Lamar Advertising Co (LAMR) 2008 Q1 法說會逐字稿

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 will open the floor for questions. (OPERATOR INSTRUCTIONS) In the course of this discussion Lamar may make forward-looking statements about the Company including statements about the future financial performance and condition. Operational plans, strategies and marketing opportunities. Lamar has identified important factors that could cause to those differ materially from those discussed in this call and the Company's reports on Form 10-K and 10-Q and the registration statements Lamar has filed with the SEC. Lamar refers you to those documents.

Lamar's first quarter earnings release which contains the information required by the Regulation G with respect to certain non-GAAP financial measures included therein was furnished to the SEC on Form 8-K this morning and it's available on Lamar's website at www.lamar.com.

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

Thank you. I want to welcome all of our shareholders and guests to our Q1 conference call. As it is our custom we'll lead off with some brief comments and then open up the call for Q&A. I'll go ahead and start first just by letting all our shareholders and friends know that Q2 guidance there really is no change from Q1. We are in a soft ad environment. Our bulletins are slightly down. Posters are slightly up and our digital platform continues to perform according to plan. All this nets out to fairly flat to slightly up sales guidance for Q2. And it remains to be seen what happens with our bulletin board portfolio in the back half of the year. We continue to struggle in the real estate category and in particular in those markets that have been negatively impacted by real estate in their local economies. With that I'd like to turn the call over to Keith Istre who will walk us through the numbers.

Good morning everybody. Just real quickly highlight a couple of things. As you saw, we have posted pro forma revenue growth of 2.3% for the quarter. We guided to 2. Kevin mentioned our guidance for the second quarter is basically flat to up 1. In addition to a couple of the comments that Kevin made, I'd like for everybody to just remember that in the second quarter of last year our pro forma revenue growth was 9% for the quarter. So we do have a bit of a tougher comp than the first quarter of last year which pro forma revenue growth was up 7%. So we did a 2 on 7 quarter-over-quarter last year and we're guiding basically to flat to up 1 on a 9% quarter in Q2.

On the expense side, Q1 as we told you on the last call we really didn't see anything extraordinary happening so our expense, our pro forma expense was up 4 and some change, and it looks like that probably should carry over into the second quarter. We don't see any unusual items on the horizon as of right now though we don't think there will be much change in the expense growth for the second quarter.

On the CapEx, you notice in the press release we had a broken down by category but the total was $50 for if quarter. $25 million that have was digital on the last call we told you that our guidance for CapEx in '08 in total would be $200 million. 100 of which would go to digital and the rest would go to traditional CapEx billboards, logo, trends, and operating equipment and so forth. So as of the end of the first quarter, we are on pace to get those numbers. Last just to touch on the debt leverage, we did buy back $50 million worth of stock in the first quarter. At the end of the quarter without our converts our total leverage is 4.5 to 1, with the converts is 5 to 1 and as I think most of you know we borrow at the without converts level so with -- borrowing capacity purposes our covenants that we borrow against we were at 4.5 to 1. The other thing I mentioned in the press release is that our guidance did not include revenues from the Vista acquisition which will be about $3 million a month when we close. Right now our attorneys are telling us that we will close that acquisition on or about May the 15th. So that will be in next quarter's guidance. Sean?

Thanks Keith. I'll quickly hit some of the operating statistics that we give out every quarter. First on digital and numbers of units. We ended the quarter with 719 units in the air, 394 were bulletin 325 were posters and we had coverage in 121 markets. We traditionally do a call over call number and as of of yesterday we had 774 units in the air, 419 were bulletins, 355 were posters and we are in 122 markets with our digital footprint as of today.

In April our digital book of business was $7.5 million and as Kevin mentioned we are very pleased with the way digital is holding up in a tough ad environment. Virtually everywhere is performing to plan. There's one exception there which will be Las Vegas. I'll touch a little bit in a minute on what's going on in Vegas but suffice it to say it's a very difficult environment in Las Vegas today.

We are also getting more and more national interest in our footprint. In 2007 our national business was $6 million in digital spend. We've already booked year to date $10.25 million. So again we are building something that is becoming more and more interesting to national advertisers. Rate and occupancy statistics on posters our Q1 occupancy was 60% and that compares to 60% in Q1 '07. Again consistent with that theme that posters are hanging in there while our bulletins are struggling. On the occupancy side for bulletins, Q1 '08, 74%. Q1 '07, 76% so we are 2% down in occupancy quarter-over-quarter. On rate, on posters Q1 '08 average rate for posters $435. That's 2% over the $426 average rate for posters in Q1 '07 and on bulletins Q1 '08, $1170 that is 3% over our Q1 '07 rate of $1140, so we are, as is typical when times get tough we are doing well on rate and struggling on occupancy in the bulletin category.

