Audacy Inc (AUD) 2010 Q1 法說會逐字稿

Good afternoon and welcome to Entercom's first quarter 2010 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 and good afternoon, everyone. Thank you for joining us today on what was a very choppy day in the stock market. We would like to welcome you to Entercom Communications conference call for the first quarter of 2010. As the operator indicated, this call is being recorded. A replay will be available on our Company website shortly after the conclusion of today's call and also will be available by telephone at the replay number noted in our Earnings Release put out earlier this afternoon. With the notice of today's call, we ask that you submit your questions in advance of the call. In addition, I'm always available for any follow-up questions if you'd like to call me directly at 610-660-5647.

And now, should the Company make any forward-looking statements, such statements are based on current expectations that involve risks and uncertainties. The Company's actual results could differ materially from those projected. Additional information concerning factors that could cause such actual results to differ is described in the Company's SEC filings on Form 10-Q, 10-K, and 8-K. The Company assumes no obligation to update any forward-looking statements. Also during today's call, we may reference certain non-GAAP financial measures. We refer you to our website at Entercom.com for a reconciliation of such measures and other pro forma financial information. With that, I'll now turn it over to David Field, President and Chief Executive Officer.

Thanks, Steve and good afternoon, everyone. Thanks for joining us on today's call. I'm very pleased to report strong first quarter results as Entercom capitalized on improving business conditions and drove significant top and bottom line growth. For the quarter, Entercom delivered an 8% increase in same station net revenues. Same station operating expenses were up just 1%, enabling us to post a 30% increase in same station operating income and a 34% increase in EBITDA. Adjusted net income increased from $0.01 to $0.11 per share, while free cash flow per share surged 125% from $0.12 to $0.27 per share. In fact, our free cash flow per share is now only $0.01 below its pre-recession first quarter 2008 level of $0.28 per share.

Here are some operating highlights for the quarter. All segments of our business were positive. National revenues posted strong double digit growth and digital revenues were also up strong double digits. Our performance grew steadily stronger during the quarter as March was our strongest month followed by February. It is also interesting to look at the growth pattern across our markets. Our largest markets performed well with our two top ten market revenues up by midteens percentages, but we also had a substantial number of our other markets performing at this level. In fact, ten of our 23 markets achieved double digit growth for the quarter and 12 of our markets showed BCF growth in excess of 20%.

As you would expect at this early stage of the economic recovery, the timing and the pace of the recovery is somewhat uneven with some markets doing exceedingly well and others lagging somewhat behind. Our best performing markets were Boston, Denver, New Orleans, Rochester, San Francisco, and Wilkesbury. Our strongest categories during first quarter were retail, health and medical, auto, political, and home furnishing.

We also continue to generate solid ratings results. Most of the winter books are now released and we are pretty pleased with the numbers. It is worth noting our stations with an alternative rock format are benefiting from the PP methodology and more importantly, the addition of cell phone only households that has revealed substantially higher listening levels that was apparent when only residents with land line phones were researched. (inaudible) Seattle was a great illustration of this. The station has returned to its former greatness and now ranks first among adults 18-34 and second among adults in men 18-49. Only sister station [KASW] reaches more men 18-49 in Seattle. In the winter book, we also posted particularly strong ratings performance in Sacramento, Portland, Indianapolis, Milwaukee, and Rochester. To be fair. there are always down books too, but overall we are pleased with how our brand books are performing in the ratings.

Separately, now that we've returned to revenue growth, we can reflect on what we've been able to accomplish and how we acquitted ourselves during the recession. There's no question in my mind that we have indeed fulfilled our goal of emerging from the recession with enhance capabilities, a stronger competitive position and an improved business model. A few highlights, we focused intently on using our significant free cash flow to delever. We have now reduced our debt by just under $100 million in the past 12 months and approximately $225 million over the past two years. We also made a number of moves to improve our business model and enhance our operational efficiency in sustainable ways that will [help] our benefit in the future.

