Q2 2020 Cumulus Media Inc 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 and strategy. Sir you May proceed.

Thank you operator welcome everyone to our second quarter 2020 earnings Conference call I'm joined today by our President and CEO, Mary Berner, and our CFO Frank Lopez Gabelli.

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 and 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 will 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.

Full description of these risks as well as financial reconciliations to non-GAAP terms are in our press release and that's easy 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.

A recording of today's call will be available for about a month and details for how to access that replay can also be thought or website.

With that I'll now turn it over to our President CEO Mary Berner sorry.

Thanks, Colin and good morning, everyone.

I'd like to start the call by reiterating a point we made on her last call.

This company executed a turnaround before this pandemic crisis and built a track record of both delivering strong financial results and disciplined execution, notably we completed a wholesale transformation of the company's organization and culture, we cheap multiple years of revenue and EBITDA growth, including industry, leading digital.

Revenue growth, we expanded our assets from our on Air Foundation to become a multi channel multiplatform media company with profitable beachheads in high growth segments of the audio ecosystem, we generated significant and consistent free cash flow, we paid down a material level debt and we established a strong influx.

The balance sheet as a result, the company entered the pandemic with significant momentum and in a position of strength and as such is well equipped to deal with and navigate through this disruption regardless of how long it takes.

I also told you the to weather the impacts of the Cobot 19 crisis, we would rely on our core and well honed management practices acute focus decisive action and efficient execution.

During Q2 those practices paid off as we have made fast and meaningful progress to address the revenue impacts to the pandemic bolster our staying power and position ourselves for long term success when the crisis debates.

During the quarter on top of what we announced on our last call. We enacted significant additional and largely permanent expense cuts, bringing the total expected realize fixed cost reductions to 85 billion for the year.

We made meaningful progress in mitigating topline declines through the execution of numerous revenue initiatives and tactics that helped us to drive sequential revenue improvement each month in the quarter and continued year over year and profitable growth in digital.

We substantially increased our liquidity cushion building cash by 91 million in the quarter through free cash flow generation and the completion of the long awaited sale of land in Bethesda, Maryland, and we paid the wafer significant additional liquidity and clarity inclusion by entering into an agreement to monetize.

As our tower portfolio and related assets for 213 million.

While the timing of are turned to a more predictable environment continues to be a matter of considerable speculation. These quick and substantive actions have set us up well to operate smoothly through even a proper protracted economic downturn, while continue to execute on our growth initiatives and drive long term share shareholder value.

And in the short term, we continue to operate with an intense focus on revenue recovery expense reductions and cash management.

That said Q2 was obviously a tough quarter.

On a same station basis, which includes excludes the impact of M&A EBITDA for the quarter was a negative six point threemillion on a revenue declined 46.6%.

As we noted on our last call, we experienced meaningful advertiser cancellations and declines in bookings the hit particularly hard in April and May.

However, we did see sequential improvement on both top and bottom lines in each month through the quarter and that improvement also continued through July.

To give a bit more color on our results on the station side, our diary markets outperformed or ppm markets, which experienced more acute impacts from shutdowns.

From a channel perspective network perform somewhat better than spot, reflecting its efficiency exposure to large national advertisers at our own ability to use our pricing in inventory tools to create tailored custom networks.

Well it on the quarter was not a huge factor given the delayed primaries, but it's starting to ramp up as we move into Q3.

Our digital initiatives, which we built organically and importantly profitably from day, one bright spot in the quarter in aggregate digital continued its growth increasing by 3.6% on the same station basis.

Podcasting had a particularly strong quarter with continued organic revenue growth of more than 25%, finishing the quarter with new records for revenue and downloads, which reached 95 million in June up 16% from may and 41% year over year.

In particular, we benefited from our strength and news talk whereas of July 15th we had five of the top 25 podcasts and the category on an apples rancor, including powerhouse news talk talents, Mark Levin and damp on Gino as well as Ben Shapiro, who is now ranked by pod track is the comp countries there.

The largest podcast overall.

In addition, our performance also benefited from the expansion of our podcast portfolio into sports business money Tech and the life and entertainment verticals and we continue to develop partnerships in those areas.

So before I move to our expense initiatives I do want to take a moment to recognize our entire cumulus workforce for its efforts.

The actions we took this quarter were extremely difficult not just because of the shared personal impacts of employee related cost reductions both permanent and temporary.

