Lamar Advertising Co (LAMR) 2018 Q2 法說會逐字稿

We now have Sean Reilly and Keith Istre in conference. (Operator Instructions)

In the course of the discussion, Lamar may make forward-looking statements regarding the company, including statements about its future financial performance, strategic goals, plans, objectives, including with respect to the amount and timing 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 to differ materially from those discussed in this call in the company's second quarter 2018 earnings release, and its most recent annual report on Form 10-K, as updated or supplemented by its quarterly reports on Form 10-Q and current reports on Form 8-K. Lamar refers you to those documents.

Lamar's second quarter 2018 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 the Investors section of Lamar's website, www.lamar.com.

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

Thank you, Katie, and good morning all, and welcome to Lamar's Q2 2018 Earnings Call.

Q2 was a good all-around quarter for Lamar. Everything clicked, every business unit, billboards, transit, airports and logos, all lines of business exceeded plan, on the top and the bottom.

As reported results reflect a successful integration of last year's acquisitions and their accretive contribution to AFFO growth.

Our digital platform continues to shine with stellar same-board growth north of 6%, and our pro forma overall growth of 3.4% reflect the continued confidence our customers have in out-of-home to communicate their message to the right audience at the right time and in the right place.

As mentioned in the release, we expect Q3 pro forma growth to be in the same neighborhood, and we are consequently raising our AFFO per share guidance to $5.30 to $5.40 per share.

Again, an all-around good performance by a great Lamar team. Keith?

Good morning, everyone. Just a couple of comments on Q2 metrics. One of those -- a couple of those metrics aren't in press release. But this is the acquisition-adjusted results for the 6 months ended on a consolidated basis. The revenue was up 2.4%. EBITDA was up 5.3%. Again, that's on an acquisition-adjusted or same-store basis. So you can see the positive impact that the control of the expenses that we've recognized in the first 2 quarters of this year have had on the bottom line. The bottom line is basically doubled what the top line pro forma revenue growth is for the first 6 months.

Back to the second quarter, Sean mentioned, it was a really good quarter for us. EBITDA margins came in at 47%. Last year's Q2 was 46%. So we managed to pick up an extra point over last year's same quarter.

With respect to AFFO per share and our revised guidance, you may have noticed in the schedule that we included showing the revised guidance of $5.30 a share to $5.40.

Maintenance CapEx is now at -- projected to be $44 million. We initially used $48 million at the beginning of the year that was our internal expectation. So we have dropped that down about $4 million.

Last year's actual maintenance CapEx came in at $43 million. So we think it'll look a lot like 2017 with regard to maintenance CapEx.

Our total pro forma leverage ratio came in at 3.6 as of the end of June, which is where we pretty much reside.

And last, just to reiterate our free cash flow for 2018, before dividend should come in, in the $470 million range. And we expect dividends to be approximately $360 million for the year.

Sean?

Great. Thanks, Keith. I'll touch on a couple of other operating metrics. I'm going to start with digitals and where we stand with our new build activity.

Year to date, we've built 72 new digital units. And the performance with those new units has been as if not exceeding expectations.

We ended the quarter with 2,905 digital units in the air. Recall that we have sold Puerto Rico and that dropped our digital count by about 55 units. So that number is now at 2,905 with the new builds that we have put in the air.

Year to date, as mentioned, our same-board digital performance was quite good at 6.3% same-board. And if you take the effect of the new build and some acquisition activity, our digital platform actually grew mid- to upper teens in year to date.

In terms of national/local, local was little stronger than national in Q2, up 3% and some change. National's up approximately 1%. We expect actually national to pick up a little bit in Q3, and it would not surprise me if there was an equal contribution from local and national when we report on Q3.

The verticals tell an interesting story. We have had quite a resurgence in some verticals that we've had to talk about the last 12 or 18 months.

I'll start with education. There's been a lot of discussion around that category. Education was up 6%.

Financials. Financials were up 10%. If you drive around town, you'll see a lot of ads advertising CD rates for community and local banks. And that's a great thing to see. I think that might even be a read-through for some of you guys in your lingo.

