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Edited Transcript of ETM earnings conference call or presentation 6-Nov-18 2:00pm GMT

Q3 2018 Entercom Communications Corp Earnings Call

Bala Cynwyd Nov 20, 2018 (Thomson StreetEvents) -- Edited Transcript of Entercom Communications Corp earnings conference call or presentation Tuesday, November 6, 2018 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David J. Field

Entercom Communications Corp. - Chairman, CEO & President

* Richard J. Schmaeling

Entercom Communications Corp. - Executive VP & CFO

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Conference Call Participants

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* Aaron Lee Watts

Deutsche Bank AG, Research Division - Research Analyst

* Brandon Osten

Venator Capital Management Ltd. - Founder & CEO

* Curry Michael Baker

Guggenheim Securities, LLC, Research Division - Analyst

* Davis Hebert

Wells Fargo Securities, LLC, Research Division - Director and Senior High Yield Analyst

* Marci Lynn Ryvicker

Wells Fargo Securities, LLC, Research Division - Former MD & Senior Analyst

* Michael Wasserman

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Presentation

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Operator [1]

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Good morning, and welcome to Entercom's Third Quarter 2018 Earnings Release Conference Call. (Operator Instructions) This conference is being recorded.

I would now like to introduce your first speaker for today's call, Mr. Rich Schmaeling, CFO and Executive Vice President. Sir, you may begin.

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Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [2]

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Thank you, and good morning, and welcome to our third quarter earnings conference call. This call is being recorded. A replay will be available on our company website shortly after the conclusion of today's call and available by telephone at the replay number noted in our release.

Should the company make any forward-looking statements, such statements are based upon 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 materially are described in the company's SEC filings on Form 10-Q, 10-K and 8-K. We assume no obligation to update any forward-looking statements.

During this call, we may make reference to certain non-GAAP financial measures. We refer you to our website at entercom.com for a reconciliation of such measures and other pro forma financial information.

I'll now hand the call over to David Field, the CEO of Entercom.

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David J. Field, Entercom Communications Corp. - Chairman, CEO & President [3]

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Thanks, Rich, and good morning, everybody. Thanks for joining us for our third quarter earnings call. Next week, we will celebrate the 1-year anniversary of our transformational merger, which created a special new company with an outstanding group of many of the country's most powerful and iconic radio brands concentrated in the top 50 markets and the scale to compete more effectively for a larger share of total ad spending.

Entercom today is the #1 creator of live, original local audio content. The unrivaled leader in news and sports radio, plus a significant events business in Radio.com.

This merger has always been principally about our conviction that the combined entity would have to scale on the capabilities to drive sustainable, meaningful revenue growth and value creation going forward. And we believe we are well on our way towards that goal. We have moved aggressively to drive change in virtually every facet of the business to enhance our organizational effectiveness and capitalize on scale-driven growth opportunities. We have accomplished a lot over the past 12 months. We successfully completed most of our systemic merger-related integration work, built an outstanding leadership team across the organization, including dozens of talented new high impact executives, achieved significant synergies that are driving costs lower, enhanced station programming and drove consistently high ratings, extricated ourselves from the USTN mess, which we inherited, and launched a successful new traffic business. Launched a new radio network business. Relaunched Radio.com and successfully transitioned our brands off of the TuneIn platform, and built a strong national client partnership team that is beginning to elevate our conversations with national brands.

And we remain hard at work driving meaningful enhancements and investments in data and analytics, local sales organizational effectiveness, our events, podcasting and sports businesses and much more.

From the beginning, we have consistently stated that the first half of 2018 would be a period of extensive building and development and that, in fact, our early results would be somewhat hampered by the deliberate moves we have made to enhance our future growth at the expense of short-term results, such as changing formats and purging poor business practices like selling ad inventory to resellers, who undercut us in the marketplace.

We have also noted that we expected to see the early rewards from our work with acceleration and the beginning of top line growth during the second half of the year. I am pleased to report this morning that we are right on track with our plans and expect to deliver solid top line and bottom line growth in the fourth quarter. More on that in a few moments.

Third quarter revenues declined 4%, in line with where we reported pacings during our previous earnings call. Our operating cost declined 4.5% during the quarter, driven by merger-related synergies. As a result, our EBITDA for the quarter declined 3%.

