Q4 2019 Earnings Call
Please standby.
Good day, ladies and gentlemen, and welcome to show media Inc. fourth quarter.
This conference call at this time I would like to hand, the conference over to Mr. Craig.
<unk> Investor Relations. Please go ahead Sir.
Hey, good afternoon, everyone. Thanks for joining our 2019 fourth quarter and full year earnings call.
On the call today as usual, our journey Mail, Chairman and Chief Executive Officer, and now do Siegel Executive Vice President and Chief Financial Officer.
After a discussion of our financial results will open up the lines for culinary session.
Our comments today, we'll refer to the earnings release and a slide presentation that you can find on the Investor Relations section on our website, which is Outfront media dotcom and after today's call is concluded an audio archive will be available there as well.
This conference call May include forward looking statements.
Relevant factors that could cause actual results could differ materially from these forward looking statements are listed in our earnings materials and in our SEC filings, including our 2018 form 10-K, and our 2019 form 10-K, which is expected to be filed tomorrow morning.
We were refer to certain non-GAAP financial measures on this call any references to OIBDA made today will be on an adjusted basis and reconciliations avoid the that another non-GAAP financial measures are in the appendix of the slide presentation. The earnings release and also under website.
I'll turn it over to Jeremy.
Thank you Craig.
Thanks, everyone again for joining us today.
Before we get into the details on Q cool, that's what it might be interesting to take a quickie oak Tortue 19, there's a whole.
Slide three shows the annual view about three key financial metrics.
Well once your team was a good yeah 2019 was even better.
Revenues up 11% OIBDA up 9%.
If I were up 11%.
We think this growth reflects the inherent strengths of our industry and opposition attendance.
Let's turn now to our fourth quarter slots. So what gives you some highlights.
Total revenues increased 8% to Nicole. So this was on top of the 13% in last year's fourth quarter I'm, a slightly ahead of our gardens. Once again this growth was broad with good results in Billboard and transit as well as local national across all about key geographies.
[noise] OIBDA grew 5% and that's what sorry grew 8%.
Right well talk about an unusual likes and it took a few points so OIBDA growth in the quarter.
I'm looking forward confidence in our business a lot about board of directors to raise the quarterly dividend to 38 cents.
Let's turn to look at all quarterly revenue in more detail beginning on slide five.
You asked me do I was up 9% and actually drove all about gross in the quarter well a other segment, which is much smaller so slightly off.
On the U.S. side, which you can see on slide six so both growth was 7% and transit was 14%.
A strong results were driven by healthy exposure to both local and national revenues shown on slide seven.
Once again local was up or the 10% national was up 7% and this growth was distributed simulate across both our Billboard and transit assets.
Well take the quarter Nvidia, 56% about U.S. business, there's local and 44% was national.
We really like having this balance mix of advertisers.
To do all fall.
[noise] market demand and sales execution helped drive up total billable yield, which you can see on slide eight.
This 8% increase was driven by same board yield increases in traditional and digital as well is the addition of new digital inventory over the period.
Did you sell is now 22% about U.S. Billboard revenues.
Turning to slide nine I'd like to spend a moment <unk> other segment.
<unk> revenues were down and drives about half of the segment decline.
Well, our Canadian business had a very healthy you know, it's a whole well up around 6%. The fourth quarter decrease reflected strong comes from kind of this legalization and the back office 20 I'd say.
We've got great assets and a great sales team in Canada, and we're looking forward to a solid twentytwenty.
The transit <unk> other piece reflects good growth in sports marketing offset by 3 million digital equipment sale, but didn't recur this year.
It's worth noting that without this impact total other revenues would have been around flat.
Now, let's look more closely but all fast growing area, there's or so on slide 10.
Total digital revenues were up 36%.
Billboards up 16% and transit again up over 100%.
These growth rates accelerated nicely from the third quarter, driven by rising yields and more displays.
Since the beginning of 28 team, we've been picking up around three points of digital penetration each quarter year over year.
But this quarter was actually a bigger job as far as partners, bringing total digital to 23% of revenues.
We expect to close to 25% threshold in the near future, putting is well underway to the 50%, but we see on some other international markets.
