Audacy, Inc.

Rich Schmaeling - CFO and EVP David Field - CEO, President & Director

Marci Ryvicker - Wells Fargo Kyle Evans - Stephens Aaron Watts - Deutsche Bank Lance Vitanze - Cowen Brandon Osten - Venator

Thank you, Anderson. I'd like to welcome you to Entercom's 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.

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 make reference to 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.

And now I'll turn the call over to David Field.

Thanks, Rich. Good morning, everybody.

Welcome to our third quarter earnings call. These are exciting times at Entercom as we countdown the days before closing our game-changing merger with CBS Radio.

As you may have heard, we received DOJ clearance of our merger yesterday and with the CBS exchange offer well underway, we are now tracking towards a most likely merger closing date of November 17. We have been hard at work preparing for the transition for several months and our plans are coming together beautifully.

We've always expressed a great deal of enthusiasm for the opportunities created by this transformational merger and our enthusiasm has only grown as we have worked our way through this process. We'll have some major announcements to make later on this call, and of course, we'll cover our third quarter results and update you on fourth quarter business conditions.

Rich will provide you with his thoughts and then we will revert to once again taking your questions live, a practice we will continue on future calls. Let's start with third quarter results.

Third quarter revenues were up 1% as reported. These results included the impact of our late 2016 acquisition of stations in Charlotte.

On the same-station basis, ex political, revenues were down 1%. This is slightly better than what we had indicated on our second quarter earnings call.

Third quarter cost ran higher than normal, largely due to substantial merger-related fees, plus the expansion of our corporate team as we ramp up the organization in anticipation of becoming a significantly larger company and the addition of Charlotte. As you might expect, given the scope of this transaction, these deal-related expenses, which dramatically impacted our total cost and profitability this quarter don't mean very much without the complete picture of what the company's costs and margins will look like going forward.

More meaningfully, excluding deal-related costs, our same-station expenses were up just 1%. Later in this call, we will provide you with an important update on our planned synergies, which as you will see will provide dramatic margin and profit expansion across the new company.

Here are the notes on second quarter. Local and national were both down roughly comparable.

Events and digital were both up, including a strong performance from our SmartReach Digital products. As you would expect political was down about $2 million in this nonelection year.

The best-performing categories were drug stores, home furnishings and improvement and TV cable, and our best-performing markets were Atlanta, Boston and Charlotte. We were held back by a particularly weak performance in Denver as well as softness in three of our markets that are highly impacted by the uncertainty surrounding the significant deal related divestitures, namely Los Angeles, San Francisco and Sacramento.

Absent these markets, same-station revenues were up 2% for the quarter. Turning to the fourth quarter, pacings are currently up 2%, ex political on a same-station bases excluding the stations we are divesting.

Once again, our pacings would be a bit better than that or it not for the materially weaker performance we were experiencing in the most significant overlap markets. Let's turn to the important developments with the merger.

As we approach the finish line, I've a number of updates as we continue our work across multiple fronts preparing for this transformational event. First, as I mentioned earlier, the DOJ announced yesterday that they have cleared our merger and approved our divestiture plans.

We've entered into consent decrees in Boston, San Francisco and Sacramento. We expect to receive FCC approval on a timely basis.

As I'm sure you know, CBS is in the midst of their exchange offer, which unless is extended, is scheduled to expire on November 16, enabling us to close on November 17. That is now our working plan.

As a result of the merger, the new Entercom will be the leading American media and entertainment company reaching and engaging over 100 million people each week to a premier collection of highly rated, award-winning radio stations, digital platforms and live events. As one of the country's two largest radio broadcasters, Entercom will offer integrated marketing solutions and deliver the power of local connection on a national scale with coverage of close to 90% of persons 12 plus in the top 50 markets.

Entercom will be the number one creator of live, original local audio content as the nation's unrivaled leader in news and sports radio. I'm very pleased to report that as a result of the exhaustive integration work, led by Rich and 24 separate internal joint Entercom CBS radio teams, working with our outside consultants, we have substantially increased our synergy estimate.

We have previously indicated that the merger would generate $25 million in net cost synergies. We are now revising that figure to $100 million in net cost synergies.