Local, national business our national business continues to perform well. In Q1 '08, we were up 8% on our national book of business. And it has resulted in regional and national business kicking up 1% in terms of our total book of business. Q1 '08 we were 79% local and 21% national region. In terms of acquisitions, year-to-date we have completed 22 acquisitions for an aggregate cash purchase price of $68 million. Top 10 advertisers really no change. McDonald's number one, Cracker Barrel number two, Chevy number three, Holiday Inn number four. Those were all the same top spenders with us in the same quarter last year. Interestingly McDonald's has come in with a real nice national buy in the second and third quarters. Very very strong in excess of $6 million and we typically get McDonald's from our local franchisee but this was a buy out in national and we are really happy about it.

Top categories of business, again not a lot of change here. Restaurants 10% retailers 10%, anecdotally that kicked up 1% Q1 '08 over Q1 '07 and digital is responsible in large part for that. Automotive at 8%. Real estate at 7, hospitals at 7 and so on. Not a lot of shifting in categories of business.

In terms of strengths and weaknesses in categories as I've mentioned local retail has picked up and that's digital but we are also seeing strong demand particularly regionally and nationally from the wireless carrier and the weakness, and this one comes as a surprise is in the automotive and real estate category. Regionally we've got what I would describe as continued weakness in the western region primarily Las Vegas. I don't know that our word is applicable in Vegas any more. We may have to go to the D word there. Things are pretty tough in Las Vegas, but we continue to believe in our digital product there. I would note that both Clear Channel and Lamar are continuing to add digital capacity. Both companies have confidence in the product. In the face of continued weakness, we continue to build out our digital networks there and we have confidence in them in the long term.

We have some regions that are doing pretty well. In the mid-Atlantic states, North Caroline, Virginia, South Carolina and in the Pacific Northwest those economies seem to be hanging in there pretty good and actually performing to budget. And everywhere else it's sort of slogging it through. With that, Kevin?

Thank you Sean. We'd like to go ahead and open up the call for any questions.

Okay. (OPERATOR INSTRUCTIONS) Our first question will come from Chris Ensley with Bear Stearns.

Of that 2.3% same store growth in the first quarter how much did digital contribute to that? I think you were saying your guidance at the end of last quarter you expected analog to be down about 1%. Is that about how it shook out?

Yes. That's about it. 3-ish on digital down 1-ish on static.

Which is what we said when we gave the guidance of up 3 down 1.

Then as you look at the second quarter, digital contributing about the same to your second quarter growth?

Yes. I mean you are going to be up 3-ish digital and down 2-ish on Static and that will get you to where we guided.

One quick update on the regulatory front in Texas. Is everything still on go for mid-year conversion and then any updates in New York?

Yes. Texas looks good. We'll be submitting a slew of digital permits June 1, and New York we continue to get good vibes but we don't have anything solid to report other than we feel that we are going to get a good ruling here sometime in the back half of the year.

Great. Thank you.

Our next question comes from the Marci Ryvicker with Wachovia Securities.

Due to the tough comps you had in 2Q would you consider the second quarter to be the trough quarter for the year? Is there any anecdotal evidence you can give us regarding the rest of the year in terms of piecings? That's the first question.

We generally don't go out past the quarter that we give guidance, but I guess to give you some feel for the tone of business, we don't see anything out there that gives us a lot of encouragement on the second half of the year. But that's always subject to change. And remember the category that is not doing well for us is our bulletin category and is one of those categories that is slow to change. It's slow to decelerate and it's slow to accelerate.

Have the length of some of those contracts come in a little bit?

There hasn't been a big change although we do anecdotally find from the field that discussions revolve around shorter term contracts versus longer term contracts because of our customers lack of confidence.

One then one last question on Vista. I think you said revenue the run rate would be $3 million. Did you provide an expense run rate?

No. We didn't. When we announced the transaction, we guided to free cash flow or EBITDA of roughly 8. So you can try to back into it.

Okay.

That transaction by the way is we are still pending justice approval. We do think it will close somewhere in this quarter.

Thank you so much.

