Q2 2021 OUTFRONT Media Inc Earnings Call

Please standby and good day and welcome to the second quarter 2021 earnings Conference call. At this time I would like to turn the conference over to Mr. Greg Lundberg. Please go ahead Sir.

Good afternoon, everyone. Thank you for joining our 2021 second quarter earnings call with me and person on the call today are Jeremy male Chairman and Chief Executive Officer, and Matthew Siegel Executive Vice President and Chief Financial Officer.

After a discussion of our financial results, we will 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 and the Investor Relations section of our website out front of media Dot Com and after today's call's concluded and audio archive will be there as well.

This conference call May include forward looking statements and relevant factors that could cause actual results to differ materially from these forward looking statements are listed and.

And our earnings materials and in our SEC filings, including our 2020 for it and 10-K and our June 30 'twenty.

2021 form 10-Q, which should be filed tomorrow.

We will refer to certain non-GAAP financial measures on this call and any references to OIBDA of made today will be on an adjusted basis and reconciliations of OIBDA and.

And other non-GAAP financial measures are in the appendix of the slide presentation. The earnings release and also on our website, which also includes the presentations with prior period reconciliations and let me now hand, the call over to Jeremy.

Yeah.

Thanks, Greg and thank you for joining us today.

It's great to get on and earnings call when the numbers of back in growth mode and when all of the talk us about market is racing to reach people and emerging from the homes.

Our number of suddenly proves this out so the second quarter and were feeling very optimistic about the rest of the year.

As you can see on slide 3 our revenue grew 53% on an organic basis, well in excess of our expectations.

The drivers of this impressive growth for U S Billboard, especially digital and transit, which was also stronger than I expected.

This robust top line right across the board flow nicely to adjusted OIBDA, which was up nearly 5 fold and.

<unk> moved well into the black.

The strength of our business is continuing and as we look at the second half we have increasing confidence for the balance of the year.

And in fact, I'm going to steal a little bit of Mats Thunder here and tell you that he'll be raising our <unk> guidance later on this call.

This confidence and positive outlook also allowed us both to resume of carbon common dividend, which was the amounts this afternoon.

The little should be talking about that later on the call.

Let's turn to slide for for a more detailed for you of our U S media revenues.

Billboard revenues were up 50%, reaching 95% of about 2019 level transit.

The transit revenues were up 56%. While this is certainly larger in terms of percentage remember it's off very low numbers from last year and transit ridership does continue to lag, but the audience is now recovering and notwithstanding any possible and sac from from the Delta of area and we expect.

With the step up after labor day.

Turning to slide 5 it's nice to see 50% growth and both local and national.

You may recall that national revenues led the decline last year, we expect them to lead a recovery this year and.

In fact, and our Billboard business National grew faster than the local this quarter.

As expected our local business has been steady of throw out and I'm pleased to say that our local revenues this quarter surpassed our Q2 level in 2019.

The strong revenue growth naturally pushed up yields across our Billboard portfolio as seen on slide 6.

We were pleased to see the total yield of Oh about 2000, and 253 per cent from last year and this is 19, 9% of our 2019 second quarter level.

We anticipate further yield improvement for the remainder of the year.

You can see the recovery and our digital business on slide 7.

And the business came back strongly on both Billboard and transit.

Even more important and the growth rates you see here is the fact that we have more and recover at the 2019 second quarter digital Billboard levels and for.

Our total growth on the 2 year basis, and the U S is 10%.

Does this all has been and will continue to be a great growth driver for this business.

To complete our revenue picture for the quarter.

Slide 8 shows on other business, which primarily comprises of business in Canada.

And the recovery that was also very strong with organic Billboard revenues up 91%, which was great to see.

It's worth noting that the reported decline was impacted by the sale of our sports marketing business last year, and we will lap this next quarter.

Let me now hand over the Matt to review of the rest of our financials.

Thanks, Jeremy Good afternoon, and thank you for joining our call today.

