Q4 2019 Earnings Call

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I will turn it over to calling Jones senior Vice President corporate development and strategy. Sir you May proceed.

Thank you operator, welcome everyone to our fourth quarter and full year 2019 earnings conference call I'm joined today by our President and CEO, Mary Berner and our CFO Jonathan.

Before we start please note that certain statements in today's press release and discussed on this call may constitute forward looking statements under federal Securities laws actual results may differ materially from the results expressed or implied in forward looking statements. These statements are based on management's current assessments and assumptions and they are subject to a number of risks and uncertainties.

In addition, we'll also use certain non-GAAP financial measures, we believe the supplementary information it's useful to investors, although it should not be considered superior to the measures presented in accordance with get.

A full description of these risks as well its financial reconciliations to non-GAAP terms or in our press release and 10-K.

Some of this information hasn't yet been updated on our website as a result of some technical issues, but we hope to get that up soon so in the meantime, you should be able to access the press release and filings be at various wire services researches and also on the Fccs Edgar website.

A recording of today's call will be available for about a month and details for how to access that replay can also be found on our website with that I'll now turn it over to our president and CEO Mary Berner Mary Thanks, Colin and good morning, everyone. I'm pleased to report the 2019 with another year of strong performance for cumulative.

Here are the headlines for the second you're running we delivered an increase in revenue on a same station basis, driven by industry, leading digital growth of nearly 60%.

For the third consecutive year, we grew adjusted EBITDA ex political.

We generated 146.5 million of gross proceeds from a number of significantly accretive transactions, which were completed at a more than 13 times multiple.

We completed two swaps, which created market, leading clusters, and our Indianapolis and Allentown market.

We generated strong operating cash flow of 94 million normalizing for M&A related items.

We paid down 220 million of debt, reducing that leveraged to 4.7 times, bringing our total debt pay down since emergence from chapter 11 to 275 million, which in total translates to approximately 13 75 per share a value.

And we executed a full recapitalization of our balance sheet that lowered interest costs and extended maturities to 2026.

It was a busy and thanks to the R&D efforts of our terrific team a productive year.

Turning to fourth quarter revenue was down 4.4% on a same station basis and a 1.7% excluding political in line with the pacing we gave during our last earnings call.

Expenses for the quarter came in slightly better than we had indicated however, those games did not fully offset the impact of the year over year political call nor the soft start to the quarter.

As we said on our third quarter call. It was a difficult start to the quarter impacted by declines in advertiser demand that we believe reflected the negative political and economic news cycle. The dominated the early weeks of Q4.

While demand did pick up as we moved into December it was not enough to offset the slowdowns we experienced early on.

Nonetheless, <unk> nonetheless, despite the fourth quarter Dep, we're pleased that the strategies, we've been executing against all your have not only allowed us to deliver growth ex political in 2019, but have also giving us the ability to make substantial progress in reducing our leverage toward our goal of four times.

As we were continuing to focus on our three strategic priorities I'd like to take a minute to recap how each contributed to our 2019 performance.

First of these enhancing operating performance requires a singular focus on executing everything we do in the smartest way possible.

Two key implementations of the strategy, our first optimizing the yield on our our inventory within and between sales channels and reducing fixed costs in a strategic and thoughtful way across the company.

In Q4 alone we generated nearly 7 million in incremental high margin revenue from the development of opportunistic vehicles created to meet demand, resulting in incremental sales from major advertisers and for moving inventory between channels to maximize the utilization of impressions that would formally have gone.

Unsold.

In total since we started tracking tracking this benefit in 2000 Q2 2019, the new revenue management capabilities that were fully rolled out. This year have produced approximately 17 million that we would not have generated without them, which really illustrates the importance of this initiative.

On the expense side, where relentless about identifying opportunities to eliminate redundancies streamline processes.

And implement technologies that an enhanced efficiencies all with the objective of reducing our cost base without impacting the topline.

We've instituted rigorous review processes to reduce the cost of our contractual relationships.

