Thank you, everybody. Welcome. Sorry about the, a little bit of a late start here. We were having some technical difficulties. I am Ian Zaffino. I am the equity research analyst over here at Oppenheimer, that covers OUTFRONT Media. With me today from the company will be Matthew Siegel, and we'll be doing a fireside chat, followed by any audience questions that there are. If the audience has any questions, please put them in the chat, and I'll check it and make sure the question gets asked. And then also, you could just directly email me at ian.zaffino@opco.com. Either way, I'll get the questions asked, so. With that, Matt, thanks for joining us. Appreciate you being here.
Can you maybe just start with maybe a little bit of an overview of the business in the U.S., maybe how it's evolved over the past few years? Meaning, you know, static billboards versus digital billboards, you know, national versus local mix, et cetera.
Sure. So, OUTFRONT Media is an out-of-home advertising company. We have billboards and transit advertising. Billboards is these days about 75% or 80% of our total revenue. That pre-pandemic, that was moving 2-to-1, billboards about 67%, and transit about 33%. Our billboards are both the legacy static kind that you see around the country, on highways, and in cities and towns. We are steadily digitizing our inventory. So that's about a little less than 5% of all of our billboards are now digital. We have generally 8 slips per face on them. Revenue breakdown of our billboard business, a little over 30% of our revenue comes from digital, obviously, up from early days, and the rest is static.
On transit, it's a little larger, a little more digital on transit than billboard. Billboard business, both businesses are really sold by local. So two local advertisers and two national advertisers. The national advertisers are generally those that are working with advertising agencies. You know, in the last few years, the growth of the local business has been very steady, solid, mid-single-digit, consistent growth in both static, I'm sorry, in both billboard and transit. The national side is a little more volatility. National billboard recovered very quickly from the depths of the pandemic in 2020, and more recently have probably slowed down in their growth across our platform, effectively, probably across most out-of-home and other media platforms as well.
So there's been some change there. Revenue growth this year so far has been kind of, you know, low to mid single digits with transit outpacing billboard. Our second quarter, we just announced last week, very strong transit numbers led by national with really a lot, a lot focused in transit and in the MTA, in particular, our largest transit franchise outperformed all other franchises in the transit space. Pause there. Any questions so far?
Okay, thank you for that. Now, I know you've been doing a little bit of portfolio rationalization. The Canadian business, you sold. Why'd you do it, and then what happens with the proceeds of this, of this deal?
Sure. So that's not even rationalization. We like the business. It was Canada OUTFRONT, you know, Canadian business is mostly big billboard. We invest a lot in making it digital. As a REIT, it's often challenging to delever and pay down debt, because we're distributing most of our net income as a dividend. We felt, and I think many of our investors felt our leverage was too high, and we thought Canada was a viable division to sell. But it didn't have a lot of synergies with the U.S. market. It's not often someone would request geographies of New York, Miami, and Toronto, for example. So we thought we could sell Canada without an impact on the rest of our national business.
We knew there was an interested buyer from some conversations we had in the middle of the depths of the pandemic. We fired up those conversations again, we're able to, from the first conversation in 2023, we reached an agreement within months, and after some regulatory review in Canada, closed the deal in early June. So for CAD 410 million, about $300 million. We use all of those proceeds, substantially all those proceeds, to pay down debt and delever. So we paid down, shortly after closing, $200 million of our existing term loan and almost $100 million of other accounts receivable facility, other OUTFRONT operations.
In the end of the second quarter, our leverage dropping from 5.4x to 5x flat, we think very effective. De-levering one fell swoop . We miss our Canadian friends, but we think it puts our balance sheet in a much more comfortable place, and we continue to de-lever second half of the year with that, continue to feed that growth.
Okay, great. Thank you for that. And so as you kinda, I guess we're almost done with the summer here, so what's sort of the key areas of focus for, you know, the balance of the year and heading into 2025?
Really continued execution. As I mentioned, our transit business has returned to growth in 2024, with good growth in the first quarter and very good growth in the second quarter. Continue that, hopefully with both national and local performance. Continued digitization, so whether it's digital inventory, converting existing static signs to digital, or maybe acquiring some digital inventory from outside the company, or continuing the growth of our automated channels. We have two channels aside from direct calling and customers with account execs. One, programmatic, which has grown nicely. We've been doing it for a few years. We get the demand from a platform, and people can access our digital inventory.
