Q4 2020 OUTFRONT Media Inc Earnings Call

Good day, and welcome to the fourth quarter and full year 2020 earnings conference call.

At this time I would like to turn the conference over to Mr. Gregory Lundberg. Please go ahead.

Good afternoon, everyone. Thanks for joining our 2024th quarter and full year earnings call.

On the call today are Jeremy male chairman and Chief Executive Officer, and Dr. Siegel Executive Vice President and Chief Financial Officer.

After a discussion of our financial results well open the lines up as usual for a question and answer session.

Our comments today will refer to GAAP earnings release, and a slide presentation that you can find in the Investor Relations section of our website outside media Dot com.

And after today's 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 the earnings and sales.

And then our assets, our SEC filings, including our 2019 form 10-K, our 2020 quarterly reports as well as our 2020 10-K, which will be filed tomorrow.

We will look for it and certain non-GAAP financial measures on this call.

Any references to OIBDA made today will be on adjusted basis, and reconciliations of OIBDA and other non-GAAP financial measures are in the appendix of the slide presentation. The earnings release and also on our website.

I'll now turn the call over to Jeremy.

Thanks, Greg good afternoon, everyone.

Again, thank you for joining us today.

Let's begin with a quick look at some key figures on slide three.

Total revenues were down 31 per cent for 29% from an organic basis.

Slightly better than our gardens.

U S. Billboard improved more than we anticipated driven in particular, but positive growth in digital billboards.

From the transit side, why ridership is still lagging well revenue declines were largely unchanged.

Like you we are very encouraged by the development surrounding vaccinations.

There are restrictions sports coming back.

And a gradual return to normal and we look forward to posting growth in the second quarter and the rest of the per year.

Our cost initiatives helped drive another contraction and the OIBDA loss rate to 41 per cent and that's the 30 to 53 per cent.

Both of things from a nicely ahead of expectations for the quarter true too I'll pass you a total of dogs.

If you turn to slide four P.

The overall shape of a recovery how soon if the pandemic continues to improve on every metric and that's true.

Well, sorry Med school here.

Generated improved pre cash flow items increased our cash position once again.

Now, let's look at revenues a little more detail on slide five.

This is a new view of our U S. Billboard business broken down into a couple of different pieces.

Going into the pandemic, we saw digital revenues declined more quickly than static from.

We told you that digital would likely recover more quickly on the other side well they did and you see here in the yellow line, which returned to growth.

It's a great 'twenty, 'twenty trajectory, reflecting increasing confidence and some terrific new digital inventory.

You May also recall that last quarter, we mentioned that our smaller markets were down just 14%.

We thought it might be helpful to share it graphically, but this contract is to just four per cent per school.

As you can see from the Purple line.

When you look at our larger markets the Blue line.

The performance was lower reflecting lockdowns and restrictions cause it.

Particularly impacted largest cities, including New York and Los Angeles.

Clearly the slope of all of these learnings as very positive and everything has been moving in the right direction.

Moving on to slide six.

So a simple idea of U S transit.

It's not the same slow for us Billboard but it has been heading slowly in the right direction.

So far our railroad in sales have been struggling for a time.

But with every week cause lower infection rates and increase my explanation, but potential for meaningful rider recovery increases.

And it's worth noting on the top left us. This chalk just how strong the performance was in 2019, when we grew transit by 'twenty one per cent.

Well talk more about recovery later on this call, but first let's look at the rest of our revenue picture.

Taking a closer look at our U S numbers on slide seven.

Growth was down 13%.

I'll translate like considerably down 65 per ton.

Well I wish it was and remains the issue.

You can see on national and local on slide eight down 36% from 24% respectively.

Obviously translate weighs heavily on days.

The loss rate and local was considerably better on Billboard Donald Trump.

National was similar Donald Berg, but again more in transit.

But it's not an important categories.

Its simply one in the powder market entertainment and travel being the most obvious ones.

