Lamar Advertising Company Announces Second Quarter 2014 Operating Results

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| Source: Lamar Advertising Company

Three Month Results As Reported Daily Revenue Recognition

  • Net revenue increased 0.8% to $330.4 million
  • Adjusted EBITDA decreased 1.2% to $149.7 million

Three Month Results Pro Forma Monthly Revenue Recognition

  • Pro Forma Adjusted net revenue increased 2.1% to $334.9 million
  • Pro Forma Adjusted EBITDA increased 3.0% to $154.1 million

BATON ROUGE, La., Aug. 7, 2014 (GLOBE NEWSWIRE) -- Lamar Advertising Company (Nasdaq:LAMR), a leading owner and operator of outdoor advertising and logo sign displays, announces the Company's operating results for the second quarter ended June 30, 2014.

"Our transition from monthly to daily revenue recognition is creating some volatility in our reported quarterly revenue results, but historically, the difference in annual revenue recognized on a daily basis versus a monthly basis has been immaterial," said chief executive Sean Reilly. "I'm pleased with our second quarter performance. Amidst a sluggish overall ad environment, the performance of our digital platform accelerated, our local sales grew nicely and we showed impressive expense control."

"As we look out over the rest of 2014, we are encouraged by our pacings and continue to track toward the upper end of our AFFO guidance," Reilly said. "Meanwhile, our preparations for our formal transformation to a REIT is in progress."

Second Quarter Highlights

  • Same-unit digital billing grew 5%
  • Local sales on billboards increased 4%
  • Pro forma expense growth held to 1.3%
  • Received favorable private letter ruling from IRS
  • Paid quarterly dividend of $0.83 per share

Q2 Three Months Results

Lamar reported net revenues of $330.4 million for the second quarter of 2014 versus $327.7 million for the second quarter of 2013, a 0.8% increase. Operating income for the second quarter of 2014 was $73.0 million as compared to $73.3 million for the same period in 2013. Lamar recognized net income of $15.4 million for the second quarter of 2014 compared to net income of $23.1 million for same period in 2013. The decrease in net income for the three months ended June 30, 2014, includes a $20.8 million loss on debt extinguishment expense, which was partially offset by a reduction in interest expense as compared to the 2013 period. Net income per basic and diluted share was $0.16 per share and $0.24 per share for the three months ended June 30, 2014 and 2013, respectively.

Adjusted EBITDA for the second quarter of 2014 was $149.7 million versus $151.4 million for the second quarter of 2013, a 1.2% decrease.

Free Cash Flow for the second quarter of 2014 was $85.3 million as compared to $89.8 million for the same period in 2013, a 5.0% decrease.

For the second quarter of 2014, Funds From Operations, or FFO, was $82.0 million versus $90.9 million for the same period of 2013, a 9.8% decrease, primarily due to a $20.8 million loss on debt extinguishment related to the prepayment of Lamar Media's 7 7/8% Senior Subordinated Notes. In addition, FFO reflects our current status as a regular domestic C Corporation for U.S. Federal Income Tax purposes. Upon electing REIT status, tax expense will be lower than the current 41% effective tax rate. Adjusted Funds From Operations, or AFFO, for second quarter of 2014 was $102.9 million compared to $99.7 million for the same period in 2013, a 3.2% increase. Diluted AFFO per Share, was $1.08 per share and $1.05 per share for the three months ended June 30, 2014 and 2013, respectively.

Q2 Pro Forma Three Month Results

Pro forma adjusted net revenue for the second quarter of 2014 (recognized on a monthly basis) was $334.9 million. This reflects a 2.1% increase over pro forma adjusted net revenue for the second quarter of 2013. The Company's guidance for adjusted net revenue for the second quarter of 2014 (recognized on a monthly basis) was $331.0 million to $334.0 million, which equated to a 1% to 2% pro forma increase over Q2 2013. Pro forma adjusted EBITDA increased 3.0% as compared to pro forma adjusted EBITDA for the second quarter of 2013. Pro forma adjusted net revenue and pro forma adjusted EBITDA include adjustments to the 2013 period for acquisitions and divestitures for the same time frame as actually owned in the 2014 period. Pro forma adjusted net revenue and pro forma adjusted EBITDA in the 2013 period and adjusted net revenue and Adjusted EBITDA in the 2014 period have been adjusted to reflect revenue recognition on a monthly basis over the term of each advertising contract. See "Reconciliation of Reported Basis to Pro Forma Basis", which provides reconciliations to GAAP for adjusted and pro forma measures on page 8 of this release.

