Q3 2024 Lamar Advertising Co Earnings Call

Operator: 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.

Excuse me everyone. We now have O'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'll open the floor for questions to ask a question you may <unk>.

Operator: At the conclusion of the company's presentation, we'll open the floor for questions. To ask a question, you may press the star and one on your telephone keypad.

Speaker Change: The star and one on your telephone keypad 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.

Operator: In the course of this discussion, Lamar may make four 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 on the company's business, financial condition, and result of operations. All four looking statements involve risk, 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 the company's third quarter 2024 earnings release and its most recent annual report on Form 10-K.

Speaker Change: The impacts and effects of general economic conditions on the company's business financial condition and results of operation are forward looking statements involve risks uncertainties and contingencies.

Speaker Change: Many of which are beyond <unk> control and.

Speaker Change: Which may cause actual results to differ materially from interest to Tito results.

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

Operator: Lamar refers you to those documents. Lamar's third quarter 2024 earnings release, which contains information required by Regulation G regarding certain non-GAAP financial measures, was furnished to the SEC on Form 8K this morning and is available on the Investor section of Lamar's website, www.lamar.com.

Speaker Change: Lamar's third quarter 'twenty 'twenty four earnings release, which contains information required by regulation G regarding certain non-GAAP financial measures were was furnished to the SEC on form 8-K. This morning and is available on the investors section of Lamar's website Www Dot law.

Speaker Change: <unk> Dot com I would now like to turn the conference over to Sean Reilly. Mr. Riley you may begin.

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

Sean Reilly: Thank you, Brittany.

Sean Reilly: Thank you Britney good morning to all and welcome to Lamar's Q3, 2024 earnings call.

Sean Reilly: Good morning to all and welcome to Lamar's Q3 2024 earnings call. Business trends continue to be encouraging as we near year-end. For the third quarter, demand from local and regional advertisers remained robust, and we saw particular strength from our programmatic sales channel, which helped offset broader weakness from our national advertising base. For the quarter, consolidated revenue grew 4% or 3.6% on an acquisition-adjusted basis, the 14th straight quarter of growth for Lamar. Revenue increased across all products, billboards, transit, airport, and logos, and all operating regions. Expenses, meanwhile, ran a little bit hot, increasing 5.4% on an acquisition-adjusted basis versus the year-earlier period.

Sean Reilly: Business trends continue to be encouraging as we near year end for the third quarter demand from local and regional advertisers remained robust and we saw particular strength from our programmatic sales channel, which helped offset broader weakness from our national advertising for.

Sean Reilly: For the quarter consolidated revenue grew 4% or three 6% on an acquisition adjusted basis, the 14th straight quarter of growth for Lamar revenue increased across all products Billboards Transit airport and logos and all operating regions.

Expenses. Meanwhile, ran a little bit hot increasing five 4% on an acquisition adjusted basis versus the year earlier period recall that we had a tough comp as a result of some COVID-19 relief grants. We received in Q3 of 2023. We also saw some spikes in medical cost and contract labor in this year's third.

Sean Reilly: Recall that we had a tough comp as a result of some COVID relief grants we received in Q3 of 2023. We also saw some spikes in medical costs and in contract labor in this year's third quarter that contributed to the increase. Some of this was a simple matter of timing. The good news is that we see expense trends correcting in Q4, and Q4 revenue is pacing handily ahead of Q3, aided by record levels of political spend. As a result, as you saw, we have raised our guidance for full-year AFFO per share to a range of $7.85 to $7.95 per share, which at the midpoint would be an increase of nearly 6% over 2023.

Sean Reilly: Quarter that contributed to the increase some of this was a simple matter of timing.

Sean Reilly: The good news is if we see expense trends correcting in Q4 and Q4 revenue is pacing handily ahead of Q3 aided by record levels of political spend as a result as you saw we have raised our guidance for full year <unk> per share to a range of $7 85 to.

Nine $7 95 per share, which at the midpoint would be an increase of nearly 6% over 2023.

Sean Reilly: For the full year, consolidated EBITDA margins should come in right around 47%. Back to Q3, in addition to political, categories of particular strength were services, building and construction, and government and non-profit. All of these categories skew local. Some of the categories that were weaker, insurance and restaurants, tend to skew national. On a consolidated basis, our local-slash-regional revenue was up 4.9 percent, while national was off 2.9 percent. Our digital revenue grew by nearly 5% in the quarter, with particular strength, as I mentioned, from our programmatic channel, where revenue increased over 70% from the year earlier quarter.

Sean Reilly: For the full year consolidated EBITDA margins should come in right around 47%.

Sean Reilly: Back to Q3 in addition to political categories of particular strength where services Bill.

Sean Reilly: Building and construction and government and nonprofit all of these categories SKU local some of the categories that were weaker insurance and restaurants tend to skew national on a consolidated basis, our local slash regional revenue was up four 9% while Nash.

Sean Reilly: <unk> was off 2.9%.

Sean Reilly: Our digital revenue grew by nearly 5% in the quarter with particular strength as I mentioned from our programmatic channel where revenue increased over 70% from the year earlier quarter, we are continuing to see new customers and new categories, such as consumer packaged goods and pharma and the programmatic out of home.

Sean Reilly: We are continuing to see new customers in new categories, such as consumer packaged goods and pharma, in the programmatic out-of-home space. on a same store basis for large format. billboard digital, revenue was up 2.1%. Our customers continue to appreciate the flexibility that digital provides, so after somewhat of a slowdown in deployment in 2024, our plan is to re-accelerate our rollout of new units for 2025 with an internal goal of 375 to 400 new digital.

