All right, very pleased to have, Jeremy Male, Chairman and CEO of Outfront Media with us today. Jeremy, thank you so much for coming.
Great to be here.
Yeah.
Let me just put that there.
Perfect. Perfect.
Let me put this on.
2022 just ended, and I would love maybe if you just took a second and characterized how you would describe the performance of your firm over the last year. What, what went well, what didn't?
Yeah. Do I need it on? I don't need it on, do I? Can everyone hear me?
Yep.
Look, I think that 2022 was a great year for the industry in general. You know, I think the numbers look like industry was expected to be up around 20% in terms of revenue. Obviously, you know, it's still coming back from COVID, but it's been a very sharp V for the industry, which I think is positive. If you look at Outfront in particular, we're up in that sort of same range, sort of, you know, 20 years range, which is great. Strong growth in OIBDA.
We were I think particularly given some of the macro headwinds and, in particular, if you think about the interest rate environment, I think to be able to maintain our FFO guidance right the way through that we gave from mid-February throughout, I think was something that we were very pleased to be able to do. It was 2022 has been our strongest year in terms of organic growth of digital, which is a big driver for the future. It was also our strongest year in terms of tuck-in acquisitions. I think by the time the numbers come out for Q4, you know, you'll see that we spent, you know, in the region of $400 million in terms of tuck-ins.
You know, if we take one step back and say, how was 2022? I'd characterize it as being really a great year for the company.
That's great. Just two follow-ups on that. The digital conversions I get on the higher M&A than you've had for many years in the past since your IPO. Was that a function of sellers wanting to sell because of some tax law changes or something like that? Or was it just happenstance that just there happened to be a lot of good assets on the market? What drove it?
I think there's a couple of things. I think the valuations actually at the. It was interesting because I think everyone felt that during COVID, you'd be able to go in and hoover up a bunch of companies at, you know, at low cost because they're all gonna be under pressure financially, et cetera, et cetera. To be honest, that didn't really happen. A number of conversations, you know, there was a lot of engagement, do you know what I mean, over that time.
I see.
Since we came out of COVID, it's fair to say, I think that the market actually got quite frothy. I think that, from a seller point of view, it wasn't a bad time to sell.
Okay.
I think some of it is happenstance and that, you know, when you're waiting for a bus, two always come along at the same time, don't they? I think there was a bit of that.
Okay. I'm gonna just confess something. This seems like about the most complicated ad environment I've ever experienced in that, you know, digital seems like it's really suffering. You know, the ad agencies guided even at the beginning of 2022 to much better numbers, and they just seemed to get better as the year went on, where they were raising their guidance. TV felt sort of flattish, you know, nothing really. It's very hard to get a simple pulse on what's really going on because the dynamics in each one of these verticals are so different. I would just love it if you could just spend a second and am I crazy or is this sort of a unusual ad market?
How would you characterize sort of outdoor's performance within that, trying to look through the sort of easy COVID comps, if that makes sense?
Yeah. Look, I think it is a very complicated ad market.
Okay.
To be honest. You know, you look back to sort of, middle of last year or whatever, I mean, our frustration would be that, you know, Snap had come out with, whatever, some dreadful set of numbers, our stock would be down 10%. I think, well, hang on a sec. Really? Is there a real correlation there? I mean, let's start with digital. I mean, the, the fact of the matter is that, you know, it. That's a market that to some extent or other has been disrupted with new entrants. You've got the likes of a TikTok, even though they're only, what, 2% or 3% market share. I mean, it's still, you know, 2% or 3% of a big market. There's a lot.
You've then got the complications of IDFA and what's going on there. I don't, you know, think, you know, that's got a long way to play. I mean, we saw the ruling yesterday in Europe.
E.U., yeah. Yeah.
The E.U. with regards to Meta, et cetera. That's got a long way to play out. It was interesting that also I think reported yesterday, Google and Meta combined were less than 50% of the ad market, weren't they, for the first time since digital ad market.
Yep.
since 2014. Lots going on there. In terms of, in terms of TV that you mentioned, yeah, flattish. You know, look, TV will continue to be a hugely important part of the ad market forever. With that, you know, and if you look at the audience issues and therefore inflationary environment, you know, I do think that will to some extent or other, you know, be beneficial to Out-of-Home. If we take one step back and say, okay, what's going on in Out-of-Home? I think the first thing would be to say is that, you know, we're not in a vacuum. We haven't got our heads in the sand, and if there's a particular change in macro, are we impacted? Yes, probably.
