Q4 2019 Earnings Call
Good morning, and welcome to Entercoms fourth quarter to cover much in 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.
CFO and executive Vice President Sir you may begin.
Thank you Chad good morning, and welcome to ever comes fourth quarter earnings Conference call.
This call is being recorded replay will be available at our company website. Shortly after the conclusion of today's call and it's all baked all told that 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 to differ materially or described in the risk factor section. That's a companies I report on form 10-K.
Such risks and uncertainties, maybe opinion from time to time in the Companys FCC filings.
Assumes no obligation to update any forward looking statements, except as may be required by law.
During this call we may reference certain non-GAAP financial measures. We refer you to that investors page of our website Entercom dotcom for reconciliations of such Matt measures and other pro forma financial information.
I'll now hand, the call to take the ceiling.
Okay.
Thanks, Rich good morning, everybody. Thanks for joining us for Entercoms fourth quarter earnings call.
Q4 was our fifth consecutive quarter of growth.
For the full year 2019, Entercom delivered strong financial performance net revenues up 2% or 3% ex political adjusted EBITDA up 10% and adjusted net income per share up 19%.
Our significant investments in podcasting digital and data and analytics, along with the expansion of our sports network and defense businesses are beginning to reshape our company and position us for sustained growth as we enhanced our integrated multi platform offerings to advertisers increasingly interested in the under.
Valued and emerging audio space.
As we speak about our business at a time when podcasting smart speakers, you wearable devices [laughter] and audio search.
Excuse me.
Our leading an audio Renaissance and at a time when competitive media is increasingly disrupted we were bobbing to capitalize on our scale.
We are making strong progress and enhancing our product line and capabilities expanding our lineup of original content and <unk> <unk> elevating our customer relationships.
We are the number one creator of original local audio content in the United States and one of the two radio broadcasting companies with nationally competitive scale.
The strength of our station lineups across the countries top 50 markets second did not.
And now by virtue of our acquisition of Kittens 13 in the fourth quarter and Pineapple Street Studios during the third quarter. We were also one of the country's three largest podcasting companies.
I'm pleased to report that the pot guess that our company now creates or exclusively represents just surpassed 2 billion annual downloads at our current run rate.
I guess portfolio features numerous titles that have reached the Apple top 10 list and includes revisionist history with Malcolm Gladwell, when its paltrow scoop.
Clearing run Ferros catching kill anything goes with them at Chamberlain pod save America against the rules with Michael Lewis and new this year unlocking us with bestselling author Dr. Bernie Brown, whose trailer just debuted at number one on the Apple chart. This is just a small sampling of the list.
In addition, we have built radio dot com essentially from scratch into the fastest growing digital audio up in the country during 2019 and establish an important strategic relationships with partners, including Apple Amazon, Google and others.
Our events business continues to grow nicely and a 29 gene featured a host of shows across the country headlined by the likes of Taylor Swift, Billy Irish Mumford <unk> sons, the killers, Zach Brown band Keith Urban among many other realist artists and the Entercom audio network completed its first full year of operations.
With rapidly growing revenues and profits and its position for significant growth in the future.
So we are a significantly stronger company today than a year ago I will share some additional color on our progress in each of these areas, but first I'd like to touch on our financial results for the quarter.
Fourth quarter revenues increased 1%, 3% ex political.
Adjusted EBITDA was up 2% for the quarter, while adjusted net income per share increased 14%.
Revenue growth was driven by solid increases in digital events National and network.
Political revenue was down significantly as expected, albeit stronger than a typical off cycle fourth quarter.
Spot radio ex political was flat for the quarter.
We also achieved modest margin growth during the fourth quarter for 2019 as a whole we grew margins by close to 2% Rich will provide further color on our financial results during his remarks.
As the business involves scale is becoming an increasingly meaningful competitive factor within the radio industry.
