Lamar Advertising Co (LAMR) 2006 Q2 法說會逐字稿

We now have Kevin Reilly, Sean Reilly and Keith Istre in conference. [OPERATOR INSTRUCTIONS]

In the course of this discussion, Lamar may make forward-looking statements about the Company, including statements about its future financial performance and condition, operational plans and strategies and market opportunities. Lamar has identified important factors that could cause actual results to differ materially from those discussed in this call in the Company's report on Forms 10-K and 10-Q and a registration statement Lamar has filed with the SEC. Lamar refers you to those documents. Lamar second quarter earnings release, which contains the information required by Regulation G with respect to certain non-GAAP financial measures included therein was furnished to the SEC on a Form 8 K this morning and is available on Lamar's website, www.lamar.com.

I would now like to turn the conference over to Mr. Kevin Reilly. Mr. Reilly, you may begin.

Thank you and I would like to welcome our shareholders and friends to our Q2 earnings call. We felt we'd do something a little bit different today. We had our bring-down call yesterday with management, and we thought it might be useful for you for us to just go -- touch on the major items on the agenda, so I'm just going to follow the agenda that we used yesterday, and hopefully, the themes that we've been discussing throughout the year will come through. Operations on the sales side, no significant concerns there. We're watching the real estate category and the motel category, as rising interest rates and rising energy costs may have an impact in those two areas. Very pleased with health -- healthcare, and also we're very pleased actually with the real estate category. It's up significantly over last year. Our sales were turbo-charged somewhat by the digital, which is very pleasing, and Sean will get into that later on the call .

On the operating leverage side, in spite of the fact that energy prices are beginning to show up throughout the line items on our operating statement, our -- our outdoor looks like for the second half of the year will be on the high side of the range, which would be between 3% and 5%. However, the renewal of transit franchises and logo franchises is putting some pressure on our earlier guidance where we said that we thought that by the second half of the year we'd fall in between 3% and 5%, so we'll see how it -- we'll have to see how that plays out over the second half of the year. On the real estate portfolio, we -- more of our landlords are beginning to appreciate the value proposition that we're putting forth regarding easement offers. Perhaps it's because the idea that 6% cap rates are not here to stay, but that's very helpful to the organization. And one thing that we're finding is we're getting better at the timing of these things as far as being able to reach an agreement and then close an agreement on time in an efficient, orderly way.

On the digital front, we're exceeding expectations in just about every category. We should have 275 units up by year end. The only concern is there are some capacity issues with our two domestic vendors. We've got a lot of orders in the queue, and we're experiencing some delays there. On the CapEx front for the rest of the year, we are going to exceed guidance for the year. Mostly of the overrun is good news. It's because of an increase in our digital expenditures; however, we have some one-offs that Keith will mention later on in the call. Lastly, in July we completed our $250 million stock buyback, and although currently we have not asked for nor do we have any approval for a renewal of the program, we do expect to make an announcement regarding that shortly. Overall, the tone of the conversation was -- yesterday was upbeat across all fronts, and I'm looking forward to finishing out the rest of the year.

With that, I'd like to turn the call over to Keith to walk us through the numbers, and then he'll turn it over to Sean for some more operating detail.

Okay, just a few highlights. Obviously, you saw in the press release that we had -- on a revenue side, we had produced $288 million (approximately) for the quarter. Just to refresh everybody's memory, we had guided to approximately 284 in total revenue and on a pro forma basis approximately 6% top-line growth, so we did a little bit better than that. And on the consolidated EBITDA margins for the quarter, we were at 47.1% versus 47.4% last second quarter of '05. Just to run through the pro forma growth numbers by category that is in your press release on the back page, revenue was up 6.8% in the second quarter, direct and G&A expenses before corporate overhead was up 6.7%, -- and I'm going to come back to that and give you a little color on that -- outdoor operating income before corporate overhead was 6.9%, corporate overhead was 9.3%, EBITDA was 6.8% on a pro forma basis, and consolidated expenses, which are the direct and G&A outdoor and the corporate overhead, was 6.9%. On the expense side, we guided for approximately 6%-plus on a consolidated expense basis for the quarter. We've talked about it, I guess, since the end of last year, saying that first half expenses were going to run higher due to one-off items.

