Lamar Advertising Co (LAMR) 2003 Q3 法說會逐字稿

Good morning. My name is Sylvia and I will be your conference facilitator today. At this time, I would like to welcome everyone to the Lamar Advertising third quarter 2003 earnings results conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer period. If you would like to ask a question during this time, simply press star then the number 1 on your telephone keypad. If you would like to withdraw your question, press star, then the number 2 on your telephone keypad. In the course of this discussion, Lamar may make forward-looking statements regarding the company, including statements about its future financial performance. Lamar has identified important factors that could cause actual results to differ materially from those discussed on this call in the company's reports on forms 10K and 10Q and the registration statements Lamar has filed with the SEC. Lamar refers you to those documents. Lamar's third quarter earnings release, which contains the information required by Regulation G, was furnished to the SEC on a form 8K this morning and is available on Lamar's web site, www.Lamar.com. Thank you. I would now like to turn the call over to Mr. Kevin Reilly, sir, you may begin.

Thank you, Sylvia. I'd like to welcome our shareholders and friends to Lamar's Q3 earnings call. As is our custom, I'll make some remarks and then I'll turn the call over to Keith Istre, our CFO, and Sean Reilly our COO, for some brief remarks and then we will open up the call for Q&A. It's important to note in our press release that the pro forma operating expenses increased 1.3% for Q3. Management did an excellent job of scrubbing each line item on the operating statement for what I would call sustainable cuts. So, you're going see this attractive trend continue throughout the rest of this year and Q4. So, when revenues pick up, and they will, our current operating leverage will look even more attractive. With that, I'd like to turn the call over to Keith Istre who will walk us through the numbers.

Okay. I'm assuming everybody got the press release that outlined the operating results for the quarter. We did try to go into a little more analysis of the pro forma numbers in the body of the release. Revenue, expenses, operating income and EBITDA. And the somewhat discomparative choice that we had to take in the third quarter of last year for the jury verdict. Hopefully everybody understands that, if you don't, you're more than welcome to call me offline and we will go through it. Our guidance for the third quarter, at the end of the last earnings call we guided to approximately $212 million in revenue and we came in 211.7 and we said that that would be up approximately 2% on a pro forma basis and, of course, as you can see in the press release it was 1.7. We guided on the EBITDA to even to slightly up. We did a little bit better than that due to the expense performance that we had in the third quarter. I just want to take a second to note that when we say pro forma please go to the last schedule on the press release. There have been some questions this quarter about how we define pro forma and pro forma to us is factoring in all the revenue and the expenses from acquisitions that we make in any particular quarter, to the comparable quarter for the previous year. So, if you look at our recorded net revenue for the third quarter of this year to the third quarter of last year, it's up 4.9%. If you factor in $6,255,000 in revenues that we acquired and you factor that into the third quarter of last year, we're up 1.7. So, I hope there's no mistake in any acquisition that we do we factor it in. We're comparing apples to apples, not apples and oranges. For the fourth quarter, of course, we guided up 1%, approximately 1% on the top line and even slightly up. We think that's a reasonable expectation. We are cautiously optimistic, Sean will maybe touch a little more on that. We're cautiously optimistic that we may do a little bit better than that, but we think at this point in time that that's certainly a reasonable expectation. There were some folks that had called me during the quarter inquiring they had heard a rumor that we were going to guide to negative. We don't see that and I don't know if that's because last fourth quarter we were up 5% on the top line on a pro forma basis and maybe they thought the comp was a tough. As of right now we feel comfortable with a plus in front of our number. With that I guess I'll turn it over to Q&A and let you guys go through the questions.

At this time I would like to remind everyone if you would like ask a question, please press star then the number 1 on your telephone keypad. Again, if you wish to ask a question at this time, please press star, then the number 1 on your telephone keypad. Your first question comes from Richard Rosenstein from Goldman Sachs.

Thank you. Good morning. Two questions. One is the expense growth on the last conference call, Sean, I think, had suggested that expense growth looking out into the future was sort of in the 4 to 5% range driven by both higher insurance costs and lease expense under contract. Can you give us an update on where those two components are in terms of increase? And then where you've been able to make the cuts? And why don't we start with that, thanks.

