Q4 2021 OUTFRONT Media Inc Earnings Call
Good day, and welcome to the fourth quarter 2020 One earnings conference call. At this time I would like to turn the conference over to Mr. Stefan <unk>. Please go ahead Sir.
Good afternoon, and thank you for joining our 2021 fourth quarter earnings call.
With me on the call today are Jeremy male Chairman and Chief Executive Officer, and Matthew Siegel Executive Vice President and Chief Financial Officer.
After a discussion of our financial results, we'll open up the lines for a question and answer session.
Our comments today will refer to the earnings release and a slide presentation that you can find on the Investor Relations section of our website.
[noise] front media Dot com.
After today's call is concluded an audio archive will be available there as well.
This conference call May include forward looking statements relevant factors that could cause actual results to differ materially from these forward looking statements are listed in our earnings materials and in our SEC filings, including our 2020 Form 10-K , and our 2021 quarterly reports as well as our 2021 Form 10-K , which we expect to file that.
Weak.
We will refer to certain non-GAAP financial measures on this call any references to OIBDA made today will be on an adjusted basis reconciliations of OIBDA and other non-GAAP financial measures are in the appendix of the slide presentation. The earnings release and on our website, which also includes presentations with prior period Reconciliations let me now turn the call over to Jeremy.
Thanks Stefan.
Thank you everyone for joining us today.
We just heard from Stefan <unk>, our new Vice President of Investor Relations, who we are delighted to have joined US in mid November from sell side research covering out with him.
Seems like Stefan has chosen a good time to join out front and indeed our industry.
It's great to be here today and share my enthusiasm for our recent results and optimism and confidence for 2022.
Our fourth quarter was even stronger than we expected and communicated on our call in November .
And some continued right through the end of the year and indeed into 2022.
Billboard and transit was sharply I had again and the diversified portfolio of clients enabled us to keep demand high even as certain parts of the economy react to short term changes in consumer behavior and municipal guidelines.
You can see the highlights on slide three.
Total revenue grew 38%.
Looser these expectation.
Business continues to book later within each quarter in particular due to the flexibility of digital inventory.
<unk> says to write business on very short notice.
Once again this growth was seen on all products across our company with the U S. Billboard up 27% from 2020 and transferred another revenue doubling year on year.
We are seeing strong performance in almost all of our geographies large and small and both Billboard and transit.
We were especially encouraged by gradual ridership gains in various transit franchises during the fourth quarter prior to mid December when the Omnicom veterans.
Concerns quite reasonably put a short term pause on that trend.
We are pleased to see audience improvement resumed me again as more companies and employees returned to their offices.
This strong revenue performance further demonstrates our attractive operating leverage with OIBDA and <unk> growth rates more than double and triple respectively.
Our revenue growth.
We also foster passed a full year <unk> guidance about which Matt will go into in more detail and also provide our outlook for 'twenty to 'twenty two I S. S. I.
Yeah.
And I also want to make sure everyone noticed earlier press release announcing that our board of directors has raised our quarterly common dividend to <unk> 30 per share starting this quarter.
Our performance and outlook for 2020 to encourage us to bring the dividend closer to a pre pandemic level and this is a major step towards that goal.
Slide four highlights that our revenue growth was driven by our U S media segment, which grew 39% for the quarter.
Which consists almost entirely of out from Canada grew almost 24%. Despite some continued lockdowns.
On slide five you can see a more detailed look at our U S media revenues.
Both grew by 27% from last year, but even more impressively it was up around 11% versus the same quarter in 2019, a significant widening compared to the 2% achieved in the third quarter.
Transit also accelerated its year over year performance more than doubling prior year revenue, which was obviously impacted by lower ridership in 2020.
In New York, our largest transit market daily subway ridership eclipsed 3 million people again I'm also pleased to see translate revenue recovery outpaced the ridership recovery when both are measured against the same periods in 2019.
Turning to slide six where we can see U S media sources of revenue.
You'll notice that national business growth again, led our overall growth and was up almost 47% from last year.
