Q1 2021 Meredith Corp Earnings Call
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I'll ask a question during the session you will need to press star one on your telephone if you require any further assistance. Please press star zero I would now like to hand, the conference over to your speaker today, Mike Lovell from Meritas Investor Relations. Thank you. Please go ahead Sir.
Good morning, and thanks, everyone for joining us our call will begin with comments from President and Chief Executive Officer, Tom Harty, followed by Chief Financial Officer, Jason Free Route.
Marks. This morning will include forward looking statements and actual results may differ from our forecast.
Reasons for the differences are described at the end of our news release that was issued earlier this morning and in our SEC filings.
Certain financial measures that we are discussing on this call are expressed on a non-GAAP basis and have been adjusted to exclude the impact of special items.
Reconciliations of these non-GAAP measures are included in our slide presentation.
Our earnings release and slide presentation are available in the Investor Relations section of Meredith Dotcom.
An archive of our prepared comments will be available on our website later today no.
Now I will turn the call over to Tom.
Thank you, Mike and good morning, everyone.
I hope you've had the opportunity to see our news release issued earlier this morning, and the presentation, which should also be available.
It includes disclosures, we think you'll find very useful.
I'll start with slide three.
We are off to an encouraging start to fiscal 2021.
To summarize we delivered year over year growth in EBITDA as growth in digital advertising and political spot revenues, partially offset adverse coded related impacts.
We had the best first quarter free cash flow performance in our history we.
We finished the quarter with more than 200 million of cash in the bank.
This performance has enabled us to meaningful strengthen our liquidity and fuel our number one priority, which is net debt reduction.
Looking at the current market trends, we are encouraged by the rebound in advertising demand for more shorter lead time platforms, namely digital.
Some categories remain soft due to covert including auto travel and entertainment.
That said the reopening of the US economy in recent months is driving improving trends in certain categories, including pharma beauty <unk> home and online retail we.
We see some filmmakers ramping production and expect improving spend ahead in the entertainment category. We're.
We're encouraged by these trends and expect continued improvement as the us economy recovers.
We also continue to experience strong consumer engagement across our media platforms. For example evening newscast ratings are strong response rates to our magazine subscription solicitation offers remain above historic norms.
And traffic to our National media sites is up.
Looking more closely at our broadcast portfolio.
We delivered record political advertising results.
Competitive races, led by those affecting or Arizona, Georgia, Missouri media markets drove 43% growth versus two years ago.
Non political advertising was impacted by political crowd out, but improved sequentially versus the prior quarter.
We launched people television show across 12 markets of our local media group.
People debuted on September 14, and is the number one new show the season according to Nielsen ratings.
We recently announced an agreement with Sony Pictures television to Syndicate, the show to non Meritas stations beginning in fall 2022.
Television is a natural extension for the people brand and this is another opportunity to grow monetize and promoted across our media properties.
We've assembled a great team, including Emmy, winning executive producer and show runner, Rob Silverstein, who spent many years in similar ROE role access Hollywood.
Other talent involved with the show includes special contributors, Nancy O'dell, and Gretchen Carlson and co host Kay Adams and Lawrence Jackson, We're looking forward to strong contributions in the future for people TV turning to our National Media group, starting with our magazine business.
We're encouraged by our continued recovery in print advertising, which generally requires lead times in the four to six week range, we're seeing sequential improvement from the prior quarter and results have been in line with our expected range.
We're also encouraged by the sustained strength in print magazine subscriptions solicitation. For example response rates to direct mail campaigns were up nearly 30% and we sold 30% more subscriptions across all of our online channels.
Both measures compared to the same period last year. These.
These strong response rates allow us to grow the profit contribution from our subscription activities over the long term.
The other side of the National Media group is digital.
Traffic to our digital properties grew significantly for example people dot com had its best traffic performance in its history and remains the number one destination in the entertainment category already.
All recipes the world's largest digital food site had its best fiscal first quarter in its history.
