OUTFRONT MEDIA INC.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") should be read in conjunction with our historical
consolidated financial statements and the notes thereto in "Item 8. Financial
Statements and Supplementary Data." This MD&A contains forward-looking
statements that involve numerous risks and uncertainties. The forward-looking
statements are subject to a number of important factors, including, but not
limited to, those factors discussed in "Item 1A. Risk Factors" and the
"Cautionary Statement Regarding Forward-Looking Statements" section of this
Annual Report on Form 10-K, that could cause our actual results to differ
materially from the results described herein or implied by such forward-looking
statements. Management's discussion and analysis of financial condition and
results of operations for the year ended December 31, 2018 , as compared to the
year ended December 31, 2017 is included in "Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations" of our Annual Report
on Form 10-K for the year ended December 31, 2018 , filed with the Securities and
Exchange Commission (the "SEC ") on February 27, 2019 ,
Overview
OUTFRONT Media is a real estate investment trust ("REIT"), which provides advertising space ("displays") on out-of-home advertising structures and sites inthe United States (the "U.S.") andCanada . We manage our operations through three operating segments-(1)U.S. Billboard and Transit, which is included in ourU.S. Media reportable segment, (2) International and (3) Sports Marketing. International and Sports Marketing do not meet the criteria to be a reportable segment and accordingly, are both included in Other (see Item 8., Note 20. Segment Information to the Consolidated Financial Statements).
Business
We are one of the largest providers of advertising space on out-of-home advertising structures and sites across theU.S. andCanada . Our inventory consists of billboard displays, which are primarily located on the most heavily traveled highways and roadways in top Nielsen Designated Market Areas ("DMAs"), and transit advertising displays operated under exclusive multi-year contracts with municipalities in large cities across theU.S. andCanada . We also have marketing and multimedia rights agreements with colleges, universities and other educational institutions, which entitle us to operate on-campus advertising displays, as well as manage marketing opportunities, media rights and experiential entertainment at sporting events. In total, we have displays in all of the 25 largest markets in theU.S. and 150 markets in theU.S. andCanada . Our top market, high profile location focused portfolio includes sites in and around bothGrand Central Station andTimes Square inNew York , various locations alongSunset Boulevard inLos Angeles , and theBay Bridge inSan Francisco . The breadth and depth of our portfolio provides our customers with a range of options to address their marketing objectives, from national, brand-building campaigns to hyper-local campaigns that drive customers to the advertiser's website or retail location "one mile down the road." In addition to providing location-based displays, we also focus on delivering mass and targeted audiences to our customers. Geopath, the out-of-home advertising industry's audience measurement system, enables us to build campaigns based on the size and demographic composition of audiences. As part of our technology platform, we are developing solutions for enhanced demographic and location targeting, and engaging ways to connect with consumers on-the-go. Additionally, our OUTFRONT Mobile Network and social influence add-on products allow our customers to further leverage location targeting with interactive mobile advertising and social sharing amplification. We believe out-of-home continues to be an attractive form of advertising, as our displays are always viewable and cannot be turned off, skipped, blocked or fast-forwarded. Further, out-of-home advertising can be an effective "stand-alone" medium, as well as an integral part of a campaign to reach audiences using multiple forms of media, including television, radio, print, online, mobile and social media advertising platforms. We provide our customers with a differentiated advertising solution at an attractive price point relative to other forms of advertising. In addition to leasing displays, we provide other value-added services to our customers, such as pre-campaign category research, consumer insights, print production and post-campaign tracking and analytics.U.S. Media. OurU.S. Media segment generated 23% of its revenues in theNew York City metropolitan area in 2019, 22% in 2018 and 23% in 2017, and generated 16% in theLos Angeles metropolitan area in each of 2019, 2018 and 2017. OurU.S. Media segment generated Revenues of$1,628.7 million in 2019,$1,466.8 million in 2018 and$1,406.5 million in 2017, and Operating income before Depreciation, Amortization, Net (gain) loss on dispositions, Stock-based compensation, Restructuring charges and an Impairment charge ("Adjusted OIBDA") of$546.3 million in 2019,$500.2 million in 2018 and$478.1 million in 2017. (See the "Segment Results of Operations" section of this MD&A.) 38 -------------------------------------------------------------------------------- Other (includes International and Sports Marketing). Other generated Revenues of$153.5 million in 2019,$139.4 million in 2018 and$114.0 million in 2017, and Adjusted OIBDA of$22.1 million in 2019,$17.3 million in 2018 and$8.4 million in 2017. Economic Environment Our revenues and operating results are sensitive to fluctuations in advertising expenditures, general economic conditions and other external events beyond our control. Business Environment The outdoor advertising industry is fragmented, consisting of several companies operating on a national basis, as well as hundreds of smaller regional and local companies operating a limited number of displays in a single or a few local geographic markets. We compete with these companies for both customers and structure and display locations. We also compete with other media, including online, mobile and social media advertising platforms and traditional advertising platforms (such as television, radio, print and direct mail marketers). In addition, we compete with a wide variety of out-of-home media, including advertising in shopping centers, airports, movie theaters supermarkets and taxis. Increasing the number of digital displays in our prime audience locations is an important element of our organic growth strategy, as digital displays have the potential to attract additional business from both new and existing customers. We believe digital displays are attractive to our customers because they allow for the development of richer and more visually engaging messages, provide our customers with the flexibility both to target audiences by time of day and to quickly launch new advertising campaigns, and eliminate or greatly reduce print production and installation costs. In addition, digital displays enable us to run multiple advertisements on each display. Digital billboard displays generate approximately four times more revenue per display on average than traditional static billboard displays. Digital billboard displays also incur, on average, approximately two to four times more costs, including higher variable costs associated with the increase in revenue than traditional static billboard displays. As a result, digital billboard displays generate higher profits and cash flows than traditional static billboard displays. The majority of our digital billboard displays were converted from traditional static billboard displays. In 2017, we commenced deployment of state-of-the-art digital transit displays in connection with several transit franchises and are planning to increase deployments significantly over the coming years. Once the digital transit displays have been deployed at scale, we expect that revenue generated on digital transit displays will be a multiple of the revenue generated on comparable static transit displays. We intend to incur significant equipment deployment costs and capital expenditures in the coming years to continue increasing the number of digital displays in our portfolio. We have built or converted 107 new digital billboard displays inthe United States and 13 inCanada in 2019. Additionally, in 2019, we installed 14 small-format digital displays and entered into marketing arrangements to sell advertising on 50 third-party digital billboard displays in theU.S. and 27 inCanada . In 2019, we have built, converted or replaced 3,781 digital transit and other displays inthe United States . The following table sets forth information regarding our digital displays. Digital Revenues (in millions) Number of Digital Displays for the Year Ended December 31, 2019 as of December 31, 2019(a) Digital Digital Digital Transit Total Digital Transit and Total Digital Billboard and Other Digital Location Billboard Other Revenues Displays Displays Displays United States$ 222.7 $ 112.3 $ 335.0 1,121 6,145 7,266 Canada 30.0 0.1 30.1 222 93 315 Total$ 252.7 $ 112.4 $ 365.1 1,343 6,238 7,581
(a) Digital display amounts (1) include 2,172 displays reserved for transit
agency use and (2) exclude all displays under our multimedia rights
agreements with colleges, universities and other educational institutions.
Our number of digital displays is impacted by acquisitions, dispositions,
management agreements, the net effect of new and lost billboards, and the net
effect of won and lost franchises in the period.
