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Registrants’ telephone number, including area code: (i225) i926-1000
Securities registered pursuant to Section 12(b) of the Act:
Title
of each class
Trading Symbol(s)
Name of each exchange on which registered
iClass A common stock, $0.001 par value
iLAMR
The iNASDAQ
Stock Market, LLC
Indicate by check mark whether each registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYesx No ¨
Indicate by check mark whether each registrant has submitted electronically, every Interactive Data
File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYesx No ¨
Indicate by check mark whether Lamar Advertising Company is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging
growth company” in Rule 12b-2 of the Exchange Act.
iLarge accelerated filer
x
Accelerated filer
¨
Non-accelerated
filer
¨
Smaller reporting company
i¨
Emerging growth company
i¨
If
an emerging growth company, indicate by check mark if Lamar Advertising Company has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether Lamar Media Corp. is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. ☐
Large
accelerated filer
¨
Accelerated filer
¨
iNon-accelerated filer
x
Smaller reporting company
i¨
Emerging
growth company
i¨
If an emerging growth company, indicate by check mark if Lamar Media Corp. has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether Lamar Advertising Company is a shell company (as defined in
Rule 12b-2 of the Exchange Act): Yes i¨ No x
Indicate by check mark whether Lamar Media Corp. is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes i¨ No x
The
number of shares of Lamar Advertising Company’s Class A common stock outstanding as of October 31, 2022: i87,263,385
The number of shares of the Lamar Advertising Company’s Class B common stock outstanding as of October 31, 2022: i14,420,085
The
number of shares of Lamar Media Corp. common stock outstanding as of October 31, 2022: i100
This combined Form 10-Q is separately filed by (i) Lamar Advertising Company and (ii) Lamar Media Corp. (which is a wholly owned subsidiary of Lamar Advertising Company). Lamar Media Corp. meets the conditions set forth in general instruction H(1) (a) and (b) of Form 10-Q and is, therefore, filing this form with the reduced disclosure format permitted by such instruction.
NOTE
REGARDING FORWARD-LOOKING STATEMENTS
Certain information included in this report is forward-looking in nature within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. This report uses terminology such as “anticipates,”“believes,”“plans,”“expects,”“future,”“intends,”“may,”“will,”“should,”“estimates,”“predicts,”“potential,”“continue” and similar expressions to identify forward-looking statements. Examples of forward-looking statements in this report include statements about:
•our future financial performance and condition;
•our business plans, objectives, prospects, growth and operating strategies;
•our
future capital expenditures and level of acquisition activity;
•our ability to integrate acquired assets and realize operating efficiency from acquisitions;
•market opportunities and competitive positions;
•our future cash flows and expected cash requirements;
•estimated risks;
•our ability to maintain compliance with applicable covenants and restrictions included in Lamar Media’s senior credit facility, Accounts Receivable Securitization Program and the indentures relating to its outstanding notes;
•stock price;
•estimated
future dividend distributions; and
•our ability to remain qualified as a Real Estate Investment Trust (“REIT”).
Forward-looking statements are subject to known and unknown risks, uncertainties and other important factors, including but not limited to the following, any of which may cause the actual results, performance or achievements of Lamar Advertising Company (referred to herein as the “Company” or “Lamar Advertising”) or Lamar Media Corp. (referred to herein as “Lamar Media”) to differ materially from those expressed or implied by the forward-looking statements:
•the state of the economy and financial markets generally and their effects on the markets in which we operate and the broader demand for advertising, including inflationary pressures;
•the
levels of expenditures on advertising in general and outdoor advertising in particular;
•risks and uncertainties relating to our significant indebtedness;
•the demand for outdoor advertising and its continued popularity as an advertising medium;
•our need for, and ability to obtain, additional funding for acquisitions, operations and debt refinancing;
•increased competition within the outdoor advertising industry;
•the regulation of the outdoor advertising industry by federal, state and local governments;
•our ability to renew expiring contracts at favorable rates;
•the
integration of businesses and assets that we acquire and our ability to recognize cost savings and operating efficiencies as a result of these acquisitions;
•our ability to successfully implement our digital deployment strategy;
•the market for our Class A common stock;
•changes in accounting principles, policies or guidelines;
•our ability to effectively mitigate the threat of and damages caused by hurricanes and other kinds of severe weather;
•our ability to maintain our status as a REIT; and
•changes in tax laws applicable to REITs or in the interpretation of those
laws.
The forward-looking statements in this report are based on our current good faith beliefs, however, actual results may differ due to inaccurate assumptions, the factors listed above or other foreseeable or unforeseeable factors. Consequently, we cannot
2
guarantee that any of the forward-looking statements will prove to be accurate. The forward-looking statements in this report speak only as of the date of this report, and Lamar Advertising and Lamar Media expressly disclaim any obligation or undertaking to update or revise any forward-looking statement contained in this report, except as required by law.
For a further description of these and other risks and uncertainties, the
Company encourages you to read carefully Item 1A to the combined Annual Report on Form 10-K for the year ended December 31, 2021 of the Company and Lamar Media (the “2021 Combined Form 10-K”), filed on February 25, 2022, and as such risk factors may be further updated or supplemented, from time to time, in our future combined Quarterly Reports on Form 10-Q and Current Reports on Form 8-K.
Receivables,
net of allowance for doubtful accounts of $i11,388 and $i11,195 in 2022 and 2021, respectively
i294,840
i269,917
Other
current assets
i30,826
i18,902
Total
current assets
i405,021
i388,607
Property,
plant and equipment
i3,912,020
i3,782,288
Less
accumulated depreciation and amortization
(i2,512,786)
(i2,445,014)
Net
property, plant and equipment
i1,399,234
i1,337,274
Operating
lease right of use assets
i1,236,201
i1,224,672
Financing
lease right of use assets
i14,751
i16,890
Goodwill
i2,002,747
i1,936,426
Intangible
assets, net
i1,128,358
i1,045,177
Other
assets
i92,207
i98,448
Total
assets
$
i6,278,519
$
i6,047,494
LIABILITIES
AND STOCKHOLDERS’ EQUITY
Current liabilities:
Trade accounts payable
$
i16,523
$
i16,429
Current
maturities of long-term debt, net of deferred financing costs of $i651 and $i585 in 2022 and 2021, respectively
i199,722
i174,778
Current
operating lease liabilities
i180,107
i198,286
Current
financing lease liabilities
i1,331
i1,331
Accrued
expenses
i105,374
i135,038
Deferred
income
i140,772
i137,103
Total
current liabilities
i643,829
i662,965
Long-term
debt, net of deferred financing costs of $i33,494 and $i36,274 in 2022 and 2021, respectively
i3,016,563
i2,838,817
Operating
lease liabilities
i1,007,988
i995,356
Financing
lease liabilities
i16,278
i17,277
Deferred
income tax liabilities
i8,298
i6,416
Asset
retirement obligation
i278,092
i269,367
Other
liabilities
i33,186
i40,207
Total
liabilities
i5,004,234
i4,830,405
Stockholders’
equity:
Series AA preferred stock, par value $ii0.001/,
$ii63.80/ cumulative dividends, ii5,720/
shares authorized; iiii5,720///
shares issued and outstanding at 2022 and 2021
i—
i—
Class
A common stock, par value $ii0.001/, ii362,500,000/
shares authorized; i88,047,081 and i87,540,838 shares issued at 2022 and 2021, respectively; i87,263,385
and i86,852,821 outstanding at 2022 and 2021, respectively
i88
i88
Class
B common stock, par value $ii0.001/, ii37,500,000/
shares authorized, iiii14,420,085///
shares issued and outstanding at 2022 and 2021
i14
i14
Additional
paid-in capital
i2,054,110
i2,001,399
Accumulated
comprehensive (loss) income
(i915)
i855
Accumulated
deficit
(i717,654)
(i734,415)
Cost
of shares held in treasury, i783,696 and i688,017 shares at 2022 and 2021, respectively
(i61,358)
(i50,852)
Stockholders’
equity
i1,274,285
i1,217,089
Total
liabilities and stockholders’ equity
$
i6,278,519
$
i6,047,494
See
accompanying notes to condensed consolidated financial statements.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share data)
1.
iSignificant Accounting Policies
The information included in the foregoing interim condensed consolidated financial statements is unaudited. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the Company’s financial position and results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results
to be expected for the entire year. These interim condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and the notes thereto included in the 2021 Combined Form 10-K. iSubsequent events, if any, are evaluated through the date on which the financial statements are issued.
On July 1, 2022, the Company's direct wholly owned subsidiary Lamar Media Corp. (“Lamar Media”) entered into the Amended and Restated Limited Partnership Agreement (the “Partnership
Agreement”) of Lamar Advertising Limited Partnership (the “OP”) as the initial limited partner, along with its wholly owned subsidiary, Lamar Advertising General Partner, LLC, as the general partner of the OP (the “General Partner”). Lamar Media formed the OP and contributed all of its assets to the OP in connection with the Company’s reorganization (the "Reorganization") as a specific type of real estate investment trust (“REIT”) known as an Umbrella Partnership Real Estate Investment Trust (“UPREIT”). The Company completed the Reorganization to facilitate tax-deferred contributions of properties to the OP in exchange for limited partnership interests in the OP. The Reorganization did not have a material impact on our condensed consolidated financial statements.
2. iRevenues
i
Advertising
revenues: The majority of our revenues are derived from contracts for advertising space on billboard, logo and transit displays. Contracts which do not meet the criteria of a lease under ASC 842, Leases are accounted for under ASC 606, Revenue from Contracts with Customers. The majority of our advertising space contracts do not meet the definition of a lease under ASC 842 and are therefore accounted for under ASC 606. The contract revenues are recognized ratably over their contract life. Costs to fulfill a contract, which include our costs to install advertising copy onto billboards, are capitalized and amortized to direct advertising expenses (exclusive of depreciation and amortization) in the Condensed Consolidated Statements of Income and Comprehensive Income.
Other revenues: Our other
component of revenue primarily consists of production services which includes creating and printing the advertising copy. Revenue for production contracts is recognized under ASC 606. Contract revenues for production services are recognized upon satisfaction of the contract which is typically less than one week.
Arrangements with multiple performance obligations: Our contracts with customers may include multiple performance obligations. For such arrangements, we allocate revenue to each performance obligation based on the relative standalone selling price. We determine standalone selling prices based on the prices charged to customers using expected cost plus margin.
Deferred revenues: We record deferred revenues when cash payments are received or due in advance of our performance obligation. The term between invoicing and when a payment
is due is not significant. For certain services we require payment before the product or services are delivered to the customer. The balance of deferred income is considered short-term and will be recognized in revenue within twelve months.
Practical expedients and exemptions: TheCompany is utilizing the following practical expedients and exemptions from ASC 606. We generally expense sales commissions when incurred because the amortization period is one year or less. These costs are recorded within direct advertising expenses (exclusive of depreciation and amortization). We do not disclose the value of unsatisfied performance obligations as the majority of our contracts with customers have an original expected length of less than one year. For contracts with customers which exceed one year, the future amount to be invoiced to the customer corresponds directly
with the value to be received by the customer.
During the three months ended September 30, 2022 and 2021, we had operating lease costs of $i74,927
and $i72,789, respectively, and variable lease costs of $i17,910 and $i22,514,
respectively. During the nine months ended September 30, 2022 and 2021, we had operating lease costs of $i227,129 and $i218,139,
respectively, and variable lease costs of $i45,785 and $i56,507, respectively. These operating lease costs are recorded in direct advertising expenses (exclusive of depreciation and amortization). For the
three months ended September 30, 2022 and 2021, we recorded a (gain) loss of ($i106) and $i349,
respectively, in gain on disposition of assets related to the amendment and termination of lease agreements. For the nine months ended September 30, 2022 and 2021, we recorded a (gain) loss of ($i576) and $i296,
respectively, in gain on disposition of assets related to the amendment and termination of lease agreements. Cash payments of $i255,436 and $i243,690 were made reducing our operating
lease liabilities for the nine months ended September 30, 2022 and 2021, respectively, and are included in cash flows provided by operating activities in the Condensed Consolidated Statements of Cash Flows.
We elected the short-term lease exemption which applies to certain of our vehicle agreements. This election allows the Company to not recognize lease right of use assets ("ROU assets") or lease liabilities for agreements with a term of twelve months or less. We recorded $i1,943
and $i1,579 in direct advertising expenses (exclusive of depreciation and amortization) for these agreements during the three months ended September 30, 2022 and 2021, respectively. We recorded $i5,494
and $i4,471 in direct advertising expenses (exclusive of depreciation and amortization) for these agreements during the nine months ended September 30, 2022 and 2021, respectively.
Our operating leases have a weighted-average remaining lease term of i12.3
years. The weighted-average discount rate of our operating leases is i4.6%. Also, during the periods ended September 30, 2022 and 2021, we obtained $i37,518
and $i25,401, respectively, of leased assets in exchange for new operating lease liabilities, which includes liabilities obtained through acquisitions.
i
The
following is a summary of the maturities of our operating lease liabilities as of September 30, 2022:
2022
$
i38,728
2023
i214,565
2024
i182,568
2025
i155,303
2026
i130,949
Thereafter
i868,615
Total
undiscounted operating lease payments
i1,590,728
Less: Imputed interest
(i402,633)
Total
operating lease liabilities
$
i1,188,095
/
During the three months ended September 30, 2022 and 2021, $ii713/
of amortization expense for each period and $i135 and $i145 of interest expense relating to our financing lease liabilities were recorded in depreciation and amortization and interest
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share data)
expense, respectively, in the Condensed Consolidated Statements of Income and Comprehensive Income. During the nine months ended September 30, 2022 and 2021, $ii2,140/
of amortization expense for each period and $i412 and $i443 of interest expense relating to our financing lease liabilities were recorded in depreciation and amortization and interest expense, respectively, in the Condensed Consolidated
Statements of Income and Comprehensive Income. Cash payments of $ii998/ were made reducing our financing
lease liabilities for each of the nine months ended September 30, 2022 and 2021 and are included in cash flows used in financing activities in the Condensed Consolidated Statements of Cash Flows. Our financing leases have a weighted-average remaining lease term of i5.2 years and a weighted-average discount rate of i3.1%.
