Lamar Advertising Company — Q3 2022 Form 10-Q
Business context and period: The filing covers the quarter and nine months ended September 30, 2022, with comparison to 2021. Lamar earns most revenue from selling advertising space on billboard, logo and transit displays. The combined filing also includes Lamar Media Corp., Lamar Advertising’s wholly owned subsidiary and primary borrower.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $527.4 million | $476.9 million | $1,496.6 million | $1,292.8 million |
| Operating income | $181.0 million | $133.3 million | $467.9 million | $371.2 million |
| Net income | $146.2 million | $106.8 million | $372.5 million | $264.8 million |
| Diluted EPS | $1.44 | $1.05 | $3.66 | $2.61 |
| Operating cash flow | Not provided for quarter | $537.1 million | $488.2 million | |
| Adjusted EBITDA (non-GAAP) | $251.2 million | $230.7 million | $685.8 million | $596.6 million |
| AFFO (non-GAAP) | $206.4 million | $192.5 million | $555.2 million | $487.1 million |
Revenue rose 10.6% in Q3 and 15.8% year to date. On an acquisition-adjusted basis, management reported revenue growth of 6.0% in Q3 and 11.7% for the nine-month period. Operating margin was approximately 34.3% in Q3 versus 28.0% a year earlier, and 31.3% year to date versus 28.7%.
For the nine months, investing cash outflow was $402.5 million, including $287.9 million for acquisitions and $116.8 million in capital expenditures. Financing cash outflow was $154.8 million. Cash declined $20.4 million from year-end 2021 to $79.4 million.
Debt and liquidity
- Total debt was $3.250 billion gross, or $3.216 billion net of deferred financing costs; $199.7 million was classified as current maturities. Long-term debt carrying value was $3.017 billion.
- Lamar Media had $950 million outstanding under its senior credit facility, including a new $350 million Term A loan, and no revolver borrowings. Revolver availability was $738.7 million. The accounts-receivable securitization program had $200 million outstanding and $39.2 million of additional borrowing availability.
- Cash, revolver availability and securitization availability totaled $857.3 million. The company reported a $238.8 million working-capital deficit. Management said liquidity was adequate for operating needs over the next 12 months and reported compliance with applicable credit tests and indentures.
- Operating lease liabilities totaled $1.188 billion. Contractual payments shown for less than one year included $199.7 million of debt maturities, $138.1 million of debt interest and $244.8 million of contractual obligations, including leases.
Material changes and management commentary
- Q3 revenue increased $50.5 million year over year, led by billboard revenue (+$41.3 million) and transit revenue (+$9.2 million). Nine-month reported revenue increased $203.8 million; billboard contributed $167.6 million of the increase and transit $34.9 million.
- Q3 operating income increased $47.7 million. Nine-month operating income increased $96.7 million. Adjusted EBITDA increased 8.9% in Q3 and 14.9% year to date; AFFO increased 7.2% and 14.0%, respectively.
- Interest expense rose $7.4 million in Q3 and $9.2 million year to date, primarily because of higher rates on the securitization program and senior credit facility. The filing estimates that a 200-basis-point increase over the stated 2022 variable-debt rate would have added approximately $15.6 million to nine-month interest expense.
- The company completed more than 50 acquisitions for $287.9 million in the first nine months, including the $130 million Burkhart Advertising acquisition. It expects 2022 capital expenditures of approximately $170 million.
- Lamar completed its UPREIT tax reorganization on July 1, 2022; management said it was not expected to materially affect financial statements or operations. A $1.2 million write-off of deferred offering costs followed withdrawal of a proposed SPAC registration; nine-month transaction expenses were $3.8 million.
Outlook, distributions and risks
Subject to board approval, management expected to recommend a $1.20-per-share fourth-quarter 2022 dividend plus a $0.30-per-share special dividend. Beginning in 2023, management expected to recommend increasing the quarterly dividend by $0.05 to $1.25 per share. Future distributions remain at the board’s discretion and depend on financial and operating conditions, REIT requirements and debt restrictions.
Key disclosed risks include economic conditions and advertising demand, inflation, competition, regulation, renewing contracts on favorable terms, acquisition integration, digital deployment, severe weather, REIT qualification and significant indebtedness. Variable-rate debt exposes earnings to rate increases. The company said risk factors had not materially changed from its prior filings. The nine-month effective tax rate was 2.4%, primarily reflecting REIT qualification and foreign items. No debt-extinguishment loss was recorded in 2022, compared with $21.6 million in the 2021 period.
Important facts for investors to verify
- Whether acquisition-adjusted growth and margins persist as acquisition contributions and operating costs evolve.
- Debt maturity and refinancing exposure, variable-rate borrowing costs, and continued compliance with leverage covenants.
- Whether operating cash generation supports planned capital spending and the indicated dividends, including the special distribution.
- Acquisition integration, returns on the Burkhart and other acquired assets, and the preliminary purchase-price allocations.
- The sustainability of non-GAAP Adjusted EBITDA, FFO and AFFO; these measures are not substitutes for GAAP earnings or operating cash flow.