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spk02: good day everyone and welcome to the out front fourth quarter 2022 earnings call today's call is being recorded and now at this time i'd like to turn the call over to stefan basin please go ahead good afternoon and thank you for joining our 2022 fourth 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 after a discussion of our results we'll open the lines for a question and answer session. Our comments today will refer to the earnings release and slide presentation that you can find on the investor relations section of our website, outfront.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 2022 quarterly reports, as well as our 2022 Form 10-K, which we expect to file this week. We will refer to certain non-GAAP financial measures on this call. Any references to OIBDA made today will be made 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.
spk00: Thanks, Stefan, and good afternoon, everyone. Before digging into our Q4 results, I'd like to quickly recap the great year we had in 2022. On slide three, you'll see our full year results for our key financial metrics. Revenues finished the year up 21% versus 2021, with U.S. Billboard up 17%, and U.S. transit up 38%. Our revenue growth was predominantly driven by higher rates as robust demand for out-of-home advertising led to higher prices for both our static and digital signs. Nearly every key category was up, most by double digits, led by travel up 82%, retail up 39%, entertainment up 34%, technology up 33% and auto up 31%. 2022 Oibida grew nearly 40% versus 2021 with consolidated Oibida margin rising to 26.7% from 23.2% last year. Billboard Oibida margins expanded by 190 basis points, illustrating the operating leverage inherent in the business while transit improved by nearly $24 million and returned to positive territory on a full year basis. AFFO grew in line with our 60% guidance when excluding a 17 million upfront lease payment related to the structure of a tuck-in during Q4 and was still up a healthy 52% when including that payment. Matt will describe the details of the accounting behind the payment later, but suffice to say we're very proud to have delivered on our original guidance, especially considering the headwinds created by some uncertainty in the macro environment and the rapid rise in interest rates since we gave guidance a year ago. We also had the most acquisitive year since 2014, spending approximately $370 million on new assets. The largest of our acquisitions, the 185 million acquisition of Pacific Outdoor, added our first new billboard market since 2014 and represents an entry into the Pacific Northwest that we will build on over time. While not a 2022 event, you may have noticed recent press release from our partners at Providence Equity who purchased the advertising displays at Two Times Square. and also entered into a 10-year agreement with us to exclusively market, license, and provide ad space on the assets. These are important signs that we view as strategic in our larger Times Square and New York City strategy. With that, let's now turn to our fourth quarter results in which you can see the headline numbers on slide four. Consolidated revenues grew 6.5%, in line with the guidance we provided in November, and EBITDA grew nearly 2%. Slide five shows our segment results, with total U.S. media revenue increasing 7% year over year. Other, which consists mostly of Canada, was up 5.8% on an organic basis, but down 1.5% on a reported basis versus the prior year, primarily due to foreign exchange headwinds with the Canadian dollar. On slide six, you can see our US media revenues in more detail. Billboard revenues were up 7% with strong performances in most regions. I'm pleased to call out our New York and Miami teams as these large markets displayed very strong growth leading the way within our billboard markets. Transit revenue is up 5.7% versus the prior year. continuing a steady improvement as subway, rail, and bus ridership slowly increased. Our best performing categories during the quarter were travel, auto, retail, and legal services. The breakdown of local and national revenues in our US business can be seen on slide seven. Local grew by 8.3% in the quarter, while national grew by 5.4%. If you recall, We return to our historic split of 45% national, 55% local last quarter, and that trend continued through Q4. Slide eight shows our solid U.S. billboard yield growth of 5.7% year over year to just over $2,900. As has been the case all year, this yield growth was primarily driven by rate. Slide nine highlights our strong digital performance with revenue growing 13% in the quarter and digital revenue representing 33% of our total revenue, up from 31% last year. Both billboard and transit digital grew double digits. Importantly, our static growth should not be forgotten and we highlighted on slide 10 Total static revenues were up 3.9% year over year with 4.8% growth in static billboard. This growth is particularly notable given that each time we convert a billboard to digital, we are typically removing one of the top assets from our static portfolio. With that, let me now hand over to Matt to review the rest of our financials.
