Q2 2021 Cumulus Media Inc Earnings Call
Yes.
Okay.
Good morning. Thank you for attending the Cumulus Media quarterly earnings Conference call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end I would now like to pass the conference 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 2021 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 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 will also use certain non-GAAP financial measures. We believe the supplementary information is useful to investors, although it should not be considered superior to the measures presented in accordance with GAAP are.
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 SEC shortly before this call.
A recording of today's call will be available for about a month details for how to access that replay can also be found on our website with that I'll now turn the call over to our president and CEO Mary Berner Mary.
Thanks, Colin and good morning, everyone.
Our second quarter results clearly reflect how we are continuing to deliver value to shareholders and strengthen the company's position for long term success, both by capitalizing on the country's economic rebound and progressing our key strategies and initiatives first growing our listenership through through the curation and.
Handed distribution of our content across multiple platforms.
Growing advertising revenue by providing tens of thousands of national and local businesses with highly efficient and integrated traditional and digital solutions that connect them with those consumers, including through company platform wide partnerships.
Third by relentlessly enhancing our operating performance and reducing debt and finally by optimizing our asset portfolio.
Specifically, we continue to drive our topline revenues achieving growth of 54% in the quarter, a reflection not only of encouraging improvement in the core radio advertising, but also a terrific execution by our national and local sales forces.
We delivered record digital revenue, which was up 55% year over year, achieving all time highs for streaming local digital marketing services, and podcasting and we announced several meaningful platform wide company partnerships.
We improved our margin profile and operating leverage through continued fixed cost reductions with more than 10 million realized this quarter versus 2020. Additionally, we now anticipate total fixed cost reductions will top 70 million in 2022 versus our 2019 not in 2019 baseline and Inc.
<unk> of approximately $20 million over the $50 million that we communicated last quarter.
We sold our Nashville land, which was noncore to the business for better than expected sales price of $34 million.
We paid out $175 million of debt in the quarter accelerating the mandatory paid to paydowns are required by last year's non core asset sales.
And notwithstanding that debt pay down we finished the quarter with $125 million of cash.
This performance and the actions we've taken to give ourselves significant financial flexibility have increased our ability to capitalize on opportunities that can catalyze our growth and strengthen our strategic positioning and shareholder value proposition in the near and long term.
At the highest level our strategy is designed around what we see as a compelling scalable and synergistic business model with the core radio business generating consistent and stable free cash flow to support expansion into digital Adjacencies deleveraging and shareholder returns.
Those digital Adjacencies are natural extensions of the relationships that we have with our 2 key customer bases our listeners at our advertisers we are aggressively expanding and further engaging our listener base, which already encompasses more than 250 million people. Each month, we are doing this to increase.
Metal digital distribution of existing content and the creation of new content and content partnerships distributed both digitally and over the air on.
On the advertiser side, we're leveraging those the close relationships, we have with tens of thousands of businesses and increasing our ability to attract clients from outside our radio base by continually expanding and improving the advertising and marketing solutions, we offer primarily through digital additions.
Good day, our entire sales force goes to market with a comprehensive and customizable product suite, comprising terrestrial radio digital audio, including podcasting and digital marketing presence and campaign solutions.
For instance, we recently announced 2 partnerships that are great. A debt are great representation of how we are utilizing our unique collection of assets to build audiences and advertising.
First leading conservative voice stamp on Gino has been 1 of the anchor tenants of our podcast network.
Damn Bungie no show has been wildly successful from day, 1 at times hitting number 1 among all podcasts in 2020 and ranking in the top 10 in the news category on Apple for most of 2021 on.
May 24th we extended our partnership to launch an original radio show also called the damp on judo show in the coveted noon to 3 P. M radio broadcast time slot in over 100 markets, including 8 of the top 10 in the country.
2 months later the syndicated radio show has surpassed the 300 rate station Mark making it the most successful launch ever for new and original syndicated show in the space.
It's important to note that we're the only media company that has expanded its podcast first talent internationally syndicated radio successfully and now we've done it twice first with Ben Shapiro and now with damper on Gino.
So to bring this partnership back to our overarching strategy. It's the perfect example of how we've been able to create new content to expand our relationship with listeners both over the air and through digital extensions, while also generating more opportunities for businesses to reach those potential customers.
Second we are excited to announce just last week, an expansive multi platform and multi year partnership with wind bet. The Premier sports betting App from global Casino operator Wynn resorts. This too is an excellent example of how we are implementing our strategy to fuel growth.
