OUTFRONT Media Inc.

Hello everyone and welcome to Outfront Media's third quarter 2024 earnings call. My name's Lydia and I'll be your operator today. After the prepared remarks, there'll be an opportunity for you to ask questions. If you'd like to do so, you can ask a question by pressing star followed by one on your telephone keypad. I'll now hand you over to Stefan Bisson, Vice President of Investor Relations to begin. Please go ahead.

Good morning and thank you for joining our 2024 third 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 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 the 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 file, including our 2023 form 10K and our September 30th, 2024 form 10Q, which will be filed later today. We will refer to certain non-GAAP financial measures on this call. Any references to OIVDA made today will be on an adjusted basis. Reconciliation of OIVDA 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. Also, please note that given the June sale of our Canadian business, our consolidated third quarter results do not include any candidate results compared to the comparable prior year period. Detailed historical financial results of the divested Canadian business can be found on slide 25 of our slide presentation and detailed historical US media financial results can be found on slide 24. Given the sale of our Canadian business, our remarks today will focus primarily on the results of our US media segment. Let me now turn the call over to Jared.

Thank you, Stefan, and thanks to everyone for joining us on our call this morning. It's a pleasure to report our third quarter results today, our first period as a fully domestic company. As Stefan just mentioned, and similar to last quarter, our remarks today will focus almost entirely on our US media segment. As you can see on slide three, which summarizes our headline results, our US business grew revenues over 5%, driven by an acceleration in our billboard growth and high single digit growth in transit. US media adjusted EBITDA grew just over 11%, driven by the revenue growth I just described, combined with US media expense growth of just 3%. Together, US media and corporate adjusted EBITDA was up 6%. Consolidated AFFO grew nearly 7% to $81 million and puts us well on our way to achieving the high end of the growth target we laid out earlier this year. Our AFFO growth is impressive, given that we are comparing against the seasonally strong quarter from last year that included our since divested Canadian business. On slide four, you can see our US media revenues in more detail. Billboard revenues were up 4.8%. Our strongest markets continue to be those that are more locally skewed, such as those in New Jersey, Texas, and Michigan. Every region was up except the West, which improves sequentially, but remains flashish due to some weakness in Los Angeles. Transit revenue was up .3% versus the prior year, driven by growth in all markets, including the New York MTA. As has been the case all year, our improved transit revenues was a result of solid performances from both our local and national teams. The breakdown of local and national revenues in our US media business can be seen on slide five. Local remains the primary driver of our growth, up almost 7%. National revenues improved from Q2 levels and were up a little over 3%. On a consolidated basis, our best performing categories in the third quarter were retail, tech, utilities, telecom, legal, and government political. On the weaker side were also health, medical, alcohol, and education. Slide six illustrates our solid US media billboard yield growth, up almost 7% year over year, reaching just under $3,000. The drivers of this yield growth remain our digital conversions, rates, occupancy, and higher automated transaction revenue. Slide seven highlights our strong US media digital performance with revenue growing 10% in the quarter, representing over 32% of our total revenues, up from 31% last year. US digital billboard was up over 11%, our transit was up just over 8%, again driven predominantly by the MTA. Automated revenues comprised nearly 17% of our total digital revenues in the quarter. About 7% of our digital transit revenue came from automated channels, up from just under 2% last year, reinforcing our belief that the MTA's digital network is well aligned for automated selling. With that, let me now hand it over to Matt to review the rest of the financials.

