Sean Eugene Reilly - Lamar Advertising Co. Keith Istre - Lamar Advertising Co..

Marci L. Ryvicker - Wells Fargo Securities LLC David W. Miller - Loop Capital Markets LLC Jason Boisvert Bazinet - Citigroup Global Markets, Inc. Maria Ripps - Morgan Stanley & Co. LLC.

Excuse me, everyone. We now have Sean Reilly and Keith Istre in conference. Please be aware that each of your line 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 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 and timing of any distributions to stockholders.

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 could cause actual results to differ materially from those discussed in this call in the company's first quarter 2017 earnings release, and its most recent Annual Report on Form 10-K as updated or supplemented by its quarterly reports on Form 10-Q. Lamar refers you to those documents.

Lamar's first quarter 2017 earnings release, which contains information required by Regulation G regarding certain non-GAAP financial measures, was furnished to the SEC on a Form 8-K this morning and is available on the Investors section of Lamar's website, www.lamar.com. I would now like to turn the call over to Sean Reilly. Mr.

Reilly, you may begin..

Thanks, Katy. And welcome, all, to Lamar's Q1 earnings call. As I mentioned in the release, the tone of business is improving. Pacings for Q2 are stronger than Q1 results. I would describe our expectations for Q2 acquisition-adjusted growth as up 2-ish. In addition, we expect expense growth to moderate to more customary levels as the year progresses.

We also expect maintenance CapEx to come in at plus or minus $40 million. We are consequently maintaining our previous guidance for 2017 AFFO per share. Keith will give you more detail on the unusual Q1 expense items and the timing of maintenance CapEx that affected Q1 AFFO, after which I will touch on the usual operating metrics followed by Q&A.

Keith?.

Thanks, Sean. Good morning, everybody. There were a couple of expenses in the first quarter of 2017 that were not in Q1 that contributed to our expense growth in the quarter. I'll just walk through them briefly. First of all, legal fees at corporate were up $600,000 over last year's first quarter.

On our airport division, the revenue sharing increased $800,000 in Q1 over Q1 of last year. And we had an increase in workmen's comp claims of $1.1 million that we did not have last year. Workmen's comp, of course, is, at times, the luck of the draw, accidents happen.

And as much as we try to control that through our safety program, sometimes bad things happen. Anyway, that's kind of a recap on the expenses. Maintenance CapEx, you saw, we came in at about $9.5 million versus $6.5 million last year. Maintenance CapEx, as it is growth CapEx, is a timing thing.

It doesn't mean that we're on track to spend more this year than last year because we were up approximately $3 million in the first quarter. $1 million of that was IT hardware that we had planned for. That was spent in the first quarter. It was equipment that we needed to replace old equipment in our IT shop.

So that was a one-time expense that won't be reoccurring. But as Sean said, we're looking at a run rate of $40 million for the year.

Sean?.

Great. Thanks, Keith. Hitting a couple of the operating metrics. Digital same-board revenue increased 1% in Q1 of 2017 over Q1 of 2016. Our national, local sales mix in Q1 of 2017 was, we were 79% local, 21% national. And as we mentioned on our call three months ago, our national was actually a little stronger in Q1.

Q1 national was up approximately 5%, local was down approximately 1%. And again, as we said three months ago, we don't expect the year to play out that way. Looking forward through the end of the year, it looks like local and national should make roughly equal contributions to our pro forma growth by the time we close out the year.

I'm going to spend a little more time on the verticals just because that kind of color seems to be of interest, given the way ad spend is playing out so far in 2017. Our largest category of business is service. That was up 10% in Q1 this year over last year. Healthcare was down 5% Q1 this year under Q1 of last year. A little color on that.

We continue to believe that the political uncertainty around the ACA is causing our healthcare customers to be a little bit cautious in their ad spend. Retail was up 3% in Q1. Amusement, entertainment and sports was up 11% in Q1. Automotive was down 1% in Q1. Education, another vertical that has struggled of late, was down 9% in Q1.

And telecom, which represents 3% of our business, it's last of our top 10 verticals, was up 23% in Q1. That, again, was a little bit of an anomaly in timing and probably resulted in that outperformance for us in national. So, with that color on the verticals, Katy, let's open it up for questions..

Thank you, sir. Our first question will come from Marci Ryvicker from Wells Fargo..

Sean, you have completely different trends in national than pretty much anyone we've heard so far. So can you just talk about what's driving national? I realize that it's a small part of the business, but it's the reason why you're up.

And then, the second question I have is, you keep sharing about a little more confidence in the second half of the year in terms of the ad trends. What's your visibility into the second half of the year at this point, without giving us official guidance? Does it seem to be accelerating? Thanks..

