Lamar Advertising Company — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; comparison is with Q1 2014. The filing combines Lamar Advertising Company and wholly owned subsidiary Lamar Media Corp.; Lamar Media is the debt borrower. Financial statements are unaudited and amounts below are in U.S. dollars.
Financial performance
| Metric | Q1 2015 | Q1 2014 | Change / context |
|---|---|---|---|
| Net revenue | $302.5 million | $284.9 million | Up 6.2%; acquisition-adjusted growth was 5.2%. |
| Operating income | $67.3 million | $31.1 million | Operating margin approximately 22.2%, versus 10.9%. |
| Net income (loss) | $40.7 million | $(4.8) million | Common-stockholder income was $40.6 million; diluted EPS was $0.42 versus $(0.05). |
| Adjusted EBITDA (non-GAAP) | $118.5 million | $104.4 million | Up 13.6%; margin approximately 39.2% versus 36.6%. |
| Operating cash flow | $54.7 million | $62.6 million | Down $7.9 million. |
| Capital expenditures | $29.0 million | $22.4 million | Digital billboard spending was $14.3 million, versus $9.8 million. |
| Cash and cash equivalents | $32.5 million | $26.0 million at Dec. 31, 2014 | Quarter-end balance. |
| Total debt, including current maturities | $1.953 billion | $1.900 billion at Dec. 31, 2014 | Carrying value; estimated fair value at quarter-end was $2.014 billion. |
Drivers and material changes
- Revenue growth was led by billboard revenue, up $14.8 million (5.9%). Digital billboard revenue rose 12.7%, following the addition of 222 units since April 2014; traditional bulletin revenue increased 5.3%. Logo and transit revenue also grew.
- Operating expenses excluding depreciation and amortization and asset-sale gains increased $3.4 million. Depreciation and amortization fell $20.3 million, or 29.2%, reflecting fully amortized structures and a depreciation-method change.
- Effective January 1, 2015, the company changed depreciation from double-declining balance to straight-line. Management said this change increased Q1 operating and net income by $2.8 million; the estimated 2015 effect was $11.1 million. This affects comparability with the prior period.
- Interest expense decreased $5.7 million to $24.5 million, primarily following the April 2014 refinancing of the 7⅞% notes. Q1 2014 also included a $5.2 million non-cash debt-extinguishment loss and a $4.1 million investment impairment; neither recurred in Q1 2015.
- Cash used in investing activities was $44.3 million, including $19.6 million for acquisitions and $29.0 million for capital expenditures. Financing cash outflow was $2.8 million, including $65.3 million in dividends/distributions, partly offset by net revolving-credit borrowings and stock issuance proceeds.
Debt, liquidity, outlook, and risks
- At March 31, 2015, Lamar Media had $407.0 million outstanding under its senior credit facility, including $122.0 million on the revolving facility and $285.0 million in Term A loans. Revolver availability was $271.2 million after $6.8 million of letters of credit. Total liquidity was approximately $303.7 million, including cash.
- The company reported compliance with debt covenants and said it would remain compliant if it borrowed the full available revolver amount. Exact leverage ratios are not provided in the filing text presented here. Variable-rate debt was approximately $407 million; management estimated a 200-basis-point rate increase would add $1.9 million to Q1 interest expense.
- Management expected 2015 operating cash flows to exceed operating, capital expenditure, and dividend needs, and stated that cash, revolver availability, and expected operating cash flows were sufficient for needs through fiscal 2015. Expected 2015 capital expenditures were approximately $100 million.
- The Board declared a $0.68-per-share quarterly dividend; management expected 2015 aggregate quarterly distributions to total $2.75 per common share, subject to Board discretion, cash flows, REIT requirements, and debt restrictions. A $250 million repurchase authorization existed; no program repurchases were reported in Q1. The 104,836 shares acquired during the quarter were for tax withholding on stock awards.
- Key risks include advertising demand and economic conditions, competition, regulation and permit/contract renewals, acquisition integration, digital deployment, significant indebtedness and interest-rate exposure, severe weather, and maintaining REIT qualification. No material change to previously reported risk factors or commitments was reported.
- The company was evaluating the revenue-recognition standard effective in 2017 and had not selected a transition method or determined its impact. It did not expect the debt-issuance-cost presentation update to have a material financial-statement impact.
Important facts for investors to verify
- How much reported earnings growth reflects the straight-line depreciation change versus operating improvement; the stated Q1 benefit was $2.8 million.
- Whether acquisition-adjusted revenue growth and digital billboard expansion persist, and how acquisition spending affects returns and cash generation.
- Debt levels, variable-rate exposure, covenant headroom, and the continuing availability of revolver capacity.
- Whether operating cash flow can support the announced capital expenditure plan and expected $2.75-per-share 2015 distributions.
- Future effects of REIT distribution and qualification requirements, debt restrictions, and adoption of the 2017 revenue-recognition standard.