Lamar Advertising Co (LAMR) 2012 Q4 法說會逐字稿

With Lamar Advertising, Wednesday, February 27, 2013, scheduled for 10AM Central time. 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.

All forward-looking statements, including statements with respect to Lamar's consideration of an election to real estate investment trust status, involve risks, uncertainties and contingencies, many of which are beyond Lamar's control and which may cause actual results to differ materially from anticipated results. Lamar has identified important factors that could cause actual results to differ materially from those discussed in the call, in the Company's most recent annual report on Form 10-K, as updated by its quarterly reports on Form 10-Q. Lamar refers you to those documents.

Lamar's fourth quarter and year-end 2012 earnings release, which contains information required by Regulation G regarding certain non-GAAP financial measures, was furnished to the SEC on a Form 8-K this morning and is available on Lamar's website, www.lamar.com. I would now like to turn the conference over to Kevin Reilly. Mr. Reilly, you may begin.

Thank you, Chantelle. I want to welcome our friends to Lamar's Q4 call. As was announced, we filed our private letter with the IRS in November and we're awaiting word. The themes for 2013 are to continue to manage our balance sheet in anticipation of a REIT conversion, to continue to manage the REIT conversion process in an orderly way, and keep the market informed as we cross certain milestones. And then lastly, try to operate our business smart in an environment where we still don't quite have the national economic winds at our back. With that, I'll go ahead and turn the call over to Keith Istre to walk us through some of the numbers.

Okay. Just to recap briefly, the fourth quarter, you saw the operating performance on the last call. We had guided to Q4 without the NextMedia acquisition, which we closed October 31. As we posted in our press release, the pro forma revenue guidance, both for Q4 without Next, was up 2.6%, EBITDA; pro forma growth, up 3.6%; and our consolidated expenses for the quarter came in at up 1.8%. We had guided to approximate expense growth of between 1% and 2%.

For the full year, including Next, for the two months that we owned them November and December, revenue on a pro forma basis was up 3.1%, EBITDA was up 4.6% and consolidated expenses grew at exactly 2.0%. I don't know if anybody recalls, but last year at this same time we had guided for expense growth for 2012 of approximately 3%, so for the year, we came in a little bit better than we had thought. For 2013, obviously, for the first quarter you saw what our revenue guidance was. We're projecting up 2% to 3% on a pro forma basis and that includes the next acquisition in those numbers.

For the expense growth for 2013, let me just make a couple of comments. Just like last year, we think if you take our pro forma operating expenses for 2012 and grow them 3%, that's where we are projecting to come in for the year. We are, as Kevin mentioned, we are in the process of moving forward with our REIT [quest] and we think that in addition to the 3% pro forma growth in our basic expense that we should have about $5 million in additional REIT-related expenses in 2013. So that would add about an extra 1% to our expense growth for the year. We're not sure exactly when those expenses will hit. We budgeted for them, but for Q1 without REIT expenses we would probably guide you to approximately 3% for the quarter.

Just a couple of housekeeping things. CapEx budget for 2013, just like '12, it looks like it will come in at approximately $100 million at this time. And last, we're projecting free cash flow in '13 to be approximately $320 million coming off of $267 million in 2012. And with that, I'll turn it over to Sean.

Thank you, Keith, and welcome, everybody. I guess the watch words for 2013 are steady as she goes, both strategically and operationally. Keith mentioned the CapEx budget, a little over 50% of that will be maintenance and a little under 50% will be growth as we move through the year in 2013. I want to accomplish a couple of things as I walk through the operational statistics. Number one, to walk through those aggregate statistics with you, but I am going to highlight what I believe are some very encouraging data points from the fourth quarter that are carrying into the first.

First, on our total digital units in the air as of the end of the year, we had 1,693 digital units up and operational. That includes 64 from NextMedia. If you recall, in the middle of last year, we began seeing our same-board digital go flat and even be slightly negative. In Q4, that turned and our same-board digital was slightly up at 0.3% and given our February book, it looks like that's continuing into the first quarter. Occupancy stats, Q4 '12 and Q4 '11 were identical for both posters and bulletins at 66% for posters, 76% for bulletins.

