Lamar Advertising Company Q1 2008 Earnings Call Transcript

| About: Lamar Advertising (LAMR)

Lamar Advertising Company (NASDAQ:LAMR)

Q1 2008 Earnings Call

May 7, 2008 11:00 am ET

Executives

Kevin Reilly – Chief Executive Officer

Keith Istre – Chief Financial Officer

Sean Reilly – Chief Operating Officer

Analysts

Chris Ensley – Bear Stearns

Marci Ryvicker – Wachovia Securities

Mark Wienkes – Goldman Sachs

Jason Helfstein – Oppenheimer

James Farrant – Morgan Stanley

Kit Spring – Stifel Nicolaus

Anthony DiClemente – Lehman Brothers

Jim Boyle – C.L. King

Brian Shipman – Jefferies

Lloyd Walmsley – Thomas Weisel Partners

Chris Li – Merrill Lynch

Kevin Reilly

Welcome all of our shareholders and guests to our Q1 conference call. As is our custom we’ll lead off with some brief comments and then open up the call for Q&A. I’ll go ahead and start first just by letting all our shareholders and friends know that the Q2 guidance, there’s really no change from Q1. We’re in a soft ad environment. Our bulletins are slightly down, posters are slightly up and our digital platform continues to perform according to plan.

All this nets out to fairly flat to slightly up sales guidance for Q2. And it remains to be seen what happens with our bulletin portfolio on the back half of the year. We continue to struggle in the real estate category and in particular in those markets that have been negatively impacted by real estate in their local economies.

With that, I’d like to turn the call over to Keith Istre, who will walk us through the numbers.

Keith Istre

Good morning everybody. Just real quickly, highlight a couple things, as you saw we had posted pro forma revenue growth of 2.3% for the quarter, we had guided to 2%. Kevin mentioned our guidance for the second quarter is basically flat to up 1.

In addition to a couple of the comments that Kevin made, I’d like for everybody to just remember that in the second quarter of last year our pro forma revenue growth was 9% for the quarter. So we do have a bit of a tougher comp than the first quarter of last year which pro forma revenue growth was up 7%. So we did a two on seven quarter over quarter last year and we’re guiding basically to flat to up one on a 9% quarter in Q2.

On the expense side, Q1 as we told you all on the last call we really didn’t see anything extraordinary happening. So our pro forma expense growth was up four and some change. And it looks like that probably should carry over into the second quarter. We don’t see any unusual items on the horizon as of right now. So we don’t think there’ll be much change in the expense growth for the second quarter.

On the cap ex you noticed in the press release we had it broke down by category but the total was $50 million for the quarter. $25 million of that was the digital. On the last call we told you that our guidance for cap ex for 08 in total would be about $200 million, $100 of which would go to digital and the rest would go to traditional cap ex billboards, logo trends and operating equipment and so forth.

So as of the end of the first quarter we are on pace to hit those numbers. Last, just to touch on the debt leverage, we did buyback $50 million worth of stock in the first quarter. At the end of the quarter without our converts our total leverage is 4.5:1, with the converts it’s 5:1 and as I think most of you know, we borrow at the, without the converts level so with, for borrowing capacity purposes, our covenants that we borrow against, we are at 4.5:1.

The other thing I mentioned in the press release was that our guidance did not include revenues from the Vista acquisition which will be about $3 million a month when we close. Right now our attorneys are telling us it looks like we’ll close that acquisition on or about May 15. So that will be in next quarter’s guidance. Sean.

Sean Reilly

Thanks Keith, I’ll quickly hit some of the operating statistics that we give out every quarter. First on digital and numbers of units, we ended the quarter with 719 units in the air, 394 of those were bulletins, 325 were posters and we had coverage in 121 markets. We traditionally do a call over call number and as of yesterday we had 774 units in the air, 419 were bulletins, 355 were posters and we’re in 122 markets with our digital footprint as of today.

In April our digital book of business was $7.5 million and as Kevin mentioned, we’re very pleased with the way digital is holding up in a tough ad environment. Virtually everywhere it’s performing to plan. There’s one exception there which would be Las Vegas. I’ll touch a little bit in a minute on what’s going on in Vegas but suffice it to say, it’s a very difficult environment in Las Vegas today.