We're just gives you a good sense about business performance in Q4, and indeed, yeah was very strong across almost every part of our business.
Well feeling good about 2020, but before I get into that let me handover the call to Matt. So take you through the rest financials.
Thanks, Jeremy and good afternoon.
I want to highlight in slide 11 that not only majority expense growth the lowest level. It's been all year that said, our total level of expenses as a percentage of revenue fairly flat.
Looking at the components on Slide 12 gives you a view of where our costs come from.
Billboard lease expense the largest category increased at a lower rate in our revenue growth and also reflects much about growth coming in larger markets.
Transit franchise as you would expect grew in line with revenue.
Bind Billboard lease in transit franchise expenses, whereas a six year historical average was 39% of revenue.
Posting a maintenance expenses were essentially flat.
Do you need declined at some point as a percentage of revenues, let's just 4% growth, reflecting compensation luggage <unk> to support our strong are strong sales and also our ongoing technology investments.
And lastly, corporate expense, although relatively small in absolute size. So were unusually large increase in the quarter. The driver of this as Jeremy referred to earlier were strong fourth quarter performance in the equity markets, especially compared to 2018 and a corresponding mark to market in some equity linked retirement plan benefits.
In total this added about $4 million of non cash expense to the quarter.
Now, let's look at how these expenses looking a year over year Wade bids on slide 13.
Total or could that was up 5.5%.
Excluding the one off expense I just mentioned this growth rate would have been around 8%.
Slide 14 shows you the healthy U.S. media or did that Billboard growth of 9% and trended a 15%.
You'll notice that we.
And did both Billboard and transit margins in the quarter.
What increased by 80 basis points to 42.8% in transit increased by 20 basis points to 20.4%.
Switching gears to cash flow slide 16 shows our capital expenditures.
Year to date, we ended up at $90 million in total Capex ahead of our $80 million guidance.
Variance was completed you do a nice bump up in growth Capex, but did go build what conversions.
We increased digital Billboards by 203 units in 2019 considerably above our goal of 150.
The 2020, we expect to spend around the same level with a similar split of growth the maintenance help maintain this accelerated pace of conversions.
Moving onto a if that's how do you want me a bridge on slide 16 shows that OIBDA was the driver with the other components netting out roughly flat.
So the quarter and AFFO grew 8.2% in 2020, we're currently expecting an AFFO growth to be in high single digit range.
Incorporates lower interest expense assumptions and cash taxes of approximately $14 million.
Slide 17 shows improving dividend coverage for both asset FFO and adjusted free cash flow.
On an LTM basis, you sure continued decline or answer so given payout ratio to 62%.
The adjusted free cash flow payout ratio was down significantly 75%.
It is these include probably levels in our business outlook, then unable to board to increase our quarterly dividend by 5.6% or two cents per share to 38 cents payable in March.
This step up reflects our intention to go dividends over time as the business expands.
Now, let's turn to a balance sheet on slide 18.
Last year at this time, we had a 550 million dollar maturity in 2022.
In another $450 million in 2025, those are now gone pushed out to 2027 and 2030, respectively.
The next bond maturity, we have is in 2024.
It's also worth noting that our liquidity position, where she was $432 billion.
As you can see here, but now it $577 million, an increase of 145 million or 33%.
This excludes over 230 million of remaining capacity on our ATM equity program.
Our weighted average cost of debt is not 4.5% compared to 5.1% last year Internet wherever just pointing half times down from five times in the second half of last year.
So overall I think you'll do either a balance sheet has significantly improved and is in great shape.
Let's look at an update on New York M.T.A. on Slide 19.
We installed over 800 displays, bringing our total deployment as of December 31st to 4500 displays.
Second half of which carry advertising.
Our total M.C.A. project cost in the quarter, the $50 million and $151 million year to date, we're not right on the most recent guidance of $150 million.
As of December our cumulative project cost for $248 million.
Ocular recoup into these cost was $34 million.
We expect our 2020 equipment deployment costs to be approximately $175 million on a gross basis before recruitment.
An important up big view as we highlighted on this call last year is a little of the external financing we estimate the necessary to complete the deployment.
