OUTFRONT Media(OUT) - 2022 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Financial Statements (Unaudited) For the six months ended June 30, 2022, OUTFRONT Media reported total revenues of $823.7 million, a significant increase from $600.2 million in the prior-year period, shifting from a net loss to a net income of $47.9 million Consolidated Statements of Financial Position As of June 30, 2022, total assets were $5.91 billion, a slight decrease from $5.92 billion at December 31, 2021, primarily due to a reduction in cash used for acquisitions Consolidated Statements of Financial Position (in millions) | (in millions) | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $117.0 | $424.8 | | Total current assets | $441.8 | $777.3 | | Property and equipment, net | $679.6 | $647.9 | | Goodwill | $2,077.5 | $2,077.8 | | Intangible assets | $806.6 | $614.9 | | Total assets | $5,909.0 | $5,924.7 | | Liabilities & Equity | | | | Total current liabilities | $506.0 | $507.7 | | Long-term debt, net | $2,623.3 | $2,620.6 | | Total liabilities | $4,569.7 | $4,534.2 | | Total equity | $1,339.3 | $1,390.5 | | Total liabilities and equity | $5,909.0 | $5,924.7 | Consolidated Statements of Operations For Q2 2022, revenues grew 32.0% to $450.2 million, driving operating income up 174.6% to $79.9 million, resulting in a net income of $48.0 million Consolidated Statements of Operations (in millions, except per share) | (in millions) | Q2 2022 | Q2 2021 | H1 2022 | H1 2021 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $450.2 | $341.0 | $823.7 | $600.2 | | Billboard | $354.0 | $287.3 | $652.2 | $510.9 | | Transit and other | $96.2 | $53.7 | $171.5 | $89.3 | | Operating income (loss) | $79.9 | $29.1 | $108.4 | $(1.9) | | Net income (loss) attributable to OUTFRONT | $48.0 | $(0.9) | $47.9 | $(68.6) | | Diluted EPS | $0.28 | $(0.05) | $0.25 | $(0.57) | Consolidated Statements of Cash Flows For the six months ended June 30, 2022, net cash provided by operating activities was $101.1 million, a substantial improvement from $13.6 million in the prior year, though significant cash was used for acquisitions Consolidated Statements of Cash Flows (in millions) | (in millions) | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash flow provided by operating activities | $101.1 | $13.6 | | Net cash flow used for investing activities | $(294.4) | $(77.0) | | - Capital expenditures | $(41.8) | $(25.5) | | - Acquisitions | $(248.6) | $(42.7) | | Net cash flow used for financing activities | $(114.2) | $(118.9) | | - Dividends | $(102.9) | $(14.3) | | Net decrease in cash, cash equivalents and restricted cash | $(307.8) | $(181.4) | Notes to Consolidated Financial Statements The notes detail the company's REIT operations, significant acquisitions totaling $248.6 million, debt compliance, and MTA agreement obligations for digital screen deployment - The company operates as a REIT, providing out-of-home advertising displays in approximately 150 markets across the U.S. and Canada, with operations managed through U.S. Media and International segments[28] - In Q2 2022, the company acquired approximately 950 billboard displays in Portland, Oregon, and Clark County, Washington, from Pacific Outdoor Advertising for $185.0 million in cash[80] - Under the MTA Agreement, the company is obligated to deploy thousands of digital advertising and communications screens; as of June 30, 2022, 13,161 digital displays had been installed, with $52.4 million in related deployment costs incurred in the first six months of 2022[100][103][104] - On March 1, 2022, 275,000 shares of Series A Preferred Stock were converted into approximately 17.4 million shares of common stock[72] Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q2 2022 performance to COVID-19 recovery, with significant revenue growth in billboard and transit segments, improved profitability, and solid liquidity despite acquisition-related cash usage Overview and Business Environment OUTFRONT Media, a REIT, focuses on expanding its digital display portfolio, which generates higher revenue, but faces headwinds from supply chain disruptions and inflation - The company's strategy focuses on converting traditional static displays to digital, as digital billboards generate approximately four times more revenue per display on average[127] Digital Display Portfolio as of June 30, 2022 | Location | Digital Billboard Displays | Digital Transit and Other Displays | Total Digital Displays | | :--- | :--- | :--- | :--- | | United States | 1,519 | 14,829 | 16,348 | | Canada | 251 | 120 | 371 | | Total | 1,770 | 14,949 | 16,719 | - The company is experiencing delays and price increases for digital displays due to market-wide supply shortages and logistics disruptions, also seeing cost increases from heightened inflation[123][125] Key Performance Indicators The company's key performance indicators showed strong growth in Q2 and H1 2022, with revenues up 32% to $450.2 million, Adjusted OIBDA increasing 79% to $125.3 million, and AFFO rising 135% to $93.2 million Key Performance Indicators (in millions) | (in millions) | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $450.2 | $341.0 | 32% | | Organic revenues | $447.8 | $340.4 | 32% | | Operating income | $79.9 | $29.1 | 175% | | Adjusted OIBDA | $125.3 | $70.0 | 79% | | AFFO attributable to OUTFRONT | $93.2 | $39.6 | 135% | - FFO for Q2 2022 increased 133% to $92.4 million, and AFFO increased 135% to $93.2 million, primarily due to higher operating