Audacy Inc (AUD) 2012 Q4 法說會逐字稿

Good morning, and welcome to Entercom's Fourth Quarter 2012 Earnings Release Conference Call. All participants will be in a listen-only mode. This conference call is being recorded. I would like to introduce your first speaker for today's call, Steve Fisher, Executive Vice President and CFO. Sir, you may begin.

Thank you, Operator. Good morning, everyone. For those in the northeast, we recognize the burden of today's snowstorm. We only have rain in Philadelphia, but good luck to New York and Boston. Before we begin today's call, I'd like to make a note that this call is being recorded and a replay will be available on our Company website shortly after the conclusion of the call, also available by telephone at the replay number noted in our release.

With 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. Now, should the Company today make any forward-looking statements, such statements are based on certain expectation 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 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. With that housekeeping, I will turn the call over to David Field, President and Chief Executive Officer.

Thanks, Steve. Good morning, everyone. Thanks for joining today's Entercom earnings call. I'll start with a summary of the quarter's financial highlights, followed by some color on recent developments, and Q1 pacings, before turning it over to Steve and your questions.

I'm pleased to report that Entercom again posted strong double-digit growth in station operating income and EBITDA during the quarter. Entercom's fourth quarter revenues were up 7% to $102.1 million. Station expenses were up 2% to $61.7 million and as a result, Entercom's adjusted EBITDA climbed 17% to $35.3 million for the quarter. For the full year 2012, Entercom's revenues were up 2%, while expenses declined 4%; resulting in a 15% increase in adjusted EBITDA.

Now, a lot of good things happened during the quarter. We gained revenue share. Margins continued to expand significantly. Local revenues continued to improve sequentially and we were up low single-digits for the quarter, while national revenues declined a bit. Political revenues obviously surged during the quarter, but we also achieved strong growth in a number of categories led by financial services, health and medical, home furnishings and improvements, telecom, and travel.

Automotive spending was also up for the quarter. Our best performing markets during the quarter were Denver, Indianapolis, Norfolk, Milwaukee, and Seattle. Fourth quarter results were slightly impacted by our second quarter acquisition of KBLX-FM in San Francisco. Excluding the impact of this acquisition, Q4 revenues would have increased by 6%, while our costs would have increased by less than 1%. One other data point for you, excluding both the acquisition and political spending, Q4 revenues were up 2%.

Turning to expenses, as Steve mentioned on our prior earnings call, we expected our expenses for fourth quarter to increase slightly over the prior year; reflecting acquisition-related expenses and a comparison to a year-ago period when we took significant cost reduction actions. For the full year 2012, prudent expense management and reinvention enabled us to drive expenses down 4%, notwithstanding the additional acquisition-related costs. We continue to pursue smart and sustainable ways to reinvent our business model to drive expenses down, while continuing to boost our investment in new brands and content, expanded distribution, enhanced digital platforms, stronger operating systems, and sales product development. These investments are enhancing our capabilities and boosting our future growth prospects. We also continued to delever and have now reduced our outstanding debt by more than $400 million over the past five years. As a result, we enter 2013 with a strong balance sheet, plus an outstanding lineup of great brands and content and a powerful array of emerging digital platforms.

We continue to post strong ratings results in most of our markets; most notably Denver and Sacramento, where our stations rank first, second, and third among adults 25 to 54. In addition, in Rochester, we hold three of the top four stations among adults 25 to 54. We are also achieving solid ratings growth across most of the new brands, which we launched across the country over the past couple years. In addition, we are highly enthused by a number of positive industry developments over the past few months, which bolster the industry's future prospects. Industry research continues to show robust radio listening levels, while recent announcements by Sprint, Nielsen, and others reaffirm radio's importance in today's media landscape.

The Sprint announcement was quite significant as it marks an important step forward in achieving widespread FM chip distribution in smartphones. There has also been more good news on distribution, as HD radio penetration continues to ramp up, as automotive adoption of HD accelerates. It is also worth noting that our free cash flow grew in the quarter for the first time in a year, as we have now cycled through the impact of our 2011 financing and are beginning to benefit from the savings on the repricing of our bank loan this past quarter and our continued debt reduction. In fact, our trailing 12-month free cash flow per share of $1.67 represents a 22% free cash flow yield, based on yesterday's closing price of our stock.

Turning to the current business climate, first quarter pacings are currently down low single-digits. First quarter business started sluggishly, perhaps impacted by fiscal cliff and sequestration concerns. In fact, we recently received a cancellation from the US Army for their advertising, due to the likely prospect of sequestration. But as most of you know, pacings are notoriously difficult to gauge this early in the year, as the timing of business placement can be distorting. I would note that our pacings are stronger as we look ahead to March and Q2 and we remain optimistic on 2013.

