Item 1. Business
ITEM 1. BUSINESS
GENERAL
Lamar Advertising Company is one of the largest outdoor advertising companies in the United States based on number of displays and has operated under the Lamar name since 1902. We operate in a single operating and reporting segment, advertising. We rent space for advertising on billboards, buses, shelters, benches, logo plates and in airport terminals. We offer our customers a fully integrated service, satisfying all aspects of their display requirements from ad copy production to placement and maintenance.
We operate three types of outdoor advertising displays: billboards, logo signs and transit advertising displays.
Billboards. As of December 31, 2022, we owned and operated approximately 160,200 billboard advertising displays in 45 states and Canada. We rent most of our advertising space on two types of billboards: bulletins and posters.
• Bulletins are generally large, illuminated advertising structures that are located on major highways and target vehicular traffic.
• Posters are generally smaller advertising structures that are located on major traffic arteries and city streets and target vehicular and pedestrian traffic.
In addition to traditional billboards, we also rent space on digital billboards, which are generally located on major traffic arteries and city streets. As of December 31, 2022, we owned and operated approximately 4,500 digital billboard advertising displays in 43 states and Canada.
Logo signs. We rent advertising space on logo signs located near highway exits.
• Logo signs generally advertise nearby gas, food, camping, lodging and other attractions.
We are the largest provider of logo signs in the United States, operating 23 of the 26 privatized state logo sign contracts. As of December 31, 2022, we operated approximately 139,000 logo sign advertising displays in 23 states and the province of Ontario, Canada.
Transit advertising displays. We also rent advertising space on the exterior and interior of public transportation vehicles, in airport terminals, and on transit shelters and benches in over 80 markets. As of December 31, 2022, we operated approximately 47,500 transit advertising displays in 24 states and Canada.
CORPORATE HISTORY
We have operated under the Lamar name since our founding in 1902 and have been publicly traded on NASDAQ under the symbol “LAMR” since 1996.
During 2014, we completed a reorganization in order to qualify as a real estate investment trust (a “REIT”) for federal income tax purposes. During 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.
In this Annual Report, unless the context otherwise requires, we refer to Lamar Advertising Company and its consolidated subsidiaries (and its predecessor and its consolidated subsidiaries), as applicable, as the “Company”, “Lamar Advertising” or “we”, and we refer to Lamar Advertising’s wholly owned subsidiary Lamar Media Corp. as “Lamar Media.”
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OPERATING STRATEGIES
We strive to be a leading provider of outdoor advertising services in each of the markets that we serve, and our operating strategies for achieving that goal include:
Continuing to provide high quality local sales and service. We seek to identify and closely monitor the needs of our tenants and to provide them with a full complement of high quality advertising services. Local advertising constituted approximately 78% of our outdoor net revenues for the year ended December 31, 2022, which management believes is higher than the industry average. We believe that the experience of our regional, territory and local managers has contributed greatly to our success. For example, our regional managers have been with us for an average of 31 years. In an effort to provide high quality sales and service at the local level, we employed approximately 950 local account executives as of December 31, 2022. Local account executives are typically supported by additional local staff and have the ability to draw upon the resources of our central office, as well as our offices in other markets, in the event business opportunities or customers’ needs support such an allocation of resources.
Continuing a centralized control and decentralized management structure. Our management believes that, for our particular business, centralized control and a decentralized organization provide for greater economies of scale and are more responsive to local market demands. Therefore, we maintain centralized accounting and financial control over our local operations, but our local managers are responsible for the day-to-day operations in each local market and are compensated according to that market’s financial performance.
Continuing to focus on internal growth. Within our existing markets we seek to increase our revenue and improve cash flow by employing highly-targeted local marketing efforts to improve our display occupancy rates and by increasing advertising rates where and when demand can absorb rate increases. Our local offices spearhead this effort and respond to local customer demands quickly.
