Cumulus Media Inc (CMLS) 2021 Q2 法說會逐字稿

Good morning. Thank you for attending the Cumulus Media quarterly earnings conference call. (Operator Instructions)

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 are 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.

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, Collin, 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 the curation and expanded distribution of our content across multiple platforms. Second, 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 top line revenues, achieving growth of 54% in the quarter, a reflection not only of encouraging improvement in the core radio advertising, but also of 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 baseline, an increase 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 down $175 million of debt in the quarter, accelerating the mandatory paydown required by last year's noncore asset sales. And notwithstanding that debt paydown, 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 and 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 through incremental digital distribution of existing content and the creation of new content and content partnerships distributed both digitally and over the air.

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. Today, 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 representations of how we are utilizing our unique collection of assets to build audiences and advertising. First, leading conservative voice, Dan Bongino, has been one of the anchor tenants of our podcast network. The Dan Bongino Show has been wildly successful from day 1, at times hitting #1 among all podcasts in 2020 and ranking in the top 10 in the news category at Apple for most of 2021.

On May 24, we extended our partnership to launch an original radio show, also called The Dan Bongino 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. Just 2 months later, the syndicated radio show has surpassed the 300-station mark, making it the most successful launch ever for a new and original syndicated show in this space. It's important to note that we're the only media company that has expanded its podcast-first talent into nationally syndicated radio successfully. And now we've done it twice, first with Ben Shapiro and now with Dan Bongino.

So to bring this partnership back to our overarching strategy, it's a 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 were excited to announce just last week an expansive multi-platform and multiyear partnership with WynnBET, 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. This marketing and branded content deal allows WynnBET to embrace the entire Cumulus Media ecosystem, using broadcast, podcast, digital, social and on-site activations to reach new users for its app while establishing a strong beachhead in the burgeoning sports betting arena for Cumulus.

The partnership also has an element of shared success, with a minority component of the consideration to Cumulus coming in the form of WynnBET equity, allowing us to participate in the upside that we help to create. Overnight, WynnBET will become one 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 WynnBET is a big step towards 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 company-wide 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 biannual survey that we conducted in June, in which well over half of our employees participated, 93% of our employees say they are proud to work at Cumulus and 92% 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 reductions. And our balance sheet is very strong, with among 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 mid-teens versus 2020. And compared to 2019, that would be down in the high teens. Similar to the 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 in a position for significant EBITDA growth. 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 investment.

We see these catalysts as follows: First, we expect to benefit in the near term from the industry recovery in 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 -- 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 cost 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 in the radio space or for the opportunistic acquisitions of companies that can accelerate our digital strategies. And lastly, as EBITDA increases, the company's 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. It's good to speak with all of you again after a quarter, but 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, up 54% from Q2 2020. This increase represented continued sequential improvement as we continued and executed well in the context of the recovering market. For comparison, 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, but anticipate that pacing will improve as the quarter progresses.

While that performance generally reflects advertising rebound across our business lines, we were nonetheless still negatively impacted in certain categories like auto, retail, restaurant and entertainment, which continue to suffer from knock-on effects of the pandemic, including the well-publicized chip supply issues 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 in 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 well as the return of variable costs and 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 when you compare it 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 WynnBET announcement from last week. As Mary noted, the broad-based WynnBET partnership is an exciting deal for the company. A minority portion of our consideration for delivering advertising will be paid in equity over the course of our partnership, giving us another avenue to participate in the 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 NFL prime time. Additionally, the NFL recently announced that in-game sports betting advertising will be allowed for the first time ever, which itself will provide exciting new opportunities for us to deepen our relationships with sports betting companies. Lastly, while we're looking forward to using our platform to help drive WynnBET's growth, we have preserved our ability to do business more broadly in the space.

