Lamar Advertising Co (LAMR) 2007 Q2 法說會逐字稿

This is the Lamar Advertising conference call for Wednesday August 8, 2007, at 10:00 a.m. Central. Excuse me, everyone, we now have Kevin Reilly, Sean Reilly, and 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'll open the floor for questions. (OPERATOR INSTRUCTIONS) 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 Form 10-K and 10-Q and the registration statements that Lamar files with the SEC from time to time. Lamar refers 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 website at www.lamar.com. I would now like to turn the conference over to Kevin Reilly. Sir, you may begin.

Thank you. I want to welcome everyone to our Q2 conference call. And as is our custom, we're going to lead off with a few brief comments and then open up the line for Q&A. Keith will cover Q2, I would just like to make some comments about our guidance for Q3. What we are -- are currently seeing is a decline in our rate of growth from about 9% to 6% and the pause is in our core business exclusively. Primarily in our short cycle products, posters, and transit. Interestingly, we're not currently seeing it in the real estate category. But in those local businesses that are affected by the housing downturn. Businesses such as home furnishings, local mortgage brokers, and local financial institutions. So, it is broad-based across the platform and in our local ad spend category.

We're on pace with our digital deployment and digital revenues and we expect our efforts in this area to continue to generate 3% to 3.5% organic growth for the rest of the year and as you can see from our announcement, we will probably meet or exceed our stated goal of 600 units up by year end. Regarding margins, our expenses are in line so at a 6, 6.5% growth rate, we expect to see margin expansion throughout the rest of the year. And there will be no changes in the Company's uses of its free cash flow. With that, I would like to turn the call over to Keith Istre.

Good morning, everybody. I'm just going to add some color on a couple of items in the press release. As Kevin mentioned, we continue to see expansion in our consolidated EBITDA margins. We added another 1.3% from 47.1 in the second quarter of last year to 48.4 in the second quarter of this year. That's similar to the same addition that we recognized in the first quarter of this year. A little over a percent growth in the margins. Also, as you probably saw in the reconciliation, the pro forma reconciliation schedule in the press release, our operating expenses before corporate overhead grew at 5.7% for the second quarter and that's about as expected.

Going forward in the third and fourth quarter, we should see a deceleration in this rate of growth. We will be lapping some heavier than usual expenses in the third and fourth quarter of last year primarily with respect to our logo business as we've discussed on previous calls. Again, that should, even at the 6% to 6.5% top line growth, that should continue to provide margin expansion. As far as corporate expenses, let me just give you a heads up to a third quarter event. That will hit the corporate expense category in Q3. We completed an exchange offer with respect to our convertible notes. It was in the press release. We did complete that project in July of this year and the fees to administrative agents and attorneys and so forth added up to about $800,000 so there will be a one-time charge in July that will show up in corporate in the third quarter. That is a one-time event.

Just to touch on that exchange offer, obviously we did it. If you saw the explanation in the press release, to avoid having to give our common shares to the noteholders upon conversion of those notes. If that takes place in December 2010. We prefer to give the value of those converts in cash. Rather than our shares. And so that was the motivating factor behind that. As such, we do now consider that $288 million debt and we include that in our total debt which, at the end of the quarter, was 4.8 times EBITDA. With that, I'll pass it over to Sean.

Thanks, Keith. I'm going to hit a couple of key operating matrix that we try to give you every quarter. I'll start with our number of digital units and number of markets as was in the release. As of the call today, we have 534 digital units. Up 294 of those are bulletins and 240 of those are posters. And we have a digital presence now in 116 of our markets.

As Kevin mentioned, it appears that a little bit of the deceleration is local in nature and I've got a couple of stats I'll give you that kind of reaffirm that. Our occupancy in posters was down a percent Q2 '07 under Q2 '06. In Q2 '06, our poster occupancy was 74%. Q2 '07, it was 73%. And that appears to be the culprit because bulletins held steady at 80% across the border over both time periods. And those numbers exclude digital. June in particular was a problem with poster occupancy as period over period occupancy dropped 3% for posters from 76% last year to 73% in June of this year. So that appears to be where a little bit of the slowdown is emanating from and that's highly localized business.

