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 and President of Westward One. Sir, you may proceed with today's call.

Thank you, Operator. Welcome, everyone, to our second quarter 2025 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, as discussed in our filings with the SEC. In addition, we also use certain non-GAAP financial measures. We believe this supplementary information is useful to investors, although it should not be considered superior to the measures presented in Accords and 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 10-2 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 investor portion of our website. And with that, I'll now turn it over to our President and CEO, Mary Berger. Mary?

Thanks, Colin, and good morning, everyone. In Q2, the broadcast revenue backdrop remained frustratingly difficult, with macro pressure by far the most significant driver of our total revenue decline of 9.2%, which was slightly better than the pacing guidance we provided on our last call. However, within that context, we continue to outperform our peers across several key metrics and to make progress in areas under our control, reflecting disciplined and strong execution and strategic investments, even in a capital-constrained environment. Specifically, as measured by Miller Kaplan, we grew our revenue market share in all broadcast spot revenue channels, reflecting 11 straight quarters of rating share growth in our PPM markets our emphasis on live and local programming, dynamic inventory management capabilities, and relentless focus on sales execution. We also grew our digital revenue market share, driven by the standout performance of our local digital marketing services business, which was up 38% in the quarter. We continued to reduce costs. adding an additional $5 million of annualized costs, bringing the total to over $175 million of fixed cost reductions over the last five years. We significantly accelerated our use of AI to create both growth opportunities and business efficiencies across all functional aspects of the company, and we finished the quarter with $97 million of cash, inclusive of a $55 million draw on our ABL revolver, which provides us with significant flexibility. As we look ahead, while we do not expect secular headwinds to abate in the short term, we do believe we will continue to outperform our peers in the areas we can control by continuing to execute our strategies to further leverage the company's core competencies and valuable underlying assets, which include our massive megaphone that reaches 92% of the country and 250 million listeners every month, our ability to walk product into the door as delivered by our almost 500 locally embedded sales professionals. Our established relationships with approximately 30,000 local and national businesses who are natural customers for new products we develop. Our multi-platform content engine that creates monetizable content in an almost endless variety of formats. And our extensive, constantly growing library of premium audio content that can be redeployed and monetized in multiple ways. Turning to our second quarter performance, as I said, despite the market headwinds, there were some significant bright spots. First and foremost, digital, one of our key growth strategies, continues to be a clear area of strength for us. Our digital marketing services business was up 38% year over year, an acceleration of the 30% growth it delivered last quarter and a massive outperformance, growing at a rate that was nearly double our radio peers, more than four times the rate at which the digital ad market is expected to grow, according to a recently published PwC report. This performance is even more notable because it comes off a meaningful base of revenue, an annual run rate of nearly $80 million. Achieving that level, concurrent with nearly 40% growth, reflects the success of the strategic plan we put in place several years ago. That plan keys off our ability to seamlessly leverage the tens of thousands of client relationships maintained by our local sales force to sell a curated set of digital marketing services products in combination with our own broadcasting and digital audio audiences. Further, our DMS solutions deliver ROI for our clients that outperform industry benchmarks by an average of around 25%. On top of that, we've made multiple significant organic investments in this business over the years, including the ramping up of our digital sales organization, training, operational execution teams, product capabilities, partnerships, and marketing. These investments, along with strong sales execution, are fueling and will continue to fuel our achievement of record levels across important KPIs, including total customers and average campaign order size. Additionally, we've nearly doubled the percentage of our radio broadcast customers who also buy DMS, with plenty of runway still remaining. We remain bullish about the prospects for this business, and we now expect it to surpass 100 million run rates early next year with increasing contribution margins as economies of scale start to kick in. Our other digital businesses, which include streaming and the Keynotes Podcast Network, have also continued to perform well, though there is some noise in their results driven in particular by comparison issues in podcasting. Normalizing for the Daily Wire and Dan Bongino comparisons, year-over-year podcasting was up over 30%, and with that same normalization and including our 38% year-over-year DMS growth, total digital revenue for the quarter was up 20%. Moving to our broadcast business, advertising headwinds, particularly among national advertisers, continue to impact both our spot and network revenue. However, as I highlighted earlier, in the markets in which we compete, as measured by Miller Kaplan, we gain market share once again in the quarter. With