 and lapse some of these periods, then that obviously needs to be considered. And I do expect the business to continue on this trajectory based on what we've seen. So we feel pretty good about that in the Americas. Justin, your thoughts on Europe?

Yeah, so if you think about Europe, we saw, as Scott and Brian both mentioned, a good pickup on revenue through Q1. We started low with Omicron impact and picked up. And we're seeing that same pickup through the second quarter. And we do expect to deliver positive EBITDA in Q2. And I think if you think about margins for the business, I think there's a lot of things moving in the business. There's a lot of ups and downs. But I think for the rest of the year, you can be thinking we expect margins similar to that for 2019 for the remainder of the year. So I think if you look at, we've given the revenue guidance for Q2. And I think you can expect to see positive margin increases.

Great. And then a clarification on the CapEx. If you do have M&A opportunities in the Americas, should we expect that to kind of be on top of the CapEx guidance, or would that be just a different avenue of kind of call it growth CapEx?

I think our guidance for CapEx includes the tuck-ins, the small tuck-ins that we're talking about. Now, if something more material than that came across, we would disclose it as acquisitions. We had some in the fourth quarter. We didn't have a lot in the first quarter, so it could be on top of that. Basically, what we're seeing today is in the numbers. Anything that could come up that is incremental with that would be in a separate bucket.

Got it. And it seems like, you know, people are right now worried about visibility and things changing and advertising budgets. But given the guidance and the CapEx outlook, it seems like you're – As we sit here today looking at a pretty positive outlook that supports a lot of the trends you saw so far this year continuing, unless something dramatically changes. How much visibility do you feel like you have today versus, I guess, earlier in this year, just to kind of get a sense of what trends we should be focusing on for the rest of the year?

Sure, so our visibility is different depending on the geography and depending on the product line. So we have very strong visibility on our printed assets that have perm contracts and that makes up a good chunk of our revenue. We have less visibility on digital campaigns, the least visibility on the programmatic piece relating to that. And then Europe and our other operations are all somewhat later booking just given how the markets look. So it's a little bit of a different answer depending on which part of the business um that you're that you're talking about um i actually think visibility you know where we sit right now is better than it was the last couple of years um and it may even be reverting a little bit to because it's it's been a long-term trend that our business cycle is shorter uh campaigns are shorter and you know more people are coming in and out of the market I almost think we're getting a little bit of a, we're in the midst of a little bit of a re-rate on that because there is a lot of demand and people are keen to lock in key locations. But I would expect that that trend will end up resuming at some point. I think that's also part of the COVID unwind. So I think the best indicator that we've got is just the dialogue that we're having with our advertising partners you know, both agencies and, you know, actual brands. And the dynamic there is that people are looking to reach consumers in the places that we have assets, and the dialogue is really, really positive right now.

Great. Thank you.

Thank you. Our next question comes from Aaron Watts of Deutsche Bank. Aaron, your line is now open.

morning everyone thanks for having me on you've covered a lot of ground so i just had one question for you uh and perhaps this is a bit of a follow-up on your prior comments but i'm curious whether if the economies in the u.s and europe were to slow down in pressure advertising at some point have the experiences learnings and kind of negotiations you had with your partners through the pandemic fundamentally changed or improved your ability to absorb or react to temporarily reduced revenue levels?

Thanks, Aaron. I think that's a great question. I'll give a little bit of my take on it and then give Brian a chance to take a whack at it as well and maybe Justin as well because it's an interesting multifaceted question. But I think in the aggregate, our business continues to get more agile. So the answer to your question, the simple answer to your question is yes. Um, that's been, that's been something we've been working on, you know, for some time and we're, and we're continuing to make good, good progress on it. Um, I think that depending on the nature of the disruption that you see, you know, COVID was COVID was such an all hands on deck pervasive thing and governments were actually you know, instituting lockdowns, some of the lessons that we learned in that probably won't apply because the next recession won't be like the last recession. That's always the case would be. But the fact that we've got, you know, good muscle memory of mobilizing our forces to go work on contract renegotiations, go work on, you know, suspending costs as much as we can, And figuring out how to bring in what revenue opportunity there is in the market as it exists is all to the good. But I don't know, Brian, is there anything you'd add? I think that's pretty on top of it.

We've built pretty strong relationships and we always try to have good relationships with our counterparties. And I think that was tested and we really went through that during COVID era. But I also agree that there's private landlords, there's municipal and quasi-municipal counterparties Given COVID, you're restricted from being able to do some of the things that generate revenue. So I think there was a lot of relief that came about because of that and an understanding that might not exist in a more typical recessionary environment. But at the end of the day, we have good counterparties. We work with them. We have good relationships. And I think that, as you said, we have good muscle memory. Justin, curious as to your thoughts, given you've got a lot of contracts in Europe. Do you kind of agree with what Scott and I said? Do you kind of see some flexibility in a potential recessionary environment?

Yeah, I think I agree with what you're saying. I mean, you know, you've been through a couple of years where you work very closely with all of your counterparties. So in a way, through COVID, you've got to know them even better. And then I think on the revenue side, on the agility flexibility point that Scott was making, I think that's key. You know, we can take bookings later. We can change to creative later if an advertiser message changes. You can be more proactive and reactive to the advertiser needs. So I think that allows us to be more confident in holding on to more revenue in a downside. But, yeah, for the last couple of years, it's been an amazing drill for doing that, definitely.

