Collin Jones - Director Investor Relations Mary Berner - Chief Executive Officer Joseph Hannan - Senior Vice President, Treasurer & Chief Financial Officer.

Andrew Gadlin - Odeon Capital Group Avi Steiner - JPMorgan Securities Aaron Watts - Deutsche Bank Securities, Inc. Michael Kupinski - Noble Financial Capital Markets Lance Vitanza - CRT Capital Group.

Good afternoon and welcome to the Cumulus Media Quarterly Earnings Release Conference Call. I'll now turn the call over to Collin Jones, Director of Investor Relations. You may proceed your conference..

Thank you, operator. Welcome all to our third quarter 2015 earnings call. Thank you for joining. Before we kick off, 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 various risks and uncertainties or other factors.

A full description of these as well as financial reconciliations to non-GAAP terms can be found in our press release which was filed today at 4:00 PM Eastern Time and in our 10-Q which was filed simultaneously with beginning of this call. Joining me today is our Chief Executive Officer, Mary Berner, and our Chief Financial Officer, J.P. Hannan.

I'll now turn the call over to Mary..

this is not a soft concept. Cumulus experienced 48% turnover over the past 18 months, the vast majority of which was voluntary. That's over 2,000 people walking out the door.

The hard cost of this turnover as well as the negative impact it has imposed on the company in terms of lost opportunity, recruitment, training, lost productivity and reputational issues are conservatively estimated in the millions of dollars annually. One small part of this, local station group recruitment alone, cost us $1.8 million per year.

We're going to bring those turnover numbers down, and this isn't a tough thing to change nor is it conceptual. It does, however, require strategy, clear direction and some time, and it's something that I've accomplished in much tougher sectors before.

These are just a few early day examples that reflect the focused yet relentless blocking and tackling against the key priority areas, programming, sales, culture, that we're going to institute over time across every function in the company.

And again, from my perspective, as a person who ran the Operations Review Task Force for the board, I can tell you that collectively, these changes should drive significant performance improvement to the benefit of all stakeholders.

Now, before I turn the call over to J.P., I'd like to go ahead and preemptively address a few questions that we've heard from you.

First, what about NASH? I wholeheartedly believe in and driven by personal experience, am excited by the potential of lifestyle and affinity brand businesses in general, and NASH in particular, as they are a powerful way to provide unique and deeply engaging offerings to consumers and a differentiated and highly sought after value proposition for advertisers.

Like all other areas, building NASH will require guiding principle and rigorous execution to be successful, and I'll have more to say about NASH as our plan further develops. Second, we've been asked how will I influence Cumulus's digital strategy.

As far as I can see, while we have some good digital assets, we don't yet have a cohesive digital strategy.

While digital will become a priority for us in the not too distant future, it is clear, as I just said, that more immediate upside potential lies in addressing our core business, its ratings, operational execution, especially around ad sales, and employee turnover.

As we begin to move the organization in the right direction on these fundamental components, we will over time develop a more holistic approach to digital. And finally, we've been asked, will the turnaround require significant new investments? And the answer here is no.

While certain areas may require and deserve additional investment, I expect to execute all changes in a cost neutral way at worst. This company has lost more than a dollar of revenue for every dollar of expense reduction over the past four years. So I'm focused on intelligently managing the cost structure.

To be clear, in order to turn around the company, we need to focus on the areas that are mission critical and that will move the needle the fastest, with the highest impact and the lowest amount of risk and capital. And we are determined to do just that. Additionally, this is a company that's historically over-promised and under-delivered.

And I won't do that. As such, I do not have any more details to offer you today. However I have committed to the board of directors that I would present to them the results of the 60-day review in December and I fully expect to share some of those findings and plans on our fourth quarter call early next year. Now, I'd like to turn the call over to J.P.

and after he finishes his presentation, we'll open up the call for questions..

Thank you, Mary. Those of you who've followed Cumulus for some time know our company has grown significantly over the past four years. While we are a sizeable enterprise now, the business is not as complicated as it may appear to some.

So if you'll please bear with me, I thought you'll be instructed to take a few minutes to review and provide a little background on the company and the industry, particularly for our newer investors.

