You know, just making sure that, we keep all of our metrics in the right place. I think what we've seen over the last couple of quarters is quite a nice flow through-
Yeah
between revenue and order growth.
Yeah.
You know, we'd like to think that we can keep that operating leverage going through 2025 as well.
Okay. So as I've walked the halls here at the conference, I would characterize the level of investor anxiety regarding macro as elevated. But at the same time, haven't really seen dispositive signals from any sort of media company or anything in the ad world that seems like it's rolling over. And so, I guess based on your conversations, do you think that's a fair characterization of what you're hearing from investors and what you're seeing on the ground?
Yeah, I think it's a fair characterization. I mean, to be honest, that you know, the when's the recession coming, and have you seen the cancellations yet? It's been coming for about two and a half years.
That's true.
And by the way, that's not to, you know, suggest that, you know, that there may not be something around the corner.
Yeah.
But I think all we can say is that from where we're sat right now, and you know, many things can change on a dime, that you know, we're seeing our national business improving a little bit. Local business, you know, seems solid. So we're not seeing it, but you know.
Yeah. That's great. Cross our fingers. So, I think there's two schools of thought on this sort of national weakness that we've seen in outdoor, the improvements you noted in 3Q notwithstanding. One group of investors I chat with says, "This is something that, that's secular, that's going on with the national ad buyers that are maybe tilting more of their ad dollars, you know, to social media or whatever it is." And, and the other camp says, "No, this is, you know, very specific and can be explained just by specific verticals that might be weak on the national side, that is really not emblematic of a longer-term trend." And they cite things like, I think last year, maybe insurance, media, and entertainment, right? You know, the normal categories.
Yeah.
What camp are you in?
I think if you let's take one step back in this. So if you look at worldwide out-of-home, last year, I think it was the highest share ever and the highest dollars ever, so worldwide. So I think, you know, that I think generally the out-of-home industry, do you know what I mean, on a worldwide basis, is in pretty rude health. But we're a relatively small business, so what that means is that when you have advertisers step in, so insurance, you know, is off-quoted. Well, the reason, you know, insurance is currently quoted is that, you know, a couple of years back, we had a bunch of money from State Farm and a couple of other, do you know what I mean.
Yeah
... big insurance companies and, you know, lapping those, do you know what I mean? Suddenly, insurance is down, everyone's saying: "Oh, my God, this is, you know, this is an issue." Actually, it's been more about comps. Take one more step back, and if you look at our business, and it's not directly comparable because, you know, we've obviously added footprint here and there, and that changes the dynamic. But, since twenty nineteen, our local business is up in the thirties, and our national business is up around 20%. So it, you know, it has, you know, slightly, lagged overall.
Okay.
Uh-
Sorry, can you say those= numbers one more time? I just missed that. You said-
So local business up 30%+.
Up 30+ .
Since 2019, and national business are, you know, around 20%.
Okay.
So, you know, and then within that, last year, I think, there was a very specific dynamic, which was the actors and writers strike, which did take, you know, a whole bunch of dollars out of the
Mm-hmm
... out of the market. Because actually, for the first half, first part of last year-
Got it
... our national business was outperforming local, and then we, you know, really sort of, you know, really tailed off with, you know, essentially no TV money, no movie money, and-
Right
... you know, etc., etc. I think when you, you know, as we look forward, I believe that out-of-home will start to increase its share of those, you know, national dollars, but the great thing about out-of-home is that, and particularly here in the U.S., is that also we have this huge breadth of advertisers, with 60% of our book local. I mean, in dollar terms,` our largest category in Q2 was legal services.
Mm.
You know, so, you know, we rarely spend much time to automate a-
Yeah
... at an event like this, talking about, you know, lawyers on billboards.
Right. That's fair. Certainly fair. So what, if I had to pin you, then you would be in the camp, just to go back to the question, you would be in the camp that there is nothing big and secular going on. You think this is more a function of verticals, but acknowledge that national is underperformed well?
But I, you know, we can't ignore the fact that, you know, we talk about social, et cetera. I mean, just a few years ago, you know, TikTok didn't exist.
