Audacy Inc (AUD) 2011 Q3 法說會逐字稿

Good morning and welcome to Entercom Communications' third 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 you first speaker for today's call, Mr. Steve Fisher, CFO and Executive Vice President. Sir, you may begin.

Thank you, operator, and good morning, everyone. I would with like to welcome you to today's Entercom Communications third quarter earnings conference call. As noted, this call can 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 the replay number noted in our release this morning. With our notice of today's call, we asked that you submit your questions in advance of the call to the email address questions@entercom.com. In addition, I am always available for follow up questions if you'd wish to call me directly at 610-660-5647.

I make this note, that should the Company make any forward-looking statements, such statements are based on current expectation 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 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, I will turn it over to David Field, President and Chief Operating Officer (sic).

Thanks, Steve, and good morning, everyone.

Entercom's third quarter revenues decreased by 2% to $100.4 million, station expenses increased 3% to $69.5 million, andstation operating income decreased 13% to $30.9 million. Free cash flow decreased 12% to $20.6 million, or $0.55 per share, while adjusts net income per share declined just 3% to $0.29 per share.

Business conditions remained sluggish yet stable during the quarter, as the economy continued to be charged by high unemployment, euro zone fears, weakness in key sectors such as housing, and soft consumer and business confidence. Against this back drop, our core revenues, ex political, were essentially flat.

Strategically, we remain highly focused on investing in content, distribution, and digital capabilities to enhance our competitive position and accelerate our future performance. One area of particular attention this year has been establishing FM distribution for a number of our core AM news, talk and sports station. During third quarter we eliminated Mike FM, one of our Boston music stations, to provide an FM simulcast for WEEI, our Boston sports property. We also launched our fur time programming line-up on The Game, our new San Francisco FM station.

Over the course of the year, we have now eliminated five FM music stations across the country to enable simulcast in key markets, including San Francisco, Boston, and Kansas City. As a result of these various moves, AM-onlyrevenues now constitute under 6% of our total revenues.

We believe these FM simulcasts will protect the long-term health of key franchises, drive audience growth on these brands, and enhance our revenue growth opportunities going forward. However, it has come at a significant cost, diluting our 2011 results and masking very strong operating performance across most of our markets. In fact, we gained revenue share in a significant majority of our markets during the quarter. However, we fell considerable short of our peers in a small handful of our markets, most notably San Francisco and Boston.

With two new format launches, San Francisco took a short term hit in exchanging for a significantly brighter future. We have transitioned two of our properties from lower tier formats in the market -- country, which is not particularly strong in the San Francisco market, and classical -- to two formats with significantly higher potential, classic rock and FM sports. We have built outstanding talent line-ups on both stations while making solid ratings and are position for robust growth in 2012 and beyond.

Boston is a bit more complicated and to be fair, we have had some organizational performance issues that have contributed to our weaker numbers. In addition, the lack of Red Sox playoff games andCeltics regular season games due to the NBA labor strike are impacting Q4. All that said, our primary challenge in Boston has been the lack of an FM signal for WEEI. The elimination of Mike FM to create an FM home is WEEI is an expensive move in terms of foregone revenues, but we believe quite compelling.

But while we only have a few weeks of Arbitron data to access -- I'm sorry, to assess the impact of FM coverage to WEEI's rating, the results so far are north short of explosive. Ratings are up over 60%, that's 6-0%. While it is early, it certainly cements the movement to FM will dramatically bolster WEEI's competitive position and should lead to materially enhanced future performance.

To provide you with some sense of context in all of this, if we exclude San Francisco and Boston, as well as political dollars from revenues, Entercom would posted 3% revenue growth during the quarter.

I'll share some additional color on Q3 before adding some thoughts on Q4 and 2012. Our best performing markets during the quarter were Austin, Greensboro, Indianapolis, Memphis, and Seattle. Our strongest categories were retail, home improvement, insurance, television and cable, casinos and lottery, and automotive.