Marketing and branded content deal allows win bet to embrace the entire Cumulus media ecosystem using broadcast podcast digital social and on site Activations to reach new users sports App.
Establishing a strong beachhead in the burgeoning sports betting arena for Cumulus.
The partnership also has an element of shared success with our minority component of the consideration to Cumulus is coming in the form of win bet equity, allowing us to participate in the upside that we helped to create.
Overnight when Beth will become 1 of our largest advertisers with significant room for continued revenue growth as more states legalize sports betting.
As we mentioned on prior calls we believe sports betting could become a top 10 category for us over time and the relationship with win bet is a big step toward that goal as time goes on we will continue to augment our existing revenue streams with more of these types of creative multi asset programs.
We have great confidence in our ability to further accelerate and execute this companywide strategy.
Because we have a management team with a long track record of strong execution. When we say, we're going to do something we do it and we do it well.
Our company culture has become a huge competitive advantage for us. According to our bi annual survey that we conducted in June in which well over half of our employees participated 93% of our employees say, they're proud to work at Cumulus and 92% in indicate their strong confidence in the company's leadership.
The company's free cash flow profile has and will continue to benefit tremendously from our strong focus on working capital management and permanent cost reduction.
And our balance Street is very strong with them on the lowest net leverage of our peers in the radio industry.
So turning now to our short term outlook, we see the economic recovery continuing over the coming months, although with some drag from chip shortage and affecting the auto category in particular and labor shortages that are negatively impacting several other categories and as such in Q3, we're pacing in the mid teens versus up in the <unk>.
Mid teens versus 2020, and compared to 2019 that would be down in the high teens.
I'm alert last 2 quarters. However, we anticipate that pacing will continue to improve as we move through the quarter.
So looking beyond Q3 and into 2022, we believe our growth strategies and the recovery prospects along with the aggressive actions. We have taken on the cost side put us on the positioned for significant EBITDA growth, where we will refine our views as the year goes on but we currently see a path.
To 2022, EBITDA in the range of $175 million to $200 million.
With that backdrop I'd like to leave you with this in our view the market has not fully absorbed all the discrete and definable vectors of value creation that make cumulus a highly attractive investments.
We see these catalysts as follows first we expect to benefit in the near term from the industry recovery and the high margin traditional radio business, given our strong competitive positioning enhanced operating leverage and massive scale.
Second our digital channels are achieving strong growth with a lot of continued room to run they will continually to collectively deliver well over 100 million of revenue in 2021 with a nice upward trajectory expected from there.
Third we will continue to actively pursue ways to further reduce permanent costs as I mentioned earlier, we now anticipate the 2022 fixed costs will be more than 70 million below 2019, an increase of 40% from our last fixed cost guidance of 50 million reduction from that baseline.
Fourth given our liquidity and leverage profile, we are well positioned to execute accretive transactions either for continued portfolio optimization on the radio space or for the opportunistic acquisitions of companies that can accelerate our digital strategies and lastly, as EBITDA increases the company's cash.
Free cash flow generation will allow us to more rapidly delever, providing even greater flexibility in our capital allocation decisions, including the potential to return capital to shareholders and with that I'll turn it over to Frank Frank.
Thank you Mary.
So to speak with all of you again after a quarter, where we not only made nice progress with our financial performance, but also had a number of exciting announcements to share with the market.
I'll start by walking through this quarter's numbers in more detail.
On revenue, we finished the quarter much better than the plus 35% pacing we indicated on our last call.
With total revenue of approximately 225 million.
54% from Q2.2020.
This increase represented continued continued sequential improvement as we continued on.
We executed well in the context of the recovering market.
For a comparison here.
Q1 finished down 25% versus Q1.2019.
Q2 finished down 20% versus Q2.2019, and as Mary mentioned, we're currently pacing down in the high teens versus Q3, 2019, and anticipate that pacing will improve as the quarter progresses.
Well that performance done really reflects advertising growth.
On the crossroad business lines, we were nonetheless still negatively impacted in certain categories like auto retail restaurants, and entertainment, which continue to suffer from knock on effects of the pandemic, including the well publicized chip supply issues when.
And labor shortages.
Digital once again led the way in the quarter with aggregate revenue growth of 55%.
On the expense side total expenses increased from the quarter by $35.5 million year over year.
However, more than 100% of that increase was driven by return of costs related to actions that we took in response to COVID-19 last year, including furloughs.
Salary and benefit reductions, which were designed to be temporary as.
As well as the return to variable costs on higher revenue.
These increases were partially offset by more than 10 million of realized fixed cost reductions year over year.
