Audacy, Inc.

Steve Fisher - EVP & Chief Financial Officer David Field - President & Chief Executive Officer

Thank you, operator and good Monday morning to everyone. I would like to welcome you to Entercom Communications earnings conference call.

This call is being recorded, a reply will be on our company Web site shortly after the conclusion of today's call and also available by telephone at the replay number noted in our earnings release this morning. With our notice of today's call, we asked that you submit your questions in advance of the call.

In addition, I am always available for any follow up questions 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.

We refer you to our Web site at entercom.com for a reconciliation of such measures and other pro forma financial information. With that, I would like to turn the call over to David Field, President and Chief Executive Officer.

Thanks, Steve. Good morning, everybody.

Thanks for joining our third quarter earnings call. I am very pleased to report that Entercom delivered another strong quarter of performance.

Our operating team once again produced meaningful organic top line growth and margin expansion, enabling us to post solid growth in all bottom line metrics including EBITDA, earnings per share and free cash flow. I am also very pleased with the progress we have made in a number of areas to create significant value for shareholders and enhance our future growth.

Most notably, we just completed a very significant refinancing of our outstanding debt and announced a terrific acquisition in Charlotte. Steve and I will provide some additional color on those announcements as well as a number of other recent events.

But, first, I would like to share some of the highlights from your third quarter financial results. On a same station basis, net revenues were up 3%.

Solid expense management enabled us to increase our station operating margins from 29% to 31%, and we increased both adjusted EBITDA and adjusted EPS by 8%. Diving deeper into our third quarter results, here is some other insights.

After a slow July, August was the strongest month of the quarter followed by a solid September. Local, political and digital were all up while national revenues were off a bit.

Excluding political, our same station revenues were up 2%. Once again we grew our revenue market share significantly during the quarter.

In fact, only six of our 23 measured markets lost revenue share during the quarter. Our best performing markets were San Francisco, Denver, Miami, San Diego and Indianapolis.

Our best-performing categories were financial, grocery, home furnishings and entertainment. Stepping back to look at the big picture, 2016 marks the second straight year of strong organic revenue and cash flow growth in Entercom after a solid 2015.

While of course we don't have Q4 results yet, for the first three quarters of 2016 Entercom's same station net revenues are up 4%, EBITDA is up 16% and free cash flow is up 34%. I want to give a shout out to our entire operating management team for their excellent performance, led by, Weezie Kramer, our COO, as well as Pat Paxton, our President of Programming, Michael Doyle, our Regional President and Deborah Kane, our President of Sales.

They lead an outstanding and talented team of leaders across the country, delivering great results. Beyond our operating performance, we are also very pleased with our progress in a number of other areas.

Last week we announced a very successful refinancing of our debt. Under the new facility, we will reduce our effective interest rate by roughly 270 basis points, enabling us to save over $11 million per year in interest expense.

Savings will boost our free cash flow by close to $0.30 per share. It is also worth noting that the savings alone will essentially cover the cost of our current shareholder dividends.

And with arguably the industry's strongest balance sheet, we are well positioned for the future. We are also excited with the new acquisition in Charlotte, which we announced last month.

The deal satisfies the acquisition criteria which we have applied consistently and with great discipline over the years. It fits strategically, adding another strong top 25 market to our lineup.

It is accretive to shareholders and it does not materially impact our strong balance sheet. We really like the position we have in Charlotte with three important local brands, including WBT, the market's news talk leader and the home of the Carolina Panthers.

The Link, a strong adult contemporary station, and the home of the syndicated Bob and Sheri program, and The Fan, the market's leading sport station and the home of the Charlotte Hornets. We believe there are some interesting synergies and development on our upside at these stations and expect solid results going forward.

Turning to our other markets. A focus on great local brands and content continue to pay off for us in the ratings.

Our latest ratings results include particularly strong results in Atlanta, Greensborough, Kansas City and Sacramento. And we are continuously looking for ways to bolster our programming and grow our audiences and deepen their engagement.

We are also very excited about the future opportunities for accelerated growth in the highly undervalued radio industry. Radio reaches 240 million Americans 12 and over, weekly.