Due
to our election not to reassess conclusions about lease identification as part of the adoption of ASC 842, Leases, our transit agreements were accounted for as leases on January 1, 2019. As we enter into new or renew current transit agreements, those agreements do not meet the criteria of a lease under ASC 842, therefore they are no longer accounted for as a lease. For the three months ended September 30, 2022 and 2021, non-lease variable transit payments were $i22,019
and $i8,625, respectively. For the nine months ended September 30, 2022 and 2021, non-lease variable transit payments were $i63,538
and $i19,213, respectively. These transit expenses are recorded in direct advertising expenses (exclusive of depreciation and amortization) on the Condensed Consolidated Statements of Income and Comprehensive Income.
4. iAcquisitions
During
the nine months ended September 30, 2022, the Company completed over i50 acquisitions of outdoor advertising assets for a total purchase price of $i287,860.
Each
of these acquisitions was accounted for under the acquisition method of accounting, and, accordingly, the accompanying condensed consolidated financial statements include the results of operations of each acquired entity from the date of acquisition. The acquisition purchase price has been allocated to assets acquired and liabilities assumed based on preliminary fair market value estimates at the dates of acquisition.
i
The following is a summary of the allocation of the purchase price in the above
transactions, which includes the preliminary values for the acquisition of Burkhart Advertising Inc., which was completed on May 4, 2022 for an aggregate purchase price of $i130,000.
Total
Property,
plant and equipment
$
i41,876
Goodwill
i66,514
Site
locations
i156,154
Non-competition agreements
i2,023
Customer
lists and contracts
i21,646
Asset acquisition costs
i604
Current
assets
i1,857
Current liabilities
(i6,367)
Operating
lease right of use assets
i32,184
Operating lease liabilities
(i28,631)
$
i287,860
/
Total
acquired intangible assets for the nine months ended September 30, 2022 were $i246,941, of which $i66,514
was assigned to goodwill. Goodwill is not amortized for financial statement purposes and $i456 of goodwill related to 2022 acquisitions is expected to be deductible for tax purposes. The acquired intangible assets have a weighted average useful life of approximately i14
years. The intangible assets include customer lists and contracts of $i21,646 (i7
year weighted average useful life) and site locations of $i156,154 (i15
year weighted average useful life). The aggregate amortization expense related to the 2022 acquisitions for the nine months ended September 30, 2022 was $i9,234.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share data)
i
The following unaudited pro forma financial information for the Company gives effect to the 2022 and 2021 acquisitions as if they had occurred on January 1, 2021. These pro forma results do not purport to
be indicative of the results of operations which actually would have resulted had the acquisitions occurred on such date or to project the Company's results of operations for any future period.
Equity Incentive Plan. Lamar Advertising’s 1996 Equity Incentive Plan, as amended, (the “Incentive Plan”) has reserved i17.5
million shares of Class A common stock for issuance to directors and employees, including shares underlying granted options and common stock reserved for issuance under its performance-based incentive program. Options granted under the plan expire iten years from the grant date with vesting terms ranging from three to ifive
years and include 1) options that vest in one-fifth increments beginning on the grant date and continuing on each of the first four anniversaries of the grant date and 2) options that cliff-vest on the fifth anniversary of the grant date. All grants are made at fair market value based on the closing price of our Class A common stock as reported on the Nasdaq Global Select Market on the date of grant.
We use a Black-Scholes-Merton option pricing model to estimate the fair value of share-based awards. The Black-Scholes-Merton option pricing model incorporates various and highly subjective assumptions, including expected term and expected volatility. The Company granted options for an aggregate of i151,500
shares of its Class A common stock during the nine months ended September 30, 2022. At September 30, 2022 a total of i1,963,413 shares were available for future grant.
Stock Purchase Plan. On May 30, 2019, our shareholders
approved Lamar Advertising’s 2019 Employee Stock Purchase Plan (the “2019 ESPP”). The number of shares of Class A common stock available under the 2019 ESPP was automatically increased by i86,853 shares on January 1, 2022 pursuant to the automatic increase provisions of the 2019 ESPP.
i
The
following is a summary of 2019 ESPP share activity for the nine months ended September 30, 2022:
Performance-based
stock compensation. Unrestricted shares of our Class A common stock may be awarded to key officers, employees and directors under the Incentive Plan. The number of shares to be issued, if any, will be dependent on the level of achievement of performance measures for key officers and employees, as determined by the Company’s Compensation Committee based on our 2022 results. Any shares issued based on the achievement of performance goals will be issued in the first quarter of 2023. The shares subject to these awards can range from a minimum of i0%
to a maximum of i100% of the target number of shares depending on the level at which the goals are attained. For the three months ended September 30, 2022 and 2021, the Company recorded $i3,830
and $i11,521, respectively, as stock-based compensation expense related to performance-based awards. For the nine months ended September 30, 2022 and 2021, the Company recorded $i9,789
and $i18,379, respectively, as stock-based compensation expense related to performance-based awards.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share data)
LTIP Units. In addition to performance-based stock compensation, the Company may issue LTIP Units of the OP, a subsidiary of the Company, to certain officers, employees and directors under the Incentive Plan of the Company. Such LTIP Units are subject to vesting and forfeiture conditions based on performance criteria approved by the Compensation Committee, which mirrors the performance criteria applicable to the Company's performance-based stock compensation, as described above. LTIP Units are a class of units intended to qualify as “profits interests” of the OP. The LTIP Units convert into Common Units of the OP upon the occurrence of certain
events. Common Units are redeemable by the holder for cash, or at the option of the general partner of the OP, shares of the Company’s Class A common stock after a holding period of twelve months. On July 1, 2022, the OP issued a total of i88,000 LTIP Units to the Company’s executive officers.
Restricted stock compensation. Annually, each non-employee director automatically receives a restricted stock award of our Class A common stock upon election or re-election. The awards vest
i50% on grant date and i50%
on the last day of the directors' ione year term. For the three months ended September 30, 2022 and 2021, the Company recorded $i73
and $i70, respectively, in stock-based compensation expense related to these awards. For the nine months ended September 30, 2022 and 2021, the Company recorded $i502
and $i544, respectively, in stock-based compensation expense related to these awards.
6. iDepreciation
and Amortization
The Company includes all categories of depreciation and amortization on a separate line in its Condensed Consolidated Statements of Income and Comprehensive Income. iThe amounts of depreciation and amortization expense excluded from the following operating expenses in its Condensed Consolidated Statements of Income and Comprehensive Income are as follows:
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share data)
8. iAsset Retirement Obligations
The Company’s asset
retirement obligations include the costs associated with the removal of its structures, resurfacing of the land and retirement cost, if applicable, related to the Company’s outdoor advertising portfolio. iThe following table reflects information related to our asset retirement obligations:
Lamar Media’s ability to make distributions to Lamar Advertising is restricted under both the terms of the indentures relating to Lamar Media’s outstanding notes and by the terms of its senior credit facility. As of September 30, 2022 and December 31, 2021, Lamar Media was permitted under the terms of its outstanding notes to make transfers to Lamar Advertising in the form
of cash dividends, loans or advances in amounts up to $i4,134,731 and $i3,921,979, respectively.
As
of September 30, 2022, Lamar Media’s senior credit facility allows it to make transfers to Lamar Advertising in any taxable year up to the amount of Lamar Advertising’s taxable income (without any deduction for dividends paid). In addition, as of September 30, 2022, transfers to Lamar Advertising are permitted under Lamar Media’s senior credit facility and as defined therein up to the available cumulative credit, as long as no default has occurred and is continuing and, after giving effect to such distributions, (i) the total debt ratio is less than 7.0 to 1 and (ii) the secured debt ratio does not exceed 4.5 to 1. As of September 30, 2022, the total debt ratio was less than ii7.0/
to 1 and Lamar Media’s secured debt ratio was less than ii4.5/ to 1, and the available
cumulative credit was $i2,885,210.
10. iEarnings
Per Share
The calculation of basic earnings per share excludes any dilutive effect of stock options, while diluted earnings per share includes the dilutive effect of stock options. There were iiiino///
dilutive shares excluded from this calculation resulting from their anti-dilutive effect for the three and nine months ended September 30, 2022 or 2021.
On February 6, 2020, Lamar Media entered into a Fourth Amended and Restated Credit Agreement (the “Fourth Amended and Restated Credit Agreement”) with certain of Lamar Media’s subsidiaries as guarantors, JPMorgan Chase Bank, N.A. as administrative agent and the lenders party thereto, under which the parties agreed to amend and restate Lamar Media’s existing senior credit facility. The Fourth Amended and Restated Credit Agreement amended and restated the Third Amended and Restated Credit Agreement dated as of May 15, 2017, as amended (the “Third Amended and Restated Credit Agreement”).
The senior credit facility, as established by the Fourth Amended and Restated Credit Agreement (the “senior credit facility”), consists of (i) a $i750,000
senior secured revolving credit facility which will mature on February 6, 2025 (the “revolving credit facility”), (ii) a $i600,000 Term B loan facility (the “Term B loans”) which will mature on February 6, 2027, and (iii) an incremental facility (the “Incremental Facility”) pursuant to which Lamar Media may incur additional term loan tranches or increase its revolving credit facility subject to a pro forma secured
debt ratio of i4.50 to 1.00, as well as certain other conditions including lender approval. Lamar Media borrowed all $i600,000 in Term B loans on February 6,
2020. The entire amount of the Term B loans will be payable at maturity. The net proceeds from the Term B loans, together with borrowings under the
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share data)
revolving portion of the senior credit facility and a portion of the proceeds of the issuance of the 3 3/4% Senior Notes due
2028 and i4% Senior Notes due 2030 (both as described below), were used to repay all outstanding amounts under the Third Amended and Restated Credit Agreement, and all revolving commitments under that facility were terminated.
The Term B loans mature on February 6, 2027 with no required amortization payments. The Term B loans bear interest at rates based on the Adjusted LIBO Rate (“Eurodollar term loans”) or the Adjusted Base Rate (“Base Rate term loans”), at Lamar
Media’s option. Eurodollar term loans bear interest at a rate per annum equal to the Adjusted LIBO Rate plus i1.50%. Base Rate term loans bear interest at a rate per annum equal to the Adjusted Base Rate plus i0.50%.
The
revolving credit facility bears interest at rates based on the Adjusted LIBO Rate (“Eurodollar revolving loans”) or the Adjusted Base Rate (“Base Rate revolving loans”), at Lamar Media’s option. Eurodollar revolving loans bear interest at a rate per annum equal to the Adjusted LIBO Rate plus i1.50% (or the Adjusted LIBO Rate plus i1.25%
at any time the Total Debt Ratio is less than or equal to i3.25 to i1). Base Rate revolving loans bear interest at a rate per annum equal to the Adjusted Base Rate plus i0.50%
(or the Adjusted Base Rate plus i0.25% at any time the total debt ratio is less than or equal to i3.25 to i1).
The guarantees, covenants, events of default and other terms of the senior credit facility apply to the Term B loans and revolving credit facility.
On July 29, 2022, Lamar Media entered into Amendment No. 2 (the "Amendment No. 2") to the Fourth Amended and Restated Credit Agreement with certain of Lamar Media's subsidiaries as guarantors, JPMorgan Chase Bank, N.A. as administrative agent and the lenders party thereto. Amendment No. 2 establishes a new $i350,000
Senior Secured Term Loan A loan (the "Term A loans") as a new class of incremental term loans. The Term A loans will mature on February 6, 2025 with no required amortization payments prior to maturity and bear interest at rates based on the Term Secured Overnight Financing Rate ("Term SOFR") plus i1.25% and a credit spread adjustment of i0.10%.
The covenants, events of default and other terms of the senior credit facility apply to the Term A loans. Lamar Media borrowed all $i350,000 in Term A loans on July 29, 2022. The entire amount of the Term A loans will be payable at maturity. Proceeds from the Term A loans were used to repay outstanding balances on the revolving credit facility and a portion of the outstanding balance on the Accounts Receivable Securitization Program.
As of September 30,
2022, there were ino borrowings outstanding under the revolving credit facility. Availability under the revolving credit facility is reduced by the amount of any letters of credit outstanding. Lamar Media had $i11,313
in letters of credit outstanding as of September 30, 2022 resulting in $i738,687 of availability under its revolving credit facility. Revolving credit loans may be requested under the revolving credit facility at any time prior to its maturity on February 6, 2025.
The terms of Lamar Media’s senior credit facility and the indentures relating to Lamar Media’s outstanding notes restrict, among
other things, the ability of Lamar Advertising and Lamar Media to:
•dispose of assets;
•incur or repay debt;
•create liens;
•make investments; and
•pay dividends.
