What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-24 compared with 2022-02-25 · 107 added, 92 removed, 370 unchanged (35% of the section changed)

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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 negatively affected our business in 2020.

During the year ended December 31, 2021, our business has generally improved as the economy has recovered.

While some of our corporate, front office and sales workforce continue to work from home, a large majority have returned to their offices while adhering to the Centers 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

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We expect our 2023 capital expenditures to be approximately $185 million.

Umbrella Partnership Real Estate Investment Trust

As previously announced, on July 1, 2022, the Company completed a tax reorganization to a specific type of REIT known as an Umbrella Partnership Real Estate Investment Trust ("UPREIT").

The UPREIT structure allows property owners of appreciated properties to contribute property to the operating partnership of the REIT, on a tax-deferred basis, in exchange for a partnership interest in the form of operating partnership units.

This reorganization is not expected to have any material impact on the Company's combined financial statements or business operations.

NON-GAAP FINANCIAL MEASURES

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Included in our analysis of our results of operations are discussions regarding earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”), Funds From Operations (“FFO”), as defined by the National Association of Real Estate Investment Trusts, Adjusted Funds From Operations (“AFFO”) and acquisition-adjusted net revenue.

We define adjusted EBITDA as net income before income tax expense (benefit), interest expense (income), equity in (earnings) loss of investee, loss (gain) on extinguishment of debt and investments, stock-based compensation, depreciation and amortization, gain or loss on disposition of assets and investments, and capitalized contract fulfillment costs, net.

We define adjusted EBITDA as net income before income tax expense (benefit), interest expense (income), equity in (earnings) loss of investee, loss (gain) on extinguishment of debt and investments, stock-based compensation, depreciation and amortization, loss (gain) on disposition of assets and investments, transaction expenses and capitalized contract fulfillment costs, net.

FFO is defined as net income before gains or losses from the sale or disposal of real estate assets and investments and real estate related depreciation and amortization and including adjustments to eliminate unconsolidated affiliates and non-controlling interest.

We define AFFO as FFO before (i) straight-line income and expense;

(ii) capitalized contract fulfillment costs, net, (iii) stock-based compensation expense;

(ii) capitalized contract fulfillment costs, net;

(iii) stock-based compensation expense;

(iv) non-cash portion of tax expense (benefit);

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(vi) amortization of deferred financing costs, (vii) loss on extinguishment of debt;

(viii) non-recurring infrequent or unusual losses (gains);

(ix) less maintenance capital expenditures;

(viii) transaction expenses;

(ix) non-recurring infrequent or unusual losses (gains);

(x) less maintenance capital expenditures;

and (xi) an adjustment for unconsolidated affiliates and non-controlling interest.

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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;

We believe that these metrics are useful to an investor in evaluating our operating performance because (1) each is a key measure used by our management team for purposes of decision making and for evaluating our core operating results;

(2) adjusted EBITDA is widely used in the industry to measure operating performance as depreciation and amortization may vary significantly among companies depending upon accounting methods and useful lives, particularly where acquisitions and non-operating factors are involved;

(3) acquisition-adjusted net revenue is a supplement to net revenue to enable investors to compare period over period results on a more consistent basis without the effects of acquisitions and divestitures, which reflects our core performance and organic growth (if any) during the period in which the assets were owned and managed by us;

(4) adjusted EBITDA, FFO and AFFO each provides investors with a meaningful measure for evaluating our period-to-period operating performance by eliminating items that are not operational in nature;

(4) adjusted EBITDA, FFO and AFFO each provide investors with a meaningful measure for evaluating our period-to-period operating performance by eliminating items that are not operational in nature;

and (5) each provides investors with a measure for comparing our results of operations to those of other companies.

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Net revenues increased $244.7 million or 13.7% to $2.03 billion for the year ended December 31, 2022 from $1.79 billion for the same period in 2021.

This increase was primarily attributable to an increase in billboard and transit net revenues of $210.3 million and $13.0 million, respectively, offset by a decrease in logo net revenues of $4.8 million over the prior year.

This increase was attributable to an increase in billboard net revenues of $200.4 million, an increase in transit net revenues of $42.3 million and an increase in logo net revenues of $2.0 million over the prior year.

Net revenues for the year ended December 31, 2022, as compared to acquisition-adjusted net revenues for the comparable period in 2021, increased $180.6 million, or 9.8%.

The $217.0 million increase in net revenues is primarily due to a $202.9 million and $15.1 million increase in billboard and transit net revenues, respectively, over the prior year.

The increase in billboard and transit net revenues was slightly offset by a decrease of $0.9 million in logo net revenues.

