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spk02: Hello, everyone, and welcome to the Outfront Media first quarter 2024 earnings call. My name is Harry, and I will be your conference operator today. If you'd like to enter the queue for questions, you may do so by pressing star 1 on your telephone keypad. It is now my pleasure to hand you over to Stefan Biesmann to begin. Please go ahead.
spk06: Good afternoon, and thank you for joining our 2024 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 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, outfront.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 2023 Form 10-K and our March 31, 2024 Form 10-Q, which we expect to file tomorrow. We will refer to certain non-GAAP financial measures on the call. Any references to OIBDA made today will be on an adjusted basis. Reconciliations of OIBDA and any 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 Jared.
spk01: Thank you, Stefan, and thank you, everyone, for joining us this afternoon. We're pleased to share our first quarter results today, which came in broadly as we expected when we last spoke in February. As you can see on slide three, which summarizes our headline numbers, the year is off to a solid start, with total consolidated revenue growing 3.2% during the quarter, reflecting steady growth in billboard and impressive return to growth in transit. Adjusted EBITDA was up more than 10% year over year, driven by healthy improvements in both billboard and transit. Much of this improved EBITDA converted to AFFO, which more than doubled to 23 million in our seasonally smallest quarter. Slide four shows our segment results, with total US media revenue increasing 3.5% year over year. Other was down 2.6%, given much lower digital equipment sales during the quarter, which offset solid Canadian revenue growth of 5.7%. On slide five, you can see our US media revenues in more detail. Billboard revenues were up 2.5%, but would have been higher if you take into account condemnation revenues from both periods that we highlighted on our last call in February. Local continues to perform exceptionally well, with particularly strong performances at Atlanta, Dallas, and signs of recovery in San Francisco. Further, our recently acquired assets in Portland have picked up a nice head of steam. Transit revenue was up 7.7% versus the prior year. The improved revenues in transit were led by the MTA and broad-based in nature, driven both by local and national, a wide array of ad categories spanning across all regions. The breakdown of our local and national revenues in our US business can be seen on slide six. As in recent quarters, local was the primary driver of growth up 7.5% during the quarter, while national declined by 2.3%, primarily due to weaker billboard trends in a couple of our larger markets. Given this, our local-national split of 62% to 38% was more skewed towards local than the more typical 55-45. On a consolidated basis, our best performing categories in the first quarter were legal services, retail, service providers, government political, and entertainment. On the weaker side were auto, utilities, real estate, travel, and health and medical. Slide 7 illustrates our solid U.S. billboard yield growth, up 3.3% year-over-year, reaching just under $2,600, the first quarter record. The largest drivers of this yield growth remain our digital conversions, rate, and higher automated transaction revenue. Slide 8 highlights our strong digital performance, with revenue growing 8.3% in the quarter, representing 31% of our total revenues, up from 30% last year. Digital billboard was up 5.6% while transit was up 16.7%, obviously fueled by the MTA. Automated revenues in the quarter represented 14% of our digital revenues in the quarter, up from 8% in last year's comparable quarter. With that, let me now hand it over to Matt to review the rest of our financials.