Sean Reilly: Space.

Sean Reilly: On a same store basis for large format.

Sean Reilly: Yeah.

Sean Reilly: Billboard Digital revenue was up two 1% or.

Sean Reilly: Our customers continue to appreciate the flexibility that digital provides so after somewhat of a slowdown in deployment in 2024, our plan is to Reaccelerate, our rollout of new units.

Sean Reilly: For 2025 with an internal goal.

Sean Reilly: 375 to 400, new Digital's.

Sean Reilly: 2024 has been a quiet year on the M&A front, as we expected it would be. Deal flow, however, has begun to pick up and we anticipate much more activity for tuck-in transactions in 2025. In short, I like how we are finishing 2024, and although it is too soon to make any firm predictions, I believe 2025 is shaping up to be another successful year.

Sean Reilly: 2024, it's been a quiet year on the M&A front as we expected it would be deal flow. However has begun to pick up and we anticipate much more activity for tuck in transactions in 2025.

Sean Reilly: In short I like how we're finishing 2024 and although it is too soon to make any firm predictions I believe 2025 is shaping up to be another successful year.

Sean Reilly: I'll leave it there for now and turn it over to Jay to walk you through some more numbers.

I'll leave it there for now I'll turn it over to Jay to walk you through some more numbers Jack Thanks, Shawn Good morning, everyone and thank you for joining us.

Jay Johnson: Jay? Thanks, Sean.

Jay Johnson: Good morning, everyone, and thank you for joining us. We continue to experience solid top-line growth in our portfolio during the third quarter. Our billboard regions grew acquisition-adjusted revenue in the low to mid-single digits with the exception of the Gulf Coast, which is relatively flat, growing approximately 50 basis points. Adjusted EBITDA for the quarter was $271.2 million compared to $265.7 million in 2023, which was an increase of 2.1% or 1.8% on an acquisition-adjusted basis. Despite the growth in operating expenses, adjusted EBITDA margin for the quarter was strong at 48.1% and remains well above pre-pandemic levels. Adjusted funds from operations totaled $220.7 million in the third quarter, compared to $208.8 million last year, an increase of 5.7%.

Jay: We experienced solid topline growth in our portfolio during the third quarter. Our Billboard regions grew acquisition adjusted revenue in the low to mid single digits with exception of the Gulf Coast, which is relatively flat.

Speaker Change: Growing approximately 50 basis points adjust.

Speaker Change: compared to $265.7 million in 2023, which was an increase of 2.1% or 1.8% on an acquisition-adjusted basis. Despite the growth in operating expenses, adjusted EBITDA margin for the quarter was strong at 48.1% and remains well above pre-pandemic levels.

Speaker Change: Adjusted funds from operations totaled $220.7 million in the third quarter, compared to $208.8 million last year, an increase of 5.7%.

Jay Johnson: Deluded AFFO per share increased 5.4% to $2.15 versus $2.04 in the third quarter of 2023. This quarter continued the solid AFFO growth we have experienced this year, with short-term interest rates stabilized. We have also benefited from mid-single-digit growth on the top line during the first nine months of the year. Local and regional sales grew for the 14th consecutive quarter, but softness in national sales continues to be a headwind to our overall revenue growth. In spite of the backdrop of the national business, we are encouraged by the resilience of local and regional sales, which accounted for approximately 79% of billboard revenue in the On the capital expenditure front, total spend for the quarter was $30.1 million, including $11.3 million of maintenance capex.

Speaker Change: Deluded AFFO per share increased 5.4% to $2.15 versus $2.04 in the third quarter of 2023.

Speaker Change: This quarter continued the solid AFFO growth we have experienced this year, with short-term interest rates stabilizing. We have also benefited from mid-single-digit growth on the top line during the first nine months of the year.

Speaker Change: In spite of the backdrop of the national business, we are encouraged by the resilience of local and regional sales, which accounted for approximately 79% of billboard revenue in the third quarter.

Speaker Change: On the capital expenditure front, total spend for the quarter was $30.1 million, including $11.3 million of maintenance capex.

Jay Johnson: Through the first three quarters of the year, capex totaled $82.3 million, about $36 million of which was maintenance. And for the full year, we anticipate total capex of $125 million, with maintenance comprising approximately $50 million. Last month, we extended the company's $250 million AR securitization for three years, and the facility now matures in October 2027. The company maintains a well-lettered debt maturity schedule, and we have no maturities until our $600 million term loan B in February of 2027, with no bond maturities until February of 2028. Based on debt outstanding at quarter end, our weighted average interest rate was approximately five percent with a weighted average debt maturity of four years.

Speaker Change: Through the first three quarters of the year, CapEx totaled $82.3 million, about $36 million of which was maintenance. And for the full year, we anticipate total CapEx of $125 million, with maintenance comprising approximately $50 million.

Speaker Change: Last month, we extended the company's $250 million AR securitization for three years, and the facility now matures in October 2027.

Speaker Change: The company maintains a well-lettered debt maturity schedule and we have no maturities until our 600 million dollar term loan be in February 2027 with no bond maturities until February of 2028

Speaker Change: Based on debt outstanding at quarter end, our weighted average interest rate was approximately five percent with a weighted average debt maturity of four years.