On a final note, the public's usage of radio continues to grow and remains robust. Radio is one of America's three dominant reach media and offers a unique combination of enormous reach, strong local activation, powerful audience engagement, and superior cost effectiveness. Radio also benefits from very limited fragmentation from satellite and internet competitors and no impact from DVRs. Finally, it is worth noting the emergence of newly enhanced PPM-driven methodologies used in media mix modeling is demonstrating much higher efficacy from radio advertising campaigns than previously understood. The opportunity for significant growth in radio share of ad buys is dramatic, as advertisers begin to adopt the new media mix model and tools; more to come on this important topic in the future.

To summarize, we delivered a strong fourth quarter to complete a year of solid double-digit EBITDA growth. Our balance sheet is strong and the best it has been in many years. Ratings are generally good, while margins continue to expand. Radio listening is robust and recent industry developments have been very positive improvements and media mix modeling could emerge as an important catalyst to industry growth. Finally, while advertising started the year sluggishly, we are encouraged by the pacing trends over the next few months. With that, I'll turn it over to Steve for some additional thoughts before we turn to your questions.

Thanks, David. You just mentioned the headline, fourth quarter revenues were up by 7%, but quite a few people had questions about political. Let me address those right up front. To give you additional color on political revenues, they were $4.7 million in the fourth quarter and that compared to about $600,000 in political for the fourth quarter of 2011; again, $4.7 million in Q4 '12, about $600,000 in Q4 '11. For the full year, total political revenues were about $7.2 million. Again, full-year 2012, and that compared to about $1.5 million in the prior year.

David, I think, adequately covered our cost highlights for the fourth quarter. I'd like to again emphasize the point that our full-year 2012 cost declined by 4%; reflecting our ongoing cost reengineering efforts. Then to circle back to the fourth quarter, I'd like to highlight that our stations margins grew to almost 40%. That's one of the highest fourth quarter station margins the Company's posted in recent years. David also mentioned an important step in the fourth quarter and that was the repricing of our term loan B credit facility, we'll achieve a reduction on an ongoing basis of at least $4 million, we believe, in that facility as a result of the financing, the repricing. A side note as a result of this repricing and refinancing, we had a non-cash charge in the fourth quarter of about $750,000 to write-off a portion of the prior financing costs from the earlier facility.

Our tax rates for the quarter and for the year are higher than our normalized GAAP tax rate expectations, which are in the low 40% range. Again, that's GAAP taxes. This is due to a few adjustments from prior periods and also items which do not get favorable tax treatments. Again, our GAAP tax rate for tax provisioning in the low 40% range. As we've told you many, many times, that's a tax provision rate, not actually what we pay. The Company's not a current taxpayer and doesn't expect to be for the foreseeable future.

2012 was a great year in making progress in lowering our outstanding debt and leverage. The solid operating performance and strong free cash flow allowed us to reduce outstanding senior debt, net of cash, to right around $561 million at the end of the year; all that while even investing $25 million in FM station in our largest market earlier in the year. We made great progress on our leverage ending the year at 4.8 times leverage, well below our 7 times leverage year-end for our bank covenant. Capital expenditures for the quarter were $1.9 million, which brought full-year CapEx to about $3.7 million. There's timing differences of projects moving around. We'd expect 2013 capital expenditures to be around $6 million.

A few other line items for 2013 for your models before I go to your questions. We'd expect 2013 station operating expenses to be up 1 or 2 points versus 2012. This small increase is primarily a factor of comping against the one-time $2 million music license fee credit that we realized and talked to you about for the third quarter of 2012, plus the full year impact of operations of our acquisition in San Francisco. We remain committed to further enhancements to our cost model that will continue to drive shareholder value in the future. I believe our corporate G&A line for the year should be pretty close to the run rate experienced in the past few quarters. I'd expect non-cash compensation expense for the year to decrease to about $5 million.

Before we go to your questions, I'd like to again hit the highlights that, as I look at it, on our fabulous business model and the free cash flow story -- a reduction of debt by $400 million since 2007 through the recession, leverage reduced to under 5 times, a credit facility that's lowered interest expense for 2013 and has further potential for rate reductions into the future, favorable tax shields in the foreseeable future, again, generating free cash flow for shareholders, and as David mentioned, $1.67 in free cash flow for 2012 for a yield over 20%, and the potential to grow that free cash flow in the future through operations and delevering.

Let me now go to the questions that were submitted in advance. David, I'll take several of these and several asked the same question, so I may bundle some of these up.