In terms of rates posters, Q2 '07 over Q2 '06, we're up 4%. And in terms of average rate, $451 Q2 '07 as opposed to $434 Q2 of '06. And for bulletins rate was up 6% Q2 '07 over Q2 '06 or $1182 average rate over $1114 Q2 '06. Again, this appears to be local business because our national book of business is stronger. Our mix local national went 81% local, 19% national. Q2 '07 as opposed to Q2 '06 which was 82% local as opposed to 18% national and in doing a check on our national book of business through the end of the year, it looks like we'll end up the year national in the low double digit increases. So, national is hanging in there with our sort of expected rates of growth. So this looks and feels like sort of a local sort of aggregate economy pause.

Kevin mentioned the real estate category. In June of '07, it is 8% of our book of business and in June of '06, it was 8% of our book of business. And it is hanging in there steady at about 8.5 million to $9 million in absolute book of business a month. So, while the rate of growth in that category has certainly slowed, it hasn't evaporated. So that's the color I've got to offer on that. And we would be happy to open it up for questions. We're ready to open up the line for Q&A.

(OPERATOR INSTRUCTIONS) The first comes from Jason Helfstein with CIBC World Markets.

Hi, thanks. So the way we kind of look at this is the guidance basically implies something like nondigital business is going to slow in the third quarter to like under 3% growth from probably about 5.5 in the second quarter. And I think what you're basically saying is it is not price. It is volume. And so at what point in the quarter did you see that volumes fall off for third quarter and how easy is that to replace with other advertisers, other lines of business and then I've got a follow-up. Thanks.

I'll hit the issue of poster occupancy is really where it appears to have been a problem. And it was really the last I would say week or so of June we started seeing a little problem in the poster book of business. Occupancy was up in May year over year. So that sort of leads me in that direction. I think it has firmed up. If the question is is just 9% growth going to 6% growth going to something that looks and feels like a recession, we're not seeing that. July seems to have firmed up for us. In that regard.

Okay. Because that's kind of what we had heard that there was weakness in the quarter, in the middle of the quarter and then it bounced back in July and into August. That's consistent with what you you're seeing.

Well, no. I don't see a huge bounce back. I think what all of this depends on is what happens to our customers that are affected by the housing downturn and our customers that are affected by interest rate sensitive -- that are that are interest rate sensitive and we've got thousands and thousands of small customers. So, we're not going to run out there overnight. If this thing is a much deeper thing, we're not going to run out there overnight and replace those folks with other customers. But we're feeling pretty good. If GDP is going to be in the 2% range, we're going to beat GDP by three turns or more, that's -- we're not jumping off any cliffs but we see a lot of our small customers being affected by this housing downturn.

There should some inflation on top of that. Here is my follow-up. As you continue to add digital and go deeper into some of the smaller markets, you have said in the past or you've told us that it takes on average kind of six months to fully ramp the revenues still kind of a normalized run rate when you add a new digital display. How does that run rate or that ramp differ when you're adding displays in bigger versus smaller markets. I'm just wondering if that means that as you are adding more in smaller markets, does it take longer for us to see the benefit of digital hitting the revenue? Thanks.

Jason, I'm a little confused as to the premise of the six month ramp-up. I'm not sure what you mean by that.

So, when you add a digital display, all of the revenue is obviously not there tomorrow. It takes time to go out and sell it, right? And it takes some amount of time to go and sell the display.

Actually, our experience has been many times they're sold before we put them up.

It just takes two or three weeks to work the bugs out of the unit. You don't want to put a customer up there until you've got everything working right then you load it with customers. No, I think the thing that you need to be -- what you touched on is what we focus on is that you get a bigger bang for your buck in the bigger markets than you do the smaller markets. Just because of the -- the rates per spot, are so much greater.

