Q3 2021 Meredith Corp Earnings Call
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Good day and thank you for standing by welcome to the fiscal 2001 third quarter earnings Conference call.
This time, all participants are in a listen only mode.
After the Speakers' presentation, there will be a question answer session. Just a question you will need to press star one on your telephone. Please be advised today's conference is being recorded.
If you require any further assistance. Please press star zero I would now like to hand, the conference over to your Speaker today, Mr. Mike Lovell. Please go ahead, good morning, everyone and thanks for joining the call.
We will begin with comments from chairman and Chief Executive Officer, Tom Harty, followed by Chief Financial Officer, Jason Free right.
<unk>. This morning will include forward looking statements and actual results may differ from our forecasts.
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're 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 Dot com.
An archive of our prepared comments will be available on our website later today.
And now I'll turn the call over to Tom.
Thank you, Mike and good morning I.
I hope you've had a chance to see our news release and a related slide presentation issued earlier. This morning, which includes disclosures you'll find very useful.
I'll start with slide three.
Our digital advertising licensing and digital consumer revenues continued to deliver record results.
Our performance was driven in part by strong consumer traffic growth enabled by our data analytics and capabilities along with the flexibility that our digital platform offers.
Mature media revenue performance was mixed as our local media group delivered revenue growth, beating our expectations, while our magazine related businesses, which has a longer advertising sales cycle continue to be impacted by economic uncertainty.
As we've previously discussed we continue to pursue a two pronged strategy.
First net debt reduction is our number one priority.
We've made tangible progress on this goal with a 251 million repayment of our debt during the third quarter.
We ended the quarter with net debt at $2 6 billion and had more than $230 million of cash in the bank.
We continue strengthening and enhancing our digital advertising and consumer focused capabilities, we repeated a critical milestone in the third quarter as digital advertising revenues surpassed magazine for the second consecutive quarter, and our licensing and digital consumer businesses reached record highs.
While consumer engagement remains strong a sessions to our National Media group digital properties continue to expand NAV.
National Media group consumer related revenues account for 50% of the segment and we believe have strong opportunities for growth ahead.
With that let's dive deeper into our performance for the quarter.
Starting with the digital side to the National Media Group, our team delivered outstanding performance digital advertising revenues were $102 million up 21% from the prior year period, and a record high for a third quarter.
Powering our digital business is our proprietary technology platform that brings together all of our content our unique taxonomy first party data and our user graph.
This platform provides a comprehensive view of the consumer and how they interact with our brands content and products, providing valuable insights and predictive trends.
This holistic view and our analytic capabilities provide us with deep insights into user behavior, we use to drive advertising and performance marketing dollars as well as our own content and product development strategy.
Our multi year investment in our platform and data capabilities combined with the direct relationships, we have with 150 million consumers, who visit our sites. Each month is a competitive advantage and positions us well for a future and what's third party cookies will no longer be supported.
Turning to our National Media Group magazine business.
We spoke about a slow start to calendar year 2021 magazine advertising during our last quarterly earnings update in February.
While that observation has proven true we underestimated the volatility and uncertainty in the marketplace.
This uncertain environment clients continue to be focused on bottom of the funnel focused spending in particular, we saw spending slow from clients in the food and beverage and prescription drug categories from our fiscal second quarter and the travel and luxury categories remain challenged.
However, we believe advertisers will return to branded advertising as the economy continues to rebound and more certainty returns.
Magazine subscription revenues declined as we strategically shifted from agent sources and added more profitable direct to publisher subscribers.
Newsstand revenues declined which was expected as we publish fewer titles in the quarter compared to the prior year and as the retail and airport channels remain challenged.
Jason will go into some greater detail on circulation in a few moments.
We plan to continue evolving and optimizing our magazine business based on advertising and consumer demand keeping a keen eye on expenses as we have always done.
Looking more closely at the broadcasting portfolio we.
We delivered 5% growth and non political spot advertising revenues compared to the prior year period, driven by the professional services and home categories.
It was our first quarter delivering non political spot advertising revenue growth since the pandemic began we also benefited from continued growth in retransmission revenues.
While the macroeconomic backdrop is still uncertain. We are encouraged about our performance through the first nine months of fiscal 2021, and the opportunities we're pursuing for long term growth.
