Lamar Advertising Co (LAMR) 2011 Q4 法說會逐字稿

Excuse me, everyone. We now have Mr. Kevin Reilly, Mr. Sean Reilly, and Mr. Keith Istre in conference. Please be aware that each of your lines is in a listen-only mode. At the conclusion of the Company's presentation, we will open the floor for your questions. 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 and 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 2011 earnings release which contains the information required by Regulation G was furnished to the SEC on a Form 8-K this morning and is available on Lamar's website, www.lamar.com. I would now like to turn the conference over to Mr. Kevin Reilly. Mr. Reilly, please begin, sir.

Thank you, David. I want to welcome all of our friends and guests to our quarterly call. As is our custom, Keith will walk through the numbers and then Sean will try to give you some color. As we think about the next couple years, we're going to continue to push our maturities out and use our free cash flow to reduce debt and expand our digital platform. With that I'd like to turn the call over to Keith Istre to give you some color regarding Q4.

All right. Good morning, everybody. For the fourth quarter of '11, you saw that the revenue came in slightly higher than our guidance at 4%. No one category contributed to that. Sean will get into more detail later, but it was a good quarter across the board. On our consolidated expenses on the last call, we had talked about expenses running like they have all year in approximately the 2% range, but the consolidated expenses as you saw came in at 0.7%. The main contributor to that downward or that decreased amount was primarily the bonuses that were paid to the Officers throughout the Corporation. In 2011, the Officer core took less in bonus payments than they did in 2010 based on performance grids. So, in the fourth quarter, we approved approximately $2 million less for Officer bonuses than we did last year. So, that's primarily what contributed to that.

EBITDA, you saw margins were 43.7% for the quarter versus 41.8% last year, so we picked up a couple of points. To recap the full year, our revenue growth on a pro forma basis was 3.3%. Our expense consolidated expense growth was up 2.4%, which is about what we guided to last year at this time. EBITDA was up 4.6% for the year and EBITDA margins were 43% for 2011 versus 42.4% last year. On the guidance for 2012 Q4 -- Q1, I'm sorry, we gave you a number for revenue of up approximately 3% on a pro forma basis.

For the expenses for 2012, we will tell you that as of right now, our projections for the year are up approximately 3%, slightly higher than they were in 2011. But the expenses for the first quarter will be higher than what they will average for the year. In fact, we are expecting pro forma expense growth in Q1 of '12 of approximately 5%. Part of that is real and part of it is timing. On a timing basis, there is one extra hourly pay period in the first quarter of '12 then there was in the first quarter of '11. That's just the way it falls some times. That accounts for about $1.2 million in additional wages in Q1, over last year's Q1.

We have -- we gave out raises effective March 1 last year to all the employees except the Officers. So, there's a couple of months worth of raises in the first quarter of this year that were not in the first quarter of last year. On a real basis, our minimum annual guarantees and escalators on our transit contracts are expected to jump $1 million in the first quarter of this year. They are expected to go down. They will not be that high in the second and third quarter going forward.

Just to touch on a balance sheet issue that we completed at the end of January. You saw in the press release, we issued some new subordinated bonds, $500 million at 5.875%, 10-years interest only. We took out a new $100 million term loan on our bank credit agreement, and we called $700 million of our existing 6.625% 2015 bonds. We got approximately $600 million of those tendered. We will settle this coming Monday, February 27.

If you do the math, you see we came up $100 million short. We tendered for $700 million, we got $600 million. We were planning on borrowing an extra $100 million off of our revolver to cover the last $100 million. So, once we close the $600 million out on Monday, we will decide later down the road if we will call the additional $100 million that we originally tendered for. All in, if you are adjusting your models due to the refinancing, the Company will save approximately $10 million in interest in 2012 by taking out those bonds with cheaper money. With that, Sean.

Thanks, Keith. You know, the great story in Q4, as it has been all year for 2011 and continues we think with good momentum into 2012, but the great story is digital. I'll go over some stats and you'll just, you'll hear how well that platform is performing. We ended the year with 1,410 units in the air. As of this call, we have 1,433 digital units in the air. 757 units of those are bulletins and 676 units of those are posters. For the quarter, digital book of business for Q4 2011 was up 23%. Now that of course, includes new units going in the air but on a same board basis, our digital business was up 6.4%.

