OUTFRONT Media Inc. — Q1 2016 Form 10-Q
Reporting period: Three months ended March 31, 2016; comparisons are with the three months ended March 31, 2015 unless noted. OUTFRONT is a REIT operating out-of-home advertising businesses, reported in U.S. and International segments.
Financial performance
| Metric | Q1 2016 | Q1 2015 | Change |
|---|---|---|---|
| Revenue | $348.4 million | $343.9 million | Up 1%; organic revenue up 3% to $346.8 million |
| Operating income | $24.2 million | $26.6 million | Down 9% |
| Operating margin | 6.9% | 7.7% | Lower |
| Net income (loss) | $(2.3) million | $1.1 million | Turned to a loss; diluted EPS $(0.02) vs. $0.01 |
| Adjusted OIBDA | $88.1 million | $87.0 million | Up 1%; margin about 25.3% in both periods |
| FFO / AFFO | $48.5 / $49.0 million | $49.9 / $49.5 million | FFO down 3%; AFFO down 1% |
| Operating cash flow | $33.8 million | $5.8 million | Higher, principally due to lower upfront transit franchise payments |
Billboard revenue was $250.4 million, up 1%; transit and other revenue was $98.0 million, up 1%. U.S. revenue rose 3% to $322.9 million and U.S. Adjusted OIBDA increased 3% to $97.7 million. International revenue fell 15% to $25.5 million, substantially reflecting currency effects; its Adjusted OIBDA was a $0.6 million loss versus $0.1 million income.
Cash, debt and liquidity
- Cash was $43.2 million at March 31, down from $101.6 million at year-end. Investing used $74.6 million, including $60.5 million for acquisitions and $14.4 million in capital expenditures; financing used $17.8 million, including $47.1 million of dividends.
- Current assets were $360.5 million and current liabilities $292.1 million; working capital was $68.4 million, down from $146.6 million at December 31, 2015.
- Long-term debt, net, was $2.223 billion, plus $35.0 million outstanding under the revolving facility (classified as short-term debt). Weighted average debt cost was 4.7%. The $425 million revolver matures in 2019; $31.2 million of letters of credit were outstanding against it.
- The company reported compliance with debt covenants at quarter-end. Adjusted net secured leverage was 1.6x against a 4.0x limit; total leverage was 5.1x against a 6.0x limit applicable to certain debt incurrences.
Changes, outlook and risks
- On April 1, 2016, the company completed the sale of its Latin American outdoor advertising business for $82.0 million cash plus working capital, subject to post-closing adjustments. It used part of the proceeds to repay the $35.0 million revolver balance. On April 29, it paid $20.0 million on the term loan.
- Q1 revenue benefited from improved billboard yield, digital billboard conversions, and stronger local advertising. Results were offset by foreign exchange, the prior loss of the New York City phone kiosk contract, and lower advertising tied to major sports events. Management noted that first-quarter results are typically seasonally weakest.
- Management expects 2016 capital expenditures of approximately $65–$70 million, primarily for billboard maintenance, digital displays, LED lighting and office renovations. The board approved a quarterly dividend of $0.34 per share, payable June 30, 2016.
- The MTA subway contract was extended through December 31, 2016, subject to possible earlier termination on or after July 1; the bus and commuter rail contracts also have termination provisions. The MTA sought proposals for concessions beginning January 1, 2017, creating renewal and bidding risk.
- Q1 included a $1.3 million loss on real estate assets held for sale. SG&A rose 6%, including $0.8 million of higher legal expenses, most of which management expected to be non-recurring. The company disclosed $105.8 million of accumulated unrealized foreign currency translation losses; it recognized $99.9 million in translation losses in connection with the April 1 Latin American sale.
- Other key risks include advertising-market and economic sensitivity, competition, municipal contract renewals, substantial debt and variable-rate exposure, foreign currency, regulation, REIT qualification and seasonal fluctuations. Management said current litigation was not expected to materially adversely affect results, financial position or cash flows; no material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Completion proceeds and final working-capital adjustment for the Latin American sale, and the resulting debt and cash balances after the disclosed repayments.
- Outcome and economics of the MTA concession bidding, including any contract termination or transition effects.
- Whether U.S. organic growth and digital billboard yield gains continue, and whether International operating losses persist after the Latin American divestiture.
- Execution of the $65–$70 million capital expenditure plan, cash generation relative to dividends, and ongoing covenant headroom.
- Magnitude and accounting treatment of foreign currency translation effects and any further unusual or non-recurring legal or disposal costs.