As you may remember, we were in litigation with the NCAA over a contract dispute related to the 2020 season. While that litigation was ongoing, we agreed with the NCAA that we would carry the tournament in 2021. We are pleased that on August 1 we settled the dispute. And in addition, we entered into a multiyear go-forward partnership that keeps Westwood One as the home of both the digital and broadcast audio rights for the NCAA. 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 mostly by higher receivables on higher revenue. And CapEx was $9 million, an increase from last quarter that reflects some catch-up in projects in 2020. As we mentioned last quarter, we still expect CapEx to be around $30 million 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 in the first quarter. We also completed a $175 million of debt paydown this quarter, primarily on our senior secured term loan. And we finished with approximately $125 million of cash in the balance sheet and 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 paydown, cash increased in the quarter by $6 million.

As of June 30, 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 Nashville real estate worth $34 million in 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 in the range of $175 million to $200 million in 2022. 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.

(Operator Instructions) Our first question comes from the line of Dan Day with B. Riley Securities.

So 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 that the recovery takes hold and everything goes well, can you just talk about kind of the tradeoff here between -- as far as returning capital to shareholders, between buybacks and dividends, how you think about fair value for your share price, what a sustainable dividend policy might look like and then sort of the return profile you need to see from any sort of acquisition or significant investment into content that you could compare that against?

Dan, this is Frank. 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. The way we think about our allocation of cash, it's a multipronged approach.

We will always look at ways to enhance long-term shareholder value. We find investments, whether they're 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. We're not against adding acquisitions, and that's clearly something that we will consider.

With regard to returning cash to shareholders, as we delever, we're -- particularly going into 2022, I expect we'll be able to talk about where we are against our leverage targets and what the implication will be on the balance of returning cash to shareholders versus acquisitions. 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 in 2022 we'll have a lot of optionality across many different fronts.

Awesome. Any specific areas as far as investments that you've been looking into? I know you mentioned on the digital side just between podcasting. Anything you could point to?

Nothing specifically that we can talk about right now, but the categories at the highest priorities, as Mary mentioned and as you also mentioned, are our digital assets, local market -- digital local marketing services, podcasting, et cetera. But if there are radio opportunities out there that makes sense, we'll consider that as well.

Got it. And then one more, and then I'll turn it over. Just one thing I've been thinking about sort of with interest is the growth of programmatic channels for the digital side like -- compared to like mobile or digital display programmatic, they're really small portion of kind of the advertiser buys. 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. Are you kind of starting to see the fruits of that where advertisers come into the digital audio ecosystem with these new technologies maybe as they're more targeted? Have you started to kind of see that? And was that driving the strong 2Q for the digital side?

I'll take that one. I would say it's really early days on that. And generally, the growth is coming from our own sales organizations as opposed to programmatic marketplaces. But there is some opportunity, for sure, and we're keeping an eye on it and participating in small ways.

Our next question comes from the line of Michael Kupinski with NOBLE Capital Markets.

Congratulations on a solid quarter. A couple of questions. Regarding the WynnBET, 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 -- you had indicated that the NFL games and so forth and sports games are likely to be the focus around the network business. I was wondering if you can 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 us size. You indicated that WynnBET is going to be one of our largest advertisers. And I would assume that that's probably going to ramp up over the next several years.

And then finally on WynnBET, you mentioned your minority stake in the company. And if you can kind of give us some sense of what your stake will be and how meaningful that might be in terms of the prospect of creating shareholder value.

Michael, I'll take that. So we can't really go into specifics on the WynnBET partnership, but I'll give you some color there, try to help you get to 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 and the online betting companies spend a lot of money. The WynnBET 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 and relationship for us.

Second, with regard to the size, we really don't disclose our customer sizes. But as not only one of our larger customers now, but the ramp-up, they will be a meaningful customer for us. But again, we're a very diversified company in terms of our customer base. So we're pleased with the transaction.

Next, a lot of the transaction with WynnBET, 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 by virtue of the transaction. It does displace in certain areas other inventory we could have sold. But given the structure of the transaction, we're viewing a lot of the transaction's incremental revenues to the company, particularly when you consider the equity component of it.

Lastly, on the equity, we're not going to disclose at this point the percentage of the company that 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 and once the company is a public company, you may know that they've agreed to do a merger, a SPAC merger. So they will be a public company later this year or early next year.

