Lamar Advertising Company — FY2023 Form 10-K
Business context and reporting period. This is an annual report for the fiscal year ended December 31, 2023, not a standalone fourth-quarter report. Lamar operates one advertising segment, renting billboard, logo-sign and transit advertising space across the United States and Canada. At year-end, its inventory included approximately 160,400 billboards, 139,250 logo displays and 47,850 transit displays. Lamar Advertising Company is a REIT; its wholly owned subsidiary, Lamar Media Corp., is the principal borrower.
Financial performance and liquidity
| Metric | FY2023 | FY2022 | Change |
|---|---|---|---|
| Net revenue | $2.111 billion | $2.032 billion | +3.9% |
| Operating income | $675.4 million | $578.0 million | +$97.4 million |
| Net income | $496.8 million | $438.6 million | +13.3% |
| Diluted EPS | $4.85 | $4.31 | Higher |
| Adjusted EBITDA (non-GAAP) | $985.7 million | $938.1 million | +5.1% |
| AFFO (non-GAAP) | $762.3 million | $749.7 million | +1.7% |
| Operating cash flow | $783.6 million | $781.6 million | +$2.0 million |
Operating margin was 32.0% versus 28.4%; net margin was 23.5% versus 21.6%. The company reported 2023 cash and cash equivalents of $44.6 million and total liquidity of $715.8 million, including $671.2 million available under its revolving credit facility. Working capital was negative $340.7 million.
Debt at year-end was approximately $3.34 billion, net of deferred financing costs. Interest expense rose $47.0 million to $174.5 million, principally because rates increased on variable-rate borrowings. Approximately $1.27 billion of debt was variable-rate; management estimated a 200-basis-point increase would have added about $25.2 million to 2023 interest expense. The company reported compliance with its debt covenants.
Changes versus the prior year
- Revenue increased 3.9%; on an acquisition-adjusted basis, growth was 2.1%. Billboard revenue rose $63.8 million, transit revenue $12.8 million and logo revenue $2.2 million.
- Adjusted EBITDA increased 5.1%, while AFFO rose 1.7%. Net income growth also reflected a $56.0 million decrease in depreciation and amortization expense.
- Interest expense increased 36.9% (about $47.0 million), partially offsetting operating-income growth. The 2022 comparison also included a $15.2 million tax expense for reducing Puerto Rico deferred tax assets.
- Operating cash flow was broadly stable. Investing cash outflow fell to $310.1 million from $619.1 million, mainly as acquisitions declined to $139.0 million from $479.8 million. Financing cash outflow increased to $481.6 million.
Outlook, risks and notable items
- Management expects 2024 capital expenditures of approximately $125 million and said it expects operating cash flow to exceed cash needs for operations, capital expenditures and dividends. It did not provide specific revenue or earnings guidance in the supplied filing text.
- The board approved a $1.30-per-share dividend payable March 28, 2024. Subject to board approval, management expects 2024 distributions of $5.20 per common share. The 2023 distribution was $5.00 per share, or approximately $510.3 million.
- Management reported inflation-related increases in labor and utility costs during 2022 and 2023, largely offset by higher advertising rates; higher interest rates also increased financing costs. Results are seasonal, typically weakest in the first quarter and strongest in summer and fall.
- Key risks include substantial indebtedness and refinancing needs, variable-rate exposure, economic sensitivity of advertising demand, competition, government regulation of billboards and digital displays, lease renewals and natural disasters. Four of 24 logo-sign contracts were subject to renewal or expiration in 2024.
- Operating lease liabilities were approximately $1.29 billion, and the asset retirement obligation was $398.0 million. KPMG identified the assessment of billboard land-lease terms as a critical audit matter; management uses stated initial lease terms for its portfolio approach.
- No legal proceeding was identified by management as likely to have a material adverse effect. Goodwill testing at year-end resulted in no impairment charge. The company reported effective internal controls and received unqualified audit opinions.
Most important facts for investors to verify
- Whether organic revenue and AFFO growth can continue, given acquisition-adjusted revenue growth of 2.1% and higher financing costs.
- The debt maturity and refinancing schedule, available revolver capacity, covenant headroom and sensitivity to further interest-rate changes.
- Whether expected 2024 cash generation will support the planned $5.20-per-share distribution alongside capital spending and debt obligations; distributions remain subject to board discretion and REIT and debt restrictions.
- The renewal outcomes for the four logo-sign contracts due in 2024, and the proportion of billboard leases requiring renewal in the next five years.
- The assumptions underlying lease liabilities and the $398.0 million asset retirement obligation, including the critical audit matter relating to lease-term estimates.
- The governance implications of the Reilly family’s approximately 62% voting power, despite approximately 15% of common stock ownership on an as-converted basis.