Q3 2019 Earnings Call
Good day, everyone and welcome to the Outfront Media incorporated third quarter earnings Conference call at this time.
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Please go ahead.
Hey, good afternoon, everyone. Thanks for joining our 2019 third quarter earnings call.
On the call today as usual, our Jeremy Mail, Chairman and Chief Executive Officer, and Matthew Siegel Executive Vice President and Chief Financial Officer.
After discussion of our financial results.
Well open up the lines for question and answer session.
Our comments today, we'll refer to the earnings release and a slide presentation that you can find in the Investor Relations section of our website Outfront media Dot com.
And after today's call is concluded an audio archive will be there as well.
This conference 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 then or else you see filings.
Including our 2018 Form 10-K .
We will also refer to certain non-GAAP financial measures on this call.
Any references to EBITDA made today will be on an adjusted basis and reconciliations of OIBDA and other non-GAAP financial measures are in the appendix slide presentation, the earnings release and on our website.
With that I'll turn it over to Jeremy.
Thank you Greg and thank you again for joining us today to review, our so called results and guidance for the fourth quarter.
Please turn to the highlights on slide free.
Total revenues increased over 11% to Nicole so which was a fourth straight quarter of double digit growth.
In U.S. media, we sold is double digit performance in both local and national.
We were delighted to see these twin sources of demand drug continued strong growth imposed Billboard and transit.
This top line strengths helps drive OIBDA.
It's 8% and I suppose that's a follow up 7%.
So overall, a very good quarter and that's all talk about Lisa we expect 29 seem to be a double digit revenue growth yes.
I looked worthy performance is being driven by to decide station.
Sales execution.
Certainly the growing importance, rather farm and appetizers media mix.
Let's now turn to slide sports have gotten some more color on our revenue growth.
As you'd expect the vast majority of our overall growth came from U.S. media, which was up 11%.
Other revenues were up 15% on reported basis points higher when removing the effects of foreign exchange.
Let's look at each of these components in more detail beginning first with U.S. media on slide five.
Transiting Billboard contributed equally to walk right in the quarter.
Billboard revenues grew 8% on both reported and organic basis.
This is on top of the 6% growth in the third quarter last year.
Boats or a strong contribution from two just so I'm encouraged to also see static billboards performing well.
Transit revenues were up 20% that's why to just so both in terms of dollar and percentage gross.
Well the majority of this growth was from New York City, we had great performances and all of our key transit markets.
Slide six dissolve U.S. media gross.
It's derived from local and national advertising, which was 54% and 46% of total revenues respectively.
Once again, our local revenues were very strong up 12% national revenue continues to trend extremely well up 10% in the quarter.
Slide seven shows U.S. yield was up 9%.
Three things that drive business.
Well, just we're getting a nice lift on static Billboard yields which are 80% of total Billboard revenue.
<unk> also growing our digital yields and converting more Billboard inventory to digital.
Now please turn to slide eight so I look at a other segment, which was just under 9% to total revenues and the colson.
I feel very strong 12 months.
This call to the classical bought performance you can see in Canada, which due to the exceptional contribution of kind of this and the second half of last year.
The balance of the segment, so revenues up $5 million, all 46% primarily from third party digital screens sales, which carry no margin.
We'd like to call out that they contributed about a point to total revenue growth in the quarter.
Slide nine shows one of 'em more exciting revenue drivers total digital revenue growth was 28% in the so called <unk> with Billboards up 15% and transit up 77%.
Rising yield is driving this as we talked about a moment ago.
This is our expanding inventory.
Digital Billboards and digital transit displays.
Digital has been consistently increasing as a percentage of revenues each quarter.
Approximately two to three points year over year.
Magna Global estimates the disposal contributed 23% of U.S. revenues and 20, a team unexpected <unk> expects this to gross a 40% by 2023, implying that we've got a great future runway.
So I think you'll agree there was another terrific performance Rob business, we had strong growth in digital static Billboards transit national and local.
I'll now hand over the coal tomorrow for a closer look at expenses cash flows on the balance sheet.
Thanks, Jeremy and good afternoon.
On Slide 10, you can see our fine major expense categories at the same skill.
In Billboard lease expense the largest category, we saw around a point of efficiency as a percentage of total revenues, although the dollar level of expense did increase due to their geographic mix.
