OUTFRONT Media Inc. Q2 FY2025 Earnings Call

Hello, everyone, and thank you for joining us for OUTFRONT Media's Second Quarter 2025 Earnings Call. My name is Lydia, and I'll be your operator today. I'll now hand you over to Stephan Bisson to begin. Please go ahead.

Good afternoon, and thank you for joining our 2025 second quarter earnings call. With me on the call today are Nick Brien and Matthew Siegel. After a discussion of our financial results, we'll open the lines for a question-and-answer session. Our comments today will refer to the earnings release and slide presentation that you can find on the Investor Relations section of our website, outfront.com. After today's call has concluded, an audio archived replay will be available there as well. This conference call may include forward-looking statements. Relevant factors that could cause actual results to differ materially from these forward-looking statements are listed in our earnings materials and in our SEC filings, including our 2024 Form 10-K as well as our Q2 2025 Form 10-Q, which we expect to file tomorrow. We will refer to certain non-GAAP financial measures on this call. Any references to OIBDA made today will be on an adjusted basis. Reconciliations of OIBDA and other non-GAAP financial measures are in the appendix of the slide presentation, the earnings release and on our website, which also includes presentations with prior period reconciliations. With that, let me hand the call over to Nick.

Thanks, Stephan, and good afternoon, everyone. Before sharing our quarterly results, I'm excited to discuss some of the recent changes we have made within the organization, which have been undertaken to accelerate our revenue growth and reinforce OUTFRONT's position as a leading real-life media company in today's rapidly changing marketing world. Looking at our structural changes first. We have undergone a large internal reorganization, rebranding our local sales teams as commercial and our national sales teams as enterprise. This important change reflects a more appropriate definition of U.S. sales categories between enterprise, mid-market and SMB advertisers. Going forward, we will extend these definitions into our financial documents and earnings calls using the enterprise and commercial nomenclature rather than the traditional national and local. Second, as part of this effort, we've also redesigned our Brand Solutions Group, which has been tasked to drive demand from enterprise marketers within the largest industry verticals across the U.S. We will begin with six heads of inventory, known as HOI, who will be responsible for the automotive, entertainment, finance, CPG, retail and sports industry verticals. This group will assist advertisers through every phase of their campaign implementation from planning to ideation to activation to measurement. Third, we have centralized all of our operational and real estate functions. Our primary goal with this change is to ensure excellence in all functions while reducing the administrative burden on our in-market sales leaders. This will allow them to focus on deepening existing client relationships while more aggressively prospecting non-out-of-home advertisers. Our regional sales leaders will continue to be very involved in key business decisions regarding their markets, given the knowledge and expertise provided by their local proximity and deep market experience. Fourth, we are strengthening both our revenue operations and sales enablement functions. These are increasingly critical to fully optimize our assets to maximize both revenue yield and overall profitability. Fifth, we have moved from having four sales regions to three. We've done this to reduce overhead expenses, improve sales focus and create speed and agility across the entire company. As part of this transformation process, we've also made several significant leadership changes to our sales organization, which we announced earlier today. Mark Bonanni, previously EVP of our South division, has been promoted to Chief Revenue Officer of Commercial Sales. Mark will focus on accelerating demand from important regional and local advertisers. In addition, Mark will be responsible for overseeing our focus on the independent agency sector, which today represents a growing number of important advertisers. He has more than 25 years of experience in the digital transformation of media companies, including at OUTFRONT, and will continue to play a key role in bridging the URL and the IOL as out-of-home advertising evolves as a dynamic digital channel. Jim Norton has been hired as our Chief Revenue Officer of Enterprise Sales. In this role, he will focus on growth opportunities with the country's largest enterprise advertisers, which have traditionally underutilized out-of-home as part of their broader media strategies. Jim and the enterprise sales team will drive increased demand for our advertising solutions by implementing a full funnel sales strategy in conjunction with our Brand Solutions Group, partnering with enterprise marketers throughout their entire advertising process. Jim comes to us with