Outfront Medi Inc. (NYSE: OUT) reported its earnings for the first quarter of the year ending 31 March 2020 on 8 May 2020. Its revenues increased by 3.7% and stood at $385.3 million (an increase by $13.6 million). Billboard revenues increased by $19.9 million to reach $270.9 million while Transit and other revenues decreased by $6.3 million to drop at $114.4 million. The adjusted OBIDA for the company was $86.8 million flat. Further, despite the outbreak of the pandemic during the quarter the results were not severely affected.
Jeremy Male (Chairman and CEO of Outfront Media Inc.) stated that, “As we move forward, our business will see significant impacts from the pandemic ahead of early signs of improvement we are seeing in audience trends. Recognizing this challenging economic period, we moved quickly to enhance our liquidity, relieve our expense base and cash outflows and, importantly, position ourselves to emerge with financial flexibility as the crisis passes.”
The companies business is divided into two segments-
- U.S. Media: The revenues for the segment increased by $16.3 million and were recorded at $354.7 million (an increase of 4.8%). The segment saw an increase in its revenues as a result of growth in revenues from digital billboards and digital transit displays, while static transit revenues saw a decline. Transit revenues decreased by 3.9% as a result of the Covid-19 pandemic but was partially backed by growth in revenues from digital displays.
- Other: The revenues for the segment decreased by $2.7 million (a decrease of 8.1%). This decrease was mainly seen as a result of decrease in the sales of third-party digital equipment and a decrease in Canada. The organic revenues of the segment decreased by $2.5 million (a decrease of 7.6%).
(Source: Business Quant)
The total Operating income increased by $7.9 million during the period to reach $224.8 million (an increase by 3.6%). This was primarily due to the increased expenses relating to billboard leases and postings, maintenance and others. Selling, General and Administrative expenses increased by $6.2 million and accounted for $79.5 million (an increase by 8.5%). This was mainly due to the higher provisions for doubtful accounts that were created as an action against the outbreak of the pandemic.
Reasons for increased operating expenses in the quarter-
- Higher compensations and employee related costs
- Higher maintenance and other costs
- Higher billboard lease costs and higher postings
Operating expenses in the U.S Media segment increased by $9.3 million (an increase by 4.8%) while in the Other segment it decreased by $1.4 million (a decrease by 6%). The decrease was a result of lower costs related to the third-party digital equipment sales.
Effects of the outbreak of Covid-19
The pandemic has significantly affected the company’s business in the following ways-
- Interruptions into building and deploying of advertisement structures and sites (including digital displays)
- Reductions or curtailing of the company’s customers’ advertising expenditures and overall demand for the services through purchase cancellations
- Increase in the volatility of the company’s consumers expenditure patterns through the period: short notice purchases, purchase deferrals etc.
- Collection of earned advertising revenues from customers are being delayed further by the company, which would have an adverse effect on the company financials.
Though the company was able to earn revenues and have a positive financial standing in the first quarter of the year, if the effect of the pandemic is prolonged for a long time the company expects the key performance indicators to be materially lower in the coming quarters than any historical levels.
The company has taken the following steps in order to increase its liquidity levels to overcome the uncertainties arising due to the pandemic-
- Cost saving initiatives
- Borrowed nearly all of the remaining amount under the revolving credit facility
- Amendment of the credit agreement governing the revolving credit facility
- Completion of private placement
(Source: Business Quant)
The dividend paid by the company has been on a decline trend over the period. The company has paid cash dividends of $55.6 million for the quarter. However, taking into account the uncertainty of the current situation and to preserve the financial stability and liquidity the company has decided to suspend the quarterly dividends on its common stocks.
Capital expenditures have increased in the quarter by $0.1 million to $18.2 million (an increase by 0.6%). These increases in expenditures are a result of lower revenues and growing maintenance and other expenses that are incurred by the company.
In the end, I would like to conclude by stating that the long prolongation of the pandemic would have a severe negative impact on the company financials. The company would not be able to sustain itself effectively and would tentatively start incurring losses. The company needs to start generating revenues through different avenues or diversify into operations that would help them sustain through the period of the pandemic.
The current scenario is not one of the best for investors to invest into the company. Better financial planning and strategies need to be employed by the top level management to make the most optimum use of the resources available by the firm.