Q1 2020 Earnings Call

For the month of April the company was net cash positive. And as of April 30th, we had approximately $518 of cash in our revolver availability remains unchanged from quarter in Iraq during the first quarter The company took advantage of a constructive backdrop within the capital markets refinancing debt at favorable terms and further strengthening our balance sheet these transactions offer significant benefits as we Face the current unprecedented economic conditions, lowering our costs of death extending maturities enhancing liquidity and adding flexibility under our covenant structure. Em, all together. The refinancing is a result in fifty-seven million dollars of schedule an amortization savings this year and even greater Savings of seventy three point five million dollars in 2021.

But we did not.

Anticipate the current pandemic related downturn we wanted to ensure that we had the lowest possible cost of debt while maintaining the financial flexibility to withstand periods of weakness through the throughout the economic cycle while the current environment was not in our analysis. We believe the steps taken will allow the company to endure even if the current economic environment persists for an extended period of time with the upsides revolver amortization savings and the steps we are taking to cut expenses. We're confident that we have ample liquidity to withstand this economic crisis and we're well positioned for future growth. Once this pandemic related downturn hint.

Shipping to our new covenant structure which provides greater flexibility our senior secured credit agreement contains to financial covenants unsecured debt maintenance test of 4.5 time, which was increased from 3.5 times and a toad debt and currents test of seven times, which also was increased in February from six times. Both tests are based on net debt to trailing-twelve-month as defined under the credit agreement.

At the end of the first quarter secured debt leverage was only one point three two times even after the five hundred thirty-five million dollar drawn the revolver in March prior to the drawing the credit facility home and pro forma for closing of the refinancing transactions are secured debt Covenant was 0.9 times at the current level of secured debt outstanding our latest trip 12-month trailing even I would have to decline approximately 70% from full year 2019 for the company to reach its maximum secured debt Leverage.

To put this in context or even though the client approximately 21% during the global financial crisis from your end 2007 two year in 2009.

It should be noted that this Covenant is only applicable to the revolver. If our line of credit is repaid and canceled our secured debt Covenant with no longer apply. Even if the term loan be remained outstanding.

Our second Financial Covenant is a limit on how much total debt the company may have outstanding relative to even. Unlike are secured debt. Test. Total Leverage is An Occurrence test, which is Thursday. It would only limit our ability to raise additional debt and not result in a default under any of our debt agreements. As I mentioned at the end of the first quarter. Our total debt-to-ebitda was six point zero three times up approximately fifty basis points from your end due to the revolver draw in March to increase our cash on hand under terms of our credit agreement cash balances are not fully deduct are secured. Our total debt balances and The netting of cash against our debt is limited to a maximum of $150.

The current level of total debt outstanding our latest 12 months railing even. Would have to decline approximately 40% from 4 year 2019 for the company to reach its maximum total debt leverage off. Hopefully this provide some clarity on the financial flexibility of Lamar as we Face the present level of economic uncertainty.

I understand today, we do not anticipate the need to approach our bank group seeking relief or amendment to any of our financial covenants for the foreseeable future with that. I will now turn the page over the shop. Thanks Jag. I'm going to cover a few of the metrics that you're familiar with. And then I'm going to do a little deeper dive in terms of color on what I'm seeing in our verticals. I think that might be helpful. So digital count. We ended the first quarter with 3589 digital that's an increase of 47 units a few of those 47 were by acquisition. We actually Greenfield new digital put up 42 in the office are same digital unit. Revenue was up 5.9% in q1.

Our national local sales mix 79% local 21% National and programmatic for a few 120 volt. So that's looking in the rear-view mirror. Let's let's look through the windshield at some of our verticals and and talk a little more granularly about. Um, so our top three verticals as you're familiar with our service hospitals and restaurants and I would say that one two, and three are looking good too strong as we look through the windshield service of course is primarily off attorneys were getting a lot of inbound, uh from attorneys that are looking to expand their relationships and we feel good about that. But we also feel good about service is expanding slightly because there are other services that fall in that category things like Pest Control home and office cleaning as you can imagine the cleaning services are wage.

