Audacy, Inc.

Steve Fisher - EVP & CFO David Field - President & CEO

Thank you operator, and good morning everyone and welcome to Entercom Communications second quarter earnings conference call. We released our earnings this morning those are available on the wire and on our company website.

This call is being recorded, a reply will be on our company website shortly after the conclusion of today's call and 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 of this call.

In addition, I am always available for any questions you might have, if you would 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 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 and 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 and thanks for joining our second quarter earnings call.

I am very pleased to report that the Entercom team completed another quarter of terrific performance, our financial results were outstanding with strong gain of revenue growth, and significant margin expansion enabling us to post robust growth in EBITDA, earnings per share, and free cash flow. In addition, we continue to make great progress on a number of fronts to enhance our competitive position, grow our capabilities and bolster our future growth potential.

And we are optimistic about our business for the remainder of 2016 and on into the future. Turning to second quarter results net revenues were up 20% including the impact of our 2015 acquisitions.

But more meaningfully, on a same station basis net revenues were up 5%. Solid expense management enabled us to increase our station operating margins.

As a result adjusted EBITDA rose 21%, adjusted earnings per share increased 27%, and free cash flow increased 47%. In sum it was a great quarter.

What is particularly noteworthy is not just the magnitude of our growth, but its consistency. We have demonstrated our ability to generate solid growth quarter-after-quarter on a sustainable basis.

Taking a look back over our past 12 months through June 30, Entercom same station net revenues were up 5% and free cash flow increased 35%. And as you will hear in a few moments our pacing looks strong for the remainder of the year, and we are optimistic about our ability to continue to generate strong same station growth.

Here are some additional color on our second quarter results. All three months were positive with June being the strongest.

Local and national revenues were both up for the month, with local leading the way. In fact it is worth noting this was our fifth straight quarter of mid-single digit or better organic local revenue growth.

We grew our revenue market share significantly during the quarter. In fact only four of our 23 measured markets lost share during the quarter.

Our 5% growth compared to low single digit growth for our markets. Political revenues were under 1% of our quarterly sales.

As a result our same station revenues excluding political were up 4%. Our best performing markets during the fourth quarter were San Francisco, Denver, Miami, Kansas city and Indianapolis.

Our best performing categories were auto, entertainment, Restaurants and fast food and Professional services. And we continue to improve our balance sheet with leverage dipping below 4 times to 3.9 times as of June 30.

It's worth noting that are leverages declined from 4.6 times to below 4 times over the past year, notwithstanding the fact 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 to drive strong ratings performance.

And developing best-in-class marketing solutions for our customers, along with enhanced local sales execution and capabilities. I came across the country is doing an excellent job of executing our game plan and delivering results.

It's also worth noting that we close delinquent acquisition a year ago in the middle of July 2015. At the time we asserted that the transaction would be accretive in its first year, and not adversely impact our leverage.

I am pleased to report that a year later we have over delivered on our promises, as Lincoln stations are in fact accretive and as I previously mentioned we have lowered leverage from 4.6 times the 3.9 times since closing on the deal. And it's not just Entercom generating strong operating results; a number of our peers, large and small most notably IHAR [ph] which is of course the largest company in radio have posed consistently strong operating results, demonstrating radios great vitality.

Radio is a terrific business with a great business model. We reach more Americans than any other medium, and that number continues to grow as we currently reach an all-time record of 24 million Americans 12 in over.

And its other media continue to face significant secular challenges, Radios relative value proposition continues to grow. The opportunity for radio to increase its share of total ad spend is significant.

As you know, we launched our initial dividend last month. What is remarkable is that our current dividend represent only 16% - 16% of our trailing free cash flow.

This gives us plenty of headroom to consider future dividend increases, while continuing to invest in the business, pursue compelling growth opportunities, reduced debt and further enhance our strong balance sheet. We are also continuing to make progress in a number of other areas.

Our focus on great local branding content continues to pay off for us in the ratings as Entercom remains the leader in Nielsen ratings growth. And 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've added a number of new air personalities, most notably at star in Atlanta and of success - successfully rebranded two of our stations in Miami and San Diego. Since making those moves Star Atlanta has jumped from deep in the pact up to number three among women 25 to 54.

And the beach in Miami has grown for the middle the pact fourth in men. And Sunny in San Diego was similarly climbed to number four in women.

In addition, we are also accelerating our focus on programming innovation. Developing exclusive compelling content across our many markets.

In just the past few months we have developed exclusive programs with Chris Martin the Red Hot Chilli Peppers and Justin Timberlake. In our last earnings call we mentioned that we have entered into an agreement to become the new flagship radio broadcaster for the San Diego Padres beginning next year.

Since then we were delighted to announce that as partners with ESPN we are the new FM flagship station for the Los Angeles rams, as they make their historic return to southern California this fall. Turning the current business conditions.

Third quarter is pacing up 3% on the same station basis. It is worth noting the political advertising has not impacted Q3 yet, but we expect that's to grow in during August and September.

That is the usual pattern in political years. We are experiencing strong growth in the following categories; Financials, entertainment, groceries and TV cable.

While it is very early our bracing for the fourth quarter are very strong. Looking forward we expect a strong second half of the year, as we benefit from our excellent ratings performance, enhanced sales execution, multiple growth initiatives, and election year political revenue.

