Lamar Advertising Company — Q1 2013 Form 10-Q
Business context and reporting period. This combined, unaudited quarterly filing covers the three months ended March 31, 2013, with Lamar Media Corp. reported as Lamar Advertising’s wholly owned subsidiary and principal borrower. Revenue is derived primarily from selling advertising space on outdoor displays, including billboards, logo signs and transit advertising.
Financial performance and position
| Metric | Q1 2013 | Q1 2012 or prior balance-sheet date |
|---|---|---|
| Net revenue | $283.5 million | $266.2 million; up 6.5% |
| Operating income | $25.9 million; 9.1% margin | $25.8 million; 9.7% margin |
| Net loss | $6.1 million; $0.07 per share | $22.8 million; $0.25 per share |
| Operating cash flow | $51.7 million | $36.7 million |
| Capital expenditures | $25.8 million | $19.7 million |
| Cash and cash equivalents | $75.5 million | $58.9 million at December 31, 2012 |
| Total debt, including current maturities | $2.155 billion | $2.161 billion at December 31, 2012 |
Reported revenue growth included acquired assets. On the company’s non-GAAP acquisition-adjusted comparison, revenue increased $6.5 million, or 2.4%, from $277.0 million in Q1 2012. Management attributed reported growth mainly to billboards (+$13.2 million), transit (+$2.6 million) and logo signs (+$1.5 million).
Operating expenses excluding depreciation and amortization and gains on asset sales rose 9.0% to $184.3 million. Management cited an approximately $8.1 million increase in non-cash compensation, principally associated with stock options. Operating income was nearly unchanged; operating margin declined from approximately 9.7% to 9.1%. Interest expense fell $3.2 million to $36.7 million, while the prior-year period included a $30.0 million debt-extinguishment loss. These factors helped reduce the net loss year over year.
Operating cash flow exceeded investing cash outflow of $29.4 million and financing cash outflow of $5.5 million; cash increased $16.6 million during the quarter. Cash flow included substantial non-cash adjustments, particularly $73.9 million of depreciation and amortization and $10.8 million of equity-based compensation.
At March 31, current assets were $335.7 million and current liabilities $199.0 million. Total liquidity was approximately $318.5 million: $75.5 million cash plus $243.0 million available under the revolving credit facility. Long-term debt excluding current maturities was $2.122 billion; the balance sheet also showed $33.3 million of current maturities. The filing estimated the fair value of long-term debt, including current maturities, at $2.268 billion, above its carrying value.
Outlook, debt, risks and notable items
- Management outlook: The company expected 2013 capital expenditures of approximately $100 million and stated it expected cash from operations to exceed operating and capital-expenditure needs in 2013. It believed cash, revolver availability and expected operating cash flows would meet operating needs through fiscal 2013. These are forward-looking statements, not guarantees.
- Near-term refinancing: Lamar Media had approximately $341 million of 9.75% Senior Notes outstanding, due April 1, 2014. Management intended to refinance them before maturity and said the notes would be classified as current beginning April 1, 2013. Refinancing success and terms are uncertain.
- Debt and covenants: The company reported compliance with applicable debt covenants at quarter-end. The revolver had no borrowings and $243.0 million of availability after outstanding letters of credit. Debt agreements restrict, among other matters, additional borrowing, asset dispositions, investments and distributions.
- Interest-rate exposure: Approximately $376.5 million of senior-credit-facility debt bore variable rates; its Q1 weighted-average rate was 3.0%. Management estimated that a 200-basis-point increase would have raised quarterly interest expense by approximately $1.9 million and net loss by approximately $1.1 million.
- REIT consideration: The company was evaluating a possible REIT election for the taxable year beginning January 1, 2014, subject to a favorable IRS ruling and board approval. It cautioned that the ruling, election, qualification and anticipated benefits were not assured.
- Other notable items: The company acquired assets for approximately $5.3 million and spent $11.6 million on digital billboard capital expenditures, versus $7.9 million a year earlier. The board amended the equity incentive plan; related awards were liability-classified, with $0.7 million recorded in accrued expenses. The quarter included $97,430 of shares acquired to satisfy award-related tax withholding, not under a publicly announced repurchase program.
- Key business risks: Results depend on economic conditions, advertising demand and spending, occupancy and pricing, competition, regulation, contract renewals, digital deployment, acquisition execution, access to financing and the company’s ability to manage significant debt. Asset retirement obligations were $191.5 million.
Most important facts for investors to verify
- Progress, timing and cost of refinancing the 9.75% notes due April 2014, including their post-quarter current classification.
- Whether acquisition-adjusted organic revenue growth, reported as 2.4%, continues and how billboard, transit and logo-sign trends develop.
- Whether elevated non-cash compensation and operating costs persist, and their effect on margins and the effective tax rate.
- Actual 2013 capital expenditures versus the approximately $100 million estimate, and cash generation after investment needs.
- Ongoing covenant headroom, revolver availability and exposure to changes in variable interest rates.
- Any IRS ruling or board decision on REIT status, and the company’s ability to qualify and realize benefits if it proceeds.