Q2 2022 Audacy Inc Earnings Call
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Greetings. Welcome to the Odyssey Inc. 2nd 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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Please note this conference is being recorded.
I will now turn the conference over to your host, Rich Smelling, Chief Financial Officer. Thank you. You may be in.
Thank you, Alex. Welcome to Odyssey 2nd quarter, Earnings Conference Call. A replay of this call will be available shortly after the conclusion at the replay link for a number noted in our release. We're number noted in our release. We're number noted in our release.
During this call, the company may make forward-looking statements which are based upon the company's current expectations and involve risks and uncertainties.
the company's 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 factor 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 company's SEC filings. We assume no obligation to update any forward-looking statements except as may be required by law.
During this call, we may make reference to certain non- GAAP financial measures. We refer you to the Investors page of our website at odcinc.com for recommendations of such measures and other pro forma financial information.
I'll now hand the call over to David Field, our president and CEO .
Thanks, Rich. Good morning, everybody.
Odyssey began 2022 with a very strong first quarter in which we grew revenues by 14% and EBIT dobb by 152%. It looked like we were on a path to deliver 2022 financial results in the ballpark of 2019 results.
Since then, deteriorating macroeconomic conditions and increasingly uncertainty has caused bad spending headwinds which had impacted our business.
In second quarter, a revenues grew 5%. Within our mid-single digit to high-single digit guidance range, but definitely not the quarter we were expecting earlier in the year.
Spot Radio was up 1% including political with Core Flat. Digital revenue growth accelerated from plus 16% in Q1 to plus 19% in Q2 and network radio grew by 7%
Podcasting revenues led the way at plus 27%, excluding the low margin crooked media business, which moves off of our platform in May.
Podcast downloads grew 40% year over year, driven by continued strong growth in our local podcast business and our 2400 sports podcast studio. Data
The Odyssey Podcast Network is one of the largest premium networks in the country. Number two by reach in the Triton Podcast Ranker reaching 40 million unique listeners worldwide and nearly one-third of all US podcast listeners.
Streaming listeners grew 18% during the quarter and we also achieved solid CPM growth and our streaming audio business.
We also recorded growth in radio ratings performance with our total radio ratings up 5% in second quarter versus first quarter outpacing the industry which grew by 3%
And today's call, Richard and I will focus on sharing an assessment of where we are, where we are headed and how we plan to get there.
I'd like to start off by sharing a little context.
It's worth pointing out that our 2019 EBITDA was $341 million, and we were on pace to get into the high $320 and approach 4 times total leverage.
And then of course, COVID struck. We had every expectation of getting back close to 2019 this year, and we're off to a great start in 2021.
The twin punches of the pandemic and now the economic slowdown over the past two plus years have definitely adversely impacted our business
But it's essential to distinguish between the adverse in fact of the pandemic and slow down on our business.
and audices fundamental strength and earnings potential going forward.
Odyssey has been meaningfully enhanced and is today a much stronger company than the one that generated 341 million in EBITDA in 2019. We have transformed and elevated our products and capabilities and emerged as a scaled multi-platform leader in audio content and entertainment with greater capacity to serve listeners and customers.
Building in our strategic progress, we are aggressively pursuing a number of significant tangible opportunities to capitalize on our enhancements and drive substantial additional revenues and profitability.
At the same time, we are acutely mindful of the macroeconomic uncertainties and have built a focused game plan to navigate through the turbulence so that we can emerge strong and healthy with robust opportunities in tact. Let me walk you through the key drivers at a high level.
Number one, where you're making meaningful progress in bolstering our ad tech capabilities, addressing frankly and airy weakness.
We have historically relied on third parties for services, which has adversely impacted revenues increasingly so in recent quarters.
Our acquisition of Amperway that the end of 2021 now provides us with a strategic ad tech foundation which we have bolstered through additional staff investments and an aggressive product roadmap with important deliverables over the next several months that will materially reduce our reliance on third parties.
Our Emerging Act Tech will enable us to unlock new pools of digital advertising demand, increasing our sell-through rate and improving yields, and also enable us to bring additional off-platform supply to market.
It will also enable us to more effectively deliver holistic, multi-platform ad products and programs that tap into our total audience of 200 million, including 60 million that are digitally addressable.
Number two is the launch of our new reimagined Odyssey digital platform, which is rolling out in a series of releases during Q3 and Q4.
We have made a large investment in building and developing new innovative technology to create a unique listening experience with exclusive content and unique capabilities and features to provide a more personalized curated listening experience.
