Q4 2022 Cumulus Media Inc Earnings Call
Services portfolio.
<unk> not only does this change gives us more products to monetize it also greatly expands our ability to serve our clients and attract new ones. We remain bullish about the potential of this revenue stream not only given the more favorable underlying local advertising climate, but also our strong capabilities and go to market position.
Go to market positioning that should help us capture share in the digital marketing services area, which is still highly fragmented, but has a more than $15 billion and growing total addressable market.
So as we operate in a highly uncertain environment, Here's where we are currently the national advertising market is our biggest challenge, particularly given our relative exposure to national revenue streams, but as I said, we have a very strong track record of executing well through challenging times, which is what we're doing now as a reminder.
Or even during the pandemic when full year revenues declined 25%, we generated $33 million of cash from operations.
And Moreover, as this weakness debates, we have the assets needed to achieve outside benefits on the upswing.
In the meantime, we are taking every advantage of the relatively better local climate through portfolio optimization strong sales execution and leaning into our digital businesses in particular, our local digital marketing services business.
Where we see significant growth opportunities and an unplanned underpenetrated, but large total addressable market.
On a parallel path, we're continuing to rigorously manage expenses finding ways to reduce fixed costs beyond the approximately $90 million of reductions executed to date versus 2019 to mitigate the impact of the loss of the wind that revenue as well as off cycle political and high margin national revenue declines.
The operating leverage that we've created while office also benefit us when the market turns in our favor as was demonstrated by 2020 twos financial performance of EBITDA growth of 23% on revenue growth of 4%.
And finally, we are in an enviable financial position ending 2022 at three seven times net leverage with more than $200 million of available liquidity. The strong position gives us considerable confidence in our ability to both optimally navigate the difficult advertising environment in 2023 and to act opportunistically to make it.
<unk> that can accelerate growth in 2024 and beyond with that Frank I'll turn it over to you.
Thank you Maria I'll.
I'll begin today with our fourth quarter financial results, followed by commentary on the full year.
Fourth quarter total revenue was approximately flat year over year with digital revenue growth and political revenue, mostly offsetting continued weakness in national <unk>.
<unk> political fourth quarter revenue was down approximately 3%.
As Mary mentioned earlier, we are experiencing significant weakness in national advertising impacting most ad categories.
Within spot revenue General services home products and automotive all grew in the quarter.
Spreading was our weakest category driven by the loss of window as well as some other large sports betting companies have pulled back spending.
Digital revenue grew by 8% with streaming revenue up 21%.
Fitting from the addition of the NFL streaming rights.
We saw strong listenership growth as the season progressed during our first year of the rights package, which provides us a strong base for 2023.
Digital marketing services revenue grew 3%, but the current run rate for the business is much higher in the fourth quarter growth rate.
<unk> revenue grew 2% in Q4.
Total expenses in the fourth quarter were essentially flat, resulting in EBITDA for the quarter of $42 7 million, which was down approximately 1% from last year.
For the full year revenue of $953 5 million was up 4% versus 2021 similar to our Q4 results local outperformed national for the year.
Digital revenue growth was strong up 12% with digital marketing services up 16%.
Streaming up 12% in podcasting up 11% for the year in aggregate our digital businesses had an annual run rate of over $150 million based on Q4 performance and represented approximately 15% of our total revenue for the year.
Total expenses increased $6 million driven by higher variable costs associated with higher revenue.
Mix shift towards digital revenue streams and inflationary pressures.
These increased costs were largely offset by continued fixed cost reductions.
<unk> finished at $166 million, an increase of 23% compared to 135 million in 2021 and in the upper half of our guidance range of $160 million to $170 million.
Turning next to cash flow and the balance sheet during the quarter, we generated $24 million of operating cash flow, bringing full year operating cash flow to $78 million, which even after accounting for debt repayments and share repurchases led us to finish the year with $107 million of cash for.
For the full year, excluding M&A free cash flow was it.
It was approximately $50 million or more than $2 50 per share.
Along with the availability under our ABL revolver, we ended the year with total liquidity in excess of $200 million.
Capex for the year was $31 million in <unk>.
