Q4 2023 Lamar Advertising Co Earnings Call
Okay.
Yes.
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.
The company's presentation, but no floor for a question to ask a question. Please press star one on your telephone keypad Jewish draw. Your question you May Press Star two.
And of 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.
With respect to the amount and timing of any distributions to stockholders and the impacts and effects of general economic conditions of 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 March control and which may cause actual results to differ much.
Really from anticipated results.
Lamar has also identified important factors that could cause actual results to differ materially from those discussed in this call and the company's fourth quarter 2023 earnings release and its most recent annual report on Form 10-K.
Lamar refers you to those documents Walmart's fourth quarter 2023 earnings release, which contains information required by regulation G regarding certain non-GAAP financial measures.
It's furnished.
Was furnished to the SEC on a form 8-K. This morning and is available on the investors section of Armours website, Www Dot Lamar Dot Com I would now like to turn the conference over to Sean Reilly. Mr. Riley you may begin.
Thank you Savannah, and good morning, all and welcome to Lamar's Q4, 2023 earnings call.
I would characterize 2023, a solid a while on the whole revenue growth was not what we hoped it would be as a company we successfully navigated an uncertain macro environment and a recession in national Ad spend.
And we ended the year with encouraging momentum on the sales front.
Meanwhile, our local managers controlled expenses incredibly well throughout the year, helping us to set another company record for adjusted EBITDA margin at 46, 7% I could not be prouder of our team for how they distinguish themselves in 2023.
For the fourth quarter revenue grew two 5% on an acquisition adjusted basis accelerating each month with pro forma growth of 4% in December our strongest year over year results for any months in 2023.
Meanwhile, we're basically flat for the quarter on an acquisition adjusted basis that translated into EBITDA growth of five 1% again on an acquisition adjusted basis and an EBITDA margin of 48, 2% for the quarter.
As a result of known as noted in the release, we easily exceeded the top end of our revised guidance range for <unk> per share.
Fact at $7.47 of <unk> <unk> per share for 2023, we were basically at the midpoint of the original guidance range that we provided last February.
Jay will have more to say about what an achievement that was given the interest rate headwinds that we face.
As you saw we issued guidance for 2024 of $7.67 to $7.82 per share.
Being almost two months into the year, we are off to a good start and we are tracking towards the upper end of that range.
That said diminish point of that range equates to an increase of approximately three 7% and <unk> per share also embedded in that outlook is an expectation for revenue growth on a same store basis of give or take three 2%.
<unk>.
Consolidated expenses are expected to be up roughly the same.
I should note that expense growth in the outdoor business should be more like one 5% on an acquisition adjusted basis, the higher expense growth as a result of transit business comps as we comp against some of the Covid relief grants that we received last year.
Retail gaming and insurance backed up somewhat some of those weaker categories over indexed the national which was down four 3% in the quarter, while local was up three 3%.
We have seen that local national divergence continue into 2024, and we expect national to be down slightly in the first quarter.
Programmatic was a bright spot in Q4 up 10% and that momentum has carried into 2024.
Political by the way it was off about $5 million versus fourth quarter of 2022, as you would expect and in a political year.
Conversely, political should be a nice tailwind in the back half of 2024.
Digital was up in the aggregate in Q4, 2023 and accounted for approximately 34% I'm, sorry, 31% of Billboard billing.
But it was down slightly on a same store basis versus Q4 2022.
We have added a lot of digital screens through acquisitions and internal conversions over the past several years and you will likely see a somewhat slower rollout in 2024, we are targeting somewhere between 200 250 organic additions this year rather than the roughly 300 that we deployed in 2023.
For 2023, we completed 36 acquisitions for a total purchase price of $139 million, including $19 million worth of deals in Q4.
We believe 2024 is likely to be acquired or year on the acquisition front. Then 2023 as there are fewer assets coming to market and there is often a bid ask spread for those that do.
If the year plays out the way, we expect we plan to use a significant chunk of our free cash flow to pay down the $350 million outstanding on our term loan a doing so will reduce our interest expense on our floating rate exposure and would position us well for any opportunities that may come our way in 2025 and beyond Jay will have more to say.
Say about our plans for our balance sheet.
Before I turn it over to Jay I want to thank our employees once again for their efforts in 2023, which I believe has set us up for another year of growth in 2024, we really do have the best team in out of home.
