Lamar Advertising Co (LAMR) 2006 Q4 法說會逐字稿

Excuse me, everyone. We have Mr. Kevin Reilly and Mr. Keith Istre in conference. Please be aware that each of your lines is in a listen-only mode. At the conclusion of the Company's presentation, we will open the floor for questions. At that time, instructions will be given as to the procedure to follow if you would like to ask a question.

In the course of this discussion, Lamar may make forward-looking statements regarding the Company, including statements about its future financial performance, strategic goals and plans. Lamar has identified important factors that could cause actual results to differ materially from those discussed in this call in the Company's reports on Forms 10-K and 10-Q and registration statements that Lamar files with the SEC from time to time. Lamar refers to 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 website, www.lamar.com.

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

Thank you, David. I'd like to welcome our shareholders and friends to our Q4 conference call. As is our custom, we'll keep our remarks brief and then open up the call for Q&A for 40 to 45 minutes. In an effort to return capital to shareholders, we've announced for '07 a one-time dividend and an additional $500 million stock buyback on top of the $100 million that we have left to spend on the prior announcement. The one-time dividend is just an opportunity to return capital in a different form. It's one-time because as the Company progresses and becomes more aggressive on the stock buyback front, the leverage on the Company would preclude any dividends like this.

Note that in the guidance there is a decline in the Company's rate of growth in our static business of about 1% to 1.5% depending on how you look at it and Sean will have more color on that later on in the call. We are not overly concerned about it. We don't view this decline as a trend at this point.

We do hope for greater operating leverage in '07 as expense growth retreats to norm. We would like to point out that we are investing about $1.7 million on a one-time basis payable to the Traffic Audit Bureau for a more comprehensive audience measurement data and we think that this will be a good investment for our industry and for Lamar. They plan to provide very solid audience measurement that will go 200 markets deep, domestic U.S.

We feel very optimistic about our prospects for '07. What wer're basically looking for is a good rate of growth in our core business turbocharged by our digital effort and a restoration of the Company's operating margin as we move throughout the year.

With that, I'd like to turn the call over to Keith Istre to briefly walk us through the numbers and then Keith will turn the call over to Sean.

Good morning, everyone. As you saw in the press release, we basically came in on target with our guidance for the quarter. We had estimated revenues would be up about $286 million, approximately 9%, and that's where we ended up. The -- the direct and G&A operating expenses before corporate overhead came in at 5.8, as you may have noticed on the press release, and that was probably the best -- that was the best quarter that we had this year in terms of our expense growth, especially when compared to the third quarter. As you know, we pointed out in the third quarter we had some energy-related costs that were plaguing us due to the price of fuel and a vegetation control program that we had put in place as well as some other expenses with respect to contracts on our logo and transit business. So anyway, the fourth quarter did -- was the best quarter for the year on that scale.

I'd like to point out, though, that going forward, just as we have incurred in the past year, as we continue to roll out the digital units, we will continue to incur an expense growth of about 1% as we roll these things out quarter-over-quarter, year-over-year. On a net revenue basis, that is all the new added digitals in '06. We did about $18 million in revenue and if you assume roughly a 75% operating margin and a 25% expense base, that adds 1% to our expense growth. So in the past, we've normally given out a range of our pro forma expense growth of between 3% and 5%. I don't know, going forward, we may need to take a look at moving those measuring sticks to between 4% and 6%. I don't know. But in any case, just please keep that in mind.

For the year, on the top line revenue came in at 7.7% and that pretty much wraps up that.

Just to go to CapEx real quick, we ended up at $223 million. That's basically where we had guided to on the last call. Digital, of course, was $81 million. And in looking at '07, our internal budgets before digital are calling for about $105 million in traditional CapEx. That's traditional billboards, transit logo, operating equipment, and real estate.

We did have some extraordinary items in '06, $10 million in storm damage. We bought a building here in Baton Rouge next to our corporate headquarters for $10 million and a new plane so those items will not be included in the '07 numbers, and if you back that out of '06, you basically come back to the $105 million that I just mentioned.

The only other point to note is at the end of the year, October debt to EBITDA was 3.4 times. And I think with that, I'll turn it over to Sean.

