Lamar Advertising Co. Q4 2007 Earnings Call Transcript

Feb.27.08 | About: Lamar Advertising (LAMR)

Lamar Advertising Co. (NASDAQ:LAMR)

Q4 2007 Earnings Call

February 27, 2008 11:00 am ET

Executives

Sean Reilly – Chief Operating Officer & President of the Outdoor Division

Keith Istre - Chief Financial Officer

Kevin Reilly, Jr. - Chief Executive Officer

Analysts

Christopher Ensley - Bear Stearns

Eileen Furukawa - Citigroup.com

Mark Wienkes - Goldman Sachs

Marci Ryvicker - Wachovia Securities

Jason Helfstein – Oppenheimer & Co.

Anthony DiClemente - Lehman Brothers

James Farrant – Morgan Stanley

James Boyle - CL King & Associates

Brian Shipman – Jefferies & Co.

John Blackledge - JP Morgan

Operator

Excuse me everyone, we now have Kevin Reilly, Sean Reilly and Keith Istre in conference. (Operator Instructions) In the course of this discussion Lamar may make forward-looking statements regarding the company including statements about its future financial performance, strategic goals and plans. Lamar has identified important factors that could cause actual results to differ materially from those discussed in this call in the company's reports on Forms 10-K and 10-Q, and the registration statements that Lamar files with the SEC from time to time. Lamar refers you to those documents. Lamar's fourth quarter and year-end 2007 earnings release, which contains the information required by Regulation G, was furnished to the SEC on a Form 8-K this morning and is available on Lamar's website, www.lamar.com.

I would now like to turn the conference over to Kevin Reilly. Mr. Reilly you may begin.

Kevin Reilly

Thank you, Chantal. I'd like to welcome all our shareholders and friends, and as is our custom I'm going to make some remarks about '08 and then turn the call over to Keith Istre who will review some of the particulars and the numbers and then we'll open up the call for Q&A.

Needless to say the local ad environment is challenging. We've been most affected in our bulletin business, particularly our B and C locations. And bulletins, as you recall, generate 64% of the company's net revenue. So we expect that our bulletin business will be a drag on growth for the first half of '08. And the way we see it, it's clearly a Main Street issue, not a Madison Avenue issue.

For '08 on a much brighter note, our digital business is performing well. We look forward to an aggressive rollout in '08, one that will exceed '07. And we've got an improving regulatory environment; we've got declining technology cost and strong customer demand. And all of that leads us to believe that we should continue to be first movers in this area. Digital is currently 6% of our book and growing quite rapidly.

As far as how we plan to allocate capital in '08, no change. Digital has moved up ahead of M&A, so its digital, number one, M&A, real estate, and then share buybacks. And then, of course, only share buybacks are financed. All of our other activities will be out of the company's free cash flow. In that respect, '08, we still feel that we can invest aggressively in our core enterprise and generate superior returns for our shareholders. Regarding our maintenance CapEx, now that we've completed several refurbishment programs, you should see a substantial drop in the company's maintenance CapEx in '08.

With that, I'd like to turn the call over to Keith Istre to walk you through some of the numbers.

Keith Istre

Good morning everyone. Just to highlight a couple of things in the quarter; as you saw in the press release, the quarter came in as expected. Top-line pro forma revenue growth was 6.1%. We guided to approximately 5-6% and Sean will get into the particulars later, but about half of that came from digital, the other half came from static.

Expense growth was as expected, approximately 2% for the quarter. As you guys remember, our historical pro forma operating expense growth is generally 4-6%. With that the EBITDA came in at 11.3%. So, all things considered it was a very good quarter for us.

Just to sum up the year real quick, since we don't put that information in the release. Top-line pro forma revenue growth was 7.3%. Direct and G&A operating expenses before corporate was 3.9%. Again that's right at the low end of the 4-6% range that we normally guide you to in forecasting our expense growth on a quarter-to-quarter, year-to-year basis. 1% of that 3.9% came from the digital deployment that we did in '07. We expect that additional 1% added expense growth to continue in '08 as digital continues to roll out.

Corporate overhead expense grew 7.6% and EBITDA for the year was 11.2%. Our EBITDA margins went from 44.5% last year to 46.2% and a lot of that was due to the very high margin digital business and the low end of the range pro forma expense growth. The only other thing you saw in the release, our CapEx came in at $220 million. We told you on the last call we expected it to be about $215 million. Again we were in the range there and $92 million, in case you didn't notice, was what was spent on digital in '07.

