Q2 2020 Entercom Communications Corp Earnings Call
Good morning, and welcome to Entercom <unk> second quarter 2020 earnings release Conference call. All participants are in listen only mode. This conference is being recorded.
I'd like to introduce your for speakers for today's call Mr., Richard Shelly CFO and executive Vice President Sir you may begin.
Thank you Catherine.
Welcome to Entercom second quarter earnings Conference call. This call is being recorded.
A replay will be available on our company website. Shortly after the conclusion of say school and available by telephone at the replay number noted in our release.
Joining this call the company May make forward looking statements, which are based upon the company's current expectations and involve risks and uncertainties.
Companies 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 describing a risk factor section of the company's younger report on form.
10-K, as such risks and uncertainties, maybe update if I'm trying to time and the companies actually see filings.
We assume no obligation to update any forward looking statements, except as may be required by law.
During this call may refer to certain non-GAAP financial measures. We refer you to the investors page of our website <unk> Entercom dot com, so reconciliations of such measures and other pro forma financial information.
The saddle and is to Dana shield our CEO.
[music].
Thanks, Rich good morning, everyone. Thanks for joining our earnings call today.
Second quarter, 2020 will certainly be remembered as an extremely challenging period, our nation's history.
Last weeks announcement, the GDP dropped about taking 33% during the quarter was a california illustration of the impact of the pandemic.
Many sectors of our economy to a screeching halt.
Constructing this unprecedented national emergency hazard emerged in March our priorities that the company were clear first protect their health safety and well being of our team and their families.
Chuck and ensure the continuity of our business operations is rapidly converted your remote operations.
For ensured that our station drunk and the challenge it continued to seamlessly deliver the critical news information companionship competent escape.
Listeners dependable.
Sure. It worked tirelessly to help our customers respond to the devastating impact could go to 94, so many of them to shut down temporarily well radically altered their business models.
I didn't turn cost thousands of our customers to cancel curtail or postpone their advertising as their business each step function.
[laughter] mitigate the impact of the business slowdown I enacting extensive cuts and spending without damaging hardly server audiences your customers.
We were successful in achieving each of these goals, which is a wonderful watching that the dedicated outstanding gene you haven't entercom all across the country.
Stepped up and executed under the extremely trying circumstances.
Nonetheless, we were still enormously impacted by the economic devastation of cold it during the second quarter.
After starting to your growing nicely with first quarter revenues running 7% ahead of last year and eat EBITDA up significant dip Doug double digits, sorry, a pandemic caused many of our customers to cut their ad spending.
And because we have far and away the larger sports radio business. We're also significantly impacted by the cancellation of sporting events.
All in second quarter revenues were down 54%, primarily attributable to lower broadcast advertising revenues.
Excluding the impact canceled sports play by play second quarter revenues declined 47%.
There were a handful of positive stores during the quarter.
Did you know revenues, which include podcasting grew up double digits and our Entercom audio network Watson managed to pose positive growth.
Notwithstanding our high concentration in sports events were still able to outperform our markets during the quarter. According to Miller Kaplan.
The challenges of the pandemic letters to accelerate our ongoing transformation initiatives.
Heightened focus on enhancing our business model and implementing expense savings can mitigate dependent that mix impact on revenues.
We see resist companywide actions you successfully lowered second quarter total cash operating expenses like $97 million, which exceeded our target.
We're continuing our work to reduce their expenses well below 2019 levels.
It really is the bottom of the trough from a revenue standpoint, you significant sequential revenue improvement each month through second quarter and extending for you the pool.
We returned to positive EBITDA in June.
Currently our third quarter revenues or 60 million 61 million stronger and where we finished Q2.
In other words, we currently have Jordan $35 million a business on the books for third quarter versus the $175 million, where we finished second quarter.
The vast majority being 2 million third quarters from our core local and national spot business.
We would expect building that number over the remaining two months of the quarter.
Also begun to feed the return of sports gambling revenues games resumed and are well positioned to purchase it they participate meaningfully in this dynamic in fast growing market due to the unrivaled strength of our local sports radio brands across the country's largest markets.
