Q4 2023 Cumulus Media Inc Earnings Call
Participants
Frank Lopez-Balboa; EVP, Chief Financial Officer; Cumulus Media Inc.
Michael Kupinski; Analyst; NOBLE Capital Markets, Inc.
Jim Goss; Analyst; Barrington Research Associates, Inc
Dan Day; Analyst; B. Riley Securities, Inc.
Presentation
Operator
Hello, and 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 and President of Westwood One. Sir, you may proceed.
Thank you, operator, and welcome, everyone, to our fourth quarter and full year 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 and 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 as discussed in our SEC in our filings with the SEC.
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 today's call will be available for about one month via link in the Investors portion of our website.
With that, I'll now turn it over to our President and CEO, Mary Berner. Mary?
Thanks, Collin, and good morning, everyone. It's been well documented that 2023 was a tough year across the media landscape. Unsupportive macro factors including persistent inflation, rising interest rates and a barrage of geopolitical issues, combined with the general uncertainties depressed advertiser confidence throughout the year.
However, while we couldn't escape the effects of the weak environment, we were able to offset some of its impact on the year by solid execution in key focus areas, specifically by growing our digital businesses, reducing costs and improving our balance sheet.
Looking ahead to 2024, while there are some green shoots, we still have limited visibility into ad demand, particularly with respect to national advertisers. That said, our lead industry-leading performance during other weak macro environments gives us significant confidence in our ability to navigate these current headwinds and rebound strongly when we see a return to a better advertising climate.
Supplementing those efforts this morning, we announced that we are launching a debt exchange to extend our maturities and further reduce our net leverage. I'll touch on that later. But first, our 2023 key highlights starting with digital, which is not only the fastest growing area of the company, but also one that provides us with new ways to capitalize on our long-standing relationship radio relationships.
In aggregate, our digital businesses generated $146 million of revenue in 2023, representing 17% of our total revenue and an increase of 3% year-over-year. In the fourth quarter alone, these businesses produced $40 million of revenue, 18% of our total revenue for the quarter, an increase of 5% from the prior year.
As I said, we've said before, digital, which has been built profitably and organically from day one has three primary revenue streams, digital marketing services, streaming and podcasting. In 2023 digital marketing services grew 13%, finishing the year at $45 million annual revenue run rate.
We continue to be excited about the opportunities. This business is presenting us both to expand our customer base beyond broadcast radio buyers and to increase revenue and deepen our relationships with our radio customers.
To the former point, a third of our DMS clients are new to the company in part, the magnitude this digital only group reflects the traction that we're gaining with Cumulus boost a portfolio of presence products, including website design reputation management and search engine optimization, which complements our existing digital campaign products.
The number of our Boost clients has nearly tripled since the beginning of 2023. That rapid acceleration reflects the fact that boost serves as both an entry level product giving us the ability to serve customers whose budgets are get too small to support a radio campaign while also increasing our competitiveness with our larger customers because we can now offer them presence products.
We also see our digital marketing services portfolio as a powerful lever for our traditional radio base it goes without saying that having a full suite of digital products allows us to tap into a more significant portion of these clients' marketing budgets.
As importantly, we've also seen that our local broadcast radio advertisers to add digital marketing services to their orders by over 40% more DMS at our DMS clients who don't buy local radio. With the increase, reflecting the generally larger marketing budgets that radio buyers have as well as the power of integrated radio with digital to deliver superior higher ROIs.
It's also encouraging that our local radio broadcast clients who also bought DMS maintained greater radio spend year over year than those who bought broadcast radio only, which has been important benefit, especially in a lackluster environment such as we've been dealing with.
And finally, we see considerable opportunity with this expanded digital selling effort as we aggressively target a large number of our current radio customers who have not yet bought DMS from us.
Our streaming business, which primarily monetizes the simulcast streams of our over the air broadcast through multiple distribution channels, outlets and ad channels was up 16% in 2023. An important factor of this growth was a streaming audio companion to our broadcast at NFL play-by-play, which has driven significant audience growth and generated millions of dollars of incremental revenue from our NFL relationship since the stream is launch.
