Hello, and welcome to the OUTFRONT Fourth Quarter 2023 Earnings Conference Call. My name is Harry, and I'll be coordinating your call today. [Operator Instructions] And I will now hand you over to Stephan Bisson, Vice President of Investor Relations at OUTFRONT to begin. Stephan, please go ahead..

Good afternoon, and thank you for joining our 2023 fourth 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 slide presentation that you can find on the Investor Relations section of our website, outfront.com. After today's call has been concluded, an audio archive 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 as well as our 2023 Form 10-K, which we expect to file this week. We will refer to certain non-GAAP financial measures on this call.

Any references made to OIBDA 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 of prior period reconciliation. Let me now turn the call over to Jeremy..

Thanks, Stephan, and good afternoon, everyone. We're pleased to be here sharing our fourth quarter results and 2024 outlook. Before digging into Q4, I'd like to quickly highlight some of our accomplishments from 2023. Revenues finished up 3% year-over-year on an organic basis with both U.S.

Media and other, which is essentially our business in Canada, up by the same rate. Our U.S. billboard business, by far, our largest in terms of revenue, was up 4% for the year on an organic basis.

As has been the case for the last couple of years, this growth was predominantly driven by higher rates resulting from robust demand for billboard advertising and our expanding digital revenue. Also contributing significantly to our billboard growth was the continued impressive performance of our automated sales platform, including programmatic.

These channels comprised approximately 16% of our digital revenues in the fourth quarter, up from 10% in the first quarter and single-digits in 2022. In October, we announced the sale of our Canadian business to Bell for CAD410 million or around $300 million, subject to certain adjustments.

We expect this transaction will close in the first half of this year. I'd also like to mention the achievements of our creative team, XLabs, which was born in 2 catalogs, one gold and one bronze at the International Festival of Creativity for our partnership with Google and Gorillas.

The awards honored the team for transforming Times Square into a live stage for a revolution in music performance by the award-winning virtual band Gorillas. This event truly showcased the evolutionary potential of the out of home industry. So now let's turn to our fourth quarter results, and you can see the headline numbers on Slide 3.

Consolidated revenues grew 1.3% towards the higher end of the guidance we provided in November, while OIBDA was $152 million and AFFO was $108 million. Slide 4 shows our segment results. Total U.S. Media revenue increasing 1.1% year-over-year. Other, which consists mostly of Canada, was up 5.9%. On Slide 5, you can see our U.S.

media revenues in more detail. Billboard revenues were up 3% with growth in all 4 of our regions, but stronger performances in the East and South, and I'm pleased to call out our New York Huston Dallas, Orlando, Kansas City and national teams as these markets displayed extemporary growth leading our billboard geographies.

Transit revenue was down 4% versus the prior year. The entire decline in the quarter was due to weaker tech, financial and entertainment. Though the media strike finally ended in early November, the fall Prime Time TV season was effectively pushed entirely over the quarter.

On a consolidated basis, our best-performing categories in Q4 were CPG, legal services, education and retail. On the weaker side were technology, government political, financial services and, of course, entertainment. The breakdown of local and national revenues in our U.S. business can be seen on Slide 6.

Local grew 4.5% during the quarter, while national, which was more heavily impacted by the weaker tech and entertainment verticals I noted earlier, declined by 3%. As a result, at 43%, 57%, national local split during the quarter was a bit more locally skewed than our more typical 45-50. Slide 7 shows our solid U.S.

billboard yield growth up around 3% year-over-year and shopping 3,000 a month for the first time. The largest drivers of this yield growth remain our digital conversions, rate and higher programmatic and other automotive transaction revenue.

Slide 8 highlights our strong digital performance with revenue growing 9% in the quarter total revenue representing nearly 36% of total digital revenues, up to 33% last year. Automotive Digital billboard was up a robust 10.6%, again, fueled by our automated sales channels and new inventory, while transit was up 4.5%.

Let me now hand over to Matt to review the rest of our financials..

Thanks, Jeremy, and good afternoon. For a deeper dive into our financial statements. Please turn to Slide 9 for a more detailed look at our expenses. Total expenses were up about $8 million or 2.5% year-over-year. Billboard lease expense decreased 9% year-over-year in Q4.

