LAMAR ADVERTISING COMPANY 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 2019 Combined Form 10-K filed onFebruary 20, 2020 ?, as updated and supplemented in Part II, Item 1A of our combined Quarterly Report on Form 10-Q for the quarter endedJune 30, 2020 filed onAugust 6, 2020 , 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. You should carefully consider each of these risks and uncertainties in evaluating the Company's andLamar 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.
The following is a discussion of the consolidated financial condition and
results of operations of the Company for the nine and three months ended
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.
Impact of the COVID-19 Pandemic
The unprecedented and rapid spread of COVID-19 and the related government-imposed restrictions and social distancing measures implemented throughout the world have reduced demand for out-of-home advertising. Beginning in late March, large public events were cancelled, and governments began imposing restrictions on non-essential activities, which in turn lead to advertisers suspending, delaying or cancelling their advertising campaigns.
The
government-imposed restrictions have had an adverse impact on the volume of vehicles on roadways (particularly in larger markets), pedestrians in airports and riders on public transit and numerous advertising customer segments including, but not limited to, entertainment, retail, restaurant and amusement advertisers. As a result, demand for billboard, transit and airport advertising declined, which has had an adverse impact on our revenues and financial position. The decrease in outdoor advertising demand during the three months endedSeptember 30, 2020 resulted in a 15.7% decrease in our consolidated net revenues as compared to the same period in 2019. As revenues declined, the Company responded through a variety of cost saving and liquidity measures as discussed below. While we cannot predict the length and severity of the reduction in demand due to the pandemic, we observed an improvement in customer activity beginning in June and through October as the government-imposed restrictions on travel were eased. However, the pace of the recovery remains uncertain given the continued impact of the pandemic on the overallU.S. and global economy, and new or renewed government-imposed restrictions on travel may be enacted in the future. Our liquidity measures and expense management initiatives may be modified as we monitor the timing of economic recovery. In response to the ongoing pandemic, we have implemented measures to mitigate the impact on our financial position and operations. These measures include, but are not limited to, the following:
• issuing
with cash on hand, were used to pay-down all then outstanding balances
under our revolving credit facility;
• redeeming our
through a combination of cash on hand, draws under our revolving credit
facility and the Accounts Receivable Securitization Program and through
the issuance of an additional
19, 2020;
• reducing our consolidated operating costs (exclusive of depreciation and
amortization and gain on disposition of assets) by
for the three months ended
which included:
o reductions in our transit and airport franchise costs and billboard
lease costs; and
o reducing our workforce by approximately 8% through attrition and
selected layoffs;
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• sharply curtailing spending on capital projects, including new digital
displays;
• limiting acquisition activity; and
• utilizing portions of the CARES Act for deferral of employer portions of
social security taxes through the end of 2020, with 50% of the deferral
due December 31, 2021 and the remaining 50% due December 31, 2022 .
We will continue to evaluate the impact of the COVID-19 pandemic on our business and we may access the debt and/or equity capital markets for additional liquidity, if necessary.
The Company's management and Board of Directors are continuing to evaluate our quarterly dividend plans for the remainder of 2020. This evaluation includes ensuring the Company remains in compliance with its REIT dividend requirements for the year. As ofSeptember 30, 2020 , we did not incur any impairment charges related to goodwill or long-lived assets (including operating lease right of use assets). We also did not incur any significant credit losses for the three and nine months endedSeptember 30, 2020 . While some of our corporate, front office and sales workforce continues to work from home, a large majority has returned to their offices while adhering to theCenters for Disease Control and Prevention and state and local governmental guidelines and recommendations. The impacts of working from home have been minimal on productivity. Also, while working from home has minimally impacted our processes, there have been no material impacts to our internal control environment.
We continue to actively monitor the situation and may take further actions that alter our business operations as may be required by federal, state or local authorities, or that we determine are in the best interests of our employees, customers, partners and stockholders.
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 endedSeptember 30, 2020 , the Company completed acquisitions for a total cash purchase price of approximately$28.7 million . See Uses of Cash - Acquisitions for more information. The Company's business requires expenditures for maintenance and capitalized costs associated with the construction of new billboard displays, the entrance into and renewal of logo sign and transit contracts, and the purchase of real estate and operating equipment. The following table presents a breakdown of capitalized expenditures for the three and nine months endedSeptember 30, 2020 and 2019: Three months ended Nine months ended September 30, September 30, (in thousands) (in thousands) 2020 2019 2020 2019 Total capital expenditures: Billboard - traditional$ 678 $ 11,894 $ 8,701 $ 34,587 Billboard - digital 2,620 14,461 19,422 40,498 Logos 1,853 3,249 5,398 7,153 Transit 817 497 2,672 2,293 Land and buildings 1,210 4,818 3,468 6,514 Operating equipment 1,181 2,201 4,972 6,635
Total capital expenditures
35
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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 inthe 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 theNational 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), loss (gain) on extinguishment of debt and investments, stock-based compensation, depreciation and amortization, gain or loss on disposition of assets and investments, capitalized contract fulfillment costs, net and the impact of ASC 842 adoption (lease accounting standard). 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) impact of ASC 842 adoption; (iii) capitalized contract fulfillment costs, net (iv) stock-based compensation expense; (v) non-cash portion of tax provision; (vi) non-real estate related depreciation and amortization; (vii) amortization of deferred financing costs; (viii) loss on extinguishment of debt; (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 divestures, 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 provides 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. 36 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
Nine Months ended
Net revenues decreased$150.7 million or 11.7% to$1.140 billion for the nine months endedSeptember 30, 2020 from$1.291 billion for the same period in 2019. This decrease was primarily attributable to a decrease in billboard and transit net revenues of$118.3 million and$31.8 million , respectively, over the same period in 2019, which related to the effects of the ongoing pandemic. For the nine months endedSeptember 30, 2020 , there was a$160.2 million decrease in net revenues as compared to acquisition-adjusted net revenue for the nine months endedSeptember 30, 2019 , which represents a decrease of 12.3%. See "Reconciliations" below. The$160.2 million decrease in revenue is primarily due to a$130.3 million and$31.2 million decrease in billboard and transit net revenues, respectively, which are due to the effects of the ongoing pandemic. The decrease in outdoor and transit revenues was slightly offset by an increase of$1.4 million in logo revenue. Total operating expenses, exclusive of depreciation and amortization and loss (gain) on disposition of assets, decreased$44.1 million , or 6.0% to$688.7 million for the nine months endedSeptember 30, 2020 from$732.9 million in the same period in 2019. The$44.1 million decrease over the prior year is comprised of a$37.1 million decrease in total direct, general and administrative and corporate expenses (excluding stock-based compensation) primarily related to the operations of our outdoor advertising assets, as well as a$7.0 million decrease in stock-based compensation. Depreciation and amortization expense increased$0.4 million to$187.5 million for the nine months endedSeptember 30, 2020 as compared to$187.2 million for the same period in 2019.