With that being said, let's talk about the growth in the direct and G&A outdoor expenses for the quarter; that was 6.7%, and that includes expenses for the outdoor segment of our business, -- the billboards, traditional and digital -- the logo business, and the transit business. For the quarter, that 6.7% made up of those three segments translates basically as follows; outdoor on a pro forma basis was up 5.1, logo was up 15, and transit was up 22. The outdoor was at the top end of our normal guidance, which we normally say is 3% to 5% on a pro forma basis, and there were a couple of items that did effect that number, slightly in a negative way: Energy costs , of course; our truck fuel was up 30%; and our illumination, which is the cost that we spent to light our boards, was up ten. That was $1 million in additional expenses in Q2 of '06 that was not in Q2 of '05, so that accounted for 1% of that 5.1. We did have some continued vegetation control that we had discussed as a one-off item that was going to be in Q3 and four of last year and one and two of this year; that was about $0.5 million of that accelerated program that we incurred in Q2 .

That being said, on the outdoor side in looking at Q3, we think that on a pro forma basis we will probably end up at about the same number, about a 5% expense growth on the billboard side, partly due to higher energy costs, the going-long nature on our lease renewal programs, and just some other various and sundry items. On the logo and transit, the reason for those much higher expenses, as I think we discussed on the last call, is due to increased fees to the state -- to the states and the municipalities when we go and renew these contracts when they expire, so we don't see much of a change in that going forward for the rest of this year. Overall, we're thinking that consolidated expenses with corporate overhead should be in the plus-six to 6.5 range for Q3.

Going forward, you can see the free cash flow were running about 50% behind in Q2 and for the year to date, and on the last page of the press release -- the schedule that shows the pro forma results and then down at the bottom it says capital expenditures detail by category -- we broke it out very precisely, which is generally not the way that we present it, but it shows the CapEx by category: Billboards-traditional, which was $24.2 million for the quarter; billboards-digital, logo, transit, land and buildings operating equipment, and then the final storm reconstruction tab. So the items that are, of course, causing us to go backwards in free cash flow is the digital, the interest expense -- due to the increase in rates -- and total outstanding debt, and some of the reconstruction left over from the storm. To give you a sense of where we are going to end up in total CapEx for the year, last -- I guess at the beginning of the year, we said that we would spend approximately $110 million on all CapEx before digital, and that digital would be approximately $50 million, so we would look -- we were looking at spending about $160 million for the year '06. In talking to all of our guys in the field yesterday, we revised those numbers. The 110 in traditional CapEx before digital now becomes 130 -- $130 million for '06, and digital now becomes $70 million versus $50 million. So we're going to be looking at additional $40 million in CapEx, 20 in traditional, and 20 in digital, and we'll end up the year at about $200 million in total CapEx versus the 160 that we originally projected.

That being said, Sean, I guess I'll turn it over to you.

Sure, thanks, Keith, and what I'll do is walk through some of the traditional matrix that I lay out, and then get into a little more detail on our digital deployment. Let me quote occupancy Q2 '06 over Q2 '05. For posters, 74% as opposed to 75% Q2 '05. For bulletins, 81% versus 80% Q2 '05. Our digital deployment has put a little bit of white noise into those numbers, not dramatic, but going forward the way I would categorize that is say let's just call it mid-70s for posters, let's call it low80s for bulletins, and the take home message is that on occupancy we're roughly flat with last year, same time. What that tells you is we're getting it through rate. On posters, Q2 '06, we were up 5.6%, and for bulletins on rate, Q2 '06 over Q2 '05, we were up 8.3%. Again, there's probably a little bit of static in those numbers because of our digital deployment, not dramatic, so I think you could say on rate posters were up 5.5, bulletins were up, you know, a little over 8%. On our national versus local, no change there. We're still at 82% local, 18% national.

On the acquisition front, we've closed 34 transactions year to date at a total purchase price of $107 million, and those were all cash transactions. On our categories of business, no dramatic changes. Kevin mentioned we're monitoring a couple of categories, one of which is doing very, very well, and we're pleased with it; it's the real estate category. Obviously we need to watch it given what seems to be going on out there in that market place, and we're also watching the motel/hotel business, given what's going on with fuel prices and their business. Our hotel/motel business on an absolute basis is flat over the last three years. On a relative basis, as a percentage of our book, it's ticked down a point as other categories go up, so we are monitoring that pretty closely. In general, national seems to be pacing better than it was at the beginning of the year. July was up 7% on the national side versus a year-to-date number of up 5%, so we're happy with the trend we're seeing on the national sales side.

