Q3 2021 Cumulus Media Inc Earnings Call
Good afternoon.
Thank you for attending Cumulus Media, Inc. Quarterly earnings Conference call. My name is Bethany and I'll be your moderator for today's call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question. Please press star one on your telephone keypad I would now like to pass the.
The conference over to our host Collin Jones, Senior Vice President of corporate development and strategy Sir.
You May proceed.
Thank you operator, welcome everyone to our third 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 them.
As presented in accordance with GAAP.
A full description of these risks as well as financial reconciliations to non-GAAP terms are in our press release and SEC filings.
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 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 afternoon, everyone. Once again this quarter's results across the board were strong and exceeded expectations another quarter validates the continuing success of our ongoing transformation from a one dimensional radio company to a multi dimensional audio first media company.
Q3 results also demonstrate the impact of the multiple drivers of shareholder value creation that are propelling our growth.
These include anticipated additional recovery of the radio market.
Multiple digital growth initiatives with net which now represent over 14% of revenue and have generated more than $115 million of the last 12 months.
Cost reductions starting with the actions we've taken that will deliver more than 70 million in fixed cost savings in 2022 versus our 2019 baseline.
Robust free cash flow profile and aggressive deleveraging strategy.
2000, and since our 2018 restructuring we've reduced net debt by more than 600 million or approximately 45% or $30 per share, which has resulted in a very strong balance sheet and finally significant flexibility with respect to capital allocation.
All this said we don't believe that our current stock price fully contemplates. These drivers are what the company is and where it's going.
The new Investor presentation, We released last month, which you can find on our website walks through our transition from a legacy radio model to the small bubbles.
Multi product multi channel on demand audio first media company that we're building today.
Eight a new model that significantly expands the markets in which we participate generates new audiences and gives us the ability to drive profitable growth.
At a high level, we've always created value by linking our two main constituencies, our listeners and our advertisers.
This business model evolution further leverages the assets by which we create this linkage our talent and our sales force.
While we wont do talent singularly as radio Djs, we now see them as multi dimensional audio content creators, whom we helped expand the a mouth types and distribution of audio content, they generate to deepen engagement with their current listeners and to attract new ones.
Through this strategy, we generate billions of monthly impressions from a wide variety of audio sources, including podcast streaming live and virtual events. In addition to radio which are delivered on demand time shifted or on fixed schedules, allowing listeners to access the content on their own terms and getting current and few.
Sure advertising partners, even more opportunities to access and activate customer relationships.
Additionally, our more than 800 person work Salesforce, who can walk product into the door now goes to market with this greatly expanded package of audio impressions, plus a robust and complementary suite of digital marketing services.
<unk> our ability to serve clients ultimately this re imagination of our core assets has allowed us to expand our total addressable market beyond the 14 billion legacy radio AD market to a 30 billion and growing Tam comprised of radio digital audio and digital marketing services.
Within the context of this new strategic positioning the key drivers of shareholder value I mentioned or as evidenced in third Q3 already working to create value for the company and its shareholders.
First the post pandemic rebound of traditional radio will continue to be a significant driver of our future performance. In Q3 total revenue was up 21% with broadcast revenue up 15% representing continued sequential improvement quarter to quarter versus 2019.
But the pace of the recovery has been muted by protracted pandemic effects included with respect to certain key advertiser categories like auto restaurants, retail and entertainment, which are seeing ongoing impacts from later labor shortages and supply chain issues.
Even recapturing a portion of the decline from pre pandemic levels in just these AD categories represents a significant rubber new revenue opportunity for us.
Additionally, certain categories like government sports betting professional services general services and financial are approaching or even exceeding 2019 levels.
Sports betting in particular has been on fire.
Sorted by the multi platform partnership we launched with win bet last quarter as well as business that we're booking with many others in the space, including more than eight new sports betting operators.
<unk> added in the last several months, we're on track to grow this category both by more than four times 2000 Twenty's spend it.
Additionally, we are optimistic about several categories that are showing particular traction recently, including recruitment events and pharmaceutical.
The second key driver is growth from our digital business lines, which collectively grew 67% year over year in Q3.
Each with a unique positioning that allows us to capitalize on overall digital market tailwind and the expanding streaming market for instance, we take a big tent approach, meaning that we believe that listeners expect to consume content wherever and whenever they want so we have created the most expansive streaming offering with their content available on more platforms.
