Q3 2019 Earnings Call
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Good morning, and welcome to Intercom third quarter 2019 earnings release Conference call. All participants will be in listen only mode. This conference is being recorded I would like to introduce your first speaker for today's call Mr. Rich smelling C F O and executive Vice President.
Sir you may begin.
Thank you very much Brittany.
Good morning, and welcome to our third quarter earnings call. This call is being recorded in the replay will be available or a company website. Shortly after the conclusion of today's call and Adobe won by telephone at the replay number noted in our release.
During this call the company May make forward looking statements, which are based upon the company's current expectations and involve risks and uncertainties.
The companys actual results could differ materially from those projected in these forward looking statements.
Additional information concerning factors that could cause actual results could differ materially or described in the risk factor section of the company's annual report on Form 10-K for the fiscal year ended December 31, 2018, as such risks and uncertainties may be updated from time to time in the companies.
SEC filings, we assume no obligation to update any forward looking statements, except as may be required by law.
During this call we may or may make reference to certain non-GAAP financial measures. We refer you to the investors page of our website Entercom dotcom for reconciliations of such matters such measures and other financial information.
David.
Thanks Rich good morning, Thanks for joining us for Entercoms third quarter earnings call I.
Im pleased to report that we achieved strong quarterly financial results in the quarter and in addition made great progress on our various strategic growth initiatives and enhancements to our core business capabilities, starting with the financial headlines Entercom posted 13% EBITDA growth in the third quarter, driven by 2% revenue growth.
And expanding margins ex political revenues were up close to 3%.
Adjusted net income per share increased 23% for the quarter.
We achieved double digit growth in digital and network revenues political revenue was of course down substantially in this off election year and events revenue was also down as we continued to selectively trimmer portfolio to eliminate poor performers, while selectively adding a limited number of new events.
In addition, during the third quarter, we capitalized on the strength and scale of our outstanding station group to gain 210 basis points of share in spot radio revenues as reported by Miller Kaplan.
Notably we gained share in most of the country's largest markets, including New York, Los Angeles, Philadelphia, Dallas, Atlanta, Houston in Washington, DC, which by the way our all legacy CBS radio markets.
And in total Entercom spot radio revenues ex political were up 1% for the quarter.
Our best performing AD categories were professional services financial services insurance, TV cable telecom drugstore pharma and home improvement.
Of our top 15 AD categories 12 are up and only two were down being auto and concert slush movies.
July and August with a stronger months as the quarter was September being a bit softer.
Let's turn to some noteworthy recent developments on our last call, we announced that we have taken an important step forward to establish enercom as a leading player in the emerging rapidly growing podcast space by acquiring Pineapple Street media and entering into an agreement to acquire cadence 13, I'm pleased to report that we completed our cadence 13 acquisition.
In mid October .
I'd like to share a few thoughts on these moves and there are significant to our company going forward first we should correct. The record and note that the early news reports speculating on the purchase price on the transactions significantly overstated the cost.
The total cost of both acquisitions, including the 45% interest we acquired in cadence 13, three years ago was $48 million, which represents a purchase price of approximately one time projected 2019 revenues, which is well below the multiples on a number of other recent acquisitions in this space.
Second the combined transactions establish Entercom is one of the three largest podcast enterprises in the United States with approximately 150 million downloads per month of programming that we create will represent for AD sales.
Third the podcast market is growing rapidly and is expected to exceed $1 billion by 2021, we believe we're very well positioned for sustained success in this space due to the scale of our radio broadcasting platform and the powerful symbiotic opportunities driven by our leading position in sports news and local personalities.
Furthermore, we believe the podcasting margins will grow nicely in the years ahead, and we are positioned to generate significant shareholder value creation with these investments.
Even though it is early we see a great deal of momentum across our podcasting business.
In fact, our total podcast downloads grew by 72% during the third quarter.
During the quarter, we launched several new shows including campaign HQ with David plus.
Long may they run featuring the band fish and a handful of new collaborations with HBO and Netflix. We also just announced that we will be launching the new Ronan Faro podcast as a companion to as bestselling book catching kill which will debut later this month.
