Q2 2022 Cumulus Media Inc Earnings Call
Excuse me, ladies and gentlemen, thank you for your patience the call will begin momentarily again. Thank you for your patience the call will begin momentarily.
[music].
Welcome to the Cumulus Media quarterly earnings Conference call I will now turn it over to Collin Jones Executive Vice President of strategy and development. Sir you May proceed.
Thank you operator welcome everyone to our second quarter 2022 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.
Our 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 measure.
As 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 our SEC filings and 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. We also posted a Q2 investor update to our website, which we encourage you to download if you haven't already.
A recording of today's call will be available for about a month via a link on our website and with that I'll now turn it over to our president and CEO Mary Berner Mary.
Thanks, Colin and good afternoon, everyone.
To reiterate.
Are the fact that management fee.
Our mantra is Oh, gosh, acutely move decisively and execute efficiently and that mindset continues to pay off as our strong Q2 performance. Once again reflects our rigorous execution of our business plan, playing we strongly believe will provide significant upside for shareholders.
Elements of that plan.
Okay.
Oh 10 strategy she sends her.
Is it just on 10 and talent across channels to expand our.
Our audiences.
Multiple digital businesses develop profitably they want with Brooke.
I need to drive the company's ability to deliver sustainable topline growth.
Significant and continuing.
Costs, which are meaningfully.
Uh huh.
Profitability.
Generation.
Hi, art why internally, but.
And the approach and the generation of incremental Mary.
Yeah. This is Colin I'm, sorry, everybody, we were having some trouble hearing you married so let's try and see if we can get a.
32nd break maybe start you over again from a different location.
Okay.
Yeah.
Okay.
Thanks for bearing with us everybody.
Okay.
Okay.
Yeah.
Yeah.
Alright.
Yeah.
Okay.
Okay.
I think I'm. Good that's that's great, let's take it from the top thanks, everybody alright apology apologies everybody.
I'll start all over again.
To reiterate what we've said on prior calls our de facto management and cultural mantra is to focus acutely acutely move decisively and execute efficiently and that mindset continues to pay off as our strong Q2 performance. Once again reflects our rigorous execution of our business plan our plan we continue.
Strongly believe will provide significant upside for our shareholders elements.
Elements of the plan include our multi platform audio first content strategy, which extends our broadcast and digital content and talent across channels to expand and diversify our audiences.
Notable digital businesses develop profitably from day, one which have bolstered and will continue to drive the company's ability to deliver sustainable topline growth.
Significant and continuing reduction of fixed costs, which has meaningfully increased the company's operating leverage profitability and free cash flow generation.
A focus on high ROI internal investments a disciplined approach to M&A and the generation of incremental cash through noncore asset monetization and finally, the creative creation of a rock solid balance sheet characterized by best among peers net leverage and substantial liquidity, which together.
Enhance the company's financial flexibility and capital allocation Optionality.
For those who have followed Cumulus for some time you know that our implementation of this business plan has been both disciplined and unrelenting.
As a result, we have consistently and reliably delivered strong performance this quarter after quarter.
Q2 is yet another example of that and once again underscores why we have such confidence in our plan going forward.
Drilling down a bit more with our audio first content strategy to reach new audiences and extend our touch points with existing listeners we have been creating both new content and extended current content and extending current content franchises and personalities from broadcast to digital and vice versa. The.
The benefits of this content strategy or demonstrate straight in both our broadcast listenership performance, where our audience recovery since the pandemic has outperformed our major peers and in our digital listening groups. This listing growth, where we are which we are significantly expanding the impressions we take to market.
For example, most recently, we launched new mobile apps to extend our iconic sports brands can be are in San Francisco the ticket in Dallas and the zone in Nashville, with brand new user experiences and incremental content.
We've seen strong engagement as a result of this strategy with our average.
Active sessions total listening hours and session starts all up double digits since launch a great example of the multi platform audio first strategy pay off.
