Q4 2022 Lamar Advertising Co Earnings Call
Please standby your program is about to begin.
Need any assistance during your conference today, Please press Star zero.
Excuse me everyone. We now have Sean Reilly and Jay Johnson in conference. Please be aware to each of your lines is in a listen only mode.
The conclusion of the company's presentation, we will open the floor for questions.
Registered to ask a question at that time by pressing the star one on your Touchtone phone.
They withdraw yourself from the queue by pressing star and two in.
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.
And timing of any distributions to stockholders.
Impacts and effects of general economic conditions, including inflationary pressures 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.
I have identified important factors that could cause actual results to differ materially from those discussed in this call and the company's fourth quarter 2022 earnings release and its most recent annual report on Form 10-K.
<unk> refers you to those documents Lamar's fourth quarter 2022 earnings release, which contains information required by regulation G regarding certain non-GAAP financial measures was furnished to the SEC on form.
Form 8-K, this morning and is available on the investors section of the Mars website Www Dot Lamar dotcom.
I'd now like to turn the conference over to Sean Reilly. Mr. Riley you may begin.
Thank you Shelby and good morning, all and welcome to Lamar's Q4, 2022 earnings call two.
<unk> 2022 was the most successful year in the company's history on an acquisition adjusted basis revenues grew nearly 10% topping 2 billion for the first time and we reached record levels of EBITDA and <unk>.
Perhaps what I'm most proud of our team delivered consolidated EBITDA margins north of 46% in the face of last year's inflationary pressures.
This strong performance amidst the broader uncertainty in the media space demonstrated the continued confidence that businesses have.
Out of home advertising the ability to deliver powerful messages to their customers in the right places at the right times.
For the fourth quarter revenue grew eight 3% over 2021 or four 6% on an acquisition adjusted basis, while expenses continued to moderate increasing three 2% on an acquisition adjusted basis.
That combination translated into nice operating leverage, allowing us to exceed the top end of our guidance range for full year <unk> at $7 38 per share.
For the quarter strong local sales offset weakening demand from national advertisers in line with trends evidenced elsewhere in the media world.
For the quarter local sales were up seven 6%, while revenue from national and programmatic channels were down more than 7%.
Categories with relative strength in Q4 included service education in amusements.
And notably auto and retail were each up approximately 5%.
Categories, which were relatively weak included healthcare online gaming and insurance, reflecting in part a pullback from some large national accounts.
Turning to 2023 I'd like to highlight a few trends from Q4 that are carrying over into Q1.
Of this year.
Number one local revenue remains solid as main street remains resilient.
Number two national weakness has persisted into Q1 of this year and we anticipate it will be down approximately the same as in Q4.
That said activity is picking up and we anticipate our national book of business will be modestly positive for the full year.
Number three the significant expense growth moderation, we saw in Q4 of last year is also carrying over into this year.
You saw our <unk> per share guidance of $7 40 to $7 55 in our press release.
The midpoint of that range.
Flex approximately 4% pro forma revenue growth for the year and approximately three 5% expense growth for the year.
That math would get us to consolidated EBITDA margins that once again exceed 46% in 2023.
Regarding our <unk> per share guidance as Jay will explain in more detail <unk> growth is being significantly affected by increased interest expense, resulting in only modest full year <unk> growth.
We intend in 2023 to continue to invest aggressively into digital which now accounts for roughly 30% of our Billboard revenue.
On a same store basis, our digital revenue was down slightly in Q4 2022, largely due to weakness in the programmatic channel.
Our customers remain extremely enthusiastic about the product and we are targeting another 300 organic conversions in 2023.
Meanwhile, expect a quieter year on the M&A front.
We completed $480 million in acquisitions in 2022, bringing the two year deal total to nearly 800 million.
Over the course of 2021 and 2022.
The focus for 2023 will largely be on digesting, the new assets and ramping up new markets, such as South Bay, and Fort Wayne, which came to us and the burkhart deal last spring in Valdosta, and Eastern Kentucky, which we picked up in the fairway transaction, we closed in December in.
In fact about over 90% of our acquisition activity last year tilted towards Lamar sweet spot of small and midsized local oriented markets and fill in inventory.
