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Lamar Promoting Firm (NASDAQ:LAMR) Q2 2024 Earnings Convention Name August 8, 2024 9:00 AM ET
Firm Members
Sean Reilly – Chief Government OfficerJay Johnson – Chief Monetary Officer
Convention Name Members
Cameron McVeigh – Morgan StanleyJason Bazinet – Citigroup Inc.David Karnovsky – JPMorgan Chase & Co.Lance Vitanza – TD Cowen
Operator
Excuse me, everybody. We now have Sean Reilly and Jay Johnson in convention. Please remember that every of your traces is in a listen-only mode. On the conclusion of the corporate’s presentation, we’ll open the ground for questions. [Operator Instructions]
In the midst of this dialogue, Lamar could make forward-looking statements relating to the Firm, together with statements about its future monetary efficiency, strategic targets, plans and targets, together with with respect and the quantity of timing of any distributions to stockholders and the impacts and results of normal financial circumstances of the Firm’s enterprise, monetary situation and outcomes of operations.
All forward-looking statements contain dangers, uncertainties and contingencies, a lot of that are past Lamar’s management and which can trigger precise outcomes to vary materially from anticipated outcomes. Lamar has recognized essential elements that may trigger precise outcomes and differ materially from these mentioned on this name within the Firm’s Second Quarter 2024 earnings launch and in its most up-to-date annual report on Kind 10-Okay.
Lamar refers you to these paperwork. Lamar’s Second Quarter 2024 earnings launch, which accommodates info required by Regulation G relating to sure non-GAAP monetary measures was furnished on the SEC on a type of 8-Okay this morning and is on the market on the Traders part of Lamar’s web site, www.lamar.com.
I would like to show the convention over to Sean Reilly. Mr. Reilly, you could start.
Sean Reilly
Thanks, Natalie. Good morning all, and welcome to Lamar’s Q2 2024 earnings name. The developments that we noticed in Q1 held in Q2, sturdy demand from native and regional advertisers greater than offset softness in some nationwide prospects, permitting us to ship stable consolidated income development. For the quarter, revenues elevated 3.9% on an acquisition-adjusted foundation with development throughout billboards, transit logos and significantly airports. In the meantime, we managed bills effectively, permitting us to extend EBITDA by 6.3% on an acquisition-adjusted foundation and to develop our adjusted EBITDA margin to 48%, a 100 foundation level enchancment over Q2 of [2024].
Each the EBITDA development and margin enlargement led to AFFO per share development of 9.5%. Due to that sturdy efficiency, administration can be recommending to the Board that our Q3 distribution be elevated to $1.40 a share. As we glance ahead, we see extra of the identical, stable native and regional demand with nationwide nonetheless a little bit of a drag. As we sit right now, revenues are pacing up mid-single digits for the second half with This autumn pacing barely stronger than Q3. Additionally, if political is available in for This autumn because it has previously, there needs to be some upside that’s not but mirrored in our pacing. As it’s, we proceed to trace to achieve the top-end of our beforehand supplied steering for full-year AFFO per share.
Again to Q2, sturdy classes included providers, constructing and development and automotive, whereas healthcare and monetary confirmed relative weak point. Political was a tailwind to including about 60 foundation factors to our development. For the full-year, we have now $15 million on the books for political, about 10% forward of 2022 and effectively forward of 2020. Each years when spending for the full-year was about $20 million.
For the quarter, native gross sales have been up properly, rising practically 5%. In the meantime, programmatic was pink scorching, up about $3.6 million versus the 12 months precedent days to roughly $8.6 million. We have now picked up some new prospects within the programmatic class like pharma and CPG, and we’re additionally seeing demand from some current advertisers, together with the insurance coverage class, which started to stabilize within the quarter. We anticipate the energy in programmatic to proceed, although year-over-year development is more likely to be much less on account of harder comps. As a reminder, all of our programmatic enterprise is nationwide, so the expansion there helps offset broader nationwide weak point.
Total, together with programmatic, nationwide was off about 2.5%. At this level, we anticipate one other low single-digit decline in nationwide in Q3. Nevertheless, exercise from nationwide prospects within the type of RFPs has been up just lately, and we’re hopeful that we are going to see that enterprise flip as we head into 2025. Programmatic energy additionally helped buoy our digital platform, which grew 2.6% on a same-store foundation, in keeping with the rise in Q1. Charge was up, by the way in which, throughout the analog platform. It was a quiet quarter on the M&A entrance as we spent about $10 million on a handful of offers.
