Philadelphia, PA—Entercom Communications (NYSE: ETM) today reported financial results for the quarter ended June 30, 2018.
Second Quarter Highlights
- Net revenues for the quarter were $372.1 million, compared to $125.0 million in the second quarter of 2017. On a same-station basis, net revenues for the quarter were $372.1 million compared to $405.7 million in the second quarter of 2017
- Operating income for the quarter was $27.6 million, after a non-cash impairment charge of $29 million that is primarily due to our pending divestitures, compared to $16.4 million in the second quarter of 2017
- Net income per diluted share for the quarter was $0.01, compared to $0.15 in the second quarter of 2017
- Pro Forma Adjusted EBITDA for the quarter was $82.1 million, compared to $101.7 million in the second quarter of 2017
David J. Field, President and Chief Executive Officer, stated: “I am pleased to report that we have made great progress across multiple fronts as we continue our work to capitalize on our transformational merger. We have signed a definitive agreement with Bonneville to complete our last required station divestitures, successfully launched the new Entercom Audio Network with strong early revenues, terminated our painful relationship with United States Traffic Network, achieved rapid growth on our burgeoning Radio.com platform, and delivered a 5% reduction in Q2 expenses as we realize our merger-related synergies. Second quarter revenues were soft, down 8% exacerbated by the loss of $12 million in revenues from USTN. But revenue performance is improving and we are currently pacing down 2% in the third quarter excluding the impact of USTN. For the fourth quarter, we are pacing up 3% on an unadjusted basis. I am proud of the outstanding team we have built and the terrific work they are doing to capitalize on our abundant scale-driven opportunities.”
On August 2, the Company reached a definitive agreement with Bonneville International Corporation (“Bonneville”) in which Bonneville will acquire four radio stations in San Francisco and four radio stations in Sacramento for $141 million. These stations are currently being held separate from the Company through an FCC divestiture trust and are operated by Bonneville under a time brokerage agreement (“TBA”). The Company expects the transaction to close either late in the third quarter or early in the fourth quarter, depending on the timing of regulatory approvals, and expects to realize approximately $122 million in after-tax proceeds. Based on this final sales price, we determined that the carrying value of these assets was greater than their fair value and recorded a non-cash impairment charge of $25.6 million.
The Company expects to close on the sale of a tower site adjacent to O’Hare Airport in Chicago today and to realize $46 million of gross proceeds. In addition, the Company expects to close on the sale of an office building on Venice Boulevard in Los Angeles in September and realize $26 million of gross proceeds. The Company has also entered into agreements to sell: land and buildings in Dallas, TX; land and buildings in San Diego, CA; land and buildings in Sacramento, CA; and land in Austin, TX. For the full year, the Company now expects that gross proceeds from such redundant assets sales will total about $95 million and expects to realize after-tax proceeds from such sales of close to $80 million versus the $50 million the Company anticipated earlier this year.
In July, the Company terminated its agreement with United States Traffic Network (“USTN”) which had provided traffic advertising sales services and limited traffic reporting services to the Company. As a result, the Company has taken back all of the inventory that USTN previously utilized and now will be able to sell that inventory using its local, national and network sales teams. The Company is also a secured creditor of USTN and hopes to recover additional amounts to the extent USTN is able to make further payments to us or we realize a recovery through the legal process.
In July, the Company announced a definitive agreement to acquire 101.1 MORE FM (WBEB-FM) from Jerry Lee Radio, LLC in Philadelphia, PA for $57.5 million in cash. The Company also announced that it had entered into an agreement to divest 92.5 XTU (WXTU-FM) in Philadelphia, PA to Beasley Broadcast Group, Inc. for $38.0 million in cash. The transactions are immediately accretive to Entercom and are leverage neutral.
In July, the Company launched the Entercom Audio Network. This new national network allows advertisers to leverage Entercom’s scale with targeted offerings across its portfolio of 235 top-rated radio stations reaching over 112 million listeners monthly.
On April 30, the Company completed its acquisition of two stations in St. Louis, MO from Emmis Communications. The Company began operating these stations under a TBA on March 1, 2018.
As of June 30, 2018, the Company had outstanding $1,528 million of senior debt under its credit facilities and $400 million in senior notes (both amounts exclude unamortized premium from purchase price accounting). In addition, the Company had $40 million in cash on hand.
