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 appearing in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , filed with theSecurities and Exchange Commission (the "SEC") onFebruary 26, 2020 , and the unaudited consolidated financial statements and the notes thereto included in this Quarterly Report on Form 10-Q. 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 the sections entitled "Risk Factors" in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , filed with theSEC onFebruary 26, 2020 , and the section entitled "Cautionary Statement Regarding Forward-Looking Statements" in this Quarterly Report on Form 10-Q, that could cause our actual results to differ materially from the results described herein or implied by such forward-looking statements. Except as otherwise indicated or unless the context otherwise requires, all references in this Quarterly Report on Form 10-Q to (i) "OUTFRONT Media ," "the Company," "we," "our," "us" and "our company" meanOUTFRONT Media Inc. , aMaryland corporation, and unless the context requires otherwise, its consolidated subsidiaries, and (ii) the "25 largest markets in theU.S. ," "150 markets in theU.S. andCanada " and "Nielsen Designated Market Areas" are based, in whole or in part, onNielsen Media Research's Designated Market Area rankings as ofJanuary 1, 2020 .
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 Note 19. 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. 27 -------------------------------------------------------------------------------- Table of ContentsU.S. Media. OurU.S. Media segment generated 11% of its revenues in theNew York City metropolitan area in the three months endedJune 30, 2020 , 23% in the three months endedJune 30, 2019 , 18% in the six months endedJune 30, 2020 and 23% in the six months endedJune 30, 2019 , and generated 15% in theLos Angeles metropolitan area in the three months endedJune 30, 2020 , 15% in the three months endedJune 30, 2019 , 15% in the six months endedJune 30, 2020 and 16% in the six months endedJune 30, 2019 . In the three months endedJune 30, 2020 , ourU.S. Media segment generated$213.5 million of Revenues and$37.4 million of Operating income before Depreciation, Amortization, Net gain on dispositions, Stock-based compensation and Restructuring charges ("Adjusted OIBDA"). In the three months endedJune 30, 2019 , ourU.S. Media segment generated$419.6 million of Revenues and$145.8 million of Adjusted OIBDA. In the six months endedJune 30, 2020 , ourU.S. Media segment generated$568.2 million of Revenues and$128.2 million of Adjusted OIBDA. In the six months endedJune 30, 2019 , ourU.S. Media segment generated$758.0 million of Revenues and$240.4 million of Adjusted OIBDA. (See the "Segment Results of Operations" section of this MD&A.) Other (includes International and Sports Marketing). In the three months endedJune 30, 2020 , Other generated$19.4 million of Revenues and an Adjusted OIBDA loss of$5.4 million . In the three months endedJune 30, 2019 , Other generated$40.3 million of Revenues and$8.8 million of Adjusted OIBDA. In the six months endedJune 30, 2020 , Other generated$50.0 million of Revenues and an Adjusted OIBDA loss of$4.9 million . In the six months endedJune 30, 2019 , Other generated$73.6 million of Revenues and$10.0 million of Adjusted OIBDA.
COVID-19 Impact
The novel coronavirus (COVID-19) pandemic and the related preventative measures taken to help curb the spread, including shutdowns and slowdowns of, and restrictions on, businesses, public gatherings, social interactions and travel (including reductions in foot traffic, roadway traffic and transit commuting) throughout the markets in which we do business have had, and may continue to have, a significant impact on the global economy and our business. Though generally we remain able to continue to sell and service our displays, our business operates billboard and transit franchise agreements in the top DMAs, such asNew York andLos Angeles , where the COVID-19 pandemic has had a particularly significant impact. The COVID-19 pandemic has (i) interrupted our ability to build and deploy advertising structures and sites, including digital displays; (ii) reduced or curtailed our customers' advertising expenditures and overall demand for our services through purchase cancellations or otherwise; (iii) increased the volatility of our customers' advertising expenditure patterns from period-to-period through short-notice purchases, purchase deferrals or otherwise; and (iv) extended delays in the collection of earned advertising revenues from our customers, all of which could have a material adverse effect on our business, financial condition and results of operation in 2020. As a result of the impact of the COVID-19 pandemic on our business and results of operations, we expect our key performance indicators, total revenues and total expenses to be materially lower in 2020 than historical levels, particularly in ourU.S. Media segment and with respect to our transit and other business. Additionally, we expect transit franchise expenses, billboard property lease expenses and posting, maintenance and other expenses, such as rental expenses and minimum annual guarantee payments, to materially increase as a percentage of revenues more than historical levels, as revenues decline in 2020. We expect the impacts described above to be greater in the second quarter of 2020 than in the third and fourth quarters of 2020. Accordingly, results for the three and six months endedJune 30, 2020 , are not indicative of the results that may be expected for the fiscal year endingDecember 31, 2020 . In response to the COVID-19 pandemic, we have prioritized the health and safety of our employees and customers by (i) shifting to a secure remote workforce for all personnel other than operations personnel who service our displays and certain other personnel, (ii) implementing deep cleaning, social distancing and other protective policies and practices in accordance with federal, state and local regulations and guidance across all offices and facilities that are open or in the process of reopening, (iii) restricting non-essential business travel, and (iv) communicating frequently with our employees and customers to address any concerns. None of these actions have caused a significant disruption in our ability to manage the continuity of our business or our internal controls. In addition, in order to preserve financial flexibility, increase liquidity and reduce expenses in light of the current uncertainty in the global economy and our business, we have modified our business goals and undertaken the following actions, which should be read in conjunction with the "-Analysis of Results of Operations" and "-Liquidity and Capital Resources" sections of this MD&A: •Borrowed$470.0 million under the Revolving Credit Facility (as defined below), which was repaid in full as ofJune 30, 2020 , using the net proceeds from the offering of the Notes (as defined below) and cash on hand;
•Accessed the capital markets and raised
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•Amended the Credit Agreement (as defined below) to modify the calculation of the Company's financial maintenance covenant ratio under the Credit Agreement;
•Amended the agreements governing the AR Securitization Facilities (as defined below) to temporarily suspend the AR Facility (as defined below) and extend the Repurchase Facility (as defined below) toJune 2021 with a borrowing capacity of$80.0 million , unless further amended and/or extended;
•Suspended our quarterly dividend payments on our common stock, subject to the minimum annual REIT distribution requirement;
•Suspended our deployment of digital transit displays to reduce costs that may or may not be recoverable from customer sales or transit franchise partners, except with respect to theNew York Metropolitan Transportation Authority (the "MTA"), with which we recommenced deployment in the third quarter of 2020;
•Reduced maintenance capital expenditures (other than for necessary safety-related projects) and growth capital expenditures for digital billboard display conversions;
•Paused new acquisition activity; and
•Reduced our posting, maintenance and other, and SG&A (as defined below) expenses through restrictions on discretionary expenses, a hiring freeze, workforce reductions, employee furloughs, temporary reductions to certain employee base salaries, and temporary reductions to the base salaries of our Chief Executive Officer and other executive officers by 50% and 20%, respectively, as well as to the cash compensation of our non-employee directors by 20%, to offset expected decreases in revenues in 2020. In addition, we have engaged, and will continue to engage, in constructive conversations with our billboard ground lease landlords, transit franchise partners and multimedia rights partners to mitigate increases as a percentage of revenues in billboard property lease expenses, transit franchise expenses and posting, maintenance and other expenses. Though we rely on third parties to manufacture and transport our digital displays, and have not experienced any significant supply chain or logistical disruptions, we do, however, expect delays as a result of the COVID-19 pandemic in receiving digital displays as we reinstate our digital billboard display conversions and deployment of digital transit displays. We continue to monitor the rapidly evolving situation and guidance from federal, state and local public health authorities and may take additional actions based on their recommendations. When the COVID-19 pandemic subsides, there can be no assurances as to the time it may take to generate revenues at historic levels. Given the uncertainty around the severity and duration of the COVID-19 pandemic and the measures taken, or may be taken, in response to the COVID-19 pandemic, the Company cannot reasonably estimate the full impact of the COVID-19 pandemic on our business, financial condition and results of operations at this time, which may be material. Economic Environment Our revenues and operating results are sensitive to fluctuations in advertising expenditures, general economic conditions and other external events beyond our control, such as the COVID-19 pandemic as described above.
