Good evening, everyone. [Operator Instructions] Excuse me, everyone. we now have Sean Reilly and Jay Johnson 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, plans and objectives, including with respect to the amount and timing of any distributions to stockholders and the impacts and effects of general economic conditions, including inflationary pressures on 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 could cause actual results to differ materially from those discussed in this call in the company's third quarter 2022 earnings release, and its most recent annual report on Form 10-K. Lamar refers you to those documents.

Lamar's third quarter 2022 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..

Thanks, Todd. Good morning, and Welcome to Lamar's Q3 2022 Earnings Call. As you saw in the release, our third quarter unfolded largely as expected against a strong Q3 2021 comp. We had positive results across most revenue metrics, except one. I will get into the details around that a little later.

As I mentioned in the release, the headline pro forma sales growth number for Q3 came in at plus 6%, with local revenue showing significant relative strength over National. On the expense side, costs continue to normalize as we move through Q4. Expense growth remained a bit elevated in Q3 for reasons we highlighted on calls earlier this year.

However, adjusted for extraordinary corporate initiatives, expense growth and operating margins came in as expected. Moreover, we project to end the year with consolidated EBITDA margins around the same 46% margins we achieved in 2021. As a result, we remain on track to hit the high end of our full year AFFO per share guidance.

In addition, we will be recommending to our Board a $0.30 per share special dividend on top of our regular quarterly dividend to be paid in December. This will bring our full year 2022 distribution to $5 per share, and we anticipate that, that $1.25 will be our new quarterly run rate for distributions in 2023.

Returning to the third quarter, sales grew across all business lines and geographies, driven primarily by rate. Traditional poster and bulletin pricing was up mid to high single digits this Q3 over Q3 2021. Categories showing particular strength in Q3 included services, education, restaurants, auto and amusements and entertainment.

Political also remains a tailwind for us and will reach record levels in 2022. And addressing our Q3 growth without political, ex-political, our Q3 revenue growth was 5.5%. Notably, our ex-political pro forma sales growth for the month of October recently completed was also 5.5%.

With political, pro forma sales growth for October was 7.6%, getting us off to a good start to Q4. One revenue generator, which was disappointing in Q3, was our programmatic channel. Last year, we generated about $30 million in programmatic sales. This year, we believe it will contribute about $27 million or 10% less.

So clearly, programmatic is underperforming. We remain confident in the long-term promise of programmatic. However, in the meantime, because our programmatic channel feeds our national sales and our overall digital platform, it had an impact on our national sales metrics and our same-board digital metrics.

Excluding the impact of programmatic, national sales grew 1.4% in Q3 and same-board digital grew 3.5%. Finally, we remain very active on the M&A front with completed deals to date of around $300 million and pending transactions, which should take us north of $400 million for the year.

You can expect us to remain a buyer in 2023 as we take advantage of a balance sheet that is the strongest in the industry and positions us well for whatever is over the horizon. With that, I will turn it over to Jay..

Thanks, Sean. Good morning, everyone, and thank you for joining us. I will begin with brief comments on the quarter, then review our balance sheet and conclude with a discussion of our current financial position and dividend strategy.

We have a solid quarter and are pleased with quarterly results, which exceeded consensus estimates across revenue, adjusted EBITDA and AFFO. The company achieved AFFO growth for the eighth consecutive quarter, improving 6.8% to $2.03 per share on a fully diluted basis.

Based on the outlook for the remainder of the year, this morning, we reaffirmed FFO guidance, and as Sean mentioned, we are tracking to the high end of the range. In the third quarter, acquisition-adjusted revenue increased 6% from the same period last year.

Acquisition-adjusted operating expenses increased 6.3% in the third quarter, driven primarily by variable expenses tied to revenue. As expected, expense growth continued to decelerate in the quarter with comparison against more normal operations not impacted by COVID.

Despite pressure on the expense side, the company maintained a strong adjusted EBITDA margin of 47.6%, which continues to lead the out-of-home industry. Our sales team has done a good job managing rates across our portfolio.

Rates on our large format traditional bulletins increased by almost 8% in Q3, following rate increases of over 9% during the first half of the year. In addition, our outdoor portfolio remains at historically high occupancy. Adjusted EBITDA for the quarter was $251.2 million compared to $230.7 million in 2021, which was an increase of 8.9%.

On an acquisition-adjusted basis, the increase was 5.7%. Free cash flow in the quarter also improved, increasing approximately 130 basis points over the same period last year. Local and regional sales accounted for 77% of billboard revenue in the third quarter.

While we experienced acceleration in both local and national business for the sixth consecutive quarter, overall growth decelerated given the comparison to more normal operations year-over-year. Our local and regional sales grew 6.4% versus last year.

The national business, including programmatic, increased 30 basis points against a strong comp in Q3 2021 when national sales grew by 40%.

