OUTFRONT Media Inc. (OUT) Earnings Call Transcript & Summary

All right. So we are happy to have back at the conference, OUTFRONT Media. I joined up here by Interim CEO, Nick Brien; EVP and CFO, Matt Siegel. Guys, thanks for being here.

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 won many of the large multinational networks globally, both on the credit and the advertising side. So in a way, it's an interesting challenge now 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 hard by Singtel to get control of Amobee and to run that process. So 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. So 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 outdoor and its place in the ecosystem?

Yes, it's a very good question. It reinforces what I've always felt for the media. 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. And I think as reflected in its share of total media spend, out-of-home has fallen from grace somewhat. And I think the strength of the digital channels have demonstrated themselves in the ability to go straight to business outcomes as well as some of the more traditional media, including out-of-home, have really failed to keep pace with that.

Okay. All right. A lot to unpack there. We'll come back to some of that. But 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?

Well, the exec team is focused on all 4. We have 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. So it's an industry I know well, and it's a company I know well. So this is a leadership team that I've worked with quite intimately. It's now getting everyone aligned around the things that matter most. And 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 are more attractive to the non out-of-home advertisers as many of the largest multinational brands who care about brand, but they will to fuel growth, and they're not spending enough money or in some ways, some not at all with the out-of-home medium. And the fourth was making sure that we are operationally highly efficient and the most effective we can be in everything that we do. And that has -- that's divided itself into a number of key initiatives against each one of our strategic imperatives. And 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 and maybe that relates to sales strategies. So 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 marketer clients?

I think there's three distinct areas to ensure that we are more significantly considered as part of the modern omni-channel media mix. One is making sure that we can be very straightforward when it comes to measurement, and there's no ambiguity about the measurement. And I'm talking here base level reach and frequency of our medium. So 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 marketers really want to focus on ROAS and incrementality. So how are we making sure that we are offering that at scale? And 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 Mart as well as many of the independent players, it is a fragmented medium. And yes, 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. And certainly, agencies prefer that and a lot of the marketers can do a lot with that. So this is as much for us and a responsibility and an opportunity as the industry leader, but 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 and they right. Now the platforms, there's increasing places like we think about Place Exchange, and we think there's a number of increasing open market platforms. And I think some of the SSPs have done in digital like Vistar, but there's still -- it's 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. But they aren't necessarily representing -- that's about trading negotiation and campaign management, not marketing the power and the efficacy of the medium. And one of the things I talked about, 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 that still 90% of all commerce happens outside in stores and 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. And we haven't been really talking about that. We spent a lot of time as an industry talking about our products, whether it be billboard or transit, not necessarily how we part of the marketing solution.

Got it. You also mentioned measurement. You mentioned ROAS at scale, which I assume goes partly to attribution. So 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? And then maybe you can touch on initiatives from Geopath, what role you see for Vistar under T-Mobile?

Well, 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. And I think a lot of that is about proving efficacy to drive transactions. So that leads to the second question, which is how does the industry focus on attribution? We need to get base level 1 quickly, which is basic audience reach, frequency, measurement metrics, media metrics and start to be much more thoughtful about some -- all the big agency groups and all the big marketers are using media mix modeling, and 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, but it helps us all when we do it at the industry level.

I guess the idea being that once you've kind of established that outdoor becomes part of the media mix.

Exactly.

Is what supposed to say something separate?

It's part of the campaign planning. We have too many large sophisticated marketers 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. And 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, and it is part of their media mix, whether it be for the 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 and Morgan. The lawyers use it. The legal profession loves the medium. It is nearly approaching 20% of the money they spent in paid media. So why is it? It's 20% of their category and 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're looking at major industry categories, and we've done the analysis to identify the biggest marketeers who are spending over $100 million a year on paid media, and we're looking at the average, the highest level of spend is 1.5%. So if I say paid media, we're 2.5% of paid media today, obviously, our strength is we are local, we're hyper local, local, regional, all the way up to national brands. But how we really representing the very significant part of the advertising ecosystem, which is brand marketers 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. And a lot of that is a 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. And 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 5 years has been so heavily focused on performance, on short-term immediate measurable metrics. And yet we know if that was the case, then Google would get the check and then sell the invoice and be the one to claim the sale for everything. But we know that your consideration to buy Mercedes-Benz has been built over a 20-year period. So we are part of brand building. We just need to make sure we're part of the fueling growth conversation as well.