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 29 -------------------------------------------------------------------------------- Table of Contents 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. Subject to the impact of the COVID-19 pandemic, 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 23 new digital billboard displays inthe United States and 2 inCanada during the six months endedJune 30, 2020 . Additionally, in the six months endedJune 30, 2020 , we entered into marketing arrangements to sell advertising on 20 third-party digital billboard displays in theU.S. and 12 inCanada . In the six months endedJune 30, 2020 , we have built, converted or replaced 884 digital transit and other displays inthe United States . As described above, as a result of the COVID-19 pandemic, we reduced our digital billboard display conversions and suspended our deployment of digital transit displays (except with respect to the MTA, with which we recommenced deployment in the third quarter of 2020). The following table sets forth information regarding our digital displays. Digital Revenues (in millions) Number of Digital Displays for the Six Months Ended as of June 30, 2020(a) June 30, 2020(a) Digital Digital Digital Transit Total Digital Billboard Transit and Total Digital Location Digital Billboard and Other Revenues Displays Other Displays Displays United States $ 83.9$ 34.2 $ 118.1 1,176 7,005 8,181 Canada 7.8 0.1 7.9 202 93 295 Total $ 91.7$ 34.3 $ 126.0 1,378 7,098 8,476 (a)Digital display amounts (1) include 2,581 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. As described above, our revenues and profits may also fluctuate due to external events beyond our control, such as the COVID-19 pandemic. We have a diversified base of customers across various industries. During the three months endedJune 30, 2020 , our largest categories of advertisers were professional services, healthcare/pharmaceuticals and retail, which represented approximately 11%, 10% and 8% of our totalU.S. Media segment revenues, respectively. During the three months endedJune 30, 2019 , our largest categories of advertisers were retail, computers/internet and professional services, each of which represented approximately 9%, 8% and 8% of our totalU.S. Media segment revenues, respectively. During the six months endedJune 30, 2020 , our largest categories of advertisers were professional services, healthcare/pharmaceuticals and retail, which represented approximately 10%, 9% and 8% of our totalU.S. Media segment revenues, respectively. During the six months endedJune 30, 2019 , our largest categories of advertisers were retail, professional services and computers/internet, each of which represented approximately 9%, 8% and 8% 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 the three months endedJune 30, 2020 , we generated approximately 39% of ourU.S. Media segment revenues from national advertising campaigns compared to approximately 46% in the same prior-year period. In the six months endedJune 30, 2020 , we generated approximately 41% of ourU.S. Media segment revenues from national advertising campaigns compared to approximately 43% in the same prior-year period. 30 -------------------------------------------------------------------------------- Table of Contents Our transit businesses requires 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. Three Months Ended Six Months Ended June 30, % June 30, % (in millions, except percentages) 2020 2019 Change 2020 2019 Change Revenues$ 232.9 $ 459.9 (49) %$ 618.2 $ 831.6 (26) % Organic revenues(a)(b) 232.9 459.1 (49) 618.2 830.6 (26) Operating income (loss) (25.9) 88.7 * 7.9 125.6 (94) Adjusted OIBDA(b) 21.7 143.6 (85) 108.5 230.4 (53) Adjusted OIBDA(b) margin 9 % 31 % 18 % 28 % Funds from operations ("FFO")(b) attributable to OUTFRONT Media Inc. (27.9) 90.6 * 16.8 132.7 (87) Adjusted FFO ("AFFO")(b) attributable to OUTFRONT Media Inc. (21.3) 96.3 * 18.7 135.5 (86) Net income (loss) attributable to OUTFRONT Media Inc. (57.9) 50.3 * (51.8) 56.4 * •Calculation is not meaningful. (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 toOUTFRONT Media Inc. to FFO attributable toOUTFRONT Media Inc. and AFFO attributable toOUTFRONT Media Inc. and Revenues to organic revenues. Adjusted OIBDA We calculate Adjusted OIBDA as operating income (loss) before depreciation, amortization, net (gain) loss on dispositions, stock-based compensation and restructuring 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. 31 -------------------------------------------------------------------------------- Table of Contents 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, 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, 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. , 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. 32 -------------------------------------------------------------------------------- Table of Contents Reconciliation of Non-GAAP Financial Measures The following table reconciles Operating income (loss) to Adjusted OIBDA, and Net income (loss) attributable toOUTFRONT Media Inc. to FFO attributable toOUTFRONT Media Inc. and AFFO attributable toOUTFRONT Media Inc. Three Months Ended Six Months Ended June 30, June 30, (in millions, except per share amounts) 2020 2019 2020 2019 Total revenues$ 232.9 $ 459.9 $ 618.2 $ 831.6 Operating income (loss)$ (25.9) $ 88.7 $ 7.9 $ 125.6 Restructuring charges(a) 4.7 - 4.7 0.3 Net (gain) loss on dispositions (5.2) 0.4 (5.3) (1.1) Depreciation 21.2 21.4 42.2 42.5 Amortization 21.7 27.6 48.0 52.3 Stock-based compensation 5.2 5.5 11.0 10.8 Adjusted OIBDA$ 21.7 $ 143.6 $ 108.5 $ 230.4 Adjusted OIBDA margin 9 % 31 % 18 % 28 % Net income (loss) attributable to OUTFRONT Media Inc.$ (57.9) $ 50.3 $ (51.8) $ 56.4 Depreciation of billboard advertising structures 15.4 15.9 30.9 32.2 Amortization of real estate-related intangible assets 12.2 10.9 24.2 21.8 Amortization of direct lease acquisition costs 6.3 13.0 17.6 23.3 Net (gain) loss on disposition of real estate assets (5.2) 0.4 (5.3) (1.1) Adjustment related to non-controlling interests (0.1) - (0.2) - Adjustment related to equity-based investments - 0.1 - 0.1 Income tax effect of adjustments(b) 1.4 - 1.4 - FFO attributable to OUTFRONT Media Inc. (27.9) 90.6 16.8 132.7 Non-cash portion of income taxes (2.8) 1.7 (5.3) (0.1) Cash paid for direct lease acquisition costs (8.7) (10.0) (23.6) (24.0) Maintenance capital expenditures (6.3) (4.5) (11.1) (8.6) Restructuring charges - severance(a) 3.8 - 3.8 0.3 Other depreciation 5.8 5.5 11.3 10.3 Other amortization 3.2 3.7 6.2 7.2 Stock-based compensation(a) 6.1 5.5 11.9 10.8 Non-cash effect of straight-line rent 3.6 1.5 4.9 2.6 Accretion expense 0.7 0.7 1.3 1.3 Amortization of deferred financing costs 1.7 1.6 3.0 3.0 Adjustment related to non-controlling interests (0.1) - (0.1) - Income tax effect of adjustments(c) (0.4) - (0.4) -
AFFO attributable to
(a)In 2020, Restructuring charges relate to severance associated with workforce reductions made in response to the COVID-19 pandemic and includes stock-based compensation expenses of$0.9 million . (b)Income tax effect related to Net gain on disposition of real estate assets. (c)Income tax effect related to Restructuring charges - severance. FFO in the three months endedJune 30, 2020 , was a deficit of$27.9 million compared to FFO of$90.6 million in the same prior-year period. AFFO in the three months endedJune 30, 2020 , was a deficit of$21.3 million compared to AFFO of$96.3 million in the same prior-year period. FFO in the six months endedJune 30, 2020 , of$16.8 million decreased$115.9 million , or 33 -------------------------------------------------------------------------------- Table of Contents 87%, compared to the same prior-year period. AFFO in the six months endedJune 30, 2020 , of$18.7 million decreased$116.8 million , or 86%, compared to the same prior-year period. The decreases were primarily due to the impact of the COVID-19 pandemic on revenues, partially offset by cost reduction measures taken in response to the COVID-19 pandemic.