Thanks, Keith. Let me start with our up-to-date digital count as of the 22nd of February. We had 360 digital units in the air in 93 markets. 199 of those units were bulletins and 161 were posters.

On the national versus local mix, our mix for '06 was 83% local, 17% national. National was up 6% in '06. There was a slight softening in the automobile category, but that was offset by strength in wireless, beverage, gaming, and, I think most importantly, the lodging category. For those of you that have been following us for a while, really since 9/11, lodging has struggled a little bit and we saw that come on strong in '06 and is looking good in '07 so I view that as good news for our core business.

Interestingly in '06, digital was 5% national in its book of business and 95% local. The goal this year is to get that national business as part of our digital book up into the double digits and we feel like that's a realistic goal.

As Kevin mentioned, the core analog, I guess, core business if you want to describe it that way, has trended down slightly or blipped down slightly. If you look at the Q4 numbers, we were up 9%. 6% of that would have been core analog growth and 3% would have been contributed by digital. If you adjust for the hurricane noise, then it was really about 5.5% up in the core business in Q4. It's looking like Q1 is going to be in the 4 plus range of growth in the core analog business and digital will contribute something in the 3 plus and that's how we got to the 7.5%. Again as we look out over '07, we don't view this as a trend. It's more like a pause and we feel good about '07 as we progress into the quarter.

Just to quickly hit the top advertisers, this list is familiar to you. For the year-end '06, our top customers were McDonald's, number one; Cracker Barrel, number two; Chevy, number three; and then again Holiday Inn for the first time in a while is in the top five at number four; followed by Dodge, State Farm, Verizon, Nextel, Cingular, and Motel Six.

The year-end categories of business as a percentage, again no surprises, all of that would be familiar to you. It does appear that our book of business is broadening out because the top 10 categories represent 71% of our book in '06 while in '05, it represents 75% of our book so it's interesting. That may be a little bit of the broadening of the base because of digital.

So with that, Kevin, I'll turn it back to you and we'll open up for questions.

Thank you, Sean. David, we'd like to go ahead and open up the call for Q&A.

[OPERATOR INSTRUCTIONS] Our first call -- I'm sorry, our first question comes from Chris Ensley.

Good morning, thanks for taking the call. Just a couple more digital data points, if you could. Was wondering what the year-end number was because a lot of our models kind of are based on a quarterly end so I was wondering what the year-end number was and you provided that in prior years.

Two, I think what I understood was the calendar year digital revenues were $18 million and I was also wondering if you could provide what the latest run rate number was? That would be helpful, thanks.

As far as the -- Chris, as far as the year-end digital, we don't have that. We give out the call -- the digital numbers as of the day before the call so we have the most up-to-date information but I can always shoot that out to anybody that would like to know that.

Yes, I know that in your 10-K last year, you listed your December 31 number, so I thought you might be able to provide that but --

We can and it will be in the K which will be filed shortly.

Okay. Great.

The other question about the $18 million in digital, that was the run rate -- that was the actual revenues for the year from all of the new digitals that we put in the ground over the last 12 months throughout '06. And what was the other -- ?

Just the -- in the past, you provided sort of a latest month run rate number.

I think for December it was about $3.5 million.

Okay. One quick follow-up because there's been some press talking about, probably coming from Daktronics conference call, really alluding to regulatory issues being something that could slow the rollout. That's kind of not the sense I've gotten, but I was wondering if you look at today versus a year ago, has the regulatory environment gotten tougher, easier, or is it still about the same?

I think it's about the same. It's a little mixed. We've had some setbacks, primarily from people who don't like these signs. They find them very garish and the reason why they object to them is for traffic safety reasons and that's very serious. And so we're in the process of conducting -- having the industry conduct crash studies around all of these units so we can demonstrate that they're not unsafe. Intuitively, we know that they're not unsafe because our federal government is putting up Amber Alert signs on interstate right-of-ways and you have LED displays on premise along the interstate right-of-ways all over the country. So we think that as time goes on, there'll be less resistance on the traffic safety front but that is a very serious issue related to the deployment of these units and as a Company and as a industry, we need to address this.