With that, Sean, do you want to…?

Sean Reilly

Sure, thanks Keith. I'll walk through some of the usual metrics that we put out to help you walk through our performance. On number of digital units, up in the air, we closed the year out '07 with 639 units in the air. That compares to the end of the third quarter of '07 of 574 units in the air. Call-over-call, as of today we have 670 units in the air and that compares to last conference call's 599.

As Kevin mentioned, we are going to continue to be aggressive on our digital deployment. We feel like we can significantly outpace last year's deployment. And our best business judgment is that even in the face of a difficult local ad spend, that the digital product is being incredibly well received and we should continue to aggressively deploy.

On occupancy and rate, I'm going to quote these without digital units - this is static inventory only. Occupancy for Q4 '07 for posters was 66% and that compares to Q4 '06 of 67%. Bulletin occupancy was 77% compared to 78% in Q4 '06. On rate, poster rate was $444 in Q4 '07 compared to $426 in Q4 '06, an increase of 4.2%. Bulletin pricing averaged $1,202 in Q4 '07 compared to $1,150 in Q4 '06, or a 4.5% increase in rates. So you can see we suffered 1% decline in occupancy in the fourth quarter on both products but made up for it with rate.

And looking into the first quarter of this year, it appears that we're still doing well with rate on our static product, and reasonably well on occupancy with the poster product. As Kevin mentioned, the issue we're having, given the strength of local economies out there, is occupancy in our bulletin locations, particularly the not so primetime locations. And we're just going to have to manage through that.

On the acquisition front, last year we closed 72 transactions for an aggregate purchase price of $153,593,000. Those were all cash for assets transactions. On our list of top ten advertisers for the year of '07, the top ten went as follows. McDonalds was our largest customer followed by AT&T, followed by Cracker Barrel, (Chevrolet), State Farm, Holiday Inn, Verizon, Cingular, Dodge and Coors.

The only one that I would point out of note was AT&T. Of course, they went through a massive re-branding campaign last year with their buy-out of Cingular. Their spend with us this year will revert to normalized levels. They were very aggressive and a great customer last year but we don't expect them to be number two again this year. We expect Cracker Barrel to fall back into where they usually are which is our number two customer.

In terms of categories of business, retailers were 11% of our books, restaurants 9%, automotive 9%, real estate 8%, hospitals and Medicare 7%, gaming, service, telecommunications all at 6%, hotel/motel 5%, entertainment and amusements again 5%. I think the only thing there of note is the real estate category of business. We anticipate that as a percentage of our book it will remain in the first quarter around that 8% level. However, they are traditionally buyers of our B and C bulletin inventory and they are 12 month contracts. So we are going to have to watch that one carefully, particularly in places like Florida and Southern California.

Again, looking at the first quarter and the guidance, it's clear that - if you want to call it recessionary characteristics in our analog book of business, it's clear that it's beginning to take hold. Of the anticipated 2% growth in our aggregate book of business, we're going to get a 3% contribution from our digital rollout. But analog is now approaching negative 1%. It's not quite there but it's getting there. So I would say that question we were asked last quarter, had it crept into your book of business? At that stage of the game the answer was no, at this stage of the game I would have to say that the answer is yes.

On national versus local, Kevin referenced that this is a Main Street not a Madison Avenue problem and that is bearing out in where our national book of business is. We're tracking to the mid-singles up in national business. Wireless, in spite of a little bit of pare back by AT&T, continues to be strong. The other top ten categories of our national book of business are essentially recession proof and so we feel comfortable there. The only real estate customer in our national book is REMAX and they are actually going to spend more with us this year than they did last year. So again we feel good about the national book of business.

Interestingly, interest in our digital platform is really picking up at the national level. Last year in total digital national sales we only did $6 million. This year, as of today, we've already booked $4 million and so we're pleased, again, with the way the digital platform is being received by advertisers and we see an awful lot of activity on the digital front, particularly nationally.

With that, Keith, Kevin, we'll open it up for questions?

Kevin Reilly

Yeah, great Sean. Chantal, can we open up the call for questions now?

Question-and-Answer Session

Operator

Yes Sir, thank you very much. (Operator Instructions) Our first question will come from Christopher Ensley of Bear Stearns.

Christopher Ensley - Bear Stearns

Keith, you didn't outline perhaps what your expense outlook was for '08 with slowing top-line. Are you still thinking 4-6%? Or you've shown a lot of good cost control the last two quarters, is that something we continue to expect? And then I have got a quick follow-up as well.