Thanks, Jeremy, and good morning, everyone. As with Jeremy's remarks, most of my comments will focus on our US media segments as these are the primary operations going forward. For a deeper dive into our financial statements, please turn to slide eight for a more detailed look at our US media expenses. Total US media expenses were up just under $10 million, with just over 3% year over year. US media billboard lease expense was up 1% versus last year. Small increases on a portion of our inventory, on fixed rates, were partially offset by lower revenues on the portion of our inventory operated on leases with revenue share arrangements, primarily located in New York and Los Angeles. US media transit franchise expense was up 2% versus the prior year, principally due to higher MAG payments to the MTA and higher revenues on contracts operated under revenue shares, partially offset by the non-renewal of a loss-making contract and small benefits from amendments to the existing transit agreements. US media posting, maintenance, and other expenses were up about 10% versus the prior year, primarily due to higher compensation related expenses and an increase in business activity driving higher posting and rotation costs. US media S&A expense grew less than 3% or just over $2 million during the quarter due to higher compensation related expenses, partially offset by lower professional fees and smaller provision for doubtful accounts. Slide nine provides additional detail on the sources of US media orbita. Total US media orbita was up 11% to just over $133 million. US billboard orbita was up 8% to $136 million, which represents a margin of 37.8%, up 110 basis points year over year. Transit orbita improved by about $3 million to a loss of just under $3 million. The improvement was primarily due to the better revenue Jeremy described earlier in the call. On slide 10, you can see our combined US media and corporate orbita, which was up about 6% to approximately $117 million. Q3 corporate expense was up $6.7 million. The majority was due to consulting fees and the impact of market fluctuations on an unfunded equity linked retirement plan. Turning to capital expenditures on slide 11, Q3 US media CapEx spend was $17.6 million, including $5.5 million of maintenance spent. Growth CapEx was up slightly while maintenance CapEx was down about $2 million. For the full year, we believe we will spend approximately $85 million of total CapEx towards the higher end of our prior range, including some spent complete repairs related to Hurricane Milton. We ended the quarter with a little more than 1900 digital billboards, up 17 from the end of the second quarter and representing under 5% of our total billboard inventory. In transit, we had a nearly 1400 digital displays in the US in the third quarter. As has been the case thus far this year, the installations were mostly small format screens on subway and train cars in the New York MTA and we are happy to confirm that we have substantially completed our initial deployment commitments. While speaking of the New York MTA, hopefully you noticed that we did not have an impairment charge this quarter, as we currently expect net positive cash flows through the end of the amended term of the MTA agreements. As such, we would not expect to incur additional impairment charges going forward on our MTA equipment deployment cost spending. Now, turn to consolidated AFFO on slide 12, you can see the bridge on our Q3 AFFO of nearly $81 million. The $5 million year over year increase was due to higher US media orbiter, lower interest expense, lower US media maintenance CapEx and lower other maintenance CapEx partially offset by lower other orbiter, principally related to the Canada sale and corporate expense. For 2024, we expect that reported consolidated AFFO will be between 295 and $300 million. Please turn to slide 13 for an update on our balance sheet. Committed liquidity is over $600 million, including around $30 million of cash, almost $500 million available via our revolver and $110 million available under our accounts receivable securization facility. As of September 30th, our total net leverage was 5.0 times down from 5.4 times year end of 2023. We expect to continue to de-weaver within our four to five times target range through adjusted orbiter growth. Turning to our dividend, we announced today that our board of directors approved a 75 cent per share special dividend, totaling about $125 million payable on December 31st to shareholders of record at the closing of business on November 15th. About $50 million or 30 cents per share will be paid in cash, the same per share amount as the three common dividends paid earlier this year and the remaining 45 cents per share were about $75 million, we paid in shares of our common stock. Stockholders will have the option to elect to receive their special dividend in all cash or all stock. However, if the aggregate amount of stockholder cash selections exceeds the $49.8 million cash limit, then the payments of such cash selections will be made on a pro-grat basis to shareholders who made the cash selection with the balance paid in shares of common stock. Please refer to our SEC filing for further information on the special dividend election process. The special dividend represents the projected excess remaining balance of 100% of the company's 2024 distributable rate income beyond the cash dividends paid earlier this year and has been sized to maximize the tax savings afforded to us by the reach structure, as well as retain the de-weberaging effect of the Canada sale completed in June. To offset the small dilutive impact of the common stock portion of the special dividend, our board of directors also approved a reverse stock split to return our aggregate share count to pre-stock dividend levels, which we expect to complete in January of 2025. There were no large or notable acquisitions made during the quarter, looking at our current acquisition pipeline, we expect to complete about a total of $25 million of acquisitions this year. Before I pass the call back to Jeremy, I'll take a moment to explain some accounting revisions in our documents. In connection with finalizing our results for the third quarter, we identified an error related to the treatment of non-controlling interest on our balance sheet involving a few of our historical consolidated joint ventures. As noted in our earnings release, we concluded that the error was not material to our previously issued financial statements, but would require revisions to our parent's and comparative periods with respect to certain equity line items on our balance sheet and our consolidated statements of equity. There was no impact on our total assets and liabilities, income statement, statement of cash flows, OBRDOT or AFFO related to this matter. As administrative matter, we also decided to voluntarily revise our previously issued financial information to reflect the immaterial out of period adjustment related to variable billboard property lease costs that was already recorded and disclosed in the first quarter of 2023. Please refer to our SEC filing for further information on the revisions. In closing, it was a good quarter and we look forward to running through the tape to the end of the year. With that, let me turn the call back to Jeremy.

