Lamar Advertising Co: Form 10-Q for the period ended Jun 30, 2024

This report contains forward-looking statements. Actual results could differ materially from those anticipated by the forward-looking statements due to risks and uncertainties described in the section of this combined report on Form 10-Q entitled “Note Regarding Forward-Looking Statements” and in Item 1A to the 2023 Combined Form 10-K filed on February 23, 2024, and as such risk factors as further updated or supplemented, from time to time, in our combined Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. You should carefully consider each of these risks and uncertainties in evaluating the Company’s and Lamar Media’s financial conditions and results of operations. Investors are cautioned not to place undue reliance on the forward-looking statements contained in this document. These statements speak only as of the date of this document, and the Company undertakes no obligation to update or revise the statements, except as may be required by law.

The following is a discussion of the consolidated financial condition and results of operations of the Company for the three and six months ended June 30, 2024 and 2023. This discussion should be read in conjunction with the condensed consolidated financial statements of the Company and the related notes thereto.

Overview

The Company’s net revenues are derived primarily from the rental of advertising space on outdoor advertising displays owned and operated by the Company. Revenue growth is based on many factors that include the Company’s ability to increase occupancy of its existing advertising displays; raise advertising rates; and acquire new advertising displays and its operating results are therefore affected by general economic conditions, as well as trends in the advertising industry. Advertising spending is particularly sensitive to changes in general economic conditions which affect the rates that the Company is able to charge for advertising on its displays and its ability to maximize advertising sales or occupancy on its displays.

Acquisitions and capital expenditures

Historically, the Company has made strategic acquisitions of outdoor advertising assets to increase the number of outdoor advertising displays it operates in existing and new markets. The Company continues to evaluate and pursue strategic acquisition opportunities as they arise. The Company has financed its historical acquisitions and intends to finance any future acquisition activity from available cash, borrowings under its senior credit facility or the issuance of debt or equity securities. See “Liquidity and Capital Resources- Sources of Cash” for more information.

During the six months ended June 30, 2024, the Company completed multiple acquisitions for a total cash purchase price of approximately $28.2 million. See Uses of Cash – Acquisitions for more information. The Company’s business requires expenditures for maintenance and capitalized costs associated with the construction of new billboard displays, the entrance into and renewal of logo sign and transit contracts, and the purchase of real estate and operating equipment. The following table presents a breakdown of capitalized expenditures for the three and six months ended June 30, 2024 and 2023:

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Non-GAAP Financial Measures

Our management reviews our performance by focusing on several key performance indicators not prepared in conformity with Generally Accepted Accounting Principles in the United States (“GAAP”). We believe these non-GAAP performance indicators are meaningful supplemental measures of our operating performance and should not be considered in isolation of, or as a substitute for, their most directly comparable GAAP financial measures.

Included in our analysis of our results of operations are discussions regarding earnings before interest, taxes, depreciation and amortization (“adjusted EBITDA”), Funds From Operations (“FFO”), as defined by 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, loss (gain) on disposition of assets and investments, transaction expenses and capitalized contract fulfillment costs, net.

FFO is defined as net income before (gain) loss from the sale or disposal of real estate assets and investments, net of tax, 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; (iv) non-cash portion of tax expense (benefit); (v) non-real estate related depreciation and amortization; (vi) amortization of deferred financing costs; (vii) loss on extinguishment of debt; (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.

Acquisition-adjusted net revenue adjusts our net revenue for the prior period by adding to it the net revenue generated by the acquired assets before our acquisition of these assets for the same time frame that those assets were owned in the current period. In calculating acquisition-adjusted revenue, therefore, we include revenue generated by assets that we did not own in the period but acquired in the current period. We refer to the amount of pre-acquisition revenue generated by the acquired assets during the prior period that corresponds with the current period in which we owned the assets (to the extent within the period to which this report relates) as “acquisition net revenue”. In addition, we also adjust the prior period to subtract revenue generated by the assets that have been divested since the prior period and, therefore, no revenue derived from those assets is reflected in the current period.

Adjusted EBITDA, FFO, AFFO and acquisition-adjusted net revenue are not intended to replace net income or any other performance measures determined in accordance with GAAP. Neither FFO nor AFFO represent cash flows from operating activities in accordance with GAAP and, therefore, these measures should not be considered indicative of cash flows from operating activities as a measure of liquidity or of funds available to fund our cash needs, including our ability to make cash distributions. Rather, adjusted EBITDA, FFO, AFFO and acquisition-adjusted net revenue are presented as we believe each is a useful indicator of our current operating performance. We believe that these metrics are useful to an investor in evaluating our operating performance because (1) each is a key measure used by our management team for purposes of decision-making and for evaluating our core operating results; (2) adjusted EBITDA is widely used in the industry to measure operating performance as depreciation and amortization may vary significantly among companies depending upon accounting methods and useful lives, particularly where acquisitions and non-operating factors are involved; (3) acquisition-adjusted net revenue is a supplement to net revenue to enable investors to compare period-over-period results on a more consistent basis without the effects of acquisitions and 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 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.

Our measurement of adjusted EBITDA, FFO, AFFO and acquisition-adjusted net revenue may not, however, be fully comparable to similarly titled measures used by other companies. Reconciliations of adjusted EBITDA, FFO, AFFO and acquisition-adjusted net revenue to net income, the most directly comparable GAAP measure, have been included herein.

RESULTS OF OPERATIONS

Six months ended June 30, 2024 compared to six months ended June 30, 2023

Net revenues increased $50.9 million or 5.0% to $1.06 billion for the six months ended June 30, 2024 from $1.01 billion for the same period in 2023. This increase was primarily attributable to an increase in billboard net revenues of $41.1 million and an increase in transit net revenues of $9.1 million over the same period in 2023.