Optimize platform wide cost like telecom and utilities.

Deployed our 24 seven syndicated programming broke ramming product to reduce costs on certain station.

And eliminated some events that had limited ROI.

Additionally, we also consolidated or traffic functions, formerly handled in each individual market into three centralized hubs and opportunity that was substantially enabled by the new traffic and billing system that we also completed this year.

And we eliminated redundant network operations facility and moved our New York operations from two facilities into one which will deliver savings mostly in 2020.

To put our cost management into perspective in total expenses increased by 12.5 billion in 2019.

But more than all of that increase can be attributed to variable cost tied to our growing revenue streams predominantly in digital.

Since we will continue to be confronted with contractual increases in real estate leases and other agreements and we'll need to fund our high growth areas are keen focus on expenses will remain an incentive and essential component of driving EBITDA going forward.

Our second strategic priorities the development of our dessert digital businesses as generators, a meaningful and importantly profitable revenue growth.

In the fourth quarter across our digital businesses revenue grew 40% and as I said nearly 60% for the full year.

With that performance digital now accounts for 80% of the company's revenues up from 3% when we started these initiatives.

C suite, our local digital marketing services platform in streaming together have maintained their significant growth trajectories up 32% in the quarter and 42% for the year.

These revenue lines were developed to capitalize on one of our Companys core assets the relationships that we have with over 30000 local businesses.

By combining and selling these digital office offerings with our legacy radio products, we're able to produce better results for advertisers and give them many more tailored options.

Current and potential customers.

Additionally, we are actively managing our C suite digital product portfolio to make sure that we're always staying ahead of our clients' needs for example, adding innovative Cape innovative capabilities like the creative Cumulus creative calls here. It's an exclusive platform that provides coordinated spot and digital creative to local advertisers.

And the epic guarantee which is the industry's first integrated local radio and digital lead guarantee program.

We remain the fastest growing podcast network in the U.S. with approximately 85 million monthly download.

In 2019, we delivered over $25 billion and revenue for the year more than doubling on a year over year basis, which exceeded our publicly stated target and importantly continued to deliver solid contribution margins.

Given the expected strong 2020 political advertising environment, it's worth noting that our podcasts business is particularly well positioned with a stronghold in the news talk vertical.

In addition to Bend Shapiro, who consistently ranked in the top five among all 850000 podcast, we field a robust roster of politically oriented Pos kept podcast, including rising star, Dan, but you know a conservative powerhouse in bestselling author whose podcast.

Has doubled its audience in 2019, finishing the year with 5 million monthly downloads.

We've also been increasing our podcasts and the sports genre, including mouthpiece. The news sports podcast to join our network featuring NFL defensive linemen, Michael Bennett and his wife, Pele, which within two weeks of its January 31st launch ranks number one on Apple sports podcast tracker.

We continue to expand on the synergies between our broadcast radio and podcasts platforms. Most recently with our partnership with Pat Mcafee Pro NFL <unk>, a former NFL pro bowler and social media Star, which includes three weekly podcast and a rapidly growing syndicated sports radio show, but it's now carried on where that Uh huh.

<unk> affiliates.

Our last major strategic party is optimizing our asset portfolio.

As I mentioned that in 2019, we executed several significant transactions, most notably to sale transactions that generated 146.5 billion and gross proceeds at a highly accretive multiples station swaps the bolstered our positions in Indianapolis in Allentown, and we announced the sale of W.H.B.C.A.M. in New York.

Which we expect to close them.

With regard to know noncore assets, we made important progress on the long awaited DC Lansdale, John will provide more color in a moment, but since we last spoke we made it through a key approval hurdle, which paves the way to finalize it revised deal in the near term.

We're also exploring potential new opportunities to monetize other non core assets.

Most specifically are significantly we're considering strategic alternatives regarding our tower portfolio, which consists of over 250 own tower sites across 32 states.

And we're also working on ways to monetize some land that we own in Nashville, more on those opportunities in future quarters.

