Okay. Should we start? Okay, cool. All right. So we are happy to have back at the conference OUTFRONT Media. I'm joined up here by Interim CEO Nick Brien, EVP and CFO Matt Siegel. Guys, thanks for being here.
Thank you.
Nick, maybe I'll start with you. You've been in the executive seat for a few months, but part of the board at OUTFRONT for over a decade. Maybe you could just give us a refresh on your background.
Sure. Hello everybody. I'm historically an agency leader for 35 years. I've run many of the large multinational networks globally, both on the credit and the advertising side. In a way, it's an interesting challenge. I've been on the sell side, not the buy side. I've also spent some time in the ad tech side of the business when I was hired by Singtel to get control of Amobee and to run that process. This is an interesting time because I would say I'm not of the out-of-home industry, but I'm of the industry, the brand building and the media industry.
Got it. All right. As you noted, you bring extensive experience on the advertising agency side, the buying side, both in creative and media buying. Curious how that informs your view of o utdoor and its place in the ecosystem.
Yeah, that's a very good question. It reinforces what I've always felt for the medium, that it has tremendous value. It has tremendous strategic contribution to both building brands and fueling growth. I have a strong point of view that it's undervalued. I think it's not as well marketed as it needs to be. I think as a reflective in its share of total media spend, out-of-home has fallen from grace somewhat. I think the strength of the digital channels have demonstrated themselves in the ability to go straight to business outcomes. Whereas some of the more traditional media, including out-of-home, have really failed to keep pace with that.
Got it. All right. A lot to unpack there. We'll come back to some of that. On last Thursday's earnings call, you highlighted for OUTFRONT a number of strategic imperatives. Maybe you could touch upon some of those and where you have the exec team focused.
The exec team is focused on all four. We've been very focused that this is a year and again, this is a company I know well. I've been on the board for 10 years. It is an industry I know well and it is a company I know well. This is a leadership team that I've worked with quite intimately. It is now getting everyone aligned around the things that matter most. I think number one is really on changing the focus on the sales strategy, the culture, and the ways of working. The second was making sure that we're very diligent on the approaches we're taking to all things system and technology to ensure that we're underpinning our organization with the right kind of focus on automation and process improvement.
Third was about ensuring that we're more attractive to the non-out-of-home advertisers, as many of the largest multinational brands who care about brand, but they're willing to fuel growth and they're not spending enough money or in some ways, some and not at all with the out-of-home medium. The fourth was making sure that we are operationally highly efficient and the most effective we can be in everything that we do. That has divided itself into a number of key initiatives against each one of our strategic imperatives. The leadership team is very focused on executing now with real focus.
Okay. You said a second ago in kind of your opening remarks that outdoor is not marketed well. Maybe that relates to sales strategies. Where do you think OUTFRONT , or maybe this is a critique on just the outdoor industry generally, has room to increase its sophistication, raise its value add for market or clients?
I think there's three distinct areas to ensure that we are more significantly considered as part of the modern omnichannel media mix. One is making sure that we can be very straightforward when it comes to measurement. There's no ambiguity about the measurement. I'm talking here base level reach and frequency of our medium. What is traffic count? How consistent is it? That is very much an industry challenge with Geopath. I think it's also recognizing that most sophisticated marketeers really want to focus on ROAS and incrementality. How are we making sure that we are offering that at scale? Thirdly, it's about making sure that we're more straightforward to buy. We've got to ease the complexity. You said yesterday, if you had Clear Channel and Maart as well as many of the independent players, it is a fragmented medium.
Yet most of the bigger media, whether it be on Amazon or even on The Trade Desk or Facebook or Google, they can be bought in a relatively straightforward way at scale. Certainly agencies prefer that. A lot of the marketeers can do a lot with that. This is as much for us and a responsibility and an opportunity as the industry leader. These are a lot of industry issues as well.
