Audacy Inc (AUD) 2009 Q3 法說會逐字稿

Good afternoon, and welcome to Entercom's third quarter earnings release conference call. All participants will be in a listen-only mode. This conference is being recorded. I would like to introduce your first speaker for today's call, Mr. Steve Fisher, CFO and Executive Vice President. Sir, you may begin.

Thank you, operator. Good afternoon. Thank you, everybody, for joining us on today's third quarter conference call for Entercom Communications. This call is being recorded.

A replay will be available on our Company website shortly after the conclusion of today's call and available on a telephone replay at the number noted in our press release this afternoon. With our notice in today's call, we ask that you would have submitted your questions in advance of the call in. In addition, I'm always available for any follow-up questions if you'd like to call me directly at 610-660-5647.

Should the Company make any forward-looking statements, such statements are based on current expectations and involve risk and uncertainties. The Company's actual results could differ materially from those projected. Additional information concerning factors that could cause actual results to differ materially is described in the Company's SEC filings on Forms 10-Q, 10-Q and 8-K. The Company assumes no obligation to update any forward-looking statements.

Also during this call we may reference certain non-GAAP financial measures. We refer you to our website at www.entercom.com for a reconciliation of such measures and other pro forma information which you might find helpful. With that, I now turn it over to President and Chief Executive Officer, David Field.

Thanks, Steve, and good afternoon, everyone. Thanks for joining us here today. I'm quite pleased to report Entercom's third quarter results and provide you with an update on some recent developments.

Our revenues for the quarter declined 14% during the quarter, a sequential improvement from our 18% decline in second quarter and the 21% drop in the first quarter. I would add that ex-political we would have reported revenues down 12% for the quarter. Expenses were down by 8% resulting in a 23% decrease in station operating income and a 25% reduction in EBITDA.

Adjusted net income decreased 28% to $0.28 per share while free cash flow was down 22%. For the trailing four quarters, Entercom has generated $1.97 of free cash flow per share. A few operating highlights for the quarter. It was minimal difference between local and national revenues for the quarter. Digital revenues continued to experience solid growth up 37%. Our strongest markets were Milwaukee, Norfolk, Wichita, Gainesville, Providence and Kansas City.

Our strongest categories were restaurants, fast food, groceries and home furnishings. Weakest categories were automotive, telecom and, of course, political in this off-cycle year. September was the strongest month of the quarter, down 11%. As we have stated on a number of these calls, we committed ourselves to emerge from the recession with enhanced capabilities, a stronger competitive position and an improved business model.

To achieve these goals, we have been intensely focused on driving innovation throughout the organization. We have driven many millions of dollars of expenses out of the business by taking a fresh look at core operating practices.

We have achieved this while at the same time actually enhancing the quality of our programming and our capabilities with our customers. We continue to achieve strong growth in our digital initiatives, total streaming listening hours have doubled in the past year. Our e-commerce revenues are up dramatically this year and we are delighted with the continued rapid growth of WEEI.com, our expanded and dedicated Boston sports digital platform.

Our ratings have remained strong as we continue to focus on programming innovation, exploring new, compelling programs to enhance our listeners' experience. In one current example, we are working exclusively with Taylor Swift, one of the music world's most popular stars, on a unique program that encourages our listeners to create their own videos performing Taylor's songs.

Listeners then upload and share these videos for a chance to be discovered and to win a money can't buy experience that includes time with Taylor. The program has enabled tremendous listener engagement both on air and online across our station group including generating over 1.5 million paid views as of several days ago.

This is only one example, but a good illustration of how we are leveraging our brands and technology to create new, exciting listener experiences. Innovation is making a big difference throughout the Company and it's clearly having a significant and growing positive impact on our practices and how we engage with our listeners and our customers. And it is also very exciting to see increased innovation with radio at companies like Apple and Microsoft.

It makes a very big statement that Apple has now added a built-in FM tuner to the Nano with HD as an accessory, while Microsoft has added a full built-in FM and HD to the Zoom. Now let me add a few comments on the current business climate and expectations for 2010 and beyond.

We have seen business conditions improve over the past several weeks, most notably with national sales and the tone of advertiser discussions continues to improve as more local and national customers are indicating an intent to increase their spending next year. Having said that, while advertiser sentiment is improving it does remain cautious and is evolving gradually as customers keep a watchful eye on economic conditions.

For Q4, we expect further sequential improvement in Entercom's revenues. Our Q4 numbers will be dampened by tough political comps as political revenues were 4% of our Q4 2008 revenues, and, nonetheless, and I want to clarify here, even with political we will be sequentially better for the fourth quarter.

Looking ahead, we are increasingly optimistic about 2010 and 2011 based upon a number of indications of recovery and demand in the ad market and in light of easy comparative results after two ugly years of cyclical economic decline. The fact is that the potential exists for very substantial revenue gains over the next couple of years as we recover from the deep declines in ad spending that have impacted all forms of media.

