Lamar Advertising Co (LAMR) 2007 Q3 法說會逐字稿

Excuse me, everyone. We now have Kevin Reilly, Sean Reilly and Keith Istre in conference. At the conclusion of the company's presentation we will 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 forms 10-K and 10-Q and the registration statements that Lamar files with the S.E.C. from time to time. Lamar refers you to those documents.

Lamar's third quarter 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 Kevin Reilly. Mr. Reilly, you may begin.

Thank you, Chantal. I want to welcome our shareholders and friends to Lamar's Q3 call. As is our custom, I'll lead off with some opening comments and then turn the call over to Keith Istre, our CFO, and then over to Sean Reilly, our COO. Let's get right to it. What you can expect for the rest of the year is continued margin expansion as we control our cost. Note that our consolidated EBITDA margin for Q3 '07 was 47.8%. That's a 1.8% increase over Q3 '06. And as we mentioned on our last call, our rate of growth in the static billboard business would decline in the second half of the year. And as you can see from our guidance, we expect the same for Q4.

Markets for real estate is a significant driver of the local economies where we operate, they will continue to underperform. Digital will continue to outperform. As of today our revenue run rate is $80 million against a total investment of approximately $170 million. That's not bad.

Briefly, for '08, we expect the '08 environment to be challenging. Our real estate and automotive customers will be very circumspect regarding their ad spend. We will likely step up the pace of our digital deployments in '08 as the regulatory environment continues to improve and as local and national advertisers are attracted to our expanding platform. It's interesting to note that our national digital ad spend year-to-date is at 7.8% of our digital book. And it was zero last year, so we're getting somewhere regarding our network.

Our hope for '08 is that share shift and our expanding digital platform and our low cost-per-thousand impressions will allow us to provide superior free cash flow per-share returns to our shareholders in what we consider will be a very difficult environment. With that, I'd like to turn the call over to Keith Istre to walk us through the numbers.

Thank you. Good morning, everybody. Just a couple of points to add some color to the numbers in the press release, I guess. As you saw, our pro forma revenue growth for the quarter was 7%, slightly higher than we had guided to. And that was coming up against a fairly tough comp in the third quarter of last year. If you recall, we posted a 8.3% pro forma revenue growth in Q3 of '06.

So we were pretty pleased in this environment with that performance. I wanted to just make everybody aware-- From our last call when we said that we saw things flowing down, that didn't mean that we were going to see month-over-month deceleration in our actual net revenues. Some people may have misunderstood that from calls that I got after that.

Actually, August and September were up sequentially over July. August was up over July, September was up over August, as is the norm in any year. What we didn't experience this third quarter is the typical acceleration that we see in August and September after vacation and -- and back-to-school and so forth. There was acceleration, but not the typical acceleration. And just to give you some numbers to back that up, our pro forma growth for August and September were both 6.5% on the net revenues side.

Looking at the expenses, you saw that the expenses were basically in line with what we had told you on the last call. Low single digits on the operating expenses. Before corporate, those came in at 2.9 and corporate was 6.7. The consolidated expenses for the quarter were 3.2. On the expense side, that will-- You can expect that to basically be the same in Q4 as Kevin mentioned about the continued margin expansion. The guidance to 5 to 6% in the fourth quarter takes into account two things-- The slowdown that we saw, that we talked about at-- On the last conference call and that Kevin mentioned again just now. And the fact that our fourth quarter '06 revenue growth was 9%. That was the toughest quarter from a comp standpoint that we had in '06. The back-half of '06 was very strong for the company. So we are taking that into account when we're putting out our guidance.

Last-- On the last call we had some questions about CapEx, and what our guidance would be at the beginning of the year. We estimated that we would spend approximately $170 million for the year in CapEx. Roughly 65 in digital, 105 in traditional CapEx, which is traditional billboards, transit logos, operating equipment and real estate-- Land and buildings, not easement purchases. Anyway, we're going to reguide today to approximately $215 million for the year, of which $90 million would be for digital. Again, our original estimate was $65 million, so we're going to spend a little bit more than that. And on all of the other categories, it will be approximately $125 million. With that being said, I'll pass it on to Sean.

