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spk00: Hello and welcome to the Outfront Fourth Quarter 2023 Earnings Conference Call. My name is Harry and I'll be coordinating your call today. If you'd like to ask a question today, you may do so by pressing style 1 on your telephone keypad. And I'll now hand you over to Stéphane Bisson, Vice President of Investor Relations at Outfront to begin. Stéphane, please go ahead.
spk06: Good afternoon and thank you for joining our 2023 Fourth Quarter Earnings Call. With me on the call today are Jeremy Mail, Chairman and Chief Executive Officer, 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 slide presentation that you can find on the investor relations section of our website, outfront.com. After today's call has been concluded, an audio archive replay will be available there as well. This conference call may include forward-looking statements, relevant factors that could from these forward-looking statements are listed in our earnings materials and in our SEC files, including our 2022 Form 10-K, as well as our 2023 Form 10-K, which we expect to file this week. We will refer to certain non-GAAP financial measures on this call. Any references made to OIDDA will be on an adjusted basis. Reconciliations of OIDDA and other non-GAAP financial measures are in the appendix of this slide presentation, the earnings release, and on our website. also includes presentations of prior period reconciliation. Let me now turn the call over to Jeremy.
spk03: Thanks Stefan and good afternoon everyone. We're pleased to be here sharing our fourth quarter results and 2024 outlook. Before digging into Q4, I'd like to quickly highlight some of our accomplishments from 2023. Revenues finished up 3% year over year on an organic basis with both US media and other, which is essentially our business in Canada, up by the same rate. Our US billboard business, by far our largest in terms of revenue, was up 4% for the year on an organic basis. As has been the case for the last couple of years, this growth was predominantly driven by higher rates resulting from robust demand for billboard advertising and our expanding digital revenues. Also contributing significantly to our billboard growth was the continued impressive performance of our automated sales platforms, including programmatic. These channels comprised approximately 16% of our digital revenues in the fourth quarter, up from 10% in the first quarter in single digits in 2022. In October, we announced the sale of our Canadian business to Bell for 410 million Canadian dollars, or around 300 million US, subject to certain adjustments. We expect this transaction will close in the first half of this year. I'd also like to mention the achievements of our creative team, X-Labs, which was awarded two Cannes Lions, one gold and one bronze, at the International Festival of Creativity. for our partnership with Google and Gorillaz. The awards honored the team for transforming Times Square into a live stage for a revolutionary music performance by the award-winning virtual band Gorillaz. This event truly showcased the evolutionary potential of the out-of-home industry. So now let's turn to our fourth quarter results, and you can see the headline numbers on slide three. Consolidated revenues grew 1.3% towards the higher end of the guidance we provided in November, while OIPDA was $152 million and AFFO was $108 million. Slide 4 shows our segment results, with total U.S. media revenue increasing 1.1% year-over-year, other, which consists mostly of Canada, was up 5.9%. On slide five, you can see our U.S. media revenues in more detail. Billboard revenues were up 3 percent with growth in all four of our regions, but stronger performances in the east and the south. And I'm pleased to call out our New York, Houston, Dallas, Orlando, Kansas City, and national teams as these markets displayed exemplary growth leading our billboard geographies. Transit revenue was down 4 percent versus the prime year. The entire decline in the quarter was due to weaker tech, financial, and entertainment. Though the media strike finally ended in early November, the fall primetime TV season was effectively pushed entirely out of the quarter. On a consolidated basis, our best performing categories in Q4 were CPG, legal services, education, and retail. On the weaker side were technology, government political, financial services, and, of course, entertainment. The breakdown of local and national revenues in our U.S. business can be seen on slide six. Local grew 4.5 percent during the quarter, while national, which was more heavily impacted by the weaker tech and entertainment verticals I noted earlier, declined by 3 percent. As a result, 43 percent, 57 percent national-local split during the quarter, was a bit more locally skewed than our more typical 45-55. Slide 7 shows our solid US billboard yield growth up around 3% year-over-year and topping 3,000 a month for the first time. The largest drivers of this yield growth remain our digital conversions, rate, and higher programmatic and other automated transaction revenues. Slide 8 highlights our strong digital performance, with revenue growing 9% in the quarter, digital revenue representing nearly 36%, but total digital revenues up 33%, up from 33% last year. Digital billboard was up about 10.6%, again fueled by our automated sales channels and new inventory, while transit was up 4.5%. Let me now hand over to Matt to review the rest of our financials. Thanks, Jeremy, and good afternoon.
