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 first quarter 2019 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 and Form 10-Q, both of which were filed earlier this afternoon. A recording of today's call will be available for about a month.

And 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..

Thanks, Collin. Good afternoon, everyone. It has been a busy seven weeks since we last spoke and we're pleased to be reporting another strong quarter today.

Starting with our financial results, revenue increased 1.4% in the quarter, driven by strength international businesses, both at Westwood One and in national spot at the Station Group, as well as tremendous growth in digital, which maintain the acceleration of growth we experienced throughout 2018.

That revenue growth combined with continued rigorous expense management resulted in EBITDA growth of 3.8% in the quarter. We did have a small headwind from political in the quarter, though not as much as we will face later in the year, excluding political revenue was up 1.6% and EBITDA was up 4.7% for the quarter.

Overall, these results reflect solid execution against the three strategic priorities we've described for you previously.

First, enhancing operating performance that is our ability to maximize EBITDA by improving our efficiency on the revenue side, primarily through pricing and inventory management and improvements in sales execution, and by aggressively but thoughtfully reducing our costs profile. Second, growing our high potential, digital businesses.

And third, optimizing our asset portfolio by buying or swapping for assets that can help us obtain or expand market leadership positions, or divesting assets that are non-core or in markets where attaining a leadership position may be challenging.

The execution of those priorities is critical to helping us achieve our three key financial goals, generating as much as $100 million of free cash flow per year, reducing net leverage to below 4 times as quickly as possible, and reinvesting in new opportunities with meaningful growth or valuation potential.

We will focus today on some of the efforts within these strategies that drove this quarter's results and will continue to help us going forward. First, our pricing and inventory initiatives continued to pay dividends in the quarter.

We now have nearly 90% of our revenue on the new traffic and billing system and this deployment combined with the business analytics tools and revenue management organization we developed have dramatically increased the insights we have into our pricing and sell out patterns and our ability to take action to improve the yield on our inventory.

While we are still in the early innings of what these capabilities can deliver over the longer term, in the quarter we were able to identify several opportunities that contributed incrementally to the top line, including the creation of custom networks and other products tailored to specific client demand.

On the expense side, of course, we always face upward pressure from inflation, contractual escalators, required investments, and higher variable costs on digital revenue. This requires us to be relentless in our efforts to offset those increases, including through contract renegotiations, process improvements, and technology enhancements.

In that vein, we were able to offset much of the built-in cost pressure, holding costs escalation in the quarter to approximately $2 million or 1%. This result was produced through the aggregation of many, many small costs initiatives, executed across all our businesses.

By necessity, we're continuing our institutional effort to develop and implement more of these, and also technology and business process focused cost reduction strategies. Proven cost management doesn't mean that we aren't focused on making smart investments in areas we think will strengthen the company's capabilities and potential.

To that end, we continue to invest in our digital capabilities and infrastructure, especially around streaming and podcasting. Talent is another one of those areas. We recently announced the hiring of two terrific executives, whom we believe had the experience and skills to make significant contributions to our top and bottom line performance.

On Monday, we announced that Brian Philips is joining us as Executive Vice President of Content and Audience, responsible for programming. Brian brings more than 30 years of leadership and programming experience across a range of different media.

He was recently at Viacom, serving as President of CMT, where he led a successful launch of long form script series, tentpole award shows, concert specials, featured films and CMT’s national radio network.

Under his stewardship, CMT grew from 36 million to a peak of 90 million homes and set the record for the longest documented ratings growth streak among ad supported cable networks.

Prior to his work in television and film production, Brian worked for more than 15 years leading radio programming at a number of major market stations, including several stations that we still own in Atlanta and Dallas.

Earlier in the quarter, we also made another important content and programming hire, John Wordock, who we brought on as Executive Editor of our Podcasting business.

In multi award winning journalist, John comes to us with a wealth of experience in the space, having run the Wall Street Journal and marketwatch.com radio networks, as well as the Wall Street Journal Podcasting business.

During his tenure at the Journal, he launched several very successful podcasts including the chart topping and award winning the Future of Everything. And he grew Wall Street Journal's monthly podcast audience by over 2,000%. So far in 2019, we continue to see the same strong growth in the podcast that we have enjoyed since we started the business.