In addition, we expect to see record breaking political spending as we get closer to the election.
We are encouraged by the growing number of advertisers large and small do have shared their intent to ramp up their marketing spending I think look forward to re establishing and providing your businesses.
On the last call. We noted that the company was well position financially for the pandemic no material debt payments due until late 2024 189 million of cash on hand.
During second quarter, we actually improved our cash position to $208 million as of June thirtyth.
In addition, we recently announced an amendment of our credit facility you modify our maintenance covenant through the end of 2021.
We remain confident that our liquidity is sufficient to meet all of our financial and operating requirements.
2020 has become a year or meaningful transformation for a company.
You are hard at work on a number of permanent business model enhancements targeted growth initiatives and operational improvements that we expect will help accelerate our performance, while enhancing our ability to serve all listeners in customers.
For example, we're substantially reduce the staffing and scope of our in house promotion supplements and will be discontinuing some of the legacy emotional practices, which I've imaging value given the rapid evolution of our digital social another technological capabilities in recent years.
Similarly, we will be significantly reducing the sizable office and studio facilities in the future. It's we have learned during recent months that you can operate at a highly effective level with modified work practices and reduce work spaces.
Or contact we spent approximately 77 zero million dollars on office rent and occupancy costs and 29 cheap.
Sure just you have a number of improvements we will be implementing and we expect to significantly enhance our organizational effectiveness and financial performance going forward.
I know last earnings call I spend a couple of minutes Sherry trial.
And entercoms fundamental transformation over the past few years.
Do acquisitions of CBS radio and more recently cadence 13 in plentiful Street media in podcasting, just within the past year and the launch of the radio Dotcom digital platform and the Entercom audio network and are significant indefinitely and data analytics and attribution.
No problem is now a scaled media and entertainment company the leadership position in virtually every segment of audience.
In broadcast radio Broadcasting Digital music News network sports and live events.
Entercom is one of the country two largest plucking publishers and video Dot com is the fastest growing digital audio platform in the U.S. and our broadcast radio group is second to none in the top 50 markets.
And in addition, we are the country's number one home for premium digital audio content.
We are only at the beginning a pull all those together in capitalizing on our new enhanced capabilities.
We made strong progress in advancing eat our platforms during second quarter.
Starting with our podcasting business, we continue to focus on premium content offerings, and if distinguished ourselves by the large number of high quality goods in our portfolio.
For the past five months, we've had more shows on the Triton chart at the top 100, what gets in America than any other company.
Podcasts are now reaching 26 million monthly unique listeners with a product lineup that includes chart topping influencers like Dr. Bernie Brown, Andrew Yang EWC sensation, David Gober, Malcolm Gladwell policy of America, among many others along with a number of original hit series.
And our podcasts lot of continues to blossomed with a robust growing pipeline a major new original releases along with powerful celebrity joining our team in recent weeks.
For example, this past week JJ Radek announced that its popular podcast would be dropping through our platform.
In addition, yesterday, Kevin draft announced that he will be watching his podcast with us.
As long as TJ Mccollum who's already on her broadcasting.
Give us that's the most influential group of current and be a player podcast.
We also have upcoming new victory projects the doors current good win and John Meacham back for a second project with us.
We will be launching our first see 13 features film release, a new show with Charlie the number one tick tock start influencer and her sister Dixie and some great New original series among many others still on now.
As you know Sirius XM recently announced the acquisition of Stitcher, Midroll scripts pakulski business for $325 million.
No does that mean interest that's our own broadcasting business is roughly equivalent in size and they're very similar make up to stitcher liberal.
As you know we acquired that business in two separate deals for cadence searching and plentiful Street studios with just under $50 million less than a year ago.
Because podcasting in such a new component of our business, we believe investors local looked at substantial strategic enhancement and value creation.
We continue to be very excited about the opportunities in the podcasting space and the powerful symbiotic benefits of the combination between podcasting in broadcast radio, particularly spoken word broadcast radio where we excel.
