Lamar Advertising Company — 2019 Form 10-K
Business context and reporting period. This combined filing covers Lamar Advertising Company and wholly owned operating subsidiary Lamar Media Corp. for the fiscal year ended December 31, 2019. Lamar operates one reporting segment, advertising, across billboards, highway logo signs and transit displays in the U.S. and Canada. Billboard advertising is the largest revenue source; digital billboards generated about 25% of billboard revenue.
Financial performance and position
| Metric | FY 2019 | FY 2018 |
|---|---|---|
| Net revenue | $1,753.6 million | $1,627.2 million |
| Operating income / margin | $517.7 million / 29.5% | $460.6 million / 28.3% |
| Net income | $372.1 million | $305.2 million |
| Net income applicable to common stock | $371.7 million | $304.9 million |
| Diluted EPS | $3.71 | $3.08 |
| Cash from operating activities | $630.9 million | $564.8 million |
| Capital expenditures | $141.0 million | $117.6 million |
| Debt, net of financing costs | $2,980.1 million | $2,888.7 million |
| Cash and cash equivalents | $26.2 million | $21.5 million |
Revenue increased 7.8% as reported; on management’s acquisition-adjusted basis, growth was 2.7%. Adjusted EBITDA, a non-GAAP measure, was $784.9 million, up 8.6%; AFFO, also non-GAAP, was $581.4 million, up 6.8%. These measures are not substitutes for GAAP earnings or operating cash flow.
At year-end, stated liquidity was $413.5 million: $26.2 million of cash plus $387.3 million available under the revolving credit facility. Working capital was negative $362.6 million, with much of the year-over-year deterioration attributed to adoption of lease accounting. Operating lease liabilities totaled $1.265 billion. The company declared and paid $3.84 per common share in 2019.
Fourth quarter: Revenue was $462.7 million versus $427.9 million in Q4 2018; net income applicable to common stock was $102.7 million versus $95.6 million. Net revenue less direct advertising expense was $308.3 million versus $285.8 million.
Material changes versus prior year
- Revenue growth was led by billboard revenue, up $124.6 million, reflecting acquired assets and approximately 330 additional digital displays. Acquisition-adjusted revenue growth was more modest at 2.7%.
- Operating income rose $57.2 million. Direct advertising expense declined as a share of revenue, while general and administrative costs and depreciation and amortization increased.
- Interest expense rose $20.9 million to $150.6 million, primarily reflecting higher debt outstanding. No debt-extinguishment loss was recorded in 2019; 2018 included a $15.4 million loss.
- Operating cash flow increased $66.0 million. Investing cash outflow declined to $362.0 million, mainly because acquisitions were lower than in 2018. Lamar completed about 30 acquisitions for $226.3 million in 2019.
- ASC 842 lease accounting was adopted in 2019, adding lease assets and liabilities to the balance sheet and affecting working-capital comparability.
Outlook, risks and unusual items
- Management expected 2020 capital expenditures to approximate 2019 spending and said available cash, revolver capacity and expected operating cash flows were sufficient for operating needs through fiscal 2020.
- Subject to board approval, management expected 2020 aggregate quarterly distributions of $4.00 per common share; future distributions are discretionary and subject to cash flows, REIT requirements and debt restrictions.
- On February 6, 2020, after year-end, Lamar Media refinanced its credit facility, issued $600 million of 3.75% notes due 2028 and $400 million of 4% notes due 2030, and borrowed $600 million under a new Term B facility. The new revolving facility has $750 million of capacity. Proceeds were used to repay prior facility borrowings and redeem $510 million of 5.375% notes; the company expected an approximately $18.5 million debt-extinguishment loss in Q1 2020.
- Key risks include economic sensitivity of advertising spending, substantial debt and covenant restrictions, interest-rate exposure, competition, regulation of billboards and digital displays, renewal or loss of logo contracts, REIT qualification and distribution requirements, and uninsured hurricane and severe-weather losses. Four logo contracts were subject to renewal or expiration in 2020.
- The Reilly family and affiliates held about 63% of voting power at year-end. Management reported no legal proceeding expected to have a material adverse effect. Auditors issued unqualified opinions on the financial statements and internal controls; management also assessed controls as effective.
Important facts for investors to verify
- Whether acquisition-adjusted growth translates into sustained organic growth, particularly in digital billboard revenue.
- Post-refinancing debt balances, borrowing costs, maturities, covenant headroom and actual revolver availability.
- Cash available for dividends after capital spending, acquisitions, debt service and REIT distribution needs; the $4.00 2020 distribution expectation was not guaranteed.
- Renewal outcomes for the four logo contracts and any material changes in billboard or digital-display regulation.
- Lease obligations and renewal exposure: approximately 69% of billboard land leases expire or become renewable within five years.