Some additional color on the quarter. Our best-performing markets were Las Vegas, Miami, Orlando, Sacramento and Seattle. Leading categories were consumer products, home improvement, education, Internet, e-commerce and entertainment. In fact, revenues in the consumer products category more than doubled, as we have seen some major advertisers in that space increasing their spending levels significantly.

Political revenues were up about $2 million over prior year levels. And we have made great progress in building our proprietary traffic advertising business in the wake of the transition out of USTN, which cost us approximately $25 million in lost revenues and cash flow in the first half of the year.

Now that we once again control our traffic inventory, we are quickly ramping up our own traffic ad sales and have significantly trimmed the USTN revenue and cash flow impact. I'm pleased to report that third quarter was the last quarter in which we anticipate any adverse impact from our traffic business and, in fact, we expect significant positive growth from that product line in 2019.

In addition, during the quarter, we made solid progress across a number of important organizational goals and growth drivers. Here are a few of the highlights. We completed all of our previously announced and pending divestitures and nonstrategic land sales, generating over $200 million of cash proceeds. That included closing on the $141 million divestiture of stations in San Francisco and Sacramento to Bonneville, the sale of land in Chicago for $46 million and the sale of land in Los Angeles for $26 million.

We also closed on the sale of WXTU-FM in Philadelphia to Beasley for $38 million and the acquisition of WBEB-FM in Philadelphia for $56 million. These two transactions are immediately accretive and leverage-neutral.

We previously announced the launch of the Entercom Audio Network on July 1, and it is attracting a blue-chip list of early clients, including Procter & Gamble, Walgreens, Staples, Home Depot, indeed.com and Hyundai. With our scale and our outstanding premium large market brands, we have a significant opportunity to capture a larger share of the $1 billion radio network market. We expect to see nice growth in our network business in 2019 and beyond.

We also continue to make strong strides with our investments in our brands and content, driving significant ratings growth. Our ratings winning streak is now extended to 9 months with an average portfolio-wide growth of roughly 4%. We are also very excited about the rapidly accelerating performance at Radio.com. I am very pleased to report that over the past few months, Radio.com has emerged as the fastest-growing digital audio app in the United States. We believe Radio.com is positioned to become one of the country's leading digital audio platforms, capitalizing on Entercom being the nation's #1 creator of original local audio content.

Our leadership in local news and sports plus our deep lineup of local personalities across the country will be an important driver in the success of this platform as well our position as the nation's #3 podcaster through our investment in Cadence13.

Radio.com is now live on Amazon's Alexa devices, Google Home, Sony's smart speakers, Apple CarPlay, Google's Android Auto, Roku, Fire TV and more, and now cover 80% of the OTT market.

Additionally, during the quarter, we launched a number of exclusive podcasts and landed the national screening rights to Notre Dame Football and Basketball, and the New York Islanders and New Jersey Devils. We anticipate announcing many more content and distribution deals in the coming months.

During third quarter, we terminated our agreement with TuneIn, a digital audio aggregator that held a very large share of the streaming of our radio stations. We made this move because we believed it was critically important to control our destiny, build digital scale and establish Radio.com as a serious player in the digital audio world by making Radio.com the distribution channel for our brands and content. The transition went extremely well, exceeding our expectations. Within 8 weeks, we recovered all of the audience losses from TuneIn.

A couple other data points to illustrate our progress at Radio.com. Total active users across all platforms are up 179% year-to-date. And our total digital reach of monthly average users is now greater than both SiriusXM and TuneIn. As a result of the fast growth of the platform and our differentiated content offering, Radio.com is now emerging as a viable choice in the national digital audio sales marketplace. We have seen a significant increase in RFPs from agencies across the U.S. that recognize Radio.com as a new option in this growing space.

Turning to our sports business. We recently announced that we are the new flagship home of the New York Mets, but we'll move to WCBS-AM this coming season. Entercom is now the home to all of the Major League Baseball teams from Washington D.C. to Boston. We are also beginning to see an early influx of sports gambling-related ad revenue. While currently, only a few states have legalized sports gambling, as that expands, we are very well positioned to capitalize on that emerging high-growth category through our leadership position in sports radio.

