Lamar Advertising Co (LAMR) 2003 Q4 法說會逐字稿

Good morning. My name is Janica [ph] and I will be your conference facilitator today. 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 and the company's report on Forms 10K and 10Q, and the registration statements Lamar has filed with the SEC. Lamar refers you to those documents. Lamar's 4th-quarter and year-end earnings release, which contains the information required by Regulation G, was furnished to the SEC on a Form 8-K this morning, and is available on Lamar's web site, www.lamar.com.

I would now like to turn the call over to Mr. Kevin Reilly, Jr., president and CEO. Thank you, sir. You may begin.

Thank you, Janica. I want to welcome all of our friends and shareholders to Lamar's '03, Q4 conference call -- earnings call. I think I should start and speak to the industry -- well, first of all, at Lamar we are looking forward to '04. Our business book is building up quite nicely, especially in the bulletin area, and if we can get through the first half of the year, I think you'll see a nice acceleration in the top line of our business in '04. But let me speak to the industry for a second, to the kinds of things that you should expect in '04, and perhaps some of the things that you will definitely see in '04. One is our audience in great shape. So you should see some very aggressive strides forward in developing decent audience measurement tools. We've got plenty of good news to share with our customers on that front. And I expect the industry to make some good strides there.

Digital proof of performance, I think you'll see the industry continue headed down that road of course. That will be very helpful to the company's collection efforts and also to the industry's collection efforts, and also just to our overall customer service and professionalism. And then the leadership in '04, I think you'll see continued great leadership in this industry. We've had excellent operators in Adams and Clear Channel and Viacom, and I think you'll see a lot of cooperation as we try to make our industry more attractive to our customers.

With Lamar in '04, the -- you'll see perhaps our footprint will continue to round it out and consolidate our footprint both in the middle markets and perhaps a little bit also up market. And as I mentioned earlier, I think you should expect to see some nice momentum build in the company's top line as we move throughout '04. And I say that because we finished the year strong, especially in our bulletin business, and we have a sense that our customers are gaining quite a bit more confidence and they're willing to make long-term commitments. And so as we renew and find new customers for the bulletin inventory, that momentum tends to build on itself. So with that, I'd like to turn the call over to Keith Istre, our CFO.

Good morning, everybody. I assume everybody's got the press release. I guess the numbers pretty much speak for themselves. I'll kind of go through and maybe highlight a little bit to give some color.

We had guided the market for the 4th quarter to approximately $202 million. We came in a little stronger than that. The 4th quarter ended up on a high note. As Kevin mentioned, our bulletin revenues were up, we were up a couple points in occupancy on the bulletins for the 4th quarter. We guided to 1% up on the top-line revenue. We came in at about 2.7 as far as the EBITDA. We said we thought we'd be even, to possibly slightly up, which meant we didn't give a hard number, but that would have meant about $83 million if we were even with last year's pro forma, and, of course, we came in at $88 million, so we were up 5.2.

Our expenses are nicely in line. As can you see, they were about a half a point up on our direct and operating. We, you know, put in some controls and cost cuts, as we talked about on the last call back in the beginning of '03. And those controls and cuts are paying dividends for us now. As far as the year, we ended up at $810 million. Well, let me go back to the quarter, I'm sorry.

Our free cash flow, which, of course, is a very relevant measure of our business for the quarter, was $51.1 million in the 4th quarter of '03. In the 4th quarter of '02 it was $33.5 million. That's a 53% increase in free cash flow. A lot of that is primarily due to the refinancing activities that we've been doing for the past 14 to 16 months. We've completely refinanced all of our balance sheet. We just got through repricing our existing credit agreement with our bank group, saving an additional $2 to $2.5 million a year. The wind's at our back as far as the credit environment, as it is for most other companies that are decently leveraged. So we just finished that, actually as of last Friday.

For the year, we ended up at $810 million in total revenues, consensus was about 806. We ended up consolidated EBITDA at roughly 347, consensus was about 342. So again, we had a strong finish in the 4th quarter. Our free cash flow for the year was $181 million, versus $153 million last year. And that's an 18% increase year-over-year. As far as on a pro forma basis for the year, our top line consolidated revenue was up 1.8% for '03, and our EBITDA was up 1.2%. So we finished about where we thought we would.

This is the 3rd year that our company has been muddling through this downturn. Normally, as we told you in the past, it takes about two years, but this one has just taken a little longer. Geopolitics, whatever, but we definitely see the light at the end of the tunnel, I believe. And we are optimistic about things going forward into '04, as well as our regional managers and our managers in the field. Pro forma for those guys that would like to get a sense of where we would have ended up had we folded in all acquisitions for '03, our pro forma net revenue would have been $818 million, and pro forma EBITDA would have been $350 million, if we had factored all things in.

Our total debt -- you don't have a balance sheet, we didn't give you a balance sheet. We don't have that ready yet, but it was $1.712 billion at the end of December. That's all debt, including the holding company debt, and that was 4.89 times trailing pro forma EBITDA. If you take out the holding company debt, the converts, we're at 4.07 at the media company, which is where we're measured at by our bank group. So if we hit our goals this quarter, we should be below 4 times total debt at the media company -- the operating company level.

