All right. Sorry for the delay. We'll get started. To my left is Sean Reilly, President and CEO of Lamar Advertising. Sean, thanks for being here.
Happy to be here, David.
Uh, so
Proud to be.
I'll give you a kickoff question. Last week you were at OAAA in Dallas. Maybe give us the latest on the mood of the industry. Any kind of takeaways from the event?
Yeah. it was a great conference. The enthusiasm and the confidence and the sense of possibilities this year was measurably better than last year. There's something going on. There's a lot of excitement in the industry. All of the publics had unbelievably good, you know, earnings calls just before. You know, Outfront posted some great numbers. Clear Channel. Oh, well, one thing Scott Wells told me was, "You know, I finally had an incredible quarter and I'm not doing conference calls anymore." He said, "Going private." No, the industry is in a good place.
Got it. You reported earnings also. You noted forward bookings, I think you said the strongest you've seen since COVID. Maybe, walk through a little bit more specifically what things look like for Lamar at the moment and what's giving you confidence to kind of signal that potential change to your outlook in August when you report.
There's a few components to it. Political is certainly coming in stronger than we anticipated. I, you know, as I mentioned on the call, usually we see a drop-off in a midterm as opposed to a presidential cycle. This midterm cycle we're gonna do double-digit better growth over 2024. That feels very good. We also have a huge new category that wasn't with us a year ago, which is pharma, and that buy has been meaningful to us and well-received by them. We're very happy with the way that's played out. In general, it's strength across the board. National, which, you know, 18 months ago was a headwind, is now a tailwind. Our local business is steady eddy.
The growth there is healthy and above our overall platform growth last year. Good news.
Let me unpack some of those pieces. Maybe on the local side, you know, we did hear, you know, for instance from a few broadcasters, you cited incremental weakness. Why do you think on the local side the outdoor is holding up better than, say, you know, the television side?
You know, our verticals aren't exactly the same as theirs.
Yeah.
Some of our verticals actually perform very well in a K-shaped economy. Our, for example, restaurant business is quick service. It holds up well. Our retail business can be both ends of the K shape. That we get good strong buys out of jewelers, right? We also get good strong buys out of convenience stores, right? It's both ends. Our local services category is exploding. It could be a little bit of the story around what your verticals look like. It could be the fact that our audience is growing in certain other broadcast media that's not the case.
I got to ask on local services, anything in particular? Is it lawyers?
We announce, as a On our calls, we call it services. It's our fastest growing vertical. It's about 21% of our book. Attorneys make up about 60% of that, and they're very healthy. They're increasing their spend with us. It's also other services that you could imagine, like pest control and plumbers and accountants. It's a very healthy, large and growing segment for us.
Got it. Maybe going back to political, you know, I think in February you were a bit more conservative. You know, what's changed? Is it something specific to the Lamar footprint and the races there? Is this sort of a broad effect across the industry?
Yeah. Broadly defined, for local races, we are more important to races happening in middle markets than large markets. That's been true for a long time. I think what's different this year is, you have a lot of early primaries, hard-fought, oftentimes Republican against Republican in places like Texas and Louisiana, where we've had just intense races. Some of which are gonna happen again because no Republican candidate in the primary got more than 50%, as was the case in Louisiana just this weekend. We got good spend from all the candidates engaged in that. Another thing that's going on, which I think is probably even more important, 65% of what we code as political is actually advocacy. It's not necessarily candidate running against candidate. It's someone trying to promote a particular position around a particular issue.
I am finding comfort in that because, That can happen in off-cycle years, right? Not to the degree it's gonna happen in an even year.
Right
To some degree. I'm really looking forward to, at the end of this year, ferreting out, number one, what happened, number two, how the cadence through the year, because I feel something a little bit different this year than in the past. you know, we need to understand it, we need to communicate it to you guys so that y'all have an easier job modeling us because we didn't get it right last year, and we didn't get it right this year, but to the upside this year.
Right. It feels like the issues piece is one of the main. Yeah.
I gotta get to the end of the year.
Yeah
you know, slice it and dice it, yeah, that does feel a little different too.
