Collin Jones - SVP, Corporate Development & Strategy Mary Berner - CEO John Abbot - CFO.

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 second 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.

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 just recently filed.

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 Colin. Good afternoon everyone, and thank you for joining.

During our last call, I expressed our belief that Q1 represented a financial inflection point in our turnaround plan and today we're reporting second-quarter results that provide further evidence that we've turned the corner as we grew total revenue 1.2% over last year and delivered an increase and adjusted EBITDA for the first time in over three years.

We achieved these results despite both a week industry environment and some headwinds from political and as such our performance reflects revenue share gains across every major ad channels including the last one throughout the quarter.

Our reported adjusted EBITDA growth of 6.7% included the impact of one-time expense in Q2 2016 related to music license fees. However, when normalizing for this one-time expense, our adjusted EBITDA was still up in the quarter.

Overall this quarter's performance was driven by both our continued focus on judicious cost reductions to offset the contractual expense escalators that we've discussed in the past and our relentless effort to expand the topline.

I’ll talk more about those efforts in a moment but first I wanted to share a couple of thoughts of what we're seeing in the market today.

Overall, the market remains tough with the outlook in September particularly showing softness and for our business in Q3, we're currently pacing down slightly for the quarter and on ex-political basis we're pacing almost flat.

Now the drum I've been beating virtually every quarter since I joined the company is that traction against our foundational initiatives would be a prerequisite to turning Cumulus to growth. As a reminder, our foundational initiatives covered the critical areas of ratings, culture, blocking and tackling and sales execution.

So I’m going to give you a little more detail on how these initiatives continue to remain important to our efforts and play into the kind of positive financial performance we deliver this quarter. First, on ratings.

We maintained our ratings share outperformance in PPM markets through the quarter even though we are now lapping some considerable share growth in Q2 2016. Nonetheless, we were up again this quarter and Q2 2017 marks seven straight quarters of PPM ratings share growth which we converted to revenue share growth of 3% in PPM markets in Q2.

On the diary side, after two consecutive quarters of share growth, we gave back ratings share in the spring 2017 books for our 4-book markets driven by some fairly isolated challenges.

Six markets out of 27 drove the entirety of the decline with two markets representing nearly half of the impact and of course we are very focused on riding the ship in those situations.

Moving to culture as I said from day one fixing Cumulus' culture was a top priority because a committed, energized and highly engaged workforce is essential to the successful execution of the challenging operational agenda we've undertaken in this turnaround.

Today our 180-degree change in culture is evident in every corner of our business and has become an ongoing contributor to financial progress we’re seeing.

For example I talked before about our Be a LEADer sales lead-generation program, which is a cultural initiatives as much as it is a lead generator because it's designed to connect non-sales employees more directly to the core of our advertising sales effort and thus our financial success.

To-date the program has generated nearly 500 new advertisers for the company and millions of dollars in incremental revenue. Our cultural initiatives are even having the impact externally as positive employee sentiment has helped us recruit additional high-quality talent to the organization.

It should go without saying that if preparing the culture was a precondition to our turnaround maintaining it is just as critical to our future success.

And the result of our fourth company-wide survey demonstrate continued commitment to the turnaround plan with 92% of employees saying they are proud to work at Cumulus and 91% of our employees expressing a belief that Cumulus is changing for the better.

Our turnover statistics also continued to beat our internal goals with overall turnover down to 24% and voluntary sales turnover down to 23% from the high 40s and the high 30s respectively when we began our turnaround effort.

Regarding operational blocking and tackling, we spent a considerable amount early time and energy on basics like establishing key processes and placing the right people in the right jobs more thoughtfully – in a more thoughtfully conceived organizational structure so that we can identify and execute against the many initiatives that are making this company better.

There is no question we’re seeing results from this approach, for instance on expense front year-to-date we've been able to reduce expenses year-over-year mostly from a number of individually small decisions without negatively impacting the top line and while still funding a critical series of major investments in people, ratings and infrastructure.

Moreover, we expect for the full year that these aggregate efforts will allow us to meaningfully but not entirely offset the approximately 3% cost increase that was baked into our business through contractual escalators inherited by this management team.

Moving forward we’re taking two big additional initiatives to sustain the momentum of our operational improvement. Over the next 18 months we’re completely replacing our legacy traffic and billing systems at both the Station Group and at Westwood One.

Additionally, we recently established and are continuing to build out a formal revenue management function that will enhance our pricing and yield management strategies over time.

