Audacy, Inc.

Rich Schmaeling - Chief Financial Officer, Executive Vice President David Field - Chairman of the Board, President, Chief Executive Officer

Marci Ryvicker - Wells Fargo Kyle Evans - Stephens Aaron Watts - Deutsche Bank Brandon Osten - Venator Michael Kupinski - NOBLE Financial

Thank you operator. Good morning everyone.

I would like to welcome you to our fourth quarter earnings call. 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 10-Q, 10-K and 8-K. We assume no obligation to update any forward-looking statements.

During this call, we may refer 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.

I will now turn the call over to David Field, our CEO.

Thanks Rich. Good morning everybody.

I am pleased to report that we are making excellent progress towards our goals of capitalizing on our transformational merger and building a truly outstanding media and entertainment company. We are off to a fast start, moving quickly to execute our game plan with important achievements in a number of areas including building a best-in-class leadership team and culture, growing our brands and ratings, executing our synergies, launching new sales tools and advocacy and much more.

We are making great strides to elevate the organization and position the company for strong acceleration and I am more excited than ever about the opportunities ahead. Furthermore, there have been a number of positive developments since our last call that have enhanced our prospects and our shareholder value, including the tax bill which will significantly increase our after-tax earnings and cash flow.

On today's call, we will take the opportunity to go a bit deeper and give you additional information and color on our progress. We will also cover our fourth quarter results which are a bit complicated due to the timing of the closing and a significant number of divestitures and other acquisitions that occurred during the quarter.

First, let's take stock of what we have created as a result of this merger. Entercom is today the country's number one creator of live, original, local audio content.

We are one of the country's two largest radio broadcasters with 112 million monthly listeners and a portfolio of 235 local radio stations, including many of the country's most prominent brands and have coverage of nearly 90% of persons 12 and over in the top 50 U.S. markets.

We are the unrivaled leader in sports and news radio. We also have a premier set of digital platforms and live events and we are the number two U.S.

podcaster behind just NTR. This merger has always been principally about our conviction that the combined entity would have the scale and the capabilities to drive meaningful revenue acceleration and value creation going forward and compete more effectively with other media for a larger share of ad dollars.

We are focused on eight primary drivers, each of which is needle moving. These include driving scale enabled national business development, turning around CBS radio, capitalizing on our unrivaled sports platform, developing strong data and analytics capabilities, achieving identified cost synergies, building on our digital events and podcasting businesses, capitalizing on our balance sheet and increasing radio share of total ad spending.

Since closing, we have been hard at work implementing our extensive plans to accelerate growth through a series of meaningful action steps each of these areas. I will share a high level update on a number of these developments.

First, leadership and culture is everything in this business and we are thrilled with the best-in-class team that we are building. We have upgraded our general managers in 14 yes, 14 of our most important markets, including in New York, Los Angeles and Chicago.

These new high-performers are bringing strong dynamic leadership to their markets and will have a large impact of future performance. We have also successfully recruited many highly talented leaders to the corporate team to bolster our effectiveness in critically important areas.

Just last week we announced that we have added the head of corporate partnerships at Major League Baseball to join us and head up our new national client development team. He joins a number of other high impact additions that we have made to our team in recent months.

Second, we have been hard at work enhancing our brands and products. We moved quickly on day one launching three major new formats in the top five markets.

The early ratings results are terrific and well above expectations. In New York, ALT 92.3 is number one among men 18 to 34.

And in Dallas, ALT 103.7's ratings have doubled and the station is now in the top five among men 25 to 54. And most impressively in Chicago, 1043 JAMS is now the number one station in virtually every demographic, an extraordinary achievement for a brand-new radio station.

More recently, we have lunched new stations in Seattle, Orlando and just this past week in San Diego. It is too early to provide any ratings information on those brands but we are excited about their prospects.

Our programming efforts are not confined to just new brands. CBS Radio significantly underinvested in audience research and we had moved to meaningfully increase our commitment to research across the platform in order to enhance the quality of our brands.

We are also increasing our investment in audience marketing and strong new local content, where opportunities present themselves. While it is early, I am very pleased to report strong positive ratings results from these efforts.

