Good morning. Welcome to the Cumulus Media Quarterly Earnings Conference Call. I will now turn it over to Collin Jones, Executive Vice President of Strategy and development. Sir, you may proceed..

Thank you, operator. Welcome, everyone to our third quarter 2023 earnings conference call. I'm joined today by our President and CEO, Mary Berner; and our CFO, Frank Lopez-Balboa.

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 as discussed in our filings with the SEC. In addition, we will 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 Form 10-Q was also filed with the SEC shortly before this call. A recording of today's call will be available for about a month via link in the Investor portion of our website. With that, I will now turn it over to our President and CEO, Mary Berner.

Mary?.

Thanks, Collin and good morning, everyone. In the third quarter revenue and EBITDA met expectations, which results reflect the ongoing dichotomy between local and national performances.

While the softness in national advertising persisted causing an overall revenue decline, we mitigated that impact for our ongoing focus on areas that we can control, investing in our digital businesses, reducing costs and improving our balance sheet through non-core asset sales and debt reduction.

More specifically, during the quarter, we increased digital revenue by 7%, streaming, podcasting and digital marketing services each growing during the period. We executed an additional $5 million of annualized non-revenue impacting fixed cost reductions, bringing the total to $110 million since 2019.

And we continued to maintain our best among peers liquidity position and balance sheet, completing a highly accretive $10 million non-core asset sale and retiring over $5 million face value of debt at a discount.

These actions further improve the company's revenue growth profile, operating leverage, financial flexibility, and strategic optionality and collectively position us to rebound strongly when the advertising environment improves.

That said, national advertising continued to be weak in Q3, with clients citing ongoing uncertainty in the macro environment is the main reason for lower spending. Our national businesses account for approximately 45% of our total revenue.

And we saw top line impact in both network and national broadcast, particularly in the professional services, financial and insurance categories. However, there were and are some green shoots worth noting. In particular, home products and consumer packaged goods continue to show improvement year-over-year.

Of note, P&G ramped up spending since the start of their new fiscal year July 1, citing their commitment to high ROI ad spend and increase – and they increased their bookings first in Q3 and continuing into Q4.

In that same vein, in our early upfront conversations, national advertisers who continue to appreciate the value of radio scale, reach and ROI are indicating a desire to return to more normal levels of spending as they set their 2024 budgets. Another key category worth mentioning is retail.

So heading into the fourth quarter holiday season, the category is currently pacing down in aggregate, several big box retailers have notably started spending again after being out of network radio for several quarters.

Audio [ph] with national podcast advertising, which was down in the first half of this year and returned to growth, up 8% in Q3, supported by continued strong audience growth trends. September downloads, for example, were up 17%.

While considerable uncertainty remains in Q4, these positive trends and improving sentiment and tone give us cautious optimism that we will see a better national advertising environment in 2024. Continuing the theme of the last two quarters compared to national, our local businesses have been more insulated for macro ad pressures.

Total local revenue, which includes local spot and our local digital revenue streams, was down 5% for Q3. Local spot broadcast revenue was down about 7% in Q3, in line with our commentary from the last call. As for Q2, while spending in most advertising categories declined auto continued to show growth, up 10% despite the recent strikes.

Thus far, the strikes have mostly negative impacted markets in which factories have been shut down, where both dealers and effective markets have pulled back spending to avoid alienating local listeners and striking auto workers and where other local SMBs in the same markets have also pulled back spending, as the strikes have impacted the broader local economy.

While we are paying close attention to any knock-on effects from the strikes, we still believe this category represents a high margin recovery opportunity long term, given that Q3 spending is still only at 60% of 2019 levels. Turning to our local digital marketing services business.

As we highlighted on our last call, we expect this to be a significant growth opportunity for us, as we make further inroads into the $15-plus billion TAM this business serves.

