Audacy Inc (AUD) 2013 Q3 法說會逐字稿

Good evening and welcome to Entercom's Third Quarter 2013 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 thank you everybody for joining us this afternoon. By the way, for those of you with local and state elections, it is Election Day. I'd like to welcome you to Entercom Communications' 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 available by telephone at the replay noted in our release, which is on the wires as of now.

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 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.

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'll turn the call over to David Field, President and Chief Executive Officer.

Thanks, Steve. Good afternoon everyone and thanks for joining today's call. I'm working on a little bit of a sore throat here, so apologize for that. I'll start with a brief summary of the quarter's financial highlights, followed by some color on recent operational developments, and 2014, before turning it over to Steve and your questions.

Third quarter revenues were down 4% to $98.4 million, while station expenses increased 5% to $66.9 million. As a result, adjusted EBITDA decreased 22% to $26.2 million.

As we have guided on our recent earnings calls, the year-over-year growth in station expenses in third quarter was primarily due to a significant one-time expense credit recorded last year as a result of the industrywide settlement with BMI. We expect expenses to decline slightly in Q4, consistent with the downward trajectory we have achieved over the past couple years, due to our prudent expense management. Steve will elaborate further on expenses in a few minutes.

We also continued to direct our substantial free cash flow towards debt reduction. During the third quarter alone, we cut our net debt by $20 million and have now lowered our net debt by nearly $450 million over the past 6 years.

Here are a few operational insights on the quarter. Local was down 5%, while national revenues were flat. August was the weakest month of the quarter, excuse me, down high single digits, while July and September were better. Political was down $1.1 million versus prior year. Our best-performing markets were Memphis, Portland, and Sacramento.

Our top performing categories were insurance, professional services, telecom, and medical. Auto was up as well. The total radio market revenues in the markets in which we compete were up 1%, so we obviously lost share for the quarter.

Plain and simple, our sales performance in third quarter was poor. We failed to get the job done and that is unacceptable. We lagged our radio peers by a significant margin and failed to capitalize on our strong brands, ratings, and marketing capabilities.

On our last earnings call in August, we made it very clear that we anticipated a weak third quarter, so our results should not come as a surprise to anybody. On that call, we also explained that our poor performance was attributable to weak sales execution. We elaborated on our sales issues, explaining that we have made a number of significant changes in our sales strategies and practices and that while these changes will make us a stronger and more successful selling organization, they have also caused some disruption adversely impacting performance.

I also stated that the problems are entirely fixable and that we are executing very well in the other facets of the business, noting that our brands and ratings are in great shape and that we have invested millions in new personnel and capabilities in a number of key areas to bolster our growth potential. Specifically, we have made significant investments in our new brands, our digital platforms, and our marketing capabilities.

So with that all said, let me bring you up to speed with how we are doing. Our operating team has been hard at work and while we still have a ways to go, I am pleased to report that we have made significant progress in reinvigorating our sales performance. Over the past couple months, core pacings, ex-political, for the fourth quarter, have improved significantly from down high single digits to flat. The improvement has been steady and consistent. I would add that our internal sales activity metrics have also accelerated significantly over the past couple months, reaffirming our progress.

While we have fought our way back to flat in core Q4 revenues, overall, with the impact of political included, the quarter is currently pacing down 5%. Obviously, we are not where we want to be yet, but we have made meaningful tangible progress in our numbers and are accelerating momentum into what I believe is a very promising 2014.

I think there is good reason to be optimistic about next year as we are positioned with the potential for solid topline and free cash flow growth. Revenues should benefit from the improving performance of our sales organization and meaningful headroom in a number of our markets as we capitalize on our strong competitive position.

In addition, we should benefit from are expanding opportunities in digital and events, as we bolster our efforts in each of these important growth areas. Finally, we should continue to benefit from declining interest expenses. In sum, we enter 2014 in a great position to deliver strong results for our shareholders.

We'd like to elaborate a bit on the strong ratings we are continuing to achieve across the country. We've had another series of good ratings books and have now gained aggregate ratings share from our peers in five of the past six quarters.

Most notably, our recent format launches are performing quite well. In particular, we're delighted by the debut ratings of Hot 103.7 in Seattle, our new Rhythmic Hot AC station, launched last month. In its very first month, the station surged to number one with women 25 to 54. It is also number two with adults 25 to 54.

