Audacy, Inc.

Rich Schmaeling - CFO and EVP David Field - Chairman, President, and CEO

Aaron Watts - Deutsche Bank Avi Steiner - JP Morgan Chase & Co. Davis Hebert - Wells Fargo Securities Michael Kupinski - NOBLE Financial Brandon Osten - Venator Alan Mitrani - Sylvan Lake Asset Management

Thank you, Prima. Good morning everyone.

I'd like you to welcome to -- like welcome you to our first quarter earnings conference call. This call is being recorded, a replay will be available on our company website shortly after 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'll now turn the call over to David Field.

Thanks Rich. Good morning everyone.

Welcome to our first quarter earnings call. Just short of six months have not elapsed since we closed on the merger.

Entercom today is the country's number one creator of live original local audio content. We're one of the country's two largest radio broadcasters with 112 million monthly listeners and a portfolio of 237 local radio stations, including many of the country's most prominent brands and have coverage of nearly 90% of persons 12-plus in the top 50 U.S.

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

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

Since closing, we've been hard at work implementing our extensive plans to propel growth through a series of meaningful tangible action steps across each of our primary growth drivers. We're making good progress and are on or ahead of schedule in essentially every aspect of our plans.

We have built a terrific leadership team and are driving strong ratings growth, improving our sales organization and capabilities and launching a number of powerful revenue initiatives that will help drive future success. In summary, we're happy with what we've accomplished to date.

And that said, our first quarter financial results paint a picture that really doesn't capture the underlying progress we're making towards our goals. Our plan was always to move quickly and boldly, driving transformational change, understanding that we would temporarily negatively impact revenues and incur some added expenses.

As those of you who actively follow us know, we have consistently stated that we didn't expect to move the needle meaningfully on topline growth across the expanded company until the second half of the year. Unfortunately, our result in the quarter were also adversely impacted by soft general local advertising conditions and some temporary factors, most notably, the exclusion of $20 million in revenue due to financial issues at U.S.

Traffic Network. USTN is there also known is a firm which has contractually acquired a significant amount of our traffic report inventory across many of our stations and then resell that inventory to advertisers.

You may recall that on our fourth quarter earnings call, we announced that we did not recognize $4 million of fourth quarter revenues due to significant financial issues at USTN. These issues now require us to not recognize any USTN revenues in the first quarter, reducing reported revenues and cash flow by $12 million.

As a result, our first quarter same-station revenues were down 7.5%. However, if you exclude the USTN adjustment, our revenues would have been down 4%.

The news and USTN is improving as we have been working closely with their management team and to address their situation, and we're increasingly optimistic that they are on a path that will enable us to resume traffic related revenues going forward. And it is important to note that there should be no meaningful long-term impact from this unfortunate situation as the underlying value of this premium inventory is not effective, which will provide additional insights later in the call.

A few of the notes on the first quarter. According to Miller Kaplan, our markets paced down just over 3% in first quarter.

And national and digital both outperformed local. Our best-performing categories were financial services, lottery and casino and drug stores.

Our best performing markets were Philadelphia, Detroit, and Charlotte. Revenues were also reduced by 1% due to the impact of the six new formats which we have launched since closing the merger.

It is typical for new formats to experience a significant reduction in initial revenues as advertisers wait until the brands establish a consistent ratings profile. We expect these stations to contribute to revenue growth during the second half of the year.

Revenues were also reduced by another 1% as we significantly reduced the amount of business we are doing with low rate resellers, a bad business practice which we announced we'll be discontinuing in November because it undermines pricing and the integrity of our valuable inventory. While cutting this channel hurts revenue in the short run, taking back control of this inventory will enhance revenue growth in the future as we sell these inventories, reemerging new higher value sales channels that we are developing as we capitalize on our scale.

On the cost side, we're slightly ahead of schedule in capturing the $110 million in net cost synergies that we have previously announced. To-date, we have captured $65 million of cost synergies on a run-rate basis or about 50% of our gross cost synergy target of greater than $130 million.

However, our reported Q1 costs were significantly inflated by over $20 million in temporary and non-recurring costs related to the integration program and other surge investments in the business that is various transformational projects, marketing, research, higher expenses, and other items which masked the success of our work in synergies. Excluding our investments in operational enhancements and other one-time expenses, our cost would have been down about 1% in the quarter.