Particularly in our digital consumer and advertising activities with that overview I'll now turn it over to Jason from a more detailed look at the numbers. Thanks Tom.
Start on slide four.
Looking at the third quarter of 2021 consolidate performance revenues were $665 million down 5% from the prior year period.
As a reminder, we finished cycling through portfolio changes, so all comparisons today and going forward or on an apples to apples basis.
Advertising related revenues were $304 million down 9% from the prior year period, as Tom said National Media digital advertising was the strongest platform followed by local media non political spot advertising.
These gains were more than offset by advertising declines in our mature magazine channel.
Consumer related revenues were $339 million down 2% from the prior year period growth in National media licensing performance marketing and local media retransmission revenues were more than offset by declines in magazine related consumer revenues.
Other revenue was $22 million down 10% from the prior year period. This was primarily the result of Sunset and service agreements for sole brands and non repeating project work.
On a consolidated level adjusted EBITDA declined 26% to $112 million from the prior year period, the lower adjusted EBITDA performance reflects lower magazine related revenues, partially offset by strong growth in digital advertising digital consumer and licensing revenues prior year adjusted EBITDA reflects.
<unk> benefits from employee expense related actions taken at the start of the pandemic.
2021 third quarter free cash flow was $68 million lower than the prior year period, primarily due to a lower adjusted EBITDA.
As a reminder, we sold travel and leisure trademark during the third quarter of fiscal 2021 for $100 million.
We received the first payment of $35 million in the third quarter, which I'll note is captured in cash flows from investing activities and we received the balance over the next three years, we continue to operate and recognize revenue related to travel and leisure media platforms as part of a long term royalty free licensing relationship.
Turning next to page five.
National Media group revenues were $465 million down 8% from the prior year period.
Advertising related revenues were $206 million down 12% from the prior year period impacted by magazine declines.
Digital advertising grew 21% or $18 million, surpassing magazine advertising for the second consecutive quarter.
National Media group consumer related revenues were down 5% from the prior year period.
We maintained a stable subscription rebase of 36 million subscription revenues were down 9%, primarily due to our efforts to shift our subscription solicitation mix towards direct to publisher and away from third party agents.
As a reminder, this strategy reduces revenue and increase its profitability by fostering a stronger relationship with subscribers, including the opportunity for rate increases as subscribers renew over time.
Newsstand revenues declined 20% as we publish fewer titles in the third quarter compared to the prior year.
Additionally, we had several exceptionally strong selling titles in the prior year period, including those memorialize and early Lakers basketball Star Kobe Bryant.
Our licensing and digital consumer driven revenues, which include performance marketing activities, such as E. Commerce lead generation and affiliate Commerce continued to deliver strong growth up 31% in the quarter from the prior year period.
Other revenues were $39 million down 19% from the prior year period, primarily the result of Sunsetting service agreements for sole brands and non repeating project work.
Adjusted EBITDA was $67 million down 35% as it was impacted primarily by lower magazine related revenue and partially offset by strong digital revenue growth.
<unk> with prior quarters, let me walk you through a few digital kpis on the right side of the page.
Digital sessions were up 17% from the prior year period people Dot com delivered the strongest year over year traffic growth as it continues to benefit from strong interest in celebrity and human interest stories.
People Dot com remains the number one destination in the entertainment category.
We also delivered continued growth at all recipes, which remains the world's largest digital food site, along with our home sites, including southern living and Martha Stewart.
From a revenue mix standpoint, the majority of digital advertising continues to be sold directly by our sales team. We view this as a key differentiator highlighting advertiser demand for our powerful brands premium content and first party data along with flexibility that our digital platform offers.
Looking at the bottom right of the page our licensing or performance marketing activities continued to gain traction led by relationships, including those with Apple Amazon and Walmart.
Turning to slide six local media group revenues were $201 million up 3% from the prior year period.
Revenue growth was led by retransmission and non political spot advertising revenues, which were up 6% and 5% respectively from the prior year period political advertising related revenues were $5 million down cyclically from the prior year period as expected and reflect Georges to U S. Senate runoff races that finished in early January.
Results include delivering nearly $1 million of digital political advertising revenues in the quarter captured in our P&L third party sales line.
Looking more closely at non political spot advertising performance. The professional services category continues to benefit from strong engagement and now represents one quarter of non political spot advertising, making it our largest category.