The opportunities to work across all of your platforms to drive Listenership, Washington products, we purpose content and capitalize and integrated sales and marketing programs for customers are highly attractive.
Turning to radio Dot com it continues to be the fastest growing digital audio platform in the country and now delivers over 40 million users excluding podcasting.
Total listening hours on radio Dot Com grew 61, 6% in Q2 spikes in your total absence of sports important part of our product mix.
Continues a 12 month trend, which we have grown total listening hours by double digits. In every month, you only publisher in the country to do so.
In addition, our smart speaker usage was up 92% in the second quarter.
We're also continuing to enhance our radio dotcom product offerings, bringing new an exclusive content to our audiences.
Second quarter, we featured exclusive live experiences on the radio Dot com platform with artists, including Justin Bieber, Tim Mcgraw, Katy Perry Carty became the elephant machine gun, Kelly, Toby Qs 21 pilots young blood and the killers.
We also went out new strategic relationships with Twitch someone else and found him.
In addition, we have an active pipeline of new distribution deals under development across connected devices devices and automotive that will include in dash native applications.
Finally, our broadcast stations continue to do an outstanding job serving the public during these challenging times.
Yes radio was the country's number one reach medium and hundreds of millions of Americans rely on it for news information music Sports Entertainment companionship and that's good.
Radio listening is recovered strongly since the stay at home waters disrupted consumption patterns at the beginning of the pandemic endemic and is now approaching pretty good levels.
Total industry 25 to 54 year old adult radio listenership, he's up roughly 25% since the April bottom and I'm pleased to know that Entercom station listenership is up 33% over the same period.
In addition, we have seen musicstation ratings bounce back over the past couple of months is the nation has resumed the summer greater degree of normalcy.
Just the last month for example, total radio adult contemporary listening is up 15% Onefive alternative is up 8% in countries up 6%.
These strong radio listenership trends demonstrate the medians resilient and importance to the American public in the midst of this most unusual of years.
In closing, while we're still running be well behind last year. We are pleased by the significant progress, we're making across our business since the loads of April and remain laser focused on navigating through these challenging times getting back to prior year levels as quickly as possible.
What are the past few months have been for our nation, you're excited and inspired by where we're headed we will come out on the other side of this.
Well the 19 as in certain respects made a smarter and accelerated change across our organization.
We look forward to capitalizing on both the growth opportunity and business model enhancements, we've been able to our very recent strategic transformation into a scaled multi platform audio leader with outstanding original premium content.
Once again I want to express my appreciation for our team for their outstanding dedication and versatility in meeting the challenges of 2020 stepping up to serve our listeners customers partners and community, so capably and with that I'll turn it over to rich.
[noise].
Mr. Schmeling Your line is open.
Go ahead and speaking.
And we lost rich.
So David you want to use excuse me I was on you.
Sounds great Jupiter one stop thanks, David Good morning, everyone as discussed by David.
After a strong starts a year, we experience a sharp downturn revenues during March and the extends to this decline was even more severe in April.
For the second quarter revenues were down 54% year over year number down 47%, excluding the impact of lost play by play revenues due to the absence of life sports.
Many of the businesses of all local and national clients are highly disruptive my tools at 19 and as a result, a large number of our accounts either stop advertising worst significantly reduced or spending.
So perspective, focusing on local we've typically has about 8500 accounts on air in a given months.
And the top 2000 accounts in June as last year accounted for over 70% of our local revenues.
This june more than 50% of those top accounts where austere.
Well you delve into the account by account details you seemed like the top industry categories that these counts or part of include tier two and three automotives concerts live events amusement parks sports she knows and fast food.
None of which is particularly surprising given the impact in the second quarter 'cause it 19th we.
We are seeing and do you expect that a good portion of these accounts will resume advertising during the second half the this year and others like laws concert promoters likely won't be back in so until we once again since easily come together in crowds.
When we analyze such industry categories that remain highly disruptive.
Travel Airlines movie theaters life events, he makes up about 10% over prior year local spot revenues.
Well so national spot this same percent there's about 3%.