Okay. Very helpful insights, guys. I appreciate the time.

Thanks, Aaron.

Thank you. Our next question comes from Jim Goss of Barrington Research. Jim, your line is now open.

Good morning. I have a couple of questions. One is I was wondering if you've noticed any shift in the usage of digital boards over the past year or so in terms of, say, one advertiser buying the entire board in all usage. versus a split among various users, and also the extent to which the digital boards are used for brand building versus immediate action prompting.

Sure, Jim. I'll take a crack on this one. I don't know, Justin, if there's an angle. I mean, it seems like it's a billboard question, but we have an awful lot of digital in our our shelters in Europe. So maybe think about your take as well if you have a different one. But I would tell you that there has not been a big shift. There are certainly advertisers that'll do what you're describing where they'll try to dominate a location and get all the slots or get every other one or something to that effect. But there's nothing that I could point to that is you know, materially different than times historical. I think that one of the things we've gotten better at is presenting to customers the ability to use the flexibility of digital to appear, you know, all over the marketplace. And so, you know, not necessarily fixate on one location, but try to really fixate on a broader geography and maybe be on 30, 40, 50 signs around a greater DMA as opposed to focusing on one location. And we're probably seeing a little bit more of that sort of networked type of activity. But there has not been, other than the embrace of programmatic, which is still as a percentage of the business relatively small, there hasn't been a big change in customer behavior or use models. I don't know, Justin, anything you'd call out different in Europe?

No, I don't think there's been a big change. As we build more digital and we get more reach and coverage, we can do a bit more of the brand build on it. But at the same time, I think the key is out of home can do both the brand build bit and the sales activation bit because of the digital part, especially now. So I don't think there's been any particular change though throughout the period, but I think we can do both.

Yeah.

Okay. And a couple of broader questions. I was wondering if there is any opportunity or interest in shifting mix of displays in European operations, especially versus the traditional street furniture emphasis, whether changes in society have enabled greater opportunities to shift that from traditional, and whether or not the strategic option review would forestall any such consideration from a corporate standpoint. And then on a related basis, does the existence of the strategic review for those operations sort of enable or entice the U.S. operations from doing anything from a broader strategic focus aspect?

So, Jim, I'm going to ask you to clarify a little bit your first part of your question, because I don't think I'm looking at Justin and Brian. I don't think we're sure how to, when you say shifting mix, do you mean going from street furniture to more malls or more airports or more billboards or what is it that you're getting at?

Yeah, I mean, I think traditionally street furniture has been a big focus because of the nature of the terrain. And I just wondered if there are more opportunities for billboards, which are very profitable and or it could be malls or whatever else, as you say. I wonder if the mix is fixed the way it is or if there's been any transition to, say, inclusion of broader other types of displays.

Gotcha. So, Justin, you want to take a crack at that?

Yeah. So, I think if you look at, and again, there's a broad range of countries across Europe. If you look at what we've seen, I guess on It's less between going between different environments and more between where the audience is on street furniture. So, you know, through the pandemic, we had more people on local high streets than in some of the centres of the big cities. So that just made, so you sell to where the audience is. So we could be really flexible around that. But that was on street furniture, just in different places, if that makes sense. So I think one of the strengths we've had is being able to go where the audience is. and I think that continues to be the strength. So does that change what we do? It doesn't really change what we fundamentally do, but it makes us think about maybe pricing differently and how we convert digital, and we continue to convert digital throughout the last couple of years. But I would say it's more about where the audience is rather than the shift between environments, if that makes sense.

Yeah, and part of this sort of relates to... I was just thinking part of it might relate to the... degree of profitability of billboards versus street furniture with the heavier physical investment, it seems like that might be an opportunity. That's one of the reasons for the question.

Yeah, and the dynamics in product profitability by country are actually quite different. And so it is not the case that the billboard is the most profitable product in every country. That is certainly the case here in the US. It is not the case in every country. But I'm going to answer the second part of your question in terms of the way I interpreted your question. Let me read it back to you first, and then you can tell me if I've got the interpretation right. It's basically, has the strategic review in Europe caused us to do anything different in the U.S., or has it kind of frozen us, or has it unleashed us? Is that the spirit of your question?

Yes, it is.

Okay, so we are a disciplined organization that is always striving to be in front of the marketplace. And so we are constantly looking at opportunities that could be enabled if and when a transaction were to happen in Europe But we're a disciplined organization, so we're not chasing off after those things before we have clarity on what's going to happen in it. And so what I tell you is that the organization is absolutely thinking about how it evolves in a future state as a more streamlined organization. But we have our eye on the ball, and we are focused on delivering against the guidance that we've provided And it's a relatively small group of people within the organization that are sort of imagining those future states and laying the groundwork for it. So I guess I'd characterize us as disciplined but poised. So hopefully that answers your question.

Yes, good insight. Thank you very much.

Thank you, Jim.

Thank you. I now turn the call back to Scott Wells for any further remarks.

Okay, great. Well, thank you all for all the questions. That was a robust and far-reaching set of inquiries, and hopefully we've been able to give you some insight to where we stand. I think the key takeaway is we feel that this is a good marketplace that we're in. We stand strongly behind our guidance, and we feel good about how the year is developing from here, and hopefully that that message has been conveyed across all of our geographies and across all our products. Thanks for listening, and we'll talk to you all soon.

Thank you for joining Stay School. You may now disconnect.