Right.
How many, you know, what dollars are they taking out of the U.S. ad market right now?
Right.
I mean, so to that extent, you're always swimming against the tide a bit.
Understood. Okay. So I'm gonna shift gears and talk a little bit, if you don't mind, about transit. You've suggested that as your non-New York MTA transit contracts come up for renewal.
Yep.
Your hope is that you can sort of tweak some of the terms around those contracts.
Yep.
Is that right? Can we just start by just reminding investors of the smaller transit contracts that exist outside the New York MTA?
Um.
That are of size, I mean.
Yeah, sure. So within the top half dozen, because after that there's quite a long tail, would be Boston, DC, LA Buses, Miami-
Okay
... and BART in San Francisco.
Okay. And should investors sort of think about, like, one of those or so coming up for renewal each year? Is that sort of the right thing, or is it more clustered than that?
Well, it's actually, there's really not too much coming up in the next couple of years.
Okay.
But that doesn't alter the fact that we've just had a renewal of a DC contract.
Okay.
This sort of focus on that at least sort of gives the frame of reference.
Okay
... how we would approach when they, when they do come up, and in DC, you know, we managed. We took the revenue share down. Part of the, you know, we've obviously got pre-COVID contracts, so if the revenues have taken a step down, we need to retain a higher share of the reduced revenue in order to pay our costs that have fixed or have increased-
Sure
... you know what I mean-
Sure
... with inflation. So that's the first point. The second point is that we would seek to de-risk any guaranteed payments as we go forward by making sure we have the appropriate protections and/or a floating guarantee, which sounds like a bit of a dichotomy, but is something that we have used. And we would be, you know, extremely reticent about putting in capital, do you know what I mean?
Yeah.
Committing to any capital commitments. From here, it's really saying that the capital in one way or other has to be on your dime.
Yeah.
We're happy to put it in for you and service it.
Yeah
... but it's on your dime. So that's how we would look at reshaping some of these contracts.
And what is, is the net of all of that? If we sort of did a pre-COVID MTA contract versus the ones you're negotiating now, is the right way to think about it, that the upside isn't as much under these new contracts if things go swimmingly well, but the downside isn't as bad, and so it's still a good IRR, but it just has less amplitude? Is that the right way to think about it?
You know, to be honest, up until the rebid of the MTA, we had very few contracts where we had any capital commitments. We just had a business, transit business that was growing nicely.
Mm.
And it was typically a 20% OIBDA business.
Yeah.
That's what we would like to get back to.
Yeah.
We'd like to get back to, you know, a 20% OIBDA margin business.
Okay.
It'll take, you know, a little bit of time.
Okay
... but, that's the shape of contract we'll be driving for.
Okay. I'm gonna shift back to the MTA in New York. You mentioned earlier that you're very focused on keeping that momentum going. How much of that momentum is predicated on ridership numbers continuing to improve, as opposed to ridership hangs out, I don't know where we are now, 70%?
Around 70, yeah.
Yeah.
Mm-hmm.
Hangs out at 70% for the next couple of years, and you can just do things with your sales force, with programmatic, to sort of keep that momentum going? Like, how, how should investors think about the potential mix? In other words, are you optimistic about ridership going up, or you're sort of, sort of assuming that ridership doesn't move, but we can still keep the momentum going with other tools in our toolkit?
So relative to ridership 2029, which is around 70, our revenues are, you know, north of that.
Yeah.
So we've already sort of realizing that. And part of that is because we have a much better product. I mean, I don't know how many people spend any time on the subway, but the digital down there looks terrific, on platform, or indeed, you know, in the subway, subway cars themselves. So we have a great product. We have a reach that is much closer to 2019 levels. We have those digitals, except the ones on train, now hooked into the programmatic platforms.
Mm.
So that's a fairly recent event, so that will. You know, the initial observation and take-up is good, but we, you know, we see that being great. So all of that is. And, you know, we have a lot of focus on spending on transit full stop. So we feel good that we can continue to get growth even if it stayed at that kind of seventy-one-
Yeah
... 70-ish % level-
Yeah
... whatever, whatever it is. I suspect that it will grind upwards. You know, I don't think it's gonna be overnight.
