Q1 2023 OUTFRONT Media Inc Earnings Call

Speaker 1: Thanks for watching!

Speaker 1: .

Speaker 2: Good day and welcome to today's Outfront first quarter 2023 earnings call. Today's conference is recorded. At this time I'd like to turn the conference over to Mr. Stephan Bisson.

Speaker 3: Good afternoon and thank you for joining our 2023 first quarter earnings call.

Speaker 3: With me on the call today are Jeremy Mail, Chairman and Chief Executive Officer, and Matthew Siegel, Executive Vice President and Chief Financial Officer.

Speaker 3: After discussion of our financial results, we'll open up the lines for a question and answer session.

Speaker 3: 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 Outfront.com.

Speaker 3: After today's call is concluded, a replay will be available there as well.

Speaker 3: This conference call may include forward-looking statements.

Speaker 3: 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 2022 Form 10-K and our March 31, 2023 Form 10-Q , which we expect to file this week.

Speaker 3: We will refer to certain non- GAAP financial measures on this call.

Speaker 3: Any references to Oibdamey today will be on an adjusted basis.

Speaker 3: Reconciliation 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 reconciliation.

Speaker 3: Let me now turn the call over to Jeremy.

Speaker 4: Thanks, Stefan, and thank you everyone for joining us today.

Speaker 4: We're pleased to share our first quarter results which illustrate the resilience of ourselves performance.

Speaker 4: On a February call, I mentioned that while the year started off slower than we had hoped, business was picking up and I'm happy to report the pace continues.

Speaker 4: As you can see on slide three, which summarises our headline numbers, total consolidated revenue grew 6% during the quarter, which reflects solid growth in the core business, some tuck-in acquisitions and an almost 6 million one-time benefit related to a small number of billboard condemnations.

Speaker 4: Excluding this benefit, revenues would have been up mid-single digits in Q1 ahead of our low-single-digit guidance.

Speaker 4: A decade ago this type of incalter improvement would not have been possible.

Speaker 4: But given the flexibility provided by our increased digital footprint, our clients are now able to book and post that quickly and efficiently in the quarter for the quarter.

Speaker 4: The adjusted orbiter declined year over year. Larger student drive by transit, an AFFO was down, given this lower orbiter, higher interest expense and the timing of maintenance capex.

Speaker 4: Slide 4 shows our segment revenue results with total US media increasing 6.3% and our reported basis year over year.

Speaker 4: Other, which consists mostly of Canada, was essentially flat versus the prior year on an as reported basis and up 7% on an organic constant dollar basis.

Speaker 4: On slide 5, you can see the components of our US media revenues.

Speaker 4: Billboard grew 8% with good performance in most of our markets that we should call out New York and Mayeri as being particularly strong.

Speaker 4: Nearly every category in Billboard was up year over year.

Speaker 4: Transit revenue was essentially flat versus last year, given a tough comparison created by the legalization of sports betting in New York in 2022.

Speaker 4: Digging a bit deeper is worth noting that our below ground revenues, which includes subway displays, were up year over year, reflecting our continued digitisation. However, these gains were offset by lower above ground display revenues.

Speaker 4: The details behind our local and national revenues and our US business can be seen on slide 6.

Speaker 4: As you can see, local growth outpaste national this quarter, up nearly 10% year over year, compared to nationals 1.3%, which reflected the early weakness we saw from national that we discussed in February .

Speaker 4: Our local national split was 60% 40% in the quarter, a bit higher than our typical 55-45, given the particularly strong local growth.

Speaker 4: Next 7 shows our US billboard yield, which grew a healthy 6% year over year to just under $2,500.

Speaker 4: Similar to last year, a yield growth was primarily driven by rates with strong demand for our most premium inventory pushing average prices up.

Speaker 4: Slide 8 highlights our continued strong digital performance with digital revenue grain 9% in the quarter and representing nearly 30% of our total revenue are almost 100 basis points from last year.

Speaker 4: As you can see, Billboard and Transit both contributed relatively evenly, both up approximately 9% versus 2022.

Speaker 4: Slide 9 illustrates the resilience of our static revenues which grew nearly 3% year over year.

Speaker 4: This growth was driven by Billboard, which was up 4% year over year, static transit revenues were down year over year, given the decline in above ground revenues.

