Q2 2020 Lamar Advertising Co Earnings Call

[laughter] you everyone. We now have Sean Reilly and Jane jobs, I mean called Frank.

Please be aware Egypt. Your line is going to listen only mode at the conclusion of the company's presentation. We will open the floor for questions to ask a question you can press star one on your telephone keypad.

In the course stumpage. This discussion one more may make forward looking statements regarding the company, including statements about its future financial performance strategic goals plans and objectives.

Putting much perspective would be a male and timing of any distributions to stockholders and.

The impact in a thanks, a b novel Corona virus.

On the company's business financial condition results of operations all forward looking statements involve risks uncertainties and teaching contingencies.

Many many of which are beyond lamar's control and which may cause actual results results to differ materially from anticipated results.

One more has identified important factors that can cause actual where is our results to differ materially from David discussed in this call and the company's second quarter 2020 earnings release.

And its most recent annual report on form 10-K, and updated or stuff one minute by its <unk> quarterly reports on form 10-Q, and current reports on form 8-K [noise].

First you today's document.

Our second quarter 2020 earnings release, which contains information required by regulation G regarding regarding certain non gap.

Financial measures was furnished GB actually see.

On a form 8-K. This morning and is available on the Investor section of Lamar's website at Www Dot Lamar Dot com.

I would now like to turn the conference over to Sean Reilly Mr. Rally you may begin.

Thank you Samantha good morning, all and welcome to Lamar's Q2 earnings call.

Do you have seen in our release, we've issued revised guidance for eight AFFO per share for the full year of 2020 that new range is $4 in 16 cents on the low end and $4.56 on the high.

Uh huh.

Things are showing sequential improvement every month and how that's tracking toward the upper half of that range.

That implies full year revenue declined 420, 20 of approximately 13% to 14%.

Jim is a very good month for us in terms of total contract value written for the rest of the year.

In fact, we put more contract dollars on the books in June 2020 for the balance of 20 twond than they did in June 2019, but the rest of 2019.

The strong month indeed.

That said the second surgical the cases in July has resulted in a slight softening.

Particularly with sales around amusement event sports entertainment and alike.

And particularly in the West Los Vegas, Southern California, Seattle, and then the largest DNA.

Across the country small and middle markets continue to perform better than larger markets local sales continued to perform better than national sales.

Customer categories that are showing relative strength include healthcare education insurance real estate and anything related to home improvement.

Category showing relative weakness include as I mentioned amusements entertainment and sports.

And retail and fine dining.

You will note the guidance range is larger than usual that of course is related to uncertainties remain around coated and what happens around back to school professional in college sports and how small businesses, whether what looks to be a larger a longer downturn than we thought a couple of months ago.

I mentioned, we have a shot at the upper end of our Guy, but these things are hard to predict.

The expense side is easier to project as I cited in our release our efforts to align our cost base to current conditions are going well, we had targeted about 50 million in expense savings.

The 2019 pro forma expense base of about 980 million. It looks today like we will achieve at least 60 million and expense savings talk about base.

In addition, and importantly at present, the field are supporting little concern around collections or bad debt.

Well, Matt no I want to thank everybody on the more land for their hard work and he's trying times. The past few months to reinforce for me that we had the strongest team any out of home industry and I'm deeply appreciative of their contribution.

With that I will turn it over to Jay for some financial detail.

Thanks, Sean Good morning, everyone and thank you for taking the time to door call.

I will begin with some brief comments on the second quarter, then review our balance sheet and conclude with a discussion of our current financial position improving liquidity.

In the second quarter acquisition, adjusted revenues declined 23.4% and the same period last year.

The began to see benefits from a cost reduction initiatives as acquisition adjusted consolidated expenses declined 12.2%.

Driven primarily by reduced for jazz fusion or airport in tragic divisions.

Well leach renegotiations and older tools for cash balances anticipated this year.

Adjusted EBITDA for the quarter with $133.2 million compared to $207.9 million important I came it was a decrease of 35% to 9%.

On an acquisition adjusted basis that decline was 36.4%.

Fully diluted share your fiscal contracted by 38.3% to 95 six for sure.

The bifurcation between national local markets continued in the quarter.

