OUTFRONT Media Inc. (OUT) Earnings Call Transcript & Summary

Hello, everyone. Thank you for joining us, and welcome to OUTFRONT Media's Second Quarter 2026 Earnings Call. [Operator Instructions] I will now hand the conference over to Stephan Bisson, SVP, Investor Relations. Stephan, please go ahead.

Good afternoon, and thank you for joining our 2026 second quarter earnings call. With me on the call today are CEO, Nick Brien; and CFO, Matthew Siegel. After a discussion of our financial results, we'll open the lines for a question-and-answer session. Our comments today will refer to the earnings release and slide presentation that you can find on the Investor Relations section of our website, outfront.com. After today's call has concluded, an audio archived replay will be available 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 2025 Form 10-K as well as our Q2 2026 Form 10-Q, which we expect to file tomorrow. We will refer to certain non-GAAP financial measures on this call. Any references to OIBDA made today will be on an adjusted basis. Reconciliations of OIBDA and other non-GAAP financial measures are in the appendix of the slide presentation, the earnings release and on our website, which also includes presentations with prior period reconciliations. With that, let me hand it over to Nick.

Thanks, Stephan, and thank you, everyone, for joining us today. We're excited to be here reporting our second quarter results, which came in better than we had anticipated when we last spoke in May, given continued strong demand, focused execution and a successful World Cup, which generated over $35 million of revenue during the quarter and over $50 million overall. As you can see on Slide 3, which summarizes our headline numbers, consolidated revenues were up 14%, driven by 32% growth in transit and an 8% growth in billboard, while consolidated OIBDA was up 29% to $160 million and AFFO grew 45% to $121 million. As I just mentioned, these results include about $35 million of FIFA revenues, of which we believe approximately half were incremental to our typical business. Slide 4 shows our more detailed revenue results. Billboard revenues were up 8%. Included in our comparative billboard results for the final time is our previously announced exit of a large and marginally profitable billboard contract in LA as the revenues and expenses of this contract are still included in our reported 2025 financial statements. Excluding the billboard revenue generated by this contract, billboard revenue growth would have been up 9.4%. The strongest billboard categories in quarter 2 were tech, including the rapidly growing AI, legal and medical. Transit grew a robust 32% and was again led by New York MTA, which was up an impressive 48% during the quarter. Our strongest transit categories were tech, entertainment and financial. Slide 5 shows our detailed billboard revenue. On a reported basis, digital billboard revenues were up 17.6% and static and other billboard revenues were up 3.8% during the quarter. However, excluding the revenue generated by the exited contract, digital billboard revenues would have been up over 21% and static and other billboard revenues would have been up 4.3%. We estimate that FIFA contributed approximately $19 million of revenue to our billboard results this quarter. Slide 6 shows our detailed transit revenue, which grew over 32% during the quarter, led by the MTA strength. Our digital transit revenues were up nearly 36% to about $68 million and static transit revenues were up over 29%. We estimate that FIFA contributed approximately $17 million to our transit revenues in the second quarter. Three of the FIFA-related campaigns, I would highlight from across our business are the New York, New Jersey Host Committee subway wraps of the tournament local participants flags within the -- with the New York subway system, Nike's complete takeover of the Bryant Square subway station and the massive soccer player Wallscape in Coke's own town of Atlanta, which you can see on the cover of our slide presentation. Slide 7 shows our combined digital revenue performance, which grew over 23% in the quarter and represented about 37% of total revenues compared to 34% in the comparable period last year. Even more impressive, excluding the aforementioned LA contracts, digital revenues would have grown by 26%. Programmatic and digital direct automated sales increased nearly 50% during the quarter, representing 20% of total digital revenue, up from about 17% a year ago. Moving on, the breakdown of commercial and enterprise revenues can be seen on Slide 8. Commercial revenues were up 15% during the quarter, driven by strength in technology, entertainment and legal. Enterprise was up about 12% during the second quarter, with much of the strength being driven by tech, CPG and health medical. Slide 9 shows our billboard yield growth, which was up 12% year-over-year to $3,344 per month, principally driven by a focused effort to establish higher rates across our assets and boosted by FIFA. Summing up, we are very pleased with our quarter 2 performance and confident that we will maintain this positive momentum into the second half, which I will discuss in greater detail later. With that, let me now hand it over to Matt to review the rest of our financials.

