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Operator: Good day, everyone, and welcome to the OUTFRONT Fourth Quarter 2022 Earnings Call. Today’s call is being recorded. And now at this time, I’d like to turn the call over to Stephan Bisson. Please go ahead.

Stephan Bisson: Good afternoon and thank you for joining our 2022 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 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, an audio archive 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 2022 quarterly reports as well as our 2022 Form 10-K, 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.

Jeremy Male: Thanks, Stephan, and good afternoon, everyone. Before digging into our Q4 results, I’d like to quickly recap the great year we had in 2022. On Slide 3, you’ll see our full year results for our key financial metrics. Revenues finished the year, up 21% versus 2021, with U.S. billboard, up 17%; and U.S. transit, up 38%. Revenue growth was predominantly driven by higher rates as robust demand for out-of-home advertising led to higher prices for both our static and digital signs. Nearly, every key category was up most by double-digits led by travel, up 82%; retail, up 39%; entertainment, up 34%; technology, up 33%; and auto, up 31%. 2022 OIBDA grew nearly 40% versus 2021 with consolidated OIBDA margin rising to 26.7% from 23.2% last year.

Billboard OIBDA margins expanded by 190 basis points, illustrating the operating leverage inherent in the business, while transit OIBDA improved by nearly $24 million and returned to positive territory on a full year basis. AFFO grew in line with our 60% guidance, when excluding a $17 million upfront lease payment related to the structure of a tuck-in during Q4 and were still up a healthy 52% when including that payment. Matt will describe the details of the accounting behind the payment later. But suffice to say, we’re very proud to have delivered on our original guidance, especially considering the headwinds created by some uncertainty in the macro environment and the rapid rise in interest rates, since we gave guidance a year ago. We also had the most acquisitive year since 2014.

Spending approximately $370 million on new assets, the largest of our acquisitions, the $185 million acquisition of Pacific Outdoor added our first new billboard markets since 2014, and represents an entry into the Pacific Northwest that we will build on over time. While not a 2022 event, you may have noticed recent press release from our partners at Providence Equity, who purchased the advertising displays at 2 times square and also entered into a 10-year agreement, but as to exclusively market license and provide ad space on the assets. These are important signs that we view as strategic and are larger Times Square in New York City’s strategy. With that, let’s now turn to our fourth quarter results, in which you can see the headline numbers on Slide 4.

Consolidated revenues grew 6.5% in line with the guidance we provided in November and OIBDA grew nearly 2%. Slide 5 shows our segment results with total U.S. media revenue increasing 7% year-over-year. Other, which consists mostly of Canada, was up 5.8% on an organic basis, but down 1.5% on a reported basis versus the prior year, primarily due to foreign exchange headwinds with the Canadian dollar. On Slide 6, you can see our U.S. media revenues in more detail. Billboard revenues were up 7% with strong performances in most regions. I’m pleased to call out our New York and Miami teams as these large markets displayed very strong growth leading the way within our billboard markets. Transit revenue was up 5.7% versus the prior year, continuing its steady improvement as subway, rail and bus ridership slowly increased.

Our best performing categories during the quarter were travel, auto, retail and legal services. The breakdown of local and national revenues in our U.S. business can be seen on the Slide 7. Local grew by 8.3% in the quarter, while national grew by 5.4%. If you recall, we returned to our historic split of 45% national, 55% local last quarter and that trend continued through Q4. Slide 8 shows our solid U.S. billboard yield growth, up 5.7% year-over-year to just over $2,900. As has been the case all year, this yield growth was primarily driven by rate. Slide 9 highlights our strong digital performance, with revenue growing 13% in the quarter, and digital revenue representing 33% of our total revenue, up from 31% last year. Both billboard and transit digital grew double-digits.

Importantly, our static growth should not be forgotten. And we highlighted on Slide 10, total static revenues were up 3.9% year-over-year, with 4.8% growth in static billboard. This growth is particularly notable given that each time we convert a billboard to digital; we are typically removing one of the top assets from our static portfolio. With that, let me now hand over to Matt to review of the rest of our financials.

Matthew Siegel: Thanks, Jeremy, and good afternoon, everybody. For a deeper dive into our financial statements, please turn to Slide 11 for more detailed look at our expenses. Total expenses were up $28 million, or 9% year-over-year. As we experienced throughout 2022, a robust revenue growth has led to increases in our variable and performance related costs. Billboard lease expense increased 12% year-over-year in Q4. This increase reflects annual rent step-ups, billboards acquired through 2022 and higher variable expense on a portion of our billboards that contain revenue share agreements. As a reminder, these boards are primarily located in our major cities. And our increased billboard lease expense reflects a significant growth in these markets.

