Q3 2020 OUTFRONT Media Inc Earnings Call
Please standby.
Good day and welcome to the Outfront Media third quarter earnings Conference call.
At this time I would like to turn the conference over to Greg.
Gregory Lundberg. Please go ahead.
Hey, good afternoon, everyone. Thanks for joining our 20 <unk> third quarter earnings call and hope that you are safe and well.
On the call today are Jeremy male chairman and Chief Executive Officer and.
And Matthew Seigel, 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 the slide presentation that you can find in the Investor Relations section of our website Outfront media Dot com.
After todays call is concluded an audio archive will be 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 2019 form 10-K, and our 2020 quarterly reports.
Including our third quarter, 10-Q, which will be filed tomorrow.
We will refer to certain non-GAAP financial measures on this call.
References made to OIBDA will be on an adjusted basis and reconciliations of OIBDA and other non-GAAP financial measures are in the appendix to the slide presentation. The earnings release and also on our website.
With that I will hand, the call over to Jeremy.
Thank you, Greg and thanks for joining us today.
Hi, My name is viewing safely back in your offices I've been spending quite a bit of time allows over the past few months I'm pleased to say that Midtown this booking.
More like normal.
I think certainly feel better than they did last quarter.
This is reflected in our numbers on slide three.
Revenues were down 39% or 37% on an apples to apples basis.
Our sports marketing disposal.
And well within our guidance range.
We saw the Billboard performance than expected well trunk is recovering more slowly given continuing low ridership.
Once again, we were able to take over 100 million out of a cold.
Hopefully cost structure.
Helping improve the year over year decline and all that and that episode.
Importantly, if you look at slide four.
You can see that we had good sequential improvement on virtually every metric with the exception of the transit.
I'm not going to go through all of these figures at the moment, but notable here are the significant sequential improvements in U.S. media Billboard revenues, our adjusted OIBDA and I thought.
Let's not go into more detail beginning with total revenues on slide five.
As I just mentioned, we disposed of a bold smoky operation during the quarter.
It was a good business for us, but as you noted it was non core flaws and will benefit from the scale or the T. you those.
The figures you see are included in our other revenues and 29 too and there's additional color on this in the appendix.
Well the impacts of the pandemic during the course of less pronounced than they were in the second quarter. They still weighed on a U.S. media and kind of the <unk> probably similar fashion.
The U.S. Yep, that's going on slide six.
Billboard right, so down 23%.
Turning point improvement from the last Night's Law school so.
Problems it was down 69% seven point improvement.
Well go into the drivers of this differential later on the call you can see one of them on slide seven which is our local and national mix.
Nashville drives the majority about transit revenues, while local drugs the majority of our Billboard runs.
Overall local revenues were down 28% well national was down 48%.
Both of these improved from last quarter, but it was local advertising that led the way.
Turning to slide eight Billboard yields were down 21% in the quarter and this was driven far more by demand right.
There was no pronounced differentiation in the performance between static and digital yields.
Looking at our other business on slide nine tons.
Canadian Billboard revenues were down 28%, a better result than law school is just driven by similar factors to the U.S.
The organic because we live sports Boston and I'll also point out the prior year other revenues had $6 million of nonrecurring says policy digital equipment sales.
The last topic on revenues I would like to cover this gives us a lot on slide 10.
Total revenues were down 37% largely in line with the rest of the business.
Law school so.
With improvements in the decline suppose Billboard and transit.
This is quite a big change from this time last year. When we told you that total digital grew 28% driven by digital Billboards up 15% and transit up a very strong 77%.
South business recovers, we remain convinced that digital will continue to be a key growth driver for our business.
Let's now shift over the map and he'll walk you through the west about financials Matt.
Thanks, Jeremy and good afternoon, everyone.
Overall expense structure performed very much like last quarter was $108 million reduction or 34% year over year, you can see on slide 11.