Yeah.
I read a really good quote the other day. I think it was in Wall Street Journal, and it was Ken Griffin from Citadel saying right after COVID got all his people back in the office, and his quote was, "You know, the best thing was competing against people in their pajamas." I thought it was a really good quote and I don't, you know, I think we've basically kind of moved on from that. We realized that actually you can work in a really efficient way from, you know, all sorts of different places. But I do fundamentally believe that more companies, as we go forward, will realize that, you know, we're better together.
Yeah.
You know, and that actually there will be an increasing trend towards, let's call it smart flexibility.
Yeah.
You know what I mean? But I think... And I think as time goes on, we will see that creep up.
I agree with you, whatever it's worth. I think that's a cogent hypothesis, so you talked about programmatic on the MTA contract. Can we just broaden the conversation out and just talk about programmatic-
Yeah
... across the entire footprint?
Yeah, yeah, for sure. So, programmatic for us now is becoming, you know, increasingly meaningful. Our digital revenues are around about a third of our business now, and of those in Q2, 16% were what we call automated.
Mm.
And, you know, and the majority of that 16% was programmatic. So we've now got 16% of our digital revenues, which equates to about 5% of our total revenue.
Mm-hmm
... coming to us in an automated way. So yeah, growing fast, expected to be a tailwind for, you know, it's difficult to say how long, but certainly, you know, years, not months.
Okay.
Yeah, we're all in. You know, so it's good to see.
This is my own ignorance. Can you describe what an example is of an automatic ad that is not programmatic? What would that be?
So, on the programmatic platforms, everyone's inventory is on there. So ours and, you know, our competitors' inventory is all there, and when a buy comes in, it, you know, will be distributed based on if it's a private marketplace deal with one particular company, or if it's real-time bidding, it'll go to the board that is... Do you know what I mean?
Yep.
Demonstrating the best CPM at that moment in time. So that's kind of like a public market, that our own is like a private market.
I see.
What that is is the way boards typically have been bought in the US: say, "I want that board on the corner of Main and Fifth.
Mm-hmm.
The way we are starting to move the market is to say, sell by eyeballs rather than that particular board.
Mm-hmm.
So we'll say: Look, we'll distribute you whatever it happens to be, you know, 100 million eyeballs at, you know, $5 or $6 a thousand-
Mm
... on CPM. So we sign a contract for the total audience, and then we distribute that out algorithmically to our boards, and that then allows us to, you know, give weight where we have space, for example.
Yeah.
So it allows us to be more efficient in terms of our utilization. So that's the other side. So one's a private marketplace-
Yep, yep
... if you like, and the other one is a public, you know, a platform across-
I was unaware that this was going on. How long have you been doing automatic but not programmatic?
Around about eighteen months, something like that.
Okay. And is your sense that there's advertiser receptivity to this?
Yeah, for sure.
Okay.
For sure.
That's interesting.
But I mean, you know, increasingly, it's. Look, because we are a location-based medium, it is extremely very powerful, and we'll never lose that.
Yeah.
The person will want to be on the corner of Main and 5th because, you know, for some very specific reasons. But there's also, a number of advertisers that just need... Do you know what I mean? They want reach, they want frequency.
Yeah.
You know, and, yeah, I think it's gonna be a really interesting driver of the medium in the future.
And how... I mean, when you think about the 16% that is automated-
Mm-hmm
... is the rate limiter something where you don't want to move the mix in that direction because it has adverse margin implications or something like that? Or is it more like you're willing to give as much leash to that automated side of the business as there is demand?
When you look at the net dollars we make on a, you know, a programmatic dollar compared to one of our own-
Yeah
... dollars that are salesman sold, you know, there's nothing between them.
Oh, really?
So from that point of view, you know, we would, you know, we're, you know-
Agnostic
... we're very, yeah, we're somewhat agnostic.
Okay, that's interesting. So this is just a function of whatever the advertiser demand is. That's the right way to think about it.
Mm-hmm.
