Report praises Cumulus performance


CumulusSeeking Alpha’s Darspal Mann has issued a positive review of the company, its stock performance, strategic moves and the future, with the upcoming buy of Dial Global. Here are some excerpts: “Radio broadcasting has been on a secular decline trend with the market shrinking at almost 2.5% annually (IBIS reports) but Cumulus has been able to beat the trend with actively managing its portfolio of assets. This trend of growth is expected to stay with the company guiding for full year revenues to grow 0-1% and up 2% (ex-political). 42 out of 60 categories track by the management have shown positive growth in the last quarter. For the fourth quarter, revenues are expected to grow 4% (ex-political).

Radio may be a matured industry but active management of its portfolio can help Cumulus beat the trend.

–Earlier this year, the company invested $25 million in 4 growth initiatives – CBS Sports, NASH, Right Now Traffic and SweetJack. All four are exceeding expectations and should be profitable. These 4 initiatives are expected to continue to be productive growth drivers for the company.

–CBS sports radio, produced by CBS and distributed by Cumulus, is exceeding 2013 plans and the company has a very strong start in the “up fronts” for 2014. It’s affiliated in around 230 radio stations.

–NASH, country related New York radio station bought by the company in January, is the second most listened-to country station in U.S. Besides a national rollout in 2014 for radio, Cumulus is planning to have a video strategy that is expected to roll out by second-half 2014 and a NASH magazine in the first half 2014. Leveraging the brand, the company is planning to do platform deals with advertisers for web, video, radio, digital audio, online and events.

–Right Now Traffic is taking share in the traffic market and is expected to contribute to the growth in 2014.

–SweetJack, the daily deal site, is benefiting from the joint marketing initiatives with Cumulus and Clear Channel radio stations. SweetJack’s has been successfully integrated into the company’s core media operations with an eye on national level advertisers. SweetJack is also ramping up on mobile activations while reducing the call center operations.

–Cumulus, earlier this year, acquired Dial Global for $260 million and sold Townsquare Media for $238 million. The financial benefit of the Dial Global deal for Cumulus, which offers a good example of financial engineering combining with strategic insight to offer value creation opportunities for the shareholders, was:

$150 million of incremental revenue

$30 million of incremental adjusted EBITDA

Reduction in cumulative leverage x EBITDA from 7x to 6.5x

–Besides the financial benefits, Dial Global can help Cumulus’ efforts in expanding content creation and original programming.

–In September, Cumulus announced a content, promotion and advertising partnership with Pulser Media – parent of Rdio digital music service. Cumulus for an equity stake in Pulser Media will provide exclusive content, media and on-air promotional commitments for a five-year period. Rdio will also use the Cumulus sales infrastructure for its upcoming ad-supported free products.

Rdio, with the launch of free (ad supported) on-demand music, custom play-lists and exclusive content curated by Cumulus, will directly compete with Pandora and Spotify. This space makes up almost 1/3 of the total audio consumption and Rdio already has close to 20 million registered users.

This deal along with the Dial Global deal will help Cumulus create a solid content creation platform and expand its content into digital distribution while monetizing its sales infrastructure. This deal is not just expanding the available inventory but is also helping the company in penetrating digital markets.

–The company is highly levered with close to $2.6 billion of net debt but the company, over the last 1-2 years have been trying to create shareholder value via active management of its asset portfolio (e.g. Dial Global) and de-leveraging the balance sheet. The company is working towards getting below 5x leverage (debt/ EBITDA) from current levels of approximately 6.5x.

–Since the Citadel deal 2 years ago, the company has paid down more than $420 million of debt and preferred. Both the debt and leverage ratio are moving in the right direction by reducing liability for the company.

–Going forward, expect the company to monetize another $100 million or so from the sale of non-core assets mainly in land and towers. The company has close to 200 towers.

–The company has generated $141 million of free cash flow through the year and expects to exceed $200 million for the full year 2013 with the further expectation to “materially exceed” $200 million of free cash flow for 2014.

–The third quarter total revenue was up 2.1% and ex-political, the revenue growth was up 3.2% on the back of claimed market share gains in local markets and productivity improvements in the national sales team.

–The company expects not just revenue growth for the second half of the year but also strong 2014 due to decent political advertising wins again and other initiatives discussed earlier.

–Cumulus Media is slowly transitioning from a radio station owner into a media company having a balance sheet strong enough to withstand competition and monetizing opportunities via productivity improvements on the way. Free cash flow of close to $1, which is to be used for de-leveraging, and revenue growth with strong operating margins can create decent value for shareholders. Target is $9.”

See the full Seeking Alpha post here.