Lamar(LAMR) - 2020 Q2 - Quarterly Report

PART I — FINANCIAL INFORMATION This section presents the unaudited condensed consolidated financial statements and management's discussion for Lamar Advertising Company and its subsidiary, Lamar Media Corp ITEM 1. FINANCIAL STATEMENTS This section presents unaudited condensed consolidated financial statements and detailed notes for Lamar Advertising Company and Lamar Media Corp Lamar Advertising Company - Condensed Consolidated Balance Sheets This statement provides a snapshot of Lamar Advertising Company's financial position, detailing assets, liabilities, and stockholders' equity as of June 30, 2020, and December 31, 2019 | ASSETS (in thousands) | June 30, 2020 | December 31, 2019 | | :-------------------- | :------------ | :---------------- | | Cash and cash equivalents | $177,093 | $26,188 | | Total current assets | $444,237 | $310,169 | | Total assets | $5,981,581 | $5,941,155 | | LIABILITIES AND STOCKHOLDERS' EQUITY (in thousands) | June 30, 2020 | December 31, 2019 | | Total current liabilities | $393,862 | $672,808 | | Long-term debt, net | $3,146,779 | $2,753,604 | | Total liabilities | $4,858,210 | $4,760,849 | | Stockholders' equity | $1,123,371 | $1,180,306 | | Total liabilities and stockholders' equity | $5,981,581 | $5,941,155 | - Cash and cash equivalents significantly increased from $26.188 million at December 31, 2019, to $177.093 million at June 30, 2020[14] - Total current liabilities decreased from $672.808 million to $393.862 million, primarily due to a reduction in current maturities of long-term debt[14] Lamar Advertising Company - Condensed Consolidated Statements of Income and Comprehensive Income This statement details Lamar Advertising Company's financial performance, including revenues, operating income, and net income for the three and six months ended June 30, 2020 and 2019 | Statements of Income (in thousands, except per share data) | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net revenues | $347,652 | $448,742 | $754,221 | $833,199 | | Operating income | $66,452 | $144,106 | $163,023 | $234,889 | | Net income | $31,429 | $118,396 | $71,922 | $169,649 | | Basic earnings per share | $0.31 | $1.18 | $0.71 | $1.70 | | Diluted earnings per share | $0.31 | $1.18 | $0.71 | $1.69 | | Cash dividends declared per share of common stock | $0.50 | $0.96 | $1.50 | $1.92 | - Net revenues decreased by 22.5% for the three months ended June 30, 2020, and by 9.5% for the six months ended June 30, 2020, compared to the same periods in 2019[16] - Net income saw a significant decline, dropping by 73.5% for the three-month period and 57.6% for the six-month period year-over-year[16] Lamar Advertising Company - Condensed Consolidated Statements of Stockholders' Equity This statement outlines changes in Lamar Advertising Company's stockholders' equity, including net income, dividends, and treasury stock transactions | Stockholders' Equity (in thousands) | December 31, 2019 | June 30, 2020 | | :---------------------------------- | :---------------- | :------------ | | Total Stockholders' Equity | $1,180,306 | $1,123,371 | | Net income (six months) | N/A | $71,922 | | Dividends/distributions to common shareholders (six months) | N/A | $(151,083) | | Purchase of treasury stock (six months) | N/A | $(10,124) | - Total stockholders' equity decreased from $1,180.306 million at December 31, 2019, to $1,123.371 million at June 30, 2020[18] - Common stock dividends/distributions for the six months ended June 30, 2020, totaled $151.083 million, a decrease from $191.954 million in the prior year[18][94] Lamar Advertising Company - Condensed Consolidated Statements of Cash Flows This statement details Lamar Advertising Company's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2020 and 2019 | Cash Flows (in thousands) | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $210,677 | $237,049 | | Net cash used in investing activities | $(57,677) | $(137,145) | | Net cash used in financing activities | $(1,903) | $(104,347) | | Net increase (decrease) in cash and cash equivalents | $150,905 | $(4,240) | | Cash and cash equivalents at end of period | $177,093 | $17,254 | - Operating cash flows decreased by $26.372 million YoY, from $237.049 million in 2019 to $210.677 million in 2020[22] - Investing activities used significantly less cash in 2020 ($57.677 million) compared to 2019 ($137.145 million), primarily due to reduced acquisitions and capital expenditures[22] - Financing activities shifted from a significant cash outflow of $104.347 million