Oh, thanks, Keith. Let me first echo Kevin on how proud I am of our folks at Lamar who delivered margin expansion and great operating leverage. As we told you going into this year, that was going to be one of our focuses and for those in Lamar-land listening in on this call, thank you for keeping your eye on that ball. Let me give you a few of the typical operating statistics that we like to give out during the call. First, I'll start with the number of digital units we have in the air, as of the end of the quarter and as of this call. As of September 30, we had 574 units in the air in 117 markets. And as of today, we have 599 units in the air in 119 markets. Rate and occupancy stats-- I'm going to break it out for you a little bit differently today than traditionally because we're now seeing the impact of digital, and I want to quote it to you with digital and without digital. The stats with digital on occupancy in Q3 '07-- Our occupancy for posters was 74% as opposed to 73% in Q3 '06. And our occupancy for bulletins was 83% as opposed to 82% in Q3 '06. So up a point in each category. Without digital the, numbers are down a point in each category. So, Q3 '07 poster occupancy was 71% as opposed to 72% in Q3 '06. And for bulletins, 79% as opposed to 80% in Q3 '06. So, again, it is sort of reconfirming what's going on in our book of business. Digital is performing extremely well and -- extremely well and is additive to our aggregate statistics on those fronts. On rate, quoted the same way, Q3 '07 our average rate for posters was $464. That is a 5% increase over Q3 '06. And for bulletins our average rate in Q3 '07 was $1,231 or an increase of 6.7%. Quoting that same stat without digital, and you get Q3 '07 average rate of 449 or a 2.70% increase over Q3 '06. And for bulletins, an average rate of $ 1194 or an increase of 5.3% over Q3 '06. So, again, you can see how digital is performing in our aggregate book of business. Local national, and -- and this is one where we're getting some clarity where the sluggishness is. It is clearly local, because in our aggregate book of business national ticked up in Q3 '07 to 19% as opposed to 18% in Q3 '06. And in terms of growth in the third quarter, our national book of business was up 13%. In the third quarter, we had very strong buys out of telecommunications, entertainment, beverage, insurance. On the national front, retail and restaurants held their own. And on the national front, big three automotive was dow, but Toyota was up in terms of spend with Lamar on the national front. But the headline there is that national remains strong. It's going to remain strong going through the fourth quarter and that the sluggishness is -- is really in the local economies. Speaking of verticals, September was a -- a first, and -- and I think a good first. If you are -- if you are familiar with what we have described as our biggest challenge in digital is -- is getting comfortable selling into the retail vertical. And we made some strides in September. For the first time, September showed retail as our largest vertical. Again, for those of you that follow us year in and year out, you usually see restaurants at the top of our verticals. And in September, retailers constituted 10% of our book. That's essentially being driven by their embracing of our digital product. Other than that, there's nothing really dramatic in our verticals to focus in a little bit on real estate, in September it was 8% of our book. In September of '06 it was 8% of our book. In September of '05 it was seven, in September of '04 it was six. Year-to-date real estate is 9% of our book, last year it was 8, in '05 it was seven and in '04 it was sixth. And so it remains a strong category of business for us. In absolute dollars, real estate was up in October in our total book of business. But its rate of growth has been declining. If you track it month by month through the year. But in the aggregate, it was still up in October. Just to give you a little bit of a glimpse into the third quarter on occupancy stats -- I'm sorry, into the fourth quarter. In October, poster occupancy was flat. And this is a quote without digital. Poster occupancy was flat at 70%. It was 70% in October of '06. We experienced an one-point decline in occupancy in October '07 under October '06 in our Bulletin category. On rate-- October poster rate ex-digital was up 3.7%, and on bulletins ex-digital up 5.2%. That's all for the detail. And turn it back to Kevin and open it up for questions. Great. Chantal, I'd like to go ahead and open up the call for questions.

Thank you. (OPERATOR INSTRUCTIONS) Our first question will come from John Blackledge, J.P. Morgan.

Thanks for taking our questions. Just wondering if you could talk, maybe, a little bit further on your step-up and your digital deployment in '08 as relates to costs coming down for the digital boards and the rate of growth that we're going to see. I mean, you've been adding 300-plus boards per year. Does that step up even higher? And then on the rate of growth in the static billboards declining-- Just wondering what that rate of growth is and what the digital added in the quarter. Thank you.

You want to get that? Why don't you do the quarter and I'll talk about '08? You wanted to know the -- Break it out static versus digital in the quarter in relation to growth?

Yes.