Demand and we're seeing some of that and so we feel good about the service category hospitals and Health Care is also very strong as you can imagine. We're seeing activity in life and things like elective surgeries as States open up and there's increased demand and pent-up demand for clinic visits doctor visits and Thursdays elective surgeries. Let's talk about the restaurant category the vast majority of our restaurant business is Quick Service and National chains like Cracker Barrel and they are going to be 5 a.m. In fact, as I mentioned, I believe that as America hits the open road this summer, I believe there's going to be a record number of miles driven this summer across the country club restaurant Quick Service and National chains are are going to do well our fourth largest vertical is is retail. It's about 8% of our book retail is dead.

We're going to have to take the clothes. Keep a close eye on it. Watch it closely. It's tied more to what is going to be determined by the macro recovery. Certainly. We issued a lot of credits to retail stores that were closed in the months of April and and may as things reopen they're going to come back. The question is what's the macro-environment? Um in Q3 and 4 and we're going to be watching that closely. Most of our retail business are are small local retailers think local jewelry stores in the lights off another tough category, of course is Amusement definitely took a hit in in the shutdown. We think that we're seeing some renewed activity. It's not necessarily

Vegas

And Disney World, it's more sort of your Regional Amusement venues. You know, I'm in places like Hershey and Thursday and and the like and again, I think we'll see. Uh a little Rebound in Amusement. The summer is is as America hit the open road the Real Recovery those off for amusement to it's going to be probably fourth-quarter q1 next year when when things really open up Automotive the color I'm getting on auto pay from the field is that it's hanging in there Automotive was actually up 2% in q1. It'll probably be down most likely in Q2, but off the auto dealers use us in in a variety of ways if they're not selling new cars. They advertised the their service offerings asking people to come in and dead.

And get their car serviced. So we we feel like that's going to hang in there gaming gaming is is likewise challenged in a shutdown invite Vegas is an important Market to us and and it's taking a pretty good hit. However, I would note that ninety percent of our gaming business is regional and outside Las Vegas and openings in places like the Mississippi Gulf Coast and the like are beginning to be announced the Mississippi Gulf Coast for example has announced June openings for many of their casinos and that business is sticking with us.

The education vertical is is tremendously strong. It was up 70% in q1 and is looking strong in Q2 off two main themes. They're online education. You can imagine the the thinking there but also fall enrollment and reinforcing the notion that schools that are not going to be open want to tell the world that they are and and then reassure their student population that that that they're going to be there for them off.

Telcom strong and getting stronger. That's the stay-at-home environment. And then finally we have a category. That's and it's number 19 Thursday speak. It's household furnishings and Home Improvement and we're seeing a nice uptick there. So, you know as I look across our verticals and think about where the recovery is coming from and and am speed with which it could possibly happen. I'm encouraged. So with that Kerry will open it up for questions.

Thank you.

This time we'd like to open the floor for questions. If you would like to ask a question, please press the star key followed by the one key on your touch tone phone now.

Again, that is star one to ask an audio question. If you'd like to remove yourself from the question in queue at any time that a * 2 in * 1 to ask an audio question will pause for just a moment to allow everyone the opportunity to signal.

Your first question will be from Alexa from JP Morgan.

Hi, this is Anna on for Alexia. Thank you so much for the question great commentary on the call as well. Just given that results we're not as as much affected by covid-19 and do one and your commentary seems very upbeat in terms of your ability to maintain business in Q2. Would you consider m&a of certain strategic assets came on the market?

Thank you for the question Anna. You know I've been doing this a long time been in in the outdoor business for over three decades and

Have managed through good times and and and tough times and one thing that my father and my brother told me as they taught me the business office is you always buy through the cycles and hopefully as as we recover, I know one thing that we will emerge as one of the strongest players in in in the industry off. If not the strongest hopefully opportunities will come our way. So stay tuned.

Great. Thanks so much.

Thank you or next question will be from Stephen bison from Wolf research.

