Transcript
Welcome to the Cumulus Media Quarterly Earnings Conference Call. I'll now turn it over to Collin Jones, Executive Vice President of Strategy and Development and President of Westwood One. Sir, you may proceed. Thank you, operator. Welcome, everyone, to our First Quarter 2024 Earnings Conference Call. I'm joined today by our President and CEO Mary Berner and our CFO Francisco 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 these 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 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, and that press release can be found in the Investor Relations portion of our website and our Form 10-Q was also filed with the SEC on this call. A recording of today's call will be available for about a month via a link in the Investor portion of the website. Now with that, I'll turn it over to our President and CEO, Mary Berner. Mary?
Thanks, Colin, and good morning, everyone. This morning, I'm very pleased to let you know that we've refinanced our capital structure to secure a 5-year maturity with very favorable terms through a successful debt exchange and ABL facility upside and extension, which is an excellent outcome for the company given the generally difficult financing environment for legacy media companies. Specifically, with the completion of these transactions, we have extended maturities to 2029, reduced the principal amount of debt outstanding by approximately $33 million, secured attractive interest rates, maintained covenant-like terms and increased our ABL facility availability by 25%. Importantly, by addressing the 2026 maturity wall, we now have considerable additional runway with which to continue executing against our strategic operational and financial priorities, including accelerating digital growth through ongoing investment, particularly in digital marketing services, reducing fixed costs to further enhance our operating leverage, which will be a big benefit to us as broadcast radio demand improves, and continuing to reduce debt to delever. Since our last call, in parallel to refinancing our debt capital structure, we continue to make considerable progress against these priority areas with the benefit of that progress reflected in our Q1 results. In Q1, in line with pacing guidance, total company revenue was down 2.7%, which represented a marked improvement from 2023 trends and EBITDA was $8.4 million. Overall, digital continues to be an area of strong growth, increasing 7% year-over-year. Once again, our digital marketing services revenue was the lead growth driver, up 25% in the quarter, clearly demonstrating the positive impact of the investments we've made to date. These investments included the expansion of our digital sales force to capture more of the growing DMS space and the ramp-up of Cumulus Boost, our portfolio of presence products, which serves as a low-priced entry point for advertisers who are new to the company, and as two-thirds of our originally boost-only clients have added broadcast radio or other digital products to their buys, the benefits of the boost strategy are compelling. Our digital results also reflect our differentiated go-to-market strategy which centers on a versatile and well-connected feet-on-the-street sales team offering a suite of digital audio and digital marketing solutions. Our ability to walk this full product set into the customer's door continues to pay off as our customers value the personal relationships and our salespeople's ability to tailor and adapt solutions that fit their particular business needs while remaining responsive to the continually changing dynamics of the digital ad market. This approach is yielding impressive increases in both new clients and the proportion of formerly radio-only clients who now buy digital products as well from us. Specifically, in the first quarter, we increased total DMS customers by over 25%. Additionally, we drove a 12% improvement in the percentage of our previously radio-only customers who now buy DMS as well. And we continue to see the ability to up-sell these legacy advertisers as a very large opportunity. While we're still in the early stages of executing our DMS growth plan, we remain very bullish about this strategy. Our other two digital revenue streams, podcasting and streaming, also grew in the quarter, up low single digits year-over-year. Podcasting revenue performance continued to improve sequentially on a quarter-over-quarter basis. As we mentioned on our last call, first quarter streaming revenue was impacted by the expiration of a third-party fixed-rate ad sales contract. However, we remain confident that taking back sales responsibility for our station streaming inventory is a smart move, both strategically and financially, especially given our successful experience with taking control of the NFL stream inventory two years ago. In fact, by applying the same approach that drove our success with the NFL stream to the management of our NCAA streaming rights, we increased our streaming affiliates by almost 60% during March Madness and the Final Four run. In aggregate, despite the difficult comparison from the expired sales contract, our streaming revenue grew in the quarter, indicating that our new streaming strategy is working. Moving to broadcast radio. The Q1 trends in our national spot and network business significantly improved in 2023. In aggregate, these two national businesses were down mid-single digits during the quarter. As a reminder, our national spot revenue is embedded in the spot revenue line in our earnings press release, and the combination of it and network revenue makes up approximately 50% of our total broadcast revenue. Spending by advertisers in certain key categories, including consumer packaged goods and insurance, continued to show meaningful growth. In insurance specifically, a top vertical within the financial category, which is a top five category for us, we are encouraged by the return of several large clients who sat out most, if not all, of 2023. Additionally, we saw strong increases in the food and restaurant, pharmaceutical, and retail categories as well as a heightened interest in live sports given its strong listener trends. As