Clear Channel Outdoor Holdings, Inc. (NYSE:CCO) Q3 2022 Earnings Conference Call November 8, 2022 8:30 AM ET
Company Participants
Eileen McLaughlin – Vice President, Investor Relations
Scott Wells – Chief Executive Officer
Brian Coleman – Chief Financial Officer
Conference Call Participants
Steven Cahall – Wells Fargo
Ben Swinburne – Morgan Stanley
Lance Vitanza – Cowen
Aaron Watts – Deutsche Bank
Richard Choe – JPMorgan
Jim Goss – Barrington Research
Operator
Ladies and gentlemen, thank you for standing by. Welcome to Clear Channel Outdoor Holdings, Inc. 2022 Third Quarter Earnings Conference Call. [Operator Instructions]
I would now like to turn the conference call over to your host, Eileen McLaughlin, Vice President, Investor Relations. Please go ahead.
Eileen McLaughlin
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 third quarter operating performance of Clear Channel Outdoor Holdings, Inc. and Clear Channel International BV. We recommend you download the earnings conference call investor presentation located in the financial section in our investor website 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 Cochrane, 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 risks contained in our earnings press release and our filings with the SEC.
During today’s call, we will also refer to the 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 investor presentation. Also, please note that the information provided on this call speaks only to management’s views as of today, November 8th, 2022, and may no longer be accurate at the time of a replay.
Please turn to slide four in the investor 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. Our strong third quarter results were at the high-end of consolidated revenue guidance we provided on our last call and reflect the resiliency of our platform, the dedication of our company-wide teams and the continued execution of our strategic plan as we detailed during our Investor Day in September.
We delivered consolidated revenue of $603 million in the third quarter, up 8%, excluding movements in foreign exchange rates. Continuing the trends we saw in the first half of the year, our performance was supported by broad-based demand from advertisers with notable strength across our digital footprint in the Americas and Europe.
We’re progressing and giving our advertisers the kind of experience they expect from digital media, which we believe contributes to our growth now and in the future. We’re making our solutions faster to launch, easier to buy and more data driven. In turn, we believe we’re performing very well during a difficult period for many ad delivery platforms.
As we noted during our Investor Day, we believe digital is not just a growth driver, it’s a revenue multiplier. At the close of the third quarter, digital represented less than 5% of total inventory, yet digital revenue accounted for 40% of our consolidated revenue and rose 20% during the period, compared to the third quarter of last year, excluding movements in foreign exchange rates.
Looking at our digital footprint in the U.S., we deployed 34 large-format digital billboards during the third quarter, adding to our total of more than 1,600 digital billboards. Combined with our smaller format digital displays in airports and on shelters, we have more than 4,700 digital displays domestically. And in Europe, we added 366 digital displays in the third quarter for a total of 19,200 digital displays now live.
As we expand our digital footprint, we’re continuing to strengthen our data analytics offerings and build out a more sophisticated operational back-end to the customer experience. These investments are allowing us to attract a greater pool of advertisers, which bodes well for our longer-term outlook. As an example of the dynamism of our platform, I’d like to call out our airports team for the work they did developing a multiyear, multimillion dollar partnership and sponsorship with PenFed’s Credit Union. This first of its kind brand takeover of the Concourse C Connector at Washington Dulles include the 4,000 square foot digital media tunnel. It’s really something to see, and we are working with PenFed on further opportunities.
Looking at the fourth quarter, our business remains healthy, and we are on track to deliver results in line with the full-year guidance we presented during our Investor Day in September. Brian will provide an update on our guidance in his prepared remarks, but I want to take a moment to focus on what we are seeing. As indicated in that full-year guidance, we do expect growth to moderate in the fourth quarter, as compared to the last few quarters, driven by tougher comps against the strong fourth quarter last year. Since September, we are not seeing a material change in advertiser behavior.
In the U.S., advertising demand remains healthy, and we remain on track to exceed our record revenue in Q4 2021. Airports and digital continue to drive that improvement. In Europe, our business also remains healthy and is on track to outperform Q4 2019 and is in line with a very strong Q4 2021, excluding movements in FX rates, as we continue to benefit from the growth in our digital platform and the recovery in transit.
Bookings and pacing continue to be strong in Northern Europe, particularly in the U.K. and Scandinavia versus pre-COVID levels in 2019. However, there are still a few markets, primarily in parts of Southern Europe, that haven’t fully rebounded. Looking further out, we’re keeping a close eye on business trends across our markets. And so far, our 2023 upfront in the U.S. is going well, and we remain optimistic about our business.
Finally, we continue to conduct a review of strategic alternatives for our European business with the goal of optimizing our portfolio in the best interest of our shareholders with the resulting greater focus on our core Americas business. We will communicate further details as and when we are able.