Our revenues and profits may fluctuate due to seasonal advertising patterns and influences on advertising markets. Typically, our revenues and profits are highest in the fourth quarter, during the holiday shopping season, and lowest in the first quarter, as advertisers adjust their spending following the holiday shopping season. We have a diversified base of customers across various industries. During 2019, our largest categories of advertisers were retail, professional services and computers/internet, which represented 9%, 8%, and 8% of our totalU.S. Media segment 39 -------------------------------------------------------------------------------- revenues, respectively. During 2018, our largest categories of advertisers were retail, computers/internet and healthcare/pharmaceuticals, which represented 9%, 8% and 8% of our totalU.S. Media segment revenues. During 2017, our largest categories of advertisers were retail, healthcare/pharmaceuticals and television, which represented 9%, 8% and 7% of our totalU.S. Media segment revenues, respectively. Our large-scale portfolio allows our customers to reach a national audience and also provides the flexibility to tailor campaigns to specific regions or markets. In 2019, we generated approximately 44% of ourU.S. Media segment revenues from national advertising campaigns, compared to 44% in 2018 and 45% in 2017. Our transit businesses require us to periodically obtain and renew contracts with municipalities and other governmental entities. When these contracts expire, we generally must participate in highly competitive bidding processes in order to obtain or renew contracts.
Key Performance Indicators
Our management reviews our performance by focusing on the indicators described below.
Several of our key performance indicators are not prepared in conformity with Generally Accepted Accounting Principles inthe United States of America ("GAAP"). We believe these non-GAAP performance indicators are meaningful supplemental measures of our operating performance and should not be considered in isolation of, or as a substitute for, their most directly comparable GAAP financial measures. Year Ended December
31,
(in millions, except percentages) 2019 2018 % Change Revenues$ 1,782.2 $ 1,606.2 11 % Organic revenues(a)(b) 1,782.2 1,604.5 11 Operating income 309.1 234.8 32 Adjusted OIBDA(b) 522.4 479.5 9 Adjusted OIBDA(b) margin 29 % 30 % Funds from operations ("FFO")(b) attributable to OUTFRONT Media Inc. 295.3 301.0 (2 ) Adjusted FFO ("AFFO")(b) attributable to OUTFRONT Media Inc. 334.1
299.7 11
Net income attributable to
(a) Organic revenues exclude the impact of foreign currency exchange rates
("non-organic revenues"). We provide organic revenues to understand the
underlying growth rate of revenue excluding the impact of non-organic revenue
items. Our management believes organic revenues are useful to users of our
financial data because it enables them to better understand the level of
growth of our business period to period. Since organic revenues are not
calculated in accordance with GAAP, it should not be considered in isolation
of, or as a substitute for, revenues as an indicator of operating
performance. Organic revenues, as we calculate it, may not be comparable to
similarly titled measures employed by other companies.
(b) See the "Reconciliation of Non-GAAP Financial Measures" and "Revenues"
sections of this MD&A for reconciliations of Operating income to Adjusted
OIBDA, Net income attributable to
to organic revenues.
Adjusted OIBDA
We calculate Adjusted OIBDA as operating income (loss) before depreciation,
amortization, net (gain) loss on dispositions, stock-based compensation,
restructuring charges and impairment charges. We calculate Adjusted OIBDA margin
by dividing Adjusted OIBDA by total revenues. Adjusted OIBDA and Adjusted OIBDA
margin are among the primary measures we use for managing our business,
evaluating our operating performance and planning and forecasting future
periods, as each is an important indicator of our operational strength and
business performance. Our management believes users of our financial data are
best served if the information that is made available to them allows them to
align their analysis and evaluation of our operating results along the same
lines that our management uses in managing, planning and executing our business
strategy. Our management also believes that the presentations of Adjusted OIBDA
and Adjusted OIBDA margin, as supplemental measures, are useful in evaluating
our business because eliminating certain non-comparable items highlight
operational trends in our business that may not otherwise be apparent when
relying solely on GAAP financial measures. It is management's opinion that these
supplemental measures provide users of our financial data with an important
perspective on our operating performance and also make it easier for users of
our financial data to compare our results with other companies that have
different financing and capital structures or tax rates.
40
--------------------------------------------------------------------------------FFO and AFFO
When used herein, references to "FFO" and "AFFO" mean "FFO attributable toOUTFRONT Media Inc. " and "AFFO attributable toOUTFRONT Media Inc. ," respectively. We calculate FFO in accordance with the definition established by theNational Association of Real Estate Investment Trusts ("NAREIT"). FFO reflects net income (loss) attributable toOUTFRONT Media Inc. adjusted to exclude gains and losses from the sale of real estate assets, impairment charges, depreciation and amortization of real estate assets, amortization of direct lease acquisition costs and the same adjustments for our equity-based investments and non-controlling interests, as well as the related income tax effect of adjustments, as applicable. We calculate AFFO as FFO adjusted to include cash paid for direct lease acquisition costs as such costs are generally amortized over a period ranging from four weeks to one year and therefore are incurred on a regular basis. AFFO also includes cash paid for maintenance capital expenditures since these are routine uses of cash that are necessary for our operations. In addition, AFFO excludes restructuring charges and losses on extinguishment of debt, as well as certain non-cash items, including non-real estate depreciation and amortization, stock-based compensation expense, accretion expense, the non-cash effect of straight-line rent, amortization of deferred financing costs and the same adjustments for our non-controlling interests, as well as the non-cash portion of income taxes, and the related income tax effect of adjustments, as applicable. We use FFO and AFFO measures for managing our business and for planning and forecasting future periods, and each is an important indicator of our operational strength and business performance, especially compared to other REITs. Our management believes users of our financial data are best served if the information that is made available to them allows them to align their analysis and evaluation of our operating results along the same lines that our management uses in managing, planning and executing our business strategy. Our management also believes that the presentations of FFO and AFFO, as supplemental measures, are useful in evaluating our business because adjusting results to reflect items that have more bearing on the operating performance of REITs highlight trends in our business that may not otherwise be apparent when relying solely on GAAP financial measures. It is management's opinion that these supplemental measures provide users of our financial data with an important perspective on our operating performance and also make it easier to compare our results to other companies in our industry, as well as to REITs. Since Adjusted OIBDA, Adjusted OIBDA margin, FFO and AFFO are not measures calculated in accordance with GAAP, they should not be considered in isolation of, or as a substitute for, operating income (loss), net income (loss) attributable toOUTFRONT Media Inc. , net income (loss) before allocation of non-controlling interests, and revenues, the most directly comparable GAAP financial measures, as indicators of operating performance. These measures, as we calculate them, may not be comparable to similarly titled measures employed by other companies. In addition, these measures do not necessarily represent funds available for discretionary use and are not necessarily a measure of our ability to fund our cash needs.
Reconciliation of Non-GAAP Financial Measures
The following table reconciles Operating income to Adjusted OIBDA, and Net
income attributable to
Year Ended December 31,
(in millions) 2019 2018
Total revenues $ 1,782.2 $ 1,606.2
Operating income $ 309.1 $ 234.8
Restructuring charges 0.3 2.1
Net gain on dispositions (3.8 ) (5.5 )
Impairment charge - 42.9
Depreciation 87.3 85.9
Amortization 107.2 99.1
Stock-based compensation 22.3 20.2
Adjusted OIBDA $ 522.4 $ 479.5
Adjusted OIBDA margin 29 % 30 %
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Year Ended December 31 ,
(in millions) 2019 2018
Net income attributable to
107.9
Depreciation of billboard advertising structures 66.0
69.1
Amortization of real estate-related intangible assets 45.0
42.7
Amortization of direct lease acquisition costs(a) 48.2
43.2
Net gain on disposition of real estate assets (3.8 ) (5.5 ) Impairment charge -
42.9
Adjustment related to equity-based investments 0.1
0.2
Adjustment related to non-controlling interests (0.3 )
-
Income tax effect of adjustments(b) -
0.5
FFO attributable toOUTFRONT Media Inc. 295.3
301.0
Non-cash portion of income taxes 0.4 (3.5 ) Cash paid for direct lease acquisition costs(a) (47.1 ) (41.3 ) Maintenance capital expenditures (18.1 ) (18.6 ) Restructuring charges 0.3 2.1 Other depreciation 21.3 16.8 Other amortization 14.0 13.2 Stock-based compensation 22.3 20.2 Non-cash effect of straight-line rent 6.9
1.9
Accretion expense 2.5
2.4
Amortization of deferred financing costs 7.9
5.7
Loss on extinguishment of debt 28.5
-
Adjustment related to non-controlling interests (0.1 )
-
Income tax effect of adjustments(c) - (0.2 ) AFFO attributable to OUTFRONT Media Inc.$ 334.1 $
299.7
(a) Variable commissions directly associated with billboard revenues.
