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Cumulus Media (NASDAQ:CMLS)

Q2 2014 Earnings Call

August 06, 2014 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

Amy Yong - Macquarie Research

James M. Marsh - Piper Jaffray Companies, Research Division

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

Avi Steiner - JP Morgan Chase & Co, Research Division

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

David Bank - RBC Capital Markets, LLC, Research Division

Aaron Watts - Deutsche Bank AG, Research Division

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 securities 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 forward-looking statements due to the 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, everyone. We appreciate you taking the time today to participate in our call to discuss the second quarter results. Also, joining me today is our Chief Financial Officer, JP Hannan.

The second quarter of 2014 was marked by an intense focus of our management team on the integration of WestwoodOne. As I discussed in our first quarter call, we made the decision to move decisively on our expense synergies beginning in late Q1, which would be disruptive in the short term but position us for growth in 2015 and beyond. This complex integration included an organizational restructuring in programming, sales, marketing, distribution and finance, in addition to a full enterprise systems integration and a detailed review and rationalization of the product line. Consequently, we terminated several third-party agreements which generate revenue without profits.

We are in the process of rationalizing and balancing our product line in order to improve contribution margins in the second half of the year and to give us greater control and ownership of the products we take to market in the years to come. For example, we recently announced a 7-year partnership with CNN to license their Newsource digital content, wire service and crisis coverage as we build a distinctively new news and information product designed to complement the existing products we offer and to meet the evolving needs of our 10,000 affiliates, particularly based on the feedback we receive from them on music stations which target younger demographics.

Now while much of Q1 was spent studying the business and planning the integration and synergy realization, Q2 was all about execution. And as with any integration, it made for a bumpy quarter as we reorganized several functional areas of the business. However, by moving swiftly and aggressively, the integration is now largely complete and well ahead of plan. Originally, when we bought the business, we said it would take 2 years to achieve our projected synergy run rate, and we're now pacing about a full year ahead of that timeline. Moreover, of the roughly $41 million of synergies that we flagged, we expect to now exceed that by about 20% and to have all that in place by the end of Q1 2015. The consequence of this approach, however, is a significant amount of integration noise in both revenue and expenses in this calendar year.

In aggregate, we finished the quarter with revenue of about $328 million, which is an increase of 2% over the pro forma period a year ago. Now breaking that down into -- further into categories presented in our press release. Broadcast advertising revenue saw a decline of 1.3% in the quarter, while -- with network, local and national spot all finishing down. Digital, political, licensing and other revenue categories all grew nicely in the quarter. While the quarter began on solid footing, we saw significant erosion in both local and national pacing throughout May and June.

Network ad sales at WestwoodOne also contributed to declines, but as I mentioned earlier in the remarks, this was expected and more integration related than due to the health of the network marketplace. The majority of the decline in the network category is related to discontinued contracts in our talk, Hispanic, third-party rep and 24/7 format divisions. We're now in the midst of a significant rebalancing of our product offerings, with the objective of strengthening our profitable third-party content producers while we invest in our own proprietary content initiatives that will enhance our competitive position in 2015 and beyond.

Now moreover, in response to the evolving nature of the way advertising is bought and sold, we've reorganized our network, national spot and digital sales teams to work more closely together as a unit under Westwood One Media Group under the leadership of Steve Shaw. WestwoodOne is a heritage and trusted brand that national advertisers have bought billions of dollars worth of time over the last 30-plus years.

This move enables us to be more responsive to the needs of our national clients, who prefer an integrated approach to buying broadcast and digital audio. Increasingly, national advertisers are looking for scale as they execute their buys. We can now play at scale in all 3 audio advertising pools, spot, network and digital, to take full advantage of our platform that now reaches over 225 million Americans each week.

Strong growth in digital, which also includes Rdio, streaming and digital commerce helped to offset the slight declines in broadcast advertising. Overall, our digital businesses doubled their revenue year-over-year, and we expect this growth to actually accelerate in the back half of the year.

Political was also a meaningful contributor to growth this past quarter. After a slow start in Q1, year-to-date, political is now pacing about 8% ahead of the 2012 results. Political will be a significant factor as we move into the second half of the year, and we're encouraged by the momentum that is building.

Licensing and other cash revenue sources also continue to expand, posting 14.4% growth in the quarter. This is emblematic of Cumulus' evolving revenue strategy since acquiring Citadel and WestwoodOne to create new and incremental revenue streams leveraging our large broadcast platform.

As a result, we are becoming more diversified, and these new revenue streams will become increasingly material in the coming years. At the same time, we continue to maintain our focus on efficiency, with content acquisition and development costs that were just 31% of our total revenue, which is enabling us to build an attractive business model designed for long-term growth, again with high operating leverage.

