Greg Lundberg – Investor Relations Jeremy Male – Chairman and Chief Executive Officer Donald Shassian – Executive Vice President and Chief Financial Officer.

Marci Ryvicker – Wells Fargo Jason Bazinet – Citi Julia Yue – JPMorgan David Miller – Loop Capital Markets Jim Goss – Barrington Research.

Good day, and welcome to the Outfront Media Second Quarter 2017 Earnings Conference Call. At this time, I would like to turn the conference over to Greg Lundberg. Please go ahead, sir..

Good afternoon, everybody. Thanks, for joining our 2017 second quarter earnings call. On the call today are Jeremy Male, Chairman and Chief Executive Officer; and Donald Shassian, Executive Vice President and Chief Financial Officer. After a discussion of our financial results, we’ll open up the lines for a question-and-answer session.

You can find the slide presentation for today’s call and the earnings release on the Investor Relations page of our website. And after the call has concluded, we’ll put an audio archive on the website 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 in our earnings materials, in our SEC filings, including our 2016 Form 10-K. We’ll also refer to certain non-GAAP financial measures on this call.

Any references to OIBDA made today will be on an adjusted basis, and reconciliations of OIBDA and other non-GAAP financial measures are in the appendix of the slide presentation, the earnings release and on our website, outfrontmedia.com. And with that, I’ll now turn the call over to Jeremy..

Thank you, Greg, and good afternoon, everyone. So we grew organic revenues 2.9% in the second quarter, in line with the guidance we gave you back in May. Transit revenues were the key driver, particularly with the addition of our Boston franchise and billboard revenues returned to slightly positive growth.

We also saw a growth in our Canadian and Sports Marketing segments. Looking more closely at the advertising mix in the U.S. Media segment, revenue improvement was led by solid local growth across both our billboard and transit displays, and overall local revenue accounted for about 58% of revenues during the quarter.

Our local sales force did a great job of bringing in new business across, substantially, all of our key markets. National revenues in U.S. Media were still down year-over-year, but the decline was about half the rate of the first quarter. So things did improve somewhat. I’ll get into more detail regarding national later on this call.

Improving our billboard revenues, particularly through more national advertising, is important to driving meaningful increases in OIBDA, which was down very slightly this quarter. In the meantime, we’re working hard on our cost base holding our controllable expenses flat, overall, while investing for future growth.

Let me now hand over the call to Don to give you a more detailed review of our financial results..

Good afternoon, everyone, and thank you for being on our call today. Please turn to Slide 6, which shows a high-level summary of the year-over-year performance of some of our key financial metrics. The analysis of the three-month period, please note that we lapped the divesture of Latin America on April 1 last year.

But a small portion is still on our year-to-date results. Financials for LatAm are provided in the back of the earnings release. Reported revenues for the quarter were up 2.8% and organic revenues were up 2.9%.

Adjusted OIBDA was down just under 1%, a significant improvement from last quarter, but it still reflects a higher mix of transit, relative to billboard that we’ve been experiencing recently. Despite the slight drop in OIBDA, AFFO was down 10% in the quarter due to higher maintenance CapEx and higher cash taxes.

Please turn now to Slide 7 for a discussion of our revenues during the quarter. We grew revenues across both Billboard and Transit & Other in both the U.S. Media and Other. As you see in the chart here, and as I just mentioned, Transit & Other was the largest contributor to our reported 2.8% year-over-year growth this quarter. U.S.

Media increased 3% on both a reported and organic basis. Billboard organic revenues were up 0.2%. This was driven by strong local results, offset by a decline in national, which was, nevertheless, an improved loss rate from the prior quarter. Both static and digital same board yields were down, slightly, at under 1%.

Higher rates were offset by lower occupancy. Digital revenue was up high single digits and is over 15% of our U.S. Media billboard revenue. U.S. Transit & Other was up 10.3%, organically, during the quarter. In the second quarter, this was principally driven by the MBTA in Boston. As I mentioned, earlier, local was also very strong in our U.S.

transit business. In Other, organic revenues rose 1.4%, driven by growth in our Sports Marketing operating segment, while organic revenues in Canada were up slightly. Our Canadian acquisition only closed on June 14.

