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Edited Transcript of ETM.N earnings conference call or presentation 24-Feb-21 3:00pm GMT

·48 min read

Q4 2020 Entercom Communications Corp Earnings Call Bala Cynwyd Feb 24, 2021 (Thomson StreetEvents) -- Edited Transcript of Entercom Communications Corp earnings conference call or presentation Wednesday, February 24, 2021 at 3:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * David J. Field Entercom Communications Corp. - Chairman, CEO & President * Richard J. Schmaeling Entercom Communications Corp. - Executive VP & CFO ================================================================================ Conference Call Participants ================================================================================ * Avi Steiner JPMorgan Chase & Co, Research Division - Executive Director and Senior Analyst * Craig Anthony Huber Huber Research Partners, LLC - CEO, MD and Research Analyst * J Steven Emerson Emerson Investment Group - Founder * Jim Devlin * John Ellis Palmer Square Capital Management LLC - Credit Analyst * Matt Dratch * Michael A. Kupinski NOBLE Capital Markets, Inc., Research Division - Director of Research and Senior Media & Entertainment Analyst * Steven Lee Cahall Wells Fargo Securities, LLC, Research Division - Senior Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning, and welcome to Entercom's Fourth Quarter 2020 Earnings Release Conference Call. (Operator Instructions) This conference is being recorded. I would like to introduce your first speaker for today's call, Mr. Richard Schmaeling, CFO and Executive Vice President. Sir, you may begin. -------------------------------------------------------------------------------- Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [2] -------------------------------------------------------------------------------- Thank you, Catherine. Welcome to Entercom's Fourth Quarter Earnings Conference Call. This call is being recorded. A replay will be available on our company's website shortly after the conclusion of today's call and available by telephone at the replay number noted in our release. During this call, the company may make forward-looking statements, which are based upon the company's current expectations and involve risks and uncertainties. The company's actual results could differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause actual results to differ materially are described in the Risk Factor section of the company's annual report on Form 10-K, as such risks and uncertainties may be updated from time to time in the company's SEC filings. We assume no obligation to update any forward-looking statements, except as may be required by law. During this call, we may make reference to certain non-GAAP financial measures. We refer you to the Investors page of our website at entercom.com for reconciliations of such measures and other pro forma financial information. With that, I'll hand it over to David Field, the CEO of Entercom. -------------------------------------------------------------------------------- David J. Field, Entercom Communications Corp. - Chairman, CEO & President [3] -------------------------------------------------------------------------------- Thanks, Rich. Good morning, everybody, and thanks for joining our fourth quarter earnings call. As we near the 1-year anniversary of the official declaration of the pandemic, I'd like to start off today's call by sharing some perspective on how Entercom has fared through this historically challenging period. When COVID began, we committed ourselves to first taking care of our team and making sure that everyone was safe, while ensuring we didn't miss a beat in serving our listeners and customers. We also dedicated ourselves to not just navigating the storm effectively, but to accelerating our transformation and emerging from the pandemic as a meaningfully stronger and better positioned company with significantly enhanced growth potential. We believe we are well on track to accomplish that. For the past couple of years, we have been purposefully transforming the organization into a leading multi-platform audio content and entertainment company with scaled audience reach and a leadership position in virtually every segment of the dynamic and growing audio market, including broadcasting, podcasting, digital, network, events, music, news and sports. Today, Entercom is the country's #1 creator of original premium audio content, strategically well positioned to expand our customer relationships and accelerate growth. We are excited about what lies ahead and how things are coming together across our company. Entercom today is a very different company than before, emerging as an important player in the growing and evolving audio business. We have made a number of strategic acquisitions and launched a plethora of internal initiatives to move the company forward. While the progress is masked by the enormous challenges of the pandemic and its impact on a large percentage of our customers, we are making great strides in building rapidly growing digital, podcasting, sports betting and network businesses and are optimistic about the recovery of our local advertising and events businesses as the pandemic abates. I will share a few headlines on the fourth quarter and some additional thoughts on the business before turning it over to Rich and your questions. During the fourth quarter, we announced and completed the acquisition of the QL Gaming Group, a rapidly emerging sports betting data and predictive analytics platform for $32 million, enabling a significant enhancement of our sports betting business capabilities. We also announced our multiyear partnership with FanDuel. Fourth quarter net revenues of $320 million were down 23% versus last year and sequentially up 19% versus third quarter. I would add that importantly, events represented 7% of our fourth quarter 2019 revenues. And, of course, that essentially all went away this past quarter. Our extensive enhancements of our business model yielded a 16% reduction in Q4 operating expenses versus prior year, enabling us to deliver adjusted EBITDA of $67 million, more than double the $31 million we generated in the third quarter. During 2020, we successfully achieved permanent annual expense reductions of $100 million, while improving our capabilities to serve listeners and customers. Digital revenues, which includes our podcasting business, had a strong quarter, growing 23% over prior year, led by robust growth in streaming and podcasting along with a solid contribution from our digital marketing solutions products. It is worth noting that our digital business has now grown to 18% of total revenues in the fourth quarter versus 10% for 2019. Our network radio business also posted a great quarter, growing 21%, partially reflecting the progress we are beginning to make building national client partnerships, capitalizing on our scale and our outstanding line of a premium exclusive content. During the quarter, we consolidated our various national sales arms into a single organization better focused and equipped to capitalize on the emerging strength of our holistic audio capabilities to grow our share of total national and/or ads spending. As noted earlier, our events business obviously has been shut down. We are hopeful that we will see a partial return of this business later in 2021. Our spot business has been the laggard, declining 24% during the quarter, reflecting the continuing deep impact of the pandemic on local economics and important business segments. When you think about the fundamentals of the radio business, one of the things we do best is activate local audiences on behalf of our customers. Our business is significantly led by advertisers looking to drive audiences to go places and do things, theme parks, events, gyms, restaurants, stores, sporting events, night clubs, theaters, movies, concerts, fairs, travel, casinos and more. Well, pandemics are disproportionately rough on the go places and do things business, and that is, in turn, had a substantial impact on local radio advertising. While the spike in infections, hospitalizations and deaths hindered further economic progress over the past couple of months, we are quite encouraged by the current pandemic trends and the accelerating rate of vaccinations and the increasingly optimistic medical and economic expectations. We look forward to welcoming back our sideline customers as they recover and meet the pent-up demand for their businesses. Strategically, we