Business context and reporting period
This is CBS Outdoor Americas Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2014. The company, subsequently known as OUTFRONT Media, sells out-of-home advertising across the U.S., Canada and Latin America through U.S. and International segments. The prior-year financial statements were prepared on a carve-out basis from CBS and may not represent the company’s results as a stand-alone business.
Key financial metrics
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Revenue | $287.9 million | $279.2 million |
| Operating income | $26.7 million | $34.7 million |
| Net income | $8.4 million | $19.9 million |
| Basic and diluted EPS | $0.09 | $0.21 |
| Adjusted OIBDA (non-GAAP) | $75.6 million | $75.4 million |
| Operating cash flow | $0.3 million | $9.8 million |
| Capital expenditures | $8.2 million | $6.0 million |
Revenue grew 3% reported and 4% on a constant-currency basis; same-site revenue rose 4%. Adjusted OIBDA margin was approximately 26.3%, while GAAP operating margin was approximately 9.3%. FFO was $50.3 million and AFFO $40.8 million, both down 12% reported year over year; on management’s comparable basis, they increased 5% and 7%, respectively. These are non-GAAP measures.
At March 31, cash was $113.9 million, working capital $240.2 million, and current assets $437.8 million against current liabilities of $197.6 million. Long-term debt was $1.598 billion; the weighted-average cost of debt was 4.2%. The $425 million revolving facility had no borrowings outstanding. Reported leverage ratios were 1.6x net secured and 3.8x total debt to EBITDA, against stated covenant limits of 3.5x and 6.0x, respectively.
Material changes versus the prior comparable period
- Net income fell 58% reported, primarily reflecting the prior-year $9.8 million disposition gain and $12.5 million of interest expense in 2014 after the January debt issuance. Excluding the prior-year gain and adjusting 2013 for 2014-level interest and stand-alone costs, management reported 2014 net income up 68% from $5.0 million.
- Adjusted OIBDA was nearly flat as reported, but rose 6% against management’s comparable 2013 figure after adjusting for incremental stand-alone costs.
- U.S. revenue increased 4%, led by transit and other revenue and billboard yield; International revenue declined 3% reported but increased 8% in constant dollars. International Adjusted OIBDA improved to $1.1 million from $0.6 million.
- SG&A rose 17%, including $3.8 million of incremental stand-alone public-company costs. Operating cash flow declined to $0.3 million, which management attributed mainly to timing of customer collections and international tax payments.
- The company incurred $1.6 billion of debt in January and transferred approximately $1.5 billion of proceeds to CBS. The IPO closed after quarter-end, so its proceeds and newly issued shares are not included in the March 31 financial statements.
Outlook, commentary and risks
- Management expected 2014 capital expenditures of approximately $65 million, primarily for digital billboard growth and improvements to U.S. billboards. The filing gives no broader quantified earnings or revenue guidance.
- On April 2, 2014, the company completed an IPO of 23 million shares at $28 per share, generating $615 million net proceeds. It retained $100 million for the cash portion of a required historical earnings-and-profits distribution and transferred $515 million to CBS. CBS owned approximately 81% after the IPO and intended a 2014 tax-free split-off, but completion was not assured.
- After receiving a favorable IRS private letter ruling on April 16, the company intended to elect REIT status following the split-off, subject to qualifying and other conditions. The filing describes tax, distribution, ownership, and REIT-qualification risks.
- The board approved a quarterly dividend of $0.37 per share, payable June 30, 2014 to holders of record June 9. The company also expected approximately $2 million of 2014 pension contributions.
- Management noted that advertising is sensitive to economic conditions and seasonal spending, with first-quarter revenue and profit typically lowest. Other highlighted risks include competition, municipal concession renewals and regulation, digital-display execution, foreign currency, variable-rate debt, substantial indebtedness, and separation from CBS. A 1/8 percentage-point rate change on the $800 million variable-rate term loan would change annualized interest expense by about $1 million.
- Letters of credit and surety bonds totaled approximately $81.3 million at quarter-end, mostly no longer indemnified by CBS; these were not recorded as balance-sheet liabilities. Management did not expect existing litigation to have a material adverse effect.
Important facts for investors to verify
- Confirm the post-IPO share count, CBS ownership and status and terms of any split-off; the IPO closed after the reporting date.
- Review the progress and conditions for REIT conversion, including the required earnings-and-profits distribution, tax arrangements and the declared dividend’s cash requirements.
- Assess debt-service capacity, variable-rate exposure, covenant headroom, debt maturities and the terms of the secured credit facilities and notes.
- Track whether operating cash flow recovers from the quarter’s low result and how working-capital timing, stand-alone costs and the $65 million capital-spending plan affect liquidity.
- Compare reported results with management’s non-GAAP comparable measures, which adjust for the 2013 disposition gain and 2014 interest and separation costs; do not treat those measures as substitutes for GAAP results or cash available for discretionary use.