I'm Jason Bazinet. Very pleased to have Lamar with us here this morning. Mr. Sean Reilly, CEO of the company, Sean, and Jay Johnson, CFO, is here as well. This session is for Citi clients only, and disclosures have been made available at the corporate access desk. To ask a question, you can raise your hand or go to liveqa.com and enter the code GPC26 to submit questions. With that, Sean, I'll just turn it over to you to kick it off for us.
Great. Sure. Thanks for having us. Appreciate it. You can fire away with whatever questions you have.
Well, let me just start with a big one. You know, we're sort of in a... I would characterize it as a pretty unique time in the market, right? Where there's a lot of sort of crosscurrents going on. Macro seems pretty good. What would be the top two or three reasons you would give to investors on why they should buy Lamar over some other security that's out there?
Well, sure. Let me talk to us as a REIT first. You know, even though we're trading close to all-time highs right now, our yield is still pushing almost 5%, and, you know, the average REIT yield is 4%. Our AFFO multiple is around 15 or 16, and the average REIT is around 20. Relative to those metrics, we're still cheap, right? I would argue that our business model is superior to most REITs, so we shouldn't trade at a discount to them.
When you say your business model is superior, I'll tell you what I hear from investors when they call me and say, "Oh, you know, I wanna talk about Lamar." What they're looking for is just pro-cyclical exposure in their REIT portfolio. That's the main inbound I get. If you're a REIT investor and you're sort of defensively positioned, you sort of wanna get cyclicality, you buy Lamar. What would be the other attributes that you say make Lamar superior to those-?
Let me start by quoting Warren Buffett. He likes businesses that have a moat around them. By the way, Berkshire's in us. It's almost impossible to build a new billboard in the United States today, and unlike other real estate asset classes where capacity comes online regularly, our capacity is severely constrained, and that protects, in Lamar's case, dominant market shares in middle and small markets. I mean, we have across 80%+ of our footprint, 80%+ market share, pushing 85%-90%, which puts us in a very unique position, right? Now, the capacity is being added by conversion to digital, right? You take down a static unit, you put up a digital unit, and you instantly have 7 more faces, right?
That said, because of our market shares, we are able to essentially control our destiny when it comes to the digital competition in our footprint.
Can I go back to that?
Yeah
... barriers to entry point? I think, I think what you're referring to, but maybe it's something different, sort of the Highway Beautification Act that
Correct
... restricts new billboards. I always think of, you know, that's technically true, but there are a lot of places where billboard assets sit off the highway, right? Off of a federal interstate infrastructure.
Yeah. We're regulated at three levels.
Okay.
It starts at the federal level, Highway Beautification Act. That's all of your federal aid primary roadways. Then there's a level of state and local, regulation and zoning that is actually more strict.
Interesting.
We operate in, you know, hundreds and hundreds and hundreds of jurisdictions. Most of them have their own sign ordinance that is specific to what they call off-premise signs. You start there. You're subject to the same time, use, manner zoning regs that overlay virtually every municipality. We are subject to state permitting requirements, right? That permit is actually the property right that allows the billboard company to have that physical structure. That permit runs with the billboard company, not the landowner. That's a very important distinction. Anyway, when you combine all those three regulatory regimes, you get a huge moat built around your business.
That's great. What would you say about AI? I mean, this is on the mind of every investor. How does AI impact your firm?
Great question. Of course, we do exist in the real world. We're physical, right? We do words and pictures, and that's what AI does well. It can really only help us, right? It can only make our sales process more efficient, our ops process more efficient, and quite frankly, our business intel that much more powerful actually. You know, we are, as you know, we're in the process of finishing up a massive ERP program that thankfully this is the last year of it. That is in preparation for laying over that new Oracle Salesforce cloud-based platform, laying over it a closed AI system that will enable us to, you know, better mine our data and again, be more intelligent.
That's great. What do you think... I mean, do you have a guess in terms of what... I always measure advertising in the U.S. as a % of personal consumption, as an example. Do you have a guess in terms of what happens to the ad intensity of the economy as AI becomes bigger?
You know, I think there's a lot we don't know about AI and its impact on various businesses. When I think about U.S. domestic ad spend, I tend to look first at the consumer, the Michigan Consumer Index. Then there's lots of prognosticators that guess what a given year's, a coming year's U.S. domestic ad spend's gonna be. Ultimately for us, we're gonna be somewhat tethered to GDP, right? You've heard me say that every year I've been here. Hopefully, if we do our job and we have a good year, we typically can beat GDP, and I'm anticipating that this year.