Rich, this is Keith, first of all what we normally have told the market, you guys, all along, ever since we went public, is our normal expense growth, year in/year out on a same-store basis is 3 to 5%. And we had had some unusual bad luck with our health insurance last year. We completely revamped that program. That program runs from July 1 to June 30. It's on a fiscal year. So, we just shed that big negative. We completely revamped the health insurance program. Our claims for the third quarter, which is the first quarter of the new plan year, we're down $1 million over what they were in the last quarter of the program and what they were overall. So, we're getting a significant bump out of that. And I'll be honest with you, I mean it's on our backs. The company's not paying for it anymore, the employees are, we are. We pay for more less. That's just the way it is in 2003 with health insurance. The other thing, Sean, you want to talk about the production --

Sure. We have a couple of initiatives that we embarked upon at the beginning of the year that are beginning to bear fruit. As you know, we've been a little more aggressive in the past at purchasing easements underneath our billboards at attractive rates to buy down our lease cost. And year to date we've bought down, over the course of the year, about a million dollars in lease costs. So, that's beginning to have a favorable impact on the lease expense. We've also begun to sole source our production. We are sole sourcing our paper production to a company called Circle Graphics. The full effect of that relationship won't be felt until next year, but it has certainly driven down the cost of our poster product. We also have an internal vinyl production shop that has been working real hard to get more efficient and we're beginning to see the benefits of that. Because of our volume, we're buying more in bulk in terms of the raw materials that go into the production of vinyl. So, those three initiatives, health insurance, easement purchases and efficiencies on the paper and vinyl side, I think are beginning to bear fruit and that momentum will carry into next year. Those are the big ones, Rich, but really when you look at our significant costs, it's people and leases. And what management has done over the last four or five months has really scrubbed every line item in the operating statement down to -- and these are nickels and dimes that have added up. Tire repair, illumination expense, facilities maintenance, those -- just every item on the operating statement. And we like the way that these efforts have layered in in the third quarter and it looks very confident that the trend will continue, it's just not a one-time hit on labor and leases.

Well, this is Keith again, if you look at our guidance for the fourth quarter, we don't give out the absolute EBITDA number but you can back into it if you factor in the pro forma. And you'll see that the expenses for the fourth quarter, as Kevin said, it's not a blip, it's a trend. The expenses will be basically pretty much the same for the fourth quarter as they were for the third.

Yeah, we noticed that, actually. And then the second question is somewhat related. The CapEx is running about $20 million a quarter. Is that sort of the level that you think it will continue at? And then buying down these easements, is that included in CapEx or elsewhere? And then what kind of price do you pay when you buy down say $1 million of lease savings? Is it sort of five times, 10 times?

Sure. To answer the second question first. If it's a land acquisition for a non-revenue producing item like a plant site, that's going to be in CapEx. If it's an easement purchase that buys down a lease, that's going to be listed in acquisition. The typical multiple is right between where you indicated. Right now it's, they're averaging about 7.5%. I'm sorry, about 7.5 times. Which equates to a very predictable and very attractive IRR. On the CapEx, the Cap Ex was a little bit skewed in the third because of some sort of special projects I released moneys on. Most notably smart boards. I'm confident it's not going to run at a run rate of $20 million in the fourth quarter. I think it's going to be much more close to our guidance for the full year. So, we were a little heavy in the third and again, it's primarily related to the smart boards. We had a new product we're rolling out in Pittsburgh that we're very excited about. It's a smart showing, the model we've been using is a single large format bulletin in the market. Those costs, give or take $500,000 to deploy, by the time you add it all up. We're actually deploying one that should be fully deployed in December. Of course we had to cut the checks earlier. It's going to be 10 poster units sprinkled about the Pittsburgh market. The advertising community seems to be embracing it and we're very excited about that project. To answer your question, I think at the end of the year when we tally it all up, we will be very close to the guidance that we gave you at the beginning of the year on Cap Ex.

Thank you very much.

I think, Sean, we're going to be a little bit north of the guidance that we gave.

We were talking about $70 million round numbers.

65 to 70.

We may be a little bit north of that.

It will be north of that.

Thanks very much.

Your next question comes from Drew Marcus from Deutsche Bank.

