Q4 2019 Earnings Call

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Hi, everyone. We now have Sean Reilly and GE Johnson in conference. Please be aware that each of your line is any listen only mode.

The conclusion of the company's presentation, we will open the floor for questions. If he would like to ask a question. Please into the queue by pressing star one on your telephone keypad.

If he would like trend is yourself from the question Q press it starts you.

In the course of this discussion Lamar we make forward looking statements regarding the company, including statements about future financial performance strategic goals plans and objectives, including with respect to that amount and timing of distributions to stockholders.

All forward looking statements involve risks uncertainties and contingencies, many of which are beyond lamar's control in which may cause actual results to differ materially from anticipated results.

Our has identified important factors that could cause actual results to differ materially from does discussed in this call in the company's fourth quarter 2018 earnings release and in most recent annual report on form 10-K, eight as updated or supplemented by its quarterly reports on form 10-Q in current reports on form.

8-K.

Lamar refers you to those documents.

Lamar's fourth quarter 2019 earnings release, which contains information required by regulation G regarding certain non-GAAP financial measures was furnished to the FCC on form 8-K. This morning and is available on the Investor section of Lamar's website, Www Dot landmark Dot Com I would now like getting in conference.

Over to Sean Reilly Mr. Riley you may begin.

Thank you Olivia good morning, all and welcome to Lamar's Q4, 2019 earnings call.

As is our tradition I will make a few opening remarks, then turn it over to Jay to walk through financial highlights then I will address key metrics and open it up for questions.

2019 was a solid year for Lamar's, we successfully integrated the fairway actually Street and mid America acquisitions, adding nine new markets across the states of North and South Carolina, Georgia, Arkansas, Kansas, Illinois, and Wisconsin to our nationwide footprint.

Our top and bottom line growth came in largely as expected for the year and enabled us to finish near the top.

Our guidance for full year after FFO per share.

Looking forward to 2020, we're off to a fast start.

We did a major refinancing at historically low rates positioning our balance sheet for whatever future opportunities come our way.

They will have more to say about that.

We believe will we will have even stronger acquisition adjusted growth in 2020, aided by Tailwinds from incremental political and programmatic revenues.

You saw our AFFO CAD per share.

The press release, the top end of that guidance represents 3.5% to 4% pro forma sales growth for the year.

The formula for us to once again finish around the top end of our AFFO guidance for 2020 is simple and based on reasonable and doable assumption.

Number one grow 2019 revenues, 3% on a pro forma basis before incremental contributions from political in programmatic.

Number two layer in an anticipated 15 million incremental revenues from political and programmatic.

The 15 million has dropped as follows last.

Last year, we did 5 million in political this year, we expect to do at least a 13 million for an incremental 8 million.

Last year, we did 13 million in programmatic. This year, we expect to do at least 20 million for an incremental 7 million.

Combined that 15 million plus growing the core around 3% gets us to the upper end of the ranged from a revenue point of view.

Number three modeling pro forma expense growth at approximately 2.5% result in an EBITDA number that also gets us to the upper end of the 2028 FFO per share range [laughter]. Those are the building blocks for our 2020 forecast and we look forward to updating you on our progress toward those goals as we move for the year [noise].

Regarding the outlook for Q1, we anticipate getting off to a strong start toward our target for the full year.

Okay.

Thanks, Sean and good morning, everyone.

On a solid fourth quarter was 2.7% acquisition adjusted revenue growth, while holding consolidate expense growth to its lowest level for the year.

Acquisition, adjusted EBITDA increased 4.7% in the quarter [noise].

Adjusted EBITDA was $215.6 million as compared to $195.3 million in the fourth quarter 2018.

And fully diluted EPS also increased 10.8% to $1.64 cents per share.

For the full year revenue increased 7.8% to $1.75 billion.

Adjusted EBITDA was $784.9 million, which represented an 8.6% increase and fully diluted EPS AFFO per share was $5, an 80 cents an increase of 5.5% over 2018.

Both adjusted EBITDA and you have to AFFO ended the year at the high end of our range.

On the expense side, it's all these expenses increased only 1% during the quarter.

<unk> expenses were elevated in the first half of the year, particularly the first quarter due primarily to acquisition related activity.

