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Cumulus Media (NASDAQ:CMLS)

Q2 2013 Earnings Call

July 30, 2013 11:00 am ET

Executives

Lewis W. Dickey - Chairman, Chief Executive Officer and President

Joseph Patrick Hannan - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Treasurer

Analysts

Avi Steiner - JP Morgan Chase & Co, Research Division

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

James M. Marsh - Piper Jaffray Companies, Research Division

Aaron Watts - Deutsche Bank AG, Research Division

Lance W. Vitanza - CRT Capital Group LLC, Research Division

Andrew DeGasperi - Macquarie Research

Operator

Hello, and welcome to the Cumulus Media Quarterly Earnings Release Conference Call.

Please note certain statements in today's press release and discussed on this call may constitute forward-looking statements under federal security laws. These statements are based on management's current assessments and assumptions and are subject to a number of risks and uncertainties. Actual results may differ materially from the results expressed or implied in the forward-looking statements due to various risks and uncertainties or other factors.

I would now like to introduce Mr. Lew Dickey, Chairman and CEO of Cumulus Media. Sir, you may proceed.

Lewis W. Dickey

Thank you, operator, and good morning, everybody. I appreciate everyone taking the time today to join us for our second quarter update. Also with me today is our CFO, JP Hannan.

And today, we're going to update you on our operating performance in the second quarter, and then also share pacing information for the third quarter. Additionally, we'll provide an update on the investments that we're making in our 4 key growth initiatives that I laid out in last quarter's call. And we'll also give you a quick update on the last of the remaining Citadel merger integration items.

Now in the second quarter, total revenue was up $8.6 million or 3.1%, while same station revenue was up 2%.

This increase was driven by a strong performance in local, where we took share in all 3 months, as well as the increasing strength of our national sales effort, which we overhauled last year. Now this effort has been building sequential momentum for us for the last 4 months. Excluding the $2.3 million of political revenue in the prior period last year, our same-store sales were up 2.9% for the quarter.

Now last quarter, we guided to positive revenue growth year-to-date through June 30, with strong momentum going into the back half of the year. We're pleased to report that we achieved this guidance and we maintain our outlook for the rest of the year.

Moving down the income statement, we grew same station EBITDA in the second quarter by $5.8 million or 5.5%. We did this through a combination of revenue growth, strong expense management and the roll-off of start-up expenses that were born in the first quarter for our targeted growth initiatives, including NASH, CBS Sports Radio and Right Now Traffic.

Free cash flow for the quarter was up $17.1 million or 46.9% as we start to hit a more normalized rate of free cash flow generation with the completion of the Citadel integration. Now this past quarter, we saw a continued strength in auto and real estate. We're also seeing the derivative impacts of the housing sector strength across a number of related categories, including home furnishings and home repairs.

Also, healthcare categories across the board were also very strong in the quarter, led by hospitals and healthcare providers. We anticipate this strength to continue throughout 2014 with the principal driver being the rollout of the Affordable Care Act.

Finally, for the first time in many years, we saw increased activity in the recruitment category this quarter. Again, it's another category that we believe will continue to accelerate into 2014 as the job market continues to strengthen.

The other performing categories in the past quarter were insurance, apparel, soft drinks and jewelry. Now all total, the growth we're seeing across many diverse categories of industry really gives us a strong indication that the economic recovery is continuing and is now being felt by much more of the country than we've seen in the past 2 years, where we really just seen -- it's been very spotty. It seems to be more uniform today.

Now, in addition to the overall macroeconomic strength, we continue to benefit from the turnaround of a handful of distressed large market stations that we acquired in the Citadel merger. As I mentioned in our full year 2012 earnings call, this previously identified group of 10 underperforming stations it accounted for more than 100% of the company's negative growth in 2012.

As we forecasted, this code red stations continue to impact our results as we turned the calendar into Q1 of 2013. I'm pleased to report, however, that we've made excellent progress on the turnaround of these assets, and this process is largely done now with only 1 of the 10 stations still remaining on our code red list.

