Cumulus Media Inc.

Welcome to the Cumulus Media Quarterly Earnings Conference Call. I'll now turn it over to Colin Jones, Executive Vice President of Strategy and Development. Sir, you may proceed.

Thank you, Operator. Welcome, everyone, to our first 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're subject to a number of risks and uncertainties. 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 the call will be available for about a month via a link on our website. With that, I'll now turn it over to our President and CEO, Mary Berger. Mary?

Thanks, Colin, and good morning, everyone. In the first quarter, the continued weakness of the national advertising environment, to which we have significant exposure, drove total revenue declines, as reported, of 11% year over year. Or, more comparably, excluding political and win bet, total revenues were down 7%, a result that is consistent with the pacing we provided on our last call. Despite that challenge, we generated significant growth in our digital marketing services business, increasing revenue 23% year over year on a completely organic basis. We executed meaningful non-revenue impacting cost reductions to further enhance our operating leverage, adding approximately 10 million of additional annualized cost reductions to the approximately 90 million that we've already executed since 2019. And during the quarter, we continued to enhance and benefit from our advantageous liquidity position and balance sheet, generating $16 million of free cash flow, completing a highly accretive asset sale for $7.3 million, repurchasing $1.5 million of shares, and retiring $6.3 million face value of debt at a discount. The dichotomy we talked about last quarter between a weak national advertising climate and a relatively stronger local advertising environment continues, but we expect that eventually both will revert to more normal spending patterns. Until then, as we have consistently proven, we know how to optimize results in difficult environments and emerge from them in a strong position to take advantage of recoveries and when they occur. To that point, since 2019 and through the COVID impacted years, we've taken out more fixed costs on a relative basis, recovered more EBITDA margin, converted more EBITDA to free cash flow, and reduced our net leverage more than our peers. We finished 2022 with best in class 3.7 times net leverage and over $200 million of liquidity, despite having been the only one to return capital to shareholders through buybacks, which is why we believe we are in the best position to weather this current storm and capitalize on the eventual rebound of while maintaining our ability to opportunistically deploy capital to the long-term benefit of our shareholders. To understand the current market's particular impact on us, think about our company as split between businesses whose revenue generation is predominantly from national advertisers and businesses who rely on local advertisers. The national businesses primarily consisting of the Westwood One Network, National Spot, National Podcasting, and National Streaming, make up approximately 45% of revenue. And our local businesses, primarily consisting of local spot, local digital marketing services, local podcasting, and local streaming, make up approximately 50% of our total revenue. The weakness that has characterized the national advertising climate for several quarters has not abated. National advertisers continue to demonstrate significant reluctance to spend across virtually all ad categories, with that week is increasing somewhat since the last earnings call. Given the high margin nature of our national broadcast businesses, the associated drop in revenue has and will continue to impact EBITDA as long as the softness continues. These same national headwinds have also been a drag on our overall digital revenue growth as most of our podcasting revenue is tied to national advertisers. Looking ahead, we, of course, don't have a crystal ball as to when the national headwinds are going to reverse. However, what we do know is that historically, when the advertising environment does recover, national advertising has typically been the quickest to bounce back. And when it does, the same operating leverage that hurts us on the downside will be of significant benefit to us on the upswing. In comparison to national businesses, our local businesses were approximately flat for the quarter, fueled by strong growth in our local digital businesses. Local spot, which makes up approximately 80% of our total spot revenue, was down about 4% in Q1. Like national, we've also seen local get a bit weaker into Q2, pacing down 7% currently. Small and mid-sized markets have been outperforming and continue to outperform larger markets, so our portfolio management strategy over the last five years, which has reduced our exposure to larger markets, has been favorable for us. Despite these mid-single-digit declines, we are seeing some green shoots in local demand. Encouragingly, automotive continues to rebound as we are experiencing quarter-to-quarter improvement in automotive as dealer inventory levels improve. To put this upswing into perspective, in 2019, auto was about 10% of total revenue, and we lost nearly 50% of that, mostly local revenue during COVID. So even with the improvement we're already seeing, and we've already seen, there remains significant upside from auto returning to more normal levels. The brightest spot in an area that we're really leaning into, given its growth profile, is our local digital marketing services business, which, as I mentioned, grew 23% in Q1, driven by a combination of new customer accounts and new product offerings. This business is now run rating at over $40 million of revenue. And as you know, we have achieved that growth and profitable performance from day one with very little upfront investment. We continue to be excited about our DMS position, so we're investing in it to accelerate its growth. Looking at the big picture, the U.S. digital marketing services total addressable market for our target market of SMBs is approximately $15 billion and growing at 5% to 10% a year. While there are many small digital agencies that have built paid media capabilities, as well as several large providers of single point solutions, there are very few companies in the DMS world that can successfully offer SMBs the full spectrum of digital marketing solutions to meet their needs. We focus on being that full spectrum provider, deploying a unique go-to-market strategy with feet on the street selling of a suite of integrated audio and digital marketing solutions. We're nimble in our sales execution because we leverage our fully distributed sales force, sales infrastructure, and notably our ability to seamlessly add in new products and services. This is because in addition to our own in-house capabilities, we utilize several white label providers to fulfill our orders, which has given us flexibility to adapt to a dynamic market and quickly and efficiently procure and deliver new digital products and services as they are created. As importantly, The double-digit growth trajectory we've already ramped to supports our conviction that our go-to-mark strategy, in particular its focus on feet on the street sellers, has been a good mousetrap and an important differentiator in the market. Because we have a proven ROI from adding incremental sellers who are armed with a growing toolkit of both digital and audio products, we're enthusiastic about the returns we can deliver from continuing to expand our sales force, enhance their capabilities, and generate efficiencies at scale. Meanwhile, to both support these types of investments and mitigate the EBITDA pressures from national revenue declines and the inflationary environment, we continue to aggressively reduce costs. Since 2019, compared to our peers, we have achieved higher cost reduction as a percentage of the 2019 baseline and, as noted, a best among peers EBITDA margin recovery against pre-pandemic levels. Year to date, we executed an additional $10 million of annualized cost reductions, and we will continue to make strides as the year progresses with multiple additional cost initiatives. Ultimately, all these efforts continue to support healthy free cash flow generation, even in difficult economic environments such as this one. In the first quarter, we bolstered our cash balance by generating $16 million of free cash flow, and completing $73.3 million sale of WFASFM, a station which contributed insignificant EBITDA. Given our healthy cash balance, we continued our open market repurchase program in Q1, buying back an additional $1.5 million of shares. In parallel, we were also able to complete discounted debt buybacks, retiring $6.3 million face value of debt for $5.6 million of cash. Since announcing this capital allocation strategy in Q2 of last year, combined with our last excess cash flow sweep of 2.5 million, we have retired 92.8 million in face value of debt, and we have repurchased 2.9 million shares, representing approximately 14% of the company's shares outstanding as of year-end 2021. Before turning the call over to Frank to give you more color on the quarter and our current Q2 pacing, I'll go back to where I started. Maximizing results in challenging environments is something we do well. Over the past few years, this management team successfully executed an operational turnaround while right-sizing an inherited overextended balance sheet through restructuring. And since the pandemic, we've driven best among peers performance with respect to cost takeouts, EBITDA margin recovery, free cash flow conversion, net leverage reduction, and cash generation. This track record should give you confidence in our ability to once again optimally navigate and emerge from this difficult advertising environment. With that, Frank, I'll turn it over to you.