(b) Income tax effect related to Net gain on disposition of real estate assets.
(c) Income tax effect related to Restructuring charges.
FFO attributable toOUTFRONT Media Inc. in 2019 of$295.3 million decreased$5.7 million , or 2%, compared to 2018, primarily due an impairment charge recorded in 2018, partially offset by higher net income and higher amortization of direct lease acquisition costs. AFFO attributable toOUTFRONT Media Inc. in 2019 of$334.1 million increased$34.4 million , or 11%, compared to 2018, primarily due to higher operating income, including an impairment recorded in 2018, higher amortization and higher non-cash straight-line rent, partially offset by higher interest expense and higher cash paid for direct lease acquisition costs.
Analysis of Results of Operations
Revenues
We derive Revenues primarily from providing advertising space to customers on
our advertising structures and sites. Our contracts with customers generally
cover periods ranging from four weeks to one year. Revenues from billboard
displays are recognized as rental income on a straight-line basis over the
contract term. Transit and other revenues are recognized over the contract
period. (See Item 8., Note 12. Revenues to the Consolidated Financial
Statements.)
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Year Ended December 31,
(in millions, except percentages) 2019 2018 % Change
Revenues:
Billboard $ 1,189.9 $ 1,112.4 7 %
Transit and other 592.3 493.8 20
Total revenues 1,782.2 1,606.2 11
Organic revenues(a):
Billboard $ 1,189.9 $ 1,111.0 7
Transit and other 592.3 493.5 20
Total organic revenues(a) 1,782.2 1,604.5 11
Non-organic revenues:
Billboard - 1.4 *
Transit and other - 0.3 *
Total non-organic revenues - 1.7 *
Total revenues $ 1,782.2 $ 1,606.2 11
* Calculation is not meaningful.
(a) Organic revenues exclude the impact of foreign currency exchange rates
("non-organic revenues").
Total revenues increased
In 2018, non-organic revenues reflect the impact of foreign currency exchange rates.
Total billboard revenues increased$77.5 million , or 7%, in 2019 compared to 2018, primarily due to an increase in average revenue per display (yield) and the conversion of traditional static billboard displays to digital billboard displays. Total transit and other revenues increased$98.5 million , or 20%, in 2019 compared to 2018, primarily due to growth in digital displays, an increase in average revenue per display (yield), the net effect of won and lost franchises in the period (primarily the San Francisco Bay Area Rapid Transit ("BART") transit franchise) and an increase in third-party digital equipment sales.
Expenses
Year Ended December 31,
(in millions, except percentages) 2019 2018 % Change
Expenses:
Operating$ 958.6 $ 859.9 11
%
Selling, general and administrative 323.5 287.0 13 Restructuring charges 0.3 2.1 (86 ) Net gain on dispositions (3.8 ) (5.5 ) (31 ) Impairment charge - 42.9 * Depreciation 87.3 85.9 2 Amortization 107.2 99.1 8 Total expenses$ 1,473.1 $ 1,371.4 7
* Calculation is not meaningful.
Operating Expenses
Our operating expenses are composed of the following:
Billboard property lease expenses. These expenses reflect the cost of leasing
the real property on which our billboards are mounted. These lease agreements
have terms varying between one month and multiple years, and usually provide
renewal
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options. Rental expenses are comprised of a fixed rental amounts and under
certain agreements, also include contingent rent, which varies based on the
revenues we generate from the leased site. The fixed portion of property leases
are generally paid in advance for periods ranging from one to twelve months and
expensed evenly over the contract term. Contingent rent is generally paid in
arrears and is expensed as incurred when the related revenues are recognized.
Transit franchise expenses. These expenses reflect costs charged by
municipalities and transit operators under transit advertising contracts and are
generally calculated based on a percentage of the revenues we generate under the
contract, with a minimum guarantee. The costs that are determined based on a
percentage of revenues are expensed as incurred when the related revenues are
recognized, and the minimum guarantee is expensed over the contract term.
Posting, maintenance and other site-related expenses. These expenses primarily reflect costs associated with posting and rotation, materials, repairs and maintenance, utilities, property taxes and direct costs associated with our Sports Marketing operating segment.
Year Ended December 31,
(in millions, except percentages) 2019 2018 % Change
Operating expenses:
Billboard property lease $ 409.1 $ 384.1 7 %
Transit franchise 283.9 233.8 21
Posting, maintenance and other 265.6 242.0 10
Total operating expenses $ 958.6 $ 859.9 11
Billboard property lease expenses represented 34% of billboard revenues in 2019 and 35% in 2018.
Transit franchise expenses represented 59% of transit display revenues in each of 2019 and 2018.
Billboard property lease and transit franchise expenses increased by
Posting, maintenance and other expenses as a percentage of Revenues were 15% in each of 2019 and 2018. Posting, maintenance and other expenses increased$23.6 million , or 10%, in 2019 compared to 2018, primarily due to higher compensation and benefits-related costs, higher posting and rotation costs, higher costs related to third-party digital equipment sales and higher expenses related to our Sports Marketing operating segment.
Selling, General and Administrative Expenses ("SG&A")
SG&A expenses represented 18% of Revenues in each of 2019 and 2018. SG&A expenses increased$36.5 million , or 13%, in 2019 compared to 2018, primarily due to higher compensation and other employee-related costs, higher professional fees and higher bad debt expense.
Restructuring Charges
In 2019, we recorded restructuring charges of$0.3 million for the elimination of a corporate management position. In 2018, we recorded restructuring charges of$2.1 million for severance charges associated with the reorganization of various departments, for severance charges associated with the reorganization of our Sports Marketing operating segment management team and the elimination of a corporate management position.
Net gain on dispositions was
Impairment Charge
As a result of an impairment analysis performed during the second quarter of 2018, we determined that the carrying value of our Canadian reporting unit exceeded its fair value and we recorded an impairment charge of$42.9 million in the Consolidated Statements of Operations. 44 --------------------------------------------------------------------------------
Depreciation
Depreciation increased$1.4 million , or 2%, in 2019 compared to 2018, primarily due to software and related equipment utilized for the operation of our digital displays. Amortization
Amortization increased
Interest Expense
Interest expense, net, was$134.9 million (including$7.9 million of deferred financing costs) in 2019 and$125.7 million (including$5.7 million of deferred financing costs) in 2018. The increase in Interest expense, net, in 2019 compared to 2018, was primarily due to the timing of new debt issuances and redemptions of senior unsecured notes, a higher outstanding average debt balance, higher amortization of deferred financing costs and higher interest rates. (See the "Liquidity and Capital Resources" section of this MD&A.)
Loss on Extinguishment of Debt
In 2019, we recorded a loss on extinguishment of debt of$28.5 million relating to the redemption of our 5.250% Senior Unsecured Notes due 2022 (the "2022 Notes") and our 5.875% Senior Unsecured Notes due 2025 (the "2025 Notes" and together with the 2022 Notes, the "Old Notes").
Provision for Income Taxes
The Provision for income taxes was$10.9 million in 2019, an increase of$6.0 million , due primarily to improved performance of our taxable REIT subsidiaries ("TRSs") and a$3.0 million settlement of a 2016IRS audit, including the related state income taxes and interest. The effective income tax rate was 7.5% for 2019 and 4.7% for 2018.
Net Income
Net income before allocation to non-controlling interests was$140.6 million in 2019, an increase of$32.7 million compared to 2018, due primarily to higher operating income, including the impact of an impairment charge recorded in 2018, partially offset by a loss on extinguishment of debt and higher interest expense. 45 --------------------------------------------------------------------------------
Segment Results of Operations
We present Adjusted OIBDA as the primary measure of profit and loss for our reportable segments. (See the "Key Performance Indicators" section of this MD&A and Item 8., Note 20. Segment Information to the Consolidated Financial Statements.)
