Q2 2021 Lamar Advertising Co Earnings Call
Excuse me everyone. We now have Sean Reilly and Jay Johnson and conference. Please be aware of that each of your lines is in a listen only mode. At the conclusion of the company's presentation. We will open the floor for questions to ask a question you may dial star 1 on your telephone keypad and.
And that is star 1 to enter the question queue.
And of 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 and timing of any distributions to stockholders and the impact and effect of the COVID-19 pandemic on the company's business financial condition and results of operations.
All forward looking statements involve risks uncertainties and contingencies, many of which are beyond the Mars control and which may cause actual results to differ materially from anticipated results. The.
Tomorrow has identified important factors that could cause actual results to differ materially from those discussed and this call and the company's second quarter 2021earnings release and its most recent annual report on form 10-K Little rock Lamar refers you to those documents.
Lamar second quarter 2021 earnings release, which contains information required by regulation G regarding certain non-GAAP financial measures was furnished to the S. E. C. On a form 8-K. This morning and is available on the investors section of Lamar's website at Lamar Dot Com I would now like to turn the conference over to you.
And Sean Reilly, Mr. Riley you may begin.
Thank you Olivia and good morning, and welcome to Lamar's Q2, 2021 earnings call I'll get right to the good news the advertising market is as you may have heard Red Hot right now advertisers are scrambling to get their brands and their products and their services and front of their customers. So they don't Miss out on the economic recovery and we are benefiting.
And a major way.
Our second quarter results easily exceeded our expectations and our bookings into the current quarter suggests the sales momentum will continue through the end of 2020.1.
We are increasingly confident the Billboard revenue for the full year 2021 will surpass 2019 total and net transit and airport are well on their way back as.
As you saw and the release, we are raising our guidance again as I suggested we might on the last call. We now believe full year <unk> per share will come out and come in between $6.10 and $6.30 per share.
If you do the numbers, you'll see that reaching the top end of that range would mean exceeding the EBITDA we generated in 2019.
Versus Q2, 2019 and increase of about 13%.
The bulk of that growth was more units, but it also included of solid increase and same store sales versus the 2019 quarter.
We are seeing tremendous demand both from local and national customers for digital with programmatic, providing a particular shot and the arm on the national side.
As far as specific categories of the strongest and Q2 were insurance real estate gaming and services, although as you might expect all of our major categories were up Q2, 2021 over Q2, 2020, including amusement entertainment and sports although that category still has of ways to go to get back to pre COVID-19 levels.
Given the trends and digital we're pushing as hard as we can to build out that platform, but we have been slowed a bit by some supply chain issues as.
As you recall, we set a goal of installing 300 units of this year, given the delays and delivery times, which are about twice as long as usual and and arranging on site work such as electrical connections I don't think we'll get to 300 during 2021 and it'll be more like 215.
The demand for our managers and our market is strong and we have more than 100 units on order and expect a brisk pace of deployment and through the end of 2021 and into 2022.
Meanwhile, the acquisition market has picked up considerably the bid ask spread that made of difficult for awhile to reach agreement on prices is dissipated as buyers and sellers of gain more comfort with the shape of the recovery as you will see from our numbers, we didn't get a lot of deals closed by June 30, but we have a number of deals under contract and by the time, we close the books on 2021.
And I suspect, we will be well north of of $150 million and total deal value.
1 final note before I turn it over to J as you may have seen we announced and early July that we're investing $30 million and 1 of our key programmatic partners. The star media, we've been working with Vista for about 8 years and we have been impressed with the technology and tools. They have built for both buyers and for media owners like Lamar and we see our investment as of straw.
<unk> move that will help the star grow which should and turned help accelerate the development of programmatic out of home to the benefit of everyone involved buyers and sellers with that I'll turn it over to J to walk through some numbers. Thanks, Sean Good morning, everyone and thank you for joining us and will begin with brief comments on the quarter and review our balance sheet and concluded.
And the discussion of our current financial position and moving a little more detail around this morning's revised guidance.
And we are extremely pleased with our second quarter results, which exceeded internal expectations as well as consensus estimates for revenue adjusted EBITDA and <unk>.
The company achieve ASF of growth of the third consecutive quarter, improving $84 and 2% to $1.75 per share on a fully diluted basis.
