All right. Good morning, everyone. I'm Jason Bazinet, cover media and entertainment here at Citi. Have Chairman and CEO Jeremy Male with me here this morning. Jeremy, thank you so much for coming.
Jason, thank you very much. Good to be here.
Yeah, yeah, absolutely. So I wanna start with a big picture question.
Okay.
Priorities for 2024. As if we're talking sort of a year from now, what are the things that you're focused on over the next 12 months and the things that get you most excited?
Well, I guess really getting the top line moving again-
Mm-hmm
... next year. I think particularly within our transit business, which has been difficult for us this year. Actually, billboard business been, you know, pretty, pretty good. But getting the transit business moving, and we've got, you know, some plans to do that, particularly as we connect our digital transit assets to the programmatic platforms. We think that can make a significant difference. We are very focused in terms of our transit agreements and how we can improve some of those agreements. Obviously, the big dog there is the MTA.
Yeah.
I guess we'll be talking about that in more detail as we go through our questions. Even within billboard, we're looking very hard at billboard margins and our margins in general. So we're keeping a very close eye on our SG&A, and we'd like to, you know, be reducing our SG&A costs as a percentage of revenue as we go into 2024. Net-net, you know, we'd like to, you know, achieve OIBDA growth that will allow us to delever because we're certainly, you know, focused on our leverage, and we believe that that would be, you know, very positive messaging for our shareholder base.
Okay. That's a good list. What, how would you characterize just the overall health of the ad market as we sit here today, and sort of what do you envision as we go forward over the next 12 months?
Look, I mean, we've all seen the commentary out there, and I think it would be very hard to describe the ad market as robust.
Yeah.
I do think that as we look forward, you know, I hope some of the uncertainty goes out of the market, and I was looking at some numbers earlier on today, and it seems that next year, most people are plugging in growth of around 5% plus political of another 4 or 5, whatever. So the-
Here you're talking overall ad dollars.
Just talking, yeah, overall ad dollars. In fact, when you drill in and you look at out-of-home, out-of-home is also forecast to be growing mid-single digits next year. So, I guess I'd say it's not particularly robust. For us, it's you know, you have to sort of dive into it a little bit and say: So, what's going on for us? If we look in our business base, you know, the writers' and actors' strike has had impacted us.
Sure.
TV is down for us right now. The dollars will come back-
Yeah
... you know what I mean, at some stage, but down for us right now. Tech dollars are certainly down, real estate dollars are down. Certain other categories, you know, are nicely up, you know, legal, for example, is very strong, and you know, health is pretty good. So, you know, it's a mixed bag, but I would say mildly positive, not robust.
Okay. What was it when one of your competitors also pointed that the sort of legal vertical was pretty strong? Does that mean anything? Is that like a harbinger of a recession if all of a sudden, like, lawyers are out there advertising, you know, 1-800, you know, my back hurts or whatever they do, like?
No, I think that's just a reflection of the margins that are made in that industry and, you know, the benefits of outdoor media in general as a great driver of response. So I believe I'm right in saying that legal was actually our largest category in Q1. As I say, it's been a good growth driver for us in Q2.
Okay, that's great. What about the national-local dichotomy? I assume that most of the sort of soft paths that you talked about, all those examples you gave, television, maybe online sports betting, you didn't mention that one, but that all lands on the national side of the ledger?
It does. Yeah, it does indeed. And, in fact, when you look at it, you know, local at the moment is a slightly higher proportion of our business than it was in the past, 'cause basically, it's been sort of flatter throughout the, you know, throughout the sort of whole, you know, COVID cycle-
Yeah
... to put it like that. And yeah, I mean, look, that, that, that will, that will impact, you know, national a little bit. I mean, we, you know, we gave guide, you know, Q3 guidance, of our billboard business being up low single digit, our transit business being down, and much of that down, in fact, all of that down is because of national business that really isn't down there, because we used to carry a lot of the fall launches down there. So we used to, every September, since the beginning of time, we've had those fall launches that, let's say, will come back. So, you know, very much the same as we said, you know, guided after our Q2 earnings call. So billboard up low single digits, transit down.
Depending on that down, we could be more flattish, you know-
Yeah
... for Q3. But yeah, no significant change from-
So let me, I'm gonna just, I'm gonna focus a little bit on billboard, and then I'm gonna shift over to transit. So-
Okay.
On the billboard business, that business seems to have done, you know, actually really well and held up better than some of the other verticals. Why, why do you think billboard has done well? Is it an inexpensive medium? Is it you're making traction on demonstrating the efficacy of the ad spend to marketers?
Well, if we just, yeah, if we look at our billboard business in particular, and if we look at the first half of this year, in the first half versus 2019, which is, you know, a comparison that I think is worth making. Our billboard revenues are up 26%, and our billboard EBITDA is up 27%. So, you know, if you think of that COVID cycle, I mean, that's a pretty strong performance.