Our next question comes from Mark Wienkes with Goldman Sachs.

Following up on the second half of the year I guess. Could you talk to the business on the books for 2Q and then if you are ahead or behind or is there any noticeable change in the bookings for the second half of the year?

Well, I think the Q2 bookings since we are so close to the end of it are pretty much embedded in our guidance.

Like 90% or so?

I don't have that number right in front of me. We don't typically give out pacings that way.

Okay.

In general, it would be nice to give a little wind in the back half, but we are still looking forward. It's flattish.

On Las Vegas specifically if you had to allocate the weakness, and the local economy is tough there, if you had to say is it 80% the local economy and then within that it's more of the real estate category et cetera versus the digital push between you and Clear Channel? Is it too many boards too quickly or is it just really the economy?

Well, it's first and foremost it's the local economy. The whole book has sagged in a way that billboard verterans would describe as dramatic. Usually for us when things go south you're talking about going flat to down 1 or 2. That is not the experience right now in Las Vegas with our book of business there. So the aggregate book is down more dramatically than we are used to seeing.

On digital specific, trying to build out a new product in the face of those kind of headwinds it can be difficult sometimes to tell whether or not it's the headwinds or the product that is causing you to under perform. We build more aggregate dollars in Vegas on our digital product, Q1 '08 than we did in Q1 '07, but we had twice as many units up. When I talk to my local team there, they basically tell me, look, some of what we did, we moved customers from our own digitals to an aggregate platform that was bigger and so the same board performance was down more than it may have otherwise been and down more than the aggregate book of business.

That being said, when I asked them the question, okay, do you guys want to continue to deploy digital in Las Vegas, the answer comes back yes. And anecdotally we know that Clear Channel is adding capacity. Just this month they are adding four more units. So I don't think we are -- I think we are cognizant and we are exercising good business judgment, and at the end of the day Vegas will come back.

I would also -- I would add that the interesting thing to note is that both companies are moving forward in a difficulty environment. I guess the other thing to note is that we didn't get an opportunity to learn the lesson that we were hoping we would learn and that's basically what happens to competitive dynamics when you've got two robust networks in a market, and I don't think it's that clear to us right now because of the economy. The bottom of the economy dropped out on us while we were in the middle of this. So it's not crystal clear but we are learning some good things about how two good companies with two good platforms compete in the marketplace.

Makes sense. Just one follow-up for Keith. The stock-based comp was a lot lower year over year. What is a good run rate for '08?

Oh, gosh it's all performance based and obviously we are not exactly sure, but it will certainly be less than last year. We didn't get -- we had our comp committee approve performance grid in late March. So our regional managers were not in that calculation. The only three officers were Kevin, Sean and I. So that will increase over the next three quarters.

Sequentially?

Yes.

Okay. Year-over-year it will be down?

Again it's based--?

Depends on EBITDA.

It is going to be down. If you look at last years versus this year and it's all incentive based so it doesn't look like it's -- we hope it will be the same but it looks like it is going to be down.

Same here. Thank you.

Our next question comes from Jason Helfstein with Oppenheimer.

Hi. Thanks. Kevin, we are glad to see you made it back to civilization, some interesting stories on that episode. So just one question on digital kind of multipart question. So clearly you are still seeing strong demand what it sounds like is that digital will actually sequentially pick up n the second quarter. Can you talk about how much of that is pricing versus new board? And then just overall are you worried at all that as occupancy for bulletins kind of continues to decline because of waiting demand, is there any risk that that hits digital? And just kind of any feedback that you've gotten from the field would be great. Thanks.

Basically the feedback we are getting from the field is that they want more. Their customers like digital. They are getting better and better at selling it. They are more and more comfortable selling short. Which personally, because I usually have my optimistic glasses on, I think that is going to bode well for our back half because it's a shorter cycle sale. That remains to be seen, but all indications on the digital rollout is that it's going extremely well. Our local general managers and their customers are asking for more, and I really don't -- I don't see that changing.

On the bulletin occupancy side, it's basically at the end of the day our C&D locations and in good times when customers roll off those locations we are able to replace them. In tougher times it takes longer. And as Kevin mentioned, a lot of our conversations with customers for that type of bulletin inventory revolving around I'll commit for two months or three months but I don't want to go 12 and that seems to be the the tenor of what is going on out there in local economy.

Are you getting -- can you talk about what kind of pricing gains now that you've had some of the billboard versus a year ago, or sequentially what type of pricing gains you are getting on digital?

