Lamar Advertising Company (LAMR)

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Lamar Advertising (LAMR)

Q3 2012 Earnings Call

November 07, 2012 11:30 am ET


Kevin P. Reilly - Chairman, President, Chairman of Lamar Media Corporation, Chief Executive Officer of Lamar Media Corporation and President of Lamar Media Corporation

Keith A. Istre - Chief Financial Officer, Principal Accounting Officer and Treasurer

Sean E. Reilly - Chief Executive Officer


Marci Ryvicker - Wells Fargo Securities, LLC, Research Division

Matthew Chesler - Deutsche Bank AG, Research Division

Nadia Lovell - JP Morgan Chase & Co, Research Division

Jason B. Bazinet - Citigroup Inc, Research Division

James G. Dix - Wedbush Securities Inc., Research Division



Good morning. We now have Kevin Reilly, Sean Reilly and Keith Istre in conference. [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 on 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 third quarter 2012 earnings release, which contains the information required by Regulation G, was furnished to the SEC on a Form 8-K this morning and is available on Lamar's website, I would now like to turn this conference over to Kevin Reilly. Mr. Reilly, you may begin.

Kevin P. Reilly

Thank you, Chantelle, and I want to welcome everyone to our Q3 earnings call. As you can see from the press release, we are managing our expenses in a low-growth environment, not very sexy, but necessary. And in addition, we are proceeding according to plans regarding our REIT efforts. And when there's a meaningful milestone, we will certainly report that to you.

As is our custom, we will turn the call over to Keith for some Q3 color, and then Sean will give you some operating details. And then we'll open up the call for Q&A. So, Keith?

Keith A. Istre

Thank you. Good morning, everybody. Just to recap Q3 real quick, you saw our pro forma revenue was up about 2%. If you recall, we guided to approximately 1% to 2% for the quarter, so we came in at the top end of the range. Our consolidated expense guidance for the quarter was for approximately 2%, and obviously, we did much better than that, coming in at minus 0.4 point on the consolidated expenses. Part of the reason for this was timing issues.

You may or may not recall, but we settled 2 lawsuits in Q3 last year that had to do with patent infringement, and that was approximately $2 million that hit our Q3 expenses last year, that we don't have this year. From an operating side, we had two 5-week hourly pay periods in the third quarter last year. We only had one this year, in Q3, and that resulted in a $1 million decline in our direct labor costs.

In addition, we did have some pickup or some reductions in some of our operating expenses. One of them, our illumination cost, was down $0.5 million. We've introduced a new form of energy-saving lighting and illumination monitoring system, and it's saving between $200,000 and $300,000 a month.

Going down, EBITDA was up 4.9%, the margin was 45.9%. That's the highest quarterly EBITDA margins we've generated since Q2 of 2008. As far as Q4 guidance, revenue guidance, as you saw in the press release was for up 2% to 3%. As we noted, this does not include revenue from the NextMedia acquisition that closed on October 31. We didn't feel comfortable with giving that guidance, being that it was such a newly acquired asset, but we will provide the Next revenue numbers in our Q1 '13 guidance. For modeling purposes, on an actual basis, we expect that acquisition for the months of November and December combined to generate approximately $5 million in revenue.

On the expense side for Q4, we're projecting expense growth of approximately 1% to 2%. We had expected expense growth -- or we had projected expense growth for the full year of approximately 3%, but with expense growth in Q4 of 1% to 2%, for the full year, we should be closer to a 2% expense growth number than a 3%.

Last, in the recent developments, you may have seen our press release at the end of October, but the company issued $535 million in new 10.5 year high-yield notes at a 5% coupon. As you saw in the press release, proceeds from that -- net proceeds after expenses was $527 million. What we did with some of that is we called the remaining 6 5/8% 2015 high-yield notes that were still outstanding, and we funded the Next acquisition. The total of that, those 2 transactions, was $284 million. So that leaves the company with approximately $0.25 billion in cash on hand. And Sean has some things that he's working on that may require that cash on hand.

With that, Sean?

Sean E. Reilly

Thanks, Keith. And before I get into our normal operating stats, let me quickly touch on 3 other things. Number one, as Kevin and Keith both alluded to, our team continues to do an excellent job managing expenses in the field, and their performance on that front has simply been outstanding, and everyone involved needs to be commended.

Number two, regarding the financing in the Next acquisition, the bond financing we closed last week continues to lower our cost of capital, and it's, in my view, also a key step towards optimizing our balance sheet for the REIT conversion. The integration of the Next acquisition, we also closed last week, is progressing smoothly. As Keith mentioned, you should model approximately $30 million in top line contribution in 2013 from that acquisition, and the $15 million EBITDA contribution from 2013 from the Next acquisition.

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