As the exclusive partner for over 40 podcasts we've generated nearly 52 million downloads in March 2019, more than doubled the 23 million generated in March 2018. And that doesn't include our growing local podcast businesses. By our estimation, this will put us in the top five largest podcast companies measured by Pod Track in March.

What is particularly notable about this growth, is that, that we have been able to achieve it while maintaining profitability. On the topic of digital, we are continuing to generate exceptional growth across all of our platforms, with total digital revenue for the quarter growing 79% from the first quarter of last year.

Our streaming audience is growing steadily, driven by both organic listenership and increased distribution on the tune in platform. And we're monetizing this high margin digital inventory better and more broadly, through all of our channels, local, national network, programmatic exchanges and remnant networks as well.

Our local digital marketing services platform, which we call C-Suite is also maintaining its very steep red revenue growth trajectory to the tune of over 100% year-over-year revenue growth in Q1.

I should also point out that our revenue management function, which we've tended to talk about in relation to broadcast revenues, it's also provided a meaningful boost to our digital performance.

For example, we now have the ability to accurately track our attachment rates, providing us greater visibility into opportunities to upsell a digital component into a traditional radio broadcast order.

Since from a revenue perspective, we believe there's significant digital revenue upside from continuing to grow the attachment rates of our current advertiser base. Having this new level of insight is a high impact element of our sales execution strategy.

On the last call, we spent a little time on the Epic Guarantee the industry's first integrated local radio and digital lead guarantee program.

A few months in we're beginning to see results from this program and not just from the direct generation of sales, which amount to hundreds of thousands of dollars at this point, but also because our willingness to guarantee results up front is differentiating, differentiating us from other local competitors, and helping our sellers bring clients back to radio or increase their willingness to boost their digital spend.

We launched the Epic Guarantee last November in a subset of home and professional services categories, and our performance since that launch has encouraged us to expand Epic to new advertiser categories.

Since our last call, we have launched it in financial services, which includes CPAs, tax accountants, mortgage lenders, financial planners and insurance agencies with more to come. The last area I want to highlight for today's call is portfolio optimization.

John, will give some more details on the activity we've announced as the year began, but I'll hit the high points here. Previously, we announced two strategic debt depth divestitures generating over $120 million in net proceeds, which we expect to receive in the next several months.

Collectively, the stations involved contributed less than $11 billion of annual EBITDA. So the sale transactions are highly accretive to the company. Additionally, we executed two slots, one with Entercom and one with Connoisseur Media to meaningfully enhance our positions in Indianapolis and in the Allentown and Lehigh Valley area.

We believe the bolstering our presence in both these markets sets us up well for long-term success and with synergies, the transactions are nicely accretive in the short-term.

We would expect to execute more of these types of portfolio optimization transactions as time goes on, continuing to employ a disciplined and strategic approach to any opportunity that we develop or that comes our way. Also, and notably, in this quarter, we've continued to make progress on net leverage reduction.

Our trailing net leverage as a 3/31/19 pro forma for the announced acquisitions is down to 4.8 times. As a reminder, an emergence from bankruptcy less than a year ago, we had a net leverage of 5.8 times. So we're very pleased with the progress that has been made to aggressively reduce leverage.

Finally, as we look ahead into Q2 as up today, pacing is slightly negative, but essentially flat on an ex-political basis. It's a bit noisy this quarter for us given all of our M&A activity, but this pacing number is essentially on a same station basis, reflecting the operations that we will have going forward.

Therefore, it removes the impacts of the stations that are pre-sold to EMF and also KLOS FM, as well as NASH FM in New York and Springfield which are going to Entercom and Bridgeport, which is going to Connoisseur. And the flip side includes the pacing for the Indianapolis and Allentown stations from Entercom and Connoisseur.

Our Q2 reported numbers will obviously be presenting a slightly different basis, but will give the comparable same station numbers at that time. So with that, I'll now turn the call over to John for a deeper financial review, after which we will open up the line for questions.

John?.

Great, thank you, Mary. I'll give a bit more color on our financial results before covering a few additional items related to cash flow, debt and M&A.