continue to make good progress across each of our key platforms. Our radio brands remain strong, and we are increasing our focus on driving innovation to enhance the listener experience and capitalize on our abundant multi-platform and scale-driven opportunities. RADIO.COM, our digital platform, had another terrific quarter of growth across all metrics. During fourth quarter, our monthly active users grew 34% over the prior year while our smart speaker listenership surged by 53%. RADIO.COM total listening hours grew by 10% continuing our industry-leading streak of double-digit growth, which extends back to mid-2019. I had mentioned earlier that we had a very strong quarter of digital audio sales growth, driven by not only increasing listenership, but also very positive trends in streaming RPMs or revenue per 1,000 hours. We were essentially sold out of our streaming inventory again in fourth quarter and demand remains high. Our podcasting business also had a very strong quarter across all metrics, including revenues, downloads, unique listeners and RPMs. 20 of our shows made the Triton Top 100 more than any other publisher. The quality of our work is reflected in the critical acclaim we continue to receive. A number of our shows who appeared on 2020 Best of Lists from Time, The New York Times, Rolling Stone, The Atlantic, Teen Vogue, The New Yorker and more. In fact, The New York Times and The Guardian both named Wind of Change from our Pineapple Street Studios team, the #1 podcast in 2020. And another one of Pineapple Show's, Back Issue, was named one of the best original podcast of the year by Time The Atlantic and Spotify. We also continue to be the partner of choice for leading studios and streaming services in developing companion podcasts. We are very pleased to note that Hulu has just come onboard as a new partner, joining HBO and Netflix, among others. We will be rolling out many more exciting shows with these partners later this year. As we look ahead to 2021, we continue to ramp up our production of original shows. Together, our Cadence13 and Pineapple Street Studios are slated to create 22 original new longform series, doubling their 2020 output of 11 originals. Several of these shows have also appeared on a number of most anticipated podcast of 2021 list. We are also continuing to expand our premium network of shows with leading influencers and entertainers. Last week, we announced the first 3 podcasts from our C13Features project. C13Features is a new partnership we formed with Endeavor Content to develop feature-length fiction podcasts designed to be highly adaptable to TV and film. The announcement of our first C13Features projects was very well received and is already garnering studio interest. On a related note, in December, we announced the sale of TV adaptation rights for Wind of Change to Hulu, and we have recently auctioned a number of other projects to major studios and streaming services. All in, our derivative sales to TV and film more than doubled in 2020, and while a small number, we believe we will see this area of our business emerge as a modest contributor in the years ahead. This is also a very active quarter for our sports betting business. As I mentioned earlier, we announced the landmark multiyear partnership with FanDuel to establish the single largest advertising deal in the history of the radio industry. FanDuel made this long-term commitment to capitalize on the power of our unrivaled sports radio leadership and deep local fan relationships. In addition to FanDuel, we continue to expand our business with other sports book operators as well. All in, we are expecting our combined sports betting ad revenues to grow by at least 50% in 2021. While most states have still not legalized mobile sports betting, we expect to see a significant number of states coming online in the next few years, which should fuel robust ad growth in the category. We continue to expect sports betting to grow to a $100 million category for Entercom over the next several years, more than tripling our expected 2021 levels. As mentioned, during Q4, we acquired the QL Gaming Group, which includes the BetQL app, the rapidly emerging sports betting data and predictive analytics platform, generating value-creating insights for sports bettors. BetQL's business is driven almost entirely by subscription revenues and affiliate fees from sports books for customer acquisition. We believe BetQL is a terrific complement to our sports audio and sports betting businesses. As you know, we have the unrivaled #1 sports radio platform in the U.S., reaching tens of millions of sports fans with leading stations across the country, including WFAN in New York, The Score in Chicago, WIP in Philadelphia, The Fan in Washington, D.C. and many more and are the broadcast home to 41 pro teams. In fact, we have 3x the audience of the next leading sports radio operator. We believe there are great cross-platform opportunities to enrich our broadcast and streaming content and introduce our audience to the BetQL platform. While these are early days and the numbers are small, we are off to a terrific start in converting radio streaming and podcast listeners to BetQL. We are posting triple-digit growth in BetQL MAUs, new subscribers and sports book affiliate revenues, while ARPU is up strong double digits. In addition, we recently announced 2 moves that will augment our opportunities within the sports betting space. Last week, we announced the sales and content partnership with TEGNA's recently acquired Locked On Sports Podcast Network. We also recently announced the launch of the new BetQL Audio Network with initial distribution in Los Angeles and Denver plus RADIO.COM everywhere. We have exciting plans to expand the network with significant additions to both the content offering and distribution. In conclusion, I want to salute the Entercom team for their leadership and their outstanding work to drive our ongoing transformation over the course of this highly challenging past year. And certainly, there is much hard work remaining in front of us, but it is exciting to witness our progress. We are rapidly growing across all of our emerging new business areas, including podcasting, digital audio, digital marketing solutions, sports betting and network radio. We have built strong competitive positions and continue to make investments in new growth areas to augment our opportunities. Our radio and events businesses are well positioned to rebound as vaccines take hold and many of our sidelined customers are able to reopen their businesses, and we have taken $100 million of expenses out of the business while at the same time, improving how we serve listeners and customers and enhancing our national sales organization to capitalize on our significant revenue development opportunities. We are excited about the future and look forward to what lies ahead. And with that, I'll turn it over to Rich. -------------------------------------------------------------------------------- Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [4] -------------------------------------------------------------------------------- Thanks, David, and good morning, everyone. For the fourth quarter, our total net revenues were up 19% versus the third quarter and were down 23% year-over-year. Our political revenues came in at $19 million for the fourth quarter and $32 million for the full year and benefited from the post-election day runoffs in Georgia. Our digital revenues for the fourth quarter were up 23% year-over-year to $58.8 million, driven by growth in streaming and podcasting. Our event revenues continue to be significantly disruptive by COVID and were down 98% year-over-year in the fourth quarter. Looking at our local spot advertiser base, which accounts for close to 70% of our total spot revenues, 42% of our top prior year accounts were off the air in December versus 44% in September and 55% in the month of June. The absence of these advertisers is the key driver of why our local spot revenues are down year-over-year. In fact, the local advertisers on air in December spent 2% more on average than they did a year ago. No doubt, as we have previously highlighted in detail, many of our top local accounts remain significantly disrupted by COVID. Top historical categories like concerts, seasonal events, casual dining and travel remain significantly depressed. Our sales teams in each of our markets continue to call on and to support these businesses, and we remain optimistic as the