We are already seeing good traction in the third quarter as the new digital billboards, combined with our legacy static and digital displays, has doubled our daily audience impressions in the market and gives us a leading platform for brands in the top markets in Canada. Please turn to Slide 8 for an overview of expenses this quarter.

This is a somewhat different presentation that we’ve used in the past, as it more clearly presents to you the main changes on a segment basis and isolates the true drivers for change for the quarter year-to-date. Our reported expenses excluding stock-based compensation were up 4.5% year-over-year in the quarter and up 0.4% for the six months.

When you isolate the changes, however, you can see that our controllable U.S. expenses were flattish. There are three items that I need to point out in order for you to understand that. One, the U.S.

Media segment includes the MBTA in Boston, which added franchise fees and expenses; two, the Other segment reflects higher expenses related to the recent renewals of several Sports Marketing contracts; and third, Latin America was divested on April 1 of last year.

So as you can see at the bottom of the two charts on Page 8, on a more comparable basis, our expenses were closer to flat for the quarter and were down slightly year-to-date. While we cannot control an expense like transit franchise fees, which are a fixed percentage and go up when our revenues goes up, we can, however, control other fixed costs.

In the detailed expense breakdown provided in our earnings release, for example, you can see that U.S. Media SG&A was down 4% this quarter. I can also tell you that our entire posting maintenance and other expense line was flat year-over-year, excluding the renewed Sports Marketing fees that are booked in this line item.

Though an additional wage costs, we’re becoming more efficient in our operations and this includes some of the strategic cost reductions we identified and targeted for this year. As we look to the remainder of 2017, we are keeping a very close eye on the cost base to decrease spending where we can.

As we mentioned on the last earnings call, it is our goal to keep these controllable expenses flat for 2017 as we are demonstrating through June.

On Slide 9, you can see that our 4.5% higher expenses combined with 2.8% higher revenue led to a slight decline in adjusted OIBDA, which was a significant improvement from the 9% decline in the first quarter of the year. Turning to Slide 10. Capital expenditures were $25.6 million during the quarter or 6.5% of total revenues.

Growth spending was 4.6% of total revenues, and maintenance was 1.9%. These are higher levels than we’ve seen historically, both in dollars and as a percentage of revenue. Maintenance primarily reflects safety a new vehicle spending that we needed to get done this quarter.

Growth reflects increased spending on our digital initiatives, including the building and deployment of additional ON Smart transit displays as well as the building or conversion of 19 digital boards in the U.S. and seven in Canada, more than twice the level in total than we did in Q2 2016.

As you heard me say a moment ago, digital is an important growth driver of our business and this continued investment fuels that growth. For 2017, our guidance for capital expenditures is increased slightly by $5 million to reflect incremental digital growth opportunities.

Therefore, our guidance is a range of $70 million to $75 million, including approximately $25 million of maintenance CapEx. As we have done in previous years, we’ll update you on our CapEx spending as we move throughout the year. Please turn now to Slide 11 for a look at AFFO.

For the quarter, AFFO was down 10.2%, primarily as a result of higher cash taxes and higher maintenance CapEx. The change in taxes reflects a benefit we had last year from CBS Corp. related to the split-off and the higher maintenance CapEx, I just discussed. For the six-month ended June 30, AFFO was down 12% from last year.

On a trailing 12-month basis, AFFO is essentially, flat. We reaffirm our guidance from our last earnings call that AFFO is likely to be down, slightly, for the full year. Slide 12 shows a 12-month trailing AFFO of $278 million and a dividend payout ratio of 70%, relative to the 67% we were at in Q1 of 2017.

The increase is primarily due to higher maintenance CapEx and higher taxes. A payout ratio of around 70% is still right within the zone we established when we went public and set our original dividend level. Our 12-month trailing free cash flow, however, was $190 million and our dividend payout ratio on this metric was 102%.