And last week, we announced that Entercom has become the first broadcaster ever to be the flagship partner of all rating -- all 4 rating major pro champions, the Eagles, Red Sox, KAPS and Warriors, a reflection of our extensive and unrivaled lineup.

Turning to fourth quarter performance. I'm pleased to report that our revenues are currently pacing up 4%. Our meaningful top line growth, coupled with our continuing expense reductions, will enable us to generate solid double-digit EBITDA growth during the fourth quarter.

Political has performed well during the quarter, coming in ahead of the previous midterms back in 2014. As a reminder, political revenues are nowhere near significant to our model as they are in television and will account for roughly 2% of our growth versus fourth quarter 2017. We are also seeing solid growth in national events, digital audio and our new Entercom Audio Network business. It is also noteworthy that we expect to generate positive top and bottom line revenue growth across the legacy CBS markets in fourth quarter, including markets like Los Angeles, New York, Dallas, Philadelphia, Miami, Detroit, Atlanta and more.

We are also very encouraged by the nature of the conversations we are having with some of the country's largest advertisers. Radio has emerged as the #1 music medium in the country according to Nielsen with superior ROI and a number of other highly compelling attributes.

Radio also remained highly undervalued and is arguably the least disrupted of the major traditional media. Plus, radio is accelerating its investment in innovation, which will continue to make the media more valuable to marketing partners. These attractive fundamentals and growing frustration with other major advertising platforms is leading some large advertisers to revisit radio and considerate it for a larger share of their media mix. In fact, we are seeing highly influential brands like Amazon, Procter & Gamble, Uber, Google, Peloton and others increasing their spending with Entercom and in the medium. The opportunity for a significant boost in radio spending and indeed a radio renaissance is a real possibility. Our commitment to advocacy, our deployment of our national client partnership team and the emergence of our Entercom Audio Network are all important components of our strategy to help accelerate this trend and capitalize on the opportunity.

On our last call, I suggested that we saw considerable evidence that we were turning the corner. And today, our confidence in that turn is even greater. We have successfully completed all of our divestitures, extricated ourselves from the USTN fiasco and launched a very successful new traffic ad business, achieved significant expense reductions and are driving strong growth at Radio.com and the Entercom Audio Network.

And now we are delivering solid top line and bottom line growth in the fourth quarter. And the best part is that most of the scale-driven growth initiatives we are pursuing are just getting started. Of course, there will be bumps along the way and not everything we are pursuing will work out as we hope. But we have good momentum across our multiple scale-driven growth initiatives and are excited about our opportunities in 2019 and beyond.

And fundamentally we are enthusiastic that the undervalued and underappreciated radio space will resume a solid growth trajectory as advertisers increasingly recognize radio's compelling value proposition and shift ad dollars into radio from other highly disrupted disappointing ad alternatives.

With that, I'll turn it over to Rich.

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Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [4]

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Thanks, Stephen. On a same-station basis, our third quarter net revenues were down 4%, which is a 4-point improvement from our first half performance and were consistent with where we are pacing at the time of our 2Q call. For the fourth quarter, we are currently pacing up 4%, and we are up about 2% ex political.

From an expense perspective, our total ads reported operating expenses for the quarter came in at $299.8 million and include $4.3 million of integration, restructuring and M&A costs. The onetime merger-related integration and restructuring costs are trending down but are not yet complete.

We have another 8 months or so to go on our integration program, but we expect to add to the cumulative $27 million of onetime integration and restructuring costs incurred through September 30, whereas our original guidance for the entire program of $40 million. We will provide refreshed guidance on the outlook for the remaining onetime cost during our fourth quarter call, but we expect that we would exceed our prior guidance and may come in somewhat less. For the third quarter, excluding these onetime costs, and adjusting out noncash items like D&A and miscellaneous income, our total cash operating expenses came in at $291.8 million, down 4.5% or $13.7 million from the $305.5 million on a pro forma combined same-station basis in the third quarter of 2007 (sic) [2017].

September year-to-date, our same-station total cash operating expenses are down 2.4% or $21.1 million. And for the fourth quarter, we expect that our same-station cash operating expenses will be down about 2% as we ramp up investment spending on a number of new products and initiatives.