Additionally, as we previously announced for the first time ever we have a secured the digital audio streaming rights under our new NFL agreement and we expect strong interests. When the season starts from listeners who are unable to access this content through an audio stream last season.
So the Cumulus podcast network continues to help her podcasts partners and talent expand their audiences, which in turn provides us with more impressions to sell.
Notably in June five of our podcast, where we're in the top 25 of all podcast for a number of downloads. In addition to growing podcasts audiences. We were also able to deliver incremental value by extending our podcast relationships across the entire Cumulus platform as we've done with Dan bunch, you know when Ben Shapiro and others.
So this multi platform content strategy increases the diversity of channels, we can leverage to generate new monetize able impressions to drive revenue growth and we saw the benefits of that strategy and our 5% year over year revenue increase in Q2, most specifically we saw continued strength in local spot.
Up 8% year over year offset by ongoing weakness in demand from national clients, which impacted both our national spot and network lines. A challenge. We noted in our last earnings call, but led to overall broadcast revenue for the quarter coming in at approximately flat. However.
However, given the solid performance of our digital business and the contribution of political we grew revenue overall in Q2.
As a reminder, our participation in digital was nascent just several years ago, representing 7% of revenue in 2019.
Through the execution of our strategic plan, we have now developed three strong digital businesses, which represented 16% of revenue in Q2 up from 14% in Q1. This.
This past quarter was the seventh consecutive quarter of double digit digital revenue growth and growth accelerated in the second quarter from the first.
According to Advertiser perceptions June advertising study interest and intent to purchase podcast advertising are at record highs. So podcasts was not surprisingly our fastest growing digital business in Q2 up 27% year over year.
All in digital revenue contributed $138 million in revenue on an LTM basis, and podcast makes up approximately 40% of that with the other two businesses fairly evenly split.
Our digital marketing services business, which leverages the relationships of our local sellers with tens of thousands of local and regional businesses grew 22% in the second quarter.
Fueling that growth is our continuing expansion of the products, we provide our clients, including in Q2, the launch of a full array of integrated presence products ranging from listings and reputation management to website develop it in S. E. S. L. These.
These presence products are not only stickier, which will improve customer retention, but we also believe that there's a strong interplay between presence and campaign solutions, which will significantly increase the value of the digital marketing dollars that our customers are spending with Cumulus.
Our third big digital business as mentioned earlier is streaming which was up 12% in the quarter.
Another characteristics of our per for a characteristic of our performance is our ability to seed and develop these digital businesses, while simultaneously reducing fixed costs on a permanent basis, enhancing profit margins and driving free cash flow.
Against the 2019 baseline our fixed costs will be more than 75 million lower in 2022, and we realized $5 million benefit from fixed cost reductions year over year in Q2 alone.
As importantly, these reductions have not come at the expense of revenue. So they are truly net EBITDA benefits and net of inflationary pressures.
As an example last year, we leverage technology and process improvements to move our business manager function from individual roles in each market to its central consolidated function across markets.
Also applying some of the lessons from Covid regarding reduced in office operating footprint. This year. We have taken on 28 facility consolidations are reductions and we are continuing to explore explore additional opportunities for long term real estate savings.
So returning to where we started a rigorous execution of our business plan resulted in another quarter of EBITDA growth up 23% year over year and margin expansion up 280 basis points importantly, trailing 12 month EBITDA is now $166 million.
Up from $157 million last quarter $135 million in 2021 and $82 million in 2020.
This improving profitability also brings year to date cash generation from operations to 31 billion with quarters ahead of us that traditionally generate more cash flow and.
In fact, we have demonstrated our ability to consistently generate positive cash from operations even in the toughest of times for example, during the depth of the pandemic in 2020 to 20, when we generated 33 million.
This is allowed us to thoughtfully invest in efforts in assets that can help maximize our why as I mentioned earlier, we've been able to invest in the infrastructure systems technology and people on a fully organic basis to date to fuel significant growth in our digital businesses.
