OUTFRONT Media Inc. — Q1 2023 Form 10-Q
Business context and reporting period. Unaudited results for the three months ended March 31, 2023, compared with Q1 2022; balance-sheet figures are as of March 31, 2023, compared with December 31, 2022. OUTFRONT is a REIT selling out-of-home advertising across the U.S. and Canada, principally through billboard and transit displays.
Key financial metrics
| Metric | Q1 2023 | Q1 2022 / prior date |
|---|---|---|
| Revenue | $395.8 million | $373.5 million; up 6% |
| Operating income | $10.2 million | $28.5 million |
| Net loss attributable to OUTFRONT | $28.9 million; diluted loss per share $0.19 | $0.1 million; diluted loss per share $0.04 |
| Adjusted OIBDA and margin | $60.2 million; 15% | $70.2 million; 19% |
| FFO / AFFO attributable to OUTFRONT | $17.1 million / $8.8 million | $41.8 million / $35.5 million |
| Operating cash flow | $9.4 million | $20.5 million |
| Capital expenditures | $22.6 million | $16.9 million |
| Cash and working capital | $42.8 million cash; $254.4 million working-capital deficit | $40.4 million cash; $161.2 million deficit at Dec. 31, 2022 |
| Total debt, net | $2,742.3 million; weighted-average cost 5.4% | $2,656.0 million; 5.2% at Dec. 31, 2022 |
Material changes versus Q1 2022
- Billboard revenue rose 8% to $320.6 million, supported by billboard additions and acquisitions, higher condemnation proceeds, and improved yield. Transit and other revenue was essentially flat at $75.2 million; management cited weaker national-advertising conditions.
- Revenue growth did not offset higher costs: operating expenses rose 11%, SG&A rose 10%, and amortization rose 47%. Interest expense increased to $37.7 million from $30.7 million.
- Operating income fell 64%; Adjusted OIBDA declined 14%, and its margin narrowed four percentage points. FFO fell 59% and AFFO 75%.
- Operating cash flow decreased by $11.1 million. Investing cash outflow was broadly unchanged; financing provided $20.7 million, including $85.0 million of AR Facility borrowings and $52.0 million of dividends paid.
Outlook, commentary, risks and unusual items
- Management expects 2023 capital expenditures of approximately $90 million, excluding MTA deployment costs. It expects approximately $100 million of MTA equipment deployment costs in 2023 and approximately $140 million in aggregate across 2023–2024.
- The company did not recoup MTA deployment costs in Q1 and does not expect recoupment in the remainder of 2023. It reported $554.7 million of cumulative deployment costs incurred and $33.9 million recouped to date. Failure to recoup eligible costs could adversely affect results, although the agreement provides for reimbursement of certain New Inventory costs at term end.
- Transit ridership in the largest markets remains materially below pre-pandemic levels; management does not expect a return to those levels during the remainder of 2023. Transit franchise expense as a share of transit revenue is expected to decline during 2023 but remain above pre-pandemic levels.
- Management cited inflation, rising interest rates, higher operating costs, and supply-chain delays and price increases for digital displays, which it expects to continue in 2023. These pressures may be partly offset by advertising-rate increases and cost efficiencies; the full inflation impact is not estimable.
- Q1 operating expenses included a $5.2 million out-of-period adjustment for 2022 variable billboard lease expenses. The company concluded the adjustment was not material to previously issued financial statements.
- Debt covenants were in compliance at quarter-end: total leverage ratio 5.1x versus a 6.0x limit, and net secured leverage ratio 1.1x versus a 4.5x limit. The $500 million revolver had no borrowings; the $150 million AR Facility had $115 million outstanding and $21.5 million of remaining borrowing capacity.
- The board approved a $0.30-per-share common dividend payable June 30, 2023. Management said current litigation is not expected to have a material adverse effect; the filing reported no material change to previously disclosed risk factors.
Important facts for investors to verify
- Whether billboard growth and yield can continue to offset elevated lease, franchise, labor, maintenance, and financing costs.
- Progress on MTA screen deployment, the expected deployment spending, and the timing and recoverability of those costs.
- Liquidity and refinancing capacity given the working-capital deficit, higher AR Facility use, and the $500 million revolving facility’s 2024 maturity.
- Whether transit ridership and advertising demand recover as management expects, amid inflation, supply constraints, and weaker national transit-advertising conditions.
- The effect of the $5.2 million prior-period lease adjustment and the sharp year-over-year declines in operating income, FFO, and AFFO on future results and dividend capacity.