Q4 2023 OUTFRONT Media Inc Earnings Call

Participants

Stephan Bisson; IR; OUTFRONT Media Inc.

Jeremy Male; Chairman of the Board & CEO; OUTFRONT Media Inc.

Matthew Siegel; Chief Financial Officer, Executive Vice President; OUTFRONT Media Inc

Jason Bazinet; Analyst; Citigroup Inc.

Cameron McVeigh; Analyst; Morgan Stanley

Jim Goss; Analyst; Barrington Research Associates, Inc.

Richard Cho; Analyst; JPMorgan Chase & Co.

Presentation

Operator

Hello, and welcome to the Outfront Fourth Quarter 2023 earnings conference call. My name is Henry, and I'll be coordinating your call today. If you'd like to ask a question today you may do so by pressing star one on your telephone keypad. And I'll now hand you over to Steve.
Stephan Bisson, Vice President of Investor Relations at Outback to begin, Stephan, please go ahead.

Stephan Bisson

Good afternoon, and thank you for joining our 2023 fourth quarter earnings call. With me on the call today for Jeremy Male, Chairman and Chief Executive Officer, and Matthew Siegel, Executive Vice President and Chief Financial. After discussion of our financial results, we'll open the lines for question and answer session. Our comments today will refer to the earnings release and slide presentation that can find on the Investor Relations section of our website. Outfront.com. After today's call is to really an audio archive replay will be available there as well.
This conference call may contain 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 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 avoid that fully on an adjusted basis. Reconciliations of EBITDA and other non-GAAP financial measures for the appendix of the slide presentation earnings release and on our website, which also includes presentations for prior period reconciliation.
Let me now turn the call over to Chair.

Jeremy Male

Thanks, Stephan, 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 U.S. 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 strong predominantly driven by a higher rates resulting from robust demand for billboard advertising and our expanding digital revenue.
Also contributing significantly to our global growth was the continued impressive performance of our automated sales platform, including programmatic. These channels comprised approximately 16% of our digital revenues in the fourth quarter, up from 10% in the first quarter, single digits in 2022, in October, we announced the sale of our Canadian business to Bel for CAD410 million or around USD300 million.
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 we wanted to come live one gold and one broke at the International Festival of Creativity for our partnership with Google and Google Ads awards honor the team for transforming Time Square into a live stage for a revolutionary music performance by the award-winning virtual band, the relapse. This event truly shakeout and showcase the evolutionary and potential. We'll see how that looks like.
So now let's turn to our fourth-quarter results, and you can see the headline numbers on slide 3. Consolidated revenues grew 1.3% towards the higher end of the guidance we provided in November of oh EBITDA was $152 million, and AFFO was [$108 million].
Slide 4 shows our segment results. Total U.S. media revenue increasing 1.1% year over year.
Other, which consists mostly of Canada, was up 5.9%.
On slide 5, you can see our U.S. media revenues in more detail. Billboard revenues were up 3% with growth in all four of our regions, but stronger performances in the east and south. And I'm pleased to call out unusual system, Dallas, Orlando, Kansas City and national chains as these markets displayed exemplary growth leading up to or geographies, transit revenue was down 4% versus the prior year for the entire decline in the quarter was due to weak attack financial and entertainment media strike finally ended in early November for all prime time TV system was effectively pushed entirely others in the quarter. On a consolidated basis, our best performing categories in Q4 were CPG, legal services, education and retail on the weaker side with technology, government, political financial services and of course, entertainment breakdown of local and national revenues in our U.S. business can be seen on Slide 6. Local grew 4.5% during the quarter, while national, which was more heavily impacted by the weaker tech and entertainment verticals. I noted earlier, declined by 3% as a result of 43%, 57%. National local split during the quarter was a bit more likely skewed from 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 automotive transaction revenue.
Slide 8 highlights our strong digital performance with revenue growing 9% in the quarter digital revenue revenue representing nearly 36% of total digital revenues, up 33%, up from 33% last year. Digital billboard was up a robust 10.6%, again fueled by our automatic aged sales channels and new inventory for transit was up 4.5%.
Let me now hand over to Matt to review the rest of our financials.

