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Cumulus Media Inc.

Investment Appraisal
The company reported a solid first quarter with results that exceeded expectations, both on revenue and adj. EBITDA. Total company revenues increased 15% to $232.0 million, above our $227.2 million estimate. Adj. EBITDA, benefitting from moderating costs, was $31.2 million, better than our $22.2 million estimate. Notably, the quarter benefited by an estimated $5 million in revenue and in adj. EBITDA due to a pull forward from the cancellation of the WynnBet partnership. Even after adjusting for the benefit in the quarter, the company nicely exceeded our adj. EBITDA estimate. Figure #1 Q1 Results highlight the results versus our estimates.&nbsp;
Even after adjusting for the estimated $5 million benefit from the WynnBet partnership pull forward, Q1 revenues increased a solid 13%. Notably, the rebound was in spite of continued weakness in the Auto and other supply chain related advertising categories. Management indicated that the Auto category was down 50% in Q1 from the comparable year earlier period. Management provided favorable advertising pacing data for Q2, estimated to be up in the mid single digits. While this guidance represents a significant deceleration in revenue growth from the 13% in Q1, the company faces one of its toughest comp quarters. In Q2 2021, revenues increased a strong 34%.&nbsp;
Management indicated that National advertising is lackluster, possibly reflecting concerns over the state of the general economy. National tends to react quickly and in advance to the vagaries of the economic cycle. Notably, it is not always predictive of an economic downturn. Local advertising does not tend to react as quickly, but would be expected to weaken if there is an economic downturn. We are tweaking our second quarter revenue estimate downward from $249.0 million to $247.0 million to reflect a weaker National advertising environment. Notably, we believe that the company has favorable advertising trends for the balance of the year, given the expected influx of Political advertising. As such, our full year 2022 revenue estimate remains largely unchanged.&nbsp;
 Flowing through the Q2 revenue adjustment, we are lowering our Q2 adj. EBITDA estimate from $46.5 million to $42.8 million. Figure #2&nbsp;Q2 Revisions highlights our Q2 estimates.&nbsp;Consequently, we are not flowing through all of the Q1 upside to our full year 2022 estimates. Nonetheless, we are raising our full year 2022 adj. EBITDA estimate from $173.7 million to $175.1 million, which is at the low end of the company&#8217;s full year 2022 guidance range of $175 million to $200 million. Management appeared confident in achieving the guidance range, indicating that its 12 month trailing adj. EBITDA was a solid $157.0 million. The confidence is reflective of the expectation that there will be roughly $20 million in high margin Political advertising, which will largely fall in the second half. The company appears to be in a good position in achieving its target if current trends continue.&nbsp;
With the favorable fundamental trends, the company&#8217;s board authorized a $50 million share repurchase authorization. Its plans appear to be aggressive in buying back stock near current levels. Even with the repurchase spend, management stated that it still anticipates net debt to be below 3.5 times adj. EBITDA by year end. As of March 31, the company had $793 million in debt and $181 million in cash, for net debt of $612 million. At the end of the quarter, net leverage was 3.9 times, the lowest it has been in over 10 years. Furthermore, the company plans to have financial flexibility to make accretive acquisitions.&nbsp;
 Separately, the Cumulus&#8217; board rejected the &#8220;highly conditional&#8221; offer from Jeff Warshaw-led buyout group at $15 to $17 per share, in anticipation that its strategy would yield improved value for its shareholders. But, importantly, the company opened the door to all avenues for higher shareholder value, which, we believe would include a higher offer. We believe that the company&#8217;s debt reduction and return of capital strategy should lead toward higher stock valuations.&nbsp;&nbsp;
 The shares reacted favorably to the recent developments at the company, up roughly 8%. But, the favorable reaction leaves plenty of room for upside, in our view. As Figure #3 Stock Chart illustrates, the shares are down from recent highs, likely in anticipation that the unsolicited offer would be rebuffed. We believe that the sell-off was overdone. The offer was opportunistic and highly conditional. The offer appeared to us to be well below where the shares should be trading given its improved financial position. Near current levels, the CMLS shares trade at a compelling 5.2 times Enterprise Value to our full year 2022 adj. EBITDA, well below its industry peers. Notably, the company rightly pointed out that its net debt leverage is below that of its industry peers, presented in a table later in this report. We believe that debt reduction is a key catalyst toward higher stock valuations and that there is significant upside from current levels. We reiterate our Outperform rating and our $27 price target.&nbsp;&nbsp;
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Figure #1 Q1 Results
<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/cmlsq2results.jpg" style="width: 318px;height: 818px" />
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Figure #2 Q2 Revisions
 
 
<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/cmlsq2revisions.jpg" style="width: 306px;height: 754px" /> 
 
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Figure #3 Stock Chart
<img decoding="async" src="https://www.noblelinx.com/x/research/images/reports/cmlsstockprice.JPG" style="width: 592px;height: 263px" />
Source: Yahoo Finance

Cumulus Media Inc. (CMLS)

A Sanguine Outlook

Fundamental Analysis:

Rating: Log in to view

Likely To Complete Debt Swap (CMLS)

A Foggy View For 2024 (CMLS)

Reaches For Its Pill Box (CMLS)

Highlights From Noblecon19: A National Recovery Play (CMLS)

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