OUTFRONT Media Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with our historical consolidated financial statements and the notes thereto in “Item 8. Financial Statements and Supplementary Data.” This MD&A contains forward-looking statements that involve numerous risks and uncertainties. The forward-looking statements are subject to a number of important factors, including, but not limited to, those factors discussed in “Item 1A. Risk Factors” and the “Cautionary Statement Regarding Forward-Looking Statements” section of this Annual Report on Form 10-K, that could cause our actual results to differ materially from the results described herein or implied by such forward-looking statements. Management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 2021, as compared to the year ended December 31, 2020, is included in “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report on Form 10-K for the year ended December 31, 2021, filed with the Securities and Exchange Commission (the “SEC“) on February 24, 2022. Overview OUTFRONT Media is a real estate investment trust (“REIT”), which provides advertising space (“displays”) on out-of-home advertising structures and sites in the United States (the “U.S.”) and Canada. We currently manage our operations through two operating segments—U.S. Billboard and Transit, which is included in our U.S. Media reportable segment, and International. International does not meet the criteria to be a reportable segment and accordingly, is included in Other (see Item 8., 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 the U.S. and Canada. 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 the U.S. and Canada. In total, we have displays in all of the 25 largest markets in the U.S. and approximately 150 markets in the U.S. and Canada. Our top market, high profile location focused portfolio includes sites in and around both Grand Central Station and Times Square in New York, various locations along Sunset Boulevard in Los Angeles, and the Bay Bridge in San 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. 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, creative services and post-campaign tracking and analytics. U.S. Media. Our U.S. Media segment generated 20% of its revenues in the New York City metropolitan area in 2022 and 17% in 2021, and generated 15% in the Los Angeles metropolitan area in each of 2022 and 2021. Our U.S. Media segment generated Revenues of $1,673.9 million in 2022 and $1,382.0 million in 2021, and Operating income before Depreciation , Amortization , Net gain on dispositions , Stock-based compensation and an Impairment charge (“Adjusted OIBDA”) of $501.2 million in 2022 and $382.9 million in 2021. (See the “Segment Results of Operations” section of this MD&A.) Other (includes International). Other generated Revenues of $98.2 million in 2022 and $81.9 million in 2021, and Adjusted OIBDA of $20.6 million in 2022 and $10.4 million in 2021. 37 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 supply chain disruptions, heightened levels of inflation, pandemics like the COVID-19 pandemic, and shifts in market demographics and transportation patterns (including reductions in foot traffic, roadway traffic, commuting, transit ridership and overall target audiences due to remote work, safety concerns or otherwise), as described in this MD&A. We rely on third parties to manufacture and transport our digital displays. As a result of the current market-wide supply shortages and logistics disruptions, we have experienced delays and price increases with respect to certain of our digital displays, which we expect to continue in 2023, and could have an adverse effect on our business, financial condition and results of operations. Due to the current heightened levels of inflation and commodity prices in the U.S. and abroad, which has resulted in rising interest rates, we have experienced increases with respect to our posting, maintenance and other expenses, our corporate expenses and our interest expense, which we expect to continue in 2023, and could have an adverse effect on our business, financial condition and results of operations. Our billboard property lease expenses and transit franchise expenses have been less impacted by the current heightened levels of inflation due to the long-term nature of most of our operating leases and transit franchise agreements. However, our transit franchise agreements that contain inflationary price adjustments may cause increases in our transit franchise expenses in the near-term if the current heightened levels of inflation continue. Though the Company cannot reasonably estimate the full impact of the current heightened levels of inflation on our business, financial condition and results of operations at this time, a portion of these increases may be partially offset by increases in advertising rates on our displays and cost efficiencies. Business Environment The outdoor advertising industry is fragmented, consisting of several companies operating on a national basis, as well as hundreds of smaller regional and local companies operating a limited number of displays in a single or a few local geographic markets. We compete with these companies for both customers and structure and display locations. We also compete with other media, including online, mobile and social media advertising platforms and traditional advertising platforms (such as television, radio, print and direct mail marketers). In addition, we compete with a wide variety of out-of-home media, including advertising in shopping centers, airports, movie theaters, supermarkets and taxis. Increasing the number of digital displays in our prime audience locations is an important element of our organic growth strategy, as digital displays have the potential to attract additional business from both new and existing customers. We believe digital displays are attractive to our customers because they allow for the development of richer and more visually engaging messages, provide our customers with the flexibility both to target audiences by time of day and to quickly launch new advertising campaigns, and eliminate or greatly reduce print production and installation costs. In addition, digital displays enable us to run multiple advertisements on each display. Digital billboard displays generate approximately four times more revenue per display on average than traditional static billboard displays. Digital billboard displays also incur, on average, approximately two to four times more costs, including higher variable costs associated with the increase in revenue than traditional static billboard displays. As a result, digital billboard displays generate higher profits and cash flows than traditional static billboard displays. We have deployed state-of-the-art digital transit displays in connection with several transit franchises we operate and we expect to continue these deployments over the coming years. In the future, we expect revenues generated on digital transit displays will be a multiple of the revenues generated on comparable static transit displays. We intend to incur significant equipment deployment costs and capital expenditures in the coming years to continue increasing the number of digital displays in our portfolio. 38 We built or converted 110 new digital billboard displays in the U.S. and 9 in Canada in 2022. Additionally, in 2022, we entered into marketing arrangements to sell advertising on 85 third-party digital billboard displays in the U.S. In 2022, we built, converted or replaced 3,410 digital transit and other displays in the U.S. The following table sets forth information regarding our digital displays. Digital Revenues (in millions) for the Year Ended December 31, 2022 Number of Digital Displays as of December 31, 2022 (a) Location Digital Billboard Digital Transit and Other Total Digital Revenues Digital Billboard Displays Digital Transit and Other Displays Total Digital Displays United States $ 368.5 $ 137.1 $ 505.6 1,702 15,998 17,700 Canada 32.3 2.0 34.3 268 78 346 Total $ 400.8 $ 139.1 $ 539.9 1,970 16,076 18,046 (a) Digital display amounts include 4,374 displays reserved for transit agency use. 