Lamar Advertising Co (LAMR) 2004 Q4 法說會逐字稿

Good morning. My name is Nicole, and I will be your conference facilitator. At this time, I would like to welcome everyone to the Lamar Advertising fourth quarter and year end results conference call.

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 10-K and 10-Q and the registration statements Lamar has filed with the SEC. Lamar refers to you those documents. Lamar's fourth 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 introduce Mr. Kevin Reilly, president and CEO of Lamar Advertising. Thank you, sir. You may begin your conference.

Thank you, I want to welcome everybody to our '04 annual earnings call, and as is our custom, we'll make a few brief comments and then we'll open up the phone lines for Q&A. Q&A will last approximately 45 minutes.

I'm going to let Keith talk about '04, but just some brief comments regarding '05. It looks like it will be another strong year for us, primarily driven by healthy demand for our inventory, and, of course, that's largely because of the popularity of our audience. We deliver drivers and traffic is up. Time spent is up, and technology is our friend. This is all going to lead to organic growth and that kind of growth, coupled with some well-priced fill-ins, in addition to some new initiatives that we are going to be launching in '05, the Obie initiative and the Simon Mall initiative, I think our investors should expect very strong free cash flow growth. We have a tight business model we have taken on some costs but the costs that we have taken on, we're chasing revenue opportunities and we expect them to materialize, and flow right through the statement down to the bottom line. So I -- I fully expect '05 to equal or surpass '04.

With that, I'd like to go ahead and turn the call over to Keith to briefly walk you through the numbers and our guidance for Q1. And then we'll open up the phone for Q&A. Keith?

Good morning, everybody.

Just to touch on a couple of the highlights for the quarter first, consolidated net revenue came in at $224 million. That's a 6.7 percent pro forma increase over last year. Fourth quarter and we -- please, keep in mind on the last call, we had mentioned to everybody that we were going to lose round numbers somewhere about $1.5 million in net revenue due to the destruction from the hurricanes in Florida and of course, that did come to pass. That revenue was lost due to signs knocked down and contracts taken out of service. So we would have done slightly better than that, had that catastrophe not befallen us.

As far as the EBITDA for the fourth quarter, it came in at approximately $97 million and on a pro forma basis that is a growth of 7.4 percent. Free cash flow for the quarter was $51.8 million as you saw in your press release. That was an increase of 1.4 percent. Going back to the hurricane story, we had mentioned, again, last time that we were going to spend about $8 million rebuilding Florida, and the bulk of it would be in the fourth quarter. We did end up spending $8 million. $6 million of that was spent in the fourth quarter. So if you really want to get a true comparison of what free cash flow would have been, if you add that back, and run the numbers that $6 million, you are coming out with free cash flow growth of right at 13.1 percent.

Going on to the year, consolidated net revenue was approximately $884 million, on pro forma basis that translates to approximately 7 percent pro forma revenue growth for the year. Again, we're a little disappointed that we have to lose the hard $1.5 million in Florida and the momentum that we had built up the first six months of the year, but that's just the way it goes.

EBITDA was $393 million for the year. The margin on that number, EBITDA margin was 44.5 percent versus 42.8 percent for '03. That's a 1.7 point increase in the margin. So last year and this year we have been clawing our way back from some of the margin erosion that we suffered due to the downturn in the early 2000s.

Talking again about free cash flow, for the full year, it was $237 million, that's a 31 percent increase. Before the additional hurricane CapEx, and if you throw in the additional $8 million that we spent for the year, we would have ended up the year at a 35 percent increase in free cash flow over last year. Just to translate that into free cash flow per share for the full year of '04, free cash flow per share was $2.27, versus $1.75 in '03. We told you on the last call, once again, this is last time I mentioned the hurricane, that the CapEx for the year with the additional hurricane-related CapEx in Q3 and Q4 would come in at about $84 million. You may have noticed on some of the schedules in the press release that we actually came in slightly less than that, at about $82 million for the year.

So with that being said, I'd turn it back over to Kevin.

We'd like to go ahead and open up the line for calls, and we'll take calls for approximately 45 minutes. Is our moderator there? Hello?

At this time, if you would like to ask a question, press star, then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

Your first question comes from Sean Feeley with Credit Suisse First Boston.