We believe these accounts will be back on the air It is just likely going to teach sometimes [noise].
On the other hence the good news is that in June as compared to June of last year. We had hundreds this new local accounts on the air across many different industry categories.
And they will be a source of gross asset recovery gains some steam.
Looking at our second quarter revenues by type.
Our core spot revenues local plus national we're down about 65% so the quarter.
Our events business, which usually accounts for about 3% of our second quarter revenues was down close to 100%.
And our digital revenues, which includes podcasting accounted for 24% of our total revenues in the quarter.
Up 19% year over year.
We did see sequential improvement there must be where you performance during the second quarter and we see the same pattern of improvement in our actual performance for July and in RPC data for August and September.
Currently the third quarter is pacing down in the low Thirtys July came in down 36% August is pacing down low Thirtys and September is pacing down mid twentys.
Political revenues are starting to pick up and we anticipate that for this third quarter that they will total about 7 million versus less than 2 million in the prior year.
Our total operating expenses for the second quarter came in at 221.1 million and include so point 9 million of restructuring costs, then they still point 2 million noncash impairment charge.
We also recorded in one time benefit so slow million Dollarss associate it with settling the FCC matter without a financial penalty and a charge of 5.4 million for cost related to tools that 19.
[noise], excluding these one time and unusual costs and adjusting out non cash items like DNA. Our total cash operating expenses came in at 195.9 million worked down 97.2 million worth 33% year over year on an as.
Reported basis.
Were down 111 point Sixmillion was 36% pro forma for our second half 2019 podcasting acquisitions.
So the third quarter, what's the resumption of live sports and the discontinuous.
Oh, the net of some of our temporary cost reduction actions are year over year cost reductions will be more moderate.
On an as reported basis for the quarter, we expect our costs will be down in percentage terms by around mid teens.
And in the fourth quarter, given the cancellation of the normally heavy holiday live event season. We currently project that aren't cost will be down high teens to low twentys.
We continue to work on improvements to our business model that will generate permanent savings, while enhancing how we serve all listeners and customers. Many of these actions have already been implemented and we expect to be in a position to provide more specificity about the outlook for our expense base in 2000.
So the 21 during our third quarter earnings call.
Turning to our financial position and liquidity our cash position as June. So this was 208 million up from 189 million at the end of March. This increase was significantly driven by a reduction in working capital, which we will start investing back during the third quarter.
As our revenues begin to recover.
Yes paid about one point Threemillion <unk> income taxes June year to date, and now expect to pay less than 3 million further rest of year.
Our net capital expenditures expenditures totaled 6.3 million in the second quarter.
Consistent with our previous guidance are expected to total between 25 to 30 million for this year.
Well heading up the second quarter decreases your over here, you know capital expenditures cash taxes, and some of the suspension of our dividends.
<unk> or cash outlays for these items, that's 31 million.
Or down 83% year over year.
[noise] given the severity of the downturn and the tempered expectations for rapid recovery.
The company sought and execute an amendment to its first one maintenance covenant on July 20 us.
This amendment among other things provides for a covenant holiday for the quarters ended September Thirtyth 2020, and December 31 2020.
It replaces actual 2020 EBITDA with the prior year amounts for teach you through Fourq you Indeterminant LTM EBITDA.
It increases the interest rate applicable to our revolver by 25 basis points.
And as a new minimum liquidity covenant for a combined cash an undrawn revolver I'm $75 million.
These amendments provision stole away by the end of 2021.
Now that the banking system is stable and we'd have executed. This amendment the company intends to use most of its cash on hand, just pay down its outstanding revolver, which we fully true back in March and US we don't anticipate that the 25 basis point increase in our revolver margin.
Well add up to much in terms of incremental cash interest expense.
That will now go to your questions operator.
So we will now begin our formal question and answer session.
I'd like to ask a question. Please press star [laughter] telephone keypad [noise].
The only record your first and last name to withdraw. Your question you May Press Star to the first question is coming from Stephen King Hall of Wells Fargo. Your line is open.
