Lamar Advertising Company — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; unaudited. Lamar Media Corp., a wholly owned subsidiary and principal borrower, filed alongside Lamar Advertising Company.
Business context and financial performance
Lamar earns most of its revenue from advertising space on billboard, logo and transit displays. The quarter’s results largely preceded the full effects of COVID-19 restrictions, which began affecting demand in late March.
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Net revenue | $406.6 million | $384.5 million | +5.8%; +4.4% versus acquisition-adjusted prior-year revenue |
| Operating income | $96.6 million | $90.8 million | +6.4% |
| Operating margin | 23.8% | 23.6% | +0.2 percentage points |
| Net income | $40.5 million | $51.3 million | -21.0% |
| Diluted EPS | $0.40 | $0.51 | Down |
| Adjusted EBITDA (non-GAAP) | $159.8 million | $146.1 million | +9.4% |
| FFO / AFFO (non-GAAP) | $97.6 million / $113.3 million | $105.0 million / $98.9 million | FFO -7.1%; AFFO +14.5% |
| Cash from operations | $62.9 million | $60.7 million | +3.6% |
Billboard revenue rose $19.1 million year over year, reflecting acquisitions; acquisition-adjusted revenue increased $17.0 million, principally from digital billboard growth. Operating expenses excluding depreciation and amortization and disposition gains rose 5.7%. Net income declined mainly because the company recorded an $18.2 million debt-extinguishment loss. Interest expense was $36.6 million, down from $37.6 million.
Liquidity, debt and capital allocation
- Cash and equivalents were $496.6 million at March 31, versus $26.2 million at year-end. Cash flow from financing was boosted by borrowing; it should not be read as cash generated by operations.
- Reported debt, net of deferred financing costs, was approximately $3.552 billion, up from $2.980 billion at December 31. Cash plus $111.9 million of revolving availability produced reported total liquidity of approximately $608.5 million. The company reported a $245.7 million working-capital surplus, compared with a $362.6 million deficit at year-end.
- At quarter-end, $625 million was drawn on the new $750 million revolving facility, with $13.1 million of letters of credit and $111.9 million available. The separate receivables financing program had $175 million outstanding, at approximately 1.8% interest.
- In February, Lamar Media refinanced its credit facility, borrowed $600 million under new Term B loans, and issued $1.0 billion of notes: $600 million at 3.75% due 2028 and $400 million at 4.00% due 2030. It redeemed $510 million of 5.375% notes due 2024. The refinancing and redemption generated the $18.2 million extinguishment loss, including approximately $9.1 million cash related to the note redemption.
- The company said it was in compliance with debt covenants and expected available cash and revolver capacity to meet operating needs for the next 12 months. Variable-rate debt was approximately $1.398 billion; management estimated a 200-basis-point rate increase would add about $5.1 million to interest expense for the quarter.
- Q1 capital expenditures were $25.7 million; management reduced its expected 2020 total to approximately $58 million. Acquisitions cost $13.6 million in Q1, but acquisition activity was suspended. A $1.00-per-share quarterly dividend was paid; the board was reviewing remaining 2020 distributions. Separate $250 million stock and debt repurchase authorizations had no repurchases by quarter-end or filing date.
Outlook, risks and unusual items
- COVID-19 restrictions, lower road traffic and fewer airport and transit users reduced demand for out-of-home advertising, with particular exposure to entertainment, retail, restaurant and automotive advertisers. Management expected the adverse impact to grow in Q2 2020; the pandemic’s duration and recovery timing were uncertain. Management anticipated a possible second-half recovery but gave no quantified revenue or earnings guidance.
- Mitigation actions included drawing $535 million on the revolver in March, curtailing capital projects including digital displays, suspending acquisitions, freezing hiring, seeking lease-payment and franchise-guarantee relief, and deferring the employer share of Social Security taxes under the CARES Act.
- Management stated it did not expect 2020 operating cash generation to exceed cash needs for operations, capital expenditures and dividends, while expecting cash on hand and revolver availability to cover operating needs for the next 12 months. Future dividends remain subject to board discretion, REIT requirements, cash flows, debt restrictions and pandemic effects.
- Management’s COVID-related goodwill assessment found no impairment of goodwill or long-lived assets at March 31; it also reported no significant credit losses in the quarter. Credit-loss estimates incorporated available COVID-19 information and may change as conditions evolve.
- Other material exposures include substantial debt, covenant and distribution restrictions, variable interest rates, long-term billboard and other operating leases, and contractual commitments. Reported operating lease liabilities were $1.244 billion; undiscounted contractual obligations include debt, interest and operating leases.
Important facts for investors to verify
- Subsequent-quarter revenue, occupancy and advertiser demand, particularly the expected Q2 pandemic impact and pace of any recovery.
- Cash burn, revolver utilization, covenant headroom and the maturity/refinancing profile of the approximately $3.552 billion of debt.
- Whether announced spending cuts, lease amendments and transit or airport partner relief are achieved, and whether the $58 million capital-spending estimate changes.
- The board’s decisions on remaining 2020 dividends and whether REIT distribution requirements can be met alongside liquidity needs.
- Changes in receivable collectability, impairment assessments, and any debt or share repurchases under the authorized programs.