Q1 2020 Earnings Call

Welcome to the Cumulus Media quarterly earnings Conference call I'll now turn it over to Collin Jones Senior Vice President of corporate development in strategy. Sir you May proceed.

Thank you operator welcome everyone to our first quarter 2020 earnings conference call I'm joined today by our President and CEO Mary Berner in our CFO, Frank Lopez Bell, though.

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're subject to a number of risks and uncertainties.

In addition, we 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 gap.

A full description of these risks as well as financial reconciliations to non-GAAP terms are in our press release and SEC filings. The press release can be found in the Investor Relations portion of our website and our form 10-Q was also filed with the FCC. Shortly before this call recording of today's call will be available for about a month details for how to access that replay.

I 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 afternoon, everyone.

At Cumulus, our Defacto management mantra is focused acutely moved decisively and execute efficiently.

More importantly, because this mindset is deeply embedded into our culture. This has been our practice.

To focus acutely on what matters moved decisively where it will make a difference and execute every effort with efficiency and attentiveness to get the pay off we're looking for he's a practices that have always served us well, but that are particularly valuable during this challenging time.

As such we've taken Swift and substantial actions to help us both whether the impact of the Corona <unk> crisis and emerge in a strong position as its crisis abates.

Most importantly, we reduced our fixed cost by nearly $60 million through an array of the actions, including reductions in executive comp rates ranging from 40 to over 50%.

Hiring freezes furloughs and the elimination of our for one k. and HFSA matching programs.

We enhanced our cash position by drawing down $60 million at our ABL revolver.

We generated additional cash by deploying several new tactics to manage working capital.

Lowering our planned capex for the year by more than 40%.

And taking advantage of the meaningful tax benefits provided by the cares Act.

And we've also identified other ways to improve our liquidity, including further cost reduction opportunities.

We led the industry and moving to remote operations for all but a central broadcast personnel, allowing us to protect our employees, while continuing to serve our advertisers and listeners and we developed a new normal sales strategy to optimize revenue performance.

It's also important to note that the meaningful cultural operational and strategic shifts we've made over the past few years have positioned us well to deal with and navigate through this disruption.

We have a battle tested management team, who shepherded the company through its turnaround and built a track record for disciplined execution of the company's strategies delivered consistently strong financial performance, including revenue growth for two consecutive years adjusted EBITDA growth for three straight years ex political and significant free cash.

Flow generation.

We've expanded our portfolio of assets from our on Aire Radio Foundation to become an audio first media company comprised of broadcast digital mobile voice activated media solutions and integrated digital marketing services.

We've increased the portion of our revenue mix coming from higher growth digital business lines to nearly 10% of total revenue from less than 3% just three years ago.

We've reduced costs through operational blocking and tackling as well as true business process reengineering like the hubbing of our traffic function and centralization of digital operations.

We reduced debt by over 275 million and that leverage by turn since restructuring in June 2018, and refinanced the full balance sheet in 2019 with covenant light term loans and bonds and a 2026 maturity profiles.

Moreover, we have substantial additional liquidity sources, including our upsize the 100 million dollar a b L and a pipeline of noncore asset sales like.

Our DC and Nashville, real estate and potential to monetize our tower portfolio.

So as I said, we focus acutely, we moved decisively and we execute efficiently regardless of whether the environment. We are operating in his normal or not.

And obviously, that's Corona virus disruption is the for this thing from normal that any of us have ever experience.

The full quarter financial results reflect that impact.

Through February on a same station basis, both revenue and EBITDA grew with revenue up low single digits and EBITDA up in the mid teens.

Political was a nice driver of those increases and we were also seeing continued profitable growth across our digital businesses.

However, the heavily cobot impacted March results erase the January and February growth, causing revenue for the full quarter to fall, 11.2% year over year and EBITDA declined by 28.5%.