Of course, as we've discussed before these strategic priorities help us to deliver on our financial goals of maximizing free cash flow, reducing leverage to below four times and investing in opportunities that could have outsized returns for us.

As I mentioned before this year, we generated approximately 94 million operating cash flow normalizing for M&A related items.

We use that cash flow and any proceeds to reduce net leverage to 4.7 times at your end, bringing its much closer to our goal for time.

We also opportunistically path and capital markets to recapitalize, our entire exit facility.

So to reiterate we are committed to these financial goals and of course to the execution of the strategic priorities that allow us to achieve these goals.

We have every confidence that this course will provide the right financial flexibility for the company, while creating value for all our stakeholders in multiple ways over a longer period of time.

As we look I had to Q1 I should first note that we haven't reported our year end results. This early in over a decade. So we are just halfway through the quarter.

At the moment revenue is pacing down low single digits on a same station basis, excluding political excluding political in part because Q1 2019 was a particularly strong quarter for national and network channels and currently those revenue streams are pacing down.

At this point this is somewhat offset by growth in our digital businesses.

That said Q1.

As a lot of room to run, particularly when you consider that March is generally the biggest month of the quarter.

Additionally, political is about 100 basis points tailwind at this point and we're optimistic about the prospects for political spending for the rest of the corner and the year as our footprint matches up fairly well just super Tuesday primaries.

And with that I will turn the call over to John.

Great. Thank you Mary as with prior quarters for the sake of comparability ill speak to our financials on a same station basis adjusting last years numbers for all of the M&A transactions that we've completed.

I would note, though that our numbers are not adjusted for the announced sale of WBC to read Apple <unk>, yes.

You may remember that last quarter, we reviewed our segment reporting and determined that because we're now operating the company is one unified business or results are more appropriately reported on a single segment basis.

To help everybody understand this transition I'd point you to the last few pages of the press release, which provides a historical quarter by quarter breakdown of the new revenue presentation.

With that I'll move on to the quarter in full year results total revenue for the quarter was down 4.8 million or 1.7% for Q from Q4 2018, including the impact of political in Q4 2019, political revenue was $3.1 million as compared to 11.

$3 million in Q4, 2018, resulting in an $8.2 million difference.

Consistent with the rest of the year, our national channel performed well up low single digits on a year over year basis, while digital which includes our C suite streaming and podcasting revenue streams was up more than 40%.

As we noted on our last call the network add channel was experiencing some unevenness in the fourth quarter in part because of some cancellations in shifting a business between quarters.

As a result.

Unlike the strength we saw in the first three quarters of the year network revenue in the fourth quarter finished down low single digits local spot revenue continued to be affected by market.

By market driven challenges and was also down in the quarter, including the impact of political total revenue was down $13.1 million were 4.4% from Q4 2018.

Moving down the piano total expenses declined in the quarter by $1.5 million were 0.6%.

As we've discussed in past quarters, the continuing shift in our revenue mix from local spot to digital revenue, which carries a lower margin.

Led to increases in our variable costs.

Those increases combined with a handful of other largely one time increases such as the increase in a amortization of new local commissions and comparisons against credits in certain expense lines last year were more than offset by proactive expense reductions.

That's that's generally been the financial picture for the whole year, well because of some of the revenue weakness early in the quarter EBITDA in the quarter declined on a same station basis, and excluding political by $4.2 million or 8% without normalizing for political and of course Q4 is the heaviest quarter for political.

EBITDA came in at $50.7 million, a decline of $11.6 million were 18.6% year over year.

Turning to full year results total revenue for 2019 increased $14.8 million or 1.4% on an ex political basis and.

Increased $1.3 million or 0.1%, including political.

As Mary mentioned this is our second straight year of topline growth. Following four straight years of decline for the year digital again led the way with industry, leading growth of nearly 60% year over year national spot in network revenues also grew year over year, finishing up load.

Double digits and low single digits, respectively.

