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

Marci L. Ryvicker - Wells Fargo Securities LLC.

This is a recording of the Tiffany Wall Conference with Lamar Advertising on February 27, 2018 at 8 AM Central Time. Excuse me, everyone, we now have Mr. Sean Reilly and Mr. Keith Istre at 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.

In the course of this discussion, Lamar may make future – I'm sorry, 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 distribution 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 fourth 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 fourth 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, at www.lamar.com. I would now like to turn the conference over to Mr. Sean Reilly. Mr.

Reilly, you may begin, sir..

Thank you, David. Good morning and welcome to Lamar's 2017 Q4 and year-end earnings call. As we close the book on 2017, I think it's fair to say we underachieved on top-line growth, but it's also fair to say, we did an outstanding job managing expenses.

So, net-net, we exceeded our guidance on AFFO per share for the year, and beat on most metrics for Q4. Looking forward to 2018, our AFFO per share guidance calls for $5.15 to $5.30 per share. This range implies approximately 2% pro forma revenue growth. The back-half of the year will be stronger as political ad spend kicks in.

Puerto Rico is a still a slight drag on our Q1 pro forma growth, which we expect to come in at about 1% unadjusted, but for Puerto Rico it would be a few bps better. Other components of AFFO, interest expense, maintenance CapEx and tax leakage should all come in as expected. Keith will cover that in more detail.

Keith?.

Well, good morning, everyone. As Sean mentioned Puerto Rico, we said on the last call we were going to give you the organic metrics with and without Puerto Rico for the quarter, and on the front of the press release, the second set of bullet points you see what those metrics were.

On page 7 of the press release, where we have our standard adjusted revenue and EBITDA calculations, there is two calculations, one including Puerto Rico and one without, to show you the extent of the amount of revenue that they – and the expenses and EBITDA that they had achieved last year, versus this year in the fourth quarter.

After the storm, they were basically out of business for the full quarter. For the full fiscal year, including Puerto Rico, it was a 1% year; 1% organic growth on the top, 1% organic expense growth and 1% organic EBITDA growth.

The fourth quarter was somewhat highlighted by the fact that consolidated expenses actually decreased 0.4%, so that was a very pleasant surprise. Under the Recent Events section, you see we intend to redeem our 5.875% high yield Notes, due 2022, in the total amount of $500 million.

We've called those Notes, there's a call waiting period of 30 days; we intend to fund the redemption through borrowings from the establishment of a new Term Loan B facility in the amount of $600 million. The redemption will take place on March 19 of this year.

Of the $600 million, $500 million will be used to redeem the Notes, the other $100 million will go to pay down our revolving credit facility, which currently is outstanding at about – approximately $200 million. Just to touch on a couple of other metrics in 2017.

Our total CapEx was $109 million; $43 million was maintenance CapEx, which is where we had guided during the year. The dividends for 2017 were $325 million, and free cash flow after dividends was $105 million. To touch on some of those same metrics for 2018, our total projected CapEx is $113 million, of that $47 million is for maintenance CapEx.

Our projected cash taxes at the TRS is $11 million. Our projected dividends for 2018 is $360 million. That's due to the 10% increase that the Board of Directors has approved for 2018. And as you'll recall, since we became a REIT in 2014, every year since then, as promised, the company has increased its dividend payout by 10% to the shareholders.

Free cash flow, after dividends, will be basically the same as it was in 2017. In addition, due to the new Tax Reform Act, we are repatriating $22 million back to the U.S. from Canada. That's been locked up there and we've been unable to bring that back into the U.S.; so that will happen this week also.

Lastly, our total debt as of 12/31 – debt to EBITDA, I'm sorry, was 3.6 times. So we still live in the same band that we promised 3 times to 4 times debt to EBITDA.

Sean?.

Great. Thanks, Keith. I'll touch on a few operating stats, and then we'll open it up for questions. On our digital deployment, we ended the year with 2,884 digitals in the air; this was a net add of 309. 170 of those were acquired last year, and 140 were either greenfield or conversion of our existing static inventory.

Our same unit digital revenue in Q4 was all of 2017, basically the same as the rest of our platform. Local/national Q4 our sales mix was 77% local, 23% national. In terms of growth, keeping in mind that political skews this a little bit, because political is coded local, local was down around 1.5% and national was up 6% for Q4.