Any of our peers, giving us the greatest giving us the greatest opportunity, we believe to grow our audiences and our sellable impressions and our audiences love our content in fact in Q3, our average time spent listening to our streams was nearly an hour the longest of our major peers.
In the podcast space, we've focused our efforts on developing a profitable sustainable growth model largely built around personality driven content and best in class monetization. We represent some of the biggest names in podcasting with multiple shows once again, placing in the top 10 of all podcasts in Q3.
In total our podcast platform generates more than 1 billion downloads a year and in Q3, we moved into the top five pod tracks podcast company Rancor.
And our digital marketing services business can continue to gain momentum this quarter as we leveraged our relationship with smbs to deliver more value for them as a one stop shop for their marketing solutions, resulting in revenue growth of more than 50% in Q3.
Third it is in our DNA to be relentless, but judicious cost cutters highly effective at paring costs without impacting the top line.
Last quarter, we increased our guidance regarding permanent fixed cost reductions for 2022 from 50 million to more than $70 million versus the 2019 baseline and this quarter alone we realized nearly 10 million of year over year fixed cost reductions were not done of course, as we continuously focus on new ways.
To reduce expenses to enhance margins and operating leverage.
Fourth our free cash flow profile in combination with EBITDA growth will continue to drive significant deleveraging.
In Q3, EBITDA more than doubled over the prior year, and we generated $13 million in cash from operations.
Looking further out on our last earnings call. We guided that we expect 2022 EBITDA to be in the range of $175 million to $200 million.
And while the market climate in the short term is now more of a headwind than we were expecting when we initially issued this guidance, we still see EBITDA in that range.
This outlook will further result will result in further rapid deleveraging and if you normalize for the forgiveness of the PPP loans that we received just after the end of Q3, our net leverage ratio is already before below five times. So we are well on our way to getting below our near term target of less than four times.
Last and importantly in 2022, our balance sheet and liquidity profile will provide us with flexibility in capital allocation that we've never had before.
We will maintain the patience and discipline that have guided us over the past few years.
We now have additional flexibility for M&A, if we find the right opportunity to further accelerate growth also.
Also we're working with our board to determine our longer term leverage targets and consideration of potential timing amounts and forms of capital return to shareholders.
Given the range of magnitude of these drivers of shareholder value creation, along with our strategic repositioning we firmly believe that our current stock price is price is now at a highly attractive entry point for investors.
Before turning to Frank I'll spend a minute on our short term outlook.
The Delta variant surge certainly impacted the beginning of Q4 and as I said, we are still experiencing impacts from the supply and labor shortages on certain key advertising categories.
That said, we expect these factors to abate at some point point in 2022, So we don't anticipate them being a significant factor in our long term performance, but there definitely is more of an impact in Q4 than we expected three months ago.
Currently we are pacing up slightly versus 2020, which had a.
Political component and ex political were pacing up in the high single digits compared to 2019, where the political comp is less relevant we're pacing down to the mid teens, we expect that our pacing will continue to improve as we go through the quarter, though not to the extent that we've seen in prior quarters with that I'll turn.
It over to Frank.
Right.
Thank you Mary and it's good to speak with everyone again after a busy three months.
Third quarter was another strong one in terms of topline recovery, we finished the quarter better than the plus mid teen percent pacing indicated on our last call.
With total revenue of approximately $238 million.
Up 21% from Q3 2020.
This increase represented continued improvement versus 2019.
As we executed well in the context of the recovered market.
For comparison Q1 finished down 25% versus Q1 2019.
Q2 finished down 20% versus Q2 2019.
This quarter finished out approximately 15% versus Q3 2019.
Digital revenue was again, the bright spot up 67% year over year.
As with prior quarters certain categories are approaching or exceeding 2019 levels like government sports betting professional services General services and financial while we continue to experience pandemic related impacts and auto and other categories suffered from supply chain disruptions and labor shortages.
On the expense side total expenses increased in the quarter by approximately $16 million year over year.
Similar to last quarter that increase was driven by the return of costs related to actions that we took in response to COVID-19 last year.
Including furloughs salary and benefit reductions which were temporary as.
As well as the return to variable costs on higher revenue.
These increases were partially offset by nearly $10 million of fixed realized fixed cost reductions year over year.
As Mary said.