We've implemented systems that have allowed us to consolidate functions on the broadcast side like our business manager in traffic functions and while we're in the flow of off of opportunities on the M&A front, we've been judicious with a high hit rate of success with the tuck in transactions and swaps we've chosen to execute.
Lastly, we have bolstered our cash balance over the years to aggressively monetizing noncore assets such as land in towers, and we look continue to look for opportunities to generate value from our remaining noncore assets.
All of these aspects of our plan.
T platform content strategy, our digital revenue drivers strong expense management and cash flow generation and her high ROI investments have helped to fortify our balance sheet and put us in a position to have tremendous capital allocation Optionality and.
In Q2, we took advantage of that to execute a 25 million Dutch tender offer utilizing half of our 50 million share buyback authorization. Additionally, the debt market dislocation this quarter provided us with an opportunity to buy back $50 million of our bonds at a discount bringing year to date debt reduction to $62 million.
Reducing interest expense to partly counteract the impact of rising rates.
Inclusive of these actions well yet again reduce net leverage from three nine times last quarter to three eight times this quarter as we continue on our path toward our target of less than three and a half times.
The challenging macro environment that we're seeing now underscores the value of the actions that we took to reduce leverage strike that our balance sheet and preserve liquidity.
To that point, where experienced a tougher market, but we're experiencing a tougher market environment today than we were on our last call and even though we were a month ago national advertising demand remains weak the local challenge channels.
Relatively stronger and digital is still performing nicely.
Even that our Q3 total revenue pacing as we sit here today is down low single digits.
Given that pace and our current visibility we are on trend towards the low end of our previous EBITDA guidance range of 175 to 200 billion.
And with that I will now turn the call over to Frank to go through the numbers in more detail.
Thank you Mary we finished the quarter with $236 7 million of total revenue.
And higher from the previous year.
As Mary mentioned, while digital revenue was the key driver behind our growth this quarter. Our local broadcast offset continued weakness from national advertisers you will see that reflected in network performance, which was down 10 in the quarter.
The weakness in national spot also down.
8% year over year local spot.
Total spot performance to up 5%.
Within digital podcasting grew 27%.
Digital marketing services grew 22% and streaming grew 12%.
During the quarter, we also had $3 9 billion of political revenue.
As a reminder, we expect to receive most of our political revenue during the second half of year and more heavily weighted to the quarter.
From a category standpoint, we continue to see strong growth in physical presence categories, such as live Entertainment and travel. In addition professional services remains a strong category during the quarter on auto we're still expecting the weakness.
[noise] sector as we went down 45%.
Forget in 2019.
5% versus 2021.
In the quarter. We also began to see weakness in the National AD category, which was a large driver of the decline in national spot.
Moving to expenses total expenses in the quarter increased by approximately $3 million year over year.
Driven by higher variable cost and higher revenue, which more than offset fixed expense declines.
The combined revenue performance resulted in EBITDA for the quarter of $45 5 million, which is up approximately $9 million or 23% year over year.
Proven and EBITDA was a result of both higher revenue and higher operating leverage in the business.
The 75 million of fixed cost reductions being an active versus the 2019 base.
As Martin mentioned by $5 million of fixed costs can benefit as last year.
This quarter of 2019.
Costs were down approximately $25 million.
Moving to the balance sheet and cash flow, we generated $6 million of cash from operations during the second quarter.
Importantly, we repurchased 25 million of our shares through a Dutch auction for.
We also retired 50 million of face value of our singer and average price of 96, 8%.
This will result in $1 7 million of cash interest expense savings and half.
For the year and $3 4 million on a full year run rate basis.
Hence reduction collectively savings from our Q1 term loan pay down unexpectedly interest income from our cash balances.
Partially offsetting the impact of rising rates.
We entered there was 100 of cash.
At 635 nine.
Liquidity, including ABL availability at the end of the quarter was 204 million, we ended the quarter with net leverage.
One eight times down from three nine times at the end of the previous quarter. Despite the use of $25 million of cash and stock repurchases.