We manage our operations through three operating segments-(1)U.S. Billboard and Transit, which is included in ourU.S. Media reportable segment, (2) International and (3) Sports Marketing. International and Sports Marketing do not meet the criteria to be a reportable segment and accordingly, are both included in Other. Our segment reporting therefore includesU.S. Media and Other.
The following table presents our Revenues, Adjusted OIBDA and Operating income (loss) by segment in 2019 and 2018.
Year Ended December 31,
(in millions) 2019 2018
Revenues:
U.S. Media $ 1,628.7 $ 1,466.8
Other 153.5 139.4
Total revenues $ 1,782.2 $ 1,606.2
Operating income $ 309.1 $ 234.8
Restructuring charges 0.3 2.1
Net gain on dispositions (3.8 ) (5.5 )
Impairment charge - 42.9
Depreciation 87.3 85.9
Amortization 107.2 99.1
Stock-based compensation(a) 22.3 20.2
Total Adjusted OIBDA $ 522.4 $ 479.5
Adjusted OIBDA:
U.S. Media $ 546.3 $ 500.2
Other 22.1 17.3
Corporate (46.0 ) (38.0 )
Total Adjusted OIBDA $ 522.4 $ 479.5
Operating income (loss):
U.S. Media $ 376.3 $ 342.8
Other 1.4 (49.4 )
Corporate (68.6 ) (58.6 )
Total operating income $ 309.1 $ 234.8 (a) Stock-based compensation is classified as Corporate expense.
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Year Ended December 31,
(in millions, except percentages) 2019 2018 % Change
Revenues:
Billboard $ 1,114.9 $ 1,040.8 7 %
Transit and other 513.8 426.0 21
Total revenues 1,628.7 1,466.8 11
Operating expenses (860.7 ) (767.9 ) 12
SG&A expenses (221.7 ) (198.7 ) 12
Adjusted OIBDA $ 546.3 $ 500.2 9
Adjusted OIBDA margin 34 % 34 %
Operating income $ 376.3 $ 342.8 10
Restructuring charges - 0.9 *
Net gain on dispositions (3.9 ) (5.3 ) (26 )
Depreciation and amortization 173.9 161.8 7
Adjusted OIBDA $ 546.3 $ 500.2 9
* Calculation is not meaningful.
Total revenues in theU.S. Media segment increased$161.9 million , or 11%, in 2019 compared to 2018, reflecting an increase in average revenue per display (yield), growth in transit digital displays and the conversion of traditional static billboard displays to digital billboard displays. We generated approximately 44% in each of 2019 and 2018 of revenues in theU.S. Media segment from national advertising campaigns. Billboard revenues in theU.S. Media segment increased$74.1 million , or 7%, in 2019 compared to 2018, reflecting an increase in average revenue per display (yield) and the conversion of traditional static billboard displays to digital billboard displays. Transit and other revenues in theU.S. Media segment increased$87.8 million , or 21%, in 2019 compared to 2018, reflecting growth in digital displays, an increase in average revenue per display (yield) and the net effect of won and lost franchises in the period (primarily the BART transit franchise). Operating expenses in theU.S. Media segment increased$92.8 million , or 12%, in 2019 compared to 2018, primarily due to increased costs related to theNew York Metropolitan Transportation Authority (the "MTA") agreement as a result of increased transit revenues and increased costs related to the BART agreement, and an increase in billboard lease costs. Billboard property lease expenses in theU.S. Media segment represented 34% of billboard revenues in each of 2019 and 2018, and transit franchise expenses represented 59% of transit revenues in each of 2019 and 2018. SG&A expenses in theU.S. Media segment increased$23.0 million , or 12%, in 2019 compared to 2018, primarily due to higher compensation and other employee-related costs, higher professional fees and higher bad debt expense.
Adjusted OIBDA in the
47
--------------------------------------------------------------------------------Other
Year Ended December 31,
(in millions, except percentages) 2019 2018 % Change
Revenues:
Billboard $ 75.0 $ 71.6 5 %
Transit and other 78.5 67.8 16
Total revenues $ 153.5 $ 139.4 10
Organic revenues(a):
Billboard $ 75.0 $ 70.2 7
Transit and other 78.5 67.5 16
Total organic revenues(a) 153.5 137.7 11
Non-organic revenues:
Billboard - 1.4 *
Transit and other - 0.3 *
Total non-organic revenues - 1.7 *
Total revenues 153.5 139.4 10
Operating expenses (97.9 ) (92.0 ) 6
SG&A expenses (33.5 ) (30.1 ) 11
Adjusted OIBDA $ 22.1 $ 17.3 28
Adjusted OIBDA margin 14 % 12 %
Operating income (loss) $ 1.4 $ (49.4 ) *
Restructuring charges - 0.8 *
Net (gain) loss on dispositions 0.1 (0.2 ) *
Impairment charge - 42.9 *
Depreciation and amortization 20.6 23.2 (11 )
Adjusted OIBDA $ 22.1 $ 17.3 28
* Calculation is not meaningful.
(a) Organic revenues exclude revenues associated with the impact of foreign
currency exchange rates ("non-organic revenues").
Total Other revenues increased$14.1 million , or 10%, in 2019 compared to 2018, reflecting improved performance in our Sports Marketing operating segment, an increase in third-party digital equipment sales and improved performance inCanada . Other operating expenses increased$5.9 million , or 6%, in 2019 compared to 2018, driven by higher costs related to third-party digital equipment sales and higher costs related to our Sports Marketing operating segment, partially offset by lower costs inCanada . Other SG&A expenses increased$3.4 million , or 11%, in 2019 compared to 2018, primarily driven by higher expenses related to our Sports Marketing operating segment andCanada .
Other Adjusted OIBDA increased
Corporate
Corporate expenses primarily include expenses associated with employees who provide centralized services. Corporate expenses, excluding stock-based compensation and restructuring charges, were$46.0 million in 2019 and$38.0 million in 2018. Corporate expenses increased$8.0 million in 2019 compared to 2018, primarily due to higher compensation-related expenses. 48 --------------------------------------------------------------------------------
Liquidity and Capital Resources
As of December 31, %
(in millions, except percentages) 2019 2018 Change
Assets:
Cash and cash equivalents $ 59.1 $ 52.7 12 %
Restricted cash 1.8 1.4 29
Receivables, less allowances of $12.1 in 2019 and
$10.7 in 2018 290.0 264.9 9
Prepaid lease and franchise costs 8.6 69.3 (88 )
Prepaid MTA equipment deployment costs 55.4 18.9 193
Other prepaid expenses 15.8 13.9 14
Other current assets 5.1 8.4 (39 )
Total current assets 435.8 429.5 1
Liabilities:
Accounts payable 67.9 56.5 20
Accrued compensation 56.1 47.1 19
Accrued interest 26.4 19.1 38
Accrued lease and franchise costs 55.3 44.2 25
Other accrued expenses 34.2 31.2 10
Deferred revenues 29.0 29.8 (3 )
Short-term debt 195.0 160.0 22
Short-term operating lease liabilities 168.3 - *
Other current liabilities 17.8 14.7 21
Total current liabilities 650.0 402.6 61
Working capital $ (214.2 ) $ 26.9 *
* Calculation is not meaningful.