Again, we think that, that trend will reverse itself this year, again, as political kicks in in the back-half and the political is coded local. Verticals; strong verticals, service once again was very strong, it was up 16%; amusements, entertainment and sports was up 9%; telecom was up 9%, all very strong.

Weaker verticals included auto, down mid-single-digits, and gambling, which was down 10%. The gaming vertical was affected by the Las Vegas shooting, when we got several cancellations related to adverse publicity around the shooting. With that, David, you can open it up for questions..

Ladies and gentlemen, at this time, the floor is now open for your questions. Our first question comes from Marci Ryvicker with Wells Fargo..

Thanks. I have a couple. The first, I just want to clarify your Q1 commentary.

You talked about Q1 being up 1% unadjusted, but then if you exclude Puerto Rico, it's a couple of basis points higher; are you suggesting that the Q1 pace would be up 3%?.

No, no, no, no, no..

Okay..

A couple of points, decimal points, percentage points..

Okay, that makes more sense..

You know, 1.3-ish, 1.4-ish..

Okay..

It's hard to project the recovery there, Marci. The electricity isn't on everywhere, we still have some digitals that we can't fire up, but we're getting there as fast as we can..

Okay.

And then if revenue comes in lighter again this year, not that we hope for that, but if it does, how much more leverage do you have in expenses? Meaning, is that plus 1% as on 2017 sustainable in this type of anemic revenue environment?.

Our guidance, we feel pretty good about. The range, as I mentioned, implies about 2%, a little less on the bottom end of the range, a little more on the top end of the range.

There are some expenses in our business model that rise and fall with revenues, things like sales commissions to a lesser degree, lease revenue shares and also management bonuses. If we don't hit our goals, then the management team doesn't take home as much in bonuses.

So, those are the key drivers of variable expenses and they do kind of go up and down, depending on where we come in on the top..

Okay.

And then my last question, in terms of M&A, there's a lot of noise on iHeart and what they do, there's been some noise about Regency possibly being in the market; can you comment on your appetite for assets, is this going to be more of another tuck-in year for Lamar?.

We'll see, Marci, if they're really good high-quality assets, we'll be there. So, with that sort of a stay-tuned, last year was a very aggressive tuck-in year for us, and those assets I think have set us up for a good 2018. So we'll just see how it develops there.

I suspect that you are right, that there is going to be a lot of activity in the next 12 months to 18 months to 24 months..

Thank you very much..

Our next question comes from Alexia Quadrani with JPMorgan..

Hi. This is (00:12:23) here on for Alexia Quadrani. I got a couple of questions here. First, I mean, historically we know that political hasn't really been much of a contributor, but it seems like it's becoming more meaningful, especially over the past couple of years here.

Just curious your thoughts on, on how much political revenue you guys expect to benefit from this year..

Sure. So, political became a larger part of our life in 2014; I think largely after the Citizens United decision there was a whole lot of PAC money and the like, that flooded into campaigns. Traditionally, Lamar had sort of ratable political revenues spread throughout the year, and it didn't matter whether it was an odd or an even year.

Again, that changed in 2014, changed even more in 2016, which was a presidential. Assuming that 2018 behaves like 2014 or even 2016, we expect something in the neighborhood of $8 million to come in, maybe $9 million, and most of that comes in in the back half..

Got it. Thanks.

And then also, I mean, how confident are you guys in your digital billboard conversion outlook for the year? I mean, have you been seeing some stronger demand, I guess, for the digital billboards in general, and do you think advertisers are allocating more of the digital dollars to outdoor, given the increase in scale?.

Yeah. Last year notwithstanding, in general, we tend to have same-board revenues growing slightly faster than the overall platform. And then, of course, if you look at the platform with added incremental capacity, it grows much faster than our overall platform.

I would expect that this year, in terms of organic development and conversions by Lamar, it'll look substantially like last year, something in the 150 range, in terms of new organic digital build-out..

Great. Thanks, guys..

And at this time, we have no other questions in the queue. So, I'll turn it back to Mr. Reilly for closing comments..

Great. Thanks, everybody, and we look forward to talking again in May..

Ladies and gentlemen, that concludes this morning's presentation. You may disconnect your phone lines, and thank you for joining us this morning..