Cumulus Media Q3 2024 Earnings Call Transcript

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Provided by Quartr
November 1, 2024

There are 6 speakers on the call.

Operator

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

Speaker 1

Thank you, operator. Welcome everyone to our Q3 2024 earnings conference call. I'm joined today by our President and CEO, Mary Boerner 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.

Speaker 1

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 reconciliation 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.

Speaker 1

A recording of today's call will be available for about a month via a link in the Investor portion of our website. With that, I'll now turn it over to our President and CEO, Mary Berner. Mary?

Speaker 2

Thanks, Colin, and good morning, everyone. During the Q3, we delivered $203,600,000 of revenue and EBITDA of $24,100,000 in line with pacing commentary and analyst estimates. While we benefited from the acceleration of political spending in the quarter, as well as improving national trends, many advertisers continue to cite the overall rate environment and concerns around the upcoming presidential election as impediments to their spending. That said, we remain focused on key areas of the business that are in our control, including investing in digital growth, optimizing political spend, capitalizing on areas of improvement in national advertising, driving additional cost efficiencies and delivering operating cash flow. Starting with our digital businesses, digital revenue, which now accounts for 20% of our total revenue, continued to grow, increasing 8% year over year.

Speaker 2

Digital marketing services once again performed impressively, growing close to 40% year over year, which compares to strong growth of 24% achieved in the first half and 4% in the same quarter last year. Our DMS business is flying on all cylinders as is reflected in several key performance indicators. During the quarter, customer count grew by 22%, customer retention improved by 6%, and average digital order size per customer increased by 17%. Additionally, through our focus on expanding our share of wallet with our radio only clients, we have increased the number of legacy radio clients who now also purchase DMS from us by 32%. We fully expect a successful performance to continue given the elements that in combination define our unique selling proposition or competitive positioning.

Speaker 2

1st, our feet on the street sales force with direct access to over 30,000 current advertisers provides us with market insights and relationships that are difficult to replicate with an out of market approach. 2nd, we deliver fully integrated solutions, including both digital and broadcast products and services that are custom tailored to fit our customers' needs. 3rd, we out execute our competitors using our local in market capabilities and insights and customized solutions to generate results for our clients that outperform industry benchmarks by more than 25% across 14 key business categories. 4th, we continue to invest in this business to accelerate growth. As we've highlighted in the past, we've been expanding our digital organization across multiple functions.

Speaker 2

We've added staff to our sales creative and internal agency teams, which has allowed us to increase our sales coverage, build out our product capabilities, and in the case of our internal agency team, increase margins by up to 50% for business we are now able to fulfill in house. And given the growing scale of our overall DMS business, we expect to take advantage of additional in sourcing opportunities that will allow us to further improve our margins over time. We've also been investing in technology solutions to improve campaign performance, customer satisfaction and attribution. With these investments and our unique competitive positioning, we continue to be bullish about the prospects for our DMS business. Turning to other components of our digital revenue, streaming increased slightly during the quarter.

Speaker 2

We continue to be encouraged by our streaming performance despite the difficult comp caused by the expiration of a fixed rate sales contract last year. As I've said on earlier calls, taking back our inventory allows us to better manage and optimize the monetization of our streaming impressions. The 3rd major channel of our digital revenue, podcasting, experienced a modest revenue decrease in the quarter, reflecting declining revenue from the Daily Wire podcasts. Excluding that, revenue was up significantly in the quarter, driven by growth in existing podcasts and new podcasts that were added year over year. We continue to capitalize on the growing popularity of our existing stable of podcasts, particularly in the News Talk category, where we've seen significant growth in several podcasts, including the Dan Bongino Show, which ranks 6th among all podcasts as ranked by Triton and the Sean Ryan Show, which was a top 3 podcast on Spotify for all of October, at one point reaching number 1.

Speaker 2

We will also we also will benefit from recent additions to our content stable, including award winning creator, streamer and podcaster, Benny Johnson, whose Video First podcast has become a go to platform for many of the next generation news consumers. Moving to our broadcast radio business, as I said on the onset of the call, we continue to see positive indicators in our national advertising businesses, which as a reminder, make up approximately 50% of our total broadcast revenue. Specifically, demand for live sports products has been robust, a trend which has benefited our network business, up 5% in revenue during the quarter, thanks in part to our exclusive audio relationship with the NFL and our coverage of the summer games. We've also found success utilizing sports as a compelling reentry point for clients who have been out of network radio for a while or to boost spending with clients who had decreased spending from prior year levels. That sports hook was a key contributor to the meaningful growth experienced by the network in the insurance, retail and personal care products categories.