Frank will provide more detail in the quarter, but I'll note that the cancellation of the N. see double a basketball tournament for which we have the exclusive national rights produced the biggest topline impact accounting for the majority of the quarterly revenue decline.

We also experienced broad based revenue declined from its significant wave a pandemic driven cancellations.

That said, our digital businesses grew year over year in both revenue and contribution to EBITDA for the quarter, including in March which underscores the importance of having built these businesses up over the last several years.

On the expense side as I highlighted earlier, we acted expeditiously to reduce costs and with over 105 million of cash on the balance sheet at quarter end, our liquidity position is strong.

Well the trajectory and duration of the pandemic remain uncertain, we feel comfortable with our financial ability to whether this crisis and to take advantage of advertiser demand as it returns.

As for how we see things evolving over the long term.

Our crystal ball is no clear than anyone else's.

However, we do know many things will be different in the future.

And those changes will generate both risks and opportunities for us.

As with our execution of the company's turnaround from 2015 2019, we intend on being proactive in mitigating those risks and taking advantage of the opportunities.

And we've already identified multiple projects, which are in various planning stages that will allow us among other benefits to work more efficiently.

While we tightened up and reduce costs in many areas. We also expect could be leading into areas, where we see opportunity.

For example, we're capitalizing on the shift in streaming listening to voice activated device by developing a number of new voice activated content and advertising solutions.

We're also highly focused on leveraging the potential of our podcasts business, which is proving to be especially resilient now delivering substantial year over year revenue growth in Q1 and over 60% in March alone.

And that is continuing into Q2.

Also downloads in Q1 were up over 50% year over year with more and more than 260 million in the quarter.

This is supported by our very strong news podcast portfolio, which as of the end of April had four of the top 20 and eight of the top 40 news podcast on a on Apple.

With regard to the second quarter, specifically, our visibility is still limited and given the highly fluid environment pacing has become a particularly unreliable predictor of where we might finish.

The cancellation wave I mentioned earlier impacted our Q2 bookings meaningfully.

And as a result April was a very tough month.

For the full quarter total pacing is currently down in the low fortys, but ultimately the results for the quarter will depend heavily on how the business trends.

How business trends play out for the rest of May and June.

On listenership as you would expect after the first week of March broadcast radio Listenership declined as a result of significant decreases and drive time listening because of the shutdown directive.

However over the last three weeks a variety of tracking sources reports that there's been a substantial return of driving and we see from Nielsen data apparel held steady increase in daily listenership.

So before I turn the call over to Frank I do want to say a word about our do CFO.

Frank has been with a company since late March a starting just a few days after we had instituted a work from home policy across the company.

Well those circumstances have forced him to be a virtual CFO since he joined that hasn't stopped and from hitting the ground running.

He was previously SVP and CFO Buda vision communications and prior to that spent more than 20 years as a senior investment banker Goldman Sachs.

Frank has already contributing contributed enormously to our decision, making and financial management and as we navigate these unchartered waters I could not be more pleased to have them onboard Frank over to you.

Thank you Mary completion speaking with everyone today.

A couple of months have certainly been a world went well all of the on boarding has been virtual I can attest to the strength of the management to me advocacy of the Cumulus approach to challenges both of which help me to get up to speed and to jump in very quickly.

As you know the company executed a significant number M&A transactions over the last year.

Including in this years first quarter, when we completed the sale of W.A.B.C. and the New York City to write off when media.

I'll speak to the financials as Mary did on a same station basis.

In Q1 total revenue for the quarter was down $28.6 million for 11.2% from Q1 2019.

As Mary noted the quarter was on track to February with revenue growth of 1.1% and EBITDA growth of 15.1%.

Political in the quarter was a nice tailwind.

A bit more than expected thanks to the heavy spend to the Bloomberg campaign.

As here, we received $4.9 billion as compared to point 9 billion in the quarter last year.

Drilling down a bit as were Mary mentioned more than half of the revenue declined in the quarter was attributable to the loss of the unseasonably tournament.