Turning to digital video Dot com continues to be the fastest growing digital audio up in the country.
And they use grew 60% six zero percent year over year during the quarter.
We also have beefed up our digital sales capabilities with the addition of a new digital Chief revenue Officer, who will oversee all of our digital sales, including podcasting.
In addition in October we became the first and only company to develop and launch DVR like functionality for live radio.
I want to give a shout out to our radio dotcom development team for this significant achievement, which we have rolled out as radio dot com rewind on many of our leading news and sports stations with radio Dot Com rewind listeners on enabled stations can now for the first time easily listened to what they want whenever they want with the ability to pause.
Rewind and fast forward shows for up to 24 hours without having to record them in advance. We believe this feature is an important enhancement of alive radio listening experience and we expect to rollout additional compelling user features in the months ahead.
During the third quarter. We also welcome to station groups of Alpha media and Salem media to the radio Dot Com platform. We've also added podcast for Midroll NBC news MSNBC and Vox media the platform.
On the distribution front, we launched our Apple music and home pod partnership during the quarter and yesterday announced a distribution deal with Samsung's Bixby.
To put all of this in context digital including Podcasting now represents 12% of our total revenues.
Turning to events I'd like to add a little bit of color as a way of highlighting that we run a pretty significant events business across the country that includes both major concerts as well as boutique money can buy special listener experiences.
For example in October our annual we can survive concert at the Hollywood Bowl featured a stellar lineup of Taylor Swift, Billy Irish Camilla Cabello, the Jonas brothers Lazaro and marshmallow.
This event lead sponsored by Agncs supported breast cancer research and sold out in under 10 minutes. We're also looking forward to our lineup of Chr country on alternative musicality concerts coming up in late November in early December including our two day Riptide Festival in Fort Lauderdale, and are not so silent night shows at venues, including the Barclays Center.
In Brooklyn, as well as other major arenas across the country.
I also want to acknowledge the terrific work of two of our award winning all new stations KNX in Los Angeles, and key CBS in San Francisco in the wake of the terrible wildfires in California, as a reminder of the important role our stations play in the lives of American public.
In fact, the recent lapd's wildfire press conferences always concluded with the police chief advising everyone to stay tuned to K Nx for real time vital information.
At times of crisis, we are reminded of the critical role radio plays keeping the public informed and safe.
Whether it is California residents tuning in for vital fire information, we're passionate sports fans across the country deeply immersed in conversations about their teams were listeners who have developed deep connections is fans of our terrific lineup of leading local musicstation personalities across the country, our leadership position as the country's number one creator of original.
Local premium audio content has enabled us to build a scaled and uniquely engaged audience. The addition of our podcast content and the enhanced user experience from new features like radio Dot Com Rewind will further enhance our listeners relationships going forward.
A few summary thoughts before I turn it over to rich.
As we step back and look at our business. We note the following.
Our good third quarter results mean that over the past 12 months. We have also posted strong double digit EBITDA and adjusted net income per share growth over the prior comparable period.
We feel good about our outlook for 2020 based on the strong set of organic growth opportunities. We have across the business, we expect to generate solid topline and bottomline growth in 2020.
Specifically, we have leapfrog into a strong competitive position in the rapidly growing podcasting space and believe we're well positioned for growth in a number of other areas, including radio Dot com and our other digital products the Entercom audio network events.
Political and sports gambling.
We are also optimistic about the potential acceleration from our national client partnership team and their work to elevate our relationships with the country's largest national brands and the growing impact from Entercom advanced audio, which incorporates our data analytics and attribution capabilities and finally, we look for continuing sequential impact.
Movement in our local radio sales.
The competitive landscape, while presenting some challenges also offers great opportunities audio is growing nicely and experiencing a renaissance driven by podcasting smart speakers.
Devices and audio search.
Radio remains strong as the number one leach medium and the most undervalued medium in the United States at a time when other media are increasingly disrupted a new catalysts are emerging to facilitate advertisers re examining their media mixes and increasing their allocations to radio.
