Q3 2021 Lamar Advertising Co Earnings Call
Rejoining the main conference.
Excuse me everyone. We now have Shawn Riley and J Johnson and conference. Please be aware that each of your lines is in a listen only mode at the conclusion of the company's presentation. We'll open the floor for questions to ask a question you may dial star one on your telephone keypad again that is star one to enter the question Kim.
In the course of this discussion the mommy make forward looking statements regarding the company, including statements about its future financial performance strategic goals plans and objectives, including with respect to the mountain timing of any distributions to stockholders and the impact and effects of the COVID-19 pandemic on the company's business financial conditions and result of operation.
And.
I'll 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.
Yeah.
Lamar has identified important factors that could cause actual results to differ materially from those discussing this call and the company's third quarter 2021 earnings release and its most recent annual report on Form 10-K Lamar refers you to those documents.
March 3rd quarter 2021 earnings release, which contains information required by regulation G regarding certain non-GAAP financial measures was furnished to the SEC On form 8-K. This morning and is available on the investors section of the Mars website, Www Dot Lamar Dot com.
I would now like to turn the conference over to Shawn Riley Mister Riley you may begin.
Thank you Olivia good morning, and welcome to Lemoore 232021 earnings call.
Happy to report that the recovery and the AD market continues to exceed our expectations advertisers clearly are embracing out of home as a cost effective impactful way to reach their audiences. As we all are returning to our work school and entertainment routine.
As you recall, our business wasn't it a great place when Kobe struck in the spring of 2020.
And in many ways. It feels if we have now picked up right, where we left off in other words, our recovery is not only complete we're surpassing 2019 across virtually every metric topline bottom line margins and a Dr. Pepper.
Given how Q3 unfolded and what we see in our book, we now expect full your a F. F O per share will land between $6.35 and $6.50 per share recall that our initial a F. F. O guidance for this year was 520 to 550 per share and that the a F. F O guidance, we issued for 2020.
Before Kobe was for $6.20 per share on the top in.
So by that measure we are back and then some.
Thanks to the rapid recovery in demand last year's expense cuts and the good work the Jay and his team did in 2020 reshaping the balance sheet.
The results have been stellar on that metric.
Let's review the third quarter on a consolidated basis or Billboard billing was up more than 6% from the third quarter of 2019.
The strength was across the footprint all seven of our Billboard reasons build more in the third quarter of 2021 than they did in the same quarter two years ago. Once again digital led the way in absolute dollars are digital billing was up 20% from the third quarter of 2019 on on the same store basis. The increase was nearly eight person.
<unk>.
Meanwhile, monthly billing for our transit operations has now returned to pre COVID-19 levels in both the U S Airport and Canadian Transit businesses continue to perk up we expect those two businesses to be back to prepandemic levels sometime in 2022.
On the expense side as I mentioned, we are benefiting from the measures that we took in 2021, a consolidated basis operating expenses in Q3 were up slightly from Q3 19.
Which combine from this with strong top line growth translated into EBITDA margins for the third quarter of 48.4%.
A record level for Lamar.
As far as specific categories are strongest in Q3 were gaming healthcare in real estate, all of which were up more than 20% versus the third quarter of 2019, the launch of sports betting and a number of states, including Louisiana has been and should continue to be a shot in the arm for the gaming category.
Amusement entertainment and sports spending continues to recover though is still far off prepandemic levels.
Given the strength in digital we're pressing hard to deploy additional units, but it's slower going than we anticipated each step in the process seems to take a little longer than usual from getting the permit office to sign paperwork to getting electrical contractors to the sites and act and arranging for the actual delivery of units from our vendor partners. So we do.
To continue to have a bit of a supply chain issue when it comes to digital deployment, but we're working through that and we're looking forward to next year.
As the end of September as of the end of September we had added about 135 digital units organically. This year and we have about 90 units on order right now we will not likely get all of those units in the air and 2021, but we are continuing to approve new deployments and we should enter 2022.
With a head of steam and we tend to be very aggressive on that front.
Finally, turning to M&A. The market is very active right now and so are we as of the end of Q3, we had closed 22 acquisitions for just over $100 million included in that total was really nice old line family Billboard plant in Northern California called start we're excited about that one we.
We have finalized several smaller purchases that will close in.
Early Q4, and we have a number of larger transactions that will also close in queue for.
And by year, and we expect to have total deal value in excess of $250 million.
Now given the strength in the out of home business. It seems to be a seller's market right now multiples are a bit higher than they have been historically and because of that we've passed on a couple of potential deals, but we're very excited about the ones, we're doing and they should be nicely accretive.
With that I will turn it over to J can walk through the numbers.