Having a multi platform integrated product line that can deliver robust nationally skilled solutions to clients through broadcast radio with its unmatched reach along with podcasting digital and data is becoming an important factor in building marketing partnerships with large clients and this is particularly significant as.
National advertisers, who have long since under invested in radio are becoming more interested in rethinking their media mix strategy and increasing the audio investment.
Entercom is well positioned for the emerging opportunities in this new competitive landscape as I touched on earlier Entercom as a local station lineup second to none in the top 50 markets plus our newly established leadership position in podcasting and our strong platforms in sports digital data and analytics and events offer apparel.
Set of capabilities for customers at scale.
You had some context at this point, let's take a quick look at Entercom, New York and how it provides a uniquely powerful platform for customers. Our station group. There includes WSA and the most listened to sports station in the United States 10, 10 wins, the most listened to all news station in the United States, plus all news Wcbs am.
And top music stations, including Wcbs FM, new one or two seven FM, all 92, three and New York country.
We're also the radio home to the New York Yankees, Meds, and Jives, plus the Jersey doubles and the Brooklyn, That's and feature a robust lineup of local events digital products and so much more.
We have similarly powerful positions in most of the country's leading markets and or the number one radio revenue producer in many of these markets.
I'd also like to provide a little more color on a few other areas of the business. Our events business is driving higher revenues and margins and is now enhanced by the addition of four new performance spaces that we recently constructed at our facilities in Los Angeles, Philadelphia, Atlanta and Miami.
As January Coldplay performed live at our Grand opening show at the New HD Radio sound space on Wilshire Boulevard in Los Angeles in front of 300 invited guests.
Similarly, the new Verizon theater in Miami, and our new facilities in Philadelphia, Atlanta should be active spaces for small exclusive boutique shows like podcasts and other programs and entertainment across the year.
We have recently begun live video and audio streaming of some of our shows on radio Dot com, along with other social platforms, including our Coldplay show as well as our Zach Brown Bad show the night before the Super Bowl.
We continue to achieve significant progress from our national client partnership team and their work.
[noise] excuse me to elevate our marketing relationships with the country's largest brands.
And we're growing our unrivaled local radio sports business with further opportunities as more states legalize gambling.
Last week, we announced the sale of a non strategic FM station in Western mass that provided limited coverage of the Boston market for $10.75 million. The sale is accretive and the proceeds will be used to reduce debt.
Our radio Dot Com digital platforms continue to grow nicely posting double digit total listening our growth and making us the fastest growing of all the major commercial broadcasters over the past six months according to triton's webcast metrics.
Our TL h. growth is being driven by an acceleration in listening across smart speakers continued expansion of our strategic distribution relationships and lift from our new radio Dot Com Rewind feature.
As a reminder, on a previous earnings call, we announced radio Dot Com rewind. The audio industry's first automated end to end DVR like experience. We are also achieving strong growth in monthly active users of radio dot com surging by over 55 zero percent in 2019.
Streaming revenues were also weigh up due both to audience growth and improved revenue per thousand listener hours as we enhanced digital sales execution.
One final note on digital we continue to deepen our strategic relationships with key partners, becoming the only commercial broadcaster.
[noise] to serve as a beta partner for the new Google News audio products on Google Assistant and the first partner to large on Amazon's, New radio skills kit for Alexa.
A few summary thoughts before I turn it over to rich.
We feel good about our outlook for 2020 based on the growth opportunities, we see across the business in areas, including digital podcasting events sports political plus the work of our national client partnership team and the increasing impact of our Entercom advanced audio products with its data analytics and attribution capabilities as a result.
We expect to generate solid revenue EBITDA and free cash flow growth in 2020, and continue to build and our five consecutive quarters of growth.
We are focused on reducing leverage from our current lever level of 4.8 times by at least half a turn by yearend 2020.
We believe the current stock valuation remains disconnected from the strength of our business and the opportunities that we see for growth and value creation. It currently trades at a free cash flow yield of 25%.
