Q3 2023 OUTFRONT Media Inc Earnings Call

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Thank you for standing by the conference will begin in one minutes time again. Thank you all for standing by the conference will begin in one minutes Tod.

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Thank you for standing by and welcome to the Out-front third quarter 2023 earnings Conference call. My name is Sam and I will be your moderator for today's call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end if.

You'd like to ask a question you can do so by pressing star one on your telephone keypad.

I'd now like to turn the call over to Stefan Bichon without front definitely please go ahead.

Thank you Sam and good afternoon, and thank you for joining our 2023 third quarter earnings call.

With me on the call today are Jeremy male Chairman and Chief Executive Officer, and Matthew Siegel.

Thank you, Dave Vice President and Chief Financial Officer.

For a discussion of our financial results well in Hawaii for a question and answer session.

Our comments today will refer to the earnings release and a slide presentation.

The Investor Relations section of our website.

Dot com.

After today's call.

A replay 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 but not limited to our 2022 Form 10-K, and our September 32023 Form 10-Q, which we expect to file tomorrow.

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

Any references to point to me today.

Adjusted basis.

Insulation and other non-GAAP financial measures.

The slide presentation.

<unk> release.

Awesome presentations proprietary reconciliation.

Let me now turn the call over to Jack.

Okay.

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

We're pleased to be here today reporting on third quarter results, which came in pretty much as we indicated when we spoke three months ago.

As you can see on slide three summarizes our headline numbers.

Consolidated revenue was slightly up during the quarter adjusted OIBDA declined 5% year over year, principally due to weaker trends of our results.

Okay.

Was down primarily due to higher interest.

So.

Slide four shows our revenue results by segment.

Total U S media revenues were slightly up on a reported basis year over year.

Which consist mostly of Canada was up 2% on.

As reported basis, and 4% on an organic constant dollar basis.

While we're speaking of Canada.

To discuss the pending sale of our Canadian business, which you may have read about in our press release last week.

On October 20, we announced that we entered into a share purchase agreement for the sale of our Canadian business with Bell media.

As previously disclosed in our 8-K the purchase prices.

Canadian dollars 410 subject to adjustments and we expect to close the transaction in the first half of 2024.

This strategic transaction will provide additional financial flexibility, we did see deleveraging of our balance sheets.

We look forward to continuing to work with our Canadian colleagues on the great business, we have built together until the deal closes.

So turning back to the quarter.

You can see the components of our U S media revenues in more detail on slide five.

Billboard which remains about 80% of revenues grew two 6% with solid performance in most of our markets.

<unk> revenues were down eight 6% year over year have given lower national Rep, which I'll discuss in a bit more.

So on slide six.

Here you can see our local initial revenue performance, our local business was strong up 6% year over year.

This was largely offset by a national business.

As we noted on the last call national faced some headwinds during the quarter with the writers and actors strikes curtailing entertainment spend and technologies year of efficiency pushing some advertisers the scope.

Guidance.

As a result of the weaker national revenues are local nationals split was 58% to 42% of the quarter literally skus than our typical 50 545 split.

Slide seven illustrates our U S Billboard yields, which grew nearly 3% year over year $2800.

This improvement was driven primarily by an increased number of digital faces, which typically generate more dose.

And our static inventory.

Slide eight highlights our digital performance with digital revenues growing five 3% in the quarter and representing over 31% of our total revenue up 150 basis points from last year.

Digital Billboard revenues were up nearly 7% versus the prior year, primarily because of inventory.

We added 57 digital billboards quarter, raising our total to 2005.

Digital transit was up 1% again due to an additional inventory compared to last year.

On slide nine you can see the results of our static revenues, which were down 2% year over year with slight growth in Billboard being offset by a decline in transit, which was largely driven by lower bus revenues. A result of the natural headwinds we previously discussed.

So as static pool, both growth remains modest.