In addition, we routinely invest in upgrading our existing displays and constructing new displays. Since January 1, 2013, we have invested approximately $1.2 billion in capitalized expenditures, which include improvements to our existing real estate portfolio, improvements to recently acquired locations and the construction of new locations. Our regular improvement and expansion of our advertising display inventory allows us to provide high quality service to our current tenants and to attract new tenants.
Continuing to pursue other outdoor advertising opportunities. We plan to renew existing logo sign contracts and pursue additional logo sign contracts. Logo sign opportunities arise periodically, both from states initiating new logo sign programs and states converting from government-owned and operated programs to privately-owned and operated programs. Furthermore, we plan to pursue additional tourist oriented directional sign programs in both the United States and Canada and also other motorist information signing programs as opportunities present themselves. In addition, in an effort to maintain market share, we continue to pursue attractive transit and airport advertising opportunities as they become available.
Reinvesting in capital expenditures including digital technology. We have a history of investing in capital expenditures, particularly in our digital platform. We spent approximately $167.1 million in total capital expenditures in fiscal year 2022, of which approximately $81.1 million was spent on digital technology. We expect our 2023 capitalized expenditures to be approximately $185 million.
CAPITAL ALLOCATION STRATEGY
The objective of our capital allocation strategy is to simultaneously increase adjusted funds from operations and our return on invested capital. To maintain our REIT status, we are required to distribute to our stockholders annually an amount equal to at least 90% of our REIT taxable income, excluding net capital gains. After complying with our REIT distribution requirements, we plan to continue to allocate our available capital among investment alternatives that meet our return on investment criteria. During 2022, we generated $781.6 million of cash from operating activities, which was used to fund capital expenditures, acquisitions, and dividends to our stockholders.
• Capital expenditures program. We will continue to reinvest in our existing assets and expand our outdoor advertising display portfolio through new construction. This includes growth and maintenance capital expenditures associated with the construction of new and existing billboard displays, the entrance into and renewal of logo sign and transit contracts, technology-related investments and the purchase of real estate and operating equipment.
• Acquisitions. We will seek to pursue strategic acquisitions of outdoor advertising businesses and assets. This includes acquisitions in our existing markets and in new markets where we can meet our return on investment
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criteria. When evaluating investments in new markets, our return on investment criteria reflects the additional risks inherent to the particular geographic area.
COMPANY OPERATIONS
Billboard Advertising
We rent most of our advertising space on two types of billboard advertising displays: bulletins and posters. As of December 31, 2022, we owned and operated approximately 160,200 billboard advertising displays in 45 states and Canada. In 2022, we derived approximately 76% of our billboard advertising net revenues from bulletin rentals and 24% from poster rentals.
Bulletins are large, advertising structures (the most common size is 14 feet high by 48 feet wide, or 672 square feet) consisting of panels on which advertising copy is displayed. We wrap advertising copy printed with computer-generated graphics on a single sheet of vinyl around the structure. To attract more attention, some of the panels may extend beyond the linear edges of the display face and may include three-dimensional embellishments. Because of their greater impact and higher cost, bulletins are usually located on major highways and target vehicular traffic. At December 31, 2022, we operated approximately 78,600 bulletin displays.
We generally rent individually-selected bulletin space to advertisers for the duration of the contract (ranging from 4 to 52 weeks). We also rent bulletins as part of a rotary plan under which we rotate the advertising copy from one bulletin location to another within a particular market at stated intervals (usually every sixty to ninety days) to achieve greater reach within that market.
Posters are smaller advertising structures (the most common size is 11 feet high by 23 feet wide, or 253 square feet; we also operate junior posters, which are 5 feet high by 11 feet wide, or 55 square feet). Poster panels utilize a single flexible sheet of polyethylene material that inserts onto the face of the panel. Posters are concentrated on major traffic arteries and target vehicular traffic, and junior posters are concentrated on city streets and target hard-to-reach pedestrian traffic and nearby residents. At December 31, 2022, we operated approximately 81,600 poster displays.