As has been the case throughout the year, this increase reflects annual rent step-ups, acquired billboard sites and higher variable expense on a portion of our billboards that continued revenue share agreements. Transit franchise expense was down 3.5% with lower revenue share payments for franchises, partially offset by the higher net into the MTA.

Posting, maintenance and other expenses was down 2% versus the prior year with these features related to higher business activity were offset by reduced maintenance and utilities expenses. SG&A expense increased by 1% to $4 million versus last year.

The entire increase was related to higher professional fees, partially offset by lower compensation expenses. Corporate expense was essentially flat in the quarter as lower compensation related expenses were offset by the unfavorable impact of market fluctuations on an unfunded equity index rate repairment plan and higher professional fees.

Slide 10 provides additional detail on the sources of OIBDA. U.S. billboard OIBDA was just over $145 million and represented over 95% of our consolidated OIBDA. U.S. billboard OIBDA margin was 39.5%, down versus a year ago but up again versus 2019. Transit OIBDA was $13.7 million compared to last year's $16.6 million.

The decrease was primarily due to lower revenues as Jeremy described earlier. While on Transit, I'd like to take a moment to discuss some of our expectations for the New York MTA. Our Meg payments of the MTA will step up by 1.3% this year to about $150 million given the CPI escalator contained within the contract.

We will continue to account for a New York MTA franchise expense on a streamlined basis throughout the year. On the MTA deployment front, we are pleased to say we are very close to the completion of our initial build.

Specifically, we expect to spend around $50 million on deployment in 2024 finishing our installation of advertisings being our non-staff. The annual capital investment will step down in 2025 as we look forward to replacement commences where our capital commitment. Turning to capital expenditures on Slide 11.

Q4 CapEx spend of just over $23 million, including about $6 million of maintenance spend, both essentially flat with last year. For the full year, total CapEx was about $87 million, just below our historical 5% of revenue benchmark.

Including this total was almost $9 million of spending related to the moves of 3 odd offices in New York or San Francisco. 2024, we expect to spend approximately $75 million of total CapEx with about $70 million to be spent in our U.S. business. Of the total amount, around $25 million will be maintenance CapEx.

Looking AFFO on Slide 12, you can see the bridge to our Q4 AFFO of $108 million. The improvement is principally driven by the non-cash effective streamline rent AFFO line item, which was an $18 million swing versus last year.

2024, we currently expect reported consolidated AFFO growth in the high single-digit range with 2023 to AFFO of $271 million, driven principally by improvement in OIBDA. Notably, this guidance assumes a June 30th close for the sale of our Canadian business. Please turn to Slide 13 for an update on our balance sheet.

For July store in November, we completed a new $450 million senior secured note offering and utilized the proceeds to repay our $400 million of senior unsecured notes in 2025, pushing this maturity out of our 6 year to 2031.

Turning to liquidity is slightly over $600 million included around $20 million of cash, nearly $70 million available by our revolver and $85 million available by our accounts receivable securitization store.

As of December 31, our total NAV leverage was 5.4x, and we remain comfortable with our debt stack with our next maturity other than AR Facility, not being due until 2026 with less than 25% of total gas -- rigs.

As Jeremy mentioned, we reached an agreement to sell our PD business to Bell Canada $110 billion laws subject to certain adjustments -- which equates to that in $300 million related exchange rate.

We continue to expect this transaction to close in the first half of 2024 and intend to use the proceeds to pay down debt, fee lever, and reduced annual interest expense by approximately $20 million. Turning to our dividend.

We announced today that our Board of Directors has maintained $0.30 cash dividend payable on March 28 to shareholders of record to close the business on March 1.

Based on our current operational expectation and the taxable gain created with the sale of our Canadian business, we believe we will need to pay a large dividend we ended the year for rigs off. We spent $3 million on acquisition during the quarter, bringing our total to 2023 to about $34 million.

And looking at our current acquisition in the pipeline, we expect our 2024 deal activity to similar to that in 2023. In closing, we accomplished a lot in quarter and we are fully focused on delivering growth in 2024.

We remain excited about our business in the future, and we look forward to seeing many of you at various comments and events in the coming weeks. With that, let me turn the call back to Jeremy..

Thank you, Matt. While we are pleased with our billboard revenue performance and what ultimately proved to be a rather challenging 2023, we're happy to turn the page to 2024, which we expect will be a significantly improved year.

