Good day everyone, and welcome to the OUTFRONT Media Incorporated Third Quarter Earnings Conference Call. At this time, I would like to turn the call over to Greg Lundberg. Please go ahead sir..

Hi. Good afternoon everyone. Thanks for joining our 2019 third quarter earnings call. On the call today as usual 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'll 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 in the Investor Relations section of our website outfrontmedia.com. After today's call is concluded an audio archive will be there as well. This conference call may include forward-looking statements.

Relevant factors that could cause actual results to differ materially from these forward-looking statements are listed in our earnings materials and in our SEC filings including our 2018 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 or any appendix of the slide presentation, the earnings release and also on the website. And with that, I will turn the call over to Jeremy..

Thank you, Greg, and thank you again for joining us today to review our third quarter results and guidance for the fourth quarter. Please turn to highlights on slide three. Total revenues increased over 11% in the quarter, which was our fourth straight quarter with double-digit growth. In U.S.

Media we saw this double-digit performance in both local and national. We were delighted to see these twin sources of demand drive continued strong growth in both billboard and transit. This topline strength helps drive OIBDA up over 8% and AFFO up 7%.

So over, a very good quarter and as I'll talk about later, we expect 2019 to be a double-digit revenue growth year. And noteworthy performance is being digitization, sales execution and certainly the growing importance of out-of-home in advertisers’ media mix. Let's now turn to slide four to get into more color on our revenue growth.

As you'd expect the vast majority of our overall growth came from U.S. Media which was up 11%, other revenues were up 15% on a reported basis, a point higher when removing the effects of foreign exchange. Let's look at each of these components in more detail, beginning first with U.S. Media on slide five.

Transit and billboard contributed equally to our growth in the quarter. In billboard, revenues grew 8% on both reported and organic basis. This is on top of the 6% in the third quarter of last year. Billboard saw a strong contribution from digital, and we're encouraged to also see static billboards performing well.

Transit revenues were up 20% led by digital both in terms of data and percentage growth. While the majority of this growth was from New York City, we had great performances in all of our key transit markets. Slide six is our U.S. Media growth has derived from local and national advertising, which were 54% to 46% of total revenues respectively.

Once again, our local revenues were very strong, up 12% and national revenue continues to trend extremely well, up 10% in the quarter. Slide seven shows U.S. yield was up 9%. Three things are driving this; first, we're getting a lift on static billboard yields, which are 80% of total billboard revenue.

We're also our digital yields and converting more billboard inventory to digital. Now please turn to slide eight for look at our other segment which was just under 9% to total revenues in the quarter.

After a very strong 12 months this quarter the classical board performance you can see in Canada was due to the exceptional contribution of cannabis in the second half of last year. The balance of the segment saw revenues up $5 million or 46% primarily from third party digital screen sales which carried no margin.

We'd like to call out that they contributed about a point of total revenue growth in the quarter. Slide nine shows one of our more exciting revenue drivers. Total digital revenue growth was 28% in the third quarter with billboard up 15% and transit up 77%.

Rising yield is driving this as we've talked about a moment ago, as it is our expanding inventory for both digital billboard and digital transit displays. Digital has been consistently increasing as a percentage of revenues each quarter at approximately two to three points year-over-year. MAGNA Global estimates that digital contributed 23% of U.S.

revenues in 2018 and expect this to grow to 49% by 2023, implying that we've got a great future runway. So I think it look great. It was another terrific performance for our business. We had strong growth in digital, static, billboard, transit, national and local.

I'll now hand over the call to Matt for a closer at expenses, cash flows and the balance sheet..

Thanks, Jeremy, and good afternoon. On slide 10, you can see our five major expense categories have the same scale. In billboard lease expense, the largest category, we saw around a point of efficiency as a percentage of total revenues. Although the dollar level of expense did increase due to their geographic mix.

Transit franchise grew in line with revenue as one would expect and also now includes BART in San Francisco, which we didn't own in the third quarter of last year and which we've been growing nicely. Combined billboard lease and transit franchise expenses were fairly stable year-over-year at 37% or 38% of revenue.