If you take a look at the full year 2011, our digital book of business was up 17%. Of course that includes units that went up during the course of the year. But importantly, on a same board basis, digital was up 5.6%. So, it continues to, on a same board basis, continues to outperform not only our traditional platform, but handily beating growth in US ad spend. So, that gives us a great deal of confidence as we go into this year.

Before I get the question on how many we're going to put up in 2012, I'll just go ahead and answer it with this. We're going to put up as many as we can. So, I'm not going to post a hard number, but just know that we're going to be very aggressive -- put them up as fast as we can. On some rate and occupancy stats that don't include digital -- posters occupancy Q4 '11, 66%; Q4 '10, 66%; bulletins Q4 '11, 76%; Q4 '10, 74%; on rate, Q4 '11 for posters $426 average rate; Q4 '10 for $427 average rate per panel. So, we have $1 decrease on average rate per panel in posters. Bulletins average rate Q4 '11, $1,119; Q4 '10, $1,117. So, we're -- we still continue to be in an environment where it's hard to push rate.

We are getting some occupancy gains as we go through the year. If you look at our total billing on the traditional platform, essentially posters were flat and bulletins were up 1.5%. So again, the digital story is driving our growth. On customers, as Keith mentioned, there wasn't any one customer that drove it, the performance in Q4. But we did have some good growth in our top customer categories.

Restaurants for the quarter were up 8.32%. Retail was up 9.8%. Hospitals and healthcare was up 13.2%. And mostly due to our digital platform, amusements, entertainment, sports, this will be the movie category, was up 12.5%. Particularly in the fourth quarter, we got some great movie buys on our -- some great movie national buys on our digital platform, so that performed extremely well.

Top 10 advertisers for 2011-- McDonald's, Cracker Barrel, Verizon, Diageo, MetroPCS, Coors, US Cellular, Burger King, AT&T. Again, categories of business -- restaurants was 13% of our book; retail 10%; hospitals 9% of our book; service 8%; amusements, entertainment and sports, 7%. That ticked up 1% in 2011. Really the only category I would say that was slightly disappointing was telecom. On the -- in the national book, the wireless book of business was down for 2011. Food and beverage extremely strong. So, with that background color, we'll be happy to answer any questions.

(Operator Instructions) Marci Ryvicker, Wells Fargo.

Thanks. Good morning. Couple questions. First, Keith, your expense guidance for 2012 is higher than 2011. So could we infer from this that you're anticipating that revenue for 2012 will be higher than revenue was in 2011, in terms of a growth rate?

And then the second question relates to occupancy. Sean, where are you versus normalized occupancy, and will you reach normalized occupancy this year?

Well, our guidance for revenue is up 3% for the quarter. We're not giving out -- we don't give out guidance for the full year. But I think there comes a time when we have to be realistic. And we're handing out 3% raises from -- past couple years we've been handing out 3% raises across the board to our employees. The take-down program that we implemented in '09, '10, and partially continued in '11, we basically weeded out a lot of those units. Inflation is 2 percentage points.

So, 3% may be the new norm. But even at that, it's still better than what we used to run prior to the downturn, which was on a pro forma basis, 4% to 5%. So, we will just play it by ear. I mean, we're doing everything we can to keep expenses under control. No nickels are walking out of here unaccounted for.

Okay. Is that 3% fixed, or does that include variable as well?

Yes, that's correct. That's our projections for the year. That's consolidated all the way across.

Okay.

So, yes, Marci, on the occupancy question. I think we've got a few percent in both categories to get to normalized. And I think, knock on wood, maybe that's a this-year event. If we get just a little bit of tailwind in the local economy, get a little bit of tailwind in US ad spend, I think you'll see us normalize as we go through the year.

Great. Thank you.

James Marsh, Piper Jaffray.

Good morning. Two quick questions. First, I just wanted to talk a little bit about the trends in miles driven. There's a recent report out from the Department of Transportation. And I guess, since 2007, we've been just trending down slightly, and it seems like for the last 50 years, that continually went up. And I'm just trying to get a sense -- what do you guys think is driving that? Is it the economic cycle? Is it demographics? Is it a secular issue -- just more people telecommuting or something like that? But just obviously miles driven is important because it's effectively ratings for you guys. I just wanted to get a sense for what you think is driving it, and whether it's permanent or cyclical?