Analysis of Results of Operations
Revenues
We derive Revenues primarily from providing advertising space to customers on our advertising structures and sites. Our contracts with customers generally cover periods ranging from four weeks to one year. Revenues from billboard displays are recognized as rental income on a straight-line basis over the contract term. Transit and other revenues are recognized over the contract period. (See Note 11. Revenues to the Consolidated Financial Statements.) Three Months Ended Six Months Ended June 30, % June 30, % (in millions, except percentages) 2020 2019 Change 2020 2019 Change Revenues: Billboard$ 188.5 $ 305.8 (38) %$ 459.4 $ 556.8 (17) % Transit and other 44.4 154.1 (71) 158.8$ 274.8 (42) Total revenues$ 232.9 $ 459.9 (49)$ 618.2 $ 831.6 (26) Organic revenues(a): Billboard$ 188.5 $ 305.2 (38)$ 459.4 $ 556.0 (17) Transit and other 44.4 153.9 (71) 158.8 274.6 (42) Total organic revenues(a) 232.9 459.1 (49) 618.2 830.6 (26) Non-organic revenues: Billboard - 0.6 * - 0.8 * Transit and other - 0.2 * - 0.2 * Total non-organic revenues - 0.8 * - 1.0 * Total revenues$ 232.9 $ 459.9 (49)$ 618.2 $ 831.6 (26)
•Calculation is not meaningful. (a)Organic revenues exclude the impact of foreign currency exchange rates ("non-organic revenues").
Total revenues decreased$227.0 million , or 49%, and organic revenues decreased$226.2 million , or 49%, in the three months endedJune 30, 2020 , compared to the same prior-year period. Total revenues decreased by$213.4 million , or 26%, and organic revenues decreased$212.4 million , or 26%, in the six months endedJune 30, 2020 , compared to the same prior-year period.
In each of the three and six months ended
Total billboard revenues decreased$117.3 million , or 38%, in the three months endedJune 30, 2020 , compared to the same prior-year period and decreased$97.4 million , or 17%, in the six months endedJune 30, 2020 , compared to the same prior-year period. The decreases were principally driven by a decline in average revenue per display (yield) as a result of the impact of the COVID-19 pandemic on customer advertising expenditures and overall demand for our services through purchase cancellations or otherwise. Organic billboard revenues in the three months endedJune 30, 2020 , decreased$116.7 million , or 38%, compared to the same prior-year period and decreased$96.6 million , or 17%, in the six months endedJune 30, 2020 , compared to the same prior-year period. The decreases were principally driven by a decline in average revenue per display (yield) as a result of the impact of the COVID-19 pandemic on customer advertising expenditures and overall demand for our services through purchase cancellations or otherwise. Total transit and other revenues decreased$109.7 million , or 71%, in the three months endedJune 30, 2020 , compared to the same prior-year period and decreased$116.0 million , or 42%, in the six months endedJune 30, 2020 , compared to the same 34 -------------------------------------------------------------------------------- Table of Contents prior-year period. The decreases were driven by a decline in average revenue per display (yield) as a result of the impact of the COVID-19 pandemic on customer advertising expenditures and overall demand for our services through purchase cancellations or otherwise. The decrease in organic transit and other revenues in each of the three and six months endedJune 30, 2020 , compared to the same prior-year period, is due to a decline in average revenue per display (yield) as a result of the impact of the COVID-19 pandemic on customer advertising expenditures and overall demand for our services through purchase cancellations or otherwise. Expenses Three Months Ended Six Months Ended June 30, % June 30, % (in millions, except percentages) 2020 2019 Change 2020 2019 Change Expenses: Operating$ 154.0 $ 240.3 (36) %$ 378.8 $ 457.2 (17) % Selling, general and administrative 62.4 81.5 (23) 141.9 154.8 (8) Restructuring charges 4.7 - * 4.7 0.3 * Net (gain) loss on dispositions (5.2) 0.4 * (5.3) (1.1) * Depreciation 21.2 21.4 (1) 42.2 42.5 (1) Amortization 21.7 27.6 (21) 48.0 52.3 (8) Total expenses$ 258.8 $ 371.2 (30)$ 610.3 $ 706.0 (14)
*Calculation is not meaningful.
Operating Expenses Three Months Ended Six Months Ended June 30, % June 30, % (in millions, except percentages) 2020 2019 Change 2020 2019 Change Operating expenses: Billboard property lease$ 94.1 $ 101.7 (7) %$ 196.9 $ 197.7 - % Transit franchise 18.5 73.6 (75) 76.3 131.7 (42) Posting, maintenance and other 41.4 65.0 (36) 105.6 127.8 (17) Total operating expenses$ 154.0 $ 240.3 (36)$ 378.8 $ 457.2 (17) Billboard property lease expenses represented 50% of billboard revenues in the three months endedJune 30, 2020 , 33% in the three months endedJune 30, 2019 , 43% in the six months endedJune 30, 2020 , and 36% in the six months endedJune 30, 2019 . Transit franchise expenses represented 63% of transit display revenues in the three months endedJune 30, 2020 , 59% in the three months endedJune 30, 2019 , 62% in the six months endedJune 30, 2020 and 60% in the six months endedJune 30, 2019 . The increase in transit franchise expense as a percentage of revenues is primarily driven by an amendment to the MTA agreement, which resulted in the payment of an increased revenue share percentage instead of guaranteed minimum annual payments for the three months endedJune 30, 2020 . Billboard property lease and transit franchise expenses decreased$62.7 million in the three months endedJune 30, 2020 , compared to the same prior-year period. Billboard property lease and transit franchise expenses decreased$56.2 million in the six months endedJune 30, 2020 , compared to the same prior-year period. The decreases were due primarily to lower billboard and transit revenues resulting from the impact of the COVID-19 pandemic and lower transit franchise expenses paid to the MTA in the three months endedJune 30, 2020 . Posting, maintenance and other expenses decreased$23.6 million , or 36%, in the three months endedJune 30, 2020 , compared to the same prior-year period and decreased$22.2 million , or 17%, in the six months endedJune 30, 2020 , compared to the same prior-year period. The decreases were primarily due to the impact of the COVID-19 pandemic and the related restrictions 35 -------------------------------------------------------------------------------- Table of Contents in the top DMAs reducing or curtailing customer advertising expenditures and overall demand for our services through purchase cancellations or otherwise.
Selling, General and Administrative Expenses ("SG&A")
SG&A expenses represented 27% of Revenues in the three months endedJune 30, 2020 , and 18% in the same prior-year period. SG&A expenses decreased$19.1 million , or 23%, in the three months endedJune 30, 2020 , compared to the same prior-year period. SG&A expenses represented 23% of Revenues in the six months endedJune 30, 2020 and 19% in the same prior-year period. SG&A expenses decreased$12.9 million , or 8%, in the six months endedJune 30, 2020 , compared to the same prior-year period. The decreases were primarily driven by lower compensation-related costs and lower professional fees, primarily as a result of cost reduction measures taken in response to the COVID-19 pandemic, partially offset by a higher provision for doubtful allowances.
Net (Gain) Loss on Dispositions
Net gain on dispositions was$5.2 million for the three months endedJune 30, 2020 , compared to a Net loss on dispositions of$0.4 million for the same prior-year period. Net gain on dispositions was$5.3 million for the six months endedJune 30, 2020 , compared to$1.1 million for the same prior-year period. The gain for the three and six months endedJune 30, 2020 , was primarily related to the sale of an office location inCanada . The gain for the six months endedJune 30, 2019 , primarily related to the sale of an office location in theU.S.