Keith Istre

Yeah, I think so Chris. We don't have any outstanding projects on tap for '08 that would bump that up other than the normal 4-6% as of right now.

Christopher Ensley - Bear Stearns

So 4-6% is still where you are thinking for '08?

Keith Istre

Yes, that's what we are looking for '08 on the operating expense side before corporate overheads. That is correct.

Christopher Ensley - Bear Stearns

Two quick follow-ups. One is in the past you have provided a monthly, as the latest month you had x number of digital boards, x number of revenues. I just want to make sure that the digital expectations aren't running ahead of where you're seeing it. And then the second is historically, you guys haven't gotten any political, but it would seem with digital boards, that could be a real opportunity for you guys. Is that something you're aggressively pursuing?

Keith Istre

On the digital count, just to give you some guidance for '08, we expect that we will roll out more units than we did in '07. And we hope to exceed it by a significant amount, so that should give you some guidance.

Christopher Ensley - Bear Stearns

I think what I was also - just, sometimes you say that in the month of x, we had this many boards and did this much digital, I just want to make sure my digital isn't running too aggressively. Do you have a December number or a January number, whichever your latest month is, revenues on your (digital) boards?

Keith Istre

We're pulling it.

Christopher Ensley - Bear Stearns

Great, thanks. And then on the political, is that an opportunity for you guys?

Sean Reilly

Basically on the political, our political traditionally has been not driven by the national cycle, because we don't tend to be too relevant in national primaries, either president or US Senate or Congress. We do get a lot of local political, and it doesn't tend to be seasonal in our book, because local elections take place at different times all across the country. So it's not something where you would see that sort of TV spike that you get in the television business. We certainly are getting a lot of interest from political races in our digital product. Again this is typically not federal. Again, it's the sort of typically local. They can do the tit-for-tat type of political advertising on digital and some are using it for that, but again, I wouldn't start building it into a model that implies seasonality.

Kevin Reilly

The change in our digital book that we're seeing right now, is we're getting a little bit more national attention. We've got 600 and some odd units up across 120 markets, if you add up the traffic in front of our units it's about 22 million people a day. I know that some of these people are double counted, because you've got multiple units in the marketplace. And what we're seeing is some national customers stick their toe in the water. We had an interesting buy around the holiday season, where Coke took some money out of their television ad spend and just bought two weeks. And they had some Christmas copy up, and then they changed it for the second week with New Year's copy. And they bought across the entire platform. They called on a Friday and we executed on a Monday. So we expect that continued national interest.

We're going to see a little bit of change in our revenue. When we started out on this odyssey, our goal was to end up at the end of the day with a network that was relevant for local, regional and national customers, but we knew that we weren't going to attract national customers until we got the scale and could deliver an audience worth considering. And as every day goes by, I'm more and more convinced that five years from now, we will have a platform that is relevant for both local, regional and national customers. And I think that this year, in '08, you're going to see a higher percentage of national business run through our digital network.

Keith Istre

Let me give you December's number you were looking for.

Christopher Ensley - Bear Stearns

Great.

Keith Istre

In December, digital billing was $6.8 million. It represented 7.8% of our total book of business.

Christopher Ensley - Bear Stearns

And how many boards at the start of December?

Keith Istre

I'm sorry?

Christopher Ensley - Bear Stearns

And you had roughly more than 600 boards maybe?

Sean Reilly

Yeah, we ended December with 639 in the air.

Christopher Ensley - Bear Stearns

Great, very helpful, thank you.

Operator

Thank you, our next question will come from Eileen Furukawa from Citigroup.com.

Eileen Furukawa - Citigroup.com

Thank you for taking the question. I'm just wondering, is the weakness still particularly in regional areas that have been hard hit by real estate, which is kind of the message you've said in the past? Or is today the weakness you're seeing in your core business now more widespread across all geographic regions? And also, you talked about your core business trending down 1%. I'm just wondering, do you guys have an insight in whether you think this - do you think it's more likely that this actually could be short-lived, or do you now think that this core weakness in your business is going to spread over at least a few other quarters? And then I have one other question on digital after.

Kevin Reilly

It feels shallow to us, because our poster business is doing fine. But we know that we won't, because it's isolated to our bulletin business, the way that those contracts run off, we know that we're not going to pick it up real quickly. So we think we will be impacted at least for the first half of this year. And the weakness in our bulletin business, it's more pronounced obviously in those markets, those regions where the housing downturn most affected local economies, but having said that, it is across our entire platform, particularly the B and C locations.

