Q1 2022 Audacy Inc Earnings Call
Greetings and welcome to Odyssey, Inc's first quarter 2022 earnings call.
At this time all participants are in a listen only mode.
A question and answer session will follow the formal presentation.
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As a reminder, this conference is being recorded.
I would now like to turn the conference over to your host David Field, Chairman, President and Chief Executive Officer. Please go ahead.
Hi, Good morning, this is rich mailing.
The Odysseys first quarter earnings conference call. This call is being recorded a replay will be available. Shortly after the conclusion of today's call and the replay link or number noted in our release during this call. The company may make forward looking statements, which are based upon the companys current expectations and involve risks and uncertainties.
The companys actual results could differ materially from those projected in these forward looking statements additional information concerning factors that could cause actual results to differ materially are described in the risk factors section of the company's annual report on Form 10-K, as such risks and uncertainties may be updated from time to time in the Companys.
SEC filings, we assume no obligation to update any forward looking statements, except as maybe required by law. During this call may reference certain non-GAAP financial measures. We refer you to the investors page of our website at <unk> Dot com for reconciliations of such measures and other pro forma.
Financial information with that I'll turn it over to David field pitch rich good morning, everybody. Thanks for joining Odysseys first quarter earnings call.
I am pleased to report that Odyssey had a great first quarter posting strong topline and bottom line financial performance. We also made excellent strategic progress as we work to transform the organization in order to enhance our competitive position accelerate our future growth and capitalize on the compelling opportunities in the dynamic audio marketplace. We can.
To move with great purpose, and urgency to drive strategic transformation and innovation across the company.
Over the past couple of years through a number of strategic acquisitions organic growth initiatives structural improvements talent additions and premium content development. Why does he has evolved into a scaled leadership position across broadcasting podcasting and digital audio.
We have established ourselves as the number one creator of original premium audio content, which includes our lineup of critically acclaimed podcasts are exclusive digital audio content and our unrivaled leadership position in local sports and news radio.
We have the flagship home was 38 proteins plus dozens of college programs and are also now the exclusive podcasts and digital audio sales partner of Major League baseball.
And with the addition of Ampere wave, we are accelerating the development of our AD tech and streaming capabilities in order to control our product roadmap and better serve our customers and the 200 million Americans, who listen and engage with our content.
During the first quarter, we posted top line growth of 14% with digital growing by 16% and spot radio up 14%.
In fact, our local radio revenues were up 18% underlining the strong ongoing recovery in our local radio markets.
Adjusted EBITDA grew 152%, reflecting significant margin improvement.
It is interesting to note that roughly half of our markets posted EBITDA that exceeded their 2019 level.
Total revenues in EBITDA like somewhat farther behind 2019, and most of our larger in our coastal markets, which have been most impacted by the pandemic disruption, but the progress is clear and we are on our way.
Like to share some additional color on some of the highlights of our strategic progress since the start of the year.
In first quarter, we launched the Odyssey digital audience network, where a ban in addressable in aggregate of over 60 million listeners across our app screening content and podcast lineup, enabling precision targeting at scale, coupled with real time optimization and reporting.
Hey, Dan it's fully integrated into our emerging tech stack, bringing actionable brand insights and detailed campaign reporting for our customers.
Dan enables our entire sales organization across the country local regional and national to connect our customers with our audiences across all of our digital distribution platforms simply and seamlessly.
Aam's should be a meaningful contributor to our future growth, providing a highly appealing effective vehicle for advertisers to reach our large and expanding addressable audiences.
Towards the end of April we announced an affiliate partnership with Fox News audio under this agreement Fox News audio will migrate their linear audio stream to ampere ways as a customer of our cloud based distribution and monetization platform.
We will also be enabling odyssey's patented <unk> technology to make Fox news Audios livestreams fully interactive.
He will also be the exclusive third party AD sales representative for all of Fox News audio streaming inventory.
<unk> is emerging as an important addition to our capabilities as we noted when we made this acquisition in the fall of 'twenty, one ever way. It gives us control of our end to end product roadmap, enabling us to enhance and accelerate the development of our Odyssey platform capabilities and features and that will become increasingly visible over the course of the next year as we will be role.
