OUTFRONT Media Inc. — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023. OUTFRONT is a REIT providing billboard and transit out-of-home advertising in the U.S. and Canada. Financial amounts are in millions unless otherwise stated.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $468.8 | $450.2 | $864.6 | $823.7 |
| Operating income (loss) | $(438.2) | $79.9 | $(428.0) | $108.4 |
| Net income (loss) attributable to OUTFRONT | $(478.9) | $48.0 | $(507.8) | $47.9 |
| Adjusted OIBDA | $122.2 | $125.3 | $182.4 | $195.5 |
| Adjusted OIBDA margin | 26% | 28% | 21% | 24% |
| AFFO attributable to OUTFRONT | $78.0 | $93.2 | $86.8 | $128.7 |
| Operating cash flow | Not separately stated | Not separately stated | $87.7 | $101.1 |
- Q2 revenue increased 4% year over year; first-half revenue increased 5%. Billboard revenue rose 5% in Q2 and 6% in the first half. Transit and other revenue grew 1% in both periods.
- Q2 diluted loss per share was $2.92, compared with earnings of $0.28 a year earlier. First-half diluted loss per share was $3.11, versus earnings of $0.25.
- Q2 operating expenses rose 9% to $245.9; first-half operating expenses rose 10% to $481.4. Higher lease and franchise costs, among other expenses, contributed to weaker Adjusted OIBDA and margins.
- First-half investing cash outflow was $71.5, compared with $294.4 in 2022, primarily reflecting lower acquisition spending. Financing cash outflow was $14.7, including $103.7 of dividends and $105.0 of AR Facility borrowings.
Balance sheet, debt and liquidity
- At June 30, 2023, cash was $42.2; current assets were $369.9 and current liabilities were $639.7, leaving working capital of negative $269.8, compared with negative $161.2 at year-end 2022.
- Total debt, net, was $2,763.6, up from $2,656.0 at December 31, 2022; weighted-average cost of debt was 5.4%, versus 5.2%. Debt included $135.0 drawn under the $150.0 AR Facility at 6.2%, with $15.0 of borrowing capacity remaining. The $500.0 revolving credit facility had no borrowings outstanding.
- The company reported a 5.1x Consolidated Total Leverage Ratio and a 1.1x Consolidated Net Secured Leverage Ratio, and stated it was in compliance with debt covenants. Its revolving facility maturity was extended to June 2028; the amendments also increased applicable rate margins.
- First-half cash interest paid was $74.4. The company declared a $0.30 per-share quarterly common dividend payable September 29, 2023.
Material changes, outlook and risks
- Significant impairment: The company recorded $511.4 of Q2 impairment charges after weaker-than-expected transit results triggered an interim review. This included $47.6 of goodwill impairment and $463.5 of long-lived asset impairment, primarily a $443.1 charge related to the MTA asset group. The charge drove the reported operating and net losses.
- Management said MTA transit revenue recovery had stalled and its outlook for the remainder of 2023 reflected continued decline versus forecast. It currently does not expect to recoup MTA equipment deployment costs over the remaining agreement term. It recorded approximately $50 million of projected negative aggregate cash flows through that term and warned further impairment charges may be required.
- MTA deployment spending is expected to be $50–$60 in 2023, including $30–$40 in the remainder of the year; approximately $50–$60 is expected in 2024. Spending after 2024 is expected to be about $30–$40 annually. Management expects the initial deployment phase to be substantially complete in 2024 and currently projects the MTA agreement to be cash-flow neutral beginning during 2024.
- For full-year 2023, capital expenditures are expected to be approximately $80–$85, excluding MTA deployment costs. No broader consolidated revenue or earnings guidance is provided in the supplied filing text.
- Management expects transit franchise expenses as a percentage of transit display revenue to decline in the remainder of 2023, but remain above pre-pandemic and 2022 levels. Transit ridership remains materially below pre-COVID levels in major markets; the 2023 ridership increase has not translated into higher overall demand for transit displays.
- Risks cited include advertising and economic weakness, inflation and higher interest rates, digital-display supply and logistics delays, transit underperformance and contract renewals, substantial indebtedness, and uncertainty in recovering MTA deployment costs. Management said inflation-related cost increases and higher interest expense could continue in 2023.
- A $5.2 out-of-period adjustment for 2022 variable billboard lease expenses was recorded in Q1 2023; management concluded it was not material to previously issued financial statements. Current litigation was not expected by management to have a material adverse effect. The filing reported no material changes to previously disclosed risk factors.
Most important facts for investors to verify
- Whether MTA and broader transit revenue trends, ridership, and advertising demand align with the assumptions behind the impairment and future cash-flow estimates.
- Whether the company can manage further MTA deployment spending without additional impairments, and whether any future MTA reimbursements or cost recoupment are achievable.
- Debt maturities, interest costs, remaining AR Facility capacity, covenant headroom, and the company’s ability to fund dividends, capital spending, and contractual minimum payments.
- Performance of Adjusted OIBDA and AFFO relative to GAAP results; these are non-GAAP measures and do not necessarily represent cash available for discretionary use.