Collin Jones - SVP of Corporate Development and Strategy Mary Berner - President and CEO John Abbot - EVP, Treasurer and CFO.
Analysts:.
Welcome to the Cumulus Media Quarterly Earnings Conference Call. I will now turn it over to Collin Jones, Senior Vice President of Corporate Development and Strategy. Sir, you may proceed..
Thank you, operator. Welcome to our fourth quarter and full-year 2016 earnings call. I’m joined today by our CEO, Mary Berner; and our CFO, John Abbot. Before we take off, please note, 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.
A full description of these risks as well as financial reconciliations to non-GAAP terms can be found in our SEC filings, including our press release and Form 10-K, both of which were filed today at 4 o'clock PM Eastern Time and can be accessed through our corporate website.
This call will be accompanied by a slide presentation, which can be accessed through a link in the Investor portion of our corporate website, at www.cumulus.com/investors. After this call, the same link can be used for a replay of this webcast and the presentation will also be posted to our website. With that, Mary, the floor is yours..
Thanks, Collin. Good afternoon, everyone, and thank you for joining the call. As we look back on this past year, in many ways it's remarkable how far we've come.
2016 marked the first full-year of our multi-year effort to move the Company from decline to stabilization to growth, and our clear focus throughout the year was on those priorities that would rest the Company's deteriorations and set the stage for future improvement.
These foundational initiatives had to be executed in your one in order to position the Company for sustainable growth opportunities over both the long-and short-term.
However, we knew and communicated that we wouldn’t completely reverse the Company's trajectory of multi-year financial declines in just one year and our financial results reflect just that. Total revenue continued to decline in 2016, decreasing 27.3 million or 2.3% to 1.141 billion for the year.
That overall result however masks financial improvement at the Radio Station Group, where revenue was actually up 6 million from 2015, the first year-over-year revenue increase in at least the last three years of the Company.
With the significant embedded expense escalator we inherited, EBITDA for the year declined 20.6% to approximately 206 million, although we exclude the impact of certain one-time expenses. EBITDA would have been approximately 224 million, a decline of 13.7% from 2015.
Finally, reflecting these EBITDA declines as well as the drop in our stock price, in the fourth quarter we took a large non-cash impairment charge against goodwill at the Radio Station Group, which we will put on the books at the time of the Citadel acquisition, reducing that goodwill balance to zero.
John will walk through the financial results in more detail later, but I want to make it clear that while these results shouldn’t be surprising to anyone, they are also not representative of the performance that this company's collective assets including all of its people are capable of delivering.
And with said, I'd like to update you on the meaningful and manageable progress we have made in changing the trajectory of the Company as we continue along the turnaround path.
When I joined Cumulus, it was clear that in addition to weak industry backdrop the Company faced substantial company specific challenges including rapidly deteriorating operating and financial performance and a looming debt overhang.
With no immediate pressure to deal with the balance sheet at that time, we've worked quickly to indentify and prioritize the efforts necessary to rebuild Cumulus into an organization that could deliver sustainable, profitable and industry-leading performance.
And in order to achieve this objective, we laid out three foundational priorities growing ratings, different culture and enhancing the basic blocking and tackling of the day-to-day operations.
In 2016, our focus on these fundamental priorities produced as I've said significant and measurable progress and more recently as a result of this progress, as expected we have began to see some positive financial indicators.
Starting with rating, by any measure our rebound has been tremendous marked by reversal of four straight years of ratings decline. Our PPM markets which generate about half of our Station Group revenue have outperformed the industry for 15 straight months, with almost all of those months showing year-over-year double digit growth.
Our diary markets representing the other half of our Station Group revenue naturally take longer to turnaround given the measurement methodology; however, those markets are now showing rating vitality. In the recently released fall ratings book, Cumulus diary markets grew in both absolute ratings and ratings share.
