Q3 2021 OUTFRONT Media Inc Earnings Call
Good day and welcome to the Out-front media third quarter 2021 earnings conference call.
At this time I would like to turn the conference over to Linda Maraud, Vice President of financial planning and analysis. Please go ahead.
Good afternoon, and thank you for joining our 2021 third quarter earnings call.
With me on the call today are Jeremy male Chairman and Chief Executive Officer, and Matthew Siegel exactly executive Vice President and Chief Financial Officer.
After a discussion of our financial results well open the lines up for a question and answer session.
Comments today will refer to the earnings release and a slide presentation you can find it in the Investor Relations section of our website upfront media dotcom.
After today's call is concluded an audio archive will be available there as well.
This conference call May include forward looking statements.
Factors that can cause actual results to differ materially from these forward looking statements are listed in our earnings materials and in our SEC filings, including our 'twenty 'twenty Form 10-K, our second quarter 2021 Form 10-Q, and our September 30th 2021 Form 10-Q, which should be filed tomorrow.
No.
We will refer to certain non-GAAP financial measures on this call any references to OIBDA made today will be on unadjusted basis reckon.
Reconciliations of our Libertad and other non-GAAP financial measures in the appendix of the slide presentation. The earnings release and on our website, which also includes presentations with prior period reconciliations.
Now I'll turn the call over to Jeremy.
Thanks, Linda and thanks to you all for joining us today.
I'm excited to be on this call and sharing the results of our continued recovery in the <unk>.
Also to outlook, we have for our business.
This call. So we've had a key milestone with our Billboard revenues, surpassing all of 2019 third called the level and trumpf showing very steep quarterly growth.
But you can see on slide three total revenue grew 41%, which was again above our expectations.
This impressive growth was across the board with the U S. Billboard up 32% from last year and transit revenue up 19, 5% from last year markedly higher than our earlier expectations.
Our recovery was initially led by our mid sized markets and we are now seeing acceleration across all of our regions with very few exceptions.
Well translate isn't yet back to 2019 levels. We're encouraged by ridership gains a national advertiser interest in reaching the millions of people who utilize all various franchises.
It's good to see that I'll keep transit markets revenue return is starting to over index the gradual ridership recovery.
This revenue improvement carries through our financial statements as OIBDA and <unk> posted growth rates well above our revenue growth percentage.
With this performance and current Q4 visibility, we now feel confident we will outperform our previous full year guidance by a significant margin and we expect this momentum to continue into next year.
I'll leave Matt to give you more T cells are not getting good news in a few minutes.
Let's turn to slide four for a more detailed look at our U S media revenues.
As mentioned earlier Billboard revenues were up 32%, reaching 102% of third quarter 2019 level.
Revenues were up 96% almost double the third quarter of 2020, which was heavily impacted by the pandemic.
Transit ridership in New York City, and Boston has now passed 50% of equivalent in 2019 levels with return to school and people starting to return to their offices again.
This improvement in audience has driven a steady improvement in revenue.
Turning to slide five and look at U S sources of revenue.
You can see that national business growth has accelerated with a 55% gain.
This is the first time since the start of our recovery that national grew faster than our local business.
This is a great indicator for the future also our asset portfolio strategically built to meet the growing demands of large advertisers and agencies.
We expect this trend will continue over the next few quarters.
Our local U S business also performed particularly well with a 33% increase this quarter.
And more importantly, the Billboard portion of our local business is 7% above the comparable 2019 third quarter level.
This robust revenue recovery and shift in business mix towards national advertisers, whose driven yields higher across our Billboard portfolio as you can see on slide six.
We were delighted to say a total yield of over $2400 up 34% from last year once again above our 2019 third quarter level.
We anticipate further yield improvement for the remainder of the year.
Our digital business continues its strong recovery as you can see on slide seven.
Digital Billboard grew 65% in the quarter.
More than two and a half times the impressive stats at growth rate of 23% and tissues old transit grew almost 200%, albeit from a very low base in 2020.