One overarching point to make first is that all the numbers I'll talk about are on an as reported basis, meaning they're not adjusted in any way, including for the sales or swap transactions that we've announced, unless I specifically call out any adjustments.

As Mary noted, total revenue in the first quarter was $267.5 million, an increase of $3.8 million or 1.4% from Q1 2018. As you know, 2019 is all cycle year for political revenue and Q1 is not a big quarter for political revenue, but excluding political we were up $4.2 million or 1.6% from Q1 2018.

Total Expenses increased $2.3 million or 1% from Q1, primarily driven by variable revenue related costs in our digital businesses and at Westwood One, partially offset by cost savings across both the content and SG&A expense lines. As a result, consolidated EBITDA for the quarter increased $1.5 million or 3.8% from Q1 last year.

Adjusting for political consolidated EBITDA grew by $1.8 million or 4.7% in the quarter. Looking at the numbers by business unit, starting with the Cumulus Radio Station Group, we continue to experience a tough local spot market environment, partially offset by strength in digital and national revenue.

Total revenue for the Cumulus Radio Station Group declined $1.7 million or 1% to $166.5 million from first quarter last year, and excluding political, Station Group revenue was down $1.3 million or 0.8%.

I would note, however, that the impact of political will grow in Q2 when we will compare against nearly $4 million of political revenue in Q2 last year, whereas in the first quarter, we were only comping against $1.2 million of political revenue last year.

Moving to expenses, Station Group expenses were essentially flat with higher costs associated with higher digital revenue, offset by continued cost savings realized against contracts that were renegotiated or terminated over the last year and lower personnel related expenses.

We also experienced some cost pressure from rent increases associated with the new lease accounting standard, and fresh start counting from our bankruptcy last year.

The combined impact of the revenue and expense changes yielded a Station Group EBITDA decrease of $1.8 million or 5% in the quarter and a decrease of $1.5 million or 4.3%, excluding political.

Turning to Westwood One, the network business produced another solid quarter with revenue growth -- revenue growing $5.6 million or 5.9% from first quarter of last year.

This increase was driven mostly by growth in the core ad sales business and podcasting, partially offset by the negative comparison to last year when we had revenue from the Olympics.

On the expense side, operating expenses increased at Westwood One by $2.3 million or 2.8%, with the largest increases coming from variable content costs related to increased revenue, partially offset by the favorable comparison on the expense side associated with the Olympics and a reduction in bad debt costs.

Combined the solid revenue growth and relatively modest expense increases produced another quarter of very strong EBITDA growth at Westwood One, up $3.3 million, or 26% year-over-year. Moving off the P&L, in Q1 2019 we spend about $5.1 million on CapEx and we continue to think we'll spend $20 million to $25 million in CapEx for the full year.

In February, we completed a $25 million discounted prepayment, which was executed at a 1.5% discount. That reduced our debt to $1,215 million at quarter end. And our net debt was almost exactly $1.2 billion. Our net leverage was 5.1 times at the end of the quarter, down from 5.2 times at the end of 2018.

We have been and will be generating strong free cash flow from our operations and our priority for that cash will continue to be paying down debt. At this point, I'm going to turn it over to Collin to cover a few of the other items. Thanks..

Thanks, John. Since the beginning of the year, we've announced two divestitures whose net proceeds will be used to pay down debt further. The first divestiture Educational Media Foundation is for gross processed of $103.5 million and expected net proceeds of $80 million to $90 million.

We have said previously that the six stations involved in this sale contributed $25 million to $27 million in revenue, and $5 million to $7 million in EBITDA on an annual basis. The second divestiture announced in mid-April is the sale of KLOS FM to Meruelo Media for $43 million in gross proceeds.

We expect net proceeds to be in the mid to high $30 million. This station contributed $17 million to $19 million of revenue annually and had nearly $5 million of attributable EBITDA annually.

We intent to use the net proceeds for both the sales to pay down debt as soon as they close, which would result in an LTM 331 net leverage ratio of about 4.8 times, pro forma for that additional debt reduction and the EBITDA that goes away.

Additionally, as Mary noted, we announced two strategic swaps in the quarter, one with Entercom where we traded three stations in two markets for their Indianapolis cluster and one with Connoisseur, where we traded our Bridgeport cluster for their Allentown cluster.

