Audacy Inc (AUD) 2011 Q2 法說會逐字稿

Good afternoon and welcome to Entercom's second-quarter 2011 earnings release conference call. All participants will be in a listen-only mode. This conference is being recorded. I'd 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 welcome, everybody, on what has been an interesting day obviously in the markets. First, I'd like to welcome you to Entercom Communication's second-quarter earnings conference call. As the operator noted, this call is being recorded. A replay will be available on our Company website shortly after the conclusion of today's call and will also be available by telephone at the replay number noted in today's earnings release.

With our notice of today's call, we ask that you submit your questions in advance of the call to the email address questions@Entercom.com. In addition, I'm always available for any follow-up questions if you'd like to call me directly at 610-660-5647. I'd like to note that, should the Company make any forward-looking statements, such statements are based on current expectations and involves risk and uncertainties. The Company's actual results could differ materially from those projected. Additional information concerning factors that could cause additional 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. We refer you to our website at Entercom.com for a reconciliation of such measures and other pro forma financial information. So with that as a preamble I'll turn the call over to David Field, President and Chief Executive Officer.

Thanks, Steve, and good afternoon, everybody. As Steve mentioned, obviously, we picked a beautiful day for our earnings call. I hope everybody is surviving out there, but let's jump in. Entercom's results weakened slightly in the second quarter as revenues were impacted by sluggish economic conditions. Net revenues declined 1% to $104.7 million, station expenses increased 4% to $71 million and station operating income decreased 11% to $33.6 million. Adjusted Net Income per share decreased 11% to $0.31 for the quarter. I'll share some additional color and perspective on second quarter and then provide you with some additional updates and highlights.

Our core revenue performance compares favorably to our reported headline number. Excluding political, as well as a non-recurring revenue item from last year, core revenues were up 1% for the quarter. Our best performing markets during the quarter were Indianapolis, Kansas City, Rochester and Seattle. Our strongest categories were department stores, casino and lottery and drug stores, while political, auto and restaurants were weakest. We out-paced our market, albeit slightly, achieving a small share gain during the quarter. Local and national revenues essentially mirrored our overall quarterly results. We continue to see solid growth in our digital initiative, including our emerging eCommerce business, as our digital revenues grew by double-digits in the quarter. We saw some sequential weakening in the quarter, as April was positive but June was the weakest month, down low single-digits reflecting the deceleration in economic activity in consumer confidence over the past few months.

Now after somewhat of a hiatus over the past couple of years, we have been pretty active with our brand development efforts. Our early year launch of the Fox, our class classic rock station in San Francisco, is showing real ratings progress. The stations ratings surged 68% in the Spring and we continue to have strong expectations for their ratings, revenue and cash flow conversions. In addition, as previously announced, we made a few format changes during March and April. In Kansas City and Buffalo, we added FM simulcast to compliment our Heritage AM news talk brands. We believe this is a smart strategic move to insulate us from the long term erosion on the AM band and enable these brands to cultivate additional younger listeners who are unaccustomed to listening to AM stations, however, these moves were costly in the short run as they entail eliminating existing FM brands and foregoing the revenues from these properties. Ultimately the consolidated AM/FM station should emerge with stronger ratings and accelerated revenue and cash flow growth.

In early April we also launched the Game; San Francisco's first FM sports station. The station had a soft launch in April, timed at the start of the baseball season as we are now the radio home of the Oakland A's, however, we did not debut our permanent sports talk talent line up until August 1. As a result, we had negligible ad sales in this brand during the fast new months. The net impact of these changes in San Francisco, Kansas City and Buffalo cost us an additional 150 basis points of aggregate revenue growth during the quarter.

On the ratings front, we have a number of noteworthy successes during the recently released Spring arbitrage. In Seattle, we currently hold the Number 1 and 2 positions among adults 25 to 54 with KISW and the Wolf. In Denver, The Mountain has hit Number 1 adults 25 to 54 for the first time in its history, while Alice and KOSI hold the top 2 spots with women. Entercom stations hold the number 1 spots with men, women and adults in Sacramento and finally Greensboro holds of the 4 of the top 5 positions among adults 25 to 54.

Turning to the current business climate, conditions remain relatively sluggish as they have been for the past few months. We continue to be impacted by the general softness in the economy and consumer confidence. On a positive note, we are experiencing an improvement in the auto sector, as well as a handful of other categories. Looking at the individual months, we have somewhat of a mixed bag.