This represents larger advertiser interest and our Billboard inventory with Nashville, a transit revenue almost more than double 2000 twenty's level.
Local U S business, which has been less followed by volatile through the pandemic also performed extremely well growing 34% this quarter with impressive growth in both Billboard and transit.
Notably our mix return to a more typical 55%, 45% local national split in Q4.
Another really positive indicator for our company is the large increase in yield that you can see on slide seven.
2000, and $750 represents a 29% increase from last year, and almost 50%, 15% above the comparable quarter and 2019.
Strong demand for our billboards as helping us push both occupancy and price higher and we think there's further room for improvement in both.
Focusing further on tissue so on slide eight.
Digital revenue grew more than 70% in the quarter to about 31% of total revenue.
As a result of increased yield.
Inventory and the opportunity for laser incremental bookings.
Billboard Digital grew an impressive 46% and transit digital continued its acceleration from last quarter and more than tripled its pandemic impacted level from last year.
Transit was led by New York, MTA performance with improving demand and more digital inventory above and below ground.
Our digital opportunity is hugely exciting and a great indicator for our future.
To complete the revenue picture on slide nine as other primarily Canada, where we had good growth in the quarter that was again somewhat impacted by government restrictions.
Let me now hand, it over to Matt to review the rest of our financials.
Thanks, Jeremy and good afternoon, everyone. Thank you for joining our call today.
For a deeper dive into our P&L. Please turn to slide 10 for a look at our expenses.
Overall, our total expenses were up $61 million year over year.
This has been our trend for most of the year. Following the first quarter strong revenue growth across the whole company has led to increases in variable and performance related costs.
Our largest cost component Billboard lease expense is primarily a fixed cost with some revenue sharing component in certain geographies.
This is demonstrated this quarter by our lease costs.
But you only increased nine 5% versus 27% increase in Billboard revenue that Jeremy noted demonstrating very strong operating leverage in the business.
Most of our transit franchises, we're operating under a revenue share arrangements in 2021 and.
And you can see our franchise expenses increased by approximately 85% as revenue went up 101%.
The exception to this in 2021 has been the New York MTA franchise, which has been under it's minimum annual guarantee or Meg level all year.
However, during the fourth quarter stronger revenue performance move the MTA franchise to a positive gross margin and mitigated some of the full year cost impact of the minimum annual guarantee.
For 2022, we expect New York MTA revenue to improve but likely still remain under its meg level, which requires around $230 million of revenue to reach.
Posting maintenance and other expense was up nearly 15% given additional activity related to higher revenues.
And lastly, corporate and SG&A expense combined were up almost 26% over last year.
This reflects higher revenue and OIBDA driving increases in performance based compensation costs.
We offset by a reduction in bad debt expense.
Once again this quarter you can see the operating leverage inherent in our business model.
On Slide 11, you can see our OIBDA for the quarter is up 82% from last year were more than twice as high as our revenue growth of 38%.
This was our highest quarterly OIBDA figure since our inception higher than the $140 million in the fourth quarter of 2019.
Our OIBDA margin of 32, 5% was 120 basis points higher in 2019.
On a year over year increase of almost eight full percentage points.
Higher margins were driven by greater Billboard yields higher MTA revenue and a favorable mix of business lots of moving parts going away this quarter.
Slide 12 has more detail on the sources and growth of OIBDA.
We'll get the breakdown of OIBDA, you can see 49% growth in U S media Billboard to $179 million comfortably above our 2019 fourth quarter level.
Billboard OIBDA margin was 41, 7% up more than six percentage points from a year ago and higher than our peak revenue performance of 2019.
This improvement is driven by general yield growth increased digital share of Billboard revenue and a favorable geographic mix of revenue.
Transit OIBDA turned more positive this quarter and margin returned to a more typical 21% as seasonally strong MTA performance lifted that franchise and our total transit business.
2021 full year MTA revenue remained below the minimum annual guarantee and as previously mentioned, we expect this will likely be true for 2022 also.
