Lamar Advertising Company — FY 2022 Form 10-K
Business context and reporting period. This annual report covers the year ended December 31, 2022; it is not a standalone fourth-quarter report. Lamar operates a single advertising segment, renting space on billboards, logo signs and transit displays in the U.S. and Canada. It completed a tax reorganization to an UPREIT structure on July 1, 2022, which management said was not expected to materially affect operations or combined financial statements.
Key financial metrics
| Metric | FY 2022 | FY 2021 | Change |
|---|---|---|---|
| Net revenue | $2.032 billion | $1.787 billion | +13.7%; +9.8% versus acquisition-adjusted 2021 revenue |
| Operating income | $578.0 million | $521.2 million | +10.9% |
| Net income | $438.6 million | $388.1 million | +13.0% |
| Diluted EPS | $4.31 | $3.83 | Increased |
| Operating margin / net margin | 28.4% / 21.6% | 29.2% / 21.7% | Operating margin declined; net margin was broadly flat |
| Cash from operations | $781.6 million | $734.4 million | +6.4% |
| Capital expenditures | $167.1 million | $126.1 million | Increased |
| Adjusted EBITDA (non-GAAP) | $938.1 million | $827.3 million | +13.4% |
| AFFO (non-GAAP) | $749.7 million | $667.7 million | +12.3% |
Billboard revenue was $1.814 billion, transit revenue $138.0 million and logo revenue $80.1 million. Direct advertising expenses rose to $667.3 million; depreciation and amortization rose to $349.4 million. Cash used in investing activities was $619.1 million and cash used in financing activities was $209.3 million. Cash and equivalents ended the year at $52.6 million.
Debt and liquidity. Year-end debt was $3.345 billion gross, or $3.313 billion net of deferred financing costs, versus $3.050 billion gross at year-end 2021. Total liquidity was $746.6 million, comprising cash and $694.0 million of revolver availability. Working capital was negative $361.5 million. Variable-rate debt was approximately $1.24 billion; management estimated that a 200-basis-point increase in the weighted-average rate would have added about $21.2 million to 2022 interest expense. The company reported compliance with its debt covenants.
Material changes versus FY 2021
- Revenue growth reflected billboard, transit and logo increases; acquisitions contributed to reported growth. Acquisition-adjusted revenue increased 9.8%.
- Operating expenses excluding depreciation and amortization and asset-sale gains increased 12.4%. Management cited higher variable billboard lease and transit/airport franchise costs, and workforce increases.
- Interest expense increased $21.1 million to $127.5 million, primarily due to higher rates on the senior credit facility and receivables securitization borrowings.
- Depreciation and amortization increased $78.2 million. The increase included a revision to asset-retirement-cost estimates, as well as acquisitions and capital investment.
- There was no debt-extinguishment loss in 2022, compared with a $21.6 million loss in 2021 related to redeeming the 5.75% senior notes.
- Common distributions increased to $5.00 per share from $4.00; total 2022 distributions were $508.2 million.
Outlook, commentary and risks
- Management expected 2023 capital expenditures of approximately $185 million and forecast operating cash flow to exceed operating needs, capital expenditures and dividends. It expected aggregate 2023 distributions of $5.00 per common share, subject to Board approval; a $1.25 dividend was declared for payment March 31, 2023.
- Management said inflation increased labor, utility and other costs in 2022, with much of the impact offset by higher advertising rates. It expected inflationary and interest-rate pressures to continue into 2023.
- Advertising is economically sensitive and seasonal: results are typically strongest in summer and fall and weakest in the first quarter. A downturn or reduced advertiser spending could pressure revenue and earnings.
- Key risks include substantial debt and refinancing or rate exposure; covenant restrictions; competition and acquisition-integration risks; government restrictions on billboard and digital-display operations; renewals of site leases and logo contracts; and severe weather. The company stated it does not consider insurance against hurricane and other natural-disaster losses economical.
- Four of the company’s 24 logo sign contracts were subject to renewal or expiration in 2023. Approximately 75% of leased billboard sites were due to expire or become subject to renewal within five years.
- A $12.6 million contingent payment related to the 2018 Puerto Rico asset sale contributed to the 2022 asset-disposition gain. The company also recorded tax expense related to Puerto Rico deferred tax assets. Management reported no litigation expected to have a material adverse effect.
- The company’s REIT status, required distributions, and tax treatment depend on ongoing compliance with complex rules. Distributions remain subject to Board discretion, cash needs and debt restrictions.
Important facts for investors to verify
- How much of revenue and cash-flow growth is organic, excluding acquisitions, and whether operating costs continue to rise faster or slower than revenue.
- Debt maturities, refinancing options and covenant headroom, particularly around 2025 maturities and the effects of higher variable interest rates.
- Whether the announced 2023 capital-spending and dividend expectations are supported by realized operating cash flow and liquidity.
- Lease-renewal costs and outcomes, logo-contract renewals, and the sensitivity of the $390.4 million asset-retirement obligation to updated estimates.
- Progress on integrating 2022 acquisitions and finalizing the preliminary purchase-price allocation for Fairway Outdoor and Standard Outdoor.
- Continued REIT qualification and the potential impact of tax rules, Puerto Rico tax matters, or restrictions on distributions.