Transit franchise expense was up 19% due to higher revenues on majority of our contracts, which are in their revenue shares, but also due to the higher MAG owed to the MTA from our 2020 deferral and inflation increased for 2022 in accordance with the terms of our MTA contract, Posting, maintenance and other expense was essentially flat versus the prior year as increases related to higher business activity were offset by decreases in production expense for specialty campaigns. Combined, corporate and SG&A expense increased 5% versus last year. This reflects higher revenue and OIBDA driving increases in professional fees and higher compensation related costs. These increases were partially offset by the favorable impact of market fluctuations on an unfunded equity index-linked retirement plan.

On Slide 12, you can see our OIBDA increased nearly 2% and our margin was 31.1%, down 140 basis points versus last year, mostly due to a lower transit margin, which was driven by the aforementioned higher MAG payments to the New York MTA. It is perhaps worth noting that consolidated OIBDA margins relative to 2019 were up 230 basis points in the fourth quarter. Slide 13 provides additional detail on the sources and growth of OIBDA. U.S. billboard OIBDA grew nearly 6% to $147 million and represented over 90% of our consolidated OIBDA. U.S. billboard margin was 41.1%, down 60 basis points versus a year ago, but up nearly 180 basis points versus 2019. As in Q3, the slight margin decline this quarter versus 2021 was driven by outperformance in our largest markets.

We expect 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. That said, the improvement is not expected to be linear, given geographic performance variances and timing of acquisitions, which can add noise into the numbers. Transit OIBDA was $16.6 million compared to last year’s $22.3 million. The decrease was primarily due to higher transit franchise expense. While discussing transit, I’d like to take a few moments to discuss our 2023 expectations for the MTA franchise. The minimum annual guarantee will step up to just under $135 million, given the CPI escalator contained within the contract, which equates to a MAG revenue hurdle of $245 million to enter recoupment.

While we expect to close the gap between our MTA revenue and this level, we do expect to be beneath it in 2023 and we’ll again account for the minimum guarantee and the almost $12 million we will pay for the 2020 MAG deferral on a straight line basis throughout the year. As you saw in 2022, this will impact Q1 OIBDA given seasonally wider revenues. However, for the full year, we expect transit OIBDA significantly improve versus last year with OIBDA expected to improve each quarter in a similar fashion to 2022. On the MTA deployment front, we are pleased to say we are approaching the completion of our initial build, specifically we expect to spend around $100 million on deployment in 2023, primarily installing advertising screens on rolling stock.

And we expect the annual capital investment to step down significantly beginning in 2024. Turning to capital expenditures on Slide 14. Q4 CapEx spend was just over $23 million, including nearly $7 million of maintenance spend. The decrease of $9 million in total CapEx versus the prior year was primarily due to the timing of our investments throughout 2022. For the full year, total CapEx was approximately $90 million around our historic benchmark of 5% of revenue. Virtually, the entire full year increase versus 2021 was in growth CapEx, driving a higher number of digital conversions. Through these conversions, new developments, acquisitions and management agreements, we added approximately 330 new digital billboards are new annual record. For 2023, we again expect to spend $90 million on total capital expenditures.

Looking at AFFO on Slide 15, you can see the bridge to our Q4 AFFO of $96 million. As Jeremy mentioned earlier, there’s an approximately $17 million upfront lease payments contained in the non-cash effective straight-line rent AFFO one item, which relate to the structure of a tuck-in we completed in late Q4. In the transaction, we signed leases with the landlord and almost all of the upfront payment was accounted for as a prepayment of lease expense and AFFO over the next 20 years. The cash flow economics of the transaction are unchanged. For 2023, we currently expect AFFO growth in the mid-single-digit range from 2022’s AFFO of $311 million with OIBDA growth more than offsetting the significantly increased interest expense, we expect given a heightened interest rate environment.

Included in this guidance is also a $25 million of maintenance CapEx and about $9 million of cash taxes. Please turn to Slide 16 for an update on our balance sheet. Committed liquidity is approximately $650 million, including over $40 million of cash, nearly $500 million available via revolver and $120 million available via our accounts receivable securitization facility. As of December 31, our total net leverage was 5 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 March 31 to shareholders of record at the close of business on March 3.

Based on our current expectations, it is possible this dividend level may ultimately prove to be insufficient to meet our REIT requirements for 2023, and an increase may be required later in the year. We spent a total of $91 million on new displays during the quarter. We expect to close a few more tuck-ins q1, funding these deals with cash on hand and draws from our accounts receivable securitization facility as necessary. As Jeremy mentioned earlier, looking at the full year 2022, we spent $371 million on new assets making last year, our most acquisitive years since 2014. Looking at our current acquisition pipeline, we expect our deal activity to moderate in 2023. In closing, Q4 was a solid quarter and a capstone to a great year. We remain excited about our businesses’ future and I look forward to seeing many of you at various conferences and events in the coming weeks.