over 25 years of sales experience across both media and advertising companies, where he has scaled teams of both SaaS start-ups and global media companies. Most recently, he was CRO at Brightcove, where he led the global go-to-market strategy and helped position the company for a successful sale. Speaking of our Brand Solutions Group, Brad Alperin has joined to lead our efforts here. In this role, he will develop strategic solutions for the enterprise and mid-market brands to accomplish their marketing goals by thoughtfully integrating out-of-home's power to influence real-life decisions into their broader media plans. Brad has more than 25 years of agency experience, most recently as EVP of Integrated Strategy at Dentsu. These new sales leaders will work with our experienced regional Vice Presidents, Phil Stimpson, Art Martinez and Dan Scherer, and our highly regarded enterprise sales leader, Marc Miller, who is directly responsible for all our HoldCo agencies and out-of-home specialist relationships. This new sales organization will be enhanced and supported by our growing technology function, led by Premesh Purayil, our Chief Technology Officer, who we tasked with delivering enhanced programmatic scale, a simplified out-of-home planning and buying process, and improved audience measurement capabilities. With our new organizational structure and talented people in place, we are primed to accelerate demand with increasing support from automation and digitization to deliver the advertising solutions that today's results-focused market demands. Now turning to our Q2 results. The headline numbers of which you can see on Slide 4. Organic revenues were essentially flat, broadly in line with the guidance we provided in May, while OIBDA was $124 million and AFFO was $85 million. Slide 5 shows our organic revenue results. Billboard revenues were down 2.5%, primarily due to our previously announced exits of two large marginally profitable billboard contracts, one in New York and the other in L.A. The revenues and expenses of these contracts are still included in our reported 2024 financial statements. Excluding the results of the New York and L.A. contracts, we have exited for both years, billboard revenues would have been essentially flat. Transit grew 5.6% with nice broad-based growth across most of our franchises. Slide 6 shows our detailed billboard revenue, which, as I mentioned earlier, was impacted by the two large billboard contracts we have exited. Static and other billboard revenues were down 1.6% during the quarter and digital billboard revenues were down 4.5%. Slide 7 shows our detailed transit revenue. The 5.6% top-line growth was driven by 17% growth in our digital revenues, which were partially offset by a 2.9% decline in outstanding revenues. Enterprise and Commercial contributed relatively evenly to our transit growth and the New York MTA was up in the mid-single digits during the quarter despite a strong show in 2024 when it grew 20%. On a consolidated basis, our strongest categories during the quarter were legal, financial, service providers, and insurance. The weaker categories during the quarter were entertainment, health and medical, restaurants, and alcohol. Slide 8 shows our combined digital revenue performance, which grew 1.5% in the quarter and represented over 34% of total organic revenues. However, digital revenues would have grown by about 5%, excluding the aforementioned New York and L.A. contracts. Programmatic and digital direct automated sales were up nearly 20% during the period and represented 16.5% of our total digital revenues, up from 14.8% in the same period last year. Automated digital, and by extension, digital generally, is a paramount focus here at OUTFRONT. There is a large growing universe of dedicated digital media buyers who have not yet embraced the digital out-of-home ecosystem at all. This underserved market represents a massive opportunity for us moving forward, and we are making concerted efforts to engage, educate, and inspire these important digital agencies about the unique power of digital out-of-home. The breakdown of commercial and enterprise revenues can be seen on Slide 9. Commercial, previously called local, was up 1.4% year-on-year during the quarter, with transit growing nicely and billboard up slightly. Enterprise, previously called national, declined 4% during the second quarter with mid-single-digit growth in transit being offset by weaker billboard results. Slide 10 shows our billboard yield growth, which was up about 0.5% year-on-year to nearly $3,000 per month, driven primarily by our continued digital conversions, which see an approximate 4x uplift versus their pre-conversion revenue levels. Summing up, Q2 revenues ended broadly in line with our expectations as our enterprise billboard revenue results were offset by better performance within transit and continued organic acceleration across digital out-of-home. Encouragingly, we have seen top-line acceleration across both our lines of business in the second half. With that, let me now hand it over to Matt to review the rest of our financials.

