Cumulus Media Inc. (CMLS)

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Cumulus Media Inc. (CMLS)

Q3 2008 Earnings Call

November 06, 2008; 11:00 am ET


Lew Dickey - Chairman, President, and Chief Executive Officer

Marty Gausvik - Chief Financial Officer, Executive Vice President, and Treasurer


Lee Westerfield - BMO Capital Markets



Hello and welcome to the Cumulus Media third quarter earnings release conference call. At the request of Cumulus Media, this conference is being recorded for instant replay services.

Please note that certain statements in today’s press release and discussed on this call, may constitute forward-looking statements under the federal securities laws. These statements are based on management’s current assessments and assumptions and are subject to a number of risks and uncertainties. Actual results may differ from the results expressed or implied in these forward-looking statements due to various risks, uncertainties or other factors.

I would now like to introduce Mr. Lew Dickey, Chairman, and CEO of Cumulus Media. Sir, you may begin.

Lew Dickey

Thank you, operator, and good morning everybody. I appreciate you taking the time today to receive an update on our performance. I’m also joined by our CFO, Marty Gausvik.

We are currently operating in one of the most challenging environments that I’ve seen in 24 years in the radio business. The radio industry however I believe is still fundamentally very sound as evidenced by the record number of people, including young adults who tune in every week and this comes in after rating survey continues to reinforce this. This is in spite of 150 million iPods sold and the widespread availability of pay radio via the satellite.

Consumers demand for free, local, push content has not wavered nor waned. Consequently, our business model of offering access to these large, local, and loyal communities of listeners is not in danger of being replaced by a substitute technology.

That being said, radio has been its own worst enemy when it comes to monetizing these highly valuable communities of listeners. We have been myopic when it comes to prospecting and targeting both local and national advertisers, thereby allowing the market to be defined by a handful of gatekeepers who have consolidated media buying for the major accounts. As a result, price integrity and value based selling have been replaced by often vicious rate cutting to take share from competitors.

In short, the most serious affliction facing our industry is not product based, but rather it’s rooted in the sales cultures which focus primarily on default demand, commonly referred to as transactional business. I believe the cure for this affliction is to revitalize our sales staffs and transform them into organized teams of demand creators, not demand responders. In other words, we need to dramatically increase both coverage and productivity and sell the true value of our media.

Radio is the most efficient media for local businesses that need to keep their brand and their value proposition top of the mind with consumers and this is especially so in challenging economic periods.

Radio’s efficiency driven competitive advantage has three components: (1) is the lowest cost per 1,000, lower than television, lower than newspaper; (2) rifle shot targeting to eliminate waste, which we can offer with our various formats and (3) relatively inexpensive production costs as compared to television, cable or even newspaper.

We need to hammer these benefits home to a broader group of advertisers with more a great deal more of clarity and consistency. It’s tough work and it requires an unremitting commitment from senior management to drive these fundamental changes through their sales organizations. I believe that the ability to successfully execute these fundamental challenges will be the key determinants and the inevitable shakeout in reordering of the media landscape that’s now underway.

Now this morning we are going to update you on our third quarter performance and provide guidance for the fourth quarter. Starting with Q3 results, our pro forma cash revenue as we continue to de-emphasize barter, our pro forma cash revenue for all markets was down 3.6% to $76.5 million. This was squarely within our guidance that we issued 90 days ago of negative 3% to 4%.

Now on the top line of Q3, we had ten markets which posted double-digit revenue increases and three of those ten which actually grew their revenue in excess of 20%. The overall environment however was still very weak, as evidenced by the declining revenue in the likely intuitive categories of automotive, financial services meaning mortgage brokers, telecommunications, home furnishings and of course real estate.

Moving down the income statement, our Q3 pro forma EBITDA was down 8.7% to $25.2 million. However, our free cash flow actually rose 2.1% to $15.8 million due to lower interest expense. As everybody knows, LIBOR has been dropping like a stone and it’s basically been halved and continues to drop, which will continue to renew to our benefit with approximately $300 million of our debt floating. Also as of today, not as of 9/30, but today we are sitting on a cash balance of approximately $73 million.

Looking ahead, we expect the fourth quarter to be down in the 9% to 11% range and of course we are very focused on our operating expenses and we expect those to be down approximately 5%.

Now I’m going to turn it over to Marty Gausvik, who’s going to provide us with more detail and then we’ll open it up for everybody’s questions. Thank you. Marty.

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