• Out of Home Metrics

    Railroad Outdoor’s Mike Fitzgerald asked Insider what metrics are important for measuring the performance of an out of home business.  Here are 6 financial metrics which will help you evaluate your out of home business.

    Gross revenue.  This tells you how well your sales effort is going.  You might also want to track your revenue versus the OAAA reported industry revenue to see if you are outperforming the industry.  Here’s the revenue trend for the US out of home business for the last 8 quarters.

    Full Occupancy Revenue Minus Gross Revenue.  This tells you what the opportunity cost is of having vacant or underperforming signs.  Insider keeps a column on his operating spreadcheet for actual sign revenue and a column for what he thinks the maximum revenue would be for each sign.

    Lease costs/net revenue.  Land leases are one of the biggest sources of expense for out of home companies.  Lease costs should run 10-20% of your revenues in rural areas.  Lease costs were 19% of Lamar’s billboard revenue during 2017.  Lease costs were 35% of OUTFRONT’s billboard revenue during 2017.  OUTFRONT’s leases are high because they have more urban signs.  Clear Channel Outdoor didn’t break out lease costs in 2017.  Transit costs will also be higher than lease costs.  OUTFRONT’s transit and franchise costs were 53% of transit revenues during 2017.

    EBIDTA.   Earnings before Interest, Depreciation, Taxes and Amortization. This is the cash your business generates after paying vendors and employees.   EBIDTA is a great way to measure the cash generated by the business before financing decisions such as how much debt to use.  Depreciation and Amortization are added back because they are non-cash charges.  Income Taxes are typically added back because they do not determine operating results but are imposed on operating results.  Lamar uses acquisition-adjusted EBIDTA to discuss financial results.

    Adjusted OBIDAN. Operating Income Before Depreciation, Amortization and the Net Gain/Loss from asset sales, restructuring charges and FX movements. Adjusted OBIDAN separates the operating performance of the business from earnings fluctuations caused by one time events (assets sales, special charges for asset writedowns or restructurings) or events out of control of management (foreign exchange movements).  OUTFRONT and Clear Channel Outdoor use adjusted OBIDAN to discuss financial results.  A criticism of Adjusted OBIDAN is that companies use one-time events to cover up poor financial results.  Amazing how often an underperforming company will have a continuous string of “one-time” events.

    Return on Capital.  Cashflow (EBIDTA or Adjusted OBIDAN) divided by debt and equity invested.   This measures how effectively a company uses the debt and equity it invests in the business.  Include debt in capital because you’re trying to see how effective a company uses money to generate profit without reference to the kind of financing decision it makes.  According to Morningstar a diversified stock portfolio should have earned 10%/year for 1970-2017.  If you can’t generate a return on capital in your out of home business of at least 10% over the long term you should sell your out of home company and invest in the stock market.

    What metrics do you use to evaluate your out of home company?  Let Insider know using the form below.

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