July revenues were down mid single digits while August is pacing up low single digits. Overall, we are pacing down low single digits for the quarter. I would now look at the sequential improvement from July to August as a reflection of any form of acceleration as July looks relatively weak and August relatively strong for quite some time.

Turning to some broader operational themes, we continue to enhance our value to listeners by investing in great content and a new digital capabilities that are driving strong listener engagement. We also continue to enhance our value to customers by developing our integrated multi-platform marketing capabilities and leveraging the power of radios near universal reach and our strong local brands and personalities. We're getting strong traction on these efforts. For example, since January we have seen a 38% increase in the number of monthly unique visitors to our station apps, and during the first 6 months of 2011, there were over 22 million texts generated between our fans and our stations.

The surging levels of listener engagement with our station brands, on these and other digital platforms, provide strong reaffirmation of radio's vitality in today's media landscape. In addition, it provides outstanding measurable validation of radios effectiveness as an advertising vehicle for customers. And we continue to develop innovative content programs as well, including a number of proprietary programs with some of today's biggest artists delivering unique content to our air waves. This year we have added a number of programs with artists including Lady Gaga, Bruno Mars, the Red Hot Chili Peppers, Jennifer Lopez, Brad Paisley and many others. We also continue to benefit from the strong cash flow generation of our business model, which has allowed us to significantly reduce our debt.

Finally 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 that's well over 90 share of total radio listening versus satellite and internet. Think about that. After many years of aggressive competition from satellite, internet, cable radio, local retains well over a 90 share of radio listening. It's an impressive statistic that speaks volumes on the strength and resilience of local radio brands across the country.

All of that said, while we do not anticipate improvement in third quarter marketing conditions, and, therefore, are expecting a sluggish quarter, the strong underlying vitality of radio and the evolutionary development and reinvention of the medium for both advertisers and listeners augur's well for the future. When the economy eventually rights itself, we believe we, and our peers in the business, will be well positioned to capitalize on these trends and drive strong top and bottom line growth. With that I'll turn it over to Steve for some additional thoughts before we turn to your questions.

Thanks. You've covered really the quarter's key financial points so I'm going to focus on a few comments on our business model and balance sheet and then we'll go to the questions that have been submitted in advance of this call. As noted, our station operating expenses increased by 4% for the quarter, and this was in line with my comments and guidance about expenses for the year communicated to you in recent quarterly calls. I would note we see similar expense growth for the third quarter, but then lower expense growth in the fourth quarter and beyond.

As I pointed out before, much of this year's expense growth is due to a combination of one-time factors such as the completion of the rollout of our markets, the PPM technology, the resumption of wage increases and 401k matches this year after several years of freeze, and a few significant formats changes which David mentioned and continued investment in our digital initiatives, which are paying off such great results. We would expect to see lower expense growth next year as we do not foresee this combination of factors and as we continue to refine our operating expense business model. On the tax line, kind of a little confusion possibly for you. Our book income taxes for the quarter reflected a $42 million net benefit. Now this book tax benefit resulted from the one-time reversal of a valuation allowance we had recorded in 2008, during the financial downturn against our deferred tax assets.

As the economy and our overall reparted profitability has improved since then, we have now reversed this valuation allowance. We expect that our effective tax rate for the third and fourth quarter will be in the low 40% range, kind of in line with prior periods and, as always, our tax rates are subject to quarterly adjustments. Now this is all for book tax purposes. To repeat an important point, we do not pay any meaningful cash taxes due to our large tax shield and we expect that to continue for many years. Our capital expenditures for the quarter was about $1.4 million. We expect the full year 2011 to be around $4.5 million.

Our interest expense for the quarter was $4.4 million, and we continue to benefit from very attractive bank financing rates under our current bank agreement. Our debt for the quarter declined to $625 million. This resulted in quarter-end leverage of about 5.7 times as calculated under our bank facility formula. Our reconciliation of our bank agreement leverage calculation is available to you on the Investor tab of our Company's website.

As you know, our current bank facility matures in June of next year. Therefore, our debt is now reflected as a current liability starting in this quarter and in future balance sheets and, regarding our debt facility, we continue to speak with lenders and are very comfortable that we have a variety of financing options. You should expect us to refinance our bank facility later this year at the earliest. So with that as background, we'll now go to your questions that were submitted by email prior to this call.

