Q4 2021 Lamar Advertising Co Earnings Call

Excuse me everyone. We now have Sean Reilly and Jay Johnson in conference. Please be aware that each of your line 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. Please press star one on your Touchtone phone.

In the 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 impacts and effects of the COVID-19 pandemic.

The company's business financial condition and results of operations.

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

<unk> has identified important factors that could cause actual results to differ materially from those discussed in this call and the company's fourth quarter 2021 earnings release.

In its most recent annual report on Form 10-K .

Lamar refers you to those documents Lamar <unk> fourth quarter 2021 earnings release, which contains information required by regulation G regarding certain non-GAAP financial measures was furnished to the SEC on a form 8-K. This morning and is available on the investors section of Lamar's website.

<unk> W. Dot Lamar Dot Com I would now like to turn the conference over to Sean Reilly. Mr. Riley. Please go ahead.

Thank you Katie good morning, all and welcome to Lamar's Q4, 2021 earnings call.

As we close out 2021, and welcome 2022, I'm pleased to say that our industry in general and Lamar in particular are in the best shape ever.

Tailwind are as strong as I've ever seen.

Our customers have emerged from COVID-19 with a tremendous appreciation for the ability of out of home to reach their customers with the right message at the right time in the right place you can see that in the way our business roared back to and now well past the levels. We were at before Covid came.

Secular trends that are a threat to our traditional local media competitors are benefiting us and our balance sheet the strongest in the industry is.

He is allowing us to invest in our digital expansion and expand our footprint via accretive acquisition. So the greatest 2021 was our best days are yet to come.

Q4 was a win all the way around with strength across all products analog and digital transit airports and logos in all categories particular categories of strength included gaming healthcare finance and education.

<unk> and entertainment continued its rebound growing 60% above Q4 2020 levels.

Digital continued to lead the way with revenue up 25% overall versus Q4, 2020 and up 16% on a like for like basis.

Recall that when 2021 began we hope we could return to 2019 levels of revenue in two years. Instead, we did it in one and that rapid rebound combined with the continued benefit of some expense cuts we implemented in 2020.

Translated into record EBITDA total of over $827 million and at 46, 3% the highest operating margins in the company's history. We also set a record for full year <unk>.

At $6 59 per share more than 6% above the upper end of the original guidance, we provided for 2020.

So a great year on the financial front.

Turning to 2022, we have great sales momentum with pacings, indicating acquisition adjusted growth for the full year will be in the seven plus percent range.

It is important to note. However that we are still normalizing from COVID-19 levels of activity. Both on the revenue line and the expense line. This will be particularly evident in Q1 as we comp against Q1 of last year when the AD market recovery was not yet complete.

For Q1, 2022, we anticipate year over year revenue growth that will be in the mid teens.

And expense growth that will be only a percent or two below that revenue increase.

Major contracts.

The reductions in many of these payments converting some revenue share only arrangements, while still in the throes of Covid.

While these transit related increases or not quite one time expenses. They do represent one time growth in expenses.

Another contributor to expense growth in 2022 will be some it projects and other corporate initiatives that Jay will explain in more detail.

Taking the analysis out for the full year of 2022 as I mentioned, we expect the top line to grow 7% on an acquisition adjusted basis with expenses growing approximately six 5%.

If not for the return of transit payments in it projects at seven plus percent revenue growth.

Expense growth would likely have been approximately three 5% this year as the business normalizes through 2022, the year over year growth in both revenue and expenses should taper in the back half of the year. It is important to note that nothing has changed fundamentally in our operating model and I would expect us to return to our customary 2% to three.

<unk> annual <unk>.

Spence trajectory in 2023, and importantly, we expect consolidated 2022 operating margins to remain at that 46% level.

At all of our 2022 expectations together and we see full year <unk> per share this year landing between $7 <unk>.

And $7 18 per share.

With our 2021 digital success in mind, we will be aggressive this year on our digital rollout we were hampered last year by production and permitting delays. So we fell short of our target of 300 new units in 2021, we have again set a target of 300 organic developments in 2022, and we're off to a faster start this year comp.

And it will get there.