spk04: For a deeper dive into our financial statements, please turn to slide 9 for a more detailed look at our expenses. Total expenses were up about $8 million, or 2.5% year-over-year. Billboard lease expense increased 9% year-over-year in June 4. As has been the case throughout the year, this increase reflects annual rent step-ups, for our billboard sites and higher variable expense on a portion of our billboards that contained revenue share agreements. Transit franchise expense was down 3.5%, with lower revenue share payments to franchises partially offset by the higher MAG payments to the MTA. Hosting, maintenance, and other expenses was down 2% versus the prior year, with these pieces related to higher business activity were offset by reduced maintenance and utilities expenses. SG&A expense increased by 1% to $4 million versus last year. The entire increase was related to higher professional fees, partially upset by lower compensation expenses. Corporate expense was essentially flat in the quarter as lower compensation related expenses were upset by the unfavorable impact of market fluctuations on an unfunded equity index-linked retirement plan and higher professional fees. Slide 10. provides additional detail on their sources of orbital. U.S. billboard orbital is just over $145 million and represented over 95% of our consolidated orbital. U.S. billboard orbital margin was 39.5% down versus a year ago, but up again versus 2019. Graded orbital was $13.7 million compared to last year's $16.6 million. The decrease was primarily due to lower revenues that Jeremy described earlier. While in transit, I'd like to take a moment to discuss some of our expectations for the New York MTA. Our MAG payments to the MTA will step up by under 3% this year to about $150 million given the CPI escalator contained within the contract. We will continue to account for our New York MTA franchise expense on a straight line basis throughout the year. On the MTA deployment front, we are pleased to say we are very close to the completion of our initial bill. Specifically, we expect to spend around $50 million on deployment in 2024, finishing our installation of advertising stream and our rolling stock. The annual capital investment will step down in 2025, as we look forward to the replacement only phase of our capital commitment. Turning to capital expenditures on slide 11. Q4 capex spending was just over $23 million, including about $6 million of maintenance spend, both essentially flat with last year. For the full year, total capex was about $87 million, just below our historical 5% of revenue benchmark. Including this total was almost $9 million of spending related to the moves of three large offices in New York, Los Angeles, and San Francisco. 2024, We expect to spend approximately $75 million of total capex with about $70 million to be spent in our U.S. business. Of the total amount, around $25 million will be maintenance capex. Looking at ASFO on slide 12, you can see the bridge toward Q4 ASFO of $108 million. The improvement is principally driven by the non-cash effective straight line grant ASFO line item, which was an $18 million swing versus last year. 2024, we currently expect reported consolidated ASFO growth in the high single-digit range from 2023 to ASFO of $271 million, driven principally by improvement in . Notably, this guidance assumes that June 30 will close the sale of our period business. Please turn to slide 13 for an update on our balance sheet. As you likely saw in November, we completed a new $450 million to our senior secured note offering and utilize the proceeds to repay our $40 million of senior unsecured notes due in 2025, pushing this maturity out about six years to 2031. Committed liquidity is slightly over $600 million, including around $40 million in cash, nearly $500 million available by our revolver, and $85 million available by our accounts receivable securitization tool. As of December 31st, our total net worth was 5.4 times. and we remain comfortable with our debt stack with our next maturity other than the AR facility not being due until 2026, and with less than 25% of total debt subject to floating rates. As Jeremy mentioned, we've reached an agreement to sell our 3D business to Bell Canada for $1.10 billion, subject to certain adjustments, which equates to about $300 million to $300 million U.S. dollars in today's exchange rate. continue to accept this transaction to close in the first half of 2024, and intend to use the proceeds to pay down debt, fee labor, and reduce annual interest expense by approximately $20 million. Turning to our dividends, we announced today that our board of directors has maintained a $0.30 cash dividend payable on March 28th to shareholders of record at the close of business on March 1st. Based on our current operational expectations and the taxable gain created with the sale of our Canadian business, we believe we will need to pay a large dividend later in the year for recent clients. We spent $3 million on acquisitions during the quarter, bringing our total to 2023 to about $34 million. Looking at our current acquisition pipeline, we expect our 2024 deal activity to look similar to that of 2023. In closing, we accomplished a lot in the quarter and we are fully focused on delivering growth in 2024. We remain excited about our business' future and we look forward to seeing many of you at various conferences and events in the coming weeks. With that, we can turn the call back to Jeremy.
spk03: Thank you, Matt. While we were pleased with our billboard revenue performance in what ultimately proved to be a rather challenging 2023, we're happy to turn the page to 2024, which we expect will be a significantly improved year. We'll be starting off on the right foot in the first quarter, As based on our trends of today, we estimate the reported Q1 total revenue growth will accelerate to the low to mid single-digit range, with billboard and transit growing at similar rates. Importantly, we expect this growth despite our first quarter 2023 billboard revenues benefiting from around $6 million of non-recurring condemnation revenue, which we highlighted last May. Further, as I just mentioned, and implied by our full-year FFO guidance, we are encouraged by the early signs we are seeing for the remainder of the year. We've seen numerous tailwinds for our company in 2024, including the continued ramping of our acquired inventory and additional recovery in our transit business. We also expect that we and, in fact, the entire out-of-home industry will benefit from the crowd-out effects of the Olympics and the 2024 election as well as the return of a prime-time TV season in the second half. I'd like to close off with my comments today by reiterating how proud I am of the Outfront team for their performance last year, and it is that continued efforts that have positioned us for success in 2024. And with that, operator, let's now open the lines for any questions.
