Good day Ladies and gentlemen, and welcome OUTFRONT Media Inc. Fourth Quarter and Full Year Earnings Conference Call. At this time, I would like to hand the conference over to Mr. Greg Lundberg. Investor Relations. Please go ahead sir..

Hi. Good afternoon, everyone. Thanks for joining our 2019 fourth quarter and full year 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 Q&A 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 which is 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 and 2019 Form 10-K which is expected to be file tomorrow morning. 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 thanks, everyone, again for joining us today. Before we get into the details on Q4, I thought it might be interesting to take a quick look at 2019 as a whole. Slide 3, shows the annual review of our three key financial metrics.

While 2018 was a good year 2019 was even better, with revenues up 11%, OIBDA up 9% and AFFO up over 11% We think this growth reflects the inherent strengths of our industry and our position in it. Let's turn now to our fourth quarter. Slide 4, gives you some highlights. Total revenues increased 8% in the quarter.

This was on top of the 13% in last year's fourth quarter, and we're slightly ahead of our guidance. Once again, this growth was broad, with good results in billboards, and transit, as well as local and national across all of our key geographies. OIBDA grew 5% and AFFO grew 8%.

Matt will talk about an unusual item that took a few points off over the growth in the quarter. And looking forward, confidence in our business allowed our board of directors to raise the quarterly dividend to $0.38. Let's take a look at our quarterly revenue in more detail beginning on Slide 5.

US media was up 9% and actually drove all of our growth in the quarter, while our other segment which is much smaller, was slightly off. On the US side, which you can see on Slide 6, billboard growth was 7% and transit was 14%. As strong results were driven by a healthy exposure to both local and national revenues shown on Slide 7.

Once again, local was up over 10% and national was up 7%. And this growth was distributed similarly, across both our Billboard and transit assets. For both the quarter and the year 56% of our US business was local, and 44% was national. We really like having this balanced mix of advertisers to draw from.

Market demand and sales execution help drive up total billboard yield which you can see on Slide 8. This 8% increase was driven by same board yield increases in traditional and digital, as well as the addition of new digital inventory over the period. Digital is now 22% of our US Billboard revenues.

Turning to Slide 9, I'd like to spend a moment on our other segment. Billboard revenues were down and drove about half of the segment decline. While our Canadian business had a very healthy year as a whole, up around 6%. The fourth quarter decrease reflected strong comps from cannabis legalization in the back half of 2018.

We've got great assets and a great sales team in Canada, and we're looking forward to a solid 2020. The transit and other piece reflects good growth in sports marketing, offset by 3 million Digital Equipment sales that didn't recur this year. It's worth noting that without this impact, total other revenues would have been around flat.

Now let's look more closely at our fast growing area Digital on Slide 10. Total digital revenues were up 36%, with billboards up 16% and transit again up over 100%. These growth rates accelerated mostly from the third quarter driven by rising yields and more displays.

Since the beginning of 2018, we've been picking up around three points of digital penetration each quarter year over year, but this quarter was actually a bigger jump of five points, bringing total digital to 23% of revenues.

We expect to cross the 25% threshold in the near future, putting us well on the way to the 50% that we see in some other international markets. It just gives you a good sense of our business performance in Q4, and indeed the year was very strong across almost every part of our business. We're feeling good about 2020.

But before I get into that, let me hand over the call to Matt to take you through the rest of the financials. .

Thanks, Jeremy. And good afternoon. I want to highlight and Slide 11 that not only was our expense growth, the lowest level, it's been a year, but then our total level of expenses as a percentage of revenue were fairly flat. Looking at the components on Slide 12, gives you a view of where our costs come from.

Billboard lease expense, the largest category increased at a lower rate than our revenue growth, and also reflects much of our growth coming in larger markets. Transit franchise as you would expect, grew in line with revenue. Combined, billboard lease and transit franchise expenses were at a six year historical average of 39% of revenue.

Posting a maintenance expenses were essentially flat. SG&A declined half a point as a percent of revenues with just 4% growth reflecting compensation analogy [ph] to support our strong sales, and also our ongoing technology investment.

And lastly, corporate expense although relatively small and absolute size, so and usually large increase in the quarter. The driver of this as Jeremy referred to earlier; we're strong fourth quarter performance in the equity markets, especially compared to 2018. And a corresponding mark to market and some equity link retirement plan benefits.

In total, this added about $4 million of non-cash expense to the quarter. Now let's look at how these expenses looking at year over year OIBDA on Slide 13. Total OIBDA was up 5.5% excluding a one off expense I just mentioned this growth rate would have been around 8%. Slide 14 shows you the healthy US media OIBDA billboard growth of 9% and transit 15%.