Before I turn it over to Jay I want to thank all of our employees for their contributions in 2022. Our success in 2022 was a testament to their hard work and whatever 2023 holes I'm confident that our team will make the most of our opportunities.
Okay.
Thanks, Shawn good morning, everyone and thank you for joining us.
We had another solid quarter and are pleased with our quarterly results, which exceeded internal expectations across revenue adjusted EBITDA and <unk>.
The company achieved <unk> growth for the ninth consecutive quarter, improving seven 3% to $1 91 per share on a fully diluted basis.
In addition, despite a challenging interest rate environment.
Company ended the year above the high end of our <unk> outlook, which as you may recall, we revised upwards in may.
In the fourth quarter acquisition adjusted revenue increased four 6% from the same period last year.
Against a difficult comp and which pro forma revenue grew 14% in the fourth quarter of 2021.
Acquisition adjusted operating expenses increased three 2% in the fourth quarter, continuing the trend of operating expense normalization.
As expected expense growth continued to decelerate in the quarter with comparison against more normal operations not impacted by Covid.
The company maintained a strong adjusted EBITDA margin of 47, 1%, which continues to lead the out of home industry.
Throughout 2022, our sales team did a good job managing rates across our portfolio rates.
The rates on our large format traditional bulletins increase in each quarter last year.
Going by almost 7% in the fourth quarter and by over 8% for the full year.
In addition, our outdoor portfolio remains at historically high occupancy.
Adjusted EBITDA for the quarter was $252 3 million <unk>.
Compared to $237 million in 2021, which was an increase of nine 4%.
On the acquisition adjusted basis, the increase was six 3%.
Free cash flow in the quarter also improved increasing six 9% over the same period last year.
For the full year acquisition adjusted revenue increased nine 8% to 2.03 billion compared to $1 $85 billion in 2021 exceeding $2 billion for the first time in the company's history.
Adjusted EBITDA was $938 1 million.
Which represents an increase of 10, 6% on an acquisition adjusted basis.
A strong 22, 7% increase in 2021.
Adjusted EBITDA margin was 46, 2% for the full year, which was essentially flat year over year, despite inflationary pressure with acquisition adjusted operating expenses growing roughly 9% in 2022.
The company ended the year with full year diluted <unk> of $7.38 per share slightly above the $7 35, which was at the top end of our revised guidance for.
For the 12 months ended December 31.
Diluted <unk> per share increased 12% compared to full year 2021.
Local and regional sales accounted for approximately 78% of Billboard revenue in the fourth quarter.
While local and regional sales grew for the seventh consecutive quarter, increasing seven 6% our national business, which includes programmatic.
For the first time since Q1, 2021 and decreased by over 7% in the fourth quarter of 2022.
If soft demand from national advertisers persist the structure of our portfolio should mitigate the impact with an operating model are heavily concentrated in billboards focused on local markets.
On the capital expenditure front.
<unk> spend for the quarter was approximately $53 million, including $18 million of maintenance Capex.
For the full year Capex totaled $167 million, which included $63 million of maintenance Capex.
We experienced another active quarter on the acquisition front.
The company closed $192 million of acquisitions in the quarter across 19 transactions acquisition.
Activity has been robust over the past two years for.
For the full year 2022 acquisitions totaled $480 million exceeding 2021 by over 50%.
Over the past 24 months, our acquisitions have totaled almost $800 million.
Given this heightened level of recent activity, we anticipate a more modest M&A landscape in 2023.
Turning to our balance sheet.
During 2022, we took steps to improve liquidity as well as extend our maturity profile.
In June we increased the facility amount of the AAR securitization from $175 million.
To $250 million and extended the maturity to July 2025.
We further improved liquidity in Q3 closing on a new $350 million term loan a to support robust acquisition activity in 2022.
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 of this year, and we have no bond maturities until 2028.
Most of our acquisition activity in 2022 was funded with proceeds from our revolver.
We originated the term loan a and Louis senior notes given fixed income coupons at the time.
The high yield market has been more favorable for new issuance in 2023, despite the recent pullback over the past two weeks.
We view the <unk> as a bridge to a debt capital markets transaction.
The high yield market continued to improve we can issue bonds using proceeds to repay the term loan in full.
Such a transaction would bring our fixed rate debt to approximately 75%.
The midpoint of our target range of 70% to 80% fixed rate debt in our capital structure.
Yes.
Based on current debt outstanding our weighted average interest rate is four 6% with a weighted average debt maturity of five three years.
As defined under our credit facility, we ended the quarter with total leverage of 318 times net debt to EBITDA, which is amongst the lowest level ever for the company.
Our secured debt leverage was one 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.
Notably despite the sharp rise in interest rates over the past year and based on today's guidance or interest coverage should remain above six times adjusted EBITDA to cash interest.
While we do not have an interest coverage covenant in any of our debt agreements. We do monitor this important financial metrics.
The healthy coverage level exemplifies the strength of our balance sheet and the ability to service our debt.
At December 31, we had approximately $747 million of liquidity comprised of $53 million of cash on hand, and $694 million available under our revolver.
As Sean mentioned and included in this morning's release, we provided full year <unk> guidance of $7 40 to.
To $7 55 per share.
Acquisition adjusted revenue will grow for the third consecutive year of post Covid, there will be more modest rates following double digit topline growth in each of the past two years.
Operating expense growth will moderate as well, while cash interest will offset an impact <unk> growth.
Full year interest in our guidance totaled $163 million, which reflects a 25 basis point rate hike next month.
The maintenance Capex budget for the year is anticipated to be the same as last year $63 billion in.
And cash taxes are projected to come in at approximately $11 million.
Furthermore, we are undertaking corporate initiatives, which include modernizing and rationalizing our technology capabilities, most notably our financial information and customer relationship systems.
We began this business process transformation last year and will continue in 2023 launching the implementation of an enterprise resource planning system or ERP later this year with the first phase scheduled to go live in 2024.
We are excited about embarking on this journey to more efficiently scale, our business better serve our customers and position Lamar well for the future.
Now moving to our dividend.
Yesterday, our board of directors approved a first quarter dividend of $1 25 per share and management anticipates, a full year 2023 distributions of $5 per share.
As a reminder, the company's quarterly dividend subject to board approval and our dividend policy remains to distribute 100% of our taxable income.
Also at yesterday's Board meeting the company's directors approved extension of both our share and debt repurchase programs.
While we do not anticipate activity in the near term we view it as part of our financial policy to maintain that flexibility.
Once again, we are pleased with our fourth quarter performance and finishing 2022 slightly above the high end of our guidance range I will now turn the call back over to Sean.
Thanks Jay.
<unk> hit some of the familiar operating metrics that we touch on quarterly.
As I mentioned on digital same board performance it was slightly down in Q4.
One 9%.
However, if you exclude <unk>.
Programmatic our Q.
Q4 digital same board performance was up.
5%.
National as we mentioned was down if you exclude programmatic national for Q4 was down 5%.
Regarding programmatic as we mentioned on our last call. Our programmatic channel was challenged by some broader white noise in the.
In the digital ecosystem.
This year for 2023, we're budgeting programmatic to be up 10% over last year, and we seem to be off to a good start towards that goal.
We ended the year with 4465 digital units.
Up in the air that represented net new conversions for 2022 of 274 units.
Same board digital performance for the year was up six 6% and again.
We are targeting.
300, net new conversions this year.
We remain highly confident that our customers.
Our.
Very receptive to that product.
Business mix.
78% local 22% national for both Q4 of last year and the full year of last year.
As Jay mentioned, we did $480 million in acquisitions.
For the full year last year.
Again, we see a quieter year this year on the acquisition front.
I already highlighted categories of strength local services were up 21% amusements up 9% education up 15%.
This was offset somewhat by gaming down, 11% and insurance is down 6%.
So with that Shelby happy to answer any questions anybody has.
At this time, if you would like to ask a question. Please press the star and one on your Touchtone phone.
They remove yourself from the queue at any time by pressing star two.
Once again that is star one to ask a question, we'll pause for a moment to allow questions to queue.
Well take our first question from Ben Swinburne with Morgan Stanley .
Thanks, Good morning, Sean Good morning, Jay good.
I wanted to Hello, Hello.
Sean two for you and then I had one for Jay.
In Q1, I think you made a comment about national staying a bit soft what are you thinking about pro forma growth in the first quarter.
Any more color on.
Sort of how the quarter shaping up since we're here in late February and then your services category, which I think is your biggest in the book, but correct me if I'm wrong.
I think you said up 21% of that was just local but just can you unpack the services piece of your business because.
I think.
I think the market.
Always debate sort of how cyclical Lamar is certainly a big topic in the REIT World in particular, that's a category, that's probably less cyclical than others and I think it's broadly speaking your largest category. So is there any can you just unpack what's in there and why it seems to be so stable and frankly is so strong.
Great Yeah. Thanks so.
When we think about the cadence of the year Ben.
Q1 is going to be probably our weakest quarter as we look into our pacings.
As I mentioned the midpoint of the range that we guided to is up approximately 4% pro forma for.
For the full year Q1 is going to be a little softer than that let's call. It.
Low singles.
And Thats, primarily the drag that's being created by National which we anticipate again, we'll be down in Q1 about the same as it was in.
In Q4 of last year.
We are seeing enhanced activity through the year and we anticipate that the national book will actually in this year up modestly.
Regarding services services is.
Catch all for many different local services. However, it is predominantly attorneys.
And.
I would argue that.
It's relatively recession proof.
People still get in car wrecks, whether it's the economy is strong or whether the economy is soft.
And I think that was evidenced by the very very strong growth that services represented in Q4.
In the face of softening at.
A softening ad environment.
So we feel we feel good about it.
We feel good about really.
We're all of our verticals.
Looking last year, we had some softness in insurance.
I anticipate that.
They're going to come back when they get some of their legs under them based on some of the actuarial challenges they had last year.
Health care is going to I believe come back as well.
And then the online gaming.
It's going to normalize into what I believe is just sort of a.
Last year they were at the beginning of the year. They were spending like drunken sailors and I think that theyre going to just sort of normalizing to it.
But regular category for us solid, but not with the big beta that they've had the last <unk>.
18 to 24 months.
Just as a follow up as sports betting is that something you guys group in Nashville that part of why national is weak.
Yes.
Draft Kings fan dual.
They tended to jump in where they were in states, where they were legalized and try to grab share.
And then as the landscape.
As I said kind of would normalize then they would pull back in that statement and they can move on to another state.
And we benefited from that in 2021 in early 2022.
Yes.
Got it Okay, and then Jane I know Youll, probably werent expecting an ERP question not the most exciting topic in the world, but we've seen companies end up spending a lot of money on these things more than they thought and then taking longer to implement than they thought I'm wondering if you could just talk about.
The benefits to Lamar once this is up and running in 24 is this something you think will manifest itself into better financial performance from what we look at externally overtime.
I think ultimately we're on a three to five year journey and we've been at this now probably 18 to 24 months, just getting to a point, where we can prepare to implement the ERP, but ultimately it's about efficiency for our business.
And it's really more about being able to grow at scale.
And maintain sort of stay.
Status quo in terms from an from an expense perspective, so it's really about becoming more efficient.
In terms of timing.
As I said, we've been at this about 18 months, we're going very very slow very methodically, we feel like we have the right team in place with the right advisers, we've been very very.
Thoughtful about that we're just beginning the journey, but I think you'll really begin to see the impact in 2025. Our first go live is mid 2024.
And then our second go lives early 2025, so it will start to see the impacts in 'twenty five and for sure in full year 2026, Yes, let me give a little bit of color as well because this is this is something that's really important for lamar and our shareholders.
For this year and next year, you will see elevated expense growth at corporate for.
For that reason.
These things are complicated and they are expensive.
But there is a payback and there is an ROI attached to the effort, we will get more efficient up here at corporate will push less paper with fewer people.
And that's just.
We have never done this before.
Alright, and get embarrassed when I talk about our it.
Here, because our our customer facing it is definitely state of the art our back office.
Hasn't been touched in probably two decades.
So it's time and.
And I.
I am excited about the project and I know, it's going to pay dividends.
But again youre going to see some elevated.
Expense growth.
At the corporate level as a matter of fact, I mentioned that the midpoint of the range was.
Represented about three 5% expense growth for this year that's consolidated.
If you just took our outdoor division.
Billboard operations expense.
The expense growth for this year is coming in sort of in the two and a half ish range.
We believe so.
So.
That delta is at.
Is what we're doing to modernize our back office.
Yes.
Got it that's helpful. Thanks, guys.
And we will take our next question from Jason Bazinet with Citi.
I know it doesn't affect <unk>, but I was little surprised by the DNA number you guys put up in the quarter I don't know if theres any color there if I just sort of Miss something and then my second question is.
If there was no organic growth for whatever reason sort of next year. If you just sort of took the benefit of the <unk>.
Acquisitions that you did in 2022.
Got full year attribution and 23, how much do you think that would help your top line. Thanks.
Yeah I'll hit the second question and let let Jay hit the DNA question.
So the acquisition activity from last year.
We'll provide.
Approximately one 6% additional revenue growth over and above what would be organic.
Okay.
So thats the sort of the arithmetic there and.
When we do these things happen pretty much ratably throughout the year right. So some of the benefit.
And your last year and.
And then of course, you get the full benefit this year.
That's perfect.
And then on the <unk>.
<unk> front.
It was just a change in estimates associated with our arrow, our asset retirement obligation from a GAAP perspective.
Inflation as well.
When you think about impacting our weighted average cost of capital.
And so that you think that's like a decent run rate going forward on the D&A side. There is no one timers in there.
It's a onetime adjustment.
It is one time, okay alright, thank you.
Thank you and once again, if you would like to ask a question. Please press star and one on your Touchtone phone.
We will take our next question from Richard Choe with JP Morgan.
Hi, I wanted to follow up on the programmatic side.
Did you say youre budgeting, a 10% increase this year and kind of what gives you the confidence there.
Yeah. Good question. So we are off to a good start January internally.
It's actually exceeded.
<unk> exceeded that budgeted increase.
Programmatic.
If I go back a few years a lot of fanfare rapid growth.
We were doubling and tripling and everybody was very excited.
We turned the corner in the last year and the broader digital ecosystem started showing.
Some some real weakness and it carried over into the way.
Programmatic digital buyers that buy our inventory.
They pulled back a little bit.
What we're sensing now is that there is a renewed interest.
In programmatic.
<unk>.
The customers that use that channel.
Don't use our traditional channels, they don't pick up the phone and call account executives or we'll work through traditional agencies, they really only by through this channel.
And what we're hearing from our.
Programmatic partners.
This star place exchange.
Enablers of that channel is that they feel like this year is going to be markedly better than last year.
And that some of again some of that disruption in the digital ecosystem has worked its way through.
And then on the National side, you said.
You expected to pick up but the slow start.
In particular do you think is going on and I guess to follow up with that.
In the past you've talked about normal course recessions are you.
Thinking this year as a normal course recession are not quite there yet.
Yes.
So there's no rule of thumb.
Sure.
So.
You saw our upfronts release and they are rare.
Relative strength on the National front.
And touching base with them and touching base with our own.
Channel checks on our own.
Touch points.
We feel like there is.
It's going to land in the second.
<unk> in the third quarter.
Quarter seem to be a.
Lot stronger when it comes to.
To the National book.
For us, we're only 22% national and so.
A couple of big accounts can move that book around.
And I sort of singled out the insurance accounts and online gaming accounts.
But.
We feel confident that theyre going to come back in so.
And again, we can see the activity.
<unk>.
We just need to.
Need to get through February .
Youre going to see it.
I believe.
A nice pick up there.
Got it and then finally local is very strong.
You mentioned the strength there.
Any signs that maybe the rate increases for.
Flowing through maybe hurting some smaller businesses and some of the local exposure.
As rates have gone and everyone's adjusting to a higher floating rate level.
We're not getting much pushback when we ask for rate.
<unk>.
The factor of a number of things number one the expectation for inflation, we live with it all last year and people expected us to ask.
And number two.
We went for a decade.
We lived in a 2% world and we Werent really driving rate aggressively.
So it was time and then.
Number three I would I would remind everybody that.
Out of home is the lowest cost per thousand advertising.
Medium that there is so when we.
<unk>.
Three to $5 cost per thousand impressions.
So when when we drive rate.
Not quite the same as what they would see in other channels.
Great. Thank you.
It appears that we have no further questions at this time I will now turn the program back over to Sean Reilly for any additional or closing remarks.
Well. Thank you all for your interest in Lamar and we look forward to visiting next quarter.
Thank you that concludes today's teleconference. Thank you for your participation you may now disconnect.
[music].
Okay.
[music].
Okay.
[music].