Executives
David Hillman – Chief Administrative Officer, General Counsel
Roderick Sherwood III – President and Chief Financial Officer
Gary Schonfeld – President, Network Radio Division
Steven Kalin – President, Metro Networks Traffic Division
Analysts
[Thomas CashRock] – [CashRock Fitness]
[Don Merely] – [CashRock Fitness]
Westwood One Inc. (WON) Q4 2008 Earnings Call Transcript March 16, 2009 4:30 PM ET
Operator
Good day everyone and welcome to the Westwood One fourth quarter earnings release conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. David Hillman, Chief Administrative Officer of Westwood One. Please go ahead, sir.
David Hillman
Good afternoon, everyone. Westwood One reported its fourth quarter earnings today after the market closed. If you have not received a copy of the press release, it is available on Westwood One’s website at westwoodone.com.
Our press release and this presentation reference several non-GAAP financial measures, specifically adjusted EBITDA and free cash flow. We have included these non-GAAP measures because we believe they are important in evaluating the Company's operating performance. Because they are not calculated in accordance with GAAP they should not be considered in isolation of, or as a substitute for net income, as an indicator of operating performance or net cash flow provided by operating activities as a measure of liquidity.
At the end of our press release, we have provided supplemental disclosures to reconcile the non-GAAP financial measures to our GAAP counterparts in accordance with the SEC's regulation G.
Certain remarks that we make during this call about future expectations, plans and prospects for Westwood One constitute forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Our actual results may differ materially from those indicated by these forward-looking statements, as a result of various important factors including those that are discussed in our annual report on Form 10-K and in our other periodic filings, which are on file with the SEC. Please refer to those filings for a full description of those matters.
Now, I would like to turn the call over to Ron Sherwood, President and Chief Financial Officer of Westwood One.
Roderick Sherwood III
Thank you, David and good afternoon everybody. Thank you for taking the time to join us for our conference call on Westwood One’s full year and fourth quarter 2008 earnings. Joining me today are Gary Schonfeld, Head of our Network Radio Business, and Steve Kalin, Head of our Metro Business.
In terms of the business environment, since our call and lastly in November of 2008, was just changed in the national economy and the media business. We've all had a front row seat watching and reporting on the challenges media companies faced during the fourth quarter of 2008 and still face in the first few months of 2009.
Uncertainty in the financial markets just translated into unpredictability in the advertising marketplace. As advertisers cut their 2009 ad budgets and advertising agencies try to stretch their clients’ limited dollars as far as possible. Many media companies find themselves over leveraged and struggling to make payments under debt. Based with declining revenues and deep expense reductions, companies are hard pressed to find good news.
Given these conditions, I'm pleased to say that we are making progress on many fronts at Westwood One. We have achieved several major milestones in our turnaround plan including refinancing our debt, watching revenue initiatives centered on high-profile programming and reducing our operating expenses.
First and foremost, we have taken major steps to refinance the company's debt. Recently, the company reached an agreement in principle to refinance all of its debt including debt coming due in 2009. The agreement in principle with our lenders contemplates in all of the Company’s outstanding debt approximately $241 million in principle amount would be converted into $117.5 million of a single series of new senior secured notes maturing in July 2012.
As part of the contemplated refinancing, which remains subject to the completion of definitive documentation, Gores Radio Holding to LLC, would invest an additional $25 million in the Company and guarantee a new unsecured $20 million subordinated term loan, and $15 million senior unsecured revolver provided by a third party lender.
A successful refinancing would be a significant milestone in Westwood One’s turnaround initiative, which began last March when it became an independent company and subsequently Gores invested $100 million into the Company’s business.
As previously disclosed in an 8-K, the Company, Gores and various lenders are working towards execution of definitive documentation to reflect the refinancing terms agreed upon in principle. While there can be no reassurance or no assurance that the parties will consummate the refinancing transaction, we believe such refinancing will close no later than the second quarter.
Upon closing, the Company would be significantly more de-levered and would have more flexible financial covenants that would provide the Company with the opportunity to enact further changes in the business and take advantage of growth opportunities.
