Q1 2024 OUTFRONT Media Inc Earnings Call

Participants

Stephan Bisson; IR; OUTFRONT Media Inc

Jeremy Male; Chairman of the Board, Chief Executive Officer; OUTFRONT Media Inc

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

Cameron McVeigh; Analyst; Morgan Stanley

Ian Zaffino; Analyst; Oppenheimer & Co

David Karnovsky; Analyst; J.P. Morgan

Unidentifed Participant

Presentation

Operator

Hello, everyone, and welcome to the Outfront Media first quarter 2020 for Bunnings call. My name is Henry, 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 one on your telephone keypad is now my pleasure to hand you over to Stefan piece. Once we get, please go ahead.

Stephan Bisson

Good afternoon, and thank you for joining our 2024 first quarter earnings call. With me on the call today are Jeremy Male, Chairman and Chief Executive Officer, and Matthew Siegel, Executive Vice President and Chief Financial Officer. After a discussion of our 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 filings, including our 2023 form 10 K and our March 31st, 2020 14 Form 10 Q, which we expect to file tomorrow. We will refer to certain non-GAAP financial measures on the call. Any references to the made today will be on an adjusted basis and reconciliations of EBITDA 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 Pierre.

Jeremy Male

Thank you, Stefan, and thank you everyone for joining us this afternoon. We're pleased to share our first quarter results detail, which came in broadly as we expected when we last spoke in February, as you can see on Slide 3, which summarizes our headline numbers for 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 4 shows our segment results with total U.S. 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, 5.7% on slide 5, you can see our U.S. 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 perform exceptionally well with particularly strong performances.
Atlanta, Dallas, some signs of recovery in San Francisco further, our recently acquired assets in Portland that picked up a nice heads St. 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. Breakdown of our local and national revenues in our U.S. business can be seen on Slide 6. 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 also utilities, real estate, travel and health to medical.
Slide 7 illustrates our solid US billboard yield growth, up 3.3% year over year, reaching just under $2,600 a 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 transient was up 16.7%. Obviously fueled by the E-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.

Matthew Siegel

Thanks, Jeremy, and good afternoon, everyone, for a deeper dive into our financial statements. Please turn to slide 9 for more detailed look at our expenses. Total expenses were up about $6 million or just under 2% year over year. Q3 lease expense was essentially flat in the quarter versus last year, excluding the impact of the $5 million out-of-period adjustments in the first quarter of last year.
Billboard lease expense was up in the low to mid-single digits. This growth was driven by 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 trains and agreements, which combined more than offset higher MAG payments for 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. Sg&a expense was flat during the quarter as the 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-linked retirement plan. Higher professional fees are principally related to a management consulting project.
Slide 10 provides additional detail on the sources of EBITDA, total EBITDA was up approximately 10% to $66.5 million. U.s. billboard or EBITDA was just over $97 million and EBITDA 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 transitory, but it was a $15.3 million loss compared to last year's loss of $20.5 million. The improvement was primarily due to the better revenue chairman 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 US this quarter, increasing our US 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 US, 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 bring 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, FFO of just over $23 million to $14 million year-over-year increase was due to improvements in EBITDA, maintenance, CapEx, cash taxes and other slightly offset for higher interest expense for 2024. We continue to expect that reported consolidated AFFO growth will be in a high single digit range from 2023 AFFO of [$271] million. As we noted in February. This guidance assumes the June 30 closed 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 $70 million available on our revolver and $30 million available via our accounts receivable securitization facility. As of March 31, our total net leverage was $5.4 times flat compared to December 31. 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 a $0.30 cash dividend payable on June 28 to shareholders, shareholders of record at the close of business on June 7. As a reminder, based on our current operational expectations and a taxable gain created with the sale of our canning business, we believe we will need to pay a larger dividend later in the year for retail clients. We spent $6 million on tuck-in acquisitions during the quarter. And looking at our current acquisition pipeline, we continue to expect our 2024 deal activity to look similar to that of 2023 in closing through 2024 store growth 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.

