Audacy Inc (AUD) 2009 Q4 法說會逐字稿

Good morning and welcome to Entercom's fourth quarter earnings release conference call. all participants will be in a listen-only mode. This conference call 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.

Good morning, and thank you everyone for joining us here this morning. I would like to welcome you to Entercom Communications conference call for the fourth quarter and year end of 2009.

I would like to make a note that this call is being recorded. A relay will be available on our Company website shortly after the conclusion of today's call, and available over the telephone at the replay number noted in our earnings release this morning.

With our notice of today's we asked that you submit your questions in advance of this call to the e-mail address questions@entercom.com. In addition, I am always available for any follow-up questions if you wish to call me directly at (610) 660-5647.

This note, should the Company make any forward-looking statements such as statements that are based on -- those statements are based on current expectations, and involve risks 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-K and 8-K. The company assumes no obligation to update any forward-looking statements.

During this call we may reference certain non-GAAP financial measures, and we would refer you to our Company website at Entercom.com for a reconciliation of such measures and other pro forma financial information.

And with that, I'll turn this morning's call over to David Field, President and Chief Executive Officer.

Thank you Steve, and good morning, everyone. Thanks for joining us on today's call. I'm pleased to report Entercom's fourth quarter results, and provide you with an update on some recent developments.

Revenues declined 8% during the fourth quarter. Operating expenses were down 5%, resulting in a 12% decrease in station operating income and a 15% reduction in EBITDA for the quarter. Adjusted net income decreased 12% to $0.29 per share, while free cash flow was down just 3%. For the full year, Entercom generated $1.93 of free cash flow per share. Business conditions improved significantly during the quarter. In fact, we achieved positive revenue and operating cash flow growth during the month of December. I would also add that excluding political revenues from last year's heavy election cycle, fourth quarter revenues were down 4%.

A few operating highlights for the quarter. National revenues turned positive for the quarter, while local revenues were down, in line with our overall revenue performance. Digital revenues continued to experience solid growth, up 50% for the quarter. Political revenues, on the other hand, were down by approximately $4 million. December was the strongest month of the quarter, up 1%. Our best-performing products were Norfolk, Denver, Providence, Greenville, Milwaukee, Greensboro and Rochester. Our minus 8% of revenues for the quarter compared favorably to our markets, which were down 10% for the quarter. Our strongest categories were groceries, financial services, health/medical, restaurants, and recreation.

While we certainly don't miss the terribly challenging economic conditions of 2009, we do take some satisfaction in what we were able to accomplish under the difficult circumstances. We have fulfilled our of oft-stated goal on these calls of emerging from the recession with enhanced capabilities, a stronger competitive position and an improved business model. For the year 2009, Entercom generated $70 million of free cash flow, reduced our net debt by over $100 million, trimmed expenses by 8%, and yet continued to enhance our capabilities in critical areas such as digital, online and on-air content, and business development. We also achieved strong on-air ratings performance, and dramatic improvement in key digital metrics across our various bands.

I'll highlight a bit on the ratings -- I'll elaborate a bit, rather, on the ratings performance, and share a few highlights from the Fall book. Denver had terrific ratings, with KOZY and Alice ranking first and second with both women 18 to 49 and 25 to 54. Sacramento had its first PPM book, and the numbers look terrific, with the Eagle, 98 Rock and The End holding most of the top two positions with men, women, and adults. In Austin, Magic jumped to number one in both women and adults in that market. And finally in Seattle, The End had it's best book in years, as the station now ranks first among men 18 to 34, and is an impressive third among men 18 to 49. These are just a few of the success stories from the Fall that reaffirm the strength of so many of our brands across the country.

I also want to mention a recent research study conducted by Nielsen and the Council for Research Excellence this past November that mapped usage trends across all forms of media to gain a picture of the rapidly-evolving media landscape. This landmark study reaffirmed radio's enormous reach and presence in the lives of Americans. In fact, Dr. Michael Link, Nielsen's VP of Methodological Research, made the following concluding comments and I quote -- "Radio is the dominant form of audio, and it's dominant in the home, at work, and in the car. The data shows a clear story that broadcast radio is alive and well, and not even by a small amount; it is orders of magnitude when you compare to it other forms of audio."

Finally, a few words on current business conditions. We are continuing to experience significant market strengthening. Advertising demand has continued to accelerate both locally and nationally, with national sales particularly robust. Overall, pacings for the first two months of 2010 are up 7% over the year-ago period. Back in September we went public with our belief that radio has the potential for strong growth in 2010. Today, we are clearly witnesses a broad-based ad recovery with many customers that had reduced or suspended their advertising during 2009 returning and increasing their spending. Political and digital sales should also make strong contributions to this year's performance. 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.

