LAMR Transcript 2011 08 04T14 - 00

PRELIMINARY TRANSCRIPT
LAMR - Q2 2011 Lamar Advertising Co Earnings Conference Call

Event Date/Time: Aug. 04. 2011 / 2:00PM GMT
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Aug. 04. 2011 / 2:00PM, LAMR - Q2 2011 Lamar Advertising Co Earnings Conference Call
CORPORATE PARTICIPANTS
Kevin Reilly Lamar Advertising Co - President and Chairman Keith Istre Lamar Advertising Co - CFO Sean Reilly Lamar Advertising Co - CEO
CONFERENCE CALL PARTICIPANTS

Marci Ryvicker Wells Fargo Securities - Analyst
PRESENTATION
Operator Excuse me everyone, we now have Kevin Reilly, Sean Reilly, and Keith Istre 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. (Operator instructions.) In the course of this discussion, Lamar may make forward looking statements regarding the company, including statements about its future financial performance, strategic goals, and plans. Lamar has identified important factors that could cause actual results to differ materially from those discussed in this call and the company's reports and forms 10-K and 10-Q, and the registration statements that Lamar files with the SEC from time to time. Lamar refers you to those documents. Lamar's second quarter 2011 earnings release, which contains the information required by G, was furnished to the SEC on a form 8-K this morning, and is available on Lamar's website at www.lamar.com. I would now like to turn the conference over to Kevin Reilly. Mr. Reilly you may begin.
Kevin Reilly - Lamar Advertising Co - President and Chairman Thank you Chantel. I want to welcome everyone to our quarterly conference call. As is our custom, management will make some brief comments and then we'll turn the call over for Q&A. 8% GDP growth didn't help much, but you can't sugarcoat weak performance and weak guidance. We had an exceptionally tough time closing business in the month for the month, especially with our smallest customers. That leads me to believe there still is a lack of conviction out there among our local customers. So, until demand there bounces back, we will continue to manage our expenses and our balance sheet accordingly. Of course, one bright spot throughout the year, and we expect going forward, is our digital efforts, and we do expect good things there. With that, I'd like to turn the call over to Keith Istre our CFO.
Keith Istre - Lamar Advertising Co - CFO Okay, welcome everybody. Just couple of quick comments. As you know, we guided to approximately $296 million in revenue for Q2. You saw we came in at $293 million and some change, so we were obviously a little light and that's disappointing. Sean will get more into the details of what drove that. But accordingly, based on our bookings and our Q2 performance, our guidance for Q3 revenue is identical to what our actual was for Q2, and that's $293 million, which is up 2%. In our fiscal years, our Q2 and Q3 revenues on a pro forma basis are pretty much identical. FYI, our Q3 pro forma revenue for last year is identical to our last year's Q2 pro forma revenue, which we show in our press release that you have. The only other comment is on our expense
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growth. Our consolidated expenses, including corporate overhead, were up 2.2%. That's on an actual to actual basis. If you pro forma-ed in some of the benefit costs that weren't there last year, we would be up about 1%. So for the rest of the year, we do expect our expense growth to remain in the low single digits. Sean.
Sean Reilly - Lamar Advertising Co - CEO Thanks Keith. I'll hit some of the highlights, and also point out some areas of weakness. On the highlights, Keith mentioned expense controls, obviously we saw that the economic tailwinds weren't as strong as we had hoped, and we begin to manage expenses accordingly, and will continue to do that. On the digital front, as Kevin mentioned, we've got a lot confidence in how are doing on the digital front. As of the end of July, we had 674 bulletins in the air and 629 posters in the air, for a total of 1303 units. That's an increase of 134 units since we announced our goal to getting 300 in the air last November. We were slowed down a little bit by the winds and the weather in the first half. I estimate now that we'll end the year with approximately 250 additional units and the air, since we announced that goal. So we may come up a tad short, not because we don't want to put more in the air, but we're getting them up as fast as we're physically able. Digital has grown to 13% of our book of business. It was up 15% in the first half of the year. So again, that indicates to us that we need to keep the petal to the metal when it comes to growing our digital footprint. Rate and occupancy stats for Q2 -- we are in an environment now where it's very difficult to push rate with our local customers. That showed up in the rate statistics. Q2 2011 average poster rate of $4.37. Q2 2010 average poster rate of $4.31, or an increase of only 1%. On the bulletin side, Q2 2011 average rate $1,112 versus Q2 2010 $1,111, absolutely flat. And that's a little bit of a disappointing -- and I think reflects the economic environment. On the occupancy side, we continue to see a little bit of struggle on the poster side of our business. Q2 2010 occupancy was 73%, Q2 2011 occupancy was 72%. The news is a little better on the bulletin side. Occupancy is up 3 points on the bulletin side. Q2 2010 occupancy of 74%, Q2 2011 occupancy of 77%. Other than the general economic sluggishness, the story in Q2 was also one of a sort of disappointing performance on the national front. Our national book of business actually declined 1% in Q2. That was a bit of a surprise to us. Local was up 2.8% in Q2, national was down 1%, and that got us to the pro forma goal that we reported. That national performance seems to be carrying into the third quarter. At best, national will be flat and it could be a mirror of the second quarter, down 1, so that seems to be (technical difficulty.) On our top 10 advertisers and top 10 categories, nothing really new to report. Auto was up 10% in Q2, was up in the 18% for Q1, looks to be up the 5%-ish for Q3. So holding its own. Of categories that are not holding their own, the story there is much the same, as we reported on our last call. Were still struggling in the hotel-motel category, down almost 10%, and were still struggling in real estate, again down almost 10%. So that's the story on the verticals. And we're happy to answer questions. Chantel?
QUESTIONS AND ANSWERS

