Hello and welcome to the OUTFRONT Q3 2022 Earnings Call. My name is Josh and I will be your coordinator for today’s event. [Operator Instructions] I would now hand you over to your host, Stephan Bisson to begin. Thank you..

Good afternoon, and thank you for joining our 2022 third 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 up for a question-and-answer session.

Our comments today will refer to the earnings release and the slide presentation that you can find in the Investor Relations section of our website, outfrontmedia.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 can 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 September 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 are pleased to be here sharing our third quarter results and reporting another strong quarter of double digit growth comfortably in line with the guidance we provided three months ago.

Advertiser demand continues to be robust, driving billboard yields to another quarterly record and pushing further recovery in transit as riders return to the rails and buses in greater numbers post Labor Day.

Starting with our headline numbers on Slide 3, you'll see that total consolidated revenue grew nearly 14%, including our acquisition in Portland. This revenue growth led to a $15 million year-over-year improvement in OIBDA and an $8 million improvement in AFFO during the quarter.

Speaking of AFFO, and without wishing to steal your best lines, Matt, with this result in the trends we're seeing in Q4, we believe we're right on track to achieve the 60% growth we guided to for the year. As usual, I'll provide more detail on the fourth quarter later, but needless to say, our business continues to feel like it's in a good place.

Slide 4 shows our segment results with total U.S. Media increasing 14% year-over-year. Other, which consists mostly of Canada, was up 12% versus the prior year. On Slide 5, you can see our U.S. Media revenues in more detail.

Billboard grew over 12% with strong performances in all regions but we should call out New York and Miami as being particularly striking. Nearly every category in billboard was up year-over-year with significant strength coming from auto, entertainment, technology and retail.

Transit revenue is up 19% versus the prior year, continuing its steady improvement towards returning to 2019 levels as subway, rail and bus ridership increases. The breakdown of local and national revenues in our U.S. business can be seen on Slide 6.

While we continue to see strength in both parts of the business, national growth was ahead of local again this quarter up 20% year-over-year compared to locals 9%. This returns us to our historic split of 45% national and 55% local. Slide 7 shows our healthy U.S. billboard yield growth, which grew 11% year-over-year to just over $2,700.

As has been the trend throughout the year our yield growth was principally driven by rate reflecting, continued robust advertiser demand for our premium inventory, particularly in major markets.

Slide 8 highlights our strong digital performance with revenue growing 27% in the quarter and representing nearly 30% of our total revenue up from 27% last year.

This growth continues to be driven by three main factors, high yields resulting from improved rates, increased inventory as we convert to additional digital boards and early steps in programmatic, which remains a small but growing part of our business.

As you can see, billboard digital grew a healthy 20% and transit digital grew an outsize 51% to $34 million.

The largest driver of our digital transit revenues continues to be the New York MTA, where we installed around 400 displays during Q3, increasing our total to over 9,400 installed digital advertising displays since renewing our contract in 2017. Let me now hand it 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 more detailed look at our expenses. Total expenses were up $40 million or 14% year-over-year. As was the case in the first half of the year 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 Q3, including new locations and again also primarily reflecting higher variable expense on the portion of our billboards that contain revenue share agreements.

These boards are primarily located in our major cities and reflect the significant growth that we serve in New York and other markets that Jeremy mentioned earlier.

Transit franchise expense is usually a revenue share expense and was up 22% due to higher revenues, but also due to the higher MAG owed to the MTA from our 2020 deferral and inflation increased for this year.

Posting, maintenance and other expense was up 19% given additional activity that results from our higher revenue, increased compensation for our operations employees and additional discretionary maintenance spend. Corporate and SG&A expenses combined increased 7% versus last year.

This reflects growth and revenue in OIBDA driving increases in performance-based sales related costs, also other compensation costs, higher provision for doubtful accounts and increased travel and entertainment expenses.

These increases were partially offset by the favorable impact of market fluctuations on an unfunded equity index-linked retirement plan. On Slide 10, you can see our OIBDA for the quarter is up $15 million from last year and represents a margin of 27%, which is relatively flat up 10 basis points versus last year.

Slide 11 provides additional detail on the sources and growth of OIBDA. U.S. billboard OIBDA grew 11% to $128 million and billboard OIBDA margin was 38%, down 40 basis points versus a year ago, but up nearly 150 basis points versus 2019.

The select margin declined versus 2021 was driven by some one-time items affecting comparability and our outperformance in New York, Los Angeles, and Miami, which are high revenue but relatively lower margin markets.

We remain confident that billboard margins will expand as we move forward given the operating leverage provided by the largely fixed cost nature of our leases and an increasing proportion of digital revenues.

Transit OIBDA remained essentially breakeven as our increase in revenue, particularly at the New York MTA, was offset by our higher minimum annual guarantee payments. As a reminder, when we expect to be paying the minimum annual guarantee, we account for the New York MTA franchise expense on a straight line basis throughout the year.

Given this, we expect to see a strong Q4 benefit to reported OIBDA in 2022 as we did in 2021 due to seasonal peak revenue in the fourth quarter. Turning to capital expenditures on Slide 12, Q3 CapEx spend was $25 million including $8 million of maintenance spend.

The $9 million increase in total CapEx versus the prior year was primarily due to digital investments. Year-to-date, we have increased our total digital billboard count to over 1800, up 250 or 16% versus Q3 2021 through conversions, new developments, acquisitions and management agreements.

