Clear Channel Outdoor Holdings, Inc. Q4 FY2022 Earnings Call

Thank you for being here. Welcome to the Clear Channel Outdoor Holdings, Inc. 2022 Fourth Quarter Earnings Conference Call. I will now hand it over to Eileen McLaughlin, Vice President of Investor Relations. Please proceed.

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 fourth 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 on 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. Justin Cochrane, CEO of Clear Channel UK and 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 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 investor presentation. Also, please note that the information provided on this call speaks only to management’s views as of today, February 28, 2023, and may no longer be accurate at the time of a replay. Please turn to Slide 4 in the investor presentation, and I will now turn the call over to Scott Wells.

Good morning, everyone, and thank you for taking the time to join today's call. Our fourth quarter results capped off a strong year for our company, as we rebounded coming out of the pandemic and benefited from healthy demand for our digital assets. We generated consolidated revenue of $750 million, excluding movements in foreign exchange rates, in line with our guidance, and up approximately 1% compared to our very strong performance in the fourth quarter of the prior year. Our consolidated revenue was also ahead of the fourth quarter of 2019, excluding movements in foreign exchange rates in China. We delivered a record revenue quarter for our Americas business against a record performance in the fourth quarter of the prior year. Our European business also delivered strong revenue results despite European turbulence and the ongoing strategic review of our businesses in Europe. For the full year, consolidated revenue was up 16.5%, excluding movements in foreign exchange rates. I'd like to thank our company-wide team for their dedication and hard work in executing our strategic plan and contributing to our results during the past year. We operated at a high level as we progressed in our transformation into a technology-fueled visual media powerhouse, reaching a growing pool of advertisers, and we did this while improving productivity. Our story is both an operating one in terms of our efforts to increase revenue, drive further gains in productivity, and increase operating cash flow. It's also a capital structure story in terms of our focus on evaluating all options to improve our leverage ratio and reduce our debt. On the operating side, investing in our digital transformation remains central to our plan, including expanding our digital footprint, strengthening our data analytic offerings, and continuously improving the customer experience. We believe we are elevating our ability to provide our clients with the kind of experience they expect from digital media, coupled with the mass reach of out-of-home. And our experience to date tells us these efforts are leading to growth. During the fourth quarter, digital accounted for 43% of our consolidated revenue, which rose 4% during the quarter compared to the fourth quarter of last year, excluding movements in foreign exchange rates. As we expand our digital footprint, we're continuing to develop a more addressable and efficient operating platform. We're making our solutions more data-driven, easier to buy, and faster to launch. These initiatives are allowing us to convert more revenue to cash flow and better leverage our scaling reach while demonstrating results in ways that elevate the attractiveness of out-of-home advertising. We believe these efforts supported our outperformance relative to the majority of other traditional media platforms in the past year. As we execute our plan, we believe we can drive improved operating cash flow over time, given the operating leverage and strong fundamentals inherent in our model, as shown in the long-term guidance we provided last September and are confirming today. Beyond operating execution, we're also committed to continuing to review avenues that will enable us to establish an appropriate capital structure that we believe maximizes the value inherent in our business. At the close of the year, we announced the definitive agreement to sell our business in Switzerland for $92.7 million, which remains subject to previously disclosed closing conditions. We intend to use the anticipated net proceeds to improve our liquidity position while our strategic review of our low-margin and low-priority European businesses remains ongoing. As we said, our intention for Europe is to have a perimeter with substantially higher adjusted EBITDA minus CapEx margins, which is expected to help improve our leverage over time through the generation of operating cash flow and net sales proceeds from potential dispositions. As we have previously emphasized, we cannot guarantee the timing or success of our efforts, and we will continue to communicate further details as and when we are able. Turning to the year ahead, our business remains healthy, with revenue expected to reach between $2.575 billion and $2.7 billion, excluding movements in foreign exchange rates. In the U.S., we're wrapping up the best upfront since we've started measuring, and our premium locations are strong, although a few categories are reducing or delaying campaigns. And as a reminder, the first quarter faces tough comparisons with the prior year. Specifically, on a national basis, we are seeing softness in the first quarter due to crypto and emerging tech companies pulling back on significant spending relative to the first quarter of 2022. So, at this point, we're not seeing any major changes from a macro slowdown. Rather, the impacts we're seeing relate to dynamics within specific categories. Dialogue with advertisers remains very constructive, and in fact, we are continuing to develop new categories and broaden the universe of advertisers we can pursue. In Europe, we've maintained some of the momentum we saw in Q4, and we're seeing healthy demand with no indications of a slowdown due to macro concerns. Based on our conversations, brand owners have indicated that they will continue to advertise as they recognize both the need and opportunity to remain visible. I should note that we also have an easier comparison in Europe given all markets hadn't fully rebounded in last year's first quarter. So overall, Europe is off to a good start, and January came in marginally better than our expectations. As we execute our plan, we are keeping a close eye on trends across our markets and remain optimistic about our business. Brian will provide our guidance for both the first quarter and the full year. And with that, let me now turn it over to Brian.