impact of the virus subsides that our local spot advertising revenues will rebound. In the first quarter, we are seeing sequential month-over-month revenue improvement. The weight of this improvement ebbed somewhat in January as COVID cases and deaths hit all-time highs, but February is pacing better than January and March is pacing better than February. Our spot pacing, local and national, is improving each month during the first quarter. And based on our current pacing, we project that our total revenues will come in for the quarter down upper teens versus the prior year. Our total operating expenses for the fourth quarter came in at $524.4 million and include a $247.4 million noncash impairment charge and $1.7 million of restructuring costs. We also recorded a charge of $5.4 million for costs related to COVID-19. Excluding these onetime and unusual costs and adjusting out noncash items like D&A, our total cash operating expenses came in at $253 million or down $48 million or 16% year-over-year. Our cash operating expenses for the fourth quarter were somewhat greater than we anticipated as a result of approximately $6.5 million of nonrecurring consulting and legal settlement costs that we incurred in the quarter and decided to incur subsequent to our third quarter earnings release. For the full year, our cash operating expenses were $949 million and were down $241 million or 20% versus our 2019 expenses on a pro forma basis for our 2019 podcasting acquisitions. Looking at the first quarter, we expect that our total cash operating expenses will be down year-over-year by a low double digit percentage, and we now project that our full year operating expenses, fixed plus variable, will be down versus 2019 pro forma by $100 million or more. As previously noted, our total 2019 cash operating expenses on a pro forma basis for our podcasting acquisitions were $1.19 billion. Turning to our financial position and liquidity. In November, as David mentioned, we invested $32 million to acquire the QL Gaming Group, bringing unrivaled sports betting and analytics to our leading sports platform and creating new opportunities to serve the nearly 30 million fans that engage with our stations each month. Our adjusted free cash flow for the quarter was $38 million, up from $2 million in the third quarter. At year-end, our liquidity was $160 million, comprised of $129 million available under our revolver and $31 million of cash on hand. Our total net debt was $1.66 billion, down $29 million from the end of last year. And our net capital expenditures totaled $8.9 million in the fourth quarter and were $30 million for the full year. Looking forward to 2021, we now expect that our capital expenditures will range between $70 million to $75 million in 2021, as we increase our investment in the RDC platform and in the rapidly growing digital audio advertising market. In regard to cash income taxes, we expect to receive a federal income tax refund of approximately $15 million during the second quarter, and we do not expect to pay income taxes this year. With that, we'll now go to your questions. Catherine? ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) The first question is coming from Craig Huber of Huber Research Partners. -------------------------------------------------------------------------------- Craig Anthony Huber, Huber Research Partners, LLC - CEO, MD and Research Analyst [2] -------------------------------------------------------------------------------- Great. A few things. Can you talk about the potential for permanent damage to the advertising base out there, just given what the environment we're going through and all the pressure and closures and bankruptcies of small businesses out there and stuff? As you sort of think out here, do you think it's possible for your radio advertising to get back to peak levels on a station-for-station basis within a couple of years? That's my first question. -------------------------------------------------------------------------------- Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [3] -------------------------------------------------------------------------------- So Dave, I could start, and then I'll hand it to you. So we've looked at that at length, Craig. And there's no doubt that 2020 was a tough year for bad debt and bankruptcies. Our bad debt expense in 2020 was $16.3 million, when you add it all up, versus only $4.5 million in 2019. And when we look at bankruptcies, in 2019, we experienced $10 million and the LTM revenues associated with those bankruptcies was $100 million. In 2020, we experienced 69 bankruptcies, and the LTM revenue associated with those bankruptcies was about $7 million. So not insignificant -- obviously, a significant increase versus 2019. But relative to our total revenues, it's immaterial. And we've seen, when we look at our advertising base an influx of new companies, I'll point specifically to the direct-to-consumer space. So -- and as I mentioned in my comments about the outlook for the first quarter and beyond, our teams are continuing to call on and to engage with the local advertisers who are still struggling. And we don't see a lot of evidence that there's another wave of significant bankruptcies that we'll see in 2021. Things are getting better. So long and short of it, Craig. I don't see a lot of evidence of permanent damage to our local or national advertiser base. I do see and we do hear about the continued disruption, particularly as we saw COVID cases hit all-time highs and deaths in late December and early January, that's clearly subsiding rapidly, and we're optimistic. What would you add to that, David? -------------------------------------------------------------------------------- David J. Field, Entercom Communications Corp. - Chairman, CEO & President [4] -------------------------------------------------------------------------------- Yes. I mean, Rich, I think you covered Craig's question well. But I guess I would just add that this is a unique event in that we have basically shut down large parts of our economy. And as I said before, what we specialize is sort of the go places and do things business. And to your question, you have to ask yourself, are theme parks going to come back? Are people are going to go back to games? Are night clubs going to reopen? Are people going to go to -- are people going to travel? And I think while there are individual businesses going through very difficult times, ultimately, those businesses come back and so, yes, the Live Nations of the world come back and spend money with us in a significant way as they ramp up. And I think what we're excited about, of course, is the pent-up demand and I think true optimism about returning to normal here before too long. As we're seeing all the evidence, including just the latest we should have 130 million Americans capacity to -- fully back in 130 million Americans by the end of March 31. So we feel very good about that recovery going forward. Sorry for the long-winded answer to your question, but I think we've tackled it pretty thoroughly. -------------------------------------------------------------------------------- Craig Anthony Huber, Huber Research Partners, LLC - CEO, MD and Research Analyst [5] -------------------------------------------------------------------------------- I appreciate that. My next question, if I could, maybe I missed this. What was the podcast revenue in the quarter, please? And what was the percent up year-over-year, please? -------------------------------------------------------------------------------- Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [6] -------------------------------------------------------------------------------- Yes. We don't break that out separately. To us, it's digital inventory, and we reported that our digital revenues were up 23% year-over-year. -------------------------------------------------------------------------------- Craig Anthony Huber, Huber Research Partners, LLC - CEO, MD and Research Analyst [7] -------------------------------------------------------------------------------- Okay. My other bigger picture question here is, as you guys know, love him or hate him, Rush Limbaugh had 15 million weekly listeners on the radio. Given what's happened here, where do you think those listeners are going to go? And more importantly, for Entercom, what offerings do you have that could pick up a substantial piece of those listeners out there, of those loyal listeners? I mean do you