Though both these initiatives are heavy lifts they are necessary to strengthen our competitive position and given what we've achieved we’re confident in our ability to complete them successfully.

On to our sales execution initiative which as I mentioned on our last call consists of several different focal areas including talent, training and tools, sales analytics, platform growth products and tactics, and digital.

I'm going to forego a point-by-point analysis for now, but the progress we're making in these areas is clearly contributing to the topline and market share gains that were experiencing. A key few highlights are worth noting in particular as we see them as important revenue growth drivers going forward.

The first is our ability to create compelling programs that leverage our national scale and local activation capability to engage with consumers who share a common passion by tapping into those passions we can uniquely deliver, engaged audiences to advertisers in a way that commands premium pricing and is replicable across genres and demographic segments.

The proof of concept here is NASH Next, which we launched in 2016 as a multiplatform local to national country music talent competition. Building on last year's success NASH Next 2017 kicked off earlier this summer in 62 markets with a returning national sponsor Country Inns & Suites.

This platform will add to our growth this year and next as the franchise continues to scale. We’re also excited to launch a new franchise in the second quarter based on the same model but this time focused on rock fans which we’re calling next to rock.

In terms of weekly cume, the rock format is actually the largest audience at Cumulus station’s reach. So we believe we are well-positioned to port the success we have seen with NASH Next and Country to the rock space with next to rock. It goes thus saying that digital is important growth opportunity for us.

We mentioned in the last call that we developed a new strategy to capitalize on this opportunity.

In April we initiated the launch of Cumulus digital C-Suite a collection of digital offerings for local advertisers comprised of our own digital assets as well as other high demand and low risk products and services provided through partnerships with white label third-party providers.

The product offering in the C-Suite which we will continue to expand over time give our local advertisers the ability to integrate digital more seamlessly and effectively into their core radio buy.

We’re nearing the final stages of its rollouts and are encouraged by its potential to scale meaningfully and profitably over the coming months and into next year.

In addition, to this new digital effort at the Station Group, Westwood One is well positioned to take advantage of the rapidly growing podcast space, where industry revenue is projected to grow anywhere from $150 million to $200 million last year to as much as $500 million by 2020.

With its massive promotional reach high quality audio production capabilities, relationships with virtually all of the advertisers that are spending on podcast today and significant connections with talent Westwood One brings to the table all the necessary elements to be a meaningful player in the space.

With regard to Westwood One the strong results this quarter deserve further discussion, revenue growth of 6% and EBITDA growth of 30% year-over-year didn't happen by accident.

Instead Westwood One performance is the combination of over a year's worth of foundational work to meaningfully enhance the businesses ability to execute and redirect its focus to the best profit opportunities.

This work began with the hiring of a single leader whose responsibility for all facets of the business provided the perspective necessary to identify and address the core issues, aggressively attack costs and identify opportunities for growth.

Among other significant improvements Westwood One now has a sales effort with a much more sophisticated go-to-market strategy and the ability to create high-value programs to stimulate demand, enhanced existing partnerships with advertisers and bring new business into the space.

In fact the entirety of our 6% revenue growth in Q2 the entirety was driven by this new business development effort which was virtually nonexistent a year ago.

And importantly Westwood One is now leading the industry with its recent exclusive, big data partnerships that for the first time ever allow us to connect over the air radio listening directly with product purchasing behavior which of course is the Holy Grail for advertisers more on this exciting development in the future.

Additionally we have fined tuned are stable of content partnerships, terminating certain relationships and enhancing others in the spirit of focusing on the areas that best serve our affiliates and listeners and are ultimately profitable for the business.

Over the last quarter our affiliate sales team delivered impression growth in virtually every division including in our award-winning Westwood One new service which has added millions of impressions this year.

And going forward we continue to see further opportunities for improvement in the business including ones enabled by the replacement of our traffic and billing system which as I mentioned before will allow us to further modernize and optimize our pricing and yield management strategy across the network.

Lastly before John takes you through a more detailed financial results, I wanted to comment once again on our balance sheet challenges we are focused every day on maximizing the value of this great collection of assets and the best way for us to do that at this time it to continue to capitalize on the success to-date of our turnaround initiatives by also creating growth opportunities over the medium to long-term.

However, our heavy debt load continues to constrain both our ability to do business in the short-term and achieve our full potential in the long-term. So we continue to explore options which we hope will allow – to reduce our leverage with minimal disruption to our operation and the progress we continue to make.