Okay. On -- on -- this is billboards only, so our -- our total reported pro forma growth which includes logos and transit was 7. If you look only at our billboards it was 6.9. Of that, 3.6 was same-store growth and static and 3.3 was the contribution that digital made to that same-store growth of 6.9. Regarding '08 plans for digital, we -- we're not prepared to quantify that for you. Regarding pricing of the -- of the individual units, it's tough to call because we've got great vendors who -- who have added value to their units, which is very helpful to us. May not necessarily result in tremendous price breaks like making the units lighter, having them consume a less -- less electricity, things like that. Better resolution. But it stands to reason that if we step up our activities in '08, that given substantial volume that we -- we would be expecting a break in the -- in the price of these things.

If I could just do one follow-up. If you look at the first quarter of '08, and I do not know how much visibility you have, is the static -- static revenues are they decelerating even further in the first quarter from where the -- where the fourth quarter is pacing?

We -- we generally don't try to give guidance beyond the next quarter. But I can tell you this, that it is the same as Q3. We're not seeing a radical-- just like we said in Q3, we're seeing a softness in our business. We have 160 markets where we operate. And those markets that are stressed by the -- real estate. Where real estate is a significant contributor to the local economy like Fort Myers, Las Vegas and several markets in the panhandle of Florida, they are under stress and are underperforming and we expect them to continue to underperform. But if you look across the entire platform, the answer is, no, there's not a dramatic runoff in our book of -- book of business. Let me add a little color just on the tone of national business in '08, it -- it seems -- the tone seems to be good on the national side. All of our renewal discussions are -- are good. No one's talking about pulling in their horns. So on -- on that front things seem to be really strong and -- and we can feel good about it. There's -- there's going to be certain categories that come in stronger than others. Again, we -- we certainly do not know where auto is going to end up but telecom and the others I mentioned are really -- really strong.

Thank you very much.

Thank you. Our next question will come from Chris Ensley, Bear Sterns.

Good morning. Thanks for taking the question. A couple of questions on M&A. Did you -- what -- How many deals did you complete and for how much? And are you still doing easements at the same rate? And I guess perhaps the price of land et cetera is coming down.

Yes. I think -- first of all, the answer on the M&A and -- and easements is steady as she goes, virtually identical to the guidance we gave you. To date, as of this call, we've closed 67 transactions and spent spent $120 million on the acquisition front and the easements are pacing as -- as we previously guided. You know, we hope -- we hope that one of the good, silver linings in this real estate environment is that we can knock down some better deals. You know, the -- the proof will be in our performance and hopefully over time we'll be able to report that we -- that we took advantage of the environment.

And just a -- kind of a follow-up, on just the overall tone. Is -- is there any way to -- I've been struggling to find a theme, whether it's large versus small markets. Whether it's regional strength and weaknesses. I mean, have you been able to put anything together? Or was it really just market by market?

I think -- there is a theme that's emerging. National is stronger than local. And -- and if -- if you track the history of ad recessions, that is a bit of an anomaly. Usually national has more volatility in it. So that's -- that's an interesting data point, and I think a theme that -- that Bear's watching. There is a little bit of of regionality that we -- we can point to. And, again, as Kevin mentioned, it is -- it is -- Those parts of the country where real estate is just -- is just a -- such an important, vital component of the overall economy that it is causing the whole overall economy to go into a funk, and so that would be Florida, Nevada. And -- and then there's just sort of the continuing issues up in Michigan and Northern Ohio that are related to aggregate weakness in their economies.

The -- the Northeast is one of your bigger regions or any --

It is a big region. It is a big region. And they had a great first half of the year. Slow -- a little slowdown on the local level in the -- in what's -- they're experiencing in the -- in the back half. And, you know, to that that I would point to, again, just sort of the -- the difference in rates of growth between national and local that we're experiencing, you know, in -- in our book of business. And I think you see it -- you see it in the other guys, you know, in Clear Channel and CBS. Their percentage of national business and their aggregate book of business is higher and so they have marginally higher rates of growth.

Thank you very much.

Thank you. Our next question will come from Mark Wienkes, Goldman Sachs.

Great, thank you. I was just wondering, as you noted, second half, '07 looks like nice margin expansion. How do you think about the expense growth for '08 Is there any lumpiness that we should expect through the quarters?

I don't think you are going to see any lumpiness, I think it is pretty much steady as she goes. Our -- our business model is pretty predictable.

So the same 3 to 4 to 5%, in that range?

Correct.

