Q3 2024 OUTFRONT Media Inc Earnings Call
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Speaker Change: Hello everyone and thank you for your patience. Today's call will begin shortly.
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Speaker Change: Hello everyone and welcome to Outfront Media's third quarter 2024 earnings call. My name's Lydia and I'll be your operator today. After the prepared remarks there'll be an opportunity for you to ask questions. If you'd like to do so you can ask a question by pressing star followed by one on your telephone keypad. I'll now hand you over to Stephan Bisson, Vice President of Investor Relations to begin. Please go ahead.
Stephan Bisson: Good morning, and thank you for joining our 2024 Third 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.
Stephan Bisson: After a discussion of our financial results, we'll open the lines for a question-and-answer session.
Stephan Bisson: Our comments today will refer to the earnings release and the slide presentation that you can find on the investor relations section of our website, outfront.com.
Stephan Bisson: After today's call has concluded, a replay will be available there as well.
This conference call may include forward-looking statements.
Stephan Bisson: 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 files, including our 2023 Form 10-K and our September 30, 2024 Form 10-Q, which will be filed later today.
Stephan Bisson: We will refer to certain non-GAAP financial measures on this call. Any references to OIDA made today will be on an adjusted basis.
Stephan Bisson: Reconciliations of OIDA 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.
Stephan Bisson: Also, please note that given the June sale of our Canadian business, our consolidated third quarter results do not include any Canada results compared to the comparable prior year period.
Stephan Bisson: Detailed historical financial results of the divested Canadian business can be found on slide 25 of our slide presentation, and detailed historical U.S. media financial results can be found on slide 24.
Stephan Bisson: Given the sale of our Canadian business, our remarks today will focus primarily on the results of our U.S. media segment.
Let me now turn the call over to Jer.
Jer: Thank you, Stephan, and thanks to everyone for joining us on our call this morning.
Speaker Change: As Stephan just mentioned, and similar to last quarter, our remarks today will focus almost entirely on our U.S. media segment.
Speaker Change: As you can see on slide 3, which summarizes our headline results, our U.S. business grew revenues over 5%, driven by an acceleration in our billboard growth and high single-digit growth in transit.
Speaker Change: U.S. media-adjusted EBITDA grew just over 11%, driven by the revenue growth I just described, combined with U.S. media expense growth of just 3%.
Together, U.S. media and corporate adjusted OIDA was up 6%.
Speaker Change: Consolidated ASFO grew nearly 7% to 81 million dollars and puts us well on our way to achieving the high end of the growth target we later laid out earlier this year.
Speaker Change: Our AFFO growth is impressive given that we are comparing against the seasonally strong quarter from last year that included our since-divested Canadian business.
Speaker Change: On slide four, you can see our U.S. media revenues in more detail.
Speaker Change: Billboard revenues were up 4.8%. Our strongest markets continue to be those that are more locally skewed such as those in New Jersey, Texas and Michigan.
Speaker Change: Every region was up except the West, which improved sequentially, but remained flashish due to some weakness in Los Angeles.
Speaker Change: Transit revenue is up 7.3% versus the prior year, driven by growth in all markets, including the New York MTA.
Speaker Change: As has been the case all year, our improved transit revenues were the result of solid performances from both our local and national teams.
Speaker Change: The breakdown of local and national revenues in our U.S. media business can be seen on slide 5. Slide 6 The breakdown of local and national revenues in our U.S. media business can be seen on
Speaker Change: Local remained the primary driver of our growth, up almost 7%.
Speaker Change: National revenues improved from Q2 levels and were up a little over 3%.
Speaker Change: On a consolidated basis, our best-performing categories in the third quarter were retail, tech,
Utilities, Telecom, Legal and Government, Political
Speaker Change: On the weaker side were also health medical, alcohol, and education.
Slide six illustrates our solid U.S. media billboard yield growth.
up almost 7% year over year, reaching just under $3,000.
Speaker Change: The drivers of this yield growth remain our digital conversions, rates, occupancy and higher automated transaction revenue.
