You’ve probably heard out of home investors, brokers and lenders talk about EBITDA and Billboard cashflow. It’s important to know the difference.
Out of home EBITDA
Out of home cashflow or EBITDA is earnings before interest, depreciation, amortization and income taxes. It’s how much cash your company generates each year after paying employees and vendors. Depreciation and amortization are added back to compute EBIDTA because they are non-cash expenses. Interest is added back because you are trying to compute how much cash there is to pay your lender or your investor. Adding back interest also makes it possible to measure efficiency between firms with different amounts of debt.
The uses of EBIDTA
By computing an EBIDTA margin (EBIDTA/Revenues) you can see how efficient your company is after paying all expenses including corporate overhead. Lamar has a 46% EBIDTA margin followed by Link Media Outdoor (36%), OUTFRONT (26%) and Clear Channel Outdoor (21%). Most billboard insider readers have a company cashflow margin in excess of 40%.
Public out of home companies typically have their value quoted as a multiple of EBIDTA. Here are the enterprise values of the three public out of home companies as a multiple of EBIDTA as computed by Yahoo finance on 7/19/23.
OUTFRONT Media – 16.72 times
Lamar Advertising – 16.13 times
Clear Channel Outdoor – 12.91 times
Out of Home lenders like Alerus, Billboard Loans, Stark Capital or Verde Capital use EBIDTA to determine a company’s debt capacity. A rule of thumb is that lenders want debt to be less than four or five times EBIDTA. The reason is that when leverage is below five times EDITDA you can pay your lender back within a 10 year period without having to grow cashflow. It also leaves a cushion to be able to pay the bills even if your cashflow declines by 20% as it might in a recession.
Billboard Cashflow
Billboard Cashflow is Revenues less direct expenses of your billboards (e.g. lease costs, electricity, property taxes and a sales commissions of 5-10%). Billboard cashflow leaves our most of your corporate overhead. The reason is that the company which buys your assets will have it’s own overhead so won’t care about yours. Billboard cashflow includes only those expenses of your company which the buyer will have to pay once it closes the purchase.
Billboard Cashflow is the metric that is used out of home asset sales. A reasonable sales multiple is 8-12 times billboard cashflow. 8-12 times billboard cashflow will result in a much higher number than 8-12 times EBIDTA so it pays to know the difference.
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