Our adjusted EBITDA for the quarter declined approximately 9.3% to $100.5 million on a pro forma basis due primarily to the sudden drop in local and national pacing in the back half of the second quarter. This year-over-year comp is skewed, though, by a $3.6 million charge in music -- or excuse me, credit in music licensing fees we received in the prior period last year, in addition to a $2.2 million discontinued third-party content payment. When normalizing for these items, our adjusted EBITDA decline would have been approximately 4.3% or about $4.5 million for the quarter.

All of this activity, coupled with our significantly lower borrowing costs resulting from a comprehensive balance sheet management strategy we employed throughout 2013, continues to generate a significant amount of free cash for the company. Our year-to-date adjusted EBITDA of $159.3 million has yielded approximately $60 million of free cash. We have used this free cash to pay down $56.1 million of senior debt so far this year and are currently sitting on a cash balance of over $50 million.

Over the past 35 months, in other words, since we completed the Citadel acquisition, we've paid down $446 million of our debt and preferred. Debt reduction continues to be a high priority for the company, and our noncore asset sales will further this end. In the second quarter, we closed on the sale of our partnership interest in the San Francisco Giants baseball team, and we are currently in the final stages of the sale process on our highly sought-after parcel of land in Los Angeles. We expect to enter into a definitive agreement during the quarter, with a closing late next year.

In addition, we will be pursuing the sale of our other major landholding just outside of Washington, D.C. The interest of both of these parcels has actually exceeded our previous expectations and will now translate into meaningful value for our shareholders. All totaled, noncore and non-revenue-producing asset sales could now bring in as much as $200 million, substantially higher than our original estimates, and the majority of these proceeds will be used for debt repayment.

Next, I want to spend a few minutes to update everybody on our exciting NASH initiative and the rollout of our digital partnership with Rdio. As I've said on our previous calls, our plan for NASH is to create a multi-platform lifestyle and entertainment brand targeting the 90 million Americans who are fans of country music. The NASH brand is being architected to connect artists, fans and advertisers across multiple platforms, including radio, television, magazine, digital, events, recorded music, touring and licensing. So let's briefly review and update on each.

In radio, we have now branded -- or rebranded 35 of our 68 owned and operated country format stations as NASH. The rest of our stations are currently using their legacy brands, with the NASH brand woven in throughout the day. For example, K100 powered by NASH, which is repeated several times an hour. While we are currently focused on our owned and operated platform, we expect to begin offering NASH affiliations through WestwoodOne early in 2015, with a strategy similar to the network television model. Our affiliate sales team has had significant inbound traffic from broadcasters looking to rebrand existing country stations or who want to attack an entrenched competitor, employing the strength of the NASH brand and our content offering.

In addition to the brand IP, we are also offering affiliates NASH programming in specific dayparts, beginning with America's Morning Show and then, as a bookend, NASH NIGHTS, along with Kix Brooks' American Country Countdown. In addition to that, we'll be offering NASH news and interviews with live performances, and also, major contests and promotions will be key components of the NASH affiliate package that we'll be rolling out in 2015.

Now on to television. We've recently announced our first network television special, which we are coproducing with dick clark productions. It will air on the Fox network in mid-December and showcase NASH talent, both on air as well as signed to our new record label, which I'll talk about in a minute. This joint venture structure provides an opportunity for national NASH exposure and revenue upside for extremely low economic risk. In addition, we expect to have more announcement about incremental aspects of our television strategy later in the year.

On to print. NASH Magazine is currently a 16-page insert in Country Weekly magazine, which is the nation's largest and longest-running country music publication. The NASH Magazine insert is expected to grow into its own publication by the end of next year.

Now on digital, we've made an investment -- a significant investment in content creation, both in studios and personnel, specifically for premium digital video, all of this based at our NASH Campus in -- headquartered in Nashville. We expect to launch the NASH app and website in early 2015 and offering the NASH -- which will offer the NASH community of fans unparalleled access to their favorite artists, including breaking news, new releases for music and behind-the-scenes looks and the important trends in the country music lifestyle, which include food and travel. From a digital audio standpoint, beginning next year, we will also have a full NASH integration with Rdio, beginning with a streaming station, on-demand content, and including exclusive interviews and specific artist integrations for new releases as well as personal playlists by the artists.

Now on events, we will have a growing slate of events beginning in 2015 and ramping into 2016 and beyond. These all have a long planning cycle, and they'll range from small pop-up NASH live concerts to large NASH Bash festivals featuring country's top artists and bands, incorporating food and other country music lifestyle elements. These live events will offer an important NASH-branded touch point that connects NASH sponsors with country music fans as they are entertained by their favorite artists. We also expect there to be significant opportunities for licensing partnerships with existing events that could benefit from the NASH brand and reach.

