Good day and welcome to today's Outfront First Quarter 2023 Earnings Call. [Operator Instructions] At this time, I'd like to turn the conference over to Mr. Stephan Bisson..

Good afternoon and thank you for joining our 2023 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 up 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 2022 Form 10-K and our March 31, 2023 Form 10-Q which we expect to file this week. 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 share our first quarter results which illustrate the resilience of our sales performance. On our February call, I mentioned that while the year started off slower than we had hoped, business was picking up and I'm happy to report the pace continues.

As you can see on Slide 3 which summarizes our headline numbers, total consolidated revenue grew 6% during the quarter which reflects solid growth in the core business, some tuck-in acquisitions and an almost $6 million one-time benefit related to a small number of billboard condo nations.

Excluding this benefit, revenues would have been up mid-single-digits in Q1, ahead of our low-single-digit guidance. A decade ago, this type of in-quarter improvement would not have been possible.

But given the flexibility provided by our increased digital footprint, our clients are now able to book and post ads quickly and efficiently in the quarter for the quarter. Adjusted OIBDA declined year-over-year, largely driven by transit and AFFO was down given this lower OIBDA, higher interest expense and the timing of maintenance CapEx.

Slide 4 shows our segment revenue results with total U.S. media increasing 6.3% on a reported basis year-over-year. Other which consists mostly of Canada, was essentially flat versus the prior year on an as-reported basis and up 7% on an organic constant dollar basis. On Slide 5, you can see the components of our U.S. media revenues.

Billboard grew 8% with good performance in most of our markets that we should call out, New York and Miami as being particularly strong. Nearly every category in billboard was up year-over-year. Transit revenue was essentially flat versus last year given the tough comparison created by the legalization of sports betting in New York in 2022.

Digging a bit deeper, it's worth noting that our below-ground revenues which includes subway displays, were up year-over-year, reflecting our continued digitization. However, these gains were offset by lower above-ground display revenues. The details behind our local and national revenues in our U.S. business can be seen on Slide 6.

As you can see, local growth outpaced national this quarter, up nearly 10% year-over-year compared to national's 1.3% which reflected the early weakness we saw from national that we discussed in February. Our local and national split was 60%, 40% in the quarter, a bit higher than our typical 55%, 45% given the particularly strong local growth.

Slide 7 shows our U.S. billboard yield which grew a healthy 6% year-over-year to just under $2,500. Similar to last year, our yield growth was primarily driven by rate with strong demand for our most premium inventory, pushing average prices up.

Slide 8 highlights our continued strong digital performance with digital revenue growing 9% in the quarter and representing nearly 30% of our total revenue, up almost 100 basis points from last year. As you can see, billboard and transit both contributed relatively evenly, both up approximately 9% versus 2022.

Slide 9 illustrates the resilience of our static revenues which grew nearly 3% year-over-year. This growth was driven by billboard which was up 4% year-over-year. Static transit revenues were down year-over-year given the decline in above-ground revenues. So let me now hand over to Matt to review the rest of our financials in more detail..

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 approximately $32 million or just over 10% year-over-year.

Billboard lease expense was up nearly 13% year-over-year in Q1, including the many new locations acquired over the prior year, such as Pacific Outdoor Signs in Portland, 2 Times Square and various other mostly newly developed inventory.

Also contributing to this increase is the recording of an out-of-period adjustment in this quarter relating to our calculation of variable billboard property lease expenses in 2022 which resulted in a $5.2 million increase in operating expenses and also higher variable expense on the portion of our billboards that contained revenue share agreements.

With respect to the out-of-period adjustment, we note that we have assessed the materiality of the amount reflected in this adjustment on our previously issued financial statements in accordance with SEC guidance and concluded that the amount was not material to any of our previously issued financial statements.

Although we have concluded that the amount reflected in the adjustment is not material, we are of course evaluating the impact of the adjustment on our control environment.

Transit franchise expense was up 11% due to the increased minimum annual guarantee owed to the New York MTA relative to 2022 and also from higher revenues in transit markets under revenue share agreements. The MAG at the MTA has the largest impact on the first quarter because of seasonally lower revenue.

Posting, maintenance and other expense was up 5.6%, given additional activity that results from our higher billboard revenue, increased maintenance and utilities costs and higher compensation-related expenses. Corporate and SG&A expense combined increased just under $10 million versus last year.

