Audacy Inc (AUD) 2016 Q1 法說會逐字稿

Welcome to Entercom's first-quarter 2016 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, everyone. Thank you, operator. Thank you, everyone for joining us today, Happy May. 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 also available by telephone at the replay number noted on our release. With notice of today's call, we had asked that you submit your questions in advance of this call. 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 statement, 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 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, let me turn it over to David Field, President and Chief Executive Officer.

Thanks, Steve. Good morning, everyone. Thanks for joining our first-quarter earnings call. I am very pleased to report that Entercom started the year off on a great note, delivering an outstanding first quarter. Net revenues were up 23% enhanced by our 2015 acquisition. But the bigger news is that we had another great quarter of organic revenue growth. Same-station revenues increased 6% for the quarter. We also grew our margins enabling us to drive robust bottom-line growth. Adjusted EBITDA was up 32%, free cash flow and earnings per share both more than doubled.

In sum, it was a terrific quarter. What is important to note is that it is part of an increasingly consistent pattern of Entercom delivering solid growth quarter after quarter. This now marks the fourth consecutive quarter of accelerating organic revenue growth for Entercom. As you will hear in a few moments, our pacings look strong for the remainder of the year. We are optimistic about our ability to continue to generate strong same-station growth. After I provide you with some additional color on our first-quarter numbers, I have a couple of announcements to make and then we'll brief you on some recent developments.

Our first-quarter local revenues were up high single-digits. National was down low single-digits but recovered nicely in March. We grew our revenue market share significantly during the quarter. In fact, only two of our 23 measured markets lost share during the quarter. Our 6% growth compared to low single-digit growth for our markets. January was the weakest month of the quarter. Political revenues were under 1% of our quarterly sales. As a result, our same-station revenues, excluding political, were up 5%.

Our best performing markets during the fourth quarter were: Miami, San Francisco, Seattle, and Indianapolis. Our best performing categories were: auto, health and medical, and restaurants. It's worth stepping back and taking a longer-term look at the trends in our business over the past few quarters. This was our fourth straight quarter of mid single-digit or better organic local revenue growth. If we look at our last 12 months versus the prior 12 months on a same-station basis, our revenues were up 3% overall and up 4% ex-political.

Over the same period, our free cash flow was up 21%. In addition, our leverage has declined from 4.5 times to 4.0 times over the past year, notwithstanding the fact that we completed the Lincoln and Los Angeles acquisitions during that period. Our performance is being driven by many factors, most notably our strategic focus on building strong local radio brands with compelling personalities and content and developing best-in-class marketing solutions for our customers, along with enhanced local sales execution and capabilities.

Our team across the country is doing an excellent job of executing our game plans and delivering results. On the heels of this terrific quarter, I am very pleased to announce that the Entercom Board has approved the initiation of a cash dividend program and announced an initial dividend payable this June. The dividend has been set at $0.075 per share per quarter or $0.30 a share annually. The Board's decision reflects its confidence in the Company's strong operating performance, significant cash flow generation, moderate leverage and excellent growth prospects.

Based on our current stock price, the dividend represents just under a 3% yield. It is noteworthy that the dividend equals just 17% of our trailing free cash flow. That means we will have ample capacity to continue to invest in our business, pursue compelling growth opportunities and reduce debt, while delivering immediate cash returns to our shareholders. We are also continuing to make progress in a number of other areas. Our focus on great local brands and content continues to pay off for us in the ratings, as Entercom remains a leader in Nielsen's ratings growth.

We are continuously looking for ways to bolster our programming and grow our audiences and deepen their engagement. For example, since the start of the year, we have added a number of new air personalities, most notably at Star in Atlanta and have successfully rebranded two of our stations in Miami and San Diego. I am pleased to report that we have entered into an agreement to become the flagship radio broadcaster for the San Diego Padres. Starting in 2017 and continuing through 2021, our FM 94.9 in San Diego will be the home for all of the Padres games.

FM 94.9 will retain its alternative rock format, offering our listeners a unique combination of great music, sports and local personalities. In addition, last Thursday, we announced the renewal of our agreement with the Boston Red Sox, which will make our station WEEI the team's home through 2023. We have enjoyed a wonderful long-term relationship with the Club and are delighted to continue our partnership well into the future.

