Audacy Inc (AUD) 2011 Q4 法說會逐字稿

Good afternoon and welcome to Entercom's fourth-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 speaker for today's call, Mr. Steve Fisher, CFO and Executive Vice President. Sir, you may begin.

Thank you, operator, and thank you, everyone, for joining us this morning for our fourth-quarter 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 also available by telephone at the replay number noted in our 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 wish to call me directly at 610-660-5647.

This note, before we begin, should the Company make any forward-looking statements, such statements are based on current expectations and involve risk and uncertainties. The Company's actual results could differ materially from those projected. Additional information concerning factors that could cause actual results to differ as described in the Company's SEC filings on Forms 10-Q, 10-K and 8-K.

I will now insert an un-scripted editorial comment. The Company hopes to file its 10-K tomorrow, which will be giving you all additional information on the companies and the balance sheet. 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 turn this call over to David Field, President and CEO.

Good afternoon, everyone. As you recall from prior quarterly calls, we have had a lot of moving pieces throughout 2011. We made an unprecedented 7 format changes, including 3 in our two largest markets, continue to make significant investments in our digital initiatives.

We instituted a midyear operational cost re-engineering program, is now benefiting our business model. We also refinanced our debt in November, which extended our maturities well into the future. I will walk you through a few of the quarter's highlights followed by some additional color on a few key operation developments, and then touch on Q1 basics before turning it over to Steve and your questions.

Our fourth-quarter revenues decreased by 7% to $95.1 million. Station expenses decreased 4% to $60.3 million and station operating income decreased 11% to $34.9 million.

Free cash flow decreased 22% to $20.8 million or $0.55 per, share while adjusted net income per share declined 22% to $0.29 per share. For the year, net revenues decreased by 2% to $382.7 million.

Station expenses increased 2% and station operating income decreased 10%. Free cash flow decreased 16% to $73 million or $1.93 per share, while adjusted net income per share declined 13% to $0.98 per share.

Those are the reported numbers, but to understand the underlying performance, it is important to look more closely at the quarter's core revenue results. Our fourth-quarter and annual results were impacted by our strategic decision in 2011 to invest in a number of format changes to strengthen our competitive positions in several key markets.

We launched 4 new station brands and established FM simulcasts for 3 of our core AM news, talk and sports stations. Three of these moves impacted our 2 largest markets, San Francisco and Boston, while the others occurred in Sacramento, Kansas City and Buffalo. These brand launches significantly enhance our future growth potential and are expected to contribute positively to revenue growth commencing in second quarter.

However, they came at the expense of eliminating a number of significant revenue and cash flow streams. Specifically in fourth quarter, the format changes diluted our revenues by 4%. Excluding political and stations reformatted in 2011, our fourth-quarter revenues were flat.

Our best-performing markets during the quarter were Buffalo, Greensboro, Indianapolis and Seattle. Our strongest categories were department stores, insurance and professional services. Local revenues were slightly better than national.

Digital revenues continue to grow, led by streaming and our Perks e-commerce business. October was the weakest month in the quarter, reflecting the lack of political, while November and December were somewhat stronger, though still down from the prior year. And we gained market share in just under two-thirds of our markets, underlining our continued strong performance in most of our markets, particularly those unaffected by format changes.

Station operating expenses declined for the quarter, reflecting the impact of the reengineering efforts we implemented during 2011.

I also want to share some additional color on recent developments. We recently added the Buffalo Bills to our programming lineup in both Buffalo and Rochester beginning with the 2012 season, further solidifying our brand-leading position in the upstate New York region. We also started the year on a generally strong note with the January Arbitron ratings results.

In Boston, ratings in our sports talk station, WEEI, have increased by 46% since its FM simulcast began during the third quarter. And our most recent format launch, Star, an adult contemporary station in Sacramento which launched in December, has shown dramatic growth in its first month on air, more than doubling its 18-to-49 women ratings. Overall, we are quite happy with the progress we're making with these format changes.

A few other ratings highlights across the Company -- Entercom has taken a commanding position in Denver, holding the number one, two and three positions among women 25 to 54. We also hold the top 3 positions among women 25 to 54 in Greensboro and 4 of the top 5 positions among women in Norfolk.

We're continuing to make big strides in our efforts to enhance our digital capabilities, and enable deeper engagement between our listeners and our brands and personalities over a number of platforms. We have exceeded the 2 million mark for Facebook fans and Twitter followers of our various brands. And our Perks e-commerce business posted another year of revenue growth, driven by strong increases in the number of customers and in units sold.

We are also highly encouraged by strong industry fundamentals as innovation accelerates, audience usage trends remain outstanding and radio remains the most cost-effective major advertising medium in the United States. In a world of rapid change and disruption, the continuing growth in the number of radio listeners to record-setting levels is exceedingly impressive. And in the context of avid competition from Internet and satellite radio, local radio retains well over a 90 share of total radio listening. What other medium can match that record, or even come close?