We are excited about the future and look forward to continuing to work hard to realize great value for investors I'll now turn it over to rich and then your questions rich.
Yes, David.
2019 was an important transition year for Entercom.
We made significant investments in support of and progress against our strategic growth initiatives, while posting solid EBITDA.
And.
Net income per share growth.
During 2019, we completed the CBS radio integration program, which generated over 175 million of gross cost synergies and about a $100 million of realized net cost synergies through the end of 2019.
You'll recognize another $25 million and synergies from 2019 actions during this year.
And we are already hard at work defining the next round of initiatives to continue to transform our cost structure and adapt the rapidly evolving advertising landscape.
We also made significant strides in building the Entercom audio network gaining momentum in the National Advertiser direct sales channel through our national client partnership team.
And fielding and audience targeting and attribution offering fueled by our significant first party data that is second to none in our industry.
We're also excited about the power of the acquisitions of cadence 13, and Pineapple Street media in combination with Entercom.
We're just getting going podcasting is highly complimentary to enter comscore business and overtime. This new high growth business will also be a source of significant revenue synergies.
Turning to our results for the fourth quarter, our net revenues were up 1%, we're up close to 3% ex political.
Our podcast revenues came up for the quarter at 12.4 million versus our guidance range of 10 to 12 million.
Our fresh our fastest growing markets during the fourth quarter, where New York, San Francisco, Philadelphia, Washington, D.C., Cleveland, Pittsburgh and Richmond.
Overall across all our markets, we continue to gain spot revenue share in the quarter and for the full year as reported by Miller Kaplan.
Our best performing AD categories, where professional services financial services insurance Entertainment gambling home improvement and beverages.
December was the strongest loves the quarter in October was the weakest largely due to decline in political year over year.
Our total operating expenses for the fourth quarter came in at 869.6 million that include a 545 million noncash impairment charge.
$5 million of refinancing integration and restructuring costs and a 5 million nonrecurring charge included within our corporate expenses for the estimated combined cost to settle the FCC matters discussed in our third quarter 10-Q and for cyber.
Related costs.
Our annual impairment assessment conducted during the fourth quarter concluded that the carrying value of our goodwill exceeded its fair value based on an independent appraisal and has applied as implied by our prevailing stock price.
After this charge our remaining good bell goodwill balance a 44 million represents the goodwill associated with our recent acquisitions of cadence 13, and Pineapple Street media.
For the fourth quarter, excluding the impairment charge and one time costs and adjusting out 12.5 million of podcast costs and non cash items like DNA.
Our total same station basis cash operating expenses came in at 288.6 million were down 4% from the 300.2 million reported in the fourth quarter of last year.
For the full year, our same station total cash operating expenses are down 18 million.
5% at our realized net cost synergies for the year totaled 41 million.
As mentioned earlier.
Back to realize another 25 million of cost synergies in PML. This year from actions taken during the course of last year.
Addition, the company's hard at work developing new strategies and actions to continue to transform our cost structure and leverage our significant investments in technology. Indeed.
We will provide further details about these ongoing efforts I see your progress.
Adjusted EBITDA in the fourth quarter grew 2% you every year and our EBITDA margin expanded by 30 basis points to 27.3.
Despite the impact of a significant decline year over year in political revenues.
Full year EBITDA margin was 22.9% and was up 170 basis points year over year.
Our adjusted free cash flow from the fourth quarter was 59.5 million and 145.6 million for the full year.
Given that our diluted share count of 134 million or current free cash flow yields based on 2019 adjusted free cash flow is over 25%.
For the first quarter, we expect our revenue yields will be up 3% to 4% year over year, and we expect our adjusted EBITDA will grow by low to mid single digits.
Turning to our financial position during the fourth quarter, we amended and extended our revolver better align its maturity of our term loan b.
We also repriced our term loan b, reducing the margin by 25 basis points and added on 100 million to our second lien notes. We use these proceeds to partially pay down our term loan b.