Thanks, Nick, and good afternoon, everyone. Please turn to Slide 10 for a more detailed look at our billboard expenses. In total, billboard expenses were up nearly $15 million or approximately 7% year-over-year. Zooming in on lease costs, these expenses were up $6 million or about 5% year-over-year. This increase was driven by higher variable lease costs and contractual escalators on fixed leases, partially offset by $4 million of savings related to the exited large billboard contract in Los Angeles. Excluding the impact of the L.A. portfolio exit, billboard property lease expense would have been up about 9%. Posting, maintenance and other or PMO expenses were up about $3 million or almost 8% due to higher production expenses and higher compensation-related expenses, partially offset by lower site-related costs. SG&A expenses grew over $5 million or about 8% due to higher professional fees, including software and technology expenses and an increase in the allowance for bad debt from higher sales activity, partially offset by lower credit card usage by customers and lower compensation-related expenses. The $15 million increase in total billboard expenses were more than covered by the strong growth in billboard revenues Nick described earlier, leading to billboard adjusted OIBDA increasing by over $13 million or 10%. Now turning to transit on Slide 11. In total, transit expenses were up $8 million or just over 8% year-over-year. Transit franchise expense was up 6% to $66 million due primarily to higher variable transit franchise expenses driven by higher transit revenues outside New York and the annual inflation adjustment in the minimum annual guarantee for the MTA contract. Let me take a minute before discussing the rest of Transit segment to clarify the accounting treatment regarding the New York MTA. We will continue to book annual transit franchise expenses at the minimum annual guarantee, which in 2026 is $161 million, including the final year of the 2020 amendment. We will record this expense on a straight-line basis evenly each quarter. This approach will continue until we expect to recoup the entire cost of the digital investments we have made since the commencement of deployment in 2018 and reflects the financial statement impact of our 2023 transit impairment. Please refer to our earnings press release and 10-Q for additional details on the MTA. Returning to our discussion of transit operating expenses. PMO costs were up just over $2 million or about 12% due to higher display production costs driven by higher profile creative initiatives during the FIFA World Cup and higher posting and rotation costs. SG&A expenses were up $2.5 million or about 14% due to higher professional fees, including software and technology expenses, higher compensation-related expenses, including commissions and higher allowance for bad debt, partially offset by lower credit card usage by customers. The $8 million increase in total transit expenses was far eclipsed by our exceptional 32% transit revenue growth described earlier, leading to transit adjusted OIBDA improving by about $26 million during the quarter to $33 million. Slide 12 shows the company's adjusted OIBDA in the second quarter. Corporate by about $3 million due to higher compensation-related expenses, including severance and the impact of market fluctuations on an unfunded equity-linked retirement plan offered by the company to certain employees. Combined with the billboard and transit OIBDA, total consolidated adjusted OIBDA totaled about $160 million, up 29% compared to last year. Before moving on, given our robust revenue performance and strong outlook for this year, I'd like to mention some important growth investments we have accelerated into 2026 to support our ambitious revenue targets for this year and beyond. First, we are investing even more in digital growth. We are reinforcing our programmatic sales team, adding experienced sales leaders to ensure that we capture as much of this growing revenue stream as possible. We have also expanded our data analytics function, hiring a Chief Data Officer late in the second quarter to partner with our research and insights team to advance our audience intelligence and measurement solutions in order to meet industry expectations. Second, we are investing in our people. We have expanded the platform tools and training available to our workforce to improve both efficiency and effectiveness. Tools such as Salesforce, our proprietary IRL NAV and an integrated marketing cloud will minimize time spent on repetitive administrative tasks and maximize time spent engaging with clients. And we will continue investing in our HR function to ensure we attract, retain and develop the best possible talent to be a world-class media organization. As a result of these strategic investments, we expect our SG&A expense growth rate to outpace our revenue growth rate for the remainder of 2026 to help drive exceptional revenue performance in 2027 and beyond. Turning now to capital expenditures on Slide 13. Q2 CapEx spend was about $17 million, including about $6 million of maintenance spend. We added 51 new digital boards in the quarter and expect to add a total of about 125 in the full year. For 2026, we still expect to spend approximately $90 million of CapEx, in line with our historical level of about 5% of revenue. About $30 million to $35 million of this total is expected to be for maintenance. Looking at AFFO on Slide 14, you can see the bridge to our Q2 AFFO of $121 million. The improvement is principally driven by higher adjusted OIBDA. Based on our results thus far, our expected revenue growth for the remainder of the year and the ongoing investments in our business, we now expect that our reported 2026 AFFO will grow in the low 20s percent range relative to our reported 2025 AFFO of $338 million. Included in this guidance is the previously noted maintenance CapEx, interest expense of approximately $145 million and a small amount of cash taxes. Also, our outlook reflects both the strength of the underlying business and the NTA accounting treatment discussed earlier. Please turn to Slide 15 for an update on our balance sheet. Committed liquidity is nearly $600 million, including about $30 million of cash, around $500 million available by our revolver and $50 million available by our accounts receivable securitization facility. As of June 20, our net total leverage was around 4x at the bottom end of our 4 to 5x target range. During June, we refinanced our $650 million of 5% notes due in 2027 with a new issuance of $500 million of senior unsecured notes due in 2034 priced at 6% flat with the balance funded through a draw on our accounts receivable facility and cash on hand. Turning to our dividend. We are pleased to announce today that our Board of Directors raised our quarterly cash dividend by 10% to $0.33 per share payable on September 30 to shareholders of record to close of business on September 4. We spent just over $11 million in acquisitions during the quarter. And looking at our current acquisition pipeline, we continue to expect our 2026 full year deal activity to be similar to levels reached in recent years. With our leverage trending to low end of our range and increasing cash flows, we expect to be more opportunistic in our deal activity going forward. With that, let me turn the call back to Nick.

