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Edited Transcript of EMMS earnings conference call or presentation 11-Jan-18 2:00pm GMT

Q3 2018 Emmis Communications Corp Earnings Call

INDIANAPOLIS Jan 11, 2018 (Thomson StreetEvents) -- Edited Transcript of Emmis Communications Corp earnings conference call or presentation Thursday, January 11, 2018 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Jeffrey H. Smulyan

Emmis Communications Corporation - Founder, Executive Chairman and CEO

* Kate Snedeker

* Ryan A. Hornaday

Emmis Communications Corporation - CFO, EVP and Treasurer

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Presentation

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Operator [1]

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Welcome, and thank you for standing by. (Operator Instructions) This call is being recorded. If you have any objections, you may disconnect at this point.

Now I will turn the meeting over to your host, Kate at Emmis. You may now begin.

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Kate Snedeker, [2]

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Thank you, Daniel. Good morning, everyone. Thank you for joining us for today's Emmis Communications conference call regarding third-quarter earnings. I want to extend a special welcome to all the Emmis employees joining us and listening in.

We'll begin in just a moment with opening comments from Emmis' Chairman and CEO, Jeff Smulyan; and Ryan Hornaday, EVP, CFO and Treasurer. After opening comments from Jeff and Ryan, we will respond to the questions submitted via email to ir@emmis.com. A playback of the call will be available for the next week by dialing (203) 369-0773.

This conference call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please refer to Emmis' public filings with the SEC for more information on the various risks and uncertainties. Additional disclosure related to non-GAAP financial measures has been posted under the Investors tab of our website, emmis.com.

Jeff, we're ready to get started.

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Jeffrey H. Smulyan, Emmis Communications Corporation - Founder, Executive Chairman and CEO [3]

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Kate, thanks. It's always interesting starting the year, and we have a different financial cycle so we get a little bit earlier look at what passed and then where we see things going.

In the third quarter, our pro forma radio revenues for Miller Kaplan were down 4% in markets, so we're down 2%. Ex-political, we were down 3%. Certainly, nothing great about the performance of our markets. St. Louis was our only market to outperform.

Our fourth quarter looks slightly better. December was a bit better. January and February, about these previous levels, although as you all know in the radio business, January and February bounce back. And one day you're up 5%, the next day you're down 5%. So it's a little early to tell. I would say fourth quarter it'll be slightly better. I think the thing that's most encouraging to us is that year-to-date, we've grown our radio stations ratings relative to our markets. And past is prologue, then, clearly, that should translate to better ratings and revenues in Q4 and especially in our next fiscal year. So we're pleased with that.

A couple of other things. It's been a very good quarter for NextRadio. At CES this week, we've announced the first-to-market connected car solution. JVCKenwood has adopted NextRadio's technology to provide an enhanced local FM radio listening experience. Very excited about that and very excited about our partnership with Xperi as we work with the industry to come up with a solution to connected cars, and we're excited. We had an announcement this week that Samsung has agreed to unlock the FM chip in all of its smartphone models, not only in the United States and Canada but throughout Latin America. Very encouraged about that.

We've also had another major prepaid wireless carrier in the United States that will preload NextRadio on its devices starting in Q1. Measured listening in Latin America, we think, will grow quite significantly as a sharp increase in FM-enabled phones now enters all over Latin America. Again, data attribution, we think, is the economic key for not only NextRadio but for our industry. And we've had enhancements in the Dial Report that have been very, very well received. And we're continuing to work on our data evaluation agreement with Nielsen. I would stay tuned here. There're more and more fascinating things happening with NextRadio. We're very excited about the opportunities there.

And I want to give a shout out to our folks at Digonex. Our dynamic pricing business we bought a couple years ago has been in a buildup phase, and we're starting to get very encouraging momentum there. We have now the principal symphony orchestras, orchestras in 2 of the top 5 markets, a leading aquarium, the largest children's museum in the world, the largest promoter of Broadway-style entertainment in Canada, just a few of the accounts that we've added, and we're starting to see a ramp up nicely. We always say there's a long way to go in everything we do, but we're certainly excited about Digonex.