Going out a series of new releases to our Odyssey digital platform that will incorporate new product features to enhance the listener and advertiser experience by enabling more personalized interactive audio.
We will also be adding a great deal of new original content available exclusively on our digital platform we.
We believe these enhancements will drive significant audience growth on the Odyssey digital platforms, enabling high margin revenue opportunities in 2023 and beyond.
As I mentioned earlier digital revenues grew 16% during the quarter led by strong performances in our podcast and streaming businesses podcast revenues were up 37%.
We also grew margins nicely in the business as we continue to execute our strategy of driving a higher margin mix of products across our podcast business.
Well I guess growth was supported by strong double digit growth in downloads and unique listeners.
The audience. The Odyssey podcast network reached an average of 32 million American listeners each month during the quarter. According to Triton, which is just about a third of all U S podcast listeners.
Importantly, our high margin local podcasts are now one of the fastest growing areas of the business with downloads up over 50% and strong growth in CPM and rpms.
We also had a strong contribution from our industry, leading premium brand in podcast business as well as our podcast content licensing business. We continue to be the podcast partner of choice for leading brands such as Nike HBO, Max Netflix and others. In addition, during the quarter, we announced the podcast slate there with Amazon in which they will purchase a slate of at least four part.
Guests series from our Pineapple Street Studios. This deal marks the first time Amazon have done a content slate deal with any podcast studios.
We delivered the first show will be wild a few weeks back and it launched as the number one podcast in the country on the Apple charts.
The year is already off to a great start with fly on the wall. The breakout hit featuring former SNL stars Dana Carvey and David Spade, where the gas flows that includes most of the Legion of SNL stars to appeared over the years and we also produced the companion podcast, where Netflix film don't look up and HBO Max is winning time the story of <unk>.
The rise of the Lakers dynasty.
Popcorn largest native advertising marketplace for podcast, which we acquired last year continues to grow by triple digits, albeit off of a very small base, we see great opportunity to continue scaling this business into a material contributor, particularly when we are able to fully integrate popcorn into our AD tech platform in the future.
Streaming revenues were up 21% and the underlying metrics of our streaming business accelerated during the quarter with solid growth in MA use in DLH, particularly across mobile and connected devices.
The weak link for our digital group this quarter was our digital marketing solutions business, which was flattish as a couple of large customers from 2021 were enacted during the period dragging down our overall digital growth.
In sum it was a strong quarter of financial performance and strategic progress across our company and we're very excited about what lies ahead.
Odyssey today is a fundamentally enhanced and stronger organization than ever before.
Work is far from done, but we're excited about what we are building to establish an enriched offering for listeners and customers, enabling us to participate fully in what we believe is a very bright future for scaled multi platform audio companies with outstanding exclusive premium content that listeners love.
Our team is hard at work executing on this opportunity to complete our transformation from a leading radio broadcaster to a leading multi platform audio content and entertainment brand with an elevated national platform and profile for participation in digital advertising and substantially larger shares of AD spending with that I'll turn it over to Richard in your questions.
Thanks, David Good morning, everyone. Our total net revenues for the first quarter came in at $275 3 million up 14% year over year our.
Our core spot revenues were also up 14% in the first quarter, driven by local which increased by 18%.
During the first quarter, we saw a significant recovery and growth in most of our markets and in quite a few of our top spot advertising categories.
For the first time since the outset of the pandemic, we saw significant year over year growth across many of our largest markets, including Chicago, San Francisco, Philadelphia, Washington, DC and Baltimore.
And we are seeing a growing roster of markets, where revenues have exceeded 2019, including a few of our largest markets like Chicago and Detroit.
Sports betting, which in the first quarter was our second largest spot advertising category was up over 50% year over year and is currently pacing up even stronger in the second quarter.
Hospitals and clinics, our third largest category was up over 20% year over year and is also currently pacing up even stronger in the second quarter.