The senior credit facility contains provisions that allow Lamar Media to conduct its affairs in a manner that allows Lamar Advertising to qualify and remain qualified as a REIT, including by allowing Lamar Media to make distributions to Lamar Advertising required for the Company to qualify and remain qualified for taxation as a REIT, subject to certain restrictions.
Lamar Media’s ability
to make distributions to Lamar Advertising is also restricted under the terms of these agreements. Under Lamar Media’s senior credit facility, the Company must maintain a specified secured debt ratio as long as a revolving credit commitment, revolving loan or letter of credit remains outstanding, and in addition, must satisfy a total debt ratio in order to incur debt, make distributions or make certain investments.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In
thousands, except share and per share data)
Lamar Advertising and Lamar Media were in compliance with all of the terms of their indentures and the senior credit facility provisions during the periods presented.
Accounts Receivable Securitization Program
On December 18, 2018, Lamar Media entered into a $i175,000 Receivable Financing Agreement (the “Receivable Financing Agreement”) with its
wholly-owned special purpose entities, Lamar QRS Receivables, LLC and Lamar TRS Receivables, LLC (the “Special Purpose Subsidiaries”) (the "Accounts Receivable Securitization Program"). The Accounts Receivable Securitization Program is limited to the availability of eligible accounts receivable collateralizing the borrowings under the agreements governing the Accounts Receivable Securitization Program.
Pursuant to two separate Purchase and Sale Agreements dated December 18, 2018, each of which is among Lamar Media as initial Servicer, certain of Lamar Media’s subsidiaries and a Special Purpose Subsidiary, the subsidiaries sold substantially all of their existing and future accounts receivable balances to the Special Purpose Subsidiaries. The Special Purpose Subsidiaries use the accounts receivable balances to collateralize loans pursuant to the Accounts Receivable
Securitization Program. Lamar Media retains the responsibility of servicing the accounts receivable balances pledged as collateral under the Accounts Receivable Securitization Program and provides a performance guaranty.
On June 24, 2022, Lamar Media and the Special Purpose Subsidiaries entered into the Sixth Amendment (the "Sixth Amendment") to the Receivables Financing Agreement. The Sixth Amendment increased the Accounts Receivable Securitization Program from $i175,000 to $i250,000
and extended the maturity date of the Accounts Receivable Securitization Program to July 21, 2025. Additionally, the Sixth Amendment provides for the replacement of LIBOR-based interest rate mechanics with Term SOFR based interest rate mechanics for the Accounts Receivable Securitization Program.
As of September 30, 2022 there was $i200,000 outstanding aggregate borrowings under the Accounts Receivable Securitization Program. Based
on the availability of eligible accounts, Lamar Media had an additional $i39,200 available for borrowing under the Accounts Receivable Securitization Program as of September 30, 2022. The commitment fees based on the amount of unused commitments under the Accounts Receivable Securitization Program were immaterial during the nine months ended September 30, 2022.
The Accounts Receivable
Securitization Program will mature on July 21, 2025. Lamar Media may amend the facility to extend the maturity date, enter into a new securitization facility with a different maturity date, or refinance the indebtedness outstanding under the Accounts Receivable Securitization Program using borrowings under its senior credit facility or from other financing sources.
The Accounts Receivable Securitization Program is accounted for as a collateralized financing activity, rather than a sale of assets, and therefore: (i) accounts receivable balances pledged as collateral are presented as assets and the borrowings are presented as liabilities on our Condensed Consolidated Balance Sheets, (ii) our Condensed Consolidated Statements of Income and Comprehensive Income reflect the associated charges for bad debt expense (a component of general and administrative expenses) related to the
pledged accounts receivable and interest expense associated with the collateralized borrowings and (iii) receipts from customers related to the underlying accounts receivable are reflected as operating cash flows and borrowings and repayments under the collateralized loans are reflected as financing cash flows within our Condensed Consolidated Statements of Cash Flows.
5 3/4% Senior Notes
On January 28, 2016, Lamar Media completed an institutional private placement of $i400,000
aggregate principal amount of 5 3/4% Senior Notes due 2026 (the “Original 5 3/4% Notes”). The institutional private placement on January 28, 2016 resulted in net proceeds to Lamar Media of approximately $i394,500.
On February 1, 2019, Lamar Media completed an institutional private placement of an additional $i250,000
aggregate principal amount of its 5 3/4% Notes (the “Additional 5 3/4% Notes", and together with the Original 5 3/4% Notes, the "5 3/4% Notes”).
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share data)
Other than with respect to the date of issuance, issue price and CUSIP number, the Additional 5 3/4% Notes have the same
terms as the Original 5 3/4% Notes. The net proceeds after underwriting fees and expenses, was approximately $i251,500.
On February 3, 2021, Lamar Media redeemed in full all $i650,000
aggregate principal amount 5 3/4% Notes. The 5 3/4% Notes redemption was completed using the proceeds received from the 3 5/8% Notes offering completed on January 22, 2021 (as described below), together with cash on hand and borrowings under the revolving credit facility and Accounts Receivable Securitization Program. The 5 3/4% Notes were redeemed at a redemption price equal to i102.875% of the aggregate principal amount of the outstanding notes, plus accrued and unpaid
interest to (but not including) the redemption date. During the nine months ended September 30, 2021, the Company recorded a loss on debt extinguishment of approximately $i21,604 related to the note redemption, of which $i18,700
was in cash.
i4% Senior Notes
On February 6, 2020, Lamar Media completed an institutional private placement of $i400,000
aggregate principal amount of i4% Senior Notes due 2030 (the “Original i4% Notes”). The institutional private placement on February
6, 2020 resulted in net proceeds to Lamar Media of approximately $i395,000.
On August 19, 2020, Lamar Media completed an institutional private placement of an additional $i150,000
aggregate principal amount of its i4% Notes (the “Additional i4% Notes”, and together with the Original i4%
Notes, the "i4% Notes"). Other than with respect to the date of issuance and issue price, the Additional i4% Notes have the same terms as the Original i4%
Notes. The institutional private placement on August 19, 2020 resulted in net proceeds to Lamar Media of approximately $i146,900.
Lamar Media may redeem up to i40%
of the aggregate principal amount of the i4% Notes, at any time and from time to time, at a price equal to i104% of the aggregate principal amount redeemed, plus accrued and unpaid
interest thereon, with the net cash proceeds of certain public equity offerings completed before February 15, 2023, provided that following the redemption, at least i60% of the i4%
Notes that were originally issued remain outstanding and any such redemption occurs within i120 days following the closing of any such public equity offering. At any time prior to February 15, 2025, Lamar Media may redeem some or all of the i4%
Notes at a price equal to i100% of the aggregate principal amount, plus accrued and unpaid interest thereon and a make-whole premium. On or after February 15, 2025, Lamar Media may redeem the i4%
Notes, in whole or in part, in cash at redemption prices specified in the i4% Notes. In addition, if the Company or Lamar Media undergoes a change of control, Lamar Media may be required to make an offer to purchase each holder’s i4%
Notes at a price equal to i101% of the principal amount of the i4% Notes, plus accrued and unpaid interest, up to but not including the repurchase
date.
3 3/4% Senior Notes
On February 6, 2020, Lamar Media completed an institutional private placement of $i600,000 aggregate principal amount of 3 3/4% Senior Notes due 2028 (the “3 3/4% Notes”). The institutional private placement on February 6, 2020 resulted in net proceeds to Lamar Media of approximately $i592,500.
Lamar
Media may redeem up to i40% of the aggregate principal amount of 3 3/4% Notes, at any time and from time to time, at a price equal to i103.75%
of the aggregate principal amount redeemed, plus accrued and unpaid interest thereon, with the net cash proceeds of certain public equity offerings completed before February 15, 2023, provided that following the redemption, at least i60% of the 3 3/4% Notes that were originally issued remain outstanding and any such redemption occurs within i120
days following the closing of any such public equity offering. At any time prior to February 15, 2023, Lamar Media may redeem some or all of the 3 3/4% Notes at a price equal to i100% of the aggregate principal amount, plus accrued and unpaid interest thereon and a make-whole premium. On or after February 15, 2023, Lamar Media may redeem the 3 3/4% Notes, in whole or in part, in cash at redemption prices specified in the 3 3/4% Notes. In addition, if the Company or Lamar Media
undergoes a change of control, Lamar Media may be required to make an offer to purchase each holder’s 3 3/4% Notes at a price equal to i101% of the principal amount of the 3 3/4% Notes, plus accrued and unpaid interest, up to but not including the repurchase date.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share data)
4 7/8% Senior Notes
On May 13, 2020, Lamar Media completed an institutional private placement of $i400,000 aggregate principal
amount of 4 7/8% Senior Notes due 2029 (the “4 7/8% Notes”). The institutional private placement on May 13, 2020 resulted in net proceeds to Lamar Media of approximately $i395,000.
Lamar Media may redeem up to i40%
of the aggregate principal amount of the 4 7/8% Notes, at any time and from time to time, at a price equal to i104.875% of the aggregate principal amount redeemed, plus accrued and unpaid interest thereon, with the net cash proceeds of certain public equity offerings completed before May 15, 2023, provided that following the redemption, at least i60%
of the 4 7/8% Notes that were originally issued remain outstanding and any such redemption occurs within i120 days following the closing of any such public equity offering. At any time prior to January 15, 2024, Lamar Media may redeem some or all of the 4 7/8% Notes at a price equal to i100%
of the aggregate principal amount, plus accrued and unpaid interest thereon and a make-whole premium. On or after January 15, 2024, Lamar Media may redeem the 4 7/8% Notes, in whole or in part, in cash at redemption prices specified in the 4 7/8% Notes. In addition, if the Company or Lamar Media undergoes a change of control, Lamar Media may be required to make an offer to purchase each holder’s 4 7/8% Notes at a price equal to i101% of the principal amount of the 4 7/8% Notes, plus accrued
and unpaid interest, up to but not including the repurchase date.
3 5/8% Senior Notes
On January 22, 2021, Lamar Media completed an institutional private placement of $i550,000 aggregate principal amount of 3 5/8% Senior Notes due 2031 (the “3 5/8% Notes”). The institutional private placement on January 22, 2021 resulted in net proceeds to Lamar Media of approximately $i542,500.
Lamar
Media may redeem up to i40% of the aggregate principal amount of the 3 5/8% Notes, at any time and from time to time, at a price equal to i103.625%
of the aggregate principal amount so redeemed, plus accrued and unpaid interest thereon, with the net cash proceeds of certain public equity offerings completed before January 15, 2024 provided that following the redemption, at least i60% of the 3 5/8% Notes that were originally issued remain outstanding and any such redemption occurs within i120
days following the closing of any such public equity offering. At any time prior to January 15, 2026, Lamar Media may redeem some or all of the 3 5/8% Notes at a price equal to i100% of the aggregate principal amount, plus accrued and unpaid interest thereon and a make-whole premium. On or after January 15, 2026, Lamar Media may redeem the 3 5/8% Notes, in whole or in part, in cash at redemption prices specified in the 3 5/8% Notes. In addition, if the Company or Lamar Media
undergoes a change of control, Lamar Media may be required to make an offer to purchase each holder's 3 5/8% Notes at a price equal to i101% of the principal amount of the 3 5/8% Notes, plus accrued and unpaid interest, up to but not including the repurchase date.
Debt Repurchase Program
On March 16, 2020, the Company’s Board of Directors authorized Lamar Media to repurchase up to $i250,000
in outstanding senior or senior subordinated notes and other indebtedness outstanding from time to time under its Fourth Amended and Restated Credit Agreement. On September 20, 2021, the Board of Directors authorized the extension of the repurchase program through March 31, 2023. There were ino repurchases under the program as of September 30, 2022.
12.
iiFair Value of Financial Instruments/
At
September 30, 2022 and December 31, 2021, the Company’s financial instruments included cash and cash equivalents, marketable securities, accounts receivable, investments, accounts payable and borrowings. The fair values of cash and cash equivalents, accounts receivable, accounts payable and short-term borrowings and current portion of long-term debt approximated carrying values because of the short-term nature of these instruments. Investment contracts are reported at fair values. The estimated fair value of the Company’s long-term debt (including current maturities) was $i2,874,199
which does not exceed the carrying amount of $i3,250,430 as of September 30, 2022. The majority of the fair value is determined using observed prices of publicly traded debt (level 1 in the fair value hierarchy) and the remaining is valued based on quoted prices for similar debt (level 2 in the fair value hierarchy).
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share data)
13. iInvestments
On July
12, 2021, Lamar invested $i30,000 to acquire a i20% minority interest in Vistar Media, a leading global provider of programmatic technology
for the digital out-of-home sector. This investment is accounted for as an equity method investment and is included in other assets on the Condensed Consolidated Balance Sheet. For the three months ended September 30, 2022 and 2021, the Company recorded $i1,554 and $i1,141,
respectively, in equity in earnings of investee on the Condensed Consolidated Statement of Income and Comprehensive Income. For the nine months ended September 30, 2022 and 2021, the Company recorded $i2,593 and $i1,141,
respectively, in equity in earnings of investee on the Condensed Consolidated Statement of Income and Comprehensive Income.
14. iiNew
Accounting Pronouncements/
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional expedients and exceptions to account for contracts, hedging relationships and other transactions that reference the London Interbank Offered Rate (“LIBOR”) or another reference rate if certain criteria are met. In January 2021, the FASB clarified the scope of this guidance with the issuance of ASU 2021-01, Reference Rate Reform: Scope. ASU 2020-04 may be applied prospectively to contract modifications made and hedging relationships entered into
or evaluated on or before December 31, 2022. As of September 30, 2022, the Company has modified the Accounts Receivable Securitization Program to provide for the replacement of LIBOR-based interest rates with Term SOFR based interest rates. The Term A loans established July 29, 2022 also bear interest using Term SOFR rates. This modification is not expected to have a material impact on the Company's consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08 Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which provides guidance on the recognition and measurement of contract assets and contract liabilities acquired in a business combination.
