Welcome to the Cumulus Media Quarterly Earnings Conference Call. I'll now turn it over to Collin Jones, Executive Vice President of Strategy and Development and President of Westwood One. Sir, you may proceed..

Thank you, operator. Welcome, everyone, to our third quarter 2024 earnings conference call. I'm joined today by our President and CEO, Mary Berner; and our CFO, Frank Lopez-Balboa.

Before we start, please note that certain statements in today's press release and discussed on this call may constitute forward-looking statements under federal securities laws. Actual results may differ materially from the results expressed or implied in forward-looking statements.

These statements are based on management's current assessments and assumptions, and they are subject to a number of risks and uncertainties as discussed in our filings with the SEC. In addition, we will also use certain non-GAAP financial measures.

We believe the supplementary information is useful to investors, although it should not be considered superior to the measures presented in accordance with GAAP. A full description of these risks as well as financial reconciliations to non-GAAP terms, are in our press release and SEC filings.

The press release can be found in the Investor Relations portion of our website, and our Form 10-Q was also filed with the SEC shortly before this call. A recording of today's call will be available for about a month via a link in the Investor portion of our website. With that, I'll now turn it over to our President and CEO, Mary Berner.

Mary?.

Thanks, Collin, and good morning, everyone. During the third quarter, we delivered $203.6 million of revenue and EBITDA of $24.1 million, in line with pacing commentary and analyst estimates.

While we benefited from the acceleration of political spending in the quarter, as well as improving national trends, many advertisers continue to cite the overall rate environment and concerns around the upcoming presidential election as impediments to their spending.

That said, we remain focused on key areas of the business that are in our control, including investing in digital growth, optimizing political spend, capitalizing on areas of improvement in national advertising, driving additional cost efficiencies and delivering operating cash flow. Starting with our digital businesses.

Digital revenue, which now accounts for 20% of our total revenue continued to grow increasing 8% year-over-year. Digital marketing services once again performed impressively growing close to 40% year-over-year, which compares to strong growth of 24% achieved in the first half and 4% in the same quarter last year.

Our DMS business is flying on all cylinders as is reflected in several key performance indicators. During the quarter, customer count grew by 22%, customer retention improved by 6% and average digital order size per customer increased by 17%.

Additionally, through our focus on expanding our share of wallet with our radio only clients, we have increased the number of legacy radio clients, who now also purchased DMS from us by 32%. We fully expect the successful performance to continue, given the elements that in combination define our unique selling proposition or competitive positioning.

First, our feet on the street sales force with direct access to over 30,000 current advertisers provides us with market insights and relationships that are difficult to replicate with an out-of-market approach.

Second, we deliver fully integrated solutions, including both digital and broadcast products and services that are custom tailored to fit our customers' needs.

Third, we out-execute our competitors using our local in-market capabilities and insights and customized solutions to generate results for our clients that outperform industry benchmarks by more than 25% across 14 key business categories. Fourth, we continue to invest in this business to accelerate growth.

As we've highlighted in the past, we've been expanding our digital organization across multiple functions.

We've added staff to our sales creative and internal agency teams, which has allowed us to increase our sales coverage, build out our product capabilities and in the case of our internal agency team, increased margins by up to 50% for business we are now able to fulfill in-house.

And given the growing scale of our overall DMS business, we expect to take advantage of additional in-sourcing opportunities that will allow us to further improve our margins over time. We've also been investing in technology solutions to improve campaign performance, customer satisfaction and attribution.

With these investments and our unique competitive positioning, we continue to be bullish about the prospects for our DMS business. Turning to other components of our digital revenue. Streaming increased slightly during the quarter.

We continue to be encouraged by our streaming performance despite the difficult comp caused by the expiration of a fixed rate sales contract last year. As I've said on earlier calls, taking back our inventory allows us to better manage and optimize the monetization of our streaming impressions.

The third major channel of our digital revenue, podcasting experienced a modest revenue decrease in the quarter, reflecting declining revenue from the Daily Wire podcast. Excluding that, revenue was up significantly in the quarter, driven by growth in existing podcasts and new podcasts that were added year-over-year.

We continue to capitalize on the growing popularity of our existing stable of podcasts, particularly in the news talk category, where we've seen significant growth in several podcasts, including the Dan Bongino Show, which ranked sixth among all podcasts as ranked by Triton and the Shawn Ryan Show, which was a top three podcast on Spotify for all of October at one point reaching number one.

We will also -- we also will benefit from recent additions to our content stable, including award-winning creator, streamer and podcaster, Benny Johnson, whose video first podcast has become a go-to platform for many of the next-generation news consumers. Moving to our broadcast radio business.

