Lamar Advertising Company — Q1 2019 Form 10-Q
Business context and period. Lamar operates outdoor advertising displays, with revenue primarily from billboard, logo and transit advertising. This unaudited combined report covers the three months ended March 31, 2019, compared with the three months ended March 31, 2018. Lamar Media Corp. is the Company’s wholly owned subsidiary and principal borrower.
Key financial results
Amounts below are in millions, except per-share data and percentages.
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Net revenue | $384.5 | $361.0 | +6.5% |
| Operating income | $90.8 | $65.9 | +$24.9 |
| Net income | $51.3 | $15.1 | +$36.2 |
| Diluted EPS | $0.51 | $0.15 | +$0.36 |
| Adjusted EBITDA (non-GAAP) | $146.1 | $138.9 | +5.2% |
| FFO / AFFO (non-GAAP) | $105.0 / $98.9 | $78.7 / $96.3 | FFO +33.4%; AFFO +2.7% |
| Cash from operations | $60.7 | $40.8 | +$19.9 |
- Operating margin was approximately 23.6%, versus 18.2% a year earlier; net margin was approximately 13.3%, versus 4.2%. Adjusted EBITDA margin was approximately 38.0%, versus 38.5%.
- Revenue included $336.2 million from billboard advertising, $19.9 million from logo advertising and $28.4 million from transit advertising.
- Cash and cash equivalents were $32.8 million at quarter-end. The Company reported total liquidity of approximately $389.7 million, including $356.9 million of available revolving credit capacity.
- Debt principal outstanding was approximately $3.055 billion ($3.027 billion net of deferred financing costs). Separately, operating lease liabilities were $1.204 billion. Interest expense was $37.6 million.
Material changes and notable items
- Reported revenue rose 6.5%, primarily reflecting acquired assets. Against acquisition-adjusted Q1 2018 revenue of $376.3 million, Q1 2019 revenue increased $8.1 million, or 2.2%; management attributed most of that comparable increase to billboard and digital revenue.
- Net income increased substantially, but the comparison benefited from the absence of Q1 2018’s $15.4 million debt-extinguishment loss and from a $13.3 million year-over-year swing in asset-disposition results. Q1 2019 included a $4.6 million gain, primarily related to a transit-contract amendment; Q1 2018 included a loss on Puerto Rico asset sales.
- Interest expense increased $4.0 million, which management attributed primarily to higher debt outstanding and a slight increase in interest rates. Direct, general and administrative, and corporate expenses also rose overall, partly offset by lower stock-based compensation and the effect of lease accounting.
- Investing cash outflow was $91.1 million, including $66.4 million for acquisitions and $26.0 million in capital expenditures. The Company completed several outdoor advertising asset acquisitions during the quarter.
- On February 1, Lamar Media issued $250 million of additional 5.75% senior notes due 2026; net proceeds were used to repay part of its revolving-credit borrowings. The revolving commitment had been increased to $550 million in January.
Outlook, risks and contingencies
- Management expected 2019 capital expenditures of approximately $128 million and said cash on hand, revolver availability and expected operating cash flows were sufficient for operating needs through fiscal 2019. It also expected 2019 operating cash flows to exceed operating, capital expenditure and dividend needs.
- The Board declared a quarterly dividend of $0.96 per common share. The Company expected 2019 aggregate quarterly distributions to total $3.84 per common share; future distributions remain subject to Board discretion, REIT requirements, cash flows and debt restrictions.
- Variable-rate debt under the senior credit facility and receivables securitization program totaled approximately $1.352 billion. The filing estimates that a 200-basis-point rate increase would have increased Q1 interest expense by approximately $6.7 million. Lamar reported compliance with its debt covenants.
- Adoption of ASC 842 on January 1, 2019 brought substantial operating lease assets and liabilities onto the balance sheet. At March 31, operating lease right-of-use assets were $1.292 billion; lease liabilities were $1.204 billion. The Company reported approximately 75,000 operating leases and a 12-year weighted-average remaining lease term.
- The Fairway acquisition’s purchase-price allocation remained preliminary; the Company expected to finalize it by year-end 2019. Management excluded Fairway-related controls from its Q1 assessment; Fairway represented 4.0% of revenue and 7.9% of total assets at quarter-end.
- Principal risks include economic conditions and advertising demand, competition, lease and contract renewals, significant indebtedness and interest rates, regulation, acquisition integration, digital deployment, severe weather, and maintaining REIT qualification. The filing reported no material changes to previously disclosed risk factors and no material changes in commitments or contingencies.
Investor facts to verify
- How much of reported revenue growth is sustainable organic growth, particularly the contribution from digital advertising?
- Whether operating cash generation can support planned capital expenditures, acquisitions and distributions while managing debt and lease obligations.
- Debt maturity, refinancing and covenant headroom, including exposure to variable interest rates and the receivables securitization facility.
- Final Fairway purchase-price allocation and any resulting changes to goodwill, depreciation or amortization.
- Dividend expectations and capacity, considering REIT distribution obligations, debt restrictions and cash available at the parent level.
- Comparability of the reported periods: 2019 uses the new revenue and lease accounting standards, while 2018 comparative information was not recast for those standards.