Lamar Advertising Co (LAMR) 2015 Q3 法說會逐字稿

Excuse me, everyone, we now have Sean Reilly and Keith Istre in conference.

(Operator Instructions)

In the course of this discussion, Lamar may make forward-looking statements regarding the Company, including statements about the future financial performance, strategic goals and plans, including with respect to the level of potential acquisition activity and the amount of timing of any distribution to stockholders. All forward-looking statements involve risks, uncertainties, and contingencies, many of which are beyond Lamar's control and may cause actual results to differ materially from anticipated results. Forward-looking statements give Lamar's current expectations and projections relating to its financial conditions, results of operations, strategic plans, objectives, and future performance. As such, they are subject to material risks and uncertainties including economic conditions and their effect on the markets in which Lamar operates and the broader demand of advertising, levels of expenditures on advertising in general, and outdoor advertising in particular, and risks and uncertainties relating to Lamar's significant indebtedness.

Lamar has identified important factors that could cause actual results to differ materially from those discussed in this call in the Company's most recent Annual Report on Form 10-K, as updated or supplemented by the quarterly reports on Form 10-Q. Lamar refers you to those documents.

Lamar's third-quarter 2015 earnings release, which contains information required by Regulation G regarding certain non-GAAP financial measures was furnished to the SEC on Form 8-K this morning and is available on Lamar's website at www.lamar.com. Information required by Regulation G related to annual financial guidance was included in the Form 8-K that Lamar furnished to the SEC on February 25, 2015, and is also available on Lamar's website.

I would now like to turn the conference over to Sean Reilly. Mr. Reilly, please begin.

Thank you, Katie, and good morning, everyone. Welcome to Lamar's Q3 2015 earnings call. We've got a number of encouraging trends to talk about this morning. Let me start with our top line. We're seeing our revenue accelerate going into the fall months, and we now expect our pro forma Q4 revenue to be up 2% to 3% and our as reported to be up 5% to 6%.

Number two, our digital same-board performance is also improving as we move into the fall months. Sequentially, each month, from July on, improved. And in October, we were up 2.6% on our same-board performance for our digital units. That's a very encouraging sign. Number three, consequently, we now see AFFO per share for the full year in a range of $4.55 to $4.60.

Keith will now walk us through the numbers. Keith?

To recap Q3, our pro forma revenue was up 1.8%, which was in line with our guidance of low-single digits on the last call. Our pro forma consolidated expenses increased 1.2%. Corporate expenses declined slightly due to the reduction of some of our reconversion expenses from last year.

On the direct and G&A operating side, we had several categories that posted declines as well, including illumination, truck fuel, sales commission, and legal fees. The as reported revenue was up 4.7% and that's partially due to the acquisition activity that we engaged in throughout the year and in the quarter.

To give some color on the nine-month numbers now that we're getting close to finishing up the year, pro forma revenue through 9/30 is up 3.2%. Our pro forma consolidated expenses are up 1.6%, slightly below inflation, and accordingly, pro forma EBITDA is up 5.3%.

Just as a reminder, as far as our free cash flow is concerned, for the nine months ended September, it increased 15%, to $273 million. As a REIT, after interest, all CapEx maintenance and growth, TRS taxes, and our REIT dividends, the Company will generate approximately $130 million in net free cash flow for 2015.

With that, Sean, back to you.

Thanks, Keith. Just a couple of numbers behind the numbers. On CapEx, we still expect maintenance CapEx to come in for the full year between $50 million and $55 million.

In terms of numbers of digital units, at the end of Q3, we had 2,246 in the air. That included a number of acquisition units at the end of Q3. As I mentioned, sequentially, as we went through the third quarter, our same-board digital performance improved. Now we were down for Q3, 2.6%, but each month got better, and our October same-board performance, as I mentioned, was up 2.6%.

For next year, we expect to deploy about 150 new digitals. After polling the field, our folks out there feel like there is sufficient demand, again, for about 150 new ones.

Revenue mix, national came on strong. National was up 3.1% for Q3, and local was up 1%.

Categories of business, real strength at the top. Restaurants were up 4%, service was up 12%, hospitals and healthcare was up 6%, and we had a nice pop from telecom. We had some nice buys in the third quarter; consequently, telecom was up 23% in Q3.

And then, finally, let me give a quick update on our automated buying initiative. We have now executed about a dozen live campaigns through our automated buying platform. Not huge dollar volume, but the encouraging sign is that they are incremental new dollars from that digital pie. So we are encouraged by what we are seeing, and we have seen some very large advertisers dip their toe into that platform and they seem to like what they are experiencing.

With that, Katie, I will open it up to questions.

Thank you, sir. At this time, we will open the floor for questions.

(Operator Instructions)

Marci Ryvicker, Wells Fargo.

I have a couple. The first, what is driving the acceleration from the third quarter to the fourth quarter? And if you can also comment on local in that, because it looks like local was softer than national, and that's kind of a different trend than what we've seen. And then related, is the raise in your AFFO guidance all revenue, or is there something also going on with expenses or financing or anything else?

Thanks, Marci. Taking the last one first, we are seeing some good top-line acceleration, so that's very helpful on that AFFO number. And I think we can now see that expenses are coming in slightly better than anticipated as well. So, those are the main two drivers.

Maintenance CapEx is going to come in roughly where we guided, in that $50 million to $55 million range. And then the final component being tax leakage, which is going to come in around that dime range -- (multiple speakers) roughly $0.10 a share. When you add all that up, it's encouraging. We're finishing the year stronger than we thought when we were sitting in August.

