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

Welcome and thank you all for standing by. At this time, all participants are in a listen-only mode. After the presentation we will conduct a question-and-answer session. [Operator instructions]. Today’s conference 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, Robin. Good morning everyone. Thank you for joining us for today’s Emmis Communications Conference Call regarding Third Quarter earnings. I want to extend a special welcome to all the Emmis employees who are joining us and listening in this morning. 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 playback of the call will be available until Thursday, January 08, 2015 22nd by dialing 203-369-4012. 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?

Kate, thanks and I want to thank everybody, especially the Emmis employees who are on today’s call. It’s been a good quarter for a lot of reasons. I think the thing that I want to stress is that our radio revenues are up 29%, but really probably because after the acquisition of WBLS and WLIB. But on a pro forma basis, per the Miller Kaplan which is the generally accepted standard, radio revenues were up 6% on markets which were down 1.6%. By month, Emmis in September was up 1.8%. Our markets were down 4.8%. In October we were up 10.5% on markets up 1.9%. And in November, Emmis was up 5.3% on markets down 1.8%. So I think the most important thing for us is the continuation to beat our markets dramatically. I don’t ever remember a time in our history where we’ve beaten our markets by 6, 7, 8 points a month. And we’re continuing to do that. The other thing that’s critical this quarter is that we’ve caught the New York market and actually passed it. We’re performing much better in New York than we had not only in the quarter, but also ongoing now through the month of December. That’s the good news. The bad news is the New York market is very weak. It was down 5.6% in quarter three. So while we’re beating that and slightly up, clearly the New York market has been challenged, which affects not only us but the entire American radio industry. Our Q4 started very strong. December was up 5% and January and February look to be in that range, maybe a little bit better. It’s very early to tell, but we’re very encouraged. We have an unusual feeling. We love beating our markets this much, but when our markets are negative it portends challenging things for the American radio industry. The same is true in our publishing business, up 1% in our Q3. We know that’s against comps that are negative in the American magazine industry and again, both of these segments indicate just remarkable performance by the people of Emmis. Our strategies are working. Our ratings are good. Our readership metrics are very good and our performance of our teams really is outstanding. I wish it were against a better backdrop, but the second thing I would tell is as we work on NextRadio. We think that’s the catalyst to change it. None of us in American radio are excited about where we’ve been because the last few years have been flat. I think a lot of people might say this last year will finish up slightly down, but we think help is on the way. At Emmis we’ve said that NextRadio can be the catalyst and we believe this is the year. So those of you who are on this call and I hope all are on this call next year, you can hold me to it. I think 2015 is going to be a very big year for NextRadio. For those of you who follow, you know that version 2, which features LiveGuide, went live at the NAB radio show which is here in Indianapolis. The feedback has just been outstanding. It’s the first time now consumers can look at a smartphone or a tablet and see all of the radio stations visually, what they’re playing, what they’re doing and interact with it. We think that’s a game changer and all of the metrics, all the research indicates that it is. This week in Las Vegas at CES with our partnership with iBiquity, we interviewed or introduced the connected car version of LiveGuide and NextRadio. And it’s the marriage of iBiquity and NextRadio and the idea is this is the answer for the American radio industry for auto makers. It provides the tuner that has been in automobiles since after or maybe even before the Second World War, it updates it to make it visual. It makes it interactive and it makes it compelling. The response from auto makers has been nothing short of spectacular. Again it’s very gratifying. We now know that we have a product and a network of stations that consumers love and that manufacturers and automakers and we think even carriers love. Our challenge now is to do what the next step is and that is to take this to the American public and say here it is. As we’ve stated a lot of times, the American public largely doesn’t know that every smartphone has a radio receiver in there. We want them activated. We have a groundbreaking deal with Sprint for 30 million phones. We’re in several other phones and now this is the year which we really deliver that message. Discussions are ongoing with carriers and manufacturers and as I said, automakers. We think that as people understand the ecosystem, they fall in love with it. We are working with the NAB and with a number of other broadcasters to launch a major consumer campaign and it would be a major campaign. We’ve brought in Devito Verdi. They’re renown for their creative work. And we think that the creative that is coming in the next few weeks, obviously being intimately involved will really get the attention of the American radio listener, and with that it will really be the catalyst to push this over the top and make this what we’ve said, ubiquitous. So I’m really excited about it. I think the thing that’s been most gratifying is that every single major company in the American radio industry has supported this with their energies, with their dollars, with their commitments of the campaign. I think everybody sees what we see, that number one, you can change the cache of radio. You can change the perception of radio by making it visual, interactive and compelling and we have that within our grasp. Number two, we can change the listening metrics because obviously if 300 million smartphones have radios and people can access it at a time when they’re starting to understand that other listening options cost money with data charges, that is a game changer. And then third, which we’ll unveil this year, interactive advertising, an entirely new area of advertising revenue for the American radio industry, an entire new area of mobile advertising opportunities for the American advertising industry. We’ve previewed this for major advertising agencies at the ANA and people tell us it is a game changer. So that’s why we’re bullish. We know the American radio industry is challenged. It’s hard to ignore. But when you see things like NextRadio and you see the Nielsen, iHeart ROI studies, it shows 6 to 1 rate of return. This is an industry that’s not going anywhere. We think it’s on the verge of a revitalization. The thing I’m proudest of is that revitalization largely will be led by the people at Emmis and that’s the thing I’m proudest of. So with that, I want to turn it over to Pat and we’ll go from there. Pat?

