Gregory Lundberg – SVP, IR Jeremy Male – CEO Donald Shassian – CFO.

Marci Ryvicker – Wells Fargo Securities Tracy Young – Evercore Partners Davis Hebert – Wells Fargo Securities.

Good day and welcome to today's CBS Outdoor Americas' Third Quarter 2014 Earnings Release Teleconference. At this time, it's my pleasure to turn the conference over to your for today's call, Gregory Lundberg. Please go ahead..

Good afternoon everyone. Thanks for joining our 2014 third quarter call. On the call today are Jeremy Male, Chairman and Chief Executive Offier, and Donald Shassian, Executive Vice President and Chief Financial Officer. After the prepared remarks, we'll open up the lines for a question-and-answer session.

A slide presentation to accompany today's call can be found in the Investor Relations section of our website at CBSOutdoor.com, along with the earnings release and an audio webcast of this call.

This conference call may include forward-looking statements and relevant factors that could cause actual results to differ materially from those forward-looking statements that are listed in our earnings release in Slide Number 2 of the presentation and in our SEC filings. In addition, on this call we'll refer to certain non-GAAP financial measures.

Please refer to the appendix of the slide presentation, our earnings release and our Van Wagner acquisition slide presentation for the reconciliations of non-GAAP measures to GAAP financial measures, each of which can also be found in the Investor Relations section of our website at CBSOutdoor.com.

These documents provide reconciliations of results on a comparative basis which we believe present a more meaningful view of our business performance and progress by making certain adjustments to our reported results. And with that, I will now turn the call over to Jeremy..

Thanks, Greg. And good afternoon everyone. Let's begin on Slide 4 of the presentation, which are the key highlights of the third quarter. Back on September 10, we announced weakness in national advertising unfolding for the third quarter and that our total revenue for expectation was close to flat.

As you can see here, that's exactly what we experienced. Once again we saw a positive performance in our local business, but national was down year over year. On the positive side, we're pleased to report that our international business added two points of revenue growth this quarter.

Now we're obviously not satisfied with this level of revenue growth, especially with our relatively high fixed cost structure. As we said before, with natural cost increases, we need to see revenue growth of around 1.5% to 2% to maintain our OIBDA.

As such, this quarter's revenue growth translated into slightly weaker OIBDA and, accordingly, AFFO during the quarter. In the context of these results, I would like to take a minute on our view of conditions in the advertising market.

When we look at the source of all of our revenues, our advertising clients, there's a significant stability on an annual basis, but there can be considerable variability quarter to quarter based on campaign timing.

As of the third quarter 2014, on a trailing 12-month basis, some of our better-performing large verticals in terms of overall revenue contribution were healthcare and pharmaceutical, professional services and television. Conversely, at the bottom of our results were telecom, beer and liquor, and financial services.

There's been a lot of discussion about whether results in the quarter, including ours that we're reporting to you today, are a result of a softer advertising climate or a major share shift to online. Let's address both of these.

On the ad market, there's definitely a disconnect between the recent economic news and what we're seeing companies spend on marketing and advertising. We know and can see that our clients are spending less. There is some third-party research published last week that looks at the quarterly financial reporting thus far of some top U.S. advertisers.

In the first three quarters of this year, the median growth rate of these advertisers was zero to 1%. Last year it was 6% to 9%. Data like this supports what we've been seeing over the last few months. This is also reflected in the spend of the major U.S. telecom carriers, an important advertising category for out-of-home.

According to Kantar, the year-to-date spending through August is down 5.2% from last year. Interestingly, they've actually cut their online allocation by around 5 percentage points. So it's not all about a secular shift to online.

Later on this call I'm going to discuss some of our strategies for growth, both for our company and indeed for our industry. It's a very exciting time to be leading this change. Looking ahead, I can say that we really are at a brand-new point of the company, literally. We launched our new brand Outfront Media into the marketplace on October 20th.

I'll talk to you more about that a little bit later on the call. Our past year has been dominated by corporate transformation, and I'm pleased to report that we've come a long way. The initial debt offering, IPO, split-off, reconversion, Van Wagner acquisition and the launch of our new brand.