It continues to grow is notable given the challenging environment and the fact that we continue to convert many of our best static boards to digital.

With that let me now hand, it over to Matt.

Thanks, Jeremy.

Afternoon, everyone. We appreciate you joining our call today.

Please turn to slide 10 for a more detailed look at our expenses.

Total expenses were up approximately $7 million or 2% year over year entirely driven by Billboard lease expenses, which were up $10 million exclude.

Excluding lease expenses cost review lower versus the prior year period.

And maybe just.

As we previously discussed much of the lease expense growth continues to be associated with the new inventory.

Inventories at the end of the prior 12 months.

This growth rate has moderated as we have each year.

And we will continue to do so in the fourth quarter and into 2024.

Transit franchise expense was down slightly decreased and angle to the New York MTA on the inflation. Adjusted this year was offset by lower revenue share payments to our other transit franchises.

Posting maintenance and other expenses down 4%.

This will be driven by lower production expense and a property tax refund.

SG&A expense was up less than 2% versus last year, driven primarily on a higher allowance for doubtful accounts.

Execute these strengths.

Partially by lower total compensation expenses.

We remain focused on SG&A and expect these expenses to continue to be a lower percentage of revenue in 2024.

Corporate expense was down just over $1 billion.

Last year.

This decrease was driven by lower compensation related expenses offset slightly by the impact of market fluctuations unfunded equity index, we can.

Slide 11.

Additional detail on the sources of appointment.

U S global demand was down about 1% and Billboard OIBDA margin was 36, 7%.

Down versus a year ago.

I lead better versus the comparable period in 2019.

As we've described in quiet periods this year.

Margin declined versus 'twenty two.

By new and acquired inventory and this inventory is still ramping to our projected revenue levels.

Look forward to 2024, we expect Billboard margins versus 23, three as revenues on acquired inventory need to grow.

Trains that OIBDA was down approximately $6 million versus the prior year.

Lower revenue.

While the Hollywood Binder and accurate strikes.

And it impacted all parts of our business trends were disproportionately hurt.

We still need to be educated vertical and the fall TV warrants needed in particular.

Turning to capital expenditures on slide 12.

Three capex spend was $19 million, including $8 million of maintenance.

Yes.

$6 million decline in total capex versus the prior year.

Primarily due to lower investments in new digital Billboards.

For the year, we continue to expect total capex of $80 million to $85 million.

We believe 2020 maintenance capex will be approximately $25 million to $30 million.

Higher than usual and completed office moves in New York, Los Angeles, and San Francisco.

We spent about $12 billion in HCA employment cost in the quarter as.

As we mentioned on our last earnings call and as a result of our continued expectation of negative aggregate cash flows related to the MTA. We recorded an impairment charge for this amount in the third quarter of 2023.

Looking at <unk> on slide 13.

You can see our Q3, followed were approximately $76 million.

Down year over year, primarily given the slower to OIBDA and.

Higher interest expense.

For the year.

Our guidance is unchanged from our last update.

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

Maybe liquidity is nearly $540 million, including over $40 million.

Cash you must manage money available.

Albert.

As of September 30, our total net leverage was five four times up slightly from our Q2.

We remain comfortable with our debt portfolio with our next maturity.

Until mid 2025, and approximately a quarter of total debt to floating rates.

I'd like to explain briefly on the sale of our Canadian business that <unk> previously mentioned.

$410 million sale price currently equates to approximately.

Regarding U S dollars at today's exchange rate.

Currently expect its tax proceeds to be approximately $290 million.

Our intention is to utilize these funds in a manner. So that we may pay down debt and delever.

We closed just $3 million of tuck in acquisitions in the quarter again being a number of small deals mid June 2022.

Given our current commitments, we expect to spend less than $10 million in the fourth quarter.

And lastly, we also announced today that our board of directors has declared a cash dividend payable on December 29.

Shareholders of record close of business on December one.

