Lamar Advertising Co (LAMR) 2012 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 companies 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 first quarter 2012 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.

Carrie, thank you. I want to welcome all of our analysts, shareholders, and friends to our Q1 call. We're pleased with our Q1 performance. And, as we look at the entire year, even though the month to month is a little choppy, and Sean will address that, we feel like our book is shaping up quite well and that all of our shareholders will be pleased with our top line growth.

Throughout the rest of this year we will continue to invest in our digital platform. And, we expect to achieve the CapEx full year guidance that we gave on our last call. And, we will also continue to repay debt leverage at year-end it will in all likelihood be below 4%. And, with that, I'd like to turn the call over to Keith Istre to walk us through the numbers.

Thanks, Kevin. Just to highlight a couple of the metrics for the first quarter results. On the revenue side, as you know we guided to revenue pro forma growth of up 3% for the quarter and we came in slightly better than that at up 4%. National and local both added to that result, they were both up in the mid-single digits.

Again, Sean will address that later on. We doguide to revenue growth of up 3% for the second quarter, a little bit less than Q1. And, just to reiterate our position on guidance, we always give the market the best guidance that we have at the moment that we do this call.

We've exceeded our guidance over the past few quarters. And, we've been cautious in giving out guidance because since the second quarter of last year, our quarters, on a monthly basis, have been -- have shown peaks and valleys in the growth. In years past, in normal times, if we posted a 7% top line growth, it was pretty much 7% each month during the quarter. And, we're just seeing more volatility since Q2 of last year.

So, we are intentionally trying to be cautious not to misguide anyone in a positive or a negative way. To touch on the expenses real quick, I had mentioned on the last call that for the first quarter, I thought we would be up about 5% in expense growth on a consolidated basis. We came in a little better than that at 3.5%.

There were two categories that really contributed to that performance. Number one, our lease expense on the billboard side was approximately $1 million for the quarter, less than what we had projected. Our guys are still managing their lease portfolios. We started that back at the end of '08 and they continue to groom that. We dismantled 700 structures in the first quarter that didn't meet profitability hurdles and that contributed to the reduction in that lease cost.

Also, the bad debt expense category was about $0.5 million less than we were expecting, which I think is just a sign that the economy continues to improve and our customers are in pretty good shape. For the year, we still stand by our expense growth guidance from the last call of approximately 3%. And, in Q2, we think that the expense growth will be somewhere in the 4% range for the quarter, which was what we expected.

It's not that it's an increase, an unexpected increase over the second quarter. When I told you that the expense growth would be approximately 3% for the year, we were expecting roughly 5% for the first quarter, 4% for the second, and then low-single digits in the back half. So, with that, Sean?

Thank you, Keith. And, I want to thank everybody for accommodating our later than usual call time. We all were flying back from the OAAA Convention this morning and you know it was a great convention. There's some solid industry initiatives going on and it was an exciting place to be and you could feel the energy in the room.

Let me go over the typical stats that we give you, and then, as Keith alluded to, I'll talk a little bit to the guidance. So, digital, number of units as of today, we have 1,478 units in the air. That would be 789 bulletins and 689 posters. The digital platform continues to perform extremely well. Our digital book of business was up 20% in Q1. And, as Kevin alluded to, we expect to have this year look about like last year by the time it's finished in terms of our digital CapEx and our overall CapEx.

Rate and occupancy. Occupancy for posters was up 3% for the quarter and occupancy for bulletins was up 3% in the quarter. So, Q1 '12 for posters, 61% occupancy versus 58% last year. Q1 '12 occupancy for bulletins, 74% versus 71% last year.

The rate story is a little different, essentially flat. Q1 '12, 415 average rate per panel for posters, which was exactly the same as Q1 of last year. For bulletins, Q1 '12, $1,083 per panel average rate versus $1,095 average rate Q1 of last year. National versus local sales were essentially 75%, 25%, same as Q1 of last year in terms of local national.

