Is Emmis Ready For Further Deleveraging?

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Emmis Communications Chairman/CEO Jeff Smulyan addressed participants on his company’s fiscal Q1 2018 conference call Thursday morning by hinting that the sale of Class B WLIB-AM 1190 in New York is still a work in progress. He also noted that the company is looking at other ways to bring in some cash, while Emmis EVP/CFO and Treasurer Ryan Hornaday offered specifics on sales strengths and weaknesses.


As noted in the company’s fiscal Q1 2018 earnings release, distributed early Thursday (7/13), it was — in Smulyan’s words — “a very tough quarter” for Emmis.

The good news is that Q2, which started June 1, has shown a dramatic improvement.

“As of today, Q2 is pacing up 1% to 2%,” Smulyan says, adding that this is good news for every radio industry C-Suite.

“We believe that the downturn that we really see ourselves, and much of the industry has seen, may be behind us. We’re encouraged,” he says.

Also in the coming weeks is the anticipated sale of WLIB, which has been on the market since Emmis’ Board of Directors in August 2016 gave Smulyan the OK to put it on the block.

Smulyan says Emmis is working on a WLIB sale, but offered no further specifics aside from noting at the call’s conclusion that expectations for the sale remain the same.

“Until you have something, you don’t have anything,” Smulyan notes.

Once WLIB is sold, Emmis’ indebtedness will be reduced by 50% “to hopefully 60%,” Smulyan says, with 50% of that attributable to the sale of KPWR-FM “Power 106” in Los Angeles to Meruelo Group. Emmis expects to close on the divestment of Power 106 within the next two months.

These two sales will lead to a “dramatic reduction” of Emmis’ debt, and lead to a complete change in the capital restructuring of the company — something Smulyan believes “was the single-most important thing to do and the reason for the sale of Power 106, which under normal times we would have not wanted to do but we felt was important for the future of the company.”

Meanwhile, while Smulyan touted “very strong” ratings for WBLS-FM and WQHT-FM in New York, the company’s Big Apple duo — as well as its flagship Indianapolis stations —underperformed in their respective markets.

MORE TO SELL FROM SMULYAN?

“Fixing the balance sheet, especially the challenges of the industry, was very, very important,” Smulyan says, responding to an e-mailed query about the sale of KPWR in Los Angeles. “That’s why we made the very difficult decision to sell Power 106.”

Could there be more divestments ahead for Emmis, beyond the sale of WLIB-AM in New York?

“We have some land that we might sell and maybe we will sell some tower space,” Smulyan says. “There might be some other things to deleverage, but the core of the business will remain intact.” This will give Emmis the ability to compete a bit more effectively, he adds.

That’s good news, because Emmis is challenged in its biggest advertising category.

Hornaday provided an overview of the company’s sales outlook across its radio stations, and local, national, and digital was down, while nontraditional revenue (NTR) was up.

Looking at individual months and excluding KPWR and the former Terre Haute station group, March was down 2%, April was down a steep 12%, and May was down 7%.

That’s because, during Emmis’ fiscal Q1, the number of minutes sold was up 1% year-over-year while average minute rates dipped 11%.

Automotive represented 12% of Emmis’ overall revenue in Q1. Unfortunately, the company experienced a 10% dip in auto advertising in the just-concluded quarter.

This was partially offset by media, financial, and services advertising—its strongest categories, Hornaday says.

The weakest categories for Emmis? Cellular, entertainment and restaurants.

PRO FORMA DATA CAN’T ERASE DIP

 

Hornaday noted that the company’s fiscal Q1 2018 results aren’t easily comparable to 2017, as Emmis sold all of its magazines with the exception of Indianapolis Monthly and its radio stations in Terre Haute, Ind., during fiscal 2017. “These sales caused our current period reported results to not be comparable to prior-year results,” he said.

Supplemental Pro Forma financial information was provided by Emmis following the general release of its fiscal Q1 2018 numbers. Based on this report, the company still saw a year-over-year net revenue decline in Q1.

For the three months ended May 31, 2017, total pro forma net revenue was $32.2 million — down from $34.3 million in fiscal Q1 2017.

 

NEXT STAGE FOR NEXTRADIO 

Smulyan also took time during Emmis’ earnings call to share the latest developments on NextRadio, the free app that effectively activates an FM chip in the headset of most Android devices. As noted at the 2017 NAB Show in Las Vegas, streaming-compatible apps for Android and iOs devices are in the works.

Smulyan confirmed that they will be launched “in the next few weeks,” will all operative at the end of the month.

Streaming compatibility is a major pivot for NextRadio, and resolves a stalemate with Apple regarding the company’s unwillingness to activate the FM chip present in most iPhones. The decreased use of wired headphones — the key antenna for a chip-enabled headset — also presented a challenge.

Smulyan calls the new streaming-compatible NextRadio apps an evolution of sorts, with the idea now “to make sure that even if you don’t have headphones, every smartphone owner can get the NextRadio experience.” Research showed consumers desire the interactivity provided by the app — something absent from players such as Tune In.

Emmis is also busily developing Android auto and CarPlay auto solutions via NextRadio and TagStation, which it owns, to enhance one’s FM listening experiences in the connected car. “Very encouraged to see things developing in the auto space,” Smulyan said.

Lastly, in response to an email about the FCC under Chairman Ajit Pai, Smulyan had very kind words for Mr. Pai, saying he has “a greater affinity for radio” than any FCC head since the late Jim Quello, who served as FCC Chairman from 1974-1997.

“He loves radio, and understands what it means” in the community and in emergency situations.

So do Michael O’Rielly and Mignon Clyburn.

Smulyan said, “You have a chairman of the FCC, and I will say this about the other Commissioners — all have a deep and abiding respect and understanding of what we do and that can only be good.”

RBR+TVBR