Further, we expect our cost to decline in the quarters ahead as the investment surge receives and the synergies continue to grow. Rich will provide some additional color on our expenses during his remarks.

It is unfortunate that the confluence of weak ad conditions, the USTN issues, format changes and our intense pace of transformational investment and retooling have combined to cause such a weak quarter financially and massed the underlying progress we are making across the organization. We still have lots of work to do, but our confidence and conviction in our strategies and our future potential is unwavering and we remain on track in pursuit of our goals.

As these temporary factors abate and our growth initiatives take hold, we look forward to driving meaningful, sustainable growth as we capitalize on the compelling brands, assets, and capabilities of this exciting emerging company. I'd like to now share a few highlights of the progress we're making.

We're driving strong growth in brands and ratings. I mentioned earlier that we have launched 6 major new formats, including three in the top five markets.

One of the three JAMS has emerged as the number one rated station in Chicago, a true worst to first success story, and we're pleased with our progress across the other new brands as well. And just last week, we brought sports radio icon, Mike Francesa, back to WFAN in New York.

We have made other notable additions to content over the past few weeks, including Ed Lover, joining JAMS in Chicago to host mornings and Tony Gwynn Jr. joining The Fan in San Diego to host the afternoons.

It was also just announced that Entercom has received 23 Regional Edward R. Murrow Awards for excellence in radio news journalism, a reflection of our position as the unrivaled leader in local radio news.

Our focused efforts on enhancing our radio brands are generating significant ratings growth. We now have three months of Nielsen PPM data post-merger.

In January, we achieved 4% rating share growth across our station group, a very significant increase particularly across such a large number of stations. And in February, we repeated that feat with another month of 4% ratings growth.

And in March, we did it again. Ratings are a critical leading indicator of revenue growth and we expect our strong ratings to bolster revenues in the second half of the year and beyond.

We have made enormous progress on our integration efforts, have been completed or virtually completed all of the following over the past few months at the former CBS stations. We have transitioned to the salesforce CRM platform, a new traffic and billing system, a new automation system and a new set of digital marketing products and services.

We have transitioned off of the CBS Network Systems and onto a new network platform. And we have exited the CBS local combined TV radio web portals and launched new independently branded websites for all of the former CBS stations.

We also launched Entercom Analytics, a proprietary product that enables us to demonstrate the advertisers the tangible effectiveness of their campaigns. We're seeing great early results from this product which is providing powerful affirmation of radio and Entercom's effectiveness for customers.

We will continue to innovate and invest in data, analytics and attribution, and believe this will be an important driver of growth going forward. I'm also excited by our progress at radio.com, our primary digital content distribution platform.

In March, we launched a major new release of radio.com, which included a redesign, new ad products and the full platform integration of all former Entercom, CBS Radio and Cadence13 podcasting assets. It is still early, but I'm pleased to report that our weekly downloads and total listening hours per user have been more than doubled.

As the leading source of original live and local audio content in United States and the home of so many of America's leading and most iconic radio brands and the country's number two podcaster, we think there's a great opportunity for radio.com to emerge as a powerful and valuable brand in the future. And in recent weeks, we have moved to bolster our digital leadership team adding additional executive talent, including the former Head of Digital Strategy and Operation -- Operations at Times Entertainment, travel and luxury brands, including people.com, to service the senior vice president and general manager of radio.com.

We're also getting closer to launching a new national business development effort. From the beginning, we have believed that one of our greatest scale-driven opportunities is to develop a strong national business development effort to capitalize on our powerful presence across the top 50 markets and our unique set of assets and marketing capabilities, which includes our unrivaled leadership position in sports radio with most of the country's leading sports stations and the home of 43 pro teams.

As I mentioned on our last call, in March, we recruited the head of Major League Baseball's corporate partnership team to join us and lead our national planning development efforts. We're working to build this team and develop our capabilities to begin the impact of market in the months ahead.