Once again gets reflected continued attention by our genes to eliminate variable and fixed costs.
Let's look at these as detailed on slide 12.
Billboard lease expense was once again down due to lower revenues on dissuade when there is a variable component.
It was also reduced some proactive discussions with our landlords and to date negotiations every.
Have reduced our fiscal year 2020, Billboard music sense by $16 million.
More than half of that will carry over into 2021.
I'll note that you know you won't see all that you do that you will hear such that would be the weeks accounting.
Transit franchise expense decline because we were successful in working with our transit partners.
Shifting to revenue sharing instead of minimum annual guarantee payments.
Ridership across the country sport very reduced levels compared to pre pandemics, particularly on the be all systems, which accounts for the majority of our transit advertising dollars.
I know that many of you have asked about what happens in these agreements and 2021 and what I can say at this time is our teams in the midst of fluid conversations with our transit partners regarding the level of leadership and its implications.
Hosting maintenance and other expenses were down some lower overall business activity as well as $9 million due to the sales sports marketing.
About $5 million from equipment sales trend you mentioned earlier.
<unk> expenses decreased primarily due to continued restrictions on discretionary expenses.
Workforce reductions employees for what was the temporary reduction due to certain employee base salaries.
Excuse me also decreased $1 million from the sales sports marketing.
One offset was again higher provision for doubtful accounts, you waited to corporate banking, but it's worth mentioning that collection of <unk> well in the quarter, we reduced our days sales outstanding.
Lastly.
Corporate costs remain at low levels, we expect these temporary reductions to certain base salaries.
Partially offset by the impact of market fluctuations equity weight retirement plan offered to certain employees.
Please turn to slide 16, so look at the change year over year.
The chart you can see we're able to offset 60% of the revenue decline.
<unk> expense reduction.
You have a large fixed cost structure, especially in Billboard lease costs.
Future improvements in revenue will have a strong suppose enjoyed that.
Overall, there was down 71% this quarter compared with a client of 85% last quarter. So we're on our way back.
Slide 14 shows that Billboard did better this quarter.
Trend it was only slightly negative despite the fact that the ACA, we commenced our digital display ball out during the quarter.
Overall.
The margins came in at 24% not quite back to where 29% historical annual run rate, but a good step closer.
Capital expenditures on slide 15, we are still down significantly from last year, both maintenance and gross.
Well good feel Billboard count increased by 41 this quarter.
Record fourth quarter didn't go build out.
We just we increased our annual forecast to approximately $55 million compared to our prior $50 million.
Slide 16 shows the assets I would turn positive this quarter.
This was mostly driven by the higher.
And to a lesser extent buyers by small changes in our other drivers.
Turning to slide 17, as usual you can see our dividend coverage.
It's also worth noting that we will see tangible positive again in the third quarter.
Our board evaluates our capital allocation on an ongoing basis and our stated intention remains that we will meet our minimum weak distribution requirements.
We'll continue to evaluate just as our business improves.
We remain in a strong same supposition that you can see on slide 18.
There's still a lot of uncertainty in the economy and the actions. We took earlier this year provide us with ample liquidity of $1.2 billion in cash and liquid.
Our next nits and nats getting maturities in 2024 non maturity is a nice you added thereafter, but as long as we treat your twin city.
Our higher net wherever you are at 6.1 times, obviously reflects lower OID that two of the pandemic, but there's not adversely impact our ability to access committed liquidity and we expect to cycle out of it as always the inputs.
Now, let's turn to slide 19 for an update on the N.T.A. were displayed deployment picked up as we announced last quarter.
Well net ads were 800.
27 displays compared to just maybe seven in the second quarter.
Transient revenues were again not sufficient for us to recoup any deploying capital in this quarter.
Deployed $340 million of total capital to date.
All subject to recouping from future revenues, except to roughly $30 million spent so far under the previously disclosed amended deployment point.
