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Cumulus Media Inc (CMLS)
Q3 2020 Earnings Call
Nov 5, 2020, 8:30 a.m. ET
Contents:
- Prepared Remarks
- Questions and Answers
- Call Participants
Prepared Remarks:
Operator
Welcome to the Cumulus Media quarterly Earnings conference Call. I will now turn the call over to Collin Jones, Senior Vice President of Corporate Development and Strategy. Sir, you may proceed.
Collin Jones -- Senior Vice President Corporate Development & Strategy
Thank you, operator. Welcome, everyone, to our third quarter 2020 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 this 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, which was also filed with the SEC shortly before this call. A recording of today's call will be available for about a month, and details for how to access that replay can also be found on our website. With that, I'll now turn it over to our President and CEO, Mary Berner. Mary?
Mary Berner -- President and Chief Executive Officer
Thanks, Collin, and good morning, everyone. In the third quarter, we continued to deliver against the goals we established at the start of the pandemic crisis: maximizing revenue, offsetting the virus' impact through rigorous cost management and liquidity enhancement, and ensuring that we emerge from the pandemic well-positioned for long-term success. To those ends, we grew revenue sequentially each month in the quarter, with September finishing 35% higher than June. We executed on our expense reduction plan, realizing over $25 million of fixed-cost savings in the quarter, with the expectation of delivering more than $85 million in 2020. We generated positive EBITDA and cash from operations for the quarter, bringing year-to-date free cash flow, excluding M&A and the ABL draw, to over $45 million. We strengthened our balance sheet significantly, completing the initial closing of our tower sale-leaseback transaction, finishing the quarter with over $350 million of cash, a substantial portion of which will be dedicated to reinvestment and/or additional debt paydown. While the environment remains uncertain, we now have the resources and flexibility to respond to opportunities that might arise from the disruption and invest in areas that will drive growth, while continuing to improve our balance sheet. On virtually all metrics, our third quarter results represented a significant improvement from Q2. Same-station revenue finished down 29% year-over-year, but as I mentioned, improved sequentially each month in terms of total dollars. In the spot market, which is arguably the best indicator of the overall health of the core radio business, we saw year-over-year improvement each month, both inclusive and exclusive of political dollars.
Like last quarter, our diary markets, which were less affected by the pandemic shutdowns, outperformed our PPM markets. Political, as you might expect, was clearly very strong, as our footprint overlapped nicely with swing states. We had $5.8 million of political revenue in the quarter, which was a new high-water mark for a third quarter, and have benefited from that spending pace through the election. Government spending also contributed positively in the quarter. And while still negative versus last year, financial, general services, and professional services also outperformed other categories. Digital, as a whole, posted another quarter of growth. While streaming and local digital marketing services remain pressured in the difficult macro climate, podcasting more than offset those declines. Up nearly 50% in the quarter, podcasting delivered record quarterly revenue, reflecting our particularly strong news talk portfolio and our highest ever download count, over 102 million in September, up 47% year-over-year. Also, in the quarter, we launched the new Marketplace Minute, a short-form, three-times-a-day briefing that highlights the most important stories about money, business, economy. Developed in partnership with American Public Media, the marketplace minute is distributed across smart speakers, broadcasting, and podcasting. Marking the first time any public media company has partnered with a commercial audio company to extend its reach, the Marketplace Minute also serves as a great example of our effective use of partnerships to create exciting new content for podcast audiences.
On the expense front, we mentioned last quarter that we were targeting approximately $85 million of fixed cost reductions for the year, including permanent reductions on an annual run rate of $36 million. More than $25 million of these fixed-cost savings were achieved in Q3, and we anticipate realizing more than $15 million in Q4. Many of these savings resulted from difficult decisions mandated by the pandemic-induced revenue declines. However, others reflected changes in the way we expect to conduct our business in the future, informed by new ways of operating developed during the pandemic and/or developed to meet our evolving business needs. For example, we consolidated some sales management and are in the process of centralizing our sales, marketing, research, and insights efforts into one group that services the entire organization, as opposed to the more fragmented ad channel configuration that was previously in place. Lastly, we continue to find new ways to streamline business processes, particularly in non-revenue-producing functions. With the benefit of these cost take-outs and tight working capital management, we delivered positive free cash flow for the second straight quarter during the pandemic. We further added to our cash position with proceeds from the initial closing of our tower sale-leaseback transaction, which brought our quarter-end cash balance to more than $350 million.