Thanks, Sean Good morning, everyone and thank you for joining us will begin with brief comments on the quarter, then review our balance sheet and conclude with a discussion of our current financial position, including a little more detailed around this morning's revised guidance.
Once again, we are extremely pleased with our quarterly results, which exceeded internal expectations as well as consensus estimates for revenue adjusted EBITDA and <unk>.
The company achieved <unk> growth for the fourth consecutive quarter, improving 43.9% to $1.90 per share on a fully diluted basis versus Q3 2020.
And the third quarter acquisition adjusted revenue increased 23, 3% from the same period last year, demonstrating the resilience of our business and the benefits of our operating model with a portfolio heavily concentrated in billboards.
Q3 acquisition adjusted revenue and adjusted EBITDA, both exceeded the third quarter of 2019.
Despite our airport in transit operations recovering slower than the rest of the business. Each of July August and September improved over 2019 on the top line as well as EBITDA.
As you May recall in response to COVID-19, we implemented several cost reduction initiatives during 2020.
With the second and third quarters, returning to more normal levels acquisition adjusted operating expenses increased 14, 8% in the third quarter, driven primarily by variable expenses tied revenue.
We reduced operating expenses by approximately $80 million in 2020, and anticipate about half of those expenses or $40 million would return as revenue rebounded.
With revenue performance exceeding our expectations from the beginning of the year, we now forecast $50 million to $55 million of operating expenses will return in 2021 with full year expenses coming in around $945 million to $950 million.
Despite this acceleration and expenses the company still expects to maintain strong adjusted EBITDA margins for the full year.
Adjusted EBITDA for the quarter was $237 million compared to $177 million in 2020, which was an increase of 35, 2%.
On an acquisition adjusted basis, the increase was 33, 8%.
Adjusted EBITDA margin was 48, 4% versus $44, 2% in the third quarter of 2020, and 140 basis points ahead of the same period in 2019.
The work we've done on our balance sheet continues to prove beneficial as lower interest contributed significantly to <unk> growth.
Free cash flow in the quarter also improve increasing 36, 6% versus the same period last year.
We experienced another quarter of acceleration in both local and national business across our portfolio.
While both were up significantly relative to the third quarter of last year, our national revenue growth outpaced local by over two times and grew faster than local for the second consecutive quarter.
Consistent with historical levels local or regional sales accounted for 76% a billboard revenue in the third quarter, while national and programmatic represented 24%.
In 2020, we demonstrated Lamar is operational flexibility on many fronts, including a disciplined approach to capex.
This year, we have returned to a more typical capital deployment program.
And during the third quarter total Capex was approximately $30 million with maintenance capex comprising $13.1 million.
Total speed and year to date is approximately $72 million and we expect capex for the full year to total roughly $120 million, including 55 million of maintenance Capex.
As discussed on our last call.
Volume at our acquisition pipeline accelerated beginning in late spring and continued throughout the summer.
In the third quarter, we closed on $80 million of acquisitions, bringing the total to $108 million a year to date through September 30th.
The activity we are seeing is quite promising as 2021 should be one of our more active use on the acquisition front and we.
<unk> acquisition activity will exceed $250 million for the year.
However, our intent is to remain fruit as we have consistently in the past and deploy capital in an efficient manner for our shareholders.
Turning to our balance sheet, which continues to be a critical focus for the company and core to our strategy and competitive advantage. We're quite pleased with the financial strength of Lamar and our balance sheet as well positioned going forward.
As a result of our conservative capital structure and the improvement in operating performance or credit ratings were upgraded it both Moody's and S&P during the third quarter.
The rating actions were based on revenue recovery and declining leverage.
Both evident again in the third quarter.
S&P improved R rating from double B minus with a negative outlook to double B flat and now with a stable outlook.
September Moody's upgraded Lamarck corporate family ready to be too from being a three and also upgraded our investment great secured rating from <unk> three to be doubly too we.
We are in constant dialogue with the rating agencies and are pleased to see our focus on the balance sheet rewarded with stronger ratings from both Moody's and SMP.
We have a well letter that maturity scheduled with know maturity's until the securitization in July of 2024, followed by the revolving portion of our credit facility in February of 2025, and we have no bond maturities until 2028.
Interest expenses totaled 24 $5 million in the quarter, which is approximately eight $7 million lower than Q3 2020.
Based on that outstanding a quarter in our weighted average interest rate was 3.3% with a rated average debt maturity of seven three years.
As defined under a credit facility, we ended the quarter with total leverage with three two times net debt to EBITDA, which is accompanies Louis since the fourth quarter of 2015.
Secured debt leverage was 0.6 times a quarter in and wear comfortably in compliance with both our total debt and currency and secured debt maintenance test against covenants of seven times and four five times respectively.
