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, everyone, to our third quarter 2019 earnings conference call. 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. In addition, we'll also use certain non-GAAP financial measures.

We believe the supplementary information is useful to investors although it should not be considered superior to the measures presented in accordance with GAAP. A full description of these risks as well as financial reconciliations to non-GAAP terms are in our press release and SEC filings.

The press release can be found in the Investor Relations portion of our website and our SEC filings, including our Form 10-Q, will be available tomorrow morning. A recording of today's call will be available for about a month. Details for how to access that replay can also be found on our website.

With that, I now turn it over to our President and CEO, Mary Berner.

Mary?.

Thanks, Collin. And thanks everyone for joining us on Veterans Day. Before we start, I like to acknowledge and thank all of the men and women who have served and are serving in our armed forces, including our CFO, John Abbot, who joins me today. We are happy to reporting another quarter of strong results today.

Revenue in the quarter was up 3.9% and EBITDA was up 2.2% on a same station basis, excluding political. This performance was driven primarily by increases in our digital businesses, as well as in national spot and network broadcast revenue channels.

On the expense side net increases were predominantly driven by the variable costs of our growing revenue streams, and certain other onetime increases. Our EBITDA growth reflects continued and focused execution against our key strategic priorities which I'll update you on shortly.

But before I do, you'll note in our 10-Q and press release, that this quarter we have moved to reporting on a single segment basis, with more detail provided on our revenue streams than presented previously.

During the quarter we assess the appropriateness of our segment reporting in light of changes and how the company is organized and how we operate the business and concluded that we have one reportable segment. Say it another way, this reporting change was necessary because we operate the business through a single company lens.

And as reflected in this year's financial performance.

This approach has yielded many benefits, ranging from the incremental revenue gain by moving inventory among all of our channels, to the more efficient operations derived from managing important functions or initiatives, such as finance and accounting, digital and revenue and expense management with a holistic view of the company.

And as I said, in addition to the enhanced level of disclosure we've been providing in the last quarter or two we are now also providing more detailed than we had previously on our revenue streams. And we believe that you will find it more helpful than the old segment reporting that becomes less reflective of how we operate the business.

So, back to the drivers of the performance in the quarter. Our multi-pronged digital strategy continues to result in meaningful and profitable revenue growth, with combined digital revenue growing 51% in the quarter.

C-Suite, our local digital marketing services platform and our streaming business both reached milestones in September, each booking over $2 million of revenue that month.

Collectively, these revenue lines grew 40% in the quarter as we capitalize on the evolution of our local sales efforts to more deeply engage in the relationships, we have with over 30,000 local businesses by selling marketing solutions that combine radio and digital products.

We do this with a relentless corporate focus on ensuring strong and efficient execution. For example, to make integrate radio and digital campaigns easier for both our local sales organization to sell and our local advertisers to buy.

This quarter we introduced the Cumulus creative concierge an exclusive white label platform that provides coordinated spot and digital creative to local advertisers, significantly simplifying the process of selling and buying those integrated advertising campaigns.

In September, we also saw the highest percentage of streaming and C-Suite attachment that we've experienced to-date.

And by attachment, I mean that nearly 40% of our local direct clients also bought a streaming schedule, and almost 10% bought a C-Suite product reflective of the increasing value we're able to derive from our customer relationships, as we offer additional products and services that meet their needs.

In fact we firmly believe that our demonstrated ability to constantly evolve our sales capabilities and digital products set will bear additional dividends in the future in the form of more clients, stronger customer relationships and even higher attachment rates.

Also on the digital side, we are the fastest organically growing podcast network in the US, with nearly 70 million monthly downloads, and approximately 85% revenue growth in the quarter. This rapid growth puts us on track to deliver over $25 million in revenue this year.

And I would reiterate that our podcasting business has been nicely profitable from the beginning and continues to contribute to our positive EBITDA momentum.

For a podcasting content perspective, we have built a stronghold in the news talk vertical, anchored by The Ben Shapiro Show, which consistently ranks in the top five each month among over 750,000 podcasts.

More recently, we also announced expansions in several other content areas, including sports, where we kicked off a podcast partnership with Pat McAfee, former NFL pro bowler, standup comedian and social media star and also developed a weekday radio show with him for syndication.

We've also launched an eSports podcast with Kevin [indiscernible] one of the most popular and experienced color commentators in the rapidly growing eGaming space.

And in the life and entertainment category, we partner with Lemonada network an exciting new podcast content company cofounded by the Executive Producer of Pod Save the People, which in September, debuted its first podcast called Last Day, right out of the gate competing against some of the biggest and well known podcasts it ranked in the top 10 in its category.