In fact, as we move into the second quarter of 2017, for the first time in five years, the entire platform will be selling off improved ratings. There is no question that changing Cumulus's legacy, toxic command and control culture was one of our most intensive 2016 efforts.
We took many, many actions some big, some small to accomplish this cultural turnaround. So that existing and potential employees who feel the Cumulus is becoming a company that we support and value their efforts and in turn given the Company their best effort. We know that our workforce feels and appreciates the difference.
Our most recent employee survey completed in November maintains the dramatic improvements in sentiment we've been seeing all a year and the nearly universal embrace of our new cultural dynamics.
97% of employees say they plan to be with the Company in 12 months, 93% of employee say they believe Cumulus is changing for the better, 93% are proud to work at Cumulus, and 85% of employees are excited for the future.
And for little external validation, one of the industry's most widely read bloggers reported recently and I quote, where we get a complaint about Cumulus these days, where they used to get many, many one seemingly more bizarre than the others. And according to this blogger, Cumulus' quote, employees are happy again and working towards goals.
He is reporting when he hears directly from our employees and what he hears is unambiguously borne out by our employee retention steps. Our total turnover is down from a high point in the upper 40s during 2015 to 24% now, with that performance beating our internal goals in less than a year.
Full-time turnover is down from 30% in 2015 to 20% in 2016, and voluntary sales turnover is down from 36% to 23%. These are strong numbers which are not only significant, not only right, but a key factor and our ability to deliver against our third foundational priority, improving execution in every job and by every employee.
One of the intangible results of this blocking and tackling effort has been the reduction of expenses across numerous areas as a business. As you heard us say, when we entered 2016 we we're facing significant contractual expense escalations which were built in to our cost base, which if unaddressed would have lead to a 3% increase in cost.
As a result of the work done by the team across a long list to many expense line items during 2016, we were able to significantly mitigate these increases. In aggregate, excluding the onetime items I mentioned earlier, 2016 cost finished up less than 1% for the year.
And now as we've entered 2017 with market revenue pressures continuing and a loss of political this year, we must and we will continue to implement smart cost reductions and efficiency improvements where ever we can find them, without compromising our ongoing need to invest in our people and our content and our systems.
Overall, we feel very good about this progress.
Our track record of identifying the critical issues, developing appropriate strategies to address those issues and executing against those strategies to deliver better results; and you should note what's outstanding that our work to continue to grow rating, to reinforce the cultural initiatives and to excel blocking and tackling operational blocking and tackling will continue, as further progress in each remains essential to get into the business on the path of delivering positive financial results.
As I mentioned, we are also now seeing signs that our efforts are resulting an improved financial metrics.
In prior earnings calls, we noted that it takes some time for ratings improvements to be reflected in revenue because you not only have to generate the increase in ratings, you have to do so consistently over a period of time, have those ratings published and then go-to-market with those published ratings.
Over the last 12-months as our rating have improved, we have seen them flow into revenue in a fashion that reflects that lag. Miller Kaplan measures revenue market share across ad channels in 53 of our markets, covering over 80% of our Station Group revenue.
In those markets, a national spot using the first convert, the first channels convert operating improvement. Our ratings gains have helped us deliver revenue share growth in 11 of the last 12-months. On the local side where ratings convert somewhat more slowly, we have now seen revenue share growth for six consecutive months through February 2017.
And as we've moved to refine our digital strategy which I'll speak more about shortly, we've been able to deliver digital revenue shared gains in 11 of the last 12 months as well.
In total, across all Station Group ad channels, total revenue share has grown in eight of the last 12-months as well as in both the fourth quarter and for the full-year 2016. We're pleased with these market share gains, but of course our absolute revenue performance is equally impacted by overall market movements.
Obviously, we can't control the industry dynamics, but we do intend to capitalize on our tremendous ratings progress to the fullest extent possible through our fourth platform priority sales execution, which is essentially the conversion of our improve ratings into revenue.