Our [inaudible] was $78 million for the year. The bulk of that, $51 million, went to our billboard assets. That was maintenance and new bills. The rest was split between our transit, real estate, operating equipment logos. And we did $188 million in total acquisitions for the year. That was the purchase price that we spent.

With that recap, I guess I'll turn it back over to Kevin. If you have any other specific questions about the numbers, just ring in and I'll be glad to answer them.

Janica, would you go ahead and open up the call for Q & A? Hello? Janica?

At this time I would like to remind everyone, if you would like to ask a question please press star, then the number one on your telephone keypad. To withdraw your question, press the pound key. We'll pause for just a moment to compile the Q&A roster. The first question comes from Michael Russell from Morgan Stanley.

Well, I have to start off and chastise you, Keith. This is the first time your forecast for revenue growth was off this much. It's nice to be off in the direction that you were then. The real question, though, is a little bit more in the minutia, which is on the D&A line. It seems like D & A has picked up 4 million from last quarter. Could you give us the split of what's D and what's A, and just give us an idea of what's going on there?

Mike, you're talking about the D & A?

Yeah. Your D & A was $74 million, and last quarter it was $70 million, and it just seems like it usually doesn't spike like that. Just trying to get a handle on it.

Okay, I'm -- hang on, Mike. I've got our controller here. You're talking about last quarter, Mike, to this quarter?

Correct. It's been pretty stable from sequential quarters.

I'm not sure.

Mike, could I get back with you offline on that?

Sure, sure.

Our controller's sitting here with us, and we're just -- I'm going to have to get back with you offline.

And then on the expense side, the fact that your expense growth went from 1.3%, which was already a low number last quarter, to .5% this quarter. You said you're just doing more of what you had done before, but it seems like something more even happened. I mean, your revenues were up and you would expect maybe you'd be in the north side of the 1.3%, yet you were to the south side of it. Is there some other thing going on?

No, no. Expenses don't coincide with revenue growth. It's a fixed-cost business.

Even at fixed cost, it decelerated.

Well, we've started at the beginning of '03 doing, you know, chipping away at this stuff. As we told you in the past, it's a fixed-cost business and not a whole lot you can do, but if you chip here and you chip there -- Our guys in the field have been carrying their -- doing their part as well. And in the expense control area -- and so, you know, it's just kind of coming together. I make no apologies for the numbers.

Nor do you have to. I'm just trying to think about how to look ahead. Does it seem, then, that we have difficult cost growth comparisons for the second half of '03 that will be an issue in the second half of '04, or is this kind of the new baseline number that you've got operating expenses at about $111 million? It seems like that's the number that's been the past two quarters, so --

I think our expense growth in '04 will be between 2 and 3%. Consolidated expense growth, including corporate.

But if you look over the last five years, Mike, it's, you know, between 3 and 5, year-in and year-out. So that's -- you know, that's where we're going to be if you look out over the next five-years.

Okay, great. Thanks very much, guys.

Thanks a lot.

Our next question comes from Jason Helfstein from CIBC World Markets

Hi. Thanks. A few questions. First, can you just give us your normal breakout as far as bulletin versus poster pricing and occupancy in the quarter, and how that compares with the same quarter last year? And then just to follow-up further on the expense question. Actually, it looks like expenses were flat sequentially, right, 3Q versus 4Q? As it relates to 1st quarter, it looks like kind of a 2.5% increase sequentially. Is that kind of a reasonable run rate through '04, given that I assume your budgets are set for next year? And then just lastly, was it reasonable to assume that the upside in the quarter versus your expectations came more from the bulletin side or the poster side? Thanks.

Sure. This is Sean. Let me hit the rate occupancy question first. Definitely on the bulletin side. The long-term product bulletins is really coming back strong. And I think that's a real good sign for us. It gives us extra visibility. It means that our customers are more confident because they're willing to go long instead of go short. Specifically, 4th quarter '03 over 4th quarter '02, in the bulletin side our occupancy went up 3%, from 74% to 77%. And from what I'm hearing in the field, that trend is going to continue. On pricing, there was a similar story on bulletins. The pricing was up about 3%, quarter-over-quarter. On the poster side, which is our shorter-cycle business, we had experienced about a 4-point increase in occupancy over the course of latter '02, latter '03. And so on the comp side it looks flat. But if you look over the cycle, we've had about a 4% increase on our poster occupancy. Poster occupancy December quarter into December '03 was 61%. Pricing was flat, at an average rate per panel of about $400. So the shorter-cycle product, in summary, is -- came out a little earlier, in terms of showing some recovery. It was not the driver in the 3rd -- in the 4th quarter. The driver was definitely bulletin.

Okay, thanks. And before we get to the cost question, just to dig a little deeper on that, I know the majority of your business is local. But just given that the growth was in bulletins, that's where you do tend to have more national advertising. Did -- was national particularly strong relative to local in the 4th quarter? You know, any difference --?