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.

And we offer our investors terrific value with our stock providing a 13% trailing free cash flow yield, along 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 a nice dip in it as well. With that I'll turn it over to Steve before we answer your questions.

That's great. And as David just covered, the Entercom team has delivered an outstanding quarter yet again.

Our brands and operating team continue to drive solid ratings and industry leading revenues leading the EBITDA and margin expansion, plus continued impressive free cash flow growth. Make a note that last week Entercom's Board of Directors announced our second dividend this year of $0.075 per share which will be payable to shareholders of record of August 15 payable on September 15.

And for your background information this dividend at the current run rate, represents about $12 million - $12 million annually and cash payments to shareholders. But is less than 16% of our free cash flow.

We continue to improve our already solid balance sheet, and we were pleased by the upgrade of our credit rating by Moody's in May which reflected positively on our progress. Now looking at a few financial highlights for our second quarter.

Our expense management coupled with revenue growth again drove station, margin expansion. We had a minimal increase in station operating expenses in our core stations and realized a mid-teens decrease in operating system in prior year's versus prior owners on the properties acquired last summer which reflects our operational restructuring initiatives on those new acquisitions.

Collectively our stations broadcast cash flow margins increased almost a point over prior year. Our corporate G&A expense in the quarter was $7.3 million which was consistent with my prior guidance to you on our last call and included a onetime bonus payment on our CEO's new contract.

I expect third and fourth quarter G&A to be about $6.5 million per quarter. Non-cash compensation expense was $1.5 million and expect the next two quarters to be about $1.6 million per quarter.

Net interest expense for the second quarter was $9.1 million. This amount benefitted from a minor onetime adjustment so I believe we will report a similar net interest expense for the third quarter.

In addition to net interest expense we also have our dividend on the $27.5 million convertible preferred by held by Lincoln Financial Group. This expense was $400,000 in the second quarter.

I would note for your models our rate increases this quarter so I would model about $550,000 per quarter in future quarters. However, this instrument is callable by us in whole or in part and we are likely to retire this paper sometime in the coming 12 months.

Our depreciation and amortization of $12.5 million represents a good run-rates through your model for the remainder of the year. The quarter's GAAP book tax rate was about 41%.

Looking forward we believe our GAAP book tax-rate should be about 40% but is always subject to fluctuations due to discreet period adjustments. And 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 taxes nor expect to for quite a few years.

Turning to the balance sheet we finished the quarter with net debt, net of cash of approximately $454 million. This resulted in leverage on June 30 on 3.9 times as defined in our credit agreement.

For your background, our second quarter debt reduction is always lower due to the timing of our semi-annual bond interest payments and working capital seasonality coming off the seasonally lower first quarter net sales levels. We expect to see a larger sequential reduction of our net debt and our leverage ratio in our second half of the year.

Our current thinking on capital expenditures on the full year is $7 million to $8 million so depending on the timing of these projects in coming months, we would expect to be in the ballpark of $2.5 million to $3 million per quarter for capital expenditures in the second half of the year. Besides industry leading ratings and revenue growth another key part of the intercom story is our outstanding free cash flow generation.

This quarter's free cash flow was up almost 50% versus last year building on the first quarter's free cash flow which doubled and our trailing 12 months free cash flow has grown to a $1.86 per share representing an attractive increase in just the past 6 months from our 2015 annual free cash flow per share of $1.56. And that great free cash flow comes in spite of some expensive 10.5% notes placed years ago during a period of credit market turmoil.

We have pointed out to you in the past that our unsecured notes called premium steps down by several million dollars this fall. An amount that factors not our thinking as we consider the trade-off of refinancing now for reduced interest rates versus the overall upfront cost of replacing some or all of our existing credit facilities.

Also, as we continue to de-lever over the remainder of the year, our reduced leverage should open up additional favorable financing options for the benefit of the shareholders. And any refinancing should and will potentially provide a significant step down increase, step increase in our free cash flow generation story.

So as you just heard from David, this quarter again built on our great operational results over the past year. While it's been a great start to the year, we are just as excited about the second half, continuing to build on our successes, strong brands, industry leading organic revenue growth and sales performance coupled with solid expense management.

We have a great business model that provides outstanding free cash flow which is growing a quarterly dividend rewarding shareholders and the benefit of our significant NOL's to shield future earnings plus the potential of a future reduction in cash interest expense. All this coupled with high insider stock ownership makes Entercom an attractive platform for both debt and equity investors.

So with that David, we will go to questions which came in advance which are quite a few. I will start maybe with some more operational and conclude with balance sheet oriented.

From Mike Kupinski at Noble Financial. He asked for data points on political in the quarter and our outlook.

And David why don't I give the data point for political and why don't you handle the outlook? For those of you modelling in your notes, second quarter political was about $1 million.

That compares to second quarter 2015 of about $300,000. Just a data point that's about $1.8 million in political over the first half of the year.

So, once again in conclusion if anyone has any questions, you can give me a call, Steve Fisher, CFO, 610-660-5647.

And thanks all, I appreciate your time this morning and we'll look forward to reporting back to everybody in three months. Thanks.