And we saw that spot advertising categories that are about getting out and going such as concerts sporting events gyms travel movie theaters and transit systems, where in the aggregate up over 180% year over year in <unk>.
These categories 12 in total pre pandemic accounted for 10% of our core spot revenues.
Last year, they accounted for 3% of our first quarter revenues and this year they accounted for 7%.
Get out and go categories are currently pacing up over 90% in the second quarter.
I believe we believe these examples are great evidence that as we move past the pandemic and when the economy gets back on track that are spot revenues led by local will continue to strongly recover.
Our largest spot advertising category automotive remains significantly disrupted and was down mid single digits year over year in <unk> and was down about 40% in <unk> versus 2019.
This category is currently pacing in the second quarter about the same as the first quarter, which is inconsistent with our prior expectations.
We expected that the automotive category would get better in 2022, and our supply chain issues were resolved and so far it hasnt.
And the outlook for the remainder of this year is now clearly more uncertain.
Our digital revenues in the first quarter were up 16%.
Although our streaming advertising revenues grew by 21% our growth rate remains constrained by supply.
This is why we are looking forward to the beliefs of the first version of our new audio streaming platform within the next 90 days and we expect to make several other point releases to enhance the listener experience over the remainder of this year.
This new platform will provide consumers with a personalized and interactive radio listening experience with unprecedented control we.
We believe this experience will drive increase listening and enable us to accelerate the growth of monthly active users, increasing our supply and allowing us to accelerate our streaming advertising revenue growth.
We expect this new platform will be an important driver of our growth in 2023 and beyond.
Turning to the outlook for the second quarter based on our current pacing we projected our total revenues will be up.
Two will be up mid to upper single digits year over year.
The piece of business coming on the books has slowed versus the first quarter and since the outset of the wharf in Ukraine.
Moving to our operating expense performance, our total operating expenses for the first quarter came in at $2 $66 8 million and excluding onetime and unusual items and adjusting out noncash costs. Our total cash operating expenses were $2 $49 $3 million were up 8% year over year.
In the second quarter, we expect that our cash operating expenses will grow at about one half the rate of our revenue growth.
Our adjusted EBITA margin for the first quarter was nine 4% up five percentage points from the prior year.
Turning to our financial position, our combined our compliance basis first lien net leverage was three four at quarter end compared to our covenant of four times, we continue to expect to make significant further progress deleveraging over the remainder of this year.
During the first quarter, we received a $15 million of federal income tax refund.
For 2022, we expect that our cash income tax payments will be less than $10 million.
Our net capital expenditures for the first quarter were $14 $45 million and we continue to project about $75 million in Capex for the full year.
With that we'll now go to your questions operator.
Yeah.
Thank you at this time, we'll be conducting a question and answer session.
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Our first question today comes from Steven Cahall of Wells Fargo. Please proceed with your question.
Thank you and good morning.
Maybe first rich you said the pace of business has slowed down could you maybe give a little more insight as to the categories that slowed. So you know we know that auto has been slowed and inventories we know about some other inventory impacted this one seems more like a macro reaction so we'd love to get your color on some of the <unk>.
<unk> is that sort of incrementally flowed that it more feels like were based on the macro.
Yeah, Stephen it's David I'll, I'll I'll take that I think I gave a little more yes. Good morning, I think it's a little more than national area that has slowed a bit we're still growing but it's definitely slowed a bit I'm not sure. It's category specific I think it tends to be more you have some advertisers who are just pausing a bit given all the disruption.
Around and again, it's important to underline that with.
With the growing business conditions remained good interest the trajectory of the growth has dampened from where we were before and.
And that's and that's what we're seeing.
Great and then you've invested a lot in digital over the last few years I think one of the things we're trying to figure out a digital grows and becomes a bigger part of the portfolio. What's the kind of steady state margins start to look like so if we assume that spot kind of gets back to.
That recovery level that you've talked about that would kind of put you back on more of a normal run rate how should we kind of think about where EBITDA margins start to settle out.
You kind of get through the spot recovery.
Yes, so our model projects that as we get back to two.