No, it's interesting. You know, on these calls over the last two years when we were probing for where the strength and weaknesses were, we could point to differences in small markets or big markets or regional differences, but the take-home message here is it's broad-based, it's across the board, it's local and national, it's big market and small market, and it's in -- every region is participating. I think, you know, looking back over the last 2-1/2 years, we've occasionally had [inaudible] on when the ad recovery was coming. I believe where we're sitting right now, we can say that we're participating in it right now, because it is very broad-based. That's the story I'm getting from the field. They feel very confident about their businesses. They feel confident about hitting their goals, and they're going into each month with a larger percentage of their goal booked, going into each month. And that's a critical indicator for us, because particularly on the bulletin side, if you've got the bulletin sold, can you focus on the shorter-cycle sale and you're not pressured to be selling in the month you're in. Just, you know, in the last call we talked about November being 88% booked to goal. And that was making us feel very good. Well, going into February, we were 88% booked to goal on February, and that means that our account executives are now selling March and April instead of hustling to finish out their February book of business. So on that front, the message is, it's broad-based across the country and across categories of business.

Okay. Thanks. Keith, on the cost side?

Let me hit the cross side real quick, because there are some things that have a little bit of momentum. I think Keith has correctly guided you to 2 to 3% for the year. As we mentioned on the last conference call, we outsourced our poster production. And it -- that was a gathering benefit through the course of the year, so that may explain, Michael, your question on what were some contributing factors to the 4th quarter being where it was on expense growth. Because, again, those benefits accrued over the course of the year, not all year. And I think the same can be said of the health care. So I think Keith's guidance is the correct way to look at it.

Okay. And just a last follow-up. Is it still reasonable to assume that 80% occupancy is peak occupancy on the bulletin side, or do you think it could even be higher than that?

Well, if you look traditionally over a long period of time, the average occupancy in our bulletins category tends to be low 80%. And the average occupancy in our poster category, annualized average occupancy, tends to be in the low- to mid-70's. So I would contend that we've still got room for improvement, particularly in one category. I was very specific in asking our regional managers how the hotel/motel business was doing out there, given that bulletins were coming back strongly and nicely. And the consensus was that we still have room in the hotel/motel category, that that category of business hasn't completely recovered, and I view that as good news, because certainly they will. Certainly they'll get their feet back under them, and then they're going to come back to us like they always have, in terms of being a good, strong, steady customer. Does that answer your question?

Yeah. No, that's great. Thank you.

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

Thanks very much. Good morning You mentioned, Sean and Kevin, that the visibility is improving as you bulletin business improves. Can you give us -- I don't know if you the statistics, but perhaps what percentage of your first half is booked at this point? I know in the past you've done that. What percentage of your first half or your year is booked at this point versus last year, to give us a sense --?

Yeah, I can hit that one real quick. Now, this is booked-to-goal. So we had our internal budgets in, and these percentages will be booked-to-goal. And the take-home message is going to be from these statistics that it's looking an awful lot like 2000 in terms of where we are booked now to goal. And let me give you some examples. For first quarter, booked-to-goal in 2000 on space sales we were 88% booked-to-goal. Same time?

Yes.

This year we're 88% booked-to-goal. In '01, we were 82%, in '03 we were 86%. And in '03 we were 87% booked-to-goal. If you look at booked-to-goal for the full year, in 2000, the same time, we were 53% booked-to-goal. In 2004, we're 53% booked-to-goal. In '01 we were 50%, in '02 we were 51%, and in '03 we were 52%. You can see why we feel good about where we're sitting. It just feels like going into the year, that we're -- we've got some momentum and that the likelihood that we're going to accomplish our goals for the full year is a strong one.

Paul, this is Keith Our internal goals for 2004 are stronger than they -- our expectations for 2004 are much stronger than they were for '01, '02 and '03. So, we can say we're the same book as in '00 to goal, and our goal would be flat. Well, it wouldn't be telling you much. But our goals for '04, Sean's goals for his guys, are pretty aggressive.

Just one follow-up. We've seen a little bit of swap activity in the outdoor business in the last month or so from other players. Sean, comment on perhaps how you view the M & A market in '04. Your traditional M & A activity for Lamar, number 1 and number 2, perhaps how swaps make claim to that?

You know, let me look back a couple of years to put the answer in some perspective. We spent several hundred million dollars the last few years rounding out our footprint. And we have done some operational swaps with the other players, and I believe that this is the year that all that activity pays off. When I look at our footprint at Lamar, I can count, of our 150-some odd markets, I can count on one hand the markets where I'm not happy with our distribution and the coverage we offer our customers. So really the bulk of the work, in terms of making our footprint so that it serves in every way the needs of our customers, has been done. So that being said, what I'm seeing in '04 -- I'm seeing something in the neighborhood of the same activity as '02 and '03 in terms of aggregate purchase price for acquisitions. Something in the 150 range. And that will be a whole lot of small transactions, probably more than 50 or 60 transactions. And on the swap front, it's just kind of hard to predict those. We clearly had some outlying inventory that we weren't comfortable with. Most of the easy decisions have been made in terms of where you do want to be and where you don't want to be. So it's hard to predict that activity. Certainly if something pops up that makes a lot of sense for us from an operational point of view, we're going to do it. But I would say, steady as she goes on the acquisition front. The same kind of activity you've seen the last couple of years. And most importantly, from where I'm sitting, the activity that we did in '01 and '02 and '03 is really going to pay off this year.