There is an offset to that on the expense side with the rights fees production and other costs. However, the loss of the tournament had a negative impact to EBITDA versus last year.

We also saw significant time and spot business across both local and national channels, while digital grew in the quarter.

Moving down the piano expenses declined by 17.2 million or 8%.

Largely driven by reductions in variable costs related to the revenue declines reduction of sports related expenses lower compensation costs and lower trade expenses.

Also as mentioned on the last earnings call. There were several onetime items that create a negative comparisons for the quarter.

It was a $3 million.

And that was a onetime industrywide being life settlement, which was a 1.8 million dollar has largely relates to parkway routes.

And the loss of certain credits that we had benefited from the prior year.

Putting revenues and expenses together if at all finished down $11.3 million for 28.5% in comparison to Q1 or 2019.

As Gary noted, we took swift action to mitigate the revenue declines and most our liquidity position.

On the fixed cost side or actions taken to date, plus we just sports teams will reduce expenses.

Approximately $16 million over the entire year when compared with 2019.

We will also experienced variable cost declines and naturally occur with declining revenue.

Additionally, we have been laser focus on the non operating items that affect for free cash flow.

We've cut our 2020 captives spend projection of $30 million by more than 40% for approximately $13 million are focusing only on items that are mission critical.

Although we are only in the second quarter.

Expectation is a cash taxes this year will be minimal compared to last year's cash taxes.

$18.6 million.

Additionally, the cares axis allowed us to call for approximately 2.5 million of refunds for amounts paid in 2019.

With potentially more refunds to be received in 2021.

Expect to get an approximately 8 million dollar benefit from your ability to defer our payroll taxes in 2020.

Lastly, we're concentrating intensely on working capital management have seen significant benefits today from those efforts.

The company has made great progress with its balance sheet over the last year and a half fully recapitalizing it with a new term loan and senior secured notes at old mature until 2026.

Covenant Lite.

In early March we completed a refinancing of our ABL facility and Upsized the $200 million.

Given the uncertainty of the economic environment in mid March was $60 million, an ABL facility to add liquidity to the balance sheet.

Q1 finished up 4.8 times net leverage on a trailing 12 month basis.

Well, we're focusing on ensuring we have appropriate liquidity to weather the fallout from the pandemic its impact on the economy. We remain very committed over the long term to consider reduce leverage to sustainable and more attractive levels.

Given all the actions today, we do feel comfortable enough liquidity.

We will container monitor economic and business conditions and evaluate ways to prudently and has had for that makes sense to do so.

So that and I remind you that as we've discussed on earlier calls we have several opportunities to monetize noncore assets in DC for land. So close was delayed because of the government shutdown in Montgomery County, we expect to be able to oppose that once the courts open back up.

As mentioned on our last call. We're also exploring strategic alternatives for tower portfolio and have a robust marketing process already underway.

We also have a potentially valuable piece of property in Nashville that we may be able to monetize once commercial real estate activities of purchase more typical levels.

Given the state of the environment right now, we wouldn't expect to take to some market and the very short term.

However, we're prepared to do so can we will be ready to realize value from the property when the markets to stabilizes.

Finally, we've been waiting for the FCC to issue a final order or petition for declaratory ruling related to lifting the cap employment foreign ownership in our stock.

And that as well this delayed given the government shutdown.

With that we can now open the lines, which here now operator.

Ladies and gentlemen, if he would like who asked the question. Please press star one on your telephone keypad and weak for you need to be announce if you wish to cancel your Cwis press the pound key again, that's star one to ask question.

Your first question comes from them on the Sean Gene displayed Wolfe Research. Your line is now open.

Hi, Thank you.

Just two for me first of the 60 million in fixed cost savings.

Can you just tell us how much of that was realized in the first quarter. It sounded like there may have been some sports in there.

