Q1 2023 Cumulus Media Inc Earnings Call

Participants

Collin Jones; SVP of Corporate Development & Strategy; Cumulus Media Inc.

Francisco J. Lopez-Balboa; Executive VP, CFO & Treasurer; Cumulus Media Inc.

Mary G. Berner; President, CEO & Director; Cumulus Media Inc.

Avi Steiner; Executive Director and Senior Analyst; JPMorgan Chase & Co, Research Division

Daniel Paul Day; Senior Equity Research Analyst; B. Riley Securities, Inc., Research Division

Michael A. Kupinski; Director of Research and Senior Media & Entertainment Analyst; NOBLE Capital Markets, Inc., Research Division

Unidentified Analyst

Presentation

Operator

Welcome to the Cumulus Media Quarterly Earnings Conference Call. I'll now turn it over to Collin Jones, Executive Vice President of Strategy and Development. Sir, you may proceed.

Collin Jones

Thank you, operator. Welcome, everyone, to our first quarter 2023 earnings conference call. I'm joined today by our President and CEO, Mary Berner; 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. These statements are based on management's current assessments and assumptions, and they are subject to a number of risks and uncertainties.

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. A full description of these risks as well as financial reconciliations to non-GAAP terms are in our press release and SEC filings. The press release can be found in the Investor Relations portion of our website, and our Form 10-K 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. Mary?

Mary G. Berner

Thanks, Collin, 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% year-over-year. Or more comparably, excluding political and WynnBET, total revenues were down 7%, a result that is consistent with the pacing we provided on our last call.

Despite that challenge, we generated significant growth in our digital marketing services business, increasing revenue 23% year-over-year on a completely organic basis. We executed meaningful 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, generating $16 million of free cash flow, completely a highly accretive asset sale for $7.3 million, repurchasing $1.5 million of shares, and retiring $6.3 million face value of debt at a discount.

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 and emerge from them in a strong position to take advantage of recoveries in and when they occur.

To that point, since 2019 and through the COVID impacted years, we've taken out more fixed costs on a relative basis, recovered more EBITDA margin, converted more EBITDA to free cash flow and reduced our net leverage more than our peers. We finished 2022 with best-in-class 3.7x 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, while maintaining our ability to opportunistically deploy capital to the long-term benefit of our shareholders.

To understand the current market's particular impact on us, think about our company as split between businesses whose revenue generation is predominantly from 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 digital marketing services, local podcasting and local streaming, make up approximately 50% of our total revenue.

The weakness that is characterized in national advertising climate for several quarters has not abated. National advertisers continue to demonstrate significant reluctance to spend across virtually all ad categories with that weakness increasing somewhat since the last earnings call. Given the high margin nature of our national broadcast businesses, the associated drop in revenue has and will continue to impact EBITDA as long as the softness continues. These same national headwinds have also been a drag on our overall digital revenue growth as most of our podcasting revenue growth is tied to national advertisers.

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 a significant benefit to us on the upswing.

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. Small and midsize markets have been outperforming and continue to outperform larger markets. So our portfolio management strategy over the last 5 years, which has reduced our exposure to larger markets, has been favorable for us.

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. To put 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.

The brightest spot, and 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. 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 1 with very little upfront investment. We continue to be excited about our DMS position, so we're investing in it to accelerate its growth. Looking at the big picture, the U.S. digital marketing services total addressable market for our target market of SMBs is approximately $15 billion and growing at 5% to 10% a year.

While there are many small digital agencies that have built paid media capabilities, as well as several large providers of single point solutions, there are very few companies in the DMS world that can successfully offer SMBs the full spectrum of digital marketing solutions to meet their needs. We focus on being that full spectrum provider, deploying a unique go-to-market strategy with feet on the street selling of a suite of integrated audio and digital marketing solutions. We're nimble in our sales execution because we leverage our fully distributed sales force, sales infrastructure, and notably, our ability to seamlessly add in new products and services. This is because in addition to our own in-house capabilities, we utilize several white label providers to fulfill our orders, which has given us flexibility to adapt to a dynamic market and quickly and efficiently procure and deliver new digital products and services as they are created.

As importantly, the double digit growth trajectory we've already ramped to supports our conviction that our go-to-market strategy, in particular its focused on feet on the street sellers, has been a good mousetrap and an important differentiator in the market. Because we have a proven ROI from adding incremental sellers who are armed with a growing toolkit of both digital and audio products, we're enthusiastic about the returns we can deliver from this continuing to expand our sales force, enhance our capabilities and generate efficiencies of scale.