Good afternoon, and thanks for all the commentaries amazingly comprehensive two questions for me. I guess the first is on the new trends and in May you said things got a little bit worse. Is it off significantly worse or is it just you know directionally a little bit further down and any early commentary on June and then I know you guys have a lot of Middle America. How is the oil patch Fair given All the Troubles in that industry is dead.

Pure a good question. So the oil patch is going to struggle and you know the colors and commentary there is in places like a Tulsa and Oklahoma City and Midland, Texas. The macro is is is challenging and difficult and you know that is is just something we're going to manage through. So the way our business unfolds in selling for the. Make the. You probably heard me say this before when we're 60 30 to 60 days out from a month.

That's when most of the activity goes into that month, right? So the world shut down in April just means that a little more the impact was felt for them. Now. We're selling in the month for the Month in May as we speak. And we we believe we're going to have net new business for me as the month progressed that said we think that may will be I would categorize it as a tad worse than April, not dramatically. I don't want to get into June yet.

but

You know, I have I have hopes that as we're writing business in May or June June June can pick up so I don't I don't want to I don't want to guide to the quarter. Yeah, but we certainly don't see it as dire as as some of the analysts had it.

Understood and then one follow-up how programmatic bearing is that something that can really help out in an environment where you are doing someone selling that, you know closer to the air date.

Yeah, so that that that is a really good question and I'll I'm going to kind of broaden it a little bit because it's axiomatic in our business that the shorter the cycle the quicker downturn but also the quicker the balance right programmatic is our shortest cycle business. It's in in many instances. It's it's a nanosecond month. So problematic got hit pretty bad in in April now there were there were two reasons for that. Number one. It's extremely short cycle. But number two it's only a channel wherein we guarantee impression right when we sell a bulletin on the interstate for the month.

There's lots of data around the traffic who's driving by it what the demographics are but we don't guarantee a set number of impressions in programmatic. We do wrong and in April we could not do that. I'm happy to report that as of I believe tomorrow we ought to have that allows us by inventory by digital inventory to guarantee and press and the programmatic activity has been a really picked up and so we're we are going to see a lift from that in May and I believe as we progress through the year so good cause it to broaden it out a little bit digital is are broadly speaking is our next shortest cycle sale, and it took a bigger hit in a pig.

Then the rest of our platform and we see it also coming back faster, you know, I didn't mention one little green shoe that I should have talked about which I'm a political political for the back half used three and four is pacing up 32% from the 2018 cycle.

Thank you so much.

Thank you. And as a reminder that is star one to ask an audio question star one. Now. Next question will be from Benjamin swinburne for Morgan Stanley Cup. Good morning. You guys I like two questions and I know the there's no way to really know or have confidence in the first one. But when you think about the business coming out of this and I know the timing is unknown, but also trying to get a sense for how this feels to you and the team relative 20809 in terms of the recovery. I mean one of the things that was wrong, you know, I think I'm sure you share the frustration it was it was an okay recovery, but it wasn't we didn't have the kind of snap back last time and I I know this is again, it's an unknown but you know, the business has changed a bit or maybe a lot since then I'm just wondering if you could share your thoughts on that and then I'd also love to know and this is probably a board decision. But how are you guys thinking about the Dead?

In verses leverage, like what's the balance there that you're trying to strike?

Sure, great questions. So oh 809 course. I was the chief operating officer of the company back then and I will tell you that.

You know for six months, I walked around with a feeling of dread in the pit of my stomach. It just I worked at Morgan Stanley so you can imagine how I felt sick. Yeah, so I you know, I say that just sort of highlight that I have not felt that way throughout this is she does not feel uh,

As it felt back then almost existential. There's a couple of reasons for that. Our scale is is bigger. Our platform is brought our inventory is and more demand. Our balance sheet is far far better. If you recall we went into that thing levered at about 6 x and that we had to scramble and off and they were, you know, running around getting Covenant relief and and and all that stuff and it was just a a much more.

much more difficult time

you know, it is hard to predict the The Rebound in terms of is it a v is