Q2 2022 OUTFRONT Media Inc Earnings Call

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Please standby.

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Good day, everyone and welcome to the second quarter 2022 earnings Conference call. This call is being recorded.

This time I'd like to turn the conference over to Seth can be fun. Please go ahead Sir.

Good afternoon, and thank you for joining our 2022 second 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 well open the line 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 sections of our Investor Relations section of our website upfront media dotcom.

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 June 32022 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 presentations with prior period reconciliations.

Let me now turn the call over to Jeremy.

Thanks, Stephane and thank you everyone for joining us today.

We're pleased to be here sharing our second quarter results, which illustrate the strength observed in our business. During Q1. This continued nicely through Q2.

Advertiser demand has remained strong pushing billboard yields to a Q2 record and driving a continuing recovery in transit as ride. This return to the rails and buses that allows cities to function and flourish.

Turning to the headline numbers on slide three.

You'll see the total consolidated revenue grew 32%, including our acquisition in Poland and 31, 6% on an organic basis when excluding these acquired assets.

Right in line with the expectation we provided back in early May.

Our strong revenue growth slowed to around 55 million year over year improvement in both OIBDA and <unk> during the quarter.

Which grew to 125 million and $93 million respectively.

On slide four you'll see the U S media was up 31% year over year.

Which consists mostly of Canada was up 44% versus the prior year as our business continued its strong recovery from pandemic restrictions and great execution from our Canadian team.

On slide five you can see a more detailed look at our U S media revenues.

Billboard grew 22% year over year with strong performances in all regions.

Nearly every category and Billboard was up year over year with significant strengths coming from travel, which was up 72% retail up 40% entertainment up 36% and technology also up 36%.

Charles It revenue was up 81% versus the prior year continuing its recovery.

So this business continues to face some headwinds from lower ridership compared to pre pandemic there are encouraging trends to note.

Again ridership recovery as measured versus 2019 improved sequentially in Q2 for all our major transit franchises.

And also transit revenue is recovering more quickly than ridership when both are compared to pre pandemic activity.

Turning to slide six we can see the breakdown of local and national revenues in our U S business.

But both parts of the business continue to be extremely healthy national growth outpace local again, this quarter up 37% year over year compared to locals 28%.

National accounted for 42% of revenue during the quarter moving us closer to our historic run rate of 45% national and 55% local.

Slide seven illustrates our impressive U S Billboard yield growth, which grew 23% year over year to just over 2000 and $700.

This was primarily driven by rates increases highlighting strong demand I don't again, great execution by our teams.

Slide eight highlights our strong digital performance with revenue growing 63% in the quarter and representing 29% of total revenue up from 24% last year.

Our growth continues to be driven by high oil yields and of course increased inventory.

In addition, programmatic and incremental late bookings.

Continue to lift our digital revenues.

As you can see Billboard digital grew 45% and transit to Brazil grew an impressive 171% to $32 million.

Our digital transit revenue growth continues to be led by the New York MTA well, we've now completed the installation of over 9000 digital advertising with displays since renewing our contracts in 2017.

We are encouraged by the potential of these assets many of which display full motion video ads that capability highly valued by advertisers.

Let me now hand over to Matt to review the rest of our financials.

Thanks, Jeremy and good afternoon, everyone. We appreciate you joining our call today.

Please turn to slide nine for a more detailed look at our expenses.

Total expenses were up $54 million or 20% year over year.

As was the case in Q1, our strong revenue growth has led to increases in our variable and performance related costs.

Billboard lease expense was up 12% year over year in Q2.

Primarily reflecting higher variable expense on a small portion of our billboards that contain revenue share agreements.

Variable lease expense costs grew commensurate with the robust revenue growth, we achieved in New York and what's Angeles.

Transit franchise expense is typically a revenue share expense and was up 40% due to higher revenues.

Also due to the contractual step up with minimum annual guarantee payments to the New York MTA.

As well as the payment of the amortized deferred Meg per our 'twenty 'twenty Amendment.

Posting maintenance and other expense was up 18% given the additional activity that results from our higher revenue.

Corporate and SG&A expenses combined increased 21% versus last year. This reflects higher revenue and OIBDA driving increases in our accrual of performance based compensation costs and also higher professional fees.

These increases were partially offset by the favorable impact of market fluctuations on an unfunded equity index linked retirement plan.

Lastly, as mentioned.

Total expenses grew 20% year over year, but fell over seven percentage points as a percentage of revenue, reflecting the operating leverage in our business.

On Slide 10, you can see our OIBDA for the quarter is up $55 million from last year and represents a margin of nearly 28% up from 25% in 2021.

Slide 11 provides additional detail on the sources and growth of OIBDA.

U S. Billboard OIBDA grew 35% to $130 million and Billboard OIBDA margin was 39% up three six percentage points from a year ago.

Our higher margins continued to be driven by the operating leverage provided by the relatively fixed cost nature of our leases and an increased share of digital revenue.