As we sit here today, we view each of our three digital businesses as critical to the growth of both our top and bottom line with revenue divided among the three roughly a third, a third, a third. To give you a little additional color, streaming is our highest margin digital business with contribution margins comparable to core broadcast radio.

Podcast is our lowest margin digital business, but we still generate a healthy margin and have from the beginning. And C-Suite contribution margins fall in between these two. Investing in these digital initiatives remains a key element of our long term growth strategy.

Alongside these initiatives, we continue to make progress in enhancing our operating performance in the core business. This quarter, we fully completed the traffic and inventory system rollouts to our radio stations that started nearly two years ago.

A system's change and organizational build out like this is always a significant undertaking, but the payoff has been great.

In Q3 alone, thanks to our new cross platform pricing and yield management capabilities, we generated over $6 million in incremental high margin revenue, largely from opportunistic bespoke national and network advertising vehicles that we developed to meet or sometimes generate advertiser demand.

To be clear, without the benefit of our new systems and tools, we simply could not have delivered this incremental revenue. It's also worth calling out some other meaningful contributions in the quarter from some of our standout stations and brands.

Our best performing markets for the quarter where Chicago, Cincinnati, DC, Indianapolis and Baton Rouge. And speaking of Indianapolis, I would also note that we are continuing to benefit from the swap transactions that we completed in Q2.

The station we flipped to rock format to fill a gap in the market is enjoying ratings increases of over 100% year over year, with multiple consecutive months of impressive ratings growth. And across the entire Indianapolis cluster on a same station basis, we grew by double digits in the quarter.

In Allentown, the other market we expanded for swap transaction, we mentioned last quarter that WODE-FM posted a number one in the spring book and that ratings traction converted to revenue share gains in September for the market.

In a number of other markets we've also made some significant programming moves under our new Programming Head Brian Philips. A few examples. In San Francisco, we've been working to cement the leading position of our heritage sports brand KNBR.

We signed Greg Papa voice of the 49ers to a multiyear deal and then added FM distribution to the station by flipping KFOG-FM to a simulcasts of KNBR. In its first month on the FM band rating share for KNBR skyrocketed, up 73% year over year.

We also recently resigned our powerhouse morning show in Houston, The Roulette and Ryan Show on KRBE-FM to a multiyear deal, securing the station's leading position in the market. Notably KRBE also received a Marconi award this year, radios most prestigious annual award for CHR Station of the Year.

In fact, this year Cumulus stations received a record number of nominations with KIPR-FM Power 92 Jams and Little Rock also winning for medium market station of the year. It's also important to note the strong position of our news talk platform.

Our stations grew rating share every month this year and our powerhouse news talk network syndication roster, which includes Mark Levin, Michael Savage and Ben Shapiro had also performed very well.

In particular Ben Shapiro's success in the 18 to 49 demo has been impressive, with listenership up more than 60% in the simulcasts broadcast of his podcast, and up over 40% is live show from the fall 2018, spring 2019 book.

In aggregate our strength in news talk positions us particularly well for what we expect to be a very robust political environment as we countdown to the 2020 elections.

These highlights and our continued strong performance are a testament to the great execution by everyone at Cumulus and indicative of the focus and energy the whole team applies to our strategic priorities. And we believe that these priorities support our financial goals, which are singularly focused on driving value for shareholders.

Our top financial goal is to maximize free cash flow, which largely comes from the EBITDA that’s generated by the operating parties. And our second financial goal is to pay down debt and to reduce leverage before below four times. And in pursuit of these goals this quarter, we completed an opportunistic term loan refinancing.

And with the bond deal we compete completed in June, we have fully refinanced our exit term loan facility. Our capital structure now has a 2026 maturity profile with lower interest rates than we had at emergence and 4.5 times net leverage, down nearly a turn and a half from last summer.

Doing the simple math, we pay down $275 million of debt, which with around 20 million shares outstanding translates into $13.75 per share of value from debt pay down since we emerged from bankruptcy. So we think we're doing the right things.

And we're confident that our focus on these financial goals, fueled by strong execution against our strategic priorities will drive value for our stakeholders in the long term. Looking forward to the fourth quarter, we are seeing pacing down low single digits on a same station basis, excluding political.

Political is about a 300 basis point headwind at this point. The quarter got off to a sluggish start, where we saw declines in advertiser demand that we believe reflected the macroeconomic and political uncertainty that has dominated the news cycle.

That said, when considering our performance in Q3, and outlook for Q4, we are confident that we will exceed consensus EBITDA estimates for the year. And with that, I'll turn the call over to John..

