Audacy Inc (AUD) 2020 Q2 法說會逐字稿

Good morning, and welcome to Entercom's Second Quarter 2020 Earnings Release Conference Call. (Operator Instructions) This conference is being recorded. I would like to introduce your first speaker for today's call, Mr. Richard Schmaeling, CFO and Executive Vice President. Sir, you may begin.

Thank you, Catherine. Welcome to Entercom's Second Quarter 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 number noted in our release.

During this call, the company may make forward-looking statements, which are based upon the company's current expectations and involve risks and uncertainties. The company's actual results could differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause actual results to differ materially are described in the Risk Factors section of the company's annual report on Form 10-K, as such risks and uncertainties may be updated from time to time in the company's SEC filings. We assume no obligation to update any forward-looking statements, except as may be required by law.

During this call, we may refer to certain non-GAAP financial measures. We refer you to the Investors page of our website at entercom.com for reconciliations of such measures and other pro forma financial information.

With that, I'll hand it to David Field, our CEO.

Thanks, Rich. Good morning, everyone. Thanks for joining our earnings call today. The second quarter of 2020 will certainly be remembered as an extremely challenging period in our nation's history. Last week's announcement that GDP dropped a breathtaking 33% during the quarter was a powerful illustration of the impact of the pandemic, which brought many sectors of our economy to a screeching halt.

Confronting this unprecedented national emergency as it emerged in March, our priorities as a company were clear. First, protect the health, safety and wellbeing of our team and their families. Second, ensure the continuity of our business operations as we rapidly converted to remote operations. Third, ensure that our stations rose to the challenge and continue to seamlessly deliver the critical news, information, companionship, comfort and escape that our listeners depend upon.

Fourth, work tirelessly to help our customers respond to the devastating impact of COVID-19, which forced so many of them to shut down temporarily or radically alter their business models. That, in turn, caused thousands of our customers to cancel, curtail or postpone their advertising as their businesses stopped functioning. And fifth, mitigate the impact of the business slowdown by enacting extensive cuts in spending without damaging how we serve our audiences or customers.

We're successful in achieving each of these goals, which is a wonderful reflection of the dedicated outstanding team we have at Entercom all across the country who have stepped up and executed under the extremely trying circumstances.

Nonetheless, we were still enormously impacted by the economic devastation of COVID during the second quarter. After starting the year growing nicely, with first quarter revenues running 7% ahead of last year and EBITDA up significant -- double digits, sorry, the pandemic caused many of our customers to cut their ad spending. And because we're far and away the larger sports radio business, we were also significantly impacted by the cancellation of sporting events.

All in, second quarter revenues were down 54%, primarily attributable to lower broadcast advertising revenues. Excluding the impact of canceled sports play-by-play, second quarter revenues declined 47%.

There were a handful of positive stories during the quarter. Digital revenues, which includes podcasting, were up double digits; and our Entercom Audio Network also managed to post positive growth. And notwithstanding our high concentration in sports and events, we were still able to outperform our markets during the quarter according to Miller Kaplan.

The challenges of the pandemic led us to accelerate our ongoing transformation initiatives with a heightened focus on enhancing our business model and implementing expense savings to mitigate the pandemic's impact on revenues.

Through a series of company-wide actions, we successfully lowered second quarter total cash operating expenses by $97 million, which exceeded our target. And we are continuing our work to reduce our expenses well below 2019 levels. April was the bottom of the trough from a revenue standpoint, with significant sequential revenue improvement each month through second quarter and extending forward through the fall. In fact, we returned to positive EBITDA in June.

Currently, our third quarter revenues are $60 million, 6-0, stronger than where we finished Q2. In other words, we currently have $235 million of business on the books for third quarter versus the $175 million where we finished second quarter. The vast majority of the improvement in third quarter is from our core local and national spot business. We would expect to build on that number over the remaining 2 months of the quarter.