spk01: Thanks, Jeremy, and good afternoon, everybody. For a deeper dive into our financial statements, Please turn to slide 11 for a more detailed look at our expenses. Total expenses were up $28 million or 9% year over year. As we experienced throughout 2022, our robust revenue growth has led to increases in our variable and performance-related costs. Billboard lease expense increased 12% year over year in Q4. This increase reflects annual rent step-ups, billboards acquired through 2022, and higher variable expense on a portion of our billboards that contain revenue share agreements. As a reminder, these boards are primarily located in our major cities, and our increased billboard lease expense reflects the significant growth in these markets. Transit franchise expense was up 19% due to higher revenues on the majority of our contracts, which are in their revenue shares, but also due to the higher MAG owed to the MTA from our 2020 deferral. and inflation increase for 2022 in accordance with the terms of our MTA contract. Posting, maintenance, and other expense was essentially flat versus the prior year, as increases related to higher business activity were offset by decreases in production expense for specialty campaigns. Combined, corporate and SG&A expense increased 5% versus last year. This reflects higher revenue in Orbita driving increases in professional fees and higher compensation-related costs. These increases were partially offset by the favorable impact of market fluctuations on an unfunded equity index-linked retirement plan. On slide 12, you can see our EBITDA increased nearly 2%, and our margin was 31.1%, down 140 basis points versus last year, mostly due to a lower transit margin, which was driven by the aforementioned higher MAG payments to the New York MTA. It is perhaps worth noting that consolidated EBITDA margins relative to 2019 were up 230 basis points in the fourth quarter. Slide 13 provides additional detail on the sources and growth of EBITDA. U.S. billboard EBITDA grew nearly 6% to $147 million and represented over 90% of our consolidated EBITDA. U.S. billboard EBITDA margin was 41.1% down 60 basis points versus a year ago, but up nearly 180 basis points versus 2019. As in Q3, the slight margin decline this quarter versus 2021 was driven by outperformance in our largest markets. We expect 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. That said, The improvement is not expected to be linear given geographic performance variances and timing of acquisitions, which can add noise into the numbers. Transit Orbita was $16.6 million compared to last year's $22.3 million. The decrease was primarily due to higher transit franchise expense. While discussing transit, I'd like to take a few moments to discuss our 2023 expectations for the MTA franchise. The minimum annual guarantee will step up to just under $135 million, given the CPI escalator contained within the contract, which equates to a MAG revenue hurdle of $245 million to enter recoupment. While we expect to close the gap between our MTA revenue and this level, we do expect to be beneath it in 2023 and will again account for the minimum guarantee and the almost $12 million we will pay for the 2020 MAG deferral on a straight line basis throughout the year. As you saw in 2022, this will impact Q1 OIBDA given seasonally lighter revenues. However, for the full year, we expect transit OIBDA significantly improved versus last year, with OIBDA expected to improve each quarter in a similar fashion to 2022. On the MTA deployment front, we are pleased to say we are approaching the completion of our initial build. Specifically, we expect to spend around $100 million on deployment in 2023. primarily installing advertising screens on rolling stock, and we expect the annual capital investment to step down significantly beginning in 2024. Turning to capital expenditures on slide 14, Q4 CapEx spend was just over $23 million, including nearly $7 million of maintenance spend. The decrease of $9 million in total CapEx versus the prior year was primarily due to the timing of our investments throughout 2022. For the full year, Total capex was approximately $90 million around our historic benchmark of 5% of revenue. Virtually the entire full year increase versus 2021 was in growth capex driving a higher number of digital conversions. Through these conversions, new developments, acquisitions, and management agreements, we added approximately 330 new digital billboards, a new annual record. For 2023, we then expect to spend $90 million on total capital expenditures. Looking at AFFL on slide 15, you can see the bridge to our Q4 AFFL of $96 million. As Jeremy mentioned earlier, there's an approximately $17 million upfront lease payment contained in the non-cash effective straight line rent AFFL 1 item, which relates to the structure of a tuck-in we completed in late Q4. In the transaction, We signed leases with a landlord and almost all of the upfront payment was accounted for as a prepayment of lease expense in AFFO over the next 20 years. The cash flow economics of the transaction are unchanged. For 2023, we currently expect AFFO growth in the mid single digit range from 2022's AFFO of $311 million with EBITDA growth more than offsetting the significantly increased interest expense we expect given a heightened interest rate environment. Included in this guidance is also $25 million of maintenance capex and about $9 million of cash taxes. Please turn to slide 16 for an update on our balance sheet. Committed liquidity is approximately $650 million, including over $40 million of cash, nearly $500 million $500 million available via our revolver, and $120 million available via our accounts receivable securitization facility. As of December 31st, our total net leverage was five 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 30-cent cash dividend payable on March 31st to shareholders of record at the close of business on March 3rd. Based on our current expectations, it is possible this dividend level may ultimately prove to be insufficient to meet our REIT requirements for 2023 and an increase may be required later in the year. We spent a total of $91 million on new displays during the quarter. We expect to close a few more tuck-ins in Q1. funding these deals with cash on hand and draws from our accounts receivable securitization facility as necessary. As Jeremy mentioned earlier, looking at the full year 2022, we spent $371 million on new assets, making last year our most acquisitive year since 2014. Looking at our current acquisition pipeline, we expect our deal activity to moderate in 2023. In closing, Q4 was a solid quarter and a capstone to a great year. We remain excited about our business's future, and I look forward to seeing many of you at various conferences and events in the coming weeks. With that, let me turn the call back to Jeremy.
