Kate Snedeker - Media & IR Jeff Smulyan - Chairman and CEO Pat Walsh - CFO and COO

Welcome and thank you all for standing by. At this time, all participants are in a listen-only mode. This call is being recorded. If you have any objections, you may disconnect at this point. Now I will turn the meeting over to your host Ms. Kate at Emmis, ma’am, you may begin.

Thanks, Tory. Good morning everyone. Thank you for joining us for today’s Emmis Communications Conference Call regarding Second Quarter earnings. I want to extend a special welcome to all the Emmis employees who are joining us and listening in. We’ll begin in just a moment with opening comments from Emmis Chairman and CEO, Jeff Smulyan, and Pat Walsh, CFO and COO. After opening comments from Jeff and Pat we will respond to the questions submitted via email to ir@emmis.com. A digital playback of the call will be available until Thursday, October 23rd by dialing 203-369-1922. This conference call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Please refer to Emmis’ public filings with the SEC for more information on the various risks and uncertainties. Additional disclosure related to non-GAAP financial measures has been posted under the Investors tab of our Web site, emmis.com. Jeff, we’re ready to begin.

Kate thanks. This is an interesting quarter certainly the performance of the radio industry as a whole was very challenged and I guess the highlight of what I want to say today is there seems to be much better news on the way. We are happy at Emmis because once again for now four and a half years we have outperformed our markets. This is another quarter our radio revenues based on Miller Kaplan were down 1.7% for the quarter our markets were down 5.1%. So, that’s good news and obviously bad news is they are – we’re outperforming but our sector certainly is challenged. The very encouraging sign is that our Q3 which comports with much of the industry’s Q4 is looking dramatically better. Our pacings are up mid to high single-digits and I should say that while people who say well that is political we really don’t get very much political, we’re not in any markets where there is just significant [inaudible] dollars being spent. We’re encouraged about that, we’re equally encouraged about some spectacular ratings we have all through radio, it's led by really best ever numbers at Power 106. Number one 18-34, number one 18-49, I think we’re second 25-54, and in some months we’ve been first. Those are really record setting levels at Power since the PPM era. As you know we have owned Power for exactly 30 years and in the 30 years we’ve owned the radio station those are some of the highest numbers. Publishing also doing very well, up 3% in the quarter. Significantly outperforming other industry which is challenged, we have new metrics that shows that our audience is growing at our publications and that’s all very encouraging. I also want to give a shout to our digital team led by Angie May Cook and our Incite team led by Sarah Harris, both are doing some ground breaking work, and I can’t tell you, I think the key to this company is innovation and whether it's digital or it is in our Incite business or it’s in our publishing business or radio, we continue to innovate and that makes me prouder than anything. And then NextRadio, this really was a very-very significant quarter for NextRadio. Obviously we demonstrated at the convention Version 2 which is the [wide] [ph] guide and also shows all sorts of additional information for listeners. The response to it by not only people in our industry but by automakers and by wireless manufactures and carriers has been pretty spectacular. We are getting ready working on an [inaudible] led consumer awareness campaign and we think that is the last link. During this quarter we introduced through our vendors, NPR and American Public Media and EMF, a Web site which says freeradioonmyphone.org and that really urges listeners to understand that there is a radio in every smartphone in the world it just needs to be turned on. As far as NextRadio, we now have interactive activity from just about every major company. I think all of the top-20 are either interactive now or in the final stages of doing it. We’ve had support for the Sprint deal from just about every major company. The top selling five companies either had checks or commitments of time for I think 70 of them. As I have said in my 40 years in the industry I have never seen the industry come together for something as much as this and I think it’s because people realize that this is a single most important thing our industry can do to turn around quarters like [minus five] [ph] and change the perception of radio and change the consumption of radio. So, we’re very excited; we’re now on 28 FM enabled smartphones, more coming this year. We announced our strategic partner with [Ubiquity] [ph] because we felt that both companies felt that it was critical to have a unified look to the American radio industry in cars whether it is analogue or digital and we couldn’t be happier with that. So, we’re very pleased. We think we’re on our way, we think it is an idea whose time has come and nothing makes me prouder than the work that Paul Brenner and his team have done, the work that we’ve done with the National Association of Broadcasters and really the work that we’ve done with just at about every major company in the industry, that has rallied behind this and said this is our future, let’s go get them and we are now ramping the public awareness campaign. We always felt that once our audiences understood that there is a free radio in their phone and it does the incredibly interactive compelling things that NextRadio does and this is an idea whose time has come. So other than that only other thing this quarter, we closed our purchase of Digonex, which is our dynamic pricing business; Greg Loewen is overseeing that. Again, we see some pretty exciting things there, and we think that we can learn a lot in our own business about dynamic pricing and you can take that model to other people. So Kate that’s what I have. And now I will turn it over to Pat Walsh

Yes, so good. Thank you.