First question, David, comes from Marci Ryvicker of Wells Fargo and it, I think circles back to a few comments you made earlier on pacing and auto. Any comments you can add on any further color on auto, especially when it might come back. We hear Labor Day is a big buzz in the marketplace.

Yes, the reports we're getting back from the field are that there is clearly some momentum driving auto business higher. We at this point believe that we will see some acceleration of that over the weeks and months to come, hard to be more specific than that because the information we get is fragmented.

Okay, let me jump, and Marci had a few more questions. I'll come back to those in a minute. Let me jump to a question that came in from a shareholder and maybe I'll take this, David. It said, Steve, what are the data points for political numbers from last year against which you were comping?

Yes, I think as everybody knows, 2010, the Presidential election year and also Senate and Representatives so this would be the data points that we had communicated earlier from 2010. So again, I'm going to give you 2010 political revenues by quarter, quarter 1 2010, $900,000; quarter 2, $1.2 million; quarter 3, $1.5 million; and quarter 4 was $3.3 million. That's for those of you who model that into your numbers. David, going back to a question from Marci, how much did your internet initiatives add to revenue and EBITDA for the quarter?

As you mentioned, the revenues were a bit over 5%. We do not break out profitability on that but I would say that we continue to invest in our future and continue to deploy enhanced capabilities in various elements of our digital initiatives. That is impacting our cost structure this year, to some extent, but we continue to believe it is a smart strategic move for us to make and we will benefit from it in the future.

Maybe I'll take the next question, which is again regarding our refinancing, and I commented earlier on our refinancing and you might see us, expect to do this later in the year. A question came in as to whether the weakness in the financial markets changes our view at all and the short answer is no on that.

I mean, obviously, we're monitoring that and we will all monitor that but we still believe that the capital markets for companies with our type cash flow are there and are robust enough to support our financing. David, kind of taking kind of the recession approach again from Marci, thinking about where the Company is positioned today, Entercom positioned today, versus where we were positioned in the recession of 2008 to 2009, Marci notes the -- balance sheet is in much better shape but if revenue shows similar declines what can you do with expenses?

Well first, you've touched on this, Steve obviously in your remarks noting that by design, we had driven an increased level of operating investment in certain various facets of our business this year which is impacting our cost number because we believe it's the right thing to do for the business. Having said that, we are in a constant process of reinvention in Entercom and, while we are increasing spending in certain areas -- certain core initiatives, which we believe are important for our future growth potential. We also, at the same time, are constantly looking at ways that we can reinvent ourselves and be more efficient in where we are spending in areas where we believe we can drive expenses out of the business and I think you should expect us to continue to do so going forward.

Bottom line, there remain and we believe for the foreseeable future, will continue to remain, ways that we can drive expenses out of the business and, again, as you mentioned in your remarks, Steve, we expect our expense growth to be considerably slower looking forward.

Technology is wonderful. This just in. A question that came in, in reaction to your comments just a few minutes ago, David. You indicated that you gained share in your markets yet your overall results were down 1%. Do you believe that your markets, I guess that means the Entercom markets, performed in line with the overall radio industry for the quarter?

Right, so let's reframe it again because there are some moving pieces here. So first of all, as we said, we reported down 1%. Our core revenue growth ex-political and a one-time event last year and non-recurring item puts us at plus 1%.

There's probably 150 -- not probably, there is 150 basis points of incremental revenue growth if you allow for the retooling of the 3 brands we referenced. Then beyond that, we were the victim of, I guess, the slowness in our largest markets, Boston and San Francisco, which collectively were down mid single digits as market. And then again, I want to distinguish, it's not referring to our results, it's referring to the markets, we're down mid single digits for the quarter. So gave us a little bit of a head wind, which I think impacted our results.

Okay. I have noted and, maybe it's in line with the turmoil in the markets, today we had fewer questions so that is actually the end of the questions submitted for this call. David, if you'd like any comments and, before you do that, again, I realize a lot is going on in the broader markets today, if anyone has any questions feel free to give me a call at 610-660-5647.

No let's just hope for a better day tomorrow and thank everybody for their time today, particularly under the circumstances.

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