Slide nine shows from 11% decline in article approval.

It was another solid sequential improvement driven by both static and digital.

In fact, our digital yield decline was only in the single digits.

Did you said is hugely important to our growth strategy.

Slide 10 shows that digital was over 25% of our total company revenues and Nicole It's us.

A record level for us.

We built some new locations and are starting to see some early benefits from programmatic, which we are bullish on.

Is it still in transit remains a story from our ridership levels.

The audience is bounce back we expect to monetize it as well as we have historically a full motion video screens, but want us the most in demand media products in the market before the pandemic.

And there's every reason to believe they will be as audiences with time.

To complete our revenue picture for the quarter Slide 11 shows our other business.

The key takeaway here is an 18% decline in Canadian Billboards and their recovery from somewhat mirrored what we've seen here in the U S.

So let me now hand over to Matt.

Thanks, Jeremy and thanks, everyone for joining our call today.

From the third time this year, we were able to remove around 100 amongst all of us from our expenses.

Year over year basis, and you can see on slide 12.

The largest contributor was at $50 million reduction in transit franchise expenses.

We were lower due to a combination of lower revenue shares and our ability to convert some minimum annual guarantees into revenue shares.

We also had a $15 million reduction from the sale of our sports marketing business, which drove the decline in posting maintenance and other.

Most of the SG&A reduction, which from our continued restrictions on discretionary expenses.

The steps we took at the outset of the pandemic.

<unk> expenses were lower due to lower revenues and hopefully grow our renegotiations with language.

I sleep.

It was down primarily on lower compensation related expenses.

Before we turn to OIBDA I want to explain an important presentation change this quarter.

We are now classifying lease acquisition costs.

Our SG&A expenses instead of an amortization expense.

These costs are commissions paid to our salespeople for sandy Billboard away from give advertisers.

At the time us right to moving into SG&A, and therefore reported a line cause this better reflects the digitization of our business.

It's had no impact on assets, so free cash flow net debt covenants, which he has a different definition of EBITDA.

The appendix of our earnings deck includes eight quarters with this classification.

And in fact across our segments.

Collectively total expense improvement of trim, our OIBDA was 41%.

As you see on slide 13.

It remains noticeable mix year over year bridge. It has significant revenues are 12, OIBDA story, given our fixed cost base.

Slide 14 range sort of in a down into its components.

Turning to the OIBDA remains slightly negative like it has since the pandemic began.

Billboard increased weight, including higher margin bingo Billboards also helped push total EBITDA margins up $2 25 per cent.

Capital expenditures on slide 15, we're still down significantly from last year, driven by reduced growth spending.

We added 31 digital billboards to our portfolio during the quarter.

Our total Capex came in just shy of about $55 million guidance.

And when you look at 2021, we expect total capex of around $85 million in total including $55 million of growth Capex.

We'll be back to a pre pandemic levels and we expect to add 150 to 200 digital billboards to our portfolio this year.

Similar to 2019.

Slide 16 shows the bridging the assets though.

The biggest factor relative to last year.

Most of the other key driver which were relatively flat.

For 2021, while it's early days and there's still uncertainty, we're comfortable Pennsylvania at 25% to 30% assets.

Rebound driven.

Driven by improved OIBDA, what we interest expense aided by our recent bond refinancing and cash taxes of approximately $2 million.

Incorporated into this forecast is the fact that as of January 1st we are paying the minimum annual guarantee or Mag.

In accordance with our contract.

Let me take a moment on that.

And we will continue to engage in constructive conversations with the MTA regarding possible changes to the overall scope of equipment Accordingly and.

From an extension of the term of the agreement and why did the impact of the pandemic.

Considering all these factors there's growth.

Be a little bit of short term pain for long term gain from both us and the MTA.

We remain excited about the contract overall.

Hope to be in a position to share more details with you in the near future.