Speaker 4: So let me now hand over the mat to review the rest of the financials in more detail.

Speaker 5: Thanks Jeremy and good afternoon everyone. We appreciate you adjoining our call today.

Speaker 5: Please turn to slide 10 for more detailed look at our expenses.

Speaker 5: Total expenses were up approximately $32 million, or just over 10% year over year.

Speaker 5: Billboard Elite's expense was up nearly 13% year over year in Q1, including the many new locations acquired over the prior year, such as Pacific Outdoor Science in Portland, two times square, and various other mostly newly developed inventory.

Speaker 5: Also contributing to this increase.

Speaker 5: is the recording of an out of period adjustment in this quarter relating to our calculation of variable billboard property lease expenses in 2022, which resulted in a $5.2 million increase in operating expenses.

Speaker 5: and also higher variable expense on the portion of our billboards that contain revenue share agreements.

Speaker 5: With respect to the out of period adjustment, we note that we have assessed the materiality of the amount reflected in this adjustment on our previously issued financial statements in accordance with SEC guidance, and concluded that the amount was not material to any of our previously issued financial statements.

Speaker 5: Although we have concluded that the amount reflected in the adjustment is not material, we are of course evaluating the impact of the adjustment on our control environment. Transit franchise expense was up 11% to the increased minimum annual guarantee, so to the New York MTA relative to 2022.

Speaker 5: and also from higher revenues and transit markets on the revenue share agreements.

Speaker 5: The MAG at the MTA has the largest impact on the first quarter because it's a seasonally lower revenue.

Speaker 5: Posting maintenance and other expense was up 5.6% given additional activity that results from our higher billboard revenue increased maintenance and utilities costs and higher compensation related expenses.

Speaker 5: Corporate and SGNA expense combined increased just under $10 million versus last year.

Speaker 5: The increase was primarily driven by higher professional fees, the adverse impact of market fluctuation on an unfunded equity index linked retirement plan, and increased compensation.

Speaker 5: So at 11, you can see our orbit up to the quarter has declined $10 million from last year due to the impacts of higher fixed cost from increased mag and 2022 headcount and compensation costs in the seasonally smallest revenue quarter.

Speaker 5: and the higher lease expense from new inventory as required inventory ramps up to expectations.

Speaker 5: This is especially true for newly developed signs with no preexisting revenue which comprised of substantial portion of our M&A activity last year.

Speaker 5: So I 12 provides additional detail on the sources and growth of orbiter.

Speaker 5: U.S. billboard orbit that was essentially flat and billboard orbit a margin was 30.3% down versus a year ago but up versus Q1 2019.

Speaker 5: The margin decline in this quarter versus 2022, we've driven by the previously mentioned recording of the lease expense adjustment relative outperformance of certain higher than average revenue sharing inventory in key markets, as well as our M&A over the last year, as mentioned earlier.

Speaker 5: Transit Oyba-Dum was down approximately $8 million versus the prior year due to higher expenses, larger driven by the increase in New York MTA mag. Turning to capo spendentures on slide 13.

Speaker 5: Q1 kept at spend with $23 million including $9 million a maintenance spend.

Speaker 5: The $6 million increase in total catbacks versus the prior year was primarily due to investments in our tech delivery platforms and pre-purchase of work vehicles, including electric vehicles in some of our key markets.

Speaker 5: We reached a new milestone for our digital billboard deployment adding 40 during the quarter to win with 2010 displays up to 345 versus 12 months ago through conversions, new developments, acquisitions and management agreements.

Speaker 5: We expect these investments, both in new assets and technology, will be a driver of revenue and orbit of growth for years to come.

Speaker 5: Looking at AFFO on slide 14, you can see our Q1 AFFO of approximately $9 million is of course down year of year given lower Oybada, but also because of higher interest expense and higher cash taxes.

Speaker 5: Our AFFO guidance for the year remains unchanged. Please turn to slide 15 for an update on our balance sheet.

Speaker 5: Commitment of liquidity is approximately $550 million, including over $40 million of cash.

Speaker 5: almost $500 million available under our revolver and about $20 million available on our Account through Civil Securization Facility.

Speaker 5: As of March 31st, our total net leverage was 5.2 times up a tick from our Q4 level.