If you strip out Vegas because it SKUs the same board numbers that I mentioned, if you strip out Vegas then what you see is performance in the digital book on a same board basis is slightly better than our aggregate book. Right now interestingly enough posters are doing better on a same board basis than bulletin. That is probably because they are network and we are adding to the robustness of our local network. But, you should see good sequential month over month gain in our digital book of business.

Okay. And lastly, any update on kind of the year end target for the number of displays?

I think we are in the same place we got to in the first quarter. Better than last year's pace. Something in maybe the mid 400.

Thank you very much.

Our next question comes from James Farrant with Morgan Stanley.

Thanks guys. To go back to Vegas can you talk about what percentage of your book of business is now digital in that market? And can you tell us about any other markets where you've got a competing digital network from another provider and how you are performing in those markets? Just to give us a sense of how much of this is just Vegas versus where you are getting on the digital penetration curve in the market?

Sure. On the other markets where we face competitive network, the one that is probably most important to look at from an analogous point of view would be Milwaukee and both Clear Channel and Lamar have a pretty decent network there. I did a bring down call with all our management yesterday and the story in Milwaukee is that things are going very well, both companies are doing well with their digital plan and we are happy. You have some markets that we operate in with digital where they are sort of bits and pieces of competition but not what I would describe as networks or sophisticated competitors. An example of that would be Atlanta, we are the strongest digital provider in Atlanta today, but you have a smattering of independents and a couple of units that belong to some other folks and again our digital in Atlanta is performing to plan. We are going to keep our eye on that and make sure that this product performs the way it is supposed to perform in a variety of competitive environment.

You mentioned before that you thought that as you got up to around 20% of your book of business in any given market is digital that might be where you start to see more of a cannibalization take hold. Are you above that in Vegas now?

No. Vegas is about 12 to 14%.

Okay.

And again I'm sure that isn't a huge surprise to people that follow other companies that do business in Vegas but I'm told that what the Vegas economy is going through is quite traumatic from a lot of different angles so we are caught up in that.

So your sense is that 20% or how you were originally thinking about when you might start to see some cannibalization, that isn't necessarily changed. This is just more that you are in a market with a lot of digital units and a lot more incremental inventory where the market has just slowed down so dramatically that all of your inventory is being impacted?

Yes.

Just one more question. In the last call you talked about that it would be a good year if you are able to do 400 to 500 boards in a rollout. That was pre getting Texas Regulatory approval. Do you still think that range makes sense?

When we posted that, it was pre Texas but we kind of knew Texas was coming and the difference in Texas is upper mid 400. You still have some capacity constraints with our vendors. We are out, what, 90 days now with our vendors. You still have that side of the equation.

Okay. Thanks a lot.

Our next question comes from Kit Spring with Stifel Nicolaus.

Have you guys looked into any research on whether people are changing their driving habits as a result of rising gas prices? And then could you talk a little bit about utilities, what percentage of your expense that is and what kind of trends you are seeing there? Thanks.

I'll do gas and you do utilities. There were some studies out on the last gas price spike. I don't think there's anything out there now. And it was kind of inconclusive. Just that people would -- they kept spending for the gas because they had to get around. They would cut back on the, not on unnecessary trips in town but cut back down on the long driving vacations, and, but basically they would suck up the increase in gas prices and it would come out of other parts of the household budget. That was the last study I saw, it was quite a while ago. But I don't think -- I think the trends in the near term are going to continue. I think traffic will continue to be up and time spent with our medium will be up.

To follow-up on that a little bit, I'm not too concerned about people changing their habits. I am a little more concerned about how the current environment affects our customers and what we saw in 2001 was a little bit of a pull back on the hotel/motel side. We got to look at that and monitor our hotel/motel customers because they might be more affected in terms of how much people spend in need time. But that is not showing up yet. On the utility side, it's 2 to 3% of our expense base, and so far as we look out we are not seeing -- we are not seeing anything dramatic on that front.

Can you just talk about the multiples you paid on those recent acquisitions you did this year?

Well, you can sort of back into the Vista multiple.

You mentioned that on the other one.

That we feel pretty comfortable we will generate $8 million in EBITDA. The purchase price was $100 million nominally, but we are going to have tax shield benefit with a net present value of $40 million. So you might just sort of say we paid $60 for that. And the other ones are the typical cookie cutter Lamar cash for asset deals. Our stated goal is to bring them in at around ten forward in terms of EBITDA contribution and these should typically perform like they are supposed to.