And something more recent, digital direct , ad server, where we can sell, inventory not by space and time, but by audience metrics. So if someone calls and says they want a certain demographic, a certain period of time, and a certain number of people, we can provide that, not with one billboard in one location, but potentially multiple billboards in, you know, various, time frames. Those are now, we combined the second quarter, about 16% of our digital billboard revenue and growing sequentially very quickly. So that's... It's part of the execution, but, a digital focus and then, continue to pay attention to our national business.
The national, the agency business is changing somewhat in that, fewer dollars are flowing through the, agency holding companies, a little more going through regional, and, and, you know, so we're talking more to, regional agencies and, and, some local and digital-focused agencies, and, hopefully, having more conversations directly with the advertisers themselves. So again, you know, operating our business, as well as we've been doing and keeping the momentum going throughout the second half.
Okay, thanks. And then, you know, can you maybe just talk about, you know, the billboard business and, you know, what are you seeing from, you know, national versus local advertising? Kind of a breakdown of the sources maybe of growth that, that you've been enjoying. You know, how has that been, I guess, versus your expectations?
So local has been great. Really, you know, didn't go down as much in the pandemic, pretty steady business. You know, the auto business is a great example. The local side of the auto business is dealer networks, and if they pull back or didn't renew their annual billboards, maybe the diner next door or the retail store down the block might take it. So they're pretty reliable, steady customers. We obviously the same for the diner who has the advertisement. So that's been growing at mid-single digits for a number of years now. Very steady. People don't always associate OUTFRONT Media with local, 'cause our portfolio is more skewed toward national.
You know, even the big cities have big local components, New York, L.A., Miami, all have local components, all growing very nicely. National business provides a little more volatility, has higher highs and, you know, sometimes lower lows. Certain categories have challenges, and certain categories have got, you know, big booms. You know, for example, the TV business was way down in 2023 with writer strikes and postponement of the fall schedules of live, of non-live, you know, the fall scheduled shows. TV business was, you know, notably down in 2024. We see the third quarter . TV business is a big category that's, you know, dramatically up for us. It's a lot more category driven.
The last, I don't know, 18 months, we've seen some softness, as I mentioned, some structural change and some general softness. But again, having a balanced portfolio with both local and national has served us pretty well.
Okay, thanks. And then can you maybe point to some regions that are either strong or soft? I know you had called out L.A. a little bit. What's going on there? And then also maybe from a category perspective, like what's been really strong versus-
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Regions will be driven by their biggest markets and in fact, the biggest category. So, you know, this year, contrary to last year, L.A. and New York have had some challenges on the billboard side, mostly driven by media spend. In the first half of the year, there were fewer movies, and third quarter, even fewer movies. L.A. gets impacted by that even more than New York because they advertise not just to consumers, but they advertise to the trade, to the industry. So that's slowed down our L.A. business. New York, similar, some slower spend in media and entertainment, picking up in the third quarter now with television. So those two markets, a bit of a drag on their regions.
But we have, you know, four regions, East, including New York, South, Midwest, and the West. Everything up for the year, except the West, which is really dragged down a little bit by L.A. Midwest and South outperforming the East, again, from that New York category softness. Transit in New York, you mentioned on our earnings call, way up. So New York as a market overall, had a, you know, a positive second quarter. Billboard, in particular, was down a little bit on the national side.
Okay, thanks. And then, you know, on the billboard side, you're staying on the billboard side, can you maybe just touch on static yields? You know, we'll take digital next, but let's just focus on static for right now. You know, how has that been trending? And, you know, what's the outlook for that part of the market?
So it's interesting. Static, you know, I'm quoting Mark Twain, maybe, you know, the notice of static's death was premature. Static yields have been growing, you know, low single digits, but they're growing. The reason I pull that out, and we're quite pleased with that little growth. Every year, we're taking some of the best players off the static team and moving them to digital, and taking a lot of the high-yielding inventory and taking away from static, but the rest of the inventory continues to grow. And we're pleased with that.