Jay Johnson: As defined under our credit facility, we ended the quarter with total leverage of 2.91 times net debt to EBITDA, which remains amongst the lowest in the history of the company. Our secured debt leverage was 0.88 times at quarter end, and we're comfortably in compliance with both our total debt incurrence and secured debt maintenance test against covenants of seven times and 4.5 times respectively. At the end of the quarter, we had approximately $451 million in total liquidity, comprised of $29.5 million of cash on hand and $421.2 million available under our revolving credit facility. Earlier in the quarter, we repaid the company's $350 million term loan aid using cash on hand and a draw on our revolving credit facility.

Speaker Change: As defined under our credit facility, we ended the quarter with total leverage of 2.91 times net debt to EBITDA, which remains amongst the lowest in the history of the company.

Speaker Change: Our secured debt leverage was 0.88 times at quarter end, and we're comfortably in compliance with both our total debt incurrence and secured debt maintenance tests against covenants of seven times and 4.5 times respectively.

Speaker Change: At the end of the quarter, we had approximately $451 million in total liquidity, comprised of $29.5 million of cash on hand and $421.2 million available under our revolving credit facility.

Speaker Change: Earlier in the quarter, we repaid the company's $350 million term loan aid using cash on hand and a draw on our revolving credit facility.

Jay Johnson: We continue to monitor the debt capital markets, which have improved significantly, and we may take advantage of this favorable environment to issue new senior notes. The use of proceeds from an offering would be to reduce outstandings under the revolver and for general corporate purposes.

Speaker Change: We continue to monitor the debt capital markets, which have improved significantly, and we may take advantage of this favorable environment to issue new senior notes. The use of proceeds from an offering would be to reduce outstandings under the revolver and for general corporate purposes.

Jay Johnson: In September, our Board of Directors approved the extension of our debt and equity repurchase programs, each for up to $250 million. While we do not anticipate activity under either program in the near term, maintaining both preserves our flexibility and is part of our corporate finance strategy.

Speaker Change: In September, our Board of Directors approved the extension of our debt and equity repurchase programs, each for up to $250 million. While we do not anticipate activity under either program in the near term, maintaining both preserves our flexibility and is part of our corporate finance strategy.

Jay Johnson: As Sean mentioned, this morning we increased our full year AFFO guidance for the second time this year. We now expect an AFFO range of $7.85 to $7.95 per share, an increase of 7.5 cents at the midpoint, and a 15.5 cents from our original guidance at the beginning of the year. Full year cash interest in this morning's guidance totals $166 million, and as I touched on earlier, maintenance capex is budgeted for $50 million, while cash taxes are projected to come in around $10 million. Finally, the company paid a cash dividend of $1.30 per share in each of the first and second quarters.

Speaker Change: As Sean mentioned, this morning we increased our full year AFFO guidance for the second time this year.

We now expect an AFFO range of $7.85.

to $7.95 per share.

Speaker Change: An increase of 7.5 cents at the midpoint, and up 15.5 cents from our original guidance at the beginning of the year.

Speaker Change: Full year cash interest in this morning's guidance totals $166 million, and as I touched on earlier, maintenance capex is budgeted for $50 million, while cash taxes are projected to come in around $10 million.

Speaker Change: Finally, the company paid a cash dividend of $1.30 per share in each of the first and second quarters. In Q3, we increased the dividend to $1.40 per share, and management plans to recommend the same regular dividend, subject to board approval, for the fourth quarter as well.

Jay Johnson: On Q3, we increased the dividend to $1.40 per share, and management plans to recommend the same regular dividend, subject to board approval, for the fourth quarter as well. In addition, and based on current expectations, we will likely recommend a special dividend at year-end of approximately $0.20 per share, depending on the company's operating results. This special dividend, which also is subject to board approval, will ensure we distribute 100% of our taxable income in line with our dividend policy. If both the regular and special dividends are approved, the result will be a full year cash dividend of $5.60 per share.

Speaker Change: In addition, and based on current expectations, we will likely recommend a special dividend at year-end of approximately 20 cents per share.

depending on the company's operating results.

Speaker Change: This special dividend, which also is subject to board approval, will ensure we distribute 100% of our taxable income in line with our dividend policy. If both the regular and special dividends are approved, the result will be a full-year cash dividend of $5.60 per share.

Jay Johnson: Once again, we are pleased with the strength of our local and regional sales through the first three quarters, as well as the momentum we saw in October's results, and look forward to executing on our business plan for the balance of the year.

Speaker Change: Once again, we are pleased with the strength of our local and regional sales through the first three quarters, as well as the momentum we saw in October's results, and look forward to executing on our business plan for the balance of the year. I'll now turn the call back over to Sean.

Sean Reilly: I'll now turn the call back over to Sean. Thanks Jay, I'll touch on a few of the usual metrics before I open it up for questions. As Jay mentioned, across the country, our regional performance, basically across the top and bottom lines, was relatively uniform with the exception of the Gulf Coast, which showed a little bit of softness. Political was quite a bright spot, both Q3 and year-to-date. At almost $15 million year-to-date through Q3, we're setting records for political. Notably, October was also a record for Lamar for political. It met in Q3, political, a growth of a little less than 1% for our overall growth.

Sean Reilly: I'll touch on a few of the usual metrics before I open it up for questions.

Speaker Change: As Jay mentioned, across the country, our regional performance, basically across the top and bottom lines, was relatively uniform with the exception of the Gulf Coast, which showed a little bit of softness.

Speaker Change: Political was quite a bright spot, both Q3 and year-to-date. At almost 15 million year-to-date through Q3, we're setting records for political.

Notably, October was also a record for Lamar for political.