Thanks, Nick, and good afternoon, everyone. Before taking a deeper dive into our financial statements, I would also like to briefly discuss the financial impact of the restructuring Nick described earlier. As noted in our earnings release, we incurred a $19.8 million restructuring charge in the second quarter due to the reduction of approximately 120 people from the company during the quarter. This is in addition to the nearly $5 million we expensed in the first quarter as a corporate expense entirely due to some of the recent senior management changes. As a result of the restructuring, we expect an annualized expense savings of approximately $18 million to $20 million, of which about half should be realized over the balance of this year. We felt this action was necessary to reduce our cost base and increase our financial flexibility. We acknowledge change can be difficult, and I'd like to take a moment to thank all of our impacted colleagues for their years of dedicated work and wish them all the best in their future endeavors. Now please turn to Slide 11 for a more detailed look at our billboard expenses. In total, billboard expenses were down just over $7 million or 3.3% year-over-year. Zooming in on billboard lease costs, these expenses were down just over $6 million or 5.2% year-over-year. This decline includes approximately $7 million related to two large billboard contracts we recently exited, some of which was partially offset by contractual escalators on other leases. Excluding the impact of the portfolio exits, billboard property lease expense would have been up about 2%. Posting, maintenance, and other expenses were up about $1 million or 3.1% due to higher production costs and compensation-related expenses from regular annual merit increases. SG&A expenses declined just over $2 million or 3.3% due primarily to lower credit card usage by customers, a result of newly implemented payment policies. This $7 million improvement in total billboard expenses was offset by the modest decline in billboard revenues Nick described earlier and led to billboard adjusted OIBDA falling just over $1 million or about 1%. We are pleased to see billboard adjusted OIBDA margin increase again this time by 50 basis points year-over-year to 38.3%, helped by recent portfolio management decisions as well as the geographic mix of revenue generated in the second quarter. We continue to expect that billboard margins will improve on a year-on-year basis from the remainder of 2025. Now turning to Transit on Slide 12. In total, transit expenses were up about $3 million or 3% year-over-year. This transit franchise expense was up 5% due to the annual inflation adjustment to the MAG for the MTA contract and higher variable payments to other franchises as a result of improved revenue. Posting, maintenance, and other expenses were up just under $1 million or about 5% due primarily to higher maintenance and utilities costs. SG&A expenses were down $1 million or about 5%, primarily due to lower compensation-related expenses and lower professional fees. A 3% increase in total transit expenses, combined with the nearly 6% transit revenue growth described earlier, led to transit adjusted OIBDA improving by almost $3 million during the quarter. Slide 13 shows the company's combined billboard, transit, and corporate adjusted OIBDA in the second quarter. Corporate expense rose by about $2 million, nearly entirely due to the impact of market fluctuations on an unfunded equity-linked retirement plan offered by the company to certain employees and higher professional fees, including fees related to a management consulting project, partially offset by lower compensation-related expenses. Combined with the billboard and transit OIBDA I covered earlier, consolidated adjusted OIBDA totaled about $124 million, essentially flat versus the prior year. Turning to capital expenditures on Slide 14. Q2 CapEx spend was about $26 million, including about $7 million of maintenance spend. The $7 million increase in growth CapEx was primarily related to digital conversions as well as the timing of payments for new displays. We converted 22 new boards in this quarter. However, our digital count was lowered by a decline of 114 small format digital boards, primarily found in lifestyle centers as a result of our exit of the L.A. billboard contract. In 2025, we still expect to spend approximately $85 million of CapEx and also still expect $35 million of this total for maintenance. Looking at AFFO on Slide 15, you can see the bridge to our Q2 AFFO of $85 million. The improvement is principally driven by higher billboard and transit OIBDA and lower interest expense, a result of lower debt balance following the sale of our Canadian business and lower interest rates. These benefits were partially offset by higher corporate expense. For the full year, we continue to expect reported 2025 consolidated AFFO will grow in the mid-single-digit range, reflecting cost reduction from the recent RIF and our current revenue expectations. Also included in this guidance is $35 million of maintenance CapEx, interest expense of approximately $145 million and a small amount of cash taxes. Please turn to Slide 16 for an update on our balance sheet. Committed liquidity is over $600 million, including about $30 million of cash, around $500 million available by our revolver and $80 million available by our accounts receivable securitization facility. As of June 30, our total net leverage was 4.8x within our 4 to 5x target range. Our next maturity is a $400 million term loan in late 2026, which we intend to refinance in the coming months. Turning to our dividend. We announced today that our Board of Directors maintained a $0.30 cash dividend payable on September 30 to shareholders of record at the close of business on September 5. We spent approximately $3 million on acquisitions during the quarter. Looking at our current acquisition pipeline, we continue to expect our 2025 deal activity to be focused on opportunistic tuck-ins and remain at a similar aggregate level to those seen in the last couple of years. With that, let me turn the call back over to Nick.

