Collin Jones - Director, IR Mary Berner - CEO, President and Director John Abbot - CFO, EVP and Treasurer.

Analysts:.

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

Thank you, Operator. Welcome to our first quarter 2017 earnings call. I'm joined today by our CEO, Mary Berner; and our CFO, John Abbot. 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.

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 4:00 p.m. Eastern time and can be accessed as well through our corporate website.

This call will be accompanied by a slide presentation which can be accessed through a link in the Investor portion of our website at www.cumulus.com/investors. After this call, the same link can be used for a replay of the webcast and the presentation will also be posted to our website. With that, Mary, I'll turn it over to you..

Thanks, Collin. Good afternoon, everyone and thank you all for joining the call. We spoke to you just a couple of months ago about the significant progress that we made during 2016, the first full year implementing our plan to move the company from decline to stabilization to growth.

Throughout 2016, our focus was on our foundational priorities, ratings, blocking and tackling, culture and sales execution, the areas we knew we had to address first if we wanted to reverse the company's downward trajectory. As our Q1 results demonstrate, we have arrived at a financial inflection point in our turnaround.

Our operating metrics have benefited from the momentum of our turnaround initiatives for some time. But as expected, we're now starting to see the positive impact that those efforts have had on our financial results. The headlines first. As reported, adjusted EBITDA was down $3.2 million year-over-year.

However, when normalizing for the effects of political and 2 unusual items related to music license fees last year, adjusted EBITDA would have been up $1.3 million or 3.6%.

Encouragingly, this performance reflects significant progress in both revenue and expense drivers throughout the company, particularly at Westwood One where EBITDA increased 15.6% in the quarter.

And as further evidence of our inflection point, looking ahead into Q2, pacing for the whole company is currently close to flat with last year despite a very soft market environment. John will discuss our Q1 financial results in more detail later in the call, but I'd like to give you a few additional highlights now.

As reported, total revenue for the company in the quarter was $264 million, down 1.7% compared to Q1 of 2016, impacted by a decline of about $2.4 million in political revenue year-over-year as well as revenue reductions totaling approximately $1.5 million at Westwood One which we mentioned on our last call and which have no impact on EBITDA.

Excluding these items which we believe presents a more accurate view of the company's performance in the quarter, total revenue was approximately flat. This performance was driven by market share gains across all ad channels at the station group in every month of the quarter, a continuation of the trend we began experiencing in late 2016.

Thanks to the success of our ratings and sales execution strategies, we've now gained share and total revenue at the station group for 3 straight quarters. At Westwood One, we gained share in the quarter as well. And core controllable ad sales which makes up nearly 90% of Westwood's revenue, were actually up year-over-year.

Significantly, all of this performance occurred against a backdrop of a radio market which was down 2% to 3% for the quarter. On the expense side, despite contractual escalators of approximately 3%, total expenses for the quarter were down $1.3 million or 0.6% year-over-year.

This reduction was achieved through a combination of savings from contract renegotiations and other expense reductions during 2016, from which we're now seeing the benefit, as well as our persistent focus on expense management within the quarter.

Additionally, there were a few unnaturally low expense items related to Q1 2016 music license fees that, as I noted earlier, created a comparison issue for us. And normalizing for those amounts -- these amounts, we would have seen an expense reductions in the quarter of $3.7 million or 1.6% year-over-year.

Given these revenue/expense results and adjusting for items impacting comparability year-over-year, as I noted earlier, EBITDA for the quarter would have been up $1.3 million or 3.6%. It's worth taking a few extra moments to talk about Westwood One's significantly positive performance in the quarter.

It's not a coincidence that the business had its best quarter in years just about a year after we brought in a single leader at the top who has a comprehensive view of and accountability for the entire network business.

That perspective has not only helped us make considerable progress in rationalizing contracts, an area where we believe there are further opportunities still, but it's also supported improved sales effectiveness.

For example, in our business development effort which we began building last year in response to the challenged transactional market environment and which is now starting to bear fruit.

We also see further opportunity for gains driven by the replacement of our network traffic and billing system later this year which will improve our visibility into inventory over time, allowing us to execute a much better yield management strategy than we can with our current systems.

While we're certainly gratified to share tangible evidence that our turnaround strategy is working, we're also acutely aware that to maintain our momentum, we can't relax our execution against our foundational initiatives.

Even though we spent a considerable amount of time on our call 2 months ago discussing ratings, operational blocking and tackling and cultural initiatives, I'd like to provide a few additional updates. First, on ratings. We maintained our ratings share outperformances versus the market in PPM markets through March.

This marks 6 straight quarters of considerable PPM ratings share growth. For the four book markets, we followed on from a year-over-year growth in the fall ratings book with year-over-year growth once again in the winter book which was just finalized last week. Moving to culture.

We view turnover as an important operational metric for us judging the health of -- cultural health of our organization. Through April, we've attained a new low for total turnover, 22%, down from the high 40s in mid-2015.

And regarding operational blocking and tackling, our biggest recent success has been the speed with which we've been able to reduce expenses without negatively impacting the top line.

