All right. Okay. Good afternoon. My name is Cameron McVeigh. I cover advertising and media for Morgan Stanley, and I'd like to welcome Matt Siegel, EVP and CFO of OUTFRONT Media, to the conference.
Thanks, Cam.
Welcome. Before I get started, please note that important disclosures, including my personal holdings disclosures and Morgan Stanley disclosures, all appear as a handout available in the registration area and on the Morgan Stanley public website. And with that, to start, you know, Matt, how would you describe the current growth strategy for OUTFRONT and your long-term growth perspective, and maybe your long-term investment priorities?
So growth strategy continues to be driving digital, obviously both national and local, you know, developing, installing more digital. We think that's driving our revenue, both in billboard and in our transit business. You know, our philosophy really hasn't changed. We think there's good opportunity. You see, we gave maybe underwhelming first-quarter guidance, you know, with some headwinds from some lost portfolio, but we feel, long-term that's, you know, in good shape, as we continue to drive growth within the business.
Got it. On the earnings call recently, you mentioned national advertising grew 7% while local, you know, national slowed to 7.0%. Could you discuss your current conversations with advertisers, how they're going, the level of visibility you have into fully your booking?
Sure. Our national business, both fourth quarter and into the first quarter, has been very solid. Really, generally, it's more volatile, and local's been the driver. You know, until the fourth quarter, it was growing, you know, 4%, 5%, 6% every quarter, annually, for a while. Local has slowed down some. Most of our markets attribute that to some macroeconomic volatility and uncertainty, which obviously it's an uncertain time for a lot of industries, a lot of businesses. But on national, fourth quarter, first quarter's been strong, especially in, you know, kind of, happily in transit in New York.
So that's really helped our EBITDA performance last year in helping our mix of business early this year. So the conversation with advertisers on national has been great. It's well a little more focus from everybody, you know, from management to salespeople to anyone who touches customers on New York. We're happy to see the New York MTA, you know, return to growth, the good solid double-digit growth last year, and hopefully the trends continue into 2025.
Got it. And on that point, so you would expect those trends to continue. Is there a key driver of each on local versus national going forward?
I think that the key driver for local is, you know, improving the dialogue, getting comfortable with the volatility. You know, we've seen it before. We continue to train our salespeople in inflationary environments, which, you know, may be coming back. On the national side, it's improving our contact, the top of our shop, you know, from our RFP response and our, what we call our business partnership team that talks directly to customers. So really improving that contact and trying to, you know, really drive demand, which hopefully we can turn into revenue.
Got it. Makes sense. Matt, let's switch about, talk about the role of technology in the out-of-home business and OUTFRONT specifically. I think digital now accounts for 36% of revenue. What would you expect, you know, long-term digital share of revenue to, to bring about, to represent?
So we look at this a lot, look at some of the European countries when digital is more than 50% of revenue, some as high as 70%. So we figure our next kind of touchpoint is probably 50%, and it's not so much the inventory that's gonna drive it. It's the percent of revenue that's digital. So we figured to get to 50%. It's probably in the high single digit, 8, 9, 10% of inventory, billboard inventory will be digitized, maybe go a little higher. We think there's plenty of opportunity. We're a little under 5% now, so we think there's runway, and growth, and we don't think we need to accelerate. It's just a kind of an organic process, still adding about 100 to 150 digitals a year. And we think that's the right number to continue to drive the digital revenue.
Got it. That's helpful. When you think about the growth contribution from these digital boards, so we assume 150, you know, ideal run rate going forward. How do you think about that, the contribution to growth?
I think it's very important. I think, you know, both for revenue. So our biggest growth area is automated sales. So whether it's a programmatic or ad server, in both billboard and transit. So that's the more inventory we have that's connected to these platforms, we need the higher growth rate. And on the EBITDA and margin side, the more revenue that comes through digital, we think is higher margin, so again, it's good on top line and bottom line.
Great. Matt, how important is Geopath and some of these other industry initiatives to both expanding the share of budget for the national and, you know, the agency wallet?
So Geopath is a bit of a. It's important. It's a challenge. I think more important is the industry finds a dynamic currency that we all can use, publishers, advertisers, agencies. That's probably holding back the out-of-home in, you know, space right now. Geopath's a little more static than I think we all would like. So maybe there's a new product or something, you know, better that can show audience-measured attribution, and become the currency as opposed to everyone looking at publishers' proprietary systems, which I think everyone has and everyone uses now, and then comparing it to a Geopath number that might be a little stale. So I think the industry has an opportunity. Hopefully it can find a better solution.