spk00: Thanks, Jeremy, and good afternoon, everyone. For a deeper dive into our financial statements, Please turn to slide nine for a more detailed look at our expenses. Total expenses were up about $6 million at just under 2% year over year. Billboard lease expense was essentially flat in the quarter versus last year. Excluding the impact of a $5 million out of period adjustment in the first quarter of last year, Billboard lease expense was up in the low to mid single digits. This growth was driven by the annual escalators included in our fixed rent leases and properties added to our portfolio in 2023. Transit franchise expense was down slightly versus the prior year, given the non-renewal of a loss-making contract and a small benefit from amendments to existing transit agreements, which combined more than offset the higher MAG payments to the MTA related to the annual CPI adjustments. Posting, maintenance, and other expenses was up 6% versus the prior year, primarily due to higher compensation related expenses, utilities costs, maintenance expenses, which were impacted by some timing items, and other costs related to higher business activity. SGA expense was flat during the quarter as increases related to higher compensation related expenses were offset by lower expenses elsewhere in the business. Corporate expense was up just over $3 million due to higher professional fees and the unfavorable impact of market fluctuations on an unfunded equity index link retirement plan. The higher professional fees are principally related to a management consulting project. So I-10 provides additional detail on the sources of orbita. Total orbita was up approximately 10% to $66.5 million. U.S. billboard orbita was just over $97 million, and U.S. billboard orbita margin was 30.9%, up 60 basis points year over year. For the full year, we continue to believe that billboard margins will be slightly up on an annual basis. Transit Orbiter was a $15.3 million loss compared to last year's loss of $20.5 million. The improvement was primarily due to the better revenues Jeremy described earlier in the call. Turning to capital expenditures on slide 11, Q1 CapEx spend was $18.4 million, including just under $5 million of maintenance spend, both lower than last year. The reduced capex was primarily due to the timing of our expected spend this year, and we continue to believe that we will spend approximately $75 million of total capex this year, with about $70 million of that on our U.S. business. We added 35 digital billboards in the U.S. this quarter, increasing our U.S. total to just over 1,900. We continue to target 150 to 200 total digital billboard additions for the full year. On the transit side, we added over 2,500 digital displays in the U.S. in Q1, mostly small format screens on subway and train cars in the New York MTA. Looking forward, we are nearing the end of the deployment phase for New York and expect to substantially fulfill our initial build obligation this year, bringing us into the maintenance phase of the contract beginning in 2025. Now turning to AFFO on slide 12, you can see the bridge to our Q1 AFFO of just over $23 million. It's a $14 million year-over-year increase due to improvements in EBITDA, maintenance capex, cash taxes, and other slightly offset for higher interest expense. For 2024, we continue to expect a reported consolidated AFFO growth will be in the high single-digit range from 2023's AFFO of $271 million. As we noted in February, this guidance assumes a June 30th close on the sale of our Canadian business. Please turn to slide 13 for an update on our balance sheet. Committed liquidity is approximately $570 million, including around $40 million of cash, nearly $500 million available on our revolver. and $30 million available via our accounts receivable securitization facility. As of March 31st, our total net leverage was 5.4 times flat compared to December 31st. We expect our leverage to move down meaningfully as the year progresses given the seasonality of our business and upon the close of the sale of our Canadian business. Turning to our dividend, we announced today that our board of directors approved the 30 cent cash dividend payable on June 28th to shareholders of record at the close of business on June 7th. As a reminder, 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 larger dividend later in the year for re-compliance. We spend $6 million on tuck-in acquisitions during the quarter. In looking at our current acquisition pipeline, we continue to expect our 2024 deal activity to look similar to that of 2023. In closing, 2024 is still rough as we expected, and we remain enthusiastic about the remainder of the year to come. With that, let me turn the call back to Jeremy. Thanks, Matt.
spk01: We were pleased with our first quarter performance, particularly with that of transit, which returned to solid growth after what proved to be a rather difficult 2023. Looking forward to the second quarter, and based on our trends of today, we estimate that Q revenue growth will be broadly in line with Q1s, both in terms of scale and also shape between billboard and transit. Before ending the call today, I'd quickly like to discuss our high-level transit strategy, as there were a couple of events during the quarter that exemplify our current approach to this important business. First, Matt mentioned that transit franchise expense was down during the quarter due to the non-renewal of an unprofitable transit franchise, as well as small benefit related to a transit contract amendment. While both of these were relatively small on a gross dollar basis, they illustrate our commitment to improving these business partnerships and growing them profitably for both parties, or exiting if such agreement cannot be struck. Another example of our transit strategy that I would like to highlight is our new long-term contract with WMATA in Washington, D.C. which was selected by the agency through an open RFP process and include terms which better reflect the current state of the transit advertising market. It has improved financial metrics relative to the prior long-term contract signed back in 2014 with a lower revenue share taken net of certain expenses, a floating minimum annual guarantee, and no capital obligations. We believe this new contract provides the appropriate framework for what we're calling sustainable transit advertising partnerships. The additional flexibility provided by the structure of this type of contract allows its terms to adapt to advertising trends as they change. This enables us and our partners to minimize franchise financial risk while capitalizing on future revenue opportunities as transit continues to rebound. And with that, operator, let's now open the lines for questions.