We generally rent poster space for 4 to 26 weeks, determined by the advertiser’s campaign needs. Posters are sold in packages of Target Rating Point (“TRP”) levels, which determine the percentage of a target audience an advertiser needs to reach. A package may include a combination of poster locations in order to meet reach and frequency campaign goals.
In addition to the traditional static displays, we also rent digital billboards. Digital billboards are large electronic light emitting diode (“LED”) displays (the most common sizes are 14 feet high by 48 feet wide, or 672 square feet; 10.5 feet high by 36 feet wide, or 378 square feet; and 10 feet high by 21 feet wide, or 210 square feet) that are generally located on major traffic arteries and city streets. Digital billboards are capable of generating over one billion colors and vary in brightness based on ambient conditions. They display completely digital advertising copy from various advertisers in a slide show fashion, rotating each advertisement approximately every 6 to 8 seconds. At December 31, 2022, our inventory included approximately 4,500 digital display billboards in various markets. These 4,500 digital billboards generated approximately 30% of billboard advertising net revenue.
We own the physical structures on which the advertising copy is displayed. We build the structures on locations we either own or lease. In each local office, one employee typically performs site leasing activities for the markets served by that office. See Item 2. — “Properties.”
In the majority of our markets, our local production staffs perform the full range of activities required to create and install billboard advertising displays. Production work includes creating the advertising copy design and layout, coordinating its printing and installing the designs on the displays. Our talented design staff uses state-of-the-art technology to prepare creative, eye-catching displays for our tenants. We can also help with the strategic placement of advertisements throughout an advertiser’s market by using software that allows us to analyze the target audience and its demographics. Our artists also assist in developing marketing presentations, demonstrations and strategies to attract new tenant advertisers.
In marketing billboard displays to advertisers, we compete with other forms of out-of-home advertising and other media. When selecting the media and provider through which to advertise, advertisers consider a number of factors and advertising providers, which are described in the section titled — “Competition” below.
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Logo Sign Advertising
We entered the logo sign advertising business in 1988 and have become the largest provider of logo sign services in the United States, operating 23 of the 26 privatized state logo contracts. We erect logo signs, which generally advertise nearby gas, food, camping, lodging and other attractions, and directional signs, which direct vehicle traffic to nearby services and tourist attractions, near highway exits. As of December 31, 2022, we operated approximately 42,400 logo sign structures containing approximately 139,000 logo advertising displays in the United States and Canada.
We operate the logo sign contracts in the province of Ontario, Canada and in the following states:
Colorado Kansas Minnesota Montana New Hampshire Ohio Tennessee
Delaware Kentucky Mississippi Nebraska New Jersey Oklahoma Utah
Florida Louisiana Missouri (1)
Nevada New Mexico South Carolina Wisconsin
Georgia Michigan
(1) The logo sign contract in Missouri is operated by a 66 2/3% owned partnership.
We also operate the tourist oriented directional signing (“TODS”) programs for the states of Colorado, Kansas, Kentucky, Louisiana, Michigan, Mississippi, Missouri, Montana, Nebraska, Nevada, New Jersey, Ohio, South Carolina, Utah, and the province of Ontario, Canada, providing approximately 16,400 advertising displays.
Our logo and TODS operations are decentralized. Generally, each office is staffed with an experienced local general manager, local sales and office staff and a local signing sub-contractor. This decentralization allows the management staff of Interstate Logos, L.L.C. (the subsidiary that operates all of the logo and directional sign-related businesses) to travel extensively to the various operations and serve in a technical and management advisory capacity and monitor regulatory and contract compliance. We also run a silk screening operation in Baton Rouge, Louisiana and a display construction company in Atlanta, Georgia.
State logo sign contracts represent the exclusive right to erect and operate logo signs within a state for a period of time. The terms of the contracts vary, but generally range from five to ten years, with additional renewal terms. Each logo sign contract generally allows the state to terminate the contract prior to its expiration and, in most cases, with compensation for the termination to be paid to the Company. When a logo sign contract expires, we transfer ownership of the advertising structures to the state. Depending on the contract, we may or may not be entitled to compensation at that time. Of our 24 logo sign contracts in place, in the United States and Canada, at December 31, 2022, 4 are subject to renewal or expiration in 2023.