Thank you, good morning, gentlemen. The question is, I know you're entering your annual renewal season, how's that going? What sort of price increases are you seeing?

You know, it feels good, Drew. We've got a new national sales director and we've got a little new blood in New York and L.A. and what I'm hearing sounds good. The up front is running deeper than last year with our largest customers that buy 12 months at about this time of year. We are getting rate increases in the low single digits from very large purchasers. But the more important point is what they're telling us is No. 1, they're buying deeper across a greater number of markets. And they're also telling us to expect some scatter box throughout the year. And that has applied to, again, our sort of largest buyers at this time of year. AT&T, GM, Dodge, Ford and the like.

Okay. Also, you talked a little bit as far as your guidance goes for the fourth quarter, if you were to break that down between bulletins and posters, how does that look?

We've been feeling real good about our short cycle business. One thing that gives me confidence that momentum will carry into next year is that our longer fire business is now up, bulletins are beginning to show signs of life. To kind of quantify that for you: The third quarter of this year, our bulletin occupancy for the third quarter was 77%. Last year at this same period it was 75%. And in Q1 '01 it was 74%. And the poster category, as you know, is a shorter cycle. It kind of can wax and wane with a little less predictability than bulletins. But we feel real good that our bulletin book of business is coming together for next year.

Great, thank you very much.

Your next question comes from Bishop Cheen from Wachovia Securities.

Good morning, Kevin, Keith and Sean.

Hi, Bishop.

Just a couple questions. One follow-up on Drew, you talked about the occupancy. What about the actual weights that you saw in Q3? Were they continuing the earlier trend line?

The rate story is better than bulletin. Q3 '02 the average rate per panel on the bulletin side was $987. Q3 '03 the average rate was $1,006. I haven't done the arithmetic on what kind of tickup that is, but if you've been on our previous calls you know we've been hoping to hold the line on rate and boost occupancy and now looks at least in the bulletin category like we're getting an uptick in both rate and occupancy on bulletin.

Would you say the same trend line in posters, as well?

Posters are essentially flat. I'm reading across '01, '02 and '03 Q3and I'm reading 415, 418 and 416. There is a buck worth of difference between third quarters across the three years.

Okay.

Occupancy --

Can you give us, again, the pro forma for revenue and EBITDA for Q4 '02?

The forma revenue would be right at 200 and EBITDA is about 83.5.

Okay. And on the new bank facility, I guess the ink is not yet dry on the new facility. The revolver, if I remember, is what, 225 per revolver?

Correct.

And what's the availability on that?

$220m. We have $5 million in letters of credit outstanding on it to backup insurance programs, worker's comp, et cetera, we're not drawing on it.

Okay, and then you have that undrawn big $500 million acquisition facility... Or?

That's the incremental facility. That's used, you know -- Preapproved advance, if you will, if somebody wants to fund it.

Right, but that's still pretty pristine, untapped.

Yeah, no, I mean that -- we have not touched that.

Okay. And then just finishing off with this, then you have the term, what is it, two terms?

Term "A" term "B".

Okay. And how much is drawn on "A" and "B"?

Well, the full amount --

$975 million in total.

Right. Okay.

675 and 300 on the "A". 675 on the "B" and 300 on the other one.

Okay. Very good. Thank you, gentlemen.

You bet.

Your next question comes from Jason Helfstein from CIBC World Markets.

Thanks. I just want to talk a little more about -- on the expense side, so I guess that we can assume at least for the next 12 months, you've got, I guess full run rate benefit of a million a quarter on the healthcare and then you've got the buyout the leases which I guess you could say is what, about $300,000 a quarter, you've said it was a million dollar benefit year to date. Is there a way to put some perspective on the benefit of outsourcing the poster business?

Let me correct you a little bit on the easements because I think the number for the money we've spent this year, of course, we get the benefit as soon as we close, but the million dollars was a run rate for next year.

Okay.

But, yeah, I'd -- if you're going model something in, I'd model in $ 250,000.

What about the posters? What do you think about that on a run rate benefit?

We haven't given any guidance. Yeah, I got to basically -- where the plan isn't fully implemented, we're in the throes as we speak of -- since we're outsourcing to a third party and we haven't completely buttoned down what the pricing's going to be when they finally get all of our volume, it's difficult to predict. But I do believe it's going to be a positive for the company.

