Entercom Communications Corporation (ETM)

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Entercom Communications (ETM)

Q2 2013 Earnings Call

August 05, 2013 5:00 pm ET

Executives

Stephen F. Fisher - Chief Financial Officer and Executive Vice President of Operations

David J. Field - Chief Executive Officer, President, Director and Member of Executive Committee

Presentation

Operator

Good afternoon, and welcome to Entercom's Second Quarter 2013 Earnings Release Conference Call. [Operator Instructions] This conference is being recorded. I would like to introduce your first speaker for today's call, Mr. Steve Fisher, CFO and Executive Vice President. Sir, you may begin.

Stephen F. Fisher

Thank you, operator, and good afternoon, everyone. I'd like to welcome you to our Second Quarter Earnings Conference Call. This call is being recorded. A replay will be available on the company's website shortly after the conclusion of today's call and is available also on the telephone number at the replay number noted in our release this afternoon. With our notice of today's call, we ask that you submit your questions in advance of this call to the email address, questions@entercom.com. In addition, I'm always available for any follow-up questions if you wish to call me directly at (610) 660-5647.

Before we begin the call, I'd like to make this note that should the company make any forward-looking statements, some -- such statements are based on current expectations and involve risks and uncertainties. The company's actual results could differ materially from those projected. Additional information concerning factors that could cause actual results to differ is described in the company's SEC filings on Forms 10-Q, 10-K and 8-K. The company assumes no obligation to update any forward-looking statements.

During this call, we may reference certain non-GAAP financial measures. We refer you to our website, entercom.com, for a reconciliation of such measures and other pro forma financial information. So with that, we'll turn it over to David Field, President and Chief Executive Officer.

David J. Field

Thanks, Steve, and good afternoon, everyone. Thanks for joining today's Entercom earnings call. I'll start with a summary of the quarter's financial highlights followed by some color on recent operational developments and then address current business conditions before turning it over to Steve and your questions.

Second quarter revenues were down 3% to $101.2 million, partially offset by a 3% decline in station expenses to $65.7 million. As a result, adjusted EBITDA decreased 4% to $30.7 million. Adjusted net income rose 8% to $0.26 per share, while free cash flow is decreased by 2% to $19 million.

On our last earnings call in early May, we noted that second quarter pacs were down 1%, so obviously, we saw business conditions weaken later in the quarter, particularly in June. April ended flat, while May was down 3% and June down by 8%.

Here are a few other insights on the quarter.

Local was down 3% while national revenues were flat. Political fell by $700,000. Overall, total radio market revenues in the markets in which we compete declined by 1.5%, so we lost share for the quarter. Our best-performing markets were Kansas City, New Orleans, Indianapolis, Portland and Memphis. Top performing categories were telecom, department stores and travel.

As I noted earlier, we continue to prudently manage expenses and achieve meaningful, sustainable reductions to our cost structure. This past quarter's 3% decline in expenses comes on top of a 4% reduction in expenses during 2012 and a 3% drop in Q1. As Steve has pointed out in past calls, and we'll touch on in a few moments, we will be reporting an increase in reported cost versus prior year for the third quarter due to a large one-time credit in last year's third quarter. That said, we expect our cost to once again decline in fourth quarter. I also want to note that this morning, we announced that we have completed a new 4-year agreement with Arbitron across all of our markets. The agreement runs through mid-2017.

Now I want to focus the bulk of my remarks today on our current sales performance. Our second quarter results lagged our peer group and are unequivocably unsatisfactory. To some extent, it is due to the relative weakness in our markets versus radio in general. As you may have seen, New York and Los Angeles radio ad spending are up significantly this year, which, by the way, is an important positive indicator for the industry. In contrast, our markets have been a bit weaker, down 1.5%. That said, and let's make no mistake about it, we did not get the job done in executing on sales in Q2. To be blunt, we did a poor job in driving our revenues. It is totally unacceptable. And just to be clear, our expectation is to deliver upper echelon performance, not just to pace in line with the peer group. That has been our track record over the years and we have every intention and confidence that we will deliver upper tier results again in the not-too-distant future.

Unfortunately, I expect that our relative weakness will persist in Q3. We are currently pacing down 5% in third quarter. The month of July was down 3%, with August and September off a bit more at this time.

National pacings are currently stronger than local. We have seen some recent firming of our pacing trend, but it is premature to draw any meaningful conclusions from this data point. So let me try to put all of this in context.

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