Sounds great. Thank you, Jeff. Good morning everyone. This morning we released earnings for our third fiscal quarter ended November 30, 2014. These earnings include results from our acquisition of WBLS and WLIB in New York. And as such, we encourage those on the call to take a look at our website www.emmis.com for additional financial information we disclose to assist with better understanding the pro forma results of operations. Our results for the third quarter reflect our continuing outperformance in both our radio and publishing segments compared to our peers. During the third quarter ended November 30, 2014, we reported station operating income up 50% and revenues up 29% compared to the prior year, with the growth primarily attributable to the inclusion of WBLS and WLIB in the operating results. As Jeff mentioned, radio net revenues reported to Miller Kaplan during our third fiscal quarter, which exclude certain barter and syndication revenues, were up 6% on markets which were actually down 2%. Revenue growth during the quarter, excluding political revenues, were still slightly more than 5%. Revenue growth for the nine months was up 2% on markets which were down 4%. Our over-performance against our markets during the past four fiscal years and each of the nine months of fiscal 2015, demonstrates our continued progress in executing our strategy, taking market share, monetizing our ratings and growing our new business initiatives. During the quarter, our New York, Los Angles and Indianapolis markets took share. Austin performed in line with a very strong plus 7 market and Saint Louis narrowly missed its market performance. For the nine months ended 11/30, all five of our Miller Kaplan markets have taken market share. For the quarter, national was up 10% on markets down 2%, local was up 3% on markets down 4%. Our NPR business was up 21% on very hot markets up 30%. Digital was up 4% on markets down 7%. During the third quarter, our number of minutes sold decreased 2% compared to the prior year and we saw a very healthy increase in average minute rate of up 7%. Automotive was once again our largest category, representing 12% of our revenue. And our work with the automakers and their dealer groups grew 6% during the quarter. We saw double digit growth in categories including our second largest billing category, healthcare, along with financial, beverage, wireless and home improvement. Entertainment in retail grew in single digit percentages and media and quick service restaurants were our only top 10 category that were down during the quarter. Revenues in our publishing division, as Jeff mentioned, were up 1% in the quarter, driven by very strong growth at our southern California magazines, including Los Angeles. Looking forward to our fourth fiscal quarter, we are currently pacing up mid-single digits in radio on much improved conditions in national and solid growth in local. This trend is particularly hopeful given we are comping against fourth quarter last year when our radio division grew 12%. Our publishing division is pacing up low single-digits in the fourth quarter. In terms of station operating expenses, excluding depreciation and amortization, our third quarter expenses were up 27%, the result of adding personnel and non-personnel expenses with BLS and LIB. Our radio expenses, excluding NextRadio and depreciation and amortization, were up 5.8% during the quarter, driven by expenses associated with our Circle of Sisters event in New York and increased rating expenses resulting from our new five year agreement with Nielsen. We expect fourth quarter expense growth of flat to low single digits. Publishing expenses were up 1% in the quarter, and corporate expenses were down 11% as a result of certain performance bonuses being paid in the prior year, but not the current quarter. At November 30, 2014, excluding debt that is non-recourse to Emmis, the Company had $195 million outstanding under our senior credit facility, with a weighted average cost of borrowing of 5.96%. The WBLS and LIB purchase has a two-stage closing process, with proceeds from the financing having funded $55 million of the $131 million purchase price in June 2014, and the remaining balance, which is currently held in restricted cash being paid in February 2015. I recommend investors reference the leverage calculation on our website, which reflects leverage of 4.16 times EBITDA as defined in our credit agreement. Finally, we invested $400,000 in CapEx in Q3 and as we expect to spend in the range of $3.5 million for the full year of fiscal 2015. And with that Jeff, we’ve actually got a significant number of questions that have come in from investors in advance of the call and why don’t we go ahead and get started with those.