Digital Marketing Services grew mid-single digits in the quarter, driven by subscriber growth in Cumulus Boost, the suite of digital presence products that we launched in the middle of last year. We are continuing to build the business by leveraging our sales process and growing sales organization.

To that point, since our last earnings call, we've tripled our digital sales force, and we expect to add additional resources to this -- in this area to drive further growth for 2024 payoff and beyond.

Overall, we remain very optimistic about the growth trajectory of our digital marketing services business, particularly as we continue to ramp up investment in this business.

Meanwhile, as we've been doing in recent quarters to mitigate the revenue pressures from the depressed national ad market and to free up resources for digital investments, we continue to meaningfully reduce costs.

During the third quarter, we executed an additional $5 million of annualized fixed cost reductions, bringing the total to $20 million this year and $110 million since 2019. These actions again reflect our aggressive, but thoughtful approach to reducing costs to improve the company's operating leverage without impacting revenue growth.

And finally, we remain focused on maintaining our best among peers balance sheet and liquidity position through disciplined capital allocation. In the third quarter, we completed the highly accretive $10 million sale of WDRQ, FM in Detroit, a station with deminimis EBITDA.

We also completed a discounted prepayment of our term loan retiring $5.2 million base value of debt at 83.5% of par. Since the beginning of last year, we retired over $130 million in face value of debt, bringing total debt down to $676 million, the lowest it's been in over a decade and net debt to $593 million.

Additionally, at this point in time, we believe reducing debt is the best way to maximize financial flexibility and strategic optionality headed to what we hope will be a recovery year.

Looking ahead into Q4, as I mentioned, the market remains choppy with revenue pacing down low double digits, impacted by both the continuing weakness in national advertising and a tough political comparison. While we are cautiously optimistic that the environment will improve in 2024, under any circumstance, we are prepared for what comes.

Since the pandemic, our management team has driven best among peers performance on cost takeouts, EBITDA margin recovery, free cash flow conversion and net leverage reduction, and we are committed to maintaining that track record regardless of the environment. With that, Frank, I'll turn it over to you..

Thank you, Mary. Third quarter revenue was down 11%, in line with the pacing commentary that we gave to you in our last earnings call and down 9.8% ex political, while EBITDA came in at approximately $27 million.

Of note, from a revenue standpoint, our local businesses continue to outperform our national businesses on a relative basis, and each of our digital businesses grew during the quarter, including podcasting where revenue had declined during the first half of the year.

We're also impacted by the tough political comparison in the quarter, booking $800,000 of political revenue in Q3 of this year as compared to $4.5 million in Q3 of last year. That comparison will worsen in Q4 as we benefited from $8.3 million of political revenue in the last quarter of 2022.

That political differential is a contributing factor and are pacing down in the low double digits. From a category perspective, home products and consumer packaged goods were our top-performing national categories, while our weakest toward professional services, financial and insurance.

General services and auto were top-performing major local spot categories, while professional services, financial and sports betting were some of our weakest. Turning to expenses. Total expenses in the quarter decreased by over $6 million year-over-year driven by fixed cost reductions as well as by lower variable costs from lower revenue.

As Mary mentioned, the impact of the fixed cost reductions that we executed in the quarter is approximately $5 million on an annualized basis bringing the total reductions implemented this year to $20 million and $110 million since 2019. Moving to the balance sheet.

Cash from operations during the quarter was negative $7 million, largely driven by the seasonal impact of working capital, while cash from operations through the first nine months of the year was positive $28 million.

In Q3, we continued to reduce debt through a $5.2 million discounted prepayment of our term loan, bringing total debt down to $676 million with net debt of $593 million. The cash utilized in this discounted prepayment will work to offset any excess cash flow sweep that we might otherwise need to repay at par.

Overall, since the beginning of last year, we have reduced our debt by over $130 million. This reduction in net debt plus interest income earned on our cash balances have largely offset the approximately 525 basis point increase in short-term rates since last year.