The increase was primarily driven by higher professional fees, the adverse impact of market fluctuations on an unfunded equity index-linked retirement plan and increased compensation.

On Slide 11, you can see our OIBDA for the quarter has declined $10 million from last year due to the impacts of higher fixed costs from increased MAG and 2022 headcount and compensation costs in the seasonally smallest revenue quarter and a higher lease expense from new inventory as acquired inventory ramps up to expectations.

This is especially true for newly developed signs with no pre-existing revenue which comprised a substantial portion of our M&A activity last year. Slide 12 provides additional detail on the sources and growth of OIBDA. U.S. billboard OIBDA was essentially flat and billboard OIBDA margin was 30.3%, down versus a year ago but up versus Q1 of 2019.

The margin decline this quarter versus 2022 was driven by the previously mentioned recording of the lease expense adjustment, relative outperformance of certain higher than average revenue share inventory in key markets as well as our M&A over the last year, as mentioned earlier.

Transit OIBDA was down approximately $8 million versus the prior year due to higher expenses, largely driven by the increase in the New York MTA MAG. Turning to capital expenditures on Slide 13.

Q1 CapEx spend was $23 million, adding fully during the quarter to win with 2,010 displays up 345 versus 12 months ago through conversions, new developments, acquisitions and management agreements. We expect these investments, both in new assets and technology, will be a driver of revenue and OIBDA growth for years to come.

Looking at AFFO on Slide 14, you can see our Q1 AFFO of approximately $9 million is of course down year-over-year given the lower OIBDA but also because of higher interest expense and higher cash taxes. Our AFFO guidance for the year remains unchanged. Please turn to Slide 15 for an update on our balance sheet.

Committed liquidity is approximately $550 million, including over $41 million of cash, almost $500 million available under our revolver and about $20 million available on our accounts receivable securitization facility. As of March 31, our total net leverage was 5.2x, up a tick from our Q4 level.

We remain very comfortable with our debt stack with our next maturity not being until mid-2025 and approximately 1/4 of total debt subject to floating rates. We made $5 million of tuck-in acquisitions in the quarter, including a couple of deals we were working on last year.

Looking forward, while we continue to close additional tuck-ins carried over from last year, given our current pipeline and the activity in the marketplace, we continue to expect to see a lower volume of deals in '23 than in -- completed in 2022, both in quantity and dollar terms.

Lastly, we announced today that our Board of Directors has declared a $0.30 cash dividend payable on June 30 to shareholders of record at the close of business on June 2.

As we mentioned in February, we and our Board will continue to evaluate our dividend as we go through the year and will allow financial performance and REIT requirements to drive our policy. In closing, we're off to a solid start in 2023 which sets us up to meet our full year expectations. With that, let me turn the call back to Jeremy..

Thanks, Matt. While the macroeconomic environment remains somewhat uncertain, we were pleased to see the pace of our business pick up throughout the first quarter and this trend continues into Q2.

Based on our visibility as of today, we estimate that Q2 total revenues will grow in the mid-single-digit range with billboard above that range and transit again flattish. Before concluding our call today, I want to quickly touch on a part of our business that enabled many of the late bookings we made since we last spoke in February.

And that is, automation which is the digital purchasing and automated delivery to our digital billboards and this includes programmatic. The system is small but rapidly growing portion of our business for the last couple of years and is becoming a much more meaningful part of our revenues.

In fact, automated channels are moving towards around 10% of our digital billboard revenues. As we've said before, we're excited by the potential of automation going forward and believe it will contribute even more meaningfully to our growth over the coming years.

Automation is just one more reason why I believe the out-of-home industry is poised to continue taking share of the total advertising pie.

Add that to out-of-home's ubiquitous reach, continuing digitization, improving measurement capabilities and relative value compared to other advertising media, it's no surprise that according to MAGNET's current forecast, out-of-home is expected to grow 6% in 2023, well ahead of the overall media forecast of 3%.

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

[Operator Instructions] We'll take the first question from Jason Bazinet from Citi..

I just had 2 quick questions; one on the top-line and one on expenses. I guess on transit, given what happened in this quarter and sort of your commentary about flat transit for 2Q, I'd love to just get your color in terms of how you guys are thinking about getting back to sort of pre-COVID levels.