After these transactions are weighted average cost of debt was unchanged at 5.4% in our percent fixed is now 48%.
Versus 21% at the end of 2018.
Our net debt at your end was 1.69 billion.
Our first lien leverage was 2.5 times that our total debt leverage was 4.8 times, both calculated in accordance with their credit agreements.
The company's top priority for the use of its free cash flow was the pay down debt and we expect to reduce our leverage by one half turn or more by the end of this year and to get to our total that leverage target of four times before the middle of next year.
Our capital expenditures for the fourth quarter were 10.2 million net of.
Tenant.
Installation reimbursements.
At our full year net expenditures totaled 68.3 million.
Now that the CBS radio integration program is behind US, we expect that our capital expenditures and will decline in 2020.
An equal about 3% of net revenues.
With that will now go to your questions.
Yet.
Yes, the summer open for questions. If you would like to ask a question over the phone. Please press star one and record your name.
If you'd like to withdraw your question press star to thank you.
The first question the cues from seeking with Wolfe Research. Your line is now open.
Good morning, I have a couple first.
Your first quarter of teaching what is your same station.
At X podcasting.
Yes so.
I think you can you as you saw we are not giving up a pacing information at this time, we talked about guidance. The guidance is I think consistent with what we're seeing in the marketplace and we're looking at a 3% to 4% increase for the quarter.
And Ah you know basically that would imply sort of flattish outside of podcasting.
Got it.
Now I was wondering if you could dig a little deeper on your monetization plan now that you had a couple of months to digest Usten podcasting acquisitions.
What is the potential opportunity to cross sell say or podcasting spots along with your terrestrial network in digital spots.
Across your platforms to bringing incremental advertisers in revenue.
Right. So we see we seek to real fundamental areas to incorporate podcasting into our business. One is as you just alluded to in terms of the sales side being able to offer advertisers a truly integrated multi platform solution and we're finding that is resonating with customers and expect that to become an increasingly important.
Out of our offering going forward as we can provide again not just the reach and scale of our radio platform and our network and our digital offerings podcasting et cetera, We think that's increasingly important but it's also true frankly on the.
Building, our listenership as well as we look to cross pollinate, our digital platform, our podcast platform and our radio stations to drive listenership across all three.
Enhancing.
The number of scalable sellable impressions that we have across the entire a business.
Got it thank you.
Thank you.
Next question is from Zacks silver from B. Riley FBR. Your line is now open.
Okay, great. Thank you for taking the question first one for David You mentioned in your prepared remarks, you expect to see solid revenue growth in 2020 I. Just wondering if you can help maybe parse that out of that more.
Particularly as I think we.
Are going to see a pretty good year for political advertising, maybe what you know, they're a big political left and also as maybe there's more political crowd out on TV station is there sort of a secondary effect, where more local advertisers will come to you guys since they're getting squeezed out of TV.
Sure the happy too.
And this goes to what we talked about earlier about as our business evolves and gets reshaped we see as we look across 2020.
Significant growth opportunities in several of our a product area, so whether its digital or podcasting our network business.
Political as you mentioned sports events national and so forth all of them, we put in the plus column on some more robust and others as we as we go through the year and yeah two to talk more about political we are seeing.
As you know it is a less substantive.
Component of our model than television Nonetheless relative to past years, we're seeing so far political significantly ahead of what it has been in the past.
Got it that's helpful. And then did you guys buyback any stock in the in the fourth quarter and that's not in the fourth quarter, Okay. All right.
In terms of 22 any capital allocation I mean, it looks like you're given the political that this year, you're gonna be sort of approaching our leverage target by the end of 2020. Your as you met you guys mentioned a few times your stock is trading at a 25% free cash flow yield.
Can you talk about the opportunities to I think you still have some authorization remaining to repurchase stock in this coming year.
So as we all know one of the great things about the radio business is the enormous amount of free cash flow that it generates and we are an interesting position because.
We have lots of great options as to how we.
