RBR+TVBR INFOCUS
It’s been an interesting 18 months for Emmis Communications. In late August 2016, company founder and Chairman/CEO Jeff Smulyan presented a privatization plan that would have seen the purchase of all outstanding Emmis shares at $4.10, pending shareholder approval following the acceptance of the plan by a special committee comprised of Peter Lund and Susan Bayh.
That plan officially lapsed in October 2016, sending Emmis on a journey that has seen a significant number of asset sales — including the somewhat unexpected divestment of its four St. Louis radio stations on Jan. 30.
Is Emmis in the final stages of repositioning itself as a digital company, focusing on TagStation and NextRadio instead of radio stations? One top media broker has his thoughts. A source close to the matter says he’s wrong about one of this broker’s assertions.
As RBR+TVBR reported in the midday hours of Jan. 30, Emmis is selling KSHE-FM 94.7 — a station it acquired from Century Broadcasting in 1984 — and KPNT-FM 105.7 to Hubbard Radio. At the same time, Talk KFTK-FM 97.1 and CHR/Pop KNOU-FM 96.3 are being sold to Entercom Communications.
Investor reaction as of 2:50pm Eastern was positive—Emmis shares were up 9.5%, to $3.27.
But, that stock price speaks volumes of Smulyan’s unsuccessful privatization build — and Emmis’ steady stream of divestments. The company’s share price has not been anywhere near $4.10 since August 1, 2016, some two weeks prior to the privatization announcement. That was part of a particularly good July and August 2016 for Emmis shares.
Unfortunately, Emmis shares in March 2014 were on an acceleration path to $13. April 1, 2014, began the slow, steady decline in share value for the company.
A SERIES OF SPINS
With the privatization offer scrapped, Emmis began to pare down its assets. By October 2016, it sold venerable glossy publication Texas Monthly to Genesis Park LP, an affiliate of a private equity firm led by Paul Hobby for $25 million. In a Kalil & Co.-brokered transaction, Emmis sold its Terre Haute, Ind. radio stations for a total price of $5.2 million.
A few months later, in February 2017, Emmis then quietly said goodbye to its monthly magazines serving Atlanta, Cincinnati, Los Angeles and Orange County, Calif., handing them to Hour Media Group LLC for $6.5 million, according to a SEC filing associated with the transaction.
The biggest move Emmis made following the failed privatization effort came in May 2017, when the company made the difficult decision to part ways with its longtime standalone FM in Los Angeles—Rhythmic Top 40 KPWR-FM 105.9 “Power 106” — by selling it to an affiliate of The Meruelo Group for $82.75 million.
Today, Emmis’ radio assets are now comprised of three FMs, WFNI-AM 1070 and Network Indiana in its home market of Indianapolis; and WBLS-FM, WEPN-FM & WLIB-AM in New York. It holds 50.1% majority interest with minority partner Sinclair Telecable of a seven-signal cluster in Austin, Tex.
Where does Emmis go from here?
Venturing on a path that sees Emmis focus wholly on its TagStation cloud-based data system and NextRadio App, which “activates” the FM chip inside Android-powered smartphones, allowing for data-free consumption of local radio stations.
One top broker who requested anonymity tells RBR+TVBR Emmis’ actions today are the result of inaction by the company earlier this decade. “Emmis is a company that should have been sold years ago, rather than piecemeal, had they not had this dichotomy of huge pieces and other markets,” the broker notes.
With Emmis’ in “a slow process of dismantling its media assets,” the broker looks at another media company to provide a possible explanation for why Emmis is a seller once again. “Look at the E.W. Scripps Co. announcement,” the broker says. “That’s great … but who is going to buy all of it? It’s about how you get the value, and how badly you need cash.”
This broker believes Emmis’ decision to part with St. Louis — its best-performing cluster — is “a result of a strategic need for cash.”
A source close to the matter says this is “absolutely, positively wrong,” pointing to financials that indicate Emmis has “almost zero debt.”
While Emmis’ total cash and cash equivalents as of Nov. 30, 2017 sits at $3.9 million, compared to $11.4 million as of Feb. 28, 2017, SEC filings show the company has sliced away a big portion of its credit agreement debt — but still has much outstanding.
At the end of its fiscal Q3, Emmis had $78.5 million in credit agreement debt. By comparison, this stood at $152.2 million on Feb. 28, 2017.
So, why sell now?
Perhaps the company’s most recent fiscal quarter provides deeper insight.
Emmis in its fiscal Q3 2018 swung to a net loss of $279,000 (2 cents per diluted share), from net income of $17.7 million ($1.43). On a same-asset basis Emmis’ net revenue and net income were also down.
The bright spot for Emmis is in its Emerging Technologies division. Here, revenue increased to $236,000, from $204,000.
With dynamic pricing business Digonex poised for revenue growth, digital and emerging technologies could be what excites investors in the coming quarters. At least that’s what the broker who spoke with RBR+TVBR believes.
“Why would investors be excited about a company that just sold its top-performing cluster and only has three others?” the broker asks.
GLOOMY JANUARY
For those who dialed in for Emmis’ fiscal Q3 2018 earnings call on Jan. 11, there was likely little excitement among those holding EMMS shares.
“There’s certainly nothing great about the performance of our markets,” Smulyan said of the quarter, which ended Nov. 30, 2017.
Yet, St. Louis was a big bright spot for Emmis. Based on data from Miller Kaplan, Emmis’ St. Louis cluster remains the driver for the company. In fiscal Q3 2018, St. Louis was the lone market to outperform, Smulyan said.
Meanwhile, questions have arose regarding Emmis’ plans in New York. WLIB-AM 1190 has been on the market for 18 months; it is still being shopped around. Could Emmis be shopping the station along with one — or all — of its three FMs in Gotham?
“Do not assume anything regarding WLIB,” a source close to the matter says.
Emmis making a deal that sees it exit New York altogether would involve The Walt Disney Co. That’s because WEPN, formerly WRKS, is operated by The Walt Disney Co. via a local programming and marketing agreement (LMA) that will continue through Aug. 31, 2024.
For Emmis, this is guaranteed quarterly revenue in the millions. In fiscal Q3 2018, the company saw net revenue of $2.58 million for allowing Disney to use the station as its home for ESPN Radio in the New York Tri-State area—a fixed amount equal to that seen in fiscal Q3 2017.
Should Emmis’ historical performance regarding ratings improvements and the residual benefits on the sales and revenue side, the company is on track for better revenue in Q4, Smulyan noted. But, is that enough to swing revenue into plus territory?
Smulyan predicts Emmis’ fiscal Q4 2018 revenue will be “flat or slightly down.”
Moving into fiscal 2019 will likely see Emmis complete a much-discussed land sale in the Indianapolis area, which is presently getting “a more formal marketing push.” The divestment of land currently used as a tower site in Indiana involves one of the hottest areas for real estate in the Hoosier State. “This is an obvious positive … that will help the balance sheet,” Smulyan noted during Emmis’ fiscal Q2 ’18 earnings call in October 2017.
What’s left to question is whether fiscal ’19 will be a transitional year for a company founded in 1980 when Smulyan acquired what is now WLHK-FM in Indianapolis.
As Emmis takes its name for the Hebrew word for “Truth,” all will likely be revealed in due time.
For the broker, there’s no waiting for further announcements. “They’ve been trying to end this for some time,” he says of Emmis’ radio ownership. “I don’t know how else to read this slow sell-off.”
RBR+TVBR
