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 Third 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 filed today around 7:30 Eastern Time, and they can also be accessed 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 is also be posted to our website. With that, Mary, I'll turn it over to you..

Thanks Colin. Good morning everyone, and thank you for joining us today. A couple of weeks ago we pre-released an estimate of the range for our third quarter 2017 earnings. Today, we put a final point on those numbers with our formal release. On a consolidated basis, we grew both revenue and adjusted EBITDA for the second straight quarter.

In the face of continued negative industry pressures, these results underscore the fact that our turnaround plan is taking hold, and we are encouraged by the operating and financial momentum in both our station group and Westwood One business segments.

Our foundational initiatives, ratings, culture, operational blocking and tackling, and sales execution continue to contribute meaningfully to performance and going forward we expect more through them. As well as new strategies that will further our turnaround effort and provide opportunities for growth over the longer term.

On a consolidated basis, revenue grew by 0.4% in the quarter ex-political, revenue grew by 1%. On an as reported basis, adjusted EBITDA grew substantially by 40.7% over the prior year period, which was impacted by a large one-time expense.

Normalizing for this one-time item in the prior period, adjusted EBITDA grew 6% driven by the revenue increases and judiciously executed expense management throughout this year and last year. Drilling down to the segment level, I’m going to focus on our topline results, but John will give you more detail on the expense side.

Our Station Group operated in a tough environment this quarter, with industry spot revenue down 4.7% and industry total revenue which includes digital and NTR down 3.2% according to Miller Kaplan data. However, our group of stations outperformed with revenues for the Station Group segment down 1.6% in total and down 1.2% on an ex-political basis.

Once again our ability to improve our relative ratings coupled with a substantially more stable and engaged work force is allowing us to beat the market. In fact this quarter marks the seventh straight quarter of rating share growth and also the fifth quarter in a row of revenue market share gains.

Our initiatives to expand our revenue sources of the Station Group are also taking hold. In this quarter, we completed the full roll-out of the C-suite which is a collection of digital solutions designed to help local advertisers improve their advertising returns by combining their digital spend with their base radio buy.

Two week ago, we announced a new product in the suite C-Endorsement Videos, the first digital video endorsement product to be introduced in the industry at scale.

On Air endorsements are also one of the most effective and powerful ways that radio delivers marketing messages for advertisers and this product extends that trusted relationship between our talent and our audience through digital video advertisers that are highly targeted to consumers through social, mobile and other digital platforms.

On the operations front, we have some heavy lifts upcoming for the Station Group, as we work over the next 18 to 24 months to migrate our traffic and billing system from our legacy, home grown platform to the industry standard wide orbit system.

Additionally, we recently established and are continuing to build out a formal revenue management function to bolster our pricing and yield management capabilities. Both of these initiatives will take considerable effort bear essential to strengthening our competitive position and to driving our continued growth in 2018 and beyond.

Moving to Westwood One, the network delivered another strong quarter on both the top and the bottom line, with revenue growing by 5.5% despite a tough comp from last year’s Olympics, and EBITDA increasing by over 45%, even after adjusting for the large one-time expense item in the prior year that I mentioned earlier.

We’ve now grown revenue at Westwood One for two straight quarters and market share for three consecutive quarters, and this is driven by better sales execution, the benefits of a more sophisticated and growing business development function and the growth in our digital business.

Additionally, our NASH Next franchise now at second quarter and our inaugural Next2Rock franchise both contributed to revenue and EBITDA gains in the quarter.

As I said in prior quarters, Westwood One is focused on leading the industry and data-driven targeting and attribution measurement expanding the impact of our national platform with innovative products and services that can help to deliver a unique value proposition to advertisers.

With overall industry listenership declining at low to mid-single digit, this effort is critical now and will be critical going forward.

During the last quarter, Westwood One also announced exclusive big data partnerships that for the first time ever in radio allow an advertiser to connect to consumers over the air radio listing patterns with purchase behavior. We branded these partnerships for advertisers as one way.

A few weeks ago we’re enhancing this effort with the launch of the Westwood One ROI guarantee, which is the first ever ROI guarantee in the audio space. Radio’s high ROI is well established, but with this new product, we are now able to validate that for individual advertisers directly with purchasing data.

On the digital side, we continue to be excited about the progress we are making with our collection of leading podcast, spanning music and entertainment, country, sports, news talk formats. As I mentioned on our last call, we sold advertising in our first podcast for less than a $1,000 in 2016.

We’ve now got a multi-million dollar topline business that’s growing quickly, both through increased advertiser demand and the addition of new content.

With its promotional reach, audio production capabilities, connection with talent and large national sales force, Westwood One brings to the table in a way that few others can all of the elements necessary to be a meaningful player in the podcast space.

Now, looking to the fourth quarter, I rather remind you that we face a substantial and high margin political comp, which will depress our year-over-year comparison on both the top and bottom line because we lack that political spend in this off-cycle year. Last year’s political races heated up.

We booked nearly 9 million of political in the fourth quarter, mostly in October and will obviously do a small fraction of that this year. We’re already seeing the effect in pacing as today we are pacing down low-single digits impacted by that political comparison.

Excluding political, we are pacing about flat, similar to where we were in each of the last two quarters at the time of those earnings call. Finally, before turning over to John, I want to comment on our balance sheet.

As we’ve said for several quarter now, our heavy debt load constraints both our ability to do business in the short term and to achieve our full potential in the long term.

So it’s imperative that we explore all available options to restructure our balance sheet and reduce our leverage with minimal disruption to our operations and the progress we are continuing to make. So with that goal in mind, we have been in private discussions with both of our creditor groups now for some time.

