Insider is Sean Reilly fan.  He’s a straight talker with a detailed command of the business.  Insider learns something new every time Reilly speaks.  Here’s a summary of Reilly’s comments at last week’s Wells Fargo Media and Telecom Conference.  His 30 minute talk is archived on Lamar’s website.

On the industry’s weak 2017 revenue performance.

I can’t speak to the whole industry but I can certainly speak to Lamar…As I reflect on last year …we had political and this year we don’t.  For us that’s about a point of organic growth for the back half.  For me that’s an explanation and not an excuse…A couple of our verticals have uncertainty in their world.  Healthcare’s been a little challenged this year because of the on-again off-again Obamacare debate which has caused them to sit on their hands with advertising…and then the other vertical that’s been challenged is the private for profit college sector – their regulatory world has gotten topsy-turvy.  They were down 9% on our third quarter..,

On the economics of digital billboards versus static billboards

Let’s take a 14 by 48…You’re going to take down something that’s doing $2,500/month and convert it to digital and it’s going to do $12,000-15,000 a month.  That’s the revenue multiplier.  You’re going to invest $160,000-180,000 to make that happen.  Now for posters.  You’re going to take down something that’s doing $450 a month and it’s going to become something that’s doing $4,500/month once it converts to digital…You’re going to spend $65,000-70,000 to make that happen…

With static we have to roll trucks and we have crews which change out vinyl.  The illumination or electrical cost relative to the billing is about the same at 3% of revenues.  The big difference is on lease costs…We’re pretty aggressive on capturing the economics of a digital conversion.    On digital billboards our lease cost runs about 10%.  On our total portfolio it runs about 20%.  So you get about a 10% better margin on digital because of the way you manage your leases.

On why clients want to move from static to digital

Let’s say you’re paying $2,500 to be on the Interstate in Baton Rouge and you’re static.  You can move over to digital for roughly the same dollars but it’s shared space with 5 other tenants so what’s going up is your cost per thousand impressions.  So why do they do that.  Two reasons.  Number one, they can change their copy at their whim which is really important to them.  And number two there’s no production cost…So from the point of view of the advertiser there’s a real value proposition even though they’re sharing the space with other advertisers.

How much real estate does Lamar own?

In terms of numbers of leases it’s about 10%.  In terms of revenues it’s about 20%.

How long is the length of a typical lease?

We’ve got a portfolio of about 80,000.  So its a huge portfolio.  Of those we own about 8,000 easements.  It’s everything from 99 years to month to month.  The month to month ones tend to be the ones that aren’t so important.  We go long on the ones that make a lot of money for us…The reason it doesn’t keep me up at night is because of the huge network of regulatory barriers to moving these things around…The most important thing is the permit.  The permit is owned by the billboard operator.  So if the landlord wants more money we can cut it down and there will never be another billboard.

Would your results be worse if there was a recession?

Let me talk about garden variety recessions because I’ve managed through a few of those.  I’m not talking about the Great Recession because we were all under our desk in a fetal positon.  Garden variety recessions we’ve never been down more than 2%…and never down in consecutive years.

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