Thanks Jeff. Good morning everybody. This morning, as everyone knows, we released earnings for our second fiscal quarter, which ended August 31, 2014. These earnings reflect results from newly acquired WBLS and LIB in New York. And as such, as Kate mentioned earlier, we encourage those on the call to refer to the additional financial information disclosure at our Web site emmis.com, which will assist with better understand the pro forma results of operations. Our results for the second quarter reflect the continuing outperformance of our publishing and radio divisions compared to our peers under somewhat challenging market conditions. During the second quarter ended August 31, 2014, we reported station operating income up 120% and revenues up 12% compared to the prior year with the growth primarily attributable to the inclusion of BLS and LIB in the operating results. Radio net revenues reported to Miller Kaplan during our second fiscal quarter, which exclude certain barter and syndication revenues, were down 1.7% on markets which were down 5.1%. The 1.7% -- down 1.7% performance is a modest improvement over the down 3% pacing guidance we provided on the first quarter earnings call. For the six months, Emmis Miller Kaplan reported revenues are flat on down five markets. Our over-performance against our markets during the past four fiscal years and each of the six months of fiscal 2015, demonstrates our continued progress in executing our strategy, taking market share, monetizing our ratings and growing our new business initiatives. Four of our five Emmis Miller Kaplan markets outperformed in the quarter and three of these markets, Los Angles, Indianapolis, and Austin, both grew market share and showed year-over-year growth. Our fifth market, New York, nearly missed the overall New York market in quarter two by less than 1%. For the quarter, national was down 8.5% on markets down 15%, local was down 2% on markets down 6%, NPR was up 7% on markets up 21% and digital was up 3% on markets up 5%. To give you a quick look at our monthly trends, we were down 1 in June, down 3 in July and down 1 in August, beating our markets during each month of the quarter. During Q2, our number of minutes sold decreased 1% compared to the prior year and the average minute rates were actually up 1%. Automotive was once again our largest category, it represents 13% of our revenues. It grew 3% during the quarter. Entertainment, restaurants, financial services and retail also showed growth. Healthcare continues to be our [surging] [ph] category registering 31% growth during the quarter with wireless and beverage showing double-digit declines. As Jeff mentioned, revenues from our publishing division were up 3% in the quarter driven by growth at five of our six titles. Looking forward to our third quarter, we’re currently pacing up mid to high single-digits on improved condition in national, local, events and digital, for both our markets and Emmis. While it’s still early, pacings are in positive territory for the balance of the fiscal year. Our publishing division is pacing up low single-digits from Q3, which is very similar to the second quarter. In terms of station operating expenses, excluding depreciation and amortization, future expenses were up 10%, the result of adding the personnel and non-personnel expenses associated with BLS and LIB in New York. Pro forma domestic radio expenses including, BLS and LIB, but excluding expenses associated with NextRadio, were up 1.4% during the quarter. Publishing expenses were up 7% and corporate expenses were down 27% as a result of certain performance bonuses being paid in the prior year but not the current quarter. At August 31st, excluding debt that is non-recourse to Emmis, the Company had $199.5 million outstanding under our senior credit facility with a weighted average cost of borrowing of 5.74%. The BLS and LIB purchase has a two-stage closing with proceeds in the financing having funded $55 million of the $131 million purchase price in June 2014, and the remaining balance, which currently is held as restricted cash being paid in February 2015. I recommend investors reference the leverage calculation on our Web site, which reflects leverage of 4.2 times EBITDA as defined in our new credit agreement. Finally, we invested $1 million in CapEx in Q2 and as we said during our last quarter, we expect to spend in the range of $3.5 million in fiscal 2015. And that’s what we have for the second quarter. With that Jeff, we’ve got a handful of questions submitted by investors in advance of the call.