As evidence of the continued strong cash generation profile of the business.
As a reminder, we're talking reduce net leverage to below three five times.
Given our current outlook, we would achieve by year end.
As Mary mentioned revenue is currently pacing down low single digits at this 0.3.
That said, we expect a real political environment.
Okay.
Actions with trailing 12 months EBITDA of $166 million up from $157 million last quarter. We are on trend given what we see now to the low end of our 2022 EBITDA guidance range of $175 million to $200 million.
With that we can now open the line for questions operator.
Thank you.
I 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 press Star one if you're streaming today's call. Please dial in and enter star one.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question. Please.
I'll pause here briefly as questions are registered.
Our first question comes from the line of Dan Day with B Riley Securities. Your line is now open.
Afternoon, guys. Thanks for taking my questions. Just first one for me on the outlook down low single digits in the third quarter.
Can you just drill down a little more like <unk>.
Network was down 12% year over year in the quarter like is that expected to kind of trend lower in multiple sort of stay flat because I imagine network and sort of more on the national side, just maybe what you're seeing you know after quarter end on.
National versus local and then specifically a little more on the categories would be great.
Yeah, I can start on that and frankly, you can you can weigh in you know the for Q3 and this was encompassed in the pacing we continue to see weakness in both national and network again, as we said with relative outperformance continuing in local.
You know with local consumer unemployment.
Consumer demand and unemployment remaining relatively strong.
You know, it's it's holding versus other challenge. So we are seeing the relative outperformance.
In terms of categories, it's really what Frank said in the prepared remarks.
The the categories that.
Are doing well, so far or what we call the physical presence category as Frank said those that rely on people, who actually physically are going somewhere so travel entertainment and we saw some nice growth we continue to do that too.
Spec that.
Auto as we said continued to be a key factor that was holding us back.
And with no supply chain issues persisting much longer than we anticipated and financial which also includes insurance companies also weakened as the quarter progressed. What's also built in as you know, there's obviously upside in.
And political as well Frank is there anything else you'd like to add to that.
Two other comments in the quarter and the second quarter, we saw the decline.
And then network and national.
But towards the second half of the quarter versus the first half of the quarter.
For one pacing is at a point of time, but.
But we're still seeing the weakness says as we were here in the first five weeks.
In the third quarter.
And so we remain too.
It remains to be seen where the network is going to be but a continued trend.
The other thing I would add Dan is and we've talked about this in the first quarter.
Is.
We pull forward a whole bunch of revenues this year for the settlement of the wind transaction and so when we look at pace at the company on a company level.
It includes this thing last year. They had went bad revenues and this year does not so that is also factored into our current pacing down low single digits and lastly, I'll reiterate what Mary said most of the political orders come in towards the end of the quarter.
And will be seen how will that offset the rest of the business that we're constructive on that score for the third quarter and the fourth.
Awesome, Thanks, and then you're sitting here.
$9 million of cash on the balance sheet. That's that's a lot of cash for a company of your size just what should we be modeling for how aggressively you might use that over the next couple of quarters like obviously, an uncertain outlook. So maybe you want to have a little more cash sitting on the balance sheet than you otherwise would just how are you thinking about that and as far as the buyback like any thoughts.
On the cadence for executing on that and then.
Open market versus another tender offer with the buyback specifically.
On the stock repurchase side as we discussed we utilized $25 million of the 50 million authorization that we received from the board.
Station and next year.
And so it's our expectation that we'll continue to be active in the markets throughout the period that we have the authorization.
To buy back stock.
But we'll also be balancing what the market is and the liquidity is on that.
We're also we've been very careful stewards of cash and liquidity in the balance sheet.
And reducing leverage you saw that we took advantage of that in the second quarter.
We will continue to be opportunistic uses of our capital, but also want to be mindful of what the environment is in front of us but.
The goal here from a net leverage perspective is continue to reduce leverage.
I'm happy that we did the debt buybacks that we did because it's largely offsetting rising interest rates and.