Thank you, Matt. We accomplished a lot this quarter. And while our work is far from finished, we have made meaningful progress on each of the four strategic pillars I outlined three months ago. First, we have begun optimizing our sales strategy through our broad reorganization into distinct enterprise and commercial go-to-market teams. Second, we have started to modernize our workflow and processes by centralizing many of our functions, reducing the administrative burden on our key sales managers. Third, we are focused on generating new demand, particularly with our redesigned Brand Solutions Group. And fourth, we are demanding operational excellence from all our team members with a particular focus on eliminating unnecessary activities and streamlining processes across the entire organization. While we are still early in the process of transformation, we are encouraged by the energy and enthusiasm we have seen thus far. And I'm pleased to say that business has picked up recently. From where we sit today, we expect third-quarter revenue growth to accelerate meaningfully from Q2 levels, with consolidated revenues up low single digits, driven by double-digit growth in transit and a low single-digit decline in billboard. Our expected decline in billboard revenues is a result of our strategic decision to exit the two large marginally profitable billboard contracts in New York and Los Angeles. Excluding nearly $13 million of billboard revenue generated by these two exited contracts in the third quarter of 2024, we believe Q3 billboard revenues would be up low single digits, and consolidated revenue would be up low to mid-single digits. Looking over the longer term, I'm extremely excited about what lies ahead for OUTFRONT and the industry. We recently participated in the Cannes Lions International Festival of Creativity, one of only two out-of-home companies to officially activate there. We hosted over 60 meetings with some of the world's biggest brands and agencies to discuss how and why out-of-home drives impactful outcomes in real life and should become a core part of their marketing strategy. We also illustrated the incredible possibilities of out-of-home through a demonstration we entitled a moment in Cannes, a memory in New York, whereby we snapped photos of each of our guests at the festival, and generative AI created a soulful timeless portrait that was displayed seconds later in Times Square. You can see an example on the cover of our Q2 earnings presentation. Overall, it's clear to me that there is general positivity about out-of-home, which is viewed as a trusted marketing channel in what has become an increasingly fragmented digital world that seemingly becomes less real by the day. There are still some hurdles that the industry must overcome to lessen complexity, strengthen measurement, and provide better attribution to deliver desired business outcomes. OUTFRONT is determined to solve these challenges. And when we accomplish these goals, we will prove to be an indispensable part of the marketing mix and meaningfully grow our share of the advertising marketplace. To close, OUTFRONT has a very exciting future, and we have spent much of 2025 improving our already strong foundations upon which we will create the industry's leading media company to build trusted brands in real life. And with that, operator, let's now open up the lines for questions.

Our first question today comes from Daniel Osley with Wells Fargo.

So the business has gone through an elevated period of change over the last year with new senior leadership, sales force restructuring, and the exit of large billboard contracts. So my question is, are you through the heaviest period of these changes to the business? Or are there additional areas to address? And then I have a follow-up.