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. We have a diversified base of customers across various industries. During 2022, our largest categories of advertisers were entertainment, retail and health/medical, which represented 20%, 11%, and 10% of our total U.S. Media segment revenues, respectively. During 2021, our largest categories of advertisers were entertainment, health/medical and retail, which represented 19%, 10% and 10% of our total U.S. Media segment revenues. 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 2022, we generated approximately 44% of our U.S. Media segment revenues from national advertising campaigns, compared to approximately 42% in 2021. Our transit businesses require us to periodically obtain and renew contracts with municipalities and other governmental entities. When these contracts expire, we generally must participate in highly competitive bidding processes in order to obtain or renew contracts. 39 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 in the United States of America (“GAAP”). We believe these non-GAAP performance indicators are meaningful supplemental measures of our operating performance and should not be considered in isolation of, or as a substitute for, their most directly comparable GAAP financial measures. Year Ended December 31, (in millions, except percentages) 2022 2021 % Change Revenues $ 1,772.1 $ 1,463.9 21 % Organic revenues (a)(b) 1,761.1 1,460.5 21 Operating income 287.7 168.3 71 Adjusted OIBDA (b) 472.4 340.3 39 Adjusted OIBDA (b) margin 27 % 23 % Net income attributable to OUTFRONT Media Inc. 147.9 35.6 * Funds from operations (“FFO”) (b) attributable to OUTFRONT Media Inc. 325.2 195.1 67 Adjusted FFO (“AFFO”) (b) attributable to OUTFRONT Media Inc. 311.3 205.1 52 * Calculation is not meaningful. (a) Organic revenues exclude revenues associated with a significant acquisition and the impact of foreign currency exchange rates (“non-organic revenues”). We provide organic revenues to understand the underlying growth rate of revenue excluding the impact of non-organic revenue items. Our management believes organic revenues are useful to users of our financial data because it enables them to better understand the level of growth of our business period to period. Since organic revenues are not calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, revenues as an indicator of operating performance. Organic revenues, as we calculate it, may not be comparable to similarly titled measures employed by other companies. (b) See the “Reconciliation of Non-GAAP Financial Measures” and “Revenues” sections of this MD&A for reconciliations of Operating income to Adjusted OIBDA, Net income attributable to OUTFRONT Media Inc. to FFO attributable to OUTFRONT Media Inc. and AFFO attributable to OUTFRONT Media Inc. and Revenues to organic revenues. 40 Analysis of Results of Operations Revenues We derive Revenues primarily from providing advertising space to customers on our advertising structures and sites. Our contracts with customers generally cover periods ranging from four weeks to one year. Revenues from billboard displays are recognized as rental income on a straight-line basis over the contract term. Transit and other revenues are recognized over the contract period. (See Item 8., Note 11. Revenues to the Consolidated Financial Statements.) Year Ended December 31, % Change (in millions, except percentages) 2022 2021 Revenues: Billboard $ 1,384.7 $ 1,182.3 17 % Transit and other 387.4 281.6 38 Total revenues 1,772.1 1,463.9 21 Organic revenues (a) : Billboard $ 1,373.7 $ 1,179.4 16 Transit and other 387.4 281.1 38 Total organic revenues (a) 1,761.1 1,460.5 21 Non-organic revenues: Billboard 11.0 2.9 * Transit and other — 0.5 * Total non-organic revenues 11.0 3.4 * Total revenues $ 1,772.1 $ 1,463.9 21 * Calculation is not meaningful. (a) Organic revenues exclude revenues associated with a significant acquisition and the impact of foreign currency exchange rates (“non-organic revenues”). Total revenues increased $308.2 million, or 21%, and organic revenues increased $300.6 million, or 21%, in 2022 compared to 2021. In 2022, non-organic revenues reflect the impact of a significant acquisition. In 2021, non-organic revenues reflect the impact of foreign currency exchange rates. Total billboard revenues increased $202.4 million, or 17%, in 2022 compared to 2021, primarily due to an increase in average revenue per display (yield) as we have experienced increases in overall demand for our services, and the impact of new and lost billboards in the period, including acquisitions. Organic billboard revenues increased $194.3 million, or 16%, in 2022 compared to 2021, primarily due to an increase in average revenue per display (yield) as we have experienced increases in overall demand for our services and the net effect of new and lost billboards in the period, including insignificant acquisitions. Total transit and other revenues increased $105.8 million, or 38%, in 2022 compared to 2021, primarily driven by an increase in average revenue per display (yield), as we have experienced increases in overall demand for our services primarily due to an increase in transit ridership, partially offset by the loss of a transit franchise contract. Organic transit and other revenues in 2022 increased $106.3 million, or 38%, compared to 2021, primarily driven by an increase in average revenue per display (yield) as we have experienced increases in overall demand for our services primarily due to an increase in transit ridership, partially offset by the loss of a transit franchise contract. Transit ridership remains materially below pre-COVID-19 pandemic levels in our largest transit markets and while we expect ridership and revenue to continue to grow, we do not expect to reach pre-COVID-19 pandemic levels in 2023. 41 Expenses Year Ended December 31, % Change (in millions, except percentages) 2022 2021 Expenses: Operating $ 911.4 $ 784.0 16 % Selling, general and administrative 422.1 368.2 15 Net (gain) loss on dispositions 0.2 (4.5) * Impairment charge — 2.5 * Depreciation 77.4 79.4 (3) Amortization 73.3 66.0 11 Total expenses $ 1,484.4 $ 1,295.6 15 * Calculation is not meaningful. Operating Expenses Our operating expenses are composed of the following: Billboard property lease expenses . These expenses reflect the cost of leasing the real property on which our billboards are mounted. These lease agreements have terms varying between one month and multiple years, and usually provide renewal options. Rental expenses are comprised of a fixed rental amount and under certain agreements, also include contingent rent, which varies based on the revenues we generate from the leased site. The fixed portion of property leases are generally paid in advance for periods ranging from one to twelve months and expensed evenly over the contract term. Contingent rent is generally paid in arrears and is expensed as incurred when the related revenues are recognized. Transit franchise expenses . These expenses reflect costs charged by municipalities and transit operators under transit advertising contracts. All of these contracts have fixed terms, are typically terminable for convenience at the option of the governmental entity (other than with respect to the New York Metropolitan Transportation Authority (the “MTA”)), and generally provide for payments to the governmental entity based on a percentage of the revenues generated under the contract and/or a guaranteed minimum annual payment. The costs that are determined based on a percentage of revenues are expensed as incurred when the related revenues are recognized, and