Good day, everyone, and welcome to the OUTFRONT Media First Quarter 2022 Earnings Conference Call. At this time, I'd like to turn the conference over to Stephan Bisson, Vice President of Investor Relations. Please go ahead, sir..

Good afternoon, and thank you for joining our 2022 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 up 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, outfrontmedia.com. After today's call has concluded, an audio archive 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 2021 Form 10-K and our March 31, 2022, Form 10-Q, which we expect to file tomorrow. We will refer to certain non-GAAP financial measures on this call.

Any references to OIBDA made today will be on an adjusted basis. Reconciliations of OIBDA 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. Let me now turn the call over to Jeremy..

Thanks, Stephan, and thank you, everyone, for joining us today. It's great to be here sharing our first quarter results, which came in stronger than we anticipated when we spoke last in February. Many of the positive trends we previously noted continued into the start of 2022 and, indeed, through to today.

Demand for our billboards has never been hotter. And given the flexibility of digital, we continue to book late incremental business. This is reflected in our increase in billboard yields, and transit revenues continue to improve as employers increasingly encourage their teams to join them in the office, at least part of the time.

These trends, binds with the terrific efforts of our employees, led to our strong revenue results, the details of which can be seen on Slides 3 and 4. Total revenue grew 44%, ahead of our low 40s expectation. U.S. Media was up an identical 44% year-over-year and 5% ahead of our 2019 level on a consolidated basis.

We continue to see strong revenue growth in virtually all of our regions for both billboard and transit, but our performance in large markets was exceptional, with New York and L.A. being 2 of our best performers in Q1. Other, which consists mostly of Canada, was up 40% versus the prior year.

Our strong revenue growth led to a nearly $60 million year-over-year improvement in both OIBDA and AFFO, which grew to $70 million and $36 million, respectively. On Slide 5, you can see a more deep outlook at our U.S. Media revenues. Billboard grew by 33% from last year, but even more impressively, it was up around 20% versus the same quarter in 2019.

Transit also accelerated its year-over-year performance, up 115% in Q1 compared to the 101% observed in Q4. Transit revenues continue to face the headwind of lower ridership, but we were, again, pleased to see the New York MTA revenue recovery outpacing readership growth when both are measured against the same period of 2019.

Indeed, the positive gap between these 2 widened, which is a trend that gives us further confidence and our expectation of 2019 transit revenue levels being achieved next year. Turning to Slide 6. We can see the breakdown of local and national revenues in our business.

National growth outpaced local again this quarter, up 59% year-over-year compared to local's 36%. National Transit was up an outstanding 154% as large advertisers return to the subways and buses in force. Billboard was strong across both sets of advertisers, with national up 39% and local up 30%.

One of the most encouraging trends for our company is our impressive U.S. billboard yield growth, as seen on Slide 7. Over $2,300 is a Q1 record, a 35% increase from last year and 25% above Q1 2019.

While occupancy has improved from last year's first quarter, the largest contributor to our yield growth is rate, which was significantly ahead versus both '21 and '19. Looking deeper into digital on Slide 8. Digital revenue grew more than 90% in the quarter and was 29% of our total revenue versus 22% last year.

Digital revenues continue to be helped by increased yield, new inventory and incremental late booking revenues, which expand our selling window. This trend was well illustrated in Q1, as we booked a large contract on March 24, that added nearly $0.5 million to our first quarter revenues.

Billboard Digital grew 65% and Transit Digital continued to accelerate versus last quarter and more than quadrupled from the soft comparison last year. Unsurprisingly, Digital Transit continues to be led by the New York MTA, with demand returning and increased digital inventory at the stations and the beginning stages of rail car deployment.

We continue to be especially excited about the digital future of the New York MTA. Let me now hand over to Matt to review the rest of our financials..

Thanks, Jeremy, and good afternoon, everyone. We appreciate you joining our call today. Please turn to Slide 10 for a more detailed look at our expenses. Total expenses were up $55 million or 22% year-over-year as our strong revenue growth has led to increases in our variable and performance-related costs.

Billboard lease expense was up 14% year-over-year in Q1, primarily reflecting higher variable expense on a small portion of our billboards that contained revenue share agreements. Notably, a majority of these types of revenue share boards are in New York and L.A., which were 2 of our best performing markets this quarter.

