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

Marci L. Ryvicker - Wells Fargo Securities LLC Alexia S. Quadrani - JPMorgan Securities LLC Eric O. Handler - MKM Partners LLC Benjamin Daniel Swinburne - Morgan Stanley & Co. LLC Jason Boisvert Bazinet - Citigroup Global Markets, Inc. Drew Borst - Goldman Sachs & Co. LLC.

Excuse me, everyone. We now have Sean Reilly and Mr. 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.

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 2018 earnings release, and its most recent annual report on Form 10-K, as updated or supplemented by its quarterly reports on Form 10-Q and current reports on Form 8-K.

Lamar refers you to those documents. Lamar's first quarter 2018 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 conference over to Sean Reilly. Mr. Reilly, you may begin..

Thank you, Shontelle. Good morning, everyone, and welcome to Lamar's Q1 2018 earnings call. I have several things to mention this morning, but first and foremost, we are seeing a nice acceleration in our pro forma top-line growth. Q1 came in at up 1.1%, up 1.3% excluding Puerto Rico. Now, we are seeing approximately 2.5% pro forma growth for Q2.

Speaking of Puerto Rico, we sold our assets there last month, so it will no longer be a drag on our pro forma top-line or bottom-line performance. Thanks to outstanding expense control, we handily beat on AFFO per share in Q1 and we are tracking at the top of our full-year AFFO per share guidance. We have two balance sheet items of note.

Number one, last quarter, we refinanced $500 million of our high yield notes due 2022. In that process, in addition to considerable interest savings, Lamar earned its first-ever investment grade rating on our senior indebtedness. Number two, last night, we instituted an at-the-market equity offering program.

ATMs are very common for REIT, especially those that complete multiple small and mid-sized acquisitions like us.

We are seeing a robust acquisition pipeline over the next 12 months to 24 months, and this ATM gives us another tool in the toolbox, in addition to the credit markets, to finance the many accretive acquisition opportunities we believe will be coming our way.

Again, it is not our intention to use the ATM unless and until that is coupled with accretive acquisition.

Keith?.

Hey, good morning, everybody. Just a couple of notes and color on a couple of the metrics in the press release. Number one, the consolidated acquisition adjusted expenses declined 1.1% as you saw in the first bullet point under the first quarter highlights. Just to give you some color on how that came about.

Number one, our lease expense, which was the rent that we paid to our landlords, was flat. That expense is our largest expense and last year, it was approximately $270 million. So that was very helpful. Our health and workman's comp insurance was down $1.5 million.

Our illumination and direct labor was down $600,000 and that was at the operating company level. At corporate, our expenses were down approximately $1 million and that was due to extraordinary legal fees that we had in last year's first quarter. But as you know, we generally run pretty lean on expense growth from quarter to quarter.

Because of that savings, the EBITDA, acquisition adjusted EBITDA grew approximately 5% and that propelled the AFFO and AFFO per share to grow slightly in excess of 11%, which was a very nice surprise and that means we're off to a very strong start with that metric.

To touch on maintenance CapEx for the first quarter, it is tracking behind our budgeted maintenance CapEx for the full year of 2018, which was $47 million. This is just a seasonal timing difference. So don't annualize Q1 to estimate the full year. We are expecting maintenance CapEx to come in at about $47 million.

And just to touch on what Sean mentioned about the refinancing, because of that exchange redemption, the company should save approximately $7 million to $8 million this year in cash interest.

Sean?.

Great. Thanks, Keith. Let me hit a couple of operating metrics that we usually touch on. First, digital deployment and digital units in the air. We ended the quarter with 2,902 digital units. That includes Puerto Rico, because we closed that deal after the end of the quarter, so subtract 54 units from that total.

We built 24 during the quarter, a real good sign. Our same-board digital unit revenue growth was 3.2% in Q1. We again view that as a strong performance and we intend to ramp up our digital deployment this year to a number north of 200 new units. So, look for us to up the pace a little bit on our digital deployment.

Regarding local/national revenue growth, local and national both up a little north of 1%, with local being slightly stronger. We're happy to see that. As you know, national had been dwarfing local of late and we're glad to see local recovering slightly, and we think that trend is going to continue through the course of 2018.

