Q2 2019 Earnings Call

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The conclusion of the company's presentation, we will open the floor for questions.

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In the course of this discussion Lamar may make forward looking statements regarding the company, including statements about its future financial performance strategic goals plans and objectives, including with respect to the amount of tiny yes, any distributions to stockholders.

All forward looking statements involve risks uncertainties and contingencies, many of which are beyond lamar's control and which may cause actual results to differ materially from anticipated results.

Lamar has identified important factors that could cause actual results to differ materially from those discussion. This call in the company's second quarter 2019 earnings release and its most recent annual report on Form 10-K eight.

This updated or supplemented by its quarterly reports on Form 10-Q .

And current reports on form 8-K tomorrow refer you to these documents Lamar's second quarter 2019 earnings release, which contains information required by regulation G regarding certain non-GAAP financial measures was furnished to the FCC on form 8-K. This morning and is available to investors section on the Investor section of Lamar's website <unk>.

Www Dot Lamar Dot com.

I'd like to now turn the conference over to Sean Reilly Mr. Reilly you may begin.

Thank you Stephanie good morning, all and welcome to Lamar's Q2, 2019 earnings call.

In terms of guidance.

Pacings indicate Q3 acquisition adjusted gross coming in slightly stronger than Q2.

In addition, if patients for Q4 hold up we should come in at the higher end of our previously provided guidance range for full year AFFO per share.

Expense growth in the back half of the year will be lower than in the first half and is expected to come in.

At four or below 2% for the full year.

Finally, it's been an active year, so far on the acquisition front, including new offices in St. Louis Springfield, Fort Smith, and Wichita with over 200 million in acquired outdoor assets year to date.

Okay.

Oh, good morning, everybody, let me just expand on Sean's comments on the expense growth.

We had guided to approximately 2% expense growth consolidated expense growth.

For Q2, and 2% for the year.

There were a couple of things that caused us to.

Oh migrate to the upper end of that guidance.

Oh, one was we had trouble transit contracts that renewed in the first quarter.

And the revenue sharing component of those contracts increased over the previous contracts that added about a million.

In expense.

In the quarter.

And there was about 2.5 million.

2.5 million dollar increase in our Billboard lease expense.

Oh, the majority of that was in.

Revenue sharing on our digital billboards.

As Sean pointed out we think that we will be.

At or below 2% for the full year.

Just to remind everybody of our.

Consolidated expense growth in the back half of last year.

Two three was up 3.2% on an apples to apples basis Q4 was up five.

And that was mainly due to sales commissions.

And a year end bonuses based on the revenue growth that we experienced in those two quarters.

So I wouldn't be alarmed over one quarter is.

Gross.

Lastly, our debt leverage at June Thirtyth was a 3.6 times.

[laughter] great. Thanks, Keith let me touch on a few of the usual metrics and then well open it up for questions.

In terms of a growth of our digital platform. We ended up the quarter with 3337 digital units in the air.

We're tracking yes for 2019 to put up a little more than 200 digital units.

For the full year.

Our same board digital performance in Q2 was up.

4.3%.

[noise] in terms of national local sales mix, our Q2 sales mix was.

76% local 24% national.

As noted in the release local was up 4.3% in Q2 national was essentially flat.

I would remind everybody as as we discussed on the last call our largest customer had a cadence and get five it was backend loaded.

Oh that was somewhat responsible for that relatively flat national performance, we expect.

National to do better.

In the back half of the year and and.

Large part because.

Oh that back end loaded I from a very large customer.

In terms of.

Oh categories of business.

[noise] verticals showing.

Strength.

Hospitals, and healthcare was up 12% in Q2.

Financial was up eight real estate was up nine.

And automotive actually stabilized and was up 1%.

In terms of verticals that were a tad disappointing.

Gaming was down 4%.

And work hopefully looking for a turnaround there as a as we get more of the online.

Sports book business.

So with that Stephanie, we'll we'll open it up for questions.

Thank you if you like to ask a question you May press the Star key followed by the one key on your Touchtone phone now.

Again, if youd like to ask a question you May Press Star One now our first question comes from Marci Ryvicker with Wolfe research.

Morning, Stephan on for Marci.

You guys kind of indicated that you're still comfortable with the upper end of your answer though guide kind of being the target are you.

What's your level of comfort in that.

Oh, that's a good question. So it's it's it's really based on Q4 pacings that we're looking at.