Now on recorded music, we recently announced a joint venture with Big Machine Group, one of Nashville's most successful labels and home of Taylor Swift, Florida Georgia Line and Tim McGraw. Our new venture is called NASH ICON, and it is now up and running. We expect to announce a slate of signed artists before the holidays, and we'll be working with our artists to monetize their work through recorded music, touring, merchandise and other related ventures. Following a startup period in 2014, NASH ICON is expected to be profitable beginning next year.

Now on licensing, the NASH brand has enormous potential as it continues to grow and establish itself as a proxy brand for the country music lifestyle nationwide. We are presently completing our brand style guide with our licensing agent, IMG, and we'll be focused initially on apparel, accessories and home goods in third-party licensing deals as well as direct-to-retail deals. We expect to have our first deal signed in the next 6 to 12 months, spearheaded, again, by our agent, IMG.

As you can see, NASH is making excellent progress in just 18 months. We launched it 18 months ago, when the concept was originally developed, and we're excited by its enormous potential in the years ahead. We are making measured investments in its rollout and expect to have the various platforms in place by the end of next year. We continue to be confident in our forecast of $25 million in incremental NASH revenue in 2015 and another incremental $25 million of NASH revenue in 2016.

So let's -- so moving on to Rdio, which is becoming now a key pillar of our mobile strategy. We're very excited about the potential of this investment to drive both mobile distribution and monetization of our content through the Rdio platform. As an aside, Rdio was just named one of Time Magazine's 50 best sites for 2014, and that's of all sites, not just music. By way of background, in September of last year, we forged a partnership with Rdio, a global digital music business operating in 60 countries, to become the exclusive radio partner and ad sales agent for Rdio in the United States.

We are leveraging our platform to contribute content, promotion and ad sales to Rdio over the next 5 years in exchange for an ownership stake of 15%. And then -- and it can be increased up to 20% through the exercise of performance-based warrants. That makes us the second-largest shareholder, behind its founder. Cumulus is focused on being a leader -- a leading provider of audio content in a widening audio space as consumers utilize digital music services to complement their broadcast radio listening.

Over time, we expect Rdio to become the digital platform for all of our local brands and nationally syndicated content distributed through WestwoodOne. In addition, through our ad sales partnership, we will be able to create integrated digital and mobile ad networks that allow advertisers to buy seamlessly across our platform and do so at scale. This is an exciting development that will enable us to compete over time with the pure plays for expanding digital audio budgets.

Rdio is a true global streaming service that offers approximately 25 million songs on demand. It's akin to having practically the entire iTunes library on your phone, pad or desktop for just $9.95 a month, which obviously is less than the cost of 1 album. It's a tremendous value proposition for the consumer, similar to what Netflix has done in video, giving users unlimited access to premium content for a low monthly fee.

Rdio is known as a subscription service around the world but is also launching a free, ad-supported streaming radio service next month to offer listeners a compelling new alternative to existing digital platforms. We're excited about the direction that their CEO, Anthony Bay, is taking Rdio and look forward to working closely with their team to promote the platform, to distribute premium content on the platform and to monetize the digital audio to create incremental value for our shareholders.

Now looking ahead to the second half of 2014. The ongoing rationalization of network contracts will continue to impact both revenue and expenses, but it will run its course by year end. As we have said previously, we expect 2014 to be sort of the tale of 2 cities for ad sales, and our early read is encouraging regarding the outlook for the back half of the year. We also see digital, political, licensing and event revenue categories continue to grow at attractive rates, offsetting some of these network-related declines. Moreover, ongoing expense synergy realization will ramp significantly in the back half of the year and will be complete by the end of Q1 next year.

Revenue is currently pacing -- well, for the outlook now. Revenue is currently pacing positively for the back half, despite the fact that we've not yet seen the bulk of political spend, which will be placed between Labor Day and the election. So while not as strongly as we originally anticipated, we do expect both revenue and EBITDA to have positive growth in the back half of this year.

We've made great strides since the acquisition of Citadel some 35 months ago. Most importantly, we've been able to accomplish 2 separate but equally important goals. We have repaid approximately $450 million of debt while making key strategic investments in 3 meaningful growth drivers going forward: WestwoodOne, which is a compilation of several content initiatives; NASH; and Rdio. WestwoodOne, NASH and Rdio.