So regarding the merger integration, we've now extracted close to $65 million of expense synergies from the Citadel merger, which is a 25% overachievement from our original target of $51.9 million. And the integration of all other aspects of this merger is now essentially complete.

As we approach the second anniversary of this transaction in mid-September, we're very pleased with the overall merger integration and look forward to the continued growth of our top line, fueled by this exciting platform now that we've assembled, which is driving our targeted growth initiatives.

The overachievement of the expense synergies has also allowed us to reinvest in the business to build for the future. We've made a handful of strategic investments into our sales infrastructure, digital offerings and content, which is really now beginning to show results.

As we discussed last quarter, we're investing approximately $25 million annually in targeted bets on CBS Sports, NASH, Right Now Traffic and SweetJack. Although these were a collective drag on our first quarter EBITDA, we're tracking slightly ahead of schedule now as we expect these initiatives to breakeven in 3Q and actually turn positive for us in 4Q. We expect these growth initiatives to generate $75 million to $100 million of revenue in 2014, with more than 50% of it being incremental over 2013. Cash flow margins on this revenue will continue to ramp throughout 2014 and are expected to be in line with our overall margins by second half 2015.

For those of you who weren't on the last call, these 4 distinctive and discrete new growth initiatives truly illustrate the value of this unique platform that we've assembled. Each was created by leveraging our existing assets into compelling new content with guaranteed distribution. This is the key to successful monetization in our business model.

Our CBS Sports Radio network officially launched its 24/7 product offering in January. Backed by the marquee brand of CBS Sports and the programming powers of their radio division, we've already passed the important milestone now of 300 affiliates. And the business is exceeding its revenue plan. We're highly encouraged by our early success and expect CBS Sports Radio to be a material growth driver for our company in 2014 and beyond.

And moving on to NASH FM. In NASH FM in New York, this is one of the most exciting major market launches in recent memory. In just 5 months, we're already over 1 million weekly listeners. And in fact, it's already the third most country -- third most-listened country radio station in America and moving up fast.

In addition to establishing itself as a successful New York station, NASH FM will also serve as the flagship for our multiplatform country lifestyle entertainment brand, NASH. It's a transcendent brand that has captured the attention of artists, of labels, listeners, as well as advertisers. NASH will provide a unique opportunity for advertisers to reach the large and desirable consumer lifestyle segment of country music fans, which is over 85 million now, through various multiple platforms for both engagement and activation.

In June, we launched NASH's new morning show, hosted by the nationally syndicated country radio talent, Blair Garner. Blair leads an ensemble cast, including country superstars Lee Ann Womack, Chuck Wicks, Terri Clark, Sunny Sweeney and along with CNN's Robin Meade as our news anchor. This is the biggest show in country radio by far, and they're broadcast in front of a live studio audience out of our NASH studios, and we expect to begin our video offering of the show in early 2014.

We currently have 85 NASH affiliate stations at our platform, with 9 of them already rebranded NASH FM. We're extremely pleased with the progress of our NASH initiative, and we'll provide a full report on our multiplatform strategy on our next earnings call in about 90 days.

Now moving on, our Right Now Traffic network has recently completed its first year of operations. It's also exceeding plan. This business positioned very nicely to take share of the more than $150 million market for traffic in short length spots. We find this space pretty attractive because it has limited competition and we can compete very aggressively given our size, national scale and distribution that we offer.

SweetJack is also progressing well as our mobile activation platform, and in the quarterly, closed our first national deals in both retail and in the restaurant categories.

Now looking forward into Q3, we expect revenue to be positive. And x political, we expect it to be nicely positive. July finished up 2.5%, all in, including political, and we're pacing positive for the quarter against tough political comps, particularly in September.

Now overall, this was a well-executed quarter. We not only achieved our guidance on the top line, but we also exceeded it on the bottom line. We spent the last 20 months or so integrating our platform of assets, and we've developed a very solid foundation on which to build for the future. Our 4 key growth initiatives are smartly leveraging both the size and the composition of this platform to create growth opportunities that are targeted, measurable, as well as strategic.