You will notice that we expanded both Billboard and transit margins in the quarter. Billboard increased by 80 basis points to 42.8%. And transit increased by 20 basis points to 20.4%. Switching gears to cash flow, Slide 15 shows our capital expenditures.

Year to date, we ended up at $90 million in total CapEx ahead of our $80 million guidance, but the variance was completely do a nice bump up in growth CapEx for digital billboard conversions. We increased digital billboards by 203 units in 2019, considerably above our goal of 150.

For 2020, we expect to spend around the same level with a similar split of growth and maintenance to help maintain this accelerated pace of conversions. Moving on to AFFO the year-over-year bridge on Slide 16 shows that order that was the driver was the other components netting out roughly flat. For the quarter AFFO grew 8.2%.

In 2020, we are currently expecting AFFO growth to be in the high single digit range. This incorporates lower interest expense assumptions, and cash taxes of approximately $14 million. Slide 17 shows dividend different coverage for both AFFO and adjusted free cash flow. On LTM basis, we saw a continued decline in our AFFO, dividend payout ratio of 62%.

The adjusted free cash flow payout ratio was down significantly to 75%. With these improved coverage levels and our business outlooks and enabled the board to increase our quarterly dividend by 5.6% or $0.02 per share to $0.38 payable in March. This step up reflects our intention to grow dividends over time as a business expands.

Now, let's turn to our balance sheet on Slide 18. Last year at this time, we had a $550 million maturity in 2022 and another $450 million in 2025 those in gone, pushed out to 2027 and 2030 respectively. The next bond maturity we have is in 2024. It's also worth noting that our liquidity position last year was $432 million.

As you can see here, we're now at $577 million and increase of $145 million, or 33%. This excludes over $230 million of remaining capacity on our ATM equity program. Our weighted average cost of debt is now 4.5% compared to 5.1% last year, and our net leverage is 4.5 times down from five times in the second half of last year.

So overall, I think you'll agree the balance sheet has significantly improved and is in great shape. Let's look at an update on New York MTA on Slide 19. We sold over 800 displays bring our total deployment as of December 31 to 4500 displays more than half of which carry advertising.

Our total MTA project cost in the quarter with $50 million and $150 million year to date. We're right on our most recent guidance of $150 million. As of December, our Q1 project costs were $248 million and our Q1 [ph] recruitment of these costs was $34 million.

We expect our 2020 equipment deployment costs to be approximately $175 million on a gross basis before recruitment. And important updated for you as we highlighted on this call last year, is the level of external financing we estimate will be necessary to complete the deployment.

Based on our current projections, we now expect the total incremental financing needed to complete the build out to be $300 million down $50 million, from our prior estimate. We have incurred $140 million of this as of December 31, 2019 and expect to reach the Q1 of peak amount around the end of 2021.

So with $160 million more to go and a current liquidity position $577 million excluding our ATM, we feel very comfortable and are pleased to be halfway there. In closing, our team continues to drive revenue growth is allowing us to invest back into our business and still deliver ample cash flow and improving balance sheets in a growing dividend.

Let me now turn the call back over to Jeremy. .

Thanks, Matt. Now let's turn to our outlook on Slide 20. Looking at the first quarter, at this point in time, we expect total revenue growth to be comfortably in the mid-single digit range. We recall that this is on top of it double digit comp last year. In terms of mix our billboard businesses performing particularly well.

Our transit is currently a little slower in Q1. We view this as a timing issue, and we expect transit to have another great year with digital continuing its strong growth.

We're feeling good about 2020 and Slide 21 highlights several things supporting this view While we're all keeping an eye on the coronavirus news, the economic environment here in the US currently feel some of denying [ph]. And we're still having great conversations where our clients.

Digital revenue should continue to grow as we push on digital billboard conversions, and deploy more digital transit screens in New York, and later this year in DC, and San Francisco. And lastly, you can't escape the fact that this is an important political year.

While we can't carry political advertising on our transit systems, the waste of money going into the media market as a whole should be a positive tailwind to our business. There are also some broader drivers of our strong performance that we would expect to continue.

Firstly, our 2019 revenues were generated from local and national advertisers in almost every category. The top growth on LTM basis was from financial services. Mostly national clients, professional services, mostly local clients, retail, a nice mix of both national and local, and Hollywood, all national.

Interestingly, 10 years ago, these categories all had around the same weight in our total revenues. And it's this consistency that's important to our business. You've heard me talk before about customer retention.

So let me give you an update in 2019 94% of our top hundred clients had advertisers in each of the past three years with us, this is a very positive affirmation that our assets work for them.

And importantly, I'm referring to all of our assets across these same top 100 clients 96% purchase both Billboard and transit, telling you that many brands are focused particularly on those attractive urban audiences that we can deliver In closing, we've got great assets, great teams, and we're positioned well for rewarding 2024.

Operator let's now open the line for questions..