We're seeing strong growth in the online gaming category driven by sports betting.
While online sports betting is presently legal in four of our 12 markets that are currently legalization efforts and seven more of our remaining eight markets.
We also saw some benefit from several high profile sporting events broadcast on CBS. These gains were partially offset by lower spending in the entertainment and furnishing categories.
Adjusted EBITDA grew 3% to $59 million from the prior year period, primarily driven by higher non political spot advertising.
Finally, we continue to ramp production based on our National media brands that people show, which we launched across all 12 markets last September remains the season's top new syndicated program.
TV is a natural extension for the people brand and the show's ratings are strong.
We are working with Sony Pictures television to syndicate, the show to non Meredith stations beginning in the fall of 2022 and believe its potential contribution could grow to the equivalent of mid sized TV station.
Turning to slide seven I.
I am pleased to report tangible progress and net debt reduction, which is our number one priority we paid down $251 million of net debt since December 31 2020.
And our debt repayment was focused on unsecured notes, which is our highest price debt.
As a company one of our key performance measures is free cash flow, we generated $68 million of free cash flow in the third quarter compared to $100 million in the prior year period due to lower adjusted EBITDA.
As a result of our cash and adjusted EBITDA performance, our leverage ratio on a reported basis was four times adjusted EBITDA as of March 31, 2021, and we continue targeting a leverage ratio of two times adjusted EBITDA over the long term.
Our revolving credit facility balance was zero at March 31, and continues to be unused we aim to continue generating positive free cash flow in the fourth quarter of fiscal 2021.
We ended the third quarter of 2021 with $231 million of cash in the bank, which includes the $35 million I mentioned previously from the sale of travel leisure brand.
Now I'll turn it back to Tom for closing thoughts on slide eight.
Thanks, Jason our consumers today continue to focus on celebrity and Entertainment News House and home food style health fitness and parenting as well as news and information about the local communities.
These fundamental lifestyle categories, our marriage cornerstone and even more relevant today because of the pandemic.
Summarizing our priorities today I want to leave you with four key thoughts.
First our number one priority is net debt reduction, we're making progress having repaid $251 million during the third quarter of fiscal 2021.
We reduced net debt by approximately $350 million so far in fiscal 2021.
Second we have built a digital advertising licensing and digital consumer business of significant scale and we're excited about its growth and future prospects. This.
This includes digital advertising revenues, surpassing magazine advertising revenue for a second consecutive quarter, along with another quarter of record performance for our licensing and digital consumer driven activities.
We attribute this success to several factors, including our powerful brands, which include people all recipes at our homes and gardens and southern living these brands are backed by a tremendous creative engine and collectively reach and engage 95% of American women.
More women than any other media portfolio in the United States.
Investments in our National Media group digital platform.
And our deep first party data and analytics capabilities today.
Together these assets and capabilities, our marriage, Differentiators and form the basis of our value proposition to advertisers and shareholders.
They also position us to benefit from incremental advertising spend as the economy recovers.
Third magazines play an important role in forming and inspiring consumers and they are in an efficient and impactful solution for advertisers.
<unk> play an important and profitable role at Meredith and we believe performance will improve as the economy continues to rebound.
Economic uncertainty recedes, and marketers invest more dollars in branding and top of funnel consumer awareness strategies.
Finally, we're encouraged by our year over year growth and non political spot advertising.
As we look into our fiscal 2021 fourth quarter compared to the prior year period, assuming no changes in trajectory due to COVID-19 or other macro factors we.
We expect National Media group digital advertising revenues up in the 70% range.
Magazine advertising revenues, approximately flat and local media group non political spot advertising revenues to be up in the 40% range.
I'm pleased to highlight that this forecast calls for full year fiscal 2021 National Media group digital advertising revenues to surpass magazine for the first time in our history.
This important milestone and reflects our evolution as a dynamic media company with the proven ability to engage audiences across a diverse set of platforms.
We will continue to manage our mature businesses for cash generation and profitability, while directing our diversified portfolio of brands and businesses towards areas of strong growth based on audience and client demand in.
In closing, we continue to be encouraged by the performance and future opportunities related to our digital business, including advertising licensing and performance marketing along with broadcast related performance through the first nine months of fiscal 2021.
With that we'll open it up the remaining time for your questions. Operator can you. Please begin with the first question.