Sean Reilly

Yeah, and if I was going to have to go regionally and talk about it, I think the difference from our last call is that some of the economies that seem to be a little insulated, like Texas and Oklahoma and the Gulf Coast, they're beginning to show the fissures that have been there for several quarters in places like Southern California and Nevada and South Florida. So this is a cold that the rest of the country seems to be catching.

Kevin Reilly

The reason I say shallow is because we're not seeing a dramatic runoff in our book, so it's one of these things where, if there is the possibility that we could actually have a pick-up in the back half of the year.

Eileen Furukawa - Citigroup.com

Okay, and then on digital, you mentioned in your remarks that board costs are coming down. Can you kind of give us a sense of the magnitude of cost reductions? And then you also talked about the regulatory environment on digital loosening up. Is this across the board, or is this primarily larger cities, smaller cities? Just kind of some color around that. Thanks.

Sean Reilly

The regulatory environment is really being driven by two key states that we're getting to see some relief in: New York and Texas. We have a big vote in Texas coming up next week, we anticipate that it's going to go our way, the industry's been working it very closely, and that will open up the whole state of Texas, which is now for the most part shut down. We have a similar issue in the state of New York that we're making progress on. Time horizon there is probably a couple of quarters away. It's not as in next week, but we do anticipate that we're going to get some good news out of New York State. So those are two primary drivers of an improved regulatory environment.

Eileen Furukawa - Citigroup.com

And the cost magnitude? Is the cost coming down?

Sean Reilly

The cost is essentially being driven by two things. Number one, we have been working very closely with our vendors to improve the product, primarily from weight and power consumption and the like, and that doesn't drive up cost. When you start talking about resolution - improvements in resolution, which we think we have the product where it needs to be, you tend to counter the normal cost curve in technology. So we've been working with them on things other than resolution, which has helped on the cost curve. But it's primarily been driven by volume, and we've worked with our two main vendors to lay in, take or pay contracts this year, of a sufficient volume, that have gotten us roughly a 20% decrease in cost.

 Most dramatic decrease in cost is in posters. We've had a stated goal for a while now to get the cost of a poster down below $100,000 a unit, and we're there, so we're feeling good about where we are with our vendors, they're doing a great job, they're great partners, and on that side of the digital deployment, I think all the news is good.

Eileen Furukawa - Citigroup.com

Okay, thank you very much.

Sean Reilly

Oh, I just was informed that the Texas vote is tomorrow, on opening up digital, so let's hope that goes our way.

Operator

Thank you. Our next question will come from Mark Wienkes, Goldman Sachs.

Mark Wienkes - Goldman Sachs

(Inaudible) penetration in those markets, or in short, are you seeing any cannibalization yet in those markets with a higher digital penetration, or when do expect to see that, if you do at all?

Sean Reilly

Well, we've been saying for a while that we wanted to cross that 20% threshold and see what happens. The modeling suggests that there's marginal cannibalization. What I'm hearing anecdotally is that perhaps we've moved some customers from some of those B and C locations on the bulletin side to the digital products, because they've always wanted to be in the best locations in town and they've never been able to get there. Digital allows them to get there. But as we model and look forward right now, I don't see it as being greater than that 10%-ish number. And I think when you look at what digital is doing for our aggregate, same-store growth in the face of a difficult local ad environment, I think that bears that out.

Kevin Reilly

Mark, I look at it a little bit differently. The execution across the board is a little uneven, and those managers that understand that this is great stuff for a call to action and time-sensitive events are attracting new customers. But we have some managers that are just going to their best customers and trying to get them to increase their ad spend or shift their ad spend from the analog to the digital.

Mark Wienkes - Goldman Sachs

Right, so...

Kevin Reilly

That's our concern. My concern right now is not, at what point do you start cannibalizing your existing - you can do that from the get-go, from the day one. Really the concern is to try to have a more even, expert marketing effort, to those customers that can really benefit from what we have out there.

Mark Wienkes - Goldman Sachs

And I just wanted to confirm. It sounds like, is it fair to say you're letting occupancy lapse more on the billboard side versus signing 12-month deals at flat pricing. Is that what's going on?

Kevin Reilly

We've always done that, and it would be unwise to lock-in low rates long at this juncture.

Mark Wienkes - Goldman Sachs

Right, has the average duration of your contracts changed at all in billboard, or you're just not signing those deals?

