Q4 2022 OUTFRONT Media Inc Earnings Call
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Please standby.
Good day, everyone and welcome to the Out-front fourth quarter 'twenty to 'twenty two earnings call.
Today's call is being recorded.
And now at this time I'd like to turn the call over to Stefan Basin. Please go ahead.
Good afternoon, and thank you for joining our 2022 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 results well open the lines for a question and answer session.
Our comments today will refer to the earnings release and slide presentation that you can find on the Investor Relations section of our website Out-front 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 'twenty to 2022 quarterly reports as well as our 2022 Form 10-K, which we expect to file this week.
We will refer to certain non-GAAP financial measures on this call.
Any references to OIBDA made today will be made 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 web site, which also includes presentations with prior period Reconciliations let me now turn the call over to Jeremy.
Thanks, Stefan and good afternoon, everyone.
Before digging into our Q4 results I'd like to quickly recap the great year, we had in 2022.
On slide three you'll see our full year results for our key financial metrics.
Revenues finished the year up 21% versus 2021.
With the U S Billboard up 17% in U S transit up 38%.
Our revenue growth was predominantly driven by higher rates, that's robust demand for other time advertising led to higher prices for both the static and touches all signs.
Nearly every key category was up most by double digits led by travel up 82% retail up 13, 9% entertainment up 34% technology up 33% and also up 31%.
2022 OIBDA grew nearly 40% versus 2021 with consolidated OIBDA margin rising to 26, 7% from 23, 2% last year.
Billboard OIBDA margins expanded by 190 basis points.
And the operating leverage inherent in our business.
While transit OIBDA.
Improved by nearly $24 million and returned to positive territory on a full year basis.
<unk> grew in line with about 60% guidance when excluding a 17 million upfront payment related to the structure of a tuck in during Q4 and was still up a healthy 52% when including that payment.
Matt will describe the details of the accounting behind the payment later, but suffice to say, we're very proud to have delivered on our original guidance, especially considering the headwinds created by some uncertainty in the macro environment and the rapid rise in interest rates since we gave guidance a year ago.
We also had the most acquisitive years since 2014 spending approximately 370 million on new assets the largest of our acquisitions. The 185 million acquisition of Pacific Outdoor I did our first new Billboard market since 2014 and represents an entry into the.
Pacific Northwest, but we will build on over time.
Well most of 2022 event you might have noticed a recent press release from our partners at Providence equity.
Who purchased advertising displays at two times square and also entered into a 10 year agreement, but that's to exclusively market license and provide other space on the assets.
These are important signs that we view as strategic and a larger times square in New York City strategy.
With that let's now turn to our fourth quarter results. How much you can see the headline numbers on slide four.
Consolidated revenues grew six 5% in line with the guidance we provided in November on OIBDA grew nearly 2%.
Slide five shows our segment results.
With total U S media revenue, increasing 7% year over year, although which consists mostly of Canada was up 5.8% on an organic basis, but down one 5% on a reported basis versus the prior year, primarily due to foreign exchange headwinds with the Canadian dollar.
On slide six you can see our U S media revenues in more detail.
Billboard revenues were up 7% with strong performances in most regions I'm pleased to call out our New York and Miami teams as these large markets displayed very strong cloud growth, leading the way with an a billboard markets.
Transient revenue was up five 7% versus the prior year, continuing a steady improvement as subway rail and bus ride the ship slowly increase.
Our best performing categories during the quarter, but travel auto retail and legal services.
The breakdown of local and national revenues in our U S business can be seen on slide seven.
Local grew by eight 3% in the quarter, while national grew by five 4%.
If you recall, we returned two out here, sorry split of 45% national 55% local last quarter and that trend continued through Q4.
Slide eight.
So it was a solid U S. Billboard yield growth of five 7% year over year to just over $2900.
As has been the case all year. This yield growth was primarily driven by rate.
