Audacy Inc (AUD) 2011 Q1 法說會逐字稿

Good afternoon and welcome to Entercom's first quarter 2011 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, everyone. I would like to welcome you to Entercom Communications' 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 and available by telephone at a replay number noted in our earnings release this afternoon.

With our notice of today's call, we ask that you submit your questions in advance of the call to the e-mail address questions@entercom.com. In addition, I'm always available for any follow-up questions if you'd wish 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 risks and uncertainties. The Company's actual results could differ materially from those projected. Additional information concerning factors that could cause such additional results to differ materially is described in the Company's SEC filings on Forms 10-Q, 10-K and 8-K. We assume no obligation to update any forward-looking statements.

During this 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.

So with that introduction, introductory comments, I will introduce David Field, President and Chief Executive Officer.

Thanks, Steve, and good afternoon, everyone. For the first quarter of 2011, Entercom's net revenues increased 2% to $82.5 million. Station expenses increased 4% to $61.8 million, and station operating income decreased 4% to $20.7 million. Adjusted EBITDA decreased 13% to $15.1 million and adjusted net income per share decreased from $0.11 to $0.09 for the quarter.

Let me share some perspective on the quarter before Steve adds his comments and then we take your questions. First, our core revenue growth for first quarter was 4%. This number excludes political spending and also the benefit we received last year from the same Super Bowl run on our New Orleans stations, which include the Saints' flagship, WWL. About two thirds of this adjustment is attributable to the Saints with one third being political.

You may also recall that during our third quarter earnings call this past year we criticized our own operating performance, noting that we had lost revenue share in the second and third quarters of 2010 and that we viewed that as unacceptable. We noted our consistent record of superior growth over our 12-year history as a public Company and stated unequivocally that we would be back on our game, outperforming our markets, in 2011.

I am pleased to report that we have achieved that goal, at least for first quarter, delivering results significantly stronger than our market peers. We gained revenue share in 16 of our 22 reporting markets and, looked at in aggregate, we significantly outpaced our markets, which were just flat for the quarter versus our up 2%.

I also want to note that, based on the industry numbers we have seen so far, our markets appear to have lagged industry-wide results for the quarter. So, while we are not particularly excited about our plus 2% revenue number, it should be viewed in the context of our flat markets. We do not see any reason to suspect that our markets will continue to lag national averages over the long haul, as it appears to be just the luck of the draw last quarter.

Local advertising led the way for us during Q1 while national was softer coming off of last year's robust national revenue growth. Digital revenues continued to grow at a strong double-digit clip. Our best performing markets were Kansas City, Milwaukee, Norfolk, Austin and Seattle. Our strongest categories during the quarter were insurance, auto, TV cable and travel.

One final point worth noting on our Q1 revenues, our 2% growth this year comes on top of our 8% same station growth in the first quarter of 2010.

Some other operating highlights -- we completed our acquisition of K-FOX in San Jose from Clear Channel for $9 million during the quarter. We saw a unique opportunity to create value by acquiring K-FOX and simulcasting it with one of our San Francisco FM stations to create the market's strongest signal, carrying from Santa Cruz to Santa Rosa in this geographically mammoth market. While a relatively small deal, we are confident that the new station will be a strong market leader, enabling us to create significant value on this acquisition.

Over the past couple of months we have also been busy with a number of other format changes to bolster our competitive position. In San Francisco, in addition to the new K-FOX simulcast we have launched a new sports station in the market. In Kansas City we added a new FM simulcast to our powerful news talk leader, KMBZ, and also launched a new AC radio station, The Point. Finally, we also added an FM simulcast to our strong news talk leader in Buffalo, WBEN.

In addition, we continue to focus on our Company-wide reinvention efforts and have made a number of moves to add unique new content, build robust new platforms and develop new revenue channels. All of these moves are enhancing our audience engagement with our brands and expanding our business opportunities. We continue to experience rapid growth across all of our streaming, text, e-commerce, social and mobile platforms. Our e-commerce revenues continue to grow at strong double-digit rates as we continue to improve our capability and our execution.

And on the mobile front, what is particularly impressive is the high rate of usage of our mobile apps, many months after they have been downloaded.