Thank you for the question, Daniel. We made it clear during our last earnings call that this year would focus on fundamental transformational issues, centered around the four strategic imperatives I mentioned. When considering the importance of adjusting our sales strategy and workflows, it’s really about creating a demand engine to engage non-out-of-home advertisers, especially from the enterprise sector. We’re excited about the organizational restructuring announced today, with Jim Norton leading the operation alongside Brad Alperin in the Brand Solutions Group. Modernizing our workflows and processes is still in progress; we’ve talked about advancements in AI and automation, as well as updating our tech stack to ensure our OMS and data are functioning optimally. We recognized the need to strengthen our ad tech stack, particularly on the programmatic side, and that work is progressing well. Improving external demand remains a priority as we engage and educate independent and digital agencies, a strategy we are actively pursuing. We are also seeing significant improvements from our transit task force and leadership, and we'll share more details soon. Additionally, we continue to focus on operational excellence, which includes enhancing sales KPIs, strengthening our pipeline, RevOps improvements, sales enablement, and optimizing our real estate. In short, yes, we believe we've made significant strides in the transformation changes we committed to, but our work continues for the rest of the year.

That's helpful. And then as a follow-up, can you help us unpack the weakness you called out in the entertainment vertical? We were assuming you start to see some benefit from the strong box office year-to-date.

Well, our entertainment HOI is certainly very experienced and has been very involved in making sure that the work that we have in Q2 involves securing big deals from Universal, HBO, Disney, Warner Bros. I look at the logos and the money they spent; they were up year-on-year. It was the absence of some of the other entertainment companies and the studios who just weren't supporting the slate that they had. I think we're being more bullish about the entertainment sector in Q3 when I look at the deals that have been committed, but that really does explain not just that it was a lower spend; that was the absence of a number of the key studios that we're supporting.

Our next question comes from David Karnovsky with JPMorgan.

Maybe just two on the Q3 outlook. Just with the acceleration in transit, I don't know if you can walk through some of the drivers there like ridership, which looks like it's up nicely year-to-date or initiatives in your control? And then back with billboard in Q3, can you just maybe give the anticipated impact from MTA and L.A. contract exit as we're just trying to get to what the underlying growth looks like in the quarter?

Sure. David, regarding transit, there are several factors at play. The primary focus is in New York, which is our largest transit market and is performing well. Ridership has increased slightly, and the team is concentrating on this area. We have a dedicated transit task force for New York, along with extra management incentives. The team is successfully reviving the New York franchise, and we're also seeing improvements in some smaller markets. For the billboard franchises in both New York and L.A., each accounted for about 2% of our billboard revenues in 2024, which translates to roughly 1.5% of our total revenues. The most significant challenge will be in Q3 when we will be without both. However, by Q4, we will start to see the impact of the New York franchise loss beginning to lessen, and later in 2026, we will have moved past both challenges.

Our next question comes from Cameron McVeigh with Morgan Stanley.

I wanted to follow up on the transit. With the decline in static transit revenue this quarter, is that due to ridership, or do you think there has been a structural shift away from static transit boards? Additionally, I wanted to inquire about some of the cost-related actions you recently mentioned. Could you help quantify the potential for margin expansion in the latter half of this year and next year?

Sure. Thanks, Cam. On transit, when we first went into the MTA contract, I think back in 2017, the original plan was really digitize everything, take down all the static. We decided midway through to keep the static up because it was doing okay, but recognizing that it was a tired or tiring product. So we're not surprised by the decline of static because everyone wants shiny new objects; you're in New York, and you can see it in Boston and D.C., very similarly. Plus overall, the bus product across the country, not just ours but others, I think, pales in comparison to some of the digital that we have that others have in all the big cities. So I think the decline of static transit is not a surprise and I would probably declare it structural and likely to continue. That being said, I think there's a small test just starting in D.C. on some digital bus. I'm sure the ultimate decision or solution will be years away, but there's hope yet for digitizing some buses. We'll see about that.

Great. And then just to ask on the potential margin expansion.

I'm sorry. Yes. So you said about $18 million, $20 million of full-year savings. We really think probably almost half felt in 2025, full-year impact in 2026, we'll get a pickup half here in each; $9 million, $10 million in improvement in both years. Cam, does that answer your question?

Our next question comes from Jonnathan Navarrete with TD Cowen.

First one is on billboard. I think the margin held up relatively well, I guess, despite the revenue pressure. Any cost levers left to pull if revenue remains soft in the back half?

