Lamar Advertising Co (LAMR) 2010 Q4 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 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 SEC from time to time. Lamar refers you to those documents. Lamar's fourth quarter and year end 2010 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 this conference over to Kevin Reilly. Mr. Reilly, you may begin.

Thank you Chantelle, I'd like to welcome our shareholders and friends to our quarterly conference call. Begin on a few comments regarding 2011. We feel very good about 2011. Our bookings for the year are substantially ahead of our bookings the same period last year and Keith a little bit later on, will shed some color on that. That in addition to my hope that our digital deployment this year will be effective and as we layer in that digital revenue, we should be experiencing a very good year in 2011. We have an announcement regarding Sean Reilly agreeing to take the title of Chief Executive Officer. Many of you know that the Chief Operating Officer of the outdoor division, he's held that job for 10 years and it's pretty much the center of the Lamar universe because outdoor division is 85% of what we do. On the administrative side, Sean will pick up logos and Keith Istre, shop. I will continue to be involved in business development, capital allocations and legal will be reporting to me. It's been a great partnership over the last 10 or 14 years, and my hope is that it will be a great partnership going forward. With that, I'd like to turn the call over to Keith Istre.

Good morning, everybody. Just a couple of quick comments on the quarter and the year, as we've closed them out. For Q4, just a reminder, we had guided that revenue would be up approximately 4%. It came in a little bit better than that at 4.4%. We told the market to expect about a 2% increase in our consolidated expenses. For the quarter it came in at 2.2%. And as you saw on the press release, our EBITDA was up 7.6%. On a consolidated basis, our margins were 42% for the quarter, versus 40.6% last year. So we picked up about a point and-a-half in margin.

To switch over to the full year, our pro forma revenue growth for 2010 was 3.1%. When we had this same call last year, we advised the market that we thought we would be up somewhere in the low single digits, probably about 2%, 2% to 3%. Last year at this time, just to give everybody some color, our bookings were down negative 3% over the full year 2009, so the Company continued throughout the year to make strides to turn that negative into a -- negative 3% into a positive 3% by the end of the year. On the expense side, we guided to up approximately 2% for the full year in 2010. Some people were skeptical because '09 had been such a significant year of bringing expenses down and we're pleased to say that for the full year, our consolidated expenses were only up 1.3%. For the year, our margins were 42.5% versus 41.5% last year, so we picked up an extra point for the full year as well. And that's it. With that I'll turn it over to Sean.

Thanks, Keith. Before I get into the traditional operational details that I usually talk about on these calls, let me thank the Board and Kevin for their confidence. I look forward to continue working with Kevin and quite frankly our whole team to build value for our shareholders and employees. As Kevin mentioned, as a practical matter, it means three direct reports. Keith and the CFO function, that means I'm going to be playing a larger role in Investor Relations and talking to you folks a little more. And in addition, our logo division which is headquartered in Atlanta and run by Floyd Williams will report to me. And Hal Kilshaw, Head of Government Relations and also more involved in industry trade association matters, I'll be more engaged in OAAA affairs. So as a practical matter, that's what it means, and again, I appreciate the confidence of the Board and Kevin, our whole team and everyone on this call.

As Kevin mentioned, our forward bookings for the year confirm a very strong rebound in US ad spend. We don't issue formal annual guidance but it does feel to us like an up 6% to 6.5% year on the top. And certainly that reflects a strong rebound in ad spend and reflects sort of the consensus view of what should be happening in 2011. Regarding expenses, as Keith mentioned, our folks in the field did a heroic job the past two and-a-half years. For 2011, you can expect expense growth to revert back to the normalized 3% to 5% range. As you recall, last year we reinstated raises and benefits during the course of the year and because of the way that played out during the calendar year, expenses in Q1 will be in the 4.5% range and what you'll see through the year is a tapering down to the 3% range by Q4. So for modeling purposes, 4% seems a solid place to start for the model.

Let me go through some of the traditional detail. I'll start with our count on digital units. As of today, we have 623 bulletins up and 585 posters up for a total of 1,208 units. As you remember on the last call, we issued a sort of stated goal of 300 units. Since the last call. And spending about $50 million in CapEx on that and we're off to a pretty good start and on track to hit that goal. Occupancy and rate, posters Q4 2010, 66% occupancy, versus Q4 '09, 63%. Bulletins, Q4 of 2010, 74%, versus Q4 '09, 72%. On rate, Q4 2010 average rate per poster, $427, versus Q4 '09, average rate per poster, $417. That's an increase of 2.4%. On bulletins, Q4 2010, $1,117, average rate per panel, versus Q4 '09, $1,096, that's a 1.9% increase. Rate turned the corner in the back half of last year and we expect good things this year. On the national versus local sales mix, we ended the year 2010 with 78% of our sales being local and 22% national and in Q4 national came in at 10% growth, local at 3% growth. Given that local started out in negative territory at the beginning of the year and strengthened as the year went on, we're happy with that trend and that trend is continuing into the first quarter of this year.

