Lamar Advertising Company — Q2 2021 Form 10-Q
Business and period: Lamar operates billboard, logo and transit advertising displays. This unaudited report covers the quarter and six months ended June 30, 2021; comparisons are with the corresponding 2020 periods. Lamar Media Corp. is the wholly owned operating subsidiary and debt issuer.
Financial performance
- Q2 revenue: $445.1 million, up 28.0% year over year. Billboard revenue was $405.3 million; logo revenue $19.7 million; transit revenue $20.1 million. Management reported acquisition-adjusted revenue growth of 28.9%.
- Q2 earnings: Operating income was $149.0 million versus $66.5 million; net income was $119.6 million versus $31.4 million; diluted EPS was $1.18 versus $0.31. Calculated operating margin was 33.5% versus 19.1%, and net margin was 26.9% versus 9.0%.
- First-half revenue and earnings: Revenue was $815.9 million, up 8.2%; operating income was $237.9 million versus $163.0 million; net income was $157.9 million versus $71.9 million; diluted EPS was $1.56 versus $0.71. Calculated operating margin was 29.2% versus 21.6%, and net margin was 19.4% versus 9.5%.
- Costs and non-GAAP measures: First-half adjusted EBITDA was $365.9 million, up 24.9%; Q2 adjusted EBITDA was $213.5 million, up 60.3%. These are company-defined non-GAAP measures. First-half operating expenses excluding depreciation and amortization and asset-disposition gains declined 2.1%; Q2 expenses on the same basis increased 8.6%.
- Cash flow: First-half operating cash flow was $285.3 million versus $210.7 million. Capital expenditures were $41.4 million and acquisitions used $27.2 million. Cash dividends/distributions were $151.9 million. Cash declined to $68.7 million from $121.6 million at year-end 2020.
- Debt and liquidity: June 30 debt was $2.823 billion gross, or $2.784 billion net of deferred financing costs; cash was $68.7 million. Total liquidity was $856.8 million: cash of $68.7 million, revolving-credit availability of $735.6 million and securitization availability of $52.5 million. The company reported a $196.6 million working-capital deficit. No revolving-credit borrowings were outstanding; the company said it was compliant with its debt covenants.
- Dividends: Common dividends were $0.75 per share in each 2021 quarter to date. The company said it expected, subject to board approval, to increase the quarterly dividend to $1.00 for Q3 and Q4 2021.
Material changes and notable items
- Revenue and profitability rebounded as customer activity improved from pandemic-affected 2020 levels. Management attributed first-half growth mainly to billboard advertising; transit revenue remained affected by COVID-19.
- Interest expense fell to $54.5 million for the first half from $72.0 million, reflecting prior debt transactions and lower senior-credit-facility rates.
- In January 2021, Lamar Media issued $550 million of 3.625% notes due 2031; in February it redeemed all $650 million of 5.75% notes due 2026. The redemption generated a $21.6 million extinguishment loss, including $18.7 million in cash.
- The receivables securitization facility was extended to July 2024. On July 2, 2021, after quarter-end, a credit agreement amendment addressed the treatment of Lamar Partnering entities.
- After quarter-end, Lamar invested $30 million for a minority stake in Vistar Media. Lamar also described a proposed subsidiary SPAC offering, subject to market conditions, and a possible commitment of up to $100 million in forward purchase units.
Outlook, risks and contingencies
Management estimated 2021 capital expenditures of approximately $135 million, expected operating cash flow to exceed operating, capital expenditure and dividend needs, and said available liquidity should cover operating needs for the next 12 months. These expectations are not guarantees. Management cited uncertainty from COVID-19 variants, vaccination trends and possible renewed travel restrictions, as well as advertising demand and economic conditions. Other disclosed risks include significant indebtedness, interest-rate exposure, competition, regulation, contract renewals, acquisitions, digital deployment and maintaining REIT status. The company estimated that a 200-basis-point increase in variable borrowing rates would add approximately $7.6 million to first-half interest expense. It reported no material changes to the risk factors in its 2020 Form 10-K, and no material change in internal controls.
Long-term debt, interest and lease commitments totaled approximately $5.2 billion in scheduled payments. The filing also describes covenant limits on debt and distributions, REIT-related distribution requirements, and guaranteed minimum payments under transit and airport advertising arrangements. Future dividends remain subject to board discretion and debt restrictions.
Investor facts to verify
- Whether advertising demand and transit revenue continued to recover after the comparison with pandemic-disrupted 2020 periods.
- Actual cash generation, capital expenditures, acquisitions and dividend coverage against management’s 2021 expectations.
- Debt levels, variable-rate exposure, covenant compliance and refinancing needs, including the securitization facility’s terms and utilization.
- Whether the proposed dividend increase, Vistar investment and Lamar Partnering SPAC plans proceeded as described.
- The impact of COVID-19 developments and REIT distribution and qualification requirements on future results and cash available to shareholders.