In the third quarter, we realized about $20 million in net cost synergies, bringing the total to $41 million September year-to-date. And we are on track to exceed our $45 million net cost synergy target for this year by about $10 million.

Our overall integration program continues to run slightly ahead of our plan, and we remain on track to achieve our target of $110 million in net cost synergies at run rate by the middle of next year and to realize in P&L during 2019 more than $45 million of incremental net cost synergies.

Turning to our financial position. During the third quarter, we closed on the sale of our remaining divestiture stations to Bonneville for $141 million and on the sales of a number of redundant assets and generated gross proceeds of about $73 million.

In addition, we closed on the sale of WXTU to Beasley for $38 million in cash and used those proceeds plus cash on hand to acquire WBEB in Philadelphia for $56.4 million. This transaction is immediately accretive, leverage-neutral and strengthens our competitive position in the ninth largest radio market by adding this top performer in terms of both revenues and ratings.

For the full year, our redundant asset sales are on track to meet or exceed our target of $95 million, but we continue to expect after-tax proceeds from our asset sales, including the divestitures of about $200 million.

As of September 30, we had $270 million of cash on hand, including $70 million of restricted cash. We deposited the proceeds from 2 of our recent redundant asset sales into a qualified intermediary entity, or a QI, in order to avoid about $68 million of cash taxes via 1031 like kind exchanges for replace of property associated with facilities projects aimed at consolidating our operations in 2 of our largest markets.

The restrictions on this cash will lapse by the end of the first quarter of next year. We ended the quarter with $1.7 billion of net debt, and our total net leverage was 4.4x, and our senior secured leverage was 3.3x, factoring in all of our cash on hand.

On a compliance basis, which limits how much cash we can use in determining net debt, our total net leverage was 4.8x, and our senior secured leverage was 3.7x. And our weighted average cost of debt at the end of the quarter was 5.5%.

At the end of the quarter, the company retained its asset-sale proceeds on its balance sheet in anticipation of paying down debt. In addition, the company is actively monitoring the market and is contemplating a potential refinancing of its existing capital structure.

Our 3Q capital expenditures were $7 million, and we now expect that our full year expenditures, including onetime integration-related expenditures, will be about $45 million.

This outlook is $10 million to $15 million less than what we previously expected as one of our facilities projects has been delayed, which has caused us to adapt our 1031 like kind exchange planning and to part more cash in the QI than we originally expected.

As noted earlier, these restrictions on this cash will fully lapse by the end of the first quarter of next year.

With that, we'll go to your questions. Operator?

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question today is from Marci Ryvicker from Wolfe Research.

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Marci Lynn Ryvicker, Wells Fargo Securities, LLC, Research Division - Former MD & Senior Analyst [2]

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I have a couple, I think. The first one, Rich, can you quantify the total revenue and EBITDA loss related to USTN for this year? And then any sense as to how much you can recoup next year?

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Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [3]

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Yes. What we've said is we lost about $25 million in the first half. And in the second half, the story isn't fully written yet. But maybe it's another $5 million to $8 million of lost revenue. And next year, our team's targeting to get to over $40 million of revenue. So we think we'll about more than double our revenue in 2019.

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Marci Lynn Ryvicker, Wells Fargo Securities, LLC, Research Division - Former MD & Senior Analyst [4]

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Okay. And then for synergies based on your comments, if I got this right, you're going to do $55 million in '18, $55 million in '19, how do we think about the $55 million flowing into the first half of next year?

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Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [5]

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Yes. So we said that this year, we'll realize in P&L about $55 million of net cost synergies. Next year, what I said is we'll realize more than $45 million. And we expect to be at a run rate of $110 million by midyear. We are targeting more, of course. And that's our starting point, and we'll give you more color as we progress. But $55 million this year, more than $45 million in P&L next year.

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Marci Lynn Ryvicker, Wells Fargo Securities, LLC, Research Division - Former MD & Senior Analyst [6]

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Okay. And how should we think about that $45 million versus Q1 and Q2, just put it down in the middle?

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Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [7]

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Geez, well, it's going to be -- well, that $45 million will be realized throughout the course of 2019. Then I would think about it more like 15-ish per quarter in the first half of the year.

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Marci Lynn Ryvicker, Wells Fargo Securities, LLC, Research Division - Former MD & Senior Analyst [8]

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Okay. And then for your leverage calculation, I just want to clarify, are you including 100% of the synergies?