spk00: Thanks, Matt. We're extremely pleased with our 2022 performance in what proved to be an uncertain year for the economy and financial markets. And looking forward towards Q1, based on our trends of today, We estimate that Q1 total revenues will grow in the low single-digit range, with billboards slightly higher than that range and transit flattish. While the courses got off to a slightly slower start than we might have hoped for, given a movie skewing later in the year and the tough comp created by sports betting in Q1 last year, bookings have improved as the quarter has progressed, and activity in the marketplace has definitely picked up over the last few weeks. As implied by our full year AFFO guidance, we are encouraged by the early signs we are seeing for the remainder of the year. In our view, and that of many ad industry forecasters, out of home remains poised to take further market share of the broader advertising industry in 2023. Our displays, which are becoming increasingly digitized, are ubiquitous and reach an audience that continues to grow in a world where scaled audiences are becoming more difficult to find. We've also made strides with our insights and data initiatives highlighted by our Smart Scout tool, which provides solutions for enhanced demographic and location targeting when connecting to audiences on the go. It's truly hard to think of an ad medium in a better position, especially considering recent uncertainty in the digital advertising marketplace. I'd like to close our comments today by reiterating how proud I am of our Outfront team for having had such a great year and positioning us for success in 2023. And with that, operator, let's now open the line for questions.
spk05: Thank you. If you would like to ask a question, simply press the star key followed by the digit 1 on your telephone keypad. Also, if you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, start one at this time. And we'll first hear from Ben Swinburne of Morgan Stanley.
spk03: Thank you. Good afternoon, guys. Jeremy, could you talk a little bit more about any particular categories? I think you mentioned the movie slates, maybe entertainment explains the Q1 deceleration. And whether you're expecting revenue growth to improve through the year implicit in the guidance for AFFO. And then, Matt, I don't know how specific you're willing to be, but I know interest expense is moving around a lot given rates. I was wondering if you had an estimate for the year you might be willing to share with us. Thank you.
spk00: Yeah, thanks for the question, Ben. Yeah, I'll certainly be happy to take the first one. Yeah, as I mentioned in my prepared remarks, yeah, movie states a little bit later. Interesting because actually that impacts our business a little bit in New York and L.A., and they're particularly sort of supportive of transit as well. So that comes into play there. And certainly sports betting was massive for us in New York this time last year. as it became licensed obviously. And you're right, implicit within our guidance as we, AFFO guidance as we look forward is an increasing trend as we go through the year. We're definitively seeing some pickup in our bookings as we speak. We have some visibility going forward that gives us confidence to think about increases as we go through the year. Also worth remembering that last year we acquired a number of assets and built a number of assets. As we build up revenues on those, as they come to the fore, that will also be additive to the revenue picture as the year progresses.
spk01: Ben, on interest expense, we have a $600 million term loan, which is floating. We have a securitization program, which tops out about $150 million. We'll probably use most of that, and obviously the interest rates have gone up last year and probably keep inching up this year. We're probably up about $40 million of interest expense year-on-year, 23 from 22.
spk07: Okay. Got it. Thank you both. Sure.
spk06: Next we have from Richard Chu of J.P. Morgan.
spk10: I wanted to ask about the pricing environment. Are you getting any pushback on the pricing increases that I guess you had talked about at the end of last year as inflation kind of picked up and what you're seeing on the national side in terms of strength or weakness there?
spk00: Thanks for the question, Richard. To be fair, we had a year of significant rate increase last year. And I would expect that this year we won't achieve the same year-on-year percentage growth as we achieved last year in terms of rate. I think this year we'll obviously be very focused on our occupancy as well and seeing how we can combine those to keep keeping our yields moving forward in the right direction. In terms of when you look at the business now, as we said, our national local revenue split is pretty much back to the historic norm. As we go forward, with maybe potentially sort of pockets of weakness in one or the other, they may blip around a bit, but I wouldn't have thought we'd skew too much away from the 55-45 as we go forward in the year.
spk10: And to clarify, it seems like the bookings are getting stronger, so any kind of weakness that people have or will worry about in terms of the economy or overall advertising is not something that you're seeing right now.