Got it. Matt, how have programmatic and some of these automated buying strategies been contributing to revenue for OUTFRONT?
For us, a big growth driver. So, the automated revenue is now 16% of our overall digital revenue and growing faster than digital, which is growing faster than static. So that's important for us. In 2024, at the end of the first quarter, we connected our MTA transit screens, not rolling stock. We'll come back to that, but the subway platform and subway station to the programmatic platform. So now we have, except for rolling stock, all of our screens connected. So we expect outsized growth from those connections.
And that's, again, high, you know, relatively high margin growth. Rolling stock on subway and on rail cars, it's a different operating system. We haven't connected that yet. A bit of a challenge so far, but still working on that. And, I think what's important, all of our digital billboards are connected. They all participate, and that's, again, a big part of our growth. So we, we're very focused on that.
Great. Curious what your thoughts are on the purchase of Vistar Media by T-Mobile. You know, is this a growth driver long-term for the industry, for programmatic and out-of-home? And you know, why do you think T-Mobile made the acquisition?
So I hope it's a growth driver. I'm somewhat excited by it. So T-Mobile is, I think, considered a smart, creative marketing company, very large. So anytime someone puts in, I don't know, $600 million into a somewhat modest-sized industry, it should be a good signal. They have primary data. So your earlier question on Geopath, maybe T-Mobile and Vistar together can help create a new currency or an improved currency. So I think it's exciting. You know, we do work with Vistar now on our programmatic. We're, I think, one of their biggest and one of our biggest, you know, platforms.
So it's, I think, a great relationship, and we're excited to see, hopefully, T-Mobile push ahead. I think on their recent earnings call, they made a comment that, you know, they're excited about what they can do. So I think it's hopefully mutually beneficial. And to your earlier comment about Geopath, maybe that's the push the industry needs.
Yeah. Definitely. OUTFRONT exited from a billboard contract with the MTA in October, and on the earnings call, you said it created a two-point headwind to billboard growth. Can you discuss why it made sense to exit this contract, and are there any potential, you know, interesting contracts to exit or renew?
There's always interesting contracts. I'll get to the second, so this contract was a very high revenue share contract we had that we've had for a long time. It was up for renewal in October at the end of the summer. We had many, and I stress, many internal discussions on where we were gonna go. We lowered the revenue share that we were willing to pay. Just, you know, we wanna be a little more fluid with our inventory, not just retain everything we have, but look a little more closely at EBITDA and growing EBITDA, not necessarily at revenue and retaining all our billboards. So we lowered our revenue share bid. One of our competitors bid more than we were paying before, and they won. We wish them well, and it was a very thin margin contract for us.
So it's a revenue headwind for the first three quarters of this year, about a point and a half a quarter overall, 2% on billboard. But we don't think it's gonna impact our EBITDA very much. So we're, you know, on other contracts, there's probably one or two others that are relatively large, similar size of this one that are very high revenue share, and the landlord would like maybe a little more, a little improved terms.
And you know, we're pointing them to this engagement. You know, we think we do a great job on sales, so we don't wanna just win or retain things by paying more for it. We think in both these contracts, we've helped grow them. We'd like to be rewarded for our sales prowess, not just our ability to make payments. So if the other one, you know, it needs more money and needs to shift more of the profit potential away from us to the landlord, we might exit that as well.
Got it. That's helpful. Let's shift to transit. You know, transit revenues were up 9% for the year, led by the New York City MTA, which was up 12%. You know, this was arguably a welcome change, compared to a decline in 2023.
Yes, it was.
You know, what in your view, what's driving the transit recovery and, you know, how much of an impact does the return to office have versus the congestion pricing, versus just general ad budget shifts?
I think a lot of the benefit is coming from renewed and emphasized focus, you know, senior management, management of the company, getting the sales team, not just the local New York team to focus, but getting the national team to focus on selling New York. We've changed compensation plans. So you can't meet your full-year bonus target without selling X dollars of transit. You know, you can't just sell billboard. Not that either one is easy, but New York MTA being under the minimum guarantee level, it's very high incremental margin revenue for us. So it's mutually beneficial for the sales force, for management, for the shareholders that we focus on selling that. And I think it's really come through in 2024 and seems to be happening in early 2025. So we're enthused by the progress.
