Lamar Advertising Co (LAMR) 2005 Q2 法說會逐字稿

We now have Kevin Reilly, Jr. in conference. Please be aware that each of your lines in a listen-only mode. At the conclusion of Mr. Reilly's presentation, we'll open the floor for questions. [Operator instructions]

In the course of this discussion, Lamar will 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 the call in the Company's reports on Forms 10-K and 10-Q and the Registration Statement Lamar's filed with the SEC. Lamar refers you to those documents.

Lamar's second quarter earnings release which contains the information required by Regulation G was furnished to the SEC on 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 Kevin Reilly, Jr. Mr. Reilly, you may begin.

Thank you, Kenny. Welcome to Lamar's Q2 earnings call.

As is our custom, we'll make a few comments at the beginning. Keith will -- and Sean will go over the metrics of the business. And then we'll open up the call for Q&A.

We had an eighth of a point miss. You look back at Q2 and the surprise was June, it was unusually weak.

The good news is that after a weak June and July our book is coming together nicely and I expect that we will finish the year strong in both sales and in expense control.

With that, I'd like to turn the call over to Keith Istre to walk us through the metrics.

Okay. Good morning, everybody.

Just to touch on a few numbers. As you saw in the press release, our reported net revenues for the quarter was 265 million, EBITDA was 125, that equates to a 47.4% EBITDA margin versus 47.1 last year second quarter.

As Kevin noted, the guidance that we had given for the second quarter was approximately 255 million, excluding the Obie transit markets. As you saw in the press release we came in at 253.

On a pro forma basis that was 7.2% over last year's second quarter which was up 7.7% over the previous year's second quarter. We guided to approximately 11 on the EBITDA line and that came in at 10.1 and that was a direct result of the top line not being at approximately 255.

We were pleased at the, as you saw in the press release, the pro forma directed G&A advertising expenses. Again excluding Obie came in at the low end of our range, 3.4%.

Corporate of course is up 25 and we've explained to folks the initiatives that we have going on here in Baton Rouge that are driving that increase.

The way the quarter broke out, the reason that we had guided to approximately 8% in April -- at the end of April when we look at pacings, May and June were looking particularly strong and we had finished up April at about 7.6 on a pro forma basis. So we were expecting May to be 8 and some change and June to be 8 and probably around 8.5.

The way it broke out April came in at 7.6, May came in at 8 and June came in at 6.3. So you average that out and you come out to the 7.2 that we were showing.

The July numbers also were a little softer than we had hoped. July is always a kind of a seventh inning stretcher for us.

It's always slightly less than June and then August, September revs back up again. But anyway July's pro forma numbers were 5.4 on the revenue side as far as the pro forma increase.

Touch on free cash flow.

We posted a 2.6% increase in the second quarter and we are at 8.9 right at 9 for the year-to-date. We expect that number to be in the high teens by year-end.

The second quarter we had budgeted for a strong billboard Cap Ex number. Business is good, we wanted to get those units in the ground sooner rather than later to take advantage of the environment. So our Cap Ex was 31 million for the second quarter versus 20 million for the first quarter and that was all due to billboards, traditional billboards.

Our billboard Cap Ex in the first quarter was 12 million, in the second quarter it was 23 million. We're right on budget according to our operations Vice President who's in control of this to do 85 million. Again, it's just the timing issue and we wanted to get that [inaudible] the ground.

With that, I guess I'll turn it over to Sean.

Thanks, Keith.

Let me hit the key operating metrics that folks like to look at when you're looking at our business. And I think the theme here is, we don't think June and July have established a trend line, I think it's more aptly described as a sort of a pause.

And in looking at all the diagnostics that we look at, as Kevin mentioned, we think that the rest of the year is in place to have a good strong finish.

One of the things that tells me that is I'm looking at our bookings to goal. As you all know, we have an internal budget and we track bookings to that budget and we can compare year-to-year.

And interestingly, the book for the full-year is stronger than the book for the third quarter, which tells me that the 5 to 6 that we're guiding in the third doesn't become a 3 or 4 in the fourth but something significantly stronger than that.