Okay. And then on the national business, now being 8% of your digital book. Are you selling it differently, I guess? Are agencies now becoming involved?

No. It's -- in -- in talking with -- with Jon Miller, our national head of sales, you know it is still a teeny percentage of the overall book. They are buying it more for position and to learn the medium. The way he described it to me, they are not buying it right yet. But they are -- they are looking at it. And -- and we've had the opportunity to upsell, you know, for example AT&T has come in real strong in the fourth quarter. And they took the opportunity to take a few digital boards as they -- as they bought their traditional buy. And I think they're learning it. And I think as -- as Clear Channel and CBS and Lamar get closer to a national platform, you know, that's only good. That was really the point that I wanted to make, that -- that last year it was zero and this year we're beginning to discover the benefits of scale. And the benefits of growing our platform. We still aren't anywhere near close to where we want to be in terms of -- of presenting a robust platform to national advertisers. But obviously we're close enough to attract some interest.

Right. And then just one last model question. On the step up in CapEx on the traditional side from 105 to 125, what is the extra $20 million, just traditional billboard or --

No. What you would be looking at is about another $15 million in traditional billboard, and another $10 million in the other categories that include logo, transit, land buildings and operating equipment. One thing I can say with -- about '08 with a lot of -- with quite a bit of certainty, because a lot of our CapEx is discretionary, is that you will see our traditional -- we'll -- you will see an acceleration in our digital CapEx but you will see a -- a substantial reduction in our traditional CapEx.

Got it. Okay, great. Thank you very much.

Thank you. Our next question will come from Jonathan Jacoby, Bank of America Securities.

Thanks for taking the question. Last time, if I recall correctly, you spoke that the only softness you were seeing was sort of a slight slowdown in occupancy rate, which seems to have continued to be in the poster business which was shorter term. Now you're seeing it in the bulletin business. And I'm wondering if -- if that is what is giving you caution into '08? Clearly you are talking positively about the national marketplace. But I'm just trying to get a sense on the tone of caution and perhaps how we should think about the appropriate revenue picture? And I understand that it is very hazy and no one has the full crystal ball, at least I don't or I wouldn't be sitting here. And then the second question is-- As you look out, how should we think about the real estate category as we go through the fourth quarter into early next year and then some of those ancillary categories that you mentioned last quarter?

I'll -- I'll let Sean field the -- the real estate question. And most of the -- the -- the balance of -- of your question, but let me just -- the caution comes from an organic growth rate in our static business of 5 to 6% going down to 3 to 2%. But, you know-- and we'r -- we're not going to try to guess that it is going to run off to zero. I mean, if we saw that dramatic runoff in our book, we'd call it. We think our platform is big enough in the United States that -- and we've got enough small customers across this country that we -- we might be in -- an interesting indicator as to how things are going in -- in the heartland. And the way we -- we -- we are calling it is that across the 160-some-odd markets where we operate it is kind of spotty. And the worst performers are the real estate-related economies, not real estate vertical but the real-estate related economies and we don't see-- We've seen this. To us, very significant movement from 5, 6% down to 2 to 3% in our -- our core business. But from there, we're not seeing it fall off a cliff in '08. But given all the other data points that you have and we have regarding the economy, we just -- we're expecting '08 to be a very difficult environment for many. Yes. I mean, part of it's what you see in the headlines everyday in the "Wall Street Journal" and where the Atlanta aggregate economy is. Specifically to real estate, you know, the data points that I have looking into '08 are national renewals with those customers, is strong. Jon Miller tells me. And that the conversations are good. So what I think that you will see in that vertical is, you know, something that is flat, you know, not something that is going backwards, you know, that that is what it feels like right now. And, again, I do not know if -- if October is the right data point or not but in the aggregate they were -- that category was still up in our book. But it is not reasonable for us to try to forecast '08 vertical in real estate because 160 markets that is 160 separate discussions with a -- you know, in -- five real estate customers in each market. And so you are talking about thousands of discussions. And they don't -- the -- the contracts do not necessarily break all in January. And so there are thousands of discussions that are going to take place throughout the entire year of '08. And so it is just not -- we do not feel constructive for us to try to guess or try to lead our investors as to where -- how our verticals are going to perform. When we try to forecast and we look -- see what is happening to our business, rather than study the verticals, we actually just study the overall book and how those pacings compare to the same time last year.

And -- and just one follow-up, if I may. What is your comfort leverage as you head into a year like '08? You've taken it a little bit about five if I'm running the numbers correctly.