If you look at the drivers of Out-of-Home, which is the fact that, you know, we're delivering more audiences today than we were before. We don't have an audience issue. We have incremental inventory through digitization. We have incremental flexibility through digitization. If you think what we're very good at doing, which is stimulating online behavior, you know what I mean, which is, you know, very important to, you know, a number of advertisers right now. You think of the flexibility that we now have. I think that within today's media environment, let's say absent some downturn that frankly we can't really see right now, and by that I mean, you know, the sort of downturns that everyone wants to point to, you know, the GFC, okay, but other, you know.
I think in a reasonable macro environment, Out-of-Home can continue to grow this year. The if you look at the most recent Magna numbers, I believe that the ad market is expected to grow in 2023 by 3.7% absent that's an absolute term, little bit higher than that if you take out the cyclicals. Whereas.
By cyclicals, you mean Olympics and political?
Exactly.
Okay.
Whereas Out-of-Home is, you know, slated to grow by 6.7%. Now, as we know, trying to forecast media has always been a bit of a mug's game. But directionally, I think that suggests that Out-of-Home is likely to grow share this year. I think we can all feel some confidence from that Magna prediction.
That's great. You said, I guess one of the other things that I find very confusing is the last two recessions that were induced by COVID and the GFC were extreme, to say the least. Therefore, it makes it, I think, a bit more challenging for investors to sort of even wrap their head around a normal recession, whatever that is. Can you provide just a little bit of context given your history in the industry if we go back to, I don't know if you'd call a one 2001 normal or I don't even know when the recession was prior to that, 1991? What happens in outdoor in a normal recession?
In a normal recession, I think we have to go back to 2001, was it?
Yeah.
Something like that. Out-of-Home was flattish to up 1%, I think, depending on which market you're in. I think it was about +1% in the U.S., which did significantly better than the ad market as a whole, which was down in sort of high single digits in that year. Having said that, you know, the industry was in a very different spot then. I mean, it was half the size. You know, it was a $4 billion or $5 billion industry. There was no digital in it at all. There was no measurement.
Mm-hmm.
There was no efficacy of, you know, or relatively, you know, lower efficacy of the medium. I'm not sure, and honestly, I don't know. I just don't know how much we can absolutely learn from that. I think if there is a learning, it was that Out-of-Home performed generally better than other media in a normal recession.
What would you chalk that up to? Is it, is it contract length? Is it mix of local? Is it your relatively low pricing on a CPM basis vis-à-vis many alternatives? What?
It's probably all of the above.
All of the above.
You know, yeah, I think the fact that we are sort of fairly low CPM. I think the fact that as an industry, we're more disposed towards local than national, local tends to be stickier for all sorts of different reasons. One of the reasons is that contract length that you refer to, because within local, you know, we have a lot of what we call permanent business, which is more like signage-type business, you know, turn left for whatever it is, Joe's Mufflers or whatever. I think all of that sort of comes into play, Jason, yeah.
Okay. That's great. What about digital conversions? Maybe you could just remind us or just frame it in terms of the percent of your facings that are digital, the percent of your revenues that are digital. What do you see happening sort of in the near term and even the long term in terms of what digital could become as a part of the overall portfolio?
Yeah, absolutely. Digital has been, you know, a huge driver of growth for us over the last sort of two or three years. And indeed, the inventory, certainly the industry, it's the fastest growing part of industry for sure. You know, if we think about the, take one step back, at the moment, the U.S. Out-of-Home industry is 30% digital, and the major players have all converted sort of 3-ish, 3% or 4% of their inventory. If you look abroad and take other markets, like the U.K. and Australia, their digital is north of 50% of the Out-of-Home market. If we're 30% and that's 50%, we're gonna move towards that over time.
It's difficult to say, is it gonna be three, five or seven years by the time we get there? We will continue to convert inventory. Where do we end up if we're sort of 3% or 4% now? Maybe it's 7% or 8%, you know, in X years from now.
Of the inventory.