While the lower ridership impacts our revenues and caused us to be paying the bag, there's a silver lining.

And that's on equipment deployment.

It's more efficient to add displays when there are fewer people in the system.

Like I just mentioned there are a lot of discussions going on and things could change we will provide more information as appropriate.

At the moment.

Model 'twenty 'twenty, one equipment deployment cost in the neighborhood of $125 million to $150 million.

You can see where we stood in the MTA project at year end on slide 17.

Notable on this table that we've commenced a putting into in car displays on a rolling stock of course the subway.

Road and Metro North.

Now, let's turn to our balance sheet on slide 18.

With positive free cash flow generated in the fourth quarter.

Our liquidity improved again, it stands at $1 $2 billion.

Subsequent to year end, we refinanced $500 million of notes due in 2024 with an equal amount in 2029.

The new notes have a lowest coupons per day for the quarter per cent.

And the refinancing saves almost $7 million of annual interest expense.

Our next maturity us comfortably out in 2025.

Obviously, there's still a little uncertainty, but we believe the current economic outlook is good.

Over time, you would expect to deploy that cash strategically.

Our capital allocation strategy has not changed.

Investment in digital and technology.

Physicians and paying dividends.

Although reported dividends on our common stock from 2020 due to the pandemic.

And that will be paid in common and preferred dividends moving complaints about REIT requirements.

As we move forward in 2021, our board will evaluate our outlook with regards to the reinstatement of the common dividend.

In closing we are obviously happy to have 2020 behind us.

The resilient and come back on the Billboards coupled with good cost control sets us up well for 2021 and 2020 to recovery.

Let me now turn the call back over to Jeremy.

Thanks, Matt So now, let's turn to our outlook on slide 19.

Right now all of US we look at the first quarter, our total revenue expectation.

It's been a very similar range through the fourth quarter, it sounds like 20% to 30% on a year over year basis adjusting for the sports business sales.

Not a lot has changed in the world as our business, we're seeing book for the first quarter, but as you would expect both our U S. Billboard and transit businesses will be strongly in the black because the second quarter.

And looking further ahead, while we tend to expect to recover our 2019 revenue revenue level in 'twenty one.

We do believe we'll make good progress, especially from Billboard.

As I mentioned earlier on the call.

Our larger markets will be very important to driving our recovery.

You've heard us say many times, but we remain firm in our strategic belief.

In other amortization from the few trip big cities.

Slide 20 shows some anecdotal evidence the big cities are coming back.

Interest.

And leasing statistics from Manhattan.

After a leap year day.

94% in December.

Assisting us in offices open up further.

May not be exactly as they use debate.

But that said we are going to be very different than they are today.

Okay.

You may have seen comments today from David Sullivan at Goldman Sachs, saying that that post pandemic operating mode isn't going to be Boston, you're different and they describe today's work from home environment. That's an aberration. He wants everybody packs at the office.

The Wall Street Journal is a story today.

About Facebook.

Plans for the new Midtown Manhattan office.

Sure.

Trouble patents may change.

But we have been sharing data with you showing how fluid audience us all.

Especially above ground.

The important thing is that our portfolio of assets.

Key markets means we can flow shifts and other mobility.

From the highways to neighborhoods to shopping and business districts and as the year unfolds increasingly also on public transit.

Slide 21 shows some recent industry research, indicating that 68% with consumers.

Are experiencing digital device.

Well I for one have total assumed fatigue.

Yeah.

People are desperate to get out of those items and 65 percentage of them.

So as much as possible and nearly half of them now it is time to time media more than they used to.

Do you have a feel walking away from the office for a day or two a week or whatever you'll still kind of be in.

The out of home market will just reach you new places and with different frequency from there.

All of us classes.

Oh from US right in the middle of all these changes in mortality.

What's so encouraging about this right now is that people feel great when they're out of town, we connecting with the real world.

Brendan they use us therefore, reaching people when they're more engaged and more optimistic.