Our portfolio's continued growth amid an uncertain economic environment demonstrates the resilience of our business and the benefits of our operating model with a portfolio heavily concentrated in billboards and focused on local markets.

On the capital expenditure front, total spend for the quarter was $41 million, including approximately $13 million of maintenance CapEx. For the first 9 months of the year, CapEx totaled $116.8 million, $44.7 million of which was maintenance. We anticipate total CapEx for the full year of $170 million with maintenance CapEx comprising $65 million.

Given the strength of our balance sheet with low leverage and ample liquidity, we're experiencing another active year on the acquisition front. The company closed $53.6 million of acquisitions in the quarter, adding almost 500 advertising displays.

Acquisitions through September 30 totaled approximately $288 million, with over 4,300 new displays added to the portfolio. Our acquisition pipeline remains robust, and we are on pace to exceed last year's total. Turning to our balance sheet. We are pleased with the company's capital structure and are well positioned going forward.

A strong balance sheet remains core to our operating strategy and serves as a competitive advantage in today's economic environment. With our intense focus on the company's capital structure, we are well positioned to take advantage of opportunities in the M&A market.

As you may recall, in July, we continue to work on our balance sheet and improve liquidity with a $350 million Term Loan A to support our acquisition strategy.

We have a well-laddered debt maturity schedule with no maturities until the revolving credit facility and Term Loan A in February 2025, followed by the AR securitization in July of the same year, and we have no bond maturities until 2028.

Based on debt outstanding at quarter end, our weighted average interest rate was 4.25%, with a weighted average debt maturity of 5.7 years. At the end of the quarter, we had approximately $857 million in total liquidity. Our revolving credit facility was undrawn with availability of $739 million.

We had $79 million of cash on hand and the AR securitization had $39 million available. Subsequent to quarter end, we repaid $75 million of the balance outstanding on the AR securitization and the current balance is $125 million. Our revolving credit facility remains undrawn.

Pro forma for the subsequent paydowns, 66% of our debt carries a fixed interest rate. Since December 2019, we have increased our fixed to floating rate mix by 20 percentage points to mitigate interest rate risk as we recapitalize the balance sheet.

We feel this is an adequate level of fixed versus floating in a sector highly correlated to changes in short-term rates. Despite the rise in interest rates recently and as a reminder of the progress achieved on the balance sheet, projected cash interest this year is approximately $120 million, which is $30 million lower than for the full year 2019.

As defined under our credit facility, we ended the quarter with total leverage of 3.19x net debt to EBITDA, which remains amongst the lowest in the history of the company.

Our secured debt leverage was 0.95x at quarter end, and we're comfortably in compliance with both our total debt incurrence and secured debt maintenance test against covenants of 7x and 4.5x, respectively. Now moving to our dividend.

Through the third quarter of this year, we have paid a cash dividend to shareholders, totaling $3.50 per share, $1.10 in Q1 with a 9% increase to $1.20 in the second quarter, and we paid $1.20 in Q3 as well. As Sean mentioned, we plan to recommend another quarterly dividend of $1.20 per share for the fourth quarter.

The proposed special dividend at year-end is in line with our dividend policy to distribute 100% of our taxable income and consistent with last year's strategy.

If the Board approves both the quarterly distribution as well as the special dividend, Lamar's full year distribution will increase 25% over the company's dividend paid in 2021 and represents a yield of 5.6% based on yesterday's closing stock price.

Again, we are pleased with this quarter's performance and our projection to finish the year at the high end of the guidance range. Our balance sheet is strong, and we maintain excellent access to both the debt and equity capital markets. A strong balance sheet is core to our operating strategy and serves as a significant competitive advantage.

With our intense focus on the company's capital structure, Lamar remains well positioned to take advantage of opportunities as they arise.

Sean?.

Thanks, Jay. Now I'm going to cover a few of the data points that you all are familiar with that we usually cover on the call. Pro forma growth by outdoor region. The regions showing the greatest relative strength include the Gulf Coast region in the Southwest region.

The reason showing the least relative strength was the Northeast region, which is our region, which is most reliant on national business. Turning to digital. In Q3, digital revenues accounted for 29.1% of outdoor revenues. This compares to Q3 of 2021, where digital contributed 28.4% to our total revenue mix.

We ended the quarter with 4,285 digital units, an increase of 130 over Q2. That was a combination of acquisition and newbuilds. Newbuilds year-to-date totaled 202, again, with 88 of those newbuilds falling into Q3. I mentioned the same board performance. Same unit increase with programmatic was 2.5%. Without programmatic, it was 3.5%.

So you can see where the programmatic underperformance cost us about 1 point our digital platform. Turning to local versus national. Jay hit on this. Our local business grew 6.4% in Q3. National/programmatic grew 0.3%. Again, excluding the impact of programmatic, national grew 1.4%. Turning to categories of business.

