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spk10: Good day, everyone, and welcome to the Outfront Media First Quarter 2022 Earnings Conference Call. At this time, I'd like to turn the conference over to Stephan Beeson, Vice President of Investor Relations. Please go ahead, sir.
spk00: Good afternoon, and thank you for joining our 2022 First Quarter Earnings Call. With me on the call today are Jeremy Mail, Chairman and Chief Executive Officer, and Matthew Siegel, Executive Vice President and Chief Financial Officer. After a discussion of our financial results, we'll open up the lines for a question and answer session. Our comments today will refer to the earnings release and a slide presentation that you can find on the investor relations section of our website, outfrontmedia.com. After today's call has 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 March 31, 2022 Form 10-Q, which we expect to file tomorrow. We will refer to certain non-GAAP financial measures on this call. Any references to OIBDA made today will be on an adjusted basis. Reconciliations of OIBDA and other non-GAAP financial measures are in the appendix of the slide presentation, the earnings release, and on our website, which also includes presentations with prior period reconciliations. Let me now turn the call over to Jeremy.
spk05: Thanks, Stephan, and thank you, everyone, for joining us today. It's great to be here sharing our first quarter results, which came in stronger than we anticipated when we spoke last in February. Many of the positive trends we previously noted continued into the start of 2022 and indeed through to today. Demand for our billboards has never been hotter. And given the flexibility of digital, we continue to book late, incremental business. This is reflected in our increase in billboard yields and transit revenues continue to improve as employers increasingly encourage their teams to join them in the office, at least part of the time. These trends, combined with the terrific efforts of our employees, led to our strong revenue results, the details of which can be seen on slides three and four. Total revenue grew 44% ahead of our low 40s expectation. U.S. media was up an identical 44% year over year and 5% ahead of our 2019 level on a consolidated basis. We continue to see strong revenue growth in virtually all of our regions for both billboard and transit, but our performance in large markets was exceptional, with New York and L.A. being two of our best performers in Q1. Other, which consists mostly of Canada, was up 40% versus the prior year. Our strong revenue growth led to a nearly 60 million year-over-year improvement in both OIVDA and AFFO, which grew to 70 million and 36 million respectively. On slide five, you can see a more detailed look at our U.S. media revenues. Billboard grew by 33 percent from last year, but even more impressively, it was up around 20 percent versus the same quarter in 2019. Transit also accelerated its year-over-year performance up 115% in Q1 compared to the 101% observed in Q4. Transit revenues continue to face the headwind of lower ridership, but we were again pleased to see the New York MPA's revenue recovery outpacing ridership growth when both are measured against the same period of 2019. Indeed, the positive gap between these two widens, which is a trend that gives us further confidence in our expectation of 2019 transit revenue levels being achieved next year. Turning to slide six, we can see the breakdown of local and national revenues in our business. National growth outpaced local again this quarter, up 59% year over year compared to local's 36%. National transit was up an outstanding 154%, as large advertisers return to the subways and buses in force. Billboard was strong across both sets of advertisers, with national up 39% and local up 30%. One of the most encouraging trends for our company is our impressive US billboard yield growth, as seen on slide seven. Over $2,300 is a Q1 record, a 35% increase from last year and 25% above Q1 2019. While occupancy has improved from last year's first quarter, the largest contributor to our yield growth is rate, which was significantly ahead versus both 21 and 19. Looking deeper into digital on slide eight, Digital revenue grew more than 90% in the quarter and was 29% of our total revenue versus 22% last year. Digital revenues continue to be held by increased yield, new inventory, and incremental late booking revenues, which expand our selling window. This trend was well illustrated in Q1, as we booked a large contract on March 24 that added nearly half a million dollars to our first quarter revenues. Billboard Digital grew 65%, and Transit Digital continued to accelerate versus last quarter, and more than quadrupled from the soft comparison last year. Unsurprisingly, Digital Transit continues to be led by the New York MTA, with demand returning and increased digital inventory at the stations and the beginning stages of rail car deployment. We continue to be especially excited about the digital future of the New York MTA. Let me now hand over to Matt to review the rest of our financials.