For the six months ended June 30, 2024, there was a $46.5 million increase in net revenues as compared to acquisition-adjusted net revenue for the six months ended June 30, 2023, which represents an increase of 4.6%. See "Reconciliations" below. The $46.5 million increase in revenue is primarily due to an increase of $35.9 million in billboard net revenues as well as an increase in transit net revenues of $9.9 million over the same period in 2023.

Total operating expenses, exclusive of depreciation and amortization and gain on disposition of assets, increased $32.2 million, or 5.6%, to $605.2 million for the six months ended June 30, 2024 from $573.0 million for the same period in 2023. The $32.2 million increase over the prior year is comprised of a $19.0 million increase in total direct, general and administrative and corporate expenses (excluding stock-based compensation) primarily related to the operations of our outdoor advertising assets, as well as a $13.2 million increase in stock-based compensation.

Depreciation and amortization expense increased $4.1 million to $152.4 million for the six months ended June 30, 2024 as compared to $148.3 million for the same period in 2023, primarily related to acquisitions and capital expenditures completed during 2023 and the first half of 2024.

For the six months ended June 30, 2024, the Company recognized a gain on disposition of assets of $3.0 million primarily resulting from transactions related to the sale of billboard locations and displays.

Due to the above factors, operating income increased by $13.2 million to $308.8 million for the six months ended June 30, 2024 as compared to $295.6 million for the same period in 2023.

Interest expense increased $3.7 million for the six months ended June 30, 2024 to $88.8 million as compared to $85.1 million for the six months ended June 30, 2023 primarily due to the increase in interest rates on the Accounts Receivable Securitization Program and senior credit facility.

Equity in loss (earnings) of investee was a loss of $0.6 million and earnings of $0.6 million for the six months ended June 30, 2024 and 2023, respectively.

The increase in operating income, offset by the increase in interest expense, resulted in a $8.4 million increase in net income before income taxes. The effective tax rate for the six months ended June 30, 2024 was 2.0%, 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 six months ended June 30, 2024 of $216.1 million, as compared to net income of $207.1 million for the same period in 2023.

Reconciliations:

Because acquisitions occurring after December 31, 2022 have contributed to our net revenue results for the periods presented, we provide 2023 acquisition-adjusted net revenue, which adjusts our 2023 net revenue for the six months ended June 30, 2023 by adding to or subtracting from it the net revenue generated by the acquired or divested assets prior to our acquisition or divestiture of these assets for the same time frame that those assets were owned in the six months ended June 30, 2024.

Reconciliations of 2023 reported net revenue to 2023 acquisition-adjusted net revenue for the six months ended June 30, as well as a comparison of 2023 acquisition-adjusted net revenue to 2024 reported net revenue for the six months ended June 30, are provided below:

Reconciliation and Comparison of Reported Net Revenue to Acquisition-Adjusted Net Revenue

(in thousands)

Key Performance Indicators

Net Income/Adjusted EBITDA

(in thousands)

Adjusted EBITDA for the six months ended June 30, 2024 increased 7.0% to $483.5 million. The increase in adjusted EBITDA was primarily attributable to an increase in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization and capitalized contract fulfillment costs, net) of $31.9 million.

Net Income/FFO/AFFO

(in thousands)

FFO for the six months ended June 30, 2024 increased from $344.1 million in 2023 to $357.8 million for the same period in 2024, an increase of 4.0%. AFFO for the six months ended June 30, 2024 increased 9.8% to $371.8 million as compared to $338.5 million for the same period in 2023. The increase in AFFO was primarily attributable to a $31.9 million increase in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization and capitalized contract fulfillment costs, net).

Three months ended June 30, 2024 compared to three months ended June 30, 2023

Net revenues increased $24.1 million or 4.5% to $565.3 million for the three months ended June 30, 2024 from $541.1 million for the same period in 2023. This increase was primarily attributable to an increase in billboard net revenues of $18.9 million and an increase in transit net revenues of $5.0 million over the same period in 2023.

For the three months ended June 30, 2024, there was a $21.4 million increase in net revenues as compared to acquisition-adjusted net revenue for the three months ended June 30, 2023, which represents an increase of 3.9%. See "Reconciliations" below. The $21.4 million increase in revenue is primarily due to an increase of $16.3 million in billboard net revenues as well as an increase in transit net revenues of $4.8 million over the same period in 2023.

Total operating expenses, exclusive of depreciation and amortization and gain on disposition of assets, increased $13.8 million, or 4.7%, to $304.7 million for the three months ended June 30, 2024 from $290.9 million for the same period in 2023. The $13.8 million increase over the prior year is comprised of a $7.0 million increase in total direct, general and administrative and corporate expenses (excluding stock-based compensation) primarily related to the operations of our outdoor advertising assets, as well as a $6.7 million increase in stock-based compensation.

Depreciation and amortization expense increased $2.0 million to $77.2 million for the three months ended June 30, 2024 as compared to $75.2 million for the same period in 2023, primarily related to acquisitions and capital expenditures completed during 2023 and the first half of 2024.

For the three months ended June 30, 2024, the Company recognized a gain on disposition of assets of $0.8 million, primarily resulting from transactions related to the sale of billboard locations and displays.

Due to the above factors, operating income increased by $7.4 million to $184.2 million for the three months ended June 30, 2024 as compared to $176.8 million for the same period in 2023.

Interest expense increased $0.7 million for the three months ended June 30, 2024 to $44.3 million as compared to $43.6 million for the three months ended June 30, 2023, primarily due to the increase in interest rates on the Accounts Receivable Securitization Program and senior credit facility.

The increase in operating income, offset by the increase in interest expense, resulted in a $6.4 million increase in net income before income taxes. The effective tax rate for the three months ended June 30, 2024 was 2.0%, which differs from the federal statutory rate primarily due to our qualification for taxation as a REIT and adjustments for foreign items.

As a result of the above factors, the Company recognized net income for the three months ended June 30, 2024 of $137.6 million, as compared to net income of $130.9 million for the same period in 2023.