Not a lot of news on the top 10 advertisers for the year. 2010 looks pretty much the same as 2009. And again, similarly, the verticals and the categories of business, much the same for the year 2010, 2009. Really the only category worth talking about is auto. Auto showed real strength in the first -- fourth quarter, up 18%. It's showing similar strength as we move through the first quarter and you know the difference I think this year between a good, solid year and a great year is going to be how auto performs as we proceed through 2011. All indications from the field is that auto's going to be very, very strong for Lamar in 2011. Kevin?

Chantelle, with that, we'd like to go ahead and open up the call for any questions.

Thank you very much. Ladies and gentlemen, at this time we would like to open the floor for questions. (Operator Instructions) Our first question will come from Marci Ryvicker, Wells Fargo.

Congratulations. When you talk about the 6% to 6.5% potential revenue growth for 2011, is that assuming you recapture all of the occupancy you lost during the recession? And I guess I could ask the same about rate. Do you think you recapture all of the rate that you lost from the recession in 2011?

I think, Marci, that we're kind of in the six to seventh inning of this cyclical recovery, so I don't know that we get it all back this year. I think 2012 is the year where we have the kind of numbers that we had in 2007. But, you know, it puts us well on our way.

Okay. And then I have just a follow-up on Q4. I thought in the last call you were hoping or local was trending up 4% in the fourth quarter and it sounds like at 3% it came in a little bit weaker, so did anything happen in the quarter and can you talk about how local specifically is pacing in the first quarter?

It's -- the indications are now that national's going to be up about 5% in the first. So if you extrapolate from our guidance you know, the percentage of local in our books, then the momentum in local is continuing. We were trying to extrapolate where local was in that fourth quarter and actually national came in slightly stronger than we had thought and local came in a little weaker. But nonetheless the momentum in the local book is building for sure.

Thank you.

Thank you. Our next question will come from Alexia Quadrani, JPMorgan.

Thank you. A couple questions. First, you gave some nice color on the auto vertical. Could you give us some other details on how some other important verticals performed in the quarter? And then second question, I apologize if I missed it, but did you give us the digital growth in the quarter as well?

Let me start with the digital. Did you want the number of units or how they're doing billing-wise in -- ?

No, in terms of the growth in the digital boards in the quarter, not the number of units, but how they're doing.

Oh, how they're doing. I don't think I have the fourth quarter in front of me but let me give you the pacings this year because it's a good story. Right now, if the you take our booked business for the year, digital posters are pacing 17% ahead of last year, same time, and digital bulletins are pacing 15% ahead and in Q4, if you take all of digital, our Q4 book was up 15% digital year-over-year. So you know, that nice mid-single digit increase for digital is continuing and it gives us a lot of confidence in our game plan to roll out 300 more units. The other question was on verticals?

Yes, outside of auto, if you could give us some more color on how the other major verticals were trending.

You know, restaurants are up marginally. The retail is up actually substantially in terms of pacings. For the fourth quarter retail was up 6%. For the full year last year retail was up about 2%, so that's showing good strength. Healthcare was up 12% -- actually, 12.5%, Q4. So healthcare continues to be real strong for us. You know, in terms of sort of the vertical that is not showing signs of life yet, you would have to mention real estate. It just continues to be very weak out there and you know I don't think that's going to surprise anybody, given what's going on with a -- with home sales. So on the plus side, we've got a number of them that are showing good, positive growth and then we've got real estate that just hasn't recovered yet.

And then last question, just by region, any improvement you've seen in sort of the Florida area from the third quarter?

Yes, as a matter of fact, that's been kind of a pleasant surprise and slightly -- slightly unexpected. You know, the two regions that were hit the worst by this downturn were Southern California, Nevada area and Florida. And Florida is now pacing positively and we're still struggling out in the Western region, but it feels a lot better in Florida and Georgia than it did this time last year.

Thank you very much.

Thank you. Our next question will come from Paul Sweeny, Bloomberg Research.