We now have the ability to focus virtually all of our efforts on extending our leadership position in the out-of-home media market. We have the best assets, the best audiences, and the best people. And we're going to use them and invest in them to improve results for our clients and our shareholders.

So before I come back on, I'd like to turn this call over to Don who will now take you through our third quarter financials..

the impact of our non-cash deferred tax reversal, the impact of incremental standalone costs for both years, the impact of interest expense related to our January 2014 debt offerings, the impact of taxes that we would not have incurred if we had been operating as a REIT for all periods presented, the impact of Van Wagner acquisition costs in the quarter, and restructuring charges related to severance.

When adjusting for these items, REIT comparable FFO was down 7.5% compared to last year's third quarter and REIT comparable AFFO was down 9.7% for the same period. Unlike FFO, AFFO captures our maintenance capital spending and in this is very similar to the free cash flow metric you may use to look at other media companies.

With the flow-through of OIBDA to AFFO, we expect improvement in AFFO per share as our revenue initiatives drive top-line results. Slide 12 shows our historical dividend as well as our announcement last week regarding our recurring dividend and our special dividend, that represents our earnings and profits or E&P purging distribution.

Our recent announcement of a $44.4 million dividend payment for the fourth quarter, or $0.37 per share, is payable on December 15th to shareholders of record as of November 18. This dividend payment of $44.4 million when annualized for three quarters represents a payout ratio of 64% of our year-to-date REIT comparable AFFO.

This level does not yet include our expected top-up dividend for 2014 to be paid in early 2015.

The dividend dates I just mentioned are a bit different from our historical timing due to our announcement of a special dividend for the E&P purging distribution of $547.7 million which will be payable on December 31 to shareholders of record as of November 20.

Shareholders will have the option to elect all-cash or all-stock subject for pro-ration based on a cash limit, with approximately 80% of the dividend paid in stock and 20% paid in cash. The cash portion of the E&P purge is approximately $109.5 million.

CBS left us $100 million from the IPO to fund the cash purged, and the balance of $9.5 million will similarly be transferred to us from CBS prior to December 31 to fund the balance of the cash purge. One area I would like to point out to you is a more thorough explanation of the implication of the purge on our shares and dividend going forward.

The stock portion of the E&P purge will result in additional shares being distributed to our existing shareholders. This increase in shares outstanding on December 31 will not impact the absolute dollar amount of our dividends that are expected to be paid in 2015 and beyond.

However, due to more shares outstanding, the denominator, the number of shares, does change, as will therefore the per share amount. We intend to continue paying a healthy REIT dividend that can grow as our business grows, while also develeraging to our target of 3.5 to 4 times. You can see our balance sheet profile on Slide 13 as of September 30.

We are very comfortable with our balance sheet strength and liquidity, which enabled us to pursue and acquire the selected assets of Van Wagner. At quarter-end, the weighted average cost of debt was 4.2% and our consolidated total leverage ratio was 3.9 times. Including $172 million of cash on hand, the net leverage ratio was 3.5 times.

Our liquidity position was $597 million, including an undrawn $425 million revolving credit facility and $172 million of cash on hand. You also see on this slide the additional $100 million in cash from the net IPO proceeds which will be used for the cash portion of the E&P purge.

I would also like to point out that, subsequent to quarter-end, we completed the financing for and closed our acquisition of selected assets from Van Wagner on October 1. This added $150 million to the 5-1/4 notes due 2022 and $450 million of new 5-7/8 notes due 2025.

Our pro forma gross leverage for the Van Wagner when we announced the transaction back in July was 4.9 times based on the combined pro forma adjust OIBDA as of December 31, 2013 on an LTM basis.

As we indicated at that announcement, given OIBDA increases and also due to the $40 million of lower indebtedness than originally contemplated, our leverage including the acquisition will be lower than this original 4.9 times estimate.

