Lamar Advertising Company — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2018. The combined filing covers Lamar Advertising Company and its wholly owned subsidiary, Lamar Media Corp.; figures below are for Lamar Advertising’s consolidated results unless noted. Financial statement amounts are in millions except per-share data.
Financial performance and position
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $418.5 | $399.3 | $1,199.3 | $1,142.8 |
| Operating income | $128.4 | $131.7 | $329.9 | $335.4 |
| Net income | $94.1 | $96.3 | $209.5 | $230.5 |
| Diluted EPS | $0.95 | $0.98 | $2.12 | $2.34 |
| Operating margin | 30.7% | 33.0% | 27.5% | 29.3% |
| Net margin | 22.5% | 24.1% | 17.5% | 20.2% |
| Adjusted EBITDA (non-GAAP) | $192.5 | $182.8 | $527.2 | $493.0 |
- Revenue mix and growth: Q3 revenue rose 4.8%; billboard revenue grew 5.3%, transit 3.5%, while logo revenue declined 1.5%. For the first nine months, revenue grew 4.9%. On an acquisition-adjusted basis, growth was 3.1% for Q3 and 2.6% year to date. Management attributed much of the increase to digital and political billboard revenue.
- Profitability: Q3 net income fell 2.4% despite higher revenue; nine-month net income declined 9.1%. Operating expenses excluding depreciation and amortization increased, as did depreciation, stock-based compensation and corporate expenses. Adjusted EBITDA increased 5.3% in Q3 and 6.9% year to date; this is a non-GAAP measure.
- Cash flow: Nine-month operating cash flow was $370.1, up from $320.6 in 2017. Investing used $120.3, including $48.1 for acquisitions and $82.2 for capital expenditures. Financing used $353.9, including $351.4 of dividends/distributions and debt-related payments. Cash declined by $104.9 to $10.6 at September 30.
- Debt and liquidity: Debt carrying value was $2,545.9, versus $2,556.7 at December 31, 2017; gross principal was $2,571.7. Lamar Media had $105.0 drawn on its $450.0 revolving facility and $332.0 available after letters of credit. Reported total liquidity was $342.6, including cash. The company reported compliance with debt covenants.
- Dividends: Common dividends declared were $0.91 per share in Q3, versus $0.83 a year earlier. Management expected 2018 aggregate quarterly distributions of $3.65 per common share, excluding the January 2 payment; future distributions remain subject to board discretion and debt restrictions.
Material changes and notable items
- In March 2018, Lamar Media borrowed $600.0 under a new Term B loan maturing in 2025 and used proceeds, with cash on hand, to redeem its $500.0 of 5⅞% notes due 2022. The redemption generated a $15.4 loss on debt extinguishment, comprising a $9.8 cash premium and about $5.6 of non-cash financing-cost write-offs.
- The Puerto Rico asset sale closed in April for $3.0 cash plus a $9.5 note receivable due in 2024; it resulted in a $7.5 loss.
- Acquisitions during the first nine months totaled about $60.4, funded with cash or borrowings and 163,137 shares valued at approximately $12.3.
- The company adopted ASC 606 in January 2018 using the cumulative-effect method, with no opening retained-earnings adjustment. It planned to adopt ASC 842 in January 2019; management expected recognition of right-of-use assets and lease obligations for operating leases.
- The company established a Class A at-the-market offering program of up to $400.0. By September 30, it had sold 213,276 shares for approximately $15.1 net proceeds; additional shares were sold in October for $27.0 net proceeds.
Outlook, risks and contingencies
- Management expected 2018 capital expenditures of approximately $110.0 and stated that cash, available credit and anticipated operating cash flows were sufficient for operating needs through fiscal 2018.
- Key risks include advertising demand and economic conditions, competition, significant indebtedness and variable interest rates, renewal of site and contract terms, regulation, acquisitions, digital deployment, severe weather, and maintaining REIT status. The filing reported no material changes to previously disclosed risk factors and no material changes in commitments and contingencies during the quarter.
- About 43.7% of outstanding long-term debt bore variable rates at quarter-end. Management estimated that a 200-basis-point increase in the weighted average rate on senior credit facility borrowings would have increased nine-month interest expense by $15.1.
- The filing states the company had no off-balance-sheet arrangements other than operating leases. Future dividends depend on cash flows, REIT requirements, board decisions and debt restrictions.
Investor verification points
- Verify organic revenue trends, especially digital and political advertising, against acquisition-adjusted growth and the subsequent period.
- Assess the drivers of higher operating costs, stock-based compensation and depreciation, and reconcile GAAP earnings with Adjusted EBITDA, FFO and AFFO.
- Review debt maturities, variable-rate exposure, covenant headroom and the cash and borrowing capacity available to support dividends and acquisitions.
- Confirm the timing and terms of operating-lease liability recognition under ASC 842, and monitor the note receivable and loss associated with the Puerto Rico divestiture.
- Check actual capital expenditures, acquisitions and equity issuance against management’s stated expectations; the filing provides no detailed full-year revenue or earnings guidance.