Got it. Maybe can you just remind us on the recent history of national versus local? I know national picked up a bit starting in the back half, and maybe you can talk to some of the drivers. You mentioned pharma. Maybe we can hear a little bit more about where you're getting more traction.
Yeah, I would start with our good friends in big pharma. It's really across the board. We have customers that were longtime great verticals for us that maybe hit the pause button 18 months ago, who are now back in. Auto insurance, I would highlight there. We've, you know, we've got some a telecom customer who we never had before, who's coming in this year. It's a combination of new friends and old friends and just general strength across, you know, our national buyers. It's wonderful to see. I think that's one of the reasons the attitude and atmosphere at the convention was so good.
Particularly when you look at, you know, the footprint that Outfront and Clear have, and the numbers they posted. They were very impressive because of national recovery.
You think anything structural is going on across channels? You know, for instance, you know, one of your peers sometimes put forth the notion that if you look at everything going on in search today, there's disruption there caused by AI, you know, marketers are looking for alternative reach vehicles, and outdoor has one and sort of cost-effective reach. Any veracity to that you think, or is that sort of more of a go forward kind of comment?
No, you know, I, first of all, Nick Brien is very eloquent when he talks about in real life, which I think you're probably referencing, right?
I think your other competitor
Nick Brien Outfront. Yes, Scott's good.
I think it was talked about too.
Scott's good at that too.
Yeah.
I think there's something to it. It feels like something is different. It's not just the sort of cyclical, "Yeah, national's up and it's going to be down." you know, there seems to be a rethinking of by big brands of what exactly they're getting in the digital ecosystem and where that's going. you know, those guys are still going to command the vast bulk of the dollars. Just a little shift our way is big in our world.
Yeah.
Right?
Maybe, extending the conversation on national, I don't know if you can just update on the latest in terms of conversations with the ad agencies. Obviously, in the past, we've talked about some of the challenges of getting increased allocations in there. Maybe just a update on where things stand there.
Yeah. One of the good things about going to the convention is it's not just the billboard owners talking to themselves. The buyers go as well. All of the meetings that I had with the agency partners that we enjoy, they were all good. Everybody was as busy as they've ever been, and they don't see any change going into the back half. You know, the vibe was just really, really good.
Okay. Maybe last one from a category perspective. AI's been called out as a vertical point of strength in N.Y. or in California. Maybe those are a bit less material markets for you. You know, have you observed any impact across your DMAs?
Yeah. You know, we have. It entered a top 10 position for us. That said, it is more of a San Fran phenomenon. I mean, you can't drive from the airport into downtown San Francisco.
Yeah
without seeing every single AI, large and small- entity represented. We're not in San Fran, unfortunately. That said, no, they're using us and they're using us well.
Yeah. For Lamar, I was thinking Vegas, maybe if there was a convention.
Well, there's, yeah, the.
Yeah
We did well with them. We are the Vegas airport.
Yeah
We got some of that stuff.
Got it. Okay. programmatic grew 25% in Q1. I think that's well above the kind of roughly 10% you'd expected at one point for the year. Maybe just where is that growth coming in stronger than expected?
Number one, across the board.
Yeah.
Right? It's just, it's a channel that is increasingly being embraced by the digital specialists. I think the primary driver, and, you know, I don't typically name names in public, so I won't. We got some customers back that were big spenders with us across our whole platform, let's call it two years to 18 months ago, and now they're coming back because they can buy programmatically. The dollars aren't as big as they used to spend with us, but they're getting there.
Yeah.
They're almost exclusively programmatic, in their re-entry into Lamar.
In that particular instance, was there any kind of catalyst that pushed them back into the market?
Well.
Right, the channel.
programmatic channel.
Yeah
is highly targeted, really easy to execute on. Their digital shops that specialize in placement for them are placing them on us the same way they place on this.
Yeah.
Right? The very same metrics and algorithm and everything they're looking for, it shows up on here, and it shows up, you know, on the interstate.
Got it. Maybe just staying on that, or on programmatic, can you just speak to where you are overall in developing the channel? I think at this point it's all national. What would you need to see to then extend that out to local clients?