So let me share an example. If you're a New Yorker, the Odyssey app will provide you with essentially what you can get on the other leading platforms. The Odyssey app will provide you with essentially what you can get on the other leading platforms.
Plus, the best in local sports and news with WFAN, the Yankees, Mets, and Giants games, 10-10 wins, and WCBS. Plus, a suite of new unique features to listen to radio as you never have before, such as new interactive chapter functionality, a first for live radio.
so that listeners can scroll through to easily find and play topical content on demand from across our own and partner so so so
We believe that our digital strategy will benefit from our distinctive competitive advantage in the quality of our premium, exclusive, original audio content, led by our unrivaled leadership in local news and sports, and our critically acclaimed original podcast.
Our aspirations for the new platform are high, and we expect to see significant increases in our digital audience usage and engagement, along with Richard Data Enablement, enablement, bolstering our revenues in EBITDA in 2023 and beyond.
Number three, our digital business continues to grow nicely and we see growing demand for all three of our primary digital businesses going forward. We have built one of the country's largest and most important podcast businesses through our acquisitions of C13, Pineapple Street Studios, and the market leading Podcorn Podcast Marketplace plus a significant amount of organic product development including our new 2400 Sports Studio.
We are expanding our off-platform digital audio business with recent exclusive sales agreements with Major League Baseball, Fox News, and now an exclusive sales partnership with CBS Sports Podcast, which we announced earlier today.
We also have built a rapidly growing digital marketing solutions business, and as noted are poised to take a big step forward with our new and improved Odyssey digital platform.
Collectively our digital business has grown from 10% to 22% of revenues since 2019 and is poised for a very bright future.
Number four, under the leadership of former Spotify CRO Brian Benedict, who joined us several months ago, we are meaningfully enhancing our national enterprise business development group and deepening our engagement with leading national brands and ad agencies to garner significantly greater national ad spending that better reflects the scale, scope, and capabilities of Odyssey today.
We believe our efforts are bearing fruit and will be successful in driving increased national spending.
Number five, while one can debate whether or not we're currently in a recession, the fact is that substantial portions of our business have effectively been in a deep recession.
since the start of the pandemic from an advertising perspective due to supply chain issues, most notably auto.
So while a healthy number of our primary customer categories now exceed pre-pandemic spending levels
Auto has remained 40% under 2019 levels.
As our largest category, the shortfall in auto has been a key contributor to our gap versus 19 revenues.
We look forward to the day when supply chain issues are resolved and we return to a healthy, supply-demand equilibrium in the auto market.
GM made some encouraging remarks on their earnings call last week. We shall see. But if we return to our pre-COVID auto spend levels, that would represent about a $60 million increase in our sales. That would represent about a $60 million increase in our sales.
Number six, expenses.
We are working to enact substantial, sustainable savings through a number of measures to improve margins and profitability across the business.
We believe we will be able to deliver meaningful cost reductions without hindering our strategic priorities and growth plans.
So each of these six specific tangible, actionable growth drivers represent significant eight figures of potential EBITDA enhancement.
Collectively, they provide plenty of opportunity for us to drive eBuds up back above and beyond 2019 levels with room to grow as economic conditions improve.
And of course, as a leader in the growing audio market, we would also expect to see a general increase in advertising demand in a normalized recovering economy where supply chain and staffing issues are resolved and economic growth resumes.
In addition, we have a seventh non-operational focus area, which is the balance sheet.
We will explore select non-strategic asset sales such as a parcel of land in Houston, which we expect to close later this month.
We will also consider other pragmatic value creating moves to reduce our debt. And we are fortunate that as we work our way through the turbulent economic conditions, all of our junior debt and the majority of our total debt is not due until 2027 or 2029.
Now before turning it over to Rich, let me share some additional updates on the business.
During the quarter, we announced a significant expansion of our multi-year partnership with Bet MGM, in which they had become the official sportsbook of our BetQL Audio Network.
We continue to make strong progress in enhancing and building our exclusive podcasts and digital content.
As noted today, we announced an exclusive sales agreement for all CBS Sports Podcasts
This past month we launched our new exclusive streaming audio sales agreement with Fox News and a new platform partnership with Newsie and court TV.
We have ramped up our exclusive celebrity content on our platform with unique programming from artists including Justin Bieber, Lizzo, Carrie Underwood, Jason Aldean, Harry Styles, and more. And our 2400 Sports Studio is ramping up our NFL podcast network with plans to launch regular podcasts on all 32 NFL clubs plus the league for this upcoming season.