Amusements, entertainment and sports was up 9%. And services were up 8%. So when you just take that selection of some of our more important and largest verticals, those are impressive numbers.

By the way, real estate cracked the top 10, and was up 6% in Q2. Auto struggled a little bit. You've been hearing that from other media platforms, down mid-singles, as was gaming down mid-singles. But all around, very, very pleased with what we're seeing in the market.

So with that, Katie, I'll open it up for questions.

(Operator Instructions) Our first question comes from Stephan Bisson from Wells Fargo.

Quick question. How much benefit did political provide in Q2? I know that you guys discussed it on the last call. And maybe how much you're seeing in the second half?

Sure. In Q2, political added 0.5% to what would otherwise have been our pro forma growth. It'll be in that neighborhood, maybe a tad more in the back half. I think when we finish the year, if it comes in as we project, it'll be in that neighborhood of 0.5% contribution. Through June, political for 2018 is tracking 30% over the 2014 midterm.

Great. And then given the really great digital trends, any thoughts on potential increase in the number of digital deployments this year?

We're going as fast as we can.

Got it. And then lastly on expense growth, you guys are clearly growing revenue faster. How should we think about expenses, I guess, for the balance of the year? And then just getting a higher revenue?

We should turn it in the same neighborhood. First quarter was, as you recall, a little extraordinary. But I think second quarter is -- should be reflective of what happens in the back half. 1.5% to 2%.

Okay. And then I guess, just one more. Auto -- has auto improved in Q3 or Q4? Are you seeing any signs of that or not?

It's a little too early to tell. We've done slice and dice our verticals. Looking forward, we do that in the rears. It was little disappointing in Q2. Because Q1, auto was up a little north of 2%. And in Q2, I think we kind of felt the effect of a lot of other media platforms. The auto group just seemed to pulled in their horns across the board. So we'll see. It's what was -- a good thing for me to see was a little bit of a struggle in one vertical, and several other verticals stepped up to the plate.

Our next question comes from Alexia Quadrani from JPMorgan.

Just a couple questions. What do you think is going to driving or beginning to drive the better growth in national you're seeing in the third quarter at the back half? And also on the strengthening, you're saying just in general, local and national, are you taking -- do you find you're taking share from another media? Or is it just sort of better spending by your advertisers?

There's a lot of share shift going on at the local level with traditional media. And I think when the story is written on 2018, you'll see that we did take some marginal share from some of the other media that are struggling with their audience. Our audience is solid and growing more people, are spending more time without a home than as of before as their commutes lengthened and they're spending more time.

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And on the better growth in national, where is that, you think, coming from?

National is a more fickle dollar as we know. It tends to ebb and flow a little more than local. And the first half of the year was one of those ebbs. There are some big categories that didn't show up in the first half of the year, most notably telecom. But they're coming back a little bit in the back half. So it's just the natural ebb and flow of the national ad spend.

And then just last question on -- anything new on M&A in terms of the pipeline or priorities, anything new to add on M&A?

Yes. So that's -- I'm glad you brought that up because we didn't mention the ATM or the universal shelf that we've just filed. So we've got about -- so year to date, about $100 million in acquisitions and various stages of letter of intent in contract and closing. In anticipation of that, we did tap the ATM for about $15 million worth of equity in the late spring. And we also have a seller that wish to take part of his consideration in our stock that is the reason for the universal shelf. That was give or take 10. So on a LOI contracted $100 million worth of out-of-home assets, we're funding it $75 million with a drawdown on the revolver, and about $25 million in equity combining the ATM and the shelf. Does that make sense?

Our next question comes from Jason Bazinet from Citi.

Just had a quick question. You guys are kind enough to give same-store revenue and EBITDA. And I think when you do that, you're sort of giving the number that you reported in the quarter and then pretending that you own that asset in the year-ago period. And I was just wondering if you reverse it and really did same-store on the assets you had a year ago, and what the same assets would be this year without M&A, if you sort of see the same sort of revenue and EBITDA trajectory?