respect to our local spot outperformance, we believe a key contributor to this is our strong focus on having a live and local presence. Even in today's fragmented media environment, the strong relationships created by our trusted on-air personalities not only build enduring audiences, but in addition to stocks, also provide highly effective incremental opportunities for revenue generation from endorsements and sponsorships. I've mentioned on other calls the impressive performance of our multi-platform product, Beyond Home Market, and that performance continued in Q2 with revenue up over 60%. This product leverages the scale of our platform and nationwide sales force to deliver multi-market, multi-product buys for large regional advertisers. From a national perspective, the overall market environment continues to substantially pressure both our national spot and network revenue channels. That said, our consistent rating share outperformance, particularly in the PPM markets, allowed us to continue to grow share in national spot. Our network revenue line was affected this quarter by the comparison issues from the Daily Wire and Dan Bongino discontinuation, as well as inventory that we eliminated in 2024 that was unprofitable for us. Those factors, combined with the relatively lower amount of more in-demand sports inventory in Q2 as compared with other quarters, and the extremely weak general market environment all contributed to that revenue stream being down 20% in the quarter. As we look ahead to Q3, we are seeing a continuation of Q2 trends, with total revenue pacing down low double digits, reflecting weakness in all broadcast revenue streams, as well as the political, daily wire, and Dan Bongino comparisons. This is partially offset by strength in our local digital marketing services business. Given the fact that our higher margin broadcast business continues to be pressured, we are not yet at the point where the contribution from our digital growth is offsetting the impact of broadcast revenue declines on EBITDA. So we have and will continue to focus on fixed cost reductions. During the second quarter, we cut $5 million of annualized net fixed costs. Our emphasis continues to be on investing in digital growth areas while reengineering the business to drive more efficiencies and reduce fixed expenses. For example, in the quarter, we restructured our network sales and operations to streamline legacy processes and better align our go-to-market efforts with the assets that are the most attractive and where we have the most differentiated value proposition for our clients. Additionally, just last week, we announced that we are outsourcing our entire traffic function, which will result in several million dollars of cost savings, which will be realized in 2026. Also, we have considerably accelerated our efforts to identify and take advantage of the wide array of opportunities that AI provides us in such areas as sales enablement and training, impression growth, cost rationalization, and business process enhancements. We've been relentless in these efforts so far, conducting a multifunctional exercise, which has generated over 100 different projects ideas that are now being prioritized for execution. We've already seen great success creating efficiencies using customer service agents, repurposing content for our websites and social media platforms, and streamlining information access across our training and sales platforms. We're also training our entire sales force on how to effectively use AI to craft pitches, generate spec creative, develop valid business reasons for engagement, conduct competitive analysis, and fine-tune packaging and pricing. As the use of AI becomes more ingrained in our daily business operations, we're excited about the long-term opportunities it can unlock for additional value creation. In the short term, though, Given our high leverage, we are obviously operating in a capital-constrained environment. And as a result, we're limited to investing in those strategic opportunities where the ROI is almost immediate. That said, we entered the quarter with $97 million of cash, which included a $55 million draw on our ABL facility that occurred during the quarter. This draw will help us maximize optionality and flexibility. Additionally, we have nearly $14 million of non-core asset sales comprised of either land or small stations currently under LOI or APA, which we expect to close by the end of this year. The uncontrollable market headwinds have persisted longer than any of us would have hoped and will likely continue to pressure broadcast revenue. That said, we have a track record of outperforming the market in that context by aggressively but thoughtfully mitigating declines through cost reductions, seeding meaningful growth opportunities, such as with our digital marketing services business, and embracing opportunities for long-term transformation, which AI will help to accelerate. We've done all this organically while burdened by high leverage. Despite that, throughout a lot of challenge and change, our most recent culture survey delivered the highest response rates in the last four years and produced some of the highest scores we've ever had. with 93% of employees proud to work for Cumulus, 86% having confidence in leadership, 83% excited for the future. Additionally, our 2025 proxy results reflect our deep engagement with shareholders and changes made in response to their feedback, which resulted in a 90% plus average for vote for our board members and 85% plus for the stay on pay vote. a significant rebound from disappointing results in our 2024 proxy. We appreciate the support of all of our stakeholders, and we remain confident in the value of the core assets of the company and our ability to serve listeners and customers and drive new areas of growth. With that, I'll turn the call over to Frank. Frank?

