LAMAR ADVERTISING COMPANY This report contains forward-looking statements. These statements are subject to risks and uncertainties including those described in Item 1A under the heading "Risk Factors," and elsewhere in this Annual Report, that could cause actual results to differ materially from those projected in these forward-looking statements. The Company cautions investors not to place undue reliance on the forward-looking statements contained in this document. These statements speak only as of the date of this document, and 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 years endedDecember 31, 2020 , 2019 and 2018. This discussion should be read in conjunction with the consolidated financial statements of the Company and the related notes.
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 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 lateMarch 2020 , large public events were cancelled, and governments began imposing restrictions on non-essential activities, which in turn led 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 twelve months endedDecember 31, 2020 resulted in a 10.5% decrease in our consolidated net revenues as compared to the same period in 2019. As revenues declined, the Company responded with 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 December 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:
• maintaining substantial liquidity and strengthening our debt maturity
schedule by completing the following financing transactions
o issuing $400.0 million in 4 7/8% Senior Notes on May 13, 2020 , the
proceeds of which, along with cash on hand, were used topay-down all
then outstanding balances under our revolving credit facility;
o redeeming our
the third quarter of 2020, which we funded through a combination of
cash on hand, borrowings under our revolving credit facility and the
Accounts Receivable Securitization Program and through the issuance of
an additional $150.0 million in 4% Senior Notes due 2030 on
2020;
o issuing
2021, the proceeds of which, along with cash on hand andborrowings
under our revolving credit facility and Accounts Receivable
Securitization Program, were used to redeem our $650.0 million in
aggregate outstanding principal amount 5 3/4% Senior Notes due 2026 on
February 3, 2021 ;
27
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• reducing our consolidated operating costs (exclusive of depreciation and
amortization and gain on disposition of assets) by
for the twelve 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;
• 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 2021. This evaluation includes ensuring the Company remains in compliance with its REIT dividend requirements for the year. OnFebruary 25, 2021 , the Board of Directors approved a dividend of$0.75 per common share to be paid onMarch 31, 2021 . Subject to the approval of the Board of Directors, the Company expects aggregate dividends for 2021 to be$3.00 per common share, including the dividend payable onMarch 31, 2021 . As ofDecember 31, 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 year endedDecember 31, 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 the senior credit facility or the issuance of debt or equity securities. See "Liquidity and Capital Resources-Sources of Cash," for more information. During the year endedDecember 31, 2020 , the Company completed acquisitions for a total cash purchase price of approximately$45.6 million . See "Uses of Cash-Acquisitions," for more information. The Company's business requires expenditures for maintenance and capitalized costs associated with the construction of new billboard displays, the entrance into and renewal of logo sign and transit contracts, and the purchase of real estate and operating equipment. The following table presents a breakdown of capitalized expenditures for the past three years: 2020 2019 2018 (In thousands) Billboard - Traditional$ 11,131 $ 48,194 $ 37,905 Billboard - Digital 22,618 57,519 45,938 Logos 13,108 10,762 11,438 Transit 3,212 2,308 5,364 Land and buildings 6,303 13,453 8,420 PP&E 5,900 8,720 8,573
Total capital expenditures
We expect our 2021 capital expenditures to be approximately
28
--------------------------------------------------------------------------------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 the adoption of ASU NO. 2016-2, "Leases (Codified as ASC 842)." 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 tax expense (benefit); (vi) non-real estate related depreciation and amortization; (vii) amortization of deferred financing and debt issuance 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. 29 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
The following table presents certain items in the Consolidated Statements of Income as a percentage of net revenues for the years endedDecember 31, 2020 , 2019 and 2018: Year Ended December 31, 2020 2019 2018 Net revenues 100.0 % 100.0 % 100.0 % Operating expenses: Direct advertising expenses 35.5 % 33.6 % 34.5 %
General and administrative expenses 18.3 % 18.2 % 17.8 % Corporate expenses
4.5 % 4.8 % 5.1 %
Depreciation and amortization 16.0 % 14.3 % 13.8 %
Operating income 26.1 % 29.5 % 28.3 %
Loss on extinguishment of debt 1.6 % - 0.9 %
Interest expense 8.8 % 8.6 % 8.0 %
Income tax expense (benefit) 0.3 % (0.2 )% 0.7 %
Net income 15.5 % 21.2 % 18.8 %
Year ended
Net revenues decreased$184.8 million or 10.5% to$1.57 billion for the year endedDecember 31, 2020 from$1.75 billion for the same period in 2019. This decrease was attributable primarily to a decrease in billboard and transit net revenues of$134.3 million and$49.2 million , respectively, over the prior period, which is primarily related to the effects of the ongoing COVID-19 pandemic. Net revenues for the year endedDecember 31, 2020 , as compared to acquisition-adjusted net revenues for the comparable period in 2019, decreased$191.2 million , or 10.9%. The$191.2 million decrease in net revenues is primarily due to a$146.9 million and$46.9 million decrease in billboard and transit net revenues, respectively, which are due to the effects of the ongoing pandemic. The decrease in billboard and transit net revenues was slightly offset by an increase of$2.6 million in logo net revenues. See "Reconciliations" below. Total operating expenses, exclusive of depreciation and amortization and (gain) loss on disposition of assets, decreased$76.6 million , or 7.7% to$916.5 million for the year endedDecember 31, 2020 from$993.1 million in the same period in 2019. The$76.6 million decrease over the prior year is primarily comprised of a decrease in total direct, general and administrative and corporate expenses (excluding stock-based compensation) of$65.8 million primarily related to reductions in our billboard lease costs, transit and airport franchise costs, as well as reductions in our workforce. Depreciation and amortization expense increased$1.3 million to$251.3 million for the year endedDecember 31, 2020 as compared to$250.0 million for the same period in 2019. For the year endedDecember 31, 2020 , the Company recognized a gain on disposition of assets of$9.0 million as compared to a gain on disposition of assets of$7.2 million for the same period in 2019. The gain on disposition of assets for the year endedDecember 31, 2020 was primarily from gains on the sale of billboard assets of$4.5 million and a$3.2 million gain from the sale of the Company aircraft inDecember 2020 . Due primarily to the above factors, operating income decreased$107.6 million to$410.1 million for the year endedDecember 31, 2020 compared to$517.7 million for the same period in 2019. During the year endedDecember 31, 2020 , the Company recorded a$25.2 million loss on debt extinguishment related toLamar Media's early repayment of its 5 3/8% Senior Notes and 5% Senior Subordinated Notes and refinancing of the senior credit facility. The$25.2 million loss is comprised of a cash redemption premium and fees of$14.3 million and a non-cash write off of unamortized deferred financing costs of approximately$10.9 million . Interest expense decreased$13.0 million for the year endedDecember 31, 2020 to$137.6 million as compared to$150.6 million for the year endedDecember 31, 2019 . The decrease in interest expense is primarily related to the Company's debt transactions completed in 2020, as well as a reduction in our senior credit facility interest rates. 30
-------------------------------------------------------------------------------- The decrease in operating income and increase in loss on extinguishment of debt, offset by the decrease in interest expense over the comparable period in 2019, resulted in a$119.8 million decrease in net income before income taxes. The Company recorded income tax expense of$4.7 million for the year endedDecember 31, 2020 as compared to an income tax benefit of$4.2 million for the same period in 2019. The$4.7 million tax expense equates to an effective tax rate for the year endedDecember 31, 2020 of approximately 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 year endedDecember 31, 2020 of$243.4 million , as compared to net income of$372.1 million for the same period in 2019.