Furthermore, we believe that radio's strong audience listening trends and outstanding value proposition for advertisers position the medium to gain share at the expense of certain competitive media that are experiencing significant audience erosion and other troubling secular issues. The combination of economic recovery, easy comps and an improving competitive position relative to other media offer the potential for solid growth in the years ahead.

And with that, I'll turn it over to Steve.

Thanks, David. Before we take your questions, first, let me take a moment to review the big picture and then a reminder we'll be addressing questions that you had submitted to the Company previously in writing. First let's look at the big picture in. In our conference calls with you in May, and then again in August, we stated that business was stabilizing and had begun showing signs of improvement.

Indeed, this quarter as Dave highlighted, we saw sequential improvement in revenue results. The company's taken actions over the past year to The company's taken actions over the past year to adjust operating expenses in light of the economic dress and in this quarter it enabled us to reduce operating expenses by 8%. The Company's taken actions over the past year to adjust operating expenses in light of the economic stress. And in this quarter it enabled us to reduce operating expenses by 8%.

The Company's business model continues to be robust and we generate significant free cash flow and towards that end we've reduced net debt by $25 million in this quarter and $67 million during just the first three quarters of this year. Speaking of leverage, we ended up the third quarter with leverage as defined in our senior bank facility of 5.6 times.

Now note that this leverage calculation is an operating cash flow test as defined in our facility and includes a variety of adjustments. Or said another way, our bank leverage test is not just straight EBITDA calculation. For those of you who would like more color on our bank leverage calculation, we have provided a reconciliation of this measure on our website, the Investor tab of www.entercom.com.

A few other notes on the quarter, as a radio Company, we own and/or lease a number of tower facilities. Some of our owned tower facilities have multiple telecom tenants generating continuing rental payments. And with the demand for tower space and realizing this is not an area where we're really properly staffed to maximize the value of these assets, we made a deal in the third quarter to sell certain tower assets to American Tower who is much better able to capitalize and realize the full value of that.

You'll see in our financial statements in the third quarter we sold some towers to them for approximately $5 million and we would anticipate another closing in the fourth quarter. As part of this transaction, we would have an earnout in future periods based on revenue performance of these tower assets.

Also in the third quarter as a result of our buyback of some senior notes, we recorded a gain of approximately $3 million. Looking to our balance sheet, we believe our capital expenditures for the full year 2009 will be less than $3 million.

At this point, we don't anticipate any material change to that amount in 2010 as we've completed most of our major facility and HD transmitter upgrades. And as we've mentioned to you several times in the past, we enjoy sizable tax shields for years into the future such that with an economic and advertising recovery we should realize significant free cash flow conversion of those ad revenues.

And for those of you who model fully diluted shares, you'll want to model the increase in calculated shares outstanding as noted in our release to $36.6 million in this quarter. This is primarily due, this increase, to the effect on the fully diluted shares of the increase in the Company's share price in the quarter.

With that, I will try and play emcee and go to your questions submitted. I'll try and eliminate some of the redundant questions. David, I think in your comments you talked about 2010 and beyond. I think that's a good transition question over to Marci Ryvicker of Wachovia Securities who said how much visibility, David, do you have into 2010? And is your optimism from actual billings, pacing or just anecdotal information from advertisers?

Well, you started with a small question.

Small question, go as long as you want.

It's really kind of all of the above. I mean we're seeing a lot of indications that give us optimism for next year. Number one, we're seeing more and more reports of companies big and small that are planning on gearing up and increasing spending next year. Number two, we have -- we're seeing actual commitments and people stepping up, albeit, it's early for next year.

Number three, we also look at the incredible deterioration in advertising over the last couple of years which has meant that any sort of rebound in spending, both local and national, can lead to significant percentage increases over the next couple years. If you take a look at the math, we've seen about a 30% cut in the radio ad market over the last two years due to the cyclical decline.

Therefore, it would take a 40% increase in ad revenues to recover just back to where we were in 2008 and nobody is suggesting we're going to be up 40% as a medium next year, but is it absurd to think we might be up a quarter of that or a third of that? I think that's the potential for next year. And as we see all the signs out there, we think it there's a good case to to be made that we will see significant growth in the year ahead.

I'll stay with Marci. Another question, looking back on the third quarter just completed, how much did "Cash For Clunkers" contribute in the third quarter?

Very little. We saw very little advertising coming out of "Cash For Clunkers." In fact, in some respect it had an ambiguous impact because a lot of car dealers ran out of inventory and might have advertised but chose not to.

I'll flip, stay with the same firm and flip over to Bishop Sheen, who asked a question on political issue ads, again, issue ads as opposed to political candidate ads. Are we getting a revenue on that and is this going to be a fixture in both on and off-political years?

So the answer is, yes, we're getting some issue money to some extent related to the healthcare debate and some other local issues. But beyond that we -- I think the answer is, yes, if you look at the way our political system operates these days, it's reasonable to assume we will see sporadic spurts of issue ads in the future.

Let me flip through some questions from Jim Boyle at Gilford Securities, and Jim wanted to ask a question that I guess you hear on many calls over the time and that's a question on industry rate card integrity.