Turning to current business conditions, second quarter is pacing up 4% on a same-station basis. We are experiencing strong growth in auto, professional services, restaurants and home furnishings. Political advertising remains inconsequential for the quarter, although we expect a nice lift from election-related spending beginning in September. While it is very early, our pacings for the second half of the year are quite strong.

Looking to the future, enhanced audience data and behavioral insights will enable us to drive higher value added sales. Expanded distribution of our brands over innovative platforms like NextRadio will enable additional opportunities for enhanced integrated marketing revenues. We have high expectations for our SmartReach Digital business, which we hope will grow into a meaningful player in the digital marketing solutions market.

We see nice expansion opportunities in the events business. Perhaps most meaningfully, as other competitive ad supported media continue to experience meaningfully erosion of their audiences and disruption to their business models, we think radio, now the country's number one reach medium, has an outstanding opportunity to grow its share of ad dollars in the years ahead. In sum, this was an excellent quarter for Entercom on essentially every level. We are very well-positioned for solid growth for the remainder of 2016 and beyond.

We are driving strong organic revenue growth, growing brands and audiences, improving sales execution, pursuing solid expense management and making significant progress across a number of strategic initiatives that are enhancing our capabilities and growth potential. We offer our investors terrific value with our stock providing a 15% trailing free cash flow yield with a very solid balance sheet, strong organic growth, a great portfolio of local brands and content, a number of value creating growth drivers and now a dividend as well. With that, I'll turn it over to Steve before we answer your questions.

Wow. That is great. As you just heard, what a great way to start 2016. Our brands and operating team are driving solid ratings growth, industry-leading revenues and all that leads to EBITDA and margin expansion and impressive free cash flow growth. Clearly, a great quarter, but as we start this new year it's relevant to point out, this is also a continuation of a string of strong quarterly results this team has delivered to shareholders. Our acquisitions of last summer are performing great. Both our new properties and our core operations are exceeding market and industry growth rates.

We've reduced debt and significantly improved our already solid balance sheet. I'm particularly pleased to point out to you today that our leverage for the past quarter was at 4.0. Which means that today, May 2, we are effectively below that benchmark metric, which leads to the announcement today of a dividend program. The dividend declared today of $0.075 per share, that David mentioned, will be payable on June 15 to shareholders of record of May 25. Let me give you a few financial highlights of the first quarter. We discussed on recent earnings calls our expense improvement actions over the past few quarters at our newly acquired properties.

So, as compared to the prior owner's expense model, we have reduced station operating expenses on these new stations, while simultaneously driving brand and revenue growth. Our core station expenses are also well-managed, as you've come to expect from us. Continuing our strong history of expense management while still investing significantly in local content and capabilities, our core expenses for the quarter were up less than 2%, which is primarily a function of variable expenses on core revenue growth.

Our corporate G&A expense in the quarter was about -- was $6.2 million. A side note, with the announcement last week of a new multi-year contract for Entercom's CEO and related one-time bonus triggered by this contract, I expect second quarter -- this current quarter, second-quarter G&A to be about $7 million to $7.2 million and then drop to about $6 million per quarter for the second half of the year. Non-cash compensation expense was $1.5 million in the first quarter. I would expect the next three quarters or the remainder of 2016 to be about $1.6 million per quarter.

Net interest expense for the fourth quarter -- first quarter was $9.4 million, which includes about $800,000 in amortization of non-cash interest-related items. D&A was $2.4 million for the quarter and represents a pretty good run rate for your models for the remainder of the year. In the first quarter, we completed the sale of an AM station in Denver for $3.8 million, which resulted in a small book gain for the quarter.

Our quarter's GAAP book tax rate was about 17%. Now, this was lower than normal due to a few unique one-time state provision adjustments. Looking forward, we believe our GAAP book tax rate should be about 40% but is always subject to fluctuations. As I love to point out on these calls, that is a non-cash tax provision in our financial statements, as we do not pay cash income taxes nor expect to for a few years.

Turning to balance sheet, significant progress. We finished the quarter with net debt net of cash of approximately [$454 million] (corrected by company after the call). This resulted, as I said earlier, in pro forma leverage of 4.0 as defined in our credit agreement and represents great progress and further strengthening our already solid balance sheet. Our CapEx for the quarter was lower than prior year and frankly, lower than our initial plans due to expenditure timing. We have a few station/studio relocation projects planned this year, but we now think that the timing for a portion of these will spill over into next year 2017.