You know at this moment in time and you always have to be a little cautious when you're looking at patients. The pacing reports they are a snapshot they are not a guarantee.

Right now pacings for Q4 have us at the upper end of the range.

You know last year, we had some late breaking political that helped us out in Q4.

We won't have that this year.

So that's a little note of caution however, with what we're doing on the programmatic front, we think we have that replaced.

So as we sit today Q4 looks strong enough to us to get us to the upper end of our guidance.

Great and then programmatic was actually my next question what was the impact of programmatic in Q2 and.

You know how much you see him back in the second half.

Sure.

So our programmatic book is building as we go through the course of the year and Q2. It was running at a run rate of give or take 800000 a month.

Q3, the run rate seems to be between 900 and a million a month.

And Q4, we're looking at a run rate that would be.

Around a million a month, maybe a little bit more so that's the way the programmatic book is building and.

I have to step back a little bit and look where we are as an industry and I think you're hearing this from.

From the other guys as well.

While we're in the early innings as regards programmatic if it's if it's an exciting time for us we're tapping into.

The dollars that we otherwise wouldn't have gotten.

Clear channel made reference to that.

Enhancing our ability to go direct to customers.

And we're seeing that as well. So we're we're we're excited about that direction.

Great and then are those figures included in the guidance for Q3 revenue and your expectations and your pacings for Q4.

They are.

An expectation as we've mentioned on other calls because of the way Programatic billing hits and we collect in arrears, it's not actually in a pacing report, but the expectation is certainly that.

That programmatic will come in about where we expected and in particular will help us replace that slight headwind that is the result of not having political dollars. This year.

Great. Thanks, so much.

Thank you. Our next question comes from Alexia Quadrani with JP Morgan.

Oh, thank you so much.

Rough sensors, a ballpark sense of what the run rate for national it would've been if that large customer has sort of pulled back.

[noise], Oh, I would say positive to the tune of maybe 2% if you kind of do the arithmetic.

It was you know that that's not the whole story. There was you know a little bit to ebb and flow and the national book.

Again stepping back and looking at and the numbers that were posted by out front in clear channel.

We're at a moment in time, where.

Top 20, D. amaze are outperforming the DNA that are below the top 20 and of course, you know were predominantly below the top 20 about 80% of our book is below the top 20 be amazed.

So you know that is a little bit of the divergence in what's going on in their national book and whats going on in our National book.

So I guess are you seeing that also where are you where you do have a presence in big cities are you seeing a divergence in your performance is much better performance in the larger again nice.

Yes in particular in the first half our larger dnase are doing better.

And as Keith referenced some of the.

Revenue shares which tend to be.

And the larger dnase resulted in a little bit more expense growth than we thought and that that's because.

Those are larger dnase are doing slightly better.

And this slight softening in June , which I understand bounce back a bit in July ready is that that larger national customers or was or is there something else going on in June .

I would say just sort of across the board. There was just a little bit of a softening I mean, you know you're talking about.

You know half a million $2 million or 450 million dollar book So.

No there wasn't.

A huge material thing, but it did.

Result in the difference between.

Being up around where we thought we would be and being where we ended up.

Okay. Thank you.

[laughter].

[noise]. Thank you. Our next question comes from Eric Handler with MKM partners.

Yes, good morning, and thanks for the question I'm wondering if you could talk a little bit about the M&A environment seems you know the 200 million of deals seems.

Above average relative to some prior years.

Wondered if you're seeing anything in particular that might be causing a more deals to be occurring at this point in time of the economic cycle or is it impacting multiples at all or to have this many deals you know just any color you could provide would be great.

Sure.

So yeah the run rate.

To be halfway through the year and and already have 200 million under our belt is a little bit a little bit stronger pace than you've seen in the past absent a large transaction like fairway.

There was one transaction that was you know.

Over half of that and you know brought us some new markets.

I mentioned.

Fortunately, the Arkansas and in Wichita, Kansas.

That was probably a little bit of an anomaly to have one that was that big.

What we're seeing though is on the tuck in front, there's just a lot of activity.

And it's the pricing has been.

Virtually the same that we talk about.

Year in and year out you know relatively the same forward multiples that you're used to.

Thank you very much.

Thank you. Our next question comes from Jason Bazinet with Citi.

Hi, Thanks, so much.

