Q3 2010 Earnings Call Transcript

October 28, 2010 10:00 am ET


Jeff Grossman – IR

Charles Stubbs – President and CEO

Kim Payne – SVP and CFO


Jeff Berg – Matador Capital

Nadia Lovell – JP Morgan

Anthony Guido [ph] – GoldenTree Asset Management

Barry Lucas – Gabelli & Company



Good day, ladies and gentlemen. Thank you for standing by. Welcome to the PRIMEDIA third quarter 2010 earnings conference call. During today’s presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. (Operator instructions) This conference is being recorded today, Thursday, October 28, 2010. I would now like to turn the conference over to Mr. Jeff Grossman, PRIMEDIA's Investor Relations contact. Please go ahead.

Jeff Grossman

Good morning and welcome to PRIMEDIA’s third quarter 2010 earnings conference call. I’m pleased to be joined by Charles Stubbs, our President and CEO, and Kim Payne, our CFO, along with other members of senior management. As always, we refer you to the section of our earnings release entitled Forward-Looking Statements for important factors that apply to and qualify any forward-looking statements made on this conference call. In addition, any non-GAAP financial measures mentioned on this call are reconciled to GAAP in our earnings release. Let me now turn the call over to Charles Stubbs.

Charles Stubbs

Hello, everyone, and thank you for joining us on today’s call to discuss our company's third quarter results. First, I would like to update you on our positive progress in executing against our operational and strategic initiatives. And our CFO, Kim Payne, will follow with additional details on our financial performance.

We are very pleased with the continued execution on our strategic plan to position PRIMEDIA as the premier online resource for both consumers and advertisers in the rental space. There were a number of operational highlights over the quarter. First, we enhanced our product offering; second, we expanded our reach in consumer audience; third, we gained market share and client count; and fourth, we delivered increased value and lead for our advertisers.

These positive developments are the direct results of our strategic focus on investing in our Internet platform and driving continued productivity and efficiency improvement. In concert with these operational investments and improvement, we remain committed to rightsizing our cost structure to drive continued positive financial results.

During the quarter, we succeeded in reducing our operating expenses by 10%, and once again, increased adjusted EBITDA on a year-over-year basis, focusing on four key strategic objectives. Our first strategic objective is to grow our consumer audience by strengthening our digital media offer. During the third quarter, we continued to invest in our websites, SEO and SEM, and our apartment rentals network website continues to be ranked number one among its competitors, averaging over 4 million monthly unique visitors.

We also continue to lead the apartment industry in our efforts in mobile applications with cumulative downloads approaching 1 million. Enhancing the information and tools we provide to consumers has enabled us to grow our consumer audience and also to progress in our second objective, which is to maximize the number of leads we provide to our advertiser client. In the third quarter, the total number of leads we provided to our client increased by nearly 20% on a year-over-year basis with over 75% being generating through our digital platform.

Our third objective is to grow our client count and revenue. In Apartment Guide, our largest business, we have continued to grow our client count, with a year-over-year increase of 4.8%. During the third quarter, revenue was impacted by negative economic market and competitive conditions. However, we believe we are well positioned to reap the benefits of a broader client base as economic and market conditions improve.

Finally, we have made significant strides against our fourth objective, to improve our operating efficiency by permanently changing our cost structure. The success of our ongoing cost-cutting initiative is evident in our strong adjusted EBITDA results. In addition, we have a solid financial foundation, as our cash flow generation has allowed us to opportunistically reduce our financial leverage and pay healthy dividend.

Since January 1, 2009 we’ve reduced our overall indebtedness by $44 million or 17%. Today, we also announced the $0.07 per share quarterly dividend for the 12th consecutive quarter. During fourth quarter 2010, we will continue to focus on growing our consumer audience and client count while increasing the number of leads we provide to our clients. We remain committed to streamlining our cost structure and investing in opportunities to enhance long-term shareholder value. I will now turn the call over to Kim Payne.

Kim Payne

Thanks, Charles. In reviewing our third quarter 2010 results, all comparisons unless specifically noted are to third quarter 2009. Total revenue was $58.4 million, a $4.6 million decrease. Our Apartments division representing approximately 93% of third quarter advertising revenue declined 5.5% to $48.8 million. Apartment Guide revenue declined by 5.8% due to a 10.9% decrease in revenue per community served. This is partially offset by 4.8% increase in apartment communities served.

Revenue per community served was impacted primarily by pricing pressure caused by negative economic conditions, including high unemployment rates, and adverse market conditions, including relatively higher occupancy levels and lower effective rent levels. The majority of our markets are operating within an occupancy range of 90% to 96%, with an average of 93.7% compared to 92.1% in Q3 2009. Across all of our markets, we saw uptick in year-over-year effective rent levels of 3.5%. However, over the past two years, effective rent levels have declined over 3%, and this continues to put pressure on our client budget.

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