Speaker Change: It meant, in Q3 political, a growth of a little less than 1% for our overall growth. So that was the relative contribution of political in Q3.

Sean Reilly: So that was the relative contribution of political in Q3. Other games in Q3 were primarily rate-driven, as we are hovering around peak occupancy. year-to-date.

Speaker Change: Other games in Q3 were primarily rate-driven, as we are hovering around peak occupancy year-to-date.

Sean Reilly: In terms of our digital count, we now have 4,892 digital units in the air as of the close of Q3. That was an increase of 50 units over Q2 of 2024 and an increase year-to-date over 2023 of 133 units. In terms of SaneBoard, I mentioned this is SaneBoard large format billboard only. I mentioned the growth there was 2.1% year-to-date. That number is 2.5%. And again, if you take our overall digital footprint, including what we put up this year and acquired and what we have in transit and airports, as a whole, digital was up 5% in Q3.

In terms of our digital count, we now have...

Speaker Change: Q3, that was an increase of 50 units over Q2 of 2024 and an increase year-to-date over 2023 of 133 units.

Speaker Change: In terms of same board, I mentioned this is same board, large format, billboard only. I mentioned the growth there was 2.1 percent year to date. That number is 2.5 percent.

Speaker Change: Again, if you take our overall digital footprint, including what we put up this year and acquired and what we have in transit and airports, as a whole, digital was up 5% in Q3.

Sean Reilly: In terms of local, regional, national, programmatic share, as Jay mentioned, local, regional in Q3 was approximately 79% with national slash programmatic coming in at about 21%. That compares to roughly 78%. percent. 22% year-to-date 2023.

That compares to roughly 78.

percent, 22 percent, year-to-date, 2023.

Sean Reilly: In terms of acquisitions, we closed about 17 acquisitions for a total purchase price of $31 million, and we acquired approximately 90 new faces through that activity. As I mentioned, we pared back our M&A activity for 2024 a tad. You'll see that accelerate as we move into 2025. And then finally, categories of relative strength. As I mentioned, services was up 16%, government nonprofit was up 17%, and building and construction services was up 29%. Categories of relative weakness, as I mentioned, insurance down about 10% and restaurants down about 2.4%.

Speaker Change: A purchase price of $31 million and we acquired approximately 90 new faces.

Speaker Change: Through that activity, as I mentioned, we pared back our M&A activity for 2024 a tad. You'll see that accelerate as we move into 2025.

Speaker Change: And then finally, categories of relative strength, as I mentioned, services was up 16%, government and non-profit was up 17%, and building and construction services was up 29%.

Speaker Change: Categories of relative weakness, as I mentioned, insurance down about 10% and restaurants down about 2.4%.

Operator: All right, Brittany, we will now open it up for questions. At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may remove yourself from the queue at any time by pressing star one or star two.

Speaker Change: All right, Brittany, we will now open it up for questions.

Speaker Change: At this time, if you would like to ask a question, please press the star and 1 on your telephone keypad. You may remove yourself from the queue at any time by pressing star 1, or star 2, I apologize. Once again, that is star and 1 if you would like to ask a question. Our first question will come from Cameron McVeigh with Morgan Stanley. Your line is now open.

Operator: I apologize. Once again, that is star and one if you would like to ask a question.

Cameron McVeigh: Our first question will come from Cameron McVeigh with Morgan Stanley. Your line is now open. Thank you. Good morning.

Thank you. Good morning.

Sean Reilly: Hey guys, just curious, as you look ahead into 2025, how you're thinking about the growth opportunity and the potential growth drivers? Certainly, we're going to be looking to programmatic to be a contributor there. And we're also looking for a rebound in uh... national I hate to use that as a reason why we're going to do better in national, but it's the math of that. Some customers come into our book through programmatic that have traditionally not been big players in out-of-home consumer packaged goods and pharma, so we're certainly looking to that.

Cameron McVeigh: Hey guys, just curious as you look ahead into 2025, how you're thinking about the growth opportunity and the potential growth drivers?

Speaker Change: Certainly, we're going to be looking to Programmatic to be a contributor there, and we're also...

looking for a rebound in National.

Speaker Change: Some of that is going to be easy comps. I hate to use that as a reason why we're going to do better in national, but it's the math of that. And again, we're seeing...

Speaker Change: Some customers come into our book through programmatic that have traditionally not been big players in out-of-home consumer packaged goods and pharma, so we're certainly looking to that.

Sean Reilly: Great. And then, yeah, secondly, I guess just from an industry perspective, could you discuss the current state of programmatic ad spend and out of home and the long term industry impact? Sure.

Sure.

Sean Reilly: You know, as you're aware, when, when, when talking about Lamar in particular, we limit our programmatic channel to national customers. And we limit it to those buying agencies that are digital specialists. i.e. they only buy programmatically. That universe of buyers is growing. And that's why our programmatic book is growing. And certainly when you hear from the other industry players, you'll hear the same thing. You know, where we see this going, number one, we see the general digital pot of advertising growing much faster than the traditional pot of advertising. And those two pots are actually probably going to merge in three to five years, and so you'll just talk about ad spend and you won't really break it out that way.

Speaker Change: You know, as you're aware, when talking about Lamar in particular, we limit our programmatic channel to national customers.

Speaker Change: and we limit it to those buying agencies that are digital specialists.

i.e. they only buy programmatically.