The good news is we're seeing it already, 'cause we're experimenting with a product that we call Flex Direct, which is available to our local customers. Backing up for a minute to your comment, when we first started going down the programmatic path, we wanted to make sure it was net new business, and we wanted to make sure we could protect our CPMs.
Right.
Right. We had very good experience doing that by limiting it to only digital native shops and only national. What we've learned is we can protect our CPMs, even enhance our CPMs, number one. Number two, we have sophisticated local customers that buy across platforms like Meta and Google, and they are used to buying impressions in a self-service way. They wanna do that with us. We're rolling out a platform that enables them to do it, and we're really excited about it because we think the ease of buying will get them to buy more.
Maybe staying on digital. I think you framed 350 conversions as sort of a reasonable annual run rate. I think the associated cost of that is around $65 million. You know, a question we often receive is, you know, why shouldn't or why can't Lamar accelerate this? Especially just given the high returns and.
obviously your balance sheet flexibility. Maybe just walk through what kind of governs your conversion pace, whether you have or what conditions are there for you to accelerate?
Sure. The number one gating issue is the permitting regulatory environment, right. That works both ways. The permitting process is a barrier to entry in our business, it can work as our friend. When it comes to accelerating digital rollouts, we have to navigate a variety of different sign ordinances and rules in something approaching 4,000-5,000 jurisdictions. Navigating that landscape just takes time. That's number one. Number two is, you know, these are big construction projects outside, right. Things have to happen. You know, crews have to arrive on time. The structure has to be retrofitted to hold the extra weight. You have to get the actual screen itself to a place and all that stuff that just has to happen.
Believe it or not, sometimes we get held up because we're waiting on the power company.
Yeah.
Right? It's just so You know, much as I'd like to go faster, if I could do that and have 5,000 more, I would do it. That's not the world.
Got it. Maybe just remind us at this point, you know, what the current, you know, kind of revenue and cost uplift looks from a conversion, how you think about the IRR thresholds.
Sure. First point I'd make is, the returns have been remarkably consistent. Board number 1 that went up 20 years ago, and board number 5,000 that went up 18 months ago, right? Same return profiles. I think that's a testament to really as we get more digital out there and our customers get more used to using the platform and use it in, you know, wonderfully inventive ways, the demand is there, right? That's been gratifying over the course of time to see that. You've got a picture of billboard, all right? You got something that's making, let's call it $3,000 a month.
That's on average now. It's gonna be different in Vegas than it's gonna be in Baton Rouge. Our customers pay $3,000 a month. They also have to buy the substrate. That's what they print on. That probably costs them $1,000. They amortize that over a six to 12 month contract. That's the economics as a static. Now, it's digital, and we have six to eight slots. The advertiser typically pays about the same absolute dollars. It's probably still $3,000 for them to be on it, right? From their point of view, it's the CPM goes up because it's shared space. From our point of view, we've got the opportunity to put six to eight customers up there paying almost the exact same. Picture something to be conservative.
We were making $3,000, now we're gonna make $15,000-$18,000. The incremental margin contribution from that is gonna be somewhere between 65% and 75%, depending on how well we manage the real estate. If we do a great job on the real estate, it's more like 75% incremental margin. If we're just, you know, do a so-so job managing the lease portfolio, then it's 65%. Either one is a good one. You can do the ROI. It's pretty, it's pretty good.
I gotta ask, in that situation, right, where the advertiser's paying the higher CPM, are you bringing in different advertisers since the CPM's higher, right, essentially?
It's yes. Typically you contract for one slot.
Right.
You're sharing that space with, let's call it five other advertisers.
Yeah.
They're happy to pay a slightly higher CPM because it's so dynamic. They can integrate it in with their social media. They can change the copy from their desktop. They can copy day part.
Yeah.
Right?
Got it. Maybe switching to the expense side. You've talked recently about completing the ERP project in August. Maybe what should investors expect on this in terms of costs and operating improvements?
On the first quarter call, I went out there and said, "We're gonna do 1 point better," right. 100 basis points better on margin, which will take it from 46.7 to 47.7. There's some different components to that. One was a very simple component. We got rid of the Vancouver transit franchise, which really helped with our margin profile. Another part of the component of that is tuck-in acquisitions that we do, 'cause those also come down at an EBITDA contribution margin of ±65%, and we did a lot of those last year, so you're seeing the effect of that this year. On the ERP project, two things of note there.