And would most -- I mean, there's a lot to unpack, but like would most of what you said here apply as a strategy mainly on the national -- sorry, on the local side as well? Or are there a different kind of set of priorities?

Well, that I think is -- we're trying to change the vernacular, and 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. And 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. And the local affair is very much about SMB. And we know that's a significant advertising that's 80% of Facebook and Google's revenue. So 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. So you could call it subscription revenue. What does that look like? And then how are we going to be much more significantly focused on the regional mid-market clients. But it's 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're in the major DMAs. We're in 36 of the 50 states. We are in the most significant cultural centers in the U.S. So 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. But are there other kind of big buckets that you've identified that sit outside the outdoor ecosystem? And maybe where is there room to kind of pull something in?

I think the 3 that we're focused on initially are very much is the automotive sector because we've talked and engaged and I worked very extensively with three of the biggest automotive players in the U.S. So I've had conversations at the Tier 1 level why they haven't been considered spenders. The other one is in CPG. CPG is such a large category from food to beauty across the Board. And 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 our -- 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 they're buying. So we see retail in general -- and I'm talking about the retailers as well as the 90% of retailers conducted still in real life, how are we representing our assets in those conversations. And 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. So we're going to have 5. We're going to start with 5. We're going to escalate it as quickly as we can, 5 significant industry verticals, and we're 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, and we can change it and we can kind of geofence and geolocate that. We can change copy, we can dynamically alter the content that's appearing. But why wouldn't we -- when we know there's 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 the human behavior, Pick up the phone, visit the dealership, go online. How are we using our medium to influence. And 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. And the influence comes from the proximity and it also comes from the trust to 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. And I'm talking here about, yes, the billboards, the sites, the transit and how can we leverage that. And I think retail is an exciting opportunity for us.

Maybe we could shift to -- actually, before we shift over to current trends, I want to ask one more strategic imperative. I know you had highlighted modernizing workflows, operational excellence. A question we got after the print was should investors interpret us 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, but 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. So 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 and as importantly, create a stronger more streamlined, more agile organization to pursue the targets we have outlined.

Okay. Maybe we could shift over to current trends. So OUTFRONT in 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, 3, 4 weeks ago, we had a number of campaigns that were delayed, notably the 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. And it was more pause for concern rather than any cancellations. It was delayed. 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 is not being committed that was being talked about or campaigns have been canceled.

And I think your outlook for Q2 is better organic trends, right? That's even inclusive of the another low-margin contract exit. But can you just remind us when you give guidance, how much is kind of booked for the quarter and visible for the year?

Yes. I think we're -- our quarter 2 is now 90%.

Yes. We give guidance mid-quarter. So it's not much left to go, but still on the margin, the guidance is uncertain.

And for the year at this point, roughly? specilaty.

For the year, probably 70%, 75% on books.

Okay. Any -- I mean, look, you could debate the economic recession or economic state, whether it 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, so that is a mitigant on the cost side. All of our transit contracts, except for the minimum guarantee or revenue share. So that's also a mitigant. We keep our eye -- we have the potential recession, which never happened in '22 and '23. So we keep our eye on -- we're talking about cancellations. It is not a bit of a canary in the coal mine. If there's -- until 2020, we never even tracked it. So we watch and we know if there's a pickup or even a couple of lines on the report cause for concern, we haven't seen anything. And then I watch daily collections. That's an even earlier indication of 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. So we think we're in good shape. It doesn't seem to be recession. We're certainly aware of what's out there in the macro environment and there's 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. But is there room for optimism here? We've seen the box office started 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. We look after all the entertainment. They explained to me when I asked about the second half is 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 2, while strong in movies, a lot of them were the whole genre, which they don't support as much. So I think we've seen that, that really has given some strength. I think also the -- without doubt, the terrible fires that happened, obviously, at the north end of the Santa Monica Bay around the Palisades and Altadina caused a concern and a sort of pause on a number of issues that's picked up now. So I think the L.A., when we're thinking about the West region, a lot of it is focused on what we're doing on L.A. and the pressure is on because we've been very clear that so much has been reliant on the entertainment sector and a lot of that region was based on what happened in L.A. But 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 L.A. 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 EBITDA or profit margin of the inventory, not just revenue. So you recall, we exited the MTA billboard contract in the fall in October, specifically. That was a single-digit margin contract. We knew if we had our salespeople sell something else in the New York market or elsewhere, we can make up the EBITDA. And I think we've told people about the revenue impact and that 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. The landlord was looking for a little higher payment to them, and we wish them well. And again, we think there's a revenue headwind, but really no impact on EBITDA going forward.

