Emmis’ Ad Revenues Tumble

Highlights include Emmis Communications Corporation (EMMS - Snapshot Report), Radio One (ROIAK - Analyst Report), Cumulus (CMLS - Analyst Report), Entercom (ETM - Analyst Report) and Cox Radio (CXR).

In line with preliminary results released last month, Emmis Communications Corporation (EMMS - Snapshot Report) reported today that its loss for fiscal 4Q09 (ended February 28) widened to $4.32 per share from a loss of $0.51 per share a year ago.

Much of the increasing red ink was the result of a massive $163 million non-cash impairment charge taken in FY4Q09, primarily to write down the value of its broadcasting licenses. In the year-ago quarter, the company took a smaller $21 million impairment charge.

As the economy sinks, ad revenues are disappearing. Revenues fell 20% to $68.5 million – a far faster pace than the 4% decline Emmis suffered in the previous quarter. Revenue from radio operations dropped 18% from a year ago, while those from publishing plunged 26%. The company's one growth area – its European radio operations – gave way, with revenues sliding 8%, even as expenses grew 8% during the quarter.

EBITDA tumbled 75% to $3.0 million. To pare expenses as revenues tumble, the Indianapolis-based broadcaster cut payroll by roughly $10 million through layoffs and paycuts.

Free cash flow turned negative even before the company repaid debt; we estimate it was negative $9 million, excluding $4.2 million in severance payments.

Also excluded from our free cash flow comparisons is Emmis' $10.2 million outlay to exercise a purchase option on its leased corporate jet. Emmis immediately resold the jet for $9.1 million the jet it used while facing a years-long secular deceleration in revenue and substandard shareholder returns. In FY4Q09, the company recorded a $7.3 million impairment charge for the jet.

Emmis has made Best Companies Group's list of the Best Places to Work in Indiana for the last three years.

Like its peers -- Radio One (ROIAK - Analyst Report), Cumulus (CMLS - Analyst Report), Entercom (ETM - Analyst Report), Emmis is sinking under the weight of heavy debt incurred through share buybacks and acquisitions as they attempted to grow and boost shareholder returns in a declining industry. To be sure, with debt/EBITDA of just 3.0x, Cox Radio (CXR) is one of the few publicly-traded radio operators with ample coverage of its debt service at a time of declining cash flow.

Emmis' leverage of 5.45x debt-to-trailing twelve months EBITDA is precariously close to to the 6.50x maximum allowed by its bank covenants -- at a time of shrinking EBITDA.

During the quarter, the company capitalized on the deterioration in its credit quality, repurchasing $75.5 million in face amount of its bank debt for the lower market prices of just $44.7 million. The amendment allowing the repurchase also cut Emmis revolving credit limit to $75 million from $145 million.