Let me give you some digital numbers on absolute number of boards. In billing in July, we had 175 digital units up in 62 markets. We're very pleased with the way that's going, and as Kevin mentioned, it's beginning to make a significant contribution to what our otherwise same store growth would be. To give you a sense of that, looking back to the second quarter, the whole second quarter, our pro forma same store growth was 6.8%, 1.4% of that was digital. And going forward into this quarter, you'll probably see months that look a lot like that, so we're very pleased with what digital's doing for our core business. Our management team is incredibly excited in the field. Our whole organization is really jazzed about what we're doing there and they've really embraced it and they're doing a great job. My hats off to them.

So with that, we will now open up the call for questions. Moon, you want to open up the call for Q&A?

[OPERATOR INSTRUCTIONS] Your first question comes from Jason Helfstein with CIBC World Markets.

Thank you very much. I guess, let's just dig a little bit into -- I guess like the trends in logo. When you do these contracts, you see, I guess, a step up in the renewals and after that, does the margin go back to seeing margin improvements? In other words, are you amortizing the increased costs in the new contracts or you pay the step-up and then after that, you go back to see margin improvement? The reason I ask that is if ultimately those businesses are going to be -- you know, going to drag down your margin, your overall growth over time, is that a business you want to get away from? And I have one follow up. Thanks.

Jason, this is Keith. On the logo contracts, when we have renewed these contracts in the past, along with expense increase we also get a rate increase. We just can't raise rates indiscriminately. Everybody pays the same price until the contract comes up for renewal, and at that time if there's an increase in fees, or if there's not an increase in fees, we have the right to ask for an increase in rates, so those two go hand in hand. In one instance, the expense increase did out-strip the rate increase, so there was a slight fall-off in margins in one of the states;, not significant, but it did slightly go down. And remember, those are high margin businesses to begin with. And in another state that we just renewed there was a significant increase in the fee to the state, but there was also a significant rate increase, and that increase in rate offset the increase in expense, so our cash flow stayed the same. On the transit side, it's a low margin side to begin with; 20% EBITDA margins and it's a hit or miss thing. You know, we've got a lot of these things. We've probably got 50 or 60 transit contracts, and I don't think that that would have a significant -- It's only 5% of our total revenue, so I don't think it would have a significant impact on the bottom line or on the top line. We just delineating those to give you a sense of where the expense growth is coming from.

Jason, our philosophy on the transit side, it's portfolio management. We have a portfolio of arrangements with staggered maturities, and obviously the game is not fall in love with any one franchise, so that you -- when it comes time for renewal that you find yourself upside down. So, you try to enter into the business at a reasonable price and then you maintain your portfolio. And because there's no CapEx, it's not a bad business to be in, even though the margin's are 20%. The logo business is a little bit different. There is CapEx when you first build out the program, but we've been in that business since the '80s so it's mature, and there're new entrants into the market place. And so going forward, there will be -- as these things are renewed, there will be pressure on our margins. Again, it's a small part of what we do, but it is also a very good business.

Okay, so how should we think about going forward? Does that drag the margins for the next 12 months until you get past comping against the new contracts?

Let me hit that one, Jason. This is Sean. To again put it in perspective in terms of being a portfolio, if you put the logo businesses together with the transit businesses, it represents about $100 million on the top line for us, and about $45 million in EBITDA. It also, as Kevin mentioned, contains about 100 different contracts. so you've got a big portfolio. No single contract represents more than 1.5% to 2% of the billing or cash flow of that pie. So again, looking at it from 30,000 feet, you got a total business that's going to do, you know, something north of $1 billion this year in net billing, and something north of -- or right around $500 million in EBITDA. Less than 10% of that is in that category of businesses that rely on franchise renewals. My goal, as I manage that portfolio that is again about $100 million in revenue on the top and about $45 million in EBITDA, is to, in aggregate, have it have the same growth characteristics as our core business. In my view, if we can't do that, then, you know, we haven't achieved our goal. So I'm committing that it will not be a -- over time, it will not be a drag on our margins from where we are today. But we have to manage it, and we have to do it correctly, and there is -- it has different characteristics than our core business.