And as I said on the onset of the call, we continue to see positive indicators in our national advertising businesses, which, as a reminder, make up approximately 50% of our total broadcast revenue.

Specifically, demand for live sports products has been robust, a trend which has benefited our network business, up 5% in revenue during the quarter, thanks in part to our exclusive audio relationship with the NFL and our coverage of the summer games.

We've also found success utilizing sports as a compelling reentry point for clients who have been out of network radio for a while, or to boost spending with clients who had decreased spending from prior year levels.

That sports hook was a key contributor to the meaningful growth experienced by the network in the insurance, retail and personal care products categories.

National spot, which benefited from the ramp in political spend while still negative overall, experienced performance improvement throughout the quarter with our larger markets growing year-over-year. And in local spot, home products was one of our biggest categories, which is one of our biggest categories was an area of strength.

Despite these bright spots, overall advertising sentiment remains weak. Economic and interest rate concerns continue to be reflected in lower spending in several key categories, including in local, automotive, professional services and entertainment, and in national job search, financial and home improvement.

Smaller local advertisers are also citing skittishness about advertising in the midst of an intense presidential race indicating that they're holding back spending for now. Political spending was impacted by the change in the Democratic presidential candidate, which reduced spending on both sides as the transition from Biden to Harris was completed.

So a majority of our political revenue comes from down ballot races, the temporary pause in presidential advertising spending resulted in lower-than-expected political in the quarter.

However, political spending has significantly rebounded in the fourth quarter with quarter-to-date political revenue through Wednesday booked of approximately $9.7 million, up from $8.3 million in Q4 2022, but down from $14.3 million in Q4 2020, which benefited from two Senate races and subsequent runoffs in Georgia.

So taken as a whole, total Q4 revenue is currently pacing down slightly. Moving to expenses. We continue to be disciplined operators. And as such, we are focused on ongoing refinement of our expense structure, while maintaining flexibility to further invest in our digital growth strategy.

Year-to-date, we generated -- we've generated a total of $8 million of cost reductions on top of the $120 million of fixed cost reduction that we realized from 2019 through '23.

These efforts reflect more efficient approaches to bringing products to market, leveraging opportunities for economies of scale and managing and renegotiating contracts to reduce costs.

For example, we were able to consolidate -- recently, we were able to consolidate certain products in our network business, which resulted in meaningful cost savings without impacting revenue potential.

In another example, our station group, in our station group, we brought some of the functions formerly outsourced to vendors in-house, allowing us to recapture margin that previously was going to a third-party.

Additionally, we are aggressively pursuing AI-enabled efficiencies across all facets of the business, including in programming and production, operations, marketing, sales and administrative.

Among other applications, we are using AI for sales lead generation, creation of traffic instructions for play-by-play sports and the development of e-mail marketing content. And like many other businesses, we believe that we are just getting started in realizing the value that AI can bring to our business.

It goes without saying that given the uncertain dynamics of the advertising environment, we are determined to leave no rock unturned and we'll continue to be aggressive in managing expenses as we set ourselves up for next year. We are similarly disciplined on capital allocation.

As a reminder, we have prioritized and invested in organic growth, specifically in our digital businesses instead of pursuing non-accretive M&A.

Additionally, since 2018, we completed over $260 million of noncore asset sales and $235 million of station sales and generated $205 million of free cash flow, which we have used to reduce debt by more than 50%, investing in our growth businesses and reducing debt remain our top capital allocation priorities.

Before turning it over to Frank, I want to reemphasize the importance of the financial flexibility and runway that we created in the second quarter by extending our debt maturities to 2029, giving us time to push through the economic choppiness and realize the value, we believe is inherent in the company.

Cumulus has a strong set of assets, including profitable and fast-growing digital businesses. A vast national platform that can reach audiences wherever and whenever they choose to listen. Extensive local sales capabilities across 80 markets with the ability to walk products through the door.

Premium programming across all genres, with particularly exclusive access -- assets in sports and news talk space and audio library filled with many millions of hours of relevant, engaging and entertaining content and a team with a strong track record of expense management and disciplined stewardship of capital.

As we continue to execute against a tight set of priorities, we see numerous paths for maximizing the value of these assets on behalf of our shareholders. Courtesy of the time afforded by our recent refinancing. We have the time to explore these paths despite an economic backdrop, which remains challenged for now.

With that, I'll turn the call over to Frank.

Frank?.