And to help enable our national sales development efforts, we have stepped up our radio advocacy efforts and will be launching our second major multipage ad in Ad Age and other publications later this month. We've often spoken the radio being the most undervalued medium punching well beneath its weight class despite the fact that radio has recently emerged as the number one reach medium in United States, with arguably the highest ROI of any medium.

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. I'm cautiously optimistic based on the conversations we're now having with senior decision makers across the significant number of marketers as the opportunity for radio to grow its share of total ad spending is real and significant.

I'm also excited to announce, this morning we launched the Entercom Audio Network. Our scale and reach now enable us to participate directly in the $1 billion network radio market.

As I noted earlier on the call, we are in the process of discontinuing our sales of inventory to deep discount resellers which devalues our product and undermines our pricing power as we compete with ad inventory in the market place. It is important to note that we will not be adding a single unit of additional inventory into the marketplace, just meaningfully enhancing our yield by transitioning out of a poor sales channels and shifting that inventory into higher value channels like our new network and national business development.

Looking ahead to second quarter, we're currently pacing in line with our Q1 performance, excluding the impact of USTN. We're encouraged by improvement in our national advertising which has turned positive and is pacing up for the second quarter.

And we're also seeing some signs of improvement in number of key markets, including Los Angeles, San Francisco, Houston, and Miami. In summary, we're pleased with the progress we've made in positioning the company for meaningful growth and value creation.

We always expected the first and second quarter to be the low order mark for the new company financially, knowing it would reflect the full brunt of change in disruption and investment, without the benefit of revenues from our investments and improvements in growth drivers. Unfortunately, the USTN situation and the soft ad market conditions took their toll as well.

I'm optimistic about where we're heading as we look ahead at the second half of 2018 and beyond. One, we will begin to capitalize on our growing ratings, our organizational enhancements and the numerous growth drivers that we've been actively working on.

And while it is still a work in progress, we are cautiously optimistic about the USTN situation. In addition, we expect the general ad climate to improve, particularly as we enter the heat of hotly contested political cycle.

Finally, the temporary expense surge in investment that drove up our first quarter cost will abate substantially while our synergies accelerate. In short, the temporary challenges will recede and the transformational improvements and progress will emerge enabling solid growth and value creation in the future.

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

Thank you, David. On a same-station basis, our first quarter net revenues were down 7.5% or were down about the same percentage ex-political.

As David mentioned, our 1Q revenues were negatively impacted as a result of us not recognizing post the $12 million of net revenues due to Entercom for United States Traffic Network or USTN, due to uncertainty about USTN's ability to pay. And this discrete issue accounts for 3.6%, but the year-over-year decline in our same-station revenues.

As you may recall, USTN provides Entercom with traffic advertising network sales services, and they have a commitment to pay Entercom specified payments in exchange for a large portion of our traffic and other short duration advertising inventory. For advertisers, USTN offers significant national reach through its network of radio broadcast affiliates, primarily via sponsored traffic reports.

The company had recently being acquired by an Australian company that executed an aggressive strategy to rapidly gain market share that failed. And opened it late to the buyer of the company by U.S.

management. The new management team is amidst of restructuring the company's business model, operations, and its contractual relationships with its affiliates.

Entercom has worked closely with management to assisting with this restructuring, and has negotiated new payment terms that gives USTN some pricing relief in exchange for a meaningful equity stake in the company and other valuable consideration. USTN is working to consummate similar deals with other broadcasters and to complete its other restructuring actions, which are expected to allow the company to operate profitably and to be able to pay its obligations at Entercom and others on a timely basis.

Under a new revenue recognition accounting standard that went through effect for Entercom at the beginning of this year, we are unable to recognize revenues from USTN even if they have paid us, unless we are able to conclude that is probable that we will be paid for substantially all of our inventory in future periods. And if things go as planned, as mentioned by David, we expect to be able to recognize revenues from USTN, including to what amounts to a catch up for amounts not recognized in the first quarter.

And that for the full year, our traffic advertising revenues will fall about $15 million short of what we previously expected for 2018, which translates into about 1% reduction in our revenues year-over-year, although this shortfall could be greater if the USTN is unable to successfully execute its restructuring plans, and we are unable to replace these revenues through our own sales efforts. Next year, we expect that we will be able to meaningfully close this $15 million gap.