As Keith mentioned, local was up 4.1% for the quarter and national was up 5.2%. On categories of business, retail was very strong in the first quarter, up 16%. Hospitals and healthcare was up 11%, amusement, entertainment, and sports was up 6.5%, gambling was up 6.5%, so those are the up highlights. Automotive was a little disappointing at only up 1% and we certainly would like to see that do a little better as the year progresses. Telecom was a disappointment in Q1 as it was down 10%.

As Keith alluded to, we've seen a phenomenon in our book since the second quarter of last year that's a little unusual. And, that's the monthly volatility as the quarter comes together. There's a couple of ways to get to up 4%. You can stream together months that look like 3.5% and 4.5% or you can stream together months that look like 6% and 2%.

That volatility has kicked in and it looks more like Number 2. And, as Keith mentioned, this is causing us to error on the side of caution. We aren't trying to game our guidance. We are just trying to read the tea leaves as carefully as we can. One question you might have is why is this happening and we can probably trace it back to two factors.

The economic uncertainty that we've been living with is causing our customers to commit later and buy shorter. And, of course our digital platform allows them to do this. And, number 2, again since the second quarter of last year, we've seen a lot more volatility, monthly volatility, in the national book of business. So, those two factors are probably what's contributing to the phenomenon. So, with that, happy to open it up for questions.

Thank you.

(Operator Instructions)

Marci Ryvicker, Wells Fargo.

Thanks, good afternoon, two questions. Kevin, at the beginning of the call, you mentioned that shareholders will be pleased with growth for the full year. So, I don't know if you can just give us a little bit of color, are you thinking that the core business is going to accelerate post the second quarter? And, also with regards to digital, what you're thinking about there either.

Can you can give us a number of boards, maybe Sean, that you're thinking of putting up now that we're in -- or past the first quarter? That would be great. And then, the second question would be your rate was flat and occupancy is higher. So, are you giving up rate to get occupancy? That's a question we've gotten from investors.

I'll take your first question and I'll let Sean answer the rest. The point of my comment was to highlight the fact that even though we're seeing volatility in our book from month to month, and that even though our guidance for Q2 suggests a deceleration in our top line business, we don't feel that way. And, we feel that as the year progresses, provided that we get a little help from the macro elements that are out there, that our shareholders are going to be very pleased with the top line growth.

So, we're not pounding the table because we don't have that level build-up in the book that gives us the confidence that we used to have in years back. Because we could see it, we could see the trend and there was never any volatility in those trends. Our position now is that in spite of the volatility that we're seeing month to month, we are still very optimistic that our book is going to build throughout the rest of the year.

Yes, Marci, as I alluded to I think at the end of the year we'll be roughly the same number of digital units that we put up last year. And, that seems to be where the field is shaking out. So, I feel good about that. I certainly feel good about the way the platform is performing. And, even in choppy times, it's doing quite well. So, that gives us a little bit of confidence going forward.

And then, just the rate versus occupancy, it's like a chicken and egg --.

Yes, we're certainly not purposefully not going after rate. As you may know traditionally when we're going through a downturn, we traditionally try to hold rate and suffer on occupancy because occupancy comes back faster. I think we would all agree that this particular recovery has come with its challenges and we're probably not back to an environment where we can drive rate for a couple of reasons.

Number one, we haven't quite reached normalized occupancy. And, number two, when you're living in a world of zero interest rates, little inflation, it's just real hard to have pound the table rate discussions with your customers. So, until we get a little inflation back into this economy and get a little more growth, more robust growth, back into the economy, it's tough to have those real rate discussions with our good customers.

But, having said that we've got plenty of capacity. And, even if rates were flat, if we can move that capacity, we can deliver the type of top line growth as our shareholders expect.

Got it. Thank you, very much.

James Dix, Wedbush.