Okay, that's interesting. One of the things that I've observed, I guess, over the years, is it seems to me that the markets or even the companies that are a bit less urban just seem to do a bit better, either because their site lease costs are fixed and they're not on rev share, or maybe it's that they have a little bit more local relative to national. Maybe there are other variables that are sort of conferring advantages to those not super urban, not super rural part of the market. If there are other advantages, you can please elucidate them if you want to. But is that, does that seem like a durable trend, and does that influence the way you think about doing M&A going forward, if you were gonna alter your domestic footprint to not be as urban, right?
Does my question make sense, or am I-
Yeah, no.
Okay.
Yeah, I think so. As we are at the moment, you know, we are very dominant in the top 20-25 DMAs.
Yeah.
I mean, that's where our footprint is, and that is a different business too. Do you know what I mean, the more
Yeah
... rural businesses. You know, it's a different margin profile because you have a higher rent, rent structure.
Yeah.
But in my view, going back, you know, thinking, looking to the future, and thinking about where dollars are gonna be spent, I still think that we've got a long way to go with the, you know, with those national dollars.
Okay.
That ultimately, that they will, you know, that those markets can potentially grow faster than more local markets.
Okay.
Now, to be fair, that hasn't been reflected over the last few years. You know, local has grown very well, and national has been a high beta and not growing, you know-
Yeah
... and not growing as fast. I believe wholeheartedly, being an outdoor guy, that every stick's a great stick. You know, it has
Yeah
... you know, that'll have, yeah, yeah, different advertising-
Yeah
... different margin profile and different way of selling it-
Right
... et cetera. Which is a long way of saying that, you know, we would not be only focused on those major markets. You know, we are interested in other markets where it makes sense for us.
Okay.
We do like markets where we're already operating, so we-
Yeah
... can leverage our sales force and-
Sure
... ops, operations, and everything else. So that's always a criteria. But yeah, you know, we like all the markets.
Okay. So this is where I'm gonna wade into these CFO-ish questions, where you can sort of-
If I look baffled.
That's right. Exactly.
Yeah.
I, I'm gonna actually have to read some of these 'cause there's so many numbers on here.
Okay.
All right, so the Canadian sale brought in, I think, about $300 million.
Yep.
Okay. My rough math says 13.3x trailing EBITDA. Is that about right?
It was 13.3 trailing. By the time we closed, because the business, maybe not surprisingly, in those last few months, going through a sale, sort of went off a bit. It was about 15 x or close .
Okay. The after-tax income lift that you're gonna get from this sale is $80 million, sort of in the right zip code?
Yep. The taxable gain is $80 million. Right.
Okay.
Right.
And so the higher dividend, is that simply $80 million times 90% or $72 million, is sort of the-
As a REIT, to maintain REIT status, we'd have to distribute 90%, but we're far more likely to distribute 100% and not get the tax leakage.
Okay.
So
So it's $80 million.
... we can just about assume that it would be the full $880 million, be 100%, rather than 90%, that we'd distribute.
Okay. And the options for this, is it as simple as 20% cash, 80% stock, up to a 100% cash? Is that the right decision the board has to make or the right range?
That's the right framework. The minimum that we could pay is 20%. And if you do the math and take the $80 million and divide it by 165 million-
Yep
... shares, you get to round numbers, $0.50 a share.
Okay.
The theory is that the minimum of that 50% would need to be in cash, would be 20% of that.
Okay. And the board, is it fair to say, will make a decision on how to pay before year-end?
Yeah, before year-end.
Okay.
Yeah, 100%.
Okay. You answered all the CFO questions. That's great.
There you go.
All right, that was easy. All right, so, you mentioned leverage at the very beginning of our discussion-
Yep
... that that was one of your main priorities. I think the Canadian sale got your net debt to EBITDA down to about five.
Yep.
Okay. Your target leverage, I think, is 4 to 4.25?
We've set the targets four to four to five, actually, rather than-
Four to five.
Rather than 4 to 4.25.
Okay.
That would be a pretty-
High range
... that'd be a pretty narrow range. Yeah, it would be good if you could get that, you know-
Okay
... on a quarterly basis. So yeah, between four and five.