A lot of our focus, whether it's through automated channels , or you know, other you know, marketing efforts, really driving digital and getting greater digital adoption and performance, but static is hanging in there, so we're quite pleased with that. You know, really, the challenge in the conversion, the digital conversion that's going on in the industry, is to keep the yield growing, but getting the car that's moving in the right-hand lane or maybe in the service lane, kind of a lower-yielding billboard or a slower-moving car, getting it moving into the left lane and moving a little faster. In our case, a lot faster. So, you know, the shift from static to digital shifts to a higher-yielding product.
Growth within that product is less important than actually turning more static into digital and performing like the digital portfolio that we have.
Okay, good. And then, you know, if we maybe don't have the same discussion on, on digital, but then also, how much conversion should we expect this year? Yeah, and then what's the ability to kind of keep pushing rate?
Yeah, we still think we'll add about 150, maybe a little more, digitals in 2024. Obviously, with the sale of Canada, the total numbers stepped back, so we're about 1,900 now. You know, as we think we'll add you know a little quicker pace in the second half, and we think that that rate will continue next year and maybe at some point step on the gas a little bit to accelerate. Our digital inventory is a little less than 5% of our total, driving a little more than 30% of revenue, so it's outperforms. Your question earlier about you know digital yield. Digital yield is going up you know slightly on a same board basis a little better.
Likely, like the static conversion discussion, we're adding new digitals every year and just, by definition, assuming we can do our best static conversions early in the process, now we're doing still very good ones and ones that make economic sense. Not as good on a portfolio basis, on a population basis, they might be averaging down the total. On an incremental basis, they're outperforming their static counterparts. So we're quite pleased getting more cars into that left lane and driving faster, performing at a higher yield, and doing our best to drive year-over-year growth on that digital. Just the math and the equation shifting from modest-yielding static to higher-yielding digital is really the key to the overall portfolio performance.
Okay, thanks. Then, what portion of the business now is programmatic, and what does that do to the business?
There's a bunch of things. So of automated, so programmatic and digital ad server is about 60% of the digital billboard revenue. Digital is about 30, 31% of our billboard revenue, so 60% of 30, and, you know, somewhere about 5% of our billboard revenue is coming from the automated channels growing sequentially. So that's, you know, next quarter will be a bigger number, and next year, a noticeably bigger number, doing a bunch of things. First, we're meeting the customers where they want to transact. If they want to use programmatic, they want to use an ad server, and accomplish the goals of those channels, we're making sure we're there for them to do that. They're more flexible. Digital is more flexible than static.
In general, it can take later business. You can call me for the digital ad and send me a copy on Friday, and we can get it posted on Saturday, maybe Friday afternoon. So we can go later in the cycle, and we can do more issues. You know, if you want to, we'll talk about political in a minute, I'm sure. If you want to do a political ad for the weekend, you can do it with digital. I don't have to send a truck out and post a new copy and then send the truck down and change the copy. So it's much easier, much more flexible. Programmatic and digital direct can do shorter can give the buyer choice.
You know, a lot of times buyers want to pick their own locations if they can, and compare that to maybe some other's other inventory. The ad server, it allows us to sell things by audience metrics and someone wants to reach X number of people with this demographic characteristic than not tied just to one location or one thing they can. Our ad server can say, "I'll cover you, and you know, electronically, I'll make sure you reach your 500,000 people over the next two weeks, and give you a proof of performance after the fact." So they're more flexible, and again, these are probably the channels of the future.
We're never gonna do without our sales force covering clients, generating demand, and giving service, but the industry is evolving, and I think we need to be in all three of these channels in a growing way.
Okay, thank you. And then I guess, you know, leaving billboard behind, let's move on to transit. As you pointed out, kind of really good results. What's interesting, though, is especially in New York that ridership really hasn't changed. So, is it just advertisers returning? You know, what do you think is actually happening there?
That's right. So New York is still around 70% of ridership where it was in 2019. We think if people are not in the office five days a week, maybe somewhere three or four days, that seems about right. Recently, we have been over-indexing our revenue growth is certainly outpacing change in ridership, and so I'd like to think, I'm sure my sales team would concur, but it's effort and focus and some clever communication and encouragement. People aren't just coming back they're, you know, they're being taught and explained the merits of transit. You know, New York, in particular, a pool of 4 million people is I think the largest audience in the country. It's an attractive demographic. You can reach them, you can reach them effectively.