States usually award new logo sign contracts and renew expiring logo sign contracts through an open proposal process. In bidding for new and renewal contracts, we compete against other logo sign providers, as well as local companies based in the state soliciting proposals.
In marketing logo signs to advertisers, we compete with other forms of out-of-home advertising and other media. When selecting the media and provider through which to advertise, advertisers consider a number of factors and advertising providers which are described in the section titled — “Competition” below.
Transit Advertising
We entered into the transit advertising business in 1993 as a way to complement our existing business and maintain market share in certain markets. Transit contracts are generally with the local municipalities and airport authorities and allow us the exclusive right to rent advertising space to customers in airports and on buses, benches or shelters. The terms of the contracts vary but generally range between 3-10 years, many with renewable options for contract extension. We rent transit advertising displays in airport terminals and on bus shelters, benches and buses in over 80 transit markets, and our production staff provides a full range of creative and installation services to our transit advertising tenants. As of December 31, 2022, we operated approximately 47,500 transit advertising displays in 24 states and Canada.
Municipalities usually award new transit advertising contracts and renew expiring transit advertising contracts through an open bidding process. In bidding for new and renewal contracts, we compete against national outdoor advertising providers and local, on-premise sign providers and sign construction companies. Transit advertising operators incur significant start-up costs to build and install the advertising structures (such as transit shelters) upon being awarded contracts.
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In marketing transit advertising displays to advertisers, we compete with other forms of out-of-home advertising and other media. When selecting the media and provider through which to advertise, advertisers consider a number of factors and advertising providers which are described in the section titled — “Competition” below.
COMPETITION
Although the outdoor advertising industry has encountered a wave of consolidation, the industry remains fragmented. The industry is comprised of several large outdoor advertising and media companies with operations in multiple markets, as well as smaller, local companies operating a limited number of structures in one or a few local markets.
Although we primarily focus on small to mid-size markets where we can attain a strong market share, in each of our markets we compete against other providers of outdoor advertising and other types of media, including:
• Larger outdoor advertising providers, such as (i) Clear Channel Outdoor Holdings, Inc., which operates billboards, street furniture displays, transit displays and other out-of-home advertising displays and (ii) Outfront Media, Inc., which operates traditional outdoor, street furniture and transit advertising properties.
• Broadcast and cable television, radio, print media, direct mail marketing, the internet, social media and applications used in conjunction with wireless devices.
• An increasing variety of out-of-home advertising media, such as advertising displays in shopping centers, malls, airports, stadiums, movie theaters, supermarkets and advertising displays on taxis, trains and buses.
In selecting the form of media through which to advertise, advertisers evaluate their ability to target audiences having a specific demographic profile, lifestyle, brand or media consumption or purchasing behavior or audiences located in, or traveling through, a particular geography. Advertisers also compare the relative costs of available media, evaluating the number of impressions (potential viewings), exposure (the opportunity for advertising to be seen) and circulation (traffic volume in a market), as well as potential effectiveness, quality of related services (such as advertising copy design and layout) and customer service. In competing with other media, we believe that outdoor advertising is relatively more cost-efficient than other media, allowing advertisers to reach broader audiences and target specific geographic areas or demographic groups within markets.
We believe that our strong emphasis on sales and customer service and our position as a major provider of advertising services in each of our primary markets enables us to compete effectively with the other outdoor advertising companies, as well as with other media, within those markets.
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GEOGRAPHIC DIVERSIFICATION
Our advertising displays are geographically diversified across the United States and Canada. The following table sets forth information regarding the geographic diversification of our advertising displays, which are listed in order of contribution to total revenue. Markets with less than 1% of total displays are grouped in the category “all other United States.”
