Audacy, Inc.

Richard Schmaeling - EVP & CFO David Field - Chairman, CEO & President

Marci Ryvicker - Wells Fargo Securities Aaron Watts - Deutsche Bank Davis Hebert - Wells Fargo Securities Curry Baker - Guggenheim Securities Brandon Osten - Venator Capital Management

Thank you, and good morning, and welcome to our third quarter 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 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. I'll now hand the call over to David Field, the CEO of Entercom.

Thanks, Rich, and good morning, everyone. Thanks for joining us for our third quarter earnings call.

Next week, we will celebrate the 1-year anniversary of our transformational merger, which created a special new company with an outstanding group of many of the country's most powerful and iconic radio brands concentrated in the top 50 markets, and the scale to compete more effectively for a larger share of total ad spending. Entercom today is the #1 creator of live, original local audio content.

The unrivaled leader in news and sports radio, plus a significant events business in Radio.com. This merger has always been principally about our conviction that the combined entity would have to scale on the capabilities to drive sustainable, meaningful revenue growth and value creation going forward.

And we believe we are well on our way towards that goal. We have moved aggressively to drive change in virtually every facet of the business, to enhance our organizational effectiveness and capitalize on scale-driven growth opportunities.

We have accomplished a lot over the past 12 months. We successfully completed most of our systemic merger-related integration work, built an outstanding leadership team across the organization, including dozens of talented new high impact executives, achieved significant synergies that are driving costs lower, enhanced station programming and drove consistently high ratings, extricated ourselves from the USTN mass, which we inherited, and launched a successful new traffic business, launched a new radio network business.

We launched Radio.com and successfully transitioned our brands off of the tuning platform, and built a strong national client partnership team that is beginning to elevate our conversations with national brands. And we remain hard at work driving meaningful enhancements and investments in data and analytics, local sales organizational effectiveness, our events podcasting its sports businesses and much more.

From the beginning, we have consistently stated that the first half of 2018 would be a period of extensive building and development, and that in fact, our early results would be somewhat hampered by the deliberate moves we have made to enhance our future growth at the expense of short-term results, such as changing formats and purging poor business practices like selling ad inventory to resellers, who undercut us in the marketplace. We have also noted that we expected to see the early rewards from our work with acceleration, and the beginning of top line growth during the second half of the year.

I am pleased to report this morning that we are right on track with our plans, and expect to deliver solid top line and bottom line growth in the fourth quarter. More on that in a few moments.

Third quarter revenues declined 4%, in line with where we reported pacings during our previous earnings call. Our operating cost declined 4.5% during the quarter, driven by merger-related synergies.

As a result, our EBITDA for the quarter declined 3%. Some additional color on the quarter.

Our best-performing markets were Las Vegas, Miami, Orlando, Sacramento and Seattle. Leading categories were consumer products, home improvement, education, Internet, e-commerce and entertainment.

In fact, revenues in the consumer products category more than doubled, as we have seen some major advertisers in that space increasing their spending levels significantly. Political revenues were up about $2 million over prior year levels.

We have made great progress in building our proprietary traffic advertising business in the wake of the transition out of USTN, which cost us approximately $25 million in lost revenues and cash flow in the first half of the year. Now that we once again control our traffic inventory, we are quickly ramping up our own traffic ad sales and have significantly trimmed the USTN revenue and cash flow impact.

I'm pleased to report that third quarter was the last quarter in which we anticipate any adverse impact from our traffic business, and in fact, we expect significant positive growth from that product line in 2019. In addition, during the quarter, we made solid progress across a number of important organizational goals and growth drivers.

Here are a few of the highlights. We completed all of our previously announced and pending divestitures and nonstrategic land sales, generating over $200 million of cash proceeds.

That included closing on the $141 million divestiture of stations in San Francisco and Sacramento to Bonneville, the sale of land in Chicago for $46 million, and the sale of land in Los Angeles for $26 million. We also closed on the sale of WXTU-FM in Philadelphia to Beasley to $38 million, and the acquisition of WBEB-FM in Philadelphia for $56 million.

These two transactions are immediately accretive and leverage-neutral. We previously announced the launch of the Entercom Audio Network on July 1, and it is attracting a blue-chip list of early clients, including Procter & Gamble, Walgreens, Staples, Home Depot, indeed.com and Hyundai.

With our scale and our outstanding premium large market brands, we have a significant opportunity to capture a larger share of the $1 billion radio network market. We expect to see nice growth in our network business in 2019 and beyond.