Okay. But otherwise, there's no -- the timing is consistent.

No, no different. Yes, are you talking about the time it takes to actually get one up?

No, no, no. Once it is up, how long it takes to get the revenue on it. You're saying it is consistent.

Yes.

Okay. Thank you very much.

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

Thanks. It looks like since June, the end of June, there has been an acceleration in digital boards. Sean, I don't know if you could talk about this. It looks like between the last conference call and our Nantucket call, you were doing about 1.2 boards per business day and then from June 22, to now is about 2.2 boards per business day. Is that a good run rate or is this just a timing difference in the past six weeks?

I would say it was a timing difference, Marcie. Like we commented on earlier calls, these are little construction projects. Sometimes the weather is good. Sometimes all the stars align and you come together and it happens, so I would say it is a timing thing. I'm comfortable with from here on out averaging one a business day. I think that gets us to something around 620, 630. And that was our stated goal when we began the year. I would leave it at that.

Okay. Then one follow-up for Keith. It looks like CapEx excluding digital is running about $35 million per quarter. Which I think will bring you above your original guidance which was $105 million. Is this the right way to think about this?

It is. But our Ops guys are telling us that in the fourth quarter our CapEx should be minimal. But yes, I mean if you annualize it, you're correct. We're not ready to change the guidance right now. If we do that, it would be a third quarter event.

Okay. Thank you.

Thank you. The next question comes from Chris Ensley with Bear Stearns.

Thank you very much. Kevin, in the past, you've talked about going short of digital boards, selling them in shorter cycles. I was wondering with some of your -- the local business slowing a little bit. Does that still seem like the way to go? Because oftentimes you take a little bit more comfort if you've got longer term from contracts.

Yes, I think we need to go short because we -- that's the purpose of this product is to satisfy customers that have short cycle promotional needs. And this is instantaneous. So, we can cover all of their needs. If they want to go long, they can buy bulletins. And have a brand building long-term campaign if they want to go medium term, they can do posters and transit. If they want to do really short cycle call to action, I mean that's one of the uses for these digital units. You can also use it for brand building and just sort of change your copy and have something generic running but no, we think we always need to be -- have a product available for that type of customer and digital is perfect for that. So, there is always going to be some time on these units that will be available for short cycle ad spends.

Then just one follow-up. Each quarter, you've been kind enough to provide sort of a data point for I guess the latest month would be the month of June maybe on what -- how many boards and what kind of revenues they generated. Is that something and maybe not for June. Maybe July. Is there a month that you could share the digital data with?

Yes, I think Marcie figured it out. Because she had a summer data point and then she has a number of units to date. But it shows an acceleration in the deployment. I think there were 60 -- how many boards that went up in July? Okay. We put up 61 in July. That was a bubble. I don't know if we have a revenue associated with it. I don't have the revenue. I can tell you that a little bit of a slowdown that we saw in June had a marginal impact on digital revenue performance. July seems to be pacing better and where it needs to be on the digital front and when I look at the occupancy numbers for Q2 '07 and put digital in them, you quickly reach the conclusion that it is not digital that caused a bit of a slowdown. Digital is performing both in terms of revenues and occupancy as we would predict. So, it really is the core analog poster product that caused the--.

Well, it is clear to me you were ahead of my pace of where I thought a number of boards would be up. But do you also have just a June 30 number of where you finished the quarter?

The number? 468.

Right. Thank you very much.

Thank you. The next question comes from Jonathan Jacoby with Banc of America Securities.

Thank you. Good morning. Just if we could touch on this -- the real estate category. I know you're not seeing weakness now but those are longer term contracts. So, if you sort of look back to last year, is there any way you could see where the spike was and how long the contracts were so if we we can sort of try to normalize perhaps as the contracts come out, the model, the potential impact. Second question is what percentage of your business is short term? I thought that was pretty interesting. I never thought about it like that. Lastly, on the regulatory front, there as a bill that was postponed in California. Is that considered a -- is that sort of a big issue or should we not overly focus on the California bill? Thanks.