Thank you, Scott. Good morning, everyone, and thank you for joining our call. Please turn to Slide 5. This has been a good year for our business. And so, before going through our fourth quarter results, I want to comment briefly on the full-year results. As you know, we provided detailed guidance for 2022 during our Investor Day, which was updated on November 8. I want to point out, our actual results were in line or ahead of guidance for every metric included in the guidance. In my view, this clearly demonstrates the resiliency of our business and the team's ability to remain on course and rebound from the pandemic. Now, on to fourth quarter reported results. As a reminder, 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. Direct operating expenses and SG&A expenses include restructuring and other costs that are excluded from adjusted EBITDA and segment adjusted EBITDA, and the amounts I refer to are for the fourth quarter of 2022, and the percent changes are the fourth quarter of 2022 compared to the fourth quarter of 2021, unless otherwise noted. Additionally, Switzerland, which is now considered an asset held for sale, will continue to be reported in revenues and adjusted EBITDA until we conclude the sale. During the fourth quarter, we expanded the number of segments in our reported results. We now have four reportable segments: America, which consists of our U.S. operations, excluding airports; airports, which includes revenue from U.S. and Caribbean airports; Europe-North, which consists of operations in the UK, the Nordics, and several other countries throughout northern and central Europe; and Europe-South, which consists of operations in France, Switzerland, Spain, and Italy. Our remaining operations in Latin America and Singapore are disclosed as others. Given the guidance we provided as part of our third-quarter results was in our previous reporting format, this morning's presentation and our fourth-quarter earnings release use the prior segments for comparability. However, the 10-K we filed this morning includes results for the fiscal years ended 2022, 2021, and 2020, using the new segments. Consolidated revenue for the quarter was $709 million, a 4.5% decrease. Excluding movements in foreign exchange rates, consolidated revenue was up 0.9% to $750 million, at the mid-range of our consolidated revenue guidance of $740 million to $765 million. Net income was $99 million, an improvement over the prior year’s net income of $66 million. Adjusted EBITDA was $205 million, down 7.6%. Excluding movements in foreign exchange rates, adjusted EBITDA was $214 million, down 3.5% as expected, primarily due to lower rent abatements as a result of the rebound in the business. AFFO, which is a metric we introduced recently, was $84 million in the fourth quarter, and $93 million, excluding movements in foreign exchange rates. Please turn to Slide 6 for a review of the Americas fourth-quarter results. Americas revenue was $374 million, up 28%, in line with our guidance range of $370 million to $380 million. And even more significant, we continue to surpass pre-COVID revenue levels, with revenue up 8.5% compared to Q4 of 2019. As Scott mentioned, this was a record revenue quarter against a record performance in the fourth quarter of last year. Revenue was up, driven by airports and digital, partially offset by lower revenue from printed formats. Digital revenue, which accounted for 42.1% of Americas revenue, was up 2.8% to $158 million across all display types. National sales, which accounted for 40.6% of Americas revenue, were down 2.7%, primarily due to tough comparatives as the fourth quarter in the prior year benefited from pent-up demand and a few large campaigns from brand owners that have pulled back spending. Local sales accounted for 59.4% of Americas revenue, and continued to deliver growth, up 3.4%. Direct operating and SG&A expenses were up 8.1%. The increase was primarily due to an 18.2% increase in site lease expense to $132 million, driven by higher airports revenue, new contracts, and lower rent abatements. This was partially offset by lower variable incentive compensation. Segment adjusted EBITDA was $156 million, down 7.9%, with segment adjusted EBITDA margin of 41.8%, down from Q4 2021, due primarily to mix and one-time items. However, Americas margin was more in line with Q4 2019, as expected. Turning to Slide 7. This slide breaks out our Americas revenue into billboard and other and transit. Billboard and other, which primarily includes revenue from bulletins, posters, street furniture displays, spectaculars, and wallscapes, was $295 million, up slightly from the prior year. Transit was up 3.7%, with airports revenue up 5.2% to $77 million, driven by growth across the airports portfolio, including the port authority. Now, on to Slide 8 for a bit more detail on billboard and other. Billboard and other digital revenue continued to rebound in the fourth quarter, and was up 3.6% to $111 million, and now accounts for 37.7% of total billboard and other revenue. Non-digital billboards and other revenue was down 1.9%. The largest increases were in travel, food, and hotels, with declines in insurance, media, and retail. Next, please turn to Slide 9 for a review of our performance in Europe. My commentary is on results