Our strategy is straightforward, and our execution is sound. We're building a 21st-century media company by leveraging a foundation of premium broadcast assets to deliver premium content across multiple platforms. The logic behind this transformation has only been reinforced by the ad market volatilities we've witnessed here in the past quarter.

Now with that, I'll turn it over to JP for some additional details around the financials this quarter, and then we'll open it up for questions. JP?

Joseph Patrick Hannan

Thanks, Lew. There are only a few other significant items of note that I would add to Lew's remarks. We continue to simplify our overall capital structure. As you may recall, we spent considerable time on this throughout 2013, and we made great progress consolidating our term loans and redeeming our preferred.

In this past quarter, the last of our class B shares were all converted into class A. The last -- excuse me, significant block of pending warrants outstanding were also converted into common shares this quarter, although a small fraction of that original issuance still remain. Finally, we distributed all shares held in reserve to Citadel's secured creditors and formally closed out that 2009 bankruptcy proceeding.

Our current common share and warrant balance was $234.9 million at the end of Q2. We had total debt of $2.6 billion at the end of the quarter and $20 million in cash on hand. And as Lew said, that balance has since grown since the end of the quarter. We have no amounts currently drawn on either revolving facility.

Our capital expenditures were higher in the quarter, and we see full year CapEx now coming in about $20 million, and that's up from the $12 million to $15 million that we guided previously. And as Lew mentioned, there's been a lot of reorganization and restructuring of the expense base over the last year. But overall, you'll see that the operating expenses, content costs and corporate expenses are now generally at run rate. Other than additional expense synergies from Westwood, we don't see there being a lot of movement forward sequentially in the expenses from this Q2 base. We'll be filing the 10-Q immediately after this call with full financial details.

And with that, we can open up for questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Your first question comes from the line of Amy Yong from Macquarie.

Amy Yong - Macquarie Research

Just 2 questions. First, can you just drill down on what's going on in advertising? And what are you actually seeing national and also local? Where is the weakness coming from? Is it general economic weakness? Or are you seeing less spillover? Or just any color around that. And then, I guess, JP, can you give us a better sense on the fixed expenses and the right run rate to use going forward x synergies and growth initiatives?

Lewis W. Dickey

Okay. Amy, I think, to sort of take them in order, the -- in the past quarter, the categories that performed well were auto, telco and home improvement. But x that, the rest of it, we really saw a great deal of weakness, that I alluded to in the remarks, that really happened pretty abruptly in the back half of the quarter. And that was retail, health care, insurance, mortgage, real estate and entertainment. So all of those categories fell off pretty sharply in the back half of the quarter. So it was sudden, and it -- we certainly didn't see it in our pacing when we were talking to you 90 days ago. And it happened pretty quickly in May on. So that's what we saw. I think -- and in terms of -- we came out of a pretty tough winter. And then I think the consumers obviously -- retailers react to consumer spend. And so it was difficult in those categories, and I think there was just a great deal of uncertainty that carried on. And some of it was precipitated by a tough winter. We haven't seen a rebound yet, but it's starting to -- we're now seeing it now as we sort of look from late August, September into the back -- into the end of the year. The visibility that we have in some of our businesses are longer cycle than others, but the visibility we have into the -- through the end of the year certainly looks like it has now turned and is much better.

Joseph Patrick Hannan

Yes, Amy, and then I would just add, on the expenses, as I said in my prepared remarks, I mean, we're basically at the run rate. If you look at what our content, direct operating, corporate expenses were in the current quarter, I mean, they pretty much mirrored what we did in Q1 as well. So while there's been a lot of movement and the year-over-year is a little skewed, I think this is where we're going to be for the remainder of the year.

Amy Yong - Macquarie Research

Great. And Lew, can I just clarify, in one of your earlier comments, you talked about the synergies being up 20%. So are the synergies now closer to $50 million? Am I doing the math correctly?

Lewis W. Dickey

Yes, that's correct.

Operator

Your next question comes from James Marsh from Jaffray.

James M. Marsh - Piper Jaffray Companies, Research Division

A couple of quick ones here. First, I was just wondering if you could maybe spend a little time explaining how those producer rev share numbers work at $15 million and just how we should model that for the balance of the year. I guess the second question -- I'll just rattle these all off. Second question relates to the noncore asset sales, Lew, that you mentioned, and you said roughly $200 million. Is that a net of tax number? Or is that a gross number? And then lastly, JP, on the CapEx side, you mentioned $20 million rather than $12 million to $15 million. So what specifically are you guys spending money on, on that front?