You can reach them going a lot of different ways. So I think we're refocusing, especially our national team. We directly ask them to focus more on transit, and we see the national performance of New York reflects that. I think we're just doing a better job, and you know, the further away you are from negative press helps. And for those of you who are listening, who've been on the subway, if you've been on during rush hour, it's relatively crowded. It's not as unpleasant experience as it was maybe in 2018 and 2019, but still with people, and you know, I think it's a good way to reach those people. And you know, the other major markets we have, D.C., and Boston, and San Francisco, ridership's not back as fully.
They're not performing as well as New York, but they're also showing... it's seeing growth and kind of returning to a growth environment is very encouraging for the future.
So I guess, you know, just given, like you said, revenues, the recovery in the business has outpaced ridership. You know, what do you actually think is the right transit number to kind of get back to full potential? Yeah, obviously, it's not 100, you know, and I think you might have thrown out, like, an 80% before. Is that kind of how you feel still, just given how the business has performed, or is it going to be lower? Yeah.
I think so. We were speculating the 80% in the pandemic, really, we would need to get back to 100%. And I'm not sure which 20% aren't coming back, but I think we can get back to where...
Yeah, thank you, everybody. Again, we're having a little bit of technical difficulties, so we're going to go to audio only. And again, if anyone has a question, please put it in the chat, and also you can email me. So Matthew, Matt, Matthew, we're going back and forth about, you know, what you think you could hit your potential max revenues at, as far as ridership, and it used to be 80, and now how are you feeling today?
I think 80 is probably still a good target. I'm hopeful we can do that at a lower level. I think I was pointing out there's a lot of new inventory on the MTA rolling stock, which in 2018, pre-pandemic, hadn't been digitized, is pretty well digitized now. By the end of the year, that deployment will be completed. So that's new stuff to sell. The programmatic and digital direct channels we were just talking about for billboards have just been connected to the MTA. So that's extra demand that's gonna be there, that's gonna help us to be able to hopefully overindex the ridership recovery. So 80% could be aspirational.
Perhaps we could get there at a lower level, but certainly we don't need to be at 100% ridership to get back to where our revenue had been pre-pandemic.
Okay, thank you. Then, how are we or how should we think about this MTA contract now? You know, as far as potential options, you know, that are on the table, you know, can you rework the contract, or we kinda just, you know, stuck with what we have?
Probably not a lot of options. We've had a series of conversations really throughout, since the pandemic. You know, we talked to the MTA at a bunch of different levels. You know, we don't have a lot of options. They don't have a lot of financial flexibility, and any kind of amendment would likely be a zero-sum game, a transfer of value from the MTA to OUTFRONT Media. We've investigated a few outside the box alternatives. I'm not gonna go into the details here, but things about the tenure and maybe some of the capital investments. Maybe there's some things to do on the margin on how many screens are actually deployed.
But I think the contract that we have and the situation that it's in is what we're dealing with going forward. The good news on that is, as I mentioned, we're near the end of our initial deployment. You know, so the heaviest capital is behind us, kind of at some cost, both financially and maybe emotionally for some of us. Starting next year, we'll move into a refresh cycle, where the capital is lighter. And as we said last week on our earnings call, we think from June thirtieth forward, our expected EBITDA and EBITDA growth over the remainder of the base term, the next five and a half years of the contract, will outshine or outweigh the expected capital costs.
So I would be, at worst, cash flow neutral, possibly cash flow positive. So I think the boat anchor that the MTA contract was considered for many years with potential, you know, damage, further damage to the balance sheet, probably behind us, and this is now just a thin margin, poor-performing contract from here forward, which is, you know, doesn't sound so great. Good news, I think it puts a pin on the performance of the MTA, and hopefully we can outperform that forecast. But I think the downside is, dramatic downside is limited from here forward.
Okay, great. Thank you. And then, you know, I know we touched about capital allocation earlier today, but, you know, how are you thinking about what the right, right leverage, target is? You know, where do you think you'll be by the end of the year? And then maybe just touch upon dividends and potential pay, dividend as a, as a mix of, I guess, cash and stock.