2019 levels of EBITA that our EBITDA margin at that point would be about consistent with where we were in 2019 about 23% longer term we see.
Our digital growth as accretive to our overall EBITDA margin and the company's longer term projections.
So our EBITDA margin expanding by several points over time.
Yeah.
Got it.
And then with the Odyssey digital audience network is that something that you know it seems like it's kind of comprised of a lot of the investments and acquisitions you've made over the last couple of years.
Do you think we could see a material amount of revenue that is generated from it or is it more of like a catalyst that helps generate revenue and other businesses within the company.
I didn't write it.
We're we're working progress and if you think about all the pieces that we've been building.
In terms of our the strength of our broadcast business and our differentiated content. There are strong podcast platform, our streaming audio and now what we expect will be an acceleration of the growth of our supply on our digital platform as rich alluded to because of the investments, we're making there and the releases that are coming up you know we're now at $60 million we expect.
That to grow and what we know is that we can monetize far more effectively across the Audi with the addition of the of the Odyssey digital audience network.
The.
It is it makes us a lot easier to buy and I think for a lot of advertisers Odyssey is still the pieces that we've assembled this is an important step and bringing it together to make us that much more compelling and easy to access for some of them.
Larger holdco and AD agencies and brands.
Brands across the country, and we think that'll make a material difference in the appeal of our products to those customers going forward.
Great and then finally for me so.
I think a couple of years ago or maybe it was last year there were some considerations around covenant.
That growth has slowed a little bit. This year are we totally through now the covenant considerations or just anything we need to be aware of there. Thank you.
Yes, we expect to continue to build cushion against our covenant as this year progresses.
And we think it would be unlikely that we'd have any issues of our company, we think will be very.
Three comfortably.
Clients and will get increasingly so as this year progresses.
Great. Thanks, Sam.
Thank you.
The next question is from Dan <unk> of B Riley Securities. Please proceed with your question.
Yeah. Good morning, guys. Thanks for taking my questions. So so first of all on the costs in the quarter. It looks like they actually came in a little below what you had guided to.
He then typically guiding to you know half of revenue.
Gross year over year, so just any commentary on what what led to the sort of better than expected costs in the quarter, how sustainable that might be moving forward.
Yes, I think that we.
Our absolutely.
<unk>.
Being very judicious about our expense investments.
And that have the <unk>.
Moderated some of our investments as.
This year unfolds and that's why in <unk>, we do expect that our costs will.
<unk> come in about one half of revenue growth and we're going to try to keep that.
Relationship through the rest of this year and as a result of course, we expect our EBITDA margin to expand.
Meaningfully.
As prior year.
Okay.
Yeah, Great and then I appreciate the commentary around the different AD categories. One I don't think I heard was.
On the political side, just any updated thoughts on the back half of the year in particular, maybe your expectations relative to past mid term years, and even I know, it's gonna be a contentious ones, maybe even approaching presidential years.
But that's what we believe.
I think.
All of us recognize that given the nature of the political climate in this country. It will be a robust ad cycle and a robust robustly.
<unk> election, we would expect our level of political advertising too with like that.
Great and then last one for me just kind of on the model.
If we take out.
Looks like you've got the income tax refund during the quarter.
Put that aside for a minute just expectations for cash taxes for this year.
Yes.
Outlook for our cash taxes, this year is less than $10 million.
Okay, great. Thanks, Thanks, rich thanks, David.
Thanks, Dan I appreciate you taking my question and then I'll turn it over.
The next question is from Avi Steiner of Jpmorgan. Please proceed with your question.
Thanks have a couple here.
First off do you have any view of the small and medium size.
And this advertiser in I guess away from the slowing national you called out I'm wondering if you could talk about what you're seeing there.
On the local side in light of the volatile economic backdrop backdrop and concern around an economic component more broadly. Thank you.
Sure Avi I mean look we're in constant touch as you might imagine with our sales and market leadership all around the country and they report that the pipeline of business that we have today is very solid and in fact.
That it is.
Probably a little stronger than it was three or four weeks ago. So that's about as good a barometer as I can give you in terms of the tone and tenor of what we're hearing from the field on the front lines on that matter.