Let me start with regulatory and then I'll turn it over to Sean. On the regulatory front, we're still working in the state of New York and the state of Texas. There's nothing going on in California that, either positive or negative that we're working on. Right now, we have permission to deploy these units in the state of California. And they've got good set of regs on the books. What was your -- the first part of your question -- I was going to answer that one.

Real estate category. How should we think about it?

Yes, you actually kind of miscategorize -- it is not long-term business. It is a mixed bag. It's 8% of our book. We have developers who have -- who do have long lead times and they have bulletins and they've contracted for -- in some cases, even multiyear periods. But we also have real estate agents who buy on a 30-day basis. So, it is -- and then the homebuilders. Homebuilders tend to be longer term and then the real estate agents tend to be shorter term. So, it is really -- it is a mixed bag of business and right now, I just found it interesting that we have not experienced a decline in that business when the newspaper industry has experienced significant declines in their real estate advertising category. So--. The short, long analysis should be product specific, not vertical and customer category specific as I'm looking at it now. It is really the shorter cycle sale tends to be posters, tends to be transit. That's the products that we have that are showing a little bit of relative weakness.

And I understand not to look at it like that but just because I'm curious. If you broke -- if possible, that real estate category down between homebuilders and agent, is it split 50/50? I'm curious what the split is between the two.

I've never sliced it that thinly.

I know we're getting into real minutia.

Just for the notion that maybe there is an elephant going through a boa constrictor on this book of business, it really doesn't look like that to me. When I looked at the last 12 months and looked at every month, the real estate category, it was between 8 million and 9 million every month.

Okay.

In absolute dollars, it has just been very very steady. Up, basically through June which is the latest month I've got that on it.

Let me say something about that on the regulatory front. We've had some -- I want to congratulate Clear Channel on what they did in Minneapolis regarding the bridge collapse up there. Within hours after that bridge collapse, they converted all of their digital time to a safety advisory for drivers. It was noted by all of the public officials in the State of Minneapolis and by national public officials and so some of the things I've been saying about the usefulness of digital displays and how there is a public safety angle to what we're doing is -- was borne out by the good works of the folks up there in Minneapolis and Clear Channel and I congratulate them for their efforts.

The next question comes from James Dix with Deutsche Bank.

Good morning, gentlemen. Got a couple of questions. If you could give a breakdown your revenue growth in Q2 by product, bulletins, posters versus transit and then the digital increment and then if you could give any color on third quarter pacings also by product just so we can see that difference. And then do you have growth by month in the second quarter? And pacings by month for the third? And then I guess my final question is just are you seeing any regional differences in growth. I know we've heard, I think you've mentioned even in the past some issues like with Florida and Nevada but just are you seeing any changes in regional growth patterns as you're going into the third quarter from second?

James, I'll let Sean do Q2 but we don't do pacings by product line.

Okay.

On a forward basis. But he can give you the Q2 thing and he can give you some color across the platform. Yes. On the regional question first, that is pretty much the same story that we've been telling the last few months. Things are very tough in Michigan and northern Ohio and places that are relying on the automobile industry and so that region, that North Central region is probably in the -- growing in the 3 to 4% range. For our businesses.

The real estate and ancillary businesses that have affected local advertisers seems to be a little more problematic in Florida than it is in Nevada and Southern California. But both those places had a super hot real estate market and they're feeling the effects. But right now, it looks like Florida in terms of how it is impacting the overall economy, seems to be suffering a little more. On contributions to our overall growth in Q2, I'm going to break it out by digital, core, billboard, and then logo, and transit. And the following percentages will add up to 8.8%. Digital contributed 3%. Our core static business contributed 5%. Logo contributed 0.4% and transit contributed 0.4% for a total same store growth of 8.8%.

Just one follow-up. So you're not really seeing any change going to the third quarter in terms of regional growth? And then do you have the second quarter growth by month?

Do we have the second quarter growth? Do we usually do that? We don't slice it by month.