The way the accounting will work is, once we have the equity and the shares on our balance sheet, we'll have to mark-to-market that equity as they're a public company. And at that point, you'll get a better sense as to the size of it. But ultimately, we are in this to be -- to share success with WynnBET. And as they succeed, the underlying equity is going to be another component of value, which has just been created by this partnership. And hopefully, that will grow over time, and you'll see that on our balance sheet.

And are you now in discussions with other sports betting companies? Or is this -- it just kind of like open the door it seems. So what are the opportunities to further expand in that category?

There's enormous opportunity for us. I mean this transaction and this partnership is a significant transaction. But before WynnBET, we have had and continue to have strong relationships with other operators in the industry. And we do have a lot of opportunities and inventory, and we're in active discussions. And as Mary -- well, as I mentioned in my prepared remarks, the new NFL policy of allowing in-game sports betting advertising is a big deal. And that's going to be truly incremental on premium pricing that we expect to see from the entire industry, not only from WynnBET, 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 and where the company is on rates relative maybe to 2019?

Right. So last year -- I can't wait to stop talking about last year. But last year, we had both a price 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 we're proud that we rebounded almost 55% from that. And so that was the combination of both price and demand.

Now as we're looking at this year and 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 some markets. But having said that, some of the categories are still pretty negatively impacted, as we talked about, whether it's autos restaurants, 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 in the second quarter which are at or exceeded 2019 levels, which we're pleased with, and that includes categories like home products, food products. And then the general services and financial are pretty close to 2019 levels. So those categories propped us in the quarter, but still offset by some of the bigger categories, which are still slower to come back. And over time, we hope to be able to exercise more pricing leverage as the demand comes back.

Our next question will come from the line of Bill Goldman with Cetus Capital.

Yes. Congrats on a great quarter and on the Nashville sale. On the WynnBET, I'm just curious, you said that they're spinning it off into a SPAC. Is Wynn Resorts going to still have an equity stake in the company as well?

Yes. Well, you should look at the website. It's pretty clear. But yes, Wynn Resorts will have the majority ownership of the combined entity. I'd ask you to go look at their website, and it's pretty well detailed in there.

Got it. Okay. Then secondly, in the quarter, you guys announced a type of partnership with Uber. Can you guys give some of the details around that?

Yes, sure. It's an exclusive partnership to represent the Uber car top outdoor advertising in the markets in which they have launched. So right, so far, they've launched in 2 or 3 markets, Atlanta, Dallas, and I believe Chicago is next. So we have exclusive partnership rights to sell that inventory.

Got it. And have you guys -- or can you provide any sort of guidance as far as like order of magnitude of the financial benefits from that, that you expect?

I mean, the financial benefits, I think, will be in direct correlation to how fast they grow. But as I said, we're in 2 markets. So right now, it's not particularly material. But the early indications are there's a fair amount of excitement in the 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?

Well, obviously, we gave guidance for 2022, but not for Q3 and Q4. Yes, so the way to think about it is that the level of improvement will clearly moderate. Because if you look at the second quarter, we were comped against a really brutal second quarter last year. We continue to expect improvement in Q3 versus 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 in the third quarter last year, albeit muted.

Yes. So what I'm trying to figure out is, like, is Q3 -- is Q2 sort of a run rate for Q3? So it should look pretty similar -- Q3 should look pretty similar to Q2?

Yes. No, I think you got to look at Q3 versus last year, look at what we've talked about in terms of pacing. And also remember, Q3 last year did have a lot of political, which we don't have this year, obviously.

Our next question comes from the line of Brian Kessler with First Trust.

One quick question. The minority equity that you're going to own in WynnBET, is that going to be pledged as collateral for the term loan?

Well, all of our assets are pledged as collateral, so that's part of the pool.

There are no additional questions waiting at this time. I would now like to pass back to the management team for closing remarks.

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 quarterly earnings conference call. Thank you for your participation, and have a great rest of your day.