Year over year digital advertising revenues grew 15% to a record first quarter high.
Importantly, we are encouraged by the continued sequential recovery, we're seeing since the fourth quarter and by the multiyear integrated partnerships, we're signing with key advertisers.
Our multi year project to bring all of our brands together on a single digital platform is driving strong consumer engagement, along with growth in advertising and E Commerce revenues.
Among our enhancements, we launched the Meritas data studio during the first quarter of fiscal 2021.
The data studio is aimed at bringing together our valuable first party data and predictive insights to help clients improve returns from their advertising investments with us.
Weve also advanced our video and audio strategies video.
Video views to our owned and operated properties grew by 9% and video related advertising revenues grew strongly compared to the prior year period across our owned and operated properties and we announced new podcasts from our people and Instyle brands.
The capabilities were bringing to bear and our data studio along with the growth we are delivering and sessions and video views our benefits of the technology platform, we highlighted last quarter.
As a reminder, the new platform brings together consumer profiles real time insights and intense signals to one predict trends that inform our editorial and product roadmap to provide personalized experiences to our consumers and three give our advertisers the ability to take.
Under the right messages and products to the users most likely to buy at any given time.
It also prepares us well for a world where third party cookies are no longer supported.
Our new proprietary technology platform and data capabilities are already playing a role in recent wins, including an exciting new partnership with Walmart.
For example, we have a new tool that matches items. It consumer sees in marriage articles videos or pictures with retail products from Wal Mart in real time the.
The shop everything capability is powered by the Meredith proprietary AI powered pairing engine.
In the food category the tool lets consumers take pictures of ingredients, they have on hand, and it populate with recipes and meal ideas in.
Inspiration for these ideas can come from our users search history or from local trends.
The tool creates a shopping list that is linked directly to Walmart for store pickup or home delivery.
We recognize there is a lot of work to be done and the macroeconomic backdrop is still uncertain, but despite these challenges we are off to an encouraging start to fiscal 2021.
With that overview I will turn it over to Jason and I'll come back to highlight certain trends, we're seeing in our second quarter and offer closing comments then we'll invite your questions.
Thanks, Tom I'll begin on slide four looking at one Q 21 consolidated performance revenues were $694 million down 4% from the prior year period adjusting for portfolio changes announced over the last year total revenues would have been down 1% on a comparable basis as a reminder, the changes reduced revenues.
While improving profitability.
We will have cycled through these portfolio changes at the end of this calendar year.
Advertising related revenues were $359 million lower by 6% from the prior year period on a comparable basis, excluding $11 million of portfolio changes advertising related revenues were down 3%.
Coded continues to impact our results, particularly in the advertising space as we continue to progress through the pandemic quantifying the specific impact becomes more challenging.
Thus, we are providing estimated ranges as compared to the more granular quantification provided in the past few quarters.
Our estimate of the coated related revenue impact for the first quarter total between 45 and $65 million across both the national and local media groups.
Consumer related revenues were $319 million down 1% from the prior year period on a comparable basis, excluding $11 million of portfolio changes consumer related revenues were up 2% driven by a $12 million of retransmission revenue growth.
Other revenues were $60 million down 28% from the prior year period and this was primarily the result of sunsetting service agreements for sold brands.
We generated earnings from continuing operations of $42 million compared to $12 million in the prior year period, driven by National Media group digital advertising revenue and political spot advertising revenue growth.
On a consolidated level adjusted EBITDA was $143 million up 17% from the prior year period growth was driven by $52 million of political spot advertising revenues and 15% growth in National Media group digital advertising revenues. This growth was partially offset by the negative impact of coated.
US advertising consumer and other revenues.
Cash flow from operating activities was $79 million compared to the use of $14 million in the prior year period, as we benefited from digital and political spot advertising revenues effective working capital improvements lower compensation related items and lower restructuring payments free cash flow for the quarter was $70 million 99 million.
Dollars better than the prior year period.