Reconciliations:
Because acquisitions occurring afterDecember 31, 2018 have contributed to our net revenue results for the periods presented, we provide 2019 acquisition-adjusted net revenue, which adjusts our 2019 net revenue for the year endedDecember 31, 2019 by adding to or subtracting from it the net revenue generated by the acquired or divested assets prior to our acquisition or divestiture of these assets for the same time frame that those assets were owned in the year endedDecember 31, 2020 . Reconciliations of 2019 reported net revenue to 2019 acquisition-adjusted net revenue for the year endedDecember 31, 2019 as well as a comparison of 2019 acquisition-adjusted net revenue to 2020 reported net revenue for the year endedDecember 31, 2020 , are provided below: Reconciliation and Comparison of Reported Net Revenue to Acquisition-Adjusted Net Revenue Year ended December 31, 2020 2019 (in thousands) Reported net revenue$ 1,568,856 $ 1,753,644 Acquisition net revenue - 6,438 Adjusted totals$ 1,568,856 $ 1,760,082
Key Performance Indicators
Net Income/Adjusted EBITDA
(in thousands)
Amount of Percent
Year Ended December 31, Increase Increase
2020 2019 (Decrease) (Decrease)
Net income $ 243,386 $ 372,111 $ (128,725 ) (34.6 )%
Income tax expense (benefit) 4,660 (4,222 ) 8,882
Loss on extinguishment of debt 25,235 - 25,235
Interest expense (income), net 136,826 149,852 (13,026 ) Gain on disposition of assets (9,026 ) (7,241 ) (1,785 ) Depreciation and amortization 251,296 250,028
1,268
Impact of ASC 842 adoption - 3,894 (3,894 ) Capitalized contract fulfillment costs, net 387 (9,186 ) 9,573 Stock-based compensation expense 18,772 29,647 (10,875 ) Adjusted EBITDA$ 671,536 $ 784,883 $ (113,347 ) (14.4 )% Adjusted EBITDA for the year endedDecember 31, 2020 decreased 14.4% to$671.5 million . The decrease in adjusted EBITDA 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) of$146.5 million , and was partially offset by a decrease in general and administrative and corporate expenses of$33.2 million , excluding the impact of stock-based compensation expense. 31 -------------------------------------------------------------------------------- Net Income/FFO/AFFO (in thousands) Amount of Percent Year Ended December 31, Increase Increase 2020 2019 (Decrease) (Decrease) Net income$ 243,386 $ 372,111 $ (128,725 ) (34.6 )% Depreciation and amortization related to real estate 238,932 235,802
3,130
Gain from disposition of real estate assets and investments (5,790 ) (6,775 )
985
Non-cash tax benefit for REIT converted assets - (17,031 )
17,031
Adjustments for unconsolidated affiliates and non-controlling interest 629 771 (142 ) FFO$ 477,157 $ 584,878 $ (107,721 ) (18.4 )% Straight-line expense (income) 3,597 (361 )
3,958
Impact of ASC 842 adoption - 3,894 (3,894 ) Capitalized contract fulfillment costs, net 387 (9,186 )
9,573
Stock-based compensation expense 18,772 29,647 (10,875 ) Non-cash portion of tax provision (797 ) 2,901 (3,698 ) Gain from one-time sale of non-real estate assets (3,197 ) - (3,197 ) Non-real estate related depreciation and amortization 12,364 14,226 (1,862 ) Amortization of deferred financing costs 5,909 5,365
544
Loss on extinguishment of debt 25,235 -
25,235
Capital expenditures - maintenance (24,028 ) (49,155 )
25,127
Adjustments for unconsolidated affiliates and non-controlling interest (629 ) (771 ) 142 AFFO$ 514,770 $ 581,438 $ (66,668 ) (11.5 )% FFO for the year endedDecember 31, 2020 was$477.2 million as compared to FFO of$584.9 million for the same period in 2019. AFFO for the year endedDecember 31, 2020 decreased 11.5% to$514.8 million as compared to$581.4 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 general and administrative and corporate expenses (excluding the effect of stock based compensation expense).