We reiterate our view that we will deliver more than 70 million for fixed cost reductions in 2022, when you compare it to the 2019 baseline.
The combined revenue and expense performance resulted in EBITA for the quarter of approximately $46 million.
Yeah.
Now moving to cash for the quarter cash from operations was approximately $13 million driven mostly by higher EBITDA, partially offset by working capital use and higher revenue.
Capex for the quarter was $10 million, which brings us year to date spend of $22 million.
For the full year, we're still tracking to approximately 3 million guidance, we provided earlier in the year.
On the balance sheet, we are pleased to announce that after quarter end, we received forgiveness for the $20 million of PPP loans, where we received earlier in the year.
I would note that as you will see in our 10-Q this will be treated as cancellation of debt income for book purposes, but not for federal taxes.
It was $153 million of cash on the balance sheet at quarter end and pro forma for the PPP loan forgiveness. We finished the quarter with net debt of $653 million net leverage ratio just below five times based on trailing 12 months EBITDA.
This shows fantastic progress towards our near term goal of reducing net leverage to below four times.
Finally, I'd like to add a little color to next year's guidance, but we're seeing the short term headwinds Mary mentioned earlier our <unk>.
Long term view remains intact, assuming that our expectations regarding these exogenous factors borough.
We anticipate generating EBITDA in the range of 175 to 200 million next year.
On revenues in the billion dollar plus area and.
We expect to delever to less than four times net debt to EBITDA with that.
We can open the line for questions moderator, we're ready for our first question.
Secondly, if you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question. Please press star followed by two again to ask a question. Please press star one.
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The first question is from the line of Michal Krupinski with Noble capital markets. You May proceed.
Thank you good afternoon.
Just a couple of questions here.
I was just wondering if there is a variance on how your larger markets are performing versus some of your smaller markets and then if you could just talk a little bit about the difference between maybe local versus national or or even network for that matter and if youre seeing a variance there and then in terms of the chip shortage in the auto category what is auto.
In terms of total.
Revenues at this point.
Sure Hi, Mike Thanks for the question.
So in aggregate for the first question the large and small markets in aggregate the revenue performance between the diary, which are small markets and the P. P M or large markets is is somewhat comparable but there are different trends underneath that which are offsetting each other so you know lagging Kevin the lagging categories that we spoke about.
Aldo we call them physical present, other physical presence category advertisers have lagged more in smaller markets and there are a greater percentage of revenue and smaller markets. However categories like sports betting had been more impactful on the positive side and listenership levels are down less in.
Smaller markets.
The larger markets are seeing a greater impact from the virus impacts.
Given more density as well as.
A slower listenership recovery, so but in combination we're seeing comparable.
Total revenue performance.
And I think your second question, Yeah, and I think about auto is auto.
It's it's it's not as big it's not as big of a category as it was when the global financial crisis happened in 2019, it was our fourth largest category.
Can you give any color there.
Mhm and then on the National network versus local I mean, I'm, just trying to get a sense of how much of an impact you're seeing from those.
Either the national and the network side.
Regarding some of the issues you were talking about.
Hi, Michael it's Frank I'll take that.
Well it varies obviously from quarter to quarter.
I'll say that if you look at pacing.
And the in the fourth quarter.
Our national business is actually doing.
The best of the different channels, followed by the network and the local is.
Lagging and.
That's impacted as Mary talked about with.
With regard to physical presence in the auto.
Auto categories.
The other thing I wanted to ask and you mentioned you also asked a question on.
Autos another way to think about how the business is being impacted.
If you look at the third quarter.
The auto category puppies other physical presence.
Categories like our retail entertainment restaurants et cetera.
That represented roughly 40% or thereabouts of our third quarter revenues at our at our station group that total company revenues.
And so that does have a chilling impact on the results, but also gives us a big opportunity.
Once those categories come back.
Yeah.
Got you and Barry you mentioned that the.
Podcasts are profitable I was wondering can you give us a sense of where the margins are currently in the digital segment as a whole and what do you think are the sustainable margins or target margins that you might have let's say over the next year or two.
Yeah, I mean, well one thing I would say is we've been unprofitable since dollar one on podcasting and the podcasts segment I believe as we've said before the margins are set around where the network margins or so in order streaming margins are the highest and they mirror what close to radio broadcast radio Martin.