Thanks very much.

Our next question comes from Drew Marcus from Deutsche Bank.

Hey, good morning guys. Keith, just a slice-and-dice to growth even further. Could you talk a little bit about how the prospect's looking, kind of in your -- on the bulletin side and ads versus signs, if you understand the question?

I'm sorry. Ads versus signs?

Right.

Oh, okay. Yeah, I got you.

The sign area's been --

Sure.

With the fall-off in the motel business a little bit.

Yeah, I would say that arriving tide is lifting all boats. When I look at the categories of business, they're all pretty strong. Anecdotally, the hotel/motel business is coming back, and it's coming back at a rate that is arguably as strong as the other categories. But as a percentage of our total book it used to be 9%, and now it's 8% and it's still 8%. It was 8% in January. So what that's telling me is that the directional is coming back, that the ad spin that is for the classic user of our poster and bulletin products for advertising purposes, retailers, auto, service, hospitals, real estate -- all of those categories are real strong. The traditional directional is coming back. It's not coming back disproportionate to the rest of it, and I believe over the course of this year you will see it grow a little faster than the other businesses, because the other businesses seem to be coming back faster.

Question on the $188 million of acquisition, can you give us a sense of what the forward multiple on that will look like?

I think we're going to be real pleased. Our stated goal is to bring them in at 10 forward. We struggled a little bit with that goal and buying in a down cycle. Pro formas were a little harder to do when ad spin gets soft. I think we're going to beat that goal. I think you can feel good about that.

Okay. Thanks a lot.

Our next question come from Jim Boyle from Wachovia.

Good morning. In the past, you've mentioned that a few years ago, when about 10% of the bulletin clients didn't renew, that there was a waiting list to take over those boards. And during the recession and early recovery, you said it was still 10% that tended not to renew, but there was no waiting list. What's the waiting list status, and is it changing at all?

I think I can give you a stat that will help on that, Jim. Anecdotally, you know, our account executives feel real good about their book of business. They feel like they can push rate on the bulletin side. As I mentioned, quarter-over-quarter '03 over '02 bulletin rate is up 3%. That's a good sign. We used to quote a stat, if you recall, about the 90% renewal and booked-to-goal if you assume a 90% renewal. Do you remember that stat we used to quote?

Yes.

I'm going to quote it to you. Just because I think anecdotally it may help, and again, the take-home message is that '04 certainly is looking like 2000. If you assume a 90% renewal rate on bulletin, in 2000 same time, booked-to-goal 1st quarter we were at 92%. In '04, same dynamic, we're at 92%. In '01 we were at 86, in '02 we were at 90, and '03 we were at 90. So based on that matrix, which we don't throw around any more, but I'll do it just because you asked, it's looking a lot more like 2000. For the full year, same analysis, 2000, we were 73% booked-to-goal, assuming a 90% renewal rate on bulletins. In 2004 we're 73% booked-to-goal, assuming a 90% renewal. In '01, we were 69 , in '02 we were 72, and then in '03 we were 73% as well on the bulletin side booked-to-goal. So, I just think that looking at it that way, and then looking at it in terms of the rate improvement that we saw in the 4th quarter, I've got to think that we've got good momentum.

Okay. Your Q2 comps are also easier coming up. How did the month-to-month growth work last year as we got closer to Iraq invasion and then afterwards? Are there any severe drops or jumps, or is it gradual drop and then a gradual ramp?

Jim, hit me with that again? 2nd quarter, where was our --?

What is the month-to-month growth comps that you're looking at last year, as we went towards Iraq, and then after Iraq? Was it a gradual dropoff in business, and then a gradual ramp up in business, or did it really spike down and spike up in a very short time period.

Let me put it this way, in the 4th quarter of '02, we were up 4.8% in consolidated net revenue pro forma. In the 1st quarter of '03, we were up 2.9. And in the 2nd quarter of last year, '03, we were even. So that kind of gives you a sense of our comps.

I realize that, but did it drop off all in one month, or was it gradual?

I don't have the monthly in front of me, Jim. But my recollection is that it wasn't a dramatic event.