Speaker Change: U.S. digital billboard was up over 11% while transit was up just over 8%.
Again, driven predominantly by the MTA.
Speaker Change: Automated revenues comprise nearly 17% of our total digital revenues in the quarter.
Speaker Change: About 7% of our digital transit revenue came from automated channels, up from just under 2% last year, reinforcing our belief that the MTA's digital network is well-aligned for automated selling.
Speaker Change: With that, let me now hand it over to Matt to review the rest of the financials.
Matt: Thanks Jeremy and good morning everyone. As with Jeremy's remarks, most of my comments will focus on our U.S. media segment as these are the primary operations going forward.
Matt: For a deeper dive into our financial statements, please turn to slide 8 for a more detailed look at our U.S. media expenses.
Matt: Total U.S. media expenses were up just under $10 million, or just over 3% year-over-year.
Matt: U.S. Nobel Media billboard lease expense was up 1% versus last year.
Matt: Small increases on a portion of our inventory on fixed rates were partially offset by lower revenues on the portion of our inventory operated on leases with revenue share arrangements primarily located in New York and Los Angeles.
Matt: U.S. media transit franchise expense was up 2% versus the prior year.
Matt: principally due to higher MAG payments to the MTA and higher revenues on contracts operated under revenue shares.
Matt: U.S. media posting, maintenance, and other expenses were up about 10% versus the prior year, primarily due to higher compensation related expenses and an increase in business activity driving higher posting and rotation costs.
Matt: U.S. media SG&A expense grew less than 3%, or just over $2 million during the quarter due to higher compensation-related expenses, partially offset by lower professional fees and smaller provision for doubtful accounts.
Matt: Slide 9 provides additional detail on the sources of U.S. media oibida.
Matt: Total U.S. media orbiter was up 11% to just over $133 million.
Matt: U.S. Billboard Orbitals up 8% to $136 million, which represents a margin of 37.8% up 110 basis points year over year.
Matt: Transit will be able to improve by about three million dollars to a loss of just under three million dollars.
Speaker Change: The improvement was primarily due to the better revenue Jeremy described earlier in the call.
Speaker Change: On slide 10, you can see our combined U.S. media and corporate orbita, which is up about 6% to approximately $117 million.
Speaker Change: Q3 corporate expenses up $6.7 million. The majority was due to consulting fees and the impact of market fluctuations on an unfunded equity-linked retirement plan.
Turning to Capital Expenditures on slide 11.
Speaker Change: Q3 U.S. media capex spend was $17.6 million including $5.5 million of maintenance spent.
Speaker Change: Growth capex was up slightly, while maintenance capex was down about $2 million.
Speaker Change: For the full year, we believe we will spend approximately $85 million of total CapEx towards the higher end of our prior range, including some spent complete repairs related to Hurricane Milton.
Speaker Change: We ended the quarter with a little more than 1,900 digital billboards, up 17 from the end of the second quarter, and representing under 5% of our total billboard inventory.
Speaker Change: In transit, we had nearly 1,400 digital displays in the U.S. in the third quarter.
Speaker Change: As has been the case thus far this year, the installations were mostly small format screens on subway and train cars in the New York MTA, and we are happy to confirm that we have substantially completed our initial deployment commitments.
Speaker Change: While speaking of the New York MTA hopefully you noticed that we did not have an impairment charge this quarter as we currently expect net positive cash flows through the end of the amended term of the MTA agreements.
Speaker Change: As such, we would not expect to incur additional impairment charges going forward on our MTA equipment deployment cost spending.
Speaker Change: Now, turning to consolidated AFFO on slide 12, you can see the bridge on our Q3 AFFO of nearly $81 million.
Speaker Change: The five million dollar year-over-year increase was due to higher U.S. media oibida, lower interest expense, lower U.S. media maintenance capex, and lower other maintenance capex, partially offset by lower other oibida, principally related to the Canada sale and corporate expense.
Speaker Change: For 2024, we expect that reported consolidated AFFO will be between $295 and $300 million.
Speaker Change: Please turn to slide 13 for an update on our balance sheet.