We also continue to make strong strides with our investments in our brands and content, driving significant ratings growth. Our ratings winning streak is now extended to 9 months with an average portfolio-wide growth of roughly 4%.

We are also very excited about the rapidly accelerating performance at Radio.com. I am very pleased to report that over the past few months, Radio.com has emerged as the fastest-growing digital audio app in the United States.

We believe Radio.com is positioned to become one of the country's leading digital audio platforms, capitalizing on Entercom being the nation's #1 creator of original local audio content. Our leadership in local news and sports plus our deep line up of local personalities across the country will be an important driver in the success of this platform, as well our position as the nation's #3 podcaster through our investment in Cadence13.

Radio.com is now live on Amazon's Alexa devices, Google Home, Sony's smart speakers, Apple CarPlay, Google's Android Auto, Roku, Fire TV and more, and now cover 80% of the OTT market. Additionally, during the quarter, we launched a number of exclusive podcasts, and landed the national screening rights to Notre Dame Football and Basketball, and the New York Islanders to New Jersey Devils.

We anticipate announcing many more content and distribution deals in the coming months. During third quarter, we terminated our agreement with TuneIn, a digital audio aggregator that held a very large share of the streaming of our radio stations.

We made this move because we believed it was critically important to control our destiny, build digital scale and establish Radio.com as a serious player in the digital audio world by making Radio.com the distribution channel for our brands and content. The transition went extremely well, exceeding our expectations.

Within 8 weeks, we recovered all of the audience losses from TuneIn. A couple other data points to illustrate our progress at Radio.com.

Total active users across all platforms are up 179% year-to-date. And our total digital reach of monthly average users is now greater than both SiriusXM and TuneIn.

As a result of the fast growth of the platform and our differentiated content offering, Radio.com is now emerging as a viable choice in the national digital audio sales marketplace. We have seen a significant increase in RFPs from agencies across the U.S.

that recognize Radio.com as a new option in this growing space. Turning to our sports business.

We recently announced that we are the new flagship home at the New York Mets, but we'll move to WCBS-AM this coming season. Entercom is now the home to all of the major league baseball teams from Washington D.C.

to Boston. We are also beginning to see an early influx of sports gambling-related ad revenue, while currently, only a few states have legalized sports gambling, as that expands, we are very well positioned to capitalize on that emerging high-growth category through our leadership position in sports radio.

And last week, we announced that Entercom has become the first broadcaster ever to be the flagship partner of all rating -- all 4 rating major pro champions, the Eagles, Red Sox, KAPS and Warriors. A reflection of our extensive and unrivaled line-up.

Turning to fourth quarter performance, I'm pleased to report that our revenues are currently pacing up 4%. Our meaningful top line growth coupled with our continuing expense reductions will enable us to generate solid double-digit EBITDA growth during the fourth quarter.

Political has performed well during the quarter, coming in ahead of the previous midterms back in 2014. As a reminder, political revenues were nowhere near significant to our model as they are in television and we'll account for roughly 2% of our growth versus fourth quarter 2017.

We are also seeing solid growth in national events, digital audio and our new Entercom Audio Network business. It is also noteworthy that we expect to generate positive top and bottom line revenue growth across the legacy CBS markets in fourth quarter, including markets like Los Angeles, New York, Dallas, Philadelphia, Miami, Detroit, Atlanta and more.

We are also very encouraged by the nature of the conversations we are having with some of the country's largest advertisers. Radio has emerged as the #1 reach medium in the country according to Nielsen, with superior ROI and a number of other highly compelling attributes.

Radio also remained highly undervalued and is arguably the least disrupted of the major traditional media. Plus, radio is accelerating its investment in innovation, which will continue to make the media more valuable to marketing partners.

These attractive fundamentals and growing frustration with other major advertising platforms is leading some large advertisers to revisit radio and considerate it for a larger share of their media mix. In fact, we are seeing highly influential brands like Amazon, Procter & Gamble, Uber, Google, Peloton and others increasing their spending with Entercom and in the medium.

The opportunity for significant boost in radio spending and indeed a radio Renaissance is a real possibility. Our commitment to advocacy, our deployment of our national client partnership team, and the emergence of our Entercom Audio Network are all important components of our strategy to help accelerate this trend and capitalize on the opportunity.

In our last call, I suggested that we saw considerable evidence that we were turning the corner. And today, our confidence in that turn is even greater.

We have successfully completed all of our divestitures, extricated ourselves from the USTN fiasco and launched a very successful new traffic ad business, achieved significant expense reductions, and are driving strong growth at Radio.com and the Entercom Audio Network. And now, we are delivering solid top line and bottom line growth in the fourth quarter.