We’re also getting more and more national interest in our digital footprint. In 2007 our national business was $6 million. In digital spend we’ve already booked year to date $10.25 million so again we’re building something that’s becoming more and more interesting to national advertisers.

Rate and occupancy statistics, on posters our Q1 occupancy was 60% and that compares to 60% in Q1 07. Again, consistent with that theme, posters are hanging in there while our bulletins are struggling. On the occupancy side for bulletins, Q1 08, 74%, Q1 07 76%, so we’re 2% down in occupancy quarter under quarter.

On rate, on posters, Q1 08 average rate for posters, $435.00, that’s 2% over the $426.00 average rate for poster in Q1 07. And on bulletins, Q1 08, $1,170.00, that’s 3% over our Q1 07 rate of $1,140.00. So we’re, as is typical when times get tough, we’re doing well on rates and struggling a little bit with occupancy in the bulletin category.

Local national business, our national business continues to perform well. In Q1 08 we were up 8% on our national book of business. And it has resulted in regional national business ticking up 1% in terms of our total book of business. So in Q1 08 we were 79% local and 21% national regional.

In terms of acquisitions, year to date we have completed 22 acquisitions for an aggregate cash purchase price of about $68 million. Top ten advertisers, really no change, McDonald’s number one, Cracker Barrel number two, Chevy number three, Holiday Inn number four, those were all the same top spenders with us in the same quarter last year.

Interestingly, McDonald’s has come in with a real nice national buy that straddles the second and third quarters. Very, very strong, in excess of $6 million and we typically get McDonald’s from our local franchisees, but this was a buy out of national and we’re real happy about it.

Top categories of business, again, not a lot of change here, restaurants 10%, retail is 10%, anecdotally that retail has ticked up 1%, Q1 08 over Q1 07 and digitals was responsible in large part of that. Automotive at 8%, real estate at 7%, hospitals at 7% and so on, so not a lot of shifting in categories business.

In terms of strengths and weaknesses in categories, as I mentioned, local retail has picked up and that’s digital but we’re also seeing strong demand, particularly regionally and nationally from the wireless carriers. And the weakness, and this won’t come as any surprise is in the automotive and real estate categories.

Regionally we’ve got what I would describe as continued weakness in the Western region, primarily Las Vegas. I don’t know that the R word is applicable in Vegas anymore, you may have to go to the D word there. Things are pretty tough in Las Vegas but you know we continue to believe in our digital product there.

I would note that both Clear Channel and Lamar are continuing to add digital capacity. Both companies have confidence in the product and in the face of continued weakness we continue to build out our digital networks there and we have confidence in them in the long term.

We have some regions that are actually doing pretty well. In the Mid-Atlantic states, North Carolina, Virginia, South Carolina and in the Pacific Northwest, those economies seem to be hanging in there pretty good and actually performing to budget. And everywhere else it’s sort of slogging it through. Alright, with that, Kevin.

Kevin Reilly

Thank you Sean, we’d like to go ahead and open the call for any questions.

Question-and-Answer Session

Operator

(Operator instructions) Your first question comes from Chris Ensley – Bear Stearns.

Chris Ensley – Bear Stearns

Of that 2.3% same store growth in the first quarter, how much did digital contribute to that? I think you were saying your guidance at the end of last quarter, you expected analog to be down about 1%, is that about how it shook out?

Kevin Reilly

Yes, that’s about right, 3ish on digital, down 1ish on static. Which is what we said when we gave the guidance for two, up three, down one.

Chris Ensley – Bear Stearns

And then as you look at the second quarter, is digital contributing about the same to your second quarter growth?

Kevin Reilly

Yes, I mean you’re going to be up 3ish digital and down 2ish on static and that’ll get you to where we guided.

Chris Ensley – Bear Stearns

And one quick update on the regulatory front in Texas is everything still on go for a midyear conversion and then any updates on New York.

Kevin Reilly

Yes, Texas looks good and we’ll be submitting a slew of digital permits June 1. And you know New York we continue to get good vibes but we don’t have anything solid to report, other than we feel like we’re going to get a good ruling here sometime in the back half of the year.