We continually project anticipated cash requirements for our operating, investing and financing needs as well as cash flows generated from operating activities available to meet these needs. Due to seasonal advertising patterns and influences on advertising markets, our revenues and operating income are typically highest in the fourth quarter, during the holiday shopping season, and lowest in the first quarter, as advertisers adjust their spending following the holiday shopping season. Further, certain of our municipal transit contracts, as well as our marketing and multimedia rights agreements with colleges and universities, require guaranteed minimum annual payments to be paid at the beginning of the year. Our short-term cash requirements primarily include payments for operating leases, guaranteed minimum annual payments, equipment deployment costs, capital expenditures, interest and dividends. Funding for short-term cash needs will come primarily from our cash on hand, operating cash flows, our ability to issue debt and equity securities, and borrowing capacity under the Revolving Credit Facility (as defined below), the AR Securitization Facilities (as defined below) or other credit facilities that we may establish. In addition, as part of our growth strategy, we frequently evaluate strategic opportunities to acquire new businesses, assets or digital technology. Consistent with this strategy, we regularly evaluate potential acquisitions, ranging from small transactions to larger acquisitions, which transactions could be funded through cash on hand, additional borrowings, equity or other securities, or some combination thereof. Our long-term cash needs include principal payments on outstanding indebtedness and commitments related to operating leases and franchise and other agreements, including any related guaranteed minimum annual payments, and equipment deployment costs. Funding for long-term cash needs will come from our cash on hand, operating cash flows, our ability to issue debt and equity securities, and borrowing capacity under the Revolving Credit Facility or other credit facilities that we may establish. The working capital deficit as ofDecember 31, 2019 , is primarily due to the impact of the adoption of the new lease accounting standard (see Item 8., Note 2. Summary of Significant Accounting Policies: Adoption of New Accounting Standards to the Consolidated Financial Statements), which resulted in the recognition of short-term operating lease liabilities and a decline in Prepaid lease and transit franchise costs on our Consolidated Statement of Financial Position, partially offset by an increase in Prepaid MTA equipment deployment costs. 49 -------------------------------------------------------------------------------- Under the MTA agreement, we are obligated to deploy, over a number of years, (i) 8,565 digital advertising screens onsubway and train platforms and entrances, (ii) 37,716 smaller-format digital advertising screens on rolling stock, and (iii) 7,829 MTA communications displays, with such deployment amounts being subject to modification as agreed-upon by us and the MTA. In addition, we are obligated to pay to the MTA the greater of a percentage of revenues or a guaranteed minimum annual payment. Incremental revenues that exceed an annual base revenue amount will be retained by us for the cost of deploying advertising and communications displays throughout the transit system. As presented in the table below, MTA equipment deployment costs are being recorded as Prepaid MTA equipment deployment costs and Intangible assets on our Consolidated Statement of Financial Position, and as these costs are recouped from incremental revenues that the MTA would otherwise be entitled to receive, Prepaid MTA equipment deployment costs will be reduced. If incremental revenues generated over the term of the agreement are not sufficient to cover all or a portion of the equipment deployment costs, the costs will not be recouped, which could have an adverse effect on our business, financial condition and results of operation. We expect to utilize incremental third-party financing of approximately$300.0 million within the original four-year time frame to fund equipment deployment costs, of which approximately$140.0 million has been incurred as ofDecember 31, 2019 . As ofDecember 31, 2019 , we have issued surety bonds (in place of letters of credit) in favor of the MTA totaling approximately$136.0 million , which amount is subject to change as equipment installations are completed and revenues are generated. As indicated in the table below, we incurred$150.8 million related to MTA equipment deployment costs in 2019 (which includes equipment deployment costs related to future deployments), for a total of$247.6 million to date, of which$33.9 million had been recouped from incremental revenues to date. As ofDecember 31, 2019 , 4,577 digital displays had been installed, of which 837 installations occurred in the fourth quarter of 2019, for a total of 3,348 installations in 2019. For the full year of 2020, we expect our MTA equipment deployment costs to be approximately$175.0 million . In addition, due to the change in the MTA's revenue share percentage under the agreement, we expect transit franchise operating expenses to gradually increase if our revenues increase over an annual base revenue amount. Beginning Deployment Costs (in millions) Balance Incurred Recoupment Amortization Ending Balance Year Ended December 31, 2019: Prepaid MTA equipment deployment costs$ 79.5 $ 124.2$ (32.2 ) $ - $ 171.5 Intangible assets (franchise agreements) 14.8 26.6 - (3.1 ) 38.3 Total$ 94.3 $ 150.8$ (32.2 ) $ (3.1 ) $ 209.8 Year Ended December 31, 2018: Prepaid MTA equipment deployment costs $ 4.7 $ 76.5$ (1.7 ) $ - $ 79.5 Intangible assets (franchise agreements) 0.9 14.7 - (0.8 ) 14.8 Total $ 5.6 $ 91.2$ (1.7 ) $ (0.8 ) $ 94.3
As of
On
50
--------------------------------------------------------------------------------Debt
Debt, net, consists of the following:
As of
December 31,
(in millions, except percentages) December 31, 2019 2018 Short-term debt: AR Facility $ 105.0$ 85.0 Repurchase Facility 90.0 75.0 Total short-term debt 195.0 160.0 Long-term debt: Term loan 597.5 668.1 Senior unsecured notes: 5.250% senior unsecured notes, due 2022 -
549.7
5.625% senior unsecured notes, due 2024 501.7
502.2
5.875% senior unsecured notes, due 2025 -
450.0
5.000% senior unsecured notes, due 2027 650.0 - 4.625% senior unsecured notes, due 2030 500.0 - Total senior unsecured notes 1,651.7 1,501.9 Debt issuance costs (27.1 ) (20.4 ) Total long-term debt, net 2,222.1 2,149.6 Total debt, net $ 2,417.1$ 2,309.6 Weighted average cost of debt 4.5 % 5.1 % Payments Due by Period (in millions) Total 2020 2021-2022 2023-2024 2025 and thereafter Long-term debt$ 2,250.0 $ - $ -$ 500.0 $ 1,750.0 Interest 780.9 117.7 211.1 188.2 $ 263.9 Total$ 3,030.9 $ 117.7 $ 211.1 $ 688.2 $ 2,013.9 OnNovember 18, 2019 , the Company, along with its wholly-owned subsidiaries,Outfront Media Capital LLC ("Finance LLC ") andOutfront Media Capital Corporation (together withFinance LLC , the "Borrowers"), and other guarantor subsidiaries party thereto, entered into an amendment (the "Amendment") to its credit agreement and its related security agreement, each datedJanuary 31, 2014 (together, and as amended, restated, amended and restated, supplemented or otherwise modified, the "Credit Agreement"). The Amendment provides for, among other things, (i) the extension of the maturity date of the Borrowers' existing revolving credit facility (the "Revolving Credit Facility") fromMarch 16, 2022 , toNovember 18, 2024 , (ii) the extension of the maturity date of the Borrowers' existing term loan (the "Term Loan") fromMarch 16, 2024 , toNovember 18, 2026 , (iii) an increase to the borrowing capacity under the Revolving Credit Facility by$70.0 million to$500.0 million , (iv) a decrease to the outstanding principal balance of the Term Loan, using cash on hand, to$600.0 million , (v) a reduction in the interest rate margins applicable to the Borrowers under the Term Loan from 1.00% to 0.75%, in the case of base rate borrowings, and from 2.00% to 1.75%, in the case of London Interbank Offered Rate ("LIBOR") borrowings, (vi) a reduction in the interest rate margins applicable to the Borrowers under the Revolving Credit Facility from a range of 1.25% to 1.00% to a range of 0.75% to 0.25%, in the case of base rate borrowings, and from a range of 2.25% to 2.00% to 1.75% to 1.25%, in the case of LIBOR borrowings, in each case, based on the Borrowers' leverage ratio, and (vii) revisions to certain provisions of the Credit Agreement to, among other things, update covenants for greater operational and financial flexibility to the Company (including incurrence of additional indebtedness and liens). 51 --------------------------------------------------------------------------------
Term Loan
The interest rate on the Term Loan was 3.5% per annum as ofDecember 31, 2019 . As ofDecember 31, 2019 , a discount of$2.5 million on the Term Loan remains unamortized. The discount is being amortized through Interest expense, net, on the Consolidated Statement of Operations.