spk00: I think as we got to the back end of last year, I think we detected a little bit of a slowdown, I think particularly in the national environment. As you know, in the local environment, we have much more We have longer term laydowns there, so if you're going to notice anything, it's in national. I think we felt a little bit of a cooler breeze in December, and I think that carried through into January. But generally speaking, we're certainly not seeing anything that some of our other media peers appear to be seeing. As I say, we're feeling confident about that increase in growth trajectory as we move forward.
spk10: Last one for me. Did you say earlier that you didn't expect to reach the MAG on the MTA contract this year? Do you see the ability to grow revenue without ridership increasing as much from here?
spk01: Yeah, Richard, the MAG steps up in 2023 because of a CPI adjustment, so the MAG level is higher. We do expect the MTA revenue to increase and get closer to the MAG, so we think that's going to be a big lift in the EBITDA through the year. So, again, we think it's going to keep going. We are seeing some small increases in ridership. I think our last 10-day metric was the highest we've seen yet. But our revenue versus 2019 has been over-indexing ridership recovery since 2019. And we think we can keep that outperformance going and hopefully expand and widen that.
spk07: Great. Thank you.
spk06: Next, we'll hear from Ian Zuffino of Oppenheimer.
spk09: During the year, specifically, I guess, in the Northwest and Oregon, how are those assets performing compared to your expectations in some of the larger markets? And then additionally, are there any other markets that you have an eye towards for additional expansion? I know you mentioned tuck-ins and first quarter and all the activity, I guess, will moderate in 2023. What does the sort of M&A environment currently look like? Thanks.
spk01: I'm sorry, I think we missed the first part of the question. I hate to ask you to repeat it. I know it was something about the Northwest and our early success there. Can you repeat that? Sure, yeah, no problem.
spk09: Yeah, on new inventory investments and I guess the Northwest and Oregon, how are those assets sort of performing compared to your expectations and I guess compared to the larger markets as well?
spk00: Yeah, absolutely. Let me take that one in. Whenever you acquire a set of assets, you acquire them based on the revenues that were being achieved on those assets by the prior owner. We then look over a period of 12 months to develop those revenues, if you like, by overlaying our own local sales methodology and also leveraging the strength of our national sales team. So with Portland, say, halfway through the year, I'd say that out of the gate it was sort of broadly in line with our expectation. We've still yet to see the benefit of the ramp, I think it's fair to say, from, as I say, our local and national sales piece. But going in the right direction and the great thing about that particular acquisition is it provides a real bridgehead for us to expand more broadly in the Northwest Pacific. So that's going to be a fabulous piece of out front business for many, many years to come.
spk09: Okay, great. Thank you. And then I guess on further M&A, I guess what areas would you expect to expand in the first quarter and sort of how is deal activity going? an M&A, the M&A environment sort of looking like this year?
spk01: We remain interested in really anything that's in our existing footprint. The opportunity in Portland, a few and far between, but if there were markets that came up that are, you know, young, growing, attractive demographic, we would certainly be interested. But otherwise, generally we stick to our large market focus and there's plenty of opportunities and tuck-ins and regional players that we run into. At this point, I think I mentioned our pipeline is a little lower than last year, just from a natural occurrence. We're actively looking, and as things come up, we would certainly investigate and hopefully to find some interesting opportunities.
spk07: Okay, great. Thank you very much. Thanks.
spk06: And as a reminder, it is star one if you would like to ask a question or make a comment.
spk05: Next, we'll hear from Jim Goss of Barrington Research.
spk04: Good evening. This is Pat. I just had a question on billboards. Can you maybe talk about some of the, I guess, variability in kind of getting back to or, I guess, above 2019 levels by market? Like, are there any, like, real significant laggers at this point? Or is there anything kind of back in the covers?
spk01: Again, billboard business, the billboard part of our business has been north of 2019 since the end of 21. Pretty much all regions are firing. The quickest to recover, if you remember, was the Midwest, which didn't fall as far. But we break into four regions, east, south, west, and midwest, and all are outperforming 2019 now.
spk07: Okay, thank you. Thanks.
spk06: And then as a final reminder, it's Star 1 to ask a question or make a comment. We'll pause for a moment.
spk05: And it appears there are no further questions at this time. I'll turn the call back over to Jeremy for any additional or closing comments.
spk00: Thank you, Operator, and thank you to everyone for attending the call and for your questions, and we look forward to seeing many of you at investor events over the coming weeks. Thank you very much indeed.
spk06: That does conclude today's call. Thank you all for your participation. You may now disconnect.
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