Cumulus Media Inc. (NASDAQ:CMLS) Q3 2023 Earnings Call Transcript

Cumulus Media Inc. (NASDAQ:CMLS) Q3 2023 Earnings Call Transcript October 27, 2023

Cumulus Media Inc. beats earnings expectations. Reported EPS is $0.16, expectations were $-0.34.

Operator: 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.

Collin Jones: 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 radio tower with a setting sun in the background, symbolizing the power of broadcasting.

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?

Mary Berner: 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.

Frank Lopez-Balboa: 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?

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