This increase was attributable to an increase of $142.5 million in billboard net revenues, an increase of $36.3 million in transit net revenues and an increase of $1.8 million in logo net revenues.

See “ Reconciliations ” below.

Total operating expenses, exclusive of depreciation and amortization and gain on disposition of assets, increased $80.6 million, or 8.8% to $997.0 million for the year ended December 31, 2021 from $916.5 million in the same period in 2020.

The $80.6 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 $62.0 million primarily related to an increase in our variable billboard lease costs and transit and airport franchise costs, as well as increases in our workforce.

Total operating expenses, exclusive of depreciation and amortization and gain on disposition of assets, increased $123.4 million, or 12.4% to $1.12 billion for the year ended December 31, 2022 from $997.0 million in the same period in 2021.

The $123.4 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 and transaction expenses) of $133.8 million primarily related to an increase in our variable billboard lease costs and transit and airport franchise costs, as well as increases in our workforce.

Depreciation and amortization expense increased $78.2 million to $349.4 million for the year ended December 31, 2022 as compared to $271.3 million for the same period in 2021.

The increase is primarily due to the revision in the cost estimate included in the calculation of asset retirement obligations during the period.

The increase is primarily due to the revision in the cost estimate included in the calculation of asset retirement obligations during 2022, as well as acquisitions and capital expenditures that occurred in the second half of 2021 and during 2022.

For the year ended December 31, 2022, the Company recognized a gain on disposition of assets of $15.7 million as compared to a gain on disposition of assets of $2.1 million for the same period in 2021.

The gain on disposition of assets for the year ended December 31, 2021 was primarily from transactions related to the sale of billboard locations and displays.

The gain on disposition of assets for the year ended December 31, 2022 primarily resulted from a gain of $12.6 million from a contingent payment received in connection with the Company's 2018 sale of Puerto Rico assets.

Due to the above factors, operating income increased $56.8 million to $578.0 million for the year ended December 31, 2022 compared to $521.2 million for the same period in 2021.

During the year ended December 31, 2021, the Company recorded a $21.6 million loss on debt extinguishment related to Lamar Media's repayment of its 5 3/4% Senior Notes.

Interest expense decreased $31.2 million for the year ended December 31, 2021 to $106.4 million as compared to $137.6 million for the year ended December 31, 2020.

The decrease in interest expense is primarily related to the Company’s debt transactions completed in 2020 and 2021.

Equity in earnings of investee was $3.4 million for the year ended December 31, 2021 as a result of the investment in Vistar Media that occurred in July 2021.

There was no equity in earnings of investee for the year ended December 31, 2020.

The increase in operating income, as well as the decrease in interest expense and the decrease in loss on extinguishment of debt over the comparable period in 2020, resulted in a $149.3 million increase in net income before income taxes.

The Company recorded income tax expense of $9.3 million for the year ended December 31, 2021 as compared to income tax expense of $4.7 million for the same period in 2020.

The $9.3 million tax expense equates to an effective tax rate for the year ended December 31, 2021 of approximately 2.3%, which differs from the federal statutory rate primarily due to our qualification for taxation as a REIT.

There was no loss on debt extinguishment during the year ended December 31, 2022.

Interest expense increased $21.1 million for the year ended December 31, 2022 to $127.5 million as compared to $106.4 million for the year ended December 31, 2021.

The increase in interest expense is primarily related to the increase in interest rates on the Accounts Receivable Securitization Program and senior credit facility.

Equity in earnings of investee was $4.3 million and $3.4 million for the years ended December 31, 2022 and 2021, respectively, as a result of an investment that occurred in July of 2021.

The increase in operating income and the decrease in loss on extinguishment of debt, offset by the increase in interest expense over the comparable period in 2021, resulted in a $58.8 million increase in net income before income taxes.

The Company recorded income tax expense of $17.5 million for the year ended December 31, 2022 as compared to income tax expense of $9.3 million for the same period in 2021.The $17.5 million tax expense includes an expense of $6.6 million for the reduction of Puerto Rico deferred tax assets for the year ended December 31, 2022.

The $17.5 million equates to an effective tax rate for the year ended December 31, 2022 of approximately 3.8%, 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 year ended December 31, 2022 of $438.6 million, as compared to net income of $388.1 million for the same period in 2021.

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Loss on extinguishment of debt — 21,604 (21,604)

Transaction expenses 3,769 — 3,769

Interest expense (income), net 126,217 105,621 20,596

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Adjusted EBITDA for the year ended December 31, 2022 increased 13.4% to $938.1 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 and capitalized contract fulfillment costs, net) of $198.9 million, and was partially offset by an increase in general and administrative and corporate expenses of $43.1 million, excluding the impact of stock-based compensation expense.