Jeremy Male

Thanks, Mass. We were pleased with our first quarter performance, particularly with other transit, which returned to solid growth off of what proved to be a rather difficult 2023 with the influence of the second quarter and baseline trends of today, we estimate that Q2 revenue growth will be broadly in line with Q1's both incentive scale and also shape between billboard and transit.
Before ending the call today, I'd quickly like to discuss our high-level transit strategy, but 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 for exiting such agreement cannot be struck.
Another example of our Toronto strategy that I would like to highlight is our new long term contract with Walmart in Washington, DC, 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 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 of placing 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.

Question and Answer Session

Operator

Certainly if you would like to ask a question, please dial star followed by one on your telephone keypad. Now if you change your mind, please dial star followed by two to exit the queue. And finally, we're preparing to ask a question. Please ensure that your phone is unmuted locally.
Our first question today is from the line of Kevin McVeigh of Morgan Stanley.
Please go ahead your lines.

Cameron McVeigh

Thanks for taking my question. I just had a couple. Firstly, what are your what in your view is driving the divergence between local and national growth? Is that using credit to certain clients? Or do you see this more broad-based?

Jeremy Male

Yes, thanks. Thanks very much for the question. Karen I think when you look back, if you look back over time, it's fair to say that some local some part of our business has always had a much slower on lower beta than our national business and national tends to be far more lumpy and based on just one or two unit appetizers at a particular quarter, either being there or not, you can we can see quite a significant adjustments. You remember at the back end of last year, for example, when we had done in ITTV. was difficult, obviously with the young with actions in light of the strikes, et cetera, that you know that one factor can have meaningful impacts on our business. Our local business is much more properties spread across a much larger number of smaller advertisers and <unk> from that point of view, is that has that lower beta than I think it's fair to say that some and it's worth calling out actually the performance of our <unk> of our local chains, which has actually been really, really strong over the last in that last 18 months.

Cameron McVeigh

Great. Thank you. And secondly, what do you see as the largest growth driver for transit revenue going forward off of our ridership levels still as impactful? And how much how much M&A in tech recovery do you see that still fuelling growth going forward?

Jeremy Male

Yes, I think there's some I think there's couple of things look at the end of the day to some extent or rather we are selling eyeballs, but we're increasingly getting getting away from that. And we're getting a weight to the comparison back in 2019. I think at some it's almost 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.
Yes, I don't know how many have you spent much time in the subway or a Metro North Long Island Rail Road lately. But what you will see us and fabulous on advertising displays that we are now just at the point where we are connecting with those in an automated way so on as the video panels that we have a subway stations in New York and our live sports are now able to take programmatic trade and over the coming months we'll also going to open up our pipe so that they can take our own and automated platform feeds, which is DDI. So we think that digitization plus automation will be significant. We're a driver for us as we go forward.

Cameron McVeigh

Yes. Thank you.

Operator

Our next question today is from the line of Ian Zaffino of Oppenheimer. Please go ahead.
Your line is open from.

Ian Zaffino

Great. Thank you very much. On a question also the on the transit side, um, you know, I know in the past is you expressed like gum concerns about there being stigma around advertising on the subway. Is that kind of done now? Or are your advertisers now returning and from that? Or is that still kind of an impediment and then how do you square kind of the growth maybe with kind of that?
Great.

Jeremy Male

Yes. I think segments probably probably a strong word so that there are occasions when some of the publicity, maybe particularly here in New York that might be negative with regards to M&A, the subway or whatever. I'm a probably not helpful, but on balance, I think we can sell our way through that. And don't forget it's not all about on either. It's not all about subway because we have bus advertising. You have a lot of above ground product and we have and shelters and we have some great national advertisers that are making fabulous use of those environments on very, very effectively.
So on. Can I measure maybe at the margin a little unhelpful, but some can and I think I think we can sell our way through it. I think the other point is that we just generally and just increasing focus centered on on on our on the transit business with advertisers. I think we've got some very smart marketing out there right now, and we're very good at it. But as I say is very good. So that's I suspect some nice growth which should expose continuing into, you know, into the second quarter and then and then onwards for payout.