Depreciation
Depreciation decreased$0.2 million , or 1% in the three months endedJune 30, 2020 , compared to the same prior-year period and decreased$0.3 million , or 1%, in the six months endedJune 30, 2020 , compared to the same prior-year period.
Amortization
Amortization decreased$5.9 million , or 21%, in the three months endedJune 30, 2020 , compared to the same prior-year period, principally driven by lower direct lease acquisition costs, partially offset by higher amortization of intangible assets. Amortization of direct lease acquisition costs was$6.3 million in the three months endedJune 30, 2020 and$13.0 million in the same prior-year period. Amortization decreased$4.3 million , or 8%, in the six months endedJune 30, 2020 , compared to the same prior-year period, principally driven by lower direct lease acquisition costs, partially offset by higher amortization of intangible assets. Amortization of direct lease acquisition costs was$17.6 million in the six months endedJune 30, 2020 and$23.3 million in the same prior-year period.
Interest Expense, Net
Interest expense, net, was$33.3 million (including$1.7 million of deferred financing costs) in the three months endedJune 30, 2020 , and$33.9 million (including$1.6 million of deferred financing costs) in the same prior-year period. Interest expense, net, was$63.1 million (including$3.0 million of deferred financing costs) in the six months endedJune 30, 2020 , and$66.6 million (including$3.0 million of deferred financing costs) in the same prior-year period. The decrease in Interest expense, net, was primarily due to lower interest rates, partially offset by a higher outstanding average debt balance.
Benefit (Provision) for Income Taxes
Benefit for income taxes was$1.5 million in the three months endedJune 30, 2020 , compared to a Provision for income taxes of$6.2 million in the same prior-year period, due primarily to a taxable REIT subsidiary loss in the three months endedJune 30, 2020 , due to the impact of the COVID-19 pandemic. Benefit for income taxes was$3.2 million in the six months endedJune 30, 2020 , compared to a Provision for income taxes of$5.2 million in the same prior-year period, due primarily to a taxable REIT subsidiary loss in the six months endedJune 30, 2020 . Net Income (Loss) Net loss before allocation to non-controlling interests was$58.0 million in the three months endedJune 30, 2020 , compared to Net income before allocation to non-controlling interests of$50.3 million in the same prior-year period, due primarily to a the impact of the COVID-19 pandemic, partially offset by the impact of cost reduction measures taken in response to the COVID-19 pandemic. Net loss before allocation to non-controlling interests was$51.7 million in the six months ended June 36 -------------------------------------------------------------------------------- Table of Contents 30, 2020, compared Net income before allocation to non-controlling interests of$56.4 million in the same prior-year period, due primarily to the impact of the COVID-19 pandemic, partially offset by the impact of cost reduction measures taken in response and lower interest expense.
Segment Results of Operations
We present Adjusted OIBDA as the primary measure of profit and loss for our reportable segments. (See the "Key Performance Indicators" section of this MD&A and Note 19. Segment Information to the Consolidated Financial Statements.)
We manage our operations through three operating segments-(1)U.S. Billboard and Transit, which is included in ourU.S. Media reportable segment, (2) International and (3) Sports Marketing. International and Sports Marketing do not meet the criteria to be a reportable segment and accordingly, are both included in Other. Our segment reporting therefore includesU.S. Media and Other.
The following table presents our Revenues, Adjusted OIBDA and Operating income
(loss) by segment in the three and six months ended
Three Months Ended Six Months Ended June 30, June 30, (in millions) 2020 2019 2020 2019 Revenues: U.S. Media$ 213.5 $ 419.6 $ 568.2 $ 758.0 Other 19.4 40.3 50.0 73.6 Total revenues$ 232.9 $ 459.9 $ 618.2 $ 831.6 Operating income (loss)$ (25.9) $ 88.7 $ 7.9 $ 125.6 Restructuring charges 4.7 - 4.7 0.3 Net (gain) loss on dispositions (5.2) 0.4 (5.3) (1.1) Depreciation 21.2 21.4 42.2 42.5 Amortization 21.7 27.6 48.0 52.3 Stock-based compensation 5.2 5.5 11.0 10.8 Total Adjusted OIBDA$ 21.7 $ 143.6 $ 108.5 $ 230.4 Adjusted OIBDA: U.S. Media$ 37.4 $ 145.8 $ 128.2 $ 240.4 Other (5.4) 8.8 (4.9) 10.0 Corporate (10.3) (11.0) (14.8) (20.0) Total Adjusted OIBDA$ 21.7 $ 143.6 $ 108.5 $ 230.4 Operating income (loss): U.S. Media$ (3.9) $ 101.9 $ 43.5 $ 157.4 Other (5.5) 3.3 (8.8) (0.7) Corporate (16.5) (16.5) (26.8) (31.1) Total operating income (loss)$ (25.9) $ 88.7 $ 7.9 $ 125.6 37
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Table of ContentsU.S. Media Three Months Ended Six Months Ended June 30, % June 30, % (in millions, except percentages) 2020 2019 Change 2020 2019 Change Revenues: Billboard$ 181.4 $ 285.1 (36) %$ 437.9 $ 521.3 (16) % Transit and other 32.1 134.5 (76) 130.3 236.7 (45) Total revenues 213.5 419.6 (49) 568.2 758.0 (25) Operating expenses (135.0) (217.3) (38) (337.7) (410.7) (18) SG&A expenses (41.1) (56.5) (27) (102.3) (106.9) (4) Adjusted OIBDA$ 37.4 $ 145.8 (74)$ 128.2 $ 240.4 (47) Adjusted OIBDA margin 18 % 35 % 23 % 32 % Operating income (loss)$ (3.9) $ 101.9 *$ 43.5 $ 157.4 (72) Restructuring charges 3.0 - * 3.0 - * Net (gain) loss on dispositions (1.1) 0.2 * (1.2) (1.3) (8) Depreciation and amortization 39.4 43.7 (10) 82.9 84.3 (2) Adjusted OIBDA$ 37.4 $ 145.8 (74)$ 128.2 $ 240.4 (47)
* Calculation is not meaningful.
