Cumulus Media Inc.

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

Thank you, Operator. Welcome, everyone, to our second quarter 2024 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 a link in the investors portion of our website. Now with that, I'll turn it over to our President and CEO, Mary Berner. Mary?

Thanks, Colin, and good morning, everyone. As anticipated during our last earnings call, the second quarter advertising environment continued to be challenging. Consistent with the pacing guidance we provided, Q2 revenue finished 2.5% below last year. However, our unrelenting focus on areas of the business that are in our control helped us mitigate the impact of soft demand to deliver 25.2 million of EBITDA and excluding costs related to the exchange offer, generate 8.3 million of cash from operations. We also made meaningful progress in key priority areas during the quarter. Specifically, toward our goal of driving outsized growth from digital revenue streams, we grew revenue in our strategically critical digital marketing services or DMS business by 24%. In the area of expense management, We reduced fixed costs by $4 million, further improving our operating leverage. And with respect to fortifying our balance sheet, we completed the previously announced exchange offer and ABL upsizing, actions that, importantly, extended our maturities to 2029 in attractive terms. And we bought back a small portion of our sub-debt, which expired in 2026. Starting with revenue, in aggregate, our digital businesses, which now account for 19% of our total revenue, continue to grow, increasing 5% year over year. Digital marketing services, again, led the way with strong growth driven in part by the investments that we've been making to expand our digital sales force and accelerate the rollout of Cumulus Boost, our portfolio of digital presence products. That growth on the heel of similar increases last quarter also reflects our focus on creating integrated audio and digital marketing solutions that provide impressive results for our clients. On average, our campaigns outperform industry benchmarks by more than 25% across 15 key business categories. Our differentiated go-to-market strategy, centered on sales reps fully embedded in their communities, is another key contributor to our success. Having feet on the street allows us to understand and capitalize on the unique set of circumstances that individual customers face. For example, in Kansas City, our local DMS team recognized that a local specialty grocery chain was under siege from new stores opened by a couple of large national brands. The team created and launched an integrated audio and digital campaign that targeted the competitors' shoppers within a five-mile radius of the stores using special pricing and brand messaging. Only two weeks in, the campaign has massively exceeded the client's targeted metrics, and better yet, has generated sales increases of as much as 7% in the stores owned by a very happy new studio of clients. Our ability to integrate this type of local insight into DMS campaigns across all of our markets is a significant advantage for us against competitors who are trying to sell from an out-of-market location. We're also benefiting from our ability to expand our relationships with existing radio-only clients to add DMS to their buys. Versus Q2 last year, we've increased the number of legacy radio clients who now purchase DMS from us by 25%. Overall, the results of our approach are evident. Our customer count is growing, up 20% year over year. We're seeing highs in customer retention, a 9% improvement year over year. And average digital campaign order size for customers growing as well, up 3%. Most importantly, given our strong set of products, seat-on-the-street sales capabilities, industry-leading campaign performance, and proven success at both developing new customers and converting radio-only customers to DMS plus radio, our upside continues to be tremendous. Turning to our other digital revenue streams, podcasting revenue increased in the quarter, representing the fourth consecutive quarter of year-over-year growth, while streaming revenue declined reflecting the previously mentioned exploration of a fixed-rate sales contract. Despite that, because we are able to better manage and optimize the monetization of our streaming impressions, which we've grown 25%, we remain confident that taking back sales responsibility for our station streaming inventory is a smart long-term move. On the broadcast radio front, Our national broadcast advertising businesses, which consist of national spot and network revenue streams, together make up approximately 50% of our total annual broadcast revenue. While the national ad environment remains challenging overall, we did experience areas of improvement with positive national trends across a number of categories, including insurance, retail, and telecom. Additionally, advertiser demand for live sports continues to be very strong. For example, Revenue for the NCAA men's and women's basketball championships both grew during the quarter, with the latter reaching all-time revenue highs. Further, we saw significant interest in our syndicated updates covering the summer games in Paris with strong pre-booking. In fact, we