that have been adjusted to exclude movements in foreign exchange rates. Europe revenue increased 2.1% to $357 million, at the high end of our guidance range of $345 million to $360 million. The increase was driven by our new Europe North segment, most notably due to new transit contracts in Denmark, as well as growth in other Nordic countries, UK, and the Netherlands. In our new Europe South segment, Revenue was higher in Spain and Italy, and revenue was lower in France and Switzerland, with the latter driven by loss of certain contracts. Europe revenue was also up 4.7% compared to the 2019 comparable period. Digital accounted for 41.6% of Europe's total revenue, and was up 7.4%, driven by new digital inventory, as well as the success of our programmatic platform, LaunchPAD. The largest contributors to growth included Denmark, Spain, the UK, and Norway. Direct operating and SG&A expenses were up 2.6%, with the largest driver being an increase in site lease expense. Segment adjusted EBITDA was $86 million. Segment adjusted EBITDA margin was 24.1%, in line with the prior year, and ahead of Q4 2019. 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 historically recorded in our financial statements, does not include an allocation of CCI BV’s corporate expenses that are deducted from CCI BV’s operating income and adjusted EBITDA. Europe and CCI BV revenue decreased $33 million during the fourth quarter of 2022 compared to the same period of 2021, to $316 million. After adjusting for a $41 million impact from movements in foreign exchange rates, Europe and CCI BV revenue increased $7 million. CCI BV operating income was $27 million in the fourth quarter of 2022, compared to $56 million in the same period of 2021. Now, moving to Slide 10 and our review of capital expenditures. CapEx totaled $60 million in the fourth quarter, a decrease of $5 million compared to the prior year. Americas was up 7 million, as we ramped up our spending, particularly on digital displays. However, in Europe, CapEx was down $13 million, due in large part to the timing of new contracts and movements in foreign exchange. In addition to our capital expenditures, I also want to highlight that during the quarter, we did continue to close a few more asset acquisitions in the U.S. totaling $10 million. Given our renewed focus on liquidity amid the current macro uncertainty, we are being more selective in our acquisitions. Now on Slide 11. During the fourth quarter, cash and cash equivalents declined $41 million. The decline was in part due to adjusted EBITDA being more than offset by cash interest payments, CapEx, and asset acquisitions, as well as changes in working capital as a result of an increase in accounts receivable. Our liquidity was $501 million as of December 31, 2022, down $41 million compared to liquidity at the end of the third quarter, primarily due to reduction in cash. Our debt was $5.6 billion as of December 31, 2022, basically flat with September 30. Cash paid for interest on debt was $124 million during the fourth quarter, a slight increase compared to the same period in the prior year, primarily due to higher floating rates on our term loan B facility. Our weighted average cost of debt was 7.1%, an increase compared to the weighted average cost of debt as of September 30, 2022, due to increases in LIBOR rates. As of December 31, 2022, our first lien leverage ratio was 5.2 times, up slightly as compared to September 30, 2022. The credit agreement covenant threshold is 7.1 times. Moving on to Slide 12 and our guidance for the first quarter and the full year of 2023. At this point in time, we believe our consolidated revenue will be between $540 million and $565 million in Q1 of 2023, excluding movements in foreign exchange rates. Based on month-end January exchange rates, foreign currency could result in a 3% headwind to year-over-year reported consolidated revenue growth in the first quarter. Overall, for the year, we expect revenue to be between $2.575 billion and $2.7 billion, with adjusted EBITDA between $540 million and $600 million, both excluding movements in foreign exchange rates. The drivers of revenue guidance relative to adjusted EBITDA guidance are related to mix, the effects of one-time items, and the renegotiation of a large existing site lease contract. AFFO guidance is $75 million to $125 million, excluding movements in foreign exchange rates, down from fiscal year 2022, due primarily to increased interest expense. Capital expenditures are expected to be in the range of $185 million to $205 million, with a continued focus on investing in our digital footprint in the U.S. Additionally, our cash interest payment obligations for 2023 are expected to be approximately $413 million, an increase over the prior year as a result of a higher floating rate of interest on our term loan B facility. This guidance assumes that we do not refinance or incur additional debt. As you can see in our guidance for the full year, we expect our revenue to continue to grow. However, we will continue to monitor this closely but have proven our ability to pivot should the need arise and believe we know how to quickly adjust our expenses and preserve liquidity if needed in the future. And now, let me turn the call back over to Scott for his closing remarks.