Kevin Reilly

No, there's no significant change in the average length of time.

Mark Wienkes - Goldman Sachs

Right, okay, so then just one for Keith. Is it fair to say your leverage will trend toward the low end of your four to six range, that that's the focus now?

Keith Istre

Mark, could you just?

Mark Wienkes - Goldman Sachs

Leverage. Leverage to go towards four times.

Keith Istre

Not really. I think we're at five times right now, that would be total. And we've always said that share buybacks are part of what we're going to be doing for the next four or five years, and if we are optimistic about our prospects going forward, and we see an opportunity to take advantage of a blip in the share price, we wouldn't be unwilling to tolerate a little bit more leverage. And I think for a company like ours that the credit spreads, it might be a little more expensive, but the credit is certainly available to a company like ours.

Mark Wienkes - Goldman Sachs

Right, okay. That's great, thank you.

Operator

Thank you. Our next question will come from Marci Ryvicker, Wachovia Securities.

Marci Ryvicker - Wachovia Securities

Thanks. I have two questions. Sean, it sounds like posters are actually coming back, if I'm listening to you correctly. I think last conference call you said posters were what was a little bit weaker, and the ad rate year-over-year was about up 3%, now it's up 4%. So I just want to know if I'm hearing this correctly. And then the second question is, what is the main driver of the acceleration in your digital rollout? Is it the regulatory environment, the cost coming down? Is there one particular driver over the others?

Sean Reilly

On the first question, you heard correctly. I mean, posters are performing better on a relative scale than bulletins in our book. We're up in rate, and for the quarter, it looks as though we're going to be up in occupancy, on the poster side. So we've isolated the problem, the bulletins. If you've listened to our last couple of conference calls, there have been data points that make what's going on in our economy today and what's going on with Lamar today look a little bit different than going into the last recession. Typically the canary and the coal mine is posters.

And what we're seeing now is weakness in the bulletin area, which is, again, counter-intuitive, and again typically the canary and the coal mine is national ad spend, not local, and that's just the opposite going into this one. So it's been a tough read on what's going on out there, and I think we can manage to the issue on bulletins in a way that helps us to come out of stronger. So we've isolated that issue and we're going to manage to it.

Kevin Reilly

Marci, on the digital question – it's the regulatory environment first. But really all three are cause for optimism. Declining technology costs and the strong customer demand. So you put those three together – there's a real imperative for us to be a first mover. And we need to exceed our deployment performance in '08 substantially over what we've accomplished in '07. Sean mentioned that we have a great relationship with our vendors. But we are using up most – Lamar and Clear and using up most of the domestic US capacity at this point.

Marci Ryvicker - Wachovia Securities

Thank you.

Operator

Thank you. Our next question will come from Jason Helfstein, Oppenheimer.

Jason Helfstein – Oppenheimer & Co.

Hi, thanks, can you hear me guys? Okay. Two questions: first, on digital, I mean clearly it sounds like the advertisers are more resilient on digital. I mean part of that's probably because they're convinced it's more impactful. But I'm wondering if the duration of the digital contract is more of a motivation for them to stay in digital, whereas they're hesitant to find a longer term billboard contract. And then my second question, Keith, you guys managed expenses obviously really well in the fourth quarter, much better than I think we expected, even you expected. Can you talk about where that came from and if you have any expense flexibility for the first half of '08. Thanks.

Kevin Reilly

I'll answer the digital question first. It could be that short cycle sales are easier. Of course it's less gross. You may not be getting the same frequency but it's also less a gross dollar outlay on behalf of the customer, which is a good thing, but it also creates some challenges for us. It means that we need to be, we need to work really hard to take the friction out of the sales process. Because when you look at these short cycle, small dollar transactions, we want to be able to execute these things in a very profitable way. So I think you'll see by the end of the year, or at least in the next 18 months, we'll unveil a very robust front-end that is extremely useful for all of our costumers, both national and local, where they can easily go in, create and insert ads for the time that they require.

Sean Reilly

But Jason, I think you put your finger on something important. Our customers, they have the confidence to buy short, and they see a meaningful impact very quickly with digital. You know, if we're sitting down on a bulletin contract and ask them for a year commitment, I think that's where, at renewal time there's a little bit of a pause. And I'm hearing that anecdotally, you know, out there from the field.

Keith Istre

Jason, your question was about the expenses in the fourth quarter?

Jason Helfstein – Oppenheimer & Co.