Entercom is well positioned to compete effectively within today's competitive marketplace offering national scale in unsurpassed local radio platform and the country's top 50 markets with terrific premium local brands and content and a strong presence with another important growth markets, including digital podcasting events in sports.
And we believe we are on a path to reduce leverage to around four times EBITDA by year end 2020.
All of that said our stock is trading in what we believe is a significant discount to value as of yesterday's close of free cash flow yield over 30%.
We do not control our share price, but we do believe there is a disconnect relative to the strength of our business and our platforms and assets and the opportunities we see for growth and value creation. We are excited about the future and look forward to continuing to work hard to realize significant value for our shareholders and with that I'll turn it over to rich and of course on your questions.
Thanks, David.
Third quarter net revenues were up 2% and were up close to 3% ex political.
For the fourth quarter, we expect our as reported net revenues to be down one to up 1%, including $10 million to $12 million of podcasting revenues from our recent acquisitions.
Ex political our as reported net revenues are expected to be up 2% to 4%.
We closed on the acquisition of Pineapple Street media back in July and the acquisition of the remainder of cadence 13 in the middle of October combined for full year 2019. These businesses are expected to generate between $48 million to $50 million of revenue.
During 2019, we paid $38.3 million in cash to acquire both pineapple and the remainder of cadence 13, and in 2017, Entercom paid 9.7 million in cash to acquire its initial stake.
In cadence, so cumulatively entercom paid $48 billion in cash to acquire both of these businesses or about one times their projected 2019 revenues.
During the fourth quarter, we expect these podcasting businesses will be at about breakeven and in 2020 during our first full year of ownership, we expect them to grow rapidly and that they will be accretive to our 2020 earnings.
In their June 2019 report.
Abby and Pwc projected 2020 podcast market growth at 27%.
And they projected that the size of the podcasting market will top 1 billion by 2021.
Our total as reported operating expenses for the quarter came in at three and 6.7 million and include 2.7 million of M&A integration and restructuring costs and $1 million of costs associated with a cyber attack against the company.
During September .
For the third quarter, excluding these one time costs and adjusting out non cash items like DNA on a same station basis.
Our total cash operating expenses came in at 287.2 million or down 1.6% versus 291.8 million in the prior year.
In the third quarter, we realized about $11 million in net cost synergies, bringing the total to approximately $23 million September year to date.
Adjusted EBITDA in the third quarter grew 13% year over year than our EBITDA margin expanded by two and a half points to 25.4%. Despite the slight headwind associated with this being a nonpolitical year.
For the fourth quarter, we expect our as reported cash operating expenses, including our podcasting acquisitions.
Will range between down 2% to up 1%.
On a same station basis, we expect that our fourth quarter cash operating expenses will be down between three and 5% and that our full year net cost synergies will range between 38 and $44 million.
This would bring the cumulative total for net cost synergies realized NPL since closing the CBS radio merger to between 96 and a $102 million.
We expect to realize another $25 million or so of net cost synergies NPL in 2020.
As a result of the full year benefit of actions taken during the course of this year.
Looking at our financial position, our net debt at quarter end was $1.68 billion.
Our first lien leverage was 2.7 times and our total net leverage was 4.7 times, both calculated in accordance with our credit agreement.
During the quarter, we repurchased 5 million shares of our class a common stock for 18.3 million at an average.
Price per share of $3.67.
The cash used for this buyback is slightly less than the 2019 savings from the reduction in our dividend announced on August knife.
As a result of this buyback our out our outstanding share Count is now 134 million and our free cash flow yield based on an LTM adjusted EPS CF.
And yesterday's closing price was over 30%.
The company the company intends to use most of next years $30 million to $39 million in savings from the dividend reduction action to accelerate its de leveraging and our goal remains to reduce our total net leverage to about four times by the end of 2020.
We have paid about 18.5 million in cash income taxes September year to date and expect to pay about 22 million more in the fourth quarter, bringing the annual total to approximately $40 million.