Also of note, in 2023, we benefited from a third-party fixed rate ad sales contract for a portion of our radio stations streaming inventory that contract recently expired and though that will affect our streaming growth rates in the short term, taking back our station streaming inventory is the smart move strategically and given our experience with monetizing our NFL streaming, we are confident that it will pay off financially as well.
Podcasting is the third part of our digital business, and it was the most negatively impacted in 2023 by the national advertiser weakness and the falloff in direct response advertising. However, the podcasting revenue fell 8% in 2023, we saw an improvement in revenue trends as the year progressed, with podcasting revenue growing year-over-year in both the third and fourth quarters after declining in both Q1 and Q2.
That positive trajectory combined with the addition of meaningful impressions from a number of new podcasts, strong growth from existing podcasts and additional impressions created on video channels gives us confidence in the financial upside from podcasting we expect to see in 2024.
While encouraging, the overall growth in digital did not offset the combination of 2023 significant macro head winds and the negative political comparison, total 2023 revenue was $844.5 million, down 11.4% and resulted in EBITDA of $90.7 million, while our fourth quarter revenue was $221.3 million and EBITDA was $22.8 million, both in line with analyst consensus.
It's important to note that our [EBITDA] performance was heavily impacted by the year-over-year reduction in high-margin political and national revenue streams, an impact which would have been much worse, worse but for the substantial cost actions we executed throughout the year by the time we finished the year, our annual cost reductions since 2019 has grown to $120 million, representing 26% of our fixed costs.
We took on a multitude of initiatives to deliver these incremental cost reductions, including implementing additional efficiency measures throughout the organization further rationalizing our real estate footprint renegotiating or terminating low lower-margin contracts and improving our business processes. These efforts added to the significant operating leverage we expect to benefit from when the market conditions improve.
Turning to 2024, our conversations with national advertisers continue to reflect their desire to spend. And as I mentioned earlier, we are seeing some encouraging green shoots. For instance, insurance, a top vertical within the financial category, which is a top-five category for us and consumer packaged goods, top 10 categories are both showing nice positive momentum.
Additionally, we're seeing a high level of national advertiser interest in our premium national live sports franchises like the NFL and the NCW. That demand along with strong sales execution and the addition of the NFL streaming audience propelled our NFL revenue to a record high in the most recent Super Bowl.
Nonetheless, despite of these positive indicators and advertisers' encouraging message being to us about their go-forward buying intentions for both broadcast radio and podcasting, many national advertisers, in particular, mortgage and home improvement companies remain skittish, continue to cite the uncertain macro-economic environment as an impediment to their willingness to commit to large advertising spend, especially some months out.
As a result, bookings are occurring later and later decreasing our visibility. And as I noted, political revenue should provide a slight tailwind in Q1. However, given the lack of competitive presidential primaries, the benefits for political will be more evident in the back half of 2024.
Our local spot business, which has performed better than national spot in 2023 is still pacing down year over year. In Q1, however, we have seen a trend of late orders in recent months and performance improvement as the quarter progresses. Despite that, given the challenge in national, our pacing For Q1, total revenues is currently down low single digits.
Turning to our balance sheet. In 2023, we used operating cash flow we generated along with excess liquidity to buy back [$7.2 million] of stock and [$44 million] face value of debt at a discount to par. Continuing these efforts to strengthen our balance sheet, this morning, we launched a debt exchange offer to address our 2026 maturities to further reduce our net leverage and enhance the company's long-term strategic and financial flexibility. Frank will discuss this exchange offer in more detail.
Additionally, after careful deliberation and with the input of our advisors. As you saw last week, we filed a limited duration share shareholder rights plan. Please refer to our press release and the 8-K filed we filed some more information, but I do want to emphasize that both management and our board continue to welcome constructive dialogue with our shareholders and remain committed to maximizing value for all shareholders.
As always, we are confident in our ability to optimize results in any and all macro environment, reduce expenses and improve our balance sheet, all of which position us well to capitalize on a general advertising recovery when it occurs.
Since the pandemic, our management team has driven best among peers, performance, notably with respect to cost takeout and debt reduction. And we are intent on maintaining that track record track record regardless of the environment.