From a financial standpoint, these were both essentially equivalent cash flow swaps, so there isn't any immediate impact from those. However, in both swaps, we are now the clear leader in the two markets where we gain stations, which positions us well for long-term success in those markets.

And there are, of course, some expense synergies from the swaps which will benefit both markets as well. The last item to note on the M&A front is the DC land sale.

As we've discussed on previous calls, the development plans of our buyer Toll Brothers continue to face opposition, with community organizations regularly appealing any approvals Toll has received to-date. That delay has forced us to explore all of the potential options to monetize this property efficiently and for the best value possible.

We continue to be in discussions with Toll Brothers and are optimistic that we will be able to reach a new agreement that is attractive to both parties. We still view this property as valuable asset that can be sold to raise cash and pay down debt. And we'll keep you updated on our progress as we have more to share.

Finally, just to touch on the status of the petition for declaratory ruling that we filed with the SEC, our current equity share structure, which consists of Class A shares, Class B shares, Series 1 warrants, and Series 2 warrants was crafted to comply with the rule that limits foreign ownership to 25%.

However, to allow higher foreign ownership in our stock then permitted under the rule, we filed the petition for declaratory ruling on July 19 of last year.

Grant for 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.

We believe the process is progressing but do not have an updated view on timeline for definitive response beyond what we said historically which is at a reasonable expectation is to hear response to our requests by the end of 2019. At this point, we'd like to open up the line for Q&A. Operator, we're ready for our first question..

Okay, first question comes from the line of Zack Silver. Your line is now open..

Okay, great. Thank you very much for taking the question. On the 2Q pay things outlook, just wondering if you can help break down the components of that between local and national. And then I don't know if it is even possible but maybe how that compares to sort of the industry average in your market that'd be very helpful..

Sure. Hi, Zack. Total pacing -- yeah, this is Mary. Total pacing normalizing for the transactions is, as we said, is approximately flat slightly down. Westwood One continues to perform relatively better than the Station Group. The Station Group’s pacing continues to be pressured by local, but national and digital are somewhat offsetting.

Most of our other revenue data comes in a rear, so there's not much -- more color that we can give..

Got it. Okay. And then on. I mean, Westwood One the growth there was, particularly impressive given that you were comping at the Olympics last year. And I don't know that you kind of gave a breakdown between sort of the broadcast and the podcast side.

But what was -- if you could provide some more detail on what was driving that growth, and whether you think that is maybe sustainable over the balance of the year?.

Okay. Yes, we don't break out the podcast business from the network business, but I would say that that in the network channels as others have noted, P&G spending has been meaningful. And so the network marketplace continues to be lifted by the entrance of P&G into that space.

We're also seeing more small advertisers buying the network than we have previously seen, in first quarter the total number of advertisers was up 18% number of advertisers. So we're seeing a very robust network marketplace.

I think one of the things that's been encouraging, is that P&G is an industry leader, so we're watching to see if they're very outspoken supportive the medium attracts other CPG advertisers to the space. And the fact that we've gotten more advertisers in the quarter speaks to that. We were hoping that's what that trend is showing..

That's very helpful. Thank you. And then one more, if I could, just on the portfolio optimization. We may see some meaningful deregulation from the SEC at the end of this year, early next year.

And I think the DOJ is kind of talking through their -- the way that they look at media markets, and I'm just curious if you have a view on -- if there is an opportunity for you to either swap into new markets or to either acquire divest stations.

Do you have a view on whether you prefer small markets, large markets and assuming that you can delever whether you'd be a buyer or a seller station at this point..

It's kind of two parts. I mean, the DOJ had their hearing, as you know, a hearing last week, and we're glad that they're exploring their position because we believe that as it stands, it's outdated.

But, with regard to the SEC loosening the ownership rules, for starter, we certainly hope that they do take action necessary to loosen the ownership rules, we think it would be good for the industry and we think it would be good for Cumulus.

So, in terms of how we react to it, we just think that it would open up possibilities for us to execute our portfolio optimization strategy to a greater magnitude.