However, there was a dramatic shift in relative performance as major markets in urban areas sheltered inflates, our local business significantly outperform nationally.

In fact to percentage decline in our national portfolio. It was almost two times it about local business.

And the east and West Coast, we're particularly impacted.

As a result, a revenue shift.

Mix slightly.

With local revenue accounting for 81 for sort of sales and national revenue.

Representing 19%.

Certainly all Jos a cold if I couldn't be any anticipated our transient airports business would be the most impact as well as opposed to recover.

Lamar's Airport in transit managers had been working with our partners to pain relief and reduce our minimum guarantees it's transit ridership and air traffic both at historic lows.

In recent weeks political asking for the remainder of the year has rebounded nicely [laughter] pacings for the second half of 2020 or up approximately 20% versus 2018.

The last federal election cycle, and most relevant call.

Beginning late in the first quarter you killed acquisitions have continued to limit activity through Q2.

Positions completed in the quarter totaled $12.6 million, all contractually obligated parts of the government imposed lucked out they love.

[laughter] real to Capex.

Good for the quarter was approximately $10.6 million comprised of 6.7 million in growth Capex at approximately 3.9 million of maintenance Capex.

As mentioned in May.

Reduced our 2020, capex, but significantly by over 50% to approximately $60 million.

Year to date total Capex was $36.3 million 21.8 million in growth and 14.5 million of maintenance.

Capex for the balance of your will be approximately $24 million is maintenance accounting for 10 billion supposed to remain spin.

Turning to our balance sheet.

We continue to benefit from the steps we took earlier this year to fortify the company's capital structure.

Balance sheet is even stronger than in recent years. It continues to enjoy access.

He was a capital markets as evidence that our recent successful bond offerings.

The company ended the quarter with total leverage or 4.15 times net debt to EBITDA as defined under our credit facility I guess, the covenant of seven times.

Secured debt ratio decreased from 1.3 times in Q1, 0.6 times in Q2, and both credit metrics are the strongest any out of home industry.

Furthermore, we had approximately $1.1 billion of liquidity comprised of $177 million of cash on hand, 172 million available on the securitization life and 737 million total availability under our revolving credit facility.

In May we issued $400 million with unsecured senior notes to bolster liquidity.

The new eight your bonds carried interest rate affords revenues for sure. We're just a time is one of the longest you there and lowest coupon bond deals in the how your market.

Net proceeds to along with cash on hand, we used to repay outstandings under the revolver sinful.

Additionally, during the quarter, we repaid the remaining balance outstanding under the accounts receivable securitization program.

In a quarter in both the revolving credit facility and a our securitization remained undrawn.

Subsequent to quarter in we submitted the redemption notice to call half of our $535 million, 5% senior subordinated notes due in May 2023, [laughter], all branches, 100.833% plus accrued interest of approximately $9 million.

The $267.5 million redemption will be funded by $145 million with cash on hand at $122.5 million oil somebody a our securitization.

Bonds would be redeemed on offices.

The opening of $12 million with annualized interest expense savings $4 million of reduced interest for the remainder of the year.

Notably the reduced interest expense in 2020 is included in the guidance that we issued this morning.

Because of our soldiers de leveraging and pro forma for the redemption net debt to EBITDA. The ended the quarter would have been 3.78 times and liquidity approximately $815 million.

As you May recall, we got through significant financial covenants, a 4.5 times, if you're getting maintenance to edit seven times told that incurrence test.

The secured debt covenant is applicable only to our revolving credit facility. It does not apply to our term loan B Orbitz senior notes.

After giving effect to the redemption of our subordinated notes 2020, EBITDA would have to decline in excess of 80% from 20 Nike to bridge. The 4.5 times secured debt test and declined approximately 50% to bridge the total debt covenant.

Unlike unsecured debt to total leverage isn't incurrence test, which is not met would only limit our ability to raise additional debt and not result in a default under any of our agreements.

For the ended the quarter, we had a minor breach of the dilution ratio under our Undrawn PR facility for the main testing period, the breach which was not a default under the agreement was driven by Invoiced flexibility provided to our customers in April and May to assist during these challenging times.