As you said, it's overdue. It's an important contract for us. You know, I would say not back to where it was, back to where we'd like it to be. But we think that's the main driver as far as congestion pricing or even return to office. I think they're all accretive. You know, it's nice to have kind of a melt-up of people on the subway or more people around the city. Hard to measure, but I think everything's helpful. Even having fewer newspaper cover stories about crime and cleanliness in the subway has been a welcome relief. Maybe distractions from other parts of the country is good for everybody.
Right. Do you think there's been a share shift from some you know transit advertisers to New York City billboard assets? Would that you know do you expect that to reverse a bit, or is that less of an impact to growth?
I think there's always a little bit of a share shift, you know, in the pandemic. We saw it more pronounced that people didn't wanna be on the subway, and people didn't wanna advertise there, and our New York billboard business had a couple of good years there. Generally, I think we find above ground and below ground complementary, that we're the only company in the New York market at least who can provide that dual approach. There are certainly, I'm sure, certain RFPs where they compete, if someone was looking for two client relationships. For us, it's a good audience. You know, for a while, the concern was the demographic was more essential workers and not, you know, pardon the expression, the suits or people who work in offices.
You know, we've been stressing to our sales force, you know, that they're just not wearing suits anymore. The people in offices are mostly back to work. I appreciate the banks going to five days a week. Sorry if you maybe, but, it's good for us. And even congestion pricing, I'm not sure the numbers yet, but having people talk about a little more people, a little more audience on transit has been good.
Great. And on the MTA, Matt, could you, you know, give us the latest on board deployments and integration of some of the programmatic capabilities into the MTA assets, and maybe just general expectations on programmatic driving transit growth going forward?
So we connected. It's a different operating system than our billboard business. And I'm gonna mention the rolling stock is a different operating system again. So we connected the platforms and stations, you know. The platform is one that's next to the train coming in. The station is usually a level above. Those screens, and if you've been on the New York subway recently, you know, there's a lot of screens. It's ubiquitous, great inventory. It looks great, all connected to our three programmatic platforms. So they're all getting serviced. They were connected at the end of March.
So we saw, you know, up from almost zero to something, you know, in the single-digit millions. We expect continued strong growth in 2025. They're also connected to our ad server, so we're able to really sell the digital network on a more customized basis. We think both those connections, the automated, you know, revenue, small so far for transit, but we saw very strong growth for digital over the last few years. We expect kind of that same growth curve for transit, this year.
Got it. Okay. And Matt, can you remind us, you know, do transit assets and, I guess, programmatic ad spend, does that skew more to a specific vertical?
It's more national in general. Historically, it's led by media and entertainment. You know, you see a lot of movies and TV there, as a media. It can show moving image. So, you know, coming out of a train station, you can see a little bit of a preview of something. So it's very attractive for that. Generally a diversified portfolio. You know, we're seeing a little more retail and fashion. It was there in 2019. I think the pandemic kind of scared that away, but that's starting to come back. So we're encouraged by that, especially in New York. You know, generally, it's kind of a similar national audience, national verticals that appear above ground.
Got it. And maybe just on that point, you know, do you think there are any other key verticals to mention, as, you know, growth brought broadly into 2025, and then any potential sources of opportunity to increase the out-of-home ad share generally?
Always opportunities to increase share. Interesting vertical for us, I'm guessing for many in media, not just out-of-home, is a legal category. So it's big. It's growing quickly. And it's probably in every market we serve. I think everyone has now heard of Morgan & Morgan. So it's effective for them. And if you travel the country, you see there's others who are kind of imitating that. And we're happy to be the arms merchant in that process. For us, we're starting to look at finding some new verticals, not new, but not big out-of-home players.
CPG and pharma come to mind that historically haven't been. You know, if Bobby Kennedy's gonna throw pharma off TV, maybe they can come onto the subway. You know, you can put all that small print on or whatever they need. So there's, we think there's always opportunity with a lot of changes that are going on out there. Just, it takes a little more focus. I think we're getting our marketing and sales better aligned to selling full verticals. And I think that'll be helpful as we look at some new things.
Got it. Yeah. It seems like pharma and law services have been two ones that, you know, seemingly grown recent out-of-home ad share. But yeah, no, it's interesting to.
I think medical and health picked up with the pandemic, going forward. You know, specific pharma, it's hard to have, "Oh, that's fine print when you're driving 75 miles an hour down the highway," but on more local and traffic and transit, it's, you know, certainly good opportunities.