Reconciliations:

Because acquisitions occurring after December 31, 2022 have contributed to our net revenue results for the periods presented, we provide 2023 acquisition-adjusted net revenue, which adjusts our 2023 net revenue for the three months ended June 30, 2023 by adding to or subtracting from it the net revenue generated by the acquired or divested assets prior to our acquisition or divestiture of these assets for the same time frame that those assets were owned in the three months ended June 30, 2024.

Reconciliations of 2023 reported net revenue to 2023 acquisition-adjusted net revenue for the three months ended June 30, as well as a comparison of 2023 acquisition-adjusted net revenue to 2024 reported net revenue for the three months ended June 30, are provided below:

Reconciliation and Comparison of Reported Net Revenue to Acquisition-Adjusted Net Revenue

(in thousands)

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Key Performance Indicators

Net Income/Adjusted EBITDA

(in thousands)

Adjusted EBITDA for the three months ended June 30, 2024 increased 6.9% to $271.6 million. The increase in adjusted EBITDA was primarily attributable to an increase in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization and capitalized contract fulfillment costs, net) of $13.2 million, as well as a decrease in total general and administrative and corporate expenses of $4.4 million, excluding the impact of stock-based compensation expense.

Net Income/FFO/AFFO

(in thousands)

FFO for the three months ended June 30, 2024 increased from $200.6 million in 2023 to $209.3 million for the same period in 2024, an increase of 4.3%. AFFO for the three months ended June 30, 2024 increased 9.8% to $213.5 million as compared to $194.4 million for the same period in 2023. The increase in AFFO was primarily attributable to an increase in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization and capitalized contract fulfillment costs, net) of $13.2 million and a decrease in total general and administrative and corporate expenses (excluding the effect of stock-based compensation expense) of $4.4 million.

LIQUIDITY AND CAPITAL RESOURCES

Overview

The Company has historically satisfied its working capital requirements with cash from operations and borrowings under the senior credit facility. The Company’s wholly owned subsidiary, Lamar Media Corp., is the borrower under the senior credit facility and maintains all corporate operating cash balances. Any cash requirements of the Company, therefore, must be funded by distributions from Lamar Media.

Sources of Cash

Total Liquidity. As of June 30, 2024 we had $744.3 million of total liquidity, which is comprised of $77.9 million in cash and cash equivalents and $666.4 million of availability under the revolving portion of Lamar Media’s senior credit facility. We expect our total liquidity to be adequate for the Company to meet its operational requirements for the next twelve months. We are currently in compliance with the maintenance covenant included in the senior credit facility and we would remain in compliance after giving effect to borrowing the full amount available to us under the revolving portion of the senior credit facility.

As of June 30, 2024 and December 31, 2023, the Company had a working capital deficit of $623.8 million and $340.7 million, respectively. The increase in working capital deficit of $283.1 million is primarily due to an increase in current maturities of long term debt.

Cash Generated by Operations. For the six months ended June 30, 2024 and 2023, our cash provided by operating activities was $366.9 million and $306.9 million, respectively. The increase in cash provided by operating activities for the six months ended June 30, 2024 over the same period in 2023 primarily relates to an increase in revenue of $50.9 million, offset by an increase in operating expenses (excluding stock-based compensation, gain on disposition of assets, and depreciation and amortization) of $19.0 million and an increase in interest expense of $3.7 million. We expect to generate cash flows from operations during 2024 in excess of our cash needs for operations, capital expenditures and dividends, as described herein. We believe we have sufficient liquidity available under our revolving credit facility to meet our operating cash needs for the next twelve months.

Accounts Receivable Securitization Program. On June 24, 2022, Lamar Media and the Special Purpose Subsidiaries entered into the Sixth Amendment (the "Sixth Amendment") to the Receivables Financing Agreement. 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. In connection with the Accounts Receivable Securitization Program, Lamar Media and certain of its subsidiaries (such subsidiaries, the “Subsidiary Originators”) sell and/or contribute their existing and future accounts receivable and certain related assets to one of two special purpose subsidiaries, Lamar QRS Receivables, LLC (the “QRS SPV”) and Lamar TRS Receivables, LLC (the “TRS SPV” and together with the QRS SPV the “Special Purpose Subsidiaries”), each of which is a wholly-owned subsidiary of Lamar Media. Existing and future accounts receivable relating to Lamar Media and its qualified REIT subsidiaries will be sold and/or contributed to the QRS SPV and existing and future accounts receivable relating to Lamar Media’s Taxable REIT Subsidiaries ("TRSs") will be sold and/or contributed to the TRS SPV. Each of the Special Purpose Subsidiaries has granted the lenders party to the Accounts Receivable Securitization Program a security interest in all of its assets, which consist of the accounts receivable and related assets sold or contributed to them, as described above, in order to secure the obligations of the Special Purpose Subsidiaries under the agreements governing the Accounts Receivable Securitization Program. Pursuant to the Accounts Receivable Securitization Program, Lamar Media has agreed to service the accounts receivable on behalf of the two Special Purpose Subsidiaries for a fee. Lamar Media has also agreed to guaranty its performance in its capacity as servicer and originator, as well as the performance of the Subsidiary Originators, of their obligations under the agreements governing the Accounts Receivable Securitization Program. None of Lamar Media, the Subsidiary Originators or the Special Purpose Subsidiaries guarantees the collectability of the receivables under the Accounts Receivable Securitization Program. In addition, each of the Special Purpose Subsidiaries is a separate legal entity with its own separate creditors who will be entitled to access the assets of such Special Purpose Subsidiary before the assets become available to Lamar Media. 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.

As of June 30, 2024, there was $250.0 million in outstanding aggregate borrowings under the Accounts Receivable Securitization Program. Lamar Media had no additional availability under the Accounts Receivable Securitization Program as of June 30, 2024. The Accounts Receivable Securitization Program will mature on July 21, 2025.