in 2019 to a much smaller outflow of $1.903 million in 2020, driven by debt refinancing activities[22] Lamar Advertising Company - Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures regarding the accounting policies, estimates, and specific financial statement line items for Lamar Advertising Company Significant Accounting Policies This section outlines key accounting policies and the impact of COVID-19 on estimates and goodwill assessment - The Company updated its goodwill qualitative assessment as of June 30, 2020, due to COVID-19 impacts, concluding no impairment loss for goodwill or long-lived assets[26][27] - Estimates and assumptions in financial statements now explicitly consider potential impacts from the COVID-19 pandemic[28] Revenues This section details the sources and recognition methods of advertising revenues, including disaggregated revenue data by segment - Advertising revenues are primarily from billboard, logo, and transit displays, recognized ratably over contract life, with contracts prior to January 1, 2019, under ASC 840 and most amended/new contracts under ASC 606[29] Disaggregated Revenue (in thousands) | Disaggregated Revenue (in thousands) | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :----------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Billboard Advertising | $312,095 | $393,798 | $667,400 | $729,993 | | Logo Advertising | $21,053 | $21,811 | $42,445 | $41,723 | | Transit Advertising | $14,504 | $33,133 | $44,376 | $61,483 | | Net Revenues | $347,652 | $448,742 | $754,221 | $833,199 | - Billboard and Transit Advertising revenues experienced significant declines for both the three and six months ended June 30, 2020, compared to 2019, primarily due to the COVID-19 pandemic[36] Leases This section provides details on operating lease costs and the maturity schedule of operating lease liabilities - Operating lease costs for the six months ended June 30, 2020, were $158.734 million, an increase from $155.166 million in 2019[37] - Variable lease costs decreased significantly for both the three and six months ended June 30, 2020, compared to 2019[37] Operating Lease Liabilities Maturities (in thousands) | Operating Lease Liabilities Maturities (in thousands) | Amount | | :------------------------------------ | :----- | | 2020 | $114,518 | | 2021 | $206,414 | | 2022 | $181,916 | | 2023 | $158,968 | | 2024 | $141,902 | | Thereafter | $854,924 | | Total undiscounted operating lease payments | $1,658,642 | | Less: Imputed interest | $(430,667) | | Total operating lease liabilities | $1,227,975 | Stock-Based Compensation This section outlines stock option grants and the expense recognized for performance-based stock awards - The Company granted options for 32,000 shares of Class A common stock during the six months ended June 30, 2020, with 2,470,063 shares available for future grant[43] - Stock-based compensation expense related to performance-based awards was $3.494 million for the six months ended June 30, 2020[46] Depreciation and Amortization This section presents the breakdown of depreciation and amortization expenses across different categories Depreciation and Amortization (in thousands) | Depreciation and Amortization (in thousands) | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Direct advertising expenses | $60,142 | $58,200 | $118,839 | $116,315 | | General and administrative expenses | $1,151 | $1,140 | $2,432 | $2,261 | | Corporate expenses | $2,705 | $2,353 | $5,040 | $4,623 | | Total | $63,998 | $61,693 | $126,311 | $123,199 | - Total depreciation and amortization expense increased to $126.311 million for the six months ended June 30, 2020, from $123.199 million in the prior year[47] Goodwill and Other Intangible Assets This section provides details on the gross carrying amount and accumulated amortization of intangible assets, including goodwill Intangible Assets (in thousands) | Intangible Assets (in thousands) | June 30, 2020 Gross Carrying Amount | June 30, 2020 Accumulated Amortization | December 31, 2019 Gross Carrying Amount | December 31, 2019 Accumulated Amortization | | :------------------------------- | :---------------------------------- | :------------------------------------- | :-------------------------------------- | :------------------------------------- | | Customer lists and contracts | $644,330 | $551,309 | $641,714 | $539,405 | | Site locations | $2,399,355 | $1,550,917 | $2,384,520 | $1,509,335 | | Goodwill | $2,165,697 | $253,536 | $2,165,810 | $253,536 | - Goodwill remained largely stable at approximately $2.166 billion, with no impairment recognized as of June 30, 2020[49] Asset Retirement Obligations This section details the changes in asset retirement obligations, including additions, accretion expense, and settlements Asset Retirement Obligations (in thousands) | Asset Retirement Obligations (in thousands) | Amount | | :---------------------------------------- | :----- | | Balance at December 31, 2019 | $226,137 | | Additions | $421 | | Accretion expense | $2,129 | | Liabilities settled | $(3,742) | | Balance at June 30, 2020 | $224,945 | - Asset retirement obligations slightly decreased to $224.945 million at June 30, 2020, from $226.137 million at December 31, 2019[50] Distribution Restrictions This section outlines the restrictions on Lamar Media's ability to distribute funds to Lamar Advertising, governed by debt indentures and credit facilities - Lamar Media's ability to distribute to Lamar Advertising is restricted by indentures and its senior credit facility, with permitted transfers up to $3.430 billion as of June 30, 2020, under note terms[51] - As of June 30, 2020, Lamar Media's senior credit facility allowed transfers up to Lamar Advertising's taxable income, provided total debt ratio was less than 7.0 to 1 and secured debt ratio did not exceed 4.5 to 1, with available cumulative credit of $2.180 billion[52] Earnings Per Share This section reports the basic and diluted earnings per share for the three and six months ended June 30, 2020 and 2019 - Basic and diluted EPS for the three months ended June 30, 2020, were $0.31, down from $1.18 in 2019[16] - Basic and diluted EPS for the six months ended June 30, 2020, were $0.71, down from $1.70 and $1.69 respectively in 2019[16] Long-term Debt This section details the Company's long-term debt structure, including senior credit facilities and various senior notes, and recent refinancing activities Long-term Debt (in thousands) | Long-term Debt (in thousands) | June 30, 2020 Debt | June 30, 2020 Debt, net of deferred financing costs | December 31, 2019 Debt | December 31, 2019 Debt, net of deferred financing costs | | :---------------------------- | :----------------- | :------------------------------------------------ | :--------------------- | :---------------------------------------------------- | | Senior Credit Facility | $598,339 | $585,642 | $1,127,069 | $1,117,992 | | 5% Senior Subordinated Notes | $535,000 | $532,214 | $535,000 | $531,763 | | 5 3/4% Senior Notes | $653,988 | $646,817 | $654,345 | $646,593 | | 4 7/8% Senior Notes | $400,000 | $394,210 | — | — | | 4% Senior Notes | $400,000 | $394,390 | — | — | | 3 3/4% Senior Notes | $600,000 | $591,606 | — | — | | Total Debt | $3,199,014 | $3,155,899 | $3,004,532 | $2,980,118 | - Lamar Media refinanced its senior credit facility on February 6, 2020, establishing a new $750 million revolving credit facility and a $600 million Term B loan facility maturing in 2025 and 2027, respectively[56][57] - New senior notes were issued in 2020: $600 million of 3 3/4% Senior Notes due 2028, $400 million of 4% Senior Notes due 2030, and $400 million of 4 7/8% Senior Notes due 2029[78][80][82] - The Company incurred an $18.184 million loss on debt extinguishment for the six months ended June 30, 2020, primarily from the early repayment of 5 3/8% Senior Notes and refinancing of the senior credit facility[163] Fair Value of Financial Instruments This section provides the estimated fair value of the Company's long-term debt compared to its carrying amount - The estimated fair value of the Company's long-term debt (including current maturities) was $3.159 billion, which did not exceed the carrying amount of $3.199 billion as of June 30, 2020[87] New Accounting Pronouncements This section discusses the adoption of new accounting standards, including Topic 842 on Leases and ASU 2016-13 on Credit Losses - The Company adopted Topic 842, Leases, effective January 1, 2019, recognizing $1.2 billion in additional operating liabilities and corresponding ROU assets[89][91] - ASU 2016-13, Financial Instruments – Credit Losses, was adopted on January 1, 2020, with no material impact on consolidated financial statements, but the allowance for credit losses now considers COVID-19 impacts[93] Dividends/Distributions This section reports cash distributions to common stockholders and the Company's policy for maintaining REIT status Dividends/Distributions (in thousands, except per share data) | Dividends/Distributions (in thousands, except per share data) | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :---------------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Cash distributions to common stockholders (aggregate) | $50,396 | $96,039 | $151,083 | $191,954 | | Cash distributions to common stockholders (per share) | $0.50 | $0.96 | $1.50 | $1.92 | - Common stock cash distributions decreased significantly in 2020 compared to 2019, with $0.50 per share for Q2 2020 vs. $0.96 in Q2 2019[94] - The Company intends to distribute at least 90% of its REIT taxable income to maintain REIT status, with future distributions at the Board's discretion, considering liquidity, leverage, and operating environment[217] Information about Geographic Areas This section provides a breakdown of revenues and long-lived assets from foreign countries Geographic Information (in thousands) | Geographic Information (in thousands) | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Revenues from foreign countries | $11,022 | $17,057 | | Net carrying value of long-lived assets in foreign countries (as of June 30) | $5,406 | $4,549 | - Revenues from foreign countries decreased by 35.3% for the six months ended June 30, 2020, compared to the same period in 2019[95] Stockholders' Equity This section details the availability under the 'At-the-Market' Offering Program and the Board-authorized share repurchase program - As of June 30, 2020, $336.668 million remained available to be sold under the 'At-the-Market' Offering Program[96] - The Board authorized a repurchase program for up to $250 million of Class A common stock, expiring September 30, 2021, with no repurchases made as of June 30, 2020[101] Subsequent Event This section reports Lamar Media's announced intent to redeem a portion of its 5% Notes after the reporting period - On July 30, 2020, Lamar Media announced its intent to redeem $267.5 million of its 5% Notes on August 31, 2020, leaving $267.5 million outstanding[102] Lamar Media Corp. - Condensed Consolidated Financial Statements This section presents the unaudited condensed consolidated financial statements for Lamar Media Corp., a wholly-owned subsidiary of Lamar Advertising Company - Lamar Media Corp. is a wholly-owned subsidiary of Lamar Advertising Company, and its financial statements are presented separately[4] Lamar Media Corp. - Condensed Consolidated Balance Sheets This statement provides a snapshot of Lamar Media Corp.'s financial position, detailing assets, liabilities, and stockholder's equity | ASSETS (in thousands) | June 30, 2020 | December 31, 2019 | | :-------------------- | :------------ | :---------------- | | Cash and cash equivalents | $176,593 | $25,688 | | Total current assets | $443,737 | $309,669 | | Total assets | $5,964,847 | $5,924,421 | | LIABILITIES AND STOCKHOLDER'S EQUITY (in thousands) | June 30, 2020 | December 31, 2019 | | Total current liabilities | $387,492 | $666,849 | | Long-term debt, net | $3,146,779 | $2,753,604 | | Total liabilities | $4,851,840 | $4,754,890 | | Stockholder's equity | $1,113,007 | $1,169,531 | | Total liabilities and stockholder's equity | $5,964,847 | $5,924,421 | Lamar Media Corp. - Condensed Consolidated Statements of Income and Comprehensive Income This statement details Lamar Media Corp.'s financial performance, including revenues, operating income, and net income | Statements of Income (in thousands) | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :---------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net revenues | $347,652 | $448,742 | $754,221 | $833,199 | | Operating income | $66,557 | $144,195 | $163,252 | $235,087 | | Net income | $31,534 | $118,485 | $72,151 | $169,847 | Lamar Media Corp. - Condensed Consolidated Statements of Stockholder's Equity This statement outlines changes in Lamar Media Corp.'s stockholder's equity, including net income and dividends to parent | Stockholder's Equity (in thousands) | December 31, 2019 | June 30, 2020 | | :---------------------------------- | :---------------- | :------------ | | Total Stockholder's Equity | $1,169,531 | $1,113,007 | | Net income (six months) | N/A | $72,151 | | Dividend to parent (six months) | N/A | $(161,208) | Lamar Media Corp. - Condensed Consolidated Statements of Cash Flows This statement details Lamar Media Corp.'s cash flows from operating, investing, and financing activities | Cash Flows (in thousands) | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :------------------------ | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $182,753 | $214,344 | | Net cash used in investing activities | $(57,677) | $(137,145) | | Net cash provided by (used in) financing