This dividend fulfills our estimated re obligations for 2023, a $60 million with dividend requirements carrier I would wonder payments from 2022.

And represents a small return capital during the year.

With that let me turn the call back to Jerry.

Thanks, Matt.

So we will disclose an increasingly complicated over the last three months with various industry strikes macroeconomic and geopolitical uncertainties permeating through the ad market.

Despite these headwinds we expect Q4 revenue growth will be growing in the sandwich. This Q3 with Billboard again up low single digits.

Is it likely to decline.

Before turning the call over.

Questions I'd like to briefly reaffirm some of the strategic actions, we've taken and continue to pursue.

First as we've discussed we reached agreement to divest our Canadian business.

Process. The proceeds from the sale will allow us to Delever the company by around a third of a ton.

Second we continue to focus on Rs G&A expenses under evaluating various initiatives to increase efficiency across business lines.

We remain engaged in conversations with some of our transit partners, including the MTA.

We're going to find mutually agreeable approaches that reflect today's transit environments.

But at the same time, we remain fully focused on operating our business, which continues to grow despite the environment.

In our view another many AD industry forecast out of home remains in the best position of old traditional media for long term growth given this increasing audience, increasing just <unk>.

<unk> and improving data and analytics.

We also believe that our growing automated selling channels provide an excellent opportunity to increase the pool of advertisers that utilize the medium.

And with that operator, let's now.

Now open the lines questions.

Alright, great. Thank you we will now begin the question and answer session. If you'd like to ask a question you can do so by pressing star one on your telephone keypad like to remove your question you May Press Star two as a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.

Pause here for just a moment ask questions begin to register.

Our first question comes from the line of Ian Zaffino with Oppenheimer. Ian Your line is now open.

Alright, Thank you very much.

Can you guys just give us.

A sense of at any point with some pockets of weakness.

Maybe also help us understand that.

Our categories.

And so any other categories that had maybe kind of come in and surprise, one way or the other thanks.

Thanks for the question, yes in some ways Q3 growth.

<unk>.

Sure.

An interesting frustrating quarter four is a local business performed extremely well you sold are up 6% and it was really on Nashville.

<unk>.

We saw those categories that I mentioned in fact, if you just look at the.

TV category of attack just between those two categories.

Revenues were down about $16 million, which equates to about eight points of revenue growth on a national basis. So you can see that the impact of impacts of those headwinds, but if we take a step back from that and just assume that that difficult kind of obvious but.

CEB.

Outside of that real estate was.

A little bit down probably worth calling out that on the positive sides.

We had a good dollar step up on percentage step up in legal.

<unk>.

We had a good step up in an hour.

Ill also CPG.

And also education, so fairly broadly based.

Upside really skewed towards those categories I mentioned on the downside.

Okay, great. Thank you and then as a follow up.

Can you just give us.

It is philosophical discussion on <unk>.

Status that you guys have.

It certainly doesn't seem like you are being valued in the market being a lead either dividends are not being valued for.

You are sitting here with some debt.

So does it make sense or is it possible or is it feasible to maybe switch. The structure. Then you can take your free cash flow and maybe delever with it or see some M&A.

Maybe help us understand.

A little bit.

From that perspective thanks.

Sure.

Ill try to take that.

First let's see where we are.

Uncontrolled the dividend yield.

Hey al.

I appreciate you pointing out that debt.

The market is not appreciating our current status.

We think being a REIT.

Great.

Appointing minimizing tax liability.

You've got infrastructure, we think it works for us as far as balance sheet <unk>.

<unk>, Canada.

Other initiatives that we're working on that.

Help improve that.

Over the course of the next few months.

Closes and as our EBITDA performance and some other things.

So we feel pretty good about where the balance sheet.

And with that we think makes sense for us.

Our concentration.

Alright, great. Thank you very much.

Thanks.

Our next question comes from the line of Cameron Mcveigh with Morgan Stanley Karen Your line is now open.