Okay. And then is there any potential to outsource vinyl cost or that just doesn't make sense?

Well, we do that in house. We do sole source it for the most part. There are some third party vinyls that get printed and what we're beginning to realize the benefit of is size. We're now bringing in house so much vinyl production that we're able to do it more efficiently than any third party printer out there. Just because of the sheer volume we can run through that plant. It's not a key part of our business and if there was somebody in the marketplace that could hit our price point, we'd do it in a heartbeat.

Okay. And then just thinking, also, looking at the income statement, obviously corporate expenses were down a lot year-over-year. Is that 66 like a new run rate level? Or is that --

No, no, Jason --

because bonus accruals are down?

Look at the press release on the body in the first page. We address that. That was a $2.3 million jury award last third quarter.

Oh, and that was in the corporate.

That's in corporate.

Okay.

And so you have to back that out if you want to get an apples to apples.

I got you. The 6.6 is a good run rate for corporate.

Yes, it addresses that on the front of the press release.

Okay, lastly and can you give us the occupancy rates like you did for bulletins but for the posters?

Yeah. Poster occupancy, Q3 '01, 63%. Q3 '02, 66%, Q3 '03 67%.

Thank you.

So, again the story on posters is basically flat on price, slight uptick on occupancy.

Thank you.

Your next question comes from Kit Spring from Stifel Nicolaus & Co.

Good morning. Can you give me the discrepancy kind of between the couple large markets you have and the rest of your markets? I've seen large markets perform better. And why you think the difference between large and small markets? Is it just national? Is there something else going on? And then secondly, any forecast as to what next year might hold? If you can't give me a specific number, maybe could you tell me whether you think you will grow faster than GDP? Thanks.

Let me do a short one, Sean, then turn it over to you. The difference is national versus local. And our mix across the entire platform is in the 85% range local. And so that's the difference in the temporary disparating growth between large markets and small markets, the local ad spend just hasn't bounced back, or isn't growing quite as robustly as we'd like it to see. The GDP question, I've always maintained if you look out back over the last 20 years, the billboard business has about a 2 point spread over GDP. Sean, you want to -- Yeah, I mean it's been -- I don't believe I've ever seen a spread between our book and GDP as the 7.5% as we believe in the third quarter for GDP. I've never seen a spread like that. And, you know, I certainly don't believe that trend is going to continue. When it comes to large and small markets, just to put a little color on it, the broad answer is exactly as Kevin relayed and certainly the other media platforms are backing that up and we've all heard about that local ad spend, particularly in radio and outdoor, just hasn't been what we thought the back half would be. There is some sort of uniqueness in some of our larger markets. It's not all that important to go into great detail, but the statistics would be skewed, for example, in Las Vegas. Las Vegas is rebounding from 9/11 and they're top line and bottom line are up disproportionately as they rebound from that tragedy and what the impact that tragedy had on the traveling tourism business. So, if you X out the experience in Vegas, it's pretty much as Kevin described. In places like Dallas, Atlanta, Chicago, Pittsburgh, Cincinnati, it truly is a disparity between what's going on with national as opposed to local.

Thanks.

Your next question comes from Marc Nabi from Merrill Lynch.

Thanks very much. Hi, guys, how you doing? A question related to maybe categories or differences in the various sectors. I'd love to hear what's going on there, if you're seeing strength in other areas as opposed to weakness? Also, it's the first time I hear you guys sounding more optimistic as opposed to the other three quarters or so. What are you anticipating, then, on the acquisition front? Are other outdoor operators -- obviously we heard good things come out of Clear Channel and Viacom, but what are the other operators thinking as well? It could be a rollup happening?