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 and capitalized contract fulfillment costs, net) of $153.8 million, and was partially offset by an increase in general and administrative and corporate expenses of $43.1 million, excluding the impact of stock-based compensation expense and transaction expenses.

Net Income/FFO/AFFO

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Depreciation and amortization related to real estate 337,387 259,933 77,454

Gain from sale or disposal of real estate, net of tax (1,865) (5,790) 3,925

Gain from sale or disposal of real estate (15,415) (1,865) (13,550)

Adjustments for unconsolidated affiliates and non-controlling interest (3,631) (2,756) (875)

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Non-cash portion of tax provision 3,212 1,574 1,638

Gain from one-time sale of non-real estate assets — (3,197) 3,197

Non-real estate related depreciation and amortization 12,062 11,361 701

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Loss on extinguishment of debt — 21,604 (21,604)

Transaction expenses 3,769 — 3,769

Capital expenditures – maintenance (62,659) (58,196) (4,463)

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AFFO for the year ended December 31, 2022 increased 12.3% to $749.7 million as compared to $667.7 million for the same period in 2021.

The increase in AFFO was primarily attributable to the increase in our gross margin (net revenue

less direct advertising expense, exclusive of depreciation and amortization and capitalized contract fulfillment costs, net), partially offset by an increase in total general and administrative and corporate expenses (excluding the effect of stock-based compensation expense).

The increase in AFFO was primarily attributable to the increase in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization and capitalized contract fulfillment costs, net), partially offset by an increase in total general and administrative and corporate expenses (excluding the effect of stock-based compensation expense and transaction expenses) and capital expenditures related to the maintenance of our advertising assets.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically satisfied its working capital requirements with cash from operations and borrowings under its senior credit facility.

The Company has historically satisfied its working capital requirements with cash from operations and borrowings under its senior credit facility and Accounts Receivable Securitization Program.

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.

Certain subsidiaries of Lamar Media are the principal borrowers under the Accounts Receivable Securitization Program.

Any cash requirements of the Company, therefore, must be funded by distributions from Lamar Media.

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As of December 31, 2022 and 2021, the Company had a working capital deficit of $361.5 million and $274.4 million, respectively.

The working capital deficit for the year ended December 31, 2021 is primarily related to $198.3 million in current operating lease liabilities which has a corresponding right of use asset recorded in long term assets.

The working capital deficit for the year ended December 31, 2022 is primarily related to the $249.4 million outstanding under the Accounts Receivable Securitization Program as well as $205.8 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 ended December 31, 2021, 2020 and 2019 our cash provided by operating activities was $734.4 million, $569.9 million and $630.9 million, respectively.

For the years ended December 31, 2022 and 2021 our cash provided by operating activities was $781.6 million and $734.4 million, respectively.

The increase in cash provided by operating activities for the year ended December 31, 2022 over the same period in 2021 relates to an increase in revenues offset by an increase in operating expenses (excluding depreciation and amortization).

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Accounts Receivable Securitization Program.

On December 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.

On June 24, 2022, Lamar Media and the Special Purpose Subsidiaries entered into the Sixth Amendment (the "Sixth Amendment") to the Accounts Receivable Securitization Program, as amended.

The Sixth Amendment increased the Accounts Receivable Securitization Program from $175.0 million to $250.0 million and extended the maturity date of the Accounts Receivable Securitization Program to July 21, 2025.

Additionally, the Sixth Amendment provides for the replacement of LIBOR-based interest rate mechanics with Term Secured Overnight Financing Rate ("Term SOFR") based interest rate mechanics for the Accounts Receivable Securitization Program.

Borrowing capacity under the Accounts Receivable Securitization Program is limited to the availability of eligible accounts receivable collateralizing the borrowings under the agreements governing the Accounts Receivable Securitization Program.

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Accordingly, the assets of the Special Purpose Subsidiaries are not available to pay creditors of Lamar Media or any of its subsidiaries, although collections from receivables in excess of the amounts required to repay the lenders and the other creditors of the Special Purpose Subsidiaries may be remitted to Lamar Media.

On May 24, 2021, Lamar Media and the Special Purpose Subsidiaries entered into the Fifth Amendment (the "Fifth Amendment") to the Accounts Receivable Securitization Program, as amended.

The Fifth Amendment extends the maturity date of the Accounts Receivable Securitization Program to July 21, 2024.

Additionally, the Fifth Amendment decreases 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) 50.00% of the aggregate Commitment of all Lenders or (ii) the Borrowing Base, provided that the Minimum Funding Threshold shall be zero on any day that is a Minimum Funding Threshold Holiday which, as amended, provides for an annual holiday from the requirement of up to sixty days per year.