Hi, good afternoon, guys. A couple questions. I guess just going back, Keith, maybe to your book, what's the highest growth month you've seen since you saw this change in the consistency of quarters -- of months in the second quarter of last year? And, -- yes.

Sure. Yes, I'll take that. We don't like to go month by month by month, right? So, I don't want to just retrace the quarter. But, we've seen some up 7% and up 1%.

Okay. And, right, you know what I mean? Yes.

And, everything in between.

Yes, that's helpful. And then, on the display side, what was your same display growth for digital in the first quarter? And then, if you stripped out digitals, what would your analog business have grown on a pro forma basis in the quarter? And then, I had just one follow-up.

Sure. The vast majority of the up 20% was added capacity. So, it would probably break out in the neighborhood of 17% being the added capacity and 3% being same board on the digital side. And, on the traditional side, it was up approximately 2%.

Okay.

Yes, so, of the up 4%, 20% was driven by digital and 2% was driven by the traditional platform.

Okay. And then, my follow-up is just, do you have any insight into technology challenges or threats to the business? I know they come up periodically with investors about whether you think that local platforms like Groupon are having any impact. Or whether mobile is having any impact.

I know in the past you've given some color on why you thought hotel/motel hasn't come back maybe quite as much in your book as you would have expected. Just any color that you have on the trends you're seeing in terms of technology and its impact on billboard share of the overall ad budget. Thanks.

Sure. If you step back and look at it from 50,000 feet against all media and look back to last year, you'll see that essentially, and continuing into this year, that outdoor is in third place behind the internet and television. And then, every other media that you could pick through is someplace behind that. So, in general, we're holding our own.

Now, drilling down a little bit on things like social media. Our folks in the field aren't afraid of any of them. And, clearly, Groupon is not really doing anything or having any impact on us. We're actually selling in a complementary way to other forms of social media. We try to extend what our customers are doing in Facebook and Twitter. And, if you look at our digital book of business, ad spend that is connected to a social media effort is up tremendously.

So, that's actually getting through to the greater advertising universe. And, we're pretty pleased with that. And, we're coaching our AEs to play on that theme. So, in other words, we're not going in saying do this instead of what you're doing in social media, but do it by us to extend and complement what you're doing with social media. And, that sales pitch is catching on.

Now, regarding mobile and secular trends. I continue to believe that hotel/motel is going to be a challenge for us because of what they're doing in the mobile world. I'm not seeing that in any other of the verticals in terms of the mobile world. In fact, just the contrary. If you look at restaurants for example, we're having great campaigns with restaurants and they're up in our book.

So, that story remains the same I guess, James. I will say one thing, in Q1 of 2009, hotel/motel was 6% of our book. Q1 of '10 it went to 5%. Q1 of '11 it went to 4%. So, you're trending down, right? A point a year.

Right.

Q1 of '12, it was still at 4%. So, we have reason to believe that maybe that's stabilizing and it's primarily because that category of business is using us like other businesses. They're using us for brand, using us for differentiation, they're not just using us for directional. So, there's reason to be a little optimistic about what's going on in the hotel/motel book.

Great. Thanks, very much.

Jaime Morris, UBS.

Hi, good afternoon. I just wanted to ask a quick question on the CapEx side. I know you said that the guidance was for flattish CapEx year-over-year. But, 1Q was down pretty significantly from a year ago. And, specifically on the traditional billboard side. And, I just wanted to try and get an understanding of whether you think that $5 million run rate is sustainable?

I think at the end of the day, Jaime, we end up in the same place. The field hasn't come to me and said, you know, looks like we aren't going to spend what we thought. I just haven't heard that yet. So, it could just be timing issues.

Okay, and any change in the cost of a digital board that you could point out from this year versus last year? I mean, I know pricing has come down but have we stabilized at this point or have prices continued to come down?

