Lamar Advertising Company — Q2 2022 Form 10-Q
Business context and period. The filing covers the quarter and six months ended June 30, 2022. Lamar operates billboard, logo and transit advertising displays. The combined report presents Lamar Advertising Company and its wholly owned operating subsidiary, Lamar Media Corp.; financial amounts below are in U.S. dollars. Unless noted, amounts are consolidated Lamar Advertising.
Financial performance
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Revenue | $517.9 million | $445.1 million | $969.2 million | $815.9 million |
| Operating income | $166.5 million | $149.0 million | $287.0 million | $237.9 million |
| Net income | $134.2 million | $119.6 million | $226.4 million | $157.9 million |
| Diluted EPS | $1.32 | $1.18 | $2.23 | $1.56 |
| Operating cash flow | Not separately stated | Not separately stated | $312.6 million | $285.3 million |
| Capital expenditures | $47.0 million | $25.1 million | $75.8 million | $41.4 million |
Q2 operating margin was approximately 32.2% versus 33.5% a year earlier; net margin was approximately 25.9% versus 26.9%. For the first half, operating margin was approximately 29.6% versus 29.2%, and net margin was approximately 23.4% versus 19.4%. Lamar reported Q2 adjusted EBITDA of $243.4 million, up 14.0%, and first-half adjusted EBITDA of $434.6 million, up 18.8%. These are non-GAAP measures and should not be treated as substitutes for GAAP results.
At June 30, cash and cash equivalents were $91.7 million. Total debt principal was approximately $3.28 billion, including $335 million outstanding on the revolving facility and $240 million under the accounts-receivable securitization program; balance-sheet debt, net of financing costs, was $3.24 billion. Total liquidity was reported at $496.3 million: cash, $403.6 million of revolving-facility availability and $1.0 million of securitization availability. Working capital was negative $251.3 million. Lamar reported compliance with its debt covenants.
First-half investing cash outflow was $308.4 million, driven chiefly by $234.3 million of acquisitions and $75.8 million of capital expenditures. Financing cash outflow was $12.3 million, including $233.6 million of common distributions. Cash declined $8.1 million to $91.7 million.
Changes versus the prior comparable period
- Q2 revenue increased 16.4%; management’s acquisition-adjusted comparison showed growth of 12.2%. First-half revenue increased 18.8%, or 15.1% on the acquisition-adjusted comparison.
- Growth was led by billboard and transit advertising. Q2 billboard revenue rose $58.5 million and transit revenue $13.2 million year over year.
- Operating expenses excluding depreciation and asset-disposition gains increased 20.3% in Q2, faster than revenue growth; management cited operating costs, stock-based compensation and acquisition-related transaction costs. Depreciation and amortization also increased, largely due to acquisitions and capital investment.
- First-half net income increased 43.3%, partly because the prior-year period included a $21.6 million loss on extinguishment of debt; there was no comparable charge in 2022. First-half interest expense increased $1.8 million.
- First-half acquisition spending rose to $234.3 million from $27.2 million. The company completed more than 40 acquisitions, including the May purchase of Burkhart Advertising for $130 million.
Outlook, commentary and risks
- Management anticipated approximately $170 million of full-year 2022 capital expenditures and expected 2022 cash from operations to exceed operating, capital-expenditure and dividend needs. It said liquidity should be adequate for the next 12 months. No full-year earnings guidance is provided in the filing.
- Subject to board approval, management expected aggregate 2022 distributions of $4.70 per common share. The board retains discretion over future distributions; REIT status generally requires annual distributions of at least 90% of REIT taxable income, subject to the filing’s stated calculation.
- On July 29, 2022, Lamar Media entered into a $350 million Term A loan due February 2025, bearing interest at Term SOFR plus 1.25% and a 0.10% credit spread adjustment. Proceeds repaid revolving borrowings and part of the securitization balance. After repayment, the company reported no revolver balance and $170 million outstanding under the securitization program.
- On July 1, 2022, Lamar completed its UPREIT tax reorganization, which management did not expect to materially affect financial statements or operations. The filing identifies potential conflicts between limited partners’ interests and stockholders’ interests as a new risk.
- Key exposures include economic weakness, inflation and advertising demand; competition and regulation; lease renewals; acquisition integration; severe weather; REIT qualification and significant indebtedness. About 35.8% of debt was variable-rate at June 30. Management estimated a 200-basis-point rate increase would have added approximately $9.9 million of interest expense for the first half.
- Unusual items included $3.7 million of first-half transaction expenses, including a $1.1 million write-off of deferred offering costs after a subsidiary SPAC withdrew its registration statement. The filing reports no share repurchases under the authorized stock or debt repurchase programs through June 30.
Important facts for investors to verify
- Whether organic advertising growth and occupancy/rate trends persist, apart from acquisitions; compare reported and acquisition-adjusted revenue.
- Debt balances, variable-rate exposure, refinancing requirements and covenant headroom, including the effect of the July Term A loan and subsequent repayments.
- Whether operating-cost growth, maintenance capital expenditures and acquisition spending affect margins and cash available for distributions.
- The board’s future dividend decisions and the cash-flow coverage of distributions; the stated $4.70 annual expectation is subject to board approval.
- Acquisition integration and returns, particularly for Burkhart, and whether preliminary purchase-price allocations change.
- The terms and practical implications of the UPREIT structure, including potential conflicts involving operating-partnership limited partners.