Speaker Change: That universe of buyers is growing and that's why our programmatic book is growing and certainly when you hear from You know the other industry players. You'll hear the same thing

Speaker Change: You know, where we see this going, number one, we see the general digital pot of advertising growing much faster than the traditional pot of advertising.

Speaker Change: and those those two pots are actually probably going to merge in three to five years and so you'll just talk about ad spend and you won't really break it out that way.

Sean Reilly: which you know, leads us to the conclusion that programmatic is going to be even more important. as that channel is opened up to more, I would call, traditional ad players. And then finally, what we see happening is opening up that channel to our local book, our local and regional book. And then, you know, that's when it becomes really exciting. So, you know, it's going to take us three to five years to get there, but when we do, you'll see a whole... Lot of ad dollars going through that channel.

which

Speaker Change: leads us to the conclusion that programmatic is going to be even more important as that channel is opened up to more, I would call, traditional ad players.

A lot of ad dollars going through that channel.

Cameron McVeigh: Great, thank you. Thank you.

Great. Thank you.

Jason Bazinet: We'll take our next question from Jason Banzet with Citi. Your line is now open. I just had two questions. One, it was nice to see the AFFO guide move up, as you said, about 2% from where we started at the beginning of the year. But I noticed that the earnings number fell about 1% over that same period.

Speaker Change: Thank you. We'll take our next question from Jason Banzett with Citi. Your line is now open.

I just had two questions.

Speaker Change: One, it was nice to see the AFFO guide move up, as you said, about 2% from where we started at the beginning of the year. But I noticed that the earnings number fell about 1% over that same period. So I was just wondering, can you just tease out sort of the dichotomy between the earnings and the AFFO?

Jay Johnson: So I was just wondering, can you just tease out sort of the dichotomy between the earnings and the FFO? And then my second question is on programmatic. I may be misremembering, but when programmatic first started I would almost characterize your tone as somewhat cautious on it just because of the negative margin implications. And now you seem less concerned with that. And I don't know if that's just because the quantum of programmatic dollars are so huge that it just makes sense, or if the margin concerns you had early on are just no longer applicable because of some shift in the industry.

Speaker Change: And then my second question is on programmatic. I may be misremembering, but when programmatic first started...

Speaker Change: I would almost characterize your tone as somewhat cautious on it just because of the negative margin implications, and now you seem less concerned with that. And I don't know if that's just because the quantum of programmatic dollars are so huge.

Speaker Change: Did it just make sense, or if the margin concerns you had early on are just no longer applicable because of some shift in the industry? Thanks.

Jay Johnson: Yeah.

Sean Reilly: Hey, Jason, I'll hit the programmatic question and I'll turn the net income question over to Jay. So yeah, programmatic margins. It is a fact that today. The cost of a programmatic sale runs about 10%. And our overall cost of sales, what we pay our account executives and what we pay our national account managers, runs about 6%. So you've got about a 4% delta there.

Speaker Change: Yeah, hey Jason. I'll hit the programmatic question and I'll turn the net income question over to Jay.

So yeah, programmatic margins. It is a fact that today

Speaker Change: The cost of a programmatic sale runs about 10%, and our overall cost of sales, what we pay our account executives and what we pay our national account managers, runs about 6%, right? So you've got about a 4% delta there.

Sean Reilly: Now, where do we see that going? Number one... We get a slightly higher CPM through the programmatic channel, and our customers are willing to pay that higher CPM because they get a richer data set that helps prove out the effectiveness of their campaign. So, that little bit of extra expense is offset by a higher CPM.

Now, where do we see that going? Number one,

Speaker Change: We get a slightly higher CPM through the programmatic channel and our customers are willing to pay that higher CPM because they get a richer data set that helps prove out the effectiveness of their campaign.

Speaker Change: So, that little bit of extra expense is offset by a higher CPM.

Sean Reilly: The other thing that we see happening is... It's 10% for that channel when we have $40 million going through it, but when we have $240 million going through it, we're going to see that cost go down.

Speaker Change: It's 10% for that channel when we have $40 million going through it, but when we have $240 million going through it, we're going to see that cost go down. So we're looking at volume to bring that cost down.

Sean Reilly: So we're looking at volume to bring that cost down.

Jay Johnson: Good morning, Jason. On the net income question, it's our stock compensation plan, which, as you know, is non-cash. If you look at where our stock is trading now, it's significantly higher than it was at this time last year, and our plan is based around fixed shares, so fluctuations in stock price can really impact the value there. The other contributor on the stock compensation plan is simply where we're tracking against budget. We're having a much better year than last year, so our payout on a percentage basis is going to be higher. So you put those two things together, and that's why you see the increase in the stock compensation.

Speaker Change: On the net income question, it's our stock compensation plan, which as you know is...

Speaker Change: is non-cash. If you look at where our stock is trading now, it's significantly higher.

Speaker Change: then it was at this time last year and our plan is based around fixed-share so fluctuations in stock price can really impact

Speaker Change: and the other contributor on the stock compensation plan is simply where we're tracking against budget. We're having a much better year than last year, so our payout on a percentage basis is going to be higher. So you put those two things together and that's why you see the increase in the stock compensation.

Jason Bazinet: super helpful. Thank you.

That's super helpful. Thank you both

Daniel Osley: We'll take our next question from Daniel Osley with Wells Fargo. Your line is Thank you. Good morning. If I may, I think you mentioned the political contribution as, you know, $15 million a year to date and seeing a record, you know, as of now. I guess, can you help us think about the political contribution for Q4? And then, you know, maybe relatedly, you know, we saw a TV broadcaster's report this week, and they collectively talked about their core ads being down, you know, somewhere between mid-single digit to high-single digit from political crowdouts. So do you think you picked up any of those dollars, or, you know, did those advertisers completely drop out of the market?