Q2 Six Months Results

Lamar reported net revenues of $615.4 million for the six months ended June 30, 2014 versus $604.3 million for the same period in 2013, a 1.8% increase. Operating income for the six months ended June 30, 2014 was $104.2 million as compared to $92.4 million for the same period in 2013. Adjusted EBITDA for the six months ended June 30, 2014 was $254.0 million versus $254.6 million for the same period in 2013. In addition, Lamar recognized net income of $10.6 million for the six months ended June 30, 2014 as compared to net income of $12.9 million for the same period in 2013. Net income per basic and diluted share was $0.11 per share and $0.13 per share for the six months ended June 30, 2014 and 2013, respectively.

Free Cash Flow for the six months ended June 30, 2014 increased 2.6% to $136.3 million as compared to $132.9 million for the same period in 2013.

For the six months ended June 30, 2014, FFO was $142.4 million versus $150.2 million for the same period of 2013, a 5.2% decrease. AFFO for the six months ended June 30, 2014 was $161.7 million compared to $149.9 million for the same period in 2013, a 7.9% increase. Diluted AFFO per Share increased to $1.69 per share as compared to $1.58 per share in the comparable period in 2013.

Please refer to "Use of Non GAAP Financial Measures" for definitions of Adjusted EBITDA, Free Cash Flow, Funds From Operations, Adjusted Funds From Operations, Diluted AFFO per Share and outdoor operating income. For additional information, including reconciliations to GAAP measures, please refer to the unaudited selected financial information and supplemental schedules on pages 7 through 9.

Liquidity

As of June 30, 2014, Lamar had $342.4 million in total liquidity that consisted of $308.0 million available for borrowing under its revolving senior credit facility and approximately $34.4 million in cash and cash equivalents. 

Recent Events

Distributions. On June 30, 2014, Lamar Advertising Company made its first regular quarterly distribution of $0.83 per share, or a total of approximately $79.0 million, to common stockholders of record on June 1, 2014. The Company expects to make two additional dividend distributions in 2014 on September 30, 2014 and December 30, 2014, subject to board approval. As previously disclosed, the Company anticipates the total distributions in 2014 to be $2.50 per share.

Guidance

For the third quarter of 2014, the Company expects adjusted net revenue (recognized on a monthly basis) to be approximately $330.0 million to $334.0 million. On a pro forma adjusted basis this represents an increase of approximately 1.5% to 2.5%. The Company will continue to provide adjusted net revenue guidance for 2014 based on monthly revenue recognition consistent with past practice.

Forward Looking Statements

This press release contains forward-looking statements, including the statements regarding guidance for the third quarter of 2014 and expected future dividend distributions. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those projected in these forward-looking statements. These risks and uncertainties include, among others: (1) our significant indebtedness; (2) the state of the economy and financial markets generally and the effect of the broader economy on the demand for advertising; (3) the continued popularity of outdoor advertising as an advertising medium; (4) our need for and ability to obtain additional funding for operations, debt refinancing or acquisitions; (5) our ability to qualify as a Real Estate Investment Trust (REIT) and maintain our status as a REIT assuming we successfully qualify; (6) the regulation of the outdoor advertising industry by federal, state and local governments; (7) the integration of companies that we acquire and our ability to recognize cost savings or operating efficiencies as a result of these acquisitions; (8) changes in accounting principles, policies or guidelines; (9) changes in tax laws applicable to REITs or in the interpretation of those laws; (10) our ability to renew expiring contracts at favorable rates; (11) our ability to successfully implement our digital deployment strategy; and (12) the market for our Class A common stock. For additional information regarding factors that may cause actual results to differ materially from those indicated in our forward-looking statements, we refer you to the risk factors included in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2013, as supplemented by any risk factors contained in our Quarterly Reports on Form 10-Q. We caution investors 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 we undertake no obligation to update or revise the statements, except as may be required by law.