For the full-year, acquisition spending is more likely to be round $40 million to $50 million. We proceed to assume the M&A market will choose up as we flip the nook into 2025. As you noticed, we paid off the time period mortgage final week, which put our steadiness sheet already the very best within the trade in even higher form. So we needs to be effectively positioned to take part if enticing belongings hit the market.
I’ll flip it over to Jay now to stroll you thru the particulars.
Jay Johnson
Thanks, Sean. Good morning, everybody, and thanks for becoming a member of us. We had a stable second quarter and are happy with our outcomes, which was barely forward of inner expectations on each income and adjusted EBITDA. Q2 marked the third consecutive quarter of close to double-digit AFFO development as short-term rates of interest have been extra steady within the first half of 2024. We have now additionally benefited from mid single-digit development on the topline throughout the first six months of the 12 months.
Our billboard areas all skilled income and EBITDA development over the second quarter of final 12 months. As well as, our airport enterprise had one other sturdy quarter, rising 21.7%, following a 20% income development in Q1 as air visitors continues to set document ranges. Acquisition-adjusted working bills elevated 1.9% within the second quarter, which was barely higher than anticipated and down from 4.4% within the first quarter.
As you could recall, in 2023, we benefited from COVID-19 aid grants in our airport enterprise that won’t repeat this 12 months, and primarily impression the primary and third quarters. Adjusted EBITDA for the quarter was $271.6 million in comparison with $253.9 million in 2023, which was a rise of 6.9%. On an acquisition-adjusted foundation, adjusted EBITDA elevated 6.3%. Adjusted EBITDA margin for the quarter remained strongly 48%, one of many strongest second quarters within the current historical past. And regardless of inflationary pressures over the previous few years, the corporate’s adjusted EBITDA margin stays effectively above pre-pandemic ranges.
Adjusted funds from operations totaled $213.5 million within the second quarter in comparison with $194.4 million final 12 months a rise of 9.8%. Diluted AFFO per share elevated 9.5% to $2.08 per share versus $1.90 within the second quarter of 2023. Native and regional gross sales grew for the thirteenth consecutive quarter, however softness in nationwide gross sales continues to be a headwind to our total income development. Programmatic gross sales, nevertheless, outperformed once more this quarter, rising 73% versus Q2 of 2023.
Regardless of the nationwide backdrop, we’re inspired by the resilience of native and regional gross sales, which accounted for roughly 79% of billboard income within the second quarter. On the capital expenditure entrance, complete spend for the quarter was roughly $22.6 million, together with $13.6 million of upkeep CapEx. For the primary half of the 12 months, CapEx totaled $52.1 million with upkeep accounting for $24.5 million. Our CapEx outlook for the full-year stays unchanged, and we anticipate complete CapEx of $125 million with upkeep comprising $50 million.
On July 31, we repaid the corporate’s $350 million time period mortgage A in full, retiring the debt with a draw on our revolving credit score facility and money available. We proceed to take care of a well-laddered debt maturity schedule and following compensation of the time period mortgage, having no maturities till the $250 million AR securitization in July 2025.
We plan to handle the AR securitization maturity later this 12 months or early in 2025 most certainly by means of an extension of the present facility. As soon as prolonged, our nearest maturity would be the $600 million time period mortgage B in 2027 with no bond maturities till 2028. Primarily based on debt excellent at quarter finish, our weighted common rate of interest was roughly 5% with a weighted common debt maturity of three.8 years.
As outlined beneath our credit score facility, we ended the quarter with complete leverage of two.98x web debt to EBITDA, which stays amongst the bottom within the historical past of the corporate. Our secured debt leverage was 0.94x at quarter finish, and we’re comfortably in compliance with each our complete debt incurrence and secured debt upkeep take a look at towards covenants of 7x and 4.5x, respectively.
Regardless of the sharp rise in rates of interest over the previous few years and primarily based on present expectations, our curiosity protection ought to finish the 12 months north of 6x adjusted EBITDA to money curiosity. Whereas we do not need an curiosity protection covenant in any of our debt agreements, we do monitor this essential monetary metric. Wholesome curiosity protection exemplifies the energy of our steadiness sheet and the corporate’s skill to service its debt.