First of all, as a Company, we don't want to be putting up units that are unsafe for drivers. My feeling is that over time, drivers and regulators are going to find these signs very useful and informative. And as we can open up these things for Amber Alert and other public safety messages, we'll not only be a pure ad medium but we'll be useful in other ways, which will help support our efforts around the country.

As a side note, Clear Channel ran a missing child notice in Minneapolis and the authorities up there are attributing the notice that they ran on their digital signs. They are attributing the notice that they ran as the reason why they caught the perpetrator. So that's good news, but this -- the regulatory issues are mixed and it is a business risk associated with the deployment of these units.

Very helpful. Thank you very much.

Our next question comes from Mr. John Blackledge with JP Morgan.

Pause, just wondering what's causing the pause in the core analog business in the fourth quarter and in the first quarter. Is it pricing or occupancy? Thank you.

There wasn't a pause in the fourth. There's a pause in the first, and I'm going to punt to Sean on that because I don't know the answer.

Well, the -- what our guys in the field are saying is that they don't feel like it's going to keep them from hitting their goals for the year and so they're basically saying to me that they feel good about the year the way it's shaping up. And again, they don't see it as a -- as any sort of trend or overall softening in the economy or the economy that's most important to them. So it's one of these things that their cue to me is don't read too much into it.

I hopped on late, I apologize. What was pricing up in the fourth quarter and what's it running up in the first quarter?

Well, we don't have pricing for this year, I mean for this quarter. We don't typically give that out. We give it out in arrears. But the -- if you take rate occupancy for Q4 '06, posters were up, were at 69% and bulletins were at 80%. If you strip out digital, posters were at 67% and bulletins were at 78%. If you recall, we kind of got away from quoting occupancy and rate numbers because of the noise that digital puts into the year-over-year comparison. We've tried to strip it out. I don't know the extent to which it's going to be helpful.

Okay. All right. Thank you.

Our next question comes from Laraine Mancini with Lamar.

I'm with Merrill Lynch. Go back to the pricing and occupancy question that we just had. Did you give the pricing? Did I miss that?

And then Keith, you suggested that maybe we have to tick up our long-term expense growth. Do you think that's something we see in '07 or are you talking more long-term than that?

And also Daktronics indicated that they were seeing a slow in orders, that their backlog was cleaned up and there were just less orders. Is that a timing issue on CapEx cycles or is it because of this regulatory environment? Do you think that people are stepping back and just waiting to see what happens?

Laraine, this is Kevin. I'll answer the last first. It's colder in the winter. And when it gets warmer, we do deploy units a little bit faster. So I'm not so sure Daktronics -- I'm not so sure that their issue is our issue. I'm sorry --

Yes, on the expense side, I guess we just have to see how the digital rollout continues, but I guess what we're asking is that we kind of accustomed everybody to the 3% to 5% expense growth year-in/year-out that historically we have achieved. And as long as the digitals continue rolling out at the paces that they've been rolling out in '06, I think everybody just needs to keep in mind that that is going to add 1% to that 3% to 5% number. So if you -- whatever number we post at the end of each quarter, as long as the digitals are rolling out, please keep in mind that 1% of that is going to be based on the digital expense components.

But having said that, we're not ready to recalibrate our traditional 3% to 5% expense growth rate.

And just to pipe in with the rate which I didn't give, Q4 '06 posters, including digital, the poster rate averaged $472, the bulletin rate averaged $1,264. If you strip out digital, poster rate was at $461 for Q4 '06 and the bulletin rate was at $1,244.

Thank you.

Our next question comes from Mr. James Dix with Deutsche Bank.

Good morning, gentlemen. Just a couple questions. Sorry I got cut off. So if I repeat anything, just let me know. Did -- Keith, did you give any outlook on your full-year digital CapEx budget and then for the first quarter, is all that TAB expense going to hit in the first quarter or is that going to be spread out through the year? And then, Sean, just on those rates, is that a combined rate for junior and full posters and bulletins, that $472 and $1,264? So like that bulletin number, does that include junior as well as full-sized bulletins in that average rate?

Yes, for that question.

Okay.

James, this is Keith. On the digital, we did not give out guidance as far as CapEx. That's something that we do at the end of each quarter. And so in arrears -- and as far as the TAB expense, no, that will be amortized quarterly over the year, equally in each quarter.

