Q3 2022 Lamar Advertising Co Earnings Call

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Excuse me everyone. Please standby your program is about to begin if you need assistance. During your conference today. Please press Star zero.

Excuse me everyone. We now have Sean Reilly and Jay Johnson in conference.

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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.

Strategic goals plans and objectives, including with respect to the amount and timing of any distributions to stockholders and the impacts and effects of general economic conditions.

Including inflationary pressures on the company's business financial condition and results of operation.

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.

Lamar has identified important factors that could cause actual results to differ materially from those discussed in this call in the company's third quarter 2022 earnings release and its most recent annual report on Form 10-K.

Lamar refers you to those documents.

Lamar's third quarter 2022 earnings release, which contains information required by regulation G regarding certain non-GAAP financial measures.

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 dotcom.

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

Thanks, Todd Good morning, and welcome to Lamar's Q3, 2022 earnings call.

As you saw in our release, our third quarter unfolded largely as expected against a strong Q3 2021 comp we had positive results across most revenue metrics, except one I will get into the details around that a little later as I mentioned in the release the headline pro forma sales growth number for Q3 came in at plus 6%.

With local revenue showing significant relative strength over national.

On the expense side cost continue to normalize as we move through Q4 expense growth remained a bit elevated in Q3 for reasons. We highlighted on calls earlier. This year. However, adjusted for extra ordinary corporate initiatives expense growth and operating margins came in as expected.

Moreover, we project to end the year with consolidated EBITDA margins around the same 46% margins we achieved in 2021.

As a result, we remain on track to hit the high end of our full year <unk> per share guidance.

In addition, we will be recommending to our board a 30 cent per share special dividend on top of our regular quarterly dividend to be paid in December .

This will bring our full year 2022 distributions to $5 per share and we anticipate that that one.

<unk>, 25% will be our new quarterly run rate for distributions in 2023.

Returning to the third quarter sales grew across all business lines and geographies driven primarily by rate.

Traditional poster and bulletin pricing was up mid to high single digits. This Q3 over Q3 2021.

Categories, showing particular strength in Q3 included services education restaurant auto and amusement and entertainment.

Political also remains a tailwind for us and we will reach record levels in 2022.

And addressing our Q3 growth without political ex political our Q3 revenue growth was five 5%.

Notably our ex political pro forma sales growth for the month of October recently completed was also five 5% with.

With political pro forma sales growth for October was seven 6% getting us off to a good start to Q4.

One revenue generator, which was disappointing in Q3 was our programmatic channel.

Last year, we generated about $30 million and programmatic sales. This year, we believe it will contribute about $27 million or 10% less so clearly programmatic is underperforming.

We remain confident in the long term promise of programmatic.

However, in the meantime, because our programmatic channel feeds our NAV it had an impact on our national sales metrics and our same board digital metrics.

Excluding the impact of programmatic National sales grew one 4% in Q3 and same board digital grew three 5%.

Finally, we remain very active on the M&A front.

With completed deals to date of around $300 million and pending transactions, which should take us north of $400 million for the year.

You can expect us to remain a buyer in 2023 as we take advantage of our balance sheet that is the strongest in the industry and positions us well for whatever is over the horizon with that I'll turn it over to Jack.

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

I'll begin with brief comments on the quarter.

And then review our balance sheet.

Crude with the discussion of our current financial position and dividend strategy.

We have a solid quarter and are pleased with quarterly results, which exceeded consensus estimates across revenue adjusted EBITDA and <unk>.

The company achieved <unk> growth for the eighth consecutive quarter.

Approving six 8% to $2 <unk> per share on a fully diluted basis.

Based on the outlook for the remainder of the year. This morning, we reaffirmed our <unk> guidance and as Sean mentioned, we are tracking to the high end of the range.

In the third quarter acquisition adjusted revenue increased 6% from the same period last year.

Acquisition adjusted operating expenses increased six 3% in the third quarter.

Given primarily by variable expenses tied to revenue.

As expected expense growth continued to decelerate in the quarter with comparison against more normal operations not impacted by Covid.

Despite pressure on the expense side. The company maintains a strong adjusted EBITDA margin of 47, 6%.

<unk> continues to lead the out of home industry.

Our sales team has done a good job managing rates across our portfolio.

Rates on our large format traditional bulletins increased by almost 8% in Q3.

Although the rate increases of over 9% during the first half of the year.

In addition, our outdoor portfolio remains at historically high occupancy.

Adjusted EBITDA for the quarter was $251 $2 million.

Compared to $237 million in 'twenty, and 'twenty, one which was an increase of eight 9%.

On an acquisition adjusted basis, the increase was five 7%.

Free cash flow in the quarter also improved.

Approximately 130 basis points over the same period last year.

Local and regional sales accounted for 77% of Billboard revenue in the third quarter.

While we experienced acceleration in both local and national business for the sixth consecutive quarter overall growth decelerated, given the comparison to more normal operations year over year.

Our local and regional sales grew six 4% versus last year the.

The national business, including programmatic increased 30 basis points against a strong comp in Q3 2021, when national sales grew by 40%.