Last week, in the context of those discussions and as part of that restructuring effort, we chose not to make the interest payment on our bonds and enter in to the 30 day grace period.

We’re using this time to continue to develop and we hope to commence the implementation of a restructuring with one or both of our creditor groups that will allow us to continue the momentum of our turnaround efforts. With that, I will turn the call over to John, who will take you through our third quarter results in more detail. John. .

Thank you, Mary. For the quarter we reported revenue of $287.2 million compared to $286.1 million in Q3 2016, an increase of 0.4%. At the Radio Station Group, revenue declined by 1.6% driven by entirely by a soft market environment which on a Miller Kaplan basis was down 3.2% for the quarter in the markets in which we compete.

Political revenue which was higher by $1.6 million in Q3 last year contributed to the decline as well. So on an ex-political basis, the Station Group was down 1.2% in the quarter, but in the context of the overall market decline, as Mary mentioned, this performance represents market share gains for the fifth straight quarter at the Station Group.

For Westwood One, revenue increased by 5.5%, driven by strength in core ad sales, digital syndicated services and podcast. Overall these results also reflected share gains for the third straight quarter.

Turning to expenses; on an as reported basis, expenses declined by $16.8 million in the quarter or 6.9%, however, in Q3 of 2016, we reported 14.4 million of one-time cost related to the resolution of disputed syndicated programing and inventory expenses with CBS Radio.

Excluding these costs from 2016 would produce a normalized year-over-year decrease in expenses for Q3 up 2.4 million or 1.1% in the quarter. To break expenses down further by the segment; Radio Station Group expenses declined $1.8 million year-over-year or 1.2%.

These decreases were driven by reductions in certain content costs, lower commissions and lower revenue and reductions in personnel cost from last year.

Westwood One expenses normalized for the one-time CBS cost in the prior year, also decreased by $1 million, driven by savings from contracts that were terminated or renegotiated partially offset by increased payments to content inventory partners associated with the quarter’s higher revenue performance.

Corporate and other expenses increased by approximately $400,000 in the quarter. As a result of these revenue and expense changes, on an as reported basis, we delivered adjusted EBITDA of 61.8 million versus 43.9 million in Q3 last year, an increase of 40.7%.

But excluding the one-time expenses in Q3 last year, adjusted EBITDA increased by 3.5 million in the quarter or 6%.

Below EBITDA there were no significant non-operating items of note in the quarter this year; however, I’d point out so that the net income comparison year-over-year is impacted by a $94 million in third quarter of last year related to LA real estate sales, which closed in that quarter.

Related to that in the third quarter of this year, we used the net proceeds from the LA real estate sale, after reinvesting a portion back in the business to pay down $81.7 million of our term loan at par, pursuant to the terms of our credit agreement. With that pay down, our term loan balance currently sites at $1.729 billion.

In the quarter, consistent with our prior guidance, we had capital expenditures of $7.4 million versus $5.2 million in the third quarter of 2016, and we finished the quarter with $69.4 million of cash on hand. In terms of future cash inflows, we still have our Washington D.C. property sale under contract.

Since our last earnings call, the planning commission approved the preliminary plan for that property, which started a 30 day appeal period clock. Unfortunately, an appeal to the approval of the development plan was filed just before the end of that period.

The buyers are now working with the planning commission to oppose that appeal, which will ultimately allow us to consummate the transaction. We still anticipate that the transaction will be completed, but this appeal process will certainly impact its timing pushing the close-out in the mid-2018 in all likelihood.

We also continue to believe that $75 million in gross sales proceeds is a reasonable expectation. To update everyone on the status or stock listing, we mentioned that we had been notified by NASDAQ that we were out of compliance with two different minimum listing standards and subsequently received de-listing notices related to each.

The first relates to the amount of our stockholder equity on the balance sheet and the second relates to our stock price having traded below $1 per share for 30 consecutive business days.

In accordance with NASDAQ’s listing rules, we filed an appeal of the pending de-listing action and on October 26, we appeared before the NASDAQ’s hearing panel to appeal these determinations. At this time we remain in discussions with NASDAQ regarding that appeal and our ongoing listing status.

We don’t have anything definitive to report on the balance sheet restructuring today. As Mary said, on November 1, we issued an 8-K that referenced the discussions we’ve been having with our creditor groups in connection with our desire to address our significant debt levels.

In support of that effort, the restructuring committee of the Board authorized the company to forego the interest expense payment that was due on our 7.75% senior notes on November 1 and enter in to the 30-day grace period.

We’ve been using this period to continue our discussions and we hope to develop and begin implementation of a restructuring process which could be effectuated either out of court or through a court supervised Chapter 11 process.

Consistent with previous statements, it’s our intention to restructure our debt in a way that balances our goals, minimizing disruption to the business and maintaining the momentum of our turnaround efforts while maximizing the benefits of a significantly de-levered capital structure.

It’s also important to note that as a result of the restructuring process and the potential that our restructuring transaction may include a Chapter 11 process, that our 10-Q which was filed this morning contains certain required billing concerned language.

Just to reiterate, the billing concern evaluation requires that the possibility that a restructuring transaction might be effectuated through a Chapter 11 process results in that billing concern language.

From a pure liquidity standpoint, we’re comfortable that we have ample cash and liquidity to continue to fund our operating activities, capital expenditures and working capital requirements. With that we’ve attempted to address all 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, and we’ll speak to you again in a few months. .

Thank you again for joining us today. This concludes today’s conference call, and you may now disconnect. .

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