Now lastly, let me answer a question before it's asked. While we don't comment on individual talent negotiations, I will say that the framework we employ is straightforward and very consistent. We carefully analyze listener interest, advertiser demand, as well as opportunity costs when making our decisions. We'll have more to say about this when the time is appropriate.

And with that, I'll turn it over to JP and then we'll open it up for questions. JP?

Joseph Patrick Hannan

Thanks, Lew. Good morning, everyone. I'll quickly highlight a few items related to our balance sheet before we move on to questions.

On April 1, we made a $35.6 million prepayment of senior debt. Approximately $31.1 million of this amount was applied to our first lien term loan, and the balance went against our higher-interest second lien loan. As a result, at quarter end, the debt balances were as follows. Approximately $1.28 billion of first lien term loan debt at LIBOR plus 350 basis points, and this loan has a 100 basis points LIBOR floor, with approximately $785.5 million of second lien term loan debt at LIBOR plus 600 basis points. This loan has 150 basis points LIBOR floor. We have $610 million of senior notes, which are fixed at 7 3/4% annually.

All total, we have outstanding debt of just over $2.68 billion. On May 31, we restructured our revolving credit facility by reducing the existing unused line from $300 million to $150 million of availability. In conjunction with this, we amended the financial covenants to be a first lien test only. As a result, we now have the full amount available to us, but continue to have no current balance drawn. There was no fee or change in rate as part of this amendment.

However, in the quarter, we did recognize the write-off of approximately $4.5 million of deferred financing costs in conjunction with the amendment. This restructured credit facility plus the $46.2 million of cash on hand that we finished the quarter with, gives us ample liquidity for the foreseeable future.

We have no near-term maturities of debt, and we will continue to focus our use of -- our increasing free cash flow on deleveraging our balance sheet.

Now the only other significant item of note in the quarter related to the outstanding put option on the Clear Channel assets in Green Bay that we've been operating under an LMA for the past 5 years. Clear Channel has given notice of their intent to exercise this put option, which would require us to purchase these assets from them for approximately $17.6 million.

We anticipate the closing to occur sometime toward the end of the year. And as part of the ongoing valuation of the put option, we recognized a noncash gain of $2.1 million in this past quarter.

We spent about $2.8 million on routine maintenance capital expenditures in the quarter, and are on target towards our full year estimate of approximately $12 million. Otherwise, it was a very quiet quarter from a balance sheet perspective. And with that, we can open up for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from Avi Steiner with JPMorgan.

Avi Steiner - JP Morgan Chase & Co, Research Division

A few here. Just on the just completed quarter, can you tell me again what same station sales growth was? And then on the pacing side for Q3, Lew, did you say 2.5 for the full quarter, 2.5 for July? And I think you said the full quarter was up. I just want to make sure, I'm writing pretty quickly here.

Lewis W. Dickey

Avi, I'll take the second question first, and JP will give you the first answer. On -- with respect to pacing, I said that July finished up 2.5%, including political. So x political, obviously, a little bit higher than that. And for the full quarter, the guidance is that we would be positive, including political, and nicely positive, x political.

Joseph Patrick Hannan

And as you see in the press release, the -- as reported, growth was 3.1%, and the same station was 2%. The only difference between those 2 numbers are the assets in Bloomington and Peoria that we picked up in Q3 of last year from Townsquare.

Avi Steiner - JP Morgan Chase & Co, Research Division

Great. Lew, on the third quarter pacing, is the upside coming from kind of your now fixed code red stations or from the entire group? Is anything even pointing out regionally here, local, national, would be helpful.

Lewis W. Dickey

Avi, the group continues to perform well. And as I mentioned, the -- we've been doing -- we've actually been putting ourselves pretty nicely on the local front for a number of quarters now post merger, and national was really quite a drag on us. And as I mentioned in the prepared remarks, our -- we've got a very strong, dedicated national effort in place that is really starting to take root. We've seen sequential improvement over the last 4 or 5 months in that effort. And so we're pleased with where that's going. So I think overall, we would expect to see a solid performance in the quarter. And as we mentioned, we start to hit some political comps that really begin in earnest. We had -- I think even in June, we had $1.5 million in political, and then it starts to really ramp and September becomes a big month, and then October, obviously, a very large month. So those are the sort of the -- that's what we're looking for, is to see if we can overcome those and post a positive number for the quarter. And thus far, we're on pace to do that.