I'll also provide some clarification and deeper insight into much of the terminology and numbers that are presented in the press release and then our 10-Q which, as Collin said, was filed the SEC at the start of this call. Our principal business is broadcast advertising sales.

We sell the majority of this advertising across 454 local radio stations each with its own local sales force going to market under hundreds of heritage local brands. We then also contract with Katz Media, which is a division of iHeartMedia, to represent our local stations in the national spot marketplace.

For transparency to investors, we then break each of these subsets of revenue out within our overall broadcast advertising revenue line. Collectively, the local and national spot revenue line items comprise what we will commonly refer to as our owned and operated radio station business.

This is also commonly referred to by the analyst community as our core business. In addition, we also generate revenue by selling advertising to clients in the network advertising space under the banner of Westwood One. The revival of this 40-year-old iconic radio brand occurred at the end of 2013 with our acquisition of Dial Global.

However, the network ad space was not new for us when we purchased Dial. We originally entered that space in 2011 with our purchase of Citadel Media.

Network advertising sales are generated largely in two distinct tranches through presale activity for the next calendar year, which is commonly referred to as the upfront season and what isn't sold in the upfront is sold throughout the year and what is commonly referred to as the scatter market.

As you have heard from us on previous calls, we generally target to sell 50% to 60% of total network advertising inventory annually in the upfronts, but there is no hard rule there. While we've talked a lot about this before, we should put this in proper perspective. The upfronts account for about 15% of total Cumulus revenue.

Now, we are currently in the thick of the 2016 upfront season, with only about 10% of the accounts closed. So it is simply too premature to give any meaningful guidance with regard to the upfront sales at this point in time.

We then break out our political, digital and other revenue discretely with two goals in mind to provide transparency to investors and to isolate volatility that accompanies these items from the run rate broadcast advertising business.

This is particularly true with regard to political ads which are sold at our station group to candidates and advocacy groups. This is largely an every other year event for the company during presidential, congressional and state wide campaigns.

Now, moving on to digital, as Mary just mentioned, digital revenue was an amalgamation of numerous local, national and network sales initiatives and also includes the non-cash revenue related to our investment in Rdio, which I'll speak about more in a few minutes.

Finally, we carve out all of our license fees, subscriptions and other revenues, as these are important, but they're non-advertising based revenue sources for the company. This category includes cash fees paid for Westwood One content, tower and satellite leasing income and management fees we receive.

And with that background, I'll now turn to the financial highlights of Q3. In the quarter, our broadcast advertising revenue declined by 4.3% to $275.3 million from $287.6 million in Q3 of 2014.

Local spot was essentially flat to $171 million from $171.6 million a year ago, and national spot declined by 10.9% to $26.5 million from $29.7 million in Q3 of last year. Now, as was discussed on our Q2 earnings call, national spot performance has been disproportionately underperforming versus local this year, relating to three distinct factors.

First, the national spot marketplace is very transactional, meaning, it is heavily depended on ratings growth to drive revenue. And our failure to deliver sustained ratings growth across our markets has as a result significantly impacted our national spot sales. Second, there clearly were sales execution issues.

And third, as we have discussed on previous calls, our largest competitor has taken meaningful share from the remainder of the industry and we were not immune to that competitive impact. Finally, network advertising was down in the quarter 9.9% to $77.8 million versus $86.4 million in Q3 of the prior year.

But while we are certainly not happy about network performance in the first nine months of 2015, we are starting to see sequential improvement with declines of down 16% in Q2, down 9.9% in Q3, and pacing now is only down 4.3% in Q4. Our political advertising revenue declined $3.7 million to $600,000 versus $4.3 million in 2014.

As I mentioned earlier, political advertising is highly cyclical, and we are now comping against the high point in the cycle from last year's mid-term elections. We will see this category again down significantly next quarter, particularly in October, due to Q4 2014 comps of $10.7 million, but then we expect it to be a growth driver for us into 2016.

