Q1 2024 Cumulus Media Inc Earnings Call

Participants

Collin Jones; President of Westwood; Cumulus Media Inc

Mary Berner; President, Chief Executive Officer, Director; Cumulus Media Inc

Francisco Lopez-Balboa; Chief Financial Officer, Executive Vice President; Cumulus Media Inc

Michael Kupinski; Analyst; NOBLE Capital Markets Inc

Jim Goss; Analyst; Barrington Research Associates Inc

Presentation

Operator

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 Westwood One. Sir, you may proceed.

Collin Jones

Thank you, operator, and welcome, everyone, to our first quarter 2024 earnings conference call. I'm joined today by our President and CEO, Mary Berner, and our CFO, Frank Lopez.
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 and 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 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 and that press release can be found in the Investor Relations portion of our website in 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 one 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.

Mary Berner

This morning, I'm very pleased to let you know that we've refinanced our capital structure to secure five year maturity with very favorable terms through success successful debt exchange and ABL facility upset upsize 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, reduce the principal amount of debt outstanding by approximately $33 million secured attractive interest rates maintained covenant-light 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 investments, particularly digital marketing services, reducing fixed costs to further enhance our operating leverage, which will be a big benefit to us as broadcast radio demand improve 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 continue 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 GM.s space and the ramp up of Cumulus boost our portfolio of presence products, which serves as a low price entry point for advertisers who are new to the Company and it's two thirds of our originally placed.
Only clients have added broadcast radio, other digital products to their buys the benefits of the two strategy are compelling. Our digital results also reflect select 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 relationship at our salespeople's ability, 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 has yielded 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 GM.s 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 upsell these legacy advertisers is a very large opportunity. While we're still in the early stages of executing our GMS growth plan, we remain very bullish about bullish about this strategy.
Our other two digital revenue streams, podcasting and streaming also grow in the corner in the quarter, up low single digits year over year. Podcasting revenue performance continued to improve sequentially on a quarter over quarter basis. As I mentioned on our last call, Q1 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 streaming inventory two years ago. In fact, by applying the same approach that drove our success with the NFL Street to the management of our NCW. eight streaming rights we increased our streaming affiliates by almost 60% during March Madness.
And the final for Ron, in aggregate, despite the difficult comps from the expired sales contract, our streaming revenue grew in the quarter, an indication 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 about proximately 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 top5 five category for us.
We are encouraged by the return of several large clients to set 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 NCW. Men's and Women's March Madness championships.
However, despite these positive indicators, some 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 spending with respect to local spot was still down the revenue performance improved from Q4 2023.
Given historical trends, we would expect that local broadcast radio, which does not drop off as quickly and as significantly as our national radio broadcast revenue will see a recovery there 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 primaries.
Looking ahead, national advertisers are continuing to Board's 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 reduction versus the prior year, which was on top of the $120 million or 26% of our total fixed costs we had already taken out since the pandemic through the end of 2023, we 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 refit refinancing was a critical step and a big achievement for the Company. Again, we extended maturities to 2029, reduced the principal amount of debt outstanding by approximately $33 million secured attractive interest rates maintained covenant-lite term 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 or to our return it over to Frank Thank you, Mary.

Francisco Lopez-Balboa

Revenue in Q1 was $200 million, down 2.7% year over year, consistent with the pace and guidance from our last call, while still a decline and 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 pharmaceutical for our top-performing key national categories. While our weakest were mortgage, home improvement and banking in local spot film products and channel services were our best performing categories while professional services and retail were 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 late third quarter and fourth quarter.
Moving to expenses, total expenses in the quarter decreased by approximately $4 million year over year, largely driven by fixed cost reductions, partially offset by higher variable expenses associated with a 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 at attractive interest rates and maintain 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, increasing the facility to $125 million from [$100 million] for the same interest ratios in combination the completed exchange offer and the amended and extended our facility provide 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 continues to weigh on many others. As a result, total Company revenue is currently pacing down low-single digits.
With that, we can open the line for questions.

Question and Answer Session

Operator

Operator, if you would like to ask a question on today's call, please press star followed by one on your telephone keypad. Now I'm prepared to ask a question, please ensure your headsets fully plugged in and unmuted locally.
Our first question comes from Michael Kupinski from NOBLE Capital Markets. Michael, please go ahead. Your line is open.

Michael Kupinski

Thank you. Thanks for taking the questions and good morning. Historically you stated that your digital businesses were a third, a third a third represented by direct marketing services, podcast and streaming. I was wondering, with the strong performance of direct marketing services, as you can kind of give us some thought about the breakout of your digital businesses? And then given your second quarter guide pacing data, was wondering if you can kind of give us some thoughts on how the digital businesses are pacing

Francisco Lopez-Balboa

Hi, Michael, it's Craig. I'll take that. Our businesses are still roughly a third, a third, a third and varies from quarter to quarter. I mean, I think this quarter by you'll find given the strong growth on the DMS revenues, that's roughly a little bit more than that. And I'll also note our GMS growth for this quarter. We're now including some of our e-commerce third party digital platform revenues, which was reported previously in other income. And we're now reporting that IDMS.
line, and that probably represented something like 6% of that growth for the quarter in terms of pacing for the quarter, we're pacing as it come in digital right now in the mid single digits, extremely strong in DMS. consistent with the results we have in the first quarter and and in podcasting is also pacing up nicely, but too early to tell where the quarter is going to be in digital, but I expect it won't be too dissimilar from the first quarter results in terms of growth on an aggregate basis.