Use of Non-GAAP Financial Measures

The Company has presented the following measures that are not measures of performance under accounting principles generally accepted in the United States of America (GAAP): Adjusted EBITDA, Free Cash Flow, Funds From Operations, Adjusted Funds From Operations, (AFFO), Diluted AFFO per Share, adjusted pro forma results and outdoor operating income. Adjusted EBITDA is defined as net income before income tax expense (benefit), interest expense (income), gain (loss) on extinguishment of debt and investments, non-cash compensation, depreciation and amortization and gain on disposition of assets. Free Cash Flow is defined as Adjusted EBITDA less interest, net of interest income and amortization of financing costs, current taxes, preferred stock dividends and total capital expenditures. Funds From Operations is defined as net income before real estate depreciation and amortization, gains or loss from disposition of real estate assets and investments and an adjustment to eliminate non‑controlling interest. Adjusted Funds From Operations is defined as Funds From Operations before straight‑line (revenue) expense, stock‑based compensation expense, non‑cash tax expense (benefit), non‑real estate related depreciation and amortization, amortization of deferred financing and debt issuance costs, loss on extinguishment of debt, non-recurring, infrequent or unusual losses (gains), less maintenance capital expenditures and an adjustment for non‑controlling interest. Diluted AFFO per Share is defined as AFFO divided by the weighted average diluted common shares outstanding. Outdoor operating income is defined as operating income before corporate expenses, non‑cash compensation, depreciation and amortization and gain on disposition of assets. These measures are not intended to replace financial performance measures determined in accordance with GAAP and should not be considered alternatives to operating income, net income, cash flows from operating activities, or other GAAP figures as indicators of the Company's financial performance or liquidity. The Company's management believes that Adjusted EBITDA, Free Cash Flow, Funds From Operations, Adjusted Funds From Operations, Diluted AFFO per Share, Adjusted pro forma results and Outdoor operating income are useful in evaluating the Company's performance and provide investors and financial analysts a better understanding of the Company's core operating results. The pro forma acquisition adjustments are intended to provide information that may be useful for investors when assessing period to period results. Management also deems the presentation of monthly revenue recognition useful to allow investors to see the impact of an immaterial change to its revenue recognition policy and to provide pro forma results that are comparable with prior periods and in line with the Company's presentation of market guidance. Our presentation of these measures may not be comparable to similarly titled measures used by other similarly‑situated companies. See "Supplemental Schedules—Unaudited Reconciliation of Non-GAAP Measures", which provides a reconciliation of each of these measures to the most directly comparable GAAP measure.

Conference Call Information

A conference call will be held to discuss the Company's operating results on Thursday, August 7, 2014 at 9:00 a.m. central time. Instructions for the conference call and Webcast are provided below:

Conference Call

All Callers:  1-334-323-0520 or 1-334-323-9871
Pass Code: Lamar
   
Replay: 1-334-323-0140 or 1-877-919-4059
Pass Code: 30699539
  Available through Thursday, August 14, 2014 at 11:59 p.m. eastern time
   
Live Webcast: www.lamar.com
   
Webcast Replay: www.lamar.com
  Available through Thursday, August 14, 2014 at 11:59 p.m. eastern time
   
Company Contact: Buster Kantrow
  Director of Investor Relations
  (225) 926-1000
  bkantrow@lamar.com

General Information

Lamar Advertising Company is a leading outdoor advertising company currently operating over 150 outdoor advertising companies in 44 states, Canada and Puerto Rico, logo businesses in 23 states and the province of Ontario, Canada and over 60 transit advertising franchises in the United States, Canada and Puerto Rico.

LAMAR ADVERTISING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
 
  Three months ended 
June 30,
Six months ended
 June 30,
  2014 2013 2014 2013
         
Net revenues  $330,433  $327,744  $615,366  $604,349
         
         
Operating expenses (income)        
Direct advertising expenses  114,277  110,723  225,785  217,242
General and administrative expenses  53,268  52,131  108,217  106,393
Corporate expenses   13,220  13,444  27,320  26,145
Non-cash compensation  6,601  6,422  10,513  17,195
Depreciation and amortization  71,049  72,408  140,575  146,309
Gain on disposition of assets  (1,020) (701)   (1,226) (1,307)
   257,395  254,427  511,184  511,977
Operating income  73,038  73,317  104,182  92,372
         
Other expense (income)        
Interest income (43) (51)  (88)   (79)
Loss on extinguishment of debt  20,847  —     26,023  —
Other-than-temporary impairment of investment  —  —  4,069  —
Interest expense  26,086  37,887  56,354   74,587
   46,890  37,836  86,358  74,508
Income before income tax expense  26,148  35,481  17,824  17,864
Income tax expense  10,726   12,359  7,239  5,005
         