The challenge being on that last point, if a marketer wants to do a buy in certain regions, they have to call you. They have to call your competitor.
Certainly right. Now, the platforms, there's increasing places like we think about Place Exchange. We think there's a number of increasing open market platforms. I think some of the SSPs have done it in digital like Vistar. It is not as easy as it needs to be. It can still be a number of different phone calls, a number of different manual aggregations, which is what has given rise to the out-of-home specialists within the big agencies. They aren't necessarily representing. That is about trading, negotiation, and campaign management, not marketing the power and the efficacy of the medium. One of the things I talked about at the OAAA conference that was here in Boston last week is that we really need to be talking much more about building brands in real life. Still, 90% of all commerce happens outside in stores.
Our opportunity to be much more significantly part of brands and the way that consumers are living their lives and undertaking commerce and having parts of community, we need to be part of that. We have not been really talking about that. We spend a lot of time as an industry talking about our products, whether it be billboard or transit, not necessarily how we are part of the marketing solution.
Got it. You also mentioned measurement. You mentioned ROAS at scale, which I assume goes partly to attribution. Maybe as a follow-on, and this is not necessarily an OUTFRONT issue, right? What needs to happen at an industry level on these two topics? Maybe you can touch on initiatives from Geopath. What role do you see for Vistar under T-Mobile?
If we start with the last part, I think the Vistar acquisition by T-Mobile was very smart. I think it is the industry SSP. They're looking to make sure on top of all those buys and transactions, they can overlay data sets. I think T-Mobile had the vision of what they could aggregate with digital out-of-home, with their in-store, with obviously their T-Mobile stores as well as handset data. There's definitely an aggregation. I think a lot of that is about proving efficacy to drive transactions. That leads to the second question, which is how does the industry focus on attribution? We need to get base level one quickly, which is basic audience reach, frequency, measurement metrics, media metrics, and start to be much more thoughtful about all the big agency groups and all the big marketeers are using media mix modeling. They're using attribution.
They want to really understand incrementality. How are we part of that conversation? There are specialist research companies, specialist modeling organizations who we need to start working with. We are. We're having those conversations. It helps us all when we do it at the industry level.
It's the idea being that once you've kind of established that outdoor becomes part of the media mix model as opposed to say something separate.
It's part of the campaign planning. We have too many large sophisticated marketeers who have told me, "I use out-of-home." No, you use it for a day. You might use it for a week. You might use it for the ball drop in Times Square on New Year's Eve. It is not using it as a mainstream integrated part of campaign. Yet our biggest advertiser, our biggest client is Apple. They love the medium. They have used it in a highly sophisticated way for 35 years all over the world. They use it extensively. It is part of their media mix, whether it be for their handsets, streaming. They use it extensively. Why isn't it used across more in the electronics category? Our other significant advertiser is the biggest of a sector is Morgan & Morgan. The lawyers use it. The legal profession loves the medium.
It is nearly approaching 20% of the money they spent in paid media. Why is it 20% of their category? Yet the category is very, very small. If we look at CPG, we look at automotive, we look at pharma, we look at QSR. We are looking at major industry categories. We have done the analysis to identify the biggest marketeers who are spending over $100 million a year on paid media. We are looking at the average, the highest level of spend is 1.5%. If I say paid media with 2.5% of paid media today, obviously our strength is we are local, we are hyper-local, local, regional, all the way up to national brands. How are we really representing the very significant part of the advertising ecosystem, which is brand marketeers who care about brand?
They're spending $200 billion a year in the U.S. on paid media. We're not a significant consideration for how they are building brands and fueling growth. A lot of that is relevance, why we're contemporary, we're not a legacy media, and how we prove the efficacy of what contribution we make as part of the various whatever the success metrics they are. By the way, I think that's also the change in the industry. I'm starting to get a sense of talking to the ANA, talking to some of the biggest marketeers, that the pendulum for the last five years has been so heavily focused on performance, on short-term immediate measurable metrics. Yet we know if that were the case, then Google would get the check and they'd sell the invoice and be the one to claim the sale for everything.