Its been pretty stable. We have a lot of good, most favored, nation pricing agreements with our vendors on that side. And, they've wrung a lot of costs out. So, I'm not looking for dramatic improvements on that front unless there's some new technology that comes down the pipe.

Okay, thanks, so much.

Nadia Lovell, JP Morgan.

Good afternoon. Thanks, for taking the question. Just have a few. I was hoping that if you could give us some color on geographical regional performance?

Its been the same answer every quarter, essentially. With the possible exception that maybe there's a little more light in the Southeast, in places like Florida and Georgia than has been the case in the past. But, you're still looking at pretty tough economies in places like Las Vegas and Southern California.

Okay, and then, national outperformed local despite a slightly tougher comp. I think, national last year quarter was up 9% and local was up 3%. Can you give us some color on that and what's driving that? Is it mostly coming from digital? What's the break out for digital?

Are you talking about local national?

Exactly. The comp was much tougher for national in the quarter. National was up plus 9% last year, but yet it still outperformed.

Sure, on the digital side we're seeing a lot of good national buys, particularly in the entertainment space. And, it is growing faster in our digital book, national that is, is growing faster in our digital book than it is in our regular book. So, it's clear to me that our investments there in a broad platform is paying off, and we're going to continue to.

On the local side, really just two comments. You got a little less volatility in the book, as I mentioned. It seems to be building a little more steadily, if you will, and I think that bodes well for us.

Jason Bazinet, Citi.

Thanks, so much. I must say I always love your calls. You guys are so straightforward. I just had three quick questions if you don't mind. You mentioned, and my model has the same thing, where you get down to that four times leverage as you get towards into '12.

And, I just can't figure out what to do in my model as I move to '13. If I should be holding that leverage constant, you guys say well 4% is the right amount of leverage given everything we know about the economy and our business, or whether I should keep delevering. That's my first question, just any comments on that.

And then, my second question is I get these e-mails from Thomson Reuters, and all that, telling me that my estimates are so crazy on earnings. I don't think you're an earnings story, but I keep defending my earnings estimates. But, I think it's because I've got D&A going down dramatically. And, I don't know if I'm crazy or not. But, if you could just comment on the likely trajectory of D&A?

I'll let Keith do the D&A and I'll do the leverage.

Okay, on the D&A. I mean we're following a run rate in the neighborhood of $300 million for this year and maybe a little less than that. But, yes, I mean, D&A is going to be rolling off. We did roughly $2 billion in acquisitions in '99 and then another $1 billion over the period of 2000 to 2007, '06 or '07, whatever.

So, that stuff is generally written off over 15 years. So, a lot of that will be trailing off which is why we've alerted the market that in 2015, we'll probably be a Federal taxpayer at that time. Our D&A will still be significant but it won't be if our EBITDA projections are correct as far as the growth enough to shelter it all as it has in the past.

Do you mind just giving a ballpark number for '15 D&A just so I can make sure I'm on top of the numbers?

You're probably looking at about a $0.25 billion. $225 million to $0.25 billion.

Okay, thank you.

So, here is how I think you should think about the leverage. I don't think you should have a target ratio.

Okay.

Because we're not thinking about it that way. The way we're thinking about it is, what are the piece parts of our balance sheet where we can reduce our cost of capital. And, if you look at it, we did a great high yield issue first quarter, fantastic execution.

And, with the use of proceeds was to tender for the 6 5/8% bonds and we didn't get them all in. We got in all but about what, Keith, $260 million, something like that? So, probably the wisest thing for us to do is when the call premium drops in August, use our free cash flow and revolver to go ahead and call the rest of those in. All right?

And, you can just anticipate the effect of that, and given our CapEx, we're probably going to have a net delevering event in the neighborhood of $250 million to $275 million. So, that's this year. What does '13 look like? Well, we've got the senior secureds that aren't callable until the fourth quarter of '13.

First quarter '14.

No, no, no, December '14 -- December '13.

Senior --?

The senior secureds.