2023, we expect capex to be approximately $25 million.
During the quarter. We retired 21 5 million of debt at a discount, bringing our total 2022 debt paydown to $86 5 million.
This debt reduction will result in approximately $6 million of cash interest expense savings on a full year run rate basis, which mitigates some of the pressure, we see from increasing interest rates.
Since 2018, we have reduced net debt by approximately $650 million or 50% and since the start of the pandemic. We increased decreased net debt by approximately 400 million or 40%.
We ended the year with net leverage of three seven times down from four seven times at year end 2021 and from six times in June 2018.
In addition to reducing leverage we also repurchased $2 $9 million worth of shares in the quarter, bringing share repurchases in 2022% to $31 8 million.
Total share repurchases represented approximately 12% of shares outstanding at the beginning of the year.
Looking ahead to the first quarter and the year more generally in addition to the weak advertising environment, we face two items that create typical comps.
First as Mary mentioned in Q1 of 2022, we benefited from approximately $10 million of revenue related to the termination and wind down of our relationship with wind at most.
Most of that revenue was booked as other revenue with a smaller portion booked spot revenue.
Additionally, with 2023 being an off cycle year political will be another comparison headwind.
As we look at our current pacing, we are pacing down in the low double digits.
Normalizing for wind and political this pace would have us ending the quarter down mid single digits.
As Mary said, the current operating environment is difficult, but we have executed in more challenging environments before.
Risen to the occasion each time.
We expect this time will be no different as we focus intently on investing in growth areas, reducing costs and continuing to be strong stewards of the company's capital.
With that we can now open the line for questions operator.
Absolutely 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 move that question. Please press star followed by two.
Again to ask a question press star one.
As a reminder, if you are using a speakerphone. Please remember to pick up your handset before asking a question.
Pause here briefly ask questions I registered.
The first question comes from the line of Avi Steiner with Jpmorgan you May proceed.
Thank you and good morning.
I'd like to start.
Maybe on the AD environment Mary.
You spent a fair bit of time talking about the press that environment, the economic headwinds et cetera.
We now have your pacing and I guess.
First off what does it look like if you can tell us beyond Q1, I know, it's early and you talked about green shoots in auto but anything else. Once we get past the start of the year that we should be thinking about.
Yes, Hi, Avi.
Yes.
I think.
You say it rightly, it's a little bit too early too early to tell but.
As you've read as everyone's read and this is an across the board.
Weakness in AD based businesses in national.
I think that we're for US we're better positioned in this downturn than we have been in any others. Given the fact that we built our digital business to 15% of our business and that is growing, albeit at a slower pace, but it is growing.
So that said as I said the prepared remarks, we are disproportionately impacted by the national adverse action in particular because of how much national AD business. We have I mean anecdotally we are seeing.
Certain large advertisers go dark for a period.
And theyre, not saying Theyre out forever Theyre, just going dark for now. So these are categories like insurance and retail or what we're hearing is that they are pushing out their spending.
Later in the year to maintain optionality.
And all of that.
And what were hearing pretty consistently indicates that what we're experiencing is a temporary phenomenon, but as I said I don't have a crystal ball, none of us do and.
And all of us are paying attention to the same headlines as everyone else around interest rates and inflation and otherwise so as those factors get better we are.
We think the national business, well as well.
Okay, great two more here.
Just following up on that given the challenging ad climate.
I'm wondering if you can talk about the expense side.
Some pretty good success, historically, but maybe some levers you can pull if you could dig there and I believe historically the company had.
Given an EBITDA range and I'm wondering if that's something you want to offer today full year first quarter, otherwise and thank you I have one more after that thank you.
Hi, good morning, all.
I'll take that.
As you know, we continue and will focus on fixed costs.
And the $90 million of fixed costs, we've taken out versus 2000.
19 is actually higher than the $75 million range that we provided.
Last year.
Last year alone.
Including the impact of inflation, which does impact our business we did reduce.
Costs, another $7 million versus the year before.
And this year, we will continue to focus on areas of productivity.
And contracts et cetera to reduce to reduce costs, but we don't have the same.
The amount of cost to take out as we have in the past given the magnitude.
That's the first question.
