Lamar Advertising Company — Q3 2023 Form 10-Q
Business and period: Lamar operates outdoor advertising displays, deriving most revenue from billboard advertising, with additional logo and transit advertising. This unaudited filing covers the quarter and nine months ended September 30, 2023, compared with the same 2022 periods. Lamar Media Corp. is the wholly owned operating subsidiary and principal borrower.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $542.6 million | $527.4 million | $1,555.1 million | $1,496.6 million |
| Operating income | $188.1 million | $181.0 million | $483.7 million | $467.9 million |
| Net income | $140.4 million | $146.2 million | $347.5 million | $372.5 million |
| Diluted EPS | $1.37 | $1.44 | $3.39 | $3.66 |
| Adjusted EBITDA | $265.7 million | $251.2 million | $717.6 million | $685.8 million |
| Operating cash flow | Not separately presented | Not separately presented | $529.4 million | $537.1 million |
Q3 revenue rose 2.9%; on an acquisition-adjusted basis, management reported growth of 1.6%. Nine-month revenue increased 3.9%, or 1.9% on an acquisition-adjusted basis. Billboard revenue was the largest source of growth. Q3 operating margin was approximately 34.7%, versus 34.3%; nine-month operating margin was approximately 31.1%, versus 31.3%.
Despite higher operating income, net income declined 3.9% in Q3 and 6.7% year to date, primarily reflecting higher interest expense. Interest expense rose $11.5 million in Q3 and $40.3 million year to date, mainly due to higher rates on the senior credit facility and receivables securitization program. Nine-month FFO was $554.2 million and AFFO was $547.3 million, each down 1.4% year over year; these are non-GAAP measures and are not substitutes for operating cash flow.
Cash, debt and liquidity
- At September 30, cash was $39.4 million. Total liquidity was $645.7 million, including $606.3 million available under the revolving credit facility. Management said liquidity should cover operating needs for the next 12 months.
- Gross debt was approximately $3.43 billion, including $1.08 billion under the senior credit facility and $247.1 million under the accounts receivable securitization program. The securitization program had no remaining availability. Revolver borrowings were $135 million; the facility’s stated availability was $606.3 million.
- Operating cash flow was $529.4 million; investing cash use was $245.9 million, including $120.3 million for acquisitions and $132.2 million for capital expenditures. Financing cash use was $296.7 million, chiefly reflecting distributions, partly offset by net revolving borrowings. Cash declined $13.2 million from year-end 2022.
- The company paid $3.75 per common share in distributions during the first nine months. Subject to board approval, it expected 2023 distributions to total $5.00 per share.
Changes, outlook and risks
- Operating income increased, but higher depreciation and interest costs weighed on earnings. Adjusted EBITDA rose 5.8% in Q3 and 4.6% year to date. Nine-month operating cash flow was modestly lower than in 2022.
- Management expected 2023 capital expenditures of approximately $180–$185 million; $132.2 million had been spent through September. It also expected operating cash flow to exceed needs for operations, capital expenditures and dividends, while pursuing acquisitions and investment in existing displays.
- A July 2023 credit amendment extended the $750 million revolving facility maturity to July 31, 2028, subject to a springing-maturity provision if liquidity is insufficient to repay specified Term B or note obligations ahead of their maturities. The Term A loan matures February 6, 2025; the receivables securitization program matures July 21, 2025.
- About $1.33 billion of debt was variable-rate. Management estimated that a 200-basis-point rate increase would have raised nine-month 2023 interest expense by approximately $18.9 million. Higher rates, advertising demand, economic conditions, contract renewals, regulation, weather and REIT qualification are among the disclosed risks.
- The filing reported compliance with debt covenants and no material changes to previously disclosed risk factors. It identified no material changes in internal control over financial reporting.
- Unusual items included a $5.2 million nine-month gain on asset dispositions and a $115,000 loss on debt extinguishment. No repurchases occurred under the stock or debt repurchase programs during the period.
Important facts for investors to verify
- Whether organic revenue growth and occupancy/rate trends continue, separating acquired-asset contributions from comparable growth.
- Variable-rate exposure, upcoming 2025 debt maturities, revolver availability and the springing-maturity liquidity test.
- Whether operating cash generation supports planned capital spending, acquisitions and distributions as interest costs remain elevated.
- The assumptions and reconciliation of non-GAAP Adjusted EBITDA, FFO and AFFO against GAAP results and cash flows.
- The board’s future dividend decisions and the company’s continued REIT status and covenant compliance.