Avi Steiner - JP Morgan Chase & Co, Research Division

Excellent. Two more for me, one on the expense side. This quarter came in ahead of my expectations. Just want to confirm nothing kind of onetime in there. And then I know you touched on this a little bit, but just how do we think about expense growth for the balance of the year? And then I have one more.

Joseph Patrick Hannan

Well, there was -- the biggest change was the music royalties, the publishing royalties. There were some timing nuances in there. As you recall, last year, we did a -- the industry large, cut a new deal with ASCAP and BMI. And we -- the new rate structure for BMI was applied in this past quarter. We had a sizable that we, like all from most major broadcasters, had a sizable credit that we received a year ago in Q3 from BMI, which for us, was $8 million we recognized. But after we get through some of that noise in Q3, Q4, then we have more normalized run rate on the royalties. And as for the rest that we mentioned last quarter, we added about $6 million a quarter in additional operating expenses for the 4 new initiatives, but we are still recognizing other synergies that have offset some of that.

Avi Steiner - JP Morgan Chase & Co, Research Division

Okay. I may have to come back at BMI, ASCAP one. But very last one for me. I know you guys own, I believe, you own some non-core assets. Can you talk about some of those and maybe how to think about that over the intermediate term and potential delevering opportunities from them?

Lewis W. Dickey

Well, we do have some non-core assets that are on the balance sheet that ultimately, we will realize in due course. And so these are things we're looking at today. And it's tough to put -- we know that there -- it's well over $100 million worth of non-core assets that whether it be real estate or embedded assets that we have that ultimately, we will, in an orderly fashion, dispose and realize gains from them that we can delever with. But it's a process and we're working on it now, Avi.

Operator

You're next question is from Michael Kupinski with Noble Financial.

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

Actually, I'm a little surprised by the previous caller and his question about the expenses because the expenses came in better than I was looking for, particularly, too, on the corporate SG&A line. Obviously, that there's some fluctuation in there with some non-cash comp, I think. Could you just talk a little bit about G&A expenses going forward?

Joseph Patrick Hannan

Mike, in corporate, that was really where we saw -- the shutting down of the Citadel corporate office a year ago was one of the last integration items, one of the last synergies that we're just realizing in this quarter.

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

Okay. And so that the -- that number, JP, going forward, is that -- would that be a good run rate or [indiscernible] a little bit?

Joseph Patrick Hannan

No, we've been guiding full year total corporate to be about $30 million x stock comp.

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

Okay. All right. Okay, and then that's all right. Now, in terms of the -- you obviously have a soft call on one of your second lien coming up here. Could you talk a little bit about the prospects of refinancing the debt? Certainly interest rates have kind of come up a little bit. And then maybe talk about possibility that the company may refinance its first lien as well? Any thoughts on that?

Joseph Patrick Hannan

Well, there's been a little turbulence in the credit markets over the last couple of months, but it seems like those are -- it's settling down and our first -- the next opportunity -- will be on the second lien, that soft call, the premium steps down in September to 102. And then beyond that, on the first lien, which we just repriced a year ago, that steps down December 31. So there may be some opportunities in there, and as always, we're looking at everything. We don't have anything tangible to talk about right now. But hopefully, over the -- by the next call, we'll have a little more to talk about there.

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

Perfect. And you mentioned that your news feeds were kind of running ahead of expectations, and certainly, we're pleased to see that there -- it looks like you're getting some revenue traction. Can you talk a little bit about what you have year-to-date in terms of some of these revenue initiatives? You're indicating that next year, expecting a 50% incremental with $75 million to $100 million in revenues. But can you talk a little bit about where you stand today?