Okay, so I guess your 1Q OpEx expectation is kind of similar to, is in line with the general comments you gave?

Correct.

Okay. Great. Thank you.

Our next question comes from Anthony Disselman with Lehman Brothers. Mr. Disselman, your line's open. Okay. Our next question comes from Mr. Jason Helfstein with CIBC World Markets.

Hi. Two questions, actually three questions. First, an easy one. Sean, the numbers you gave, the $461 and the $1,244, just what was the pricing increase that each of those would imply year-over-year? And then I have two follow-ups.

I'm going to have to get back with you on that one because I don't have the '05 in front of me.

Okay. And then if so, if I do the math, I think when you did your last conference call, you had 263 digital displays. You're saying now you guys have 360. That's 97 displays in about three months or call it kind of 30 to 33 a month, so that's kind of like 90 in the quarter. That seems like a big number. I'm just wondering, am I doing the math right? And then I've got one last follow-up.

Yes, you're doing it right.

Numbers are correct.

Okay. And then, any more color? One of the things you guys have talked about is posters, as you guys are putting up the poster network, they're seeing much higher revenue conversion ratios. Is there any more color you can provide us this quarter relative to what you said last quarter? Are you still seeing kind of a 10% to 15% conversion ratio on the poster networks? Actually, no I think you had said it was 15 to 20 times, as high as 15 to 20 on the poster networks, so any more color there and kind of as you look into '07, what you expect to do with that network, with those networks? Thanks.

Sean, I'll let you try to wrestle with that but that number doesn't sound -- 15, that sounds like a really high multiple.

Yes, that sounds a little high to me. I'm much more comfortable quoting something in the sort of 8 to 12 range for posters. But in general, if you sort of want to sort of make a general statement as to how we're performing and viewing the two different digital conversions. Because you're starting with a lower base of revenue, the multiple of your base revenue for a digital conversion on posters is higher, but when you look at the CapEx involved, the ROIs are actually lower. So the paybacks are running in the 3 to 3.5 year range. If you look at bulletins, because the you're losing more revenue, the conversion number is more in the 6 to 8 multiple but the ROIs are better because of -- just the quirk in the square footage of the boards, the square footage costs. So if that's helpful, that's kind of the way we look at them. Both products are great and we're very happy. We've been pleased with the way they're performing.

And any more sense of kind of what's the saturation point with the number of net poster networks you could run per market? So I know --

We don't have a market with more than one poster network in it yet. We hope to get there this year. We have about a half a dozen markets where the percentage of the overall book of business is between 15% and 18% digital. So this year, we're also going to have some markets that go over that threshold where their overall book of business is over 20% digital. I think we're going to learn a lot when that happens. We'll get to see as you go from 20% to 30% your book of business being digital, whether you're cannibalizing your core business or actually adding new customers and growing it without cannibalizing. We're not there yet, but we'll hit that threshold in several markets this year.

Also, we're trying to move the organization away from this idea of posters versus bulletins and think in terms of aspect ratio and what I mean by that is you don't have to network just posters. Just get out even distribution throughout the marketplace, put the appropriate size unit for the view shed, and make sure the aspect ratio is the same so that a 14x48 10-6 and 30 and half a dozen posters, you can network all those units to help the customer reach their best, their best potential customer. And so there's -- there's a little bit of change going on in the organization and everybody's beginning to understand that. It's going to be a very fun and exciting year for our sales force. They're going to have an opportunity to call on a lot of new, different customers and they're going to have a lot to talk about when they get in front of the -- in front of those customers.

Just the last follow-up. Sorry, I apologize for rambling on and I'll let somebody else go. Sean, just with respect to kind of this first quarter blip, given that you take orders much further out than kind of 30 and 60 days, is there any kind of, I don't know, comparison your book for '07 versus at this point at '06 to give us a comparison of, okay, maybe first quarter's lower, but you're trending better than last year in second quarter, something like that?

Well, if you recall, we used to give out that information of comp to budget, book to goal. And what we found was because we were comping to an internal budget that we don't release, it became a meaningless exercise. What I can say is that if you take our national book of business, it is pacing better than same time last year so that gives me confidence that we're not -- that the overall aggregate economy isn't heading into the ditch.