So our current thinking for 2016 CapEx for the full year is $7 million to $8 million, which is a slight reduction from prior guidance. We have great free cash flow generation, in spite of some expensive 10.5% coupon notes that were placed four years ago during a period of credit market turmoil. This higher interest expense is serviceable, but represents future opportunities for savings. Those notes -- those expense of notes became callable a few months ago in December, but at a premium. Clearly, our credit profile has dramatically improved over the past year.

We are well aware that debt markets have improved in recent weeks, although not quite back to the rates or just as importantly, the terms and conditions seen last summer when we had hoped to refinance. We were also mindful that our bond call premium steps down by several million dollars this fall, a fact that factors into our thinking as we consider the trade-off of reduced interest rate versus the overall upfront cost of replacing some or all of our existing credit facilities.

So we continue to monitor market developments but simply put, it's all good. As we continue to delever into the rest of the year, our reduced leverage and improved credit profile should open up additional favorable financing options for the benefit of shareholders. With a business model that provides outstanding free cash flow generation, the commencement of a quarterly dividend, the benefit of our significant NOLs to shield future earnings, future potential reduction in cash interest, coupled with high insider stock ownership, Entercom clearly is an attractive platform for both debt and equity investors.

So with that, let's go to the questions submitted in advance. David, there were quite a few. They all followed a similar profile. Again, for those listening or reading transcript, if you'd like any follow-up, feel free to give me a call, Steve Fisher, at 610-660-5647.

David, let me start first with a macro from Avi Steiner at JPMorgan. Great quarter. Any issues to suggest that your core radio ad growth rate can't continue throughout 2016?

Not at all, in fact, as we mentioned in the remarks, Avi, pacings look very strong for the remainder of the year. Our core organic metrics look really good. I would say that even beyond 2016, I had noted that there were just a number of investments we've made into the future. As we see trend lines for the industry and so forth, we're pretty optimistic and feel pretty good about our growth rates, not just this year, but into the future.

Let me dovetail off of that then with a question from Marci Ryvicker at Wells Fargo Securities. You mentioned sec quarter and looking forward, how did Q2 start, specifically April? How do you see May/June?

April was a little softer than May and June, but still a solid growth month. So, there's not a huge disparity between the individual months of the quarter.

I'm going to go to a question from Mike Kupinski at Noble, which by the way also represented a few people. First, they had asked -- Mike had asked for the data point for Q1 political. First-quarter political were about $800,000 in 2016, that was versus first-quarter last year of about $100,000.

Now, let me go to Mike's question, which is broader and reflects several others. How do you see political shaping up for the year? I'll call it, as phrased in the question, the Trump Effect, the buzz out there that perhaps Trump is not spending as much money as is others? Do you see an impact on the business model?

Yes, the pattern this year is playing out consistently with what we've seen in prior elections. We don't tend to see much radio political advertising in the first half of the year or shall we say, during the primary season. So we don't see anything unusual there. Candidly, as we look to the fall and presuming that it is a Donald Trump and Hillary Clinton election, would have no reason to expect anything different from what we've seen in the past. First of all, much of the political revenue we receive is down ballot, either on federal or state or local elections. On a federal level too, who knows what we're going to see in the fall? Clearly, we'll see a lot of third-party action as well in what will be a highly unusual election cycle.

Let me take the liberty of dovetailing back, I gave Mike the data point on first-quarter political of $800,000. That's actually an increase over our prior cycles for what it's worth.

Let's, again, in that theme of looking forward -- let me go to a question from Aaron Watts at Deutsche Bank. David, do you have visibility in the third quarter and third-quarter's pacings, at this time, you'd like to share?

Yes. We -- third-quarter and fourth-quarter pacings look very, very strong as we noted earlier. Again, it's very early. It's not something that we want to hang our hat on, but directionally, it looks good.

I'm going to go to questions from Kyle Evans at Stephens. Several people asked related -- first, Kyle asked for a data point on auto as a percentage of sales. I'll take that David.