Speaker 2

National Spot, which benefited from the ramp in political spend, while still negative overall, experienced performance improvement throughout the quarter with our larger markets growing year over year. And in Local Spot, home products was one of our biggest categories, which is one of our biggest categories, was an area of strength. Despite these bright spots, overall advertising sentiment remains weak. Economic and interest rate concerns continue to be reflected in lower spending in several key categories, including in local, automotive, professional services and entertainment, and in national, job search, financial and home improvement. Smaller local advertisers are also citing skittishness about advertising in the midst of an intense presidential race they are holding back spending for now.

Speaker 2

Political spending was impacted by the change in the Democratic presidential candidate, which reduced spending on both sides as the transition from Biden to Harris was completed. Though a majority of our political revenue comes from down ballot races, the temporary pause in presidential advertising spending resulted in lower than expected political in the quarter. However, political spending has significantly rebounded in the 4th quarter with quarter to date political revenue through Wednesday booked of approximately $9,700,000 up from $8,300,000 in Q4 2022, but down from $14,300,000 in Q4 2020, which benefited from 2 Senate races and subsequent runoffs in Georgia. So taken as a whole, total Q4 revenue is currently pacing down slightly. Moving to expenses, we continue to be disciplined operators.

Speaker 2

And as such, we are focused on ongoing refinement of our expense structure, while maintaining flexibility to further invest in our digital growth strategy. Year to date, we generated a we've generated a total of $8,000,000 of cost reductions on top of the 120,000,000 dollars of fixed cost reduction that we realized from 2019 through 'twenty three. These efforts reflect more efficient approaches to bringing products to market, leveraging opportunities for economies of scale, and managing and renegotiating contracts to reduce costs. For example, we were able to consolidate recently, we were able to consolidate certain products in our network business, which resulted in meaningful cost savings without impacting revenue potential. In another example, our Station Group in our Station Group, we brought some of the functions formerly outsourced to vendors in house, allowing us to recapture margin that previously was going to a third party.

Speaker 2

Additionally, we are aggressively pursuing AI enabled efficiencies across all facets of the business, including in programming and production, operations, marketing, sales and administrative. Among other applications, we are using AI for sales lead generation, creation of traffic instructions for play by play sports and the development of email marketing content. And like many other businesses, we believe that we are just getting started in realizing the value that AI can bring to our business. It goes without saying that given the uncertain dynamics of the advertising environment, we are determined to leave no rock unturned and will continue to be aggressive in managing expenses as we set ourselves up for next year. We are similarly disciplined on CAF capital allocation.

Speaker 2

As a reminder, we have prioritized and invested in organic growth, specifically in our digital businesses instead of pursuing non accretive M and A. Additionally, since 2018, we completed over $260,000,000 of non core asset sales and $235,000,000 of station sales and generated $205,000,000 of free cash flow, which we have used to reduce debt by more than 50%. Investing in our growth businesses and reducing debt remain our top capital allocation priorities. Before turning it over to Frank, I want to reemphasize the importance of the financial flexibility and runway that we created in the Q2 by extending our debt maturities to 2029, giving us time to push through the economic choppiness and realize the value we believe is inherent in the company. Cumulus has a strong set of assets, including profitable and fast growing digital businesses, a vast national platform that can reach audiences wherever and whenever they choose to listen, Extensive local sales capabilities across 80 markets with the ability to walk products through the door.

Speaker 2

Premium programming across all genres with particularly exclusive access assets in sports and news talk space, 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 numerous 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 time to explore these paths despite an economic backdrop, which remains challenged for now. With that, I'll turn the call over to Frank. Frank?

Speaker 3

Thank you, Mary. Q3 revenue was 203,600,000 dollars down 1.8% year over year, consistent with the pacing guidance from our last call, while EBITDA was $24,100,000 in line with analyst estimates. Our DMS business continued to be our highest growth area, increasing approximately 40% year over year. Q3 DMS revenue performance represented not only an acceleration of the 24% growth that delivered in Q2, but is also the largest year over year dollar increase that we've had in this business, providing strong evidence that our investments in this area are paying off. Our annualized digital revenue run rate is now approximately $160,000,000 with DMS representing more than a third of that.