Please turn to slide 9 and we will begin with our expenses overall, our total expenses were up $54 million year over year.

The increase that you see on this slide are almost all due to a pick up and our sales activity.

And franchise expense was the largest increase which was driven by revenue shares on the growth achieved across the country and also the guaranteed minimum annual payments to the New York MTA.

You can see here of that total expenses were up 25%, which is the west and our revenue growth. It's good to be back with the operating leverage and the business is working on our favor which is very apparent on slide 10.

The $70 million of OIBDA and the second quarter represented a 21% margin and we expect our healthy Billboard revenue growth and continued improvement on transit to drive growing OIBDA and expanding margins for the balance of the year.

Looking at the breakdown of OIBDA on Slide 11, you can see the tremendous growth and U S media Billboard and us.

Recovered, 91% of the 2019 second quarter level.

So we are certainly pleased with this performance.

Transit as you'd expect of the different story and OIBDA remains negative, but less so than the first quarter as revenues improve going forward and strong OIBDA of recovery will follow.

Let's now turn to capital expenditures on slide 12 realm.

Relative to last year, we had a bit west maintenance and a bit more growth.

The growth is off of digital Billboard conversions, and our team is busy identifying new opportunities and converting approvals into new digital signage.

We added 47, new digital boards this quarter and 77 year to date through a combination of conversions and acquisitions.

You'll probably see and increased pace of Capex and the second half as our total capex guidance for the year is unchanged at $85 million.

Slide 13 shows the bridge and a S. S O where it's clear that OIBDA was the key contributor to <unk> growth.

You'll also notice that we picked up some benefit and most of the other key items.

As Jeremy said at the beginning of the call we are raising our annual <unk> guidance for the year.

We began 2021 with a range of up 25% to 30% and after the first quarter, we indicated that we would likely exceed that top end.

So today, we can be more specific and are raising our expected range to up around 40 per cent for the year.

And as is always the case, we will see how we progress throughout the year.

And revisit this guidance accordingly.

Turning to slide 14 for and MTA update it was once again of light deployment quarter we.

We were pleased to file an 8-K yesterday confirming the signing of the MTA Amendment.

I want to highlight 2 items, which we've discussed previously with you and then and mutually beneficial to both us and the MTA.

First is the 3 year extension of the contract at the end of our initial 10 years with the option for us to extend this now 13 year term for an additional 5 years subject to certain conditions.

The second is a modification and the scope of the contract that will result in and the significant reduction in a number of displays we will be deploying into the system.

We do not believe that the revenue and the reduced display count will significantly impact our expected revenue stream, but the reduction will reduce our capital outlay.

This will allow us to recoup our spending and the MTA to reach 70% revenue share more quickly.

Now, let's turn to our balance sheet on slide 15.

Our liquidity remains strong at over $1 billion.

We generated positive cash flow during the quarter. We also spent $27 million on acquisitions, principally on the digital Billboard Tuck ins and we funded this from cash on hand.

Our revolver remains undrawn.

Looking forward, our next maturity of our 6 and a quarter per cent notes due in 2025, which can be called in June of 2022.

Our overall weighted average cost of debt is 4.3%.

Also worth noting is that we believe that our pandemic leverage has peaked as the expanding OIBDA is beginning to lower the ratio as expected.

Last but not least because it wasn't the dividend.

We have always paid more than the REIT requirement and we intend to do so going forward and today's quarterly dividend announcement of.

The 10 cents per share of resumes of cash return for our shareholders. It is our intention to warfare and attractive sustainable dividend that can grow with the business.

And closing, it's great to be back in growth mode, and backed by a healthy balance sheet strong liquidity and excellent prospects for out of home advertising, especially and the markets were out for and operates and we now turn the call back over to Jeremy.

Thanks, Matt and now, let's turn to our third course, the outlook on slide 16.

You've probably heard and our tone today, but we're feeling very good about the remainder of the year notwithstanding some of more recent headlines on the delta of Iran.

As we sit here today, we expect our total revenues to be up and the mid possibly high 30% range and the third quarter.