Meanwhile, to support both these -- to both support these types of investments and mitigate the EBITDA pressures from national revenue declines and the inflationary environment, we continue to aggressively reduce cost. Since 2019, compared to our peers, we have achieved higher cost reduction as a percentage of the 2019 baseline, and as noted, a best among peers EBITDA margin recovery against pre-pandemic levels. Year to date, we executed an additional $10 million of annualized cost reductions, and we will continue to make strides as the year progresses with multiple additional cost initiatives.

Ultimately, all these efforts continue to support healthy free cash flow generation even in difficult economic environments such as this one. In the first quarter, we bolstered our cash balance by generating $16 million of free cash flow and completing a $7.3 million sale of WFAS-FM, a station which contributed insignificant EBITDA.

Given our healthy cash balance, we continued our open market repurchase program in Q1, buying back an additional $1.5 million of shares. In parallel, we were also able to complete discounted debt buybacks, retiring $6.3 million face value of debt for $5.6 million of cash. Since announcing this capital allocation strategy in Q2 of last year, combined with our last excess cash flow sweep of $2.5 million, we have retired $92.8 million in face value of debt, and we have repurchased 2.9 million shares, representing approximately 14% of the company's shares outstanding as of year-end 2021.

Before turning the call over to Frank to give you more color on the quarter and our current Q2 pacing, I'll go back to where I started. Maximizing results in challenging environments is something we do well. Over the past few years, this management team successfully executed an operational turnaround while rightsizing an inherited overextended balance sheet through a restructuring. And since the pandemic, we've driven best among peers performance with respect to cost takeouts, EBITDA margin recovery, free cash flow conversion, net leverage reduction and cash generation. This track record should give you confidence in our ability to once again optimally navigate and emerge from this difficult advertising environment.

With that, Frank, I'll turn it over to you.

Francisco J. Lopez-Balboa

Thank you, Mary. Revenue in Q1 was down 11%. Excluding non-recurring revenue received from the termination of our WynnBET partnership last year and political, revenue was down 7%. This is consistent with the pace and commentary that we provided on our last earnings call. The continued weakness in the national advertising environment remains the main factor driving the decline in total revenue.

Our businesses generating revenue from local advertisers continued to outperform those dependent on national advertisers. In aggregate, our local businesses were approximately flat year-over-year. As Mary mentioned, local spot was down approximately 4% in the quarter. From a category perspective, general services, auto and home products were top-performing major local spot categories. The weakest categories were financial, sports betting and telecom. Our local digital business is consisting of local digital marketing services, local streaming and local podcasting were up in the mid-teens.

Within national advertising, we continued to see strong relative performance in live sports as the NCAA March Madness tournament significantly outperformed our broader network radio and national spot businesses. From a category perspective, we saw declines across most major ad categories with financial and sports betting showing significant weakness. As Mary mentioned, we were also impacted by the continued national headwinds in the podcasting space. As a result, our digital revenue on an aggregate as reported basis was flat year-over-year.

That said, looking ahead to the second quarter, we continue to see significant weakness in the national advertising environment. Our local businesses continue to outperform national led by solid growth in local digital marketing services. On a total company basis, we are currently pacing down low-double digits for the second quarter.

Moving to expenses. Total expenses in the quarter decreased by approximately $5.5 million year-over-year, driven by our cost reduction actions as well as lower variable costs from lower revenue. Year to date, we have executed an additional $10 million of annualized cost reductions. In aggregate, since the beginning of 2020, we have reduced approximately 20% of our 2019 fixed cost base. As always, we will continue to be aggressive in pursuing cost reductions to mitigate the top line impacts of the current environment and make room for investments in growth.

In the quarter, we generated $24 million of cash from operations and $16 million of free cash flow and completed the highly accretive sale of WFAS-FM for $7.3 million, which will have a de minimis impact to EBITDA. Cash flow generation supported our continued capital return and debt reduction strategy.

During the quarter, we repurchased $1.5 million of shares, bringing our total share repurchase to date to $33.3 million. At this point, we have repurchased approximately 14% of the shares that were outstanding when we initiated the buyback program with 16.7 million remaining of our board authorized repurchase authorization. Additionally, we retired $6.3 million face value of debt at a discount, split between $3.8 million of our term loan and $2.5 million of notes, bringing total debt reduction since the beginning of 2020 to approximately $300 million or 30%.

As Mary said, given our successful track record operating through challenging times and our strong balance sheet and liquidity position, we are confident that we will optimally navigate through this difficult ad environment. With that, we can now open the line for questions. Operator?

