Lamar Advertising Company — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This annual filing does not provide a clear standalone fourth-quarter results breakdown. Figures below are for the full year and generally reflect Lamar Advertising Company on a consolidated basis; Lamar Media Corp. is its wholly owned operating subsidiary.
Business context
Lamar is an outdoor advertising company operating billboards, highway logo signs and transit displays in the U.S. and Canada. It reported one operating segment, advertising. At year-end it operated approximately 153,800 billboard displays, including 3,900 digital billboards, more than 137,800 logo displays and 46,600 transit displays. The business improved as the economy recovered from the COVID-19 disruption that weighed on 2020 results.
Key financial results
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Net revenue | $1.787 billion | $1.569 billion | +13.9% |
| Operating income | $521.2 million | $410.1 million | +27.1% |
| Operating margin | 29.2% | 26.1% | +3.1 percentage points |
| Net income | $388.1 million | $243.4 million | +59.5% |
| Diluted EPS | $3.83 | $2.41 | +$1.42 |
| Adjusted EBITDA (non-GAAP) | $827.3 million | $671.5 million | +23.2% |
| FFO / AFFO (non-GAAP) | $643.4 million / $667.7 million | $477.2 million / $514.8 million | +34.8% / +29.7% |
Billboard revenue rose $210.3 million and transit revenue rose $13.0 million; logo revenue fell $4.8 million. Direct advertising costs were 32.3% of revenue versus 35.5% in 2020, while general and administrative costs remained 18.3%. Interest expense declined $31.2 million to $106.4 million. The reported effective tax rate was approximately 2.3%, primarily reflecting REIT status. Non-GAAP measures are supplemental and are not substitutes for GAAP results or operating cash flow.
Cash flow, liquidity and debt
- Cash provided by operating activities was $734.4 million, up from $569.9 million. Investing activities used $461.8 million, including $312.3 million for acquisitions, $126.1 million of capital expenditures and a $30.0 million investment in Vistar Media. Financing activities used $294.5 million.
- Year-end cash and cash equivalents were $99.8 million. Reported total liquidity was $662.4 million, including $562.6 million of revolving credit availability. The company said liquidity and expected cash flows were adequate for the next 12 months.
- Net debt carrying value was approximately $3.014 billion at year-end. The company also reported a $274.4 million working-capital deficit, largely attributed to current operating lease liabilities with corresponding right-of-use assets. It was in compliance with debt covenants.
- Variable-rate borrowings were approximately $948.7 million. Management estimated a 200-basis-point rate increase would have raised 2021 interest expense by about $15.1 million.
Material changes, outlook and risks
- Revenue and profitability recovered materially from 2020. Management attributed growth mainly to billboard and transit activity; expense increases included variable billboard lease costs, transit and airport franchise costs, and workforce costs.
- Lamar issued $550 million of 3.625% notes due 2031 and redeemed all $650 million of 5.75% notes due 2026, recording a $21.6 million extinguishment loss. It completed 45 acquisitions for $312.3 million and acquired a 20% interest in Vistar Media for $30 million.
- 2021 capital expenditures were $126.1 million, including $55.3 million for digital technology. Management expected approximately $170 million of capital expenditures in 2022 and forecast cash from operations to exceed operating, capital expenditure and dividend needs.
- The company paid $4.00 per common share in 2021. In February 2022, the board approved a $1.10 dividend payable in March and management expected 2022 distributions of $4.40 per share, subject to board approval.
- Key risks include sensitivity to economic conditions and advertising demand; COVID-19 and inflation-related cost pressures; substantial debt and variable interest rates; lease renewals and billboard regulation; restrictions on digital displays; acquisitions and integration; severe weather; cybersecurity; and maintaining REIT qualification. Five logo-sign contracts were due for renewal or expiration in 2022. The company said it does not insure economically against hurricane and other natural-disaster losses.
- A $41.6 million revision to asset retirement cost estimates increased the recorded obligation to $269.4 million and contributed to higher depreciation and amortization. Goodwill impairment testing found no impairment at year-end. Management reported no litigation expected to have a material adverse effect; the audited financial statements received an unqualified opinion. The auditor identified billboard land-lease term assessment as a critical audit matter.
Important facts for investors to verify
- Reconcile debt balances, maturities, revolving availability and covenant headroom, and assess refinancing and rate sensitivity.
- Track whether revenue recovery and margins persist, particularly as lease, labor, transit-franchise and other costs rise.
- Review the return on the 2021 acquisitions and Vistar investment, and whether the planned 2022 capital program delivers expected growth.
- Confirm the board’s actual dividend decisions and the company’s capacity to fund distributions while meeting REIT and debt-agreement requirements.
- Monitor billboard-site lease renewals, 2022 logo-contract outcomes, digital-advertising regulation, and the assumptions behind the asset retirement and lease liabilities.