The Fifth Amendment also provides for updated LIBOR replacement procedures.

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.

As of December 31, 2022, there was $250.0 million of outstanding aggregate borrowings under the Accounts Receivable Securitization Program at a borrowing rate of approximately 5.3%.

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The Sales Agreement expired by its terms on May 1, 2021.

The Company did not issue any shares under this program in 2020 and 2021.

The Company did not issue any shares under this program in 2021.

On June 21, 2021, the Company entered into a new equity distribution agreement (the "2021 Sales Agreement"), with J.P.

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as our sales agents (each a "Sales Agent", and collectively, the "Sales Agents"), which replaced the prior Sales Agreement with substantially similar terms.

Under the terms of the 2021 Sales Agreement, the Company may, from time to time, issue and sell shares of its Class A common stock, having an aggregate offering price of up to $400.0 million through the Sales Agents as either agents or principals.

Under the terms of the 2021 Sales Agreement, the Company may, from time to time, issue and sell shares of its Class A common stock, having an aggregate offering price of up to $400.0 million

through the Sales Agents as either agents or principals.

Sales of the Class A common stock, if any, may be made in negotiated transactions or transactions that are deemed to be "at-the-market offerings" as defined in Rule 415 under the Securities Act of 1933, as amended, including sales made directly on or through the Nasdaq Global Select Market and any other existing trading market for the Class A common stock, or sales made to or through a market maker other than on an exchange.

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Shelf Registration Statement .

On August 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 which expired by its term in August 2021.

On June 21, 2021, the Company filed a new automatically effective shelf registration statement (No.

333-257243) that allows Lamar Advertising to offer and sell an indeterminate amount of additional shares of its Class A common stock on similar terms as the prior registration statement.

During the year ended December 31, 2021, the Company did not issue any shares under either shelf registration.

333-257243) that allows Lamar Advertising to offer and sell an indeterminate amount of additional shares of its Class A common stock.

During the year ended December 31, 2022, the Company did not issue any shares under the shelf registration statement.

Credit Facilities.

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The Amendment amends the definition of "Subsidiary" to exclude each of Lamar Partnering Sponsor LLC and Lamar Partnering Corporation and any of their subsidiaries (collectively, the "Lamar Partnering Entities") such that, after the giving effect to the Amendment, none of the Lamar Partnering Entities are subject to the Fourth Amended and Restated Credit Agreement covenants and reporting requirements, but any investment by Lamar Media in any of the Lamar Partnering Entities would be subject to the Fourth Amended and Restated Credit Agreement covenants.

The Amendment also

amends the definition of "EBITDA" to replace the existing calculation with a net income-based calculation, which excludes the income of non-Subsidiary entities such as the Lamar Partnering Entities, except to the extent that income of such entities is received by Lamar Media in the form of dividends or distributions.

The Amendment also amends the definition of "EBITDA" to replace the existing calculation with a net income-based calculation, which excludes the income of non-Subsidiary entities such as the Lamar Partnering Entities, except to the extent that income of such entities is received by Lamar Media in the form of dividends or distributions.

The senior credit facility, as established by the Fourth Amended and Restated Credit Agreement (the “senior credit facility”), consists of (i) a $750.0 million senior secured revolving credit facility which will mature on February 6, 2025 (the “revolving credit facility”), (ii) a $600.0 million Term B loan facility (the “Term B loans”) which will mature on February 6, 2027, and (iii) an incremental facility (the “Incremental Facility”) pursuant to which Lamar Media may incur additional term loan tranches or increase its revolving credit facility subject to a pro forma secured debt ratio calculated as described under “Restrictions under Senior Credit Facility” of 4.50 to 1.00, as well as certain other conditions, including lender approval.

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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 of December 31, 2021, the aggregate balance outstanding under the senior credit facility was $775.0 million, consisting of $600.0 million in Term B loans aggregate principal balance and $175.0 million outstanding borrowings under our revolving credit facility.

On July 29, 2022, Lamar Media entered into Amendment No.

2 (the "Amendment No.

2") to the Fourth Amended and Restated Credit Agreement with certain of Lamar Media's subsidiaries as guarantors, JPMorgan Chase Bank, N.A.

as administrative agent and the lenders party thereto.

The Amendment No.

2 establishes a new $350.0 million Senior Secured Term Loan A loan (the "Term A loans") as a new class of incremental term loans.

The Term A loans will mature on February 6, 2025 and bear interest at Term SOFR plus 1.25% and a credit spread adjustment of 0.10%.

The covenants, events of default and other terms of the senior credit facility apply to the Term A loans.

Lamar Media borrowed all $350.0 million in Term A loans

on July 29, 2022.