Year ended
Net revenues increased$126.4 million or 7.8% to$1.75 billion for the year endedDecember 31, 2019 from$1.63 billion for the same period in 2018. This increase was attributable primarily to an increase in billboard net revenues of$124.6 million or 8.8% over the prior period, which is primarily related to the integration of outdoor assets acquired during 2018 and 2019, and the addition of approximately 330 digital displays during the year endedDecember 31, 2019 . In addition, transit revenue increased$2.1 million , which represents an increase of 1.6% over the prior period. Net revenues for the year endedDecember 31, 2019 , as compared to acquisition-adjusted net revenues for the comparable period in 2018, increased$45.7 million , or 2.7%. The$45.7 million increase in revenue primarily consisted of a$41.7 million increase in billboard revenue primarily due to increases in digital revenue and a$4.1 million increase in transit revenue over the acquisition-adjusted net revenue for the comparable period in 2018. See "Reconciliations" below. Total operating expenses, exclusive of depreciation and amortization and (gain) loss on disposition of assets, increased$58.9 million , or 6.3% to$993.1 million for the year endedDecember 31, 2019 from$934.2 million in the same period in 2018. The$58.9 million increase over the prior year is primarily comprised of an increase in total direct, general and administrative and corporate expenses (excluding stock-based compensation) of$58.7 million primarily related to the operations of our outdoor advertising assets. Depreciation and amortization expense increased$24.8 million to$250.0 million for the year endedDecember 31, 2019 as compared to$225.3 million for the same period in 2018, primarily related to the addition of approximately$516.2 million of depreciable assets acquired through acquisitions and$258.6 million in capitalized expenditures during fiscal years 2018 and 2019. 32 -------------------------------------------------------------------------------- For the year endedDecember 31, 2019 , the Company recognized a gain on disposition of assets of$7.2 million primarily resulting from an amendment of a transit contract in the first quarter of 2019. The gain in 2019 represents an increase of$14.5 million over the same period in 2018, largely due to the gain in 2019 coupled with the Company's loss recognized in 2018 on the sale of itsPuerto Rico assets inApril 2018 of$7.8 million . Due primarily to the above factors, operating income increased$57.2 million to$517.7 million for the year endedDecember 31, 2019 compared to$460.6 million for the same period in 2018. During the year endedDecember 31, 2018 , the Company recorded a$15.4 million loss on debt extinguishment related toLamar Media's prepayment of its 5 7/8% Senior Subordinated Notes due 2022. The$15.4 million loss is comprised of a cash redemption premium of$9.8 million and a non-cash write off of unamortized deferred financing costs of approximately$5.6 million . See "Uses of Cash" for more information. There were no transactions resulting in a loss on debt extinguishment in fiscal year 2019. Interest expense increased$20.9 million for the year endedDecember 31, 2019 to$150.6 million as compared to$129.7 million for the year endedDecember 31, 2018 . The increase in interest expense is primarily related to the increased debt outstanding as compared to the same period in 2018. The increase in operating income and decrease in loss on extinguishment of debt, offset by the increase in interest expense over the comparable period in 2018, resulted in a$52.0 million increase in net income before income taxes. The Company recorded an income tax benefit of$4.2 million for the year endedDecember 31, 2019 as compared to income tax expense of$10.7 million for the same period in 2018. The$4.2 million income tax benefit is comprised of a$17.0 million non-cash tax benefit resulting from REIT converted assets offset by income tax expense of$12.8 million . The$12.8 million tax expense equates to an effective tax rate for the year endedDecember 31, 2019 of approximately 3.5%, 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 year endedDecember 31, 2019 of$372.1 million , as compared to net income of$305.2 million for the same period in 2018.
Reconciliations:
Because acquisitions occurring afterDecember 31, 2017 have contributed to our net revenue results for the periods presented, we provide 2018 acquisition-adjusted net revenue, which adjusts our 2018 net revenue for the year endedDecember 31, 2018 by adding to or subtracting from it the net revenue generated by the acquired or divested assets prior to our acquisition or divestiture of these assets for the same time frame that those assets were owned in the year endedDecember 31, 2019 . Reconciliations of 2018 reported net revenue to 2018 acquisition-adjusted net revenue for the year endedDecember 31, 2018 as well as a comparison of 2018 acquisition-adjusted net revenue to 2019 reported net revenue for the year endedDecember 31, 2019 , are provided below: Reconciliation and Comparison of Reported Net Revenue to Acquisition-Adjusted Net Revenue Year ended December 31, 2019 2018 (in thousands) Reported net revenue$ 1,753,644 $ 1,627,222 Acquisition net revenue - 80,745 Adjusted totals$ 1,753,644 $ 1,707,967 33
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Key Performance Indicators
Net Income/Adjusted EBITDA
(in thousands)
Amount of Percent
Year Ended December 31, Increase Increase
2019 2018 (Decrease) (Decrease)
Net income $ 372,111 $ 305,232 $ 66,879 21.9 %
Income tax (benefit) expense (4,222 ) 10,697 (14,919 )
Loss on extinguishment of debt - 15,429 (15,429 )
Interest expense (income), net 149,852 129,198 20,654
(Gain) loss on disposition of assets (7,241 ) 7,233 (14,474 ) Depreciation and amortization 250,028 225,261
24,767
Impact of ASC 842 adoption 3,894 - 3,894 Capitalized contract fulfillment costs, net (9,186 ) - (9,186 ) Stock-based compensation expense 29,647 29,443 204 Adjusted EBITDA$ 784,883 $ 722,493 $ 62,390 8.6 % Adjusted EBITDA for the year endedDecember 31, 2019 increased 8.6% to$784.9 million . The increase in adjusted EBITDA was primarily attributable to the increase 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$92.7 million , and was partially offset by an increase in general and administrative and corporate expenses of$30.3 million , excluding the impact of stock-based compensation expense and the impact of ASC 842 adoption. Net Income/FFO/AFFO (in thousands) Amount of Percent Year Ended December 31, Increase Increase 2019 2018 (Decrease) (Decrease) Net income$ 372,111 $ 305,232 $ 66,879 21.9 % Depreciation and amortization related to real estate 235,802 212,457
23,345
(Gain) loss from disposition of real estate assets and investments (6,775 ) 8,689 (15,464 ) Non-cash tax benefit for REIT converted assets (17,031 ) - (17,031 ) Adjustments for unconsolidated affiliates and non-controlling interest 771 648 123 FFO$ 584,878 $ 527,026 $ 57,852 11.0 % Straight-line income (361 ) (2,036 ) 1,675 Impact of ASC 842 adoption 3,894 -
3,894
Capitalized contract fulfillment costs, net (9,186 ) - (9,186 ) Stock-based compensation expense 29,647 29,443
204
Non-cash portion of tax provision 2,901 660
2,241
Non-real estate related depreciation and amortization 14,226 12,804
1,422
Amortization of deferred financing costs 5,365 4,920
445
Loss on extinguishment of debt - 15,429 (15,429 ) Capital expenditures - maintenance (49,155 ) (43,108 ) (6,047 ) Adjustments for unconsolidated affiliates and non-controlling interest (771 ) (648 ) (123 ) AFFO$ 581,438 $ 544,490 $ 36,948 6.8 % FFO for the year endedDecember 31, 2019 was$584.9 million as compared to FFO of$527.0 million for the same period in 2018. AFFO for the year endedDecember 31, 2019 increased 6.8% to$581.4 million as compared to$544.5 million for the same period in 2018. AFFO growth was primarily attributable to the increase 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), 34 --------------------------------------------------------------------------------
offset by increases in general and administrative and corporate expenses (excluding the effect of stock based compensation expense and the impact of ASC 842 adoption).