With that, let me turn the call back to Jeremy.

Jeremy Male: Thanks, Matt. We’re extremely pleased with our 2022 performance and what proved to be an uncertain year for the economy and financial markets. And looking forward towards Q1, based on our trends as of today, we estimate that Q1 total revenues will grow in the low-single-digit range with billboards slightly higher than that range; and transit, flattish. While the quarter got off to a slightly slower start than we might have hoped for given a movie slight skewing later in the year, and a tough comp created by sports betting in Q1 last year. Bookings have improved as the quarter has progressed, and activity in the marketplace has definitely picked up over the last few weeks. As implied by our full year AFFO guidance, we are encouraged by the early signs we are seeing for the remainder of the year.

In our view, and that of many ad industry forecasters, out-of-home remains poised to take further market share of the broader advertising industry in 2023. Our displays, which are becoming increasingly digitized are ubiquitous, and reach an audience that continues to grow in a world where scaled audiences are becoming more difficult to find. We’ve also made strides with our insights and data initiatives highlighted by our smartSCOUT tool, which provides solutions for enhanced demographic and location targeting, when connecting to audiences on the go. It’s truly hard to think of an ad medium in a better position, especially considering recent uncertainty in the digital advertising marketplace. I’d like to close our comments today by reiterating how proud I am of our OUTFRONT’s team for having had such a great year and positioning us for success in 2023.

And with that, operator, let’s now open the line for questions.

Operator: Thank you. And we will first hear from Ben Swinburne of Morgan Stanley.

Benjamin Swinburne: Thank you. Good afternoon, guys.

Jeremy Male: Hi, Ben.

Benjamin Swinburne: Jeremy, could you talk a little bit more about any particular categories? I think you mentioned the movie slates maybe entertainment explains the Q1 deceleration, and whether you’re expecting revenue growth to improve through the year implicit in the guidance for AFFO. And then Matt, I don’t know how specific you’re going to be, but I know interest expense is moving around a lot given rates. I was wondering if you had an estimate for the year you might be willing to share with us. Thank you.

Jeremy Male: Yeah. Thanks for the question, Ben. Yeah, I’ll certainly be happy to take the first one. Yeah, as I mentioned in my prepared remarks, yeah, move slates a little bit later. Interesting, because actually that impacts our business a little bit in New York and LA, they’re particularly sort of supportive of transit as well. So that has €“ that comes into play there. And certainly sports betting was massive for us in New York this time last year, as it became licensed obviously. And you’re right, implicit within our guidance as we €“ AFFO guidance as we look forward is an increasing trend as we go through the year. We’re definitively saying some pickup in our bookings as we speak. We have some visibility going forward that gives us a confidence to think about increases as we go through the year.

Also worth remembering that last year, we acquired a number of assets and built a number of assets. As we build up revenues on those as they come to the fourth that will also be additive to the revenue picture as the year progresses.

Matthew Siegel: And, Ben, on the interest expense, we have $600 million term loan, which is floating. We have a securitization program, which tops at about $150 million. We’ll probably use most of that. And obviously, the interest rates have gone up last year, and probably keep inching up this year, probably up about $40 million of interest expense year-on-year 2023 from 2022.

Benjamin Swinburne: Okay. Got it. Thank you both.

Matthew Siegel: Sure.

Operator: Next, we’ll hear from Richard Choe of JPMorgan.

Richard Choe: I wanted to ask about the pricing environment. Are you getting any pushback on the pricing increases that, I guess, you had talked about in €“ at the end of last year as inflation kind of picked up and what you’re seeing on the national side in terms of strength or weakness there?

Jeremy Male: So thanks for the question, Richard. I mean, to be fair, we had a year of significant rate increase last year. And I would expect that this year, we won’t achieve the same year-on-year percentage growth as we achieved last year in terms of rates. I think this year, we’re obviously be very focused on our occupancy as well, and seeing how we can combine those to keeping our yields moving forward in the right direction. In terms of when you look at the business now, as we said, our national-local revenue split is pretty much back to the historic norm. And as we go forward with maybe potentially sort of pockets of weakness in one or the other, they may flip around a bit, but I wouldn’t have thought we’d be €“ we skewed too much away from the 55%, 45% as we go forward in the year.

Richard Choe: And to clarify, it seems like the bookings are getting stronger. So any kind of weakness that people have or will worry about in terms of the economy, or overall advertising is not something that you’re seeing right now?