We also continue to focus on innovation to bolster our future growth potential. We have enhanced our capabilities and added capacity in areas such as mobile, online and on air content, integrated sales programs, and business development. We are really excited about how the innovation that is occurring within our Company and at our peers in the industry as well, is enhancing our collective appeal to our listeners and customers. One example that we just announced is that we will be launching mobile apps for most of our stations that will provide additional opportunities for our nearly 30 million listeners to interact with our brands and personalities. New content, new platforms, and new products are all leading to enhanced audience engagement and expanding our business opportunities in a meaningful way.

Finally I'd like to share a few comments on current business conditions. As we noted on our last earnings call, we continue to experience a broad based ad recovery with business confidence and economic activity significantly improved versus last year. Right now, it looks like June will be the strongest month of the second quarter with April being the weakest. Easter's timing pushed some business from April last year to March this year. Second quarter will be another strong positive quarter, albeit our growth will be just a little bit slower than Q1 due to the pricing stance we took earlier in the year. Back then we were pretty much alone in our call on the extent of the recovery and adopted a more aggressive stance on pricing, electing not to accept some business that others took. We believe that was the right strategy and will work to our benefit even though it has cost us a bit in the short run.

That decision coupled with the timing of Easter and a bit slower business climate in April caused that month to be a bit softer, up, but in the low single digits. However, revenue growth in May and June is expected to be in line with our Q1 growth. Demand is quite strong and we are seeing tight inventory conditions in a number of our markets, particularly the largest ones. In addition, pricing trends are positive and improving. We are also feeling very good about the second half of the year based upon our stronger orientation data, the expected impact of political spending and other positive market indicators.

I think it's worth stepping back for a moment to take stock of the big picture, the great progress we have made and where we are headed. We have come a long way over the past few months from a world where there was near universal skepticism that 2010 would be positive let alone that it would be up significantly as we publicly implied this past September. And we feel great about our first quarter results and the significant top and bottom line progress we made during the quarter, but we view it only as the first step towards our primary goal of getting back to pre-recession financial performance as expeditiously as possible. We believe we are well on our way towards that goal and expect to make significant progress in each and every quarter this year. In sum, we're feeling very good about how we are positioned looking forward and are quite optimistic about our business opportunities in the quarters ahead.

With that, I'll turn it over to Steve for some additional thoughts before we turn to your questions.

Thanks, David. First, let me cover a few highlights from the quarter on the balance sheet side and then I'll make a few comments on the operating side. It was a busy quarter for the Company. During the first quarter, we amended our bank deal. We have previously summarized for you the highlights of that amendment in an 8-K filing in March and we'll direct you there if you want more detail. Shortly we'll be filing the complete amendment. We have a fabulous facility with no LIBOR floor and very attractive pricing. We're able to take advantage of the Company's strength to maintain these great terms and provide even greater flexibility for the Company through the 2012 expiration of the senior credit facility.

Also during the first quarter, we called and retired the remaining outstanding senior subordinated notes that were due in 2014, so we have no junior security outstanding at this time. It's important to remind you of the great low cost financing structure that we have in place. That, coupled with our business model, provides tremendous free cash flow generation for our shareholders. And the story of free cash flow generation remains strong in the first quarter, as David indicated, up significantly due to operations, low financing costs, debt reduction, and lowered capital expenditures.

On the operating results side, just a reminder this quarter and I'll not do it again in future quarters, you'll note that there's a very -- that due to the sale in the second half of last year of a few of our broadcast tower facilities, there's a very small adjustment between reported and same station results in revenue and expenses. Reconciliation of those adjustments is on our website for those of you wanting to maintain proper prior year comparison for same station metrics and modeling purposes. David covered the quarter same station revenue growth of 8%. Let me turn to the expense side.

On the expense side, I think the headline is we maintained vigilance. You may recall that on our last call covering year-end 2009, I indicated to you at that time that we would expect expense growth in this year 2010 in the low single digit range, based on street estimates of revenue growth. Now that we've given you our first quarter expense growth of just a little over 1%, I'd advise you that you should expect slightly higher comparative expenses in the Second and third quarter, given the timing of planned initiatives for this year and some favorable credits unique to the first quarter that impacted just that quarter. However we maintain our previously stated outlook for the year ahead for expenses.