Pineapple Speed Studios continues their best-in-class, critically acclaimed work, which included Will B. Wilde, part of our Amazon podcast Slate Partnership, an in-depth investigation into the January 6 event that hit number one on the Apple podcast list.
plus Project Unibomb which we developed in partnership with FLTV.
And one additional note worthy data point that speaks to the health of the overall audio market. Americans are now spending 20 more minutes per day listening to audio in 8% increase over Q221 according to the Edison Research Share Be report.
In conclusion, these are uncertain times in our world with many challenges and risks, but the potential exists for extraordinary investment returns.
We are acutely focused on navigating through the turbulence.
and capitalizing effectively on the acquisitions, investments, and enhancements we have made to position the company for a bright future in the dynamic, growing world of audio. It is a recording itself.
With the additions of a strong leadership position in podcasting, a meaningfully enhanced national sales organization, the role out of a new reimagined digital platform, and emerging ad tech and data capabilities, Odyssey is a stronger company than ever with greater revenue and earnings potential under normalized market conditions.
One should not conflate the impact of the ongoing macroeconomic disruption of the past two plus years as a reflection of the fundamental efficacy of the organization and its future.
Mindful of the challenges we are excited by our plans and our robust set of opportunities and are deeply committed to the work ahead. And with that, I'll turn it over to Rich.
Thanks, David. Good morning.
Our total net revenues for the second quarter came in at 3.19.4 million, up 5% year-over-year, and as compared to the 14% growth we posted in the first quarter.
Our core spot revenues were flat. Local spot was up over 3% while national spot, which was up 5% in the first quarter, was down mid single digits.
During the second quarter, we saw continued strong growth in recovery in a number of our key core spot advertising categories, including sports betting, which was up over 75% year over year.
hospitals and clinics, which is our second largest advertising category, was up 25%.
The 12 get out and go categories, which we discussed during our first quarter call, were up 56%.
the casual dining and fast food categories were up over 20%.
These 16 categories represent 20% of our core spot revenues in the second quarter, versus just 14% last year, and in the aggregate, we're up 42% year-over-year.
It was also good to see that the auto dealer category grew by 1% in the second quarter after being down mid-single digits in the first quarter. And we hope this boats well for the remainder of this year as auto supply chain issues start to proceed and manufacturers have more inventory to compete for pent up consumer demand.
We continue to believe that these examples are strong evidence that the advertising categories that were severely impacted by the pandemic are returning to radio and that when the economy gets back on track that our spot revenues led by local will continue to recover and will significantly narrow or close the gap the pre-pandemic levels of revenue performance.
Our digital revenues in the second quarter were up 19% and we saw strength across streaming, podcasting, and our digital marketing solutions revenue lines.
As David mentioned, in July , we release the first version of our new streaming platform 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 that we believe will drive increased listening and enable us to accelerate the growth of MAUs.
We expect that this new platform will be an important driver of our growth in 2023 and beyond.
Turning to the third quarter, clearly the level of uncertainty about the outlook is elevated.
But based on where we are today, we projected our revenues for the quarter will come in flat to down low single digits.
Moving to our operating expenses.
Our cash operating expenses for the second quarter came in at 281 million, were up 6% year-over-year, and exceeded our target.
We made a number of investments in the quarter that we weren't able to dial back fast enough as revenues rapidly softened.
The company is actively working to reduce its expenses and we expect to be able to reduce the rate of our expense growth in the third quarter to about 1-2%.
We will provide more specificity about the scope and extent of our expense reduction actions and their impact on the fourth quarter and on 2023 during our third quarter of the fifth quarter.
Turning to our financial position.
Our compliance basis for SLEEN net leverage was 3.6 at the end of the second quarter compared to our maintenance coveted of 4 times.
And our liquidity was $150 million.
The company is working to control everything that it can control and has evaluated a range of projection scenarios incorporating the expected benefits of its actions including the planned sales of several parcels of land.
This analysis leads us to believe, assuming that the severity and duration of any recession is more akin to the 2001 recession and not like the Great Recession, that the great recession is more akin to the 2001 recession and not like the Great Recession.
that we should be able to maintain compliance with the requirements of our credit agreements and that our liquidity should be sufficient to whether the slowdown in advertising demand.
The company is continuously monitoring advertising market conditions and updating its projections.
If we deem it necessary, the company would proactively seek compliance requirement waivers from its lenders.
