Lamar Advertising Company (LAMR) — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; compared with the three months ended March 31, 2020. The filing presents Lamar Advertising Company and its wholly owned debt-issuing subsidiary, Lamar Media Corp.; figures below are consolidated Lamar Advertising unless noted. Financial statements are unaudited.
Financial performance
| Metric | Q1 2021 | Q1 2020 | Change |
|---|---|---|---|
| Net revenue | $370.9 million | $406.6 million | Down 8.8% |
| Operating income | $88.9 million | $96.6 million | Down $7.6 million |
| Operating margin | 24.0% | 23.7% | Up approximately 0.3 percentage points |
| Net income | $38.3 million | $40.5 million | Down 5.3% |
| Diluted EPS | $0.38 | $0.40 | Down $0.02 |
| Adjusted EBITDA (non-GAAP) | $152.4 million | $159.8 million | Down 4.6% |
| FFO / AFFO (non-GAAP) | $96.1 million / $116.7 million | $97.6 million / $113.3 million | FFO down 1.5%; AFFO up 3.0% |
| Operating cash flow | $83.3 million | $62.9 million | Up $20.4 million |
| Capital expenditures | $16.3 million | $25.7 million | Down $9.4 million |
| Cash and cash equivalents | $43.0 million | $121.6 million at Dec. 31, 2020 | Down $78.5 million |
Operating cash flow less capital expenditures was approximately $67.0 million, versus $37.2 million in the prior-year quarter. This simple measure is not a company-defined non-GAAP metric. Common dividends were $0.75 per share, compared with $1.00 in Q1 2020.
At March 31, 2021, total assets were $5.65 billion and stockholders’ equity was $1.18 billion. Debt was approximately $2.88 billion gross, or $2.84 billion net of deferred financing costs; cash was $43.0 million. Total liquidity was reported at approximately $765.1 million: cash of $43.0 million, revolving-credit availability of $710.6 million and securitization availability of $11.4 million. Working capital was negative $229.1 million.
Material changes and drivers
- Revenue declined primarily because of the ongoing COVID-19 impact on outdoor advertising. Billboard revenue fell $21.3 million and transit revenue fell $12.4 million; logo revenue was also lower. On an acquisition-adjusted basis, revenue declined 8.2%.
- Operating costs excluding depreciation, amortization and asset-disposition gains fell $28.6 million, or 11.4%, reflecting cost reductions, including lower transit and airport franchise costs and billboard lease costs. These reductions helped cushion the revenue decline.
- Adjusted EBITDA fell 4.6%; management attributed this primarily to a $16.9 million decline in gross margin, partly offset by lower general and administrative and corporate costs.
- Interest expense decreased $8.4 million to $28.2 million, mainly reflecting prior debt transactions and lower senior-credit-facility rates. Net income nevertheless declined, in part because the loss on extinguishment of debt increased.
- Cash used in financing was $144.1 million, largely reflecting debt refinancing and $75.9 million of dividends/distributions. The resulting net decrease in cash was $78.5 million.
Debt, outlook and risks
- In January 2021, Lamar Media issued $550 million of 3.625% senior notes due 2031. It used the proceeds, cash and borrowings to redeem all $650 million of 5.75% notes due 2026 in February at 102.875% of principal, recording a $21.6 million extinguishment loss, including $18.7 million in cash.
- At quarter-end, the company had $25 million drawn on its $750 million revolving facility and $155 million outstanding under its accounts-receivable securitization program. The securitization facility matures December 17, 2021. Management said it could extend, replace or refinance that facility.
- Management reported compliance with debt covenants and stated that liquidity was adequate for operating requirements for the next 12 months. It expected 2021 operating cash flow to exceed operating, capital expenditure and dividend needs, while noting that pandemic effects could alter that outlook.
- Management observed improving customer activity from June 2020 through March 2021 as restrictions eased and vaccination increased. It was resuming acquisition activity and capital spending, but said the strength and duration of the advertising recovery remained uncertain. Expected 2021 capital expenditures were approximately $150 million.
- Subject to board approval, the company expected 2021 common distributions of $3.00 per share, including the $0.75 paid in Q1. Future dividends remain discretionary and depend on cash flow, REIT requirements, debt restrictions and other factors.
- Variable-rate debt totaled approximately $778.5 million, about 27% of outstanding long-term debt. Management estimated that a 200-basis-point rate increase would have raised Q1 interest expense by approximately $3.8 million.
- Risks include COVID-19 and advertising demand, economic conditions, leverage and refinancing needs, debt covenant restrictions, competition, regulation, contract renewals, acquisitions, digital deployment, severe weather and maintaining REIT status. The filing reported no material changes to the risk factors in the 2020 Form 10-K.
- Subsequent event: on April 6, 2021, an indirect wholly owned subsidiary filed an S-1 for a proposed SPAC offering with a $300 million base size, potentially $345 million with the underwriters’ option. The company intended to commit up to $100 million to forward purchase units, subject to a business combination.
No goodwill or long-lived-asset impairment charges or significant credit losses were recorded in Q1. The company reported effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether advertising demand and revenue continue recovering after the pandemic-related declines, particularly in billboard, transit and airport categories.
- Whether cost savings remain sustainable and protect margins as revenue changes and capital spending resumes.
- Liquidity, covenant headroom and the refinancing or extension of the securitization facility maturing in December 2021.
- Debt repayment needs, variable-rate exposure and the effect of interest rates on interest expense and cash available for distributions.
- Whether the board approves the stated $3.00-per-share 2021 distribution expectation and whether operating cash flow supports it alongside capital expenditures.
- Progress, funding and potential obligations associated with the proposed SPAC and forward purchase commitment.
- Interpret non-GAAP adjusted EBITDA, FFO and AFFO alongside GAAP results; these measures are not substitutes for net income or operating cash flow.