For the nine months ended
Due to the above factors, operating income decreased by
The Company recognized a loss on debt extinguishment of$25.2 million during the nine months endedSeptember 30, 2020 , which relates to the early repayment of our 5 3/8% Senior Notes and 5% Senior Subordinated Notes and refinancing of our senior credit facility. Interest expense decreased$7.2 million for the nine months endedSeptember 30, 2020 to$107.1 million as compared to$114.2 million for the nine months endedSeptember 30, 2019 . The decrease is primarily related to the Company's debt transactions completed in 2020, as well as a reduction in our senior credit facility interest rates. The decrease in operating income and increase in loss on extinguishment of debt, offset by the decrease in interest expense, resulted in a$125.4 million decrease in net income before income taxes. The effective tax rate for the nine months endedSeptember 30, 2020 was 1.8%, 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 endedSeptember 30, 2020 of$134.7 million , as compared to net income of$269.4 million for the same period in 2019.
Reconciliations:
Because acquisitions occurring afterDecember 31, 2018 (the "acquired assets") have contributed to our net revenue results for the periods presented, we provide 2019 acquisition-adjusted net revenue, which adjusts our 2019 net revenue for the nine months endedSeptember 30, 2019 by adding to or subtracting from it the net revenue generated by the acquired or divested assets prior to our acquisition or divestiture of these assets for the same time frame that those assets were owned in the nine months endedSeptember 30, 2020 . Reconciliations of 2019 reported net revenue to 2019 acquisition-adjusted net revenue for the nine months endedSeptember 30 , as well as a comparison of 2019 acquisition-adjusted net revenue to 2020 reported net revenue for the nine months endedSeptember 30 , are provided below: 37 -------------------------------------------------------------------------------- Reconciliation and Comparison of Reported Net Revenue to Acquisition-Adjusted Net Revenue Nine months ended September 30, 2020 2019 (in thousands) Reported net revenue$ 1,140,331 $ 1,290,985 Acquisition net revenue - 9,515 Adjusted totals$ 1,140,331 $ 1,300,500 Key Performance Indicators Net Income/Adjusted EBITDA (in thousands) Nine Months Ended Amount of Percent September 30, Increase Increase 2020 2019 (Decrease) (Decrease) Net income$ 134,680 $ 269,358 $ (134,678 ) (50.0 )% Income tax expense (benefit) 2,520 (6,714 ) 9,234 Loss on debt extinguishment 25,235 - 25,235 Interest expense (income), net 106,441 113,687 (7,246 ) Gain on disposition of assets (4,823 ) (5,360 )
537
Depreciation and amortization 187,548 187,150
398
Impact of ASC 842 adoption (lease accounting standard) - 3,029 (3,029 ) Capitalized contract fulfillment costs, net 1,036 (9,984 )
11,020
Stock-based compensation expense 11,046 18,078 (7,032 ) Adjusted EBITDA$ 463,683 $ 569,244 $ (105,561 ) (18.5 )% Adjusted EBITDA for the nine months endedSeptember 30, 2020 decreased 18.5% to$463.7 million . The decrease in adjusted EBITDA was primarily attributable to a decrease in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization, the impact of ASC 842 adoption and capitalized contract fulfillment costs, net) of$126.7 million , and was offset by a decrease in total general and administrative and corporate expenses of$21.1 million , excluding the impact of stock-based compensation expense. 38 --------------------------------------------------------------------------------
Net Income/FFO/AFFO
(in thousands)
Nine Months Ended Amount of Percent
September 30, Increase Increase
2020 2019 (Decrease) (Decrease)
Net income $ 134,680 $ 269,358 $ (134,678 ) (50.0 )%
Depreciation and amortization related to
real estate 178,884 175,920 2,964
Gain from sale or disposal of real estate, net of tax (4,422 ) (5,048 )
626
Non-cash tax benefit for REIT converted assets - (17,031 )
17,031
Adjustments for unconsolidated affiliates and non-controlling interest 456 561 (105 ) FFO$ 309,598 $ 423,760 $ (114,162 ) (26.9 )% Straight line expense (income) 2,615 (217 )
2,832
Impact of ASC 842 adoption (lease accounting standard) - 3,029 (3,029 ) Capitalized contract fulfillment costs, net 1,036 (9,984 )
11,020
Stock-based compensation expense 11,046 18,078 (7,032 ) Non-cash portion of tax provision (1,870 ) 2,572 (4,442 ) Non-real estate related depreciation and amortization 8,664 11,230 (2,566 ) Amortization of deferred financing costs 4,467 4,012
455
Loss on extinguishment of debt 25,235 -
25,235
Capital expenditures - maintenance (17,616 ) (35,888 )
18,272
Adjustments for unconsolidated affiliates and non-controlling interest (456 ) (561 ) 105 AFFO$ 342,719 $ 416,031 $ (73,312 ) (17.6 )% FFO for the nine months endedSeptember 30, 2020 decreased from$423.8 million in 2019 to$309.6 million for the same period in 2020, a decrease of 26.9%. AFFO for the nine months endedSeptember 30, 2020 decreased 17.6% to$342.7 million as compared to$416.0 million for the same period in 2019. The decrease in AFFO was primarily attributable to the decrease in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization, capitalized contract fulfillment costs, net and the impact of ASC 842 adoption) offset by decreases in the total of general and administrative and corporate expenses (excluding the effect of stock-based compensation expense).
