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spk04: Hello and welcome to the Outfront Q3 2022 earnings call. My name is Josh and I will be your coordinator for today's event. Please note that this conference is being recorded and for the duration of the call, your lines will be on listen only. However, you will have the opportunity to ask questions at the end of the call. This can be done by pressing star 1 at any time on your telephone keypad to register your questions. If you require assistance at any point, please press star zero and you will be connected to an operator. I will now hand you over to your host, Stéphane Bisson, to begin. Thank you.
spk03: Good afternoon, and thank you for joining our 2022 third quarter earnings call. With me on the call today are Jeremy Mayle, 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 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, 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 our 2021 Form 10-K and our September 30, 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.
spk01: Thanks, Stefan, and thank you, everyone, for joining us today. We're pleased to be here sharing our third quarter results and reporting another strong quarter of double-digit growth, comfortably in line with the guidance we provided three months ago. Advertiser demand continues to be robust, driving billboard yields to another quarterly record and pushing further recovery in transit as riders returned to the rails and buses in greater numbers post-Labor Day. Starting with our headline numbers on slide three, you'll see that total consolidated revenue grew nearly 14%, including our acquisition in Portland. This revenue growth led to a $15 million year-over-year improvement in Oyveda and an $8 million improvement in AFFO during the quarter. Speaking of AFFO, and without wishing to steal your best lines, Matt, with this result and the trends we're seeing in Q4, we believe we're right on track to achieve the 60% growth we guided to for the year. As usual, I'll provide more detail on the fourth quarter later, but needless to say, our business continues to feel like it's in a good place. Slide four shows our segment results. with total US media increasing 14% year over year. Other, which consists mostly of Canada, was up 12% versus the prior year. On slide five, you can see our US media revenues in more detail. Billboard grew over 12% with strong performances in all regions, though we should call out New York and Miami as being particularly striking. Nearly every category in Billboard was up year over year, with significant strength coming from auto, entertainment, technology, and retail. Transit revenue is up 19% versus the prior year, continuing its steady improvement towards returning to 2019 levels as subway, rail, and bus ridership increases. The breakdown of local and national revenues in our U.S. business can be seen on slide six. While we continue to see strength in both parts of the business, national growth was ahead of local again this quarter, up 20% year-over-year compared to local's 9%. This returns us to our historic split of 45% national and 55% local. Slide 7 shows our healthy U.S. billboard yield growth, which grew 11% year-over-year to just over $2,700. As has been the trend throughout the year, our yield growth was principally driven by rate, reflecting continued robust advertiser demand for our premium inventory, particularly in major markets. Slide 8 highlights our strong digital performance, with revenue growing 27% in the quarter and representing nearly 30% of our total revenue, up from 27% last year. This growth continues to be driven by three main factors. Higher yields resulting from improved rates, increased inventory as we convert to additional digital boards, and early steps in programmatic, which remains a small but growing part of our business. As you can see, billboard digital grew a healthy 20%, and transit digital grew an outsized 51% to $34 million. The largest driver of our digital transit revenues continues to be the New York MTA, where we installed around 400 displays during Q3, increasing our total to over 9,400 installed digital advertising displays since renewing our contract in 2017. Let me now hand it over to Matt to review the rest of our financials.