Revolving Credit Facility
As ofDecember 31, 2019 , there were no outstanding borrowings under the Revolving Credit Facility. As ofFebruary 25, 2020 , there were$25.0 million of outstanding borrowings under the Revolving Credit Facility at a borrowing rate of approximately 3.4%. The commitment fee based on the amount of unused commitments under the Revolving Credit Facility was$1.6 million in 2019,$1.4 million in 2018 and$1.5 million in 2017. As ofDecember 31, 2019 , we had issued letters of credit totaling approximately$1.6 million against the letter of credit facility sublimit under the Revolving Credit Facility.
Standalone Letter of Credit Facilities
In the fourth quarter of 2019, we decreased our letter of credit facilities from$150.0 million to$78.0 million . As ofDecember 31, 2019 , we had issued letters of credit totaling approximately$70.9 million under our aggregate$78.0 million standalone letter of credit facilities. The total fees under the letter of credit facilities in 2019, 2018 and 2017, were immaterial.
Accounts Receivable Securitization Facilities
As ofDecember 31, 2019 , we have$125.0 million revolving accounts receivable securitization facility (the "AR Facility"), which terminates inJune 2022 , unless further extended, and a 364-day uncommitted$90.0 million structured repurchase facility (the "Repurchase Facility" and together with the AR Facility, the "AR Securitization Facilities"), which terminates inJune 2020 , unless further extended. OnJuly 19, 2019 , the Company, certain subsidiaries of the Company andMUFG Bank, Ltd. ("MUFG") entered into amendments to the agreements governing the AR Securitization Facilities, along with other agreements with MUFG, pursuant to which the Company (i) granted the Purchasers (as defined below) a security interest in the existing and future accounts receivable and certain related assets of the Company's taxable REIT subsidiaries ("TRSs") as additional collateral under the AR Facility, (ii) increased the borrowing capacity under the AR Facility from$100.0 million to its current capacity of$125.0 million , (ii) increased the borrowing capacity under the Repurchase Facility from$75.0 million to its current capacity of$90.0 million , (iii) extended the term of the AR Facility so that it now terminates onJune 30, 2022 , unless further extended, and (iv) extended the term of the Repurchase Facility so that it now terminates onJune 30, 2020 , unless further extended. The amendments to the agreements governing the AR Securitization Facilities do not change how we account for the AR Securitization Facilities as a collateralized financing activity. In connection with the AR Securitization Facilities,Outfront Media LLC andOutfront Media Outernet Inc. , each a wholly-owned subsidiary of the Company, and certain of the Company's TRSs (the "Originators"), will sell and/or contribute their respective existing and future accounts receivable and certain related assets to eitherOutfront Media Receivables LLC , a special purpose vehicle and wholly-owned subsidiary of the Company relating to the Company's qualified REIT subsidiary accounts receivable assets (the "QRS SPV") orOutfront Media Receivables TRS, LLC a special purpose vehicle and wholly-owned subsidiary of the Company relating to the Company's TRS accounts receivable assets (the "TRS SPV" and together with the QRS SPV, the "SPVs"). The SPVs will transfer undivided interests in their respective accounts receivable assets to certain purchasers from time to time (the "Purchasers"). The SPVs are separate legal entities with their own separate creditors who will be entitled to access the SPVs' assets before the assets become available to the Company. Accordingly, the SPVs' assets are not available to pay creditors of the Company or any of its subsidiaries, although collections from the receivables in excess of amounts required to repay the Purchasers and other creditors of the SPVs may be remitted to the Company.Outfront Media LLC will service the accounts receivables on behalf of the SPVs for a fee. The Company has agreed to guarantee the performance of theOriginators andOutfront Media LLC , in its capacity as servicer, of their respective obligations under the agreements governing the AR Facility. Neither the Company, the Originators nor the SPVs guarantee the collectability of the receivables under the AR Facility. Further, the TRS SPV and the QRS SPV are jointly and severally liable for their respective obligations under the agreements governing the AR Facility. In connection with the Repurchase Facility, the Originators may borrow funds collateralized by subordinated notes (the "Subordinated Notes") issued by the SPVs in favor of their respective Originators and representing a portion of the outstanding 52 -------------------------------------------------------------------------------- balance of the accounts receivable assets sold by the Originators to the SPVs under the AR Facility. The Subordinated Notes will be transferred to MUFG, as repurchase buyer, on an uncommitted basis, and subject to repurchase by the applicable Originators on termination of the Repurchase Facility. The Originators have granted MUFG a security interest in the Subordinated Notes to secure their obligations under the agreements governing the Repurchase Facility, and the Company has agreed to guarantee the Originators' obligations under the agreements governing the Repurchase Facility. As ofDecember 31, 2019 , there were$105.0 million of outstanding borrowings under the AR Facility at a borrowing rate of approximately 2.7%, and$90.0 million of outstanding borrowings under the Repurchase Facility, at a borrowing of approximately 2.9%. As ofDecember 31, 2019 , borrowing capacity remaining under the AR Facility was$20.0 million , based on approximately$304.7 million of accounts receivable used as collateral for the AR Securitization Facilities, and there was no borrowing capacity remaining under the Repurchase Facility, in accordance with the agreements governing the AR Securitization Facilities. The commitment fee based on the amount of unused commitments under the AR Facility was immaterial in 2019 and 2018.
Senior Unsecured Notes
OnJuly 15, 2019 , we used the net proceeds from ourJune 14, 2019 , issuance of$650.0 million aggregate principal amount of 5.000% Senior Unsecured Notes due 2027 (the "2027 Notes") to, among other things, redeem all of our outstanding 2022 Notes, pay accrued and unpaid interest on the 2022 Notes, and pay fees and expenses in connection with the 2022 Notes redemption. In the third quarter of 2019, we recorded a Loss on extinguishment of debt of$11.0 million relating to the 2022 Notes on the Consolidated Statement of Operations. OnNovember 18, 2019 , the Borrowers issued$500.0 million aggregate principal amount of 4.625% Senior Unsecured Notes due 2030 (the "2030 Notes") in a private placement. The 2030 Notes are fully and unconditionally guaranteed on a senior unsecured basis by the Company and each of its direct and indirect domestic subsidiaries that guarantee the Senior Credit Facilities. Interest on the 2030 Notes is payable onMarch 15 andSeptember 15 of each year, commencing onMarch 15, 2020 . On or afterMarch 15, 2025 , the Borrowers may redeem at any time, or from time to time, some or all of the 2030 Notes. Prior to such date, the Borrowers may redeem up to 40% of the aggregate principal amount of the aggregate principal amount with the proceeds of certain equity offerings, provided that at least 50% of the aggregate principal amount of the Notes remain outstanding after the redemption. OnDecember 18, 2019 , we used the net proceeds from the issuance of the 2030 Notes to, among other things, redeem all of our outstanding 2025 Notes, pay accrued and unpaid interest on the 2025 Notes, and pay fees and expenses in connection with the 2025 Notes redemption. In the fourth quarter of 2019, we recorded a Loss on extinguishment of debt of$17.5 million relating to the 2025 Notes on the Consolidated Statement of Operations. As ofDecember 31, 2019 , a premium of$1.7 million on$100.0 million aggregate principal amount of the 5.625% Senior Unsecured Notes, due 2024, remains unamortized. The premium is being amortized through Interest expense, net, on the Consolidated Statement of Operations.