Okay.

The only thing I can tell you James is what Sean mentioned earlier is that in June we started to see a falloff in growth.

Okay.

What was the other one you wanted?

Any regional change as you're going into the third quarter or that wasn't really what's going on in the third quarter. It is not really regional.

I don't think it is regional. Again, my sense is that it is -- it is across the country and it is local. And primarily customers affected by the housing downturn and interest rate sensitive businesses.

Okay. Great. Thank you.

The next question comes from Laraine Mancini with Merrill Lynch.

Thank you. I have three questions. First, now that you're including your convert in your leverage calculation, does that mean that you are more sensitive to buybacks since you're nearing five times leverage on that basis? Second, flat panel TV costs, the press is reporting they may go up because of a shortage. Will that impact the cost of digital boards. My final question is going into 1Q, you also saw a pause in the business. At the time you were relatively confident that it was a temporary pause and that we shouldn't extrapolate it further out. How would you characterize the pause that you're seeing in 3Q and should we carry that through into 4Q as well?

I think the pause is for the rest of the year. I don't think we're going to take off like a rocket in 4Q. I think 4Q is going to be better because we had a -- extraordinarily poor month in June and July. But the flat panel display question is no, we are -- our technology is LED so we're not -- we won't be affected by that. I don't think we're going to get a big price break because we're focused on product improvement and better resolution and other issues related to the units so I don't think we're going to be able to drive the price down that significantly in the near term. Over the longer term, I do think prices will continue to come down. And then there was one other part to your question. The answer is -- this is stock answer that we've always given. We're very comfortable with the free cash flow characteristics of the Company to be levered at between 4 and 6. We're slightly under 5. We've got plenty of room to maneuver and there are -- and also there -- as I mention earlier, there are no changes to the Company's uses of its free cash flow and its debt capacity.

Great. Thank you.

Jim Boyle with CL King.

Good morning. Keith, what would be roughly the full year digital CapEx range given the Q2 acceleration in the first half of roughly $41 million and Sean, which advertising category concerns you the most in the latter part of the year.

As far as the Q2 acceleration on the digital CapEx, this is an approval process that our guys in the field have got to follow and I'm not sure if there's any real rhyme or reason. You could say well, the weather is better in the spring or summer than it is in the winter. But I think as Kevin said, some of it was just a bubble. It is just the way that the chips fell. And as far as the CapEx, we guided to about 65 million or $70 million for the year at the beginning of the year. I think that's -- we think we'll ge as Sean said, between 600 and 630 by year end, units.

So, you did $81 million last year, you're going to do less this year in digital CapEx?

Well, we will, if we have to up guide -- up guide -- restate guidance for digital CapEx, we would do that in the third quarter.

Okay. Sean?

Yes, Jim. Let me hit that real quick because it is -- there's not a clear-cut answer other than kind of the way Kevin described it as you have a lot of little businesses that are dependent upon strong housing. A strong housing economy. And just to illustrate why it is not an obvious category issue, I'm going to just sort of tick through the categories of business and the take home message here is each one of these categories of business is exactly the same percentage of our book for June of '07 as it was in June of '06. Restaurant, 10%. Retailers, 10%. Automotive, 9%. Real Estate companies and developers, 8%. Hospital, 7%. Service industry 6%. Gaming, 6%. Hotel/Motel, 5%. Financial institutions 5%. Amusement, entertainment, sports, 5%. Again, each one of those expressed as a percentage of our book of businesses is exactly the same June this year as it was June last year. There is not a category that's screaming that it is fragile. I think that really the best way to describe it is as we have, it is tending to hit our shorter cycle sales predominantly the poster business. And it tends to be those local customers that are dependent upon a strong housing market. Which tends to be a lot of local customers. That's where it is.

Okay. Finally, Kevin, do you see any change in the regulatory atmosphere given the two recent studies that suggest digital boards are not a dangerous distraction?