If that's still an aspiration or if that seems like it's not going to be possible given lower ridership levels? And then the second question on SG&A. I was just wondering if you could comment a bit on that. I think the SG&A is up about $10 million.

How much of it was linked to that equity index-linked retirement plan? And is that something that should continue?.

Yeah, maybe just a little bit more color on transit. I guess, the first thing is that in the script, I actually mentioned that underground revenues were actually up. And if you sort of drill into ridership, New York in particular, reached a milestone last week with 4 million riders. So I don't think it's all necessary about riders in this instance.

I think part of it, as I said, was down to just some pretty tough comps that we have from sports betting. Part of it also, you remember, I called out media which is one of the few categories that were down for us this year and they're sort of big users of above-ground media, particularly buses. So I think it's more about some of the specifics.

I think it's a little frustrating, to be honest, we'd much prefer to be seeing more significant growth in transit. Obviously, it elongates the curve a little until we start recouping. But we're confident that we can -- we'll be able to drive some transit growth as we go through the year. I'll hand over the SG&A question to Matt..

Jason, the SG&A, I think you asked what the impact of the equity-linked. So clearly, it's an unfunded 401(k) plan -- pension plan, executive participation. It's about a $2 million swing we have made a good guide of $1 million last year, bad guide about $1 million this year..

So that's something that's always sort of in the P&L. I mean, it just -- it tends to go up when the equity....

It could be the opposite way of the market. So it's particularly exposure to the S&P 500. So when the S&P goes down, the shadow funding will have a benefit. And if it goes up, we have an expense..

We will take the next question from Richard Choe..

I wanted to follow-up on the comments about national.

Do you expect that the mix will go towards a more normal mix or do you think local is going to continue to stay strong relative to the national?.

I think it's fair to say that the sort of -- when you look at Q1, the swing was pretty extreme, as I said, nearly up 10% in local which is, I mean, great to see. And national, just about a point which reflected some of that weakness that we saw particularly at the start of the year.

When we look into Q2, I would expect that national will be outpacing local reasonably significantly. I think I made the comment in the script that local was sort of normalizing. So that implies more in the sort of low-mid-single-digit range for local..

And then on the expense side, is the out-of-property or out-of-period property lease one-time and going forward it should be kind of growing at a more lower growth rate? And I guess, with that, what should we be expecting in terms of margins for the rest of the year because there seems to be a few moving parts going on?.

Yeah, Richard, it's Matt. I think you're right, the out-of-period adjustment is expenses from second, third and fourth quarter last year that we booked here in the first quarter. A lot of moving parts; the continued digitization, positive margin, geographic and kind of certain portfolio performance has been recently a bit of a headwind.

One of the high profile revenue share inventory has been outperforming the more fixed expense inventory. I'm not sure we're giving guidance for the full year but I wouldn't expect it to be materially different from last year, maybe slightly higher but nothing notable on either side..

We will take our next question from Ben Swinburne, Morgan Stanley..

Jeremy, just to clarify the guidance for Q2 of mid-single-digits and I realize that's a range but are you speaking to an organic growth rate? I think you guys had about 100 basis points of acquisition benefit this quarter. I just wanted to ask if the answer is yes to both but....

Ben, it's Matt. I'll grab that. For our guidance, it's all in. We do a ton of a -- we did a lot of tuck-ins. So the only one we've called out is Portland which we did mid-second quarter. So that guide would include quarterly performance..

Okay.

So the acquisition benefit actually will moderate in Q2 as you lap that deal?.

Yes. We'll lap part of it. So it's not a big number but there is some new inventory benefit in that number..

Okay. And then I think in your prepared remarks, Jeremy, I think you noted strength in New York. I wasn't sure if that was specific to a certain kind of structure or transit versus billboard but obviously, there's a lot of focus on the call today about your transit business and the MTA and ridership.

So you guys have a huge business in New York and it seems like parts of New York are doing well because you guys also called out Times Square and it's a high rev share. Board is doing well which I tend to think of New York City.

So maybe you could just talk about the New York market which is your largest? And where that is versus the recovery? And kind of what's working and what's not? And how you think about that going forward?.

