CMLS

Cumulus Media Inc. (CMLS)

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Cumulus Media, Inc. (CMLS)

Q3 2010 Earnings Conference Call

November 1, 2010 4:30 PM ET

Executives

Lew Dickey – Chairman, President and CEO

J.P. Hannan – CFO, SVP and Treasurer

Analysts

Marci Ryvicker – Wells Fargo

Presentation

Operator

Hello and welcome to the Cumulus Media third 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.

Lew Dickey

Thank you operator and good afternoon everybody. I appreciate everybody taking the time to join us today for our third quarter update and also joining with me today is our CFO J.P. Hannan.

Today we are going to update you on our third quarter performance and then briefly discuss the revenue outlook and pacing for the fourth quarter and share a little bit of an update on CMP as well.

Starting with our Q3 results in CMI, our net revenue for all markets increased 4% to $67.5 million. We continue to see the sequential improvements in national business and key local revenue categories such as auto and healthcare, and eating and drinking establishments that we have an experience in all year.

Political advertising this year was really more backloaded than in the past, certainly than in 2008, but it should end up basically flat with the last election cycle of two years ago in 2008. We will talk more about that in greater detail.

On the cost side, our station operating expenses increased a little less than 1% in the third quarter over prior year and year-to-date they are down 1% despite increased sales levels. Our management systems are directing scores of new sellers generating thousands of new advertisers across our platform, while keeping our cost of sales in check. This ongoing innovation of the radio business model and use of our technology platform to drive increased efficiencies continues to fuel our industry-leading EBITDA growth, both CMI and CMP.

Our LTM EBITDA margins improved again this quarter by 100 basis points to 31%. Our low cost of capital and these expanding margins continue to enable us to generate considerable free cash flow to accelerate our deleveraging program. We have now generated more than $36 million of free cash year-to-date as of 9/30 and paid down more than $30 million of debt since January. This is in addition to the $60 million of debt we paid down in 2009 as of 9/30.

As a result, our net leverage has dropped to 7.3 times by the end of the quarter and will be in the high 6s by the end of this month, but the end of October. Given this progress, we remain highly confident that we will be in total compliance with the terms of our credit agreement when our leverage covenants resume at 03/31 of next year.

More importantly that our financings are largely behind us until June of 2014. Further, our cost of capital continues to decline with the anticipated callback of 50 bips of rate, again in February of 2011. You may recall, we already called back 25 basis points last quarter. Additionally, we will see the roll-off of our 393 LIBOR hedge on $400 million of term loan in March of next year. These events will all contribute to an even more robust conversion of our EBITDA into free cash flow in 2011 to continue to do accelerate our deleveraging.

Now looking ahead, October revenue finished up at approximately 14%, and November and December, pacing up 15% and 7% respectively. I mentioned last quarter political advertising normally does not ramp up for the general election until after Labor Day. This cycle however, we saw it place even later than that with the bulk of it not really occurring until October, which ended up skewing our Q3 pacing a little bit lower.

Based on what we are seeing in Q4 that we will experience the full year political revenue that meets or slightly exceeds our 2008 and certainly right in line for our forecast for the year on political.

Now let me briefly report on our performance at Cumulus Media Partners or CMP. CMP also continues to outperform the industry with Q3 revenue growth at 6% and our EBITDA for the quarter at CMP was up 10%. CMP’s trailing 12-month EBITDA margin grew again as of September 30, and it’s now just about 43%. Again, that’s all in, including the $4 million of annual fees paid to CMI or Cumulus Media, Inc. for its management services.

For the fourth quarter, CMP is pacing up or finished up, excuse me, 13% in October and it is pacing up 16% in November and 13% in December. CMP currently has $64 million of cash in the bank and will repay the $50 million drawn on its revolver by year’s end. Similar to CMI, CMP’s financings are largely behind us until the maturity of its term loan at 2013. It’s the bank that has priced an L Plus 200 and again, it’s low cost of capital and also has a $200 million hedge that rolls off early next year and it’s low cost of capital and extremely high EBITDA margins enabled to generate tremendous free cash flow, which we will continue to use to delever the balance sheet.

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