Somewhat offsetting those increases were a 5% the decline in local spot, which was under pressure throughout the year.

And the tough political comparison to 2018.

Just to use a quick math for your political was lower by $13.5 million political revenue lower by $13.5 million in 2019.

<unk> expenses for the year as Mary said were up $12.5 million were 1.4%. We saw the same general financial picture every quarter. This year, which was solid revenue growth driven predominantly by digital revenue, but with an underlying shift from a higher margin to lower margin revenues.

Being a net increase in variable expenses for the full year end 2018, the net increase in variable cost associated with changes in revenue accounted for more than 100% of the $12.5 million total expense increased for the year.

But that also means is that we were able to fully offset all other expense increases whether they were onetime or contractual escalations with active cost reduction efforts.

Putting revenues and expenses together, excluding the impact of political EBITDA for the year grew by $1 million were 0.5%, marking the third year in a row of X political EBITDA growth, which is something we're very proud of.

Including this cyclical impact of political.

EBITDA declined 11.2 million or 5% on the year.

Looking ahead to the first quarter 2020, you. Maybe you mentioned that are pacing ex political is down low single digits in political is about 100 basis point tailwind at this stage I would also note that as a result of the M&A activity from earlier this year, our as reported Q1 2019 numbers aren't the right comparison for Q1 22.

Plenty.

To help with your modeling the Q1 2019 numbers adjusted for M&A, including political our $255 million for total revenue $255.1 million for total revenue and $39.8 million for total EBITDA.

These these numbers also exclude WBB seal new assumption that will close that transaction at some point in this quarter.

But obviously, we'll have WBC in numbers in our numbers for part of the quarter.

This year and we can help you with those adjustments.

At the end of this quarter.

As we look ahead to Q1, we also thought it would be helpful. For you to know that in Q1 last year, we had about $900000 of political revenue.

And to remind you that our network channel had a particularly strong quarter, which creates a tough comp or is this year that based on current pacing at least is going to be hard to match.

Additionally, some of the one time expense items that we sell in the fourth quarter, such as the amortization of new local direct commissions and credits rolling off related to certain contract we're going to produce one time year over year expense increases in Q1 of a couple of million dollars as we look further into 2020, those particular expense increases.

Our are not expected to continue.

Now moving off the shelf, we spent $12.1 million on Capex in Q4, compared with $7.8 million in Q4 2018 for the full year. We spent 29.5 million inline with the 29.7 million we spent last year.

We continue to believe that ongoing maintenance capital required for the business is around $25 million. These past few years facility moves have driven this number up to $30 million and in the upcoming year. We have some more facility moves that will again take our capex up closer to $30 million.

Turning to the balance sheet, we actually had a pretty quiet quarter. After the flurry of activity. This past spring and summer. We currently have 523.7 million.

Dollars outstanding on our new term loan slightly reduced from its initial balance of $525 million.

As a result of our mandatory quarterly amortization payment at the end of the year.

That loan bears interest at a rate of LIBOR, plus 375 and has a maturity of March 30, Onest 2026.

We have $500 million outstanding on our six in three quarter percent senior secured notes also due in 2026 as Mary mentioned net leverage now sits at 4.7 times and debt was reduced by more than $220 million in 2019 and more than $275 million since emergence from bankruptcy.

Said differently. The company is paid down debt in an amount that equates to over $13 per share.

Finally, as Mary mentioned, we have several noncore asset opportunities to update you on first on the DC land sale as we've discussed on previous calls the development plans of our buyer toll brothers were met with significant opposition from community organizations that continuously.

Appealed the approvals the toll received over the course of the project on the last.

Call. We noted that there were some court there was some court action in our favor is one of those appeals was dismissed.

We're pleased to announce that not only has the court ruled on the other outstanding appeal in our end tolls favor, but the pellets have chosen not to file a third appeal. This is a great outcome for us as these two approvals were the most significant remaining hurdles to solidifying a deal with toll.

