Q1 2022 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 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. Please press star one on your telephone keypad.
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In the course of this discussion Lamar may make forward looking statements regarding the company.
Including statements about its future financial performance.
<unk> goals planes.
Plans and objectives, including with respect to the amount and timing of any distributions to the stockholders and the impacts and effects of current economic conditions on the Companys business financial condition and results of operations.
All forward looking statements involve risks uncertainties and contingencies, many of which are beyond lamar's control.
Which may cause actual results to differ materially from anticipated results.
Lamar has identified important factors that could cause actual results to differ materially from those discussed in this call and the company's first quarter 2022 earnings release and its most recent annual report from Form 10-K.
Lamar refers you to those documents.
<unk> first quarter 2022 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, Www Dot Lamar Dot com.
I would now like to turn the conference over to Sean Reilly. Mr. Riley you may begin.
Thanks, Bobby Good morning, all and welcome to Lamar's Q1, 2022 earnings call.
The year is off to an excellent start our ability to reach audiences on the go with powerful messages at competitive rates is clearly resonating with advertisers.
As a result, the trends we have seen since the rebound from Covid began.
Tightening inventory better pricing and a real appetite for our digital platform have continued in our first quarter revenues were ahead of expectations with strength across nearly every top category in all geographies Bill.
Billboard revenues increased more than 17% on an acquisition adjusted basis, with our transit and airport businesses, improving even better.
While expense growth was elevated for the reasons, we noted on our fourth quarter call.
Both our adjusted EBITDA and <unk> grew more than 25% in the quarter.
Both adjusted EBITDA and <unk> per share, we're well ahead of pre pandemic levels.
Sales pacings for the balance of the year are strong and where youre not seeing any signs of a macro slowdown in our book.
Given that we are raising guidance for the full year <unk> per share to $7 20.
To $7 35.
And management will recommend a 10 cent per share increase in our distribution to $1 20 per share beginning in Q2.
Categories with particular strength in the first quarter included service retail gaming financial and education.
Importantly, amusement and entertainment is back to 80% of pre pandemic levels and it appears we're going to have a strong year with political.
As we are pacing well ahead of the same point in 2020.
Occupancy across the analog platform has tightened further and we are driving rates as we said we would average daily rates on our analog panels were up mid to high single digits versus the first quarter of 2020, and I'm confident that we will continue to drive rate as 2020 to unfold.
The digital story. Meanwhile, remains very powerful on a consolidated basis digital revenues were up nearly 28% year over year with sales up more than 20% on a same store basis.
We added more than 90 digital units to the portfolio in the quarter through both conversions and acquisitions and we have more than 100 additional units on order today.
Most of those should be deployed before the fourth quarter, we intend to continue to build out our network aggressively.
We remain active in the M&A market as well as you saw this week, we acquired burkhart advertising the leading out of home platform in South Bend in the rest of northeast, Indiana Burkhart is one of the oldest and most highly regarded companies in our industry and we were honored that the Miller family trusted Lamar to build on what they have established with that deal.
We have completed more than $200 million worth of transactions. So far in 2022, and there is more in the pipeline.
That said, we should exceed the.
Over $300 million of transactions that we completed last year.
All in all we are executing at a very high level and I'm extremely excited about what's to come with that I'll turn it over to Jay who will walk you through some more numbers.
Thanks, John Good morning, everyone and thank you for joining us.
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 sixth consecutive quarter.
Moving 34% to $1 50 per share on a fully diluted basis versus Q1 2021.
In the first quarter acquisition adjusted revenue increased 18, 6% from the same period last year.
Q1 acquisition adjusted revenue as well as adjusted EBITDA, both exceeded the first quarter of 2020, which was just prior to the COVID-19 pandemic and a record first quarter at the time.
All of our regions experienced pro forma revenue growth in the mid to upper teens with the exception of the West coast, which grew by over 23%.
Acquisition adjusted operating expenses increased 14, 8% in the first quarter, driven primarily by variable expenses tied to revenue as well as corporate initiatives discussed on our last call.
We anticipate expense growth will moderate as we progress through the year and decelerate each quarter sequentially as we compare against more normal operations not impacted by Covid.
Despite expense increases the company expanded margins by 130 basis points over Q1, 2021, resulting in one of our strongest first quarters from a margin perspective.
Adjusted EBITDA margin was 42, 4% versus 41, 1% in the first quarter of 2021, and 440 basis points ahead of the same period in 2019.
