Q1 2022 OUTFRONT Media Inc Earnings Call
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Good day, everyone and welcome to the out front media first quarter 2022 earnings conference call.
At this time I'd like to turn the conference over to Stephane be fun, Vice President of Investor Relations. Please go ahead Sir.
Good afternoon, and thank you for joining our 2022 first 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 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 upfront 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 2021 Form 10-K, and our March 31, 2022 Form 10-Q, which we expect to file tomorrow.
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 presentation presentations with prior period reconciliations.
Now I'll turn the call over to Jeremy.
Yeah.
Thanks, Stephane and thank you everyone for joining us today.
It's great to be here sharing our first quarter results, which came in stronger than we anticipated when we spoke last in February .
Many of the positive trends. We previously noted continues into the start of 2022 and indeed through to today.
The mall.
<unk> has never been hotter.
And given the flexibility of digital we continue to book incremental business.
This is reflected in our increasing Billboard yields and transit revenues continue to improve.
<unk> is increasingly encourage that seems to join them in the office at least Pablo.
These trends combined with a terrific.
All of our employees.
That's where our strong revenue results the details of which can be seen on slides three and four.
Total revenue grew 44% ahead of our low forty's expectation.
U S media was up an identical 44% year over year.
5%.
Ahead of our 2019 level on a consolidated basis.
Uh huh.
We continue to see strong revenue growth in virtually all of our ratios.
Oh sure.
But our performance in large markets is exceptional with New York and L. A being two of our best performance in Q1.
Uh-huh, which consists mostly of Canada was up 40% versus the prior.
Yes.
Our strong revenue growth led to a nearly $60 million year over year improvements, but its OIBDA.
Which grew to $70 million and $36 million respectively.
On slide five you can see a more detailed look at our U S media revenues.
Billboard grew by 33% from last year, but even more impressively it.
It was up around 20% versus the same quarter in 2019.
Charles It also accelerated its year over year performance up 115% in Q1 compared to the 101% observed in Q4.
Charles It revenues continue to face the headwinds I, just yet, but we were again pleased to see the New York MTA as revenue recovery outpacing ridership growth when both are measured against the same period with 2019.
Indeed, the positive gap between these two one.
As a trend that gives us further confidence in our expectation of 2019 transit revenue levels being achieved next year.
Yeah.
Turning to slide six we can see the breakdown of local and national revenues in all business.
National growth outpaced local again this quarter.
59% year over year compared to local stay at three 6%.
National Transit was up an outstanding something 54% as large advertisers return subways and buses and force.
Billboard was strong across both sets of advertisers with national up 39%.
Local up 30%.
One of the most encouraging trends for our company is our impressive U S. Billboard yield growth as seen on slide seven.
I've got $2300 is a Q1 record of 35% increase from last year and 25% above Q1 2019.
While occupancy has improved from last year's first quarter, the largest contributor to our yield growth is rate.
Which was significantly ahead versus but 'twenty, one and I can tell you.
Looking deeper into digital on slide eight digital revenue grew more than 90% in the quarter and was 29% of our total revenue versus 22% last year.
Digital revenues continue to be helped by increased yield new inventory and incremental late booking revenues, which expand our selling window.
This trend is well illustrated in Q1, as we booked a large contracts on March 24, without it nearly half a million dollars to our first quarter revenues.
Billboard Digital grew 65% and transit digital continues to accelerate just as last quarter, a more than quadrupled from the soft comparison last year.
Unsurprisingly.
So Charles it continues to be led by the New York MTA with the Margaret Saturday and increased digital inventory at the stations and the beginning stages of railcar deployment.
We continue to be especially excited about the digital future, but the New York MTA.
Let me now hand over to Matt to review the rest of our financials.
Thanks, Jeremy and good afternoon, everyone. We appreciate your joining our call today.
Please turn to slide 10 for more detailed look at our expenses.
<unk> expenses were up $55 million or 22% year over year as our strong revenue growth has led to increases in our variable wind performance related costs.
Billboard lease expense was up 14% year over year in Q1, primarily reflecting higher variable expense on a small portion of our billboards that contain revenue share agreements.
Notably a majority of these types of revenue share Borgia room in New York in a way, which were two of our best performing markets this quarter.
Six lease costs were up only 3% in Q1, reflecting new locations and modest annual lease adjustments.
Transit franchise expense is typically a revenue share expense.
Was up 35%, primarily due to higher revenues, but also due to contractual step up a minimum annual guarantee payments to the New York MTA.
Posting maintenance and other expense was up 18% given the additional activity that results from our higher revenue.
Lastly on expenses corporate and SG&A expenses combined increased 28% versus last year.
