Cumulus Q1 up 34% with WestwoodOne addition


CumulusOn an actual basis, net revenues for Q1 increased $74.2 million, or 34.1%, to $292.0 million, compared to $217.8 million for the three months ended Q1 2013. The increase resulted from increases of $63.6 million, $5.2 million, $1.3 million and $4.1 million in broadcast advertising, digital advertising, political advertising and license fees and other revenue, respectively. These increases were primarily attributable to the addition of the operations of WestwoodOne, which was acquired by the company in December 2013.

On a pro forma basis, net revenues for the three months ended March 31, 2014 increased $10.5 million, or 3.7%, to $292.0 million, from $281.5 million for the three months ended March 31, 2013. The increase was due to $3.1 million in broadcast advertising revenue, of which $2.2 million was from a LMA in Chicago with Merlin Media entered into in January for WKQX-FM and WLUP-FM, offset by a $9.9 million decline in network spot sales and the loss of $2.2 million of third party network station compensation.

Broadcast ad revenue growth also benefited from $13.0 million of reduced producer revenue shares at WestwoodOne. Digital advertising increased $4.5 million due to revenue from our partnership with Rdio and revenue increases from our streaming and digital commerce initiatives. There was a $1.3 million increase in political advertising revenue; and a $1.6 million increase in affiliate license fees and other non ad-based revenue.

Lew Dickey

Said Lew Dickey, Cumulus CEO : “This quarter was marked by the accelerated integration of WestwoodOne. We now expect to complete the two-year integration approximately three quarters ahead of time and will exceed the stated synergies by 5-10%. After closing shortly before the holidays, we quickly set out to assimilate the personnel, all of the profitable third-party producers and more than 6,000 affiliates, while simultaneously integrating a number of enterprise systems as well as integrating the functional areas including content production, marketing, distribution, sales and the financial systems…All of this activity continues to generate a significant amount of free cash for the company.  Despite Q1 being seasonally the lowest sales period of the year, our $58.7 million of adjusted EBITDA yielded $25.2 million in free cash flow due to our significant lowered borrowing costs, resulting from the refinance of our term loan at the end of last year. This enhanced free cash flow enabled us to pay down $31 million in debt during the quarter, as we continue to focus on improving the balance sheet.”

He added, “Initially, we terminated several third-party agreements which generated revenue without profits as we began the process to rationalize our product line in order to improve contribution margins for the network. The integration has gone extremely well and we now expect it to be complete by the end of Q1 next year. Originally, when we bought the business we said it would be two full years, so we’re about 3/4 ahead of schedule. And moreover, the roughly $41 million dollars of synergies that we announced…we expect to exceed that by 5-10% and do so by the end of Q1 2015.”

Cumulus guided in its Q4 2014 call to expect flat revenue in Q1. “The quarter was marked by solid execution across our local, national, network and digital sales channels, where we, in fact, took share in each of them,” said Dickey. “We finished Q1 ahead of guidance and pro forma revenue was up about 2.9%, which includes the comparison of the Chicago FMs that we LMA’s during the quarter.”

Also in the quarter, to provide more transparency to investors, Cumulus reorganized its financial reporting to report specifically where the revenue growth is:

Three Months Ended March 31,
Actual Pro Forma (2)
2014 2013 % Change 2013 % Change
 Broadcast advertising revenues  $ 270,044  $ 206,396 30.8%  $ 266,975 1.1%
 Digital advertising revenues 9,599 4,439 116.2% 5,060 89.7%
 Political advertising revenues 2,175 880 147.2% 880 147.2%
 License fees & other revenues 10,226 6,124 67.0% 8,620 18.6%
Net revenues  $ 292,044  $ 217,839 34.1%  $ 281,535 3.7%
Adjusted EBITDA (1)  $ 58,745  $ 53,444 9.9%  $ 58,542 0.3%
As of
March 31, December 31,
2014  2013 % Change
Cash and cash equivalents  $ 37,270  $ 32,792 13.7%
 Term loans  $ 2,019,063  $ 2,025,000 (0.3)%
 7.75% Senior Notes 610,000 610,000 %
 Secured loan 25,000 (100.0)%
Total debt  $ 2,629,063  $ 2,660,000 (1.2)%
Total common stock and warrants outstanding 234,708,423 234,479,385
(1)  Adjusted EBITDA is not a financial measure calculated or presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). For additional information, see “Non-GAAP Financial Measure and Definition” and “Reconciliation of Non-GAAP Financial Measure to Most Directly Comparable GAAP Measure” included herein.
(2) Pro forma information assumes that the acquisition of WestwoodOne, Inc. (the “WestwoodOne Acquisition”) and the sale to Townsquare Media, LLC (“Townsquare”) of 53 radio stations in 12 small and mid-sized markets and the swap of 15 radio stations in two small and mid-sized markets with Townsquare in exchange for five radio stations in Fresno, California (the “2013 Townsquare Transaction”) both occurred as of January 1, 2013. The 2014 amounts in the table above give effect to Cumulus’ accounting policies and presentation of our financial information on acquired businesses, which policies and presentation have not been applied to the 2013 pro forma information for WestwoodOne. Such policies and presentation impact revenue and expense recognition of certain WestwoodOne producer contracts and the classification of trade revenue separate from trade expense, and if applied to 2013 pro forma financial information would have increased revenues and would have no impact on Adjusted EBITDA. The pro forma financial information should not be considered indicative of our actual financial position or results of operations had the WestwoodOne Acquisition or the 2013 Townsquare Transaction occurred as of the date indicated or any other date. The pro forma financial information should also not be considered representative of our future financial condition or results of operations.
Actual Pro Forma
Three Months Ended March 31,
2014 2013 2013
Broadcast advertising 92.5% 94.7% 94.8%
Digital advertising 3.3% 2.0% 1.8%
Political advertising 0.7% 0.4% 0.3%
License fees & other 3.5% 2.9% 3.1%
Net revenues 100.0% 100.0% 100.0%

