Collin Jones - Head of M&A / Corporate Development / Investor Relations Mary G. Berner - President and Chief Executive Officer John F. Abbot - Chief Financial Officer, Treasurer & Executive VP.

Welcome to the Cumulus Media Quarterly Earnings Conference Call. I'll now turn it over to Collin Jones, Director of Corporate Strategy, M&A and Investor Relations. Sir, you may proceed..

Thank you, operator. Welcome all to our second quarter 2016 earnings call. Thanks 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.

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're subject to a number of risks and uncertainties.

A full description of these risks as well as financial reconciliations to non-GAAP terms can be found in our SEC filings including our press release and Form 10-Q, both of which were filed today at 4 o'clock p.m. Eastern Time.

This call will be accompanied by a slide presentation, which can be accessed through a link in the Investor portion of our corporate website at www.cumulus.com/investors. After this call, the same link can be used for replay of this webcast and the presentation will also be posted to our website.

With that, I'll now turn the call over to our CEO, Mary Berner.

Mary?.

enhancing operational blocking and tackling; instituting initiatives to improve the company's culture; driving ratings growth, and addressing the balance sheet.

Now, nine months into my tenure at Cumulus, we're seeing measurable results around these initiatives and each one needs to be successful, if we're going to reverse the financial course the company has been on. First, we've enhanced our company's ability to execute the basic blocking and tackling, which is so fundamental to our business operations.

In many ways the strategy can simply be distilled down to giving people clarity about the job we want them to do and then giving them the freedom to do it with the appropriate checks and balances in place, of course.

As I noted in prior calls, we started this effort with a logical realignment of authority with responsibility and accountability, the tying of compensation for senior leadership to a single adjusted EBITDA goal and a deliberate shift of our decision making structure from one of command and control to one where our local markets are responsible for running their businesses with corporate providing the right level of oversight and support.

With that structure in place, the focus now is on the unglamorous day-to-day work of moving every aspect of our business forward, which means, rolling up our sleeves, sweating the details and relentlessly addressing embedded inefficiencies that stand in the way of our ability to run like a well-oiled machine.

And all of that, ultimately will position us to make more money. A great example from this quarter is one where we're taking the friction out of the sales process with a formal rollout of our new CRM system, AMP. We did on this on time and on budget.

In my very first conversation with investors, I highlighted that our former CRM system was constraining our sales effort by unnecessarily burdening our sellers with many hours a week of excessive documentation that was not producing benefits for them, their managers and assuredly not the top-line.

In response to this big roadblock, we solicited feedback from our front-line sellers to develop a better system. AMP, which stands for Action, Momentum and Performance was built with enormous (07:04) collaboration and has been met with very positive response.

It is universally viewed as a benefit to sellers, who see CRM for the first time as a productivity tool that can help make them and us more money.

While our CRM system was the first technology platform to be addressed, virtually across the board, our IT systems are competitive disadvantage as a result of performance issues on our legacy proprietary platforms and historical underinvestment. For a company of our scale having (07:36) systems can be the difference between winning and losing.

Going forward, we need to address several of our other key systems to further enhance productivity and responsiveness to the marketplace, modernize our sales process and to turn data into actionable insights to help us make the better decisions and make them faster.

In measuring the progress of our culture initiative, it's hard to overstate the impact that our rigorous and systematic implementation of our new cultural values framework, FORCE, Cumulus has had.

With Focused, Responsibility, Collaboration And Empowerment as the driving principles, we are swiftly transforming the company by constantly reinforcing and institutionalizing this framework in everything we do. Despite our formidable financial challenges, we have been able to quickly build momentum with the employee base.

Momentum, which continues to grow. 94% of our employees say Cumulus is changing for the better, up from 89% in January. 92% are proud to work at Cumulus, up from 87%, and 86% of employees are excited for the future, up from 84% in January.

These results were from our latest culture survey, which was conducted in late-May, and in which over 60% of the entire company participated. Quite frankly, these metrics looks extraordinary given where we started and indeed for any company. In a geographically dispersed company such as ours, we can't manage each employee one-on-one.

So an engaged and motivated employee base is foundational to achieving higher performance and maintaining these results will be critical and continuing focus. One of the most tangible effects of this positive sentiment is on turnover, which continues to decrease particularly where it counts.