This reflects higher revenue and OIBDA driving increases in our accrual for performance based compensation costs as well as a small increase in bad debt expense.
On Slide 11, you can see our OIBDA for the quarter is up $59 million from last year and represents a margin of almost 19%.
Slide 12 provides additional detail on the sources and growth of OIBDA.
U S. Billboard OIBDA grew 77% to $93 million.
Billboard OIBDA margin was 32, 7%.
More than eight percentage points from a year ago and more than three percentage points higher than our 2019 margin of 29, 6%.
These higher margins are primarily being driven by the higher revenue and relatively fixed cost nature of our leases.
And an increased share of digital revenues.
We anticipate that these trends will continue to help billboard margins to improve over time.
Transit OIBDA improved by $15 million, given the higher revenue offset somewhat by increased transit franchise expense.
As we mentioned on the Q4 call.
Quarterly transit revenue has seasonal fluctuations well the New York MTA Mag is accounted for on a straight line basis. So the largest negative impact of paying the Mag is felt in Q1.
We continue to expect that over the full year, the MTA revenue gap to a mag breakeven will significantly narrow.
Turning to capital expenditures on slide 13.
Q1, Capex spend was $17 million, including $4 million of maintenance spend.
The seven and a half million dollar increase in total capex versus the prior year was primarily due to digital investments.
We added 31 digital billboards in the U S. This quarter.
Increasing our U S total to 1400 32.
Up 174, or 14% versus Q1 2021.
In recognition of potential supply chain issues, we ordered boards with additional lead time and still expect to add 150 to 200 total digital Billboard displays this year.
Looking at <unk> on Slide 14, you.
You can see our Q1 <unk> $36 million improved by $60 million year over year as essentially all of our OIBDA growth flows through to <unk>.
For the full year.
We continue to expect <unk> growth to be around 60% from 2020 ones $205 million.
Please turn to slide 15 for an update on our balance sheet.
Committed liquidity is over $850 million.
And our total net leverage declined to five times as our OIBDA continues to recover.
We continue to monitor rising interest rates and remain very comfortable with our debt stack was our next maturity isn't until 2025 and only 21% of total debt is subject to floating rates.
Lastly.
We announced today that our board of Directors has again declared a <unk> 10 cash dividend payable on June 30 to shareholders of record at the close of business on June 3rd.
We remain well capitalized to participate in M&A.
Our spend on tuck in acquisitions during the first quarter was light.
Going forward, we would characterize the M&A pipeline as being robust and interesting.
2022 has told us exceptionally well and we remain very enthusiastic about the rest of the year to come.
I look forward to speaking and meeting with many of you over the coming weeks and months.
With that we would turn the call back to Jeremy.
Thanks, Matt.
The first quarter truly illustrates at many of our companies friends.
Well as those inherent in the outdoor industry as a whole.
While in these times, it's sort of sensible to knock on wood all sides of the country seems to be back on the streets of our cities are busy more.
Crowded workers are attending to their offices or at least portions of the weak main street is strong.
Advertisers are certainly spending to get their messages out.
Looking specifically at <unk>.
For Q2.
Obviously geopolitical and broader economic uncertainties exist we.
We expect to have another great tools.
From where we sit today, we currently estimate the Q3 revenues will grow in the low 30% range with transit up between 80 and 90% versus last year.
So as we look at the balance of the year. We believe there are a number of trends that will continue to benefit the business.
First our conversion to digital which allows for more advanced creative messaging.
Golden's at times of market increases our selling window.
It's from automation and also opens up assets to new advertisers.
Second strong advertiser demand, which drives our yield while maintaining significant ROI for our clients and third.
A diverse client base includes the return of out of home store walls, such as entertainment Tech Medical professional services retail travel.
But also newer users.
Such as cannabis all online sports betting.
Outdoor remains by far one of the most cost effective talks about monetizing with magna estimating that those cost per thousand impressions is lower than any other form of media television radio print and digital.
Recent changes strategic use of IV.
Our peers, who have gone through some companies advertising cafes.
They're beginning to incorporate more traditional advertising into that branding efforts.
Given these facts, we believe outdoor and then data out from some of the benefits and take a larger portion of total advertising going forward.
To conclude I'd like to say that in my many years of working out at home.
He was infusing aspect about the state of our industry today.
What happened in the past.
It feels so that we really truly captured the wind in silos.
I hope to see and meet with many of you at various topics and events this spring and summer, but for those why don't I look forward to presenting our Q2 results to you in August .
Operator.
Now without coming now open the lines for questions. Thank you.
Certainly thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Press Star one to ask a question.
And we'll pause for just a moment.
And our first question will come from Ben Swinburne with Morgan Stanley .
Okay.
Thanks, Good afternoon.