We know that your consideration to buy a Mercedes-Benz has been built over a 20-year period. We are part of brand building. We just need to make sure we're part of the fueling growth conversation as well.
I mean, there's a lot to unpack, but would most of what you've said here apply as a strategy mainly on the national side? Sorry, on the local side as well? Or are there a different kind of set of priorities?
I think we're trying to change the vernacular. We're talking much more about enterprise, mid-market, and SMB. Because when we're confusing national and local and regional, it can become, especially between regional and local, all quite mushy. I think we're seeing very significantly that there are very big regional businesses, whether it be in Texas or Florida or Illinois, where there are significant opportunities for us to engage big insurance groups and big banks and universities. The local affair is very much about SMB. We know that's a significant advertiser. That's 80% of Facebook and Google's revenue. The SMB, we want to take that much more, we want to bring automation system and process management to that in a way that isn't really leveraged today. Because a lot of that revenue is also consistently re-upped. You could call it subscription revenue.
What does that look like? Then how are we going to be much more significantly focused on the regional mid-market clients? It is really the biggest advertisers. Our medium, especially for OUTFRONT , we have high concentration of very good quality inventory. When I think about our sites and our transit, we are in the major DMAs. We are in 36 of the 50 states. We are in the most significant cultural centers in the U.S. We want to be attracting the national brands.
Okay. You noted before also a goal to drive new demand from non-out-of-home and high-spending categories. I mean, you gave some examples of that, like electronics. Are there other kind of big buckets that you've identified that sit outside the outdoor ecosystem? Maybe where is there room to kind of pull something in?
I think the three that we're focused on initially are very much the automotive sector. Because we've talked and engaged and I've worked very extensively with three of the biggest automotive players in the U.S. So I've had conversations at the tier one level why they haven't been considered spenders. The other one is in CPG. Or CPG is such a large category from food to beauty across the board. The third is really developing where we are with QSR retail. We believe there's a significant opportunity in the retail sector because our medium can play a significant contribution to the strength of retail media networks. Because when so many of the retail media networks are starting to imagine what they do in store, we are near store. So much of our inventory can be organized around partnership, whether it be with Kroger or Albertsons or Walmart, CVS.
I mean, all of the big retailers are imagining how they can become media owners. Every media owner wants to become a retailer. Every retailer wants to become a media owner. How is our medium an integral part of what they're selling or all they're buying? We see retail in general, and I'm talking about the retailers as well as the 90% of retail that's conducted still in real life, how are we representing our assets in those conversations? What we're going to do, you'll see us as we announce it soon, having a dedicated focus that is going to be client direct. We're going to have five. We're going to start with five. We're going to escalate it as quickly as we can. Five significant industry verticals.
We are going to be very pronounced about what we are, the conversations we're having with those CMOs about how we engage the medium. We're also going to see an evolution in our sales organization to make sure that when we're looking to drive demand, we're recognizing it's a different kind of talent and sophistication we need at the enterprise level than it is at mid-market and the SMB.
Okay. And then just taking your retail media example, which is really interesting, the idea is a supermarket has a website. People are putting advertising on that website. But you're going to get better recall on that advertising if you're also buying the billboard right on the way to that supermarket.
Especially even more so if it's programmatic. We can change it. We can kind of geofence and geolocate that. We can change copy. We can dynamically alter the content that's appearing. Why wouldn't we, when we know that so much of a consideration set might be choice, how to influence choice? I mean, that's always been the role of advertising. It's not to make a sale immediately. It is to affect human behavior. Pick up the phone, visit the dealership, go online. How are we using our medium to influence? That's the other thing. We're starting to really make sure we integrate in our marketing that we're not just in the business of reach and frequency. We're about reach and influence. The influence comes from the proximity. It also comes from the trust in the medium.
