Good day, everyone, and welcome to the Second Quarter 2022 Earnings Conference Call. This call is being recorded. At this time, I'd like to turn the conference over to Stephan Bisson. Please go ahead, sir..

Good afternoon, and thank you for joining our 2022 second 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 line 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 is 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 June 30, 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. We're pleased to be here sharing our second quarter results, which illustrate that the strength observed in our business during Q1 has continued nicely through Q2.

Advertiser demand has remained strong, pushing billboard yields to a Q2 record and driving a continuing recovery in transit, as riders return to the rails and buses that allow cities to function and flourish. Turning to the headline numbers on Slide 3.

You'll see the total consolidated revenue grew 32%, including our acquisition in Poland, and 31.6% on an organic basis when excluding these acquired assets, right in line with the expectation we provided back in early May.

Our strong revenue growth led to around $55 million year-over-year improvement in both OIBDA and AFFO during the quarter, which grew to $125 million and $93 million, respectively. On Slide 4, you'll see that U.S. Media was up 31% year-over-year.

Other, which consists mostly of Canada, was up 44% versus the prior year, as our business continued its strong recovery from pandemic restrictions and great execution from our Canadian team. On Slide 5, you can see a more detailed look at our U.S. Media revenues. Billboard grew 22% year-over-year with strong performances in all regions.

Nearly every category in billboard was up year-over-year with significant strength coming from travel, which was up 72%; retail, up 40%; entertainment, up 36%; and technology, also up 36%. Transit revenue was up 81% versus the prior year, continuing its recovery.

Though this business continues to face some headwinds from lower ridership compared to pre-pandemic, there are encouraging trends to note.

Again, ridership recovery, as measured versus 2019, improved sequentially in Q2 for all our major transit franchises, and also, transit revenue is recovering more quickly than ridership when both are compared to pre-pandemic activity. Turning to Slide 6. We can see the breakdown of local and national revenues in our U.S. business.

While both parts of the business continue to be extremely healthy, national growth outpaced local again this quarter, up 37% year-over-year compared to local's 28%. National accounted for 42% of revenue during the quarter, moving us closer to our historic run rate of 45%, national and 55%, local. Slide 7 illustrates our impressive U.S.

billboard yield growth, which grew 23% year-over-year to just over $2,700. This was primarily driven by rate increases, highlighting strong demand and again, great execution by our teams. Slide 8 highlights our strong digital performance with revenue growing 63% in the quarter and representing 29% of total revenue, up from 24% last year.

Our growth continues to be driven by higher yields and, of course, increased inventory. In addition, programmatic and incremental late bookings continue to lift our digital revenues. As you can see, billboard digital grew 45% and transit digital grew an impressive 171% to $32 million.

Our digital transit revenue growth continues to be led by the New York MTA, where we've now completed the installation of over 9,000 digital advertising and displays since renewing our contract in 2017. We are encouraged by the potential of these assets, many of which, display full-motion video adds a capability highly valued by advertisers.

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 9 for a more detailed look at our expenses. Total expenses were up $54 million or 20% year-over-year. As was the case in Q1, our strong revenue growth has led to increases in our variable and performance-related costs.

Billboard lease expense was up 12% year-over-year in Q2, primarily reflecting higher variable expense on a small portion of our billboards that contain revenue share agreements. Variable lease expense costs grew, commensurate with the robust revenue growth we achieved in New York and Los Angeles.

Transit franchise expense is typically a revenue share expense and was up 40% due to higher revenues, but also due to the contractual step-up of minimum annual guarantee payments to the New York MTA as well as the payment of the amortized deferred MAG per our 2020 amendment.

Posting, maintenance and other expense was up 18%, given the additional activity that results from our higher revenue. Corporate and SG&A expense combined increased 21% versus last year. This reflects higher revenue and OIBDA driving increases in our accrual of performance-based compensation costs and also higher professional fees.

These increases were partially offset by the favorable impact of market fluctuations on an unfunded equity index-linked retirement plan. Lastly, as mentioned, total expenses grew 20% year-over-year but fell over 7 percentage points as a percent of revenue, reflecting the operating leverage in our business.

On Slide 10, you can see our OIBDA for the quarter is up $55 million from last year and represents a margin of nearly 28%, up from 20.5% in 2021. Slide 11 provides additional detail on the sources and growth of OIBDA. U.S. billboard OIBDA grew 35% to $130 million, and billboard OIBDA margin was 39%, up 3.6 percentage points from a year ago.

Our higher margins continue to be driven by the operating leverage provided by the relatively fixed cost nature of our leases and an increased share of digital revenue. We continue to expect that billboard margins will expand over the long term.