We have also begun to see the return of sports gambling revenues as games resume and are well positioned to participate meaningfully in this dynamic and fast growing market due to the unrivaled strength of our local sports radio brands across the country's largest markets.

In addition, we expect to see record-breaking political spending as we get closer to the election. And we are encouraged by the growing number of advertisers, large and small, who have shared their intent to ramp up their marketing spending as they look forward to reestablishing and reviving their businesses.

On our last call, we noted that the company was well positioned financially for the pandemic, with no material debt payments due until late 2024 and $189 million of cash on hand. During second quarter, we actually improved our cash position to $208 million as of June 30. In addition, we recently announced an amendment of our credit facility to modify our maintenance covenant through the end of 2021. We remain confident that our liquidity is sufficient to meet all of our financial and operating requirements.

2020 has become a year of meaningful transformation for our company. We are hard at work on a number of permanent business model enhancements, targeted growth initiatives and operational improvements that we expect will help accelerate our performance while enhancing our ability to serve our listeners and customers.

For example, we have substantially reduced the staffing and scope of our in-house promotions departments. And we'll be discontinuing some of the legacy promotional practices, which have diminishing value, given the rapid evolution of our digital, social and other technological capabilities in recent years. Similarly, we will be significantly reducing the size of our office and studio facilities in the future, as we have learned during recent months that we can operate at a highly effective level with modified work practices and reduced workspaces.

For context, we spent approximately $70 million, 7-0, on office rent and occupancy costs in 2019. These are just 2 of a number of improvements we will be implementing that we expect to significantly enhance our organizational effectiveness and financial performance going forward.

On our last earnings call, I spent a couple of minutes sharing context of Entercom's fundamental transformation over the past few years. Through acquisitions of CBS Radio and more recently, Cadence13 and Pineapple Street Media in podcasting just within the past year, and the launch of the RADIO.COM digital platform and the Entercom Audio Network and our significant investments in data analytics and attribution, Entercom is now a scaled media and entertainment company with a leadership position in virtually every segment of audio, including broadcast radio, podcasting, digital, music, news, network, sports and live events.

Entercom is one of the country's 2 largest podcasting publishers. And RADIO.COM is the fastest-growing digital audio platform in the U.S., and our broadcast radio group is second to none in the top 50 markets. And in addition, we are the country's #1 home for premium original audio content. And we are only in the beginning of pulling all this together and capitalizing on our new enhanced capabilities.

We made strong progress in advancing each of our platforms during second quarter. Starting with our podcasting business, we continue to focus on premium content offerings and have distinguished ourselves by the large number of high-quality hits in our portfolio. In fact, for the past 5 months, we have had more shows on the Triton chart of the top 100 podcast in America than any other company. Our podcasts are now reaching 26 million monthly unique listeners, with a product lineup that includes chart-topping influencers like Dr. Brené Brown, Andrew Yang, YouTube sensation Dávid Dobrík, Malcolm Gladwell, Pod Save America, among many others, along with a number of original hit series.

And our podcast lineup continues to blossom with a robust growing pipeline of major new original releases, along with powerful celebrities joining our team in recent weeks. For example, this past week, J.J. Redick announced that his popular podcast will be jumping to our platform. In addition, yesterday, Kevin Durant announced that he will be launching his podcast with us. Along with CJ McCollum, who's already on our podcast team, this will give us the best and most influential group of current NBA player podcast.

We also have upcoming new history projects with Doris Kearns Goodwin and Jon Meacham back for a second project with us. We will be launching our first C13 features film release, a new show with Charlie, the #1 TikTok star and influencer and her sister Dixie and some great new original series among many others still unannounced.

As you know, SiriusXM recently announced the acquisition of Stitcher and Midroll, Scripps' podcasting business for $325 million. We noted that with interest, as our own podcasting business is roughly equivalent in size and have a very similar makeup to Stitcher and Midroll. As you know, we acquired that business in 2 separate deals for Cadence13 and Pineapple Street Studios with just under $50 million less than a year ago. Because podcasting is such a new component of our business, we believe investors will overlook that substantial strategic enhancement and value creation.