Yes. We've always said, you know, four to six, good times six and less than robust times on the lower end and so,we're right at the midpoint of the -- of the range and so we're fine where we are.

Thank you so much.

Thank you. Our next question will come from Jason Helfstein, CIBC World Markets.

Thanks. Two questions. Here's one. I don't think you specifically gave us what the digital contribution was of the 7.1 in the quarter. Or the pro forma growth in the quarter. And then -- I mean, basically -- if you think about the billboards, I think there's a lot of concern that when you get renewals for the -- particularly the nine and 12-month contracts, that that will accelerate the weakness. I mean, you're basically saying you're not seeing that today, correct? And maybe expand upon that.

Yes. I mean not -- not in a sense that, you know, it feels like we're going into something like '01. You know, it -- it doesn't feel like that to us. Getting back to contributions, breakout between static and digital for Q3 '07, and -- and, Jason, this is for the billboard book only. I'm not including logo and transit in the total number.

Okay.

And so it's going to add up to 6.9%. The static contribution same store organic growth to that number was 3.6 and the digital contribution to that number was 3.3.

And then just last -- let me follow up just on the first -- on the other point. I mean, talk -- there is seasonality to renewals for some of the longer term contracts that we should be cognizant of?

Not really. You know, at the end of the date there's slightly more in January, because of national sales. But you can just -- it is routable through the -- it is routable through the year.

And you are already having those conversations, correct?

Correct.

Okay. Thank you very much.

Thank you. Our next question will come from James Dix, Deutsche Bank.

Good morning, gentlemen. A couple questions. Just if you could say what the real estate category clear year-over-year in the third quarter? Secondly, are you expecting your digital contribution to growth in your guidance for the fourth quarter to be similar, kind of in that three-point range? And, finally, if you could -- in that three-point range? And finally if you could give an indicator of the outliers that you are seeing for growth in the third quarter, that the best markets were up a certain amount and the worst markets were down a certain amount? That might help give a little more clarity in the variance you're seeing regionally.

Sure. For the third quarter, real estate was up 5.09% in the book of business. Now, in July it was up 10.76 and then it dwindled down to 2.5%, up by September. So, again, in the aggregate it is up but you can see the trend line --

Right.

--on the real estate category. On sort of, I guess, regional and market performance differences, right now the strongest region and it probably won't surprise anybody is the southwest region which is predominantly Texas, those economies are very strong. Let me get to the --

You have the chart.

Yes, I got it. In Q3 the southwest region was up, same-store 10.5%. And, you know, that's been trending up through the year, just for point of reference, in -- in the first quarter, same store, southwest region was up 6.4%. So that's an indicator of real strength. The northwest region is not as dramatic but in Q3 it was up 8.4%. Another strong one is the Mid-Atlantic region. That region was up 10.6%. Same-store organic.

I think one of the explanations there is that region has been the most successful region we have in deploying digital. And digital is in these numbers. So that may be a reflection of that -- that double digit. And the gulf coast remains very strong, 11.6%. The ones that are struggling, North Central, that is Michigan, Northern Illinois and the like, 2%. Same-store organic growth. The South East, which includes Florida, was up 5.5%, Q3. That's down from being up about 9% in Q1. And then the other ones, the -- it's -- it's hard to really collect any sort of meaningful information on them. The western region, I think, you know, it was up 7.5% same-store in Q3. But that is down from about 10 in the first half of the year. And that's mostly reflective of Las Vegas where-- The local economy there is beginning to reflect what's going on with their real estate economy.

And then -- then just on your -- in your guidance, your expectation on digital contribution, kind of similar to the third quarter. three points or so?

Yes, yes, yes.

Okay.

Take -- take half of it, and attribute it to digital and half of it and attribute it to same store static.

Great.

Let's hope it's just the top end of the range.

Okay. Thanks very much.

Thank you. Our next question will come from Marci Ryvicker, Wachovia Securities.

Does the softness in your traditional business have any sort of residual impact on your digital boards, maybe in terms of pricing, or are these now different customers, or customers that you are serving-- Is the first thing and then, the second question is can you talk about your share repurchase activity? It picked up in the quarter, should we expect the same amount of activity throughout the rest of the year and maybe into next year.