Three Months ended
Net revenues decreased$71.7 million or 15.7% to$386.1 million for the three months endedSeptember 30, 2020 from$457.8 million for the same period in 2019. This decrease was primarily attributable to a decrease in billboard and transit net revenues of$55.7 million and$14.7 million , respectively, over the same period in 2019, which related to the effects of the ongoing pandemic. For the three months endedSeptember 30, 2020 , there was a$71.0 million decrease in net revenues as compared to acquisition-adjusted net revenue for the three months endedSeptember 30, 2019 , which represents a decrease of 15.5%. See "Reconciliations" below. The$71.0 million decrease in revenue is primarily due to a$57.0 million and$14.7 million decrease in billboard and transit net revenues, respectively, and is a result of the effects of the ongoing pandemic. Total operating expenses, exclusive of depreciation and amortization and loss (gain) on disposition of assets, decreased$32.3 million , or 12.8% to$220.3 million for the three months endedSeptember 30, 2020 from$252.6 million in the same period in 2019. The$32.3 million decrease over the prior year is comprised of a$26.6 million decrease in total direct, general and administrative and corporate expenses (excluding stock-based compensation) primarily related to the operations of our outdoor advertising assets, as well as a$5.7 million decrease in stock-based compensation. Depreciation and amortization expense decreased$2.7 million to$61.2 million for the three months endedSeptember 30, 2020 as compared to$64.0 million for the same period in 2019.
For the three months ended
Due to the above factors, operating income decreased by
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The Company recognized a loss on debt extinguishment of $7.1 million during the
three months ended September 30, 2020 , which relates to the early repayment of
the 5% Senior Subordinated Notes.
Interest expense decreased $3.3 million for the three months ended September 30,
2020 to $35.1 million as compared to $38.3 million for the three months ended
September 30, 2019 .
The decrease in operating income and increase in loss on extinguishment of debt,
offset by the decrease in interest expense, resulted in a $39.3 million decrease
in net income before income taxes. The effective tax rate for the three months
ended September 30, 2020 was 1.9%, which differs from the federal statutory rate
primarily due to our qualification for taxation as a REIT and adjustments for
foreign items.
As a result of the above factors, the Company recognized net income for the
three months ended
Reconciliations:
Because acquisitions occurring afterDecember 31, 2018 (the "acquired assets") have contributed to our net revenue results for the periods presented, we provide 2019 acquisition-adjusted net revenue, which adjusts our 2019 net revenue for the three months endedSeptember 30, 2019 by adding to or subtracting from it the net revenue generated by the acquired or divested assets prior to our acquisition or divestiture of these assets for the same time frame that those assets were owned in the three months endedSeptember 30, 2020 . Reconciliations of 2019 reported net revenue to 2019 acquisition-adjusted net revenue for the three months endedSeptember 30 , as well as a comparison of 2019 acquisition-adjusted net revenue to 2020 reported net revenue for the three months endedSeptember 30 , are provided below: Reconciliation and Comparison of Reported Net Revenue to Acquisition-Adjusted Net Revenue Three months ended September 30, 2020 2019 (in thousands) Reported net revenue$ 386,110 $ 457,786 Acquisition net revenue - (694 ) Adjusted totals$ 386,110 $ 457,092 Key Performance Indicators Net Income/Adjusted EBITDA (in thousands) Three Months Ended Amount of Percent September 30, Increase Increase 2020 2019 (Decrease) (Decrease) Net income$ 62,758 $ 99,709 $ (36,951 ) (37.1 )% Income tax expense 1,224 3,578 (2,354 ) Loss on debt extinguishment 7,051 - 7,051 Interest expense (income), net 34,820 38,155 (3,335 ) Gain on disposition of assets (1,304 ) (199 ) (1,105 ) Depreciation and amortization 61,237 63,951 (2,714 ) Impact of ASC 842 adoption (lease accounting standard) - 1,099 (1,099 ) Capitalized contract fulfillment costs, net - (1,680 )
1,680
Stock-based compensation expense 4,884 10,572 (5,688 ) Adjusted EBITDA$ 170,670 $ 215,185 $ (44,515 ) (20.7 )% 40
-------------------------------------------------------------------------------- Adjusted EBITDA for the three months endedSeptember 30, 2020 decreased 20.7% to$170.7 million . The decrease in adjusted EBITDA was primarily attributable to a decrease in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization, the impact of ASC 842 adoption and amortization of capitalized contract fulfillment costs, net) of$58.4 million , and was offset by a decrease in total general and administrative and corporate expenses of$13.9 million , excluding the impact of stock-based compensation expense. Net Income/FFO/AFFO (in thousands) Three Months Ended Amount of Percent September 30, Increase Increase 2020 2019 (Decrease) (Decrease) Net income$ 62,758 $ 99,709 $ (36,951 ) (37.1 )% Depreciation and amortization related to real estate 58,431 59,742 (1,311 ) Gain from sale or disposal of real estate (1,324 ) (164 ) (1,160 ) Adjustments for unconsolidated affiliates and non-controlling interest 67 207 (140 ) FFO$ 119,932 $ 159,494 $ (39,562 ) (24.8 )% Straight line expense (income) 882 (1 )
883
Impact of ASC 842 adoption (lease accounting standard) - 1,099 (1,099 ) Capitalized contract fulfillment costs, net - (1,680 )
1,680
Stock-based compensation expense 4,884 10,572 (5,688 ) Non-cash portion of tax provision (557 ) 662 (1,219 ) Non-real estate related depreciation and amortization 2,806 4,209 (1,403 ) Amortization of deferred financing costs 1,589 1,342
247
Loss on extinguishment of debt 7,051 -
7,051
Capital expenditures - maintenance (3,124 ) (12,492 )
9,368
Adjustments for unconsolidated affiliates and non-controlling interest (67 ) (207 ) 140 AFFO$ 133,396 $ 162,998 $ (29,602 ) (18.2 )% FFO for the three months endedSeptember 30, 2020 decreased from$159.5 million in 2019 to$119.9 million for the same period in 2020, a decrease of 24.8%. AFFO for the three months endedSeptember 30, 2020 decreased 18.2% to$133.4 million as compared to$163.0 million for the same period in 2019. The decrease in AFFO was primarily attributable to the decrease in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization, capitalized contract fulfillment costs, net and the impact of ASC 842 adoption) offset by decreases in the total of general and administrative and corporate expenses (excluding the effect of stock-based compensation expense).