Thanks, Thanks for all the color in the pacings are just wondering if they think about your outlook on pacings and you've been pretty aggressive on cost how do you want us to think about either EBITDA or free cash flow Inflecting back to positive is that something you think we'll see in the back half of the year.
If you want to better.
Sure Yep so.
I'll say, yes.
Assuming we don't have <unk> the second wave, assuming we don't locked down again, so you know if things are.
The way the it looks today.
You know, we see a consistent improvement trends in our revenue month over month, you've seen not from the lows of April.
At least now through September was seen significant sequential improvement. They didnt mentioned in his remarks that we were.
We returned to EBITDA profitability.
In June.
We expect the given that trend in the improving revenues to be EBITDA profitable for the third quarter and rest of year and you know to generate free cash flow I'll say, excluding consideration of the working capital, which I see that you know we will be investing back.
Back in receivables in particular as revenues recover.
Great and then just one on podcasting I was wondering how you think about licensing some of your podcast content on an exclusive basis and if you've had any conversations with some of the major distributors like apple or spot of Fiat and would you be willing to kind of women.
Distribution, just some of those key distributors if they get into you know like a content war with each other and our and our paying big amounts for something like that.
So we are.
We're really excited about the caliber of the creative teams that we have across both cadence 13, and Pineapples Street.
We did do a licensing deal earlier this year window of change, which was one of the top part caskets over the past the past year was created by us, but at a partnership Spotify and they were given an exclusive window or indeed in the early days. So we have done a deal like that.
And what we're going to continue to grow.
And capitalize on our position as a podcasts publisher and are open June I'm thinking.
I think brought mindset in terms of what's going to be the best.
Opportunities for us to capitalize on that space working across a platform with other or with other players.
Thanks, and then just last one as the pacing did improve sequentially is is there any particular industries that have really driven that inflection I'm wondering if its auto or restaurants. You know there just really shut down in April and May and you've started to see come back.
I don't think there's any one category, but I think you're seeing an evolution in our country and obviously our.
Our nation is not where we want it to be aware will be.
Couple of months, but you're certainly seeing progress and ever turn towards normalcy in certain segments. You mentioned auto and that is certainly one area, which has gone from a timing, which many dealerships were literally close and where supply chain issues, where massive to an industry that isn't much better shape and performing better than I think.
Perhaps fear or so you're seeing progress there certainly we're seeing progress on a on the sports side as we see that part of your economy opening to what extent.
And so we're in we're seeing it across others as well so I would say again it fits into that into the.
General theme of progress and improvement, but we ever ways to go.
Great. Thank you.
And then next question is coming from say Kim <unk>. Your line is open.
Hi, Thanks, guys. It sounds like you guys are structurally.
A lot on the cost side.
And as we think about 2021.
I was wondering how much of the seems you called out permanent versus temporary.
Yes, so say.
No I commented in my remarks that we'll be prepared to provide further specificity about our 2021 cost base during our third quarter call.
There's a lot of work going on internally, a lot's been Tom already in a and we do expect that our cost base in 2000.
In 21 will be meaningfully less then the our 2019 actual cost base pro forma for our podcasting acquisitions and.
So I'll be somewhat ambiguous at the moment and say, it's meaningful but well well that's greater specificity on our third quarter call.
Got it thanks, and it seems increasingly likely that.
We may not.
Season that.
Can you remind me what your exposure to baseball is as a percentage of revenue.
And and within sports.
Let me let me just disagree respect compete with your stipulation <unk>, we'll see what happens, but certainly we're hopeful that the season will continue let me.
Let me also just remind everyone that.
I have a to the extent the games are cancel you do have full pro rated adjustments and because of the nature of that facet of our business. We have no which you have no EBITDA exposure due to the cancellations a baseball games, if that should happen going forward.
Okay, great. Thank you guys.
Yeah.
The next question is coming from John Alice Homer Square Capital Management. Your line is open.
Hey, guys. A couple of my questions have already been answered, but I do.
Going on the sports team with a high level of uncertainty going forward with live sports, especially so this year have you had any increased conversations about what broadcasting rights are going to look like.