Transit franchise grew in line with revenue as one would expect.
And also now includes Bart in San Francisco, which we did not known as <unk> third quarter of last year, which we've been growing nicely.
Combined Billboard lease and transit franchise expenses were fairly stable year over year at 30, 738% to revenue.
These two categories combined had been 39% of revenue on average since our IPO. So we're comfortable with the stability and predictability and our recent performance.
Moving down the income statement, posting and maintenance expenses were up broadly in line with revenues as expected plus this quarter included approximately $5 million related to the equipment sales Jeremy mentioned.
As Genie levels were flat as a percentage of revenue well expenses reflected and supported our sales success and also our continued investments into our business primarily around digital enablement.
And lastly, as in previous quarters corporate was flat overall.
Some of these expenses is on slide 11, and in total the increased around 1% of revenues.
We like the operational investments that we're making because it helps drive the strong eight have percent or what the gross you see on slide 12.
This lift was driven overall by revenues offset by the changes I just mentioned.
We remain focused on continuing to manage our Billboard lease portfolio efficiently and we do see other operating and <unk> expenses were possible without impacting our current and future growth rates.
Slide 13 view of our total OIBDA growth by component.
Overall U.S. Billboard grew 5% was a 40, 41% or what the margin and represented 86% of our total company well did during the quarter.
You wish transit is a lower structural margin at 21% and posted very strong gross or 24% contributing roughly the same amount of all the growth in dollars as Billboard.
Turning to slide 14, our capital expenditures as a percentage of revenues increased year over year as we accelerated our growth projects and as maintenance spending moved back in line with historical norms.
Year to date this puts it at $65 million in Capex, and we expect to finish the year around a prior annual guidance of approximately $80 million.
Oh growth Capex reflect reflected there for that digitization of various transit systems.
When you nine digital Billboard conversions.
Year to date, we've built a converted 77 and including third party marketing agreements and acquisitions or total digital billboards have increased by 144.
Moving on to weigh AFFO slide 15 shows a year over year bridge.
The 7% growth and as I've always driven by the growth in order to.
Partially offset by changes in other items.
Back in February this year, our original annual guidance for if I was mid single digit growth.
Which we raised and made a high single digit and then again in August to reach double digits and we're pleased to reaffirm this view.
Slide 16 shows dividend coverage for both answer FFO and adjusted free cash flow.
On an LTM basis, we sure continued improvement in our assets, so dividend payout ratio to 63%.
The adjusted free cash flow payout ratio was down significantly at 86%.
Now, let's turn to our balance sheet on slide 17.
Both of these charts look a bit different than last quarter. Since we issued $650 million of new 5% notes in June , but not yet taken out having $50 million of our five in the quarters.
As of September the cash portion of our liquidity was reduced Robert liquidity remains strong at $40 million to $76 million.
Our maturity schedule shifted nicely to the right with the 550 million previously due in 2022 gone replacement at $650 million doing 2027.
We now have no significant maturities until 2024.
Our leverage at September Thirtyth was unchanged from June Thirtyth at 4.6 times and is down from five cents at the into a third quarter last year.
An additional source of liquidity is our aftermarket or ATM equity program. During the quarter. We did not use any of the ATM do we still had over $230 million remaining capacity.
Turning to the M.T.A. you can see our progress on slide 18.
Deployment accelerated once again, we installed one idea displays 62% in which we're advertising and almost all of this deployment was in key Manhattan stations.
We also began installing under <unk> commuter rail platforms.
Our total deployment as of September Thirtyth approached 3700 displays.
And more than half of these now carry advertising, which will increase as a proportion over time to our stated goal of 85% to total screens.
Our total Mtpa project cost in the quarter was $30 million or $101 million year to date.
We still expect our 2019 annual deployment costs to be closer to $250 million.
With an increase spend in the fourth quarter as we build inventory ahead of 2020 deployments, including the commencement of any car displays later in the year.
As of September a cumulative project costs were $198 million.
Do you live recouping to these cost is $21 million.
In closing our revenues are performing well and we continue to invest in our business. Both in terms of people and product, while still delivering healthy cash flow growth, keeping our leverage and stable place and delivering an attractive dividends.