A reminder, quarterly transit revenue has seasonal fluctuations in the magazine accounted for on a straight line basis. So while Q1 OIBDA will reflect this over the full year, we expect the MTA revenue gap to the Meg to narrow and annual transient way, but its significantly improved versus 2021.
Let's now turn to capital expenditures on slide 13.
As we expected we had a large quarter in both growth and maintenance spend.
I had some supply chain restrictions opened up and we received various screens equipment and other tools that we had waited for it to meet our digital targets and general operational needs.
We finished the year with Capex spend of $74 million in line with our previously communicated expectation.
We added 188 digital Billboards this year through a combination of conversion and acquisition with all but 15 of those in the U S market.
We spent $136 million of acquisitions in 2021 more than half of that in the fourth quarter.
The largest transaction was $30 million.
All of them were tuck ins to existing Out-front markets.
Our pipeline of digital conversion locations and acquisition discussions remains very active so we again have a target of 150 to 200, new large format digital is for 2022.
We have seen some improvement in the supply chain for screens, but we still intend to order earlier in the year to hold some inventory and manage their expected demand.
We expect annual Capex to bounce back to a familiar level of $85 million, including around $25 million identified as maintenance spend.
Slide 14 is an attractive chart that shows the <unk> this quarter more than double last year.
Full year <unk> growth was 113%.
Shortly above our recently raised guidance of around 80%, reflecting late booking revenue flowing straight through to <unk>.
For 2022, we currently expect <unk> growth of around 60% from 2021 is $205 million.
We look forward to another strong year.
We see continued Billboard strengths and transit improving throughout 'twenty two.
But transit and not yet back to pre pandemic full year revenue of 2019 until next year.
Our cash tax expectation remains low at around $5 million as a REIT structure retains its efficiency for our revenue growth.
Slide 15 has.
Our quarterly MTA deployment update and you can see we picked up our pace of subway deployments from the third quarter and almost double what our spend from last quarter.
In 2022.
We expect to spend approximately $150 million on MTA deployment and it is unlikely we will recoup deployment costs during the year.
The pace and spend will partially depend on the supply chain availability of various parts and tools used for rolling stock attachment.
We were pleased with MTA performance at the end of the year with a strong fourth quarter maintaining.
Momentum through the Omicron Varian surge and we look forward to further improvement.
Please turn to slide 16 for an update on our balance sheet.
Committed liquidity is over $900 million down from $1 billion last quarter, because we were very active in the acquisition market during the quarter closing six separate deals with a value of approximately $80 million.
Our teams continue to look for more opportunities for growth. So we are excited about the prospect of additive inventory to our existing geographies.
Our net total leverage declined to under six times.
Our OIBDA continues to climb back towards pre pandemic levels.
We are watching interest rate movements, but feel very comfortable.
Next maturity is over three years away and only <unk>.
21% of total debt is subject to floating rates.
As Jeremy mentioned, our board of directors approved a substantial increase in our quarterly common dividend to <unk> 30, a share payable in March.
This reflects our confidence and current outlook for.
For our business this year and is an appropriate increase to manage our potential REIT dividend requirement and.
Also our desire to further grow our dividend as we move forward.
We are really pleased about our strong finish to 2021 and we are excited about 2022.
Look forward to talking with many of you in the next few weeks increasingly in person to share our enthusiasm to answer your questions with that let me turn the call back to Jeremy.
Thanks, Matt.
The fourth quarter was suddenly markedly above our expectations.
And as excited as we are to share these results today.
We're even more excited about the future.
Our industry is in a great place with people on the move again and growing audiences cingal displays everyday fares.
The demand for digital Billboards has never been hotter as market is enjoy the flexibility to display eye catching messages at the right time and the right place.
Given our diverse set of assets, we believe out front is in a great position to capitalize on some of the challenges currently facing other media I'm once again capture incremental shy of the advertising pie.
More specifically looking to Q1.
While geopolitical and pandemic related uncertainties, obviously remain it is shaping up to be a great quarter.
The AUM across search as past.
Restrictions are loosening and attitudes towards Covid are changing.