Any questions from the audience? No? Okay. well, maybe we can just start with just your distillation of maybe recapping 2025. Tell us what you think went well, what didn't go well, if anything, then how you think 2026 might be a little bit different, if at all.
Well, 2025 was one of those years where we missed it a little bit when, you know, when we were in January of last year, and we were setting our budgets and setting expectations for the year. You know, we kinda thought the year was gonna be up three-ish, and it ended up being up two-ish, right? We actually had to sort of tweak our guide, as you know. Interestingly though, we finished way stronger than we thought we would. We had an incredible holiday season. December was up 6% on the top. EBITDA in December was up 13.5%, and that drove about $0.07 of AFFO per share that we kind of didn't know was gonna be there, right? We ended up at the top end of our range for our original guide.
Right.
Which apologize for that little, that miss. You know, that was last year. This year, we've got some tailwinds that were headwinds last year. For example, political last year was a, was a headwind, and this year's gonna be a tailwind. You know, probably to the tune of about a 0.5% of pro forma growth. That's, that's helpful. We also did about $300 million worth of highly accretive acquisitions last year, that are gonna pay off this year in terms of a little shot in the arm for AFFO per share. You know, those integrations have gone exceedingly well. 80%+ of them were fill-ins where, highly predictable exercise, just fold them into existing operations and the magic happens on the bottom when we do that fairly quickly.
Can I just make two comments on what you just said? The first thing is, for those of you that are new to Lamar, the fact that Lamar sort of took their guidance down and then sort of came out ultimately at the high end, I think speaks to the integrity and honesty of this management team because they don't sort of pretend and hope that everything is gonna, you know, be a hockey stick at the end of the year. They just tell you exactly what's happening, which you always do a great job on your conference calls just telling us exactly what's happening, whether it's good or bad. There's not a lot of fluff or spin or anything like that, which is just great.
we've been public for 30 years, so you kinda have to be consistent. You can't cover up 30 years, right? You gotta-
That's fair.
You gotta lay it out just like it is.
The other thing that's just interesting to me is I keep reading about this K-shaped economy and, you know, the market seems very nervous about, you know, the low-end consumer feeling sort of stressed. You can sort of see it in the, I think the polling numbers, right? Where people are very frustrated with the economy in ways that aren't tethered to GDP growth or the S&P 500. Like, there's real pain out there. Yet here you are saying that, you know, the fourth quarter was sort of surprisingly good for you. How would you square, how would you square that or reconcile those two things which feel somewhat contradictory to me?
Well, there's parts of the K-shaped economy that are good for Lamar. The obvious example being when McDonald's, who is our largest customer, decides they wanna promote value meals, they use us, and they came in pretty heavy.
Okay.
Right? That's just an example of how that works. We also had a brand-new vertical buy at scale, right? Pharma came in big, and it was mostly fourth quarter. You know, when we were sitting in August and we did that tweak to our guidance, we didn't have that contract in hand, about a month later, suddenly, you know, we've got a $5 million big pharma buy, which they're continuing, by the way. You know, that is great news for the industry because it's a vertical we've never had before, and I think it's very promising and, again, that's a tailwind for us this year as well.
Would you say that new pharma vertical is a function of some of the changes that happened from a regulatory standpoint as it relates to pharma advertising on television? Or do you think it's sort of unrelated to that, if you had to guess?
The regulation that changed was the FDA said if pharma doesn't say what the drug cures, they don't have to do the disclaimers. Now keep in mind, billboards don't work with paragraphs, right? They were disincented to use us because they'd have to have all this fine print all over the place. Now they don't have to do that, right? They can have the name of the drug, some pretty pictures, the name of the drug company, and then say, "Call your doctor." That's perfect for out-of-home. I mean, it's just absolutely perfect. Now what we do is we geofence the unit, and if a phone that has the right app goes within, drives by that billboard, it gets pinged with the ad that has the disclaimers in it. You get the same ad, but now you get everything else that...
A ton of information, right? Geofencing and that ability has also resulted in pharma really using our medium effectively.
That's great. What about... Can we talk about 2026 and some of the undulations?
Yep
... or things that are embedded in your guide? You mentioned the 50 basis points, I think you said, of political tailwinds. What about the Vancouver exit and the Verde acquisition? Can you talk about those? Also, I think World Cup, I think you said $1 million-$3 million. I think you said that on the call. Maybe I made that number up.