any guaranteed minimum annual payment is expensed over the contract term. Posting, maintenance and other site-related expenses . These expenses primarily reflect costs associated with posting and rotation, materials, repairs and maintenance, utilities and property taxes. Year Ended December 31, % Change (in millions, except percentages) 2022 2021 Operating expenses: Billboard property lease $ 454.7 $ 404.6 12 % Transit franchise 235.3 183.4 28 Posting, maintenance and other 221.4 196.0 13 Total operating expenses $ 911.4 $ 784.0 16 Billboard property lease expenses represented 33% of billboard revenues in 2022 and 34% in 2021. Billboard property lease expenses as a percentage of billboard revenues in 2022 were slightly lower than pre-COVID-19 pandemic levels. The decrease in billboard property lease expenses as a percentage of revenues in 2022 compared to 2021 is primarily due to an increase in billboard revenues and the fixed nature of certain billboard property lease expenses (see Item 8., Note 5. Leases to the Consolidated Financial Statements). Transit franchise expenses represented 67% of transit display revenues in 2022 and 73% in 2021. The decrease in transit franchise expense, as a percentage of revenues, is primarily driven by an increase in transit revenue, while the MTA was paid guaranteed minimum annual payments in both 2022 and 2021. We expect transit franchise expenses, as a percentage of revenues, to decline in 2023, but remain above pre-COVID-19 pandemic levels, as a result of our expectation that revenues generated under the MTA agreement will be closer to a guaranteed minimum annual payment break-even level in 2023 than in 2022. 42 Billboard property lease and transit franchise expenses increased by $102.0 million in 2022 compared to 2021, primarily due to higher billboard and transit revenues, and higher guaranteed minimum annual payments to the MTA. Posting, maintenance and other expenses, as a percentage of revenues, were 12% in 2022 and 13% in 2021. Posting, maintenance and other expenses increased $25.4 million, or 13%, in 2022 compared to 2021, primarily due to higher posting and rotation costs, higher maintenance and utilities cost, driven by economic recovery from the COVID-19 pandemic and inflation-driven cost increases in 2022, higher compensation-related expenses and increased activity resulting in higher production and materials cost. Selling, General and Administrative Expenses (“SG&A”) SG&A expenses represented 24% of Revenues in 2022 and 25% in 2021. SG&A expenses increased $53.9 million, or 15%, in 2022 compared to 2021, primarily due to higher compensation-related expenses, including commissions and salaries, driven by both business performance improvements during the period and the impact of COVID-19 on 2021, a higher provision for doubtful accounts, increased post-COVID-19 pandemic travel resulting in higher travel and entertainment expenses, and higher professional fees, partially offset by the impact of market fluctuations on an unfunded equity-linked retirement plan offered by the Company to certain employees. Net (Gain) Loss on Dispositions Net loss on dispositions was $0.2 million in 2022 compared a Net gain on dispositions of $4.5 million in 2021. Impairment Charge In 2021, we recorded $2.5 million in impairment charges related to an other-than-temporary decline in fair value of a cost-method investment. Depreciation Depreciation decreased $2.0 million, or 3%, in 2022 compared to 2021, primarily due to an increase in fully-depreciated assets, partially offset by new capital expenditures and acquisitions. Amortization Amortization increased $7.3 million, or 11%, in 2022 compared to 2021, principally driven by higher amortization of leasehold interest intangibles recorded related to asset acquisitions completed during 2021 and 2022. Interest Expense Interest expense, net, was $131.8 million (including $6.5 million of deferred financing costs) in 2022 and $130.4 million (including $7.1 million of deferred financing costs) in 2021. The increase in Interest expense, net, in 2022 compared to 2021, was primarily due to higher interest rates, partially offset by the impact of interest rate swaps in 2021 and a lower average debt balance. Loss on Extinguishment of Debt In 2021, we recorded a loss on extinguishment of debt of $6.3 million relating to the redemption of our 5.625% Senior Unsecured Notes due 2024 in the first quarter of 2021. Benefit (Provision) for Income Taxes Provision for income taxes was $9.4 million in 2022 compared to a Benefit for income taxes of $3.4 million in 2021, due primarily to the recording of a valuation allowance against our U.S. taxable REIT subsidiary (“TRS”) deferred tax assets and increased profitability in Canada in 2022. The effective income tax rate was 6.0% for 2022 and 10.8% for 2021. 43 Net Income Net income before allocation to non-controlling interests increased $112.7 million in 2022 compared to 2021, due primarily to higher operating income, as we have experienced increases in customer advertising expenditures and overall demand for our services, and a loss on extinguishment of debt in 2021. Reconciliation of Non-GAAP Financial Measures Adjusted OIBDA We calculate Adjusted OIBDA as operating income (loss) before depreciation, amortization, net (gain) loss on dispositions, stock-based compensation, restructuring charges and an impairment charge. 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. FFO and AFFO When used herein, references to “FFO” and “AFFO” mean “FFO attributable to OUTFRONT Media Inc.” and “AFFO attributable to OUTFRONT Media Inc.,” respectively. We calculate FFO in accordance with the definition established by the National Association of Real Estate Investment Trusts (“NAREIT”). FFO reflects net income (loss) attributable to OUTFRONT 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 and losses on extinguishment of debt, as well as certain non-cash items, including non-real estate depreciation and amortization, a gain on disposition of non-real estate assets, an impairment charge on non-real estate assets, 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, along with 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 to OUTFRONT 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. 44 The following table reconciles Operating income to Adjusted OIBDA, and Net income (loss) attributable to OUTFRONT Media Inc. to FFO attributable to OUTFRONT Media Inc. and AFFO attributable to OUTFRONT Media Inc. Year Ended December 31, (in millions) 2022 2021 Total revenues $ 1,772.1 $ 1,463.9 Operating income $ 287.7 $ 168.3 Net (gain) loss on dispositions 0.2 (4.5) Impairment charge — 2.5 Depreciation 77.4 79.4 Amortization 73.3 66.0 Stock-based compensation 33.8 28.6 Adjusted OIBDA $ 472.4 $ 340.3 Adjusted OIBDA margin 27 % 23 % Net income attributable to OUTFRONT Media Inc. $ 147.9 $ 35.6 Depreciation of billboard advertising structures 56.1 56.0 Amortization of real estate-related intangible assets 62.8 50.9 Amortization of direct lease acquisition costs (a) 58.5 54.3 Net (gain) loss on disposition of real estate assets 0.2 (1.5) Adjustment related to equity-based investments — 0.1 Adjustment related to non-controlling interests (0.3) (0.3) FFO attributable to OUTFRONT Media Inc. 325.2 195.1 Non-cash portion of income taxes 6.1 (5.9) Cash paid for direct lease acquisition costs (a) (57.3) (48.8) Maintenance capital expenditures (25.5) (25.3) Other depreciation 21.3 23.4 Other amortization 10.5 15.1 Gain on disposition of non-real estate assets (b) — (3.0) Impairment charge on non-real estate assets (c) — 2.5 Stock-based compensation 33.8 28.6 Non-cash effect of straight-line rent (12.1) 6.5 Accretion expense 2.8 2.7 Amortization of deferred financing costs 6.5 7.1 Loss on extinguishment of debt — 6.3 Income tax effect of adjustments (d) — 0.8 AFFO attributable to OUTFRONT Media Inc. $ 311.3 $ 205.1 (a) Variable