Number one, the spend on it is gonna trail off as we get into the back half of the year because You're never done with this stuff, but we're kind of sort of done. Then, you know, given we're, you know, we're evaluating, okay, what did we get and how much is it gonna help us? We had some wins, and you should see from that activity, again, some margin enhancement as we get to tail end of next year, and particularly going into 2028.
Got it.
is when I really expect a little lift there.
I, you know, I don't know if this falls strictly into the bucket of cost, but I wanna ask about AI, right? You've been asked this question before, how it impacts your business. I like the quote. You know, you usually say, "AI is good at word and pictures," right? That's what Lamar does. You know, curious if you could update your thinking on that, right, as your clients consider what they could do maybe with their creative on your boards.
Yeah. That's an interesting story actually, and it's got a ways to work itself out. You've heard the term AI slop.
Sure.
We're experiencing a little bit of AI slop right now because our clients are using AI to design their own copy. They think it's gorgeous, it's not real good billboard art. You don't wanna go back to a client and say, "No, no. You let a." We're working our way through that, and that's gonna sort itself out. Ultimately, what it's gonna do though is, like I said, you know, it's good at words and pictures. We're gonna figure that out. We're a By the way, we're a Gemini shop, and internal to Gemini, you can build what they call gems, right? I don't know if y'all have heard that phrase before.
We're building a gem to get rid of that AI slop, that we're gonna make available to our clients, and what it's gonna put guardrails around what colors you can use, what aspect ratios you can use, how you don't want 32 words on a billboard. You want something around the neighborhood of 10, right? It'll just sort of help them do good billboard copy so that when they bring it to us, we can say, "That is beautiful. I got some space for you.
Yeah.
That's what we're doing to work through the AI slop issues.
Okay. On the M&A side, Lamar's completed 19 acquisitions year-to-date for $80 million in cash. Math would suggest, deals on the smaller end of the market. Just kinda curious, overall, is that where you're seeing kind of the most opportunity right now?
We're feeling real good about the marker we put out there to kinda do about $200 million in cash deals. That we're on pace to do that. That feels kinda like it did last year, and they were very successfully integrated in doing what they're supposed to do. We hadn't landed the big UPREIT one yet, and you know, that, those are structurally a little more complicated. You gotta have just the right seller, someone with, you know, low or no basis, someone who loves Lamar and wants to take our stock, someone who doesn't need liquidity. Those people are out there, and they have been in touch.
They know the structure. It's really just a matter of the timing being right for them, for the bigger ones, north of $100 million kind of say.
You're saying the Verde Outdoor, the UPREIT investors are more at that size level?
Yeah. They've Like I said, these are either sophisticated families or they're someone like Ernie Garcia, who's a sophisticated investor. You know, that's the profile of the seller that this is the perfect vehicle for them.
Got it. Maybe how would you just frame overall the seller's mindset today, right? Is it more challenging for you given kind of going back to your initial commentary, you just had three publicly traded firms all report great results, and does that sort of change everyone's?
Yeah
mindset in terms of is this the best environment or not?
A couple ways to think about that. The environment is a little more frothy, for sure. And whether they're a sophisticated seller or not, everybody knows Lamar's arithmetic. Our model is pretty easy, No, you work really hard figuring us out, but our model is pretty easy to figure out, right?
Yeah.
What gives Lamar an advantage is our footprint. Our footprint is such that almost anything in the outdoor space is a fill-in for us, right? That gives us an advantage, and as long as we can operate somebody's inventory as the highest and best user, we can offer them a multiple that makes them happy, and a post-synergy multiple that makes us happy. That is the sort of secret to us being able to knock down so many of these long tail deals.
Maybe just staying on capital allocation. You've also talked about wanting to ramp spending on easements. I think you budgeted $20 million this year, but expressed a desire to double or triple that. Does the higher rate environment open up an opportunity to potentially execute on that?