Speaker Change: Committed liquidity is over 600 million dollars, including around 30 million dollars of cash, almost 500 million dollars available by our revolver, and 110 million dollars available under our accounts receivable securitization facility.
Speaker Change: As of September 30th, our total net leverage was 5.0x, down from 5.4x year-end of 2023.
Speaker Change: We expect to continue to de-webber within our four to five times target range through adjusted orbiter growth.
Speaker Change: Turning to our dividend, we announced today that our board of directors approved a $0.75 per share special dividend totaling about $125 million, payable on December 31st to shareholders of record at the closing of business on November 15th.
Speaker Change: About $50 million, or $0.30 per share, will be paid in cash, the same per share amount as the three common dividends paid earlier this year, and the remaining $0.45 per share, or about $75 million, will be paid in shares of our common stock.
Speaker Change: Stockholders will have the option to elect to receive a special dividend in all cash or all stock. However,
Speaker Change: If the aggregate amount of stockholder cash elections exceeds a $49.8 million cash limit, then the payments of such cash elections will be made on a pro-rata basis.
Speaker Change: to shareholders who made the cash selection with the balance paid in shares of common stock.
Speaker Change: Please refer to our SEC filing for further information on the Special Diverend Election Process.
Speaker Change: The special dividend represents the projected excess remaining balance of 100% of the company's 2024 distributable rate income beyond the cash dividends paid earlier this year.
Speaker Change: and has been sized to maximize the tax savings afforded to us by the REIT structure, as well as retain the de-leveraging effect of the Canada sale completed in June.
Speaker Change: To offset the small dilutive impact of the common stock portion of the special dividend, our Board of Directors also approved a reverse stock split to return our aggregate share count to pre-stock dividend levels, which we expect to complete in January of 2025.
Speaker Change: There were no large or notable acquisitions made during the quarter. Looking at our current acquisition pipeline, we expect to complete about a total of $25 million of acquisitions this year.
Speaker Change: Before I pass the call back to Jeremy, I'll take a moment to explain some accounting revisions in our documents.
Speaker Change: In connection with finalizing our results for the third quarter, we identified an error related to the treatment of non-controlling interests on our balance sheet involving a few of our historical consolidated joint ventures.
Speaker Change: As noted in our earnings release, we concluded that the error was not material to our previously issued financial statements, but would require revisions to our current and comparative periods with respect to certain equity line items on our balance sheet and our consolidated statements of equity.
Speaker Change: There is no impact on our total assets and liabilities, income statement, statement of cash flows, OIBDA, or AFFO related to this matter.
Speaker Change: As an administrative matter, we also decided to voluntarily revise our previously issued financial information to reflect the immaterial out-of-period adjustment related to variable billboard property lease costs that was already recorded and disclosed in the first quarter of 2023.
Speaker Change: Please refer to our SEC filings for further information on the revisions.
Speaker Change: In closing, it was a good quarter, and we look forward to running through the tape to the end of the year.
With that, let me turn the call back to Jeremy.
Thanks very much, Matt.
Jeremy Male: So before we jump into revenue guidance for the fourth quarter, I want to mention a couple of recent developments which will impact comparability for the prior year, particularly as it relates to our billboard business.
Jeremy Male: First, as many of you may have seen last month, we recently exited a billboard contract with the New York MTA, creating a revenue headwind for Q4.
Jeremy Male: Importantly, and as implied by our full-year AFFO guidance, we expect a de minimis impact to our OEBDU and AFFO this year.
Jeremy Male: For 2025, it will continue to be a revenue headwind, but it will also be very much margin enhancing.
Jeremy Male: Secondly, the storms in the southeast will also present a small headwind as we've proactively removed advertising copy for safety reasons.
Jeremy Male: We are immensely proud of the team in the region who responded to storms in such a safe and expeditious manner.
Jeremy Male: So with that said, looking ahead to the fourth quarter, and based on what we're seeing in the business as of today, we estimate that reported Q4 U.S. media revenue growth will be around 3%, with Billboard in the low single digits, and Transit, again, growing high single digits, led by the New York MTA.