And 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 billboard. Each one individually about 150 basis point impact overall. But on billboard revenue, about 200 basis points. So the MTA started in October. So we felt it in the first quarter. We're seeing it now. So you'll see it again in the third quarter. The one in Los Angeles, we're winding down now. So I'm not sure it's a material impact in the second quarter, but we'll see it third, fourth and first quarter of next year.

Anything on margins or...

Margin -- percentage margin will be better. And then EBITDA will be about the same. As an example, if we didn't sell $25 million of revenue on the U.S. Los Angeles portfolio and we put $5 million on a bus contract or $10 million on other billboards, we'd be neutral. So we feel very confident about that.

Let's touch upon transit. So the New York MTA had another solid quarter, up 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 there 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 a -- this is bearing fruit of a dedicated task force that has been responsible not just for the marketing, but more concentrated dedicated focus 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. And 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? And that dedicated team has done a very good job, and we continue to see it. And 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. So I think that's just bearing fruit, and we've got to see it continue. I mean we've got that. It's a significant contract with a significant MAG, but 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?

Probably be accretive. I think it brings a few more people underground, but so does 5 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 would be great to kind of hear on demand so far, what that's been like and kind of any time line to getting that rolled out on the moving assets?

So 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. So it's still early days, growing quickly, growing even quicker than our billboard business at this point because it's ramping up. The trains, I remind people that they're moving, it's hard and working on it. I think we should have it connected by the end of the year. And there's tens of thousands of screens on those trains. And I think the original investment thesis was designed for automated selling. So we're pretty excited once they get connected.

Okay. Got it. The transit outside of the New York MTA, I think we estimate it 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...

Nothing material. No material expirations or maturities start in 2030. So we have this portfolio for a while, except for the little ones.

Yes. Got it. Anything to comment just broadly on the performance outside New York?

You're right. New York overperformance is great for us, and we're excited. A lot of the little ones are underperforming. L.A. 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, but the bus product has been a little bit tired as the world goes digital around it.

Okay. Maybe a few on cost and CapEx. Matt, maybe just how should investors consider any possible risks around tariffs, whether it relates to the OpEx or side?

So 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. So not a huge spend for us. And if there is a tariff, it will be a little higher, but 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 still target about 100 to 150 new digital a year, about 100 of that, plus or minus, is conversions. The conversions have a longer gestation period than some other things. So we keep a pretty big pipeline, but we're also -- we do some management agreements. We do some new development building organically among ourselves. And we still do very small opportunistic tuck-ins, which I think is the bread and butter of the industry and that kind of offsets some of the development that leads to some contemplations around the country.

And as you kind of convert more, I mean, our returns on the digital conversions very consistent, no change?

I've been here 7 years. We've been targeting a 20% IRR for approval, and we're probably averaging as our portfolio somewhere in the 25%, 27% range. So very consistent. Back in the day, when it started, we were probably getting a 12x revenue lift because the first shiny digital was fantastic and ever wanted to be on it. Now we're getting still about a 4x revenue lift. We're adding inventory, we are adding flips, price point is a little lower, but still it's a great return and it just takes us a couple of months to build up demand on each new digital.

Got it. Less than 5. Does anyone in the room want to ask anything? Okay. Nick, before we close, it would 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 more kind of modest opportunity set for 2025. But assuming you execute on your strategy and naturally delever, how would M&A play into your view?

I think the -- 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, a 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 are the -- what may be the opportunities around all things technology, systems measurement, other partnerships, 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, 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.

Good. All right. Nick, Matt, thanks so much for being here.

Thank you for your time. Yes.

Thank you, everybody.

Thank you..