Slide nine highlights our strong digital performance with revenue growing 13% in the quarter and digital revenue, representing 33% of our total revenue up from 31% last year.
Both Billboard and transit digital grew double digits.
Importantly.
Our static growth should not be forgotten and we highlighted on slide 10.
Total staffing revenues were up three 9% year over year with 4.8% growth in static Billboard.
This growth is particularly notable given that each time, we convert a billboard digital we are typically removing one of the top assets from a static portfolio.
With that let me now hand over to Matt to review the rest of our financials. Thanks.
Thanks, Jeremy and good afternoon everybody.
For a deeper dive into our financial statements. Please turn to slide 11 for a more detailed look at our expenses.
Total expenses were up $28 million or 9% year over year.
As we experienced throughout 2022, a robust revenue growth has led to increases in our variable and performance related costs.
Billboard lease expense increased 12% year over year in Q4.
This increase reflects annual rent step ups billboards acquired through 2022.
And higher variable expense on a portion of our Billboard that contain revenue share agreements.
As a reminder, these boards are primarily located in our major cities and our increased Billboard lease expense reflects the significant growth in these markets.
Transit franchise expense was up 19% due to higher revenues on the majority of our contracts, which are in their revenue shares, but also due to the higher mag owed to the MTA from our 2020 deferral and inflation increase for 2022 in accordance with the terms of our MTA contract.
Posting maintenance and other expense was essentially flat versus the prior year as increases related to higher business activity were offset by decreases in production expense for specialty campaigns.
Combined corporate and SG&A expense increased 5% versus last year.
This reflects higher revenue and OIBDA driving increases in professional fees and higher compensation related costs.
These increases were partially offset by the favorable impact of market fluctuations on an unfunded equity index linked retirement plan.
On Slide 12, you can see our OIBDA increased nearly 2% and our margin was 31, 1% down 140 basis points versus last year, mostly due to a lower transit margin, which was driven by the aforementioned higher mag payments to the New York MTA.
It is perhaps worth noting that consolidated OIBDA margins relative to 2019 were up 230 basis points in the fourth quarter.
Slide 13 provides additional detail on the sources and growth of OIBDA.
U S. Billboard OIBDA grew nearly 6% to $147 million.
Represented over 90% of our consolidated OIBDA.
U S. Billboard OIBDA margin was 41, 1% down 60 basis points versus a year ago, but up nearly a 180 basis points versus 2019.
As in Q3, the slight margin decline this quarter versus 2021 was driven by outperformance in our largest markets.
We expect that Billboard margins will expand as we move forward given the operating leverage provided by the largely fixed cost nature of our leases and an increasing proportion of digital revenues.
That said the improvement is not expected to be linear given geographic performance variances and timing of acquisitions, which can add noise into the numbers.
Transit OIBDA was $16 $6 million compared to last year's $22 3 million.
Decrease was primarily due to higher transit franchise expense.
While discussing transit.
I'd like to take a few moments to discuss our 2023 expectations for the MTA franchise.
The minimum annual guarantee will step up to just under a $135 million given the CPI escalator contained within the contract, which equates to a mag revenue hurdle of $245 million to enter recruitment.
While we expect to close the gap between our MTA revenue and this level.
We do expect to be believed it in 2023 and will organic counts for the minimum guarantee and the almost $12 billion, we will pay for the 2020, Meg deferral on a straight line basis throughout the year.
As you saw in 2022, this will impact Q1, OIBDA given seasonally wider revenues.
However for the full year, we expect transit OIBDA significantly improved versus last year with oil, but I expect it to improve each quarter in a similar fashion to 2022.
On the MTA deployment front we.
We are pleased to say we are approaching the completion of our initial build specifically, we expect to spend around $100 million on deployment in 2023.
Primarily installing advertising screens on rolling stock.
And we expect the annual capital investment to step down significantly beginning in 2024.
Turning to capital expenditures on slide 14.
