Fifty-one weeks ago, CBS Radio officially became a part of Entercom Communications, greatly transforming the company.
But, just how broken were the CBS Radio stations?
While Entercom President/CEO David Field told analysts dialed in to his company’s Q3 2018 earnings call on Tuesday (11/6) that Entercom is right where it thought it would be, revenue-wise, a glimpse of its top markets omit the biggest places where Entercom should be monetizing its assets.
Speaking on the earnings call, Field noted how the addition of CBS Radio gives Entercom the “scale and capabilities to drive sustainable, meaningful revenue growth,” and that Entercom “moved aggressively to drive change in virtually every facet of the business to enhance our organizational effectiveness, and capitalize on scale and affect great opportunities.”
That said, Entercom’s express train to revenue and income growth is on a stable track, but one that has its ridges and some protuberances, such as the “inherited” debacle involving U.S. Traffic Network (USTN), which has ceased its radio industry operations while continuing its TV industry services.
Field noted — twice — how Entercom “extricated ourselves from the USTN mess, which we inherited.”
Asked by veteran analyst Marci Ryvicker just how much damage resulted from USTN’s problems, Field noted that Entercom lost $25 million in the first half of 2018 due to nonpayment from USTN. The second-half story “isn’t fully written yet,” but Field revealed that “maybe” some $5 million to $8 million in additional lost revenue will be tallied.
While that’s not great news for Entercom, the second half of 2018 — fueled by Q4 performance — reaffirms that the company is “right on track with our plans,” Field said, noting that Entercom has “consistently stated” that the first half of the year would be hampered by format changes, developing new revenue initiatives and, to a large extent, repairing heavily neglected stations formerly owned by CBS.
These former CBS Radio stations are located in key markets such as San Francisco, Chicago, New York and Los Angeles. Among these stations are big, heritage AM stations such as WINS-AM and WCBS-AM in N.Y.; a reinvigorated Adult Alternative WXRT-FM in Chicago; and a cluster of Southern California properties that include new No. 1 KRTH-FM “K-Earth 101,” Urban AC KTWV-FM “94.7 The Wave” and Adult Hits KCBS-FM “93.1 Jack FM.”
Yet, Entercom’s strongest markets in Q3 include Las Vegas, Miami-Fort Lauderdale, Orlando, Sacramento and Seattle-Tacoma.
This suggests that Entercom still has a way to go to fully realize the potential in some of its biggest markets.
BEHIND THE NUMBERS
Entercom posted Q3 2018 revenue of $378.5 million, rising from $122.3 million a year ago. Net income rose to $36.95 million (26 cents per diluted share), from $3.44 million (9 cents). But, that’s not a fair comparison, since CBS Radio’s stations were not included in the Q3 2017 results.
That’s why a same-station basis look at net revenue is essential to gauge where Entercom was in July, August and September.
On a same-station basis, net revenue in Q3 dropped to $378.5 million, from $395.2 a year-ago.
Additionally, Pro-forma Adjusted EBITDA was $86.7 million, falling from $89.7 million.
Operating income was $78.7 million versus $13.5 million a year ago, thanks to the CBS stations.
That’s “in-line” with the pacings Entercom had been tracking. But, the consensus estimates for Entercom in Q3 were mixed: According to Seeking Alpha, analysts had expected Q3 EPS of 28 cents. However, Entercom’s Q3 revenue exceeded analysts’ forecasts by $510,000.
Field is satisfied with the results, but it appears investors are mixed in their assessment. In early trading on Wall Street, ETM shares were up 5 cents to $7.66 as of 9:53am — the result of “a small block trade,” Seeking Alpha notes. By 10am, Entercom shares were down 11 cents to $7.50. Just 32 minutes later, ETM was off 8.3%, to $6.98. At 10:53am Eastern, a further dip to $6.73 was seen, reflecting an 11.3% fall.
At 3:24pm Eastern, ETM was off 10.8% to $6.78.
“We are very pleased with our progress and excited about the momentum we are building across multiple growth initiatives,” Field said.
And, as Entercom has said for months, Q4 2018 looks to be point where the income train finally leaves a path full of ridges and the locomotive accelerates to its fullest potential.
“The fourth quarter is on track for significant growth, currently pacing up 4%,” Field said, buoying analysts on the call and investors, given the early performance on Wall Street.
Additionally, expenses are down “significantly.”
Meanwhile, land sales in Q3 generated roughly $200 million in cash proceeds for Entercom.
Specifically, the sale of a tower site adjacent to O’Hare Airport in Chicago netted $46 million for Entercom, while the sale of an office building on Venice Boulevard in Los Angeles attracted $26 million.
Outbound cash involved the $56.4 million all-cash acquisition of heritage AC WBEB-FM in Philadelphia from Jerry Lee Radio.
This was offset by the $38 million all-cash sale of WXTU-FM in Philadelphia to Beasley Media Group.
Lastly, Entercom has debt — but nothing to the extent of its biggest peer, iHeartMedia, which continues its efforts in a Houston U.S. Bankruptcy Court to win court approval of its Chapter 11 reorganization plan.
As of September 30, Entercom had outstanding $1.525 billion of senior debt under its
credit facilities and $400 million in senior notes; both amounts exclude unamortized premium from purchase price accounting. The senior debt is comprised of a Term B-1 Loan valued at $1,320,025,000, down from $1.33 billion in Q3 2017, and a Revolver valued at $205 million, up from $143 million a year ago.
This compares to $270 million in cash on hand, including $70 million in restricted cash.