Speaker Change: Thank you. We'll take our next question from Daniel Osei with Wells Fargo. Your line is open.

Thank you. Good morning.

Morning.

Speaker Change: If I may, I think you mentioned the political contribution as, you know, 15 million year to date and seeing a record, you know, as of now.

Speaker Change: I guess, can you help us think about the political contribution for Q4? And then, you know, maybe relatedly, we saw a TV broadcaster's report this week, and they collectively talked about their core ads being down, you know, somewhere between mid-single-digit to high-single-digit from political crowdouts.

Speaker Change: So do you think you picked up any of those dollars, or did those advertisers completely drop out of the market? It doesn't seem apparent in your results that maybe you benefited from crowding on the border, but anything you can add there?

Daniel Osley: You know, it doesn't seem apparent in your results that, you know, maybe you benefited from crowdout in the quarter, but anything you can add there?

Sean Reilly: We lost you there at the beginning of the question, but I'll just hit what I heard. So political, as I mentioned, is about 15 million a year to date. In Q4, it's going to be about that number. give or take, so we will end the year. you know, close to 30 million total. in terms of political, so that'll give you a sense for where it's going to land in Q4. You know, we can't, we can't measure it in terms of TV Political crowding out their traditional spend and how much of that comes our way. But we know some of it does.

Speaker Change: We lost you there at the beginning of the question, but I'll just hit what I heard. So political, as I mentioned, is about 15 million a year to date. In Q4, it's going to be about that number.

give or take. So we will end the year.

you know, close to $30 million total.

Speaker Change: in terms of political, so that'll give you a sense for where it's going to land in Q4.

Speaker Change: You know, we can't, we can't measure it in terms of

Speaker Change: TV political crowding out their traditional spend and how much of that comes our way.

Sean Reilly: And so we're going to have, you know, you can just sort of see it in the growth in our book. So I think that's what I heard your question to be, whether or not we pick up some of those dollars. And again, I can't measure it, but I anecdotally know that it happens.

Speaker Change: But we know some of it does, and so we're going to have, you know, you can just sort of see it in the growth in our book.

Speaker Change: So I think that's what I heard your question to be, whether or not we pick up some of those dollars. And again, I can't measure it, but I anecdotally know that it happens.

Daniel Osley: That's helpful. Thank you.

Sean Reilly: And then maybe just one more, if I may, on 25. So, you know, we've done some work on the financial benefits from digital conversion. But can you talk about the potential revenue uplift that you might expect from adding almost twice as many digital billboards next year as you did this year? Sure. Well, I'll just do it based on sort of unit economics, right? So I'll make, I'll just illustrate one, and then you can extrapolate. So, you know, when we take down a static unit, on average, it's doing about 3000 a month. and you replace that with...

Speaker Change: That's helpful, thank you. And then maybe just one more, if I may, on 25. So, you know, we've done some work on the financial benefits from digital conversion, but can you talk about the potential revenue uplift that you might expect from adding almost twice as many digital billboards next year as you did this year?

Sure, well, I'll just do it.

Speaker Change: Based on sort of unit economics, right? So I'll make I'll just illustrate one and then you can extrapolate So, you know when we take down a static unit on average it's doing about 3,000 a month

Sean Reilly: a digital unit that costs you a little over $200,000 to make the conversion. Your revenue lift is, give or take, five or six times. You're going to do something in the neighborhood of $15,000 a month on that board now. So, you know, that's sort of the, you know, unit economics of a conversion and, you know, it's been very gratifying for us to see that those economics have held up. You know, over the decades that we've been doing this, it's been remarkably stable, that return in those unit economics.

a digital unit that, you know, costs you...

Speaker Change: a little over $200,000 to make the conversion, and your revenue lift is, give or take, five or six times. So you're going to do something in the neighborhood of $15,000 a month on that board now.

Speaker Change: So, you know, that's sort of the unit economics of a conversion and, you know, it's been very gratifying for us to see that those economics have held up.

Speaker Change: You know over the decades that we've been doing this It's been remarkably stable that that return in those unit economics

Sean Reilly: Interestingly, from the advertiser's point of view. As I mentioned, they're paying about $3,000 for the space for a static unit, but they then have to buy the substrate, right? They have to buy the vinyl and amortize that cost over the length of their contract. When they move over to a digital unit, they're paying about the same absolute dollars. They're paying about $3,000 for the slot that they occupy, but they don't have to pay the production. And they can, of course, change their copy from their desktop at their will. And that flexibility is why they're willing to share the space with other advertisers.

interestingly from the advertiser's point of view.

Speaker Change: You know, as I mentioned, they're paying about $3,000 for the space, for a static unit, but they then have to buy the substrate, right, they have to buy the vinyl, and amortize that cost over the length of their contract.

Speaker Change: When they move over to a digital unit, they're paying about the same absolute dollars. They're paying about $3,000 for the slot that they occupy. But they don't have to pay the production.

Speaker Change: And they can, of course, change their copy from their desktop at their will. And that flexibility is why they're willing to share the space with other advertisers.

Sean Reilly: So their absolute dollars, in terms of the cost of the space, stays about the same. Their cost per thousand impressions goes up. So that's the economics of a digital conversion, both from our point of view and from our customers' point of view.