Jeremy Male: Before turning it over to Q&A, I wanted to speak a little bit more about the billboard contracts in New York.
Jeremy Male: that we exited as it's illustrative of our broader strategy with regards to how we approach contracts and partnerships with any counterparty, municipal or private, or any property type, both billboard and transit.
Jeremy Male: This particular contract exit reflects our focus on improving margins and the economic returns associated with these partnerships.
Jeremy Male: When bidding on new or legacy contracts, particularly those with revenue shares and minimum annual guarantees, we strive to submit proposals that reflect the value brought to such a partnership by Outfront, requiring an attractive return to the company and its shareholders.
Speaker Change: So with that operator, let's now open the line up for any questions.
Speaker Change: Thank you Jeremy. Please press star followed by the number 1 if you'd like to ask a question and ensure your device is unmuted locally when it's your turn to speak.
Speaker Change: Our first question today comes from David Konofsky with J.T. Morgan. Please go ahead, your line is open.
Speaker Change: Hey, thank you. Sorry, maybe just following up on the Q4 guide, I don't know if you can size the impact of the MTA versus the storms you called out.
Speaker Change: in the Southeast. And then I think the company that has won the MTA contract or bid for the MTA contract had flagged some strategic benefit, you know, as a result of that, is there, you know, kind of, was there any consideration on that front from your side?
would like to hear more on that.
Speaker Change: Yeah, thanks Dave for the question. So, as to sort of scale, it's around about a point and a half of growth in that sort of range.
Speaker Change: And as I say, then there's a small piece for the storms that we mentioned.
Look, with regards to...
Speaker Change: strategic benefit. Every company has to make their own decision when they bid these contracts. I wouldn't want to comment on our competitors' bidding strategy, but what I can say is that
Jeremy Male, Stephan Bisson
Speaker Change: Just on the property lease expense, Dan, we would have thought maybe this would have firmed up a bit with the better result in national. So I'm curious if you could walk through national.
Speaker Change: By market, what you're seeing in places like LA and New York relative to the other regions, and you mentioned the West Flatish. I don't know if you can kind of walk through that and what you're seeing with the media vertical. Thanks.
Thank you.
Sorry, Matt, you go.
I'm sorry, Matt, as Jeremy mentioned in his prepared remarks...
Speaker Change: We're still seeing a little bit of weakness in LA and a little bit in New York. National's not back to where we'd like it. Still, you know, they're stronger right now in transit. So our billboard lease expense...
Speaker Change: not up as much as we've said in past years. It's flipped around when New York and L.A. overperformed or overperformed their peers. You see a little higher lease expense. We're seeing the opposite throughout most of this year.
Thank you.
Speaker Change: Our next question comes from Cameron McVeigh with Morgan Stanley. Please go ahead.
Speaker Change: Just maybe an update on the MTA integration of some of the programmatic ad tech capabilities down there. How the timing is shaping up, potential impact of transit results going forward.
Speaker Change: Thanks for the question Cameron. You heard the call out there that 7% of revenues generated in Q3 on the MTA came through automated channels.
Basically, we've now hooked up...
our live boards.
Speaker Change: screens that you see on platforms. We've also hooked up the urban panels that are the panels that you see above the subway entrances.
Speaker Change: What we haven't yet done is hook up on the mobile panels, which are, you know, on train, on the subway, and also Metro North and Long Island Railroad, so we'll get that benefit as we go down the track, and that's going to be over the coming months.
We're also in the process of hooking up.
Our assets in Boston
and T.C.
Speaker Change: and San Francisco. So, you know, we'll get a bit of benefit also there in 2025.
You know, we've been growing transit very nicely this year.
Um...
Speaker Change: It was, you know, good for Matt to be able to, you know, talk about the MGA in terms of the whole sort of, you know, being net cash positive as we go forward, so that's, you know, it's a great milestone for the business, and we are, you know, excited, I think, by the
Speaker Change: growth opportunity that the transit business will give us as we go through 2025.