Over the past 18 months during the economic downturn, we took out over $20 million in operating costs. Now about two-thirds of those reductions are permanent structural savings. Looking forward, another $5 million to $7 million in costs may come back in the future, whether that would be later this year or in 2012, as we start to get further into the advertising recovery. These are the items such as reinstating our 401(K) match for employee savings plan, lifting our staff wage freeze and a few other items, but I can assure you we'll be cautious in the timing of that as we look at when is the best time to address those. But our current expectations are baked into the numbers of low single digit for the year that I give you earlier. With that, I will go to the questions that you previously submitted. I may bundle up some of the questions where there was overlap, but I believe we can address all your questions.

First, David, from [Paul Sweeney now at Bloomberg and let me tie that into a question from Bishop Cheen at Wachovia]. I think they both tie together. First I'll go to Bishop's and I'll finish with Paul and they will link together with one common answer. From Bishop, he says, the radio ad world appears to steadily be reaching for your vision articulated last year that the industry could be up 10% this year. Do you think that March has detoured or stalled that vision, or that this weeks new found sobriety on Wall Street might cause a reaction? Pause.

Let me link to a Paul Sweeney question. Radio and TV are posting solid revenue growth, yet newspaper top line remains under great pressure. Are salespeople targeting newspapers any differently, coming out of the recession? Two bundled questions.

Yes, really two different thoughts. I would say on the first, I'd say our conviction in terms of where we're headed from a growth standpoint is greater than even before. I think we're all -- we can all look at the macro data and what's going on in the ad recovery and the general economic recovery. I think we're at the early stages of an economic recovery and we would expect that to continue for quite some time. The only question I think is what that path looks like and it's probably not perfectly smooth and perfectly linear. Nor would we expect it to be anything but, given past recoveries but we think we're well on our way and very optimistic about where we're headed.

As to the other question regarding the other media sectors, if I understood the question right -- I would answer it this way. We very much believe that radio's value proposition relative to other media has actually strengthened quite a bit over the last couple years. And it is certainly -- if you look at some of the other issues that a number of other media are facing, declining usage, other disruptions to their models. Whereas radio, as evidenced by the Nielsen study last fall, which I think we've talked about before and others have as well, that landmark study that talked about the media landscape and was very clear in noting how radio has weathered the storm extremely well. Usage is extremely robust, and a lot of other positive data to support that.

At the same time, with PPM revealing radio stations reach far more people than ever before. The contrast between this positive research on radio, some of the disruptive issues and some of the issues affecting other media, and the fact that radio remains the cost effective media, it reaches well above 90% of the population, we think puts us in a great position to gain share of wallet going forward in an increasingly agnostic advertising world.

And I think that addressed a question that had come from Mike Kupinski as well. A question from Mike related to that would be looking at the growth in non-traditional revenues or internet revenues, how did internet revenues perform in the first quarter. I believe you gave that data point and what was it as a percentage of Company revenues.

As we mentioned and you noted, we achieved strong double digit growth in digital again for first quarter. It actually exceeded 4% of our revenues for First Quarter. As you know, we're a little hesitant to look at that number because frankly, there's an allocation issue that all media companies have in determining how you allocate dollars between digital and traditional assets. But I think we're reasonably conservative and -- in terms of our internal accounting and continue to see strong growth in integrated and shared digital sales.

Also staying on Q1 categories from Marci Ryvicker, wanted to know is Q1, how much of our growth that we reported in Q1 would be attributable to political and how much to Super Bowl?

We saw some lift in political, a lot of it attributable to the special Senate election in Massachusetts and we also saw some lift as noted in the Super Bowl. Collectively, probably responsible for a little over 1% of our revenue lift for the quarter.

Let me stay with a theme from Marci and maybe turn it a little bit to a few balance sheet related questions. A lot of buzz in M&A going on with several of the radio peers. Are we a buyer? What does Entercom expect to do with our free cash flow in the future?