Percentage of Revenues for the year ended,
December 31, 2022 Number of Displays for the year ended,
December 31, 2022
Market Static
Billboard
Displays Digital
Billboard
Displays Transit
Displays Logo
Displays Total
Displays Static
Billboard
Displays Digital
Billboard
Displays Transit
Displays Logo
Displays Total
Displays Percentage
of Total
Displays
Las Vegas, NV 1.7 % 2.2 % 17.6 % — 2.8 % 748 83 1,504 — 2,335 0.6 %
New York, NY 2.6 % 2.5 % — — 2.3 % 917 70 — — 987 0.3 %
Chicago, IL 2.0 % 2.7 % — — 1.9 % 2,094 156 — — 2,250 0.6 %
Pittsburgh, PA 1.9 % 2.5 % 0.5 % — 1.9 % 2,884 62 339 — 3,285 0.9 %
Cleveland, OH 1.7 % 1.9 % 1.8 % — 1.7 % 2,275 58 2,528 — 4,861 1.3 %
Nashville, TN 1.6 % 2.3 % — — 1.6 % 2,131 83 — — 2,214 0.6 %
San Bernardino, CA 1.4 % 2.2 % 1.3 % — 1.6 % 638 51 1,145 — 1,834 0.5 %
Seattle, WA 1.9 % 0.8 % 2.0 % — 1.5 % 1,600 19 1,745 — 3,364 0.9 %
Dallas, TX 1.8 % 1.0 % 1.7 % — 1.5 % 1,307 27 459 — 1,793 0.5 %
Atlanta, GA 1.1 % 2.7 % — — 1.4 % 772 87 — — 859 0.2 %
Knoxville, TN 1.7 % 0.9 % — — 1.3 % 2,407 60 — — 2,467 0.7 %
Phoenix, AZ 0.3 % 2.5 % 6.6 % — 1.3 % 146 56 4,062 — 4,264 1.2 %
Indianapolis, IN 1.4 % 1.0 % 1.3 % — 1.2 % 2,555 32 123 — 2,710 0.8 %
Reading, PA 1.1 % 1.9 % — — 1.2 % 1,373 107 — — 1,480 0.4 %
Raleigh, NC 1.5 % 0.8 % — — 1.1 % 2,564 45 — — 2,609 0.7 %
Richmond, VA 1.1 % 1.7 % — — 1.1 % 1,267 47 — — 1,314 0.4 %
Greenville-Spartanburg, SC 1.2 % 1.2 % — — 1.1 % 1,854 51 — — 1,905 0.5 %
Hartford, CT 1.0 % 1.8 % — — 1.1 % 839 50 — — 889 0.2 %
Birmingham, AL 1.1 % 1.3 % 0.5 % — 1.1 % 1,507 47 273 — 1,827 0.5 %
Oklahoma City, OK 1.2 % 1.1 % — — 1.1 % 2,053 39 — — 2,092 0.6 %
Denver, CO 0.7 % 0.5 % 5.9 % — 1.0 % 215 10 3,374 — 3,599 1.0 %
Cincinnati, OH 0.9 % 1.5 % — — 1.0 % 1,135 39 — — 1,174 0.3 %
Providence, RI 0.9 % 1.5 % — — 1.0 % 533 32 — — 565 0.2 %
Austin, TX 1.4 % 0.4 % — — 1.0 % 895 9 — — 904 0.3 %
All US Logo Programs* — — — 92.3 % 3.6 % — — — 144,623 144,623 39.8 %
All Other United States 66.8 % 61.1 % 44.3 % — 61.2 % 121,052 3,145 21,606 — 145,803 40.2 %
All Other Canada* — — 16.5 % 7.7 % 1.4 % — — 10,352 10,685 21,037 5.8 %
Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % 155,761 4,465 47,510 155,308 363,044 100.0 %
Total Revenue (in millions) $ 1,292.3 $ 521.7 $ 138.0 $ 80.1 $ 2,032.1
* Logo displays at December 31, 2022 include 16,352 displays related to the tourist oriented direction signing ("TODS") programs.