In closing our balance sheet remains in a good place to deal with this uncertainty and we're pleased to see the recovery of audiences above ground, where our Billboard business doing better all the time.
Most industry observers expect a positive 20 twond for out of home.
And I just wanted to be a key driver of that.
We also expect to pick up our Billboard acquisition activity to selectively take advantage of attractive opportunities.
Can you burned their cousins my preferred markets around the country.
Let me now turn the call back over to John.
Thank you, Matt I'm done now.
Now lets turn it off.
Attention to our outlook on slide 22.
I think when we gave guidance for the second quarter.
We were confident that spring whats the talk in all business no revenues would improve in each future period that.
That is what happens as you said on numbers today.
The trend continues.
And as we look at the fourth quarter, we expect total revenues to be down in the low 30% range.
Relative to the third quarter, we expect a sequential improvement largely been driven by Billboard then clearly picked up in both local and national.
This guidance reflects what we've been talking about since March regarding the return of audiences, which is a pre requisite. So there were times I've revenues.
I see and the data, we and others have shed regarding street level, nothing to say I'm, Mindy, what you'd likely sales people.
Who are increasingly out in about the.
The Billboard audience is back.
Because it helped us there's still lacking that's a different story.
Well passes and street furniture, well delivering above ground audience commuter rail and subway systems, which drives the majority of our transit revenues still have very low ridership.
The charts on slide 21 shows the recent ridership across our subway and can use the rail systems.
As you can see here on average the ridership is only 28%, but the same week last year.
Transit Roger <unk>, which is obviously our audience leads to increase further up the transit revenues to begin any thoughts of substantial recovery.
Bob we absolutely believe that ridership and revenue will recover.
Well, it's just been written about the future of cities and the transit system to support them.
And contrary to some of the news flow I'm isn't announced new office space in New York, Dallas, Denver, Detroit, Phoenix, and San Diego.
And it's worth mentioning again that Facebook is lazy, making a major real estate investment in Midtown Manhattan.
Outfront has assets in Olympias I love the major markets. We are big believers in continued urbanization and they're trying to deal with them says to advertisers.
Well talking about geographies. It's also important to remember that we have assets in smaller markets and these main street markets are requiring more quickly right now.
Outside of our top 50 markets first quarter revenues were only down 14% and local down around 10%.
Well, our largest cities have a substantial local business sales disproportionately reliant on national categories like entertainment movies and TV.
Revenues from these three categories were down over 60% in the quarter and impacted our total results by 10 points.
Now these categories will obviously come back.
I've been consistently among absolute performances.
Customers for years.
As national advertising recovers more generally we're likely to see a steep growth trajectory and our biggest cities similar to that which we saw back in 2010.
Transit and our major market performance drove about superior growth pretty pandemic.
We are absolutely convinced that they will drive superior growth post pandemic.
So with that operator, let's now open the line for questions.
Of course, thank you.
If you would like to ask a question. Please signal I pressing star one on your telephone keypad.
If you're using a speaker phone. Please make sure I mean function is turned off till I actually got <unk> equipment.
If you find your question has been answered you may remember yourself by pressing star too.
As a reminder.
It is star one if you like.
That's a good question.
And we'll take our first question from Alexia Quadrani.
From JP Morgan.
Hi, I guess I just two questions. The first one if you could provide a bit more color on the Q4 guidance you just touched on Jeremy if you could give a bit more kind of in terms of what we expect that that that trend that delta lag I'm kind of <unk> and then my second question really.
Just on the on the transit side, you know ridership has oh, let's jump out below normalized levels at that time and it just shows that I should we do that we just want to your car company in the transit business I'm, telling you now we see why shouldn't I returned to normal and just talk about what's kind of your credit metrics, we go but probably not.
Step function I guess I'd tell you that we're talking to persist pandemic is that a fair assumption. Thank you.
Okay. Thanks, Thanks, Alexia, maybe just to to look at Q4 and as we said.