So this is certainly, as everybody knows, a challenging time in the broadcasting industry, but we're holding up pretty well. Given the challenges that others face, it's hard for me to complain, and we see some -- and more encouraging signs on the horizon.

So with that, Ryan?

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Ryan A. Hornaday, Emmis Communications Corporation - CFO, EVP and Treasurer [4]

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Thanks, Jeff, and good morning, everyone. This morning, we released earnings for our third fiscal quarter ended November 30, 2017. During the prior fiscal year, we sold all of our magazines, except Indianapolis Monthly, as well as our radio stations in Terre Haute, Indiana. In addition, during our second fiscal quarter, we closed on the sale of Power FM in Los Angeles. These sales caused our current period reported results to not be comparable with prior year results. We encourage those on the call to refer to the supplemental financial information we have posted under the Investors tab of our website, www.emmis.com.

Pro forma for all asset divestitures, our radio revenues were down 4.8% in Q3. According to Miller Kaplan, our radio markets collectively were down 2% in the quarter. Excluding political revenues in the current quarter as well as the same quarter of the prior year, our radio revenues would have been down 2.8%. Our St. Louis cluster gained share during the quarter.

Looking at the individual months and excluding our stations in Los Angeles and Terre Haute, September was up 3%, October was down 13% and November was down 4%. Performance in September was helped by an event, Circle of Sisters in New York, which occurred 1 month later in October in the prior year. Consequently, October's performance in the current year was adversely impacted by the timing of this event.

Healthcare supplanted automotive as our largest category in Q3, representing 10% of radio revenues. Automotive represented 8% of our Q3 revenues and was down 8% from the prior year. Similar to last quarter, the media, financial and home categories were strong in the quarter. Cellular and beverages joined automotive as the weakest of our top 10 categories.

Pro forma for asset divestitures, radio station operating expenses, excluding depreciation and amortization, were down slightly in Q3. Expenses for our emerging technologies were up $0.3 million in Q3, principally related to ongoing investment in NextRadio and TagStation, including product developments and enhancements to our data reporting capabilities.

As of November 30, 2017, we had $78.5 million of secured credit facility debt outstanding. Our total leverage ratio, as computed under our credit facility, is 4.6x, and our weighted average borrowing cost is 8.3%. Looking ahead to Q4, we expect radio revenues, pro forma for all asset divestitures, to be flat to modestly down as compared to the prior year.

Finally, we invested $353,000 in capital expenditures in Q3, and we expect to invest approximately $2 million for all of fiscal 2018.

With that, Jeff, we have some questions investors submitted to us in advance of the call.

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Questions and Answers

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Ryan A. Hornaday, Emmis Communications Corporation - CFO, EVP and Treasurer [1]

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First one, what are your expectations for radio industry revenue growth in calendar '18?

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Jeffrey H. Smulyan, Emmis Communications Corporation - Founder, Executive Chairman and CEO [2]

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Well, we do our budgeting for our fiscal 2/28 year, so it gives us a chance to sort of distill what everybody else is seeing. I think generally, the sense in the industry is probably a plus 1, so I think we hope to do a little bit better than that. But having said that, if you look at the performance of the radio industry in the last 6 months, it was certainly weaker than that. And I was looking at the chart of everybody's performance, and it had some pretty significant downturns last year. So I'm always hopeful that it'll be positive, but I think -- it could be flat, could be slightly down. But I think consensus, I think, is it should be plus 1.

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Ryan A. Hornaday, Emmis Communications Corporation - CFO, EVP and Treasurer [3]

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Jeff, I think you touched on this question in your previous answer, but do you expect Emmis to return to outperforming its radio markets in 2018?

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Jeffrey H. Smulyan, Emmis Communications Corporation - Founder, Executive Chairman and CEO [4]

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We hope so. We think so. It's been spotty. But if you look at ratings trends, we've had some really terrific ratings in St. Louis and Austin, a nice bounce back in Indianapolis and pretty solid numbers in New York. So we feel like we should. It's been a challenging time. We certainly had our problems in Los Angeles, which sort of brought the group down, but we feel better that we can outperform the market this year.