And with that, let me now turn it over to Brian to discuss our third quarter financial results as well as our fourth quarter guidance.
Brian Coleman
Thank you, Scott. Good morning, everyone, and thank you for joining our call. As Scott mentioned, we had another great quarter, and we believe our business is on track to achieve the full-year guidance we provided during our Investor Day, as you will see on slide 14.
Moving on to the third quarter results on slide five. Before discussing these results, I want to remind everyone that during our discussion of GAAP results, I’ll also talk about our results, excluding movements in foreign exchange rates, a non-GAAP measure. We believe this provides greater comparability when evaluating our performance.
In addition, as a reminder, direct operating expenses and SG&A expenses include restructuring and other costs that are excluded from adjusted EBITDA and segment adjusted EBITDA. To avoid repetition, the amounts I refer to are for the third quarter of 2022, and the percent changes or third quarter 2022, compared to the third quarter of 2021 unless otherwise noted.
Consolidated revenue was $603 million, a 1.1% increase. Excluding movements in foreign exchange rates, consolidated revenue was up 7.8% to $643 million, at the high-end of our consolidated revenue guidance range of $625 million to $645 million.
Net loss was $39 million, a slight improvement over the prior year’s $41 million. Adjusted EBITDA was $129 million, down 5%, compared to $136 million in the third quarter of 2021. Excluding movements in foreign exchange, adjusted EBITDA was $131 million, down 3.8%.
Please turn to slide six for a review of the Americas third quarter results. Americas revenue was $347 million, up 9% and in line with our guidance range of $340 million to $350 million. And even more significant, we continue to surpass pre-COVID revenue levels with revenue up 6%, compared to Q3 of 2019. Revenue increased across all major product categories, most notably airport displays.
Digital revenue, which accounted for 39% of Americas revenue, was up 16.6% to $134 million driven by both airports and billboards. National sales, which accounted for 39.7% of Americas revenue was up 8%, with local sales accounting for 60.3% of Americas revenue and up 9%.
Direct operating and SG&A expenses were up 12.1%. The increase is primarily due to a 10.2% increase in site lease expense to $114 million, driven by higher revenue, primarily in our airports business, partially offset by a small increase in negotiated rent abatements. Segment adjusted EBITDA was $145 million, up 4.1% with segment adjusted EBITDA margin of 41.8%, down from Q3 2021, primarily due to mix and as expected, in line with Q3 2019.
Turning to slide seven. This slide breaks out our Americas revenue into billboard and other and transit. Billboard and Other, which primarily includes revenues from bulletins, posters, street furniture displays, spectaculars and wallscapes, was up 2.6% to $280 million. This performance was driven primarily by strength in our California, Southwest and Midwest regions. Transit was up 44.7% with airport display revenue, up 45% to $62 million, driven by growth across the portfolio, including Port Authority.
Now on slide eight for a bit more detail on billboard and others. Billboard and other digital revenue continued to rebound in the third quarter and was up 6.8% to $98 million and now accounts were 34.8% of total billboard and other revenue, an increase over Q2. Non-digital billboard and other revenue was up slightly.
Next, please turn to slide nine for a review of our performance in Europe in the third quarter. My commentary is on results that have been adjusted to exclude movements in foreign exchange rates. Europe revenue increased 6.1% to $279 million, at the high-end of the guidance range of $270 million to $280 million. The increase was driven by improvements in transit and street furniture display with revenue up in most countries, most notably in Sweden, partially offset by a decline in France.
Europe revenue was also up, compared to the 2019 comparable period, and the growth rate was higher than the increase we saw in the second quarter of 2022 versus the second quarter of 2019, adjusting for movements in FX rates. Digital accounted for 40.8% of Europe’s total revenue and was up 22.4%, driven by an increase in the number of digital assets and a strong rebound in demand in Scandinavia, including on our transit assets.
Direct operating and SG&A expenses were up 5.6%. The increase was primarily driven by increased site lease expense, which was up 22.1% resulting from a $9 million reduction in negotiated rent abatements, as well as lower governmental rent subsidies and higher revenue.
Segment adjusted EBITDA was $18 million, and the segment adjusted EBITDA margin was 6.5%, both down as compared to the prior year, due in part to the one-time reduction in site lease expense in the prior year. Segment adjusted EBITDA margin was slightly ahead of Q3 2019 segment adjusted EBITDA margin.
Moving on to CCIBV. Our Europe segment consists of the businesses operated by CCIBV and its consolidated subsidiaries. Accordingly, the revenue for our Europe segment is the same as the revenue for CCIBV. 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 or loss and adjusted EBITDA.
