Audacy Inc (AUD) 2012 Q1 法說會逐字稿

Good morning, and welcome to Entercom's first quarter 2012 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, and good morning, everybody, and thank you for joining us today for Entercom Communications' first 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 and also available by telephone at the replay number noted in our earnings release put out this morning.

With the notice of today's call, we ask that you submit your questions in advance of this 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, 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 actual 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. This aside, for those analysts on the call of note we will be filing our 10-Q later today. During this call, we may reference certain non-GAAP financial measures and we refer you to our website at entercom.com for a reconciliation of such measures and other pro forma financial information. So with that, we will turn it over to David Field, President and Chief Executive Officer.

Thanks, Steve. Good morning, everybody. Let's start off by sharing a few headline numbers and some color on the quarter, and then I will touch on our recently announced acquisition of KBLX San Francisco and current business conditions. Our first quarter revenues decreased by 3% to $80 million, and as you recall from prior earnings calls, we made a strategic decision in 2011 to initiate an unprecedented seven format changes last year including three in Boston and San Francisco, our two largest markets.

These changes have adversely impacted our short-term performance but enhanced our growth prospects going forward. Excluding these 2011 reformatted stations, our first quarter revenues would have been flat. These stations are developing nicely and looking ahead we expect them to no longer be a drag on our performance. In fact, we expect them to have a positive impact, albeit, a very small one, on second quarter revenues with further sequential progress during the second half of the year.

Our first quarter adjusted EBITDA was flat versus prior year as operating expenses declined 4%, offsetting the decline in revenues. You will note that are operating expenses also declined 4% during fourth quarter of 2011 reflecting our focused expense management efforts. January and February revenues were both materially stronger than March, which hit a speed bump, as advertising demand slowed late in the quarter. Our best performing markets during the quarter were Indianapolis, Greensboro, Memphis, Rochester and New Orleans. Our strongest categories were casinos and lottery, health and medical, professional services, financial, insurance and home improvement.

We gained revenue market share in more than half of our markets but overall we lost share due principally to the dilutive impact of our format changes in a few of our largest markets. As noted earlier, our Q1 revenues would have been flat absent the reformatted stations. Local revenues were down for the quarter but stronger than national, while digital revenues were up. Political revenues were immaterial. In April, we announced the acquisition of the leading urban adult station in the San Francisco market, KBLX-FM, for $25 million from Inner City Broadcasting. KBLX has a long, proud history as the leading radio station serving the Bay area's African American community and we're excited to add it to our lineup.

We began operating the station under a time brokerage agreement on May 1 and expect the transaction to close in the third quarter of this year. KBLX becomes our fourth brand in San Francisco, significantly enhancing our competitive position in that market. The acquisition is also immediately accretive on a pro forma basis, as we are capitalizing on extended operating cost synergies as KBLX transitions from operating as a standalone property to joining a large multi-station cluster.

Turning to our recent winter ratings, we are quite pleased with our overall performance. I'd like to highlight a couple of our markets where we really have had some terrific growth. In Portland, we now have 3 of the market's top 6 stations in the all-important adult 25 to 54 demographic, as well as 2 of the top 4 with both men and women. In Kansas City, KQRC dominates the market with a strong number one position with adults and men 25 to 54 plus number of other demos. Meanwhile, the BUZZ continues to grow and is now the number one station with adults 18 to 34 and fourth in men 25 to 54. And The Point, one of our newest brands launched in 2011, which had been growing slower than we had hoped, surged forward with a 40% jump in ratings versus the fall.

Finally, our newest brand, Star in Sacramento, had a tremendous debut hitting number four with women 25 to 54, more than doubling its previous ratings. All in all, we feel very good about the ratings performance of our brands across the country. Turning to the current business climate, I previously mentioned that business slowed in March. April was also adversely impacted by the slowdown but business conditions have improved and May and June are stronger. Pacing for the second quarter is currently minus one with April finishing at minus five and May and June currently up slightly.

In addition, third quarter pacings are looking very healthy at this time, which is an encouraging sign, although it is way too early to attach much significance to the data at this early time. We are optimistic about second half revenues as we benefit from political spending and what we believe will be accelerating performance from our station group based upon solid meetings, new brands, an expanding integrated product line, enhanced business development efforts and enhancements to our organizational sales capabilities. With that, I'll turn it over to Steve for some additional thoughts before we turn to your questions.

Thanks, David. You've already given the major financial headlines for the quarter, so I'll focus my comments on a couple of addtional insights and then we will turn and address your questions that were submitted prior to the call. In our last earnings call, and actually the one before that, I pointed out that mid-year last year, 2011, we took a series of cost reduction actions that would benefit Entercom's business model. I think you've now seen that. Our first quarter results continue to show the benefit of those actions as our same-station operating expenses decreased by 4%. It is important to note this follows a similar reduction in the fourth quarter of 2011.