<unk> are in the mid <unk> mid range is digital marketing services and then.
Mirroring the broadcast the network margins would be podcast thing.
Okay Gotcha, Alright, and then you did mentioned the prospect of looking at acquisitions, maybe doing M&A at some point as your leverage gets down here now comfortably in the below four times next year.
Give us a sense of where you would might be looking at in terms of making acquisitions and just maybe some parameters around your strategy there.
You know I would say generally when we consider M&A, it's to fuel growth and in general that's where we identify interesting opportunities to do so accretively.
If you think broadly about the buckets it it it could be to you know improve our our current.
Broadcast if we have a deal a broadcast portfolio generally, though they're going to be to drive that.
Digital growth, particularly in the podcast and digital marketing services area.
Gotcha. Okay. Thank you that's all I have thank you.
Thanks.
Thank you Mr Kucinski.
The next question comes from the line of Dan Day with B Riley Securities You May proceed.
Yeah.
Yeah, Hi, guys. Thanks for taking my questions just to piggyback off the earlier question on the margins.
The guidance looking to next year seems to imply here.
Getting back to where you were a margin wise.
<unk> 18, 19% blended EBITDA margins.
You know as the digital side grows.
Becomes a bigger part of this business, where do you think margins can shake out longer term. So I mean is there upside into the twenty's on that front or do you think that's.
Around where you'll be in those high teens.
But Dan I'll take that it's Frank.
No, we're not giving longer term guidance beyond 2022.
But I will say the following.
We always focus very pencil as Mary said in her prepared remarks in terms of cut.
Cutting our costs without impacting revenues.
And what you've seen over the past year and a half and.
Part of the operating leverage that we're getting and the company is the reduced fixed expenses of $70 million going.
Going into next year versus 2019.
And so while the digital businesses.
Particularly in podcasts and have lower margin.
We're gonna look to push the margin as much as possible and that's.
Driven by our focus on costs the return.
The traditional radio business.
So we're pushing hard to increase the margins and that's all I can say at this point.
Yeah, No that's great and then just you know.
In the past you've said that the digital revenues are split.
Pretty evenly between the three buckets that a third a third a third is that still the case or has one of the segments, maybe even growing to the point that that's no longer applicable and one is sort of taken over the others.
It's generally.
Proportional, but I would say with the Covid, maybe you talked about 50% growth that we had in our digital marketing services business in the third quarter.
The robust growth in podcasting those two categories will represent a little bit more than our screaming.
But each quarter and so it's like it's like different so they are all growing rapidly.
They may not be exactly a third a third a third.
We're happy with the growth in all three months of the digital tools business that we have.
Awesome and then just one more on the network side.
This sort of it was a business doing 300 million plus you know run rate revenues before COVID-19.
Just just any thoughts on.
What you're baking into as far as the recovery there for next year and then how quickly you might be able to get back to that run rate I know that advertisers tend to book a little bit more in advance in this segment versus kind of your spot revenues or just maybe any commentary on how things are shaping up for 2022 on that front would be great.
Well look we continue to be constructive.
Constructive in 2022 in terms of growth from from this year.
You heard my comments about the roughly $1 billion revenue at this point were not breaking it down between the broadcast and the network.
We continue to focus on growth in all of our traditional channels.
Great. Thanks, and then last quick one just near term on the network.
You're kind of higher profile personalities as spin off there just anything.
If you think of as far as make goods for <unk>.
Advertisers or anything.
As that plays out.
Yeah, No I mean, you know.
We have a lot of terrific talent, including our talent with forbidden fanbases, and whose appeal of courses passion and strong perspective. However.
Talk radio we're leaders in this space so when they used to working with our talent across platforms and situations that you're referring to Frank do you want to add a little more color on.
So.
The business in particular, telling you were talking about.
Ah is a nice and a nice business as a matter of business for us.
And very successful, but having said that when you look at the overall scheme of the size of the company.
The implications are really not material. So something we'll continue to work through but it's not going to have a meaningful.
And our results.
Great I appreciate you guys, taking my questions and I'll turn it over best of luck.
Thank you. Thank you Mr Dey.
There are no additional questions waiting at this time I would like to pass the conference back over to Mary Turner for any closing remarks.
Great well, thanks, everybody. Thanks for joining us and we look forward to speaking with you I guess I guess that next year have a great day.