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Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [9]

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So in our compliance leverage calculation, we're limited to how much cash that we can net, and we're including the remaining amount of unrealized synergies as permitted under our leverage calculation.

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Marci Lynn Ryvicker, Wells Fargo Securities, LLC, Research Division - Former MD & Senior Analyst [10]

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Okay. And then I have one for David. The focus has really been on revenue growth and the turnaround at CBS. Is there any data you can give us that tells us exactly what's going on as a true turnaround versus there being just a really easy comp for the CBS station?

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David J. Field, Entercom Communications Corp. - Chairman, CEO & President [11]

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Well, there are a lot of things that we've talked about, right? So number one, I mentioned on this call, the consumer product space and that category more than doubling. One of the things we've talked about for a long time is the fact that radio is highly undervalued, and we believe the space has an opportunity to gain share in the broader advertising landscape. I think it's very telling that, that category, which is obviously such an important category, has more than doubled. And think about the kinds of players in that space and how much they invest in data and analytics and attribution, they obviously are seeing something in terms of the efficacy of this medium because it's not unique to Entercom. But I think it's a very telling sign about some of the evangelism that's going on, on behalf of companies like iHeart and Entercom and others. And that's beginning to make a dent. I also think that as we look to '19, one of the things which gets us so excited and we're starting to feel already in this fourth quarter acceleration you're hearing about, are these new markets and new products that we're offering, right? So with scale, we're now playing in the network market. We're now playing in the national digital audio market. And I mentioned the acceleration in RFPs that we're seeing in that rapidly growing area, our national client development team and what they're doing. So there are a lot of things going on that are tangibly adding value and that, we believe, are important drivers for us as we go into 2019 and beyond.

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Operator [12]

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Our next question is from Aaron Watts from Deutsche Bank.

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Aaron Lee Watts, Deutsche Bank AG, Research Division - Research Analyst [13]

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David, maybe just to dovetail on that answer you just gave. I mean, it sounds like you've made some traction this year moving from kind of negative growth towards positive here in the fourth quarter. Is it your sense that you can kind of maintain that momentum going into 2019? I guess that's Entercom specifically, and I know you've had a lot of improvements you had to make this year but also the industry. And I get that would speak to the overall kind of possibility that the industry can maintain growth going forward. Do you think both those things can happen?

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David J. Field, Entercom Communications Corp. - Chairman, CEO & President [14]

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Yes, it may happen absolutely. It's -- our fourth quarter is 1,200 basis points faster top line than what we did in the first half. We know political is roughly 2 points of that, right? So we think that's not unimpressive. Obviously, it's just the start. I don't want to repeat what I said in my remarks or what I -- how I answered Marci's question, but this is a highly undervalued industry that is getting reassessed by a lot of advertisers. And it doesn't happen on a dime and there are obviously lots of factors out there pointing in various directions, but radio has the real opportunity to experience a renaissance in 2019 and beyond. And we're seeing the seeds of that manifest themselves in different ways, all of the consumer product story and in some other areas that we're looking at. But look, we've got to prove that, right? We got to execute against that and -- but the potential is there.

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Aaron Lee Watts, Deutsche Bank AG, Research Division - Research Analyst [15]

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And with Cumulus emerging from bankruptcy, iHeart expected to soon, have you seen any change in the competitive dynamics out there in the marketplace yet? Or do you expect to, whether it's down to pricing or volume? Can you talk about that a little bit?

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David J. Field, Entercom Communications Corp. - Chairman, CEO & President [16]

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I think it's too early to speak with any knowledge about what's happening out there with Cumulus out of bankruptcy for just a short period of time and iHeart, obviously, still not out yet. But to state the obvious, I think having the largest and the third largest player in the category coming into a healthier place has got to be a good thing for industry dynamics.

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Aaron Lee Watts, Deutsche Bank AG, Research Division - Research Analyst [17]

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Okay. Great. And one last one, and I appreciate the time, just for Rich. Rich, I know you talked about some of the cash proceeds, I think, sitting on the balance sheet right now from the asset sales. Is it still your plan to use a majority or most of those proceeds to pay down debt?

