Lewis W. Dickey - Chairman, Chief Executive Officer and President Joseph Patrick Hannan - Chief Financial Officer, Principal Accounting Officer, Senior Vice President and Treasurer.

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.

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..

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?.

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?.

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

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?.

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..

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..

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?.

Yes, that's correct..

Your next question comes from James Marsh from Jaffray..

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?.

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..

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....

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

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..

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..

Okay.

And then on the CapEx?.

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..

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

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?.

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..

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?.

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..

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?.

It was as a percentage of revenues, yes..

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?.

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..

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?.

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..

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?.

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..

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?.

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..

Your next question comes from Avi Steiner from JP Morgan..

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?.

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..

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

Yes..

And on the cost side for that?.

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..

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?.

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..

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?.

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

I apologize, one more time?.

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..

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

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?.

Yes..

Okay.

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

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..

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..

$480 million..

$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?.

'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..

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?.

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..

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?.

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..

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

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..

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....

It's all licensing on the brand?.

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..

Okay.

And the cadence of the back half growth?.

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

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..

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

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..

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..

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

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..

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