Right now we're pacing 84% book to goal for the third quarter versus 85% last year, and we're pacing 87.1% book to goal for the full-year versus 87.5% last year. So we're six-tenths of a percent better when you're looking at the full-year as opposed to just the third quarter.

Let me quote some occupancy and rate stats. The story here is posters are strong.

As a matter of fact, we're probably approaching normalized occupancy for posters in the sort of general recovery theme that we've been talking about the last 18 months. Bulletins have again sort of taken a little breather and their year-over-year improvement is not as strong as I would hope.

So Q2 '04 poster occupancy was 70% versus 75% Q2 '05. So it had a 5 point increase on the poster side.

On the bulletin side, Q2 '04 was 79% on the occupancy front and Q2 '05 was 80%. So only a 1% increase on the bulletin side.

On rate, Q2 '04, posters $426 average rate per panel, Q2 '05, $444, or an increase of 4.2% on the rate side for posters.

On the bulletin side we're pushing rate a little stronger. Q2 '04, $1,037 average rate per panel for bulletin versus Q2 '05, $1,112 average rate per panel, or a 7.2% increase.

So while occupancy isn't improving as quickly on the bulletin side, rate is improving slightly stronger on the bulletin side than the poster side.

On the national sales front, it's been a little bit of a roller coaster ride. Again, I think the key point here is that we don't see a trend line that would indicate that business is falling off to an alarming degree.

In June national was up 9%, in July it was only up 3%, and August is pacing to be up 18%. So again, I wouldn't want to lose sight of the forest for the trees and try to get too analytical in trying to figure out exactly what may have caused the little pause in June and July.

Clearly national had something to do with it in July. For those of you that follow other local media platforms I think that's the same experience that radio, TV, and newspaper has on the national front.

Our mix year-to-date, locally 82%, national 18%, that's the same as it was last year.

On the acquisition front, year-to-date we've closed 47 transactions for a total purchase price of $145 million. That includes closing Obie in January.

The mix of consideration was approximately 43 million in stock and approximately 102 million in cash making up that 145.

Top 10 advertisers year-to-date, familiar lineup. I'll tick them off real quick, McDonald's, Chevy, Cracker Barrel, Holiday Inn, Cingular, Dodge, State Farm, Nextel, Verizon, Best Western.

When I look at that lineup, you know, I don't see any surprises and I don't see anybody falling out of the book to any degree.

And then top 10 categories of business, again very familiar, same as last year, restaurant at 12, retailers at 10, automotive at 9, real estate at 7, hotel/motel at 6, hospitals at 6, amusements 6, financials 5, service industries at 6 and gaming at 5%. So it's again, what we're seeing is that the back half is in place to finish out pretty strong.

And why don't we open it up for questions?

Yes. Thank you. [Operator instructions] We're holding just a second for the first question. Our first question will come from Bill Myers with Lehman Brothers.

Thanks. A few quick questions. Number one, have you netted your bank agreement to enable share purchase? And if so, what's your capacity and what are your thoughts given your other uses of cash?

Number two, if you can update us on the progress of your land acquisition program. I think you spent about 7 million last year and you were targeting, I think, 70 or 90 million for this year.

And then just as a final question, any thoughts in terms of a third quarter EBITDA, you've given revenue guidance but anything in terms of Op Ex or forward EBITDA? Thank you.

Bill, this is Keith. In terms of our bank agreement, no, we have not done that as of yet. We are working on that as we speak.

The EBITDA question, the guidance, no, there's not going to be any unusual expense items and you know what our margins run, you know what our expenses are running. We're just getting away from EBITDA.

It's -- we can't even present EBITDA at a conference when we go to these conferences unless we have all kind of reconciliations and backups and schedules and we just are following what other folks in our patch do. Nobody that we know of gives out EBITDA guidance. I think it's pretty easy to figure it out. The second part of the question --

Let me hit it right quick. That was on the land purchases.