We continue to be very excited about the opportunities in the podcasting space and the powerful symbiotic benefits of the combination between podcasting and broadcast radio, particularly spoken word broadcast radio where we excel. The opportunities to work across audio platforms to drive listenership, launch new products, repurpose content and capitalize on integrated sales and marketing programs for customers are highly attractive.

Turning to RADIO.COM. It continues to be the fastest growing digital audio platform in the country and now delivers over 40 million users, excluding podcasting. Total listening hours on RADIO.COM grew 16%, 1-6, in Q2 despite the near total absence of sports, an important part of our product mix. This continues a 12-month trend in which we have grown total listening hours by double digits in every month, the only publisher in the country to do so.

In addition, our smart speaker usage was up 92% in the second quarter. We are also continuing to enhance our RADIO.COM product offerings, bringing new and exclusive content to our audiences. In second quarter, we featured exclusive live experiences on the RADIO.COM platform with artists including Justin Bieber, Tim McGraw, Katy Perry, Cardi B, Cage the Elephant, Machine Gun Kelly, Toby Keith, Twenty One Pilots, Youngblood and The Killers.

We also announced new strategic relationships with Twitch, Sonos and SoundHound. And in addition, we have an active pipeline of new distribution deals under development across connected devices in automotive that will include in-dash native applications.

And finally, our broadcast stations continue to do an outstanding job serving the public during these challenging times. Broadcast radio is the country's #1 reach medium and hundreds of millions of Americans rely on it for news, information, music, sports, entertainment, companionship invested.

Radio listening has recovered strongly since the stay-at-home orders disrupted consumption patterns at the beginning of the pandemic and is now approaching pre-COVID levels. Total industry 25- to 54-year-old adult radio listenership is up roughly 25% since the April bottom. And I am pleased to note that Entercom station listenership is up 33% over the same period.

In addition, we are seeing music station ratings bounced back over the past couple of months as the nation has resumed to somewhat greater degree of normalcy. In just the last month, for example, total radio adult contemporary listening is up 15%, 1-5; alternative is up 8%; and country is up 6%. These strong radio listenership trends demonstrate the medium's resilience and importance to the American public in the midst of this most unusual of years.

In closing, while we are still running well behind last year, we are pleased by the significant progress we are making across our business since the lows of April and remain laser-focused on navigating through these challenging times and getting back to prior year levels as quickly as possible.

As difficult as the past few months have been for our nation, we are excited and inspired by where we are headed and where we will come out on the other side of this. COVID-19 has, in certain respects, made a smarter and accelerated change across our organization. We look forward to capitalizing on both the growth opportunities and business model enhancements we have enabled through our very recent strategic transformation into a scaled multi-platform audio leader with outstanding original premium content.

Once again, I want to express my appreciation for our team for their outstanding dedication and versatility in meeting the challenges of 2020 and stepping up to serve our listeners, customers, partners and communities so capably. And with that, I'll turn it over to Rich.

Mr. Schmaeling, your line is open. You may go ahead and speak at this time.

Have we lost Rich?

No, David, you lost. Excuse me, I was on mute. It sounded great too, by the way. Well, thanks, David. Good morning, everyone.

As discussed by David, after a strong start to the year, we experienced a sharp downturn in revenues during March and the extent of this decline was even more severe in April. For the second quarter, our revenues were down 54% year-over-year and were down 47%, excluding the impact of lost play-by-play revenues due to the absence of live sports. Many of the businesses of our local and national clients were highly disrupted by COVID-19. And as a result, a large number of our accounts either stopped advertising or significantly reduced their spending.

For perspective, focusing on local, we typically have about 8,500 accounts on-air in a given month. And the top 2,000 accounts in June of last year accounted for over 70% of our local revenues. This June, more than 50% of those top accounts were off-the-air.