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 fromLamar Media . Sources of Cash Total Liquidity. As ofSeptember 30, 2020 we had approximately$770.8 million of total liquidity, which is comprised of approximately$68.6 million in cash and cash equivalents and approximately$666.9 million of availability under the revolving portion ofLamar Media's senior credit facility and$35.3 million of availability under our Accounts Receivable Securitization Program. We expect the liquidity measures taken (as discussed above) and the remaining availability under the revolving portion of the senior credit facility and Accounts Receivable Securitization Program to be adequate for the Company to meet its operational requirements for the next twelve months as we continue to contend with the impacts of the COVID-19 pandemic. 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. 41 -------------------------------------------------------------------------------- As ofSeptember 30, 2020 andDecember 31, 2019 , the Company had a working capital deficit of$192.1 million and$362.6 million , respectively. The increase in working capital of$170.5 million is primarily due to a decrease in current maturities of long-term debt of$95.4 million and an increase in cash on hand of$42.4 million as ofSeptember 30, 2020 . Cash Generated by Operations. For the nine months endedSeptember 30, 2020 and 2019, our cash provided by operating activities was$361.5 million and$408.0 million , respectively. The decrease in cash provided by operating activities for the nine months endedSeptember 30, 2020 over the same period in 2019 relates to a decrease in revenues offset by a decrease in operating expenses (excluding depreciation and amortization). Due to the adverse economic impact of the COVID-19 pandemic, we may not generate cash flows from operations during 2020 in excess of our cash needs for operations, capital expenditures and dividends, as described herein. However, we do expect to have sufficient cash on hand and availability under our revolving credit facility and Accounts Receivable Securitization Program to meet our operating cash needs for the next twelve months. Accounts Receivable Securitization Program. OnDecember 18, 2018 , we entered into the Accounts Receivable Securitization Program. The Accounts Receivable Securitization Program provides up to$175.0 million in borrowing capacity, plus an accordion feature that would permit the borrowing capacity to be increased by up to$125.0 million . 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") andLamar TRS Receivables, LLC (the "TRS SPV" and together with the QRS SPV the "Special Purpose Subsidiaries"), each of which is a wholly-owned subsidiary ofLamar Media . Existing and future accounts receivable relating toLamar Media and its qualified REIT subsidiaries will be sold and/or contributed to the QRS SPV and existing and future accounts receivable relating toLamar 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 ofLamar 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 toLamar Media . Accordingly, the assets of the Special Purpose Subsidiaries are not available to pay creditors ofLamar 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 toLamar Media . OnJune 30, 2020 Lamar Media and the Special Purpose Subsidiaries entered into the Third Amendment of the Accounts Receivable Securitization Program which increased the maximum three month average Delinquency Ratio, Dilution Ratio, and Days' Sales Outstanding to 11.00% (from 8.00%), 7.00% (from 4.00%) and 75 days (from 65 days), respectively. Additionally, the Amendment establishes a new Minimum Funding Threshold, which requires the Special Purpose Subsidiaries to maintain borrowings under the Accounts Receivable Securitization Program on any day equal to the lesser of (i) 50.00% of the aggregate ?Commitment of all Lenders or (ii) the Borrowing Base, though the Special Purpose Subsidiaries have the right to borrow less than the ?Minimum Funding Threshold during certain periods prior toDecember 21, 2020 , at their election. As ofSeptember 30, 2020 there was$122.5 million in outstanding aggregate borrowings under the Accounts Receivable Securitization Program.Lamar Media had approximately$35.3 million of unused availability under the Accounts Receivable Securitization Program as ofSeptember 30, 2020 . OnOctober 23, 2020 ,Lamar Media and the Special Purpose Subsidiaries entered into the Fourth Amendment (the "Subsequent ?Amendment") to the Accounts Receivable Securitization Program. The Subsequent Amendment increases the ?maximum three month average Delinquency Ratio generally to 13.00% (and up to 16.00% for up to two additional periods upon ?written notice fromLamar Media ), and increases the maximum three month average Dilution Ratio to 5.00% for the remaining term ?of the Accounts Receivable Securitization Program. Additionally, the Subsequent Amendment increases the Minimum Funding ?Threshold which, as amended, requires the Special Purpose Subsidiaries to maintain minimum borrowings under the Accounts ?Receivable Securitization Program on any day equal to the lesser of (i) 70.00% of the aggregate Commitment of all Lenders or (ii) the ?Borrowing Base, though the Special Purpose Subsidiaries have the right to borrow less than the Minimum Funding Threshold during ?certain periods prior toDecember 21, 2020 at their election. 42 -------------------------------------------------------------------------------- "At-the-Market" Offering Program. OnMay 1, 2018 , the Company entered into an equity distribution agreement (the "Sales Agreement") withJ.P. Morgan Securities LLC ,Wells Fargo Securities LLC andSunTrust Robinson Humphrey, Inc. as our sales agents (each a "Sales Agent", and collectively, the "Sales Agents"). Under the terms of the 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 Sales Agreement and may at any time suspend solicitations and offers under the Sales Agreement. The Company intends to use the net proceeds, if any, from the sale of the Class A common stock pursuant to the 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. During the nine months endedSeptember 30, 2020 , the Company did not issue any shares under this program. Shelf Registration Statement. OnAugust 6, 2018 , we filed an automatically effective shelf registration statement (No. 333-226614) that registered the offer and sale of an indeterminate