Lamar Advertising Q2 2024 Earnings Call Transcript

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August 8, 2024

There are 7 speakers on the call.

Operator

Excuse me, everyone. We now have Shane Riley 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 will open the floor for questions. In the course of the discussion, Lamar may make forward looking statements regarding the company, including statements about its future, financial performance, strategic goals, plans and objectives, including with respect and the amount of 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.

Operator

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 can cause actual results and differ materially from those discussed in this call in the company's Q2 20 21 earnings release and in its most recent annual report on Form 10 ks. Lamar refers you to those documents. Lamar's Q2 2024 earnings release, which contains information required by Regulation G regarding certain non GAAP financial measures was furnished on a Form 8 ks this morning and is available on the Investors section of Lamar's website, www dotlemaier.com. I'd now like to turn the conference over

Speaker 1

to Mr.

Operator

Kelly. Mr. Riley, you may begin.

Speaker 1

Thank you, Natalie. Good morning all and welcome to Lamar's Q2 2024 earnings call. The trends that we observed in Q1 held in Q2. Strong demand from local and regional advertisers more than offset softness in some national customers, allowing us to deliver solid consolidated revenue growth. For the quarter, revenues increased 3.9% on an acquisition adjusted basis with growth across billboards, transit logos and particularly airports.

Speaker 1

Meanwhile, we managed expenses well, allowing us to increase EBITDA by 6.3 percent on an acquisition adjusted basis and to expand our adjusted EBITDA margin to 48%, a 100 basis point improvement over Q2 of 2020. Both the EBITDA growth and margin expansion led to AFFO per share growth of 9.5 percent. Because of that strong performance, management will be recommending to the board that our Q3 distribution be increased to $1.40 a share. As we look forward, we see more of the same solid local and regional demand with national still a bit of a drag. As we sit today, revenues are pacing up mid single digits for the second half with Q4 pacing slightly stronger than Q3.

Speaker 1

Also, if political comes in for Q4 as it has in the past, there should be some upside that is not yet reflected in our pacing. As it is, we continue to track to reach the top end of our previously provided guidance for full year AFFO per share. Back to Q2, strong categories included services, building and construction and automotive, while healthcare and financial showed relative weakness. Political was a tailwind too, adding about 60 basis points to our growth. For the full year, we have $15,000,000 on the books for political, about 10% ahead of 2022 and well ahead of 2020.

Speaker 1

Both years when spending for the full year was about 20,000,000 dollars For the quarter, local sales were up nicely, increasing nearly 5%. Meanwhile, programmatic was red hot, up about $3,600,000 versus the year earlier period to approximately $8,600,000 We have picked up some new customers in the programmatic category like pharma and CPG and we are also seeing demand from some existing advertisers including the insurance category, which began to stabilize in the quarter. We expect the strength in programmatic to continue, though year over year growth is likely to be less due to tougher comps. As a reminder, all of our programmatic business is national, so the growth there helped offset broader national weakness. Overall, including programmatic, national was off about 2.5%.

Speaker 1

At this point, we anticipate another low single digit decline in national in Q3. However, activity from national customers in the form of RFPs has been up recently and we are hopeful that we will see that business turn as we head into 2025. Programmatic strength also helped buoy our digital platform, which grew 2.6% on a same store basis, in line with the increase in Q1. Rate was up by the way across the analog platform. It was a quiet quarter on the M and A front as we spent about $10,000,000 on a handful of deals.

Speaker 1

For the full year, acquisition spending is likely to be around $40,000,000 to $50,000,000 We continue to think the M and A market will pick up as we turn the corner into 2025. As you saw, we paid off the term loan last week, which put our balance sheet already the best in the industry in even better shape. So we should be well positioned to participate if attractive assets hit the market. I will turn it over to Jay now to walk you through the particulars.