Thanks very much, Matt. So before we jump into revenue guidance for the fourth quarter, I want to mention a couple of recent developments which will impact comparability for the prior year, particularly as it relates to our billboard business. First, as many of you may have seen last month, we recently exited a billboard contract with the New York MTA, creating a revenue headwind for Q4. Importantly, and as implied by our full year AFFO guidance, we expect a de minimus impact to our OBRDOT and AFFO this year. For 2025, it will continue to be a revenue headwind, but it will also be very much margin enhancing. Secondly, the storms in the Southeast will also present a small headwind as we proactively removed advertising copy for safety reasons. And it took some time to replace, given some of the damage in the area. We're immensely proud of the team in the region who responded to storms in such a safe and expeditious manner. So with that said, looking ahead to the fourth quarter, and based on what we're seeing in the business as of today, we estimate the reported Q4 U.S. media revenue growth will be around 3%, with billboard in low single digits, and transit, again, growing high single digits, led by the New York MTA. Before turning it over to Q&A, I wanted to speak a little bit more about the billboard contract in New York that we exited, as it's illustrative of our broader strategy with regards to how we approach contracts and partnerships with any counterparty, municipal or private, or any property type, both billboard and transit. This particular concept, contract exit, reflects our focus on improving margins and the economic returns associated with these partnerships. When bidding on new or legacy contracts, particularly those with revenue shares and minimum annual guarantees, we strive to submit proposal that reflects the value brought to such a partnership by out front, requiring an attractive return to the company and its shareholders. So with that, operator, let's now open the line up for any questions.

Thank you, Jeremy. Please press star followed by the number one if you'd like to ask a question, and ensure your device is unmuted locally when it's your turn to speak. Our first question today comes from David Konofsky with JPMorgan. Please go ahead, your line is open.

Hey, thank you. Jeremy, maybe just following up on the Q4 guide, I don't know if you can size the impact of the MTA versus the storms you called out in the Southeast. And then I think the company that has won the MTA contract or it's the MTA contract had flagged some strategic benefit as a result of that, is there kind of, was there any consideration on that front from your side? Just like to hear more on that.

Yeah, thanks David for the question. So as to sort of scale, around about a point and a half of growth in that sort of range. And as I say, then there's a small piece for the storms that we mentioned. Look, with regards to strategic benefit, every company has to make their own decision. When they bid these contracts, I wouldn't want to comment on our competitors bidding strategy. But what I can say is that from our point of view, as the contract, we bid it on the basis that would work for us. And that's kind of all you can say in these situations.

Okay, and then just on the property lease expense, Dan, we would have thought maybe this would have firmed up a bit with the better result in national. So I'm curious if you could walk through national by market, what you're seeing in places like LA and New York relative to the other regions. And you mentioned the West, Flatish. I don't know if you can kind of walk through that and what you're seeing with the media vertical, thanks.

It's, yeah.

Sorry,

you go.

I'm sorry, Matt, as Jeremy mentioned in his prepared remarks, we're still seeing a little bit of weakness in LA and a little bit in New York nationals, not back to where we'd like it. Still, you know, they're strong right now in transit. So our billboard lease expense, not up as much as we've said in past years, it's flipped around when New York and LA overperform, or overperform their peers, you see a little higher lease expense, we're seeing the opposite throughout most of this year. Thank

you. Our next question comes from Cameron McVeigh with Morgan Stanley, please go ahead.

Hi, thanks. Just maybe an update on the MTA integration of some of the programmatic ad tech capabilities down there, how the timing shaping up and potential impact to transit results going forward.