Operator

Your next question comes from Marci Ryvicker – Wachovia Securities.

Marci Ryvicker – Wachovia Securities

Due to the tough comps you had in Q2 would you consider the second quarter to be the trough quarter for the year, is there any anecdotal evidence you can give us regarding the rest of the year in terms of piecings?

Kevin Reilly

We generally don’t go out past the quarter that we give guidance. But I guess to give you some feel for the tone of business, we don’t see anything out there that gives us a lot of encouragement on the second half of the year. But that’s always subject to change. And remember the category that’s not doing well for us right now is our bulletin category and it’s one of those categories that is slow to change, it’s slow to decelerate and it’s slow to accelerate.

Marci Ryvicker – Wachovia Securities

Have the length of some of those contracts come in a little bit?

Kevin Reilly

There hasn’t been a big change, although we do, anecdotally find from the field that the discussions revolve around shorter term contracts versus a long term contracts because of our customer’s lack of confidence.

Marci Ryvicker – Wachovia Securities

On Vista I think you said revenue, the run rate would be $3 million, did you provide an expense run rate?

Kevin Reilly

No, we didn’t. When we announced the transaction we guided to free cash flow or EBITDA of roughly $8, so you can try to back into it. That transaction by the way is we’re still pending Justice approval, we do think it’ll close at some point this quarter.

Operator

Your next question comes from Mark Wienkes – Goldman Sachs.

Mark Wienkes – Goldman Sachs

Thank you, just following up on the second half of the year, I guess could you talk to the business on the books for 2Q and then if you’re ahead or behind or is there any notable change in the bookings for the second half of the year?

Kevin Reilly

I think the Q2 bookings since we’re so close to the end of it are pretty much imbedded in our guidance.

Mark Wienkes – Goldman Sachs

90% or so?

Kevin Reilly

I don’t have that number right in front of me, we don’t typically give out pacings that way. But in general it would be nice to get a little wind at our back in the back half but we’re still looking forward, it’s flattish.

Mark Wienkes – Goldman Sachs

On Las Vegas specifically I guess, if you had to allocate the weakness, I know the local economy is really tough there, if you had to say, is it 80% the local economy and then within that it’s more the real estate category etc. versus the digital push between you and Clear Channel, is it too many boards too quickly or it’s just really the economy?

Sean Reilly

Well it’s first and foremost it’s the local economy, the whole book is sag and in a way billboard veterans would describe as dramatic. Usually for us when things go south you’re talking about going flat to down 1 or 2, that’s not the experience right now in Las Vegas with our book of business there. So the aggregate book is down more dramatically than we’re used to seeing.

On digital specific, trying to build out a new product in the face of those kind of headwinds, it can be difficult sometimes to tell whether or not it’s the headwinds or the product that’s causing you to underperform. We build more aggregate dollars in Vegas on our digital product Q1 08 than we did in Q1 07.

But we had twice as many units up. When I talk to my local team there, they basically tell me, look, some of what we did, we moved customers from our own digitals to an aggregate platform that was bigger and so the same board performance was down more than it may have otherwise been and down more than the aggregate book of business. That being said, when I asked them the question, okay, do you guys want to continue to deploy digital in Las Vegas, the answer comes back yes.

And anecdotally we also know that Clear Channel is adding capacity, just this month they’re adding four more units. And you know so I don’t think we’re, I think we’re cognizant and we’re exercising good business judgment and at the end of the day Vegas will come back.

Kevin Reilly

I would add that it’s just the interesting thing to note is that both companies are moving forward in a difficult environment. I guess the other thing to note is that we didn’t get an opportunity to learn the lesson that we were hoping we would learn and that’s basically what happens to competitive dynamics when you’ve got two robust networks in a market.

And I don’t think it’s that clear to us right now because of the economy, the bottom of the economy dropped out on us while we’re in the middle of this. So it’s not crystal clear but I think we are learning some good things about how two good companies with two good platforms compete in the marketplace.

Mark Wienkes – Goldman Sachs

The stock based comp was a lot lower year over year, I guess what’s a good run rate for 08?