With that, I'll turn it over to Frank. Frank?
Frank Lopez-Balboa
Thank you, Mary. I'll start with results for the fourth quarter before moving to full year results. In the fourth quarter, revenue was down 11.9%, in line with the pacing commentary that we gave in our last earnings call. While EBITDA was $22.8 million.
As has been the case in recent quarters, local continued to outperform national on a relative basis. Digital growth for the quarter was 5%, led by streaming and digital marketing services, which grew 17% and 7%, respectively. In the quarter, we were impacted by a tough political comparison, booking $1.6 million of political revenue compared to $8.3 million in 2022.
From a category perspective, consumer packaged goods and telecom were our top-performing major national categories, while our weakest were professional Services and Financial. In local spot channels Services and auto were our top performing major categories, while professional services and financial were some of our weakest.
Turning to expenses, total expenses in the quarter decreased by over $10 million year over year, driven by fixed cost reductions and lower variable costs and lower revenue. Since 2019 through the end of 2023, we have generated approximately $120 million of annualized fixed cost reductions.
For the full year, revenue was down 11.4% or down 10% on an ex-political basis and EBITDA finished at $90.7 million. Digital remains an area of strength for us, growing 3% year over year. Of note, our streaming business grew 16% our digital marketing services business grew [13%].
Total expenses for the year decreased by over $33 million, driven by fixed cost reductions and lower variable cost model and lower revenue leading to cash flow and the balance sheet. Cash from operations during the quarter was $3.3 million, bringing full year operating cash flow to $31.7 million.
CapEx for the year was $24.8 million, consistent with our earlier guidance. In 2024, we expect CapEx to be approximately $30 million for the year. We generated nearly $18 million of proceeds from highly accretive non-core asset sales. Additionally, we recently received $14.8 million of cash proceeds from the sale of BMI, which closed in February.
We used our operating cash flow and excess liquidity to retire $44 million of face value of debt at an average discount of 23%, which brings total debt paydown since the beginning of 2022 to $130 million. Additionally, we bought back [$7.2 million] of shares during the year, bringing the total share buyback since we started our share repurchase program in 2022 to [$39 million] or approximately 23% of the shares outstanding as of year-end 2021. And as mentioned on our previous earnings call from a capital allocation perspective, we'll be prioritizing debt reduction in the near term.
To that end, as Mary mentioned this morning, we launched a debt exchange offer to proactively address our 2026 debt maturities to further reduce our net leverage and to enhance the company's long-term strategic and financial flexibility.
We offer provides additional collateral from an unrestricted subsidiary, which will represent $275 million of asset value by newly exchanged debt extending maturities to 2029 reduces principal outstanding and modifies interest rates has contemplated net interest expense for the company would not change materially. This transaction is expected to close by the end of the first quarter.
Moving to the first quarter, we are currently pacing down low single digits. And as a reminder, reflecting seasonality, our first quarter is typically our lowest revenue quarter of the year. While political is a positive factor in Q1, it will not be nearly as strong as the first quarter of 2020 when we had $4.9 million of revenue, benefiting from a more competitive presidential primary season, leading up to the general election. However, we believe our market footprint aligns well with the key congressional races, so we should benefit from spending those contests later in the year.
With that I will now turn the call over to the operator for Q&A.
Question and Answer Session
Operator
(Operator Instructions) Michael Kupinski, Noble Financial Capital Markets.
Michael Kupinski
Thank you. Appreciate the allowing me to ask some questions here. First of all, I was wondering if you can give us just a little bit more color on that on the national network side of the business and maybe the revenue cadence that we're starting to see in the first quarter there?
Frank Lopez-Balboa
Michael, I'll take, I'll start and Mary will add. And so as Gary mentioned, for for the total company, we are pacing down low single digits up. Digital is pacing up nicely. And I will say that from a broadcast perspective, both local and network core pacing down in the low mid-single digits, while still down, it's actually an improvement from the trend that we saw in the fourth quarter.
And as Mary mentioned, also, what we're seeing from a from a national perspective as well as local jet orders are coming in later and later throughout the quarter.