These growth rates are eye catching and we firmly believe digital will be a key growth driver of our business in the future.
To complete the revenue picture on slide eight is our other segment, which is primarily Canada.
Performance across the board almost matched our U S business with growth of nearly 40%. That's Canada continues its rebound from tight government restrictions.
Let me now hand, it over to Matt to review the rest of our financials. Thanks, Jeremy and good afternoon, everyone and thanks for joining our call today.
Please turn to slide nine and I'll start with our expenses overall.
Overall, our total expenses were up $68 million year over year.
Similar story to our second quarter with the cost increases primarily result of the continued recovery in our sales performance.
Largest cost bucket is Billboard lease expense and here, we see a modest 7% increase which when compared to our revenue growth highlights the operating leverage inherent in the largest portion of our business.
Most of our real estate expense is subject to long term leases with an average life of approximately 10 years. So we don't expect to see a material impact from inflationary pressure on this expense line anytime soon.
Transit franchises likewise subject to multi year agreements and margins are not likely to be materially impacted by inflation in the near term.
Transit franchise expense continues to have the largest cost variance due to high increases in revenue and thus revenue share across most of our franchises around the country.
And from the MTA performance, which will remain beneath its guaranteed minimum annual payment level for all of 2021 as compared to 2020, when our amended contract permitted us to defer the Mag and paying only revenue share from the second quarter on.
Our second largest cost bucket as SG&A, which grew 34% in the quarter largely as a result of higher compensation costs from the stellar performance of our teams.
Our operating leverage as demonstrated by our OIBDA performance. This quarter as total expenses increased 31% 10 percentage points below our revenue growth, even with the headwind of the MTA minimum annual guarantee payments.
You can graphically see this improvement in OIBDA on slide 10 is our 41% revenue growth drove OIBDA up 82%.
Of course.
As our highest quarterly OIBDA since the end of 2019, and our OIBDA margin of 27% is near our historical level.
There are a number of contributing factors to our improved OIBDA margin.
One is shifting business mix with transit, forming a lower than historic portion of our revenue.
Two a higher relative growth in our smaller markets faster growth from digital inventory and successful efforts from our real estate teams addressing some challenging leases.
Looking at the breakdown of will all lived on slide 11, you can see 70% growth in U S media Billboard which is also surpassed our 2019 third quarter level.
We are enjoying a recovery in sales momentum and as Jeremy said these results not only show we turned a corner, but have also have paved the way for the future.
Transit OIBDA is historically much more than Billboard and he's just turned positive another pleasing hurdle in a recovery.
The MTA performance remains below the minimum annual guarantee level, but has the potential for extremely high incremental margin as performance recovers towards mag level in the future.
Franchise costs remained fixed and variable costs are one of those associated with selling so we expect to see sequential improvement in transit gross margins again next quarter.
Let's now turn to capital expenditures on slide 12.
Our maintenance Capex is higher than last year as we catch up on some operations in it spending that was postponed west here and we spend on tech upgrades in various facilities.
Gross Capex was ahead of 2020, but far behind 2019 level as the uncertain supply chain has held up our digital screen deliveries.
We did add 34, new digital Billboard this quarter through conversions management agreements and acquisitions and our pipeline of conversion locations remains robust. So we believe the supply chain delay is only a timing issue and we will catch up to our multi year target once the shipping backlog dissipates.
We expect to spend more in capital projects in the fourth quarter, but because of the uncertainty in the supply chain and timing of deliveries. We now think our full year capital expenditure number will be in the range of $70 million to $75 million.
Lower than our previously estimated $85 million.
Yeah.
Slide 13 shows $79 million in F F O, which was up 185% from last year.
Continued sequential recovery in Billboard and transit revenues are flowing through to OIBDA and <unk>.
Our revenue outperformance and the passage of another three months to evaluate any business impact from Covid variance in certain parts of the country.