At the end of the quarter, we had approximately $823 million of liquidity comprised of $87 million in cash on hand, and $736 million available under a revolver.
Subsequent to quarter, and we paid $60 million on the ER securitization and currently have $115 million outstanding.
Also in the quarter, we extended our debt and share repurchase programs through March 2023.
Terms and conditions remain the same and the company may repurchase common stock and any outstanding indebtedness up to $250 million each.
While we do not anticipate activity under either program in the near term, we view maintaining both programs as part of our part of our corporate finance strategy and key to preserving financial flexibility.
As Sean mentioned and including this morning's release.
We increased our <unk> guidance based on strong performance in the first three quarters of the year and the outlook for Q4.
The revised <unk> guidance of $6.35 to $6 50 per share represents an increase of 22 and a half since at the midpoint compared to our guidance released in August.
As stated on our last call, we still anticipate the second and third quarters to be this year strongest on a comparable basis given.
Given the solid performance in queue, Fortunately 20, which included political in a presidential year. We expect Q4 2021 to have a more difficult comparison year over year.
Because of our efforts around the balance sheet cash interest in 2021 should be approximately $102 million or about $28 million or then full year 2020.
Taxes should come in slightly lower than our historical $10 million to $11 million level due to operations in the Trs primarily our airport in transit divisions that are recovering slower than the rest of our business.
When all is said and done we expect full year EBITDA easily to exceed 2019 is total of $785 million.
In addition, the low end of today's revised guidance is 15 cents above the top end of our original 2020 ethical guidance prior to the pandemic.
Now moving to our dividend.
We've made a cash dividend of 75 cents per share in each of the first and second quarters.
And increase the dividend, 33% in Q3 to one dollar per share.
Management's recommendation at the upcoming board meeting will be to declare a cash dividend of one dollar per share for the fourth quarter as well.
This recommendation is subject to board approval and we will communicate the board's decision following the board of directors meeting in December.
As you may recall in 2020 prior to the pandemic, we anticipated a dividend of $4 per share for the full year and the company's goal has been to return to that level of distribution as soon as possible.
To that end, we have not ruled out recommending a special dividend to the board that will bring our 2021 full year dividend back to the same $4 per share per share level anticipated in 2020 prior to the pandemic.
Again, we are extremely pleased with this quarter's performance and are optimistic about the outlook for the fourth quarter with full year results that should exceed 2019 on both EBITDA and <unk>.
Our balance sheet remained strong and we maintain excellent access to both the debt and equity capital markets. A strong balance sheet is quarter operating strategy and served as a significant competitive advantage.
With our intense focus on the company's capital structure and increased flexibility Lamar remains well positioned to take advantage of opportunities as they arise I will now turn the call back over to Sean.
Thanks J.
Just a few quick comments before we open it up for questions and the theme is really about resiliency and the.
Incredibly resilient business model that Lamar has and I'm going to illustrate that with.
A couple of statistics.
And again, it's about <unk>.
Getting knocked down but getting back up and.
When you look at regional performance pro forma growth.
It's now increasingly clear that the harder.
Regions got hit in 2020, the stronger they were covered for example are western region, which as you all know was hardest hit by Kobe.
Grew in Q3 this year over last year, 30% as did the northeast region, which was equally.
Hit hard by Covid.
And in terms of EBITDA.
They are EBITDA was up this quarter this year over the same quarter last year north of 50%.
So they got hit hard, but they are recovering stronger and got back up I think as J pointed out the same holds for our local and national business.
Q3, 2021 over last year local.
Is up about 18%.
But you take Q3, 2021 national and programmatic and it's up a whopping 40% over last year, So again resilient get knocked down but get back up.
And finally would point to one vertical that hasn't gotten completely off the mat, yet which is amusements and entertainment.
As I mentioned.
It's about still about 40% down.
From Prepandemic levels and it constitutes about 4% of our book, we expect that to grow back to 7% of our book, we think we have upside there.
And so.
It's just very gratifying for all of US here at Lamar to have turned in the kind of results that we did in Q3.
It's just again very illustrative of resilient business model.
With that Olivia we will open it up for questions.
Thank you at this time, we will open the floor for questions. If you would like to ask a question. Please press star followed by one on your telephone keypad. If at any time, you would like term new yourself from the questioning queue.
Q.
Again to ask a question press star one now.
Our first question comes from Venice, Swinburne with Morgan Stanley. Please go ahead.
Okay. Good morning, guys How're you doing.
Hey man.
Good morning.
I guess a couple of questions.
Sean.
Inflation is a big topic out there both in advertising and just generally and I am wondering if.
If you could give us your sort of two cents on kind of the revenue side of that equation, whether that's helping.
Hurting or both.
You look at it and then also on the on the rent side.