I'll do the digital question and then -- then pass it off. It was very encouraging to me amongst the data points that I looked at in September to see retail for the first time be our largest category of business. And when we dug deeper into the numbers, it was clear that digital was driving that. And if you think about what we've been saying about the ultimate power digital in terms of value proposition to the customers, it's most valuable to their retail category because they have a need for call to action. So, I feel good about that. The digital performance across every market, markets that are challenged economically and markets that are still robust. Digital is performing well and it's delivering on all of its promises, quite literally, in every market, whether it's Toledo, Ohio, or Las Vegas or Gulfport. It seems to be, again, living up to the promise. And as we learn more about how to sell it, I think all is good on that front.

So just to clarify, there's no business shifting from traditional to digital at this point?

Well, I was -- that's maybe a little strong, you know. I don't know that I can go that far. I think if you look at the aggregate statistics and the growth and its contribution to growth, you can say that it's -- it's additive and its accretive and its everything that we want it to be. I didn't interpret the question to mean that no customers from our analog business go to our digital business. Yes. We have a lot of the same customers. I guess, put another way, we're not Canada balancing our static business with the digital.

Okay.

Yes. I mean, the static business is a reflection of everything that you've read about in the weakness and local ad spend. That's it, you know? It's the economy.

Okay. And on the share repurchases?

We've got approximately $264 million left to go on the last authorization. As you mentioned, we spent about $150 million in the, in this past quarter. We plan on continuing to fund that repurchase through the fourth quarter and on into the first quarter. I'm not certain when we will finish it up, but I would think it would be within the next two quarters. The fourth quarter and on into the first quarter.

Thank you very much.

Thank you. Our next question will come from Anthony DiClemente, Lehman Brothers.

Can you hear me? Sorry.

Yes.

Thanks for taking the question. I just had a follow-up to Mark's earlier question. You know, I can't for the life of me figure out how to model your operating expenses, and it seemed like you did a great job managing expenses in the quarter. You've talked, Keith, about the 4 to 6% long-term expense growth. Should we take that to mean '08 expense growth is 4 to 6? And then, you know, beyond that if you could please give us a little more color on, you know, the number of points that are driven by static operating expense growth versus digital?

And then, even if you can talk about the drivers of your cost structure more broadly like the lease cost, the sales force cost and the digital costs into your operating expenses, just to help us out with the modeling of OpEx. Thank you very much.

On a pro forma basis our operating expenses outside of corporate have always grown 3-5%, very fixed cost business, inflation driven. And that's historically been our run rate, digital adds one point to that and so we upped that at the beginning of this year for our expectations to be 4 to 6. I would assume that if you want to model your '08 numbers, I would use the midpoint of that range, a 5, maybe even a 4. Especially in the first half of the year. Our expenses were higher in the first half of this year on a comp basis than they were in the back end. Our largest expense is our lease expense it is a third of our total expenses, and it generally grows about 5% a year. Our labor costs is the second largest expense. It is almost as large as a lease expense. It is about 30% of our total cost structure, and a lot of that is hourly wage, and that is also tied closely to inflation. And all of the rest of the costs are just your G&A costs, sales costs are commission-- Primarily commission based so if the -- the company is doing well, the sales force does well also, if the company goes backwards, then they don't do as well as they do in good economic times. I don't know if I touches on all your points but if I haven't --

You have. That was awesome. I -- Actually, what I am trying to get at is of those costs as well, you know, which do you -- do you consider controllable or, you know, which do you truly consider fixed versus variable? I would would think that the, you know, the commission is variable based on your topline performance but then, I would think your lease costs and then, you know, your -- your salaried sales force costs are fixed so maybe just a comment on that. Thank you very much.

It's just the commission and production is variable. Production, you know, a lot of times we pay for the advertising production, less production is going up on the boards then that cost goes down. So those are the two really variable items. This not the kind of company that if we see a slowdown on the horizon where we start reducing our head count because we're pretty excited about the long term prospects for our business. And we've already indicated that if all goes well in '08, we're going to accelerate our digital deployments in '08. And so there's going to be lots of activity and we need all the -- all hands on-deck and all the troops focused on -- on that activity. And the sales will come.

Great, thank you.

Thank you. Our next question will come from Eileen Furukawa from Citigroup.

Hi, thanks for taking my questions. I have a couple. I'm just wondering, has the place of digital boards come down, and has that also played in your desire to be more aggressive on the digital side? And also you talked about the-- An easing of the regular environment fueling your desire, just a little more color there. And then also you talk a lot about the comps hurting your business in third quarter and fourth quarter, but your comps really do ease quite a bit in the first quarter. Does that mean that you think that it -- it makes it -- that you should be able to actually see real acceleration of growth in the first quarter? Thanks.