I think the feeling around here of optimism is internal. It's not discussions with other outdoor companies. What we're hearing from the field for the first time from our regional managers, we did a bring down call yesterday, is the level of interest and the level of activity has definitely picked up and they are feeling better about their prospects for hitting their internal budgets. They're feeling better now than they have all year. I think the word given that it's -- or the phrase given that it's been 2.5 - 3 pretty lean years, is cautious optimism, is what I heard a lot on the call yesterday. Some of the categories that were discussed, banking and financial. They feel good about that business and as I look at the statistics it backs up the antidotal financial institutions are up 1% in our book third quarter this year over third quarter last year. Healthcare seems to be a category that is healthy. And again, I mentioned some of the up front activity from GM and Ford and AT&T and those that buy for the full year at this time of year and their level of commitment seems to be stronger than it was going into '03. The only category, and we've discussed it before, that is still trying to get back on its feet is the hotel/motel business. On a Q3 over, or under Q2 comparison, it's the only category that's down in our book. Hotel/motel was 9% of our book in Q3 '02 and it's down to 8% this year. But other than that, all other categories are either equal or up.

It was interesting, also, when we had the call yesterday, several of the regional managers online mentioned that radio was coming back very strong. Media advertising, radio, TV, newspaper, used to be 5% of our business. 4 to 5, whatever it was. And, of course, it's not even on the top 10 list anymore, but they said that radio was rebounding nicely in some of their local markets, putting up their call letters, the DJs names, whatever, in their local markets. So that was good to hear.

Also, in the past you've named your top 3 or 4 advertisers. Could you do that again for us?

Sure. The lineup is for the top three is the same in Q3 '03 as it was in Q3 '02, McDonald's 1, Cracker Barrel 2 and Dodge 3. And there was a shift, actually this year Holiday Inn is in the fourth slot and they displaced Miller Brewing which was in the fourth slot in Q3 'of 02 followed by Nextel. So that would be the top five for Q3 '03. McDonald's, Cracker Barrel, Dodge, Holiday Inn and Nextel.

Great, thanks very much.

Your next question comes from Michael Russell from Morgan Stanley.

I had to clarify, Keith, what you said about the corporate expense for the fourth quarter. We should expect it to be in that $6.6 million? Or similar growth rate?

Yeah, I mean it should be. There's nothing right now that we see that would necessarily change that. I mean, some of this expense stuff, part of it has to do with timing and luck, as well, just like in the third quarter of last year, when we get hit with that jury award of $2.3 million. We don't see anything out there like that at this point in time and so therefore I wouldn't think that there would be much change in that number for the fourth quarter. And it hadn't been very much different throughout the year, 6.3 to 6.5, something like that.

Was it higher in the fourth quarter of last year because of other things? Or...

I don't have the fourth quarter of last year's number. What was it, 6.5? It was 6.5 in the fourth quarter of last year. Our controller is sitting right here. She has the numbers. So, it's basically -- it doesn't run out of control. The only thing that we have up here at corporate is staff and bonuses have been pretty lean around here for the past three years. So, that, of course, has kept it in check and then the only thing that we do is give out raises annually to the staff. The rank and file and that is generally cost delivered.

And then you had said last time that you were done with the acquisitions for the year. But I guess now doing the easements... Can you give us an idea of what's going on in acquisitions, sort of pricing and plans or...

Yeah, it's pretty much proceeded this year as we kind of anticipated going into the year. We had a couple very attractive opportunities pop-up in the second quarter that we took advantage of that were a little unexpected and that's taken our total acquisitions purchase price for this year, approaching $200 million and that was a little stronger than the pace I had expected. You're not going to see much happen in Q4. Typically in our industry, people have cap gains when they sell and if it's late in the year agreement, they like to push it into the first quarter and push off their cap gains taxes, but I'm actually not anticipating a run rate next year that approached this year.

Great, thanks very much, guys.

Your next question comes from James Marsh from SG Cowen.

Hi, gentlemen. Two quick follow-up questions. One, Keith or Sean, you talked a bit about the billboard, the smart boards in Pittsburgh. I was just wondering, what percentage or what total number of units do you think you could potentially deploy? Obviously not every unit has the capability of being upgraded to that, the numbers wouldn't work. What's the potential number of total boards you can do that in? And then secondly for Sean, that local national discrepancy we're seeing in the third quarter, is that continuing into the fourth quarter based on what you're seeing?