spk04: Thanks, Jeremy, and good afternoon, everyone. We appreciate your joining our call today. Please turn to slide 10 for a more detailed look at our expenses. Total expenses were up $55 million, or 22% year over year, as our strong revenue growth has led to increases in our variable and performance-related costs. Billboard lease expense was up 14% year-over-year in Q1, primarily reflecting higher variable expense on a small portion of our billboards that contain revenue share agreements. Notably, a majority of these types of revenue share boards are in New York and L.A., which were two of our best-performing markets this quarter. Fixed lease costs were up only 3% in Q1, reflecting new locations and modest annual lease adjustments. Transit franchise expense is typically a revenue share expense and was up 35%, primarily due to higher revenues, but also due to contractual step-up of minimum annual guarantee payments to the New York MTA. Posting, maintenance, and other expense was up 18% given the additional activity that results from our higher revenue. Lastly, on expenses, corporate and SG&A expense combined increased 28% versus last year. This reflects higher revenue in OIBDA driving increases in our accrual of performance-based compensation costs, as well as a small increase in bad debt expense. On slide 11, you can see our OIBDA for the quarter is up $59 million from last year and represents a margin of almost 19%. Slide 12, provides additional detail on the sources and growth of OIBDA. U.S. billboard OIBDA grew 77 percent to $93 million. Billboard OIBDA margin was 32.7 percent, up more than eight percentage points from a year ago and more than three percentage points higher than our 2019 margin of 29.6 percent. These higher margins are primarily being driven by the higher revenue and relatively fixed cost nature of our leases and an increased share of digital revenues. We anticipate that these trends will continue to help billboard margins to improve over time. Transit EBITDA improved by $15 million, given the higher revenue, offset somewhat by increased transit franchise expense. As we mentioned on the Q4 call, quarterly transit revenue has seasonal fluctuations, while the New York MTA MAG is accounted for on a straight line basis. so the largest negative impact of paying the MAG is felt in Q1. We continue to expect that over the full year, the MTA revenue gap to the MAG breakeven will significantly narrow. Turning to capital expenditures on slide 13, Q1 capex spend was $17 million, including $4 million of maintenance spend. The $7.5 million increase in total capex versus the prior year was primarily due to digital investments. We added 31 digital billboards in the U.S. this quarter, increasing our U.S. total to 1,432, up 174, or 14%, versus Q1 2021. In recognition of potential supply chain issues, we ordered boards with additional lead time and still expect to add 150 to 200 total digital billboard displays this year. Looking at ASFO on slide 14, You can see our Q1 AFFO of $36 million improved by $60 million year-over-year, as essentially all of our orbit of growth flows through to AFFO. For the full year, we continue to expect AFFO growth to be around 60% from 2021's $205 million. Please turn to slide 15 for an update on our balance sheet. Committed liquidity is over $850 million. and our total net leverage declined to five times as our OIBA debt continues to recover. We continue to monitor rising interest rates and remain very comfortable with our debt stack as our next maturity isn't until 2025, and only 21% of total debt is subject to floating rates. Lastly, we announced today that our Board of Directors has again declared a $0.30 cash dividend payable on June 30th to shareholders of record at the close of business on June 3rd. We remain well capitalized to participate in M&A, though our spend on tuck-in acquisitions during the first quarter was light. Looking forward, we would characterize the M&A pipeline as being robust and interesting. 2022 has started off exceptionally well, and we remain very enthusiastic about the rest of the year to come. I look forward to speaking and meeting with many of you over the coming weeks and months. With that, let me turn the call back to Jeremy.
spk02: Thanks, Mark.
spk05: The first quarter truly illustrated many of our company's strengths, as well as those inherent in the outdoor industry as a whole. While in these times it's always sensible to knock on wood, I'll say that the country seems to be back. The streets of our cities are busier and more crowded, workers are returning to their offices for at least portions of the week, Main Street is strong, and advertisers are certainly spending to get their messages out. Looking specifically to Q2, while obviously geopolitical and broader economic uncertainties exist, we expect to have another great quarter. From where we sit today, we currently estimate that Q2 revenues will grow in the low 30% range, with transit up between 80% and 90% versus last year. As we look at the balance of the year, we believe there are a number of trends that will continue to benefit the business. First, our conversion to digital, which allows for more advanced creative messaging, shortens our time to market, increases our selling window, benefits from automation, and also opens up our assets to new advertisers. Second, strong advertiser demand, which drives our yield, while maintaining significant ROI for our clients. And third, a diverse client base that includes the return of out-of-home stalwarts, such as entertainment, tech, medical, professional services, retail, and travel, but also newer users, such as cannabis and online sports betting. Outdoor remains by far one of the most cost-effective forms of advertising with Magna estimating that outdoor's cost per thousand impressions is lower than any other form of media, TV, radio, print, and digital. Recent changes to digital due to IDFA appear to have influenced some companies' advertising campaigns, such that they're beginning to incorporate more traditional advertising into their branding efforts. Given these facts, we believe outdoor, and indeed out front, stand to benefit and take a larger portion of total advertising going forward. To conclude, I'd like to say that in my many years of working at Aerophone, I'm as enthusing about the state of our industry today as I ever have been in the past. It feels as though we've really, truly captured the wind in our sails. I hope to see and meet with many of you at various conference and events this spring and summer, but for those who I don't, I look forward to presenting our Q2 results to you in August. And Operator, with that, can we now open the lines for questions? Thank you.