Okay. Thank you very much.

Yes, put another way, if we thought it was a trend, we'd tell -- we'd say so.

Appreciate it.

Our next question comes from Mr. Anthony DiClemente with Lehman Brothers.

Hi, sorry about that before. Couple quick questions. Just wanted to ask you, what percentage of your boards are located at what you would call high traffic or intersection type areas, because I imagine that, the digital rollout is more effective in areas like metro markets where you have traffic lights, where just given the dynamic nature of the boards, people are stopped so they can see change as opposed to like a highway in a rural area where traffic is always moving? So maybe you can comment on that and then secondly, quick housekeeping type question. I noticed that your cash flow from operations in the quarter was about $100 million versus $125 million in the year ago period. So I didn't see why that -- can you just let me know, let us know why that went down, because I don't think it was as a result of working capital changes. Thank you.

Yes. Anthony, our Controller's sitting here. She's answer that question for you.

I'll answer the second part of your question about the cash flow from operations. It actually was -- it was from working capital, some changes from Q4 2005 relative to the change in Q4 2006. Principally in receivables for about $12 million. The A/P, we accrued less in the latter part of '06 for digital than we had in previous quarters, about $5 million, and a difference in accrued interest for about $8 million. And those are just timing differences off balance sheet based on circumstances at the end of both of those fourth quarter periods. Does that answer the question?

Yes. I guess it's just it's split out as a separate -- your changes in working capital are split out as a separate line to derive free cash flow so my impression was that it was excluded from that CFFO number but maybe I'm just looking at it the wrong way.

Yes, I think in really from the cash flow statement, cash flow from operations really needs to be looked at as a cumulative, not really a broken out from quarter to quarter because the change in the working capital just changes from the balance sheet during that quarterly period so --

Okay. Thank you.

Regarding the way these units are, most of our units are in commercial industrial areas. We do have highway units that are outside of the urban areas. But it's -- it doesn't -- they don't amount to much. The -- we try to put these units in places where you have the longest dwell time possible because the longer the dwell time, the lower the cost per thousand to the customer.

Right. I guess the spirit of my question is along the lines of in your, in your opinion, what percentage of your roughly 140,000 billboard base is digitizable?

Yes, I got you. Let me just hit that one real quick because I didn't explain it probably as artfully as I should have earlier. The way we look at this is not number of boards we have that can be converted but rather the critical mass of customers in a local market that can afford to be new customers to our medium when we do convert. And so -- that's a not a question we can answer right now other than we do know that as we have middle markets, let's call it Baton Rouge, Mobile, Redding, Pennsylvania, middle-market USA, as digital creeps up to where it's between 15% and 20% of the book of business for that particular outdoor operation, we know we're not cannibalizing. Now, the question is when you add so much digital in a market where it's 25%, 30%, 35% of your book of business, do you start cannibalizing? And I think that's the appropriate way to look at how much digital we can put in a given market, not look at it in terms of how many units we can convert, but how much digital appetite there is in a local market. We haven't hit that point yet. We think we're going to learn a lot this year as we push 20%, 25% of a given local market having their book of business being digital.

Well, I'm just curious, what would the metric you use to figure out what that break point is? Would it be -- ?

Yes, it's going to have to be experiential. I just don't think we can predict. We can only look at what we've done so far and say you know what, we're not chewing into our core business. At a certain point, you have to because you're taking down analog units, putting up digital units. And also at a certain point you have to because there's only so much local advertising available in places like Tuscaloosa, Alabama and Little Rock, Arkansas and places like that.

Got you. Thank you very much for taking the question.

Our next question comes from Mr. Mark Wienkes with Goldman Sachs.

Thank you. Good morning. Just wondering, Keith, if you could help us with where you stand on the NOL right now and your outlook for cash taxes for '07?

Yes, we've -- we did have some carryover from '06 into '07, slightly more than we had anticipated. I'm not sure exactly what the K is going to say, but I think it's between $50 and $60 million. So we will still get the benefit -- some of the -- we will still get the benefit of that NOL in '07. As far as the exact number, I really can't give that out, but I think if you use that NOL number and based on your estimates for '07 as far as net income before taxes, you can come up with something in the approximate range.

