Lamar Advertising Company — Q1 2023 Form 10-Q
Business context and period. This unaudited combined filing covers Lamar Advertising Company and its wholly owned subsidiary Lamar Media Corp. for the three months ended March 31, 2023, compared with Q1 2022. Revenue is primarily from billboard, logo and transit advertising. Unless noted, financial amounts below are in millions.
Financial results and key metrics
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net revenue | $471.3 | $451.4 | +4.4% |
| Operating income | $118.8 | $120.5 | -$1.7 |
| Net income | $76.2 | $92.2 | -$16.0; -17.3% |
| Diluted EPS | $0.74 | $0.91 | -$0.17 |
| Adjusted EBITDA | $198.0 | $191.2 | +3.5% |
| FFO / AFFO | $143.5 / $144.1 | $156.3 / $151.9 | -8.2% / -5.2% |
| Cash from operating activities | $108.7 | $102.0 | +$6.7 |
| Capital expenditures | $42.3 | $28.8 | +$13.5 |
Operating margin was approximately 25.2% (versus 26.7%); net margin was approximately 16.2% (versus 20.4%). Revenue growth reflected billboard revenue up $15.4 million and transit revenue up $3.9 million. On an acquisition-adjusted basis, revenue increased $7.0 million, or 1.5%, from the comparable prior-period base.
Direct advertising, general and administrative, and corporate expenses before depreciation and amortization increased overall by about $19.2 million, including $6.3 million more stock-based compensation. Depreciation and amortization rose $4.5 million. A $2.7 million gain on asset dispositions partially offset costs. Interest expense increased $14.7 million to $41.4 million, primarily reflecting higher rates on the securitization program and senior credit facility. The effective tax rate was 2.3%, primarily due to REIT tax treatment and foreign items.
Liquidity, debt and capital allocation
- Cash and cash equivalents were $33.5 million at March 31, down from $52.6 million at year-end. Total liquidity was reported at $663.0 million: cash, $625.9 million of revolving-credit availability and $3.6 million available under the receivables securitization program.
- Debt principal was approximately $3.40 billion, including $1.07 billion under the senior credit facility and $234.8 million under the securitization program. The revolver had $115.0 million drawn against a $750 million commitment; $9.1 million of letters of credit reduced availability. The securitization program had only $3.6 million of eligible borrowing capacity remaining.
- Working capital deficit was $321.5 million, improving from $361.5 million at December 31, 2022. Debt carrying amounts exclude deferred financing costs; debt maturities within one year were reported at $234.6 million.
- Lamar Advertising reported operating cash flow of $108.7 million; Lamar Media’s consolidated operating cash flow was $89.4 million. Investing cash use was $52.7 million, including $42.3 million of capital expenditures and $13.6 million for acquisitions. Financing cash use was $75.2 million, primarily reflecting distributions.
- Variable-rate debt under the credit facility and securitization program totaled about $1.30 billion, or 38.2% of debt. Management estimated a 200-basis-point rate increase would add approximately $6.1 million to interest expense for the quarter.
- The company paid a $1.25-per-share quarterly common dividend. Subject to board approval, it expects total 2023 distributions of $5.00 per share. The board extended the $250 million stock and debt repurchase authorizations through September 30, 2024; no repurchases had occurred under either program as of quarter-end.
Outlook, commentary and risks
- Management expected 2023 capital expenditures of approximately $185 million and stated it expects operating cash flow to exceed requirements for operations, capital expenditures and dividends. It said available liquidity should cover operating needs for the next 12 months.
- Management attributed higher adjusted EBITDA to improved gross margin, partly offset by higher general and administrative and corporate expenses. FFO and AFFO declined, primarily due to higher interest expense and operating costs.
- The company completed multiple acquisitions for approximately $13.6 million during the quarter and continues to pursue acquisitions and investment in existing displays. Its July 2022 UPREIT reorganization was not expected to materially affect results or operations.
- Key risks include economic conditions and advertising demand, inflation, significant debt and interest-rate exposure, refinancing and liquidity needs, competition, regulation, contract renewals, acquisition integration, digital deployment, severe weather and maintaining REIT status. The company reported compliance with debt covenants and no material changes to previously disclosed risk factors.
- After quarter-end, on April 26, 2023, Lamar Media amended its credit agreement to replace LIBOR references with Term SOFR; other material terms were unchanged. Management cautions that interim results are not necessarily indicative of full-year results.
Investor verification priorities
- Track organic revenue growth against the reported 4.4% increase; acquisition-adjusted growth was 1.5%.
- Monitor interest expense, variable-rate exposure and refinancing needs, particularly the 2025 revolver and Term A maturities and the securitization facility maturity.
- Assess whether cash flow supports the projected $185 million of 2023 capital expenditures and anticipated $5.00-per-share distributions without increased borrowing.
- Reconcile reported earnings declines with growth in adjusted EBITDA, and review the definitions and adjustments behind non-GAAP measures, FFO and AFFO.
- Verify continued covenant compliance, available revolver capacity, and the extent to which securitization borrowing capacity depends on eligible receivables.