On verticals, we saw a lot of strength in service, up 9%. We saw – and this is a good sign – strength in education. That vertical has been challenged the last couple of years. Education was up 5% in Q1. And real estate rejoined our top 10 verticals, was up 4% and now constitutes 3% of our book.

On the negative side, gaming was down 10% and retail was down 2%. With that, Shontelle, let's open it up for questions..

Thank you very much. Ladies and gentlemen, at this time, we would like to open up the floor for questions. Our first question will come from Marci Ryvicker, Wells Fargo..

Thank you. I guess the most important question is how have you accelerated so much from your plus 1% in Q1 to plus 2.5%, it feels like it's a 180. And I guess did Puerto Rico impact this at all? Is there political in here? Any color around the acceleration will be really helpful..

Sure. Thanks, Marci. Yeah, I think obviously the sale of Puerto Rico, it was a small drag, but the – I think the real story is we're just seeing a nice acceleration, political is definitely helping. We came into the year comping to 2014, which was the last mid-term cycle, and our political is tracking through May, 20% to 25% ahead of that cycle.

So we're looking forward to a pretty robust political year and it definitely sets up nicely for the back half..

Do you have an ex-political pace for Q2 that you could provide?.

I don't. I don't. But let us try to figure that out. We'll certainly be able to do it on the call in August..

Okay. And then what worries me a little is the increase in digital units. I totally understand that the same-board digital is up 3.2%, but adding new units, will that cause that to go backwards and maybe become weaker? Because I feel like there's always a supply/demand balance that you need to keep..

That's a good question. As you know, we do this bottom-up, not top-down. So it's really a read in our 200-plus local markets that there's demand there. So again, the local GMs have their finger on the pulse of local demand. They wouldn't be asking for the units, if they didn't think that the demand was there. So we're confident..

Okay.

And then the last question, is the AMT (sic) [ATM], I think you signaled it's for upcoming M&A, I guess, anything imminent, anything – any comment you can make on maybe Clear Channel, if those assets were to come up for sale?.

So really what we're putting this in place for, Marci, is really activity for the next 12 months to 24 months. Recall that last year, we did north of $250 million in these $5 million, $10 million, $50 million tuck-in acquisitions.

And as we look forward, we see a pipeline that looks like that, an annual pipeline that looks like that over the next few years. So given our expressed goal of staying below 4:1 on our leverage, we felt it prudent to put this tool in, so that we can utilize it to execute on those accretive acquisitions that we see coming down the pipe..

Okay. Great. Thank you..

Yeah..

Thank you very much. Our next question will come from Alexia Quadrani, JPMorgan..

Thank you. Just a couple of questions. First on the -following up on Marci's questions on accelerated pacings for Q2, it sounds like it's probably local driven, more than national in terms of the pickup in stronger demand. And then a follow-up question also on M&A. It sounds like there is a robust pipeline and hopefully a lot of activity going on.

I guess any color on what you're interested in and then specifically also, are new entrants potentially coming into the market? I know we saw a headline about Netflix earlier this year.

I guess, do you see the competitive dynamic changing at all?.

Let me hit the pacing questions first. One reason that local is probably going to help us out, as we go through the course of the year, is that political is actually coded local. So, that's going to be a nice tailwind when it comes to our local book of business.

On the acquisition pipeline again, these are multiple small transactions, oftentimes negotiated where we're the only buyer. We see that a lot. And these are a series of $5 million, $10 million, $50 million transactions. So, no one single transaction will stand out.

But, when you add them all up, much like last year, they can add up to a meaningful amount. And they can also be extremely accretive, as you saw in the first quarter, I mean that difference in our as reported performance and our pro-forma performance is clearly due to the acquisition activity..

And then just on, one follow-up also, the sale of Puerto Rico. That sounds like that's a one off.

Are there other assets in your portfolio that you're – where you can see evaluating potential dispositions?.

No, that was definitely a one-off. We weren't looking to do that until as we know that Hurricane Maria hitting the island has – was devastative, and it's just been – it's been a drag on our performance. I hated to do it actually. We love our folks down there. It's been a – it was an outstanding performer for us pre the Great Recession.