Entercom's key demographic ratings were up 4% in the January Nielsen PPM report, a very significant increase. It is just one month, but it is a very healthy and promising sign of progress in one of the key performance drivers that will impact revenues in the months ahead.

These big improvements in local leadership and ratings are an important element in turning around CBS Radio. In making this deal, we fully understood that CBS Radio was performing weakly and that job one was turning that around.

We made it very clear throughout our premerger investor roadshow that we believe CBS Radio is very flexible with a powerful lineup of many of the country's most important local stations and personalities and many highly talented people across the organization. I will dwell on the leadership issues at CBS Radio, but suffice it to say that it was under managed by its divisional leadership and lacked strategic focus and energy, playing not to lose, rather than to win.

We have made important strides at energizing and reinvigorating the organization, elevating expectations, establishing clear strategic priorities and building a collaborative can-do engaged performance-based organization. We have moved to eliminate silos, enhance systems, streamline process and more.

We are not done yet but we are pleased with our progress to-date and we believe we remain on track to deliver accelerating financial results in the second half of 2018 as we articulated during our premerger investor roadshow. We have made significant progress in a number of other areas as well.

We have often spoken of radio being the most undervalued medium, punching well beneath its weight class despite the fact that radio has recently emerged as the number one reached medium in the United States with arguably the highest ROI than any medium. Part of the problem has been that radio has done a poor job advocating for itself over the years.

With our new found scale, we moved quickly after closing the merger to launch the industry's first major ad marketing campaign with our four-page Marketers' Guide to Radio featured in AdAge, Adweek, Variety and more If you haven't seen it, I would encourage you to get a copy. This advocacy work will be part of a sustained campaign over time but it is nice to know that the campaign has already resulted in some new orders and enhanced perceptions among some key advertisers.

And as advertisers become increasingly frustrated with their other media options, which are being highly disrupted, we believe many advertisers will consider shifting more dollars into radio to capitalize on radio's reach, ROI and other compelling characteristics. As I mentioned a moment ago, we just recruited the head of Major League Baseball's client partnerships to lead our new national client development team.

With that key hire completed, we will now move quickly to build out this team and to deploy it to drive national business development, which we believe should be a major contributor to future growth. We also just announced our first national marketing partnership as a proof of concept of our unrivaled sports radio platform.

5-hour ENERGY has committed to an Entercom exclusive nationwide campaign built around March Madness. We expect many more of these types of national programs in the future.

We have relaunched our Radio.com app and expect it to be an important component of our digital content distribution platform going forward, offering listeners all of Entercom stations plus our podcasts and more. We have noted the data analytics and attribution will be an important part of our future.

We took our first big step forward in that area by launching Entercom Analytics, a proprietary product that enables us to demonstrate to advertisers the tangible effectiveness of the radio campaigns. We believe this product can help drive large amounts of business going forward.

Rich will touch of synergies. But we are right on schedule on that front.

He will also touch on the positive implications of the tax bill. We also continue to grow our unrivaled sports platform, adding the Chicago Bulls and Minnesota Twins to the group of now 45 pro teams that call Entercom home for their play-by-play broadcasts.

We signed an agreement to sell a piece of land near O'Hare Airport for $46 million. The land is not strategic and we will be able to relocate the radio station, which currently broadcasts from that location for around $2 million.

When we announced our first postmerger acquisitions a few weeks ago, adding two new FM stations in St. Louis from Emmis at a purchase price of $15 million to add to our existing stations in that market.

With synergies, we expect the acquisition to be highly accretive coming in under six times EBITDA. We see significant opportunities in the market to drive other highly accretive acquisitions, capitalizing on our strong balance sheet.

These are just a few of the meaningful moves we have made to capitalize on our outstanding platforms and position the company for meaningful revenue acceleration and value creation and compete more effectively with other media for a larger share of ad dollars. Turning to fourth quarter results.

As I noted earlier, the results are a bit complicated due to all the moving pieces. Rich will dive in more deeply, but I will share some of the headlines.

Fourth quarter revenues for the pro forma company were down 6% or 3% ex-political. These results were adversely affected by a $4 million write-down of revenues related to our contract with U.S.