Also, our Board of Directors authorized a new $25 million share repurchase program to replace our existing plan, which was set to expire shortly. However, we expect to focus our near-term capital allocation efforts and debt reduction.

Additionally, in the quarter, we completed the previously announced highly accretive sale of WDRQ-FM for $10 million, which was on top of the $7 million we received for the sale of WFAS-FM in Q1. Under our credit agreement, we can use these proceeds to either pay down debt or reinvest into several areas, including CapEx.

FX was $7.1 million in the quarter, $21 million year-to-date will be in the range of $25 million for the year, consistent with the guidance we laid out earlier in the year. Looking ahead, though, macroeconomic factors continue to impact Q4 results.

As Mary mentioned, we are starting to see some green shoots in the national advertising market that could be planning to a recovery next year.

In the meantime, we continue to take actions that will position us strongly to the rebound by investing in our digital businesses, improving our operating leverage and maximizing financial and strategic flexibility. With that, we can now open the line for questions.

Operator?.

Absolutely. [Operator Instructions] The first question comes from the line of Michael Kupinski with Noble Capital Markets. Your line is now open. .

Thank you for taking my questions. Appreciate that and good morning. Can you talk about -- it's surprising to me because radio operates such thin staff and so forth.

And I was just wondering if you could talk a little bit about where you're taking the cost out and just kind of add a little bit more color there?.

I'll take that, Michael. Good morning. Well, first, I'll start off by the areas where we're reducing costs are not impacting revenue, and we're actually increasing our sales force, and that's a key focus of ours.

The areas that we continue to get efficiencies in areas like real estate, and we're operating in a different way, and we continuously look at our footprint around the country.

We're also being very judicious in terms of our use of external contractors and external contracts and more possible, and we've been very successful of renegotiating contracts at better rates..

Got you. And Frank, could you just talk a little bit about what the opportunities might be, especially as we go into the Q4, which sounds like it continues to be a little softer.

Are there further cost-cut opportunities in Q4? Or do you think that -- you think that you've cut for now as much as you would like? Or can you give us some color on what the cost outlook might be as you go into Q4?.

We'll give you an update on Q4 next year. We're going through our budgeting process now. Our mantra is basically to look at all costs from the ground up. And we did take out $20 million more this year as we discussed in our script on top of the $90 million beforehand previously. And that will be part of our budgeting process.

But the magnitude of these cost cuts, as you can imagine, will be diminishing given what we've taken out thus far. And these cost cuts again are fixed cost reductions and it equates to approximately 20% of our fixed cost base compared to 2019..

Got you. And digital rebounded in the quarter. I was just wondering if you can kind of give us some thoughts of -- I know that you've been hiring sales staff and so forth there.

Can you just kind of give us some thoughts if you have a sense that the digital marketplace in itself is kind of rebounding in general and just kind of your thoughts on how digital should perform, especially, as we go into 2024?.

Yes. I mean I can take that. Good morning, Mike..

Good morning..

We are -- our digital marketing services businesses, as we said in the prepared remarks is very, very vibrant and continues to grow. We've had consistent growth. It grew 16% in 2022, over 20% in the first half of this year, and it's continuing to grow at a nice pace this quarter. So we're very bullish.

As we said in the prepared remarks, we are investing in this business. We have tripled our sales force since the last call. And what's great for us is that half of our new customers; our digital customers are now also buying something else from us. So, for example, broadcast radio.

So we're getting to more customers with more sellers, and we're selling them more relevant products, which is really the entire strategy. So in terms of the business, we're very, very bullish on the business and believe that there's a nice growth there in 2024 and beyond..

All right. That’s all I have for now. Thank you..

Thank you..

Thank you. The next question comes from the line of James Goss with Barrington Research. Your line is now open..

Okay. Thanks and good morning. One question I have is, if you look at the digital businesses, traditionally, they tended to be roughly one-third, one-third, one-third between digital ad sales, digital marketing services and podcasting.