I know you guys have been talking about programmatic for a couple of quarters, but I was just wondering could you describe if there is such a thing that typical programmatic customer.

And and are these revenues, you're starting to sort of a million a month run rate. That's improving is that all incremental or is it sort of cannibalizing.

You know some other part of the business. Thanks.

Yeah, Great question, Jason So.

When we went down this road of thinking about how to make our digital inventory available in <unk> and <unk>.

Programmatic setting we sat in some business rules to make sure that it was incremental dollars.

The first business rules were not participating in auctions, we are controlling our CPM.

So that when.

A digital dollars dropped into an algorithm, we've got our pricing loaded along with the demographics. So if it if it hits.

A CPM that that.

A buyer wants I will get the business if it doesn't we work so.

Actual number one protect protect your pricing down.

Caught in an auction environment.

Well number two is to wall. This channel all from our traditional channels.

So if you are a traditional agency using a traditional.

AD dollars and traditional bi.

Mhm services, you are not allowed to plug and play so.

This is only oh made available to.

Digital buying shops and increasingly.

Going direct to our customers that have internal digital capabilities.

You know heretofore if they dropped the digital dollar into an algorithm it would show up on your mobile phone.

Yeah, now also showing up on our screens.

Assuming they make an internal allocation to go to the big screen as well as the small screen.

It's a growing trend Jason enough I think if you if you look at.

You know again stepping back where the agency model is going.

Mhm.

More and more we're going to be a I believe.

Going direct to customers that have their own internal digital buying shops.

Yep.

Excellent.

Thank you.

Yep.

Thank you. Our next question comes from Ben Swine Byrd with Morgan Stanley .

Hey, good morning, guys I'm, just thinking back to Keith Onyx, Onyx, Hey, Sean on expenses. Thank you for the color or are the items you called out the transit step up Billboard lease expense are those driving generics. It was gionee was up a decent amount year on year I did I wouldn't assume those were indirect but I just wanted to ask you any color on the DNA growth.

Right that is indirect as far as GE, a day and I didn't mention is we acquired fairway at the end of last year.

There was a lot of professional and legal fees that.

Came out of that acquisition about a million dollars worth.

That slipped into Q2, we had to have an audit.

Dunbar, even while their financial statements.

It was required a there was a lot of legal fees and other professional fees.

That.

Who are associated with that acquisition that dropped in.

And Q2.

Okay that was actually in June .

Right that growth will slow a bit in the back half it sounds like.

Yes, that's right that's right got it.

And then.

Sean I guess.

Two questions. One is as you think about.

Yeah, continuing to build out this programmatic platform can you just talk about your ability to use your static inventory or if that's something you're either doing today or its in the product pipeline or if this is a digital only phenomenon and if it is do you accelerate digital and then lastly, you know we're all that.

Times, playing armchair economist and you get a good sense of the market out there I just love to get a sense for whether you think there's any softening of the consumer or sort of main quote unquote main street in the in the U.S. market today as you look out for the back half because you've got.

Smart grids, all over the country, who probably are pretty close to the economic cycle.

[noise], Yeah, I'll hit that one first you know local for US was up 4.3 in Q2 and and so we're not really seeing chinks in the armor and in that regard yeah.

So yeah. There is no we're not flashing red around here.

Oh, good things still look [laughter], yeah things still look pretty good.

He.

You know with regard to programmatic it is now.

As we sit today as a digital product only we're not selling.

Static or traditional inventory.

And through programmatic channels.

However, if you talk to our partners they are working on.

You, maybe you wouldn't call it programmatic you might call it automated.

But they are working on automated platforms that would allow for the our customers to go direct.

And.

Purchase through an algorithm or are static inventory I would say that's a ways off maybe you know.

A couple of years.

But yeah, there's there's a whole lot of smart people working on trying to make that work.

Great. Thank you.

Yeah. Thanks.

Thank you there are no additional questions at this time I'd like to now turn the conference back to Mr., Sean Reilly for closing remarks.

Great. Thank you all for listening before I sign off I do have to give a shout out to nasty Fletcher who is retiring after 29 years of outstanding leadership at the other AAA.

And ER and additional shout out to.

On a bagger, who is going to replace her as a CEO AAA ushering in a new era.

And.

These are indeed exciting times in <unk> in the world about Uh Huh.

So with that thank you all for listening and we'll talk next quarter.

Thank you ladies and gentlemen. This concludes today's presentation you may now disconnect.