Great. Thank you, Mary. As with prior quarters for the sake of comparability, I'll speak to our financials on a same station basis, adjusting last year's numbers for all of the M&A transactions that we've completed.

I would note though, that our numbers are not adjusted for the announced sale of WABC to Red Apple Media, which we hope to close this quarter. As Mary indicated - as Mary mentioned, the way that we're now operating the business is one unified platform necessitated a reporting change to a single segment this quarter.

However, we do expect that the new presentation of the financials will be more valuable to you. And to help with your modeling I would point you to the last few pages of the press release to see a historical quarter by quarter breakdown of the new revenue presentation.

Of course, please feel free to reach out to Collin or me if you have any questions, bridging the old format to the new. One other item to note and probably mentioned is, SEC is closed for Veterans Day. So our 10-Q won't be available today, but it should be available first thing tomorrow morning. With that moving to the financials.

Total revenue for the quarter, excluding political was up $10.5 million, or 3.9%. The Quarter had similar characteristics as last quarter in that national spot led from a broadcast revenue standpoint, up double digits, network revenue was up nearly 5%.

And digital, which includes C-Suite streaming and podcasting was up 51% which led the industry this quarter. And as Mary mentioned, revenue management initiatives directly contributed about $6 million of the national spot in network growth.

These positive drivers were partially offset by a continuation of market driven challenges in local spot revenue performance. Including the impact of political total revenue was up $8.6 million or 3.2% from Q3 of 2018. We were up against the political comparison of about $3.6 million last year, and we did about $1.7 million of political this year.

Moving down the P&L, total expenses were up in the quarter by $9.1 million, or 4.3%. The biggest driver of this increase in the quarter with higher variable cost on digital revenue increases and other growing revenue streams.

I would characterize the remaining expense increases is largely one time in nature, including an increase in bad debt expense resulting from higher right offs, particularly the FTD bankruptcy which accounted for almost half of our increase in bad debt; the increase in amortization of new local commission's; comparisons against credits in certain expense lines last year; and external or largely uncontrollable expense increases like increases in health care costs.

EBITDA for the quarter on a same station basis and excluding political was up $1.2 million or 2.2%. Without normalizing for political, EBITDA came in at $58.7 million, a decline of $500,000 or 0.8% year-over-year. As a reminder, the M&A activity from earlier this year will also impact compatibility as we look into fourth quarter.

So to help your modeling the M&A adjusted numbers for Q4 2018, including political are $298.6 million and $62.3 million for total revenue and EBITDA respectively. In Q4 last year, we had $11.3 million of political revenue on a same station basis. And as Mary mentioned, that comp is providing about a 300 basis points headwind to pacing currently.

Moving off to P&L. In Q3 this year, we spent about $6.7 million on CapEx. And we expect to spend a little more than $25 million on CapEx for the full year. Turning to the balance sheet, where we've continued to be very active. We've now fully refinanced our exit term loan facility.

In late September, we completed a $525 million term loan refinancing, which was accompanied by a $29 million voluntary prepayment to fully retire the old term loan. The new term loan bears interest at a rate of LIBOR plus 375, which of course is a reduction from our old rate of LIBOR plus 450. And the new-term loan has maturity of March 31, 2026.

And we now have net leverage of 4.5 times and total debt of $1.25 billion, which is a reduction of $275 million since emergence from bankruptcy or as Mary mentioned and the way we like to look at it $13.75 per share of value from debt pay down.

Looking ahead to additional opportunities for cash generation, I wanted to provide you with an update on the DC land sale. As we've discussed on previous calls, the development plans of our buyer Toll Brothers have faced and continue to face opposition from community organizations appealing the approvals that toll has received to-date.

Last quarter, we noted that there was positive progress, as one of those appeals was dismissed. In early October, the court heard final arguments on the other active appeal, and we expect to get a ruling on that sometime later in Q4 or in Q1 next year.

And we remain optimistic that with a positive outcome from that ruling we will be able to reach a firm commitment with Toll Brothers that's attractive to both parties. As we've said before, we continue to believe that there's value to be unlocked in selling this property and we'll keep you updated on our progress as we have more to share.

Now, I'd like to give you a brief update on the status of the petition for declaratory ruling that we filed with the FCC. Our current equity share structure, which consists of class A and B shares in series 1 and 2 warrants, was crafted to comply with the rule that limits foreign ownership to 25%.

However, to simplify the structure and accelerate conversions of warrants in to the class A shares that trade on NASDAQ, we filed the petition for declaratory ruling in July 2018 to allow higher foreign ownership in our stock then permitted under the rules.