Within this guidance is the expectation that our U S. Billboard Billboard revenues will be at or above the 2019 third quarter levels, which is of much quicker recovery than we originally expected.

Regarding transit, we currently expect third quarter of growth of more than 70% and believes that ridership recovery will be a significant tailwind for some time to come.

Our strong guidance is being driven by many of the factors that drove our second quarter results. If you turn to slide 17, you can see the at all of Q2 was driven by virtually every sector and the economy.

Some obviously more so than others, but everything is moving and the right direction.

And we first showed you this chart last quarter. When every purple bar was negative, whereas you can see here every purple bar is now positive.

It's also great to see some of our bigger categories, putting up sizable numbers.

The top growth drivers during the quarter of professional services retail and bear and like US followed by entertainment financial services and technology.

We're seeing broad strength and a healthy mix of both local and national.

We find all of this very encouraging and.

Belief that it shows up business has more runway for growth, particularly in our top markets.

Marketers of returning to the media and this is especially true and a cookie less world, where changes and the privacy landscape of shifting market us towards advertising solutions based on the context and location and.

And that's what the out of home and out from Us all about.

Before we take questions I'd, just like to take a moment to thank Greg Lundberg for his years of dedicated support counsel and friendship and for being on my side for US now 29 quarterly earnings calls.

For those of you don't know Greg is leaving out from following this quarterly earning season and after a short break we'll be starting of new and exciting role as head of Investor Relations at Omnicom.

During the <unk> 10 year as SVP of IR and out from his provided excellent strategic guidance insight and communication through some exciting events for our company and the industry.

And we'll certainly miss him, but expect to run ins of him often of the events conferences and I'm sure on the occasional lunch.

And I'm sure of all of you wish him all of the very very best for the future. So with that operator, let's now open the line for questions.

Thank you if I can ask a question. Please signal by pressing star 1 on your telephone keypad and you are you.

Speaker phone. Please make sure your mute function is turned off to allow your signal for each of our equipment.

Please press star 1 to ask a question.

And we'll take our first question from the electorate.

Part of Ryan.

Hi, This is Anna on for Alexia. Thank you so much for the question.

Jeremy you've given very strong guidance for Q3 and.

And with demand coming back I was wondering if you can comment on how pricing is trending and particularly on the transit side and on digital Billboard.

Yeah, absolutely I mean, and you can see obviously the.

The yield slide which is made up of both and Ah.

Price and occupancy.

When we look at our occupancy specifically, it's interesting that in our Billboard business, where currently at around 76% and Thats down from sign of you know.

Low to mid Eighty's at off peak, so there's still some a good way to go there in terms of our future growth opportunities.

And look as you know as our business Hardens you know we fully expect that we would get the benefit of rate as we as we go through the rest of this year.

Great. Thank you.

Thank you and next we'll take a question from Ben Swinburne with Morgan Stanley.

Great and good afternoon.

Jeremy and Max 2 questions..1 you know you guys on the save a lot of exposure to large markets like New York and L. A and you know, we're all I think anticipating a rebound and stuff like Broadway.

Moving spending and I'm just curious as you look at your book of business and sort of the entertainment.

The vertical which I think was a huge tailwind for you back and 18.19 is that the starting to show up and you're seeing that and the numbers and are the forward pacing is encouraging even with the the.

And the Delta area and stuff hanging over our heads at the moment and the.

And I didn't know if you guys could talk about your plans for digital board additions. This year Lamar noted some supply chain constraints are showing up sell us and share. If you had an update for us on.

On your plans for 2020, 1 and if you're being impacted by the us. Thank you.

Sure. Thanks, Blayne and I'll take the first piece of that and then and met the second so when we look into Q3.

For the pacings right now actually.

Entertainment and movies or both and the and.

You know actually.

Very much part of driving a that's a growth of that I talked about tech is the professional services is the also look I don't think anyone can completely guess second grass.

The the Delta variant.