Joseph Patrick Hannan

I'll take -- let's take the producer contracts first. So the way WestwoodOne predominantly ran their business was they represented third parties who created content and they distributed it on their behalf. Many of those contracts were very upside-down. They had revenue share components that could be as high as 80% to 90%. A couple of them actually paid 100% of the revenue out. So as we have terminated those contracts, if you don't have revenue, you don't have revenue share. In other cases, we have replaced those contracts with productions that we own, and as a result, we have operating costs and staff and that sort of thing. And so they show up not as a revenue share but as an operating expense. So that's -- there's going to be a lot of movement in there. But most of those producer contracts, as I said, are low-margin, so as they're terminated, they don't do anything to the bottom line.

James M. Marsh - Piper Jaffray Companies, Research Division

Okay. So once they're terminated, we won't see them recurring in future quarters? Is that the way to think about it? So one quarter later, is it...

Joseph Patrick Hannan

[indiscernible] I guess, will be fully flushed out by the end of the year.

Lewis W. Dickey

And then, James, on the noncore asset sales, we will be -- should have, before the next earnings call, more color. As I said, we're getting down to the short strokes on the Los Angeles sale. And then shortly, on the heels of that, we'll commence the process for the Washington sale. And we did sell the Giants. And so original guidance on this was about $100 million. And so the interest on all this, plus the addition of the Washington sale, will now push this to approximately $200 million or north. There will be some cash taxes against that, primarily local stuff. Obviously, we have an NOL on federal taxes, so there won't be the obligation there. But it'll be, and JP can comment, closer to the expected proceeds on that. We don't know the exact number yet, but I would say to try and look for somewhere in the 80% range of that number is what we would expect to realize in terms of cash proceeds to repay debt.

Joseph Patrick Hannan

Yes. I mean, we will have -- immediately receive full cash proceeds. And then it's just a matter of what tax attributes it erodes forward. At the end of last year, we had about $480 million net operating loss carryforwards that are usable.

James M. Marsh - Piper Jaffray Companies, Research Division

Okay. And then on the CapEx?

Joseph Patrick Hannan

So CapEx, it's normal station maintenance. There was the build-out of our studios at the NASH Campus in Nashville. And then we bought a small corporate aircraft.

Operator

Your next question comes from the line of Michael Kupinski from Noble Finance.

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

Just a couple of quick questions here. In terms of -- the revenues look like they came in a little bit better than what I was looking for. Of course, I had a downcast view for the quarter, but I was a little surprised that local was a little soft. And I kind of want to flesh that out a little bit more, following Amy's call about that. Were there any geographical differences? Any ratings issues in some markets? Or anything in particular that may have accounted for the local being a little bit softer than I expected?

Lewis W. Dickey

Well, it's -- the local was -- as we mentioned earlier, the local really started to fall off sort of mid-May through the rest of the quarter. And it was primarily driven by the large categories of retail, health care, insurance, mortgage, real estate and entertainment. So those were the categories that softened up pretty dramatically in the back half of the quarter. Telco and auto remain pretty strong. Our auto spend was actually -- and it's been a big focus of the company, and we're working on interesting new digital ad packages to add to that. But auto spend for the company was up 10% in the quarter. And so our work around the specific growth categories for us are -- it's paying off and helping. But it was just a general sort of malaise and sluggishness in demand and driven really by retail and consumer spend in the back half of the quarter.

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

And Lew, there wasn't any particular differences between some of your larger-market stations versus smaller markets? I mean, was it pretty even then?

Lewis W. Dickey

It really was, and it was a falloff really across the board. And so it was just sluggish demand, and it just sort of hit and happened pretty suddenly in the back half of the quarter. And it really -- and obviously, we have a good look at this across all of our markets, and so it didn't -- it wasn't regional, and it really wasn't on market size, and it was across all regions we participate in and market sizes.

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

And then, JP, in terms of your comments on the content costs, when I look at the content costs as a percent of revenues, it looks like the -- it certainly -- you had a relatively low revenue month in the first quarter, and you were saying that the trend line is kind of like from what you're experiencing now, I guess, in the first half to expect that in the second half. Are you looking at that just from a pure combined dollar amount from the first and second quarter? Or are you looking at it as a percent of revenues? Or what was the comment based on?

Joseph Patrick Hannan

It was as a percentage of revenues, yes.

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

As a percent of revenues? Because as a percent of revenues, it was kind of like in the 31% range, right? So you're kind of thinking that it's going to be kind of in that range going forward. And would you say then, too, JP, that -- the same comment in terms of your other direct operating expenses, kind of the same thought process? Or do you think that you're actually going to see a little bit lower number there?

Joseph Patrick Hannan

No, I think we were at $118 million in direct operating cost in the quarter, and that's basically the same number we had in Q1. There might be a little timing between Q3 and Q4, but overall, they'll have the same number in the back half of the year.