Sounds good. Thanks Pat. Q-Pat Walsh: First off, there’s a question as there seems to be with each of these calls that comes from investors regarding the preferred stock litigation. The question is you had your hearing in federal appeals court in early December. How did it go in your opinion? When do you expect a ruling? Is there any chance of a last minute settlement? And a separate investor also asked, if we, Emmis, have any interest in purchasing preferred stock in a tender or open market purchase.

We feel very, very good about the hearing. I think it’s a tribute to what’s happened in this case all along. We felt that this comported with Indiana law. The district court saw that, agreed with it. Whenever the decision is made by the court of appeals it’s made. We’re very hopeful it’s sooner rather than later. We’re very encouraged. As to settlement, we’re always open to settle anything. I think that having said that, we feel like this case has gone on for a long time and our willingness to settle is tempered by a great, great desire to see the results of what the court says. So the answer is yes, we would be open to settlement but we’re very encouraged by what we’ve seen. We’ve always felt very strongly about this case. We can feel every bit as strongly about the case now.

Jeff, I would say in terms of the question on a private purchase, a tender offer or any open market purchase preferred, I would say during independency of the litigation, that’s unlikely.

Right. When the court rules, then I think it will be time for us to address the small amount of preferred shares that are outstanding.

Great. Next question relates to NextRadio and TagStation. The investor notes that NextRadio has been active at this week’s Consumer Electronics Show. You mentioned a little bit in your opening remarks what’s going on out there, but this investor asked if you could update us on what’s on display in Vegas and any other updates on our commercialization efforts.

What’s on display in Vegas has been basically translating the look of the NextRadio app, which is on smartphones and tablets to the automobile. And so basically I think the thing that’s been most attractive is the interactivity, the visualization. One of the slogans we’re going to use is see what radio sounds and looks like now, because that’s really what we’re doing. So on the dashboard, instead of the tuner that we call the standard tuner that people are used to, developed for as I always say, the 1946 Studebaker. Now it's radio brought up to 2015 and on that dashboard you will be able to pick your favorite stations or scroll through all the stations and you’ll see what they’re playing at that moment. If they have interactivity, you’ll see the album. Ultimately you’ll see the commercials, the station does a promotion or contest. Everything can be visual and controlled by the individual radio station. Now the only caveat is obviously you’ve got driver distraction issues. So some of the things we do on smartphones and tablets we will not do in automobiles, and also we’ll be doing more voice controls. But I think the thing I want to say is that Paul and Ben and their teams have just done a remarkable job. The feedback we keep getting to the look of NextRadio, now in the automobile as well as smartphones and tablets, has really been remarkable, probably the most gratifying experience of my 40 years in the business.

Jeff, the next question states that Bob Pittman, the CEO from iHeart Media, appeared on CNBC and then at the Consumer Electronics Show along with Ryan Seacrest earlier this week and provided a view that 2015 will be a good year for radio given the strengthening consumer economy. Do you share his sentiment and what type of growth should investors expect the industry to produce?