And the best part is that most of the scale driven growth initiatives we are pursuing are just getting started. Of course, there will be bumps along the way and not everything we are pursuing will work out as we hope.

But we have good momentum across our multiple scale driven growth initiatives and are excited about our opportunities in 2019 and beyond. And fundamentally we are enthusiastic that the undervalued and underappreciated radio space will resume a solid growth trajectory as advertisers increasingly recognize radio's compelling value proposition and shift ad dollars into radio from other highly disrupted disappointing ad alternatives.

With that, I'll turn it over to Rich.

Thanks, Stephen. On a same-station basis, our third quarter net revenues were down 4%, which is a 4-point improvement for our first half performance, and we're consistent with where we are pacing at the time of our 2Q call.

For the fourth quarter, we are currently pacing up 4%, and we are up about 2% ex-political. From an expense perspective, our total ads reported operating expenses for the quarter came in at $299.8 million, and include $4.3 million of integration, restructuring and M&A costs.

The onetime merger-related integration and restructuring costs are trending down but are not yet complete. We have another 8 months or so to go on our integration program, but we expect to add to the cumulative $27 million of onetime integration and restructuring costs incurred through September 30.

Whereas, our original guidance for the entire program of $40 million. We will provide refreshed guidance on the outlook for the remaining onetime cost during our fourth quarter call, but we expect that we would exceed our prior guidance and may come in somewhat less.

For the third quarter, excluding these onetime costs, and adjusting out noncash items like D&A and miscellaneous income, our total cash operating expenses came in at $291.8 million, down 4.5% or $13.7 million from the $305.5 million on a pro forma combined same-station basis in the third quarter of 2017. September year-to-date, our same-station total cash operating expenses are down 2.4% or $21.1 million.

And for the fourth quarter, we expect that our same-station cash operating expenses will be down about 2% as we ramp up investment spending on a number of new products and initiatives. In the third quarter, we realized about $20 million in net cost synergies, bringing the total to $41 million September year-to-date.

And we are on track to exceed our $45 million net cost synergy target for this year by about $10 million. Our overall integration program continues to run slightly ahead of our plan, and we remain on track to achieve our target of $110 million in net cost synergies at run rate by the middle of next year and to realize in P&L during 2019 more than $45 million of incremental net cost synergies.

Turning to our financial position. During the third quarter, we closed on the sale of our remaining divestiture stations to Bonneville for $141 million, and on the sales of a number of redundant assets and generated gross proceeds of about $73 million.

In addition, we closed on the sale of WXTU to Beasley for $38 million in cash and used those proceeds plus cash on hand to acquire WBEB in Philadelphia for $56.4 million. This transaction is immediately accretive leverage-neutral and strengthens our competitive position in the ninth largest radio market by adding this top performer in terms of both revenues and ratings.

For the full year, our redundant asset sales are on track to meet or exceed our target of $95 million, while we continue to expect after-tax proceeds from our asset sales, including the divestitures of about $200 million. As of September 30, we had $270 million of cash on hand, including $70 million of restricted cash.

We deposited the proceeds from two of our recent redundant asset sales into a qualified intermediary entity, or a QI, in order to avoid about $68 million of cash taxes via 1031 lifetime exchanges for replace of property associated with facilities projects in that consolidating or operations in two of our largest markets. The restrictions on this cash will lapse by the end of the first quarter of next year.

We ended the quarter with $1.7 billion of net debt, and our total net leverage was 4.4x, and our senior secured leverage was 3.3x, factoring in all of our cash on hand. On a compliance basis, which limits how much cash we can use in determining net debt, our total net leverage was 4.8x, and our senior secured leverage was 3.7x.

And our weighted average cost of debt at the end of the quarter was 5.5%. At the end of the quarter, the company retained its asset-sale proceeds on its balance sheet in anticipation of paying down debt.

In addition, the company is actively monitoring the market and is contemplating a potential refinancing of its existing capital structure. Our 3Q capital expenditures were $7 million, and we now expected our full year expenditures, including onetime integration-related expenditures, will be about $45 million.

This outlook is $10 million to $15 million less than what we previously expected as one of our facilities projects has been delayed, which has caused us to adapt our 1031 lifetime exchange planning, and to part more cash in the QI than we originally expected. As noted earlier, these restrictions on this cash will fully lapse by the end of the first quarter of next year.

With that, we'll go to your questions. Operator?

Thanks, everybody. Appreciate you joining us here this morning, and we look forward to reporting back to you here in a few short months.

Thanks. Bye-bye.