I’d like to spend a moment explaining this calculation and metric. The lower free cash flow number on a 12-month trailing basis is due to $10.1 million in higher CapEx and several abnormalities on our working capital this year.

In particular, there was $29 million of working capital use on a trailing 12-month basis that when normalized would result in a much lower payout ratio of 89%. First, there was a $9 million use that comes from the new Boston MBTA contract and a delay in receipts caused by systems issues within a large national advertising agency.

Secondly, and more importantly, our MTA contract extensions in 2017 have a very different payment structure than in the past. In 2016, we made six monthly payments with an annual revenue share true-up in the following year. In 2017, the extensions are structured to pay the actual revenue share amounts currently with no true-ups the following year.

As a result, in 2017, we not only paid the 2016 revenue share true-up but we’re also paying the higher revenue share currently. So this is not an indication of any increased cash use as much is it is a onetime change in timing.

These working capital matters have colored the cash flow generation calculation this year and are not an indication of the true cash flow of this business on a recurring basis. All of these working capital items will reverse themselves in 2018. Slide 13 shows the highlights of our balance sheet.

As of the end of the quarter, our liquidity position was $466.6 million, including $23.1 million of cash, $343.5 million of availability on our revolving credit facility and $100 million of availability under a new three-year accounts receivable securitization facility entered into on June 30.

The interest rate on that accounts receivable facility is favorable to the revolving credit facility by over 100 basis points. You can see that at the end of the quarter, we had $85 million drawn on the revolver. $50 million of that was used to pay the cash portion of our Canadian acquisition in mid-June.

In July, subsequent to the quarter, we used the new accounts receivable facility to replace the drawn funds of the revolver. Due to the decline in OIBDA, and a slight increase in net debt, our net leverage ratio has increased slightly to 4.9 times.

We remain focused on our goal to reduce this to our longstanding target of 3.5 times to 4 times, which we’ll achieve through growth in OIBDA and further debt paydown. Let me now turn this back to Jeremy..

Thanks very much, Don. I’m now on Slide 15. So looking forward, let me give you some color on our third quarter. We expect revenue growth to be in the low single-digit range with good local growth partially offset by some continued softness in national and with transit, once again, outperforming billboard.

As usual, this outlook only represents our view at this moment in time and it’s on a constant dollars basis. Two, referring back to national and to put some context on the trends we’re seeing from advertisers. The three advertising categories with the strongest U.S.

growth in dollar terms for us in the second quarter across both billboard and transit were one, technology; number two, health and pharma; number three, food and beverage. Looking at technology. Technology advertising was up over 25% for us year-over-year.

Some of the big names in this group brands like Amazon, Apple, Google, Netflix, Snapchat and Facebook, collectively increased their spending with us, significantly. This is an example of an increasingly important category for us. Looking back, it was just 1% of revenues in 2007 and it’s grown steadily to 5% of revenue as of the second quarter.

Our bottom three categories during the quarter were Telecom, automotive and then thirdly, travel and leisure. As we’ve said many times before, we think it is more helpful to look at category changes over time. One of the strengths of our business is the breadth of our customer base and the consistency of our main categories over long periods of time.

In the second quarter, our good growth from technology and other advertising categories was offset somewhat by this decline in telecom. But, as you’re aware, telecom has not been favorable for the last few quarters, but it has been a consistent 5% to 6% of our total revenues for the past few years.

It’s worth noting that automotive is one of a handful of our larger categories and it has also been around 5% to 6% of total U.S. revenues for many years. Auto remained a headwind during the second quarter although improved slightly from the first quarter.

It’s a little bit too early right now to make a comment on the back half of this year and particularly, with industry data out this week that paints a picture of a somewhat challenging summer for the auto manufacturers. Let’s step away from categories now and look at the entire industry. Second quarter data isn’t in yet for the industry.

But during the first quarter, according to Kantar, out-of-home slightly grew its share of U.S. Media spending across the top 100 U.S. advertisers. Together, the top 100 allocated 1.5% of their budgets to our medium.