Yes, I would just add something I'd just reiterate what we said in the call is that we're not hearing -- we are hearing a lot of intention to buy it. So there's been no dial back have intention to buy both in the national. It's really just a question of when not if.
Michael Kupinski
Josh, I have been in terms of additional costs. I mean, I know that you guys have cut costs throughout the year in 2023, and some of that will flow through 2024. Can you kind of give us a sense of how much of the cost initiatives you had in '23 flow through in 2024 on an annualized basis?
Frank Lopez-Balboa
I think the way to look at it is what we actually did in 2022 because the numbers we gave you was the cumulative our cost takeouts over the past four years. So in 2023, the $33 million of cost reductions that I mentioned, roughly half of that was fixed costs and half of it was variable based on revenues and some of that will roll into this year.
But having said that, we're not immune to inflation, and that's going to impact us in '24. The areas just in summary, you didn't ask this question, but I'll anticipate it. If you look at our $120 million worth of cost reductions over the past four years, roughly half of that has been people related. And when I say people related, that's internal and external like external contractors, a big bulk of that has been in programming and contracts.
And I think the biggest opportunity that we're going to have this year in the next couple of years will be and as contracts come due, assessing the profitability or the value of those and looking to take more costs out of that now where we can.
Michael Kupinski
Got you. And then one final question. You as a company has been a proponent of foreign ownership of media companies. And so I was just wondering if you can tell us how you reconcile your poison pill position, which caps foreign ownership at 15% with your interest of allowing a 100% of ownership of media companies.
And does the company plan to continue to push for foreign ownership above the 15% cap all the way to 100%?
Frank Lopez-Balboa
Michael, on the shareholder rights plan, I refer you to the filing, but just as a point of clarification, that 15% you mentioned is a trigger of what percentage ownership by one single shareholder has nothing to do with foreign ownership catch up.
Michael Kupinski
But the big three new group is considered to be apart. Right?
Frank Lopez-Balboa
Right. But if they were domestic owner would have been the same. So it has nothing to do with the foreign ownership. It's a and we're putting the plan. We put the plan in to address the single stock ownership position that kicks in and the shareholder rights plan, if it's over 15%.
Michael Kupinski
Yes. And I guess the other portion of that question would be what does the company continue to plan to push for a 100% foreign ownerships of media companies with the FCC?
Frank Lopez-Balboa
The process with the FCC is if someone files and wants to be more than the FCC alignment, then we will file with the FCC as appropriate. Again, the shareholder rights plan has nothing to do with foreign ownership, and it's a very specific FCC in terms of very specifically the FCC when you file and follow the rules in terms of foreign ownership, of course.
Michael Kupinski
All right. Thank you, Frank.
Operator
Jim Goss, Barrington Research.
Jim Goss
All right. Thank you. And I was curious about the NFL rights streaming and the economics of that strategy right fees for football tend to be very expensive. And I'm wondering about the cost and revenue and come on line against that and whether sort of there's an interest in getting more involved in other types of sports with Westwood One on that basis?
Frank Lopez-Balboa
Jim, I'll take that up with regard to the NFL's stream, the comments we made, and as you know, we've had a multi-decade relationship would be with the NFL. That's only recently in our last renewal that we were able to pop up as part of the contract to take advantage of the digital rights for before we haven't until it's incremental.
And the way to think about that since it's part of our rights deal, the margin aspect of that is extremely high because it's not an extra production, it's just a way to monetize an additional source of impressions by having that contract. So it's embedded in the contract and the incremental revenues that we get on the streaming, it is extremely high margin.
Jim Goss
Okay. Are there any other changes in programming you envision within Westwood One that might be notable?
Frank Lopez-Balboa
Nothing.
Jim Goss
Okay. You mentioned the financial was one of the softer advertising areas. I was wondering since there are a number of subcategories within Financial, are there some that are holding up better than others? Or are you seeing any potential for rebound in that particular category?