Yes.
And look, that billboard performance is driven by the fact that just the efficacy of the medium in terms of its CPMs. It's a reflection of the fact that we've been investing in converting our boards to digital. Still a great thing for us to do. On average, we make, you know, 4x revenue, and we have 2x costs, so it's, you know, it's EBITDA, it's margin positive as well. So we have more hardware out in the field, and then we are better connected and more automated. So the fact that we can now, you know, take programmatic dollars and allocate them on an RTB basis to our inventory across all of our digital boards has been a great driver also.
So, I mean, the health of the billboard medium is terrific to see. And, you know, certainly, you know, when you compare to just about any other traditional medium, you know, radio or-
Yeah
... TV or press, whatever, I mean, it's been the true positive outlier over the last few years.
So there's one metric that I track, and it's interesting because some of the growth, of course, in the industry and for you guys, has been those digital conversions. So one of the things I like to do is sort of, I think it's the average revenue per digital board, and you put that in the numerator.
Mm-hmm.
And then denominator, you do average revenue per static board.
Yep.
And what I would think would happen over time is, as, you know, if the thesis is you convert, you know, the, the, the most valuable digital board first in your entire inventory, as the years go on, that ratio should begin to compress, right? Because you're going deep, and, and I don't see that much compression across the industry. In other words, the, the marginal digital board you're converting is still many multiples of the average analog or static board that's left in the inventory. That's surprising, is it not to you?
I think it's reflective of the runway that is still out there-
Okay
... in the industry. I think whenever you start looking at averages-
Yeah
It gets a little tricky because, you know, we can convert a board on the West Side Highway, you know, or put a digital sign up there, and we'll—it's a $1 million sign. You know, convert a board in Louisville, and it goes from being a, whatever it is, a $10,000 sign to a $40,000 sign.
Yeah.
You know what I mean?
Yeah.
But as I say, broadly, I think, you know, I think I wouldn't, you know, I think that is, you know, something which is quite positive for the industry.
It is.
Yeah.
Yeah. A lot of runway left. So I wanna... So how about going forward? I mean, do you think the main drivers of digital outperforming will continue? Digital will be good. You'll continue to sort of take a little bit of share from some of these static mediums or analog legacy mediums, I should say.
I think right now, when you look at, you know, the flexibility that digital gives you versus analog in terms of your ability to literally, you know, change your creative, you know, in a split second, by in a split second. And you sort of think about that in comparison. I'm gonna exaggerate now, but going back a few years with, you know, where you had to literally send a poster, you know, on a truck.
Right.
Get a guy with a ladder and a bucket of paste. It's not quite that bad, but, yeah, I'm painting it-
Yeah
... as I say, I'm exaggerating to prove the point. Think of the flexibility we have with digital, and it's definitively gonna keep commanding a greater share of dollars. And while we can keep the returns as they are, you know, we literally don't sign off a digital conversion unless it's 20% plus IRR. So while we can make those IRRs, and we're stimulating this incremental demand, we'll keep investing in digital for sure.
Okay. Okay, that's great. I'm gonna shift over to transit. So, you guys, I think, have a lot of transit contracts, but I think you've said the MTA is about 50%-ish-
Yep
... of the transit business.
That's right.
Next biggest one is San Francisco?
No, it wouldn't be San Francisco, particularly now.
Okay.
It would be, you know, after that, the bigger contracts are L.A., D.C.-
Okay.
Um, Boston.
Okay. I'm gonna roll the clock back to the CBS days before OUTFRONT existed. I think there was a big transit contract in London, and if I remember correctly, you signed that, the great financial crisis happened, and you guys just got out of London, I think. Is that correct?
Well, predates me-
Okay.
But obviously, I've been in the industry a while.
Okay.
I know the,
Okay
... I know I can answer that question, I think. Yeah, they had the contract, or we or they had the contract for TfL, Transport for London, which was the subway, and for the most part, it's the subway. And they had, after GFC, there was a legal dispute, contractual dispute. The way that resolved was that there were some concessions made and a new agreement was signed, but that was then just part of what was the European business of CBS Outdoor that was sold to Platinum Equity in September 2013.
Okay.
So, that. I mean, that's the story. But you're right, there was some noise around it-
Mm-hmm
... because there was this contractual dispute, but it was, you know, it was resolved-
I can see.
... and as I say, sold as part of that, you know, to Platinum. That business is now owned by Global in the U.K., and, you know, as far as I know, it's, you know, business as usual for them.
Okay. But when you run into sort of a COVID situation like we had, that sort of impacts sort of transit revenues, we shouldn't think of you sort of disposing of assets or getting out of contract. It's more tweak around the edges. I think you referred to one of your priorities for 2024 is to try and nudge these contracts, maybe to make them a bit more favorable for shareholders. Is that right?