Barring a stall of US economic recovery during 2010, which is certainly a possibility, the potential exists for a solid year of growth in radio advertising. The single remaining seminal question that will dictate the industry's performance this year is pricing. Rising advertiser demand should enable the industry to eliminate the recession discounts, and rapidly return to pre-recession 2007 pricing. Certainly, based on a number of recent public announcements from the television industry, it is clear that TV pricing is rising rapidly and dramatically in the face of increasing ad demand. We would anticipate that with demand rising and inventory tightening, pricing in radio will also recover back to its pre-recession norms.

A few closing thoughts. While the outlook for 2010 has certainly improved, we will remain vigilantly focused on managing our expenses and our balance sheet, and on achieving outstanding operational execution and financial performance. Will we also remain highly focused on reinvention, and continue to pursue promising opportunities to extend our brands on to new digital platforms, to develop revenues from new products and customers, and to identify new ways to improve our model and reduce expenses.

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

Thanks, David. Let's take a moment to review a few highlights for the year 2009, and obviously the recently-completed fourth quarter.

As David noted, with the challenging economic environment, the Company exercised strong expense management such that expenses were down 8% in 2009. I point out that most of that will be permanent reductions to our business model. We also were pleased to note that we reduced our capital expenses significantly last year, and that it was without hurting any operational needs. We reduced outstanding bank and bond debt by about $37 million in the fourth quarter, and over $100 million for the year 2009.

As many of you have heard on past calls, we enjoy significant tax shields from the amortization of intangibles for tax purposes. This means that we do not pay cash taxes, although we reflect a tax provision on our financial statements. And on taxes, with the recently-passed stimulus tax legislation, we recorded in the quarter, the fourth quarter, a favorable tax provision of about $7 million to reflect anticipated future tax refunds.

Turning to operating expenses, in the fourth quarter we were down about 5% over prior year. This was sequentially less than prior periods, which reflected costs associated with the improved revenue performance in the fourth quarter, and also the fact that the fourth quarter of 2009 compared to the Fall of 2008, in which we began significant cost-reduction management actions. As we lap over comparisons with prior year cost actions, and with the positive revenue outlook which David mentioned in his remarks, plus contractual increases in our business model such as sports rights or Arbitron, we would expect to see operating costs increase by low single digits in 2010. We thought it important to provide you with thinking on the direction of our expense model in the year ahead, even though we did not provide specific guidance.

In the fourth quarter, we completed the sale of a group of towers for approximately $8 million; and in the third quarter, I remind you, we sold our first group of towers for about $5 million. This completes a two-step transaction with American Tower, and we will have a future earn-out opportunity in a few years for additional proceeds based on the future performance of these assets.

For those of you modeling Entercom same station revenue and expenses, a reminder that as a result of these tower divestitures, there are some relatively minor changes to our historic revenue and station operating expenses for purposes of same station calculation. An update on the same station information is available on our Company website.

In the fourth quarter, as a result of the buyback of some of our senior notes, we recorded a gain of approximately $1.5 million; and, as a result, given the minimal number of these outstanding notes remaining from the issuance in 2002, we recently provided a formal notice of our intent to tender for and retire the remaining outstanding bonds at par. This we would expect to occur in early March. For those who model with fully diluted shares, you may warrant to reflect the increase in our diluted shares outstanding, as noted in our press release this morning. This increase in diluted shares is because of the Company's share price increase in recent months.

So with that conclusion, let me go now to our questions, and that would be those questions submitted by e-mail ahead of time. By the way, David, I think there were quite a few recurring themes, so I will first ask the question that kind of was from Marcy [Rybeker], Jim Boyle, [Bishop] Sheen, and a few other shareholders.

Chief, back in September, you talked about the revenue outlook for the industry being quite strong; how do you look at it for 2010 as it stands today?

Well, I think business is tracking along the lines that we had believed back in September when we stepped out and made our public comments. The potential still exists for a strong 2010. As we mentioned, we are pacing up 7% for the first two months of 2010, which we're pretty pleased with, and based upon increasing demand and tightening inventory and, you know, all the other tea leaves that we read right now, we believe that the potential continues to exist for continued strength through the rest of the year, as we begin to move ourselves back to recover the damage from the cyclical impact of the recession and get back towards 2007 levels.

Okay. And specifically, how is auto doing, and is there any impact from the recent Toyota recall?

We are seeing anecdotally a number of other dealers and manufacturers moving to take advantage of the troubles that Toyota has found itself in. Toyota, of course, will also -- is working to address its issues, as well, and we would expect there to be continued strength in the auto sector, as advertisers continue to return to the airwaves early this year.

Okay. A question from several analysts and a few shareholders were to ask for a reminder of 2006 and 2008 political revenue. I'll take that data point.

So as a reminder to those who are looking to political, in 2006 we had about $4.7 million of political; 2008, a Presidential election cycle, $7.4 million in that political. Again, 2006, $4.7 million; 2008, $7.4 million.

Would you care to add color, given the recent Supreme Court decision, and your view of the outlook of political as you see it?