Digital revenue was also down in the quarter by $4.5 million to $8.2 million versus $12.6 million in Q3 of 2014. This decline is principally driven by our relationship with Rdio, the subscription music service in which we have an equity interest.

Following our smaller write-down in the second quarter, as is noted in our 10-Q, this quarter we wrote down the remainder of the carrying value of our stock in Pulser Media, the parent company of Rdio. The digital audio pure-play space is highly competitive, extraordinarily cash intensive, and valuations are quite volatile.

As a result of our revised view on this valuation, as well as our position in Rdio's current capital structure, we have determined that a write-down of our remaining stake is now appropriate. Given that, we did not recognize any current revenue for Rdio in Q3 nor will we moving forward.

Rdio contributed $4.6 million of revenue in Q3 of 2014, $7.2 million in Q4 of 2014 and a total of $17.2 million in digital advertising revenue in full year 2014. Year-to-date, in 2015, we have only recognized a total of $2 million, which was mostly in Q2.

Now, finally, license fees, subscription fees and other revenue in the quarter were down in aggregate by $3.9 million or 41.7% to $5.4 million versus $9.3 million in Q3 of 2014.

This was largely due to a shift in certain contracts from fixed cash fees to an ad inventory based revenue profile, meaning we are receiving less in cash fees, but we are getting more advertising time to sell in those shows. On the cost side, our content costs were down $11.7 million or 11% to $94.8 million versus $106.6 million in Q3 of last year.

Our SG&A expense was down $4.3 million or 3.5% to $115.6 million versus $119.9 million in the prior year period. The corporate overhead costs were up $600,000 or 7.9% to $8.2 million versus $7.6 million in Q3 of 2014. All total, adjusted EBITDA for the period was down $9.2 million or 11.5% to $70.6 million versus $79.8 million in Q3 of 2014.

There were several unusual non-recurring items in the quarter that I'd like to point out. The first was recording of $10.2 million in one-time severance cost resulting from the departure of our former CEO and our former EVP of Programming and Content.

In addition, we recorded $1 million in other one-time restructuring items related to Mary's joining the company as CEO. We also recorded approximately $8 million in non-cash stock compensation related to these moves with our executive officers.

Most significantly, we wrote down $565.6 million of the total carrying value of our FCC licenses and goodwill in the quarter.

While it involved a very technical methodology in calculation, which everybody can review in our 10-Q, this write-down basically reconciles the carrying value held in our balance sheet to the current net present value as the company's intangible assets.

The impairment was largely attributable to the original purchase price and subsequent underperformance of the larger market Citadel stations that we have discussed many times previously on these calls. Underperformance of Westwood One versus our original expectations and acquisition also contributed to the overall impairment charge.

As Mary said, this charge has no impact on cash or cash tax forecast or nor does it impact anything in any credit facility we have. We continue to enjoy a sizeable NOL carry forward benefit, and as such, we're not currently a federal cash taxpayer.

We believe we will have fully depleted those tax attributes next year and expect to become a full cash taxpayer on a federal basis in 2017, in addition to the state taxes that we now pay across various state jurisdictions.

Elsewhere on the balance sheet, we incurred capital expenditures of $958,000 in the quarter, bringing year-to-date capital investment to $15.8 million. We continue to anticipate full year capital expenditures will be approximately $20 million. We've two sizeable parcels of land that have been classified as assets held for sale on our balance sheet.

The first is our studio and tower location in Los Angeles, which is currently under contract for $125 million. The second property is our WMAL-AM tower location that sits outside of Washington D.C. in Maryland, which is also currently under a signed purchase agreement with a different buyer.

The final purchase price of this second property is subject to a sliding scale of up to $95 million, but the final purchase price to be determined by the ultimate density that the buyer is able to build on that property, as determined through routing, local zoning and building procedures.

Now, for modeling purposes, we've suggested new model $75 million of proceeds. Given the current timeline of hearings and approval dates, we believe the LA land sale will likely close in mid to late 2016, pushing out our previous guidance on this sale. The D.C.

process remains on track, but it's still early with the buyer submitting their concept plan to the planning board in the coming weeks. At this stage, we expect the close is most likely in 2017.