Jay Thanks sure.
Sean.
Morning, everyone and thank you for joining us we had a solid fourth quarter and are pleased with our results, which exceeded internal expectations across revenue adjusted EBITDA and <unk>.
<unk> growth achieved was the strongest since the second quarter of 2022, improving nine 9% to $2 <unk> per share on a fully diluted basis.
In addition, despite a challenging interest rate environment. The company ended the year above the high end of our revised <unk> outlook.
In the fourth quarter acquisition adjusted revenue increased two 5% from the same period last year.
As expected expense growth continued to decelerate with acquisition adjusted operating expenses, increasing only 20 basis points in the fourth quarter.
The company maintained a strong adjusted EBITDA margin of 48, 2% expanding margins by 110 basis points over the fourth quarter of 2022.
And remaining at historically high levels.
Adjusted EBITDA for the quarter was $268 2 million compared to $252 $3 million in 2022, which was an increase of six 3% on.
On an acquisition adjusted basis, the increase was five 1%.
Free cash flow also improved in the quarter growing 13, 2% over the same period last year.
For the full year acquisition adjusted revenue increased two 1% to $2, one $1 billion compared to $2.07 billion in 'twenty to 'twenty two.
With operating expenses growing approximately 1% during the year.
This was driven primarily due to expense controls in our Billboard business as well as COVID-19 relief grants received from our airport partners.
Adjusted EBITDA was $985 $7 million, which.
Presented an increase of three 5% on an acquisition adjusted basis.
Following a strong two 6% growth in 2022 over the same period in 2021.
Adjusted EBITDA margin was 46, 7% for the full year, expanding 50 basis points versus a year ago.
The company ended 2023 with full year diluted <unk> was $7 47 per share which was above the top end of our revised guidance for.
For the 12 months ended December 31.
Diluted <unk> per share increased one 2% compared to full year 2022.
This growth was despite cash interest increased from $45 $8 million for the year, which was a headwind of approximately 45 cents per share.
Local and regional sales accounted for approximately 78% of Billboard revenue in the fourth quarter.
Our local and regional sales grew for the 11th consecutive quarter, increasing three 3% our national business decline decreasing by four 3% in the fourth quarter.
On the capital expenditure front total spend for the quarter was approximately $46 million, including.
Including $15 million of maintenance Capex.
For the full year Capex totaled $178 3 million, which included $58 $8 million of maintenance Capex.
Now turning to our balance sheet.
We have a well lettered debt maturity schedule with no maturities until the term loan a in 2025.
This year, we plan to use a substantial amount of our cash flow after distributions to repay outstanding under the term loan.
And anticipate repaying any remaining balance through a draw on our revolving credit facility.
In addition, the AR securitization matures in July 2025, and we will address that maturity most likely through an extinction in the second half of this year or early next year.
After repayment of our term loan a handful and extension of the AAR securitization. The company will have no debt maturities until 2027.
As Sean mentioned, we experienced a less active year on the acquisition front.
And is 2020 for them materialize as planned.
We should end the year with total leverage below three times net debt to EBITDA as defined under our credit facility agreement.
This focus on our balance sheet will position the company well, resulting in approximately $1 billion of investment capacity, while remaining at or below the high end of our target leverage range of three five to four times net debt to EBITDA.
Yeah.
Based on current debt outstanding our weighted average interest rate is approximately 5% with a weighted average debt maturity of four three years.
As defined under our credit facility.
Starting with total leverage of three one times net debt to EBITDA, which remains amongst the lowest level ever for the company.
Our secured debt leverage came in just below one times at quarter end, we are comfortably in compliance with both our total debt incurrence and secured debt maintenance test against covenants at seven times and four five times respectively.
Despite the sharp rise in interest rates over the past year and based on today's guidance.
Our interest coverage should remained around 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 these important financial metrics.
The healthy coverage level exemplifies the strength of our balance sheet and our ability to service our debt.
Our liquidity and access to capital remains strong as the company continues to enjoy access to both the debt and equity capital markets.
At December 31, we had approximately $716 million of liquidity comprised of $45 million of cash on hand, and $671 million available under our revolver.
In this morning's press release, we provided full year guidance of $7 67.