Our senior secured net leverage as of June 30, 2018, computed in accordance with the terms of our Credit Agreement and in accordance with the terms of our Indenture for our Senior Notes, was 3.8x as compared to our covenant of 4x and our total net leverage was 4.8x. On a pro forma basis as if all of the Company’s pending asset sales had closed by June 30th, and subtracting the EBITDA being sold to Bonneville and the related time brokerage fees, our senior secured net leverage would have been 3.4x and our total net leverage would have been 4.5x.
Given the benefit of the expected asset sales and the Company’s improving revenue outlook, we expect to remain compliant with our senior secured net leverage covenant as of September 30, 2018 whether or not the Bonneville divestitures close in the third quarter or the fourth quarter. In addition, we expect to be able to reduce our leverage from our as reported leverage as of June 30, 2018 by about ½ turn by the end of this year.
Earnings Conference Call and Company Information
Entercom will hold a conference call and simultaneous webcast regarding the quarterly earnings release on Wednesday August 8, 2018 at 8:30 AM Eastern Time. The public may access the conference call by dialing Toll Free: 888-889-0278 and Toll: 312-470-7365, passcode: Entercom (domestic and international callers). Participants may also listen to a live webcast of the call by visiting the “Investor Relations” section of Entercom’s website at www.entercom.com. A replay of the conference call will be available for one week by dialing 866-463-2180. A webcast replay of the conference call will be available beginning six hours after the call on the Company’s website for a period of two weeks. Additional information is available on the Company’s website at www.entercom.com.
All references to per share data, unless stated otherwise, are presented as per diluted share. All references to shares outstanding, unless stated otherwise, are presented to exclude unvested restricted stock units. All references to net debt are outstanding debt net of cash on hand.
Same Station Net Revenues consist of net revenues adjusted for material station acquisitions and dispositions as if these acquisitions and dispositions had occurred as of the beginning of the comparable prior period.
Station Expenses consist of station operating expenses excluding non-cash compensation expense.
Corporate Expenses consist of corporate general and administrative expenses excluding non-cash compensation expense.
Station Operating Income consists of operating income (loss) before: depreciation and amortization; time brokerage agreement fees (income); corporate general and administrative expenses; non-cash compensation expense (which is otherwise included in station operating expenses); impairment loss; merger and acquisition costs, other expenses related to the refinancing; non-recurring expenses recognized for restructuring charges or similar costs, including transition and integration costs; and gain or loss on sale or disposition of assets.
Adjusted EBITDA consists of net income (loss) available to common shareholders, adjusted to exclude: income taxes (benefit); income from discontinued operations, net of income taxes or benefit; total other income or expense; net interest expense; depreciation and amortization; time brokerage agreement fees (income); non-cash compensation expense (which is otherwise included in station operating expenses and corporate G&A expenses); other expenses related to the refinancing; impairment loss, merger and acquisition costs, preferred stock dividends; non-recurring expense recognized for restructuring charges or similar costs, including transition and integration costs, and gain or loss on sale or disposition of assets.
Pro Forma Adjusted EBITDA consists of Adjusted EBITDA to exclude those costs incurred by the prior owner that were not assumed by the Company or were unusual in nature and adjustments for material acquisitions and divestitures as if these acquisitions and divestitures had occurred as of the beginning of the period presented.
Adjusted Free Cash Flow consists of operating income (loss): (i) plus depreciation and amortization; net (gain) loss on sale or disposal of assets; non-cash compensation expense (which is otherwise included in station operating expenses and corporate general and administrative expenses); impairment loss; merger and acquisition costs; other expenses related to the refinancing; other income and non-recurring expenses recognized for restructuring charges or similar costs, including transition and integration costs; income from discontinued operations (excluding income taxes or tax benefit); and (ii) less net interest expense (excluding amortization of deferred financing costs or debt premium), preferred stock dividends, taxes paid, capital expenditures and amortizable intangibles.
Adjusted Net Income (Loss) consists of net income (loss) available to common shareholders adjusted to exclude: (i) income taxes (benefit) as reported, including income taxes otherwise included in income from discontinued operations; (ii) gain/loss on sale of assets, derivative instruments and investments; (iii) non-cash compensation expense; (iv) other income; (v) impairment loss; (vi) merger and acquisition costs, other expenses related to the refinancing, loss on extinguishment of debt and non-recurring expenses recognized for restructuring charges or similar costs, including transition and integration costs; and (vii) gain/loss on early extinguishment of debt. For purposes of comparability, income taxes are reflected at the expected statutory federal and state income tax rate of 30% and 40% without discrete items of tax for the years 2018 and 2017, respectively.