We believe it is also important to note that the company's upcoming 2024 maturities are all first lien and that the company's second lien bonds do not begin to mature until five years from now in 2027.
Again, assuming any recession that we face is not severe, and that the recovery commences in the second half of 2023.
We believe we ought to be able to refinance our $767 million of outstanding first lien debt well before this debt matures in about two years.
With that, we'll now go to your questions.
Operator.
Thank you.
At this time, we will be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation total indicate your lines in the question key.
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Our first question comes from the line of Aaron Watts with Deutsche Bank. Please proceed with your question.
Hi guys, thanks for having me on appreciate all the commentary. A couple questions here. I guess I'll start with. I'm curious how the declining.
macro conditions in the ad market headwinds you're experiencing played out in your markets in terms of both Volume and rates. Can you talk a little bit about what you're seeing on those fronts and the competitive dynamics on the ground right now? Sure, you know, it's it's what we find is that there is just some pause and that advertisers Obviously many of them are conducting business as usual But some of them are just a little more hesitant and being a little more cautious
as they look at the same general uncertainty that we're looking at. And again, we're up 5% in Q2, but we're expecting significantly stronger as we were going into the quarter.
And there any kind of monthly cadence you can talk to like as you exited.
kind of one cue into two cue and then exit to two cue into three cue. Were you seeing any scenes like the start of the quarter with soccer and got stronger as you went on? Any commentary on that? Yeah, we have seen that pattern. Others have spoken to that at the beginning of the quarter. Starts a little softer. Our July was flatish, which may be useful here. And you know, the other thing that we see, which it's a little early to talk about, is a little. This is the hallroom. but but but but but
Aaron as we look to fourth quarter and again, it's really early So nobody should be looking too much at this but with about 40% of the business in We're pacing up 10% in fourth quarter with political Really not in that number yet at all. So we find that encouraging but again, it's early and I wouldn't I wouldn't over overemphasize it, but it's
It's a useful data point.
Okay. Rich, maybe I pointed a couple your way here.
On the potential cost savings that you've worked through, any kind of goalpost around how much you think you can save from those actions. And save from those actions. And save from those actions.
Yeah, so I think you look at our expense performance so far this year, you go back and see the first quarter our expenses grew 8% year-rear. The first quarter our expenses grew 8% year-rear.
They're growing, they grew 6% year-over-year in TQ, and we've given guidance to that for 3Q.
Expenses speed up 1 to 2%.
So we are making substantial progress. We are working on a program to meaningfully reduce our expenses and we will provide further details about the scope and extent of those actions on our third quarter call.
Okay, and maybe similar question on the land sales or other non-core assets sales, any idea of the proceeds range that we should think about that that could generate.
You know, not at the moment, Aaron, but we're working, as David says, a lot of things we're considering and working on, and the company is being very proactive in managing through this low down. And so as much more able to, we will absolutely share, you know, further specificity.
Okay, and if I could just ask one more, and I appreciate all the time, which you've talked about your desire to be leveraged. You've talked about your desire to be leveraged.
You have bonds right now that are trading at a fairly significant discount. As you think about your current liquidity position and the cash flow outlook, would buying back bonds be something you consider as a use of your cash? And can you remind us that there's any covenant limitations on you buying bonds in the open market? And that's it for me. Thank you.
Yep, so, you know, we haven't. We did buy back a small amount of our bonds at the very outset of the quarter, frankly, before revenues started pacing down. Frankly, before revenues started pacing down,
and softening fairly significantly sequentially. And at the moment we're not focused on or interested in using cash to buy back our bonds.
Okay, thank you.
Our next question comes from the line of Dan Day with B. Riley Securities. Please proceed with your question.
Morning, guys. I appreciate you taking the questions. A lot of mentions about this new digital platform that rolled out in July . Mentioned it should be new pools of ad demand. Just maybe how quickly you think that could start showing up in the financial. Is this back half of the year acceleration in revenue or is it something that might take a little bit longer to start having an impact? Maybe just also if you could give us an update on the ballpark figure for what margins.
It's going to come out in a series of releases over the course of the next few months that will collectively be substantial in terms of the impact on the listener experience and our capabilities. But I think from a financial standpoint, we look at it beginning to have an impact in 2023. I think we're still in a ramp mode. We might get a very negligible kiss in the fourth quarter, but I view it as a 2023 in the next few months. I think we're still in a ramp mode. I think we're still in a ramp mode.
from the standpoint of impact on our numbers.
from the standpoint of impact on our numbers. Thank you very much.
