Lamar Advertising Company — Q1 2011 Form 10-Q
Business context and period. The combined filing covers Lamar Advertising Company and wholly owned subsidiary Lamar Media Corp. for the three months ended March 31, 2011; interim financial statements are unaudited. Lamar earns most revenue from outdoor advertising displays, with additional billboard, logo-sign and transit operations.
Financial performance and position
- Revenue: $255.2 million, up 4.5% from $244.1 million. On the company’s non-GAAP acquisition-adjusted comparison, revenue grew 4.2% from $245.0 million. Billboard revenue rose 3.6%; logo-sign revenue rose 14.3%; transit revenue rose 12.9%.
- Operating results: Operating income was $25.6 million versus $10.8 million; operating margin was approximately 10.0% versus 4.4%. Net loss narrowed to $13.2 million from $24.8 million; loss per share improved to $0.14 from $0.27. Net margin was approximately negative 5.2% versus negative 10.2%.
- Costs and interest: Operating expenses excluding depreciation, amortization and asset-sale gains increased about 3.9% to $162.2 million. Depreciation and amortization declined $4.5 million to $73.9 million. Interest expense declined $5.7 million to $43.6 million.
- Cash flow and investment: Operating cash flow was $25.8 million, compared with $7.7 million. Capital expenditures were $28.8 million versus $8.3 million; acquisitions used $6.7 million. Net cash used in investing was $28.3 million. Debt principal payments were $55.0 million, and cash declined $59.2 million to $32.4 million.
- Debt and liquidity: Total debt carrying value was $2.36 billion, down from $2.41 billion at year-end 2010; long-term debt excluding current maturities was $2.35 billion. Cash plus available revolver capacity totaled approximately $272.8 million, including $240.4 million available under the revolver. The revolver had no borrowings; letters of credit were $9.6 million. The company reported compliance with debt covenants.
- Balance sheet: Total assets were $3.58 billion and stockholders’ equity was $806.1 million at March 31. Current assets were $274.1 million and current liabilities $148.5 million. Estimated fair value of long-term debt, including current maturities, was $2.50 billion versus carrying value of $2.36 billion.
Material changes and unusual items
- Revenue increased across billboard, logo-sign and transit businesses; acquisition-adjusted growth was slightly below reported growth.
- Higher operating income reflected revenue growth, lower depreciation and a $6.4 million gain on asset dispositions, primarily the sale of the corporate aircraft. Lamar purchased a replacement aircraft in January 2011; the purchase price was $11.5 million, including $4.0 million recorded as a non-cash investing activity from prior-period deposits.
- Lower interest expense reflected reduced debt and lower rates following the 2010 credit-facility refinancing. Lamar made $54.9 million of principal payments, including a $50.0 million optional Term Loan B prepayment.
- Capital expenditures rose substantially, including $8.4 million for digital billboards and $8.7 million for operating equipment, compared with $1.7 million and $1.7 million, respectively, in Q1 2010.
Outlook, commentary and risks
- Management expected 2011 capital expenditures of approximately $100 million and planned to limit acquisitions, with no material acquisition spending then planned.
- Management expected 2011 operating cash flow to exceed operating and capital expenditure needs, with excess cash principally directed to debt reduction. It believed cash, revolver availability and future operating cash flow were sufficient for needs through fiscal 2011.
- Management did not anticipate a mandatory excess-cash-flow debt prepayment for fiscal 2011. Such payments depend on year-end calculations and leverage ratios.
- Key risks include economic conditions and advertising spending, substantial indebtedness and refinancing or funding needs, variable interest rates, competition, regulation, contract renewals, digital-display deployment and acquisition integration. A 200-basis-point increase in the weighted-average rate on variable-rate debt was estimated to increase quarterly interest expense by about $3.9 million and net loss by about $2.8 million.
- Forward-looking statements are subject to uncertainty; actual results may differ. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether revenue growth and operating improvement persist, and how much was driven by the one-time $6.4 million asset-disposition gain.
- Whether the planned $100 million of 2011 capital expenditures, including digital deployment, produces expected returns while operating cash flow covers investment needs.
- Debt maturities, covenant headroom, potential excess-cash-flow payments and the capacity to continue reducing debt.
- Exposure to floating rates: $753.9 million of senior-credit-facility debt was variable-rate, with a reported Q1 weighted-average rate of 3.7%.
- The effect of advertising-market conditions, contract renewals and other disclosed industry risks on revenue and liquidity.