And again, these are net cost synergies. It will still allow for significant expansion in investment and various key growth drivers in the organization as we work to accelerate our revenue growth.

When we added Rich Schmaeling to our team as our new CFO back in March, we knew he would be a great addition on many levels, but one critical area in particular was his extensive experience leading integration efforts across multiple media mergers, including Dow Jones, News Corp and Media General LIN. Rich's done a terrific job leading this effort and he will provide more color during his remarks.

On a separate front, yesterday, along with our DOJ announcement, we announced three new transactions to satisfy the government's divestiture requirements. As those transactions were just announced, I won't repeat the details, but I will summarize the headlines.

In total, we will be divesting 19 stations in seven markets in exchange for 11 stations in three markets and anticipated cash proceeds of $265 million. If all goes according to plan, we will achieve a net cash multiple of 9.8 times on the divestitures.

We intend to use roughly $100 million of the proceeds to pay down debt, on an after-tax basis, with the remainder used to fund additional station exchanges on a near tax-free basis. As a result of the expanded synergies and the strong divestiture plan, our pro forma leverage of closing should be under 4 times.

I'm also very pleased to report that the Entercom Board has approved a 20% increase in our quarterly dividend from $0.30 per share to $0.36 per share on an annualized basis effective this quarter. The Board took this action mindful of the company's synergies and its massive free cash flow generation.

The dividend will constitute less than 30% of the company's pro forma free cash flow and yet generate close to a 3.5% yield to shareholders based on the company's current share price. And in the future, we intend to continue to increase our dividend to return more capital to shareholders.

In addition the Board has authorized a $100 million stock repurchase program authorization under which we expect to repurchase roughly $30 million in stock in 2018, subject to market conditions. As this merger has always been principally about our conviction that the combined entity would have the scale, brands, the people and the capabilities to drive meaningful revenue acceleration and value creation going forward.

We've been hard at work developing our extensive plans to drive growth of the business through a series of changes, enhancements and investments across the organization. In the days, weeks and months ahead, we will be rolling out our plans, aggressively capitalize on our significant opportunities across essentially eight separate [Indiscernible].

Number one, scale-driven national revenue opportunities. As a result of this transformational merger, Entercom will emerge as one of the industry's two largest players with the scale to compete effectively with other media for a larger share of ad dollars.

We'll be building out robust national business development capabilities. Number two, CBS Radio turnaround.

CBS Radio has many of the country's best iconic radio brands and many terrific leaders, on-air personalities, sales executives and more in their markets all across the country, but its performance has suffered over the past couple of years and it will benefit from new energized focused leadership and expanded investment in its core business. We will deploy a comprehensive action plan to drive tangible enhancements and accelerate performance.

Together, post-merger, the company will benefit from being a focused, pure-play industry leader with scale, an outstanding set of combined assets and a best-in-class leadership team that will compete boldly and aggressively. Number three, sports.

The new company will be the nation's unrivaled leader in sports radio with over 40 pro teams and dozens of top colleges calling the new Entercom home. We will also have an outstanding line of nation's top local sport stations and personalities.

The opportunities for expanded sales growth and strategic value creation is large as we believe there are many major national advertisers who are currently nonusers or light users of radio who will be interested in the marketing opportunities on this platform. Number four, digital events and podcasting.

We already have a significant presence in these fast-growing areas, the first two of which are $100-plus million product lines for the new company. We will capitalize on our scale to accelerate our efforts in both of these.

We have also made a strong push into the podcasting space with our recent investment of a 45% position in Cadence13, an important player in the rapidly growing podcast space. We have the option to complete the purchase of Cadence13 in the future, and I'm pleased to share that the combined podcasting metrics of Entercom, CBS Radio and Cadence13 make us the number two player in that space in terms of downloads, trailing only MPR.

Number five synergies. As I mentioned a few minutes ago, we expect to deliver 4x the level of synergies we have previously indicated or $100 million in net cost synergies.

And note that we are also going to deliver additional synergies to fund a meaningful improvement of our operating capabilities and our competitive position with investments in leadership talent, listener research and marketing, content, data and analytics, national business development and more. Number six, data and analytics.

We will be making a significant commitment to build our data and analytics capabilities to drive insights on our 100-plus million audience and enhance our product offerings for customers. Number 7, elevating radio.