These two categories combined have been 39% of revenue on average since our IPO. So we are comfortable with this stability and predictability and our recent performance. Moving down the income statement, posting and maintenance expense were up broadly in line with revenues as expected.

Plus this quarter included approximately $5 million of MTA equipment sales as Jeremy mentioned. SG&A levels were flat as percentage of revenue while expenses reflected and supported our sale success and also our continued investment into our business primarily around digital enablement. And lastly, as in previous quarters corporate was flat overall.

Some of these expenses is on slide 11 and in total they increased around 1% of revenues. We like the operational investments they were making because it helps drive the strong 8.5% OIBDA growth you see on slide 12. This lift was driven overall by revenues offset by the changes I'd just mentioned.

We remain focused on continuing to manage our billboard lease portfolio efficiently and reducing other operating and SG&A expenses where possible without impacting our current and future growth rates. Slide 13 is a view of our total OIBDA growth by components. Overall U.S.

billboard grew 5% with a 41% OIBDA margin and represented 86% of our total company OIBDA during the quarter. U.S. transit is a lowest structural margin at 21% and posted very strong growth of 24% contributing roughly the same amounts of OIBDA growth in dollars as billboard.

Turning to slide 14, our capital expenditures as a percent of revenues increased year-over-year as we accelerated our growth projects and as maintain spending moved back in line with historical norms. Year to-date, this puts at $65 million in CapEx. We expect to finish the year around our prior annual guidance of approximately $80 million.

Our growth CapEx reflected the further digitization of various transit system and 29 digital billboard conversions. Year to-date we have built or converted 77and including third-party market agreements and acquisitions our total digital billboard have increased by 144. Moving on AFFO, slide 15 shows a year-over-year bridge.

The 7% growth in AFFO was driven by the growth in OIBDA partially offset by change other items. Back in February of this year our regional annual guidance AFFO was mid single-digit growth which we raise and made a high single digit and then again, August to reach double digit. We are pleased to reaffirm this view.

Slide 16 shows dividend coverage for both AFFO and adjusted free cash flow. On an LTM basis we saw a continue improvements in our AFFO, dividend payout ratio of 63%. The adjusted free cash flow payout ratio was down significantly to 86%. Now, let's turn to our balance sheet on slide 17.

Both of these charts look a bit different than last quarter since we had issued $650 million of new 5% notes in June but had not yet taken out $550 million of our five in a quarters.

As of September, the cash portion of our liquidity was reduced but our liquidity remain strong at $276 million, our maturities schedule shifted nicely to the right with %550 million previously due in 2021 gone, replaced by the $650 due in 2027. We now have no significant maturities until 2024.

Our leverage at September 30th was unchanged from June 30, at 4.6 times and is down from five times at the end of third quarter last year. An additional source of liquidity is our At-The-Market or ATM equity program. During the quarter we did not use any of the ATM, and we still had over $230 million of remaining capacity..

We also began installing on the commuter rail platforms. Our total deployment as of September 30 approaching 3,700 displays and more than half of these now carry advertising which will increase as a proposition over time to our stated goal of 85% of total screens. Our total MTA project cost reported was $30 million or $101 million year to-date.

We still expect our 2019 annual deployment cost will be closer to $150 million with an increase spend in the fourth quarter as we build inventory ahead of 2020 deployment including the commencements of in-car displayed later in the year.

As of September, our cumulative project costs were $198 million, and our cumulative recoupment of these costs was $21 million. In closing, our revenues are performing well and we continue to invest in our business both in terms of people and products.

We're still delivering healthy cash flow growth keeping our leverage in a stable place and delivering an attractive dividend. Let me now turn the call back over to Jeremy..

Thanks Matt. And moving on to slide 19 and looking at our outlook for the fourth quarter. At this point in point we expect total revenues to grow in the mid to high single digit range. Billboard growth is likely to be similar to year to-date results with transit growth normalizing as lap the BART win in October of last year.

So, our expected growth is still strong. Even more so in the context of the 12.7% we grew in the fourth quarter of last year. We were always confident that we'll be able to continue our momentum on top of our sharply improved business performance and indeed we are. The more importantly, this takes us into double-digit revenue growth for the year.