Lewis W. Dickey

Mike, we're really purposely grouping those into 4 things for competitive reasons and not talking about -- and not breaking them out on an individual basis, again, for competitive reasons, but rather treating them as a group. And I would say that for each of them, we talked about Traffic being ahead of plan, CBS Sports Radio being ahead of plan. And NASH, which is really -- and what NASH is today is simply the New York radio station because that's the only, in essence, source of revenue that, that ultimately multiplatform initiative has. And the NASH radio station is exceeding its plan that we set forth for this year. And so, obviously, it's in hypergrowth mode because it was just launched. And when you launch a radio station in a major market like New York City, you have to have a couple of books behind you to then go out to the marketplace and be bought. So it's in a little bit of a slingshot mode as it starts to ramp up here. Each quarter is doubling the last quarter, and you're going to see that for the next several quarters as it continues to grow. Then the NASH initiative was, I mentioned, in our next call, in a more fulsome way, we'll lay out for The Street, the various components of NASH. And then each one of those, obviously, will have a revenue associated with it as they roll out into 2014. And then that initiative will be dramatically larger than the billing of the New York radio station. So I just don't want to, for competitive reasons, I say, to lay out where we are in Traffic and CBS Sports and even SweetJack at this stage of the game. But they are growing on target and we're very confident in the $75 million to $100 million of total revenue for that group of 4 growth initiatives. With as, I say, about 50% of it being incremental to where we would finish next year. Perhaps, we can do a little better than that.

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

That's fair enough, and appreciate that color. In terms of the third quarter in the guidance here or the pacing data that you provided, the network outlook, could you just give us a little color on what's going on in the network? And obviously, you said that you're seeing some traction in local and so forth, but just if you can give us a little bit more color there. And I hate to be the one to ask this question, but do you -- as a firm, do you make money on Rush Limbaugh?

Lewis W. Dickey

Well, on that, Mike, I've got to refer you back to the last thing that I said, which is we -- in the prepared remarks, which is we really don't want to get into that subject today and we're in the middle of a negotiation, and we'll have more to say on that when we do. And I can't tell you exactly when that'll be, but it will likely be sooner than later. And we'll have more to say on that topic when we have a resolution. And what was the other -- what was the question before that?

Michael A. Kupinski - Noble Financial Group, Inc., Research Division

The other question was the pacing data for the third quarter as it related to network.

Lewis W. Dickey

Yes, on the network. Look, the network space has been a bit choppy. And what we're seeing is that it is starting to settle down, and we look for the network space to be for Cumulus in any event, to be -- it grew for us in the second quarter and we look for it to be positive in the back half of the year. It's a pretty fragmented space that ultimately begs for more consolidations. And there are advantages to scale here, and we're seeing that across the board. Look, you're seeing that on the buy side as well with the recently announced Omnicom and Publicis merger. And all of these things, scale does matter in both content and distribution, as well as, obviously, on the buy side. And it is going to compel further consolidation across our industry. But I would say that the network space, I can only speak for our platform, which is an enormously valuable strategic asset to us, and it's facilitating the roll-out of these key growth initiatives that we have. And so we expect it to be positive in the back half of the year, and it did turn in a positive performance for us in second quarter.

Operator

Your next question is from James Marsh with Piper Jaffray.

James M. Marsh - Piper Jaffray Companies, Research Division

Lew, you're just talking a little bit about M&A there, and obviously, that's been kind of a hot topic in the TV station space these days. Could you give us a sense for kind of where you see the broader radio market, the M&A space and how Cumulus fits in there? I mean, do you still see yourself as a buyer, the opportunistic -- selling opportunity there? I'm just trying to get a sense for where you see us in that cycle. And then I've got a couple of housekeeping.