This projected annual total for cash income taxes is $10 million less than what we previously expected as a result of the benefit of acquired and our wells and added bonus depreciation amongst other other items.
The disruption caused by the cyber attack we experienced in September also cost us about $400000 in lost revenues.
And has caused us to increase our capex investment by about $2 million as we wrap it leaf further fortify our defenses.
Our capital expenditures for the third quarter or 20.7 million net of T reimbursements.
Our full year net expenditures are now expected to total about $75 million due to added expenditures associated with the cyber attack our acquisition of Nash from cumulative and higher than anticipated costs on several facilities projects, which will all be fully completed by.
The end of this year.
For 2020, we expect that our capital expenditures will equal about 3% of our net revenues.
With that will now go to your questions Brittany.
Thank you will now begin our question and answer session.
Back to ask a question. Please press Star then one.
We need to withdraw your question you may do so by pressing Star then too and it looks like our first question comes from Marci Ryvicker from Wolfe Research. Your line is now open.
Good morning stepping on for Marcy just a couple of questions for me.
First are you seeing big difference in local versus national basis, we've heard nationalising quite strong.
Yes nationals I would say.
US this national stronger than local but.
Not a huge difference.
Great and then entering 2020 political years coming is anything yet and how exactly are you thinking about where may come in for the year given.
Let's see an a significant uptick in political revenue at this point.
But radio does typically do significantly better in a presidential political year first say non presidential cycle and expectations for next year as you know our for it to be a record political year.
We do estimate that our net political revenues in 2020 will increase year over year by over $20 million and.
And we'll see how plays out we hope we hope even more.
All right and then lastly, you mentioned a bunch of really shrunk cities gaining share.
How about the smaller markets are those gaining share as well or is there anything we can any color.
Yes, I mean look overall as I mentioned, we gained 210 basis points of spot share for the quarter. So by and large we we've done a good job of growing of growing the business and I'd say that pattern holds across all markets us.
Great. Thanks, so much.
Thank you and our next question comes from.
Silver from key Riley.
Your line is now open.
Okay, great. Thanks for taking the question.
On the sports betting side, just curious if you sign an incremental revenue in the quarter from that and if you've had any changes.
Yes, what your expectations and how they have a category that could be.
Our next year.
But we have.
We're excited about where that category will go for us Weve. It has been a nice contributor. It is somewhat limited geographically based upon which dates have approved gambling and we see that additional states will be coming on board.
Over the future in future quarters, which we think is great and do believe that we are uniquely well positioned for growth in this space due to our unrivaled leadership position in sports radio most of the Big Sports talk stations in the country. Our Entercom stations, we have by far away the largest number of pro and con.
Which teams at our play by play partners, we have a terrific lineup of some of the leading local sports personalities in the country. So we're excited about what that category will do in the future as the as it continues to above and can access added that we are seeing rapid growth off a fairly small base Ana and we are.
Seeing increases in our average unit rates because the.
They're essentially a scarcity of inventory and we're working to build additional inventory to accommodate what we see as significant future growth.
Got it and then I mean sports rights costs.
On the video side have increased pretty dramatically what are you seeing on the radio side in terms of escalators of the rates come up.
We do not see that same pressure on the radio side and and feel that market is quite stable.
On the audio SEC.
Thanks, David and then there's one more if I could just on Entercom analytics and make a couple of quarters ago. You gave us an updated how many advertisers you had on the platform what presented percentage of revenue they represented and sort of what they were spending.
After they joined the platform I don't know if you have any.
If you can quantify that at this point out whether that's grown our changed or if not more qualitative though would be great.
Yes, Zach rich.
So when we when we talked about the Entercom analytics platform at that point, we're thinking more about our web lift attribution offering and on that platform. We're over 6000 advertisers now, but since then we've expanded the attribution use cases to include.
Foot traffic.
Download the.
Does sell through.
On a cell based sell through so that we've expanded our attribution use cases, and we're starting to see.
Greater adoption, but I do think it's fair to say that we're at the early adopter phase of this set of new capabilities in the radio space and.