Adjusted EBITDA for the quarter was $191 2 million compared.
Compared to $152 $4 million in 2021, which was an increase of 25, 5%.
On an acquisition adjusted basis, the increase was 24, 1%.
Free cash flow in the quarter also improved improving 25, 2% versus the same period last year.
We experienced acceleration in both local and national business across our portfolio for the fourth consecutive quarter.
Our local and regional revenue improved 22%, while the national business, including programmatic increased nine 5%.
Local and regional sales accounted for 80% of our Billboard revenue in the first quarter with growth outpacing the national and programmatic channel for the first time since Q1 of last year.
On the capital expenditure front total spend for the quarter was approximately $29 million, including $13 million of maintenance Capex and for the full year, we anticipate total capex of $170 million with maintenance comprising $65 million.
Volume in our acquisition pipeline accelerated in the second half of 2021 and has continued into 2022.
During the quarter, we closed on $55 million of acquisitions, and our pipeline is more robust than pre COVID-19.
We are optimistic that this year's activity will exceed 2021 and proved to be one of the most active in recent years.
Given the strength of our balance sheet and lower cost of capital relative to our public peers as well as private equity we should remain extremely competitive on the M&A front sorry.
Furthermore, Lamar is in the process of converting to an upright.
Taylor partnership real estate investment Trust and upgrade is a common operating structure for publicly traded Reits and should serve as an additional competitive advantage and execution of our M&A strategy.
Up REIT transactions can provide an attractive tax deferred exit strategy for owners with a low tax basis, who may recognize a significant taxable gain in the sale of real estate.
We anticipate this conversion will be complete by the end of the second quarter.
Sure.
Turning to our balance sheet, which is a critical focus 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 2025, and we have no bond maturities until 2008.
Net interest expenses totaled $26 million in the quarter, which is approximately $2 million lower than Q1 2021.
Based on debt outstanding at quarter end, our weighted average interest rate was three 3% with a weighted average debt maturity of six two years at March 31, approximately 65% of our debt was fixed rate. Since December 2019, we have increased our fixed to floating rate mix by 20 percentage points as we recapitalized <unk>.
Let sheet and to mitigate interest rate risk. We feel this is an adequate level of fixed versus floating in our sector are highly correlated to changes in short term rates and once again, our balance sheet is well positioned to perform through economic cycles.
As defined under our credit facility, we ended the quarter with total leverage of three six times net debt to EBITDA, which remains amongst the lowest in the history of the company.
Our secured debt leverage was 0.89 times at quarter end and we are comfortably in compliance with both our total debt incurrence and secured debt maintenance test against Covenant of seven times and four five times respectively.
At the end of the quarter, we had approximately $562 million in total liquidity comprised of $116 million of cash on hand, and $446 million available under our revolver.
Our securitization was fully drawn with $175 million Outstandings.
As Sean mentioned and included in this morning's release, we increased our <unk> guidance based on strong performance in the first quarter and the outlook for the remainder of the year.
The revised <unk> guidance of $7 20 to $7 35 per share represents an increase of 17 cents at the midpoint compared to our guidance released in February .
We anticipate the first and second quarters will be this year's strongest on a comparable basis.
Now moving to our dividend, we paid a cash dividend of $1 10 per share in the first quarter, which was a 10% increase from the fourth quarter regular dividend.
Because of the Companys, improving <unk> outlook management's recommendation at the upcoming board meeting will be to declared a cash dividend of $1 20 per share for the second quarter. This.
This recommendation is subject to board approval and we will communicate the board's decision. Following the board of Directors meeting later this month if.
If the board approves management's recommendation and assuming a $1.20 dividend for each of Q2 Q3 and Q4, the large distribution for the full year will total $4 70 per share, which is 17, 5% above the dividend paid in 2021 and represents a yield of four 3% as of yesterday.
<unk> closing stock price.
Again, we are extremely pleased with this quarter's performance and are optimistic about the outlook for the remainder of 2022.
Our balance sheet is strong and we maintained excellent access to both the debt and equity capital markets.
A strong balance sheet is core to our operating strategy and serves as a significant competitive advantage with our intense focus on the Companys capital structure Lamar remains well positioned to take advantage of opportunities as they arise I will now turn the call back over to Sean.
Thanks, Jay I'm going to hit on a few metrics that you're familiar with mostly focusing on digital.
Right and our verticals.
On the digital front, we closed out the quarter with 4025 digital units.
Most of those organic but some acquired.