And as Mary said earlier, we now have visibility to more than $70 million of fixed cost reductions, which we expect to see in 2022, but when you compare to the 2019 baseline.
The combined revenue and expense performance resulted in EBITDA for the quarter of approximately $37 million.
Before turning to our Q3 cash flow performance I wanted to touch a bit more on the win bad enough from from last week.
As Mary noted the broad based on wins that partnership is an exciting deal for the company on.
Minority portion of our consideration for delivering advertising will be paid in equity over the course of a partnership.
That's another avenue to participate on success of their platform.
From a phasing standpoint, the peak period for driving new sports betting subscribers is the NFL season, making us their perfect audio partner, given our exclusive rights to the NFL primetime.
Additionally, the NFL recently announced that in games sports betting advertising will be alive for the first time ever.
Which itself will provide exciting new opportunities for us to deepen our relationships with sports betting companies.
Lastly, while were looking forward to using our platform to help drive 1 best growth, we have preserved our ability to do business more broadly in the space.
Have you May remember, we were in litigation with you won't see doubling over a contract dispute related to the 2020 season.
Well that litigation was ongoing we agree with you on seem to believe that we would carry the tournament in 2021.
We're pleased that on August 1st we settled the dispute and in addition, we entered into a multiyear go forward partnership. It keeps Westwood 1 is the home of both the digital and broadcast audio rights for the unseen double a.
We look forward to a bright future for this relationship.
Now moving to cash for the quarter cash from operations in Q2 was a use of approximately $5 million driven.
Driven mostly by higher receivables on higher revenue.
On Capex was $9 million, an increase from last quarter that reflects some catch up on projects from 2020.
As we mentioned last quarter, we still expect capex to be around 39 for the year consistent with historical levels.
Early on in the quarter, we received $18.3 million of PPP loans. In addition to the 1.7 million that we received from the first quarter.
We also completed a 175 million of debt pay down this quarter, primarily on our senior secured term loan.
Are we finished with approximately 125 million of cash on the balance sheet nearly.
Nearly $96 million of additional available liquidity, when considering our undrawn ABL revolver.
With all the puts and takes and excluding the $175 million debt pay down cash increase in the quarter by $6 million.
As of June 30th our net debt was $701 million, reflecting a reduction of 308 million from 12.31 2019.
And we continue to take actions to lower net debt further.
As Mary mentioned, we announced this morning that we completed the sale of our net for real estate for 34 million on gross proceeds.
Subject to a 12 month reinvestment right. The net proceeds from the sale are required to pay down debt.
And finally, echoing Mary based on what we see now we anticipate EBITDA from a range of 175 to 2.
<unk> thousand 22.
We will update this view as the year progresses.
With that we can open the line for questions moderator, we're ready for our first question.
Certainly we will now begin the Q&A session, if you'd like to ask a question press star followed by 1 on your Touchtone keypad for any reason you would like to remove that question Press Star followed by 2 again to ask a question press Star 1 if you're streaming today's call. Please dial in and press Star followed by 2 are followed by once we will pause briefly to our questions to generate in the queue.
Our first question comes from the line of Dan Day with B Riley Securities. Please proceed.
Yes.
Yeah, Hi, Thanks for taking my questions and good morning, everybody I'm sure you guys have done a great job with the balance sheet over the last year or 2 obviously through a really challenging time and assuming the recovery takes hold and everything goes well can you.
Just talk about kind of the trade off here between as far as returning capital to shareholders between buybacks and dividends. How do you think about fair value for your share price.
Our sustainable dividend policy might look like and then sort of the return profile you need to see from any sort of acquisition or a significant investment in the content that you could compare that against.
Good morning, Dan This is Frank I'll I'll take that question.
There's a lot to unpack there you asked a lot of questions. So first.
We've been very focused on.
Getting back to historical type of EBITDA levels to generate the free cash flow that I know the company can generate and that provides a lot of optionality for us.
Either way, we think about our allocation of cash.
It's a multi pronged approach, we will always look at ways to enhance long term shareholder value.
Find investments, whether they are internal investments or external investments to generate growth and profitability.
And having said that over the past several years, we've been more in the pruning of our portfolio as opposed to adding.
But we're not.
We're not against adding acquisitions. So that's clearly something that we will consider.
With regard to returning cash to shareholders.
As we delever.
Going into 2022.
That will be able to talk about where we are against our leverage targets on what the implications will be on the balance of returning cash to shareholders from 2 acquisitions, but.
But if you look at our EBITDA guidance, if you look at our rapid deleveraging.
And if you go through the models, you'll see that from 2022, we'll have a lot of optionality across many different fronts.