Speaker 3

In our broadcast business from a category perspective, telecom, insurance and retail were our top performing key national categories, while our weakest were financial, job search and home improvement. In local spot, home products, general services and utilities were our best performing categories, while automotive, professional services and entertainment were our weakest. We generated $4,400,000 of political revenue in the 3rd quarter versus $5,800,000 in the same period of 2020 $4,500,000 in 20 22 with the decline reflecting the change in the Democratic presidential candidate and the timing of presidential primaries. With the election less than a week away, 4th quarter $14,300,000 in 20.20 $8,300,000 in 2022. As a reminder, Q4 2020 political revenue benefited from the 2 center braces and subsequent runoffs in Georgia.

Speaker 3

Total expenses in the quarter were down approximately $1,000,000 year over year reflecting additional cost reductions offset by continued investments in our digital businesses. Given the uncertain ad environment and our desire continue investing in our digital businesses, we remain focused on cost management. As Mary said, we have achieved $8,000,000 of year to date cost reductions on top of the $120,000,000 that we have achieved from 2019 through 2023, representing approximately 20% of our total fixed cost base. Turning to the balance sheet, we ended the quarter with $52,200,000 of cash, gross debt of $642,100,000 and net debt of 590,000,000 when excluding the $31,000,000 of principal debt reduction resulting from the exchange offer, which will be amortized over the term of the debt. Year to debt CapEx was $15,900,000 and we expect full year CapEx to be below the $25,000,000 revised guidance that we provided on our last earnings call.

Speaker 3

While we did not repurchase that during the quarter, our capital allocation priority going forward will continue to be investment in our growth businesses and debt reduction. Turning to the 4th quarter, as Mary previously mentioned, total company revenues currently pacing down slightly. With that, we can now open the line for questions. Operator?

Operator

Thank you. Our first question today comes from Michael Kupinski from NOBLE Capital Markets. Please go ahead, Michael. Your line is now open.

Speaker 4

Thank you. Thanks for taking my questions. I have a couple. In terms of the marketing services, you mentioned that additional services were a driving factor to a portion of the revenue growth. And I was wondering if you can just kind of give us some thoughts about what those services what those upsells are?

Speaker 2

Sure. Good morning, Mike. Yes, so we've started we've always had when we started the business, we had a robust suite of campaign products. And we also added a full suite of integrated presence products. So what that is, is that ranges from listings to reputation management, website development, SEO.

Speaker 2

And so now we have a pretty much anything you'd want, we can provide.

Speaker 4

Got you. And then in terms of the political, dollars 9,700,000 being booked, a little softer than what I was looking for. I was just wondering if you can just kind of give us your thoughts on political. Do you think that there's still a little upside in that number? And then just kind of how you feel that you performed in political for the year?

Speaker 3

Hi, Mike. I'll take that question. So I think I've mentioned I know I've mentioned in previous calls that the last presidential election was not the best comp for this year's presidential election for two reasons. First, the last presidential election, the primary season was very robust with Steyr and Bloomberg competing for the presidential nomination. And then as we talked about in the earnings call, the Georgia competitive races and the runoffs, those three items alone represented close between $5,000,000 $6,000,000 of political revenue.

Speaker 3

So as we've mentioned in previous calls, we thought a $20,000,000 number would be probably a better benchmark. The Q4 is tracking pretty close to what we expected. What we did see in the Q3 was slightly less than expected because of what happened in terms of the Democratic presidential change. So in all, we're going to be close to our expectations with a week to go and with the frenzy that we're seeing in terms of political ads, we certainly do expect to add from here. And then what we don't know is whether or not there will be individual runoffs in certain states, which obviously will be accretive to our numbers.

Speaker 4

And then you mentioned advertisers are positive to the elections. And I know that it's typical that some advertisers may stay out of the way in terms of the wave of political that you see. But the implication was that maybe some of the advertisers were holding back because they're looking for a specific outcome. Is that true? Or can you kind of just give us a flavor of what your expectations might be after the election?

Speaker 2

What we're hearing, we're hearing a lot of things. But generally, the sentiment is, it's either that they want to see how the economy settles after the election or they feel that political ads are dominating the airwaves. So they don't want to invest when there's a lot of what they perceive to be clutter. So it's and then there's just kind of this general uncertainty that people will say they feel right now about the election.

Speaker 4

Got you. And then my final question on the network business, it seems like it was a little better than what I was looking for. And I was just wondering in terms of heading into a heavy sports season now, are you still seeing those trends continue on the network side? And with your you indicated that the pacings are down slightly for the Q4. Are you the mixture between network and your local spot, can you kind of just give us the differences that you're seeing there?