Sean Reilly - Lamar Advertising Co - CEO Thank you very much. ladies and gentlemen at this time we would like to open the floor for questions. If you would like to ask a question please -- operator instructions. Once again if you would like to ask a question please press star one on your phone now. Our first question will come from Mark see -- Marci Ryvicker, Wells Fargo.

Marci Ryvicker - Wells Fargo Securities - Analyst Thanks. There's been some investor concern that the digital boards are cannibalizing the rest of the business. So Sean you sound very confident in digital, how can you make investors listening to this call also comfortable and confident that cannibalization is not occurring more than you had R&D expected?
Sean Reilly - Lamar Advertising Co - CEO Well, the first thing we look at is our overall analog book of business growing as we would expect. It's a low weaker than we would expect obviously. But again, with.8% GDP growth it's hard for us to dramatically outstripped that with our basic book of business. We were up 3.4% in first half against that GDP growth. And digital was up 15% against that GDP growth. So uncomfortable that while we may have some customer migration going on, that's not the real story here is our hope for stronger economic tailwinds did not material is correct.
Okay and then one quick question, just for auto have you been affected by the supply shortage in Japan? Have you seen any cancellations or has the deceleration been more of our new?
I think the deceleration in terms of growth of auto as the category is more a reflection of the economy. I don't think it's supply chain interruption or anything like that. In a Q2 was up 10%. That's a pretty good number. Were turning the corner on auto some pretty tough comps. If I recall, Otto was up almost 20% Q3 last it. So were comping out against the recovery. And that category. It's up to 6% of our books Marcy and that's up from 5% last year. My view is it's growing and it still healthy and it's going to get to where it needs to be.
Okay great thank you so much.
Thank you our next question will come from then-- Ben Swinburne, Morgan Stanley. Thank you good morning. Just wondering if you guys could step back and comment that you think your managers are executing in the markets? Give us a you commented before last quarter and particular about the need to do better than maybe you can just give us a sense for how you rate your performance this quarter? And then I'd love to get some regional color if you guys would spend a little bit of time to talking with the different regions in your business this dispersion and performance to help us think about the economic impact of various metro markets?
Well I think for the first half of the year, the story was probably large markets doing slot better than smaller markets I think that reflected their economy. Were a little bit confused as to the -1 and national in Q2. I think a lot of what happens on the national front isn't completely in our control event out of that the harbinger of bad things to come or whether it's just a blip on the national scope. Been talking to our colleagues in the industry they're seeing a similar phenomenon. I believe Clear Channel announced local -- in Q2 as well. In terms of regional performances, the story there I would say it's pretty much the same as we reported on the last call, the recovery has not taken hold in the western region, Nevada there still struggling a little bit. Although we are beginning to see signs of life in Las Vegas. Florida is recovering I think that little better. But nothing to write home about. You know at the end of the day there has been a diversion, this recovery between Main Street and Madison Avenue. That's just the way this recovery is played out. And our fortunes are tied to Main Street USA and so that's the recovery were looking forward to. If you look at our top 20 verticals, and I think Kevin alluded to this, our top 10 are up and we are up in Q2 5%. It's really the