Let's turn the call back over to Jeremy.
Thanks, Matt.
Moving on to slide 19, and looking at outlook for the fourth quarter.
At this point in time, we expect total revenues grew in the mid to high single digit range.
Billboard growth to slightly to be similar to year to date results with trolls. It great normalizing as we lap the bought win in October of last year.
So.
Our expected growth is still strong.
Even more so in the context of the 12.7% we grew in the fourth quarter last year.
We will always confident that we'd be able to continue our momentum on top of off sharply improved business performance and indeed, we are more importantly, this takes into double digit revenue growth for the year.
Slide 20, it gives you some insights into the drivers if this terrific growth.
Firstly, our sales force.
But it's a local and national level, how sales force is our competitive advantage.
We've been investing heavily in all teams training compensation brand marketing and operations.
Another key growth driver this transit digitization.
This is already giving as a significant accelerations in our in our revenues I may expect grits continue from additional displays including railcars. The New York later next year.
Digital billboards or another key growth area, where we want to increase our exposure through conversions marketing agreements and acquisitions.
We're seeing great returns.
I also believe that there's incremental revenue potential as industry begins to trade its inventory no more automated way.
Traditional static billboards I will say hugely important to us, let's say represents half of our revenue and up to the ring rising yields.
There's no doubt that tool that becoming more important in the media mix both from the growth rates was saying.
The attention that gathering in the industry.
Full Facebook published a study that showed that Facebook and out of home complement each other allowing advertisers to reach audiences at all stages at the sales funnel and how specifically out of home drives discovery with Gen Z and millennials.
Another key focus is our acquisition pipeline.
Around 35% to the U.S. industry revenues from independent operates as a good portion of these are in markets, where we already operate and want to add some weight.
We've been active in this tuck in market and expect to continue I think swap portfolio.
In the future.
Lastly, unimportant drug refutes grows this technology, we and the industry a far more able to provide data and insights into the audience that are into facing with our media and this combined with increased trading automation will provide the significant tailwind as we look forward.
In closing, we gotta look going up.
As an industry out of home will likely increase its share of old media in 29 seen.
As a company out front, it's at the heart of this acceleration.
We are confident of maintaining our momentum.
With that operator, let's now open the lines for questions.
Thank you if you would like to ask a question. Please press star one.
<unk>.
Yes.
Please.
Sure.
Once again.
Sorry.
Question at this time.
First question from Marci.
Research.
Thanks, I have a couple first Jeremy since you were just talking about the teacher can we dig a little deeper into the fourth quarter guide and maybe talk about local versus national are they still performing relatively the C. M.
Can you give us maybe with a Bart contribution was in terms of gross for the past couple of quarters. If you can just figure out an apples to apples basis.
Oh, yeah, absolutely. Thanks, Marci, so as we look into Q4 altering the specific question on bought at this quarter was around five to 6 million of revenue. So you can sort of take that into account as we as we think about as we think about Q.
Paul If you take Pops out what that means is that our transit business has been growing sort of in the in the teens with regards to Q4, yet we expect both local and national to be to be up nicely.
Billboard is still growing well as I said, they expect been that sort of mid to high single digit range, you know digital and staffing once again contributing so broadly similar to that the nine months that that we've just seen in 29 cents and other yeah I mentioned, Canada.
It was a if you remember as legalization of I'm kind of as a mid October last year and Oh, We took a couple of bid big hits from a kind of as a.
Market and.
That you and I will similarly impacts our other business. So we're expecting.
Although the business performed in line, but that was free achieved in Q3, obviously without that special one off piece from the equipment sales.
Okay and my second question can you tell us your exposure to the high growth venture backed consumer service companies like door at Ash Postmates <unk>.
Et cetera that driving a lot of your gross.
Well I guess, it's the first point is the.
Yeah were absolutely delighted.
These sort of DTC companies.
So thinking about out of home in general and indeed out front as being a great way to build the brands. We've always said that that out of home is a spectacular launch a medium you can get across fuel blending message and amazing Cpms you had a great reach low cost.
We're delighted that some out of home is a good part is that media mix.
What's interesting, though is when you look into it.
Well, we borrowed to see carrying those friends in terms of a three Q revenues, they're running a little over 2% and actually the boss vast majority of the growth that we saw in Q in Q3 was actually from a city.
