Q2 2024 Earnings Summary
- Strong financial position with an improved balance sheet: The company repaid its $350 million term loan in full, further strengthening its balance sheet, which is now "the best in the industry". With over $1 billion in liquidity, Lamar is well-positioned to participate in attractive M&A opportunities as the market is expected to improve in 2025. ,
- Dominant local and regional market presence driving growth: Lamar's focus on local customers and dominance in middle markets below the top 20 DMAs has led to sustained growth, with local sales increasing nearly 5% in the quarter. This strong local performance offsets national sales softness, positioning the company for continued growth. ,
- Potential for increased dividends due to expiring NOLs: With about $35 million of NOLs remaining this year, expiring afterward, management anticipates "upward pressure in the dividend", considering low double-digit growth this year and next, and possibly a special dividend to distribute 100% of taxable income.
- Continued Decline in National Advertising Revenue: Lamar anticipates another low single-digit decline in national advertising in Q3, following a 2.5% decrease, which could persist and negatively impact overall revenue growth.
- Expiration of Net Operating Losses (NOLs): The company's remaining $35 million in NOLs will be exhausted this year, leading to increased tax liabilities. This will put upward pressure on dividend distributions and could strain cash flow starting in 2025.
- Uncertainty in Future M&A Activity: Although Lamar expects merger and acquisition activity to pick up in 2025, this outlook hinges on factors like declining interest rates and market valuations. If these conditions do not materialize, growth opportunities through acquisitions may be limited.
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M&A Outlook
Q: Will M&A activity improve next year?
A: Management expects M&A activity to pick up in 2025. As interest rates decline and valuations adjust, sellers may want to capitalize on favorable conditions. The company has over $1 billion in available capital ("powder") without issuing equity. They've begun receiving SIMs targeting potential closings in Q1 if they decide to proceed. -
Dividend Impact from NOLs
Q: How will NOL usage affect future dividends?
A: With about $35 million of NOLs remaining this year—the last year they'll have them—there will be upward pressure on the dividend. Management may consider a special dividend to ensure they distribute 100% of taxable income. Expect low double-digit dividend growth this year and next, normalizing to align with AFFO growth in 2026. -
Shift to Large Format Screens
Q: What's driving the move to large digital screens?
A: Smaller screens like gas pump TVs had been taking some share, causing weakness in programmatic advertising. However, recent ratings and measurements show large-format roadside digital out-of-home is more effective—it reaches more eyeballs with better demographics. As this proved out, the company began gaining more share. -
Local vs. National Revenue Trends
Q: Is the local-national revenue mix unusual now?
A: Management sees the current mix as statistical noise. Over time, local and national growth rates are similar. Fluctuations occur due to various factors like changes in client spending or leadership. Sometimes national is stronger; other times, local leads. -
Local Market Focus
Q: Is focus on local markets strategic or due to footprint?
A: The emphasis on local markets is both due to their footprint and strategic focus. They dominate middle markets below the top 20 DMAs, which skew local. Moreover, they take pride in their strong team of account executives who excel in serving local customers better than competitors. -
Political Advertising Impact
Q: Is TV crowding out boosting nonpolitical ads?
A: Anecdotally, the company believes that every two years, TV crowding out during political cycles leads advertisers to seek out-of-home options, though it's hard to measure. They also anticipate possible increased activity due to excitement around the Democratic presidential ticket, but it's too early to tell.