We'll be starting off on the right foot in the first quarter as based on our trends of today, we estimate the reported Q1 total revenue growth will accelerate to the low to mid-single-digit range with billboard and transit growing at similar rates.

Importantly, we expect this growth despite our first quarter 2023 billboard revenues, benefiting from around $6 million of non-recurring condemnation revenue, which we highlighted last May. Further, as I just mentioned and implied by our full year AFFO guidance, we are encouraged by the early signs we are seeing for the remainder of the year.

We see numerous tailwinds for our company in 2024, including the continued ramping of our acquired inventory and additional recovery in our transit business.

We also expect that we and in fact, the entire out-of-home industry will benefit from the crowd out effects of the Olympics and the 2024 election as well as the return of a Prime Time TV season in the second half. I'd like to close our prepared comments today by reiterating how proud I'm with the OUTFRONT team for their performance last year.

And then does that continue effort of position us for success in 2024. And with that, operator, let's now open the lines for any questions..

[Operator Instructions] Our first question today is from the line of Jason Bazinet of Citi..

I just had a question on the AFFO guide.

Do you guys mind just unpacking any of the details sort of below the headline sort of EBITDA number just so we have the pieces right? And then also the impact of Canada, assuming that June 30 close occurs?.

Sure. Thanks, Jason. We understand to that -- there's a few more moving parts this year because of the timing of the sale of a -- so the growth we citing assumes that initial resale of Canada midyear, June 30, some seasonality in the business.

So given that we get the shorter hit of the Canada operation in 2024 compared to the full year of Canada in 2023. Probably think there's a couple more points of growth available on a full year comparative basis of AFFO based on the timing.

Otherwise, once we sell Canada -- you probably clarify that a little better seasonality, a heavy fourth quarter AFFO from Canada that was felt in 2023 won't be felt in 2024. That would led to our AFFO growth.

Other points of AFFO growth mentioned maintenance CapEx is about $25 million, cash taxes of about $5 million and interest expense somewhere in the $155 million to $160 million range. Of course, interest rates low, too..

Okay. Got it. So the growth, if I heard you right, would be a few points higher if you hung on to Canada for the full year.

Did I hear that right?.

Yes..

Our next question today is from the line of Cameron McVeigh of Morgan Stanley..

Just had a couple. I was hoping you could help us think through the impact of the media strikes on growth this year.

In particular, what does the cadence of growth look like given the comps we faced last year? And should that have a greater impact on billboard or transit?.

So when you look at it, it certainly it impacted that business really quite more than others termite the industry just because our exposure to media revenues, in particular, given that prominent positions in both New York and Los Angeles.

So when we look into it, reasonably significant impact in dollar terms in our billboard business, particularly in LA.

But in percentage of revenue terms, the transit business was most impacted, and that's because transit is more disposed towards national and within transit it's been certainly been somewhere where the all TV schedules have typically been very, very successful for us and our clients.

So as we look to this year, we obviously expect that we'll see a full schedule this year.

So we think that will be telling to our numbers as we go through the year maybe we'll see a bit of benefit in those early months as well because there's some new content out there that we believe that would have been promoted last year, and we will be promoted in the earlier part of this year. So generally, we feel positive on that.

It's interesting the other category that was difficult for us last year not only difficult for us. I mean, difficult for just about every at holding company, I think that's reported so far. It was obviously tech. And while [indiscernible] doesn't make a summer, it's good to see that our tech revenue is actually pacing a bit ahead in Q1.

So that's a positive sign..

Got it. And then just secondly, if you could just walk through an update of how you're thinking about how margins should trend through the year. Yes, if I think about what impacts margins, wage and ad commission inflation, you're lapping some M&A comps and there's some further tech integration with the MTA Board.

Curious from your view, just what's causing the most material impact and how you're thinking about that trend throughout '24..

Why I'm moving forward to '24 main breaks them down transit, we expect some improvement in our transit business and given our fixed franchises in New York or underneath their middle guarantees. Movement to net revenue will help margin. We expect to see that at the transit side.

On billboard we had, again, acquisitions in mid-'22 and early '23, which is kind of a bit of a drag in '23 on billboard margins, just the higher lease costs outstripping revenue growth. We think that catches up during 2024. And even though there will be renting pieces.