Lewis W. Dickey

Yes, it's a good question, James. I think that you are seeing it in television, and that space is starting to consolidate nicely. You're seeing it on the MVPDs, they're starting to consolidate, you're seeing more activity in the cable space. And as I mentioned earlier, I've definitely seen it on the buy side in the marketing services firms. So I think that for a number of reasons, it -- and I've been saying this for quite some time, and obviously, we've been a consolidator. I think there are enormous benefits to scale and particularly to compete in this industry, where advertisers have more choices than ever before and advertisers are looking for integrated solutions, and they're looking for ease of execution. And all of that kind of compels further consolidation, and in order to serve the customer in a more appropriate fashion. So I think you're going to see more of it. It's -- it obviously -- there has to be a counterparty. So these things, you can never predict if and when they're going to happen. But I do believe that they -- the business logic behind it is very sound, and we're seeing this look with the Citadel acquisition. What we have now with this platform is put us in a position to be a much different company than we were before. And so we're very pleased with this combination and see an opportunity to do more down the road. But it's got to -- as I say, it has to be done in a timeframe that works for all. And so it's very difficult to predict if and when more things are going to happen. But I would say that if we don't do another deal, we've got an excellent platform from which to build and grow as we're demonstrating with these growth initiatives. But I do think consolidation is going to be increasingly more important going forward to meet the needs of our advertisers in the buy side.

James M. Marsh - Piper Jaffray Companies, Research Division

Okay, that's helpful. And then secondly, I just want to talk a little bit about these, I guess, the ObamaCare Insurance exchanges. And it feels like there's been a lot of money earmarked to kind of get the message out to consumers. Is this something you're starting to hear percolating up from your local sales forces? And how do you think radio is positioned to benefit from that overall?

Lewis W. Dickey

Radio is a very affordable, flexible medium that is highly targetable, which a lot of healthcare services are very specific in terms of the segments of the population that they're targeting, whether it be women or men or older people or younger people. And so those are the things that radio, as a very targeted medium, enable us to do for our clients. And so there's a lot of education that has to go on for the public right now. And there's also, with that, a lot of opportunities for entrepreneurs out there in the healthcare field to market their services and target effectively here based on these new regulations. And so the way we consume healthcare is definitely changing as a result of the Affordable Care Act. And that opens up opportunities, and a lot of people are seizing on this. So we're working with our sales staff on a local level to be prepared for that, and then, obviously, using case studies as soon as we have success stories to take back out to market and try perpetuate more of it. So we think that it's an interesting opportunity for us, and we're working to take advantage of it.

Operator

The next question is from Aaron Watts with Deutsche Bank.

Aaron Watts - Deutsche Bank AG, Research Division

Lew, on the outlook, just looking ahead at the business month-to-month. And would you say that the dust has kind of settled a little bit and you're seeing some steady kind of ad interest? If you think about July, August, September, is it still kind of up and down month-to-month? How would you characterize the environment out there?

Lewis W. Dickey

Aaron, JP mentioned it in his remarks, we are definitely seeing a more uniform level of demand out there. This is not -- the economy isn't roaring back by any stretch of the imagination. I think all the indicators, what all the indicators, say as much. But I do think what we are seeing though is a more uniform recovery across the country. And we're in 110 different cities so we have a pretty good bird's eye view of this, and large and small. And we do see things being much more uniform in terms of demand for advertising, so a pretty good bellwether there. So I would say it's kind of slow and steady and moving forward, which is good in a way. And then when we start to see pickup in categories like recruitment, that's also an interesting bellwether here that we haven't seen in quite some time. So those are areas where, I think, the job market is slowly recovering, the housing market is recovering, the auto market continues to perform well, as we know that there were -- there was a lot of pent-up demand as many cars were well past replacement cycle or scrap value. And so all of that, I think, is playing into a stronger, steady recovery here going into 2014. So we actually like the momentum that we see going in 20 [ph] -- it doesn't feel like it's a run rate -- runaway freight train by any stretch of imagination, but it does feel like it's well grounded and solid and starting to take root here.

Aaron Watts - Deutsche Bank AG, Research Division

So, I mean, that's definitely positive. Volumes picking up. Do you see it in maybe the not-too-distant future, some more leverage on your side with pricing? Or is it too early to talk about that at this stage of the economic recovery?

