Cumulus Media Inc. Q1 2023 Earnings Call
Speaker 1: betr F be.
Speaker 2: Welcome to the Camulus Media Quarterly Earnings Conference call. I'll now turn it over to Collyn Jones, Executive Vice President of Strategy and Development. Sir, you may proceed.
Speaker 3: Thank you operator. Welcome everyone to our first quarter 2023 earnings conference call.
Speaker 3: I'm joined today by our president and CEO , Mary Burner, 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 3: These statements are based on management's current assessments and assumptions and their subject to a number of risks and uncertainties.
Speaker 3: 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.
Speaker 3: The full description of these risks, as well as financial reconciliations to non-GAAP terms, are in our press release and SEC filings.
Speaker 3: The press release can be found in the investor relations portion of our website, and our Form 10Q was also filed with the SEC shortly before this call. A recording of the call will be available for about a month via a link on our website. With that, I'll now turn it over to our President and CEO , Mary Berner.
Speaker 4: Thanks, Colin, and good morning, everyone. In the first quarter, the continued weakness of the national advertising environment, to which we have significant exposure, drove total revenue declines, as reported, of 11 percent year-over-year. Or, more comparably, excluding political and win bet, total revenues were down 7 percent.
Speaker 4: a result that is consistent with the pacing we provided on our last call. By that challenge, we generate significant growth in our digital marketing services business, increasing revenue 23% year-over-year on a completely organic basis. We executed meaningful.
Speaker 4: non-revenue impacting cost reductions to further enhance our operating leverage, adding approximately $10 million of additional annualized cost reductions to the approximately $90 million that we've already executed since 2019. And during the quarter, we continued to enhance and benefit from our advantageous liquidity position and balance sheet.
Speaker 4: generating $16 million of free cash flow, completing a highly accretive asset sale for $7.3 million, repurchasing $1.5 million of shares, and retiring $6.3 million base value of debt at a discount.
Speaker 4: The dichotomy we talked about last quarter between a weak national advertising climate and a relatively stronger local advertising environment continues, but we expect that eventually both will revert to more normal spending patterns. Until then, as we have consistently proven, we know how to optimize results in difficult environments.
Speaker 4: and emerge from them in a strong position to take advantage of recoveries and when they occur.
Speaker 4: from them in a strong position to take advantage of recoveries and when they occur. To that point.
Speaker 4: since 2019 and through the COVID-impacted years. We've taken out more fixed costs on a relative basis.
Speaker 4: recovered more EBITDA margin, converted more EBITDA to free cash flow, and reduced our net leverage more than our peers.
Speaker 4: We finished 2022 with best in class 3.7 times net leverage and over 200 million of liquidity, despite having been the only one to return capital to shareholders through buybacks, which is why we believe we are in the best position to weather this current storm and capitalize on the eventual rebound.
Speaker 4: national advertisers and businesses who rely on local advertisers. The national businesses primarily consisting of the Westwood One network, national spot, national podcasting and national streaming make up approximately 45% of revenue. And our local businesses, primarily consisting of local spot, local visual markets.
Speaker 4: lock of interest to spend across virtually all ad categories. With that, we disincreasing somewhat since the last earnings call.
Speaker 4: Given the high margin nature of our national broadcast businesses, the associated drop in revenue has and will continue to impact EVADA as long as the softness continues.
Speaker 4: These same national headwinds have also been a drag on our overall digital revenue growth as most of our podcasting revenues tied to national advertisers.
Speaker 4: Looking ahead, we of course don't have a crystal ball as to when the national headwinds are going to reverse. However, what we do know is that historically when the advertising environment does recover, national advertising has typically been the quickest to bounce back and when it does, the same operating leverage that hurts us on the downside will be of significant benefit to us on the upswing.
Speaker 4: In comparison to national businesses, our local businesses were approximately flat for the quarter, fueled by strong growth in our local digital businesses. Local spot, which makes up approximately 80% of our total spot revenue, was down about 4% in Q1. Like national, we've also seen local get a bit weaker into Q2, pacing down 7% currently.
Speaker 4: Small and mid-sized markets have been outperforming and continue to outperform larger markets, so our portfolio management strategy over the last five years, which has reduced our exposure to larger markets, has been favorable for us.
Speaker 4: Despite these mid-single digit declines, we are seeing some green shoots in local demand. Encouragingly, automotive continues to rebound as we are experiencing quarter-to-quarter improvement in automotive as dealer inventory levels improve.
Speaker 4: With this upswing into perspective, in 2019, auto was about 10% of total revenue, and we lost nearly 50% of that, mostly local, revenue during COVID. So even with the improvement we're already seeing, and we've already seen, there remains significant upside from auto returning to more normal levels. As our
Speaker 4: The brightest spot in an area that we're really leaning into given its growth profile is our local digital marketing services business, which as I mentioned grew 23% in Q1, driven by a combination of new customer accounts and new product offerings.