And the second quarter acquisition adjusted revenue increased 28, 9% from the same period last year, demonstrating the resilience of our business and the benefits of our operating and model with the portfolio heavily concentrated and Billboards Q.
Q2 acquisition adjusted revenue was only slightly behind the second quarter of 2019, we both May and June results essentially flat against 2019.
As you May recall and response to COVID-19, we implemented several cost reduction initiatives during 2020.
With the second quarter, returning to more normal levels acquisition adjusted operating expenses increased 9.3% driven primarily by variable expenses type of the revenue.
We reduced operating expenses by approximately $80 million and 2020 and anticipate about half of those expenses of $40 million will return as revenue rebounded.
With revenue performance exceeding our expectations from the beginning of the year, we now forecast approximately $45 million of operating expenses will return and 2021 with.
With expenses coming in and around $940 million to $945 million for the full year.
Adjusted EBITDA for the quarter was $213 and $5 million compared to $133 and $2 million and 2020, which was an increase of 63%.
On and acquisition adjusted basis, the increase was $59 and 9%.
Adjusted EBITDA margin was 48% versus 38.3 per cent and the second quarter of 2020, and 170 basis points ahead of the same period and 2019 the.
The work we've done on our balance sheet continues to prove beneficial as lower interest contributed significantly to a total growth.
Free cash flow and the quarter also improved increasing 85, 3% versus the same period last year.
We experienced another quarter of acceleration and both local and national business across our portfolio.
While both were up significantly relative to the second quarter of last year, our national revenue growth outpaces local by double digit percentage points and grew faster than local for the first time since the COVID-19 pandemic consistent.
Consistent with the historical levels local sales account for 78% of Billboard revenue and the second quarter with national representing 22%.
And 2020, we demonstrated Lamar is operational flexibility on many fronts, including are disciplined approach to capex.
This year, we are returning to a more typical capital deployment program.
During the second quarter total Capex was approximately $25 million with maintenance capex comprising $11.7 million.
The total spend year to date is approximately $42 million and we expect capex to accelerate and the back half of the year.
For the full year are total Capex budget is now $135 million, including 56 million of maintenance Capex.
We continue to actively pursue investment opportunities and closed on $24 million of took and acquisitions and keep to bring in the first half total to $27 million.
Since our call and May the volume within the <unk> acquisition pipeline as accelerated significantly.
The activity, we are seeing is quite promising and further solidifies our belief that 2021 will be and active year on the acquisition from the.
Lamar will remain prudent as we have consistently and the past and deploy capital and and efficient manner for our shareholders.
Turning to our balance sheet, which continues to be of critical focus for the company and core to our strategy and competitive advantage.
We are quite pleased with the financial strength of Omar considering the COVID-19, pandemic and our balance sheet as well positioned going forward.
As a result of our conservative capital structure, and the improvement and operating performance our credit rating was upgraded of S&P subsequent to the quarter and.
Based on revenue recovery and declining leverage both evident and the second quarter S&P improved R rating from double B minus with the negative outlook to double B flat and now with a stable outlook.
We're in constant dialogue with the rating agencies and are pleased to see our focus on the balance sheet rewarded with a stronger rating at SMP.
With the amendment and extension of the companies securitization, we of refinanced the entire balance sheets of the beginning of 2020 Toby over $3 billion.
These efforts resulted in and interest expense reduction of approximately $9 million and the second quarter relative to the second quarter of 2020.
In addition, our debt maturity schedule as well later and positioned to take advantage of the economic recovery.
We have no maturities until the AAR securitization in July of 2024, followed by the revolving portion of our credit facility in February of 2025, and we have no bond maturity's until 2028.
Based on current debt outstanding are weighted average interest rate is 3.4% with a weighted average maturity of 7.4 years.
As defined under a credit facility, we ended the quarter with total leverage of 3.5 times net debt to EBITDA. The low end of our target range and the lowest since the fourth quarter of 2016.
And are secured debt leverage was 0.7 times of quarter and and we expect our secured debt tests to remain below 1 times for the balance of the year.
We're comfortably and compliance with both of our total debt and current and secured debt maintenance test against Covenant of 7 times and 4.5 times respectively.
At the end of the quarter, we had approximately $857 million of liquidity comprised of $69 million of cash on hand.
