Lamar Advertising Co
NASDAQ:LAMR

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Lamar Advertising Co
NASDAQ:LAMR
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Price: 134.99 USD 2.16% Market Closed
Market Cap: 13.8B USD
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Earnings Call Analysis

Q2-2024 Analysis
Lamar Advertising Co

Solid Q2 Performance with Strong Local and Regional Demand

Lamar delivered a robust Q2 2024, achieving a 3.9% revenue increase and a 6.3% rise in adjusted EBITDA, fueled by high local and regional advertising demand. Despite national market weaknesses, programmatic sales surged 73%, contributing to a 9.5% increase in AFFO per share to $2.08. The company also improved its EBITDA margin to 48% and recommended a Q3 distribution increase to $1.04 per share. Looking ahead, Lamar anticipates mid-single-digit revenue growth for H2 2024, with political advertising potentially boosting Q4.

Solid Revenue and EBITDA Growth

In the second quarter of 2024, Lamar reported a robust performance, achieving consolidated revenue growth of 3.9% on an acquisition-adjusted basis, fueled by strong demand from local and regional advertisers. This was despite a slight dip in national customer demand. Their efficient expense management allowed for a 6.3% increase in EBITDA, resulting in an adjusted EBITDA margin of 48%, a 100 basis point improvement from the previous year. This impressive growth led to a 9.5% increase in AFFO per share. Consequently, management recommended a Q3 distribution increase to $1.04 per share.

Outlook and National Sales Dynamics

Looking ahead, Lamar expects continued robust local and regional demand, with national sales slightly lagging. For the second half of 2024, they predict mid-single-digit revenue growth, with Q4 anticipated to be stronger than Q3. They also anticipate political advertising revenues to provide additional upside. Despite a projected low single-digit decline in national sales for Q3, there's a possibility for a turnaround as national customers’ activity picks up heading into 2025.

Strategic Moves and Investments

Lamar’s strategic maneuvers included a relatively quiet quarter on the M&A front with an expenditure of $10 million on minor deals. They plan to spend around $40 million to $50 million on acquisitions for the full year. Lamar anticipates an active M&A market in 2025 and is well-positioned with an industry-best balance sheet to capitalize on attractive assets. They recently paid off a $350 million term loan, further solidifying their financial position.

Programmatic and Digital Advertising Growth

Programmatic sales were a significant contributor, outperforming with a 73% growth compared to Q2 2023. They saw increased engagement from new customers like pharmaceutical and consumer packaged goods companies, and steady demand from existing clients. The strength in programmatic sales also boosted their digital platform, which saw a 2.6% same-store sales growth. This segment’s performance helped offset the overall decline in national sales.

Debt Management and Capital Expenditures

Lamar’s capital expenditures for Q2 amounted to $22.6 million, mainly for maintenance, bringing the first-half total to $52.1 million. Their full-year CapEx outlook remains unchanged at $125 million, with $50 million earmarked for maintenance. The company’s debt management strategy continues to pay off, evidenced by the full repayment of a $350 million term loan. They foresee addressing upcoming maturities with strategic extensions and maintain a sound debt maturity schedule, with no significant liabilities until 2025.

Competitive Landscape and Market Shifts

Lamar noted a shift in advertiser preference towards large-format digital out-of-home (OOH) screens over smaller formats. This change is driven by better performance metrics for larger screens, which reach more eyeballs and offer superior measurement and demographics. This trend is expected to continue, benefiting Lamar as they hold a strong position in the large-format digital OOH market.

Political Advertising and Dividend Outlook

Political advertising has been a notable growth driver, with expectations of $15 million in revenues for the full year, a 10% increase from 2022. This segment added 60 basis points to Q2 growth. Due to remaining NOLs, Lamar anticipates upward pressure on dividends, with potential special dividends to ensure 100% taxable income distribution. They project low double-digit growth in dividends this year and next, normalizing to be in line with AFFO growth by 2026.

Earnings Call Transcript

Earnings Call Transcript
2024-Q2

from 0
Operator

Excuse me, everyone. We now have Sean Reilly and Jay Johnson in conference. [Operator Instructions] 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, plans and objectives, including with respect to 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.

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 Second Quarter 2024 earnings release and in its most recent annual report on Form 10-K.

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

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

S
Sean Reilly
executive

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, and 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. .

Meanwhile, we managed expenses well, allowing us to increase EBITDA by 6.3% on an acquisition-adjusted basis and to expand our adjusted EBITDA margin to 48% a 100 basis point improvement over Q2 of 2024. Both the EBITDA growth and margin expansion led to AFFO per share growth of 9.5%. Because of that strong performance, management will be recommending to the Board that our Q3 distribution be increased to $1.04 per 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. Also, if political coming 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 health care and financial showed relative weakness. Political was a tailwind to adding about 60 basis points to our growth. For the full year, we have $15 million on the books for political, about 10% ahead of 2022 and well ahead of 2020.

Both years when spending for the full year was about $20 million. For the quarter, local sales were up nicely, increasing nearly 5%. Meanwhile, programmatic was red hot, up about $3.6 million versus the year earlier period to approximately $8.6 million.