In Q1 2017 alone, excluding the impact of actions taken in 2016, we executed nearly 40 distinct expense reduction efforts which resulted in nearly $5 million of expense benefit in the quarter.

Thanks to these actions, we were able to decrease expenses for the quarter by $1.3 million, more than offsetting the significant contractual expense escalations that are built into the business. I'd also like to spend a moment on our sales execution initiative which certainly contributed to the across-the-board market share gains I mentioned earlier.

It's absolutely critical, given the unsupportive industry dynamics, that we capitalize on our tremendous ratings performance to the full extent possible. To that end, we're devoting considerable effort to five sales execution focal areas, talent, training and tools, sales analytics, platform growth products and tactics and digital.

From a talent standpoint, our goal all along has been to expand our recruitment and retention efforts to improve the overall quality of our sales force and our sales effort. Among other things, we've created an employee sales referral bonus to encourage our employees to help us to find good, new salespeople.

We've also developed a systematic talent pipeline tool and revamped our onboarding process to ensure new sales employees can hit the ground running. Additionally, we've revised both the structure and compensation scheme of our market leaders to align them more closely with our company goals.

Last, since our last call, we reorganized our station group leadership into two regions, PPM and diary. This change considerably simplifies our management oversight and effort by grouping markets that have similar dynamics under a single leader and we've -- we're already seeing benefits from this realignment.

Another significant part of sales enablement is providing the sales force with the training and tools they need to go to the market more effectively.

We have, for example, substantially upgraded the type, range and quality of their collateral, creating and distributing new sales marketing materials across the platform that highlight the power of our unique capabilities and brands and can be tailored to respond to an advertiser's specific needs.

We've refreshed the company's outdated training materials with new modules covering important areas like transactional and direct sales tactics.

Also, in the last couple of weeks, we've launched a new intranet platform called FORCE BOOK, to facilitate greater collaboration among our salespeople and more efficient access to all our tools and materials.

Tied in with our operational blocking and tackling initiative has been the creation of a sales analytics -- of sales analytics that help our managers evaluate ongoing sales performance and allow them to quickly identify and address issues.

Faced with substantial systems challenges, we created simple tools to give us a much better handle on how and where we're converting our ratings performance into revenue and a much better understanding of the fundamental pricing, inventory and sales productivity metrics that drive revenue.

While our sales analytics work has added value to our sales management efforts already, we know that there's more significant value that will be unlocked once we completely overhauled our traffic and inventory management systems.

So not surprisingly, we consider the completion of that work which we began last year, to be one of our highest priorities over the remainder of the year and into 2018.

As we look at the powerful collection of assets that we own and the capabilities we possess, we saw and continue to see considerable opportunity to leverage the platform by creating new growth products and working cross-platform to drive upside.

For instance, we saw an opportunity to profitably consolidate our remnant selling from dispersed local execution into a centralized national selling effort in late 2016. As a result of the shift, we were able to drive an increase in remnant dollars in 2017 by locking in more favorable terms from the aggregation of inventory.

Additionally, tactics like our Be a LEADer sales generation program are continuing to produce results, with nearly 2,000 qualified leads and almost $1.5 million of incremental revenue generated since its launch in late January.

The program is a great example of how our entire employee base has once again stepped up to propel the company forward, this time by creating new opportunities for our sales force. And finally, under sales execution is our digital effort.

Shifting a traditional media business from a sole focus on its legacy roots to one that can profitably compete with digital products in conjunction with and in support of its core business is a challenge that I've faced in prior lives. It's not an easy task, but it's essential one, especially for us right now.

Throughout the last 18 months, we've gained a clear understanding of our digital assets and opportunity which led us to the April launch of the Cumulus C-Suite, a branded suite of digital offerings for local advertisers.

This platform, built through a number of smart, low-risk product and service partnerships, in combination with our own owned digital [indiscernible] assets, provides us with a potentially robust new revenue stream by giving our local advertisers the ability to integrate digital more seamlessly and effectively into their core radio buy.

Since it's in the first stages of this -- still in the first stages of its rollout, C-Suite is already making a mark with virtually no incremental financial investment on our part.

Over time, it holds the potential to scale substantially and grow the amount of digital revenue we generate from its current low level to a more meaningful percentage of our revenues. In total, our sales execution initiatives were designed to span the most important functions and elements of our sales effort.

And we're seeing the early benefits of these already in our share growth. Before John takes you through more detailed financial results, I did want to comment once again on our balance sheet challenges.

Our company continues to be overlevered and our high debt levels must be addressed in order to achieve the full potential of the assets we have here at Cumulus. To that end, we're intent on continuing to explore all available options to address that debt burden in a way that does not derail the progress we're making in our turnaround effort.

So with that, I'll turn it over to John to go through the financial results in more detail.

John?.

Great. Thank you, Mary. For the quarter, we reported revenue of $264 million as compared to $268.5 million in Q1 2016, a decline of 1.7%. However, as Mary mentioned and as expected in a nonpolitical year, political impacted revenue in the quarter by $2.4 million, declining from $2.9 million in Q1 2016 to approximately $500,000 in Q1 '17.