Speaker 2

Thanks, Sean. Good morning, everyone, and thank you for joining us. We had a solid second quarter and are pleased with our results, which were slightly ahead of internal expectations on both revenue and adjusted EBITDA. Q2 marked the 3rd consecutive quarter of near double digit AFFO growth and short term interest rates were more stable in the first half of twenty twenty four. We have also benefited from mid single digit growth on the top line during the 1st 6 months of the year.

Speaker 2

Our billboard regions all experienced revenue and EBITDA growth over the Q2 of last year. In addition, our airport business had another strong quarter, growing 21.7% following 20% revenue growth in Q1 as air traffic continues to set record levels. Acquisition adjusted operating expenses increased 1.9% in the 2nd quarter, which was slightly better than anticipated and down from 4.4% in the Q1. As you may recall, in 2023, we benefited from COVID-nineteen relief grants in our airport business that will not repeat this year and primarily impact the 1st and third quarters. Adjusted EBITDA for the quarter was $271,600,000 compared to $253,900,000 in 2023, which was an increase of 6.9%.

Speaker 2

On an acquisition adjusted basis, adjusted EBITDA increased 6.3%. Adjusted EBITDA margin for the quarter remained strongly 48%, one of the strongest second quarters in recent history. And despite inflationary pressures over the last few years, the company's adjusted EBITDA margin remains well above pre pandemic levels. Adjusted funds from operations totaled $213,500,000 in the 2nd quarter compared to $194,400,000 last year, an increase of 9.8%. Diluted AFFO per share increased 9.5% to $2.08 per share versus $1.90 in the Q2 of 2023.

Speaker 2

Local and regional sales grew for the 13th consecutive quarter, but softness in national sales continues to be a headwind to our overall revenue growth. Programmatic sales, however, outperformed again this quarter, growing 73% versus Q2 of 2023. In spite of the national backdrop, we are encouraged by the resilience of local and regional sales, which accounted for approximately 79% of billboard revenue in the Q2. On the capital expenditure front, total spend for the quarter was approximately $22,600,000 including $13,600,000 of maintenance CapEx. For the first half of the year, CapEx totaled $52,100,000 with maintenance accounting for $24,500,000 Our CapEx outlook for the full year remains unchanged and we anticipate total CapEx of $125,000,000 with maintenance comprising $50,000,000 On July 31, we repaid the company's $350,000,000 term loan A in full, retiring the debt with a draw on our revolving credit facility and cash on hand.

Speaker 2

We continue to maintain a well laddered debt maturity schedule and following repayment of the term loan have no maturities until the $250,000,000 AR securitization in July 2025. We plan to address the AR securitization maturity later this year or early in 2025, most likely through an extension of the existing facility. Once extended, our nearest maturity will be the $600,000,000 term loan B in 2027 with no bond maturities until 2028. Based on debt outstanding at quarter end, our weighted average interest rate was approximately 5% with a weighted average debt maturity of 3.8 years. As defined under our credit facility, we ended the quarter with total leverage of 2.98x net debt to EBITDA, which remains amongst the lowest in the history of the company.

Speaker 2

Our secured debt leverage was 0.94 times at quarter end and we're comfortably in compliance with both our total debt incurrence and secured debt maintenance tests against covenants of 7 times and 4.5 times respectively. Despite the sharp rise in interest rates over the past few years and based on current expectations, our interest coverage should end the year north of 6 times adjusted EBITDA to cash interest. While we do not have an interest coverage covenant in any of our debt agreements, we do monitor this important financial metric. Healthy interest coverage exemplifies the strength of our balance sheet and the company's ability to service its debt. Our liquidity and access to capital remains strong as the company continues to enjoy access to both the debt and equity capital markets.

Speaker 2

At the end of the quarter, we had approximately $744,000,000 in total liquidity, comprised of $78,000,000 of cash on hand and $666,000,000 available under our revolver. The AR securitization was fully drawn at the end of the quarter, a balance of $250,000,000 With repayment of the term loan A, the company's liquidity was approximately $450,000,000 as of July 31. Subsequent to quarter end, we established a new $400,000,000 ATM program. The new agreement replaces the prior program, which include the same dollar amount and expired in June. While we do not anticipate issuing under the program in the near term, we view maintaining an ATM program as part of our corporate finance strategy and key to preserving financial flexibility with respect to the company's capital needs.