Europe and CCIBV revenue decreased $23 million during the third quarter of 2022, compared to the same period of 2021 to $239 million. After adjusting for a $39 million impact from movements in foreign exchange rates, Europe and CCIBV revenue increased $16.1 million. CCIBV operating loss was $14 million in the third quarter of 2022 compared to an operating loss of $26 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 results that have been adjusted to exclude movements in foreign exchange rates. Other revenue was up 19.1% driven by improvements in most countries. Direct operating and SG&A expenses were up 5%, driven by higher site lease expense, primarily related to higher revenue. And segment adjusted EBITDA was $3 million, an improvement over the prior year’s breakeven segment adjusted EBITDA.
Now moving to slide 11 and a review of capital expenditures. CapEx totaled $43 million, an increase of $11 million, compared to the third quarter of the prior year as we ramped up our spending, particularly on digital displays in the Americas. In addition to our capital expenditures, I also want to highlight that during the third quarter, we made several asset acquisitions totaling $28 million in our Americas segment.
Now on to slide 12. Year-to-date, cash and cash equivalents declined $83 million to $327 million as of September 30, 2022. And during the third quarter, cash and cash equivalents increased $13 million. Adjusted EBITDA of $129 million and changes in net working capital contributed positively to our cash balance for the quarter and was partially offset by cash interest payments and net capital investment.
Our debt was $5.6 billion as of September 30th, 2022, a slight decline from 2021 year-end, primarily due to scheduled quarterly principal payments on the term loan facility. Cash paid for interest on the debt was $56 million during the third quarter, an increase of $4 million, compared to the same period in the prior year, primarily due to the higher floating rate interest on our term loan B facility.
Our weighted average cost of debt was 6.5%, an increase from year-end due to the increase in LIBOR rates. Our liquidity was $543 million as of September 30th, 2022, down compared to liquidity at year-end primarily due to the reduction in cash. As of September 30th, 2022, our first lien leverage ratio was 4.98 times, well below the covenant threshold of 7.1 times.
Turning to slide 13 and our new metric, AFFO. As you may know, during our Investor Day, we introduced a new metric for the company, adjusted funds from operations, AFFO. In the third quarter, we generated $24 million and year-to-date $91 million of AFFO, excluding movements in FX rates.
Moving on to slide 14 and our guidance for the fourth quarter and the full year 2022. As Scott mentioned, we haven’t seen a material change in advertiser behavior, and we are able to confirm that our fourth quarter revenue guidance is expected to be within the guidance range we provided during our Investor Day on September 8th. Our only update to our fiscal year 2022 guidance is consolidated net loss, which increased primarily due to movements in FX rates. I won’t read through all the line items on this page, but I do want to highlight a few updates to our guidance.
We believe our consolidated revenue will be between $740 million and $765 million in Q4 of 2022, excluding movements in foreign exchange rates. Americas revenue is expected to be between $370 million and $380 million. Additionally, we believe Americas segment adjusted EBITDA will be at the low end of the provided guidance range, primarily due to uncertainty around the timing of certain anticipated rent abatements as well as softer performance in programmatic.
Europe’s revenue is expected to be between $345 million and $360 million, excluding movements in foreign exchange rates. Based on monthly and October exchange rates, foreign currency could result in a 15% headwind to year-over-year reported revenue growth in Europe’s fourth quarter. Additionally, our cash interest payment obligations for 2022 will remain at $341 million, including the $124 million in the remainder of this year.
However, cash interest payment obligations for 2023 are expected to increase to $404 million, as a result of higher floating rate interest on our Term Loan B facility. This guidance assumes interest rates remain at current levels and that we do not refinance or incur additional indebtedness.
Lastly, I do want to touch on 2023. Our visibility into 2023 is limited, and we are well aware of concerns regarding the macro environment next year. However, we have proven our ability to pivot in prior recessionary periods, including in 2020 with the pandemic, and believe we know how to quickly adjust our expenses and preserve liquidity, if needed in the future.
And now let me turn this call back over to Scott for his closing remarks.
Scott Wells
Thanks, Brian. Our business remains healthy, and we’re confident in our strategy and optimistic about the growth opportunities ahead for us. I’d like to thank our entire team for their dedication in executing on our strategic priorities, including accelerating our digital transformation, improving customer centricity and driving executional excellence. We believe these efforts are enabling us to strengthen our competitive position and to capture a greater share of advertising budgets in the future.
And now let me turn over the call to the operator for the Q&A session. And Justin Cochrane, our CEO of Europe, will join us on the call.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] The first question we have from the phone lines today comes from Steven Cahall with Wells Fargo. Please go ahead. Your line is open.