The ones we issued in 09?

Yes.

It's April of '14.

Yes, but we can take them out in December right?

Yes, we can take them out.

Yes, so I'm just trying to chronicle it for you, right? So, we can take them out in December.

Yes.

And, it will probably be a wise thing to do. It's an expensive piece of paper. So, we would save our free cash flow and use of the revolver toward that end next year.

Got it.

That's sort of a prudent thing to do.

Understood. Thank you, very much.

Ben Swinburne, Morgan Stanley.

Thanks. Good afternoon. I know you guys are trying to be conservative with your guidance. And, at the same time I think you sound like you're maybe seeing some, dare I say, green chutes in the economy? Because you've talked pretty bullish about the year.

Can you say anything about April? Is April above the 3% range that you've guided to for the quarter? So, you've baked in some of that natural volatility that you've talked about -- I mean, not natural, unnatural volatility you've seen over the last couple of years?

We hate to do that, break it out by month. It just everybody starts speculating and reaching wrong conclusions.

The whole point of dealing with this volatility is to expand our time frame so that people look at this in a rational way. The more you compress your time frame, the less visibility you have and the more chaotic the book looks. The greater the time frame, the more normalized the book looks.

You gave some explanation about why the volatility has come in. You talked about economic uncertainty and you talked about National being volatile. I thought that was interesting, because I would have guessed that National advertising in general has been less volatile than Local. You guys feel free to disagree with that. I was just curious if you had a theory as to why National was particularly volatile for you guys? It's just law of smaller numbers and something along those lines.

It could be the law of smaller numbers, but let me go back a decade. For most of the existence of US ad spend, it's actually been the case that National has a higher beta than Local and you can go back and see that through the decades. Through this recovery, the opposite has been true. For most of the recovery from the depths of '09, National has been stronger and steadier.

We saw that change, again, about halfway through last year and if you go back and look at our third quarter call and fourth quarter call, we signaled that, that Local was firming and performing a little better. I don't have a reason for the volatility in the National book. I just know it's there, and so hopefully we can get both of them to a place where confidence lends itself to stability and lends itself to more predictable and stronger growth.

I know you'd called out, I think, telecom last year I think good and bad, and maybe that had to do with the AT&T, T-Mobile merger. Is that part of what continues to be -- you mentioned Telecom was down this quarter.

Yes, it was a disappointment in the first. We do have reason to believe that Q3, just given again what my Head of National sales, John Miller, tells me, there seems to be a lot of chatter and activity that suggests that for AT&T and Verizon that Q3 is going to be a pretty good quarter for them.

It's all about 4G and bars on your phone.

If I could just ask one last one, since you guys did just come from the conference. Is there anything you could call out to us as being particularly exciting from the technology perspective? Or, anything that you think we should be keeping our eyes on in the industry that might be important the next couple of years?

A part of it is about the whole industry looking in the mirror and making itself more customer friendly, or should I say easier to buy, easier to plan. And bring the promise of measurement to a reality, and there was a lot of buzz around that at the conference. The buzzword was repositioning the industry, and we're doing it around the lexicon we use, how we talk about measurement.

We want to talk about it in a way that's more like other media. We are striving to perform better in the field such that categories that don't use us will feel more comfortable using us. For example, for our traditional 30 sheets, we pretty much insist on a monthly contract.

There are categories of customers that would use us if we could commit to shorter flights and guaranteed postings on the start date of a contract. That's a little bit inside pool. At the end of the day, those are performance standards in the field that we won't guarantee today across the whole country. We're going to try that as an industry to get ourselves to that place.

David Miller, Caris & Company.

With your stock down 8.6% right now, I think what investors on this call are scratching their heads over is you had some very positive comments issued by Les Moonves at CBS earlier this week in which he talked about Local really humming along, doing really well. Local businesses wanting to advertise more, local leads, the rest of the country out of a recession, so on and so forth.