commissions directly associated with billboard revenues. (b) Gain related to the sale of our equity interests in certain of our subsidiaries (the “Sports Disposition”), which held all of the assets of our Sports Marketing operating segment. (See Item 8., Note 13. Acqui sitions and Dispositions : Dispositions to the Consolidated Financial Statements.) (c) Impairment charge relates to an other-than-temporary decline in fair value of a cost-method investment. (d) Income tax effect related to a Gain on disposition of non-real estate assets. FFO attributable to OUTFRONT Media Inc. in 2022 of $325.2 million increased $130.1 million, or 67%, compared to 2021, due primarily to higher operating income, a provision for income taxes in 2022 compared to a benefit for income taxes in 2021, a loss on extinguishment of debt in 2021 and higher amortization of both real estate-related intangible assets and direct lease acquisition costs. AFFO attributable to OUTFRONT Media Inc. in 2022 of $311.3 million increased $106.2 million, or 52%, compared to 2021, due primarily to higher operating income, partially offset by the impact of straight-line rent. 45 Segment Results of Operations We present Adjusted OIBDA as the primary measure of profit and loss for our reportable segments. (See the “Key Performance Indicators” section of this MD&A and Item 8., Note 19. Segment Information to the Consolidated Financial Statements.) We currently manage our operations through two operating segments—U.S. Billboard and Transit, which is included in our U.S. Media reportable segment, and International. International does not meet the criteria to be a reportable segment and accordingly, is included in Other . Our segment reporting therefore includes U.S. Media and Other . The following table presents our Revenues , Adjusted OIBDA and Operating income by segment in 2022 and 2021. Year Ended December 31, (in millions) 2022 2021 Revenues: U.S. Media $ 1,673.9 $ 1,382.0 Other 98.2 81.9 Total revenues $ 1,772.1 $ 1,463.9 Operating income $ 287.7 $ 168.3 Net (gain) loss on dispositions 0.2 (4.5) Impairment charge — 2.5 Depreciation 77.4 79.4 Amortization 73.3 66.0 Stock-based compensation (a) 33.8 28.6 Total Adjusted OIBDA $ 472.4 $ 340.3 Adjusted OIBDA: U.S. Media $ 501.2 $ 382.9 Other 20.6 10.4 Corporate (49.4) (53.0) Total Adjusted OIBDA $ 472.4 $ 340.3 Operating income (loss): U.S. Media $ 363.0 $ 248.5 Other 7.9 1.4 Corporate (83.2) (81.6) Total operating income $ 287.7 $ 168.3 (a) Stock-based compensation is classified as Corporate expense. 46 U.S. Media Year Ended December 31, % Change (in millions, except percentages) 2022 2021 Revenues: Billboard $ 1,308.8 $ 1,116.1 17 % Transit and other 365.1 265.9 37 Total revenues $ 1,673.9 $ 1,382.0 21 Organic revenues (a) : Billboard $ 1,297.8 $ 1,116.1 16 Transit and other 365.1 265.9 37 Total organic revenues (a) 1,662.9 1,382.0 20 Non-organic revenues: Billboard 11.0 — * Transit and other — — * Total non-organic revenues 11.0 — * Total revenues 1,673.9 1,382.0 21 Operating expenses (856.4) (733.2) 17 SG&A expenses (316.3) (265.9) 19 Adjusted OIBDA $ 501.2 $ 382.9 31 Adjusted OIBDA margin 30 % 28 % Operating income $ 363.0 $ 248.5 46 Net (gain) loss on dispositions 0.2 (1.5) * Impairment charge — 2.5 * Depreciation and amortization 138.0 133.4 3 Adjusted OIBDA $ 501.2 $ 382.9 31 * Calculation is not meaningful. (a) Organic revenues exclude revenues associated with a significant acquisition (“non-organic revenues”). Total U.S. Media segment revenues increased $291.9 million, or 21%, in 2022 compared to 2021, due primarily to stronger transit revenues and higher billboard revenues. While transit revenues have increased, transit revenues remain below pre-COVID-19 pandemic levels, as overall ridership remains materially below pre-COVID-19 pandemic levels. We generated approximately 44% in 2022 and 42% in 2021 of our U.S. Media segment revenues from national advertising campaigns. In 2022, non-organic revenues reflect the impact of a significant acquisition. Billboard revenues in the U.S. Media segment increased $192.7 million, or 17%, in 2022 compared to 2021, reflecting an increase in average revenue per display (yield) as we have experienced increases in overall demand for our services and the impact of new and lost billboards in the period, including acquisitions. Organic billboard revenues in the U.S. Media segment increased $181.7 million, or 16%, in 2022 compared to 2021, primarily due to an increase in average revenue per display (yield) as we have experienced increases in overall demand for our services and the net effect of new and lost billboards in the period, including insignificant acquisitions. Transit and other revenues in the U.S. Media segment increased $99.2 million, or 37%, in 2022 compared to 2021, driven by an increase in average revenue per display (yield) as we have experienced increases in overall demand for our services primarily due to an increase in transit ridership, partially offset by the loss of a transit franchise contract. Organic transit and other revenues in the U.S. Media segment increased $99.2 million, or 37%, in 2022, compared to 2021, primarily driven by an increase in average revenue per display (yield) as we have experienced increases in overall demand for our services primarily due to an increase in transit ridership, partially offset by the loss of a transit franchise contract. 47 Transit ridership remains materially below pre-COVID-19 pandemic levels in our largest transit markets and while we expect ridership and revenue to continue to grow, we do not expect to reach pre-COVID-19 pandemic levels in 2023. Billboard property lease expenses in the U.S. Media segment represented 33% of billboard revenues in 2022 and 34% in 2021, and transit franchise expenses represented 68% of transit display revenues in 2022 and 74% in 2021. We expect transit franchise expenses, as a percentage of revenues, to decline in 2023, but remain above pre-COVID-19 pandemic levels, as a result of our expectation that revenues generated under the MTA agreement will be closer to a guaranteed minimum annual payment break-even level in 2023 than in 2022. Operating expenses in the U.S. Media segment increased $123.2 million, or 17%, in 2022 compared to 2021, primarily driven by higher transit franchise expenses and billboard lease costs associated with the increase in revenue, higher guaranteed minimum annual payments to the MTA, higher compensation-related expenses, higher posting and rotation costs, higher maintenance and utilities cost, driven by economic recovery from the COVID-19 pandemic and inflation-driven utility cost increases in 2022, and increased activity resulting in higher production and materials cost. SG&A expenses in the U.S. Media segment increased $50.4 million, or 19%, in 2022 compared to 2021, primarily driven by higher compensation-related expenses, including commissions and salaries, driven by both business performance improvements during the period and the impact of the COVID-19 pandemic on 2021, a higher provision for doubtful accounts, increased post-COVID-19 pandemic travel resulting in higher travel and entertainment expenses, and higher professional fees, partially offset by the impact of market fluctuations on an equity-linked retirement plan offered by the Company to certain employees. U.S. Media segment Adjusted OIBDA increased $118.3 million, or 31%, in 2022 compared to 2021. Adjusted OIBDA margin was 30% in 2022 and 28% in 2021. The increase in Adjusted OIBDA margins was due primarily to a higher increase in revenues compared to the increase in operating expenses, due to the fixed nature of certain billboard property lease expenses and the MTA being paid guaranteed minimum annual payments in both 2022 and 2021. 