Anticipated these expenses would moderate in the back half of the year, which we experienced in both third and fourth quarters. As a result, our full year expense growth was 2.1%, which is in line with historical levels.

Moving over to Capex total spend for the quarter was approximately $43 million comprised of $30 million in growth Capex and approximately $13 million of maintenance Capex.

For the full year 20, Ninee, we finished at roughly 50 million of maintenance Capex and 91 million of growth for a total of approximately $141 million.

Looking into 2020, we anticipate total capex of approximately $131 million 80 million in growth Capex and 50 million of maintenance.

I'd now like to touch on our balance sheet, our balance sheet remains strong Lamar enjoys excellent access to capital in both the debt and equity markets, our senior secured debt cares investment grade ratings from both Moodys and S&P.

The company ended the quarter with total leverage at 3.5 times net debt to EBITDA as defined under our credit facility and Furthermore, we had approximately $430 million of liquidity comprised of $387 million available under our revolving credit facility and 26 million of cash on hand.

Subsequent to quarter in the company took advantage of a constructive backdrop within the capital markets refinancing debt at very favorable terms and further strengthening our balance sheet.

In January we launched in price $2.35 billion of debt with the following key objectives to lower overall cost of debt, including amortization and cash interest extend our debt maturity profile to mitigate refinancing risk during any potential downturn.

Enhanced liquidity with an increase to our revolver.

Reduce our exposure to floating interest rates and finally to gain additional flexibility under a covenant structure.

With the support of a dedicated bank group, we amended and extended our revolving credit facilities through 2025, increasing bank commitments from 550 million to $750 million and reducing the spread over LIBOR from 175 basis points to 150 basis points.

In addition, we issued $1 billion of bonds, consisting of two charges $600 million with eight your senior notes at 3.75% and $400 million have changed your senior notes at 4%.

The 3.75% rate represent the lowest coupon for an eight year offering in the high yield market at that time.

Well the junior offering tied a record in the market.

Unless we originated a new seven years 600 million dollar term loan b at LIBOR, plus 150 basis points, the lowest spread in the institutional market since prior to the global financial crisis.

Proceeds from the offerings were used to redeem all 510 million of our five in three senior notes due in 2020.

As well as prepaid our 400 million dollar term loan hey, eliminating $51 million of scheduled amortization in 2020.

And finally to refinance our existing term loan b with the new 600 million dollar term loan b on an interest only basis, eliminating another $6 million in amortization this year.

Altogether, the refinancings will result in over $60 million of amortization and cash interest savings, which can be redeployed to more accretive activities like acquisitions or converting stead static billboards to digital.

The company expects to incur an expense in Q1 totaling $18.3 million related to the loss on extinguishment of debt for the refinancings, which we added back as a noncash adjustment to net income.

Overall, we're extremely pleased with this capital markets execution.

These transactions are a testament to our best in class balance sheet. The based at the capital markets have in our business in management team and position Lamar will for future growth.

Thank you Jay I'll touch on a few of the familiar metrics and then we'll open it up for questions.

On our digital platform, our digital platform continues to perform well and provide good incremental growth.

You saw in the release the same board performance up 4.6.

For the full year I would note that the digital platform same board was up 5.2, when you layer in the additional units that we.

Either acquired or built Greenfield.

The growth was even more substantial we ended the year with.

30, 542 digital faces in the air.

An increase of approximately 335 basis for the full year.

205 of those were Newbuilds and 130 whereby acquisition.

Our goal for 2020 is to pick up the pace a bit and new build activity as we're shooting for approximately 250, new build units in 2020.

Regarding national and local sales the mix in Q4 was 75% local and 24% National Slash programmatically a word on.

Programmatic and how it fits in to our national numbers.

Programmatic is virtually all national and so we are lumping them together for purposes of this type of reporting.

And with that in mind Q4, local grew 1.8% and national programmatic grew 7.7%.

For the full year, if you took local and national they both group basically plus three plus three that by the way isn't a Billboard only number doesn't include logos transit and airports.

Quickly looking at our verticals.

Strong verticals for fourth but for the fourth quarter included service up 7% hospitals up 8%.

Amusement entertainment and sports up 7% insurance up 42%.

And financial up 20%.

On the not so great vertical front automotive was down 4% we saw that coming.