But also because across the company decisions, we made had to support our goal of maximizing the momentum of our growth strategies, while preserving financial flexibility all with extremely limited visibility.

At every turn the team stepped up and executed without missing a beat.

More importantly, the commitment of Cumulus employees to the company has not wavered, even during this enormously stressful time.

In fact in our summer culture survey to which well over half of our employees responded 96% of them said that they are proud to work accumulates. The highest result in the five years that we've been conducting these surveys and nearly 90% are excited about their future with the company.

The loyalty and resolve of our workforce are extraordinary assets for Cumulus and deeply appreciated by our leadership team and me.

Turning now to the expense actions, we've taken to respond to the revenue pressure, we're facing from Koeppen 19 last quarter. We told you that we had already executed approximately 60 million a fixed cost reductions that would be realized through the course of 2020 on top of naturally occurring variable cost declines.

This quarter, we executed an additional 25 million of largely permanent expense actions, bringing our total expected realize fixed cost reductions and to what 2022, approximately 85 million Frank will give you more detail on this in his remarks.

I'm a liquidity front, our relentless focus on building our cash paid off we ended the quarter with nearly 200 million in cash up 91 million since March we generate 28 million of cash from operations. Despite the EBITDA decline through rigorous management of working capital.

Also contributing to that increase was the 66 million of net proceeds from the sale of our Bethesda, Maryland property.

Finally, we were pleased to announce it on Friday, we entered into an agreement to monetize our tower portfolio and related assets in a deal with vertical bridge for 213 million of gross proceeds.

This steel was transacted at a 14 into quarter times, multiple reflecting our continuing efforts to drive accretive value from the disposition of noncore assets.

This transaction will also facilitate substantial further debt pay down and increase our future cash resources. So we are delighted with the deal.

Now looking ahead into Q3, we are seeing meaningful momentum in bookings and fully expect that results will be materially better than Q2.

At the moment overall pacing is down and the low thirtys, but we do want to note that the outlook continues to be somewhat clouded by continued uncertainty around the economic and health impacts of the virus.

On the spot side, we're still seeing better performance and smaller versus larger markets and we're also seeing some decent recovery in categories like professional services and general services, which were less directly impacted by coded as opposed to entertainment, which is still significantly depressed.

Digital continues to grow year over here and is pacing substantially better than the Q2 performance driven by our podcasts business.

We're also starting to see a bit of political come in.

It's still early days and this presidential election year, and though we do expect some ramp up into the September historically, the largest chunk of political has been in the fourth quarter and we expect that pattern will hold true for us this year as well.

One thing to note is that we do have a decent amount of business on the books currently particularly in September related just professional sports play by play. So we're obviously monitoring that as a potential risk if games are shifted or cancel oh, though in the case of cancellation, we'd expect to realize largely offsetting expense benefits.

So why the sequential improvements that we are seeing are encouraging the short term picture does remain challenged that said caught the cost actions that we've taken will meaningfully mitigate revenue declines. Additionally, our current cash balance and a path to more cash through the tower deal give us confidence in our ability to not only stay the course.

But to capitalize on the rebounding economy, when and where it occurs and continue our aggressive debt reduction and invest to drive growth with that I'll turn the call over to Frank Frank.

Thank you Mary as Mary mentioned, we're pleased when our actions this quarter have set us up to work with these current challenges.

Favorably positioned the company for future success.

I'll start with some more detail in the second quarter.

And I'll speak on a same station basis, followed by some more color and our outlook liquidity position and the tower deal.

In Q2 total revenue was 146 million ton, 46.6% from Q2 2019.

As Gary noted the quarter was bird challenge for both appetizer and sports cancellations.

I must be bases. However, we did see sequential improvement.

As April finished down 51%.

It was down 50%.

In June was down 39%.

The impact of professional play by play sports disruption accounted for about 400 basis points of declined in the quarter.

Driven by National rights for the unsuitable Larry.

NHL and the master shifting from April to November.

As well as local rights predominantly portal Major League baseball.

From an advertiser standpoint, as you would expect except for political and government, but which finished up in the quarter.

Every other category was weak.

Categories like General services, and financial held up relatively better than to the categories that were most directly impacted by the pandemic.

Such as entertainment traveled in beauty.

As Gary noted political is not a huge factor in the quarter given shifting primaries.

And digital was a bright spot for us growing overall, 3.6% without broadcasting business growing.

An entirely organic basis by more than 25%.

Moving down the piano expenses declined by 59 million or 28%.