Our same-station revenues for 1Q were also impacted by soft local advertising environment. As you likely know, growth in consumer spending during the first quarter was an anemic 1.1%, and we believe this week this translated into a weak local advertising environment.

We believe it is likely that as we move past the numerous late winter storms across the country and people feel the benefit of the tax cut in their pocketbook that consumer spending will accelerate and as will local advertising demand. In addition, we look forward to a hotly contested political season that will drive added demand against our inventory and will also support stronger market pricing.

I think it's also important to note, as mentioned by David, that about one point of revenue decline can be attributed to our 6 formats flips, and that's a remaining decline of about 3% is consistent with the reported 1Q decline in the size of the radio markets where Entercom is present. Although, we're not celebrating in anyway, this does mean that, taken as a whole, the legacy CBS Radio markets plus Entercom markets performs about consistent with the size of the 1Q market.

We look forward to beating the market in future quarters as we began to fully realize the benefits of our added scale and our numerous sales growth initiatives with our national business development strategy. Moving to expenses.

Our total as reported operating expenses for the quarter came in at $294.9 million and include $12.6 million of integration, restructuring and M&A costs. Excluding of these costs, and adjusting out noncash items like D&A and miscellaneous income, our same-station total cash operating expenses came in at $270.5 million or up 2.5% from $263.9 million on a pro forma combined same-station basis in 2017.

In this first quarter as new Entercom, we have realized about $9 million in net cost synergies and have surged a number of investments to speed change and also had a recorded number of accounting charges to conform the combined company's accounting to GAAP. Normalizing these expense items to what we expect to incur in future quarters, our same-station total cash operating expenses would have been down about 1% in the first quarter.

Focusing more specifically on our integration program, we continue to run slightly ahead of our plan. Of our gross cost synergy target of greater than $130 million as of this point in time, we have realized cost synergies that will deliver about $65 million of annual savings on a run-rate basis.

And as our synergies grow each quarter, during the remainder of this year, we expect to significantly improve our year-over-year cost performance and comfortably achieve our 2018 target of $45 million of net cost synergies that is realized cost energy savings after investments. Turning to our financial position.

We entered the quarter with approximately $1.82 billion of outstanding debt and our total net leverage on a compliance basis was 4.4 times. Our senior secured lever0age was 3.4 times as compared to our covenant of four times.

As previously reported, since closing the merger on November 17, we repurchased close to 2.8 million shares of our Class A common stock for $30 million at an average price of $10.85 per share, and we haven't purchased added shares since the date of our fourth quarter earnings release on March 8th. We may resume repurchasing our stock at a later date, but as previously stated, job one is getting our total net leverage down to our target of 3.5 times.

In that regard, we expect to move forward during 2Q on our remaining divestitures of eight stations in San Francisco and Sacramento that have been held separately in a divestiture trust, that are currently being operated by Bonneville under a time brokerage agreement. As previously stated, these divestitures are expected to generate after-tax proceeds of about $160 million, which we now plan to use to pay down debt.

We're also working to sell redundant assets, including the Telus tower site, we discussed during our fourth quarter call near O'Hare Airport in Chicago. And now expect that full year after-tax proceeds from such sales will total about $50 million.

Our 1Q capital expenditures were $7 million, and we expect that our CapEx will ramp up as this year progresses and that our full year expenditures, including integration-related expenditures will range between $50 million and $55 million. Before I wrap-up and return to your questions, I just want to cover off a few housekeeping items.

You may have noticed in our earnings release that we have included in the tables comparable same-station net revenues and pro forma adjusted EBITDA as if the CBS Radio merger closed as of 1/1/2017. I also call your attention to our website where you'll find a reconciliation of such non-GAAP measures and including the detail of these measures for each quarter of last year.

Finally, I want to highlight to you that we've engaged JCIR to provide investor relations services for the company. JCIR has worked with many leading broadcasters, including Nexstar and Beasley, and you will find their contact information at the top of our earnings release.

With that, we'll now go to your questions. Prima, can you take questions, please?

Thank you. Thank you, we look forward to reporting back to everybody in three months.

Thank you so much. Take care.

Bye now.