TAXABLE REIT SUBSIDIARIES
We hold and operate certain of our assets that cannot be held and operated directly by a REIT through taxable REIT subsidiaries, or TRSs. A TRS is a subsidiary of a REIT that pays corporate taxes on its taxable income. The assets held in our TRSs primarily consist of our transit advertising business, advertising services business and our foreign operations. We may, from time to time, change the election of previously designated TRSs to be treated as qualified REIT subsidiaries (“QRSs”) or other disregarded entities, and may reorganize and transfer certain assets or operations from our TRSs to other subsidiaries, including QRSs.
Our TRS assets and operations will continue to be subject, as applicable, to U.S. federal and state corporate income taxes. Furthermore, our assets and operations outside the United States will continue to be subject to foreign taxes in the jurisdictions in which those assets and operations are located. Net income from our TRSs will either be retained by our TRSs and used to fund their operations, or distributed to us, where it will be reinvested in our business or be available for distribution to Lamar Advertising’s stockholders. As of December 31, 2022, the annual revenue generated by our TRSs in the aggregate was approximately $323.2 million.
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ADVERTISING TENANTS
Our tenant base is diverse. The table below sets forth the industries from which we derived most of our billboard advertising revenues for the year ended December 31, 2022, as well as the percentage of billboard advertising revenues attributable to the advertisers in those industries. The individual advertisers in these industries accounted for approximately 70% of our billboard advertising net revenues in the year ended December 31, 2022. No individual tenant accounted for more than 2% of our billboard advertising net revenues in that period.
Categories Percentage of Net
Billboard
Advertising Revenues
Service 14 %
Health Care 11 %
Restaurants 9 %
Retailers 8 %
Automotive 5 %
Gaming 5 %
Amusement — Entertainment/Sports 4 %
Financial — Banks, Credit Unions 4 %
Education 4 %
Insurance 3 %
Real Estate 3 %
70 %
REGULATION
Outdoor advertising is subject to governmental regulation at the federal, state and local levels. Regulations generally restrict the size, spacing, lighting and other aspects of advertising structures and pose a significant barrier to entry and expansion in many markets. Federal law, principally the Highway Beautification Act of 1965 (the “HBA”), regulates outdoor advertising on Federal — Aid Primary, Interstate and National Highway Systems roads. The HBA requires states, through the adoption of individual Federal/State agreements, to “effectively control” outdoor advertising along these roads, and mandates a state compliance program and state standards regarding size, spacing and lighting. These state standards, or their local and municipal equivalents, may be modified over time in response to legal challenges or otherwise, which may have an adverse effect on our business. The HBA requires any state or political subdivision that compels the removal of a lawful billboard along a Federal — Aid Primary or Interstate highway to pay just compensation to the billboard owner.
All states have passed billboard control statutes and regulations at least as restrictive as the federal requirements, including laws requiring the removal of illegal signs at the owner’s expense (and without compensation from the state). Although we believe that the number of our billboards that may be subject to removal as illegal is immaterial, and no state in which we operate has banned billboards entirely, from time to time governments have required us to remove signs and billboards legally erected in accordance with federal, state and local permit requirements and laws. Municipal and county governments generally also have sign controls as part of their zoning laws and building codes. We contest laws and regulations that we believe unlawfully restrict our constitutional or other legal rights and may adversely impact the growth of our outdoor advertising business.
Using federal funding for transportation enhancement programs, state governments have purchased and removed billboards for beautification, and may do so again in the future. Under the power of eminent domain, state or municipal governments have laid claim to property and forced the removal of billboards. Under a concept called amortization by which a governmental body asserts that a billboard operator has earned compensation by continued operation over time, local governments have attempted to force removal of legal but nonconforming billboards (i.e., billboards that conformed with applicable zoning regulations when built but which do not conform to current zoning regulations). Although the legality of amortization is questionable, it has been upheld in some instances. Often, municipal and county governments also have sign controls as part of their zoning laws, with some local governments prohibiting construction of new billboards or allowing new construction only to replace existing structures. Although we have generally been able to obtain satisfactory compensation for those of our billboards purchased or removed as a result of governmental action, there is no assurance that this will continue to be the case in the future.