Keith Istre

It’s all performance based and obviously we’re not exactly sure but it will certainly be less than last year. We didn’t get, we had our comp committee approve our performance grid in late March. So our regional managers were not in that calculation, the only three officers were Kevin, Sean and I. So that will increase over the next three quarters sequentially.

Mark Wienkes – Goldman Sachs

Okay but year over year, are we down? Depends on EBITDA?

Kevin Reilly

It’s going to be down, if you look at the last year versus this year and it’s all incentive based so it doesn’t look like it’s, we hope it would be the same but it looks right now like it’s going to be down.

Operator

Your next question comes from Jason Helfstein – Oppenheimer.

Jason Helfstein – Oppenheimer

Just one question on digital, kind of a multi part question. So clearly you’re still seeing strong demand, I mean what it sounds like is that digital will actually sequentially pickup in the second quarter. Can you talk about how much of that’s pricing versus new boards and then just overall are you worried at all that as occupancy for bulletins continues to decline because of waiting demand, is there any risk that that hits digital? And just kind of any feedback that you’ve gotten from the field would be great, thanks.

Sean Reilly

Basically the feedback we’re getting from the field is that they want more. Their customers like digital. They are getting better and better at selling it, they’re getting more and more comfortable selling short. Personally, because I usually, my optimistic glasses on, I think that’s going to bode well for our back half because it’s a shorter cycle sale. That remains to be seen, but all indications on the digital rollout is that it’s going extremely well.

Our local general managers and their customers are asking for more. And I really don’t see that changing. On the bulletin occupancy side, it’s basically at the end of the day, our C&D locations and in good times when customers roll off of those locations, we’re able to replace them. In tougher times it takes longer.

And as Kevin mentioned, a lot of our conversations with customers for that type of bulletin inventory are revolving around, I’ll commit for two months or three months but I don’t want to go 12. And that seems to be the tenor of what’s going on out there in the local economy.

Jason Helfstein – Oppenheimer

So I mean are you getting, can you talk about what kind of pricing gains now that you’ve had some of the billboards versus a year ago or sequentially what kind of pricing gains you’re getting on digital.

Sean Reilly

If you strip out Vegas and because it skews the same board numbers as I mentioned, then basically what you see is performance in the digital book on a same board basis is slightly better than our aggregate book. Right now, interestingly enough, poster are doing better on a same board basis than bulletins, that’s probably because they’re networked and we’re adding to the robustness of our local networks. But you should see good sequential month over month gains in our digital book of business.

Jason Helfstein – Oppenheimer

Any update on the yearend target for number of displays?

Keith Istre

I think we’re in the same place we guided to in the first quarter. Better than last year’s case, something in maybe the mid 400’s.

Operator

Your next question comes from James Farrant – Morgan Stanley.

James Farrant – Morgan Stanley

To go back to Vegas, can you talk about what percentage of your book of business is now digital in that market and then after that, can you tell us about any other markets where you’ve got a competing digital network from another provider and how you’re sort of performing in those markets just to give us a sense of how much of this is just Vegas versus maybe where you’re getting on a digital penetration curve within markets.

Sean Reilly

On the other markets where we faced competitive networks, the one that’s probably most important to look at from an analogous point of view would be Milwaukee. Both Clear Channel and Lamar have pretty decent networks there. I did a bring down call with all our management yesterday and the story in Milwaukee is that things are going very well, both companies are doing well with their digital plans and we’re happy.

You have some markets that we operate in digital where there’s sort of bits and pieces of competition but now what I would describe as networks or sophisticated competitors. An example of that would be Atlanta. We’re the strongest digital provider in Atlanta today but you’ve got a smattering of independents and a couple of units that belong to some other folks.

And again our digital in Atlanta is performing to plan. We’re going to keep our eye on that and make sure that this product performs the way it’s supposed to perform in a variety of competitive environments.

James Farrant – Morgan Stanley

And I think you mentioned before that you thought that as you got up to around 20% of your book of business in any given market is digital, that might be where you start to see more of a cannibalization sort of take hold, are you above that in Vegas now?