Speaker Change: Got it. Thank you. And then just secondly, are you able to size the political ad spend and impact and maybe how that had trended over 4Q? Thanks.
Speaker Change: I can take that. For the year, in 2024, we got about $15 million of political. I can compare that to 2020 when we had about $10 million, so a little more effort, a little more involvement of our government affairs team, I think, led to a big increase. About half of that amount is in the fourth quarter, obviously primarily October.
. . . . . . . . . .
Speaker Change: Our next question comes from Lance Bitanza with TD Cowen. Please go ahead.
some incremental expenses as well, so appreciate your help there.
Speaker Change: The benefit plan is an unfunded deferred comp plan tied to the S&P 500 or another equity index.
Speaker Change: So basically when stock markets go up in a quarter, it's a higher expense. When they go down, it's a good guy.
Speaker Change: So there's almost only, and the line item is relatively small, so it sticks out, so there's always going to be some volatility from that, and we just try to make people aware, you know, up or down, or order of magnitude.
Speaker Change: The professional fees in corporate is a nationally recognized management consulting firm we've been working with.
most of the year, helping us really look at our
Speaker Change: are assets in generating more revenue and more EBITDA off the assets that we have.
Speaker Change: We think the investment this year will add some benefit this year, but a lot more in the future, so we're, you know, learning some new techniques and
improving our already strong performance around our markets.
Speaker Change: I think those are the two big ones we called out.
Speaker Change: Compton 2024 it's mostly we were a little bit off west here in our
Yeah, numbers were cooing closer.
Speaker Change: As you mentioned, we're at the high end of our ASFO guide.
I think we're accruing closer to 100% of our...
Speaker Change: a short-term compensation plans versus last year we were a little bit under our 100% targets.
Hope you had a helpful one.
Speaker Change: very helpful and if I could just squeeze in one more I was actually if anything seems like national came in a little bit better than I would have that I might have thought and I'm wondering if you're seeing that continue in the fourth quarter or is that sort of was it a kind of a flash in the pan and and maybe we see software performance going forward
Yes, National. Thank you. Thank you. Thank you.
Speaker Change: The National was certainly better in Q3 than we've seen for the first two quarters. And as we look at it now, we'd expect National to be up in Q4.
Thanks very much.
Speaker Change: Our next question today comes from Ian Verzino with Oppenheimer. Your line is open.
Speaker Change: Hi, great. Can you guys maybe give us an idea of what conversions look like for the remainder of the year and how you're thinking about it into 2025?
Thank you.
Speaker Change: I think what we'll get our conversions usually target a little higher number probably digital is about 100 to 150 maybe on the low end of that. Fewer acquisitions this year, fewer management agreements and around the same number of conversions.
Speaker Change: So we'll be adding fewer digitals this year. I think the number in 25, I'm not prepared to give a precise guidance, we're pretty confident it's going to be higher in 25 than in 24.
Speaker Change: OK, thanks and then also if I could speak in one more on the MTA, and I don't know if you could per se answer this, but.
Speaker Change: You know, as far as the rates going up, I guess ridership is still kind of well below where it was pre-COVID.
Speaker Change: Are you seeing either advertisers returning, or what's driving that rate, just given that a lot of the ridership is just sort of stalled?
Speaker Change: Any kind of view on what ridership might be, you know, doing going forward? I guess, you know, a lot of companies are kind of calling people back five days a week, but Any thoughts there would be helpful. Thanks
Speaker Change: Yeah, thanks Ian. I mean we said right the way along that we anticipated we'd be able to get, you know, our revenues back up.
to pre-COVID levels.
You know without
Speaker Change: the audience growing back to, or ridership, you know, growing to pre-COVID levels. And that's basically because we just have a much better product, you know, we've undertaken this sort of huge digitization program.
Speaker Change: So now you can be more timely, you can be more creative, and it's just a very exciting product. And I think that's really what's drawing advertisers back.
and as we, you know, as we look at it.
Speaker Change: I think we really feel very positive from that question that we had earlier with regards to automated revenues that will keep driving a pretty solid digital growth story on our transit assets and particularly on the MTA.