Classic more classic advertise it what's interesting is that if you look at Q3 and in dollar terms in terms of ER in terms of dollar growth.
I free top categories for financial services professional services, which is there for the most part actually locally driven and resell. So yeah, maybe not the sort of great job is that that's a that the you would think.
Interesting I will say that number that number four in terms of dollar change I missed the first time, we've seen sort of a really positive news in this category for a while it was telephone utilities. So so actually.
The great Onquest sort of been lives. If you like they are the you know some of the interests of is saying from just the DTC brands I think the other important point estimate that as we look forward.
Is this like what what we're pleased to see these DTC because that they're gonna be disruptors, we believe in pretty much every segment of industry I'm. All some of the names may change over time, I think the fact that they love out of home to build that brands what.
Thank you.
Well take our next question.
From Oppenheimer.
Hi, great.
As an update on.
On the Chicago bid.
And then I've a follow up thanks.
Sure So we put a bit in.
For should talk a transit the C.T.I.
Right about a couple of months ago now its in process.
Sometimes these bids can take hold it takes a while to reach any resolution and frankly outside of that and I can't really I'd much more at this at this point in time.
Just asked and yeah, we'll see how it goes.
Okay. Thanks, and then just.
I understand what maybe.
Generating boards.
<unk>.
Informational boards.
The next.
<unk>.
And then how quickly does that.
Towards your goal.
Yes.
Thanks.
Okay. So as we as we look forward.
I guess the first one is that almost all of the in call screens or the false vast majority of in call a miss screens, our advertising rather than Robin information screen. So that's when you really kind of start to see a the percentages swing.
But suffice to say that you know in Q4 advertising screens will be a head of information disk screens and we'll continue to we'll continue to say the percent of a percentage screens im off solely for advertising increases. We go forward does it say the big swing, we'll start with all build out and 2020 .
As a in call screens.
Thank you very much.
Well go next to David Miller.
Capital.
Hey, guys, great print couple of questions, Matt on the debt extinguishment charge can you just a rough remind us what got exchange what does this have to do would be.
Repurchase facility or was there was that another maturity did I get that got pushed out to the right. You just clarified that for me I appreciate it and then Jeremy.
There any categories in the quarter that did not come into your expectations or outperformed relative to your expectations are relative to 90 days ago, and or 90 days ago. When you gave the guidance any regions that kind of outperformed our underperformed in your view and I have another follow up thanks.
Sure. Thanks, David.
In June we issue the new $650 million.
5% bonds do 2027, we had Simon Didnt 50 million bonds June 2022, which we called shortly after we issued the new ones and that reaches the quarter. That's why the funky liquidity. So for us we lowered the coupon increased the size and pushed out the maturity so well go.
<unk>.
Okay got it new Jeremy.
On the that the follow up.
Yeah, David in terms of geographies to be honest soon that we've been enjoying pretty broad growth across all of our markets, which is a which is great to see actually and I don't I think we think any particular surprises in the third quarter in terms of or in some says categories. You know bottom three categories in terms of.
Our AWS, but also government food and beverage all telling government have actually been and the bottom to fall on an LTM basis also so I guess the answer is no real surprise.
Okay, and then just a follow up just a general philosophical question, if I might when Lamar.
Switched over to a reach status and got that approval from the IRS.
Member I guess that was maybe late 2014 early 2015, I remember that the re community was exceptionally slow Q embrace out of home as <unk> like financial structure and I'm wondering if in your opinion, that's finally changed or has the right community still been kind of slow.
Oh to embrace you guys as a wheel wheat. Thanks.
Uh Huh hard to say, David <unk> for us.
I can't say Bell tomorrow, but for US we have about 15% of or holders are wheat based we'd identified in it it's hard for the.
He was the read analyst read investors do I understand the the ins and outs of our business. You know, we do a fair amount of work Greg does a great job communicating with them getting out there.
Yeah, we're fighting the good site and hopefully the I appreciate our business going forward.
Okay. Thank you.
Well go next to Alexia.
JP Morgan.
Thanks for the question the I guess on the advertisers side I think around this time of year at least the agency start when thinking about budgets for 2020.