Well, as I mentioned, you know, in Canada, we felt we were overleveraged, and organically levering just means that growth would take too long and leave us with limited flexibility. We put our leverage, you know, the way we calculate, based on our covenant, down to 5x, and we have to continue to delever, you know, into the 4x-5x range by the end of the year. I'd like to think it's, you know, I don't know, you know, 4.75 neighborhood, and, you know, continue that trend into next year. So I'd like to get closer to 4x rather than 5x, but that's probably the neighborhood we would expect to live in, in that 4x-5x.
As far as the dividend, as a REIT, as I mentioned, we're obligated to distribute 90% of our REIT taxable income, so we think the $0.30 a share that we've been paying this year is appropriate, to cover that. As I mentioned, there will be a capital gain distribution associated with the sale of Canada. Again, part of the net income is capital gains. So we're considering different forms or currencies in which to do that, and the board will make that decision, sometime in the fourth quarter.
But the logic there is, we sold Canada to delever and pay down $300 million of debt to turn around and pay out, I don't know, you know, $80 million of that in the form of a dividend, would be kind of counter to the strategy of delevering. So as a REIT, you're able to pay 80% of your announced dividend in stock if you so choose. And our thinking is, if you're giving everyone pro rata shares of stock, there would be no dilution. Everyone would have the same ownership before and after a relatively common occurrence in the REIT world. But again, that's a board decision to be made, probably over the next couple of months.
Okay, good. Then, you know, just longer term, you know, what do we think about the M&A landscape? You know, are you looking at anything, you know, where are multiples and, you know, how are your other competitors bidding for those assets?
So right now, not a lot of activity. You know, we've been focused internally on our delevering, but pretty confident we haven't really missed anything. You know, we've kicked the tires of a couple of things that are, you know, probably not really of interest to us. But it's, I think it's prudent to be smart about what's changing hands. But I've seen, you know, our other public company hasn't bought anything material that we've missed. The third public company obviously is, you know, some financial distress and goes into a lot of acquisitions. It's a modest boutique company, was sold within the last year, so that was a private equity buyer. And private equity is likely to buy another regional.
That founder has recently passed away, and likely a smooth transition there. So we haven't missed any live auctions that our balance sheet or our internal focus has kept us from. So we're still doing very small tuck-ins. Last year, we spent about $35 million on tuck-ins, generally ones and twos and market fill-ins at very attractive low multiple prices. We continue to do that this year. Pretty small first half. We'll probably get back to that same $35 million level by the end of the year. Again, I don't see anything on the horizon. There's a few high-profile names that always get kicked around, and if and when those do come for sale, I'd like to think that we'll be in a position to look at that.
You know, depending on our capital situation, use some creative or clever ways to finance that. You know, otherwise, the bid-ask, the public multiples are better than they were. You know, I think we trade, you know, depending on reduced estimates and things that are around 11x EBITDA. You know, our competitor, Lamar, trades at a much higher multiple. So I'm guessing private sellers would want something in that neighborhood. And frankly, at this time, we're not that excited about paying 11x-12x for billboard inventory. But again, you know, facts and circumstances at the time will dictate. But again, market's pretty slow. I expect it to pick up next year and the year after.
Okay, thanks. And then, you know, just one final question, you know, because we're kind of bumping up against the end of this. You know, maybe give us, like, a longer-term outlook on just out-of-home in general. You know, how do we think about it longer term, with just technology changing, but then also a lot of the traditional media continuing to lose share? So, you know, how do we think about that, or how do you think about that?
Fair question. Good question. I think long-term out-of-home, you know, continues what it's been doing recently, taking share from some of the other legacy media companies. Which it's, our audience hasn't gone away or declined. And perhaps, you know, the digital and social and mobile are taking share from all of us, so it's a slow grind. I think technology helps us right now. We're, as an industry, trailing a. You know, we don't have very solid methods of providing attribution except in private one-off studies. That's something that customers would like. So I think as we as an industry get better at that, it becomes easier to buy and convince buyers to participate in out-of-home.
So I think that's a good thing. I think the margins in out-of-home probably continue to grind higher as people bid a little more, I will say, you know, prudently, if that's kind of the right word, on various franchises. Some of the challenges in transit aren't necessarily about the underlying transit business, but maybe the shape and financial characteristics of the contracts. And I think we've all learned from the last couple of years, you know, to bid a little more wisely and try to make a little more margin and with a little less risk in transit. So I think you'll see that trend pick up pace and continue. And then on billboard, you know, I think the digitization of the billboard landscape will continue.