At the acquisition date, the acquirer should account for the related revenue contracts as if the acquirer had originated the contracts. The guidance also provides certain practical expedients for acquirers when recognizing and measuring acquired contract assets and contract liabilities from revenue contracts in a business combination. This guidance is effective for public entities as of December 15, 2022. We do not anticipate the adoption of this guidance will have a material impact on the Company's consolidated financial statements.
15. iDividends/Distributions
During
the three months ended September 30, 2022 and 2021, the Company declared and paid cash distributions in an aggregate amount of $ii122,100/
or $ii1.20/ per share and $ii101,225/
or $ii1.00/ per share, respectively.
During the nine months ended September 30, 2022 and 2021, the Company declared and paid cash distributions in an aggregate amount of $ii355,510/
or $ii3.50/ per share and $ii252,917/
or $ii2.50/ per share, respectively.
iThe amount, timing and frequency of future distributions will be at the sole discretion of the Board of Directors and will be declared based upon various factors, a number of which may be beyond the Company’s control, including financial condition and operating cash flows, the amount required to maintain REIT status and reduce any income and excise taxes that the Company otherwise would be required to pay, limitations on distributions in our existing and future debt instruments, the Company’s ability to utilize net operating losses to offset, in whole or in part, the Company’s distribution requirements,
limitations on its ability to fund distributions using cash generated through its taxable REIT subsidiaries (TRSs), the impact of general economic conditions on the Company’s operations and other factors that the Board of Directors may deem relevant. During the three and nine months ended September 30, 2022 and 2021, the Company paid cash dividend distributions to holders of its Series AA Preferred Stock in an aggregate amount of $ii91/
or $ii15.95/ per share
and $ii273/ or $ii47.85/
per share for each period, respectively.
16. iInformation about Geographic Areas
Revenues from external customers attributable to foreign countries totaled $i21,721
and $i17,568 for the nine months ended September 30, 2022 and 2021, respectively. Net carrying value of long-lived assets located in foreign countries totaled $i11,277
and $i11,318 as of September 30, 2022 and December 31, 2021, respectively. All other revenues from external customers and long-lived assets relate to domestic operations.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In thousands, except share and per share data)
17. iStockholders’ Equity
Sales Agreement. On
May 1, 2018, the Company entered into an equity distribution agreement (the “Sales Agreement”) with J.P. Morgan Securities LLC, Wells Fargo Securities LLC, and SunTrust Robinson Humphrey, Inc. as its sales agents. Under the terms of the Sales Agreement, the Company could have, from time to time, issued and sold shares of its Class A common stock, having an aggregate offering price of up to $i400,000, through the sales agents party thereto as either agents or principals. The Sales Agreement
expired by its terms on May 1, 2021 and as of that date, i842,412 shares of our Class A common stock were sold under the Sales Agreement.
On June 21, 2021, the Company entered into a new equity distribution agreement (the "2021 Sales Agreement") with J.P. Morgan Securities LLC, Wells Fargo Securities LLC, Truist Securities, Inc., SMBC Nikko Securities America, Inc. and
Scotia Capital (USA) Inc. as our sales agents (each a "Sales Agent", and collectively, the "Sales Agents"), which replaced the prior Sales Agreement with substantially similar terms. Under the terms of the 2021 Sales Agreement, the Company may, from time to time, issue and sell shares of its Class A common stock, having an aggregate offering price of up to $i400,000, through the Sales Agents as either agents or principals.
Sales of the Class A common stock, if any, may be made in negotiated
transactions or transactions that are deemed to be "at-the-market offerings" as defined in Rule 415 under the Securities Act of 1933, as amended, including sales made directly on or through the Nasdaq Global Select Market and any other existing trading market for the Class A common stock, or sales made to or directly through a market maker other than on an exchange. The Company has no obligation to sell any of the Class A Common stock under the 2021 Sales Agreement and may at any time suspend solicitations and offers under the 2021 Sales Agreement.
As of September 30, 2022, ino
shares of our Class A common stock have been sold under the 2021 Sales Agreement and accordingly $i400,000 remained available to be sold under the 2021 Sales Agreement as of September 30, 2022.
Shelf Registration. On June 21, 2021, the Company filed an automatically effective shelf registration statement that allows Lamar Advertising to offer and sell
an indeterminate amount of additional shares of its Class A common stock. During the nine months ended September 30, 2022 and the year ended December 31, 2021, the Company did not issue any shares under this shelf registration.
Stock Repurchase Program. On March 16, 2020, the Company’s Board of Directors authorized the repurchase of up to $i250,000
of the Company’s Class A common stock. On September 20, 2021, the Board of Directors authorized the extension of the repurchase program through March 31, 2023. There were ino repurchases under the program as of September 30, 2022.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
(In Thousands, Except for Share Data)
1.
iSignificant Accounting Policies
The information included in the foregoing interim condensed consolidated financial statements is unaudited. In the opinion of management all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of Lamar Media’s financial position and results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to
be expected for the entire year. These interim condensed consolidated financial statements should be read in conjunction with Lamar Media’s consolidated financial statements and the notes thereto included in the 2021 Combined Form 10-K.
iCertain notes are not provided for the accompanying condensed consolidated financial statements as the information in notes 1, 2, 3, 4, 5, 6, 7, 8, 9, 11, 12, 13, 14, 16, and 17 to the condensed consolidated financial statements of Lamar Advertising included elsewhere in this report is substantially equivalent to that required for the condensed consolidated financial statements
of Lamar Media. Earnings per share data is not provided for Lamar Media, as it is a wholly owned subsidiary of the Company.
2. iSummarized Financial Information of Subsidiaries
Separate condensed consolidating financial information for Lamar Media, subsidiary guarantors and non-guarantor subsidiaries is presented below. Lamar Media and its
subsidiary guarantors have fully and unconditionally guaranteed Lamar Media’s obligations with respect to its publicly issued notes. All guarantees are joint and several. As a result of these guarantee arrangements, we are required to present the following condensed consolidating financial information. The following condensed consolidating financial information should be read in conjunction with the accompanying consolidated financial statements and notes. The condensed consolidating financial information is provided as an alternative to providing separate financial statements for guarantor subsidiaries. Separate financial statements of Lamar Media’s subsidiary guarantors are not included because the guarantees are full and unconditional and the subsidiary guarantors are 100% owned and jointly and severally liable for Lamar Media’s outstanding publicly issued notes. The accounts for all companies reflected herein are presented using the equity method of accounting for
investments in subsidiaries.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains forward-looking statements. Actual results could differ materially from those anticipated by the forward-looking statements due to risks and uncertainties described in the section of this combined report on Form 10-Q entitled “Note Regarding Forward-Looking Statements” and in Item 1A to the 2021 Combined Form 10-K filed on February 25, 2022, and as such risk factors as further updated or supplemented, from time to time, in our combined Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. You should carefully consider each of these risks and uncertainties in evaluating the Company’s and Lamar Media’s financial conditions and results of operations. Investors are cautioned not to
place undue reliance on the forward-looking statements contained in this document. These statements speak only as of the date of this document, and the Company undertakes no obligation to update or revise the statements, except as may be required by law.
LAMAR ADVERTISING COMPANY
The following is a discussion of the consolidated financial condition and results of operations of the Company for the three and nine months ended September 30, 2022 and 2021. This discussion should be read in conjunction with the consolidated financial statements of the Company and the related notes thereto.
Overview
The
Company’s net revenues are derived primarily from the rental of advertising space on outdoor advertising displays owned and operated by the Company. Revenue growth is based on many factors that include the Company’s ability to increase occupancy of its existing advertising displays; raise advertising rates; and acquire new advertising displays and its operating results are therefore affected by general economic conditions, as well as trends in the advertising industry. Advertising spending is particularly sensitive to changes in general economic conditions which affect the rates that the Company is able to charge for advertising on its displays and its ability to maximize advertising sales or occupancy on its displays.
Acquisitions and capital expenditures
Historically, the Company has made strategic acquisitions of outdoor advertising assets to increase the number of outdoor advertising
displays it operates in existing and new markets. The Company continues to evaluate and pursue strategic acquisition opportunities as they arise. The Company has financed its historical acquisitions and intends to finance any future acquisition activity from available cash, borrowings under its senior credit facility or the issuance of debt or equity securities. See “Liquidity and Capital Resources- Sources of Cash” for more information.
During the nine months ended September 30, 2022, the Company completed over 50 acquisitions for a total cash purchase price of approximately $287.9 million. See Uses of Cash – Acquisitions for more information. The Company’s business requires expenditures for maintenance and capitalized costs associated with the construction of new billboard displays,
the entrance into and renewal of logo sign and transit contracts, and the purchase of real estate and operating equipment. The following table presents a breakdown of capitalized expenditures for the three and nine months ended September 30, 2022 and 2021:
As previously announced, on July 1, 2022, the Company completed a tax reorganization to a specific type of REIT known as an Umbrella Partnership Real Estate Investment Trust ("UPREIT"). The UPREIT structure allows property owners of appreciated properties to contribute property to the operating partnership of the REIT, on a tax-deferred basis, in exchange for a partnership interest in the form of operating partnership units. This reorganization is not expected to have any material impact on the Company's combined financial statements or business operations.
Non-GAAP Financial Measures
Our management reviews our performance by focusing on several key
performance indicators not prepared in conformity with Generally Accepted Accounting Principles in the United States (“GAAP”). We believe these non-GAAP performance indicators are meaningful supplemental measures of our operating performance and should not be considered in isolation of, or as a substitute for, their most directly comparable GAAP financial measures.
Included in our analysis of our results of operations are discussions regarding earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”), funds from operations (“FFO”), as defined by the National Association of Real Estate Investment Trusts, adjusted funds from operations (“AFFO”) and acquisition-adjusted net revenue.
We define adjusted EBITDA as net income before income tax expense (benefit), interest expense (income), equity in earnings (loss) of investees, loss (gain)
on extinguishment of debt and investments, stock-based compensation, depreciation and amortization, loss (gain) on disposition of assets and investments, transaction expenses and capitalized contract fulfillment costs, net.
FFO is defined as net income before gains or losses from the sale or disposal of real estate assets and investments and real estate related depreciation and amortization and including adjustments to eliminate unconsolidated affiliates and non-controlling interest.
We define AFFO as FFO before (i) straight-line income and expense; (ii) capitalized contract fulfillment costs, net (iii) stock-based compensation expense; (iv) non-cash portion of tax expense (benefit); (v) non-real estate related depreciation and amortization; (vi) amortization of deferred financing costs; (vii) loss on extinguishment of debt; (viii) transaction expenses; (ix) non-recurring infrequent
or unusual losses (gains); (x) less maintenance capital expenditures; and (xi) an adjustment for unconsolidated affiliates and non-controlling interest.
Acquisition-adjusted net revenue adjusts our net revenue for the prior period by adding to it the net revenue generated by the acquired assets before our acquisition of these assets for the same time frame that those assets were owned in the current period. In calculating acquisition-adjusted revenue, therefore, we include revenue generated by assets that we did not own in the period but acquired in the current period. We refer to the amount of pre-acquisition revenue generated by the acquired assets during the prior period that corresponds with the current period in which we owned the assets (to the extent within the period to which this report relates) as “acquisition net revenue”. In addition, we also adjust the prior period to subtract revenue generated by the assets
that have been divested since the prior period and, therefore, no revenue derived from those assets is reflected in the current period.
Adjusted EBITDA, FFO, AFFO and acquisition-adjusted net revenue are not intended to replace net income or any other performance measures determined in accordance with GAAP. Neither FFO nor AFFO represent cash flows from operating activities in accordance with GAAP and, therefore, these measures should not be considered indicative of cash flows from operating activities as a measure of liquidity or of funds available to fund our cash needs, including our ability to make cash distributions. Rather, adjusted EBITDA, FFO, AFFO and acquisition-adjusted net revenue are presented as we believe each is a useful indicator of our current operating performance. We believe that these metrics are useful to an investor in evaluating our operating performance because (1) each is a key measure used by our
management team for purposes of decision-making and for evaluating our core operating results; (2) adjusted EBITDA is widely used in the industry to measure operating performance as depreciation and amortization may vary significantly among companies depending upon accounting methods and useful lives, particularly where acquisitions and non-operating factors are involved; (3) acquisition-adjusted net revenue is a supplement to net revenue to enable investors to compare period-over-period results on a more consistent basis without the effects of acquisitions and divestitures, which reflects our core performance and organic growth (if any) during the period in which the assets were owned and managed by us; (4) adjusted EBITDA, FFO and AFFO each provide investors with a meaningful measure for evaluating our period-to-period operating performance by eliminating items that are not operational in nature; and (5) each provides investors with a measure for comparing our results
of operations to those of other companies.
Our measurement of adjusted EBITDA, FFO, AFFO and acquisition-adjusted net revenue may not, however, be fully comparable to similarly titled measures used by other companies. Reconciliations of adjusted EBITDA, FFO, AFFO and acquisition-adjusted net revenue to net income, the most directly comparable GAAP measure, have been included herein.