Sean Reilly

No, Vegas is about 12-14%. And again I’m sure this isn’t a huge surprise to people that follow other companies that do business in Vegas but I’m told that what the Vegas economy is going through is quite traumatic from a lot of different angles. And so we’re just kind of caught up in that.

James Farrant – Morgan Stanley

So your sense is that 20% or how you were originally thinking about when you might start to see some cannibalization, that hasn’t necessarily changed, this is just more that you’re in a market with a lot of digital units and a lot more incremental inventory where the market has just slowed down so dramatically that all of your inventory is being impacted.

Sean Reilly

Yes.

James Farrant – Morgan Stanley

And then, I think in the last call I think you talked about that it would be a good year if you were able to do 4 of the 500 boards you kind of roll out and that was pre getting Texas regulatory approval, do you still think that range makes sense?

Sean Reilly

When we posted that it was pre Texas but we kind of knew Texas was coming. And so I think the difference in Texas is its upper mid 400’s. You still have some capacity constraints with our vendors. I don’t know, we’re out, what 90 days now with our vendors. So you still have that side of the equation.

Operator

Your next question comes from Kit Spring – Stifel Nicolaus.

Kit Spring – Stifel Nicolaus

Have you guys looked into any research on whether people are changing their driving habits as a result of rising gas prices? And then could you talk a little bit about utilities, what percentage of your expenses that is and what kind of trends you’re seeing there, thanks.

Kevin Reilly

There were some studies out on the last gas price spike, I don’t think there’s anything out there now. And it was kind of inconclusive, it just said that people would, they kept spending for the gas because they had to get around, they would cut back on the, not on unnecessary trips in town but sort of they cut back on the long driving vacations.

But basically they would suck up the increase in gas prices and would come out of other parts of the household budget. That was the last study I saw, it was quite a while ago. But I think the trends in the near term are going to continue, I think traffic is going to continue to be up and time spent with our medium will be up.

Sean Reilly

Just to follow up on that a little bit, I’m not too concerned about people changing their habits, I’m a little more concerned about how the current environment affects our customers. And what we saw in 2001 was a little bit of a pullback on the hotel/motel side.

So we’ve got to look at that and monitor our hotel/motel customers because they might be more affected than in terms of how much people spend and commute time. But that’s not showing up yet. On the utilities side, it’s 2-3% of our expense base. And so far as we look out, we’re not seeing anything dramatic on that front.

Kit Spring – Stifel Nicolaus

And can you also talk about the multiples you paid on those recent acquisitions you did this year?

Sean Reilly

You can sort of back into the Vista multiple. We feel pretty confident we’ll generate $8 million in EBTIDA. The purchase price was $100 million nominally but we are going to have a tax yield benefit with a net present value of $40 million. So you might just sort of say we paid $60 for that.

And the other ones are the typical cookie cutter Lamar cash for assets deals. Our stated goal is to bring them in at around ten forward in terms of EBITDA contribution and you know these should typically perform like they’re supposed to.

Operator

Your next question comes from Anthony DiClemente – Lehman Brothers.

Anthony DiClemente – Lehman Brothers

It seems as though if you compare your markets, you are in smaller or midsized markets relative to your peers to CBS or Clear Channel and at least on a top line pro forma you appear to be underperforming your peers a little bit in the last couple of quarters.

I’m just wondering in prior recessions does that turnaround, meaning is it more high beta on the upside when the economy starts to turn, will the small and midsized markets actually at some point start to outperform the larger markets, how has that worked in prior recessions?

And then two, you talked a lot about your national advertising strength and to me it seems like a lot of that is driven by digital which is forte is national I’m just wondering if you remove the impact or the benefit of digital to your national book, how would you compare local versus national for the rest of your business?

Kevin Reilly

Prior recessions it’s been the opposite. The bigger markets slowed down faster and more dramatically for two reasons, one is there was more competition in the bigger markets and there was a lot of additional other out of home capacity. And the national book tended to be more volatile. So and the competition to fill up that unused capacity was pretty fierce.

So in prior recessions, we tended to outperform because we had less competition in general and less out of home competition and in particular across our platform. And we relied on thousands and thousands of small customers versus a handful of large national customers. So this is sort of a first for us where our national business is holding up quite well. It’s a first for us where our bulletin business is softer than our poster business. So this one was just a little bit different.