And we're working hard to drive adoption and gain success and use those case studies to share with others and.
And so we're seeing traction.
We're hopeful that over the next.
12, 18 months, we're going to see more rapid adoption of these capabilities and that digital buyers in particularly who can't get enough scale in the digital audio advertising space will choose to buy all say data infused over the air inventory.
To augment their digital by Ana and then of course, they can test that.
And see the effectiveness of that add on companion by so it's we're getting closer but.
Not there yet but C level line of sight, we believe to greater success.
Got it okay. Thanks, rich thanks, David.
Thanks.
Thank you and our next question comes from Steven Cahall from Wells Fargo. Your line is now open.
Thanks, maybe first question on the Entercom audio network could you, maybe just give us a little bit of insight as to what sort of growth you're seeing I know you and your peer have talked about PNG are you seeing other sort of blue chip names come to that and do you think your growth for Ian is going to be more market share based or is it more about growing the pie.
Hi for sort of a nationally scopes ad campaigns.
So Steven.
Last year as you know was our first year in the which day. This year was our first year in the in the network space again, another advantage of our achieving scale and we have seen strong growth as we mentioned double digit growth. This year and yes, we have quite a few blue chip advertisers and a lot of digital advertisers who have come onboard too.
Two out on our on our platform.
We do believe going forward that we will continue to see growth in the category and it's a little bit of both it will be both share gains as we take on.
Somewhat higher share of the category our share of the of the channel and in addition.
It will be because the channel will continue to grow we believe.
Weve noted before and it's worth repeating that our expectations are somewhat limited in the sense that we believe we have a.
Boutique network because it represents at this point just the Enercom stations.
And we limit the amount of inventory that we apply to the this channel.
And we're not looking to expand that beyond what we believe as the is the right balance in terms of our.
Our portfolio.
Great and then on podcast could you give us a little bit of insight into the economics I think what a lot of us are interested about his year. The studio here. So your licensing or providing this content to distributors and for some of those big distributors like a spot of high or Apple what is their take rate on the revenue generated from now.
Then and where it is kind of the negotiating leverage said in this fragmented market.
Right. So first we have our own distribution platform as well, but you're right the distribution tends to be across lots of platforms like like Apple primarily.
We think that we will continue to generate great content and believe the economics of the business are going to continue to improve particularly for.
Players like Entercom, where we have a wealth of symbiotic.
Advantages.
Between because it really is very much an extension of our core business and so if you think about the ability to cross pollinate, our talent and our content across distribution platforms that really enhances discovery and promotion, which is such an important part of the podcast model.
It also enables significant multi platform sales opportunities as we can leverage our local sales forces and work across different sales channels and deepen our customer relationships and I think also advertisers have put a great value on the on podcasting inventory, which is scarce and we think Thats also.
The great thing for our overall.
Overall health of the audio market going forward.
Ed one one thing for that felt mine. The Stephen is just that when you look at the top johndroe within the podcast space Sports is right near the top which really the dovetails well into our wheelhouse.
And we see a lot opportunity there to exploit.
And create more.
Owned audio content that of course is what pineapple is focused on creating original audio content will we are the publisher and as we evolve our mix over time to have more.
Owned content.
We do see the margins in this business, increasing I'll say quite significantly and.
And we hope it overtime to be comparable.
To the core business.
And then last one for me is there any share repurchases assumed in your deleveraging target for 2020. Thanks.
So as we look at the.
At that the our balance sheet, our use of free cash flow over the next year. The number one priority is deleveraging.
The bulk of our ample free cash flow generation is going to go there.
And.
You never say never and we'll see we'll see what the what the but what the future will bring but we would expect again that the vast majority of our free cash flow will go towards.
Delivering.
Thanks.
Thank you and our next question comes from.
Each bank your line is now open.
Hi, guys. Thanks, I appreciate all the detail really just more of a clarifier question for me rich on the guide that you provided the plus to 4% ex political it does that also includes some benefit from your your recent Cas acquisitions.
