We are on time, so let's get started. First, for important disclosures, please see the Morgan Stanley Research Disclosure website at www.morganstanley.com/researchdisclosures. If you have any questions, please reach out to your Morgan Stanley sales representative. With that, my name is Cameron McVeigh. My pleasure to welcome Sean Reilly to the conference, CEO of Lamar Advertising. Sean.
I appreciate you having me.
To start, Sean, you've described the 2026 as having a really good setup, and it sounds like pacings for the rest of the year are promising. The guide, if I recall correctly, is about 3.5% acquisition-adjusted growth, 4% AFFO per share growth. Hoping you could walk us through maybe the building blocks of that guidance what gives you confidence in the trajectory.
I would say we're basically being conservative with the guidance. Our pacing are stronger than those numbers. National is a real tailwind, and it's been a headwind in the past. Also I think we're being conservative on our projections for political. It just feels like it's gonna be a little stronger than we suggested. I feel good.
Great. Good to hear. A s you think through 2026 and your outlook for the year, you know, what are the priorities for you, Jay, and the team?
We got the ERP thing we gotta get done, right? On that front, we're done in August. Go live. You'll see the spend tail down. As a matter of fact, we guided for about 1.8% growth at corporate in expenses. We'll finally start realizing some benefits of that project. We have put a number out there in terms of what we expect the margin enhancement to be from it. About a half a percent of margin enhancement, which we should see as we start going through 2027 and then 2028. You know, I told a lot of folks today that we expect by the time we get to 2028, we'll be north of 48% consolidated on our margin.
You know, that's a nice tailwind for AFFO growth.
That's great. Just on the ERP point, since we're on the topic, can you just remind us, you know, what the catalyst was to start the ERP, you know, what you expect the benefits to be going forward?
We had what IT people call technical debt, right. 20, 30-year-old legacy systems built by Lamar for Lamar, not cloud-based, on-premise. Cleaning that up was number one. Number two, in order to realize whatever promise AI brings, you have to clean up your data, and you have to have a backbone that can support an overlay of AI products. That's another, you know, big motivator. What we expect is it'll take a sales process that, you know, might take 14 people hours to get a nice proposal out and get in front of a client and take that down to maybe 6 people hours, right. The sales process is gonna get much more efficient and much more intelligent, right.
More pitches, better pitches, more intelligent pitches, and hopefully, that's not just cheaper, but also more successful. Hopefully, it also helps the top line.
Great. Sean, in the, you know, the response to the, 2026, you know, goals, it sounds like national, you know, there's been sort of an inflection point, from some national advertisers. Recently, you highlighted that some of the top five accounts were GEICO, Progressive, JP Morgan, Coca-Cola, Johnson & Johnson, large blue-chip national advertisers. You know, I'm curious what you think is driving the resurgence of these advertisers, and do you see this more as a cyclical or a structural tailwind?
By and large, you've heard me say this before, national for us tends to be more cyclical, right? They can come in and go out. This year feels better because verticals that were soft are now coming in big, right? Insurance, auto insurance, definitely, gonna be much stronger this year than the last 18, 24 months. There's, you know, cracking the pharma code, is I believe can be huge. We had a big pharma go buy in Q4. That's kinda what led to the upside surprise. They've recommitted to Q2, right? That can be a game-changer for us. It's big dollars, big budgets, and you know, the fact that they immediately committed to another sizable buy means they had a good experience, right?
It feels much better this year than it has on the national side than it has, you know, 18, 24 months ago.
Great. That's helpful. If I could just follow up on the pharma point. H ow big do you think pharma can be as a vertical? Was the, you know, the interest immediate following some of this, the change in the rules around, you know, the disclosure levels?
Yes. The FDA disclaimer rule's huge, right? Made their messaging, really billboard-friendly, right? This was one really only one customer that has been making the difference so far, and there's lots of them out there, right? Anything that you see on CNN in the way of a drug commercial is a candidate for us, literally.
Got it. Is there a new sales team or a function to try and pursue these pharma ads? Is that part of the strategy now?