The delusion ratio, which is a rolling three month calculation exceeded the minimum requirement for the trailing three months ended may 31st.

We obtained a waiver from the facilities agents as well as real equals the dilution ratio and other key metrics for 90 days, which include the June July and August testing period.

Finally, I'd love to turn our dividend policy.

All dividends or approved and declared by the company's board of directors and in the second quarter. The board declared a cash dividend of 50 cents per share.

Management's recommendation its upcoming board meeting will be to declare a cash dividend of 50 cents per share for the third quarter as well [laughter]. This recommendation is subject to board approval and we're trying to communicate the board's decision in ordinary course, following the board of directors meeting later this month.

Our balance sheet remains strong and remain to excellent access to both debt and equity capital markets.

Our strong balance sheet is core to our operating strategy and serves as a significant competitive advantage, especially in a challenging economic environment has encountered in the first half of this year.

With our intense focus on the company's capital structure, and resulting fortress balance sheet increased flexibility, we are well positioned to take advantage of opportunities as they arise.

Ill now turn the call back over to show.

Thanks, Jay I'll give us a little bit of color on some familiar metrics before we open it up for questions.

On the digital front as you know, we curtailed our activity and constructing a new digital but we did have to finish up some work in progress.

We ended the quarter with an increase of 21 digital units, but that means that we ended the quarter with 3610 digital units in the air.

Anecdotally and I guess apropos to the old two steps forward in one step back someone's its work in progress was up in partnership with the Raiders the digital units around their new stadium and they're they're absolutely.

Gorgeous digital units and we appreciate that partnership Unfortunately, the raiders had to announce that they're going to have families football and the 2020 season and that's just anecdotally part of what we're battling as we.

As we.

Properly and in a coated world.

Little little more color around Q2.

Verticals again relative strength, I've mentioned healthcare education and insurance.

As we look forward to the back half of the year, you can add real estate and and again anything related to home improvement to that.

Looking at Q2 relative weakness or retail was down 36%.

And again as mentioned Amusements Entertainment sports were down 60%.

And as.

Relates to looking forward in the back half around amusements and events and the like we're still battling headwinds.

Yes.

Verticals and you know it's Oh.

Again.

Most mostly felt and a larger be amazed.

And on the West Coast right now.

Oh and in particular Las Vegas.

All right with that financings, we will open questions.

Thank you at this time, we will open the floor for questions. If you would might you ask that question. Please press the star key followed by the one key on New York Touchtone phone Stan.

Let me take in a wondering when Steris [laughter] if it anytime you would like children, maybe yourself from the question can you just fresh start cheap again. She asked a question. Please press star one at this time.

Our first question will come from Alexia Quadrani with JP Morgan.

Hi, This is an encore alexia. Thank you so much for the question I'm in Europe Heres My prepared remarks, you did mention that in can you put more contract galleries on the books through the rest are 2020 than you did last year in in 2019 for the rest of between 19 year I'm. Just wondering if you could comment on that anything of that.

During Q3 in Q4 in 2020.

[noise]. Good question I think the best way to answer it is to repeat that.

Our pacings are showing the.

Sequentially, we're getting a little stronger every month so.

You know that would indicate that the Q4 is what's the beneficiary of a lot of that contract.

But.

Anecdotally.

And our customers are still a little skittish, they're buying a little shorter term. So you know I would say ratably.

Not too much difference between Q3 in Q4 and in terms of Oh sequentially, where those contracts I landed.

Hopefully that.

Answers your question.

Oh, great. Thank you so Mike.

No.

Thank you. Our next question will come from Stephan Bisson with Wolfe research.

Good morning. Thanks, so much phone color a couple of questions for me first can you talk a little bit about pricing versus occupancy trends and perhaps how this disruption there's the great recession.

I'm good question so.

We think and you know the script isn't 100% written yet.

We believe we're going to be able to hold on to pricing a little better than we did done great recession.

I think it was very very very difficult to hold onto right.

And then.

Now that said there there is a divergence in.

Pricing and our largest DNA.

Versus what's going on in our small and middle market.

So you know will probably having a little more difficulty holding on to pricing in places like.

New York, Chicago, Atlanta, Dallas et cetera.