Proceeds from the Term A loans were used to repay outstanding balances on the revolving credit facility and a portion of the outstanding balance on our Accounts Receivable Securitization Program.

As of December 31, 2022, the aggregate balance outstanding under the senior credit facility was $995.0 million, consisting of $600.0 million in Term B loans aggregate principal balance, $350.0 million in Term A loans aggregate principal balance and $45.0 million outstanding borrowings under our revolving credit facility.

Lamar Media had approximately $694.0 million of unused capacity under the revolving credit facility.

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At December 31, 2022 we were, and currently, we are in compliance with all such tests under the senior credit facility.

Lamar Media must maintain a secured debt ratio, defined as total consolidated secured debt of Lamar Advertising, Lamar Media and its restricted subsidiaries (including capital lease obligations), minus the lesser of (x) $150.0 million and (y) the aggregate amount of unrestricted cash and cash equivalents of Lamar Advertising, Lamar Media and its restricted subsidiaries (other than the Special Purpose Subsidiaries (as defined above under “ Sources of Cash-Accounts Receivable Securitization Program )) to EBITDA, as defined below, for the period of four consecutive fiscal quarters then ended, of less than or equal to 4.5 to 1.0.

Lamar Media is restricted from incurring additional indebtedness subject to exceptions, one of which is that it may incur additional indebtedness not exceeding the greater of $250.0 million and 6% of its total assets.

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, Lamar Media would have a total debt ratio, defined as (x) total consolidated debt (including subordinated debt) of Lamar Advertising, Lamar Media and its restricted subsidiaries as of any date minus the lesser of (i) $150.0 million and (ii) the aggregate amount of unrestricted cash and cash equivalents of Lamar Advertising, Lamar Media and its restricted subsidiaries (other than the Special Purpose Subsidiaries) to (y) EBITDA, as defined below, for the most recent four fiscal quarters then ended, of less than 7.0 to 1.0.

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Under the senior credit facility, as amended, “EBITDA” means, for any period, net income, plus (a) to the extent deducted in determining net income for such period, the sum determined without duplication and in accordance with GAAP, of (i) taxes, (ii) interest expense, (iii) depreciation, (iv) amortization, (v) any other non-cash income or charges accrued for such period, (vi) charges and expenses in connection with the senior credit facility, any actual or proposed acquisition, disposition or investment (excluding, in each case, purchases and sales of advertising space and operating assets in the ordinary course of business) and any actual or proposed offering of securities, incurrence or repayment of indebtedness (or amendment to any agreement relating to indebtedness), including any refinancing thereof, or recapitalization, (vii) any loss or gain relating to amounts paid or earned in cash prior to the stated settlement date of any swap agreement that has been reflected in operating income for such period), and (viii) any loss on sales of receivables and related assets to a securitization entity in connection with a permitted securitization financing, plus (b) the amount of cost savings, operating expense reductions and other operating improvements or synergies projected by Lamar Media in good faith to be realized as a result of any acquisition, investment, merger, amalgamation or disposition within 18 months of any such acquisition, investment, merger, amalgamation or disposition, net of the amount of actual benefits realized during such period from such action;

provided, (A) the aggregate amount for all such cost savings, operating expense reductions and other operating improvements or synergies will not exceed an amount equal to 15% of EBITDA for the applicable four quarter period and (B) any such adjustment to EBITDA pursuant to this clause (b) may only take into account cost savings, operating expense reductions and other operating improvements or synergies that are (I) directly attributable to such acquisition, investment, merger, amalgamation or disposition, (II) expected to have a continuing impact on Lamar Media and its restricted subsidiaries and (III) factually supportable, in each case all as certified by the Chief Financial Officer of Lamar Media) on behalf of Lamar Media, minus (c) to the extent included in net

income for such period (determined without duplication and in accordance with GAAP) (i) any extraordinary and unusual gains or losses during such period, and (ii) the proceeds of any casualty events and dispositions.

For purposes of this EBITDA definition, the effect thereon of any adjustments required under Statement of Financial Accounting Standards No.

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Restrictions under Accounts Receivable Securitization Program.

The agreements governing the Accounts Receivable Securitization Program contain customary representations and warranties, affirmative and negative covenants, and termination event provisions, including but not limited to those providing for the acceleration of amounts owed under the Accounts Receivable Securitization Program if, among other things, the Special Purpose Subsidiaries fail to make payments when due, Lamar Media, the Subsidiary Originators or the Special Purpose Subsidiaries become insolvent or subject to bankruptcy proceedings or certain judicial judgments, breach certain representations and warranties or covenants or default under other material indebtedness, a change of control occurs, or if Lamar Media fails to maintain the maximum secured debt ratio of 4.5 to 1.0 required under the senior credit facility.