income[147] Analysis of Results of Operations In Q2 2022, total revenues rose 32% year-over-year, driven by 23% billboard and 79% transit revenue increases, while total expenses grew 19% to $370.3 million, leading to a net income of $48.4 million Revenues by Type (in millions) | (in millions) | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Billboard | $354.0 | $287.3 | 23% | | Transit and other | $96.2 | $53.7 | 79% | | Total revenues | $450.2 | $341.0 | 32% | Operating Expenses by Type (in millions) | (in millions) | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Billboard property lease | $112.5 | $100.7 | 12% | | Transit franchise | $59.4 | $42.5 | 40% | | Posting, maintenance and other | $54.6 | $46.4 | 18% | | Total operating expenses | $226.5 | $189.6 | 19% | - SG&A expenses increased by $18.0 million (20%) in Q2 2022, primarily due to higher compensation-related expenses, professional fees, and increased business travel[161] Segment Results of Operations The U.S. Media segment reported a 31% revenue increase to $422.5 million and a 60% rise in Adjusted OIBDA to $129.2 million for Q2 2022, driven by strong billboard and transit performance, while the 'Other' segment also improved significantly U.S. Media Segment Performance - Q2 2022 vs Q2 2021 (in millions) | (in millions) | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Total revenues | $422.5 | $321.8 | 31% | | - Billboard | $332.1 | $271.8 | 22% | | - Transit and other | $90.4 | $50.0 | 81% | | Adjusted OIBDA | $129.2 | $80.6 | 60% | | Adjusted OIBDA margin | 31% | 25% | | Other Segment Performance - Q2 2022 vs Q2 2021 (in millions) | (in millions) | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Total revenues | $27.7 | $19.2 | 44% | | Adjusted OIBDA | $7.8 | $1.6 | * | | Adjusted OIBDA margin | 28% | 8% | | Liquidity and Capital Resources As of June 30, 2022, the company had a working capital deficit of $64.2 million due to acquisitions, but total debt remained stable at $2.62 billion, with compliance on all debt covenants - Working capital shifted to a deficit of $64.2 million as of June 30, 2022, from a surplus of $269.6 million at Dec 31, 2021, primarily due to lower cash balances following acquisitions[192][196] Debt Summary (in millions) | (in millions) | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Term loan, due 2026 | $598.4 | $598.2 | | Total senior unsecured notes | $2,050.0 | $2,050.0 | | Total long-term debt, net | $2,623.3 | $2,620.6 | - The company is in compliance with its debt covenants, with a Consolidated Total Leverage Ratio of 5.1 to 1.0 (covenant limit: 6.0 to 1.0) and a Consolidated Net Secured Leverage Ratio of 0.9 to 1.0 (covenant limit: 4.5 to 1.0)[212][213] - Cash provided by operating activities increased to $101.1 million in H1 2022 from $13.6 million in H1 2021, while cash used for investing activities increased to $294.4 million from $77.0 million due to acquisitions[222][223][224] Quantitative and Qualitative Disclosures About Market Risk The company faces commodity price risk from electricity costs, foreign exchange risk from Canadian operations, and interest rate risk from its $600.0 million variable-rate Term Loan, where a 0.25% rate change would alter annual interest expense by approximately $1.5 million - The company is exposed to commodity price risk, particularly in electricity costs for its displays[240] - Foreign currency translation risk exists from its Canadian subsidiary, with a $3.0 million unrecognized loss in accumulated other comprehensive loss as of June 30, 2022[242] - The company has interest rate risk from its $600.0 million variable-rate Term Loan; a 0.25% change in the interest rate would impact annualized interest expense by about $1.5 million[244] Controls and Procedures Based on management's evaluation, including the CEO and CFO, the company's disclosure controls and procedures were effective as of June 30, 2022, with no material changes in internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[248] - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[249] PART II - OTHER INFORMATION Legal Proceedings The company is engaged in various ongoing lawsuits and governmental proceedings, none of which are expected to have a material adverse effect on its financial results or position - The company states that none of its current litigation is expected to have a material adverse effect on its financial results or position[253] Risk Factors There have been no material changes from the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes have occurred to the risk factors disclosed in the company's 2021 Annual Report on Form 10-K[254] Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities during the period, nor were any equity securities repurchased by the issuer during the quarter - There were no unregistered sales of equity securities in the period[255] - The company did not purchase any of its own equity securities during the quarter from April 1, 2022, through June 30, 2022[256] Defaults Upon Senior Securities None reported - None[257] Mine Safety Disclosures None reported - None[259] Other Information None reported - None[260] Exhibits This section references the Exhibit Index, which lists all documents filed as part of the quarterly report, including corporate governance documents and officer certifications - The report includes an index of exhibits filed, such as corporate governance documents, material contracts, and Sarbanes-Oxley certifications[261][263]