Two questions for you guys.
You know Jeremy I'm sure you've heard at least heard of a lot of the earnings calls this quarter across the advertising space.
There's been a lot of companies not in out of home, but all sorts of digital and other businesses that have called out.
Incremental weakness in certain categories auto CPG et cetera talked about supply chain constraints and visibility getting worse.
Obviously in your comments, we didnt hear any of that I know, it's hard to know precisely but do you think this is a function of out of home being just later cycle in.
You have a business that you write for weeks and months and so.
We really can't necessarily extrapolate or do you think that the business is just fundamentally in a different place than some of these other competitive platforms with advertisers and if there are any categories that you have seen weakening that'd be interesting to hear which those are and how you're offsetting it and then I was just curious around new year.
Work at L. A obviously a huge market for you guys how far from pre pandemic revenues are those markets. At this point do you have a lot of room to run less still and in those two which obviously your two biggest.
<unk>.
Sure.
Yes, Thanks, Paul Let me try and we will take all of that.
I guess the first point is that so far and I think you can.
Probably tell a lot from a tightening.
Hold on I'll call. It sooner, we obviously haven't seen that.
And a softening yet if we look at the categories from Q1, Yeah Entertainment doubled technology was up nearly two <unk> travel was up 80% and utilities up 75% retail up 60%.
As we.
Sit here today looking at Q2 pretty much.
Every category is again.
Actually in the black.
And you mentioned also well you know we still got a little way the running Q2, obviously that altria is actually sort of pacing up 34%. So.
I do think that's.
When you look at our business. If we are going to notice something we would have already noticed it because I remember that you know what.
Not quite 50 50, but together we have a lot of local bus it's about the national business.
<unk> business is literally it's laying down by the data he liked typically into the whatever it is four week periods for.
A few weeks or maybe a couple of months. So I think we would have.
We're seeing something.
I'll now.
Just going back to New York.
But the underlying cost I mean, the Billboard businesses.
Both markets.
Lastly, above 2019 now.
Obviously transit weighs on.
The business in New York, because Thats currently pricing around whatever it is around 70% of the mindset, but just generally.
Fully lots right the way across all of our markets the strength in the.
In the Billboard business has been particularly impressive.
Great. Thanks, so much Jeremy.
Okay.
Thanks, a lot.
And our next question will come from Jason Bazinet with Citi.
Just in your prepared remarks, Jeremy you called out that Billboard rate was above 2019 levels.
I guess I can imagine a cynic sort of saying well, that's just driven by inflation as opposed to some of the comments you made about outdoor potentially taking share given some of that.
Like changes that have taken place. So can you just any sort of color that you could provide that sort of.
Offset that sort of knee jerk reaction, where people are going to say well. This is just inflation based as opposed to something that's perhaps more enduring in terms of shift of AD dollars to outdoor.
Okay.
Yeah.
Tenants are they.
And so yields.
As you can imagine we spent quality time on that.
And we look at and we look at that comparison actually if you sort of split that out a little bit further.
This is kind of some rough.
Rough guidance for you.
But the the occupancy rate was probably about a third of our yield growth.
And the rate was about two thoughts and then if you sort of if.
If you if you sort of that.
Sort of work that through I mean, that's well ahead of the inflation that we've seen over that type of that time, including the P&L kind of whatever it's headline inflation, rather than saying that we're seeing right now.
As far as I can see.
Thanks very much.
<unk> demand based.
I do believe that inflation generally for our business and for the industry as a whole because of the relatively fixed cost nature of the leases will be versus our ability to go out and length of those leases versus our ability to go out and you feel like sell over much.
Shorter duration leases actually thinks of inflation is generally a good thing for us generally a good thing for the industry, whether they can see what we're saying now.
As a reflection of today's headline inflation rate.
Our book is building.
Many weeks before these headline numbers.
Muse.
That's super helpful. Thank you.
Thanks, guys.
And we will now take a question from Richard Choe with JP Morgan.
Great. Thank you just wanted to follow up on the.
The transit EBITDA or OIBDA side.
You talked a little bit on how it should trend, but when should we see that kind of turning positive.
On the.
<unk> been turning positive given the strong results.
And that business.
Richard Thanks for the question it's Matt.
The key thing in the transit the OIBDA as the New York M T. A mag situation for the full year.
We expect the MTA to be under the Mag, but during the course of the year.
Getting closer to that breakeven level. So in the later half of the year third and fourth quarter.
New York will be a positive EBITDA story in transit So I think overall the transit.
Our transit portfolio.
That should turn positive later in the year going forward.
Looking at 2023, we've said.
In the past and we'll say again that we expect our transit revenue overall, including the MTA to be.