We will have more to talk about it at the end of the third quarter.
Great well, that's all I got I. Appreciate you guys, taking my questions and I'll turn it over.
Thank you.
Our next question comes from the line of Pat Mccann with Noble capital markets. Your line is now open.
Good afternoon I'm.
Just going to ask a few questions on behalf of Mike Kopinski drop off the call a little earlier today.
Are there any updates on the amount of political that the company would expect for the full year.
Well the update is that the reference point you should think about it is in 2018.
We generated $20 million and a non potential election year.
The markets continue to be.
Fairly frothy the first six months to your political.
It's higher than that period.
For the first six months of two routine.
It's very back end loaded so our expectations is gonna be variable.
But again these are orders that we get.
Last minute you heavily skewed towards the end of Gordon began in the fourth quarter.
From where we see today.
We would be disappointed if we had less than 2018 results.
And that's all I can say on that topic.
Gotcha. Thank you and then also so obviously you know there's been a lot of national advertising weakness could you comment on as far as local is concerned any regional disparities in your station groups.
Yeah.
Well when you think about our local businesses most of our local business revenues is really local direct and local agency.
The National component does go spot business, and that's less than 20% of our local business.
And when we look around the country in terms of our direct local businesses.
They continue to be.
Functioning pretty well unemployment is low.
Present categories are up.
<unk>, which is a reflection of the economy.
We are mindful of a recession that has talked a lot about them.
Yes, and on the news.
But at this.
The local business is still facing.
<unk>.
And we'll just have to wait to see if that continues but at this point, it's reflected in our pacing so.
As a reminder are pacing down low digits incorporates weakness in national.
At work strong political expectation.
Our strong digital and a fairly big.
Local spot business.
Excellent. Thank you that's all I've got.
Oh.
Thank you.
Our next question comes from the line of Jim Goss with Barrington Research. Your line is now open.
Alright. Thanks.
I would like to ask one about the digital marketing services business.
We're familiar with a couple of other companies that have similar sort of businesses, but I wonder if you could talk a little bit more of.
What you view as the growth potential there.
And the type of markets you tend to serve and is it is it very focused or is there a broad palette of products you are.
Trying to present to your clients.
Well I'll take that thanks, Thanks for the question Jim.
You know, it's it's it's a good business for US are we you know as as you can see we continue to build the capabilities of the of the marketing services business.
And so what we've generally had is advertising campaign products and that those have been central to our our growth over the past few years, but by adding a what is a full suite of integrated presence products. So it's.
Its listings as we sat and reputation management and website development in doing that that that as we mentioned also in our investor presentation that increases our total U S. Tam to an estimated 15 billion and growing and so essentially the way we look at it is there's lots of small digital agencies that are built.
Paid digital media capabilities and there are a lot of several there lots of large providers of single point solutions, but there are very few companies that conceptually conceptually successfully offers smbs like really small we're talking you know businesses zero to 50 employees the full spectrum of digital marketing solutions.
And.
Very few that are able to do it profitably and at scale, but that's what we're doing so what we do is we provide advertisers with unique packages and unlike others, we often combine the audio and the digital advertising seamlessly.
Two for improved Rois for our clients and so really so far and we expect it to continue and I think it is differentiated we are leveraging the relationships that we have already with tens of thousands of local.
And regional businesses to tap into the growing market and we do it with our sales force and so they're going to market with innovative.
Product so yes, it's a huge spectrum of product.
Okay.
A couple of others political dollars are what is what are you roughly you're expecting this year with is there a framework that we should look for.
I'll repeat you may not have heard Jim last question.
So the way to think about it in the way with their 2000.
Sure.
2018.
We've got you once you get some political dollars right.
Our babies repeat that.
Political dollars in advertising.
Yes, I was just what type of pricing trends.
Yeah.
Okay Ah political in 2018, Jim was $20 million.
And our expectation and in turn models are to be at least the same as 2010.
And.