Digital is approaching 30% of our book of business and it's growing rapidly as I mentioned.
28%.
Same board performance, 28% overall platform performance growth.
And clearly we're going to continue to invest in digital and build that network out.
As fast as possible.
Turning to rate.
I quoted in my opening remarks against 2020.
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2020, Q1 was our.
Until this quarter best quarter ever in Q1.
And we are mid to high single digits up on rate and our analog platform.
Compared to last year 2021.
Posted rates are up 15% and bulletin rates are up 9%.
So we're very encouraged that our ability to drive rate in the environment that we're in.
Today.
I think it's most instructive to compare against its not 2021, Q1, but 2020 Q1.
More normalized period.
And again mid to high single digit.
Rate increases across our analog platform.
Looking at our verticals.
Okay strength really across everything services up 24% health care up 14% retail up 22% gaming up 23% automotive up 12% and as I mentioned amusement entertainment and sports.
<unk> to rebound.
About 80% of Q1 2020 levels.
Amusement entertainment and sports as a category was up 47% in Q1 over 2021 financials up 30% education up 30% and for the first time.
Probably gosh since 2007.
Real estate popped into our top 10 and.
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It was up 20% over last year.
Worth noting.
That no single customer.
Lamar represents over 1%.
Of our book of business. So we are truly highly diversified across.
50000, some odd customers.
And again no single customer represents more than 1% of our of our book of business with that Bobby I'll open it up for questions.
Thank you at this time, if you would like to ask a question. Please press the star and one on your telephone keypad.
Again, Thats star one on your telephone keypad.
You may remove yourself from the questioning queue at any time by pricing.
Star two.
Once again Thats star one to ask a question, we'll pause for just a moment to allow the questions to queue.
And again Thats Star one if you have a question.
Yes.
And our first question comes from Ben Swinburne with Morgan Stanley .
Good morning, Shawn Good morning, Jay.
I've answered as well.
Couple of questions.
I'm sure. It's not lost on you Sean you guys are a bit of an outlier given how strong the business not only is but looks ahead that is freezing hiring just heard a lot of areas of incremental softness near times yesterday.
I'm just wondering.
If you have any theories or what youre hearing from the field because it seems like there's market share pickup going on for you.
And hopefully it's not just sort of a later recovery and it's just timing, but I'm. Just wondering if you have a sense of what's happening on the ground and in particular.
Mid to high single digit rate growth I mean, it's been a long time.
Maybe if ever that I can remember that much.
<unk> growth what are your why are your clients your advertisers absorbing that and what is the backdrop, that's allowing you to put that through because obviously thats thats pressure on their on their own P&L and then.
Just for Jay.
Why is M&A running so.
Substantial are you guys pay paying more.
Our sellers more motivated just curious why you guys are seemingly able to execute on more last year and now this year versus.
Prior period. Thank you.
Thanks Pat.
So there is share shift going on and you've heard me.
Over the years talk about particularly at the local level, what's going on with traditional local media as they struggle with their audience.
Youll see eyeballs eroding for local network affiliate television you see.
Audience erosion for radio and clearly newspapers are struggling.
So yes, we're getting that that business is coming our way.
I can't.
Wrapped data around what I'm about to say, but I think theres also something happening.
In the world of digital on the small screen, what you see on your phone mobile social.
The Apple crack down on <unk>.
Privacy and data.
Has shifted dollars around in the digital world.
And.
I think some of that is coming our way and it doesn't take very much to move our way right.
And so when you think about issues around privacy and brand safety.
That are affecting how people feel about some of their.
Social mobile spend.
We don't have those issues and so.
Some of that is coming our way.
The other thing Thats happening in digital.
On our digital platform is programmatic is providing.
Real incremental.
Demand.
So we're able to we don't quote rate and occupancy when we talk about our digital platform that we talk about same board yield.
20% is that.
That's a that's a pretty good number.
So yes.
Yes, I think we've got we've got secular tailwind going on in terms of.
AD spend and in market share coming our way as an industry I think the whole out of home industry is.
Benefiting from that if you look at our book.
Local was on a relative basis stronger than national.
And so I think that share shift.
As more prominent at the local level and that stands to reason I mean, you cover some of those local media and you know what's going on there.
So that's what we're seeing.
Right.
When I think about rate I'll look back 15 years. The last time, we were able to see this kind of rate increases.
It was the mid two thousands right.
And we haven't been able to talk about rate since the great recession.
And we've been living in a 2% world a 2% world and we haven't.