$52.5 million available on the securitization line and $736 million available under a revolver.
Also and the quarter, we established a new $400 million ATM program. The new agreement replaces of the prior program, which was the same size and expired and may.
While we do not anticipate issuing equity and the near term, we view maintaining and ATM program is part of our corporate finance strategy and key to preserve and financial flexibility with respect to the company's capital needs.
As Sean mentioned and included and this morning's released we increased our <unk> guidance based on strong performance and the first half of the year, which exceeded our expectations.
And the revised <unk> guidance of $6 and cents to $6.30 per share represents an increase of 70 cents at the midpoint compared to our guidance released and May.
A state of and our last call, we still anticipate the second and third quarters to be the strongest on a comparable basis.
Given the solid performance and Q4, 2020, which included political and a presidential year. We expect Q4.2021 to have a more difficult comparison year over year.
Furthermore, because of our efforts around the balance sheet cash interest and 2021 to be approximately $103 million or about $27 million lower and full year 2020.
And Texas should come and slightly lower that are historical 10 million to $11 million level due.
Due to operations of of of Trs, primarily of our airport and transit division that are recovering slower than the rest of our business.
Moving to our dividend policy.
We paid of cash dividend of 75 cents per share and each of the first and second quarters Manny.
The management's recommendation at the upcoming board meeting will be to declare cash dividend of 1 dollar per share for the third quarter.
This recommendation of subject to board approval, and we will communicate the board's decision following the board of directors meeting and September.
We will continue to evaluate our dividend and intend to maintain our policy of distributing 100% Protectable income.
Again, we are extremely pleased with this quarter's performance and are optimistic about the outlook for the remainder of the rain remainder of the year.
Though with the recent uptick and COVID-19 cases, we remain cautious.
Our balance sheet of strong and we maintain excellent access to both debt and equity capital markets a.
A strong balance sheet is core to our operating strategy and serves as a significant competitive advantage.
With our intense focus on the company's capital structure and increased flexibility Lamar is well positioned to take advantage of opportunities as they arise I will now turn of the call back over the shock. Thanks, J, Let me add a little more color too of.
A few of the data points and then we'll open it up for questions.
In terms of regional strength.
Of course, there was strength across the board comp to last year, but but it was interesting to note that the harder the region. The regions of the cut the hardest hit by Covid have felt.
Felt the strongest pro forma recovery.
For example, the northeast region was up 42% Q2. This year over Q2 last year and the Western region was up 34%.
Q2, this year over the queue to last year.
Again, just just sort of interesting to note that the.
The recovery.
Is was swiftest and those regions of that got hit the hardest.
Turning to digital deployment again as I mentioned, we have experienced some.
Some supply of disruption in terms of ordering the digital units.
And if we noted and the release.
We put of about 82 units, new digital units and the air So far this year.
And we believe that that will end up of the year at around 215.
But as I mentioned, we've got more than 100 units, 1 order and we expect to catch up as we move into 2022.
The same digital unit revenue.
Again, it's kind of silly comparing Q2 this year to Q2 last year, but I'm going to do it anyway.
Our digital.
Revenues were up 56% Q2, this year over Q2 last year.
J mentioned our sales mix.
78% local 22% national and a.
Day also mentioned the national has come on strong of late.
And we're not look to Q2 of this year over Q2 of last year local regional business was up 26%.
National and programmatic Q2, this year over Q2 last year was up 43%.
Again speaking to the acquisition pipeline as Jamie.
J mentioned the pipeline of strong and.
And we believe that we will and the year.
Somewhere north of $150 million and total acquisition value.
And finally talking to the categories of business again, Comping to Q2 of last year.
Can be a little silly I hope, we never have those kind of cops again.
But.
As I mentioned and my opening virtually all of our vehicles have normalized and our book and are fully recovered. If you will accept for amusements Entertainment and sports and we feel like as we move into the fall of that is coming on fast and strong so with that Olivia and we will open it up for questions.
Thank you.
If you would like to ask a question. Please pass the star followed by 1 on your telephone keypad. If of any time, you would like to remove yourself from the question and Q profit Star Q again to ask the question Press Star 1 now we will pause for just a moment as we can pile your responses.
Our first question comes from Ben Swain bark with Morgan Stanley. Please go ahead.