Well, you always talk about tough comps when you underperform. You know, you never mention the easy comps when you blow it out of the water. And we're not going to talk about Q1, but this idea about reduction in the cost of digital units, it-- You've sort of got it backwards. You know, at the current cost we are very pleased with how things have gone. Our expectation is that costs will come down because if we do accelerate our activity, it means more volume to our vendors, and they've been good partners in terms of value engineering the structures that they--- the signs that they send to us. In addition, passing on the volume discounts, in exchange for aggressive commitments. But we don't-- We're not going about this exercise by saying, you know, if we can get the price at X we'll put up more. It is all regulatory-driven and the regulatory barriers have improved over the last year, both on the national front and in certain states. In addition to that, at the local level we're beginning to demonstrate the usefulness of these things from a public safety point of view. And it's a different conversation that we have with the municipalities about the utility of these changeable message signs versus a static billboard. And because we can have these different conversations, they're more open to possibilities.

Eileen, this is Keith. Just to clarify on the first quarter comp, our first quarter of 2007, our pro forma revenue growth was 7.5%. I'm not sure if that's considered-- We consider that a very simple hurdle.

Okay. And then I just -- another kind of follow-up. I'm just curious. Historically, when you've seen a slowing down in your business before, has this been a leading indicator compared to other forms of local media, like newspaper and radio and TV? Or do you usually see our traditional media slow down before your business does?

Well, this is Sean, I don't really look at it that way, I try to look in our book and within our book think about what would be the best leading indicator and it is our shorter cycle sale products. And so the first thing I look at is posters. If you recall, on our third quarter call, when we sort of became the harbinger, it was the poster occupancy dropped three points in the month of June. That's usually the canary in the coal mine. And that's what I look at. It was nice to see it firm up as the quarter progressed and poster occupancy seems to be remaining stable right at the 70% level and -- and comping well year-over-year, or at least flat so it's not -- it's not declining. That's what I look at. It tends to be the earliest indicator. You look at the transit business, that tends to be an ad dollar that in tough times goes away first. And interestingly enough, we had a great month in our transit business just recently. So, you know, there's conflicting data but there's choppy feed out there.

Thank you very much.

Our next question will come from Jim Boyle, CL King.

Good morning. Sean, you sometimes mention on the call the sort of feedback that you get from your veteran experienced Regional Vice Presidents on your call-in. Was there anything on the call-in this month that surprised you either positively or negatively?

Not really, Jim, because it just sounded a lot-- the bring down call for the fourth sounded a lot like the third. You know? At the end of the day if I had to sort of overall characterize it-- People are disappointed that they are not finishing the back-half of the year real strong but also they're not talking about ad recession. So, you know, just kind of in -- in going through the -- the regional book of businesses, there weren't a great deal of surprises and the fourth feels like the third. But having said that, Jim, you know, in those real estate -- in those markets where they heavily depended on the real estate he economy-- They're use recession-like body language, customers deferring making decisions, cancellations and those -- those kinds of things. You know, the good news is that that's just a portion of our 160 unit platform.

So given all that and given the occupancy situation and the ad rates being up, overall if you were a fancy economist on TV, it sounds like you are saying we're not in a recession, we're not going into a recession. Would you say we're in a perhaps near-recession or that you feel it is getting slightly tougher.

Well, Jim, if I didn't have to read "The Wall Street Journal" everyday. In all-- my only data point was our book of business,you know? It's-- When you're up even mid-singles, that's not a recession, you know? Show --

And doesn't even feel like a near-recession.

Not in our book of business. But if you read "The Wall Street Journal" you can get pretty depressed.

Okay. Finally, Sean, what is the next pending state regulation for digital that you are looking forward to or maybe that you are worried about?

On the state -- state by state front it is -- always, news is good. We got a favorable ruling out of the federal highway administration which is going to in the near-term, lead to relief in Texas and in the mid-term, lead to relief in New York and those are two incredibly important states so on the regulatory front we feel good.

Can you sort of quantify how important Texas and New York are to you?

Well, to -- to broadly quantify it, if it goes the way we think it goes, then we'll exceed this year's deployment in digital.

Okay. Thank you.