The economy remains vibrant and we are seeing this in the pace of our business.
So specifically, we currently anticipate that Q1 revenues will further strengthen from Q4 and be up in the low forties range from last year.
Billboard will again further widen this performance versus 2019 levels and.
In transit will likely again be more than double last year.
This strong performance is rooted in the strength of historically active out of frame uses.
Technology in various forms of entertainment like movies and TV, but also helped by newer categories of advertisers such as online sports betting.
I'm also pleased to see retail strength returned to our book.
We feel our diversified portfolio of categories and advertisers will continue to serve as well as the economy shifts and constantly yields opportunities for a broad range of advertisers to communicate without audiences.
I look forward to seeing many of you at various conferences and events in the coming months there'll be a pleasure to be meeting. So many of you again in person and for those of us with that.
A view that we don't we'll hopefully see you on the train riding the subway or indeed stuck in traffic in some of in front of some of our great signs.
We feel really really positive about our business and are looking forward to talking about it and sharing updates on our continued growth and progress.
So operator with that if we can now open the line for questions.
Thank you Mr. Speaker, if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if youre using a speakerphone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
We'll take the first question from Ben Swinburne from Morgan Stanley . Your line is open. Please go ahead Sir.
Thank you and good afternoon.
I guess a couple of questions Jeremy.
In the prepared remarks, you guys talked about geographic mix I think favorably helping revenue could you just talk about kind of large market versus small market and you.
So what are you seeing the markets like New York and L. A which I think have been holding you back a bit.
Take the lead in terms of our revenue growth.
And I Couldnt help but notice on your side.
Slide you have a sports betting at [laughter], which actually been getting a lot of attention lately because there's been some comments from caesars they might pull back on spending and just maybe you could talk about the size of sports betting and if youre seeing any moderation in growth in that area.
And then for Matt any help in thinking about expenses in 'twenty two at least maybe the SG&A and corporate stuff. The stuff. That's in your control how we should think about that relative to kind of the Q4 run rate. Thanks guys.
Alright, Thanks, Ben Yeah, Let me, let me take the first couple of so when we look at geographies.
A couple of things were going on last year one.
Big cities.
Slide the holding us back versus more rural rural markets and obviously you know transit was attract so when we look back to look back to Q4, and we look at it.
Markets were still behind the 20th 19 level that would include New York, obviously exposed to.
Largely exposed to transit and also also L. A so as we now look.
Look forward.
In our Billboard business. It really seems that just about every Billboard market is now ahead, and we actually think that in those larger markets that maybe had a bit of a slower catch up last year that could indeed be the opportunity for them to sort of relatively outperform.
As we as we go forward.
If we.
Then just got back to sports betting so you know.
Right now.
In Q1.
We think it could be you know round about a 5 million dollar categories something like that.
Sop from about a million bucks going back to Q1 'twenty one so.
That's the scale of the Delta and I'm, you know, obviously, it definitely definitely a nice tailwind for us.
Then unexpected right it's Matt.
First next year.
Billboard margins, we think we're going to continue to improve.
As revenue growth.
It keeps going and digitization keeps having its impact.
Transit are we also think will improve as the MTA gets a little closer to its Meg level.
And narrows that gap on SG&A, we think it'll stay are.
Elevated from our pre pandemic levels as our work comp costs commissions bonuses.
Anything performance related.
Expect it to still stay elevated.
We ended the year at the time too.
To pull back on that just yet.
Again with performance when do you think it's appropriate to reward the performance again.
Thank you Matt Thanks, Jeremy.
Thanks, Brian .
We will take the next question from an Elisa from JP Morgan. Your line is open. Please go ahead ma'am.
Hi, Thank you so much for the question.
Was wondering if we could also talk more about the verticals of strength or weakness that we're coming out of the pandemic.
Are you seeing any various vertical allocating more of their AD spend to outdoor advertising and then on the other hand are you seeing any verticals that have pulled back on.
<unk> inflation or something.
Thanks.
So I think as we.
As we look forward I think time will tell across the year rather than just in a quarter.
