Q4 2020 Cumulus Media Inc Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to the Cumulus Quarterly Media quarterly earnings conference call and.

This time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question. During this session you will need to press Star then one on your telephone.

If you were quiet and furthest distance. Please press Star then zero.

I would now like to hand, the conference over to your speaker for today, Collin Jones Senior Vice President corporate development and strategy. Sir you may begin.

Thank you operator.

Welcome everyone to our fourth quarter and full year 2020 earnings conference call I'm joined today by our President and CEO, Mary Berner, and our CFO Frank Lopez Balboa 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're subject to a number of risks and uncertainties. In addition, we will also use certain non-GAAP financial measures. We believe the supplementary information is useful to investors, although it should not be considered so.

Peer to the measures presented in accordance with GAAP a.

A full description of these risks as well as financial reconciliations to non-GAAP terms are and our press release and SEC filings and press release can be found and the Investor relations portion of our website and our form 10-K was also filed with the SEC 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 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.

Last year at this time, we were very optimistic about the here in front of us.

We'd enter 2020 with strong momentum.

The strategies that we've been executing since mid 2018 were paying off as evidenced by the fact that on a same station basis. We grew revenue in 2019 per the second straight year and EBITDA for the third straight year, excluding political.

And we maintained strong performance through the first two months of 2020 with growth continuing on both the topline and bottom line.

Of course, then Covid hit, which derail our 2020 plans.

Job, one became mitigating the pandemic impact so we swiftly swiftly pivoted, our focus to maximizing revenue share materially reducing expenses protecting and bolstering cash and strengthening our balance sheet.

I'm extremely proud of and grateful for our employees unwavering efforts and pleased with our success and all of these areas.

Typically on a same same station basis, we posted another quarter of sequential revenue improvement with Q4, 16 points better than Q3 and down 13% year over year.

We delivered to your per year digital revenue growth of 12% led by podcast and growth of nearly 40%.

We executed 90 million and cost take outs, including permanent expense reductions that will result, and a $45 million annualized run rate benefit.

We completed two significant noncore asset divestitures that do not impact our ongoing operations generating $282 million of gross proceeds.

And we generated $33 million of cash from operations and finished the year with $272 million of cash on the balance sheet.

Collectively we think these actions and outcomes have not only positions us to perform well and a recovering economy, but it's also given us the flexibility to respond to opportunities that deliver shareholder value.

While we continue to be impacted by the holiday Covid Spike and uncertainty about when the pandemic will and we do see some encouraging signs that are worth noting.

From a revenue perspective, many of our advertising categories are improving so far and Q1 top performers include government financial services beverages, and food products and utilities.

Sports betting is a nice new growth driver.

Through today, we currently have almost as much revenue committed in this category as we did for the entire here in 2020 as Deregulatory momentum is driving more and more states to legalize online bend it back.

We believe we are well positioned to capture a healthy share of that category is growing audio spend as we move forward given our strong assets and states where sports betting has currently legal or on the road to live nation and not to mention our massive promotional heft and marquee talent and the national sports space at Westwood one.

Digital which I mentioned as I mentioned grew for the full year 2020 has been and continues to be our best performing revenue channel. This is driven by a terrific growth and our podcast business, which is pacing up more than 30% and Q1.

Drafting on a strong momentum coming out of the fourth quarter.

We had three podcasts and Bungie know, Ben Shapiro, and Mark Levin racking and the top 10 of the news category in Q4, and and the top 10, among all podcasts on Apple and January.

For the full year 2020, we passed a noteworthy milestone achieving more than 1 billion downloads for the year and increase of 40% from 2019.

We also continue to add podcasts were stable, including the launch of partnerships with rolling stone, better and sports journals, Rich Eisen and Olympic Gold medal, winning wrestler Kurt angle, whose podcast debuted number two and sports on Apple with its early February and March.

Looking ahead, we expect more of the same for this business steady and profitable growth.

It's also worth noting that many are many components of what makes radio is such an attractive advertising medium remained strong for example radio still accounts for approximately three quarters of AD supported audio consumption roughly consistent with pre pandemic time periods and if we just look at AD supported listenership and the car.

Radio's share remains virtually unchanged at nearly 90%.

We're also seeing nice growth and streaming streaming listenership for the industry now accounts for about 13% of total a M. S N lifting and the Cumulus streaming platform itself is up more than 10% year over year and fourth quarter and total listening hours with smart speakers now accounting for more than a quarter of our streaming listenership.

However, we are not out of the pandemic woods, yet. So we will continue to focus on the cost reduction efforts that are proven and so valuable to us over the past few years and Sam.