Radio is America's most undervalued and misunderstood medium. It is ripe for rediscovery.

Radio has emerged as America's number one reach medium with strong usage trends and ROI data as other media are increasingly disrupted and challenged. This deal is an important catalyst for industry growth, as it provides a second scale competitor to partner with large national advertisers and another major industry advocate.

As advertisers become increasingly frustrated with their media options, advertisers are beginning to consider shifting more dollars into radio, led by Procter & Gamble, which is increasing its radio spending to capitalize on radio's massive ROI, massive reach at low cost. Finally, number 8.

Our balance sheet and enormous free cash flow generation. Even with a strong dividend, we'll still have ample free cash flow available to amortize debt, deal share buybacks and for potential value creating acquisitions.

We are opening pro forma leverage as stated under [indiscernible] we are well positioned for the future. And all of our work will be led by a best-in-class leadership team that we have been assembling from top CBS Radio and Entercom leaders, plus a significant number of outstanding new leaders from both inside and outside the radio industry.

Leadership and culture [indiscernible] and we are thrilled with the team we are putting together. So to summarize, we are close to the finish line and hoping to close this game-changing merger on November 17th.

We have quadrupled cost synergies to a net $100 million. We'll be raising our dividend from $0.30 to $0.36 per share annually and instituting a meaningful share buyback and we have an extensive tangible set of action plans to capitalize on the meaningful drivers for significant revenue growth and value creation.

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

Well, thank you, David, and good morning, everyone. For the third quarter, our net revenues came in at $122.3 million, up 1% versus $121.6 million in the prior year.

On a same-station basis, our third quarter net revenues were down 1% ex political. Our station operating expenses for the quarter increased by $3.8 million, or 4%, to $87.9 million.

After factoring in recent acquisitions, our same-station expenses increased less than 1% consistent with our guidance and most of this increase is attributable to the addition in one of our markets of the rights to broadcast MLB games. Our corporate expenses for the quarters were up $0.6 million year-over-year to $8.1 million, largely due to a few new positions added in anticipation of the merger with CBS Radio.

We expect that our corporate expenses will be in the same ballpark in 4Q and that they will be about $33 million for the full year or about $1 million higher than our prior guidance. $8.8 million of M&A cost in the third quarter related to the CBS radio transaction and expect to spend about $16 million in the fourth quarter, including $9 million in M&A advisory fees that are due upon completion of the merger.

On October 19, 2017, CBS Corporation commenced the CBS Radio exchange offer, which is scheduled to expire at 11:59 p.m. on November 16th, unless extended.

Entercom will conduct its special shareholders meeting to confirm the merger on November 15th, and as David said, if things go as expected, we will close the merger on Friday, November 17. Tomorrow, we plan to file our exchange offer roadshow presentation with the SEC and hit the road.

We are excited to share this presentation with investors and to get through closing and on to executing our integration and growth plans. Looking at our balance sheet, we ended the quarter with approximately $458 million outstanding on our term loan facility and $22.5 million on our revolver, up $13 million from where we were at the end of 2Q.

This increase is attributable to our normal plus special 3Q common dividend of $10.7 million, our $9.7 million investment in the Cadence13, $8.8 million of M&A cost and capital expenditures of about $5.3 million. Our consolidated leverage at September 30, as defined under our credit agreement, was 4.9 times compared to our covenant of 5 times.

Our reported leverage is being significantly impacted by the $25 million merger-related costs we've incurred year-to-date as about $10 million of those costs are not permitted to be added back under the credit agreement. Our reported leverage would be about 4.4 times if all of the M&A costs were permitted to be added back.

At the closing of the merger later this month, as discussed by David, we expect our pro forma combined total leverage to be inside 4 times. A 3Q capital expenditures of -- were $5.3 million.

As previously discussed, we have several office and studio facility relocation projects underway this year that is causing our capital expenditures to higher than normal. For the full year, CapEx is still expected to be in the range between $15 million and $16 million.

Operator, with that we'll take -- we'll now take questions.

Well, thank you, Anderson. Thank you, everyone, for attending Entercom's third quarter earnings call today.

We look forward to talking with you on the road and we look forward to bringing this merger to closure and getting on with our plans. Thank you so much.