It can't be dramatic, Jim, because the way that our contracts come up for renewal, because of the nature of the contracts. You could get hit pretty hard on the poster side of the business, but you really -- it's always been our experience there's sort of a gradual decline and then a gradual buildup. Let me say a little bit more about -- because I think you asked a question that is very pertinent. You were talking about the waiting list, and I want to kind of address that in a different way, not give you a lot of statistics, but just talk about the salutory effect when you do have a pickup in demand for your inventory and you're able to sell in the out months. You end up with happier customers, for one thing, because you're not trying to jam them all in in the last 15 days of the current month. So all of your production efforts go a lot smoother and less cost to the company. So you're going to see much smoother production, lower cost to the company on that side, and happier customers. And we think that that's going to continue through -- from what we see, we think it's going to continue throughout the year. And once these individual profit centers sort of get ahead of the gains, it's sweet to see them operate because they tend to post and install on time. The lights are burning, you've got happy customers, the AE's are earning a good living because they got their commission base, and everybody is out there ahead of the curve. And I feel like we're doing this in an environment where we've got a lot of customers looking around because they're not as happy as they could be with their traditional media outlets. And lastly, on the national front, we do think that national business is going to increase substantially '04 over '03. Several reasons, I think -- one, of course, there are a lot of customers looking around, but each year, throughout this -- even throughout this downdraft, the industry is really getting its act together in terms of having all roads lead to greater customer acceptance of our meeting. And I do think that '04 is the year where you're going to see a nice spike in the national side of things.

You mentioned the full-year 2003 pro forma revenue number. Do you have that on a quarter-by-quarter basis?

Yes, I do.

Could we have it, please?

Well, let me give you the 1st quarter, I think that's probably the only thing that's relevant at this point. I'll throw it out for everybody. The revenue Q1 is about $189 million, pro forma. EBITDA, which is after all expenses including overhead, is about $72 million.

Thank you.

You bet.

Your next question comes from Gordon Hodge from Thomas Weisel Partners.

Good morning. A couple questions. One, the -- Sean, you talked about the M & A opportunities, or your sense of what they might be this year. If we assume $150 million a year, let's just say that's the kind of a run rate from here, and through the next few years. Would you guys entertain, and at what debt level would you entertain, either a dividend or a share buyback? And I don't know what sort of impediments you have to doing that in your debt agreements, but if you could address that, that would be great. And then, Keith, if you could just talk about your receivables. It looked like maybe the -- I'm guessing they were probably down versus last year in terms of DSO's, and I'm just wondering it that's true. Thanks.

Why don't you get the receivable one first.

Yeah. You know, Gordon, in a downturn we always see somewhat of a spike in our days outstanding, and I think our days outstanding at probably the middle of '02, after 9/11 and the downturn, we were probably at the low 50s as far as the days outstanding -- average days outstanding. And, of course, as of today we're at about 40, 41 days outstanding. So, you know, in a downturn people tighten up, they get stingy with their cash, they take longer to pay. Just like anyone else. And so, you know, we have returned to normal. You've got to remember that our guys in the field, their primary bonus -- where they hear the big lick is on collections. There's all kinds of incentives that we put out there, but the big incentive for these guys is to collect the sale. They don't get paid unless they collect that invoice. And that's where our managers and our regional managers really get the big bucks on their bonus. You know, they get paid to hit their budgeted numbers on their financial statement, but the big lick comes in the collections. So we probably are one of the better-run companies as far as its outstanding receivables in the industry.

Yep. Kevin, if you could address the other?

You're talking about the dividend?

Well, just, yeah. I guess the question is, at some point you're generating 200 million in free cash a year now, it looks like, and paying down debt. At what point would you either consider maybe branching out from either -- going beyond the outdoor business or returning, you know, some capital to shareholders?

Well, we have no substantial impediments. There might be a ceiling of $25 million on an annual basis. That's in the bank agreement, which -- we don't consider that etched in stone like the -- like our bond indentures are. So we don't feel like there are any substantial impediments that keep the company from considering all the options. At this point I think that the best use of the company's free cash flow is to continue to pay down debt and stay on top of our footprint. So we're not going to be -- in '04, I don't think we're going to be, you know, considering returning capital to the shareholders. But having said that, we're just -- we're very pleased that we're in a position that if we want to consider those things, that we certainly can. If we get to the point where we're very satisfied with our footprint, then, you know, customers are just sort of coming in over the transom and the cash is coming in over the transom, then we're going to do everything we can to figure out ways to benefit our shareholders.

Terrific. Thanks.

Your next question comes from Marc Nabi from Merrill Lynch.

Good morning, everyone. Just a couple of questions. One, I wanted to ask maybe Sean, if you could just give us your top five customers, like you did in the 3rd quarter, that standpoint. Also, you had talked about in '02, the hotel/motel business represented about 9% of your revenue. In '03 it went down to 8%. What are you seeing now? Again, maybe talking about the 4th quarter and going into 2004, if you are seeing a lift? And the other is, can you talk about various regions that are seeing strengths, it may -- it's across the board strength, but are there typical -- or areas where there's strength versus maybe some weakness? Just maybe give a little highlight on that.