Thanks, Brian. We're off to a good start and believe 2023 will be a positive year for the business, despite some uncertainties regarding the macro environment. Supported by a great team and assets, we remain centered on executing against our strategic priorities, including accelerating our digital transformation, improving customer centricity, and driving executional excellence. We believe these efforts are enabling us to elevate the experience and results we deliver to our clients and broaden the pool of advertisers we can pursue. At the same time, we remain committed to addressing our capital structure, divesting our lower-margin and lower-priority European businesses, and taking the necessary steps to support cash generation of our core business, and ultimately reduce our debt. And now, let me turn the call over to the operator for the Q&A session, and Justin Cochran will be joining us on the call.

Thank you. Our first question today comes from Ben Swinburne from Morgan Stanley. Your line is open.

Good morning. Scott, maybe one for you to start us off here. Can you talk a little bit about how you're thinking about the shape of the year? You mentioned the first quarter, particularly in the U.S., faces some category-specific headwinds. But talk about your visibility into Q2 and beyond. And it sounds like you expect the year to improve from a growth perspective as we move through the year. And then, maybe since we now have your Airport segment, which reported pretty massive growth last year, obviously, port authority contributing, can you talk a little bit about the outlook for that business as we look into ‘23 and ’24? What kind of expectations should we have? And is there other business out there you may be bidding for that might be material? Anything you could share with us on the outlook for airports I think would be helpful, too.