Based on our current projections, we now expect the total incremental financing needed to complete the do it out to be $300 million down $50 million from a prior estimates.
We haven't heard $140 million of this as of December 31st 2019.
We expect to we secure the peak amount around the end of 2021.
So with $160 million more to go under current liquidity position $577 million, excluding or ATM, we feel very comfortable and I'm pleased to be halfway there.
In closing our team continues to drive revenue growth is allowing us to invest back into our business and still deliver ample cash flow and improving balance sheet and a growing dividend.
Let me now turn the call back over to Jeremy.
Hi, Thanks mass and now, let's turn to <unk> outlook on slide 20.
Looking at the first quarter at this point in time, we expect total revenue growth to be comfortably in the mid single digit range.
No. We're told it this is on top of it does it double digit comp last year.
In terms of mix helped build business is performing particularly well well transit is currently a little slaughtering Q1.
We view this as a timing issue well mix spectrum since I have another great year with digital continuing its strong growth.
Well I feel good about Twentytwenty on slide 21 highlight several things supporting this view.
Well, we're all keeping along the curve right of ours news.
Economic environment here in the U.S. currently feel some off and I must still having great conversations where our clubs.
Digital revenues should continue to grow as we push on digital Billboard conversions and deploying more digital transit screens in New York and later this year in DC and San Francisco.
Hi, mostly.
Now to skate. The fact that this is an important political yet what we called carry political advertising on our transit systems, the waste of money going into the mid year market as a whole should be a positive tailwind to all business.
There are also some broader drivers of off strong performance that we would expect to continue.
Firstly, all 2019 revenues were generated from local and national advertisers in almost every category.
The top growth.
On an LTM basis was from financial services, mostly national clause professional services, mostly local clients.
Retail nice mix it both national and local.
Hollywood old National.
Interestingly 10 years ago. These categories all had around the same wage they're not total revenues and its this consistency that's important to our business.
You heard me talk before about customer retention. So that give me let me give you an update in 2019, 94% of all 1200 clients advertisers in each.
That's the past three years with us.
This is a very positive affirmation that Rss work for them and importantly, I'm, referring to all of our ourselves across these same top 100 clients, 96% purchase, but Billboard and transit telling you that many brands effect, because particularly on those attractive oh, good urban audiences that we can deliver.
In closing, we've got great assets, great teams, what positioned well for rewarding twentytwenty.
Let's now operate or open the lines for questions.
Thank you, Sir ladies and gentlemen.
Please press star one on your telephone Keith.
Speakerphone.
<unk>.
<unk>.
Yes.
Your first question.
Yeah.
Hi, this is.
Thank you.
Yeah.
In the market.
Yes.
No.
So who.
Thanks to the question I mean, obviously as we think about health business all of our revenues are derived in North America, which.
Hi, good size.
Comfort.
If we think about our supply chain. There are two main pieces to that one that digital billboards that come out of fun come out of the Asia, and we actually I'm not saying any supply issues. The right now with regards to the like boats that we're putting out and.
Who are principally into the MTR and other transit systems.
She has significant stocks since you're gonna take because it through until summer for the platform inventory.
Looking at the on train inventory, which is as you noted as part of our build out plans. This year, we think that there maybe some delays that we don't anticipate that's not having any marks a impacts on our revenue or do the full cost for the year because actually it was a pretty slow.
Bill that we were anticipating from the mid part of the yeah. So look the situation obviously.
Changes, Oh, and almost daily basis, if you if you look at the markets.
But from my point of view, Yeah, what we're pretty comfortable that right now as we said, we'll be able to weather and the corona virus issues.
All right.
Next step.
Hi, Thank you this is great.
Yep.
You called out the.
Slower traffic routes in Q1 intact.
As vice.
Thank you.
<unk>.
If you confidence indefinitely.
Yeah, absolutely goes so yeah, when we when we look at I'm transit business last year as you know so they're up I'm turning up the sense I'd be happy major major ramp in transit last year, and we continue to believe that.
We'll see some good growth in transit this year, it's fair to say tranches, obviously is a small part of our business can be quite lumpy, depending on the timing of.