“At-the-Market” Offering Program. On June 21, 2021, the Company entered into an equity distribution agreement, or At-the-Market Offering agreement, (the "2021 Sales Agreement"), with J.P. Morgan Securities LLC, Wells Fargo Securities, LLC, Truist Securities, Inc., SMBC Nikko Securities America, Inc. and Scotia Capital (USA) Inc. 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. Sales of the Class A common stock, if any, may be made in negotiated transactions or transactions that are deemed to be "at-the-market offerings" as defined in Rule 415 under the Securities Act of 1933, as amended, including sales made directly on or through the Nasdaq Global Select Market and any other existing trading market for the Class A common stock, or sales made to or through a market maker other than on an exchange. The Company has no obligation to sell any of the Class A common stock under the 2021 Sales Agreement and may at any time suspend solicitations and offers under the 2021 Sales Agreement. The Company intends to use the net proceeds, if any, from the sale of the Class A common stock pursuant to the 2021 Sales Agreement for general corporate purposes, which may include the repayment, refinancing, redemption or repurchase of existing indebtedness, working capital, capital expenditures, acquisition of outdoor advertising assets and businesses and other related investments. The Company did not issue any shares under this program from its inception through June 30, 2024. The 2021 Sales Agreement expired by its terms on June 21, 2024.

On July 24, 2024, the Company entered into a a new equity distribution agreement, or At-the-Market Offering agreement, (the "2024 Sales Agreement"). Under the terms of the 2024 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 $400,000, through the Sales Agents as either agents or principals. The 2024 Sales Agreement retains substantially similar terms and conditions from the 2021 Sales Agreement, which expired by its terms on June 21, 2024.

Shelf Registration Statement. On June 21, 2021, the Company filed a new automatically effective shelf registration statement that allows Lamar Advertising to offer and sell an indeterminate amount of additional shares of its Class A common stock. During the six months ended June 30, 2024 and the year ended December 31, 2023, the Company did not issue any shares under the shelf registration statement. The shelf registration statement expired on June 21, 2024.

On July 24, 2024, the Company filed a new automatically effective shelf registration statement that allows the Company to offer and sell an indeterminate amount of additional shares of its Class A common stock, which replaces the previous shelf registration statement.

Credit Facilities. On February 6, 2020, Lamar Media entered into a Fourth Amended and Restated Credit Agreement (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, under which the parties agreed to amend and restate Lamar Media’s existing senior credit facility. The Fourth Amended and Restated Credit Agreement amended and restated the Third Amended and Restated Credit Agreement dated as of May 15, 2017, as amended (the “Third Amended and Restated Credit Agreement”).

On July 2, 2021, Lamar Media entered into Amendment No. 1 (the "Amendment"), to the Fourth Amended and Restated Credit Agreement. 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.

As of June 30, 2024, the senior credit facility, as established by the Fourth Amended and Restated Credit Agreement (the “senior credit facility”), consisted of (i) a $750.0 million senior secured revolving credit facility which will mature on July 31, 2028, subject to certain conditions (see description of Amendment No. 4 below) (the “revolving credit facility”), (ii) a $600.0 million senior secured Term B loan facility (the “Term B loans”) which will mature on February 6, 2027, (iii) a $350.0 million senior secured Term A loan facility (the "Term A loans") which were set to mature on February 6, 2025, and (iv) 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. Lamar Media borrowed all $600.0 million in Term B loans on February 6, 2020. The entire amount of the Term B loans will be payable at maturity.

The Term B loans bear interest at rates based on Term SOFR plus a credit spread adjustment of 0.10% (Term SOFR plus such credit spread adjustment, the "Adjusted Term SOFR Rate”) or the Adjusted Base Rate, at Lamar Media’s option. Term B loans bearing interest at a rate based on Term SOFR bear interest at a rate per annum equal to the Adjusted Term SOFR Rate plus 1.50%. Term B loans bearing interest at a rate based on the Adjusted Base Rate bear interest at a rate per annum equal to the Adjusted Base Rate plus 0.50%. The revolving credit facility bears interest at rates based on Term SOFR ("Term SOFR revolving loans”) or the Adjusted Base Rate (“Base Rate revolving loans”), at Lamar Media’s option. Term SOFR revolving loans bear interest at a rate per annum equal to the Adjusted Term SOFR Rate plus 1.50% (or the Adjusted Term SOFR Rate plus 1.25% at any time the Total Debt Ratio is less than or equal to 3.25 to 1). Base Rate revolving loans bear interest at a rate per annum equal to the Adjusted Base Rate plus 0.50% (or the Adjusted Base Rate plus 0.25% at any time the total debt ratio is less than or equal to 3.25 to 1). The guarantees, covenants, events of default and other terms of the senior credit facility apply to the Term B loans and revolving credit facility.

On July 29, 2022, Lamar Media entered into Amendment No. 2 ("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. Amendment No. 2 established the Term A loans as a new class of incremental term loans. The Term A loans were set to mature on February 6, 2025 and bore interest based on Term SOFR ("Term SOFR Term A loans") or the Adjusted Base Rate ("Base Rate Term A loans"), at Lamar Media's option. Term SOFR Term A loans bear interest at a rate per annum equal to the Adjusted Term SOFR Rate plus 1.50% (or the Adjusted Term SOFR Rate plus 1.25% at any time the Total Debt Ratio is less than or equal to 3.25 to 1). Base Rate Term A loans bore interest at a rate per annum equal to the Adjusted Base Rate plus 0.50% (or the Adjusted Base Rate plus 0.25% at any time the total debt ratio is less than or equal to 3.25 to 1). The 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. The Term A loans were susequently repaid in full on July 31, 2024.

On April 26, 2023, Lamar Media entered into Amendment No. 3 ("Amendment No. 3") 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. Amendment No. 3 replaced the London Interbank Offered Rates as administered by the ICE Benchmark Administration with Term SOFR as the successor rate, as set in the Fourth Amended and Restated Credit Agreement. All other material terms and conditions of the Fourth Amended and Restated Credit Agreement remain unchanged by Amendment No. 3.