Yeah. That it's actually the high end of that.
Okay.
We've already got a little over $3 million in contracts that are World Cup related, or you know, in and around World Cup venues.
Okay.
Yeah, you've got political as a tailwind. You've got the FIFA World Cup as a nice little piece of business. Vancouver was one of those transit franchises that had a tough recovery coming out of COVID because the audience is actually the people that ride the train. You know, when you look at our other transit businesses, we wrap buses, right? They drive around the DMA, and the audiences are people that are in it, out and about, right? Not necessarily the ridership. Well, Vancouver, it's the ridership, and ridership obviously went way down after COVID. We struggled there. It was a money loser until last year. Last year was also the year we had to rebid it. It went to a Canadian company. You can probably imagine why.
When we lost that franchise, we didn't really weep over that because it was, you know, ±$24 million in billing, but no EBITDA contribution to speak of. Verde, on the other hand, was about the same in terms of billing, but its flow through EBITDA contribution in our hands is about 70%. I'll take that swap any day.
Okay. Neutral to revenue, but positive there was, yeah, was the point.
Yep.
Okay. EBITDA, sorry. What about this part still confuses me? You told me this, but I'm a little bit slow. There was a time when you used to talk about programmatic through the, you know, the digital subset of your business and say, "You know, we're a little bit hesitant about programmatic because by the time you pay all those ad tech fees going through the machine, it can be more than our sales commissions." I think it was like 12 or 18 months ago, you sort of reversed course on that. I'm still confused 'cause I.
Yeah. I.
Maybe I'm wrong that the ad tech... Sorry.
I wouldn't say we've reversed course. Let me walk through the arithmetic.
Okay
... and you can see what I'm talking about. Our overall cost of sales through our traditional channels, you know, let's call it 1,000 account executives, our national account managers that touch big agencies, runs about 6%. Our programmatic channel runs about 10%. That's what we have to pay the tech enablers that do it for us, the Vistars of the world, right? That's still the case.
Okay.
Right? As that channel grows, our cost of sales is gonna tick up. One reason it doesn't concern me as much as when we started is our CPMs are demonstrably higher with programmatic. We're making up for it. If you look at our average CPM across our whole platform, it runs about $3 cost per thousand impressions. We're getting about $7 cost per thousand impressions for a programmatic buy. That's what our customers are willing to pay to go through that channel. Now, why will they pay more? They pay more because they're getting, number one, a much more precise delivery of their ad to a targeted demographic at a moment in time in a place they wanna be. They're taking a rifle shot, if you will, as opposed to a shotgun shot.
Yep.
That's number one. Number two, they also have access to a richer set of data to prove out the efficacy of their buy, and that is paid for in that data fee we pay sometimes, and sometimes it's actually paid for by the customer themselves. They are willing to pay a higher CPM for those two reasons.
That's interesting. Is there any sort of difference between a national... Like when I think of television, I always think of a, in general, local CPMs being higher than national CPMs. Is there any sort of you know, sort of corollary in your business where if you're selling to a national advertiser, the CPM is demonstrably different than a local advertiser? Or is it just a function of just the board and how popular is the board and the traffic that goes by the board? Independent of who their customer is?
Yeah, I don't know that there's a big difference.
Okay.
Now there are varying dynamics, right? Some customers are able to drive a little better rate because they buy in bulk, right?
Mm-hmm.
Think, again, think McDonald's, think Cracker Barrel, you know, they're couple of our larger customers, they use that to drive their CPMs down, right? As you would imagine they would. We have local customers that actually buy smarter than the national customers because they know the inventory a lot better than the national customers. It can work both ways, local and national.
Okay.
It all kinda washes out. I will say this, as you know, we're 80% local, 20% national, or plus or minus during a year, 40,000 or 50,000 local customers touched by about 1,000 account executives. It tends to make us more important in their world. What I mean by that is if you look at market shares and other traditional media, right? We're much more important in their world. We take a much greater share of wallet, locally, obviously, than we do nationally. You know, if you go, you know, to a place like Little Rock, Arkansas, and, you know, talk to Tom Gibbons, who's our GM there, you know, he can tell you what the newspaper pulls, what the TV stations pull, what the radio stations pull.