Hey, Good morning, Hey, good morning, guys How're you doing.
And.
I guess Ah.
Couple of questions I wanted to ask 1 is on margins and which was 48%. This quarter you guys have talked about sort of savings beyond.
Covid permanent savings are those better than you thought because these margin numbers. Obviously there are nicely ahead of where you used to operate just trying to think about the margins and the business as you look out and then.
Sean I wanted to ask you about the new hire of your.
I don't know of CTO is the right title, but you guys made of new higher and the technology side.
That's the interesting move for the company can you just expand a little bit on his mandate and how you are thinking about that impact and the business over time.
Sure. Thanks Ben.
So on the margin question, Yeah, we're very pleased with.
That we've been able to hang on to a lot of the.
Initiatives on the expense side that we put in place last year.
So I think when we finish up this year, we're going to set records from margins for the full year and as we go into 2022.
That picture.
Should should remain and and again.
If the macro stays the wind stay at our back.
2022, I think will be the the high watermark from margins and the history of the company.
Yes of India is now on board with the great.
And a great addition to the team.
On the side.
We have been without.
The ahead of it for.
Give or take 8 or 9 months. So we have been on on this journey to replace our former head of it.
But as the vendor brings of different skill set.
That role and and I think it's more.
Along the lines of of making and aligning the the.
The technologies that we deploy a little more.
Friendly.
To all of the business unit.
At at Lamar, we've never been bleeding edge when it comes to technology, but we try to be pretty fast followers, and and so vendors going to kind of help us do that.
Got it and maybe just 1 and follow up.
On the discharge estimate you've talked to and that sort of the programmatic business being of nice additional sources of demand and revenue, but it's not the margins aren't as good as your core business do you do you see of passed over time to improving those economics I'm sure you'd like to but do you see the opportunity to maybe the or bring more technology.
And house or is that the channel matures can you can you make that is as efficient as your other sales channels you think.
So yeah. The Delta there been is about 4.
5 per cent in terms of cost of sales of.
Programmatic sale.
And in terms of just pure cost of sales.
Runs tend to 11% and our traditional channel from 6 ish.
So.
Seeing that really gets us fired up about programmatic is that our cpm's.
Are running a little higher.
So we are actually getting a slightly higher CPM on of programmatic sales and we do through the traditional channel.
So net net.
The margin contribution ended up being and about the same.
So that's all of that is really really good stuff.
And.
I think we're about and the second inning here in terms of programmatic.
And buying and selling of of out of home.
Globally.
And certainly we're about there again and the U S domestic market as well the star is the leader and the U S. Domestic market there are other per.
Programmatic partners that we have that are are bigger when it comes to the.
Global presence, but the stars of the largest.
The us domestic per.
Romantic provider.
Thanks, a lot.
Mhm, Thanks man.
Thank you and once again as a reminder to our audience you may ask a question by pressing star 1.
Our next question comes from Oleksiak quite Johnny with J P. Morgan and please go ahead.
Hi, This is Anna on for a lot yeah. Thanks, so much for and the question.
Just in terms of your very strong guidance for the full year and the rebound and that you're seeing across the board and Belvoir and I was wondering if you can discuss the EBIT backs for airport and transit, particularly in light of the Delta and area and Covid right now and.
Great question of.
Obviously, we're we're monitoring delta.
As closely as we can and.
As everyone else is as well.
When I think about the guidance and the.
The Delta variant.
Assuming.
That the pain.
Pace of business that we're seeing right now continues.
We should be at the upper and if not slightly exceeding the upper and of our guidance that we just issue.
If delta creates some headwinds for us and our customers.
It's my sense that we're still we're still good at the bottom and right.
So we kind of tried to think about a little bit about where delta was leading is obviously it would hit our airport business is the hardest but.
Right now.
Our airport businesses bouncing back nicely and.
And can track the.
The the the ridership of different transit.
And the the plane boardings and through different airports and.
If the audience stays true then we're going to be just fine.
Great. Thank God.
Thanks and.
Thank you with no further questions I will turn the conference back to Mister Reilly for closing remarks.
Thank you Olivia and and thank you all we certainly look forward to visiting and November with R. Q3, 2021 call and.
The I'll stay safe out there.
Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.
[noise] [music].
And.
[music].