Thanks, Ben. Good morning. So, for the shape of the year, Q4 and Q1 have been a little bit of a pause in the momentum that we have seen in the business over the last five or six quarters, and I think it's attributable to a couple of things. It’s pretty narrow and account-specific. Particularly, as I look at Q1, it’s the emerging tech companies and the crypto companies. We never really had that much exposure to sports betting, but that was always another category that has proven ephemeral in Q1 of last year. And that's creating a little bit of slowness at the end of last year and the beginning of this year. But that's offset by what I referred to in the prepared comments that we had our best upfront ever, and our visibility into the rest of the year is strong. What we believe is happening is that a bunch of companies made announcements about layoffs and things like that, and people tend not to want to advertise heavily during layoffs. You also had companies that had dynamics I described a moment ago. So, it’s a market that thinned out a little bit compared to where it was a year ago. But the laydown for 2023 is strong and the dialogues and plans people have are strong. I guess the other thing I would call out is the film release schedule wasn't stellar sort of late last year, early this year, and that's obviously an important category for us, particularly in a couple of our bigger markets. So, all of those things combined make us think that the softness we're seeing at the beginning of the year is not going to be how the year as a whole builds, and we guided accordingly on that. Our guidance truly represents the best information we have at this moment. To your question on our Airport segment, a couple of things I'd call out. I think we've mentioned this, and we mentioned it during our Investor Day in September, but we are selling airports differently than we might have sold airports five years ago. We've gotten more creative in terms of looking for sponsorship-type opportunities, think of things like naming rights. That business has gotten a lot more digital and coming out of COVID, has had a very strong tailwind as travel has taken off. I mean, travel's been one of our hot verticals for the last few quarters. And certainly, we've seen that play through in airports. But when I look at airports, we don't really get into talking about contracts because none of them, with the possible exception of New York, would count as material, and there are relatively regular ins and outs. There's nothing I'd call out regarding our renewal schedule this next year that's going to be meaningful. I would note that we did just go live in Newark Terminal A in Q1 of this year, and there's still buildout happening on the New York Port Authority contract. So that still has some room to run. I’d be remiss if I didn't mention the other big innovation we've made, which has been meaningful, doing more selling by the America sales force into the airports. We've seen cross-selling between the America sales force and the airport sales force, and that's gotten pretty meaningful, a contrast to five years ago when that was almost negligible. So, I think all of those things give us some room to run in terms of further growing that airport business.

Got it. Thanks so much.

We now turn to Steven Cahall from Wells Fargo. Your line is open.

Thank you. Maybe first just to go a little deeper into some of Ben's questions. You talked about there being some pockets of softness in the U.S. I think you said that you had fewer headwinds and an easier comp in Europe. So maybe, how do we just think about within the growth guidance, whether it's for Q1 or the full year, how to think about Americas versus Europe? Could we see Europe outgrowing Americas, which is usually not the case on an organic basis? So, I'd love to get some commentary there. And then, Scott, and Brian, you've started giving the AFFO metric, and it would certainly seem like future potential for a REIT structure could create a lot of value for the company. I think debt is still the big obstacle. And Brian, if I maybe read into some of your comments, it sounds like you might still have some ideas of things you can do this year beyond the Swiss divestiture to manage the balance sheet. So, I’m curious what options you think you've got this year to start to shape the balance sheet to a little lower level of leverage. Thank you.

Thanks, Steve. Good morning. So, let me take the first part, and I'll let Brian take the second part. Recall that Q1 of last year is when the infamous Omicron was present, and that hit Europe considerably harder than it hit the U.S. When you think about Q1, you should probably expect that Europe will be outgrowing the U.S, again, net of currency. Currency always complicates exactly how those numbers are going to go, but that’s probably not an unreasonable way to think about it. And that's actually true a little bit as you think about the full year, because obviously Q1 is part of the full year. There are geographical regions in Europe that still have not fully recovered from COVID. Parts of Europe have recovered and are way, way ahead of 2019, but not all parts are. There’s probably a little bit of a mix toward Europe in that revenue mix, and it's not massive, but we were very specific in giving consolidated guidance just because there are so many moving pieces across the portfolio. That’s why we did it as a whole. Hopefully, that gives you a flavor for the mix. I'll hand it over to Brian to address the second question.

Sure. Thanks, Steve. I think our path to REIT optionality is both a deleveraging story and getting the size of the portfolio of REITable assets to the right level. The strategic review going on in Europe is obviously an important element to that. While the ultimate resolution through asset sales is probably not directly deleveraging, at least not meaningfully so, it does carry reduced capital expense, simplification of the business, and a lowering of corporate costs. I do think visibility into the ultimate outcome will be an important consideration as we look to other options to delever. Other options may be needed, and all options are on the table, but I think it would be premature to really dive into those. The company has some runway. We've got the process going on, and we're going to remain open-minded about what we need to do to delever the balance sheet. But it's really that and getting the asset base in the right place being the two obstacles, so to speak, to putting ourselves in a position where we could eventually REIT this business.