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Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [18]

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Absolutely. And I will state again that $70 million of that right now is tied up in a QI for 1031 purposes, as you and I have discussed. And that will burn off as we spend that money and then it gets fully released during the first quarter of next year. So that cash of the $270 million isn't available to us right now to pay down debt because we're trying to save hopefully up to $8 million in cash taxes. And -- but the rest of it, we are holding in anticipation of paying down debt and are assessing the market and are considering refinancing our capital structure.

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Operator [19]

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Our next question is from Davis Hebert from Wells Fargo Securities.

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Davis Hebert, Wells Fargo Securities, LLC, Research Division - Director and Senior High Yield Analyst [20]

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Rich, I want to start with you. You mentioned refi-ing the entire capital structure, and forgive me, if I got that statement wrong, but just kind of curious what you are considering? Is it a full refi of the loans and the bonds? Or is there something equity linked that we could expect? Just kind of curious what you meant by that.

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Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [21]

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No, we don't intend to touch the existing notes. We are interested in addressing our percent floating. We're like 79% floating today. We'd like to move more toward a neutral position. So we're not going to touch the notes, but we are looking at the rest of the structure and are currently in the process of assessing alternatives.

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Davis Hebert, Wells Fargo Securities, LLC, Research Division - Director and Senior High Yield Analyst [22]

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Okay. So going more towards a balanced floating fixed mix then. Would that mean you'd look to the high-yield market or something -- some other capital source?

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Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [23]

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Yes. That's a possibility. But we are not assessing -- you did mention equity. We're not assessing an equity raise. We're looking at transactions in the debt markets.

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Davis Hebert, Wells Fargo Securities, LLC, Research Division - Director and Senior High Yield Analyst [24]

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Okay. That's helpful. And your leverage on a secured basis is 3.7x, you mentioned, on a covenant basis. I mean, with the EBITDA growth you expect in the fourth quarter and looking toward 2019, I mean, do you feel pretty comfortable with your levels versus the covenants?

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Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [25]

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Yes. That's clearly one of the things that we're thinking about when we think about the alternatives to refinance, addressing that covenant and gaining more accretion.

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Davis Hebert, Wells Fargo Securities, LLC, Research Division - Director and Senior High Yield Analyst [26]

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Okay. And then just one more clarification question, if I could. I think you said $45 million of synergies next year with $15 million per quarter in the first half. So if my math is right, does that mean the $15 million would be spread across the back half of the year to make -- to equal $45 million?

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Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [27]

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Look, we said that we're going to do more than $45 million of net cost synergies. We're not yet ready to give updated guidance. But I think we do expect it to be somewhat more than $45 million, Davis, and we'll give further guidance on that as we get into the 2019. And I also want to make sure that when -- just following up on your point about leverage, I know you pointed out that we're 3.7x on a compliance basis. We're obviously holding a lot of cash right now in anticipating -- in anticipation of refinancing. And looking at our leverage, with the full benefit of all of that cash, we're 3.3x levered on a senior secured basis. So this is a moment in time and that compliance stats not really indicative of reality. Reality is 3.3x. And we're just holding the cash now, assessing our alternatives, and hopefully, market conditions permitting, you'll see us execute shortly.

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Davis Hebert, Wells Fargo Securities, LLC, Research Division - Director and Senior High Yield Analyst [28]

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Okay. Really helpful color. And then, David, if I could ask you one question. The debut of the Entercom Audio Network, you mentioned it being $1 billion industry. And I wondered, for you, is it the opportunity that the network radio business is growing from a secular perspective and organic perspective? Or is it more of a share-gaining opportunity from some of the larger players in the marketplace?

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Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [29]

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Yes, so I'll make one comment and pass it to David. If you look at the most recent BIA projections for the radio space, they show the network market growing about mid-single-digit. We think that's happening because a lot of names coming back to the space are looking for national reach and find the efficiency of a network market attractive. So it is growing. And Dave, you want to pick up from there?

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David J. Field, Entercom Communications Corp. - Chairman, CEO & President [30]

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Yes. And the answer to your question, Davis, is really both, right? Clearly, as coming into our own with scale, we're now competing where we weren't a year or more ago. So that enables us to be able to gain share within that market. But as Rich has pointed out, we think it's a growth market, and we also think it helps facilitate making radio easier to buy for major national advertisers. And so it should -- our entrance into the space should only further accelerate its growth.