Traffic Network. USTN is a firm which contracts with us to acquire a significant amount of our traffic report inventory across many of our stations and they then resell these commercials to advertisers.

USTN is having some significant financial issues and we are currently in negotiations with them on a new mutually beneficial arrangement and are hopeful that it will be worked out over the next couple weeks. We are pursuing several alternative paths to mitigate the impact if USTN fails.

It is important to note that this is a short-term issue, as even if USTN were to go away, we believe there would be no long-term adverse impact to our performance as USTN is merely a conduit to monetize a portion of our most valuable inventory and there are good alternative distribution strategies. Rich will provide you with some additional color during his remarks.

Absent the USTN write-down, same station pro forma revenues for the fourth quarter were down 5% or down 2% ex-political. Diving a bit deeper into our Q4 performance.

On a same station pro forma basis, excluding the USTN write-down, revenues for the legacy Entercom stations were down 1% for the fourth quarter, were up 2% ex-political. On the same basis, the legacy CBS stations were down 6% for the quarter, were down 3% ex-political.

It is worth noting how our legacy Entercom ex political revenue growth as described above of plus 2% contrasts with the legacy CBS Radio number of minus 3%. CBS Radio's operational issues were exacerbated by the disruption caused by the extended closing process and lackluster divisional leadership during that period.

A few other notes on fourth quarter. Local and national were both down with national a little bit stronger.

Our best performing categories were health and medical, TV/cable and travel. Our best performing markets were Austin, Detroit, Houston, Indianapolis and Las Vegas.

Rich will speak to the cost side of the business, but I would note that we do expect significant margin expansion going forwards as our cost synergies kick in. Looking ahead to first quarter.

We are currently pacing down 3%. Q1 is being impacted by a hew factors.

We are moving quickly to take bold tangible steps to significantly improve the company and our future. But it takes some time for these enhancements to impact revenues and in fact, some of the changes actually dampen performance a bit in the short run.

For example we made six format changes, three in the top five markets, which represent a significant amount of revenue that largely goes away until the new brand establishes itself and begins to build its advertiser base. And as noted above, the merger-related disruption and leadership issues at CBS Radio diminish selling activity through closing, which also has had a negative impact on first half 2018 sales.

All of this said, we are seeing lots of positive signs of increased sales activity and progress across the organization, which bodes well for acceleration as we go through the year. And second quarter is a bit better albeit still down at this early time.

We are of course determined to improve this number as the quarter progresses. In summary, as we take stock of where we are at this stage of the merger, we are very pleased with the great strides we are making to improve the business.

We have been moving aggressively and with urgency to drive change and position the company for strong acceleration and are right on track or perhaps ahead of schedule with our robust action plan. But it is important to remember that we are only just 100 days into the transformation and these things take some time.

As these improvements begin to impact revenues, we should drive improving performance in the quarters ahead. Meanwhile, we believe our stock remains highly undervalued providing a free cash flow yield in the upper teens, inclusive of the announced synergies and paying a dividend yield of about 3.5%.

We have taken advantage of this by buying back $30 million of our stock since the merger closed reducing our share count by approximately 2.8 million shares or 2% of all outstanding shares. With that, I will turn it over to Rich before we answer your questions.

Thanks David and good morning everyone. For the fourth quarter, our reported net revenues came in at $246.6 million, up 98% versus $124.6 million in the prior year.

On a pro forma same station basis, our fourth quarter net revenues were down 6% and were down 3% ex-political. Looking at the full year, on a pro forma same station basis, total net revenues came in at $1.521 billion, down 3% versus $1.574 billion in 2016 and were about equal to the $1.522 billion we projected back in November during the exchange offer roadshow before the assumed benefit we added in from anticipated 1031 exchanges.

More on that in a moment. This result is despite the fact that we did not recognize approximately $4 million of fourth quarter guaranteed revenues due to Entercom from United States Traffic Network or USTN.

USTN provides Entercom short duration advertising network sales services and they have a commitment to pay Entercom specified guaranteed payments in exchange for certain of our valuable short duration advertising inventory. Unfortunately, USTN has represented to us that they are having significant financial issues and that they have been unable to pay us on a timely basis.