Fixed lease costs were up only 3% in Q1, reflecting new locations and modest annual lease adjustments. Transit franchise expense is typically a revenue share expense and was up 35%, primarily due to higher revenues, but also due to contractual step-up of minimum annual guarantee payments to the New York MTA.

Posting, maintenance and other expense was up 18%, given the additional activity that results from our higher revenue. Lastly, on expenses, corporate and SG&A expense combined increased 28% versus last year.

This reflects higher revenue and OIBDA, driving increases in our accrual of performance-based compensation costs as well as a small increase in bad debt expense. On Slide 11, you can see our OIBDA for the quarter is up $59 million from last year and represents a margin of almost 19%.

Slide 12 provides additional detail on the sources and growth of OIBDA. U.S. billboard OIBDA grew 77% to $93 million. Billboard OIBDA margin was 32.7%, up more than 8 percentage points from a year ago and more than 3 percentage points higher than our 2019 margin of 29.6%.

These higher margins are primarily being driven by the higher revenue and relatively fixed cost nature of our leases and an increased share of digital revenues. We anticipate that these trends will continue to help billboard margins to improve over time.

Transit OIBDA improved by $15 million given the higher revenue, offset somewhat by increased transit franchise expense. As we mentioned on the Q4 call, quarterly transit revenue has seasonal fluctuations, while the New York MTA MAG is accounted for on a straight-line basis. So the largest negative impact of paying the MAG is felt in Q1.

We continue to expect that over the full year, the MTA revenue gap to the MAG breakeven will significantly narrow. Turning to capital expenditures on Slide 13. Q1 CapEx spend was $17 million, including $4 million of maintenance spend. The $7.5 million increase in total CapEx versus the prior year was primarily due to digital investments.

We added 31 digital billboards in the U.S. this quarter, increasing our U.S. total to 1,432, up 174 or 14% versus Q1 2021. In recognition of potential supply chain issues, we ordered boards with additional lead time and still expect to add 150 to 200 total digital billboard displays this year.

Looking at AFFO on Slide 14, you can see our Q1 AFFO of $36 million improved by $60 million year-over-year as essentially all of our OIBDA growth flows through to AFFO. For the full year, we continue to expect AFFO growth to be around 60% from 2021 to $205 million. Please turn to Slide 15 for an update on our balance sheet.

Committed liquidity is over $850 million, and our total net leverage declined to 5x as our OIBDA continues to recover. We continue to monitor rising interest rates and remain very comfortable with our debt stack as our next maturity isn't until 2025, and only 21% of total debt is subject to floating rates.

Lastly, we announced today that our Board of Directors has again declared a $0.30 cash dividend payable on June 30 to shareholders of record at the close of business on June 3. We remain well capitalized to participate in M&A, though our spend on tuck-in acquisitions during the first quarter was light.

Looking forward, we would characterize the M&A pipeline as being robust and interesting. 2022 started off exceptionally well and we remain very enthusiastic about the rest of the year to come. I look forward to speaking and meeting with many of you over the coming weeks and months. With that, let me turn the call back to Jeremy..

Thanks, Matt. The first quarter truly illustrated many of our company's friends as well as those inherent in the outdoor industry as a whole. While in these times, it's always sensible to knock on wood. I'll say that the country seems to be back. The streets of our cities are busier and more crowded.

Workers are returning to their offices for at least portions of the week. Main Street is strong, and advertisers are certainly spending to get their messages out. Looking specifically to Q2, while obviously, geopolitical and broader economic uncertainties exist, we expect to have another great quarter.

From where we sit today, we currently estimate that Q2 revenues will grow in the low 30s percent range, with transit up between 80% and 90% versus last year. As we look at the balance of the year, we believe there are a number of trends that will continue to benefit the business.

First, our conversion to digital, which allows for more advanced creative messaging, shortens our time to market, increases our selling window, benefits from automation and also opens up our assets to new advertisers. Second, strong advertiser demand, which drives our yield, while maintaining significant ROI for our clients.

And third, a diverse client base that includes the return of out-of-home stores such as entertainment, tech, medical, professional services, retail and travel, but also newer users such as cannabis and online sports betting.

Outdoor remains by far one of the most cost-effective forms of advertising with Magna estimating that outdoor's cost per thousand impressions is lower than any other form of media, TV, radio, print and digital.

Recent changes to digital due to IDFA appear to have influenced some companies advertising campaigns, such that they are beginning to incorporate more traditional advertising into their branding efforts. Given these facts, we believe outdoor and indeed outfront stand to benefit and take a larger portion of total advertising going forward.