Great.

In Mexico, though on average see 15% <unk> growth in the us in 2021.

9% in 2022.

In addition to the pandemic rebound.

Mass reach will become increasingly important.

Some of today's most popular content platforms are ad free.

We need a T V. It's still a $50 billion business, taking 23% advertising share despite shrinking organs.

If we as an industry pick up a small piece of that would be showing great future growth and soon have an industry significantly ahead of pre pandemic levels.

It's the former puts us structures, where sharp tobacco Wallace said recently.

What the brands want when they're choosing a media.

Perhaps the most important things personalization at scale.

They're not cheap and to yourself.

Net out front, we do all the time.

Breakthrough the noise.

Get people's attention.

Drive People's digital behavior.

So in closing our outlook is positive with the whole world wants them to get out and stay out of their homes and as a company. We believe we're uniquely placed for the post pandemic rebound.

So with that operator, let's now open the lines for questions.

If you would like to ask a question. Please.

Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal Jeremy chart equipment.

Again that is star one to ask a question.

We'll go ahead and take our first question from Alexia Court, Ronnie with J P. Morgan.

Got it. Thank you very much just a couple of questions.

First on the amended agreement with the MTA.

I'm curious why you didn't give you the same day late in 'twenty, one you know, giving ridership levels have been pretty steep down depressed.

And I'm wondering I know you said she is still ongoing but wondering if we should see an elevated level of payments at the airport.

In 2022, and then just a second question to keep it maybe just elaborate on your.

Your guidance range from Q1, just sort of generally not just transient.

Yeah. Thank you.

So alexia maybe.

Maybe I'll take the Q1's gotten guidance for us and ill pass back to Matt on the MTA and.

That's why I say it that way I guess firstly for.

Q.

Q1, that's a little bit like I've said in the grip in the script.

As all business.

Business was laying down for Q1.

We really haven't seen I think some of the changes that we're really now starting to fill in the world. You know obviously, it's early days, but I think everyone now feels more positive as we look forward from we did.

Back at the backend of last year, you May recall, we said before that typically 70% of our business for Q1 actually book prior to the end of that.

The end of the year before so let's say most of that.

You know us.

He has taken into accounts I guess.

In that guidance I think it is also worth mentioning that Q1, 'twenty 'twenty was pretty good yeah, I still book business was up nearly 9% in Q1 of 2020, So I think it's worth keeping.

That comp in mind.

Yeah.

I mentioned.

Some of those categories and entertainment travel tourism retail tenants.

Still another round, but.

I loved to us.

For the pandemic that I love Us again, and they will come back. It's just a I think it's just a question of timing.

Maybe some if that helps us alexia.

Okay.

Thanks, Mike.

Hey, just a question on not from the MTA Alright, first then I'll hand, it off to remind everybody and unprecedented time last year.

In the second quarter every day.

A lot of things too.

True, but enhance our.

Our liquidity.

And we have and we had been a really good working relationship with the MTA and we reach what we thought was a mutually beneficial.

Amendment here in combination then.

The contract we have pre amendment.

Templates.

Ridership changes whiter ship and that's what we're discussing now the constructive conversations we're having.

Or about things in that contract and how to how to deploy them I mentioned.

In my prepared remarks.

Scope and Cameron.

We think we can find something.

Works out for both Us us.

In the MTA.

As far as going forward in 'twenty two.

We anticipate at this time of day 22, we'll be back in a revenue share position.

We think revenue in 'twenty, one will be higher than 20, and you can continue growing.

Vaccination from ridership.

Or how do you see to get back to where it was in the past.

We think we're in pretty good shape again, a short term problem now.

Long term benefit as we look out.

So mutually beneficial solutions.

Thank you.

Well take our next question from Ben Swinburne with Morgan Stanley.