The short answer to your question is, if we get lucky next year on renewals, there will not be an expense drag on the Company, but this year it was significant. I mean, outdoors headed -- if all things go right, in spite of the energy costs that are costing us a point, we're in the range between 3% and 5%, but those two items plus corporate overhead are pushing us outside the range for this year.

Okay, so basically we're thinking more like a three-year model. Like the goal would be -- the only reason why your expenses would go higher with respect to easements and going long on the leases, which is a function of just better growth on the digital business? I mean, that's your goal on kind of a two to three year basis, would you agree with that?

Yes, on the outdoor sides, those would be the things that we're driving, ex energy costs.

Okay. Thank you very much.

Our next question comes from Chris Ensley with Bear, Stearns.

Good morning. Thanks for taking the call. You are running ahead of pace, certainly to our expectations, on the digital side, and previously, I think at a conference -- a media conference, as well as your last call, you talked about what run rate revenues were and you gave some numbers for July, but I was wondering if you could provide what digital might have added to both revenues and -- I'm not sure if you provided EBITDA in those cases, but if you could do that for July?

For what period, Chris?

You said that at the end of July, you had 175 units, and then you talked about pro forma growth might have been 6.4%, 1.4 with digital, but is there a more concrete way of saying what those num -- what it might have contributed to the month in terms of revenue?

In the month of July, the revenue was approximately $2 million. Net revenue from digital.

and then it sounds like, you know, excluding year-over- year energy impact, the going forward -- let's say '07, assuming we're not talking about $100 oil or something -- that you're still saying that long term this is a 3% to 5% expense growth industry? There's nothing pressuring you that is unique to the outdoor industry that would change that?

No.

Great. Thanks.

Our next question comes from James Dix with Deutsche Bank.

Good morning, gentlemen. Just a couple things. Just quickly, I guess, for Keith. For that 6% to 6.5% expectation you have for the third quarter, that's comparable to the 6.7 that you posted in the second quarter?

Yes.

Okay. And then --

No, no, no.

It's not?

I'm sorry, I said the six to 6.5, we were thinking that would be all consolidated, including corporate.

Oh, okay. And so, what was that in the second quarter?

6.9.

Okay. So it's coming down a little bit. Okay. And then on the digital side, you mentioned, Kevin, some backlogs on the digital just in terms of your suppliers, what's the pricing you're starting to see on some of these orders that you're putting in? And then I guess, you know, just looking at the number of markets you're in versus the number of boards you have, I mean, where do you stand in terms of networking your boards in particular markets? Are there -- how many of these boards are standalone versus as part of networks?

Currently, we have more standalones than we have networks, because standalones are less risky for management to deploy, so that's become more popular right now. And so what they do is they build one and it's a high -- it's in a high-demand location and they fill it up with customers. And then as they build others in the market place, then they start to network them. So that's how we're deploying these things. But of the -- by the end of the year, the 275 units that we'll have up, I would say 25% will be part of a network right now, and then the balance -- I'm really pulling these numbers out of the air, 25% to 30% would be part of a network, and the balance would be one-offs. At the end of the day, they will all be networked in some form or fashion. The field, they're coming up with interesting ways of doing. For example, in Las Vegas, they're rotating the customers, so you have six spots per unit, seven to eight units, and so that's 48 customers, and they are rotating from location to location. So it's not really a day part, you know, where the customer can blast its message through every location. So every market is sort of different right now and we're very content to let the local markets sort of decide how they're going to deploy these things, and how they are going to market them. And then as -- we hope in a couple of years we have something that's attractive to national customers, and then we'ill have to be a little bit more uniform in the way we sell them. But the take-home message is even though we've allowed experiments across -- is it 70 markets? Yes. Across 70 markets, we've pretty much exceeded expectations in every market. There've been a couple markets where we're below expectations, but they're just getting geared up and we think that when back to school starts, they'll meet or exceed their expectations, as well.