As usual, I usually agree with Bob and I think that the growth -- we’re hopeful. Clearly the American economy is getting better and we think that the advertisers should notice. And also when you have studies -- I want to commend iHeart and Nielsen for the return on investment study because it shows that radio has been undervalued. We know radio needs a catalyst and we’re hopeful that both an improving economy and advertisers really discovering, rediscovering the reach of radio, along with the NextRadio platform and the clear excitement that brings, is going to be the catalyst that improves this industry.

Next up, a little different area. In recent quarters both Pandora and Spotify have shown growth in advertising revenues and continue to increase the size of their sales forces. Do you view either company as a significant competitive threat and are you running into their sales people in competitive situations?

First let me say, anything that fragments America, whether it’s being on Twitter or as my 10 year old lives on Instagram or going to Minecraft, anything takes away from the active listen radio. This is a fragmented world. Every form of media, every form of entertainment is fragmented. Having said that, the decline, the loss, I think I saw a study that podcasting takes one half of 1% of listening now. Sirius XM takes 7%. All forms of streaming take 8% or 9%. So sure, it’s a smaller pie and I think the thing that’s most interesting, especially for investors is the streaming business has created a tremendous amount of cache. I applaud Pandora and Spotify and Rdio and all the other forms, iHeart, but they’re streaming businesses. I read again this morning, no one has found a sustainable business model in streaming. There’s another report I read this morning. It’s the old story. We lose money on every unit we make it up in volume. That is the challenge of the streaming business. And as I’ve said, we’ve been streaming for 18 or 19 years here. We’ve never made money. We will stream because it’s a service to our audience but there’s no barriers to entry and there are monumental costs in distribution and there’s monumental royalty costs. And so I wish everybody well and I hope we all find the holy grail of streaming. But right now with no barriers to entrance and with new players coming in everyday in a market that has never created one penny of profitability, I guess I got a lot of notoriety from my comment and interview last month with Slate where I said we make more money at Emmis before lunch than Pandora has made in its history. That statement was true last month. It’s true this month. My strong guess is it will be true in 24 more months. It is a very, very tough business model. If they can sell a lot of subscriptions to a lot of people, they can make money. But the history of audio subscriptions is very, very mixed to say the least.

I’m kind of ping ponging around the next area that an investor has a question about involves M&A. they ask that there was a fair amount of M&A in 2014, including your deal in New York, Beasley in CBS and more recently Entercom acquiring Lincoln Financial’s radio assets. Do you see more M&A in the pipeline in 2015? And if so, is Emmis a buyer, seller or holding steady with its current portfolio?

I think you never say never. I think we’re certainly going to look at things. We’ve bought more obviously than sold in the past, but it depends. But I think this is an industry which is challenged for capital. It’s not lost on us that our purchase of WBLS was the single largest -- BLS and LIB was the largest purchase in the United States last year and that was $130 million. You go back 10 years ago and $130 million would have been four stations in Fargo. It’s a different world. And so I think as long as the industry has constraints on capital from every source, I think it’s going to be tough to have a lot of M&A activity. It doesn’t mean it won’t occur, but occurring at the levels it used to is going to be more challenging.

All right, we’re getting in the home stretch, Jeff. A couple more. An investor asks, they noted that the equity value for Emmis and other radio operators has taken a hit in recent months. A couple of folks have asked why Emmis senior executives have sold stock in recent months as the share price declined and if you have a perspective on current valuation.