To the 300 level in 2022.

On the M&A front, we anticipate another active year in 2022 after closing 45 deals in 2021 for a total purchase price of $312 million.

I'll now turn it over to Jay to walk through some more numbers.

Thanks, Shawn good morning, everyone and thank you for joining us.

Continuing the momentum we experienced throughout 2021 extreme.

Extremely pleased with our quarterly results, which once again exceeded internal expectations as well as consensus estimates for revenue.

<unk> EBITDA and <unk>.

It only did lamar exceed internal expectations and consensus would be 2019 on all three fronts as well.

The company achieved <unk> growth for the fifth consecutive quarter, improving four 1% to $1 78 per share on a fully diluted basis versus Q4 2020.

In the fourth quarter acquisition adjusted revenue increased 14% from the same period last year, demonstrating the benefits of our operating model with a portfolio heavily concentrated in billboards.

Our Billboard revenue came in ahead of Q4 2019 by approximately 8%.

Q4 acquisition adjusted revenue.

And adjusted EBITDA, both exceeded the fourth quarter of 2019 for the company.

With the second half of 2021, returning to more normal business activity acquisition adjusted operating expenses increased approximately 17% for the quarter.

Driven primarily by variable expenses tied to revenue.

We reduced operating expenses by approximately $80 million in 2020 to mitigate the impact of the COVID-19 pandemic on our business.

With revenue performance far exceeding our expectations from the beginning of the year approximately $63 million of operating expenses returned in 2021, which was above our most recent revised forecast of $55 million.

Despite this acceleration of expenses the company still achieved strong adjusted EBITDA margins in the fourth quarter and for the full year.

Adjusted EBITDA for the quarter was $230 7 million.

Compared to $207 $9 million in 2020, which was an increase of 11%.

On an acquisition adjusted basis, the increase was 10, 4%.

For the full year acquisition adjusted revenue increased 13, 8% to $1 $79 billion.

Compared to $1 $5 7 billion in 2020.

Adjusted EBITDA was $827 3 million, which represents an increase of 22, 7% on an acquisition adjusted basis.

Adjusted EBITDA margin was 46, 6% in the fourth quarter.

And for the full year 2021, adjusted EBITDA margin was 46, 3% expanding 150 basis points versus full year 2019.

The company ended the year above the high end of our <unk> outlook with full year <unk> of $6 59 per diluted share.

The work we've done on our balance sheet continues to prove beneficial as lower interest contributed to <unk> growth for.

For the 12 months ended December 31 diluted <unk> per share increased 29, 2% compared to full year 2020, and increased 13, 6% against full year 2019.

We experienced acceleration in both local and national business across our portfolio for the third consecutive quarter.

Our local and regional revenue improved 12, 4%, while national business, including programmatic increased by almost 15%.

Consistent with historical levels local and regional sales accounted for 75% of Billboard revenue in the quarter.

While national and programmatic represented 25%.

On the capital expenditure front total spend for the quarter was approximately $55 million, including.

Including $26 million of maintenance Capex and.

And for the full year Capex totaled $126 million, which included $58 million of maintenance.

Volume in our acquisition pipeline accelerating beginning in late spring and continued throughout the remainder of the year, culminating in a very active Q4.

We closed on $205 million of acquisitions in the fourth quarter, bringing the full year total to $312 million, which exceeded our internal expectations.

We continue to see a robust acquisition pipeline.

However, our intent is to remain prudent 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 provide a competitive advantage for the company.

We are quite pleased with the financial strength of Lamar and our balance sheet is well positioned going forward.

We have a well lettered debt maturity schedule with no maturities until the AAR securitization in July 2024, followed by the revolving portion of our credit facility in February of 2025, and we have no bond maturities until 2028.

Net interest expenses totaled $24 $1 million in the quarter, which is approximately $4 $9 million lower than Q4 2020.

Over the last 24 months the company has refinanced $3 6 billion of debt recapitalizing, the entire balance sheet, extending our maturity profile lowering interest and eliminating amortization.

Efforts resulted in over $30 million of cash interest savings in 2021 versus full year 2020.