I don't think we're going to have as many acquisitions as we had hoped during the course of the year. Instead of coming in around 70 or 80 I think it's going to come in somewhere around 25 or $30 million worth of easement purchases.

We'd like to do more. There's a whole lot of folks out there that they, it's hard for us to get deals done at the pricing that we want to get them done at.

So we're tweaking our hurdle return requirements to try to get as many good deals done as we can. But as you can imagine in a super hot real estate environment, unless we want to dial down our hurdle rate, it's going to be tough to hit that number.

Also then just in terms of third quarter Op Ex, anything we should be aware of? Would it be like the second quarter run rate?

Yeah.

And also, when should corporate trend down to more normalized level?

It should trend Op Ex in the third quarter, just like it did in the second and the first, and the corporate Cap Ex should even out at the beginning of next year '06, all of the, we closed Obie in January, brought on a lot of overhead in the business development national sales department in January of this year, and a legal analyst on staff at the end of last year, and a couple of additional business development people to handle the Simon Mall project. So hopefully in the first quarter of next year things will smooth out.

Thanks very much.

You bet.

Thank you. The next question comes from Bart Crockett with JP Morgan.

Okay. Very good. I just, many of my questions were just asked, but I guess one thing I'd like to find out about is, as you near what you called normalized occupancy rates on poster, how do you, how comfortable do you feel about the possibility that the rates might start to trend a little bit higher more like what you're seeing with the bulletins there? Thank you.

You know, this is Sean. I feel pretty good about that it's a little bit of a trade-off as you're out there trying to drive both at the same time. We feel real good about what's going on with our posters, particularly in the back half of the year.

We had a real strong buy from McDonald's in August that's really helping out in large part it's responsible for that up 16%. This is not your local McDonald's franchisee, this is McDonald's corporate.

And so I think the poster story is a very good one. Keep in mind, though, it's 30% of our outdoor business. What I am really looking forward to is seeing bulletin occupancy getting back up to the mid-85s. That's the important one right there.

Okay. Great. And if I could just follow-up. The revenue guidance you're giving for the third quarter, it sounds like you're guiding for basically the rate that you're seeing in July, even though what you've said is that you expect things to pick up in August and September based on the bookings or I guess in the fourth quarter and I just want to make sure I heard you correctly and if you could kind of reconcile those two things? Thank you.

We are just trying to be conservative. We did come up a little short in the second quarter and we'd rather err on the side of caution. We're telling you what we're seeing and what we think is going to happen and we think 5 to 6 is a conservative way to go.

Okay. That's great. Thank you very much.

Thank you.

Thank you. The next question comes from Laraine Mancini with Merrill Lynch.

I have two questions for you. The first one, was there any impact from the Florida hurricanes on your results and because there's expectation for a large number of hurricanes this year, do you factor that into your guidance?

And then the second question. As it seems to me looking at Obie's performance that the margin is significantly better already in the first half of the year than what we were thinking. We were using that 20% for the year and you're already 25 to 30% in the first half, so does it look like there's a lot of upside in those margins in the second half?

On the hurricane question, no, there's no assumption for hurricanes in terms of trying to guess what it may or may not do to our same store or for that matter to our Cap Ex budget. Last year was almost a perfect storm when you think about what happened to Florida with three really bad hurricanes, four really bad hurricanes.

And it has, as I look at what's going on in Florida, it has somewhat stunted our same-store growth in Florida and still is because of the inventory that we weren't able to get back up into the air as of yet in places like Fort Myers and Lakeland and Daytona Beach. But I don't think that when you look at the overall platform it's that material. I don't know that it is all, again all that meaningful in terms of the overall platform that Lamar has. The second question was?

The Obie Media.

The Obie margins. We're very pleased, obviously, with the performance. Again we are exceeding, on that front we're exceeding what we promised you guys and we're hoping to finish out the year pretty much as it's tracking.

Most of the improvement was expense driven and it happened pretty quickly. So while we're pleased that it's 25 to 30 as opposed to 15 to 20 on the margin side, I don't think we're going to do that much better than what you're seeing.