Speaker 4: This business is now run rating at over 40 million of revenue. And as you know, we have achieved that growth and profitable performance from day one with very little upfront investment.
So the one thing I want to emphasize is given that we've reduced our costs so much.
Improved our operating leverage as we have and generate free cash flow.
Gives us.
Perfect opportunity.
To use that liquidity in many different ways, which includes potentially.
Potentially share repurchase that repurchase.
Investments in the business and potential acquisitions.
Okay.
The last one I had.
Specifically with regard to the sports betting category I know you had the.
Difficult comparison with the.
The wind that relationship last year.
Kind of curious in terms of if you felt that there might be.
I guess, maybe more significant.
Significant.
Regulation of of that sector in the future with maybe potential concerns over I guess externalities of.
That business.
I really can't comment on regulation in that space, but I will say the.
And the patterns that we've seen that we saw last year and we see this year.
This is excluding the loss of the wound bed relationship which was significant for us.
Is that the pattern that we've seen in sports betting compared to one initially became.
Very active in the market.
Is that the advertising tends to move towards states.
Legalizing betting for the first time.
And so the pattern, we're seeing in those dollars.
That.
As a sports betting company to establish a footprint in states that have already been <unk>.
Illegal they cut back their spending they have their customer acquisition costs they have their client base.
And they are spending more dollars in the newer states and having said that since there are fewer states coming online and the pressures that they have in their underlying business.
As a result of that results in a.
A weaker spend and we're seeing that both locally and in our network business.
Okay.
Thank you.
Thank you for your question. Our next question comes from the line of Dan <unk> with B Riley Securities. Dan. Your line is now open.
Yes, good morning, guys. Thanks for taking the questions.
I know you mentioned in the prepared remarks investing in digital marketing services.
Good sense for if you could quantify that at all what specifically that investment might entail what it really does feel like hiring more people.
In support of kind of selling that product or is there anything else capex wise to think about in terms of that investment.
Yes, Thanks, Dan that's a great question.
Yes.
We've seen that when we put more people on the street given the training that we're able to provide them and the range of products that we go to market with that there.
The.
Payback is very very quick so.
We're in the process of more than doubling doubling our door.
Direct digital sales organization.
And we will given the growth we're seeing as I said, it's a profitable investment from day one so.
We're just continuing to add people given this payback and we may ramp this up more as time goes on.
And maybe if I can jump in.
Yes go ahead.
Yes.
With regard to the capital investment.
It requires very little to no capital investment Thats basically hiring salespeople.
Barry said have proven on recent hires having immediate accretive payback.
And Thats one of the things we're doing in terms of reducing our costs and we're investing in those growth businesses, but it doesn't come with the.
So the capital investment nor a tech cap.
Capital investment, which is really important.
Understood.
And then on the $10 million of incremental cost reductions.
Can you maybe flesh out where those are coming from at this point, we've been very aggressive in terms of taking call.
The size of the business over the last one or two years. So just.
Im wondering where those opportunities are still coming from Sweden.
Thank you we'll go through the where we think whether it come through the <unk>.
Generally, but it's things like <unk>.
Real estate, we're very aggressive about our management of our real estate propeller.
Portfolio contract costs.
Operational improvements.
Example, we centralized our business manager function.
Wed look we're down into.
Marketing spend reductions.
Cranking might forgetting something.
That's right, it's sort of consistent on what we've done before which is focusing on contracts business process optimization.
People efficiencies and then for your models, just so you understand how about $10 million.
So thats an annual run rate.
Since we're going to be implementing that is now the number you should use in your models is roughly $8 million worth of cost savings.
This fiscal year.
Which ramps up to $10 million more on an annual basis, and we'll continue to focus on additional cost as we said in our script.
Great. Thanks, one more for me.
Podcast thing.
So you mentioned like <unk>.
Closure to national and international side, what's sort of driving the softness there.
Youre doing to increase the number of local advertisers within your pod testing segment.
It seems like a big opportunity there if you could get some of these smbs Walden MSM advertisers over the pod testing.
Whether thats through like Geo targeting the big national ones, whether it's through.
Podcast extensions into local shows or whatever just whether thats the priority or not in terms of doing that would be helpful.
Yes.
We agree with you.
About a year ago.
Refocused our effort on local podcast thing.
And generally it tends to be around a local show. So for example, Dallas around the ticket.
A very very successful local podcast called Michigan Insider sports one with the with all the stations there.
And we believe theres opportunity many of our programmers is very much like to do part testing.
So we're walking before we run but we're seeing initial success there because youre absolutely right listeners want to hear.
Care from our talent and it's a way also to do extend the content that they hear on air.
So that is an area of focus.
Okay. I appreciate you taking the time guys.