Looking at AFO on Slide 13, you can see our Q3 AFFO of $87 million improve by $8 million year-over-year as our OIBDA growth, which partially offset by the higher maintenance CapEx, cash interest and other below the line items. As Jeremy mentioned earlier, we remain confident in our full year guidance of 60% growth in AFFO.

Please start to Slide 14 for an updated on our balance sheet. Committed liquidity is approximately $725 million, including over $80 million of cash, almost $500 million available via our revolver and $150 million available via our accounts receivable securitization program. As of September 30th our total net leverage was 4.9 times.

We remain very comfortable with our debt stack with our next maturity not being until mid-2025 and less than 25% of total debt subject to floating rates. Lastly, we announced today that our Board of Directors has declared a $0.30 cash dividend payable on December 30th to shareholders of record at the close of business on December 2nd.

We completed $30 million of acquisitions in the quarter and expect to close a few more tuck-ins this year funding these deals with cash on hand and draws on our securitization facility as necessary. By the time 2022 ends, it will be our most our acquisitive year since 2014.

Looking at our current acquisition pipeline, we expect our deal activity to moderate in 2023. In closing, Q3 was a solid quarter all around and we remain confident in our business for the remainder of the year. With that let me turn the call back to Jeremy..

Thanks Matt. While there continues to be significant volatility in the financial markets and much has been written and seen regarding potential advertiser cautiousness within other ad mediums, we are not currently seeing this in outdoor and our business remains healthy on all fronts.

We obviously understand we're not in a vacuum, but when looking at Q4 we expect we'll have another good quarter. Based on our trends as of today we estimate that Q4 total revenues will grow in the mid- to high-single digit range with billboard and transit growing at similar rates.

We remain confident in the strength we are currently seeing in our business. It is broad-based both geographically and by category, and it was interesting to see the strength reflected in MAGNA's recently revised U.S. advertising forecast.

In their September update report MAGNA increased out-of-home revenue forecast for both the second half of 2022 and the full year of 2023 despite reducing their forecasts for the total ad market.

And in fact, Magna expects out-of-home will be the second largest growing advertising medium in 2023, growing at 8% compared to total advertising, which is expected to grow 5% next year.

That we all understand that media forecasting is not an exact science, but directionally this is positive for out-of-home and simply putting the math together this suggests that out-of-home is expected to take additional share of the total advertising pie and we expect that out front will as well. We believe there are some good reasons for this.

First investments in digital conversions, the digital transit build out, and our focus on digital creative innovation all allow for spectacular visual advertisements with unprecedented flexibility that are creating new excitement among advertisers.

Second audience measurement data provides audience metrics and targeting capabilities and our attribution solutions connect the campaigns through to a variety of KPIs. Third, programmatic and other automated platforms are small but growing and enable more frictionless buying and inclusion in omnichannel campaigns.

And fourth, outdoors value proposition of mass reach, high frequency and cost efficiency is further bolstered by being brand safe, fraud free while meeting consumers outside of their homes as they engage in real world activities.

We've worked hard on these initiatives both at out front but also as an industry as a whole, and we're pleased to see that work pain dividends today. And with that operator, let's now open the lines for questions..

Great.

I'd like to follow-up on the 4Q guidance and what's driving the strength for the two segments for Billboard and Transit, if there's a different growth drivers there and is it local or national advertising that's kind of maybe contributing more in the fourth quarter?.

Thanks for the question, Rich. Look for the most part we're seeing much of the same as we have throughout the year, broad-based growth across all of our markets and categories and certainly increasing appetite for transit as we go forward, which is great.

If we sort of look at into some of the categories, obviously this is – it's only a point in time, but for as travelers currently pacing up 78% for Q4, fashion is strong, auto is strong 33% up medical retail, so generally right across the board a positivity.

And it's interesting because if you dig into the guidance and sort of think about it on a kind of relative basis it actually implies that accelerating growth in Q4 versus 2019, so improve growth and we saw in Q2 and Q3. So that's really good to see and again we feel very good about where our business is right now..

And just to follow up there, it seems like accelerating growth on the billboard side, is that your ability to take price and your premium ad space that's helping drive that?.

Yes, absolutely. Look, we've had some great yield growth right the way through the year and you know that continues to be the case in Q4. And as mentioned the majority of that is about increasing rates, which implies obviously and a strong demand from advertisers..

Great. Thank you..

Thank you very much. [Operator Instructions] Okay. It looks we have got another question on the line. It comes from the line of Aaron Watts from Deutsche Bank. Please go ahead..

Just two quick questions for me.

Matt, can you remind me how much more quantum of deferral payments do you have to make on the MAG that are left over from the pandemic?.

Sure. We deferred from 2020 it's going to into 2022 through 2026, so it's about $11.5 million a year, so about $56 million. $57 milling,.

Okay. Got it.

And based on some of the ridership trends you're seeing and the advertiser reaction to that in your major markets is it your expectation that in 2023 and going forward, that you'll be performing above the MAG levels?.

We think certainly did sometime during the year in 2023 we'll be above the MAG. When you see our queue tomorrow you'll see we shifted some small portion of our deployment, the investment in the MTA into short term employing. We expect to start a little bit of recouping in 2023..

Okay, got it. That's great. I appreciate the time.

For sure, thanks..

There were no further questions on the line. So I'll hand you back over to the speakers..

Thanks Josh, and then thanks to everyone for joining us on the call today. I hope to see and meet with many of you at the various conferences and events this winter, but for those that I don’t; I look forward to presenting our Q4 results to you in February. Thanks again..

Thank you very much for joining today's call. You may now disconnect your lines..