Now how should you think about that going forward? We would expect expenses to be down in the low-single-digits in the second quarter with the slope getting closer to flat by the year end. But I would note that in Q3 and Q4 we will have incremental operating expense from our new Buffalo Bills broadcast football rights and from, obviously, our new FM station in San Francisco. So continued expense management throughout 2012. As David mentioned, we strengthened our San Francisco cluster with the recent addition of KBLX-FM.

Now we've begun operating the station effective May 1 under a time brokerage agreement, and we would expect to close the transaction later this year, most likely late third quarter. While we operate the station under a TBA, we will pay a monthly fee of $125,000 per month. This would increase to $150,000 per month after the first three months if that's necessary. We'd fund this tuck-in acquisition with free cash flow on a revolver note withdrawal as needed. Couple of additional items, obviously, if you look on our P&L, our [borrowing] costs have increased, but our business model still allows for a significant free cash flow generation. Just to remind you, last November we refinanced our debt and pushed out maturities and reset covenants as our prior credit facility neared its expiration date.

And that prior credit facility had extremely favorable interest rate pricing. Unfortunately, we had to reset that to the market. As a result of that, this has resulted in higher interest expense even with continuing lower overall debt. Included in that higher interest rate expense on the P&L are a couple items I just want to highlight for you for your modeling. Included in our first quarter net interest expense of $14.1 million is approximately $1.1 million of non-cash deferred financing costs.

This is a ballpark indicator of future quarterly non-cash amortization of that deferred financing costs which will include each quarter in that line item. Additionally, included in overall net interest for the first quarter was about $800,000 in expense from our last remaining interest rate swap. On that swap, we paid a fixed rate that's about 3% higher than current floating rates. It is important to note that this swap expires later this quarter which will benefit future interest expense. So if you net out those moves, along with debt pay down, we would expect second quarter net interest expense to be reported about $13.6 million and future quarters interest expense will fluctuate based on that pay down and the timing of our San Francisco closing.

Our non-cash equity comp expense was about $1.4 million in the quarter and future quarters this year should be pretty similar with a possible bump-up in the fourth quarter to maybe $1.6 million to $1.8 million due to accounting true up of certain items. Capital expenses for the quarter were $900,000. We reduced our net debt for the quarter by about $17 million, as we benefited from a reduction in working capital and the timing of our semiannual cash payments on our bonds. The amount of debt pay down would not be expected in the second quarter.

So with that, I'll go to your questions submitted by e-mail prior to the quarter. I would just note that of the many questions received, several on similar themes, so I will in some ways try to bundle those together, in other ways highlight those unique individual questions of the person that asked them.

David, first, maybe to circle back, and I know you did address it, but several people did ask can you give more color or maybe expand a little bit, Marci Ryvicker asked, on how the format changes impacted our first quarter and when do you expect to cycle through these comps?

Yes, we did touch on that. Again, it absolutely affected us in first quarter to the tune of about 350 basis points in differentials. So we would have been flat, actually up fractionally, had we not had those reformats. And as I noted, we expect that group of stations to make a very small positive contribution towards our growth rate in Q2 and expect that to continue to grow sequentially looking forward.

Great. And then it let's kind of stay -- let's move over to the San Francisco theme. We've had several questions, on, I think, if you look at -- and I'll bundle several questions -- maybe from Bishop Cheen, Avi Steiner and a few others, wanting to know how should we view the acquisition in terms of purchase price as a multiple and how do you view it as part of an overall strategy in San Francisco?

So we had an opportunity to buy this radio station, obviously Inner City going through some internal issues, and we were able to buy it at a price point which, as I mentioned, is immediately accretive on a pro forma basis, and that's true whether you're looking at some sort of equity valuation, free cash flow or what have you, because of the enormous synergies. And we're taking a radio station that basically was standing alone and is now part of a multi-station group. And at this point in time, when you look at our portfolio in San Francisco we feel we're really positioned for terrific growth going forward.

Now with KOIT, our flagship station in the market and a longtime high performer, but The Game and The Fox, 2 brand new radio stations that we rolled out last year, and then, of course, KBLX, where not only do we have these big cost side synergies but we also see significant revenue and growth opportunities going forward as part of a larger cluster. So we are looking for big things from San Francisco in the years to come.

Yes, I would just note, if you look at the purchase price and you noted, David, that we have tremendous operating synergies in bringing that in with our existing [FAP] infrastructure and all that we expect it to be neutral on leverage going forward. Mike Kupinski at Noble Financial asked to expand a little bit on digital, how is digital progressing and is it working out as planned?