Yeah. Correct, yeah, correct. So what drove - your expense growth was a lot lower than I think we thought and other people thought and do you have any flexibility in the same regard for the first half of '08?

Keith Istre

Well, if you remember in '06, we had some special projects that we had implemented in the field, with respect to maintenance and vegetation control and so forth. And we told the market that expenses in '06 were going to be running on the high side of the 4-6% range. A lot of those expenditures occurred in the second half of '06. So we did not have those expenses in '07 so we, that's why we told the market that in the back half of '07 our expense growth would lighten up over the first half of '07 and all of '06.

There's not the same type of comp - not the same type of expense/comp relationship in the beginning of '08 that there was at the end of '07. Which is why I mentioned at the beginning of the call that I thought our expenses should be in line with our normal 4-6% operating performance expense growth. So I think it'll just be a normal year 4-6%. Right now, if I had to guess I would assume it would be somewhere between 4% and 5%.

Jason Helfstein – Oppenheimer & Co.

Okay. Thank you very much.

Operator

Thank you. Our next question will come from Anthony DiClemente, Lehman Brothers.

Anthony DiClemente - Lehman Brothers

Two questions. One is on the economy, and one is on digital. On the first one: If you compare Lamar to CBS and Clear Channel Outdoor, CBS is pacing along at high single digits for North America billboards, Clear Channel, round single digits and now your guidance is for low. I'm just trying to understand the discrepancy. And it seems like it's national versus local or large market versus small market. Is that true? And then, I guess the question is can you give us a little more texture on that? Why is it that the local businesses, as you see it, are in fact, struggling more than national. And if that's true, can you for the fourth quarter break out national versus local revenues for us, just to give us some idea of what's going on?

And then the second question on the digital rollout is, it does seem as though if you look at the fourth quarter boards per month, that it was around 21-22 and then January -February you're pacing along at 17-18. And that's actually a deceleration from the 25-30 that you saw on the beginning part of '07. So can you just help us with what is the catalyst to re-accelerate the digital deployment into '08 as you've guided to at the outset. Thank you.

Kevin Reilly

Sure. Let me hit the local/national real quick, and then we'll discuss the digital deployment. The local/national mix for Lamar for '07 was 82% local and 18% national. And that is a profile that is different from Clear Channel and CBS. And I think you put your finger on a little bit of the issue, in terms of the discrepancy in their guidance and our guidance. They tend to have a mix that's 60-40, 50-50, and as I mentioned in the opening comments, we don't think that this is a Madison Avenue issue. Our national book of business was up 14% last year, and going into this year against that very difficult comp, it looks like it's going to be up 6-7% So, you know…

Anthony DiClemente - Lehman Brothers

Can you help us with those numbers for the fourth quarter, please?

Kevin Reilly

The fourth quarter local/national mix?

Anthony DiClemente - Lehman Brothers

Yeah. The growth in national versus the growth in local in the fourth quarter.

Kevin Reilly

20% up in national in the fourth.

Keith Istre

I'm sorry, 16% in Q4

Kevin Reilly

Q4 we were up 16% in our national book of business. The percentage of our total book I'm going to have to get you for the fourth quarter. It was 82-18 for the year. But in general, we've read your stuff on what you're contending is a secular trend away from local. It may or may not be the case. It feels to us like this is cyclical. So it feels to us like Main Street USA is either in, or shortly going to be in a recession, and our book of business is behaving like it behaves when that happens.

Sean Reilly

Also share shift, if you look at the out of home industry, which is 4% total ad spend, the billboard industry by itself is just 1.5% of ad spend. So it's a small piece of the ad pie, so on the national level, if you got some share shift taking place you can have a huge impact on it. Because we have such limited capacity, it can have a huge impact on our industry. And if you look at our performance over the last several years, we benefited from this local ad share shift. And I think, you know, we will still benefit. But one or two decisions by these national customers can have a huge impact on our industry.

And if you look at who's using out of home right now, some of those costumers are pretty much recession resistant. I mean certainly the wireless carriers are going to continue to compete pretty fiercely. I know that there's a $99 all-you-can-eat plan out there right now that they're promoting, and our industry is going to get plenty of wireless business. And then the customer list goes on, McDonald's etcetera.

Kevin Reilly

On the digital front, you know, I wouldn't get too wound up about the quarterly timing of boards in the air. We have, we track it by boards that have been approved on order and going up. And as I look at '08, we will significantly outperform '07 in terms of getting boards up and in the air. And we're taking delivery on, we're contracted to take delivery on more. But it is noted that we did get up to a little slow start in Q1, and we will be a little back-end loaded for '08.