Well, look, there's been a great deal of discounting over the course of the last year. There's no secret there and it's certainly not unique to radio or for that matter, unique to media. And I think one of the opportunities looking ahead is as we see demand picking up given our limited inventory, we will -- we should see and expect to see a pullback in those recession discounts and improved pricing.

We're already beginning to feel some improvement in pricing, albeit, I would say it's early, and I would also say that PPM adds an additional layer of discipline on industry inventory practices because it provides a more immediate discipline towards inventory level. So I'm optimistic that we will see greater rate integrity in the quarters ahead as we see demand picking back up.

I don't mean to throw all these at you. Just keep going. I'm going to flip to the same question -- or a question from Jim Boyle as before, and I think this is phrased differently, but it's been a similar question asked by several people. Do you believe the radio industry went too far in cutting back expenditures especially in programming, promotion and people?

Right. So I can't speak for other companies, but we can only comment on Entercom and clearly we made a number of cuts, but as you know, Steve, we were very focused on making, as much as possible focusing on sustainable cuts by reinventing our business model and finding ways to drive expense reductions that would survive the turn in the economic cycle and not just be short -- myopic cuts, and I think we were successful in that regard.

So I do not believe we made any cuts that in any way, shape or form have diminished our ability to super serve our listeners or our customers and we were I think very -- we did a good job in that regard.

Okay. I will do the difficult task of asking myself my own question, but it kind of dovetails off that. Mike Kupinski of Noble Financial wanted to know thoughts on fourth quarter 2008 as have we done a good job in managing the costs so far. And they want to know specifically is there any color on a baseline to look at fourth quarter?

Michael, to that, while we don't give specific revenue and expense guidance, I think what I'd say is while the third quarter, that is, our past quarter, was down 8%, I would not expect the fourth quarter upcoming to be down as much over prior year given that we began certain cost actions in the fourth quarter of last year. So some of that will be comping.

Going back to what David said before, though, we have taken significant costs out. Several of you asked the question about 2010 how do we look at our expense base? I'll just echo what David said. We think we've taken actions that are ongoing.

Certainly, we're cognizant of some expenses will come back with revenue growth. We have not yet actually begun to do our work on modeling that. I think what we can commit to you is the majority of the expenses are taken out of the business model going forward.

I guess as long as I'm asking myself the question, I'll ask the question that came from Jim Boyle which is what's the appropriate debt and leverage level for a company like Entercom? And, Jim, and analysts, I think that's a question that we get oftentimes. We have not pursued any particular debt rating. That is a question that the board and management obviously looks at often. So we are not targeting a certain rating level, but obviously comfortable with our position where we are today.

David, I'll ask you the question that comes from Mike Kupinski, again at Noble Financial, talking about digital and you mentioned digital pacing for the third quarter. Mike asks well, what kind of digital pacing are you looking at for the fourth quarter and you should go ahead. I guess another way and I'll ask the question this way what's the potential and what do you see in your crystal ball for digital with Entercom?

Well, we continue to see digital as a strong growth driver going forward becoming an increasingly significant part of our business, but we also don't look at it as a segregated entity.

We look at ourselves increasingly as an integrated media Company which is interfacing with our listeners and engaging them across multiple platforms which makes our model far more compelling and far more -- far richer in terms of the marketing programs we can then put together for our advertisers. And so more and more we're seeing integrated dollars that are being generated through initiatives and ideas that our sales staff and management team are developing for our customers. So while on the one hand, we can look at isolated digital revenue and say, yes, that's growing.

We talked about it being up 30 plus percent in third quarter, it's pacing up significantly in fourth quarter. We can talk about our e-commerce platform that is growing rapidly, but I think the real point is that we're becoming an integrated multi-platform marketing solutions Company and that's more and more ingrained in the way we're doing business.

Another question from a name from our past, Paul Sweeney, who has recently joined Bloomberg as senior media analyst, and Paul asks what can we tell him about our experience in Seattle and Denver where the local newspapers have shut down this year?

So in both of those markets, as Paul points out, we've lost a local newspaper, but truthfully it has not had as significant an impact as we might have liked from our own narrow selfish standpoint because, of course, there remains a significant newspaper in both of those cities.

Having said that, we do believe that on a more macro level the continued erosion of newspaper readership in this country and certainly the audit bureau's numbers that came out last week only further indicate the gravity of that erosion, that phenomenon is absolutely leading to challenges that the print media is facing and that is creating opportunities for us, and I suppose for other media, as many of those advertisers look to shift dollars from the newspaper platform to other places.

Radio presents an increasingly attractive opportunity for those dollars as the radio's reach, radio's frequency, radio's efficiency, and our multi-platform model is driving many advertisers to both commit new dollars to radio and as we look forward, to think about further additions. So we think that's not an insignificant driver for us moving forward.

And with that I think we've tried to address the questions that were here ahead of time, eliminate the redundance So any closing comments?

I do not.

Okay. Thank you, everyone, for joining us on today's call. A replay will be available. If you have specific follow-up questions let me know, 610-660-5647. And thank you, again, for joining us today.

Thanks, everyone.

Thank you for participating in today's conference call. You may disconnect at this time.