spk02: Certainly. If you would like to ask a question, please dial star followed by 1 on your telephone keypad now. If you change your mind, please dial star followed by 2 to exit the queue. And finally, when preparing to ask your question, please ensure that your phone is unmuted locally. Our first question today is from the line of Cameron McVey of Morgan Stanley. Please go ahead. Your line is open.
spk05: Hi, thanks for taking my question. I just had a couple. Firstly, what in your view is driving the divergence between local and national growth? Is this idiosyncratic to certain clients, or do you see this as more broad-based?
spk01: Thanks very much for the question, Cameron. I think, you know, if you look back over time, it's fair to say that the local part of our business has always had a much slower, lower beta than our national business. You know, national tends to be far more lumpy based on just one or two advertisers in a particular quarter, either being there or not, you can see quite significant adjustments. Remember at the back end of last year, for example, when we had, you know, TV was difficult with the With the actions and writer strikes etc. You know that you know that one sector can have you know meaningful impacts on our business our Local business is much more broadly spread across. You know a much larger number of smaller advertisers and From that point of view let's say has that lower beta and I think it's fair to say that and it's worth calling out actually the performance of our of our local teams, which has actually been really, really strong over the last 18 months.
spk05: Great. Thank you. And secondly, what do you see as the largest growth driver for transit revenue going forward? Are ridership levels still as impactful? And how about M&E and tech recovery? Do you see that still? feeling growth going forward. Thanks.
spk01: Yeah, I think there's a couple of things. Look, at the end of the day, you know, to some extent or other, we are selling eyeballs, but we're increasingly getting, you know, getting away from that and we're getting away, you know, to the comparison back in 2019. I think it's, you know, it's almost, you know, we are still seeing some increase in passenger numbers and I believe we'll continue to see those increases as we move forward. But I think one of the big drivers for us has actually been the digitization that we've accomplished over the last two or three years. I don't know how many of you have spent much time in the subway or on Metro North or Long Island Railroad lately, but what you will see are some fabulous advertising displays there that we are now just at the point where we are connecting with those in an automated way. video panels that we have at subway engine stations in New York and our live boards are now able to take programmatic feed. And over the coming months, we're also going to open up our pipes so that they can take our own automated platform feeds, which is DDA. So we think that, you know, digitization plus automation will be a significant growth driver for us as we go forward.
spk05: Great. Thank you.
spk02: The next question today is from the line of Ian Sofino of Oppenheimer. Ian, please go ahead. Your line is open. I agree.
spk04: Thank you very much. The question also would be on the transit side. You know, I know in the past you've expressed, like, concerns about there being a stigma around advertising on the subway. Is that kind of done now, or are your advertisers now returning to
spk01: um from that or you know is that still kind of an impediment um and then how do you square kind of the growth maybe with kind of that that stigma thanks yeah i think stigma is probably uh probably a strong word look you know there are occasions when you know some of publicity maybe particularly here in new york you know that might be negative with regards to um uh the subway or whatever You know, probably not helpful, but on balance, I think we can sell our way through that. And don't forget, it's not all about, you know, it's not all about subway. We have bus advertising. We have a lot of above-ground product. We have shelters. And we have some great national advertisers that are making fabulous use of those environments very, very effectively. So, you know, maybe at the margin a little unhelpful, but, you know, you know, I think, uh, I think we can sell our way through it. I think the other point is that, you know, we're just generally, um, you know, just increasing focus, you know, on, you know, on, on, on the transit business with advertisers. I think we've got some very smart, you know, marketing out there right now. Um, you know, we're, we're, we're very, you know, it's very good to see that, uh, it's back some nice growth, um, which, um, looks there's continuing into, uh, you know, into the second quarter. And, um, you know, onwards from here.
spk04: Okay, thanks. And then, um, you know, I know you mentioned political as a big category. Is this just like standard election year, um, advertising you're seeing and maybe what should we expect kind of going forward throughout the year? Cause we have the, um, presidential election, there's a bunch of referendums. Um, does that impact on how you think about maybe this year versus like what you say other presidential elections? Because I know that outdoor is not the massive recipient of it, but I wonder if anything might change there or how we should be thinking about that going forward.