I shared at the OAAA conference last week studies we had done about the decline level of trust in online platforms and the increasing level of trust of in real-life media. I'm talking here about, yes, the billboards, the sites, the transit. How can we leverage that? I think retail is an exciting opportunity for us.
Got it. Maybe we could shift to actually, before we shift over to current trends, I just want to ask one more strategic imperative. I know you had highlighted modernizing workflows, operational excellence. Question we got after the print was, should investors interpret this as there is room for a structural margin improvement in OUTFRONT ?
I think investors should identify there is going to be structural improvement as part of a reorganization that is going to see us invest in key technology and resource and automation capabilities, especially around ad tech, while also looking to ensure that we're as profitable as we can be and focused on EBITDA and that performance and how that manifests itself. We're in the thick of that right now. Investors can be reassured we will not be spending ahead and over in any way to compromise the guidance we've given forward on the investments we're going to be making. We're very confident that the structural changes for our organization will give us cost efficiencies, which you gave a nod to on our last earnings call. As importantly, create a stronger, more streamlined, more agile organization to pursue the targets we've outlined.
Maybe we could shift over to current trends. OUTFRONT Q1 reported a 4% increase in national, 3% decline for local. Maybe you can unpack a bit what you're observing in the market currently, how are advertisers absorbing some of the macro volatility?
We're pleased to see that it's definitely calmed down now. There was, I think, three, four weeks ago, we had a number of campaigns that were delayed, notably a significant car launch. Cars weren't coming in. It was pushed back. An electronics launch. Some government spending at the local level. Some retail, but not much. It was more pause for concern rather than any cancellations. It was delay. Now, I wouldn't say we're looking at anything in what's happening at the moment that's giving us any rise for concern that either money's not being committed that was being talked about or campaigns have been canceled.
I think your outlook for Q2 is better organic trends, right? That is even inclusive of another low-margin contract exit. Can you just remind us when you give guidance, how much is kind of booked for the quarter and visible for the year?
Yeah. I think our quarter two is now 90%.
Yeah. We give guidance mid-quarter. So it's only that much left to go. Still, on the margin, the guidance is uncertain.
For the year at this point, roughly?
For the year, we're probably 70%-75% on books.
Okay. I mean, look, you could debate the economic recession or economic state, will there be a downturn or not? But any kind of lessons to draw from prior periods, like leaving aside pandemic, which is fairly.
It's obviously not every recession is world-ending and soul-crushing like the last few. For us, we have a commission-based sales force. That is a mitigant on the car side. All of our transit contracts, except for the minimum guarantee or revenue share. That is also a mitigant. We keep our eye because we had the potential recession, which never happened in 2022 and 2023. We keep our eye on what Nick was talking about, cancellations. That is a bit of a canary in the coal mine. Until 2020, we never even tracked it. We watch and we know if there's a pickup or even a couple of lines on the report. It's cause for concern. We haven't seen anything. I watch daily collections. That is an even earlier indication if some of the agencies aren't getting paid or not paying us.
Again, we're still running the same 49%-50% of beginning-of-month collection every month. We think we're in good shape. It does not seem to be a recession. We're certainly aware of what's out there in the macro environment. There is a lot of uncertainty, but not a classic recession like you've seen in other decades.
Okay. I think you had noted on the call, maybe the West is a challenging region. I assume that's a common inclusive of Southern and Northern California. Is there room for optimism here? We've seen the box office start to recover. Tech spending potentially picking up is something we're hearing from ad agencies. Anything to note there?
I think that we've heard, and we've got a very sophisticated team who look after all the entertainment. They explained to me when I asked about the second half was looking really, pretty strong. A lot of that was down to what is going to be on the release slate? And they explained to me that quarter two, while strong in movies, a lot of them were the horror genre, which they don't support as much. So I think we've seen that that really has given some strength. I think also, without doubt, the terrible fires that happened, obviously, at the north end of the Santa Monica Bay and around the Palisades and Altadena, caused a concern and a sort of pause on a number of issues. That's picked up now.