Michael Kupinski

Got you. And then I was wondering if you can provide some color on the $4 million fixed cost reduction. You indicated that there were further opportunities there. Was wondering if you can just give us a little bit more color on the prospects, sir, additional fixed cost reductions that you think that you can take out there?

Francisco Lopez-Balboa

Have a good question, Michael. I know every quarter I say it's harder and harder to take out fixed costs and we keep on doing that. If you look at the quarter and most of the fixed cost reductions were in areas of the use of outside contractors renegotiating our fixed price contracts by. In addition, people savings. We were more efficient this year in terms of our production costs for sports, I think that's going to be near a potential area of opportunity as we continue to realign the opportunity there with sports.
And it's and it's an incremental approach is not one single large item that we look across the footprint. It's 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, as a reminder, when we look at our business now, roughly 55% to 60% of our cost base is fixed. So it talks to the operating leverage we have to the company with the return of improved advertising revenue particular.

Mary Berner

Yes, I'll start and then I'll add something to that. Yes, we also were continuously looking for ways to improve function through technology implementation, better process and other bucket that we have a keen eye on is a realistic number. As Frank said, there's not no big anything but we incrementally packed at it every month.

Michael Kupinski

Got you.
Thanks for the color on. That's all I have for now.
Thanks.

Operator

The next question comes from Jim Goss of Barrington Research.
Kim, your line is open. Please go ahead.

Jim Goss

Morning addresses that, Pat on for Jim and the is it the marketing services side, are you the client additions that you're getting is are you winning clients from other DMS providers? Are these generally kind of they are just doing new to the space or we're kind of more self-serve?

Mary Berner

It's generally a combination of both. There are a lot of small digital agencies that have built those capabilities. And there's also large several large providers of single point solutions, but there are very few companies that can successfully offer small and medium-sized businesses, the full spectrum of digital marketing solutions. And and so that's our angle. We're able to do that profitably and at scale and 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 package them together, the ROIs tend to be better. So I'd say many of them are new. I don't know off 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 we pull from another agency or somebody else that they're doing business with. So it's a very it's a good business for us.

Jim Goss

Okay. Within podcasting, can you maybe talk about some of the improvement in trends there, or is that just a national recovery? Are you sort of expanding and I kind of like the sales efforts to include work on that as well?

Mary Berner

Well, we have looked yes, I both know a lot of it is what the product is. And we hit another milestone recently with 47 of our shows charging on the Apple podcast. It actually most of the history of our podcast network that for the first time also includes 12 local podcasts, which is the most ever.
So and we had a nice trajectory on the listening side of our podcast. And as we're podcasting national obviously was that was hit with the same national headwinds that we saw with broadcast radio, but it's starting to rebound.
And local continues to gain traction generally around the power brands that we have like the ticket in Dallas at the birth show in Atlanta. So the podcast effort is both local and national and the growth. The revenue growth comes first from this company Mister ship growth.

Jim Goss

Okay. And then just around your your pacing guidance or your pacing commentary, I guess, are you seeing just sort of like consistent trends in the second quarter with the first for the core broadcast side, kind of a just a slower, I guess this trend of, I guess, improvement there for on the national side or maybe talk about like what your pacing you're seeing on the on broadcast?

Francisco Lopez-Balboa

I'm sure I'll take that some podcasts. I'm sorry, on broadcast the pacing within broadcasting right now, when you combine both the local spot, the spot as reported and network is combined is down mid-single digits. But there's there's a lot to unpack there at this point. And first on local, we're seeing more and more business booking late in month.
And so as an example, in April, we picked up significant pace from the beginning of April through the end of April in our local spot businesses. And it remains to be seen if that's going to be the same trend for the rest of the quarter. And if it is that obviously would be good news when it comes to National, which impacts both a combination of our spot revenues.
As a reminder, part of our spot revenue has are local nationals and the network, which is all national. That tends to be very, very lumpy. And in the second quarter, as a reminder, we don't have other than and the finals of the NCWA. which fell into April. It's very light it sports quarter for us when we when we saw the trends in the first quarter, Mary talked about this in their prepared remarks, the Super Bowl and the NFL did very well as well as the NCIWA. We don't have that same that same factor in the second quarter.
So that may impact national in the second quarter, but it's too early too early to tell. So the national market continues to be pretty lumpy. But when you have to look at what we have on the air sports non-sports in the local pacing improvement throughout the month. These are factors that term we'll just have to see how the next few months and we'll add that when we had our last earnings call and we had that basically two months into the quarter, so we had roughly a month to go before the final results here. We are with that too much during the quarter. So come we'll have more to talk about obviously in our next earnings call.

Jim Goss

Okay. Thank you.

Operator

I'll now turn it back over to the company for any closing remarks.

Mary Berner

Well, thank you, everybody. I appreciate your time and we look forward to speaking to you again next quarter.

Operator

Yes, this concludes today's call. Thank you. Very much for your attendance. You may now disconnect your lines.