Definitive step in the right direction, both national and local continuing to prove would continue to improve which is obviously positive.
We do still very much have that headwind of you know TV movies entertainment that we that we talked about you know they have a huge category as far as this time last year and so you know obviously, they're not coming back anytime soon but come back they will as we move forward. So when we look into.
The guidance that we're giving now you have actually since improvements are going to end the number or a number of categories.
Maybe worth noting one that suddenly looking stronger in Q4 as is often and what's as a category that actually has been declining for its over the last couple of years. So that's a that's a really good to see.
Just coming to your second question.
Yeah, I think it's right to say that we won't get back so that he said that real sort of step step out a improvement until we see those audiences increasing I don't think we necessarily have to get all the answers back to 100%.
All the way they work for us to be delivering in as a source of revenues we were before.
Part of that is due to the fact that we're obviously you guys still investing in <unk>.
Digital displays yeah, that's a very attracted to audiences generally.
On the other side something that we would expect to that you know to give a further lift to transit as we go along but I do think alike sales until such time as we see a significant pickup and.
And audiences then troms it will be challenged and it is likely that in the me. That's a that's a a transit revenues off to some extent are going to track that that ridership angry increase as we go forward.
Okay. Thank you very much.
Well take our next question from Ben Swinburne from Morgan Stanley. Please go ahead.
Thank you good afternoon.
Maybe first Matt could you help us think about expenses in the fourth quarter.
The year over year trends, we should assume and just any help on the sports marketing.
Asset sales and how that might impact expenses in the fourth quarter.
And then for Jeremy Ormat or both of you I'm. Just wondering how you are thinking about your investment plans heading into 21 or you may not be able to communicate on that specifically, but as we think about capital spending.
Our appetite for M&A.
And even things like new transit deals we saw that there was some port authority business you picked up and just wondering as you sit here look at the outlook do you feel confident you got to put more money to work in the business Opportunistically or do you still want to wait and see if things you know sort of stabilize further thank you.
Ben Thanks for getting in Oh on expenses fourth quarter is going to be a more the same.
During the third quarter.
And the second quarter.
One of our reduction of decreases in variable cost components, a lot of that get transit or.
Good news bad news benefit from lower revenue all of our teams are being concerned then shares when revenues are.
Depressed.
Costco dramatically down and a lot of the operational measures, we've taken should extend into the fourth quarter.
I'm a sports marketing question.
$16 million of extensions in the fourth quarter.
We have accumulated a sports marketing, so obviously that comes out as well.
So I think you'll see some of you know.
Why improved.
Well.
Of course.
But they gets bunch basis about sales.
And Matt just a quick follow up if you can't what's the revenue hit from sports marketing in Q4, So we have the whole picture.
Okay Thats, what I said about 15, I think the revenue book.
Drop higher than that.
Good teams.
Got it thank you.
Not it's not a big EBITDA contributor over the last couple of years right.
Right.
So you late.
Maybe then also that I'll jump in on the investment side you.
We we switched off I see the capital expenditure and some which is principally about I'm concerned them sometime in the second quarter and what do they do it reflecting ER caution given limited outlook. We're now in a position where we have strong healthy balance sheet and.
What certainly looking now to see the ramping up a digital Billboard a investment to levels that we were saying, let's see if that you know next year. So that implies you know kind of a couple of hundred boards and then their capex slightly I'm not 70 80 million.
All the dollar range next year.
And why why would we do that well. The fact is that you know mountain I sign off every every proposal for digital conversion I'm, but still making great returns and we think it's a you know that organic growth is still a set up that have already well spent well.
We're also continuing the keep our eye out for Hum investment opportunities in terms of tuck in acquisitions.
Looking like.
Couple right now yeah, no different in dollars, but you know both assets that would be you know.
Yeah, we think a great fit to business as we go forward.