Driven by both reductions and variable costs related to revenue declines in active fixed cost reductions.

We now expect to realize approximately 85 million benefits from our fixed cost actions.

Of these about 36 million were achieved in Q2, and approximately 40 million will be achieved through the balance the or.

We break this time between temporary or permanent approximately 19 million the 85 million relate to permit actions, which have an annualized benefit of approximately 36 million.

The amount of temporary cost that will return over time largely depend on revenue recovery for 2021.

Putting revenues and expenses together for the quarter you put up finished at negative 6.3 million.

As Mark discussed, we generated 28 million of cash from operations.

Despite the EBITDA decline through rigorous management of working capital.

We put our original 2020 capex than projections of 30 million.

By more than 40%.

Or approximately 13 million are focusing only on items that are mission critical.

This resulted in Capex spend in Q2 of about two and a half million.

Our cash taxes. This year have been materially reduce both as a result will be operating performance.

And also benefits from the carriers at which has led us to fall for approximately 2.5 million refunds for amounts paid in 2019.

Additionally, we continue to expect to get an approximately 8 million benefit from the deferral of our payroll taxes in 2020.

And we saw 1 billion reduction of payroll taxes in Q2 from employee retention tax credit.

On June 24th we completed an announced the sale of land, we only have some Maryland.

The total proceeds for this year was 74.1 billion.

Since we had already received 5 million in 2019 after netting transaction expenses.

We received 66 million in the quarter.

All told our free cash flow generation and the MD proceeds increase cash in the quarter by 91 buying.

Allowing us to finish for the balance of 197 million as of June Thirtyth.

This liquidity and the expected proceeds from the monetization the tower portfolio, which I'll discuss one minute.

Because there's confidence in our ability to withstand a number of economic scenarios.

For the first half a year.

Our net debt decreased from slightly over a billion dollars to 884 million a reduction of approximately 124 million.

As a reminder, we do not have financial maintenance covenants in either a term loan or bonds.

They do not mature until 2026.

Now to the announcement this morning, as we mentioned on previous calls we had been exploring strategic alternatives for tower portfolio.

On Friday, we entered into definitive agreement to monetize substantially all of our portfolio and related assets for 213 million.

In summary, we are selling 250 towers locations.

Broken down between a sale lease back with the assets that we need to run their business and.

Then outright sale of other assets at these sites, including land and intangibles.

The sale portion of the transaction represents about a third of the value.

Well the sale leaseback worse from sense the other two thirds.

Considering our new lease costs of 13.5 million in your one.

Foregoing current third party car rental income of 2.3 million.

And eliminating associated cash expenses of 800000.

Transaction is an effective multiple at 14 the quarter times.

The sale leaseback transaction will be accounted for as a financing lease and as a result.

Lease payments will run through interest expense and amortization of financing police liability.

For the assets were selling or approximate tax basis, it's 40 million.

The majority of which relates the assets that are being sold and not least Pat.

We do expect that the gain on the sale for tax purposes will be largely sheltered by anywhere else generated this year.

The final and Oh amount available to offset gains will be determined based on our performance for the balance of the year.

If the entire sale occurred in one closing under our credit agreement and then venture.

We will be required to repair, possibly 95 million book that closing on a pro rata basis as a result for the sale leaseback.

With the balance of the net proceeds with the sale required to pay down debt as well.

But subject to our 12 month reinvestment right.

We expect to close at least 85% of the transaction. In addition closing in Q4.

Subsequent closeness to the extent necessary.

Pro forma for this transaction, we anticipate this debt our debt will be in the net in the range of $700 million.

In sum this is a fantastic transaction as a company.

No allows made further progress against our goals of reducing debt.

Recent liquidity and growing shareholder value.

We're also still working through the potential monetization of a valuable piece of property national.

We hope to bring to market once commercial real estate activity approaches more typical levels.

Given the current environment or expectations are that a transaction. This property would not occur until sometime in 2021.

Lastly in the quarter, we find that received the Fccs border on a petition for declaratory ruling.

It was favorable.

Lifting of the foreign ownership cap was really mechanical exercise every needed solely for the purpose of simplifying per share class structural.

As a result of the FCC order during the quarter, we were able to convert Oliver <unk> outstanding series, one answers to warrants and tie the class a request b shares.

We now have 17.7 million class a shares outstanding and 2.6 million class B shares outstanding.

With that we can open the line procure nay operator.