We have no other updates on these two land sale processes at this time other than to say both are moving steadily forward through their necessary approval processes toward closing. Subject to our reinvestment right, proceeds from these two sales will be used to retire debt.

Our term loan balance at the end of the quarter was just over $1.9 billion and that continues to carry an interest rate of LIBOR plus 325 basis points with 100-basis point LIBOR floor.

We also continue to have $610 million of 7.75% notes outstanding and no outstanding balance on either our $200 million revolving credit facility or our $50 million asset base line of credit. We do not have any active maintenance covenants or leverage ratios in any credit facility.

We finished the quarter with cash on hand of $84.2 million giving us adequate liquidity to operate and service interest on our debt. Our 7.75% notes mature in May of 2019 and our term loan does not mature until December of 2020. So we have no short-term borrowing or refinancing needs ahead of us.

We continue to have 233.6 million shares outstanding at the end of Q3. In addition, we have approximately 900,000 penny warrants outstanding which were issued as part of the Citadel merger. Those are exercisable by holders at any time prior to 2021.

And lastly, you may have seen this morning that we released an 8-K announcing that we received a letter from the NASDAQ highlighting our non-compliance with their minimum listing standards by having a share price below $1 for greater than 30 consecutive days.

We've entered into 180-day initial grace period during which we can regain compliance by achieving a stock price greater than $1 for more than 10 consecutive business days. For more information, please refer to that 8-K. At this stage, we are focused on regaining compliance through operational execution.

Now, looking ahead, as we move into the final quarter of the year, we are currently pacing down 11.5% on total revenue. We see full year 2015 EBITDA of between $253 million and $258 million. And with that, we can turn it over to questions. Operator? [Operator Instructions].

Your first question comes from the line of Andrew Gadlin [Odeon]..

Good evening, guys. Can you discuss the change in guidance this year? It's a big change that you're seeing clearly in Q4. Could you talk about what's really moving? Is that more revenue? Is that coming through on the expense side? Thank you..

Well, I could say I mean it's been a disappointing year from a revenue perspective. And we think what you saw in Q3 is going to continue into Q4. We think network gets better, as I guided the pacing, but we have a much bigger political comp and we have a lack of the Rdio revenue that we had in the earlier guidance we gave.

On the costs side and things are actually as guided, content costs have come in nicely from last year. A big part of that is the last of the synergy efforts at Westwood One. And on the SG&A cost, I think it's been some expenses up, some expenses down, but that will finish down for the year as well.

Corporate is finishing a little higher because of some of the new hires that we've announced. So that what brings us to our full year EBITDA estimate that we just gave between $252 million and $258 million..

Okay. Your next question comes from Avi Steiner [JPMorgan]..

Thank you for taking the question. I really have so many here, but I know you're going to keep me at one.

So away from the guidance question that was just asked, which is well below what I was thinking, I guess, the timeline of asset sales was pushed out and if you can flesh it out one more time as to why we're now into second half of 2016 and into 2017 on D.C.

Can you confirm the proceeds when you say will be used to pay down debt that has to go down to pay down the term loan at par? And then lastly, related to the asset sales, is there any risk that those don't close at this point given how many times they've been delayed? Thank you..

Well, I'll take a part of it and then I'll pass it on to Collin who has been shepherding the land sales through. With regard to the proceeds, and the proceeds are subject to, as any asset sale, reinvestment in other like assets and if not, then it goes to pay down debt, so our intention is to pay down debt.

On just the overall guidance, and these are large tracts of land and these are - we've got to let this run through the process, and there the meetings are progressing and I'll let Collin fill in rest of the details..

Sure, Avi. On neither transaction has anything fundamentally changed.

The hearings on the LA transaction that kick off the formal approval process - there're several layers of hearings with several different government bodies, which we expected would happen towards the latter half of 2015, just based upon standard calendaring issues, got moved into 2016, so that's really what you see in the delay on LA.

On D.C., it is still feasible for us to have a closing towards the very end of 2016. As a buyer, Toll Brothers has been going through the process, they want to make sure to adequately take into consideration all of the motivations and considerations from each of the different constituencies as they build their plan.