And our opinion, we think that's a you know we will.

Likely see.

You know less but and a burden on this in terms of Lockdowns and the 91 and I might have been.

And we think and it might there might be some masking and we fully expect that that's anytime on the movies will work and it will be part of that.

Growth for us as we go into the back half of the and.

And Ben on and.

Digital and supply chain, we had said we expect the of 150 to 200.

New digital this year.

The combination of of conversions and and acquisition, we recognized supply chain.

Issues, but we think we have enough.

Signage on order and the and inventory.

And that we can still reach those numbers, we are recognizing that there are delays and getting container space and the other things.

Overseas, but we feel pretty good about our situation right now.

Thanks, Matt and just wanted to follow up did you give the MTA spending number update on the call I apologize if I missed it.

And if we did not.

Just and you know for the MTA, where the bank deploying pretty much at full.

The full speed ahead of starting early third quarter. After we signed a a good.

Agreed the amendment with the with the MTA.

On our screens are down overall as I mentioned.

But we have the inventory, we're putting and digital urban panels and.

And we expect to spend around the same annual run rate annualized run rate that we've done in the past.

So I think our guidance for the full year was 100 million for this year. We spent about 30 of 40.

So we will spend the next 60 or 70 during the second half of the year.

Thank you so much.

Sure.

And once again, if you'd like to ask the questions that you may do so by pressing star 1.

And we'll take our next question from Ian Zaffino with Oppenheimer.

Great. Thank you.

Managed maybe on the follow up on the MTA again displays are down and so does that mean the revenue contribution is just gonna be GAAP.

And by the from pro rata amount or is there some offset as far as maybe better economics for better board locations.

We still think we can hit the same revenue numbers with the lower screens, the the decline and screens overall, primarily going to be on rolling stock.

We think the the money and the demand is going to what we called brand trains those they get.

And I covered and and digital screens were reducing.

The non brand trains.

And we're reducing some on the commuter lines, but we're still gonna have coverage and all of the commuter lines and youll find the screens on on various subways and we still think we can maintain the revenue.

And then just this is a better a better outcome for both of us.

And just to add to that you know sort.

Of 3 years, and we have a much better understanding of the the yields that we're gonna be achieving for a number of these locations and better understanding actually of location, where we can maximize value by location. So.

Putting that all together it just made sense, because we could reduce screen count having minimal impact on the.

Revenue outside of <unk>.

Okay.

And then just the other question would be.

And you took the dividend back or reinstated the dividend.

I think that's gonna go over well the question really becomes is no.

You don't really look at your minimum payment when it comes to you know how much you're going to pay on and the dividend typically use more of your thinking about more so if youre not youre basing it on some type of minimum.

What are you actually basing it on and are you looking at.

How your competitor of retraining versus your peers, and then you'll look to maybe bring it up for your peers level.

As you the matter of just being conservative and initially just sort of give us the.

The thinking and the logic behind.

Where do you think the dividend may eventually go thanks.

Good question all of a lot of factors as both art and science to it.

As I mentioned, we do want to be above the minimum.

We want to be more much more of a grower.

And then even a high payer and <unk>.

For so I think you can watch this space and as our business grows you should.

The expected the dividend to grow along with it we do think we have a competitive dividend now and.

Over time, as we grow probably quicker than some others.

Youll see us get closer to some of our peers of some of the REIT peers.

You bet.

We have a little higher leverage than we had the pre pandemic, we wanted to allow that to come back down.

So a lot of factors, but we feel really good about restarting the dividend and continuing to talk about it with our board and sharing good news with all of you.

Great. Thank you very much.

Thanks.

Thank you and we have no further question, sorry, I would like to turn the conference back over to the company for any additional or closing remarks.

Okay.

Great well. Thank you all for attending the call today. Thank you for the questions and we look forward to seeing many of you and investor events over the coming weeks. Thank you very much.

Thank you that does conclude today's teleconference. We do appreciate your participation you may now disconnect.

Yeah.

Okay.

And.