When you delve into the account-by-account details, you see that the top industry categories that these accounts are part of include Tier 2 and 3 automotive, concerts and live events, amusement parks, sports, casinos and fast food, none of which is particularly surprising, given the impact in the second quarter of COVID-19. We are seeing, and we expect that a good portion of these accounts will resume advertising during the second half of this year and others, like large concert promoters, likely won't be back in full until we once again can safely come together in crowds.

When we analyze such industry categories that remain highly disrupted like travel, airlines, movie theaters, live events, they make up about 10% of our prior year local spot revenues. While for national spot, this same percent is about 3%. We believe these accounts will be back on-the-air, it is just likely going to take some time.

On the other hand, the good news is that in June, as compared to June of last year, we had hundreds of new local accounts on the air across many different industry categories and they will be a source of growth as the recovery gains some steam.

Looking at our second quarter revenues by type. Our core spot revenues, local plus national, were down about 65% for the quarter. Our events business, which usually accounts for about 3% of our second quarter revenues, was down close to 100%. And our digital revenues, which includes podcasting, accounted for 24% of our total revenues in the quarter and were up 19% year-over-year. We did see sequential improvement in our monthly revenue performance during the second quarter, and we see the same pattern of improvement in our actual performance for July and in our pacing data for August and September.

Currently, the third quarter is pacing down in the low 30s. July came in down 36%. August is pacing down low 30s. And September is pacing down mid-20s. Political revenues are starting to pick up, and we anticipate that for the third quarter that they will total about $7 million versus less than $2 million in the prior year.

Our total operating expenses for the second quarter came in at $221.1 million and include $4.9 million of restructuring costs and a $4.2 million noncash impairment charge. We also recorded a onetime benefit for $4 million associated with settling an FCC matter without the financial penalty and a charge of $5.4 million for cost related to COVID-19. Excluding these onetime and unusual costs and adjusting out noncash items like D&A, our total cash operating expenses came in at $195.9 million, were down $97.2 million or 33% year-over-year on an as-reported basis and were down $111.6 million or 36% pro forma for our second half 2019 podcasting acquisitions.

For the third quarter, with the resumption of live sports and the discontinuance of some of our temporary cost-reduction actions, our year-over-year cost reductions will be more moderate. On an as-reported basis for the quarter, we expect our costs will be down in percentage terms by around mid-teens. And in the fourth quarter, given the cancellation of the normally heavy holiday live event season, we currently project that our costs will be down high teens to low 20s.

We continue to work on improvements to our business model that will generate permanent savings while enhancing how we serve our listeners and customers. Many of these actions have already been implemented, and we expect to be in a position to provide more specificity about the outlook for our expense base in 2021 during our third quarter earnings call.

Turning to our financial position and liquidity. Our cash position at June 30 was $208 million, up from $189 million at the end of March. This increase was significantly driven by a reduction in working capital, which we will start investing back during the third quarter as our revenues begin to recover. We have paid about $1.3 million in income taxes June year-to-date and now expect to pay less than $3 million further rest of year.

Our net capital expenditures totaled $6.3 million in the second quarter, and consistent with our previous guidance, are expected to total between $25 million to $30 million for this year. Adding up the second quarter decreases year-over-year in our capital expenditures, cash taxes and from the suspension of our dividend, we've reduced our cash outlays for these items by $31 million or down 83% year-over-year.

Given the severity of the downturn and the tempered expectations for a rapid recovery, the company sought and executed an amendment to its first-lien maintenance covenant on July 20. This amendment, among other things, provides for a covenant holiday for the quarters ended September 30, 2020, and December 31, 2020. It replaces actual 2020 EBITDA with the prior year amounts for 2Q through 4Q in determining LTM EBITDA. It increases the interest rate applicable to our revolver by 25 basis points and adds a new minimum liquidity covenant for our combined cash and undrawn revolver of $75 million.

These amendment provisions fall away by the end of 2021. And now that the banking system is stable and we have executed this amendment, the company intends to use most of its cash on hand to pay down its outstanding revolver, which we fully drew back in March. And thus, we don't anticipate that the 25 basis point increase in our revolver margin will add up to much in terms of incremental cash interest expense.