Matthew Siegel

Thanks, Jeremy, and good afternoon 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 Q4. As has been the case throughout the year, this increase reflects annual rent step-ups, acquired billboard sites and higher variable expense on the portion of our billboards that continued revenue share gains. Transit franchisee expense was down 3.5% with lower revenue share payments to franchisees, partially offset by the higher maintenance of the MCA posting. Maintenance and other expenses was down 2% versus the prior year with increases related to higher business activity. We're offset by reduced maintenance and utilities expenses. Sg&a expense increased by 1% or $4 million versus last year, the entire increase, but we will have higher professional fees, partially offset by lower compensation expenses.
Corporate expense was essentially flat in the quarter as lower compensation related expenses were offset by the unfavorable impact of market fluctuations on unfunded equity index-linked retirement plan and higher professional fees.
Slide 10 provides additional detail on the sources of Borgata U.S. billboard webinar with just over $145 million and represented over 95% of our consolidated within U.S. billboard or EBITDA margin was 39.5% down versus a year ago, but up again versus 2019 straight to the EBITDA was $13.7 million compared to last year's $16.6 million. The decrease was primarily due to lower revenues in churn because we described earlier one-on-one transit. I'd like to take a moment to discuss some of our expectations for the New York and TARMAMSANTA. will step up by only 3% this year to about $150 million. Given the CPI escalator contained within the contract, we will continue to account for a New York MTA franchise expense on a straight-line basis throughout the year.
On the MTA deployment front, we are pleased to say we're very close to the completion of our initial bill. Specifically, we expect to spend around $50 million on deployment in 2020 for finishing our installation and advertising spend at Lone Star, the annual capital investment will step down in 2025 as we look forward, replacement communities are Capital Connect.
Turning to capital expenditures and sort of what Q4 CapEx spend 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%. Their value benchmarks, including disposal was almost $9 million of spending related to the moves for three large offices in New York, Los Angeles and San Francisco 2024, we expect to spend approximately $75 million of total CapEx for about [$70 million] to be spent in our U.S. business. For the total amount, about $25 million will be maintenance CapEx.
Moving to FFO on slide 12, you can see the bridge towards two for a total of [$108 million] improvement is principally driven by the non-cash effect of straight-line rent, AFFO line item which was an $18 million swing versus last year 2024. We currently expect reported consolidated AFFO growth in the high single digit range for 2023. They have a flow of $271 million, driven principally by improvements in Oregon. Notably, this guidance assumes a June 30th, close the sale of.
Okay.
Let's please turn to Slide 13. For an update on our balance sheet for you and the store. In November, we completed a new $450 million senior secured note offering and utilized the proceeds to repay our $40 million of senior unsecured notes due 2025, pushing this maturity out about this year to 2031. Available liquidity is slightly over $600 million include around $40 million of cash, nearly $70 million available of our revolver and $85 million available by our accounts receivable securitization facility as of December 31st, our total net vertical was 5.4 times, and we remain comfortable with our debt stack with our next maturity other than they are certainly not being due until 2026 with less than 25% of total gas subject to floating rates. As Jeremy mentioned, we reached agreement to sell our PT business about China on the 10-week period, subject to certain adjustments, which equates to that [$300 million] our USD20 million facility that came. We continue to expect this transaction to close in the first half of 2024 and intend to use the proceeds to pay down debt, delever and reduce annual interest expense by approximately $20 million.
Turning to our dividends, we announced today that our Board of Directors has maintained a $0.3 cash dividend payable on March 28th to shareholders of record at the close of business on March first, based on our current operational expectations, and the taxable gain created with the sale of our dairy business, we believe we will need to pay a large dividend later in the year.
For wheat, yes, extend frequently. The other acquisitions during the quarter, bringing our total to 2023 to about $34 million lower than our current acquisition pipeline. We expect our 2020 for deal activity so 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 future and 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].

Jeremy Male

Thank you, Matt, for the moment. I'm pleased with our billboard revenue performance in what ultimately proved to be a rather challenging 2023 for happy to turn the page to 2024, which we expect will be a significantly improved year. We'll be starting off on the right boats in the first quarter has based on trends. To date, 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 nonrecurring condemnation revenue, which we've highlighted last night. But there, as I just mentioned, implied by our full year FFO guidance, we are encouraged by the early signs we are seeing for the remainder of the year. We see numerous tailwinds for our company in 2024, including the continued ramping of our acquired inventory and additional recovery and our transit business. We also expect that we and in fact, the entire out-of-home industry will benefit from the crowd out effect of the Olympics and the 2024 election as well as the return of a prime time TV season in the second half.
I would like to close our prepared comments today by reiterating how proud I am of the upfront team for that performance last year. And then does that continue that sort of positioned us for success in 2024? And with that, operator, let's now open the lines for and any questions.