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 helps offset broader national weakness.

Overall, including programmatic, national was off about 2.5%. 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&A front as we spent about $10 million on a handful of deals.

For the full year, acquisition spending is likely to be around $40 million to $50 million. We continue to think the M&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 at attractive assets hit the market.

I will turn it over to Jay now to walk you through the particulars.

J
Jay Johnson
executive

Thanks, John. Good morning, everyone, and thank you for joining us. We had a solid second quarter and are pleased with our results, which was slightly ahead of internal expectations on both revenue and adjusted EBITDA. Q2 marked the third consecutive quarter of near double-digit AFFO growth as short-term interest rates were more stable in the first half of 2024.

We have also benefited from mid-single-digit growth on the top line during the first 6 months of the year. Our billboard regions all experienced revenue and EBITDA growth over the second quarter of last year. In addition, our airport business had another strong quarter, growing 21.7% following a 20% revenue growth in Q1 as air traffic continues to set record levels.

Acquisition-adjusted operating expenses increased 1.9% in the second quarter, which was slightly better than anticipated and down from 4.4% in the first quarter. As you may recall, in 2023, we benefited from COVID-19 relief grants in our airport business that will not repeat this year. and primarily impact the first and third quarters. Adjusted EBITDA for the quarter was $271.6 million compared to $253.9 million in 2023, which was an increase of 6.9%. On an acquisition-adjusted basis, adjusted EBITDA increased 6.3%.

Adjusted EBITDA margin for the quarter remained strongly 48%, 1 of the strongest second quarters in the 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 $213.5 million in the second quarter compared to $194.4 million last year an increase of 9.8%. Diluted AFFO per share increased 9.5% to $2.08 per share versus $1.90 in the second quarter of 2023. 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 second quarter. Capital expenditure front, total spend for the quarter was approximately $22.6 million, including $13.6 million of maintenance CapEx.

For the first half of the year, CapEx totaled $52.1 million with maintenance accounting for $24.5 million. Our CapEx outlook for the full year remains unchanged, and we anticipate total CapEx of $125 million with maintenance comprising $50 million.

On July 31, we repaid the company's $350 million term loan in full, retiring the debt with a draw on our revolving credit facility and cash on hand. We continue to maintain a well-laddered debt maturity schedule and following repayment of the term loan, having no maturities until the $250 million 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 million 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,

[Audio gap] across the industry. The other thing that is happening is it's become 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 outcome 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.

J
Jason Bazinet
analyst

Great. And then just the last 1 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?

J
Jay Johnson
executive

Sure. So we have about $35 million 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 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. But as you think about the dividend, I would think about it in the context of low double-digit growth this year, and there was 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. .

J
Jason Bazinet
analyst

You guys run this business so well and I 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 obvious 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 1 of those statistical noise things that it's unlikely to endure. .

S
Sean Reilly
executive

Yes. Good question, Jason. And thanks for the compliment. .

Yes, I think, Jason, I mean, I think that it's a statistical noise is a long time. 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 1 of those moments in time where a couple of verticals are sort of reexamining 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 just sort of ebbs and flows. .

J
Jason Bazinet
analyst

And so can I ask just 1 follow-up. You're skewed 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? .

S
Sean Reilly
executive

Let me address that 2 ways. Number one, 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 thousand strong troops of account executives do it better than anybody. So we do take pride in that. .

Operator

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

D
David Karnovsky
analyst

Sean, I just wanted to follow up on your comments about markers moving away from the small format digital screens. You and peers have kind of discussed this previously, but I 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 minimal course of business? Or is there anything to read into with regards to potential M&A opportunities and on that would be great to just kind of get a refresh of the landscape for deals as you see it currently? .

S
Sean Reilly
executive

Sure. Let me take the second question first. It's -- it really is a normal course of business. We've had 1 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. As I did mention, though, this was a slow year in M&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 billion in powder. So yes, that's sort of the -- like I said, it's 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. 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, it has better measurement, better demographics. And as that proved out, we started getting more share. So that's the story there.

Operator

[Operator Instructions] We will now take our next question from Lance Vitanza with TD Cowen.

L
Lance Vitanza
analyst

A nice job on the quarter. A couple of questions here, if I may. The first on political benefit that you're seeing. And I know you called out some numbers earlier in the prepared remarks. But 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 nonpolitical advertising that might be coming in from TV crowding out? Is that something that you experience?

S
Sean Reilly
executive

Good question. 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 little worsened 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. 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.

L
Lance Vitanza
analyst

No doubt. And then my other question is just back on the M&A environment that you're expecting to improve next year. I'm wondering, is that view improving -- is that based on anything specific? And I don't know 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? Or are you just expecting that the cycle is going to turn.

S
Sean Reilly
executive

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&A that we do, we actually -- it's generated from within our footprint by our folks on the ground.

And when we put out the word that we were going to slow things down a little bit because we wanted to take out the term loan, people took that signal and they said, okay, we'll come talk to you in 2025. 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 a Q1 closing if we decide to pull the trigger.

Operator

Yes. 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.

S
Sean Reilly
executive

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.