We don't have further details to share on today's call, but we're optimistic that we'll be able to finalize and announced a revised deal in the relatively near future.

Second Mary mentioned that we have a piece of land in Nashville that is a result of the general appreciation in Nashville real estate over the past few years as become a potentially valuable piece of property.

Given that we currently have multiple locations in Nashville, we see an opportunity to possibly consolidator operations, there freeing up that property for sale, which would generate more value for the company than we'd realized from continuing to use that as we do today.

It will take some time first to flesh out the details associated with the opportunity since we're still in the early stages, but we look forward to sharing more with you.

As time goes on.

Lastly on that.

Asset front Mary mentioned, we're we've been exploring options for some or all of our tower portfolio, we own over 250 broadcast towers and or the last radio broadcast group to own such a large portfolio in the U.S.

Given the dynamics and the tower market, where multiples are well in excess of multiples and our industry. We may be able to take advantage of a sale leaseback opportunity that could be beneficial to us here again, we're at a very early stage in our exploration and we expect to be working through the possibilities over the next couple of quarters.

Finally, I'd like to give a quick update on the status of the petition for declaratory ruling that we filed with the FCC as you May know our current equity share structure, which consists of class a and b shares in series one into warrants was crafted to comply with the rule that limits foreign ownership to 25% however to simplify the structure in accelerate.

Conversions of warrants into the class in the class a shares that trade on NASDAQ We filed a petition for declaratory ruling in July 2016 to allow higher foreign ownership in our stock then permitted under the rule.

Approval of our request involves not only just sign off by the FCC, but also the review of a group of Representatives from the executive branch named team Telecom.

The FCC issued a public notice donor petition on May 20, Onest last year and the team telecom or have you started shortly thereafter.

No party other than team Telecom filed comments with respect to the petition and the period for filing comments is close.

Just yesterday, we received very positive news that team telecom.

Had completed their review so we've cleared a critical hurdle in the process and now this goes back to the FCC and we believe this last step with the FCC, we'll take a few more months.

We will continue to continue to keep you apprised of developments on the matter on this matter.

It is as we think its resolution will be an important step forward in enhancing the liquidity of our class a shares by making it easier to convert the warrants into class a shares.

And that concludes my prepared remarks.

Great and before we go into Q, an ace since this is John's last call with us I'd like to just thank him for his many contributions to Cumulus and of course wish him all the best in his next adventure.

With that we'd like to open up the line for Q and eight operator, we're ready for our first question.

All right.

Ladies and gentlemen, who will now begin next question asked my question. If you would like to ask a question. Please press star long on your telephone and wait for your name to be announced.

Your first question comes from the line of set Kim from Wolfe Research.

Please ask your question.

Theres indicated that political is coming in strong, especially the first quarter, which has historically not in the case what have you guys seen in terms of bookings so far.

And how much is it from Bloomberg and I know its little early but can you share apolitical outlook for 2020.

Yeah, I'm happy to do that.

We're optimistic about that this will be a robust political.

Year, Yes, Bluebird had we've seen some nice spending from Bloomberg, we've seen some nice spending from Tom Stier.

It probably most relevant is that we have a really good footprint for Super Tuesday, We it's stations in 11 of the 14 States and we also have.

As a primary Nevada, and next week and South Carolina. We also have a good concentration of stations. So a we're well positioned.

And yes, we're seeing some nice dollars from the big but the big Bucks, the Bloomberg and at this point Stier.

Also as I mentioned, both podcasting and as I Didnt mentioned, our station group lines up nicely.

With political talk radio so the actual asset portfolio.

Lends itself well to political advertising. So we're encouraged we do a big comps from 2018 that was a particularly robust year 20 million.

We look at politically Gerber political year, but at this point we're encouraged.

Got it.

And there seems to be a lot of moving pieces on the expense side with your cost savings and investments in digital.

As we look out into the rest of 2020, how should we think about expense growth is there any way you could quantify it.