Yeah. That's great. Matt, beyond the MTA contract, you know, how are the other transit contracts performing, and you know, should we expect this to be a source of margin expansion this year?
So the margin expansion will come from the MTA. So the MTA minimum guarantee went up by 4%. We feel MTA revenue can grow more than that. It's doing that in the first quarter now. Most of the other transit franchises are revenue share, so there wouldn't be so much margin expansion. And they're generally doing okay. I've confessed I would sell my transit soul for MTA performance, so maybe I have. You know, the LA bus is a little softer. Probably it's, you know, it's been challenged for a number of years, but the other ones are doing okay, not great, you know, not poor.
You guided to $85 million of CapEx in 2025. You know, where are you investing? Where do you see opportunities? And is this a normal run rate we should expect going forward?
I think going forward it seems right. It's about $50 million of growth CapEx, again, continuing our digitization, whether it's conversions, some construction of new digital, you know, a little bit of building or getting reimbursed for some shelter construction, mostly on digitization of billboards, which changed in that number. We called out about $10 million of maintenance CapEx held for replacing older digital screens. We started digitizing, I think in 2007. I'm guessing, you know, 2006, 2007, 2008, everyone's kind of starting around the same time. I don't know if the originals are still there, but we have hundreds of billboards, digital billboard signs that are over 10 years old. We don't replace any on their birthdays. We just want to call, we'll be spending some on replacement. It's not a 2025 event.
It's just from here forward, you know, the industry's probably gonna be, you know, has reached critical mass and probably just needs to continually replace older digital screens. We do think even though we're calling it maintenance CapEx, it's gonna help drive some revenue growth as the newer state of the art, shinier, more pixels, looks better. Every now and then we get a complaint from a manager that we lost an RFP because their screens look, you know, poor. They'll get the first screen, so hello, Phoenix. But I think that's gonna be, you know, good for growth and also, you know, the right thing to do.
Got it, and so it sounds like that elevated maintenance CapEx, you know, you would expect a similar run rate now.
Yes.
Yeah. Okay. I guess switching over to, you know, tariffs have been in the headlines recently. Is OUTFRONT exposed here at all? And, you know, how are you thinking about that potential risk?
I think nothing really material. We buy the digital screens overseas. You know, I think we back in 2000 whatever, 2018, we prepaid for a lot of screens, but it wasn't a material increase. We buy steel, you know, for constructing billboard you know poles. Again, not a big number. It's all in the CapEx number. If I have any concerns on tariffs, it's more what it does to our advertisers. You know, if the price of an automobile is going up by $5,000, maybe they have a little less to spend or there's less volume to justify some of the advertising.
So it remains to be seen what happens to the profitability of various industries and, you know, look how long the tariffs stay and where they come, where they go. but I think once they're on, I think people get adjusted to it. So we're watching it as, I'm sure everyone is. It's a macro environment, but it's something I think we can absorb in our business.
Got it. Makes sense. You know, Nick Brien was named as the interim CEO at the start of the month. You know, why did the board choose Nick and what impact do you expect to have him going forward?
A bunch of things. Obviously, we've had a number of management changes. I think the board realized shortly after Jeremy Male, the outgoing CEO, announced his retirement in mid-December. The plan was for him to stay, and we started a search for a new CEO. I think they realized nothing against Jeremy's executive skill, his humanity, his citizenship. Just being a lame duck isn't ideal. They wanted to drive change. They really wanted a renewed sense of urgency in improving our business, our sales performance. They thought an interim CEO would better drive that than Jeremy, you know, kind of waiting. You know, I think that makes sense. Nick Brien has been a board member for a while. He comes from the digital advertising space.
He's led U.S. agencies. He has a very high energy, shares the board's vision on urgency and change. This is his fourth week in the seat. He's made internal people uncomfortable in a good way. So he's bringing in more accountability. He describes himself as an external CEO. So he's calling on agencies and customers already. So I think in our case, change is good. Accountability, alignment, all good. And we're excited for the future. It is, I stress, this isn't a casual search with someone's, you know, sister-in-law. Not that sister-in-laws are bad, but a big national search firm has been hired. I paid two bills, one for the CEO, one for a director. Jeremy was both. We're gonna replace both roles. I'm excited to see who they find.
Great. Me too. Okay. As we're reaching the end of the question list, we can open up to audience Q&A in case anyone does have questions they wanna bring up. If not, I can keep going. Any takers?
Can you talk a little bit about the balance sheet? I know you guys delivered.