Great. Thank you.

We now turn to Lance Vitanza from Cowen. Your line is open.

Hi, good morning. This is Jonathan on for Lance. My first question is really on the new segment reporting. Just curious to know what led to the new breakout?

It’s a determination management makes based on how we manage those businesses and how we allocate resources. The three elements were breaking out airports— the size of that business contributed to the decision to break that out; the division between Europe North and Europe South reflects the differences in those businesses and the allocation of resources; and taking Singapore out of the Europe category into others. But it really is a management determination based on those criteria.

Okay. Can we expect much rent abatement in both the Americas and Europe going forward? I know from the slide in your presentation, Europe has largely tapered off, and while there's still some in America, I just want to get a better feel for that trajectory in ‘23.

Well, you're right in that they've largely tapered off in Europe, and I think that same kind of tapering off should naturally occur in the Americas. That said, this is something that we want to pursue vigorously where we feel it's appropriate, and there are still some opportunities in the Americas that we will continue to pursue, but they will largely continue to diminish over time.

Okay. And my last one, just given the higher rate environment, does that necessitate any change to strategic priorities, given the eventual need to refinance at higher rates? Does that change the story at all, or no?

It’s a significant consideration. Our interest expense has gone up. But maybe even more importantly, the level at which you could assume refinancing to occur is probably at a higher point than it would've been a year ago. This is definitely a headwind to free cash flow generation. That all being said, we have a runway, and there are many moving parts in the business right now. I wouldn’t say that it necessarily has led to a change in our strategic thinking, but it certainly is an important consideration that we are currently evaluating.

Yes, I mean, I think, Jonathan, the only thing I'd add is that a year ago, it would have been hard to predict rates where they are right now. We are still a couple of years out from where we’re going to need to engage. This is a slow as smooth, smooth as fast situation, to borrow from my special operations friends. We'll be watching the market very carefully on this, and we’ll take appropriate action as our window approaches.

Understood. Thank you.

Our next question comes from Avi Steiner from JPMorgan. Your line is open.

Thank you. Good morning, everyone. A couple of quick ones for me. One, on the company's full-year guidance, it looks like at least at the midpoint, margin is slightly lower year-over-year. I want to ensure I understand the puts and takes from ‘22. Obviously, some rent abatements are part of the issue, or less of them. I assume airports growth is in play. So, I’m curious if I'm missing anything else, then I've got a couple more. Thank you.

Yes. We've talked about the abatements falling away, as you pointed out, the mix as airports grow, and we have a major contract in the U.S. that has gone through a renegotiation which has again been a headwind. So, those three things are indeed headwinds on EBITDA margins. You're thinking about it the right way, Avi.

Okay. That's terrific. Then one of your peers talked about the programmatic channel being a little softer. I know it's not a massive part of the business, but I’m curious what you guys are seeing there and how you see that playing out this year.

Yes, no question, 2022 did not have the kind of growth in programmatic that we may have anticipated for the year. As you'll see in our proxy, we actually delivered on our plans despite that. The programmatic market right now is pretty solid. It’s hard to compare Q1 to Q4 ever, but it is showing decent growth. I don’t think we’re relying on it as a massive part of the guidance we provided, but there’s no sign that it's in a bad place.

Great. My last one for me and thank you for the time. Use of proceeds from the Switzerland sale; recognizing you can reinvest that in the business, should we think about it as targeting the CCI BV notes and future asset sales out of that entity? Thank you again.

Yes. We've discussed how we plan to reinvest those proceeds into the business, which is permissible under the various agreements, including the CCI BV indentures. That will free up cash flow from the European operations that would otherwise have been used to fund those investments. Given the current environment, we’ll probably bolster liquidity with those proceeds once the Switzerland sale is completed, though that could change over time.

Thank you very much.

Our next question comes from Richard Choe from JPMorgan. Your line is open.

Hi. I just wanted to ask about the guidance. Should airports be up for the year and then digital to be up and non-digital to be flat? Is that kind of implied in the guidance?