Slide 20 gives you some insight into the drivers of this terrific growth. Firstly, our sales on both the local and national level our sales force is our competitive advantage. We've been investing heavily in our teams, training, compensation, brand marketing and operation. Another key growth driver is transit digitization.

This is already giving us a significant acceleration in our revenues and we expect growth to continue from additional displays including railcars in New York later next year. Digital billboards are another key growth area where we want to increase our exposure through conversions, marketing agreement, and acquisition. We're seeing great return.

And we also believe that these increment revenue potential as the industry begins to trade its inventory in a more automated way. Traditional static billboard are also hugely important to us, but they represent half of our revenue and our delivering rising yields.

There's no doubt at all that they're becoming more important than the media mix, both from the growth rates we're seeing and the attention that garnering in the industry.

This fall, Facebook published a study that showed that Facebook and out-of-home complement each other allowing advertisers to reach audiences at all stages of the sales funnel and how especially out-of-home drives discovery with Gen Z and Millennials. Another key focus is our acquisition pipeline. About 35% of the U.S.

industry revenues are from independent operators. The good portion of these are in markets where we already operate and want to add some ways. We've been active in this tuck-in market and expect to continue adding to our portfolio in the future. Lastly an important driver of our future growth is technology.

We and the industry are far more able to revise data and insight into the audience that are interfacing with our media and this combined with increased trading automation, will provide a significant tailwind as we look forward. In closing, we’ve got a lot going on.

As an industry out-of-home will likely increase its share of all media in 2019, as a company OUTFRONT is at the heart of this acceleration and we are confident of maintaining our momentum. With that operator, let's now open the lines for questions..

Thank you. [Operator Instructions] We'll take our first question from Marci Ryvicker with Wolfe Research..

Thank you. [Operator Instructions] We'll take our first question from Marci Ryvicker with Wolfe Research..

Thanks. I have a couple.

First, Jeremy since you were just talking about the future, can we dig a little deeper into the fourth quarter guide, and maybe talk about local versus national, are they still performing relatively the same? And can you give us maybe what the BART contribution was in terms of growth for the past couple of quarters, so we can just figure out an apples-to-apples basis?.

Yes, absolutely. Thanks, Marci. So, as we look into Q4, answering the specific question on BART, this quarter it was around $5 million to $6 million of revenue. So you can sort of take that into account as we think about -- as we think about Q4. If you take BART out, what that means is that our transit business has been growing sort of in the teens.

With regards to Q4, yes, we expect both local and national to be up nicely. Billboard is still growing well, as I said, we expect in that sort of mid to high single-digit range, digital and static once again contributing. So broadly similar to the nine months that we've just seen in 2019.

In other, I mentioned Canada, it was -- if you remember legalization of cannabis mid-October last year, and we took a couple of big hits from the cannabis market. And that will similarly impact to our other business.

So we're expecting our other business to perform in line with that which we achieved in Q3, obviously without that special one-off piece from the equipment sales..

Okay.

And my second question, can you tell us your exposure to the high growth venture back to consumer service companies like DoorDash, Postmates, UBER, Lyft et cetera, is that driving a lot of your growth?.

I guess, that the first point is, we're actually delighted that these sort of DTC companies are thinking about out-of-home in general, and indeed OUTFRONT as being a great way to build brands. We've always said that that out-of-home is a spectacular launch medium, where you can get across your branding message, amazing CPMs, great reach, low cost.

So, we're delighted that out-of-home is a good part of that media mix. What's interesting though is that when you look into it, while we are obviously carrying those brands, in terms of our 3Q revenues, they are only a little over 2%.

And actually the vast, vast majority of the growth that we saw in Q3 was actually from our sort of unique classic -- more classic advertisers.

What's interesting is that if you look at Q3 in dollar terms, in terms of -- in terms of dollar growth, our three top categories were financial services, professional services, which is for the most part actually locally driven and retail, so, maybe not the sort of growth drivers that you would think.