The first half of this year on attracting basis, we were up slightly ahead of pace.
In terms of actual political dollars in 2018.
Okay, and maybe last one.
You know given that you've been.
Sort of coming out from under some.
Pressures with the company and trying to create the new version of it but is there any logic to any M&A.
Or would that map, where they're not really be synergies or.
To any any sort of activity like that you know would there be any reason to look for it.
The additional properties at least until everything.
In the core business is.
Running at full.
Full speed.
I'll answer that Jim.
So we do look at it.
Everything across our portfolio for opportunities too.
To be bigger be more efficient cut costs enhance revenues and enhance EBITDA and hence our growth strategies from a business perspective.
And so we look at that across our.
Traditional radio platform.
I will say that most of our focus.
Then more on the digital side versus traditional okay.
And and.
Digital is the Arizona.
As well it's.
That's not to say if theres enough synergy on our base business.
Legacy.
Jim increase.
The strengths in the market we.
We will cause that carefully, but we do look at all opportunities.
I would say the Uh huh.
Environment.
Hum.
Wyatt on smaller.
Tuck in type of acquisitions on the on the radio side, but.
But you know what.
All of what's out there.
Most importantly, we look at through the lens what is the best ROI for the what's it for capital.
Returned to Russia.
And and that's why we did it.
Yes.
Stewards of her capital throughout this.
And throughout and generally how we manage the company.
Yeah, and I would remind I would want it.
Yeah, and I'd like to just reiterate what Frank is saying is that that that we will be opportunistic where we're always looking and are fortunate to have the balance sheet and liquidity to do so which I think really differentiates us.
Okay. Good point.
Alright, thank you.
Thank you.
Our next question comes from the line of Avi Steiner with JP Morgan. Your line is now open.
We don't break out.
We don't break out national in particular and Ah.
Our press release.
We will see.
They work in concert.
That's the key categories.
236 points.
Revenue in the second quarter.
Broadcast revenue was $175 million.
And there are two categories within broadcast spot there is spot, which you should think about really is our local business in that.
Business that goes internationally that was $127 million.
Work was just under $49 million.
Then as a separate line, we have digital digital was $37 8 million.
Since 16% of our revenues.
The other category of 23 million, that's true and that's basically a non traditional revenue like concerts.
Hum.
Events.
Course, etcetera, so that's the breakdown.
And you'll see that on page three of our earnings release.
Thank you.
And then I thought you mentioned the opening remarks.
That you secured digital audio streaming rights of the NFL and correct me, if I misheard that I apologize.
But I think I heard it correctly and I'm just curious if you can elaborate on that at all and.
How to think about the impact to the company if any on financials.
Yeah sure you're just not this here we are.
Westwood one has we did extend our digital NFL deal in a multi year agreement.
And it includes for the first time the digital streaming rights. So what that means is we're now able to combine broadcast impressions with our new digital impressions and what I would say is that we're in the early days of monetizing the incremental audience opportunity.
But we do have strong sponsorship interest for the upcoming season. So it's really.
It really too early to quantify and not material to the company as a whole, but it does provide EBITDA upside to the relationship we believe with what is a.
Very high value premium content franchise.
Okay, perfect and last one kind.
Kind of bond nerd stuff and thank you for the time any covenant restrictions or anything to think about if the company wanted to buy back more bonds and again. Thank you all for the time.
A simple answers.
Yeah.
I didn't hear that simple answer, but I can so I don't I don't think we heard it.
No Oh, I'm, sorry, I'm, sorry, no problem yeah. The answer is we have no. He couldn't hear if there's no no restrictions.
Thank you all very much thank you.
Thank you there are no additional questions waiting at this time, so I'll pass the conference back over to MS. Brenner for additional remarks.
Thank you all for joining us today, and we look forward to our call in the next quarter. Thank you have a good day.
That concludes the Cumulus media quarterly earnings Conference call. Thank you for your participation you may now disconnect your line.
Yes.
Sure.
Yes.