Audacy Inc (AUD) 2010 Q2 法說會逐字稿

Good afternoon and welcome to Entercom's second quarter 2010 earnings release conference call. All participants will be in 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.

Thanks, Operator. Good afternoon and thanks everyone for joining us today for Entercom Communications'' second quarter earnings conference call. This call is being recorded. A replay will be available on our Company website shortly after the conclusion of today's call. There will also be available for a telephone replay at the replay number noted in the our press release issued earlier this afternoon. With our notice of today's call, we ask that you submit your questions in advance of this call to email address questions at entercom.com. In addition, I'm always available for any follow-up questions if you wish to call me directly it's 610-660-5647.

I should note that should the Company make any forward-looking statements, such statements are based on current expectation and involve risk and uncertainties. Company's actual results could differ materially from those projected. Additional information concerning factors that could cause additional results to differ 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 nonGAAP financial measures, we refer to you our website at entercom.com for a reconciliation of such measures and other pro forma financial information. So with that exciting preamble out of the way, I'll now turn the call over to David Field, President and Chief Executive Officer.

Thanks, Steve and good afternoon, everyone. I'm pleased to report Entercom's second quarter results as we continue to capitalize on improving business conditions and grow significant top and bottom line growth. For the quarter, Entercom delivered a 5% increase in same-station net revenues. Same-station operating expenses were up just 2% enabling us to post a 9% increase in same-station operating income and an 11% increase in EBITDA. Adjusted net income increased 21% to $0.35 per share while free cash flow per share rose 13% to $0.70 per share. We have now generated $0.97 per share of free cash flow during the first half of 2010.

It was another solid quarter of performance for the Company. Here are a few operating highlights. National sales continue to lead the way with strong double-digit revenue growth. Digital reviews were up strong double-digits as well. May was the strongest month of the quarter, April the slowest. June was well on it's way to being the best month of the quarter, but it fizzled a bit in the face of economic jitters and the soft patch in the recovery, which occurred during the back half of the second quarter.

Our best performing markets were Buffalo, Denver, Milwaukee, Rochester and Scranton Wilkes Barre. Our strongest categories during the quarter were auto, health and medical, home furnishings, political and financial services. We also continue to generate solid ratings results. While the spring ratings are still in the process of being released, most of our larger markets are published. We posted particularly strong results in Sacramento, San Francisco, Denver and Portland.

Internally we continue to focus on innovation to bolster our future growth potential. We are investing in new capabilities and capacity in a number of areas that will be key performance drivers in the years ahead. New content, new platforms, new organizational skill sets and new revenue channels are all leading to enhanced audience engagement with our brands and our personalities and expanding our business opportunities in a meaningful way. Two brief examples. By the end of this quarter, that is the third quarter, we will have released iPhone apps for most of our stations and in addition we are substantially enhancing our Companywide texting capabilities establishing a single-source platform for all of our texting Company wide. Both of these initiatives will materially enhance our programming, promotional and sales efforts across our station group.

I mentioned earlier that as the rate of the economic expansion slowed across the country over the past couple months, we did experience a modest slackening of demand that took a bit of steam out of June and July. As a result, July revenues will finish up only in the low single-digits. Having said that, we are seeing encouraging signs as we look forward to the remainder of third and fourth quarters. Most importantly our pacings continue to look strong in the months ahead. August looks solid, September looks great, and while it is very early, so far fourth quarter looks terrific.

We also continue to experience very strong national sales activity. In addition we are seeing a significant pick up in activity in the television segment, which has historically been one of our larger business categories but which declined significantly during the recession. Having televisions place business at more normalized levels would give an additional boost to September and November revenues. And of course we are anticipating a significant boost of political spending and those dollars are just beginning to be placed now.

Finally, we are seeing positive economic signs from a number of sources which lead us to believe that business climate for local advertising decision makers will be relatively favorable in the months ahead. Longer term as we look ahead to 2011 and beyond, we are highly enthusiastic about our future prospects based upon the likelihood of continued economic recovery, the related ad market rebound, radio's excellent audience listening trends and cost effectiveness, secular weakness in certain competitive media and the impact our internal digital and business development initiatives. In addition, we should continue to benefit from our strong free cash flow generation that has enabled us to reduce our debt by over $200 million over the past two years.

In closing, it's worth noting that we are now two quarters into a solid recovery in radio ad spending. While in a perfect world it would nice if all economic recoveries were smooth and perfectly orderly. In reality, they occur in fits and starts due to a myriad of factors and circumstances. The pace of the recovery may have slowed temporarily in June and early July, but there are compelling reasons to believe that the growth rate will reaccelerate. Our comps with our pre-recession numbers will remain exceedingly easy for at least the next few quarters. And with radio's relative value proposition stronger than ever, we have an excellent opportunity to grow revenues significantly over the next couple years. With that I'll turn it over to Steve for some additional thoughts before we turn to your questions.