Here's another one of those data points that I think might be a green shoot for us. We're finally getting a little bit of our growth out of our traditional platform on rate -- as our rate was slightly up Q4 '12 over Q4 '11 for both posters and bulletins. Average rate per panel for posters, Q4 '12, $428 versus Q4 '11 of $426 and for bulletins, Q4 '12, $1,124 versus Q4 '11 of $1,119. National versus local; Q4 was about local. Our Q4 local book was up 3.4% in the fourth quarter and up 0.1% for national. For the year, local was up 3.6% and national was up 2.1%.

As I look at our categories of business, again, I think there's some interesting data points. Number one, retail for the first time was the largest category in our book. I don't know if this portends anything in the future, but if you think about Lamar being more relevant for retailers in their high season, that could be a good thing. Retail was 13% of our book in Q4 2012. Restaurants were 12%; hospital and medical care, 10%; service, 8%; amusements, entertainment, and sports, 6%; automotive was 6% of our book. In Q4, automotive was up 14%. It looks, going into the first, that automotive will be up low double-digits. That's an encouraging sign. Telecom, as you all know, was a drag on our same-store growth for much of the year. That turned in the fourth quarter. Telecom was up 3.2% and again, that looks to be carrying over into the first quarter.

And then finally, and I think this is very encouraging. Real estate has turned positive in our book and that's something we've been looking for, for well, ever since the downturn and that, likewise, appears to be carrying over into the first. It's a small positive, but it's nice not to see negative numbers in that vertical. So as I look at all of our customer categories, we really only have one that is continuing to be challenged and that is hotel/motel. Hotel/motel was down approximately 7% in Q4. I'm encouraged as I look into 2013 and happy to answer any questions.

Chantelle, can we open up the call for questions?

Thank you very much.

(Operator Instructions)

Marci Ryvicker, Wells Fargo.

A couple questions. The first, Sean, can you just outline the next steps once you get the private letter ruling, and talk about whether you still feel comfortable this could come in March or is there a chance it comes shortly thereafter?

The second question is, if you could update us on your thoughts for digital billboards for '13? And then my last question is, if you're seeing acceleration throughout the first quarter, or are you seeing more stability versus the volatility you were seeing at some point last year?

I'll take them in reverse order.

Okay.

Thanks, Marci. The book is still showing some month-to-month volatility. As we look out a little bit further into the year, there seems to be a smoothing, but the first quarter looks a little lumpy. I think you ought to model about 130 new digital units for '13. We'll obviously update everybody as we move along, but that's a good, conservative number to start out with.

And then finally, on the REIT process, it's one that's a little bit beyond our control. We're being told that, in terms of meeting our timetable of January '14, we're still in good shape. The IRS process is -- they tell us three to six months. So, if you count that down from November, it's my hope that sometime between now and our next quarterly call, we'll have some information to pass on to everybody, but it's not a perfectly predictable exercise.

I would note, as Keith mentioned, that we have penciled out a rough estimate of what we think the conversion expenses will be, and we do have our team in place. We have a financial advisor. We have our attorneys. We have our accountants, and they're hard at work.

Okay. Can you just describe what kind of expenses would be in that $5 million?

Well, probably the largest is, probably legal I'm guessing. And then the second largest would probably be our financial advisor who we recently retained. And then finally, the accounting. But until you get the PLR and understand exactly what kind of structuring you're going to have to do, it's, again, hard to predict.

We are being told by our experts that as regards other non-traditional REIT conversions, we're a little simpler and easier to get your arms around because of the nature of our business, and the fact that we have very little in the way of international operations. So, once we get the PLR, it ought to be a slightly more predictable exercise on penciling out expenses and penciling out the timeline.

Great, thank you so much.

Thank you. Matt Chesler, Deutsche Bank.

Just a question about some of your top categories. Within restaurants, are there any particular trends within the restaurant category that you're seeing that you would want to call out? It was nice to see retail grow and become your largest category. To what extent did that phenomenon take place because of any -- because other categories were giving up some share?