Really driven right.
For a decade, and when we sit down and talk to our customers now.
They expect that they expect the ask and we're asking.
So it's pretty much as simple as that you've got it.
Decades.
Sort of.
Pent up.
Right.
Expectations were.
We're going to benefit from that now that the expectation of inflation is everywhere.
And Ben on the acquisition front I think there are a couple of things if you look last year.
Coming out of sort of 2020 is still in the pandemic. There was a lot of sort of pent up demand, what I would call it where.
Sellers.
Who thought that they might sell in 2020, and our quite frankly, our pipeline was pretty robust before COVID-19 hit.
They pull their deals and quite frankly, we were focused internally as well.
We saw a lot of those deals come back last year.
This year I think a little bit we've seen that momentum continue some of it has spillover.
But I also think.
Sellers are seeing how well their businesses have performed and their businesses are back just as you see ours is and they decided to come to market in terms of Lamar being successful I think.
As we always have been on the acquisition front I think it's because of our track record I mean, our acquisition team does does a phenomenal job.
They are prudent in their underwriting, but they are fair and when sellers countless they know that they're going to be treated fairly and that we're going to we're going to do our vehicles quickly. So I think thats whats.
What's occurring I think going forward.
<unk> proved to our benefit is also rising cost of capital we have some of the lowest cost of capital out there is that cost rise I think that would really impact private equity and then as we as I mentioned in my comments the conversion to an up REIT should provide another competitive advantage going forward. So we're very very pleased with how the acquisitions that have unfolded this year.
And we're very optimistic about the remainder of the on the acquisition front.
Thanks, guys.
We are thanks, Dan.
And as a reminder, if you do have questions. Please dial star one on your telephone keypad.
Our next question comes from Richard Choe with JP Morgan.
Hi, I just wanted to follow up a little bit on the rate discussion do you think this is a kind of one time catch up or do you think you can kind of continue to.
Faster rate going forward and then two is there any.
Concerned right now about the vacations less driving season as oil prices continued our gas prices continue to go up.
To add another one.
Hey, Richard.
I think there is some truth to that notion that theres some catch up here, but I don't think its one time.
When I talk to REIT investors they are used to.
Far longer term tenant contracts.
Our average length of contract is four months. So we get to have a rate discussion on average every four months and that happens not at the beginning of the year. It happens ratably ratably throughout the year.
So while I think there is some truth to the to the catch up.
I think going forward.
As long as we're in this environment.
We get to have this again this rate discussion every four months.
Now on the.
The sort of question of what the summer driving looks like.
Really all I can say is our forward pacings look really good.
Look at.
June compared to May July compared to June August compared to July and then.
Moving into back to school.
Sequentially every month is getting better.
So.
If.
The driving season.
<unk>, we're certainly not seeing it.
Great and then in terms of the digital platform.
Same board was very strong in the overall.
Strong what kind of visibility are you seeing and I know you've talked about a little bit but it seems like this.
There's a lot of demand that might give you a little bit more visibility than normal.
Any color there would be great.
Sure.
A couple of things.
Mentioned about our build out this year.
We are still seeing some.
Supply chain disruptions there are.
Longer lead times and securing.
Digital boards for continued conversions.
And but we still think we're going to hit our goal of 300 by the end of the year.
Is going to be close, but we think we're going to get there.
Again, mostly its supply chain, it's certainly not demand.
It is our shortest cycle sale when you think about the way our customers use our digital.
And how they spend there.
So youre not looking at longer term contracts in terms of visibility, but what we do have is.
On our.
Programmatic automated platform.
We have.
DSP partners, who have.
Real good glimpse into what their pipeline looks like.
And they are telling us that it's going to be a good year that there is there is a lot of demand.
And their new their new advertisers to our hunt there these are.
Customers that.
They're used to buying.
On the little screen social mobile.
On your handheld.
But.
They are moving our way they are experiencing good results with what they spend on our big screens. So.
Our visibility there isn't it isn't as <unk>.
Crystal clear as what we see in our analog platform because of the shorter duration of the contracts.
But our <unk>.
Programmatic partners are feeling very good about the rest of the year.
Great. Thank you.
And at this time there are no further questions I will now turn the call back over to Sean Reilly for closing remarks.
Well, great. Thanks, Paul and thanks, Bobby and we look forward to speaking with you again next quarter.
Yes.
And thank you for joining today's l'amour program.
That does conclude our teleconference. You may now disconnect.
Okay.
[music].
Okay.
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