You know, I'm gonna guess, and it's not even a guess. You know, we're now pulling more than the newspaper out of most of those middle markets. You know, that's a dramatic change from 20, 30 years ago. We're pulling probably more than all the radio stations combined, right? That's a dramatic change. You know, you still have a significant chunk of local dollars going to local network affiliate television, but that's beginning to change, right? When it just comes to garnering share locally, we're in a good place.
That's great. Any questions from the audience? I don't have any on my, on my website. Maybe we can shift to pricing.
Yep.
You can correct me if I'm wrong, but I remember there was this long period of time where pricing was sort of not part of the narrative of Lamar, and then we went through the higher levels of inflation. I think you guys took pricing for a while, and I sort of lost the thread in terms of where pricing is in terms of your overall thinking to hit your long-term AFFO targets. Do you mind just sort of talking about you know, philosophically where we are?
Sure
...on pricing?
Let me go back to the Great Recession.
Okay.
Coming out of the Great Recession and recovering, it was all about occupancy coming out of that, right, at first, and then it became about rate. As everybody recalls, interest rates and inflation were almost nonexistent, right?
Right
...we were in a 2% world, we lived with that until COVID hit, then we had to do it all over again. We had to build occupancy back. One thing we were able to do that was different in COVID, as opposed to the Great Recession, is we didn't have to re-educate our customers on the value proposition. We held the line on rate. We suffered in occupancy during COVID, then we absolutely rocketed out of COVID. Now we still weren't talking a lot about rate because interest rates, again, were very low and inflation was seemingly very low, then boom, '23 hits, right?
You know, I think the take-home here is, particularly for REIT investors, inflation is our friend, very much our friend because our average length of contract runs about six months, that means in an inflationary environment, we get to have a rate discussion every six months. We drove rate double digits during that time of hyperinflation, we had just an incredible year. Where are we now? We are now at a place where interest rates and the expectation of inflation is around a 3% kind of thing. We, at Lamar, are at what I call peak occupancy. The gains you're going to see this year are going to be driven primarily by rate. If we're in a 3% inflationary GDP world, you know, as you know, we got it to somewhere above that, three and a half-ish.
That's our expectation, is to drive to, you know, to that number, and it's gonna be mostly rate.
Okay, that's great. Can I give you my sort of mental framing of rate and occupancy and the dynamics?
Mm-hmm
...and then tell you the one thing that, you know, if we end up having a recession sometime over the next few years, what scares me a smidgen? My sort of narrative is you go into a cyclical soft patch, and the first thing that happens is the utilization rate drops pretty quickly, and then you discount on the rate side to sort of fill up the boards, and then we sort of equilibrate, and then the utilization comes up, and then you begin to take price when we get to the top of the cycle. Rate and occupancy are both quite good.
Let me challenge one of those.
Yeah, sure.
other than the Great Recession.
Okay.
I've managed through several. I hate to admit it, I've been doing this for 30 years. during a garden variety recession-
Yeah
we hold the line on rate.
Okay.
We suffer in occupancy. Occupancy comes back faster. In a garden variety recession, we've never been down in consecutive years and never down more than a smidge.
Okay.
I say that because people do tend to view us as, since we are ad-supported, as more cyclical than we actually are.
Interesting.
Now, you know, the one caveat to that was the Great Recession. We couldn't hold the line on rate during the Great Recession and, you know, everybody was curled up under their desk in the fetal position, so but, the garden variety recession, that's how we manage through it.
Okay. That's great. I remember going back to the GFC, you guys did a phenomenal job in terms of managing your expenses to minimize sort of the impact to AFFO. I mean, I've never seen anything like it in my career, actually. It feels like you run a pretty tight ship sort of day in and day out. I mean, if we end up having something that is something other than a garden variety recession, I mean, do you still feel like you have shock absorbers on the expense side, or it's a lot less than it was, say, pre-GFC?
Yeah. There's a couple of shock absorbers. One is we can prune, for want of a better word, our real estate portfolio. These are the ground leases we have billboards on. We have a stockpile of not great performing financially leases. We keep them for a variety of reasons. We keep them to block out competition. We keep them to use as trade for jurisdictions to allow us to put up digital. We can attack that lease portfolio and drop our costs pretty significantly. You know, obviously, you have sales commissions that flex with sales. You have management bonuses that flex with sales, and bottom line performance.
Yeah, I mean, one stat when we became a REIT, and I was educating the REIT community on our business, actually, during the Great Recession, we could have paid the distribution that we paid the first year we became a REIT. A lot of REITs couldn't say that, right?
That's great. Can I shift gears to the ERP project that you-?