Sure. Retail -- restaurants are fine. I mean, for the quarter, they grew essentially the same amount as the aggregate book. So, I don't think it was at their expense. And '13 -- it's looking strong. McDonald's and Cracker Barrel are both going to be vying for one and two, in terms of our top customers in our book of business.

So, I don't think the retail growth was at the expense of anybody. I think it was on top of, and again, it's -- for us, that's a little bit of a milestone because we traditionally, come November and December, we aren't the medium of first choice for retailers. And it's encouraging to me to see that we may be more important in their plans at the most important point in their year. So, I'm hopeful that that happens again next year.

Okay. And then on to the REIT topic, if you don't mind -- two things. One, it would be -- how are you thinking about using your NOLs, either before or as a REIT, relative to the timing of conversion? Would you -- to what extent would you be using those to manage any potential dividend payout? What are your advisors telling you about the potential for any purge? And if so, can you give us any sense of magnitude directionally on that?

And then finally, just a question on the balance sheet. Do you have a sense for what cash interest might be in 2012? Thanks.

Keith, you want to hit the cash interest?

Yes. Cash interest, we're predicting -- projecting about $130 million, down about $10 million from 2012. We're going to be doing -- we're planning on doing a little refinancing of some high-cost debt during the year. And we took advantage of some really low rates last year to knock down some of the higher-cost interest debt that we had been carrying along for the past several years. So, we'll get a little bit of a break there.

It's a little premature to be thinking about P&E purge, and where the dividend is going to be set and how we would use the NOLs. We've just brought, as I mentioned, our financial advisor on board, JPMorgan, and they're going to be laying out different options. But I think for us to do the kind of work we need to do to get that right, that's a third- and fourth-quarter discussion with the rest of our shareholders; the Board and our financial advisors need to do their work.

Having said that, we don't expect any surprises on the P&E purge or E&P purge.

Okay.

Thank you. James Dix, Wedbush Securities.

Just two things. One, a housekeeping item, maybe, Keith, you can handle it. Just your pro forma full-year revenue now, including Next, just that base that we should be using for revenue and EBITDA for 2012, just in terms of our modeling for 2013? And then -- if you want to take that, and then I'll add one follow-up.

Yes. Our pro forma revenue with Next is right at $1 billion in 2013 (Sic) and EBITDA is $528 million.

Great. Thanks very much. And then, just in terms of capital expenditures, if you could give just a little bit more color as to how we should be thinking about maintenance CapEx going forward more generally. I know you said it was going to probably be a little over 50% of the $100 million you're budgeting for this year, but also just some color as to what can cause that to vary from year to year? I know people are interested in that as they look out at the REIT conversion.

And then, in addressing that, if you could talk at all about how you typically budget for repairs for unpredictable things like storms because I know you've indicated that you self-insure for that? And then, how much variability have you gotten at the most related to that? That would be helpful. Thanks a lot.

As a general rule, you should, as you model it out and look out into future years, you should reserve about 5% of net revenues for maintenance CapEx. So, given $1.25 billion-ish, $50 million to $60 million and, of course, that's right around where we're budgeting for this year. Our maintenance CapEx is variable in the sense that we can throttle it back and -- if we need to. And we can prioritize different products depending on useful life, and the most important one there is digital. The next few years, given the way we rolled out digital the last 10 years, the next few years are going to be a little heavy on digital CapEx. And so, we will throttle back on the traditional CapEx so as to keep it within that $50 million to $60 million band. It's my anticipation that we can keep it there indefinitely. I mean, year in and year out, that's about what we need to do.

We've gotten very good at protecting our units from storm damage. We've learned a lot of lessons over the last few decades. Number one, we have tear-away copy along the coast so that the wind blows the copy off. It doesn't blow the structure down. That's proven to be very, very helpful the last few storms that have come ashore. So, I don't see that as a risk -- extraordinary storm damage. We pretty much have that drilled down.

Great, thanks very much.

Thank you. Benjamin Swinburne, Morgan Stanley.

I have two questions. One, I would love to hear some more about the trends you're seeing in real estate. As you mentioned, that was a big headwind for a long time, and particularly how are markets like Las Vegas and southern California performing now, which I think have been drags on the overall book?