Sure. So, yeah, we look a little bit different than our counterparts, Clear and Outfront. And in visiting with John Miller, our Head of National Sales, about where ours came from, it pretty much confirms what they are seeing in the top five DMAs. We're down, for example, in Chicago and New York, but we're up in national and middle markets.

So I think it's an anomaly, driven by where national clients are putting their business. They're buying a little deeper, and they're bypassing some of the major metros. In terms of verticals, it was pretty clear. Telecom was a major part of that. So, Verizon and AT&T were spending pretty big, again, in those DMAs 10 through 75, let's call it.

I think we also got a lift in those same DMAs from beverage. Coca-Cola came in pretty good for us. On the downside, we took a little hit in the beer category. But when you added it all up, I think it was a function of where they were buying, where they were putting their ad spend, not so much a function of how much they were spending.

As we look at the back half of the year and what remains to be sold through 2017, let me sort of relate it to our AFFO guidance, because what we're assuming are not really heroic things. For us to hit the bottom of our AFFO range, we need to have pro forma revenue growth of 2%-and-some-change, by the time we close out 2017.

We need to make sure expenses don't get away from us. We need expense growth in that same range of 2%-and-some-change. And then, we need maintenance CapEx to come in at plus or minus $40 million. And that's sort of the simple recipe to get us to our guidance. And those things appear to us, at all the data points we're looking at, to be doable.

So we're cautiously maintaining our guidance and we think that 2017 is still intact..

Can I just ask one follow-up? Are you taking share in your market from any other media?.

I believe we are. It's not big numbers, Marci. I think you can look at what's going on with other media and the numbers they're reporting. And clearly, they're losing share. Most of that is going to the Googles and Facebooks of the world.

But because we're growing in the face of a shrinking ad pie for traditional media, by definition, we're taking a little bit of share..

Thank you..

Thank you. Our next question comes from David Miller of Loop Capital Markets..

Yeah. Hey, guys. Sean, nice to see you guys maintain your guidance. Just wanted to ask about acquisitions for a second. The balance sheet looks like it's just in absolutely perfect shape. Net debt-to-EBITDA can't really be any more perfect than it already is.

It feels to me like you guys have integrated the Clear Channel acquisition from, not this past January, but the January prior, pretty well. How do you feel about tuck-in deals going forward, just given that the balance sheet looks like there's capacity to do deals? Thanks a lot..

Yeah. Thanks, David. I think, on the tuck-in acquisition front, this is going to kind of be a steady-as-she-goes here. As you know, when you take a look at our free cash flow after everything, after all CapEx, after interest, after the distribution, we have a little more than $100 million left over at the end of the day..

Yes..

It feels to us like that's about what we'll deploy this year, absent something bigger coming up. Just kind of feels like a sort of steady-as-she-goes tuck-in year for 2017..

Okay, wonderful. Thank you very much..

Yeah..

Thank you. Our next question comes from Jason Bazinet from Citi..

I just had a broader question on your national/local mix.

Is that more a function of just the location of your facings? Or is it a particular way you sort of array your sales force to go after sort of easier dollars in the local market?.

Yeah. Thanks, Jason. It's the former. I mean, if you look at our footprint, 80% of our sales come from markets that are outside the top 20 DMAs..

Yeah..

And in the world of middle-market media, in general, and middle-market outdoor in particular, the sales mix in places like Baton Rouge and Tallahassee and Little Rock, and places that look and sound like that tends to be in that sort of 85%, 15% range; 15% nationally, 85% local.

And consequently, we do have a much larger local sales force than our colleagues. We've got about 960 account executives that touch those local customers every day. So I would say it's mostly a function of where we are and somewhat a function of our sales tactics and very large local sales force..

That's helpful. Thank you..

Yeah..

Thank you. Our next question comes from Ben Swinburne of Morgan Stanley..

Hi. Good morning. This is Maria Ripps on for Ben. Sean, any color you could share with us on pricing versus occupancy? Yesterday, your competitor called out lower occupancy as a driver of weakness. I wonder if you could comment on what you're seeing on your side. Thank you..

Well, the first quarter went great. So being up 1.3%, you're slicing it pretty thin on what drove that. I would say, as a general comment, that today Lamar's platform is at normalized occupancy. And historically, normalized occupancy for our bulletin product, which is our largest product, is around low-80s percent occupancy on an annualized basis.

And for our poster product, it's sort of low 70s annualized occupancy, and we're there. So anything we're picking up now to us feels like driving rates. And so I would say, it's coming from rate. And to the extent we're able to hit our goals for 2017, it's going to have to come from rate..

Thank you..

At this time, I am showing no further questions in the queue. I would now like to turn the call back over to Sean Riley for closing remarks..

Well, thank you all for listening in. We look forward to visiting with you in three months' time to talk about how the second quarter went. Thanks again..

Thank you. Ladies and gentlemen, this concludes today's conference. You may now disconnect..