OUTFRONT Media(OUT) - 2023 Q4 - Annual Report

Part I Business OUTFRONT Media Inc. is a REIT and a leading provider of out-of-home advertising in the U.S. and Canada, focusing on digital expansion and the sale of its Canadian business in 2023 - OUTFRONT Media is a REIT and one of the largest out-of-home advertising providers in the U.S. and Canada, with a portfolio of billboard and transit displays in approximately 150 markets[19] - On October 22, 2023, the company entered into an agreement to sell its Canadian outdoor advertising business to Bell Media Inc. for C$410.0 million in cash, with the transaction expected to close in the first half of 2024[26][27] - The company's growth strategy focuses on increasing the number of digital displays, which generate higher revenue and profits than traditional static displays, alongside enhancing revenue management and pursuing selective acquisitions[31][33][34] U.S. Media Segment Revenue by Industry (2023) | Industry | Percentage of Total U.S. Media Segment Revenues | | :--- | :--- | | Entertainment | 20% | | Retail | 11% | | Health/Medical | 9% | | Legal Services/Lawyers | 7% | | Technology | 6% | | Miscellaneous Service Providers | 5% | | Restaurants | 4% | | Automotive | 4% | | Consumer Packaged Goods | 4% | | Education | 4% | | Travel | 4% | | Financial | 3% | | Alcohol | 3% | | Government/Political | 3% | | Utilities | 3% | | Real Estate | 2% | | Non-Profit | 2% | | Insurance | 2% | | Other | 4% | - The business is subject to significant regulation, including the federal Highway Beautification Act (HBA), state and local zoning laws, and content-based restrictions on advertising for products like tobacco and alcohol[65][66][72] Risk Factors The company faces significant risks related to its business, substantial indebtedness of approximately $2.8 billion, and the complexities of maintaining its REIT structure - The business is sensitive to economic conditions, with advertising expenditures declining during economic downturns, and pandemics, like COVID-19, can materially reduce transit ridership and advertising demand[91][92] - The company operates in a highly competitive industry, facing pressure on advertising rates and lease costs from national players like Lamar and Clear Channel Outdoor, as well as other media platforms[95][96] - In 2023, the company recorded significant impairment charges totaling $534.7 million, primarily related to its U.S. Transit and Other reporting unit and its MTA asset group, due to a downward revision in the fair value and expected cash flows[117] - As of December 31, 2023, the company had approximately $2.8 billion in total indebtedness, which could make it difficult to satisfy obligations, fund operations, and react to market changes[120][121] - Failure to maintain REIT qualification would result in being subject to U.S. federal income tax at regular corporate rates, substantially reducing cash available for distribution, as maintaining REIT status requires distributing at least 90% of REIT taxable income annually[147][150] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[167] Cybersecurity The company maintains a comprehensive Cybersecurity Program, overseen by its CISO and the audit committee, with no material threats identified to date - The company has a comprehensive Cybersecurity Program managed by a CISO and CIO, with oversight from the board's audit committee, which receives quarterly updates[168][169] - The program includes regular third-party assessments and processes to evaluate cybersecurity risks associated with third-party service providers[171] - To date, the company has not identified any cybersecurity threats or incidents that have materially affected or are reasonably likely to materially affect its business, financial condition, or results of operations[172] Properties The company primarily leases its outdoor advertising sites in the U.S. and Canada, with approximately 71% of leases expiring or subject to renewal within the next 5 years - The company primarily leases its outdoor advertising sites, with an average lease term of 8 years[174] - Approximately 71% of outdoor advertising site leases are set to expire or be renewed in the next 5 years, 20% in 6 to 10 years, and 9% in more than 10 years[174] Legal Proceedings The company is engaged in various ongoing lawsuits and governmental proceedings, none of which are expected to have a material adverse effect - The company is involved in ongoing litigation but does not expect any of it to have a material adverse effect on its financial condition or results[175] Mine Safety Disclosures Not applicable, as the company has no mine safety disclosures - None[176] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities OUTFRONT Media Inc.'s common stock trades on the NYSE, and as a REIT, the company must distribute at least 90% of its taxable income annually - The company's common stock trades on the New York Stock Exchange under the ticker symbol "OUT"[179] - To maintain REIT status, the company must distribute at least 90% of its REIT taxable income annually, with the board determining dividends based on results, financial condition, and other factors[181] - For tax purposes in 2023, distributed dividends were characterized as approximately 84.3% ordinary income, 6.9% capital gain, and 8.8% return of capital[182] [Reserved]](index=41&type=section&id=Item%206.