In terms of guidance.
As a reminder back in August of 2020, 'twenty. One we provided guidance for 2022 at a point in time, because we're receiving questions as to how we're going to recover from Covid.
And we took that unusual step wasn't common an unusual step to give guidance.
On the visibility that we saw then.
Employs 18 months later.
World has changed and we lost a win that relationship we didn't foresee the recession.
And we ended up $106 6 million of EBITDA, which was pretty close to the low end of the range, we provided a year.
A year and a half ago.
Going forward a return to our historical.
Pattern, which is not to provide guidance for the year or the quarter.
Ally on pacing.
Give any additional color commentary within a quarter, which I'll do now in May we talked about.
Last year, our first quarter EBITDA was $31 5 million.
The two one time events of <unk>.
When bad and political represented approximately 11 million of EBITDA contribution last year.
So if you subtract that out of the 31 5 million that would be an apples to apples comparison, and then on top of that.
You're going to have to factor in the fact that normalized there's one events were pacing down in the mid single digits. So you can work through the math on the contribution margin and what that could imply for EBITDA in the first quarter.
That was actually very helpful. I appreciate that very last question from me and thank you all for the time. So one of your peers seemingly an asset monetization mode and part and I'm. Just curious how we should be thinking about potential opportunities there for Cumulus, if any and maybe M&A Cumulus overall I think you sold something.
In the early part of this quarter, which I assume goes to debt repayment. Thank.
Thank you all again.
Yeah to start.
I I want to reiterate which I don't think can be reiterate enough that we have very strong balance sheet position and liquidity. So that does put us in the enviable position of not having to worry about refinancing in the year term or any cash constraints.
And as you pointed out it gives us optionality too.
Do a lot.
We have.
We have.
Many of our competitors are great partners of ours commercially.
And there are a number of assets in terms of markets.
Digital and otherwise that are fairly complementary between our platforms, both us Odyssey ni hurt.
It doesn't make sense for us to comment on any situations, specifically, but I do want to say that there are any opportunities out there that makes sense for US you should assume that we are focused on running those to the ground.
Of course.
All of this is in the context of what we mentioned in the prepared remarks about how we will intend to continue to be strong stewards of the company's capital.
Thank you.
Thank you for your questions. The next question comes from the line of Michael Kaplinsky with Noble capital markets. You May proceed.
Thank you for taking the questions I appreciate that.
Historically national weakness tended to pretend to trend in two weakness in local and I was wondering if you can talk specifically about what youre hearing from your local advertisers and pacings for Q2 on the local level versus that which you have seen in Q1.
Hi, Michael it's Frank I'll take that.
It's too early to for us to really to talk about second quarter pacing.
And I'll.
I will just leave it at that I would say.
What were generally seeing in the local markets.
As we generally read about or see.
See.
That's a commentary on the economy, which is with the lower unemployment rates.
There are parts of the economy, which are doing okay.
And we're seeing that in the local markets.
And from a pacing perspective, when we think about pacing.
Facing down on the.
Low double digits.
The local markets are slightly slightly negative and holding up pretty well.
And part of the part of the local markets and as Mary talked about is not only what youll see in spot revenue, but the exposure we have to local and our digital businesses, which is which is actually healthy and growing.
And so look at this point.
The first quarter is slightly weaker than the fourth quarter in local.
But on a relative basis is dramatically different national.
And.
Another phenomena, we're actually really seeing this quarter.
Is that local orders of affirming up much much later each month than historically has been is.
As investors I'm, sorry, as businesses are looking at the underlying business.
But the pace on automotive as an example has accelerated throughout the quarter.
In the fourth quarter as an example.
Automotive was up low single digits.
And in the first quarter is pacing up mid to high single digits.
Well off of 2019, but it is a big category, that's an encouraging sign particularly driven.
By auto dealers, who are getting inventory wanted to move that inventory.
It's too early to say, how the second quarter is going to look like but.
We're glad with the balance that we have in this first quarter and local versus what we're seeing in national.
Thanks for that and the company has done an amazing job at reducing fixed cost and you indicated plans to further reduce costs and can you give us.