smaller customer base that vertical from number 10 to number 30 in a concludes 10 2000 and small businesses and Main Street USA were having a hard time getting traction.
That's very interesting. Is there any category for a couple of categories that really changed on the national front Q1 to Q2?
Yes you know it's interesting telecom was a little bit of a surprise for us in Q2. AT&T and Verizon have been spending very predictably in very heavily they cut back a little bit in may and June, we don't think that's a trend. We just think that they're positing a little bit about things going on particularly AT&T that the into the T-Mobile thing. On how they're going to approach their brand strategy and how the thinking about things. So I would say that was the one surprise where we had a little disappointing phone call.
Interesting and not a category you sort of called typically cyclical.
No telecoms been good for us. I think when you talk to the other guys they'll to you that they feel like it still healthy and still do and will do good things for us in the future.
Great thanks a lot for the color.
hank you our next question will come from Jim Boyle, Gilford. Good morning. Sean given the change in digital port install base this year is that going to change her pace in 2012? Or should it be about the same all else being equal?
Well, what were going to do is make those decisions in November. Where I sit right now I'm feeling pretty good, what we're doing on the digital front and I don't any reason to change, it's not a huge capital commitments. This year will spend somewhere between $40 million and $50 million building that footprint and it wouldn't surprise me if we didn't settle on around the same pace sector.
Okay and secondly you mentioned the difficulty in pushing for and months business especially with a smaller businesses. Our national advertising rates in Q2 versus the prior-year? And is the Q3 trended similar?
Yes I don't think it's a question of rate. If the discussion is strictly national. You know we are in an environment where it's hard to tell customers that you're going to push them real hard on rate. Again, given where the economy is. Again I think the prize that we got was AT&T Verizon and were not giving indications going into next event it was anything more than a positive front.
Okay thank you.