LIQUIDITY AND CAPITAL RESOURCES
Overview
The Company has historically satisfied its working capital requirements with cash from operations and borrowings under its senior credit facility. The Company's wholly owned subsidiary,Lamar Media Corp. , is the principal 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 atDecember 31, 2020 . As ofDecember 31, 2020 we had approximately$910.1 million of total liquidity, which is comprised of approximately$121.6 million in cash and cash equivalents, approximately$736.0 million of availability under the revolving credit facility and$52.5 million of availability under our Accounts Receivable Securitization Program. We expect the liquidity measures taken in 2020 (as discussed above) and the remaining availability under the revolving 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 credit facility. As ofDecember 31, 2020 and 2019, the Company had a working capital deficit of$167.3 million and$362.6 million , respectively. The working capital deficit for the year endedDecember 31, 2020 is primarily related to$195.4 million in current operating lease liabilities which has a corresponding right of use asset recorded in long term assets. We expect to have enough cash on hand and availability under our revolving credit facility to meet our operating needs for the next twelve months. Cash Generated by Operations. For the years endedDecember 31, 2020 , 2019 and 2018 our cash provided by operating activities was$569.9 million ,$630.9 million and$564.8 million , respectively. The decrease in cash provided by operating activities for the year endedDecember 31, 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 2021 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. See - "Cash Flows" for more information. 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 TRSs 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 Accounts 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 35 --------------------------------------------------------------------------------
available to pay creditors of
OnJune 30, 2020 Lamar Media and the Special Purpose Subsidiaries entered into the Third Amendment (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 Third Amendment established 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 had the right to borrow less than the ?Minimum Funding Threshold during certain periods prior toDecember 21, 2020 , at their election. OnOctober 23, 2020 ,Lamar Media and the Special Purpose Subsidiaries entered into the Fourth Amendment (the "Fourth ?Amendment") to the Accounts Receivable Securitization Program. The Fourth Amendment increased 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 increased the maximum three month average Dilution Ratio to 5.00% for the remaining term ?of the Accounts Receivable Securitization Program. Additionally, the Fourth Amendment increased 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 had the right to borrow less than the Minimum Funding Threshold during ?certain periods prior toDecember 21, 2020 , at their election.
As of
The Accounts Receivable Securitization Program will mature onDecember 17, 2021 .Lamar Media may amend the facility to extend the maturity date, enter into a new securitization facility with a different maturity date, or refinance the indebtedness outstanding under the Accounts Receivable Securitization Program using borrowings under its senior credit facility or from other financing sources. "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, par value$.001 per share (the "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 year endedDecember 31, 2019 , the Company received gross proceeds of approximately$21.4 million , resulting in net proceeds of approximately$21.2 million , in exchange for ?issuing 266,410 shares of its Class A common stock under this program. During the year endedDecember 31, 2019 , the aggregate ?commissions paid to the sales agent was approximately$0.2 million . ? The Company did not offer any shares of its Class A common stock under this program during the year endedDecember 31, 2020 . 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. OnAugust 23, 2018 , we filed a prospectus supplement to the shelf registration statement relating to the offer and resale of 163,137 shares of Class A common stock previously issued in connection with an acquisition. During the years endedDecember 31, 2020 and 2019, 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 36 -------------------------------------------------------------------------------- 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 ofDecember 31, 2020 , the aggregate balance outstanding under the senior credit facility was$600.0 million , consisting of$600.0 million in Term B loans aggregate principal balance and no balances outstanding under our revolving credit facility.Lamar Media had approximately$736.0 million of unused capacity under the revolving credit facility. For the year endedDecember 31, 2020 , the Company recorded a loss on debt extinguishment of approximately$5.6 million related to the refinancing of the 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 for these transactions, 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. 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 "Additional 4% 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 Additional 4% 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. OnJanuary 22, 2021 ,Lamar Media issued, through an institutional private placement,$550.0 million in aggregate principal amount of 3 5/8% Senior Notes due 2031 (the "3 5/8% Senior Notes"). The issuance of the 3 5/8% Senior Notes resulted in net proceeds toLamar Media of approximately$542.5 million .Lamar Media used the proceeds of this offering, together with cash on hand and borrowings under the revolving credit facility and Accounts Receivable Securitization Program, to redeem all of its outstanding$650.0 million aggregate principal amount 5 3/4% Senior Notes due 2026. See Uses of Cash-Note Redemption for more information. 37 --------------------------------------------------------------------------------
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 year endedDecember 31, 2020 , and while we are uncertain of the timing and pace of an economic rebound, we experienced an increase in customer spending in the six months endedDecember 31, 2020 compared to the six months endedJune 30, 2020 , which we expect to continue into 2021 as more of the population becomes vaccinated and government imposed restrictions are eased.
Restrictions underDebt Securities . The Company andLamar Media must comply with certain covenants and restrictions related to its outstanding debt securities. As ofDecember 31, 2020 ,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 issued inFebruary 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 5 3/4% 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
indentures governing the 5 3/4% 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 orLamar 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. AtDecember 31, 2020 , and currently, we were in compliance with all such tests under the senior credit facility.Lamar Media must maintain a secured debt ratio, defined as total consolidated secured debt ofLamar Advertising ,Lamar Media and its restricted subsidiaries, minus the lesser of (x)$150.0 million and (y) the aggregate amount of unrestricted cash and cash equivalents ofLamar 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 38 -------------------------------------------------------------------------------- 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, of 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 for purposes of calculating EBITDA under the Fourth Amended and Restated Credit Agreement, (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 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.