Debt Covenants
The Credit Agreement, the agreements governing the AR Securitization Facilities, and the indentures governing our senior unsecured notes contain customary affirmative and negative covenants, subject to certain exceptions, including but not limited to those that limit the Company's and our subsidiaries' abilities to (i) pay dividends on, repurchase or make distributions in respect to the Company's or its wholly-owned subsidiary,Outfront Media Capital LLC's ("Finance LLC's ") capital stock or make other restricted payments other than dividends or distributions necessary for us to maintain our REIT status, subject to certain conditions, and (ii) enter into agreements restricting certain subsidiaries' ability to pay dividends or make other intercompany or third-party transfers. The terms of the Credit Agreement (and under certain circumstances, the agreements governing the AR Securitization Facilities) require that we maintain a Consolidated Net Secured Leverage Ratio, which is the ratio of (i) our consolidated secured debt (less up to$150.0 million of unrestricted cash) to (ii) our Consolidated EBITDA (as defined in the Credit Agreement) for the trailing four consecutive quarters, of no greater than 4.5 to 1.0. As ofDecember 31, 2019 , our Consolidated Net Secured Leverage Ratio was 1.2 to 1.0 in accordance with the Credit Agreement. The Credit Agreement also requires that, in connection with the incurrence of certain indebtedness, we maintain a Consolidated Total Leverage Ratio, which is the ratio of our consolidated total debt to our Consolidated EBITDA for the trailing four consecutive quarters, of no greater than 6.0 to 1.0. As ofDecember 31, 2019 , our Consolidated Total Leverage Ratio was 4.4 to 1.0 in accordance with the Credit Agreement. As ofDecember 31, 2019 , we are in compliance with our debt covenants. 53 --------------------------------------------------------------------------------
Deferred Financing Costs
As ofDecember 31, 2019 , we had deferred$36.2 million in fees and expenses associated with the Term Loan, Revolving Credit Facility, AR Securitization Facilities and our senior unsecured notes. We are amortizing the deferred fees through Interest expense, net, on our Consolidated Statement of Operations over the respective terms of the Term Loan, Revolving Credit Facility, AR Securitization Facilities and our senior unsecured notes.
Interest Rate Swap Agreements
We have several interest rate cash flow swap agreements to effectively convert a portion of our LIBOR-based variable rate debt to a fixed rate and hedge our interest rate risk related to such variable rate debt. The fair value of these swap positions was a net liability of approximately$4.6 million as ofDecember 31, 2019 , and$2.4 million as ofDecember 31, 2018 , and is included in Other liabilities on our Consolidated Statement of Financial Position. As ofDecember 31, 2019 , under the terms of the agreements, we will pay interest based on an aggregate notional amount of$200.0 million , under a weighted-average fixed interest rate of 2.7%, with a receive rate of one-month LIBOR and which mature at various dates untilJune 30, 2022 . The one-month LIBOR rate was approximately 1.8% as ofDecember 31, 2019 .
At-the-Market Equity Offering Program
We have a sales agreement in connection with an "at-the-market" equity offering program (the "ATM Program"), under which we may, from time to time, issue and sell shares of our common stock up to an aggregate offering price of$300.0 million . We have no obligation to sell any of our common stock under the sales agreement and may at any time suspend solicitations and offers under the sales agreement. In 2019, 2,150,000 shares of our common stock were sold under the ATM Program for gross proceeds of$52.0 million with commissions of$0.8 million , for total net proceeds of$51.2 million . As ofDecember 31, 2019 , we had$232.5 million of capacity remaining under the ATM Program.
Cash Flows
The following table sets forth our cash flows in 2019 and 2018.
Year Ended December 31, %
(in millions, except percentages) 2019 2018 Change
Cash provided by operating activities $ 276.9 $ 214.3 29 %
Cash used for investing activities (176.3 ) (90.4 ) 95
Cash used for financing activities (94.3 ) (117.7 ) (20 )
Effect of exchange rate changes on cash, cash
equivalents and restricted cash 0.5 (0.4 ) *
Net increase to cash, cash equivalents and
restricted cash $ 6.8 $ 5.8 17
* Calculation is not meaningful.
Cash provided by operating activities increased$62.6 million in 2019 compared to 2018, principally as a result of higher net income, as adjusted for non-cash items, and an increase in accounts payable and accrued expenses, and prepaid transit franchise and sports marketing contract costs in 2018, partially offset by an increase in prepaid MTA equipment deployment costs. In 2019, we paid$150.8 million related to MTA equipment deployment costs and installed 3,348 digital displays. In 2019, we recouped$32.2 million of MTA equipment deployment costs from incremental revenues. In 2018, we paid$91.2 million related to MTA equipment deployment costs and installed 1,229 digital displays. In 2018, we recouped$1.7 million of MTA equipment deployment costs from incremental revenues. Cash used for investing activities increased$85.9 million in 2019 compared to 2018. In 2019, we incurred$89.9 million in capital expenditures and completed several acquisitions for total cash payments of approximately$69.7 million . In 2018, we incurred$82.3 million in capital expenditures and completed several acquisitions for a total cash payments of approximately$7.0 million . 54 --------------------------------------------------------------------------------
The following table presents our capital expenditures in 2019 and 2018.
Year Ended December 31, %
(in millions, except percentages) 2019 2018 Change
Growth $ 71.8 $ 63.7 13 %
Maintenance 18.1 18.6 (3 )
Total capital expenditures $ 89.9 $ 82.3 9
Capital expenditures increased $7.6 million , or 9%, in 2019 compared to 2018,
due to spending on digital billboard and transit display projects, and higher
spending on safety, office remodel projects and vehicles, partially offset by
lower spending on improvements to our static displays.
For the full year of 2020, we expect our capital expenditures to be
approximately $90.0 million , which will be used primarily for growth in digital
displays, maintenance, to renovate certain office facilities, and for
installation of the most current LED lighting technology to improve the quality
and extend the life of our static billboards. This estimate does not include
equipment deployment costs that will be incurred in connection with the MTA
agreement (as described above), which will be recorded as Prepaid MTA equipment
deployment costs and Intangible assets on our Consolidated Statement of
Financial Position, as applicable.
Cash used for financing activities decreased $23.4 million in 2019 compared to
2018. In 2019, we received net proceeds of $150.0 million from refinancing our
senior unsecured notes as described above, received net proceeds of $50.9
million related to the sale of our common stock under the ATM Program, drew net
borrowings of $35.0 million on the AR Securitization Facilities, paid cash
dividends of $208.1 million , made a discretionary payment of $50.0 million on
the Term Loan and reduced the principal balance of the Term Loan by $20.0
million . In 2018, we drew net borrowings of $80.0 million on the AR
Securitization Facilities, received net proceeds of $15.3 million related to the
sale of our common stock under the ATM Program and paid cash dividends of $203.9
million .
Cash paid for income taxes was $10.5 million in 2019 and $8.4 million in 2018.
The increase was due primarily to improved performance from our TRSs and a $3.0
million settlement of a 2016 IRS audit, including the related state income taxes
and interest.
Contractual Obligations
As of
Payments Due by Period
2025 and
(in millions) Total 2020 2021-2022 2023-2024 thereafter
Guaranteed minimum
annual payments(a)(b) $ 1,903.8 $ 227.9 $ 449.9 $ 451.6 $ 774.4
Operating leases(c) 2,028.6 248.9 484.0 385.2 910.5
Long-term debt(d) 2,250.0 - - 500.0 1,750.0
Interest(d) 780.9 117.7 211.1 188.2 263.9
Total $ 6,963.3 $ 594.5 $ 1,145.0 $ 1,525.0 $ 3,698.8 (a) We have agreements with municipalities and transit operators which entitle us
to operate advertising displays within their transit systems, including on
the interior and exterior of rail and subway cars and buses, as well as onbenches, transit shelters, street kiosks, and transit platforms. Under most
of these franchise agreements, the franchisor is entitled to receive the
greater of a percentage of the relevant revenues, net of agency fees, or a
specified guaranteed minimum annual payment. Franchise rights are generally
paid monthly, or in some cases upfront at the beginning of the year.
(b) We also have marketing and multimedia rights agreements with colleges,
universities and other educational institutions, which entitle us to operate
on-campus advertising displays, as well as manage marketing opportunities,
media rights and experiential entertainment at sporting events. Under most of
these agreements, the school is entitled to receive the greater of a
percentage of the relevant revenue, net of agency commissions, or a specified
guaranteed minimum annual payment.
(c) Consists of rental payments under operating leases for billboard sites,
office space and equipment. Total future minimum payments of
include
(d) As of
Interest on the Term Loan is variable. For illustrative purposes, we are
assuming an interest rate of 3.5% for all years, which reflects the interest
rate as of
rate will change the annual interest expense by $1.0 million .