Through July 2016, our total employee turnover was reduced to 25% from 34% during the same period in 2015. Our full-time turnover was down to 20% from 29% during the same period in 2015. Isolating the data to sales people alone, our voluntary turnover was down to 24%, a significant improvement from 40% during the same period in 2015.

This rapid decline in turnover reduces the obvious economic costs associated with a high rate of employee entry and exit and is a prerequisite for building a best-in-class sales and programming organization that can attract top talent.

On to ratings, when I joined Cumulus last October, our rating had declined for four straight years and ratings along with culture were clearly a big challenge and a great opportunity.

And further, it was clear that the pervasive and persistent nature of those declines demanded that we create and execute a systemic solution, which we designed to reflect our conviction met (10:36), increased local input, authority and accountability would result in a better programming product, improve ratings and eventually stronger revenue performance.

The execution of the strategy began with the creation of the Office of Programming in late December, which to remind you serves to support rather than manage our local market.

We instituted processes that proactively identified ratings risks and upside opportunities allowing us and the markets to make decisions faster and smarter, accompanied by rigorous analysis and leveraging specialized expertise.

And importantly, we allocated funds to a high impact programming investment pool designed to selectively bolster a station's potential to drive ratings growth and to over time produce meaningful revenue upside.

Our early efforts against the ratings strategy had predominantly been focused in the PPM market, which make up about half of the revenues generated at the Radio Station Group. The impact of these initiative has been materially positive and very encouraging and as our numbers demonstrate, it indicates that our strategy is clearly working.

The index of our PPM markets continued its positive trend through June, now showing eight straight months of year-over-year growth and outperformance versus the industry.

Out of 17 markets in the month of June, 15 markets showed year-over-year ratings increases in the prime money demo and two markets were flat, zero declines and 9 more stations are now ranked in the top 10 within their respective markets, compared to the same period a year ago, which is important as ranking within a given market and demo often times is a difference between being on a buy or missing out entirely.

Our challenge now is to maintain this moment and aggressively monetize our improved ratings in the PPM markets.

As I mentioned earlier and as should be expected, the initial financial impact is showing up in the highly transactional national spot marketplace, where we outperformed the industry in the second quarter and are outpacing the industry again in the third quarter.

We're now extremely focused on all aspects of sales execution to leverage our improving ratings to drive enhanced monetization in our local direct agency business in the PPM markets.

And looking at our diary markets, we highlighted last quarter that, by their very nature, the ratings in these markets take much longer to effect and ultimately monetize.

In the case of four-book markets, ratings come out quarterly, and in two-book markets, ratings come out semi-annually compared to PPM markets, where the ratings are issued monthly, allowing changes to be seen more quickly.

Also, the rating methodology in the diary markets relies on unaided recall versus the electronic measurements used in PPM markets.

And as a result, it tends to favor big heritage brands, which benefit from their historical relevance in a market and some nuanced changes to a diary station's positioning tend to have less impact over the short-term than more significant programming or strategic changes.

Our investment funds and programming strategies, as I said, were initially focused more on the PPM markets. But we're also applying the same operating principles in the diary markets to drive growth, even if those gains will take longer to be seen and monetized fully.

We're pleased to highlight that the spring book for our four-book markets showed signs of stability, with a low single-digit increase year-over-year reversing again four years of decline. The two-book markets are coming in this week, but are not all yet in.

So while the diary market reports so far show some early momentum, it's important to note that these market which collectively represent almost half of the Radio Station Group revenue, are generally sold off an average of two ratings periods, an aggregate of six months of ratings for the four-book markets and 12 months for the two-book markets.

Those more extended metrics are still negative and until the older periods roll-off, the diary markets will continue to be a headwind for our Radio Station Group revenue through the end of this year until the sales cycle can catch up to the stabilized ratings.

Finally, we remain focused on addressing the challenges that we face in regard to the balance sheet. We continue to review all available options to maximize value for the company and explore strategies that give us the time and the runway needed to turnaround the business.

The operational and P&L impact on the business from our overlevered capital structure is real and until we address the balance sheet, we'll be hindered in our ability to fully achieve the upside potential resulting from this very real progress we're making on our turnaround initiatives.