Interestingly, also that number -- number four in terms of dollar change and this is the first time we've seen sort of a really positive move in this category for a while was telephone utilities, so actually that the growth -- our growth sort of belies if you like the -- some of the interest that we're seeing from the DTC brands.

I think the other important point is to make that as we look forward, as I said, we're pleased to see these DTC because that they are going to be disruptors we believe in pretty much every segment of industry and while some of the names may change over time, I think the fact that they love out-of-home to build their brands won..

Thank you..

We'll take our next question from Ian Zaffino from Oppenheimer..

Hi, great. Would you be able to give us an update on the Chicago bid? And then I will follow-up. Thanks..

Sure. So, we put a bid in for Chicago Transit, the CTA, around about a couple of months ago now. It's in process. Sometimes, these bids can take a while to reach any resolution, and frankly outside of that, Ian, I can't really add much more at this point in time. We had just decide [ph] and we'll see how it goes..

Okay. Thanks. And then, just on the MTA, help us understand what may be the revenue generating boards of the advertising boards versus the non-revenue generating informational boards? And what will be the next sort of in the fourth quarter do you expect? And how quickly does that ramp-up toward your goal of steady state advertising boards? Thanks..

Okay. So, as we look forward. Yes, I guess the first point is that, almost all of the in-car screens, or the vast, vast majority of the in-car screens are advertising rather than information screens. So that's when you really going to start to see the percentages swing.

But suffice to say that in Q4, advertising screens will be ahead of information screens and we will continue to -- we'll continue to see the percent of screens earmarked solely for advertising increase as we go forward. But as I say, the big swing will start with our build-out in 2020 of in-car screens..

Okay. Thank you very much..

We'll go next to David Miller with Imperial Capital..

Hi. Hey guys, great print. Couple of questions. Matt, on the debt extinguishment charge, can you just remind us what got exchanged? Did this have to do with the repurchase facility or was there -- was that another maturity that got pushed out to the right. If you could just clarify that for me, I'd appreciate it.

And then, Jeremy, were there any categories in the quarter that did not come in to your expectations or outperformed relative to your expectations, relative to 90 days ago? And/or 90 days ago, when you gave us the guidance, any regions that kind of outperformed or underperformed in your view? And then I have another follow-up. Thanks..

Sure. Thanks, David. In June, we issued the new $650 million, 5% bonds due 2027. We had $550 million bonds due in 2022, which we called shortly after we issued the new ones, and that bridged the quarter. That's why we kind of the funky liquidity. So for us we lowered the coupon increased the size and pushed out the maturities, so all good..

Okay, got it..

Jeremy?.

And on the follow-up question you had, David. In terms of geographies, to be honest, we've been enjoying pretty broad growth across all of our markets, which is great to see actually. And I don't really think any particular surprises in the third quarter in terms of categories.

Bottom three categories in terms -- well, for us, were auto, government, food and beverage. Auto and government have actually been in the bottom two for on an LTM basis also. So, I guess the answer is no real surprise..

Okay. And then just a follow-up. Just a general philosophical question if I might. When Lamar switched over to a REIT status and got that approval from the IRS, I remember, I guess that was maybe late 2014, early 2015.

I remember that the REIT community was exceptionally slow to embrace out-of-home as a REIT-like financial structure, and I'm wondering if, in your opinion, that's finally changed or has the REIT community still been kind of slow to embrace you guys as a real REIT? Thanks..

Hard to say, David. For us, I can't say about Lamar, but for us, we have about 15% of our holders are REIT based, we'd identified and it's hard for the REIT analysts or the REIT investors to understand the ins and outs of our business. We do a fair amount of work. Greg does a great job communicating with them and getting out there.

But, yes, we're fighting the good fight, and hopefully they appreciate our business going forward..

Okay, thank you..

We'll go next to Alexia Quadrani with JPMorgan..

Thanks for the question. I guess on the advertiser's side, I think around this time of the year, we see agencies start thinking about budgets for 2020.

Do you have any early read in terms of how your sort of traditional advertise that you said are still the bulk of your spend here, how they're thinking about next year? Are they more nervous given the volatility in the markets and the economic data? Or are they still sort of just business as usual?.