Our liquidity and entry to capital stays sturdy as the corporate continues to take pleasure in entry to each debt and fairness capital markets. On the finish of the quarter, we had roughly $744 million in complete liquidity, comprised of $78 million of money available and $666 million accessible beneath our revolver.
The AR securitization was totally drawn on the finish of the quarter, a steadiness of $250 million. With compensation of the Time period Mortgage A, the corporate’s liquidity was roughly $450 million as of July 31. Subsequent to quarter finish, we established a brand new $400 million ATM program. The brand new settlement replaces the prior program, which embody the identical greenback quantity and expired in June. Whereas we don’t anticipate issuing beneath this system within the close to time period, we view sustaining an ATM program as a part of our company finance technique and key to preserving monetary flexibility with respect to the corporate’s capital wants.
This morning, we affirmed our revised steering, which was elevated following first quarter outcomes and primarily based on our outlook for the steadiness of the 12 months. We nonetheless anticipate an AFFO vary of $7.75 to $7.90 per share in 2024. Full-year curiosity in our steering totaled $166 million, which assumes short-term rates of interest are unchanged for the rest of the 12 months.
As I discussed earlier, upkeep CapEx is budgeted for $50 million, and money taxes are projected to come back in round $10 million. Lastly, the corporate paid a money dividend of $1.30 per share in every of the primary and second quarters and our advice to extend the distribution is topic to Board approval. The corporate’s dividend coverage has not modified, and primarily based on present expectations, we could take into account a particular dividend at year-end to make sure we distribute 100% of our taxable earnings.
Once more, we’re happy with this quarter’s efficiency, significantly our sturdy native and regional gross sales in addition to outperformance within the airport enterprise. We sit up for executing on our working technique throughout the second half of the 12 months.
I’ll now flip the decision again over to Sean for closing remarks.
Sean Reilly
Thanks, Jay. I will hit a few acquainted information factors earlier than opening it up for questions. When it comes to regional – relative regional energy and weak point, our strongest area in Q2 was the Atlantic area. That features states like Florida, Georgia and the Carolinas. Whereas our Southeast area confirmed relative weak point, particularly Southern California, locations like San Bernardino, LA and San Diego have been somewhat bit smooth.
When it comes to our mixture of enterprise, static versus digital. Digital grew to be 30.6% of our e-book in Q2, whereas static was 69.4%. And for the full-year, digital has grown to be 29.7% of our e-book the place static is 70.3% of our e-book. This compares to final year-to-date static 71%, digital 29%.
We ended the quarter with 4,842 digital models within the air. That is a rise year-to-date of 83 models. And as I discussed, Q2 identical board digital grew 2.6%. When it comes to native nationwide combine, native in Q2 was 79% of our e-book of enterprise. Nationwide/programmatic was 21% of our e-book with native up 4.8%. As I discussed, nationwide, together with programmatic, was down 2.5% in Q2, nonetheless destructive, however sequentially higher than Q1. And naturally, this was led by programmatic, which was up 73% in Q2.
When it comes to verticals and relative energy and weak point in our e-book, service was sturdy, up 14.6% in Q2. Automotive was up 5.5%, gaming up 4.2%, and Constructing and development was up 24.6% in Q2. Relative weak point, as I discussed, was proven within the well being care class, down 5.8% and within the monetary class, down 3.7%.
With that, Natalie, we are able to open it up for questions.
Query-and-Reply Session
Operator
[Operator Instructions] We are going to take our first query from Cameron McVeigh with Morgan Stanley. Please go forward.
Cameron McVeigh
Thanks. Good morning, Sean and Jay.
Sean Reilly
Hello, Cameron.
Cameron McVeigh
I suppose to begin, how a lot of the expansion this quarter was as a result of native absorption of any nationwide softness? Curious for those who anticipate that to proceed? After which secondly, does the information presently assume nationwide advert spend accelerates within the again half of the 12 months? Thanks.
Sean Reilly
Sure. Thanks, Cameron. The CAT mainly assumes, as I discussed, low single-digit declines in nationwide sort of persevering with with native taking on the slack. And as your first query implied, that is a standard phenomenon. I imply if we are able to see that nationwide goes to be smooth and there is stock accessible, then our people get busy and so they’re knocking on doorways, and they’ll promote it to native prospects. So sure, that absorption is clearly one of many issues that is inflicting the relative outperformance of native.
