Good day, Welcome to today's OUTFRONT first quarter 2023 earnings call. Today's conference is recorded. At this time, I'd like to turn the conference over to Mr. Stephan Bisson. Please go ahead, sir.
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 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, outfront.com. After today's call is 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, thank you everyone for joining us today. We're pleased to share our first quarter results, which will 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 three, 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 condemnations. 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.
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 dry by transit, and AFFO was down given this lower OIBDA, higher interest expense, and the timing of maintenance CapEx. Slide four 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 five, you can see the components of our U.S. media revenues. Billboard grew 8% with good performance in most of our markets, though 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 national split was 60/40 in the quarter, a bit higher than our typical 55/45, given the particularly strong local growth. Slide seven 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 nine 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 aboveground revenues. 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 Advertising in Portland, two 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 contain 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. 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 the 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 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 New York MTA MAG. Turning to capital expenditures on slide 13, Q1 CapEx spend was $23 million, including $9 million of maintenance spend. The $6 million increase in total CapEx versus the prior year was primarily due to investments in our tech delivery platforms and pre-purchase of work vehicles, including electric vehicles in some of our key markets.
We reached a new milestone for our digital billboard deployment, adding 40 during the quarter to end 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 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 $40 million of cash, almost $500 million available under our revolver, and about $20 million available on our accounts receivable securitization facility. As of March 31st, our total net leverage was 5.2 times 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 a quarter of total debt subject to floating rates. We made $5 million of tuck-in acquisitions in the quarter, completing a couple of deals we were working on last year.
Looking forward, while we continue to close additional tuck-ins carryover 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 2023 than 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 30th to shareholders of record at the close of business on June 2nd. 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 rate 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. This has been a 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. 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 MAGNA's current forecast, out-of-home is expected to grow 6% in 2023, well ahead of the overall media forecast of 3%. With that operator, let's now open the lines for questions.
Thank you, sir. A reminder to the participants, if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We pause for just a moment to allow everyone the opportunity to signal for question. We take the first question from Jason Bazinet from Citi. Your line is open. Please go ahead.
I just had two quick questions, one on the top line and one on expenses. I guess on transit, given what happened 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. 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? Is that something that should continue? Thanks.
Thanks, Jason. Yeah, maybe just a little bit more color on transit. I guess the first thing is that in the script, I actually mentioned that, you know, underground revenues were, you know, were actually up. If you sort of drill into ridership, New York in particular reached a milestone last week with 4 million, 4 million riders. I don't think it's all necessarily about riders in this instance. I think part of it was, as I said, was down to just some, you know, pretty tough comps that we have from the sports betting.
Part of it also, you remember I called out media, which is one of the, you know, few categories that were down for us this year, and they're sort of big users of above-ground media, particularly buses. I think it's more about some of the specifics. I think, you know, it's a little frustrating, to be honest. You know, we'd much prefer to be seeing, you know, more significant growth in transit. Obviously, you know, it elongates the curve a little until we, you know, start recouping. 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 security is. It's an unfunded 401(k) plan, a pension plan, the executive participation. It was about a $2 million swing year-over-year. I think it was a good guy of $1 million last year and a bad guy of about $1 million this year.
That's something that's always sort of in the P&L, and it tends to go up when the equity...
It could be the opposite way of the market. We have it's likely exposure to the S&P 500. When the S&P goes down, we as a shadow funding go, you know, have a benefit. When it goes up, we have an expense.
Okay. Thank you.
We will take the next question from Richard Choe. Your line is open. Please go ahead.
Hi. 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 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. You know, national just above a point which, as I say, reflected some of that weakness that we saw particularly at the start of the year. When we look into Q2, you know, I would expect that national will be outpacing, you know, local reasonably significantly. You know, I think I made the comment in the script that local was sort of normalizing so that implies more in the sort of, you know, low mid-single digit range for local.
Great. 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, you know, lower growth rate? I guess with that, what should we be expecting in terms of margins for the rest of the year? There seems to be a few moving parts, going on.
Yeah, Richard Choe, it's Matt. I think Right, it's the out of period adjustment is, you know, expenses from second, third, and fourth quarter of last year that we booked here in the first quarter. A lot of moving parts. The continued digitization, positive for margin. Geographic and certain portfolio performance has been recently a bit of a headwind. A lot of the high profile revenue share inventory has been outperforming the more fixed expense inventory. I'm not really giving guidance for the full year, but I wouldn't expect it to be materially different from last year, maybe slightly higher. You know, nothing notable either, you know, either side.
Great. Thank you.
We will take the next question from Ben Swinburne, Morgan Stanley. Your line is open. Please go ahead.