Good morning. Two questions. One, just on the expense outlook for first quarter and for the year it looks like expense are just a little bit higher and just trying to get a sense if there's anything going on there and how we should think about that for the rest of the year. And then just one quick follow-up on the transit business, and the Obie business. Is there any markets -- I know it is a small piece, but are there any contracts that will be coming up for that you will be bidding on.

Let me make a general comment and I will turn it over to Keith and Sean can tell you what he's dos on the ops side.

Okay.

What we're going to do is, you know, Obie is a much lower margin business. So we'll treat it differently. We're going to make sure that everything is transparent so you can see what we're doing. The take home message is that, look, we bought that cash flow right. It is a lower margin business, when you consolidate it in with what we are doing, you may see margins flatten out a little bit, and not continue to accelerate in the short run, but you are going to see an acceleration of cash flow. And Keith will account for it in a way that's totally transparent.

And then lastly, as I mentioned at the beginning of this call, we have geared up, especially here in Baton Rouge, on some of our overhead, Keith and Sean will tell you what that is related to, but in general, we're chasing revenue and we expect that revenue to materialize and, again, we have a tight business model, with predictable cost structure, and when that revenue materializes, it will flow right through the bottom.

So Keith? You want to put a little more color on that?

Yeah, Sean, as far as the -- your question was about the first quarter and going forward. Going back to the fourth quarter of '04, for our outdoor direct and G&A expenses which is all outdoor logos and transits, that was our toughest expense quarter comp of '03. We had a half a percent of expense growth, not counting corporate, in the fourth quarter of '03 so that's why we guided slightly down on the EBITDA in the fourth quarter, because we were -- we did have some tough expense comps that we knew we were facing.

The first quarter is not that much different in the -- from a comp standpoint, in '04, first quarter of '04 had expense growth pro forma of 1.1 percent, and so, you know, we are facing another tough comp. After that, second, third and fourth quarters of '04, or our normal standard 3 to 4 percent pro forma expense growth.

As a matter of fact, for '04, all three quarters, corporate, overhead and outdoor direct and G&A came in at 4.1 percent for the year. And as we have always maintained, throughout the years our pro forma expense growth on average year in, year out grows between 3 and 5 percent. So this year we were right in the middle at 4 percent. But we don't see anything in an actual dollars and cents standpoint that are going to skew our expenses going forward.

Yeah, let me talk a little bit about to -- to Obie. And then I will talk a little bit to some of the -- the initiatives we got going on on the outdoor side.

When we purchased Obie, we promised you that it would make a net EBITDA contribution of at least $8 million. Now that we have done the integration work and we have put together the budget and we can see the pacing, it looks like we'll exceed that number. I feel real good about it. We are very pleased with the way integration went and the way our folks and the Obie folks came together to run those businesses.

We do have some contracts coming up, and the -- you know the way we view it is we now have a very large portfolio of these transit contracts. In a given year, you are going to win, some you are going to lose some. Right now, as we sit, we actually have essentially walked from one contract that was a money loser. We were actually glad we lost. We bid it rationally. Somebody else came in and got it. That was Sacramento. And last year that was a bleeder when it was run in the Obie portfolio, and we -- we were actually quite happy that we no longer are running that franchise.

We've got another one that's up this year that is a profitable one, Vancouver. That RFP went in a couple of weeks ago. We're waiting to hear. And we do hope that we're successful in that one. But the take home message, you know, for your investors is, number one, we're going to bid them rationally. Number two, we're going to run them right. And number three, it's a portfolio approach that we take. If you can't get a franchise that -- at the right rate then you let it go and you go after the next one. We're very excited about --

You mentioned the overhead?

One thing in terms of when you look at our corporate overhead, particularly when you look at the first quarter, when we integrated Obie, we took some of their overhead and absorbed it into corporate as opposed to into the field. Specifically we took on their national sales effort. That's an additional office in Chicago and an additional office in Toronto, Canada. We also took their transit development team and absorbed it into our business development team here at corporate. So you will see a little spike in corporate overhead, but net, again, from that acquisition, you will see in excess of an $8 million EBITDA contribution this year.

We also have to staff the new joint venture, the new initiative we have with Simon properties. We are real excited about that. They're obviously one of the best in the world at what they do. They have some of the best -- clearly the best real estate in the United States. And together, we're going to develop traditional outdoor, outside of the malls, on some of those properties and we're real excited about that. We did have to staff that here in -- with Brent McCoy and David Journey began so that's a little bit of additional overhead as we embark on that project. But we have high hopes. We think this year, for example, that we can bring out of the ground approximately 40 new high-profile structures in '06 that will generate significant revenues and make a -- a real contribution to our organic growth on the bottom line in '06.