Thank you, Mary. In a quarter, total revenue was down 9.2%. slightly better than the patient commentary that we gave in our last earnings call, and down 5% excluding political, the impact of the Daily Wire and Dan Bongino comparison. EBITDA for the quarter was $22.4 million. Digital revenue was up 20%, excluding the impact of the loss of Daily Wire and Dan Bongino, with our DMS business continuing its strong growth trajectory, up 38% in Q2, and currently pacing up more than 35% in Q3. Further, GMS revenue now represents approximately 50% of our total digital revenue. From a broadcast category perspective, travel and financial were our best performing categories in SPOT, and farm lot and insurance were some of our best in the network. Of note, as Mary mentioned, in the second quarter, the lack of meaningful sports programs, which has been a competitive strength for us in addition to weak massive demands, And the previously mentioned comparison items impacted the network, which was down approximately 20%. Moving to expenses, total expenses in the quarter decreased by approximately 16 million year-over-year, reflecting lower variable costs and ongoing cost reduction efforts, partially offset by higher expenses associated with the growth in our GMS businesses. In the second quarter, we executed 5 million annualized fixed cost reductions, adding to the 170 million of fixed cost reductions we've taken out since 2019. as mentioned in our last earnings call. Turning to the balance sheet, the end of the quarter was $97 million of cash, debt at maturity of $697 million, net debt of $600 million when excluding the $27 million of principal debt reduction resulting from the 2024 exchange offer, which would be amortized over the term of the debt. These amounts include the $55 million ABL draw that we made during the second quarter. The ABL draw should not have a material impact on cash flow as the borrowing rate for the draw is only slightly higher than the rate we're earning on deposits. Second quarter CapEx is $5.5 million, and we now expect four-year CapEx to be below the $22.5 million guidance that we mentioned on our previous call. Additionally, we expect to generate nearly $14 million of non-core assets sales by the end of the year. Looking ahead, we're currently pacing down low double digits in total and down approximately mid-single digits, ex-political, ex-day of the wire, and net of the Bungino impact. As a reminder, in Q3 of 2024, we have total political revenue of $4.49. With that, we can now open the line for questions. Operator.

Thank you. At this time, we'll now begin today's Q&A session. If you would like to ask a question, please press star followed by 1 on your telephone keypad. If for any reason you would like to remove your question, please press star followed by 2. At this time, the first question will be coming from the line of Michael with Noble Capital Markets. You may begin.

Thank you. I have a couple of quick questions. In terms of the patience, I was kind of hoping that, you know, given the increasing likelihood that there might be some sort of rate, interest rate reduction as we go possibly into September. So I was kind of hoping that we might start to see some improvement in national advertising, which kind of tends to be a little early cycle and tends to kind of look forward. I was wondering, If you kind of look into the third quarter, do you see Nationals pacing improving through the quarter, specifically as you kind of look to September? I was just wondering how the pacing kind of looks per month in the quarter. Michael, I'll take that question. A very good question. We've been continuously saying, as you mentioned, that a lower rate environment should generally be good for all advertising channels. but we've been waiting for quite a bit of time for that to happen. And then the nature of national advertising, as you know, can be very lumpy and is very lumpy. And so, in fact, we're not seeing any improvement in pacing at this point, but things can change pretty quickly. But as we're sitting here right now, there hasn't been a significant difference. Gotcha. And I would think national is such a significant portion for you that that turned to be quite significant. So in terms of just in there has been a general decline in referral search engine traffic, and I was just wondering if you can talk a little bit about your digital marketing services business and if you're seeing any issues related to that in any way, or if not, do you expect that it could have a problem? And if you could just talk a little bit about maybe what your exposure might be to the process of seeing referral search engine traffic decline and what the impact might be on your businesses.

Yeah, I mean, I'll take that. Good morning, Mike. Referral, search is a very, very small part of our digital business. And so, as such, you know, as it becomes more pressured, as it changes, there will be some impact. But Generally, we have, you know, our digital marketing services business allows them to, you know, target. We do a lot of geo-targeting, other things that we're not dependent on search. And then our boost product, which is a presence product, is not affected at all.