Turning to Q3, total revenue is currently pacing down low single-digits. The Radio Station Group is pacing approximately flat. Westwood One is pacing down mid-single digits, underperforming the Radio Station Group, but not to the same extent as in Q2, since the market environment appears to be more stable at this point.

Political advertising on the books is also limited at this stage but is expected to ramp up in the coming weeks with the bulk of political occurring in Q4 as usual, and with the majority of Q3 political occurring in September. So, in summary, as I said on the last call and we'll continue to reiterate, this is a multiyear turnaround.

And even nine months in, we are still fairly early in the process. We have made meaningful progress on executing our initiatives, quickly identifying the problems, developing the right strategies, implementing our game plan and we're now seeing tangible results.

While we believe these initiatives will lead to stability and provide a foundation for growth, the challenges before us are substantial and even with the right efforts and strategies, delivering improved financial performance will take time. Now, I'd like to turn the call over to John. And after he finishes his comments, we'll jump into Q&A.

John?.

Thanks, Mary. First, I should say, how excited I am to be here and be part of the team that's leading Cumulus through this turnaround. Also, I should say thank you to the investors and analysts, who've reached out to me since I joined the company. I look forward to getting to know you over the coming weeks and months.

Now, on to the Q2 financial results. For the quarter, total revenue was $287.2 million versus $299.3 million in Q2 2015, a decline of 4.1%.

For the Radio Station Group, revenue increased 0.2%, driven by national spot revenue, which was up approximately $1.5 million or 5% in the quarter and also by political advertising, which increased by $1 million this quarter.

Westwood One revenue declined 13.8% driven primarily by the sharp drop off in market demand for network advertising, as Mary mentioned earlier, as well as the shutdown of the print version of NASH Country Weekly, which was operating at an EBITDA loss. Corporate and other revenues declined approximately $400,000 in the quarter, off a small base.

On the expense side, the Radio Station Group expenses increased $12.2 million to $150.6 million from $138.5 million in Q2 of last year, an increase of 8.8%. This was driven by an increase in music license fees of $5.1 million of which $3.6 million was a correction to music license fees for prior periods.

Just to explain that one-time $3.6 million entry a little further, $3.2 million of it was an expense related to 2015 and $400,000 was related to Q1 of this year. Expense increases were also driven by new sports broadcast rights as well as contractual programming cost escalators and the programming investments spend that Mary mentioned earlier.

Westwood One expenses decreased $6.7 million to $63.6 million from $70.3 million in Q2 last year, a decrease of 9.5%, and this was driven primarily by lower cost of sales associated with Westwood One's revenue declines.

Corporate and other expenses were essentially flat, which combined with the Radio Station Group and Westwood One expenses yielded total expense increased of $5.5 million or 2.5% for the quarter compared to Q2 of last year.

So, as a result of these revenue and expense changes, adjusted EBITDA came in at $63.2 million versus $80.8 million in Q2 2015, a decline of 21.8%. Radio Station Group adjusted EBITDA declined $11.7 million or 16.5% and Westwood One adjusted EBITDA declined $5.6 million or 30.2%. Corporate and other was a slight decline in EBITDA of $339,000 or 3.9%.

Moving below adjusted EBITDA, in the quarter we booked $1.4 million of restructuring costs, predominantly related to the shutdown of the print version of NASH Country Weekly. LMA fees in the quarter were $2.5 million, the vast majority of which relate to the LMA we have with Merlin Media for the two stations in our Chicago market.

And moving onto capital expenditures, in the quarter, we incurred CapEx of $7.3 million, predominantly related to the studio move and consolidation project in our Chicago market, and that compares to $4.8 million of total CapEx in Q2 last year.

We finished the quarter with $49.8 million of cash on hand and had no changes to our total debt balance of just over $2.4 billion. Now to update everybody on our land sales. First, with respect to the studio and tower location in Los Angeles, this is under contract for a $125 million.

The local city council voted unanimously to approve the development project on the land on May 25. And then the entitlement process entered a 90-day appeal period. Unfortunately, around 30 days into the appeal period, the complaint was filed by a party interested in stopping the project.

So, at this stage, we're still evaluating our options and the potential impact if any to our closing timeline. With respect to our WMAL-AM tower location outside of D.C., there is no change to the timetable for likely close since we talked about this on our last earnings call.

