Westwood One’s Q3 revenue was $96.3 million compared to $108.1 million in Q3 ‘07, a decrease of 10.9%. The decrease is primarily due to the soft economy in the quarter, which particularly impacted local advertising. Local/Regional revenue declined 16.6%, primarily driven by reduced ad spending in the automotive, banking and financial services and real estate categories. National revenue declined 4.3% due to lower advertiser demand.
WW1 anticipates ad revenue will benefit from increased daypart clearance rates of 93.7% on CBS Radio stations from March-August 2008, which significantly increases the effectiveness of Westwood One’s ad platform.
Said Rod Sherwood, Westwood One’s President and CFO, who was named President in October, replacing Tom Buesse: “My financial and operational experience has enabled me to do a deep dive into Westwood One’s business…What I found is that the pillars of the business are solid and that profitable growth should be present in 2009, as the company’s turnaround efforts gain traction…Today the company must navigate through one of the most challenging economic environments in recent history. Like other media companies, Westwood One is feeling the impact of advertisers cutting their budgets or waiting longer to commit their dollars. Like other media companies, WW1 is responding quickly to these conditions by re-engineering its business to operate more efficiently and reducing costs.”
WW1 began re-engineering the Metro Networks traffic business in Q3 to improve operating performance and reduce costs. The company also addressed certain underperforming programming in the third quarter. Sherwood said this re-engineering will deliver initial savings in 2008, with the major impact expected to occur in 2009. These changes will result in a reduction of staff levels and the consolidation of 60 operations centers into 13 regional hubs by the end of Q2 2009. The enhanced digital platform, overall improvements in communications technology, and scale benefits of larger, 24/7 hub centers better position Westwood One moving forward, said Sherwood.
Once completed, the re-engineering program and other cost savings measures will result in a total cost savings of $25 to $30 million on an annualized basis, which includes $4-5 million of savings in 2008 and an incremental $20-$23 million in 2009.
The company estimates it will record an aggregate restructuring charge of approximately $26.1 million, consisting of: $10.3 million of severance, relocation and other employee related costs; $8.3 million of facility consolidation and related costs; and $7.5 million of contract termination costs. For the quarter, WW1 recorded a restructuring charge of $10.6 million, comprised of $4.1 million of severance and employee related costs and $6.5 million of contract termination costs.
Net loss for the quarter was less than ($0.01) million, or less then ($0.01) per share, compared with net income of $8.5 million, or $0.10 per basic and diluted common share in the Q3 ‘07.
Sherwood also said he’s focused on achieving a turnaround in financial performance with a three-pronged business strategy: (1) growing revenue, (2) reducing operating expenses and (3) restructuring or refinancing the company’s debt.: “Westwood One is leveraging the strength and competitive leadership of its core businesses to drive sales performance. The results to date are encouraging. Out of the top three radio networks, only Westwood One showed audience share growth in the core demos (Adults 18-49 and Adults 25-54) over the last 2 RADAR ratings reports.”
Increased clearances from several radio groups helped fuel this audience growth. For example, Sherwood said Emmis Radio increased clearances that strengthened audience delivery across the female and youth networks. Other radio groups like Beasley, Greater Media, and Inner City Broadcasting also increased clearance with Westwood One, and improved the company’s audience delivery across several networks. In addition, CBS Radio stations increased clearance levels of 93.7% have delivered a higher top-market based audience with strong advertiser appeal.
Debt has decreased by $113 million as of 9/30/08 vs. debt outstanding as of 12/31/07. Active discussions are taking place with lenders (including majors Bank of America and JP Morgan) and noteholders to restructure and/or refinance debt which comes due on 2/28/09 and 11/30/09, respectively.
In addition, WW1 is at risk in the near term of violating the NYSE’s $25 million market capitalization requirement and being delisted. While the company is assessing the potential of a reverse stock split and a possible alternative listing on the AMEX or NASDAQ, there will likely be an interim period when the company is not listed on an exchange.
Concluded Sherwood: “So far I have outlined the achievements to date in our business strategy of growing revenue, reducing operating expenses and commencing constructive discussions on restructuring or refinancing the company’s debt. We have gained traction in all three areas in 2008. Clearly we have more to do. We are confident we can achieve our goal of sustaining possible growth and riding out the economic storm that is affecting all business today.”
WW1 expects its full year revenue to decrease high single to low double digits.
RBR/TVBR observation: It seems like a perfect storm brewing that will make getting debt refinancing tough. As the press release stated, “Failure by the Company to reach an agreement with its lenders and noteholders would have a material and adverse effect on its ability to continue as a going concern.”
Getting de-listed from the NYSE and doing business in an already uncertain and tough climate are going to add to WW1’s problems getting credit right now. A lot of much healthier companies are facing problems getting credit these days. So, Sherwood has his work cut out for him, but he’s cutting and slashing, so the numbers may work for BofA and JP Morgan. Let’s just hope the economy stops its steep slide soon.
