Cumulus Media Inc. (CMLS)

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Cumulus Media Inc. (CMLS)

Q3 2009 Earnings Call

November 3, 2009 11:00 am ET


Lew Dickey - Chairman and CEO

J.P. Hannan - Interim CFO


Marci Ryvicker - Wells Fargo Bank

Aaron Watts - Deutsche Bank

Peter Gingold - Angelo, Gordon

Ken Silver - RBS



Welcome to the Cumulus Media Third Quarter Earnings Release Conference Call. Please note that certain statements in today's press release and discussed on this call may constitute forward-looking statements under Federal Securities Law. These statements are based on management's current assessment and assumptions and are subject to a number of risks and uncertainties. Actual results may differ materially from the results expressed or implied in these forward-looking statements due to various risks, uncertainties or other factors.

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

Lew Dickey

I appreciate you taking the time to receive an update on performance. I am joined today by our Interim CFO, J. P. Hannan. Today, we’re going to update you on our third quarter performance and briefly discuss our outlook for 4Q.

Starting with third quarter results, our revenue for all markets was down 18.5%, $65.1 million. This was slightly better than the revenue pacing data I shared with you during our second quarter earnings call, which at the time was down approximately 20%. As an aside, CMP's revenue for the third quarter was down 15.9% as the larger markets appear to be gaining traction slightly ahead of the smaller markets.

While we continue to see sequential improvements, revenue weakness for the quarter for CMI, was fairly broad based across most major quarters, including auto, obviously political, restaurants, fast food, home furnishings and recruitment advertising. Auto alone however accounted for 40% of the year-over-year decline in revenue, for the quarter.

In addition, our political comps accounts were tough as we booked 1.3 million of political in the third quarter of 2008. That we obviously comp against this year. Now, our operating expenses for the quarter were again, better than previous guidance. Which we guided anywhere from 15% to 20% down, and expenses for the quarter, finished down 20.9 % or almost 21% reduction over the same period last year.

We continue to make excellent progress in our effort to reengineer the fixed cost model of the business, through the development and implementation of our proprietary technology platform that we have shared with you as of late. Our industry revenues, peaked in 2006 at $21.5 billion. So in 2006, radio was at $21.5 billion industry.

In this year, revenues are forecasted to finish around $15.5 billion, so a decline of $6 billion. We believe it could be from peak to trough back to peak again, it could be 10 years, or maybe 2016 before we reach $21.5 billion again. So, we definitely believe the industry is going to come out of this cycle and continue to grow, but it’s going to be quite some time before we reach the 2006 levels.

So therefore more than ever before, we believe efficiency is becoming the greatest source of competitive advantage in our business today. And by employing state-of-the-art technology to run the enterprise and drive productivity, we believe it is critical to having a sustainable business model.

Not about cutting bodies, but it is rather about resource allocation, systems, and customer focus solutions. For example, we are hired 50 new sellers in the last six weeks. And we’ll hire 50 more before year's end. All without negatively impacting our cost of sales. Again, efficiency and resource allocation driven by our technology platform, is enabling our company to compete in this difficult environment, while positioning us for outside growth as the cycle turns.

We don't know what 2010 is going to bring. We're of the belief that it is going to be positive. I have heard estimates bandied about anywhere from flattish to up double digits and even in the low teens. Again, it's too soon to tell and I don't want to go out and try to make a prediction on that, but I can tell you based on our technology platform and how we have geared our business operationally, whatever the growth rate is, we can expect to exceed that, on the EBITDA line, by a factor of [3x].

Now moving down the income statement, our Q3 adjusted EBITDA was down 20% to $20.1 million. This result in free cash flow for the quarter of approximately $8.7 million. Now, the EBITDA margin is 31% at [9.30], which we believe will outpace many our peers most of them operating in large markets, again due to the technology platform and reengineering of the fixed cost model of the business.

Now, the 31% margin and the decline of EBITDA of 20% is including one time charges, which predominantly are comprised of [Marty severance]. And if we excluded that our EBITDA was down 16.8% and we picked up a point, point-and-a-half on the EBITDA margin line. Additionally, CMP which operates predominantly in the top 10 markets, saw its EBITDA decline of 8.2% giving effect to a 41.5% EBITDA margin, which is the highest in the industry, and more than 1200 bps above the industry mean.

This is in spite of a large percentage of our revenue which comes from top 40 stations and big sports talk stations, which are considerably more personnel and promotion intensive than most formats. Particularly urban or very music intensive formats.

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