We continue to expect that Billboard margins will expand over the long term.

Granted OIBDA improved by $15 million to essentially breakeven given higher revenue, particularly at the New York, MTA, which grew closer to its Meg level.

Turning to capital expenditures on slide 12 Q.

Q2, Capex spend was $25 million, including $7 million of maintenance spend.

$9 million increase in total capex versus the prior year was primarily due to digital investments, we built or converted 37 digital billboards. This quarter. While also acquiring 60 digital units, primarily in Portland, and Canada combined these actions increased our total digital Billboard count.

Seven 770 <unk>.

243, or 16% versus Q2 of 'twenty one.

Looking at U F O on Slide 13, you can see our Q2 F O of $93 million improved by $54 million year over year, it's essentially all of our OIBDA growth converted to <unk>.

For the full year.

We continue to expect <unk> growth to be around 60% and we remain confident in this forecast despite interest rates, having grown significantly faster than we had anticipated. When we initially provided this forecast back in February .

Please turn to slide 14 for an update on our balance sheet.

Committed liquidity of approximately $763 million, including over $100 million of cash almost $500 million available via our revolver and $150 million available via recently reactivated accounts receivable program.

As of June 30th our total net leverage declined to four nine times.

Recovery in OIBDA more than offset the slightly leveraging.

Acquisition activity during the quarter.

We remain very comfortable with our debt stack with our next maturity not until mid 2025.

23% of total debt is subject to floating rates.

Lastly.

We announced today that our board of directors has declared a <unk> 10 cash dividend payable on September 30th to shareholders of record at the close of business on September 2nd.

As you can see from our balance sheet, we remain well capitalized to participate in additional M&A.

We completed $239 million of total acquisitions in the quarter, including the $185 million purchase of a new out-front market in Portland, Oregon.

We are extremely pleased to be adding approximately 950 advertising faces in the U S as twenty-first largest market as well as welcoming approximately 25, new employees to our front.

The strategic acquisition closed on May 12, and we expect revenue synergies to be realized as our national sales team Leverages in these assets and we pursue development opportunities in the wider region.

Looking forward the current M&A pipeline continues to be robust and interesting.

Q2 was a great quarter, and we remain confident and enthusiastic about our business for the remainder of the year.

Look forward to speaking and meeting with many of you over the coming weeks and months.

Let me turn the call back to Jeremy.

Thanks, Mike.

So it must be much volatility in the financial markets. Since we last spoke which may lead to advertise a caution well not currently saying this in our business remains healthy.

Looking specifically to Q3, we expect that we will have another good quarter.

Based on our trends is today with the vast majority of the quarter already booked we currently estimate the Q3 total revenues will grow in the low teens percentage range with transit up about 20% versus last year.

While our growth rates are obviously motor racing. This is a function of horizon comp because we are now comparing against periods in which Billboard revenues had already surpassed 2019 levels and the world at essentially emerged from pandemic Lockdown and fears.

Interestingly the revenue guidance, we're providing today essentially mirrors, our internal forecast for Q3. So we've had since the start of the year, which reflected the substantial recovery we experienced in the second half of 2021.

We have confidence in the strength. We are currently sitting in the business. The strength is broad based and as of last week.

All of our categories that grew in Q2 are also pacing ahead in Q3.

Even more important in these short term trends. However is our confidence in the long term outlook for out front and the entire out of home industry.

Out of home is evolving.

Without digital conversions come creativity, and flexibility and an ability to sell in a much more dynamic automated and programmatic way also our data is constantly improving.

Advertisers to better target their intended audiences and analyze and measure attribution.

This combined with outdoor its attractive pricing relative to other forms of advertising set the industry up to take additional share of the total AD pie over time, particularly as digital grapples with I D F a issues.

Needless to say, we remain incredibly confident in the long term prospects of the other time industry and with that operator, let's now open the lines for questions.

Thank you.

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.

Again press Star one to ask a question and we'll pause for just a moment.

And our first question will come from Jason Bazinet with Citi.

I just had a question.

Hmm.

Congratulations first of all in getting breakeven EBITDA there.

Is it fair to say that there is normal seasonality in this business, where the EBITDA generally sort of backend weighted in the year.

Yeah, Thanks, Jason it's Matt.

This is back to the revenue is back ended with the fourth quarter being our biggest revenue quarter will be straight lined the Meg calculation.

So you see the first quarter and second quarter, both under water.

They'll probably be a closer maybe closer to break even fourth quarter, we expect to be above the mag and have a stronger New York EBITDA.

Okay. That's great. Thank you.

Sure.

And our next question will come from Ian Zaffino with Oppenheimer.

Hi, great. Thank you very much yeah I just wanted to talk I know you guys mentioned I E.

Helping you Keybanc, that's basically helping you pretty much grow these categories year over year or pacing ahead of our past quarter is that what you like it or do you think there's a truly underlying strength in the advertising market.

It's not the same types of gains.