Good morning. You know, obviously outdoor's primarily a local business but we've seen just some extraordinary growth over the last several quarters in the national advertising environment, principally network television and national spots. So, just wondering, I know historically you guys have talked about trying to you know get outdoor I guess more involved in the national side of the business, perhaps getting more earlier, becoming involved more earlier in the planning process, and trying to tap into that. So, just wondering could you give us some thoughts as you see you know continued strength in national advertising, any ability of your Company, your industry, to try to tap into that a little bit more and does the digital business help you do that? Thanks.

Certainly the growth in our national book is larger in the digital side than it is on the other side of our business. To answer the last part of the question. And we continue to see that. I mean, we are clearly building a platform that has -- is appealing to national advertisers. You know, the industry has spent a lot of time and money developing eyes on measurement and the whole goal of that is to get us involved earlier in the planning cycle. And we continue to work that. For Lamar, I want to continue to see our book of business that's deemed national versus local grow as a percentage of our -- of our business. As I mentioned, it -- it ticked up to a high point last year of 22% of our book. If you go back to '09, it was 20% of our book, '08 19%, '07 18%, '06 17%. So it's clearly becoming a bigger part of what we do. We want to continue that. And all that being said, you're going to see in the first quarter national in our book growing slightly faster than local, but local's catching up.

Great. Thanks very much.

Thank you. Our next question will come from Barton Crockett, Lazard Capital Markets.

Okay. Great. Thank you for taking the question. I was wondering if you could talk about why you're doing the CEO change now? I understand, Sean and Keith you guys have clearly been unusually close in running the Company for a number of years, so you know I doubt there's much that would change in terms of the strategic direction, but just if you could comment on why now and you know if there are any changes. Maybe I'm missing them, if you could talk to that as well.

Well, now is the right time. Sean's going to be 50 years old in June and we want to get him in the saddle before he expires on us. Again, for 10 years -- well, one reason -- let me go back. The COO's job is the center of the Lamar universe because 85% of our business, 95% of our business is outdoor. And he's got all the tools in the tool kit. It's time for him to represent the industry before the investors and at the OAAA who are inside our industry as well. And the other thing really that's caused the Board to move now is because the remarkable job that he did during the downturn. We -- I feel like this company performed remarkably and we didn't take our hands off the wheel, as we went into this free-fall, and it was a real shock to us. It was something that we've never experienced before and we managed through it and we are managing out of it and we see some very encouraging things on the horizon. So now -- now is the time. Also, we've had a great partnership over the years and he's -- he's deeply committed to this enterprise and I'm looking forward to having him leave all those other Reilly CEOs in the dust.

Okay. And then if I could follow up with a question about the numbers. Keith, when you spoke about how you entered this year with bookings down 3%, I don't know that you gave the comparable number for this year or if you did, maybe if you could repeat it because I think I missed it. And then on the 4% kind of base case for expense growth, can you give us what the constituent pieces are of that, what's driving that growth?

Well, we didn't put out a number. Sean didn't mention a number as far as our bookings. All he said was it felt like a 6% to 6.5% up year. And, we prefer not to give a booking number at this point because just based on what we told you earlier, our -- our momentum throughout the year, we would hate for people to extrapolate based on what our bookings are and add a number to that and come to a false conclusion. But you know again, they're well ahead of last year and of course they're in obviously positive territory. As far as the 4%, you're talking about the expense growth, right?

Yes.

Well, there's several things internally, Sean mentioned benefits, raises, we gave out 3% raises last year in March. We reinstated the 401-K in July, on July 1. We reinstated our deferred comp program for officers with a certain amount of tenure in the back half of the year. We are budgeted to give the same folks that got raises last year another 3% in March of this year. Our IT, which we have a very powerful IT function here that helps us manage and track all of the aspects of this business continues to grow as we continue to rely more heavily on our information technology, not only for our core business, but for our digital. And, the biggest driver of our -- one of the biggest drivers of our expense reduction program in the past two years was our lease cost and that was due to the fact that our guys renegotiated leases, they took down unprofitable inventory and in 2010 as well as 2009 our lease expense was down approximately $10 million. In 2010, it was down $10 million or 5% over 2009, and in 2009 it was down again about another $10 million to $12 million. In 2011, because all of that activity has basically subsided and the economy seems to be recovering, we're projecting our lease expense to be up 2% for the year or approximately $4 million. So those are some of the drivers, along with basic inflation, increase in fuel prices and so on.

Okay.

As well as some additional expenses that we've layered in for the addition of new digital units that Sean talked about on the last call and that he mentioned as well that were not in last year's numbers.