Our goal is to grow OIBDA, maintain a high dividend payment representing 100% of the QRS tax return taxable income, and use residual free cash flow to delever the balance sheet back down into the 3.5 to 4 times range. I'll now turn the call back over to Jeremy on Slide 15..

leadership and innovation. Our definition of Outfront is leading or ahead of the competition. It also means candid, frank and honest. This is where and what we want to be. And the word Media instead of outdoor is an intentional and conscious choice about the increasingly important and impact of out-of-home in the broader media ecosystem.

It's also a statement of where we're headed with technology, and I don't just mean continued investment in digital billboards. We're exploring and developing plans for new technology platforms to connect, transact and interact with our advertising clients and their consumers.

Another key element of our growth will be our people who have recently expanded with some great new talent and leadership for our Van Wagner acquisition. We're investing and training to raise the knowledge and effectiveness of our sales team in a competitive and increasingly digital marketplace.

An important aspect of this sales effort is elevating our national advertising strategy. While we've seen weakness in national advertising this year, we continue to believe that national advertising will be a key future source of growth for our industry.

The Van Wagner acquisition is certainly an important enhancement of our platform for national advertisers. It is a big step forward. We think there's increased value in the marketplace for these assets and we're going to be particularly focused on this at buyer, agency and CMO level.

We have an incredible premium suite of assets that can boost advertiser ROI, build brands and generate sales. And while we'll be focusing extensively on national, our local sales team will continue to excel in their local markets.

With good growth this year, local remains very solid and we continue to believe that there are opportunities for both increased yields on our static boards and additional digital conversions. As I mentioned in my opening comments, we're really at the starting point of our new company.

It's been a busy year and we've accomplished many things, not just the corporate activities I mentioned but also on the sales, operations and strategy side. We really are a new company. We're going to keep up this pace of activity to aggressively drive the industry forward.

We will be out front in technology, out front in thought leadership and out front in innovation for our clients. As many of you have probably seen, the new logo imprints are going up on the boards and the company is 100% focused presenting our clients with great solutions that will ultimately benefit them and indeed all of us on this call.

We're going to be out front on those [ph]. So with that, operator, let's open the lines for Q&A..

Thank you. [Operator Instructions] And we'll take our first question from Marci Ryvicker at Wells Fargo..

Thanks. I have a couple. I just want to clarify the flat to slightly down commentary.

Is that just a pacing data point or is that guidance for the fourth quarter?.

It's, you know, as we said on the call, given the free comments I made regarding it, it is a point in time and, at the moment, as we look forward, that is our expectation, Marci..

Okay.

And then do you have any political in the fourth quarter, or is that a non-event for you?.

To be honest, it's somewhat of a non-event for us in terms of any real ad dollars, Marci..

Okay. And then just looking at the quarter and backing out the $3.3 million negative impact from selling the transit shelters and then the non-profitable contract, organic growth was up 1.3%, better than flat.

You spoke a little bit on what you can do longer-term, but is there anything nearer-term that you can do to push this farther that 1.3%, is it closer to 2%?.

Well, look, we're working very hard, Marci. We're working -- we worked hard in Q3 and we're working very hard in Q4. We continue to look at yields and how we can push pricing on our boards.

It's fair to say that in our local markets, that we still see considerable opportunity there for more closely aligning revenues that we achieve on each board to audience [ph]. There's a lot of legacy pricing in some of these markets, and we think that with training and development, we'll be able to sort of -- we'll be able to push that forward.

And we, it's fair to say, we have had that general sort of more macro trend this year. Unfortunately, national advertising generally has not been as strong as we might have expected.

And as that disconnect between GDP growth and the general economy and ad dollars sort of rights itself as we go forward, I'd like to think that we can really be pushing those growth numbers up as we head into 2015..

Got it. Thank you..

And we'll go next to Tracy Young with Evercore..

Hi. I have a question just in terms of the FX for international, how much of that might have affected OIBDA.

And then in terms of your guidance, again, how much have you -- how much visibility do you feel like you have when you give the guidance? And Jeremy, you have been in the business for a while, how has visibility changed in the industry? Thanks..

Okay, I'll take the second part of that question and pass over to Don on the first part. I think it's fair to say that right the way across the media landscape, that the ad market has become shorter-term. Unless there is a requirement to lay down advertising dollars early, then in a way, why would advertisers make those commitments.