Steven Cahall
Thank you. Good morning, everybody. Could you talk about the overlap between digital customers and print customers that you’re seeing in Americas? It just seems like the digital spend, it’s really growing nicely to that near 40% level. So is that incremental from existing out-of-home advertisers? Or do you have any sense if you’re seeing new customers who are digitally — kind of digital-only come into the market. And based on that growth, do you have any expectation to increase your digital CapEx in 2023? And then I’ve got a follow-up.
Scott Wells
Okay, thanks. Steve, thanks for the question. Digital is interesting. And the answer to your question is all of the above. We definitely have — I mean, I think the thing that has brought the new to the category buyers more than digital has been programmatic. I think that’s where we’ve had more new to the category buyers come in. But digital, really since we started doing it has been partly incremental, but also partly amplification. So we have a lot of clients that will buy print campaigns and then use digital to supplement them and to do calls to action and to do things that only digital can do. And a lot of the current success you’re seeing with digital is because in our modern airport build-outs, digital is such a central part of what we do, it’s really taking off in that airport sector. So it’s really — the customer base, it’s hard to say that it’s any one thing, but it’s pretty broad.
As far as your second part about CapEx, we really — on the road side part of the business, we have really not constrained that. That’s been paced more or less at our ability to navigate regulations and get the ability to do the conversions. It is something that is a regular part of our discussions. And if you interviewed our regional managers and branch presidents, they would tell you that there’s a lot of emphasis on finding great locations to convert to digital, but that’s not really particularly different than it’s been.
But let’s go ahead with your next part of your question.
Steven Cahall
Yes, thanks for that. The next part would be just about the airport revenue. I was wondering if you would have historical data of how airport tends to perform in a recession? I think it’s still getting back to kind of pre-COVID levels, so travel still seems like it’s pretty strong. Is your expectation, if the macro turns over, does airport kind of do better than the rest of the portfolio? Does it do — is it a little more cyclical than the rest of the portfolio? And then maybe just lastly, just wondering if you expect much in the way of rent abatements for 2023. Thank you.
Scott Wells
Sure, sure. So on airports, it’s a really good question, because really the airports as we have them are quite different from any prior cycle other than maybe COVID. And what I mean by that, I referenced before how much digital has become a central part of them, if you go back to the great financial crisis or the 9/11, which would have been the two big disruptions to airports in recent history, print was much more part of the business. And it just behaves differently than digital does as we’ve seen across the spectrum.
I do think the thing that has come out of COVID is that advertisers, who came back early have really seen impact from their airport campaigns. And I guess the thing that I’d really emphasize is that it’s not only that the assets are different, but how we sell them are structurally different. A meaningful chunk of the revenue in airports is coming from our local sales team. That was not the case in prior recessions.
And one of the questions I get as I go around the country is people asking for airports and their communities, because it’s becoming an attractive area for account executives to find big customers who want to do bold things. And I think that — so we’re selling a good part of it through our local branches. So it’s a more diversified sales base. And we’re also doing a lot more like what I referred to in the opening comments like with PenFed, where we’re actually doing things that are more akin to sponsorships than advertising. And so I think that there are — the degree to which it’s digital would be something that you could look at and say, well, that’s going to be responsive in a recession. It’s going to be reactionary in a recession.
On the flip side, the broader sales base, the broader customer base, because we’ve done a good job expanding that. And the proliferation of sponsorships makes it a bit more sticky, so hopefully, that gives you a flavor.
And on abatements, we are still working through some. I think we characterize that as — in Europe, we probably are done with anything that’s going to be forthcoming relating to COVID. In the U.S., we have a tail of things that we are still working and — but there’ll be nothing like they were in terms of magnitude that they were in ‘21 or even this year. So hopefully, that helps, Steve.
Steven Cahall
Thanks, guys.
Operator
Thank you. We now have Ben Swinburne with Morgan Stanley. Your line is now open, Ben.
Ben Swinburne
Thank you. Good morning, everyone. Scott, I was wondering, you talked about programmatic being a key tailwind to digital adoption, digital growth. But I think you also cited it as maybe a source of weakness among your channels this quarter, which we’ve heard that from a number of players around media.
Is there anything more to that in your mind than just that’s where it’s easy to dial it up, dial it down? Or do you think there’s other things that are either — that’s telling us about where the broader business is headed? Or are there things that you think you can do with your programmatic channels to maybe improve either their market share or sort of the stickiness of the money. I’d love to get your thoughts on that, we’re all trying to read the tea leaves.
Scott Wells
Yes. And Ben, that’s the exact right characterization. It’s still very much in the tea leaves stage with programmatic. I don’t think that we are anywhere near — we are not near a steady state. Just this year, the Trade Desk and DV360 have gotten involved in out-of-home programmatic in a meaningful way. And as a couple of the biggest omnichannel DSPs, what their impact is going to be on this space, I think, is still very much an unknown.