And as the cadence of the saving similar for the remaining quarters. This year and then separately I assume the declines and network were largely driven by the end CA tournament, but can you talk about increment the sports exposure for the next couple of quarters. Thank you.

Hi.

Yeah, I'll turn it over to Frank.

Oh go ahead, Frank sorry. This is the the perils of virtual.

Earnings call go had Greg.

Yeah.

Perfect. Okay. So on the.

On the sports fees and the costs in most of the employment actions, we took starting really in the second quarter in terms of personnel salaries there were some costs.

That came out of VNC definitely tournament them first year and the first quarter.

And so the balance of that will be spread over the balance of your most of that falling into the second quarter and some naturally in the third and fourth quarter.

Your next question comes from underlying Michael Kupinski, We'd Nobu capital markets. Your line is now open.

Thank you I just got a couple of quick questions. Here can you talk a little bit about the the current headcount is where you stand now can you give us a sense of the.

Employee I guess compensation.

How that run rate might look like as we go into the third quarter.

Just kinda give us a little bit more color there.

I would start by by just giving you a.

Kind of birds eye view of how we approach.

The actions that affected employees.

We did not do layoffs.

As it relates to co bid, we did furloughs and most employees every single close effective.

But most employed took three weeks within a.

A three month period.

We as you know we have always run a very lean shock.

And so we.

Felt like the first thing we should do is spread the pain.

Over the next couple of months as we see how this unfold with regard to a head count we have approximately 4500 employees.

Gotcha right, So Oh I'm sorry go ahead.

I would prefer to add anything yep.

After forever, but 4500 employees about 3100 full time and the rest for time.

And then I assume that Youre, probably bring those furloughed employees back at a certain metrics that you hit in terms of revenues.

Is there.

Anything that you can talk about in terms of how those revenues come back that you layering those employees so that we.

Kind of have to feel for how things will shape up as we kind of hopefully see rebounded advertising.

I think I would I would start by saying, we don't know what the new normal will ultimately look like but we do know that it will look different and so we are up.

Oh, you know relentlessly thinking about how to mitigate the risk long term, but as well as positioning ourselves well to take care.

Manager key opportunities that are going to merge so.

We don't have I would say a better view on the revenue trajectory than anyone else. We look at the same data you do the point for us is to be ready market by market category by category as well as by add channel and so that's how we're looking at it.

And all of the all the actions and all the things we might do could do should do wont do it's uncertain. We look at this.

You know.

It's an ongoing and very fluid situation.

Gotcha and can you just give us a sense on terms of some of your key advertisers how things are progressing like him.

Obviously, you're having conversations with them and how are they seeing things or are you are you getting a sense that things are getting better pacings are looking a little bit stronger as you head into June or are you seeing very short lead times I mean could just kind of give us a sense on how things are at this point looking.

You know it really depends on the AD channel and as I said, it's a very very fluid market. You know as we said in the prepared remarks pacing is not a is it more unreliable now than it ever was it always was just a moment in time.

I'd say in second quarter right now been some books is flat with small ads offset by cancellations and sourcing some small improvement a modest but it's in the right direction.

You know pacing in the third quarter better at this point, but again, it's not a good agitation of where we might finish because we like everyone else lack visibility into the cheaper the recovery.

I would say the one thing that is.

We are hearing from advertisers is.

And I think it bodes well for radio in general is that.

Those that are thinking about returning to marketing.

Understand that it's a different world and that consumer expectations of the companies that want their business have to acknowledge that and more specifically, there's a lot of research out there that says that it's not going to be enough to simply let customers know that your reopening.

That advertisers are focused on how do they left their customers know what they're doing to ensure their safety and that's a huge shift.

And you know I think radio is well positioned because of our flexibility with regard to creative execution of that speed with which we can get spots on the year. We're at a good position to help and support the advertising community.