activities | $26,021 | $(81,642) | | Net increase (decrease) in cash and cash equivalents | $150,905 | $(4,240) | | Cash and cash equivalents at end of period | $176,593 | $16,754 | Lamar Media Corp. - Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and disclosures for Lamar Media Corp.'s financial statements, substantially mirroring those of the parent company - Lamar Media Corp.'s notes to condensed consolidated financial statements are substantially equivalent to those of Lamar Advertising Company, with earnings per share data not provided as it is a wholly-owned subsidiary[114] - Lamar Media and its subsidiary guarantors fully and unconditionally guarantee Lamar Media's publicly issued notes, requiring condensed consolidating financial information[115] Lamar Media Corp. - Condensed Consolidating Balance Sheet This consolidating balance sheet provides a detailed view of Lamar Media Corp.'s assets, liabilities, and equity | Lamar Media Corp. Consolidated Balance Sheet (in thousands) | June 30, 2020 | December 31, 2019 | | :-------------------------------------------------------- | :------------ | :---------------- | | Total assets | $5,964,847 | $5,924,421 | | Total liabilities | $4,851,840 | $4,754,890 | | Stockholder's equity | $1,113,007 | $1,169,531 | Lamar Media Corp. - Condensed Consolidating Statements of Income and Comprehensive Income This consolidating income statement details Lamar Media Corp.'s revenues, operating income, and net income | Lamar Media Corp. Consolidated Income (in thousands) | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :--------------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Net revenues | $347,652 | $448,742 | $754,221 | $833,199 | | Operating income | $66,557 | $144,195 | $163,252 | $235,087 | | Net income | $31,534 | $118,485 | $72,151 | $169,847 | Lamar Media Corp. - Condensed Consolidating Statement of Cash Flows This consolidating cash flow statement outlines Lamar Media Corp.'s cash movements from operating, investing, and financing activities | Lamar Media Corp. Consolidated Cash Flows (in thousands) | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :------------------------------------------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $182,753 | $214,344 | | Net cash used in investing activities | $(57,677) | $(137,145) | | Net cash provided by (used in) financing activities | $26,021 | $(81,642) | | Net increase (decrease) in cash and cash equivalents | $150,905 | $(4,240) | | Cash and cash equivalents at end of period | $176,593 | $16,754 | ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial condition and operational results, highlighting the significant impact of the COVID-19 pandemic on revenues and expenses Overview and COVID-19 Impact This section discusses the significant adverse effects of the COVID-19 pandemic on advertising demand and the Company's responsive cost-saving measures - The COVID-19 pandemic significantly reduced demand for out-of-home advertising, leading to a 22.5% decrease in consolidated net revenues for the three months ended June 30, 2020[142][143] - In response to the pandemic, the Company implemented cost-saving measures including reducing operating costs by 10.4% for Q2 2020, curtailing capital projects, limiting acquisitions, and utilizing CARES Act provisions[144] - The Company observed an improvement in customer activity in June and July as government restrictions eased, but the recovery timing remains uncertain[143] Acquisitions and Capital Expenditures This section details the Company's acquisition activities and capital expenditures, noting reductions due to the COVID-19 pandemic - The Company completed acquisitions totaling approximately $26.2 million during the six months ended June 30, 2020[149] Capital Expenditures (in thousands) | Capital Expenditures (in thousands) | Three months ended June 30, 2020 | Three months ended June 30, 2019 | Six months ended June 30, 2020 | Six months ended June 30, 2019 | | :---------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Billboard — traditional | $1,503 | $13,431 | $8,023 | $22,693 | | Billboard — digital | $5,227 | $14,418 | $16,802 | $26,037 | | Total capital expenditures | $10,565 | $34,609 | $36,274 | $60,560 | - Total capital expenditures decreased significantly to $36.274 million for the six months ended June 30, 2020, from $60.560 million in 2019, reflecting curtailed spending due to COVID-19[150] Non-GAAP Financial Measures This section defines and explains the non-GAAP financial measures used by management to evaluate