But would that imply then the 10 million that we were all kind of putting in our models is low, right?

We did, 11 and some change for the quarter.

Are you talking about for the full-year, the bottom line?

For full-year.

Up line or bottom line, Laraine?

Bottom line, sorry.

We're tracking to do slightly better than that.

Okay.

Yeah, we were looking at, okay. I thought you were talking --

Thank you.

Thank you. The next question comes from Gordon Hodge with Thomas Wiesel Partners.

Good morning. A couple questions. Just curious on the pricing on bulletins looked really strong in a pretty weak media environment. I'm just wondering, is that a function of mix? Perhaps your larger market's doing better driving that up or is that real pricing that you're pushing through sort of across the board, is one question?

And the other, I'm curious if the McDonald's poster buy, does that carry through into September as well? If my math serves here, your August should be a pretty strong month given just with national providing about almost 4% growth right there. So just curious if you can comment on that. Thanks.

The McDonald's buy is a one-month buy. It's August only.

Okay.

And you're right about its impact, it's definitely helping. And the first question was about --

Bulletin pricing.

Bulletin pricing. It's broad-based. We've done, again, we've done a lot of diagnostics around here trying to pinpoint exactly what went on in June and July and it kept coming back. There's no one single thing.

So in terms of on the pricing, it was just sort of across the board. Our folks are out there doing their job, they're pushing bulletins aggressively and, again, what I'm looking for is the occupancy right now, because I think on the rate side they're doing their job.

Thanks.

Thank you. The next question comes from Marci Ryvicker with Wachovia Securities.

Hi. Good morning. I have two questions. The first is, can you update us on what's going on with the outdoor reading system that's been discussed and implemented by Arbitron?

And also can you talk about the progress you are making on the regulatory front with the electronic billboards and where the greatest resistance is coming from?

Kevin, why don't you hit the Arbitron? Kevin, are you still on?

Must have fallen off.

He must have fallen off.

Yes, we're showing that Kevin has disconnected.

Okay.

Must have lost his line.

Let me talk about the digital regulatory front first because we're pushing that as hard as we can. We're trying to get extremely aggressive and we feel like we're showing some progress.

My internal goal over the next 12 months is to double the deployment we have out there right now. And I feel good that we can accomplish that and I actually think we can beat it.

The biggest hurdle is very much at the local level. We have to get clearance at the state DOT level. Once we explain that these are not video boards, it's just another way to change the copy, then we usually are successful and we've had a couple of wins at the state levels. And so then you just, it's community by community and our guys are gearing up.

I'm back. You want me to take Arbitron?

Yeah, hit the Arbitron real quick.

The question was, is their strategy going to--

The question was just update status.

Well, we've, Arbitron has taken a little bit different approach where they are going to help the, it's going to help Lamar probably more than others because they're going to be able to go quite deep, maybe 200 markets deep by extrapolating data from surveys that are already out there like Simmons and others and they, it's not audience measurement but it will help give advertisers comfort as to the demos behind the traffic counts.

Nielson of course is actually trying to measure traffic. Arbitron is going to get there quicker because the data's already there and so their product will be in the marketplace fairly shortly.

With Nielson, we're still arguing about a closed system versus an open system. And the industry would like to see an open system so that we don't become captive to one vendor, especially in light of the fact that the technology available to measure drivers is getting better and better every day. One thing I'm referring to is GPS capability embedded in hand-held devices.

So that's a long winded answer to tell you we're really not as far down the road as we thought we were on audience measurement but we're moving in the right direction. The traffic audit bureau, which is our tripart, independent tripart organization has just contracted with an organization which will help discern likelihood to see.

And likelihood to see is a component of audience measurement. It allows the advertisers actually to discount the circulation figures that we have in front of our board.

So we're moving on every front. We've got the circulation, we don't have all the demos perfect but we have both vendors, Arbitron and Nielsen working and then the industry is working on the discount. Sorry, I can't give you a time frame because everything's pretty much in a state of flux right now.