Let me hit the pricing real quick. Pretty much the same story that we told on the last call. You know, the largest format, 1448's, are in the mid-$300,000 range, and the smaller poster format, the 10x25s, are in the sort of half of that, let's call it 175 range. We are deploying better resolution boards, and so the cost curve isn't coming down as dramatically as it might otherwise, because as we're ordering more, we're also ordering better. You know, we expect that the resolution we're deploying today is the resolution that is the standard, and so we're hopeful the cost curve will begin to look more like it did a year and a half to two years ago, when there were 30%, 40% drops in price. Right now, we've kind of hit a little bit of a plateau, as we get better resolution out into the field, and so, you know, that's sort of the story on the cost curve. And you know, as Kevin mentioned, we have a variety of different models out there -- network, roteries, big format, small format -- and the experience across the board has been a pleasant one.

Okay. That's great. Thank you.

Our next question comes from Laraine Mancini with Merrill Lynch.

Good morning. The industry's been pretty consolidated for years, and it seems like there've been one-off acquisitions that have probably consolidated it a bit more. If you were to guess, what percent of the industry is held by the three operators, and what does that means in terms of needing to keep capacity to do more M&A, or do you feel like at this point that you can use your free cash flow to delever or buyback shares?

The numbers that I think still hold for the consolidated traditional outdoor in the domestic U.S. is about 85%, which means about 15% is unconsolidated. That represents a lot of asset value, so there's still a little bit of runway out there. But your points is well taken. You can see what we've done the last couple of years. We're guiding to about $150 million in acquisitions this year, and I can see that being the number for the next couple of years. You know., maybe instead of being between 150 and 200, it's between 100 and 150, for Lamar, I mean. It's the issue of the other uses for the capital, I'll defer to Kevin and Keith on that. Well, Laraine, we -- we're out there with our priorities, and a share buyback program is one of those. But we've been instructed this to say that currently we have not asked for nor have we approval for such a program going forward.

Can you tell me if you think that another approval would be a similar level as the old one, or do you think you'd get more aggressive or --

We've been instructed not to address that until we are ready to make an announcement.

Okay. Thank you.

Our next question comes from John Klim with Credit Suisse

Hi, good morning. Two quick questions for you. Are there any regions that are out-performing or under-performing? And then, secondly, does it matter to you all if the outdoor industry gets a rating system? Outdoors is already out-performing its local advertising peers, so do you really feel like you need it? Thanks.

Let me hit the regional question first, because there is a slight regional variance in our book of business. It has been -- the story is probably familiar to all of you. We have a coastal economy right now. The northwest and western regions are doing very well, the northeast and southeast and mid-Atlantic coastal areas are doing well, and the upper Midwest and Midwest are struggling a little bit. So -- and to put it in perspective, it's not a recession there. It's -- you know, it's something that looks like 4% as opposed to 7%, so they're in the four, five same store, and the coastals are in, you know, seven, eight range. So, you know, there is a little bit of regional disparity and what I would view as the strength of the local economy. Kevin, you wants to take the second one on the -- On the ratings? -- on the ratings. I think ratings are important for us. We're cost sensitive regarding the ratings because our business. You know, 85% of our business is local and they don't buy our space based on ratings. They intuitively know who their best potential customers are and how to reach reach those customers, and which boards are best for them. So you know, it's all about -- for us, it's all about cost, but will it turbo-charge national sales? All the [pundants] say it will. We just want to make sure that -- we want to participate and do our fair share for the industry, but we're extremely cost conscious.

Thanks very much.

Our next question comes from Bishop Cheen with Wachovia.

Thanks for taking the question. I want to review a couple of quick things, two questions. One on the $20 million incremental increase to CapEx for the boards, the higher guidance, with 175 now with a goal of 275 units by year end, is that correct?

Yes.

Can you give us an idea of the mix of big boards and small boards that will be added?

You're getting too forward on us. It's a iterative process and we have orders in the queue and -- is it once a week? We have a call once a week where people turn in their orders and so it's just -- it's a moving target, so I really can't break it out for you.

Okay. Away from that, just a little housekeeping. On the balance sheet, can you just walk us through -- it's not real complicated. I know about [the burden of moving up], just is cap leases in the total debt number?

No, that's just all debt.

Just it's just the --

Fixed and and the floating.

X bonds, and then do you happen to have your average cost of capital on your floating debt?

On the floating, it would be about 6.4 on the floating.

Alright. Thanks, guys.

Okay.

Our next question comes from Barton Crockett with JPMorgan.

Good morning. This is actually [Robert Milacy] for Barton. One, if you could just remind what exactly was the $14 million in the quarter in the operating equipment expense? And was that kind of just one time in nature?