spk00: Thanks, Jeremy, and good afternoon, everyone. We appreciate you joining our call today. Please turn to slide nine for a more detailed look at our expenses. Total expenses were up $40 million or 14% year-over-year. As was the case in the first half of the year, our strong revenue growth has led to increases in our variable and performance-related costs. The billboard lease expense was up 12% year-over-year in Q3, including new locations and, again, also primarily reflecting higher variable expense on the portion of our billboards that contain revenue share agreements. These boards are primarily located in our major cities and reflect the significant growth that we saw in New York and other markets that Jeremy mentioned earlier. Transit franchise expense is usually a revenue share expense and was up 22% due to higher revenues, but also due to the higher MAG owed to the MTA from our 2020 deferral and inflation increase for this year. Hosting, maintenance, and other expense was up 19% given additional activity that results from our higher revenue increased compensation for our operations employees, and additional discretionary maintenance spend. Corporate and SG&A expense combined increased 7% versus last year. This reflects growth in revenue in Orbita, driving increases in performance-based sales-related costs, also other compensation costs, higher provision for doubtful accounts, and increased travel and entertainment expenses. These increases were partially offset by the favorable impact of market fluctuations on an unfunded equity index-linked retirement plan. On slide 10, you can see our EBITDA for the quarter is up $15 million from last year and represents a margin of 27%, which is relatively flat, up 10 basis points, versus last year. Slide 11 provides additional detail on the sources and growth of EBITDA. U.S. billboard EBITDA grew 11% to $128 million, and billboard EBITDA margin was 38%, down 40 basis points versus a year ago, but up nearly 150 basis points versus 2019. The slight margin decline versus 21 was driven by some one-time items affecting comparability and our outperformance in New York, Los Angeles, and Miami, which are high revenue but relatively lower margin markets. We remain confident that billboard margins will expand as we move forward, given the operating leverage provided by the largely fixed-cost nature of our leases, and an increasing proportion of digital revenues. Transit OIBDA remained essentially breakeven as our increase in revenue, particularly at the New York MTA, was offset by our higher minimum annual guarantee payments. As a reminder, when we expect to be paying the minimum annual guarantee, we account for the New York MTA franchise expense on a straight line basis throughout the year. Given this, we expect to see a strong Q4 benefit to reported OIBDA in 2022, as we did in 2021 due to seasonal peak revenue in the fourth quarter. Turning to capital expenditures on slide 12, Q3 CapEx spend was $25 million, including $8 million of maintenance spend. The $9 million increase in total CapEx versus the prior year was primarily due to digital investments. Year-to-date, we have increased our total digital billboard count to over 1,800, up 250, or 16%, versus Q3 21, through conversions, new developments, acquisitions, and management agreements. Looking at AFFO on slide 13, you can see our Q3 AFFO of $87 million improved by $8 million year-over-year as our EBITDA growth was partially offset by the higher maintenance capex, cash interest, and other below-the-line items. As Jeremy mentioned earlier, we remain confident in our full year guidance of 60% growth in AFFO. Please turn to slide 14 for an update on our balance sheet. Committed liquidity is approximately $725 million, including over $80 million of cash, almost $500 million available via our revolver, and $150 million available via our accounts receivable securitization program. As of September 30th, our total net leverage was 4.9 times. We remain very comfortable with our debt stack, with our next maturity not being until mid-2025. and less than 25% of total debt subject to floating rates. Lastly, we announced today that our board of directors has declared a $0.30 cash dividend payable on December 30th to shareholders of record at the close of business on December 2nd. We completed $30 million of acquisitions in the quarter and expect to close a few more tuck-ins this year, funding these deals with cash on hand and draws on our securitization facility as necessary. By the time 2022 ends, It will be our most acquisitive year since 2014. Looking at our current acquisition pipeline, we expect our deal activity to moderate in 2023. In closing, Q3 was a solid quarter all around, and we remain confident in our business for the remainder of the year. With that, let me turn the call back to Jeremy. Thanks, Matt.