were on pace to deliver triple the revenue we did from the games two years ago. However, other categories such as financial services, recruiting, and home improvement remained depressed. with advertisers citing the difficult macro and interest rate environment as significant obstacles to their spending. We remain hopeful that we will see their budgets improve once rates begin to decrease, but for now, the national advertising outlook remains uncertain. With respect to local spots, year-over-year revenue performance was similar to Q1, down 4%. High interest rates continue to be a factor with both auto dealers, our second largest local ad category, and the financial category, including banks, credit unions, and mortgage brokers suffering from low consumer demand, causing them to pull back further on their ad spends and the declines we've already seen in the first quarter. Notably, we've been able to offset some of the declines in these categories by generating significant local spot revenue growth from clients who have customers in multiple markets. We started focusing on this customer category several years ago and have now developed considerable expertise in creating and executing multiple multi-platform multi-market campaigns to serve clients across their all their locations this product which we call beyond home market has delivered excellent results with q2 multi-market local broadcast revenue up 65 year-over-year looking ahead q3 revenue is currently pacing down slightly but our conversations with advertisers continue to be focused on when not if they're going to return to more typical spending levels of note the current pacing includes only the political that's on the books at this point in time. With the change in the Democratic presidential candidates and to the extent that certain states become more highly contested than previously expected, we may see some upside given our footprint in battleground states such as Pennsylvania, Wisconsin, Georgia, and Arizona. Moving to expenses, as always, we are highly focused on cost reductions. I noted earlier our Q2 fixed cost reduction of $4 million, which brings our year-to-date total to $8 million on top of the $120 million of fixed costs that we've taken out from 2019 through the end of 2023. These reductions significantly improve the company's operating leverage, which will drive EBITDA growth when ad demand picks up. They also help to offset investments in our digital businesses, where we've been expanding our sales force to target the expansive BMS growth opportunity. Notably in q2 we increased our digital sales force for the sixth consecutive quarter and we expect to continue growing this part of the organization We are similarly just disciplined on capital allocation as a reminder since our 2018 emergence from bankruptcy We have prioritized organic growth including in our digital businesses Leveraging the assets that we already have in place and third-party partnerships with fuel expansion what we didn't do is was make highly dilutive acquisitions, uneconomic podcast deals, and technology investments with no clear path to return on that investment. Instead, we walked away from many transactions that would boost profitless revenue in favor of a focus on earnings and cash generation metrics. To that point, our post-pandemic EBITDA recovery, free cash flow generation, and gross debt pay down have all been best among peers. We maintain these performance trends in the second quarter as we generated positive operating cash flow, adjusting for the transaction costs related to the exchange, while also paying down a small portion of our remaining sub-debt that's due in 2026. As a reminder to investors, given the current leverage levels, our capital allocation priority will be to continue debt reduction. Before turning it over to Frank, I want to re-emphasize the importance of the financial flexibility and extended runway that we created. Since we emerged from bankruptcy, we reduced gross debt by approximately 50%, which put us in the position to successfully negotiate a refinancing of our capital structure, extend our debt maturities to 2029 on favorable terms, and most crucially, increase the time we have to push through the economic choppiness and realize the value that we believe is inherent in the company. Cumulus has a strong set of assets, including a vast national platform that can reach audiences whenever and wherever they choose to listen, extensive feet-on-the-street local sales capabilities, which allow us to walk products through the door in over 80 markets, premium programming across all genres, with particularly exclusive assets in sports and news talk space, profitable and growing digital businesses, an audio library filled with many millions of hours of relevant, engaging, and entertaining content, and a team with a strong track record of expense management and disciplined stewardship of capital. As we continue to execute against a tight set of priorities, we see many paths for maximizing the value of these assets on behalf of our shareholders. Courtesy of the time afforded by our recent refinancing, We have the breathing room to explore all these paths, despite an economic backdrop which remains a challenge for now. With that, I'll turn the call over to Frank. Frank?