mentioned on our last earnings call, we booked the most revenue ever for the Super Bowl. And after that, we achieved similar levels of success with the NCAA men's and women's March Madness championships. However, despite these positive indicators, the recovery in national advertising remains very choppy as advertisers across several key categories, including mortgage, banking, and home improvement, continue to cite the overall interest rate environment as a significant obstacle to spending. With respect to local spot, while still down, the revenue performance improved in Q4 of 2023. Given historical trends, we would expect that local broadcast radio, which does not drop off as quickly and significantly as our national broadcast revenue, will see a recovery that is more gradual and muted than the rebound we may be starting to see in national. Regarding political, revenue for the quarter was $2.2 million, down 55% from 2020, reflecting less competitive presidential primary. Looking ahead, national advertisers are continuing to avoid the desire to increase spending, but many still cite the uncertain macro environment as an impediment to a consistent return to more normal spending patterns. Further, as we saw in the first quarter, both local and national broadcast clients continue to book quite late, reflecting their lack of visibility into the course of the economy. With that backdrop, our revenue is currently pacing down low single digits for Q2. In this context, we remain acutely focused on disciplined expense reductions. In Q1, results included approximately $4 million of fixed cost reductions versus the prior year, which was on top of the $120 million or 26% of our total fixed cost we had already taken out since the pandemic through the end of 2023. We've significantly improved the operating leverage of the company, which will drive EBITDA growth as the advertising environment continues to recover, and reducing expenses across multiple facets of our business continues to be one of our primary operating goals. To wrap up, I want to emphasize that given the continued uncertainty of the advertising outlook, our successful completion of what is effectively a full capital refinancing was a critical step and a big achievement for the company. Again, we extended maturities to 2029 and reduced the principal amount of debt outstanding by approximately $33 million, secured attractive interest rates, maintained covenant-light terms, and increased our available ABL liquidity by 25%. Our new capital structure provides us with additional time and flexibility to execute against our key business priorities, celebrating digital growth, reducing fixed costs, and continuing to delever our balance sheet, each of which is foundational to our ability to build long-term shareholder value. And with that, I'll turn it over to Frank.
Thank you, Mary. Revenue in Q1 was $200 million, down 2.7% year-over-year, consistent with the pacing guidance from our last call. While still a decline, it represented an improvement versus 2023's performance. These results were driven in part by better trends within our Broadcast business, particularly those tied to national advertisers as well as growth in digital. Within digital, digital marketing services revenue grew 25%, while podcasting and streaming each increased low single digits. From a category perspective, consumer packaged goods, insurance, and pharmaceuticals were top-performing key national categories, while our weakest were mortgage, home improvement, and banking. In local spot, home products and general services were our best-performing categories, while professional services and retail were our weakest. We generated $2.2 million of political revenue in Q1 versus $4.9 million in the same period of 2020, with the decrease reflecting less competitive presidential primaries this year. However, given what is shaping up to be a heavily contested general election accompanied by a large number of down-ballot races across our footprint, we're expecting robust political revenue in the late third quarter and fourth quarter. Moving to expenses. Total expenses in the quarter decreased by approximately $4 million year-over-year, which is largely driven by fixed cost reductions, partially offset by higher variable expenses associated with the shift in revenue mix. As always, we continue to focus on disciplined cost reduction to improve operating leverage, which will benefit EBITDA as the advertising environment continues to recover. Turning to the balance sheet. As Mary mentioned, with the completion of the exchange offer, we reduced debt outstanding by $33 million, extended approximately 97% of our maturities to 2029 from 2026, secured attractive interest rates, and maintained covenant-light terms. Following the exchange, we have only approximately $22 million of debt maturing in 2026, which is very manageable. The exchange will not result in cancellation of debt income for tax purposes. Additionally, we completed an amendment of our ABL facility, which extends the existing maturity to 2029 and increases the facility to $125 million from $100 million for the same interest rate terms. In combination, the completed exchange offer and the amended and extended ABL facility provides the company with the ability to focus on our strategic, operational, and financial objectives, including debt reduction, which remains our priority. Looking ahead to the second quarter, while we're seeing an increase in demand from advertisers in select categories, the uncertain macro environment weighs on many others. As a result, total company revenue is currently pacing down low single digits. With that, we can now open the line for questions.
Our first question comes from Michael Kupinski from Noble Capital Markets.
Historically, you stated that your digital businesses were represented by direct marketing services, broadcast, and streaming. I was wondering with the strong performance of direct marketing services if you can kind of give us some thoughts about the breakout of your digital businesses? And then given your second quarter guide of pacing data, I was wondering if you can kind of give us some thoughts on how the digital businesses are pacing.