On July 31, 2023, Lamar Media entered into Amendment No. 4 (the “Amendment No. 4”), 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. Amendment No. 4 extends the maturity date of Lamar Media’s $750.0 million revolving credit facility such that the revolving credit facility matures July 31, 2028; provided, that, if on the date (a "Springing Maturity Test Date") that is 91 days prior to either the then scheduled maturity date of Lamar Media’s Term B loans (which is currently February 6, 2027) or the February 15, 2028 maturity date of Lamar Media’s 3 3/4% Notes, the Company and its restricted subsidiaries do not have sufficient liquidity (defined as unrestricted cash and cash equivalents of the Company and its restricted subsidiaries plus unused commitments under the revolving credit facility) to repay in full the aggregate outstanding amount (including all accrued and unpaid interest, premiums and make-whole amounts (if any)) of the Term B loans or the 3 3/4% Notes (as applicable), the revolving credit facility will mature on such Springing Maturity Test Date. On the maturity date of the revolving credit facility, the entire principal amount of revolving loans outstanding under the revolving credit facility, together with all accrued and unpaid interest on such revolving loans, will be due and payable.

Amendment No. 4 also establishes a $75.0 million swingline as a sublimit of the revolving credit facility, which allows Lamar Media to borrow revolving loans on a same-day basis, in an aggregate outstanding principal amount of up to $75.0 million. In addition, Amendment No. 4 amends the provisions of the Fourth Amended and Restated Credit Agreement related to incremental facilities to allow Lamar Media to establish, from time to time, one or more new incremental revolving facilities on the terms, and subject to the conditions, set forth therein.

As of June 30, 2024 the aggregate balance outstanding under the senior credit facility was $1.03 billion, consisting of $600.0 million in Term B loans aggregate principal balance, $350.0 million in Term A loans aggregate principal balance and $75.0 million outstanding borrowings under our revolving credit facility. Lamar Media had approximately $666.4 million of unused capacity under the revolving credit facility.

Factors Affecting Sources of Liquidity

Internally Generated Funds. The key factors affecting internally generated cash flow are general economic conditions, specific economic conditions in the markets where the Company conducts its business and overall spending on advertising by advertisers. We expect to generate cash flows from operations during 2024 in excess of our cash needs for operations, capital expenditures and dividends, as described herein, and we believe we have sufficient liquidity with cash on hand and availability under our revolving credit facility to meet our operating cash needs for the next twelve months.

Credit Facilities and Other Debt Securities. The Company and Lamar Media must comply with certain covenants and restrictions related to the senior credit facility, its outstanding debt securities and its Accounts Receivable Securitization Program.

Lamar Media's outstanding Term A loans were set to mature on February 6, 2025. On July 31, 2024, Lamar Media paid in full its $350.0 million in Term A loans outstanding under its Senior Credit facility. The repayment of the Term A loans was completed using a combination of borrowings under our revolving credit facility and cash on hand.

Restrictions Under Debt Securities. The Company and Lamar Media must comply with certain covenants and restrictions related to its outstanding debt securities. Currently, Lamar Media has outstanding the $600.0 million 3 3/4% Senior Notes issued February 2020, the $550.0 million 4% Senior Notes issued February 2020 and August 2020, the $400.0 million 4 7/8% Senior Notes issued in May 2020 and the $550.0 million 3 5/8% Senior Notes issued in January 2021.

The indentures relating to Lamar Media’s outstanding notes restrict its ability to incur additional indebtedness, but permit the incurrence of indebtedness (including indebtedness under the senior credit facility), (i) if no default or event of default would result from such incurrence and (ii) if after giving effect to any such incurrence, the leverage ratio (defined as the sum of (x) total consolidated debt plus (y) the aggregate liquidation preference of any preferred stock of Lamar Media’s restricted subsidiaries to trailing four fiscal quarter EBITDA (as defined in the indentures)) would be less than 7.0 to 1.0. Currently, Lamar Media is not in default under the indentures of any of its outstanding notes and, therefore, would be permitted to incur additional indebtedness subject to the foregoing provision.

In addition to debt incurred under the provisions described in the preceding paragraph, the indentures relating to Lamar Media’s outstanding notes permit Lamar Media to incur indebtedness pursuant to the following baskets:

• up to $2.0 billion of indebtedness under the senior credit facility;
• indebtedness outstanding on the date of the indentures or debt incurred to refinance outstanding debt;
• inter-company debt between Lamar Media and its restricted subsidiaries or between restricted subsidiaries;
• certain purchase money indebtedness and capitalized lease obligations to acquire or lease property in the ordinary course of business that cannot exceed the greater of $50.0 million or 5% of Lamar Media’s net tangible assets;
• additional debt not to exceed $75.0 million; and
• up to $500.0 million of permitted securitization financings.

Restrictions Under Senior Credit Facility. Lamar Media is required to comply with certain covenants and restrictions under the senior credit facility. If the Company or Lamar Media fails to comply with these tests, the lenders under the senior credit facility will be entitled to exercise certain remedies, including the termination of the lending commitments and the acceleration of the debt payments under the senior credit facility. At June 30, 2024 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 or 6% of its total assets.

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 (a) 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 (b) EBITDA, as defined below, for the most recent four fiscal quarters then ended, is less than 7.0 to 1.0.

Lamar Media is also restricted from incurring additional subordinated indebtedness under certain circumstances unless, after giving effect to the incurrence of such indebtedness, it is in compliance with the secured debt ratio covenant and its total debt ratio is less than 7.0 to 1.0.

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. 141R will be excluded. If during any period for which EBITDA is being determined, we have consummated any acquisition or disposition, EBITDA will be determined on a pro forma basis as if such acquisition or disposition had been made or consummated on the first day of such period.