Look, you know, during COVID, we had a number of contractual renegotiations, including with the MTA.
Yes.
So, you know, the outcome of that was a, so, you know, change in the level of investment and, you know, a change to the contractual term. So we had a number of contract negotiations that gave some, you know, relief, to put it like that, for the COVID period. I think what's become very clear since then is that, you know, having... In our business, we then had 20% growth in our transit business in 2021, 20% in 2022, but 2023, it's very much sort of flattened out.
Yeah.
All of the, you know, the assumptions that we were talking about when we were making those original, you know, contractual changes, many of them haven't come right in terms of return of audiences and the general perception of transit in major cities across the U.S.
Yes.
We are now in a situation where we are in discussions with the majority of our principal transit partners, including the MTA, as to how we can better reflect the reality of 2023 and transit advertising going forward.
Okay.
You know, obviously, it's very difficult, and we wouldn't wish to comment-
Mm-hmm
... early on any of the-
Right
... any of those discussions. But, you know, net, net, we're hopeful that it will be positive to our shareholders.
Without getting into the specifics, can maybe, can you describe what it is you're trying to solve for? In other words, is it, is it just to make sure that the IRRs are, are, are positive, and so, you know, maybe extending duration? Is it more about making sure that you're generating cash flow? Is that the most important thing? Like, what are the things that you-
Yeah, look, there's really only, you know, there's sort of four main pieces-
Okay
... to a transit contract. You've got, capital investment-
Yeah
... and who makes it?
Yeah.
Okay, whether or not it falls to the media partner, or whether or not it remains with the transit operator. You've got what guaranteed revenues, you know, what revenue stream to the transit company you might be prepared to make or were prepared to make, and whether or not that's still reasonable-
Yeah
... given the change in the market shift.
Yeah.
You've then got the revenue share.
Share, yeah.
Okay, and, if you think about revenue shares, you know, maybe it made sense to work on 60%, 60% shares if revenues were $100, but if revenues are now $70, our cost of operating that business is still the same. So, you know, you need to look at revenue shares.
Okay.
And then duration would be the final piece.
Okay
... you know, particularly if capital is involved.
Understood. Okay. I think you've said you expect the MTA to become free cash flow positive next year.
Yep.
Still true, even if there's no contract changes or tweaks or anything with the MTA?
any comments we've made on that basis, so there's, yeah, yeah, we certainly haven't built in any contractual change-
Okay
... into that statement. Look, we'd think over the next 18 months. So, you know, from when we put that number out, in other words, these two quarters and the four quarters next year, over those six quarters, they will spend around $95 million of CapEx. Sometime in the middle of next year, we believe that we, you know, we go cash flow neutral.
Okay.
Then, you know, the current term goes out to 2030.
Yeah.
After that spend, you know, we see about $30-ish, $30, $35, maybe $40 max million, depending - it depends on the lifetime of the screens, et cetera, and dollars to maintain. Do you know what I mean? The network going forward. So pretty much then we're done. And yes, it's going cash flow neutral, and that assumes no change-
Okay.
-to contract.
I was looking through my old notes, and I could never find... Was it 2018, the MTA contract when you announced it?
Uh, seventeen.
Seventeen.
Yeah.
I was going through my old notes, and I don't think you guys ever disclosed the original CapEx commitment for the MTA. I think it changed when you went through that renewal during COVID.
Yep. Mm-hmm.
But I personally was surprised when you said you only had $95 million left on the MTA contract, because my model had more CapEx, but it was just my assumption. But is that like in the contract or whatever, the re-negotiated contract is only $95 million left of capital to deploy? It just struck me as a very low number.
Well, the contract is based around number of signs-
Yes
... and so, you know, rather than absolute dollar values.
Okay.
So, in order to complete the number of contracted signs-
Okay
... that, that's the ninety-
Okay
$4 million that we've said. And yeah, that does in part reflect some of the, you know, that what I would call smarter deployment. Do you know what I mean? We originally thought we'd put X screen somewhere, and we said: "No, you know, on balance, we think we can-
I see.
-we can put Y, achieve the same, great impact-
I see
on our audiences without, you know, with slightly less screens.
Okay, that's super helpful. I hate to belabor the MTA point, but I know investors care about it so much. These fare hikes that just went through, is that meaningful to you, or you don't think it really impacts much in terms of like it's-
What are you saying, because the, well, sort of fare hike ridership goes down?
Yeah.
I suspect that won't-
In a last-
really be the case.
Okay.
You know, I think people use the subway because it's the best way of getting from A to B.
Sure.
I think people will continue to do so. I mean, the other thing that, you know, when we look forward, we've built a in our, you know, current model, we've got, you know, about a 6% CAGR in our numbers going through to 2030, and we don't-
6% top-line CAGR?