And then you mentioned the the postal authority or obviously the big you know it was really a big piece of the photo authority was Kennedy Airport business that was Ah the vast majority of that bid and so the clear channel announcement.
Earlier, this week and by the way well not in the asphalt business and we didn't we didn't bid for those outdoor does that pool of assets.
What we did a bit fall was the ability to develop billboards or on the portal source heat property in.
In New York, New York State and you know it will be a they'll be addressing that as we go along so that was a nice win and we think that over time, we'll be able to develop some do they grow like yeah, great locations through that so to that went.
Thank you.
Well now take our next question from John Guinee from Wolfe Research. Please go ahead.
Thanks, I had two questions one is.
Improved data our audience measurement, but certainly it has been coming into the year. So can you talk a bit about how you expect to benefit from that going forward and then separately.
But then the revenue outlook is that it sort of any incremental impact from.
Possibly further profit related restrictions and can you give us a break out of Billboard versus RASM forecast. Thank you.
So.
Now let me take that does the sort of second part is Oh, yeah. We've obviously given some color on the Billboard and transit club football cute, but I'm feeling that color you know we don't we don't typically give.
Incremental guidance at this stage you know whenever we look at whenever.
Whenever we look at you know guidance, we take into account you know what we what we can see at the time.
You know, we're obviously aware of you know they are you know that the climate that we have right now and Ah you know we're hopeful that a you know given the comment that we have them without and you know significant further fogo lockdowns that so yeah, we'll be able to.
Deliver.
Certainly the performance that we just guided to earlier on the call.
It's insane because with regard to Oh against Muslim what we now have as an industry and certainly our within our own smartphones. So we have the ability to go down Billboard by Billboard and I'm, sorry, absolutely what the order says about Billboard that build.
But location you know prior to covert levels, so, particularly on that that you know when that everything was on that that's a dispatch. The perception was that you know oh they'll go to it it has gone away and actually we were able to say well no actually it hasn't yet at that location. It is actually 75%. So it actually was a great.
Great for us to say to our advertisers look the audiences that's still out there and you know we were April.
Hey books actually to retain a lot of business through actually having that to get to Korea. When you have a information units will go to vote by Billboard.
Thank you.
Well now take our next question from Jason Bazinet from Citi. Please go ahead.
Oh, Thanks, I just had a quick question on.
Good mapping of sort of the year over year changes or trajectory if the rail audience slides on 21 versus.
Revenues, if investors, where we're sort of playing along and following those weekly numbers.
If there's sort of one for one mapping in your view between those numbers getting better and it's going to revenues or or do you think there's going to be a little bit of a lag.
Where the market is want to make sure that the audience is sort of there before they begin to redeploy dollars [laughter].
That's sort of comparable levels to the audience trends. Thanks.
Yeah.
I guess the first thing is that Weve never I've, we've got the same they sort of audience changes you know if they fall certainly was in.
Within rail systems, which is a prime area of interest. So you know we can't say exactly how that can little pan out, but we suspect that there will be a slight lag between audience audience is coming back and revenues were turning there's one other point that you know we need to take into it.
I'm going to think about Troms that now there's obviously that would go up you know.
Reasonably sized piece of Oh transit would they actually isn't impacted by those audiences numbers that you saw that are above ground. So for example buses and bus shelters et cetera, and that we would expect them to be recovering you know much more at the sort of right. That's yeah, we're gonna be saying it off and I'll Billboard business rather than.
Totally rather than a young the rail business.
And is that something that you would offer up sort of the mix that sort of below ground versus above ground on the transit side.
And I think I think that yeah.
Right I'm not going to be able to provide a little a little bit more of a a bit more color what about okay to you guys yet.
Perfect.
Thank you thanks again.
And as a reminder, this star one if you would like to ask a question.
Well take our next question from Jim Goss from Barrington Research. Please go ahead.
Hi, Thanks, Jeremy you were just talking and that's something I was interested in the the granular Billboard they built for the measurement I'm wondering how quickly.