Net income  15,422  23,122  10,585  12,859
Preferred stock dividends  91  91  182  182
Net income applicable to common stock  $15,331  $23,031    $10,403  $12,677
         
Earnings per share:        
Basic earnings per share  $0.16  $0.24 $0.11  $0.13
Diluted earnings per share  $0.16  $0.24  $0.11  $0.13
         
Weighted average common shares outstanding:        
- basic 95,174,692 94,337,967 95,041,097 94,157,464
- diluted 95,590,222 94,813,138 95,464,277 94,593,760
         
OTHER DATA        
Free Cash Flow Computation:        
Adjusted EBITDA $149,668 $151,446 $254,044 $254,569
Interest, net (24,875) (33,650) (53,815) (67,416)
Current tax expense  (7,576) (972) (9,454) (1,385)
Preferred stock dividends (91) (91) (182) (182)
Total capital expenditures (31,857) (26,933) (54,255) (52,721)
Free cash flow $85,269 $89,800 $136,338  $132,865
         
OTHER DATA (continued):        
         
      June 30, December 31,
Selected Balance Sheet Data:     2014 2013
Cash and cash equivalents      $34,417  $33,212
Working capital       $96,919  $36,705
Total assets      $3,376,470  $3,401,618
Total debt (including current maturities)      $1,927,867  $1,938,802
Total stockholders' equity      $885,655  $932,946
         
         
  Three months ended
June 30,
Six months ended
June 30,
  2014 2013 2014 2013
Selected Cash Flow Data:        
Cash flows provided by operating activities     $110,848  $100,233    $173,432    $151,954
Cash flows used in investing activities $(31,537) $(52,897)  $(57,309)  $(82,252)
Cash flows used in financing activities $(114,104) $(3,360)  $(114,741)  $(8,811)
 
SUPPLEMENTAL SCHEDULES
UNAUDITED RECONCILIATIONS OF NON-GAAP MEASURES
(IN THOUSANDS)
 
  Three months ended
June 30,
Six months ended
 June 30,
Reconciliation of Free Cash Flow to Cash Flows Provided by Operating Activities: 2014 2013 2014 2013
Cash flows provided by operating activities  $110,848  $100,233  $173,432  $151,954
Changes in operating assets and liabilities 7,519  18,415 20,093  36,915
Total capital expenditures (31,857) (26,933) (54,255)  (52,721)
Preferred stock dividends (91) (91) (182)  (182)
Other (1,150) (1,824) (2,750)  (3,101)
Free cash flow  $85,269  $89,800  $136,338  $132,865
         
         
Reconciliation of Adjusted EBITDA to Net Income:        
Adjusted EBITDA  $149,668  $151,446  $254,044   $254,569
Less:        
Non-cash compensation 6,601  6,422 10,513 17,195
Depreciation and amortization 71,049  72,408 140,575 146,309
Gain on disposition of assets (1,020)  (701) (1,226) (1,307)
Operating Income 73,038  73,317 104,182 92,372
         
         
Less:        
Interest income (43) (51) (88) (79)
Loss on extinguishment of debt 20,847  — 26,023
Other-than-temporary impairment of investment  — 4,069
Interest expense 26,086  37,887 56,354  74,587
Income tax expense 10,726  12,359  7,239 5,005
Net income $15,422  $23,122  $10,585  $12,859
         
         
Capital expenditure detail by category:        
Billboards - traditional  $6,584  $6,258  $11,202  $12,476
Billboards - digital 18,060  11,980 27,858 23,603
Logo 2,002  2,244 3,870 4,107
Transit 178  8 268 28
Land and buildings 2,401  2,824 5,702 5,608
Operating Equipment 2,632  3,619 5,355 6,899
Total capital expenditures  $31,857  $26,933  $54,255  $52,721
 
SUPPLEMENTAL SCHEDULES
UNAUDITED RECONCILIATIONS OF NON-GAAP MEASURES
(IN THOUSANDS)
 
  Three months ended 
June 30,
 
  2014 2013 % Change
Reconciliation of Reported Basis to Pro Forma(a) Basis:      
Net revenue (daily basis)  $330,433   $327,744  0.8%
Conversion from daily to monthly  4,427  (3,060)  
Adjusted net revenue  $334,860  $324,684  3.1%
Acquisitions and divestitures  —  3,403  
Pro forma adjusted net revenue (monthly basis)  $334,860  $328,087  2.1%
       