Uses of Cash
Capital Expenditures. Capital expenditures excluding acquisitions were
approximately
Acquisitions. During the year endedDecember 31, 2020 , the Company completed 14 acquisitions for a total cash purchase price of approximately$45.6 million . The acquisitions occurring during the year endedDecember 31, 2020 were financed using available cash on hand and borrowings under the revolving credit facility. 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 39 --------------------------------------------------------------------------------
unpaid interest up to the redemption date. The Company recorded a loss on debt
extinguishment of approximately
During the quarter endedSeptember 30, 2020 , the Company redeemed in full all$535.0 million in aggregate principal amount ofLamar Media's 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 the revolving credit facility and Accounts Receivable Securitization Program along with proceeds received from the Additional 4% 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. OnFebruary 3, 2021 , the Company redeemed in full all$650.0 million aggregate principal amount 5 3/4% Senior Notes due 2026. The 5 3/4% Senior Notes redemption was completed using the proceeds received from the 3 5/8% Senior Notes offering completed onJanuary 22, 2021 , together with cash on hand and borrowings under the revolving credit facility and Accounts Receivable Securitization Program. See Sources of Cash-Note Offering for more information. Dividends. During the year endedDecember 31, 2020 , the Company declared and paid distributions of$251.9 million , or$2.50 per share, of common stock. During the year endedDecember 31, 2019 , the Company declared and paid distributions of$384.8 million or$3.84 per share of common stock. During the year endedDecember 31, 2018 , the Company declared distributions of$361.1 million or$3.65 per share of common stock. OnFebruary 25, 2021 , the Company's Board of Directors approved a dividend of$0.75 per common share to be paid onMarch 31, 2021 . Subject to the approval of the Company's Board of Directors, the Company expects aggregate quarterly distributions to stockholders in 2021 will be$3.00 per common share, including the dividend payable onMarch 31, 2021 . 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 TRSs 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 the senior credit facility. The repurchase program will expire onSeptember 30, 2021 unless extended by the Board of Directors. There were no repurchases under the program as ofDecember 31, 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. Debt Service and Contractual Obligations. As ofDecember 31, 2020 , we had outstanding debt of approximately$2.89 billion . In the future,Lamar Media has principal reduction obligations and revolver commitment reductions under the senior credit facility. In addition, it has fixed commercial commitments. These commitments are detailed on a contractual basis as follows: Payments Due by Period Less Than After Contractual Obligations Total 1 Year 1 - 3 Years 3 - 5 Years 5 Years (In millions) Long-term debt$ 2,886.5 $ 122.5 $ 0.7 $ 0.8$ 2,762.5 Interest obligations on long-term debt(1) 770.0 113.2 222.6 222.5 211.7 Billboard site, transit, and other operating and financing leases 1,731.6 260.8 394.1 300.6 776.1 Total payments due$ 5,388.1 $ 496.5 $ 617.4 $ 523.9 $ 3,750.3
(1) Interest rates on our variable rate instruments are assuming rates at the
December 2020 levels. 40
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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)
(2)
at
(3) The standby letters of credit are issued under
facility and reduce the availability of the facility by the same amount.
Cash Flows The Company's cash flows provided by operating activities decreased by$61.0 million for the year endedDecember 31, 2020 , primarily resulting from a decrease in revenues of approximately$184.8 million and offset by a decrease in operating expenses (excluding stock-based compensation and depreciation and amortization) of approximately$65.8 million , as compared to the comparable period in 2019. Cash flows used in investing activities decreased$265.1 million from$362.0 million in 2019 to$96.9 million in 2020 primarily due to a net decrease in the amount of assets acquired through acquisitions and capital expenditures of$259.4 million , as compared to the same period in 2019. The Company's cash flows used in financing activities were$377.9 million for the year endedDecember 31, 2020 as compared to$264.4 million in 2019. This increase in cash used in financing activities of$113.6 million for the year endedDecember 31, 2020 is primarily due to financing transactions during the year and offset by a decrease in cash paid for dividends and distributions over the comparable period in 2019.
CRITICAL ACCOUNTING ESTIMATES
Our discussion and analysis of our results of operations and liquidity and
capital resources are based on our consolidated financial statements, which have
been prepared in accordance with GAAP. The preparation of these financial
statements requires us to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses. On an ongoing basis, we
evaluate our estimates and judgments, including those related to intangible
assets, goodwill impairment and asset retirement obligations. We base our
estimates on historical and anticipated results and trends and on various other
assumptions that we believe are reasonable under the circumstances, including
assumptions as to future events and, where applicable, established valuation
techniques. These estimates form the basis for making judgments about carrying
values of assets and liabilities that are not readily apparent from other
sources. By their nature, estimates are subject to an inherent degree of
uncertainty. Actual results may differ from our estimates. We believe that the
following significant accounting policies and assumptions may involve a higher
degree of judgment and complexity than others.
Goodwill Impairment. The Company has a significant amount of goodwill on its
consolidated balance sheet and must perform an impairment test of goodwill
annually or on a more frequent basis if events and circumstances indicate that
the asset might be impaired. We have identified two reporting units (Logo
operations and Billboard operations) in accordance with Accounting Standards
Codification ("ASC") 350 and no changes have been made to our reporting units
from the prior period.
In our annual or interim measurement for impairment of goodwill, the Company
conducts a qualitative assessment by examining relevant events and circumstances
that could have a negative impact on the Company's goodwill, which include
macroeconomic conditions, industry and market conditions, cost factors, overall
financial performance, reporting unit dispositions and acquisitions, the market
capitalization of the Company and other relevant events specific to the Company.
If, after assessing the totality of events or circumstances described above, the
Company determines that it is more likely than not that the fair value of either
of the Company's reporting units is less than its carrying amount, the Company
will perform a quantitative impairment test. If impairment is indicated as a
result of the quantitative impairment test, a goodwill impairment charge would
be recorded to write the goodwill down to its implied fair value. Based on the
goodwill impairment analysis performed on December 31, 2020 , we determined that
the fair value of each reporting unit exceeded the carrying value and no
impairment charge was recorded.
Asset Retirement Obligations. The Company had an asset retirement obligation of
$222.9 million as of December 31, 2020 . This liability relates to the Company's
obligation upon the termination or non-renewal of a lease to dismantle and
remove its billboard structures from the leased land and to reclaim the site to
its original condition. The Company records the present value of obligations
41
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associated with the retirement of tangible long-lived assets in the period in
which they are incurred. The liability is capitalized as part of the related
long-lived asset's carrying amount. Over time, accretion of the liability is
recognized as an operating expense and the capitalized cost is depreciated over
the expected useful life of the related asset. In calculating the liability, the
Company calculates the present value of the estimated cost to dismantle using an
average cost to dismantle, adjusted for inflation and market risk.