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

Okay. All right. And in terms of your thoughts as it goes into the third quarter, do you have any thoughts about the level of political? I mean, do -- I know that it's kind of early, and obviously, you're not really -- it's kind of a full plate [ph] too, I understand. But kind of you still think that maybe you guys can achieve something close to the half cycle, where you're in the $23 million, $25 million range?

Lewis W. Dickey

Yes, we think so, Mike. When we look across our -- we're operating, as you know, in 94 cities and plus our network, and so we've got pretty good visibility into a number of states and local markets. And we've made a big push to make sure that we are well organized and that we have our -- and that we're optimizing yields on the political rate card. And based on what we're seeing, this stuff all places -- and I think other -- our other fellow broadcasters have said this, it all places very late, but -- and it places quickly. But based on everything that we've heard and with our experience in this category over several cycles, it looks promising for the back half of the year. And if past is prologue, we are certainly pacing ahead of the '12 cycle today.

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

And obviously, you guys are excited about Rdio, and I think it's a great opportunity for you. And any particular color on the launch of the app? How things -- any granularity in terms of how that -- when and whether or not -- any thoughts on how -- what you might see in terms of the second half in terms of the contributions from Rdio?

Lewis W. Dickey

Yes. Well, we're really just getting started, as I mentioned. We've made -- since we did the deal with them last September, they've -- there's been a lot of internal work going on there as they build out their team, and they have a new CEO in Anthony Bay, who, I think, is doing a terrific job there. And so as they build out that business -- and clearly, as I mentioned in the remarks, they're in the process now of offering -- or will be offering, sometime next month, a free streaming radio service to compete against other pure plays -- or to offer an alternative, I should say, to what is currently out there, in addition to the on-demand services that -- the subscription on-demand service that they currently have. And as we move forward, this partnership is really just beginning in that respect because you haven't really seen any content integration with the app. And that's all -- that is all ahead of us into next year. And obviously, with -- which is one of the reasons why we also coordinated our national sales effort in spot, network and digital under Steve at WestwoodOne, to make sure that we can take full advantage of this. Because the -- because, as I mentioned in the remarks, the ad markets are continuing to evolve, and you're seeing the buy side, when I talk about that I mean the advertisers now, continuing to evolve the way they're structured. And we have to respond in kind, and scale is incredibly important when competing in the national ad markets. And so if you want to have a -- and by the way, ad packages and integrated ad packages are increasingly more valuable to advertisers, where you can give them access to premium content and even events and activation. And so radio is in a wonderful position, and I think our company is uniquely in a great position to be able to create these types of ad packages and experiences that, in essence, de-commoditize the way some of these things are bought and sold today and provide greater local activation -- it's kind of a national business with local activation, which is the key to this for sponsors.

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

Well, do you think that you guys are getting close to doing your own national rep business versus still using a national rep firm? I mean, are -- and do you think that you would actually have better results, particularly on national, if you were able to do that?

Lewis W. Dickey

Well, it's a good question. And we're -- whether it's that direction or a hybrid, it definitely -- we can further optimize the way we're taking our national inventory or the way we're approaching the national spot buyers today, given our platform and our access to our network affiliation. So we'll be -- we'll have more to say about that probably on the next call.

Operator

Your next question comes from Avi Steiner from JP Morgan.

Avi Steiner - JP Morgan Chase & Co, Research Division

A couple of quick and easy ones. On the synergy side, can you walk through how much have been realized to date? And what are the costs to achieve that? And is there any change to that given your upped guidance on synergy realization?

Joseph Patrick Hannan

Yes, that's actually broken out in the press release, Avi. In the quarter, it was about $7.8 million, I believe. And year-to-date, we're now in excess of $10 million. I think, by the end of the year, we will be close to $25 million.

Avi Steiner - JP Morgan Chase & Co, Research Division

And that's $25 million against the now $50 million-ish number?

Joseph Patrick Hannan

Yes.

Avi Steiner - JP Morgan Chase & Co, Research Division

And on the cost side for that?

Joseph Patrick Hannan

Well, this past quarter, I believe there was about $7 million of onetime costs to achieve those synergies, and that adds on to about $3 million in the prior quarter. But that's mostly severance and charge-off of leases and some buyouts of contracts. There could be another $5 million to $7 million in the back half of the year to achieve all the synergies. It will be very little next year.

Avi Steiner - JP Morgan Chase & Co, Research Division

Perfect. And then, if I heard you guys correctly, I think, Lew, you had said EBITDA should be up in the second half of the year. And I don't want to push too much here, but I'm going to ask anyways. Do you think, on a full year basis, EBITDA can be up year-over-year relative to the pro forma number in '13?