These significant cash reserves not only provide us security with which to navigate the unpredictability of the months ahead, but also the capability and flexibility to act on accretive opportunities that may come our way. Looking ahead, as we move into the fourth quarter, we continue to see positive momentum in bookings, driven largely by political, but also reflecting underlying improvement across all revenue streams. Current pacing is down in the mid-teens versus last year, with political providing about a 450-basis-point benefit. We remain guarded about the finish to the year, given the recent acceleration of coronavirus infections across the country, potential shutdown measures and reaction to that, and the generally uncertain macro environment. So, for the remainder of the fourth quarter and likely well into 2021, while we hope for continued improvement, our performance will remain highly sensitive to the shape and pace of external events. However, it goes without the same as we remain unrelentingly disciplined and focused on continuing to reengineer the business to maximize revenue and reduce our costs. That said, given our liquidity position, more efficient expense profile, and growth initiatives, we feel comfortable about our ability to not only stay the course, but capitalize on the rebounding economy where and when it occurs. And with that, I'll turn the call over to Frank. Frank?
Frank Lopez-Balboa -- Executive Vice President and Chief Financial Officer
Thank you, Mary. I will start by providing some more detail on the third quarter, speaking on a same-station basis, and follow that with some additional color on nonoperating items. In Q3, total revenue was $196.4 million, down 29.4% from Q3 2019 and an increase of 34.5% over Q2 total revenue. As Mary noted, on a monthly basis, we saw total revenue improvement as the quarter progressed, with September revenue 35% higher than June. Spot and network markets performed comparably in the quarter, down in the low 30s versus 2019, with digital slightly offsetting those results, up 2%, driven by our podcasting business, which was up nearly 50% on an entirely organic basis. Digital dollars represented over 10% of revenue in the quarter. Political spend accelerated as the quarter went on, finishing at $5.8 million versus $1.7 million in Q3 2019 and $3.6 million in Q3 2018. Of note, this was a record quarter for political, and we're on track for another record quarter in Q4. Moving down to P&L, expenses declined by $42 million, or 19%, driven by both reductions in variable costs related to the revenue declines and active fixed-cost reductions. As Mary mentioned, we continue to expect to realize more than $85 million in benefits in total this year from our fixed-cost actions to date.
Of these, more than $25 million were achieved in Q3, and more than $15 million will be achieved in Q4. Broken down between temporary and permanent effects, about $19 million of the $85 million relate to permanent actions, which have an annualized expense benefit of approximately $36 million. The amount of the temporary costs that will return over time will largely depend on revenue recovery in 2021. Putting revenues and expenses together for the quarter, EBITDA finished at $20.4 million. Normalizing for M&A activity, we once again grew our cash balance by $3.5 million in the quarter, bringing total free cash flow generation year-to-date, excluding M&A and the ABL draw, to more than $45 million. Achieving this outcome despite the pandemic is a result of positive EBITDA generation, rigorous management of working capital, and reduced capex. As we said on our last call, we cut our 2020 capex spend projection to $17 million, and with $4 million spent in Q3, we are on track to deliver that. Our cash taxes this year have also been materially reduced from the combination of lower operating performance and CARES Act benefits. So, in Q3, we received approximately $2.5 million of tax refunds related to taxes paid in 2019. I would also note that in Q4, working capital requirements coming from increased revenues, our December bond interest payment, and though small, an estimated tax payment related to the gain on the tower sale will cause us to burn some portion of the free cash flow generated year-to-date.
We were pleased to announce about a month ago, the initial closing of the tower transaction, which provided a cash inflow of $202.3 million. Under our debt agreements, $64 million of the net proceeds from the assets being sold and not leased back are required to pay down debt pro rata, subject to a 12-month reinvestment right. $96 million of the proceeds from assets being sold and leased back were required to pay diamond debt immediately. As such, concurrent with the closing, we paid down $49 million of the term loan at par. And on Monday, October 5, we launched a tender offer for $47.2 million of senior secured bonds at par. The tender offer was successfully completed on November 3. We do expect to have subsequent closings for the remaining proceeds from the tower transaction by the end of the first half of 2021. Additionally, for tax purposes, the gain on the transaction will largely be offset by anticipated net operating losses this year. Net debt now has been reduced by more than $330 million since the beginning of the year and by more than $585 million, or 46%, since the quarter that we emerged from bankruptcy. As a reminder, we do not have financial maintenance covenants in either our term loan or bonds, and they do not mature until 2026.
