OUTFRONT Media Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with the three months ended March 31, 2020 unless stated otherwise. OUTFRONT is a REIT providing billboard and transit advertising displays in the U.S. and Canada.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Revenue | $259.2 million | $385.3 million | Down 33% |
| Operating income (loss) | $(31.0) million | $33.8 million | — |
| Net income (loss) attributable to OUTFRONT | $(67.7) million | $6.1 million | — |
| Diluted EPS | $(0.52) | $0.04 | — |
| Adjusted OIBDA | $11.1 million | $75.5 million | Down 85% |
| Adjusted OIBDA margin | 4% | 20% | Down 16 percentage points |
| FFO / AFFO attributable to OUTFRONT | $(30.4) million / $(24.5) million | $44.7 million / $40.0 million | Both turned negative |
Revenue fell 30% on an organic basis. Billboard revenue declined 17%; transit and other revenue declined 69%, reflecting pandemic-related advertising weakness and, for reported results, the 2020 Sports Marketing disposition. Operating expenses decreased 21% and SG&A decreased 16%, but cost reductions did not offset lost revenue. Transit franchise expense was 131% of transit display revenue, principally because MTA minimum payments resumed.
Net loss included $34.6 million of net interest expense and a $6.3 million loss on extinguishment of debt. The filing reports a $4.7 million income-tax benefit.
Cash flow, liquidity and debt
- Operating cash flow was $(10.8) million, versus $14.9 million provided in Q1 2020. Investing cash use was $28.3 million; financing cash use was $111.6 million. Cash, cash equivalents and restricted cash ended the quarter at $561.6 million, down $150.4 million from year-end 2020.
- Cash and cash equivalents were $560.0 million at March 31, 2021, compared with $710.4 million at December 31, 2020. Working capital was $344.8 million.
- Net debt reported on the balance sheet was $2.617 billion, compared with $2.701 billion at year-end; weighted-average debt cost was 4.3%. The company had $2.1 billion of senior unsecured notes and a $597.9 million term loan, net of applicable debt costs. It had no borrowings under its $500 million revolving credit facility.
- In January, OUTFRONT issued $500 million of 4.25% notes due 2029 and used the proceeds, together with cash, to redeem its 5.625% notes due 2024. The refinancing generated the $6.3 million extinguishment loss. The $80 million Repurchase Facility balance outstanding at year-end was repaid.
- The company reported a 12.7x Consolidated Total Leverage Ratio and a 1.1x Consolidated Net Secured Leverage Ratio at quarter-end, and stated it was in compliance with debt covenants. The credit-agreement amendment modifies leverage testing through September 30, 2021 and restricts certain restricted payments, subject to exceptions.
- Operating lease liabilities totaled about $1.44 billion, including $185.7 million current. These lease obligations are separate from reported debt.
Outlook, risks and notable items
- Management expected key performance indicators and revenue to improve incrementally through the rest of 2021 versus 2020, while remaining materially below pre-pandemic levels, especially in U.S. Media and transit. It cautioned that Q1 results are not indicative of full-year results and that the pandemic’s full effect cannot be estimated.
- Management expected 2021 capital expenditures of approximately $85 million, excluding MTA equipment deployment costs, and approximately $100 million of MTA deployment costs for the year. Deployment was temporarily suspended beginning in Q1 while discussions with the MTA continued. The company did not recoup MTA deployment costs in Q1 and said recoupment in 2021 was unlikely; costs may not be fully recoverable if incremental revenues are insufficient.
- MTA guaranteed minimum payments resumed January 1, 2021. Management expected transit franchise expenses as a percentage of revenue to rise during 2021 and remain materially above pre-pandemic levels. Deferred 2020 MTA minimum payments are scheduled to be added in equal increments to payments for 2022–2026 under the amended agreement.
- COVID-19-related risks include reduced advertiser spending, volatile or deferred bookings, slower collections, reduced traffic and transit ridership, and uncertainty about recovery. Management also cited substantial indebtedness, access to capital, contract renewals, competition, digital deployment, and REIT-related requirements as risks.
- The common-stock dividend remained suspended, subject to distributions required to maintain REIT status. Series A preferred stock carries a cumulative 7% annual dividend; $7.0 million was paid in Q1. The preferred stock is convertible and could result in up to 25.0 million common shares.
- Management said ongoing litigation was not expected to have a material adverse effect. No material changes to previously disclosed risk factors were reported, although pandemic effects heightened certain risks.
Important facts for investors to verify
- Whether advertising demand, billboard yields, and transit activity recover as management anticipated, and how results compare with pre-pandemic levels.
- Liquidity and refinancing needs, including the June 2021 Repurchase Facility maturity and the AR Facility’s lack of available borrowing capacity at quarter-end.
- Compliance with debt covenants and the implications of the reported 12.7x total leverage ratio and temporary covenant calculation amendment.
- MTA deployment spending, minimum-payment obligations, negotiations, and the recoverability of capitalized deployment costs.
- The ongoing cost and potential dilution associated with preferred dividends and conversion rights, alongside the continued suspension of common dividends.