Absolutely that is that is entercom as reported ex political so it includes the.
$10 million to $12 million of podcast revenues, we expect in the fourth quarter.
Okay, and David I guess, just as an add on to that I know you said September slowed down a little bit can you just talk about kind of the cadence of kind of AD sales for the platform in the fourth quarter and any early look at kind of a sentiment going into 2020.
Sure on the quarter to quarter started slower October was weaker.
The pace of business has picked up in December looks quite strong right now.
As for 2020 really too early to tell we've seen nothing to indicate that there are any issues or concerns it appears to be business as usual, but candidly. It's early November and we really it's too early for us to have any really meaningful feedback to give you on that question and we're all curious Aaron.
To see how political plays out next year.
You may know that that Facebook has reduced the number of.
Political advertising units, it's going to support Twitter, obviously has exited political advertising Ana and its and when you think about the number of available impressions.
In a given market between 2020 in 2016.
Linear television is seeing pretty significant decline in its and its ratings. So there's less television impressions and radio actually makes up a greater proportion of available impressions in a given market. So it's going to be interesting year, then and you would do you think that that kind of demand is going to drive pressure.
On the our pricing.
Okay Thats helpful context, and if I could ask just one one last one David it does.
Terribly newer shine thats around the podcasting business and clearly its drawing an advertising.
Has that are you seeing and do you expect to continue to see that some of that China is going to rub off on the.
On your legacy terrestrial platform and so much is bringing in kind of additional dollars, maybe new advertisers, who start with podcast, but could come over to the broadcast side too.
Well, our and it's certainly should.
And we see evidence that that is happening.
And at a time when there is so much disruption across.
Really all forms of advertising the appeal of podcasting is absolutely getting some advertisers to pay greater attention to audio and.
There is not fundamentally that much difference between running an advertisement within a podcast and running an advertisement within a piece of really great over the year broadcast audio.
And we do believe Thats, an opportunity for us going forward and one of the number of reasons why we're excited about being in the space.
Okay, great. Thank you for the time.
Thank you.
Thank you and our next question comes from Craig Huber from Huber Research Partners. Your line is now open.
Thank you Paul address an advance a few tougher. So this was another conference call belts fourth.
No problem.
I think you talked about these are popular three days from media companies report obviously.
I think you said, you're expecting ex political revenues of 2% to 4% in the fourth quarter year over year, including it. Thank you for $10 million to $12 million from podcasting.
I think political year ago for you guys added about.
Two percentage points correct for the fourth quarter.
So much that's going on by issuing right.
Right in the fourth quarter of last year was more than that it was about three points.
Of.
Of total political revenue.
So.
But the incremental debt.
And you're correct that the.
The up two to four.
Is as reported including $10 million to $12 million podcasting.
Okay and then.
On the cost side can you just go through again, if you would what are you expecting for cost year over year.
In the fourth quarter and how much of that.
Number is from the podcasting acquisitions.
Yep so we.
What we.
Outlined was that.
We expect our as reported cash operating expenses, including our podcast acquisitions, which we expect to be about at breakeven in the fourth quarter.
That are our expenses will range between down to to up 1%.
And then we said Craig on a same station basis, we expected our fourth quarter cash operating expenses will be down between three and 5% and that our full year net cost synergies will range between 38 and 44 million.
That's helpful. Then.
Talk a little further about where you at this stage post the CBS radio acquisition, where at this stage you guys getting.
Cost savings out of the system outage was broad areas you pull costs out.
Yes, so we're pretty much done with our integration program.
And those final synergies were really all about leveraging the scale of the platform.
And moving from all say highly distributed administrative operations to consolidated operations.
Across a number of different functions and and were largely done with that and what we did say is that we do expect to realize another $25 million of net cost synergies or so NPL in 2020.
As a result of the full year benefit of actions taken during the course of this year.
In the next year is it reasonable to assume that you could hold your same station costs and it's early but two up maybe only low single digits next year same station costs.
I do I think thats reasonable and.
