Lamar Advertising Company — FY2020 Form 10-K
Reporting period: Year ended December 31, 2020. This annual filing also reports fourth-quarter results. Lamar operates a single advertising segment, renting billboard, logo-sign and transit display space, primarily in the U.S. and Canada. The filing was made jointly with wholly owned subsidiary Lamar Media Corp.
Financial performance
Amounts are in U.S. dollars; annual figures are for FY2020 unless otherwise noted.
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Net revenue | $1,568.9 million | $1,753.6 million | Down 10.5% |
| Operating income | $410.1 million | $517.7 million | Down $107.6 million |
| Net income | $243.4 million | $372.1 million | Down 34.6% |
| Net income applicable to common stock | $243.0 million | $371.7 million | Down 34.6% |
| Diluted EPS | $2.41 | $3.71 | Down $1.30 |
| Cash from operating activities | $569.9 million | $630.9 million | Down $61.0 million |
| Adjusted EBITDA (non-GAAP) | $671.5 million | $784.9 million | Down 14.4% |
| FFO / AFFO (non-GAAP) | $477.2 million / $514.8 million | $584.9 million / $581.4 million | Down 18.4% / 11.5% |
- Margins: Operating margin was 26.1%, versus 29.5% in 2019; net income margin was 15.5%, versus 21.2%. Direct advertising expenses rose to 35.5% of revenue from 33.6%.
- Revenue mix: Billboard advertising generated $1,403.2 million, logo advertising $82.9 million and transit advertising $82.7 million. Billboard revenue fell $134.3 million and transit revenue fell $49.2 million year over year; logo revenue increased $2.6 million on an acquisition-adjusted comparison.
- Cash and liquidity: Cash and equivalents were $121.6 million at year-end. Management reported total liquidity of $910.1 million, including $736.0 million available on the revolver and $52.5 million under the receivables securitization program. Working capital was negative $167.3 million; management attributed much of the deficit to current operating lease liabilities.
- Debt: Debt, net of deferred financing costs, was $2.89 billion, compared with $2.98 billion at year-end 2019. This included $600.0 million of term loans, $122.5 million of securitization borrowings and senior notes. The $750 million revolving facility had no borrowings at year-end; approximately $736.0 million remained available. The securitization program matures December 17, 2021.
- Capital spending and distributions: Capital expenditures were $62.3 million, down from $141.0 million. Common dividends were $2.50 per share, down from $3.84. The company reported $45.6 million of cash acquisition spending across 14 acquisitions.
- Fourth quarter: Revenue was $428.5 million versus $462.7 million in Q4 2019. Net income applicable to common stock was $108.6 million versus $102.7 million; diluted EPS was $1.08 versus $1.02.
Material changes and unusual items
- The COVID-19 pandemic and related restrictions reduced advertiser demand and out-of-home audiences, driving the annual revenue decline. Management said customer activity improved from June through December, but the pace of recovery remained uncertain.
- Operating costs, excluding depreciation and amortization and asset-disposition gains, fell 7.7% ($76.6 million), helped by lower billboard lease and transit/airport franchise costs and an approximately 8% workforce reduction through attrition and selected layoffs.
- Interest expense declined $13.0 million to $137.6 million, partly reflecting refinancing and lower credit-facility rates. The company recorded a $25.2 million debt-extinguishment loss, including cash premiums and fees and non-cash financing-cost write-offs.
- Asset-disposition gains were $9.0 million, including $3.2 million from the sale of the company aircraft. No goodwill or long-lived asset impairment charge was recorded in 2020.
- Operating cash flow exceeded net income, but declined year over year. Cash used in investing activities fell to $96.9 million, mainly because acquisitions and capital spending were curtailed.
Outlook, risks and contingencies
- Management expected 2021 capital expenditures of approximately $150 million, near pre-pandemic historical spending, and anticipated resuming strategic acquisitions as economic conditions improved and opportunities arose.
- The board approved a $0.75-per-share dividend payable March 31, 2021. Subject to board approval, the company expected total 2021 dividends of $3.00 per common share; distributions are discretionary and subject to REIT requirements, cash needs and debt restrictions.
- Management said year-end liquidity and remaining borrowing availability were expected to meet operating requirements for the next 12 months. It also cautioned that operating cash flow might not exceed 2021 operating, capital expenditure and dividend needs.
- After year-end, Lamar Media issued $550 million of 3⅝% notes due 2031 and used the proceeds, cash and borrowings to redeem $650 million of 5¾% notes on February 3, 2021.
- Key risks include continuing pandemic effects and advertising-market weakness, substantial debt and covenant restrictions, refinancing and interest-rate exposure, REIT qualification and distribution requirements, regulation of billboard and digital displays, renewal of site leases and logo contracts, competition, and weather-related losses. Four logo-sign contracts were subject to renewal or expiration in 2021. The company said it does not consider hurricane and other natural-disaster losses economical to insure.
- Management reported no legal matter likely to have a material adverse effect. The external auditor gave an unqualified opinion on the financial statements and internal controls; its critical audit matter concerned the accounting lease term for the billboard land-lease portfolio.
Important facts for investors to verify
- Whether the stated customer-spending recovery continued after December 2020, and how billboard and transit revenue trends developed.
- Actual 2021 capital expenditures, operating cash flow, acquisitions and dividends compared with management’s expectations.
- The refinancing terms and resulting debt balance, liquidity and covenant headroom after the February 2021 note redemption; also the 2021 securitization maturity and renewal or refinancing outcome.
- Lease renewal economics and the outcomes of the four logo-sign contract renewals or expirations in 2021.
- How pandemic-related advertiser credit risk, lease obligations and REIT distribution requirements affect cash available to shareholders.
- Non-GAAP measures such as adjusted EBITDA, FFO and AFFO are company-defined supplemental measures and should be reviewed alongside GAAP results and cash flows.