I'm thinking over time, that mix changes as certain loans grow more rapidly, earlier on I thought it might be podcasting, but it might be digital marketing services, where you have the greater relative advantage.

How are you thinking in terms of how that mix would change?.

Hi, Jim, I'll take that. So you're correct. The podcasting business is a growing business. And we're pleased in the third quarter, we returned to growth after some decline in the first half of the year. And so we're still very focused on that business, and that will continue to grow.

But from the base that we're now, the digital marketing services business is really the fastest- rowing part of our digital business lines. And there's still roughly one-third, one-third, one-third between the three buckets.

But as we execute on our sales strategy and growing the digital marketing services business that natural become the largest part of our digital business lines we would expect..

Okay.

And have the digital marketing services been impacted at all by the economy to the extent that some of the client targets would be having some challenges that might make them less likely to be engaging you? Or is that not really a challenge to this point big enough space to work with?.

Yeah, I would say – and Frank, you can pile on here. It really hasn't been affected because mostly we're sitting in a space of small and medium sized businesses, so very much local businesses.

And the dynamics are -- the dynamic of those businesses depending on the market, depending on the category, depending on the kind of business, there is always growth there because there's always new businesses starting. And so we've seen, as I said, it's also a subscription business for us. So this recurring revenue model is a great foot in the door.

So once we sign them up, that is the strategy is that we are able to sell them more relevant products, so it's been -- I don't know, Frank, do you have another point of view or…?.

No, I agree. And I think the other thing to say about it is that even though some businesses may be impacted from the economy we're starting from a base where there's an enormous opportunity. And so we're not at a scale yet that we're concerned about the marginal new business.

It's really a very big open field white space for us, and which we're excited about..

Okay. And you raise an interesting point in that this isn't sort of a one-size-fits-all customer base. You can also have advantages by increasing your penetration within existing customers with additional services.

I think I don't know if they appreciate that as much?.

Yeah..

The also podcasting early on, as it's grown, usually new category will grow substantially more rapidly than some of the car comps, are we getting any wall within podcasting do you think or in your particular says within it or such that the relative advantage to radio might not be as great over time? Or is there a lot of room around from your point of view?.

Well, it's really -- it's -- we're -- our focus is on the advertising and monetization. So generally, we rep other people's content. So for us, it success or failure fits in what -- who we wrap and what we develop ourselves. So we're very focused on the news talk or personality driven big bold voices, and that served us quite well in that niche.

And so as we've mentioned in the prepared remarks, as audience starting to grow again, up 17% in September. And as that happens, we're able to monetize. So we have our expansion, we have pretty much five podcasts in the top 100. We have Bongino and Levin and Sean Ryan and Rick Geisen and Gibson Wallace we've got in a bunch of daily wire shows.

So, we've got really, really good inventory. But the upside for us also is developing into non-conservative talk radio into, other big, bold voices. So, we're pretty bullish on that as well. Although, albeit the rate of growth has, like with the other national advertisers, it was very, very pressured in the first half. But it seems to be coming back..

Okay. And one last one. Is there any appreciable difference between the tone of national advertising between Westwood One and the station group national advertising. So I guess it would be more of a national ad versus a national spot..

There's no real difference. Not really. It's all national..

Okay. All right. Thank you very much. Appreciate it..

Thank you..

Thank you. The final question comes from the line at Dan Day with B. Riley Securities. Your line is now open..

Yes. Good morning, guys. I appreciate you taking the question. So I got a two-part question on what's the one and the network segment.

So just first can you talk about, whether there's been a materially different performance this year between your live sports content on the Westwood one versus the talker other nationally syndicated content just been seeing some good things about you know live sports ratings on the radio, wondering if there's a dichotomy at all there and whether that impacts your decision to invest more or less in live sports rights moving forward with Westwood One? And then second on Westwood One, if we put the macro to the side, is there anything you feel you need to invest in specifically to get that back to growth? Maybe it's improving the ability to sell the inventory programmatically, better measurement and attribution technology, just anything you feel you can do that's in your control to get that back to where it was a few years ago..