Now turning to slide five I'll provide greater detail on our segment performance beginning with the National Media group.
Revenues were $468 million down 12% from the prior year period, the portfolio changes I mentioned earlier accounted for $22 million with consumer and advertising impacted equally on.
On a comparable basis, excluding portfolio changes the national Media group revenues were down 8%.
The National Media group continues to experience Cobra related cancellations and delays in advertising consumer related and other activities, primarily in the plant and the print platform.
We estimate the cobot related revenue impact total between 25 and $40 million in the first quarter.
Advertising related revenues were $228 million down 16% from the prior year period adjusting for portfolio changes advertising related revenues were down by 12%.
That includes comparable print declines of $41 million, partially offset by digital advertising growth of 15% or $14 million.
Giving some more color on our advertising performance during the quarter.
Advertising platforms with a shorter lead time rebounded more quickly, particularly digital.
In this uncertain economic environment advertising clients are placing a premium on flexibility and our digital platform addresses that demand. The print platform is recovering in line with our expectations here.
Care to clients are looking for flexibility and brand safety as a result, our magazine brands are outperforming the competitive set and continue to take share for example, according to media radar Meritas share of US magazine advertising market stood at 35% for the first nine months of calendar 2020 up from 31% for the same period.
A year ago.
National Media group consumer related revenues were down 7% from the prior year period adjusting for portfolio changes consumer revenues were down 2%.
Subscription revenues were down due to portfolio changes along with the success of our solicitation efforts as we shift our mix toward director publisher and away from third party agents.
Newsstand revenues declined $8 million due to coded related declines these declines were offset by strong growth from licensing and ecommerce.
Other revenues were $41 million down 19%, primarily the result of sunsetting operational support to sold brands I referenced previously.
Operating profit was $32 million up 12% year over year, adjusted EBITDA was $76 million down 16%. The key drivers are coded related declines, partially offset by digital advertising licensing and ecommerce growth.
Given the 15% digital advertising growth and strong E. Commerce performance, we delivered in the first quarter. We wanted to provide additional insights into key drivers on the right side of the page.
Traffic measured by sessions was up 19% from the prior year period, we saw stronger performance at our largest site people dotcom as the entertainment industry adjusted to the current environment and celebrity news regain popularity six.
Sequentially from the June quarter.
Additionally, our food sites led by all recipes dot com continue to see strong year over year growth. However, the record gains we saw in Fourq you 20 during the height of the pandemic began to settle in the first quarter.
We're encouraged by the recovery of Cpms, which have sequentially continued since the onset of the coated pandemic we're.
We're seeing particularly strong performance from our Proto programmatic platform as it offers the flexibility advertising clients are currently looking for.
And looking beyond advertising at the bottom right of the page our licensing ecommerce activities continued to gain traction growing more than 20% in the first quarter. This includes Apple news plus content commerce and digital couponing activity.
Turning to slide six local media group revenues were $226 million up 17% political advertising revenues of $52 million and retransmission revenues of 91 million offset declines in nonpolitical spot advertising revenues driven by colder related cancellations delays and credit by our record.
Reticle demand.
We estimate crowd out from political spot and advertising revenues to lowered first quarter nonpolitical spot advertising revenues by approximately eight to 10 percentage points.
We estimate the coated related revenue impact total between 20 and $25 million in the first quarter.
Putting our first quarter performance in the industry context. According to the most recent data available from the television Bureau of advertising, our total spot advertising revenues were up 17% for the first two months of our fiscal first quarter compared to growth of 1% for the industry as a whole we believe our unique station footprint positions us.
Well to continue outperforming the industry.
Operating profit was $64 million up 66% and adjusted EBITDA was $80 million up 63%.
With both measures primarily driven by political demand.
Looking more closely at political spot advertising. We've included the map on the right side to show, where we experienced the most spending as depicted by the scale of the shaded circles.
In the first quarter political spot advertising revenues were up 43% from the prior cycle two years ago, driven by strong spending for political for presidential and so.
