Mary Berner - President, Chief Executive Officer John Abbot - Chief Financial Officer Collin Jones - Senior Vice President of Corporate Development and Strategy.

Hello! And welcome to the Cumulus Media, Quarterly Earnings Conference Call. [Operator Instructions] 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 everyone to our fourth quarter 2018 earnings conference call. I’m joined today by our President and CEO, Mary Berner; and our CFO, John Abbot. Before we start, please note that 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 are 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, both of which were filed earlier this afternoon. A recording of today's call will be available for about a month. Details for how to access that replay and our SEC filings can be found on our website.

With that Mary, I’ll turn it over to you..

Generating as much as $100 million of free cash flow per year, reducing net-leverage to below four times as quickly as possible and finally reinvesting in new opportunities, with meaningful growth or valuation potential. Looking at our results through the lens of this framework demonstrates how the pieces work together to build value in the company.

In 2018 our revenue performance began to reflect the dividends from our work to build a functional pricing and inventory management system, one of our key operational enhancement initiatives.

We’ve discussed before the greater visibility and flexibility our new capabilities provide us and how those translate into an ability to move inventory among the different sales channels that we manage.

Most important, with local demand lagging, the fact that we can leverage our station inventory in national and network channels in ways that we could not do or do well previously has been meaningful for the top and bottom line.

The creation of custom networks which are designed to allow advertisers to buy the impressions they want in a specifically chosen group of stations or market is an excellent example of the opportunities that our revenue management work has given us.

This past year, for the first time we had the ability to more clearly understand demand and inventory usage and we could see where it made economic sense to allocate inventory to custom networks, allowing us to capture incremental dollars for inventory that might have otherwise gone unsold.

We also kept and continued to keep our focus on reducing expenses, something that we believe is an essential requirement when operating in a mature industry. Expenses were down on a year-over-year basis in every quarter of 2018 and down 1.3% for the full year. Excluding the impact of USTN, they were down 1.7% for the year.

A portion of that decline reflected bankruptcy related contract rejections or renegotiation, but we also realize substantial additional benefit from active cost savings on new or renewed contracts, process efficiencies and in other areas as well.

Turning to our digital businesses, our second strategic priority, digital revenue grew for the whole company by more than 60% for the full year, meaningfully outpacing the industry.

Driven by our local digital marketing services and podcasting businesses, our digital revenue growth accelerated each quarter this year, from 46% growth in Q1, moving up steadily to Q4 growth of 76% year-over-year.

The local digital marketing services business which we refer to internally as C-Suite is about 1.5 year from its initial rollout and really is beginning to hit its stride. We now have a sizeable operation that continues to scale and has been solidly profitable from the beginning.

It's a business that requires maintaining a fresh and relevant product portfolio, but we’ve gained a lot of experience in understanding client's needs and successfully rolling out new offerings to meet those needs.

By way of example, the EPC guarantee, the industry's first integrated local radio and digital lead guarantee program, which we announced in November, has helped us close numerous new business deals since its launch.

Given its initial success, we expanded the EPC guaranteed to all of our markets last month and will be making additional advertising categories such as automotive and financial services eligible for the guarantee as the year goes on. Digital growth of Westwood One reflects the podcast business which continues to be a nice addition to our portfolio.

From 2016 revenue of over only $100,000 we finished 2018 having generated over $12.5 million in profitable podcast revenue and remain excited about the future growth prospects.

Similar to our approach with local digital marketing services, we are building this business thoughtfully and with an eye on maintaining profitability despite ambitious growth targets.

While we do not see the podcast space as a winner takes all game, we do believe that we have all the necessary components to emerge as one of the leaders once the dust settles. And finally, I want to address our last strategic priority, optimizing our asset portfolio. Last month we announced two transactions for the company.

In combination these deals perfectly reflect what this last strategy is all about. The first transaction is $103.5 million sale of six stations to Educational Media Foundation or EMS.

We expect to generate substantial net cash proceeds of $80 million to $90 million when this deal closes and proforma for the impact of this transaction, net leverage would be reduced by about a quarter of a turn.

The second transaction is a swap with Entercom where we are giving them our two Springfield, Mass stations as well as WNSH-FM in New York City for their three Indianapolis stations.