Jeremy Male: I think as we got to the back end of last year, I think we deducted a little bit of a slowdown, and I think, particularly in the national environment, as you know, in the local environment, we have much more €“ we have longer term lay downs there. So if you’re going to notice anything, it’s a national. I think we felt a little bit of a cooler breeze as in December, and I think that carried through into January. But generally speaking, we’re certainly not seeing anything that some of our other media peers appear to be seeing. And as I say, we’re feeling confident about that increasing growth trajectory as we move forward.

Richard Choe: And last one for me. Did you say earlier that you didn’t expect to reach the MAG on the MTA contract this year? And can you €“ do you see the ability to grow revenue without ridership increasing as much from here?

Matthew Siegel: Yeah, Richard, the MAG steps up in 2023, because of the CPI adjustment, so the MAG level is higher. We do expect the MTA revenue to increase and get closer to the MAG. So, we think that’s going to be a big lift in OIBDA through the year. So, again, we think it’s going to keep going. We are seeing some small increases in ridership, I think, our last 10-day metric was the highest we’ve seen yet. But our revenue versus 2019 has been over-indexing ridership recovery since 2019. And we think we can keep that that our performance going and hopefully expand and widen that.

Richard Choe: Great. Thank you.

Operator: Next, we’ll hear from Ian Zaffino of Oppenheimer.

Jeremy Male: Ian?

Ian Zaffino: During the year, specifically, I guess, in the Northwest and Oregon, how are those assets performing compared to your expectations in some of the larger markets? And then, additionally, are there any other markets that you have an eye towards for additional expansion? I know you’ve mentioned tuck-ins in first quarter. And all the activity, I guess, will moderate in 2023. What does the sort of M&A environment currently look like? Thanks.

Jeremy Male: I’m sorry. I think we missed the first part of the question. I hate to ask you to repeat it. I know it was something about the Northwest and our early success there. Can you repeat that?

Ian Zaffino: Sure. Yeah, no problem. Yeah. On new inventory investments and, I guess, the Northwest and Oregon, how are those assets are performing compared to your expectations? And, I guess, compared to the larger markets as well?

Jeremy Male: Yeah, absolutely. Let me take that one. Whenever you acquire a set of assets, you acquire them based on the revenues that were being achieved on those assets by the prior owner. And we then look over a period of 12 months to develop those revenues, if you like by overlaying our own local sales methodology, and also leveraging the strength of our national sales team. So with Portland, say, halfway through the year, I’d say that out of the gate, it was sort of broadly in line with our expectation, we’re still yet to see the benefit of the ramp, I think, it’s fair to say from €“ as I say, our local and national sales piece, but going in the right direction. And the great thing about that particular acquisition is it provides a real bridgehead for us to expand more broadly in the Northwest Pacific. So that’s going to be a fabulous piece of OUTFRONT’s business for many, many years to come.

Ian Zaffino: Okay. Great. Thank you. And then, I guess, on further M&A, I guess, what areas would you expect to expand in the first quarter? And sort of how is deal activity and M&A environments are sort of looking like this year?

Jeremy Male: We remain interested in really anything that’s in our existing footprint really opportunity in Portland, a few and far between if they were markets that came up that are young, growing attractive demographic, we would certainly be interested. But otherwise, generally, we stick to our large market focus, and there’s plenty of opportunities in tuck-ins and regional players that we run into. , I mentioned our pipeline is a little lower than last year, just from a natural occurrence, when we’re actively looking and as things come up, we would certainly investigate and hopefully to find some interesting opportunities.

Ian Zaffino: Okay. Great. Thank you very much.

Jeremy Male: Thanks.

Operator: Next, we’ll hear from Jim Goss of Barrington Research.

Unidentified Analyst: Good evening. This is Pat on for Jim. I just had a question on billboards. Can you maybe talk about some of the, I guess, variability in kind of getting back to €“ or, I guess, above 2019 levels by market. Like €“ are there any like still significant laggers at this point? Is there anything

Jeremy Male: Hi, Pat. Again, billboard business €“ the billboard part of our business has been north of 2019 since the end of 2021, pretty much all regions are firing the quickest to recover. If you remember, it was the Midwest, which didn’t fall as far. But we break into four regions East, South, West and Midwest, and all are outperforming 2019 now.

Unidentified Analyst: Okay. Thank you.

Jeremy Male: Thanks.

Operator: And it appears there are no further questions at this time. I’ll turn the call back over to Jeremy, for any additional or closing comments.

Jeremy Male: Thank you, operator, and thank you to everyone for attending the call and for your questions. And we look forward to seeing many of you at Investor events over the coming weeks. Thank you very much indeed.

Operator: That does conclude today’s call. Thank you all for your participation. You may now disconnect.