Sure. Hitting the hotel/motel question first. Actually, the dip from 9% of our book down to 8% of our book occurred over 2002, and it continued in 2003. And it looks as though it's in the same place as I look at January. So, again, as I mentioned earlier, while anecdotally they're telling me it is getting better, it's not getting better at a rate that would cause it, as a percentage of our total book, to get back to where it was. Our top customers, you know, I'm going to sound like a broken record. Our top three customers in 2002 were McDonald's, Cracker Barrel, Nextel and Holiday Inn. Our top advertisers as we closed out '03 were McDonald's, Cracker Barrel, Nextel and Pilot. No real change there. And as I look at January, it's a mirror image of where January was basically last year, with a few little tweaks. Real estate's up a point, financial and hospital are each up a point. But in terms of restaurants, auto and retailers, they're basically where they were. 12%, 11% and 10% respectively. Let's see, the rest of the question was --

Regions of --

Regions. Yeah, regions of business. It's interesting. Usually when I have these calls with my regionals, there's two or three that stand out as either being optimistic about their business or, for that matter, saying that it's just not happening. Yesterday on the bring-down calls, literally everybody felt good about where their business was. I would probably say that the person that was probably most optimistic was Phil Cherry, who runs our western division. He's got Las Vegas and all of Southern California and Denver. And all of his markets are clicking on all cylinders, particularly the corridor or the triangle between San Diego, Palm Springs and San Bernardino. Literally, that's just on fire. They are sold out and doing extremely well. They're very optimistic about Las Vegas. You know, Vegas took a huge hit after 9/11. Relatively easy comps, but it's nice to see the business coming back the way it is. For the western region, particularly strong. Southeastern region stronger -- Florida, Georgia. Lots of optimism there, but again, I'm not talking to a single region or manager who doesn't think they're going to hit their goals for the year.

That's great. Also, just one other follow-up. Could you give us an update on -- you had talked about in the 3rd quarter conference call about purchasing easements. Maybe where you stand there? You had said it was easier and then obviously as the quarter went by, it was getting increasingly harder to convince people to do that. That's based on something you had on the Internet, right? You had people just do that. Maybe you could give us an update?

Yeah, what we have is a very formulated approach to approaching our landlords. It's an Internet-based letter that goes out to screened landlords, asking them if they would like to take a lump sum in lieu of their annual payment. It's systematic, and we can change our ROI hurdle. At our present ROI hurdle, which is typically between 15 and 16%, the response rate is around 3 or 4% of the letters that go out. And last year we spent on this endeavor something around $8 million. We budgeted this year roughly the same. And we'll just have to see how it goes through the year. I mean, it's -- common sense will tell you, if we lower our ROI, offer them more, we'll get more acceptances. And the question is, how do we want to deploy capital and what kind of return do we want to guarantee on this particular endeavor? So anyway, the take-home message is '04 will hopefully look a lot like '03 in terms of the purchases.

Great. Thank you.

Your next question comes from Bill Meyers from Lehman Brothers.

Hey, thanks. Just a couple of quick questions. First off, if you could update us on the rollout of your smart boards. How many markets, how many boards, and just sort of your total investment -- where you envision that going? And also, just any thoughts on Arbitron, when we could expect to get some good metered markets.

I'm going to hit the -- this is Sean. I'll hit the smart board, and I'll turn it over to Kevin to talk about Arbitron. We are, over the next 60 days, going to deploy two more smart boards, one in Birmingham and one in Ft. Walton, down in the panhandle of Florida. It's a model that, in the large format, we're very comfortable with. We're comfortable spending the money, and we're comfortable with the business model, if you are careful about where you deploy and are very thoughtful about which market you put it in and how you sell it. So we feel really good about that. It's a little bit frustrating on the regulatory front. Getting approval for these things takes time, and is, quite frankly, now a gating issue in the speed of our deployment. I don't think you're going to see us going any faster in '04 than we did in '03, primarily because of the regulatory environment. So that is a little frustrating. I would like to get them out a little faster, but unfortunately it is what it is on the regulatory front. In Pittsburgh, we are rolling out the 30-sheet format. We have run into some issues there, primarily on the regulatory front. We didn't quite get all of our sites approved in time. We had hoped for a February launch there, and we're not quite going to make it. It looks more like an April launch. Now on that particular endeavor, I think the jury is still out on the business model. We're very optimistic, we love the product, we love the gross rating points that is we can deliver. The gross rating points we can deliver in Pittsburgh approach the combined gross rating points of the two local newspapers. At a cost per thousand, it's a fraction of what they charge. So we feel good about that product. We're just working through the logistics of getting it up and getting it going. Kevin, do you want to talk about Arbitron.

Yeah, Arbitron and Nielsen. What we ought to talk about is is in terms of positives and negatives. The negatives. The industry 2% of ad dollar -- not necessarily sure that either Nielsen or Arbitron are convinced that if they make a significant investment in audience measurement for the billboard industry that they'll get a reasonable return on their investment. There's also a problem where the two companies are jockeying around with "technology," the ability to actually track people when they're in cars. And from the industry's point of view, it looks like a silly argument. It seems to us that the technology -- if you have OnStar and you can figure out where your husband is at any time during the day, Nielsen and Arbitron ought to be able to figure out how to put a device in the car and track people. But there's quite a bit of discussion about that. And it's -- it revolves around proprietary technology that each vendor claims that they have. So those are sort of the negatives. The positives are as the industry's organized, our audience is up, time spent is up. We've got nothing to hide, and we're pushing as hard as we possibly can to get some credible audience measurement information out there into the marketplace. Now, -- and so it's going to happen. Now, regarding timing, there's not a -- I wish I could give you a specific rollout. But there's not -- a preferred vendor hasn't emerged yet. That's one problem. Now, could somebody else come along with a better mousetrap and provide the audience measurement information? Yeah, they could, but that's all they could do. What Arbitron and Nielsen have is the relationships with the agencies, the buyers, the media planners, so, you know, they can take this data and roll it out in a very effective and compelling way that, you know, we think that over time it's going to change the mix of our business, national versus local. I apologize, James. That's a long -- I'm sorry. Anyway, I apologize, for the long-winded answer to your question, and I didn't give you any specifics on the rollout. But that's sort of where we are with audience measurement. It's going to happen just on a whim.