On our side, the transaction lists our Indianapolis market from number three to a leading position in ratings share, making an already good market for us even better, and that's without taking into account the synergies we anticipate from joining the two Station Groups together.

This swap truly was a win-win for both sides and particularly if deregulation happens in any substantive way, we’d expect to see more transactions like this with station ownership moving around to create healthier competitors.

Of course, what's most important about these strategic priorities is their impact on our ability to reach our financial goals. So let me take a minute on those.

First as I said, we expect to generate as much as $100 million of free cash flow year, and with that free cash flow we are focused on reducing our net leverage to less than four times as fast as possible. Since emerging from bankruptcy, we're able to able to use our free cash flow to execute a voluntary debt pre-payment in October of $50 million.

That prepayment combined with our EBITDA growth and the cash we added to the balance sheet reduced our net leverage at year end to 5.2x down from 5.8x at our emergence from Chapter 11 in June.

We expect to move that metric down further with continued pay downs from cash flow throughout the year, including the $25 million voluntary pre-payment that we just completed, as well as from the proceeds of our EMS transaction.

Our last financial goal focuses on investment and growth opportunities, and for 2018 those investments were primarily in the form of people costs in our digital operations to expand our capabilities in digital marketing services and podcasting as I touched on earlier.

We'll continue to invest in both these areas through 2019, mostly in operating expense, where we see that investments will drive profitable growth and sustainable market positions. Looking forward, pacing for first quarter is now slightly up, reflecting growth in digital and national, offsetting continued softness in local spot.

Further out, we believe that strategies that produce strong results in 2018 will continue to produce for us in the first quarter and throughout 2019. So I’ll now turn the call over to John for a deeper financial dive, after which we will open the line for questions. John. .

Great! Thank you, Mary. To echo your opening comments, we are pleased with the results we delivered for the quarter and the full year and we're optimistic about the year ahead. Now, to our fourth quarter 2018 result. As Mary noted, total revenue in the fourth quarter was $309.2 million, an increase of $15.8 million or 5.2% from Q4, 2017.

Q4 is our biggest quarter for political revenue which accounts for much of the uplift, but even excluding political we were up $5.7 million or 2% from Q4, 2017. Total expenses declined $400,000 or 0.2% from 2017. As a result consolidated EBITDA for the quarter increased $15.8 million or 31.6% from Q4 last year.

Adjusting for political, consolidated EBITDA grew by $7.1 million or 14.9% in the quarter.

Looking at the numbers by business unit and starting with the Cumulus Radio Station Group, we continue to experience a tough spot market environment, particularly in local, albeit at a somewhat slower pace of decline than we saw in the first half of the year, but better market dynamics in national and digital did help offset that someone.

Relative to the market, the Station Group continued to outperform which resulted in a gain in CRSGs aggregate revenue share of more than 50 basis points in the quarter, representing the 10th straight quarter of revenue growth at the Station Group.

As reported, total revenues for the Cumulus Radio Station Group increased just over 5% or $10.5 million to $212.4 million from fourth quarter last year. We certainly benefited in the quarter from political, which provided a lift of about $9.6 million in revenue over last year.

As you all are aware, most of our political revenue in our election years hits in October and the beginning of November and this year we beat expectations for both months, also exceeding 2016 levels by $2.9 million. Adjusted for political, Station Group revenue was still up year-over-year by just under $1 million or 0.5% for the quarter.

Moving to expenses, Station Group expenses were down approximately $800,000 or 0.5% in the quarter, primarily driven by continued cost savings that we’ve realized against contracts that were renegotiated or terminated over the last year and lower personnel related expenses.

These items were partially offset by increases in costs associated with our digital – with our increased digital revenue. The combined impact of the revenue expense changes yielded a Station Group EBITDA increase of $11.3 million or 23% in the quarter and an increase of $2.6 million or 5.6% excluding digital, a strong performance overall.

Turning to Westwood One. The network business produced another solid quarter with revenue growing $4.8 million or 5.3% from fourth quarter last year. This increase was driven mostly by growth in podcasting and the core ad sales business.

On the expense side, operating expenses increased at Westwood One by about $1 million with the largest increases coming from variable content costs related to increased revenue, partially offset by the termination or favorable renegotiation of certain content contracts.