Tequila appetizers coming into the market will not were done up within that but then they get a month.
Certainly as we as we look forward does nothing to indicate that a wednesday. Another good your growth and importantly, the Billboard business is performing really very well.
Thank you.
Did you just station.
<unk>.
Yeah, absolutely, it's fair to say that to digitize action has been a little slower other pick <unk> than we originally expected we've got to test stations that we're gonna be building out a little bit a little bit as we did with Brooklyn your might remember with the M.C. I.
I'm here in New York, we're gonna be building out those tests stations.
Backend.
Towards the back end of Q2.
And based on that will be so there's a you're ramping develop that or the <unk>.
Backend of or back end of next year.
Worth mentioning also that's a in Washington, we're gonna be putting in 150 screens. This year you may have seen the news that we've recently that we recently renewed all footprint I thought you know the for the 10 years with two five year options and therefore, the 1500 screens will be going into Washington <unk>.
Over the next two or three yeah. So actually that's kinda be another very exciting digital development for oil for the business.
Great. Thank you.
Our next question.
Okay.
Hey, guys great quarter, Jeremy can you talk about some of the geography. It's out there you know what did you see over the quarter in terms of geographic strength or weakness is you know kind of segmented by.
Country, and then where there any new categories that kind of entered the afraid that had not embraced outdoor prior that that surprised you at all during the quarter and then I've a follow up thanks.
Okay. Thanks to so I think you're in the a in the prepared remarks, we talked about the good thing fairly Bull, obviously transit was the.
Strong so that I love about his focus to a round off footprints on the east coast, including Boston, New York, and Washington, If they think about a if we think about the Billboard business.
It does the West coast was really on five for as.
During.
Turning to 19 as a whole in that I'm not continued through continued fruit and in the fourth quarter, so pretty broadly spread but as I say it was really a west coast. That's outperformed if if we look at a over the 12 month basis.
Okay, and then Tom forget by nine potato and that's because I live in Los Angeles, but the last time, we spoke about deployments on the long Island Railroad.
I believe you said that the ally RR was way ahead of the Metro North in terms of just a number of displays on both the trains and the platforms. When do you think that evens out.
In terms of your deployments on the Metro North side. Thanks.
Thanks in fact, you have to.
If we sort of think about other elements with the M.T.I. in total so that's really been the subway, where we've been cracking on and that's where the vast vast majority is that the screens have been going in line pretty much in line with our expectation my friend molten ally off are all sort of a much smaller and a and that's sort of following.
But.
Yeah, when we look when we look at you know the principal driver of.
Revenues for our business last year is really the subway.
That make a difference.
Thank you.
Our next just stay but maybe just stepping back sorry, maybe just going back to two categories because I'm.
Not a lot one, particularly as I have some of the numbers that I gave in RMR certainly yes.
I'll play consistent overtime as well I would have.
You.
A new category. So there's just come in and Guy, but one thing that we have seen.
His streaming that became important for us at the backend does the backend of last year, you know all that pull through each setting you seem to the Thompson, who and Netflix and others.
And we hope that that will continue to be a tailwind for us as we go into turned to transact.
Okay wonderful thank you.
Next we'll hear from.
No.
Great. Thanks.
Can comment on your expectations for political this year can you just remind us what political maybe rising 2016, and I actually seeing.
Maybe more appetite for political advertising this time around versus 2016, or how did you kind of gauge that thanks.
Sure. So if we got back to 26 day in and we've been pretty consistent in saying that actually political saras has been relatively small and I've been doing smaller for us than some of our run quoted quoted competitors that have a slightly different different footprint.
So if we go back to 16, it would have been relatively small I think this year just with the weight of money I think what we expect to to fill is is a pretty tight media marketing in that environment. We feel that's likely to be good for pricing generally when we think that may well be some advertisers that don't want to get involved in the political.
Noise.
On a on the traditional I'm traditional TV I may well thing how can how can I cost through and we think that's then my welcome to other time, it's interesting that actually as of now we do have some advertising up for.
One of the or one of the presidential contenders or are in a number of markets across our digital boards. So.
Well hopeful that that might be the sign of actually increasing political advertising interest.