Okay, thank you very much.
Speaker Change: Our next question comes from Daniel Osley with Wells Fargo. Please go ahead.
Thank you. Good morning.
Speaker Change: Maybe just one on national. You've talked in the past about the headwind from the media and entertainment vertical. So just wondering how that vertical specifically is trended early in Q4, and do you expect the strong film slate later in the quarter to give you a further boost? Thank you.
Speaker Change: Yeah, thanks for the question. I think it's fair to say that this year we did expect
Thank you.
Speaker Change: the media and entertainment category would sort of, you know, bounce back more strongly than we saw. It certainly seems to have taken, I mean, not just for us, but I mean for the industry as a whole, longer, I think, to get over the impacts of both strikes.
Speaker Change: last year. Where we stand right now, I think, you know, we feel okay about the movie category as we look into, as we look into, you know, the fourth quarter, and there are other areas of entertainment that are doing well for us, and
you know, well-present.
Speaker Change: Miscellaneous Entertainment looks like it's going to be up for us in in Q4 and I'm pleased to tell you also that it looks like tech's going to be up.
Speaker Change: So, listen, you know, we have a, you know, we have a basket of advertisers and the great thing about our portfolio is that if you're seeing a little bit of weakness in one place, you can typically make an upgrade with some strength in some of the other verticals. I think as we look into 2025.
Speaker Change: I think that we, you know, feel much better as we look at some of the tentpole films that are coming through in 2025. So, I guess we'll get the comp benefit then.
Thank you.
Speaker Change: Thank you and our next question comes from Patrick Scholl with Barrington Research. Your line is open.
Thank you.
Speaker Change: Hi, good morning. Thank you. I have another question about the MTA. To the extent that you do get some recovery and ridership, I guess, is there any sort of concern you have in like
Speaker Change: The baskets of out-of-phone spending for advertisers and that may be being reallocated from kind of the billboard side to the transit side.
Thank you very much.
Speaker Change: you know typically when you look at when you look at
Well, we do have, you know, a good crossover.
Speaker Change: in between people that uses, you know, on the billboard side of the business and the transit business. We also have some very specific very specific advertisers in transit who are buying transit for different reasons. You know, the commuting audience on Metro North, you know, is not necessarily the same audience as you get on the Cross Bronx Expressway.
Speaker Change: So, you know, that I think has always been the case.
we have sort of
very high-end audiences in various parts of the MTA system.
Speaker Change: You know, I think most commentators believe that, you know, ridership continues to creep up in cities. I think we do. But, you know, what we're kind of doing just fine without it, because whichever way you look at it, you know, four million sets of eyeballs every single day, or more than that, is a huge, huge audience for advertisers. And I think people are just, you know, beginning to, you know, reappreciate that.
Speaker Change: Okay, and then maybe on the automated buying side, I guess you said that that's helped bring in new advertisers.
What sort of impact has that had on pricing?
Speaker Change: So when we look at the pricing that we achieve on a CPM basis through our programmatic channels,
The CPMs that we achieved through our direct sales force.
Speaker Change: So, you know, in general, do you know what I mean? Programmatic is, you know, a very sort of, you know, positive, positive part of our business, positive part of our business right now.
Speaker Change: Not all of the dollars that we get on programmatic are necessarily absolutely new. Some of them might have come through a different channel, so I should make that point.
Speaker Change: But also, I mean, we take, you know, getting revenues from a bunch of advertisers that frankly, we never would have expected, and in some cases haven't even heard of. So, you know, it really is extending the number of different advertisers on a weekly basis on our digital platforms.
Okay, thank you.
Speaker Change: Thank you. We have no further questions so I'd like to turn the call back to Jeremy Male for any closing comments.
Thank you.
Jeremy Male: Thanks to everyone for joining us today. I'm sure I'll be seeing many of you at the various conferences and events this winter, but for those that I don't, I'm looking forward to presenting our full year results to you in February.
Thank you very much indeed.
Speaker Change: This concludes our call today. Thank you for joining. You may now disconnect your line.