Terms of specific initiatives on the revenue side our revenue initiatives centered around continuing to provide the kind of high-profile programming to built the Westwood One brand in the radio business.
In sports, where we're leadership in play-by-play broadcasting, we signed agreements with several major programming partners. Last week, Westwood One and the NFL announced that Westwood One will continue as the exclusive Network Radio partner of the NFL under a new two-year agreement.
We will broadcast 57 national regular and postseason NFL games, including Monday Night Football, Sunday Night Football, the NFL Playoffs, the Super Bowl and the Pro Bowl to millions of fans on Westwood One's NFL network of over 500 radio stations. In addition, through direct deals with the NFL clubs, we will broadcast up to 34 Sunday afternoon games.
In another major move, we’ve renewed our agreement with the Masters Tournament to continue as the exclusive radio hole-by-hole provider. And last but not least we announced our expanded coverage of the NCAA Men’s Basketball Championship Week.
The Westwood brand also stands for high-profile content and news talk radio. On March 2, 2009, we launched The Fred Thompson Show, which is broadcasted more than a 160 stations. This was Westwood One's largest talk radio launch since Bill O'Reilly and Dennis Miller.
As of today, we've identified other high-profile programming that we believe will increase listenership for our affiliates, audiences for advertiser messages and revenue for us. To leverage these programming, we are proactively adding select sales people to our sales organization.
In Network Radio, the Company will add category management specialist for sports, media and entertainment, news talk and digital. In Metro Traffic, sales people will be added in various locations across the country to deliver on strategic sales objectives. We think it is important to strengthen our sales force at a time like this to continue to build on our competitive positioning and differentiation.
At the same time, we are continuing to drive our other revenue initiatives such as increase CBS clearance, which improved to 95.7% in November of 2008 and copy-splitting in the network business.
In Metro Traffic, we are increasing sales of pre-records and 15-second commercials. We are also adding select affiliate sales people in our Metro TV business, as we believe that TV is a good growth opportunity even during these weak economic times. In terms of innovating with technology, in Metro Traffic we launched initiatives designed to maintain our leadership in the traffic business for the foreseeable future.
Metro Traffic has held a leadership position for 30 years, by providing the most accurate comprehensive traffic information to its affiliates. In 2008, we undertook a strategic initiative to employ technology to increase the volume and accuracy of traffic information provided to affiliates, and to generate savings through lower distribution cost.
Recently, the Company formed an exclusive technology partnership with TrafficLand, the largest authorized aggregator of live video traffic cameras in the U.S. with over 5,000 video cameras across the country monitoring traffic on a 24/7 basis.
TrafficLand’s video technology enables Westwood One to give its affiliates and their listeners the most comprehensive market coverage and solution-oriented traffic information in the business. The Company is also working with leading providers of speed and flow data to help optimize traffic data and content. We plan to increase our technological footprint in the traffic business by further expanding on digital and mobile platforms in the future.
Another strategic priority for Westwood One is to reduce its cost structure and do business more efficiently in 2009 and beyond. Metro Traffic’s technology partnerships, with TrafficLand and its speed and flow providers allow Westwood One to gather and distribute comprehensive traffic data to affiliates more cost effectively. This strategy has enabled the Company to drive savings through the continued consolidation of 61 operation centers into 13 regional hubs.
Reengineering Metro Traffic coupled with other cost reductions implemented in the last half of 2008 will result in annualized cost reductions of $25 million to $30 million as was previously announced. Approximately, $5.5 million of these savings occurred in 2008. We anticipate achieving incremental cost savings of $30 million to $33 million from reduced operating expenses including labor savings, lower programming costs, and reduced expenses for aviation, administrative support and other operating expenses.
These additional savings plus the cost reductions mentioned above from the traffic reengineering and other programs will result in total annual cost savings of approximately $55 million to $63 million. Approximately, $2 million of these savings will be achieved in 2010 with the remainder occurring in 2009.
These savings will be offset to a limited degree by the previously mentioned investments in our sales force, TrafficLand, digital capabilities and the full-year impact of cost under the new CBS agreement.