There's always cost levers left to pull. Right now, we're continuing to look at our billboard portfolio. We don't have any other large low-margin portfolios to look at. Over time, we certainly expect to manage the portfolio to optimize margin, billboard margin, and overall margin. So I wouldn't be surprised if we can continue to cull the herd, if you will, pardon the expression, of some of our expensive static. I'm not sure the impact in 2025. But I think overall, it's a positive accretive nature. And as far as other costs, we're always looking to be efficient and nimble. As Dan asked earlier, we've had a lot of change in 2025 and probably more focused on seeing the impact of that change through 2025 and pulling more cost levers at this time.

Got it. And related, just on AFFO, should we continue to expect growth in the second half, just given the stability of interest expense as well as CapEx and presumably some growth in OIBDA?

Yes. As we said, we're keeping our AFFO guidance at mid-single-digit growth. As you probably noticed, it implies some acceleration in revenue in the second half, which we feel pretty confident about. As Nick pointed out, we're seeing some improvement. Interest expense benefits mostly from the sale of our Canadian business last year with lower debt. We have a little bit of floating rate debt. So there could be some improvement as rates do trend down in the second half of the year.

Our next question comes from Patrick Sholl with Barrington Research.

Just a question on the guidance expectations. Could you maybe talk about some of the regional variations and what you're seeing for the acceleration in the second half or if it's mostly format driven?

Patrick, it's Nick here. I didn't quite hear the beginning of your question clearly. Could you please repeat it?

Sorry, is this better? I was wondering if you could talk about the regional variations in the expectation for the revenue growth improvement in the second half.

Thank you for your question, Patrick. We closely monitor each region; every Monday morning during our growth meetings, we assess all regions and the key states within our sales territories. One of the reasons we consolidated from four regions to three and reorganized some states was to achieve better consistency and focus on areas under pressure. We've observed significant variability. Now, we're beginning to break down our revenues by new clients versus those we’ve lost, as well as increases and decreases. It's difficult to identify a clear pattern that consistently relates to either the overall market or our actions. We’ve seen enterprise clients become very active due to factors like launching a car or a credit card in specific areas, which in turn strengthens our commercial business, and sometimes it's the opposite. I wouldn't say there’s significant regional variation, aside from the strength of major markets like California and New York. Up to this point, and based on the actuals from the first half and our outlook for Q3 and the early signs for the final quarter, we aren’t noticing any significant regional deviations from the norms. I hope that answers your question, Patrick.

Yes, yes. I guess maybe sort of like following up on that, just with your L.A. footprint and the loss of that contract, I guess, can you maybe just talk about your go-to-market there and just your, I guess, ability to reach a portion of the market. I guess, are you seeing any sort of effect on the loss of that contract on the broader footprint?

No, we're not. We believe strongly that the contract was heavily entertainment-focused, and that sector has faced challenges due to various reasons, starting with the writers' strike in 2024 and extending through 2023, combined with the current strength of streaming and the creative economy. We recognize the need to build more consistent relationships with strong independent agencies in the L.A. area, such as 72 and Sunny, Horizon, and Dentsu 360i, along with independent multicultural agencies and the growth of digital agencies across California. These represent revenue-generating opportunities at both the enterprise and commercial levels. Additionally, we are being more proactive with a restructuring focused on organic growth. This means our account leaders are concentrating on a customer success growth function, aiming to maximize the resources we currently have. We have been clear, as stated in the last earnings call, that we would be deliberate and careful about the contracts we pursue, especially when our assessments indicate we would be taking on unprofitable leases. We understand that in Los Angeles, the enterprise sector has been a significant factor in certain contracts we chose to leave. Our decision was not made lightly as we need to focus on generating new revenues from existing clients as well as new non-out-of-home advertisers, and we are making good progress in both New York and L.A.

We have no further questions in the queue. So I'll pass the call back over to Nick Brien for any closing comments.

Well, thank you for joining us today. We hope to see and meet with many of you at our various conferences and events throughout the autumn. But for those who we don't, we look forward to presenting our Q3 results to you in early November. Thank you so much for your time today.

This concludes today's call. Thank you very much for joining. You may now disconnect your lines.