Transit OIBDA improved by $50 million to essentially breakeven given higher revenue, particularly at the New York MTA, which grew closer to its MAG level. Turning to capital expenditures on Slide 12. Q2 CapEx spend was $25 million, including $7 million of maintenance spend.

The $9 million increase in total CapEx versus the prior year was primarily due to digital investments. We built or converted 37 digital billboards this quarter while also acquiring 60 digital units, primarily in Portland and Canada. Combined, these actions increased our total digital billboard count to 1,770, up 243 or 16% versus Q2 of '21.

Looking at AFFO on Slide 13. You can see our Q2 AFFO of $93 million improved by $54 million year-over-year, with essentially all of our OIBDA growth converted to AFFO. For the full year, we continue to expect AFFO growth to be around 60%.

And we remain confident in this forecast despite interest rates having grown significantly faster than we had anticipated when we initially provided this forecast back in February. Please turn to Slide 14 for an update on our balance sheet.

Committed liquidity is approximately $763 million, including over $100 million of cash, almost $500 million available via our revolver and $150 million available via our recently reactivated accounts receivable program.

As of June 30, our total net leverage declined to 4.9x, as a recovery in OIBDA more than offset the slightly leveraging acquisition activity during the quarter. We remain very comfortable with our debt stack with our next maturity not until mid-2025, and only 23% of total debt is subject to floating rates.

Lastly, we announced today that our Board of Directors has declared a $0.30 cash dividend payable on September 30 to shareholders of record at the close of business on September 2. As you can see from our balance sheet, we remain well capitalized to participate in additional M&A.

We completed $239 million of total acquisitions in the quarter, including the $185 million purchase of a new OUTFRONT market in Portland, Oregon. We are extremely pleased to be adding approximately 950 advertising phases in the U.S. 21st largest market as well as welcoming approximately 25 new employees to OUTFRONT.

This strategic acquisition closed on May 12, and we expect revenue synergies to be realized as our national sales team leverages these assets and we pursue development opportunities in the wider region. Looking forward, the current M&A pipeline continues to be robust and interesting.

Q2 was a great quarter, and we remain confident and enthusiastic about our business for the remainder of the year. 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. Though there's been much volatility in the financial markets since we last spoke, which may lead to advertiser caution, we're not currently seeing this, and our business remains healthy. Looking specifically to Q3, we expect that we'll have another good quarter.

Based on our trends as today, with the vast majority of the quarter already booked, we currently estimate that Q3 total revenues will grow in the low teens percentage range with transit up about 20% versus last year.

While our growth rates are obviously moderating, this is a function of a rising comp as we are now comparing against periods in which billboard revenues had already surpassed 2019 levels and the world had essentially emerged from pandemic lockdown and fears.

Interestingly, the revenue guidance we're providing today essentially mirrors our internal forecast for Q3 that we've had since the start of the year, which reflected the substantial recovery we experienced in the second half of 2021. We are confident in the strength we are currently seeing in the business. This strength is broad-based.

And as of last week, all of our categories that grew in Q2 are also pacing ahead in Q3. Even more important than these short-term trends, however, is our confidence in the long-term outlook for OUTFRONT and the entire out-of-home industry. Out-of-home is evolving.

With our digital conversions come creativity and flexibility and an ability to sell in a much more dynamic, automated and programmatic way. Also, our data is constantly improving, allowing advertisers to better target their intended audiences and analyze and measure attribution.

This, combined with outdoor's attractive pricing relative to other forms of advertising, set the industry up to take additional share of the total ad pie over time, particularly as digital grapples with IDFA issues. Needless to say, we remain incredibly confident in the long-term prospects of the out-of-home industry.

And with that, operator, let's now open the lines for questions..

[Operator Instructions] And the first question will come from Jason Bazinet with Citi..

I just had a question on transit. Congratulations, first of all, on getting breakeven EBITDA there.

Is it fair to say that there's normal seasonality in this business where the EBITDA generally is sort of back-end weighted in the year?.

Yes. thanks, Jason. It's Matt. The business is back. The revenue is back-ended with the fourth quarter being our biggest revenue quarter, but we've straight-lined the MAG calculation. So you see the first quarter and the second quarter, both underwater. Third quarter will be closer, maybe closer breakeven.

Fourth quarter, we expect to be above the MAG and have a stronger New York EBITDA..

And our next question will come from Ian Zaffino with Oppenheimer..

I just wanted to talk, and I know you guys mentioned IDFA helping you.

Do you think that's basically helping you pretty much grow these categories year-over-year or pacing ahead of the last quarter? Is that what's really in it? Or do you think there's a truly underlying strength in the advertising market that's helping sustain these types of gains?.