So thanks for the question, Cameron. You know, you heard the call out there that 7% of the revenue generated in Q3 on the MTA came through automated channels. Basically, we've now hooked up our live boards, you know, which are all of the screens that you see on platforms. We've also hooked up the urban panels that are the panels that you see above the subway entrances. What we haven't yet done is hook up on the mobile panels, which are, you know, on train on the subway and also Metro North and Long Island Railroad. So we'll get that benefit as we go down the track and that's gonna be over the coming months. We're also in the process of hooking up our assets in Boston and DC and San Francisco. So, you know, we'll get a bit of benefit also there in 2025. You know, we've been growing transit very nicely this year. It was, you know, good for Matt to be able to, you know, talk about the MTA in terms of the whole sort of, you know, being cash positive as we go forward. So that's a great milestone for the business. And we are, you know, excited, I think, by the growth opportunity that the transit business will give us as we go through 2025.

Got it, thank you. And then just secondly, are you able to size the political ad spend and impact and maybe how that had trended over four Q, thanks.

I can take that for the year in 2024, we got about $15 million of political. I can compare that to 2020 when we had about 10. So a little more effort, a little more involvement of our government affairs team, I think led to a big increase, about half of that amount is in the fourth quarter, obviously primarily October.

Our next question comes from Lance with TT Cowan. Please go ahead.

Thanks, thanks for taking the question. I wonder if you could talk in a little bit more detail about the increased spend at corporate. And I'm just trying to get a sense for, you know, how much of that can we think of as being one time or non-recurring? And, you know, the higher professional fees was not just for the Canada sale, that's easily dismissed if that's the case, but, you know, the management consulting project and higher comp sound a little bit more nebulous and or recurring. And then particularly, I'm not clear on exactly what happened with the benefit plan, I think you mentioned that is unfunded, but yet required some incremental expenses as well. So appreciate your help there.

Oh, sure, it's Matt again, I'll break it down. Just to the benefit plan is an unfunded deferred comp plan, you know, I think tied to the S&P 500 or another equity index. So basically when stock markets go up in a quarter, it's a higher expense, when they go down, it's a good guy. So there's almost only, and the line item is relatively small, so it sticks out. So there's always going to be some volatility from that. And we just try to make people aware, you know, up or down or order of magnitude. The professional fees in corporate is a nationally recognized management consulting firm we've been working with most of the year, helping us really look at our assets and generating more revenue and more or better off the assets that we have. We think the investment this year will add some benefit this year, but a lot more in the future. So we're learning some new techniques and improving our already strong performance around our markets. I think those are two big ones we called out. Comp in 2024, it's mostly, we were a little bit off last year in our numbers, we're accruing closer. As you mentioned, we're at the high end of our ASFO guide. I think we're accruing closer to 100% of our short-term compensation plans versus last year, we were a little bit under our 100% targets. Hopefully that's helpful.

Very helpful, and if I could just squeeze in one more, if anything, it seems like national came in a little bit better than I might've thought. And I'm wondering if you're seeing that continue in the fourth quarter, or is that sort of, was it a kind of a flash in the pan, and maybe we see softer performance going forward?

Yeah, national, thanks, Lars. National was certainly better in Q3 than we'd seen for the first two quarters. And as we look at it now, we'd expect national to be up in Q4.

Thanks very much.

Our next question today comes from Ian Vazino with Oppenheimer, your line's open.

Hi, great, can you guys maybe give us an idea of what conversions look like for the remainder of the year and how you're thinking about it into 2025?

Sure, Ian, I think we'll get our conversions. We usually target a little higher number. Probably digital's about 100 to 150, maybe on the low end of that. Fewer acquisitions this year, fewer management agreements, and around the same number of conversions. So we'll be adding fewer digital this year. I think the number in 25, I'm not prepared to give a precise guidance range, but we're pretty confident it's gonna be higher in 25 than 24.

Okay, thanks. And then also if I could speak in one more on the MTA, and I don't know if you could per se answer this, but as far as the rates going up, I guess ridership is still kind of well below where it was pre-COVID. Are you seeing either advertisers returning or what's driving that rate just given that, a lot of the ridership is just sort of stalled. And any kind of view on what ridership might be doing going forward, I guess a lot of companies are kind of calling people back five days a week, but any thoughts there would be helpful, thanks.