48 Other Year Ended December 31, % Change (in millions, except percentages) 2022 2021 Revenues: Billboard $ 75.9 $ 66.2 15 % Transit and other 22.3 15.7 42 Total revenues $ 98.2 $ 81.9 20 Organic revenues (a) : Billboard $ 75.9 $ 63.3 20 Transit and other 22.3 15.2 47 Total organic revenues (a) 98.2 78.5 25 Non-organic revenues: Billboard — 2.9 * Transit and other — 0.5 * Total non-organic revenues — 3.4 * Total revenues 98.2 81.9 20 Operating expenses (55.0) (50.8) 8 SG&A expenses (22.6) (20.7) 9 Adjusted OIBDA $ 20.6 $ 10.4 98 Adjusted OIBDA margin 21 % 13 % Operating income $ 7.9 $ 1.4 * Net gain on dispositions — (3.0) * Depreciation and amortization 12.7 12.0 6 Adjusted OIBDA $ 20.6 $ 10.4 98 * Calculation is not meaningful. (a) Organic revenues exclude the impact of foreign currency exchange rates (“non-organic revenues”). Total Other revenues increased $16.3 million, or 20%, in 2022 compared to 2021, reflecting an increase in average revenue per display (yield) as we have experienced increases in overall demand for our services. In 2021, non-organic revenues reflect the impact of foreign currency exchange rates. Organic Other revenues increased $19.7 million, or 25%, in 2022, compared to 2021, driven by an increase in average revenue per display (yield) as we have experienced increases in overall demand for our services. Other operating expenses increased $4.2 million, or 8%, in 2022 compared to 2021, driven by higher expenses in Canada. Other SG&A expenses increased $1.9 million, or 9%, in 2022 compared to 2021, primarily driven by higher expenses in Canada. Other Adjusted OIBDA increased $10.2 million, or 98%, in 2022 compared to 2021, primarily driven by an increase in average revenue per display (yield). Corporate Corporate expenses primarily include expenses associated with employees who provide centralized services. Corporate expenses, excluding stock-based compensation, were $49.4 million in 2022 and $53.0 million in 2021. Corporate expenses decreased $3.6 million in 2022 compared to 2021, primarily due to the impact of market fluctuations on an unfunded equity-linked retirement plan offered by the Company to certain employees, partially offset by higher compensation-related expenses, including salaries, and higher professional fees. 49 Liquidity and Capital Resources As of December 31, % (in millions, except percentages) 2022 2021 Change Assets: Cash and cash equivalents $ 40.4 $ 424.8 (90) % Receivables, less allowances of $20.2 in 2022 and $18.5 in 2021 315.5 310.5 2 Prepaid lease and franchise costs 9.1 12.5 (27) Other prepaid expenses 19.8 17.8 11 Other current assets 5.6 11.7 (52) Total current assets 390.4 777.3 (50) Liabilities: Accounts payable 65.4 64.9 1 Accrued compensation 68.0 74.5 (9) Accrued interest 31.1 30.7 1 Accrued lease and franchise costs 64.9 60.1 8 Other accrued expenses 47.6 40.3 18 Deferred revenues 35.3 30.9 14 Short-term debt 30.0 — * Short-term operating lease liabilities 188.1 187.5 — Other current liabilities 21.2 18.8 13 Total current liabilities 551.6 507.7 9 Working capital $ (161.2) $ 269.6 * * 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 require guaranteed minimum annual payments to be paid on a monthly or quarterly basis, as applicable. 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 Facility (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. 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. Although we have taken several actions to date to preserve our financial flexibility and increase our liquidity, our short-term and long-term cash needs and related funding capability may be adversely affected by the current heightened levels of inflation and related economic environment if cash on hand and operating cash flows decrease in 2023, and our ability to issue debt and equity securities and/or borrow under our existing or new credit facilities on reasonable pricing terms, or at all, may become uncertain. (See the “Overview” section of this MD&A.) 50 Working capital was a deficit of $161.2 million as of December 31, 2022, compared to working capital of $269.6 million as of December 31, 2021, primarily driven by lower cash due to acquisitions (see Item 8., Note 13. Acquisitions and Dispositions : Acquisitions to the Consolidated Financial Statements). Under the MTA agreement, which was amended in June 2020 and July 2021 (as amended, the “MTA Agreement”): • Deployments . We must deploy, over a number of years, (i) 5,433 digital advertising screens on subway and train platforms and entrances, (ii) 15,896 smaller-format digital advertising screens on rolling stock, and (iii) 9,283 MTA communications displays, subject to modification as agreed-upon by us and the MTA. We are also obligated to deploy certain additional digital advertising screens and MTA communications displays in subway and train stations and rolling stock that the MTA may build or acquire in the future (collectively, the “New Inventory”). • Recoupment of Equipment Deployment Costs. We may retain incremental revenues that exceed an annual base revenue amount 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 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 operations. If we do not recoup all costs of deploying advertising and communications screens with respect to the New Inventory by the end of the term of the MTA Agreement, the MTA will be obligated to reimburse us for these costs. Deployment costs in an amount not to exceed $50.7 million, which are deemed authorized before December 31, 2020, will be paid directly by the MTA. For any deployment costs deemed authorized after December 31, 2020, the MTA and the Company will no longer be obligated to directly pay 70% and 30% of the costs, respectively, and these costs will be subject to recoupment in accordance with the MTA Agreement. We did not recoup any equipment deployment costs in 2022 and we do not expect to recoup any equipment deployment costs in 2023. For 2023, we expect our MTA equipment deployment costs to be approximately $100.0 million and between 2023 and 2024, an aggregate of approximately $140.0 million. • Payments . We must pay to the MTA the greater of a percentage of revenues or a guaranteed minimum annual payment. Our payment obligations with respect to guaranteed minimum annual payment amounts owed to the MTA resumed on January 1, 2021, in accordance with the terms of the MTA Agreement, and any guaranteed minimum annual payment amounts that would have been paid for the period from April 1, 2020 through December 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 from January 1, 2022, through December 31, 2026. The MTA Agreement also provides that if prior to April 1, 2028 the balance of unrecovered costs of deploying advertising and communications screens throughout the transit system is equal to or less than zero, then in any year following the year in which such recoupment occurs (the “Recoupment Year”), the MTA is entitled to receive an additional payment equal to 2.5% of the annual base revenue amount for such year calculated in accordance with the MTA Agreement, provided that gross revenues in such year (i) were at least equal to the gross revenues generated in the Recoupment Year, and (ii) did not decline by more than 5% from the prior year. • Term . In July 2021, we extended the initial 10-year term of the MTA Agreement to a 13-year initial term. We have the option to extend this initial 13-year term for an additional five-year period at the end of the 13-year initial term, subject to satisfying certain quantitative and qualitative conditions. We may utilize cash on hand and/or incremental third-party financing to fund equipment deployment costs over the next couple of years. However, given the current heightened levels of inflation and related economic environment, we cannot reasonably estimate the aggregate financing amount, if any, at this time. As of December 31, 2022, we have issued surety bonds 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. We expect transit franchise expenses, as a percentage of revenues, to decline in 2023 but remain above pre-COVID-19 pandemic levels. As indicated in the table below, we incurred $88.9 million related to MTA equipment deployment costs in 2022 (which includes equipment deployment costs related to future deployments), for a total of $535.9 million to date, of which $33.9 million had been recouped from incremental revenues to date and as of December 31, 2022, $49.1 million has been funded by the MTA. As of December 31, 2022, 14,153 digital displays had been installed, composed of 4,835 digital advertising screens on subway and train platforms and entrances, 5,022 smaller-format digital advertising screens on rolling stock and 4,296 MTA communications displays. In the fourth quarter of 2022, 496 installations occurred, for a total of 3,061 installations occurring in 2022. 