We have a dedicated team that's going direct. This buy was direct to the pharmaceutical company. It was not an RFP response type of national buy. They ended up running it through their agency, so there is an agency of record, but it was direct.
Great. Just to double-click in on the industry verticals, you know, healthcare, financial services, building and construction were all double digits in the last quarter. Telecom and beverages were a little soft. You know, how should we think about the composition going into 2026?
Everybody's happy and healthy, particularly our top six verticals, all doing fine. Telecom's coming back, so we feel better about that vertical than in the recent past. I would say beer and wine, they're struggling. It 's beer, wine, alcohol, there's less people drinking. It's about half local for us, beer distributors, and about half national. Think Constellation Brands. You know, that one is probably still gonna be a little wobbly. It's about 3% of our book.
Got it. Okay. Maybe just on the local side it sounds like sentiment's still a little bit cautious. You know, as we enter 2026, what do you think it takes for local ad spend to start to re-accelerate?
I think we're there. I do. I think Main Street is feeling pretty good about the world.
Great. Great. Okay. Sean, I wanted to hit on political. You know, we have the midterm election coming up. Maybe if you could talk about your expectations for political ad spend and how that compares, you know, versus 2025 and 2024.
Sure. 2025, $11 million. 2024, about $30, right? Let's call it a delta of $20. We were being cautious looking at this year, and we guided to roughly $12, $13, $14 in terms of 2026 over 2025. I think that's conservative, given what I'm hearing out there. I feel good about that one.
Got it.
That runoff in Texas didn't hurt.
Definitely. Okay. Speaking of other, you know, one-time cyclical tailwinds, but if we think about the World Cup, I know you have sized in the past around a, you know, $3 to $4 million incremental opportunity. Are there any broader, maybe indirect benefits you might expect to see, whether if you think about, you know, category mix shifts or, you know, pricing power?
In general, it's gonna help Clear and Outfront a little more than us, given their presence around the major venues, but it's gonna be helpful. Seattle is a big market for us, and that's one of the venues. It'll be helpful in Kansas City, Dallas, in and around Northern Jersey. Incrementally, it's nice. It's already in-house, by the way. We've got the contract signed. It's a little north of $3 million. We might get some bits and pieces come in between now and then. We get really, really good pricing, which is really nice now, but then we have to figure it out next year, right? Incrementally it's good stuff. It's really good advertisers. They go after our best units in those markets.
Looking forward to that. You know, we are getting better at pricing and, price optimization. Around big events. We do incredibly well, for example, at Coachella in Southern California. Just kill it there. As a team, we're getting better at that.
Great. I was talking to one of your main competitor up here earlier today around the digital momentum in the out-of-home space especially around programmatic. You know, can you just talk about what you're seeing in the programmatic trends, maybe what inning it is, and where, you know, where do you expect that to go going forward?
It's still, let's call it third inning, primarily because we haven't opened up the channel to our local customers, right? That's the next step. In terms of national programmatic, we're well established. It's still our fastest-growing channel by far. One of the problems we have growing the channel is the fact that we're selling, by definition, unsold inventory. To the extent we're full on a digital unit, we can't offer it up to the programmatic channel. We're a victim a little bit of our own success in that regard.
We're, we're figuring out ways to work around that to make space preemptable and available for that channel because while the absolute cost of sale is 10%, which is more than our normal channels, which is 6%, the CPM we get is higher, and it makes up for that. We're working it. You know, it'll grow this year in the neighborhood of 10% this year over last year. Last year, it grew 20%. It's, it's, I believe, gonna become increasingly important, but it's really gonna matter when we open it up to our local customers and our local customers are no longer essentially soaking up demand at a lower CPM that would otherwise go to a programmatic buyer. That's a couple of years away.
I recognize it's probably easier said than done, but, you know, what do you think the process is to open up to the local SMB type base on a programmatic buy?
You know, they have to be sophisticated, right? Relatively big budgets. Increasingly, I think that they're gonna wanna buy us the way they buy Facebook and Google, right? We have to do it, right?