Question and Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Jim Goss with Barrington Research.

Unidentified Analyst

This is Pat on for Jim. I was just wondering, within podcasting, I was wondering if you could maybe talk about like the, I guess the environment for ad sales relationships and just the competitiveness around that and any impact that type of environment might be having in terms of like the overall inventory you guys have available to sell in the market.

Mary G. Berner

I'll take that, Pat. Thanks for the question. I'll start with the ad environment. As we said in the prepared remarks, for podcasting, like other national challenges -- channels is being affected in podcasting. We have a very strong position and a specific position in that we -- our sweet spot is talk-the-talk space. And 6 of our podcasts are in the top 30 new shows on Apple. So that does include big names like Ben Shapiro and Dan Bongino and Mark [Ubit].

And so, yes, it is a competitive marketplace that our positioning for what we bring to content partners is, we believe, pretty unique. We are the only podcast partner that does not require that a podcaster give up control of their IP. We generally put the entire platform, including the radio platform, to work for our partners to help them to grow their audience. As the company that has Westwood One, which is the largest network, we put -- we were able to help podcast partners access the largest audio network and all the avails in the advertising marketplace. So we're -- we have a strong positioning in news talk, big bold voices, and we're comfortable with where we are. Yes, it is competitive, but I think we've done quite well.

Unidentified Analyst

Okay. And with regards to sort of capital allocation, just given the volatility in the ad market, do you guys sort of see more opportunities to kind of focus more on the debt reduction side? Or do you guys have like a longer-term target on where you would want that leverage to be?

Francisco J. Lopez-Balboa

I'll take that. We've been consistent in talking about our long-term net leverage target to be at 3.5x or lower. We're in an environment now that obviously with pressure on EBITDA, our leverage is tracking up. So on the last 12-month basis, our net leverage ticked up to 4.1x., and our last 12 months EBITDA was $145 million. Having said that, we've been very consistent in taking advantage of opportunities in terms of repurchasing both stock and debt given our strong liquidity positions and also given the fact that we continue to generate positive cash flow in good times and bad. And that's what you saw that in the first quarter, that we were able to buy back stock and debt at a discount.

So I can't really give you any forward guidance in terms of what we may do in the subsequent quarters, but 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, it gives us see a terrific opportunity to use that liquidity in many different ways, which includes potentially share repurchase, that repurchase and investment in the business and potential acquisitions.

Unidentified Analyst

Okay. And I think the last one I had was with regard to the sports betting category. I know you had the difficult comparison with the WynnBET relationship last year. I was kind of curious in terms of if you felt that there might be, I guess, maybe more of significant regulation of that sector in the future with maybe potential concerns over, I guess, externalities of that business?

Francisco J. Lopez-Balboa

I really can't comment on regulation in that space. But I will say the patterns that we've seen -- that we saw last year than we see this year, and this is excluding the loss of the WynnBET relationship, which was significant for us, was that the pattern that we've seen in sports betting compared to when initially became very active in the market, is that the advertising tends to move to where states are legalizing betting for the first time. And so the pattern we're seeing in those dollars is that as the sports betting company established their footprint in states that have already been legal, they cut back their spending. They have their customer acquisition costs. They have their client base. And they're spending more dollars in the newer states. And having said that, there are fewer states coming online, and the pressures that they have in their underlying business as a result, that results in weaker spend. And we're seeing that both locally and in our network business.

Operator

Our next question comes from the line of Dan Day with B. Riley Securities.

Daniel Paul Day

Mary, you mentioned in the prepared remarks investing in digital marketing services. Just get a sense for -- if you could quantify that at all, what specifically that investment might entail? Would it really just be 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?

Mary G. Berner

Yes. Thanks, Dan. That's a great question. Yes, it's -- 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 -- that the payback is very, very quick. So we're in the process of more than doubling our direct digital sales organization. And we will -- given the growth we're seeing, as I said, it's a profitable investment from day 1. So we just continue to add people, given this payback. And we may ramp this up more as time goes on.

Francisco J. Lopez-Balboa

And Mary, if I can jump in --

Daniel Paul Day

Yes, go ahead. Go ahead, Frank.

Francisco J. Lopez-Balboa

And with regard to the capital investment, it requires very little to no capital investment. It's basically hiring salespeople who, as Mary said, have proven on recent hires to have an immediate and accretive payback. And that's what one of the things we're doing in terms of we're reducing our costs and reinvesting in those growth businesses. But it doesn't come with a big capital investment nor a tech capital investment, which is really important.