I'll do the second one first. I think if local was truly making its cyclical turn, I think our guidance would have been a little more aggressive. So, yeah I do think that local hadn't happened yet. I do feel better about the prospects of it happening sooner rather than later, however. On the smart boards the gating issue in deployment as we see it right now in the near-term is not the economics of deployment. It's pretty clear to us that markets 1 through 75, at least, can handle at least 1 large format, high-visibility unit in the market. The gating issue in rolling them out is local regulatory environments. We have some work to do at the local level on allowing the type of motion that we're talking about being up on the Street and we have a fairly aggressive effort under way both through the industry and through Lamar to change some local regulations and allow us to deploy. So, I would say that's the No. 1 gating issue rather than the business model. At least for the deployment of one large format in a single market. We do have plans to roll out another one in Cincinnati. We've got one in Cincinnati that's performing extremely well. Our management there wants another one. Pittsburgh, the same. They've done extremely well with their large format. They're going to roll out a poster format, smart showing and they've also are exploring another large format. So, again, our view of it as we sit is that it's not a business model issue, it's a regulatory issue.

Thank you.

Sorry we can't quantify it for you, James, these are just one-offs at this point.

Understood.

Your next question comes from Bill Meyers from Lehman Brothers.

Thanks, a couple of quick questions. First off, Keith, if you could just give us your full year 2002 pro forma revenues and cash flow?

2002? I'm being told 795.

And on the EBITDA?

342.

Okay. And then two other questions on the acquisition side. Looks like you did about $30 million, I guess, during the third quarter, given where you were just back in June/July. On a year to date basis, what was the ballpark multiple that you paid for acquisitions?

Well, let me make sure your number is correct on the Q3. Q3 was $22 million. We have our stated goals, which is to bring them in at 10 times forward and we have what we believe is a fairly disciplined way of both putting together the pro formas and tracking the performance. When you're buying in a down cycle, it's a little more difficult to project with the kind of accuracy you'd like and I don't think we hit that goal for deals done in '01 and how they performed in '02 and '02, how they performed in '03. I don't think we were very off the mark. I think in Kevin and Keith's presentations out to the marketplace they come up with a number that's a little north of 11x. When we take a historical look back and try to decide whether or not we hit our goal or not on acquisition multiple. I can tell you this, our management that performs the pro forma, that puts together the acquisition template and tells us how they're going to perform with the inventory, is a lot more cautious now because they're looking at the world through a different set of glasses than they were in '00 and '01. So, I feel confident when they sign on the dotted line that this is how they're going to do, they're now being a little more cautious and I feel good about bringing in what we've done this year on plan.

Thanks. And then just lastly, just to follow-up on the expense issue. I think, Keith, you said in the past that your normalized expense growth is 3 to 5%. In the third quarter, you did I think about 1.3% and you suggested a similar level for the fourth quarter.

Correct.

Looking at '04, do we revert back to 3 to 5 or can we stay below that given some of the cost issues you discussed before?

We hadn't given any guidance on that but the tenor, it looks to me like the kinds of hard work that management has put forth over the last four or five months it looks to me like it's going to not only pay off the second half of this year, but it's going to continue into '04. But we really haven't come out and given guidance for '04 yet.

I would agree with that, James, this is Keith. I'm sorry, Bill.

I'm really impressed with what they've done. Like I said, this is all been done without a reduction in head count and labor, G&A and direct is our largest expense. And they have just said this several times, but it's been just impressive how they've scrubbed every line item of the operating statement to get to where they are today and I've looked at some of the activities in detail because I didn't want to see a one-time hit and then have all this stuff pop up in '04. And I'm pleased with the work that I've seen.

Great, thanks very much.

Your next question comes from Toona Amobi from Standard and Poor's.

Good morning. Some of my questions have been answered but I wanted to get an idea. As far as the tax benefit line and the $12.6 million loss on debt retirement, how much of the benefit is attributable to that? And when do you hope to become a taxpayer again?

Well, let me answer the last part. We hope never to become a taxpayer! [ Laughter ] I'm just teasing you, but anyway...

I'm not teasing, I don't want to ever be a taxpayer! I don't blame you! [ Laughter ]

I'm just saying that in case anybody at the IRS is listening! I'm going to turn that over to our controller, but as far as the tax benefit, I would assume that probably 39% of that $12 million. That's the rate that we normally --

39%?

38, 39%.

Okay.

Of the tax benefit would be what would have come from that 39% of the 12.whatever $6 million on the extinguishment would be attributable to the tax benefit.

So, we would back that out, where does that leave us with what your results would be without that item? What would be your net --

Earnings per share?