operating performance - Management uses non-GAAP measures like Adjusted EBITDA, FFO, AFFO, and acquisition-adjusted net revenue to evaluate operating performance[152] - Adjusted EBITDA is defined as net income before income tax, interest, debt extinguishment loss/gain, stock-based compensation, depreciation/amortization, asset disposition gain/loss, capitalized contract fulfillment costs, and ASC 842 impact[153] - FFO is defined as net income before real estate asset sale gains/losses and real estate related depreciation/amortization, with adjustments for unconsolidated affiliates and non-controlling interest[154] Results of Operations - Lamar Advertising Company This section analyzes the operational performance of Lamar Advertising Company, comparing financial results for the current and prior periods Six Months Ended June 30, 2020 compared to Six Months Ended June 30, 2019 This section compares Lamar Advertising Company's financial performance for the six months ended June 30, 2020, against the same period in 2019 Financial Metric (in thousands) | Financial Metric (in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | Change (Decrease) | Percent Change (Decrease) | | :------------------------------ | :----------------------------- | :----------------------------- | :---------------- | :------------------------ | | Net revenues | $754,221 | $833,199 | $(78,978) | (9.5)% | | Operating income | $163,023 | $234,889 | $(71,866) | (30.6)% | | Net income | $71,922 | $169,649 | $(97,727) | (57.6)% | | Adjusted EBITDA | $293,013 | $354,059 | $(61,046) | (17.2)% | | FFO | $189,666 | $264,266 | $(74,600) | (28.2)% | | AFFO | $209,323 | $253,033 | $(43,710) | (17.3)% | - Net revenues decreased by $79.0 million (9.5%) due to declines in billboard ($62.6 million) and transit ($17.1 million) advertising, primarily from the COVID-19 pandemic[159] - Operating income decreased by $71.9 million, and net income fell by $97.7 million, largely due to revenue declines and a $18.2 million loss on debt extinguishment[163][166] Three Months Ended June 30, 2020 compared to Three Months Ended June 30, 2019 This section compares Lamar Advertising Company's financial performance for the three months ended June 30, 2020, against the same period in 2019 Financial Metric (in thousands) | Financial Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Change (Decrease) | Percent Change (Decrease) | | :------------------------------ | :------------------------------- | :------------------------------- | :---------------- | :------------------------ | | Net revenues | $347,652 | $448,742 | $(101,090) | (22.5)% | | Operating income | $66,452 | $144,106 | $(77,654) | (53.9)% | | Net income | $31,429 | $118,396 | $(86,967) | (73.5)% | | Adjusted EBITDA | $133,196 | $207,935 | $(74,739) | (35.9)% | | FFO | $92,103 | $159,289 | $(67,186) | (42.2)% | | AFFO | $96,060 | $154,108 | $(58,048) | (37.7)% | - Net revenues decreased by $101.1 million (22.5%) for the three months ended June 30, 2020, driven by $81.7 million and $18.6 million decreases in billboard and transit net revenues, respectively, due to the pandemic[173] - Operating income decreased by $77.7 million, and net income dropped by $87.0 million, reflecting the severe impact of reduced advertising demand[177][180] Liquidity and Capital Resources - Lamar Advertising Company This section assesses Lamar Advertising Company's liquidity position, sources of cash, and capital resource management strategies Overview and Sources of Cash This section provides an overview of Lamar Advertising Company's total liquidity and the primary sources of its cash - As of June 30, 2020, total liquidity was approximately $1.086 billion, comprising $177.1 million in cash and cash equivalents, $737.2 million availability under the revolving credit facility, and $171.8 million under the Accounts Receivable Securitization Program[186] - Working capital increased by $413.0 million to a surplus of $50.4 million at June 30, 2020, primarily due to repayment of the Accounts Receivable Securitization Program and increased cash[187] - Cash provided by operating activities decreased to $210.7 million for the six months ended June 30, 2020, from $237.0 million in 2019, due to revenue declines offset by expense reductions[188] Factors Affecting Sources of Liquidity This section discusses the debt covenants and restrictions that influence the Company's liquidity and capital management - The Company and Lamar Media must comply with covenants and restrictions under the senior credit facility and outstanding