Senate races.
Nearly half of the first half revenues came from the Senate race in Arizona.
We also benefited from strong spending and Georgia and Missouri.
Through election day on November Threerd, we estimate that the second quarter of 2021 political spot advertising.
Was approximately $90 million in Georgia at least one U.S. Senate seat is headed for a run off and our stations and Atlanta, we'll continue to see political advertising spending in that market through the rest of fiscal second quarter and the first few days of January as run off elections are scheduled in January 5th.
Turning to slide seven cash flow liquidity and balance sheet strength remain critically important to Meredith, particularly during this time of heightened uncertainty net debt reduction as our number one priority and we continue to target a leverage ratio of two times over the long term.
As the company, we're measuring our performance in this environment by free cash flow.
We generated $70 million of free cash flow in the first quarter. It was a strongest free cash flow generated during the first fiscal quarter in our company and 119 year history and were versus a use of $29 million in the prior year period.
This improvement was primarily driven by our strong digital and political spot advertising performance working capital improvements lower compensation related items and lower restructuring payments.
Looking at the bottom of the slide we ended one Q 21 with $201 million of cash in the bank compared to $27 million in the prior year period, our revolver balance was zero at September Thirtyth and remains unused today.
We continue to see positive momentum in our efforts to improve cash flow helped by strong political advertising demand looking at the long term our continued improvement in operating cash flows and efficiency supports our long term capital allocation goals on that note, we had more than $300 million of cash in the bank as of October 30, Onest and we expect.
Seeing pacing for key magazine accounts, improving for the last 10 weeks straight.
Third consumer demand for our brands and services remains strong and we believe offers a long runway of opportunity consumer related revenues now account for nearly half of the total company revenues.
Up from approximately 25% over a decade ago.
A consumer focused strategy offers several benefits.
These important activities are more contractual and include retransmission brand licensing and digital sources, along with stable subscription revenues.
And the consumer reach of our portfolio, coupled with engagement form the basis of our value proposition to advertisers our consumer engagement is a differentiator and positions us to benefit from incremental advertising spend when the economy recovers.
Lastly, as we look into our fiscal 2021 second quarter, assuming no changes in trajectory due to COVID-19, or other macro factors, we expect national Media group digital advertising up in the mid to high teens comparable print advertising revenue continue to recover so.
Well actually in finished Q2 down in the mid teens.
These expectations translate to digital advertising revenues exceeding print advertising in the National Media group for the first time.
We expect local media group nonpolitical spot advertising revenue down in the mid to high teens with continuing impact from crowd out and political spot advertising to be in the $90 million range with runoff election dollars incremental to that.
In closing we are encouraged by our performance in the first quarter and trends for the first half of fiscal 2021, we're cautious as we look into the second half of fiscal 2021 as there continues to be significant variables. At play. These include ongoing social and economic uncertainty related to Covance.
I needed to get the portfolio in shape.
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Great. Thanks, Dan Good morning.
What I would say is that there's two things mainly that's driving our digital business and then I'm going to ask Katherine Levine who's on the line Who's who runs our digital business to kind of make some some additional comments, but the two things are the strength of our brands and the session growth that we've been seeing in Q1 is is looking to continue to Q too and then.
As we've talked about open programmatic cpm's, which were greatly affected.
By the Covid recession have been kind of sequentially, improving week to week and quarter to quarter. So we're seeing.
Cpm's recover starting in October really really backed almost where we were last year, so with that I'll turn it over to Catherine.
Hi, Dan how are you.
So.
Tom mentioned, a good portion of our growth it's coming from.
Our increased special.
Impressions per session.
Proving CPN Etsy said, Tpn's I'm going to continue to improve but on top of that you asked about.
There are areas of growth and.
A good portion of our AD revenue comes from nine.
Open problematic advertise advertising category so.
We have direct IL and we have all of our premium programmatic categories video et cetera, and we're positioning the portfolio they take advantage.