Right now it's tough to find swaps today that lineup cash flow and where the trade on each side makes sense and we think we've been very fortunate to find two of those so far we’d hope to find more. So ultimately, our goal is to achieve market leading positions number one or two, where we can and if it makes sense to us to exit where we can.

So there isn't a certain -- there's not a stated goal one way or another as to whether we are more of a buyer or of a seller stations it's really or even whether we're focused on smaller or larger markets, which is why we referred to the strategy as a portfolio optimization strategy.

So really no point of view or stated strategy large, small buyer seller..

Got it, thank you very much..

You next question is from the line of Marci Ryvicker. Your line is now open. .

Thanks. I just want to be clear on the second quarter pace that's down, I guess, flat excluding political.

Is both the radio stations and Westwood One down or flat?.

Marci, we just give the -- this is Collin, we just gave the consolidated pacing, it's down slightly and flat ex-political. Westwood One is performing relatively better, so given its flat they’re up and then the Station Group -- and really driven by the local side national and digital stronger are offsetting that. .

Can you remind me so much local is as a percent of total revenue?.

We haven't broken that out for some time and that's shifted as time has gone on. It is the majority of the Station Group, but we haven't broken that out more specifically recently. .

Okay.

And I may ask you another question where you don't have it, but for 2018 do you have a pro forma revenue and EBITDA number based on all the transactions that you've done?.

Yes, I mean, this is John. The numbers that we provided is sort of the full year impact of the sales are, I think, pretty good numbers that you can use….

Okay, so we just add all them up. Okay. .

Yes, the swaps you can think of is cash flow even swaps, as we said..

Okay. And then Mary, you talked about high margin digital, and there was some nice margin expansion, I think, year-over-year in this quarter. How should we think about margins going forward? I know it's tougher when revenue is not up to see margin expansion, but as digital becomes a bigger percent of revenue.

Should we see margin expansion over the long-term?.

Well, I think it depends. We don't break out the three different buckets of our digital strategy, which includes -- and they all have varied, various margin profiles. Streaming tends to mirror slightly less margin than broadcast radio noise slightly. And then podcasting is profitable.

As I said, we haven't shared the margin on that, but less than broadcast and did offer for C-Suite..

So, I mean, to -- and this is John, as we are growing, those are our areas of growth to the extent those margins are lower than broadcast revenue growth, right, that does pressure margin. And so we're -- hence the part of our strategy that's very focused on expense controls and being really rigorous about -- on the expense side.

Because we're obviously focused on the bottom line, not just the top line..

Thank you very much. .

Yes..

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

Thank you for taking the questions.

In terms of you CapEx guidance for the year the $25 million, how much of that is maintenance CapEx, and how much is related to maybe some of your digital technology investments?.

Yes, very little of it is related to digital technology type investments. Most of those investments on the digital side are OpEx. So, the vast majority of CapEx for, I think, for the radio business in general is tend to be maintenance capital. And certainly is for us, given some of the catch up we've been undertaking the past number of years. .

Got you. And then, I was wondering if you can talk a little bit about your aggregate ratings for the stations.

Can you give us some color on how the ratings performance of the stations have been doing?.

Yes, we we've gained back most of the share that was lost from 2012-2015 timeframe and now we're back up near to those levels. I would we experienced fluctuations quarter-to-quarter and also between PPM and diary markets as you would expect. But in general, we're continuing to see ratings share performance, where it matters most.

In our PPM markets, we focus our efforts where the ratings have the highest impact so our largest music stations, which have a much higher percentage of their business that's rating dependent than in the case of spoken word. And those stations for the group have been gaining rating share over the last several quarters.

In the diary markets, we had a good fall book with growth as well..

And Mary, in terms of the advertising pacings for the second quarter, and relative to the ratings, are you seeing better performance in some of your larger markets versus smaller markets, your PPM markets versus direct markets? Or if anything in terms of possibly geographic performance, any of that?.

This is John, we don't break out on that basis. But I would also say that there are no noteworthy trends that we've identified that that we would highlight for you..

Okay, that's all I had. Thank you..

There are no further questions at this time. Please continue..

Okay, thanks. Thank you everyone for joining today. And we look forward to speaking with you again soon. Have a great evening..

This concludes today's conference call. Have a good day..