So we feel good about the initiatives we have going. One more worth noting, as we talked about our digital deployment in the past, we talked about the gating issue being regulatory. We have taken on here in Baton Rouge, a new government relations shop that will help us get out in front of that regulatory environment, hopefully accelerate our digital deployment.

That's what we have going on and we're excited about it.

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

Hi. This is Alfred. I'm stepping in for Jason. Can you give us the pro forma rate, 1Q '04 pro forma for revenue and expenses and the split between local and national in the fourth quarter, and how -- what's your outlook for Q1? I know you have been pretty bullish on national. Thanks.

I can give you the pro forma revenue for the Lamar companies without Obie. That's $207 million. I don't have the expense numbers in front of me, but the revenue is $207.

And regarding expenses, you don't have that?

I don't have it in front of me at this -- at this time, but you can call me offline and I can give it to you.

Okay, thanks. Regarding the local versus national splits.

Sure. Let me give you the 12 month '04 number. It was 83 percent local and 17 percent national. And going into '05, we're actually very bullish about what's going on on the national side. We have some customers coming in far stronger than in '04. A real good example is Cingular. Our wireless business is actually on fire and a lot of that is coming national. Last year, we made some effort beefing up our national presence. And our view is that this is the year that that pays off. I'm expecting that national business will be up in double digits for the year. And what I'm seeing out there, what I'm hearing out there, and the amount of activity that our folks are reporting in the field, we think we can hit that. So we're feeling very bullish on the national side.

And also, can you just give us the -- what local grew by and what national grew by in fourth quarter?

I don't have the fourth quarter number in front of me. I only got it for the year.

Do you know what it -- what is it is for first quarter '05?

Well, we're not out of the first quarter so I can't get that you number. Again, from what we are hearing and what we're seeing and feeling out there, it feels like a double digit national sales up year.

And one last question on the 4Q expenses it seems a little higher than what you guided for on the operating expenses is there anything that you did not expect in the fourth quarter?

Nothing that we haven't already mentioned. Basically hurricanes, Obie, and gearing up to chase these revenue opportunities. But we already covered that.

Okay. Thank you.

I would like to remind everyone, if you are asking a question, please pick up your hand set before you ask your question.

Your next question comes from Laraine Mancini with Merrill Lynch.

Couple questions for you. Can you give us local versus national breakdown in '03 compare to '04 and I believe Simon properties are larger market property malls, so I was wondering what types of market you are targeting here if they are, in fact larger marks and if that will help to boost national? And then for 2005, what do you expect in terms of your core margin, will it expand and then probably about how much?

I will cover Simon and then I will get Sean to cover the rest of your questions. Actually, if you look at Simon domestic U.S. our footprint matches up quite well with their properties. And so we are going to use a lot of our existing sales force. Now they do have some premier properties in the larger markets, but we're in most of the larger markets throughout the U.S. So bulletins only. That's one of the reasons -- these are up sharp, aggressive, people. I think one of the reasons why they chose us is because our footprint actually matches up with Simon's better than anybody else's.

Sean, do you want to cover op expense?

Yeah, I mean, it looks -- it looks to us like we will see margin enhancement in '05. And, again, this is on the Lamar run companies historically. This doesn't count Obie. It looks like we had about a point improvement in January. So that's the only hard data I have for you. Now keep in mind that, again, the transit business is not a 45 to 50 percent margin business. It's more like a 10 to 12 percent margin business. So on that portion of our portfolio, which is about $50 million in revenues, you know you are looking at -- at that kind of margin, I would say 12 percent-ish. But on our core outdoor business, you will see an increase.

When did Obie close?

January 18th.

And then local versus national in 2003?

In '03, it was 82/18. And so in '04 it was 83/17. So national ticked down a point.

But that was --

In '04.

The growth was good. It was just our local growth was exceptional.

Yeah. Basically, local outpaced national exception in '04.

Great and then one quick question on the audience rating system. Is there any update on that? It doesn't appear like it's rolled out as expected. So what's going on there?