Utilize that ample free cash flow.
I think based on what we've done in the fourth quarter and what you've heard from rich and make consistently we are making our first priority.
Delevering and we think thats, the right and invest use for our capital.
It's it's certainly we think our stock is highly undervalued and we continue to look at solid organic growth opportunities within the business, but first and foremost is going to be delevering.
Got it and then one more if I could just on the expense trajectory for 2020.
Excluding the incremental.
It podcast Opex out from the the acquisition.
And also I got sort of factoring out that 25 million and net cost synergy and I can you give us a sense there I understand it theres some inflationary cost out of a sports rights and.
With other sort of labor costs in the business, but can you give us the sense of maybe what your organic same station cost trajectory as in 2020.
Yeah, Matt I think that what we've said historically.
Is that organic expense groups about 2%, it's probably a little bit more now it's.
Closer to three.
We are seeing some pressure and wages are experiencing increases and the cost of medical benefits and and then you know we have.
Within our digital business, you know a growing digital agency that resells other people's products and creates cost to goods sold as a key driver for us.
So there's there's other drivers of that are variable costs are driving a relative to revenue in a and those are increasing.
We're rapidly becoming a greater proportion of our total cost base, we do we do plan Zack.
To provide further detail of revenue by type in our reported model for 2000, and Twentys you have greater visibility of the drivers.
Revenue, but also of the underlying costs.
Got it okay. Thank you both.
Next question is from Steven Cahall with Wells Fargo. Your line is now open.
Hey, Thanks, a couple from me maybe first I think you previously talked about getting down to leverage of around four times by the end to 2020, and if I'm doing my math right I think your new guidance gets you to the mid fours by year end. So I would just want to make sure Steve I'm doing anything wrong, there and maybe if I'm not you can talk to the incremental debt.
The is it lower free cash flow is it a bit of a buyback carve out and just help us understand maybe that shifted versus what you were talking about towards the end of last year and then on the digital side I was wondering what sort of growth you expect in podcasting revenue this year and I think probably all your digital revenue growth is accretive from a growth.
It's perspective versus the overall company. So how do we think about the margin profile of the business has that digital revenue grows faster than the spot radio revenue.
Maybe just related on that if you could give us but the may use currently look like for radio Dot com that'd be great. Thank you.
[music].
Yeah, so from a from a leverage perspective the.
Nothing has changed the you know we expect to take off.
Half, a turn or more and and you know our our projection shows.
Just to be a little bit above the four x. So.
Things change I, just don't think we're going to be perfectly on top of Florida. So we'll be a little bit north of that and we think will be.
Comfortably inside that that target by the middle of 2021, So again nothing's changed on that score maybe or maybe how we language to change the little bit and sorry, if that cause any confusion from from.
You know from the.
Digital perspective, and and other growth drivers, we've talked about our podcasting business, we've pointed to the market growth projections by IP and Pwc, we're projecting that podcasts will grow about 20%, 27% in 2020.
That's a good baseline.
Measure to point to of course, we aspire to do better.
From a profitability perspective on the podcast front that you saw in the fourth quarter. As we had previously guided we were about breakeven and we do expect in 2014 distort marching that margin.
Up overtime, and we think for the full year, our EBITDA margin will be mid single digits to perhaps somewhat better.
And then over time, we said that we take over the next three years, we're going to get that podcast business to a margin about consistent with the overall bid business call that.
You know 20 Twentys in the Twentys at a we've had lots of leavers to work there we think about our the rest of our digital product line excluding podcasting.
That business has a margin profile that's about consistent with the overall broadcast business, it's not dilutive to our overall margin, it's about the scene and a and we see opportunity for growth in particular as the streaming business the keeps rolling.
Quite rapidly.
And we've said in past calls that.
Looked at you know per I, maybe in the first half of 2019, the digital audio market grew about 30%. They haven't yet published of course for the second half of 2019, but we've grown a little bit faster than that and we think we're going to enjoy similar growth in 2000.