In summary, Westwood One will continue to drive its turnaround efforts in 2009 by focusing on three key strategies. First, by generating revenue from branded programming in Network Radio and an enhanced technology-based product in traffic, and leveraging these initiatives with a strengthened sales organization. Second, by maintaining a single-minded focus on reducing operating expenses and reducing our operating break-even point. Third, by taking advantage of growth opportunities in the marketplace.
Now I would like to turn to the financial summary and let me start by highlighting some of the key developments during 2008. On September 12, 2008 we announced a plan to restructure Metro Traffic operations addressing underperforming programming and implementing other cost reduction actions.
In the last quarter of the year, we continue to implementing these previously announced reengineering initiatives to create operational efficiencies and streamline our cost structure. At this point, we have successfully implemented the portion of these programs falling in the second half of 2008 and the first few months of 2009.
In addition, we have initiated these new cost reduction programs throughout the Company, which we expect will largely occur between now and the end of the second quarter of 2009. In connection with the reengineering of our traffic operations and programming restructuring, we've recorded $14 million of restructuring charges for the 12 months ended December 31, 2008.
We anticipate further charges of approximately $9.7 million as additional phases of the original traffic reengineering and other programs are implemented. The total restructuring charges for the traffic reengineering and other cost savings program are projected to be $23.8 million, which is at the upper end of the previously announced $20 million to $24 million range.
In connection with the new comps reduction programs, we anticipate that we will incur new incremental costs for severance and contract terminations ranging from $8 million to $10 million. In total, we expect to record aggregate restructuring charges of approximately $32 million to $34 million. For the three months ended December 31, 2008 the Company recorded a restructuring charge of $3.5 million comprised of $2.7 million of severance and employee-related cost and $0.8 million in facility consolidation and related cost.
Revenue for the year-ended December 31, 2008 was $404.4 million compared to $451.4 million for the year-ended December 31, 2007, a decrease of $47.0 million or 10.4%. The decrease is primarily due to the current economic downturn, which accelerated in the fourth quarter of 2008 and which primarily impacted local advertising.
For 2008, Metro Traffic revenue was $194.9 million compared to $232.4 million in 2007, a decline of $37.5 million or 16.1%. The 2008 decrease is largely due to a weak local advertising marketplace primarily in the automotive, financial services and retail categories, and increased competition.
Network revenue for 2008 was $209.5 million compared to $218.9 million for 2007, a decline of $9.4 million or 4.3%. The decrease is primarily the result of the general decline in advertising spending, lower revenue from our RADAR inventory and lower barter revenue.
Adjusted EBITDA, which we defined as net income plus interest, income tax, depreciation and amortization, goodwill impairment, special charges, restructuring charges, other income and non-cash, stock-based compensation was $39.2 million as compared with $97.4 million in 2007, a decline of $58.2 million, or 59.8%. The decrease was primarily due to the revenue decline and also reflected the timing of cost reduction actions, particularly in Metro Traffic.
The reengineering of the Metro Traffic division made substantial progress in the third and fourth quarters but management anticipates benefits from this to be largely realized during 2009.
We reported an operating loss in 2008, absent goodwill impairment charges of approximately $430.1 million of a negative $7.9 million compared with operating income of $63.3 million in 2007, a decrease of $71.2 million. The decline is in line with the decrease in revenue and was substantially impacted by the cost of reengineering and refinancing activities. This was offset to some degree by the elimination of amortization expense for warrants issued to CBS, which were canceled under the 2008 CBS arrangement.
Our free cash flow, which we defined as net income plus depreciation and amortization, amortization of debt discount, non-cash stock-based compensation, goodwill impairment restructuring and special charges less capital expenditures, in 2008 decreased approximately $12.3 million to $40.8 million, or $0.41 per diluted share, compared with $53.1 million, or $0.61 per diluted share in 2007. We believe free cash flow was the most important measure of any Company's operating performance as it represents the amount of cash available for debt service and acquisitions.