Speaker 2

This morning, we affirmed our revised guidance, which was increased following Q1 results and based on our outlook for the balance of the year. We still expect an AFFO range of $7.75 to $7.90 per share in 2024. Full year interest in our guidance totaled $166,000,000 which assumes short term interest rates are unchanged for the remainder of the year. As I mentioned earlier, maintenance CapEx is budgeted for $50,000,000 and cash taxes are projected to come in around $10,000,000

Speaker 3

Finally, the

Speaker 2

company paid a cash dividend of $1.30 per share in each of the first and second quarters and our recommendation to increase the distribution is subject to Board approval. The company's dividend policy has not changed and based on current expectations, we may consider a special dividend at year end to ensure we distribute 100 percent of our taxable income. Again, we are pleased with this quarter's performance, particularly our strong local and regional sales as well as outperformance in the airport business. We look forward to executing on our operating strategy during the second half of the year. I will now turn the call back over to Sean for closing remarks.

Speaker 1

Thank you, Jay. I'll hit a couple of familiar data points before opening it up for questions. In terms of regional relative regional strength and weakness, our strongest region in Q2 was the Atlantic region that includes states like Florida, Georgia and the Carolinas. While our Southeast region showed relative weakness, especially Southern California, places like San Bernardino, LA and San Diego were a little bit soft. In terms of our mix of business static versus digital, digital grew to be 30.6% of our book in Q2, while static was 69.4%.

Speaker 1

And for the full year, digital has grown to be 29.7% of our book, where static is 70.3 percent of our book. This compares to last year to date, static 71%, digital 29%. We ended the quarter with 4,842 digital units in the air. That increase year to date of 83 units. And as I mentioned, Q2 same board digital grew 2.6%.

Speaker 1

In terms of local national mix, local in Q2 was 79% of our book of business, nationalprogrammatic was 21% of our book with local up 4.8%. As I mentioned, national including programmatic was down 2.5% in Q2, still negative but sequentially better than Q1. And of course, this was led by programmatic, which was up 73% in Q2. In terms of verticals and relative strength and weakness in our book, Service was strong, up 14.6 percent in Q2. Automotive was up 5.5%, gaming up 4.2% and building and construction was up 24.6% in Q2.

Speaker 1

Relative weakness, as I mentioned, was shown in the healthcare category down 5.8% and in the financial category down 3.7%. With that, Natalie, we can open it up for questions.

Operator

Thank And we will take our first question from Cameron McVeigh

Speaker 1

Hey, Ameren.

Speaker 3

I guess to start, how much of the growth this quarter was due to the locals' absorption I'm curious if you expect that to continue. And then secondly, does the guide currently assume national ad spend accelerates in the back half of the year? Thanks.

Speaker 1

Yes. Thanks, Cameron. The guide basically assumes, as I mentioned, low single digit declines in national kind of continuing with local taking up the slack. And as your first question implied, that's a usual phenomenon. I mean, if we can see that national is going to be soft and there's inventory available, then our folks get busy and they're knocking on doors and they're going to sell it to local customers.

Speaker 1

So yes, that absorption is clearly one of the things that's causing the relative outperformance of local.

Speaker 3

Yes, makes sense. Sean, in your view, what's driving the outsized strength in programmatic? Some of those numbers were surprising in a good way to see.

Speaker 1

I think it's something that Outfront is seeing as well, if I read their release correctly. So the main thing 2 things are happening. Number 1, programmatic for digital out of home is growing on its own, right? It's a channel that's being embraced by digital buyers that buy across other digital screens, right, including your iPhone. So that's growing relatively quickly across the industry.

Speaker 1

The other thing that is happening is it's becoming clear that not all out of home screens are equal. And what I mean by that is advertisers are beginning to see that large format digital out of home is achieving their goals better than sort of the smaller formats that you may see in different venues. So there is a little bit of share shift going on as advertisers come to understand the power of the larger format digital.