Has provided us enhanced visibility and confidence to again increase our <unk> guidance.
We now expect our <unk> growth for the full year will be around 80%.
Slide 14 is our.
Quarterly MTA deployment update subs.
Subject to any supply chain delays, we have returned to a normalized pace of activity.
Over the last 12 months, we prioritize the installation of digital urban panels. The screens at the top of steps heading into the subway to take advantage of active pedestrian traffic when other audience segments may have been worst crowded.
Now and into next year, we are finishing various stations and ramping up rolling stock efforts.
So boy ridership has been steadily increasing since labor day marked by back to school.
The recent average daily ridership is above $3 million, which is about 55% to 2019 levels.
The steadily rising number has become polite cocktail conversation among advertising buyers and busy commuters and we're excited to be seen the expansion of revenue that is accompanying these eyeballs.
Looking at our balance sheet on slide 15, one can see our committed liquidity is still around $1 billion.
We use a small amount of our cash this quarter is we resumed MTA deployment, we started a quarterly common dividend and spent $12 million in Billboard tuck in acquisitions.
This brings our year to date acquisition total to $55 million with an active pipeline of interesting vocal opportunities we are still working on.
Our revolver remains undrawn and our overall weighted average cost of debt is four 3%.
Our leverage peaked earlier this year and its continuing its descent as OIBDA steadily recovers with net total leverage at six six times at the end of the third quarter.
Down from seven nine times three months earlier.
And I'm sure you noticed last week that our board of directors approved the Tencent common dividend for the fourth quarter.
We believe this amount for third and fourth quarters combined with the preferred dividend for all four quarters, well effectively cover our full year REIT requirement and we look forward to growing our quarterly dividend as business performance continues to improve.
Our financial outlook is very strong and the business were performing better than we had hoped we look forward to finishing the year on a high note and to an exciting 2022.
Now I'll turn the call back over to Jeremy.
Thanks, Matt and now, let's turn to our third quarter outlook on slide 16.
So as I said at the start of the coal we're very excited about our industry. These days and the prospects for our business going forward.
The demand for out of home.
Traffic subway ride the ship and revenue are all moving in the right direction.
Therefore, as we sit here today, we expect total revenues to be up in the low 30% range in the fourth quarter.
Within this we expect to further improve our relative outperformance for U S. Billboard versus 2019, and the continued strong growth in transit.
A notable performance in the past two quarters and our outlook for this quarter are driven by the return of certain categories that reduced our activities in their advertising during the last 18 months such as movies and entertainment. It was good to see the movie opened in theaters and performed so well after moving there.
Released state a number of times.
We're also enjoying the benefit of some newer categories. So there's still small overall, but growing nicely.
Based on online gaming.
And then importantly, many of our study of categories driven by local advertisers such as professional services retail and health care continue to be important from business and are showing solid growth.
Well, it's a little early to speak about 2022.
For a quick preview we are seeing similar category performances into next year as we all look forward to more movies and other forms of recreation returning.
The reopening of Broadway increased tourism and travel lifting the spread of the population and increasing consumer confidence. This confidence is enabling businesses to spend more to entice new and returning customers to their doorstep.
From my office here in Midtown I can see increasing numbers of commuters pedestrians office workers and Dinos I know that they will drive the continued growth of our industry.
This is equally true for cities right across the country.
This is a great time for out of home and indeed for out from.
So with that operator, let's now open the line for questions.
Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad.
If you're using a speaker phone. Please make sure your mute function is turned off to allow your signal to reach our equipment.
Press Star one to ask a question and we'll pause for just a moment to allow everyone an opportunity to signal.
And our first question comes from Alexia <unk> with J P. Morgan. Please go ahead.
Thank you.
Question really is on the improvement you're seeing in the transit business.
Do you.
Okay.
Maybe a proxy timeframe of a crystal ball, but you probably have more knowledge.
When we might get back to Q2 2019 levels and is the 80.
<unk>.
Right.
Toby.