I didn't viewership is going to and listenership is gonna be up significantly year over year with with social distancing measures around the country at different levels in corn genes and such like that so have you had any increase.
Conversations with you know these sports leagues.
I'm, sorry, I'm not I'm not sure I'm understanding the question, where we are obviously a constant communication with our affiliated teams and its well with the lease we are certainly hopeful that what you're saying <unk> true and certainly the early indications are that.
Ah baseball hockey in basketball.
Strong interest or in the in the early days.
But I'm not trying understand your question sorry.
I guess, you guys expect to get higher.
Bump this year.
All happens because people are at home and listening and.
James and whatnot.
I see well know the so the reality of our model is that economics or walk in the season, so whatever advertising, we're going to sell and advance wouldnt be there's no variable on that relative to what the actual ratings are and so we would see no impact on that and to the extent that really moved higher.
Than normal this year I get the question is we'd be able to monetize that going into next season, and I suspect candidly that our advertisers would look at that and say Gee that was a bump related to cove, it and the unique nature of the gear and it will return to normal next year. So I would not anticipate any sort of.
Persistent.
Benefits from any such <unk> committees.
So far in advance you guys negotiate those.
Tracks typically.
Yes, our rights agreement tend to be three years to Max It lets call it seven years and Oh.
Oh I anticipate another question, we actually do not see any inflationary pressures to get contrary, we see that likelihood is that over time, you'll see the compensation, where those rights deal in the on the audio side coming down.
Oh.
Okay, all right. Thanks.
Next question is coming from Craig Huber Huber Research partners. Your line is open.
Yes, hi, Thank you I apologize if I'm, a called waking overlap with another conference call. So.
What was your political AD revenue in the quarter. Please also wanted to ask what was the podcast revenue was just because it gets better sense other revenues did overall.
Yes, so we haven't broken out podcast separately from digital we did reports that are digital revenues grew up.
19% year over year in a you know does see.
Political revenues in the second quarter, we're really quite small less than a million bucks.
Okay.
What is your taking this is not meant to be a derogatory question at all but what is your guys take on why radio advertising in the second quarter.
Was down 50% give or take [noise].
I heart versus you know television down <unk> local TV stations down about 35% I mean, obviously your cpms are much lower costs more generally the to put a TV AD out there versus total versus radio what's your take on why radio saw a bigger hit.
Well television this last quarter.
Yeah, I expect question I I think there are probably two primary reasons for that number one is what our businesses tend to lean a little more into small to medium size businesses and the nature of our customer base is such that our customers by and large were more impacted by shutdowns and the disrupt.
And that that has been obviously widespread across our society today, but that said, we also obviously participate in large national businesses as well and those companies the rate of decline was considerably less so it really is concentrated in some of those industry categories in businesses that tend to skew more.
Towards radio then towards other media I think the second factor, which is sort of a to let short is that we're very nimble a medium or it's easy to get in and it's easy to get out and if you think about how quickly you can put together radio out or canceled radio campaign or maneuver.
It makes it easier to cut us when things are falling but I also think it makes us more feeling as things would cover the opportunity to be able to quickly get on the air with a message without having to go through elaborate on production time and expense.
In a rapidly evolving world.
Then also you to comment your press release.
Third quarter business on the books already 30% greater than where the second quarter finished just can you just explain little bit further, Italy, Hearst and exactly what you mean by that comment.
So we finished Q2 and obviously you reported today approximately a $175 million revenues for the second quarter.
As we sit here today, yeah business on the books for third quarter of $235 million. So therefore, we are currently $60 million ahead of last quarter and then you know to the extent they were able to add more business going forward. We certainly expect to do we would be able to build on that.
Okay very good thank you.
That's right.
At this time, we have no further questions in queue I'll now turn it back to the speakers for closing comments.
We appreciate everybody joining us here. This morning, obviously difficult times for our nation, we're encouraged about where we are and where we're headed.
Look forward to reporting back to everyone here next quarter. So thank you all very much he say thank you bye bye.
This will conclude today's conference all parties may disconnect at this time.