spk01: While there continues to be significant volatility in the financial markets, and much has been written and seen regarding potential advertiser cautiousness within other ad mediums. We are not currently seeing this in outdoor, and our business remains healthy on all fronts. We obviously understand we're not in a vacuum, but when looking at Q4, we expect we'll have another good quarter. Based on our trends as of today, we estimate that Q4 total revenues will grow in the mid to high single digit range, with billboard and transit growing at similar rates. We remain confident in the strength we are currently seeing in our business. It is broad-based, both geographically and by category, and it was interesting to see this strength reflected in Magna's recently revised US advertising forecast. In their September update report, Magna increased their out-of-home revenue forecasts for both the second half of 2022 and the full year of 2023, despite reducing their forecasts for the total ad market. And in fact, Magna expects out-of-home will be the second largest growing advertising medium in 2023, growing at 8% compared to total advertising, which is expected to grow 5% next year. But we all understand that media forecasting is not an exact science, but directionally this is positive for out-of-home, And simply putting the math together, this suggests that out of home is expected to take additional share of the total advertising pie. And we expect that out front will as well. We believe there are some good reasons for this. First, investments in digital conversions, the digital transit build out, and our focus on digital creative innovation all allow for spectacular visual advertisements with unprecedented flexibility that are creating new excitement among advertisers. Second, audience measurement data provides audience metrics and targeting capabilities, and our attribution solutions connect the campaigns through to a variety of KPIs. Third, programmatic and other automated platforms are small but growing and enable more frictionless buying and inclusion in omnichannel campaigns. And fourth, outdoors value proposition of mass reach, high frequency, and cost efficiency is further bolstered by being brand safe, fraud-free, while meeting consumers outside of their homes as they engage in real-world activities. We've worked hard on these initiatives, both at Outfront, but also as an industry as a whole, and we're pleased to see that work paying dividends today. And with that, Operator, let's now open the lines for questions.
spk04: Thank you very much. If you would like to ask a question or make a contribution on the call today, please press star 1 on your telephone keypad now, please. Please ensure your lines are unmuted locally, and then you will be introduced into the call. So for any questions, please press star 1 on your telephone keypads now. We do have a question on the line, and it comes from the line of Richard Cho from JP Morgan. Please go ahead.
spk05: Great. I'd like to follow up on the 4Q guidance and what's driving the strength for the two segments for billboard and transit, if there's different growth drivers there. And is it local or national advertising that's kind of maybe contributing more in the fourth quarter?
spk01: Thanks for the question, Rich. But for the most part, we're seeing much of the same, you know, as we have throughout the year, broad-based growth across all of our markets and categories and, you know, certainly increasing appetite for transit as we go forward, which is great. If we sort of look into some of the categories, obviously this is, you know, it's only a point in time, but, you know, for us, travel is currently pacing up 78%. For Q4, fashion is strong. Auto is strong at 33% up, medical, retail, so generally right across the board positivity. And it's interesting because if you dig into the guidance and sort of think about it on a kind of relative basis, it actually implies that accelerating growth in Q4 versus 2019 you know, so improved growth than we saw in Q2 and Q3. So that's really good to see. And again, you know, we feel very good about where our business is right now.
spk05: And just to follow up there, it seems like accelerating growth on the billboard side, is that your ability to take price and your premium ad space that's helping drive that?
spk01: Yeah, absolutely. Look, the... You know, we've had some great yield growth right the way through the year. And, you know, that continues to be the case in Q4. And as mentioned, you know, the majority of that is about increasing rates, which, you know, implies obviously, you know, strong demand from advertisers.
spk04: Great. Thank you. Thank you very much. Just as a reminder, if you would like to ask a question, please press star 1 on your telephone keypad now, please. Again, just as a reminder, for any questions, please press star 1. Okay, it looks like we have got another question on the line. It comes from the line of Erin Loise from Deutsche Bank. Please go ahead.
spk06: Sure, send me on.
spk02: Just two quick questions for me. Matt, can you remind me how much more quantum of deferral payments do you have to make on the MAG that are left over from the pandemic?
spk00: Sure. We deferred from 2020. It's going to go into 22 through 2026. So it's about $11.5 million a year. So about $56, $57 million. Okay. Got it.
spk02: And based on some of the ridership trends you're seeing and the advertiser reaction to that in your major markets, Is it your expectation that in 23 and going forward that you'll be performing above the MAG levels?
spk00: We think certainly sometime during the year in 23 we'll be above the MAG. When you see our queue tomorrow, you'll see we shifted some small portion of our deployment, the investment in the MTA into short-term, implying We expect to start a little bit of recouping in 2023.
spk02: Okay, got it. That's great. Appreciate the time. Take care of that, man.
spk04: Thanks. If there are no further questions on the line, I'll hand you back over to the speakers.
spk01: Thanks, Josh, and thanks to everyone for joining us on the call today. I hope to see and meet with many of you at the various conferences and events this winter, but for those that I don't, I look forward to presenting our Q4 results to you in February. Thanks again.
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