So could it decrease the number of eyeballs on sites and so forth and possibly decrease the ROI that you deliver for your customers on your DMS business?

Yeah, I mean, I think that certainly could. But I think we're aware of it, and we are always fine-tuning how we go to market and what the products are and how they work together. So, yeah, I could, but I think we have a very good track record of optimizing any kind of campaign, and so we'll continue to do that.

Thank you. And just one final question. In terms of just advertising categories, I was just wondering if you can talk a little bit about some of the key categories. Are there any particular green shoots that you're seeing that might kind of give you a little hope that maybe things kind of stabilize a little bit and maybe show signs that there might be some improvement going forward. Mike, I'll take that. But let me just add on a couple of digital comments to give some context. So with the growth of DMS of close to 40%, you can tell that things are working extremely well. And that's working in terms of the number of clients we're getting and the average pricing, the penetration of their existing clients, and then the benefits of new clients buying radio. So for example, our attachment rate with existing clients is close to 20%. Close to 28% of clients who are buying digital only are now buying radio. We offer a multi-suite of products. So to your point, as Mary mentioned, search is one component of that. But when we look at our runway and our pacing, we continue to be really bullish on that business. Moving to the categories, our top five categories In broadcast spot, our professional services, home products, automotive, financial, and entertainment. In total, that represents probably 55 to 60% of our business. In a general week environment, even though we're seeing slight improvement in local spot versus national, it's still down, and that's reflecting our pacing. And one of the things that impacts our business, particularly in our small markets, is the continued decline in automotive, which we are getting some benefit in digital. but to your point in terms of lower interest rates, if we get lower interest rates, that stimulates demand in categories I thought were really well levered to that, and we should benefit from that. Thank you for the call. That's all I have. Thank you.

The next question is from the line of Patrick Shaw with Univervod Company and Free Mode Users. You may begin.

Hello? Okay, we can hear you. Sorry. Hi. I was wondering, on the digital side, if you could maybe talk a little bit more on podcasting, and I think you said talking about the growth there excluding the lost relationships. Is that due to bringing on additional podcasting, or is that mostly kind of just organic to the existing footprint of shows?

Yeah, good morning. You know, we generally drive growth in three ways. The first is we add new shows. The second is through strong execution to capture audience growth, you know, across both audio and video. And then third is just strong execution, including multi-platform ad packaging of the podcast and the tours. We put it in broadcast size. So we're seeing growth. Many of our top shows continue to see impressions growth. We have the Sean Ryan Show, which continued with really impressive audience growth, you know, tens of thousands of new followers in Q2. The Benny Show, which is another one of our top podcasts in Q2, made it to the top 30. And then we've got a bunch of new ones, including some of our local – you know, for example, the ticket. So looking ahead, you know, we believe that we will continue that growth, you know, adjusted for the two items we've talked about several times.

Okay. And then just on the expense side, you provided additional color on the fixed cost reduction. I was wondering if you could, you know, talking about the pace of OPEX declines, maybe having Q2, if that sort of is like the review of how would you think about that going through for the remainder of the year?

Well, as you know, we continue to be very, very focused on our cost structure, regardless of the revenue environment. Part of the benefit that we had in the second quarter in terms of costs is that some of the actions that we took last year benefited the second quarter. So the total reduction of expenses in the second quarter, approximately $10 million of that was fixed costs. And then, as I mentioned, we're adding on top of that. We always have contract renewals we'll look at to see whether or not we need those contracts or whether or not we can get better terms. We always look at our inventory of the network to see what the opportunity for that revenue opportunity is versus the cost. And as Merit mentioned, on AI, we're I'm going to be focused on continued business optimization, which will not only help us in the top line, we believe, but also on the cost side. So it's a long way of saying that we'll continue to be focused on that, and there are always opportunities. But, again, having taken out $175 million in fixed costs since 2019 is a big number, and the incremental cost savings after that. should be more modest, but time will tell.

Thank you. At this time, I'll pass the conference back over to the management team for any further remarks.

We appreciate everyone being in the call, and we look forward to meeting with you at the next call. Thank you.

Thank you all. This now concludes today's conference call. We appreciate your participation. We hope you have a wonderful day, and at this time, you may now disconnect your lines.