Turning to the current business climate, a few weeks ago we were pacing up strong mid-single digits for Q2 and anticipating a pretty strong quarter. Our local ad sales were accelerating meaningfully from flat in January to plus 3% in February and plus 6% in March. And again, I want to emphasize, that's our local ad sales. Unfortunately, over the past three weeks business conditions have slowed and we are now pacing up just 1% overall for second quarter. This is primarily being caused by the impact of the tsunami on automotive production. A shortage of cars at many dealerships across the country has caused a significant number of our automotive customers to cancel or postpone planned advertising during the second quarter. We would expect that our business will reaccelerate as we get past the impact of this exogenous event.

Fundamentally, we continue to feel very good about our business and our future opportunities. We continue to generate enormous free cash flow and de-lever our balance sheet. Our brands are strong and we are continuing to enhance our digital capabilities in ways that are driving strong listener engagement and new revenue streams for us as we expand our product offerings for our customers.

And perhaps most fundamentally, radio listening trends remain outstanding as the total number of local radio listeners continues to grow and is now at an all-time record level. Furthermore, local radio holds well over a 90% share of total radio listening versus satellite and Internet. Think about that. After many years of competition from satellite and Internet and cable radio, local radio retains well over a 90% share of total radio listening. It is an impressive statistic that speaks volumes on the strength and resilience of local radio brands across the country. It is an unequivocal record of success that would be envied by the vast majority of incumbent industries.

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

Thanks, David. For the first quarter, our same station revenues were up 2%; but, as David previously noted, this was effectively higher due to the impact of last year's Saints Super Bowl run. Our same station operating expenses increased by 4% for the quarter, which was in line with our expectations of mid-single digit expense increases for the year, which we communicated to you on the last call. To remind you, we have talked in past calls that this year's cost increases are and will be impacted by some unique or one-time items which will impact comps, such as the further implementation of our Arbitron rollout of PPM, the impact of format changes, particularly the one in San Francisco which David cited earlier, some incremental expenses as we continue to build out our digital and e-commerce initiatives, and the lifting of our multi-year wage freeze and the restoration of our suspended 401(k) savings match for our employees.

I would expect that our second-quarter expenses might be up around 5%. We will have much lower expense growth next year.

With our agreement to acquire Fox FM in San Jose, we did have a brief period of time brokerage agreement expenses or fees until we closed on that transaction. This expense was reflected as a special line item in our earnings statement for the first quarter. There are no more TBA fees related to this transaction, which is now closed.

Also in the first quarter we had a special line item for merger and acquisition costs. You will see about $1.5 million in our P&L statement. About half of that amount related to fees and expenses connected with the evaluation of a large acquisition which we did not do. The other half of this line item is a non-cash write-down of unneeded real estate assumed in connection with the San Jose FM acquisition in the quarter. I would note that in the future, we may be able to sub-lease some of this facility and recover some of that book expense, which we recognized.

A couple of other line items for the quarter -- our non-cash compensation expense was higher in the first quarter due to the timing of some stock grants. We would expect to see future quarters' non-cash compensation expense decreased to a little less than $2 million per quarter.

Our capital expenses for the quarter was $900,000, and we would expect the full year 2011 to be around $4 million, continuing the trend that you have seen over the past couple of years and reduction in CapEx and an enhancement in our free cash flow. Our interest expense declined in the quarter due to a roll-off of an interest rate hedge. You obviously see that we enjoy a very attractive bank financing rate under our current agreement.

Our quarter-end leverage was 5.6 times as calculated under our bank facility formula. Our reconciliation of our bank agreement leverage calculation is available for you at the Investor tab of our Company website.

For those of you focused on the balance sheet, let me give you a note coming up for the second quarter. In the second quarter, you will see that our senior debt will be classified as short-term liability rather than long-term since our bank facility will expire within the following 12-month period in June 2012. We at the Company are very aware of our refinancing options and we'll continue to monitor and weigh these alternatives. But our current bias is to wait until later in the year before putting a new facility into place.