It's interesting. When you drill into the ad forecast, worldwide ad forecast achieve next couple of years. The forecasts are trending up rather than down for all media, and I believe within that, out-of-home can -- I'd hope continue to increase its market share.

For us, specifically, we're having some great conversations with our larger advertisers, where we believe that we may see some benefit obviously from the streaming malls that are going on. We think that could be positive for out-of-home because most of those -- most of the streaming services are big friends of out-of-home.

We think that 5G could be interesting as we move forward. And I guess the other point is that, we're still really driving some solid local advertising growth. It's 55% or whatever it was revenues in Q3.

And when you drill in there, we think a lot of that is actually -- seriously, just about our execution is going out with a core message that's really resonating with local advertisers, which is about out-of-home, it's about mobile, it's about social. In other words how out-of-home can really sort of boost our business.

So overall, we feel good about national and we feel also pretty good about local from where it's at today..

And just a follow-up, I think you mentioned, you are likely to increase the digital conversions in the coming quarter.

I guess, any more color on maybe on what we should expect?.

So we have been saying for this year that in terms of digital Billboards, we will be more around 150 mark rather than the kind of somewhere 100 that we achieved for the last couple of years or so, and we're very confident with that new range.

And obviously those are in addition to the digital screen build out in Transit, which is continuing apace particularly on the MTA as we speak..

All right, thank you very much..

We'll go next to Ben Swinburne with Morgan Stanley..

Thank you. Good afternoon. Jeremy, you had a nice growth driver slide at the end of the deck, and I wanted to ask you specifically about the technology box on the right.

And just get a sense for where you guys are from an audience analytics and automation perspective, I could be wrong, I don't think those are yet a material part of your revenue base, but I could be wrong -- I'd love to just get a sense for where that -- those platforms are from a build-out perspective, whether it's actually impacting the business yet, or if that's something all on the curve?.

There is two pieces to that, Ben. The first is, in terms of, our inventory that is currently on programmatic exchanges. At the moment that's – for us relative to the $450 million of revenue in the quarter, it's a handful of dollars, but it's starting to grow, and that's terrific.

Then in terms of our own platform, we've been investing in a product called smartSCOUT, which is a planning and buying tool.

At the moment, the planning piece of that is currently in use, it's in use with in beta formed by our national sales team and we're testing in a couple of local markets, and what that's about is basically we can kind of get much more granular detail in terms of audience delivery of each of our boards.

Now we haven't yet, but we will be plugging on the buy button, if you like on to that planning tool as we go forward. And that's something we haven't done yet, but we're utilizing smartSCOUT as a real provider of data and insight when we're going out and having discussions with our advertisers today..

Got it. That makes sense. And just staying on technology around digital boards, you report -- you guys have reported digital yield, but your overall U.S. Billboard yields up 9.5%.

So you seem to be -- you tell me, but you seem to be selling your digital inventory well, as you add more of it and more inventory -- I guess that's sort of a question -- is that accurate, and if it is, how do you think about meaningfully ramping your conversions in 2020? How much of that is -- I don't know a balance sheet -- sort of balance versus what do you think you can sell or where is your head at on digital given what seems to be some pretty strong demand for that product?.

Yes. There is a couple of things that I'd say. The first is that not every digital board is equal. So when we build a digital board on the west side highway, we're going to get a much different yield to building digital billboard in Tampa, for example.

So part of it is where we are building the boards out and if you've been around New York City lately, you will see that we've been building some great boards. So that's obviously that impacts slightly. It's not a balance sheet issue for us, Ben. It's really more about how can we create those opportunities because zoning is still a gating factor.

So we keep one eye on zoning, and we also just keep one eye on demand in a particular market, because we obviously don't want to develop boards where there wouldn't be sufficient demand and essentially we may be eating our own lunch. So those are the two things, we take into account.

But we feel good about our prospect for continued billboards, digital billboard developments in 2020..

Okay. And then just one last one for Matt, on the margins this quarter, you guys have had a little bit of compression in the first half of the year in U.S. Billboard, I think that went up to like 100 basis points or so in Q3.