spk01: Thanks. Yeah, maybe just answer that with a couple of numbers, really. We have government and political, which is one category, so we don't sort of split those out. But in percentage terms, in Q1, that was up 29 percent, just over a couple of million bucks, something like that. So if you sort of map that out and assume that political in particular will obviously increase a bit in the second quarter, in the second and third quarters, it's going to be a nice tailwind. Back in 2020, we did around $10 million of political. We think in 24, you know, we could be somewhere in the region of 15 to 20 million.
spk04: Okay. Thank you very much. I appreciate that.
spk02: The next question today is from the line of David Karnofsky of JP Morgan. Please go ahead. Your line is open.
spk07: Hey, thank you for the question. Maybe going back to transit for a second, just given congestion pricing, in New York City could start on June 30. Wanted to see if you had any view on what that could mean for public ridership. Are there counter factors to consider as well, like less vehicle traffic on highways? And then separately, you mentioned some early strengths in San Francisco. Wanted to see if you could expand on that, how much of that is potentially related to tech. Thanks.
spk01: So, yeah, I mean, just thinking about the congestion charts, I think people are still trying to map out exactly what it's going to mean. I think we can certainly say that there is likely going to be some increase in ridership on public transit. What's interesting, when you look at other cities that have introduced the congestion charge, what you tended to find is that while it may have some impact on general traffic, you know, that seems to come, you know, it goes down and then it starts coming back up. I mean, you know, in my humble opinion, the congestion charge is just about, it's just a tax. So that's, you know, I guess my view on that. So I think, look, I think potentially marginally beneficial to transit. And frankly, I suspect that it won't have that much impact, particularly when you look at the areas we're talking about, which are also highly pedestrianized anyway. So I think we feel that that is likely to be neutral to mildly beneficial. But tech was up slightly in San Francisco, going to your second question. I think as we look forward, There is far more positive stories coming out of San Francisco right now. And it was actually quite a bit of our growth that we achieved in San Francisco was from our local sales force who did a great job to fill in some of the national dollars that maybe still aren't there as we would like.
spk00: Thank you.
spk02: As a reminder, if you would like to ask a question, please dial star followed by one on your telephone keypad now. The next question today is from the line of James Goss of Barrington Research. Please go ahead. Your line is open.
spk03: Hi, this is Pat on for JEM. I just had a question on the automated advertising that you guys talked about earlier. I was wondering if the increase in that was a function of advertisers putting a greater percentage of their spend through that channel or an increase in the number of advertisers using that and just more success and awareness of that opportunity for advertisers or a combination of the two? Thank you.
spk01: So there's two pieces to our automated platform. One is programmatic and that is nicely up year over year and that's driven by You know, some advertisers who might have come to us through normal channels, but also there's undoubtedly advertisers that there's no way we would have reached them, do you know what I mean, through our normal dedicated sales force. So that's really the answer on that piece. The second piece is on our own automated platform, and there's two pieces there. One, we're going out and essentially selling, rather than location-specific, boards, in the case of billboards, where they're selling baskets of eyeballs. Now, people are very keen to buy eyeballs on a CPM basis. It's the way the rest of media trades. And it's certainly generating enthusiasm for advertisers that would not have used our channel, we believe. I think the only final point to make on DDA is that it's actually very efficient for us in terms of how we can allocate those revenues across our boards in terms of board utilization. So actually, there are some buys that we would prefer to go through there. So they're not necessarily additive in terms of total ad dollars, but they are very efficient dollars.
spk03: OK. Thank you.
spk02: Thank you. And with no further questions in the queue, I would like to turn the call back over to Jeremy Mayall for any closing remarks.
spk01: Thanks, Harry. And thanks, everyone, for tuning in today. Thanks for your questions. And we look forward to seeing you at various investor events over the coming years. Thank you again.
spk02: This concludes today's conference call. Thank you all for joining. You may now disconnect your lines. This concludes today's conference call. Thank you all for joining. You may now disconnect your lines.
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