Frank Lopez-Balboa
You're right. In Financial, there's a whole bunch of subcategories with regard to the first quarter and the insurance category has actually become fairly robust compared to last year. And if you remember last year, that's a category which was challenging as our auto insurance companies in particular had underwriting issues vis a vis their revenue base, and that's bounced back nicely.
And we're seeing appetizers increased their spending and looking to acquire customers. Within the other financial categories anything related to mortgages, as you can imagine, is weak given the high interest rates, although to the extent that the Fed lowers rates later this year and those companies look to acquire customers that can be something we'll benefit from front. However, having said that, the excitement of short-term interest, short-term interest rate cuts that we saw in the fourth quarter has been muted so far in terms of that comment this year.
And then the other financial category, which is a little bit weaker, but it tends to be pretty lumpy are from the large commercial banks. And that's more lumpy and that can come back pretty quickly as well.
Jim Goss
Okay. And the last question, in terms of the debt exchange, I was wondering what responses required and the debt holders and what if you don't if you don't secure that to their response, what are the actions that you might have noted to effect the exchanging plan?
Frank Lopez-Balboa
Jim, as you can imagine, we just launched the exchange offer this morning. It is a process which will be open for 20 business days and we're looking forward to successful execution on that, I'll refer have you refer to the eight K and obviously we'll be able to talk more about that at the conclusion of that offer. And then the next earnings call.
Jim Goss
Okay. Thank you very much. Appreciate it.
Operator
Dan Day, B. Riley.
Dan Day
Good morning guys. You used to talk about some local advertising, especially in digital, radio streaming and podcasting. I think we've talked about those largely being national percentage success you've had in getting more cross selling between broadcast, radio and podcast. It's streaming among among local advertisers?
Hi, Dan. Thanks for the question. Local has throughout this this challenging time has remained more robust in general for us and it's made up of, as you know, many categories, different dynamics and it's hard to put them on the same broad brush, but we've generally done better in terms of podcasting. That represents a kind of a nascent effort, local podcasting.
But as of Friday, we now have 11 local podcasts on the Apple charts. So it this area of emphasis is starting to pay off and we are monetizing them quite well with relate with regard to packaging and selling of local with national or digital, as we said in the prepared remarks. The digital effort is up really, really doing quite well locally.
But as importantly, it is helping to propel our radio business, 50% of our Boost advertisers for example are new to the company and then half of those in turn then will buy radio after they started campaigns.
So the strategy there with having our sales organizations sell a full suite of podcast and digital marketing services and streaming and broadcast, all together as an integrated buy is serving us well because it ties our advertisers closer to us and gives us a lot of stickiness and kind of longevity. So local, I'd say the punchline is local has generally, whether it's podcast, digital marketing services streaming is held quite well for us.
Dan Day
Okay. Great, thanks Mary. And then, it feels like the digital marketing services space is just getting a lot more crowded. A lot of legacy media companies like you trying to build this out or white label these businesses. So maybe just talk about a little more about what separates your digital marketing services product from the others that are out there, whether there might be opportunities to do anything on the M&A front and maybe trying to roll this space up a little bit?
Yes. I mean, there's still it's still a pretty fragmented marketplace. There's no -- it's enormous and nobody even close to having a large market share there. I think our approach is different. We sell it as an integrated part of a solution as opposed to a separate product that we go to advertisers with.
And so I think in terms of the special what we do with the product, we package it, I think quite effectively with broadcast radio. So there's some pricing advantages that worked well for us. And recently, we've successively we've expanded both the range of customers we serve.
So a lot of very small businesses that can't yet afford radio. So we go in very, very small. There doesn't build a lot of companies target those very small advertisers, but very quickly, we're able to upsell them into broadcast radio and other products that we have.
And we've also put a big focus on focusing on companies who operate across multiple markets. So they started a local market and then we have been able to substantially increase the number of multi-markets packagers. So as you know, our approach is a very integrated approach. We start very small and we build and then upsell them to integrated packages with radio and our other products.
Dan Day
All right. Thank you for taking the questions.
Operator
There are no further questions. I'll now turn it over to the company for any closing remarks.
Thank you very much for your time and we will look forward to it. Speaking with you again, next quarter.
Operator
Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.
