CMLS

Cumulus Media Inc. (CMLS)

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Cumulus Media, Inc. (CMLS)

Q2 2010 Earnings Call Transcript

July 29, 2010 4:30 pm ET

Executives

Lew Dickey – Chairman, President & CEO

J.P. Hannan – SVP, Treasurer & CFO

Analysts

Marci Ryvicker – Wells Fargo

Presentation

Operator

Hello and welcome to the Cumulus Media second quarter earnings release conference call. Please note certain statements in today's press release and discussed on this call may constitute forward-looking statements under Federal Security 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 materially from the results expressed or implied in these forward-looking statements due to various risks and 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 everybody taking the taking the time to join us today on our second quarter update. I'm also joined today by our CFO, J.P. Hannan.

Today, we're going to update you on our second quarter performance and then briefly discuss the revenue outlook and our pacing for third quarter.

Starting with our Q2 results, our net revenue for all markets increased 6% to almost $70 million. This is better than the 4% revenue pacing data that I shared with everyone in April during our Q1 earnings call. And it continues forward progress on our top-line growth.

We continue to also see sequential improvements in national business and key local revenue categories such as auto, healthcare and restaurants. They’re all starting to come back in.

We also continue to reap the benefit of our significant investments in our proprietary technology platform that we’ve shared with you over the last couple of calls and the investments that we’ve made in this proprietary technology platform over the past couple of years.

As a result, our businesses are now running with increased efficiency across all functional areas and resulting in much stronger operating leverage and healthy cash flow.

Our station operating expenses increased just 3% in the second quarter over the prior year. That was largely driven by the variable sales commissions due to our 6% revenue growth. In fact if we normalized our operating expenses for the one week furlough that all of our employees took in the second quarter of last year, our operating expenses for Q2 2010 would have been up less than 1%.

As a result of our revenue growth and continued strict cost control, our Q2 adjusted EBITDA was up 6% to $25 million. When you factor out the unusual expenses such as the prior year furlough we just discussed and a one-time non-cash corporate charge, our adjusted EBITDA would have been up approximately 12%. And that really is reflecting inherent operating leverage in our business model.

And with this Q2 performance we continue to see substantial margin expansion and again increased operating leverage across our Radio platform. Our trailing 12-month EBITDA margin for 6/30 Q2 of this year is now over 30%.

Our team’s ability to maximize cash flow with CMI resulted in free cash flow for the quarter of over $17 million. That enabled us to make measurable progress as we work to deleverage our balance sheet.

As of June 30, we were sitting on a cash balance of approximately $12 million, which is after we paid down $8.4 million of debt in Q2. With this debt reduction we exceeded our first threshold figure and affected 25 basis points reduction in our interest rate going forward. And that as you all know will help create even more free cash flow or increase debt repayment in the future.

Over the past 18 months we’ve now paid down more than $80 million of debt in CMI. Quite a bit more than that CMP which we will talk about.

Looking ahead, July revenue appears to be finishing up approximately 2% and August and September both pacing up over 6% with very little Q3 political booked as of now. I think its interesting analysis is our Q2 political was up 36% from our Q2 political in 2008, which was the residential cycle everybody knows. Now, although the Q2 political total represents relatively small dollars, but the trend is clearly positive off of a record political year in 2008.

So as is customary, the bulk of the political spend really occurs after Labor Day when the general election campaigns are really kicked off in earnest. For example, this is at CMI now; we booked $4.9 million in 2008 from September through the election in November. Again, in 2008, we booked $4.9 million from September through the election in November. It’s really from Labor Day through the election.

So 36% increase that we saw just in the second quarter looking backwards is certainly encouraging for what potentially may lay ahead of you from Labor Day through the first week in November.

To that end we continue to expect steady sequential revenue improvement throughout 2010 and to-date we are pacing on the high side of our internal forecast for the year. As I mentioned the pacing for August and September really have no benefit of the political being layered in yet because we haven’t seen. It doesn’t really hit until after Labor Day.

As I said in our last call with this performance we feel very confident that we will be in full compliance when loan covenants reset at the end of March in 2011 and depending on the strength of political advertising, which we just discussed in Q3 and Q4, we could potentially reach this target a full quarter early by the end of this year.

Read the rest of this transcript for free on seekingalpha.com