That 60 plus percent that we get some non open programmatic revenue. So a couple of things to talk about their obviously.
The strength of our brands.
And the importance of our content to the everyday lives of women is critically important in the trust they have with us, but you layer on top of that they are real improvements.
That we're making in our technology and the investments that we've made in a particularly our platform we started to talk about that.
But our platform really post together.
All of our content onto one.
Similar platform.
I'm platform to it takes all of the first party data that we've been gathering from our consumers over the years and continue to gather at first party data is critically important to your second question, which is how do we.
Make ourselves less dependent on third party cookies that first party data is critically important positions us very very well for a time in the very near future when third party cookies, a deprecated. So all of that first part is data helps us.
Create a proprietary identity graph that identity draft allows us to profile consumers and.
Mm predict future trends and the key point about that is that we can target.
Highly target consumers with first party data upscale.
So the first part of that in the scale and the relationship with our consumers. The data that we lay around top of that allows us to really target our consumers at scale with first party data and that third piece leads to our relationship with our direct advertisers.
Some of the predictive advertising capabilities and trend that we are bringing onto the platform helps us with really long term multiyear large relationships with advertisers on.
On the video side of the business.
As as I mentioned and our last call. We are investing in video, we will not able to invest as much as we wanted to and video this past two quarters because of the covid impact, but still the production is up 16%.
And we're growing revenue on our our no significantly from that increased.
Post production and usage of video on our property.
Thanks Catherine.
Yeah.
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Okay.
Your next question comes from the line of Kyle Evans with Stevens. Please go ahead. Your line is now open.
Hi, Thanks can you hear me.
More on trial.
Congrats on the free cash digital.
Tough questions for Patrick if he's there.
Yes, Patrick is on good morning, Kyle Hey, good morning.
I appreciate the political displacement estimate 10% Emma yes.
Yes.
[noise] appears on that project, probably similar cycled Brian.
I don't know forgive us displacement number but it looks like your coins materially below peers could you help us reconcile that.
Well I think our political as material above our peers and so I think our crowd out number is larger than our peers. Our footprint is aligned to have taken a larger chunk of political this year and frankly, we saw historically, we take about 10% of presidential moneys and and that goes back since I have <unk>.
The company 20 years ago, this cycle, where we're taking about 24% of our total revenues and presidential monies. So that's that's providing for the larger than normal displacement.
Got it.
And then.
Any appears meacham.
Net retrans commentary yesterday that market could you help us think about.
For gross and.
And that retrench.
For calendar 21, and beyond what's the renewal schedule and subs and networks going forward and do you still see growth when you when you look at that retransmission.
123 years.
Yeah, no. It's a good question and to review the numbers that we had in fiscal first quarter. We saw a 15% increase over prior year now is mostly due to the differential with dish during our outage last year, but we did also see encourage sequential quarter over quarter growth.
And sub declines are real and they are happening in ours or somewhere in the little more than 1% range quarter over quarter.
We do see continued growth in this space, it's just not going to be the meteoric growth that we've seen to the last 12 years.
As far as our renewal schedule, we only have about 5% of our subs up this fiscal year and those are all the small guys in the individual markets and we don't have any network affiliation agreements up this year. So really I think it's a timing issue for us.
Got it.
Think about physical twenty-two for both those numbers.
Oh, Yeah, let me look at the on the renewal rate for fiscal 22 will have about a third of our subs up and we will only have one network affiliation agreement up with our NBC station in Nashville.
Great.
It was for Jason Congrats.
Hundred million dollars a year.
Cash.
The deck references working capital benefits on slide seven could you put some brackets around those I'm talking about maybe further opportunities there.
Yes.
The team the team you did a great job in terms of cash for the quarter.
As we said this is the this is the biggest quarter in terms of free cash flow generation in terms of working capital.
Areas that we continue to work on our.
Receivables in terms of past few collections.