Some sense of the ability to reduce cost at this point what areas are possible. If you can just add that.
The magnitude of the cost potential cost reduction any color there that you can add.
We're not going to give guidance on the on our cost reductions for this year, but I will say through our budgeting process.
We reduce costs.
And contracts.
And people costs.
And business process improvements and a lot of those cost reductions will be offsetting natural exposure that we have to inflation, which were not immune from it just happened in the previous years.
Magnitude or cost cuts were so great.
That net number against inflation was a big number.
Some of the cost cuts we have in our plan, we expect to offset a lot of inflationary pressures that may not be all.
But.
You can have confidence that this is something that Mary and I and the rest of the management team focus on closely and that's something that we'll continue to look at throughout the rest of the year to get additional savings.
Thanks for that and then you mentioned pharma indebted accounts for a larger percentage of the national advertising category. I was wondering if you can give us the percent of the pharma business.
Business and what it what it accounts for.
So various kind of comments on pharma was really related to where we are in the network because most of the farmers national advertising and the network.
It's a growing category.
And we're happy with that growth.
But at this point, it's not yet a top five category in the network.
Okay, great. Thanks for the color that's all I have thank you.
Thank you for your question.
The next question comes from the line of Jim Goss with Barrington Research you May proceed.
Okay. Thank you.
Radio in Canada.
An article this morning about WTO P.
Cutting spot loads and I think I've heard some other noise along those lines recently and I think it's been a long time since such Monday and factors have been talked about and Im just wondering about.
Your thoughts if that's a consideration and what the implication is for either the <unk>.
Demand or rates.
And whether it's varying a lot by category.
Yes.
It's not mundane to us in our business because optimizing the.
The inventory and the spotlight is obviously one of the levers that we that we always think about.
It's something that we.
Focus on certainly by channel and by station and by market.
I would tell you that given the fact that we built a robust one of the things we did.
Talked about my beginning remarks is that we built a robust.
Inventory management system and as such the focus is really on optimizing what's best and listeners optimizing price yield optimizing.
The product that we have Frank do you have anything else to add to that or.
Yeah, the only thing I would add to it is as Jim as you can imagine with over 400 stations and <unk>.
Over 80 markets each station and each cluster is really run as a business unit to optimize price yield demand and so in the markets where we have.
Higher seller, we take advantage of pricing.
On the spot load Thats, something thats dynamic I would say it hasnt really changed dramatically in our.
Our focus is to get the price yield and supply demand right to maximize the revenue on one hand and to maximize the listener experience.
Okay. And then you also made some pretty good arguments in favor of large markets than in favor of small and mid cap markets.
Today's markets and I'm wondering.
As you as you look at the options since you serve.
A number in both categories.
How youre seeing the benefits and challenges of each and it sounds like you are tending to look at smaller markets is the area, where you might want to take advantage of your are.
Solid leverage to make some opportunistic purchases.
So on the mix between the large and small markets, we like our mix, where we are now because.
We don't know, 100%, where the dollars are going to flow, but let me give you a little bit more color between the larger and the smaller markets.
National has been weak across the board and it does impact our local markets, but it's impacted.
While the markets more than our larger market spending but on.
Contrary, though is our local business in the smaller markets are holding up a little bit better than in the bigger markets.
And so when you look at that balance it comes out to a pretty decent local performance. When you look at the national mixed between.
Smaller and bigger markets and then the local performance between the big and smaller markets.
And look we've gone through our portfolio optimization of getting rid of the large city exposures to larger GMA as we're still in many large <unk>.
And we think that's for us a better position to be in as we have a strong clusters and take advantage of the opportunities that.
Yes.
Are in front of Us frankly.
Okay, and maybe one last one.
Some of the RSM challenges is this creating some opportunity for radio station group Westwood one.
You are looking to pick up any additional sports rights in a fair way to serve them with the vehicles you have.
No.
Our largest sports exposures are really national with the NFL or the <unk> we.
We do have.
Some exposure to some local teams, but making a wholesale move into local sports.
It is not something that proactively looking at.
Alright, Thank you very much appreciate it.
Thank you for your question. The next question comes from the line of Dan <unk> with B Riley Securities You May proceed.