Can you talk a little bit about the balance sheet? I know you guys reduced leverage last year with some of the proceeds from the Canada asset sale. Are there more opportunities for similar transactions? How do you, how are you thinking about the capital structures? Thank you.
So the Canada sale, we were very happy to execute relatively quickly. We had identified a buyer, the ultimate buyer, back in the pandemic. You know, we had a bunch of work streams. We decided not to pursue that at that time, but knew we can get that done quickly. We wanted to demonstrate proactive decision-making on addressing the balance sheet, not just waiting for organic de-levering. So that was, I think, very successful. And I think we paid down debt with most, almost all the proceeds. That's why we paid a partial share dividend for our REIT obligation. So we didn't, you know, step on our own strategy of paying down debt and then paying out some of that, you know, dividend with cash.
Going forward, nothing, you know, the beauty of Canada was there was no, no real synergy with the rest of our U.S. business. So no, no one called and said, "I want New York, Miami, and Toronto." You'd think they would. Toronto's a big global city, you know, and everyone loves Canadian. So we didn't, we didn't sell it lightly, but as far as the rest of the portfolio, it all kind of fits in with our national strategy, and we generally like what we have. I think the balance sheet's in a much better place now than it was. We had three things on our list. If any two of those three things, we felt good about it, the two, you know, we achieved EBITDA growth, so organic de-levering and the sale of Canada. What we didn't achieve is amending the MTA contract and improving that.
But, we didn't have high, high hopes there. So our leverage is now, on a covenant calculation basis within our four to five times range. I'd like to get closer to four times than five times. So there's still a little, I wouldn't say necessarily work to do, but a little more focus on EBITDA growth to bring that down. You know, I don't think we'd wanna go down below four anytime soon, but, maybe directionally good.
Great. Matt, how would you, you know, characterize the out-of-home M&A market, broadly? And, you know, do you see yourself in a position to participate in some, you know, domestic M&A?
Yeah. I think we're in a position to participate, although not in a big way, not in a big check-writing way. We've demonstrated some creativity in using other people's money or other things and, you know, kind of controlling some other assets we've added. The market hasn't been particularly active. The last few years, we've been focusing mostly on very small opportunistic tuck-ins. We had a big acquisition year in 2022, and since then we've been, you know, ones and twos and things that are all synergistic, and very short-dated, you know, a creative transactions. You know, we figure we're gonna spend the same this year we've spent the last couple of years, somewhere in the $30-$50 million range. So something that still allows us, I think, to deliver with some EBITDA growth.
One of our competitors who often talks about potential M&A, I think they reduced their expected spend in 2025. So it doesn't sound like we're missing anything. But if anything bigger comes up, we would certainly take a look, kick the tires, and see if there's something we can do. But it sounds like 2026 is gonna be a more active year based on their comments and, kind of investment banking, you know, incomings, you know, the last couple of months.
Yeah. How is the regulatory environment generally in out-of-home? You know, is there a lot of scrutiny?
Recently untested. Historically, there's been a lot of scrutiny. As you know, regulators often protect the last buggy whip manufacturer and not necessarily a new approach, especially in media. I think the last time we did a large acquisition, you know, predated me, but there was investigation kind of not just market by market, but neighborhood by neighborhood. You know, what do you have in the West Village? What do you have here? I'd like to think that what we're reading is the regulatory environment now; it's a little looser. But you know, it hasn't been tested on a large acquisition in a while. But I'd be optimistic if something happened in the next few years; it would be maybe a little easier to get something through than it was in the last few years.
Yeah. Great. Okay. That's, that's great. And then, you know, how should we, how would you suggest we think about AFFO growth and dividend growth beyond 2025?
AFFO growth, I expect would grow alongside EBITDA. So even in 2025, we expect AFFO growth to be around the same as EBITDA growth or vice versa. EBITDA growth around the same as AFFO growth. In terms of dollars, obviously percentage would be a little different because AFFO is smaller. This year, AFFO will, you know, have EBITDA growth, some improvement in interest expense because we sold the Canadian business mid-year last year, offset by that maintenance CapEx increase we talked about. Going forward, I think the maintenance, the delta in maintenance CapEx will be neutralized, but we'll be doing it on an annual basis. I don't think there'll be big change in interest expense except for any rate movement up or down, you know, remains to be seen.
So I think if we can grow EBITDA, by growing our revenue, I think you'll see that in AFFO growth.
Awesome. I think that's a good place to end it. Matt, thank you so much.
Cameron, thanks for having me.