Lamar Advertising Company — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; comparative figures are for the corresponding 2022 periods. The combined filing covers Lamar Advertising Company and wholly owned subsidiary Lamar Media Corp. Amounts below are in millions of dollars except per-share data.
Business context
Lamar primarily earns revenue from advertising space on billboard, logo and transit displays. Revenue depends on advertiser spending, occupancy and pricing, general economic conditions, and acquisitions. The company operates as a REIT.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $541.1 | $517.9 | $1,012.5 | $969.2 |
| Operating income | $176.8 | $166.5 | $295.6 | $287.0 |
| Net income | $130.9 | $134.2 | $207.1 | $226.4 |
| Adjusted EBITDA (non-GAAP) | $253.9 | $243.4 | $451.9 | $434.6 |
| FFO (non-GAAP) | $200.6 | $197.6 | $344.1 | $353.9 |
| AFFO (non-GAAP) | $194.4 | $196.9 | $338.5 | $348.8 |
Q2 revenue grew 4.5% year over year; acquisition-adjusted growth was 2.7%. Operating margin was approximately 32.7% versus 32.2%; net margin was approximately 24.2% versus 25.9% (calculated from reported figures). Basic and diluted EPS were $1.28, down from $1.32. The quarterly common dividend rose to $1.25 per share from $1.20.
For the first half, revenue grew 4.5%, while acquisition-adjusted growth was 2.1%. Adjusted EBITDA increased 4.0%; net income fell 8.5%, primarily as higher interest expense more than offset operating-income growth. First-half interest expense increased $28.8 million to $85.1 million, mainly due to higher rates on the senior credit facility and receivables securitization program. The reported effective tax rate was 2.3% for the first half, primarily reflecting REIT status and foreign items.
Cash flow, debt and liquidity
- First-half operating cash flow was $306.9 million, compared with $312.6 million in 2022. Capital expenditures were $93.0 million; acquisitions used $42.1 million. Investing cash outflow was $130.0 million.
- Cash and equivalents were $47.8 million at June 30. Total liquidity was $661.1 million, including $608.3 million of revolver availability and $5.0 million available under the receivables securitization program. Working capital deficit was $293.0 million.
- Debt carrying value was approximately $3.389 billion (gross debt before deferred financing costs: $3.418 billion). Variable-rate debt was approximately $1.32 billion, with a 6.1% weighted-average rate during the period. Management estimated that a 200-basis-point rate increase would have raised first-half interest expense by about $12.4 million.
- Management reported compliance with debt covenants and expected liquidity to cover operating requirements for the next 12 months. Long-term operating lease liabilities were $1.039 billion, in addition to debt.
Outlook, risks and notable items
- Management anticipated 2023 capital expenditures of approximately $185 million and projected full-year common distributions of $5.00 per share, subject to board approval. It expected operating cash flow to exceed operating, capital expenditure and dividend needs; no specific revenue or earnings guidance was provided.
- On July 31, 2023, after quarter-end, Lamar Media extended its $750 million revolving facility maturity to July 31, 2028. A springing maturity provision may accelerate that date if liquidity is insufficient 91 days before specified Term B loan or senior-note maturities.
- Key risks include sensitivity to economic conditions and advertising demand, significant indebtedness and interest-rate exposure, competition, regulation, renewal of display contracts, acquisition integration, digital deployment, severe weather, and maintaining REIT status. The filing reported no material change to previously disclosed risk factors.
- First-half acquisitions totaled approximately $42.1 million; gains on asset dispositions were $4.4 million. The filing reported no repurchases under the authorized stock or debt repurchase programs. Management said disclosure controls were effective and no material internal-control changes occurred.
Important facts for investors to verify
- Whether organic advertising growth and occupancy/pricing trends support continued revenue growth beyond acquisition contributions.
- How floating-rate exposure and future refinancing needs affect interest expense, covenant headroom and available liquidity.
- Whether cash generation can sustain planned capital spending and the indicated $5.00 annual dividend, which remains subject to board discretion and debt restrictions.
- The terms and springing-maturity condition of the July 2023 revolver extension, and the maturity profile of debt and lease obligations.
- Definitions and reconciliations of adjusted EBITDA, FFO and AFFO; these non-GAAP measures are not substitutes for GAAP results or operating cash flow.