Got it. Okay. Sean, I wanted to switch over to, you know, the acquisition strategy. You guys are acquisitive. Maybe if you can speak to your broader acquisition and outlook for the year? M aybe bring us through just some of the synergies that Lamar brings to the table?
Sure. Last year, ±$200 million in cash for assets types of acquisitions, one big UPREIT deal. This year I think is going to look like last year. W e've got a couple of leads on the UPREIT structure. On the cash for assets deals, if they're fill-ins, we just knock those out just day after day after day. They're relatively predictable. Some of them are not very big. W e mentioned we did a little over $40 million year- to- date in cash for assets deals. The average transaction size was $6 million, right? We just see that continuing, those are highly predictable. Typically, we don't need some of the infrastructure that the seller needs, we can get expense synergies really quickly.
Great. With the, you know, with the UPREIT structure, how has potential seller, interest been with the new structure and how's the pipeline developing?
There's a lot of interest out there. It does take a special seller, someone who doesn't need the cash, right? Someone who might have zero basis in the assets. The tax thing is real. You know, they have to have a lot of confidence in the industry because they're gonna be part of our group, right? And those folks are out there, right? There are families still that have been running these businesses for generations, have little or no basis, don't need the cash. Sort of check all those boxes, right? And, you know, we're the only company that can do it. That's a competitive advantage, right? When it comes to sitting down with a family or entrepreneur and it's not an auction environment. It's a very much a, i t's a romance, if you will.
That's great. C urious how private multiples are looking and maybe how that's been trending recently?
Remarkably consistent. W hat might look like a 13x, 14x multiple to a seller by the time we take it on and do our thing, it's 10x or 11x, right? It all depends on the quality of the inventory, the size of the transaction. Lots of ingredients go into getting to yes, right? That fundamental ability we have to get to where they wanna be and still get to where we need to be, that is really our secret sauce, right? The fact that almost anything we do is a fill-in, given our scale and scope and broad national footprint.
Great. Now, Sean, I wanted to ask about the Clear Channel news that we saw. With the, you know, the go private and the go shop period. Just curious your broader view on, you know, potential industry implications and what that might mean for Lamar.
I don't expect that Scott and his team are gonna manage any differently, right? They've run a good shop, as a public company, they'll do the same as a private company. I think it's good for the industry that they will have a shored up balance sheet. It's good to have, you know, in any industry, healthy competitors. I view that as a good thing. I t's just steady as she goes, and I'm happy for Scott. It's a good deal for him.
Definitely. Okay. Great. On the, on the M&A acquisition topic, can you talk a little bit about Lamar's newly appointed president of the outdoor division, Ross Reilly?
I can talk about him. He's sitting right there. Ross is gonna be great in this new role. He has a breadth of experience across our whole company in terms of roles and responsibilities. Most importantly, you know, as with every industry and the impact of AI and the impact of patent law to change, I understand it, but I don't understand it like this guy, right? H e is in the right place to not only drive the change being brought up by ERP, but also help us realize the promise of AI. I t's a good move.
He might have prolonged my CEO life because, for 15 years I've had 16 direct reports, and now I've only got eight, so maybe I'll last a little longer.
Great. On the topic of AI, it's obviously, a big topic to date. You know, in the out-of-home industry in particular, it almost seems like it's this new industry vertical coming in, bringing in some marketing budgets. I'm curious just how you look at it on a, you know, maybe the potential impact from a new industry, but also potential implications on broader, you know, marketing budgets into the out-of-home industry, you know, more broadly.
Let me start with, it can only help us, right? There's a lot of industries where it's gonna be disruptive and, you know, quite possibly damaging. Not so with us. I think it can only help. Now, you drove from the airport to here, you saw all those billboards with AI on them. I wish I had inventory in San Fran, but I don't. We're getting some of it. We're not getting as much as you're seeing around here. It will hopefully help our customers buy smarter, help us with attribution and measurement in a way that because the information is so readily available and accurate and so rich with data that it gives them more confidence to use more of us. I think there's some logic to that, right?
