Business context and reporting period
OUTFRONT Media Inc. filed this Form 10-Q under its then-name, CBS Outdoor Americas Inc. The report covers the quarter and six months ended June 30, 2014. The company sells out-of-home advertising across the U.S., Canada and Latin America, principally through billboards and transit-display contracts. Its 2013 comparative financial statements are carve-out figures from CBS and may not reflect results as a standalone company.
Financial performance and liquidity
| Metric | Q2 2014 | Q2 2013 | First half 2014 | First half 2013 |
|---|---|---|---|---|
| Revenue | $334.4 million | $332.7 million | $622.3 million | $611.9 million |
| Operating income | $58.3 million | $62.8 million | $85.0 million | $97.5 million |
| Net income | $22.4 million | $36.4 million | $30.8 million | $56.3 million |
| Adjusted OIBDA | $110.3 million | $113.1 million | $185.9 million | $188.5 million |
| Operating cash flow | Not separately stated for the quarter | $64.8 million | $69.8 million |
- Q2 revenue grew 1% reported; constant-dollar revenue grew 2%. First-half revenue grew 2% reported and 3% constant-dollar. Billboard revenue advanced, while Q2 transit and other revenue declined.
- Reported Q2 net income fell 38%; first-half net income fell 45%. Management attributed the declines mainly to new interest expense and standalone-company costs, as well as a $9.8 million 2013 disposition gain in the first half. On management’s comparable basis, Q2 net income was $22.4 million versus $22.2 million; first-half net income was $30.8 million versus $27.2 million.
- Adjusted OIBDA was down 2% in Q2 and 1% in the first half as reported; on management’s comparable basis it rose 2% and 4%, respectively. First-half FFO was $116.7 million and AFFO $98.8 million; comparable-basis growth was 3% for FFO and a 1% decline for AFFO.
- At June 30, cash was $223.4 million, current assets $550.5 million and current liabilities $203.1 million, or $347.4 million working capital. First-half capital expenditures were $19.1 million.
- Long-term debt was $1.598 billion, versus none at year-end 2013; weighted average debt cost was 4.2%. The $425 million revolver had no borrowings at June 30. Net secured leverage was 1.6x and total leverage 3.9x.
Material changes, outlook and risks
- The company raised $615 million net in its April IPO and incurred $1.6 billion of debt in January; substantial proceeds were transferred to CBS. CBS completed its separation from the company on July 16, 2014.
- Beginning July 17, 2014, the company began operating to qualify as a REIT. Management expected a noncash reversal of substantially all net deferred tax liabilities in Q3 and a substantially lower effective tax rate in the second half; the filing does not specify the exact income-statement benefit. The Q2 effective tax rate was 44.2%.
- Full-year 2014 capital expenditures were expected to be approximately $65 million, primarily for digital billboard expansion and billboard improvements. The company also announced a $0.37-per-share quarterly dividend, payable September 30, 2014.
- A July 20 agreement provides for a $690 million cash acquisition of certain Van Wagner businesses, subject to customary conditions including regulatory approval. The company intended to use cash and new debt; a $715 million bridge commitment was available. The acquired business reported 2013 revenue of $206 million. The filing identifies financing, closing and integration risks. A Chicago-area tuck-in acquisition was also expected to close in the second half of 2014.
- The COO’s announced departure was expected to result in a $6.3 million Q3 severance charge. Other risks include advertising-cycle and economic sensitivity, competition, foreign-exchange exposure, variable-rate debt, municipal franchise renewals, REIT qualification and restrictions, and ongoing standalone costs. Management said current litigation was not expected to have a material adverse effect.
Most important facts for investors to verify
- Whether REIT qualification and the expected deferred-tax-liability reversal occurred as described, and the resulting cash-tax and distribution effects.
- Final financing terms, leverage impact, regulatory approval, closing and integration results for the Van Wagner acquisition.
- Progress against the $65 million capital-spending outlook and whether digital billboard investment improves revenue and margins.
- Subsequent operating trends in international markets, transit revenues, FFO/AFFO and cash generation; reported earnings comparisons include debt, standalone costs and prior-period disposition gains.
- Debt covenant headroom and exposure to variable interest rates, including the company’s stated estimate that a 0.125 percentage-point rate change would alter annualized term-loan interest expense by about $1 million.