Anthony DiClemente - Lehman Brothers

Okay guys, thanks for taking the question.

Operator

Thank you. Our next question will come from James Farrant, Morgan Stanley.

James Farrant – Morgan Stanley

Just a couple of quick ones. The first one is, is your assumption for a significant rollout for digital boards in '08 sort of predicated on getting regulatory approval in both, or Texas or New York? And then the second one is, just given the potential substantial rollout in digital boards and given that the cost per boards coming down potentially up to 20%, how do you look at digital CapEx for '08, do you still see digital CapEx up 10% or 5%? How should we think about that?

Kevin Reilly

I think you'll see on the CapEx number, the digital CapEx coming in at the 100-110 level - $100-110 million. And you'll see a corresponding decrease in what traditionally has been our maintenance CapEx. So the total CapEx is going to actually be a slight decrease in '08. That's how the CapEx number is going to come down. And again, we get more units for that dollar, because of the contracts we've negotiated with our vendors.

James Farrant – Morgan Stanley

Right.

Keith Istre

In '08 expectations are not predicated on New York or Texas.

James Farrant – Morgan Stanley

Okay, so that's a potential upside if you get approval.

Keith Istre

Correct.

James Farrant – Morgan Stanley

Okay.

Operator

Thank you. Our next question will come from Jim Boyle, C.L. King.

James Boyle – CL King & Associates

Good morning. Kevin, how does the advertising rate discounting by other low-cost media such as radio, weekly newspapers, yellow pages etcetera, how does that affect your salespeople's efforts to hold to Lamar's static display rate card? And is digital ad rate pressure in these tough economic times any different?

Kevin Reilly

Digital is a little different, because yield is more important than rate. And also with digital you have different rates. You've got daily, weekly, monthly and annual contracts. And there's a premium you pay, the shorter you go the higher the premium. And so with digital it's more yield management, and a little bit less rate sensitive. And that's all, you know, this is all new to us.

Digital means speed, and speed means capacity. And the ramifications of that is we've got to get very sophisticated with our yield management, and we also need to have plenty of compelling content, not necessarily paying content, but other compelling content. Because, just to give you a little example, you take our existing platform today and you assume all annual contracts at let's say 80% utilization, that would yield about $75 million in revenue. If you took that same number of units and went 100% daily contracts, you'd have an 18%, at a slight premium, not a heroic premium to your annual rates. It would only require an 18% utilization to achieve $75 million. So, we're focusing on - but, also you'd have 250,000 transactions, versus 50,000 or 20,000 transactions.

And so this is where we're thinking about how we can take the friction out of the sales process and get our entire organization thinking more in terms of yield management. And so you'd have a certain percentage of your book would be short, a certain percentage would be long. And it would be the optimum yield management for the platform. And also optimum for customer demand.

Did that answer part of your question?

James Boyle -CL King & Associates

Partly. I’m probably going to have to re-read it to get the full impact. Can you go over to the analog side? What is happening to your salespeople with radio and Yellow Pages and weekly newspapers cutting their rates?

Kevin Reilly

We’re still the lowest cost per thousand and rate is not the issue. It’s efficacy. I mean, is this the right thing for me to be doing? And we’re insulated, because of our cost per thousand, and we don’t have audience erosion discussions, and if you look back at our performance over the past several years, there’s clearly a share shift taking place in the marketplace, and that bodes works well for us.

Keith Istre

Yeah Jim, just checking with the field, I’m not hearing anybody anecdotally tell me that they're having problems with B and C bulletin renewals because of competitive friction from the other media. I mean I’m not hearing that at all.

James Boyle - CL King & Associates

Well, that’s a plus. Also, could you give us an update on any further progress on the research front either with GPS of other devices?

Kevin Reilly

We are soldiering on right now, and we hope to unveil - it’s getting a little embarrassing because we keep pushing it out farther and farther but I think we’re closer this year - we will unveil TAB’s efforts. Nielson is trying to develop a competitive audience measurement system, but I think the industry and the customers are going to find that the eyes-on approach that TAB is developing - I think the TAB’s the Traffic Audit Bureau’s measurement system will prevail, and I think it is going to do a lot for our industry especially with our national customers that want to be able to slice and dice our platform by demographic profile.

James Boyle - CL King & Associates

If we hit a full-blown economic recession, and you’re hurt even more on the analog side, could you envision an '08 digital revenue flattening out or going negative even?

