OUTFRONT Media Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. OUTFRONT Media is a REIT operating out-of-home advertising businesses in the U.S. and Canada, principally billboards and transit displays, with additional international and sports marketing operations. The filing was signed May 8, 2020.
Financial performance
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Total revenue | $385.3 million | $371.7 million | Up 4% |
| Operating income | $33.8 million | $36.9 million | Down 8% |
| Adjusted OIBDA | $86.8 million | $86.8 million | Flat |
| Adjusted OIBDA margin | 23% | 23% | Flat |
| Net income attributable to OUTFRONT | $6.1 million | $6.1 million | Flat |
| Diluted EPS | $0.04 | $0.04 | Flat |
| FFO attributable to OUTFRONT | $44.7 million | $42.1 million | Up 6% |
| AFFO attributable to OUTFRONT | $40.0 million | $39.2 million | Up 2% |
| Cash from operating activities | $14.9 million | $41.4 million | Down 64% |
Billboard revenue grew 8% to $270.9 million, supported by higher yield and digital billboard conversions. Transit and other revenue fell 5% to $114.4 million, reflecting lower yield and third-party digital equipment sales. U.S. Media revenue rose 5%, but segment Adjusted OIBDA declined 4% to $90.8 million and its margin fell to 26% from 28%. Other revenue declined 8% to $30.6 million, and Other Adjusted OIBDA fell to $0.5 million from $1.2 million.
Operating expenses increased 4% to $224.8 million; SG&A increased 8% to $79.5 million, principally due to a higher provision for doubtful accounts. The Q1 doubtful-account provision was $8.1 million, including expected collection impacts from COVID-19. Net interest expense declined to $29.8 million from $32.7 million, mainly due to lower interest rates, partly offset by higher average debt.
Liquidity, debt and cash flow
At March 31, 2020, cash and cash equivalents were $487.8 million, compared with $59.1 million at year-end 2019. The increase primarily reflected precautionary borrowing. Working capital was positive $140.1 million, versus a $214.2 million deficit at year-end; management attributed the change largely to the cash raised through borrowing.
Total debt, net, was $2.928 billion, up from $2.417 billion at December 31, 2019; weighted-average cost of debt was 4.0%, versus 4.5%. The company drew $495 million on its revolving facility during the quarter, leaving $495 million outstanding on the $500 million facility. It also had $120 million outstanding under the AR facility and $90 million under the repurchase facility; no capacity remained under either securitization facility at quarter-end. The company reported covenant compliance at March 31, with a 2.0x secured leverage ratio and 5.4x total leverage ratio.
Operating cash flow fell to $14.9 million, principally due to a larger decrease in accounts payable and accrued expenses. Investing cash use was $26.7 million, including $18.2 million of capital expenditures. Financing provided $442.2 million, primarily from debt borrowings, partly offset by $55.6 million of dividends paid during the quarter.
COVID-19, outlook and material developments
- Management said the pandemic reduced or disrupted advertising demand, customer spending and collections, and interrupted or delayed display deployment. The company expects 2020 revenue and key performance indicators to be materially below historical levels, with the impact expected to be greater in Q2 than Q3 and Q4. Q1 results are not considered indicative of full-year results; management could not reasonably estimate the pandemic’s full impact.
- Management expects franchise, billboard lease, posting and maintenance expenses to rise materially as a percentage of revenue if revenue declines. It also warned that cash and operating cash flow may decrease and access to debt or equity financing may become uncertain or more costly.
- Actions included suspending common dividends subject to REIT distribution requirements; pausing acquisitions; suspending MTA digital transit deployments; reducing or deferring capital and discretionary spending; and workforce reductions, furloughs and temporary salary cuts. The May 5 workforce actions affected approximately 70 terminated and 150 furloughed employees, with approximately $4.2 million of anticipated Q2 severance charges.
- For full-year 2020, management expected capital expenditures of approximately $50 million and MTA deployment costs significantly below its prior estimate of approximately $175 million, assuming deployment did not materially resume. MTA deployment was suspended; $230.5 million of related prepaid costs and intangible assets were recorded at quarter-end, with no impairment identified. Costs may not be fully recouped if incremental MTA revenues are insufficient.
- On April 15, the credit agreement was amended to modify covenant calculations through September 30, 2021, including substitution of historical EBITDA for specified 2020 quarters. The amendment also restricted certain payments without lender consent, subject to exceptions.
- On April 17, MUFG reduced the repurchase facility limit by $10 million and required repayment. As of May 7, borrowings were $118 million under the AR facility and $80 million under the repurchase facility.
- On April 20, the company raised $400 million through a private placement of convertible preferred stock carrying an initial 7% cumulative dividend. The preferred ranks senior to common stock for dividends and distributions and includes conversion, voting and other investor rights. Common dividends were suspended, subject to REIT requirements.
- Management reported no material adverse effect expected from current litigation and no impairment of goodwill or MTA-related assets in its Q1 assessments. Future impairment remains possible if assumptions about pandemic duration, revenue or deployment change.
Important facts for investors to verify
- Subsequent-quarter revenue, advertiser cancellations and collections, particularly in transit and major urban markets, and the pace of any recovery.
- Cash burn and financing availability, including renewal or extension of the repurchase facility, which was due to terminate in June 2020 unless extended.
- Debt covenant headroom and the effect of the amended covenant calculation and payment restrictions.
- Whether MTA deployments resume, whether deployment costs are recouped, and whether updated forecasts trigger an impairment.
- Preferred-stock dividend obligations, any common dividend reinstatement, potential conversion dilution and the preferred holders’ governance and approval rights.
- Actual 2020 capital expenditures, restructuring charges and cost savings compared with management’s expectations.