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Davis Hebert, Wells Fargo Securities, LLC, Research Division - Director and Senior High Yield Analyst [31]

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And when you look at network radio from a CPM perspective, I mean, is it fairly an expensive way to get that mass medium versus other alternatives out there?

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David J. Field, Entercom Communications Corp. - Chairman, CEO & President [32]

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I think the main driver behind it is the simplicity of execution. And obviously, there's nuance around that. But that's the principal, I think, benefit to an advertiser.

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Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [33]

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And we should say that the Entercom Audio Network is positioned as a premium network brand-safe content, well-lit environment. And we are garnering CPMs significantly in excess of what we've seen elsewhere in the network market.

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Operator [34]

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Our next question is from Michael Wasserman from Moors & Cabot.

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Michael Wasserman, [35]

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I'm sorry, I don't have a question right now.

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Operator [36]

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(Operator Instructions) And our next question is from Curry Baker from Guggenheim Securities.

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Curry Michael Baker, Guggenheim Securities, LLC, Research Division - Analyst [37]

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I guess, maybe could you help us parse sort of the -- I think, ex political, you're pacing up 2% in the fourth quarter versus down 4% in the third quarter. Could you help us parse what's driving that? Is it Radio.com? Is it national traffic versus sort of local traditional spot advertising? Any more granularity would help.

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David J. Field, Entercom Communications Corp. - Chairman, CEO & President [38]

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Curry, it's really, e, all of the above, right? There is not one single driver. National spot radio is accelerated. Our friends in Katz are doing a nice job and that's going well. Traffic has improved for us to become -- it's evolved to the point where it's no longer a boat anchor for us. We're seeing growth on the network side. Local has improved sequentially each quarter. So it really is every facet of our business or essentially every facet of our business that has improved as we've gone in the third quarter and now fourth quarter.

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Curry Michael Baker, Guggenheim Securities, LLC, Research Division - Analyst [39]

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Okay. And I know you called out consumer products as a category of specific strength. Are there any other categories? And could you also update us on how auto was in the third quarter and how it's pacing into the fourth quarter?

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David J. Field, Entercom Communications Corp. - Chairman, CEO & President [40]

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Sure. We don't give out leading information on pacing. But I will tell you that auto was flattish for us in the third quarter, down a little bit, but not meaningfully. And as far as other leading categories, I think we covered that in our remarks in the text that I touched on, home improvement, education, Internet and entertainment as other categories which led the way for us during the third quarter.

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Curry Michael Baker, Guggenheim Securities, LLC, Research Division - Analyst [41]

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Okay. And I think my last question is the new products and initiatives you mentioned in the prepared remarks that are rolling in the fourth quarter, could you maybe get a little more granular on what those are and a little more detail there?

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David J. Field, Entercom Communications Corp. - Chairman, CEO & President [42]

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I'm sorry. I don't -- I'm not sure I followed your question.

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Curry Michael Baker, Guggenheim Securities, LLC, Research Division - Analyst [43]

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I think you guys mentioned some new products and initiatives rolling into the fourth quarter that would result in same-station cap OpEx being down roughly 2% versus kind of like the down 4% run rate you've been going at.

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Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [44]

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Okay. So there is a little bit more spending in the fourth quarter on some initiatives behind Radio.com. There's some marketing and incremental marketing investment on a sequential basis. So I think this is some -- and then in the fourth quarter, we are launching a couple of new events that require some expense investment to get them up and running. So it's those things. It's a whole list of things across our various product offerings.

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Operator [45]

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And our final question today is from Brandon Osten from Venator.

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Brandon Osten, Venator Capital Management Ltd. - Founder & CEO [46]

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Just -- I've had some questions on the Radio.com stuff. So TuneIn radio, were all of CBS' and Entercom's stations available on TuneIn before you guys pulled off that platform?

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David J. Field, Entercom Communications Corp. - Chairman, CEO & President [47]

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Yes.

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Brandon Osten, Venator Capital Management Ltd. - Founder & CEO [48]

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They were. So that's got to be a pretty big chunk of their U.S. inventory of stations. What was the reaction to that?