51 (in millions) Beginning Balance Deployment Costs Incurred Recoupment/MTA Funding Amortization Ending Balance Year Ended December 31, 2022: Prepaid MTA equipment deployment costs $ 279.8 $ 83.4 $ — $ — $ 363.2 Other current assets 5.2 0.1 (3.7) — 1.6 Intangible assets (franchise agreements) 63.0 5.4 — (6.4) 62.0 Total $ 348.0 $ 88.9 $ (3.7) $ (6.4) $ 426.8 Year Ended December 31, 2021: Prepaid MTA equipment deployment costs $ 204.6 $ 75.2 $ — $ — $ 279.8 Other current assets 28.0 6.2 (29.0) — 5.2 Intangible assets (franchise agreements) 58.4 14.5 — (9.9) 63.0 Total $ 291.0 $ 95.9 $ (29.0) $ (9.9) $ 348.0 On February 22, 2023, we announced that our board of directors approved a quarterly cash dividend of $0.30 per share on our common stock, payable on March 31, 2023, to stockholders of record at the close of business on March 3, 2023. Debt Debt, net, consists of the following: As of December 31, (in millions, except percentages) 2022 2021 Short-term debt: AR Facility $ 30.0 $ — Total short-term debt 30.0 — Long-term debt: Term loan, due 2026 598.6 598.2 Senior unsecured notes: 6.250% senior unsecured notes, due 2025 400.0 400.0 5.000% senior unsecured notes, due 2027 650.0 650.0 4.250% senior unsecured notes, due 2029 500.0 500.0 4.625% senior unsecured notes, due 2030 500.0 500.0 Total senior unsecured notes 2,050.0 2,050.0 Debt issuance costs (22.6) (27.6) Total long-term debt, net 2,626.0 2,620.6 Total debt, net $ 2,656.0 $ 2,620.6 Weighted average cost of debt 5.2 % 4.3 % Payments Due by Period (in millions) Total 2023 2024-2025 2026-2027 2028 and thereafter Long-term debt $ 2,650.0 $ — $ 400.0 $ 1,250.0 $ 1,000.0 Interest 770.4 162.9 280.3 237.5 $ 89.7 Total $ 3,420.4 $ 162.9 $ 680.3 $ 1,487.5 $ 1,089.7 52 Term Loan The interest rate on the term loan due in 2026 (the “Term Loan”) was 6.1% per annum as of December 31, 2022. As of December 31, 2022, a discount of $1.4 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 $500.0 million revolving credit facility, which matures in 2024 (the “Revolving Credit Facility,” together with the Term Loan, the “Senior Credit Facilities”). As of December 31, 2022, there were no outstanding borrowings under the Revolving Credit Facility. The commitment fee based on the amount of unused commitments under the Revolving Credit Facility was $1.6 million in 2022, $1.8 million in 2021 and $1.4 million in 2020. As of December 31, 2022, we had issued letters of credit totaling approximately $6.4 million against the letter of credit facility sublimit under the Revolving Credit Facility. Standalone Letter of Credit Facilities As of December 31, 2022, we had issued letters of credit totaling approximately $75.8 million under our aggregate $81.0 million standalone letter of credit facilities. The total fees under the letter of credit facilities in 2022, 2021 and 2020 were immaterial. Accounts Receivable Securitization Facilities As of December 31, 2022, we have a $150.0 million revolving accounts receivable securitization facility (the “AR Facility”), which terminates in May 2025, unless further extended. On June 1, 2022, the Company, certain subsidiaries of the Company and MUFG Bank, Ltd. (“MUFG”) entered into an amendment to the agreements governing the AR Facility, pursuant to which the Company (i) increased the borrowing capacity under the AR Facility from $125.0 million to $150.0 million; (ii) extended the term of the AR Facility so that it now terminates on May 30, 2025, unless further extended; and (iii) increased the delinquency and termination ratios under the AR Facility for the tenure of the agreements to provide additional flexibility to the Company. The amendment to the agreements governing the AR Facility do not change how we account for the AR Facility as a collateralized financing activity. In connection with the AR Facility, Outfront Media LLC and Outfront Media Outernet Inc., each a wholly-owned subsidiary of the Company, and certain of the Company’s TRSs (the “Originators”), will sell and/or contribute their respective existing and future accounts receivable and certain related assets to either Outfront 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”) or Outfront 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 the Originators and Outfront 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. As of December 31, 2022, there were $30.0 million of outstanding borrowings under the AR Facility, at a borrowing rate of 5.4%. As of December 31, 2022, borrowing capacity remaining under the AR Facility was $120.0 million based on approximately $332.2 million of accounts receivable that could be used as collateral for the AR Facility in accordance with the agreements governing the AR Facility. The commitment fee based on the amount of unused commitments under the AR Facility was $0.3 million in 2022, and immaterial in each of 2021 and 2020. 53 Debt Covenants Our credit agreement, dated as of January 31, 2014 (as amended, supplemented or otherwise modified, the “Credit Agreement”), governing the Senior Credit Facilities, the agreements governing the AR Facility, 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 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 of December 31, 2022, our Consolidated Total Leverage Ratio was 5.0 to 1.0 in accordance with the Credit Agreement. The terms of the Credit Agreement (and under certain circumstances, the agreements governing the AR Facility) 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 of December 31, 2022, our Consolidated Net Secured Leverage Ratio was 1.1 to 1.0 in accordance with the Credit Agreement. As of December 31, 2022, we are in compliance with our debt covenants. Deferred Financing Costs As of December 31, 2022, we had deferred $24.6 million in fees and expenses associated with the Term Loan, Revolving Credit Facility, AR Facility 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 Facility and our senior unsecured notes. Interest Rate Swap Agreements We had an interest rate cash flow swap agreement 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, which matured in June 2022. The fair value of this swap position was a net liability of approximately $0.4 million as of December 31, 2021, and is included in Other current liabilities on our Consolidated Statement of Financial Position. 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. In 2022, no shares of our common stock were sold under the ATM Program. As of December 31, 2022, we had approximately $232.5 million of capacity remaining under the ATM Program. 