So want to go through a concept plan process which we said they'll be filing here with the Planning Commission over the next couple weeks, and from there, they'll go into the preliminary plan approval process. So still feasible to happen at the end of 2016, but a more likely scenario is 2017 at this stage. Thanks for the question..

Your next question comes from Aaron Watts [Deutsche Bank]..

Hey, guys; thanks. Kind of two parts here, but I guess first, under the former CEO, you talked a lot about some great hires you guys made, bringing in talented people throughout the group and that that could potentially lead to a turnaround in growth next year in performance.

I guess first, is that still the thought or has that changed? And then I guess kind of in addition to that, as you think about the portfolio of assets here and you touched on a lot of it, you're in big markets, small markets, on the station side. You own the network which has clearly been struggling.

Do you see any changes necessary to the portfolio to optimize it to better - or to run more efficiently and have Cumulus grow in the way you want it to? Thanks..

Thanks. Aaron, I'll answer that. As the asset mix and the portfolio we've had has changed, we've needed different people and different calibers of executives with different skill sets.

I have to tell you I mean in the almost eight years that I've been with the company now, I mean the quality of the team and the people that I've worked with are the best they've ever been. And so, as Mary talked about her comments it really starts people and culture in many ways to effect a turnaround..

Yeah, I would concur that the hires that were put in place, the people that I have inherited, are for the most part very, very strong, but that has been offset to a certain extent by that turnover that I've talked about. So if I could step back and then step forward and a step back.

So the going-forward proposition is to get the people who were hired aligned on the key priority areas for the company and focused on the things that will move the needle. So I think that the talent is there. The question is getting the right people focused on the right things without focusing on things that don't move the needle.

So I think that's part of just an execution issue, but those are some very, very good people that were hired..

And then, Aaron, with regard to your second question, the portfolio mix, I mean we continue, we'll always look at ways to enhance shareholder value and what's the best asset mix, but right now, there is no plans or initiatives underway to change any of the asset mix we have..

Okay. Your next question comes from Michael Kupinski [Noble Financial]..

Thank you for taking the question.

Given the possible structural changes focus like execution on sales and may be getting out of some pet projects that the previous management had made, how much of EBITDA impact do you anticipate at the company on an annualized basis for a full year could you have by just getting out of some of the low-hanging fruit of some of the cost cutting and may be getting out of the corporate debt or whatever those things might be, how much of an impact do you think could have on EBITDA?.

Mike, I would say I think it's premature. We're not giving any guidance for next year. As Mary said, the changes will be cost neutral and then beyond that, I think we're not going to give guidance on 2016 at this point..

Okay. Your next question comes from Lance Vitanza [CRT]..

Hi guys. J.P., could you go over the Rdio revenue situation again? I just - to be honest, I wasn't able to follow it. It sounds like you're writing down the value of your 15% stake in the business, but I'm not sure how that affects your ability to sell advertising time and I'm just trying to direct sell that..

Well, we're still in ongoing relationship with Rdio, but as you know, I mean the evaluations in that space are volatile and we also look at where we are, as I mentioned, in the capital structure at Rdio, we've just determined that it is not likely at this valuation that there would be a recovery in that stock, so we've written that down.

As I also mentioned, the contribution from Rdio in the prior year was $17.2 million in total and it was $7.2 million in Q4 so that will be a tough comp that we will have as there will be no Rdio revenue in the fourth quarter..

And as it relates Lance to our ability to monetize digital advertising going forward, if you recall, and it still remains this way, we are the exclusive ad sales rep agent for Rdio. So we've been selling advertising on their behalf in conjunction with other digital advertising that we already have.

We're one of the larger and aggregate players of audio stream out there and so we have substantial amount of inventory in our own right that we take to market, so it really won't affect that effort going forward. Thanks for the question..

This does conclude the questions. Now, I would like to turn the call over to Ms. Mary Berner..

Well, thank you everyone for joining and we will look forward to discussing more with you in a few months on our next call. Thank you very much..

This concludes today's conference call. You may now disconnect. Have a great day..