Of the inventory, by then we'll be knocking on the door probably of about 50% of revenues. That's what it looks like today. As of today, the metrics that we've been using for a number of years are still very much holding true, which is that, you know, we look to make a kind of minimum return of around 20% IRR. The way that sort of balances out is, we make about 4x on revenue on average. Our costs are about 2 x- 2.5x. You know, it's also a good thing as from a margin point of view. It's a margin driver for us as well. Those numbers have held firm for a number of years.
As time goes on, you know, does the, you know, I guess a couple of things that can happen. Does demand change that might put, you know, might make you put the brakes on in terms of that in-investment? Does demand increase, or does cost of input increase? For example, does the cost of digital, the sign itself change? I mean, you know, I'm sure it's not gonna be absolutely linear. I mean, because things will change around the edges. From where we're sat, we believe that the best dollar that we can spend right now is on organic digital development.
One of the things that I guess I'll confess is that when digital first started rolling out, I wouldn't have thought it would have been a 20-year journey, you know, from beginning to end. I would have thought it would have been less than that. Is the pace a function purely of the regulatory constraints, or is it a function of regulatory plus sort of needing to give the market time to absorb the extra supply that comes in, and so you're sort of walking this line where you're sort of, there's a balancing act, if you will.
Well, I think you've hit the two points and that are key, you know, to digital deployment. I think the first one is probably the most important, which is regulatory, which is bizarrely not everyone wants a digital billboard at the end of their street. You know, just, you know, we have to work around that. I mean, there are still some counties and still a couple of states that, you know, where you can't deploy digital at all. I think that is the prime factor here. There is the fact that, you know, if you, if you converted 15% of your inventory in a particular market to digital, you've doubled your supply.
Yeah.
you know, we are also have one eye, if you like, on the supply side in given markets. Yeah.
Okay. Okay. Maybe just back of the envelope, seven, eight years is sort of the horizon that we should be thinking about in terms of from where we are now.
I would suspect that the industry can certainly, move in the same direction for the next seven or eight years as in the last three to five years.
Okay. That's great. Now, what, maybe if we can just touch on Programmatic. Maybe you can just remind us what Programmatic is. Why is it important to you? How big do you think it can become as a part of your digital revenues?
I guess for us, you know, firstly, maybe let's define Programmatic. If you think about programmatic generally in the media industry, that it almost always involves sort of real-time bidding, an RTB mechanism within that. For us, Programmatic means more automated transaction, which may or may not include some sort of real-time bidding element to it, or it might be what we call a PMP deal, a private marketplace deal, where effectively we've got agreed pricing, but it's just traded in a more connected electronic way.
Yeah
We are, you know, excited by Programmatic. We think that it will be a tailwind for the industry. For us at the moment, it's still a relatively small piece of our digital sales. It's kind of in the 5% range, which means that therefore in total of our business, it's a couple of points of total revenue. Undoubtedly it's going to, we believe, you know, increase over time. We like it. Most of our inventory is now exposed to a number of different platforms. Our transit industry is just going through the process of becoming exposed to the Programmatic buy side.
Yeah, excited by it, supported by it, but, you know, for now, it's a relatively small piece of the whole.
Any margin implications if, as Programmatic becomes larger?
No. The way, as I said, the way we try to price our inventory in the programmatic world is to essentially include for any commissions that we lose along the way.
Okay.
Net-net, the, you know, our dollars, our yields are the same whether or not it's sold programmatically or by our own sales force.
Okay. Years ago, when I was interviewing for some job, they asked me a question like, "How would you price an ad in the Yellow Pages for a client?" That's sort of a interesting question. When I think about pricing for your industry, I mean, how do you establish pricing? How do you know what the right price is? Is it a function of what pricing is going on around you? Is it a supply demand question? And what is it that's allowed you to be a bit more aggressive with price as of late?
Yeah, I think that maybe start with that piece first and then sort of come to talk more broadly about pricing in a second. I think of late, what we've seen in Out of Home is, you know, good strong demand for our inventory, particularly on some of those, you know, key top DMA markets. Which combined with an inflationary environment where you have, you know, a customer base that is, how to put it, is, you know, where all the input prices for, you know, one of your clients are going up. Do you know what I mean? You're far more accepting, I think, of a change in your media rate if every other input price in your business is going up.
Right.