The other thing I would mention is that you know by necessity. What we're hearing is advertisers are going back to basics, which is focusing on reaching as many potential cost customers as they can as cheaply as they can add is effectively and efficiently as they can and you know radio obviously checks all the boss is better than any other media adjusted frankly, we.

Did before any of us new what Kuroda virus was so when you say are they optimistic or not it depends it runs the gamut.

Gotcha and then one last question political is much stronger in the first quarter than I expected was that driven by Bloomberg and then secondly.

If you could just talk about whether or not you have much visibility on the political for the year at this point.

Yeah, I mean, we feel a lot of activity most of it it's a lot of its place at the last minute.

We believe we're well positioned but I would say that with the caveat that you will you comping against the 2018 that was a banner year for US we had 20 million of revenue. We've said this publicly.

In 2018, so that was a high mark for us.

We have really good overlap against a number of contested U.S. Senate races.

We also we think that the strength of our news talk platform positions us well and of course a reach.

But I also would note as it relates to cumulative our pricing in inventory initiatives, which we talked about a lot on these calls should.

It should allow us to manage the pricing of inventory utilization in 2020, much better than in past years. So.

We should be able to minimize spillage maximize rate across the platform and that's going to be really important, especially in this uncertain environment.

Yes, so to go first to source for a full circle Bloomberg was a very very a lot of.

We ended our back and the industries when they are back in the first quarter as well as we said it was up I'm not going to break it out, but but the increasing quarter over quarter was commitments big.

Thank you appreciate it thanks for the questions.

Your next question comes from declined it exactly so very would be elite VR. Your line is now open.

Alright, great. Thank you for taking the questions. The first for me very you mentioned in your prepared remarks.

[music] normal sales strategy trying to optimize revenue performance in this strange environment and we're just wondering if you can expand on that.

Then somewhat related.

When you think about or if you have sort of view on markets that have been more opened or just started to reopen versus those that remain more shot can you talk about the ad trends.

Within those markets. Thanks.

I would say the AD trends, we're not actually seeing much of the difference yet.

Those markets that are for example, you know Georgia for example that are at sensibly more opened.

We it does seem that certain local businesses.

Who are still very much needed the communities that may have fewer problems with social distancing may have a shallower bottom for example, the professional services category, we saw that that was a little bit more resilient.

A couple of months than other categories, but others, which involve denser aggregations of people you know obviously travel entertainment.

We've seen more pressure on them from up category standpoint, but we're not actually.

We spent a lot of time searching for definitive trends, but we haven't seen anything that appears to be meaningful.

Except for.

Slightly more negative performance from our larger denser markets, but even that isn't really uniform at this stage. So I'd say, we just don't know we're not seeing we're not seeing patterns yet.

It was one part of your question and the other was Oh, the new normal.

Yeah, I think just at a very high level.

It includes the range of new training and sales support initiatives.

To address what I just spoken about previously that the actual.

How people go back into the market is different we're starting it's different than it was before so we're training and supporting our sales organization with a to help them to help our partners and it's also includes an update of our automated creative customization capability, we've spoken about that on prior.

Well, it's called Triple C, which allows us to customized each and every campaign to reflect these new rules of engagement.

So many many parts, but it's an acknowledgment and a strategy that focuses on what is effectively a new normal both for us in any market or the company in the country.

Got it that's helpful and then one more if I could just on the.

Power button decision Central initiative, there, that's maybe you guys could get done.

This year or is that I mean could there be I guess is it something that's more long term in nature.

I'll, let frank it or column take that.

Okay. So no we're early on in the process.

But we do have a calendar there it could be possible or get something done. This year just depends on how the process unfolds under this attractive pull for sure it aggressively.

Got it thanks, Frank and welcome aboard.

Thank you.

This concludes our kinase session I will now turn to cold, but back to the person.

Thanks, everybody appreciate your time and we.

We look forward to speaking with you again soon have a good day and good west rest of the week. Thank you for your time.

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

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