More than any other medium and also delivers outstanding return on investment, superior to competitive media. And according to the recent Edison media Share of Ear study, radio listening trends remain strong and stable.

By comparison, other media are facing significant disruptive secular challenges that diminish their relative value propositions. The opportunity for radio to increase its share of total ad spend is significant.

Turning to current business conditions. Fourth quarter is pacing up 3% on a same station basis.

With the election now upon us, we can say that our political revenues were somewhat disappointing as they came in a little lighter than we would hope for. That said, we have also seen some non-political advertisers hold back their spending in the midst of the contentious political season which has had a small dampening impact on our fourth quarter growth.

In sum, this was another terrific quarter of progress for Entercom. Strong organic topline and bottom line growth, an excellent accretive acquisition in Charlotte, a very successful refinancing that cuts our interest expenses by over $11 million per year and increases free cash flow by almost $0.30 per share, and a powerful foundation of strong local brands, content, digital events and value creating opportunities to drive our growth going forward.

We are excited about our prospects and think we are well positioned for the future. Pro forma for the new financing our 12-months trailing free cash flow is now over $2 per share.

We offer our investors terrific value with our strong providing a 16% trailing free cash flow yield along with a great balance sheet and strong organic growth. All of that and a nice dividend as well, that represents less than 15% of our free cash flow.

With that, I will turn it over to Steve before we answer your questions.

Great. Well, as you just heard, it was really a busy quarter with much accomplished at our brands and within our portfolio and now also accomplished with our balance sheet.

Before I go the results of the third quarter, let me first cover our recent refinancing which we announced last week. In short, it was a great result of the company and its stakeholders.

I will highlight a few of the key terms but you may also reference the full details in an 8-K that we filed with the SEC on November 2. In summary, we refinanced all our debt and started the process to call back our high yield notes in a few weeks.

We issued $480 million in new senior secured debt which replaced all our prior senior and junior debt. This facility has a maturity of 7 years or way out in 2023 and it has an interest rate of LIBOR plus 350 basis points with 1% floor minimum.

We also put in place a new $60 million revolver which carries a similar interest rate. This revolver is undrawn so it's fully available to the company.

On November 1, when we closed on the financing, we also issued a required 30-day notice to call or redeem our 220 million of expensive 10.5% high yield notes. That call will be effective on December 1 at which time these notes will be retired along with the payment of a call premium payment.

So after all the moving pieces, we will save well over $10 million in annual cash interest expense and realize a nice boost in future free cash flow. As David noted earlier, on a trailing basis, that interest savings would have resulted in pro forma free cash flow of over $2 per share.

We decided to leave in place for now the 27 million of perpetual convertible preferred. And that’s just for now.

As I have mentioned in the past, this is a very flexible facility for the company. We are likely to retire this paper by mid-year 2017 using cash from operations and our revolver which will further improve future free cash flow [when] [ph] accomplished.

David just gave you some color on our new Charlotte stations. Let me give you some additional data on the deal as it relates to our financial statements.

We started operating the former Greater Media news talk and music stations on November 1, under a time brokerage agreement. We will pay a TBA fee of about $210,000 per month until the deal receives FCC approval and we close.

This TBA rate could increase in 2017. For the Charlotte Beasley sports station, we plan to begin operations for this station on January 1 under a separate TBA agreement and unless we receive FCC approval and close prior to then.

When we close on all the stations, we will pay $24 million which we will fund with cash holdings or a portion of our revolver. With the TBA commencing on some of the Charlotte stations in November 1 or last week, we have now assumed sales and operations and will report these stations operating results in the quarter for this stub period.

As noted earlier, we plan to assume operations on the sports station by January 1. Now looking at a few financial highlights in the third quarter.

Our expense management coupled with the revenue growth David articulated, again drove significant operating results in the quarter. Last year, our LFM acquisition closed July 17, so there is a small pro forma revenue and operating expense adjustment of those few weeks' results last year as compared to the quarter this year.

As a result, our pro forma revenue growth was 3% versus a reported gain of 5%. Once again, we demonstrated outstanding cost management to a company, our leading revenue performance.