Our portfolios continued growth amid an uncertain economic environment demonstrates the resilience of our business and the benefits of our operating model with a portfolio heavily concentrated in billboards and focused on local markets.

On the capital expenditure front total spend for the quarter was $41 million, including approximately $13 million of maintenance Capex.

For the first nine months of the year Capex totaled $116 8 million $44 7 million of which was maintenance.

We anticipate total capex for a full year of $170 million with maintenance capex comprising $65 million.

Given the strength of our balance sheet with low leverage and ample liquidity.

Spirit to another active year on the acquisition front.

The company closed $53 $6 million of acquisitions in the quarter.

Adding almost 500 advertising displays.

Acquisitions through September 30 totaled approximately $288 million.

With over 4300, new displays added to the portfolio.

Our acquisition pipeline remains robust and we are on pace to exceed last year's total.

Turning to our balance sheet.

We are pleased with the company's capital structure and are well positioned going forward.

A strong balance sheet remains core to our operating strategy and serves as a competitive advantage in today's economic environment.

With our intense focus on the company's capital structure, we are well positioned to take advantage of opportunities in the M&A market.

As you May recall in July we continue to work on our balance sheet and improve liquidity.

With a $350 million term loan a to support our acquisition strategy.

We have a well lettered debt maturity schedule with no maturities until the revolving credit facility and term loan a in February 2025.

Followed by the AAR securitization in July the same here and.

And we have no bond maturities until 2028.

Based on debt outstanding at quarter end.

Weighted average interest rate was four 5% with a weighted average debt maturity of five seven years.

At the end of the quarter, we had approximately $857 million in total liquidity.

Our revolving credit facility was undrawn with availability of $739 million.

We had $79 million of cash on hand.

And the AAR securitization had $39 million available.

Subsequent to quarter end, we repaid $75 million of the balance outstanding on the AUR securitization.

And the current balance is $125 million.

Our revolving credit facility remains undrawn.

Pro forma for the subsequent paydowns, 66% of our debt carries a fixed interest rate.

Since December 2019, we have increased our fixed to floating rate mix by 20 percentage points to mitigate interest rate risk as we recapitalize the balance sheet.

We feel this is an adequate level of fixed versus floating.

Sector highly correlated to changes in short term rates.

Despite the rise in interest rates recently and as a reminder of the progress achieved on the balance sheet.

Projected cash interest this year is approximately $120 million.

Which is $30 million lower than for the full year 2019.

As defined under our credit facility, we ended the quarter with total leverage of 319 times net debt to EBITDA.

Which remains amongst the lowest in the history of the company.

Our secured debt leverage was <unk> 95 times at quarter end.

And we are comfortably in compliance with both our total debt and current and secured debt maintenance test against covenants are seven times and four five times respectively.

Now moving to our dividend.

Through the third quarter of this year.

We have paid a cash dividend to shareholders totaling $3 50 per share.

$1 10 in Q1.

With a 9% increase to $1 20 in the second quarter, and we paid $1 20 in.

In Q3 as well.

As Sean mentioned, we plan to recommend another quarterly dividend of $1 20 per share for the fourth quarter.

The proposed special dividend at year end is in line with our dividend policy to distribute 100% of our taxable income and consistent with last year's strategy.

If the board approves, both the quarterly distributions as well as a special dividend <unk> full year distribution will increase 25% over the company's dividend paid in 2021 and represents a yield of five 6% based on yesterday's closing stock price.

Again, we are pleased with this quarter's performance and our projection to finish the year at the high end of the guidance range.

Our balance sheet is strong and we maintained excellent access to both the debt and equity capital markets.

Our strong balance sheet this quarter, 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.

They arise Chuck.

Now im going to cover a few of the data points that you all are familiar with that we usually cover on the call.

Pro forma growth by outdoor region the regions showing the greatest relative strength include the Gulf Coast region, and the southwest region.

The reason showing the lease relative strength was the northeast region, which is our region, which is most reliant on national business.

Turning to digital in Q3 digital revenues accounted for 29, 1% of outdoor revenues. This compares to Q3 of 2021, where digital contributed 28, 4%.

To our total revenue mix.

We ended the quarter with 4285 digital units an increase of 130 over Q2 that was a combination of acquisition and new build.

<unk> year to date totaled 202.

Again with 88 of those newbuild falling into Q3.

I mentioned the <unk>.

Same board performance.

Underperformance cost us about one point on our digital platform.

Turning to.

Local versus national J hit on this.

Our local business grew six 4% in Q3 Nash.

The national Slash programmatic grew 3%.

Again, excluding the impact of programmatic national grew one 4%.

Yes.

Turning to categories of business.

As I mentioned relative strength.

Service grew 14, 3% restaurants grew eight 5% retail grew six 3% automotive grew eight 1% and amusement and entertainment continues to recover and grew 23% in Q3 education also grew.

20% in Q3.

The one.

Vertical of note that was down was gaming, which was down 7% the bulk of that was gaming app.

They were down about $3 million in Q3.

And notably.

That hit National sales.

Costing national sales about two 8%.

Growth in Q3.

With that.

We can 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 Touchtone phone you may remove yourself from the queue at any time by pressing star two once.

Once again that is star one to ask a question, who will pause a moment to allow questions to queue.

We will take our first question from Cameron Cameron Mcveigh of Morgan Stanley .

Hey, guys. Thanks for taking my question.

I had a couple.

The increase in rates is that largely inflation driven.

Or.

Or what kind of contribution from higher demand among advertisers and the share shift from other mediums I'm curious if you know yet.

What the contribution is between the two.

Then I have a follow up for.

Sure. Thanks Kamran.

We are at peak occupancy so demand is very high for particularly for our premium unit.

So I would say it's number one demand driven.

And then number two historically, we're coming off a decade of.

Very very low inflation and more importantly inflation expectations. So.

Our team was out there.

Getting increases in the 2% and 3% sort of reflective of GDP.

And then as we turned the corner into the back half of last year and into <unk> into this year.

That all changed and there was an expectation that that number one.

<unk> had an inflation expectation.

Number two we started asking for significantly.

More rate increases too.

To reflect that so it's a combination of <unk>.

Strong demand.

<unk>.

Our willingness to ask.

After a decade of really not asking.

Got it that makes sense.

Alright, and then secondly, how is your visibility into the advertiser demand looking across.

That both static and digital curious how far that usually extend and if that has changed at all from earlier in the year or prior years. Thanks.

So we look at the same metrics Cameron that we always look at and it's a combination of.

What we can see.

And our forward bookings.

And those.

The projections are.

It remains strong.

In fact, we're we're pleased with what we're seeing.

The book due in 2023 as we sit today.

And it also is a function of touching base with the field and seeing what they are hearing and seeing and feeling.

So it's a combination of those two things.

Some of it is.

Data driven and some of it has experienced.

But we've been doing this a long time, so we feel good about visibility we've got certainly at the end of the year.

And as we.

Peter into 2023.

Great. Thanks, Sean.

Thank you as a reminder, if you would like to ask a question. Please press star one at this time, we will take our next question from Richard Choe of J P. Morgan.

Great I wanted to ask about the political revenue.

The crowding out any normal revenue in October and we'll kind of continue into November now.

<unk> given that the election timing.

Is it just a small contribution or is it for more months than we expect.

And then I have a few follow ups.

Sure.

So there's going to be a little bit of crowding out I mean, obviously, we have <unk>.

A limited amount of space. So if it's being occupied by political letting somebody else is in up there.

But I was pleased when when we ran the numbers on.

How we performed ex political.

At five 5%.

That tells me that we held our own with our our core verticals and that there is not.

That much.

A huge lift that is purely.

Our political contribution.

But your point is well taken.

Somebody is up there in October .

And it's a political AD then that means somebody else was unable to get that space.

Regarding how it goes forward through the queue.

Our biggest month political is October that's now behind US I gave you those metrics.

And so youll see.

Political tail off pretty significantly.

We moved through the quarter.

Great and I guess to follow up on that.

What verticals do you expect to ramp up in November and beyond and then in terms of the national is that just driven by the gambling at weakness or is there something else that youre seeing there.

So if.

If you look at where.

National seemed to tilt in Q3, I mentioned the impact of programmatic and I mentioned the impact of the gaming apps every other one of our verticals was strong and came in where we expected.

There is I think a little bit of a differential between the largest DMA.

New York La Chicago.

Atlanta.

Where our experience was national was a little bit stronger.

On a relative basis and the weakness.

Our book seemed to have been those middle size market.

Therefore for one reason or another national tailed off a little bit.

So I think it's a combination of those three factors.

And that's kind of that's.

What we're seeing as we as we look into November and December .

Right now, where we sit it looks like it's going to be a pretty decent holiday season, we're not.

Seeing anything that suggests.

Anything other than sort of mid <unk>.

Mid single digit performance.

Got it and then final one for me in terms of.

The overall business it seems like.

556% organic great team solid.

And then M&A remains strong.

Are you seeing pricing changes on M&A.

Doug.

Do you think we will end up doing more or less deals.

Going forward.

So we're going to finish the year.

If things.

Things play out in November as we expect we will finish the year somewhere in north of 400 million in acquisitions. This year, that's a very active year.

Pricing at the beginning of the year I would say was.

In terms of asset values was a little bit higher than what we're seeing now and.

We plan to take advantage of that environment.

And going into next year it looks like.

The acquisition pipeline looks.

Wrong as well.

I don't see next year coming in.

North of 400 like it will this year.

But.

<unk> plan on remaining very active.

Great. Thank you.

Thank you. It appears we have no further questions at this time I would now like to turn the call back to Sean Riley for any additional or closing remarks.

Thank you Todd and thank everybody for listening.

To our call this quarter, we look forward to finishing the year strong in and visiting with you all come February of 2023.

This concludes today's call. Thank you for your participation you may disconnect at anytime.

Okay.

Yes.

Yes.