Lamar Advertising Company — Q2 2020 Form 10-Q
Business context and period. Unaudited results for the quarter and six months ended June 30, 2020, compared with the same 2019 periods. Lamar sells advertising space on billboard, logo and transit displays. The filing is jointly made with wholly owned subsidiary Lamar Media Corp.
Financial performance
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Revenue | $347.7 | $448.7 | $754.2 | $833.2 |
| Operating income | $66.5 | $144.1 | $163.0 | $234.9 |
| Net income | $31.4 | $118.4 | $71.9 | $169.6 |
| Diluted EPS | $0.31 | $1.18 | $0.71 | $1.69 |
| Operating cash flow | Not stated separately | Not stated separately | $210.7 | $237.0 |
- Q2 revenue fell 22.5%; billboard revenue declined $81.7 million and transit revenue declined $18.6 million. Acquisition-adjusted revenue fell 23.4%. For the first half, reported revenue fell 9.5% and acquisition-adjusted revenue fell 10.6%.
- Q2 operating margin was approximately 19.1%, versus 32.1% a year earlier; net margin was approximately 9.0%, versus 26.4%. First-half operating and net margins were approximately 21.6% and 9.5%, respectively, versus 28.2% and 20.4% in 2019.
- Operating costs excluding depreciation, amortization and disposition gains declined 10.4% in Q2 and 2.5% for the first half, but did not offset the revenue decline. Adjusted EBITDA, a non-GAAP measure, declined 35.9% to $133.2 million in Q2 and 17.2% to $293.0 million for the first half. AFFO declined 37.7% to $96.1 million in Q2 and 17.3% to $209.3 million for the first half.
- First-half investing cash outflow was $57.7 million, including $36.3 million of capital expenditures and $26.2 million of acquisitions. Cash and cash equivalents were $177.1 million at June 30, versus $26.2 million at year-end 2019; working capital was positive $50.4 million, compared with a $362.6 million deficit at year-end.
- Debt, net of financing costs, was $3.156 billion at June 30; principal debt was approximately $3.199 billion. No revolving-credit or receivables-securitization borrowings were outstanding. Total liquidity was approximately $1.086 billion: $177.1 million cash, $737.2 million revolver availability and $171.8 million receivables-program availability. Operating lease liabilities totaled $1.228 billion.
- Common distributions were reduced to $0.50 per share in Q2 from $0.96 in Q2 2019; first-half distributions were $1.50 per share versus $1.92.
Material changes, outlook and risks
- Management attributed the sharp decline in demand to COVID-19 restrictions, reduced travel and audience activity, and weaker advertiser spending, particularly in entertainment, retail, restaurants and automotive. Management reported improved customer activity in June and July as restrictions eased, but emphasized that the pace and duration of recovery were uncertain.
- Cost and liquidity actions included workforce reductions of approximately 5%, lower transit, airport and billboard lease costs, curtailed capital spending and acquisitions, and deferral of employer Social Security taxes under the CARES Act. Management said available liquidity was expected to cover operating needs for the next 12 months.
- 2020 capital expenditures were projected at approximately $58 million. Acquisition activity was being limited. Management anticipated an economic rebound in the second half of 2020 and into 2021, while noting uncertainty.
- The board was reviewing dividends quarterly. Future distributions depend on liquidity, operating conditions, debt restrictions and REIT distribution requirements; the filing does not commit to a future quarterly dividend amount.
- Debt refinancing included a new $600 million Term B loan and $1.0 billion of notes issued in February, plus $400 million of 4⅞% notes issued in May. Lamar Media redeemed $510 million of 5⅜% notes, contributing to an $18.2 million first-half debt-extinguishment loss. After quarter-end, it announced plans to redeem $267.5 million of 5% notes on August 31, 2020.
- The company reported compliance with debt covenants and no goodwill or long-lived-asset impairment at June 30. It identified continuing pandemic effects, advertising demand, leverage, interest-rate exposure, covenant restrictions, REIT qualification and dividend capacity as material risks. A 200-basis-point increase in the assumed variable borrowing rate was estimated to add about $10.4 million to first-half interest expense.
Important facts for investors to verify
- Whether improving June and July advertiser activity continued, and the resulting trend in billboard and transit revenue.
- Whether the reduced cost base can protect margins if revenue remains depressed, and whether the $58 million capital expenditure expectation changes.
- Liquidity availability, debt balances, covenant compliance and the funding and completion of the announced $267.5 million note redemption.
- The board’s subsequent dividend decisions and the company’s ability to meet REIT distribution requirements while preserving liquidity.
- How credit-loss allowances, asset valuations and COVID-19-related estimates evolve; management’s no-impairment conclusion is based on information available at June 30, 2020.