Speaker 5: We remain very comfortable with our debt stack, with our next maturity not being until mid-2025, and approximately a quarter of total debt subject to floating rates.

Speaker 5: We made $5 million of tucking acquisitions in the quarter.

Speaker 5: So putting a couple of deals we worked on last year. Looking forward.

Speaker 5: a couple of deals we worked on last year. Looking forward, while we continue to close...

Speaker 5: additional tuck-ins carried over from last year, given our current pipeline and the activity in the marketplace.

Speaker 5: We continue to expect to see a lower volume of deals in 2023 than in 2022, both in quantity and dollar terms.

Speaker 5: Lastly, we announce today that our Board of Directors has declared a 30 cent cash dividend payable on June 30th to show Rosa Record at the close of business on June 2nd.

Speaker 5: As we mentioned in February , we and our board will continue to evaluate our dividend as we go through the year and will allow financial performance and read requirements to drive our policy. In closing, we're off to a solid start in 2023 with sets us up to meet our full year expectations. Thank you.

Speaker 5: with that when we turn the call back to Jeremy. Thanks, boss.

Speaker 4: While in macroeconomic environment remain somewhat uncertain, we were pleased to see the pace of our business pick up throughout the first quarter, and this trend continues into Q2.

Speaker 4: Based on our visibility as of today, we estimate that Q2 total revenues will grow in the mid-single digit range with billboard above that range and transit again flatish.

Speaker 4: Before concluding our call today, I want to quickly touch on a part of our business that enabled many of the late bookings we made since we last spoke in February . And that is automation.

Speaker 4: which is the digital purchasing and automated delivery to our digital billboards and this includes programmatic. This has been a small but rapidly growing portion of our business for the last couple of years and is becoming a much more meaningful part of our revenues.

Speaker 4: In fact, automated channels are moving towards around 10% of our digital billboard revenues.

Speaker 4: As we've said before, we're excited by the potential of automation going forward and believe it will contribute even more meaningfully to our growth over the coming years.

Speaker 4: Automation is just one more reason why I believe the out-of-home industry has poised to continue taking share of the total advertising pie. At that, to out-of-homes ubiquitous reach, continuing digitisation, improving measurement capabilities and relative value compared to other advertising media.

Speaker 4: It's no surprise that according to Magnus Current forecast, out of home is expected to grow 6% in 2023, while ahead of the overall media forecast of 3%.

Speaker 2: And with that operator, let's now open the lines for questions. Thank you sir. Reminded to the participants, if you would like to ask a question, please signal by pressing star 1 on your telephone keypad.

Speaker 2: If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star1 to ask a question. We pause for just a moment to allow everyone the opportunity to signal for question.

Speaker 3: Even what happened in this quarter and sort of your commentary about Flamme Transit for 2Q, I'd love to just get your color in terms of how you guys are thinking about getting back to...

Speaker 3: sort of pre-COVID levels that still an aspiration or if that seems like it's not going to be possible given lower ridership levels. And then the second question on SGNA. I just wondering if you could comment a bit on that. I think the SGNA was up about 10 million. How much of it was linked to that?

Speaker 4: equity index, link, retirement, plan. Is that something that should continue? Thanks Jason, maybe just a little bit more color on transit. I guess the first thing is that in the script, I actually mentioned that underground revenues were virtually up. And...

Speaker 4: If you sort of drill into ridership, New York in particular reached a milestone last week with formerly riders. I don't think it's all necessarily about riders in this instance. I think part of it was the sub was down to just some pretty tough comps that we have from the sports betting.

Speaker 4: part of it also, remember I called out media, which is one of the few categories that were down for us this year and those big users of above-ground media, particularly buses. So I think it's more about some of the specifics. I did, you know, it's a little frustrating, to be honest. You know, we're most prefer to be seeing more significant growth.

Speaker 5: uh... math uh... adjacent the the strinae i think you'd ask what the impact of the uh... equity linked uh... security is it's that unfunded uh... for in k-point uh... pension plan executive participation uh... it's about a two million dollar swing you're a via the

Speaker 5: Good guy I have a million dollars left here and a bad guy that a million dollars this year.