Mentioned previously we took out 90 million and costs and 2020, which was a critical factor and our ability to successfully navigate the pandemic last year. Additionally, the permanent pump portion of these costs of those costs has improved our operating leverage.

And to further expand that leverage and protect against any further economic impacts of the pandemic. We are also working to identify new opportunities to generate additional permanent savings as.

As importantly, we were continuing to look for ways to strengthen our balance sheet.

2020 proved anything to us is that our sustained attention to deleveraging and derisking the balance sheet over the past couple of years proved to be a crucial defense against the previously unimaginable challenge of a global pandemic.

With regard to Q1, our pacing is currently down about 20%.

However, given the business was significantly impacted in March of last year. We expect that Q1 final results will be better than current pacing indicates.

And with that I'll hand, the call to Frank who will give you more detail on the quarter and the outlet.

Order of the year and the outlook are free.

Thank you Mary first I'll start with the quarter and then move to the year's financial highlights and.

As usual I'll speak on a same station basis.

And Q4 total revenue was $246 million.

13.4% from Q4 2019.

This decline was less than half of what we saw in Q3.

Ex political we.

We were down 17, 3%, which also represented a nice sequential improvement from the prior quarter.

As expected political set a record for us this quarter.

And by strength in both the national election, as well as the Georgia, Runoffs, where we had five markets have received political orders from those Senate races.

For comparison political was $14 3 million this quarter versus 3 million and Q4, 2019, and $11 3 million and Q4 2018.

As Mary mentioned, another key driver force with digital which was up 11, 3% per quarter.

Led by podcast and which continues its profitable growth trajectory.

Expenses declined in the quarter by $25 million or 11% driven by both reductions and variable costs related to revenue declines and.

And active fixed cost reductions.

EBITDA for the quarter was $39 7 million down 23 per cent from Q4 2019.

And that have resulted in prior quarters, and 2020, and a nominal basis and and the terms of year over year change.

Moving to the full year total revenue was $815 million down 25% from 2019.

Total political for the year was $26 3 million.

And we'll be comping against a strong performance from 2021.

Expenses for the full year declined $143 million or 16% versus 2019.

More than $90 million of this expense decline was a result of back to fixed and semi variable cost reductions.

You'll note that number has increased from the 85 million and we talked about on our last earnings call.

Nearly $30 million of the $90 million and cost reductions relate to permanent actions.

While the rest were temporary.

There's a level at which those temporary expenses return will depend on revenue recovery in 2021.

With 30 million of permanent cost actions have and approximately $45 million annualized run rate.

And again higher than the $36 million communicator and the last call.

Giving us an additional $15 million of silver production that we will pick up in 2021.

And total EBITDA for the year finished just a bit above $82 million.

And with the benefit of cost reductions and aggressive working capital management, we generated $33 million of cash from operations during the year.

Additionally, we cut our original 2020 budgeted capex spend of $30 million.

Got to lessen half of that finishing the year with $14 9 million of Capex.

We did pay out $5 8 million and cash taxes throughout the year.

Our normal course operations would've generated a sizable net operating loss for tax purposes.

But that NOL was more than offset by the tax gain and our tower sale leaseback transaction.

The tower transaction and D C land sale, both of which closed during a very challenging backdrop for the summer.

Brought in $282 million of gross proceeds.

The sum total of all these cash flows generated a year and cash balance of $272 million.

And a net debt reduction for the full year of nearly 300 million.

Results that we were really proud of.

In regard to our cash balance about 133 million reflects net proceeds from asset sales.

And if not reinvested are required to pay down debt.

About half of that pay down would go I'll leave with a term loan and June and the other half would be split between the term loan and bonds in September October timeframe.

And another $60 million of the cash balance reflects our ABL revolver draw.

As mentioned on previous calls, we do still intend to monetize a sizable piece of property that we have and Nashville.

And while that property one sex the amount we generated from the D C land sale.

And a very attractive location and we anticipate the sale process will be competitive.

Touching on a couple of other items have relate to 2021.

With regard to free cash flow, we do expect that our capex spend this year will revert to our historical level around 30 million to catch up and some of the deferred items from 2020.

And to update you on the NC double a well, we and the NCI double they continue to pursue our 2020 contract dispute and court, we agreed to carry the Ncw tournament in 2021.

With that we can open the line for questions moderator, we're ready for our first call.

Thank you.

Ladies and gentlemen, as a reminder to ask a question you would need to press Star then one on your telephone.

Draw your question press the pound key.

Again, its star one to ask a question. Please standby, while we compile the Q&A roster.