Number one, we have -- people sell for different reasons. I have sold a nominal amount of stock and so I’m guilty as charged. It’s usually done for tax purposes or certain expenses or people have state issues. But I think yes, you never want to sell. I have a long history. I have sold a nominal amount of stock, but it’s pretty much well noted that I have over 5 million shares of this company with options and other things more than that. I guess I would probably be the classic American definition of all in. I think that that’s true of our executives. People make decisions about their personal financial needs, their families’ needs, taking care of their kids or their parents. Things come up and so people sell stock. But I think the most important question is what is the commitment of the leadership and the people of Emmis? If you look at this company and you look at our lack of turnover, you look at their innovations, if you look at their industry leadership, I don’t think that of all the companies in this industry, whether executive A sells 10,000 shares or executive B sells 200,000 shares out of their holding, they’re usually a small percentage of their holdings. I don’t think that anybody can look at the leadership of Emmis or the people of Emmis and not say this is the most dedicated, committed company and group of people in the American radio industry. We wear our hearts on our sleeves every day and don’t ever confuse short term economic decision for the fervor that the people of this company have. I think I missed the second half of the question, Pat. I got so caught up in the first half.

No, I think you got it. There were some requests for perspective on, with the stock trading in the 180s, your thoughts on valuation.

It’s wildly undervalued. This industry seven times cash flow. Obviously do I think this industry is going to go up to 22 times cash flow or 24 times that it was? No. and there’s no question, we have not attracted capital in this industry. We have not attracted investors. We all have a small investor base. Every single company in the industry has the exact same problem and whether one company jumps one week or doesn’t, the reality is if you look at all of us, they’re way down. My friend David at Entercom had a great month because people applauded his purchase of Lincoln Financial’s stations. By the way I agree, it was a wonderful purchase for Entercom. But the reality is all of us have been challenged and I think that we need a catalyst. That’s why I’m always a one track pony. We’re convinced that NextRadio changes the perception, changes the metrics and changes the advertising economics of the industry. And we think that that’s the only way out. And I can tell the people who are concerned about our commitment, nobody has worked harder to change the overall picture of radio than the people of Emmis. I think it’s working and I think that’s the catalyst so we can get away from $1.85 share prices or seven times multiples and we’ll be able to start attracting a lot more capital.

Jeff, a very long time investor submitted a series of questions related to LA and New York, the first of which related to performance there. The question is, regarding LA and New York, can you dive in a bit deeper to why the outperformance is so large in New York particularly? Are we beginning to anniversary the loss of some sales people who were poached after the acquisition or there are other factors at play.

I think in New York we had a few challenges when we took over the BLS, LIB stations that we know have weathered. We’ve got a very good team in place and we’re very, very happy with that and we’re going to add a few more very critical people. So yeah, I think New York is going to be better. We’re starting to see that now and I think 2016 or fiscal 2016 is going to be a very good year for our stations in New York. I think that the transition was a little rockier than we had hoped, but it was a big transition and now we’re performing. Let me just say in Los Angeles, and I’ve said this so I’ll say it on the call, Val Maki and the team she’s assembled is quite simply the best radio station group in the United States and I will take on all comers. What they have done with that radio station year in and year out, now Val has only been with us 32 years. So obviously it may be that when she get a little seasoning, she won’t be as good. But she is simply the best manager in America and all my other managers on this call, you know I love you, but she’s simply the best and she just does it year in and year out and between Janet and Diana and Jimmy and [Big] and all of our team, it’s just a great, great station. We’ve taken all comers in the over 30 years we’ve owned that radio station and we’ve been a standalone. We’ve been part of a smaller group, but whatever they throw at us in Los Angeles we’re ready because we’ve got the best team in America there.

On behalf of Val, Jeff, I’ll say she started with Emmis when she was seven. Another question on New York, how are synergies for the BLS, LIB acquisition coming along, particularly on the revenue side? Has your two station approach to service the target market worked as planned?

Pat, you should answer that more than I am because you live it every day, but I think the answer is yes. And as I said, a little challenge getting started. We’re over that now. I think our third quarter performance indicates that we’ve solved the riddle and we think things are going to be very, very good.

A different investor asked, given the weakness in the New York market as both Emmis on this call and previous calls, along with Cumulus have noted, is there any regret in purchasing BLS and LIB?

No, not at all. It was a perfect fit. Obviously our number one job is to delever our balance sheet. We’ve survived tough times. We had a very pristine balance sheet. We still have a pretty pristine balance sheet, but it was something that strategically really made sense. I haven’t spent a nanosecond regretting that acquisition.

