Readers cited  revenue cyclicality as the second biggest risk to the out of home industry in Billboard Insider’s recent poll.  Out of home revenues are cyclical and decline in a recession.  Take a look at how out of home did during the past four recessions.  In a normal recession, out of home is down single digits and recovers the lost revenue within a year.  But during a severe recession like 2009 the industry was down almost 20% and didn’t recover the lost revenues for almost 8 years.

Billboard Insider asked Claude this question: “If I’m 50, what’s the probability of another severe recession in my lifetime” and got this answer: “The probability of experiencing another severe recession in your lifetime is statistically near 100%…When looking across a multi-decade time horizon, economic history shows that structural downturns are not a matter of “if,” but “when.”

Some of you weren’t around during the 2009 recession.  Here are sobering comments from Lamar CEO Sean Reilly on what it was like: “That was a deep and dark time.  When we normally manage through a recession we hold the line on rate and we suffer a little bit in occupancy.  Occupancy comes back faster than rate.  During the great recession is was a disaster.  We lost control of rate.  We lost control of occupancy.  We had customers going out of business.  We were crawled up under our desk in a fetal position…it took 5 years for us to get our average rate per panel back.” Source: Billboard Insider Transcript of Sean Reilly Comments at JP Morgan Conference on May 23, 2022.

Some things to think about when it comes to managing cyclicality.

• Are you running your business in a fashion that you can withstand a 20% reduction in revenue?  Do you know where you’d cut expenses if revenues decline 20% in order to avoid a cashflow deficit.
• Are you keeping an adequate cash balance as a cushion in cash revenues fall.
• If you have debt, is your debt service coverage strong enough that you can pay all your debt service if cashflow declines 20%.
• Have you taken steps to recession proof your company by lowering your overhead?  Avoid getting overstaffed.  Use contractors instead of permanent employees.   Buy easements to eliminate lease costs.   Write % of revenue leases which decline during a recession or put a clause in your leases which allows you to go to landowners to reduce rent in the event of a severe recession.

Here’s a year by year analysis of out of home revenues and the US nominal GDP for the past 35 years.

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