Audacy Inc (AUD) 2015 Q1 法說會逐字稿

Good morning, and welcome to the Entercom first-quarter 2015 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 now begin.

Thank you, operator, and good morning everyone. Thanks for joining us on what is a beautiful day in the Northeast today, Monday. First, a few housekeeping notes. 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 replay at the number noted in our earnings release this morning.

With our notice of today's call, we asked that you submit questions in advance of the call to the email 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.

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 these 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, we turn the call over to David Field, President and Chief Executive Officer.

Thanks, Steve. Good morning, everybody. 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 then update you on current business conditions and the status of our announced acquisition of Lincoln Financial Media.

Entercom's first-quarter revenues were up slightly over the prior year. We achieved significant market share gains, which offset sluggish advertising conditions. These results were slightly better than the pacings we provided on our February earnings call, reflecting some improvement during the back half of the quarter.

Station operating expenses increased by 2%, resulting in a 6% decrease in station operating income. Adjusted EBITDA decreased by 8%.

Here are some additional data points for the quarter. Local revenues were slightly better than national. As noted earlier, we gained significant share during the quarter, as our growth compared favorably with our markets, which were down 2%.

The strongest categories in the quarter were retail, financial, insurance, TV cable, and entertainment. Auto was flat. Telecom was clearly our poorest performing category, as we pointed out to you on our last call. In fact, excluding telecom, our revenues were up 3% for the quarter.

Our best-performing markets were Boston, Portland, Buffalo, and Milwaukee. And we continue to perform well in the ratings across the station group, which we believe is a direct reflection of our focused commitment to build strong local brands around outstanding local personalities and content.

One great example of that strategy is Kansas City, where The Point, an adult contemporary station that we launched just in 2011, reached number one in the market in the latest ratings with both women and adults 25-54. And The Buzz, an alternative station, reached number one with adults 18-49 and 18-34, while The Rock reached number one with men 25-54. We also continue to do quite well with our other brands in Kansas City, each of which features strong local personalities.

I noted earlier that our expenses were up 2% for the quarter. That reflects a 1% increase in core station expenses, plus 1% attributable to startup costs at our SmartReach radio -- sorry, our SmartReach digital initiative, which we launched last year.

SmartReach revenues continue to grow rapidly quarter to quarter, albeit from what remains a low base. Excluding SmartReach, our revenues would have been flat. Forward bookings for SmartReach are growing significantly quarter to quarter, and we expect our SmartReach digital marketing solutions product line to become an increasingly important part of our customer offerings in the future.

Turning to the current business climate, second-quarter business conditions are mixed, and we are currently pacing flat. That said, adjusting for political revenues, which rolled in during May and June of 2014, we are pacing down 1%.

June is currently pacing up 4%, while April and May are down low single digits. And while it is still very early, third quarter is currently pacing up 4%.

Since this is the first earnings call for the new year, I'd like to share with you my excitement about our platform and the opportunities in front of us, including the potential for significant growth in our revenues, EBITDA and free cash flow. We see five meaningful growth drivers in the quarters ahead. First, we feel very good about the opportunity to grow our core revenues and cash flow, based on strength of our highly rated brands and operating team.

We remain highly focused on enhancing our value to listeners, and to improving the effectiveness of our sales organization. Both of these efforts are bearing fruit.

Second, as many of you know, we have an you attractive window later this year to refinance our expensive high yield notes, which alone could result in a boost of $0.25 to $0.30 per share from interest savings.

Third, our SmartReach initiative. Right now, SmartReach is in an investment and development period, during which it is reducing earnings to the Company. But as revenues continue to grow, we see SmartReach evolving into a nice contributor to our future performance.

Fourth is the Lincoln acquisition. As we have noted previously, Lincoln will add a wonderful collection of brands and markets, which will benefit from the pure play focus of our operating team. While we are highly frustrated with the regulatory process, we remain very excited about this opportunity, and expect this acquisition to be accretive to shareholders in its first year of operations, while only having a minimal impact on our balance sheet. In the meantime, we are working to comply with the DOJ review of this transaction, which would provide us with a second-place position, with a 32% pro forma share of the Denver radio market.

Finally, the fifth driver is the potential for industry acceleration. Radio is the least disruptive traditional ad medium, with massive reach and strong usage trends, and is the number one medium in the United States between 5:00 AM and 5:00 PM daily. But radio also remains the most undervalued medium, as we have noted on many previous occasions.

However, I believe the evidence is growing that radio's perceptions are starting to improve, particularly as competitive media are being increasingly disrupted and challenged. For example, on our last call, I cited remarks for the CEO of BBDO, who recently noted that radio is a massively underutilized medium.

And I think it is worth noting the impact of iHeartMedia's significant efforts to champion radio with major advertisers and agencies. All of us are doing lots of great work on this, but as the largest player in the industry, iHeart is showing particular progress in their efforts to change radio's perceptions and gain new and incremental business from major advertisers like General Motors. And I think that bodes well for the entire radio industry. We think their Q1 revenue growth, at a time of sluggish conditions in the general ad market, is meaningful, and a possible harbinger of broader based industry improvement in the future.