6% top line CAGR.
Okay.
For example, we don't build anything into that either for potential benefit to public transit if we see a congestion charge in New York.
I see.
It is what it is. We just-
Okay.
You know what I mean? We just broadly expect, you know, some sort of continued increased ridership.
Yep.
Say, 6% CAGR on the top line, 3% CAGR in our, -
Okay
... cost base.
Okay. Thank you for that. Can I shift gears and talk about acquisitions?
Absolutely.
Okay. So I think you guys are on track to spend a lot less on acquisitions this year than you did in the prior two years.
Yep.
Is that sort of... Should we think of 2021 and 2022 as sort of the aberration, and 2023 is sort of more typical, or could it even be less?
I think it's two or three things. Acquisitions are a bit like buses, and two always come along at the same time.
Okay.
So, you know, there were a number of businesses out in the market, you know, over the past couple of years, more so than would be the norm. So I think that was one piece of it. You know, just not the same number of deals out in the market. I think that public multiples have gone down, private multiples or private expectations-
Um
haven't necessarily followed.
Okay.
I think that is part of it as well. You know, from our point of view, you know, fair to say that we're keeping one eye on our balance sheet also.
Sure.
We believe that, you know, we have some great opportunity to sweat some of the assets that we've either acquired or built over the last 18 months.
Yes.
That's where we're gonna focus most of our intention. By the way, that doesn't mean that if a great opportunity comes along, we wouldn't pursue it.
Yep.
But just, you know, generally, we're just, you know, taking a pretty, you know, more balanced approach.
In terms of focusing on leverage, do you have sort of a goal or target in terms of where you'd like your leverage to go, and over what period of time?
Look, at the moment, we're between, you know, we're between 5 and 5.5. You know, first objective is to get, back down below 5-
Okay
... and we'd like to then drift down towards four.
Okay.
I mean, that's essentially where we're thinking.
Okay. Any questions from the audience? No questions.
Yeah.
All right. Yeah, there is one.
Uh-
Yeah.
So-
Wait, can you just wait for the mic just so the webcast can...
Jeremy, can you just talk quickly about how the business may change in terms of historically, it's all been the ad—the outdoor business has been very stable relative to other media, ad areas. Does that change if we look out three to five years as you switch from to more digital, which gives more flexibility, and so then you wind up being a bit more-
...um, cyclical.
Cyclical, yeah.
Mm-hmm.
Yeah, look, I think that's a good question. I mean, when you look at out-of-home, particularly local out-of-home, where you've had this sort of major swathe of the business that is just bought on a permanent basis. You know what I mean? That sort of, you know, signage, turn left for the next McDonald's, whatever it happens to be. And I guess as the share of revenues become digital, it does give the ability to turn the tap on and off quicker.
So potentially there's a little bit more volatility, but I believe that the benefits of the fact that you have an entirely potential new user base, because whereas before, you know, the minimum you could get into a board for was like four weeks at X. Now, if you're a local advertiser, you can buy a board for-- you can buy a board for an hour if you want. But I mean, typically, you know, you could buy a board for like two or three, you know, two or three days over a weekend. I mean, there's so much more,
Mm-hmm
... we think potential demand that it will more than outweigh the sort of mild discomfort of that incremental volatility.
Do you see the industry ever moving where there will be sort of longer term...? Like, maybe you can give us a little bit of history in terms of what was it that caused, a customer to have to sign a contract on a static board for a specific period of time? Was that just because of the pace and the truck roll and the fixed cost associated with switching it out, or was there another reason for that? And will the industry, do you think, move to longer-term contracts on the digital side?
It's interesting. I mean, it's different across the world. In the U.S., the minimum period is a four-week cycle. In the U.K., it's a two-week cycle.
Mm.
And in France, it's one week. So it, you know, but, so a lot of-
So no labor flexibility in France, but you get billboard flexibility.
So a lot of, a lot of it is traditional.
Okay.
But just the structure of the industry, you know.
Okay. Okay. But you don't see anything changing on digital. You think it will always be sort of a very-
I think, you know, the-
-flexibility
... one of the great things that I think you can see of digital is, you know, we have something called a Roadblock, which we'll do in Times Square, where you can buy all of our boards and other people's boards. So you essentially buy the, you know, the entire Times Square for like 15 minutes. So you have this incredible, do you know what I mean, visual, for your brand, and typically you would then have, you know, if it's a movie, do you know what I mean? And you'd have the actors there and everything else, so it then gets shared on social and everything else.
So that moment in time, even though they've only got about 15 minutes, goes viral within a heartbeat, and the value that you can, you know, people achieve through that is huge.
Mm.
That just shows, I think, the value of digital, right?
Super helpful. Jeremy, thank you for the time.
Thanks, Jason.