Okay. Great. Thank you.

Our next question comes from John Klim with Credit Suisse.

Hey, guys. Two quick questions for you. I hopped on late so sorry if you answered this. But how did you actually come up with the $3.25 per share dividend? And then, has your comfort level in terms of leverage changed at all or can you just explain are -- is it still the 4 to 6 times? Thanks.

Well, if all of the $935 million that we've announced went out the door tomorrow, our leverage would be at about 5.3 to 1 without the converts so I don't think that we've changed dramatically our feelings regarding the Company's leverage. But what -- what we'd be willing to tolerate in terms of a max leverage. We, as far as the $3.25 per share, our first preference is share buyback so we wanted to pick a number that was meaningful but did not have a dramatic impact on the Company's accretion or dilution of free cash flow per share. And so that seemed to be a, pretty much a 5% dividend seemed to be a good number.

Okay. Great. Thank you.

Our next question comes from Marci Ryvicker with Wachovia.

Thank you. Have the costs of the digital boards come down at all? That's my first question.

And then is Daktronics still your primary digital supplier or have you bought boards from some new suppliers such as [Sayco]?

And then one more question for Sean, do you have any updates to your M&A plans for the year?

I'll hit the M&A question real quick. Probably not as many deals as last year. Did I go through the matrix on how many deals we did last year?

No.

Oh, why don't I hit that real quick? For the year, we did 78 transactions, spent $178 million. That's excluding easements. If you add easements, we spent about $50 million on easements, bringing the total acquisition budget up to $227 million. If I had to categorize it, I see fewer targets on the outdoor side, so you're probably not going to see as much money or transactions in '07. It's not because we don't want to do them, but it's just -- it's the runway's getting a little shorter. But you will probably see more money spent on real estate and easement purchases. So that's sort of a general categorization of how that will shape up in '07.

Great. Thank you. Yes, go ahead --

Our next question comes from Jonathan Jacoby with the Banc of America.

Good morning. Thanks for taking the question. Just one question here. Can you give us -- usually or sometimes give us the number for real estate in the fourth quarter, the real estate category? I'm wondering if that is perhaps some of the impact in the first quarter of the year if that category is weakened on sort of a year-over-year delta?

No, Jonathan, this is Keith. I check those numbers monthly and there's been absolutely no fall-off. It's very strong this January over last January and it is tracking the same way that it has throughout '06, no fall-off whatsoever.

What was the percentage for [inaudible] in that category for the fourth quarter?

I don't have the fourth quarter, but for the year it was 9%.

And that's up over 7% in '05.

Yes.

Thanks.

Our next question comes from Eileen Furukawa with Citigroup.

Hi, thanks for taking the question. I have a couple questions. First, follow-up on the pace of digital deployment. It seems like you're running around 28 boards, let's call it, per month. I was wondering, is there room to accelerate this or does regulation or number of personnel or capacity stand as the limiting factor? In other words, I mean, is your current run rate really near maximum for you or is the pace more limited from your side that you could pick up the pace if you wanted to?

And also, on the buybacks, are you -- should we expect buybacks the same pace as you had last year and would you consider taking on more debt to fund buybacks?

And finally, can you tell us what kind of cost savings you have on the [MadgeInk] boards versus the LED boards? Thanks.

On the pace of the rollout, it's 100% regulatory and we'd be spending every nickel. We wouldn't be doing a dividend or a share buyback if we could deploy these units faster.

So you're at a maximum pace for now?

Yes. The 100% reason for that is regulatory.

Okay.

It doesn't have to do with industry capacity or our ability to get these units up.

The difference in cost between MadgeInk and LED digital displays, I'm going to let Brent answer that question, but before he gets -- gives you the details, cost is not our -- wouldn't be our concern regarding MadgeInk. It's how well they work out there in the marketplace. But Brent, you want to kind of just -- ?

What we're finding is that MadgeInk is only their second generation and the square footage cost is actually higher than for a comparable LED, although you do get better resolution. But because they have to put a piece of glass in front of them, they weigh about the same and there's a maximum size constraint. We're hoping with their third generation that that cost will come down. We'd like to see them competitive for the same size or the same square footage cost with LED, but right now they're a little bit higher. But they do have, since they're not light emitting, there are some advantages to us. So hopefully that answers the question.