The agreements governing the Accounts Receivable Securitization Program contain customary representations and warranties, affirmative and negative covenants, and termination

event provisions, including but not limited to those providing for the acceleration of amounts owed under the Accounts Receivable Securitization Program if, among other things, the Special Purpose Subsidiaries fail to make payments when due, Lamar Media, the Subsidiary Originators or the Special Purpose Subsidiaries become insolvent or subject to bankruptcy proceedings or certain judicial judgments, breach certain representations and warranties or covenants or default under other material indebtedness, a change of control occurs, or if Lamar Media fails to maintain the maximum secured debt ratio of 4.5 to 1.0 required under the senior credit facility.

Capital Expenditures.

Capital expenditures, excluding acquisitions, were approximately $167.1 million for the year ended December 31, 2022.

Our capital expenditures are categorized as growth or maintenance as described below.

• Growth capital expenditures include discretionary capital expenditures incurred primarily for the expansion or development of new advertising markets and construction of new advertising sites.

Growth capital expenditures also include certain technology-related investments necessary to support and scale for future customer demand of our outdoor advertising services, and other capital projects.

• Maintenance capital expenditures include capital expenditures not otherwise categorized as growth capital expenditures, including costs incurred to enhance existing advertising sites, general asset improvements, and ordinary corporate capital expenditures.

We anticipate our 2023 total capital expenditures will be approximately $185 million.

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During the year ended December 31, 2022, the Company completed 73 acquisitions for a total cash purchase price of approximately $479.8 million.

The acquisitions occurring during the year ended December 31, 2021 were financed using available cash on hand, borrowings under the revolving credit facility and borrowings on the Accounts Receivable Securitization Program.

The acquisitions occurring during the year ended December 31, 2022 were financed using available cash on hand, borrowings under the revolving credit facility and borrowings under the Accounts Receivable Securitization Program.

On May 4, 2022, the Company acquired Burkhart Advertising Inc.

which included more than 1,500 billboard structures and 3,200 billboard faces, including 23 digital displays.

On December 9, 2022, the Company acquired assets from Fairway Outdoor and Standard Outdoor which included approximately 1,600 billboard structures and 3,600 billboard displays.

These acquisitions were funded with a combination of cash on hand, borrowings under our revolving credit facility and borrowings under the Accounts Receivable Securitization Program.

On July 12, 2021, Lamar acquired a minority stake in Vistar Media ("Vistar"), a leading global provider of programmatic technology for the digital out-of-home sector.

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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 TRSs, the impact of COVID-19 on the Company's operations and other factors that the Board of Directors may deem relevant.

fund distributions using cash generated through its TRSs, the impact of general economic conditions on the Company's operations and other factors that the Board of Directors may deem relevant.

The foregoing factors may also impact management's recommendations to the Board of Directors as to the timing, amount and frequency of future distributions.

Special Purpose Acquisition Company.

On April 6, 2021, Lamar Partnering Corporation ("LPC"), a newly formed special purpose acquisition company and indirect wholly-owned subsidiary of the Company, filed a Registration Statement on Form S-1, with the Securities and Exchange Commission.

Subject to market conditions, LPC's proposed public offering is expected to have a base offering size of $300.0 million, or up to $345.0 million if the underwriters' over-allotment is exercised in full.

The Company, through an indirect wholly-owned subsidiary, would own approximately 20% of LPC's issued and outstanding ordinary shares upon the consummation of the proposed offering.

The Company intends to commit to acquire up to $100.0 million of forward purchase units in a forward purchase agreement that would close concurrently with LPC's consummation of an initial business combination.

As of December 31, 2021, the Company incurred $1.0 million in deferred offering costs related to the proposed offering, which is included in other assets on our Condensed Consolidated Balance Sheet.

On June 21, 2022, LPC filed its request to withdraw its registration statement with the SEC.

In conjunction with the withdrawn offering, the Company incurred a transaction expense of $1.2 million for the write-off of deferred offering costs incurred on behalf of LPC's registration statement.

The $1.2 million in expenses are included in Corporate expenses in our Consolidated Statement of Income and Comprehensive Income at December 31, 2022.

Stock and Debt Repurchasing Program.

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There were no repurchases under the program as of December 31, 2022.

On February 23, 2023, the Company’s Board of Directors authorized the renewal of the repurchase program through September 30, 2024.

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.

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The following table summarizes our future debt maturities, interest payment obligations, and contractual obligations including required payments under operating and financing leases as of December 31, 2022 (in millions):

2022 Thereafter

Debt maturities (1)

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(2) Interest rates on our variable rate instruments assume rates at the December 2022 levels.