Hey, Thanks for taking my questions I had a couple.

I was wondering if you could give just a little more color.

On what's driving the elevated Billboard lease expense growth recently and your expectation for normal long term.

The normal long term growth rate. Thanks.

But on the lease expense.

Total R&D regulatory in 2022.

We look at things, we find in that second year EBITDA performance.

And in the middle.

Maybe towards the later half complete.

The ramp up.

Lease expense come down.

Ali some sites fully expense.

Revenue ramps up a little slower.

Since we have such a large acquisition year in 'twenty, two we see the impact still in 'twenty, three and again as I mentioned should moderate.

Of course.

This quarter it will be in 2024.

Got it thanks, and then secondly, yes.

Last quarter, you had mentioned a baseline assumption of around mid single digits. I think it was six 5% growth for the MTA contract revenue long term.

Has your long term growth rate assumption for the MTA changed at all just given what we've seen with transit.

Yes.

No.

As we mentioned on.

<unk>.

We've moderated our performance expectations.

Yes.

There is nothing to suggest that.

Our current forecast.

Sure.

The thing other than absolutely achievable. So we remain.

Yes.

Evidence.

It's interesting if you just think of the.

The categories that we just talked about both of those are very sort of disposed towards transit. So while there are headwinds for us.

This year.

Next year, we would.

Absolutely, we expect that that could occur.

It becomes Patel with <unk>.

This week it looks like quite a stir.

Strong expectation.

Keeping our fingers crossed that there'll be a resolution to abaxis action strike. So thats I think is.

I think it's good news, but I just wanted to come back just talking about these expense.

Yes. It is absolutely a one off if you look back historically at least expense growth was probably more in the two 3% range.

Okay.

Got it thank you.

Thank you.

Our next question is from the line of Jim Goss with Barrington Research your.

Your line is now open.

Alright. Thanks.

Couple of questions first just to clarify.

Did you say the after tax proceeds were 200 million $290 million in terms of that sale of Canada.

Thank you.

Yes.

Approximately.

Gross.

Canadian <unk> 10 U S 300.

A little bit of tax leakage.

These candidates.

Yes, I was surprised there wouldn't have been a little more leakage.

On that property for a long time.

But.

Jim.

Going back to <unk> question, that's one of the benefits.

Being reached.

Capital gains as part of that restructuring.

Okay and.

The entertainment side.

I think you also indicated transit had a.

Bigger impact.

Somewhat softer entertainment.

$1 then the other area what is the share of revenue that.

Is assigned to transit or you're achieving in transit in the entertainment space.

It's really to focus on is the key.

Entertainment generally movies were up for us quarter, Alright, TV is down.

Okay.

We give you the exact number but that more than half of the decline almost two thirds of the decline is in transit got it started declining.

Cohorts.

Okay.

On the film side are you actually.

Perhaps getting a little more.

Revenue in that I think some a lot of the things that as Don pointed out as the actor participation and promoting.

Films.

Is absent.

Some trend there on strike and I thought some of that might have accrued to you but.

Maybe not so or at least not sufficiently itself.

Yeah.

The number we called out with specifics that's why we really believe in the third quarter really nice because there was essentially move full launch, but right now I mean, the film category for Us has been.

Been five where appropriate.

Okay.

I think thats it for the moment.

Appreciate it.

Thank you.

Yeah.

Thank you.

Have no additional questions waiting at this time, so as a final reminder to ask a question. It is star one on your telephone keypad.

Again here for just a moment.

With that I'd like to hand, the call back over to Jeremy for any closing or additional remarks.

Thanks, Tom.

Thanks, everyone again for joining our call today, Joe will be seeing many of you at various conferences over the next few months.

Please enjoy the upcoming.

Okay.

Okay.

That's helpful to you.

Thanks very much.

That concludes the Out-front third quarter 2023 earnings conference call. Thank you all for your participation you may now disconnect your lines.

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