As defined under our credit facility, we ended the quarter with total leverage of three three times net debt to EBITDA, which is one of the lowest levels ever for the company.

Our secured debt leverage was <unk> eight times at quarter end and were cut.

Comparably in compliance with both our total debt incurrence and secured debt maintenance test against Covenant of seven times and four five times respectively.

Based on current debt outstanding our weighted average interest rate is three 2% with a weighted average debt maturity of six five years.

At the end of the quarter.

Approximately $663 million of liquidity comprised of $100 million of cash on hand, and $563 million available under our revolver.

In addition to the AAR securitization. It was also fully drawn with a balance of $175 million.

Yes.

As Sean mentioned and included in this morning's release, we provided full year <unk> guidance of $7 <unk>.

And $7 between $7, three and $7 18 per share.

That represents an increase of roughly 8% at the midpoint of the outlook range compared to 2021 and is 22, 5% over 2019.

Based on momentum from last year and the pace of bookings, we expect strong revenue growth on the top line and anticipate expenses will increase accordingly.

In addition, minimum guarantees in our transit and airport business, we'll fully return in 2022.

Of the $80 million of operating expenses reduced in 2020 in response to COVID-19, approximately $15 million is permanent.

In addition to those expenses tied to revenue growth and the normalization of mags in transit and airport.

We're undertaking a number of corporate initiatives designed to position Lamar well for future growth.

These initiatives are focused on the ability to more efficiently scale our business.

They include modernizing and rationalizing our technology setup and future state enterprise capabilities, most notably our financial information systems with the ultimate goal of moving from primarily on premise legacy systems to the cloud over the next couple of years.

Because of our efforts around the balance sheet cash interest in 2021 should be approximately $105 million.

Still historically low for the company.

The maintenance Capex budget for the year of $65 million and taxes should come in around $11 million with the return of operations in our taxable REIT subsidiaries.

Now moving to our dividend as.

As you may recall in 2020 prior to the pandemic, we anticipate a dividend of $4 per share for the full year.

From the onset of COVID-19, the company's goal is to return to that level of distribution as soon as possible.

With a <unk> 50 per share special dividend at year end, along with our regular $1 per share quarterly dividend. We reached that goal in 2021 and distributed $4 per share to our shareholders.

Yesterday, we announced a first quarter dividend of $1 10 per share.

And anticipate a full year cash dividend of $4 40 per share in 2022.

A 10% increase on a per share basis.

Again, we are extremely pleased with this quarter's performance and are optimistic about the outlook for 2022 or.

Our balance sheet is strong and we maintained excellent access to both the 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.

<unk> remains well positioned to take advantages of opportunities as they arise I will now turn the call back over to Sean.

Thanks, Thanks, Jay I'm going to highlight.

A couple of things around our.

Rate increases that we're seeing.

In Q4, just to highlight the pricing power in our platform, both digital and analogue inventory.

We ended the year.

2021, with 3900 32 digital units in the air that was an increase.

212.

For the year inter.

Interestingly.

Even in light of the added capacity.

Our same unit digital yield was up 16% in Q4 and 23%.

For the full year of 2021.

So clearly we have pricing power with our our digital unit, but one of them.

Best stats, we saw coming out of Q4 2021 is that our analog posters.

Our rate was up 5% in our largest product bulletins rate was up six 6% in Q4.

Again that gives us tremendous confidence number one that.

An inflationary environment.

We have pricing power.

And number two that.

As our.

Transit and airport divisions continue their recovery.

We should see outsized growth across the whole platform.

2022.

So with that Hey, you can open it up for questions.

Thank you Sir at this time, we will open the floor for questions. If you would like to ask a question. Please press the star key followed by the one key that is star one on your Touchtone phone now.

Is that any time, you would like to remove yourself from the question in queue. Please press star two.

Again to ask a question please press star one.

Thank you our first question will come from Ben Swinburne with Morgan Stanley .

Hey, Thanks, good morning.

Hey, Shawn Hey, Jay Hope you guys are doing well.

I had two questions, we don't often talk transit and all of our call, but feels like we should today and then I also wanted to ask about the acquisition.

