OUTFRONT Media Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. OUTFRONT is a REIT selling out-of-home advertising across the U.S. and Canada, principally through billboard and transit displays. Figures below are in millions of dollars except per-share data and ratios.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $453.7 | $399.2 | $1,277.4 | $999.4 |
| Operating income | $74.3 | $65.0 | $182.7 | $63.1 |
| Adjusted OIBDA | $123.2 | $108.1 | $318.7 | $189.2 |
| Adjusted OIBDA margin | 27% | 27% | 25% | 19% |
| Net income (loss) attributable to OUTFRONT | $40.8 | $33.1 | $88.7 | ($35.5) |
| Diluted EPS | $0.23 | $0.18 | $0.49 | ($0.39) |
| Interest expense, net | $33.6 | $31.8 | $95.9 | $98.5 |
Revenue grew 14% in Q3 and 28% year to date. Organic revenue growth was 13% and 27%, respectively. Billboard revenue increased 12% in Q3 and 22% year to date; transit and other revenue increased 21% and 58%. Management attributed growth chiefly to stronger demand and higher revenue per display, with transit improvement also reflecting increased ridership. Adjusted OIBDA rose 14% in Q3 and 68% year to date; the year-to-date comparison also benefited from the prior-year debt-extinguishment loss. Segment results are not a substitute for GAAP measures.
Cash flow, balance sheet and capital
- For the first nine months, operating cash flow was $174.8, versus $45.1 in 2021. Investing cash outflow was $351.3, including $278.9 of acquisitions and $66.6 of capital expenditures; financing cash outflow was $165.6, including $154.3 of dividends.
- Cash was $81.5 at September 30, down from $424.8 at December 31, 2021. Working capital was a deficit of $92.1, compared with a surplus of $269.6 at year-end; management attributed the change principally to cash used for acquisitions.
- Net long-term debt was $2,624.6, versus $2,620.6 at year-end; weighted-average debt cost was 4.9%, up from 4.3%. The company reported total leverage of 5.0x and secured net leverage of 1.0x, and said it was in covenant compliance.
- No borrowings were outstanding under the $500 revolving credit facility or the $150 accounts-receivable facility. The facilities mature in 2024 and May 2025, respectively. The $150 AR facility was fully available at quarter-end.
- Operating lease liabilities totaled $1,539.0, including $196.7 current. Preferred stock outstanding was $119.8; $266.8 of preferred stock converted into about 17.4 million common shares in March 2022, contributing to the increase in common shares outstanding.
Material changes, outlook and risks
- The company acquired about 950 billboard displays in Oregon and Washington for $185.0 in Q2; total acquisitions for the first nine months were $278.9. Acquisition-related intangible assets contributed to higher amortization.
- Management expected 2022 revenue and Adjusted OIBDA to be comparable to pre-pandemic levels, supported by billboard performance, while transit and other revenue was expected to improve but remain materially below pre-COVID levels until 2023. Management cautioned that 2022 results to date were not necessarily indicative of full-year results.
- For 2022, management expected approximately $85.0 of capital expenditures and approximately $100.0 of MTA equipment deployment costs. The latter are separate from capital expenditures. The company reported no MTA deployment-cost recoupment in the first nine months and did not expect recoupment for the remainder of 2022.
- The MTA agreement requires extensive screen deployments and guaranteed minimum payments. At quarter-end, 13,657 displays had been installed; cumulative deployment costs were $513.6, with $33.9 recouped from incremental revenue and $49.1 funded by the MTA. Insufficient incremental revenue could prevent full recoupment of certain costs and adversely affect results.
- Management cited inflation-related operating and interest-cost pressure, supply and logistics delays and higher prices for digital displays, and rising posting, maintenance and other expenses. Transit ridership and revenue remained below pre-pandemic levels; renewed pandemic restrictions could further reduce audiences and demand.
- Other significant risks include advertising and economic weakness, competition, municipal contract renewal and bidding, substantial debt and variable-rate exposure, and access to capital. A 0.25 percentage-point change in the term-loan rate would change annual interest expense by about $1.5. The company reported routine litigation but did not expect current matters to have a material adverse effect; it reported no material change in previously disclosed risk factors.
- After quarter-end, the board approved a $0.30-per-share quarterly common dividend, payable December 30, 2022. The filing does not provide a broader quantified earnings or cash-flow forecast.
Important facts for investors to verify
- Whether billboard demand and pricing can sustain growth as economic conditions and advertising spending change, and whether transit ridership continues to recover.
- Actual MTA deployment spending, installation progress, guaranteed payments and recovery of deployment costs against future incremental revenue.
- Liquidity and debt-service capacity given the lower cash balance, working-capital deficit, 5.0x total leverage and higher borrowing costs.
- Returns from the 2022 acquisitions and whether integration, operating costs and acquisition-related amortization meet expectations.
- Full-year capital expenditures, deployment costs, dividends and cash generation relative to management’s stated expectations.