Kevin Reilly

I think it’s too early in the game Jim, because we’re putting up additional units. So it’s…

James Boyle - CL King & Associates

But on a same board digital basis would a full-blown recession flatten out your digital?

Kevin Reilly

I mean, again, it’s a new product roll-out..

Keith Istre

It’s not worth speculating on something like that. I mean, there’s a huge fissure in Yellowstone Park, and what’s going to happen to all the houses around Yellowstone if that fissure opens up and there’s a huge eruption? I don’t really know.

James Boyle - CL King & Associates

Okay. Thank you.

Operator

Thank you. Our next question will come from Brian Shipman, Jefferies.

Brian Shipman – Jefferies & Co.

Thanks. Good morning. A question focused on, I guess, the digital board that you’ve had up for six or 12 months or longer, the smaller subset obviously, but you mentioned yield management as being the real issue there. How has yield directionally been for those boards that have been up for a longer period of time?

Kevin Reilly

It’s been fairly steady along the metrics that we’ve quoted. For the smaller poster size units, we’re averaging about $6,000 a month. For the 10x6x36, or smaller bulletin format, we’re averaging about $12,000 a month and for the 14x48s we’re averaging about $18,000 a month, and that metric has held up, and it’s held up for boards that have been up for longer than a year that we can track.

Jim asked the question about what happens if we go into a “full-blown recession”? I think a more interesting data point is going to be, what happens in those markets where we have competitive digital product up with more than one company. And we’re tacking it very closely in Las Vegas where we go head up against Clear Channel. Both companies have a very robust bulletin network up and as I mentioned to Jim, it’s a little too early in the game to figure out what’s going to happen.

We’re just going to have to track that closely, and report it to you as we get good and better data points. But right now, we seem to be okay.

Brian Shipman – Jefferies & Co.

Okay. And if I may, a follow-up question; you alluded a little bit to hoping for a second half recovery in the bulletin business. Is that statement based on any specific conversations you’ve had with advertisers at this stage?

Kevin Reilly

It’s sort of the way our book comes together. Especially on the bulletin side, it just looks exceptionally weak in the first half and the data points we’re getting from the large advertisers, which are typically national, are all good.

And it’s harder to get anything other than anecdotal from what’s happening to tens of thousands of our local main street customers. You know, when you look at the categories of business, and the percentage each represents in our book of business, you just don’t see dramatic moves that would point you in one direction or another. So again, we’re getting good comfort from large national customers and we see a distinct slow-down at the local level

Keith Istre

Chantal, this will be our last question. Let John Blackledge be our last question.

Operator

Thank you, sir. Our last question will come from the line of John Blackledge, JP Morgan.

John Blackledge - JP Morgan

Thanks for taking the questions. Just a couple of things, given that we’re two thirds of the way through the first quarter, and I know you said the first half is going to be weak, particularly in bulletins. I’m wondering if you’re seeing a deceleration in the overall top-line in this second quarter from the first quarter. And then, I’m just trying to identify what a substantial growth or deployment of digital boards '08 versus '07 means. Is that 50% more boards added this year versus '07? If you can try to quantify that, if possible. And what are bulletins? I know you said that the posters are under $100,000 at this point. What are bulletins costing at this point? I know that they were about $300,000. I don’t know it that’s come in, and then expense levels and depreciation for '08. Thanks.

Kevin Reilly

We haven’t given any guidance for the second quarter other than describing what our bulletin book looks like that half the year. And regarding the number of units that we hope to deploy, it was somewhere at 300 and change last year - 325 units, and so we would consider it a very good year if we came in at 400 to 500 units for '08.

Sean Reilly

And on the cost decrease on the bulletins side, it depends on what format you’re talking about, but 20 to 25 decreases is a pretty good number

John Blackledge - JP Morgan

And then just the interest expense and depreciation.

Keith Istre

Depreciation in '08 will be the same as '07. Depreciation and amortization, interest will be a little bit less. Rates are falling. I don’t know where they’re going to bottom out, but you’re probably looking at $10 - $15 million less in cash interest expense.

John Blackledge - JP Morgan

Thank you.

Operator

Thank you. Gentlemen, at this time we have no further questions in the queue.

Kevin Reilly

Chantal, thank you for managing the call. I want to thank all our shareholders and friends for tuning in, and we look forward to our next quarterly call.

Operator

Thank you. Ladies and gentlemen, at this time this call has now concluded. You may now disconnect. Thank you and have a great day.

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