Take a lot of investors are excited to on your stock because of the potential for AD rates to outpace rent growth and I'm. Just curious if you could update us on that because inflation seems like a bigger topic than usual.
And then I would love just if you could talk a little bit about programmatic and whether that you think as we look into next year becomes you know like a real channel with bigger revenue I know, it's growing but it's just it's still pretty small and then I just had one free day, just J any any help I'm thinking about opex growth in the <unk>.
Fourth quarter since I know, there's been some acquisitions and I am sure. Your bonus accruals are probably in the right place for for the employees just any help there would be great. Thank you.
Great. Thanks, Thanks, so historically.
And I am looking back 30 years Ben.
Inflation inflation has been our friend.
If you look at the largest expense that we have is you know it's our ground leases.
The majority of those are fixed.
In inflationary times, and Non-inflationary times, the growth of that expense based tends to be around 1%.
Okay. So it's a relatively fixed expense the next expense for us is.
Labor.
Wages employees.
On the front side of the shop for a lot of that comp is flexed to revenues sales commissions and like.
So that's going to grow with the top line.
In the back of the shop, there's a little bit of wage inflation back there, but it's not enough of the.
Of a base to really move the needle in terms of our total expenses.
So I would say the news is good on the expense side.
Relatively insulated from inflation on the revenue side.
I am going to compares to other reads because the story there as good as well.
Contracts tend to be far shorter than most reads right.
So we have the opportunity to reprice, our space virtually every three months.
As opposed to having a five or 10 year lease on a commercial office building or or something like that so on the top line and the last time, we had inflation.
We would reprint rate cards several times during the year.
So again if history is our guide inflation is our friend.
On programmatic the story there is really really good.
Keeping in mind that.
In the spring of 2020 programmatic went to zero.
And again I guess on that theme of the harder it falls the quicker it recovers.
But it certainly holds true for programmatic.
We set a record in October for our programmatic platform.
And we're really excited about the future I think I think we set a goal of.
Something around $25 million to $30 million this year and I think we're going to exceed that in terms of programmatic billing and again, that's from a standing zero start basically.
That all feels good.
And then Ben.
From eight operating.
<unk> perspective for Q4 with revenue continue to outperform Lucia growth again.
Versus 2020, that's probably going to be low double digits call at 13%.
Then to put that into perspective against 2019, probably roughly flat against 2019 in queue for.
Thank you guys.
Thank you once again as a reminder to our audience you may ask a question by pressing star one.
Our next question comes from Alexia quite Dromi with J P. Morgan. Please go ahead.
Thank you.
You've had such great momentum and the advertising revenues continue to come in better than you had anticipated a year I'm just curious how much visibility you have going into 20 Q next year, given given you do you have a chance to commit Jeremy on.
And also taking into account that you do have certain categories. Thank you mentioned have not fully recovered.
With some improvements fur I guess I would just love to hear your thoughts about early air they thought into into next year and then just a clarification I know you touched on potentially presented to the board the potential for a special dividend.
Did you mentioned the timing of that I know it it's still hip.
<unk> said to call it that up curious timing wise.
Sure.
Hey, Alexi.
So kind of peering into next year. It is a little early but we have laid down some some some bookings for next year I can say this.
Our bookings for 2022 at this moment in time in 2021 are running ahead of the same moment in time in 2019 for 2020, so sort of Comping to prepandemic.
It looks good and strong and I feel like the setup for 2022 is as good as I've ever seen in my career here at Lamar.
We've got an awful lot of momentum in terms of our core base business and we also have a political year. So we should in 2022 have.
All things good on the macro front.
We should have a great setup going into next year.
And then thinking about the special dividend I'm going to let Jake touch on that after basically say it.
This is driven by our REIT status right and if you look at the kind of.
Net income we're going to generate.
And the Nols that we have.
We're going to.
Sort of moderate.
That spell.
A special dividend around the use of Nols and what we see going into 2022.
But again as as a REIT, we have distribution requirement.
I wouldn't necessarily call. It a quote special dividend I would call it quote.
Mandatory almost but.
Now I'll, let Jake speak to it because the REIT rules can get very complicated sure hi, Alexia, obviously as we mentioned.
Our goal is to get back to $4 a share as quickly as possible in terms of timing. The we the caves would work and this was obviously subject to board approval is that we would have we would seek approval from the board for the special dividend in December.
We would anticipate that would be 50 per share and then it would actually be paid out early next year in January.
Okay. Thank you very much.
Thank you with no further questions I will turn the conference back to Mister Riley for closing remarks.
We'll break thanks, thanks, everybody for listening, we look forward to finishing the year strong and visiting with you again in February of 2022.
Thank you ladies and gentlemen. This concludes today's conference you may now disconnect.
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