Question and Answer Session

Operator

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 one 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.

Jason Bazinet

I think sales have gone from. I just had a question on the FFO guide. Do you guys mind just unpacking the details sort of below in the headline sort of EBITDA number, just so we have the pieces.
Right.
And then also the impact of candidate, assuming that June 30th close Okay.

Matthew Siegel

I'm sure it's Adrian on that. Could we understand?
Yes, we took that as a few more moving parts this year because of the timing of the sale, I tell yes, yes, on HSEI. to go again for growth, deciding assume residential resale of candidate figure of June 30th, but I'm seeing some seasonality of the business. So given that we get the shorter here from Tropicana operation in 2024 compared to the full year of Canada in 2023. You'll probably think there's a couple of more points of growth available on a full year comparative basis of AFFO based on the timing and otherwise you wanted to sell candidly, probably yes, and clarify that a little better, even seasonality heavy Q4. And the folks from talent at the start in 2023 won't be felt in [2024] would go to our AFFO growth on a bunch of AFFO growth. You have mentioned that maintenance CapEx is about $25 million, cash taxes of about $5 million in interest expense, somewhere in the [155.60] range of course, depending on the work interest rates floating.

Jason Bazinet

Okay, got it. So the growth, if I heard you right, would be a few points higher if you hang onto Canada for the full year.

Matthew Siegel

yes.
I guess the best thing is.

Jason Bazinet

Okay, got here.

Matthew Siegel

We were.

Jason Bazinet

Okay.
Great.
Thank you.

Operator

Our next question today is from the line of Cameron McVeigh of Morgan Cameron, your line is now open.

Cameron McVeigh

Great, thank you.
And 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 and transit.

Jeremy Male

So when you look at it, it is certainly on it. It impacted our business really far more than others, certainly with the industry, just because our exposure to major revenues in particular that given a prominent positions in both the deal and the low side are sensitive. So when we look into it in a reasonably significant impact in dollar times on our global business, particularly as I put in a percentage of revenue firms with the transit business was most impacted. And that's because transit is more disposed towards national and then Trump at expense terms have been somewhat where they are. All TV schedules have come out. Typically that have been very, very successful for us and our clients. So as we look to this year?
Tom, we always obviously, I expect that we'll see a full schedule this year.
So we think that will be a tailwind to our numbers as we go through the year and maybe we'll see a benefit in those early months as well because there's some new content of Alpha that we believe that would have been promoted last year that may well be permitted in the earlier part of this year. So So generally, we feel positive positive on that. And it's interesting. The other category that some was difficult for last year not only difficult for us to go for just about everybody on a holding company. I think that's reported so far was obviously 10. And while Monday Toyota, maybe Sobha, it's good to see that on our tech revenues is actually pricing that it had in Q1. So that's a positive sign.

Cameron McVeigh

Got it.
Thank you. And then just secondly, if you could just walk through an update of how you're thinking about how margin should trend through the year?
Yes.
If I think about what impacts margin, if wage and add commission inflation, you're lapping some M&A comps? And then there's some 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.

Matthew Siegel

Thanks. Again, have a lot of moving parts in 2014, breaks down it changes. We expect some improvement in our transit business given our big franchises that New York go layer underneath that minimum guarantees proving submit revenue will help margin. We expect to see that on the transit side on billboard, we had again acquisitions to mid 22 early 23, which was a bit of a drag in 23 on so good margins because the higher lease costs outstripping revenue growth, we think that catches up during 2024, even though there will be a ramping basis, I think are on and these [5%] that revenue growth will improve. Some part is other costs, some money inflationary pressure in certain areas and some non tech spend. So it's still hard to say quarter-to-quarter. We think that margins would be similar to a little better this year last year.

Cameron McVeigh

Got it.
Thank you.

Operator

Thank you.
As a reminder, if you would like to ask a question, please dial star one on your telephone keypad. And our next question stays from the line of Jim Goss of Barrington Research. Jim, your line is now.

Jim Goss

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 and whether that trend has an impact on those gains we've made?