Cameron McVeigh
Sure. Is smart. Sean, in your view what’s driving the outsized energy in programmatic. A few of these numbers have been shocking in a great way to see?
Sean Reilly
I believe it is one thing that Outfront is seeing as effectively, if I learn their launch appropriately. So the principle factor – two issues are taking place. Primary, programmatic for digital out-of-home is rising by itself, proper? It is a channel that is being embraced by digital patrons that purchase throughout different digital screens, proper, together with your iPhone. In order that’s rising comparatively shortly throughout the trade. The opposite factor that’s taking place is it is turning into clear that not all out-of-home screens are equal. And what I imply by that’s advertisers are starting to see that giant format digital out-of-home is attaining their targets higher than kind of the smaller codecs that you could be see in numerous venues. So there’s a little little bit of share shift happening as advertisers come to grasp the facility of the bigger format digital.
Cameron McVeigh
Good. After which simply the final one for me. I do not know if I missed this earlier, however is there any additional coloration on the anticipated timing of the NOL utilization and the way that will impression the distribution going ahead?
Sean Reilly
Let me kick that one over to Jay.
Jay Johnson
Certain. So we have now about $35 million of NOLs remaining this 12 months. And this 12 months would be the final 12 months that we have now these accessible. Because of this, what you may see is a few upward stress within the dividend, as I alluded to in my feedback, we could take into account a particular dividend to ensure that we distribute 100% of our taxable earnings. However as you concentrate on the dividend, I’d give it some thought within the context of a low double-digit development this 12 months and with no NOLs subsequent 12 months, one other 12 months of double-digit – low double-digit development. After which in 2026, it ought to normalize and be extra in keeping with AFFO development.
Cameron McVeigh
Is smart. Thanks each.
Operator
And we’ll take our subsequent query from Jason Bazinet with Citi. Please go forward.
Jason Bazinet
You guys run this enterprise so effectively and I’ve a lot historical past. I simply have a really high-level query for you. Is that this native nationwide dichotomy strike you as kind of a bit uncommon relative to the kind of lengthy arc of historical past? And if that’s the case, whether it is uncommon, do you assume it augurs for one thing that is a bit extra everlasting? Or is that this – for those who kind of hint it again, it goes again to particular verticals, and it is simply a type of statistical noise issues that’s unlikely to endure.
Sean Reilly
Sure. Good query, Jason, and thanks for the praise. Sure, I believe the latter, Jason. I imply, I believe that it is statistical noise. I have been doing this a very long time. And for those who look again 20 years and easy out the beta in nationwide, which has the next – is extra unstable. You may see moments in time the place nationwide is stronger than native, and you may see moments in time the place native is stronger than nationwide. For those who easy it out over time, you may discover that the expansion charges are very comparable, proper? So sure, I’d say that is simply a type of moments in time the place a few verticals are kind of reexamining how they really feel about what they’re doing with their media spend, and so they’ll are available and so they’ll exit and so they’ll are available and there generally is a change of the CMO with a key shopper, and so they’ll spend extra with us or much less with us. So once more, it simply kind of ebbs and flows.
Jason Bazinet
And so can I ask only one follow-up.
Sean Reilly
Certain.
Jason Bazinet
You are skewed in direction of native relative to a few of your opponents. Would you say that, that’s kind of simply endemic to the markets that you just serve versus an overt technique in your half to go after native {dollars}?
Sean Reilly
Let me deal with that two methods. Primary, sure, it’s a consequence of our footprint. As you recognize, we have a tendency to completely dominate center markets, markets under the highest 20 DMAs, which skew native. No query about that. However it’s a level of delight in Lamar land that in terms of touching native prospects and having the ability to meet the wants of Major Avenue, our – some thousand sturdy troops of account executives do it higher than anyone. So we do take delight in that.
Jason Bazinet
Okay. Thanks a lot.
Sean Reilly
Sure.
Operator
And we’ll take our subsequent query from David Karnovsky with Morgan Stanley. Please go forward.