We've touched on this, on this call and in past calls. We've been very focused on using our available free cash flow, our ample free cash flow to reduce debt. As I noted, we reduced debt by $225 million over the last couple years and for the foreseeable future, that remains our principal focus. Having said that, obviously as our balance sheet improves, it opens up opportunities for us to consider other uses of free cash flow, like all of the obvious things one can think of including acquisitions, buy backs, et cetera. And we'll look at those and determine whatever makes the most sense for our shareholders going forward at the time, based upon the facts and circumstances.

Maybe I'll give a question myself if I can be so self-serving. Several people including Marci and others ask if we were considering high yield bond offerings. The short answer is you may have noticed in my earlier remarks, we did retire current bonds so that indenture is out of the way. We've got a tremendous senior bank facility and when you look at the spread of senior bank versus the current coupons available in the high yield market, it's a pretty hefty spread.

We're conscience of that. We're monitoring that. We have no short-term plans to give you the headlines, but we're consciously looking at that market. We're aware that the market has been very receptive to broadcast paper and we think would be very receptive to Entercom paper. It's just a question of economics as we look to balance off the current rate deal we have through 2012 to looking perhaps the capital structure beyond that period of time. I'm sure there's an issue we'll talk about more in future calls.

But let me also while I'm talking, a couple points, mainly from Marci, but also a few other people on the modeling side, how we should think about D&A going forward. You have seen the depreciation and amortization tick down throughout the past year or two, as we've amortized out some of our earlier acquisitions and also slowed down our capital expenditures. Let me pause there and say slowed down capital expenditures not from reducing needed investment or facilities, but just as we've cycled through the necessary studio relocations, which was a major portion of our past several years of historical CapEx. HD deployment where we now have deployed HD facilities against most of our material outlook, so I think you'll see that continue to slowly decline going forward.

Marci asked a related question about interest expense going forward -- we maintained. Short answer is we maintained our currently very favorable pricing grid, below six times [above]. And we were slightly below six times on our First Quarter leverage for our bank facility and reconciliation of that is posted on the website. Given the roll off of some favorable one-time items in the Second Quarter of last year, we might be a little above that in the Second Quarter and therefore have a let's say $1 million, $1.5 million higher interest expense in the third quarter of this year.

As long as I have the floor, a related question would be on the modeling was asking about our non-cash compensation expense on the First Quarter of $1.8 million and what that might look like in subsequent quarters. You would expect with some vesting of some stock instruments in the First Quarter that that would go down to maybe $1.5 million or $1.6 million in the quarters following, but that could always change. But I would give that general guidance.

David, I'll flip back to a question to you on ad rates and I was listening to your question earlier on radio overall, but -- from Jim Boyle, have ad rates or other metrics gone up in 2010 and is rate card integrity actually beginning to occur in some markets?

Yes. Right now, we're looking at significant tightening in conditions in May and June in many markets. We're seeing rates accelerating and growing in real terms over the next couple months. It certainly appears though the trajectory of rates is positive and bodes well, not just for the rest of this quarter but for the quarters ahead.

And I'll take this call that is more a technical call -- inquiries on Entercom's net operating loss carryforwards. I think the best thing I could do is direct you to our 10-K, which is filed so that would be data as of year-end 2009, we had about $48 million of NOLs for future. And also, then just a side note, it wasn't asked, was some tax changes due to the stimulus changes last year, we were able to take some NOLs back to prior years. And in the Second Quarter and we'll note this in our 10-Q when we filed that, we received about $7 million in IRS refunds from prior period taxes. All good on that side. I think just a side note, I think the issue is less about the NOLs and maybe more about the tremendous tax yields that we have in our business model going forward from prior period acquisitions that are amortizing for tax purposes. David, any final comments on the quarter or the outlook?

No, I think we've covered it all. Again we're very pleased with our First Quarter results and frankly, pretty optimistic about where things are headed due to our innovation, the improving business climate, and the relative value proposition that radio has as we watch this world continue to evolve. We thank you all for attending our call this afternoon and look forward to reporting back to you all in a few months.