54 Series A Preferred Stock Issuance On April 20, 2020, we issued 400,000 shares of our Series A Convertible Perpetual Preferred Stock (the “Series A Preferred Stock”), par value $0.01 per share. The Series A Preferred Stock ranks senior to the shares of the Company’s common stock 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, subject to increases as set forth in the Articles Supplementary, effective as of April 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 April 20, 2028, 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, without the consent of a specified percentage of holders of shares of Series A Preferred Stock, 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. If any dividends or distributions in respect of the shares of our common stock are paid in cash, the shares of Series A Preferred Stock will participate in the dividends or distributions on an as-converted basis up to the amount of their accrued dividend 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 and a share cap as set forth in the Articles. Subject to certain conditions set forth in the Articles (including a change of control), each of the Company and the holders of the Series A Preferred Stock may convert or redeem the Series A Preferred Stock at the prices set forth in the Articles, plus any accrued and unpaid dividends. Cash Flows The following table sets forth our cash flows in 2022 and 2021. Year Ended December 31, % (in millions, except percentages) 2022 2021 Change Cash provided by operating activities $ 254.1 $ 98.8 157 % Cash used for investing activities (449.5) (224.0) 101 Cash used for financing activities (188.0) (162.2) 16 Effect of exchange rate changes on cash, cash equivalents and restricted cash (1.0) 0.2 * Net decrease to cash, cash equivalents and restricted cash $ (384.4) $ (287.2) 34 * Calculation is not meaningful. Cash provided by operating activities increased $155.3 million, or 157%, in 2022 compared to 2021, due primarily to higher net income in 2022 compared to 2021 due to increases in overall demand for our services and improved cash collections, partially offset by the timing of payments and an increase in prepaid MTA equipment deployment costs. In 2022, we paid net cash of $79.8 million related to MTA equipment deployment costs and installed 3,061 digital displays. In 2021, we paid $52.4 million related to MTA equipment deployment costs and installed 3,712 digital displays. Cash used for investing activities increased $225.5 million, or 101%, in 2022 compared to 2021, due primarily to higher cash paid for acquisitions, primarily related to an acquisition in the second quarter of 2022 (see Item 8., Note 13. Acquisitions and Dispositions : Acquisitions to the Consolidated Financial Statements) and higher cash paid for capital expenses, partially offset by lower cash paid for MTA franchise rights. 55 The following table presents our capital expenditures in 2022 and 2021. Year Ended December 31, % (in millions, except percentages) 2022 2021 Change Growth $ 64.3 $ 48.5 33 % Maintenance 25.5 25.3 1 Total capital expenditures $ 89.8 $ 73.8 22 Capital expenditures increased $16.0 million, or 22%, in 2022 compared to 2021, primarily due to growth in digital displays, increased maintenance spending for billboard display and safety upgrades, and office remodel projects, partially offset by lower spending on software and technology, and vehicles. For the full year of 2023, we expect our capital expenditures to be approximately $90.0 million, which will be used primarily for growth in digital displays, software and technology, the renovation of certain office facilities, safety-related projects and maintenance. This estimate does not include equipment deployment costs that will be incurred in connection with the MTA agreement (as described above), which will be recorded as Prepaid MTA equipment deployment costs and Intangible assets on our Consolidated Statement of Financial Position, as applicable. Cash used by financing activities increased $25.8 million, or 16%, in 2022 compared to 2021. In 2022, we drew $30.0 million of borrowings on the AR Facility and paid total cash dividends of $205.8 million on our common stock, the Series A Preferred Stock and vested restricted share units granted to employees. In 2021, we made a repayment of $80.0 million under a 364-day structured repurchase facility, which was not extended, and paid total cash dividends of $57.5 million on the Series A Preferred Stock, our common stock and vested restricted share units granted to employees. Cash paid for income taxes was $3.3 million in 2022 and $1.7 million in 2021. The increase was due primarily to improved results in Canada. Contractual Obligations We have agreements with municipalities and transit operators which entitle us to operate advertising displays within their transit systems, including on the interior and exterior of rail and subway cars and buses, as well as on benches, transit shelters, street kiosks, and transit platforms. Under most of these franchise agreements, the franchisor is entitled to receive the greater of a percentage of the relevant revenues, net of agency fees, or a specified guaranteed minimum annual payment. Guaranteed minimum annual payments are generally paid monthly. (See Item 8., Note 18. Commitments and Contingencies to the Consolidated Financial Statements.) Total future minimum payments for rental payments under operating leases for billboard sites, office space and equipment of $2,215.1 million include $2,104.3 million for our billboard sites. (See Item 8., Note 5. Leases to the Consolidated Financial Statements.) As of December 31, 2022, we had long-term debt of approximately $2.7 billion. Interest on the Term Loan is variable. For illustrative purposes, we are assuming an interest rate of 6.1% for all years, which reflects the interest rate as of December 31, 2022. An increase or decrease of 1/4% in the interest rate will change the annual interest expense by $1.5 million. (See Item 8., Note 8. Debt to the Consolidated Financial Statements.) In 2023, we do not expect to contribute to our defined benefit pension plans. Contributions to our defined benefit pension plans were $0.2 million in 2021. (See Item 8., Note 15. Retirement Benefits to the Consolidated Financial Statements.) Off-Balance Sheet Arrangements Our off-balance sheet commitments primarily consist of guaranteed minimum annual payments. (See Item 8., Note 18. Commitments and Contingencies to the Consolidated Financial Statements for information about our off-balance sheet commitments.) 56 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. The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of revenues and expenses that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions. We consider the following accounting policies to be the most critical as they are significant to our financial condition and results of operations, and require significant judgment and estimates on the part of management in their application. For a summary of our significant accounting policies, see Item 8., Note 2. Summary of Significant Accounting Policies to the Consolidated Financial Statements. MTA Agreement Under the MTA agreement, we are obligated to deploy, over a number of years, (i) 5,433 digital advertising screens on subway and train platforms and entrances, (ii) 15,896 smaller-format digital advertising screens on rolling stock, and (iii) 9,283 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. We assess the recoverability of the MTA contract on an as-needed basis and apply significant judgment in assessing factors to determine if there is an indication that the revenues expected to be generated over the term of the agreement will be sufficient to cover all or a portion of the equipment deployment costs, including evaluating macroeconomic conditions, industry trends, and events specific to the Company, including monitoring the Company’s actual installation of digital displays against the deployment schedule. Additionally, we assess these factors by comparing revenue projections of the deployed digital displays to actual financial results. 