So in sum, we're very excited about the future and the opportunities in front of us. And with that, I'll turn it over to Steve for some additional thoughts, before we turn to your questions.

Following up on a few comments on the first quarter, and then some color on the balance sheet. First-quarter station operating expenses were up 2% over the prior year, which was in line with our guidance to you on the last call. Our core station expenses were up slightly, as David noted, with the increase resulting from the year-over-year comparison on the rollout of SmartReach, our digital initiative, which was launched and began to ramp in the second quarter of last year.

Looking forward to the second quarter, we expect station operating expenses to be up by about 4%. With expenses at our core stations up about 2%, and our digital investments adding another couple points to that expected expense growth. Now, note that this growth in our core station expenses is merely a timing issue on some discretionary spending for the year, not a change in our business model, or our prior guidance to you, of full-year operating expenses at the station line of 2% to 3%.

Our corporate G&A expense in the first quarter was flat with -- over prior year. In the first quarter, we had about $1.7 million of expenses related to our announced transaction with Lincoln. You will see this reflected in a separate line item, merger and acquisition expense.

As David noted, we're now in the final stages of producing voluminous material, and tons of information, in response to the second request by the Department of Justice. We currently expect about $2 million to $2.5 million in compliance cost for this project in the second quarter. This will be reflected in the M&A expense line.

Net interest expense for the first quarter was $9.3 million. This amount includes about $800,000 in amortization of non-cash interest items. And I would expect a similar net interest expense in the second quarter, since we're building our cash balances versus paying down debt at this time.

Non-cash compensation expense was around $1.1 million for the first quarter. That's a little lighter than my expectations for the remainder of the year, which I would model at $1.2 million to $1.3 million per quarter.

Turning to the balance sheet. Our capital expenditures for the quarter were $2 million, and we guided the full year, in our recent 10-K, to between $8 million and $9 million. I would note that that would exclude any impact from the Lincoln acquisition. But that does include a few one-time larger projects.

Starting last fall, we began to accumulate cash from operations in anticipation of our Lincoln transaction. And at the end of the first quarter, we had almost $47 million in available cash. Plus, we have our $50 million undrawn revolver facility.

So you can see that we have plenty of liquidity and flexibility on our balance sheet. And as we said to you since our December announcement of this transaction, we will wait until we're closer to assuming operations to give you color and pro forma expectations on the business model, and the balance sheet, from the Lincoln transaction.

So the theme at Entercom continues to be cash flow and our continuously improving balance sheet. We're getting closer to the window where we can efficiently refinance some of our capital structure at significant savings, and a boost to free cash flow per share. And the pending Lincoln transaction provides further upside and rewards. So it should be, and we hope it to be, a very interesting and hopefully rewarding year for our shareholders.

So with that, David, we'll go to questions in advance, some of which -- I apologize to those of you -- I think we've addressed in our written remarks. But the ones that I think that are significant, that we left open.

First from Marci Ryvicker. David, you gave some color on the first quarter. But could you give any commentary on performance by market, large market versus small market? And also month by month performance throughout the market -- throughout the first quarter?

Yes, I mean, we -- as I mentioned, our best performing markets were Boston, Portland, Buffalo and Milwaukee. And we saw no meaningful differentiation by market size. January was the weakest month of the quarter, but not a huge variance, as well, within the quarter -- for three months.

Great. Staying on that operating revenue theme, both for Mike Kupinski at Noble and Aaron Watts at Deutsche Bank.

In your earnings release, and in your comments, you spoke to significant share gains. I'll give shorthand to the way they both asked the questions. How did you do that?

Frankly, there's no magic answer. It was execution. And we stayed very focused on our core strategy -- one of our core strategies -- of building really strong local brands, with great local personalities and content. And that enables our -- us to achieve solid ratings performance, strong audience engagement, and puts us in a strong competitive position, vis-a-vis our competition.

And we continue to work hard on improving sales execution, and I think you're starting to see -- not starting to see. You're seeing that pay off in our results in the first quarter. And as we've discussed on many occasions over the years, we hold ourselves accountable to deliver out-performance versus the peer group, and have every intention of delivering on that in the future.

Staying with the revenue theme, Avi Steiner at JPMorgan asked about auto. I believe you mentioned auto being flat in Q1. He asked specifically, how do you see auto, going into the second quarter?

Auto looks up decent for second quarter. It's currently pacing up. Obviously, we'll see where it ends up. But right now, I know it looks pretty good.

And I would add also, frankly, just one more comment, if we look at third quarter, auto actually looks very strong.

But early.

But early.

You forgot the standard disclaimer, but early, when talking about the third quarter.

Staying with the category theme, I'll bridge to a question from an individual shareholder. Let me ask, and then answer it myself.