I think our lease life as a percent of revenue will improve, of course, there's other costs, some inflationary pressure in certain areas and some -- so it's hard to say quarter-to-quarter. We think margins of media similar to a little better this year than last year..

[Operator Instructions] Our next question today is from the line of Jim Goss of Barrington Research..

All right. I was wondering with regard to billboard, your dominant category. What the mix of digital versus static was this year versus last year? Whether that trend has had an impact on those gains you've made..

Thanks, Jim. Yes, the -- when we look back to Q4, the numbers are digital was 36% of our revenues, and that's very much weighted towards billboard rather than transit. So 36% of our revenues versus 30% the previous Q4. So you can see that's a big step up. That's -- and we think that, that number is when you're going to go one way.

We continue to opportunistically convert board. And this year, we would expect to be in that 150 to 200 new board range. So you have essentially more assets in the field and then we also have this swing towards automation. And that's an exciting trend our automated revenues to be 16% in the final quarter the size of the digital business.

And that's starting to become needle with everything. And as time goes on, as we said before, we believe that digitally in general, will be margin and enhancing for our billboard business. So it's not necessarily a linear thing. But if we look over time, we think it's certainly going to be positive to the global business..

Are you generally feeling that it's a plus because now things are improving in terms of ad revenue trends because I think in a slower period, it could be a disadvantage, but it is being helped by the rebounding ad market in terms of price?.

Yes, obviously, yes, thanks, Jim. Yes. Look, obviously, whenever you digitize your state, you are adding on supply. And it's always helpful when you're adding on supply until you have a tailwind in the ad market. But I say last year, actually, there were a bunch of headwinds and those digital revenue is still lows to grow significantly.

So net-net, we're still very confident in the investments that we're making in our business to further digitize. One of the big factors last year that we started seeing just the late money that we were able to take as a company that we wouldn't have been able to take in years before.

Someone wants to get an add up today, if we had pull through in the next hour. Yes, we can have that out of one. This is in an industry where previously in flexibility, it really looks or the keyword. So to have that flexibility, we think there's a real bonus for the industry of the whole..

All right. And just one other one. You called out a number of markets where you thought there were particularly notable strength in your billboard business.

Is there any commonality among the markets you called out that you can draw any conclusions from and what might those be?.

Look, a number of the markets were in the south. So we -- obviously, Texas has been strong as a state, Florida generally is good. So obviously included in that was Poland and Nashville, and up saying, I think, with Tennessee also speaks for itself.

The only markets that so difficult for us really in particular, with some of the West Coast markets, and we talked about San Francisco being difficult for us last year. And I think some of the reasons that and maybe self-evident from what we will be in the first. And then on in particular, as noted were so actually button..

Our next question today is from the line of Richard Choe of JPMorgan..

I just wanted to follow up on the 1Q revenue guide of low single digits.

In terms of the strength that you're seeing between billboard and transit, where is the strength coming from? And how much is programmatic potentially contributing to that?.

Okay. So going back to the guidance, Richard, thanks for the question. So we guided to low to mid-single digits. And we said that both parts of the business, we're going to be up, which is a great side. Part of that is going to be automated revenues, which will continue to grow this year.

We expect the reason why that graph should be do take it out, and that will keep creeping up, and that will be a good thing. What is also good to see right now is that both our local and national businesses, while there's still, whatever it is, a few weeks to go in the quarter, businesses are pacing up right now. So that's good to see strength.

Look, it feels very broad-based, and it's nice to see that acceleration from the growth rate that we had achieved in the back half of last year with some of the challenges that we've already talked about..

And -- given that, do you see that there's been a change in your customers in wanting to do more out of home at this point and they feel more comfortable with the environment versus last year where there's a lot of uncertainty?.

So on the face of it, yes, I mean, last year, actually, there was all about really 2 or 3 categories that really didn't do show up. So we think that's just a bit of amounts that will be very positive for us. The same media coming back will undoubtedly be positive.

And we expect that the clients that have given us support in the last years will certainly be showing the support getting in 2024..

[Operator Instructions] We have no further questions in the queue today. So I'd like to hand back to Jeremy Male for any further remarks..

Thanks. And everyone, thank you for joining us today. I'm sure we'll be seeing many of you at conferences and events over the coming weeks. I don't [indiscernible] -- presenting our Q1 results to in -- thanks very much again..

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