amount of additional shares of our Class A common stock. During the nine months endedSeptember 30, 2020 , the Company did not issue any shares under this shelf registration, however, we may issue additional shares under the shelf registration statement in the future in connection with future acquisitions or for other general corporate purposes. Credit Facilities. OnFebruary 6, 2020 ,Lamar Media entered into a Fourth Amended and Restated Credit Agreement (the "Fourth Amended and Restated Credit Agreement") with certain ofLamar 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 restateLamar 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 ofMay 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 new$750.0 million senior secured revolving credit facility which will mature onFebruary 6, 2025 (the "revolving credit facility"), (ii) a new$600.0 million Term B loan facility (the "Term B loans") which will mature onFebruary 6, 2027 , and (iii) an incremental facility (the "Incremental Facility") pursuant to whichLamar 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 onFebruary 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 borrowing under the revolving credit facility and a portion of the proceeds of the issuance of the 3 3/4% Senior Notes due 2028 and 4% 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 bear interest at rates based on the Adjusted LIBO Rate ("Eurodollar term loans") or the Adjusted Base Rate ("Base Rate term loans"), atLamar Media's option. Eurodollar Term B loans bear interest at a rate per annum equal to the Adjusted LIBO Rate plus 1.50%. Base Rate Term B 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"), atLamar 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. As ofSeptember 30, 2020 the aggregate balance outstanding under the senior credit facility was$670.0 million , consisting of$600.0 million in Term B loans aggregate principal balance and$70.0 million outstanding under our revolving credit facility loans.Lamar Media had approximately$666.9 million of unused capacity under the revolving credit facility. The Company recorded a loss on debt extinguishment of approximately$5.6 million related to the refinancing of its senior credit facility. Note Offerings. OnFebruary 6, 2020 ,Lamar Media issued, through an institutional private placement,$1.0 billion in aggregate principal amount of new senior notes consisting of$600.0 million in aggregate principal amount of 3 3/4% Senior Notes due 2028 (the "3 3/4% Senior Notes") and$400.0 million in aggregate principal amount of 4% Senior Notes due 2030 (the "4% Senior Notes").Lamar Media used the proceeds of this offering to repay its existing Term A loans, redeem in full all$510.0 million in aggregate principal amount of its outstanding 5 3/8% Senior Notes due 2024 and partially repay borrowings under its revolving credit facility. The Company recorded a loss on debt extinguishment of approximately$12.6 million , of which$9.1 million was cash related to its redemption of the 5 3/8% Senior Notes. See Uses of Cash-Note Redemption for more information. 43 -------------------------------------------------------------------------------- OnMay 13, 2020 ,Lamar Media issued, through an institutional private placement,$400.0 million in aggregate principal amount of 4 7/8% Senior Notes due 2029 (the "4 7/8% Senior Notes"). The issuance of the 4 7/8% Senior Notes resulted in net proceeds toLamar Media of approximately$395.0 million .Lamar Media used the proceeds of this offering to repay outstanding borrowings under its revolving credit facility and for general corporate purposes. OnAugust 19, 2020 ,Lamar Media issued, through an institutional private placement,$150.0 million in aggregate principal amount of 4% Senior Notes due 2030 (the "New 2030 Notes"). The issuance was an add-on to the existing 4% Senior Notes due 2030 thatLamar Media issued onFebruary 6, 2020 . Other than with respect to the issuance date and issue price, the New 2030 Notes have the same terms as the 4% Senior Notes and resulted in proceeds toLamar Media of approximately$146.9 million .Lamar Media used the proceeds of this offering to redeem a portion of its 5% Senior Subordinated Notes due 2023. See Uses of Cash-Note Redemption for more information.
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. As a result of COVID-19, we incurred an adverse effect on our internally generated cash flows for the quarter endedSeptember 30, 2020 , and while we are uncertain of the timing and pace of an economic rebound, we experienced an increase in customer spending in the three months endedSeptember 30, 2020 as compared to the three months endedJune 30, 2020 , which has continued into the fourth quarter of 2020.
Restrictions Under Debt Securities . The Company andLamar Media must comply with certain covenants and restrictions related to its outstanding debt securities. Currently,Lamar Media has outstanding the$650.0 million 5 3/4% Senior Notes issued inJanuary 2016 andFebruary 2019 (the "5 3/4% Senior Notes"), the$600.0 million 3 3/4% Senior Notes issuedFebruary 2020 , the$550.0 million 4% Senior Notes issuedFebruary 2020 andAugust 2020 , and the$400.0 million 4 7/8% Senior Notes issued inMay 2020 . The indentures relating toLamar 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 ofLamar 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 toLamar Media's outstanding notes permitLamar Media to incur indebtedness pursuant to the following baskets:
• up to
governing the 3 3/4% Senior Notes, the 4% Senior Notes and the 4 7/8%
Senior Notes) 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
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
assets;
• additional debt not to exceed $75.0 million ; and
• up to
of the indentures governing the 3 3/4% Senior Notes, the 4% Senior Notes
and the 4 7/8% Senior Notes.
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, 2020 and currently,
we are in compliance with all such tests under the senior credit facility.
44
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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 also restricted from incurring additional unsecured senior 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 if, 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) ofLamar 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 ofLamar 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.
