Audacy Inc (AUD) 2017 Q1 法說會逐字稿

Good morning, and welcome to Entercom's First Quarter 2017 Earnings Release Conference Call. (Operator Instructions) This conference is being recorded. Now I would like to introduce your first speaker for today's call, Mr. Rich Schmaeling, CFO and Executive Vice President. Sir, you may now begin.

Thank you so much, operator. Good morning, everyone, and welcome to our call. As mentioned, today's call is being recorded. A replay will be available on our website shortly after the conclusion of today's call and is available by telephone at the replay number noted in our release. With our notice of today's call, we asked that you submit your questions in advance.

Should the company make any forward-looking statements, such statements are based upon 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 are described in the company's SEC filings on Form S-4, 10-Q, 10-K and 8-K. We assume 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.

Now I would like to hand the call over to David Field, the President and Chief Executive Officer of Entercom Communications. David?

Thanks, Rich. Good morning, everybody. Thanks for joining our first quarter earnings call. I want to formally welcome Rich to the Entercom team. We have been very fortunate to have had an outstanding CFO in Steve Fisher for over 18 years. Steve did a wonderful job, and we greatly appreciate all of his contributions to Entercom.

But I could not be more pleased that our search for our next CFO resulted in Rich joining Entercom. Rich is a wonderfully talented and accomplished executive with an outstanding reputation from his time as CFO of LIN Media and as VP, Finance at Dow Jones and other organizations. He's also deeply experienced in large media integrations, most notably leading the efforts to bring together LIN and Media General and News Corp and Dow Jones. He will be a great partner as we move forward to build Entercom to the next level and drive meaningfully -- meaningful shareholder value.

We have a lot to cover on today's call, as this has obviously been a very busy and exciting time at Entercom. I will cover our first quarter results and then provide an update on our progress on the CBS merger plus share a few other updates.

First quarter revenues were up 1.4% as reported. They were down 1% on a same-station basis ex political. And of course, we also lost a day during the quarter as 2016 was a leap year. So on an apples-to-apples basis, we were essentially flat.

On the cost side, we experienced a highly unusual degree of large onetime-only expenses during the quarter that drove our cost considerably higher. Most notably, our CFO transition, the return of a station license in Sacramento and the CBS transaction each had a meaningful impact on first quarter costs. We will continue to incur some additional expenses related to our transformational growth as we work through the approval process and ramp up the organization in preparation for the merger.

The important point for investors, of course, is to focus on how the combined company will look post-closing. We have already articulated our belief that the transaction will generate synergies of at least $25 million conservatively. Our work over the past couple of months has only increased our confidence in our ability to achieve this level of synergies or higher while still being able to enhance the competitiveness of the organization. And so we expect that after the merger is completed, synergies will drive margin expansion across the organization. And you should bear this in mind as you look at our expenses during these months of transition to a significantly larger enterprise.

Let me share some additional color on first quarter revenues. January was the strongest month of the quarter, while February was the weakest. Local outperformed national, with solid growth in digital revenues. We gained revenue share in a significant majority of our markets during the quarter. Our best-performing categories were home furnishings and improvements, telecom and TV cable. And our best-performing markets were Atlanta, Miami and Milwaukee.

First quarter interest expense declined from $9.4 million to $6 million as a result of our fourth quarter refinancing, increasing annual free cash flow by roughly $0.30 per share. And we had an even more successful pricing of the committed financing for the CBS transaction in March that will result in additional savings upon closing. Rich will discuss that further during his remarks. Finally, in January, we closed on our $24 million acquisition of 4 radio stations in Charlotte.

Turning to second quarter pacings. As you have heard from a wide range of other reporting companies, business conditions have been a bit choppy, although we have seen some modest recent improvement. We are currently pacing down 2% on a same-station basis in the second quarter. April was a particularly weak month. May is significantly better, and we are currently pacing up low single digits in June.

On the CBS transaction, I am very pleased with our progress on all fronts as we continue to plan and prepare for our transformational merger. The merger will create a leading local media and entertainment company with a preeminent radio platform covering almost all of the country's top 50 markets and including many of the most iconic brands and most popular local personalities. We will be a leader in sports, news and talk and music and entertainment programming, and we will have complementary and robust digital and events businesses as well. We will have a strong and compelling financial profile with total leverage of approximately 4x and a business model that generates outstanding free cash flow and supports an attractive dividend. And for the first time in many, many years, it will be a mid-cap, well-capitalized radio broadcasting company for investors. This will truly be a game-changing event for Entercom as we will achieve a number of scale-related benefits, including the ability to compete far more effectively against other media for a larger share of advertising spending.

One example of where we see game-changing opportunities is in sports, where we will have a robust national platform of leading sports stations with top personalities and play-by-play relationships. We believe this platform positions Entercom to attract significant interest from major national advertisers, who have either been nonusers or very light users of radio.