Thank you Jeremy when you look out into the second quarter I'm, just curious how visibility is and maybe if you. If you sort of look at the areas that are less impacted like Billboard maybe smaller midsize markets can you see a month of growth in the pacings or is it too.

Certain today.

And then Matt is there any way you could help us quantify the impact to EBITDA from moving back to the N. G. I don't know if you can maybe you can tell us what fourth quarter might it looks like I mean, any anything you could tell us to help think about just sort of order of magnitude. While we're in this sort of interim transition period would be that would be helpful.

And then maybe just commenting on.

Commenting a little bit on Q2 I.

I guess the first thing is that gives.

Give us business in general I think can meter as a whole and I'm proud of them.

Yeah.

Your line down later in this environment, what we can say absolutely.

We are obviously in accounts.

A very weak comp for last year in fairness, we are undoubtedly going to see.

All of US all of our business trended positively for us is.

Verses 2020, I think you know we don't normally give any real guide post the price of the call said that.

We're announcing.

I did make some comments.

The positivity generally.

Feeling as we as we get into the back half of the year and we'll be able to give us I think more color on Q2, specifically a little bit further down the road.

Fair enough.

And then on the.

The MTA a question.

First of all we'll file the 10-K Tomorrow morning, we'll have more details, but all our MTA magazine range about $10 million a month.

That's what it was last year and then it goes up in inflation so you're in the same.

Neighborhood as I mentioned.

We think revenue in 'twenty, one will be higher than 20 recall.

The second quarter.

Everyone was saying from a subway watershed.

That has increased.

Some advertisers have come back into the subways.

And we think that'll continue.

During the isolates from 'twenty, one will be higher in 'twenty.

Yes.

Yes that helps us a little bit that will depend on what you think.

Total cash for the MTA comes out to be as I mentioned.

Well, we think we'll be back and drive share in 'twenty, two not in 'twenty, one and you'll see anywhere.

Yes, yes, you can extrapolate where you think 'twenty one will be.

And that they can help you back into what the impact of the magazine this year.

Okay. So in other words, you are paying them something last year on a rev share. So whatever we thought revenues, where we can sort of get to what last year was in and that's the delta.

<unk>.

Sorry go ahead.

Yeah.

Then there can be amendment last year repayment 65 per cent.

Revenue share on revenue in the west in the second third and fourth quarter we.

We paid back all of the amendment went back at 55 per cent.

The per Meg.

Right understood do you have you been able to get to our agreements with your other transit partners like Boston and San Francisco I think you had actually had some success getting keeping the Rev share in 'twenty. One I didn't know if you had any update there.

Yeah.

The answer is yes, we've had some really really good negotiations with them.

The vast vast majority of our.

Other transit partners and.

It's worth mentioning also is that in some markets. We're now starting.

Starting to see some revenues come back so actually we're not gonna landmarks. So that's.

Yeah.

Ticking the box and then a final.

Final what maybe on the MTA.

This is a very long term contracts that can potentially that has the potential to get longer scale.

As it is you know this this contract goes now into the thirties.

And we're talking here about.

As Matt said suddenly a bit of attract us here back.

Back to revenues next year, it's terrific contract, we believe it will be a real.

Growth driver for us in the future as indeed, it was for us in 2019.

Thank you.

Well take our next question from Ian Zaffino with Oppenheimer.

Hi, great. Thank you very much I just wanted to like talk a little bit about the digital Billboard business.

Return to growth.

What I would've thought us Navy, it's more urban expose that maybe it would be a laggard, but we're actually seeing it.

Outperform give.

Give us a little bit of color on what's happening there and why it's actually doing so well thanks.

Sure well look I think digital generally.

<unk> seen us.

From an average from an advertising point of view.

As you know generally really good thing.

You can buy bulk space and a more flexible way you can be more creative with your.

Messaging.

And you can book Lifetime, and we also now have a live.

A little bit of a tailwind coming through on programmatic now while defense revenue pace is relatively small.