With that, I’ll turn it over to John to go through the financial results in more detail.

John?.

Thank you, Mary. For the quarter we reported revenue of $290.5 million as compared to $287.2 million in Q2 2016, an increase of 1.2%. As Mary mentioned earlier, this revenue growth represented market share growth as measured by Miller Kaplan across all major ad channels in the quarter local, national, digital and at Westwood One.

This is the fourth quarter in a row of market share gains at the Radio Station Group and the second quarter in a row at Westwood One. Drilling down into the performance by segment, first for the Radio Station Group.

Revenue declined by 0.7% driven entirely by a soft market environment which on a Miller Kaplan basis was down 2.6% in the quarter in the markets in which we compete including declines in both national and local channels.

Our political revenue which accounted for about $2.2 million of revenue in Q2 last year was a headwind of only about $200,000 with strong Q2 political revenue this year of $2 million driven by competitive runoff races in special elections like the Sixth District Congressional seat in Georgia.

For Westwood One as Mary mentioned revenue increased by 6.1% driven by strength in core ad sales, digital and podcasts. Turning to expenses on an as-reported basis, expenses declined by [$900,000] [ph]in the quarter or 0.4%.

However in Q2 2016, expenses were artificially higher as a result of a one-time correction relating to out of period music license fees amounting to approximately $4 million. So excluding this cost from 2016 would produce a normalized year-over-year increase in expenses for Q2 of $3.1 million or an increase of 1.4% in the quarter.

As we've mentioned before, we face considerable cost escalators that we worked relentlessly to address. Holding cost increases to 1.4% in Q2 represents meaningful progress against the embedded 3% cost increases that we faced and identify to you going into the year.

Now looking at expenses by segment, Radio Station Group first expenses declined $1.9 million year-over-year on an as-reported basis normalizing for the $4 million of one-time expenses in 2016 which all related to this segment. Station Group expenses in the second quarter would have increased year-over-year by approximately $2 million or 1.4%.

These increases were driven predominantly by new and increased music license fees, trade expense which is largely just timing and other contractual escalators.

Westwood One expenses increased in the quarter by $700,000 driven predominantly by increased payments to content and inventory partners associated with higher revenue partially offset by savings from contracts that were terminated or renegotiated during 2016. Corporate and other expenses increased slightly in the quarter by approximately $300,000.

As a result of these revenue and expense changes, we reported adjusted EBITDA of $67.4 million versus $63.2 million in Q2 2016 or an increase of 6.7%. Adjusting for the one-time music license fee expenses in Q2 2016, adjusted EBITDA still would have been up in the quarter by about $300,000 or 0.4%.

Below EBITDA there were no significant non-operating items this quarter of note. Moving onto capital expenditures in the second quarter, we incurred CapEx of $7.5 million compared to $7.3 million in Q2 2016. As we discussed on prior calls, we expect CapEx to run higher in 2017 to approximately 30 million for the full-year.

From a liquidity standpoint, we finished the quarter with over $140 million in cash and amount which remains bolstered by the proceeds from the sale of our LA real estate during the third quarter of 2016.

Regarding the use of these proceeds, our credit documents require that we use the net proceeds from the sale to pay down our first lien debt but subject to a 12 month reinvestment right and that 12 month reinvestment right expires near the end of this month to the extent it is not used. As it relates to our Washington D.C.

property sale there is no meaningful revision to the status we gave on our last earnings call.

The process continues to move forward as we anticipated and barring an appeal on the approval of the preliminary plan, we believe 75 million of gross sale proceeds with a close later in 2017 continues to be a reasonable expectation based on what we know today.

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

In this case we submitted to NASDAQ a plan for us to regain compliance with the minimum stockholders equity requirement and we remain in discussions with NASDAQ relating to the company's request that NASDAQ grant us an extension up to September 17 to regain compliance with the equity listing rule.

We received a separate notice from NASDAQ indicating the company was not in compliance with NASDAQ's bid price rule because our stock had closed below $1 per share for 30 consecutive business days.

Absent any action being taken as a result of our noncompliance with the minimum stockholders equity requirement, we have until October 2 to regain compliance with 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 though, our focus at this stage remains the same 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.

We've attempted to address all of the questions for this quarter that we could in our prepared remarks. So we'll wrap up the call here. As always feel free to reach out to Collin or me with any follow-up questions. Thanks everyone. We'll speak to you again in a few months..

Thank you again for joining us today. This concludes today's conference call. You may now disconnect..

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