Thank you, Mary. Q3 revenue was $23.6 million, down 1.8% year-over-year, consistent with the pacing guidance from our last call. While EBITDA was $24.1 million, in line with analyst estimates. Our DMS business continued to be our highest growth area, increasing approximately 40% year-over-year.

Q3's DMS revenue performance represented not only an acceleration of the 24% growth it delivered in Q2, but it is also the largest year-over-year dollar increase that we've had in this business, providing strong evidence that our investments in this area are paying off.

Our annualized digital revenue run rate is now approximately $160 million with DMS representing more than a third of that. In our broadcast business, from a category perspective, telecom, insurance and retail were top-performing key national categories, while our weakest were financial, job search and home improvement.

In local spot, home products, general services and utilities were our best-performing categories, while automotive, professional services and entertainment were weakest.

We generated $4.4 million of political revenue in the third quarter versus $5.8 million in the same period of 2020 and $4.5 million in 2022 with the decline reflecting the change in the Democratic presidential candidate and the timing of presidential primaries.

With the election less than a week away, our fourth quarter [Technical Difficulty] $14.3 million in 2020 and $8.3 million in 2022. As a reminder, Q4 2020 political revenue benefited from the 2 Senate races and subsequent runoffs in Georgia.

Total expenses in the quarter were down approximately $1 million year-over-year, reflecting additional cost reductions offset by continued investments in our digital businesses. Given the uncertain ad environment and our desire to continue investing in our digital businesses, we remain focused on cost management.

As Mary said, we have achieved $8 million of year-to-date cost reductions on top of the $120 million that we achieved from 2019 through 2023, representing approximately 20% of our total fixed cost base. Turning to the balance sheet.

We ended the quarter with $52.2 million of cash, gross debt of $642.1 million and net debt of $590 million when excluding the $31 million of principal debt reduction resulting from the exchange offer, which will be amortized over the term of the debt.

Year-to-date CapEx was $15.9 million, and we expect full year CapEx to be below the $25 million revised guidance that we provided on our last earnings call. While we did not repurchase that during the quarter, our capital allocation priority going forward will continue to be investment in our growth businesses and debt reduction.

Turning to the fourth quarter. As Mary previously mentioned, total company revenue is currently pacing down slightly. With that, we can now open the line for questions.

Operator?.

Thank you. Our first question today comes from Michael Kupinski from NOBLE Capital Markets. Please go ahead, Michael. Your line is now open..

Thank you. Thanks for taking my questions. I have a couple. In terms of the marketing services, you mentioned that additional services were a driving factor to a portion of the revenue growth.

And I was wondering if you can just kind of give us some thoughts about what those services -- what those upsells are?.

Sure. Good morning, Mike. Yes. So we've started -- we've always had -- when we started the business, we had a robust suite of campaign products. And we also added a full suite of integrated presence products. So with that is that ranges from listings to reputation management, website development, SEO.

And so now we have a pretty much anything you'd want we can provide..

Got you. And then in terms of the political $9.7 million being booked, a little softer than what I was looking for. I was just wondering if you can just kind of give us your thoughts on political.

Do you think that there's still a little upside in that number? And then just kind of how you feel you performed in political for the year?.

Hi, Mike. I'll take that question. So I think I've mentioned -- I know I've mentioned in previous calls that the last presidential election was not the best comp for this year's presidential election for two reasons.

First, the last presidential election, the primary season was very robust with Steyr and Bloomberg competing for the presidential nomination. And then as we talked about in the earnings call, the Georgia competitive races and the runoffs. Those three items alone represented close between $5 million and $6 million of political revenue.

So as we've mentioned in previous calls, we thought a $20 million number would be probably a better benchmark. The fourth quarter is tracking pretty close to what we expected. What we did see in the third quarter was slightly less than expected because of what happened in terms of the Democratic presidential change.

So in all, we're going to be close to our expectations with a week to go. And with the frenzy that we're seeing in terms of political ads, we certainly do expect to add from here. And then what we don't know is whether or not there'll be individual runoffs in certain states, which obviously will be accretive to our numbers..

Thank you for that. And then you mentioned advertisers are paused due to the elections. And I know that it's typical that some advertisers may stay out of the way in terms of the wave of political that you see. But the implication was that maybe some of the advertisers were holding back because they're looking for a specific outcome.

Is that true or can you kind of just give us a flavor of what your expectations might be after the election?.

It's what we're hearing a lot of things. But generally, the sentiment is, it's either that they want to see how the economy settles after the election or they feel that political ads are dominating the airwaves. So they don't want to invest when there's a lot of what they perceive to be clutter.