%20%5BReserved%5D) This item is reserved Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, total revenues increased 3% to $1.82 billion, but the company recorded a significant net loss of $430.4 million primarily due to $534.7 million in impairment charges Key Performance Indicators (Year Ended Dec 31) | (in millions, except percentages) | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $ 1,820.6 | $ 1,772.1 | 3% | | Organic revenues | $ 1,805.4 | $ 1,757.9 | 3% | | Operating income (loss) | $ (258.4) | $ 287.7 | * | | Adjusted OIBDA | $ 451.0 | $ 472.4 | (5)% | | Net income (loss) attributable to OUTFRONT Media Inc. | $ (430.4) | $ 147.9 | * | | FFO attributable to OUTFRONT Media Inc. | $ 130.0 | $ 325.2 | (60)% | | AFFO attributable to OUTFRONT Media Inc. | $ 270.6 | $ 311.3 | (13)% | - Total revenues for 2023 increased by 3% to $1.82 billion, driven by a 4% increase in Billboard revenues, which was partially offset by a 3% decrease in Transit and other revenues due to weaker national advertising market conditions[218][219][221] - The company recorded impairment charges of $534.7 million in 2023, which included a $47.6 million goodwill impairment and a $486.6 million long-lived asset impairment, primarily related to the MTA asset group within the U.S. Transit and Other reporting unit[234][264] - In November 2023, the company issued $450.0 million of 7.375% Senior Secured Notes due 2031 and used the proceeds to redeem its 6.250% Senior Unsecured Notes due 2025, resulting in an $8.1 million loss on extinguishment of debt[238][294][295] - Under the MTA agreement, the company incurred $43.7 million in equipment deployment costs in 2023, but due to revised revenue forecasts, the company does not expect to recoup these costs and recorded significant impairment charges against the related assets[281][318] Results of Operations For the year ended December 31, 2023, total revenues grew 3% to $1.82 billion, while total expenses surged 40% to $2.08 billion, resulting in a net loss of $430.4 million Revenues by Type (Year Ended Dec 31) | (in millions) | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Billboard | $ 1,444.9 | $ 1,384.7 | 4% | | Transit and other | $ 375.7 | $ 387.4 | (3)% | | Total revenues | $ 1,820.6 | $ 1,772.1 | 3% | Expenses (Year Ended Dec 31) | (in millions) | 2023 | 2022 | % Change | | :--- | :--- | :--- | :--- | | Operating | $ 968.3 | $ 911.4 | 6% | | Selling, general and administrative | $ 429.7 | $ 422.1 | 2% | | Net (gain) loss on dispositions | $ (14.2) | $ 0.2 | * | | Impairment charges | $ 534.7 | $ — | * | | Depreciation | $ 79.3 | $ 77.4 | 2% | | Amortization | $ 81.2 | $ 73.3 | 11% | | Total expenses | $ 2,079.0 | $ 1,484.4 | 40% | - Billboard property lease expenses increased to 35% of billboard revenues in 2023 from 33% in 2022, partly due to a $5.2 million out-of-period adjustment[228] - Transit franchise expenses rose to 71% of transit display revenues in 2023 from 67% in 2022, primarily due to higher guaranteed minimum annual payments to the MTA[229] - A net gain on dispositions of $14.2 million was recorded in 2023, mainly from the sale of land and structures in Los Angeles, CA[233] Liquidity and Capital Resources As of December 31, 2023, the company had a working capital deficit of $195.4 million and total debt of approximately $2.8 billion, with significant capital deployment for the MTA contract Debt Summary (as of Dec 31, 2023) | Debt Instrument | Principal Amount (in millions) | Maturity | | :--- | :--- | :--- | | AR Facility (Short-term) | $ 65.0 | 2025 | | Term Loan | $ 598.9 | 2026 | | 7.375% Senior Secured Notes | $ 450.0 | 2031 | | 5.000% Senior Unsecured Notes | $ 650.0 | 2027 | | 4.250% Senior Unsecured Notes | $ 500.0 | 2029 | | 4.625% Senior Unsecured Notes | $ 500.0 | 2030 | | Total Debt (Principal) | $ 2,763.9 | | - The company's working capital deficit increased to $195.4 million at year-end 2023 from $161.2 million in 2022, driven by increased short-term debt and accrued costs[279] - Net cash flow from operating activities was stable at $254.2 million, while cash used for investing activities decreased significantly to $107.5 million from $449.5 million, mainly due to lower acquisition spending[302][303][304] - The company has an "at-the-market" (ATM) equity offering program with approximately $232.5 million of remaining capacity as of December 31, 2023, though no shares were sold under it during the year[299] Critical Accounting Policies The company's critical accounting policies involve significant judgment regarding the MTA Agreement, goodwill, and long-lived assets, leading to substantial impairment charges in 2023 - MTA Agreement: Due to stalled revenue recovery and a reduced forecast, the company determined it would not recoup prepaid MTA equipment deployment costs, leading to a reclassification of $385.0 million to Intangible Assets and a subsequent impairment charge of $443.1 million against the MTA long-lived asset group in Q2 2023[318] - Goodwill: An interim impairment analysis was triggered for the U.S. Transit and Other reporting unit in Q2 2023 due to underperformance, resulting in an impairment charge of $47.6 million, representing the entire goodwill balance of the reporting