This is one of the radio industry's strongest format launches in many years. While I want to caution that the results only represent the first month of performance, the financial upside is large. But I also want to note that our ratings grip is broad.

Here are a few other highlights from the most recent ratings. We have two of the top three stations with adults and women in Denver. We have four of the top five stations with adults and women in Greensboro; two of the top three with women in Indianapolis; three of the top five with adults in Kansas City; two of the top three with women in Milwaukee; four of the top five with women in Norfolk; three of the top four with adults in Rochester; two of the top five with women in San Francisco; and now three of the top five with adults in Seattle. And again, it is worth noting our ratings have now grown in five of the past six quarters.

While we have not yet capitalized on converting these ratings gains into stronger revenues, the opportunities are great in 2014.

Finally, a word or two on the industry outlook for next year. There have been a great number of positive industry developments in the past few months that are worth recognizing, all of which bode well for radio's future. The industry's agreement with Sprint has ushered in a new era of radio distribution on smart phones.

In addition, HD radio will approach 50% penetration of new cars sold in 2014. Katz and Clear Channel continue to add senior executive talent focused on driving radio share of ad dollars, and independent research continues to reaffirm broadcast radio's enormous role in the lives of the American public.

Finally, the closing of Nielsen's acquisition of Aribtron could have a meaningful impact on the industry's future. I could not agree more with David Calhoun, Nielsen's CEO, when he made the following comment on his Company's most recent earnings call-- quote -- We believe that radio is a more vibrant medium than the way the world perceives it. Our job is now to develop metrics that will shed light on that and then ultimately let it play out in all the mix modeling and resource allocation decisions that advertisers make --- unquote. The potential of all of these developments is significant, particularly for a medium whose share of the public's time is 2 to 3 times larger than its share of the ad pie.

So while we are unhappy with our poor third-quarter results, we believe we are rapidly putting our problems behind us and are well-positioned for a strong 2014. We appreciate your forbearance and look forward to rewarding our shareholders in 2014.

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

Okay, great. David's already given you the financial headlines for the quarter and they are also in the release, so I'll give a few additional comments before we go to questions that you submitted in advance.

As David mentioned, prudently managing our costs has been an important focus of the Company and station expenses were down low single-digit throughout last year in 2012 and throughout the first half of this year. As noted and as we've told you in the past, in the third quarter, our station cost increased primarily due to a significant one time nonrecurring expense for credit we had last year as part of the radio industry's settlement with BMI.

We also had a significant bump in this quarter's marketing expenses due to the support of our new brand, some of which David just covered. This is really a timing issue of pushing much of our support planned for the year into the third quarter.

Looking ahead to the fourth quarter, we expect station operating expenses to be down slightly as compared to the prior year, which will also then mean another year of reduced station operating expenses. Obviously, we're now cycling against strong political revenues in the last half of 2012.

For those of you who are interested in the data points on political revenues last year, in the third quarter of 2012, that was $1.2 million and in the fourth quarter of 2012 $4.7 million.

Turning to our balance sheet, third-quarter net interest expense decreased by over $2 million from last year, to $11 million, which included $1.1 million of non-cash deferred financing amortization. The Company ended the quarter with $519 million of net debt on our balance sheet and our bank leverage for the quarter was 4.8 times, versus a covenant of 6.5 times.

Non-cash equity compensation expense was about $900,000 in the quarter. Capital expenditures were about $1.1 million, and expect that we'd finish the full year 2013 in CapEx at around $5 million, probably a little higher, depending on the timing of projects which are currently underway.

Our book tax rate for the quarter decreased to 44%, which is basically about our normal expected GAAP rate. Last year, our tax provision was higher as it was impacted by several items that were not deductible for tax purposes. But, as I've often mentioned on these calls, while our financial statements reflect GAAP tax provisions, we do not pay cash taxes and we don't expect to pay cash taxes for many years into the future.

So with that, we will now go to your questions which were submitted in advance of the call.

David, I think it's fair to say that almost everyone who submitted in advance wanted more color on the issues around sales execution. I know you addressed some of that in your prepared remarks, but any additional comments you'd like to provide on the sales execution issue?