This is still a very low level both in relation to the 4.2% that’s allocated by all advertisers according to MAGNA Global and by any sort of international comparison. We believe that this represents a big opportunity for us in the future.

Data insights and new audience metrics will give brands better analytics across all of our billboards, transit systems and new digital displays. And we believe that this will be one of the pieces that will begin to move the needle in media allocation toward our assets. So overall, our business is in good shape.

Solid growth in local revenues, good cost control, and our continued investment in our strategic initiatives and digital platforms, make us well poised for enhanced revenue growth and value creation. In closing, before I turn the call over to questions, I’d like to update you on the New York City transit renewal.

Based on public comments, the MTA expects to make an announcement regarding the outcome of the bid process at its September 25 board meeting. So the key takeaway is that the process is very active and now appears to be nearing a conclusion. So with that operator, let’s open the line for questions..

Absolutely. [Operator Instructions] And we’ll go to our first caller. Her name is Marsha – sorry....

Operator, could you open the line for questions?.

Yes sir. I’m sorry.

Are you not hearing me? Hello? Gentlemen, are you hearing me now?.

Yes, we are hearing you now..

Okay. I apologize for that. [Operator Instructions] And we’ll take our first question from Marci Ryvicker with Wells Fargo..

It sounds like billboard is heading in the right direction..

Marci, please go ahead..

Can you not hear me?.

Marci, is your mute function maybe on?.

No, it’s not on..

Okay. There we are. We are hearing you now..

Okay. Billboard seems to be heading back in the right direction. Local’s up nicely. But is it too early to call an uptick in national for the second half? It feels that way because it’s still down but you gave us color on how it went down, half as much as in Q2 versus Q1.

Is there any more color you can give us on Q3 and maybe Q4 for national?.

Thanks very much, Marci. Yes. Billboard is certainly heading back in the right direction. We’d still like, obviously, to get some stronger growth in our billboard business. But very pleased to see local doing well. I’m pleased, certainly, that the headwind in national decreased considerably in Q2.

Worth remembering that our national business lays down later than our local business on average. But right now, it appears that Q3 will see also a bit of an uptick versus Q2. Frankly, Q4 is a little bit far out, Marci, for us – to want to give any more specific guidance on.

But as I say, Q3 at this stage in time, it looks as though the positive trend is increasing. But it will still, overall, we still think it could be a mild headwind and it certainly couldn’t be described as a Snapchat – as a snapback. So positive but no snapback..

Okay. And then, Don, you gave a data point that yield on both the digital and the analog boards is down, I think, about one point.

Can you talk about how that’s been trending? Has that been stable or getting better or getting worse?.

I think it’s getting better. What’s really – the good aspect of this is that our sales people have been holding rate and increasing rate across the board in both static and on digital. And for us it’s primarily been an occupancy issue which really comes from the national aspect of this. So I think it’s been holding well.

And I’m very pleased that our people have been holding our rate. Because, obviously, if you start playing with rate, trying to get that back in the future is very, very difficult..

Okay.

And then my last question is it signals to me that when you increase your maintenance CapEx, you obviously, have a comfort in the business that you are not going backwards? Is that the right signal to take?.

Well, number one, we do have comfort in the business. Very good comfort. And maintenance was up in first and second quarter, primarily because I wanted to get some things done, some things that we were deferring for a couple of months that we wanted to get done, I wanted to get vehicles done and some safety issues done.

And I think that the total maintenance CapEx for the year will still be $20 million to $25 million. We feel very comfortable about where we’re going.

The increase in the growth CapEx of the $5 million, which maybe you’re also referring to, we’re seeing a lot of digital growth opportunities and we feel very good about those opportunities and the returns we’re getting in those.

So the increase in our total CapEx of the $5 million, yes, that is a very strong indication from our standpoint of the growth in business, the returns we see in the business and the outlook for the future. Yes..

Great. Thank you very much..

Thank you..