Finally, turning to the current business climate, pacings for the first quarter our down low single digits. Excluding stations reformatted in 2011, first-quarter pacings were flat. In fact, two-thirds of our markets are pacing up for the quarter.

We are optimistic on 2012 growth, bolstered by improving economic conditions, political advertising and accelerating performance from newly reformatted stations. We expect these stations to contribute positively to revenue growth commencing in the second quarter, partially driven by the fact that 5 of the 7 format launches occurred by the beginning of second quarter last year.

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

Thank you, David. Again, we have asked you to submit your questions in advance. I will identify the asker of the question and the question.

And let me take the -- since, David, you just went through some things, let me take a few questions that came in from Marci Ryvicker at Wells Fargo on expenses, and then I will direct some additional questions to you.

Marci noted that expenses were down more in the fourth quarter, and the question, is that due to the lighter revenue? The answer on that surely is some of the lighter revenue had some variable. But I think the major thing is what David pointed out, and what we talked about on the last call, which we did do some cost reengineering over the summer that we began to see impact on in the fourth quarter and will begin to see throughout 2012.

You know what? Let me give some other comments first and then I will go to the caller. And I apologize. I just had a senior moment.

Before we go the questions, you know, by questions in advance you have been there in front of you. David gave you the financial highlights for the quarter, so let me comment on the fall refinancing, some additional comments on the expenses, which I already was beginning to address.

In the past calls, we have highlighted the unique in one-time reasons why our 2011 expenses increased higher than our historic average. And on the last call I pointed out that in midyear 2011, we took a series of actions that would benefit our future business model. So as you can see, as result of those actions, our same station operating expenses decreased by 4% in the fourth quarter. That's what I was just talking about.

And as we have noted, our business model will continue to benefit from those reductions in 2012, such that we would expect 2012 expenses to be flat to down slightly. Again, we would expect 2012 expenses to be flat to down slightly.

Our capital expenditures for the quarter was $1.7 million and about $5.7 million for the year. We would expect 2012 CapEx to be around $5 million. As you all know and we posted on various filings in November, we completed the financing of our existing debt by entering into a new $425 million senior credit facility and issuing $220 million in new notes. We used the proceeds of both those offerings to pay down our prior credit facility, which was scheduled to mature in a few months, this coming June. The refinancing allowed us to push our debt maturities out 6 to 7 years and to reset our financial covenants to more favorable levels.

On the flipside, the pricing which we enjoyed under our old facility, was actually favorable and well below market, while our new facility from last fall was more closely priced to reflect then-current market rates, which were higher. Now, as result of that refinancing we would expect first quarter -- and again, first quarter 2012 interest expense, to be approximately $13.5 million.

I should note that that still leaves us with ample and significant free cash flow for the business model. You will note in the fourth quarter, as you look at the financials, that we took a charge to write off certain unamortized deferred financing fees associated with the prior facility and driven expenses related to the change in our financing capital structure.

And as I've mentioned on prior calls, and an important note for all shareholders to note, we currently do not pay any meaningful cash taxes due to our large tax shields. And we expect that to continue in 2012 and for the next several years.

Now, with that noted, let's go to the questions, which I prematurely started to do before. And then I was, frankly, talking about expenses that Marci asked. And the question was, yes, fourth-quarter expenses were down more significantly as we were kind of flashing on the last call as a result, as David mentioned, of some of the cost reengineering we did.

There was nothing else unique. I would make a side note to say you will see -- many of you saw that there was a recent announcement of a settlement with ASCAP by the Radio Music Licensing Committee which reduced our music license fees for ASCAP. None of that impacted our fourth quarter. That will impact us in the years going forward.

A second question from Marci related, before I go to a revenue question for David, was about expenses for 2012. Clearly, I just said in my prepared remarks that, even though we have certain line items in our expenses going up, that will be more than offset by the actions we've taken. Including, as David noted, the Buffalo Bills, which will impact late Q3 and early Q4 2012.

We factor that into the guidance I just gave, so you can anticipate that expenses will be lighter Q1-Q2. A little less so in Q3, due to the Bills, and then perhaps Q4, depending on revenue, might actually increase a little bit because of the Bills on the cost side.

So, David, let me go to the next question, and I will keep it related, since it's in front of me, from Marci Ryvicker. And let me ask the question that she submitted it, and you respond, because I think you did some of it in your script.

David, revenue was flat ex-political and ex-format changes. You indicate format changes impacted you by 400 basis points. So is it correct to infer that core business was down 3% if we were to include format changes?

I think the answer is no. Core business, as I mentioned in my remarks, Marci, were flat. So if you think about -- and let me walk you through sort of the evolution of this. It sort of lays out how we think about the year going forward.

If we think about the fourth quarter we print a minus 7%; 4 point -- 4% of that, which represents the new formats, and within that, by the way, the NBA strike and so forth, which impacted Boston even a little bit more. But that aggregates 4%, and then another 3% due to political -- and again, the core business flat.

If you think about first quarter, political essentially goes away, for all intents and purposes. Our new formats get incrementally a little better. And the core business, we think, remains solid relative to industry norms.