[Operator Instructions] Our first question from Alexia Quadrani, JPMorgan..

Hi, this is Anna [ph] on for Alexia, thank you so much for the question.

Just regarding the volatility that we have seen in the market recently due to the coronavirus news, are you seeing any impact so far from the coronavirus?.

So, thanks for the question. I mean, obviously as we think about our business, all of our revenues are derived in North America which gives us a huge comfort. If we think about our supply chain, there are two main pieces to that, one at digital billboards that come out of Asia, and we actually are not seeing any supply issues there right now.

With regards to the light boards that we're putting out principally into the MTA and other transit systems, we actually have significant stocks, which are going to take us through until summer for the platform inventory.

Looking at the on-train inventory, which is, as you know, is part of our build out plans for this year, we think that there may be some delays there. We don't anticipate that having any marked impacts on our revenue or with our forecasts for the year because actually, it was a pretty slow build that we were anticipating from the mid part of the year.

So, look, the situation obviously changes on an almost daily basis, certainly, if you if you look at the market. But from our point of view, we're pretty comfortable right now as we see it. We'll be able to weather any coronavirus issues..

All right. Great. Thank you so much..

Next up, we'll hear from Ben Swinburne, Morgan Stanley..

Hi, thank you. This is Grace [ph] on for Ben. You called out the slower transit growth in Q1 impacted kind by some timing issues.

Could you touch a little bit more on that, and what gives you confidence in the full year?.

Yes, absolutely, Grace. So, when we look at our transit business, last year, as you know, is sort of up 20%. So, we had a major, major ramp in transit last year, and we continue to believe that we'll see some good growth and transit this year.

It's fair to say transit is obviously the smaller part of our business It can be quite lumpy, depending on the timing of particular advertisers coming into the market or not within a given month. Certainly, as we look forward, there's nothing to indicate that it won't be another good year of growth.

And importantly the billboard business is performing really very well. .

Okay, thank you. That's helpful.

And if you could provide any update on the digitization of the San Francisco BART contract, if you have one?.

Yes, absolutely. It's fair to say that the digitalization there has been a little slower out of the gate than we originally expected. We've got two test stations that we're going to be building out, a little bit as we did with Brooklyn, you may remember with the MTA here in New York.

We're going to be building out those test stations towards the back end of Q2. And based on that, we'll be sort of ramping development there further in the back end of next year. Worth mentioning also that in Washington, we're going to be putting in 150 screens this year.

You might have seen the news that we recently renewed our footprint there for the 10 years with two five-year options, and a further 1,500 screens will be going into Washington over the next two or three years. So actually, that's going to be another very exciting digital development for the business..

Great, thank you..

Our next question is from David Miller, Imperial Capital..

Hey, guys. Great quarter.

Jeremy, can you talk about some of the geographies out there? What did you see over the quarter in terms of geographic strengths and, or weaknesses, kind of segmented by the country? And then were there any new categories that kind of entered the fray that had not embraced outdoor prior that surprise you at all during the quarter? And then I have a follow-up.

Thanks..

Okay. Thanks, David. So, I think in the prepared remarks, we talked about the growth being fairly broad. Obviously, transit was pretty strong, so a lot of that is focused around our footprint on the East Coast, including Boston, New York, and Washington.

If we think about the billboard business, the West Coast was really on fire for us during 2019 as a whole, and that continued in the fourth quarter. So, pretty broadly spread. But as I say, it was really West Coast that outperformed, if we look at it over the 12-month basis..

Okay. And then forgive my naivety on this because I live in Los Angeles. But the last time we spoke about deployments on the Long Island Railroad, I believe you said that the LIRR was way ahead of the Metro North in terms of just the number of displays on both the trains and the platforms.

When do you think that evens out, in terms of your deployments on the Metro North Side? Thanks..

Thanks. Yes, if we sort of think about our developments with the MTA in total, it's really been the subway where we've been cracking on, and that's where the vast, vast majorities of the screens have been going. Pretty much in line with our expectation. Metro North and LIRR are sort of much smaller and they're sort of following.

But where we look at the principal driver of revenues for our business last year, is really the subway, David, that made the difference..

Thank you..

David, maybe just going back to categories, because I probably didn't nail that one particularly. As some of the numbers that I gave in our remarks earlier, we really are very consistent over time. It's not like we have sort of huge, sort of new categories sort of just coming and going.

But one thing that we have seen is streaming that became important for us at the back end of last year. On our boards, we've certainly seen Disney Plus, and Hulu, and Netflix, and others. And we hope that that will continue to be a tailwind for us as we go into 2020. .

Okay, wonderful. Thank you..

Up next, we'll hear from Ian Zaffino, Oppenheimer..