Got it.

All the categories are strong. So, I don't think I could point to one thing. National was a little stronger in the third. As we peer into the fourth, it looks like they're going to be about the same relative strength, would be our anticipation. So, we think local is going to get a little stronger as we move towards Christmas.

And then one clarification, did you say 115 digital boards or 150?

Five zero, 150.

One five zero, great. That's it for me. Thank you.

Ben Swinburne, Morgan Stanley.

Sean, I know you're trying to keep us from getting too excited about the automated platform, but it does sound like you're having some early success. Can you talk about the next steps for you, both for Lamar and the industry, to get that from very small to something larger? Because it does seem like a dozen wins is still a dozen; it seems like a pretty good number, so I'd love some more color there.

Then quickly on expenses, are we done with the re-cost comp? In other words, I think you have been benefiting, at least in corporate, for a comp in REIT expenses from last year. I could be wrong, but are we done with that? And what does that mean for corporate costs going forward? Thanks.

I'll let Keith hit that one.

We had a lot of expenses in the last year's third and fourth quarter because we were putting all of the legal structure in place and putting a new charter. We had a shareholder vote to approve the transition, so there was a lot of legal and accounting fees that hit the back half of last year. Those are done. So yes, we will be benefiting, and that was part of the benefit that we received in Q3.

So, automated buying and next steps -- to put it in a little bit of perspective, there are some large advertisers, as I mentioned, that have dipped their toe into our automated buying platform. Our live partner today is Vistar, and I think both on our end and on the customers' end, we are viewing these buys as sort of still in the beta phase. But they are actual contracts, and dollars are changing hands, so that's a good sign.

The next step for us is to broaden the platform and engage with other automated vendors, and we have begun that process. There are a couple of others that bring different capabilities to the table and can execute buys for our customers that more meet what certain customers want, in terms of measurability and real-time accountability for the buy. So that's the next step. We probably -- sometime in the next 60 days, 90 days, we will be announcing a couple of other partners on the automated platform side.

And just to follow up, is your outlook for digital growth on the investment side -- you mentioned 150 boards. Is that tied to this? In other words -- because I would imagine the more scale you have, the better for these large advertisers.

It's not specifically tied to automated executions. It's more tied to the demand that our local general managers are seeing out there. As I've said many times, we are a bottom-up organization. And if our folks in the field see sufficient demand and believe they can sell additional digital units, then we will put them out there.

Thank you.

(Operator Instructions)

Alexia Quadrani, JPMorgan.

Just a follow-up on your comment about the strength in the verticals. I think you said telecom was really very, very strong in the quarter. Was that sort of a one-time-ish campaign or is there any reason to think that can't continue going forward?

And then on auto, I'm assuming since you said all categories are strong, the dealership spend is probably strong on even national auto. We've seen such strong auto sales, just wanted to see if you're seeing a pickup in that category and can that continue?

Sure. On telecom, I really wouldn't expect 23% up. I think that was an anomaly. A little bit of the law of small numbers -- they are only 3% of our book. And we did have a major buy, particularly in the Northeast, that drove that number. But it's an encouraging sign.

We have fielded many questions on calls and at conferences as to whether there is a secular trend going on in telecom's use of outdoor. And this should be encouraging to suggest that, like any other customer, they're going to come in and out, and at the end of the day, they view us as useful in their marketing campaigns. Now, automotive is 6% of our book, and in Q3 was up 2%.

Okay, and then just a follow-up on the political environment in 2016. Do you see any benefit maybe more from displacement of political kicking out core advertising out of local TV coming into your business? Or how should we think about any political benefit next year, if there is one?

Sure. We do anticipate a kick from political in Q3 and Q4 of next year. Last year, in 2014, it was about $2 million a quarter, and it resulted in about 0.5% increase in our pro forma top line. So, we didn't have that this year. We should have it next year.

The phenomenon is, as you mentioned, we get direct political advertising, number one; and that shows up as a category. But number two, typically we also get a little boost from our other categories who don't want to buy into all that clutter on other media. So, we should look forward to a little bump for 2016 from political.

Thank you.

Ivy Cong, Evercore.

Two questions -- first is that you mentioned same board digital performance was up sequentially but declined year over year. Could you elaborate a little more on that -- on the decline side? Second question is can you provide us the organic revenue guidance for Q4, please? Thank you.

Sure. What we're expecting organic for Q4, as I mentioned, is up 2% to 3%. And right now paste and fold were trending towards the upper end of that.

On same board digital, as I mentioned, for Q3 we were down 2.6%. But as we break it out monthly, each month got better from July on. And in October, the same board digital performance was up 2.6%, which again, is very encouraging and gives us confidence going into next year that we can accretively deploy about 150 units.

I see. Just to follow up, so the year-over-year decline, is that an inventory issue, or is it customers leaving, or could you elaborate the reason of that?

Yes, so, in the summer months -- July, August, September -- we experience a little softness on the digital front. Keep in mind, this is not the whole digital platform. The whole digital platform is up high-single digits because we have added capacity during the year. This is same board performance, and I'm encouraged that it's turned -- it's turned positive.

Thanks.

Thank you. I'm showing no further questions at this time. I would now like to turn the call back over to Mr. Reilly for closing remarks.

Great, and thank you, Katie, and thanks, everyone, for listening. We will be at the Wells Fargo conference next Tuesday presenting. And then we will talk again in 2016.

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