I think we missed your third question.

The pace of buybacks, should we just consider a similar pace as you had last year or do you think it could accelerate and would you consider taking on debt to fund buybacks?

I don't -- we're not -- we're probably not going to comment on that, but I think you can conclude that we would take on debt to accomplish the buyback given just the sheer size of what we've announced.

Okay. Thank you very much.

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

Hi, good morning. Couple questions. One, just wondering what percentage of the digital boards you have up are on leased land or are you still finding opportunities to put them up on owned land, and if you have lease situations, what are you seeing in terms of lease rate negotiations as you go into that process?

And then, second, just if you could comment on the corporate expense growth in the fourth quarter to give a little color there.

And then lastly, on the TAB measurement payment, is this in lieu of or are you still proceeding with the other measurement programs sort of at the same pace you were before and maybe just update us on where Arbitron and Nielsen, et cetera, are? Thanks.

Okay. I'll do, Gordon, this is Kevin. I'll do audience measurement and leased versus owned. From a leased versus owned real estate, I think the best way to answer that is that as we go forward, there will be margin compression because we've gone after the low hanging fruit first and so we -- more and more locations will be on leased property versus owned property. And we will have to share some of the economics with the -- with the landlord like we have on -- on our most recent deployments. So I think it's -- the margin compression is the kind of compression you'd expect in the life cycle of any sort of new product launch. We're out of the box real quick with very attractive margins and as time goes on, you'll see some compression there and most of the compression will be along the lines of the question that you asked. It'll just be revenue sharing, economics.

On the TAB versus others, we're 100% TAB and not interested in others. The primary reason for that is others were interested in a proprietary system that would result in a significant recurring cost to us. And the problem we had going with sorting this out over the last couple of years is we didn't want to jump on TAB's bandwagon and have them not be credible in the marketplace so spend all this money for audience measurement and then not have the advertising agencies and the customers accept the work. What we've done is we've reorganized the TAB. It's a tri-part organization now. Billboard companies add agencies and customers, and we have a very respected man at the helm who has good currency in the ad agency marketplace. And so I've got a lot of confidence that the money we spend with TAB for audience measurement is going to be -- we picked the right horse, and it's going to be a good investment for us.

I think your last question was for Keith.

Yes, on the expense in Q4. Gordon, was that it?

Yes, exactly, thanks.

Yes, I assume you mean as far as the retraction and the expenses over the prior quarters. And as I mentioned earlier, we've got some help from the price of energy coming down in the fourth quarter over the third quarter. Our largest expense, lease expense was down 1.1% in Q4 over what it had been tracking throughout the rest of the year. Our lease expense had been running on the high side at roughly 5% and for Q4, it came in at 4% so we did get a break there. And our transit expenses, which were running in the mid-teens, came down to approximately 7 for Q4, as well. I think they're beginning to lap some contracts that were priced last year at new rates. And so that, along with the combination of a couple of other items, allowed us to, to come in at a lower rate that what we had been producing throughout the year.

What about corporate? It was up about 20%. I'm just curious -- is there anything -- is that something that we should look to continue in '07 or -- ?

I don't think so -- I don't think so, Gordon. A lot of the corporate expense was in our IT developing a user-friendly website for our customers that could -- they could go in and insert their own ads for the time that they acquire on these digital displays. We are going to be spending a significant amount of money there. But gearing up the network operating center, which is 100% -- that's done. So the network operating center's in place. The artists, additional artists that we hired, we charge that to ourselves rather than back out to the profit centers because we didn't want the profit centers charging the customers for additional art. One of the propositions -- sale propositions to the customer is that you can change your message as many times as you want, no production charge. All those artists are in place. So I'm not -- I'm thinking that we're going to get a break on our -- on the corporate expense growth score card in '07.

Perfect. Thank you.

David, I want to thank all of our shareholders and friends for listening in and we look forward to the next call. Is there anything else you need to know to conclude this thing?

No, sir.

All right. Well, the call's officially over. Thank you.

Ladies and gentlemen, the call is now ended. You may disconnect at this time.