To conclude, I'd like to say that in my many years of working in out-of-home, I'm as enthusiastic about the state of our industry today as I ever have been in the past, the wind in our sales. I hope to see and meet with many of you at various conferences and events this spring and summer.

But for those who don't, I look forward to presenting our Q2 results, too, in August. And operator, with that, can we now open the lines for questions? Thank you..

[Operator Instructions] Our first question will come from Ben Swinburne with Morgan Stanley..

Two questions for you guys. Jeremy, I'm sure you've heard or at least heard of a lot of the earnings calls this quarter across the advertising space.

And there's been a lot of companies not in out-of-home, but all sorts of digital and other businesses, that have called out incremental weakness in certain categories, auto, CPG, et cetera, talked about supply chain constraints and visibility getting worse. Obviously, in your comments, we didn't hear any of that.

I know it's hard to know precisely, but do you think this is a function of out-of-home being just later cycle in that you have a business that you write for weeks and months, and so we really can't necessarily extrapolate? Or do you think that the business is just fundamentally in a different place than some of these other competitive platforms with advertisers? And if there are any categories that you have seen weakening, it'd be interesting to hear which those are and how you're offsetting it, and then I was just curious around New York and L.A., obviously, huge markets for you guys, how far from pre-pandemic revenues are those markets at this point? Do you have a lot of room to run left still in those 2, which obviously your 2 biggest?.

Thanks, Ben. Let me try and take all of that. I guess the first point is that so far, and I think you can probably tell that from our tone in our guidance. We obviously haven't seen any softening yet. If we look at the categories that drove Q1, entertainment doubled, technology was up nearly 2x, travel was up 80%, utility was up 75%, resell up 60%.

And as we sit here today, looking at Q2, pretty much every category is again nicely in the black. And you mentioned auto, while we saw a little way to running Q2, obviously, auto is actually sort of pacing up 34%.

So I do think that when you look at our business, if we are going to notice something, we wouldn't really notice it because remember that we're not quite 50-50, but we have a lot of local business we have a lot of national business.

And that national business is literally it's laying down by the day, if you like, typically in 2- to whatever it is, 4-week periods for a few weeks or maybe a couple of months hence. So I think we would have seen something by now. Just going back to the New York and L.A.

comment, I mean, the billboard businesses in both markets are nicely above 2019 now. Obviously, transit weighs on the business in New York because that's currently placing around whatever it is around 70% of '19. But just generally, pretty much right the way across all of our markets is a strength..

Our next question will come from Jason Bazinet with Citi..

Just in your prepared remarks, Jeremy, you called out that billboard rate was above 2019 levels. And I guess I can imagine a cynic sort of saying, well, that's just driven by inflation as opposed to some of the comments you made about outdoor potentially taking share, given some of the IDFA like changes that have taken place.

So can you just -- any sort of color that you could provide to sort of offset the sort of knee-jerk reaction where people are going to say, well, this is just inflation-based as opposed to something that's perhaps more enduring in terms of shift of ad dollars to outdoor category?.

Yes. When you drill down into the -- into our yields, and we -- as you can imagine, we spent quite a bit of time on it, and we look at that comparison. Actually, if you sort of split that down a little bit further, just to -- and this is kind of some rough guides for you.

But the occupancy rate is probably about 1/3 of our yield growth and the rate was about 2/3. And then if you sort of then sort of work that through. I mean that's well ahead of any inflation that we've seen over that time, including the kind of whatever is headline inflation rate that we're seeing right now.

As far as I can see, it's very much demand-based.

And I do believe that inflation generally for our business and for the industry as a whole because of the relatively fixed cost nature of the leases were versus our ability to go out and length of those leases versus our ability to go out and if you like, sell over much sort of shorter duration than leases actually thinking inflation is generally a good thing for us, generally a good thing for the industry.

But I don't see what we're seeing now is a reflection of today's headline inflation rate. Our book is building many weeks before these headline numbers hit the news..

I will now take a question from Richard Choe with JP Morgan..

Just wanted to follow up on the Transit EBITDA or OIBDA side. You talked a little bit on how it should trend.

But when should we see that kind of turning positive or improving and then turning positive given the strong results in that business?.

Richard, thanks for the question. It's Matt. The key thing in the transit to OIBDA is the New York MTA MAG situation. For the full year, we expect the MTA to be under the MAG, but during the course of the year, getting closer to that breakeven level.