Kyle and those on the group, auto's been fairly consistent as mid-teens. It is our largest category. I always remind people because there have been some questions on the SAR rates. I also remind people that it's -- besides the new car, which we always see represented used cars, tires, parts, batteries, financing. So auto obviously a large category but performing very well.

Yes. We saw strong growth in the first quarter. We see strong pacings in the second quarter. Again, on a very early basis, auto looks strong for the duration of the year.

Let's go to the programming side, you did mention ratings, David. From Mike Kupinski at Noble Financial, coming back to him, can you talk -- I think you addressed some of this in your script. Can you talk about investments you've made in the quarter in local content and talent?

I mentioned the morning show edition in Atlanta on Star, which we're very excited about and the rebrandings we've done in a couple of stations in San Diego and Miami, which are also off to a good start. We continually look for opportunities to add strong local talent where we see -- again, where we see good opportunities across the country. That's been a core element of our growth over recent years. I think you should expect that's something we will continue to do into the future.

Let me stay with a follow-up question from Mike -- Mike Kupinski at Noble. The ratings performance has been strong for the Company, you mentioned it David in your script. Mike's question is, is ratings growth sustainable through the next -- through the year?

Yes. Again, we been a leader with -- in Nielsen ratings. I think that as a core part of our strategy investing in that great, live, local personalities and content -- you heard we mentioned the Padres deal, the renewal on the Red Sox. We think that by continuing to focus on that core element of what drives our business, absolutely we can continue to grow audiences into the future.

I love the way Marci Ryvicker at Wells Fargo worded this next question. What got you over the edge to initiate a dividend?

Yes. Marci, it was time. We've been very transparent in recent years about the fact that a dividend was something that our Board would look at when our leverage guided to the low 4s -- low to mid 4s ZIP code. We also prudently wanted to digest the Lincoln acquisition. Everything came together. The Company's in a great place right now. Our Board felt very good about moving ahead with the dividend at this time.

It's also worth noting that it is only 17% of our free cash flow. That percentage will likely decline here as we go into successive quarters. So, it gives us great flexibility and the wherewithal to continue to pay down debt and to look for other strategic opportunities should they -- should we find them compelling.

I guess I'm going to address the next question to myself. Several people asked about refinancing. I addressed some of that in my script. Asked if the timing of the dividend was any way linked to timing on the refinancing?

So let me now turn around and address the question and say, absolutely not. The initiation of the dividend was totally independent of any refinancing. The Company's covenants allow for it to pay and have frankly, for the past several months. I agree with what David and the Board's decision was, to get past Lincoln, to continue to delever. I like the way he phrased it, it was time.

Now as we -- as I pointed out in my comments, several of you asked about future refinancing. Would it be bank versus bond? The answer is obviously, we will look at all of those. But as I said earlier in my comments, as we continue to delever, I think it opens up more opportunities perhaps for a Company with an even stronger balance sheet. We are mindful of the bond premium and the step down of that in the fall. All that will factor into our thinking in the trade-offs.

Let me conclude kind of with another forward-looking question, David, from many questions, all linked together. First a question from Lance Vitanza at CRT, as to, are there any sellers out there with reasonable valuations? Then a link to a common question from a wide variety of participants today in advance saying, clearly, CBS has announce a strategic decision. How should they think about CBS as it relates to Entercom? So let's link those two forward.

Sure. As I think everyone knows, we don't speculate on potential acquisitions or other activity of the kind, other than to note that we've been very consistent in noting that there are three fundamental criteria with which we look at any potential expansion, which would be: does it strategically fit; can we accomplish it with and accrete value to our shareholders; and do it without impairing our balance sheet? So, we'll look at any and all opportunities as they may present themselves in the future.

I think the most important thing, of course, is to look at our track record and think about the deals that we did do and the deals we did not do. We feel pretty good about our discipline and prudence around that. So, as to what opportunities may or may not present themselves in the future, we'll take those one at a time and make sure that we stay true to what we've done in the past, which we think has resulted in great outcomes for our shareholders.

So, that's our calls -- that's the questions submitted in advance.

Great. Well, thanks, everybody. Appreciate your being with us this morning. We're excited about where we're headed and look forward to reporting back to you again in another quarter. Take care.

That concludes today's conference. Thank you all for participating. You may now disconnect.