Under the senior credit facility, “net income” means for any period, the consolidated net income (or loss) of Lamar Advertising, us, and our restricted subsidiaries, determined on a consolidated basis in accordance with GAAP; provided that the following is excluded from net income: (a) the income (or deficit) of any person accrued prior to the date it becomes a restricted subsidiary or is merged into or consolidated with Lamar Advertising, us or any of our restricted subsidiaries, and (b) the income (or deficit) of any person (other than any of our restricted subsidiaries) in which Lamar Advertising, we or any of our subsidiaries has an ownership interest, except to the extent that any such income is received by Lamar Advertising, us or any of our restricted subsidiaries in the form of dividends or similar distributions.

The Company believes that its current level of cash on hand, availability under the senior credit facility and future cash flows from operations are sufficient to meet its operating needs for the next twelve months. All debt obligations are reflected on the Company’s balance sheet.

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

Uses of Cash

Long-term debt prepayments. On July 31, 2024, Lamar Media paid in full its $350.0 million in Term A loans outstanding under its Senior Credit facility. The repayment of the Term A loans was completed using a combination of borrowings under our revolving credit facility and cash on hand.

Capital Expenditures. Capital expenditures, excluding acquisitions, were approximately $52.1 million for the six months ended June 30, 2024. We anticipate our 2024 total capital expenditures will be approximately $125.0 million.

Acquisitions. During the six months ended June 30, 2024, the Company completed acquisitions for an aggregate purchase price of approximately $28.2 million, which were financed using available cash on hand and borrowings on the senior credit facility.

Dividends. On February 22, 2024, the Company's Board of Directors declared a quarterly cash dividend of $1.30 per share, paid on March 28, 2024 to its stockholders of record of its Class A common stock and Class B common stock on March 15, 2024. On May 16, 2024, the Company's Board of Directors declared a quarterly cash dividend of $1.30 per share, paid on June 28, 2024 to its stockholders of record of its Class A common stock and Class B common stock on June 17, 2024. Subject to approval of the Company's Board of Directors, the Company expects aggregate quarterly distributions to stockholders in 2024 will be at least $5.40 per share of common stock, including the dividends paid on March 28, 2024 and June 28, 2024.

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 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.

Stock and Debt Repurchasing Program. On March 16, 2020, the Company’s Board of Directors authorized the repurchase of up to $250.0 million of the Company’s Class A common stock. Additionally, the Board of Directors has authorized Lamar Media to repurchase up to $250.0 million in outstanding senior or senior subordinated notes and other indebtedness outstanding from time to time under its senior credit agreement. On February 23, 2023, the Board of Directors authorized the extension of the repurchase program through September 30, 2024. There were no repurchases under the program as of June 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.

Material Cash Requirements

Our expected material cash requirements for the twelve months following June 30, 2024 and thereafter are comprised of contractual obligations, required annual distributions and other opportunistic expenditures.

Debt and Contractual Obligations. The following table summarizes our future debt maturities, interest payment obligations, and contractual obligations including required payments under operating and financing leases as of June 30, 2024 (in millions):

(1) Debt maturities assume there is no refinancing prior to the existing maturity date.

(2) Interest rates on our variable rate instruments assume rates at the June 2024 levels.

Lamar Media's outstanding Term A loans were set to mature on February 6, 2025. On July 31, 2024, Lamar Media paid in full its $350.0 million in Term A loans outstanding under its Senior Credit facility. The repayment of the Term A loans was completed using a combination of borrowings under our revolving credit facility and cash on hand.

Required Annual Distributions. 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). On February 22, 2024, the Company's Board of Directors declared a quarterly cash dividend of $1.30 per share, paid on March 28, 2024 to its stockholders of record of its Class A common stock and Class B common stock on March 15, 2024. On May 16, 2024, the Company's Board of Directors declared a quarterly cash dividend of $1.30 per share, paid on June 28, 2024 to its stockholders of record of its Class A common stock and Class B common stock on June 17, 2024. Subject to approval of the Company's Board of Directors, the Company expects aggregate quarterly distributions to stockholders in 2024 will be at least $5.40 per share of common stock, including the dividends paid on March 28, 2024 and June 28, 2024.

Opportunistic Expenditures. As part of our capital allocation strategy, we plan to continue to allocate our available capital among investment alternatives that meet our return on investment criteria. We will continue to reinvest in our existing assets and expand our outdoor advertising display portfolio through new construction. We will also continue 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 criteria.

Cash Flows

The Company's cash flows provided by operating activities increased $60.0 million from $306.9 million for the six months ended June 30, 2023 to $366.9 million for the six months ended June 30, 2024, primarily resulting from an increase in revenues of $50.9 million, offset by an increase in operating expenses (excluding stock-based compensation, gain on disposition of assets, and depreciation and amortization) of $19.0 million and an increase in interest expense of $3.7 million, as compared to the same period in 2023.

Cash flows used in investing activities decreased $53.3 million from $130.0 million for the six months ended June 30, 2023 to $76.7 million for the six months ended June 30, 2024 primarily due to a net decrease in the amount of assets acquired through acquisitions, investments and capital expenditures of $54.8 million, as compared to the same period in 2023.

The Company's cash flows used in financing activities were $256.7 million for the six months ended June 30, 2024 as compared to $181.8 million for the six months ended June 30, 2023. The cash flows used in financing activities of $256.7 million for the six months ended June 30, 2024 is primarily due to cash paid for dividends and distributions offset by net borrowings on the senior credit facility.

Critical Accounting Estimates

Our discussion and analysis of our results of operations and liquidity and capital resources are based on our condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. There have been no material changes to the critical accounting policies and estimates as previously disclosed in Item 7 of our 2023 Combined Form 10-K.

Accounting Standards and Regulatory Update

See Note 12, "New Accounting Pronouncements" to our condensed consolidated financial statements included in Part 1, Item 1 of this report for a discussion of our Accounting Standards and Regulatory Update.