And we’ll go ahead and take our next question from Jason Bazinet with Citi..

I just had a quick question on your leverage. I think it was a couple of years ago when you closed Van Wagner, you went a little bit above your target leverage and you said we plan to get back within this 3.5 times to 4 times in a couple of years. And the leverage is sort of in this elevated mid to high 4s.

My question is, what – if you had to simplify, what has sort of deviated from your internal plan over the last couple of years that has not allowed the leverage to come down? And if we end up hitting a soft spot in the economy, what sort of levers do you have to help you sort of delever? Because it seems like you guys are doing a really good job controlling expenses, which is great and you have a very benign maturity schedule, which is great.

But what other levers are out there, if we do hit a soft patch?.

I guess there’s a couple of things. If we look back over the last couple of years, we – the growth that we have achieved has been principally oriented towards our transit business where we get a lot of flow through. So looking back to couple of years ago, I would say that’s the main difference from when we made those original comments.

I guess the other point also is that, that would have just mechanically driven OIBDA and OIBDA would have therefore have been much closer to that range. But as we look forward, I mean, we still – we very much believe that we will be able to get that billboard business moving again.

I think it’s fair to say that most of the industry has had some – and I’m not just talk about out-of-home but media in general has had seen some sort of national headwind this year that was possibly not anticipated. But if we did hit that soft patch, I think one of the key points is that actually – the vast, vast majority of our CapEx.

So this year if we think maintenance is $20 million $25 million and the balance sort of 50-ish million, it’s all discretionary. It’s all investing for the future. And we can effectively turn that tap on and off at our discretion. So that’s something I would point to, Jason, if we did hit that soft patch..

Okay. That’s very helpful. Thank you..

Thank you..

And we’ll go ahead and take our next question from Alexia Quadrani with JPMorgan..

Hi, thank you. This is Julia Yue on for Alexia. I just wanted to follow up on the increase in the CapEx guide. I think you mentioned this primarily for new digital growth opportunities.

Could you elaborate a bit on where that investment is going? What you see the biggest opportunities are? And when you expect to see more notable benefits from these investments?.

The increase in the growth in digital, when we say growth in spending in digital for us, it’s both a building new digital billboards, it’s converting static to digital billboards. And it is all also investing in and deploying these new ON Smart digital displays.

So we have a plethora of a pipeline of opportunities both on billboard and on these digital displays and as we continue to deploy digital displays and we continue to be – perfect the installations, get really good results on what’s being deployed, we’re just starting to see more opportunities of other places around the country for deployment of those.

And what we see in the pipeline, it seemed it was appropriate now to start raising the CapEx for what we think is coming down the pipe. Then the other aspect, Julia, if I may. Also we had some opportunities in Canada that have also presented themselves. So not just U.S., it’s also in Canada. There are some very interesting digital opportunities there..

Got it. And with the – you mentioned more digital conversion this quarter compared to last year. But I think the yields were down a little bit.

What do you think right now the appropriate longer-term annual conversion rate is?.

I would still say we’re ballpark a 100. We really want to get it higher than that. But what we see in the pipeline right now, on billboard, I still think it’s ballpark for a 100..

Okay, great. Thank you very much..

And we’ll take our next question from David Miller with Loop Capital Markets..

Yes. Hey.

Can you guys here me?.

Yes, sir..

Okay. Great, great. So, Don, it sounds to me and this is just following up on the first question. I’m just going to kind of ask it in a different way, if you don’t mind. It sounds to me like if you had to couch it from 90 days ago, you issue your AFFO guidance as being down for 2017 versus 2016 due to weakness in the national book.

It sounds like now 90 days later, things have changed radically for the better and you’re keeping your guidance, but it is mostly due to the increase in the maintenance CapEx.

Would that be a fair way to couch it?.

Let me just take the first part of that question, David. When we made the adjustment to our guidance on the first quarter results, we said that AFFO would be slightly down for the year. And even at that stage, we were actually forecasting an improvement. We were saying that we seeing signs of improvement in national advertising.