For your models, I would expect second-quarter fully diluted shares outstanding to increase to around 38.4 million for the quarter and around that number for the balance of the year.

So with those kinds of housekeeping notes, let me now go to your questions which were submitted prior to this call by e-mail. I will do my best to summarize those, I guess, for David, and then I guess I'm going to turn around and summarize them to myself as well.

David, I think perhaps I can speak to the vast number of questions who came in. Quite a few coalesced around what is going on with auto, just color on that. What are seeing in Japanese auto manufacturers? What have we seen in cancellations? What have we seen in other dealer-manufacturers taking some of that inventory? Any color you would like to give on that --

Yes; obviously, I touched on that earlier in my remarks. We've heard from most of our markets that they have received some degree of cancellations, almost exclusively from Japanese-based auto manufacturers. I guess there's some question as to the parts of the supply chain for domestics, but it has had some impact here over the last three weeks -- disappointing, but it is what it is. And I guess the good news is it's an exogenous event and the automotive manufacturers will work through it, and hopefully it's nothing more than a speed bump.

Marci Ryvicker of Wells Fargo asks for an update on our e-commerce initiative, how it was in the quarter and what impact on revenue and expenses.

Yes; we are delighted with how that is playing out. We continue to invest, as I noted earlier, in our capabilities and our user interface and our technology. We like the business and we think it's got significant upside for us, and we are achieving significant double-digit growth. And we are going to continue to work on it and watch it grow.

And I guess I will just add a sidebar on color on expenses. That's part of, as I said in my prepared remarks, kind of the bucket of expenses this year that comp over last year, e-commerce format change, PPM and salary, 401(k). So without specific breakouts, that's all in that bundle.

David, let me come back with a question from Jim Boyle on ad rates in the first quarter 2011 versus prior year and what we are seeing on sellout and rates.

In the first quarter I think we have seen some public data from Katz, who obviously has a pretty good vantage point, being that they sell 99% or so of the industry's national revenue. And we have also seen [squat] data that has come out. Both of those sources indicate some healthy increases in radio rates. I think that happens to be I think a better source than us in terms of the overall situation. So yes; first quarter we saw a little bit of growth in rate and not much change in utilization rates.

That's a good segue to another question which ties into that, which is, are advertisers placing business earlier or later as you look at the first quarter and second quarter?

Yes; the funny thing is, the answer to that question is yes. We are actually seeing them book a little bit earlier, but at the same time we are also seeing some acceleration towards the end. And it feels as though in the middle things slow down a little bit, so early and late, less so several weeks out.

Several questions came in regarding the format change in San Francisco, which I'm going to assume means primarily The Fox, which we talked about in the first quarter. What impact did we see in the quarter, and what are we anticipating for the year?

We've made two major changes there, so we've turned our world upside down in San Francisco. We think unequivocally, the lineup of products that we are offering in the marketplace today is dramatically enhanced from where we were just a few months ago. And we could not be more excited about what that means for us down the road, as those stations play out.

Obviously, in the short run it's modestly disruptive because we will have some expenses related to those transitions and we will go through the normal evolution of stations which will ramp up their revenues, but obviously the expenses come first and then revenues go from there.

So we take a little bit of a step backwards in order to make a material step forward, as we believe we will.

I guess I will ask myself a question, then, if you don't mind -- again, Marci Ryvicker at Wells Fargo wanted to know more color on expenses, noting our Q1 expense growth of 4%, and should we expect full-year expense growth of less than 4%?

Marci, as I kind of indicated in my note, we have tried to guide. Although we don't give guidance, we have given out information that we expect mid-single digit I would expect in that 4% to 5% range for the year, much of that dependent, obviously, on future activities and revenue growth, but comfortable with that.

Let's step back, David, from the kind of day-to-day. We had a couple of questions regarding future growth. Obviously, we have disclosed that we took a swing at the bat on the Citadel transaction. Two questions -- in hindsight, what is your view on losing Citadel? And then let me ask a related question, so kind of tie two separate questions together. What's our desire to get bigger, and what is your ability to get bigger? So kind of three connected questions.