The process is moving along consistent with our original expectations and we expect – we still believe $75 million of gross sale proceeds with a close sometime in 2017 continues to be a reasonable outcome based on what we know today. With that, I'll turn the call back over to Collin to moderate Q&A.

Collin?.

Thanks, John.

Before we jump in, I've been asked by a number of interested parties, investors, analysts, the like, since the announcement that you were joining, what attracted you to Cumulus?.

Well, great question. As some people probably know, I covered the media industry and a number of radio companies during my banking days. I have always thought that radio more than any other media was uniquely positioned because of its unparalleled reach, unique local presence, resilient listener base and strong ROI for advertisers.

Cumulus is obviously, facing some significant challenges. But as I got to know the company and in talking with Mary, it became clear that Cumulus had a great collection of assets and that the course she had set for the company made a lot of sense.

And as I learned more, I found that this new operating strategy really aligned with my own leadership values and views on how to run a business. I also saw some of the early culture survey results, which really were amazing.

And those were good indicators that the strategies the company had undertaken, especially those related to people were already starting to take hold. And I got the same picture from independent sources, places like Glassdoor.

Lastly, as I came to understand the company's operational challenges and capital structure issues, I felt like my own experiences and skills could allow me to contribute meaningfully to helping Mary and the team to achieve their goals.

And by the way, I've been very impressed with the leadership team at the company, and how they've come together so quickly to align with the strategy and also how engaged and enthusiastic all the company's employees are about the business and the opportunities ahead.

That's a long answer I know, but to sum it up, I guess I would say, there's probably no more rewarding challenge than a turnaround. And at Cumulus, I saw the chance to jump on a train that was already moving in the right direction and to play a meaningful role in helping that train reach its destination.

No question, it will be a lot of work, it already has been and – but it's definitely an exciting opportunity too..

Thanks for the color. And I'd reiterate what Mary said earlier, and we're really happy to have you on board. So now, let's move over to few questions from our analyst and we can knockout some of the straight forward questions on the numbers first. Starting with political, we always get a number of questions on that category.

Mike Kupinski of Noble Financial asked, how much political was in the quarter, this quarter? So, Mike, that number was $2.4 million, it was about a $1 million higher than last year, this quarter as in line with our expectations for the quarter.

Lance Vitanza now with Cowen & Co said he heard from others that political hasn't filled in yet and he has asked if it concerns us at that this stage. Avi Steiner of JPMorgan asked how much we expect for 2016, and if there is anything that changed that perspective as the year has gone on.

So, Mary do you want to give us some color on that?.

Yeah. Thanks. I think, we're doing a good job of capturing our fair share of political dollars that are out there and for sure our ratings try to help us a bit on the national side.

As we said earlier calls, we're all over and to the extent that we proactively shifted inventory obligations around to free up space for political in high demand areas, which we've already seen has produced incremental political dollars for us this year.

But concerning the rest of the year (26:25), if you look back at the last several cycles, it's generally been slow to book at this point in the cycle but it really starts to ramp up as we get closer to September. So, for context, 2014 full-year political was approximately $21 million, and 2012 was about $25.5 million.

So, I'd say – that said you never know. If the tight races don't line up with our platform, or if one candidate or another runs away with the national race early, there certainly is risk that the pace could slow. We just don't know..

And moving over to the expense side, Amy Yong of Macquarie Capital asked if our cost control efforts are hurting growth and if you could elaborate any on additional investments and programs?.

Yeah.

First, I really appreciate the question because controlling cost intelligently is one of the biggest challenges in any turnaround and particularly one like this where there has been such a significant underinvestment in core functions for such a long period of time which, of course, limits the amount of net cost reduction we can actually achieve.

But, in direct response to question, we always look at everything through the lens of the highest and best use of our resources, whether that's people or time or our financial resources and we always take a holistic perspective on the whole business and put rigorous analytics around any kind of opportunity.

I would pretty much characterize at this point we're looking at much at cost – spending as much time of cost shifting as we are on cost cutting to ensure the highest and best use for our resources. And so programming that I talked about is one of the reinvestment areas.

Generating better ratings, as we said, again and again, it's just so critical to the company's future.

And so we have no choice but to make smart and highly targeted investments in everything that we can to drive programming and that ranges from the people, the marketing, the data strategies, technology, whatever it is through the lens again of highest and best use of those resources.