Impact into 'twenty, two so shall I think if I go back to 19 that business did I'm sure you know the numbers better than me, but maybe a $130 million of revenue.

All in could you just sort of size kind of the revenue from 'twenty, one to 'twenty, two and trends and then the expense piece. So we can sort of understand how much of that hit in margin and then I'll follow up on the acquisition front.

Sure.

Yes, that's pretty close than the $1 30, when you add up.

Airports Canadian transit in our U S Transit division in terms of there.

Relative recoveries.

We're pretty much there with our U S transit divisions.

We are.

Not quite there with airports, although they are coming on pretty strong.

And then the.

The biggest drag here.

Our Canadian Transit Division in our Vancouver operations.

The good news is.

Those businesses will contribute.

Significantly more EBITDA two two.

To the overall company than they did last year, so youre going to see.

Even in light of the return to the minimum annual guarantees youre going to see margin expansion in those businesses.

In terms of our overall margins.

Again as I mentioned, we anticipate that it will be at that 46% level that you saw.

Last year, so 2022.

Come in it.

The same margins for the overall platform.

Okay.

And then I don't know if you guys are able to do this for us, but can you help us think about the impact from.

The acquisition accretion for deals that were completed last year into your guidance.

And.

And is there anything contemplated for acquisitions in 'twenty two.

Thats baked into the guidance or would that be potential upside. If you guys are able to have an active year in 'twenty two.

So.

For last year.

Youre going to see those.

Predominantly fall in the fourth quarter so.

We're going to get a good bump for the full year.

Our as reported.

Revenue increased for this year should be J in the nine eight ish, 9% 10%.

Yes.

Baked into the guidance is revenue growth of eight to 10 months. So that's the sort of as reported with the impact of the acquisitions.

Sure.

And then again, a 46% operating margin.

And no.

The guidance does not.

Bacon acquisition activity for 2022.

Okay and are you at least that we see in the pipeline.

Yes, sorry go ahead, yes, I was just going to say, we see a pretty full pipeline this year.

It wouldn't surprise me, if we rose to last year's level.

Dollar value of acquisition.

This year.

And last year, we did $312 million.

Right. So that would give you another I mean I guess, if the if last year is giving you a couple of hundred basis points. Then you can maybe get another couple of hundred out of this year in theory.

And when you pull the trigger.

Your item.

And we're working hard on several as we speak.

Got it.

Great. Thank you.

See you in a week.

Thank you again as a reminder, please press star one now if you would like to join the queue. Our next question will come from and that was all from J P. Morgan.

Hi, Thank you for the question.

And that you had added a little over 200 digital billboards during the year in 2021 and with all the supply chain issues right now what are you seeing in terms of delays.

And are you planning to target maybe acquiring more just all points this year versus organic conversions.

Hey, Ann.

So we do still have supply chain issues, but we're managing through them I think.

Better this year than last.

We have.

A pretty good queue of digital.

<unk> lined up we think we're going to get to 300. This year in a typical year with no supply chain issues. It takes.

Two to three weeks to get a digital unit.

What we're seeing now is about double that.

But we're managing it.

And yes, we quite.

Often end up purchasing digital units when we do our M&A activity and you'll see a lot of that as well this year.

Okay, Great and just a follow up on the tuck in acquisitions.

Are there any particular area.

Most interesting geographically in terms of your exposure.

When you look at our overall platform and I would encourage anyone to go on our website and hit.

The.

Find inventory.

Button on our website.

And basically what Youll see Ana is that we're everywhere.

That virtually any.

Billboard in the lower 48 as a fill in for us.

So we really don't have.

Targeted geography.

Our focus is going to be on high quality REIT qualified assets.

In particular ones that we can fold into our existing footprint.

Which as I said, if you go to the browse inventory section of our website youll see that thats pretty much everywhere.

Great. Thanks.

Okay.

Okay.

Thank you at this time I am showing no further questions I would now like to turn the call back over to Mr. Reilly for closing remarks.

Well. Thank you Katie. Thank you all for listening we're looking forward to another record breaking year for Lamar in 2022.

And we'll talk to you again in about three months.

Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.

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