spk10: Certainly, thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. 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 star one to ask a question. And we'll pause for just a moment. And our first question will come from Ben Swinburne with Morgan Stanley.
spk07: Thanks. Good afternoon. Two questions for you guys. You know, Jeremy, I'm sure you've heard or at least heard of a lot of the earnings calls this quarter across the advertising space. There's been a lot of companies, not an out of home, but all sorts of digital and other businesses that have called out, you know, incremental weakness in certain categories, auto, CPG, et cetera, talked about supply chain constraints and visibility getting worse. Obviously in your comments, we didn't hear any of that. I know it's hard to know precisely, but do you think this is a function of out of home being just later cycle? in that you know you have business that you write for weeks and months and so you know we really can't necessarily extrapolate or do you think that the business is just fundamentally in a different place than some of these other competitive platforms with advertisers and if there are any categories that you have seen weakening it'd be interesting to hear which those are and how you're offsetting it and then i was just curious around new york and la obviously huge markets for you guys How far from pre-pandemic revenues are those markets at this point? Do you have a lot of room to run left still in those two, which obviously are two biggest? Thanks.
spk05: Yeah, thanks, Ben. Let me try and take all of that. I guess the first point is that, you know, so far, and I think you can probably tell that from our tone and our guidance, you know, we obviously haven't seen any growth. Any softening yet? If we look at the categories that drove Q1, entertainment doubled, technology was up nearly 2x, travel was up 80%, utilities up 75%, resale up 60%. And as we sit here today looking at Q2, pretty much every category is again nicely in the black. And you know you mentioned auto well You know we saw a little way to run in Q2 obviously you know auto is actually sort of pacing up 34% so You know I do think that You know when you look at our business if we're going to notice something we would already noticed it because you know remember that You know we're not quite 50-50, but you know we have a lot of local business. We have a lot of national business And that national business is literally, you know, it's laying down, you know, by the day, if you like, typically in two to whatever it is, four-week periods for, you know, a few weeks or maybe a couple of months hence. So I think we would have seen something by now. Just going back to the New York and L.A. comments, I mean, the billboard businesses in both markets are, you know, nicely above 2019 now. obviously transit, you know, weighs on the, you know, the business in New York because that's currently placing around whatever it is, around 70% of 19. But, you know, just generally, you know, pretty much right the way, you know, across all of our markets, you know, just to strengthen the billboard business has been particularly impressive.
spk07: Great. Thanks so much, Jeremy.
spk05: Thanks, Ben.
spk10: And our next question will come from Jason Bazinet with Citi.
spk06: In your prepared remarks, Jeremy, you called out the billboard rate was above 2019 levels. And I guess I can imagine a cynic sort of saying, well, that's just driven by inflation as opposed to some of the comments you made about outdoor potentially taking share given some of the IDFA-like changes that have taken place. Can you just, any sort of color that you could provide to sort of offset this sort of knee-jerk reaction where people are going to say, well, this is just inflation-based as opposed to something that's perhaps more enduring in terms of a shift of ad dollars to outdoor as a category?
spk05: Yeah, when you drill down into our yields, and as you can imagine, we spent quite a bit of time on it, and we look at that comparison Actually, if you sort of split that down a little bit further, and this is kind of some rough guides for you. But the occupancy rate is probably about a third of your growth, and the rate is about two-thirds. And then if you sort of then sort of work that through, I mean, that's well ahead of any inflation that we've seen over that time, including the kind of whatever is headline inflation rate that we're seeing right now. As far as I can see, it's very much demand-based. I do believe that inflation generally for our business and for the industry as a whole, because of the relatively fixed cost nature of the leases, versus our ability to go out and lengthen those leases versus our ability to go out and, if you like, sell over much shorter durations than leases. I actually think that inflation is generally a good thing for us, generally a good thing for the industry, but I don't see what we're seeing now is a reflection of today's headline inflation rate. Our book was building many weeks before these headline numbers hit the news. That's super helpful.
spk02: Thank you. Thanks, guys.
spk09: And we'll now take a question from Richard Cho with JPMorgan.
spk01: Great. Thank you. Just wanted to follow up on the transit EVITAS or OGITAS side. You talked a little bit on how it should trend, but when should we see that kind of turning positive? or improving and then turning positive given the strong results in that business.
spk04: Richard, thanks for the question. It's Matt. The key thing in the transit is the New York MTA mag situation for the full year. We expect the MTA to be under the mag, but during the course of the year, getting closer to that breakeven level. So in the later half of the year, third and fourth quarter, in New York will be a positive EBITDA story in transit. So I think overall the transit, our transit portfolio EBITDA should turn positive later in the year. Going forward, looking at 2023, we've said in the past and we'll say again that we expect our transit revenue overall, including the MTA, to be back at 2023 levels. And we shouldn't have this MAG situation impacting next year's numbers.
