OUTFRONT Media Inc. — Q3 2020 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2020. OUTFRONT is a REIT operating billboard and transit advertising businesses in the U.S. and Canada. Results were heavily affected by COVID-19 restrictions and reduced advertising demand.
Financial highlights
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $282.3m | $462.5m | $900.5m | $1,294.1m |
| Operating income | $25.1m | $85.5m | $33.0m | $211.1m |
| Net income (loss) attributable to OUTFRONT | ($13.5m) | $38.7m | ($65.3m) | $95.1m |
| Adjusted OIBDA | $68.5m | $140.3m | $177.0m | $370.7m |
| Adjusted OIBDA margin | 24% | 30% | 20% | 29% |
| Operating cash flow | Not presented for quarter | Not presented for quarter | $86.0m | $162.1m |
- Q3 revenue fell 39%; billboard revenue declined 23%, while transit and other revenue fell 72%. For the nine-month period, revenue decreased 30%.
- Nine-month FFO was $39.4m, down 81%, and AFFO was $46.4m, down 80%, primarily due to pandemic-related revenue weakness, partly offset by cost reductions.
- Cash and cash equivalents were $690.6m at September 30, 2020, versus $59.1m at year-end 2019. Working capital was $411.2m, compared with a $214.2m deficit. The cash increase was largely supported by financing transactions.
- Total debt, net, was $2.70bn, up from $2.42bn at year-end 2019; weighted-average debt cost was 4.5%. The company had no Revolving Credit Facility borrowings, but reported no remaining capacity under either accounts-receivable securitization facility at quarter-end.
- Nine-month investing cash outflow was $35.1m; capital expenditures were $42.0m. Financing cash inflow was $581.0m, including proceeds from debt and preferred-stock issuances.
Material changes and financing
- In April, the company raised $400m through Series A preferred stock with a cumulative 7% annual dividend. The preferred stock is convertible, subject to a share cap, and ranks senior to common stock for distributions.
- In May, subsidiaries issued $400m of 6.25% senior notes due 2025; proceeds and cash on hand were used to repay $400m of revolving-credit borrowings and related costs.
- The company suspended quarterly common dividends, subject to distributions required to maintain REIT status. Preferred dividends continued; $7.0m was paid in Q3.
- In Q3, OUTFRONT sold its Sports Marketing business for approximately $34.6m cash, subject to adjustments, and recorded a $7.2m gain. The segment’s results through June 30 remain included in the reported periods.
- COVID-19 cost measures included workforce reductions, hiring and discretionary-spending controls, lower capital spending, and reduced or delayed display deployments. Nine-month restructuring charges were $5.3m.
Outlook, risks and contingencies
- Management expected 2020 revenue and expenses to be materially below historical levels, particularly in U.S. Media and transit. It expected the greatest impact in Q2, with incremental improvement in Q3 and Q4, but said the full pandemic impact could not be reasonably estimated. Q3 and nine-month results were not considered indicative of full-year results.
- Management expected approximately $55m of 2020 capital expenditures, mainly safety-related maintenance and digital-display growth. MTA deployment costs were expected to be significantly below the previously disclosed approximately $175m as deployment resumed in Q3.
- Under the amended MTA agreement, the MTA and OUTFRONT directly fund 70% and 30%, respectively, of up to $143m in qualifying post-June 2020 deployment costs. Certain 2020 minimum payments were deferred into equal increments for 2022–2026. The company had not recouped MTA deployment costs in the first nine months, and said 2020 recoupment was unlikely; unrecovered costs could adversely affect results.
- COVID-19 may continue to weigh on advertiser spending, traffic and transit usage, collections, and deployment schedules. Management also cited potential future impairment of MTA-related assets and other long-lived assets if assumptions deteriorate.
- The company reported a total leverage ratio of 8.2x and a secured net leverage ratio of 1.0x at September 30. It stated it was compliant with debt covenants; the credit agreement amendment modified covenant calculations through September 30, 2021, and restricts certain payments without lender consent. The 8.2x total leverage ratio exceeds the stated 6.0x threshold for one additional-debt exception.
- Contractual guaranteed minimum annual payments totaled $1.33bn, including $199.4m for 2021. Outstanding letters of credit were approximately $73.6m and surety bonds approximately $175.5m, neither recorded as balance-sheet liabilities. Management did not expect current litigation to have a material adverse effect.
Key facts for investors to verify
- Whether advertising demand, transit usage, collections, and revenue yields recovered as expected after Q3, and whether later results validated management’s outlook.
- Cash generation and liquidity after accounting for restricted or operationally committed cash, scheduled interest and debt payments, and the lack of securitization-facility capacity at quarter-end.
- Compliance with debt covenants under amended calculations, refinancing access, and the implications of elevated total leverage.
- Recoverability of the $200.9m recorded as prepaid MTA deployment costs and other MTA-related assets, including progress on installations and the effects of the amended agreement.
- The cost and potential dilution of Series A preferred stock, including its cumulative 7% dividend, conversion terms, and common-share cap; also verify common-dividend policy and REIT distribution requirements.
- Credit-loss assumptions: the receivables allowance increased to $24.8m from $12.1m at year-end 2019, and the company recorded $17.4m of doubtful-account provisions for the nine months.