Combined, the solid revenue growth in modest expense increases produced another quarter of terrific EBITDA growth at Westwood One, up $3.8 million or 41.6% year-over-year.

Switching to the full year results, total revenues for 2018 came in just over $1.1 billion, an increase of $4.7 million or 0.4% from 2017, which is the first time in four years that we grew the top line on an as reported basis.

As discussed on our prior earnings calls, there were a few unusual factors influencing our results during the year that are worth walking through. Specifically the financial troubles of the United States traffic network or USTN, the loss of our Chicago station WLUP-FM, and the rejection of the Chicago White Sox and Chicago Bulls sports contracts.

Of course this year was also a political year which provided a sizeable lift to revenue. Normalizing for all of these factors, and excluding political, revenue came in just $300,000 over 2017, so essentially flat year-over-year.

By way of comparison, we estimate that the total market including both the station side and network markets, excluding political was down for the year about 2%. On the expense side, total reported expenses declined $11.9 million or 1.3% from 2017, adjusting for the Loop, the White Sox and Bulls and USTN, expenses were down $4 million or 0.4%.

At the EBITDA level no matter how you look at, EBITDA for the year increased. As reported the increase was $16.6 million or 7.6% from last year. Excluding the impact of political, EBITDA grew by $3.4 million or 1.6%. Excluding the impact of political, the Loop, USTN and the Sox and Bulls sports contracts EBITDA grew by $5.8 million or 2.7%.

Looking at the business units individually and starting with Cumulus Radio Station Group, we felt the impact of a tough local market environment all year and as I said, that was more in the first half than in the second. As it has all year, the Station Group continued to outperform gaining 20 basis points in total market share for the year.

It’s important to note that these markets and market share numbers are based on the Miller Kaplan reported numbers in 53 of the markets where we operate and where that reporting is available. Though those markets do represent 80% of our Station Group revenues, so they are pretty good proxy for the performance of the platform as a whole.

On an as reported basis, total revenues for the full year for the Cumulus Radio Station Group decreased 0.8% or $6.5 million to $780.4 million from 2017.

Adjusted for political, Station Group revenue was down year-over-year by 2.7% for the year or $21.2 million, adjusted for political WLUP and Sox Bulls the Station Group revenue was down 1.7% or $13.3 million.

Our ability to offset a good portion of the local radio market weakness with growth in national and digital has been critical to the Station Groups performance.

The improvements in pricing and inventory management that are one of our key operational enhancement initiatives have been an important driver of our outperformance in national and of course our investment in digital growth opportunities in the case of CRSG, our C-Suite of products has been driving our digital growth well above market levels.

Moving to expenses, the Station Groups expenses were down approximately $16.3 million or 2.8% for the year, primarily a result of cost savings from renegotiated and rejected contracts, certain programming decisions and personnel related expenses.

Adjusting those expenses for the Loop going away and the Sox and Bulls contract rejections, expenses were down $4.3 million or 0.7%.

It's important to remember that with so many of our expenses, containing annual escalators whether their vendor contracts, leases, tally contract or other content contracts, every year we have to find substantial cost savings just to hold expenses flat.

The combined impact of the revenue expense changes yielded a Station Group EBITDA increase of $9.7 million or 4.9% in the year. On an ex-political basis EBITDA decreased $3.5 million or 1.8% and adjusted for the political, the Loop and White Sox Bulls, the Station Group EBITDA decreased a $7.6 million or 3.9%.

Westwood One benefited from a better market environment than the Station Group and had another great year, surpassing 2017 and helping to offset the week local radio market dynamics at CRSG. Revenue for the year grew $11.3 million or 3.3%, driven mostly by growth in both podcasting and the core Ad sales business.

On the expense side, operating expenses increased at Westwood One by $6.6 million or 2.2% with the majority of the increase driven by podcasting content costs and other revenue growth related variable expenses.

Combined the revenue and expense increases produced EBITDA at Westwood One of $59 million for the full year, up $4.7 million or 8.7% from last year. Normalizing for the USTN issues, Westwood One EBITDA would have been up $11.2 million or 20.6%.

Moving away from operations, I'll touch first on CapEx before moving to our cash flow, balance sheet and some other general items of interest.