So in the later half of the year, third and fourth quarter, New York will be a positive EBITDA story in transit. So I think, overall, the transit -- our transit portfolio EBITDA should turn positive later in the year going forward.

Looking at 2023, we've said in the past and we'll say again that we expect our transit revenue overall, including the MTA, to be back at 2022 levels, and we shouldn't have this MAG situation impacting next year's numbers..

Great.

And then on the national advertising side, are the campaigns typical duration, are they getting longer or shorter, but more, I guess, intense? Any color there?.

So when you sort of drill into our business, we have -- in both our local and national business, we had percentage of our boards that typically would book -- we call them kind of tenant locations. So they are typically booked for 12 months. But the majority of the national revenue would be booked in flights for 4 weeks.

But once again, now we have digital, we can be so much more flexible. So we can have people just going to come in for free dose over a long weekend or whatever else it happens to be. So it's relatively short, and we think that short a good thing because in the past, out-of-home has always seen as being something that was pretty inflexible.

If you have major campaigns down 8 weeks before, there's no way you could get into out-of-home, whereas now with the flexibility of digital, you can literally come to us on a Friday evening and see your campaign on the Saturday..

[Operator Instructions] We'll now hear from Ian Zaffino with Oppenheimer..

Just really quickly, on the CapEx side, I know you gave the CapEx numbers.

But can you maybe help us understand what like apples-to-apples conversion costs might be doing given inflation, supply chain? So how much of that is a factor in the increase versus other factors?.

Thanks, Ian. It's Matt. Conversions for say, a generic -- static to a generic digital, which is hard to define. It's roughly $0.25 million. Historically, I think inflation hasn't necessarily impacted the cost of the screens, maybe some of the materials and some of the labor cost a little bit higher.

And certainly, the shipping cost, depending on not necessarily inflation, but any kind of supply chain bottlenecks, drop higher. So I was going to the $0.25 million is -- maybe has gone up. I don't have a precise number for you, 5%, 10% or so. But still, I don't think it changes the economic attractiveness of continuing to push these conversions..

Okay. Yes. And I imagine the higher rates, the economics are probably not higher..

We'll now take a question from Jim Goss with Barrington Research..

You've discussed rate a couple of times, and I know outdoor is intended to be thought of as a very attractive medium on a rate basis.

I'm wondering what particular media do your sales teams try to comp against as their positioning the billboards, if there are any such things? And how big a discount to those other media are you usually thinking in terms of how much room to run, particularly with the digital transformation that's been taking place?.

Yes. Thanks, Jim. I guess the competition is very much split. And if you're in the national arena, then arguably, it's going to be TV. When I say TV, screens, in general. And of course, physical with digital to be sort of 50% issue at the media market. When you get -- local, quite often, we will be competing against local radio.

Quite often, we'll be competing with Facebook or indeed looking to complement their digital campaigns through out-of-home, which is -- tends to drive people online. But it's really worked the way across the media spectrum to put like that, Jim. I don't know if that helped at all..

Okay. And maybe one other. With the well-publicized security issues that have occurred in transit, especially in New York and perhaps San Francisco, are -- is this a risk? Obviously, the gains have been tremendous, but perhaps the necessity overrides some of the risk.

Or is it -- can it be sort of an opportunity in terms of the informational aspect that you can provide and maybe drawing attention to the Board that might also the spillover effect in terms of the advertising benefits?.

Yes, I think that's a really good point here. I think that is true. I think we can use our digital screens is a very, very good effect in terms of keeping customers and consumers advice of what's going on in the system.

I think the fact that we are putting digital broad screens up throughout it improves the environment generally to me within the -- certainly within the subway environment. And yes, look, there have been a couple of disappointing well publicized incidents.

And we can -- and we hope the cities and the transit authorities are really getting hold of it because we are starting to see significant increases now in the passenger ridership. And we, obviously, just want that to continue and really now more people put off using public transit because our cities need public transit to exist..

And we have no questions today. I'd now like to turn the conference back over to Mr. Male for any additional or closing remarks..

Yes. Thanks for that, operator. Sorry to cut across you there. Only remains to me to say, thanks very much for joining us today. We look forward to speaking with you over the coming weeks and months, and have a great rest of the day..

And that does conclude today's conference call. Once again, thanks, everyone, for joining us. You may now disconnect..