Under the senior credit facility, "EBITDA" means, for any period, operating income forLamar Advertising ,Lamar Media and its restricted subsidiaries (determined on a consolidated basis without duplication in accordance with GAAP) for such period (calculated (A) before (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 and (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) and (B) after giving effect to the amount of cost savings, operating expense reductions and other operating improvements or synergies projected byLamar 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 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 onLamar Media and its restricted subsidiaries and (III) factually supportable, in each case all as certified by the chief financial officer ofLamar Media ) on behalf ofLamar Media , and excluding (except to the extent received or paid in cash byLamar Advertising ,Lamar Media or any of its restricted subsidiaries (other than the special purpose subsidiaries) income or loss attributable to equity in affiliates for such period), excluding any extraordinary and unusual gains or losses during such period, and excluding the proceeds of any casualty events and dispositions. For purposes hereof, the effect thereon of any adjustments required under Statement of Financial Accounting Standards No. 141R shall be excluded. If during any period for which EBITDA is being determined,Lamar Media has 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. 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 ifLamar Media fails to maintain the maximum secured debt ratio of 4.5 to 1.0 required underLamar Media's senior credit facility. 45 --------------------------------------------------------------------------------
Uses of Cash
Capital Expenditures. Capital expenditures, excluding acquisitions were
approximately
Acquisitions. During the nine months endedSeptember 30, 2020 , the Company completed acquisitions for an aggregate purchase price of approximately$28.7 million , which were financed using available cash on hand or borrowings under its revolving credit facility. Due to the economic impacts of COVID-19 we are limiting our acquisition activity. Note Redemption. OnFebruary 20, 2020 , the Company used a portion of the proceeds from the 3 3/4% Senior Notes and 4% Senior Notes to redeem in full all$510.0 million in aggregate principal amount ofLamar Media's 5 3/8% Senior Notes. The notes were redeemed at a redemption price equal to 101.792% of the aggregate principal amount of the outstanding notes, plus accrued and unpaid interest up to the redemption date. The Company recorded a loss on debt extinguishment of approximately$12.6 million related to the note redemption. See Sources of Cash-Note Offerings for more information. During the three months endedSeptember 30, 2020 the Company redeemed all of its$535.0 million in aggregate principal amount of its outstanding 5% Senior Subordinated Notes due 2023 (the "5% Notes"), redeeming half of the 5% Notes onAugust 31, 2020 and the remainder onSeptember 16, 2020 . The total 5% Notes redemption was funded with a combination of cash on hand, borrowings under our revolving credit facility and Accounts Receivable Securitization Program along with proceeds received from the New 2030 Notes issuance completed onAugust 19, 2020 . The redemption resulted in a loss on debt extinguishment of$7.1 million , of which$4.5 million was in cash prepayment penalties. Dividends. OnFebruary 27, 2020 ,Lamar Advertising's Board of Directors declared a quarterly cash dividend of$1.00 per share, paid onMarch 31, 2020 to its stockholders of record of its Class A common stock and Class B common stock onMarch 16, 2020 . OnMay 28, 2020 ,Lamar Advertising's Board of Directors declared a quarterly cash dividend of$0.50 per share, paid onJune 30, 2020 to its stockholders of record of its Class A common stock and Class B common stock onJune 22, 2020 . OnSeptember 1, 2020 ,Lamar Advertising's Board of Directors declared a quarterly cash dividend of$0.50 per share, paid onSeptember 30, 2020 to its stockholders of record of its Class A common stock and Class B common stock onSeptember 21, 2020 . The Company's Board of Directors will evaluate our future dividend plans on a quarterly basis, giving consideration to our liquidity, our leverage and the anticipated operating environment. We intend to distribute at least 90% of our REIT taxable income and remain REIT qualified. 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 COVID-19 on the Company's operations and other factors that the Board of Directors may deem relevant. Stock and Debt Repurchasing Program. OnMarch 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 authorizedLamar 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. The repurchase program will expire onSeptember 30, 2021 unless extended by the Board of Directors. There were no repurchases under the program as ofSeptember 30, 2020 . 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.
Off-Balance Sheet Arrangements
Our off-balance sheet commitments consist of guaranteed minimum payments to local transit municipalities and airport authorities for agreements which entitle us to rent advertising space to customers, in airports and on buses, benches or shelters. These agreements no longer meet the criteria of a lease under ASC 842, Leases, adopted onJanuary 1, 2019 and are a result of our normal course of business. 46
--------------------------------------------------------------------------------
Commitments and Contingencies
As ofSeptember 30, 2020 , we had outstanding debt of approximately$2.964 billion . In the future,Lamar Media has principal revolver commitment reductions under the senior credit facility. In addition, it has fixed commercial commitments. These commitments are detailed on a contractual basis as follows: Payments Due by Period Less Than After Contractual Obligations Total 1 Year 1 - 3 Years 3 - 5 Years 5 Years (In millions) Long-term debt$ 2,964.2 $ 9.1 $ 122.7 $ 66.1 $ 2,766.3 Interest obligations on long-term debt(1) 863.5 116.4 236.9 234.6 275.6 Billboard site and other operating leases 1,724.9 250.5 394.6 303.8 776.0 Total payments due$ 5,552.6 $ 376.0 $ 754.2 $ 604.5 $ 3,817.9 (1) Interest rates on our variable rate instruments are assuming rates at theSeptember 2020 levels.
Amount of Expiration Per Period
Total Amount Less Than 1 After
Other Commercial Commitments Committed Year 1 - 3 Years 3 - 5 Years 5 Years
(In millions)
Revolving Bank Facility(2) $ 750.0 $ - $ - $ 750.0 $ -
Standby Letters of Credit(3) $ 13.1 $ 13.0 $ 0.1 $ - $ -
(2)
as of
(3) The standby letters of credit are issued under the revolving credit facility
and reduce the availability of the facility by the same amount.
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 presentation of these financial statements requires us to make estimates and judgements 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 2019 Combined Form 10-K.
Accounting Standards Update
InJune 2016 , the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326) - Measurement of Credit Losses on Financial Instruments, and additional changes modifications, clarifications, or interpretations related to this guidance thereafter, which require a reporting entity to estimate credit losses on certain types of financial instruments, and present assets held at amortized cost and available-for-sale debt securities at the amount expected to be collected. The new guidance is effective for annual and interim periods beginning afterDecember 15, 2019 , and early adoption is permitted. The Company's adoption of this update did not have a material impact on our Consolidated Financial Statements. As ofSeptember 30, 2020 , our allowance for credit losses considered the current and future impacts caused by the COVID-19 pandemic, based on available information to date. The Company will continue to actively monitor the impact of COVID-19 on expected credit losses.
The following is a discussion of the consolidated financial condition and
results of operations of
RESULTS OF OPERATIONS
Nine Months ended
Net revenues decreased$150.7 million or 11.7% to$1.140 billion for the nine months endedSeptember 30, 2020 from$1.291 billion for the same period in 2019. This decrease was primarily attributable to a decrease in billboard and transit net revenues of$118.3 million and$31.8 million , respectively, over the same period in 2019, which related to the effects of the ongoing pandemic. 47 -------------------------------------------------------------------------------- For the nine months endedSeptember 30, 2020 , there was a$160.2 million decrease in net revenues as compared to acquisition-adjusted net revenue for the nine months endedSeptember 30, 2019 , which represents a decrease of 12.3%. See "Reconciliations" below. The$160.2 million decrease in revenue is primarily due to a$130.3 million and$31.2 million decrease in billboard and transit net revenues, respectively, which are due to the effects of the ongoing pandemic. The decrease in outdoor and transit revenues was slightly offset by an increase of$1.4 million in logo revenue. Total operating expenses, exclusive of depreciation and amortization and loss (gain) on disposition of assets, decreased$44.2 million , or 6.0% to$688.4 million for the nine months endedSeptember 30, 2020 from$732.5 million in the same period in 2019. The$44.2 million decrease over the prior year is comprised of a$37.2 million decrease in total direct, general and administrative and corporate expenses (excluding stock-based compensation) primarily related to the operations of our outdoor advertising assets, as well as a$7.0 million decrease in stock-based compensation. Depreciation and amortization expense increased$0.4 million to$187.5 million for the nine months endedSeptember 30, 2020 as compared to$187.2 million for the same period in 2019.