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 2022, we updated our projections 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. Actual results may differ from our assumptions. We currently expect to recoup all equipment deployment costs spent to date and projected to be spent by the end of the base term of our agreement with the MTA. If projected incremental revenues generated over the term of the MTA agreement are not achieved to cover all or a portion of the equipment deployment costs, the costs will not be recouped, which could result in impairment charges and/or future deployment costs being expensed as incurred. Goodwill We test goodwill qualitatively and/or quantitatively at the reporting-unit level annually for impairment as of October 31 of each year and between annual tests if events occur or circumstances change that would more likely than not reduce the fair value 57 below its carrying amount. A qualitative test assesses macroeconomic conditions, industry and market conditions, cost factors, overall financial performance and other relevant entity specific events, as well as events affecting a reporting unit. If after the qualitative assessment, we determined that it is more likely than not that the fair value of a reporting unit is less than its carrying value, we perform a quantitative assessment. We may also choose to only perform a quantitative assessment. We compute the estimated fair value of each reporting unit for which we perform a quantitative assessment by using an income approach. Under the income approach, the fair value is determined using a discounted cash flow model. Our discounted cash flow value is calculated by adding the present value of the estimated annual cash flows over a discrete projection period to the terminal value, which represents the value of the projected cash flows beyond the discrete projection period. Our discounted cash flow model requires us to use significant estimates and assumptions such as projected revenue growth rates, terminal growth rates, billboard lease and transit franchise expenses, other operating and selling, general and administrative expenses, capital expenditures, contract renewals and extensions, and discount rates. The estimated growth rates, operating margins and capital expenditures for the projection period are based on our internal forecasts of future performance as well as historical trends. The terminal value is estimated based on a perpetual nominal growth rate, which is based on projected long-range inflation and long-term industry projections. The discount rates represent the weighted average cost of capital derived using known and estimated market metrics. In the fourth quarter of 2022, we performed a qualitative assessment on our U.S. Billboard and Canadian reporting units as the estimated fair value of those reporting units substantially exceeded carrying value and there were no factors indicating that it was more likely than not that those reporting units were impaired. We performed a quantitative assessment on our U.S. Transit and Other reporting unit, for which the fair value exceeded carrying value by approximately 28%. As of December 31, 2022, goodwill associated with our U.S. Transit and Other reporting unit was $47.6 million. In our discounted cash flow model assumptions and estimates, revenue in our U.S. Transit and Other reporting unit after growing by 37% in 2022 is projected to grow at a compound annual growth rate in the high teens through 2026 before leveling off to a normalized growth rate in the mid-single digits over the remaining forecast period, driven by continued recovery of the transit market as ridership climbs toward pre-COVID-19 levels and expected revenue generation from our significant digital deployment in the MTA and other transit systems. We are also assuming that we will be able to renew significant transit franchise agreements. Regarding the MTA agreement, we are assuming that the five-year extension to the base term will be exercised by us. However, we are not assuming any extension or renewal beyond that time. We utilized a discount rate of 11%. We performed a sensitivity analysis to determine how our assumptions impact the goodwill impairment assessment. Our plan to grow revenues is highly dependent on the recovery of transit ridership to pre-COVID-19 levels and the success of our digital deployment strategy. Failure of transit ridership to recover and/or our inability to fully execute on our digital deployment strategy could result in impairment charges. In addition, the loss of significant transit franchise agreements or our inability to qualify for the five-year extension to the MTA agreement could result in impairment charges. Holding all other assumptions constant, a change in the discount rate of 1% would result in a change in value of $50.6 million. While our current projections supported no impairment of goodwill in our U.S. Transit and Other reporting unit in the fourth quarter of 2022, given the sensitivities around the assumptions used in the calculation of the U.S. Transit and Other reporting unit’s projected cash flows, it is possible that impairment charges could be incurred in the future. There can be no assurance that these estimates and assumptions will prove to be an accurate prediction of the future, and a downward revision of these estimates and/or assumptions would decrease the fair values of our reporting units, which could result in additional impairment charges in the future. Long-Lived Assets We report long-lived assets, including billboard advertising structures, other property, plant and equipment and intangible assets, at historical cost less accumulated depreciation and amortization. We depreciate or amortize these assets over their estimated useful lives, which generally range from three to 40 years. For billboard advertising structures, we estimate the useful lives based on the estimated economic life of the asset. Transit fixed assets are depreciated over the shorter of their estimated useful lives or the related contractual term. Our long-lived identifiable intangible assets primarily consist of acquired permits and leasehold agreements and franchise agreements, which grant us the right to operate out-of-home advertising structures in specified locations and the right to provide advertising displays on railroad and municipal transit properties. Our long-lived identifiable intangible assets are amortized on a straight-line basis over their estimated useful lives, which is the respective life of the agreement and in some cases includes an estimation for renewals, which is based on historical experience. 58 Long-lived assets subject to depreciation and amortization are also reviewed for impairment when events and circumstances indicate that the long-lived asset might be impaired, by comparing the forecasted undiscounted cash flows to be generated by those assets to the carrying values of those assets. The significant assumptions we use to determine the useful lives and fair values of long-lived assets include contractual commitments, regulatory requirements, future expected cash flows and industry growth rates, as well as future salvage values. We test for long-lived asset impairment whenever there is an indication that the carrying amount of the asset group may not be recoverable. Recoverability of these assets is determined by comparing the forecasted undiscounted cash flows generated by those assets to the respective asset’s carrying value, excluding any impacts from foreign currency translation adjustments reflected in Accumulated other comprehensive loss on the Consolidated Statement Financial Position in conformity with GAAP. The amount of impairment loss, if any, will be measured by the difference between the net carrying value and the estimated fair value of the asset and recognized as a non-cash charge. Long-lived assets held for sale are required to be measured at the lower of their carrying value (including unrecognized foreign currency translation adjustment losses) or fair value less cost to sell. Accounting Standards See Item 8., Note 2. Summary of Significant Accounting Policies to the Consolidated Financial Statements, for information about adoption of new accounting standards and recent accounting pronouncements.