Okay, and I think you said you don't anticipate selling any more assets, that's not on the table, right after Canada?
Mm-hmm.
Okay.
For sure.
So this is all organic growth?
Pretty much so.
Okay.
Yeah, because I mean, as a REIT, as you know, obviously, you know, the amount of cash available for debt payback-
Mm-hmm
... is
Small
... almost by definition, small.
Yep.
So we see it, yeah, we do see it through organic expansion.
Okay. All right. And so my last question is, your average cost of debt, five six?
Yeah.
As I look out at your maturities, there's not gonna be any real change here, right? Like, the maturities, nothing really comes up, I think, until term loan 2026.
Yep.
Next piece of debt, 2027.
Yep.
At least for 2025 and part of 2026, everything's locked down.
Everything feels locked down.
Okay.
Obviously, the floating, you know, over time, you'd expect-
Right
... it to decrease, but that's about it.
That's great. Well, thank you very much.
Pleasure. Thank you-
I'd like to ask if there are any questions in the audience, by the way, if there are any questions?
Is there any decent-
Do you mind just giving us one sec just to give the mic? Yeah, sorry.
I go ahead. Is there any reason to try to go back to the rating agencies and say if we get to four times, and will our rating go up to B B on the unsecured basis? Is there I mean, you guys are-
Not yet.
Your spreads are really good right now, but-
Yeah, I guess we're not—we don't wanna get down to four for the rating. What we wanna do is we want to reduce to really then give us flexibility to, you know, to think about how we manage the balance sheet going forward. I think what we're saying is that if we get down to four, like, you know what I mean? We're gonna want to do something to make sure we stay in, we make sure we stay in that range. Yeah. Yeah, but-
So no, no advantage in having a higher rating at this point for you guys?
No.
It doesn't seem like it.
Not as such.
The market's saying the same thing. I'm just like thinking longer term.
Yeah. Yeah, no, you're right. It's...
Okay.
Hmm, yeah, thanks. I'm interested in where you think the percentage of digital can go over time. And also, I mean, I'm presuming that that is. I mean, you talked earlier about sort of attracting a sort of new base of advertisers. Does, you know, do you find that that is, you know, the case with digital out-of-home, that you're suddenly sort of reaching parts of the advertiser base that, you know, hitherto have been more difficult, so?
Yeah, I mean, and, you know, very, very much so. I think, it's sort of interesting because if you look just over the last few days, you know, suddenly we can take programmatic dollars from the Harris campaign in a particular market. Do you know what I mean? You know what I mean? The inflexibility of the medium was such that you could never, you could never take those dollars. And each week, you know, we get a list of all of our programmatic advertisers, and while there's very much the eighty-twenty rule, so eighty, you know, the most of the revenue is coming from a relatively small number of advertisers.
You know, we can have, like, 1,000 different advertisers, you know what I mean, in a week, and I mean, there's advertisers that are spending, I mean, seriously, like, $50 or $100. Like we, you know, our typical sales force, yeah, would never have uncovered. So I do think that, yeah, we, digital gives us that broader opportunity, and in terms of where does it get to, look, all markets are different, and the U.S. market is structurally different from both the markets I'm gonna mention. But in the U.K. now, it's close to 60% digital, and in Australia, it's 70%, I think now. So, the U.S. is about the same as OUTFRONT, around about a third.
So where does it get to? It's a little bit hard to say, but I'd be surprised if we weren't knocking on the door of 50% within three to five.
What would be the reason for the structural difference in terms of digital in the U.K. or Australia versus the U.S.?
Um...
Are we just less urban?
I think the way I could best describe that is to compare Amsterdam to Atlanta. Do you know what I mean? Just in terms of pedestrian and-
Yeah
... pedestrian interface, public infrastructure, transit infrastructure.
Mm-hmm.
That's probably the best way I can describe it in a sentence.
Understood. Any other questions for Jeremy? Well, this is great. Thank you so much, as always.
Yeah.
It's always good to see you.
Thank you very much, Jason.