As I mentioned, relative strength service grew 14.3%, restaurants grew 8.5%, retail grew 6.3%, automotive grew 8.1% and amusement and entertainment continues to recover and grew 23% in Q3. Education also grew 20% in Q3. The one vertical of note that was down was gaming, which was down 7%. The bulk of that was gaming apps.

They were down about $3 million in Q3. And notably, that hit national sales, costing national sales about 2.8% of growth in Q3. With that, we can open it up for questions..

[Operator Instructions] We'll take our first question from Cameron McVay of Morgan Stanley..

I had a couple. Is the increase in rate, is that largely inflation driven? Or what the contribution from higher demand among advertisers and the share shift from other mediums? Curious if you know what the contribution is between the two? And then I have a follow-up as well..

Sure. Thanks, Cameron. We are at peak occupancy. So demand is very high for -- particularly for our premium units. So I would say, it's #1 demand driven. And then number two, historically, we're coming off a decade of very, very low inflation and more importantly, inflation expectations.

So our team was out there getting increases in the 2s and 3% sort of reflective of GDP. And then as we turn the corner into the back half of last year and into this year, that all changed.

And there was an expectation that, number one, everybody had an inflation expectation; and number two, we started asking for significantly more rate increases to reflect that. So it's a combination of real strong demand and our willingness to ask after a decade of really not asking..

Got it. Yes, that makes sense. All right. And then secondly, how is your visibility into advertiser demand looking across both [indiscernible] and digital.

Curious how far that usually extends and if that has changed at all from earlier in the year or prior years?.

So we look at the same metrics, Cameron, that we always look at, and it's a combination of what we can see in our forward bookings. And those projections remain strong. In fact, we're pleased with what we're seeing the book due in 2023 as we sit today.

And it also is a function of touching base with the field and seeing what they're hearing and seeing and feeling. So it's a combination of those 2 things. Some of it is data driven, and some of it is experience, but we've been doing this a long time. So we feel good about visibility we've got certainly to end the year and as we peer into 2023..

[Operator Instructions] We'll take our next question from Richard Choe of JPMorgan..

Great. I wanted to ask about the political revenue. Did you see it crowding out any normal revenue in October? And will it kind of continue into November? And how far, given the election timing, is it just a small contribution? Or is it for more of the month than we expect? And then I have a few follow-ups..

Sure. So there's going to be a little bit of crowding out. I mean, obviously, we have a limited amount of space. So if it's being occupied by political, that means somebody else isn't up there.

But I was pleased when we ran the numbers on how we performed ex-political at 5.5%, that tells me that we held our own with our core verticals and that there's not that much of a huge lift that is purely a political contribution. But your point is well taken.

If somebody is up there in October and it's a political ad, then that means somebody else wasn't able to get that space. Regarding how it goes forward through the Q, our biggest month political is October. That's now behind us. I gave you those metrics. And so you'll see political tail off pretty significantly as we move through the quarter..

Great.

And I guess to follow up on what verticals do you expect to ramp up in November and beyond? And then in terms of the national, is that just driven by the gambling weakness? Or is there something else that you're seeing there?.

So if you look at where national seemed to tilt in Q3 -- I mentioned the impact of programmatic, and I mentioned the impact of the gaming apps, every other one of our verticals was strong and came in where we expected.

There is, I think, a little bit of a differential between the largest DMAs, New York, L.A., Chicago, Atlanta, where our experience was national, was a little bit stronger on a relative basis. And the weakness in our book seemed to have been those middle-sized markets for one reason or another. National tailed off a little bit.

So I think it's a combination of those 3 factors. And that's kind of -- that's what -- what we're seeing as we look into November and December, right now, where we sit, it looks like it's going to be a pretty decent holiday season. We're not seeing anything that suggests anything other than sort of mid-single-digit performance..

Got it. And then final one for me. In terms of the overall business, it seems like this 5.5%, 6% organic rate seems solid, and then M&A remains strong.

Are you seeing pricing changes on M&A that you think we will end up doing more or less deals going forward?.

So we're going to finish the year. If things play out in November as we expect, we'll finish the year somewhere north of $400 million in acquisitions this year. That's a very active year.

Pricing at the beginning of the year, I would say, was -- in terms of asset values, was a little bit higher than what we're seeing now, and we plan to take advantage of that environment. And going into next year, it looks like the acquisition pipeline looks strong as well.

I don't see next year coming in at north of $400 million like it will this year, but we plan on remaining very active..

It appears we have no further questions at this time. I would now like to turn the call back to Sean Reilly for any additional or closing remarks..

Thank you, Todd, and thank you, everybody, for listening to our call this quarter. We look forward to finishing the year strong and visiting with you all come February of 2023..

This concludes today's call. Thank you for your participation. You may disconnect at any time..