As mentioned on previous calls, we're also still working through the potential monetization of the valuable piece of property in Nashville that we hope to bring to market, once commercial real estate activity approaches more typical levels. Lastly, I wanted to note some new disclosure in our 10-Q related to the NCAA. Based on the cancellation of March madness in 2020, we believe the rights fees of the 2020 season are not payable to NCAA. The NCAA, however, chose to terminate the contract based on nonpayment of those fees. On September 28, 2020, we and the NCAA filed competing lawsuits with regard to the dispute surrounding the agreement. While it is always unfortunate for contract disputes to escalate to litigation and litigation can be unpredictable, we believe in the merits of our position. At this stage, we are unable to reasonably estimate the impact of the [Indecipherable] litigation, but we will keep you informed as it progresses. With that, we can now open the line to Q&A. Operator?
Questions and Answers:
Operator
Thank you. [Operator Instructions] Your first question comes from Michael Kupinski, NOBLE Capital Market.
Michael A. Kupinski -- NOBLE Capital Markets -- Analyst
Thank you for taking the questions. First of all, I was wondering, you had mentioned that you have, obviously now, a large cash position. It was -- and you indicated that you may not use all of that cash to pare down debt. So I was wondering if you could just talk a little bit about uses of cash, and then also, if there are M&A opportunities, what you may be looking at.
Mary Berner -- President and Chief Executive Officer
Sure. Hi, Mike. I think we characterize it as our huge cash position has put us in a fantastic position to be defensive about the uncertainty that exists, but as you point out, also opportunistic in ways that we can use cash to drive value. So, obviously, paying down debt remains a huge priority, and we know there's a great return to use our cash that way. However, should interesting opportunities come our way, we're open to considering that, whether in radio or otherwise. But we do recognize the high bar for expected returns.
Michael A. Kupinski -- NOBLE Capital Markets -- Analyst
And I was just wondering, as you were kind of giving us some thoughts about Q4 and the pacings there, can you just kind of give us a little bit of color on maybe spot versus network, what you're seeing in digital? Just kind of give us a little bit more color on the individual line items in Q4.
Frank Lopez-Balboa -- Executive Vice President and Chief Financial Officer
Hi, Michael. It's Frank. First, let me comment about Q3, then I'll give you a little bit more color on Q4. So Q3 had a very nice recovery in both the spot in the network markets, and as you heard in my prepared remarks, they performed comparably. But I would say that in the third quarter, the national spot improved considerably from the second quarter, as we get into a more normalized environment. In the fourth quarter, both channels are recognized, they were benefiting in the network from the return of the NFL, which we're pleased with. The national markets are stronger. If you look at the local markets, so part of the benefits we're getting in the local markets clearly are political, which displaces, to some extent, some of the local business. So the trends at this point, what we're seeing is fairly strong, but as Mary talked about in the script, we're cautious with regard to the pandemic and the spread, and it remains to be seen how that will impact the rest of the quarter.
Michael A. Kupinski -- NOBLE Capital Markets -- Analyst
And how does the bookings look as you go into December, which is outside of the political realm of what you may have gotten in October, November?
Frank Lopez-Balboa -- Executive Vice President and Chief Financial Officer
At this point, we'll really just comment on pacing as of this date, and you'll have more color, obviously, in our earnings call next year.
Michael A. Kupinski -- NOBLE Capital Markets -- Analyst
Okay. Very nice. That's all I have. Thank you.
Operator
[Operator Instructions] There are no questions at this time.
Mary Berner -- President and Chief Executive Officer
Thanks, everybody.
Frank Lopez-Balboa -- Executive Vice President and Chief Financial Officer
Thanks, everybody, for joining our call today.
Mary Berner -- President and Chief Executive Officer
Thanks.
Operator
[Operator Closing Remarks]
Duration: 18 minutes
Call participants:
Collin Jones -- Senior Vice President Corporate Development & Strategy
Mary Berner -- President and Chief Executive Officer
Frank Lopez-Balboa -- Executive Vice President and Chief Financial Officer
Michael A. Kupinski -- NOBLE Capital Markets -- Analyst