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Ryan A. Hornaday, Emmis Communications Corporation - CFO, EVP and Treasurer [5]

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With the merger of CBS and Entercom in November, do you believe Emmis can effectively compete in the radio industry given that it doesn't have the scale of its larger competitors?

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Jeffrey H. Smulyan, Emmis Communications Corporation - Founder, Executive Chairman and CEO [6]

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Yes. We've really been a boutique forever and ever, Ryan. And we think if we have great products -- we've said we competed as a stand-alone in Los Angeles for 30 years and certainly had challenges the last couple of years. But we've been -- we've had single station -- 2 stations like in New York, and we found that if -- the most important thing is the right niche. If you've got 8 stations in a market and 3 of them were underperformers, they're going to be underperformers. And if you've got a great station -- look at the best stand-alone in America is Jerry Lee's station in Philadelphia. It's been a stand-alone forever. It's been either first or second in Philadelphia for 25 years and has outperformed in terms of revenue. And so yes, I -- listen, would I rather have 8 stations in a market than 1? Sure. But I think I'd rather have 1 really strong station than 8 bad ones. So I think from our standpoint, we feel comfortable. We've seen -- in almost -- and actually over 40 years in this industry, we've seen about everything. And we feel like every day we wake up, we are capable of competing with anybody.

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Ryan A. Hornaday, Emmis Communications Corporation - CFO, EVP and Treasurer [7]

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CES is happening in Las Vegas this week. Much of the focus for the radio industry revolves around smart speakers in the connected car. How do you see Emmis and more broadly, the radio industry addressing these issues?

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Jeffrey H. Smulyan, Emmis Communications Corporation - Founder, Executive Chairman and CEO [8]

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Well, I think in smart speakers, obviously, we've got an opportunity because audio is the #1 consumer interest in smart speakers, and radio has an opportunity. The good news is people listen to radio stations on their smart speakers. The bad news is they're probably not listening to clock radios anymore, and we all know the economic challenges of streaming audio as opposed to terrestrial audio. But having said that, it's a chance to enhance our brands. And I think what we're seeing in the connected car is we have, obviously, the dominant position, which we've had really since the late 1940s. And I think with the things that we're doing that we've rolled out in Las Vegas, that we're working with not only JVCKenwood but other automakers, with Xperi and with the connected car group of the American radio industry, we have a -- we think we have a significant opportunity.

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Ryan A. Hornaday, Emmis Communications Corporation - CFO, EVP and Treasurer [9]

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The last question this morning is whether there's an update on the sale of WLIB-AM in New York or the land that we talked about in Northwest Indianapolis.

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Jeffrey H. Smulyan, Emmis Communications Corporation - Founder, Executive Chairman and CEO [10]

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No. Ongoing. We're starting a more formal marketing process for New York -- I mean, excuse me, for the land in Indianapolis. Very excited about that, but it's still too early to know. And as far as New York, there are ongoing discussions, but nothing is finalized.

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Ryan A. Hornaday, Emmis Communications Corporation - CFO, EVP and Treasurer [11]

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Thanks. That's all we have in terms of questions. Any closing remarks, Jeff?

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Jeffrey H. Smulyan, Emmis Communications Corporation - Founder, Executive Chairman and CEO [12]

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Well, again, I think -- I again want to thank our people as we enter another calendar year and close out a fiscal year. This company has really survived, and I sort of look at some of the stories across the landscape of the challenges other people have and we're fortunate we don't have those economic challenges. And I think it's a tribute to the culture, the spirit, the passion and the dedication of our people. That's what's gotten us through many ups and downs in the radio industry and in all of the industries that we've been in for 37 years. And one more day and one more year, I'm thankful for our people.

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Kate Snedeker, [13]

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Thanks, Jeff. Just a reminder, there will be a playback of this call for the next week at (203) 369-0773. Thank you for joining us.

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Operator [14]

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Thank you, everyone. That concludes today's conference. Thank you for participating. You may now disconnect.