Speaker 3

Good. And then just the last one for me. I don't know if I missed this earlier, but is there any further color on the expected timing of the NOL usage and how that may impact the distribution going forward?

Speaker 1

Let me kick that one over to Jay.

Speaker 2

Sure. So we have about $35,000,000 of NOLs remaining this year. And this year will be the last year that we have those available. As a result, what you'll see is some upward pressure in the dividend. As I alluded to in my comments, we may consider a special dividend to make sure that we distribute 100% of our taxable income.

Speaker 2

But as you think about the dividend, I would think about it in the context of a low double digit growth this year and with no NOLs next year, another year of low double digit growth. And then in 2026, it should normalize and be more in line with AFFO growth.

Speaker 3

Makes sense. Thank you both.

Speaker 1

Yes.

Operator

And we will take our next question from Jason Bazinet with Citi. Please go ahead.

Speaker 4

You guys run this business so well and have so much history. I just have a very high level question for you. Is this local national dichotomy strike you as sort of a bit unusual relative to the sort of long arc of history? And if so, if it is unusual, do you think it augurs for something that's a bit more permanent? Or is this if you sort of trace it back, it goes back to specific verticals and it's just one of those statistical noise things that is unlikely to endure?

Speaker 1

Yes. Good question, Justin, and thanks for the compliment. Yes, I think the latter, Jason. I mean, I think that it's statistical noise. I've been doing this a long time.

Speaker 1

And if you look back 20 years and smooth out the beta in national, which has a higher is more volatile, You'll see moments in time where national is stronger than local and you'll see moments in time where local is stronger than national. If you smooth it out over time, you'll find that the growth rates are very similar, right? So yes, I would say this is just one of those moments in time where a couple of verticals are sort of re examining how they feel about what they're doing with their media spend and they'll come in and they'll go out and they'll come in and there can be a change of a CMO with a key client and they'll spend more with us or less with us. So, again, it's just sort of it just sort of ebbs and flows.

Speaker 4

So can I ask just one follow-up? Your skew towards local relative to some of your competitors, Would you say that that is sort of just endemic to the markets that you serve as opposed to an overt strategy on your part to go after local dollars?

Speaker 1

Let me address that 2 ways. Number 1, yes, it is a consequence of our footprint. As you know, we tend to absolutely dominate middle markets, markets below the top 20 DMAs, which skew local. No question about that. But it is a point of pride in Lamar land that when it comes to touching local customers and being able to meet the needs of Main Street, our some 1,000 strong troops of account executives do it better than anybody.

Speaker 1

So we do take pride in that.

Speaker 4

Okay. Thank you so much. Yes.

Operator

And we will take our next question from David Karnovsky with Morgan Stanley. Please go ahead.

Speaker 5

Hi. Sean, just want to follow-up on your comments about marketers moving away from the small format digital screens. You and peers have kind of discussed this previously, but want to understand better what's finally kind of driving the shift to large format. And then just on the ATM program, should we just view this as normal course of business or is there anything to read into with regards to potential M and A opportunities? And on that, it would be great to just kind of get a refresh of the landscape for deals as you see it currently.

Speaker 1

Sure. Let me take the second question first. It really is normal for us of business. We've had one in place, as Jay mentioned, an ATM in place for quite some time and we just renewed it. So I wouldn't read anything into that.

Speaker 1

As I did mention though, this was a slow year in M and A and we do think it's going to pick up next year. Not anticipating that we would need to issue equity or some sort of deal of that size. If you look at what we've done to the balance sheet without issuing equity, we've got a little over $1,000,000,000 in powder. So yes, that's sort of the like I said, it's an ordinary run, of course, I'd say. What happened last year, you may recall this time last year, we were talking about a little bit of weakness in programmatic that had been going on for about 12 months.