Thank you to ask a question. Please press star one on your telephone keypad again that Istar want to ask a question to withdraw your question press the pound key.

Your first responses from John Originators of Wolfe Research. Please go ahead.

Thanks, Good morning.

Two quick ones for me.

For the monthly color on advertising.

To the comment on pacings down in the low thirtys for the quarter was that was July at that level as well and then shifting to digital advertising. When you think about longer term planning are the incremental opportunities they're larger for you going forward than you thought prepared to another.

Yes, so our actual July results were down about 32%. So we did see improvement and then in August we continue to have more orders in the books and [noise].

Were constructive in the quarter, but has never talked about there's a lot of uncertainty.

On the digital side I'll pass it back over to Barry.

I'm sorry could you repeat the question did you asked a question for digital couldn't hear yesterday. So just given the growth you saw in the second quarter. When you think about longer term planting are the incremental opportunities are larger for you going forward than you thought possibly pre pandemic.

That's a good question I I would say the opportunities remain strong you know if you look at the podcasting, which you talked about we're very proud of our performance you know right now as we said the pacing continues strong for for Q3, but to give you an idea for the year we.

Already backed booked more than 20%, we booked 24% more than we finished all of the 19 2019 with you know on our streaming business. It's.

Looking forward it is performing significantly better than spot you know down low single digits at this point, but what does a lot of upside there and our local digital services, we called C. Suite again is performing twice as well as broadcast so we were.

I don't know that we were surprised but we were heartened that the our focus was paying off and that that those.

Channels continue to grow.

Thank you.

Thank you your next responses from Zacks silver with B. Riley. Please go ahead.

Okay, Great I think during the question actually three for me.

On the Westwood one news closure this quarter. If you could just talk through the decision on that and what impact did they have to the piano going forward.

The second one is just around.

Specific fall sports exposure you have in the fall and third is around whether you would ever consider licensing some of your higher profile podcast titles to others for inter for like exclusive deals. Thank you.

Okay. So so I'll take one in three and frankly, you can take to so with with regard to Westwood One news the radio news business has always been one that's expensive.

From both the production at a rights fees standpoint, and it's it's somewhat difficult to monetize that's in the reason why in the past we got out of representing a b C. New it seems that CBS news, so even with a dramatically reduce cost space. The business model was tough and we were coming up on a decision.

To continue in the business and it made more sense from an EBITDA perspective to move on from that this quarter I would say, it's not huge in terms of topline or EBITDA pick up though.

And so that's Westwood one news and then I think your question was about licensing or contact I think you're talking about podcasting content, yeah. So just licensing.

Sublicensing some of your higher profile podcasts and not having that content on the platform it actually getting like license payments and somebody else would put that on their platform on an exclusive basis.

Well you know first of all I would say we've been very very disciplined in our approach to the space and we'd like to reiterate a lot that we've been profitable from day, one and our growth was totally organically driven but I would say, we're concentrating on an AD supported model and so our business models that we leverage sales ex <unk>.

Our sales execution in our marketing capabilities and strong relationships with national advertisers and agencies to monetize and grow the podcast of our content partners and our own home grown podcasts that we see through our radio station. So.

We're not a <unk> our distribution is we distribute.

Our our our pockets are distributed across multiple platforms already.

We are play is an AD monetization play and <unk> adult the model allows us to operate without the cost of the risk.

Unproven content creation and productive production.

Yeah that makes sense.

And then move into sports.

Look we're obviously focused on the NFL, which are he is our largest property.

And then third and fourth quarter and sports and the answer delay.

You've read as long as we have to their plan is to move forward or with opening.

I would say our sports exposure.

The third quarter.

I'm not going to give you specific numbers, but it is larger than our sports exposure was in the second quarter.

Having said that.

Sportswear canceled or delayed the associated expenses will go away with that.

And so.

Well, there will be in EBITDA impact, but between you did but the topline could be.

Impacted.

'cause occurred in the second quarter.

Got it thank you Beth.

Thank you to ask a question. Please press star one on the telephone keypad I get that is still I want to ask your question than policies to compile ticketing roster.

There are no further questions in the queue at this time.

Thank you that concludes our call.

Yes.

Okay. This concludes <unk> I'm sorry.

Go ahead.

I would say just thank you all for joining us today and of course, we look forward to speaking with you again soon have a great day and week. Thank you.

Thank you all for joining US today, we hope you found this call very informative. This concludes the webcast you may now disconnect.

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