OUTFRONT Media Inc. — Q2 2022 Form 10-Q
Reporting period: Three and six months ended June 30, 2022. OUTFRONT is a REIT selling out-of-home advertising space on billboard and transit displays in the U.S. and Canada.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $450.2 million | $341.0 million | $823.7 million | $600.2 million |
| Operating income (loss) | $79.9 million | $29.1 million | $108.4 million | $(1.9) million |
| Net income (loss) attributable to OUTFRONT | $48.0 million | $(0.9) million | $47.9 million | $(68.6) million |
| Diluted EPS | $0.28 | $(0.05) | $0.25 | $(0.57) |
| Adjusted OIBDA | $125.3 million | $70.0 million | $195.5 million | $81.1 million |
| Adjusted OIBDA margin | 28% | 21% | 24% | 14% |
Q2 revenue rose 32% and six-month revenue rose 37%. Billboard revenue increased 23% in Q2; transit and other revenue rose 79%, reflecting stronger demand, higher yields and increased transit ridership, partly offset by a lost franchise. Six-month FFO was $134.2 million versus $9.3 million; AFFO was $128.7 million versus $15.1 million.
Cash flow, debt and liquidity
- For the first half, operating cash flow was $101.1 million versus $13.6 million. Investing cash outflow was $294.4 million, including $248.6 million of acquisitions and $41.8 million of capital expenditures. Financing cash outflow was $114.2 million, including $102.9 million of dividends. Cash declined $307.8 million to $117.0 million.
- Net long-term debt was $2.623 billion; weighted average debt cost was 4.6%. The $500 million revolver and $150 million accounts-receivable facility were undrawn. Total leverage under the credit agreement was 5.1x and secured net leverage was 0.9x; the company reported compliance with covenants.
- Working capital was a deficit of $64.2 million, compared with a $269.6 million surplus at year-end. Current assets were $441.8 million and current liabilities were $506.0 million.
Material changes and notable items
- In Q2, the company acquired approximately 950 billboard displays in Oregon and Washington for $185 million, using cash on hand. First-half acquisitions totaled $248.6 million.
- On March 1, 2022, 275,000 Series A preferred shares converted into approximately 17.4 million common shares. About 7.8 million additional common shares could be issuable upon conversion of the preferred shares still outstanding.
- The accounts-receivable facility was increased from $125 million to $150 million and extended to May 2025.
- The board approved a $0.30-per-share quarterly common dividend payable September 30, 2022.
Outlook, risks and contingencies
- Management expected 2022 revenue to surpass pre-pandemic levels, driven by U.S. billboard performance; transit and other revenue was expected to improve but remain materially below pre-pandemic levels until 2023. Adjusted OIBDA was expected to improve and be comparable to pre-pandemic levels. Management cautioned that first-half results are not indicative of full-year results.
- Management forecast approximately $85 million of 2022 capital expenditures, excluding MTA equipment deployment costs, and approximately $125 million of MTA deployment costs. The company had not recouped MTA deployment costs in the first half and said further 2022 recoupment was unlikely.
- COVID-19 effects on transit ridership and advertising audiences remain uncertain. Inflation, utility and operating-cost increases, supply-chain disruptions and delays in digital-display deliveries could pressure results. The company expects doubtful-account provisions to continue increasing through year-end.
- Substantial debt, covenant restrictions, reliance on municipal franchise renewals and guaranteed minimum payments, and the ability to fund MTA deployments are material considerations. The filing says current litigation is not expected to materially adversely affect results, financial position or cash flows; no material changes to previously disclosed risk factors were reported.
Key facts for investors to verify
- Whether advertising demand and transit ridership continue to recover, and whether transit revenue reaches management’s stated expectations.
- Execution, funding and potential recoupment of MTA deployment costs, including the forecast $125 million for 2022.
- Cash generation after acquisitions, capital spending and dividends, given the first-half cash decline and working-capital deficit.
- Debt leverage and refinancing capacity, including the 5.1x total leverage ratio and availability of undrawn facilities.
- Costs and delivery timing tied to inflation and supply constraints, and potential dilution from preferred-share conversion and equity compensation.