With that, we'll now go to your questions. Operator?

(Operator Instructions) The first question is coming from Steven Cahall of Wells Fargo.

Thanks for all the color and the pacings. Just wondering, as we think about your outlook on pacings and you've been pretty aggressive on cost, how do you want us to think about either EBITDA or free cash flow inflecting back to positive? Is that something you think we'll see in the back half of the year?

Rich, you want to get that?

Sure. Yes. So I'll say yes, assuming we don't have a second wave, assuming we don't lock down again. So if things are the way it looks today, we see a consistent improvement trend in our revenue month-over-month. You've seen that from the lows of April. At least now through September, we're seeing significant sequential improvement. David mentioned in his remarks that we were -- we returned to EBITDA profitability in June. We expect given that trend and the improving revenues to be EBITDA-profitable for the third quarter and rest of year and to generate free cash flow, I'll say, excluding consideration of the working capital, which I stated, we will be investing back in receivables in particular as revenues recover.

Great. And then just one on podcasting. I was wondering how you think about licensing some of your podcast content on an exclusive basis. And if you've had any conversations with some of the major distributors like Apple or Spotify? And would you be willing to kind of limit distribution to some of those key distributors if they get into like a content war with each other and are paying big amounts for something like that?

So we're really excited about the caliber of the creative teams that we have across both Cadence13 and Pineapple Street. We did do a licensing deal earlier this year. Wind of Change, which was one of the top podcast hits of the past year, was created by us, but in a partnership with Spotify, and they were given an exclusive window in the early days. So we have done a deal like that. And look, we're going to continue to grow and capitalize on our position as a podcast publisher and are open to thinking, I think, with a broad mindset in terms of what's going to be the best set of opportunities for us to capitalize on this space, working across platform with other players.

And then just last one. As the pacings have improved sequentially, is there any particular industries that have really driven that inflection? I'm wondering if it's auto or restaurants, they just really shut down in April and May, and you've started to see come back.

I don't think there's any one category, but I think you're seeing an evolution in our country. And obviously, our nation is not where we want it to be or where it will be in several months. But we are certainly seeing progress and return towards normalcy in certain segments. You mentioned auto, and that is certainly one area, which has gone from a time in which many dealerships were literally closed and where supply chain issues were massive, to an industry that is in much better shape and performing better than I think some had perhaps feared. So you're seeing progress there. Certainly, we're seeing progress on the sports side as we see that part of the economy opening to an extent. And so -- and we're seeing it across others as well. So I would say, again, it fits into the general theme of progress and improvement, but we have a ways to go.

And the next question is coming from Se Kim of Wolfe.

It sounds like you guys are structurally rightsizing a lot on the cost side. And as we think about 2021, I was wondering how much of the savings you called out today is permanent versus temporary?

Yes. So Se, I commented in my remarks that we'll be prepared to provide further specificity about our 2021 cost base during our third quarter call. There's a lot of work going on internally. A lot's been done already. And we do expect that our cost base in 2021 will be meaningfully less than our 2019 actual cost base pro forma for our podcasting acquisitions. And so I'll be somewhat ambiguous at the moment and say it's meaningful, but we'll add greater specificity on our third quarter call.

Got it. And it seems increasingly likely that the MLB may not finish its season. Can you remind me what your exposure to baseball is as a percentage of revenue and within sports?

Let me just disagree respectfully with your stipulation. We'll see what happens. But certainly, we're hopeful that the season will continue. Let me also just remind everyone that we have a -- to the extent that games are canceled, we do have full prorated adjustments. And because of the nature of that facet of our business, we have no EBITDA exposure due to the cancellations of baseball games, if that should happen going forward.

The next question is coming from John Ellis, Palmer Square Capital Management.