debt securities, including a secured debt ratio of less than or equal to 4.5 to 1.0 and a total debt ratio of less than 7.0 to 1.0 for certain debt incurrences[203][204][206] - As of June 30, 2020, the Company was in compliance with all debt covenants[64][203] Uses of Cash This section details how Lamar Advertising Company utilized its cash, including capital expenditures, acquisitions, debt redemptions, and dividend payments - Capital expenditures, excluding acquisitions, were approximately $36.3 million for the six months ended June 30, 2020, with anticipated total 2020 capital expenditures updated to $58.0 million due to COVID-19[211] - Acquisition activity is being limited due to COVID-19, with $26.2 million spent on acquisitions in the first six months of 2020[212] - The Company redeemed $510.0 million of 5 3/8% Senior Notes on February 20, 2020, incurring a $12.6 million loss on debt extinguishment[214] - Quarterly cash dividends were $1.00 per share on March 31, 2020, and $0.50 per share on June 30, 2020, with future plans subject to Board discretion and REIT requirements[216][217] Off-Balance Sheet Arrangements This section describes the Company's off-balance sheet commitments, primarily guaranteed minimum payments for advertising space - Off-balance sheet commitments include guaranteed minimum payments to transit municipalities and airport authorities for advertising space, which no longer meet ASC 842 lease criteria[219] Commitments and Contingencies This section outlines the Company's contractual obligations, including long-term debt, interest, and operating leases Contractual Obligations (in millions) | Contractual Obligations (in millions) | Total | Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | After 5 Years | | :---------------------------------- | :------ | :--------------- | :---------- | :---------- | :------------ | | Long-Term Debt | $3,155.9 | $9.1 | $0.0 | $533.0 | $2,613.8 | | Interest obligations on long term debt | $880.0 | $134.1 | $274.7 | $223.3 | $247.9 | | Billboard site and other operating leases | $1,758.9 | $246.2 | $406.6 | $308.1 | $798.0 | | Total payments due | $5,794.8 | $389.4 | $681.3 | $1,064.4 | $3,659.7 | Other Commercial Commitments (in millions) | Other Commercial Commitments (in millions) | Total Amount Committed | Less Than 1 Year | 1 - 3 Years | 3 - 5 Years | After 5 Years | | :----------------------------------------- | :--------------------- | :--------------- | :---------- | :---------- | :------------ | | Revolving Credit Facility | $750.0 | $0.0 | $0.0 | $750.0 | $0.0 | | Standby Letters of Credit | $12.8 | $12.3 | $0.5 | $0.0 | $0.0 | Critical Accounting Estimates and Accounting Standards Update This section reviews critical accounting policies and the impact of recent accounting standard adoptions - No material changes to critical accounting policies and estimates were reported since the 2019 Form 10-K[222] - The adoption of Topic 842, Leases, on January 1, 2019, resulted in recognizing $1.2 billion in operating lease liabilities and ROU assets[226] - The adoption of ASU 2016-13, Financial Instruments – Credit Losses, on January 1, 2020, had no material impact, but credit loss allowance now considers COVID-19[227] Results of Operations - Lamar Media Corp. This section analyzes the operational performance of Lamar Media Corp., comparing financial results for the current and prior periods Six Months Ended June 30, 2020 compared to Six Months Ended June 30, 2019 (Lamar Media Corp.) This section compares Lamar Media Corp.'s financial performance for the six months ended June 30, 2020, against the same period in 2019 Financial Metric (in thousands) | Financial Metric (in thousands) | Six Months Ended June 30, 2020 | Six Months Ended June 30, 2019 | Change (Decrease) | Percent Change (Decrease) | | :------------------------------ | :----------------------------- | :----------------------------- | :---------------- | :------------------------ | | Net revenues | $754,221 | $833,199 | $(78,978) | (9.5)% | | Operating income | $163,252 | $235,087 | $(71,835) | (30.6)% | | Net income | $72,151 | $169,847 | $(97,696) | (57.5)% | | Adjusted EBITDA | $293,242 | $354,257 | $(61,015) | (17.2)% | | FFO | $189,895 | $264,464 | $(74,569) | (28.2)% | | AFFO | $209,552 | $253,231 | $(43,679) | (17.2)% | - Lamar Media Corp. experienced a 9.5% decrease in net revenues for the six months ended June 30, 2020, primarily from billboard and transit advertising declines due to the pandemic[229] - Net income for Lamar Media Corp. decreased by 57.5% to $72.151 