Thanks, David. Let me just give you a few highlights on the recently completed quarter. Kind of recap the first half of 2010 as we pass that benchmark and then add a few comments about upcoming quarterly line items for your models. David previously covered our revenue results for the second quarter up 5% on a same-station basis. And our same-station operating expense has increased by just 2% for the quarter which did benefit to a small degree by some timing issues which will impact the third quarter. Now this 2% increase in the second quarter follows a first quarter of increase of just 1%. For your modeling I would expect our third quarter expenses to be slightly higher probably up around 4% to 5%, but then fourth quarter back down to an increase of between 2% and 3% as we see it at this time. I'd also expect our corporate expenses going forward to be closer to $4.5 million with some fluctuations about that data point.

Let me just recap the first half 2010 highlights. Entercom same-station revenues increased by 6% while our operating expenses were up just 2%. This resulted in a broadcast cash flow increase of 16% and a free cash flow increase of 38% for our shareholders.

On the balance sheet side, lets look at interest expense. I would expect our third and fourth quarter interest expense to be higher than our trailing quarter something around $8 million to $8.3 million per quarter. Looking at our overall debt, as noted in the release, we reduced our net debt by about $17 million in the quarter. That now stands at slightly below $700 million net of cash. This means that we've had a reduction of net debt of over $200 million in the past two years, which is a testament to the great free cash flow generation of our business model through tough economic times.

Further on the balance sheet, our CapEx for the quarter was about $700,000 which resulted in about $1.5 million for the first half. We would expect the full year 2010 CapEx to come in somewhere between $3.5 million and $4 million as you will note down significantly from prior years.

So with the completion of those prepared remarks, I'll now go to your questions which were submitted by e-mail prior to this call. I think in the past I sometime had mentioned who had asked the question. I find this time with the number of people asking questions and the number of questions per individual, that they tend to all follow a similar pattern. So just a heads up, I won't identify who asked the question.

David kind of a recurring theme throughout the questions coming in today is any color you can provide on pricing in the quarter and what you might see as pricing going forward?

We're making progress. We see that overall pricing in radio is up. It's not up as much as we might like and frankly not up as much as it perhaps should be. Television pricing is up dramatically more but I think frankly that's an area of opportunity for us as the recovery continues.

Okay. Another question kind of comes around I guess somewhat similar and that's on the issue of comps. Do you see comps getting harder or easier as you go to Q3, Q4?

It's funny, there seems to be a misconception that some have that the comps get harder here in the second half of the year because we did a little bit better towards the end of 2009. I think what that analysis misses of course is the compound impact of the recession which really impacted radio revenues beginning in the back half 2008. And so when you look at the compound impact on radio revenues, the quarters are pretty darn similar in terms of the deterioration off of our pre-recession norms. And so therefore I think that the comps remain easy, and frankly even when you get into next year, I think it's important to continue to benchmark off of 2007 and there's a significant amount of upside to radio revenues going forward merely recovering back to where we were before the recession.

May be a few questions that are grouped together under the regulatory banner before we get back to some revenue items. A question has come in for your comments on some of the recent initiatives on loosening the FCC ownership cap for in-market ownership.

Right, so we filed comments with the FCC on Monday supporting the notion that the sub caps-- the sub limits should be removed which basically limit us to no more than five stations on either FM or AM and eight stations total. And therefore we would support the notion that we would be able to own up to eight stations on either the AM or FM band. We think that makes a tremendous amount of sense in this day and age in light of the competitive environment that we see in media and we're hopeful that that change might become law down the road.

Okay, kind of keeping with the regulatory theme there's been a lot in the press recently both on changes desk at the (inaudible) rates and also some initiatives to take a look at performance royalty. Any comments on that?

Well we're pleased to see that the courts and the RMLCs discussions with [EAS/CAP] and BMI have yielded some relief. As you're-- I think most of you are aware over the last few years as radio revenues have, the last couple years as radio revenues have declined while we've had this (inaudible) increase in the fees we paid to EAS/CAP and BMI as a percentage of revenues it had reached a point of being very much out of line and unfair. Fortunately the courts have agreed with that point of view and we have received a significant interim relief which has reduced our expenses and will reduce our expenses for the foreseeable future until a permanent decision is made by the rate courts.

Having said that we do spend a lot of money every year that's already built into our model to the artist community. There are some ongoing discussions that have been referenced by others along the lines of discussing a performance royalty. We'll just have to see where those talks go, if anywhere, down the road.

