Lamar Advertising Company — Q3 2021 Form 10-Q
Business context and reporting period. This combined filing covers Lamar Advertising Company and its wholly owned subsidiary, Lamar Media Corp., for the quarter and nine months ended September 30, 2021. Lamar earns most revenue by selling advertising space on billboard, logo and transit displays. Unless stated otherwise, amounts below are in millions of dollars; financial results are for Lamar Advertising Company.
Financial performance and condition
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net revenue | $476.9 | $386.1 | $1,292.8 | $1,140.3 |
| Operating income | $133.3 | $105.9 | $371.2 | $268.9 |
| Net income | $106.8 | $62.8 | $264.8 | $134.7 |
| Adjusted EBITDA (non-GAAP) | $230.7 | $170.7 | $596.6 | $463.7 |
| Operating cash flow | Not separately stated | Not separately stated | $488.2 | $361.5 |
- Q3 revenue rose 23.5%; nine-month revenue rose 13.4%. On an acquisition-adjusted basis, growth was 23.3% and 13.8%, respectively. Billboard revenue drove most of the increase; nine-month logo revenue declined.
- Operating margin was approximately 28.0% in Q3 versus 27.4% a year earlier, and 28.7% for the nine months versus 23.6%. Basic and diluted Q3 EPS were both $1.05, compared with $0.62.
- Q3 and nine-month net income increased 70.2% and 96.6%, respectively. Adjusted EBITDA increased 35.2% for Q3 and 28.7% for the nine months. These are non-GAAP measures defined by the company.
- Cash and cash equivalents were $87.6 at September 30, down from $121.6 at December 31, 2020. Working capital was negative $236.1, versus negative $167.3 at year-end.
- At September 30, debt was approximately $2,875.5 in principal ($2,837.4 net of financing costs). Lamar reported $735.7 of unused revolving-credit capacity and total liquidity of $823.2. The $175.0 accounts-receivable securitization facility was fully drawn at quarter-end.
- Nine-month investing cash use was $203.2, including $107.6 for acquisitions, $71.5 for capital expenditures and $30.0 for an investment in Vistar Media. Financing cash use was $319.1, including $253.2 of common distributions.
Material changes and unusual items
- Revenue recovery followed the significant COVID-19-related business disruption in 2020. Management said business generally improved as the economy recovered; it continued to monitor the pandemic and related operating guidance.
- Interest expense declined to $80.6 for the nine months from $107.1, primarily reflecting debt transactions and lower senior-credit-facility rates.
- In January 2021, Lamar Media issued $550.0 of 3.625% notes due 2031 and used the proceeds, cash and borrowings to redeem its 5.75% notes. The redemption resulted in a $21.6 debt-extinguishment loss, including $18.7 in cash.
- A revised estimate of costs to remove structures and resurface leased land increased the asset-retirement obligation by $41.4 and contributed to higher depreciation and amortization. The obligation totaled $267.0 at September 30.
- Lamar invested $30.0 for a 20% minority interest in Vistar Media in July and recognized $1.1 of equity-method earnings for the quarter and nine months.
- On October 20, 2021, after quarter-end, Lamar repaid $60.0 of securitization borrowings; management reported the balance then stood at $115.0.
Outlook, risks and contingencies
- Management expected 2021 capital expenditures of approximately $120.0, compared with $71.5 spent in the first nine months. It stated that operating cash flow was expected to exceed cash needs for operations, capital expenditures and dividends, and that liquidity should cover operating needs for the next 12 months.
- Subject to board approval, the company expected to declare a $1.00-per-share Q4 common dividend. The Q3 dividend was $1.00 per share; future distributions remain at the board’s discretion and are subject to REIT requirements, cash flows and debt restrictions.
- Key risks include advertising demand and general economic conditions, COVID-19 effects, competition, regulation, renewals of site contracts, acquisition integration, digital deployment, severe weather, significant indebtedness and variable interest rates. A 200-basis-point increase in the assumed average rate on variable-rate borrowings would have increased nine-month interest expense by approximately $11.2.
- The company reported compliance with debt covenants and no material changes to previously disclosed risk factors. Debt agreements restrict distributions and other actions; guaranteed minimum payments under transit and airport advertising arrangements are off-balance-sheet commitments.
- The filing describes a proposed SPAC offering by an indirect subsidiary, with a proposed base size of $300.0 and a possible commitment of up to $100.0 in forward-purchase units. The proposed offering’s completion is not established in this filing.
Investor verification priorities
- Confirm the post-quarter securitization repayment and current facility balance, and review upcoming debt maturities and available revolver capacity.
- Assess whether revenue and margin growth persisted beyond the pandemic-recovery comparison, including billboard, transit and logo trends.
- Compare forecast 2021 capital expenditures with actual spending and evaluate acquisition and digital-billboard returns.
- Verify board approval and payment of the expected Q4 dividend, alongside REIT distribution needs and debt restrictions.
- Review the assumptions behind the asset-retirement obligation revision and the resulting depreciation expense.
- Track Vistar’s performance and the proposed SPAC transaction, including any resulting funding commitments or dilution.