That's okay. Thank you very much. Very helpful.

Thank you. The next question comes from Jason Helfstein with CIBC World Markets.

Thanks. Two questions. One, Sean, you said something about 85% occupancy on bulletin. Is that like a reasonable target for next year where you think you can get to? And then, or if not next year when?

And then my second question. Is the Simon's Property deal, is that expected to be additive to the revenue growth rate next year?

On the 85% occupancy, that's a goal that I have. I think it's realistic.

When asked this question on the last call when things were looking, were pacing I thought around 7 to 8 as opposed to 5 or 6, I kind of described us as being in maybe the sixth or seventh inning of an occupancy rebound. It looks like the pause over the summer may mean we're still kind of in the sixth or seventh inning. If that's helpful. If that baseball analogy is helpful at all in your thinking.

The Simon deal is going well. We think that in '06 in traditional billboards it'll add about $3 million in incremental top line revenue, on which the margin ought to be about incrementally 50 to 60%.

Okay. And then just --

Just to sort of complete the Simon thought. We're also doing a wall program with them. So this would not be traditional billboards, it would be wallscapes.

And we think, again, in '06, about the same contribution. So if everything goes according to plan, you're looking at incremental 5 to $6 million on the top in '06 from the Simon project.

And would that wallscape have a similar margin or a little less?

Probably a little less. In our deal on traditional billboards, we recapture our Cap Ex. There is very little Cap Ex in a wallscape, so the revenue split is different.

And just to follow back on your 85 reference question. The reason I asked that is, I don't think anybody's model on the Street, including ours, has you getting up to 85% occupancy in bulletins, not any time soon, so to the extent that you still are optimistic that you're going to hit that number without putting a time frame around it, it still means there's a reasonable amount of revenue upside to your model over the next few years.

I mean I think you guys are rightfully conservative. Again, I've got a stretch goal of getting to 85%. If we end up at 83.5 or 84 I think we're all going to be very happy.

Thank you.

Thank you. The next question comes from Mark Bacurin with Robert W Baird.

This is Eric Jacobsohn in for Mark. A couple of quick questions. Just on the share count there was an uptick, I wanted to know in there was anything in particular?

Also on the interest expense it was higher on lower debt. Was that just a function of rates and what was the average rate and what's a percentage fixed versus floating?

And then also just, don't know if you touched on it, but was there an actual impact from Hurricane Charlie this quarter?

On the hurricane front there wasn't.

Okay.

On the interest cost, yeah, that's just a function of higher rates. I don't know, what do we average, about 5? We're probably -- 4.5. Between 4.5 to 5, obviously there's been several upticks in the fed's rate. So that's a function of that.

What was the first part of the question? I've forgotten the one before the interest.

It was on the share count.

Oh. The share count, yeah. No, that's just a function. We bought Obie towards the middle -- in the back half of January, so we just, we included the full load in the share count for the second quarter whereas it was only about two thirds of it on average for the first quarter.

All right. Thanks.

Thank you. The next question comes from Bishop Cheen with Wachovia.

Hi. Good morning, Keith, Sean and Kevin. A couple of questions going to acquisitions and revolver availability. I think it was like tickling the 178 million available at end of Q1, can you tell us what it was end of Q2?

I'm sorry.

Availability, Keith.

Oh. 213. Right at 214 million, Bishop.

Okay.

Was available.

And then on the acquisition front, it looks like true to form you're doing at least a third in stock on the acquisitions. Because I don't remember what you had for Q1, but year-to-date or first half let's say, can you give us a, you know, the key stats how many deals and dollar volume and stock and cash on acquisitions?

Sure. Do you want the year-to-date or do you want me to break it out for you?

Year-to-date's good.

Okay. Year-to-date, 47 transactions. $145 million.

Okay. That's what you gave on the phone. I'm sorry.

Right. And in terms of shares, the only shares we have put out, via acquisition, were the Obie shares.