Fortunately or 80% of our business looks like a tallahassee and little walk in Baton Rouge, and small and middle markets where.

Pricing is holding up.

Much better.

Great and just wondering if.

[noise] she didn't good shape I know you guys mentioned some possible M&A, what do you see up there in the current climate you guys either do a lot of tuck ins is there something larger coming down the road more similar one and then also on capital has anything about when did you might expect.

You've got a little modeled on the left pale into that I think I heard your the question being how should we think about digital deployment in 2021.

Yes, Bob when when it when they should be <unk>.

Yeah. So.

Capital first one first.

We are beginning to lay in Atlanta, So 2021 and our initial.

Planning is too.

Take care of.

Sort of backlog of digital that didn't get built this year pushing into next year and also have 2021 be.

Standard here.

So I'm hopeful that in our November call, we'll be able to report that you know we're planning to put up you know, let's call it 300 or show.

In 2021, you know that's what I'm thinking is now you know we've got a little bit of pent up demand given that we shut it down in Q2.

The you know the M&A pipeline is a real stand right now you know Billboard assets are durable their valuable.

And most sellers don't want to have to sell and I just stressed environment and you know that we're in right now.

So when you know we're seeing that said.

Little bit of activity, but nothing even close to what a normal year would be.

Great. Thanks, so much.

Okay.

Thank you again, that's trying to ask a question you can do so by pressing star one on your telephone keypad again that star one to asking a question.

Our next question will come from Eric Handler with MKM partners.

Good morning, and thanks for the question wondering if you talk a little bit give some more color about.

Q2, and how Q3 is started I believe last quarter you mentioned.

That April was down more than a little bit more than 20% maybe was down 20% how to June finish up and how is that trending into July.

[laughter] I'm sure so sequentially through Q.

To a you know as as we.

Oh for.

May was the valley.

You know July April was down in the sort of Twentyish.

May was down in the upper Twentys.

And June was down and a lower 20.

You know averaging out to you know give or take down 23% put it into the Q.

You know sequentially or July is is a better then Jim and as we progressed through.

Q3 and into Q4 every month is getting a little better.

So you know we're feeling like.

In spite of the second surge.

We are.

You know experiencing a recovery.

When I talked to July in my opening comments I wasn't really referring to July itself in terms of where it came out but rather our ability to write contracts for the rest of the month for the rest of the year.

In July for the rest of 2020, and that's where we saw just a little bit of softening from the pace we set in June.

Okay, Great and I'm wondering if you had just.

I Wonder if you talk a little bit about as you've seen a.

Economies reopened.

I know last quarter, you were hopeful that casinos would have.

Some big improvements as as seamless as some get the approval to open a when you could talk about because seen as good as well but also.

What verticals did you start seeing some nice recovery in throughout Q2.

[noise] sure.

On the a on the.

The good news across the verticals you know I mentioned, a few but I'll throw in a couple of others services are recovered nicely. Most that's mostly attorneys I didn't mention those earlier.

Education has been Oh, a real star work for US as it appears that you know there's just a lot of confusion around what's going to happen in the next few weeks and.

A lot of educational entities are having there.

Virtual learning capabilities and their distance learning capabilities and.

Either that or they're saying, they're going to be open and there you know trying to hold onto their students.

So that's been a nice a recovery in terms of a vertical for us.

Well the casinos its a tale of both of those two markets as as we all now know Vegas had a difficult reopening and has had to throttle back.

That's been painful for our folks in Vegas thing or operations in Vegas.

However, when we looked at regional casinos places like the Mississippi Gulf Coast, there the openings seem to be going better.

And they are sticking with us and using us to someone else to the world at the opening most people are going to those places not to be a flight that'd be a car and you know that's our strong suit.

So again, it's sort of the on the casino front, it's it's a tale of two markets the regional markets seem to be handling opening better.

And unfortunately, it's been a that's a tough OLED for what's going on in Vegas.

Thank you very much.

Yeah.

Thank you.

I mean can you find her questions in the queue. At this time at this time I would like to hand, the call back in front of Sean Reilly for any closing remarks.

Well. Thanks, Thank you off the listening or stay safe out there and we look forward to visiting in November.

[noise].