Thank you. Good afternoon. Jeremy, just to clarify the guidance for Q-two of mid-single digits, I realize that's a range, but are you speaking to a organic growth rate? I think you guys had about 100 basis points of acquisition benefit this quarter. Just wanted to ask. Maybe the answer is yes to both, but figured I'd ask.
Ben, it's Matt. I'll grab that for our guidance. I believe it's all in. You know, we do a ton of work here, a lot of tuck-ins. The only one we've called out is Portland, which we did mid-second quarter. That guide would include Portland performance.
Okay. The acquisition benefit actually will moderate in Q-two as you lap that deal?
Yes.
Okay. Got it.
You know, we'll lap part of it. It's Not a big number, but there is some some new inventory benefit in that number.
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. Obviously there's a lot of focus on the call today about your transit business and the MTA and ridership. 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 high rev share boards doing well, which I tend to think of New York City. Maybe you can 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. Thanks for the question, Ben. Yeah, billboard business generally in New York has been really pretty strong. You know, we've also been, you know, over the last sort of two or three years, we developed some great new digital locations. We've also, you know, Times Square definitely is, you know, bubbling away in a, in a, in a positive sense. Actually, the East. We split our business down into 4 regions. Actually, the East, which includes New York, was actually up higher than any other region. It was, you know, pretty much what we'd say all of the Northeast was strong in billboard.
Just jumping back to you, Matt, lastly on margins. You know, 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. Just wanted to see if you'd be willing to answer that on second quarter margins.
It, 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 out pacing, that's gonna be a bit of a headwind. Of course, it's, it matters not just how much revenue growth, it matters somewhat where the revenue growth is. To Jeremy's point, New York and northeast doing great, Miami doing well. Certain parts of L.A. are doing well, and those are all expensive locations. Friends out there, I'd love more revenue in Louisville and St. Louis. You know, we think we can see some improvement, but we'll let you know in a few months.
Okay. All right. Thanks, guys.
We'll take the next question from Ian Zaffino from Oppenheimer. Your line is open. Please go ahead.
Great. Thank you very much. you know, can we look at or can you compare and tell us maybe how the MTA did on the national side, ex gambling. How does that compare to basically your billboard business in New York? Do they perform pretty similarly? I'm just trying to get as much color as I can. Thanks.
Yeah. I must admit, when we, you know, when we look at local and national, we, you know, we don't give the split national transit and national billboard in. I'm not certain that I can, you know, add that much definitive. All, you know, I think all I can say is that, you know, national was, you know, underperformed billboard, okay, for the first quarter generally across the country.
Okay, thank you.
Next question from Jim Goss from Barrington. Your line is open. Please go ahead.
Thanks. A couple about transit. You opined a couple of quarters ago that the rebound in 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. Is there any variance in pricing by day of the week, would you say? Finally, transit-wise, outside of New York, San Francisco has been getting a lot of bad press lately. I wonder if you might update that market as well.
Sure. Thanks, Jim. I guess the, you know, the first question in terms of reach, we absolutely continue to believe that, you know, the reach argument will, you know, come into play. The fact that, you know, you're, it's not the absolute number, but it's just, you know, 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. Again, you know, we said that we really don't believe that we need to get much past 80% of 80% of that audience to certainly lap 100% of the 2019 revenues.
We continue to, you know, we continue to be real advocates for transit advertising. It's an integral part of our business. We have a huge crossover in terms of the top 100 advertisers. You know, I said a little earlier, while, you know, frustrating that the recovery curve is more elongated than we all hoped, we, you know, we firmly believe that reach piece will, you know, continue to 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 relative to weekdays. That's just, you know, that's just one of the trends that we've that we've noticed. Interesting also that, you know, the MTA is certainly saying they're gonna be upping their service over the over the coming weeks, and we think that that's also gonna be a positive benefit for us. In terms of San Francisco, you know, I think, Jim, it's a good question. The answer is that San Francisco, you know, generally, is, you know, probably, not where we'd want it to be in terms of our billboard business.
Actually in terms of the transit business, it was actually, mostly up in Q1. Sort of mixed signals coming out of San Francisco.
Okay. Thanks. One final one. You mentioned a 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 the digital impact. Is it better or worse with the type of spending that you're doing now versus what you used to spend?
The more we digitize, that's where the, you know, 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. There's, you know, some site cost and as you know, most of our inventory is still very static. You know, our digital inventory is less than 4% of total. It's a big impact on revenue. We're still servicing, you know, tens of thousands of static boards.
Okay. thanks much.
Thanks.
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, thanks everyone for joining our call today. I hope to see and meet with many of you at various conferences over the course of spring and summer. 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.