Yes. Good morning, guys I appreciate you taking the questions.
And youre facing a challenging backdrop here, but you still got over a $100 million of cash on the balance sheet, you're still generating some pretty healthy free cash flow.
Like a huge amount of cash for a company of your size.
The stock is trading at a really attractive free cash flow yield the bonds are trading at a discount maybe you just talk about the capital allocation levers as you see them right now.
Whether the macro concerns make you hesitant to maybe aggressively use that cash or if you plan on ramping up the cadence for the buyback or the bond repurchases and how you think about the balance between those options.
Thanks, Dan.
You are correct, we do have a lot of liquidity and that's that's actually a strategic strength, even though it's also financial strength and we've taken advantage of that over the past several years as I mentioned, reducing.
Our debt by $400 million net debt by $400 million since the pandemic.
As we sit here now we will continue to be optimistic and looking at the market opportunities while also assessing.
The operating environment that we're in.
And so it's something we'll take a look at closely.
And always looking at ways to.
Enhance shareholder value either through debt pay down or stock repurchases, but.
At this point I really can't add more until we.
We speak again at our first quarter earnings call, which will be at the end of April or beginning of May.
Okay great.
Another question, so it's sort of like the AD tech in programmatic space digital audio.
Increasingly a hot topic.
Maybe talk about what.
You guys are doing to sell more of your digital inventory, whether it's an FM radio spot.
MFS simulcast on digital the podcast ads.
To sell that inventory programmatically, rather than the kind of old manual insertion order processing.
Yes.
Well, we are focusing on selling that inventory in any way that we can and that includes programmatic marketplaces.
Yes.
For example, you saw we had a lot of streaming growth.
And.
Two areas of focus there are two <unk>.
Increased listenership from existing and then extending the platform serving chip, but that people can find our programming.
And.
In terms of the inventory cost local national network and advertising.
We put all of the inventory into programmatic channels as as needed.
And but a big part of our growth right now is coming from monetizing our NFL streaming rights and the network market and then also we're working very hard and have had some success in increasing our CPM is against all sales channels. So that is one of our strategies is pricing.
Great and one more if I could just a question I get a lot of times from investors just about.
Whether or not Theres, a CPM difference between sponsors selling on the MSM broadcast versus digital simulcast.
Just wondering if theres a premium on the digital because perceived.
Perceived younger audience better targeting measurement all of those things that digital brands or whether it's roughly the same.
I would say it varies by market, we do take advantage.
Through total line reporting.
Which is a measurement that Nielsen came out with a while ago.
To boost our audience share, which allows us to go to market.
So you get a better rate.
The entire market, where we can prove we have both digital as well as.
As neill to their over their ads.
But it does it does vary I mean, our programmatic dollars does vary from having a local.
The key thing, though is as we get more listeners listening to our product wherever.
It gives us really the <unk>.
<unk> leverage that we need and it also attracts from time to time different types of <unk>.
Advertisers, who are looking for different demos or <unk>.
<unk> solutions, depending on their needs.
Okay, Great Thats, all I got thanks, guys.
Thank you for your questions.
Next question comes from the line of Kevin <unk> with Octagon you May proceed.
Okay.
You guys most of my questions were answered but.
I was just wondering if you could disclose at all.
Anything around W. Fas transaction in terms of maybe what kind of revenue or EBITDA contribution was coming from that station I get that its immaterial, but just from a multiple standpoint any color there would be helpful.
I guess the way I should answer that is a seven 5 million $75 million.
Proceeds of a sale price against immaterial the EBITA is extra.
Extremely high multiple.
It's not going to have any material impact on our revenue.
And it was.
Our station that.
Was there and not meaningful in terms of the financial results. So this is highly accretive.
And we've done these these type of transactions in the past.
Clearly as we have.
Look to optimize the portfolio.
Got it understood.
Thanks.
Thank you.
I will now turn the call back over to the company for any closing remarks.
Thanks, everyone for joining and we look forward to talking to you again.
That's the next quarter.
Have a nice day.
That concludes the Cumulus media quarterly earnings Conference call. Thank you for your participation you may now disconnect your line.