It's interesting because I think we've also executed very well. I think our sales force have executed incredibly well in terms of going out and stimulating rate. To go back to the first part of your question, look, we have, you know, the base would be sort of cost per thousand. Do you know what I mean? You know, that would be how you, how you think about rate. As with many things in Out of Home, it's not, that's not linear either. You know, a lot of it will be dependent upon, you know, a particular locale, the competitive environment in a particular locale.
You know, we have markets where, you know, we are, you know, we have much more control over pricing than other markets where we call them jump ball, where you may have two or three players that can all offer. Do you know what I mean? All offer almost the equivalent kind of inventory in a particular market. They would tend to be, you know, generally much more competitive.
Makes sense.
Dependent upon how much money is in the market at that moment in time. You know, that's where it can, you can get, you know, real price intention.
It's a very local pricing decisions.
It can, yeah.
Okay.
A bunch of them can be very localized.
Okay. What about priorities for 2023? What are you focused on for the next year?
Well, I guess, you know, as we said before, I think, I guess the key things that we need to focus on what really builds our business. Yields and yields in our inventory, in general.
Yield, you mean just the utilization times the price?
Absolutely.
Okay.
Yep, absolutely. You know, we, you know, yield on current inventory will be the, you know, our key focus. In other words, how can we keep stimulating pricing and, or demand to generate yield. We'll be focused again on in terms of digital deployment, you know, how successful can we go out, you know, because we just talked about the benefits of digital. We'll remain attentive in the tuck-in acquisition market. I suspect that this year won't be, do you know what I mean, as strong as last year. As we said, last year was particularly strong. We invested, you know, round numbers, sort of $400 million.
Mm-hmm.
In tuck-ins last year. I doubt we'll be in that ballpark this year, but who knows? It's a little bit hard to say as we sit here on the 5th of January, but that's certainly something that we'll be putting a lot of attention into. Those are probably the sort of the, you know, the three main areas that we'll be focusing on. You know, on top of, you know, everything else which is going out, keeping the Outfront brand as being, you know, what we see as being, you know, leader in the industry. We're very focused in terms of local communities. We're very focused in terms of DE&I. I mean, there are a number of other sort of, you know, background pieces.
Yeah.
They would be the key strategic pieces.
If anyone in the group has a question, just let me know. Happy to take it. Transit, I'm sure you're gonna be excited when people ask less questions about Transit, how would you sort of characterize? Maybe you can just remind us some of the things you said early on, about, you know, what it would take in terms of traffic through the sort of MTA transit system to get back to revenue, what you're sort of seeing right now and what your sort of latest thinking is about the recovery of the Transit business?
Sure. I mean, one thing we don't have absolute control within Transit is, you know, passenger ridership. That's gonna depend on sort of, you know, macro trends that are a little bit beyond our control. What we said right from the outset is that, you know, we felt that when we got back to the 80%-85% terms of absolute passenger journeys compared to 2019, that we felt that we could, you know, hit those sort of, hit 2019 revenues. Nothing has changed our view with regards to that. We still believe that's absolutely possible. Part of that is because of the reach argument, because you and I are still using it three or four days a week.
We might not be using it five, but you still, do you know what I mean? You still get us, even though our number of absolute journeys is lower. That's part of it is reach. Part of it is because just the ad environment is much improved environment because it's all digital now for the most part, particularly, you know, I think for a Transit, we the proxy is the MTA, isn't it? That's what.
It is.
kind of what we're talking about here. You now have a much, much improved environment. Now, you know, the passenger side of it is growing, I think more slowly than we originally thought as we came out of came out of COVID.
Me too.
The, you know, it's a more elongated recovery. But we still feel great about Transit as an integral part of the Out-of-Home industry. 90+ of our top 100 customers buy transit and billboards from us, I mean, they, you know, they fit together like hand in glove. We'll be OIBDA positive this year on T ransit in total and the MTA. I mean, it's, you know, it's gonna be a business that's, as I say, that's contributing to OIBDA , we feel positive about that. We remain real advocates. You know, it would be great to see the passenger numbers building a little bit more quickly as we go through this year.
It'll be very interesting to see actually how much has changed as we roll into 2023, 'cause I think a number of organizations are being a little bit more specific in terms of, certainly in terms of, in-office versus out-of-office.