Just really quick.
Normalized advertising.
Is that sort of a decade.
Thank you you may begin.
I just wanted you know really returned to the mainland.
2019.
Pete.
Yeah. Thanks, Thanks for the question Alexia.
You know, we're obviously seeing some you know strong increases right now and in the in our transit business Oh bid off that low base and as we look forward. We expect that 2022 will be a sort of continued yeah of recovery and while as you rightly say we don't.
We don't have a crystal ball, we would expect that in 'twenty, three we will likely you'd be back to a sort of 2019 levels.
And in terms of that ridership versus revenue.
We've never quite been here before but it is certainly our expectation that we will be able to achieve that.
Revenues that we saw in 2019 without 100% of our audience and yes, we think it's likely to be in that 80% to 85% range.
Okay, great and if I could just have one follow up.
C U E.
Hum.
<unk>.
Interesting just slightly on your conversion to digital boards going forward I think one of your peers.
Two comments.
Do you have any sense of how.
Much behind it maybe like how much of a backlog.
Or do you sort of get it.
That might be chunkier, but you have to kind of get back to a normalized rate maybe by the back half of next year.
Well its Matt I think to me slow finished the fourth quarter and we think most of our screens are somewhere in the ocean.
But when they do come in we can get them installed quickly by by mid year, we should be caught up and we would expect a bigger year next year than normal just for a and over indexed 12 months.
But it really depends on supply chain I'm guessing are or competitor screens might be in the same boats on the same oceans.
Okay. Thank you very much.
Thank you and our next question comes from Jim Goss with Barrington Research. Please go ahead.
Oh thanks.
I was wondering in terms of the return of traffic into there.
The transit systems.
Where do you benefit a basically a ratably in terms of.
Increase in ridership or with return of traffic to your you get any pricing.
Lift from a greater capacity utilization.
Thanks for the question, Jim I guess, the first thing to say about some of our business and transit is that actually.
Compared to 2019, as we move forward and continue to digitize, where actually gonna have.
Really fabulous products that we think will be increasingly appealing to advertisers. So I think the fact that you know we're going to have this sort of a differentiated digital product will allow growth beyond that which you know where all the level that we saw in 2019 as we go.
As we go forward now that has to do also based on ridership returning back towards something something like the levels that we sold before and we talked earlier about that 85% to 85% range and then getting back to those those revenues will be dependent on two things it'll be dependent on.
On pricing in terms of sort of a cost per thousand and also is there is opportunities in utilization. So it'll be both of those things that drive us back to back to those 2019 levels.
The contracts that were up for bid and sure that sanction history now it seems but I'm wondering as you move up.
Forward are.
Are there are there some that will come back that you'll have an interest in them and be capable of taking a look at and you might also related in terms of.
Any appetite you'll have and at what 0.4.
Billboard market acquisitions, and maybe further digital installations.
Yeah. Thanks, Jim that's the first part of your question went a little bit quiet, but I think it was a.
Regarding sort of the opportunities for further transit franchise wins. So you know as we look forward most of most of the most of the key franchises are actually I've actually been put to bed for quite a long time. So we don't anticipate that they'll.
Would be significant change and significant franchises.
Over the sort of Oh over the coming months, that's that's for sure with regards to Billboard acquisitions as Matt said we've.
We've spent $55 million so far this year, we've got a very active pipeline and you know what what we're keen to what we're keen to add weight in a number of our markets around the country, so but pursuing those.
You know with with positivity to put it like that.
Okay, and one last one.
It was encouraging to see you have a common dividend I think that's long been a reason to own the stack.
But I know and I know there are requirements, a rebased and they're also the preferred.
The account for some of the requirements I was wondering if you might frame up.
The rationale to extent you can that the board might look at in terms of how valuable that Carmen dividend component is going to be.
And I know it's been under pressure.
Recently, but how we might look forward.
That is a an investment component.
Jim It's Matt Thanks for the question.
Boardwalks at a number of different ways.