So I'd say as a general, and this is very much a worldwide comment, that actually outdoors dollars come in later than they did if you look back sort of four or five years. As we make our comments now, we're well-sold for the fourth quarter. We would have, you know, 90% of revenues already laid down at this point for the quarter.

But obviously there's still a way to go, and it's that -- that's why at this stage I'd certainly just make the comment that any expectation is at this point in time..

And your comment about international impact on OIBDA, it's about $2 million..

Okay, thank you..

[Operator Instructions] We'll go next to Davis Hebert at Wells Fargo Securities..

Good afternoon everyone. Thanks for taking the questions. When you provided your updated guidance in last -- or I think it was September on the flat year-over-year revenue trends, you also mentioned that Van Wagner was pacing positive for the second half. Just curious if that has changed for the acquired Van Wagner assets..

No. I mean obviously the comment, Davis, was for the second half, you mean, rather than make any comments for any particular quarter. And we haven't seen any particular change for Q4 than we saw in September 10th..

Okay. And it's been a month since you closed that acquisition. Just wonder if you can give us an update on your integration activities since that point..

Well, as you can imagine, we've been sort of working hard at it. Business came over to us on, you're right, right at the beginning of October. There have been some sort of usual little niggles and systems and software, et cetera.

But overall I think it's fair to say that we're very pleased with the integration, we're very pleased with the comments we're getting back from the marketplace. And we just feel great about it, to be honest..

And then to just add to that, all the systems integration is done. As you know, the closing of the transaction was moved up a little bit earlier than we originally anticipated. All of our people jumped through hoops to get a lot of activities done, so we could be operating out of the gate.

And there's a little bit of things to clean up in the first month, but it is complete. Integration is completed, from systems standpoint, and we're trying to get all the processes running really smooth and really go to market real hard. So it's done and it's now off the races and do the best things for our clients..

Okay, that's helpful.

And [Audio Gap] your static portfolio at all?.

Well, we've said the way, you know, our sort of rollout would be, of digital, would be measured. That's the term we've used. And we've consistently said that we believe that we build out [100-ish] boars per year smartly in areas where we believe that we can minimize any attrition on our static boards.

So when we're looking at making that digital investment, we will estimate revenues for the digital board. We will also take into account, dependent upon the individual circumstances and location of that board, any attrition.

Assuming we're then making the right returns, and we're looking to make returns, IRRs of around about sort of 20% on this new investment, assuming that in total we can make those IRRs, that's when we'll put the new board out..

And if I may add to that. When we look at stain board [Datac] yields Q3 of 2014 or Q3 of 2013, it essentially was flat. It was up a little bit in second quarter but essentially was flat in Q3. So we're really not seeing that. We're trying to be very judicious about our selection of where to do it.

So I think we're managing that quite well as maybe compared to what's happening with some other operators..

Okay, very helpful. Thank you. And last question for me.

Don, did you give any sort of estimate what the top-up dividends may look like? And then a follow-up to that would be, any sort of target for debt reduction in 2015?.

Davis, we have not given any guidance on that. I really would like to get through this first year and the tax return calculations and to be able to -- and once we have the year completed, we'll announce that.

Hopefully with running the business a little bit more and getting a little more comfortable with the process, maybe we'll give a little more guidance ahead of time. But right now we're not. I do believe a number of equity analysts have models out there and they've got estimates what the top-up is.

We do expect there will be top-up, but I think I'd like to finish out the year, how strong Q4 is, and then really go through the tax return mechanics enough to really come up with that firm number. Target on debt reduction, we have not. I want -- again, let me go through the year.

I think we will be able to give perspectives on that when we talk about yearend numbers and give a better perspective going forward for 2015..

Great. Thank you very much for the time..

And at this time we have no further questions in the question queue, so I'd like to turn the call back over to management for any additional or closing remarks..

Well, just to say, thank you, operator, and thank you all for your attendance on this call and for the questions today. We look forward to seeing many of you over the coming weeks. In December we have two investor conferences in New York, so I look forward to seeing you then. And thanks very much again to all..

This does conclude today's conference. Thank you for your participation..