For the quarter we had a modest decrease, a reduction in our core stations operating expense coupled with a low single digit decrease in our new properties, building on the more significant cost actions taken last year in those new acquisitions. As a result, our stations' BCF margins increased by 200 basis points over the prior year.

Our corporate G&A expense in the quarter was $7.5 million, which was higher than our expected normal run rate. There were a few onetime items and projects as well as a well deserved company meeting for our general managers and program directors this quarter to recognize and celebrate their outstanding contributions and achievements.

I expect fourth quarter corporate G&A to be about $7 million. Non-cash compensation expense was $1.6 million and I expect the same for the fourth quarter.

Net interest expense for the third quarter was $9 million but that’s now irrelevant in thinking about the future. Here is how we see the near-term future interest expense as a result of the refinancing.

For the fourth quarter, we will have several unique items which mask the overall benefit from the financing. We closed on the new facility in November 1 and have place funds in escrow for the upcoming December 1 call of our high yield notes.

So on a fact, we have double interest for this 30-day period on that $220 million. And we have a call premium of over $5 million on the notes which we will be recognizing in the fourth quarter as additional interest expense.

As a result of interest on the debt and the call premium, I expect we will have about $15 million in reported interest expense in the fourth quarter of this year. In addition, we have an additional item in the fourth quarter which is related to the retirement of our old debt facilities.

We will record a non-cash item of about $5 million in a separate line item called debt extinguishment expense on our financials in the fourth quarter. But now let's look ahead.

For purposes of modeling, let's assume we close on our $24 million Charlotte transaction on January 1. With that and the financing, I would expect reported interest to drop to about $6 million in the first quarter of 2017.

There you can see the true impact from the refinancing. These interest expenses do include non-cash amortization of financing cost included in reported interest expense.

In addition to the above net interest expense we also will continue to have our dividend on the $27.5 million of the convertible preferred held by Lincoln Financial Group. This is currently about $550,000 per quarter.

When we do call this paper in whole or in part, we will realize additional cash savings by using our cheaper credit facility. But for now, we like the flexibility of this preferred paper in our capital structure.

Our depreciation and amortization of $2.5 million represents a run rate for your models for the remainder of the year and I will refresh this data point early next year when we close on the Charlotte transaction. This quarter's capital expenditure was $2.2 million, which was an increase in the run rate from the first half of the year, merely due to the timing of several major projects.

Our current thinking on capital expenditures for the full year remains at $7 million to $8 million. We had an interesting event in the third quarter which was recorded as other income on our financials.

I am sure you recall the 2010 British Petroleum oil spill in the Gulf of Mexico which impacted businesses and tourism in that area. Entercom is the leading radio operator in New Orleans and as a result we received $2.3 million in net cash settlements from funds BP set aside to settle claims from Gulf Coast businesses.

And another non-operating note I would bring to your attention, we expect to record an M&A or restructuring expense in the fourth quarter of about $300,000 as we restructure certain tower and land assets acquired with last year's Lincoln acquisition. With these moves, we believe we can recapture $3 million to $4 million from sales of certain non-core assets in the coming months.

So, once again, it's a quarter of continued strong operating results which now has delivered double digit same station EBITDA growth through the first nine months. Plus we have the addition to the portfolio of the great Charlotte transaction and now the completion of a great refinancing package.

And it's great to know that we can also continue to directly reward our shareholders. As noticed in today's earnings release, Entercom's board of directors today announced a quarterly dividend of 7.5 cents per share which will be payable on December 15 to shareholders of record on November 28.

So in summary, Entercom has a great business model that provides outstanding free cash flow which is growing. A quarterly dividend directly rewarding shareholders.

The benefit of our significant NOLs to shield future earnings, all coupled with the benefit of free cash flow from our attractive refinancing. So we believe Entercom continues to be an attractive platform for both tech and equity investors.

So with that, David, let's go to the questions that came in in advance.

First question from Marci Ryvicker at Wells Fargo Securities. David, can you give more color on the fourth quarter pacing number you mentioned both in terms of local and national categories and then let me do a follow up question at the same time, several had asked for your thoughts on auto spending.

And once again we appreciate everybody's time this morning and look forward to reporting back to you all in about another quarter.