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David J. Field, Entercom Communications Corp. - Chairman, CEO & President [49]

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Reaction from whom?

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Brandon Osten, Venator Capital Management Ltd. - Founder & CEO [50]

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From them. Like were they stunned by that? Or were they expecting that? Or...

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David J. Field, Entercom Communications Corp. - Chairman, CEO & President [51]

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Well, Brandon, I don't think it's appropriate for me to divulge those conversations. And we certainly have a lot of respect for that team. It just, for us, became an imperative to have control of our destiny and to make Radio.com as strong as it could be. And that made it logical for us to put all of our brands under the Radio.com platform. And as I mentioned earlier, that transition went much better than expected. I actually want to just expand on your question, if I can, for a second, and put little bit of our integration work in context, right? So in the course of 2018, we first had to pull all of the CBS stations off of the CBS local portals, where they were essentially cohabitating with all of their television stations in an integral part of that strategy. Now with a highly disruptive ad, which went really well as we established independent digital platforms for all of our brands and then we followed that up just a few months later with the pulling off of TuneIn. So we went through 2 major disruptive events. And no doubt, that helped us back in terms of what our digital top line might otherwise have been. But I'm really proud of our team for executing so well against 2 major transformational disruptive events and putting ourselves in really great position, as you heard earlier, when I was rattling off some of our Radio.com data points and where we stand now versus where we were just a year ago.

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Brandon Osten, Venator Capital Management Ltd. - Founder & CEO [52]

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And so Radio.com, the revenue model, are you running effectively the same ads on your FM...

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David J. Field, Entercom Communications Corp. - Chairman, CEO & President [53]

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Streams?

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Brandon Osten, Venator Capital Management Ltd. - Founder & CEO [54]

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Yes. Like are you running the same ads on Radio.com -- your Radio.com streams versus what you run on your sort of legacy streams? Or are you grabbing different advertisers effectively for the same content?

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David J. Field, Entercom Communications Corp. - Chairman, CEO & President [55]

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Right. So there certainly are many advertisers who advertise across both platforms. But we also have plenty of advertisers who are just advertising with us on those addressable digital streams.

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Brandon Osten, Venator Capital Management Ltd. - Founder & CEO [56]

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Right. But I mean, if I'm -- let's say, I'm listening to them side by side, so I'm getting a different -- I'm getting different ad contents. You're selling -- you have the ability to basically sell 2 ads for 1 slot based on if it's Radio.com or legacy?

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David J. Field, Entercom Communications Corp. - Chairman, CEO & President [57]

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We have the ability to put targeted ads, addressable ads up against our digital audiences, our streaming audiences and to separately sell the advertising against the stations. I'll remind you that when we go to market with our broadcast stations, those ratings do not reflect the additional audiences that we generate over our streams. And so we kind of have 2 separate products with 2 separate audiences, albeit, obviously, there's a lot of overlap.

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Brandon Osten, Venator Capital Management Ltd. - Founder & CEO [58]

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Yes. No, I mean, I'm just thinking that's cool because it's -- basically, your cost don't really go up. But you may actually have -- you're going to have incremental advertising revenues from the same inventory, which is -- that can be very -- that could be material within the next several years. Just -- you elaborated a bit on your Q4 expense run rate. So if I'm looking at last year -- and I think I'm doing this from your historical numbers here, but your revenues from Q3 to Q4 pro forma were fairly flat sequentially. And your EBITDA from Q3 to Q4 was also fairly flat sequentially, which would suggest that your operating expenses are fairly flat normally, sequentially. Is that basically the way we should be looking at that going forward? Is that your expense run rate in Q4 looks an awful lot like your expense run rate in Q3 typically?

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Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [59]

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I'll say, typically, but there are a few things going on in the fourth quarter this year that are incremental, which is part of the reason why instead of the 4.5% decrease you saw in the third quarter and the 5% decrease you saw in the second quarter, it will be somewhat less in the fourth quarter of this year.

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David J. Field, Entercom Communications Corp. - Chairman, CEO & President [60]

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Thanks, everybody. Appreciate you joining us here this morning, and we look forward to reporting back to you here in a few short months. Thanks.

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Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [61]

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Bye-bye.

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Operator [62]

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Thank you. This does conclude today's conference. You may disconnect at this time.