Cumulus Meltdown Continues; is iHeartMedia Next?

Things continue to spiral downward over at Cumulus Media, whose stock closed at 29 cents at the end of trading last week. That put the company’s total market capitalization at just $67.8 million dollars, or just 39% of what the HD Radio system sold for two months ago. NASDAQ has threatened to delist CLMS stock next spring unless it can resume consistent trading above $1.
Perhaps a better comparison might be to a direct competitor: see Townsquare Media, one of the second generation of radio consolidators formed in the last half-decade and now the third-largest owner of radio stations in the country (right behind Cumulus). Townsquare owns about 100-150 fewer stations than Cumulus does, has no holdings in network syndication or distribution companies, but it is making acquisitory forays into online platforms/apps and just three months ago purchased a traveling carinval company. Sound familiar? Only on the surface, because Wall Street valued Townsquare at 106 million dollars last Friday ($10.70/share on 9.94 million shares).
On its third-quarter investors’ conference call last week, Cumulus executives and investors went ’round about the plummeting fortunes of the company and how to reverse the fall. CEO Mary Berner admitted that she’s too new in the CEO job to offer a specific blueprint to turn things around, but she was candid about the challenges they face.
Berner said the company has been hobbled by its acquire-or-die strategy but never spent the time or energies into effectively managing its growth. On the radio side of things, Cumulus finds it difficult to execute an effective advertising sales strategy, much less adequately track existing efforts in any meaningful way. Berner says this is in many respects due to an outdated “command and control” management paradigm which centralized radio programming and sales functions, effectively neutering any chance at harnessing the valuable expertise of its employees that exist at the local market-level.
How bad has it gotten for Cumulus employees? More than 2,000 people have left the company in the last 18 months — that’s a 48% turnover of its entire staff.
Interestingly, this last quarter’s (negative) earnings also include a $565 million dollar write-down on the value of the assets it purchaed from Citadel and the acquisition of Westwood One; this constitutes a mass devaluation of the radio stations and the network involved in those deals with no hope of making up the purchase-price. Berner also admitted the company lacks a “cohesive digital strategy.”
In closing, Berner observed that “this is a company that has historically over-promised and under-delivered and I won’t do that. As such, I do not have any more detail to offer you today. However, I have committed to the Board of Directors that I would present to them the results of a 60-day review in December and I fully expect to share some of those findings and plans on our fourth quarter call early next year.”
As we discussed on last week’s Radio Survior podcast, the albatross bringing down Cumulus is a massive debt load ($2+ billion) brought on by overheated acquisitions with no coherent business model to integrate and make money off them. Cumulus, however, is not the only one of the legacy post-1996 radio conglomerates to be saddled with such a burden.
Clear Channel iHeartMedia stock has also been taking it on the chin as of late. The number one radio conglomerate in the country has seen its stock tumble signifcantly in the last six months — from $6.75 in early May to $1.50 at COB last Friday. IHRT shares went from $3.50 to $1.50 over the course of just last Thursday and Friday alone.
This prompted Walls Fargo analyst Marci Ryvicker, who’s a regular at broadcast industry trade conventions, to write some scathing remarks to investors after iHeart’s own quarterly conference call last week. A major topic of discussion on that call was reportedly the company’s “liquidity situation”: iHeart racked up more than $20 billion in debt through acquisitions over the last 20 years. It has yet to find a meaningful way to make a dent in that even after its pivot last year from being a radio company to a “content discovery” company.
At present, iHeart’s debt is more than 11 times the size of the company’s total valuation. In recent years, iHeartMedia has kept it at bay by continually refinancing the debt, dividing it into parcels that would then be renegotiated to delay major payments — much like those with too much credit card debt keep things at bay by getting new cards and moving their balances around. As a result, the interest rate on iHeart’s debt is now in the “high teens,” according to Ryvicker. A $300 million interest-payment is due by the end of this year (see pages 12-13) , and the next major payment comes in 2018 ($900 million).
Considering that iHeartMedia, like Cumulus, is also pretty much already in the position of just financing the interest on its debt, and having already sold off many of the tangible assets of its broadcast business, Ryvicker rightfully asks, “what does management do now?”
There will be those who will criticize this as an apples-to-oranges comparison. iHeartMedia’s platforms and divisions play nicer with each other toward some common objective, and it’s found success in areas of business (such as live entertainment) that Cumulus never did. That’s all true, but the economic fact of the matter is that leverage is leverage, and overleverage is inherently dangerous.