Approval of our request involves not only the sign off by the FCC, but also the review of a group of representatives from the executive branch named Team Telecom. The FCC issued a public notice on our petition on May 21 2019. And the Team Telecom review started shortly thereafter.

No party other than Team Telecom has filed comments with respect to the petition, and the period for filing comments has closed. We're pretty far down the line in the process of responding to Team Telecom's data requests and questions.

And we hope to have resolution on the matter in the coming months, barring any unforeseen outcomes to the Team Telecom review. So at this point, we'd like to open up the line for Q&A. Operator, we're ready for the first question..

[Operator Instructions] Your first question comes from the line of Marci Ryvicker from Wolfe Research..

Thank you very much. I want to dig a little bit into digital because this was a very big positive surprise. You gave us the margins. Can you talk about the percent of revenue from streaming podcast and C-Suite that makes up the total digital number? That's the first question. And then secondly, you mentioned pacing down low singles.

But then you also said, you're going to hit consensus EBITDA. So that would imply that you are spending maybe less. I don't know if that's what you meant to imply.

But can you talk a little bit about cost control into the fourth quarter?.

Sure. Thanks, Marci. The percent of digital revenue is bifurcated roughly a third, a third, a third; training, podcasting and C-Suite. And, with regard to pacing on the fourth quarter, largely we're seeing similar trends that we've seen in prior quarters with local, the weakest at the stage.

Again, digital strength continuing, nationals also up and the network business continues to be lumpy. I'll let John take on the implication on consensus [indiscernible] about expenses..

Yeah. I don't know that there's a - the total consensus, I think for the year is right around $204 million. And we're very confident and feel good about hitting that number. I don't know if there was a specific question, maybe I missed around expenses..

I think it's because Mary had said that even though they're pacing down, you're still going to hit consensus EBITDA. So I wasn't sure if you were implying that you had more cost controls in the fourth quarter. So I didn't - I wasn't 100% sure what the reference to consensus EBITDA..

Yeah. I think we're talking about the whole year. And when you take into account our third quarter performance and our outlook for the fourth quarter, we feel good about the full year. I think it's really, really what we’re saying..

And I just have one follow-up on political. How does that $1.7 million in the third quarter compare - is there a comparison to….

For last year?.

For last year quarter?.

Yes..

Last year it was $3.6 million..

No, the year before. So like from an, are you getting more political in this [indiscernible]..

So over last off cycle here?.

Yes..

I don't have that in front of me, we’ll circle back with you on that..

Okay. Thank you..

Absolutely. Thank you..

Your next question comes from the line of Zach Silver from B. Riley FBR..

Okay, great. Thanks for taking the question. The first one is just on the pacing down low single. If you could give us some more detail on what - where you're seeing strength and where you're seeing weakness with categories? And then maybe too early for 2020, but I guess more qualitatively how you're feeling going into next year ex political..

Yeah. I mean, we don't have visibility into the category performance. And so after the fact it's a little early to call that right now. And as I said, we're largely seeing for fourth quarter this similar trends that we've seen in prior quarters at this point. Local continues to be the weakest at this stage. Digital is pacing nicely up. Nationals up.

And again, network is lumpy. And with regard to how we feel about 2020. Obviously, it's a political year. So we love political year. So especially processing what are anticipated to be frothy political years.

We're seeing some early political at this stage and we do expect it to ramp up with moving forward at some of the changes to certain states as they move forward to their primaries in 2020.

So I guess the way I would characterize 2020, and the way we're thinking about it now is at this stage, nothing leads us to believe that the trends that we've been seeing are likely to change materially into 2020. We certainly hope that the weakness in local spot abates, but we plan for it to continue.

We think nationals spot network should not have the potential to offset. And most - specifically for us, we expect to benefit or continue to benefit from our pricing and inventory management initiatives.

Unlike prior years, it should allow us to manage pricing and inventory utilization in 2020 much better than in previous years or previous political years. So we expect to be able to minimize spillage and maximize rate across the platform.

And we think that's especially important given the fact that reduction - because there's going to be a reduction in available impression, you're well aware, Twitter no ads, Facebook cutting back and there's going to be high demand with put pressure on pricing.

So, I think that's - it's a little too early to call but we don't - nothing leads us to believe that trends will change with the exception of political throughout the year..

Got it. And… Yeah. Go ahead John..

On the fourth quarter pacing, is I think we're seeing similar trends as you've probably heard from some other operators, right? Where was it reset, it was a slow start to the quarter. But looking better on the back end of the quarter so..

Got it. And then there's a, you made a comment in the prepared remarks about $6 million of high margin incremental revenue coming from your traffic and inventory upgrades.

What exactly was that? And is that something that you think is sustainable going forward?.