When I look at what’s going on this year, I think there is a few things that have happened in out-of-home programmatic. I mean, I think first and most obvious is what you said, which is — it’s the super easy channel to turn on and turn off and where people are doing more promotional spend, that’s something that they’ve maybe dialed back quicker. And that we’ve seen in some of the mainstream digital advertising parties that they’ve seen that impact.
On the flip side, you have a lot of — the programmatic space in out-of-home greatly expanded this year in terms of the number of screens. So if you looked at the screens available for digital out-of-home, in January of this year and you looked at it now, you would see a massive amount more screens available. And a lot of those screens are in places that were hit extremely hard by COVID. And so part of why I think what, kind of, happened is that the roadside programmatic came back first.
And then over the course of this year, you’ve had mall-based and elevator-based and gym-based, all the other kind of locations that out-of-home happens has had a better run. And that was particularly true in the first half. I’m not sure — I don’t have my finger on the pulse of exactly what they’re seeing. But that proliferation of screens is something that I think has to get normalized and the marketplace has to sort out how it thinks about the different types of out-of-home programmatic. And we’re still, again, in very early innings of people getting understanding of it.
And then I think the last thing I’d call out, in addition to roadside being first to really take off coming out of COVID in programmatic, Q4 of last year was just a monster quarter. It’s hard to synthesize it or remember it even right now with the year that we’ve had from a macro perspective and all of the different concerns that have come up whether it’s war inflation or recession or interest rates, I mean you pick your list.
But Q4 of last year, programmatic was absolutely positively on fire. And that is — that’s probably, you know, I’m sure we’re going to talk a little bit about our relative pacing heading into Q4, but that’s one of the big drivers of why we’re not seeing. It’s not that it’s shrinking, or it’s not shrinking a lot. The jury is out on whether it’s going to grow much or not, but it’s certainly not having the kind of tailwind that it had last year. So hopefully, that gives you some insight into what’s going on in programmatic.
Ben Swinburne
Yes, yes. No, that’s really helpful. And then I don’t know if, Brian, I don’t think you mentioned this in your prepared remarks. But just — now that we’re three quarters into the year, any update on sort of free cash flow expectations for the full-year, which I guess is essentially asking about working capital with three months left, or anything else you think we should be thinking about?
Brian Coleman
Yes. I mean, I don’t have any incremental to add to what kind of guidance and information we’ve put out there. I mean I think we continue to operationally show improvement. We’ve got a bit of a headwind with interest rate increases, because we do have some variable rate exposure. And so that may delay kind of the point where free cash flow positivity comes into play. But we’re looking to continue to grow the business even with the headwinds that are out there, and I think 2023 will be a big year for us.
Ben Swinburne
Thank you.
Scott Wells
Thanks, Ben.
Operator
Thank you. We now have Lance Vitanza of Cowen. Please go ahead, when you are ready.
Lance Vitanza
Hi, thanks guys for taking the questions. Nice job on the quarter. I wanted to go back to airport advertising. Would you say that just across the industry, advertising has returned faster or slower than the pace of actual airport travel. And really, what I’m trying to get at here is just simply, do you think you have much of a tailwind left? Putting aside any possible recession, do you think you have much of a tailwind left to the extent international business travel continues to rebound?
Scott Wells
Thanks, Lance. No, it’s a good question. And I think you’ve heard all of the out-of-home, transit-oriented operators talk about — the audience doesn’t have to get back to 100% of where you were to have the ad dollars get back. And it’s a little different in the different types of transit, but I’d say that’s been true. Certainly, our results would say that’s been true in airports. We are back at 2019 levels in many of our airports. But the ad revenue has probably come back. It’s come back a little bit faster than the passengers have. I think the airport advertisers are pretty savvy to this in terms of looking at the expected passenger trends and the expected travel trends.
And I think one of the things, particularly for airports that has resonated with people, is that even if they’re not business travelers on business travel, the audience in an airport has a lot of business decision-makers typically. And so for the B2B, particularly audience, that’s been a strength, so I don’t know that I’d characterize, I mean, if you just look at it mechanically, our comps on airports are overlapping now. Really in Q4, it kind of is full on overlapping a full bore kind of quarter in terms of airport performance.
So where we had even triple-digit growth in airports early this year, you’re not going to be seeing that going forward. And it’s going to be part of our overall percent growth slowing a bit as things go. But it doesn’t actually mean that we’re taking a step back. It just means that the relative growth rate is lower.