Thank you.

Our next question comes from Anthony DiClemente with Lehman Brothers.

I have to apologize if you've answered either of these questions. The first one is it seems as though if you compare your markets, you are in smaller mid size markets relative to your peers, which is CBS or Clear Channel, and at least on the top line pro forma you appear to be under performing your peers a little bit in the last couple of quarters. I'm just wondering in prior recessions, does that turn around, meaning is it more high beta on the upside when the economy starts to turn will the small and mid size markets at some point start to out perform the larger markets? How has that worked in prior recessions? And then two, you talked a lot about your national advertising strength and to me it seems a lot of it is driven by digital which is Forte is national and I'm just wondering if you remove the impact or the benefit of digital to your national book, how would you compare local versus national for the rest of the your business? Thank you.

Well, let me do the prior recession and then Sean you do the digital local versus national. Prior recessions it has been the opposite. The bigger markets slowed down faster and more dramatically for two reasons. One, is there was a lot of excess -- there was more competition in the bigger markets and there was a lot of additional other out of home capacity and the national book tended to be more volatile. And the competition to fill up that unused capacity was pretty fierce. So in prior recession we tended to outperform because we had less competition in general and less out of home competition in particular across our platform. And we relied on thousands and thousands of small customers versus a handful of large national customers. So this is sort of a first for us where our national businesses is holding up quite well. It's a first for us where our bulletin business is softer than our poster business. So this one is just a little bit different.

And is it just -- I mean, as you look at it and from your seat is the difference here and the reason that is it a first is it the nature of the recession? Is it the real estate or kind of the local if you want to say grassroots nature of the recession? Why is it so different this time around?

Well, my read would be that you put your finger on it's. This does seem to have a feel that is different from the last recession. I think this one is hitting Main Street harder than it's hitting Madison Avenue. That is what is going on in our book of business. You might want to take a closer look at the other guy's numbers. I think at the end of the day CBS was up 2 on their national domestic book. So not national, I mean their aggregate domestic North American billboard business was up about 3. It's not a huge difference in the Q1 performance on the platform. So I wouldn't read too much into that.

As the year progresses, the three companies are all going to gravitate towards the mean unless the -- their sources of revenue are different. If you have more transit than you have bulletins and those kinds of things. But by the end of the year, all three companies I would expect will, U.S. Domestic will perform about the same. And again if you look at our national book it would have outperformed our local book with or without digital.

Okay. Thank you for taking my questions.

Our next question comes from Jim Boyle with C.L. King.

Good morning. What's the advertising client cancelation trend like in the first half of '08 versus last year's first half or historical averages?

Well, we've been -- historically we've been pretty immune to outright cancellations. It's been one of the strengths of the business model. And last year I don't believe we had any of any magnitude. This year we are nervous in the two categories that we previously mentioned, automotive. We are getting rumblings out of GM and then locally again, real estate developers are hurting. So on the national side we are nervous about GM. On the local side we are nervous about real estate developers. But typically outright cancellations have not been material to our performance either in, obviously not in good times, but even going through bad times.

Well, being nervous going forward, how about Q1 then since that is now behind you?

I don't think we had any.

We don't really measure cancellations. You mean -- we don't measure that.

I don't think we had any, Jim. But again we don't track it.

We look at bad debts and we look at pacings but we don't really look at cancellations.

Was bad debt up in Q1?

Not significantly. We expect it to be up slightly for the year, but I don't think it is going to be material.

Moving over to that delightful category real estate, you mentioned it's now 7% of your revenue which is kind of back to the 2005 level. I want to say about 9 months ago you might have said real estate was roughly about $8 million in revenue a month. Where is it now?

Right now it's running a little north of $6 million and -- $6 million and that's what makes the comps in Q2 tough. In April May and June of last year revenue was $9 million a now and now it's fallen down to a run rate of 6.2 million, $6.3 million a month.

Which as Jim mentioned, is probably right around where it was in '06.

It's exactly where it was in '06.

'06 Jim.

It was '06, it was running $6 million a month and it boomed up to $9 million in the second quarter of last year.

I was thinking percentage which your 10-K would suggest 2005 so in either case essentially you've come down off the spike and you are now back to more normalized 2006, 2005 levels?

That's a good way to look at it.

Thank you.

Our next question comes from Brian Shipman with Jefferies.