The first question comes from investors regarding the preferred stock litigation. This investor thinks the preferred litigation is a drag on the common stock price. He is interested in an update on the litigation and whether we have considered some type of settlement including a preferred for common exchange offer.

Well, obviously we think that the preferred litigation is now coming to an end. The Seventh Circuit will, all the [briefs] [ph] have been filed, the Seventh Circuit will hear case sometime in this fall. So we are hopeful it will end and it will end the way the two previous rulings in the federal court in the Indianapolis ended. We've always wanted to settle this case and we made it very clear. But you usually have to have another party [on the other] [ph] side that is willing to settle and we have not seen that. We felt that the expectations of the preferred don’t comport with what we view as rationality. But yes, the interest - we bought the original preferred shares and most of them at the behest of the preferred holders and we’ve always -- we went through many hoops to buy those shares. The group that became the locked up group wanted dramatically-dramatically more and they’ve always taken that position and we’ve said we are living by the decisions of the courts and we think we are coming up to the last stage There.

A few investors Jeff, back to NextRadio and Tag Station we post updates on the progress for investors and the whole public on tagstation.com and nextradioapp.com. Some investors are interested in learning more about the progress and when more carriers are coming on-board and a little more detail on the recent announcement about getting NextRadio into cars and what that means?

Well again we think the original charge and the discussions with the National Association of Broadcasters was radio has a unique opportunity to be interactive and to take advantage of its one-to-many transmission system and it's free cost and I can't stress free enough. So, automakers understand that and while all the cache in the world is around all the streaming ideas, all the visual ideals which we all participate, the reality is that right now 100% of the profitability in the American radio industry is in our over the air signal and the whole NextRadio idea is designed to strengthen that and to let the American public know that every smartphone has a free radio and that for not only not having to send data charges to listen to the same content but also to have the ability to hear the radio in an emergency when the power grid goes down which it does go down in almost every emergency. So we are making great strides. We are in conversations with automakers and tablet makers and other carriers, manufacturers. I think the thing I am proud is that you can just see NextRadio sort of grow geometrically as people understand it, as people see it, as people experience it. So it’s moving on all fronts.

Jeff, the next question relates to the summer slowdown for the radio advertising spend and the recent pickup; any sense of kind of what drove the slowdown and what’s driving the recovery?

We felt that based on also to research we see and assumption metrics, kind of the sale off of radio we always felt was overblown. We do believe that it’s an industry that needs a catalyst. It’s quite remarkable to see the disconnect between an industry which still gets 93% of the population every week and on a six plus basis that’s 275 million people. And pretty significant time spent listening with the view sort of the public is, oh my gosh, is radio over? Certainly that’s been the view of sort of in Wall Street, we think that’s reversing itself in Madison Avenue as people study the metrics of the business. But we’ve always said that radio needs a catalyst and that’s why we are so bullish about NextRadio. Didn’t take a rocket scientist to see that if you can turn on the chip in 300 million smartphones as well as make a dashboard come alive with the interactivity of NextRadio based on the research we’ve seen, based on all the metrics we’ve seen, that alone would be the catalyst to change the perception of radio.

Seems like a series of questions around the down 1.7 and the down 5.1 reported to Miller Kaplan, those are on the same basis so it’s all the same categories of revenue, it’s an apples-to-apples comparison and Miller Kaplan actually got those into the markets, it’s an accounting firm and they actually conduct audits. Someone asked if up mid to high single-digits is the markets overall or our own results we only have transparency to how our business is pacing. Several weeks after the close of each month we get the reports from all the broadcasters from Miller Kaplan. So that up mid to high single-digits is our own performance and we will report on an overall. Someone asked how much of that up mid to high single-digits is attributable to political?

Yes, I mentioned that earlier. We don’t get a lot of political historically. We don't have the luxury of being a lot of battle ground staged and this year that's no exception. So we get very, very little political. Now it’s possible that all radio benefits because as TV inventory which gets most of the political and gets tied, here some of it does to radio but I think it’s a small amount.

And in fact going further we had a mayoral race in September of last year in New York and on BLS we got a considerable amount of money there and that did not recur, we did not have something like that. So our up mid to high single-digits is actually core business performance and has not been driven by an exogenous factor like the political.

Yes, we’re the only company in the history of the world that actually has tough comps yet political was in a non-political year last year but that’s it.