The following is a discussion of the consolidated financial condition and results of operations of Lamar Media for the three and six months ended June 30, 2024 and 2023. This discussion should be read in conjunction with the consolidated financial statements of Lamar Media and the related notes thereto.

RESULTS OF OPERATIONS

Six months ended June 30, 2024 compared to six months ended June 30, 2023

Net revenues increased $50.9 million or 5.0% to $1.06 billion for the six months ended June 30, 2024 from $1.01 billion for the same period in 2023. This increase was primarily attributable to an increase in billboard net revenues of $41.1 million and an increase in transit net revenues of $9.1 million over the same period in 2023.

For the six months ended June 30, 2024, there was a $46.5 million increase in net revenues as compared to acquisition-adjusted net revenue for the six months ended June 30, 2023, which represents an increase of 4.6%. See "Reconciliations" below. The $46.5 million increase in revenue is primarily due to an increase of $35.9 million in billboard net revenues as well as an increase in transit net revenues of $9.9 million over the same period in 2023.

Total operating expenses, exclusive of depreciation and amortization and gain on disposition of assets, increased $32.1 million, or 5.6%, to $604.8 million for the six months ended June 30, 2024 from $572.7 million for the same period in 2023. The $32.1 million increase over the prior year is comprised of a $19.0 million increase in total direct, general and administrative and corporate expenses (excluding stock-based compensation) primarily related to the operations of our outdoor advertising assets, as well as a $13.2 million increase in stock-based compensation.

Depreciation and amortization expense increased $4.1 million to $152.4 million for the six months ended June 30, 2024 as compared to $148.3 million for the same period in 2023, primarily related to acquisitions and capital expenditures completed during 2023 and the first half of 2024.

For the six months ended June 30, 2024, Lamar Media recognized a gain on disposition of assets of $3.0 million, primarily resulting from transactions related to the sale of billboard locations and displays.

Due to the above factors, operating income increased by $13.3 million to $309.1 million for the six months ended June 30, 2024 as compared to $295.8 million for the same period in 2023.

Interest expense increased $3.7 million for the six months ended June 30, 2024 to $88.8 million as compared to $85.1 million for the six months ended June 30, 2023 primarily due to the increase in interest rates on the Accounts Receivable Securitization Program and senior credit facility.

Equity in loss (earnings) of investee was a loss of $0.6 million and earnings of $0.6 million for the six months ended June 30, 2024 and 2023, respectively.

The increase in operating income, offset by the increase in interest expense, resulted in a $8.5 million increase in net income before income taxes. The effective tax rate for the six months ended June 30, 2024 was 2.0%, which differs from the federal statutory rate primarily due to our qualification for taxation as a REIT and adjustments for foreign items.

As a result of the above factors, Lamar Media recognized net income for the six months ended June 30, 2024 of $216.4 million, as compared to net income of $207.3 million for the same period in 2023.

Reconciliations:

Because acquisitions occurring after December 31, 2022 have contributed to our net revenue results for the periods presented, we provide 2023 acquisition-adjusted net revenue, which adjusts our 2023 net revenue for the six months ended June 30, 2023 by adding to or subtracting from it the net revenue generated by the acquired or divested assets prior to our acquisition or divestiture of these assets for the same time frame that those assets were owned in the six months ended June 30, 2024.

Reconciliations of 2023 reported net revenue to 2023 acquisition-adjusted net revenue for the six months ended June 30, as well as a comparison of 2023 acquisition-adjusted net revenue to 2024 reported net revenue for the six months ended June 30, are provided below:

Reconciliation and Comparison of Reported Net Revenue to Acquisition-Adjusted Net Revenue

(in thousands)

Key Performance Indicators

Net Income/Adjusted EBITDA

(in thousands)

Adjusted EBITDA for the six months ended June 30, 2024 increased 7.0% to $483.8 million. The increase in adjusted EBITDA was primarily attributable to an increase in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization and capitalized contract fulfillment costs, net) of $31.9 million.

Net Income/FFO/AFFO

(in thousands)

FFO for the six months ended June 30, 2024 increased from $344.4 million in 2023 to $358.1 million for the same period in 2024, an increase of 4.0%. AFFO for the six months ended June 30, 2024 increased 9.8% to $372.1 million as compared to $338.7 million for the same period in 2023. The increase in AFFO was primarily attributable to a $31.9 million increase in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization and capitalized contract fulfillment costs, net).

Three months ended June 30, 2024 compared to three months ended June 30, 2023

Net revenues increased $24.1 million or 4.5% to $565.3 million for the three months ended June 30, 2024 from $541.1 million for the same period in 2023. This increase was primarily attributable to an increase in billboard net revenues of $18.9 million and an increase in transit net revenues of $5.0 million over the same period in 2023.

For the three months ended June 30, 2024, there was a $21.4 million increase in net revenues as compared to acquisition-adjusted net revenues for the three months ended June 30, 2023, which represents an increase of 3.9%. See "Reconciliations" below. The $21.4 million increase in revenue is primarily due to an increase of $16.3 million in billboard net revenues as well as an increase in transit net revenues of $4.8 million over the same period in 2023.

Total operating expenses, exclusive of depreciation and amortization and gain on disposition of assets, increased $13.7 million, or 4.7%, to $304.5 million for the three months ended June 30, 2024 from $290.8 million for the same period in 2023. The $13.7 million increase over the prior year is comprised of a $7.0 million increase in total direct, general and administrative and corporate expenses (excluding stock-based compensation) primarily related to the operations of our outdoor advertising assets, as well as a $6.7 million increase in stock-based compensation.

Depreciation and amortization expense increased $2.0 million to $77.2 million for the three months ended June 30, 2024 as compared to $75.2 million for the same period in 2023, primarily related to acquisitions and capital expenditures completed during 2023 and the first half of 2024.

For the three months ended June 30, 2024, Lamar Media recognized a gain on disposition of assets of $0.8 million, primarily resulting from transactions related to the sale of billboard locations and displays.