Yes. We have a corporate aircraft and every three years when the warranty runs out, we trade it in on a new one to keep the warranty intact. We did not trade the old one in on a new one, we sold it outright, so when we took possession of the new one in the quarter, we took a charge for $10 million for the new aircraft in CapEx and we sold the old one a couple of weeks ago for $7 million. On the cash flow statement, because we sold it and didn't trade it in, you can't net out the $7 million in cash we got for the old one versus the $10 million that we paid for the new one, so we took the $10 million as a straight-up CapEx and the $7 million as gain on sale of assets. So yes, that was an one-time deal, and obviously, that was planned for and it was in the budget, and that won't reoccur for another three or four years.

Great, thanks. And if I could just switch just real quick, I was wondering is still your policy to grant restricted stock when the stock price, you believe, is cheap? Or are you moving to any type of policy where you're going to give out restricted stock on a set date, regardless of where the stock is? Thank you.

Yes, this is Sean. We have altered our option versus restricted stock compensation plan. Traditionally, since we went public, on the options side we had sort of two programs. We had a program for when someone was promoted to general manager or regional manager, and it was a set plan and the option dates were as of the promotion. And then we had -- for want of a better description -- a sort of periodic option grant every couple of years. The dates were not completely arbitrary because they were typically event driven. We did a round of options when we went public. We did a round of options when we had our largest transaction ever, the Chancellor transaction; we had a lot of new management so we did an option round then. We did an option round in 2001 and then we did another one, I believe it was in 2004. So we had this pattern of, basically, every few years looking at where we are and thinking about whether or not options would be helpful. On that pattern, we have discontinued it and we've gone to a restricted stock plan for executive management and regional managers. That plan is a set grant in January after all of the year-end numbers are complete and we can comp to our goals. The board and compensation committee of the board approves the goals at the beginning of the year. If those goals are met, then the restricted stock grants are made. So we've essentially discontinued option plans for senior executives and regional managers.

Okay, great. Thank you very much.

Our next question comes from Marci Ryvicker with Wachovia.

Thanks. Kevin, you said that you expect to have 274 -- five boards by the end of the year for digital. Does this take into account the [Doctronics] new facility that is coming on board for you guys in September? And then, Sean, where do you think occupancy can get to by the end of this year? Are we essentially in a normalized environment? Thanks.

Let me hit the occupancy thing first. I think we're -- given the last few quarters and where it's been, I'd say we're probably normalized and we're going to be getting it through rate. It probably speaks to where we are in the recovery cycle and in the ad cycle, and I pretty much think this is where we are. Yes. Yes, the 275 takes into considers our understanding of the vendors' capacity throughout the rest of the year.

Great. Thank you.

Next question comes from Gordon Hodge with Thomas Weisel Partners.

Good morning. Not much left to ask, but question, just sometimes I think you give a sense of what the -- what you have on the books relative to goal for the year and if you could comment on that? And then I think the question was asked about digital mix going forward, but I'm curious what the digital mix posters versus bulletins are today, if you have that? Thanks.

Alright, sure. Let me hit the bookings-to-goal first. We have numbers for posters there?

Yes, right there.

Okay, there we go. When we looked at this number and pulled it altogether, we realized that digital was creating a little more noise in this number than the rate and occupancy numbers I quoted for you earlier. So I'm kind of reluctant to give it to you down to the decibel point because it's skewing, and in my view, it's skewing it so that it's no longer apples-to-apples with the historical percentages that I gave you. So, with that as a caveat, in '05 we were full-year booked-to-goal 81.5%. This year, we're 85.1% booked-to-goal. When Keith and I tried to dissect the digital out of that number, our conclusion was that we're running roughly the same book-to-goal, if you strip out digital, as we were last year.

Got it. Okay.

So again, we just -- we're going to have to be careful with those stats now that digital is in the numbers.

Okay.

In July, of the 175 units that were in billing, 99 were bulletins, and 76 were posters.

Great. Thank you very much

Your last question comes from Jonathan Jacoby with Banc of America.

Good morning. Thanks for taking the question. A few questions here. The first is you touched on the strength of the real estate category. If I look back to the first quarter, it actually grew about 200-basis points as a percentage of total revenues. What's the percentage that it is now versus last year, and why do you think you're seeing strong growth right there? And secondly, Clear Channel Outdoor is starting to use these organic ink boards. Have you taken a look at them or any thoughts on implementing them? And then lastly, what's your optimal leverage? Thanks.