Thank you our next question will come round Paul Sweeney Bloomberg industries.
Thanks very much and good morning. Kevin in Sean in the passing of the you mentioned that the outdoor industry and you guys in particular trying to get involved in the fine processable the earlier maybe more in the strategy part of the by that might give you look at more control over national. As we think about your national business being weaker than expected as you mentioned, we compare that against Astle television which is just exceptionally strong and we look your business being a little bit slower. -- Having much excess of working with agencies and the planning process and is that in fact the case or is there anything you guys in particular could do to improve that process?
As an industry, we were the planning cycle going into this year. But this cycle we will have the iPhone data in the planning cycle. So if it shows up it will show up next or not this year. In terms of eyes on helping us get into the planning cycle.
But you know that's not the reason to poor performance in Q2. We had had a national look at it started deteriorating and as Kevin mentioned selling in the month for the month has been a frustrating process. As we went through the year, at the last call, our third -- quarter book was pacing up 5% when we made our last call. And as Jim turned into July, turned into August, we could see selling in the month for the month of slowdown. Is it that the reflection of what's going on in the economy.
Right and as a follow-up, do you think on any of your verticals in particular or in any of your markets and you are seeing perhaps some of the group on so the world and the advertising inventory that's coming into the market is that impacting your business -- sales people?
No. We have vertical where our sales people and our local folks tell us that advertisers are picking other vehicles. But the hotel category. That category used to be operative a percent of our book and down to 3% or 4% of a. So that's the one vertical where customers are picking other avenues. Were not seeing that in other verticals. The other verticals is the story of the cyclical story.
Rates thanks very much.
Thank you our next question will come from James Marsh, Piper Jaffray. Good morning. Two quick questions. First, Sean on the expense focused at the top line remain soft, I mean what specific categories are left to really go after in your opinion? That are big enough and meaningful enough to help offset declines in revenues? And then secondly could you just remind us what political ad spend was for you last year my recollection it was modest. But if you could quantify that, that would be hopeful.
James on the first question, the expense categories, obviously everything simply. Our two biggest expenses are lease cost which is number one. At about $190 million and then employee our personnel costs which is number two at about $170 million. Said you're going to look at cutting significant numbers, those two things have to be looked at. That being said, we've cut about $30 million-$40 million out of our least expensive 2008 by taking down unit renegotiating leases. In the fourth quarter of 2008
we had very thousand 600 -- we eliminated 600 positions in the beginning of 2009 that we have not place any of those positions. We still have 3000 employees employed by the company which is what we had at the end of our first quarter of 2009. But again those are two big categories of those are always something that we would take a look at. And then you have the other categories. The smaller stuff obviously, entertainment, travel, lodging, bonuses for management. Across the board. But again 2008 2009 everything is -- would be considered if it came time that we really have to go back and reduce expenses to where they were negative growth. As far as politics we have politics as usual. We don't get that business. That's all the broadcasters. I think I might have been $1 million in million $0.5 last year that we got.
Okay great thing so much.
Thank you our next question will come from James bank Wedbush. Good morning gentlemen. These things, what was the growth of the static business
In the second quarter? And I have two others. But I'll just take that one.
o you have that one broken down?
I'm sorry Sean trees was asking me something, what was his question?
James was asking with the growth and static was in Q2. Idle have that in front of me.
Just hang on. Growth and static. I've got it somewhere. And on. -- In Q2 are static was up to about a 10th of a point it was basically flat.
Okay and I gather your guidance is kind of incorporates a similar assumption for 3Q?
Yes, we don't break it down when you look at it. But obviously we just -- we don't break it down by individual units. Poster bulletin, static, digital, et cetera. We just look at the total book but were assuming that the -- at guidance of $293 million which is the same of our outlook Q2 revenue was, that the mix will be similar.
Okay. And then do you see a difference in mix of advertisers on the digital versus the static that you think might explain on the one hand some of that lack the conviction you think you're seeing in some of your smaller local customers? And then obviously we well of enthusiasm of customers who are getting on the digital boards? And then I have one other follow-up.

Well, the category that is most dramatically different on digital is as you would expect, amusement and entertainment, it tends to be time sensitive, date sensitive advertisements. Other than that, it's not hugely material. You get slightly less restaurant as compared to our other business. You know, if I had to point is something that was disappointing, in Q2 on the digital front, and this is probably the only disappointing digital news and it ties back to the AT&T Verizon. AT&T and Verizon both were very disappointing Q2 on the digital front. Our national book of business on the digital front was up 11% for Q2. And that's in the face of cancellations from both those guys from AT&T and Verizon.
So normally telecom and wireless are pretty Biggers users of the agile platform. You know the bad news called that we got in Q2 was that cancellation.
Okay that's very helpful. And then just lastly, as you go through a typical year of her cover he, do not lay see a lot of variance in your rate quotes by quarter or is it more like you -- you negotiate your actual -- that kind of gives you an expectation for what the coming years going to be and there's not a lot of variance in rate court fight quarter. I was kind of curious in that dynamic. You talked a little bit about rate earlier.
Sure the first thing you have to look for is when our contracts come for renewal and it's essentially -- throughout the year.
Okay.
So it's a pretty good reflection of what's going on at that moment. So we were having much better great discussions but we turn the quarter when he -- when GDP was in the way dollars in the three-ish range. Facing up in the five or six or seven-ish range. And we were having good discussions. It's very hard now to go to local customers and beat them up on rate.
Okay. All right that's very helpful. Thanks a lot.
Thank you. Our final question will come from Jason Bednar city.
Thanks much. I just had two quick questions. But go back to Marcy's question at the very beginning of the call. And I apologize this is probably because I'm figuring about this. But your explanation saying that the analog book was great. I thought you guys are going to answer by saying, if we look at some pocket of our footprint, that maybe is more rural where there's a digital, we serve soup that are trends. Or similar trends to areas where there a lot of digital. And that's why we know the digital isn't cannibalizing is that not the right way to look at it? Or is it not possible to cut the pricing or utilization data between those markets with digital and without?