Well, what we focus on is how our customers view using our medium. And if you look at some of the recent data on that, some research reports that have come out of late, they basically poll large and medium and small advertisers and say -- how do you feel about using outdoor? Do you think you are going to use it more or less? And in virtually every category in polling that was done for 2011, the advertisers say they continue to see us as effective; they like our low cost per thousand.

Of course, the only category that didn't indicate that they were going to use outdoor more was the hotel/motel category. And of course, we talked about that on previous calls. So on the miles driven, I think we all sit in traffic, and as long as that's happening, we're going to be fine.

Okay. Great. Thank you. And then just a quick question on the cost of digital boards these days. What's it costing you guys on average to put up a board? Maybe you could give us a sense for how that compares to prior years. My understanding was those costs were coming down fairly dramatically.

The cost curve dropped very dramatically from when we first put up our first digital units five or six years ago. Back then, a 14x48 bulletin cost about $0.5 million. Today, we can put up a 14x48 bulletin for about $180,000. And we can put up a poster for under $100,000; so that's come down dramatically. We don't anticipate that kind of dramatic cost curve in the future because our vendors have run a lot of the costs out. So, I would expect that it's going to stay right around there until we have some sort of technological breakthrough.

Okay. And just one last follow-up question. It seems like more government agencies and authorities and municipalities seem to be trying to get into the outdoor business. And obviously they have, I guess, easier zoning issues to deal with, they're hard up for cash, they don't want to raise taxes. Are you guys working together with some of these agencies when they want to put up a board, or do you kind of view them as new competition?

Well, every municipality, every jurisdiction we work with is basically different. And we have to be sensitive to what that local landscape is. But to answer your question, we work with them to put up units on their property, we work with them to take down non-performing traditional units and put up digital on our landlord's property. Again, every negotiation is different, and every jurisdiction we work with has their own needs. But I wouldn't say that -- I wouldn't call that a trend of units going up on public property.

Okay. Great. Thanks very much, guys.

Ben Swinburne, Morgan Stanley.

Thank you. Good morning. I was wondering if you guys could give us the national versus local performance in the fourth quarter, any early read on sort of Q1 and '12 on those two?

Sure. For the quarter, local was up about 3%, and national was up about 7%. And if you go for the full-year 2011, local was up 3.1%, national was up 4.4%. And we don't like to try to predict what's going to happen in the future in those two categories. We've got our guidance out there, and we'll just leave it at that.

Okay. And the national growth, which obviously was very healthy, came despite headwinds in the wireless business, which -- is that a fairly significant category in national? I know you guys called that out before.

Yes, wireless was -- I have to say that wireless was disappointing last year for the full year. We're hopeful that we'll see a little stronger wireless business this year. Interestingly, 50% of the growth in national business came from our digital platform. So, we're clearly building something that is attractive to national buyers. And we had some truly remarkable buys in December from the movie category. They would call us up if a movie was hot, and they could execute a buy in a matter of two hours and have it out there. So they're really learning to make and execute very rapid buys on our digital platform. That's good news going forward.

Why do you think we're seeing, or you're seeing that? I guess I wouldn't describe it as a sudden improvement, but sort of more time sensitive national money coming your way. Do you think it's a change at the agency level? Are there more out-of-home folks or TV folks at the agency level focused on digital boards? And is the scale getting to a point where you're starting to just attract bigger advertisers, because you've got enough out there, maybe the whole industry does? I don't know if you have any comments on that as well?

I think you're right on the scale. I mean, you can make two or three phone calls and buy markets 1 through 150. And the thing that we've noticed is, they're getting better at it. They understand how to use it, and they are also buying deeper, and so that's good for Lamar. They're not just buying LA, Chicago. They bought stuff down markets, 150, 175. That's good for us.

Great. And my last question is just -- I know you don't want to give a digital board addition number in '12, and I understand that. You made a comment about the cost per boards more or less being flattish in '12 versus '11. I think that was your implication. But any way we can think about your capital spending expectations this year? Maybe whether you expect to grow your free cash flow? And also, are there any constraints to adding boards from the supplier perspective for you guys?

No, the suppliers are in great shape. They've really done a great job of meeting the industry needs through the good times and the bad times. And so, as we ramp, they're ready. Without offering too much detail, I think you can expect aggregate CapEx for '12 to look much like aggregate CapEx for '11.

Perfect. Thanks a lot.

James Dix, Wedbush.