The industry is trying to work through this idea of how can we keep Nielsen involved without allowing them to capture the entire industry. And, you know, we're -- it's the same -- it's the kind of push and pull that you would see between vendors and buyers. We don't want a black box proprietary system. We want something with more of an open architecture. Nielsen is helping us with the demos, but we also have another issue which is the opportunity to see.

Demos, plus traffic counts and then you need a way to discount that -- that data with what they call an opportunity to see, because if you don't discount the raw bulk of our traffic counts, the numbers are so huge, and so compelling, that we just can't gain any credibility or any sort of decent currency in the immediate planning universe. And so we really haven't sorted out this opportunity to see business. We don't want to hire people to go by every bill billboard in America and rate it. So we need to come up with a model that's statistically relevant.

All of this is to say that we are still working through this. We still think it's very important for our industry to come up with the demos and the opportunities. For Lamar, since we have so many markets below the top 30, we have to have a model that allows you to extrapolate from existing data that's out there in the marketplace. We can't afford to pay Nielsen to do audience measurement work in Wichita Falls, Texas. We're happy with the way things are proceeding. We would like to see things move along a little faster but it's bigger job than we initially thought. So we really aren't sure exactly how fast we're going to roll this out. But Lamar is convinced it's very important to the industry and as I said before, the cooperation between Lamar, Clear and Viacom on this issue has been exceptional. And we're also getting great leadership from the traffic audit bureau, which is a high partake organization funded by the billboard industry, but governed by customers, agencies and billboard operators.

Great. Thank you.

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

Hi, guys. I actually just got on. Just one quick one. Can you talk about what you guys are seeing as far as local pricing on the posters and would it be fair to say that you guys got impacted in the fourth quarter by Viacom's weakness in overall local and kind of what are you seeing as far as local poster business in the first quarter? Thanks.

Jason, this is Sean. Let me -- let me just sort of drill down on January, and maybe you can get a take home from that.

It actually looks like posters, the shorter cycle sale is right now our stronger product. We always view that as a good sign going into a year. Occupancy, January over January for posters was up 6 percent. And rates followed. Rate January over January on the poster product was up 6 percent. So we are seeing that. We are seeing increased occupancy and increased rate on the poster side. It's strong. And being driven primarily for the first quarter on the local level. What we're seeing, as we look out, is that it's going to be driven by national business, because we have had some exceptional buys, national buys, poster business that is going to be kicking in come the spring. So --

Okay.

So I think you actually put your finger on why we are optimistic about '05.

Okay so basically it's fair to say that you guys are not participating in the overall weakness in local that, you know, radio, TV, newspaper is seeing.

No.

And to the extent that national kicks, in in the back half that would be the driver while your growth does accelerate.

Yeah and our local business is strong. The reports we are getting virtually from every part of the country and from the field is that local business remains strong.

Okay. Thank you very much.

Your next question comes from Kit Spring with Stifel Nicolaus.

Can you give us an update on the occupancy for both billboards and posters at the end of '04, where that increases from '03? And where you think it can go. And then maybe can you just talk about what you think the impact of higher gas prices, if they stain at these levels or go farther, might be on your business? Thanks.

Let me quote you some year end for occupancy for posters and bulletins and I will comp it to '03. In '03, the year end poster occupancy was 62 percent.

52 or 62?

62. And in '04 it was 66. So we had a 4 percentage point improvement in occupancy for posters. In '03 our bulletin occupancy was 75 percent. And we ended '04 at 78 percent for a 3 percent increase.

Where do you think those numbers can go to?

Well, we have traditionally thought that average annual occupancy in the poster product should be in the low '70s and the bulletin product should be in the low 80s. If you look at the way January this year has trended, assuming that the 6 point improvement carries throughout the year, then that will get us to the low 70s on the posters. The January occupancy on bulletins was flat from January '04 to January '05. So we'll see how that trends during the year, but typically, historically average annual occupancy runs low 80s for bulletins, low 70s for posters. That's where we think it can go.

And what is the overall occupancy if you kind of revenue weighted those two?

Well, 70 percent of our business is bulletins and 30 percent of our business is posters. But I don't have the number.

Okay. I can do that.

I'm not nimble enough to do the arithmetic in my head.

Okay.

And I can't really speculate as to what gas prices will do to our business. Last summer the gas prices were pretty high and we had a good year.