I'll do the magic ink, and I'll do the optimal leverage, and I'll turn it over. Sean, are you going to do the -- No, Keith'll do the -- what was the --

The real estate.

Oh, the real estate category.

Yes, I can handle that.

Magic ink has a lot of good things, because unlike LED, you're not blasting energy through bulbs. It's more opaque. It uses less energy, and there're fewer regulatory issues associated with mag ink. The downside right now is it's a chemical process that's very fragile and it has to be protected by a special sheet of glass, okay? And that piece of glass is very heavy and it's an attractive nuisance. We've already had a couple of shots taken at some of our LED units, and they keep on ticking. So you know, eventually, we're hoping that technology continues to be our friend. The ability to change messages when you want through the internet, as many times as you want with no production charges, will continue to be the value proposition and what -- you know, what the prevailing technology is, you know, we don't know. All we know is that the payoff on these digital units is so attractive that we need to just stay the course and get as much experience as we can because this is the future of our business. Hopefully, magic ink will work out this issue of this special protective glass that they have to have over the chemical process that actually allows to you change the message. Optimal leverage. Optimal leverage. We've always said that we run or business book between four and six, and we're usually on the high side, depending on our feelings regarding the growth of the enterprise, and we're on the low side if we feel like there is no top line growth associated with the business. Let me hit real estate real quick. It's been a great run for that category. Let me give you sort of a, I guess, a four-year snapshot on the year-to-date side. In 2003, year-to-date through June, real estate was 5% of our total booking and the absolute dollar amount was $18.6 million. Fast forward to 2006, year-to-date, real estate is 8% of our total booking, and the absolute number is $47.4 million in bookings from the real estate category. Another slice at it, year-over-year, '06 over '05, in '05 the absolute number for real estate year-to-date was $35.4; again, this year, $47.4. That's an increase of $12 million, so the absolute increase in that category of business has been a very pleasant surprise.

And the interesting thing to note is the -- which -- the corridor from Georgia all the way into Florida is experiencing a lot of rapid development. The state of Georgia allowed for tree cutting, which freed up a lot of our inventory, and the real estate business just sort of jumped up and bought most of that inventory because of the development that's taking place in that corridor, and that was new money. The other thing that we found in the digital space, which is extremely popular with residential retailers, is we put the digital image of the house up there and we might even run the price point, and then when it's sold, we put sold across the board, along with the picture of the residential real estate agent. And that's been extremely popular, and so it looks like we are going to get a lot of -- on the digital space a lot of real estate business because, of course, they've gone digital in marketing their space where the consumer can go to the website and look at the prospect. So all of that -- all of those files are there for the homes and things, it's easy for them to go in, insert their own ads and run the copy, and if they want to change it several times a day so the asset sold. We hope that keeps up, but again, we're watching that category because we understand that rising interest rates are going to have an impact there. I don't think it's going to have an impact on these larger developments in that Georgia/Florida category, because it's long lead times, and they just need to get the word out, whether they are selling lots or not. And the same thing applies for California.

So in the traditional space, most of the growth is coming from these home builders that have put up boards as their developments have sort of probably slowed a little bit in terms of growth?

You know, it's interesting. One explanation, and this is the theory from some of our folks that do a lot of business with these guys, they actually need to advertise more when things get softer, because they've got excess inventory they have to move. That may be part of the phenomenon. The other thing, as Kevin mentioned, we had our digital roundtable with most of our folks that have a lot of experience now in digital, and the question was put, is there a category that you think we're taking from the newspaper?And the first one that was mentioned was this notion of real estate in the sort of classified sense.. Second one that was mentioned, by the way, was help wanted and job opening types of advertising that the newspapers have traditionally had a lock on, and we are seeing some of that migrate over to our digital boards.

The last points on the bulletins eye on the real estate is that most of these contracts are long-term bulletin contracts, 12 months, and our regional guys confirmed that yesterday on the call when we asked them the nature of their contracts, they're long term and most it is bulletins.

Thank you so much.

Moon, with that, that concludes our call and I want to thank all of our shareholders and friends for listening in, and we are looking forward to the Q3 earnings call. Thank you very much.