And 20, and and you know were.
Getting better extracting higher cpms and improving the profitability of that revenue. So I do think you're right that you know the overall composition of our revenues.
Outside of so called the core is accretive to our overall.
Revenue growth profile and is helpful and it will be a source of improved profitability on the bottom line.
Great. Thank you.
Next question is from Craig Huber with Huber Research partners. Your line is now open.
Yeah. Good morning. Thank you have a few questions my first one.
The political AD revenue rich in the core <unk>. It was that about 3 million down I think 12 million the year before.
Yeah, I think it's it's a secure that right let me check right now.
In Interestingly you go back and look at the.
You go back and look at.
Thus the prior cycle so 2000.
17 in 19, you know the revenue in the quarter was posted double what it was pro forma combined in 2017.
Okay and then also want to can you just say again, if you would the organic expense growth in the quarter. We just finished and then your outlook for this new you I thought you set up 3% for this new you've given wage increase medical is such that we can just go without again pleased corridor and.
For this New York.
[music].
So we've said historically as you know that there are organic expense growth spent about 2% that profiles revolving given.
During the growth of our digital business that has.
Cost of goods cost of goods sold a women's tied to it.
And just.
So some wage pressure and increases in our cost of our bonuses. So when I look at the underlying.
Organic growth profile, it's a little bit more than 2%, let's call about three.
So.
Well what was that number I'm sorry in the quarter. We just finished organic it's a little it's a little over well you know so we get to winning the $40 million to $41 million math of full year.
Net cost synergies was based on the 2% organic growth and that's we used for full year 2019 to look at the benefit of or cost savings initiatives.
You know nitpick question Rich you are noncash compensation, nearly 6 million up significantly from the first three quarters and also you will be was that just a true up for the ended the year given the performance of the company Yep.
Well.
Yes, and I guess my last question is there any more appetite to do anymore podcast acquisitions going forward or you quite contend with what you have your I know you want to focus on paying down the debt, but if you see the right podcast acquisition available, which you jump or were you quite until we have.
Well, we are content with what we have we deliberately.
Fired both cadence 13, and Pineapple Street to give us.
A deeper.
A a deeper a set of capabilities and talent to be able to create original programming.
And we feel really really good about our teams and the quality of work that's being done in the slate of of product that's being creative for 2020 and so forth.
That said, if we found something that made a ton of sense. It was super compelling you never say never but we don't feel strategically that there's a need to augment the the strength that we already have.
And then my last questions like could you I don't think you'd mentioned auto advertising, how did that too in the quarter, particularly after the election and is the trend change at all.
As part of 2020, thank you.
Yeah. So weve rich mentioned a number of categories that were lead performers auto business was down mid single digits in the fourth quarter.
The trending similar here in early 2020, we've never talked about you know current trend line stuff on the category standpoint, So we just do that undistorted basis.
Okay. Thank you for competitive reasons. Thanks.
The final question the cues from John Ellis with Palmer Square Capital Management. Your line is now open.
Hey, guys congrats on the good quarter and your and thanks for taking my question.
First on what's already answered about stock based comp Oh, sorry stock buybacks, but my second question as regarding your switch from floating rate to fixed rate debt do you guys continue to plan on doing more.
Conversion of your mix shift.
As you continue to pay down debt or do you just want to focus on paying down debt.
<unk>.
Yes, so I end of year 19 read.
48% fixed the you know during the course of 2000 informed as we pay down.
More of our floating rate pre payable to the will become a little bit more fixed and we think that's perfect. We think.
We're at a.
The a mix that makes sense.
And don't expect to do anything more from a capital markets perspective to to change that mix.
Okay perfect. Thank you.
Welcome.
I'm showing no further questions at this time.
Great well, we appreciate everybody shown up this morning for the call and we look forward to reporting back in another few months. So thank you take care.
This concludes todays call. Thank you for your participation you may disconnect at this time.
[noise].