We really did extremely well down there. But, the island never really recovered from the Great Recession, and the last straw was Hurricane Maria. We got it behind us, and no, we're not holding anything else for sale..

All right. Thank you very much..

Thank you. Our next question will come from Eric Handler, MKM Partners..

Hi, thank you very much for the question.

Given the growth you're expecting from the digital units this year, wonder if you could sort of go over again, sort of refresh us, what you're seeing now in terms of the revenue ratio between the digital versus the static billboards, and what type of payback or how long is the payback taking for these digital boards now?.

Sure. Great question. At the end of the day, a dollar we spend on digital conversion is quite possibly the best return we get in terms of our growth CapEx. On the larger formats, you can see upwards of 5x, 6x, 7x, more revenue.

Because we do an outstanding job managing the real estate under our digital portfolio, the EBITDA contribution can be very dramatic. On the smaller formats, the numbers aren't as big, but the revenue multiplier can be bigger. You've taken down something that's doing maybe 450 a month and you can expect to do 4,000, 5,000 a month.

So it's on both poster deployments and larger format deployments, we're getting outstanding return. So we're glad to see our same-board digital improvement and growth returning. And again, that gives us confidence to ramp-up our deployment a little bit in 2018..

Great.

And just as a follow-up, what's the cost of a digital upgrade these days?.

Depends on the size. 14' x 48' is around about $100 and -let's call it $60,000, $70,000 (16:27), and posters cost give or take $60,000..

Thank you very much..

Thank you. Our next question will come from Ben Swinburne, Morgan Stanley..

Hey. Good morning, guys.

Sean, could you give us a little more color on maybe the regional performance and sort of where the biggest – where you're seeing the acceleration from Q1 to Q2 the most when you look across your geographies?.

Sure. I'm going to sound a little bit like a broken record, Ben, because when – we've we had the same answer to this question in the last a little bit. So it's a bicoastal phenomenon, the Western region is on fire. In Q1, I can't do it for you for Q2, but for Q1 and the trend is continuing.

The Western region was up 4% and the rest of the company was up 1.1%. Northeast was up 2.4%, again sort of a bicoastal phenomenon. The oil patch is improving, but it's not quite there yet. So our Southwest region Q1 was down 2.8%.

We are seeing in the direct – in the markets that are directly affected by the Permian Basin, sort of West Texas markets, places like Amarillo and Midland-Odessa, they are actually up mid-teens. So we really believe that as the rest of the oil patch recovers, we're going to see a lift in the Southwest..

Great.

And remind me, do you – Las Vegas, is that in your Western region?.

Yes, it is..

Okay.

So that's doing well, it sounds like?.

Yeah, Vegas is doing well, Seattle is killing it, it is knocking it out of the park, and Southern California is doing well..

Yeah. And then, Sean, how do you think about using your equity versus your debt to buy assets.

When you talk about accretive M&A, and I think your cost of debt is pretty straightforward calculation, do you compare that to your dividend yield and look at sort of after-tax yield of your debt versus your equity? And obviously within a leverage range, is that how you think about comparing the cost of your stock to – or new stock to cost of debt.

This would help us think about how you might approach these acquisitions this year given you've put this equity funding mechanism in place..

Sure. That's a great question. And I think you pretty much – I would say all of the above. Certainly, as a REIT, we pay attention to what our distribution yield is when comparing cost of debt to the cost of equity.

These accretion dilution analysis, it's not rocket science, we can do it and we can assure all of you that we're not doing these things if they're not immediately accretive to AFFO per share.

On hypothetical acquisitions, where the cost of debt is now, debt financing is more attractive, but we have a relatively hard stop at 4x on our leverage ratio, especially now that we're investment grade.

So the good news on being investment grade is our cost of debt is ever coming down as we refinance these maturities in the future, but that does require that we – from time-to-time to take advantage of these opportunities we may have to use that ATM..

Yeah. And then if I could just – and maybe for Keith, I think you guys ended with, I don't know, $10 million of cash or something like that in the balance sheet, you've got this term loan.