And I boards, I think particularly digital because obviously and with political till the issues changed very right.
Very rapidly and now we have a product obviously that we can change and a much much more fast and efficient way compared to traditional out of time. So this could actually be something that helps a helps the out of home industry in general I'm going to more dollars for this election cycle rather than the lost.
Okay and that you wanted to drill down a little bit front I think it's interesting I guess kind of a new revenue streams.
You could go after the direct political dollars.
But the question would be in.
Impact sort of bye bye market is your your much larger blade market they tend to be arguably not competitive markets and if you look at time of the landscape now.
Yes, you kind of expected the best strides on or will you will you really see interest across all of the markets.
Thanks.
Yeah. It it's Andrew and it's it's a fair question then typically we've said before but we tend to be and we tend to be on the larger markets and the larger markets. You know they do tend to be either either sort of led to a blue in other words I'm not by sort of classic sort of markets was or maybe.
Some of the media dollars you I wouldn't necessarily flokser, but said that kinda that we you know that is up at the moment is actually bought 23 markets from us which is a pretty substantially.
Okay. Thank you very much.
Steven.
The next question.
Good afternoon, just couple of quick ones.
Yeah, I mean Indian financing.
Driven by lower costs faster revenue.
The Thanksgiving.
It's really the answer is yes both.
Our cost curve is a little flatter than we had expected.
Partially because of a.
A little slow deployment of rolling stock, but more importantly, our revenues being higher recruitments been better it's enabled us to to self fund a little more than than we expected.
Great and then on the Q1 Guy I think the freedom is comfortably in the mid single digits, but to be fair to translate that is like.
5% to 6% rather than before.
Yep.
We prefer not to.
Good to grow stuff I'm real.
Maybe mid single digits is four to six and at a book and I guess comfortably within you can maybe just story our conclusions from that.
Great. Thanks.
Our next question comes from Jim Goss Barrington Research.
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Thanks, a within digital objective ultimately getting into that 50% area that you said some other countries had out what was that a target require in terms of share of your display base to generate that sort of revenue.
The Pete.
15, 20% or would it be higher than that.
Well if you if you think about where we are at the moment interesting, let's maybe sort of thinking about up up up Billboard Billboard revenues at the moment, we've got around 3% of about Billboard assets generating a 22% about about Billboard.
About Billboard.
Revenues.
And while it's fair to say that we wouldn't necessarily to get that same ratio is we continue to digitize outdoor was because you tend to do the best ones first you know, what's still what's still saying Forex revenues on our digital boards, where we were weak or outdoors, where we come to us it's Bob.
Welcome to conduct a digital so.
It is gonna be likely as we sort of double little trouble boats, which we see as it's quite possible and I will start sort of nudging up towards that goal in transit, it's having a significant <unk> digital evolution also when that will that will send to contribute.
Okay, and Jeremy does the Ah Lisanti M.T.A.
Yeah.
Over half of the displays have advertising because the next wave of introductions and color to a higher share of barge sitting cleared advertising.
And also maybe you can talk about the nature of the ads and the commuter rail and the valuation of those adds to the extent that full motion video is enabled.
So on a couple of a couple of things, yes look as time goes on certainly the the proportion of appetite Greens increase as.
When we look at the on train assets for example, and end up a pretty much I really.
Media, rather than a major rather than than information and I think that by the end of the build out with something like 80% advertising in 2020%.
20% and information displays so that's that says that that will news or the time when we when we look at what we look at the the pricing there when you.
Or go down to southern so the creativity and some of these for the full fold video displays you can probably.
You can see fuel cells to sort of added value. That's a good that creates for us and it also allows us to top of the dollars. It allows us to tap into the video video market. So it's not just about some.
Not just about the right. It's just about the opportunity the number of advertisers that that we can Ah that we you know that suddenly able to utilize this exciting format.
Okay.
All right well that'll that'll be it for the moment. Thank you.
Thanks very much.
At this time there no further questions.
For any additional or closing remarks.
Thanks, operator, and thanks, everyone for your questions on your time today, and we look forward seeing many of you.
Investor events over the coming weeks, thank you very much.
That does conclude today's conference. Thank you all for your participation.
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