Q3 2024 Earnings Summary
- Accelerating digital billboard conversions in 2025: The company plans to install 375 to 400 new digital units in 2025, nearly doubling the number added in 2024. Converting a static billboard (average revenue $3,000 per month) to a digital one increases revenue 5-6 times (to approximately $15,000 per month), with favorable and stable unit economics.
- Significant growth expected in programmatic advertising: The company anticipates programmatic advertising to become increasingly important over the next 3 to 5 years, particularly as it opens up to local and regional advertisers, leading to increased ad dollars through that channel. Programmatic margins are expected to improve as volume increases, reducing the current sales cost from 10% as volume grows. ,
- Active M&A plans for 2025 enhance growth prospects: The company expects increased acquisition activity in 2025, focusing on tuck-in acquisitions that can be easily integrated to enhance margins. With leverage expected to be below 3x net debt to EBITDA at the end of 2024, the company is well-positioned for M&A. ,
- The Gulf Coast region underperformed, showing minimal growth of approximately 0.5%, which may indicate underlying regional challenges or soft demand that could impact overall results.
- The higher cost associated with programmatic sales—approximately 10% compared to traditional sales costs of 6%—could pressure margins until sufficient volume is achieved to reduce these costs.
- The company's plans for increased M&A activity in 2025 depend partly on factors beyond its control, such as interest rates falling; if these conditions do not materialize, it could hinder growth projections.
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M&A Outlook
Q: Why is M&A activity picking up in 2025?
A: Sean Reilly explained that after slowing down to prepare their balance sheet, Lamar expects M&A activity to increase next year. With leverage dropping below 3x for the first time in the company's history , they are ready to be "very active" in acquiring fill-in opportunities nationwide, enhancing their footprint and margins. Interest rates starting to fall also contribute to their optimistic M&A outlook. -
Programmatic Advertising Growth
Q: How is programmatic advertising impacting margins?
A: Sean Reilly noted that while programmatic sales currently cost about 10% compared to their traditional 6% sales cost , they offset the extra expense with a slightly higher CPM due to richer data for customers. As programmatic volume grows from $4 million to $240 million, they expect the cost percentage to decrease. -
Digital Conversion Economics
Q: What's the revenue uplift from adding more digital billboards?
A: By converting a static billboard earning about $3,000 per month into a digital one costing over $200,000, Lamar sees revenue increase by 5 to 6 times to approximately $15,000 per month per board. This investment has provided stable returns over decades. -
AFFO Guidance vs Earnings
Q: Why did earnings decline despite higher AFFO guidance?
A: Jay Johnson explained that the decline in net income is due to increased non-cash stock compensation expense. With the stock trading significantly higher than last year and better performance against budget, the payout percentage is higher, impacting net income even as AFFO guidance rose by about 2%. -
Potential Large Acquisitions
Q: Would you consider major acquisitions like Adams or Link?
A: Sean Reilly acknowledged that while there's potential for larger transactions, such deals are more event-driven and not part of their regular tuck-in acquisition activity. They don't control what those companies decide to do, so it's a "stay tuned" situation. -
Political Advertising Contribution
Q: How will political ads contribute in Q4?
A: Sean Reilly stated that political advertising was about $15 million year-to-date and is expected to be similar in Q4, totaling nearly $30 million for the year. While they can't precisely measure if they've picked up ad dollars crowded out from TV, anecdotally they know it happens. -
Gulf Coast Performance
Q: Why was the Gulf Coast a drag on results?
A: Sean Reilly mentioned that the Gulf Coast region was softer due to local economic factors but doesn't see cause for concern. Jay Johnson added that the Gulf Coast had outperformed the portfolio last year, so they faced tougher year-over-year comparisons. -
Programmatic KPIs and Metrics
Q: How are you measuring and improving programmatic KPIs?
A: Sean Reilly explained that with more third-party data providers offering attribution analysis and foot traffic measurement, they can better demonstrate campaign effectiveness to marketers. This increased data availability is leading to greater acceptance and higher CPMs in programmatic sales.