As previously noted, we gained revenue share in a significant majority of our markets. Local and national revenues were basically the same flat for the quarter -- and NTR and obviously political were down. July was the weakest month of the quarter, down high single digits. August revenues were positive, while September was down low single digits, mostly due to political, with core revenues essentially flat.

Our expense growth improved a bit to plus 3%. As we have noted in the past, we made the decision entering the year to increase our investments in great new content and in new digital capabilities that driving strong listening engagement and enhancing our integrated multi-platform marketing capabilities for customers. We also face significant contractual increases during 2011 for Arbitron PPM. But again, as noted on prior calls, our costs begin to abate in fourth quarter and our 2012 expense outlook is much brighter. We have continued to look for smart ways to reduce expenses without sacrificing our commitment to enhance our capabilities.

Turning to the current business climate, current pacings for the fourth quarter are down 5%. This number obviously reflects the political comps, and that headwind goes away from this point forward. What I find most revealing about our performance is taking a look at fourth quarter pacings ex San Francisco and Boston. In contrast to our total pacings that are down 5%, if you exclude San Francisco, Boston and political, fourth quarter is pacing up 3%.

That should tell you a few things. One, core revenues in the radio business are positive in Q4. Two, we are performing pretty strongly across a large majority of our markets. And of course that, for now, our moves in San Francisco and Boston are having a significantly diluted impact on our overall performance.

Turning to our digital investments, our efforts are enabling us to continue to drive higher levels of audience engagement with our brands. So far this year we have doubled our number of Perks ecommerce customers and driven outstanding growth across many key metrics, such as unique web users, streaming users, social media activity, app downloads, et cetera.

Looking ahead to 2012, we are highly encouraging by brightening industry prospects due to accelerating invasion and outstanding audience usage trends. The total numbers local radio listeners continues to agree and is now in at all time record level. Further more, for the first time, now that way have three years of PPMdata covering 17 major markets, we are able to track time spent listening across the industry on an apples to apples basis. The data shows that time spent listening remains essentially flat 2009 to 2011, a remarkable achievement for any incumbent medium in extraordinarily time-starved and ever-changing world.

Finally, it is also worth reminding ourselves that local radio holds well over a 90 share of total radio listening versussatellite and Internet. Think about that. After many years of aggressive competition from satellite and Internet radio, local radio retains well over a 90 share of total radio listening. It is an impressive statistic that speaks volumes of the strength and resilience of local radio brands across the country.

With that I will turn it over to Steve for some additional thoughts before we turn to your questions. Thanks. David has already given you the financial headlines, so I will focus my comments on a few additional insights, observations, and importantly, update you on our thoughts on refinancing before we address your questions that have been submitted by email.

Our same station operating increase increased by 3% for the quarter. Note this was down sequentially for the previous two quarters. You may recall that over the past three quarters' conference calls we have outlined the unique reasons why this year's operating expense growth was higher than our historical trends, and on the last call I indicated that you would see lower expense growth into the future.

Earlier this summer, when it became apparent that the economy was again experiencing a slow down, we began a series of cost reduction actions which are now beginning to flow through our business model, such that we expect to see station operating expenses reflect a small decrease in the fourth quarter from prior years. These cost actions, plus more that we are contemplating, will reflect favorably on our 2012 business model.

Capital expenditures for the quarter were $1.8 million. We'd expect full year 2011 to be in the range between $4.5 million and $5 million. Our book income tax provision for the quarter does reflect a $1.5 million adjustment from a prior period. And I should note that I have mentioned -- as I've mentioned on prior calls, these are tax provisions. We currently do not pay any meaningful tax cashes due to our large cash shields, and we expect that to continue for many years.

Turning to the balance sheet. We reduced debt by $14 million in the quarter. Our quarter end leverage was 5.86 times as calculated under our bank facility formula. A reconciliation of that agreement leverage calculation is available to your on the Investor tab of our company website.