This calculation includes 100% of the Company's billboard structures on leased
land (which currently consist of approximately 75,800 structures). The Company
uses a 15-year retirement period based on historical operating experience in its
core markets, including the actual time that billboard structures have been
located on leased land in such markets and the actual length of the leases in
the core markets, which includes the initial term of the lease, plus
consideration of any renewal period. Historical third-party cost information is
used to estimate the cost of dismantling of the structures and the reclamation
of the site. The interest rate used to calculate the present value of such costs
over the retirement period is based on the Company's historical credit-adjusted
risk free rate.
Acquisitions. The Company accounts for transactions that meet the definition of
a business and group asset purchases as acquisitions. For transactions that meet
the definition of a business combination, the Company allocates the purchase
price, including any contingent consideration, to the assets acquired and the
liabilities assumed at their estimated fair values as of the date of the
acquisition with any excess of the purchase price paid over the estimated fair
value of net assets acquired recorded as goodwill. For transactions that meet
the definition of a business, the determination of the final purchase price and
the acquisition-date fair value of identifiable assets acquired and liabilities
assumed may extend over more than one period and result in adjustments to the
preliminary estimate recognized in the prior period financial statements. For
transactions that meet the definition of asset group purchases, the Company
allocates the purchase price to the assets acquired and the liabilities assumed
at their estimated relative fair values as of the date of the acquisition. If a
transaction is determined to be a group of assets, any direct acquisition costs
are capitalized. Transaction costs for transactions determined to be a business
combination are expensed as incurred.
The fair value of the assets acquired and liabilities assumed is typically
determined by using either estimates of replacement costs or discounted cash
flow valuation methods. When determining the fair value of tangible assets
acquired, the Company must estimate the cost to replace the asset with a new
asset, adjusted for an estimated reduction in fair value due to age of the
asset, and the economic useful life. When determining the fair value of
intangible assets acquired, the Company must estimate the applicable discount
rate and the timing and amount of future cash flows.
Lease Liabilities and Right of Use Assets: On January 1, 2019 , the Company
adopted ASU No. 2016-02, "Leases (Codified as ASC 842)," which resulted in
recording operating lease liabilities and right of use assets on our
consolidated balance sheet. Our operating lease liabilities (including
short-term liabilities) and right of use asset balances were $1.18 billion and
$1.22 billion as of December 31, 2020 , respectively. The balance is recorded
based on the present value of the remaining minimum rental payments under the
leasing standard for our existing operating leases. The key estimates for our
leases include (1) the discount rate used to discount the unpaid lease payments
to present value and (2) lease term. Our leases generally do not include a
readily determinable implicit rate, therefore, using a portfolio approach, we
determine our collateralized incremental borrowing rate to discount the lease
payments based on the information available at lease commencement. Our lease
terms include the noncancellable period of the lease plus any additional periods
covered by either a Company option to extend (or not to terminate) the lease
that the Company is reasonable certain to exercise, or an option to extend the
lease controlled by the lessor. The Company has determined we are not reasonably
certain to exercise renewals or termination options, and as a result we use the
lease's initial stated term as the lease term for our lease population.
ACCOUNTING STANDARDS AND REGULATORY 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 . The Company adopted this guidance onJanuary 1, 2020 and the impact of the adoption was not material to the Company's consolidated financial statements. As ofDecember 31, 2020 , the Company's 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. 42
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LAMAR MEDIA CORP. The following is a discussion of the consolidated financial condition and results of operations ofLamar Media for the years endedDecember 31, 2020 , 2019 and 2018. This discussion should be read in conjunction with the consolidated financial statements ofLamar Media and the related notes.
RESULTS OF OPERATIONS
The following table presents certain items in the Consolidated Statements of Income as a percentage of net revenues for the years endedDecember 31, 2020 , 2019 and 2018: Year Ended December 31, 2020 2019 2018 Net revenues 100.0 % 100.0 % 100.0 % Operating expenses: Direct advertising expenses 35.5 % 33.6 % 34.5 %
General and administrative expenses 18.3 % 18.2 % 17.8 % Corporate expenses
4.5 % 4.8 % 5.1 %
Depreciation and amortization 16.0 % 14.3 % 13.8 %
Operating income 26.2 % 29.5 % 28.3 %
Loss on extinguishment of debt 1.6 % - 0.9 %
Interest expense 8.8 % 8.6 % 8.0 %
Income tax expense (benefit) 0.3 % (0.2 )% 0.7 %
Net income 15.5 % 21.2 % 18.8 %
Year ended
Net revenues decreased$184.8 million or 10.5% to$1.57 billion for the year endedDecember 31, 2020 from$1.75 billion for the same period in 2019. This decrease was attributable primarily to a decrease in billboard and transit net revenues of$134.3 million and$49.2 million , respectively, over the prior period, which is primarily related to the effects of the ongoing COVID-19 pandemic. Net revenues for the year endedDecember 31, 2020 , as compared to acquisition-adjusted net revenues for the comparable period in 2019, decreased$191.2 million , or 10.9%. The$191.2 million decrease in net revenues is primarily due to a$146.9 million and$46.9 million decrease in billboard and transit net revenues, respectively, which are due to the effects of the ongoing pandemic. The decrease in billboard and transit net revenues was slightly offset by an increase of$2.6 million in logo net revenues. See "Reconciliations" below. Total operating expenses, exclusive of depreciation and amortization and (gain) loss on disposition of assets, decreased$76.7 million , or 7.7% to$916.0 million for the year endedDecember 31, 2020 from$992.7 million in the same period in 2019. The$76.7 million decrease over the prior year is primarily comprised of a decrease in total direct, general and administrative and corporate expenses (excluding stock-based compensation) of$65.8 million primarily related to reductions in our billboard lease costs, transit and airport franchise costs, as well as reductions in our workforce. Depreciation and amortization expense increased$1.3 million to$251.3 million for the year endedDecember 31, 2020 as compared to$250.0 million for the same period in 2019. For the year endedDecember 31, 2020 ,Lamar Media recognized a gain on disposition of assets of$9.0 million as compared to a gain on disposition of assets of$7.2 million for the same period in 2019. The gain on disposition of assets for the year endedDecember 31, 2020 was primarily from gains on the sale of billboard assets of$4.5 million and a$3.2 million gain from the sale of the Company aircraft inDecember 2020 . Due primarily to the above factors, operating income decreased$107.6 million to$410.6 million for the year endedDecember 31, 2020 compared to$518.2 million for the same period in 2019. During the year endedDecember 31, 2020 ,Lamar Media recorded a$25.2 million loss on debt extinguishment related toLamar Media's early repayment of its 5 3/8% Senior Notes and 5% Senior Subordinated Notes and refinancing of the senior credit facility. The$25.2 million loss is comprised of a cash redemption premium and fees of$14.3 million and a non-cash write off of unamortized deferred financing costs of approximately$10.9 million . See "Uses of Cash" for more information. 43
-------------------------------------------------------------------------------- Interest expense decreased$13.0 million for the year endedDecember 31, 2020 to$137.6 million as compared to$150.6 million for the year endedDecember 31, 2019 . The decrease in interest expense 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 over the comparable period in 2019, resulted in a$119.8 million decrease in net income before income taxes.Lamar Media recorded income tax expense of$4.7 million for the year endedDecember 31, 2020 as compared to an income tax benefit of$4.2 million for the same period in 2019. The$4.7 million tax expense equates to an effective tax rate for the year endedDecember 31, 2020 of approximately 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,Lamar Media recognized net income for the year endedDecember 31, 2020 of$243.9 million , as compared to net income of$372.5 million for the same period in 2019.