Mm-hmm
... touched on at the very beginning? Can you just sort of step back and just give us a lay of the land in terms of what is this ERP system gonna do? How much have you invested so far? What are the key things that investors should keep an eye on as 2026, 2027 unschool?
Yeah. We're three and a half years into this, and this is the last year, and we will have spent ±$50 million on it. About 40% of that is OpEx, and about 60% is CapEx. This year, again, being the last year, we'll spend about $3 million in OpEx and about $6 million in CapEx, and we'll be done. Phase one was the back-office part of the shop, the CFO functions, if you will. We had old legacy systems that were, you know, 20, 30 years old, built by Lamar, for Lamar, and being held together with, you know, paperclips and bailing wire. We did that first. That was phase one, highly successful. Phase two was the rest of the enterprise, touching virtually every aspect of our business.
Fulfillment, sales cycle, sales process, operations. I mean, you, you name it. The promise is that it'll take... Let's talk about the sales process. It'll take something that looks like this today and maybe has three people involved and 14 people hours to make a nice proposal and get in front of a client, and it'll take it to that, right? Now it might be two people and six hours. What it'll also do is allow us then to create and overlay a closed AI system that will then take the sales process that's here and take it to there, right? Smarter proposals, more proposals, getting in front of more clients, and logic would dictate, you know, from that you get, you know, more business. That's the promise of it.
You know, this session will end in five minutes. In terms of financial benefit, you know, I think conservatively in 2027, you should see, you know, a half a % of expense savings. All right. Let me say that a different way. You should see an uptick of a half a % in our margin, consolidated margins. You know, that's what? $12 million annually. I think it only gets better from there.
One of the things that I've always marvel that, to be candid with you, is when I look at the verticals where you guys have exposure, you know, there will be an area like, I don't know, 2006, I'll say, or seven, and real estate will be a big vertical. Then we'll go into the GFC and it will sort of disappear. Then sort of out of nowhere, a new vertical shows up and sort of backfills real estate. This happens over and over again, where your sales force seems to be able to find the pockets where they can get sort of new clients, new customers, and they're sticky, and they stick around for many years. There could be some event that happens that changes that.
your sales force always comes up with something new. Does this ERP system allow them to do that more quickly? I mean, not that they've done it in a slow way, but is there a response function that will make them more nimble? And if I can just pause, for those of you that are listening to the webcast, when Sean was saying it used to look like this and now it looks like this, he was taking his hands that were maybe 3 ft apart.
Right. Sorry about that.
... and making them one foot apart, so.
Well, yes. I mean, we've I have to remind our investors that customers come and go, verticals come and go. In 1998, cigarettes, tobacco was 24% of our business. That year it was legislated off the billboards. That year we grew. We replaced 24% the same year it disappeared. In the early 2000s, travel and lodging, hotel, motel was 14% of our business. Two things happened. You had the recession generated by 9/11, and you had the advent of the Expedias of the world. Hotel, motel quickly went to 2% of our business, and over that time horizon we grew. There, you know, there's lots of of examples like that.
But what I would say that, you know, our ERP plans and our AI plans will do for us is, it will allow us to keep up with the additional velocity we're creating as we deploy more digital and do more acquisitions. I mean, over the next 3 to 5 years, we're gonna spend well over $1 billion doing acquisitions, and we're gonna add, you know, every year, hopefully 350 some odd digital units to our footprint. That just requires a larger velocity of artwork and proposals and the like. We'll be able to meet that with our existing sales force, right? Because they're gonna be that much more efficient.
You know, logic would dictate that, you know, if they can be smarter about their proposals and get in front of more people, that that's gonna result in more business.
That's great. Any questions from the audience before we wrap up? Yeah, please.
Sorry, I don't know if you touched on.
Okay
... acquisitions at all for this coming year relative to the $300 million you said you did in 2025. We of that $300, roughly $200 was cash, and $100 was an UPREIT transaction, first ever done in, in our industry. It's my hope and expectation that we'll probably approach that same number on a cash basis. We'll probably get to about $200 million. The pipeline looks pretty strong. And we also have a couple of leads on some possible UPREIT deals. Yeah, it should be another pretty active year. You know, we are the only company at, as of right now in our industry that can pull off an UPREIT deal. It's a little bit of a competitive advantage. This session has ended.
The next session will begin in five minutes. Yep, and, Jason, thanks. Appreciate the time.
Absolutely. It was great.
Yep.
Thank you.