Right. So it looks like try as you might that you're actually going to come up with less acquisitions, I guess maybe it's the land deals that are tough to do, than you had originally anticipated way back in, whenever February or March when we talked about the vision thing.

Yeah. We kind of got it to around 150 to 200 million and that's about where it's going to come in.

Okay. All right. And then you, there was some reference to an amendment with your bank and I'm not sure what that was all about.

No. Somebody asked if we were trying to expand the basket that allows us to pay dividends, buy back stock.

Right.

A stock repurchase program. And I said we were working on that. We are planning to do that but we have not completed that yet.

Okay. And then your restricted payments, I guess, is the big governor in your bonds.

That's correct.

All right. Great. Thank you, gentlemen.

Uh-huh.

The next question is from Gordon Hodge with Thomas Wiesel Partners.

Sorry for the follow-up. Just curious if you could comment a little bit about September's business because again, with strong August that you must be having, I'm just curious if you've seen a dramatic change other than the McDonald's buy in September, up or down? Thanks.

You know, I think, Keith, probably said it best when he said we were trying to be a little careful as we look at the third quarter. Obviously we don't like to put a number out there and not be able to beat it.

Yeah.

And I think that's a good description. I feel good about September. I don't think it's, again, I'd be very blue on this call if I thought that the 7 to 8 that we started the year with became a 5 to 6, was going to a 3 or 4. And I think everybody would sense that something was coming down the pike that was probably bad for the aggregate economy.

Yeah.

We're not seeing that. And I feel pretty strongly about that comment. So I feel like the pause was June and July and that the remaining months of the year are shaping up with numbers that are better.

Great. Okay. Thanks.

Thank you. The next question comes from Kit Spring with Stifel Nicolaus.

Hi. Good morning, guys. As your occupancy is rising, do you think it's easier to get price increases, I'm sorry, easier to get revenue growth from price increases or from improvements in occupancy? Just in general.

And then, secondly, do you think that the economy is starting to weaken due to gas prices or are you seeing higher gas prices have an impact on your lodging and hotels category? Thanks.

Let me sort of speak to the pricing versus occupancy issue and put a little historical analysis behind it. Our traditional approach to going through ad recession is to hold the line on rate and suffer on occupancy because it's been our experience that occupancy comes back faster than rate as we've been through many an ad recession.

The thing that feels a little bit different about this one is that it seems to be a little less robust. In the ad recession of the early '90s when we came out, we came out with a top line of 11%. And this one seems to be coming out with 7s and 6s as opposed to rocking out on the occupancy first and then driving rate.

So I think our approach is the right one to try to hold the line on rate and then drive occupancy. Right now the good news is we're doing both and I think there's, again on the bulletin side, I think there's room for improvement on the occupancy front. And little gains in occupancy are big gains on the top line for our Company, so that's what we're hoping to drive.

Kenny, this is Keith. We've got time for one more question. We've got a conference call that starts in about five minutes. Kevin and Sean and I, so if we could take one more and then we're going to have to excuse ourselves.

Yes, sir. Our final question comes from Mark Lichtenfield with Avalon Research.

Good morning. I was wondering if you could give us just a little bit of color on the acquisitions in the quarter and if you're still on pace to hit your year-end targets, which I believe would match the total from last year?

Yeah. They're very much the same cookie cutter model that everybody's used to at Lamar. The vast majority of them are small fill-in, cash for assets acquisitions, extremely predictable, easily integrated, and no surprises and just sort of on that front I would describe it as very much steady as she goes.

And are you still on target to hit the same pace from last year?

Yeah. I think so. I mean we're at 145 million year-to-date, there's a couple of them queued up in the pipeline to close in the fourth quarter so I think we'll come in, you know, at that 150 to 200 million.

Okay. Thanks.

A year.

Kev, do you want to close it out?

Yes. I just want to thank everybody for listening to our Q2 call and we look forward to next quarter. So with that, Kenny --

Yes, sir.

This concludes the call.

Yes, sir. You may all disconnect at this time