Net loss for the year including impairment charges of approximately $430.1 million was a negative $427.6 million or a loss of $4.39 per diluted common share compared with a 2007 net profit of $24.4 million, or $0.28 per diluted common share. This is primarily due to the impairment charge, lower revenues, and the cost of reengineering and refinancing activities.
Briefly highlighting the three-month results, fourth quarter revenue decreased approximately 14.5% to $101.1 million. Adjusted EBITDA decreased approximately 77.9% to $6.0 million and free cash flow decreased approximately 19.1% to $11.4 million.
Metro Traffic revenue for the three-month period decreased 19.6% so roughly 20% to $46.1 million and network revenue declined 9.8% to $55.0 million. This reflects a significant market softness that began to unfold at the end of November and in the month of December. In addition, network barter revenue declined by $2.4 million in the fourth quarter due to a one-time non-recurring shortfall of promotional advertising related to content rights.
Turning to our balance sheet, some highlights in December 31 are cash and marketable securities were $6.4 million, net accounts receivable were $94.3 million, working capital due to our reclassification of all debt from long-term to current was a negative $207.6 million, and outstanding borrowings pursuant to our loan agreements were $247.0 million with an additional $2 million related to the unwinding of our remaining interest rate swap agreements.
Westwood One intends to file a Form 12b-25, which will provide the Company with up to 15 additional days in which to file its 2008 Annual Report on 10-K, without being considered "late" by the SEC. The Company believes this is a prudent step given its ongoing refinancing process, and certain analyses being undertaken in connection with the refinancing transaction.
As previously disclosed in an 8-K filing with the SEC, the Company is in default under the terms of its Credit Agreement and Note Purchase Agreement. Management believes a completion of the refinancing based on the agreement in principle that has been reached will address a default and will remove the conditions currently creating substantial doubt about the Company’s ability to continue as a going concern.
The refinancing is an integral part of the actions the company is taking to restructure its business including the several cost reduction initiatives, which have gained significant traction as well as the various revenue initiatives.
In terms of 2009 guidance, the weak and the uncertain economic environment makes it difficult to forecast near-term operations. Therefore, we believe it is prudent to withdraw the previous financial outlook that has been provided for 2009. We will continue to be open, ensure our progress on the Company’s operating initiatives throughout the course of 2009.
At this point, we are happy to take any questions.
Question-and-Answer Session
Operator
(Operator Instructions) And our first question therefore comes from Thomas [CashRock] with [CashRock Fitness]. Please go ahead sir.
Roderick Sherwood III
Go ahead Thomas.
Thomas Cashrock – Cashrock Fitness
Yes. The investments over our catalog business we're concerned because we do not want a reverse stock split?
Roderick Sherwood III
Please get closer to your speakerphone so we can hear more clearly. Keep going.
Operator
Mr. [Cashrock]?
Roderick Sherwood III
Okay, are there any other questions?
Operator
Now we’ll take our next question from [Don Merely] also with [CashRock Fitness]. Ms. [Merely]?
Don Merely – CashRock Fitness
Hello.
Roderick Sherwood III
Hi go ahead with your question.
Don Merely – CashRock Fitness
Yes we're at [CashRock Fitness] we concerned about our reversed stock split?
Roderick Sherwood III
Hi, yes, reverse stock split will likely occur in connection with the refinancing transaction, I think it is anticipated as one of the steps in that transaction, which really involves a serious of sequential actions that will eventually lead to our reverse stock split.
Don Merely – CashRock Fitness
Do you have a time limit on that?
Roderick Sherwood III
As we said we believe that the refinancing actions and the associated balance sheet restructuring will occur in the second quarter of 2009.
Don Merely – CashRock Fitness
Okay, thank you.
Roderick Sherwood III
Thank you.
Operator
(Operator Instructions). I does appears that we have no further questions at this point. Gentlemen, I'll turn the call back over to you.
Roderick Sherwood III
If that’s the case I wanted to thank you all very much for listening again on the conference call this afternoon. We are proud of the accomplishments in 2008 and early 2009. We look forward to continuing to drive the company forward with momentum over the course of 2009. Thank you very much.
Operator
Once again that does conclude today’s conference. We thank you for your participation and have a wonderful afternoon.
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