OUTFRONT Media Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. The filing was signed February 24, 2022. Amounts are in U.S. dollars unless noted.
Business context
OUTFRONT is a REIT providing out-of-home advertising space in the U.S. and Canada through billboard displays and municipal transit franchises. Its reportable segment is U.S. Media; International operations are included in Other. At year-end, the company reported 508,436 displays, including 14,368 digital displays. It sold its Sports Marketing business in 2020, affecting year-over-year comparisons.
Financial performance and liquidity
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Revenue | $1,463.9 million | $1,236.3 million | +18% |
| Operating income | $168.3 million | $72.5 million | +132% |
| Net income (loss) attributable to OUTFRONT | $35.6 million | ($61.0 million) | Returned to profit |
| Adjusted OIBDA (non-GAAP) | $340.3 million | $233.3 million | +46% |
| Adjusted OIBDA margin (non-GAAP) | 23% | 19% | +4 percentage points |
| FFO / AFFO attributable to OUTFRONT (non-GAAP) | $195.1 million / $205.1 million | $82.6 million / $96.3 million | +136% / +113% |
| Cash from operating activities | $98.8 million | $130.6 million | -24% |
| Capital expenditures | $73.8 million | $53.5 million | +38% |
Billboard revenue rose 21% to $1,182.3 million; transit and other revenue rose 9% to $281.6 million. Management attributed the recovery mainly to higher demand and yield from pandemic lows. Billboard performance exceeded pre-pandemic levels in the second half of 2021, while transit remained materially below those levels. Revenue growth differs from organic growth: management reported 21% organic revenue growth in 2021, excluding disposition and foreign-exchange effects.
Net interest expense was $130.4 million, near the prior year’s $131.1 million. Net income included a $6.3 million loss on extinguishment of debt from redeeming the 2024 notes and a $2.5 million impairment of a cost-method investment. The company recorded a $4.5 million net gain on dispositions.
At December 31, cash and cash equivalents were $424.8 million, versus $710.4 million a year earlier; working capital was $269.6 million, down from $439.8 million. Net debt on the balance sheet was $2,620.6 million, compared with $2,700.8 million; the weighted-average debt cost was 4.3%. The company had no revolving-credit borrowings and reported $500 million of revolving commitments, subject to $4.1 million of letters of credit. The AR facility had no borrowing capacity at year-end because it was temporarily suspended, although $332.4 million of receivables could serve as collateral. The filing states that the company was in compliance with its debt covenants; its Consolidated Net Secured Leverage Ratio was 1.1x. Its separate Consolidated Total Leverage Ratio was 6.7x, relevant to an additional-debt incurrence test, not the stated maintenance covenant.
Material changes versus the prior period
- Revenue and operating results rebounded from the pandemic-affected 2020 period. U.S. Media revenue increased 20% to $1,382.0 million and segment Adjusted OIBDA increased 42% to $382.9 million.
- Transit franchise expense increased 46% to $183.4 million, driven in part by the resumption of MTA minimum-guarantee payments. It represented 73% of transit display revenue, versus 61% in 2020.
- Operating cash flow fell despite the return to net income, mainly due to increased receivables and prepaid MTA deployment costs. Investing cash outflow rose to $224.0 million, including $136.5 million for acquisitions.
- In January 2021, the company issued $500 million of 4.25% notes due 2029 and used the proceeds, with cash on hand, to redeem its $500 million 5.625% notes due 2024.
- The MTA agreement was extended in July 2021 from a 10-year to a 13-year initial term. The company installed 3,712 MTA digital displays during 2021, bringing cumulative installations to 11,092.
Outlook, risks and unusual items
Management expected 2022 revenue and Adjusted OIBDA to improve incrementally from 2021. Revenue was expected to approach or potentially exceed pre-pandemic levels, supported by billboard strength; transit revenue and Adjusted OIBDA were expected to remain below pre-pandemic levels. Management expected expenses to increase, with transit franchise expense as a percentage of revenue below 2021 but still above pre-pandemic levels. These are expectations, not guarantees.
Management forecast approximately $85 million of 2022 capital expenditures, excluding MTA equipment deployment costs, and approximately $150 million of MTA deployment costs. The company reported no MTA deployment-cost recoupment in 2021 and considered recoupment unlikely in 2022. Recovery of these costs depends on future contract revenues, making recoverability a significant estimate and a critical audit matter.
Key risks include lingering COVID-19 effects on transit ridership and advertising demand; supply-chain delays and price increases for digital displays; competition and restrictions on digital signage; renewal and performance of municipal franchises; and substantial debt, variable-rate exposure, and access to refinancing. The MTA contract includes guaranteed minimum payments, with $184.0 million scheduled for 2022 and $1,545.3 million in total future minimum payments disclosed. Future operating-lease payments total $2,036.7 million. The AR facility was due to terminate in June 2022 unless extended.
The company’s Series A preferred stock carries a cumulative 7% initial dividend and may convert into up to 25.0 million common shares. The board approved a $0.30-per-share common dividend in February 2022. Management and the auditor reported effective internal control over financial reporting; the auditor issued an unqualified opinion. Management said current litigation was not expected to have a material adverse effect.
Important facts for investors to verify
- Whether transit ridership and transit advertising revenue recover as forecast, and how MTA minimum payments affect margins and cash generation.
- Actual MTA deployment spending, installation progress, cost recoupment, and recoverability of the $279.8 million prepaid MTA deployment-cost balance and related intangible assets.
- Liquidity after the AR facility’s 2022 termination date, and refinancing plans for debt maturities, interest costs, and covenant capacity.
- Whether operating cash flow can support debt service, digital investment, lease and franchise commitments, and common and preferred dividends.
- The basis and comparability of non-GAAP Adjusted OIBDA, FFO and AFFO, including their reconciliation to GAAP results and the impact of the 2020 Sports Marketing disposition.