spk00: Certainly, thank you. If you would like to ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. And when preparing to ask your question, please ensure that your phone is unmuted locally. Our first question today is from the line of Jason Bazinet of Citi. Jason, your line is now open. Thanks, how's it going?
spk01: I just had a question on the AFFO guide. Do you guys... mind just unpacking any of the details sort of below, you know, the headline sort of EBITDA number, just so we have the pieces right, and then also the impact of Canada, assuming that June 30 close occurs.
spk04: Oh, sure. Thanks, Jason. How are you doing? Good. We understand. There's a few more moving parts this year. because of the timing of the sale of Canada. HSO, the HSO growth residing as soon as I mentioned the sale of Canada, mid-year, June 30th, there's some seasonality of the business. So given that we get the shorter half of the Canada operation, in 2024 compared to the full year of Canada in 2023, you'll probably think there's a couple more points of growth available on a full year comparative basis of AFFO based on the timing. Otherwise, once we sell Canada, we can probably clarify that a little better. Seasonality, you know, heavy fourth quarter ASFO from Canada that was felt in 2023 won't be felt in 2024. That's where our ASFO growth. Other parts of ASFO growth, you know, I mentioned maintenance cap tax is about $25 million. Cash tax is about $5 million. And interest expense somewhere in the $155 to $160 range. Of course, depending on where interest rates flow to.
spk01: Okay, got it. So the growth, if I heard you right, would be a few points higher if you hung on to Canada for the full year. Did I hear that right?
spk04: Yes. Thanks for clarifying that. Okay, got it. Trust me on my work.
spk01: Okay, great. Thank you.
spk00: Our next question today is from the line of Cameron McVeigh of Morgan Stanley. Cameron, your line is now open.
spk02: Great, thank you. Just had a couple. I was hoping you could help us think through the impact of the media strikes on growth this year. In particular, what does the cadence of growth look like given the comps we faced last year? And should that have a greater impact on billboard or transit?
spk05: So when you look at it, it's certainly
spk03: It impacted our business really far more than others, generally with the industry, just because of our exposure to media revenues in particular, given our prominent positions in both New York and Los Angeles. So when we look into it, you know, reasonably significant impact in dollar terms on our billboard business, particularly in LA, but in percentage of revenues terms, the transit business was most impacted and that's because transit is more disposed towards national and within transit um it's been certainly been somewhere where um they all tv schedules have um uh you know typically you know been very very successful uh for us and our clients so you know as we look to this year um You know, we obviously expect that we'll see a full schedule this year, so we think that'll be telling to our numbers as we go through the year. You know, maybe we'll see a bit of benefit, you know, in those early months as well because there's some new content out there that we believe that would have been promoted last year that may well be promoted in the earlier part of this year. So, generally, we feel, you know, positive on that. It's interesting. category that was difficult for us last year, not only difficult for us, I mean, difficult for just about every ad-holding company, I think, that's reported so far, was obviously tech. And while one swallow doesn't make a summer, it's good to see that our tech revenue is actually facing a bit ahead in Q1. So that's a positive sign.
spk02: Got it. Thank you. And then just secondly, if you could just walk through an update of how you're thinking about how margins should trend through the year. Yeah, if I think about what impacts margins, you know, wage and ad commission inflation, you're lapping some M&A comps, and there's further tech integration with the MTA boards. Curious, from your view, just what's causing the most material impact and how you're thinking about that trend throughout 24. Thanks.
spk04: Again, a lot of moving parts in 24 may break them down. Transit, we expect some improvements in our transit business and given our big franchises in New York, LA are underneath their minimum guarantees. Improving some of their revenue will help margin. We expect to see that on the transit side. On billboard, we had, again, acquisitions in 22 and early 23, which a bit of a drag in 23 on billboard margins. There's the higher lease cost outstripping revenue growth. We think that catches up during 2024, even though there will be rent increases. I think our lease cost as a percent of revenue will improve. Of course, there's other costs, some inflationary pressure in certain areas and some So it's, you know, hard to say quarter to quarter. We think margins would be, you know, similar to a little better this year than last year.
spk05: Got it. Thank you.
spk00: Thank you. As a reminder, if you would like to ask a question, please dial star 1 on your telephone keypad. And our next question today is from the line of Jim Goss of Barrington Research. Jim, your line is now open.