I think the LA, when we're thinking about the West region, a lot of it is focused on what we're doing in LA. The pressure is on because we've been very clear that so much has been reliant on the entertainment sector. A lot of that region was based on what happened in LA. We've got to continue to diversify and make sure the strength is, and again, this is a new focus of the organization, what is there at the mid-market and what is it at the local level that isn't directly linked to categories like entertainment?
Maybe staying on LA, you disclosed last week the decision to walk away from a low-margin billboard contract in the region that follows an exit of the MTA contract in New York last fall. Can you speak a little bit to the strategic rationale of what's going on?
I think it's an evolution. So we've started really focusing more on, especially on our inventory, focusing on the EBITDA or profit margin of the inventory, not just revenue. So recall we exited the MTA billboard contract in the fall in October, specifically. That was a single-digit margin contract. And we knew if we had our salespeople sell something else in the New York market or elsewhere, we can make up the EBITDA. I think we've told people about the revenue impact and said we can absorb the EBITDA hit. Similar in this portfolio in Los Angeles. We've had it for a number of years, almost 10 years. We've doubled the revenue. And the rent-to-revenue metric was leaving us again with a single-digit margin. We didn't want to pay any more than when we were looking for a little higher payment to them. And we wished them well.
We think there is a revenue headwind, but really no impact on EBITDA going forward.
Matt, can you just refresh on the combined impact of those two contracts to your billboard growth rate in 2025 and maybe also kind of like the margin?
Each one is probably a 200 basis point revenue headwind for a billboard.
Each one or?
Each one individually, about 150 basis point impact overall. On billboard revenue, about 200 basis points. The MTA started in October. We felt it in the first quarter. We are seeing it now. You will see it again in the third quarter. The one in Los Angeles, we are winding down now. I am not sure it is a material impact in the second quarter. We will see it third, fourth, and first quarter of next year.
Anything on margins or?
Margin, percentage margin will be better. EBITDA will be about the same. As an example, if we did not sell $25 million of revenue on the Los Angeles portfolio and we put $5 million on a bus contract or $10 million on other billboards, we would be neutral. We feel very confident about that.
Let's touch upon transit. The New York MTA had another solid quarter of 10%. As you look over the recovery in the past year, I'm curious how much would you attribute that to factors in your control, such as really refocusing your sales effort to kind of a rebound we've seen in key categories like media or maybe just a broader shift of New York marketers going from billboard to underground?
I think it's a combination of both. We're seeing this is bearing fruit of a dedicated task force that's been responsible not just for the marketing, but more concentrated, dedicated, focused on sales and measurement because we've had to do more because existing Geopath hasn't really satisfied in that regard, as well as more returning to work. Obviously, all the government workers back to work. I think healthy ridership. I think increasingly the benefit of us not having had the billboards is to say, "Okay, how are you really engaging within the culture in New York? And what are we going to be doing for that?" That dedicated team have done a very good job. We continue to see it.
I think this is also us providing more systems, process, measurement, just really getting behind it in a really significant way with a new leadership team involved. I think that's just bearing fruit. We've got to see it continue. I mean, we've got that. It's a significant contract with a significant MAG. It's also one of a kind for New York City.
Congestion pricing mean anything? Even if it highlights for marketers that subway ridership could increase?
It's probably accretive. I mean, I think it brings a few more people underground. But so does five days a week in the office. Even though bankers may not like it, we like it.
Let's see. So you, Matt, I think on the last call, you recently talked to activating automated buying within some of the stationary MTA assets. Maybe it'd be great to kind of hear on demand so far what that's been like and kind of any timeline to getting that rolled out on the moving assets.