In order to spearhead our national sports value-creating initiatives, last week, we announced the hiring of Mike Dee in the newly created role of President of Entercom Sports. Mike is an outstanding sports executive, who, over the course of his career, has served as the CEO of the San Diego Padres, the CEO of the Miami Dolphins and the COO of the Boston Red Sox. He is a terrific leader with a particular talent for driving revenues as an entrepreneurial dealmaker and a creative sales and marketing professional.

Mike and Rich are both high-impact additions to the best-in-class management team we are working to assemble to enable us to thrive in the years ahead. The team will consist of top leaders from Entercom and CBS Radio, plus a number of highly talented individuals outside the industry.

We've also been developing our plans in a number of other areas for tangible post-merger, scale-driven opportunities for growth and value creation. Among the more significant areas we have identified are ratings improvements, digital platforms, events, cost synergies and enhanced operations. Plus we will have interesting opportunities to expand our strong verticals in news, music and entertainment. We will have more to share on these and other value drivers in the future.

We are also in active discussions with other radio groups on our required divestitures. We have received a significant number of strong offers in the form of cash and trades for all of the proposed spinouts. We feel excellent about where we stand in the process.

Finally, as we have frequently noted, we believe radio is the country's most undervalued medium. It is remarkable that radio is #1 in the nation in reach, #1 in daytime usage, the least disruptive of any traditional medium and arguably #1 in return on investment, yet receives only a paltry 7% of ad spending. Meanwhile, hundreds of billions of dollars are spent on media that reach fewer people for shorter periods of time, charge more and deliver lower ROI. Radio has suffered from inaccurate perceptions that fail to grasp its vibrancy and effectiveness, and radio has suffered from a woefully insufficient industry advocacy effort. And as a result, radio punches well beneath its weight class.

With this merger, Entercom will have the scale and resources to compete more effectively with other competitive ad-based medium. We will emerge as a leading creator of live, original, local audio content, able to deliver advertisers the power of radio's local listener connections at a national scale. We strongly believe that with a second major voice advocating the power of radio and presenting customers with a compelling advertising alternative, we will help to enhance radio's perceptions and cause advertisers to give radio greater consideration for future advertising and marketing spending. This is particularly true as other media continue to wrestle with significant disruption and other challenges. Making radio a more viable and competitive choice for agencies and customers is a win for everyone.

The potential is clearly there for radio to be rediscovered by frustrated advertisers looking for ways to improve the efficiency and effectiveness of their buys by shifting the media mix a bit more towards radio. And this merger creates a catalyst for this to happen, and the opportunity is significant.

So in sum, we are very pleased with our progress in getting our deal completed and preparing to hit the ground running. We are in the process of building a best-in-class team that will work aggressively to capitalize on a number of scale-driven growth opportunities as well as significant synergies, and we cannot wait to get started.

With that, I'll turn it over to rich before we answer your questions.

Thanks, David, and good morning again, everyone. For the first quarter, our net revenues came in at $97.5 million, up 1.4% compared to $96.1 million in the prior year and benefit from the acquisition of 4 stations in Charlotte, North Carolina from Beasley, which closed on January 6. On a same-station basis, our first quarter net revenues were down about 1% ex political. Political dollars for the first quarter were about $300,000 versus about $1 million last year.

Our station operating costs for the quarter increased by $3.9 million or 5% to $75.4 million. Close to $3 million of this increase is attributable to our Charlotte acquisitions. Our same-station increase was only about 1%.

Our corporate expenses for the quarter were up $2.8 million year-over-year to $9.2 million, largely due to a couple of nonrecurring items. We expect our corporate expenses will fall back to about $7 million in the second quarter and range between $30 million and $32 million for the full year.

We incurred $10.3 million of M&A costs in the quarter related to the CBS transaction and expect to spend about another $4 million in the second quarter. As you likely saw, we filed our Form S-4 with the SEC on April 12 and our preliminary proxy statement related to the merger on April 19. These M&A expenses are not all tax-deductible, which is why you will see that our effective tax rate in the quarter jumped to 55.6%. Although this percent is eye-popping, please remember that Entercom has significant NOLs and is not currently a cash taxpayer.

This quarter, we also recorded a $13.5 million noncash loss related to the relinquishment of an FM license in Sacramento to the FCC in order to facilitate the CBS merger.

Looking at our balance sheet. Last fall, the company issued $480 million in new senior secured debt at L plus 3.50% with a 1% floor, which was used to redeem our existing unsecured notes and refinance our credit facility. We also put in place a new $60 million revolver. With the retirement of our notes plus this new pricing, we reduced our interest expense for the quarter by $3.4 million to $6 million, down from $9.4 million last year. We ended the quarter with approximately $458 million outstanding on our term loan and $7 million on our revolver. Our consolidated leverage at March 31, as defined under our credit agreement, was 4x compared to 3.7x at the end of last year.

Looking ahead, in anticipation of closing the CBS merger, Entercom and CBS tapped the credit markets in late February to secure committed financing to take out Entercom's existing credit facility and redeem the outstanding $27.5 million of preferred stock issued in conjunction with the company's Lincoln Financial acquisition in 2015. This committed term loan B will only be drawn upon the merger and will be issued at par and bears interest at L plus 2.75% with no floor. The 75 basis point reduction in the margin on this new loan will save the company close to $4 million per year in cash interest expense.