In terms of percentage allocations of some of the larger clients, but you know I did remark that you.
I.
Would would hope and expect that out of her might again start capturing more share of the media pie as indeed, it was doing prior to the pandemic. So I think generally the trends are good but that will come you know more apparent as we go through the year and we see how the broad.
The market does oil side, but as I sit here today.
And look at Q1 was saying good strength in tech, which is obviously one of our sort of core core categories movies Entertainment TV and streaming.
Live entertainment venue based entertainment fashion, and even travel is starting to show.
Some signs of life, So I would say broadly broadly based with some from some with some of the debt.
Outdoor advertising.
Favorite advertisers and then with the you know the fresh blood of sports betting and others.
Great. Thank you.
The next question came from Mr. Jim Goss from Barrington Research. Your line is open. Please go ahead Sir.
Thanks.
I was wondering about the dividend issue.
Are you intending.
Turning to you try to create more of a regular quarterly flow for dependability, and then potentially.
<unk> returned to a true up at year end, if need be to meet the requirements.
Hi, Jim It's Matt Thanks for the question.
Yeah, we were increasing our dividend to <unk> 30.
Starting this quarter, we expect to carry that.
Quarterly through the year until we are <unk>.
Increases again are going over our business.
Changes so we think that you know.
People can annualize it it at $1 20, we think it meets our.
Our outlook in REIT requirement.
And do you think it's generally.
Great News all round reflective of <unk>.
Performance and outlook.
Yeah.
Okay.
And.
The as you mentioned there are a lot of moving parts and what's been going on you get traffic return your yield is increasing.
You are gaining some market share and maybe some Mexico and you're right way I Wonder if you could take us behind the scenes in terms of how the pricing negotiations go at that point like or have you seen the tide shift to where you are more in control of what Youre able to command.
Especially as a as you've been able to.
Hold your own and demonstrate the value of the medium.
Yeah, I mean I.
Increasingly I think out of home is being able to.
Demonstrate value to advertisers and still now when you look at our CPM is well well below the.
The majority.
Other media when we look to the <unk>.
Pricing increases that we've been achieving them.
To be fair, it's been across the board in both national and local was saying our ability to achieve higher rate.
And you know.
Always demand is playing.
Good.
Piece of that I think one other interesting trend that's going on in the businesses.
We have sold more bill.
Billboards on a permanent basis in other words, the 12 months and what that what that has done is taken out if you like some.
Attractive in the inventory that is Stefan not available in the market and I think that's helped us achieve right.
On.
A number of our other signs.
Okay, and where are you picking up market share do you think what.
Which of the competing media do you think Oh.
We're giving way to you.
Well you know we're in the.
February <unk>.
24, so it's it's an early time in the year and I think we will need to sort of look at that as we see.
The media trends for a year as a whole, but I would expect that linear television is.
Still under some sort of stress.
<unk>.
Radio I also suspect that we will.
Outpace.
And right at the margin.
I do think that some of the.
Some of the issues regarding did.
Digital media or in total.
While digital will still obviously be a huge part of the media mix and still grow I actually think that the margin we may be picking up some dollars from there also.
Okay, and just lastly.
As you look for tuck in acquisitions.
In your car.
Current geographies.
Can I presume that a Billboard is where your focus is given the high margins you've been able to achieve.
The added challenges they've been exposed to transit.
Yes, well Billboard.
Has been a focus throughout on tuck ins, we haven't made a transit acquisition and the primary reason for that Jim is that trial as it operates with French.
Franchises.
Which harvest a time based so unless it you know so it doesn't always make sense to acquire transit business and businesses.
Unless the multiple is very low and that it makes sense on a kind of DCF basis, but.
Billboard will undoubtedly be a focus.
Okay very fair. Thank you.
Thank you Tim Thank you.
Again press Star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
Okay, well, if there's no more questions. Thanks again for joining us today I'm really very much looking forward to speaking to you with speaking to many of you over the next few weeks or months, thanks very much.
This concludes today's call everyone can now disconnect. Thank you.
[music].