I think there's a couple of things going on, Ian, and thanks for the question. Probably the first thing to remember is that out-of-home was outstripping media growth, if you go back to 2019. So we were -- had healthy growth then.

When you look at the sort of IDFA piece, I mean, it's worth remembering that certainly, if you think about out-of-home's national sales were only 1.8% of total media. So you don't need much of a shift, much of a sort of a tailwind coming from IDFA to make quite consider -- quite a considerable difference to our revenue growth as we go forward.

But it's certainly not all about this. I think a lot of it just reflects some of the other strength of out-of-home that I talked about in my closing summary there. So just generally, out-of-home is doing extremely well. And one piece of this that helps is IDFA..

Okay. And then just one follow-up. Again, congratulations on the transit side hitting positive OIBDA and glad to see it's going to continue to grow throughout the year. The MTA came out. They stated that they're calling for 69% of pre-COVID ridership in 2023 and then still only about 80% by 2026.

Is this -- is there an opportunity? Or can you potentially renegotiate this contract again? Again, you're doing very well in that business now, but I feel like that's mainly yields, and it may be under punching because of the low ridership.

So is there an opportunity to do something there? Or how should we be thinking about that?.

Ian, I think the way we think about it is that we're already outpacing audience growth. And we've said before that certainly at 80%. When you look at the quality of advertising products, we now have to sell that with this digital -- the digitization that we've been doing over time.

We feel very confident that we can keep revenue growth moving forward very, very positively. And we talk a lot about reach rather than frequency. Because if you're using the subway now, for example, three times a week rather than five, well, you're getting that message 6x. So you're still on the subway. It's just a little less frequency.

So if we think about our ability to continue to grow, we're very, very confident that we could do that. With regards to further negotiation with the MTA, it's not something that we would really want to comment on at this period in time. I think it's worth noting that we did achieve a three-year extension to what was already a 15-year contract.

So this is a long-term asset in our business..

We'll take our next question from Richard Choe with JPMorgan..

I just wanted to follow up on the national, local side. Both are growing well, but national is still under indexing versus historical. Is there a good amount of room for growth there? And what are you seeing in national most recently because that's probably what's most at risk is the advertiser or economic environment's list..

Thanks. And you're right, Richard, with regards to national being the most obvious area where we may see change. I think you can look to the guidance that we've just given to get some color with regards to national. I think the other point is that our local growth has been very, very strong over the last year.

And that alone, I think, will actually make it a little bit more challenging to get back to that 45%, national, 55%, local that are quoted in the scripted remarks..

And on the M&A front, you mentioned in the prepared remarks that things look interesting, but you did a pretty big deal in the second quarter.

Is there still room for more deals going forward? How much M&A should we kind of see going forward?.

We have -- Richard, it's Matt. We have a very full pipeline of deals we've agreed and we're in due diligence and even some that we haven't reached to an agreement yet, but continue to have discussions. So we think we'll be active in the second half.

No promises that there'll be anything the size of Portland, but we have interest really in filling out our footprint. And there's no lack of interested sellers..

We will take our next question from Cameron McVeigh from Morgan Stanley..

Could you discuss the current advertiser demand for programmatic and how that has been trending recently? And then secondly, has there been any pushback from advertisers on the increase in rate?.

Let me take those. As we go forward, there's no doubt that automation within out-of-home, particularly for the digitized assets, is going to continue to be a real tailwind for us. We expect our programmatic business to grow nicely as we go forward.

In terms of pricing on advertiser demand, I mean to some extent or rather, Cameron, I mean we're a supply-and-demand industry. And with that demand, we're certainly able to achieve those incremental rates.

It's interesting, when you look at our yield that actually -- if you sort of break it down, and we tend to talk more about yield rather than sort of occupancy and pricing, but I haven't mentioned pricing, it's maybe worth one word on occupancy. We're currently another -- peak occupancies were up in the sort of high 70% range.

So we've still got some room there to -- if you like, to get some good occupancy growth. And interestingly, we're achieving that pricing still with that sort of slight gap in our occupancy. So yes, we feel pretty confident as we go forward that we'll be able to grow pricing and occupancy..

[Operator Instructions] And that will conclude today's question-and-answer session. I'll turn things back over to Jeremy now for any additional or closing remarks..

Thanks, operator. And thanks, everyone, for joining us on today's call. As Matt said, I likewise look forward to seeing many of you at conferences and events this fall and talking to those that I don't on our Q3 results call with you in November. Thank you very much, indeed..

And that does conclude today's conference call. Thanks, everyone, for your participation. You may now disconnect..