To $7 82 per share, reflecting <unk> growth of two seven to four 7% over 2023.
We also expect Reacceleration that acquisition adjusted revenue this year with operating expense growth returned to a more normalized level.
As I mentioned, we received grants from several of our airport partners in 2023.
This COVID-19 relief resulted in approximately $9 $4 million of credits against our minimum guarantees.
Primarily in the first and third quarters and will not repeat in 2024.
As for cash interest, we may benefit from less stringent fiscal policy. If short term interest rates begin to decline later this year.
Our maintenance Capex budget for the year is anticipated to be $50 million in 2024 and <unk>.
Cash taxes are projected to come in at approximately $10 million.
And finally, our dividend.
Yesterday, our board of directors approved a first quarter dividend of $1 30 per share, which represents an annualized dividend yield of four 6% based on yesterday's closing stock price.
As a reminder, the company's quarterly dividend subject to board approval and our dividend policy remains to distribute 100% of our taxable income.
Again, we're pleased with our fourth quarter performance and a strong finish to 2023 as well as the momentum we are experiencing early in 2024.
I will now turn the call back over to Sean.
Jay.
I'll cover some familiar metrics and then open it up for questions.
In terms of of pro forma growth performance across regions as you might expect those reasons like the Gulf Coast, and Atlantic and Central that under index to National outperformed those regions that over index to national like the northeast.
Underperform.
For Q4, as Jay mentioned static represented 68, 6% of our Billboard revenue, while digital represented 31, 4% of our revenue.
We ended the year with 4759 digital faces.
As I mentioned, while digital billing was in the aggregate up for the year on a same board basis. It remains slightly down in Q4.
Yes.
In terms of.
Local national split.
Local regional business for Q4 was 77, 8% national programmatic was.
22, 2% as Jay mentioned.
Local was up in Q4, three 3% National programmatic was down four 3% for the year local represented 78, 3% of our business National programmatic was 21, 7%.
M representing for the year on the local regional front, an increase of two 6% and on the National programmatic front, a decrease of two 2%.
I mentioned categories of strength, let me wrap some numbers around that.
Uh huh.
Relative strength was exhibited by our service category up 15, 4%.
Automotive up four 5% amusements up five 1%.
Relative weakness categories retail down five 1%.
Gaming down three 7% and insurance down three 8% again those categories.
Some of which over index to national.
Which explains there relative weakness.
That Savannah, I will open it up for questions.
Thank you and as a reminder, if you would like to ask a question. Please press star one on your telephone keypad Youre right you may remove yourself from the queue by pressing star Q.
Again that is star one to ask a question.
Our first question will come from Cameron Mcknight with Morgan Stanley.
Please go ahead.
Thanks, Sean Thanks, Jay.
Curious, what's baked into the guide from a macro standpoint, you know vertical recovery standpoint.
And as you mentioned, it's a political year this year as well so it would be curious if you could try and size that impact. Thanks.
Sure.
Well, let me start with you know we start with our pacings and what we're actually seeing and then we move on to our our touch.
Touch points with our leadership in the field and.
That's really how we come up with guidance, we don't really make assumptions around the macro.
Regarding political.
You know it tends to show up late.
So I would.
I would guess that most of that is not reflected in our patients yet.
The you know it should be a good political year.
And by all accounts record amounts of money youre going to be spent.
This year. So we are looking for a nice tailwind in the back half.
Yes.
Got it thanks, and secondly, I was hoping you could provide an update on the ERP initiative in terms of both timing and just trying to size the impact on margins.
And on that margin point, you know, where do you expect margins to trend both I guess in the near term and then just from a longer term perspective.
Take into account normal topline growth digital conversions and operating leverage within the business model. Thank you.
Great I'll I'll hit it quick and then I'm going to turn it over to Jay.
The tip of the spear on that initiative.
So we for this year are at.
While we're approaching peak spend for that initiative.
So when you think about our expense growth youre going to see a little a little of that in our corporate expenses. This year.
As we go forward, that's one of the headwinds on the expense growth.
But as you alluded to it will certainly pay dividends.
And you know we were approaching a go live date date, as we speak and I'm feeling good about it let me let me turn it over to Jack Cameron as you May recall, it's really the rollout is really in two phases. The first is the ERP phase, which you'd think of as sort of the back of the house finance operations.