Awesome. Thanks, Frank any any specific areas that as far as investment that you've been looking into I know you mentioned on the digital side.
Between pad testing.
Anything you can point to.
Nothing specifically.
If we can talk about right now, but the categories that the highest priorities as Mary mentioned and as you close.
Also mentioned are our digital assets of local market digital local marketing services.
Paul casting et cetera, but is there a radio.
Opportunities out there that makes sense.
We will consider that as well.
Got it and then 1 more and then I'll turn it over just 1 thing I've been thinking about sort of what's interest is.
On the growth of programmatic channels for or the digital side like compared to like mobile or digital display programmatic stay really small portion of it was kind of the advertiser buys or.
A lot of investment has been kind of pumped into that space over the last year or so not necessarily from you, but from your peers or.
Or are you kind of starting to see the fruits of that there are more advertisers coming into digital video ecosystem with these new technologies.
Maybe ads are more targeted.
Have you started to kind of see net what is that driving the strong <unk> for the drill side.
I'll take that 1 I would say, it's really early days.
On that and generally the growth is coming from our own sales organizations as opposed to as opposed to programmatic marketplaces, but you know there is some opportunity for sure and we're keeping an eye on it and participating in small ways.
Yeah.
Awesome. Thanks, guys I appreciate you, taking my questions and I'll turn it over.
Thank you Mr Day.
Our next question comes from the line of Michael Kaplinsky with Noble capital markets. Please proceed.
Thank you and congratulations on a solid quarter a couple of questions regarding the wind debt I was wondering if you could give us a little bit more flavor on the scope and maybe the size of that opportunity in particular, if you can give us some sense of what the network business, which I either would indicate.
The debt.
Oh games, and so forth and sports games are likely to be you know the focus around on the.
The network business I was wondering if you could give us a little sense about what that might mean for the upcoming third and fourth quarter and if maybe you can just kind of help the size you indicated that went bad is wanted.
We're going to be 1 of your largest advertisers and I would assume debt, that's probably going to ramp up over the next several years and then finally on wind debt if needed.
You mentioned.
Your minority stake in the company and if you can kind of give us some sense of what your stake will will be and how meaningful that might be in terms of the prospect of creating shareholder value.
Good morning, Michael Frank I'll take that so.
We can't really go into specifics on.
On the wind debt partnership, but I'll give you some color.
Color there try to.
You get to the answer the question so.
We've talked about in the past that the sports betting category can be a top 10 category for us.
And we expect it will be particularly as more states legalize on and the.
On the online betting companies spend a lot of money at it.
When that transaction.
Moves us closer to being able to say, it's a top 10 category, but we're not there yet, but it's a meaningful transaction in relation for us.
Second.
With regard to the size, we really don't disclose.
Our customer sizes.
But as not only 1 of our larger customers now, but the ramp up.
There will be a meaningful customer for us, but again, we're very diversified company in terms of our customer base. So we're pleased with the transaction.
Next from a lot of the transaction with wouldn't bet given.
The partnership nature, not only at the network level, but with our local radio station a large component of that is truly incremental revenues to the company.
But by virtue of the transaction.
It does just price in certain areas other inventory, we could have sold but given the structure of the transaction.
We're viewing a lot of the transactions incremental revenues to the company and particularly when you consider the equity component.
All right.
Lastly on the equity.
We're not going to disclose at this point the percentage of the company that we are.
We will have with the company. It's a small percentage if you look at the size of their company.
Over time as we recognize revenues.
Once the company is a public company you may know that they've agreed to do a merger of stack Mercury, So it'll be a public company.
Later this year early next year.
On the way the economy will work is once we have the equity and the shares on our balance sheet, we will have to mark to market.
That equity.
As they're a public company and at that point, you'll you'll get a better sense as to the size of it.
But ultimately.
We are in this to be shared success with Linda.
And as they succeed on the underlying equity is going to be another component of value of which.
It's just been created by this partnership and hopefully that will grow over time, and you'll see that on our balance sheet.
Thank you and are you now in discussions with other sports betting companies or is this it.
Kind of like open the door things so.
What are the opportunities to further expand in.
In that category.
Oh, there is enormous opportunity for us I mean this this transaction and this partnership is.
It was a significant transaction.
But before wouldn't bet.
We have had and continue to have strong relationships with other operators on the industry.
And we do have a lot of opportunities in.
And inventory and were in active discussions and as Mary, whereas I mentioned in my prepared remarks.
The the new policy of allowing.