Thanks, Kevin.

Your next question comes from James Marsh from SG Cowen.

You knew I was coming, didn't you?

Yeah, sorry.

Two quick ones here. First, Keith, I was wondering you could give us the pro forma revenue and EBITDA numbers by quarter for '03, based on the acquisitions that you've completed to date. Not the pro forma provided in your press release, but the basis which we will be running off of in 2004, assuming no further acquisitions.

Well, I mentioned that earlier, James, as far --

By quarter?

Giving it out by quarter, because I think -- we haven't guided for the full year. We just guided for the quarter, as we've done for the past couple of years, since things have gotten so dicey.

But you're not going to give us 2, 3 and 4 then?

I do have it. But I'd prefer to just give it a quarter at a time, actually.

All right. Fair enough.

189 was the Q1 pro forma for '03, factory and acquisitions, and approximately $72 million in EBITDA. And of course I'm more than happy to, you know, quarter-by-quarter as we go through, give you those. And I mean, look, with $180 million in acquisitions last year, the majority of them being in the first half, it's not real hard to figure out what the --if you take our actual and you factor in, you know, the 2 or 3 million dollars a quarter for the first two quarters in additional revenue, EBITDA, whatever -- it's not really that difficult. I mean, we're not spending billions of dollars a year buying up assets. So I mean it's a lot easier to figure it out now than it was back in '99, '98, whatever. So -- but anyway that's the number for Q1, so that's what we're basing our guidance on when we say 4 and 7.

Fair enough. Thanks. And then a quick one for you, Sean. Are you seeing any increases in the total number of advertisers for your billboards? Or just the same guys buying a little bit more?

That's a good question. I'm going to have to sort of wing it. I don't have anything to prove what I'm about to say, but I think it's more, because what I'm hearing is that it's local. And local business is lots of little folks that maybe went away because Main Street USA wasn't as strong in '02 and '03 as they liked. But now they're coming back because they've got confidence in their own business. So I'm going to just kind of tell you that anecdotally what I'm hearing is it's local getting stronger, and that probably means more customers and not just, you know, a couple big ones buying heavier.

Okay. Thanks a lot, guys.

Our next question comes from Mark McCarron from Robert Baird.

Good morning. Most of my questions have been answered, but maybe a couple nit-pick questions. Keith, if you could give us what the diluted impact from any options may be, once you guys -- I think most people have you guys slipping EPS positive at some point in '04. Could you give us some sense of what the fully-diluted share account jumps to at that point?

We've got about, probably, 4 million shares issued in the form of option grants outstanding as we speak. Some are in the money, some are out of the money. The average price of our options at exercise is $30 a share. The lowest is $10.66, which is IPO options. The highest price that we granted was 60 and some change back in '99, and the average price is 30 and some change. So, you know, some are exercisable, obviously, some are not, due to either vesting or that they're not in the money. I'm not sure exactly what the diluted impact would be, but I would imagine if all options were exercised, that we're either in the money or exercisable out of the 4 million shares that we have granted -- or 4 million options that we have granted -- I'd imagine probably a third of that may get the total -- a third to a half -- which we've got approximately 104 million shares total outstanding in shareholders' hands. That's A and B shares. So you'd be looking at probably a 2% dilution.

Okay. Great. And then just one final quick one. On the renegotiation of credit facility, could you give us what the average borrowing rate is currently?

Our average borrowing rate on our bank credit agreement is approximately 3%. Between our two -- we have a term A and term C facility. Term A is $425 million that's prepayable at any point in time. That amortizes over the next several years, starting next year. The term C is $550 million, and that's a little more expensive. But it's all in between the two. It's about 3%, and that 550 amortizes in 2010. It's back-end loaded. So we don't have a lot of capital needs as far as our credit agreements. As far as our fixed -- which is -- anywhere from our converged at 2.78% fixed over 7 years to our highest-costing high-yield debt at 7-1/4. Our average cost of our fixed debt is about 5%.

Any thought on when you might either try to put in place some swaps to protect yourself on the variable side, or try to lock in some of that on a fixed-term basis?

You know, we really -- the only time we did that was back in the early '90s, when we really needed protection. Because, you know, we were a much smaller company and times were a lot different for us, and we're not as concerned about interest rates rising as we were back then. If interest rates rise, that means business is good, and that means our top line is going to cover that without any problems. So, you know, we've looked at all those derivatives and other than in the early '90s, when we absolutely needed definitive protection, we have avoided going into those. Our fixed and floating is a nice mix. We've got a little bit more floating than we have fixed. But that's okay. We're very comfortable with it.