Really.
Automating all of that net go live that Sean alluded to is on April one.
The second phase is the front of the house from a sales engagement perspective, all the way through billing.
Configuring price quoting our business and that go live is mid next year.
We began this journey last year. So we did have elevated operating expenses at corporate because of it we will have a peak year. This year as Sean alluded to and we will have a little next year. It should tail off and then we should really begin to see the benefits of our labor and margin expansion in 2024 as a result of these initial 2026 as a result of these initiatives.
Great. Thank you both.
Okay.
And our next question will come from Jason Bazinet with Citi. Please go ahead.
I just have two quick ones for Jay.
Would you mind, just reframing of recasting your guidance for the year.
Jason Boisvert Bazinet: The lens of total revenue growth to total expense growth as opposed to acquisition adjusted that's my first question.
And then second on the range on the <unk> for the year is it fair to say that the organic Rev growth is sort of the key sort of swing factor in terms of that range.
Yeah. So I'll take the first one in terms of the difference between pro forma and acquisition there really isn't a lot.
As you May recall, we mentioned that acquisitions are going to be muted. This year, and we're going to be hurt that free cash flow to pay down term loan I think in the budget right now we have approximately $30 million of acquisitions.
Jason Boisvert Bazinet: So really when you think about performance next year. It really is focused on organic growth and the inflection point I think is really around our national business. The local business has continued to hold up well.
We've had 11 straight quarters of growth.
And the national customer it's been it has.
It's been a little more challenging on that front.
Okay.
Thank you.
Okay.
And again that is star one if you would like to ask a question and our next question will come from Richard Cohen with J P. Morgan. Please go ahead.
Hi, just wanted to follow up on the National commentary do you expect it to just a relatively flat.
Our.
As negative as it was in 'twenty, three or do you think that gets better or worse.
Then in terms of programmatic.
Long finish kind of what helped drive that and do you think.
Youre seeing kind of some shifts that programmatic is.
Coming back a little bit higher this year.
Thank you.
Yeah, So I'll hit the programmatic when first Hey, Richard.
Where we're looking for the momentum that was reps.
It represented in Q4 to really carry throughout the year. So you know low double digit increases is what our expectation is.
For our programmatic platform and in Q4, we had.
A really important vertical.
<unk> come in to the platform and it's one that we don't see very often and that would be packaged goods and.
That's really encouraging as you know they have big budgets.
And far reach and Theyre.
They're not typically.
Utilize there's about a home so that was very encouraging in Q4.
In the general National tenor.
You know what I'm looking for and what I think I think we're going to see through the year is what I would call stabilization.
And I'll take that because we're seeing such good.
Performance at the local and regional front that if we can just get national to stabilize which we think we're seeing that.
We'll hit our goals for sure.
Got it and then more of a longer term kind of capital allocation question as your leverage.
It comes down and you pay the near term floating stuff down.
How should we think about the incremental cash that youll be generating.
The M&A environment.
<unk> stayed slow kind of beyond this year.
So you know.
As Jay mentioned and I alluded to.
The first step is that term.
So we're going to we're going to we're going to take that out and whittle away at it.
When I think about.
25, and beyond 2025 and beyond.
I think in our industry youre going to see consolidation accelerate and one of the reasons as a team.
We decided and.
This was a.
Our conscious decision to.
Two.
Pay down a little debt as we're prepping the balance sheet for what we believe will happen over the next let's call. It 18 to 36 months.
As you may recall that I mentioned in my.
In my comments, if we pay down the debt this year focus on the balance sheet leverage will tick below three times as calculated under our credit facility and we expect to generate EBITDA north of a $1 billion. This year. What that means is we could have an investment capacity of north of $1 billion.
And not exceed the top end of our leverage range. So we're excited about positioning the balance sheet for what we think could be some pretty transformative things to comment on the acquisition front.
Great. Thank you.
And that will conclude our question and answer session. At this time I would like to turn the conference back to Sean back to Sean Riley for any closing remarks.
Thank you Savannah and thank you all for your interest in Lamar, We will we will visit again come back. Thanks, Thanks a lot.
And that will conclude today's conference. Thank you for your participation and you may now disconnect.
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Jason Boisvert Bazinet: Okay.
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Yes.
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