Speaker 3

Sure, Mike. I'll take that. So in the network, we did benefit from airing the summer games, which was not obviously last year. So that had a benefit in the Q3. And we also had some benefit in terms of the timing and the schedule of the NFL, and there are a couple of games that came into the Q3 this year, which we're not in, so that had a benefit.

Speaker 3

As Mary said, the interest in sports continues to be very robust and strong. And I did indicate on our last earnings call that the network would do much better than in the Q2, which it did. And so not giving guidance on the network itself, but we'll probably be as robust as the Q3 because of the 2 things I mentioned, the schedule, as well as the summer games. The rest of the business, the national spot business trends continue to be decent. And when we look at local spot, local spot at this point is pacing stronger than what we saw in the Q3.

Speaker 3

So in total, including what we expect to be another robust growth in digital, that all adds up to pacing down slightly.

Speaker 5

Thank you.

Operator

Thank you. The next question comes from Patrick Scholes from Barrington. Please go ahead, Patrick. Your line is now open.

Speaker 5

Good morning. I just had a a question on the conversations that you guys are having with your advertisers. I think you had mentioned rates interest rates as one of those headwinds on advertising spend. I was just wondering if you had any sense of all else equal, how much rates would need to fall for some of that uncertainty to kind of alleviate?

Speaker 3

Hi, Pat. I'll take that. That's a simple question with a complicated answer because it addresses different categories. So the most obvious category that it affects is the financial products and particularly the area with regard to mortgages. And even though the market expects that rates will come down and eventually mortgage rates will come down, I think there will be potentially a lag impact in terms of what we see in advertising spending because of 25 or 50 basis point move in mortgage rates although helpful is not the same thing as 100 basis points or 150 basis points, but any improvement in interest rates is good for that category.

Speaker 3

The other thing which is also important and we didn't talk about it so much in this call, but really important is the inflation outlook in the economy. And so with the inflation outlook trending closer to 2% and that continues to be consistent with lower interest rates, actually it's a positive environment broadly in terms of sentiment for business sentiment to consumer sentiment. And that type of improvement will cut across many, many different categories, including things like automotive, etcetera, which is one of our larger categories. So in general, rates coming down, lower inflation, and still having a what is a growing economy is the ideal circumstances for us to benefit from all the different categories, which for whatever reason pause spending. So that's the way it would answer that.

Speaker 3

So, operator, are there any other questions?

Speaker 5

I'm sorry. Yes, sorry. Got it. Okay. I

Speaker 1

had a couple of minutes there.

Speaker 5

I was just wondering, you had mentioned podcasting being down. I guess I was kind of curious if that was you specifically called out Daily Wire. I was wondering how much of that would be download driven versus advertisers' skittishness on advertising against political content and the clutter of political ads that they'd be up against as well if that was also impacting that segment?

Speaker 2

No, I mean, I'll take that. The Daily to clarify, The Daily Wire started out with the Ben Shapiro show, which we represented both on broadcast radio and podcasts. And so over time, Daily Wire added additional podcasters, which we represented under The Daily Wire relationship. But this year, we no longer represent some of the additional podcasters. So that's leading to a negative year over year comp.

Speaker 2

And additionally, the revenue on the flagship shows has been pressured this year as like others it's been it was particularly impacted by the change in iOS 17 late last year among other issues. But that said, if you look at the business, we're doing very well in our business that's not Daily Wire related. As I mentioned in the prepared remarks, we have 3 other news talk shows that are consistently in the top 50 of all genres, Bongino, Sean Ryan, Mark Levin, and they continue to thrive. So there's no we haven't felt any downturn. In fact, it's the opposite during a political season.

Speaker 2

And then as I mentioned, we have added Benny Johnson, and we're very excited about that. So I would say that it's that's kind of a one off and it's a we've got a negative comp and a technical issue that affected it.

Speaker 3

And Mary, if I can add in terms of if I can add our pacing in the broadcasting business in the Q4 is up nicely. So we'll be able to talk more about that in the next earnings call.

Speaker 2

Yes. Thanks everybody for being on the call and we will look forward to being on the next call for next quarter. Thank you.

Operator

Thank you, everyone. This does conclude today's call. Thank you for joining. You may now disconnect your lines.

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Earnings Conference Call
Cumulus Media Q3 2024
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