You have any early read in terms of of how you're sort of traditional advertising. You said are still the bulk of your spend here, how they're thinking about next year more nervous given the volatility in the markets and economic data are they still sort of just business as usual.
Well, it's interesting when you when when you drill into the I'd focus worldwide I for cross actually if next couple of years, the full cost attached trending up rather than down for.
So old media and a you know I believe within that out of home can I I would hope continue to to increase its market share for us specifically well, having some great conversations with a larger advertisers.
Well, we believed that we may see a some benefit obviously from the streaming malls are they going on we think that could be a positive four out of home because most of those you know most of the streaming services our uptick friends of a of out of home, we think fiveg could be interesting.
As we move forward and I guess the other point is that you know, we're still really driving some solid local advertising growth.
You know its 50 or 55% or whatever it was in revenues in Q3.
And when you drill in that you know, we think a lot of that is actually.
Soon or is it just about our execution is going out with a cool message, that's really resonating with local advertisers, which is about out of home. It's about mobile it's about social in other words, how out of home can really sort of boost the boost that business. So overall, we feel good about national them, we feel well so pretty good about.
Local from where <unk> west that today.
And just a follow up I think you you mentioned <unk>.
The digital conversions in the coming quarter, I guess anymore color on maybe.
You should expect.
So we've been then as saying for this year that in terms of digital Billboards will be more around the hundred 50, <unk> rather than a that kinda sub sub sub 100, though it too for the last last couple of years also and we're very confident with that's a new right.
And obviously those are in a in addition to the digital screen Buildouts in transit, which is continuing apace, particularly a particularly on the M.T.I. as we speak.
Thank you very much.
Well go next to Ben Swinburne Morgan Stanley .
Thank you.
Good afternoon.
Jeremy you had that nice growth driver slide at the end of the deck and I wanted to ask you specifically about the technology box on the right and just get a sense for where you guys are from an audience analytics and automation perspective, [laughter] I could be or I don't think those are.
Yet any material part of your revenue base, but it could be wrong. It will just get a sense for aware that those platforms are from a build out perspective, whether it's actually impacting the business yet or is that something all on the comp.
It does this there's two pieces to that but the first is in terms of our inventory that is currently on programmatic exchanges at the moment. That's you know for Rovs relative to the $415 million of revenue in the call that it's a handful of dollars, but its its starting to grow.
And that's terrific then in terms of our own.
Our own platform as you know we've been investing in a a product called a small scout, which is a planning and buying tool at the moment the planning a the planning a piece of that is currently in use its end use with a a and b. So formed by our national sales team and the testing in a couple of local market.
Somewhat that's about it.
Basically we can we get much more granular detail in terms of the audience delivery of each of each about boards now we haven't yet, but we will be plugging on the buy button. If you like <unk> on so that planning tool as we go for it and that's something we haven't done yet, but we're utilizing small scout has.
You know I I real provider that data and insight when we're going out in the having discussions with advertisers today.
Got it doesn't make sense and just staying on technology around digital boards.
You report you guys have reported digital yield, but your overall U.S. Billboard yields up not an AFE for sense you seem to be.
Tell me that you seem to be selling your digital inventory as well as you add more of it and more inventory I guess, that's sort of a question is that accurate and if it is.
How do you think about meaningfully ramping your conversions in 2020, how much of that is if I don't know a balance sheet sort of balance versus you know what do you think you can sell or Where's your head add on digital given what seems to be some pretty strong demand for that product.
Yeah. There is a couple of things that outside the first is that most every digital board is equal so when we build that digital board on the West side Highway. We're gonna go to a much different yield to building digital Billboard in Tempur for example.
So part of it is why we're building the folds out and if you've been around the New York City like you'll see that we've been building some great books. So that's obviously that that impact slightly it's not it's not a balance sheet issue for us Ben It's it's really more about how can we how can we create.
Those opportunities because you know zoning is still the gating factor. So we keep one eye on zoning and we also just keep one eye on in a given demand in the end up in a particular in a particular market because we obviously don't want to develop bodes well you know that wouldn't be sufficient.
<unk> essentially we may be eating already lunch. So those are the two things we take into account, but we feel good about I prospect for continued.
Doable digital billboards developments in 2020 .