Thank you Anthony reminder, Jesse question, you will need to press star one on net telephone to me.
All your question Disburse turnkey please standby, while we compile the Q&A lufkin.
Our first question comes from the line of Jon Klinger.
At the benchmark company your line is open.
Great. Thank you.
Morning.
Tom.
Uh huh.
How are you.
But along the way we've come to have a quarter like that they'll be EBITDA by $15 million. So I guess.
Question is.
Really painful which is why.
On the quarter itself and kudos to you guys, obviously for managing our cost, but how much of it was potential outperformance at people obviously.
Maybe this is the first week of the year, where we didnt have oil on the headlines thank god.
Hey, guys. Unfortunately.
How do we think about the outperformance and people probably in the quarter as a contributing factor relative to the underlying improvement.
Jim.
The subscription base and the other cost savings you've done in light of that.
And then on the price side.
Next quarter Youre getting back their magazine it seems like a very safe place to advertise and PV is doing particularly well so.
Thanks for the color on bottom of funnel just carrying on on sort of how we how you view.
Now getting back toward the growth next year getting back towards whatever you think the normalized level.
Yeah, Thanks, Dan so.
First of all we have.
We're very pleased with the quarter I think we.
The company as a whole and also for the National Media group and as to your point.
We over delivered from a consensus basis on the bottom line and really what's driving most of that outperformance is that our digital we've talked about this.
Our comments that we've reached that inflection point with our digital business is bigger than our magazine business and we're seeing outsized performance in the digital area. Now we are a little disappointed from an advertising perspective on the magazine side, it's not unexpected.
There are a couple of factors that go into that right. So last year, because we've talked about this on a lot of calls over the years that magazines have a long lead time from an advertiser commitment standpoint, it's almost two months. So when you lap now we're in a period right now where we feel like brighter days are ahead, but if you go back.
So the beginning of January there was a lot of uncertainty and clients want to have flexibility. So the other part of it is is that we're up against a tougher comp so last year in our fiscal third quarter print wasn't really affected at all related to the pandemic because of the long lead times, where our TV business had and our digital business had a.
Slight increase.
We know clients want flexibility in this uncertain time magazine's don't give all that flexibility and as I said in my comments. The biggest part of it is that clients in these uncertain economic times are really focused on transactional.
Transactional spending related to that would really as well with digital.
Bottom of the funnel net sale and magazines are a great branding environment for that so as I look to the future to get to the end of your question was we believe that we will see improvement as the economy and the uncertainty kind of evaporate toward our advertisers as we go through this calendar year.
So we believe brighter days are ahead people as a whole now when you look at the print portfolio, it's not one brand versus the other it's basically across the whole portfolio, we're seeing that and actually we're actually taking share. So the positive side of it is not our execution or our sales teams that were just kind of.
Waiting for clients to make those longer term commitments. We're in touch with all of them. They are all talking very optimistically about the whole calendar year, but it's just been a lot slower to start from a print perspective.
Got it Super helpful.
Guidance is excellent, especially on digital.
Even above our expectation so youre seeing nice sequential improvement.
Cash.
And is there wants to comment.
The benefits Youre seeing from the platform unification or the push towards video just any incremental color on sort of what's driving the increased traction would be helpful.
Great captured you want to take that.
So.
It's pretty much everything across the board net.
Growing on the digital side of the business for us.
Extremely positive force you have certain growth rate so that price okay.
Mike.
<unk>, let me talk a second growth.
<unk> growth.
Our direct business up significantly in particular.
And our clients I think retail client to do deep data integration from that.
Our scale, our platform data and ill hop Carnival, all allow us to deliver.
Data data targeting.
Data in local.
But coming back to us.
With that.
Wow.
As well as premium programming.
He now 40% of our revenue comes from Oklahoma.
Direct sales force sales, our total will talk about it.
People are coming to us as well for lot of northlake.
Good day.
Increasingly important all third party cookie.
Okay.
That's helpful.
Yes very helpful. Thank you I'll leave you with Tom if you'd care to comment.
Comment at all on the unsubstantiated GB sales rumors as is always the fun topic and especially in light of the fact that Europe and Asia.
Jim business looks like it's very much on the path towards.
A growth trajectory at this point.
Yeah. Thanks, Dan obviously, we get this question many many times before and.