see... -------------------------------------------------------------------------------- David J. Field, Entercom Communications Corp. - Chairman, CEO & President [8] -------------------------------------------------------------------------------- What was your question? I'm sorry. I'm sorry, Craig, I thought you were done. Repeat the end of your question, please. -------------------------------------------------------------------------------- Craig Anthony Huber, Huber Research Partners, LLC - CEO, MD and Research Analyst [9] -------------------------------------------------------------------------------- I was just saying, do you think it's a big opportunity for your company to pick up a significant piece of those 15 million weekly listeners on your digital and radio properties? I know it's not your syndicated program here, but it's a big opportunity, isn't it for you guys or no? -------------------------------------------------------------------------------- David J. Field, Entercom Communications Corp. - Chairman, CEO & President [10] -------------------------------------------------------------------------------- I would frame it this way. I mean Rush was certainly terrific and had an extraordinary following and an extraordinary career on the radio. We did not have Rush on a lot of our radio stations as it turned out because we tend to -- our new stations are nonpartisan and strictly news. Our news talk stations tend to skew a little bit more local in terms of their orientation. There are plenty of other terrific personalities, of course, local and national all across the country. And I think that those listeners that Rush had, of course, also listen to lots of other shows. So while it's a sad passing. And obviously, he passed fairly young. We're -- we feel very good about the future of our news and talking, spoken-word stations going forward. And I think it's hard to know exactly where all that listenership is going to fall out in terms of the various options that we and our competitors present. -------------------------------------------------------------------------------- Craig Anthony Huber, Huber Research Partners, LLC - CEO, MD and Research Analyst [11] -------------------------------------------------------------------------------- I'm sorry, if I could ask again, do you not have a lot of conservative leaning opinion folks on your radio operations that you could pick off a good chunk? I mean, 3 hours a day with 15 million focus, obviously, a big chunk of loyal listeners, right? I'm just curious. -------------------------------------------------------------------------------- David J. Field, Entercom Communications Corp. - Chairman, CEO & President [12] -------------------------------------------------------------------------------- Yes. No, I think we tend to be, I would say, a couple of our -- if you look at iHeart and Cumulus they tend to be skewed, they tend to be a little more weighted into conservative talk radio than we are. -------------------------------------------------------------------------------- Operator [13] -------------------------------------------------------------------------------- Our next question is coming from Steven Cahall of Wells Fargo. -------------------------------------------------------------------------------- Steven Lee Cahall, Wells Fargo Securities, LLC, Research Division - Senior Analyst [14] -------------------------------------------------------------------------------- A few for me. I'll just kind of rattle them off. They're not in particular order. Maybe first, just that Q1 revenue guidance down upper teens, was that for spot or was that for total company? -------------------------------------------------------------------------------- Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [15] -------------------------------------------------------------------------------- Total company. -------------------------------------------------------------------------------- Steven Lee Cahall, Wells Fargo Securities, LLC, Research Division - Senior Analyst [16] -------------------------------------------------------------------------------- Okay. Great. And then maybe just second, David, could you help us quantify how you anticipate QL Gaming and Locked On to contribute to digital and broadcast revenue growth in the years ahead? I know that's very sort of strategic and synergistic opportunity. So how should we think about that impact? -------------------------------------------------------------------------------- David J. Field, Entercom Communications Corp. - Chairman, CEO & President [17] -------------------------------------------------------------------------------- Sure. So by the way, just to elaborate a second on your first question, the number Rich gave you is a total number. Obviously, we face political comp and also no event again in the first quarter. So if you look absent those areas, it would be a bit better. To your QL and Locked On question, we're really excited about the growth opportunities across the sports and sports betting space. And there are just a lot of sort of symbiotic opportunities we see there. And at its essence, we are arguably the home of the most engaged sports fans in the country and the opportunity to drive additional revenues from those audiences as we introduce them to the BetQL product line gives us the opportunity to start participating in what over time will be, I think, a rapidly growing set of subscription revenues and affiliate revenues from sports books as well. So starts small, but they've got great technology. They're highly respected and are high performers, and we see that being sort of very rapid growth, again, from a small base here as we go forward. Locked On is a great enhancement to our portfolio, and we are and want to continue to be the best place for sports fans to engage and connect with great personalities like the Boomer Esiasons and the Craig Cartons of New York and so many of our stars all across the country and expanding that into podcasting and where we have Kevin Durant, for instance, is one of the folks that we are partnered with and so forth. So there's just a lot of great content out there, and we just see tremendous entrepreneurial opportunities for us to grow revenues and profitability in many different ways. -------------------------------------------------------------------------------- Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [18] -------------------------------------------------------------------------------- Can I add just one point to what you said, David, about the first quarter? I think it's useful to say that political last year in the first quarter was heavy, given all the money that Michael Bloomberg spent. And we also still had a pretty, I'll say, normal slate of live events. And those 2 combined, political and events, were about $15 million of revenue or about 5% of our total 1Q 2020 revenues. Obviously, when you think about the upper teens guidance, you need to put that into context. -------------------------------------------------------------------------------- Steven Lee Cahall, Wells Fargo Securities, LLC, Research Division - Senior Analyst [19] -------------------------------------------------------------------------------- Yes. Okay. And then on podcasting, so I think you were really early in terms of buying Cadence13 and Pineapple Street, which are probably worth considerably more now than what you paid for them. And I'm just thinking about how you kind of think about these within the portfolio, because when I look at where it seems like a lot of your business is headed, you've got a great sort of focus on sports with QL Gaming and Locked On and the sports betting opportunity, I think we're seeing podcasting really start to work when it can be paired with whether it's hosting or programmatic. And so I'm just wondering, as you also think about deleveraging Cadence13 and Pineapple are probably worth a lot. Are they the right assets for you to hold on to versus what they might be worth to a third-party at this point? -------------------------------------------------------------------------------- David J. Field, Entercom Communications Corp. - Chairman, CEO & President [20] -------------------------------------------------------------------------------- Great question. So let me just first -- just to fill in data points for those who may be less familiar with our story. We acquired both of those companies collectively for just under $50 million based on comps in the market, to your point, Steven, if there were several times