As I mentioned, digital grew in first quarter and we continue to expand our product line in digital. We look at it as an integrated product where we continue to develop new ways for advertisers to access our audiences that are increasingly engaged, not just by our personalities on air, but with our the digital platforms. So whether it is our Perks platform or our texting, our apps and so many other ways, we think that is a really important part of our product line for our customers going forward. That revenue, as I said, grew in first quarter and we expect it to be an important part of our product offerings to our customers and a growing part of our business indefinitely into the future.

Avi Steiner at JPMorgan asked how much political revenue in the first quarter and what our rough expectations for the year? Maybe, let me just give some data points, David. We generated less than $0.5 million in the first quarter, so it wasn't material. By the way, though, that's consistent, if you look back to prior cycles such 2008, 2010. Again, looking at 2008, 2010, as we think forward, the second half of your question about how we think it going forward, but we can't predict it. But we look to the past, and both those years, one presidential, one off-cycle, were roughly in the $7 million to $8 million range.

And expectations are that we'd seen growth. I think one differentiating factor this year versus the 2008 political cycle is probably we will see less in the second quarter. As you know, it is non-contested with both the presidential set. Now we will see some in certain other state run-offs, primaries, mayoral elections, et cetera. David, a question from a shareholder, there's been a lot of press recently about radio on cell phones. Can you expand your thoughts on that, both for the industry overall and Entercom specifically?

Yes, look, it is an idea whose time has come and it just makes a tremendous amount of sense. So let's frame that. You have about 1 billion phones around the world with FM chips that are being used by consumers. And we now have a Harris study that some of you may not seen that just came out earlier this week that showed that over 80% of consumers want a radio chip in their phones and would even pay a small one-time charge for that privilege.

The other big event that occurred just a few weeks ago in Las Vegas was the rollout of a new smartphone chip, HD chip, which would have tremendous new advertiser applications. This was a joint venture of Emmis, the NAB, Intel and iBiquity and the phone has opportunities for couponing, geolocation ads, text integration and a number of other advanced advertising capabilities. So when you think about all the reasons why this should happen, it would mitigate a significant wireless data crunch issue by shifting usage from streaming onto an HD chip. The national security benefits are substantial as we've heard about for, and seen demonstrated at times of local and national emergencies.

And it becomes a new revenue source for the wireless carriers. So actually I'm pretty optimistic that a win-win deal can be achieved here and that something will happen. And you can't talk about the topic without giving a shout out to Jeff Smulyan who has been a tireless and extraordinary champion of this effort over quite some time, and I think we are going to see this happen.

Two questions related to balance sheet, maybe I will take the first, you take the second. Several people have inquired when we might think about, or how we think about refinancing our current debt. I will get to that in a moment. And then, secondly, why don't you address first how do we think about returning cash to shareholders? Obviously, we've just announced a $25 million acquisition, do we see more acquisitions? Do you see returning cash to shareholders at some point in the future and is there a leverage point at which you would begin to consider that?

Yes, we've talked about this for a while. Our primary goal is to use our free cash flow to delever. KBLX was a unique situation which presented itself and, again, for reasons we've talked about on this call, we found too compelling to pass up, but it doesn't diminish our focus on our principal objective of using free cash flow to delever. We would like to get back to the mid-4s in terms of leverage and to your broader question about potential repatriation of cash to shareholders, it is absolutely something that I believe our Board will look at as our leverage allows.

On the refinancing, certainly, it is something that we are watching and would look at, along with consultation with the Board in the months ahead if we think opportunistically it is beneficial to shareholders. Staying on the balance sheet, one [debt holder] asked what we think leverage would be at the end of the year and we don't provide those forecasts. Clearly, you can model that out, but given the free cash flow generation of the business model, you can see the delevering that we've had and will continue to have in the future. But we don't provide any specific forward-looking leverage point. I'm going to jump back, David, to an operating question that came from Marci Ryvicker. Emmis reported this morning that average unit rates were down 9%. How are Entercom's rates trending and are they trending down by the same amount?

Obviously, I can't speak to any other company, but I would say that -- I'd say rates were soft in the first quarter, principally as we saw in March, but nowhere near 9%. I think, at least in our experience. I would also say that we see rates improving and we've seen real tightening and progress on that front as we look at May and June and beyond, and so, certainly, the trend lines are quite positive in that area.

This question came in during the call, you did not mention auto as a category in the first quarter, what are you seeing on auto and what are your expectations for that in the second quarter and beyond?

Yes, we didn't mention auto because it was not one of our top categories, but having said that, auto did grow, it was 2% for us in the first quarter. It represents about 16% of our total revenues. Anecdotally, and empirically, we are seeing growth in auto in second quarter, so it is a positive -- the trend lines were positive in auto.

With that, I think we've addressed the calls that you submitted, either individually or kind of in aggregate along similar themes. Again, a reminder, if we did not get to any of your specific questions feel free to give me a call, 610-660-5647.

Thanks, everybody, for your interest and we look forward to reporting back to you in three months.

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