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We have continued to expand the deployment of digital billboards, which display static digital advertising copy from various advertisers that change every 6 to 8 seconds. We have encountered some existing regulations that restrict or prohibit these types of digital displays, but it has not yet materially impacted our digital deployment. However, new regulations could be enacted to impose greater restrictions on digital billboards due to alleged concerns over aesthetics or driver safety.
The findings of future studies related to the impact of digital billboards on driver safety issues, if any, may result in regulations at the federal or state level that impose greater restrictions on digital billboards. Any new restrictions on digital billboards could have a material adverse effect on both our existing inventory of digital billboards and our plans to expand our digital deployment, which could have a material adverse effect on our business, results of operations and financial condition.
LEGAL PROCEEDINGS
From time to time, we are involved in litigation in the ordinary course of business, including disputes involving advertising contracts, site leases, employment claims and construction matters. We are also involved in routine administrative and judicial proceedings regarding billboard permits, fees and compensation for condemnations. We are not a party to any lawsuit or proceeding which, in the opinion of management, is likely to have a material adverse effect on us.
REAL ESTATE PORTFOLIO
Our management headquarters is located in Baton Rouge, Louisiana. We also own 128 local operating facilities with front office administration and sales office space connected to back-shop poster and bulletin production space. In addition, we lease an additional 149 operating facilities at an aggregate lease expense for 2022 of approximately $9.2 million.
We own approximately 10,500 parcels of property beneath our advertising displays. As of December 31, 2022, we leased approximately 72,500 outdoor sites, accounting for an annualized lease expense of approximately $319.3 million. This amount represented approximately 18% of billboard advertising net revenues for that period. These leases are for varying terms ranging from month-to-month to a term of over ten years, and many provide us with renewal options. Our lease agreements generally permit us to use the land for the construction, repair and relocation of outdoor advertising displays, including all rights necessary to access and maintain the site. Approximately 75% of our leases will expire or be subject to renewal in the next 5 years, 15% will expire or be subject to renewal in 6 to 10 years and 10% thereafter. There is no significant concentration of displays under any one lease or subject to negotiation with any one landlord. An important part of our management activity is to manage our lease portfolio and negotiate suitable lease renewals and extensions.
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The following table illustrates the number of leased and owned sites by state as of December 31, 2022, which is sorted from greatest to least in number and percentage of leased sites. States in which we lease less than 2% of our portfolio are grouped in the category “All Other States and Canada”.
State # of billboard leased sites % of total # of owned billboard sites % of total
Texas 5,110 7.0 % 1,019 9.7 %
Pennsylvania 4,850 6.7 % 1,607 15.3 %
California 4,461 6.2 % 150 1.4 %
Ohio 4,148 5.7 % 594 5.7 %
North Carolina 3,897 5.4 % 279 2.7 %
Georgia 3,365 4.6 % 309 2.9 %
Indiana 3,122 4.3 % 627 6.0 %
Alabama 3,112 4.3 % 513 4.9 %
Tennessee 2,994 4.1 % 471 4.5 %
Louisiana 2,978 4.1 % 534 5.1 %
Wisconsin 2,572 3.5 % 341 3.3 %
Florida 2,480 3.4 % 431 4.1 %
South Carolina 2,298 3.2 % 150 1.4 %
New York 2,158 3.0 % 219 2.1 %
Missouri 2,046 2.8 % 297 2.8 %
Michigan 1,931 2.7 % 285 2.7 %
Mississippi 1,855 2.6 % 412 3.9 %
Oklahoma 1,700 2.3 % 136 1.3 %
Virginia 1,582 2.2 % 175 1.7 %
Illinois 1,483 2.0 % 336 3.2 %
All Other States and Canada 14,365 19.9 % 1,607 15.3 %
72,507 100.0 % 10,492 100.0 %
CONTRACT EXPIRATIONS
We derive revenues primarily from renting advertising space to customers on our advertising displays. Our contracts with customers generally cover periods ranging from one week to one year and are generally billed every four weeks. Since contract terms are short-term in nature, we do not consider revenues by year of contract expiration to be meaningful.