Well, we found it very helpful. So, it is -- especially at the local level where local city councils and planning commissions are not capable of assessing whether these things are safe or not. They need third party validation. So, it is helpful to have data like that out there in the market place that we can use and we have used it and we've used it with some success. And over the long haul, I don't think -- I think locally, we're going to demonstrate these things are useful and informative and will have plenty of customer support and also support from public officials. We do need more work at the state level primarily in Texas and New York and we hope to make some strides in that area.

The other thing that we found interesting is these high density mixed use developments that have their own entitlements, they have been going to municipalities and petitioning municipalities for, say look, we want to put up some interesting signage. Not only for cars but for pedestrians. There is nothing in the code to address this. So, in a couple of occasions, we've been brought in to actually consult with the municipality on how to fashion these entitlements for these high density mixed use developments. And that's new. New to us. New for us. New for the developer and new for the municipalities. What I find interesting about it is that they're open. Because usually what we're talking about is this new technology, digital, et cetera. And they're very open to figuring out ways that they can deploy these devices in a tasteful and safe way. So, I see out there momentum. We're t the very very beginning. We didn't see as much momentum behind acceptance. But now, today I see a lot more momentum today than last year.

Thank you.

The next question comes from Anthony DiClemente with Lehman Brothers.

Hi. Thanks for taking the question. If we look at just the Real Estate category at 8% and the financial services category of 5%, if you compare those two categories in terms of which one of them is shorter cycle versus longer cycle, do the interest rate sensitive customers tend to actually be shorter cycle than the real Estate customers? And then the second question is can you help give us a little bit of texture around rate and occupancy and you talked a little bit about how the poster occupancy had come down a little bit year over year. At what point does rate start to sympathize with the trend in occupancy if ever? Thanks.

I'll let Sean do the rate and occupancy question. I'll try to -- you're trying to get at the volatility of some of our customer verticals.

Just relative to each other.

Yes. I think -- basically, real estate and financial institutions are pretty much the same. You've got certain customers in each category that are building brand and you have certain customers that are engaged in call to action advertising. So, there is no real difference in the volatility. You've got short cycle business and brand building going on in each vertical and it is not lopsided in financial institutions or in the Real Estate category. We can't -- we haven't sliced it thin enough to tell you just intuitively I'm telling you that. I haven't sliced it thin enough to tell you that it is exactly 50/50. But now what I can tell you that's more short cycle is home furnishings. That's much more call to action and sale oriented. And seasonal. Than brand building.

Got you. What percentage of your business is home furnishing?

Doesn't even measure. Not in the top ten. But yes, hitting the rate and occupancy question, starting to look -- looking at it from 30,000 feet for those who have followed us for a long time, as you know, we worked pretty diligently to hold the line on rate if we think we're going into a recessionary environment and we suffer on the occupancy front. And we've been through this numerous times. And that seems to be the best way to manage your way through a soft spot. So in general, what you'll see out of Lamar is a real focus on maintaining rate integrity.

As I mentioned, we did see rate increases in Q2 '07. 4% on the poster side and 6% on the bulletin side. Quarter over quarter. It is probably it is probably too early in the game to think about whether or not you're going to see the kind of occupancy and rate comparisons to '01 and '02 and we're certainly not seeing that as we look out. We're not seeing ourselves going into a recessionary type of performance. I think we're going to stabilize occupancy and you're going to see rate at, still driving, being the primary driver of growth.

Great. Thanks, guys.

Thank you. The next question comes from Eileen Furakawa with Citigroup.

Hi. Thanks for taking my question. I just have a quick follow-up question on Real Estate. How fast did you say that the Real Estate category grew in the second quarter? And what do you think the chances are that you could see this category actually turn into a decline? And then also, what percentage of your total ad dollars comes from Florida, California, and Nevada if you know? And what percentage of your Real Estate dollars come from those states. Thanks.

I can't slice it for you regionally. The Real Estate category actually grew 13% in the second quarter. That's what's made it very difficult for us to pinpoint and absolutely say that it is the Real Estate category that is causing a deceleration in the growth rate. The percentage of business that comes from Southern California, Nevada, and Florida, I would have to get off-line with you and calculate that for you.