Yeah, I don't think -- it may hurt some of the tourist attractions which we -- you know we advertise for, especially those where people drive, but, you know, people are not going to stop driving. They may drive a little bit less, but I think -- I mentioned earlier, time spent -- we expect time spent to be up and we expect traffic to be up in '05.

Now, to embellish on where you think -- where we think occupancy can go, in 2000, Sean quoted you where -- you know where we were and that was up a strong year for us, and a couple of things have changed. Our footprints changed a little bit since 2000. Our mix, our product mix has changed a little bit. We have more bulletins now than we did, relative to posters back then, and the other platforms are having more severe problems with their audience and the assault on technology. So, you know, what I'm counting on, over the next couple of years is for us to blow right through our historical averages. In both categories. Posters and bulletins.

Great. Thanks a lot, guys.

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

Good morning, this is Lauren calling in for Gordon. A few questions. If you could talk about occupancy, as well as pricing for both bulletins and posters in the fourth quarter if you have that and then also any comments you could make on renewals for 2005, and then possibly the tax rate in the fourth quarter, which looked high. Thank you.

Yeah, I can give you the occupancy by quarter of '04/'3 I don't have the rate in front of me so we'll have to do that offline.

Okay.

The occupancy for the quarter ended December '03 on posters, was 61 percent. For quarter ended December '04, it was 67 percent. A six-point improvement on occupancy. On the bulletin product there was a one point improvement over the same time horizon, 77 percent occupancy in '03, that's 78 percent occupancy in '04. And the rate was definitely up. I just don't have the number in front of me.

Okay.

What was the second part of the question?

Your next question comes from Barton Crockett with J.P. Morgan.

Good morning. This is Robert. I'm filling in for Bart this morning.

I also wonder if you could talk a little bit about where you saw some of your future acquisitions coming from. Do you believe it's any more kind of continued roll up of the smaller mom and pop operations or, you know, do you see maybe some acquisitions coming from, you know, the larger two players in the business?

In the short run, I think that '05 is shaping up to look a lot like '04. To put a little color on that, in '04, we did 80 transactions and we spent approximately $194 million. Quarter to date in '05, we spent approximately $81 million on 9 acquisitions. Now that includes Obie because Obie closed this quarter. But, you know, counting what we have done so far this quarter, and the way the rest of the year is shaping up, I think it looks very much the same. On that front, it's sort of steady as she goes and '05 looks like '04.

All good deals. All well priced and all integrated nicely.

Great. Just a follow-up question. I wonder if you could talk a little bit about your use, your planned use for cash for the year. Do you see using more for continued acquisitions or, you know, some debt pay down that type of thing?

This is Keith. We have amortization kicking in under our credit agreement, our bank credit agreement this year. We have been in the interest only for two and a half years. This is the beginning of that principal repayment and it's about $17 million a quarter for this year and it's slightly higher, not much, for next year. So we will be diverting some of the funds from free cash flow to that. But other than that, there should be no change where the company deploys its free cash flow.

Great. Thank you both very much.

Your next question comes from [Marcie Ridicker] with Wachovia Securities.

Hi, Sean, do you have any ad rate information for bulletins? I know you didn't have quarter. Do you have January over January, or '03 versus '04?

For rate in January, the bulletins. I think I quoted poster that was the 6 percent number.

Right.

For bulletins January over January it was 3.6 percent.

Okay.

Anecdotally, because I didn't get to the renewal question, going into last year, '04, obviously we were coming off three discussions with advertisers. They were pretty tough, and rate discussions were equally tough. This year, the rate discussions are tilting up -- tilting up a little bit more in our favor on national renewals and they are coming at in at between 3 and 4 percent on the renewal side on the rate side. Now when you look at the overall growth, it's going to come from -- the reason the growth is going to far exceed that is because of occupancy gain, and the number of new customers that are coming in on the national front. But in terms of renewal rate discussions, with the big customers, the Cracker Barrels, the Cingulars, the Motel 6s and the like, those discussions are hovering around 4 to 5 percent on rate going into this year.

Okay. And can you review your top five ad categories and discuss how these categories look today versus a year ago?

It's the picture of consistency. I will do categories and then I will talk about some customers.

Okay.

'04 restaurants is number one at 11 percent, retailers were number two at 10, and automotive was three at 10, and hotel/motel was number four at 7 percent, and gaming was number five at 6 percent of our book. So by category. The only shift of note in my view would be in '03, hotel/motel was 8 percent of our book. And in '04 it was 7 percent of our book. Now that could be that they stood still with us and other categories grew. Or that they didn't grow as fast as other categories but I would like to see the hotel/motel business a little stronger in our book.