Yeah, that's a good observation because typically when we're buying easements or real estate, it can become a cap rate discussion, right? The higher the interest rates, the higher the cap rate, which is a lower purchase price. We don't tend to talk the language of cap rates, we tend to talk the language of multiples of foregone lease cost, because that's what you're doing. You're buying down your leases. You know, so if we're paying somebody, you know, $40,000 a year to have a billboard on their property, and they feel like they would rather have a one lump sum of $400,000, you know, that's the kind of conversation we wanna have with somebody. Those people are out there. It's a good use of capital. It's a no-brainer.
It's a riskless return.
Could you just remind us the percentage of your portfolio that you own?
Expressed as a percentage of revenue, it's slightly more than 20% of our revenues, we actually own the real estate under our billboards. Expressed as actual billboard locations, it's, let's see, 160,000 billboard faces, and we own the real estate under 20,000. Did I get that roughly right?
Yeah.
I got that right? Yeah. Yeah.
Great. Maybe, about five minutes left. Anyone in the room wanna ask one? If you do, feel free to raise your hand. No. Okay. Maybe just stepping back, going on margins. Maybe just speak more broadly on the path towards the long-term target. I think your communication in March was to, I think it was to exceed 48% by 2028. As you noted earlier, though, I think the goal this year is 47.7%.
Yeah.
Is there kind of room to execute to the long term early? What would be the factors around that?
You know, start with the macro.
Right.
Assuming that's constant, the things we talked about relative to IT and AI should contribute. I think the most important thing is continuing to pay attention to those tuck-ins that fall to the bottom line at a margin that's higher than our consolidated margins. Digital conversions fall to the bottom line at a margin that's higher than our consolidated margin. You know, don't do anything stupid to get into a mix of businesses where the margins are lower. You know, don't go bid on some huge big city contract that's gonna come in at a margin contribution lower than your consolidated margins. Yeah, it's a combination of do the good things and avoid the bad things, and we should get there.
Got it. Maybe, it's a smaller part of Lamar, but, your airports division, posted over 15% growth in Q1. I think the logos were up over 6%. We saw some other transit results that were strong across peers. Maybe just unpack the strength in just transit broadly at the moment.
For us, you know, we're not in the airport business, we're not Logan or Kennedy or LaGuardia. We're middle market airports, large portfolio of small contracts. Same thing for the transit business. We don't do the MTAs of the world. We have lots of contracts with middle and small markets. That's a portfolio approach that allows you to sleep at night because no one big contract is a must-have. As a matter of fact, when we win a franchise or lose a franchise, you don't even know it. We don't even announce it. The only reason we announced it, that we were exiting Vancouver was 'cause it had an impact on our margin profile. That's that business. The logo business is a fun little niche business we have.
It's the blue signs on the highway right away that say food, gas, lodging. We do that under contract with highway departments. We're by far the largest player. It's a niche industry, the margins have stayed healthy in that business. It's not even really advertising because it's price fixed. Per our contract, anyone that applies, we have to put them up, and we can only charge them what our contract with the highway department says we can charge them. It's a funny little business. We invented it in 1989. Like I said, it's a fun little niche business. ±$90 million in revenues with, call it a 35% margin profile.
Got it. Every year we ask you about measurement. I always think it's a relevant topic given the industry has kind of long flagged a gap to your actual reach. Just how do you see that landscape evolving? Anything on the latest with Geopath?
Yeah, yeah. There's good news. The industry and the buy side are united. We're walking in locked step. We're abandoning the data provider that used to feed Geopath. It's a company called Motion orks. We're going with a globally respected brand called Ipsos. They do the measurement in Australia, for example, in the U.K., for example, where out-of-home is a larger share of total media spend. I'm excited about measurement for the first time in my career, and I've been doing this a long time, right? I'm hopeful that this time we're gonna get it right.
Like I said, you know, Lamar, Outfront, Clear Channel, independent, on the sell side, and all the agency players that care about our space, we're all hanging, singing from the same hymn book. We're all pulling in the same direction. I feel good about this one.
Okay. Great. With that, we're out of time. Sean, thanks for being here.
Thanks. Appreciate you. Appreciate you, David. Thanks.