Reconciliations:
Because acquisitions occurring afterDecember 31, 2018 have contributed to our net revenue results for the periods presented, we provide 2019 acquisition-adjusted net revenue, which adjusts our 2019 net revenue for the year endedDecember 31, 2019 by adding to or subtracting from it the net revenue generated by the acquired or divested assets prior to our acquisition or divestiture of these assets for the same time frame that those assets were owned in the year endedDecember 31, 2020 . Reconciliations of 2019 reported net revenue to 2019 acquisition-adjusted net revenue for the year endedDecember 31, 2019 as well as a comparison of 2019 acquisition-adjusted net revenue to 2020 reported net revenue for the year endedDecember 31, 2020 , are provided below: Reconciliation and Comparison of Reported Net Revenue to Acquisition-Adjusted Net Revenue Year ended December 31, 2020 2019 (in thousands) Reported net revenue$ 1,568,856 $ 1,753,644 Acquisition net revenue - 6,438 Adjusted totals$ 1,568,856 $ 1,760,082
Key Performance Indicators
Net Income/Adjusted EBITDA
(in thousands)
Amount of Percent
Year Ended December 31, Increase Increase
2020 2019 (Decrease) (Decrease)
Net income $ 243,873 $ 372,540 $ (128,667 ) (34.5 )%
Income tax expense (benefit) 4,660 (4,222 ) 8,882
Loss on extinguishment of debt 25,235 - 25,235
Interest expense, net 136,826 149,852 (13,026 ) Gain on disposition of assets (9,026 ) (7,241 ) (1,785 ) Depreciation and amortization 251,296 250,028
1,268
Impact of ASC 842 adoption - 3,894 (3,894 ) Capitalized contract fulfillment costs, net 387 (9,186 ) 9,573 Stock-based compensation expense 18,772 29,647 (10,875 ) Adjusted EBITDA$ 672,023 $ 785,312 $ (113,289 ) (14.4 )% Adjusted EBITDA for the year endedDecember 31, 2020 decreased 14.4% to$672.0 million . The decrease in adjusted EBITDA 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) of$146.5 million , and 44 -------------------------------------------------------------------------------- was partially offset by a decrease in general and administrative and corporate expenses of$33.2 million , excluding the impact of stock-based compensation expense. Net Income/FFO/AFFO (in thousands) Amount of Percent Year Ended December 31, Increase Increase 2020 2019 (Decrease) (Decrease) Net income$ 243,873 $ 372,540 $ (128,667 ) (34.5 )% Depreciation and amortization related to real estate 238,932 235,802
3,130
Gain from disposition of real estate assets and investments (5,790 ) (6,775 )
985
Non-cash tax benefit for REIT converted assets - (17,031 )
17,031
Adjustments for unconsolidated affiliates and non-controlling interest 629 771 (142 ) FFO$ 477,644 $ 585,307 $ (107,663 ) (18.4 )% Straight-line expense (income) 3,597 (361 )
3,958
Impact of ASC 842 adoption - 3,894 (3,894 ) Capitalized contract fulfillment costs, net 387 (9,186 )
9,573
Stock-based compensation expense 18,772 29,647 (10,875 ) Non-cash portion of tax provision (797 ) 2,901 (3,698 ) Gain from one-time sale of non-real estate assets (3,197 ) - (3,197 ) Non-real estate related depreciation and amortization 12,364 14,226 (1,862 ) Amortization of deferred financing costs 5,909 5,365
544
Loss on extinguishment of debt 25,235 -
25,235
Capital expenditures - maintenance (24,028 ) (49,155 )
25,127
Adjustments for unconsolidated affiliates and non-controlling interest (629 ) (771 ) 142 AFFO$ 515,257 $ 581,867 $ (66,610 ) (11.4 )% FFO for the year endedDecember 31, 2020 was$477.6 million as compared to FFO of$585.3 million for the same period in 2019. AFFO for the year endedDecember 31, 2020 decreased 11.4% to$515.3 million as compared to$581.9 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 general and administrative and corporate expenses (excluding the effect of stock based compensation expense).