Going into this year, one of our hotel/motel customers has ticked up. I will rattle off our top five customers for January of '05, versus '04. The first three are the same, Cracker Barrel number one, McDonald's number two, and Jackson Hewitt number three. However, this January Holiday Inn moved up from number five to number four. You know, I think that's a good sign. And actually I -- had mentioned how hot wireless was. Nextel moved up into our top five customers for January of '05. And Cingular has also hit the top 10. So wireless business is very strong, and I'm glad to see Holiday Inn is stepping up a little bit over previous years.

And I have one big picture question. Do you feel that outdoor is taking share of other media and if so, what other media? Do you think it would be coming from radio? From TV? From local cable? What are your thoughts?

Well, I can -- I can give you hard data on one category.

Okay.

Which is automotive. If you look back 10 years ago, automotive would have been about 4 to 5 percent of our book. And today it's 10. And I think that is clearly a shift away from other media to us, particularly at the local dealer level. Now I can't tell you exactly whether it's coming from television or newspaper, but my gut tells me it's coming from the local network affiliate television. Local dealers they used to buy news -- adjacencies on the local news and I think they are taking some of those dollars and spending it with us. That's the only category where I can specifically point to a dramatic shift.

Great. Thank you very much.

Your next question comes from Bill Myers Lehman Brothers.

Thanks. I just want to circle back to the digital deployment question from before. How many posters are you currently operating and how many do you expect to roll out in '05 and from a cost standpoint, sort of what was the average cost in '04 and how do you see that cost trending over the next two years?

We're very excited about what's going on in Pittsburgh, where we deployed a poster showing in the digital format and we have been up and live with that long enough now to get a pretty good sense that there's good advertiser acceptance and that the concept has legs. And, again, the -- unfortunately I sound like a broken record. Regulatory environment is the gating issue and we're going to throw some resources to try to change that environment. We're going to roll them out as absolutely quickly as we can. I can't give you a hard number, because we have to make sure that we have all the requisite approval. I can tell you that we're launching in Hartford this week. We launched in Syracuse, New York last month.

But we're convinced that the concept has legs. We have also been sharing a little bit of our excitement with Clear Channel and they are now embracing the deployment of digital in a traditional outdoor environment and that will only help us on the pricing side, in terms of getting vendors enough volume so that their pricing can come down to where -- what is an already attractive ROI can become even more attractive. We have enjoyed a little bit of pricing break over the last 18 months to the tune of 25, 30 percent but we think it can go lower and we are glad that Clear Channel is embracing the business model.

Bill, this is Kevin. Let me tell you that a lot of these deployments are sort of one off, and we -- it works. And the customers are use using it and the sales people can handle the -- the frequency of the change over in customers. But we're really -- if you look at the customers who are participating, they're not really new customers. We're just adding to additional book. We get some new customers because we can do call to action advertising but the reason why Sean mentioned Pittsburgh and why we're more excited about Pittsburgh is one off deployments is just management did a great job of duplicating the newspaper's circulation.

We provide the exact circulation of the newspaper on a daily basis, with these end digital billboards and we're going right after their customers and we can do it all. We can change that message by the minute. So if you want to do call action advertising, price, we can do it. If you want to build brand, because those are your current needs for that week, we can do that as well. And that has resulted in new customers. The Toyota dealer was not a big user of our medium up there but now he loves it because he can run his models and his price and it can all coincide with the factory incentives and his own dealer incentives and that business came right out of the newspaper. And it was good business for us. And really that's what we want -- that's really what we want to do is we want to duplicate local newspaper ad by duplicating their circulation with the additional billboards and get into the call to action business.

And just along those lines, how many boards are you operating at the moment and then just in terms of the regulatory hurdles, is this at the level, the city level, the county level?

Yeah. Right. The frustrating -- the frustrating answer is that all of the above. Typically what you have to do is you have to go get approval at the state level from state DOTs. What we're discovering is that that is an argument that we win.