Daniel Paul Day

Understood. And then on the $10 million of incremental cost reductions you found, can you maybe flesh out where there those are coming from at this point? You've been very aggressive in terms of taking cost out of the business over the last 1 or 2 years. So just wondering where those opportunities are still coming from to tease these things out.

Mary G. Berner

Frank, you can go through the where we think -- where they come through generally. But it's things like real estate. We're very aggressive on our management of our real estate portfolio. Contract costs, operational improvements. We, for example, decentralized our business manager function. We look -- we're down into marketing spend reductions. Frank, am I forgetting something?

Francisco J. Lopez-Balboa

That's right. It's very consistent on what we've done before. We're just focusing on contracts, business process optimization, people efficiencies. And then for your models just so you understand how that $10 million tracks, that's an annual run rate. Since we're going to be implementing it now, the number you should use in your models is roughly $8 million worth of cost savings for this fiscal year, which ramps up to $10 million more on an annual basis. And we'll continue to focus on additional costs, as we said in our script.

Daniel Paul Day

Great. One more for me, just in podcasting. So you mentioned like the exposure to national and the international side being sort of driving the softness there. Anything you're doing to increase the number of local advertisers within your podcasting segment? It seems like a big opportunity there to get some of these SMBs, a lot of them that are AM/FM advertisers over the podcasting. Whether that's through like geo-targeting the big national ones, whether it's through podcast extensions and no local shows or whatever, just whether that's the priority or not and anything you're doing there would be helpful.

Mary G. Berner

Yes. It's -- we agree with you. About a year ago, we refocused our effort on local podcasting. And generally, it tends to be around a local show. So for example, Dallas around The Ticket. We have a very, very successful local podcast called Michigan Insider. It's a sports one with all the stations there. And we believe there's opportunity. Many of our programmers would very much like to do podcasting. And so we're walking before we run, but we're seeing initial success there. Because you're actually right. Listeners want to hear 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.

Operator

Our next question comes from the line of Michael Kupinski with NOBLE Capital Markets.

Michael A. Kupinski

A couple of them. I know that you operate these stations very leanly, 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 cost. Can you talk about some of the opportunities that you're looking at? And what are -- what might be the opportunities for maybe further restructuring of the company to really significantly lower cost?

Francisco J. Lopez-Balboa

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 impacts in terms of -- when you think about our business, our local business is strong because we have that local voice right to the local consumer. And that's something that we take advantage of with our local talent. But it's interesting, since we started the cost reduction efforts because of the pandemic, I don't think we would have 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.

And so look, in summary, it's early days in AI. We're not going to say at this point there's 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.

Michael A. Kupinski

And then obviously, your balance sheet is a little -- is 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 have out there or that you're looking at potentially selling? And given that there are issues that many are facing in the industry, are there potential buyers out there?

Francisco J. Lopez-Balboa

That's a good question. Early on -- I say early on, through COVID through 2020 and 2021, 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 WFAS was an interesting case study, which this was not a station that was on the market. There are buyers out there for selective stations for their certain needs. And if others like that appear, we'll analyze it very closely. And generating $7 million of sales proceeds on an asset that had virtually zero EBITDA is usually accretive. It gives us the benefit to return capital to shareholders and reduce debt. And so I expect those will continue to happen. They're episodic and they're not planned. They come to us. But of course, we look at everything in the space, and as those inquiries come in, we'll take a serious look at it.

Michael A. Kupinski

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 streaming? And do you feel like that streaming, as it's likely to continue to grow, offers 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're using radio?

Francisco J. Lopez-Balboa

Sure. There's no question that streaming continues to be -- increase in terms of how our customers experience they're listening. What we're generally seeing in some markets as more clients go to the stream versus over the air, that increases our share and our listenership. We have the ability to increase pricing, given our aggregate share.

As a reminder, a couple 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 single station goes on total line reporting. We do that when we think there's a lift potentially. But again, we're following where the listeners are. And to the extent we increase our share, and we've taken advantage of pricing, that's something that you'll see. And streaming is a nice business, and there's 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 that's really turbocharged incremental revenues that we hadn't seen in the past. The increased 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.

Mary G. Berner

Yes, just to add to Frank's remarks. The 2 areas of -- main areas of focus for digital for us are maximizing impressions that we generate by increasing listenership from existing listeners and also extending the platforms we're able to be found on. So in 2022, we extended our TuneIn distribution deal and our iHeartRadio distribution deals. But notably, we also added the NFL streaming rights. And that was and is proving to be a terrific opportunity because we have new listeners that we've never really had before. So that's one area of focus. And the second is we focus a lot on the monetization of the inventory across all the channels: local, national network, programmatic. And so I think, as Frank said, I think that the opportunity, the bigger opportunity is DMS, but this is pacing quite nicely, as you can see.