Adjusted Net Income (Loss) Per Share – Diluted includes any dilutive equivalent shares when not anti-dilutive. Convertible Preferred Stock is treated as if it never converted for the purposes of Adjusted Net Income (Loss) Per Share – Diluted.
Non-GAAP Financial Measures
It is important to note that station operating income, station expense, corporate expense, same station net revenues, Adjusted EBITDA, Pro Forma Adjusted EBITDA, Adjusted Net Income, Adjusted Net Income (Loss) Per Share – Diluted and Adjusted Free Cash Flow are not measures of performance or liquidity calculated in accordance with generally accepted accounting principles (“GAAP”). Management believes that these measures are useful as a way to evaluate the Company and the means for management to evaluate our radio stations’ performance and operations. Management believes that these measures are useful to an investor in evaluating our performance because they are widely used in the broadcast industry as a measure of a radio company’s operating performance.
Certain adjusted non-GAAP financial measures are presented in this release (e.g., Adjusted Net Income (Loss) and Adjusted Net Income (Loss) Per Share – Diluted). The adjustments exclude gain/loss on sale of assets, derivative instruments, and investments; non-cash compensation expense, other income, impairment loss, merger and acquisition costs, other expenses related to the refinancing, and gain/loss on early extinguishment of debt and non-recurring expenses recognized for restructuring charges or similar costs, including transition and integration costs. For purposes of comparability, income taxes for 2018 and 2017 are reflected at the expected federal and state income tax rate of 30% and 40%, respectively, without adjustment for discrete tax adjustments.
Management believes these adjusted non-GAAP measures provide useful information to Management and investors by excluding certain income, expenses and gains and losses that may not be indicative of the Company’s core operating and financial results. Similarly, Management believes these adjusted measures are a useful performance measure because certain items included in the calculation of net income (loss) may either mask or exaggerate trends in the Company’s ongoing operating performance. Further, the reconciliations corresponding to these adjusted measures, by identifying the individual adjustments, provide a useful mechanism for investors to consider these adjusted measures with some or all of the identified adjustments.
Management uses these non-GAAP financial measures on an ongoing basis to help track and assess the Company’s financial performance. You, however, should not consider non-GAAP measures in isolation or as substitutes for net income (loss), operating income, or any other measure for determining our operating performance that is calculated in accordance with generally accepted accounting principles. These non-GAAP measures are not necessarily comparable to similarly titled measures employed by other companies. The accompanying financial tables provide reconciliations to the nearest GAAP measure of all non-GAAP measures provided in this release.
Note Regarding Forward-Looking Statements
The information in this news release is being widely disseminated in accordance with the Securities and Exchange Commission’s Regulation FD.
This news announcement contains certain forward-looking statements that are based upon current expectations and certain unaudited pro forma information that is presented for illustrative purposes only and involves certain risks and uncertainties within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. Additional information and key risks are described in the Company’s filings on Forms S-4, 8-K, 10-Q and 10-K with the Securities and Exchange Commission. Readers should note that these statements might be impacted by several factors including changes in the economic and regulatory climate and the business of radio broadcasting, in general. The unaudited pro forma information and same station operating data reflect adjustments and are presented for comparative purposes only and do not purport to be indicative of what has occurred or indicative of future operating results or financial position. Accordingly, the Company’s actual performance may differ materially from those stated or implied herein. The Company assumes no obligation to publicly update or revise any unaudited pro forma or forward-looking statements.
About Entercom Communications Corp.
Entercom Communications Corp. (NYSE: ETM) is a leading American media and entertainment company reaching and engaging over 100 million people each week through its premier collection of highly rated, award winning radio stations, digital platforms and live events. As one of the country’s two largest radio broadcasters, Entercom offers integrated marketing solutions and delivers the power of local connection on a national scale with coverage of close to 90% of persons 12+ in the top 50 markets. Entercom is the #1 creator of live, original, local audio content and the nation’s unrivaled leader in news and sports radio. Learn more about Philadelphia-based Entercom at www.entercom.com, Facebook and Twitter (@Entercom).
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