I guess the first question -- it's probably not a secret to anybody on this phone call that we were the other player in the bidding for Citadel. And some of that has come out and certainly will come out more as their paperwork is revealed. But let me share a couple of thoughts on our thinking and the process as how that all played out.

First, yes, we were interested in Citadel. But really opportunistically, we like most of their former ABC large market assets, but we were not particularly interested in their smaller markets, and they weren't a great fit for us. So we approached the opportunity with discipline, as we have in the past. We bid what we felt made sense to our shareholders, and our proposal offered substantially less cash and significantly more equity than the Cumulus offer. And I would add the value was a little bit lower as well.

When the bidding went above a value we felt was compelling to our shareholders, we opted out of the process. I think we have a pretty clear track record of maintaining our discipline in these processes both from the standpoint of price and from the standpoint of the balance sheet risk that we're willing to assume.

At the end of the day, Citadel, I think you could categorize as a nice-to-have for us but not a must-have. And at the price it would have required for us to have prevailed, it became unattractive to us. Frankly, I think it's fair to say that the deal was a better fit for Cumulus than it was for us a number of levels, and we wish them well with the opportunity.

So turning to the part B of your question, frankly, I think our actions speak louder than words on this topic as to our interest in getting bigger. Clearly, we have interest, and we did invest some time and some effort and some money in the Citadel deal, but I think our discipline was also revealed in that process. And so, if we find opportunities to grow that we think makes sense for our shareholder and create value for us and that are better ways to deploy our balance sheet than alternatives, we will pursue them. And if we are not able to find them, we are perfectly comfortable walking away and moving on to other opportunities.

One more question on the quarter, and then I will wrap up with one more big picture question just to tee up the next two. A question as to whether we have seen our competitors or radio peers adding more inventory as we step back and look back over the past year.

We really haven't. I think there's pretty good discipline in the industry, as far as we can tell. And I think PPM has probably been a factor in that. But I think, in addition, I think operators are just more disciplined these days, and that's a healthy sign for the business.

For those of you listening, you can tell I'm paraphrasing most of your questions. I think I've covered every one. This last one I won't paraphrase; I'm going to read it directly, only because there's no way to paraphrase it -- from Bishop Cheen at Wells Fargo Securities.

David, a big picture view -- terrestrial ad-driven radio -- is it increasingly in a digital streaming world? How does Entercom effectively compete against the bird, meaning satellite, and against the cloud, meaning Pandora, not to mention all the smart cars gearing up to come soon with Internet radio ads?

Well, this question or another form of this question has probably been asked 5 million times over the last 50 years. And notwithstanding, radio keeps growing. And it's really fascinating how there tends to be this, but what about the next threat, but what about the next threat mentality when it comes to testing our world.

As I mentioned in my earlier remarks, notwithstanding all of that, notwithstanding the fact that in the last 10, 20 years we have faced whatever, from cassette tapes to CD players to multi-deck CD players, satellite radio, iPods, cable radio, Internet radio, etc., etc., etc. -- the fact is that listening to local AM and FM radio stations continues to grow more and more listeners every single year and we maintain a 93% reach across the country. And, again, it's hard to imagine how many incumbent businesses have maintained similar levels of success.

And it's a longer question; it's probably more of a symposium as to why that is the case. But the reality is that our local brands, our local personalities, the important roles we play in our communities on local issues, community events, the companionship would provide, etc., etc., distinguishes us from some of these other entrants. And without besmirching them, and they have their own issues and their own challenges, the fact is that, notwithstanding all of that competition, well over 90% of total listening hours in radio goes to local AM and FM radio stations. And, again, I think that's an unequivocally positive indicator of our success in our business model prevailing in the space of all of that competition and change.

Now, that raises questions as to how things play out in the future. How does the business model of Internet radio ultimately work? Will the changes in how consumers pay for Internet data impact those models, etc., it's etc., all to be determined. But I think the track record of the industry on this has been terrific, and I think the leadership of the industry is committed to continuing to invest in our brands and our personalities to make sure that our future is every bit as bright as our past.

With that, those are the questions as submitted. Please feel free to follow up with David or myself if you have further questions or need clarification. So thank you all for joining us on this call today.

Thank you.

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