Net revenues increased $203.8 million or 15.8% to $1.50 billion for the nine months ended September 30, 2022 from $1.29 billion for the same period in 2021. This increase was primarily attributable to an increase in billboard net revenues of $167.6 million, an increase in transit net revenues of $34.9 million, and an increase in logo net revenues of $1.3 million over the same period in 2021.
For the nine months ended September 30, 2022, there was a $156.9 million increase in net revenues as compared to acquisition-adjusted net revenue for the nine months ended September 30, 2021, which represents an increase of 11.7%. See “Reconciliations”
below. The $156.9 million increase in revenue is primarily due to an increase of $125.4 million in billboard net revenues as well as an increase in transit net revenues of $30.4 million over the same period in 2021.
Total operating expenses, exclusive of depreciation and amortization and gain on disposition of assets, increased $110.6 million, or 15.4%, to $828.5 million for the nine months ended September 30, 2022 from $717.8 million for the same period in 2021. The $110.6 million increase over the prior year is comprised of a $115.1 million increase in total direct, general and administrative and corporate expenses (excluding stock-based compensation and transaction expenses) primarily related to the operations of our outdoor advertising assets, as well as a $3.8 million increase in transaction expenses related to acquisitions and the write-off of deferred offering costs,
offset by a $8.2 million decrease in stock-based compensation.
Depreciation and amortization expense decreased $3.5 million to $202.2 million for the nine months ended September 30, 2022 as compared to $205.7 million for the same period in 2021. The decrease is due to the revision in the cost estimate included in the calculation of asset retirement obligations during 2021, offset by acquisitions and capital expenditures that occurred in the second half of 2021 and during 2022.
For the nine months ended September 30, 2022, the Company recognized a gain on disposition of assets of $2.0 million primarily resulting from transactions related to the sale of billboard locations and displays.
Due to the above factors, operating income increased by
$96.7 million to $467.9 million for the nine months ended September 30, 2022 as compared to $371.2 million for the same period in 2021.
During the nine months ended September 30, 2021, the Company recognized a loss on debt extinguishment of $21.6 million related to the early repayment of our 5 3/4% Senior Notes during the period. There was no loss on debt extinguishment during the nine months ended September 30, 2022.
Interest expense increased $9.2 million for the nine months ended September 30, 2022 to $89.8 million as compared to $80.6 million for the nine months ended September 30, 2021 primarily due to the increase in interest rates
on the Accounts Receivable Securitization Program and senior credit facility.
Equity in earnings of investee was $2.7 million and $1.1 million for the nine months ended September 30, 2022 and 2021, respectively, as a result of investments that occurred in July of 2021.
The increase in operating income and the decrease in loss on extinguishment of debt, offset by the increase in interest expense, resulted in a $110.8 million increase in net income before income taxes. The effective tax rate for the nine months ended September 30, 2022 was 2.4%, which differs from the federal statutory rate primarily due to our qualification for taxation as a REIT and adjustments for foreign items.
As a result
of the above factors, the Company recognized net income for the nine months ended September 30, 2022 of $372.5 million, as compared to net income of $264.8 million for the same period in 2021.
Because acquisitions occurring after December 31, 2020 have contributed to our net revenue results for the periods presented, we provide 2021 acquisition-adjusted net revenue, which adjusts our 2021 net revenue for the nine months ended September 30, 2021 by
adding to or subtracting from it the net revenue generated by the acquired or divested assets prior to our acquisition or divestiture of these assets for the same time frame that those assets were owned in the nine months ended September 30, 2022.
Reconciliations of 2021 reported net revenue to 2021 acquisition-adjusted net revenue for the nine months ended September 30, as well as a comparison of 2021 acquisition-adjusted net revenue to 2022 reported net revenue for the nine months ended September 30, are provided below:
Reconciliation and Comparison of Reported Net Revenue to Acquisition-Adjusted Net Revenue
Adjusted EBITDA for the nine months ended September 30, 2022 increased 14.9% to $685.8 million. The increase in adjusted EBITDA was primarily attributable to an increase in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization and capitalized contract fulfillment costs,
net) of $128.9 million, offset by an increase in total general and administrative and corporate expenses of $40.6 million, excluding the impact of stock-based compensation expense and transaction expenses.
Depreciation
and amortization related to real estate
193,164
197,395
(4,231)
Gain from sale or disposal of real estate, net of tax
(1,783)
(1,712)
(71)
Adjustments for unconsolidated affiliates
and non-controlling interest
(2,135)
(618)
(1,517)
FFO
$
561,790
$
459,841
$
101,949
22.2
%
Straight
line expense
2,884
2,195
689
Capitalized contract fulfillment costs, net
(463)
(900)
437
Stock-based compensation expense
14,331
22,540
(8,209)
Non-cash
portion of tax provision
1,851
1,178
673
Non-real estate related depreciation and amortization
9,046
8,276
770
Amortization of deferred financing costs
4,527
4,405
122
Loss
on extinguishment of debt
—
21,604
(21,604)
Transaction expenses
3,769
—
3,769
Capital expenditures – maintenance
(44,681)
(32,697)
(11,984)
Adjustments
for unconsolidated affiliates and non-controlling interest
2,135
618
1,517
AFFO
$
555,189
$
487,060
$
68,129
14.0
%
FFO
for the nine months ended September 30, 2022 increased from $459.8 million in 2021 to $561.8 million for the same period in 2022, an increase of 22.2%. AFFO for the nine months ended September 30, 2022 increased 14.0% to $555.2 million as compared to $487.1 million for the same period in 2021. The increase in AFFO was primarily attributable to an increase in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization and capitalized contract fulfillment costs, net) offset by an increase in total general and administrative and corporate expenses (excluding the effect of stock-based compensation expense and transaction expenses) and capital expenditures related to the maintenance of our advertising assets.
Net revenues increased $50.5 million or 10.6% to $527.4 million for the three months ended September 30, 2022 from $476.9 million for the same period in 2021. This increase was primarily attributable to an increase in billboard net revenues of $41.3 million and an increase in transit net revenues of $9.2 million over the same period in 2021.
For the three months ended September 30, 2022, there was a $29.8 million increase in net revenues as compared to acquisition-adjusted net revenue for the three months ended September 30, 2021, which represents an increase of 6.0%. See "Reconciliations" below. The $29.8 million increase
in revenue is primarily due to an increase of $22.8 million in billboard net revenues as well as an increase in transit net revenues of $7.1 million over the same period in 2021.
Total operating expenses, exclusive of depreciation and amortization and gain on disposition of assets, increased $21.3 million, or 8.2%, to $280.6 million for the three months ended September 30, 2022 from $259.3 million for the same period in 2021. The $21.3 million increase over the prior year is comprised of a $29.2 million increase in total direct, general and administrative and corporate expenses (excluding stock-based compensation and transaction expenses) primarily related to the operations of our outdoor advertising assets, offset by an $8.0 million decrease in stock-based compensation.
Depreciation and amortization decreased $18.5 million to $65.8
million for the three months ended September 30, 2022 as compared to $84.3 million for the same period in 2021. The decrease is due to the revision in the cost estimate included in the calculation of asset retirement obligations during 2021, offset by acquisitions and capital expenditures that occurred in the second half of 2021 and during 2022.
For the three months ended September 30, 2022, the Company recognized a gain on disposition of assets of $0.1 million primarily resulting from transactions related to the sale of billboard locations and displays.
Due
to the above factors, operating income increased by $47.7 million to $181.0 million for the three months ended September 30, 2022 as compared to $133.3 million for the same period in 2021.
Interest expense increased $7.4 million for the three months ended September 30, 2022 to $33.5 million as compared to $26.1 million for the three months ended September 30, 2021 primarily due to the increase in interest rates on the Accounts Receivable Securitization Program and senior credit facility.
Equity in earnings of investee was $1.6 million and $1.1 million for the three months ended September 30, 2022 and 2021, respectively, as a result of
investments that occurred in July of 2021.
The increase in operating income, offset by the increase in interest expense, resulted in a $40.7 million increase in net income before income taxes. The effective tax rate for the three months ended September 30, 2022 was 2.0%, which differs from the federal statutory rate primarily due to our qualification for taxation as a REIT and adjustments for foreign items.
As a result of the above factors, the Company recognized net income for the three months ended September 30, 2022 of $146.2 million, as compared to net income of $106.8 million for the same period in 2021.
Reconciliations:
Because acquisitions occurring after December 31,
2020 have contributed to our net revenue results for the periods presented, we provide 2021 acquisition-adjusted net revenue, which adjusts our 2021 net revenue for the three months ended September 30, 2021 by adding to or subtracting from it the net revenue generated by the acquired or divested assets prior to our acquisition or divestiture of these assets for the same time frame that those assets were owned in the three months ended September 30, 2022.
Reconciliations of 2021 reported net revenue to 2021 acquisition-adjusted net revenue for the three months ended September 30, as well as a comparison of 2021 acquisition-adjusted net revenue to 2022 reported net revenue for the three months ended September 30, are provided below:
Reconciliation and Comparison of Reported Net Revenue
to Acquisition-Adjusted Net Revenue
Adjusted
EBITDA for the three months ended September 30, 2022 increased 8.9% to $251.2 million. The increase in adjusted EBITDA was primarily attributable to an increase in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization and capitalized contract fulfillment costs, net) of $29.6 million, offset by an increase in total general and administrative and corporate expenses of $7.6 million, excluding the impact of stock-based compensation expense and transaction expenses.
Net Income/FFO/AFFO
(in thousands)
Three
Months Ended September 30,
Amount of Increase (Decrease)
Percent Increase (Decrease)
2022
2021
Net income
$
146,188
106,838
$
39,350
36.8
%
Depreciation
and amortization related to real estate
63,089
81,580
(18,491)
Gain from sale or disposal of real estate, net of tax
(10)
83
(93)
Adjustments for unconsolidated affiliates and non-controlling
interest
(1,364)
(903)
(461)
FFO
$
207,903
$
187,598
$
20,305
10.8
%
Straight
line expense
741
466
275
Capitalized contract fulfillment costs, net
(772)
—
(772)
Stock-based compensation expense
5,108
13,076
(7,968)
Non-cash
portion of tax provision
639
(565)
1,204
Non-real estate related depreciation and amortization
2,743
2,720
23
Amortization of deferred financing costs
1,577
1,443
134
Transaction
expenses
93
—
93
Capital expenditures - maintenance
(13,008)
(13,094)
86
Adjustments for unconsolidated affiliates and non-controlling interest
1,364
903
461
AFFO
$
206,388
$
192,547
$
13,841
7.2
%
FFO
for the three months ended September 30, 2022 increased from $187.6 million in 2021 to $207.9 million for the same period in 2022, an increase of 10.8%. AFFO for the three months ended September 30, 2022 increased 7.2% to $206.4 million as compared to $192.5 million for the same period in 2021. The increase in AFFO was primarily attributable to an increase in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization and capitalized contract fulfillment costs, net) offset by an increase in total general and administrative and corporate expenses (excluding the
effect
of stock-based compensation expense and transaction expenses) and capital expenditures related to the maintenance of our advertising assets.
LIQUIDITY AND CAPITAL RESOURCES
Overview
The Company has historically satisfied its working capital requirements with cash from operations and borrowings under the senior credit facility. The Company’s wholly owned subsidiary, Lamar Media Corp., is the borrower under the senior credit facility and maintains all corporate operating cash balances. Any cash requirements of the Company, therefore, must be funded by distributions from Lamar Media.
Sources of Cash
Total Liquidity. As
of September 30, 2022 we had $857.3 million of total liquidity, which is comprised of $79.4 million in cash and cash equivalents, $738.7 million of availability under the revolving portion of Lamar Media’s senior credit facility and $39.2 million of availability under the Accounts Receivable Securitization Program. We expect our total liquidity to be adequate for the Company to meet its operational requirements for the next twelve months. We are currently in compliance with the maintenance covenant included in the senior credit facility and we would remain in compliance after giving effect to borrowing the full amount available to us under the revolving portion of the senior credit facility.
As of September 30, 2022 and December 31, 2021, the Company had a working capital deficit
of $238.8 million and $274.4 million, respectively. The decrease in working capital deficit of $35.6 million is primarily due to increases in receivables and other current assets, offset by an increase in current maturities of long-term debt as of September 30, 2022.
Cash Generated by Operations. For the nine months ended September 30, 2022 and 2021, our cash provided by operating activities was $537.1 million and $488.2 million, respectively. The increase in cash provided by operating activities for the nine months ended September 30, 2022 over the same period in 2021 primarily relates to an increase in revenues of $203.8 million offset by an increase in operating expenses (excluding stock-based compensation,
gain on disposition of assets, and depreciation and amortization) of $118.8 million. We expect to generate cash flows from operations during 2022 in excess of our cash needs for operations, capital expenditures and dividends, as described herein. We believe we have sufficient liquidity available under our revolving credit facility to meet our operating cash needs for the next twelve months.
Accounts Receivable Securitization Program. On June 24, 2022, Lamar Media and the Special Purpose Subsidiaries entered into the Sixth Amendment (the "Sixth Amendment") to the Receivables Financing Agreement. The Sixth Amendment increased the Accounts Receivable Securitization Program from $175.0 million to $250.0 million and extended the maturity date of the Accounts Receivable Securitization Program to July 21,
2025. Additionally, the Sixth Amendment provides for the replacement of LIBOR-based interest rate mechanics with Term Secured Overnight Financing Rate ("Term SOFR") based interest rate mechanics for the Accounts Receivable Securitization Program.