And as we indicated in the Miller Kaplan's revenue share results, our share execution efforts are already paying dividends which I mentioned have continued through February. In 2017, we'll continue to build our sales execution program to expand the revenue impact of our ratings increases.
These efforts generally fall into one of five categories, talent, training and tools, sales analytics, platform growth, products and tactics, and digital.
I'm not going to go into detail on each of these in this call but I do think it's important to highlight some of the early successes that we're seeing on the sales side which as we continue to grow them and replicate them will help us to achieve our financial goals.
First, the re-launched NASH Next franchise brought in a seven figure national sponsor in 2016 who is already renewed for the 2017 cycle. This is important because it was our first local to national sponsorship platform, and we're in the process of replicating this, another genre.
Six weeks ago, we launched the innovative Be-a-Leader program, the first of its kind in this industry that we're aware off, which motivates Cumulus non-sales personnel to generate new sales leads. This program is a perfect example of how cultural success can drive financial results.
Because of the cultural buy-in we have at Cumulus, we've achieved in only six weeks -- through the Be-a-Leader program, we've driven over 1,200 new leads which have resulted in nearly $1 million in incremental sales with significant upside remaining for many of those leads that are still in the pipeline.
I also mentioned earlier that we see substantial share growth in digital this year, but we haven't spent much time talking about it at our calls. Shifting a traditional media business to one that maximizes digital in conjunction with and in support of the core business is a challenge as I stated before in prior life.
And it's not an easy task, but it can be accomplished through disciplined execution. To that end throughout my tenure here, we've been quietly refining our digital strategy across the Board.
We've both enhanced and extended the distribution of our content in linear and on-demand listener experiences, which ultimately drives more impressions for us to sell. We've entered into numerous smart, low-risk partnerships which give our local advertisers the ability to integrate digital into their core radio buy.
Basically, we've thoughtfully grown our digital footprint and capabilities which is of course important for our long-term health with virtually no incremental investment today, which is appropriate at this point in our turnaround.
Last before John takes you through more of the detailed financial results, I want to comment on our balance sheet challenges. Our company continues to be over levered and the impact of these high debt levels on our operations and the P&L of the business is not trivial.
As a result of the recent adverse court ruling, last week, we terminated our pursuit of these changed transaction that we've launched in 2016.
However, we know that we cannot achieve the full potential of the assets we've here at Cumulus while our debt remains as high and we're intense and continue to explore all available options to address that burden. With that, I'll turn it over to John to go through the financial results in more detail.
John?.
Great, thanks, Mary. For the quarter, revenue was 299.5 million versus 308.8 in the Q4 2015, a decline of 3%. For the Radio Station Group, revenue increased for the second quarter in a row of 1.6% from Q4 2015, driven by political advertising, digital and national spot revenue.
Political increased by 7.3 million from Q4 2015 to 9.6 million in 2016 and was weaker than originally expected, as we highlighted that it would be in the last call.
As Mary, mentioned this revenue performance represented share gains at the Radio Station Group for the second quarter in a row reversing the declines we had experienced for at least through the last four years.
Westwood One revenue declined 12.3%, driven by continued industry weakness, share loss in the quarter, lower trade revenue, as a result a reduction in certain contractual obligations and the shutdown of the print version of NASH Country Weekly, which was operating at an EBITDA loss.
While a portion of this revenue decline is largely cosmetic, meaning, it was accompanied by an equal or greater decline in expenses. The share loss at Westwood One continues to concern us.
As we've spoken about on previous calls, Westwood One has been building its business development effort to help offset revenue pressure in the transactional network space. And while we believe this effort will show return overtime, it was simply too late to have much of an impact on 2016.
Further, Westwood has been hard at work building a new system which will go live later this year to address the significant competitive disadvantage imposed by its legacy inventory and pricing systems.
Finally, we are also undertaking a more comprehensive review of the network business model and considering a range of more step function type changes that can be made to drive more value out of this business. Moving to expenses, our total expenses in the quarter declined 3.1 million to 242.7 million a decrease of 1.3% from Q4 of last year.