And now a update on our thoughts on refinancing, which was asked by many of you via questions submitted in advance of this call. To remind you, on our last conference call in August we indicated that a refinancing was most likely a fall event. As background, our current credit facility is a 2007 agreement that is all senior secured and at very, very favorable terms and pricing by historic standards, andwith pricing extremely favorable versus rates experiences in the market today by borrowers. This is why we have waited to replace this facility, which expires in June of next year. Meanwhile, we have continued to reduce outstanding debt, down to about $600 million today, which is a significant reduction from the 2007 levels of over $950 million.

Shareholders have been rewarded from our current facility. I can tell you that we are presently working with advisors on a refinancing of our debt. Our timing will depend on market and other conditions. Once we complete any transaction, we will update you with a significant details through an 8-K filing.

So with that, we'll now go to your questions that were submitted by email prior to this call.

David, for you first, question from Marci Ryvicker, who is asking, on digital, did we see any change in terms of our digital contribution to the Company?

I think over the last couple of years and continuing into 2011, we continue to see digital as a percentage of our revenues increase. It is now running at roughly 6% and headed higher. And we see not just financial growth -- or revenue growth, but we are also continuing to experience strong growth in most of the key metrics we tracking in terms of the engagement of our audiences on multiple platforms.

I'll take the next question from Marci. She asked about expenses, saying it came in lighter than expected, particularly in corporate. What drove this?

Well, Marci, I think you heard us both comment, over the summer we took a series of focused cost reduction actions across the operating platform, and we are now seeing -- beginning to see that flow through, both on the station and the corporateside. I think we also benefited in the third quarter from adjusting certain compensation accrual items. Everything else, as I indicated earlier, we're quite optimistic as we look forward in the business model of the actions we are taking and how that can reflect on the business model going forward on the expense side.

David, continuing with the recurring theme throughout the year, how is auto? And are you seeing any significant changes between Q3 and Q4.

Continuing to improve. We hear anecdotally from our managers that in most of our markets they are seeing it continuing to improve in the fourth quarter, andwe are optimistic about that category as we look ahead to 2012.

A shareholder has asked what political could be in 2012, looking ahead, and what was political in our last presidential cycle?Why don't I take the last part of that, David, and throw it to you for your comments on next year.

Our last political cycle, which would have -- the presidential, which would have with been 2008, which will be the closest comp to next year, 2012, we did almost $9 million in political. Just to remind you in 2010, which we are comping against and I've mentioned several times on the call, we did about $7 million in political, with about -- over $3 million in the fourth quarter of 2010. So with that as background, David, any thoughts on political for 2012?

Yes, I mean we don't really know, of course, other than the fact that it seems as though there's an inexorable l trend towards more and more money being spent on elections in this country. There's no reason to expect that trend to abate over the short-term horizon here, so I think there's -- we should anticipate political revenues in 2012 being probably as strong or stronger thanwe experienced in the last presidential election.

Several people -- I addressed refinancing on my remarks earlier, but several people have written in asking about what the rates could be. I think my only comment would be to answer those questions is, look, we will accept the fact that it will be significantly higher rates than paid today, because our current rates are extremely, extremely low. As to the rates particularly, I think you can look around the market at equivalent transactions, equivalent levels of interest rate and kind of come up with your own estimate. And as we say, were we with to do a transaction, we obviously will update you can with the specifics and give you a mark from which to model from.

David, one fund, looking at the balance sheet, has asked do you see any more acquisitions like KFOX in San Francisco in the foreseeable future?

I think we have been pretty prudent and restrained over the course of the last few years. We've done -- we did one small in-market acquisition for under $10 million about a year ago. Beyond that, I think you should expect us to remain conservative in our approach, other than noting that if there were any acquisitions or transactions we would contemplate, they would need to be deleveraging to the balance sheet.

With that, again, I believe most of the questions are on refinancing, a few on political, auto and digital. So with that, I think we've covered your questions. Any final comments?

No, we look forward to reporting back to you all again next quarter. Thank you.

Thank you.

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