We turned on programmatic and all of our automated selling on stations and platforms across our digital transit properties in March or April of last year. It is still early days, growing quickly, growing even quicker than our billboard business at this point because it is ramping up. The trains, I remind people that they are moving. It is hard. Working on it. I think we should have it connected by the end of the year. There are tens of thousands of screens on those trains. I think the original investment thesis was designed for automated selling. We are pretty excited once they get connected.
Okay. Got it. The transit outside of the New York MTA, I think we estimate was down in Q1. Maybe talk about what you're seeing more broadly across the portfolio. Any kind of expirations and contracts, anything to be aware of?
Nothing specific.
Nothing material expirations or maturities start in 2030. So we've had this portfolio for a while, except for the little ones.
Yeah. Got it. Anything to comment just broadly on the performance outside New York?
You're right. The New York overperformance is great for us. We're excited. A lot of the little ones are underperforming. LA bus still is a struggle for us. With that going forward with Super Bowl and FIFA and some other events, we think there's a good opportunity in the future. The bus product has been a little bit tired as the world goes digital around it.
Okay. Maybe a few on costs and CapEx. Matt, maybe just how should investors consider any possible risks around tariffs, whether it relates to the OpEx or the CapEx side?
Tariffs, we feel, really only impact our CapEx. We buy digital screens and steel. In total, we spend about $50 million, mostly on the screens and $40 million and $10 million on steel. Obviously, the tariff situation is uncertain. We get our digital screens from Asia and our steel from various places. Not a huge spend for us. If there is a tariff, it'll be a little higher. I don't think it's going to throw off any of our numbers.
Okay. Can you just refresh us on where you stand on digital conversions, what you're targeting in terms of units for the year?
We're still targeting about 100-150 new digitals a year. About 100 of that, plus or minus, is conversions. The conversions have a longer gestation period than some other things. We keep a pretty big pipeline. We do some management agreements. We do some new development building organically among ourselves. We still do very small opportunistic tuck-ins, which I think is the bread and butter of the industry. That kind of offsets some of the development that leads to some condemnations around the country.
As you kind of convert more, I mean, are returns on the digital conversions very consistent? No change?
I've been here seven years. We've been targeting a 20% IRR for approval. We're probably averaging out as a portfolio somewhere in the 25-27% range. Very consistent. Back in the day, when it started, we were probably getting a 12x revenue lift because the first Shiny Digital was fantastic. Everyone wanted to be on it. Now we're still getting about a 4x revenue lift. We're adding inventory, we're adding flips. Price points are a little lower. Still, it's great return. It just takes us a couple of months to build up demand on each new digital.
Got it. Less than five. Does anyone in the room want to ask anything? No? Okay. Nick, before we close, it'd be great to get your view on M&A, how it folds kind of into the OUTFRONT growth strategy from your point of view. I know you talked to a more kind of modest opportunity set for 2025. But assuming you execute on your strategy and naturally deliver, how would M&A play into your view?
I think we're clear that this year, the focus is on executing a clear focus on transformation and the excellence of what we have, as we said, small amount of money allocated on a relative basis to tuck-ins should they occur. We are going to be looking at, when we think about M&A for the future, it's not just sort of digital inventory. It's also what may be the opportunities around all things technology, systems, measurement, other partnership, maybe in the brand experiential space. I mean, we're not discounting any of that.
What I've agreed with the board, and Matt and I have talked about it, is to ensure that if the focus for 2025 is on the transformation to ensure that we are as healthy as we can be on the top line and we're improving our situation on the bottom line, how is 2026 expansion, both in terms of top-line revenue growth as well as the diversification of our kind of portfolio of opportunities, not just is it billboard or is it transit, is it static or is it digital? That's quite one-dimensional. We're looking to be more progressive around that. Does M&A fit within that? It possibly could. Do we have any targets in mind? No. Have we really established what that looks like in 2026 going forward? No.
Okay. All right. Nick, Matt, thanks so much for being here.
Thank you for your time.
Yeah.
Thank you, everybody.
Thank you.