And then unrelated around the REIT conversion, and particularly in lieu of CBS's move, do you think the move towards REIT status for the outdoor business in the US for two major players increases consolidation in the industry in general? Obviously, you guys have picked up your pace on acquisitions a little bit already, but I'd just love to get your thoughts on what that might mean, if there's any relationship there in your mind.

I can't really speak to pace of acquisitions, but I can speak to what it's done in terms of our strategic focus. Obviously, when we get the PLR back, we'll have more clarity on what assets are deemed REIT-qualified and what of our operations aren't. But it's clear that high-quality, traditional out-of-home qualifies. If you limit our universe to that in the domestic US, there's a handful of good, quality, potential acquisitions. But we really are sharpening our focus on high-quality, traditional out-of-home assets in the domestic US. Obviously, the conversion to a REIT drives you to that conclusion.

The other question was --?

Real estate.

Real estate -- it's interesting. Real estate's been, for the last four or five years, a double digit down to single-digit drag on our same-store performance. In December, it went positive, and as I'm looking at the first-quarter pacings, it's slightly positive. That's a good thing. I mean, if we don't have to fight that headwind, then hopefully as the year progresses we can sell more traditional units, and see a return to growth in our same board traditional platform. We've got the whole Organization focused on that. As a matter of fact, we've tweaked our incentive comp for our AEs and our GMs to focus laser-like on that. So, hopefully that will bear fruit as we move through the year.

Las Vegas -- the western region had been trailing the pack, in terms of our regions. As we reflect on last year, it moved up to the middle of the pack. So, there has been a little bit of a recovery out there in southern California and in Las Vegas. And as I look at Florida, pretty much the same thing. So, they're not leading the pack, but they're not trailing the pack.

Thank you.

Thank you. David Miller, B. Riley Caris.

First of all, on digital, how much did digital rise on a revenue basis in the December quarter on both an aggregate basis and also on a same-board basis? And then, Keith, if memory serves, you guys took out -- you guys were pretty efficient in taking out a portion of the 6.625% paper on the bond refi. When do you feel comfortable moving, in terms of moving down the capital structure here and taking out a portion of the 7.875% paper? Thanks very much.

Keith, do you want to do that one first?

Yes. The 7.875% don't mature until '18, so we're not that focused on them at this point. We're more focused on the senior notes that were put in place in 2009, the 9.75%, that we're going to be addressing sometime in '13, probably toward the back half of the year. There's also note -- there's a make-whole on the 7.875% that doesn't go away until April of 2014 when we have the right to call those. So, it would be very expensive to take those out at this point in time, the 7.875%. But we'll address that as we move forward.

Okay. So, on the digital question, in the aggregate, and most of this growth was increased units in the air; digital posters were up 7.3% in Q4 and digital bulletins were up 13.5% in Q4. Again, most of that, or the very -- the bulk of that was additional units. The same-board performance, if you recall Q3, was a low point for us, the same-board performance was down 1.5%. Q4 same-board performance was up 0.3%. So, we did see a little turnaround there, and I'm encouraged by what I see in the February book.

Thank you. Tracy Young, Evercore.

So, two questions. First, you talked a little bit about geographic performance, but could you -- have you seen any difference in performance in your other categories? And the second question is -- when you do acquisitions like the NextMedia, where do you see synergies? Thank you.

On the acquisition question, particularly for Next, it's primarily on the expense side, and it's a fairly predictable exercise when we do something like that. It's -- for example, using Next as an example, they had 5 operating offices and we were able to skinny that down to 2.5, and then, of course, you don't need the redundant corporate overhead and the like. So, primarily, when we do these types of acquisitions, you can expect a pretty quick and predictable expense synergies and that's typically what makes them accretive.

On the regions, there was a little bit of a flip-flop in '12 versus '11. In '11, our strongest region, the northeast, and actually, as we closed out 2012, it was our weakest region and that -- you can't blame that one on Sandy. It's just -- it is what it is. Sandy had a very negligible impact, and our strongest region was the Midwest. So, that includes, traditionally as what you would think of as the Midwest, very, very strong performance there, and I'm liking what I'm seeing there for sure.

Chantelle, 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 quarterly call. Thank you very much.

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