Here’s a selection of Lamar CEO Sean Reilly’s comments at this week’s JP Morgan Global Technology, Media and Communications conference.
On how the COVID slowdown hit Lamar and what Lamar did.
It was state by state. As soon as a state would shut down there would be a phone call from, let’s call it a local jeweler or a local restaurant and they would say hey, my doors not open. Can you give me some relief. At the local level that relief typically came in the form of flexible or suspended billing. We would say, rather than cancel your contract let’s suspend your billing for the rest of March and April. We’ll see where this thing is going and we’ll take that billing and we’ll amortize it over the remaining term of the contract. Which they were very amenable to. It wasn’t a play we had in our playbook in the great recession. In the great recession you either cancelled or not…The national buyers have slightly different cancellation clauses and they tend to be a little bit more aggressive in invoking them in times like this…
Challenged Business Sectors
…There is one portion of our restaurant business that’s going to take some care and feeding…we do have sit down, table cloth, restaurants…they can’t make it at 25% occupancy. The business model doesn’t work. So I’m keeping my fingers crossed. They’re beginning to pay us for our digital space to tell the world that they’re open…But the real question is do they make it to the other side of this thing.
The challenged verticals. Amusement, entertainment and sports. The country is going to take a while before we are comfortable in large venues. A lot of this is about concerts…And that’s going to take a while. That could be first quarter of next year, that could be second quarter of next year….Gaming is also going to be a little longer. Vegas is an important market for us and that market is going to struggle for a while. They have not announced openings yet for their casinos. I’ve sensed that its going to be a little longer for them than the regional casinos. 90% of our gaming business is regional casinos…Those venues are beginning to announce that they are opening up.
On Cutting Expenses
Our proforma expense base for 2019 was $980 million. We…will cut approximately $50 million or 5%. The biggest number is executive and management bonuses. That’s about $16.5 million. The second biggest number is…our lease portfolio…it’s our largest expense. Some of it is just hard work renegotiating leases. Actually taking down billboards that are unproductive…On a lease portfolio lease base of about $300 million we’ve identified $20 million in leases that we can take down and you would never notice it…Some of our leases are revenue shares so that’s going to flex with billing…And then we have been successful in negotiating our minimum annual guarantees for our airport and franchise agreements to revenue share only.
On this week’s $400 million bond issue.
We did a $400 million bond issue yesterday. The execution was outstanding…It’s an 8.5 year piece of paper that we’re paying 4.78%…that’s the kind of rate you’d get in good times…We’re going to take the proceeds and pay our revolver to zero – we have a $780 million revolver – and we have $270 million in the bank. So we’ll have over $1 billion of liquidity.
On the long term impact of Covid
There’s going to be some good because there are more cars on the road. It’s going to be bad if you are in the out of home business and its large market transit. That’s just going to be challenged…
Insider’s take: Kudos to Lamar management for paring management bonuses and salaries before asking rank and file employees for cuts. You lead by example. Insider hears from Lamar landlords who have been asked for lease reductions. $1 billion is quite a war chest to buy distressed OOH assets. Insider doesn’t think Covid-19 will cause a permanent shift from mass transit to cars. At least not in Manhattan or Boston. Not enough room for everyone to drive.
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