Last question, and we thank our investors for submitting quite a few questions for this call. It’s probably a new record since we went to this format.

Is this about the Colts in Denver or not, Pat?

It is not. Another long term investor asked, can you give us a better understanding of the competitive landscape for the battle over the dashboard of the car? iHeart media has also publicized some efforts at CES and it’s hard for this investor to tell if iHeart is complementary, competitive or unrelated to NextRadio and TagStation in the car.

Let me say, iHeart, number one, is one of the largest investors in our Sprint agreement. They’re a good partner. iHeart is doing what all of us should do. They’re exploring all the alternatives. iHeart is a streaming service. Their streaming service is a streaming service that we’re a proud member of. We’re a member of TuneIn and they’re in a lot of cars. Rdio is Lou’s initiative. They’re going to be in a lot of cars. But let me make sure people understand this. Streaming is a different business than over the air radio. All of us, especially iHeart, Rdio and CBS with I think it’s Last.fm and TuneIn and -- everybody is trying to crack the code of streaming. We've always said we're going to go where the customer goes. We’ve also said that we have a tremendous advantage with our terrestrial signal. And if you ask our friends at iHeart they’ll tell you that right now 105% of their profitability is their over-the-air radio stations. That’s true of all of us. The area where we have our current profitability is over the air. NextRadio and iBiquity will encompass every single radio station in America in its over-the-air distribution. That’s the most critical thing. In the automobile, everybody else is going to come through 4G or I don’t know, certain forms of Wi-Fi, but there is a distribution cost there and the radio station incurs a significant licensing cost. And the automakers have said to us, we understand. We now see that the connected car is very cool, but it’s not quite as simple as you might think. There’s buffering issues. There’s transmission issues. There’s distribution cost issues and there are a lot of people in the United States who have the ability to take another $40 charge for a 4G connection in our country in their car. There are many, many more of those who really are impacted and have no interest in giving a penny for a 4G connection. So what the automakers have found is if we can do over the air radio, free, interactive and compelling, it can be the heart of any connected car system. We want to be in the connected car system with iHeart and Pandora and Spotify and Rdio and TuneIn and whatever else, but we’ll be the one place that’s free. We’ll be the one place that the American public doesn’t incur additional distribution costs. And we’ll be the one place where broadcasters know that they can control their cost and it’s limited to their transmitter, which is already operating and they don’t have dramatic new licensing costs. So it’s a tremendous difference and what I’ve said is, technology is moving in our favor. Everyday people get meter data costs and I can promise you, we’ve already talked to automakers, there are a lot of people who will want to pay $40 to get 4G connection and have no problem. There will be a lot of other people who will have sticker shock and go gosh, a connected car is cool, I love all the graphics, but if we can give them those graphics and that interactivity and those cool visuals in a way that’s free where they don’t have to pay for all this other stuff, we think it’s a tremendous opportunity for the American radio industry. NextRadio and iBiquity are building an agnostic system where every broadcaster in America, and I can’t stress that enough, there’s a reason the NAB has been so helpful, because the NAB sees that the American radio industry and over the air radio has a tremendous opportunity to compete in the new world. We’re not going to stop in the new world. We’re going to participate there too. But over the air radio has a tremendous opportunity and what we’re doing with iBiquity and with every other major broadcaster in the industry, including iHeart and including Cumulus, is working together to make sure that the over-the-air signal in the car is as compelling as possible so that the next generation of drivers looks at it and goes wow, I like that and by the way it’s free

Jeff, with that, that concludes the Q&A section. Perhaps you have some closing remarks.

Again, I’m very proud of this company. I’m very proud of its passion, its commitment. I’m very proud of its results. Over and over again, whether it’s ratings or revenues or innovation or industry leadership, it’s a trite phrase, but Emmis punches above its weight and there's a reason for that and the reason always starts with one thing and that’s its people. I thank everybody. I hope everybody has a great new year. Again, I cannot tell you how much I appreciate all of your dedication. Kate Snedeker - Media & IR: Thanks everyone. Just a reminder, a replay of the call is available for the next two weeks by dialing 203-369-4012. Thank you.

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