I was talking to a friend, and I said, "You know, how is this working from home thing going?" He said, "Oh, it's great." He said, "We're just one recession away from being five days back in the office.
I think that's quite a nice way of putting it.
Where is the transit volume just in terms of passengers right now? Is it sort of in the low to mid-60s? Is that sort of the right number?
We're around mid-60s now in on the MTA.
Okay.
By the way, I guess the other thing is we're talking here, that's kinda subway. If you think about, you know, a bus advertising business, everyone's back above ground, so, you know.
Right.
That, yeah, certainly, subways around 65% of it.
Are there any sort of Transit contracts that are coming up for renewal in the near or medium term that investors should think about? I know the MTA one is long dated out till 2033?
2033.
2033.
Yeah, we don't have to think about that for a while. I guess we'll be talking about it for a while as well. Look, no, within our portfolio, WMATA, which is Washington, that, you know, was potentially gonna go through a bid process, but actually that's just been extended for about 18 months to the middle of 2024. Maybe there'll be an RFP out for that later on this year. That's within our portfolio. If you think outside of our portfolio, there's not too much that we see on the horizon. I think DART down in Texas may come up this year, and we'll take a look at that, but nothing of any substance that investors need to be concerned about.
You know, I would think if I was running a transit system, I would want to delay sort of putting an RFP out on the marketplace, right?
Yes. I think that may well have been part of the decision-making process in Washington.
Okay. Maybe we see some other sort of kick the can down the road, maybe.
Well, yes. I mean, it's one of those environments where I would say if you have the ability to kick the can, you may well choose to.
Right. From your perspective, from a philosophical perspective, there's nothing about sort of just hitting sort of break-even EBITDA, let's say at the MTA or the Transit business that sort of says, "You know, we're less interested in this business longer term." Like, there's nothing structurally that's changed. You're still very interested in the Transit business, so.
I think we're very interested in the Transit business full stop. I mean, major cities can't work without good public transit.
Right.
As time goes on, I think particularly given the, you know, environmental concerns, I think there'll be increasing focus on public transit.
Right.
I think to be in, you know, in partnership with them to develop their assets, for incremental revenue streams, i.e. advertising, is a very good thing. The other point is that, you know, we were talking about some of the regulatory piece, about converting to digital in our billboards. In Transit, for the most part, you can do whatever you want.
Right.
Thats some real, do you know what I mean?
That's interesting.
Some development opportunities that we can explore in Transit in a very straightforward manner.
I think your firm and your peers have done a good job in terms of executing, over the last handful of years, where I sense the investor perception of outdoor as an investment, as a ad medium has improved demonstrably. Are there any misconceptions that you, that you pick up as you're chatting with investors where you feel like, you know, the investors still don't understand, you know, or they don't fully appreciate this facet of our business enough?
Are we, are we talking the industry or just us now?
Either or.
Oh, just Outfront. I think we, you know, we as a company spend an inordinate amount of time talking about the MTA. It just, it's just a fact. We spend a huge amount of time talking about that and a far less amount of time talking about, you know, what is at the moment certainly the principal driver of our cash flows, which is the billboard of our business
Yes.
I think then if you sort of drill down to the MTA, I think, as I say, when you know, we've obviously deployed, you know, significant capital there, you know, in the past. We've got very relatively small amount of capital still to be deployed. We're gonna be OIBDA positive. As the business grows, we'll start be able to recoup, if you like, so a complete change in the cash position for that contract, being a consumer to deliver a back of cash to pay back, and that we have until 2023 and to, you know, to enjoy the benefit of those cash returns once we get into recoupment, which is.
2033.
2033. Yeah. I think that's probably, as I say, we feel great about the MTA contract. Nobody else does.
Mm-hmm.
I'd obviously prefer that, you know, it weren't in exactly the same position it is now, you know, that for reasons that were somewhat beyond our control. We feel much better about that piece of our business than the rest of the world does.
Okay. Well, we might be right at that point, right, where the narrative begins to change? I mean, I would say for whatever it's worth, a lot of investors I speak with actually own your stock because of the potential outperformance on the Transit part of the business.
Yes. We're very excited about it.
Okay. Okay. Any questions from the audience? Well, Jeremy, this is great. Thank you so much for joining us today.
Jason, thank you very much.
Yeah.
Thanks, everyone, for listening.
Yeah, yeah.