Speaker 3: Okay, so that's something that's always sort of in the P&L and it just tends to go up when

Speaker 5: It goes the opposite way of the market so we have effectively exposed it to the S&P 500 so when the S&P goes down

Speaker 5: We had shadow funding, you know, we have a benefit, when it goes up, we have an expense.

Speaker 2: Okay, thank you. We will take the next question from Richard Chow. Yolani is open. Please go ahead. Hi. I wanted to follow up on the comments about national. Do you expect that the mix?

Speaker 4: I think it's fair to say that when you look at Q1, the swing was pretty extreme. It was in the early up 10% in local, which is great to see. And just above a point which is so reflected some of that weakness that we saw particularly at the start of the year. When we look into...

Speaker 4: Q2, I would expect that national will be outpacing local reasonably significantly. I think I made the comment in the script that local was sort of normalising, so that implies more in the sort of low mid-single digit range for local.

Speaker 6: Great, and now on the expense side is the out of property or out of period property lease one time and going forward it should be growing at a more real.

Speaker 6: lower growth rate and I guess with that what should we be expecting in terms of margins for the rest of the year because there seems to be a few moving parts going on.

Speaker 6: I guess what should we expect in terms of margins for the rest of the year because there seems to be a few moving parts going on?

Speaker 5: I think you're right, the out of period adjustment is expenses from second, third, and fourth quarter last year that we booked here in the first quarter. A lot of moving parts, the continued digitization, positive for margin. The next quarter, the out of period adjustment is expenses from second, third, and fourth quarter last year that we booked here in the first quarter. A lot of moving parts, the continued digitization, positive for margin.

Speaker 5: The geographic and certain portfolio performance has been recently a bit of a headwind. A lot of the high profile revenue share inventory has been outperforming the more fixed expense.

Speaker 5: I'm not sure we're giving guidance for the full year, but I wouldn't expect it to be materially different from where it should be slightly higher.

Speaker 5: but nothing notably either side.

Speaker 2: We will take the next question from Ben Swinburne, Morgan Stanley . Your line is open. Please go ahead.

Speaker 7: Thank you. Good afternoon. Jeremy, just to clarify the guidance for Q2 of mid-single digits and I realize that's a range, but are you speaking to a organic growth rate? I think you guys had about 100 basis points of acquisition benefit this quarter. I just wanted to ask. Maybe the answer is yes to both, but you guys have to ask.

Speaker 5: Then it's met. I'll grab that for our our guidance. It's all in. You know, we do a ton of where it's you a lot of tuck ins. So the only one we've called out is a Portland which we did made second quarter so that that that guide would include.

Speaker 7: Portland performance. Okay, so the acquisition benefit actually will moderate in Q2 as you lap that deal.

Speaker 7: Portland performance. Okay, so the acquisition benefit actually moderating Q2 as you lap that deal? Yes.

Speaker 5: We'll have part of it.

Speaker 7: Not a big number, but there is some new inventory benefit in that number. Okay. And then I think in your prepared remarks, Jeremy, I think you noted strength in New York. I was unsure of that was specific to a certain kind of structure or trans-aversus.

Speaker 7: billboard but obviously there's a lot of focus on the call today about your transit business and the mta and ridership so you guys have a huge business in New York and it seems like parts of New York are doing well because you guys also call that time square and high rev share boards doing well which I tends to think of New York City

Speaker 7: So maybe you can just talk about the New York Market, which is your largest and where that is versus the recovery and kind of what's working and what's not and how you think about that going forward.

Speaker 4: Yeah, thanks for the question, but yeah, buildable business generally in New York has been really pretty strong. You know, we've also been, you know, over the last sort of two or three years, we've developed some great new digital locations. We've also, you know, um...

Speaker 4: up higher than any other region. So it was pretty much what we'd say all of the North East was strong in billboard.

Speaker 7: Okay. And then we'll just jump back to you Matt lastly on margins. You know, mid-single digit revenue growth in Q2, is that enough to get margin expansion? In second quarter, it would seem like it should, but obviously there was a bunch of bad guys this quarter, so I just wanted to see if you would want to answer that on second quarter margins. It should be helpful, obviously headwinds are...

Speaker 5: continued softness in transit. The mag in New York has gone up and if we can't get the outpatient that's going to be a bit of a headwind.

