OUTFRONT Media Inc. — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; unaudited. OUTFRONT is a REIT that sells out-of-home advertising on billboards and transit displays in the U.S. and Canada.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $341.0 million | $232.9 million | $600.2 million | $618.2 million |
| Operating income (loss) | $29.1 million | $(25.9) million | $(1.9) million | $7.9 million |
| Net loss attributable to OUTFRONT | $(0.9) million | $(57.9) million | $(68.6) million | $(51.8) million |
| Adjusted OIBDA | $70.0 million | $15.4 million | $81.1 million | $90.9 million |
| Adjusted OIBDA margin | 21% | 7% | 14% | 15% |
| Adjusted FFO | $39.6 million | $(21.3) million | $15.1 million | $18.7 million |
Q2 diluted loss per common share was $0.05, versus $0.44 a year earlier; the six-month loss was $0.57 versus $0.40. Adjusted OIBDA, FFO and AFFO are non-GAAP measures and should be considered alongside GAAP results.
- Revenue trends: Q2 billboard revenue rose 52% to $287.3 million and transit and other revenue rose 21% to $53.7 million. For the first half, billboard revenue increased 11% to $510.9 million, while transit and other revenue fell 44% to $89.3 million. Excluding dispositions and foreign exchange, first-half organic revenue increased 1%.
- Cash flow: Operating cash flow was $13.6 million for the first half, down from $50.7 million. Investing cash use was $77.0 million; financing cash use was $118.9 million. Cash, cash equivalents and restricted cash totaled $530.6 million, down from $712.0 million at year-end 2020.
- Liquidity: Working capital was $314.6 million, compared with $439.8 million at December 31, 2020. The company had a $500 million revolving credit facility with no borrowings, but its accounts receivable facility had no borrowing capacity available at quarter-end despite no outstanding borrowings.
- Debt: Net debt was $2.62 billion, versus $2.70 billion at year-end; weighted-average debt cost was 4.3%. The company issued $500 million of 4.25% notes due 2029 and used proceeds and cash to redeem its 5.625% notes due 2024, recording a $6.3 million extinguishment loss. The reported total leverage ratio was 9.8x; the secured net leverage ratio was 1.3x. The company stated it was in compliance with its debt covenants.
Material changes and management commentary
- Q2 revenue and profitability improved substantially from the pandemic-affected Q2 2020 comparison period, reflecting higher advertising demand and yield. First-half total revenue and Adjusted OIBDA remained below 2020, largely because transit recovery lagged, especially in Q1, and because the prior-year period included the subsequently sold Sports Marketing business.
- Management expects revenue and key performance indicators to improve through the rest of 2021 versus 2020, but remain materially below pre-pandemic levels, particularly for U.S. Media transit. Expenses are also expected to rise versus 2020 but remain below pre-pandemic levels. Management expects billboard lease expense as a share of revenue to decline, while transit franchise expense as a share of revenue is expected to increase.
- Management forecast 2021 capital expenditures of approximately $85 million, excluding MTA deployment costs, and approximately $100 million of MTA equipment deployment costs. The company incurred $39.1 million of MTA-related deployment costs in the first half and reported no recoupment of equipment deployment costs during that period.
- The MTA guaranteed minimum annual payment obligations resumed January 1, 2021. The company extended the initial MTA agreement term from 10 to 13 years in July 2021. Failure to recoup deployment costs could adversely affect results, although the MTA is obligated to reimburse specified New Inventory costs not recouped by the end of the agreement term.
- COVID-19 continues to pose uncertainty through advertising demand, transit ridership, customer collections and possible renewed restrictions. Management also cited digital-display supply and logistics delays and price increases. Results for the first half are not considered indicative of full-year 2021 results.
- After quarter-end, the board approved a $0.10-per-share quarterly common dividend, payable September 30, 2021. The Series A preferred stock carries a cumulative 7% dividend and ranks ahead of common stock for distributions.
Investor facts to verify
- Whether advertising demand and transit ridership continue recovering, particularly in major markets such as New York and Los Angeles.
- Whether MTA deployment spending, guaranteed payments and recoupment develop as expected, and whether planned 2021 capital and deployment spending affects liquidity.
- The availability and terms of future financing: the AR facility had no available capacity at June 30, 2021, and the repurchase facility expired without extension.
- How the high reported total leverage ratio, debt covenant calculations and restrictions on distributions or additional borrowing evolve after the temporary covenant amendment expires in September 2021.
- The cost and potential dilution associated with the preferred stock, which could convert into up to 25.0 million common shares, and the sustainability of the resumed common dividend.