And then Q2 and beyond, though, it gets interesting because, as we look at it, the new formats flip from being a drag on our revenues, as they have been over the course of the last year, to being a positive. Political becomes a positive, particularly as we get into the second half of the year, and we still, obviously, expect our core business to be solid as well. So we think we are setting up for what could be a nice acceleration in our performance going forward.

Of course, the economy will be a big determinant of that. But we are relatively optimistic in that regard, but obviously everybody has their own perspective on where things are going.

Well, let me dovetail off that. I think that tees up, then, question from Bishop Cheen on political. You just touched on political. And Bishop's question, and I will paraphrase Bishop, how much is TV spillover, that is, TV becoming too tight or too pricey, and switching over to radio?

And then a related question -- do you see anything new on the radio political ad arena that will impact ad dollars further this year, aside from the PACs, which everybody obviously talks about and knows about?

It's hard to answer that, Bishop, right now. We can really only speculate or look at history as an indicator of the future. Certainly we have seen in past elections, particularly in the general elections, that as TV tightens up, it does have a ripple effect into our world. There's no reason to suspect that that would not be the case here in 2012.

As far as the super PAC's and the unprecedented amounts of funds that have been raised, we can all speculate on that. And I think it certainly offers the possibility that there could be some additional increases. But we'll have to wait and see as the election season evolves.

Let me stay on the political team and I'll take this. Again, this comes from Marci. Do we have a political forecast for the year, for this year?

And the simple answer is no. We all -- we know by history kind of in the range we'll be in.

Let me give you a data point. Marci then asked what did we do for political in 2011. Let me give it to you by quarter. First let me give you the year, $1.5 million.

Let me give you the breakdown by quarter -- $300,000 Q1 -- again, 2011 political -- $300,000 Q1, $400,000 Q2, $200,000 Q3, $600,000 in Q4. As a side note then, let me add you saw only a couple hundred thousand in the first quarter of 2011, and it's not meaningfully different in the first quarter of 2012, so far. We will all be watching for Super Tuesday money and others to come as we are marching through the primaries, primarily on the Republican side.

Taking a theme, jumping back to Bishop Cheen, wanted to know more about digital. Assuming Entercom is upgrading digital capabilities, as most radio broadcasters seem to be, is CapEx going to go up noticeably again?

Why don't I take that? The short answer is no. That's really not a CapEx item.

That has been an operating expense item, and you will note that was one of the things we mentioned for this year as we deployed certain capabilities such as mobile apps, which were introduced, and other things throughout the year that impacted our 2011 operating expense. That was one of the items we noted earlier for contributing to higher expense growth in the earlier part of the year. We don't see that going forward for what we see in 2012.

Let me jump off on that question. I'll just talk a little bit, and amplify on some of the digital comments I made earlier. It's kind of interesting what has been going on.

As I mentioned in my remarks earlier, digital revenues grew in 2011 led by streaming and by Perks e-commerce business. I mentioned also that we are over 2 million Facebook friends and Twitter followers at this point.

But what's even more significant, I think, is the level of engagement we are finding those individuals, and tracking their engagement scores pursuant to Facebook's parameters in that regard and seeing really strong and accelerating engagement, which we think is an important testament to the business and offers great opportunities going forward in terms of listener retention and growth, and also advertiser opportunities.

The other point I would make is that we are seeing other levels of activity growing in terms of text volume between our personalities and our listeners, app usage, streaming audiences and so forth. So, continuing to see robust growth in most of the core digital metrics that we track that, again, I think bode well for our future.

Well, that's a good segue to a question from a shareholder. Would you participate in the iHeartRadio platform?

It's an interesting question, and obviously we have some peers that have jumped on board. Our view on that is just pretty simple. We think we have some terrific content, proprietary content and some terrific personalities, and close to 30 million listeners each week.

And we are open to distributing that content across other platforms. But it all depends upon the deal and making sure that the interest of our brands and our content are protected and that, if the terms are right, we are open, whether it's iHeart or other potential distribution arrangements.

Mike Kupinski of Noble Financial asked about the breakdown of local and national advertising in the quarter. I think we answered that or you answered that earlier, which they are basically the same -- local about 100 basis points. But let's call them basically performing in line, the same.

I'll go to another question, then. And I believe this is our last question and, I think, a good one to wrap up because this looks into the future kind of beyond 2012. Now that your debt deal is done, how do you think of your uses of free cash flow? At what point would you look to return capital to shareholders via share repurchase or dividend payment?

Well, as you mentioned, Steve, we are still generating a lot of free cash flow. Our first and foremost goal will be to use that free cash flow to de-lever, as we indicated on our recent roadshow in the fall. And as we see our leverage rate coming down a bit, both through increased EBITDA and through reduced levels of debt, we certainly can consider once again some ways of repatriating cash to shareholders. And I think certainly dividends have some appeal, but we will have to wait and see what the world looks like when we are in a place to consider that in a more meaningful way than we are today.

So that's questions submitted in advance.

Thank you all. We look forward to reporting back to you in 3 months. Thanks again.

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