Thank you. Our next question will come from John Klim, Credit Suisse.

Good morning, gentlemen. Do you have any idea which medium-- Hello? Hello? Do you have any idea which medium you might be taking share from in the retail categories specifically? And then in the past, I think you've discussed selling your digital networks in shorter ad cycles and as digital becomes a larger component of your total revenues, could that add volatility to your total revenue performance? Thanks.

Hello? Excuse me, ladies and gentlemen, this is the operator. It looks like we are experiencing some technical difficulties. (OPERATOR INSTRUCTIONS) Thank you.

Ladies and gentlemen, once again, thank you for continuing to hold, we are still waiting on the speakers to reconnect. We'll be right back with you. Ladies and gentlemen, we now have our speakers reconnected in conference. Speakers, would you like Mr. Klim to repeat the last question.

Please. Please.

Mr. Klim, would you mind repeating your last question, please?

No, no, no, not at all.

Thank you.

In terms of the retail performance of your digital signs, do you have any idea which medium you may be taking share from there? And then, in the past, you've discussed selling digital networks in shorter ad form cycles. And as digital becomes a larger component of your overall revenue stream, do you think that that could add volatility to your revenues on a quarter-over-quarter basis? Thank you.

Well, yes. On the volatility question, I think there's no question but that as we get more comfortable selling short-- and more successful selling short--then you're going to have the corresponding volatility that that implies. You know, as to -- I think it's too early in the game to -- to be able to ascertain which medium that -- you know, the share shift is coming from. It is a nice data point to validate that we are getting some share shift. You know it would be anecdotal at this point. When I look at a couple of other categories, I think that you can point to share shift from newspaper. For example, we're getting a lot of real estate that looks like real estate classified traditionally would -- that would traditionally be in the newspaper. Advertising house price points and then pictures of happy brokers with sold signs over the house and that's good and that's coming, probably, right out of the paper. But on the retail side it is probably too early to call.

All right. Thanks.

Thank you. Our last question will comes from James Farrant, Morgan Stanley.

Hi, thanks for taking the question. Can you go over the cost of your digital boards, you've given-- Historically, you've given us what the larger formats and junior (inaudible) and the posters are-- from a CapEx perspective? And then, can you just update us on what the monthly run rate digital numbers are per board? And what are the numbers that you've sort of given on the previous calls?

We're going to have to fumble around on the -- on the cost per board. We're not sure what you mean cost per --

The CapEx.

Oh, total -- per unit or per --

Yes.

Well, each deployment has a different cost associated depending on how much work you have to do to the physical structure. So you've got that component. And then, you've got sometimes actually communication to the sign can be significant. But then, of course, the other component is the actual cost of the digital unit itself that you receive from the manufacturer. And we've got different sizes, different pitch, which means different resolution type signs and now we'r -- We have different type-engineered signs, so we're not really -- I don't think we can help you on the-- on this call to give you the cost per sign, but we can -- we can safely say that in -- in '08 we expect, because of the volume we will be the largest purchaser of LED signs in the world in '08 and we expect that the volume associated with these orders should result in a lower cost per unit across the different-sized signs that we deploy.

Maybe I'll just ask that one differently. I mean, you've mentioned on a recent conference that you thought that you would be able to get the cost of your digital posters from $140,000 to under $100,000 in '08. That was the goal. How do you-- How do you sort of look at-- Do you think you are performing towards that, do you think that that is the sort of -- And do you think that the billboard, the larger formats, can come down with that same type of directionality or do you think it is a smaller that's going to change?

Directionally we're feeling good about those goals, of driving the price down. We haven't concluded negotiations with our vendors. The smaller format posters in our initial conversations, the -- the price point is -- is a little more -- is dropping a little more than on the larger formats. You know, I can't -- I can't quantify it for you now because, again, we're -- we're in the throes of these discussions with our two largest vendors but directionally we're -- we're feeling very good about where they're taking us.

Okay, great. And then just that last one on the -- the run rate, digital revenues? Where we stand now in the latest month.

I think the latest -- the last month in the quarter was $6.7 million. That was October. $6.7 million in October.

Okay. Thanks.

Great.

Chantal, thank you for orchestrating a wonderful call, and we look forward to this conversation for our Q4 call. And I thank everybody for tuning in.

Speakers, thank you very much. This call has now concluded. Ladies and gentlemen, you may now disconnect at this time. Everyone have a great day.