In 2018 we spent about $30 million on CapEx, reflecting a continued higher run rate to catch up on some historical under investment in the business and also reflecting a delayed payments of approximately $2 million of CapEx from 2017 because of the bankruptcy. Going forward we expect CapEx to be in the $20 million to $25 million range annually.

We finished the year with $1.243 billion of total debt and net leverage of 5.2x down from 5.8x when we emerged from bankruptcy.

And in today's Press Release we announced that we had completed a $25 million discounted debt prepayment at a 1.5% discount to further reduce or debt and we plan to continue voluntary debt repayments with cash from operations throughout the year.

And lastly, with the proceeds we expect to realize from our station sales to EMF, net leverage will be reduced by about a quarter of the turn. Since our last call we've been asked a number of questions about the implications of the restructuring transaction on our future cash taxes.

Ultimately we were able to structure the transaction as a full asset sale, which allowed us to step up the tax basis of all our assets across the platform. The practical result of all this is that our previously existing NOLs were fully utilized in the transaction, but our cash tax profile going forward will be much better.

Our future operating results will obviously factor into determining what our cash taxes will be, but in the near term we estimate that our cash taxes will total just over $40 million in aggregate for the next three years 2019, 2020 and 2021 with the payments this year a little higher than in the next two years.

Another key item of interests since our last earnings call has been the status of the Petition of Declaratory Ruling that we filed with the SEC. This is the filing we made to request that the SEC allow higher foreign ownership in our stock.

Our current equity share structure which consists of Class A and B shares in Series 1 and Series 2 warrants was crafted to comply with the rule. However to allow certain changes to that structure, we filed the petition for Declaratory Ruling on July 19.

Grant of our request involves not only the approval of the SEC, but also the review of an ad hoc committee consisting of representatives of various departments and other offices within the executive branch.

Given the SEC, the recent SEC shut down, which of course delayed the process, we believe a reasonable expectation in your response to our request - we believe that reasonable expectation is that we'll hear a response to our request by the end of 2019.

Finally as it relates to the DC land sale, there isn’t really any new information to report since our last call. You may remember that the development project for our buyer Toll Brothers continues to face opposition with community organizations regularly appealing any approvals Toll has received for its development project.

That has continued and since our last call Toll received another approval for its project, but as expected that was also appealed. As a result we've been exploring a number of potential options to monetize this property efficiently and for the best value possible.

We still view the property as a valuable asset that can be sold to raise cash and pay down debt and will continue to keep you updated on our progress as we have more to share. With that, we'd like to open up the line for Q&A. Operator, can you please open up the line for our first question. .

The first question is coming from the line of Aaron Watts..

Hey everyone, thanks for all the detail. I wanted to ask you just broadly about the advertising environment as you exit 2018 and we embark on 2019. Locals been a little bit weak, not just for you, but for others.

Is there anything you can do in the face of that to help bring it back towards neutral or even a positive place and maybe you can also talk about what's been giving some of the strength of late on the national side as well. .

Sure, that's a great question, thanks Aaron. You know with regard to the market, it's been you know pretty consistently – the local spot has been consistently week and it’s not driven by any one thing.

In terms of the, you know our strategic priorities are designed to continue to drive market share in our core business and you know we have seen some shift. As you’ve seen we had some strength in our national and network market place and so you know we certainly are focused on that.

I think probably for us, we can't control the markets or the local markets, but for us our pricing and inventory strategy is key to mitigating that softness, because we are able to take our inventory and sell advertising where it makes more sense in terms of high margin advertising.

So what you saw is, we were able to grow our national spot which offset some of the local softness and network advertising into our inventory pie..

Okay, that’s helpful. And maybe I can just ask you maybe be a bigger picture question. You mention deregulation in your comments.

How likely, based on what you are hearing do you think that is as far as the 2019 event and to the extent that it doesn't happen in 2019, do you feel there are more spot or opportunities to optimize the portfolio further ahead of that deregulation to help kind of bring down leverage on the balance sheet. .

Yeah, I mean no question that the regulation of the industry is pretty outdated and we don’t have a crystal ball, nor does anyone else and we continue to track it very, very closely. But I think the general expectation is that the SEC will put forth some level of deregulation likely toward the end of the year, if not the beginning of 2020.

I think what will happen certainly for us and I'm assuming for everyone else is will there be a rationalization of market positions and we'd expect certainly to participate in that. .