Lance Vitanza
Okay. And then just one last one for me, if I could, which is in the Americas on the static side, barely grew in the quarter. And I’m wondering, was there anything in particular to depress growth there? Or is that sort of the new normal for static? I mean is there just kind of little to no growth going forward? Or was the third quarter somewhat of an anomaly? Or is this just moderating advertiser demand, global macro headlines?
Scott Wells
It’s definitely not the last one. What I’d say is — we’ve talked all year, I think I’ve talked to you a couple of times about this about insurance. One of — well, a couple of the insurance players that have been way, way, way down this year, including Q3 relative to 2021 — was big print advertising, advertiser. And so that has been a headwind for that type of inventory all year. We feel good about what we’re doing with our printed assets. We feel like there’s good advertiser demand. We’ve got opportunity to backfill some of that. We maybe didn’t get quite as much of it in Q3 as we would have liked.
As I look across the system, we’re in a more — I hate to use the word normal, because there’s not a lot normal about these times, but it’s a little bit more of a normal dynamic in that what you have are big city versus small city versus medium city dynamics. You have East Coast versus West Coast versus Southwest Dynamics.
And in the setup, when you look at printed, it’s a very different story in the Northeast where it’s not a good story versus, say, California, where it’s a quite good story. And so I’d say that the fact that it’s sort of flat is just a little bit of an artifact of a moment and probably not anything to read a trend into.
Lance Vitanza
Very helpful. Thank you.
Scott Wells
Thanks, Lance.
Operator
We now have the next question from Aaron Watts of Deutsche Bank. Please go ahead, when you are ready, Aaron.
Aaron Watts
Hey, everyone. Thank you for having me on. Brian, just a follow-up on your comfort level of liquidity as we roll into 2023, just given the macro concerns, increased debt service you highlighted. And maybe you can just also comment if you see working capital returning to a more normalized patterns in ‘23. And relatedly, your revolver loans gone, you mentioned your 7.1 covenant. Remind us what restrictions are for you to access those facilities?
Brian Coleman
Sure. Look, I think on liquidity, we continue to feel good. We obviously will keep a sharp eye on liquidity levels. We talked a little bit about rising interest rates and higher cash interest expense. And so that’s certainly something that is a headwind that we’ll have to keep our minds on. But operationally, things feel good, all things considered. And so I think we feel good about our liquidity position. I also do think as we get into 2023, you’ll see a normalization of working capital back to — generally back to pre-COVID levels.
Now keep in mind, we have significant seasonal working capital fluctuations. Piggybacking off an earlier question, Q4 is a strong quarter for us, but we actually don’t collect a lot of that revenue into Q1, which is a weaker quarter for us. So you’ll see a big working capital shift there. So I do think, generally, we feel pretty good, but it is a volatile environment. And so we want to make sure that we stay on top of things. Key to that is availability under our revolvers. They’re currently undrawn. We’ll use them for a letter of credit purposes, but we have significant kind of undrawn liquidity capacity there.
And we only have one financial covenant, that’s the one you spoke of. So that first lien leverage ratio, we’re just under 5 times the covenants I think, 7.1 times currently. And so there’s plenty of room there. And so we’ve got liquidity capacity in the form of cash. We got liquidity capacity in the form of availability under our cash flow and our ABL revolver. And I think we’re feeling pretty good about where we are, all things considered.
Aaron Watts
Alright, that’s really helpful, Brian. Thank you for that. And Scott, I don’t know if I can get anything on this. But with regards to the strategic review, does the focus remain on select geographies in Europe versus, sort of, the whole pie? And have any talks moved to an advanced stage despite the obvious headwinds in the capital markets and the macro backdrop?
Scott Wells
Yes, you’re right. I can’t say a lot about that one. I mean I’d just say that the message that we gave at our Investor Day and that we sort of referenced in the conversation early on the comments, the prepared comments, stands that we’re looking at a subset of the businesses we’re focused on optimizing shareholder value. And the reality on deal-making environments, yes, this is a tough one, but when you have assets that are interesting and you have counterparties that are motivated, anything is possible. And I can’t speak to any specifics, but we’re committed to giving the Street updates as and when we have anything material that we can say.
Aaron Watts
Okay, thank you. Appreciate the time.
Scott Wells
Thank you.
Operator
Thank you. We now have Richard Choe of JPMorgan. Please go ahead when you’re ready.
Richard Choe
Hi, I wanted to follow up on programmatic. You’ve talked about it being kind of back-end loaded in the quarters in the past. Was it more soft throughout the entire quarter versus back-end loaded?