That being said it's an argument we have to make. We have to get in front of them and convince them that this is not a hazard to the motoring public and typically you are dealing with traffic engineers. Once they understand how the medium works, what it looks like, they typically sign off. So what we're finding is that we're winning at the state level. But then have you to go to each and every local jurisdiction that you are going to be in and you have to make the case all over again, and the case you are making is not oftentimes to a traffic engineer. It's to somebody who is afraid of what this is going to look like if it's close to their house and that's a different discussion.

Again, it's -- it's a war of attrition. It's a case we have to make at all levels of government. We are finding that if we have the opportunity to get in front of the right people, show them how the product works, let them know what we are up to, that we win. But it is a slow process.

And how many boards are you currently operating?

We've got the 10 in Pittsburgh operating as a showing, plus the bulletin in Pittsburgh. We've deployed 3 or 4 in and around some smaller Pennsylvania markets, like Harrisburg and the like, Altoona. I'm going to guess counting the ten in Pittsburgh, we're up to 22, 23. But I will have to get back to you with the exact number.

Great. Thanks very much.

Your next question comes from Tony Rosenthal with Time Square Capital Management.

Keith, do you have any CapEx guidance for '05?

Yeah, Tony. I don't have it by individual category but we are looking at something that we posted today on the release, some where in the mid-80s, 80, 85 million. We'll roll out a few more of the digital billboards, probably in -- probably about 10 or more. That's about $5 or $6 million. And, you know, the rest -- Logos have expanded some of their contracts so they are asking for some more money, which is good because it's all cash flow generated expenditures, generators, whatever. And the Simon Mall, the billboards that we will be putting up. But, again, it will be, you know, mid-80s. $85 million or so.

And Kevin, you guys grew free cash flow a 30 percent rate in 2004. Were there any one-time items in there or is that sort of a normal year?

No, it actually cut against us. We had the hurricane. So I think you are going to see some very attractive free cash flow growth numbers in '05. There was nothing extraordinary that gave us exceptional growth. We had the checkbook wide open on the CapEx side and we spent a lot of money up here at corporate, a lot more money on the expense side than -- than normal chasing these revenue opportunities which are -- some of them are going to come to fruition in '05. And Sean is going to surprise the hell out of all of us with this Obie thing.

So, you know, I'm looking forward to some pretty decent numbers in '05 in terms of both EBITDA growth and free cash flow growth.

Okay. Thanks very much, guys. Good luck.

Your next question comes from Steve Lister with ABP.

Yes, hi there. Could you just talk about the drivers for your tax charge in the medium term cash taxes.

We -- we don't expect to be a -- we've got about $220 million in net operating loss carried forward as of today, as of the end of '04 to offset any taxable income going forward in '05 and '06. We have expect to be a slight income taxpayer in '06, based on our projected growth, internal growth, and we expect to be a relatively full schedule income taxpayer in '07, assuming that there's no more economic downturns and that our forecasts are fairly accurate, with respect to the internal growth of the company.

That's great. Thanks.

Your last question comes from James Marsh with SG Cowen.

Yes, hi, gentlemen. Just two quick ones here. Keith, I was hoping you could just confirm that the revenues and the costs for both Obie and Simon are not in your pro forma guidance for the first quarter and secondly for Sean, I was wondering if just as broadly as you feel comfortable discussing talk about the returns on investment for some of the digital billboards, the potential margins and just the break even periods and those types of metrics that you look at when you are trying to roll out these investments. Thanks.

James, this is Keith. You're right, Simon, Obie, those are not in our guidance where we're saying 6 percent top line revenue and 8 percent EBITDA. It does not include those assets.

Thanks.

Our expected ROIs, we expect that the pay back period will be between 18 and 24 months on CapEx deployed in the digital format. The ROIs that we look at are in excess of 50 percent. The thing that drives it is obviously the cost of the unit. But also you have to be pretty smart about where you put them. For example, we typically put it on company-owned real estate so that we don't share any of the revenues with a land lord because that will drive down your ROIs pretty quickly. So we typically put it on company owned real estate. We typically put it in and around the best locations in the marketplace. And the revenue enhancement is typically seven or eight times what the normal static billboard would generate in a given month.

Great. Thanks a lot.

That concludes our year-end earnings call for '04 and I just want to thank all of our investors and friends for listening in and we look forward to reporting to you next quarter, and with that I would like to turn it back over to Nicole.

Sir, do you have any other closing remarks?

Just did them, Nicole.

Okay, this concludes today's Lamar Advertising call. You may now disconnect.