Q4, capex spend which just over $23 million.
<unk> nearly $7 million of maintenance spend.
A decrease of $9 million in total capex versus the prior year was primarily due to the timing of our investments throughout 2022.
For the full year.
Total capex was approximately $900 million I'm, sorry $90 million.
Round, our historic benchmark of 5% of revenue.
Virtually the entire full year increase versus 2021 was in growth Capex driving a higher number of digital conversions.
Through these conversions new developments acquisitions and management agreements, we added approximately 330, new digital Billboards a new annual record.
For 2023, we can expect to spend $90 million on total capital expenditures.
Looking at <unk> on Slide 15, you can see the bridge to our Q4 <unk> of $96 million.
As Jeremy mentioned earlier Theres, an approximately $17 billion upfront lease payments contained in the noncash effect of straight line rent.
One item, which relates to the structure of the tuck ins we completed in late Q4.
And the transaction, we signed leases with a landlord in almost all of the upfront payment was accounted for as a prepayment of lease expense and <unk> over the next 20 years.
The cash flow economics of the transaction are unchanged.
For 2023, we currently expect <unk> growth in the mid single digit range from 2020, twos <unk> of $311 million with OIBDA growth more than offsetting the significant significantly increased interest expense, we expect given the heightened interest rate environment.
Included in this guidance is off of $25 million of maintenance Capex and about $9 million of cash taxes.
Please turn to slide 16 for an update on our balance sheet.
Committed liquidity is approximately $650 million, including over $40 million of cash nearly 500 $500 million available via our revolver and $120 million available by our rig counts receivable securitization facility.
As of December 31.
Our total net leverage was five times.
We remain very comfortable with our debt stack with our next maturity not being until mid 2025 and less than 25% of total debt subject to floating rates.
Lastly, we.
We announced today that our board of directors has declared a <unk> <unk> cash dividend payable on March 31 to shareholders of record at the close of business on March 3rd.
Based on our current expectations. It is possible this dividend level may ultimately prove to be insufficient to meet our REIT requirements for 2023, and an increase may be required where during the year.
We spent a total of $91 million on new displays during the quarter, we expect to close a few more tuck ins in Q1 funding. These deals with cash on hand, and draws from our accounts receivable securitization facility as necessary.
As Jeremy mentioned earlier.
Looking at the full year 2022, we spent $371 million on new assets, making last year, our most acquisitive year since 2014.
Looking at our current acquisition pipeline, we expect our deal activity to moderate in 2023.
In closing Q4 was a solid quarter and a capstone to a great year.
We remain excited about our business as future and I look forward to seeing many of you at various conferences and events in the coming weeks.
With that let me turn the call back to Jeremy.
Thanks, Matt.
We were extremely pleased with our 2022 performance in what proved to be an uncertain year for the economy and financial markets.
And <unk>.
Looking forward towards Q1.
Based on our trends as of today, we estimate that Q1 total revenues will grow in the low single digit range with Billboard slightly higher than that range in terms of its flattish.
While the quarter got off to a slightly slower start than we might have hoped for given the movie slate skewing later in the year and the tough comp created by sports spending in Q1 last year bookings.
Bookings have improved as the quarters progressed and activity in the marketplace has definitely picked up over the last few weeks.
As implied by our full year guidance. We are encouraged by the early signs we are saying for the remainder of the year.
In our view.
And that of many other industry forecast is out of home remains poised to take further market share of the broader advertising industry in 2023.
Our displays which are becoming increasingly digitized a ubiquitous and reach an audience that continues to grow in a world where scaled audiences are becoming more difficult to find.
We've also made strides with our insights and data initiatives highlighted by our smart Scout tool, which provides.
<unk> solutions for enhanced demographic and location targeting when connecting to audiences on the go.
It is truly hard to think of it not meet him in a better position, especially considering recent uncertainty and the digital advertising market place.