55-------------------------------------------------------------------------------- The above table excludes$0.5 million of reserves for uncertain tax positions and the related accrued interest and penalties, as we cannot reasonably predict the amount of and timing of cash payments related to this obligation.
In 2020, we expect to contribute
For further information about our contractual obligations, see Item 8, Note 19. Commitments and Contingencies to the Consolidated Financial Statements.
Off-Balance Sheet Arrangements
Our off-balance sheet commitments primarily consist of guaranteed minimum annual payments. (See Item 8, Note 19. Commitments and Contingencies to the Consolidated Financial Statements for information about our off-balance sheet commitments.) Critical Accounting Policies The preparation of our financial statements in conformity with GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenues and expenses during the reporting period. On an ongoing basis, we evaluate these estimates, which are based on historical experience and on various assumptions that we believe are reasonable under the circumstances. The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions. We consider the following accounting policies to be the most critical as they are significant to its financial condition and results of operations, and require significant judgment and estimates on the part of management in their application. For a summary of our significant accounting policies, see Item 8., Note 2. Summary of Significant Accounting Policies to the Consolidated Financial Statements. MTA Agreement Under the MTA agreement, we are obligated to deploy, over a number of years, (i) 8,565 digital advertising screens onsubway and train platforms and entrances, (ii) 37,716 smaller-format digital advertising screens on rolling stock, and (iii) 7,829 MTA communications displays, with such deployment amounts being subject to modification as agreed-upon by us and the MTA. In addition, we are entitled to generate revenue through the sale of advertising on transit advertising displays and incur transit franchise expenses, which are calculated based on contractually stipulated percentages of revenue generated under the contract, subject to a minimum guarantee. Title of the various digital displays transfers to the MTA on installation, therefore the cost of deploying these screens throughout the transit system does not represent our property and equipment. The portion of deployment costs expected to be reimbursed from transit franchise fees that would otherwise be payable to the MTA are recorded as Prepaid MTA equipment deployment costs on the Consolidated Statement of Financial Position and charged to operating expenses as advertising revenue is generated. The short-term portion of Prepaid MTA equipment deployment costs represents the costs that we expect to recover from the MTA in the next twelve months. The portion of deployment costs expected to be reimbursed from advertising revenues that would otherwise be retained by us under the contract are recorded as Intangible assets on the Consolidated Statement of Financial Position and charged to amortization expense on a straight line basis over the contract period. If we do not generate sufficient advertising revenues from the MTA contract, there is a risk that the related Prepaid MTA equipment deployment costs and Intangible assets may not be recoverable. Management assesses the prepaid MTA equipment deployment costs for recoverability on a quarterly basis. This assessment requires evaluating qualitative and quantitative factors to determine if there is an indication that the carrying amount may not be recoverable. Management applies significant judgment in assessing these factors, including evaluating macroeconomic conditions, industry trends, and events specific to the Company, including monitoring the Company's actual installation of digital displays against the initial deployment schedule. Additionally, management assesses quantitative factors by comparing revenue projections of the deployed digital displays to actual financial results. Based on our latest revenue projections, no impairment triggers were identified. 56 --------------------------------------------------------------------------------
We test goodwill qualitatively and/or quantitatively at the reporting-unit level annually for impairment as ofOctober 31 of each year and between annual tests if events occur or circumstances change that would more likely than not reduce the fair value below its carrying amount. A qualitative test assesses macroeconomic conditions, industry and market conditions, cost factors, overall financial performance and other relevant entity specific events, as well as events affecting a reporting unit. If after the qualitative assessment, we determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we perform a quantitative assessment. We may also choose to only perform a quantitative assessment. We compute the estimated fair value of each reporting unit for which we perform a quantitative assessment by adding the present value of the estimated annual cash flows over a discrete projection period to the residual value of the business at the end of the projection period. This technique requires us to use significant estimates and assumptions such as growth rates, operating margins, capital expenditures and discount rates. The estimated growth rates, operating margins and capital expenditures for the projection period are based on our internal forecasts of future performance as well as historical trends. The residual value is estimated based on a perpetual nominal growth rate, which is based on projected long-range inflation and long-term industry projections. The discount rates are determined based on the weighted average cost of capital of comparable entities. There can be no assurance that these estimates and assumptions will prove to be an accurate prediction of the future, and a downward revision of these estimates and/or assumptions would decrease the fair values of our reporting units, which could result in additional impairment charges in the future. In the fourth quarter of 2019, we performed a qualitative assessment of our reporting units for possible goodwill impairment. No impairment was identified for any of our reporting units. Based on our most recent impairment analysis, the fair value of our reporting units exceeded their respective carrying values by 20% or more. In the second quarter of 2018, our Canadian reporting unit did not meet revenue expectations and pacing reflected a decline as compared to the 2018 forecast due to the underperformance of our static poster assets and digital displays. As a result, we determined that there was a decline in the outlook for our Canadian reporting unit. This determination constituted a triggering event, requiring an interim goodwill impairment analysis of our Canadian reporting unit. As a result of the impairment analysis performed during the second quarter of 2018, we determined that the carrying value of our Canadian reporting unit exceeded its fair value and we recorded an impairment charge of$42.9 million on the Consolidated Statements of Operations.
Long-Lived Assets
We report long-lived assets, including billboard advertising structures, other
property, plant and equipment and intangible assets, at historical cost less
accumulated depreciation and amortization. We depreciate or amortize these
assets over their estimated useful lives, which generally range from five to 40
years. For billboard advertising structures, we estimate the useful lives based
on the estimated economic life of the asset. Transit fixed assets are
depreciated over the shorter of their estimated useful lives or the related
contractual term. Our long-lived identifiable intangible assets primarily
consist of acquired permits and leasehold agreements and franchise agreements,
which grant us the right to operate out-of-home advertising structures in
specified locations and the right to provide advertising displays on railroad
and municipal transit properties. Our long-lived identifiable intangible assets
are amortized on a straight-line basis over their estimated useful lives, which
is the respective life of the agreement and in some cases includes an estimation
for renewals, which is based on historical experience.
Long-lived assets subject to depreciation and amortization are also reviewed for
impairment when events and circumstances indicate that the long-lived asset
might be impaired, by comparing the forecasted undiscounted cash flows to be
generated by those assets to the carrying values of those assets. The
significant assumptions we use to determine the useful lives and fair values of
long-lived assets include contractual commitments, regulatory requirements,
future expected cash flows and industry growth rates, as well as future salvage
values.
We test for long-lived asset impairment whenever there is an indication that the
carrying amount of the asset may not be recoverable. Recoverability of these
assets is determined by comparing the forecasted undiscounted cash flows
generated by those assets to the respective asset's carrying value, excluding
any impacts from foreign currency translation adjustments reflected in
Accumulated other comprehensive loss on the Consolidated Statement Financial
Position in conformity with GAAP. The amount of impairment loss, if any, will be
measured by the difference between the net carrying value and the estimated fair
value of the asset and recognized as a non-cash charge. Long-lived assets held
for sale are required to be measured at the lower of their carrying value
(including unrecognized foreign currency translation adjustment losses) or fair
value less cost to sell.
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Asset Retirement Obligation
We record an asset retirement obligation for our estimated future legal obligation, upon termination or nonrenewal of a lease, associated with removing structures from the leased property and, when required by the contract, the cost to return the leased property to its original condition. These obligations are recorded at their present value in the period in which the liability is incurred and are capitalized as part of the related assets' carrying value. Accretion of the liability is recognized in selling, general and administrative expenses and the capitalized cost is depreciated over the expected useful life of the related asset. The obligation is calculated based on the assumption that all of our advertising structures will be removed within the next 50 years. The significant assumptions used in estimating the asset retirement obligation include the cost of removing the asset, the cost of remediating the leased property to its original condition where required and the timing and number of lease renewals, all of which are estimated based on historical experience.
Accounting Standards
See Item 8., Note 2. Summary of Significant Accounting Policies to the Consolidated Financial Statements, for information about adoption of new accounting standards and recent accounting pronouncements.
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