As you mentioned, we did touch on that, but let me elaborate a little bit further. We've made a number of changes over the course of the last year or so involving the organizational structure of our sales teams, roles and responsibilities of our sellers and sales managers, accountability systems, etc., and some of that has caused some disruption and reduced the productivity of our organization. We've taken some specific tangible actions to address some of those issues and to bolster performance and, as we've laid out on this call, I think that there's pretty clear evidence that we are building momentum here and improving performance. We're seeing that with fairly good resonance in fourth quarter and are pretty optimistic about how we are heading into 2014.

I will ask a follow-up on that and we're going to bundle up two questions; one from Avi Steiner at JPMorgan and Mike Kupinski at Noble Financial Group. As you look in the third quarter -- and I guess let me also include the second quarter -- anything you're seeing about that issue as related to large markets, small markets, regions of the country, or specific formats?

I think it's principally a systemic issue, just an organizational issue, broadly within our Company, that we're working our way through.

Let me go to a question submitted by Marci Ryvicker. The question was how should we think about 2014? You described in the release as being poised for solid topline growth in 2014. Can you give a little more color on that?

Sure and as you know, I also made a note that we think we're positioned for strong free cash flow performance as well next year, but we don't give guidance and certainly not quantitative guidance for next year, topline, but I do think we touched on that in the earlier remarks. But I think there are some good macro developments and catalysts that are emerging within the industry which will be helpful, but I think specific to Entercom, I think we will have a strengthening sales organization that will be firing on a heck of a lot more cylinders in 2014 than we were able to do in 2013 and we've got a lot of headroom in a number of our markets with significant share upside to capture, a lot of new brands that have significant growth potential, enhanced marketing capability and sales capabilities that we've invested in significantly, event and digital opportunities -- so there's no shortage of opportunity for us next year. It's really just about execution and we're feeling very good about how things are coming together.

How's this for a segue, talking about 2014, a question again from Avi Steiner on political as to what it might be for 2014 and by indexing asking what was it in 2010, which was the last off-year election cycle.

Avi, I'll answer the question. In 2010, Entercom did about $6.5 million in political revenue. We have no early sense of what indicators for political next year, but I think as I look back over the past several years of off-year election cycles, it looks like $6.5 million and climbing is a fairly good trend.

Let me go to the next question, again from Marci at Wells Fargo. On comments on NextRadio, there's been some buzz around that since the launch recently, also somewhat connected to your comment on Sprint earlier, what are Entercom's thoughts on NextRadio?

We think it's a meaningful event for radio, ushering in a new era of broadcasting on smart phones and I think it's not merely the existence of the FM chip, but it's the enhanced user experience of using the product and you look at everything from the album artwork to an enhanced program guide, social integration and then down field, the opportunities for enhanced advertising and revenues obviously deriving from that, it's a fundamentally different experience and one which we think has the potential to grow significantly going forward, not just with Sprint but potentially with other carriers as well.

I'll direct this question back to myself, strange as that might sound. Inbound question from Chen Rivlin and Mike Kupinski as well, asking about any plans to refinance on our debt.

I think many of you are aware we have two tranches of our debt; one are senior notes. Those are no call through 2015. The other tranche, a little over $300 million on our Term Loan B does have an opportunity to refinance coming up later this fall, so obviously you can imagine the Company'll take a look at it and based on current trading levels, there probably is or may be an opportunity to improve the interest rate on that tranche of debt.

David, I think the wrap-up question, there were probably three or four individuals asked a variation of the same question, so let's wrap up by staying on the balance sheet. People have noted the pay-down in debt, which, as you noted, the $20 million pay-down in the quarter. With the improving leverage, how does the Company view its balance sheet going into 2014 and your earlier comments on the top line of 2014, as you look at M&A, returning cash to shareholders, or reducing debt?

As we've stated on many occasions in the past, our goal has been to drive our leverage down to the mid-4s and we are on the verge of being able to do that and certainly have hopes of accomplishing that and then some in 2014. We've indicated in the past that at that threshold, the Board will probably want to take a look at various ways of returning capital to shareholders, namely a dividend and whether that happens or not, who knows, but I think it's certainly something which becomes an interesting conversation. And beyond that, we will continue to look at opportunities to grow the scale of the organization, but as we've said before, we are very strong in the markets we're in, which is really the most important thing that we concern ourselves with, so we will be opportunistic and if a compelling acquisition comes along which adds value to shareholders and does not harm the balance sheet, we obviously would want to take a look at it.

Those are the questions.

Okay, thank you all very much. Thanks for indulging me with my voice today and we'll look forward to getting back to you and reporting in three months. Thanks.

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