Lamar Advertising Company — Q1 2016 Form 10-Q
Business context and reporting period. The combined filing covers Lamar Advertising Company and its wholly owned subsidiary, Lamar Media Corp. Results are for the three months ended March 31, 2016, compared with Q1 2015; amounts below are in U.S. dollars. Lamar primarily earns revenue by renting outdoor advertising space on billboards, logo signs and transit displays. The interim financial statements are unaudited.
Financial performance and position
| Metric | Q1 2016 | Q1 2015 or prior date |
|---|---|---|
| Revenue | $338.5 million | $302.5 million; up 11.9% |
| Operating income | $86.8 million | $67.3 million |
| Operating margin | 25.7% | 22.2% |
| Net income | $51.3 million | $40.7 million; up 26.0% |
| Net income applicable to common stock / diluted EPS | $51.2 million / $0.53 | $40.6 million / $0.42 |
| Adjusted EBITDA (non-GAAP) | $130.2 million | $118.5 million; up 9.8% |
| FFO / AFFO (non-GAAP) | $87.9 million / $92.3 million | $84.6 million / $78.9 million |
| Cash from operating activities | $51.5 million | $54.7 million |
| Capital expenditures, excluding acquisitions | $20.6 million | $29.0 million |
| Cash and cash equivalents, March 31 | $28.4 million | $22.3 million at December 31, 2015 |
| Long-term debt, net of financing costs | $2.420 billion | $1.875 billion at December 31, 2015 |
Operating margin is calculated from reported revenue and operating income. Q1 2016 cash from operations less capital expenditures was approximately $30.9 million, versus $25.7 million in Q1 2015. Cash dividends declared were $0.75 per common share, compared with $0.68 a year earlier.
At March 31, current assets were $327.3 million and current liabilities were $217.0 million. Lamar reported total liquidity of approximately $164.5 million: $28.4 million cash plus $136.1 million available under its revolving credit facility. The company said it was in compliance with debt covenants and could borrow the full remaining revolver availability while remaining in compliance.
Material changes and significant items
- Revenue growth reflected the January acquisition of assets in five U.S. markets from Clear Channel Outdoor, alongside higher logo-sign and transit revenue. On an acquisition-adjusted basis, revenue rose 2.6%, which management attributed primarily to local sales and digital revenue.
- Lamar completed eight acquisitions in the quarter for total consideration of $511.1 million, including $502.1 million cash. The Clear Channel assets accounted for approximately $458.5 million of cash consideration. Acquisition accounting allocations included $158.5 million of goodwill and $234.6 million of site-location intangibles; these allocations were preliminary.
- The company issued $400 million of 5.75% senior notes due 2026 in January, receiving approximately $394.5 million net proceeds. Proceeds repaid a $300 million Term A-1 loan used to help fund the Clear Channel purchase and also supported revolver repayment. The quarter included a $3.1 million debt-extinguishment loss; interest expense rose to $30.1 million from $24.5 million.
- Reported operating income included a $11.3 million gain on disposition of assets, versus $1.8 million in Q1 2015. The filing also identifies an $8.6 million gain from exchanges of outdoor advertising assets within the quarter’s acquisitions.
- Debt at face value was approximately $2.471 billion at March 31; estimated fair value was $2.554 billion. The company had $255 million drawn on its $400 million revolving facility and $8.9 million of letters of credit outstanding.
Outlook, risks and contingencies
- Management expected 2016 capital expenditures of approximately $110 million and said operating cash flow was expected to exceed 2016 operating, capital expenditure and dividend needs. It also stated that cash, revolver availability and expected operating cash flows were sufficient for operating needs through fiscal 2016.
- Management expected 2016 aggregate quarterly distributions to total $3.02 per common share, including the $0.75 dividend paid March 31. Future distributions remain subject to board discretion, REIT requirements, cash flows, debt restrictions and other factors.
- Key stated risks include economic conditions and advertising demand, significant indebtedness and refinancing needs, interest-rate exposure, competition, regulation, renewal of site contracts, acquisition integration, digital deployment, severe weather, and maintaining REIT qualification. The filing reported no material changes to the risk factors in the 2015 Form 10-K.
- Approximately $1.35 billion of billboard-site and other operating lease payments were disclosed as contractual obligations, in addition to $873.9 million of estimated interest obligations on debt. Variable-rate debt was approximately $525 million; management estimated that a 200-basis-point increase in rates would have raised quarterly interest expense by $2.8 million.
- The company reported compliance with its debt agreements. The senior credit facility’s covenant limits and note indentures restrict, among other things, additional debt, distributions, investments and asset dispositions. The filing gives no clear numerical value for the company’s actual covenant ratios.
Important facts for investors to verify
- How much of reported revenue and earnings growth came from acquired assets, and whether acquisition-adjusted organic growth continues.
- Final purchase-price allocations and the acquired markets’ subsequent revenue, operating contribution and integration costs.
- Debt levels, covenant headroom, refinancing requirements, variable-rate exposure and the capacity to fund acquisitions and dividends.
- Whether 2016 capital expenditure and per-share distribution expectations were achieved, and how distributions compare with recurring cash generation.
- The sustainability of earnings growth excluding the asset-disposition gain and the $3.1 million debt-extinguishment charge; Adjusted EBITDA, FFO and AFFO are non-GAAP measures and are not substitutes for GAAP cash flow.