Okay. Some people are talking about the impact of political and how we see that. Maybe before you add some color, David I'll give some data points on political. Just for frame of reference several people wanted to know our historical trend, so let me give you overall Entercom trend in political. 2006, which was the last non-presidential cycle, we did about $4.7 million in political. A frame of reference, not relative to that, 2008, obviously political and a fuller year, we did about $7.4 million. I would say that this year would be closer to 2006 and our experience shows that we're seeing increases over that. In the second quarter we had about $1.2 million of political.

Whatever political we get for the year, and again 2006 we got $4.7 million, so I'm not Hoodiny, but one could safely say we get $5 million to $6 million in that range off that target, that would be primarily loaded in the third and fourth quarter. Again giving some confidence to what's coming up as David indicated. Beyond that data point any other color on that, David on political that you have seen or would like to contribute?

No other than anecdotally and sources very close to those discussions indicate that we should see a strong increase in political spending this cycle. I think radio has done a better job of marketing itself to the decision makers in the political world and should be the beneficiary of that in this political cycle.

Couple questions came in and asked for your color on the "deceleration" of Q1 growth of 8% same-station to Q2 growth on the revenue side and then I'll address later an expense side of the growth from 1% up to 3%-- 2% in the quarter. If you want to address the revenue side first?

Sure and we had referenced this those of you on our first quarter call may recall that we articulated the fact that we did in fact expect Q2 revenue growth to be a bit slower than Q1. We noted two reasons for that. One, the timing of Easter and two, the fact that we really were I think out in front of the industry to a great extent on anticipating a significant pick up this year, hence took a tougher position on some pricing decisions that may have cost us a little bit of business going into the quarter. And again, a business decision which we deemed to be smart but which had some minor impact in the quarter. That was our perspective when we had our earnings call. Subsequent to that we also saw a little bit of slow down in sort of the soft patch that we're all very aware the economy experienced sort of back half of May and June which dampened June revenues a bit. So I think the collective impact of that caused us to be a little off in Q2 versus Q1.

I'll comment on expenses. Expenses did come in a little lighter than what I think I guided to earlier. Some of that is timing of pushouts to Q3 and therefore that one coming up in the 4% to 5% range and also we got some positive adjustment from EAS/CAP BMI recent decisions that David referenced earlier.

Let's go to the balance sheet. Questions have come in on M&A, what we're seeing in the M&A market and is Entercom interested in being an acquirer? And let me I guess ask a related question, what's the primary use of your free cash flow?

Yes, I mean we're very focused right now on reducing our debt. Steve mentioned earlier and I believe I did as well that we've now reduced our debt by $200 million over the past two years which were again is a pretty strong indication of the power of our business model. And that is our intent going forward to continue to reduce that debt. Having said that, I wouldn't rule out entirely an acquisition but it would have to be extremely attractive for us to do anything material at this point in time.

I don't know if we have hard data on this but a couple people have asked if we've seen any change in the timing of ad budget placement?

Yes, it's a little -- I'd say our visibility is probably a little better. We don't have quite the same-- I think people are buying a little bit earlier than they were is the general statement. So I'd say incrementally a little bitter visibility but I wouldn't say it's been dramatic either.

Okay and our last question, I think you may have addressed it your remarks, but you might want to add some more color, a couple people asked about what we're doing to develop new revenue streams primarily in digital and mobile applications, which I know you did address in your remarks but maybe you want to expand on that given the interest from the questioners.

Yes, look be happy to. We-- as I mentioned and have mentioned on prior calls, innovation is an important theme for us, doesn't just pertain to digit but that's an important part of it. We're making significant investments in people and technology, in tools. I referenced a few moments ago rolling out apps for most of our brands, enhancing significantly our text capabilities and putting that under a single source which gives us greater versatility working with customers. All that having been said, we continue to see strong growth in our digital metrics and that's true on the usage side as well as on the revenue side. We're seeing greater than 20% growth year-over-year in our unique visitors. We're seeing significant increases in our database, significant increases in our streaming usage, and at the same time significant increases in revenues.

I've cautioned in the past and I think others have made this point as well, it's hard to delineate digital revenues specifically because the reality is that much of what we do tends to have some integrated attributes and therefore determining where the dollar should drop is to some extent subjective. It is important to say that our pure digital revenues were up significantly and our integrated revenues are up significantly as well. So we're excited about where that's going and truly believe that our capabilities to work with customers in robust ways to drive their business continues to get better everyday.

Well that is the conclusion of what I believe were the theme of all the questions in as I indicated earlier . If anyone has some that weren't answered directly, feel free to give me a call at 610-660-5647. And David any wrap up

No, just appreciate everybody's time this afternoon and we look forward to reporting back to everyone 90 days from now.

Thank you.

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