Yeah, I think we're going to see that said the same trends that you've been seeing which is as our revenue mix shifts will have some increased variable cost coming from that but we.

We'll continue to.

Find ways and we I think we have some really good plans for this year to to do this find ways to.

Identify efficiencies reengineer processes and reduce our expenses in other areas to offset.

Better natural embedded escalators across.

Any number of contracts right or any other numbers of expense areas right whether that be personnel or.

Vendor contracts or rights fees or whatever it might be pretty much all of those have escalators and him or by their nature go up year over year, right think about it insureds healthcare, but we feel good about.

The initiatives, we have underway to to offset those increases.

Got it and that was it thanks guys.

Great. Thank you.

Once again, if he would like to ask a question. Please press star one on your telephone keypad.

Next question comes from the line of Zack.

Silver from B. Riley.

VR Sir your line is open.

Okay, great. Thanks for your question and best of luck you John in your next debenture just wanted to ask yes.

Just wanted to ask Scott one on network.

Ben lumpy line, historically and but it also has been good source of growth for you guys over the past couple of years can you give us a little bit more detail around what's driving the weakness and the first quarter in what share of the weakness and for Q is it a share shift or is that your sense that the entire network Mark.

This week.

I'll take that.

Thanks for the questions Zack.

For Q4, I you characterize it correctly is that the network marketplace tends to be pretty lumpy.

And fourth quarter was no exception with regard to fourth quarter, obviously, I think as we said we had some quarterly shift.

We had the impact of the E cigarette cancellations, which of course, we benefited from earlier in the here.

And then there were some late cancellations the actual network marketplace also was that as far as we could tell.

Down in the quarter, so that however.

There was no nothing that.

And then in first quarter, what we what we're seeing is as we've mentioned in the prepared remarks, a tough comp.

From a very very strong first quarter last year, but theres nothing fundamentally changing that we see.

That makes us think we should change our strategy or any anything that we're doing.

In the Big picture.

Okay. That's helpful and then you that power portfolio.

Your monetization is intriguing I understand that.

Yes, it's still kind of early days and looking at that but some of these publicly traded.

Cell tower companies.

Traded pretty rich valuations and understand that radio is a bit different but is there any way that you can potentially frame how to look at that opportunity.

Before yes, just Bob.

Where you're able to provide.

More detail on that.

You know, it's it's definitely too early to get into that at this stage.

But we are excited about the opportunity both that and the the Nashville land opportunity I mean, as you point out the multiples in the tower space are very high.

And we believe that we're not getting any credit for that value. These assets inside our company.

So if there's an arbitrary tries to be extracted there. We really believe it is really good opportunity for us and that's actually how we feel that the property in Nashville as well.

Give you a sense, we have a 3.3 acre block just outside of downtown.

And Nashville is a pretty hot market right now so again, it's early days, but we look forward to sharing more we can.

Got it and then one more if I can just on the portfolio optimization initiative I don't think that you guys touched much on that in their prepared remarks, but do you see any more opportunities to execute swap transactions in 2020, and secondarily can you give us.

For from your vantage point, a sense of how healthy you see the radio M&A market as.

I mean I'll this John ill comment on it a little bit its.

We've talked about it some in the past it on the swap side. It's it is very opportunistic and it's a matter of finding the right counterparty and the right fit between two markets and if you get into a three way swap it gets incredibly complicated. So we remain very interested in.

Open to.

Swaps or other M&A.

Where.

The opportunity presents itself for us to.

To bolster our position in any of our markets.

And so I would say it's it's.

It's still an important part of our strategy, but it's also.

You know something where you really have to have all the oldest stars aligned.

For two build a pull it together.

Got it thank you very much.

Great. Thanks.

No further questions that's fine.

Presenters will continue for your closing remarks.

Oh, thanks, everyone for joining today and we look forward to speaking with you again soon in the meantime have a great day.

Thanks Bye.

Okay.

Thank you again for joining US today. This concludes today's web conference you may now disconnect.

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