spk08: All right, thank you. I was wondering, with regard to Billboard, your dominant category, what the mix of digital versus static was this year versus last year, whether that trend has had an impact on those gains you've made.
spk03: Thanks, Jim. Yeah, when we look back to Q4, the numbers are digital was 36% of our revenues, and, you know, that's very much weighted towards billboard rather than transit. So, 36% of our revenues versus 30% the previous Q4. So, you can see that's a big step up. That's 20%. And we think that that number is only going to go one way. We continue to opportunistically convert boards. And this year, we would expect to be in that 150 to 200 new board range. So you have essentially more assets in the field. And then we also have this swing towards automation. And that's an exciting trend for our automated revenues to be 16% in the final quarter, that size of the digital business. And that's starting to become a needle moving thing. And as time goes on, as we've said before, we believe that digital in general will be margin and halting for our billboard business. So it's not necessarily a linear thing, but if we look over time, we think it's certainly going to be positive for the billboard business.
spk08: Are you generally feeling that it's a plus because now things are improving in terms of ad revenue trends? Because I think in a slower period, it could be a disadvantage, but But it is being helped by the rebounding ad market. In terms of pricing.
spk03: Yeah, look, obviously, yeah, thanks, Jim. Obviously, whenever you digitize your estate, you are adding on supply. And it's always helpful when you're adding on supply to have a tailwind in the ad market. But, you know, say last year, actually, there were a bunch of headwinds and those digital revenues still managed to grow significantly. So net-net, you know, we were still very confident in the investments that we're making in our business to further digitize. One of the big factors last year that we started seeing was just the late money that we were able to take as a company that we wouldn't have been able to take in years before. You know, if someone wants to get an add-up today, you know, if we had, you know, fall through in the next hour, you know, we can have that add-up later on. You know, this is, you know, this is in an industry where previously, you know, inflexibility really was the key word. So to have that flexibility, we think is a real bonus for the industry as a whole.
spk08: All right, and just one other one. You called out a number of markets where you thought there were particularly notable strengths in your billboard business. Is there any commonality among the markets you called out that you can draw any conclusions from, and what might those be?
spk03: You know, a number of the markets were in the south So, you know, Dallas, you know, obviously Texas has been strong, you know, as a state. Florida generally is good, so I was included in that with Orlando and, you know, Nashville goes without saying, I think, with Tennessee, you know, also maybe speaks for itself. You know, the only markets that were so difficult for us, really, in particular, you know, was some of the West Coast markets. We talked about San Francisco being difficult for us last year, and I think, you know, some of the reasons for that are maybe self-evident from what we've all read in the press. And then, in particular, as noted, it was actually by the media strikes.
spk08: All right, thank you very much.
spk05: Thanks, Joe.
spk00: Our next question today is from the line of Richard Cho of JPMorgan. Richard, your line is now open.
spk07: Thank you. I just wanted to follow up on the 1Q revenue guide of low single digits. In terms of the strength that you're seeing between billboard and transit, Where is the strength coming from, and how much is programmatic potentially contributing to that?
spk03: Okay. So, yeah, going back to the guidance, Richard, thanks for the question. So, you know, we guided to low to mid single digits, and we, you know, we said both parts of the business were going to be up, which is obviously a great sign. Part of that is going to be automated revenues, which will continue to grow this year. We expect there's no reason why that graph should immediately take it out, and that'll keep creeping up. And that'll be a good thing. What is also good to see right now is that both our local and national businesses, while there's still, whatever it is, a few weeks to go in the quarter, Both businesses are, you know, pacing up right now. So that's good to see. Strength, you know, feels very broad-based. And it's, you know, nice to see that acceleration from the growth rate that we achieved in the back half of last year with some of the challenges that we've already talked about.
spk07: Given that, do you see that there's been a change in your customers in wanting to do more out of home at this point and they feel more comfortable with the environment versus last year where there's a lot of uncertainty?
spk03: Well, you know, on the face of it, yes. I mean, last year actually was all about really two or three categories that really didn't show up. So we think that, you know, if tech gets just a bit of a bounce, that will be very positive for us. They say media coming back will undoubtedly be positive. And, you know, we expect that, you know, the clients that have given us support over the last years will certainly be, you know, showing their support.
spk05: Great, thank you. As a final reminder, if you would like to ask a question, please press star followed by one on your telephone keypad now. We have no further questions in the queue today, so I'd like to hand back to Jeremy Mayle for any further remarks.
spk03: Thanks, Ray. And everyone, thank you for joining us today. I'm sure we'll be seeing many of you at conferences and events over the coming weeks, but I don't. I was presenting our Q1 results to you. Thanks very much.
spk00: This concludes today's call. Thank you all for joining. You may now disconnect your lines.
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