But the one that surprised us was retail a quick little bit of color on retail.

Through October of last year retailers clicking along at approximately up 2.5%.

Then in November and December it turned to a negative 5% that positive to negative swing cost us about two and a half million dollars and wasn't major contributor to our slight miss for the quarter.

The good news is January retail is off to a better start as it was up.

2.6% so.

We feel like that category is not going to be letting us down and the 2020.

So Olivia with that would you. Please open it up for questions.

Of course at this time, we will open the floor for questions. If he would like to ask a question. Please press star followed by one on your telephone keypad.

And well be taken in the order in which they are received if at any time, you would like to remove yourself from the question Q prices start to.

Please pause for a moment as we can pile your responses.

Our first question is coming from Ben Swinburn with Morgan Stanley. Please go ahead.

Hi, this is great for bad.

You mentioned to retail being a major contributor Q.

To the gross does quite are today negative there has that impacted at all by having one less week and the holiday season.

You know that could have been it we.

Have literally thousands and thousands of local retail customers and so I I don't know that I can can point to one.

Factor, but you know we do know that if it was a bit of a holiday hiccup, if you will and as we're looking forward into 2020.

Again, the retail seems to be back to where it was for most of last year as I mentioned going into October is clicking along.

Roughly up 2.5% and January a retail was up 2.6% so.

We're hopeful that that that was as I described the holiday hiccup.

Okay Gotcha. Thanks.

Just one quick follow up.

If you could touch on your expectations for DNA in 2020.

[noise] sure. So what we're looking at on the depreciation amortization site is.

All of approximately a two up to about 249 to 250 million.

Thank you were there any additional remarks to that question before we proceed.

No. Thank you.

Thank you.

I'll now near to our next question coming from Steven This and with Wolfe Research. Please go ahead.

Good morning, Thanks, so much for all of the color on the 2020 got and I was wondering chunk did you put it did have a finer point on the Q1 revenue expectation.

So oh, thanks Steven.

So we are we feel really good about how we're going to do in Q1, one thing you're going to notice is we're going to.

No longer be giving specific.

Q1, pacings or a acquisition adjusted estimates.

So what we're going to do.

Is.

What most Reits do well in on the guidance front.

We're going to.

Got to AFFO or with a range of Pershare beginning in the year and then as we move through the year, we're going to.

Tell you how we're progressing towards that goal.

With that said as I mentioned, we think Q1 is going to get us off to a strong start and in terms of hitting the goals that we we outlined.

Great. Thanks, and then I.

I don't think does the guidance includes M&A can you confirm that and what does the M&A pipeline look like at this point.

I'm. Good question no. The guidance doesn't include M&A, you'll you'll see a very familiar released and as we do our first quarter called it'll include a backwards look at acquisition adjusted growth plus our as reported numbers.

The M&A pipeline is certainly not what.

Happened over the last 15 months you know over the last 15 months, we had just an awful lot of activity and.

Doug.

And spent upwards of $700 million on on a variety of new markets and fold them.

So I would categorize it as as the pace falling back to what it was you.

You know sort of prior to all that activity.

Great. Thanks, so much.

<unk>.

Thank you we'll go next to our next caller and outlets with JP Morgan.

Please go ahead.

Hi, this is analytical on for a lot.

<unk>.

Just wondering in terms of your digital Billboard conversions and the acquisition.

How much is there a percentage of revenue from digital now.

Last year I believe we did approximately 400 million and digital revenues across the platform and that was on as you know a total revenue base of 1.75.

So approximately what does that 22%.

Great. Thank you.

Then just one quick follow up question in terms of that color on retail being negative contributor.

Holiday season.

Around and 2020.

<unk>.

[noise] you know our early indications are that retail is gonna be fine.

Mentioned January we have that are in the book and it was up 2.6.

So it seems to us that that was a oh you know just a.

A couple of them up aberration and.

You know it's again, our retail is is not.

What you would describe as sort of big national retailers, it's thousands and thousands of main street USA retailers and you know, it's our hope that there will be healthy and their spend will be stable.

Great. Thanks, so much.

Thank you.

And with no further questions. This will conclude today's conference ladies and gentlemen, Thank you for joining you may now disconnect.

Thank you all and we look forward to visiting a in may.

Thank you have a great Dane.

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