Sure, we can all debate the public policy pluses and minuses of the Supreme Court decision, but clearly it opens the doors for additional demand on -- as we enter into the heat of the political cycle this year, and it would certainly be our expectation that we are in for a robust year of political spending in radio.

Okay. I'll take the next couple. They're kind of balance sheet-related. A couple of people wanted to know what's the outlook for resumption of dividends, and why did the Company buy back stock?

Let me make a note, the Board -- I think the primary focus goes back to what David said earlier, which is paying down debt is our primary focus. Having reduced debt by over a $100 million in 2009, the Board did suspend the dividend earlier, and you saw in 2009 we repurchased a little less than 1 million shares. While both of those, dividends and share buybacks, we think are great for shareholders, we believe and the Board believes at this time that delevering is the best. Clearly as we delever into the future, in 2010, 2011 and 2012, that's something the Board of Directors can look at.

Kind of a related balance sheet question I'll turn to you, David, a couple of inquiries on the mergers and acquisition market. Kind of our view, what's out there, would we be interested in purchasing stations?

I think the merger and acquisition market is somewhat stalled right now. As you just mentioned, our primary focus right now is continuing to use free cash flow to reduce our leverage; but we will keep our eyes open, and if we see opportunities in the marketplace that are appealing, and which make sense within our balance sheet, we'll take a look.

A somewhat related question while we're on balance sheet themes, an inquiry on why the decision to sell towers through a sale lease-back transaction.

In fact, and we talked about this in the last quarter, we're not in the business of operating towers; these are towers that had significant other revenue streams from wireless carriers and others. American Towers are specialists and focused in that area, and we just thought they were better able to capitalize; so not only were we able to receive some cash proceeds, continue to have a fine operator on those towers, but we can enjoy some upside based on future earn-out opportunities. And we don't have anything significant on the horizon left in terms of tower activity that we would indicate.

David, one for you. Can you talk about the competitive situation in Boston, with CBS launching a sports radio station on FM?

Sure. You know, we have competition for most of our brands in most of our markets across the country, and it's the fluid and dynamic and competitive nature of the business that we're in. So we have another sports competitor in Boston, and we continue to generate outstanding revenues, and strong ratings, and have what we believe is a content platform that makes WEEI one of the truly great radio stations, and frankly one of the great digital brands in the country; and competition is a good thing, it's made us better.

I think we've addressed -- you talk about pacing in the first quarter; quite a few who asked about color on month-to-month and first quarter pacing. Any other color you want to add on that than you've already done?

I think we've covered data points in the prepared remarks.

A question from Jim Boyle, has your peers' rate card discipline changed?

I think in kind of a revolution in pricing in the business. Clearly there is a shift that is underway from the dire marketplace of late 2008 and 2009 to a far more -- you know, increasingly normalized balance that we're looking at today. We, again, would anticipate that pricing will recover accordingly, as demand has gone up and inventory has tightened. We are beginning to see that, and would expect that trend to continue over the weeks and months ahead.

Another question, can you discuss any performance differences between market sizes?

Only that national has been the more robust -- has been more robust of late, and therefore the larger markets that have a larger proportion of the revenues tied to national have, I think, benefited from that disproportionately.

Beyond that, we're seeing, you know, good solid evolution of local demand, as well, across all sizes of markets.

All right. One more me, this comes from Bishop Sheen, who focuses more on the balance sheet. What would be a flexible structure going forward in Entercom's debt which matures in mid-2012? And then a related question, what's the appropriate leverage level for Entercom?

Bishop, I think we have always ducked giving specific leverage targets. I think it's based on both the outlook on the revenue side, the cost of capital, obviously with LIBOR down where it is now, given the relative level that we're able to pay on our bank debt, both revolver and term, we have a very attractive pricing structure which enables us to generate free cash flow.

I think your bigger question is, yes, our senior facility matures mid-2012. It's a couple of years off. Clearly, management and the Board will be looking at the balance sheet structure. We're aware the high yield market is strong. We'll look at other, perhaps, capital structures to make sure we have the maximum flexibility. But given two and-a-half years left to go, or two and-a-quarter years left to go, we've got plenty of time to take a look at that.

David, a question for you, as it relates to our cost structure. If revenues don't come back as strong as we hope, in what areas do we think we can take on specific costs within our business model?

Well, if we continue to reinvent ourselves and continue to look for ways to improve our model on an ongoing basis, I would say that as we look at revenues increasing this year, there are certain areas of spending, such as marketing, that we will look to increase, but slowly and prudently. We do not see any pressure on our cost model at this point in time, and believe that we are -- frankly, have our arms well around our expense side as we go forward and hope to benefit from, you know, the operating leverage of the business that, as revenues ramp up and expenses are managed appropriately, we should be able to see significant increases in our cash flow as we go through the year.

That's great. So that completes this morning's call. We thank everyone for joining.

Thank you all for joining us today, and we look forward to reporting back to you again next quarter. Take care.

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