OUTFRONT Media Inc. — Q3 2016 Form 10-Q
Business context and reporting period
Quarter ended September 30, 2016. OUTFRONT is a REIT operating out-of-home advertising displays, primarily billboards and transit inventory, in the U.S. and Canada. The filing compares the three and nine months ended September 30, 2016 with the same 2015 periods; balance-sheet figures are compared with December 31, 2015.
On April 1, 2016, the company sold its Latin American outdoor advertising business. Its results are included through the sale date in 2016 and for the comparable 2015 periods. Segment reporting was recast: U.S. Media is the reportable segment; International and Sports Marketing are included in “Other.”
Financial performance and liquidity
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $382.8 million | $386.7 million | $1,116.5 million | $1,115.3 million |
| Operating income | $63.5 million | $52.7 million | $146.7 million | $133.9 million |
| Adjusted OIBDA (non-GAAP) | $120.7 million | $113.9 million | $331.8 million | $320.0 million |
| Net income | $38.1 million | $21.2 million | $64.3 million | $44.5 million |
| Diluted EPS | $0.28 | $0.15 | $0.46 | $0.32 |
| FFO / AFFO (non-GAAP) | $81.9 / $87.2 million | $70.8 / $69.2 million | $209.6 / $217.2 million | $192.6 / $190.1 million |
- Adjusted OIBDA margin was approximately 31.5% in Q3 (29.5% prior year) and 29.7% for nine months (28.7% prior year). GAAP operating margin was approximately 16.6% and 13.6% in Q3, and 13.1% and 12.0% for the respective nine-month periods.
- Q3 revenue declined 1%, while organic revenue increased 2%. Nine-month revenue was approximately flat; organic revenue increased 3%. U.S. Media revenue grew 3% in Q3 and 4% for nine months; “Other” revenue declined 35% and 29%, respectively, substantially reflecting the Latin America sale.
- Cash from operations was $200.7 million for nine months, versus $176.4 million. Capital expenditures were $45.6 million; acquisitions used $64.7 million and net disposition proceeds were $90.4 million. Financing activities used $209.3 million, including $141.7 million of dividends and $60 million of term-loan repayments. Cash declined $28.5 million to $73.1 million.
- At September 30, current assets were $388.2 million and current liabilities $236.6 million, yielding working capital of $151.6 million. Cash was $73.1 million, down from $101.6 million at year-end.
- Long-term debt, net, was $2.166 billion; principal debt was approximately $2.190 billion. Weighted-average debt cost was 4.8%. The $425 million revolver had no borrowings; $31.7 million of letters of credit were issued against it. Covenant leverage ratios were 1.3x secured and 4.8x total, and the company reported compliance.
Material changes, outlook, and risks
- Management attributed U.S. Media growth to stronger local advertising, higher billboard yield, digital billboard conversions, acquisitions and franchise changes. Billboard revenue overall fell 3% in Q3, principally due to the Latin America disposition and weaker Canada results, partly offset by yield and digital growth.
- The Latin America sale generated $82 million cash plus working capital, subject to post-closing adjustments. The company recorded a $1.3 million loss on real estate assets held for sale in the nine-month period and disclosed $99.9 million of foreign-currency translation losses associated with the disposition.
- Management expected full-year 2016 capital expenditures of approximately $65–$70 million, primarily for maintenance, digital billboard growth, LED upgrades and office renovations. No revenue or earnings forecast is stated in the supplied filing text. The company noted the usual seasonal pattern of stronger fourth-quarter and weaker first-quarter advertising.
- The board approved a quarterly dividend of $0.34 per share, payable December 30, 2016. The filing reports dividends declared of $1.02 per share for the first nine months of 2016, versus $1.08 in 2015.
- The New York MTA transit contracts were extended to June 30, 2017, unless earlier terminated on 90 days’ notice. The MTA was soliciting bids for longer-term concessions; OUTFRONT was preparing a further bid submission. The MTA represented 18% of U.S. Media revenue, making renewal and award outcomes material.
- Risks highlighted include advertising and economic cyclicality, competition, digital deployment, municipal contract renewals, substantial debt and interest-rate exposure, REIT qualification and regulatory matters. The company said current litigation was not expected to materially affect results, financial position or cash flows, and reported no material change in previously disclosed risk factors.
- Controls and procedures were reported effective; no material change in internal control over financial reporting was reported.
Important facts for investors to verify
- Track the MTA procurement, contract extensions and the potential impact of a lost or changed concession.
- Assess underlying organic growth separately from the Latin America divestiture, acquisitions, currency effects and discontinued operations.
- Review cash generation against dividends, capital spending, acquisition activity and scheduled debt service; distinguish non-GAAP FFO, AFFO and Adjusted OIBDA from GAAP results.
- Monitor debt leverage, variable-rate term-loan exposure, covenant headroom and the availability of revolving and letter-of-credit facilities.
- Confirm actual 2016 capital expenditures against the $65–$70 million outlook and evaluate continued digital billboard investment and returns.