HUMAN CAPITAL RESOURCES
Our People. We employed approximately 3,500 people as of December 31, 2022. Approximately 300 employees were engaged in overall management and general administration at our corporate headquarters in Baton Rouge, Louisiana, and the remainder, including approximately 950 local account executives, were employed in our operating offices.
Fifteen of our local offices employ billposters and construction personnel who are covered by collective bargaining agreements. We believe that our relationship with our employees, including our approximately 100 unionized employees, is favorable, and we have never experienced a strike or work stoppage.
As Lamar’s business continues to grow, so does the Company’s strong commitment to recruiting a work force with diverse talents, as well as to developing and retaining the successful members of our sales and management teams. Our 950 local account executives and approximately 175 local management employees have been with the Company for an average of 12 years. We regularly provide on-site training and remote sales training videos to enhance the skills of our sales and management team members.
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We employ approximately 1,150 operations employees, including operations management. These employees are responsible for installing advertising copy, maintaining our billboard inventory and ensuring our billboards, logos and transit displays are in safe operating condition. We empower these employees to have a safety-first mentality, which includes the authority to stop an installation or other work job for any safety concern. We also provide training and certification to our operations employees, including training for crane operations and climbing safety. Our management regularly conducts scheduled safety meetings and unscheduled job observations to ensure that we maintain a safety mindset every day.
Diversity and inclusion. We recognize that our organization grows stronger as we are able to draw on the skills of employees with a variety of backgrounds and life experiences, particularly as the audiences that we serve become more diverse. We want to embrace Lamar employees’ unique differences of race, gender and gender identity, religion, sexual orientation, ethnicity, nationality, socioeconomic status, language, ability, age, religious commitment, veteran status, or political perspective. As such, we are committed to cultivating a culture where all employees see the opportunity to show up to work as their most authentic selves.
As of December 31, 2022, approximately 36% of our work force was female, 17% of our employees and 33% of our named executive offices identified themselves as minorities, while 33% of our Board of Directors was female and one of our nine directors was a member of a minority group.
We have established several initiatives aimed at further diversifying our work force, including establishing an alliance with a hiring network that helps bring us a more diverse pool of candidates and creating an internal women’s leadership network that provides our female leaders with tools and a supportive community to help them develop into senior-level managers. Our Executive Vice President of Human Resources, who also serves as our Chief Diversity Officer, is charged with providing training that reinforces our commitment to treat all of our employees with dignity and respect.
INFLATION
During 2020 and 2021 inflation did not have a significant impact on our business. During 2022, as a result of the inflationary environment in the U.S., we experienced increases in our direct and general and administrative costs, including increases in labor costs and utilities. Increases in expenses were largely offset by increases in our advertising rates. We also experienced increased interest expenses related to rising interest rates. We expect the inflationary environment and these pressures to continue into 2023.
SEASONALITY
Our revenues and operating results are subject to seasonality. Typically, we experience our strongest financial performance in the summer and fall, and our weakest financial performance in the first quarter of the calendar year, partly because retailers cut back their advertising spending immediately following the holiday shopping season. We expect this trend to continue in the future. Because a significant portion of our expenses is fixed, a reduction in revenues in any quarter is likely to result in a period-to-period decline in operating performance and net earnings.
AVAILABLE INFORMATION
We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to these reports available free of charge through our website, www.lamar.com, as soon as reasonably practicable after filing them with, or furnishing them to, the Securities and Exchange Commission. Information contained on our website is not part of this Annual Report.
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