Is the plan to keep the term loan outstanding or you're going to raise some IG bonds to replace that? And if you do want to pull the trigger on a deal with debt or cash, is there a revolver in place to sort of remind us what you have available sort of tomorrow, if you wanted to buy something without using your stock?.

Yes, we've got a $450 million revolver. As of right now, we've got about $140 million drawn on it.

We have no intention as of right now to – I'm assuming you're talking about refinance – when you're talking about the term debt, you're talking about the Term A or the Term B or both?.

Neither one, I just don't know if you want -- if you guys were planning to keep this much bank debt outstanding, and it sounds like you are..

Yes, at this point in time, I think the sentiment is here. We put it in place, it's brand new, at least in terms of years..

Yes..

And we've got a very good rate on it because we were investment grade.

And I was reading something yesterday that the Feds came out and of course the term debt is floating debt, but I was reading something yesterday that the Feds came out and said that they were not going to pull the trigger on a rate hike at their next meeting, they'll wait and keep things steady. So that's a positive in that regard.

But, there's always that option, I mean high yield is for us still fairly inexpensive based on what our bankers tell me. But as of right now, I think it's in place and the plan is to keep it there..

Thank you..

Thank you. Our next question will come from Jason Bazinet, Citi..

Yes, I just had a question on the potential equity raise.

Why now? I mean when I just look at this sort of one-year chart, you're sort of as high as the -- high-70s and you're sort of now in the sort of mid-60s, what – why I pull the trigger now?.

Well, we're not pulling the trigger now. I mean I think that's the point. We will pull the trigger when we've got a nice backlog of accretive acquisitions to fund. So, we're not just willy-nilly going out there raising equity, because we think we need it..

Understood.

And how long does this last, this window?.

It's a three-year ATM..

Okay..

So, we've got plenty of time to survey the landscape and be opportunistic on the acquisition front..

Perfect, thank you..

Thank you. Our next question will come from Drew Borst, Goldman Sachs..

Great. Thanks for the question. I have a couple if I might. First, I want to try to decipher a little bit the political.

I think if I have the numbers right, is it correct that you are kind of looking for political of maybe $9 million to $10 million of revenue this year?.

I think you're in the right zip code there. In 2014, we did about $7.5 million and that was the nearest mid-term comp we could look to. And again, through May, we're pacing significantly ahead of that. So, I think the arithmetic end up right where you are..

Great, thanks. And then in your prepared remarks, you mention the lease expense being flat in the first quarter.

Could you just elaborate on what was driving that, and is it sustainable for the next couple of quarters, or at least the rest of the year?.

Yes. Drew, that's generally on a year-to-year basis grows with inflation. It has generally been in the 1% acquisition adjusted range for the past several years. Our guys, after the great recession – during the great recession, really focused on that since it's our largest expense.

And they – we have a portfolio of approximately 70,000 of these that mature over various periods of years. So, not only is it managed or focused on and managed well, but we have time on our side because they don't all renew every year.

So, this was in the ballpark, it was a little better than the 1% that we normally experienced, but it was flat for the quarter..

So it does sound like you think it could be closer to flat than plus 1% in the near term..

Yes, based on our history, yes..

Okay. And then last question for Sean. Sean, in the recent past, you've talked to us about the lack of inflation in the U.S. economy being a hindrance to your ability to drive rate and price on your boards, and we have moved into a little bit more of a pro inflation environment.

So I guess I was wondering if you're – if that's helping you start to extract a little bit more rate recently or even going forward?.

I think I'll be able to answer that with a whole lot more confidence when we gather in three months, Drew. The data I have now is Q1 and Q1 was okay, not great, right.

If Q2 comes in where we think it's going to come in, it's going to be my guess that it will be driven by rate, but I can't say that with a great deal of confidence today, we'll have to wait till we get together in August..

Okay. Fair enough. Thanks for the questions..

Yes..

Thank you very much. Speakers, at this time, we have no further questions. So, I would like to turn the call back over to Sean..

Well. Thank you all for listening, and I look forward to getting together again with you all in August on our Q2 call. Thanks..

Thank you very much. Ladies and gentlemen, at this time this conference has now concluded. You may disconnect your phone lines and have a great rest of the week. Thank you..