Our first question comes from the line of John from Natus with Wolfe Research. Your line is open.

Thanks, Good morning.

Two one on sports betting and then one on costs, but and sports betting and you've talked about that.

Start the year Mary as you looked at the size of the category today, how much runway do you have as more states legalize betting and is there.

And I can be a top five category over time and and has the growth of the category changed how you think about the value of sports rights over programming and radio.

And then separately just quickly on cost given the early budgets for the year and your comments are you looking at more permanent fixed cost reductions or are you do you think are and a good place.

Thanks for the question good morning.

With regard to the category, it's still it still remains to be seen there are you.

You know.

A handful of states that are legal at this point I'm not not even half the states and we have a terrific footprint and many of those Pennsylvania, Tennessee, and Michigan and you know as I as I said, we think there's upside as it relates to how big I think it does have the potential at some point to be a.

A pretty big channel.

Category, if you will for per radio.

But you know, but there is complexity and navigating the legal and regulatory framework.

And we do have momentum and I again, I think we have strong properties, both locally both with our station footprint.

But also with our network vehicles, so where we're focused on that as it relates to how it makes us think about R. R.

Our sports content and positioning.

There's lots of synergies there and so it's it's encouraging that's one bright spot.

And the category picture I think you asked about I think the second question was about cost.

Cost reductions as part as we said in the prepared remarks, we are.

Continuing to be focused on.

And that we've always said, we don't operate with a lot of back but you know dealing with the new normal of mostly remote work has shown us over the last year, new ways of performing some of our operations that are more efficient and the status quo. So you know the short answer is yes, we're focused on three buckets the obvious.

Peony and <unk>.

The second would be real estate and and how we work where we work and then the third is a business process improvement and efficiencies and table enabled by technology.

And so that those are the areas, where we're focusing on.

Alright, Thank you very much.

Thank you.

Our next question comes from the line of Michael Kaplinsky with Noble capital market. Your line is open.

Thank you I have a couple of questions here.

And you indicated that you plan to take out additional costs and just following up on John's question can you give us a sense of where those cost are being cut.

At this point.

Hi, Michael It's Frank will Mary talked about some of the areas and are answering what we're focusing on.

I'll first start by saying that.

This is a continual process for us and our third quarter earnings call, which we went through a very specific cost exercise.

And the middle of the summer and I indicated that our run rate expense.

And for cross cuts for 2021.

What is going to be $36 million and we increased that by almost a third to $46 million.

And that was through the normal process.

Budgeting, a four day here.

And as we go.

Through 2021, its a continual process.

The remote.

Remote from.

Workforce, because there's opportunities.

Real estate gives us opportunity, but there are a lot of things that are behind the scene in terms of business process improvements.

That will make a difference so at this point, we're not going to highlight <unk>.

Numbers will update throughout the year, but rest assured this is part of that test in terms of running our business to try and be as lean as possible without affecting our revenue and our growth.

Okay and in terms of Bob political last year, what are I know that a lot has got a lot of radio stations got Bloomberg money and so forth can you give us a sense of what political was on a pro forma basis for Q1 last year.

And last year, Q1 was a little bit over $4 million.

Okay and then in terms of the you indicated that you're pacing so far it's down 20% can you give us a sense of what that is versus network local national.

Okay.

And we won't give you the specifics and breakdown, but I would say that.

The network is the network and national.

Are doing better and local at this point and.

And that's a pattern that we saw towards the second half of last year.

And in terms of just the general economies of your markets.

Sense of what are are there specific areas of the country that is performing better than others, I mean kind of give us a sense of the geography of what's happening.

Well, it's you know it's interesting last year, we saw.

A.

Fairly consistent but narrowing gap between our ppm markets and our diary markets.

As we're going into the first quarter that gap has narrowed.

<unk>, which is a which is nice.

I think part of that could be the fact that our ppm markets or not.

And to exclusively but not generated and they're not.

In the states, where you're seeing the biggest impact of shutdowns like New York or California.

But that's a trend that we're seeing and.

And we're pleased with that at this point.

Gotcha, and I know that advertising appears to be booking later and later or is there any indication at this point people booking into the second quarter. At this time do you have any thoughts on how that's shaping up.

No no it's.

Listen I mean, obviously, we did get some monies from the upfront for network, which we always cat, but in terms of.

Flows at this point to to make any representation and the second quarter, It's just way too early and.

As Mary talked about.

And Mark is going to be interesting because we had a very robust first two months of the year.

And then.

As we moved into the second half of March things just stopped and.

So we're expecting a more normal environment, which is one of the reasons why as Mary indicated we expect our results for the first quarter would be better than our pacing indicators at this point.