First quarter revenue was also negatively impacted by the restructuring of one specific contract at Westwood One as well as the shutdown of NASH Country Weekly, neither of which affected EBITDA and both of which occurred in the second quarter of 2016.

Excluding these items, total revenue for the quarter would have been nearly flat compared to last year. For the Radio Station Group, revenue decreased by 1.6%, driven almost entirely by the decline in political revenue.

Excluding political, revenue would have been approximately flat, with pressure from a very soft market being offset by revenue market share gains across all ad channels. As Mary mentioned, this represents the third quarter in a row of share gains at the Radio Station Group.

For Westwood One, revenue declined by 1.9%, driven almost entirely by the 2 non-EBITDA impacting items that I just highlighted which collectively accounted for about $1.5 million of revenue decline in the quarter. Excluding these items, revenue would have been approximately flat, with core ad sales actually growing in the quarter, as Mary mentioned.

This, too, reflected revenue share gains which largely offset the pressure from a tough market environment in the quarter. Turning to expenses. Despite the burden of baked-in contractual escalators, total expenses in the quarter actually declined $1.3 million to $225.3 million, a decrease of 0.6% from Q1 of last year.

When we look at the year-over-year change in expenses, we think it's important to note that expenses in Q1 2016 were artificially lowered by 2 items, both related to music license fees. The first was a onetime credit received in the quarter for $1.7 million.

The second was the understatement of music rights fees of approximately $700,000 in Q1 2016 that you may recall was identified and corrected in Q2 of last year. Normalizing for this $2.4 million of understated expenses in 2016, the year-over-year change in expenses for Q1 would have been a decline of $3.7 million or 1.6%.

Now looking at expenses by segment. Radio Station Group expenses increased $1.8 million year-over-year, driven primarily by the sports rights and music license fees.

Without the effect of the $2.4 million of artificially lower expenses in 2016 which all related to this segment, station group expenses in the first quarter would have declined year-over-year by approximately $600,000 or 0.4%.

Westwood One expenses declined in the quarter by $2.9 million, driven predominantly by savings from contracts that were terminated or renegotiated during 2016. Corporate and Other expenses decreased in the quarter by approximately $200,000.

As a result of these revenue and expense changes, we reported adjusted EBITDA of $38.7 million versus $41.9 million in Q1 2016, a decline of 7.6%.

Adjusting for the change in EBITDA contribution from political as well as the artificially lower music license fees in 2016, adjusted EBITDA would have actually grown in the quarter by a little over $1 million or nearly 4%.

Below EBITDA, there were no significant nonoperating items this quarter other than a $2.6 million gain from the sale of a piece of land under an AM tower in Salt Lake City. Moving on to capital expenditures. In the first quarter, we incurred CapEx of $5.7 million compared to $4.2 million in Q1 2016.

As we discussed on last quarter's call, we do expect CapEx to run higher in 2017 to approximately $30 million for the full year because of the need to address the significant historical underinvestment in infrastructure.

From a liquidity standpoint, we finished the quarter with over $150 million in cash, an amount which remains bolstered by the proceeds from the sale of our L.A. real estate during the third quarter of 2016.

Regarding the use of these proceeds, we continue to review the options under our credit documents which generally require us to use the net proceeds from the sale to pay down our first lien debt but subject to a 12-month reinvestment right. As it relates to our Washington, D.C.

property sale, there's no revision to the likely closing timetable we gave on our last earnings call. The process continues to move forward as we anticipated and we believe $75 million of gross sale proceeds with a close sometime later in 2017 continues to be a reasonable expectation based upon what we know today.

Now for an update on our listing status. Since our last earnings call, we were notified by NASDAQ that we were out of compliance with 2 different minimum listing standards. The first relates to our -- to the value of our stockholders' equity on the balance sheet.

In this case, the company was provided 45 days to submit a plan to regain compliance with the equity listing rule. So on May 5, we submitted our plan to NASDAQ and we remain in discussion with them about receiving the extension to regain compliance.

We also received a separate notice from NASDAQ indicating the company was not in compliance with the bid price rule because our stock had closed below $1 per share for 30 consecutive days. The company has 180 days or until October 2 to regain compliance from the bid price rule.

We don't have anything new to report on the balance sheet restructuring today. Just to reinforce Mary's comments from earlier, our focus at this stage is to address our significant debt levels in a way that minimizes the impact on the business and allows us to continue to capitalize on the momentum of our turnaround efforts.

In closing, as we look ahead to Q2, as Mary mentioned, we feel good about pacing, essentially flat for the quarter, in light of a very soft market in the quarter so far. We've attempted to address all of the questions for this quarter that we could in our prepared remarks. So we'll end the call here.

As always, feel free to reach out to Collin or me with any follow-up questions. Thanks, everyone and we'll speak to you again in a few months. Thanks..

Thanks once again for joining us today. This concludes today's webcast and you may now disconnect..

End of Q&A:.