Radio Station Group expenses increased 6.5 million year-over-year driven primarily by an increase in sports rights fees in Chicago and Detroit, and an increase in music license fees, and the programming investment that we've previously highlighted as an important and productive element in our strategy to grow ratings.
Westwood One expenses declined in the quarter by 7.6 million driven by lower trade expense matching lower trade revenue expense savings from NASH Country Weekly shutdown and lower sales cost as a result of lower revenue. Corporate and other expenses decreased in the quarter by $2 million from lower personal cost and teaming expenses in the quarter.
As a result of these revenue and expense change, adjusted EBITDA came in at 56.9 million versus 63 million in Q4 2015, a decline of 9.8%.
Breaking it down by segment The Radio Station Group adjusted EBITDA declined 3.3 million or 5.3%, which was really expense driven and Westwood One adjusted EBITDA declined 4.9 million or 49.6%, which was really revenue driven. Moving over to full-year 2016 results, total revenue was 1,141,000 versus 1,169,000 in 2015, a decline of 2.3%.
For the Radio Station Group as Mary mentioned, revenue increased for the first year, for the year by just over 6 million or nearly 1% driven by local advertising, digital and national spot revenue, partially offset by declines in local advertising. Political advertising finished the year at 18.6 million, up 13.6 million versus 2015.
And while we certainly recognize that political was an important driver, 2016 does represent the first year of total revenue growth at the Radio Station Group after at least three years of straight -- three straight years of revenue decline. In that period would have included another year that was supported by political.
This total revenue performance also reflected share gains at the Radio Station Group for the entire year again following declines for at least the prior four years.
Westwood One revenue declined 8.8%, driven by industry wide weakness, approximately one point of share loss throughout the year, lower trade revenue and the shutdown of the print version of NASH Country Weekly. Now before moving over to expenses for the year, I wanted to remind you of a few significant one-time items that occurred during 2016.
In Q2, we booked a $3.2 million expense item as a result of a correction to music license fees that were actually incurred in 2015 and then in Q3 the result long standing contract disputes regarding multiple relationships with CBS, which resulted in aggregated in one-time charges of 14.6 million.
Given the one-time nature of these costs, I'll talk about our full year expenses excluding the 17.8 million. On this basis, total expenses for the year increased 8.2 million to 917.7 million from 909.5 million in 2015, an increase of 0.9%.
Radio Station Group expenses increased 26.2 million year-over-year driven primarily by an increase in sports rights fees, and increase in music license fees and programming and personnel investments.
Westwood One expenses declined 16.9 million year-over-year driven by lower trade expenses associated with lower trade revenue, expense savings from the NASH Country Weekly shutdown and lower sales cost. Corporate and other expenses decreased by 1.1 million for the year.
As a result of these revenue and expense changes adjusted EBITDA for 2016 declined 20.6% to 205.9 million from 259.1 million in 2015. Absent the impact of the one-time expense items in 2016, adjusted EBITDA for the year would have been 223.7 million, which would have been a decline of 13.7% from 2015.
Looking at the two operating segments without these one-time expense items, the Radio Station Group adjusted EBITDA would have been 221.4 million, a decline of 20.2 million or 8.4% and Westwood One adjusted EBITDA would have been 37.5 million, a decline of 15.4 million or 29.1%.
Below EBITDA the largest non-operating item for the year was $605 million impairment of intangible assets, specifically we recorded a $568.1 million non-cash goodwill impairment charge at the Radio Station Group which reduced the goodwill at that segment to zero as of December 31, 2016, and a $36.9 million non-cash impairment charge to SEC licenses and other intangible assets.
These write downs have no impact on our liquidity or ability to operate the business and largely reflect our historical performance and the industry outlook. Moving onto capital expenditures; in the fourth quarter, we incurred CapEx of 6.3 million compared to 3.4 million in Q4 2015.