A couple of my questions have already been answered, but I do have one last going on the sports theme. With the high level of uncertainty going forward with live sports, especially the NFL this year, have you had any increased conversations about what broadcasting rights are going to look like? I imagine viewership is going to -- and listenership is going to be up significantly year-over-year with social distancing measures around the country at different levels and quarantines and such like that. So have you had any increased conversations with these sports leagues?

I'm sorry, I'm not sure I'm understanding the question. We're obviously in constant communication with our affiliated teams and as well with the leagues. We are certainly hopeful that what you're saying proves true. And certainly, the early indications are that baseball, hockey and basketball have had strong interest in the early days. But I'm not sure I understand your question.

I guess you guys expect to get higher bump this year if the NFL happens because people are at home and listening instead of going to the games and whatnot?

I see. Well, no. The -- so the reality of our model is that the economics are locked in for the season. So whatever advertising we're going to sell in advance would be -- there's no variable on that relative to what the actual ratings are. And so we would see no impact on that. And to the extent that ratings proved higher than normal this year, I guess the question is, would we be able to monetize that going into next season. And I suspect, candidly, that our advertisers would look at that and say, gee, that was a bump related to COVID and the unique nature of the year and it will return to normal next year. So I would not anticipate any sort of persistent benefit from any such short-term bumping, that is.

How far in advance do you guys negotiate those contracts typically?

Yes. Our rights agreements tend to be 3 years to max of, let's call it, 7 years. And I'll anticipate another question. We actually do not see any inflationary pressures. To the contrary, we see that the likelihood is that over time, we'll see the compensation for those rates deals in the -- on the audio side coming down going forward.

The next question is coming from Craig Huber, Huber Research Partners.

What was your political ad revenue in the quarter, please? And I also wanted to ask what was the podcast revenue, just if we could give us a better sense of the revenues did overall?

Yes. So we haven't broken out podcast separately from digital. We did report that our digital revenues were up 19% year-over-year. And the political revenues in the second quarter were really quite small, less than $1 million.

Okay. What is your take -- and this is not meant to be a derogatory question at all, but what is your guys' take on why radio advertising in the second quarter was down 50%, give or take, (inaudible) versus television down -- local TV stations down about 35%? I mean, obviously, your CPMs are much lower costs more generally to put a TV ad out there versus in total versus radio. What's your take on why radio saw a bigger hit than local television in this last quarter?

Yes. It's a fair question. I think there are probably 2 primary reasons for that. Number one is that our businesses tend to lean a little more into small- to medium-sized businesses and the nature of our customer base is such that our customers, by and large, were more impacted by the shutdowns and the disruption that has been obviously widespread across our society today. With that said, we also obviously participate in large national businesses as well. And those companies, the rate of decline was considerably less. So it really is concentrated in some of those industry categories and businesses that tend to skew more towards radio than towards other media.

I think the second factor, which is sort of a 2-edged sword is that we're a very nimble medium. It's easy to get in, and it's easy to get out. And if you think about how quickly you can put together a radio ad or cancel a radio campaign or maneuver, it makes it easier to cut us when things are falling. But I also think it makes us more appealing as things would cover the opportunity to be able to quickly get on the air with a message without having to go through elaborate production, time and expense in a rapidly evolving world.

And then also, your comment in your press release, with third quarter business on the books already 30% greater than where the second quarter finished, just can you just explain a little bit further, so I understand exactly what you mean by that comment?

So we finished Q2 and obviously reported today approximately $175 million in revenues for the second quarter. As we sit here today, we have business on the books for third quarter of $235 million. So therefore, we are currently $60 million ahead of last quarter. And then to the extent that we're able to add more business going forward, we certainly expect to do, we would be able to build on that.

At this time, we have no further questions in queue. I'll now turn it back to the speakers for closing comments.

We appreciate everybody joining us here this morning. Obviously, difficult times for our nation, but we are encouraged about where we are and where we're headed. And we look forward to reporting back to everyone here next quarter. So thank you all very much. Be safe.

Thank you. Bye-bye.

This will conclude today's conference. All parties may disconnect at this time.