Year ended
Net revenues increased$126.4 million or 7.8% to$1.75 billion for the year endedDecember 31, 2019 from$1.63 billion for the same period in 2018. This increase was attributable primarily to an increase in billboard net revenues of$124.6 million or 8.8% over the prior period, which is primarily related to the integration of outdoor assets acquired during 2018 and 2019, and the addition of approximately 330 digital displays during the year endedDecember 31, 2019 . In addition, transit revenue increased$2.1 million , which represents an increase of 1.6% over the prior period. Net revenues for the year endedDecember 31, 2019 , as compared to acquisition-adjusted net revenues for the comparable period in 2018, increased$45.7 million , or 2.7%. The$45.7 million increase in revenue primarily consisted of a$41.7 million increase in billboard revenue primarily due to increases in digital revenue and a$4.1 million increase in transit revenue over the acquisition-adjusted net revenue for the comparable period in 2018. See "Reconciliations" below. Total operating expenses, exclusive of depreciation and amortization and (gain) loss on disposition of assets, increased$58.9 million , or 6.3% to$992.7 million for the year endedDecember 31, 2019 from$933.8 million in the same period in 2018. The$58.9 million increase over the prior year is primarily comprised of an increase in total direct, general and administrative and corporate expenses (excluding stock-based compensation) of$58.7 million primarily related to the operations of our outdoor advertising assets. 45 -------------------------------------------------------------------------------- Depreciation and amortization expense increased$24.8 million to$250.0 million for the year endedDecember 31, 2019 as compared to$225.3 million for the same period in 2018, primarily related to the addition of approximately$516.2 million of depreciable assets acquired through acquisitions and$258.6 million in capitalized expenditures during fiscal years 2018 and 2019. For the year endedDecember 31, 2019 ,Lamar Media recognized a gain on disposition of assets of$7.2 million primarily resulting from an amendment of a transit contract in the first quarter of 2019. The gain in 2019 represents an increase of$14.5 million over the same period in 2018, largely due to the gain in 2019 coupled with Media's loss recognized in 2018 on the sale of itsPuerto Rico assets in April of 2018 of$7.8 million . Due primarily to the above factors, operating income increased$57.2 million to$518.2 million for the year endedDecember 31, 2019 compared to$461.0 million for the same period in 2018. During the year endedDecember 31, 2018 ,Lamar Media recorded a$15.4 million loss on debt extinguishment related toLamar Media's prepayment of its 5 7/8% Senior Subordinated Notes due 2022. The$15.4 million loss is comprised of a cash redemption premium of$9.8 million and a non-cash write off of unamortized deferred financing costs of approximately$5.6 million . See "Uses of Cash" for more information. There were no transactions resulting in a loss on debt extinguishment in fiscal year 2019. Interest expense increased$20.9 million for the year endedDecember 31, 2019 to$150.6 million as compared to$129.7 million for the year endedDecember 31, 2018 . The increase in interest expense is primarily related to the increased debt outstanding as compared to the same period in 2018. The increase in operating income and decrease in loss on extinguishment of debt, offset by the increase in interest expense over the comparable period in 2018, resulted in a$52.0 million increase in net income before income taxes.Lamar Media recorded an income tax benefit of$4.2 million for the year endedDecember 31, 2019 as compared to income tax expense of$10.7 million for the same period in 2018. The$4.2 million benefit is comprised of a$17.0 million non-cash tax benefit resulting from REIT converted assets offset by income tax expense of$12.8 million . The$12.8 million tax expense equates to an effective tax rate for the year endedDecember 31, 2019 of approximately 3.5%, 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 year endedDecember 31, 2019 of$372.5 million , as compared to net income of$305.6 million for the same period in 2018.
Reconciliations:
Because acquisitions occurring afterDecember 31, 2017 have contributed to our net revenue results for the periods presented, we provide 2018 acquisition-adjusted net revenue, which adjusts our 2018 net revenue for the year endedDecember 31, 2018 by adding to or subtracting from it the net revenue generated by the acquired or divested assets prior to our acquisition or divestiture of these assets for the same time frame that those assets were owned in the year endedDecember 31, 2019 . Reconciliations of 2018 reported net revenue to 2018 acquisition-adjusted net revenue for the year endedDecember 31, 2018 as well as a comparison of 2018 acquisition-adjusted net revenue to 2019 reported net revenue for the year endedDecember 31, 2019 , are provided below: Reconciliation and Comparison of Reported Net Revenue to Acquisition-Adjusted Net Revenue Year ended December 31, 2019 2018 (in thousands) Reported net revenue$ 1,753,644 $ 1,627,222 Acquisition net revenue - 80,745 Adjusted totals$ 1,753,644 $ 1,707,967 46
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Key Performance Indicators
Net Income/Adjusted EBITDA
(in thousands)
Amount of Percent
Year Ended December 31, Increase Increase
2019 2018 (Decrease) (Decrease)
Net income $ 372,540 $ 305,631 $ 66,909 21.9 %
Income tax (benefit) expense (4,222 ) 10,697 (14,919 )
Loss on extinguishment of debt - 15,429 (15,429 )
Interest expense (income), net 149,852 129,198 20,654
(Gain) loss on disposition of assets (7,241 ) 7,233 (14,474 ) Depreciation and amortization 250,028 225,261
24,767
Impact of ASC 842 adoption 3,894 - 3,894 Capitalized contract fulfillment costs, net (9,186 ) - (9,186 ) Stock-based compensation expense 29,647 29,443 204 Adjusted EBITDA$ 785,312 $ 722,892 $ 62,420 8.6 % Adjusted EBITDA for the year endedDecember 31, 2019 increased 8.6% to$785.3 million . The increase in adjusted EBITDA was primarily attributable to the increase 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$92.7 million , and was partially offset by an increase in general and administrative and corporate expenses of$30.3 million , excluding the impact of stock-based compensation expense and the impact of ASC 842 adoption. Net Income/FFO/AFFO (in thousands) Amount of Percent Year Ended December 31, Increase Increase 2019 2018 (Decrease) (Decrease) Net income$ 372,540 $ 305,631 $ 66,909 21.9 % Depreciation and amortization related to real estate 235,802 212,457
23,345
(Gain) loss from disposition of real estate assets and investments (6,775 ) 8,689 (15,464 ) Non-cash tax benefit for REIT converted assets (17,031 ) - (17,031 ) Adjustments for unconsolidated affiliates and non-controlling interest 771 648 123 FFO$ 585,307 $ 527,425 $ 57,882 11.0 % Straight-line income (361 ) (2,036 ) 1,675 Impact of ASC 842 adoption 3,894 -
3,894
Capitalized contract fulfillment costs, net (9,186 ) - (9,186 ) Stock-based compensation expense 29,647 29,443
204
Non-cash portion of tax provision 2,901 660
2,241
Non-real estate related depreciation and amortization 14,226 12,804
1,422
Amortization of deferred financing costs 5,365 4,920
445
Loss on extinguishment of debt - 15,429 (15,429 ) Capital expenditures - maintenance (49,155 ) (43,108 ) (6,047 ) Adjustments for unconsolidated affiliates and non-controlling interest (771 ) (648 ) (123 ) AFFO$ 581,867 $ 544,889 $ 36,978 6.8 % FFO for the year endedDecember 31, 2019 was$585.3 million as compared to FFO of$527.4 million for the same period in 2018. AFFO for the year endedDecember 31, 2019 increased 6.8% to$581.9 million as compared to$544.9 million for the same period in 2018. AFFO growth was primarily attributable to the increase 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 increases in general and administrative and corporate expenses (excluding the effect of stock based compensation expense and the impact of ASC 842 adoption). 47
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