Borrowing capacity under the Accounts Receivable Securitization Program is limited to the availability of eligible accounts receivable collateralizing the borrowings under the agreements governing the Accounts Receivable Securitization Program. In connection with the Accounts Receivable Securitization Program, Lamar Media and certain of its subsidiaries (such subsidiaries, the “Subsidiary Originators”) sell and/or contribute their existing and future accounts receivable and certain related assets to one of two special purpose subsidiaries, Lamar QRS Receivables, LLC (the “QRS SPV”) and Lamar TRS Receivables, LLC (the “TRS SPV” and together with the
QRS SPV the “Special Purpose Subsidiaries”), each of which is a wholly-owned subsidiary of Lamar Media. Existing and future accounts receivable relating to Lamar Media and its qualified REIT subsidiaries will be sold and/or contributed to the QRS SPV and existing and future accounts receivable relating to Lamar Media’s taxable REIT subsidiaries will be sold and/or contributed to the TRS SPV. Each of the Special Purpose Subsidiaries has granted the lenders party to the Accounts Receivable Securitization Program a security interest in all of its assets, which consist of the accounts receivable and related assets sold or contributed to them, as described above, in order to secure the obligations of the Special Purpose Subsidiaries under the agreements governing the Accounts Receivable Securitization Program. Pursuant to the Accounts Receivable Securitization Program, Lamar Media has agreed to service the accounts receivable on behalf of the two Special Purpose Subsidiaries
for a fee. Lamar Media has also agreed to guaranty its performance in its capacity as servicer and originator, as well as the performance of the Subsidiary Originators, of their obligations under the agreements governing the Account Receivable Securitization Program. None of Lamar Media, the Subsidiary Originators or the Special Purpose Subsidiaries guarantees the collectability of the receivables under the Accounts Receivable Securitization Program. In addition, each of the Special Purpose Subsidiaries is a separate legal entity with its own separate creditors who will be entitled to access the assets of such Special Purpose Subsidiary before the assets become available to Lamar Media. Accordingly, the assets of the Special Purpose Subsidiaries are not available to pay creditors of Lamar Media or any of
its subsidiaries, although collections from receivables in excess of the amounts required to repay the lenders and the other creditors of the Special Purpose Subsidiaries may be remitted to Lamar Media.
As of September 30, 2022, there was $200.0 million in outstanding aggregate borrowings under the Accounts Receivable Securitization Program. Based on the availability of eligible accounts, Lamar Media had $39.2 million of unused availability under the Accounts Receivable Securitization Program as of September 30, 2022. The Accounts Receivable Securitization Program will mature on July 21, 2025.
“At-the-Market” Offering Program. On May
1, 2018, the Company entered into an equity distribution agreement (the “Sales Agreement”) with J.P. Morgan Securities LLC, Wells Fargo Securities LLC and SunTrust Robinson Humphrey, Inc. as our sales agents. Under the terms of the Sales Agreement, the Company could have, from time to time, issued and sold shares of its Class A common stock, having an aggregate offering price of up to $400.0 million through the sales agents as either agents or principals. The Sales Agreement expired by its terms on May 1, 2021. The Company did not issue any shares under this program in 2021.
On June 21, 2021, the Company entered into a new equity distribution agreement (the "2021 Sales Agreement"), with J.P. Morgan Securities LLC, Wells Fargo Securities LLC, Truist Securities, Inc., SMBC Nikko Securities America, Inc. and Scotia
Capital (USA) Inc. as our sales agents (each a "Sales Agent", and collectively, the "Sales Agents"), which replaced the prior Sales Agreement with substantially similar terms. Under the terms of the 2021 Sales Agreement, the Company may, from time to time, issue and sell shares of its Class A common stock, having an aggregate offering price of up to $400.0 million through the Sales Agents as either agents or principals. Sales of the Class A common stock, if any, may be made in negotiated transactions or transactions that are deemed to be "at-the-market offerings" as defined in Rule 415 under the Securities Act of 1933, as amended, including sales made directly on or through the Nasdaq Global Select Market and any other existing trading market for the Class A common stock, or sales made to or through a market maker other than on an exchange. The Company has no obligation to sell any of the Class A common stock under the 2021 Sales Agreement and may
at any time suspend solicitations and offers under the 2021 Sales Agreement. The Company intends to use the net proceeds, if any, from the sale of the Class A common stock pursuant to the 2021 Sales Agreement for general corporate purposes, which may include the repayment, refinancing, redemption or repurchase of existing indebtedness, working capital, capital expenditures, acquisition of outdoor advertising assets and businesses and other related investments. The Company did not issue any shares under this program from its inception through September 30, 2022.
Shelf Registration Statement.On June 21, 2021, the Company filed a new automatically effective shelf registration statement that allows Lamar Advertising to offer and sell an indeterminate amount
of additional shares of its Class A common stock. During the nine months ended September 30, 2022 and the year ended December 31, 2021, the Company did not issue any shares under either shelf registration.
Credit Facilities. On February 6, 2020, Lamar Media entered into a Fourth Amended and Restated Credit Agreement (the “Fourth Amended and Restated Credit Agreement”) with certain of Lamar Media’s subsidiaries as guarantors, JPMorgan Chase Bank, N.A. as administrative agent and the lenders party thereto, under which the parties agreed to amend and restate Lamar Media’s existing senior credit facility.TheFourth Amended and Restated
Credit Agreementamended and restated the Third Amended and Restated Credit Agreement dated as of May 15, 2017, as amended (the “Third Amended and Restated Credit Agreement”).
On July 2, 2021, Lamar Media entered into Amendment No. 1 (the "Amendment"), to the Fourth Amended and Restated Credit Agreement. The Amendment amends the definition of "Subsidiary" to exclude each of Lamar Partnering Sponsor LLC and Lamar Partnering Corporation and any of their subsidiaries (collectively, the “Lamar Partnering Entities”) such that, after the giving effect to the Amendment, none of the Lamar Partnering Entities are subject to the Fourth Amended and Restated Credit Agreement covenants and reporting requirements, but any investment by Lamar Media in any of the Lamar
Partnering Entities would be subject to the Fourth Amended and Restated Credit Agreement covenants. The Amendment also amends the definition of “EBITDA” to replace the existing calculation with a net income-based calculation, which excludes the income of non-Subsidiary entities such as the Lamar Partnering Entities, except to the extent that income of such entities is received by Lamar Media in the form of dividends or distributions.
The senior credit facility, as established by the Fourth Amended and Restated Credit Agreement (the “senior credit facility”), consists of (i) a $750.0 million senior secured revolving credit facility which will mature on February 6, 2025 (the “revolving credit facility”), (ii) a $600.0 million Term B loan facility (the “Term B loans”) which will mature on February 6, 2027,
and (iii) an incremental facility (the “Incremental Facility”) pursuant to which Lamar Media may incur additional term loan tranches or increase its revolving credit facility subject to a pro forma secured debt ratio calculated as described under “Restrictions under Senior Credit Facility” of 4.50 to 1.00, as well as certain other conditions including lender approval. Lamar Media
borrowed all $600.0 million in Term B loans on February 6, 2020. The entire amount of the Term B loans will be payable at maturity.
The
Term B loans bear interest at rates based on the Adjusted LIBO Rate (“Eurodollar term loans”) or the Adjusted Base Rate (“Base Rate term loans”), at Lamar Media’s option. Eurodollar term loans bear interest at a rate per annum equal to the Adjusted LIBO Rate plus 1.50%. Base Rate term loans bear interest at a rate per annum equal to the Adjusted Base Rate plus 0.50%. The revolving credit facility bears interest at rates based on the Adjusted LIBO Rate (“Eurodollar revolving loans”) or the Adjusted Base Rate (“Base Rate revolving loans”), at Lamar Media’s option. Eurodollar revolving loans bear interest at a rate per annum equal to the Adjusted LIBO Rate plus 1.50% (or the Adjusted LIBO Rate plus 1.25% at any time the Total Debt Ratio is less than or equal to 3.25 to 1). Base Rate revolving loans bear interest at a rate per annum equal to the Adjusted Base Rate plus 0.50% (or the Adjusted Base Rate plus 0.25% at any time the total debt ratio
is less than or equal to 3.25 to 1). The guarantees, covenants, events of default and other terms of the senior credit facility apply to the Term B loans and revolving credit facility.
On July 29, 2022, Lamar Media entered into Amendment No. 2 (the "Amendment No. 2") to the Fourth Amended and Restated Credit Agreement with certain of Lamar Media's subsidiaries as guarantors, JPMorgan Chase Bank, N.A. as administrative agent and the lenders party thereto. The Amendment No. 2 establishes a new $350.0 million Senior Secured Term Loan A loan (the “Term A loans”) as a new class of incremental term loans. The Term A loans will mature on February 6, 2025 and bear interest at Term SOFR plus 1.25% and a credit spread adjustment of 0.10%. The covenants, events of default and other terms of the senior credit facility apply
to the Term A loans. Lamar Media borrowed all $350.0 million in Term A loans on July 29, 2022. Proceeds from the Term A loans were used to repay outstanding balances on the revolving credit facility and a portion of the outstanding balance on our Accounts Receivable Securitization Program.
As of September 30, 2022 the aggregate balance outstanding under the senior credit facility was $950.0 million, consisting of $600.0 million in Term B loans aggregate principal balance, $350.0 million in Term A loans aggregate principal balance and no outstanding borrowings under our revolving credit facility. Lamar Media had approximately $738.7 million of unused capacity under the revolving credit facility.
Factors Affecting Sources of Liquidity
Internally
Generated Funds. The key factors affecting internally generated cash flow are general economic conditions, specific economic conditions in the markets where the Company conducts its business and overall spending on advertising by advertisers. We expect to generate cash flows from operations during 2022 in excess of our cash needs for operations, capital expenditures and dividends, as described herein, and we believe we have sufficient liquidity with cash on hand and availability under our revolving credit facility to meet our operating cash needs for the next twelve months.
Credit Facilities and Other Debt Securities. The Company and Lamar Mediamust comply with certain covenants and restrictions related to the senior credit facility, its outstanding debt securities and its Accounts Receivable Securitization Program.
Restrictions
Under Debt Securities. The Company and Lamar Media must comply with certain covenants and restrictions related to its outstanding debt securities. Currently, Lamar Media has outstanding the $600.0 million 3 3/4% Senior Notes issued February 2020, the $550.0 million 4% Senior Notes issued February 2020 and August 2020, the $400.0 million 4 7/8% Senior Notes issued in May 2020 and the $550.0 million 3 5/8% Senior Notes issued in January 2021.
The indentures relating to Lamar Media’s outstanding notes restrict its ability to incur additional indebtedness, but permit the incurrence of indebtedness (including indebtedness under the senior credit facility), (i) if no default or event of default would result from such incurrence and (ii) if after giving effect to any such incurrence, the leverage ratio (defined as the sum of (x) total consolidated debt plus (y) the aggregate liquidation preference of any preferred
stock of Lamar Media’s restricted subsidiaries to trailing four fiscal quarter EBITDA (as defined in the indentures)) would be less than 7.0 to 1.0. Currently, Lamar Media is not in default under the indentures of any of its outstanding notes and, therefore, would be permitted to incur additional indebtedness subject to the foregoing provision.
In addition to debt incurred under the provisions described in the preceding paragraph, the indentures relating to Lamar Media’s outstanding notes permit Lamar Media to incur indebtedness pursuant to the following baskets:
•up to $2.0 billion of indebtedness under the senior credit facility;
•indebtedness outstanding on the date of the indentures or debt incurred to refinance outstanding debt;
•inter-company
debt between Lamar Media and its restricted subsidiaries or between restricted subsidiaries;
•certain purchase money indebtedness and capitalized lease obligations to acquire or lease property in the ordinary course of business that cannot exceed the greater of $50.0 million or 5% of Lamar Media’s net tangible assets;
•additional debt not to exceed $75.0 million; and
•up to $500.0 million of permitted securitization financings.
Restrictions Under Senior
Credit Facility. Lamar Media is required to comply with certain covenants and restrictions under the senior credit facility. If the Company or Lamar Media fails to comply with these tests, the lenders under the senior credit facility will be entitled to exercise certain remedies, including the termination of the lending commitments and the acceleration of the debt payments under the senior credit facility. At September 30, 2022 we were, and currently, we are, in compliance with all such tests under the senior credit facility.
Lamar Media must maintain a secured debt ratio, defined as total consolidated secured debt of Lamar Advertising, Lamar Media and its restricted subsidiaries (including capital lease obligations), minus the lesser of (x) $150.0 million and (y) the aggregate amount of unrestricted cash and cash equivalents of Lamar Advertising, Lamar
Media and its restricted subsidiaries (other than the Special Purpose Subsidiaries (as defined above under Sources of Cash – Accounts Receivable Securitization Program)) to EBITDA, as defined below, for the period of four consecutive fiscal quarters then ended, of less than or equal to 4.5 to 1.0.
Lamar Media is restricted from incurring additional indebtedness subject to exceptions, one of which is that it may incur additional indebtedness not exceeding the greater of $250.0 million or 6% of its total assets.
Lamar Media is also restricted from incurring additional unsecured senior indebtedness under certain circumstances unless, after giving effect to the incurrence of such indebtedness, Lamar Media would have a total debt ratio, defined as (a) total consolidated debt (including subordinated debt) of Lamar Advertising, Lamar Media and
its restricted subsidiaries as of any date minus the lesser of (i) $150.0 million and (ii) the aggregate amount of unrestricted cash and cash equivalents of Lamar Advertising, Lamar Media and its restricted subsidiaries (other than the Special Purpose Subsidiaries) to (b) EBITDA, as defined below, for the most recent four fiscal quarters then ended, is less than 7.0 to 1.0.
