Q4 2023 Earnings Summary
- Lamar Advertising plans to reduce its leverage below 3x by paying down debt this year, resulting in an investment capacity of over $1 billion without exceeding their target leverage range, positioning the company well for potential transformative acquisitions as industry consolidation accelerates.
- The upcoming political year is expected to generate record amounts of advertising spend, providing a significant tailwind for Lamar in the back half of 2024, which is not yet fully reflected in their current pacings.
- Lamar anticipates low double-digit increases in its programmatic advertising platform for 2024, building on momentum from Q4 2023, including the addition of new verticals such as packaged goods advertisers who have large budgets and traditionally do not utilize out-of-home advertising, indicating potential growth in this segment.
- Challenges in the national advertising segment: The company is experiencing difficulties in its national advertising business, with national programmatic revenues down 4.3% in Q4 2023. Management anticipates only stabilization, not growth, in national advertising revenue for 2024, which could impact overall revenue growth targets.
- Elevated operating expenses due to ERP implementation: The company is incurring peak operating expenses this year due to a two-phase ERP initiative, with benefits not expected until 2026. This increased spending may pressure margins in the near term.
- Reliance on uncertain political advertising revenue: The company expects a tailwind from political advertising in the back half of 2024, but acknowledges that political advertising tends to show up late and is not yet reflected in current pacing. This reliance on uncertain political ad revenues could pose a risk to meeting revenue targets.
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Capital Allocation and Future M&A Plans
Q: How will incremental cash be used if M&A stays low?
A: Sean Reilly explained that the first step is to pay down the Term A debt. For 2025 and beyond, he expects industry consolidation to accelerate and is preparing the balance sheet for potential opportunities in the next 18 to 36 months. Jay Johnson added that paying down debt this year will lower leverage below 3x under their credit facility. They expect to generate EBITDA north of $1 billion this year, providing investment capacity of over $1 billion without exceeding their leverage range. They're excited about positioning the balance sheet for potential transformative acquisitions. -
National vs. Local Revenue Growth
Q: Can you reframe guidance through total revenue and expense growth?
A: Jay Johnson noted there's little difference between pro forma and acquisition-adjusted growth, with approximately $30 million of acquisitions budgeted. Performance this year is focused on organic growth. The inflection point is around the national business, which has been challenging, while the local business continues to hold up well with 11 straight quarters of growth. -
ERP Initiative and Margin Impact
Q: Update on ERP timing and impact on margins?
A: Sean Reilly stated they are at or approaching peak spend for the ERP initiative this year, which will reflect in corporate expenses and be a headwind on expense growth. The initiative will pay dividends in 18 to 24 months. Jay Johnson added that the rollout is in two phases: the ERP phase with a go-live date of April 1, and the front-of-house phase going live mid-next year. They expect operating expenses to peak this year, tail off next year, and begin to see benefits of labor and margin expansion in 2026. -
Programmatic Growth and New Verticals
Q: What drove the strong finish in programmatic, and is it coming back higher?
A: Sean Reilly expects the momentum from Q4 to carry throughout the year, with low double-digit increases in their programmatic platform. In Q4, an important vertical—packaged goods—entered the platform, which is encouraging as they have big budgets and aren't typically users of out-of-home advertising. -
Impact of Political Spending in Election Year
Q: How will the political year impact results?
A: Sean Reilly mentioned that political spending tends to show up late and is likely not reflected in current pacings. He expects a good political year, with record amounts of money to be spent, providing a nice tailwind in the back half of the year.