Yes, I mean, it's a capability or a platform. So essentially, we were able to participate in national deals with the visibility required into pricing and placement to ensure that we actually were driving incremental revenue, something we couldn't do before. So we were able to create new channel opportunities. So we created custom networks, for example.

So we can - because we have a bird's eye view of all of our inventory, we can scoop up and package that inventory to create demand in the marketplace or to fulfill demand. And so it's been - we certainly expect that to be a key driver of our, if not overall performance, certainly share..

Got it. Thank you very much..

Thank you. Your last question comes from the line of Michael Kupinski from Noble Capital Markets..

Thank you and congratulations on your hard work. First of all, I just want to ask a little bit about ratings. They remain stable at this time. You're not seeing any dynamic changes, especially in some of your higher contributing markets.

I know you mentioned, when we put up formats and so forth, but I was just wondering, in terms of ratings are they pretty stable now?.

Yes, I mean, I would characterize it as saying that we gain back most of the share that we lost from 2012 to '15. And we're back up near those levels. So our challenge at this point, as you point out is about maintaining and picking our battles where the ratings had the highest impact.

As I mentioned earlier, we're seeing real strength in our news talk platform currently, which we think positions us well going into the next year. Sports remains I said this before and prior calls, sports remains our biggest challenge right now on the locals side. And really, that's given the alternative ways to consume more sports content.

However, sports was a big driver for us earlier this year at Westwood One..

Got you. And then, obviously earlier in the year you began repositioning your portfolio. And I was just wondering since the course it's been a little quiet, is this a reflection of the fact that you've kind of settled in on your current portfolio or is there a lack of interest from other operators to swap or so.

Can you just kind of give us a sense of what your thoughts are regarding your portfolio at this time and what your plans are?.

Yes. Look, that remains just an important component of our strategic and operating strategy is to optimize the portfolio. And to the extent we see opportunities to do that will continue to pursue those. We are comfortable with the portfolio that we have, we think it provides a tremendous reach and a nice, broad national footprint.

But we will continue to be opportunistic where their situations and accretive transactions present themselves or we are able to put a transaction together that's accretive will pursue those. So, WABC, we obviously announced a while ago that hadn't closed yet.

But I think it's just a reflection of as opportunities arise how we're able to transact against those,.

Got you. And then in terms of the digital, I want to go back. You talked about your C-Suite products that are really driving some of the growth there, of course, your podcasts. And but I want to turn to the C-Suite products particularly.

Can you just talk a little bit about the growth outlook that you're seeing there? I know a lot of your other peers have kind of been a little bit more aggressive in their digital businesses with more attribution type data attribution type models and things like that that they're pursuing.

Can you tell me a little bit about where you are in the stage of development of your digital businesses? How fast you think you can grow that going forward? Whether or not you're actually utilizing data attribution tools at this point or is that another opportunity for you to kind of layer in further growth going forward?.

Yeah, I mean, I would take a step back and answer it more broadly is that when you think about attribution, essentially, it does two things. It's important to prove that radio works and that's what advertisers are really looking for.

So we have some products that are truly unique to us, which is the ultimate attribution which is guaranteeing results and that's the epic guarantee locally and the Westwood One ROI guarantee in the national side.

I would say that, from a data standpoint, we are already capturing a significant data on our digital users across a variety of both owned and third party platforms that allow us to drive higher CPMs on the audience.

I think where we are now is that it's we believe and I believe our peers do that it's critical that our industry speaks the same language about how we measure our effectiveness and how we prove that to advertisers.

And so with the technology that actually exists today, we can deliver similar data, similar proof of performance and attribution metrics that we do like all of our competitors, we are all working with a number of third parties locally to provide those solutions. So I think it's a work in progress..

Got you. And then do you have any thoughts in terms of benchmarks, maybe of what you would like to see the digital business contribute to total company revenues at some point..

No, I mean, we certainly feel good about the growth opportunity ahead in digital. And we've talked about what percent of our total revenue it is. And we feel good about being able to continue to grow that. I think you asked about C-Suite in particular, one way we think about that is attachment rates.

And how many sales that occur in the local market include the C-Suite products, and those attachment rates are still fairly low. And we see rate growth from just continuing to drive that..

Yeah, I mean, just to give you an idea, we reached 30 - as I said, in my prepared remarks, we reached 30,000 local businesses and with just approximately 10% of those attaching C-Suite product. And pretty quickly, there's a lot of upside there..

Got you. Thanks. Appreciate it..

Thank you..

I'll turn the call back over to the presenters for closing comments..

Alright, thanks everybody for joining us today. We look forward to speaking with you again soon. Thank you. Have a great day..

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