Lamar Media is also restricted from incurring additional subordinated indebtedness under certain circumstances unless, after giving effect to the incurrence of such indebtedness, it is in compliance with the secured debt ratio covenant and its total debt ratio is less than 7.0 to 1.0.
Under the senior credit facility, as amended, “EBITDA” means, for any period, net income, plus (a) to the extent deducted in determining net income for such period, the sum determined without duplication and in accordance
with GAAP, of (i) taxes, (ii) interest expense, (iii) depreciation, (iv) amortization, (v) any other non-cash income or charges accrued for such period, (vi) charges and expenses in connection with the senior credit facility, any actual or proposed acquisition, disposition or investment (excluding, in each case, purchases and sales of advertising space and operating assets in the ordinary course of business) and any actual or proposed offering of securities, incurrence or repayment of indebtedness (or amendment to any agreement relating to indebtedness), including any refinancing thereof, or recapitalization, (vii) any loss or gain relating to amounts paid or earned in cash prior to the stated settlement date of any swap agreement that has been reflected in operating income for such period), and (viii) any loss on sales of receivables and related assets to a securitization entity in connection with a permitted securitization financing, plus (b) the amount of cost savings,
operating expense reductions and other operating improvements or synergies projected by Lamar Media in good faith to be realized as a result of any acquisition, investment, merger, amalgamation or disposition within 18 months of any such acquisition, investment, merger, amalgamation or disposition, net of the amount of actual benefits realized during such period from such action; provided, (a) the aggregate amount for all such cost savings, operating expense reductions and other operating improvements or synergies will not exceed an amount equal to 15% of EBITDA for the applicable four quarter period and (b) any such adjustment to EBITDA pursuant to this clause (b) may only take into account cost savings, operating expense reductions and other operating improvements or synergies that are (I) directly attributable to such acquisition, investment, merger, amalgamation or disposition, (II) expected to have a continuing impact on Lamar Media and its restricted subsidiaries
and (III) factually supportable, in each case all as certified by the chief financial officer of Lamar Media) on behalf of Lamar Media, minus (c) to the extent included in net income for such period (determined without duplication and in accordance with GAAP) (i) any extraordinary and unusual gains or losses during such period, and (ii) the proceeds of any casualty events and dispositions. For purposes of this EBITDA definition, the effect thereon of any adjustments required under Statement of Financial Accounting Standards No. 141R will be excluded. If during any period for which EBITDA is being determined, we have consummated any acquisition or disposition, EBITDA will be determined on a pro forma basis as if such acquisition or disposition had been made or consummated on the first day of such period.
Under the senior credit facility, “net income” means for any period, the consolidated net income (or loss) of Lamar Advertising, us, and our restricted subsidiaries, determined on a consolidated basis in accordance with GAAP; provided that the following is excluded from net income: (a) the income (or deficit) of any person accrued prior to the date it becomes a restricted subsidiary or is merged into or consolidated with Lamar Advertising, us or any of our restricted subsidiaries, and (b) the income (or deficit) of any person (other than any of our restricted subsidiaries) in which Lamar Advertising, we or any of our subsidiaries has an ownership interest, except to the extent that any such income is received by Lamar Advertising, us or any of our restricted subsidiaries in the form of dividends or similar distributions.
The Company believes that its current
level of cash on hand, availability under the senior credit facility and future cash flows from operations are sufficient to meet its operating needs for the next twelve months. All debt obligations are reflected on the Company’s balance sheet.
Restrictions under Accounts Receivable Securitization Program. The agreements governing the Accounts Receivable Securitization Program contain customary representations and warranties, affirmative and negative covenants, and termination event provisions, including but not limited to those providing for the acceleration of amounts owed under the Accounts Receivable Securitization Program if, among other things, the Special Purpose Subsidiaries fail to make payments when due, Lamar Media, the Subsidiary Originators or the Special Purpose Subsidiaries become insolvent or subject to bankruptcy proceedings or certain judicial judgments, breach certain representations
and warranties or covenants or default under other material indebtedness, a change of control occurs, or if Lamar Media fails to maintain the maximum secured debt ratio of 4.5 to 1.0 required under Lamar Media’s senior credit facility.
Uses of Cash
Capital Expenditures. Capital expenditures, excluding acquisitions, were approximately $116.8 million for the nine months ended September 30, 2022. We anticipate our 2022 total capital expenditures to be approximately $170.0 million.
Acquisitions. During the nine months ended September 30, 2022, the Company completed acquisitions for an aggregate purchase price of approximately $287.9 million, which were financed using available cash on hand and borrowings
on the Accounts Receivable Securitization Program and senior credit facility.
On May 4, 2022, the Company acquired Burkhart Advertising Inc. which includes more than 1,500 billboard structures and 3,200 billboard faces, including 23 digital displays. The acquisition was funded with a combination of cash on hand and borrowings under our revolving credit facility.
Dividends.On February 24, 2022, the Company's Board of Directors declared a quarterly cash dividend of $1.10 per share, paid on March 31, 2022 to its stockholders of record of its Class A common stock and Class B common stock on March 21, 2022. On May
19, 2022, the Company's Board of Directors declared a quarterly cash dividend of $1.20 per share, paid on June 30, 2022 to its stockholders of record of its Class A common stock and Class B common stock on June 20, 2022. On September 6, 2022, the Company's Board of Directors declared a quarterly cash dividend of $1.20 per share, paid on September 30, 2022 to its stockholders of record of its Class A common stock and Class B common stock on September 19, 2022. Subject to approval of the Company's Board of Directors, in December 2022, the Company expects to declare a quarterly dividend of $1.20 per share of common stock for the upcoming fourth quarter 2022 distributions to stockholders as well as an additional special dividend
of $0.30 per share of common stock. Beginning in 2023, management expects to recommend to the Board of Directors an increase in the quarterly dividend of $0.05 per common share, to $1.25 per common share.
As a REIT, the Company must annually distribute to its stockholders an amount equal to at least 90% of its REIT taxable income (determined before the deduction for distributed earnings and excluding any net capital gain). The amount, timing and frequency of future distributions will be at the sole discretion of the Board of Directors and will be declared based upon various factors, a number of which may be beyond the Company’s control, including financial condition and operating cash flows, the amount required to maintain REIT status and reduce any income and excise taxes that the Company otherwise would be required to pay, limitations on distributions in our existing and future debt instruments, the Company’s ability to utilize
net operating losses to offset, in whole or in part, the Company’s distribution requirements, limitations on its ability to fund distributions using cash generated through its Taxable REIT Subsidiaries (“TRSs”), the impact of general economic conditions on the Company’s operations and other factors that the Board of Directors may deem relevant. The foregoing factors may also impact management’s recommendations to the Board of Directors as to the timing, amount and frequency of future distributions.
Special Purpose Acquisition Company. On April 6, 2021, Lamar Partnering Corporation (“LPC”), a newly formed special purpose acquisition company and indirect wholly-owned subsidiary of the Company, filed a Registration Statement on Form
S-1, with the Securities and Exchange Commission (the "SEC"). On June 21, 2022, LPC filed its request to withdraw its registration statement with the SEC. In conjunction with the withdrawn offering, the Company incurred a transaction expense of $1.2 million for the write-off of deferred offering costs incurred on behalf of LPC's registration statement. The $1.2 million in expenses are included in Corporate expenses in our Condensed Consolidated Statement of Income and Comprehensive Income at September 30, 2022.
Stock and Debt Repurchasing Program. On March 16, 2020, the Company’s Board of Directors authorized the repurchase of up to $250.0 million of the Company’s Class A common
stock. Additionally, the Board of Directors has authorized Lamar Media to repurchase up to $250.0 million in outstanding senior or senior subordinated notes and other indebtedness outstanding from time to time under its senior credit agreement. On September 20, 2021, the Board of Directors authorized the extension of the repurchase program through March 31, 2023. There were no repurchases under the program as of September 30, 2022.The Company’s management may opt not to make any repurchases under the program, or may make aggregate purchases less than the total amount authorized.
Material Cash Requirements
Our expected material cash requirements for the twelve months following September 30,
2022 and thereafter are comprised of contractual obligations, required annual distributions and other opportunistic expenditures.
Debt and Contractual Obligations. The following table summarizes our future debt maturities, interest payment obligations, and contractual obligations including required payments under operating and financing leases as of September 30, 2022 (in millions):
Less than 1 year
Thereafter
Debt
maturities(1)
$
199.7
$
3,016.6
Interest obligations on long-term debt(2)
138.1
625.5
Contractual obligations, including operating and financing leases
244.8
1,497.9
Total
payments due
$
582.6
$
5,140.0
(1) Debt maturities assume there is no refinancing prior to the existing maturity date.
(2) Interest rates on our variable rate instruments assume rates at the September 2022 levels.
Required Annual Distributions. As a REIT, the Company must annually distribute to its stockholders an amount equal to at least 90% of its REIT taxable income (determined before the deduction for distributed earnings and excluding any net capital gain). On February
24, 2022, the Company's Board of Directors approved a dividend of $1.10 per common share, paid on March 31, 2022. On May 19, 2022, the Company's Board of Directors approved a dividend of $1.20 per common share, paid on June 30, 2022. On September 6, 2022, the Company's Board of Directors approved a dividend of $1.20 per common share, paid on September 30, 2022. Our Board of Directors will continue to evaluate future dividends in order to continue to satisfy the requirements needed to maintain our REIT status.
Opportunistic Expenditures. As part of our capital allocation strategy, we plan to continue to allocate
our available capital among investment alternatives that meet our return on investment criteria. We will continue to reinvest in our existing assets and expand our outdoor advertising display portfolio through new construction. We will also continue to pursue strategic acquisitions of outdoor advertising businesses and assets. This includes acquisitions in our existing markets and in new markets where we can meet our return on investment criteria.
Cash Flows
The Company's cash flows provided by operating activities increased $48.9 million from $488.2 million for the nine months ended September 30, 2021 to $537.1 million for the nine months ended September 30, 2022, primarily resulting from an increase in
revenues of $203.8 million offset by an increase in operating expenses (excluding stock-based compensation, gain on disposition of assets, and depreciation and amortization) of $118.8 million, as compared to the comparable period in 2021.
Cash flows used in investing activities increased $199.2 million from $203.2 million for the nine months ended September 30, 2021 to $402.5 million for the nine months ended September 30, 2022 primarily due to a net increase in the amount of assets acquired through acquisitions, investments and capital expenditures of $195.6 million, as compared to the same period in 2021.
The Company's cash flows used in financing activities were $154.8 million for the nine months ended September
30, 2022 as compared to $319.1 million for the nine months ended September 30, 2021. This decrease in cash used in financing activities of
$164.3 million for the nine months ended September 30, 2022 is primarily due to increased borrowings on the senior credit facility in 2022, offset by an increase in cash paid for dividends and distributions in 2022 over the comparable period in 2021.
Critical Accounting Estimates
Our discussion and analysis of our results of operations
and liquidity and capital resources are based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. There have been no material changes to the critical accounting policies and estimates as previously disclosed in Item 7 of our 2021 Combined Form 10-K.
Accounting Standards and Regulatory Update
See Note 14, "New Accounting Pronouncements" to our condensed consolidated financial statements included in Part 1, Item 1 of this report for a discussion of our Accounting Standards and Regulatory Update.
LAMAR
MEDIA CORP.
The following is a discussion of the consolidated financial condition and results of operations of Lamar Media for the three and nine months ended September 30, 2022 and 2021. This discussion should be read in conjunction with the consolidated financial statements of Lamar Media and the related notes thereto.
Net revenues increased $203.8 million or 15.8% to $1.50
billion for the nine months ended September 30, 2022 from $1.29 billion for the same period in 2021. This increase was primarily attributable to an increase in billboard net revenues of $167.6 million, an increase in transit net revenues of $34.9 million, and an increase in logo net revenues of $1.3 million over the same period in 2021.
For the nine months ended September 30, 2022, there was a $156.9 million increase in net revenues as compared to acquisition-adjusted net revenue for the nine months ended September 30, 2021, which represents an increase of 11.7%. See “Reconciliations” below. The $156.9 million increase in revenue is primarily due to an increase of $125.4 million in billboard net revenues as well as an increase in transit net revenues of $30.4 million over
the same period in 2021.
Total operating expenses, exclusive of depreciation and amortization and gain on disposition of assets, increased $110.9 million, or 15.5%, to $828.1 million for the nine months ended September 30, 2022 from $717.1 million for the same period in 2021. The $110.9 million increase over the prior year is comprised of a $115.4 million increase in total direct, general and administrative and corporate expenses (excluding stock-based compensation and transaction expenses) primarily related to the operations of our outdoor advertising assets, as well as a $3.8 million increase in transaction expenses related to acquisitions and the write-off of deferred offering costs, offset by a $8.2 million decrease in stock-based compensation.
Depreciation and amortization expense decreased $3.5 million to $202.2 million for the
nine months ended September 30, 2022 as compared to $205.7 million for the same period in 2021. The decrease is due to the revision in the cost estimate included in the calculation of asset retirement obligations during 2021, offset by acquisitions and capital expenditures that occurred in the second half of 2021 and during 2022.
For the nine months ended September 30, 2022, Lamar Media recognized a gain on disposition of assets of $2.0 million, primarily resulting from transactions related to billboard locations and displays.