Thank you, Matt. I'm pleased to report that we are seeing strong top line growth in the third quarter. And from where we sit today, we expect quarter 3 revenue growth to be up in the high single digits year-on-year, driven by about 20% growth in transit and mid-single-digit growth in billboard. These figures include a $16 million benefit related to the World Cup with approximately $9 million booked in billboard and $7 million in transit. 2026 is a transformative year for OUTFRONT from operating as a legacy out-of-home media vendor into the premier platform company of IOL Media. We are immensely proud of the results we've delivered so far, although our work is far from complete. We continue to be laser-focused on executing our strategic imperatives while investing smartly to strengthen our business and further accelerate our future revenues and profits. We are creating a formidable growth engine with our revamped marketing team feeding our reorganized sales force with the highest quality leads. We have supercharged our sales engine by investing in industry-leading sales tools such as AI-enabled integrated CRM and the Marketing Cloud as well as advanced sales training. Our strategic investment in AdQuick is changing how we plan and sell, reducing the number of handoffs from audience discovery to proposal creation. To further accelerate our growing revenue, we're also expanding our research and measurement team to consistently prove the immense value of our IOL solutions. To that end, we've hired an industry-leading Chief Data Officer, Hugh Griffiths, who has been tasked to leverage his decades of media agency experience to raise all standards of our medium measurement and attribution capabilities. I want to close with why we believe IOL Media becomes more valuable, not less in an AI-generated world. We commissioned Kantar to study consumer trust across media types, and the finding was unambiguous. Trust in digital content is eroding fast. When any image, post or video can be machine generated in seconds, audiences default to suspicion. And because online inventory is infinitely expandable, another feed, another ad unit, another AI-generated impression, that abundance is a very thing driving the trust erosion. Infinite supply collapses credibility and advertising is caught in the crossfire. Physical media works the opposite way. It's scarce by law and by geography. You can't simply build more of it. We believe that fixed supply paired with the rising demand for real-world engagement means the media value of physical inventory can only go up. This dynamic is playing out in real time. Drive through San Francisco today and nearly every other billboard belongs to an AI company. The same companies eroding trust online are turning to the one channel that cannot be faced because a billboard is public and real and putting your name on one signals that your company is credible and trustworthy. To be clear, this isn't an argument against online media. It's an argument of smarter media planning. Out-of-home is a load bearing wall. The credibility layer that makes every downstream digital impression more believable, while AI increasingly powers the targeting, planning and measurement on top of it. That's the thesis behind our recent minority investment in AdQuick, bringing AI native workflows into physical campaign planning. Our Kantar research backs this up directly. Consumers rated the identical ad is dramatically more trustworthy on a billboard than on social media. This matters commercially as trust isn't a soft brand metric. 87% of consumers say they'll pay more for brands that they trust. Trust has become a scarce commercial asset and increasingly, the real world is where it's built. That's our conviction heading into the second half of the year. As AI floods digital channels with infinite low-cost content, the brands that also claim a stake in the physical world will be the ones that stand out, and we are ideally positioned to help them do exactly that. And with that, operator, let's now open up the line for questions.

[Operator Instructions] Your first question comes from the line of Cameron McVeigh with Morgan Stanley.

I was hoping you could comment on the strength in programmatic that we're seeing. Curious how conversations with advertisers are trending, what's been working? And how much runway you might expect we have on programmatic going forward? And then secondly, on the higher SG&A costs and the hiring of a Chief Data Officer, I would love to hear just any more on what drove this, why now and where you expect to see the largest benefit going forward?