Two more Jeff we had a question about the Digonex investment which closed this quarter, it’s not reported in the corporate and merchant technology segment along with NextRadio in footnotes. What have you learned about Digonex in the early days you have controlled the enterprise?

I think we’ve learned that the original assessment that dynamic pricing stood a little away to the future, we’ve had some very encouraging discussions with people in areas where we’ve targeted and when we bought it we said we got to narrow the focus at target certain specific segments and that’s what we’re doing. I think it was a group that needed our skill sets, I think Greg Loewen who sees it is bringing in that support necessary discipline in finance and in sales and marketing, and I think combined with some really pretty remarkable technology at Digonex. We think there is an opportunity, it is way ahead far from Digonex shareholder, and the other day and I said look we’re just in this very first inning, so the thing at Emmis is we really try to take a long view. And I realized our new shareholders to say I hope you spot for 90 days. We know we have to produce every quarter and we think we do that. But we also think the future is dynamic pricing and we think the future is interactive to us we are radio and so we’re proud to take a long view and lead others in these areas.

And one that just came in a minute ago Jeff obviously the shares have taken a beating along with others in the radio industry over the past few months. An investor asked whether the Board and management would be supportive of buyback and how are you balancing that against debt repayment?

And obviously we would have, we have some restrictions although, we also have restricted basket we could use some buyback. But right now we really believe that the most important thing is keeping the balance sheet and believe me nobody has more pain as you can imagine by the stock price because I am the largest shareholder by far. And it breaks my heart and it’s frustrating and I read that letter from a shareholder and I couldn’t agree more. And it takes a lot of discipline on our part to say look, we understand it, we like to buy a lot of the stock back. But the most important thing you can do is balance sheets same. And that means we get a dollar, we’re going to pay down debt or invest in things that we think have the ability to grow the company in the future. We never say never, and believe me we get the message, this stock should be dramatically- dramatically high, but we want to make sure we had a stable capital structure in the future.

Last question Jeff, Beasley and CBS swapped a number of radio stations in past couple of weeks do you think this is a preview of additional M&A activity in consolidation of radio sector and if so will Emmis will be a trader of such activity et cetera?

We’re always open to ideas. The biggest challenge again is that an industry has not shown growth characteristics has challenged in excess to capital. So for that reason it’s going to be tougher but yes I think, and we’re obviously very close to the Beasley people and very close to the CBS people and I was thrilled when I told Caroline and George and Dan and Scott Herman that was a win-win for everybody and a very, very good deal. And whether our situations like that where clearly that made sense for CBS to increase its stake in Philadelphia and Miami and it clearly made sense for Beasley to have very strong clusters in Charlotte and Tampa and the other markets it was a win-win.

One more that came in the last two minutes, I am going to ask about the Johnson publishing expenses, that was driven principally by an impact that will frankly the whole publishing industry had by the folks that actually put the magazines and retail going out of business and so we would expect that that’s a one-time pick up and not something that you’ll expect to see continuing to subsequent quarters. Jeff that’s all we had in terms of investor questions. You may make some summary remarks?

Yes just in a quarter where the markets were tough, I think again I couldn’t be proud of our culture. I just every day I am convinced that the relationship the bond we have with our people, really leads to outperformance and I think it has for most of our 35 years of existence. We’re on the right track, I think we’re in businesses that need leadership and that need innovation and I am proud to say we’re doing it. And I think that the highlight for me in the quarter was that it’s becoming clear now the NextRadio is an ideal time that’s come. It’s moving in every direction, it is gaining support at just about every sector in and out of the radio business and when we see analysts say like my friend Marcy Rediker said this is the gating issue and we see David Polk say, this is it. And we see that over and over again from outsider and I talk to just about everybody in the industry and said, look this is the most important thing our industry can do. Let’s get it done and we’re getting it done, we’re getting it done because we have got something incredible creative people at Emmis and because we have got some incredibly great partners from the rest of the broadcasters in the American Radio industry and the NAB. So with that thank you, thanks all of our people and thanks to our shareholders. We’re going to make this thing move up. Thank you.

Thanks everyone. Just a reminder, that the conference call is available for the next two weeks by dialing 203-369-1922. Thanks. Have a great day.

Thanks.

Thank you and that concludes today’s conference. Thank you for participating. You may now disconnect.