Marci Ryvicker at Wells Fargo asked -- how much business is booked for the first quarter? And let me ask the follow-on question -- how much visibility do you have in the second quarter?

Let's start with the first quarter. We -- at this point in time, about 80% of our revenues are booked. As we look to second quarter, and I'm always hesitant to look that far down the road, because as we know, the visibility is limited. But where we stand now, revenues are pacing up low-single digits for second quarter.

I'll come back to some further questions from Marci in a moment, but let me go to a question from Mike Kupinski at Noble Financial Group. One of his questions was -- are we seeing any disparity between larger markets and smaller markets, particularly as it relates to national?

No, we're really not.

Let me come back to a question from Marci that was also mentioned by quite a few others beforehand and that's -- any more color on the Sprint announcement that you might like to give, and how might the industry monetize that breakthrough?

Yes, I think it's exciting to be looking down the road and seeing a rapid increase in penetration on the Sprint phones as we look over the next couple of years. What it means for us, I think is, by providing better access to our listeners, we would expect there to be a bump in radio listening levels going forward. We also think that as penetration increases, it opens the door for significant potential revenues in the form of enhanced advertising. When you think about the unique opportunities to combine radio with mobile-based advertising services, we think that there is a significant upside for revenues as we go down the road.

Looking to the future, because that's a nice segue to a question from Avi Steiner at JPMorgan -- what's your outlook for 2013 and beyond for radio? On the revenue side?

We've always known, and we've talked about for many years, the fact that radio has been the most undervalued medium in the land. The challenge has been -- how do you fix that disequilibrium? What's the catalyst? Obviously, over the last few years, we've basically been holding our own, but unable to capitalize on that upside. But as I look at the developments over the course of the last few months, you look at, A, the industry ratings continuing to be very, very strong, and an increasing recognition of the divergence between radio usage and the basic radio advertising model versus other traditional media.

You look at the Nielsen acquisition of Arbitron and what that portends, you look at the Sprint announcement and the future there, you look at media mix modeling, which I talked about earlier, and this format doesn't lend itself to an extensive coverage of that. But the opportunity for radio to demonstrate far greater efficacy with major advertisers than in the past, primarily due to the availability of PPM data and improving software technology, I think could be a significant upside with major advertisers.

I also want to tip my cap to Clear Channel, who I think has been taking a much more important role in evangelizing and telling radio story, and investing in research and marketing, and potentially changing the game in terms of how advertisers view radio as the category. The bottom line is, I think there are now more potential catalysts in play than we've seen in quite some time. The opportunity is there for radio to begin to realize on some of its upside. I don't think, necessarily, anything changes tomorrow, but I think the broad trend lines are very good, and I think the future is quite bright.

Let me take a couple questions myself on the balance sheet, and then, David, I'll come to you as it relates to the balance sheet going into the future, specifically for the Company. A question came in that obviously noted our refinancing in the Fall, which reduced interest rates. Question is -- is there a potential for further refinancing of debt in the future, and when might we consider that? Then I'm going to ask myself a related question -- what's the Company's debt target leverage.

First off, we will look continuously at our two facilities, our senior and our senior notes. Our senior notes have about three more years on the [note] call. I would expect this Fall, we would re-look again to see if, on the term loan B, we can achieve some further refinancing benefits for the Company at that time. We'll be back to you at the Fall as we look at that.

As to the Company's target leverage, we've been out publicly talking about that in the 4 to 4.5 times range. Obviously, we've had a breakthrough in being under 5 times at the end of this year.

David, let me turn, I think, for our concluding question, which ties this together, talking of the balance sheet. Several people have noted -- with our leverage, with the health of the balance sheet, and the performance of the free cash flow, what's the Company's future expectations on use of the free cash flow? Would there be capital returns or still continued debt paydown?

For now, we're going to continue, as we've been doing for the last few years, to focus on deleverring. As you just noted, we have a target to get down into that 4.5 and lower range. We seem to be rapidly approaching those levels when these conversations come into play. There's a possibility that we would look at potential dividends or other forms of repatriation of cash as we get into that range, but that is still down the road. We'll look at all our options, as we always say, and whatever will be in our shareholders' best interest. But I think whatever we do, one thing we can say for sure is that we will not be looking to do anything that will stress our balance sheet, but it's nice to have some options as we look down the road here.

I think that concludes the calls today. I believe we answered most of the other questions that came in, in our prepared remarks. Thank you for your participation in today's call.

Thanks, everyone. Good luck with the snow, and we'll look forward to reporting back to everyone in three months.

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