It is just starting to nudge the needle a bit.

Also fair to say that we did.

Put in some great new signs last year so.

That is also helping drive.

Absolutely absolutely correct I think what it what it's really what this is really showing us.

Yes, the flexibility allowed people that as we went into the pandemic of us obviously.

We have to cancel and us as we showed you know it's the biggest falling part of our business but.

Business.

Business generally improves with vaccinations in herd immunity.

Et cetera, and you know a great new signage.

Signage.

We believe it's gonna be a real interest in growth driver not just us here for a number of years to come and that's why once again, we've really turned our organic growth back on this year and anticipate from being fully in terms to get back to us at 150 to 200 level Inc.

Tons of conversions of new installations.

And then I guess my follow up it kind of dovetail into that you know you're sitting on 700 million plus of cash.

Where should we anticipate that goes in there given how well digital's actually performs.

This is making us more encouraged if that's greater than that or are there. Other uses of cash M&A et cetera that we should be thinking about as an easier persons. Thanks.

Yeah. Thanks, Dan So maybe I'll just share a couple of US and then pass over to Matt.

With regards to.

Digital.

<unk> in particular.

But you know there's a couple of things at play here.

The first is in terms of zoning in on and obtaining permits to sort of build out.

So and the other point, we've always stressed.

You know.

In certain markets.

Where there was already.

Substantive.

But what did you do something a.

A little bit careful.

You're not eating your own lunch by going out and.

Really.

Lastly, increasing.

Signage opportunity.

In our particular.

Given the city or again, so that's a couple of things that sort of.

If you like make it easy for US just to go out and say that's going to.

$2 50, or 300 tons and this year my other comments in terms of.

Cash position interest.

Adding some some numbers to that.

Sure.

We're using the cash to <unk>.

Many of our return to offense.

Media increased our capex spend per year for 2021.

From 55 to 85.

Hoping to drive more digital conversions emanating from past years.

We're turning the MTA deployment, a little higher again to us.

Further our digital.

Yeah.

Installed base.

And we've closed a couple of small acquisitions, which we put on hold right from the.

Pandemic and we'd like to do more when they're small mid size or.

A little larger and as I mentioned, our board will continue to look.

I think our business prospects.

Taking into consideration of all the liquidity in our.

We can requirements and think about a dividend at some point.

During during the course of this year. So we think cash is a strategic asset and we're happy to have it.

And we think we'll put it to give us.

Alright, Thank you very much.

As a reminder, if you would like to ask a question. Please press star one.

Our next question from Stefan <unk> with Wolf research.

Good afternoon, just two quick ones from me the first in.

In the Q1 pacings can you talk a little bit about how the months laid out did you kind of seen sequential improvements starting in January.

That's how that's.

Looking into Q2, and then secondly on the bad math I think you mentioned it in terms of a monthly Mag is definitely its structured from a contract or is it an annual maintenance.

So let me.

Let me take Q1 and then.

Another quick one on Q on Q2, so in Q1.

No. The pricings were broadly similar as it allows us.

Because we were in.

I think broadly similar world all awhile, let some cash.

Q1 business was being book Q2, I mean, as you would expect.

All of the patients.

All positive right now.

Yeah.

As I said no no question, a little bit too early to go into any more detail on our Q2 right now.

And Stefan you you're right, it's an annual Mag will be thinking about it monthly.

They have to check those out of the way it goes out.

The first of every months and annual Merit and calculating chewed up.

Course of the year.

Okay. Thanks.

Thanks, so much.

That concludes today's question and answer session. At this time I'd like to turn the conference back over to Ed speakers for any additional or closing remarks.

Hmm.

Thank you very much everyone for your.

Questions on for your time today.

We look forward to speaking to you.

As many of the Investor event.

Hum that are coming out over the next few weeks. Thank you very much again.

This concludes today's call. Thank you for your participation you may now disconnect.

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