Reported direct advertising and G&A expenses  $167,545  $162,854  2.9%
Acquisitions and divestitures  —   2,171  
Pro forma direct advertising and G&A expenses  $167,545  $165,025  1.5%
       
Outdoor operating income (daily basis)  $162,888  $164,890  (1.2)%
Conversion from daily to monthly  4,427  (3,060)  
Adjusted outdoor operating income  $167,315  $161,830  3.4%
Acquisitions and divestitures  —  1,232  
Pro forma adjusted outdoor operating income (monthly basis)  $167,315    $163,062  2.6%
       
Reported corporate expenses  $13,220  $13,444  (1.7)%
Acquisitions and divestitures  —  —  
Pro forma corporate expenses  $13,220  $13,444  (1.7)%
       
Adjusted EBITDA (daily basis)  $149,668  $151,446  (1.2)%
Conversion from daily to monthly  4,427  (3,060)  
Adjusted EBITDA (monthly basis)  $154,095  $148,386  3.8 %
Acquisitions and divestitures  —  1,232  
Pro forma Adjusted EBITDA (monthly basis)  $154,095    $149,618  3.0%


(a) Pro forma adjusted net revenue, direct advertising and general and administrative expenses, outdoor operating income, corporate expenses and Adjusted EBITDA include adjustments to 2013 for acquisitions and divestitures for the same time frame as actually owned in 2014. Pro forma adjusted net revenue, outdoor operating income and Adjusted EBITDA have also been adjusted to reflect revenue recognition on a monthly basis (eliminating the effect of an immaterial correction) in both the 2013 and 2014 periods.

  Three months ended
June 30,
  2014 2013
Reconciliation of Outdoor Operating Income to Operating Income:    
Outdoor operating income $162,888 $164,890
Less: Corporate expenses 13,220 13,444
Non-cash compensation 6,601 6,422
Depreciation and amortization 71,049 72,408
Plus: Gain on disposition of assets 1,020 701
Operating income $73,038 $73,317
 
UNAUDITED REIT MEASURES
AND RECONCILIATIONS TO GAAP MEASURES
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
 
  Three months ended
June 30,
Six months ended
June 30,
  2014  2013 2014  2013
         
Net income  $15,422  $23,122  $10,585  $12,859
Depreciation and amortization related to advertising structures  66,896  68,188  132,071  138,070
Gain from disposition of real estate assets  (571) (758) (595)  (1,276)
Adjustment for minority interest – consolidated affiliates  222  323  299  544
Funds From Operations  $81,969  $90,875  $142,360   $150,197
Straight-line expense  (176) (185) (228)  (321)
Stock-based compensation expense  6,601  6,422  10,513  17,195
Non-cash tax expense (a)  8,390  11,387  3,025  3,620
Non-real estate related depreciation and amortization  4,153  4,220  8,504  8,239
Amortization of deferred financing and debt issuance costs  1,168  4,186  2,451  7,092
Loss on extinguishment of debt  20,847  26,023  —
Loss from other-than-temporary impairment of investment  4,069  —
Capitalized expenditures—maintenance (19,823) (16,861)  (34,697) (35,567)
Adjustment for minority interest – consolidated affiliates (222) (323) (299)  (544)
         
Adjusted Funds From Operations  $102,907  $99,721  $161,721  $149,911
Divided by weighted average diluted shares outstanding  95,590,222  94,813,138  95,464,277  94,593,760
Diluted AFFO per Share  $1.08  $1.05  $1.69  $1.58

(a) Three and six months ended June 30, 2014, includes the actual non-cash tax expense (benefit) of $3,150 and $(2,215), respectively as well as an adjustment in the amount of $5,240 related to the expected reversal of alternative minimum tax credits, which the Company would receive after it elects REIT status.

Given the Company's preparation for potential election of REIT status for the taxable year beginning January 1, 2014, two widely recognized metrics of operating performance for REITs, Funds From Operations (FFO) and Adjusted Funds From Operations (AFFO), are presented in this release. The calculation of FFO is based on the definition as set forth by the National Association of Real Estate Investment Trusts (NAREIT). A reconciliation of net income to FFO and the calculation of AFFO, each of which are non‑GAAP financial measures, are presented above. The measures of FFO and AFFO may not be comparable to those reported by REITs that do not compute these measures in accordance with the NAREIT definitions, or that interpret those definitions differently than the Company does.