Lamar Advertising Company — Q1 2014 Form 10-Q
Business context and period. The combined filing covers Lamar Advertising Company and its wholly owned subsidiary, Lamar Media Corp. It reports unaudited results for the three months ended March 31, 2014, with comparisons to Q1 2013. Revenue is primarily generated by renting outdoor advertising display space.
Key financial results
Amounts below are for Lamar Advertising Company and subsidiaries unless noted; dollar amounts are in millions.
| Metric | Q1 2014 | Q1 2013 |
|---|---|---|
| Revenue | $284.9 | $276.6 |
| Operating income | $31.1 | $19.1 |
| Operating margin | 10.9% | 6.9% |
| Net loss | $(4.8) | $(10.3) |
| Loss per share, basic and diluted | $(0.05) | $(0.11) |
| Cash from operating activities | $62.6 | $51.7 |
| Capital expenditures | $22.4 | $25.8 |
- Revenue rose 3.0% year over year. Excluding the prior-year contribution from acquired assets, revenue increased about 1.6%.
- Operating expenses, excluding depreciation and amortization and asset-sale gains, were broadly stable. Lower depreciation and amortization and improved operating income contributed to the higher operating margin.
- Interest expense fell $6.4 million to $30.3 million, primarily reflecting refinancing activity. Results also included a $5.2 million non-cash loss on debt extinguishment and a $4.1 million other-than-temporary investment impairment.
- Operating cash flow less capital expenditures was approximately $40.2 million, compared with approximately $25.9 million in Q1 2013.
- At March 31, cash was $68.7 million and total debt was $1.947 billion. The company reported approximately $461.7 million of total liquidity, including $393.0 million available on its revolving facility. No revolving borrowings were outstanding at quarter-end; $7.0 million of letters of credit reduced availability.
Material changes, outlook and risks
- Refinancing and subsequent redemption: In January, Lamar Media issued $510 million of 5.375% senior notes due 2024 and used the proceeds to repay its then-outstanding senior-credit-facility term loans. In February, it amended and restated its facility, which included a $400 million revolver and a $500 million incremental facility. After quarter-end, it borrowed $300 million under a new Term A facility and, with revolver borrowings and cash, redeemed all $400 million of 7.875% notes due 2018 on April 21 for a total redemption price of $416.3 million. The Term A loans mature in 2019 and carry variable-rate pricing.
- Management outlook: Management expected 2014 capital expenditures of approximately $100 million and believed cash on hand, available credit and operating cash flows would cover operating needs and capital expenditures through 2014.
- REIT conversion: On April 23, the company received an IRS private letter ruling supporting its intended REIT treatment of outdoor-display rental income. Conversion was expected to be effective January 1, 2014, subject to board approval. The filing cautions that qualification and realization of expected benefits are not assured. A REIT generally must distribute at least 90% of taxable income to qualify; the company intended to begin regular distributions in 2014, with amount and timing subject to board discretion and debt restrictions.
- Accounting correction: The company changed advertising-contract revenue recognition from monthly to daily over the contract term and deemed the prior error immaterial. The correction reduced Q1 2013 revenue by $6.9 million, net income by $4.2 million and earnings per share by $0.04; other 2013 quarters were to be revised in later filings.
- Key risks: Advertising demand and general economic conditions, competition, regulation and contract renewals, significant indebtedness and covenant compliance, variable interest rates, severe weather, acquisition execution, digital deployment, and uncertainty around REIT qualification and tax-law changes. The company reported compliance with applicable debt provisions and effective disclosure controls at quarter-end.
Important facts for investors to verify
- Progress and final board approval, if any, for the REIT election, including qualification and distribution implications.
- Post-quarter debt balances and costs after the April note redemption, Term A borrowing and revolver usage.
- Whether revenue growth, particularly the approximately 1.6% acquisition-adjusted increase, is sustained in subsequent quarters.
- Execution of the approximately $100 million 2014 capital-expenditure plan and resulting cash generation.
- Subsequent filings’ revisions to 2013 quarterly results and any further accounting disclosures.