Okay. Thanks a lot.

You bet.

Your next question comes from Doug Cannes [ph] from J.P. Morgan

Yeah, guys. All my questions, I believe, have been answered. But just very quickly, Keith, if you would just tell us your goals in terms of leverage, where you see the company being levered probably by the end of this year, and longer term, what you're comfortable with on a leverage level?

Let me answer that. That depends on the M & A environment, and how we feel about the business. We think we can -- well-structured leverage enhances shareholders' returns, and so depending on how our business accelerates and what the M & A environment looks like, we run our business anywhere between 4 and 6 times.

Okay. So essentially you're comfortable above 4 times. We would not expect you to go below 4 times, then, given your M & A desires.

Well, again, it's all opportunistic. If we don't have a -- we're going to have a substantial amount of cash flow coming in over the transom and so if we don't have a constructive use for it, we're going to pay down debt and go below 4. But it really hasn't been the profile of this company to do that. And our hope is that we known down some good, solid transactions in '04. It wouldn't be a bad thing if we delevered, but it just -- it won't be by design.

Okay. And then on that note, then, would you just be able to share with us, understanding who the two larger players are above you -- who are sort of the 4th, 5th and 6th large players in your industry right now..

Adams is a company that I mentioned earlier. It's a good company, good leadership. And here's a company called Fairway, another good company. These are both privately held. And then as you really get down the list it's 1,000 operators, and the size and scope of their respective business is pretty small. You could -- I guess one of the larger enterprises is the Kennedy brothers in Los Angeles. They've got a great business there. Those would be the top three. Adams, Fairway, Regency.

Okay. Thanks, very much.

Your next question comes from Kit Springs from Stifel Nicholaus. Their question with withdrew. The next question comes from Michael Russell from Morgan Stanley.

Thanks. My question has been answered.

Your next question comes from David Volt [ph] from Brahman Capital.

Hey, guys. Thanks for taking the call. Can we just go back to an earlier question on acquisitions? You know, if I look at the numbers that you put up for the last quarter, I guess your EBITDA contribution -- it looks like you're taking assets in at about 18 times trailing EBITDA. And I guess your goal is to get up to about 10 times. I'm just trying to understand the rationale on how we can expect 80% EBITDA return on these assets.

Most of the improvement, and I don't think that you're arithmetic is exactly correct on the 18, but taking it as a given that the trailing multiple is higher, most of the improvement comes on the bottom line very quickly. When we take in these assets, we're buying from typically a sole proprietor or small company that is -- they're paying themselves an awful lot of money out of the business, and when we take over if the assets, we don't need any of the people. We absorb the top line revenue and all we need to operate the inventory is the cost of sales and the cost of illumination and the land lease costs. So you can actually see very dramatic improvement when we take over these businesses, because typically the sole proprietor or entrepreneur that built the business was living out of it. So that really explains that it's almost -- you know, it's 95% driven by bottom line improvement. Not top.

What kind of incremental margin can you get on that business, because if you look at what you put in the business within the last three to four quarters, it looks like they were generating EBITDA margins of about 43, 44%. I mean, where do you think that could go?

The incremental EBITDA contribution from a typical acquisition is in the 60 to 65% range. And again it's the same analysis that I just went through with you. Land lease costs typically run 15 to 20% of your net revenue. Your cost of sales typically run around 8%, illumination runs around 3%, and there might be some miscellaneous in there. But that's the arithmetic. When we buy inventory that's already in our footprint.

I then I guess just a final question. Is there a reason why -- is there a structural reason why the assets that you're buying typically have higher margins than the company right now? Is there something structurally different about the assets?

The analysis that I just went through is the answer, because we have a full-service shop, let's call it in San Bernardino, and we've got construction folks, account executives, chart people, bill posters, everything that it takes to run a full-service shop. If we buy incremental inventory in that market, we don't have to add people. So the expenses that are in -- built into the base result in a 45, 50% operating margin. The incremental margin from additional inventory comes from the fact that you don't need any additional people to run that inventory. All you have are the very direct expenses associated with a particular structure. Land lease costs, illumination, and cost of sales.

I think you might be confusing the forward margins that we generate versus the trailing margins. It's safe to say that we're probably -- it's not the most efficient operator in the industry, one of the most efficient. And our consolidated margins were in the 43% range in '03. And you can expect margin expansion in '04.

All right. Thanks.

At this time there are no further questions.

Well, I just want to thank all of our shareholders and guests for tuning into this call. And we look forward to our Q1 call next quarter. Thank you.

Thank you for participating in today's Lamar 4th-quarter and year-end earnings release conference call. This call will be available for replay beginning at 1:00 p.m. Eastern time today, through 11:59 p.m. Eastern time February 16th, 2004. Conference ID number for the replay is 5349023. Again, the conference ID number for the replay is 5349023. The number to dial for the replay is 1-800-642-1687, or 706-645-9291. Thank you for participating. You may now disconnect.