Michael A. Kupinski

Final question. Final question. On the local level, are you seeing any regional disparities? Anything in particular that might kind of indicate that maybe local is not performing well or some issues that we might start to see some cracks in local? I'm just wondering if you can just kind of give us some thoughts in terms of how healthy local is at this point in terms of just given the economic headwinds, it seems to be holding up very well. But are you seeing anything that might give us some concern?

Mary G. Berner

You know, one thing I would say is that it remains a tale of 2 cities in local versus national, but it's also a little bit small versus large. Smaller markets are outperforming larger markets, and I think that's given their relatively 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 -- are more embedded, if you will, and influential. And the programming is really needed, the live and local, in those communities. So that holds up -- that is holding up better than the larger markets, the 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 2 cities, smaller markets versus large, even on the local front, too.

Michael A. Kupinski

Got you. That's all I have.

Operator

Our final question comes from the line of Avi Steiner with JPMorgan.

Avi Steiner

Just on the ad environment, which seems to be weakening in the second quarter. How much of that is being driven by maybe the 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 top line down low-double digits. Is there any one-time items in the year ago period we should be thinking about as we kind of build out the model or that may need to adjust for that number on a comp basis? And I've got a couple more.

Francisco J. Lopez-Balboa

Avi, I'll take that. Look, what happened with SVB has not directly impacted us in terms of the flows in the business. Having said that, whenever you have weaker confidence, it remains to be seen how that ripples through the economy and our clients.

The weakness that we're seeing in financial particularly, even 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 new customers in this environment. And of course, with higher interest rates, a big category for us was the mortgage market. And I don't have to say why there's not going to 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. So I wouldn't say there's anything new other than the continued uncertainty, and that's why we're seeing a continued weaker national market. And then our local spot business, as Mary mentioned and as I mentioned in the script, is a little bit weaker pacing the second quarter.

With regard to last year, comps to last year, there were no significant one-time events last year. And so I think the way to think about it is in the first quarter, excluding WynnBET and political, we were down 7%. Of course, we had political last year. So pacing down low-double digits indicates just that weaker environment, slightly weaker local and then weaker national. But again, it's early in the quarter. During the quarter, we have 2 months to go, but we're not seeing improving trends at this point, that's for sure.

Avi Steiner

Thank you for that color and the clarification on the financial services category. Got two more for me. Just one, cash flow, as you pointed out, was positive. Working capital, a fairly nice source this quarter
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Anything one-time there, and just how to think about that for the rest of the year.

Francisco J. Lopez-Balboa

Right. Look, our drivers on free cash flow is driven by EBITDA, obviously, and then just our revenue -- the revenue impact on working capital. And for the first quarter, we generally generate a bit of cash because seasonally, the first quarter is lower revenues. Then we have the benefit of collecting the sales from the fourth quarter, and that's contributed to our working capital benefits in the first quarter. But it's mixed. The second quarter tends to be lighter on cash generation, and then it rebounds in the third quarter.

So the way we look at it is we try to -- we do manage and look at our cash flow on a yearly basis, recognizing we have the swings. If revenues pick up and that generates a use of working capital, that will be temporary, but with increased revenues, we have increased profitability. And if you remember, in 2020, working capital was an enormous source of liquidity for us. That's for the wrong reasons when revenues were down by 25% for the full year. So we'll just have to manage that. But we look at all expenses. We look at 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 be in a good position, notwithstanding this weak environment.

Avi Steiner

Great. And then just lastly on the expense line to dovetail towards the end of what you just responded. Just to make sure I heard everything correctly. $8 million kind of cost saves for the balance of the year I think is what you said on that $10 million you identified. I'm assuming that's going to be pro rata across quarter, but anything else to think about expense-wise as we go through year-end?

Francisco J. Lopez-Balboa

No, you had it right. The $8 million more or less ratably throughout the balance of the year. But I would emphasize that we're not over on that. We look at our expense base very closely, and we are in the process of identifying other opportunities that we think we may be able to take advantage of but haven't been able to nail down in such a way that we have been putting in this guidance. And we'll give you an update in the next earnings call to the extent we can take out other costs and what the implications for the balance of the year and then going into 2024.

Operator

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.

Mary G. Berner

Thanks, everyone, for your time today, and we look forward to speaking to you again next quarter. Thanks.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect your line.