TotalU.S. Media segment revenues decreased$206.1 million , or 49%, in the three months endedJune 30, 2020 , compared to the same prior-year period. In the three months endedJune 30, 2020 , we generated approximately 39% of ourU.S. Media segment revenues from national advertising campaigns and 46% in the same prior-year period. TotalU.S. Media segment revenues decreased$189.8 million , or 25%, in the six months endedJune 30, 2020 , compared to the same prior-year period. In the six months endedJune 30, 2020 , we generated approximately 41% of ourU.S. Media segment revenues from national advertising campaigns and 43% in the same prior-year period. The decreases inU.S. Media segment revenues were due primarily to a decline in average revenue per display (yield) as a result of the impact of the COVID-19 pandemic on customer advertising expenditures and overall demand for our services through purchase cancellations or otherwise. Revenues fromU.S. Media segment billboards decreased$103.7 million , or 36%, in the three months endedJune 30, 2020 , compared to the same prior-year period. Revenues fromU.S. Media segment billboards decreased$83.4 million , or 16%, in the six months endedJune 30, 2020 , compared to the same prior-year period. The decreases reflect a decline in average revenue per display (yield) as a result of the impact of the COVID-19 pandemic on customer advertising expenditures and overall demand for our services through purchase cancellations or otherwise. Transit and other revenues in theU.S. Media segment decreased$102.4 million , or 76%, in the three months endedJune 30, 2020 , compared to the same prior-year period and decreased$106.4 million , or 45%, in the six months endedJune 30, 2020 , compared to the same prior-year period. The decreases were driven by a decline in average revenue per display (yield) as a result of the impact of the COVID-19 pandemic on customer advertising expenditures and overall demand for our services through purchase cancellations or otherwise.U.S. Media segment operating expenses decreased$82.3 million , or 38%, in the three months endedJune 30, 2020 , compared to the same prior-year period.U.S. Media segment SG&A expenses decreased$15.4 million , or 27%, in the three months endedJune 30, 2020 , compared to the same prior-year period.U.S. Media segment operating expenses decreased$73.0 million , or 18%, in the six months endedJune 30, 2020 , compared to the same prior-year period.U.S. Media segment SG&A expenses decreased$4.6 million , or 4%, in the six months endedJune 30, 2020 , compared to the same prior-year period. The decreases inU.S. Media segment operating expenses were primarily driven by lower billboard and transit revenues resulting from the impact of the COVID-19 pandemic and lower transit franchise expenses paid to the MTA in the three months endedJune 30, 2020 . The decreases inU.S. Media segment SG&A expenses were primarily driven by lower compensation-related costs and lower professional fees, primarily resulting from cost reduction measures taken in response to the COVID-19 pandemic, partially offset by a higher provision for doubtful allowances. 38 -------------------------------------------------------------------------------- Table of ContentsU.S. Media segment Adjusted OIBDA decreased$108.4 million , or 74%, in the three months endedJune 30, 2020 , compared to the same prior-year period. Adjusted OIBDA margin was 18% in the three months endedJune 30, 2020 , and 35% in the same prior-year period.U.S. Media segment Adjusted OIBDA decreased$112.2 million , or 47%, in the six months endedJune 30, 2020 , compared to the same prior-year period. Adjusted OIBDA margin was 23% in the six months endedJune 30, 2020 , and 32% in the same prior-year period. Other Three Months Ended Six Months Ended June 30, % June 30, % (in millions, except percentages) 2020 2019 Change 2020 2019 Change Revenues: Billboard$ 7.1 $ 20.7 (66) %$ 21.5 $ 35.5 (39) % Transit and other 12.3 19.6 (37) 28.5 38.1 (25) Total revenues$ 19.4 $ 40.3 (52)$ 50.0 $ 73.6 (32) Organic revenues(a): Billboard$ 7.1 $ 20.1 (65)$ 21.5 $ 34.7 (38) Transit and other 12.3 19.4 (37) 28.5 37.9 (25) Total organic revenues(a) 19.4 39.5 (51) 50.0 72.6 (31) Non-organic revenues: Billboard - 0.6 * - 0.8 * Transit and other - 0.2 * - 0.2 * Total non-organic revenues - 0.8 * - 1.0 * Total revenues 19.4 40.3 (52) 50.0 73.6 (32) Operating expenses (19.0) (23.0) (17) (41.1) (46.5) (12) SG&A expenses (5.8) (8.5) (32) (13.8) (17.1) (19) Adjusted OIBDA$ (5.4) $ 8.8 *$ (4.9) $ 10.0 * Adjusted OIBDA margin (28) % 22 % (10) % 14 % Operating income (loss)$ (5.5) $ 3.3 *$ (8.8) $ (0.7) * Restructuring charges 0.7 - * 0.7 - * Net (gain) loss on dispositions (4.1) 0.2 * (4.1) 0.2 * Depreciation and amortization 3.5 5.3 (34) 7.3 10.5 (30) Adjusted OIBDA$ (5.4) $ 8.8 *$ (4.9) $ 10.0 *
* Calculation is not meaningful. (a)Organic revenues exclude the impact of foreign currency exchange rates ("non-organic revenues").
Total Other revenues decreased$20.9 million , or 52%, in the three months endedJune 30, 2020 , and decreased$23.6 million , or 32%, in the six months endedJune 30, 2020 , compared to the same prior-year periods, reflecting a decline in average revenue per display (yield) as a result of the impact of the COVID-19 pandemic on customer advertising expenditures and overall demand for our services through purchase cancellations or otherwise, as well as the cancellation of spring sports at colleges and universities. Other operating expenses decreased$4.0 , or 17%, in the three months endedJune 30, 2020 , compared to the same prior-year period. Other SG&A expenses decreased$2.7 million , or 32%, in the three months endedJune 30, 2020 , compared to the prior-year period. Other operating expenses decreased$5.4 million , or 12%, in the six months endedJune 30, 2020 , compared to the same prior-year period. Other SG&A expenses decreased$3.3 million , or 19%, in the six months endedJune 30, 2020 , compared to the prior-year period. The decreases in Other operating expenses were primarily driven by lower billboard and transit revenues, and lower expenses related to our Sports Marketing operating segment. The decreases in Other SG&A expenses were primarily driven by cost reduction measures taken in response to the COVID-19 pandemic. 39 -------------------------------------------------------------------------------- Table of Contents Other incurred an Adjusted OIBDA loss of$5.4 million in the three months endedJune 30, 2020 , compared to Adjusted OIBDA of$8.8 million in the same prior-year period and incurred an Adjusted OIBDA loss of$4.9 million in the six months endedJune 30, 2020 , compared to Adjusted OIBDA of$10.0 million in the same prior-year period. The decreases were due primarily to a decline in average revenue per display (yield) as a result of the impact of the COVID-19 pandemic on customer advertising expenditures and overall demand for our services through purchase cancellations or otherwise, as well as the cancellation of spring sports at colleges and universities, partially offset by cost reduction measures taken in response to the COVID-19 pandemic.
Corporate
Corporate expenses primarily include expenses associated with employees who provide centralized services. Corporate expenses, excluding stock-based compensation, were$10.3 million in the three months endedJune 30, 2020 , compared to$11.0 million in the same prior-year period, primarily due to lower compensation-related expenses, partially offset by the impact of market fluctuations on an equity-linked retirement plan offered by the Company to certain employees, and lower costs resulting from cost reduction measures taken in response to the COVID-19 pandemic. Corporate expenses, excluding stock-based compensation, were$14.8 million in the six months endedJune 30, 2020 , compared to$20.0 million in the same prior-year period, primarily due to lower compensation-related expenses, primarily related to the impact of market fluctuations on an equity-linked retirement plan offered by the Company to certain employees and resulting from cost reduction measures taken in response to the COVID-19 pandemic.