And so far on the investments we've made, we are seeing good aggregate results and returns for the money we put in and we track that very, very carefully. So, that's kind of long way of saying I don't think the cost reductions are holding us back. Again, we're always looking for them.

However, certainly, if we had the ability to invest more in the short-term, recognizing the lag to get to an ROI, we would be making more investments in the business for sure..

And now, a bigger picture question from Davis Hebert of Wells Fargo.

Davis has asked, Mary, can you give us an outlook on your content strategy?.

Yeah. I mean, my view on content strategy really hasn't changed since the day I started and I look at it as someone who has been in media long time and the way I describe what I do is this is really the same church, different queue for me.

And so, the same principle is applied, which is that the winners in media landscape are those that can create and deliver content brands that people want regardless of how that content is delivered and radio is simply no different from any other media businesses fundamentally because it always, always start with the customer or the consumer and obviously for radio that's the listener.

So what we've tried to do and we seek to do is to create content that generates the most listener shift, which fortunately we can measure with a good deal of accuracy.

So, whether it's a Top 40 station, a big sports brand, NASH station or a nationally syndicated show, we're really focused on creating differentiated content that the most people want to listen to and also this positions us or gives us some kind of a competitive edge with our advertisers or listeners.

So creating a unique value proposition for our listeners in turn and creating unique value proposition for our advertisers. My particular role in that effort is to reinforce this strategy and to make sure that we have the best programmers and empower those programmers to create the best content.

And as importantly to establish expectations for what that content can deliver and more specifically in terms of audience, because at the end of the day definitely monetize.

And, of course, one of the things that we got very good at, a great example of walking, tackling strategy is holding people accountable for hitting the metrics we've established for audience and also for generally moving the ball forward. As an aside, part of moving the ball forward is to broaden our view of what our content and brands can be.

An example of that would be, if you take the country platform for instance, Cumulus is number one for country. And as I said on other occasions, the concept of the NASH brand as a marketing and programming platform to reach and capitalize on our country audience makes a lot of sense.

So part of that strategy is we're working – doing a lot of work now to get that right..

And then another bigger picture question on Westwood One, in general, a series of question Aaron Watts from Deutsche Bank is asking how Westwood One is progressing from sales standpoint? Andrew Gadlin of Odeon Capital asked for an update on the business given the weakness we experienced in Q2, and now that we're already starting with the upfronts for 2017?.

Well, when I came in and I said this before, I knew, we had challenges at Westwood One that we need to be addressed quickly. It's a complex business. There is a ton of moving parts, and I knew immediately that we needed the right executive to take ownership of it going forward.

And so we brought in Suzanne Grimes because she is a talented executive and who not only knows how to sweat the details, she has a track record of running complicated businesses as well, but she also has a broad marketing acumen that's been somewhat missing in network radio space and can allow us to ultimately extend beyond the core transactional strategy, which as we saw in the last quarter, hit us hard.

So, since the beginning, she was put to task to diagnose Westwood One's problems and come up with a holistic solution to drive its long-term success. However, the market weakness that we've talked about before in Q2 really exposed the depth of some of those issues that we have in this business.

And since then, Suzanne has done I believe a great job of developing a back-half plan that seeks to tactically address these issues in the short-term to deliver the best possible short-term outcome. But simultaneously, we're really focused on continuing to develop a holistic perspective of what the business can and should be in the long term.

As it relates to the 2017 upfronts, it's really too early to give much perspective. It's only the second upfront season many of the team members have seen and the first for some, but we're focused on it. I think Suzanne brings additional expertise and perspective to this. And, of course, it's a meaningful piece of our 2017 revenue picture.

So, there's an enormous focus on it right now..

Thanks, Mary. And then, one last one over to John, somewhat housekeeping.

David Phipps of Citi asked for an update on the stock listing?.

Sure. As many of you know, we're in the middle of the 180-day grace period that was reported to as following acceptance to the NASDAQ capital market tier on May 4.

So, if we don't reach compliance with the minimum bid price requirement, which is 10 consecutive days prior to the expiration of the grace period, which is on October 31, we would need to evaluate other potential avenues to achieve compliance, which could obviously include a reverse stock split..

Thanks, John. Thanks, everybody for joining. That concludes this quarter's call and we look forward to speaking again in about 90 days..