So -- and then there's just kind of this general uncertainty that people will say they feel right now about the election..

Got you. And then my final question. On the network business, it seems like it was a little better than what I was looking for. And I was just wondering in terms of heading into a heavy sports season now.

Are you still seeing those trends continue on the network side? And you indicated that the pacings are down slightly for the fourth quarter, is the mixture between network and your local spot? Can you kind of just give us the differences that you're seeing there?.

Sure, Mike. I'll take that. So in the network, we did benefit from airing the summer games, which was not obviously last year. So it had a benefit in the third quarter. And we also had some benefit in terms of the timing and the schedule of the NFL, and there are a couple of games that came into the third quarter this year, which we're not in.

So that had a benefit. As Mary said, the interest in sports continues to be very robust and strong. And I did indicate on our last earnings call, that the network would do much better than in the second quarter, which it did.

And so not giving guidance on the network itself, but will probably not be as robust as the third quarter because of the two things I mentioned, the schedule as well as the summer games. The rest of the business, the national spot business trends continue to be decent.

And when we look at local spot, local spot at this point is pacing stronger than what we saw in the third quarter. So in total, including what we expect to be another robust growth in digital, that all adds up to pacing down slightly..

Thanks for that color. Appreciate it. That’s all I have. Thank you..

Thank you..

Thank you. The next question comes from Patrick Sholl from Barrington. Please go ahead, Patrick. Your line is now open..

Good morning. I just had a question on the conversations that you guys are having with your advertisers. I think you had mentioned rates -- interest rates is one of those headwinds on advertising spend.

I was just wondering if you had any sense of all else equal, how which rates would need to fall for some of that uncertainty to kind of alleviate?.

Hey, Pat. I'll take that. That simple question with a complicated answer because it addresses different categories. So the most obvious category that it affects the financial products and particularly the area with regard to mortgages. And even though the market expects that rates will come down and eventually mortgage rates have come down.

I think there'll be potentially a lag impact in terms of what we see in advertising spending because of 25 or 50 basis points move in mortgage rates, although helpful. is not the same thing as 100 or 150 basis points. But any improvement in interest rates is good for that category.

The other thing which is also important, and we didn't talk about it so much in this call, the really important is the inflation outlook in the economy.

And so with the inflation outlook, trending closer to 2%, and that continues to be consistent with lower interest rates, that creates a positive environment broadly in terms of sentiment, for business sentiment and consumer sentiment.

And that type of improvement will cut across many different categories, including things like automotive, etc., which is one of our larger categories.

So in general, rates coming down lower inflation and still having a -- what is a growing economy is the ideal circumstances for us to benefit from all the different categories, which for whatever reason past spending. So that's the way I'd answer that.

So operator, any other questions?.

I'm sorry. [Multiple Speakers] Hi. I was just wondering, you had mentioned podcasting being down. I guess I was kind of curious if that was -- specifically called out Daily Wire.

I was wondering how much of that would be download driven versus advertiser skittishness on advertising against political content and the clutter of political ads that they'd be up against as well, that was also impacting that segment..

No. I mean I'll take that. The Daily -- to clarify, the Daily Wire started out with the Ben Shapiro Show, which we represented both on broadcast radio and podcast. And so over time, Daily Wire added additional podcasters, which we represented under the Daily Wire relationship. But this year, we no longer represent some of the additional podcasters.

So that's leading to a negative year-over-year comp. And additionally, the revenue on the flagship shows has been pressured this year as -- like others, it's been -- it was particularly impacted by the change in iOS 17 late last year, among other issues.

But that said, if you look at the business, we're doing very well in our business that's not Daily Wire related. As I mentioned in the prepared remarks, we have three other news talk shows that are consistently in the top 50 of all genres, Bongino, Shawn Ryan, Mark Levin, and they continue to thrive. So there's no -- we haven't felt any downturn.

In fact, it's the opposite during a political season. And then as I mentioned, we have added Benny Johnson, and we're very excited about that. So I would say that it's -- that's kind of a one-off, and it's -- we've got a negative comp and a technical issue that affected it..

And Mary, if I can add in terms of – if I can add our pacing in the podcasting business in the fourth quarter is up nicely. So we’ll be able to talk more about that in the next earnings call..

Yes..

Okay. Thank you..

Now I will hang back to Mary for closing remarks..

Yeah. Thanks, everybody for being on the call, and we will look forward to being on the next call for next quarter. Thank you..

Thank you, everyone. This does conclude today's call. Thank you for joining. You may now disconnect your lines..