In games sports betting advertising is a big deal and that's going to be truly incremental on premium pricing.
We expect to see from the entire industry not only from 1 debt hopefully, but from others as well.
And just a final question can you give us a sense of what happened to spot rates last year during the pandemic, where the company is on rates relative maybe to 2019.
Right so that last year.
Well I can't wait to stop talking about last year, but last year, we had birthday.
And a demand issue.
And you can see that from the second quarter last year revenues were down almost 47%.
Revenues were 156 million and were proud that we rebounded almost 55% from that.
And so that was a combination of both price.
Price and demand.
Now as we're looking at this year.
Rebounds.
There are certain markets that we've been able to take price up and in those markets, which have generally been.
Sold out or close to sell out so we are having some pricing leverage in <unk> in some markets.
But having said that some of the categories is still pretty.
Negatively impacted as we've talked about whether it's autos.
Restaurants Etsy.
Et cetera, so in those markets, where we're not sold out.
The focus is to try to get more volume and pricing hasn't really recovered.
Having said all that there are categories.
That we saw on the second quarter, which are at or exceeded 2019 levels.
We're pleased with net includes categories like home products.
Food products, and then the general services and financial.
Pretty close to 2019 levels. So.
Those categories helped us on the quarter.
But still offset by some of the bigger the categories, which are still slower to come back and overtime, we would hope to be able to exercise more pricing leverage as the demand comes back.
Okay. Thanks for the color I appreciate that that's all I have.
Thank you Mr. Kaminski. Our next question will come from the line of Bill Goldman with Cetus Capital. Please proceed.
Yes, hi, congrats on a great quarter and and on the Nashville Sal.
On the the wind debt I'm, just curious you said that they're spinning it off into a spec as Wynn resorts gonna still have on equity stake in the company as well.
Ah, Yes, well you should look at their website its pretty clear.
But yes, Wynn resorts will have the majority ownership.
The combined entity.
I'd ask you to go look at their website and it's pretty well detailed in there.
Got it okay. Thanks, and then secondly.
Secondly, in the quarter, you guys announced.
On the type of partnership with Uber can you guys give us some on the details around that.
Yeah sure. It's it's an exclusive partnership to represent the Uber car top outdoor advertising in the markets in which they are having lunch. So right. So far they've launched in 2 or 3 markets Atlanta, Dallas and I believe Chicago.
Next so we have the exclusive partnership rights to sell that inventory.
Got it and do you have you guys or can you provide any sort of.
Guidance as far as like order of magnitude on the financial benefits from from that that that you expect.
I mean, the financial benefits I think we'll be in direct correlation to how fast they grow them, but.
As I said, we're on to market so right now its not not particularly material but.
On the early early indications are theres, a theres a fair amount of excitement in market about those products.
Okay got it.
And then just lastly, when we think about Q3.
You gave a little bit of guidance on pacings I mean, how should we think about Q3 versus Q2.
From like a revenue and EBITDA perspective.
Yeah.
Well, obviously, we gave guidance for 2022, but not before.
Now for Q3 through 4 right Yep and okay.
Yeah. So the weighted so the way the way to think about it is that the level of improvement.
Well clearly moderate because if you look at the second quarter, we were comped against say really.
Brutal second quarter last year.
We continue to expect improvement in the acute in Q3 versus 2.
2019 on a relative basis.
But the actual magnitude of the improvement won't be as dramatic as the second quarter, because we did have some recovery.
On the third quarter of last year, albeit we get it.
Yeah, So what I'm trying to figure out is like as Q3 is Q2 sort of a run rate for Q3.
I'm sure should it look pretty similar.
Q2, Q3 should look pretty similar to Q2.
Yeah, No I think you got to look at the Q3 versus last year look on what we've talked about in terms of pacing.
And also remember Q3 Q3 last year did have a lot of political.
Right, Okay, which we with which we don't have this this year obviously.
Got it okay. Thank you.
Thank you Mr. Goldman Our next question comes from the line of Brian Kessler with first Trust. Please proceed.
How're you doing 1 quick question the minority equity that you are going to own.
And when that is that can be pledged as collateral for the term loans.
Okay.
Yeah.
Well all of our assets are pledged as collateral so that's part of the pool.
Thank you.
Okay.
Thank you Mr Kessler.
No additional questions waiting at this time I would now like to pass back to the management team for closing remarks.
Yeah.
Thank you everybody for joining us today, and we look forward to speaking with you again soon have a great day.
That concludes the Cumulus Media, Inc. Quarterly earnings Conference call. Thank you for your participation and have a great rest of your day.
Yeah.