Speaker 5: And of course, it matters not just how much revenue growth. It matters where the revenue growth is. To Jeremy's point in New York and the Northeast doing great. Miami doing well, certain parts of LA are doing well, and those are all expensive locations. Friends, I'd love more revenue in Louisville and St. Louis. But we think we can see some improvement, but.

Speaker 5: We'll let you know in a few months. Okay. All right. Thanks, guys.

Speaker 8: We'll tell you the next question from Ian Zafino from Open High, Mike. Your line is open. Please go ahead. Hi, great. Thank you very much. You know, can we look at or can you compare and tell us maybe how the MTA did on the national side, X gambling and as a compare to base of your billboard business in New York?

Speaker 8: Do they perform pretty similarly and just try to get on as much colors in the cat and things?

Speaker 8: just try to get on as much colors as I can, thanks.

Speaker 4: Yeah, I'm messing with. When we look at local and national, we don't give the split national transit and national billboard in, so I'm not certain that I can add that much definitive. I think all I can say is that, you know,

Speaker 4: National was under-performed billboard for the first quarter, generally across the country.

Speaker 2: Okay, thanks. Next question from Jim Goss from Barrington. Your line is open. Please go ahead.

Speaker 9: Thanks, a couple of transit. You opined a couple of quarters ago that the rebound and reach in transit might have mitigated some of this climate impressions in terms of value to advertisers. I wonder if you could provide an update on whether that's worked out correctly in terms of your pricing.

Speaker 9: And is there any variance in pricing by Dave of the week, would you say? And then finally, transit wise, aside of New York, San Francisco has been getting out of bad press lately. I wonder if I may update that market as well.

Speaker 4: Sure, thanks Jim. I guess the first question in terms of reach. We absolutely continue to believe that the reach argument will come into play. The fact that you know you're...

Speaker 4: It's not the absolute number but it's just when compared say back to 2019, it's very much about what proportion of the audience that was there in 2019 is now utilising transit.

Speaker 4: And again, we said that we really don't believe that we need to get much past 80% of that audience to certainly lap 100% of the 29-19 revenues. So we continue to be real advocates for transit advertising.

Speaker 4: It's an integral part of our business. We have a huge crossover in terms of the top 100 advertisers. And you know, it's heard a little earlier. Well, you know, frustrating that the recovery curve is more elongated than we all hope. We firmly believe that.

Speaker 4: that reach piece will continue to be a good guy for us as we move forward. In terms of day of the week, we don't price on a daily basis, Jim. What we can say is that when you look into the numbers of usership, it's actually heavier at the weekends than it used to be relative to weekdays. But that's just...

Speaker 4: You know, that's just one of the trends that we've noticed. Interesting also that, you know, the MTA is certainly saying they're going to be upping their service over the coming weeks and we think that that's also going to be a positive benefit for us. In terms of...

Speaker 4: San Francisco. I think Jim, it's a good question. The answer is that San Francisco, generally, is probably not where we want it to be in terms of our billboard business.

Speaker 4: but actually in terms of the transit business, it was actually nicely up in Q1. So, sort of mixed signals coming out of San Francisco.

Speaker 9: Okay, thanks. One final one. You mentioned a cost and expense category of posting maintenance and other. I'm wondering if some of those categories are changing in terms of value or cost with the digital impact.

Speaker 5: Is it better or worse with the type of spending? The more we digitize, that's where part of the enhanced margin in digital comes from. Obviously, we don't have to roll a truck to change copy or to do any kind of repairs.

Speaker 5: Still, there is some side cost and most of our inventory is still very static. Our digital inventory is less than 4% of total. It's a big impact on revenue. We're still servicing tens of thousands of static boards. We're still servicing tens of static boards.

Speaker 10: Okay, thanks much.

Speaker 10: Okay, thanks much. Thanks.

Speaker 4: It appears that there is no further question at this time. Mr Speaker, I'd like to turn the conference back to you for any additional occlusion remarks. Thanks, operator, and thanks everyone for joining our call today. I hope to see and meet with many of you at various conferences over the course of spring and summer, but for those that I don't, I look forward to presenting our Q2 results to you in August .

Speaker 2: Thank you very much again. That's all for today. Your line can be disconnected.