Scott Wells
So programmatic — every quarter has a little different seasonality to it. There are certain months of the year that are sort of spiky months like, for instance, May might actually be a heavier month than June in a demand profile. Certainly, in Q4, December is the bellwether on the seasonality in quarter, if you will. But we’re at a point where we can actually understand something of what the demand environment is based on our daily sales with it. So I mean, it’s a business that’s really unlike the rest of the outdoor business. It’s more of a volume retail business, if you will, where you can kind of look at your weekly sales and get a sense of, okay, this week is like way below where it should be or this week is way above where it should be and kind of discern the trends from that.
So — and we have the added visibility that we get by having a sales force that’s out talking to people about campaigns that we do get some modicum of a pipeline. But it is — it is typically heavier at the ends of the quarters. This year, it has been more subdued, but we’ve had months that beat 2021, and we’ve had months that are ahead of — behind 2021 that so far this year are adding up to a kind of flattish experience overall in it for us. I mean, that’s about as much detail as I think I can give, probably a little more than I even should.
Richard Choe
Great. Thanks for the color on that. In terms of the static billboard market, can you talk a little bit about what you’re seeing maybe your top markets, Tier 1 cities versus maybe some of the smaller. Is there any difference there between the demand or pricing?
Scott Wells
So I mean it’s interesting. You think of Tier 1 cities and you start marching down DMAs and you think it’s just going to stair step according to how big and how developed they are. It’s actually that’s not at all the market environment. So the interesting thing in the environment, this is not unprecedented out-of-home. You have kind of L.A. and New York, which are their own thing. And both of them have higher penetration of out-of-home and media mix than other cities do. Both of them are cities that drive the economics of at least some of the big players in the space, and they’re behaving very strongly.
As you get to the next wave of big cities, though, a lot of those big cities are not as strong. And it’s — there’s a demand part to it just in terms of you can’t underestimate the value of having the weight of media and social influencers and entertainment in those couple of real top markets. And then you go and you look at the bottom end of market size within our portfolio, we don’t go that small. But our strongest performances, particularly in printed, are in the smaller markets, the smaller and midsized markets. That’s — and that’s a function of supply and demand, and it’s a function of those economies are all pretty healthy and they continue to perform.
So you saw in our numbers, a very balanced local national performance. And that’s probably at some level just because we don’t have as much inventory in the mega national locations, particularly New York as we ideally might in order to benefit from the strength in the kind of top two markets. But it’s an interesting market. I think one of the other players talked about this, about midsized is better than the smallest of the small. The sweet spot is just — it’s always moving. And right now, it’s kind of in that upper midsized kind of city, has just good demand environment.
Richard Choe
Great. And the last one for me. At the Analyst Day, the long-term guidance was for 4% to 6%. Is there any reason to think that next year wouldn’t be in that range?
Brian Coleman
Yes. We haven’t made any adjustments to the guidance beyond what we said, Richard, so —
Scott Wells
But we’re also not giving a 2023 estimate. I think it’s important for us not to not to lock in too much because there’s still an awful lot for us to learn. We’re really in the early innings of our upfront. It is going well, as I said in the prepared comments. But by the time we’re talking in February, we’re going to be able to give you a much more fulsome picture of what the year looks like.
Brian Coleman
That’s fair. I didn’t realize it was 2023.
Scott Wells
I thought he was asking 2023, right. I think you’re right. Yes, my apologies. So we talked about 2022. We won’t come out with 2023 until sometime in the future.
Richard Choe
Yes, it was 2023. Thank you. That’s it from me.
Operator
We now have Jim Goss of Barrington Research. Please go ahead, when you are ready Jim.
Jim Goss
Alright. Thank you. Actually, I did want to talk about upfronts. I wonder if you could characterize various aspects of it and the way you approach it. In terms of the share of the revenue base that’s involved, the timing, the range of values you’d sell and the pricing. And if to the extent they sort of make this exposure, if you will, how you satisfy that?
Scott Wells
Yes. So loaded with data points in there, Jim. That’s a big question. And I think I’ll start with saying that we call them upfronts for lack of a better word. But just for all the media analysts out there, this is not at all remotely like the TV upfronts. We don’t have a week where everybody is in town and there is big events and lots of announcements about new content. This is — what this is, is this is the season where we go through our perm renewals. And I don’t think we’ve given a ton of detail on the perms, but I think you could kind of figure it out from — and this is a U.S. phenomenon.
Let me just be very clear about that, too. So this is a U.S. thing and it’s not at all like the TV thing. And we’ve never really given too much dimensioning on it. But rough justice, it’s half the business, and that’s sort of things that have longer than six month contracts-ish. This isn’t something we’re going to start giving a lot more disclosure on, but I don’t think there’s a lot of harm in giving you a like rough feel for that.