Yes.

Without that loss, our earnings, we would have had net income of about 1.5 -- $3 million? For the quarter it would have been about $1.3 million and we would have had positive earnings per share for the first time in God knows when of 1 cent instead of a 6 cent loss.

Okay that takes care of that. The next question is on acquisitions. I know a couple of questions I have been asked on that. I just want to get an idea. You said that going forward, you're still intent on pursuing acquisitions although you saw that the pace might be slowing down a bit. So, I am kind of concerned what your plans are for other possible uses of free cash flow? Especially share buyback is one item that I know we haven't talked about in the past and when does this become an attractive option for you? Not even talking about dividend payment, which I think might be lowered down on your priority.

Right now we've got plenty of variable debt to pay down and so that's the primary use of the company's free cash flow at this point. And the only thing that trumps that, the repayment of debt, would be an opportunistic acquisition. We're always in the marketplace to use the company's free cash flow for attractive acquisitions.

So, it is safe to assume that this is going to be an ongoing part of your long-term strategy, acquisitions, out next couple of years? Where does it stop?

Don't know when it stops, but we're absolutely convinced that we enhance returns to our shareholders through our disciplined M&A activities. So, I don't know when that's going to stop, but we know that right now it's the right thing for our shareholders. Again, the other two items that you mentioned, the share repurchase and the dividend option, those are things that -- they don't require a lot of setup time or planning, it just requires a lot of thought on behalf of the company because it would signal a significant change in the company's point of view.

Okay. And next item is on your Q4 guidance. Your press release has 1%, but I'm not sure I heard correctly and during the prepared remarks, did you say 1.7? I'm not sure what we're looking at here for your revenue in the fourth quarter. Can you clarify that?

1.7 was the third quarter pro forma.

That's what I thought. Okay. All right. Finally politicals. I know it has never been a big factor for you guys, but what do you see happening, I mean how much of your Q4 and perhaps -- I know you haven't given guidance for 2004, but what are your thoughts on political and how that might be a factor for you next year?

Our political business has been good, but it's not the kind of candidates that you would expect. It's judges, it's state representatives, it's city council people, constables. Still in a statewide race or a nationwide race, you've got to get the word out through print and electronic media and billboards just don't do what needs to be done. But what's encouraging for us is we've seen a couple of statewide races where there's been a significant shift away from television and into radio, targeting specific audiences. What that tells us, and this isn't really related to political, it's just about our prospects going forward, is the days of a 10% increase and a 15% loss in audience just aren't cutting it with advertisers and the politicians see immediate results, they spend a lot of money and they don't get the bounce in their tracking polls and they don't cross the finish line and they're starting to see better results shopping around with other platforms. So, I think long-term that's the good news for us, it's not that we're going to get a lot of political business, it's sort of coming in over the transom. We'll always get local election business because a lot of that is driven by name recognition. You've just got to put your mug up their on the board and get lots of repetitions that are very low cost per thousand. But that's where the big homerun is that I'm seeing in politics, especially at the state-run level, is real dissatisfaction with their TV ad spin.

Okay. Well, thanks very much and nice job and we look forward to when you're becoming a taxpayer again. [ Laughter ]

Your next question comes from Jim Boyle from Wachovia Securities.

Good morning. What's Lamar's average outdoor advertising revenue share in its markets now?

Sean? Jim, it's sort of a market by market thing.

It used to be north of 80%.

Yeah, I'd say we're a little more north but south of 90. And those statistics are skewed because of our position in places like Dallas and Atlanta and Chicago and San Diego, that don't approach that number. And where, in fact, we're probably down in the high-teens, low 20s. So if you X out that, I'm highly confident it's a number north of 85.

Okay. And Kevin, do you feel mid market outdoor goes better with mid market TV, radio or Yellow Pages. [ Laughter ]

Well we can walk through the customer lineup is -- we line up better with middle market television, I guess. Well, I don't guess, we do. If you look at our customers. Radio has an opportunity to sell customers with much smaller ad budgets so they can get hair salons and customers like that that we can't get, even though our cost per thousand is less than radio. The absolute outlay is greater. And then in newspaper, of course, it's got the grocery trade and the retail, the department stores, which we don't. We do get the grocery trade and we get a little bit of the department store business, but not much. So, those customers don't line up as well. It really is -- if you had to match up, if you just went down the customer list, it is the middle market network affiliates. Those customers probably match up better with us than anybody else. The Yellow pages is open for everybody. What I've seen in the Yellow Pages is what we've also seen in our space, is a lot of attorneys and a lot of dentists and doctors now buying ads in the yellow pages and they're also using our space, as well.