Speaker Change: So, their absolute dollars, in terms of the cost of the space, stays about the same. Their cost per thousand impressions goes up.

Speaker Change: So that's the economics of a digital conversion both from our point of view and from our customers' point of view.

Operator: Thank you. Thank you, and once again, that is star and one if you would like to ask a question.

Thank you.

Speaker Change: Thank you and once again that is star and one if you would like to ask a question. Our next question from David Kurbinski with JP Morgan. Your line is now open.

David Kurbansky: Our next question from David Kurbansky with J.P. Morgan. Your line is now open.

Cascada: Hey, this is Cascada on for David. Two questions. One, you'd mentioned last quarter gaining share in programmatic due to better metrics and large format. I just wanted to ask if you could provide some more color on how you're able to measure these KPIs and prove them out to marketers and how well-known this is or if there's more room to take share as the data increases and education continues.

Speaker Change: Hey, this is Cascada, I'm for David. Two questions. One, you'd mentioned last quarter gaining share in Programmatic due to better metrics and large format. I just wanted to ask if you could provide some more color on how you're able to measure these KPIs and prove them out to marketers and how well-known this is or if there's more share, more room to take share as this.

Thank you.

Cascada: And then secondly, I wanted to ask if you could provide any color on what kinds of opportunities you're looking at for M&A going into 25, if there's any specific geographies or capabilities you're willing to build out. Thank you.

Sean Reilly: Sure, I'll hit the M&A question first. You know, we kind of purposefully slowed down a little bit this year, we were catching our breath and we were preparing our balance sheet. And as you know, we were retired our our term a loan. And you know, all that work has been done. And it's been incredibly fruitful in terms of where our balance sheet is. As a matter of fact, when we close the books on 2024, our leverage, as measured by our bank covenants, is going to be less than three for the first time in the company's history.

Sure, I'll hit the M&A question first.

Speaker Change: You know we kind of purposefully slowed down a little bit this year We were catching our breath, and we were preparing our balance sheet and as you know we were retired our term a loan

Speaker Change: And, you know, all that work has been done, and it's been incredibly fruitful in terms of where our balance sheet is. As a matter of fact, when we...

Speaker Change: close the books on 2024, our leverage as measured by our bank covenants is going to be less than three.

for the first time in the company's history.

Sean Reilly: So we're really happy about the work we did there.

Speaker Change: So we're really happy about the work we did there. And part of that was slowing down the M&A activity this year. So that said, going into next year, we see it picking up. And without talking about specific transactions,

Sean Reilly: And part of that was slowing down the M&A activity this year. So that said, going into next year, we see it picking up. And without talking about specific transactions, the first level of activity is going to be the fill-in activity that we're, quite frankly, very good at. If you look at our footprint, we're nationwide and basically everywhere. So almost any M&A activity for us is going to be fill-ins. where we just absorb the inventory into our existing operations and it's a very predictable exercise. We're very, very good at it. And, you know, at the end of the day, it's not really geographic specific.

Speaker Change: The first level of activity is going to be the fill-in activity that we're...

Speaker Change: frankly, very good at. I mean, if you look at the

Speaker Change: where we just absorb the inventory into our existing operations and that it's a very predictable exercise. We're very very good at it.

Speaker Change: And, you know, at the end of the day, it's not really geographic specific. We can absorb anywhere, inventory, basically.

Sean Reilly: We can absorb anywhere, inventory, basically. anywhere in the country. and any region in the world.

anywhere in the country.

Sean Reilly: So yeah, we're going to be very active next year, and we're looking forward to what that brings to our footprint and to our customers, and quite frankly, enhancing our margins. Um, you know, the question on, on, um... What was the other one? What was the other question you had?

and any region in the country.

Speaker Change: So, yeah, we're going to be very active next year and we're looking forward to what that brings to our footprint and to our customers and, quite frankly, enhancing our margins.

You know the question on

What was the other one?

Sean Reilly: The other question was... Yeah. The other question I had was, you'd mentioned gaining share in Programmatic due to better metrics in large format, and so I wanted to ask if you could provide more color on how you're able to measure those KPIs and how well-known they are. Yeah. Sure. So, it's increasingly well known in the industry there are third-party data providers that can do attribution analysis and measure foot traffic and lift as part of a campaign. Quite frankly, there are more of those third-party data providers today than there have ever been. So it's going to be an increasingly good thing for the industry.

Speaker Change: What was the other question? Yeah, the other question I had was, you'd mentioned gaining share in programmatic to do better metrics in large format and so I wanted to ask if you could provide more color on how you're able to measure those KPIs and how well known they are.

Speaker Change: Sure, so it's increasingly well known in the industry there are third-party data providers that can do attribution analysis and and measure foot traffic and lift

Sean Reilly: Um, so, and, um... Again, our programmatics Customers are willing to pay a slightly higher CPM because it is included in their buy by the programmatic enablers, folks like Vistar and the like who are plugged into our pipes and enable us to deliver a programmatic buy to those digital buyers. That's essentially what's going on out there, and it's increasing as more third-party data providers come to the fore.

Again, our programmatic...

Speaker Change: by the programmatic enablers, folks like Vistar and the like, who are plugged into our pipes and enable us to deliver a programmatic guide to those digital buyers.

Speaker Change: That's essentially what's going on out there, and it's increasing as more third-party data providers come to the fore.

Cascada: Okay, that makes sense.

Cascada: Thank you guys so much.

Okay, that makes sense. Thank you guys so much.

Lance Vitanza: Thank you, and we'll take our next question from Lance Baceta.