Okay, Great and then and if I missed this in the remarks, I apologize, but the pineapple slick deal.
So with Amazon looks interesting I'm wondering if there's.
Any economics or any help you can give us in terms of how to think about that for the company and I have one more.
Sure I mean, we haven't we have not disclosed that amount or the nature of the deal, but yes were being compensated by Amazon for that and again I want to underline what it says about the caliber of work that our podcast and team does the fact that we that Amazon. This is the only time, we've ever done a deal with an outside podcast studio and they chose our pineapples.
Street folks who are the best in the business I also think.
The fact that we are continuing to be the the.
The branded content or the or the.
The partner on companion podcast of choice for the Netflix and HBO and Nike into the World again speaks to that critically acclaimed work that we're doing and I think bodes very well for our continued growth in this space.
Great and then the last one and I appreciate the time and all the comments on the call just following up on an auto and and what we said about the second quarter and kind of the.
Back drop.
I'm wondering how you think about 2022 I think you'd previously said that EBITDA would be about the same level as 2019 and I'm wondering if you can help triangulate.
Maybe kind of thoughts and again appreciate the time thanks al.
Sure.
First quarter was great.
We were right on track in fact, we're running better than first quarter against our EBITDA goals than we had internally.
Built in our models.
We all know the world is being disrupted in Q2 to some extent.
With all the the litany of.
<unk> in Ukraine stock market et cetera.
And that has had some impact on ad condition.
Conditions as I noted earlier and as rich noted we are still growing.
And growing nicely, but the rate of growth has slowed and so it also has caused less visibility on the second half at this time in terms of where things are going so now what do we know we know that.
So far the business is looking pretty good for the second half of the year and we are growing nicely.
So really good about the work we're doing that we can control to drive revenue opportunities and control our performance, but we are not immune to global events and so we are subject to some extent to market conditions out of our control and so we'll have to see how things play out.
I would say that you know all of that said we are confident that we will get back to 2019 levels and grow from there nicely given.
Where our business is and how we're looking but as conditions are more uncertain than we had anticipated the timing of getting back to 19 and beyond that I think could be affected here of course by what's happening outside of our control.
I appreciate all the comments thank you.
Thank you.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.
Our next question is from Craig Huber of Huber Research Partners. Please proceed with your question.
Great. Thank you I've got a few questions here earlier on in the call you guys talked about some of your larger markets. How are they performing Washington D. C. Baltimore, Philly et cetera, I didn't hear you say anything on New York City.
Obviously important market for you guys, maybe you could touch on that what's going on there just for starters.
New York doing really well we have a.
We have a terrific team there and they are doing really good work and we are growing nicely and seeing.
Solid recovery in New York Again, New York L. A San Francisco. These are markets that were disproportionately impacted by Covid in terms of <unk>.
Cut downs and et cetera.
Those markets are recovering as I mentioned earlier, they're behind their counterparts in smaller markets and Midwestern markets in southern markets and that has put a net has dampened our performance over the last couple of years, but we see really nice progress in those markets and they're doing great work and we are growing.
And then also a couple of categories I'd love to hear a little more detail on local services for AD revenues and also restaurants haven't how did that during the quarter and what's your sort of outlook there.
Second quarter.
Yeah.
And I don't know if the first one is <unk> local services.
We look at at restaurants through the lens of fast food and casual dining.
And we still see those categories.
As recovering.
They both were.
Making progress casual dining was.
Actually quite significantly.
Year over year in the first quarter over 80%.
And so that category was quite strong fast food.
It's not nearly as strong as casual dining and then on your point about local services.
There's a lot of stuff that we break out and look at probably separately.
And we still see that.
Categories like hardware stores.
And contractors.
Builders are doing well and we.
Recovering recovering.
Year over year. So if you look at the scanner again are with looking at things that are kind of local services. They are up year over year for the most part.
And are getting better we saw as we mentioned very rapid growth and what we've what we've called get out and go categories like concerts and movie theaters 12 of them in total up 180% year over year. So look we see we see a lot of.