Is that all just geographic mix around your lease payments or anything else you'd call out seasonality or anything that might be impacting margins in Billboard in the U.S.?.

Specific to billboard, the new lease accounting standard that came in the beginning of the year added couple of dollars to the cost and non-cash cost of our billboards in the third quarter and we allocate costs between Billboard and Transit, Billboards, obviously a bigger part of our business, so they have higher compensation and professional fees in Billboard as well..

Okay, thank you..

We'll go next to Jason Bazinet with Citi..

Maybe if you could indulge me with sort of my longer term model. I know you guys didn't use the ATM this quarter, and I guess I wouldn't expect that you would, but in my model, I've got you sort of hitting that as a source of liquidity at least through 2021.

Do you think that's a reasonable assumption based on your own internal forecast where the ATM will continue to be used? Thanks..

Jason, it's Matt. Generally, we would try to use the ATM just to fund tuck-in acquisitions. We've improved our liquidity on the balance sheet from a number of steps make us feel better. The MTA is performing even better than we expected. So we think our liquidity is in a better place, we don't feel a need to use the ATM.

But as we look at tuck-in acquisitions rather than have the balance sheet be a limitation, we think the ATM has -- it will benefit of extra liquidity if we need it. At this point, no plans, but watch our acquisition new pipeline..

Okay. So if there is no acquisitions, no ATM..

That would be the plan. We would like to see what the future holds..

Okay, thank you..

We'll go next to Jim Goss with Barrington Research..

Thanks. I think you started to get into this a little bit a couple of questions ago. Matt, you laid out on the growth drivers slide, some good things about traditional billboard and some better things maybe about digital billboards.

I'm wondering about the whole digital billboard transformation process, is the decision largely yours or is it determined by local policies, the zoning you mentioned in terms of deciding whether you should stay static or try to fill in with specific digital? And how does that process work, so that you can do in an efficient way?.

Yes, thank you, Jim. I guess the first thing to say is that all of our markets are different. Zoning regulations are different, some markets is relatively straightforward to convert the digital, others, has to freeze over before you can convert.

But what I can say is it is very much driven by our general managers in each market, supported by a real estate team. And for the most part, once assuming you can obtain a zoning permit, they would then put a recommendation forward to us here centrally.

We review every single -- every single recommendation in terms of -- does it achieve the respective IRR, so we're looking for and we haven't really changed our IRR view over time, that's in the 20% to 25% range. And as I say, as we look forward, we've always got a pipeline of activities that we're working on.

So we have a three-year plan that -- so we can already see a likely number of boards that will convert in 2020..

Okay.

And then you have an overlay of that -- say 150 that you might do in a year and you'll see what makes the returns up to that point as the sort of the selection process?.

Yes, absolutely. And, let's say we're going to be in the 150 range this year and we would hope that with conversions, but also, as I said, important to think sort of marketing agreements and where we can acquire attractive digital Billboards, then we will do that also. But I would hope we can get back up into that range next year..

Okay. And then the other question I had in the New York Transit project, I think you're moving from say 50% of the screens with ads available up to about 85% over the next couple of years.

Do I have that right? And does that imply, say an upward bias to your rate of profitability in that system, above and beyond just the normal growth over that period of time because that's where the -- it would be fueled?.

Yes, as I said, once, we've completed the build-out, let's remember that this is a seven-year build -- a seven-year build, okay. And by at that point in time 85% of the screens that we have will be carrying advertising.

So from where we are today at the kind of 50-50, we will be going north on a quarterly basis and I say that the percentage of advertising will increase as we start building out in subway, but yes, it will be a slow process, it's a seven-year build, Jim..

Okay, thanks very much..

Thank you..

And with no further questions in the queue, I would like to turn the call back over to the company for any additional or closing remarks..

Thanks, operator. And thanks to all of you for your time, attention and questions today. We look forward to seeing many of you at our Investor events in the coming weeks. Thanks very much indeed..

This does conclude today's conference. We thank you for your participation. You may now disconnect..