Yeah, thanks, Ian. I mean, we said right the way along that we anticipated we'd be able to get our revenues back up to pre-COVID levels without the audience growing back to, or ridership growing to pre-COVID levels. And that's basically because we just have a much better product. We've undertaken this sort of huge digitization program. So now you can be more timely, you can be more creative, and it's just a very exciting product. And I think that's really what's drawing advertisers back. And as we look at it, I think we really feel very positive from that question that we had earlier with regards to automated revenues, that that will keep driving a pretty solid digital growth story on our transit assets and particularly on the MTA. Okay, thank you very much.

Our next question comes from Daniel Osley with Wells Fargo. Please go ahead.

Thank you, good morning. Maybe just one on national. You've talked in the past about the headwind from the media and entertainment vertical. So just wondering how that vertical specifically is trended early in Q4, and do you expect the Strongs film play later in the quarter to give you a further boost? Thank you.

Yeah, thanks for the question. I think it's fair to say that this year we did expect that the media and entertainment category would sort of bounce back more strongly than we saw. It certainly seems to have taken, I mean, not just for us, but I mean, for the industry as a whole, longer, I think, to get over the impacts of both strikes last year. Where we stand right now, I think, you know, we feel okay about the movie category as we look into the fourth quarter. And there are other areas of entertainment that are doing well for us. Well for us, miscellaneous entertainment looks like it's gonna be up for us in Q4. I'm pleased to say also that it looks like tech's gonna be up. So listen, we have a basket of advertisers and the great thing about our portfolio is that if you're seeing a little bit of weakness in one place, you can typically make an upgrade with some strength in some of the other verticals. I think as we look into 2025, I think that we feel much better as we look at some of the temple films that are coming through in 2025. So I guess we'll get the comp benefit then.

Thank you.

Thank you. And our next question comes from Patrick Shoal with Barrington Research. Your line is open.

Hi, good morning. Thank you. I just had another question about the MTA. To the extent that you do get some recovery and ridership, I guess, is there any sort of concern you have in like the baskets of out of home spending for advertisers and that maybe being reallocated from kind of the billboard side to the transit side.

You know, typically when you look at, when you look at, well, we do have a good crossover between people that use this, you know, on the billboard side of the business and the transit business. We also have some very specific advertisers in transit who are buying transit for different reasons. You know, the commuting audience on Metro North, you know, is not necessarily the same audience as you get on the cross Bronx expressway. So, you know, that I think has always been the case. You know, we have sort of, you know, very high end audiences say in various parts of the MTA system. And, you know, I think most commentators believe that, you know, ridership continues to creep up in cities. I think we do, but, you know, what we're kind of doing just fine without it, because whichever way you look at it, you know, four million sets of eyeballs every single day or more than that is a huge, huge audience for advertisers. And I think people are just, you know, beginning to, you know, re-appreciate that.

Okay. And then maybe on the automated buying side, I guess you said that that's helped bring in new advertisers. What sort of impact has that had on pricing?

So when we look at the pricing that we achieve on a CPM basis through our programmatic channels, about a dollar higher than the CPMs that we achieve through our direct sales force. So, you know, in general, do you know what I mean? Programmatic is, you know, a very sort of, you know, positive part of our business right now. Not all of the dollars that we get on programmatic are necessarily absolutely new. Some of them might have come through a different channel. So they may, you know, so I should make that point. But also, I mean, we take, you know, getting revenues from a bunch of advertisers that frankly, we never would have expected or in some cases haven't even heard of. So, you know, really is extending the number of different advertisers on a weekly basis on our digital platforms.

Okay, thank you. Thank you. We have no further questions. So I'd like to turn the call back to Jeremy now for any closing comments.

Thanks, Lydia. And thanks to everyone for joining us today. I'm sure I'll be seeing many of you at the various conferences and events this winter, but for those that I don't, looking forward presenting our full year results to you in February. Thank you very much indeed.

This concludes our call today. Thank you for joining. You may now disconnect your line.