Thank you for your question. Our next question comes from the line of Michael Pinsky with Noble capital markets. Michael Your line is now open.
Thank you so much thanks for taking the questions a couple of them.
That you operate these stations very lean Lee so I'm always surprised to see additional cost cuts coming from the station groups. I was just wondering in terms of the technologies that are out there, including AI services and so forth that may allow the company to maybe even more significantly reduce costs can you talk about some of the opportunities.
That you are looking at what are what might be the opportunities for maybe further restructuring of the company to really significantly lower costs.
Good morning, Mike I'll take that.
We are definitely looking at AI.
As a possibility to improve our business.
I would say it's extremely extremely early days.
In that.
Looking at that.
Because it has a lot of impact in terms of when you think about our business.
Local business.
As strong because we have that local voice right to the local consumer.
And that's something that.
We take advantage of with or where there are local talent.
But it's interesting since we started.
We started the cost reduction efforts because of the pandemic.
Think we would've thought we could take out 20% of our cost base without impacting revenue.
And we continue to look at that a lot of the cost reductions have been at the network business.
In addition to the station group and given the pressures in the network business.
So look in summary.
It's early days in AI, we are not going to say at this point theres going to be a major restructuring of the company because of AI I think we're all learning.
About it and we'll see how that goes but it's something we're definitely going to take a close look at and we have been looking at it.
Thank you for that and then.
Obviously your balance sheet.
Better than most in the industry given your large cash position and so forth, but I was wondering.
I know that you sold some assets I was wondering.
Are there further assets non strategic assets that you.
You have out there or that you are looking at potentially selling and given that there are issues that many are facing in the industry are there potential buyers out there.
Mhm.
That's a good question.
Early on I say early on up through Covid too.
2020 one.
We did sell the bulk of our non strategic assets, including.
Our D C land sale the tower lease et cetera.
We do have some non strategic assets.
That we could take a look at but they're not significant in size.
The <unk> was an interesting.
This study, which.
This was not a station that was on the market.
There are buyers out there for selective stations or there are certain needs.
And.
If others like that appear we will analyze that.
Very closely and.
Generating $7 million of sales.
Sale proceeds on an asset that had virtually zero EBITDA is hugely accretive it gives us a benefit too.
Return capital to shareholders and reduce debt and so I expect.
Those will continue to happen they are episodic they're not planned.
Come to us but of course, we look at everything in this space and.
And as those inquiries come in we'll take a serious look at it.
Thank you for that and just on the digital front can you talk a little bit about your station listening how much of that station listening is coming from screaming.
Do you feel like the streaming.
It's likely to continue to grow.
Or as you more significant opportunities to monetize the listening audience can you just kind of give us your thoughts about the shifting in terms of audience and how they are using radio.
Sure.
There is no question that streaming continues to be increase in terms of how our customers.
Variance there.
They are listening.
What were generally seeing.
In some markets as <unk>.
More clients go to the stream versus over the year.
Is that increases our share and our listenership.
The ability to.
Kris pricing given our aggregate share.
As a reminder.
A couple of years ago, we adopted total line reporting.
Which shifted some of the revenues.
Geographically, which was recorded in spot over to digital once we had that measurement.
And so not every not every single station goes on total line reporting.
Do that when we think there is a lift potentially.
But again, we're following where the listeners are and to the extent we increase our share.
We've taken advantage of pricing thats, something that youll see in streaming.
As a nice business.
And there is potential opportunities there.
But having said all that when we look at our digital portfolio, we're really really excited about the dms space because thats really.
Turbocharge incremental revenues that we hadn't seen in the past the increase streaming is very nice it's important I think it's on the margin.
But the organic growth, we're going to see in digital marketing services.
As I mentioned is something that's very exciting.
With a very low investment high ROI.
Yes.
Sure.
Yeah, just to add to.
Frank's remarks, the two areas of main areas of focus for casual for ASUR maximizing impressions.
That would generate by increasing listenership from existing lessors lessors and also extending the platforms. We're able to be found on so in 2022, we extended our tune in distribution deal on our IHOP radio.
Distribution deals, but no notably we also added the NFL streaming rights and.
That said that was and is proving to be a terrific opportunity because we have new listeners.
We never really had before and.
So that's one area of focus in the second as we focus a lot on the monetization of the inventory across all the channels local national network programmatic and so.
I think it's frankly.
I think that the opportunity is bigger opportunities Dms, but this is.
This is pacing quite nicely as you can.
Okay.
Yeah.
Our final question. Thanks for that color final question on the local level are you seeing any regional disparities anything in particular that might.
Kind of indicate that maybe local.
It has not.
Performing well or some of the issues that we might see start to see some cracks in local I'm. Just wondering if you can just kind of give.
Give us some thoughts in terms of how healthy local is at this point in terms of just given.
Given the economic headwinds it seems to be holding up very well, but are you seeing anything that might give us some concern.