Lewis W. Dickey

Yes, look, it's -- I think it's too early to talk about that. I think right now, we're working very hard with systems. As I mentioned in the prepared remarks, we're working very hard to make some investments in technology and systems, so we have a better understanding of our inventory across all of our 500-or-so radio stations, as well as the amount of network inventory that we have with the 5,500 radio stations we do business with. And so there was a lot -- there is and will continue to be, for our company, a lot of low hanging fruit. This is sort of the last mile that we're focused on right now, which is technology to help us better understand the inventory we have and the appropriate place to price it, and to -- and help us to package it and sell it to increase the yield. I mean, we've got a lot of headroom on -- within our own company with all the inventory that we have and the 3 sales channels that we primarily compete in, let alone, digital and event, to maximize the yield from this inventory. So it's a -- we like the -- and it's really all opportunity. It's all in front of us, and we're making very good progress with our systems and technology to help us take advantage of it. So I think that it's -- demand will continue to pick up. And I think that -- and obviously, then '14 becomes a political year. And then you may start to see the first signs of that, where the business has true pricing power as you get into the late spring next year. And I think everything up until then is really just back to sort of recapturing some lost revenue that the industry had from prerecession and continuing to build.

Aaron Watts - Deutsche Bank AG, Research Division

Okay, that's helpful. And then, JP, maybe this one is just for you. Just to check it off my list, can you -- do you have handy what your political number was in the third quarter of last year, just so we have the right numbers?

Joseph Patrick Hannan

I do. It was $4,260,000.

Aaron Watts - Deutsche Bank AG, Research Division

Perfect. Okay. And then I think you mentioned some opportunity you might have to lower your cost of capital on the second lien PC [ph], your structure. Any thoughts on the preferred stock, which I think has a coupon step-up in a couple of months, and what your options might be there?

Joseph Patrick Hannan

It does have a coupon step-up in September on the anniversary of the Citadel deal. We don't have anything to talk about right now, but we're in conversations around that and we will have something to talk about, hopefully, soon.

Aaron Watts - Deutsche Bank AG, Research Division

Okay. Got it. And last one for me, appreciate you taking all these. Lew, I get a lot of questions on with all the streaming radio introductions out there, not the least of which may be the coming Apple iTunes option. Can you maybe just give us your latest thoughts on listener trends and what those have looked like and trended with Pandora and the other options that are out there? Just what you've seen the last few months on the listenership side.

Lewis W. Dickey

Right. Well, on there, what we're seeing on the listener trends -- and Arbitron has published some data of late, in essence, indicating that the listenership for radio is at an all-time high. So really, what you're seeing with all the different -- and you're seeing a convergence of media and technology, and you're seeing the ability to -- and I think, frankly, what's it's doing is it's creating a greater overall consumption of media. So people are listening or consuming more media on more devices more often, and sometimes, simultaneously. And so it's not a -- in essence, it certainly is not a disadvantage to our medium. As I say, we've got the highest level of -- number of listeners and it's at an all-time high, as indicated through Arbitron, and that's a lot of empirical data statistically significant across a number of surveys here. So it's pretty much irrefutable. And what I would say is that you're just seeing more overall media consumption, period. You're seeing it in on video as well. And that's just our -- that's our generation today, and that's afforded by, as I say, the convergence of media and technology. So we certainly -- in our minds, radio is, and the way it should properly be positioned, it is America's definitive daytime medium. And we reach more people more often than any other medium during the day. And just pick the hours, whether its 6a to 7p that's what radio does really, really well. And it's an increasingly mobile society. You have people spending more and more time in their cars, and radio reaches consumers during the day. And television is more of a nighttime medium, and does that very effectively. But yet, most purchases are made during the day. And so if you really want the last mile, if you want to reach consumers and influence their purchasing decisions before they make a purchase, radio is an incredibly effective, efficient targetable medium with which to do that. And so it's free, it's local, it's mobile, it's digital, all of the things that make it such an attractive medium and why we believe it's going to have legs for a long, long time to come. And so we like our -- we're in a unique position as broadcasters in that we own both our content and our distribution. And then through our network, we've got a terrific content creation platform that can serve our distribution, as well as give us the ability to serve content on other platforms, namely digital. And as the demand for that picks up over time, we will be investing in that and figure out ways to deliver more of this high quality and exclusive content that we're creating across multiple platforms. And so that's the way we're thinking about our business. And -- but we're very, very bullish on radio broadcasting, and for all the reasons I just articulated and its future here in terms of being a very important part of the media marketing mix for all the obvious reasons.