Great, thanks. Interesting comments on your expectations for political this year. Can you just remind us what political maybe was in in 2016? And are you actually seeing maybe more appetite for political advertising this time around versus 2016? Or how would you kind of gauge that? Thanks..

Yes, sure. So, if we go back to 2016 -- and we've been pretty consistent in saying that actually, political for us has been relatively small, and indeed smaller for us than some of our equated credit competitors that have a slightly different footprint. So, if we go back to '16, it would have been relatively small.

I think this year, just with the weight of money, I think what we expect to feel is a pretty tight media market.

And in that environment, we feel that's likely to be good for pricing generally, and we think there may well be some advertisers that don't want to get involved in the political noise on traditional TV, and may well think how can I cut through, and we think that they may welcome to out of home.

It's interesting that actually as of now, we do have some avid advertising up for one of the presidential contenders in a number of markets across our digital board. So, we're hopeful that that might be the sign of actually increasing political advertising interest in our boards.

I think particularly digital because obviously with political, the issues change very rapidly. And now, we have a product, obviously, that we can change in a much more fast and efficient way compared to traditional out of home.

So, this could actually something that helps, helps the out of home industry in general garner more dollars for this election cycle rather than the last..

Okay. And I just want to drill down a little bit further. I think that's interesting that there's kind of a new revenue stream here now that you have digital media to go after the direct political dollars.

But the question would be is, what is the impact sort of by market? Because you're much larger weighted market, they tend to be arguably not competitive markets. But if you look at kind of the landscape now, what markets do you kind of expect to have the best strength in? Or will you really see it just across all of the markets? Thanks..

Yes. Look, Ian, it's a fair question. And typically, we've said before that we tend to be in the larger markets, and the larger markets do tend to be either sort of red or blue. In other words, they're not those sort of classic sort of markets where there's maybe some of the media dollars would necessarily flock to.

But as I said, the candidate that is up at the moment has actually bought 23 markets from us, which is pretty substantive..

All right, great. Thank you very much..

Steven Bison [ph], Wolfe Research, has the next question. .

Good afternoon. Just a couple quick ones.

First, the improvement in the MTA financing, is that more driven by lower costs, faster revenue recruitment?.

Thanks, Steven. It's Matt. The answer is yes, both. Our cost curve is a little flatter than we had expected, partially because of a little slower deployment of rolling stock. More importantly, our revenue has been higher. Recruitment's been better. It's enabled us to self fund a little more than we expected..

Great. And then on the Q1 guide, I think the phrase was comfortably in the mid-single digits.

Would it be fair to translate that as 5% to 6%, rather than 4%?.

We'd prefer not to get too granular on this stuff. The mid-single digits is 4% to 6% in our book, and I guess comfortably within, you can maybe just draw your own conclusions from that..

Right, thanks so much..

Our next question comes from Jim Goss, Barrington Research..

Thanks. Within the digital objective, ultimately of getting into that 50% area that you said some other countries had, what would that target require in terms of share of your display base to generate that sort of revenue.

Would it be 15%, 20%, or would it be higher than that?.

If you think about where we are at the moment, and just think -- let's maybe sort of think about our billboard revenues. At the moment, we've got around 3% of our billboard assets generating 22% of our billboard revenues.

And while it's fair to say that we wouldn't necessarily get that same ratio as we continue to digitize our billboards, because you tend to do the best ones first, we're still saying, 4X revenues on our digital boards, where we -- or our boards we convert to digital.

So, it's going be likely, as we sort of double or triple our boards, which we see is quite possible, we'll start sort of nudging up towards that goal. In transit, we're having a significant digital evolution also, and that will similarly contribute..

Okay. And Jeremy, does the -- within the MTA, you mentioned you have -- over half of the displays of advertising.

Does the next wave of introductions include a higher share of boards that include advertising? And also, maybe you could talk about the nature of the ads and the commuter rail, and the valuation of those ads to the extent that full motion video is enabled..

So, a couple of a couple of things. Yes, as time goes on, certainly the proportion of advertising [Technical Difficulty] increases. When we look at the on-train assets, for example, I mean, they're pretty much only media, rather than information. And I think by the end of the build out, we're something like 80% advertising and 20% information displays.

So, that will move over time. And when we look at the pricing, when you -- if you sort of go down to the subway and see the creativity of some of these sort of full video displays, you can see for yourself the sort of added value that that creates for us. And it also allows us just to tap out the dollars. It allows us to tap into the video market.

So, it's not just about the rate. It's just about the opportunity, the number of advertisers that are suddenly able to utilize this exciting format..

Okay. All right. Well, that'll be it for the moment. Thank you..

Thanks very much..

At this time, there are no further questions. I'll hand back to the company for any additional or closing remarks..

Thanks, operator, and thanks, everyone, for your questions and your time today. And we look forward to seeing many of you at investor events over the coming weeks. Thank you very much..

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