See Item 7A, "Quantitative and Qualitative Disclosures About Market Risk" for further discussion on interest rate risk.

Required Annual Distributions.

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This includes acquisitions in our existing markets and in new markets where we can meet our return on investment criteria.

The Company’s cash flows provided by operating activities increased $164.5 million from $569.9 million in 2020 to $734.4 million for the year ended December 31, 2021, primarily resulting from an increase in revenues of approximately $218.5 million and offset by an increase in operating expenses (excluding stock-based compensation, gain on disposition of assets, and depreciation and amortization) of approximately $62.0 million, as compared to the comparable period in 2020.

Cash flows used in investing activities increased $364.9 million from $96.9 million in 2020 to $461.8 million in 2021 primarily due to a net increase in the amount of assets acquired through acquisitions, investments and capital expenditures of $360.5 million, as compared to the same period in 2020.

The Company’s cash flows provided by operating activities increased $47.2 million from $734.4 million in 2021 to $781.6 million for the year ended December 31, 2022, primarily resulting from an increase in revenues of approximately $244.7 million offset by an increase in operating expenses (excluding stock-based compensation, gain on disposition of assets and depreciation and amortization) of approximately $137.6 million, as well as increases in interest expense of $21.1 million and income tax expense and $8.2 million as compared to the comparable period in 2021.

Cash flows used in investing activities increased $157.3 million from $461.8 million in 2021 to $619.1 million in 2022 primarily due to a net increase in the amount of assets acquired through acquisitions, investments and capital expenditures of $178.5 million, offset by decreases in notes receivable, as compared to the same period in 2021.

The Company’s cash flows used in financing activities were $209.3 million for the year ended December 31, 2022 as compared to $294.5 million in 2021.

This decrease in cash used in financing activities of $83.4 million for the year ended December 31, 2021 is primarily due to financing transactions during the year 2020, offset by an increase in cash paid for dividends and distributions over the comparable period in 2020.

This decrease in cash used in financing activities of $85.2 million for the year ended December 31, 2022 is primarily due to increased borrowings on the senior credit facility and accounts receivable securitization program in 2022, offset by an increase in cash paid for dividends and distributions in 2022 over the comparable period in 2021.

CRITICAL ACCOUNTING ESTIMATES

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The Company had an asset retirement obligation of $390.4 million as of December 31, 2022.

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.

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 restore the site to its original condition.

The Company records the present value of obligations associated with the retirement of tangible long-lived assets in the period in which they are incurred.

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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 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.

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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.

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 $1.24 billion and $1.27 billion as of December 31, 2022, respectively.

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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.

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 reasonably 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.

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Net revenues increased $244.7 million or 13.7% to $2.03 billion for the year ended December 31, 2022 from $1.79 billion for the same period in 2021.

This increase was attributable primarily to an increase in billboard and transit net revenues of $210.3 million and $13.0 million, respectively, offset by a decrease in logo net revenues of $4.8 million over the prior year.

Net revenues for the year ended December 31, 2022, as compared to acquisition-adjusted net revenues for the comparable period in 2021, increased $180.6 million, or 9.8%.

The $217.0 million increase in net revenues is primarily due to a $202.9 million and $15.1 million increase in billboard and transit net revenues, respectively over the prior year.

in billboard and transit net revenues was slightly offset by a decrease of $0.9 million in logo net revenues.

The $180.6 million increase in net revenues is due to a $142.5 million increase in billboard net revenues, a $36.3 million increase in transit net revenues and an increase of $1.8 million in logo net revenues.

See “Reconciliations” below.

Total operating expenses, exclusive of depreciation and amortization and gain on disposition of assets, increased $80.2 million, or 8.8% to $996.2 million for the year ended December 31, 2021 from $916.0 million in the same period in 2020.

The $80.2 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 $61.6 million primarily related to an increase in our variable billboard lease costs, transit and airport franchise costs, as well as increases in our workforce.

Total operating expenses, exclusive of depreciation and amortization and gain on disposition of assets, increased $123.7 million, or 12.4% to $1.12 billion for the year ended December 31, 2022 from $996.2 million in the same period in 2021.

The $123.7 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 and transaction expenses) of $134.2 million primarily related to an increase in our variable billboard lease costs and transit and airport franchise costs, as well as increases in our workforce.

Depreciation and amortization expense increased $78.2 million to $349.4 million for the year ended December 31, 2022 as compared to $271.3 million for the same period in 2021.

The increase is primarily due to the revision in the cost estimate included in the calculation of asset retirement obligations during the period.

The increase is due to the revision in the cost estimate included in the calculation of asset retirement obligations during 2022, as well as acquisitions and capital expenditures that occurred in the second half of 2021 and during 2022.