We are presently evaluating our options with respect to our relationship with USTN and we expect to have a resolution of this matter before the end of this month. For 2017, on a pro forma same station basis, USTN provided approximately 2% of the company's revenues.

Looking at full year pro forma same station revenues of $1.521 billion broken down between legacy Entercom and CBS Radio. Entercom's same station revenues were flat for the full year and were up 1% ex political.

CBS Radio's same station revenues were down about 4% and were down 3% ex-political. Our total operating expenses for the quarter came in at $248.9 million and include a number of nonrecurring items.

We reported $16.4 million of M&A costs, $16.9 million of restructuring and transitional services costs and $2.2 million of expenses related to refinancing our credit facility. You will see that our results for the quarter include a significant incomes tax benefit of $252.2 million.

Included within this total is a non-cash benefit of about $292 million which is as a result of tax reform and is primarily from the measuring our deferred income tax balances at the reduced federal corporate tax rate of 21%. In addition, as a result of tax reform, we now expect that our effective cash tax rate over the next several years will be in the low-20s versus our prior guidance of low-30s.

This revised includes the benefit of our NOLs and will of course translate into a nice boost to our ongoing free cash flow. The one negative coming out of corporate tax reform is the elimination of 1031 like-kind exchanges for stations.

Although tax reform creates a number of new opportunities to tax enhance M&A transactions, we now expect to incur additional income taxes associated with our remaining divestitures of eight stations in San Francisco and Sacramento that have been held separately in a divestiture trust and are currently being operated by Bonneville under a time brokerage agreement. We still expect to consummate these divestitures by around mid-year and now expect to generate after-tax proceeds of about $160 million versus about $175 million previously.

Turning to our integration program. We are running slightly head of our plan.

Of our gross cost synergy target of greater than $130 million, we have already realized cost reductions that will deliver about $48 million of savings on a run rate basis or over 30% of our target. There savings our prior to investments and come primarily from eliminating redundant corporate resources, eliminating allocations from CBS Corporation, rationalizing resources in our eight overlap markets and procurement savings across a number of spending categories.

Unfortunately, CBS Radio did not realize during the fourth quarter about $6 million of savings from expected cost reduction actions that they had projected and that were included in our guidance for projected 2017 pro forma adjusted EBITDA. We have added this $6 million into our integration program and we now are planning to realize about $45 million of net cost synergies in 2018 and $110 million of net cost synergies within 18 months of closing.

Looking t full year pro forma adjusted EBITDA, including our revised net cost synergy guidance of $110 million, we came in at $450 million which is about equal to our prior projection before once again the assumed benefit of 1031 exchanges detailed in our roadshow deck. We do of course expect about $160 million of after-tax proceeds from our divestitures in San Francisco and Sacramento, which we are looking to selectively put back to work via M&A like our recently announced acquisition of two stations in St.

Louis from Emmis to add to our existing cluster in that market and at a buyer multiple of inside six times. Looking at our balance sheet.

We ended the quarter with approximately $1.87 billion of outstanding debt under our credit facility and senior notes and our total net leverage on a compliance basis was 4.1 times. Our senior secured leverage was 3.2 times as compared to our covenant of four times.

Since closing the merger on November 17, we have repurchase close to 2.8 million shares of our Class A common stock for $30 million and an average price per share of $10.85. We had previously guided that we would repurchase $30 million of our stock, conditions permitting, by the end of 2018.

As of today, we have $70 million remaining on our 2017 stock repurchase program authorization and we plan to continue to repurchase our stock this year. Our 4Q capital expenditures were $8.5 million and were about consistent with our expected quarterly run rate maintenance expenditures.

In addition, over the next two years, we expect to spend another $35 million in capital expenditures on our integration program which we expect to fully fund with after-tax proceeds from redundant asset sales like the $46 million sale in Chicago mentioned by David. With that, we will now go to your questions.

Operator?

Okay. I think that concludes the questions.

And so, thank you all very much for joining us here this morning and we look forward to reporting back to you next quarter.

Bye, bye.