Okay. That helps. Thanks a lot.

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

Good morning, gentlemen. Just a couple questions. I think you touched on it, Keith, but it sounds like the operating expense outlook does include digital for the year. I just want to confirm that. And then Sean, just the flip side of that, is your feeling about the growth, the top line growth for the year, that 6% to 6.5%, is that -- does that also include assumptions about the impact of your digital roll-out or would that be something incremental? And I have one follow-up.

The top end of the range would include a successful digital roll-out. Order of magnitude, if you layer in 300 units and they perform as expected and they fall ratably through the year, then you're talking about an incremental $12 million to $13 million on the top and an incremental $6.5 million to $7 million on the bottom. So that's sort of order of magnitude what happens as we layer in the digitals. Does that make sense?

Yes. Yes. And then Keith, that 3% to 5% outlook for the OpEx for the year, that includes the digital plans correct?

Yes. That's correct.

Okay. And then one question on categories. I think in the past you mentioned hotel, motel maybe being one of the categories you were looking for maybe some recovery and that you hadn't quite seen, wondering whether you were seeing anything there yet that was giving you a little more encouragement?

We're not seeing it evaporate. It ticked down in 2010, it went from 5% of our book to 4% of our book. And I suspect that there's a certain amount of substitution that's going on with hand-held devices and the ability to search in real-time whether you're going to a high end hotel or something on the lower end. But you know it seems to be hovering around 4% of our book.

Okay. Thanks very much.

Thank you. Our next question will come from Jason Bazinet, Citi.

Just had a question regarding what you're seeing in the marketplace on the digital build from your competitors. I mean, is your broad sense that they're being sort of fairly judicious and not putting too much supply out in the marketplace? Or are you seeing some sort of irrational behavior in selected markets?

You know, there's -- every market has a slightly different dynamic. So, we're fortunate in that for the most part most of our digital inventory is in places where we're the only player. There are isolated pockets where not just the majors but also independents are -- are putting up a lot of inventory. It seems to be being absorbed right now, given our -- the increase in our same board billing. Atlanta has a lot of inventory, but Jim Fisher tells me that his digital book is firm and firming. Vegas seems to have stabilized and is moving into positive territory on the digital side. It's still a struggle in Vegas for the overall platform there, but every market has a slightly different story. I think the most important number we're throwing out there is our same board billing is up mid-teens.

Makes sense. Okay. Thank you very much.

Thank you. Our next question will come from David Miller, Caris & Company.

Yes, hi, Sean, your audio faded out when you mentioned the total number of digital boards that have you in the air as of the end of the quarter. If you could repeat that, that would be great. And then also, also with regard to digital, you had mentioned sort of casually that you expect to maybe add 300 total boards as you know CapEx per board is now a lot less than it was four years ago. Any chance you could prognosticate on what that number might be for 2012 or is it just too early to do that? Thanks a lot.

Yes, it's certainly too early to talk about 2012. We've got to make sure we execute this year. The number I gave you was as of today, in terms of number of units in the air, that's 1,208.

Got you.

And you know just if you want to compare to the end of the year, it was 1,182. So we've managed to get a few units up in January and February, in spite of the weather.

Okay. Thank you.

Yes.

Thank you. Our final question will come from Bishop Cheen, Wells Fargo.

Hi, guys. Thanks for taking the questions. Congratulations to both of you, Kevin and Sean. So your uptown dilemma, you guys generate a whole lot of free cash flow, regardless of how 2011 comes out, it's safe to assume you're going to generate a nice chunk this year. Do you want to give us a little color on what your priority is on how you want to allocate that cash?

Yes, Jim. We want to pay down debt. We want to invest in our -- continue to invest in our digital platform. We do have some modest goals regarding acquiring the dirt underneath a portion of our inventory and on the M&A front, we -- we expect that to be very modest, not necessarily because we -- well, there's a [dirth] of good opportunities. It's not a pricing consideration. We just are very pleased with where we think our internal growth can go with our investment in our digital platform. So that's pretty much -- pay down debt, invest in digital and dirt and maybe some modest M&A activity.

Probably can expect give or take $200 million in debt reduction this year, over the course of the year.

Okay. I asked for color and I got it. Thank you.

Well, thank you very much. That was our final question, so I would like to turn the conference call back over to Kevin for our closing remarks.

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

Thank you very much. Ladies and gentlemen, this conference call has now concluded. You may disconnect your phone lines and have a great rest of the week. Thank you.