Operator

The next question is from Lance Vitanza of CRT Capital Group.

Lance W. Vitanza - CRT Capital Group LLC, Research Division

Lew, maybe I'll start with you. The listenership up, and you do a great job explaining the benefits of radio to the advertiser, but are you seeing any evidence to suggest that, that message is getting through to new types of advertisers?

Lewis W. Dickey

Well, Lance, we just mentioned that, for instance, the healthcare entrepreneurs that are taking advantage of the Affordable Care Act. This is an important new category for us. And so we're starting to pick up business there. So I think that there are going to be different types of advertisers that, over time, are going to figure out which medium works best for them and delivers the best value for them. And as we say, radio is really a very effective daytime medium for people on-the-go, away from home. And that's what really drives our business. And so when you think about the number of -- and I think even to date, the online purchases represent 2% or 3% of overall retail sales. So I mean, it is very much a world where people are out and about, and they purchase goods and services, and radio is a terrific medium to reach them in that sort of last mile to influence purchase decisions. And so whether it be the old standard, nobody use -- knows how to use our medium better than the auto dealers, and it represents about 15% of our business, down to new categories like healthcare and professional services, where people are figuring out that radio is very efficient and targetable, and that in today's day and age, with media saturation, as I mentioned, that convergence of media and technology means people are consuming a lot more media. That means people are bombarded with a lot more impressions than ever before. And so if you are a marketer, what's very important today is frequency. It's incredibly important that in order to establish share of mind or to help people be known before they're needed, which is brand awareness and brand engagement, you've got to have an enormous amount of frequency. And radio is such an efficient medium that, that's why it makes so much sense, on a targeted basis, to -- and production costs are a fraction of what they would be for television or print. And so for that reason, we've got a very strong entry into the marketplace here to buy for ad dollars and be an important component of the media mix for advertisers. And so that's the way we're bringing it to market. And as I say, it's not perfect for all products, but that's why there's so many choices out there. Every advertiser and every category, over time, will find the right way to adjust their mix to maximize their marketing spend.

Operator

And we have one last question. Your final question is from Amy Yong with Macquarie Capital.

Andrew DeGasperi - Macquarie Research

This is Andrew for Amy. Just had a quick question on the ad trends. I know you've mentioned it at length, but are these, the ones you mentioned in 2Q, healthcare, et cetera, those are the same categories are going strong in 3Q as well? And lastly, second part of the question was on the margin side. Obviously, 2Q was relatively high because of the royalty fee. JP, if you can maybe just go over one more time with me what am I supposed to expect in the second half?

Lewis W. Dickey

The first question, first. We don't have -- we don't give pacing information based on categories. We generally get that in arrears. So we'll have more to say about that in our third quarter call. But there's no reason to believe that an emerging trend like that would abate. So we would look for continuation of that. We'll give a full update of that in 3Q.

Joseph Patrick Hannan

And, Andrew, in terms of margins, I mean, we see continued improvement in margins on a same station basis. We picked up 100 basis points on margin this quarter. As I said, there's a little bit of timing around the royalties. That normalizes out over the course of the year. The other expenses that we layered in, those are normalizing now and we're getting to a steady run rate on those.

Operator

There are no further questions at this time. I will turn the call back over to the presenters.

Lewis W. Dickey

All right. Well, thank you, operator. And thanks again to everybody for taking the time to talk to us today, and we'll be back in touch in 90 days. Have a good day. Thank you.

Operator

This concludes today's conference call. You may now disconnect.

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