Okay, and then just one last one for Matt on the margins. This quarter you guys had a little bit a compression in the first half of the year in U.S. Billboard I think that went up to like a 100 basis points or so in Q3 is that all just geographic mix around a year lease payments or anything else you'd call out seasonality or anything that might be in.
Packed in margins and Billboard in the U.S.
Specific to Billboard or the new lease accounting standard that a it came in and began the year you added a.
Couple of dollars to the costs non cash cost of Billboards and third quarter.
And we allocate cost between Billboard and transit Billboards, obviously, a big part of our business. So they have higher compensation and a professional fees and Billboard as well.
Okay. Thank you.
Yeah.
Jason.
Maybe if you could indulge me with.
Sort of my longer term model I know you guys didn't used to ATM this quarter and I guess I wouldn't expect that you would.
But in my model I've got you sort of hitting that as a source of liquidity at least 2021.
Do you think that's a reasonable assumption based on your own internal forecast with ATM will continue to be used thanks.
This is Matt generally we were trying to use the ATM just to fund a tuck in acquisitions, we've improved our liquidity on the balance sheet from a number of steps.
Make us feel better the M.T.A. is performing.
You know even better than we expected we think our liquidity is in a better place we don't feel the need to use the ATM, but as we Ah we look at tuck in acquisitions, rather than have the balance sheet be limitation. We think the ATM has that added benefit of extra liquidity, if we needed.
Okay. So at this point, there's no plans, but a watch your acquisition.
You know pipeline.
Okay. So if there is no acquisitions <unk> that's.
That that'd be the plan, we would like to see what what the future old.
Okay. Thank you.
[noise] Jim Goss.
Research.
Thanks.
I think you started to get into this little bit a couple of questions ago, but you you laid out.
And the growth driver slide.
Some good things about traditional Billboard and some better things maybe about digital Billboards I'm wondering about the whole digital Billboard transformation process.
Is it.
As a decision largely yours or is it determined by local policies. The zoning you mentioned.
In terms of deciding whether you should stay static or try to fill in with specific digital and how does that process work. So that you can do and efficient way.
Oh, yeah. Thank you Jim.
Yes. The first thing to says that you know all about markets a different zoning regulations that a different submarkets as relatively straight forward to convert the digital others.
Or how how has to freeze over before you can Ah Ah before you can convert but what I can say as it is very much driven by our general managers in each market supported by the by real estate, a real estate team I'm for the most pop <unk> once you see.
You can attain designing permit they would then put a recommendation forward to us here centrally we review every single a every single recommendation in terms of does it to achieve a the respective are all said, we're looking for and we haven't really changed at all I are all view over time, that's in the 20 to 22.
25% range and you know.
So as we look forward, we've always got a pipeline <unk> activities that were working off so we have a three year plan a that we said we can already see you know likely unlikely number of bullets that will come button 2020 .
Okay, and then you have an overlay of say hundred 50.
I do in a year and.
We'll see what what makes the returns up to that point.
Yeah.
That's sort of the selection process.
Yeah, absolutely and let's say, we're gonna be 150 range this year.
You know, we would hope that with conversions, but also a as I said in the important thing go sort of marketing agreements and we where we where we can acquire attractive digital Billboards. Then we will do that also but I would hope we can get back up into that range next year.
Okay and then the other question.
In the New York Transit.
Project, I think you're moving from say, 50% of the screens with its available up to about 85% over the next couple of years or do I have that right and is that implies an upward bias to your greater profitability in this system above and beyond just.
The normal growth over that period of time, because that's where.
Be field.
Yep.
He said it well once we've completed the build out let's remember that this is a seven year built a seven year build their <unk> <unk> at that point in time, 85% to the screens that we that we have up will be carrying advertising so from where we ought to die at the kind of 50 50 will be going north on a quarterly on a cool.
The basis and insight that the percentage.
Advertising will increase as we as we stop building out in a subway, but yeah, it'll be a it'll be a slight price it sets us up it's a seven year build a jim.
Okay.
Thanks very much.
Okay.
No further questions.
The company.
Thanks, I'll price, a and thanks to all the view for Youre at time attention and questions. Today, we look forward to see many of you address investor events in the coming weeks. Thanks very much in date.
This does conclude today's conference. We thank you for your participation you may now disconnect.
[noise].