Dickey also noted that as the company has evolved its revenue strategy over the past 2 1/2 years since they closed on Citadel, beyond the traditional local spot radio: “We’ve now become a very diverse national audio advertising and content platform. Our base is fueled by our strong core broadcast advertising category, anchored by our 460 O&O stations, and amplified by now more than 10,000 broadcast radio affiliates across the US. Morevoer, we are developing an emerging growth stream in digital advertising that is gaining traction through our Rdio digital audio platform. Licensing also provides the company with a significant second stream of non-advertising based revenue, and should continue to grow nicely as we develop NASH and other original content into multimedia brands with multiple revenue streams. Additionally, our content streams will provide us with new revenue streams originating from monetizing the consumer, as opposed to just the advertiser, through subscription services.”

Content Costs–all costs related to the licensing, acquisition and development of programming. Content costs as a percentage of total net revenues for the periods presented:

Actual Pro Forma
Three Months Ended March 31,
2014 2013 2013
Content costs 37.1% 28.4% 36.2%

On an actual basis, content costs for Q1 increased $46.5 million, or 75.1%, to $108.5 million, compared to $62.0 million for Q1 2013. This increase was primarily attributable to the addition of the operations of WestwoodOne, in addition to expenses related to local and national content initiatives, including the NASH country brand. On a pro forma basis, content costs for the quarter increased $6.6 million, or 6.5%, from $101.9 million for Q1 2013. This increase was primarily attributable to expenses related to local and national content initiatives, including the NASH country brand.

Said Dickey: “We are well on our way to successfully rebranding the majority of our owned- and operated NASH FM stations. By the end of this year, we expect over 50 fully-branded O&O affilliates.” Full affiliated to non-owned stations will begin 1/15.

Other Direct Operating Expenses–expenses related to the distribution and monetization of our content across platform and overhead expenses. On an actual basis, other direct operating expenses for the quarter increased $21.9 million, or 23.4%, to $115.3 million, compared to $93.5 million for Q1 2013. This increase was primarily attributable to the addition of the operations of WestwoodOne in addition to an increase in variable selling costs associated with Cumulus’ increase in revenue.

On a pro forma basis, other direct operating expenses for the quarter increased $4.5 million, or 4.0%, from $110.9 million for Q1 2013. This increase was primarily attributable to $2.1 million of expenses related to the Chicago LMA with the remainder due to an increase in variable selling costs associated with the increase in revenue.

Capital expenditures in the quarter totaled $1.3 million, which represented routine capital expenditures required for the maintenance of the company’s technical facilities. Capital expenditures during the three months ended March 31, 2013 were $2.0 million.

For Rdio, Dickey says over time he expects it to become the digital audio distribution extension of all of their local brands and nationally-syndicated content–not unlike iHeartRadio: “Through our ad sales relationship, Cumulus will benefit as we create integrated digital and mobile ad networks that allow advertisers to seamlessly buy across our platform, at scale.”

The Q2 outlook, Dickey says expect the same performance on revenue as in Q1. “With EBITDA growth accelerating, we expect it to be up 1-3%. All of the revenue streams in Q2 are currently pacing positive with the exception of national spot.”

He expects 2H to see greater growth due to the realization of expense synergies with WestwoodOne that the company accelerated in Q1–the heavy lifting.