And going back to the – my comments right at the outset from the first question from Marci, this isn’t a snapback. What this is, is an improvement from the position from the first quarter. And when we look at maintenance CapEx, I mean maintenance CapEx was little bit higher in the second quarter than it was in the same period last year.

But there’s not likely to be any appreciable change year-on-year in our maintenance CapEx in total..

So our guidance AFFO is the same as we gave last quarter, slightly down and it’s really based on the same fact pattern we saw then. Maintenance CapEx for this year is going to even itself out, and not be an issue. Cash taxes are going to even themselves out not be an issue but they were an issue for this quarter.

The slightly down is really due to national that we’ve seen in the first couple of quarters. So it’s really – it’s no change from what we said three months ago..

Okay. Perfect. Thank you very much..

Thank you..

[Operator Instructions] And we’ll go to our next question from Jim Goss with Barrington Research..

Thanks.

I was wondering how big the perceived national headwind is, sort of as a general rule, not just for you, that you think you’re trying to buck?.

Well, when we look into our numbers, as we said right at the start, we we’re down in the sort of single digits in the first quarter. It’s still single digits, but it was around half that in the second quarter, and we’re seeing an improving trend in Q3. But that’s how I describe it.

And we’ve seen some positive local momentum, which has been good local revenues. It was actually – if we look at the 58% of total revenues in the quarter, which was stand out. So that gives a little bit more color, Jim..

Okay. And you know, to the extent that you’d like to improve your valuation and reduce your leverage, it would seem like an improvement in AFFO and OIBDA is what you need to target. I was wondering if there are specific strategies that you are trying to employ to regain the momentum that will enable that to happen..

Our strategies, in honestly, Jim, are the same that we’ve been pursuing for number of years here.

We’re focusing on the yield of our boards, trying to maximize yield as much as we can, trying to convert static to digital, build digital, control our expenses, selective M&A, and really building out these new strategic initiatives for digital screens and transits and be able to sell to an audience.

So that we rally can maximize the whole yield aspect for our business. And all those we’re working on the national aspect that’s happened just recently is sort of something we’ve got to work through, and we continue to do that. Transit has been doing very, very well.

But we’ve got to get national moving because it really helps billboard and helps the operating leverage. And it’s the same strategies and implementation we’ve been focusing on..

Okay. And the last thing I’d ask about is, you mentioned technology as a small, but emerging category for your boards. I think that’s really interesting. The newest looks at some of the oldest media.

And I’m wondering what type of displays and locations they’ve been focusing on? And how they’re explaining the appeal of using out-of-home advertising to promote technology type businesses?.

Jim, when you look outside the technology piece, frankly, it’s right across the board. Our billboard business is benefiting from that technology piece as is our transit.

Now the assets that we’re selling are as varied from a wrapped train on the New York subway to a Times Square location to Snapchat or to, in the case of Apple, where they are buying holdings from us across all of our key markets, the best locations in all of our key markets.

What is absolutely apparent is that our medium continues to build and support brands. And it’s fascinating that if you like those new technology brands are completely aware of that. We can make and keep brands famous. And that’s why they’re coming to us..

Okay. That’s got to the best advertising for your business of all, I would think but anyway….

Yes, absolutely. It’s certainly very, very positive that I talked about that 1.5% that the top 100 advertisers are spending in out-of-home, Jim. And when you drill into it and you look and you realize that Apple is spending in excess of 10% of their – budget in out-of-home and then Netflix, it’s in excess of 10%.

It’s really a very, very powerful statement for our medium..

I’d agree. Thanks very much..

Thank you, Jim..

Thank you, Jim..

And it appears, we have no further questions in the phone at this time. So I’d like to turn it back over to our hosts for any additional or closing remarks..

Thank you, operator and thanks to you all for your questions and time today. Enjoy the rest of the summer. And we look forward to seeing many of you at Investor events over the next few weeks. Thank you..

Ladies and gentlemen, that does conclude today’s conference. We’d like to thank you all for your participation. You may now disconnect..