First and foremost is the REIT requirement and we think.
This year two quarters of 10 cents plus the preferred coverage that requirement.
Business is recovering.
Recovering and growing and we've said, we expect to be a grower aggressive grower of the common dividend.
Also and importantly, and I think we just what we thought about it in the summer the signaling the communication benefit that dividend that we saw.
At midyear, the AR growth and recovery of primarily our Billboard business and more recently our transit business.
So we want to make sure people knew that we felt confident to bring your dividend out.
Before we did any ear and calculations on the REIT.
So we feel really good about where we are in.
The board is very comfortable in starting and looking at growing that dividend over the next day.
A few periods.
And just starting to just starting to Matt's comment Jim briefly.
You know you remember in the past that you know as a company we tended to pay a dividend.
And access of the absolute requirement and you know what what we're looking forward to getting back.
Into that kind of range as we look forward, but from where we are now and just Matt just said, there's the opportunity for us and are quite aggressive.
Aggressively to grow that dividend as we move on from here.
Okay. Thanks, good to hear thank you much.
Thanks, Jim.
Thank you and our next question comes from Ian Zaffino with Oppenheimer. Please go ahead.
Good quarter.
Just one question, maybe a follow up on the last one would be.
Use of capital.
You know what is the M&A market look like right now things are recovering pretty rapidly. So just curious you know what the bid ask spread might be and you know.
How many sellers nor now versus slate was maybe pre COVID-19.
Hi, and thanks for the comments and thanks for the question look I think it's fair to say that at the moment as you know that seems to be a lot of activity in out of home, there's a number of other.
Private equity institutions.
<unk> assets are in out of home right now I think that is driving.
Driving some sellers to to come forward. So there's.
A competitor acknowledged in a reasonable pipeline when.
When they come into just yesterday, we have a good a good pipeline and yeah, what what we feel good right now but.
13, or 1400, so I don't think the the few that we're not going to install this year going to materially impact the revenue and the longer term it should it won't be missed.
Alright, perfect. Thank you very much good quarter again.
Thanks, Thank you.
And as a reminder to our audience you may ask a question by pressing star one.
Next we'll go to Ben Swinburne with Morgan Stanley. Please go ahead.
Thanks, Good afternoon.
I have two questions both on kind of margins Matt.
Looks like Billboard margins than it were a couple of hundred basis points higher this quarter than even the third quarter of 19.
You mentioned G.
Geographic mix I just was curious if there were any other drivers you'd highlight and whether you think the Billboard business as we look out over the next few years is any different than it was from a margin point of view once everything sort of recovers. That's my first one and then I wanted to ask about transit.
Great question and I appreciate you noticing.
We really look over a couple year comparison from 2019 to 21, the digitization that we've been doing over the couple of years has an impact do you see.
Almost every market.
A higher percentage of digital inventory and digital revenue.
He is helping margins.
On the mix issue.
This isn't the plan, but the.
The weight of <unk>.
New York non OE very high growth.
Has helped margin overall as well so we think our.
Portfolio and in operating businesses, all working in our favor.
Okay. So it sounds like with digital growing that there might be margin growth in Billboard kind of all else equal over time, I don't want to put words in your mouth, but yes, yes, we think we think directionally Billboard margin.
Is moving higher.
Both the leverage of the bid and the operating leverage of the business and the Digitization.
This is.
One of the one of the beauties of the digital inventory.
Increased revenue higher than we increased cost.
Eventually you see the difference in the numbers.
Yeah.
Thank you and that concludes today's question and answer session. At this time I'll turn the conference back to Jeremy male for any additional or closing remarks.
Thanks, operator, and thanks to everyone for attending to.
Attending this call.
Look forward to speaking to you next quarter about the further positive developments in our business and in the meantime, I'm speaking with many of you at investor events in the coming weeks, thanks, very much and have a good day.
And this concludes today's call. Thank you all for your participation you may now disconnect.
Okay.
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