I'll take that, Dan. With regard to the first part of your question on sports, when we look at our pacing – our pacing in the fourth quarter.

And obviously, as you know, we have the NFL, which started in the third quarter, but it's really large in the fourth quarter, that's actually pacing pretty close to flat versus last year, which underscores your point, which is the high demand from advertisers for live sports.

So the national weakness we're really seeing is general market weakness away from sports. Now having said all that, when we look at any type of contract in the future, we will analyze the economics of that and see if that makes sense.

But at this point with Westwood One having the NFL rights, including digital, plus CMCAA were pleased with that sports portfolio. With regard to looking at the network further opportunities, that business is challenged by the national advertising market, and we're always looking at ways to increase and improve our revenue-generating opportunities.

So whether it comes from programmatic targeted sales et cetera. That's something -- it's a continuous focus. And that's a market -- the network market has probably changed more dramatically over the past several years than the local market by virtual technology and ways advertisers go to market.

And we're in the forefront and looking at all those alternatives. And that's something that will continue to always be a work in progress for us to maximize revenue opportunity..

Thanks. And then -- it's been a while since we've -- it's nice to see podcast back to growth. It's been a while since we've revisited the profitability of that revenue. I know you talked about it mostly being kind of rep relationships in my experience as tend to have relatively low gross margins.

Any update you can provide there on margins within the podcasting segment, anything you've done recently to improve the profitability of that podcast revenue..

The margin profile really hasn't changed because as Mary discussed, we're by and large, a reference for podcasters, so it's a revenue share model, which we like because we don't take the embedded risk of being in a studio business, which podcasts can work when they're successful, but they're expensive from a studio perspective.

One of the things we're really focus on is some of the declines that we saw in the first half of the year had to do with national advertisers, but in particular, direct response advertisers.

So, part of the -- and we're pleased with the growth of some of the national advertisers coming back, but we're also adding new podcasting talent to our portfolio, which also appeals to a broader subset of the advertising environment brand advertisers, and we'll continue to do that to downer portfolio.

But the margins are in the 20s for that business, but it's a low-risk from our perspective because it's not a fixed cost business..

Got it. And then just last one should be quick.

Is there -- just talk about like the hurdle rate for using that cash balance really for anything other than been paying down your debt at this point and just more on the decision to focus on the term loan versus the notes in the quarter and the balance between those two moving forward? Is it just sort of a mechanical which has the better yield? Or is there anything else to think about there?.

It's necessarily only the better yield. As I mentioned in my prepared remarks, the term loan has a mechanism that any excess cash flow at the end of the year, we have to pay back at par, leverage is above a certain level. And so being able to -- and we don't know what our excess cash flow sweep will be, if any, at the end of the year.

But from a planning perspective, having to pay that back and this kind of prepayment counts for that mechanism being able to pay that back at $0.835 versus par is just compelling. In terms of our capital allocation, as you know, in the third quarter, we did not buy equity and our near-term focus on debt reduction.

But one of the things that we remain very focused on is with our balance sheet and our liquidity is to maximize not only financial flexibility, but strategic flexibility to the extent there are opportunities have come around. So, it's fairly robust move from quarter-to-quarter.

But one thing that we're proud of is that we've continued to reduce the debt dramatically the company over the past for years, which accrues to all the benefits, not only to the existing debt holders, but the equity holders. So, -- and that operating leverage is something that's very meaningful and will benefit from in the future..

All right. Thanks for the time..

Thank you..

Thank you. There are no additional questions waiting at this time. So, I would now like to pass the conference back over to the management team for any additional or closing remarks..

Thanks everybody. We very much appreciate your time and we will look forward to talking to you next quarter. Thanks..

That concludes today's conference call. Thank you for your participation. You may now disconnect your lines..