Back in 2023 levels and we Shouldnt have this mag situation.
Impacting next year's numbers.
Great and then on the national advertising side or the campaigns.
Typical duration or are they getting longer or shorter, but more I guess any color there.
Okay.
So.
When do you sort of drill into our business we have.
And both our local and national business, we have.
You know a percentage about pools that typically would.
Books, we pulled them kind of permanent location. So there are typically booked for 12.
12 months.
The majority.
The national revenue.
Would be booked in flux for four weeks, but once again now we have.
Digital we can be so much more flexible. So we can have people just going to come in.
Three days over a long weekend or whatever else that happens to be so.
Kits.
Relatively short.
And we think that shorts, a good thing because in the past either find was always seen as being something that was pretty inflexible. You know if you have major campaigns down.
Eight weeks before there's no way.
You could get into a full time, whereas now with the flexibility of digital you can literally come to us.
On a Friday evening and see you campaign on Saturday morning.
Great. Thank you.
Yeah.
And once again, if you'd like to ask a question. Please press star one.
We will now hear from Ian Zaffino with Oppenheimer.
Hi, great. Thank you very much.
It just really quickly on the Capex side I know you gave them.
The Capex number.
Numbers, but can you maybe help us understand what like apples to apples conversion costs might be doing getting inflation supply chain.
So how much of that is a factor in the increase.
Versus other factors.
Thanks, Stephen it's Matt.
Conversions for a let's say a generic.
Static to a generic digital which is hard to define.
Roughly a quarter of a million dollars.
Historically, I think inflation hasn't necessarily impacted the cost of the screens, maybe some of the materials.
Some of the labor cost with a little bit higher.
Certainly the shipping costs, depending on not necessary inflation, but any kind of supply chain bottlenecks drop higher so.
Sure.
<unk> million dollars is maybe has gone up.
Precise number for you.
5% to 10% or so.
I don't think it changes the economics.
Tracking this with continuing to push these conversions.
Okay, Yeah, and I imagine the higher rates, yes, the economics are probably seeing the same tobacco.
Okay. Thank you very much.
No Julien.
We'll now take a question from Jim Goss with Barrington Research.
Okay. Thank you.
You've discussed right a couple of times and I know outdoor.
Outdoor is intended to be thought of as a very attractive.
Medium on a rate basis.
I'm wondering like what particular media do your sales teams try to.
Comp against Us there.
Turning to the Billboard if there are any such things.
How big a discount to those other media are you usually thinking in terms of how much room to run, particularly with the digital transformation that's been taking place.
Yeah, Thanks, Jeff I guess.
The competition is very much.
[noise] split.
If you're if you're in the National if you are in the National Arena.
Then arguably it's going to be.
It's going to be TV on.
When I say TV.
Yes.
Screened screened in general and of course, physical with digital the bags at a 50% 50% ish at the media market.
Local.
Quite often we will be competing against local radio.
And we will be competing with.
You spoke or indeed looking to complement comp.
Complement that that digital campaigns through.
Through out of home, which is get it tends to drive people online.
But.
It's it's really right the way across the board.
Yes media spectrum to put it like that Jim.
I don't know Scott.
<unk>.
Okay, and maybe one other.
With the well publicized.
Security issues that have occurred in <unk>.
Transit.
Actually in New York, and perhaps San Francisco or is this.
Our risk obviously the gains have been tremendous.
But perhaps the necessity override some of the risk or is it can't be sort of an opportunity in terms of the informational.
Aspect that you can provide and maybe drawing attention to the boards that might also have a spillover effect in terms of the <unk>.
Advertising benefits.
Yes, I think that's a really good point, Joe I think that is true I think we can.
Unused at digital screens to very very good effects in terms of keeping.
Keeping customers in consumer devices.
On the system I think the fact that we are putting digital bright screens up throughout it improves the environment.
Generally join me, but then within the.
It sounds like within within within the sub Biopharma and yes, there have been a couple of those.
The supporting well publicized.
And we can only hope that.
The city sudden trumpf and authorities.
Getting a hold of it because.
We are starting to see when a significant.
Increases now in.
Passenger ridership.
They just want that to continue and really really that won't be able to put up using public transit because.
Cities need public transit to exist.
Okay. Thank you.
Okay.
We have for questions today, I'd now like to turn the conference back over to Mr. Mayo for any additional or closing remarks.
Yes, Thanks, a lot prices site to cross it.
I need to remind.
It reminds me to say, thank you very much for joining us today, and we look forward to speaking with you.
Over the coming weeks and months and have a great rest of the day. Thank you.
Yeah.
And that does conclude today's conference call. Once again, thanks, everyone for joining US you may now disconnect.
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Yes.