unit[324][327] - Long-Lived Assets: The underperformance of the U.S. Transit business triggered an impairment test, leading to total impairment charges of $463.5 million in Q2, $12.1 million in Q3, and $11.0 million in Q4 2023, primarily related to the MTA asset group[333][334] Quantitative and Qualitative Disclosures About Market Risk The company is exposed to market risks from commodity prices, foreign currency exchange rates, and interest rates, with a 0.25% change in rates affecting annual interest expense by approximately $1.7 million - The company is exposed to commodity price risk for electricity to power its displays, but does not currently use derivatives to mitigate it[337][338] - Foreign currency translation risk exists for the Canadian business, with unrecognized foreign currency losses of $6.1 million as of year-end 2023 to be included in the gain or loss upon the sale of the Canadian business[339] - The company is subject to interest rate risk on its variable-rate debt, where a 1/4% (25 basis point) change in interest rates would result in an approximate $1.7 million change in annual interest expense on its Term Loan and AR Facility combined[342][343] Financial Statements and Supplementary Data This section contains the audited consolidated financial statements for 2023, including significant impairment charges totaling $534.7 million and details of the pending Canadian business sale Consolidated Statement of Operations Highlights (Year Ended Dec 31) | (in millions) | 2023 | 2022 | | :--- | :--- | :--- | | Total revenues | $ 1,820.6 | $ 1,772.1 | | Operating income (loss) | $ (258.4) | $ 287.7 | | Impairment charges | $ 534.7 | $ — | | Net income (loss) attributable to OUTFRONT Media Inc. | $ (430.4) | $ 147.9 | Consolidated Statement of Financial Position Highlights (As of Dec 31) | (in millions) | 2023 | 2022 | | :--- | :--- | :--- | | Total current assets | $ 397.6 | $ 390.4 | | Total assets | $ 5,582.9 | $ 5,990.0 | | Total current liabilities | $ 593.0 | $ 551.6 | | Long-term debt, net | $ 2,676.5 | $ 2,626.0 | | Total liabilities | $ 4,852.8 | $ 4,640.8 | | Total equity | $ 730.1 | $ 1,349.2 | - The independent auditor's report from PricewaterhouseCoopers LLP identified the recoverability of Prepaid MTA Equipment Deployment Costs and the Long-Lived Asset Interim Impairment Assessment for the MTA Asset Group as critical audit matters due to significant management judgment and auditor subjectivity[357][358][359] - Note 12 details the pending sale of the Canadian business, with assets held for sale totaling $248.9 million and liabilities held for sale totaling $115.0 million related to this transaction as of December 31, 2023[498][501] Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[582] Controls and Procedures Management concluded that disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2023 - Management concluded that disclosure controls and procedures were effective as of December 31, 2023[583] - Management concluded that internal control over financial reporting was effective as of December 31, 2023, based on the COSO framework, and this assessment was audited by PricewaterhouseCoopers LLP[584] Other Information The company reports no other information under this item - None[586] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[587] Part III Directors, Executive Officers and Corporate Governance Information regarding directors, executive officers, and corporate governance is incorporated by reference from the company's 2024 Proxy Statement - The required information is incorporated by reference from the registrant's Proxy Statement for the 2024 Annual Meeting of Stockholders[592] Executive Compensation Information regarding executive compensation is incorporated by reference from the company's 2024 Proxy Statement - The required information is incorporated by reference from the registrant's Proxy Statement for the 2024 Annual Meeting of Stockholders[593] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information regarding security ownership and related stockholder matters is incorporated by reference from the company's 2024 Proxy Statement - The required information is incorporated by reference from the registrant's Proxy Statement for the 2024 Annual Meeting of Stockholders[594] Certain Relationships and Related Transactions, and Director Independence Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's 2024 Proxy Statement - The required information is incorporated by reference from the registrant's Proxy Statement for the 2024 Annual Meeting of Stockholders[595] Principal Accounting Fees and Services Information regarding principal accounting fees and services is incorporated by reference from the company's 2024 Proxy Statement - The required information is incorporated by reference from the registrant's Proxy Statement for the 2024 Annual Meeting of Stockholders[596] Part IV Exhibits, Financial Statement Schedules This section lists the financial statements and schedules filed as part of the Annual Report on Form 10-K, along with an index of all exhibits - This item lists the financial statements and schedules included in Item 8[598] - An index of all exhibits filed with the Form 10-K is provided, starting on page 112[610] Form 10-K Summary The company provides no summary under this item - None[611]