Liquidity and Capital Resources
As of
June 30, December 31, (in millions, except percentages) 2020 2019 % Change Assets: Cash and cash equivalents$ 647.8 $ 59.1 *% Restricted cash 1.8 1.8 -
Receivables, less allowance (
200.0 290.0 (31) Prepaid lease and transit franchise costs 6.6 8.6 (23) Prepaid MTA equipment deployment costs 4.1 55.4 (93) Other prepaid expenses 15.0 15.8 (5) Other current assets 12.4 5.1 143 Total current assets 887.7 435.8 104 Liabilities: Accounts payable 45.8 67.9 (33) Accrued compensation 25.6 56.1 (54) Accrued interest 27.0 26.4 2 Accrued lease and transit franchise costs 48.2 55.3 (13) Other accrued expenses 34.3 34.2 - Deferred revenues 38.3 29.0 32 Short-term debt 80.0 195.0 (59) Short-term operating lease liabilities 182.2 168.3 8 Other current liabilities 26.3 17.8 48 Total current liabilities 507.7 650.0 (22) Working capital (deficit)$ 380.0 $ (214.2) *
•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 on a monthly or quarterly basis, as applicable. 40
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Our short-term cash requirements primarily include payments for operating leases, guaranteed minimum annual payments, interest, capital expenditures, equipment deployment costs 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 borrowings under the Revolving Credit Facility (as defined below), the AR Securitization Facilities (as defined below) or other credit facilities that we may establish, to the extent available. 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. In response to the COVID-19 pandemic, we paused new acquisition activity. 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 borrowings under the Revolving Credit Facility or other credit facilities that we may establish, to the extent available. We expect our short-term and long-term cash needs and related funding capability to be adversely affected by the impact of the COVID-19 pandemic as cash on hand and operating cash flows decrease in 2020, and our ability to issue debt and equity securities and/borrow under our existing or new credit facilities on reasonable pricing terms, or at all, may become uncertain. In order to preserve financial flexibility and increase liquidity in light of the current uncertainty in the global economy and our business resulting from the COVID-19 pandemic, we borrowed$470.0 million under the Revolving Credit Facility, which was repaid in full as ofJune 30, 2020 , using the net proceeds from the offering of the Notes and cash on hand, raised$400.0 million in the Private Placement, before expenses, issued$400.0 million aggregate principal amount of the Notes and amended the Credit Agreement to modify the calculation of the Company's financial maintenance covenant ratio under the Credit Agreement, among other things. (See the "Overview-COVID-19 Impact" section of this MD&A.) The increase in working capital as ofJune 30, 2020 , compared to a working capital deficit as ofDecember 31, 2019 , is primarily driven by the increase in cash as a result of the Private Placement. The increase in cash is partially offset by a decline in Prepaid MTA deployment costs. As a result of the impact of the COVID-19 pandemic on our business and our expectations with respect to future revenues under the MTA agreement into the future, we reclassified the majority of Prepaid MTA deployment costs to long-term assets. 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, recoupable 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 did not recoup any equipment deployment costs in the six months endedJune 30, 2020 , and it's unlikely we will recoup equipment deployment costs in 2020. InJune 2020 , we entered into an amendment to the MTA agreement, pursuant to which (i) for up to$143.0 million of MTA equipment deployment costs to be incurred under the MTA agreement afterJune 2020 , the MTA and the Company will directly pay 70% and 30% of the costs, respectively, instead of the costs being recoupable from incremental revenues generated under the agreement, and (ii) any guaranteed minimum annual payment amounts that would have been paid for the period fromApril 1, 2020 throughDecember 31, 2020 (less any revenue share amounts actually paid during this period using an increased revenue share percentage of 65%) will instead be added in equal increments to the guaranteed minimum annual payment amounts owed for the period fromJanuary 1, 2022 , throughDecember 31, 2026 . In connection with the amendment to the MTA Agreement and in coordination with the MTA, after suspending our deployment of advertising and communications displays throughout the transit system inMarch 2020 as a result of the impact of the COVID-19 pandemic, we recommenced deployment in the third quarter of 2020. Accordingly, for the full year of 2020, we currently expect our MTA equipment deployment costs to be significantly lower than our previously disclosed amount of approximately$175.0 million as we recommence deployment in 2020. We may utilize cash on hand and/or incremental third-party financing to fund equipment 41 -------------------------------------------------------------------------------- Table of Contents deployment costs over the next couple of years. However, given the uncertainty in the market around the severity and duration of the COVID-19 pandemic, we cannot reasonably estimate the aggregate financing amount, if any, at this time. As ofJune 30, 2020 , 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. In addition, in the first quarter of 2020, we identified the COVID-19 pandemic as a trigger for impairment review of our Prepaid MTA equipment deployment costs and related intangible assets, and after performing an analysis, no impairment was identified. In the second quarter of 2020, we updated our projections in connection with the amendment to the MTA agreement and did not identify a triggering event for an impairment review of our Prepaid MTA equipment deployment costs. (See the "Critical Accounting Polices-MTA Agreement" section of this MD&A.) Further, we expect transit franchise expenses to materially increase as a percentage of revenues as revenues decline in 2020 as a result of the impact of the COVID-19 pandemic. (See the "Overview-COVID-19 Impact" section of this MD&A.) As indicated in the table below, we incurred$34.3 million related to MTA equipment deployment costs in the six months endedJune 30, 2020 (which includes equipment deployment costs related to future deployments), for a total of$281.9 million to date, of which$33.9 million had been recouped from incremental revenues to date. As ofJune 30, 2020 , 5,350 digital displays had been installed, of which 97 installations occurred in the three months endedJune 30, 2020 , for a total of 773 installations in the six months endedJune 30, 2020 . Beginning Deployment Costs (in millions) Balance Incurred Recoupment Amortization Ending Balance Six months endedJune 30, 2020 : Prepaid MTA equipment deployment costs$ 171.5 $ 28.3 $ - $ -$ 199.8 Intangible assets (franchise agreements) 38.3 6.0 - (2.7) 41.6 Total$ 209.8 $ 34.3 $ -$ (2.7) $ 241.4 Year endedDecember 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
As of
42 -------------------------------------------------------------------------------- Table of Contents Debt
Debt, net, consists of the following:
As ofJune 30 ,
(in millions, except percentages) 2020
2019
Short-term debt:
AR Facility $ - $
105.0
Repurchase Facility 80.0
90.0
Total short-term debt 80.0 195.0 Long-term debt: Term loan, due 2026 597.7 597.5
Senior unsecured notes:
5.625% senior unsecured notes, due 2024 501.5
501.7
6.250% senior unsecured notes, due 2025 400.0
-
5.000% senior unsecured notes, due 2027 650.0
650.0
4.625% senior unsecured notes, due 2030 500.0
500.0
Total senior unsecured notes 2,051.5
1,651.7
Debt issuance costs (30.8)
(27.1)
Total long-term debt, net 2,618.4 2,222.1 Total debt, net$ 2,698.4 $ 2,417.1
Weighted average cost of debt 4.5 % 4.5 % Payments Due by Period (in millions) Total 2020 2021-2022 2023-2024 2025 and thereafter Long-term debt$ 2,650.0 $ - $ -$ 500.0 $ 2,150.0 Interest 850.2 124.6 246.4 219.9 259.3 Total$ 3,500.2 $ 124.6 $ 246.4 $ 719.9 $ 2,409.3 Term Loan The interest rate on the term loan due in 2026 (the "Term Loan") was 1.9% per annum as ofJune 30, 2020 . As ofJune 30, 2020 , a discount of$2.3 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
We also have a
As of
The commitment fee based on the amount of unused commitments under the Revolving Credit Facility was$0.3 million in the three months endedJune 30, 2020 ,$0.3 million in the three months endedJune 30, 2019 ,$0.6 million in the six months endedJune 30, 2020 , and$0.7 million in the six months endedJune 30, 2019 . As ofJune 30, 2020 , we had issued letters of credit totaling approximately$1.6 million against the letter of credit facility sublimit under the Revolving Credit Facility. 43 -------------------------------------------------------------------------------- Table of Contents Standalone Letter of Credit Facilities
As of
Accounts Receivable Securitization Facilities
As of
OnJune 18, 2020 , the Company, certain subsidiaries of the Company andMUFG Bank, Ltd. ("MUFG") entered into amendments to certain of the agreements governing the Repurchase Facility, pursuant to which the Company, among other things, (i) decreased the maximum borrowing capacity under the Repurchase Facility from$90.0 million to$80.0 million ; and (ii) extended the term of the Repurchase Facility so that it will terminate onJune 29, 2021 , unless further extended. 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 taxable REIT subsidiaries ("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 may 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 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 ofJune 30, 2020 , there were no outstanding borrowings under the AR Facility and$80.0 million of outstanding borrowings under the Repurchase Facility, at a borrowing rate of approximately 1.9%. As ofJune 30, 2020 , there was no borrowing capacity remaining under the AR Facility based on approximately$237.9 million of accounts receivable used as collateral for the AR Securitization Facilities and a related voluntary temporary suspension of the AR Facility, 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 for each of the three and six months endedJune 30, 2020 and 2019.