Okay, great. Thank you very much. .

Next question is from the line of Michael Kupinski. Your line is open. .

Thank you. I'm going to touch back on the national versus local spot dynamic. Typically national when it tended to be strong, tended to look forward in terms of the economy and the local kind of you know lagged a little bit. But in the case of 2018 it seemed like national was doing quite well and local just never got any traction.

Do you think that local is tending to lag a little bit here or if that dynamic, that historic dynamic that has always been around doesn't seem to apply anymore?.

Yeah, you know I think there’s been – there’s certainly a local shift you know in the retail market place for sure. I think you know it continues to – again, it's not one thing that we're seeing and it really depends on the market. You know we see strength and what you were to expect for this not as much of an effect on you know the retail dynamics.

So for example we see strength in professional services, you know dentists, lawyers, hospital, very, very local businesses and you know weaker performance in areas where you started to see a shift, you know automotive for example.

So you know again, I just have to emphasize that it is a different dynamic certainly than the market seemed before, which is why our pricing and inventory and our ability to manage our inventory is so important and with sell advertising from any of the channels where we have you know our sales effort and that’s what you saw in terms of our performance is you know we’re able to offset some of that local weakness with national spot advertising and network advertising.

.

Can you talk a little bit about the ratings for the company, whether it be through the PPM markets or the diary markets and how they progressed through 2018 and just kind of how the recent books have looked?.

Yeah, I mean you know – I think the high level we’ve gained back most of the share that was lost from 2012 to 2015 time frame and now we're nearly back to those levels.

We experience fluctuations quarter-to-quarter and also fluctuations between the PPM and the diary markets as you'd expect, but in general we're continuing to see ratings share performance where it matters most. So in our PPM markets we focus our efforts where the ratings will have the highest impact, which is our largest music station.

They have a much higher percentage of their business that's ratings dependent than as the case with spoken word, and those stations as a group gained rating share in 2018. In the diary markets, we had a good fall book with growth in share that should help the smaller markets going into the first half of the year. .

And is there a way to kind of give us a framework about the opportunity with the C-Suite product services that you’ve recently rolled-out to kind of give us an idea of what the contribution and also what the kind of contribution margin given the fact that you indicated that their profitable, what that might be at this point?.

Well, you know we don't disclose you know the actual profit margin, but from day one, from product one we've been profitable in all of our digital initiatives and to help you frame it we’ve said this publicly before, the industry currently derives an estimated, about 8% of its revenue – net revenue from digital.

At Cumulus we are about 5%, and as I said we're growing very rapidly. So hopefully that helps you to peg it. .

And in terms of the advertising guarantee that you guys have been granting and it seems like you are rolling it out, is there a way to quantify whether or not this program is actually, you know how it has performed, I don't know if there's a way to quantify that or not, but….

Yeah, I mean you know I would characterize it as early days, but we're encouraged. You know we launched it as I said in November. We launched to 65 markets. We are now rolling it out to all markets, so to 88 markets. You know 100s of formal proposals, you know a number of sales.

You know we started with certain categories, medical, legal, home services and now as is said in the prepared remarks, we are rolling it out to other category, so you know it’s early days, but I’d say we are encouraged.

The one thing it does for us is in a market where you know local marketing services are largely ubiquitous, it gives us a unique selling proposition in the market for our sales rep.

You know we are the only sales organization that can leave the conversation with will guarantee a minimum threshold of leads and that in of itself has been very, very helpful to our sales effort. .

The last question, in terms of radio, can you identify what is the percentage of your NTRs at this point, your non-traditional revenue?.

Yeah..

We don't break that out. .

We don’t break that out. .

Okay. I assume it's been growing, because you have – digital would be in that component you know so forth right, but in terms of....

Difficult to report....

You know we don’t think of digital. .

We don’t think of it as NTR, we think of it as its own..

Okay, well I’ll see if I can take that one offline. Thank you. .

Okay, thanks. .

It doesn’t look like anybody else in the queue.

I don’t know operator, do we have any other questions?.

We don’t have questions. [Operator Instructions]. .

Alright. Well, thanks everyone for joining today, and we will look forward to speaking with you again soon. So have a great evening. .

Thanks all participants for joining us today. We hope you find this webcast presentation informative. This concludes our webcast. You may now disconnect.

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