Individual shareholder asked about our political in 2014, noting that this is not a major political year. So now the answer to the question, yes, it's not a major political year, but we'll still have some political.

Our data points for last year, 2014, first quarter, $400,000. Second quarter, $800,000. And I think you acknowledged, that, David, in your comments on pacing for the second quarter. Third quarter, $1.5 million. Fourth quarter, $3.8 million.

So obviously it's a third and fourth quarter phenomenon. So a total of $6.5 million. And I'll jump to, at this point last year.

I think we indicated that we expected political to be between $6 million and $7 million, and we were exactly halfway there. So those are those data points.

Several -- let me go to a strategic, because a theme throughout -- and I won't give any specific names, because quite a few people asked your thoughts on Lincoln. I know you addressed that in your commentary, David, but they were asking specifically your thoughts on timing of the transaction?

Yes, timing -- and let me also address certainty. We feel very confident we're going to get this thing done. It's the number 4 in 14 sized companies in the space, with no overlap, except in the market of Denver.

And I've mentioned now, on multiple occasions, we have a 32% pro forma share of the Denver market, which ranks second in Denver. And we feel that we will ultimately have the deal approved, based upon those metrics.

Our worst case, we believe, is that there might be some adjustment, in terms of what we are able to keep in Denver. But we don't see that jeopardizing the certainty of the transaction. And would certainly hope and expect to be completed and operating those stations by mid-summer.

Okay. Let's go from that strategic -- let's stay on another strategic, but more operational question, from several.

Recently, iHeart announced a platform for programmatic, both for themselves and for [cast] the national rep firm. And David, you were quoted in that release as being an enthusiastic endorser. Can you give some more color on your thoughts on programmatic for the industry?

Yes, look, it obviously -- it needs to be done thoughtfully, and I think that it will be done thoughtfully. But the potential for programmatic and radio is great. And I think there are several reasons for that.

Number one, it will make radio easier and simpler to buy, which is a great virtue, and something which has been a hindrance to radio's growth in the past. So that's a great thing.

Number two, I think it elevates radio, from a competitive standpoint. We all know that radio's usage is massive, our reach is massive.

And I think it will enable us to compete more effectively, toe to toe, in a data-driven environment, with television, with digital, and with other media. And that, of course, bodes well.

We think it also clearly adds value, from the standpoint of using rich audience data and insights, and contextual information, to raise values of audiences on a variety of buys, and we'll be able to exploit that. And finally -- and I think there's some misunderstanding on this point -- I think it elevates the role of being an account executive in radio.

And whether you're on the local or national side, I think it will elevate the art of selling, and will lead to conversations that are much more focused on marketing and the power of great ideas. And truly selling the value of certain brands and certain products. As opposed to so much time being spent on processing information, which is a reality in the current marketplace.

So we're positive about it. And again, it needs to be done right, and there are always risks, but we think net-net, it's a big positive for the space.

Very exciting. That was personal color and commentary.

Jumping back to Entercom specifically, and from the industry, from Mike Kupinski at Nobel. Thoughts, David, on live events. How many are we doing? And is this an area that you want to expand in 2015-2016?

Yes, we're doing -- we do hundreds of events each year, across our platform. Some of which are huge, involving tens of thousands of people, and some of which are small. And we do think this is an area of great opportunity for us to continue to grow and expand.

We're continually looking for opportunities to expand our event portfolio organically, through introducing new events that we think make sense. And we'll continue to do that in the future, and expect that growth to continue sustainably.

So to a common question, over the past month or so. And I'll highlight it as coming from the balance sheet side, or the debt side of the business, from David [Zabar] at Wells, there, and at Deutsche Bank, and Avi at JPMorgan, and others. Thoughts on timing and expectations on returning cash to shareholders, as your balance sheets improve?

For those of you new to Entercom, we've talked for a while about looking at a target leverage rate in the low- to mid-4's. We are now in that range. And we have said that, when we get to that range, it's a time when the Board would take a serious look at a dividend.

And we are currently awaiting the conclusion of our Lincoln deal, and want to get that resolved first. But I would expect that once that occurs, there will be discussions with our Board, later this year, about the possibility of a dividend.

And somewhat linked to that, on timing, is thoughts on refinancing -- maybe I'll take that one, David. Again, a common theme from several of you.

We've been very transparent. It as included, as you know, in our remarks. I think everyone understands that our current high yield notes outstanding, $220 million face value, are callable this fall. And it now starts to become interesting to look at buying those, or refinancing, even earlier.

I think what we've indicated on the last call -- and I'll dovetail onto what David just said -- let's get Lincoln done. Let's have it announced, so we can be transparent with you, and our debt holders, on what we're refinancing on, and then we'll look at it. So I think it's more likely a second half of the year event, rather than first half of the year.

So with that, David, I think we've touched the operating questions that have been asked, and color. So before I throw it to you for comments, let me again say, if anyone has any questions to ask directly, Steve Fisher, 610-660-5647.

Thank you all. Appreciate you joining us here this morning, and we'll be back soon.