Well, we've got digital in our hundred and 40 of our markets and they are, they run the gamut of market types. They are larger urban and smaller rural. So I don't -- I think you could get into we did you try to do that way.
Okay.
What we tried to do is we tried to do it an aggregate performance of both platforms. That's were we start. And then we try to dig in to the performance of individual units regardless of where they are. And that data is trapped by Buster and brand. They look at a very rigorously. They look at it as we put new units, they look at the historical performance of units that are out. Have a look at the performance of analog units that are in the neighborhood of the units. To see if customers are migrating. So we do it as rigorously as we can. But, I still think the most reliable think is -- to look at is, is the aggregate book of business growing? Does it make sense to continue to deploy? Is the local add climate sufficiently strong to absorb the additional inventory?
Okay. Anything -- can ask one follow-up -- when he asked one hotel vertical as a little and received the migration to other types of advertising, can you just elaborate on why you think it's hotel that if you saw another category sort of sitcom to similar pressures? Which one would it be?
Sure. The hotel motel business, many people decide , they used to decide at the last minute driving down interstate looking at billboards.
Yes.
Particularly for your downscale side of the interstate at the interchange hotel motel business. And you know today people are booking through various online services. They're using their handheld to do figure out where a hotel or motel is rather than looking at the billboards. It's a trend, you know when we look back and look at decade into that vertical, the hotel motel business really never recovered from 9/11. That was a major blow to them. And from a cyclical point of view, they started to tear you're eating in our books. Then had it not been for the secular issue, they probably would have rebounded. They never really rebounded. So we went from a percent I percent. Down to 3% 4% of our book and in managing to that, were not assuming its way to go back to 8% or 9%. We are managing and selling to that and we need to fund other customers.
Okay.
And if it goes to another vertical which one do think it would be?

Well, you look at consumer behavior any disorder think about what's out there. As I mentioned, our top 10 verticals are healthy. [laughter] As a matter of fact they were up in Q2 5%. It's those smaller customers reflected in verticals below the top 10. And you know I'm going to argue that there's troubles are cyclical and it's not secular.
Okay. Very helpful. Thank you very much.
Chantel?
Go ahead Kevin.
Yes or go ahead Sir.
Chantel that concludes our call. I want to thank you for conducting it. And we look forward to the next quarterly call.
Thank you very much. Ladies and gentlemen at this time this conference has now ended. You may disconnect your phone lines and have a great rest of the week.
End of transcript.
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PRELIMINARY TRANSCRIPT

LAMR - Q2 2011 Lamar Advertising Co Earnings Conference Call

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CONFERENCE CALL PARTICIPANTS

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QUESTIONS AND ANSWERS

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Okay great thank you so much.

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Interesting and not a category you sort of called typically cyclical.

Great thanks a lot for the color.

Okay thank you.

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Rates thanks very much.

Okay great thing so much.

o you have that one broken down?

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Okay. All right that's very helpful. Thanks a lot.

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And if it goes to another vertical which one do think it would be?

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Okay. Very helpful. Thank you very much.

Yes or go ahead Sir.

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