I'd like to close our comments today by reiterating how proud I am of our outright front team for having had such a great year and positioning us for success in 2023.
With that operator, let's now open the line for questions.
Thank you if you would like to ask a question simply press the star key followed by the digit one on your telephone keypad.
So if you're using a speaker phone. Please make sure. Your mute function is turned off to a later signal to reach our equipment. Once again star one at this time.
And we'll first hear from Ben Swinburne of Morgan Stanley .
Thank you good afternoon guys.
Jeremy could you talk a little bit more about any particular categories. I think you mentioned the movie Slates, maybe entertainment explains the Q1 deceleration.
And whether you are expecting revenue growth to improve through the year implicit in the guidance for <unk> and then Matt I don't know how specific you are willing to be but I know interest expenses moving around a lot given rates I was wondering if you had to estimate for the year you might be willing to share with us.
Thank you.
Yeah. Thanks, Thanks for the question, but I'll.
I'll certainly be happy to take the first one.
Yeah as I mentioned in my prepared remarks, Yeah movie slates.
A little bit later interesting because actually that.
It impacts our business a little bit in New York and L. A.
Particularly sort of supportive of.
Transit as well so that has that.
That comes into play there and suddenly sports betting sports betting was massive.
Massive for us.
New York This time last year.
As it became licensed obviously and you're right implicit within our guidance as we <unk> guidance as we look forward is an increasing trend as we as we go through the year with.
With definitively, saying some pick up.
And our bookings as we speak we have some visibility going forward that gives us.
Our confidence to to think about increases as we go through the year and also worth remembering that last year.
Quite a number of assets and built a number of asset so as we build up revenues on those as they come.
They come to the four that will also be additive to the revenue picture as the year progresses.
And Ben on noninterest expense, we have $600 million term loan, which is floating with a securitization program which are top.
Tops out about $150 million will probably.
Use most of that and obviously, if the interest rates have gone up last year and Bobby.
Inching up this year, probably up about $40 million of interest expense year on year.
23% from 22.
Okay got it thank you both.
Sure.
Next we'll hear from Richard Choe of J P. Morgan.
Greg I wanted to ask about the pricing environment.
Are you.
Getting any pushback on the pricing increases that I guess, you had talked about.
At the end of last year as inflation kind of picked up on what youre seeing on the national side in terms of strength or weakness there.
So.
So the question Richard.
To be fair you know, we had a year of significant you know rates increase last year and I would I would expect that this year, we went and achieve the same year on year percentage growth as we achieved last year in terms of rate.
I think this year, we're obviously very focused on.
On our occupancy as well and seeing how we can combine those two keep.
Keeping.
Our yields moving moving forward in the right direction.
In terms of you know what when you look at the business now as we said on national local revenue split is pretty much back to.
The historic Norm you know as we go forward.
Maybe potentially sort of pockets of weakness in one or the other that might flip around a bit but I wouldn't have thought we'd be with.
SKU too much away from the 50 545 as we go forward in the year.
And to clarify it seems like the bookings are getting stronger so any kind of weakness that people are worried about in terms of the economy. Overall advertising is not something that youre seeing right now.
I think as we get as we got to the backend of last year. I think you know we did you know we.
I think we detected a little bit of a little bit of a slowdown and I think particularly in the national environment. As you know in the local environment, we have much more.
We have long it's a.
Longtime lay downs there so if you're going to notice anything thats in national I think we felt.
A little bit of a cooler breeze.
As you know in December and I think that carried through into January but generally speaking.
Why not.
But suddenly you're not saying anything added some of our other media peers.
Appear to be seeing and as I say, we're feeling confident about that some.
Increasing growth trajectory as we move forward.
And last one for me did you say earlier that you didn't expect to reach the Mag on the MTA contract this year.
Can you.
Do you see the ability to grow revenue without ridership.
Increasing as much from here.
Yes, Richard the Mag steps up in 'twenty, three because of a CPI.