One of the Yellow Page executives recently said that they're seeing a lot more competition for their lower cost pizza parlor, chiropractor, contractor type business. Do you think that's a good sign or a bad sign that radio, TV, print are going downmarket?

Well I think it's always been like that. In the local market, it's hot and heavy as far as competition amongst the platforms and we've always been going after each other's business for market share. They're not going to take that business away from the Yellow Pages, I don't think, just because it's a different type of advertising gig and I think if you're in the automobile insurance business, well, if you're in a lots of different businesses, you got to have to have some sort of position in the Yellow Pages. So I don't think they're going to take that business away from those guys. You'd have to help me in terms of what the Yellow Pages cost per thousand is. Maybe that's the issue, is they've run up their costs to the point where they have become vulnerable to some other platforms. But I don't know much about that.

Okay. Thank you.

Your final question comes from Paul Sweeney from Credit Suisse First Boston.

Bringing up the rear. Just two questions. One, Sean, you mentioned that you feel a little bit more optimistic, your managers are feeling a little more optimistic. Can you maybe put that in the context of perhaps how much business you've booked in the fourth quarter and perhaps into the first quarter of next year? Is that really different from last year or where you thought it would be? And second, Kevin, if you can give us an update on Arbitron?

You were a little faint there, but I believe the question was can we put a number in front of our optimism.

An how much business has been booked throughout the quarter.

In terms of fourth quarter, I think our guidance speaks for itself. I am cautiously optimistic that we're being conservative on the fourth quarter. Regarding going into next year, what I'm seeing is, particularly on the bulletin side, I'm seeing a lot more activity interest and real bookings that are long-term in the bulletin category going into '04 and what that does for us is it allows our account executives, when they have that stuff on the books it allows them to focus more of their time, energy and effort on selling the shorter cycle product. So, while I can't quantify it for you in terms of percentages, I can tell you that there is a real benefit to having more on the books, particularly in the bulletin category, going into the year because it just allows our folks to really, really focus on selling not necessarily in the month they're in, but in a couple of months ahead. And it's been a long time since I've had a general manager call me up and said the month we're in is May and I'm working on the next month and at least on yesterday's call, we've got some plants out there that have made November and they're working on December. And that's a good feeling.

Paul, this is Keith, just to quantify. To some extent in November, at the beginning of November, we had 88% of our budget in hand. That meant we only had 12% left to go. We haven't seen a number like that in three years. Again, I don't want to put out any false hope, but we were pretty pleased to see that we were that close to goal.

And just any update on Arbitron, anything new?

Sean, you want to take that one? Yeah. I think it's clear to me that they finished the Atlanta study. I think the more detailed analysis needs to take place. Part of the story, as we've discussed on previous calls, it's going to benefit the top 10 before it benefits markets below that. But what I'm hopeful of and what I'm beginning to see is a convergence of the Lexicon, if you will, between our media and other medium. I think that's healthy. Arbitron, I believe, is going to help us be better at speaking the language that agencies speak in terms of weekly GRPs and weekly flights, with some hard data to back it up as opposed to the language that we currently put in front of agencies, which is daily effective circulation language, or DECs. And Tommy Teepell, who runs our marketing, just came back from an industry conference where it was pretty much the consensus of the industry that we move toward speaking the language of weekly GRPs, weekly flights, which is the language of the broadcast media. I think that's healthy. I think it's good for our industry and, I feel like Arbitron is out of beta test now.

Ladies and gentlemen, we have reached the end of the allotted time for questions and answers. Mr. Kevin Reilly, are there any closing remarks?

Sylvia, thank you for moderating the call and I want to thank all of our shareholders and friends for listening in. And we look forward to seeing you in the fourth quarter.

Thank you.

That concludes the call.

Thank you. This concludes today's conference. You may now disconnect.