Due to the above factors, operating income increased by $96.4 million to $468.3 million for the nine months ended September 30, 2022 as compared to $371.9 million for the same period in 2021.
During
the nine months ended September 30, 2021, Lamar Media recognized a loss on debt extinguishment of $21.6 million related to the early repayment of our 5 3/4% Senior Notes during the period. There was no loss on debt extinguishment during the nine months ended September 30, 2022.
Interest expense increased $9.2 million for the nine months ended September 30, 2022 to $89.8 million as compared to $80.6 million for the nine months ended September 30, 2021 primarily due to the increase in interest rates on the Accounts Receivable Securitization Program and senior credit facility.
Equity in earnings of investee was $2.7 million and $1.1 million for the nine months ended September 30, 2022 and 2021, respectively, as a result of investments that occurred in July of 2021.
The increase in operating income and the decrease in loss on extinguishment of debt, offset by the increase in interest expense, resulted in a $110.5 million increase in net income before income taxes. The effective tax rate for the nine months ended September 30, 2022 was 2.4%, which differs from the federal statutory rate primarily due to our qualification for taxation as a REIT and adjustments for foreign items.
As a result of the above factors, Lamar Media recognized net income
for the nine months ended September 30, 2022 of $372.9 million, as compared to net income of $265.5 million for the same period in 2021.
Reconciliations:
Because acquisitions occurring after December 31, 2020 have contributed to our net revenue results for the periods presented, we provide 2021 acquisition-adjusted net revenue, which adjusts our 2021 net revenue for the nine months ended September 30, 2021 by adding to or subtracting from it the net revenue generated by the acquired or divested assets prior to our acquisition or divestiture of these assets for the same time frame that those assets were owned in the nine months ended September 30, 2022.
Reconciliations
of 2021 reported net revenue to 2021 acquisition-adjusted net revenue for the nine months ended September 30, as well as a comparison of 2021 acquisition-adjusted net revenue to 2022 reported net revenue for the nine months ended September 30, are provided below:
Reconciliation and Comparison of Reported Net Revenue to Acquisition-Adjusted Net Revenue
Adjusted
EBITDA for the nine months ended September 30, 2022 increased 14.9% to $686.2 million. The increase in adjusted EBITDA was primarily attributable to an increase in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization and capitalized contract fulfillment costs, net) of $128.9 million, offset by an increase in total
general and administrative and corporate expenses of $40.9 million, excluding the impact of stock-based compensation expense and transaction expenses.
Net Income/FFO/AFFO
(in
thousands)
Nine Months Ended September 30,
Amount of Increase (Decrease)
Percent Increase (Decrease)
2022
2021
Net
income
$
372,927
$
265,473
$
107,454
40.5
%
Depreciation and amortization related to real estate
193,164
197,395
(4,231)
Gain
from sale or disposal of real estate, net of tax
(1,783)
(1,712)
(71)
Adjustments for unconsolidated affiliates and non-controlling interest
(2,135)
(618)
(1,517)
FFO
$
562,173
$
460,538
$
101,635
22.1
%
Straight
line expense
2,884
2,195
689
Capitalized contract fulfillment costs, net
(463)
(900)
437
Stock-based compensation expense
14,331
22,540
(8,209)
Non-cash
portion of tax provision
1,851
1,178
673
Non-real estate related depreciation and amortization
9,046
8,276
770
Amortization of deferred financing costs
4,527
4,405
122
Loss
on extinguishment of debt
—
21,604
(21,604)
Transaction expenses
3,769
—
3,769
Capital expenditures – maintenance
(44,681)
(32,697)
(11,984)
Adjustments
for unconsolidated affiliates and non-controlling interest
2,135
618
1,517
AFFO
$
555,572
$
487,757
$
67,815
13.9
%
FFO
for the nine months ended September 30, 2022 increased from $460.5 million in 2021 to $562.2 million for the same period in 2022, an increase of 22.1%. AFFO for the nine months ended September 30, 2022 increased 13.9% to $555.6 million as compared to $487.8 million for the same period in 2021. The increase in AFFO was primarily attributable to an increase in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization and capitalized contract fulfillment costs, net) offset by an increase in total general and administrative and corporate expenses (excluding the effect of stock-based compensation expense and transaction expenses) and capital expenditures related to the maintenance of our advertising assets.
Net revenues increased $50.5 million or 10.6% to $527.4 million for the three months ended September 30, 2022 from $476.9 million for the same period in 2021. This increase was primarily attributable to an increase in billboard net revenues of $41.3 million and an increase in transit net revenues of $9.2 million over the same period in 2021.
For the three months ended September 30, 2022, there was a $29.8 million increase in net revenues as compared to acquisition-adjusted net revenue for the three months ended September 30, 2021, which represents an increase of 6.0%. See "Reconciliations" below. The $29.8 million increase
in revenue is primarily due to an increase of $22.8 million in billboard net revenues as well as an increase in transit net revenues of $7.1 million over the same period in 2021.
Total operating expenses, exclusive of depreciation and amortization and gain on disposition of assets, increased $21.3 million, or 8.2%, to $280.5 million for the three months ended September 30, 2022 from $259.1 million for the same period in 2021. The $21.3 million increase over the prior year is comprised of a $29.2 million increase in total direct, general and administrative and corporate expenses (excluding stock-based compensation and transaction expenses) primarily related to the operations of our outdoor advertising assets, offset by an $8.0 million decrease in stock-based compensation.
Depreciation and amortization expense decreased $18.5 million
to $65.8 million for the three months ended September 30, 2022 as compared to $84.3 million for the same period in 2021. The decrease is due to the revision in the cost estimate included
in the calculation of asset retirement obligations during 2021, offset by acquisitions and capital expenditures that occurred in the second half of 2021 and during 2022.
For the three months ended September 30, 2022, Lamar Media recognized a gain on disposition of assets of $0.1 million, primarily resulting from transactions related
to billboard locations and displays.
Due to the above factors, operating income increased by $47.7 million to $181.1 million for the three months ended September 30, 2022 as compared to $133.5 million for the same period in 2021.
Interest expense increased $7.4 million for the three months ended September 30, 2022 to $33.5 million as compared to $26.1 million for the three months ended September 30, 2021 primarily due to the increase in interest rates on the Accounts Receivable Securitization Program and senior credit facility.
Equity in earnings of investee was $1.6 million and $1.1 million for the three months ended September 30, 2022 and
2021, respectively, as a result of investments that occurred in July of 2021.
The increase in operating income, offset by the increase in interest expense, resulted in a $40.7 million increase in net income before income taxes. The effective tax rate for the three months ended September 30, 2022 was 2.0%, which differs from the federal statutory rate primarily due to our qualification for taxation as a REIT and adjustments for foreign items.
As a result of the above factors, Lamar Media recognized net income for the three months ended September 30, 2022 of $146.3 million, as compared to net income of $107.0 million for the same period in 2021.
Reconciliations:
Because
acquisitions occurring after December 31, 2020 have contributed to our net revenue results for the periods presented, we provide 2021 acquisition-adjusted net revenue, which adjusts our 2021 net revenue for the three months ended September 30, 2021 by adding to or subtracting from it the net revenue generated by the acquired or divested assets prior to our acquisition or divestiture of these assets for the same time frame that those assets were owned in the three months ended September 30, 2022.
Reconciliations of 2021 reported net revenue to 2021 acquisition-adjusted net revenue for the three months ended September 30, as well as a comparison of 2021 acquisition-adjusted net revenue to 2022 reported net revenue for the three months ended September 30, are provided below:
Reconciliation
and Comparison of Reported Net Revenue to Acquisition-Adjusted Net Revenue
Adjusted
EBITDA for the three months ended September 30, 2022 increased 8.9% to $251.3 million. The increase in adjusted EBITDA was primarily attributable to an increase in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization and capitalized contract fulfillment costs, net) of $29.6 million, offset by an increase in total general and administrative and corporate expenses of $7.6 million, excluding the impact of stock-based compensation expense and transaction expenses.
Net Income/FFO/AFFO
(in thousands)
Three
Months Ended September 30,
Amount of Increase (Decrease)
Percent Increase (Decrease)
2022
2021
Net income
$
146,325
$
106,974
$
39,351
36.8
%
Depreciation
and amortization related to real estate
63,089
81,580
(18,491)
Gain from sale or disposal of real estate, net of tax
(10)
83
(93)
Adjustments for unconsolidated affiliates and non-controlling
interest
(1,364)
(903)
(461)
FFO
$
208,040
$
187,734
$
20,306
10.8
%
Straight
line expense
741
466
275
Capitalized contract fulfillment costs, net
(772)
—
(772)
Stock-based compensation expense
5,108
13,076
(7,968)
Non-cash
portion of tax provision
639
(565)
1,204
Non-real estate related depreciation and amortization
2,743
2,720
23
Amortization of deferred financing costs
1,577
1,443
134
Transaction
expenses
93
—
93
Capital expenditures - maintenance
(13,008)
(13,094)
86
Adjustments for unconsolidated affiliates and non-controlling interest
1,364
903
461
AFFO
$
206,525
$
192,683
$
13,842
7.2
%
FFO
for the three months ended September 30, 2022 increased from $187.7 million in 2021 to $208.0 million for the same period in 2022, an increase of 10.8%. AFFO for the three months ended September 30, 2022 increased 7.2% to $206.5 million as compared to $192.7 million for the same period in 2021. The increase in AFFO was primarily attributable to an increase in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization and capitalized
contract fulfillment costs, net) offset by an increase in total general and
administrative and corporate expenses (excluding the effect of stock-based compensation expense and transaction expenses) and capital expenditures related to the maintenance of our advertising assets.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Lamar Advertising Company and Lamar Media Corp.
Lamar Advertising is exposed to interest rate risk in connection with variable rate debt instruments issued by its wholly owned subsidiary Lamar Media. The information below summarizes the Company’s interest rate risk associated with its principal variable rate debt instruments outstanding at September 30, 2022, and should be read in conjunction with Note
11 of the Notes to the Company’s Condensed Consolidated Financial Statements.
Lamar Media has variable-rate debt outstanding under its senior credit facility and its Accounts Receivable Securitization Program. Because interest rates may increase or decrease at any time, the Company is exposed to market risk as a result of the impact that changes in interest rates may have on the applicable borrowings outstanding. Increases in the interest rates applicable to these borrowings would result in increased interest expense and a reduction in the Company’s net income.
At September 30, 2022 there was approximately $1.15 billion of indebtedness outstanding under the senior credit facility and the Accounts Receivable Securitization Program, or approximately 35.3% of the Company’s outstanding long-term debt on that date, bearing interest at variable
rates. The aggregate interest expense for 2022 with respect to borrowings under the senior credit facility and the Accounts Receivable Securitization Program was $20.9 million, and the weighted average interest rate applicable to these borrowings during 2022 was 2.5%. Assuming that the weighted average interest rate was 200 basis points higher (that is 4.5% rather than 2.5%), then the Company’s 2022 interest expense would have increased by approximately $15.6 million for the nine months ended September 30, 2022.
The Company attempts to mitigate the interest rate risk resulting from its variable interest rate long-term debt instruments by issuing fixed rate long-term debt instruments and maintaining a balance over time between the amount of the Company’s variable rate and fixed rate indebtedness. In addition, the Company has the capability under the senior credit facility to
fix the interest applicable to its borrowings at an amount equal to Adjusted LIBO Rate or Adjusted Term SOFR Rate (as applicable), or Adjusted Base Rate plus the applicable margin for periods of up to twelve months (in certain cases with the consent of the lenders), which would allow the Company to mitigate the impact of short-term fluctuations in market interest rates. In the event of an increase in interest rates, the Company may take further actions to mitigate its exposure. The Company cannot guarantee, however, that the actions that it may take to mitigate this risk will be feasible or that, if these actions are taken, that they will be effective.
ITEM 4. CONTROLS AND PROCEDURES
a) Conclusion Regarding the Effectiveness of Disclosure
Controls and Procedures.
The Company’s and Lamar Media’s management, with the participation of the principal executive officer and principal financial officer of the Company and Lamar Media, have evaluated the effectiveness of the design and operation of the Company’s and Lamar Media’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this quarterly report. Based on this evaluation, the principal executive officer and principal financial officer of the Company and Lamar Media concluded that these disclosure controls and procedures are effective and designed to ensure that the information required to be disclosed in the Company’s and Lamar Media’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods.
b)
Changes in Internal Control Over Financial Reporting.
There have been no changes in the internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) of the Company and Lamar Media identified in connection with the evaluation of the Company’s and Lamar Media’s internal control performed during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s and Lamar Media’s internal control over financial reporting.
Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” in our combined Annual Report on Form 10-K for the year ended December 31, 2021, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our Class A common stock. There have been no material changes to our risk factors since our combined Annual Report on Form 10-K for the year ended December 31, 2021, as updated by the additional risk factor contained in our combined Quarterly Report on Form 10-Q for
the period ended June 30, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following financial statements from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL: (i) Condensed Consolidated Balance Sheets, (ii) Condensed Consolidated Statements of Income and Comprehensive Income, (iii) Condensed Consolidated Statements of Stockholders' Equity, (iv) Condensed Consolidated Statements of Cash Flows, and (v) Notes to the Condensed Consolidated Financial Statements, tagged as blocks of text and including detailed tags.
104
Cover
Page Interactive Date File (formatted as Inline XBRL and contained in Exhibit 101).
Pursuant to the requirements of the Securities Exchange Act of 1934, each registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