Anthony DiClemente – Lehman Brothers

And is it just, I mean as you look at it and from your seat, is the difference here and the reason that it’s a first, is it the nature of the recession, is it the real estate or kind of the local if you want to say grass roots nature of the recession or why is it so different this time around?

Sean Reilly

My read would be that you’d put your finger on it, I mean this does seem to have a feel that’s different from the last recession. I think this one is hitting Main Street harder than it’s hitting Madison Avenue and that’s what’s going on in our book of business. You might want to take a closer look at the other guy’s numbers.

I think at the end of the day CBS was around up 3 on their national domestic book, I mean not national, their aggregate domestic North American billboard business was up about 3. So there’s not a huge difference in the Q1 performance on the platform. So I wouldn’t read too much into that.

Kevin Reilly

As the year progresses, the three companies are all going to gravitate towards the mean unless their sources of revenue are different, if you have more transit than you have bulletins and those kinds of things. But by the end of the year all three companies I would expect will, US domestic, will perform about the same.

Keith Istre

And again if you look at our national book, it would have outperformed our local book with our without digital.

Operator

Your next question comes from Jim Boyle – C.L. King.

Jim Boyle – C.L. King

What’s the advertising client cancellation trend like in the first half of 08 verse last year’s first half or historical averages?

Sean Reilly

Well we’ve been, historically we’ve been pretty immune to outright cancellations. It’s been one of the strengths of the business model. And last year I don’t believe we had any of any magnitude. You know this year we’re nervous in the two categories that we previously mentioned, automotive. We’re getting rumblings out of GM.

And then locally again real estate developers are hurting. So on the national side we’re nervous about GM, on the local side we’re nervous about real estate developers. But typically outright cancellations have not been material to our performance, either in obviously not in good times or even going through bad times.

Jim Boyle – C.L. King

Well being nervous going forward, how about Q1 then since that’s now behind you.

Sean Reilly

I don’t think we had any outright cancellations. I don’t think we had any Jim. But again we don’t track it.

Kevin Reilly

We don’t really measure cancellations. Yes, we look at bad debts and we look at pacings but we don’t really look at cancellations.

Jim Boyle – C.L. King

Was bad debt up in Q1?

Kevin Reilly

Not significantly. We expect it to be up slightly for the year, but I don’t think it’s going to be material.

Jim Boyle – C.L. King

Moving over to the delightful category real estate, you mentioned it’s now 7% of your revenue which is kind of back to the 2005 level. I want to say about nine months ago you might have said real estate was roughly about $8 million in revenue a month, where is it now?

Keith Istre

Right now it’s running at a little north of $6 million a month and that’s what makes the comps in Q2 tough, in April, May and June of last year, revenue was $9 million a month. And so now it’s fallen down to a run rate of $6.2, $6.3 million a month.

Sean Reilly

Which as Jim mentioned is probably right around where it was in 06.

Keith Istre

It’s exactly where it was in 06, it was running $6 million a month and it boomed up to $9 million in the second quarter of last year.

Jim Boyle – C.L. King

I was thinking percentage which your 10-K would suggest 2005, so in either case, essentially you’ve come down off the spike and you’re now back to more normalized 2006, 2005 levels?

Sean Reilly

That’s a good way to look at it.

Operator

Your next question comes from Brian Shipman – Jefferies.

Brian Shipman – Jefferies

Obviously there aren’t an endless supply of prime locations suitable for conversion to digital billboards, so at what point do you think conversions start targeting the less prime locations, say the A minus, B plus spots and would you expect those less prime spots to be a significantly tougher sell to advertisers?

And related I guess based on your experience here in the last 12 months, of the boards you’ve converted most recently, say in the last three to six months, how are they performing versus those boards you converted a year ago?

Kevin Reilly

Against 170,000 face base, I hope we can find 4-5,000 good units.

Brian Shipman – Jefferies

A plus type spots?

Kevin Reilly

Correct. So that’s not an issue.

Sean Reilly

They’re performing well. We’ve been doing this for a while now, we’ve got the model down. The units we’re putting up this year are doing what they’re supposed to do. The most powerful deployments we’re seeing are those where we can effectively add to our distribution on a poster network.