I think there's a couple of things going on and then thanks for the question.

The first thing to remember is that out of home was out stripping media growth. If you go back to 2019 so.

Has had healthy growth then.

When you look at.

Sort of idea if I piece I mean, I, it's worth remembering that Sunday, if you think about other times national sales were only one 8% of total media. So you don't need much of a much of a shift much of a sort of.

A tailwind coming from idea to make quite consider in a quite a considerable difference to our revenue growth as we as we go forward, but it's certainly not all about this I think a lot of it just reflects some of the other strength of strengths of out of home that I talked about in my closing summary that so.

You know just generally out of home is doing extremely well and you know one piece of this that helps this idea.

Okay. Thanks, and then.

Just one follow up yeah again, congratulations on the transit side being positive.

Uh huh.

And glad to see it's going to continue to grow throughout the year.

But you know the MTA came out they needed their shoes, they're calling for 69% of pre COVID-19.

Your ship in 2023, and then still only about eight by 2026.

You know is this is there an opportunity or you potentially be negotiate this contract again.

You know again, you can very well in that business now, but I feel like that's mainly yields and it may be under punching because of the low ridership says so is there an opportunity to do something there.

Or how should we be thinking about that thanks.

And I think the way, we think about it is that what.

We're already outpacing audience growth and we've said before that.

About 80% when you look at the quality of advertising products, we now have to sell out with this.

So.

The digitization that we've been doing over time, we feel very confident that we can keep revenue growth moving forward very very positively and we talk a lot about reach rather than frequency because.

If if if youre using the sub.

The subway now for example, three times a week rather than five well.

What you are getting that message six times. So you you'll still on the subway, it's just a little less a little less frequency.

So if we think about our ability to continues.

To grow our we're very very confident that we could do that.

With regards to further negotiation with the M. T. I, it's not something that we would really want to comment on at this period in time I think it's worth noting that you know we did achieve a three year extension to what was already a 15 year contract. So this is a long time.

Asset.

In our business.

Alright, great. Thank you very much very helpful.

Well take our next question from Richard Choe with Jpmorgan.

I just wanted to follow up on the national and local side.

They are growing well, but national is still under indexing versus historical is there a good amount of room for growth there and what are you seeing in national and most recently.

Thats, probably whats most at risk.

The advertiser economic environment.

Thanks, and yeah, Youre right, Richard with regards to national being the most obvious.

Area, where we may see change.

You know I think you can.

Look to the guidance that we've just given to you know got.

Some color.

Color.

With regards to with regards to National I think the other point is that.

Our local growth has been very very strong over the last year and now that that alone I think will actually make it you know a little bit more challenging to get back to that 45% national 55% local that that I quoted in the scripted remarks.

And on the M&A front.

Mentioned in the prepared remarks that things look interesting.

You did a pretty big deal in the second quarter or is there still room for more deals going forward, how much M&A should we kind of see going forward.

We have a.

Richard It's Matt we have a very full pipeline of deals we've.

We've agreed and we're in due diligence and even some that we haven't reached agreement yet but.

Continue to have discussions so we think we'll be active in the second half no promises that there'd be anything the size of it.

Portland, but we have interest really in filling out our footprint and there's there's no lack of interested sellers.

Yeah.

Great. Thank you.

We will take our next question from Cameron Mcknight from Morgan Stanley .

Hey, guys. Thanks for taking my question could you discuss the current advertiser demand for programmatic and how that has been trending recently and then secondly has there been any pushback from advertisers on the increase in rate.

Let me take those.

As we go forward, there's no doubt that automation within out of home, particularly for the digitized assets is.

There's going to continue to be a.

A real tailwind for us.

Expect top programmatic business to grow.

Grow nicely as we go as we go forward.

In terms of pricing.

Pricing on advertiser demand.

To some extent or other camera, and I mean, where where supply and demand but industry.

And.

With that demand.

You know, what we're certainly able to achieve those incremental incremental rates. It's interesting when you look at a yield that actually.

If you sort of break it down and we tend to talk more about yield rather than sort of occupancy and pricing, but I Havent mentioned pricing, that's maybe with one word on.

On occupancy.

Currently another peak Occupancies were up in the high 70% range. So you know we still got some room, there too if you'd like to get some good occupancy growth and interestingly, we're achieving that pricing still with that sort of.

Can a slight gap in our occupancy so yeah, we feel pretty confident as we as we go forward that we'll be able to grow.

Great pricing and occupancy.

And once again, if you'd like to ask a question. Please press star one.

For just a moment.

And that will conclude today's question and answer session I will turn things back over to Jeremy.

Any additional or closing remarks.

Thanks, operator, and thanks, everyone for joining us on today's call.

As Matt said I like class look forward seeing many of you at some conferences and events this full and I'm talking to you.

Don't on our Q3 results call with you in November Thank you very much indeed.

And that does conclude today's conference call. Thanks, everyone for your participation you may now disconnect.

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