And what happens is we’re on a cycle, most of our marquee assets, which would be the things that are most relevant for perms, we have backup customers lined up, and we have multiple paths to getting occupancy on them. And so when — let’s say the renewal is a December 1st renewal, we’ll start working that December 1st renewal over the summer and try to get a feel for whether the advertiser that’s currently incumbent is on for the next year, see what they think of the price increase that we’re going to put forward, which tends to be something that we look at relative to what’s going on in the economy as well as traffic growth rates, which generally only move in a positive direction.
And so you’ll go through a process with them. And sometimes they will opt out and you’ll then go to your backup advertisers and kind of fundamentally reprice the asset, which is usually advantageous to us versus continuing with the existing customer. But we do strive to have the existing customer pick up the tab for things that are underlying cost growth. So it’s such a diverse array. I mean, you’re talking about things that — you could have a perm on something that is six figures of revenue a period for one location to a perm on something that is four figures. So the negotiation is — it’s different sales forces, it’s different parts of the team, it’s different levels of executive involvement that come into play with it.
But that’s kind of what happens during our upfront, and we keep close tabs particularly on the top 15%, 20% of our inventory. And we look at trends in terms of are we getting good rate increases, are we getting good renewal rates, et cetera. And when I characterize it as going well, kind of a month in, that’s really what I — that’s what I mean, is that we are seeing healthy increases. We’re seeing healthy demand, and we will be watching this and working this very hard over the next few months.
James Goss
Okay. That’s very helpful because it certainly helps improve the confidence you have in the projections you give all of us.
Scott Wells
That’s why we kind of hold off until February to give the look at the full year, that — because then we will have a good lead part of our business already booked.
James Goss
Okay. Maybe another question, without going too far down the road of how you’re going to potentially split up assets. So I wondered if there would be some organizational structure that might differ. For example, if you have fewer international markets, might each of them be separate markets since they probably don’t interrelate all that much, given the nature of your business? And would that be a level of management and costs that you might be able to come as a savings? And does whatever structure you come up with have some impact in terms of the debt that you have internationally?
Scott Wells
Sure. So a couple of thoughts on that with all the caveats that I gave Aaron about, there’s just so much we’re able to say. It’s definitely premature to talk too much about structure until we have divestitures. But I would assure you we have a plan. If we are able to do the divestitures that we do, we will absolutely have structural savings. Probably wouldn’t operate the way you suggest because the way that — it makes sense to have an in-region CEO for what asset base we have left. It’s not going to be a teeny tiny stub. It’s going to be a meaningful chunk of business and a meaningful — I’ll just leave it at that. Should we be successful in the endeavors that we’re in.
So I do think that there would be there would be savings, but it’s definitely premature to speculate on the structure. And there was another part of your question. I think I lost it as I was trying to think through how I was going to answer that first part without getting in too much trouble, it may even with respect to it.
Brian Coleman
The BV?
Scott Wells
Yes, yes. You want to talk to that?
Brian Coleman
Yes. I think whatever we do is going to be compliant with the indenture, so I wouldn’t anticipate any significant structural changes, because it would likely be limited by the intention as long as there’s debt outstanding. And I think the only other thing I would add is if and when things do continue, that could create some reporting differences. But until that happens, I don’t envision that either.
James Goss
Okay. And the last thing, M&A hasn’t come up yet, not that should be at the top of your list right now. But how do you view property availability in this stage of the cycle in the economy? And you’re feeling as to your capacity to take advantage of opportunities you might see.
Scott Wells
So I take it that this is in U.S.
James Goss
U.S. Yes, yes.
Scott Wells
So there’s definitely still willing sellers and willing buyers. I think you’ve seen all of the U.S. based out-of-home companies have had a pretty active M&A agenda. For us, we need to keep an eye on that liquidity question that has come up in a couple of different ways as we went. Obviously, all things balance sheet-related come into play on it.
I definitely think it remains a good environment to transact. But obviously, with credit markets like they are, and with the macro what it is, we’re going to be keeping a very careful eye. And to the words you said, it’s not the top of our list of things that we need to be doing. But at the same time, we want to make sure that we’re not missing out on assets that would be a great fit with our platform.
Jim Goss
Alright, thanks very much.
Scott Wells
Thanks, Jim.
Operator
Thank you. We have no further questions on the line. So I’d like to hand it back to the management team for any final remarks.
Scott Wells
Great. Thank you very much. We appreciate the questions. We appreciate everyone’s interest. We feel good about the business, and we’re looking excited to finish the year strong and get 2023 set up to be a year of growth for us. So we’re very optimistic about where things are headed, and we appreciate everybody’s time. Have a great day. Thank you all for joining.
Operator
That does conclude today’s call. Thank you. You may now disconnect your lines.
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