<unk>.
Opportunities for the local.
Advertising spend to recover strongly.
And we think that's likely to continue covering recovering as we said they get out and go categories, we're pacing up over 90% in the second quarter.
And then my other question want to ask you and I'm not trying to be derogatory part to say it.
But when you look at your first quarter spot AD revenue would compare it to <unk> of 19, it looks like it was down about 23%. Obviously, we're just tough environment going into Covid and all of that but when you look at local television you know that's down call. It zero to 5% versus you know called <unk> 18 on an apples to apples basis.
The more acute 19, why do you think I've asked you. This before why do you think radio is still lagging in the recovery here.
Traditional legacy business.
While we have spoken about before Greg and it really goes to the composition of the advertising base right. So if you look at as rich referred to a moment ago sort of get up and go categories and other sort of activation. These are areas that are.
Has that recovered or recovering or have recovered what have you slower than I think the composition of business that TV, operator might have and so I think that's been that's been a factor for us and I think also our geographic profile is probably another reason why we're still.
While we're working our way back and then lastly would be of course auto which as rich mentioned is still down about 40% or so from 2019. So trend lines are good I mean again, we're up 18% in first quarter versus last year locally.
We see.
Good good signs going forward that to continue to recover and we're working hard at it I just want to tack onto that.
Greg because.
<unk>, formerly as CFO of local TV operator.
The composition of the advertising base is really quite different yes, we overlap in auto for sure, but the length of a.
Radio group in a given market is.
The length of its customer list is three times that.
Those.
Our local television station and what you see is like categories, we talked it all get up and go like gyms and movie theaters, you don't typically see that.
On TV these are categories that that you.
You see on radio you do not see on television. So look we are different.
These categories were more severely impacted by Covid. They are recovering nicely up 180% year over year in <unk> and we look at it and believe that as things get better.
We're going to continue to get better and it's just a question of time.
And then maybe just ask a little bit further and that's that's a good response I appreciate that did get up and go categories. What percent of your spot AD revenue, maybe does that represent in the first quarter and same question for auto please.
So that those categories were 7% of our first quarter of 2022 revenues historically they were about 10%. So I mentioned in my prepared remarks that in the first quarter of 2021, they comprise 3% there were 7%.
This year historically there were 10.
We feel pretty confident we're going to get back to 10.
The auto category.
As I'm sure you appreciate the auto category is somewhat seasonal and it's typically a lesser percent of our total spot revenues in <unk> than it is on into Q2 rest of year coming off the holidays.
A little bit less typically typically we see the automotive category.
In the low double digits about 11 or 12%.
In the first quarter historically this year it was about 8%.
And so it is still meaningfully off.
What it's been historically as a percentage of our total spot revenues and I would add you have the same seasonality on they get up and go stuff first quarter would be the lightest. So we would expect that to be an even more significant driver going forward.
Okay. My last question, if I could sneak the syndrome, what is your outlook for the podcast margins for the year, if you could isolate that versus all of digital.
Your best somehow or maybe how the first quarter was it how do you think that's gonna truck yes.
So we're pretty excited to see them.
Great progress in our podcast business building.
<unk>.
EBITA margin for that.
<unk> on a marginal basis.
And we're on track to get to about a 20, a low 20% EBITDA margin quarter contribution margin this year. So.
That team is doing an excellent job executing the plan to improve the profitability of that business.
See a ton of headroom for growth in podcast and we see a lot of upside.
And it's there are some things that have to get done to enable that growth but.
We're on our way and we're excited about the outlook you might have saw this morning that iab pwc projected that the podcast secondly grow by 47% this year. So we.
We think we're going to be a full participant in that growth and we look forward to.
Over time seeing that accelerated growth show up in our books.
That's great. Thank you guys.
Thank you.
There are no additional questions at this time I'd like to turn the call back to David field for closing remarks.
Great. Thank you I appreciate you joining the call. This morning, and we all look forward to reporting back to you at the end of second quarter.
Bye bye.
Yeah.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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