The other thing I think it can do for us, particularly Lamar, our digital yield management is not where it needs to be in terms of optimizing. I think it can help us there. I really do. As a yield management tool in the hands of our local managers, I think it can make a difference.
Got it. That makes sense. Wanted to open it up and see if there's any audience Q&A while we while we're here.
Sean, you guys had a nice little investment gain in Vistar. I think it closed about maybe a year ago or so to T-Mobile. Has that asset and sort of the whole programmatic space evolved much under T-Mobile's ownership? Have you seen anything change meaningful?
I think we will. The most meaningful thing that happened was T-Mobile came back in and is buying more. The CEO of Vistar, Michael, is rapidly rising at T-Mobile, and he is taking on more responsibility for their not their marketing budget, but their marketing products. I t's gonna be good for us. It was a little bit of a shock when I was told that it was T-Mobile buying them. I think it has proven to be a good thing.
Thanks. Thanks, Sean. Just on Clear Channel, was that an asset that you would have looked at? How do you think about the potential for a larger-scale M&A in this space?
Their leverage made it impossible for us to think about the whole, right? We would like to have had some discussions around buying some piece parts. Didn't get anywhere with that. You know, I think they're going to. Like I said, they're gonna go in, they're gonna go private. Wouldn't surprise me if they didn't become a private REIT. I think Scott still has some expense work that he can do given the changes they've gone through. And I think they're gonna de-lever a little more, and I wouldn't be surprised if they weren't a public company in 3 years, right? You know, we'll see what happens there. There's a handful of independents with asset value, let's call it $300 million to $1 billion, right? They're still out there.
O ne of which is private equity-backed . They've got a time horizon. You know, we'll see. In the meantime, we're just gonna keep cranking it out, you know, a few small deals at a time.
Great. Sean, I wanted to ask on capital allocations. Your balance sheet is arguably the healthiest of the industry. It enables different forms of allocation. Curious if you could just walk through how you prioritize your capital.
Sure. Our best ROI is still digital conversion. It's about $65 million we'll spend this year on that. Second best ROI is gonna be the tuck-in acquisitions that we just do year in and year out. You know, hope to spend $150 million to $200 million on that activity. I would like to see us spend more money on purchasing land under our billboards. We've budgeted about $20 million for this year to do that. I'd like to double or triple that, 'cause that's a nice return, and it also protects our best assets. You know, we executed on a buyback last year. Our timing was very fortuitous. We bought near the low of 52 weeks. T hat's a good hierarchy.
W e're REIT, right? Number one is pay the distribution and hopefully increase it, right? Like we're gonna do this year. That's the hierarchy of capital.
Got it. When you go to buy land, you generally target digital boards first by the land.
We do. We target digital conversions, not exclusively. You know, it makes most sense to do it under your best units, though, highest performers.
Great. As we wrap, I wanted to ask a bigger picture industry. If you look out, you know, 5 - 10 years, and you think about the outdoor advertising industry, how it's gonna look, maybe the mix of, you know, digital versus static, and what role programmatic plays. Curious, just your high level thoughts.
Sure. Industry here is ± 30%-35% digital, right? In U.K., for example, Australia, it's over 50%, right? We should be moving more towards that. Much more digital. You're not gonna think about digital dollars and traditional dollars. The pots are gonna merge, right? There'll be much more programmatic buying going on, right? 'Cause now it's mostly in digital shops, right? We will have opened up automated programmatic buying for everybody, and that, I think, is gonna result in higher revenues 'cause ease of buying, better proof of performance. I think that all of that stuff bodes well for out-of-home. I think other media are gonna continue to get disintermediated, right? Again, that's good for us. I think it's very bright. I'm optimistic.
I'm not going to the beach yet, but, I'm gonna hand off a good ship to Mr. Reilly here.
That's great. Looking forward to it. I think that's a good place to wrap. Sean Reilly.
Thank you so much.
Appreciate it. Thank you, guys.