Thanks. Good morning. Obviously there aren't an endless supply of prime locations suitable for a conversion to digital billboards. At what point do you think conversion start targeting the less prime locations to the A minus B plus spots, and would you expect those less prime spots to be a significantly tougher sell to advertisers? And related just, based on your experience here in the last 12 months of the boards yo'veu converted most recently, say in the last three to six months how are they performing versus those boards you converted a year ago? Thanks.

I'll let Sean do the last part of the question. The first part of the question is against 170,000 face face. I hope we can find 4,000 or 5,000 good units.

A plus type spots?

Correct. That is not an issue.

Great.

Sean, do you want to do the--?

Yes. They are performing well. We've been doing this for a while now. We have got the model down. The units we are putting up this year are doing what they are supposed to do. The most powerful deployments we are seeing are those where we can effectively add to our distribution on a poster network. Oftentimes we can add a couple of units and it lists the value of the units that are already in the ground because you are able to offer advertisers more effective reach, frequency and circulation. So that's been the most exciting part about what we are doing with our digital deployment this year. And to that end we've asked people to start modeling more poster deployments relative to our overall deployment going forward. I think in three or four years it is going to be roughly 50/ 50, 50% bulletins, 50% posters.

Okay. Thanks for the color.

Our next question comes from Lloyd Walmsley with Thomas Weisel Partners.

I was just wondering with the bulletin category leading way down and typically moving slower than posters, do you think coming out of this you are likely to see a less aggressive pop than you have in past coming out of recessions?

I think we might be divided up here. Or I'll start first. I think so. I think it's our bulletin business we are going to be slow coming out of this thing. But the good news is we are continuing to add this digital capacity, which should accelerate things on the way out.

Well, the only thing I'd add is occupancy comes back faster than price and if you look at our average rate per panel in the bulletin category, we are still up. We are holding the line on rate, and so when customers come back to those units and you sell them and you don't have to reeducate your old customers on the value of the space, that's when you get your acceleration.

Okay. Great. Thanks. Can you give us any update on digital board pricing?

It's really no change there. Same story. We've gotten to our goal of a poster unit that is right around or slightly below 100,000. On the bulletin side really no change.

Okay. Thank you.

Our next question comes from Chris Li with Merrill Lynch.

I think last quarter you were kind enough to give us some of the digital revenue multiple for posters and bulletins. Can you remind us what those multiples are that you are seeing currently?

You are probably referring to the sort of average rate per slot that we are getting, the different sizes. Sure. It's basically the same. 6,000 for posters, 12,000 for junior bulletins, and 18,000 for bulletins.

Okay. And just shifting over to CapEx. So do you think there's a risk that your 200 million of CapEx for this year you might exceed that? I say that because you spent 50 this year so far this quarter and assuming you continue to ramp-up your digital install rate in theory that CapEx should ramp-up for the remainder of the year. Do you think there's a risk that that might be higher than 200 million?

I don't think so. For our CapEx that goes into new builds on the Static side, our management usually tries to get those things in the air in the first half of the year. So there's usually a little bit of a front load on that side. Our digital deployment seems to be going almost ratably through the year. I feel pretty good that we'll come in where we said we would

Last question on the depreciation. Is this quarter, is it a good run rate to use for the rest--?

You are going to see depreciation ramp-up as we throw out more of these digital units. These things appreciate at a much faster rate than Static unit.

Can you remind us the difference in the rates?

Digital is over five years Static is over 15.

Great. Thank you.

Our final question comes from Bishop Cheen with Wachovia.

Thank you for taking the question. Just one -- back to Vista and I certainly understand the two exercises of net of the NOLs cost you 60, but in terms of the balance sheet if you add 100 to the balance sheet, do you anticipate let's say this does close in Q2, any one-time charges that you will also have to pass through the income statement in connection with integrating Vista, or taking control of Vista?

No. Bishop, that would not be the case. It's a cash for stock acquisition, and it's fairly straightforward.

Okay. And then in the modeling when we use that guidance and you said it before, you are thinking in terms of the first year of operation maybe getting the EBITDA out of that kind of $3 million run rate month. If -- you had mentioned EBITDA or free cash flow almost the same thing for this. But that's after the first year of operation?

In 12 months you'll do $8 million.

Yes.

That's helpful. Thank you.

Kevin, at this time we'll turn the call back over to you for closing comments.

Well, that concludes our call and I want to thank all of our shareholders and friends for tuning in and we look forward to the next quarter call. Thank you very much