Joseph Patrick Hannan

Yes. I mean, we will grow full year. It's going to be tough for us to make up this decline from this quarter before the end of the year, but we will grow in the back half of the year. Political will aid us tremendously, as will -- Westwood is -- while it's very, very noisy and very bumpy, it's on track. It's hitting its EBITDA budget through 6/30. It's just creating a lot of noise and movement in the numbers.

Avi Steiner - JP Morgan Chase & Co, Research Division

Excellent. And then on the land sale front that you're close to making an announcement on. By covenant, would those proceeds have to go to the bank debt? Or would you have a little more flexibility to use them for maybe other debt?

Joseph Patrick Hannan

They have to go to the -- we can either buy other assets or it has to go to pay down the term loan.

Avi Steiner - JP Morgan Chase & Co, Research Division

I apologize, one more time?

Joseph Patrick Hannan

We can either replace those assets with other assets or we have to pay down the term loan, where we've said the majority of those funds will go.

Operator

Your next question comes from Lance Vitanza from CRT Capital Group.

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

A few questions, the first on NASH FM. I just want to make sure I heard that right. So $25 million of incremental revenues in '15, and then it sounds like another $25 million incremental on top of that. So are you saying that NASH is going to be a $50 million business in 2016?

Lewis W. Dickey

Yes.

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

Okay. And then is the margin structure still expected to be in line with the core operations?

Lewis W. Dickey

By '16, it will. '15 will not be, Lance, but by '16, it absolutely will. There's operating leverage in the business, and so I don't have an exact margin because, as I just outlined, we've got revenue coming in from, as you can see, 6 or 7 different components of the NASH initiative. And so all of them have different contribution margins. So it just depends on how it all falls. But when we average it all out, and based on the numbers we're envisioning for '16 and beyond, this will absolutely be contributing at our EBITDA margins or better. And -- but I just don't know where it will all fall to give you guidance on '15 on that yet.

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

No, no problem. I understand. Turning to the cash taxes, JP, did you say it was $180 million of NOLs that you had? I couldn't quite get that.

Joseph Patrick Hannan

$480 million.

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

$480 million, okay. So $480 million of NOLs. When you take into consideration all of the current and pending and soon-to-be announced asset sales, can you update us on when you expect you'll become a full cash taxpayer? I think, previously, we'd been thinking 2017. Does that move up to 2016 now? Or is '17 still the right kind of zip code?

Joseph Patrick Hannan

'17 is still our internal projection. The $480 million will likely be $260 million by the end of the year, if everything comes to fruition with these asset sales.

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

Okay. And then lastly, as you pointed out, you paid down almost $0.5 billion of debt and preferred since closing on Citadel. At what point do you shift the focus to returning cash to shareholders?

Lewis W. Dickey

Lance, we've told -- we've been very consistent about this. We are on a mission to get this business below 5x. And then, at that point, we will then have the discussion about returning cash to shareholders.

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

And so do you -- your thoughts on when that -- when you kind of hit that 5x target, are you feeling comfortable to give us some guidance there?

Lewis W. Dickey

We're not giving 2015 guidance, obviously. And so you see how -- and you see the rate that we're on to pay down debt, and obviously, we are selling noncore assets that we're able to monetize and continue to accelerate that debt repayment. So it really depends on -- and unfortunately, we can't be prognosticators in terms of what the economic climate is going to look like next year. But we have positioned this business to grow. We've positioned this business to diversify our revenue streams. We've positioned this business to leverage the platform that we have to create interesting new premium content offerings and offer them across multiple platforms. So I think we're well positioned to grow our business, and we're doing so. And that's why I mentioned it's sort of the dual objective of we're transforming this business to be able to take it from just a local broadcast station operator into a media business that has the offerings that we have discussed here today and that are being built out while we're paying down a lot of debt. And so we're very, very focused on continuing to do that. Clearly, we could accelerate the rollout of these initiatives if we diverted more cash to this, but we're not going to do that right now. We're going to take the lion's share of everything we've got and pay down debt to get this thing below 5x. And then, at that stage, we'll have the discussion about the best way to return capital to shareholders.

Operator

Your next question comes from David Bank, RBC Capital Markets.

David Bank - RBC Capital Markets, LLC, Research Division

A couple of questions, guys. The first one, if you look at your back half commentary around revenue growth and EBITDA growth, could you give us a sense of the sort of sequential cadence in 3Q and 4Q? Does the growth look pretty even? Or is it sequentially kind of ramping up quarter-over-quarter, 4Q versus 3Q? The second question is just a follow-up on Lew's last answer on NASH. If you look at that $50 million revenue number, is that -- could you give us a sense of sort of the percentage allocated to Cumulus-owned and -operated NASH format stations versus sort of the ancillary licensing of the format for the lifestyle brand, licensing, content to other stations, licensing for TV shows or whatever else you might be doing with the brand? That'd be really helpful.