Senior Unsecured Notes
OnMay 15, 2020 , two of our wholly-owned subsidiaries,Outfront Media Capital LLC ("Finance LLC ") andOutfront Media Capital Corporation ("Finance Corp " and, together withFinance LLC , the "Borrowers"), issued the Notes in a private placement. The 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 Notes is payable onJune 15 andDecember 15 of each year, beginning onDecember 15, 2020 . On or afterJune 15, 2022 , the Borrowers may redeem at any 44 -------------------------------------------------------------------------------- Table of Contents time, or from time to time, some or all of the Notes. Prior to such date, the Borrowers may redeem up to 40% of the aggregate principal amount of the aggregate principal amount with the net proceeds of certain equity offerings, provided that at least 50% of the aggregate principal amount of the Notes remain outstanding after the redemption.
In
As of
Debt Covenants
Our credit agreement, dated as ofJanuary 31, 2014 (as amended, supplemented or otherwise modified, the "Credit Agreement"), governing the Senior Credit Facilities, 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 restrict the Company's and its 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 exceptions, (ii) enter into agreements restricting certain subsidiaries' ability to pay dividends or make other intercompany or third-party transfers, and (iii) incur additional indebtedness. One of the exceptions to the restriction on our ability to incur additional indebtedness is satisfaction of a Consolidated Total Leverage Ratio, which is the ratio of our consolidated total debt to our Consolidated EBITDA (as defined in the Credit Agreement) for the trailing four consecutive quarters, of no greater than 6.0 to 1.0. As ofJune 30, 2020 , our Consolidated Total Leverage Ratio was 6.7 to 1.0 in accordance with the Credit Agreement. 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 ofJune 30, 2020 , our Consolidated Net Secured Leverage Ratio was 1.0 to 1.0 in accordance with the Credit Agreement. As ofJune 30, 2020 , we are in compliance with our debt covenants. OnApril 15, 2020 , the Company, along with the Borrowers, and other guarantor subsidiaries party thereto, entered into an amendment (the "Amendment") to the Credit Agreement. The Amendment provides that for the period fromApril 15, 2020 throughSeptember 30, 2021 (i) the Company's Consolidated Net Secured Leverage Ratio shall be calculated by substituting the Company's Consolidated EBITDA for each of the quarterly periods endedJune 30, 2020 andSeptember 30, 2020 , included in any last twelve month compliance testing period, with the Company's historical Consolidated EBITDA for each of the quarterly periods endedJune 30, 2019 andSeptember 30, 2019 , respectively; and (ii) the Company will not make any Restricted Payments (as defined in the Credit Agreement) without the consent of the applicable lenders under the Credit Agreement, subject to certain exceptions such as payments necessary to maintain the Company's REIT status, including any payments on any class of the Company's capital stock that is required to be made prior to the payment of a dividend or distribution on the Company's common stock and the Company's existing payment obligations to holders of the Class A equity interests in Outfront Canada (as defined in Note 10. Equity to the Consolidated Financial Statements).
Deferred Financing Costs
As ofJune 30, 2020 , we had deferred$36.1 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$8.3 million as ofJune 30, 2020 , and$4.6 million as ofDecember 31, 2019 , and is included in Other liabilities on our Consolidated Statement of Financial Position. 45
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As ofJune 30, 2020 , 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 0.2% as ofJune 30, 2020 .
Equity
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. No shares were sold under the ATM Program during the three and six months endedJune 30, 2020 . As ofJune 30, 2020 , we had approximately$232.5 million of capacity remaining under the ATM Program.
Series A Preferred Stock Issuance
OnApril 20 2020 (the "Closing Date"), the Company issued and sold an aggregate of 400,000 shares of Series A Preferred Stock, par value$0.01 per share, at a purchase price of$1,000 per share, for an aggregate purchase price of$400.0 million (the "Private Placement") to certain affiliates ofProvidence Equity Partners LLC (collectively, the "Providence Purchasers") andASOF Holdings L.L.P. and Ares Capital Corporation (collectively, the "Ares Purchasers" and, together with the Providence Purchasers, the "Purchasers"). The Series A Preferred Stock ranks senior to the shares of the Company's common stock, par value$0.01 per share, with respect to dividend and distribution rights. Holders of the Series A Preferred Stock are entitled to a cumulative dividend accruing at the initial rate of 7.0% per year, payable quarterly in arrears. The dividend rate will increase by an additional 0.75% annually following the eighth anniversary of the Closing Date and is subject to increases under certain other circumstances as set forth in the Articles Supplementary, effective as ofApril 20, 2020 (the "Articles"). Dividends may, at the option of the Company, be paid in cash, in-kind, through the issuance of additional shares of Series A Preferred Stock or a combination of cash and in-kind, until the eighth anniversary of the Closing Date, after which time dividends will be payable solely in cash. So long as any shares of Series A Preferred Stock remain outstanding, the Company may not declare a dividend on, or make any distributions relating to, capital stock that ranks junior to, or on a parity basis with, the Series A Preferred Stock, subject to certain exceptions, including but not limited to (i) any dividend or distribution in cash or capital stock of the Company on or in respect of the capital stock of the Company to the extent that such dividend or distribution is necessary to maintain the Company's status as a REIT; and (ii) any dividend or distribution in cash in respect of our common stock that, together with the dividends or distributions during the 12-month period immediately preceding such dividend or distribution, is not in excess of 5% of the aggregate dividends or distributions paid by the Company necessary to maintain its REIT status during such 12-month period. Following the one-year anniversary of the Closing Date, if all or any portion of the dividends or distributions is paid in respect of the shares of our common stock in cash, the shares of Series A Preferred Stock will participate in such dividends or distributions on an as-converted basis up to the amount of their accrued dividend on the Series A Preferred Stock for such quarter, which amounts will reduce the dividends payable on the shares of Series A Preferred Stock dollar-for-dollar for such quarter. The Series A Preferred Stock is convertible at the option of any holder at any time into shares of our common stock at an initial conversion price of$16.00 per share and an initial conversion rate of 62.50 shares of our common stock per share of Series A Preferred Stock, subject to certain anti-dilution adjustments. The issuance of shares of our common stock upon the conversion of Series A Preferred Stock is subject to a cap equal to 28,856,239 shares of our common stock (the "Share Cap"), unless and until the Company obtains stockholder approval to the extent required for the issuance of additional shares. Any amounts owed above the Share Cap must be paid in cash. Subject to certain conditions, at the Company's option, (i) after the third anniversary of the Closing Date, all of the Series A Preferred Stock may be converted into shares of our common stock, and (ii) after the seventh anniversary of the Closing Date, all of the Series A Preferred Stock may be redeemed for cash at a redemption price equal to 100% of the liquidation preference of the Series A Preferred Stock, plus any accrued and unpaid dividends. Subject to certain conditions, each holder of the Series A Preferred Stock, after a Change of Control (as defined in the Articles) may (i) require the Company to purchase any or all of their shares of Series A Preferred Stock at a redemption price payable in cash equal to 105% of the liquidation preference of the Series A Preferred Stock, plus any accrued and unpaid dividends, or (ii) convert any or all of their shares of Series A Preferred 46 -------------------------------------------------------------------------------- Table of Contents Stock into the number of shares of our common stock equal to the liquidation preference (including accrued and unpaid dividends) divided by the then-applicable conversion price. During the three months endedJune 30, 2020 , we paid cash dividends of$5.5 million on the Series A Preferred Stock. As ofJune 30, 2020 , the maximum number of shares of common stock that could be required to be issued on conversion of the outstanding shares of Series A Preferred Stock was 25.0 million shares.
Cash Flows
The following table presents our cash flows in the six months endedJune 30, 2020 and 2019. Six Months Ended June 30, % (in millions, except percentages) 2020 2019 Change Cash provided by operating activities$ 50.7 $ 83.5 (39) % Cash used for investing activities (49.3) (82.5) (40) Cash provided by financing activities 588.3 420.7 40 Effect of exchange rate changes on cash, cash equivalents and restricted cash (1.0) 0.4 * Net increase in cash, cash equivalents and restricted cash$ 588.7 $ 422.1 39
*Calculation is not meaningful.
