OUTFRONT Media Inc. — Q3 2015 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2015. OUTFRONT sells out-of-home advertising across the U.S., Canada and Latin America, through U.S. and International segments. It has operated as a REIT for U.S. federal tax purposes since July 2014.
Financial performance
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $386.7m | $336.5m | $1,115.3m | $958.8m |
| Operating income | $52.7m | $47.6m | $133.9m | $132.6m |
| Adjusted OIBDA | $113.9m | $106.9m | $320.0m | $292.8m |
| Net income | $21.2m | $248.3m | $44.5m | $279.1m |
| Operating cash flow | — | $176.4m | $184.5m |
- Q3 revenue rose 15%; nine-month revenue rose 16%. Organic revenue growth was 3% in both periods. The Van Wagner acquisition contributed $50.3m of Q3 revenue and $145.3m for nine months.
- Adjusted OIBDA increased 7% in Q3 and 9% for nine months. Calculated Adjusted OIBDA margin declined to about 29.5% from 31.8% in Q3 and to 28.7% from 30.5% year to date.
- Net income fell sharply largely because 2014 included a $232.3m non-cash tax benefit from the REIT conversion. On a REIT-comparable basis, FFO declined 9% in Q3 and 5% year to date; comparable AFFO declined 7% and 3%, respectively. Nine-month AFFO was $190.1m, up 14% as reported but down 3% on a REIT-comparable basis.
- Cash from operations was $176.4m, down from $184.5m, primarily reflecting working-capital use, including receivables growth and lower accrued rent. Capital expenditures were $43.0m; reported investing cash outflow was $45.3m.
- Cash was $106.4m at September 30, versus $28.5m at year-end 2014. Working capital was $210.0m. Current assets were $463.3m and current liabilities $253.3m.
- Debt was $2.302bn, up from $2.198bn at year-end; weighted-average debt cost was 4.7%. The $425m revolver had no borrowings, with $31.1m of letters of credit issued against it. Total leverage ratio was 5.1x against a 6.0x covenant limit; the company reported covenant compliance. On October 30, it made a $50m term-loan payment.
- Dividends declared were $0.34 per share for Q3 and $1.08 per share for the first nine months. Nine-month cash dividends paid were $148.7m.
Changes and management commentary
- U.S. revenue increased 19% in Q3 and 20% year to date, while U.S. organic revenue grew 3% in both periods. Acquisition contributions drove much of reported growth; organic billboard revenue was nearly flat in Q3 and slightly lower for nine months, with lower average revenue per display partly offset by digital-display conversions.
- International revenue declined 18% in Q3 and 13% year to date as reported, largely due to foreign exchange. At constant currency, it was flat in Q3 and up 2% year to date. International Adjusted OIBDA declined 38% and 32%, respectively.
- Higher interest expense, acquisition-related costs, stand-alone public-company costs, strategic business development spending and legal expenses weighed on results. Management said most of the higher legal expenses were expected to be non-recurring.
- Management expected 2015 capital expenditures of approximately $65m, primarily for digital billboards, billboard improvements and office renovations. No earnings or revenue guidance is provided in the supplied filing text.
Outlook, risks and unusual items
- On October 31, 2015, the company agreed to sell its Latin American outdoor advertising business for $82m cash, subject to adjustments and customary conditions, including regulatory approval; closing was expected in the first half of 2016.
- The New York City subway advertising contract was extended to December 31, 2016, but the MTA may terminate it on or after July 1, 2016. The bus and commuter rail contract also has termination rights beginning July 1, 2016. The MTA contracts represent 18% of U.S. revenue.
- Key risks include advertising and economic weakness, competition, seasonal demand, municipal contract renewals, execution and approval of the Latin America sale, foreign exchange, digital-display investment, REIT qualification and substantial indebtedness. The filing identifies no material change to previously disclosed risk factors.
- Off-balance-sheet letters of credit and surety bonds totaled approximately $111.8m. The company said current litigation was not expected to have a material adverse effect. It also recorded $2.6m of restructuring charges in the first nine months.
Important facts for investors to verify
- Whether the Latin America sale closes on the expected timetable and at the stated value after adjustments.
- Renewal and termination outcomes for the MTA contracts, including the potential effect on U.S. transit revenue.
- Whether organic billboard revenue and average revenue per display improve, and whether digital conversions offset yield pressure.
- Ability to sustain cash generation and dividends while funding capital expenditure and servicing debt; monitor leverage and covenant headroom.
- Interpret reported earnings in light of the 2014 REIT-conversion tax benefit; compare operating performance using the filing’s REIT-comparable measures as well as GAAP results.