Lewis W. Dickey

Sure. And David, the -- I'll take them in reverse order. The projections -- when we look at $25 million and $50 million, these do not include the Cumulus revenue from our existing country stations that we have rebranded, okay? So it's not -- this is incremental revenue that we're...

David Bank - RBC Capital Markets, LLC, Research Division

It's all licensing on the brand?

Lewis W. Dickey

Well, licensing and monetization of content. We're going to be creating -- you think about the platform. We're going to have television. We're going to have digital. We're going to have a syndicated radio business across the board on this with our affiliates. We're going to have a promotion and events business, a publishing business. And then, as I mentioned, our joint venture with Big Machine Group in Nashville will be a contributor to cash flow as well for the venture beginning in 2015. And then the licensing, which these things take some time to get off the ground, and once they do, they become important producers. And so if we expect to have contracts signed, in essence, to -- based on the long cycle of apparel and accessories and doing retail deals that our licensing agent will do, the guidance that we've received from them is that we're really playing for holiday season '15 now. That is going to have a real impact in '16 and beyond. And so the licensing part of this alone could be pretty lucrative beginning in '16. And so -- and that's all -- licensing revenue is 100% of the bottom line. You're just -- you're picking up royalty. And so it's -- we're putting a number out in '16. There's so many different levers to create that number in '16 that we're putting out something that we have a high degree of confidence in, but it could have a high beta. If it takes off, it could obviously be dramatically larger than that.

David Bank - RBC Capital Markets, LLC, Research Division

Okay. And the cadence of the back half growth?

Joseph Patrick Hannan

Yes, I would say it would be much more heavily weighted towards Q4 because of the impact of political. That hits in October.

Lewis W. Dickey

October and early November is when the -- as you know, the vast majority of the spend hits in that 6-week period. So you're going to see a lot of that. We will get some in September, but it really gets heavily weighted in the last 4 weeks of the election cycle.

Operator

Your next question comes from the line of Aaron Watts from Deutsche Bank.

Aaron Watts - Deutsche Bank AG, Research Division

Covered a lot of ground. So the one question I wanted to ask you, Lew, as you sit today and think about kind of the acquisition pipeline opportunities that are out there over the immediate -- or intermediate term, where do you see that having the most kind of interesting opportunities for you? Is it going to be on the content side more? Or do you think that opportunities to grow the station footprint also could play into Cumulus' growth story in the future? Just curious for your thoughts on that.

Lewis W. Dickey

Well, again, good question. I think the way we view it is we've got -- we want to make targeted investments that help us grow our business but all of that against the backdrop of a relentless focus on delevering the business. And so that's the prime use of our free cash at this stage of the game, including the free -- the cash generated from our asset sales. Now that being said, we've got very interesting levers in this business, with Westwood and Rdio and NASH, to continue to grow and build it. And so small, targeted investments can be very, very helpful. And we've done so. As you could -- if you sort of look at our track record since the Citadel acquisition, the investments that we've made have been in content -- largely in content with WestwoodOne. And then very specifically, in broadcast distribution assets, we bought a station in New York, which served as our flagship for NASH and was absolutely necessary to kick that brand off. And then we bought a couple of stations in Chicago to help us increase what was very much a subscale footprint following the Citadel acquisition. And then we also bought an FM station in San Francisco to launch NASH in the Bay Area. And so that's the way -- but we've been sort of net sellers of broadcast assets in the smaller markets as we've been transforming the business into a larger market footprint that we can then leverage to create these other opportunities for Westwood, for Rdio, for NASH as we build our business. So I think that the -- sort of a long-winded way of saying targeted, small content investments that make a lot of sense or, if we see something that helps us build out distribution, particularly for NASH, again on a targeted basis, that makes sense. We certainly don't want to use our currency at this stage of the game to buy assets, and so we're going to be very focused on executing our plan as it's in front of us and very small, targeted investments that reinforce our existing strategy.

Operator

There are no further questions. I'll now turn the call back over to Lew Dickey. You may begin.

Lewis W. Dickey

Well, thank you, operator. And again, we appreciate everybody taking the time to join us today for this update, and we look forward to catching up with you again in 90 days. Have a good day.

Operator

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

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Source: Cumulus Media's (CMLS) CEO Lewis Dickey on Q2 2014 Results - Earnings Call Transcript
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