Our businesses are still roughly balanced at one-third each, although this can vary by quarter. In this quarter, you'll see that the strong growth in DMS revenues has pushed it slightly above one-third. I should also mention that this quarter's DMS growth includes some revenues from our e-commerce third-party digital platform, which were previously classified under other income; this accounted for about 6% of our growth this quarter. Currently, we're seeing mid-single-digit pacing in digital for the quarter. DMS remains extremely strong, consistent with our first-quarter results, and podcasting is also performing well. While it's still early to predict the overall digital performance for the quarter, I anticipate it will likely be similar to the first quarter's aggregate growth.
I was wondering if you could elaborate on the $4 million fixed cost reduction. You mentioned that there are additional opportunities for reductions. Could you provide more insight into the potential for further fixed cost reductions?
Good question, Michael. I know every quarter, I'd say it's harder and harder to take out fixed costs and we keep on doing that. If you look at the quarter, most of the fixed cost reductions were in areas of the use of outside contractors, renegotiating fixed-price contracts, in addition to people savings. We were more efficient this year in terms of our production cost for sports. I think that's going to be a potential area of opportunity as we continue to realign the opportunity there with sports, and it's an incremental approach. There's not one single large item that we look across the footprint. It's really a battle on a month-to-month basis when we look at where we're spending our fixed costs and where we can reduce it. And as a reminder, when we look at our business now, we're roughly 55% to 60% of our cost base is fixed. So it talks to the operating leverage we have to the company with a return of improved advertising revenue in particularly.
I'll add something to that. Yes. We're also continuously looking for ways to improve functions through technology implementation, better processes, and other buckets that we have a keen eye on is real estate. As Frank said, there's no big anything, but we incrementally hack at it every month.
The next question comes from Jim Goss of Barrington Research.
This is Pat on for Jim. Regarding digital marketing services, are you acquiring clients from other DMS providers, or are these primarily new business through self-service?
It's generally a combination of both. There are a lot of small digital agencies that have built those capabilities. And there are also several large providers of single-point solutions. But there are very few companies that successfully offer small- and medium-sized businesses the full spectrum of digital marketing solutions. And so that's our angle. We're able to do that profitably and at scale. So we go in and provide advertisers with unique packages that combine audio and digital advertising seamlessly. And as we do that, because we're able to pack them together, the ROIs tend to be better. So I'd say many of them are new. I don't know at the top of my head, I'm not sure how many. I think it's probably, if I remember correctly, it's probably 70% of them are new advertisers. Of those, probably half of them are what we pulled from another agency or somebody else that they're doing business with. So it's a very good business for us.
Within podcasting, can you maybe talk about some of the improvement in ad trends there? Is that just a national recovery? Or are you sort of expanding the sales efforts to include local in that as well?
We have achieved a significant milestone with 47 of our shows charting on Apple Podcasts, which is the highest number in the history of our podcast network. This includes 12 local podcasts, also a record. There is a positive trend in the listenership of our podcasts. While national podcasting faced similar challenges as broadcast radio, it is beginning to recover. Locally, we are seeing growth around strong brands like the Ticket in Dallas and the Bird Show in Atlanta. Our podcast initiatives encompass both local and national efforts, with revenue growth stemming primarily from increased listenership.
Okay. Can you provide some insight on your pacing guidance or commentary? Are you noticing consistent trends in the second quarter compared to the first for the core broadcast segment? Is it a slower trend of improvement on the national level? Or can you share what pacing you're observing with broadcast?
Sure, I’ll take that. In terms of broadcasting, the overall pacing, when considering local spots and network, is currently seeing a decline in the mid-single digits. However, there's a lot to discuss. For local spots, we're noticing an increase in business bookings towards the end of the month. For example, in April, we experienced a significant uptick from the beginning to the end of the month in our local spot business. It remains to be seen if this trend will continue for the rest of the quarter, which would be positive news. Regarding the national aspect, which affects our combined spot revenues, it's important to note that our spot revenue includes local, national, and network components. This area tends to be quite variable. In the second quarter, aside from the NCAA finals in April, we don’t have much in terms of sports events, making it a lighter sports quarter for us. In the first quarter, we saw strong performance from the Super Bowl, NFL, and NCAA, but we lack that same energy in the second quarter. This could influence national performance in the upcoming quarter, though it’s still too early to predict. The national market is quite unpredictable, and we need to consider our programming, including both sports and non-sports, as well as the continuous improvement in local pacing over the month. These are elements we will need to monitor over the next couple of months. In our previous earnings call, we provided an update two months into the quarter, and now we find ourselves with two months remaining. We will have more to discuss in our next earnings call.
I'll now turn it back over to the company for any closing remarks.
Thank you, everybody. I appreciate your time, and we look forward to speaking to you again next quarter.
This concludes today's call. Thank you very much for your attendance. You may now disconnect your lines.