For the nine months ended
Due to the above factors, operating income decreased by
Lamar Media recognized a loss on debt extinguishment of$25.2 million during the nine months endedSeptember 30, 2020 , which relates to the early repayment of our 5 3/8% Senior Notes and 5% Senior Subordinated Notes and refinancing of our senior credit facility. Interest expense decreased$7.2 million for the nine months endedSeptember 30, 2020 to$107.1 million as compared to$114.2 million for the nine months endedSeptember 30, 2019 . The decrease is primarily relatedLamar Media's debt transactions completed in 2020, as well as a reduction in our senior credit facility interest rates. The decrease in operating income and increase in loss on extinguishment of debt, offset by the decrease in interest expense, resulted in a$125.4 million decrease in net income before income taxes. The effective tax rate for the nine months endedSeptember 30, 2020 was 1.8%, 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 endedSeptember 30, 2020 of$135.0 million , as compared to net income of$269.7 million for the same period in 2019.
Reconciliations:
Because acquisitions occurring afterDecember 31, 2018 (the "acquired assets") have contributed to our net revenue results for the periods presented, we provide 2019 acquisition-adjusted net revenue, which adjusts our 2019 net revenue for the nine months endedSeptember 30, 2019 by adding to or subtracting from it the net revenue generated by the acquired or divested assets prior to our acquisition or divestiture of these assets for the same time frame that those assets were owned in the nine months endedSeptember 30, 2020 . Reconciliations of 2019 reported net revenue to 2019 acquisition-adjusted net revenue for the nine months endedSeptember 30 , as well as a comparison of 2019 acquisition-adjusted net revenue to 2020 reported net revenue for the nine months endedSeptember 30 , are provided below: Reconciliation and Comparison of Reported Net Revenue to Acquisition-Adjusted Net Revenue Nine months ended September 30, 2020 2019 (in thousands) Reported net revenue$ 1,140,331 $ 1,290,985 Acquisition net revenue - 9,515 Adjusted totals$ 1,140,331 $ 1,300,500 48
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Key Performance Indicators
Net Income/Adjusted EBITDA
(in thousands)
Nine Months Ended Amount of Percent
September 30, Increase Increase
2020 2019 (Decrease) (Decrease)
Net income $ 135,046 $ 269,679 $ (134,633 ) (49.9 )%
Income tax expense (benefit) 2,520 (6,714 ) 9,234
Loss on debt extinguishment 25,235 - 25,235
Interest expense (income), net 106,441 113,687 (7,246 )
Gain on disposition of assets (4,823 ) (5,360 ) 537
Depreciation and amortization 187,548 187,150
398
Impact of ASC 842 adoption (lease accounting standard) - 3,029 (3,029 ) Capitalized contract fulfillment costs, net 1,036 (9,984 )
11,020
Stock-based compensation expense 11,046 18,078 (7,032 ) Adjusted EBITDA$ 464,049 $ 569,565 $ (105,516 ) (18.5 )% Adjusted EBITDA for the nine months endedSeptember 30, 2020 decreased 18.5% to$464.0 million . The decrease in adjusted EBITDA was primarily attributable to a decrease in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization, capitalized contract fulfillment costs, net and the impact of ASC 842 adoption) of$126.7 million , and was offset by a decrease in total general and administrative and corporate expenses of$21.1 million , excluding the impact of stock-based compensation expense. Net Income/FFO/AFFO (in thousands) Nine Months Ended Amount of Percent September 30, Increase Increase 2020 2019 (Decrease) (Decrease) Net income$ 135,046 $ 269,679 $ (134,633 ) (49.9 )% Depreciation and amortization related to real estate 178,884 175,920
2,964
Gain from sale or disposal of real estate, net of tax (4,422 ) (5,048 )
626
Non-cash tax benefit for REIT converted assets - (17,031 )
17,031
Adjustments for unconsolidated affiliates and non-controlling interest 456 561 (105 ) FFO$ 309,964 $ 424,081 $ (114,117 ) (26.9 )% Straight line expense (income) 2,615 (217 )
2,832
Impact of ASC 842 adoption (lease accounting standard) - 3,029 (3,029 ) Capitalized contract fulfillment costs, net 1,036 (9,984 )
11,020
Stock-based compensation expense 11,046 18,078 (7,032 ) Non-cash portion of tax provision (1,870 ) 2,572 (4,442 ) Non-real estate related depreciation and amortization 8,664 11,230 (2,566 ) Amortization of deferred financing costs 4,467 4,012
455
Loss on extinguishment of debt 25,235 -
25,235
Capital expenditures - maintenance (17,616 ) (35,888 )
18,272
Adjustments for unconsolidated affiliates and non-controlling interest (456 ) (561 ) 105 AFFO$ 343,085 $ 416,352 $ (73,267 ) (17.6 )% 49
-------------------------------------------------------------------------------- FFO for the nine months endedSeptember 30, 2020 decreased from$424.1 million in 2019 to$310.0 million for the same period in 2020, a decrease of 26.9%. AFFO for the nine months endedSeptember 30, 2020 decreased 17.6% to$343.1 million as compared to$416.4 million for the same period in 2019. The decrease in AFFO was primarily attributable to the decrease in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization, capitalized contract fulfillment costs, net and the impact of ASC 842 adoption) offset by decreases in the total of general and administrative and corporate expenses (excluding the effect of stock-based compensation expense).