So you said that the Real Estate category grew 13%. Was that just from new advertisers or is that from existing advertisers increasing their spending?

Both.

Okay. Thanks a lot.

Thank you. The next question comes from Mark Wienkes with Goldman Sachs.

If I could ask Jonathan's question another way. What percent of your business is on the books for third quarter versus the fourth quarter and then secondly, for Keith, assuming the FASB's proposed rule change on the cash pay converts does not go through, what do you expect the impact to your reported earnings will be? In swapping out that convert?

I didn't hear the question. The answer is none.

No impact?

No impact.

Okay.

Then the pacing question, percentage book to budget.

Exactly.

The old number we used to give out. I don't know if Sean's got that or not. Well, we kind of quit doing that for a couple of reasons. Number one, it was expressed as a percentage of our budget since we don't release our budget, it became sort of a difficult thing for you guys to make sense out of.

Could you give it relative to the plus 6 pacing in 3Q?

I don't have that number at my fingertips. Maybe Keith can get back to you on that one but another reason we stopped doing it was because digital started skewing the relevance of comparing it period over period. So at the end of the day, it became a meaningless thing to give out. In terms of percentage book to goal. The percentage book to the aggregate number that was in the press release, maybe Keith can get back with you on that one off-line.

Okay. But I guess if you could just generalize, you wouldn't think it would be meaningfully different than previous years.

No. No, no. It is not meaningful. Definitely. We're not -- we're not that pessimistic about the fourth quarter.

Right. Okay. Great. Thank you.

Thank you. The next question will be from John Blackledge with JPMorgan.

Thanks for taking the questions. Just wondering what the margins, EBITDA margins on the digital boards were in the second quarter '07 versus the second quarter '06. Then just given the compelling economics and returns for the boards, is there something that you guys are doing when you convert a static board to a digital board in X market that limits the -- I guess the landowner's uptake in economics and looking at that over time, has your -- as you continue to convert boards. Then secondly, just wondering what the cost of the boards were? The bulletins and posters at this point versus this point last year. Thanks.

Well, on the price points for a digital board, we've seen over the last 12 months, we've seen a small price break. The larger price breaks were driven in the previous two and three years. So we're -- we have I think temporarily flatlined in terms of getting better pricing on digital boards from our existing vendors. I think that in the coming two or three years, we'll start seeing a little better price performance out of them. What was the first part of the question?

First part is you're getting 20% to 40% returns on your boards.

Yes, the margins. The margins in our digital deployment have been very good for a couple of reasons. Number one, the revenue expansion when you put one up is outstanding and the cost structure is slightly better. One of the things we do is we try to secure the real estate either through an easement or an outright purchase of the property or through some sort of long-term relationship that allows us to enjoy those economics that we've been very aggressive in doing that.

Okay. Just one follow-up. You converted 29% of your EBITDA into free cash in the first half. Is that something that we could see in the second half and kind of longer term in terms of converting EBITDA into free cash flow?

Yes, absolutely.

Thank you.

Thank you. And our final question comes from Gordon Hodge with Thomas Weisel Partners.

Good morning. Not much left to ask. But I don't think you commented on the M&A environment. Just curious if you're seeing any change now that the excitement around digital I think is pretty well out there. Are sellers looking for a little bit more? That would be great. Thanks.

We really haven't seen that much change in the M&A environment. Other than as everyone knows, it is less important now to our overall growth rate than obviously it was three or four years ago. Let me tick through some deal matrix for you that you can wrap your arms around. Year-to-date, we've closed 53 acquisitions for an aggregate purchase price of $86.5 million. And as I look out across the landscape of acquisitions there, the typical small mom and pop fill ins and I really haven't seen much of a change in the way those are being executed or the pricing.

Great. Thanks.

All right. That concludes our call. I want to thank everyone for tuning in, and we look forward to our next quarter call.