These expenditures related predominantly to the to the studio and transmitter move in Los Angeles following the sale of our property there as well as other normal course CapEx.
This bring full-year capital expenditures to 23 million versus 19.2 million in 2015 looking ahead we've discussed on prior calls the extent of under investment in the input of the business historically as a result we expect our CapEx spending in 2017 to increase to approximately $30 million.
Our cash position remains bolstered by the proceeds from the sale of our Los Angeles real-estate during the quarter. As we noted on the last call, you'll see a significant non-operating gain on sale of assets related to the sale.
In regards to the use of proceeds, we're still reviewing all our available option under our credit documents including the 12-month reinvestment right. Continuing on the topic of land sales, there is no revision to the likely closing time table we gave on our last earnings call with respect to our Washington D.C. property sale.
The process is moving forward as we anticipated and we believe 75 million of gross sales proceeds with a close sometime later in 2017, continues to be a reasonable expectation base upon what we know today. I wanted to touch on one other cash transaction in the year.
On December 30th, we successfully purchased 28.7 million of base value of our senior secured term loan for 20 million a discount of par as 30% because we made this prepayment during calendar year 2016, we don’t anticipate having to made any other payments on our senior secured term loan in Q1 2017 related to our excess cash flow suite.
We booked a non-operating gain net off transaction cost of $8.5 in the quarter to reflect this transaction. Following these outlays, we finished the year with 131.3 million in cash and a total debt balance of 2.4 billion.
As you may remember in the third quarter, we completed an eight-for-one reverse stock split of our Class A common stock with the goal of were getting compliance with NASDAQ minimum listing standards, and on October 27th we were notified by NASDAQ that we have regain compliance with the minimum requirements to remain listed on NASDAQ.
Since February 24, our stock illustrated below the $1 minimum listing standard threshold, if the trading price remains below $1 for 30 consecutive days, we expect we would again be issued a notice of non-compliance which will provide a 180-day grace period to regain compliance. If that occurs, we will again evaluate all alternatives available.
Turning back to the balance sheet, as you might expect the significant amount my time continues to be focused on our balance sheet issues. We don’t have anything new to report on this front today, but as you are aware on December 12, we launched the proactive and opportunistic exchange offer for 7% and 3% quarter senior notes.
And then on February 24th, the U.S. District Court in Southern District of New York ruled in a summary judgment against the Company in connection with the exchange.
As a result, last week on March 10th, we terminated the exchange offer despite that outcome we have ample liquidity and resources to operate the business and will continue to review all available options to address our balance sheet including strategies that reduce our overall debt and give us the time and the runway you needed to turnaround the business.
Finally, as we look ahead into Q1 which obviously is nearly complete. As Mary mentioned the industry environment remains particularly difficult and we also have a tough comp with political in Q1 2016. As a result of both of those factors, we're pacing down low single-digits with political accounting for about one point of that negative pacing.
The station group is performing better from a pacing standpoint but both segments were pacing down.
Regarding revenue market share as we mentioned earlier we did gain share in total local spot, national spot and digital revenue during both January and February, which offset some of the industry down drought in those months at least on the station side. With that, I'll turn the call back over to Collin to finish up. Collin..
Thanks, John. We did receive a number of questions from our analysts this quarter and we've actually addressed the vast majority of them during our prepared remarks.
But one question that we didn't address, but received from essentially all of our analysts was for us to opine on the recently announced Entercom and CBS Radio merger, and we've certainly commented before the Company that consolidation will be key for our industry over the medium-to long-term and we continue to believe that.
And so, we think that their transaction will be beneficial in that respect is as really rising tide for us both. Other than that as I said, we addressed your questions as we could in the prepared remarks, and if there're any follow-up questions after the call, please feel free to reach out to John or me.
That concludes our call for the quarter and we look forward to discussing with you again in 60 days or so. Operator, you may now disconnect the call..
End of Q&A:.