Lamar Advertising Co (LAMR) 2016 Q2 法說會逐字稿

The following is a recording for Tiffany Wall with Lamar Advertising Company on Tuesday, August 9, 2016 at 8:00 AM Central Time. 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 its future financial performance, strategic goals, plans and objectives, including with respect to the amount of timing and of any distributions to stockholders. All forward-looking statements 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 could to differ materially from those discussed in this call in the Company's second quarter 2016 earnings release, and its most recent annual report on Form 10-K, as updated or supplemented by its quarterly reports on Form 10-Q. Lamar refers to you those documents.

Lamar's second-quarter 2016 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 the Investors section of Lamar's website at www.Lamar.com. I would now like to turn the conference over to Sean Reilly. Mr. Reilly, you may begin.

Thank you, Jennifer, and good morning all. Welcome to Lamar's Q2 earnings call.

We are pleased report a strong second quarter all the way around, particularly in the key AFFO per share metric. And as we move into the back half of 2016, we're quite comfortable with our previously issued full-year AFFO per share guidance. That guidance we affirmed, we have seen a slight softening of activity of late and are consequently guiding to low-single-digit pro forma revenue growth for Q3, a little bit below the pace of Q2. By the way, the SEC now requires us to use the term acquisition adjusted in lieu of pro forma in our releases. These terms for us are interchangeable, and I will be using them interchangeably.

I'm going to turn it over to Keith to walk a little bit through the numbers, and then I will hit some other key metrics. Keith?

Good morning, everybody. If you have your press release in front of you, if you look at the top, there's two sections. One is three-month results and then three-month acquisition adjusted results. That's what Sean was referring to just now. That used to be named three-month pro forma results. The numbers are the same. It's just again, we have retitled it as acquisition adjusted. You can see the net revenue on a pro forma basis was up 3.5% for the quarter. Consolidated expense growth, operating and corporate overhead was up 1.8%. So that translates to a nice return on the EBITDA line of 5.6%.

Just to mention a couple of the second-quarter highlights. Same-unit digital revenue was up 5.1% for the quarter. You may recall that in the first quarter same-unit digital was up 3.4%, so hopefully we've got a trend going there. AFFO increased by almost $16 million or 13%. AFFO per share increased 12% for the quarter. And free cash flow was $190 million for the first six months of the year, and that's a $26 million increase over last year or a 16% increase.

Sean, I'll turn it back to you

Great, thanks. Let me highlight again that digital performance. We are really pleased to see that number up 5.1%, same board same digital unit. It's just a real strong performance. We ended up the quarter with 2,510 digital units in the air. Recall that 171 of those were part of the Clear Channel acquisition. So year to date including that 171, we're up 221 digital units. For the year in terms of new builds, we've added 68 as of the first half. Again, the performance that they are turning in is exceeding our expectations right now. Very pleased with the performance of that platform.

The national sales mix slipped a little bit Q2 versus Q1. In Q1, we were 81% local 19% national, that turned into 77% local 23% national in Q2. And in Q2, national was particularly strong. It was up 9% in our book. Local was up a little less than 2% at 1.9%. Strong categories, restaurants up 7%, service up 14%, real estate up 14%. Virtually every one of our top-10 verticals were strong and up, with the exception of retail which was down 1% in Q2 of 2016 versus Q2 of 2015.

With that, I will open it up for questions. Jennifer?

(Operator Instructions)

Jason Bazinet, Citi.

I just had a quick question on the private outdoor market for a second. Public multiples have expanded in the low rate environment. And just based on your [read] of private market assets, are those moving up as well? Or do you view the asking prices for those assets untethered from the rate environment that we're in? Thanks.

Thanks, Jason. The nearest touch point we have of course is the auction that recently took place with the Clear Channel asset. And if you look at the multiples there on a trailing basis, I would say they approached but didn't quite meet where the public multiples are. On a forward basis, maybe a turn and a half less than our trading multiple.

So it really depends on who the buyer is and what they can do with the asset. But if you look at the pricing we released back in January for those assets, on a trailing basis it was in the 12.5% range on a forward basis. For us, it's between 11% and 11.5% given how we're doing with the assets. All that information was part of our release.

Would you view that as indicative of the private market more broadly defined, that transaction?

It really depends on the asset. But not all billboard assets or out of home assets are created equally. Number one, not all of them are REIT qualified. Number two, within the universal REIT qualified assets some are of higher quality than others. Again, it really depends on the quality of the assets and what a new operator can do with those assets.

Thank you very much.

Marci Ryvicker, Wells Fargo.

Good morning. It's Steffan on for Marci. The quarter came in a little bit softer than we had thought, and the way it sounded like it was pacing on the last call. Did it soften up towards the end of the quarter?

Again, as we moved into the summer as I mentioned, we saw a little bit of a softening of activity. So yes, that would've affected June a little bit. You're talking really about the law of small numbers there. But you could see in the performance of national versus local in Q2 that local softened up a tad. We expect as we finish up the year that national and local are going to come in pretty close to each other. Again, strong enough to meet our guidance.

Got it. And then are those the same trends that have caused the softening in the second half and same board (multiple speakers)?

Yes. I wouldn't go completely to the full second half. What we are seeing is just a little bit of a downdraft for Q3. It's a little early to call Q4, and we don't quite know how political is going to shape up. But yes, just a little bit softer than what we saw in Q2.

Great. Thank you so much.

Alexia Quadrani, JPMorgan.

