OUTFRONT Media Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. OUTFRONT is a REIT that sells out-of-home advertising space, primarily through U.S. billboard and transit operations, with additional operations in Canada.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $454.8M | $453.7M | $1,319.4M | $1,277.4M |
| Operating income (loss) | $58.6M | $74.3M | $(369.4)M | $182.7M |
| Net income (loss) attributable to OUTFRONT | $17.0M | $40.8M | $(490.8)M | $88.7M |
| Adjusted OIBDA, a non-GAAP measure | $116.9M | $123.2M | $299.3M | $318.7M |
| Adjusted OIBDA margin | 26% | 27% | 23% | 25% |
| AFFO attributable to OUTFRONT, a non-GAAP measure | $75.7M | $86.5M | $162.5M | $215.2M |
Q3 billboard revenue rose 2% to $363.6M, while transit and other revenue fell 8% to $91.2M. For the nine-month period, billboard revenue increased 5% and transit and other revenue decreased 2%. Q3 operating expenses rose 3% to $239.8M; net interest expense increased to $40.2M from $33.6M. The nine-month loss included $523.5M of impairment charges, chiefly related to transit and the MTA asset group.
For the nine months, operating cash flow was $149.2M, compared with $174.8M a year earlier. Capital expenditures were $63.6M; investing cash outflow was $93.4M, versus $351.3M in 2022, largely reflecting lower acquisition spending. Financing cash outflow was $51.9M, including $155.4M of dividends and $120.0M of AR Facility borrowings. Cash at September 30 was $44.4M.
Liquidity, debt and capital
Total debt, net, was $2.78B, up from $2.66B at year-end 2022; weighted average debt cost was 5.5%, versus 5.2%. Debt included $150M drawn on the $150M accounts receivable securitization facility, with no remaining borrowing capacity reported at quarter-end, and $2.63B of long-term debt, net. The $500M revolving credit facility had no borrowings and matures in 2028. The AR facility matures in May 2025 unless extended.
Cash and current assets were $44.4M and $381.0M, respectively; current liabilities were $657.0M, resulting in a $276.0M working-capital deficit. The company reported compliance with debt covenants: total leverage ratio of 5.2x against a 6.0x limit and net secured leverage ratio of 1.1x against a 4.5x limit. The board approved a $0.30-per-share quarterly common dividend payable December 29, 2023. The 7% Series A preferred stock remains outstanding.
Material changes and management commentary
- Revenue was nearly flat in Q3, while Adjusted OIBDA decreased 5% and net income attributable to OUTFRONT decreased 58% year over year. Nine-month revenue grew 3%, but Adjusted OIBDA declined 6% and AFFO declined 24%.
- Billboard growth, driven by yield and display additions, was offset by weaker transit advertising sales. Management said transit ridership remained materially below pre-pandemic levels and its 2023 increase had not translated into higher overall demand for transit displays.
- Transit underperformance triggered $47.6M of goodwill impairment and $463.5M of long-lived-asset impairment in Q2; a further $12.1M was recorded in Q3. Management continued to project negative aggregate MTA cash flows of about $35M before cash-flow neutrality beginning in 2024, and does not currently expect to recoup MTA deployment costs over the remaining agreement term. Further impairment charges may occur.
- Management expects 2023 capital expenditures of approximately $80M–$85M, excluding MTA deployment costs. Estimated MTA deployment costs are approximately $45M for 2023, $50M–$60M for 2024, and $30M–$40M annually thereafter during the remaining agreement term. The initial deployment phase is expected to be substantially complete in 2024.
- In a subsequent event, the company agreed to sell its Canadian outdoor advertising business to Bell Media for C$410M cash, subject to adjustments, holdback terms and closing conditions. Closing is expected in 2024; antitrust approval and other conditions remain outstanding.
Risks, contingencies and unusual items
Key risks cited include advertising weakness and economic conditions, inflation and higher interest rates, persistently weak transit demand, MTA minimum-guarantee and deployment economics, digital-display supply and logistics disruptions, competition, and the renewal or award of municipal contracts. The company warned that lower-than-assumed MTA revenues could lead to additional impairments; its sensitivity analysis indicated a 1% change in annual MTA revenue growth assumptions could change estimated aggregate cash flows by approximately $70M. The revolving facility amendment extended maturity to 2028 but increased applicable borrowing margins. The company recorded a $5.2M out-of-period increase to Q1 2023 operating expenses for prior-year variable billboard lease costs, which it concluded was not material to prior-period statements. Management said existing litigation was not expected to have a material adverse effect; no material changes to previously disclosed risk factors were reported.
Important facts for investors to verify
- Progress and economics of the MTA digital deployment, actual transit revenue trends, and whether cash-flow neutrality and the no-recovery assumptions remain supportable.
- Potential additional impairment charges and the assumptions used for MTA and transit reporting-unit valuations.
- Liquidity and refinancing capacity, including use of the fully drawn AR facility, working-capital deficit, leverage and interest-cost exposure.
- Completion, net proceeds and timing of the proposed Canadian sale, including regulatory approval, purchase-price adjustments and holdback conditions.
- Delivery against 2023 capital-expenditure and MTA deployment-cost estimates, and the sustainability of dividends alongside investment and debt-service needs.