One thing I would say is that it remains a tale of two cities.
And in local versus national but it's also a little bit small versus large in our smaller markets are outperforming larger markets and I think thats given their relatively.
A higher percentage of local revenue versus national but on the local area.
We have our portfolio skews to smaller markets and in those markets.
The stations and the.
More embedded if you will and influential in the programming is really needed the live and local.
Those communities. So that holds up that is holding up better than the larger markets that local business in larger markets.
We did see a slowdown from first quarter to second.
But.
Again, it's a different it's a tale of two cities smaller markets versus March even on the local front too.
Got you. Thank you that's all I have.
Thank you for your question. Our final question comes from the line of Avi Steiner with Jpmorgan. Your line is now open.
Thank you and thank you for taking the questions just on.
Okay environment, which seems to be weakening.
Sure.
How much of that.
Driven by maybe.
Banking crisis for lack of a better description or is there some general economic malaise or whatever you can point to and just on the.
Overall pacing.
Topline download double digits is there any one time items in the year ago period, we should be thinking about as we are.
And then build out the model that may need to adjust for that number on a comp basis and I've got a couple more.
Okay.
Take that.
Look we the what happened with FCB and.
Has.
Not directly impacted us.
In terms of the flows.
And the business.
<unk> said that whenever you have weaker confidence.
It remains to see how that ripples through the economy and our clients.
The weakness that we're seeing in financial particularly in the insurance category, where it's a big category for us.
And those advertisers have been cutting back.
As they look at their underwriting losses and their need to add customers in this environment.
And then of course with higher interest rates.
Big category for US was the mortgage market and don't have to say.
There is not going be a lot of advertising for mortgages at these higher rates. So.
It's more of a continuation of the same.
And perhaps a little bit accelerated.
In the financial space.
I wouldn't say, there's anything new other than the continued uncertainty and that's why we're seeing.
Continued.
<unk> National market, and then our local spot business.
As Mary mentioned and as I mentioned in the script is a little bit weaker.
Pacing in the second quarter.
With regard to last year's comps to last year, there were no significant one time events last year.
So I think the way to think about it is.
In the first quarter, excluding wound bed in political.
We were down 7% of course, we have political last year.
So pacing down low double digits syndicates.
Just a weaker environment slightly weaker local insight and then weaker national.
But again, it's early in the quarter.
Early in the quarter.
Two months to go.
But we're not seeing improving trends at this point that's for sure.
Thank you for that color.
Okay. So on the financial services category.
Two more for me just one.
Cash flow was disappointed I was positive.
Working capital.
Okay nice source this quarter or at least I would like to go.
Anything one time, there and just how to think about that for the rest of it.
Right look our drivers on free cash flow driven by EBITDA.
Obviously.
And then just our revenue the revenue impact on working capital.
And.
The first quarter, we generally.
Generate a better cash because seasonally the first quarter as lower revenues and we have the benefit of collecting.
Sales from the from the fourth from the fourth quarter and Thats contributed to our working capital benefits.
In the first quarter, but it's.
It's mixed.
The second quarter tends to be lighter on cash generation and then rebounds in the third quarter. So.
The way, we look at as we try to.
We do manage and.
Look at our cash flow on a yearly basis recognizing.
Have the swings.
If.
Revenues pick up.
And that generates a use of working capital.
That will be temporary but with.
With increased revenues, we have increased profitability and if you remember.
In 2020, working capital was an enormous source of liquidity for us.
For the wrong reasons congrats on this were down.
25% for the four years, so we'll just have to manage that well.
We look at all expenses will occur in our Capex and operating and put that all into the mix to generate the free cash on the business and gives us confidence.
With our operating leverage we're going to get a good position notwithstanding this weak environment.
Great and then just lastly on the expense line to dovetail towards the end of what you just.
Funded.
To make sure I heard everything correctly.
On the cost saves for the balance of the year I think is what you said on that $10 million of identified.
I'm, assuming that's going to be pro rata across quarter, but anything else to think about expense wise.
Okay. Thank you very much I appreciate the time.
I know you had a <unk> 8 million.
More or less ratably throughout the balance of the year.
But let me emphasize.
We're not over on that should we look we look at our.
Our expense space very closely.
And.
We are in the process of identifying other opportunities that we think we may be able to take advantage of.
Haven't been able to.
Nailed down in such a way that we have been put in this guidance and we will give you an update in the next earnings call to the extent we.
We can take out other costs and what the implications for the balance of the year and then going into 2024.
I appreciate the time, thank you all.
Thank you for your question that concludes our Q&A session for today I'll now turn it back over to the company for any closing remarks. Thank you.
Thanks, everyone for your time today, and we look forward to speaking you again too.
You again next quarter. Thanks.
This.
Today's conference call. Thank you for your participation you may now disconnect your line.