Adjustments are the Mag level is higher we do expect the MTA revenue to increase and get closer to the Mag. So we think that's going to be a big lift in an OIBDA through the year.
So.
Again, we think it's going to keep going we are seeing some.
Small increases in ridership I think our west 10 day metric was the highest we've seen yet.
But our.
Revenue versus 2019 has been over indexing ridership recovery since 2019, and we think we can keep that.
That outperformance going and hopefully expand and widening.
Great. Thank you.
Next we'll hear from Ian Zaffino of Oppenheimer.
Okay.
Okay.
Ian.
During the year, specifically I guess in the northwest and Oregon.
How are those assets performing compared to your expectations and some of the larger markets and then additionally are there any other markets that you have an eye towards for additional expansion expansion I know you mentioned tuck ins in first quarter and all the activity I guess Walt will moderate in 2023, what does the M&A environment currently look like.
<unk>.
I'm, sorry, I think we missed the first part of the question I hate to ask you to repeat it I know, it's something that the northwestern.
Our early success there continue.
Sure No problem Peter.
Yes on new inventory investments and I guess, the northwestern Oregon.
Are those assets performing compared to your expectations and I.
I guess go back to the larger markets as well.
Oh, yes, absolutely.
Sorry that wasn't it.
Whenever you.
Acquire southern of assets you acquired them based on the revenues that were being achieved on.
All of those assets bye bye.
By the prior owner and we then look over a period of 12 months to develop those revenues if you like by overlaying our own.
Local sales methodology and also leveraging the strength of our national National sales team, so with with Portland, and say halfway through the year I'd say that's out of the gate. It was sort of broadly in line with our expectation we've still yet to see the benefit of the ramp I think it's fair to say.
From.
As I say, our local and national sales piece, but you know going in the right direction.
It's a great thing about that.
<unk>.
Particular acquisition as it provides a real bridgehead for us to expand more broadly in the northwest specifics so.
That's gonna be Fabulous.
A piece of.
Our France business for many many years to come.
Okay, great. Thank you.
Then I guess on further M&A I guess, what areas would you expect to expand in the first quarter and sort of how this deal activity and.
And M&A.
The M&A environment sort of looking like this year.
We remain interested in really anything thats in our existing footprint.
Opportunity in Portland, a few and far between but if there were markets that came up that are young growing attractive demographic, we would certainly be interested what otherwise generally we stick to our.
Large market focus and there's plenty of opportunities in tuck ins and regional players that we run into.
I think I mentioned, our pipeline is a little lower than last year, just from a natural occurrence.
We're actively looking in.
Things come up we would certainly invest.
Investigating hopefully to find some interesting opportunities.
Okay.
Okay, great. Thank you very much.
Thanks.
And as a reminder, it is star one if you would like to ask a question or make a comment.
Okay.
Next we'll hear from Jim Goss of Barrington Research.
Good evening.
Dan.
I just had a question on billboards.
Can you maybe talk about some of the I guess variability.
Kind of getting back to or I guess about 2019 levels by by market.
Like I mean like Bill significant laggards at this point or is there any kind of market.
Got it.
Again Billboard business Billboard part of our business has been.
North of 2019.
At the end of 'twenty one.
Pretty much all regions are firing.
Quickest to recover if you remember was the Midwest, which didn't fall as far.
But we.
We break into four regions East South.
West and Midwest and all.
Our outperforming 2019 now.
Okay. Thank you.
Thanks.
And then as a final reminder, its star one to ask a question or make a comments, we'll pause for a moment.
And it appears there are no further questions at this time I will turn the call back over to Jeremy for any additional or closing comments.
Thank you operator, and thank you to everyone.
Joining the call and for your questions and we look forward seeing.
Many of you at Investor events over the coming weeks. Thank you very much indeed.
That does conclude today's call. Thank you all for your participation you may now disconnect.
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