All right. Thank you. Thank you, Cameron, and I appreciate the questions. Let me start with the first one. Programmatic, we see tremendous runway. When we look at digital media, nearly 80% now in the U.S., and I think 75% globally is traded programmatically. We are 20%. I think the out-of-home industry overall is less than 20%. There are significant pools of advertiser dollars that sit with trading desks, either within the advertiser or within big agency groups as well as the independent agencies, and they choose to trade, plan and buy their digital media, their online media programmatically. It's the reason we invest -- we have been investing, as Matt talked about, we hired a Chief Data Digital and Strategy Officer in terms of sales and strategy from the Trade Desk, and he's been looking at both strategy for pipes, inventory, technology, making sure ad tech stack is as seamless as possible as well as the sales relationships, both with the DSPs and the leading SSPs. We have strong relationships with the industry SSPs. We see an opportunity to further extend those relationships. And Jeff Hackett is leading that effort along with a further strength. So, we see significantly more upside on the way we can engage digital revenues through programmatic. The reason why we hired our Chief Data Officer now, why we hired Hugh with this is we're at a watershed moment in the industry where the industry has decided to -- after a pilot test to choose Ipsos to go to the next standard of what our industry measurement is. But it's not just audience measurement and reach curves, it's understanding how data, especially when it comes to digital, is going to apply different first-party data capabilities better -- as well as omnichannel strategy planning, so our media could be more constructively and credibly integrated into overall campaign planning. Hugh is a master of that. He's come from the agency world. He's got over 30 years of working with the biggest agencies and the biggest brands doing just that. So, he, as a consequence of what has gone on at IPG and Omnicom, Hugh is someone I worked with 25 years ago at Universal McCann. I've watched his career development and I've watched his expertise. And I realize that we would benefit significantly by having someone lead that way as we're seeking to engage with the enterprise marketers. The most sophisticated marketers who are focused on audiences and reach curves that focused on business outcomes. So, we need to engage at that level to have the credibility to ensure our media is integrated not as an optional consideration within omnichannel campaign planning, but a fundamental platform, as I described earlier, I consider the low bearing wall. So those are the 2 reasons, and we see great upside on both.

Your next question comes from the line of Alexey Philippov with JPMorgan.

You talked about FIFA as a good opportunity to bring new advertisers into the segment. Now that the tournament is over, how is the progress there? Do you see clients remaining with you? That's my first question. And another, can you comment on macro? Your commercial revenue was up nicely, and that's likely a reflection of World Cup, but local was a bit softer than in first quarter. Any signs of macro weakness on the local front or not really?

Thanks, Alexey. Let me -- the first question you asked about the new advertisers. And it's something that we all know across this industry that the out-of-home medium has failed to demonstrate its level of efficacy with the most sophisticated marketers. With those -- if we think about those advertisers who are spending over $250 million a year in the advertising, we have the lowest share relative to the 2.5% that the medium takes is less than 1%. We see what we are calling the enterprise side of the business, the enterprise and the strategic accounts as being very important opportunities to engage and grow our share, whether it be on automotive, whether it be on pharma, whether it be on CPG, we have a number of those logos. We have a number of those relationships, but they're not as consistent across all their brands as we would like. That's why we developed our heads of industry practice within the enterprise sales division. So to focus on not just winning those accounts, but growing them is also very important. We also are really focused laser on retaining clients, really tracking the data to understand which clients and which category are either spending less or leaving the medium altogether with us. So those are drives that we are very confident will strengthen our revenue going forward, both in terms of new logo and increases. At the macro level, you asked about if there were weaknesses -- and the commercial side of the business. Obviously, there was -- there has been a real benefit there from World Cup. There's also been a continued benefit there from AI and the AI companies who are now extending after their VC raises and whatever they're doing in San Francisco coming into other markets. Whether it be into Boston, whether it be in Chicago and certainly New York City. So I would say that any slight lessening versus quarter -- the first quarter on the commercial side has no impact on the drive momentum that we're experiencing. And I'm very confident you'll see a balance for the second half of the year.

And just if I may, to confirm on MTA accounting, you still expect revenue shift in the fourth quarter so that the MTA cost will shift to revenue share in the fourth quarter?

No. It's Matt. We're going to account for the transit franchise expense on a straight-line basis for the whole year and really for the foreseeable future in the years to come. It's cleaner basically, we're looking at our internal models on the MTA. We don't expect to recoup in the life of the contract, the money we've spent. And as you know, in 2023, we took an impairment. And so most of the recoupment was already expensed back then. So we are going to straight line the MAG this year, which, as I mentioned in the script, is $161 million, so about $40 million a quarter. And you'll see -- likely see a big margin gain in the fourth quarter.