Listen as part of our strategic process, the management team and our board.
Multiple times, a year, we sit down and talk about strategically how we enhance shareholder value.
We've talked about in the past.
There's a lot of questions around is the local media group in the National Media group.
Do they need to be together and sugar is their shareholder value can be created these businesses were separated so.
Again, we review this we talk about it all the time, we get the question almost on every single quarter that we over the years, but we really as a matter of policy, we don't make any public comments about our strategic process and our discussions with our board about that decision.
So I would I expected, but.
I can try anyway since there were rumors out there. Thank you Tom I appreciate all the color everybody. Thanks, Dan.
Again, if you would like to ask a question press the star one on your telephone.
Our next question comes from the line of Kyle Evans with Steven Your line is open.
Thanks for the follow on for Catherine If we look at the very strong session growth over the last few quarters.
How sustainable is that and what are the drivers of that what kind of control do you have there seems to be the outsize contributor to the digital strength I'm just trying to get a sense for what that could look like for the rest of the calendar year as maybe people will go back outside of it.
Quick question around the Internet.
Yes.
Yeah, well a couple of things one is as I mentioned.
Our growth.
It's driven by all of the channels that I talked about not stockpile from programmatic, which we'll take from.
Both my questions been asked about this one.
I don't want to underestimate.
It sounds that.
Hello.
Okay.
Well first of all about Walmart everybody FOP.
Total assets on outlook.
Non staffing from about the tools for a long time I don't expect our specialty growth.
Strong.
That opened up but we still believe we're going to have a loan total.
Personal well there'll be some growth, particularly on the category from farnell.
Pavel.
From a luxury properties from them.
I'll start and we do believe that total Robinson CPM in the orphan category.
Robert.
Revenue growth will continue.
Wow.
Okay.
Great and then.
Patrick.
On the Patrick John Yeah, Hi, Kyle.
I wasn't going to let you get away.
Maybe just some detail around your.
For your fiscal <unk> pacing and then maybe just any kind of core outlook that you can provide for the rest of calendar 'twenty. One and then if you care to kind of throw down the gauntlet on political in 'twenty two.
Versus 'twenty okay.
Calendar basis, alright, well taking them in order.
Look we gave guide on the fourth quarter for plus 40 for the local media segment.
Book professional services continues to show strength and growth I think are adjacent explained earlier, it's now a full 25%.
Our local core advertising business in auto makes up about 20%.
And we saw very modest growth for auto in Q3 at like plus three.
Look as soon as these chips and rubber and phone shortages, all right themselves will sort themselves out with <unk>.
Say for the rest of the calendar year.
As that recovers so will the advertising piece behind auto.
But we do continue to see strength in professional and home and we don't look for those to abate.
From a political.
Very excited about our 'twenty two cycle EBIT.
Even against our amazing <unk> 'twenty cycle, we have 13 governors races in 13 Senate seats, and you've heard me say this before even though we had a great great presidential run in 'twenty.
<unk> is a larger percentage of our political revenue has come from those hotly contested governor and Senate races, and were going to have a full slate of those across our footprint. So.
I think what youll see it will be record setting.
And then maybe just lastly, what have you and then I'll get back in the queue.
Your subscription and network renewal timeline looking out over the next two years whenever you can provide thanks, yes. No of course, thank you for asking that we have one affiliate relations renewal coming up for our NBC at the end of the year in Nashville, and then.
Retreated aside with cable operators, we've got two large deals up at the end of the year with Cox and Comcast.
And that's calendar year, Patrick calendar year, correct not fiscal thank you. Thank you for clarifying that.
Thank you guys I appreciate it.
Thanks Kyle.
There are no further questions at this time.
I'll turn the call back over to Tom Harty.
Well, we appreciate everyone's time and support and we appreciate our all of our employees have delivered great results.
During a very difficult year I'd like to just make one comment and say that we're.
We're thinking about our colleagues we have 350 colleagues in our India operation, who are coping with the devastating outbreak of COVID-19 and we want you to know that you are all in our thoughts and your health and safety remains a top priority for us as it is where all of our employees in the U S. So we feel brighter days are ahead for our employees and are busy.
And just wanted to thank all of our employees. So thank you for your attention.
Have a great day.
That concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
<unk>.
Sure.
Yes.
<unk>.
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