I think that we have opportunities there in terms of just the aging of some of those items that we continue to make progress.
In those areas.
The inventory and from is do you think about paper continue to make sure that we're purchasing pager paper not too far in advance, but making sure that we're not putting our operations at risk.
And then on the payable side of so this before but continuing to.
Identify opportunities, where we can have.
Vendors and partners that have payment terms that are more in terms of industry norms. So we continue to work on that in terms of areas of opportunity for us as we continue marching forward.
Great two more quick ones I'm gonna get back in the queue. Catherine mentioned that she expected cpm's to continue improving and I wanted to I was wondering what are the underlying drivers that gave her the confidence.
Single digital crossover I think in the.
Second quarter in terms of more digital AD dollars then print what do you think is there a reasonable timeframe, where the national AD dollars an aggregate grow cause sometimes we've seen you know print declined more than digital grows but.
I assume we're sort of you know within some reasonable timeframe that actually hitting crossover do you guys have.
Reasonable view of that just in terms of of the range. Yeah. I think that's a great question. Jason We spent so we've been spending some time looking at that actually obviously, the cute queue to for us or calendar Q4, and the National Media group is our biggest quarter for advertising. So when we reached a quarter like this where.
The first time in our history, where digital advertising in pure dollars is greater than print is is a big occasion for us because we've been driving for this for a long period of time, if we if we it's harder for us to look at the the second half of the fiscal year today.
On November 5th and be able to come up with a perfect projection, but we do see and not only on the revenue we see on our contribution perspective that digital digital is significantly growing.
Year over year, and we will probably have more to talk about that in the next quarter and we have a little bit more visibility, but we are we see this trend continuing even with print recovering sequentially that the digital growth that we're seeing and when we look at our digital business. It's not just in advertising business we.
Have advertising we have commerce.
Content Commerce and then we also have content licensing so those three put together, we're seeing significant growth year over year.
Super helpful. Thank you.
Your next question comes from the line is Dan.
Please go ahead you line is now open.
All right on back sorry, Catherine and well. Thank you hope you are well too.
What happened there.
Jason can you just the other piece that I wanted to ask about was on the cost side of the equation you probably had about I don't know.
2000, $25 million, an incremental in energy costs that came out.
Just trying to understand sort of your view under.
Knowing that you can't control the environment, which is what's kind of your view of some of the cost cut permanents right now and is there any way to kind of bracket, what you think of sustainable on a more normalized basis.
Yeah, I think that in terms of we took some actions in terms of head count in the in the middle of September that affected both the local and the national Meteogroup businesses.
In terms of our spend in the pandemic are spending level Liberals are down thinking about <unk> and other type of <unk> and the other types of discretionary spin.
As I think about is a continued movement for recovery, if you're thinking about that type of scenario, we would expect cost in the second half to obviously rises travel and and people go back to the doctor and benefit costs and things like that become higher.
As things become more normal.
But the the features a little bit unknown, there, but so the good news is that we're we're trying to manage costs as effectively and efficiently as possible.
Today and positioning ourselves for an exit as the pandemic subsides or hopefully there is there is a result to it.
That we are in a much more competitive position cost wise.
Upon that upon that happening, but I would expect the second half costs to be a little bit higher than the first half costs.
As you think about a normal recovery to normalcy.
Gotta, that's Super helpful. And then maybe colleges on what you just mentioned based around the licensing and if I admit I apologize licensing and he calm obviously are in this environment.
Nothing a few short years ago, but it's still a small percentage when you compare it to the digital advertising and our overall strategy is to make that a much bigger part of our business, especially since we have all this data and we've had this integrated platform expenses well for that.
Alright, great. Thank you very much all of you for the call I appreciate it.
Great. We thank you all for your participation. We're very excited about the beginning of our fiscal year and we look forward to catching up next quarter.
And the gentleman.
Today's conference call. Thank you for participating you may now disconnect.
Okay.
Okay.
Okay.
No.
Okay.
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