that. That said, we view it as a core business and would have no interest in exiting the space. We think we are very well positioned to compete and thrive in the business. Our current business, we are 1 of the 3 largest publishers, podcast publishers and believe that the competitive advantages we have with distribution, given the -- given RADIO.COM and also the 170 million-or-so folks who engage with our brands and our stations each month gives us a really powerful distribution platform and also our monetization opportunities with our strong local and national sales force. So we think we're positioned to win in the space. We don't think there's a winner -- it's not a winner-take-all situation, of course, and there'll be, I think, multiple winners here. One of which will be us. And as part of our holistic audio offering, as we go to customers today and offer them a leadership position in broadcast radio, podcast radio, digital, audio and so forth, we think it's an essential core component to our offerings and positions us really well for future growth. -------------------------------------------------------------------------------- Steven Lee Cahall, Wells Fargo Securities, LLC, Research Division - Senior Analyst [21] -------------------------------------------------------------------------------- Great. And then just a couple to finish up for me. Maybe one, could you give us the RADIO.COM MAUs? And lastly, Rich, I know cost has been a big focus. Would you be willing to quantify how much fixed cost reduction do you think sticks even as revenue fully recovers? -------------------------------------------------------------------------------- Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [22] -------------------------------------------------------------------------------- Let me answer the cost one first, David, and you can hopefully cover the MAU? -------------------------------------------------------------------------------- David J. Field, Entercom Communications Corp. - Chairman, CEO & President [23] -------------------------------------------------------------------------------- Sure. -------------------------------------------------------------------------------- Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [24] -------------------------------------------------------------------------------- So when we think about our cost base. We did significantly impact our fixed cost, but we also impact our variable costs. So we've executed a number of strategies to attack our variable costs and reduce their occurrence relative to revenue. So that's why we've refined our model as we're working to polish up our plan for 2021, we're now looking at our total expenses, fixed plus variable, being down $100 million or more versus 2019 pro forma. And that is a mix of both variable and fixed, and those variable savings are permanent in nature also that we've reduced them relative to revenue, and we're working hard on other strategies to go even further. So we're not done. We think there's more to do, and we're very focused on continuing to liberate expense from our historical operating model to fuel growth. And there's a lot of -- when you look at the gross savings is substantially greater than $100 million, and we've invested quite a bit in accelerating a number of key areas across our business from network to digital. -------------------------------------------------------------------------------- David J. Field, Entercom Communications Corp. - Chairman, CEO & President [25] -------------------------------------------------------------------------------- And as to your first question, if you look at the total MAUs, and I don't have the number in front of me, but I believe the latest numbers I've seen are approaching 40 million total MAUs, and that would be across sort of all of our digital -- of RADIO.COM platforms. And that would include a smaller percentage of those who are regular streaming audio users of our platform. -------------------------------------------------------------------------------- Operator [26] -------------------------------------------------------------------------------- The next question is coming from Steven Emerson, Emerson Investment Group. -------------------------------------------------------------------------------- J Steven Emerson, Emerson Investment Group - Founder [27] -------------------------------------------------------------------------------- Excellent quarter. I'm concerned or would like to understand your forward philosophy of monetizing the gamblers that are recruited by your radio. And as an observation, true value creation for media is when you get permanent rights to any gamer that is recruited not selling ads as exciting as $100 million potential revenues are from FanDuel, I'm curious as to your future plans. -------------------------------------------------------------------------------- David J. Field, Entercom Communications Corp. - Chairman, CEO & President [28] -------------------------------------------------------------------------------- Sure. Steven, so let me just first clarify something you just said. You said that future potential of $100 million from FanDuel, that's not what we have said. What we have said is that the total category, we believe, grows to $100 million for us in several years. FanDuel would be a significant part of that, but we work with lots of sports books. To your broader question, we agree that it's not just advertising. And as we touched on a moment ago, there really are sort of 3 buckets there, right? One is advertising, the other is a subscription opportunity that we have -- we are now participating in and we're excited about going forward, we think, again, it's such a logical fit with what we do, and it's enabled by the QL acquisition. And finally, there's the sports book affiliate piece, which you were alluding to, that we are also participating in now through our QL platform. So yes, lots of opportunities in this space. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- The next question is coming from John Ellis, Palmer Square Capital Management. -------------------------------------------------------------------------------- John Ellis, Palmer Square Capital Management LLC - Credit Analyst [30] -------------------------------------------------------------------------------- First, do you think you could put a number to how much of the cost savings you guys have enacted that are going to be permanent? I know you kind of talked about the different opportunities, but like what qualitatively does that look like? -------------------------------------------------------------------------------- Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [31] -------------------------------------------------------------------------------- Yes. So when we absolutely meant for the guidance of $100 million or more versus 2019 to be permanent. And yes, look, our -- over time as the business rebounds, obviously, revenues will drive variable costs, but we do think we're comfortable telling you this year that we expect our total costs to be down $100 million or more versus 2019 pro forma and have, as you could imagine, have some cushion against that call. -------------------------------------------------------------------------------- John Ellis, Palmer Square Capital Management LLC - Credit Analyst [32] -------------------------------------------------------------------------------- So thinking about that going forward, 2021, 2022 will probably -- will see that same $100 million versus -- savings versus 2019 or is that? -------------------------------------------------------------------------------- Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [33] -------------------------------------------------------------------------------- Well, look, I think that as we move out into the future, we continue our efforts to transform our cost structure and to fuel growth. So as we get deeper into 2021, we'll give you more color about what we see in 2022. But no one's planning on going backwards within Entercom. People are very focused on executing and driving continued productivity gains. -------------------------------------------------------------------------------- John Ellis, Palmer Square Capital Management LLC - Credit Analyst [34] -------------------------------------------------------------------------------- Perfect. That makes sense. A couple more for me. Can you talk about the increase in your revolver draw? What was that used for? It looks like it went up (inaudible). -------------------------------------------------------------------------------- Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [35] -------------------------------------------------------------------------------- Yes, there's 2 key drivers in the fourth quarter. The acquisition of QL Gaming for $32 million and also just funding the rebound in revenue. So you saw that our fourth quarter revenues were up 19% versus the third quarter. So sequentially, we did consume cash and working capital as we funded the related added receivables. -------------------------------------------------------------------------------- John Ellis, Palmer Square Capital Management LLC - Credit Analyst [36] -------------------------------------------------------------------------------- Okay. That makes sense. And then can you guys give what your cash flow from operations was for the quarter and year-end? -------------------------------------------------------------------------------- Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [37] -------------------------------------------------------------------------------- We did. We said that our adjusted free cash flow was $38 million in the fourth quarter versus $2 million in the third quarter. And you can see that in our the earnings tables attached to our earnings release. -------------------------------------------------------------------------------- Operator [38] -------------------------------------------------------------------------------- The next question is coming from Matt Dratch of Millennium. -------------------------------------------------------------------------------- David J. Field, Entercom Communications Corp. - Chairman, CEO & President [39] -------------------------------------------------------------------------------- I think we lost him, Catherine. -------------------------------------------------------------------------------- Operator [40] -------------------------------------------------------------------------------- We'll go ahead and go on to the next question. -------------------------------------------------------------------------------- Matt Dratch, [41] -------------------------------------------------------------------------------- Hello? -------------------------------------------------------------------------------- David J. Field, Entercom Communications Corp. - Chairman, CEO & President [42] -------------------------------------------------------------------------------- Go ahead, Matt. -------------------------------------------------------------------------------- Matt Dratch, [43] -------------------------------------------------------------------------------- So one of the things I think that could be interesting is just sort of an understanding on the active users on RADIO.COM and then sort of the opportunity for a paywall. Could you talk about that a little bit? -------------------------------------------------------------------------------- David J. Field, Entercom Communications Corp. - Chairman, CEO & President [44] -------------------------------------------------------------------------------- Can you expand on your first question? I'm not sure what you're asking. -------------------------------------------------------------------------------- Matt Dratch, [45] -------------------------------------------------------------------------------- Well, for my understanding is you guys have 40 million active users on RADIO.COM, a large chunk of them are probably sticky related to some interesting assets like The Fan. And as you look at things like Spotify and other services that have a paywall to them before -- for access maybe, is there an opportunity that's on the horizon for you guys in terms of monetizing those -- that sticky listener base? -------------------------------------------------------------------------------- David J. Field, Entercom Communications Corp. - Chairman, CEO & President [46] -------------------------------------------------------------------------------- Got it. So look, here's how I would respond. We've been growing very quickly in terms of RADIO.COM and our digital audio offerings, but we have a lot of headroom and a lot of ways to go to get it to where we would like it to be. And obviously, it's a competitive marketplace out there, but we believe we have a differentiated competitive advantage due to the quality of our premium exclusive content, which is second to none. And that means everything from, as you mentioned, the WFANs of the world to our award-winning new stations, to local personalities and different formats and so forth, to our award-winning lineup of podcasters. And that the combination of that content, exclusive content and our -- the bully pulpit or the distribution of our radio stations, puts us in a position where we can grow RADIO.COM to being even more formidable player. And we have lots of plans that Rich mentioned that we will be increasing our CapEx investment in that platform this year. We're excited about opportunities for growth there and value creation for shareholders. And that's about as far as I think we can go at this point in time. As you can imagine, we just want to -- we'll announce things as we roll them out. -------------------------------------------------------------------------------- Matt Dratch, [47] -------------------------------------------------------------------------------- Okay. And just a couple more for me. On the BetQL, I think it's a really interesting acquisition. It's certainly sort of differentiated from the peer set, given you have affiliate fees on bets that are placed, I think, through the BetQL app that take you to the sports books or whatever. Could you talk a little bit about: one, the affiliate fees that you receive and how those work? And two, how the sort of the nature of the subscription on BetQL, for example, like looking at the application, it looks a bit like a Bloomberg for sports analytics. How many people subscribe for 2 sports versus 3 sports versus 1 sport? Can you sort of give us some sense there? -------------------------------------------------------------------------------- David J. Field, Entercom Communications Corp. - Chairman, CEO & President [48] -------------------------------------------------------------------------------- Yes. I don't want to get too granular on that, but let me try to answer the question as best I can and so just to be clear. So on the subscription side, BetQL offers weekly, monthly, annual 1-sport, 2-sport, 3-sport packages and so forth to help inform bettors and make them more successful and enjoy the entertainment aspects of it as well. And of course, that's an exploding business, and those services and those offerings will keep expanding. But it's all based upon really powerful analytics and insights, which have made the platform very successful in rewarding to bettors. As to the affiliate fees, just so folks know how that works, the sports books will pay a fee for bettors -- first time bettors who make deposits and start using their platform. So we see both as robust growth opportunities for us going forward. -------------------------------------------------------------------------------- Matt Dratch, [49] -------------------------------------------------------------------------------- Okay. And then I guess, lastly, sort of the elephant in the room in terms of media personality. Barstool Radio has been off the map for about a month here. And we see, obviously, March madness and the college tournaments are coming quickly, which is a big moment for sports gambling now legalized in large places around the country, they seem to have distanced themselves from Sirius. Have you guys thought about them as a potential partner? And are there any roadblocks we should consider such as you guys already have The Fan or something like that? -------------------------------------------------------------------------------- David J. Field, Entercom Communications Corp. - Chairman, CEO & President [50] -------------------------------------------------------------------------------- Yes. I mean, obviously, we're not going to comment on strategic relationships and so forth. The only thing I would say is we have a lot respect for those guys. Dave and Eric have done a wonderful job of building a business. And they're a strong player. And it's funny, a lot of their folks come on the air with us occasionally, and we have fun with them. And it's -- we wish them well. -------------------------------------------------------------------------------- Operator [51] -------------------------------------------------------------------------------- The next question is coming from Jim Devlin, Henley & Company. -------------------------------------------------------------------------------- Jim Devlin, [52] -------------------------------------------------------------------------------- Long time listener, first time caller. Just had a quick question. I mean, I guess the 800-pound gorilla, if you will, in the room, hinges around the live event business, right? I just don't understand the disconnect between Entercom and Live Nation, and maybe you can kind of give us a better understanding. Wall Street seems to be giving a pass to Mr. Rapino over at Live Nation and their pitch to the Street is we're through the teeth of COVID, Apple has destroyed the recorded music business for artists to generate income, and we're looking at potentially the greatest lineups of musical acts coming through the pipeline. I'm not saying if we get to a mask-less society, but to a society where you can start filling venues with foot traffic again. Their stocks $90 trading at or about all-time highs, Wall Street is willing to give those guys a pass willing to say, hey, when it does open, the pipeline looks robust. This is clearly a reopening play. Why does Wall Street value detract Entercom's live entertainment business? And if we do get to a point where things normalize, how big is Entercom's live event business? That's my first question. -------------------------------------------------------------------------------- David J. Field, Entercom Communications Corp. - Chairman, CEO & President [53] -------------------------------------------------------------------------------- Yes. Again, I don't think it's on us to comment on valuations on companies like Live Nation. All I can say is that we do look forward to the events business coming back fully over time. We'll have to be thoughtful about that process in terms of density and indoor/outdoor and all the obvious issues. But absolutely feel confident that part of our business will be back and will be robust. And on a personal level, I'm sure many of us can't wait to get back into watching live music and live events again. -------------------------------------------------------------------------------- Jim Devlin, [54] -------------------------------------------------------------------------------- Okay. But the pipeline, when it does come back, that entertainment schedule does look very robust, right? -------------------------------------------------------------------------------- David J. Field, Entercom Communications Corp. - Chairman, CEO & President [55] -------------------------------------------------------------------------------- Well, I mean, I think everybody is waiting now. I mean there are some bands that have started to schedule tours and so forth. But yes, it will be. No doubt, there's huge pent-up demand there. So it will be robust when it comes back, and we'll just have to see how it all plays out. -------------------------------------------------------------------------------- Jim Devlin, [56] -------------------------------------------------------------------------------- Okay. And then if I could, just one more question. Pre-COVID, you guys were pacing like really solid EBITDA numbers, probably the best you had right going into the teeth of COVID. And at that time, you were talking about rapidly deleveraging the balance sheet and all the things you had hoped for kind of with the CBS transaction, the Reverse Morris Trust transaction and over time, chipping and chipping and chipping away at the debt. How do we look as far as debt paydowns in '21 coming out of the teeth of COVID, and if live events and the sports continue to grow, and the podcasting and all the good things that you are growing, how do we look at several years out down the road? How much debt do you think you can start chipping away out of free cash flow? -------------------------------------------------------------------------------- David J. Field, Entercom Communications Corp. - Chairman, CEO & President [57] -------------------------------------------------------------------------------- Let me just -- let me start with this, and then Rich will fill in. So basically, to your point, we had a really good year in 2019 with strong top line and bottom line growth. We then started last year nicely as well before the pandemic started with solid top line and bottom line growth as well. Obviously, at this point in time, we're looking forward to the recovery as it goes forward. Obviously, there's been a lot of sequential improvement over the last couple of quarters. We have a ways to go and feel really good about the recovery of our local business and our events business. And we feel really good about the work we've been doing to accelerate in our growth -- our more rapidly growing areas. I mentioned earlier that digital has now grown from 10% to 18% of our business and growing by solid double digits. Our network business growing by double digits, et cetera. So I think that as that goes forward, that provides more free cash flow, and we'll look to continue to apply a very significant component of that to lower -- reducing our debt. And obviously, as our EBITDA grows and our debt goes down, we'll continue to improve our balance sheet. Rich, I don't know if you want to add to that? -------------------------------------------------------------------------------- Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [58] -------------------------------------------------------------------------------- Well, look, I think we are focused on ensuring that we are comfortably compliant with our covenant by the end of this year, and we believe we're on track to do just that. And I think you'll see us reduce our debt this year, as we did last year. And then it's all about recovery, it's all about accelerating cash flow growth and using those free cash flows to pay down debt. So we understand exactly what you're saying, and that is a top priority for the organization. -------------------------------------------------------------------------------- Jim Devlin, [59] -------------------------------------------------------------------------------- Wow. So can I give just one quick follow-up? I appreciate the time. You're expecting the prescription for your covenants was 4x leverage, is that correct? -------------------------------------------------------------------------------- Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [60] -------------------------------------------------------------------------------- That's right. That's our covenant. -------------------------------------------------------------------------------- Jim Devlin, [61] -------------------------------------------------------------------------------- So at $1.6 billion, I mean, is that -- are you backing into $400 million type run rate EBITDA guidance? -------------------------------------------------------------------------------- Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [62] -------------------------------------------------------------------------------- No. That math doesn't make sense to me. But we are working to be compliant with our EBITDA, our first-lien. So this is -- it's a first-lien covenant. It's not a total. Okay. So on a first-lien basis to be compliant with our covenant at the end of this year. -------------------------------------------------------------------------------- Jim Devlin, [63] -------------------------------------------------------------------------------- Okay. And then do those covenants preclude the company from clearly not only buying back debt? Have you guys -- would it preclude you guys from being able to buy back stock equity? -------------------------------------------------------------------------------- Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [64] -------------------------------------------------------------------------------- Yes. So we are precluded from making restricted payments right now. -------------------------------------------------------------------------------- Operator [65] -------------------------------------------------------------------------------- Next question is coming from Michael Kupinski of NOBLE Capital. -------------------------------------------------------------------------------- Michael A. Kupinski, NOBLE Capital Markets, Inc., Research Division - Director of Research and Senior Media & Entertainment Analyst [66] -------------------------------------------------------------------------------- I was just trying to get a handle a little bit around the pacing data you provided. Typically, the company would enter the next month with as much as like 65%, maybe even 70% of advertising already booked. Can you kind of give us a sense of how much of the business is booked for March at this point? I know that you indicated that March is pacing better than February. I'm just trying to get an idea of how much business has been booked at this point? -------------------------------------------------------------------------------- David J. Field, Entercom Communications Corp. - Chairman, CEO & President [67] -------------------------------------------------------------------------------- Rich, do you want to take that? -------------------------------------------------------------------------------- Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [68] -------------------------------------------------------------------------------- Yes. Sure. So when we think about the full quarter, we're like close to 90% booked of the expected final. And look, that's based, Michael, on where we sit today. And we're all curious to see how the next weeks -- 5 weeks plays out because clearly, COVID has gotten a lot better over the last 4 to 6 weeks, and we're just 1 month away or less than 1 month away from spring. So we'll be -- I think we're all curious, and there's some chatter in the spaces. I think you spoke yesterday with the Cumulus folks of perhaps March gets better, but we'll see. -------------------------------------------------------------------------------- Michael A. Kupinski, NOBLE Capital Markets, Inc., Research Division - Director of Research and Senior Media & Entertainment Analyst [69] -------------------------------------------------------------------------------- Yes. And certainly, I know business continues to be booked pretty late. So that's kind of like why I was just trying to get a handle on. I think getting into the sports betting business is brilliant, given your sports platform. I was just curious, how deep does the company plan to get in the sports betting business? Do you see additional acquisitions? Do you think there might be expansion into esports, esports programming, maybe or esports betting? I just wanted to kind of get a framework of what your thoughts are there long term? -------------------------------------------------------------------------------- David J. Field, Entercom Communications Corp. - Chairman, CEO & President [70] -------------------------------------------------------------------------------- I don't see us making any plays in esports. I think we really have a great complementary set of businesses here now between, again, unrivaled sports radio, emerging strong podcasts. And I mentioned whether it's Locked On or the Kevin Durant and JJ Redick, so many other podcasts that we have in the sports space, whether it's stuff we're doing on RADIO.COM and of course, QL Gaming Group, I think, gives us the tech and the subscription platform to really bring it all together. So we'll have to see how it all evolves. But right now, Michael, we feel really good about our offerings, and it's created some really interesting entrepreneurial opportunities. And I'll close by just mentioning, we announced the launch of the QL Audio Network. And I think that's a great manifestation of where we can combine some of the pieces that we're fortunate to have and create organic growth opportunities that can be pretty exciting. -------------------------------------------------------------------------------- Operator [71] -------------------------------------------------------------------------------- Your next question is coming from Avi Steiner, JPMorgan. -------------------------------------------------------------------------------- Avi Steiner, JPMorgan Chase & Co, Research Division - Executive Director and Senior Analyst [72] -------------------------------------------------------------------------------- I've got 2 questions. One for you, Rich, and then maybe a bigger picture one. Just in light of the free cash flow comments made with respect to an earlier question, I'm wondering if there's any updated thoughts on your debt stack, maybe some of the earlier maturities in light of what's still a receptive high-yield market, especially for radio of late. And then I have one more. -------------------------------------------------------------------------------- Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [73] -------------------------------------------------------------------------------- Yes. So we are closely monitoring the high-yield market and the loan market. We have been thinking about possibilities, and we are considering those possibilities. So as you well know, middle market is close to all-time tights. So we're very focused on that. -------------------------------------------------------------------------------- Avi Steiner, JPMorgan Chase & Co, Research Division - Executive Director and Senior Analyst [74] -------------------------------------------------------------------------------- Okay. Great. And then my bigger picture one. David, you've always -- you've often talked about audio's resurgence and your business plays into audio strengths. You've got a terrestrial business, podcasting, streaming. And I'm curious if you have any thoughts, albeit, early on, on some of the audio offerings springing up on, for lack of a better description, social media out there, whether it's clubhouse that folks are talking about or Twitter spaces offering? And whether you see those as kind of competitors to what you offer or ultimately complementary to the entire listening experience? -------------------------------------------------------------------------------- David J. Field, Entercom Communications Corp. - Chairman, CEO & President [75] -------------------------------------------------------------------------------- Well, thank you, Avi. And it is a great question, and I don't know if we have good answers yet, right, because it's all sort of emerging. What I would offer is that we're living in a time of sort of unprecedented interest in audio, or at least you have to go back to the FDR era, I guess, to match it. And that's really exciting. And to be a company with our scale and with our differentiated exclusive premium content, I think, puts us in a place where we can do lots of interesting things to capitalize on these trends. And what's great is you're seeing lots of consumer -- the public's interest in audio as well as more and more advertiser interest in audio and given disruption in other spaces in the media ecosystem, we think that's going to also bring more dollars into play. Specifically, as it pertains to some of these social offerings that you mentioned, it's hard to know over time what those trajectories look like, right? And whether those end up being fads or whether they end up being powerful trends that create big businesses or products and so forth. What I can tell you is that to the extent that social audio emerges in a bigger way, I think we're really well positioned to participate in that, given the nature, again, of our scale, our reach, the engaging nature of our brands and all of our great personalities across the country. So if there's an opportunity there, I'm sure we will be participating robustly over time. -------------------------------------------------------------------------------- Operator [76] -------------------------------------------------------------------------------- At this time, we have no further questions in queue. I'll now turn it back to Richard Schmaeling. -------------------------------------------------------------------------------- Richard J. Schmaeling, Entercom Communications Corp. - Executive VP & CFO [77] -------------------------------------------------------------------------------- Yes. Thank you very much, Catherine, and thank you all for joining our fourth quarter 2020 earnings call. Bye-bye. -------------------------------------------------------------------------------- David J. Field, Entercom Communications Corp. - Chairman, CEO & President [78] -------------------------------------------------------------------------------- Thank you, all. Bye now. -------------------------------------------------------------------------------- Operator [79] -------------------------------------------------------------------------------- This will conclude today's conference. All parties may disconnect at this time.