For the year ended December 31, 2022, Lamar Media recognized a gain on disposition of assets of $15.7 million as compared to a gain on disposition of assets of $2.1 million for the same period in 2021.

The gain on disposition of assets for the year ended December 31, 2021 was primarily from transactions related to the sale of billboard locations and displays.

Due to the above factors, operating income increased $56.5 million to $578.5 million for the year ended December 31, 2022 compared to $522.0 million for the same period in 2021.

During the year ended December 31, 2021, Lamar Media recorded a $21.6 million loss on debt extinguishment related to the repayment of its 5 3/4% Senior Notes.

See “Uses of Cash” for more information.

Interest expense decreased $31.2 million for the year ended December 31, 2021 to $106.4 million as compared to $137.6 million for the year ended December 31, 2020.

The decrease in interest expense is primarily related Lamar Media’s debt transactions completed in 2020 and 2021.

Equity in earnings of investee was $3.4 million for the year ended December 31, 2021 as a result of the investment in Vistar Media that occurred in July 2021.

There was no equity in earnings of investee for the year ended December 31, 2020.

The increase in operating income, as well as the decrease in interest expense and the decrease in loss on extinguishment of debt over the comparable period in 2020, resulted in a $149.6 million increase in net income before income taxes.

There was no loss on debt extinguishment during the year ended December 31, 2022.

Interest expense increased $21.1 million for the year ended December 31, 2022 to $127.5 million as compared to $106.4 million for the year ended December 31, 2021.

The increase in interest expense is primarily related to the increase in interest rates on the Accounts Receivable Securitization Program and senior credit facility.

Equity in earnings of investee was $4.3 million and $3.4 million for the years ended December 31, 2022 and 2021, respectively, as a result of an investment that occurred in July of 2021.

The increase in operating income and the decrease in loss on extinguishment of debt, offset by the increase in interest expense over the comparable period in 2021, resulted in a $58.4 million increase in net income before income taxes.

Lamar Media recorded income tax expense of $17.5 million for the year ended December 31, 2022 as compared to an income tax expense of $9.3 million for the same period in 2021.

The $17.5 million tax expense includes an expense of $15.2 million for the reduction of Puerto Rico deferred tax assets for the year ended December 31, 2022.

As a result of the above factors, Lamar Media recognized net income for the year ended December 31, 2022 of $439.1 million, as compared to net income of $388.9 million for the same period in 2021.

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Loss on extinguishment of debt — 21,604 (21,604)

Interest expense, net 105,621 136,826 (31,205)

Transaction expenses 3,769 — 3,769

Interest expense (income), net 126,217 105,621 20,596

Equity in earnings of investee (4,315) (3,384) (931)

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Adjusted EBITDA for the year ended December 31, 2022 increased 13.3% to $938.6 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 and capitalized contract fulfillment costs, net) of $198.9 million, and was partially offset by an increase in general and administrative and corporate expenses of $42.8 million, excluding the impact of stock-based compensation expense.

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 and capitalized contract fulfillment costs, net) of $153.8 million, and was partially offset by an increase in general and administrative and corporate expenses of $43.4 million, excluding the impact of stock-based compensation expense and transaction expenses.

Net Income/FFO/AFFO

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Depreciation and amortization related to real estate 337,387 259,933 77,454

Gain from sale or disposal of real estate, net of tax (1,865) (5,790) 3,925

Gain from sale or disposal of real estate (15,415) (1,865) (13,550)

Adjustments for unconsolidated affiliates and non-controlling interest (3,631) (2,756) (875)

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Non-cash portion of tax provision 3,212 1,574 1,638

Gain from one-time sale of non-real estate assets — (3,197) 3,197

Non-real estate related depreciation and amortization 12,062 11,361 701

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Loss on extinguishment of debt — 21,604 (21,604)

Transaction expenses 3,769 — 3,769

Capital expenditures – maintenance (62,659) (58,196) (4,463)

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AFFO for the year ended December 31, 2022 increased 12.2% to $750.2 million as compared to $668.6 million for the same period in 2021.

The increase in AFFO was primarily attributable to the increase in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization and capitalized contract fulfillment costs, net), offset by an increase in total general and administrative and corporate expenses (excluding the effect of stock based compensation expense).

The increase in AFFO was primarily attributable to the increase in our gross margin (net revenue

less direct advertising expense, exclusive of depreciation and amortization and capitalized contract fulfillment costs, net), offset by an increase in total general and administrative and corporate expenses (excluding the effect of stock-based compensation expense and transaction expenses) and capital expenditures related to the maintenance of our advertising assets.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis