Q3 2023 Lamar Advertising Co Earnings Call
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[music] 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.
Inclusion of the company's presentation, we will open the floor for questions.
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.
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 on general economic conditions on the company's business financial condition and results of operation.
All forward looking statements require 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 can cause actual results to differ materially from those discussed in the call in.
In the company's third quarter 2023 earnings release and its most recent annual report on Form 10-K Tomorrow.
Lamar refers you to those documents.
For March 3rd quarter, 2023 earnings release, which contains information required by the regulation G regarding certain non-GAAP financial measures was furnished to the SEC on a form 8-K. This morning, and it's available on the Investor section of Walmart's website www.
<unk> Dot com.
I would now like to turn the conference over to Sean Reilly. Mr. Riley you may begin.
Thank you Katie and good morning, all and welcome to Lamar's third quarter 2023 earnings call.
As we mentioned in the release the operating environment remained choppy in Q3 with customers continuing to take a cautious approach to their campaign, particularly on the national side.
Despite that we demonstrated impressive operating leverage in Q3, increasing revenue modestly while decreasing expenses on a year over year acquisition adjusted basis.
Do you expect result is a credit to the disciplined management of our local general managers and our team is doing a great job of managing to the macro environment.
We also benefited benefited from onetime COVID-19 relief payments and the airport business.
Operating margins without the onetime airport relief payments in Q3 were 48, 3% again Thats, an operating margin of 48, 3%.
An improvement over last year's Q3 margins of 47, 6% again, a great performance by our team pro forma expenses without the airport payments were essentially flat.
We expect a similar combination in Q4 flight.
Slight pro forma revenue growth, coupled with pro forma expenses that are flat to down slightly.
Call that on the revenue side, we will have a political headwind that is likely to cost us a 100 basis points or so of growth. Nevertheless, as indicated in the release, we are on track to reach or even likely exceed the top end of revised guidance for full year <unk> per share that we provided in August.
Q3 categories of particular strength included services and amusement and entertainment, while retail education and real estate were weaker in.
Insurance, which has been a tough category all year has stabilized and was close to flat in Q3 political by the way was off about $2 million from Q3 in 2022, which is typical for an off cycle year.
For the quarter rate was largely unchanged across our analog platform versus the year earlier period, a little up on testers and flat on bulletins, while occupancy was a little down on testers and flattish on bulletins.
As alluded to earlier local and regional revenue increased while national and programmatic declined slightly.
I would note that as we move through Q4 programmatic is strengthening and is tracking to be up this Q4 over last year's Q4.
We added 84 digital bulletin displays in the third quarter, bringing our total to nearly 4700 at quarter's end our digital revenue increased nearly 7% from the year earlier period and accounted for 30% of our Billboard revenue on a same.
Ford basis digital revenue was off about one 7%.
We completed 11 acquisitions in the quarter for $78 million, including the purchase of a terrific legacy Billboard plant, along the Florida, Alabama Gulf Coast.
That brought our year to date total and M&A spend to $120 million, we should be largely done for this year and by the way anticipate another relatively quiet year in 2024 on the M&A front.
Speaking of 2024, it's a little early to offer any solid predictions, we are having our usual year end conversations with the big agencies and have not heard anything that causes a particular concern and as we enter the holidays. It looks to us that we will have positive momentum going into next year. In fact in December is looking very good with that.
I will turn it over to Jay to run through some more numbers.
Thanks, John Good morning, everyone and thank you for joining us.
We continued to experience modest growth in our portfolio during the third quarter and exceeded internal expectations for both operating expenses and adjusted EBITDA in.
In the third quarter acquisition adjusted revenue increased one 6% from the same period last year.
Against a difficult comparison in which pro forma revenue growth was 6% in the third quarter of 2022.
Our Billboard regions grew in the low to mid single digits with the exception of the northeast and Midwest, which contracted year over year as a result of their exposure to national advertising.
Acquisition adjusted operating expenses decreased 110 basis points in the third quarter, which was slightly better than anticipated.
We now expect operating expense growth for the full year to come in around 1% on an acquisition adjusted basis.
Adjusted EBITDA for the quarter was $265 7 million.
Compared to $251 $2 million in 2022, which was an increase of five 8%.
On an acquisition adjusted basis, adjusted EBITDA increased four 5%.
Adjusted EBITDA margin for the quarter remained strong at 49% expanding by 140 basis points over Q3 2022.
And despite inflationary pressures over the last 24 months the company's adjusted EBITDA margin remains well above pre pandemic levels.
Adjusted funds from operations totaled $208 8 million in the third quarter compared to $206 $4 million last year, an increase of one 2%.
This was despite cash interest increasing by $11 1 million over Q3 2022.
And even though cash interest was a headwind of approximately 11 cents per share diluted of <unk> increased to $2 four sits versus $2 <unk> per share in the third quarter of 2020 to the.
The slight improvement in <unk> against an 11 ship cash interest headwinds on this.
Scores the resilience of our business model with a portfolio heavily concentrated in billboards focused on local markets.
Local and regional sales grew for the 10th consecutive quarter.
From two 3%.
Softness returned in our national business, which includes programmatic and declined three 4% in the quarter.
Local and regional sales accounted for approximately 77% of Billboard revenue in the third quarter.
On the capital expenditure front total spend for the quarter was $39 1 million.
Including $13 $4 million of maintenance Capex.
Through the first three quarters of the year Capex totaled $132 million about a third of which was maintenance.
And for the full year, we anticipate total capex in the $180 million to $185 million range with maintenance comprising approximately $60 million.
Now turning to our balance sheet, we have a well lettered debt maturity schedule and continue to focus on the company's best in class capital structure.
We have no maturities until the term loan a in February 2025, followed by the AAR securitization in July of that year.
In addition, we have no fixed fixed income maturities until 'twenty 'twenty eight.
Based on debt outstanding at quarter end, our weighted average interest rate was approximately 5%.
With a weighted average debt maturity of four five years.
As defined under our credit facility, we ended the quarter with total leverage of 321 times net debt to EBITDA, which remains amongst the lowest in the history of the company.
Our secured debt leverage was 1.08 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.
Despite the sharp rise in interest rates over the past year.
And based on current guidance, our interest coverage should end the year near 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.
Healthy interest coverage exemplifies the strength of our balance sheet and the companys ability to service its debt.
We ended the quarter, we had approximately $645 $7 million in total liquidity.
Price of $39 $4 million of cash on hand, and $606 $3 million available under our revolving credit facility.
Subsequent to quarter end, we repaid $70 million on the revolver and currently there is $65 million outstanding on that facility.
This morning, we reaffirmed our full year <unk> guidance of $7.13 to $7.28 per share, but as Sean mentioned, we do see a path to potentially exceed the high end of the range.
Full year cash interest in our guidance totaled $168 million, a 47 cents per share headwind versus last year.
As I touched on earlier maintenance Capex is budgeted for $60 million, while cash taxes are projected to come in around $10 million.
And finally, our dividend, we paid a cash dividend of $1.25 per share in the third quarter.
Management's recommendation will be to declare a cash dividend of $1 25 per share for the fourth quarter as well.
This recommendation is subject to board approval.
The Companys dividend policy remains to distribute 100% of our taxable income.
For the full year, we anticipate a 2023 dividend of $5 per share.
Also subject to board approval.
Once again, we experienced modest revenue growth in the quarter and.
And are particularly pleased with our efforts around operating expenses.
We will continue to focus on expense control for the balance of the year.
I'll now turn the call back over to Sean to close things out. Thank.
Thank you J I'll add a little color and then open it up for questions.
As Jay mentioned regarding relative geographic strength and weakness it's been tough this year in large markets in the Pacific northwest and in the northeast.
Where those markets have more national exposure everywhere else across lamar's footprint is by and large solid.
Yes.
I mentioned that we have nearly 4700 large format digital faces up today, and we are still tracking to add a total of a little over 300 this year.
On rate and occupancy I mentioned analog bulletin rate and occupancy were basically flattish analog postal rates slightly up occupancy a little down.
Jay mentioned.
The national regional.
Versus local.
Sales mix.
Local regional was 77% national programmatic was around 23% similar numbers.
That you're used to hearing.
In terms of revenue growth by quarter.
Local regional was up two 3%.
National ex programmatic was down.
226%.
As I mentioned programmatic has been a drag on national for the first three quarters of the year, but we're seeing.
Good good momentum in our programmatic book as we move through the fourth quarter.
Services and immune amusements.
We're particularly strong in Q3 up approximately 16 and 11% respectively.
And they are both.
By the way.
A like amount year to date categories relatively weakness as I mentioned retail down, 8% education down, 6% and real estate down 10%.
So with that Katie I'll open it up for questions.
Thank you at this time, if you would like to ask a question. Please press star one on your telephone keypad, you may remove yourself from the queue at any time by pressing star to you. Once again that is star one to ask a question, we'll pause for a moment to allow questions to queue.
Our first question will come from Cameron Mcknight with Morgan Stanley. Your line is now open.
Hey, guys. Thanks for taking my questions. It's.
It's great to hear there is positive momentum into the holiday season and into December just curious how that's trending on a local versus national basis looking forward and then I've a follow up thanks.
It's almost.
Exclusively local regional cameras.
That remains where the strength is.
Yes.
Got it.
Yes.
Into.
Yeah looking ahead into the into 'twenty four.
I know you guys gave some color on it but is it appropriate to assume the implied 24 to <unk> 23 organic growth is an appropriate run rate or are you expecting more of an acceleration into next year.
Are you talking about.
The one six run rate from Q3 going into next year, Yes, that's right.
I would I would expect something measurably better.
Got it.
Okay, Great and just one follow up.
I saw that you guys paid down $70 million in that see any borrowings under the revolving revolver.
You guys have a great looking balance sheet curious, how you're approaching your capital allocation going forward whats the priority.
Well I'll, let Jay hit hit it on on more particulars on the balance sheet, but as we look at.
Into next year, we're going to continue to invest in our digital footprint.
It wouldn't surprise me if the M&A activity was a little softer or a little bit.
Yes.
Less active.
That's a combination of the fact that we pulled a lot of M&A activity forward in 'twenty, one and 'twenty two.
And also just sort of.
Where the seller activity seems to be coming out.
So if we do have the opportunity to pay down some more debt.
That wouldnt surprise me, either particularly on that term loan that's out there.
Exactly right. So if we're at a more muted acquisition profile next year, we're going to be pretty aggressive and use our free cash flow to pay down our floating rate debt, that's probably the best investment.
But we can make at this moment and we will be focused on.
Sean mentioned, the terminal, which is our nearest term maturity.
And if we're in that and that sort of profile next year, we could see leverage ticked down by the end of the year below three which would be the best in the history of the company and set us up well for any opportunities.
Great. Thank you guys.
Any are there any more questions.
And we will take our next question from Richard Kelly, Kelly with J P. Morgan.
Strong.
Number.
There were some confidence in December can we see growth accelerate.
Into the fourth quarter, because it's kind of been trending down through the year.
But you have the political headwinds of 100 basis points.
Litigation.
Yes.
Yes.
I think that's a good way to.
Two.
To frame it.
October was a.
Obviously.
Facing that headwind of political.
The way I like to look at it now is November was better than October and December is measurably better than November so.
That's that's the sort of tone as we move through the quarter.
And I think it bodes well for how we go into 2024.
Thank you.
Great and it seems like National I guess is continuing to be soft, but there is some hope that next year when that comes back is that fair.
Okay.
You know to lean on easy comps, but.
We're going to have awfully easy comps when it comes to national of next year. So you should see instead of in lieu of.
Those negative numbers that you saw as we moved through the year you should see positive numbers.
Great. Thank you.
And I am showing that we have no further questions at this time I'll turn the call back to our presenters for any additional remarks.
Well great. Thank you Katie and thank you all for listening hope you all have a happy and safe holidays, and we will talk again in 2024.
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