We provide consolidated guidance, Richard, but we don't really break it out. I think airports is performing well, and as Scott previously mentioned, there's still some room to run there. So, we're positive on that business. I don’t know, Scott, if you have anything to add regarding the digital and non-digital outlook.

Yes. You’ve seen steady and increasing rapidity of our business becoming more digital over time. The reporting will be enlightening to some regarding how penetrated some parts of the portfolio are with digital. Airports in Northern Europe stand out significantly in that category. Digital is a growth part of the story, but we've been pleased with how our non-digital has held up. Much of the 2022 non-digital performance was driven by category shifts in our advertiser base, and this should wash out as we get into 2023. Our consolidated guidance accounts for these underlying dynamics.

Got it. Thank you. Is there more room to rebound in Southern Europe than Northern Europe, or how should we think about the opportunities in both for the year? I’m not seeking guidance, just an overall perspective.

Yes. It’s interesting to think about the rebound. Yes, would be the answer to that question. There are contract puts and takes; that’s always a dynamic in Europe, and there are a couple mentioned in terms of where things are. In general, Southern Europe has recovered more slowly from COVID, and that should create opportunities in those markets this year.

Great. Thank you.

We now turn to Jim Goss from Barrington Research. Your line is open.

Thank you. Regarding the split of north and south for Europe, is it because of geographic operating similarities, or does it have any implications for how you might decide to market the properties as you do this evaluation and increase the core in the U.S.?

Yes. The decision to have this segmentation is driven by accounting considerations and the way we manage the business. That is true. Part of that differentiation can be tied to how we manage the business, who manages it, and what resources we allocate to those businesses. The segment reporting difference, particularly in Europe between the North and South, offers insight into the distinct operating characteristics in those regions. But it’s really focused on management structure.

Okay, yes. You mentioned airports in Northern Europe as a standout in terms of digital. You have roughly 42% of revenues both in the U.S. and Europe contributed by digital. Is that pretty consistent by geography and category? How does that drive your expansion opportunity as you allocate capital?

Digital varies significantly by geography, contract, and situation. We believe ongoing digitization is an opportunity. We're well-penetrated in digital in the UK. Airports have become increasingly digital, and as we refresh contracts, we’re seeing more digital adoption. Regulatory constraints exist in the Americas and some European countries, but we're finding that as more locations have the experience that airports in the UK provide, we're increasing digital usage. Clients appreciate its immediacy, flexibility, and creativity. The features customers like will continue driving us in that direction when feasible. However, it's different by geography, so there's not a straightforward answer to your question.

Okay, thanks.

Our next question comes from Jason Bazinet from Citi. Your line is open.

I just had a quick question on organic growth both for last year and what sort of organic growth is embedded in your guidance for this year. Specifically, I was interested in how inflation, both last year and your expectations this year, influenced your ability to take rate and impact the organic growth expectation.

Thanks, Jason. We absolutely saw a strong rate environment and continue to see good rate conditions. Where there’s softness, it’s specific to certain accounts, not widespread. One of the drivers of the really strong upfront we’ve discussed is that we've been achieving good rate increases. It’s more complex than simply inflation, but that certainly simplifies the conversation. The transition from the COVID environment to what I would characterize as a more ‘regular’ trading environment means rate increases may be harder to achieve over time. However, we’re focused on driving yield. We expect to continue generating yield in 2023.

Yes, it seemed like you guys had pretty good pricing power, but it sounds like that’s going to moderate a bit, yet you're still expecting to generate organic growth. I guess that's the takeaway for ‘23.

Yes. I think of our digital conversions as organic growth, too, because it’s not acquisitions, and the paybacks are very attractive. Growth doesn’t just come from rate, and that’s an important point.

This concludes our Q&A. I'll now hand back to Scott Wells, CEO, for any closing remarks.

Great. Thank you very much. We appreciate you all joining our call today. We feel good about the year that lies ahead and are optimistic. We look forward to updating you as the year develops on the various strategic initiatives and operating initiatives that we touched on. Have a great day.

Today’s call has now concluded. Participants, you may now disconnect your lines.