spk01: Great. And then on the national advertising side, are the campaigns typical duration? Are they getting longer or shorter, but more, I guess, intense? Any color there?
spk05: So, you know, when you sort of drill into our business, we have in both our local and national business, we have and you know percentage of our boards that typically would you know book we call them kind of permanent locations so they're typically booked for 12 months but the majority of the national revenue would be booked in flights for four weeks but you know once again now we have you know, digital, we can be so much more flexible. So, you know, we can have people just, you know, come in for, you know, three days over a long weekend or whatever else it happens to be. So it's, you know, relatively short. And we think that short's a good thing because in the past, out of home has always seen as being something that was pretty inflexible. You know, if you haven't made your campaigns down, you know, eight weeks before, there's no way you could get into out of home. Whereas now, with the flexibility of digital, you can literally come to us on a Friday evening and see your campaign on the Saturday morning.
spk02: Great. Thank you.
spk09: Once again, if you'd like to ask a question, please press star 1.
spk10: We'll now hear from Ian Zaffino with Oppenheimer.
spk08: Hi, Grace. Thank you very much. Just really quickly, on the CapEx side, I know you gave the CapEx numbers, but can you maybe help us understand what apples to apples conversion costs might be doing given inflation, supply chain? So how much of that is a factor in the increase versus other factors? Thanks.
spk04: Thanks, Ian. It's Matt. Conversions for a Let me see, a generic, static to a generic digital, which is hard to define. It's roughly a quarter of a million dollars historically. I think inflation hasn't necessarily impacted the cost of the screens. Maybe some of the materials and some of the labor costs are a little bit higher. And certainly the shipping costs, depending on not necessarily inflation, but any kind of supply chain bottlenecks, drop higher. So if I was going to, you know, the quarter of a million dollars is Maybe it's gone up, I don't have a precise number for you, you know, 5%, 10% or so. But still, I don't think it changes the economic attractiveness of continuing to push these conversions.
spk08: Okay, yeah, and I imagine the higher rates, the economics would probably stay the same. It's not going to go higher. Okay, thank you very much.
spk02: Sure, Ian.
spk09: We'll now take a question from Jim Goss with Barrington Research.
spk03: Thank you. You've discussed rate a couple of times, and I know outdoor is intended to be thought of as a very attractive medium on a rate basis. I'm wondering what particular media do your sales teams try to comp against as they're positioning the billboards, if there are any such things? And how big a discount to those other media are you usually thinking in terms of how much room to run, particularly with the digital transformation that's been taking place?
spk05: Yeah, thanks, Jim. I guess the competition is very much, you know, split. If you're in the national arena, And then, you know, arguably it's going to be TV, when I say TV, you know, screens in general. And, of course, digital, with digital being sort of 50% of the media market. When you get local, quite often we will be competing against local radio stations. Quite often we'll be competing with Facebook or indeed looking to complement their digital campaigns through out-of-home, which tends to drive people online. But it's really right the way across the media spectrum, to put it like that, Jim. I don't know if that helps at all.
spk03: Okay, and maybe one other. With the well-publicized security issues that have occurred in transit, especially in New York and perhaps San Francisco, is this a risk? Obviously, the gains have been tremendous, but perhaps the necessity overrides some of the risk. Or can it be sort of an opportunity in terms of the informational aspects aspect that you can provide and maybe drawing attention to the boards that might also have a spillover effect in terms of the advertising benefits.
spk05: Yeah, I think that's a really good point. I think that is true. I think we can, you know, use our digital screens to very, very good effect in terms of keeping customers and consumers advised of what's going on on the system. I think the fact that we are putting digital bright screens up and throughout, it improves the environment generally, do you know what I mean, within the, certainly within the subway environment. And yes, look, there have been a couple of really disappointing, well-publicized incidents, and we can only hope that the cities and the transit authorities are really getting hold of it, because we are starting to see significant It increases now in passenger ridership, and we obviously just want that to continue and really don't want people to be put off using public transit because our cities need public transit to exist.
spk02: Okay. Thank you.
spk09: That's all the time we have for questions today.
spk10: I'd now like to turn the conference back over to Mr. Merrill for any additional or closing remarks.
spk05: Yeah, thanks for that, operator. Sorry to cut across you there. It only remains for me to say thanks very much for joining us today. We look forward to speaking with you over the coming weeks and months, and have a great rest of the day. Thank you.
spk10: And that does conclude today's conference call. Once again, thanks, everyone, for joining us. You may now disconnect.
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