Jeremy Male

Thanks, Jim. Yes, when we look back to Q4, the numbers of digital was 36% of it revenues. And that's very much weighted towards billable on the problems in transit, so [36%] of our revenues. And so the previous Q4. So you can see that that's a that's a big step offense, that's 20%. And we think that that number's going to go one way. We continue to opportunistically convert boards and this year we would expect to be in that 150 to 200 on new board range. And so you have essentially more assets in the field and on and then we also have the swing to towards automation. And that's, you know, that's an exciting that's an exciting trend and all our estimated revenues to be 16 presented.
The final data from the other peptide sites, the digital business, and that's starting to become a needle mover. And we think as time goes, it's all, as we've said before, we believe that digital in general will be margin enhancing for a profitable business. So it's not, let's say a linear thing. But if we look over time, we think it's certainly going to be positive to the overall business.

Jim Goss

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 I mean, it is it is being helped by the rebounding it markets in terms of price?

Jeremy Male

Yes, obviously, yes, inflation, yes, obviously, but when it whenever you digitize your estate, you are adding on adding on supply. And that's always helpful when you're running on supply and to have a tailwind in the ad market. But when I say last year, actually there were a bunch of headwinds and digital revenue, we still managed to grow significantly. So but net-net, we think we're still very confident in the investments that we're making in our business to further digitize one of the big funds factors last year that we started saying just the late money that we were able to take it as a company that we wouldn't have been able to take in years before someone wants to get out of today, we have done I'm going to pull through in the next hour. We can have we can have data at a federal agency. This is a this is an industry where previously inflexibility it really works with the keyword. So to have that flexibility, we think there's a little fun this fall. It's further out.

Jim Goss

And just one other one. You called out a number of markets where you thought they were particularly notable strength in your billboard business. Is there any commonality among the markets you called out that you can draw any conclusions from and what the what might those be?

Jeremy Male

On a number of the markets in the south?
So well in a very smooth Dallas. Obviously, Texas is certainly has been strong, but it adds up. As I said, Florida generally is good. So that's included in that were some blended Ambien in Nashville cuts on the upside, I think with the Tennessee and before going to sort of a page speaks for itself. You said that the markets that were so critical for us really in particular, I guess there was some on the West Coast markets, habitual about San Francisco Bay difficult for us last year. I think on some of the reasons that it makes itself evident from what we will not read the press. ṣAnd then I guess in particular as noted was impacted by anything yet, but we could do so.

Jim Goss

All right.
Thank you very much.

Jeremy Male

Thank Jim.

Operator

Our next question today is from the line of Richard Cho of JP Morgan. Richard, your line is no, thank you.

Richard Cho

I just wanted to follow up on the 1Q revenue guide of low single digits in terms the strength that you're seeing between billboard and transit on, where's the strength coming from and how much is programmatic potentially contributing to them?

Jeremy Male

Okay.
So going back to the guidance, which is, thanks for the question on.
So we guided to low to mid single digits.
And and we we said the final parts of the business, we're going to be we're going to be up, which is which is obviously a great sign on top of that is going to be automated revenues which will continue to grow this year. We expect with no reason why that growth should images and take it outside and not keep creeping up to.
Now the good thing on But what is also good to see right now is that both our local and national businesses, while again, it is still whatever it is. We reached to go in the quarter on both businesses are pacing up right now. So that's good to see strength. Look, it feels very young, very full base, and it's nice to see that acceleration from the growth rate that we did to go in the back half of the back half of last year with some of the challenges that we've had already.
What are we talking about?

Richard Cho

And given that do you see that there's been a change in your customers and wanting to do more out of home at this point and they feel more comfortable that environment versus last year where there's a lot of uncertainty?

Jeremy Male

So on the face of it, yes, I mean, last year, actually, it was all about really two or three different categories that didn't show up, Tom. So we think that it will protect us just a bit of a bounce on that will be very positive for us. The social media coming back will undoubtedly be positive and we expect that and the clients that have given us support over last, it's will certainly be shown as a ball game.
Slide 24.

Richard Cho

Great. Thank you.

Operator

As a final reminder, if you would like to ask a question, please press star followed by one on your telephone keypad.
Okay, we have no further.
This is Nicky today. So I'd like to hand back to Jeremy Male for any further remarks.

Jeremy Male

Thanks, everyone, and thank you for joining us today.
I'm sure we'll be seeing, but many of you at conferences and Ventura and over the coming weeks, the dose, of course, presenting our Q1 results to be made.
Okay, thanks very much.

Operator

This concludes today's call. Thank you all for joining and you may now disconnect your lines.