Speaker Change: Thank you and we'll take our next question from Lance Visenon.

Lance Vitanza: Vita Sena, I apologize, from TD Cowling, your line is now open. Lance, your line is now open. Please check your mute function.

Speaker Change: Lance, your line is now open. Please check your mute function.

Sean Reilly: Thank you. Thank you very much. You called out Gulf Coast was a drag on results. Any thoughts as to why? And are you seeing that come back in the fourth quarter? I'm wondering if the weakness was more or less pronounced at either the beginning or the end of the quarter? Was it evenly distributed? What's going on there?

Speaker Change: Thank you, thank you very much. You called out Gulf Coast was a drag on results. Any thoughts as to why and are you seeing that come back in the fourth quarter? I'm wondering if the weakness was was more or less pronounced at either the beginning or the end of the quarter? Was it evenly distributed? What's going on there?

Sean Reilly: You know, every now and again, you'll have a region that just is catching its breath and maybe not the local economies aren't as robust as what's going on elsewhere. So for us, the Gulf Coast is essentially Arkansas, Louisiana, Mississippi, Alabama. is the basic. gulf coast region and I don't think there's anything to be read into that, really. It's just, you know, things might just have been a little bit softer there, and they'll come back. I'd also add, Lance, that in Q3 of last year, the Gulf Coast outperformed the broader portfolio. So a little bit of a headwind there from a yield-rear comp.

Arkansas, Louisiana, Mississippi, Alabama is the basic.

Gulf Coast region and

Speaker Change: I don't think there's anything to be read into that really, it's just, you know, things might just have been a little bit softer there, and they'll come back.

Speaker Change: I'd also add Lance that in Q3 of last year the Gulf Coast outperformed the broader portfolio so a bit of a headwind there from a year over year. Yeah they had they had a tougher comp than some of the other places.

Sean Reilly: Yeah, they had a tougher comp than some of the other places. Gotcha.

Sean Reilly: And then just on the M&A outlook, could you talk a little bit about why you're seeing it picking up? Is it a function of interest rates having stabilized, beginning to come down? Or is it the improving outlook for the real economy? Is it people kind of buying in more to the... Well, I'm just wondering what's driving that trend? Or was this just really more driven by your internal decisions to take a pause? There was certainly a little bit of that, Lance, in terms of, you know, when Lamar decides to catch its breath, you know, everybody sort of slows down a little bit.

Speaker Change: Is it the improving outlook for the real economy? Is it, you know, people kind of buying in more to the... Well, I'm just wondering what's driving that trend? Or was this just really more driven by your internal decisions to take a pause?

Speaker Change: There was certainly a little bit of that, Lance, in terms of, you know, when Lamar decides to catch its breath, you know, everybody sort of slows down a little bit.

Sean Reilly: And then when we say, look, the checkbook is open, come talk to us, keep in mind a lot of our M&A activity is internally generated. These are either entrepreneurs or family, mom and pop operations that have been around for a couple of decades. We know them well. And when they decide to sell, they give us a call, right? So some of it's just that, and then some of it is just, I think, to your other point. As interest rates start falling, then activity picks up. You know, we're in a different interest rate cycle, so I think those two things.

Speaker Change: And then when we say, look, the checkbook is open, you know, come talk to us.

Speaker Change: You know, keep in mind, a lot of our M&A activity is internally generated. These are either entrepreneurs or family mom-and-pop operations that have been around for a couple of decades. We know them well. And when they decide to sell, they give us a call, right?

Speaker Change: So, some of it's just that, and then some of it is just, I think, to your other point.

as interest rates start falling, then activity picks up.

We are in a different interest rate cycle.

Sean Reilly: will make for an active year next year.

We'll make for an active year next year.

Sean Reilly: You mentioned tuck-ins a couple of times, but what about a potentially larger transaction, something like an Adams or a Link, or would you consider those tuck-ins? Certainly, there's a measure of tuck-in in both of those. We don't obviously control what those guys are going to do. That's one of those things that's more event-driven than sort of the day-in, day-out, tuck-in acquisition activity that we engage in.

Speaker Change: You mentioned tuck-ins a couple of times but what about a potentially larger transaction something like an Adams or a link would you would you consider or would you consider those tuck-ins?

Speaker Change: Well, certainly, there's a measure of tuck-in in both of those. We don't obviously control what those guys are going to do.

Speaker Change: That's one of those things that's more event-driven than sort of the day-in, day-out, tuck-in acquisition activity that we engage in.

Sean Reilly: So yeah, that would be sort of a, you know, stay tuned.

Speaker Change: So, yeah, that would be sort of a, you know, stay tuned.

Thank you.

Operator: Thank you and we have no further questions in the queue.

Yep.

Sean Reilly: I will turn the program back over to Sean Reilly for closing remarks. Well, thank you, Brittany, and thank you all for your interest in Lamar and we look forward to talking with you again as we turn the page into 2025. Thank y'all.

Speaker Change: Thank you, and we have no further questions in the queue. I will turn the program back over to Shawn Reilly for closing remarks.

Sean Reilly: Well, thank you, Brittany, and thank you all for your interest in Lamar, and we look forward to talking with you again as we turn the page into 2025. Thank you all.

Operator: This does conclude today's program. Thank you for your participation. You may disconnect at any time and have a wonderful day.

Speaker Change: This does conclude today's program. Thank you for your participation. You may disconnect at any time and have a wonderful day.

Operator: PEACE!!!

Speaker Change: [music].