Due to the above factors, operating income increased by $7.5 million to $184.4 million for the three months ended June 30, 2024 as compared to $176.9 million for the same period in 2023.

Interest expense increased $0.7 million for the three months ended June 30, 2024 to $44.3 million as compared to $43.6 million for the three months ended June 30, 2023 primarily due to the increase in interest rates on the Accounts Receivable Securitization Program and senior credit facility.

The increase in operating income, offset by the increase in interest expense, resulted in a $6.5 million increase in net income before income taxes. The effective tax rate for the three months ended June 30, 2024 was 2.0%, which differs from the federal statutory rate primarily due to our qualification for taxation as a REIT and adjustments for foreign items.

As a result of the above factors, Lamar Media recognized net income for the three months ended June 30, 2024 of $137.8 million, as compared to net income of $131.0 million for the same period in 2023.

Reconciliations:

Because acquisitions occurring after December 31, 2022 have contributed to our net revenue results for the periods presented, we provide 2023 acquisition-adjusted net revenue, which adjusts our 2023 net revenue for the three months ended June 30, 2023 by adding to or subtracting from it the net revenue generated by the acquired or divested assets prior to our acquisition or divestiture of these assets for the same time frame that those assets were owned in the three months ended June 30, 2024.

Reconciliations of 2023 reported net revenue to 2023 acquisition-adjusted net revenue for the three months ended June 30, as well as a comparison of 2023 acquisition-adjusted net revenue to 2024 reported net revenue for the three months ended June 30, are provided below:

Reconciliation and Comparison of Reported Net Revenue to Acquisition-Adjusted Net Revenue

(in thousands)

Key Performance Indicators

Net Income/Adjusted EBITDA

(in thousands)

Adjusted EBITDA for the three months ended June 30, 2024 increased 7.0% to $271.7 million. The increase in adjusted EBITDA was primarily attributable to an increase in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization and capitalized contract fulfillment costs, net) of $13.2 million, as well as a decrease in total general and administrative and corporate expenses of $4.5 million, excluding the impact of stock-based compensation expense.

Net Income/FFO/AFFO

(in thousands)

FFO for the three months ended June 30, 2024 increased from $200.7 million in 2023 to $209.5 million for the same period in 2024, an increase of 4.3%. AFFO for the three months ended June 30, 2024 increased 9.9% to $213.7 million as compared to $194.5 million for the same period in 2023. The increase in AFFO was primarily attributable to an increase in our gross margin (net revenue less direct advertising expense, exclusive of depreciation and amortization and capitalized contract fulfillment costs, net) of $13.2 million and a decrease in total general and administrative and corporate expenses (excluding the effect of stock-based compensation expense) of $4.5 million.

Lamar Advertising Company and Lamar Media Corp.

Lamar Advertising is exposed to interest rate risk in connection with variable rate debt instruments issued by its wholly owned subsidiary Lamar Media. The information below summarizes the Company’s interest rate risk associated with its principal variable rate debt instruments outstanding at June 30, 2024, and should be read in conjunction with Note 10 of the Notes to the Company’s Condensed Consolidated Financial Statements.

Lamar Media has variable-rate debt outstanding under its senior credit facility and its Accounts Receivable Securitization Program. Because interest rates may increase or decrease at any time, the Company is exposed to market risk as a result of the impact that changes in interest rates may have on the applicable borrowings outstanding. Increases in the interest rates applicable to these borrowings would result in increased interest expense and a reduction in the Company’s net income.

At June 30, 2024 there was approximately $1.27 billion of indebtedness outstanding under the senior credit facility and the Accounts Receivable Securitization Program, or approximately 37.8% of the Company’s outstanding long-term debt on that date, bearing interest at variable rates. The aggregate interest expense for 2024 with respect to borrowings under the senior credit facility and the Accounts Receivable Securitization Program was $42.8 million, and the weighted average interest rate applicable to these borrowings during 2024 was 6.7%. Assuming that the weighted average interest rate was 200 basis points higher (that is 8.7% rather than 6.7%), then the Company’s 2024 interest expense would have increased by approximately $12.5 million for the six months ended June 30, 2024.

The Company attempts to mitigate the interest rate risk resulting from its variable interest rate long-term debt instruments by issuing fixed rate long-term debt instruments and maintaining a balance over time between the amount of the Company’s variable rate and fixed rate indebtedness. In addition, the Company has the capability under the senior credit facility to fix the interest rates applicable to its borrowings at an amount equal to the Adjusted Term SOFR Rate (as applicable), or Adjusted Base Rate plus the applicable margin for periods of up to twelve months (in certain cases with the consent of the lenders), which would allow the Company to mitigate the impact of short-term fluctuations in market interest rates. In the event of an increase in interest rates, the Company may take further actions to mitigate its exposure. The Company cannot guarantee, however, that the actions that it may take to mitigate this risk will be feasible or that, if these actions are taken, that they will be effective.

a) Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures.

The Company’s and Lamar Media’s management, with the participation of the principal executive officer and principal financial officer of the Company and Lamar Media, have evaluated the effectiveness of the design and operation of the Company’s and Lamar Media’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this quarterly report. Based on this evaluation, the principal executive officer and principal financial officer of the Company and Lamar Media concluded that these disclosure controls and procedures are effective and designed to ensure that the information required to be disclosed in the Company’s and Lamar Media’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the requisite time periods.

b) Changes in Internal Control Over Financial Reporting.

There have been no changes in the internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) of the Company and Lamar Media identified in connection with the evaluation of the Company’s and Lamar Media’s internal control performed during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s and Lamar Media’s internal control over financial reporting.

Our operations and financial results are subject to various risks and uncertainties, including those described in Part I, Item 1A, “Risk Factors” in our combined Annual Report on Form 10-K for the year ended December 31, 2023, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our Class A common stock. There have been no material changes to our risk factors since our combined Annual Report on Form 10-K for the year ended December 31, 2023.