And then just on the sports betting on the relative size of the sports betting category for you last year, what it would have where would a break like would've break and the top 25 at this point or is it just.

Really very small at this point.

And.

It was it was and it's an emerging space for us and.

It certainly was not and the top 10.

Okay Alright. Thank you that's all I have thanks.

Thank you.

Our next question comes from the line of Zack Silver with B Riley.

Your line is all day.

Thank you and thanks for asking the question. The first one is just around some of the categories that were more heavily impacted by COVID-19 last year travel.

Entertainment hospitality and what what percentage of revenue was that for you guys and 2019 and what are your expectations for that to recover this year.

Yeah.

We don't give a breakdown in terms of what each or individual categories are.

Not surprising.

And when we look and the first quarter.

Some of the categories, most impacted which are large categories for us are still under pressure and that includes.

Entertainment.

Restaurants and.

And the automotive.

But having said that.

They're all pacing below the trend that we talked about for the entire company.

But that's offset by some of the stronger relatively stronger areas that brings us to a total.

Pacing at this point in time, 20%.

For the for the entire for the entire year.

It's hard to tell where the entire year is going to be.

Lot of it depends on this.

The success and the vaccine stimulus.

The environment of a small business and.

And her transition out of what has been a very.

Difficult period of time for the country.

Our business and our employees.

Got it and then just around podcasting I don't know if you can give us a sense of how big you might imagine and the prepared remarks, but how big that is in terms of the.

Overall digital bucket and we've seen a lot of podcasting assets exchange hands for free.

Multiples that are well in excess of free on where the market values you guys and I don't know if theres any.

Plans you have to kind of.

Maybe disclose more metrics around podcasting or other mechanisms caviar disposal and maybe get some more credit from those assets that you own.

Mhm.

So our podcasting as you know as reported and our digital segment for reporting purposes and historically.

And we've said that those three lines of businesses, which are streaming see Sweden, and podcasting and roughly a third a third a third.

Not surprisingly with the strong growth and broadcast podcast from that is now the largest component.

Our digital line.

Approaching 40% and.

And when they get larger than that depending on the growth.

With regard to the strategy on podcasting is as you know and we've been consistent and Mary talked about in the past.

Good day business that we've grown organically and profitably.

We are and the flows of transactions that occur and the market and we see.

Virtually all assets, whether its podcast single from there.

And at this point.

We're focused on our organic growth doesn't mean, we won't look at smart acquisitions, but we've generally.

At this point made our bet on partnership.

Arrangements with our talent as opposed to going out and spending a lot of money.

IP or infrastructure.

And so that's that's our strategy now and that's our key focus.

That makes sense. Thank you very much.

Thank you.

Our next question comes from the line of Alan Caito with Beach point capital.

And as open.

Hi, Thanks for taking my question just two quick ones one I didn't catch the details on the pending use of proceeds. So you said term loan was going to be paid down and the spring and then there'd be a split between the bonds and the term loan and the fall would try and catch that correctly.

Yes, let me repeat that so we do have the reinvestment bucket of $133 million.

And remind you that reinvestment book is pretty broad and we can use that for capex internal investments acquisitions.

So absent any reinvestment.

By virtue and this was negotiated and the term loan.

When we put that in place.

The D C land proceeds go directly to the term loan pay down.

Which is why I've mentioned roughly half of the 133 goes to that if we don't use of reinvestment.

Hum.

And then the other balance is.

As Tom has spent ratably between the term loan and the bonds.

And that'll be it.

And at the end of the third quarter and the first beginning of the fourth quarter, which was the timing and which we close the first close of the sale leaseback transaction.

Yeah.

Got it got it and then second question on the disclosure around political revenue and political EBITDA and when I look at it and it seems like and the fourth quarter and it was like a 14 million dollar revenue contributor, but then close to a $13 million EBITDA contributor.

So what's the what's the cause between for the margin being so high there.

Yeah.

It's just.

It's a high margin revenue product and that's what you see for the entire industry.

And so are our cost of space and just the cost of sale.

And obviously marginal cost to put it on the air So it's.

Very high margin for us.

And frankly, when you look at our book because the unit economics of our local radio and that's a very high margin as well.

And it just came out at very lumpy lumpy and a very <unk> way.

Got it.

And that makes sense.

Thank you.

Thank you.

Ladies and gentlemen, that's all the questions. We have for the day I will now turn the call back over to management for closing remarks.

Alright, thanks, everyone for joining today, we look forward to speaking with you again soon have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation you may now disconnect.

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Sure.