Given the $25 million of additional net cost synergies, we expect to realize NPL next year.
And I think it's important that you said same station basis, because obviously the podcast acquisitions are going to change our cost profile and we'll give more information about.
On that as part of our fourth quarter call.
We also think Craig that the inter racial program is largely wrapping up but theres absolutely more to do we see other opportunities to continue to transform our cost structure overtime as we adapt our business infrastructure to changes in the advertising in.
Garments. So we're not done we think there's more data and we will talk about that as we're prepared to.
Also I want to ask from a revenue side you guys talked in the last year so but.
Advertisers like Procter and Gamble coming back to the radio market here and stuff can you touch on that and are you seeing lots of other large national advertisers.
Name that absurd to come back to your radio ecosystem.
I don't really want to name them for competitive purposes, but what I would say is that our national client partnership team has been hard at work in this now for the last year or so.
It takes time frankly, it takes perhaps more time than we had hoped it would take but that said we are having very good evolving relationships with many large national advertisers who are.
In conversation with us spending more money testing and we are optimistic about our ability to continue to get a larger share of their spending as they look at their media mix and I think in many cases recognize that they may be under spending across audio and radio and Craig We have said in the past.
At the consumer product category was up a couple of hundred percent year over year I think back in the second quarter that absolutely was not just procter and Gamble. There were other CPG names that came back the radio and our spending more with us.
My last question guys.
What percent of revenue in the in the third quarter came from digital.
And how much was up year over year. Please.
I think we talked about the fact that pro forma now digital including podcasting is 12% of our of our business and we also noted that digital was up double digits for us in the third quarter.
Great. Thank you.
Thank you. Thank you.
Final question comes from next coverage from Fitch capital markets.
Me Capital Management. Your line is now open.
Thank you.
Good morning, David and Richard.
I want to.
I have an understanding.
Metrics by which.
Balance shareholder value creation debt reduction versus.
Share repurchases.
The.
Reverse Morris Trust anniversary two years.
Two.
Buyback stock on the two year anniversary.
And.
Decision by the board.
Dividend or reduce the dividend makes all the sense in the world given the free cash flow and earnings yield north of 30%. So it's highly highly accretive to shareholder value.
Hi back stock.
Given the depressed nature of the equity at this point in time, so how do you balance.
Share repurchase versus debt reduction.
In terms of shareholder value creation at this point should.
We think about the reduction in the dividend a savings of 35 to 40 million as being earmarked for share repurchases at this point in time, which is on an annual basis buyback, 5% to 7% of stock per year.
Just trying to understand how management in the board is thinking about thank you.
Thank you Nick and it's a it's a great question.
Let me first.
Elaborate a bit on a point you referenced there for the sake of those who might.
Not understand the reference point on the reverse Morris Trust to your point, we have had a than limited in the number of shares we could acquire based upon the structure of our reverse Morris Trust merger with CBS radio.
And as you noted earlier that ex that.
At the two year.
Limit on that constraint expires in about a week or two.
The and I should add that that limit not only applies to the corporation, but it also applies to the field family.
As well.
Now that all said.
There is no silver bullet answer of course to your question it is something that.
Our board of directors NRG senior leadership team thinks about and as I mentioned earlier on the call and as rich mentioned in his comments as well.
We are making our de levering our primary goal.
Just on bringing down our leverage to around four times by the end of next year.
Now that said.
We agree with you that our stock is highly undervalued and we agree that buybacks of stock are highly accretive to creating shareholder value. So it is a balancing question and again as we look at the world and consider all the various considerations, we think the emphasis needs to be on Delevering.
As we go for is also accretive yet which is also accretive to the equity.
Okay. Thank you.
Trying to understand balancing share repurchases versus debt reduction.
Highly accretive to buyback stock.
Okay. Thank money I understood. Thank you Nick.
Yeah that was the final question.
Great well, we appreciate everybody.
Joining us here this morning, and we look forward to reporting back to everybody here and in a few months. So thanks so much.
Thank you for your participation in today's conference all parties may disconnect at this time.