David Karnovsky
Sean, I simply needed to observe up in your feedback about markers shifting away from the small format digital screens. You and friends have sort of mentioned this beforehand, however I need to perceive higher what’s lastly sort of driving the shift to giant format. After which simply on the ATM program, ought to we simply view this as minimal course of enterprise? Or is there something to learn into as regards to potential M&A alternatives and on that will be nice to only sort of get a refresh of the panorama for offers as you see it presently?
Sean Reilly
Certain. Let me take the second query first. It truly is a traditional course of enterprise. We have had one in place, as Jay talked about, an ATM in place for fairly a while, and we simply renewed it. So I would not learn something into that. As I did point out, although, this was a gradual 12 months in M&A, and we do assume it should choose up subsequent 12 months.
Not anticipating that we would want to challenge fairness or some kind of deal of that measurement. For those who take a look at what we have completed to the steadiness sheet with out issuing fairness, we have got somewhat over $1 billion in powder. So sure, that is kind of the – like I mentioned, it is strange run, in fact, I would say. What occurred final 12 months, you could recall this time final 12 months, we have been speaking about somewhat little bit of weak point in programmatic that had been happening for about 12 months. And that had been the results of numerous smaller screens coming into the programmatic digital out-of-home world. And by smaller screens, I am speaking about issues just like the gasoline pump TV screens and screens you may discover in bars and issues like that, proper?
And they also have been really coming on-line and taking somewhat little bit of share from us as they got here on-line and entered the digital out-of-home programmatic universe. What has occurred since is that among the rankings and media measurement has confirmed out that giant format roadside if you’ll, digital out-of-home is extra highly effective. It reaches extra eyeballs, it has higher measurement, higher demographics. And as that proved out, we began getting extra share. So that is the story there.
David Karnovsky
Thanks.
Operator
[Operator Instructions] We are going to now take our subsequent query from Lance Vitanza with TD Cowen. Please go forward.
Lance Vitanza
Thanks, guys. A pleasant job on the quarter. A few questions right here, if I could. The primary on political profit that you just’re seeing. And I do know you known as out some numbers earlier within the ready remarks. However I am simply questioning, are you maybe additionally – I assume that that is all political promoting round native races. However are you maybe experiencing any profit from different non-political promoting that is perhaps coming in from TV crowding out? Is that one thing that you just expertise?
Sean Reilly
Good query. Anecdotally, we consider that, that occurs, and it is as you are in all probability conscious, a phenomenon that occurs each two years. It is exhausting for us to measure that. However I believe there is not any query however that it occurs as a result of, as you recognize, TV turns into a warzone proper round now. To your level about it being largely native, I’d say sure. However we do assume that with the brand new pleasure across the Democratic presidential ticket that we may even see some additional exercise. In order that’s kind of a wait and see. It is early on in what’s taking place there. And it actually has been an eventful month for those who observe presidential politics, that is for positive.
Lance Vitanza
Little question. After which my different query is simply again on the M&A atmosphere that you just’re anticipating to enhance subsequent 12 months. I am questioning, is that view bettering – is that primarily based on something particular? And I do not know is it tied into possibly a thought that rates of interest are going to come back down or for another cause, is there a change within the tax code that might make it extra doubtless for individuals to need to promote belongings? Or are you simply anticipating that the cycle goes to show?
Sean Reilly
So I believe there’s a few issues happening. I believe as charges go down and valuations mirror that. Sellers will need to reap the benefits of that change within the fee cycle as a result of it does have an effect on valuation cycle. The opposite factor is, as you recognize, quite a lot of the M&A that we do, we really – it is generated from inside our footprint by our people on the bottom. And after we put out the phrase that we have been going to gradual issues down somewhat bit as a result of we needed to take out the Time period A mortgage, individuals took that sign and so they mentioned, okay, we’ll come discuss to you in 2025. I imply that is simply what occurs on the market in Lamar land. So sure, we expect issues are going to select up in 2025. And we have really began to obtain some SIMs with an eye fixed in direction of a Q1 closing if we determine to drag the set off.
Lance Vitanza
Nice. Understood. Thanks for the colour, guys.
Sean Reilly
Sure. Thanks.
Operator
Sure. And it seems that we have now no additional questions right now. I’ll now flip this system again over to Sean for any closing or further remarks.
Sean Reilly
Nicely, thanks, Natalie. And once more, thanks all on your curiosity in Lamar. We sit up for visiting in November.
Operator
And this does conclude right now’s program. Thanks on your participation. You could now disconnect.
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