Our first quarter capital expenditures were $4.2 million, and we have several office and studio facility relocation projects underway this year, which will cause our capital expenditures to be higher than normal. For the full year, CapEx is expected to range between $14 million and $16 million.

With that, we'll now go to questions.

David, the first question is from Marci Ryvicker at Wells Fargo. She says, "At your last earnings call, ETM was pacing down 2% but reported down 1% to finish off the full quarter. What drove the acceleration in the second half of 1Q?"

I think we've gotten -- things have gotten incrementally a little bit better over the last couple of months. In fact, over that period of time, our second quarter, and you'll recall we noted that we're currently pacing down 2%, we had been pacing down 4% a couple of months ago. So again, I think incremental improvement due to our own efforts and possibly some improvement -- sequential improvement in business conditions.

From Aaron Watts of Deutsche Bank. "What were some of the drivers of weak performance, both for ETM and the industry in 1Q versus prior quarters?"

I think at this point in the earnings season, we've seen enough reports from companies across a wide range of industries and also economic data that shows that we were -- we have been in somewhat of a choppy economic environment. I think that, perhaps, some uncertainty from a regulatory standpoint may have contributed to that as well. In fact, I was visiting with some clients on the West Coast this week and had the opportunity to have a discussion about some major hospital chains on the West Coast that have been holding back spending as they await the outcome of changes in federal health care policy.

From Avi Steiner at JPMorgan. "How did the automotive category do for Entercom this quarter? And how is it pacing in 2Q?"

It's off a little bit. As you all know, auto is our largest category, but it's also worth putting it into some context. Radio benefits from having a highly diverse customer base. Automotive, in aggregate, represents somewhat of a mid-teens percentage of our business. And that includes both new cars, used cars, auto parts, auto service and so forth.

And that's mid-teens of spot?

Of spot, yes, of spot.

And Avi also asked, "How does the company think -- what does the company think is the right leverage profile in the radio space?" And Avi, we're targeting between 3.5% and 4%, about 4x. And we're at 4x now and expect to be about that by end of year '17. So we'll be in that range.

Now turning to a whole host of questions, David, about the CBS transaction. CBS was down 4.6% in 1Q. Are you concerned that your performance will continue to lag while this combination is still pending?

We're hopeful for some sequential improvement as we go through the year, but frankly, we're looking forward to these companies coming together. I think that you've heard us being nothing but optimistic. And frankly, the more we study, the more excited we are about this extraordinary lineup of some of the greatest, most iconic brands, some of the strongest personalities, very strong sales organization. So we're very optimistic about what this company does going forward from an operating standpoint as we take sort of best-in-breed in terms of the talent in the organization and the practices. So I think we need to distinguish between, perhaps, some speed bumps in the short run here versus what really matters going longer term, which is the substantive value created by this extraordinary strategic combination.

And during the quarter, you received a second request from DOJ regarding the merger. Can you shed any light on their concerns? Do you see this second request delaying the close? What's your thoughts as to timing?

Sure. So we expected the second request. And as for timing, we have always said we believe this is a second half 2017 event, although we're hopeful that this closes sometime in the third quarter. And that remains our thinking at this time. I'd add also that our divestiture plan, we think, is well within the norms of the historic expectation to the Justice Department. There's nothing heroic in there. And therefore, we are hopeful that we will not experience any significant delays in this process.

And just a few more on the merger coming from Avi Steiner at JPMorgan. "Does the merger with CBS allow the company to garner more national revenue or be more relevant for national radio buys?"

Short answer, yes. Look, we've talked about that quite a bit, and we'll talk about it a lot more. But having the scale, having the strategic footprint of the top 50 markets, having the lineup of brands and capabilities that we'll bring to the table, we think is game-changing. And I noted the addition of Mike Dee to the team. That's just one of a number of moves we'll be making over time to elevate our game and enable us to have conversations with customers at a level which we were not capable of doing previous to this merger. So we think it's game-changing in that regard. And also, as we talked about, we think it's a great thing for the radio industry to have a second company of scale to try to drive perceptions closer to the real true value of what radio represents today to a customer versus, perhaps, some outmoded perceptions that are unfortunate but should be corrected.

Final question. "How will digital play a role with the combined company and, with Entercom leveraged to larger platform, to launch a stand-alone digital offering akin to iHeart's offering?"

We're very excited about the opportunities in front of us in digital and events and a number of other areas. And again, I think this company has some enormous opportunities in front of it that we're excited about. As far as where we go, of course, we're not going to reveal strategy here in May. But there's no doubt that with our enhanced platform, it makes our strategic position that much stronger as it pertains to the possible moves we can make and the possible partnerships we can develop here as we move forward.

Well, thank you. And thank you, everyone, for joining our earnings call today. Bye-bye.

Thanks, all.

And that concludes today's conference call. Thank you all for participating. You may now disconnect .