million for the six months ended June 30, 2020, compared to $169.847 million in 2019[236] Three Months Ended June 30, 2020 compared to Three Months Ended June 30, 2019 (Lamar Media Corp.) This section compares Lamar Media Corp.'s financial performance for the three months ended June 30, 2020, against the same period in 2019 Financial Metric (in thousands) | Financial Metric (in thousands) | Three Months Ended June 30, 2020 | Three Months Ended June 30, 2019 | Change (Decrease) | Percent Change (Decrease) | | :------------------------------ | :------------------------------- | :------------------------------- | :---------------- | :------------------------ | | Net revenues | $347,652 | $448,742 | $(101,090) | (22.5)% | | Operating income | $66,557 | $144,195 | $(77,638) | (53.8)% | | Net income | $31,534 | $118,485 | $(86,951) | (73.4)% | | Adjusted EBITDA | $133,301 | $208,024 | $(74,723) | (35.9)% | | FFO | $92,208 | $159,378 | $(67,170) | (42.1)% | | AFFO | $96,165 | $154,197 | $(58,032) | (37.6)% | - Lamar Media Corp.'s net revenues decreased by 22.5% for the three months ended June 30, 2020, primarily due to the ongoing pandemic's impact on advertising demand[243] - Net income for Lamar Media Corp. declined by 73.4% to $31.534 million for the three months ended June 30, 2020, compared to $118.485 million in 2019[249] ITEM 3. Quantitative and Qualitative Disclosures About Market Risk This section outlines Lamar Advertising Company's and Lamar Media Corp.'s exposure to market risks, primarily focusing on interest rate risk associated with variable-rate debt instruments - As of June 30, 2020, approximately $598.3 million (18.7%) of the Company's long-term debt was variable-rate, primarily under the senior credit facility and Accounts Receivable Securitization Program[258] - A 200 basis point increase in the weighted average interest rate (from 2.6% to 4.6%) would have increased interest expense by approximately $10.4 million for the six months ended June 30, 2020[258] - The Company mitigates interest rate risk by maintaining a balance between variable and fixed-rate debt and has the capability to fix interest rates on borrowings for up to twelve months[259] ITEM 4. Controls and Procedures This section confirms the effectiveness of the Company's and Lamar Media's disclosure controls and procedures and reports no material changes in internal control over financial reporting - Management concluded that the Company's and Lamar Media's disclosure controls and procedures were effective as of June 30, 2020[261] - There have been no material changes in internal control over financial reporting during the last fiscal quarter[262] PART II — OTHER INFORMATION This section provides additional information including updated risk factors, equity security sales, and a list of exhibits ITEM 1A. Risk Factors This section updates the risk factors, emphasizing the material adverse effects of pandemics like COVID-19 on the Company's business, financial results, and stock price - The COVID-19 pandemic has materially affected the business by reducing demand for out-of-home advertising, impacting vehicle volume, pedestrian traffic, and advertiser spending[265] - The pandemic has negatively affected advertising customer segments (entertainment, retail, restaurant, automotive) and caused a decline in the Company's stock price[265][267] - The TCJA and CARES Act changes, particularly regarding net operating losses (NOLs) and interest expense deductions, could impact Lamar Advertising's ability to comply with REIT distribution requirements or avoid taxes[269][271] ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds This section states that there were no unregistered sales of equity securities or use of proceeds to report for the period - No unregistered sales of equity securities or use of proceeds were reported[272] ITEM 5. Other Information This section indicates that there is no other information to report for the period - No other information was reported[272] ITEM 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate organizational documents, debt indentures, credit agreements, and certifications - Key exhibits include Amended and Restated Certificates of Incorporation and Bylaws for Lamar Advertising Company and Lamar Media Corp[273] - Debt-related exhibits include the Indenture for 4 7/8% Senior Notes and various amendments to the Receivables Financing Agreement[273] - Certifications from the Chief Executive Officer and Chief Financial Officer are included, as required by the Sarbanes-Oxley Act[273][274]