Speaker 1

And that had been the result of a number of smaller screens coming into the programmatic digital out of home world. And by smaller screens, I'm talking about things like the gas pump TV screens and screens you might find in bars and things like that, right? And so they were actually coming online and taking a little bit of share from us as they came online and entered the digital out of home programmatic universe. What has happened since is that some of the ratings, and media measurement has proven out that large format roadside, if you will, digital out of home is more powerful. It reaches more eyeballs.

Speaker 1

It has better measurement, better demographics. And as that proved out, we started getting more share. So that's the story there.

Speaker 4

Thank you. Yes.

Operator

We will now take our next question from Lance Vitanza with TD Cowen. Please go ahead.

Speaker 6

Thanks guys. And nice job on the quarter. A couple of questions here if I may. The first on the political benefit that you're seeing. And I know you called out some numbers earlier in the prepared remarks.

Speaker 6

And I'm just wondering, are you perhaps also I assume that that's all political advertising around local races, but are you perhaps experiencing any benefit from other non political advertising that might be coming in from TV crowding out? Is that something that you experience?

Speaker 1

Good question. We anecdotally, we believe that that happens and it's as you're probably aware, a phenomenon that happens every 2 years. It's hard for us to measure that, But I think there's no question but that it happens because as you know TV becomes a war zone right around now. To your point about it being mostly local, I would say, yes, but we do think that with the new excitement around the Democratic presidential ticket that we may see some extra activity. So that's sort of a wait and see.

Speaker 1

It's early on in what's happening there. And it certainly has been an eventful month if you follow presidential politics, that's for sure.

Speaker 6

No doubt. And then my other question is just back on the M and A environment that you're expecting to improve next year. I'm wondering is that view the improving is that based on anything specific? And I don't know, is it tied into maybe a thought that interest rates are going to come down? Or for some other reason, is there a change in the tax code that could make it more likely for people to want to sell assets?

Speaker 6

Or are you just expecting that the cycle is going to turn?

Speaker 1

So I think there's a couple of things going on. I think as rates go down and valuations reflect that, Sellers will want to take advantage of that change in the rate cycle, because it does have an impact on valuation cycle. The other thing is, as you know, a lot of the M and A that we do, we actually it's generated from within our footprint by our folks on the ground.

Speaker 6

And when

Speaker 1

we put out the word that we were going to slow things down a little bit because we wanted to take out the Term A loan, people took that signal and they said, okay, we'll come talk to you in 20 25. I mean, that's just what happens out there in Lamar land. So yes, we think things are going to pick up in 2025. And we've actually started to receive some SIMs with an eye towards Q1 closing if we decide to pull the trigger.

Speaker 6

Great, understood. Thanks for the color guys.

Speaker 4

Yes, thanks.

Operator

And it appears that we have no further questions at this time. I will now turn the program back over to Sean for any closing or additional remarks.

Speaker 1

Well, thank you, Natalie. And again, thank you all for your interest in Lamar. We look forward to visiting in November.

Operator

And this does conclude today's program. Thank you for your participation. You may now disconnect.

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Key Takeaways

  • Solid Q2 financial performance: Acquisition‐adjusted revenues rose 3.9%, adjusted EBITDA grew 6.3% (to a 48% margin), and AFFO per share increased 9.5% year-over-year.
  • Local and programmatic demand offset national weakness: Local/regional sales climbed 4.8%, programmatic surged 73%, offsetting a 2.5% national decline.
  • Political advertising added approximately 60 basis points to quarterly growth, with $15 million in full-year political bookings (10% ahead of 2022).
  • Strong balance sheet: Term Loan A was repaid, net leverage stood at 2.98× EBITDA, and liquidity totaled $744 million (including $666 million available on the revolver).
  • Management affirmed full-year AFFO guidance of $7.75–$7.90 per share, proposed raising the Q3 distribution to $1.40, and may consider a special year-end dividend to utilize remaining NOLs.
A.I. generated. May contain errors.
Earnings Conference Call
Lamar Advertising Q2 2024
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