Oftentimes we can add a couple of units and it lifts the value of the units that were already in the ground because you’re able to offer advertisers a more effective reach, frequency and circulation. So that’s been the most exciting part about what we’re doing with our digital deployment this year.

And to that end, we’ve asked people to start modeling more poster deployments relative to our overall deployment going forward. I think in three or four years it’s going to be roughly 50/50, 50% bulletins, 50% posters.

Operator

Your next question comes from Lloyd Walmsley – Thomas Weisel Partners.

Lloyd Walmsley – Thomas Weisel Partners

I was just wondering with the bulletin category leading the way down and typically moving slower than posters, do you think coming out of this you’re likely to see a less aggressive pop than you have in past coming out of recessions.

Kevin Reilly

I think we may be divided up here. So I’ll start first, yes I think so. I think if it’s our bulletin business, we’re going to be slow coming out of this thing. But the good news is we’re continuing to add this digital capacity which should accelerate things on the way out.

Sean Reilly

The only thing I’d add is occupancy comes back faster than price and if you look at our average rate per panel in the bulletin category, we’re still up. You know we’re holding the line on rate and so when customers come back to those units and you sell them and you don’t have to reeducate your old customers on the value of the space, that’s when you get your acceleration.

Lloyd Walmsley – Thomas Weisel Partners

Can you give us any update on digital board pricing?

Sean Reilly

It’s really not change there, same story. We’ve gotten to our goal of a poster unit that’s right around or slightly below 100,000 and on the bulletin side, really no change.

Operator

Your next question comes from Chris Li – Merrill Lynch.

Chris Li – Merrill Lynch

I think last quarter you were kind enough to give us some of the digital revenue multiples for posters and bulletins, can you remind us what those multiples are that you’re seeing currently?

Sean Reilly

You’re probably referring to the sort of average rate per slot that we’re getting of the three different sizes. Sure, it’s basically the same, 6,000 for posters, 12,000 for junior bulletins and 18,000 for bulletins.

Chris Li – Merrill Lynch

And just shifting over to cap ex, so do you think there’s a risk that your $200 million of cap ex for this year, you may exceed that, I say that because you spent $50 so far this quarter and assuming you continue to ramp up your digital install rate, in theory that cap ex should ramp up for the remainder of the year. Do you think there’s a risk that that might be higher than $200 million?

Sean Reilly

I don’t think so. For cap ex that goes into new builds on the static side, our management usually tries to get those things in the air in the first half of the year, so there’s usually a little bit of a front load on that side. Our digital deployment seems to be going almost ratably through the year. So I feel pretty good that we’ll come in where we said we would.

Chris Li – Merrill Lynch

On depreciation, this quarter, is it a good run rate to use for the rest?

Keith Istre

Yes, you’re going to see depreciation ramp up as we throw out more of these digital units, these things are depreciated at a much faster rate than a static unit.

Chris Li – Merrill Lynch

Can you remind us the difference in the rates?

Keith Istre

Digital is over five years, statics over 15.

Operator

Your final question comes from [Bishop Chene] – Wachovia.

[Bishop Chene] – Wachovia

Just back to Vista and I certainly understand the two exercises of net of the NOLs cost you $60 but in terms of the balance sheet, you’re going to add $100 to the balance sheet, do you anticipate, let’s say this does close in Q2, any onetime charges that you will also have to pass through the income statement in connection with integrating Vista or taking control of Vista?

Keith Istre

No, that would not be the case. It’s a cash for stock acquisition and it’s fairly straightforward.

[Bishop Chene] – Wachovia

And then in the modeling, when we use that guidance and you’ve said it before, you’re thinking in terms of the first year of operation maybe getting the EBITDA out of that kind of $3 million run rate month. You had mentioned EBITDA or free cash flow almost the same thing to this, that’s after the first year of operation?

Keith Istre

In 12 months you would do $8 million.

Operator

Kevin at this time we’ll turn the call back over to you for closing comments.

Kevin Reilly

That concludes our call and I want to thank all our shareholders and friends for tuning in and we look forward to the next quarter call. Thank you very much.

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