Those measurements are reflected in the pricing of those billboards.
Given that we had this deep.
Steep decline.
The pandemic emerge and and it's a the billboards in particular come back.
Quite well.
At least a relatively speaking.
Right.
It is it is the pricing adjustment are going to be on a billboard by Billboard basis, and a considerable discussion with the.
Advertising clients or can you talk a little about how their process working.
Given the dramatic changes, we're having this year.
Sure well I guess the important point is now that you know a billboard audiences. All you know sort of Factset kinda pre times on that level. So you know what what kind of level level set now in terms of audience. So really the.
The granularity of that was more important when you know obviously audiences within more severely impacted sales I as I mentioned actually it was very helpful to be able to say exactly what was going on with our audiences, but look for the most part.
The World audiences, you know Bax, 100% does you got a little bit of geographic variation. So for example in times square right. Now you know that wouldn't be a prepayment levels within another other markets across the U.S. are actually or beyond.
Beyond.
So you find them at levels in part, reflecting you know call usage sources versus trying to wanting to ship so I.
That's how I think it's something that we believe free now I think it's yeah, obviously, you know, but as with any other media outlets selling an audience and the fact that the ordinances I know back it's great. But we you know we're still we're still in a market you know where you know does that says that little bit of not carlin.
Yes, and certainly there's the impact of you know some of that is important Catholic countries for us that we talked about earlier on in particular, you know TV movies Entertainment when.
And when you look.
Oh, a billboard that portfolio in particular.
Well the biggest player like our problem loan in both New York in a light, which all very disposed [laughter]. Two there is neither advertising dollars. So you know, it's it's it's reasonable that and until those categories come back you know there's going to be a couple of markets, where there are more.
Well it was just more challenged than than others.
Yeah.
One other thing on slide 19, your Oh around will be on T.J. deployment.
And it sounds like ER.
So there has been a significant step up in those deployments.
Is there any guidance from that right in terms of how Q4 will develop and how it's going to move into next year.
Hi, John its Matt.
We we stepped up.
We are at the end of June.
We started our deployments.
It took our teams and our contractors.
Well I'll go on to the end of March and you did very little in the second quarter.
The 800, plus we just didnt third quarter.
I'll be reflects the pacing would keep going in the fourth quarter, we do expect to start that.
Putting screens on on.
Subway cars during.
During the fourth quarter, so maybe we'd be number of screens will be little higher those are smaller, but I think the same same sort of pace the same sort of spend.
Okay, and finally related to that are there say two steps being taken to provide comfort to writers to return or is that a sort of in the other necessity and getting around New York City in particular, but we'll bring them back.
You know you do you have kids and do a pretty good job of.
Keeping their trains clean wouldn't people know there.
Cleaner you know taking you know they have got the lights and another thing is a lot of politicians and celebrities are been either riding the subway or making the case for it.
You know busy or do you see increased ridership, partially because of that and you can bet that everybody.
Maybe I could just jump in there as well what was saying at the moment and in Manhattan is the sum.
It's fair to say that office workers have been slow to get back to the got back into into their offices. We sold some takes it from the CPR rate that suggests that you have taken and offices are still sub 20%. So I think for you know why the shift to restart substantially increasing you know.
We're going to need to see a we're going to need to see unit more people you know back in back in their offices I'm wondering too you know, we will be saying they close them not highly valued audience. You know that we've been selling to say successfully so many years.
Okay.
Thank you very much.
Thanks, Jim.
We have no further questions that does conclude todays question and answer session.
I would now like to hand, it back over to our speakers for any additional or closing remarks.
Oh, thanks, very much on Alberta I'm done. Thank you all for your questions on your time today.
We look forward to speaking with many of you during investor events over the coming weeks. Thank you very much again.
And with that that does conclude today's call. Thank you for your participation you may now disconnect.
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