You [touched] the impressive digital growth in the quarter, which we have obviously [contain] the numbers as well. Any more color on what is the driver behind that? Is there certain categories really pushing that? And then just any commentary if you have any at all on terms of the visibility and that strength if its continuing into the September quarter.

Sure. So I think I can point to a couple of things. Most importantly it's been the strength of national digital. So in large part, that overperformance on the national book is disproportionately in the digital. They are coming in strong, and they are using it the way it's intended to be used. It's moving the needle for them. So I just feel real good about that, because we are investing heavily and that investment is going to pay off.

We have also seen a little bit of acceleration in the use of our programmatic platform. I would describe it as still in its infancy. But it is accelerating each month, and that's an encouraging sign. In fact, for the first time I think in the industry's history we had a screen agnostic buy. Which means a digital dollar was dropped in to the algorithm, and we were competing head up against mobile screens without a predetermined allocation to out of home. And we got a share of the buy. So that was -- that happened in June, and it was quite something to see. Again, it's in its infancy, but we are seeing acceleration every month in the utilization of our automated platform.

And then just a quick follow up on the softness or the actually a little bit of softening you're seeing into the Q3 on the static side. Are you seeing any change in the entertainment category specific? One of your peers mentioned that for Q3. I don't think you have that much of an overlap, just a couple of markets and maybe you're not seeing it as well. But is that one of the causes for the maybe a little bit of a delta?

Yes, you are spot on there and it's primarily New York City. The entertainment buys have been a little bit soft and a little bit erratic. I don't know if it's the lineup of movies that are coming out this summer or what, but that's been a factor and it's been a category that's been a little bit, like I said, erratic for us.

The other thing is political has been hard to get your arms around this year. I don't know what's creating that irregular pattern, but it appears to us that we should come in as predicted in October but September has been a tough call on what's going to happen with the political dollar.

Okay. Thank you very much.

Ben Swinburne, Morgan Stanley.

Just a couple of housekeeping and follow-on questions. What are you thinking for digital boards this year? Do you have a budget that you are confident in at this point, or is it still some variability there?

We guided to somewhere between [$100 million] to [$150 million], and it looks like we're pacing to get there with [$68 million] up in the first half. So I think it's a good guesstimate to just double what we have done.

Okay. And then you made a comment before on New York, but I was just curious since we are all deathly afraid of a real macro slowdown and we're trying to figure out whether we should be worried or not. Is there anything interesting in the regional variances around your business?

You guys, you have very different markets around the country. I was just wondering if you were seeing anything that you might call out as you look at this slight deceleration, whether it's in the oil patch in the south or Gulf Coast or anything else you would call out?

So let me start with the oil patch. From a top line pro forma point of view, our Southwest division is coming in the weakest, but still up. So second quarter the Southwest was up 0.1%. So weaker than the rest, but still in positive territory. And given what's going on in places like Oklahoma City and Midland, Texas and places like that, I'd count that as a win.

The strongest region is the Western, followed by the Gulf Coast, followed by the Atlantic, the Mid-Atlantic and the Midwest. We are not seeing anything that would send off alarm bells in terms of as we look across the regions. Relative strength pretty much everywhere with the exception of the oil patch, and as I mentioned, New York City had a difficult last few months given what was going on with the movie [buys].

Yes. Then just lastly on political, can you just remind us if you remember what you guys did in 2014 or 2012 just when we think about historical performance?

So in 2014 we did $7.5 million in political. In 2015, that fell down to $4 million. No, $7.5 million, $4 million. And this year, we have on the books about $5.2 million in political. September pacing slightly behind September of 2014. We took a good long hard look at that, and we're trying to ferret out where it's going to shake out.

At the end of the day, we think we approach that 2014 number, but it's coming in in a different pattern. But, again, October looks like it's going to approach that 2014 pacing. We will see how it comes in.

Yes. Okay. Thanks a lot.

Norman Kramer, Kramer Investments.

Could you explain a bit about what makes an asset qualifying for REIT purposes and what makes it non qualifying, and perhaps give an example?

Sure. Let me give you a definition of REIT qualified asset is when you put it there, did you intend for it to stay there forever. So you start with that. And in the outdoor world, that covers virtually all of our traditional inventory, bulletins and posters and our digital units. It also covers a little niche product that we have called logos. Those of the little blue signs on the side of highway right of ways, food, gas, lodging.

Now, transit assets get parsed a little differently. Bus shelters are deemed REIT qualified. Bus benches are in a gray area, and wrapping buses, traditional transit advertising, is not REIT qualified. Obviously buses roll. So in a nutshell, that's how it breaks out in the out of home world. And again, the basic rule is when you put it there, did you intend for it to be there forever.

I see. Thank you for that. And one second question. Do you see yourselves being more inquisitive going forward, and has being a REIT make you feel like you have an advantage in terms of acquisitions? Where do you think you're going with this?

Well, as we've said repeatedly, if there are high-quality REIT qualified assets out there, we are going to be interested and be active on the acquisition trail. There is another out of home REIT in Outfront. So certainly the two of us converting to a REIT has led to a nice list asset prices and asset valuation. Do I view that as a good thing? It's certainly been a good thing for our shareholders. So yes, again, if there's high-quality REIT qualified assets out there in the out of home space, we will be playing.

Okay. Thank you very much.

Thank you. I would now like to turn the conference back over to Mr. Sean Reilly.

Great, thank you, Jennifer, and thank you all for joining us on our Q2 earnings call. We look forward to visiting with you in November when we get together again and put a wrap on the year. Thank you, guys.

Thank you. Ladies and gentlemen, at this time, this concludes today's teleconference. You may now disconnect.