I believe you guys have a very easy comparison from last year due to the wet weather that you experienced in the South, particularly in the South there in April of last year because you couldn't put up any digital boards due to the weather. Also you guys got really killed by the Alabama tornadoes.

You have a very easy comparison here and you have local, at least per the commentary out of CBS, really showing signs of life. I guess folks are scratching their heads at the level of conservatism in the guidance. I hate to beat a dead horse here, but I'm wondering if you can comment in light of what I just mentioned?

Our guidance and our performance speaks for itself and you can compare it to CBS, their guidance and their performance.

Right, but you guys do have an easy comparison yielded from last years result, do you not, because of the weather issues that you talked about last year?

You're always going to have, from quarter-to-quarter, easier comps and tougher comps. Again, our guidance speaks for itself.

It's one quarter in a lifetime.

Doug Arthur, Evercore.

I'm wondering if you can amplify a little bit on auto in the first quarter? Listening to a lot of local media companies in the first quarter, auto was very choppy. Although a number of people have suggested that post tsunami anniversary business picked up, so I'm wondering how you see that playing out? And, what you were some of the causes of the weakness in Q1? Secondly, in terms of the take down on, I think you said 700 structures, is that something we should expect for the rest of the year or is that going to be more on a one-off basis?

Let me answer the second question first. Back in August, the world looked a little dire. Not just Lamar's world, but people were talking about double dips and we wanted to put in place a game plan in case the economy turned and things got harsher. I asked our guys to come up with two approaches to the real estate portfolio. One that was a common sense pruning where they would attack the portfolio with a scalpel. The other was a plan B in case the world got really tough and we had to do what we did in 2009.

As we turned the corner, in the fourth quarter into the first quarter, I went ahead and asked them to go ahead and do the scalpel approach, just because there's a certain amount of prudent pruning you want to do in your portfolio anyway. I wouldn't bake it in, because it's something we can turn off and turn on depending on the strength of ad spend. I wouldn't bake it in, but that's the explanation.

Auto, as I looked at all of the categories and reviewed how they came in, in the first quarter, auto was a little disappointing to me because it seemed that it was a little stronger in some of our other traditional media. I guess the upper single digits is what it seemed to be for them. I was hoping for something a little stronger.

In talking to John Miller again, it appears that we did kind of hold our own on the local dealership side, but we didn't fair too well, at least on his comps, quarter-under-quarter on the national auto ad spend. If I had to go to causation on that one, it was probably that we didn't hold our end on the National side and it looks like we did okay on the Local dealers.

Bishop Cheen, Wells Fargo.

M&A, I know that it is tough, yet you manage to find some things to purchase. How tough is it out there, and do you see any signs of, especially perhaps in the digital front, of some more lucrative additions ahead?

It's pretty thin out there. When you look at the landscape of companies that make good targets for someone like Lamar, there's really only a handful. Bishop, these are folks that are running good businesses, and don't have any need to sell at what they might perceive as an inopportune time in the cycle. What we're seeing is not a lot of activity, and people are happy running their businesses. At the end of the day, you could probably count on one hand the companies that have the scale and quality of assets where we would be interested.

Sort of lately thin as it ever was. To your balance sheet, I think you were talking about taking out one of your higher coupon bonds and you said -- I'm not sure if you were referring to the highest coupon, the senior notes the 9.75% or the 7.875%, both have make wells in them and I thought you were talking about a December 2013 take out?

Yes, it's my understanding that the take out premium on those nines is truly too onerous to even think about it until December of '13. They're actually due in April of '14. Yes, we wouldn't be looking at it until then.

Yes, because of the T plus 50 take out.

We aren't going to do anything that doesn't pencil out.

I want to thank all of our shareholders and friends for tuning in. We've lost Carrie on the call so this concludes the call. Thank you, very much.

Thank you, ladies and gentlemen. This concludes today's conference. You may disconnect your lines now.