OUTFRONT Media Inc. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing also provides unaudited quarterly results, including fourth-quarter 2015.
Business context
OUTFRONT sells out-of-home advertising space on billboards and transit displays in the United States, Canada and Latin America. It reported two segments: U.S. and International. The company began operating as a REIT for U.S. federal tax purposes in July 2014. Its 2015 results include a full year of the Van Wagner business acquired in October 2014.
Key financial metrics
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $1,513.8 million | $1,353.8 million |
| Operating income | $86.4 million | $183.1 million |
| Net income (loss) | $(29.4) million | $306.9 million |
| Adjusted OIBDA (non-GAAP) | $437.6 million | $413.4 million |
| Cash from operating activities | $293.1 million | $262.8 million |
| Capital expenditures | $59.2 million | $64.2 million |
| Cash and cash equivalents at year-end | $101.6 million | $28.5 million |
| Long-term debt at year-end | $2,251.7 million | $2,198.3 million |
Revenue grew 12%; organic revenue grew 4% (14% and 4%, respectively, on a constant-dollar basis). Adjusted OIBDA margin was approximately 28.9%, versus 30.5% in 2014; GAAP operating margin was approximately 5.7%, versus 13.5%. Interest expense, net, rose to $114.8 million from $84.8 million. FFO was $272.2 million, down 44%, while AFFO was $266.8 million, up 9%; on management’s REIT-comparable basis, FFO fell 4% and AFFO fell 3%.
Working capital was $151.0 million. The $425 million revolving credit facility had no borrowings outstanding, with $31.2 million of letters of credit issued against it. The company reported a 1.5x secured leverage ratio and 5.1x total leverage ratio, both adjusted for the held-for-sale loss, and stated it complied with debt covenants. The weighted average cost of debt was 4.7%.
Material changes versus 2014
- U.S. revenue increased 15% to $1,380.3 million; U.S. Adjusted OIBDA rose 10% to $459.6 million. International revenue declined 14% to $133.5 million, largely due to currency effects; International Adjusted OIBDA fell 35% to $15.8 million.
- Reported net income swung to a loss, chiefly reflecting a $103.6 million non-cash loss on Latin American assets held for sale, higher interest expense and the absence of the 2014 $235.6 million non-cash deferred-tax benefit related to REIT conversion.
- Operating cash flow increased 12%. Cash dividends paid were $196.3 million, and the company prepaid $50 million of its term loan.
- Fourth-quarter revenue was $398.5 million; quarterly net loss was $73.9 million, including the held-for-sale charge. Fourth-quarter 2014 revenue was $395.0 million and net income was $27.8 million.
Outlook, commentary and risks
- Management expected 2016 capital expenditures of approximately $65–$70 million, mainly for maintenance, digital billboard growth, LED lighting upgrades and office renovations. The filing provides no clear revenue or earnings guidance.
- The company agreed to sell its Latin American advertising business to JCDecaux for $82 million cash, subject to adjustments and closing conditions, with completion expected in the first half of 2016. The sale had not closed as of the filing; its assets and liabilities were classified as held for sale.
- The MTA transit contract represented $226.3 million of 2015 revenue. Subway service was extended to December 31, 2016, subject to earlier termination; bus and commuter rail arrangements also had termination provisions. The company expected an MTA request for proposals in 2016.
- Management identified advertising-market sensitivity, competition, regulation and permitting constraints (particularly for digital displays), municipal contract renewals, lease renewals, foreign currency exposure, substantial indebtedness and REIT qualification/distribution requirements as material risks. Fourth-quarter advertising is typically seasonally strongest; first quarter is typically weakest.
- The filing reports ongoing litigation and governmental proceedings but states that none was expected to have a material adverse effect. The auditor gave an unqualified opinion and reported effective internal control over financial reporting.
Investor facts to verify
- Whether the Latin American sale closed, its final proceeds and adjustments, and the eventual accounting treatment of accumulated foreign-currency translation losses.
- Renewal and bidding outcomes for the MTA contracts, including the revenue and profitability impact of any changes.
- Underlying organic billboard yield and margins, given acquisition-driven revenue growth and higher property lease costs.
- Debt service capacity, leverage covenant headroom, and the sustainability of quarterly dividends relative to AFFO and required REIT distributions.
- Progress, permitting and returns on digital billboard and LED investments; reported digital displays generated approximately four times the average revenue per display of traditional billboards, according to management.