Thanks very much. Good morning, gentlemen. Just a couple things. Did you see in the fourth quarter any particular differences in regional growth that you think are worth calling out? And then just to follow-up, Sean, on the strength of national for digital, do you have a number on what the local versus national ad mix is for digital, either for the quarter or for the year? And I have just two follow-ups.

Well, on the regional story, it's pretty much the same thing you've heard. I think we are seeing signs of life in the Southeast. If I had to say -- it was something a little bit stronger than what we have spoken to in the past, that would be it. It's still a struggle out in Las Vegas and Southern California. And as we all know, until we straighten out what's happening in real estate out there, it's going to be a tough slog.

Let me see if I have the local/national breakdown for Q4. No, I don't have it expressed as a percentage, but do you have it, Keith?

I've got it for the year, as far as the digital, James, that's what you were talking --?

Yes. That's fine. The year is fine.

All right. Well, let me give it -- I don't have it by percentage, but I can give it to you. The national for the year was approximately $30 million, and the local was approximately $109 million.

Okay.

So, I don't know what -- 70/30, something like that --.

Right.

72/28, something like that.

Okay. Great. And then, just in terms of the overall revenue growth, just following up on something you said, Sean. Until you hit normalized occupancies, would you continue to expect kind of rate growth to be kind of in the low single-digit range, like not changing too much from what you've seen?

And then just one question on margins. As you look back to what your margins were before the downturn, and then what you think they can be on a similar revenue base going forward. Given the take-downs you've done and some of the other things you've done on costs, do you think we should be looking for EBITDA margins to be a few points better than what you had, once you get back to your prior peak? Or is that maybe too aggressive? Just any thoughts you had on how your cost base has changed over the cycle?

Sure. On the occupancy side, like I said, I think we have a few percent in both posters and bulletins to get there. And quite frankly, until we get our occupancy up to our traditional levels, it is going to be hard to drive rates. So I'm not expecting heroic data on the rate side this year, but I hope to get more than just 2% improvement in occupancy. So that's what we should be looking for, and of course, to get that, like I said, we need a little bit of a tailwind on local economies. That would be helpful.

For us to get back to the kind of margins we did in '06 and '07, you probably need to see top line growth in the 4% to 6% range. And again, that's going to take something a little bit stronger in US domestic ad spend than what we've seen, clearly the last few years. Most people are not projecting that US ad spend at [political] is going to hit that 4%, 5% up range, but let's see how the year unfolds.

Okay. Great. Thanks very much.

[Jamie Morey], UBS.

Hi. Good morning. Just a quick one. On the -- you put up 4% growth in 4Q, but you're guiding to 3% in 1Q. And I wonder if you could just talk to -- if there's anything driving the difference in those numbers?

Jamie, it's guidance. So, let's see how the quarter unfolds, and if we can do a little better then everybody is going to be happy on the next call.

But it's not a specific national versus local --?

No.

Or a specific category?

Nope.

Or customer?

Nope. It's just -- let's just put a number out there and hope we can beat it.

Okay. And then just one other. You may have said this and I might have missed it, but did you talk about what auto did in the quarter?

I think it was essentially flat. Hold on. Yes. Auto was basically flat for the fourth quarter, and for the year was up 6%.

Okay. Great. Thank you so much.

Bishop Cheen, Wells Fargo.

Hi, everyone. Thanks for taking the question. So, the residual of about $260 million of the 6.625% roughly, will you take a run at those again, or look to do something in the open markets with them?

You are talking about the last $100 million? Right now, after we -- after next Monday, there will be about $260 million still left out.

Right, and so, I mean that's the stuff left out, and I'm just wondering will -- if you would take a run at tendering them again?

I don't know, Bishop. We have to wait. We're going to let it cool down, let the tender expire on Friday of this week, settle up on Monday, and let the old tender cool down. And in the next two to three weeks, we'll make a decision as to whether or not we will go after the -- $100 million of the remaining $160 million. We wanted to get in $700 million and leave the rest out. So if we do that, we will make a draw on our revolver. If not, we'll just let them hang out there, and maybe try to pick them off in the open market.

Thanks. Makes sense. Let you guys go. Thank you.

Well, David, that concludes our call, and I want to thank everybody for tuning in, and we look forward to the next quarterly call.

Ladies and gentlemen, that concludes today's presentation. You may disconnect your phone lines at this time, and have a wonderful afternoon. Thank you.