Cash provided by operating activities decreased$32.8 million , or 39%, in the six months endedJune 30, 2020 , compared to the same prior-year period, driven by the impact of the COVID-19 pandemic, partially offset by the impact of cost reduction measures taken in response to the COVID-19 pandemic. In the six months endedJune 30, 2020 , we paid$28.3 million related to MTA equipment deployment costs and installed 773 digital displays. In the six months endedJune 30, 2019 , we paid$58.6 million related to MTA equipment deployment costs.
Cash used for investing activities decreased
The following table presents our capital expenditures in the six months endedJune 30, 2020 and 2019. Six Months Ended June 30, % (in millions, except percentages) 2020 2019 Change Growth$ 20.8 $ 31.0 (33) % Maintenance 11.1 8.6 29 Total capital expenditures$ 31.9 $ 39.6 (19) Capital expenditures decreased$7.7 million , or 19%, in the six months endedJune 30, 2020 , compared to the same prior-year period, due to lower spending on installation of the most current LED lighting technology and lower spending on digital billboard and transit display projects. In response to the impact of the COVID-19 pandemic, we reduced maintenance capital expenditures (other than for necessary safety-related projects) and growth capital expenditures for digital billboard display conversions. For the full year of 2020, we expect our capital expenditures to be approximately$50.0 million , which will be used primarily for necessary safety-related maintenance projects and growth in digital displays for which screens have already been ordered or received. Cash provided by financing activities increased$167.6 million , or 40%, in the six months endedJune 30, 2020 , compared to the same prior-year period. In the six months endedJune 30, 2020 , we received net proceeds of$400.0 million related to the Notes offering and received net proceeds of$383.9 million related to the issuance of the Series A Preferred Stock to enhance our liquidity position in response to the COVID-19 pandemic and made net repayments under the AR Securitization Facilities of$115.0 million and paid total cash dividends on the Series A Preferred Stock and on our common stock of$61.1 million . In the six months endedJune 30, 2019 , we received net proceeds of$650.0 million related to our 2027 senior unsecured notes offering, received net proceeds of$50.9 million related to the sale of our common stock under the ATM Program, made net 47 -------------------------------------------------------------------------------- Table of Contents repayments of$160.0 million on the AR Securitization Facilities and paid cash dividends on our common stock of$103.9 million .
Cash paid for income taxes was
Off-Balance Sheet Arrangements
Our off-balance sheet commitments primarily consist of guaranteed minimum annual payments. (See Note 18. 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, including the impact of extraordinary events such as the COVID-19 pandemic. 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, including the severity and duration of the COVID-19 pandemic. We consider the following accounting policy to be the most critical as it is significant to our financial condition and results of operations, and requires significant judgment and estimates on the part of management in its application. For a summary of our significant accounting policies, see Item 8., Note 2. Summary of Significant Accounting Policies to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , filed with theSEC onFebruary 26, 2020 .
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 recoupable MTA equipment 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. In the first quarter of 2020, we identified the COVID-19 pandemic as a trigger for an impairment review of our Prepaid MTA equipment deployment costs and related intangible assets. After updating our projections to reflect related declines in revenues in 2020 and delays in our anticipated deployment schedule as a result of the impact of the COVID-19 pandemic, among other things, no impairment was identified. In the second quarter of 2020, we updated our projections in 48 -------------------------------------------------------------------------------- Table of Contents connection with the amendment to the MTA agreement and did not identify a triggering event for an impairment review of our Prepaid MTA equipment deployment costs. The assumptions and estimates included in our analysis require significant judgment about future events, market conditions and financial performance. Given the uncertainty around the severity and duration of the COVID-19 pandemic and the measures taken, or may be taken, in response to the COVID-19 pandemic, actual results may differ from our assumptions and estimates, which may result in impairment charges in the future.
Accounting Standards
See Note 2. New Accounting Standards to the Consolidated Financial Statements for information about the adoption of new accounting standards and recent accounting pronouncements.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
We have made statements in this Annual Report on Form 10-K that are forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. You can identify forward-looking statements by the use of forward-looking terminology such as "believes," "expects," "could," "would," "may," "might," "will," "should," "seeks," "likely," "intends," "plans," "projects," "predicts," "estimates," "forecast" or "anticipates" or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and that do not relate solely to historical matters. You can also identify forward-looking statements by discussions of strategy, plans or intentions related to our capital resources, portfolio performance and results of operations, including but not limited to the impact of the COVID-19 pandemic on our capital resources, portfolio performance and results of operations. Forward-looking statements involve numerous risks and uncertainties and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods that may be incorrect or imprecise and may not be able to be realized. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements: •The severity and duration of the novel coronavirus (COVID-19) and any other pandemics, and the impact on our business, financial condition and results of operations; •Declines in advertising and general economic conditions, including declines caused by the COVID-19 pandemic; •Competition; •Government regulation; •Our ability to implement our digital display platform and deploy digital advertising displays to our transit franchise partners, including the impact of the COVID-19 pandemic; •Taxes, fees and registration requirements; •Our ability to obtain and renew key municipal contracts on favorable terms; •Decreased government compensation for the removal of lawful billboards; •Content-based restrictions on outdoor advertising; •Environmental, health and safety laws and regulations; •Seasonal variations; •Acquisitions and other strategic transactions that we may pursue could have a negative effect on our results of operations; •Dependence on our management team and other key employees; •The ability of our board of directors to cause us to issue additional shares of stock without stockholder approval; •Certain provisions ofMaryland law may limit the ability of a third party to acquire control of us; •Our rights and the rights of our stockholders to take action against our directors and officers are limited; •Our substantial indebtedness; •Restrictions in the agreements governing our indebtedness; •Incurrence of additional debt; •Interest rate risk exposure from our variable-rate indebtedness; •Our ability to generate cash to service our indebtedness; •Cash available for distributions; •Hedging transactions; •Diverse risks in our Canadian business; •Experiencing a cybersecurity incident; •Changes in regulations and consumer concerns regarding privacy, information security and data, or any failure or perceived failure to comply with these regulations or our internal policies; •Asset impairment charges for our long-lived assets and goodwill; 49
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Table of Contents •Our failure to remain qualified to be taxed as a real estate investment trust ("REIT"); •REIT distribution requirements; •Availability of external sources of capital; •We may face other tax liabilities even if we remain qualified to be taxed as a REIT; •Complying with REIT requirements may cause us to liquidate investments or forgo otherwise attractive opportunities; •Our ability to contribute certain contracts to a taxable REIT subsidiary ("TRS"); •Our planned use of TRSs may cause us to fail to remain qualified to be taxed as a REIT; •REIT ownership limits; •Complying with REIT requirements may limit our ability to hedge effectively; •Failure to meet the REIT income tests as a result of receiving non-qualifying income; •The Internal Revenue Service (the "IRS") may deem the gains from sales of our outdoor advertising assets to be subject to a 100% prohibited transaction tax; and •Establishing operating partnerships as part of our REIT structure. While forward-looking statements reflect our good-faith beliefs, they are not guarantees of future performance. All forward-looking statements in this Quarterly Report on Form 10-Q apply as of the date of this report or as of the date they were made and, except as required by applicable law, we disclaim any obligation to publicly update or revise any forward-looking statement to reflect changes in underlying assumptions or factors of new information, data or methods, future events or other changes. For a further discussion of these and other factors that could impact our future results, performance or transactions, see the section entitled "Risk Factors" in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the year endedDecember 31, 2019 , filed with theSEC onFebruary 26, 2020 . You should understand that it is not possible to predict or identify all such factors. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties.
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