Three Months ended
Net revenues decreased$71.7 million or 15.7% to$386.1 million for the three months endedSeptember 30, 2020 from$457.8 million for the same period in 2019. This decrease was primarily attributable to a decrease in billboard and transit net revenues of$55.7 million and$14.7 million , respectively, over the same period in 2019, which related to the effects of the ongoing pandemic. For the three months endedSeptember 30, 2020 , there was a$71.0 million decrease in net revenues as compared to acquisition-adjusted net revenue for the three months endedSeptember 30, 2019 , which represents a decrease of 15.5%. See "Reconciliations" below. The$71.0 million decrease in revenue is primarily due to a$57.0 million and$14.7 million decrease in billboard and transit net revenues, respectively, and is a result of the effects of the ongoing pandemic. Total operating expenses, exclusive of depreciation and amortization and loss (gain) on disposition of assets, decreased$32.3 million , or 12.8% to$220.2 million for the three months endedSeptember 30, 2020 from$252.5 million in the same period in 2019. The$32.3 million decrease over the prior year is comprised of a$26.6 million decrease in total direct, general and administrative and corporate expenses (excluding stock-based compensation) primarily related to the operations of our outdoor advertising assets, as well as a$5.7 million decrease in stock-based compensation. Depreciation and amortization expense decreased$2.7 million to$61.2 million for the three months endedSeptember 30, 2020 as compared to$64.0 million for the same period in 2019.
For the three months ended
Due to the above factors, operating income decreased by
Lamar Media recognized a loss on debt extinguishment of$7.1 million during the three months endedSeptember 30, 2020 , which relates to the early repayment of its 5% Senior Subordinated Notes. Interest expense decreased$3.3 million for the three months endedSeptember 30, 2020 to$35.1 million as compared to$38.3 million for the three months endedSeptember 30, 2019 . The decrease in operating income and increase in loss on extinguishment of debt, offset by the decrease in interest expense, resulted in a$39.3 million decrease in net income before income taxes. The effective tax rate for the three months endedSeptember 30, 2020 was 1.9%, which differs from the federal statutory rate primarily due to our qualification for taxation as a REIT and adjustments for foreign items.
As a result of the above factors,
Reconciliations:
Because acquisitions occurring afterDecember 31, 2018 (the "acquired assets") have contributed to our net revenue results for the periods presented, we provide 2019 acquisition-adjusted net revenue, which adjusts our 2019 net revenue for the three months endedSeptember 30, 2019 by adding to or subtracting from it the net revenue generated by the acquired or divested assets prior to our acquisition or divestiture of these assets for the same time frame that those assets were owned in the three months endedSeptember 30, 2020 . Reconciliations of 2019 reported net revenue to 2019 acquisition-adjusted net revenue for the three months endedSeptember 30 , as well as a comparison of 2019 acquisition-adjusted net revenue to 2020 reported net revenue for the three months endedSeptember 30 , are provided below: 50 -------------------------------------------------------------------------------- Reconciliation and Comparison of Reported Net Revenue to Acquisition-Adjusted Net Revenue Three months ended September 30, 2020 2019 (in thousands) Reported net revenue$ 386,110 $ 457,786 Acquisition net revenue - (694 ) Adjusted totals$ 386,110 $ 457,092 Key Performance Indicators Net Income/Adjusted EBITDA (in thousands) Three Months Ended Amount of Percent September 30, Increase Increase 2020 2019 (Decrease) (Decrease) Net income$ 62,895 $ 99,832 $ (36,937 ) (37.0 )% Income tax expense 1,224 3,578 (2,354 ) Loss on debt extinguishment 7,051 - 7,051 Interest expense (income), net 34,820 38,155 (3,335 ) Gain on disposition of assets (1,304 ) (199 ) (1,105 ) Depreciation and amortization 61,237 63,951 (2,714 ) Impact of ASC 842 adoption (lease accounting standard) - 1,099 (1,099 ) Capitalized contract fulfillment costs, net - (1,680 )
1,680
Stock-based compensation expense 4,884 10,572 (5,688 ) Adjusted EBITDA$ 170,807 $ 215,308 $ (44,501 ) (20.7 )% Adjusted EBITDA for the three months endedSeptember 30, 2020 decreased 20.7% to$170.8 million . The decrease in adjusted EBITDA was primarily attributable to a decrease in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization, capitalized contract fulfillment costs, net and the impact of ASC 842 adoption) of$58.4 million , and was offset by an decrease in total general and administrative and corporate expenses of$13.9 million , excluding the impact of stock-based compensation expense. 51 --------------------------------------------------------------------------------
Net Income/FFO/AFFO
(in thousands)
Three Months Ended Amount of Percent
September 30, Increase Increase
2020 2019 (Decrease) (Decrease)
Net income $ 62,895 $ 99,832 $ (36,937 ) (37.0 )%
Depreciation and amortization related to
real estate 58,431 59,742 (1,311 )
Gain from sale or disposal of real
estate, net of tax (1,324 ) (164 ) (1,160 )
Adjustments for unconsolidated
affiliates and
non-controlling interest 67 207 (140 )
FFO $ 120,069 $ 159,617 $ (39,548 ) (24.8 )%
Straight line expense (income) 882 (1 ) 883
Impact of ASC 842 adoption (lease accounting standard) - 1,099 (1,099 ) Capitalized contract fulfillment costs, net - (1,680 )
1,680
Stock-based compensation expense 4,884 10,572 (5,688 ) Non-cash portion of tax provision (557 ) 662 (1,219 ) Non-real estate related depreciation and amortization 2,806 4,209 (1,403 ) Amortization of deferred financing costs 1,589 1,342
247
Loss on extinguishment of debt 7,051 -
7,051
Capital expenditures - maintenance (3,124 ) (12,492 )
9,368
Adjustments for unconsolidated affiliates and non-controlling interest (67 ) (207 ) 140 AFFO$ 133,533 $ 163,121 $ (29,588 ) (18.1 )% FFO for the three months endedSeptember 30, 2020 decreased from$159.6 million in 2019 to$120.1 million for the same period in 2020, a decrease of 24.8%. AFFO for the three months endedSeptember 30, 2020 decreased 18.1% to$133.5 million as compared to$163.1 million for the same period in 2019. The decrease in AFFO was primarily attributable to the decrease in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization, capitalized contract fulfillment costs, net and the impact of ASC 842 adoption) offset by decreases in the total of general and administrative and corporate expenses (excluding the effect of stock-based compensation expense). 52
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