OUTFRONT Media Inc. quarterly report, Q1 FY2017

Vollständiges Dokument

OUTFRONT Media Inc. — Q1 2017 Form 10-Q

Business context and period. Unaudited results cover the three months ended March 31, 2017, compared with Q1 2016. OUTFRONT is a REIT operating out-of-home advertising businesses, principally U.S. billboards and transit, with International and Sports Marketing included in “Other.” The prior-year comparison includes Latin American operations that were sold on April 1, 2016.

Financial performance

  • Revenue: $330.6 million, down 5% year over year. Organic revenue declined 2% to $328.5 million. Billboard revenue fell 6% and transit and other revenue fell 3%.
  • Profit: Operating income was $26.0 million, up from $24.2 million; net income was $2.5 million versus a $2.3 million loss. Diluted EPS was $0.02 versus $(0.02).
  • Operating measures: Adjusted OIBDA was $80.2 million, down 9%; its margin was approximately 24.3%, versus 25.3% a year earlier. FFO was $43.9 million, down 9%, and AFFO was $38.5 million, down 17%.
  • Cash flow: Operating cash flow was $32.2 million, compared with $33.8 million. Capital expenditures were $16.6 million; investing cash outflow was $17.4 million. Financing cash outflow was $53.9 million, including $50.2 million of dividends. Cash declined $38.9 million to $26.3 million.
  • Margins and segments: U.S. Media revenue was $307.1 million and Adjusted OIBDA $92.4 million, down 2% and 3%, respectively; management reported a 30% segment Adjusted OIBDA margin, unchanged. Other revenue was $23.5 million and Adjusted OIBDA was a $1.1 million loss.
  • Balance sheet and liquidity: Total assets were $3.66 billion; current assets were $311.5 million and current liabilities $210.7 million, leaving working capital of $100.8 million. Cash was $26.3 million. Long-term debt, net, was $2.14 billion; principal debt was $2.17 billion. Weighted average debt cost was 4.8%.
  • Dividends: Q1 dividends declared were $0.36 per share. The board approved another $0.36-per-share quarterly dividend payable June 30, 2017.

Material changes versus Q1 2016

  • Reported revenue fell $17.8 million, with the Latin American disposition accounting for a significant portion of the decline; organic revenue was down $7.3 million. Excluding the disposition and other non-organic items, the company still reported weaker underlying revenue.
  • Management attributed billboard and transit softness mainly to lower average revenue per display, particularly reduced national advertising. National campaigns represented approximately 41% of U.S. Media revenue, down from 44%.
  • Adjusted OIBDA, FFO and AFFO decreased despite higher GAAP operating income and the swing to net income. Lower depreciation and amortization and a $3.7 million income tax benefit contributed to the GAAP earnings improvement.
  • Q1 2016 investing outflow included $60.5 million of acquisitions; Q1 2017 acquisitions were $0.9 million. Capital expenditures increased 15% to $16.6 million.

Outlook, commentary, risks and unusual items

  • Management expects 2017 capital expenditures of approximately $65 million to $70 million, primarily for maintenance, digital display growth, LED lighting upgrades and office renovations. The filing provides no revenue or earnings guidance.
  • Seasonality typically makes Q1 the lowest-revenue period and Q4 the highest. Management cited softer national advertising, especially in automotive and financial services, and lower performance in Canada.
  • The MTA contract accounted for 54% of U.S. Media transit and other revenue, or 16% of U.S. Media revenue, in Q1. Existing transit-advertising contracts were extended through June 30, 2017 while the MTA evaluates bids for new concessions.
  • On March 16, the company amended its credit agreement: revolving-facility maturity was extended to 2022, term-loan maturity to 2024, and revolving capacity increased to $430 million. A $10 million incremental term loan was incurred primarily for transaction costs. There were no revolver borrowings at quarter-end; $15 million was drawn April 3.
  • Debt covenants were in compliance at quarter-end: net secured leverage was 1.4x against a 4.0x limit; total leverage was 4.8x against a 6.0x threshold applicable to certain debt incurrences. The company identifies substantial debt, variable-rate exposure, advertising-market weakness, competition, contract renewals, regulation and REIT qualification/distribution requirements as risks.
  • Unusual or notable items included $1.8 million of restructuring charges and $7.0 million of deferred financing costs associated with the credit amendment. Litigation was described as not expected to have a material adverse effect; the filing reported no material changes to previously disclosed risk factors.

Important facts for investors to verify

  • Outcome and terms of the MTA concession process, and whether the company retains the contracts beyond June 30, 2017.
  • Whether national-advertising softness and lower display yields persist, and the trajectory of organic revenue and U.S. Media Adjusted OIBDA.
  • Cash generation relative to dividends, planned capital spending and debt service, particularly given the quarter-end cash decline.
  • Debt balances, variable-rate exposure, covenant headroom and availability under the revolver after the April borrowing and outstanding letters of credit.
  • Comparability of Q1 2016 results, which include Latin American operations sold in April 2016; non-GAAP measures such as Adjusted OIBDA, FFO and AFFO are supplemental and are not substitutes for GAAP results.