Yes, good question. It's basically the same. You can do it either way. The important thing is to have a real clean as reported in the real clean acquisition-adjusted. Sometimes, the terms pro forma and acquisition-adjusted can be intermingled and interchanged. We try to be very, very clear on our methodology. Some companies do it the other way. If you did it to our activity last year, it would be virtually the same.

So you guys think you can get this sort of operating leverage in the business even if the M&A speak it, dialed back or turned off?

Yes, absolutely. I mean, look the as -- yes, so the as-reported results, obviously, reflect the accretive nature of the acquisitions that pro forma results show what would happen to the platform if we were just steady state.

Okay. All right. It just seems like if you're buying one of these assets, I presume that your acquisition-adjusted EBITDA multiple is lower than the headline multiple that you're paying for the assets as you rip out some overhead in costs from these acquired properties?

Yes, yes, yes. Absolutely. No, no, no. Sellers have a trailing multiple that looks pretty racy. When we do these fill-in acquisitions, we're really just acquiring advertising contracts, structures, permits and ground leases. We typically don't -- because of our really expensive national footprint, virtually every billboard we buy as a fill-in. And we don't need trucks and people and the like. So yes, absolutely. It's a very prudential exercise.

Our next question comes from Ben Swinburne from Morgan Stanley.

Sean, have you starting to kind of thinking about sports gambling, what that might mean to the business? I know you mentioned gaming was soft in the quarter. And I realized this is just starting to move across the country from a legislation perspective. But I don't know if you had any examples in some of the early states, where this seems like that could be an opportunity for you guys? And then I just wanted to ask, corporate cost, I think we're down year-on-year. Anything unusual there? And is that a trend you expect in the back half?

So I'll hit the corporate cost first, and then Keith might be able to add a little color to that. But we are cycling through a little bit of a heavy litigation expense year last year, so that's been a little bit of a benefit. Keith may have some other things that are sort of accrual related and things like that. But on the gaming, so yes, we do expected that the sports book will deuce, pardon upon, our gaming footprint. When DraftKings and FanDuel first got started a few years ago and they were ramping up, they, within a very short amount of time, had gotten to about $600,000 in spend with us, over a very -- like 4 or 5 months period. And then they were shut down. So we expect that activity at some point to come our way when all that sort of becomes a little more clear. Their world, they've got some M&A activity going on. And -- but when all that settles down, we expect them to come our way. The other benefit we hope to see is casino activity, particularly, in Mississippi. Mississippi is one of those states that's already voted to allow sports book at their casino. So we're hopeful that in the back half of the year, we'll see some of that as well. Gaming's been a little bit of an enigma for us. What we're hearing anecdotally is that it's going to come back particularly in Vegas. Vegas has been recovering from a number of things that have had an impact on the way the big casino groups hone their message. The shootings, those deep win thing and all that we've talked about that in the past.

Yes. Now just one more follow-up. You mentioned, Sean, that you're taking share from Yellow Pages, I'm sure that's intuitive to folks. Another media you've been competing with for years, which would be traditional radio. Would you see any share shifts from -- and you talk to your GMs there that might be accelerated? I ask because if there -- the numbers this year have been a bit soft for traditional radio, and maybe all-streaming which is growing nicely. But I'm curious if you think you guys are doing better against radio than you have in the past for whatever reason?

So I think as service is pretty direct correlation to share shift from Yellow Pages, another category that's growing rapidly for us, particularly on our digital platform, is amusements, entertainment and sports. This is a tractor pull next weekend. It's that kind of thing. And that has traditionally been a radio sweet spot, right? Because if you can produce a radio very, very quickly and respond to however your ticket sales are going, well, we can do that in digital in a nanosecond. And if there's a need to sell tickets, if there's a need to promote a concert, if there's a need to deuce ticket sales in Friday, Saturday and Sunday, and if you're sitting at Wednesday, you can do it with a digital platform. So I would say that's a pretty direct correlation there to what radio's strength used to be.

And at this time, I am showing no further questions in the queue. I would now like to turn it back over to Sean Reilly for closing remarks.

Well, thank you all for listening. We'll talk again in November, and we'll talk about Q3 and how we're going to finish out the year. But for now, let's enjoy what was an outstanding Q2.

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