Ian Zaffino

Okay. Thanks. And then on I know you mentioned political as a big category. Is this just like standard election year on advertising you're seeing? And maybe what should we expect kind of going forward throughout the year because we have the on the presidential election. But your referendums on that, does that impact how you think that maybe this year versus like, let's say, other presidential elections, granola outdoors, not but the massive recipient of it, but wondering if anything might change there or how we should be thinking about that going forward.

Jeremy Male

And yes, maybe maybe just answer that with a couple of a couple of numbers, really, I'm getting we have government and political, which is one category. So we don't we don't sort of split those out on. But in percentage terms in Q1, that was up 29% just over a couple of million bucks, something like that. So if you sort of map that out and assume the 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 and back in 2020, we did around $10 million of political. We think in '24, we could be somewhere in the region of $15 million to $20 million.

Ian Zaffino

Okay. Thank you very much. I appreciate that.

Operator

The next question today is from the line of David Karnovsky of JP Morgan. Please go ahead. Your line is open.

David Karnovsky

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, other counter factors to consider as well like less vehicle traffic on highways.
And then separately, you mentioned some early strength in San Francisco. Wanted to see if you could expand on that? How much of that is potentially related to tech?
Thanks.

Jeremy Male

So yes, I mean, just thinking about the congestion congestion charge, I think people are still trying to map out exactly what it's of 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 and what's interesting when you look at other cities or their institution introduced congestion charge, what you tended to find is that and while that may have some impact on general general traffic and then that seems to come it goes down and then it starts coming back up. I mean, in my humble opinion, the congestion charges just about it's just a tax on. So that's so that's I just my 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 web, which also highly pedestrian lines anyway. So and I think, Chuck, we feel yes, we feel that that is likely to be neutral to mildly positive beneficial for tech was up slightly on in San Francisco.
And to your second question, I think as we look forward, there is far more positive stories come out of San Francisco right now. And it was actually and quite a bit of our growth that we achieved in San Francisco was from our local sales forces who did a great job to work. And so those are some of the national dollars, but maybe still out there as we would like.

David Karnovsky

Thank you.

Operator

As a reminder, if you'd 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.

Unidentifed Participant

And this is Pat on for Jim. I had a question on the automated advertising that you guys talked about earlier. I'm just wondering if the increase in that was a function and advertisers putting a greater percentage of their spend through that channel or an increase in the number of advertisers using that and just get more successful awareness of that opportunity for advertisers just are a combination of the two.
Thank you.

Jeremy Male

So there's two pieces to our automated automated platform. One is programmatic, and that is it. It's nicely up year over year. And that's driven by some advertisers who might have come to us through normal channels, but also and there's undoubtedly appetizers that there's no way we would have bottomed. We would have reached some generated throughout and normal dedicated sales force. So that's that's on that. Where's the balance on that base?
The second piece is on our own automated platforms and there's two pieces that one we're going out and essentially selling rather than location-specific on a broad indication that in the case of billboards where they're selling baskets of eyeballs, now people are very keen to buy and eyeballs on a CPM basis. And the way the rest of media trades and is certainly generating enthusiasm for advertisers that would not have believed would not have used our channel. We believe I think the only final point to make on JDA is that essentially very efficient for us in terms of how we can allocate those revenues across our boards in terms of button for utilization. So actually there are some buyers that we would prefer to go through that. So they're not necessarily additive in terms of total ad dollars and but they are very efficient.

Unidentifed Participant

Okay. Thank you.

Operator

Thank you. And with no further questions in the queue, I would like to turn the call back over to Jeremy metal for any closing remarks.

Jeremy Male

Well, thanks, Larry, 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 weeks.
Thank you again.

Operator

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