Yeah, billboard business generally in New York has been really pretty strong. We've also been -- over the last sort of 2 or 3 years, we've developed some great new digital locations. We've also -- Times Square definitely is bubbling way in a positive sense. But actually, the east -- we split our business down into 4 regions.

And actually, the East which includes New York, was actually up, higher than any other region. So it was pretty much what we would say, all of the Northeast was stronger in billboards..

Okay. And then just jumping back to you, Matt, lastly, on margins. Mid-single-digit revenue growth in Q2, is that enough to get margin expansion in second quarter? It would seem like it should but obviously, there's a bunch of bad guys this quarter.

So I just wanted to see if you'd be willing to answer that on second quarter margins?.

It should be helpful. Obviously, headwinds are continued softness in transit. The MAG in New York has gone up. And if we can't get the outpacing [ph] that's going to be a bit of a headwind. And of course, it matters not just how much revenue growth, it matters somewhat where the revenue growth is. To Jeremy's point, New York and Northeast is doing great.

Miami is doing well. Certain parts of LA are doing well and those are all expensive locations [indiscernible] as well as more revenue in Louisville and St. Louis. But we think we can see some improvement but we'll let you know in few months..

We'll take the next question from Ian Zaffino from Oppenheimer..

Can we look at or can you compare and tell us maybe how the MTA did on the national side ex-gambling? And how does that compare to the base of your billboard business in New York? Does it perform pretty similarly? I'm just trying to get as much color as I can..

Yeah. I'm not certain -- when we look at local and national, we don't give the split national transit and national billboard in. So I'm not certain that I can add that much definitive. I think all I can say is that national was underperformed billboard for the first quarter generally across the country..

Next question is from Jim Goss from Barrington..

A couple about transit. You opined a couple of quarters ago that the rebound and reach in transit might have mitigated some of the decline in impressions in terms of value to advertisers.

I wonder if you could provide an update on whether that's worked out correctly in terms of your pricing? And is there any variance in pricing by day of the week, would you say? And then finally, transit lies outside of New York, San Francisco has been getting a lot of a bad press lately.

I wonder if you might update that market as well?.

I guess, the first question in terms of reach, we absolutely continue to believe that the reach argument will come into play. The fact that you're -- it's not the absolute number but it's just when compared, say, back to 2019, it's very much about, okay, what proportion of the audience that was there in 2019 is now utilizing transit.

And again, we said that we really don't believe that we need to get much past 80% of that audience to certainly lap 100% of the 2019 revenues. So we continue to be real advocates to transit advertising. It's an integral part of our business. We have a huge crossover in terms of the top 100 advertisers.

And as I said a little earlier, it's frustrating that the recovery curve is more elongated than we all hoped. We firmly believe that that reach piece will continue to -- will be a good guide for us as we move forward. In terms of day of the week, we don't sort of price on a daily basis, Jim.

What we can say is that when you look into the numbers of usership, it's actually heavier at the weekends than it used to be relative to weekdays but that's just one of the trends that we've noticed.

Interesting also that the MTA is certainly saying they're going to be upping their service over the coming weeks and we think that that's also going to be a positive benefit for us. In terms of San Francisco, I think, Jim, it's a good question.

The answer is that San Francisco generally is probably not where we want it to be in terms of our billboard business. But actually, in terms of the transit business, it was actually mostly up in Q1. So sort of mixed signals coming out of San Francisco..

One final one. You mentioned cost and expense category of posting, maintenance and other.

I'm wondering if some of those categories are changing in terms of value or cost with digital impact? Is it better or worse with the type of spending you're doing now versus what you used to spend?.

The more we digitize, that's where the part of the enhanced margin in digital comes from. Obviously, we don't have to roll a truck to change copy or to do any kind of repairs. So there's some site cost. And as you know, most of our inventory is still very static. Our digital inventory is less than 4% of total. It's a big impact on revenue.

We're still servicing tens of thousands of static boards..

It appears that there is no further question at this time. Mr. Speaker, I'd like to turn the conference back to you for any additional or closing remarks..

Thanks, operator and thanks everyone for joining our call today. And I hope to see and meet with many of you at various conferences over the course of spring and summer but for those that I don't, I look forward to presenting our Q2 results to you in August. Thank you very much again..

That's all for today. Your line can be disconnected..