And then, you know, from the digital...
the digital product line. We look at the profitability of our digital product lines in the aggregate on a marginal basis, so not burdened with overhead. That margins in the load in mid-20s. And we look at our podcasting business. We are making progress. When I look at our gross margin for that product line, I feel like I'm going to be able to make a new product line. So, I'm going to be able to make a new product line. So,
revenues less all of the cost directly associated with content like web shares to other publishers. You know, we've expanded our gross margin by over 10 points year-to-year, year-to-date. So look, we're making great progress for us. You know, we need spot to rebound. We see lots of evidence of
categories that were significantly impacted by the pandemic rebounding. And, you know, as David said earlier, the first quarter started out great. We beat our internal plan and unfortunately things have decelerated. But, you know, from our perspective, the fundamental outlook in terms of the business's ability to generate revenue growth and profitability looks better today than it looked.
frankly two years ago and we just need to be get to the point where financial where market conditions are better.
Got it. Thanks, that's a close appreciate. Then just maybe any specific plans you have in regards to the nicely listing requirements. Like.
Do you feel like you can get back to compliance just through execution results or do you think something like a reverse split or something else you might have considered to get back in compliance within that six month timeframe?
So, you know, we're discussing that now internally and we'll be discussing it with our board. And so the company hasn't yet decided how best to proceed. We sure hope and expect that if... we sure hope and expect that if...
the stock market's right. And we've all seen interest rates falling quite a bit. Mortgage rates have fallen below 5%. Hopefully the stock market is sniffing out a turn in the economy. We'll see. So I think that all options are on the table. We intend to regain compliance. We hope we do it through stock price appreciation.
Great, well, appreciate the time taking the question.
thank you Dan.
Our next question comes from a line of obvious signer. Would JP Morgan please pursue your question? Would JP Morgan please pursue your question?
Good morning, thank you. Two topics here. First, I'd like to start on the expense side or I know it's been tackled a couple of different directions. I'm going to start with a few more questions. I'm going to start with a few more questions. One more. One more.
But just drilling down a little bit, can you elaborate?
or give us more detail beyond just estimates and maybe bucket out between the digital platform and other inflationary costs that were there in the quarter.
And what I'm really trying to get at is perhaps what may be more permanent than previously appreciated and what may have been one time or
Over this corner and left.
and then have one more thing.
Yeah, look, Abby, we're hoping that the...
We could point to and show you that our expense growth in the first quarter was up 8%, up 6% in the second quarter, our guidance range is about 1% to 2% in the third quarter. So I hope people see that we are already significantly pairing our costs. We did have planned investments to in marketing and other, I'll say discretionary investments that we have had.
to pare back given current market conditions. And so, you know, the company's working hard now to reexamine everything, and come our third quarter call, we'll absolutely give more specificity about the scope and extent of our reduction actions.
Okay, and then my second topic, and thank you for the time. So the revolver balance is up 60 million sequentially. You put out an adjusted free cash flow number. I haven't seen a queue yet of about 18 million use.
I know that doesn't include working capital, but I'm wondering if you can bucket the Delta and what led to the revolver draw beyond that. And obviously the small bond by back and just how you think about the revolver balance and how we should think about it going forward. So all right now, that's a really important moment. All right. And three. I really wanted to let this happen in the future that I've been working on. Him to the future is absolutely affecting these issues for the community, to put, is improving the future. So let's start with what it does and sort of, for everybody thinking about this market whatcional, the aspects that they Long evangelical, that we, we'll never know within a few months of the current plan, that we'll probably know they can never know that, medical inform.
Yeah, so there's no doubt, when you look at our earnings release, you'll see that our CAPEX investment in the second quarter was $32 million versus $12 million in the same quarter in 2021. And year to date, we've spent close to $47 million versus $20 million in the same time frame in 2021.
And that was the push to get the new platform to market. That investment, I'll say the heavy lift of that investment is behind us. There's more work to go of course, and the work will be ongoing to continue to enhance our consumer proposition and to bring more features and benefits to market for advertisers. But we call it the booster rocket phase. Like the booster rocket phase.
I think the full year guide had been $75 million, if I'm not mistaken.
on that CapEx number, I think the full year guide had been 75 million if I'm not mistaken. Next slide.
Is that still the case? And then can you remind us what the maintenance level should be once this launches?
Yeah, so we're not going to, that 75 million out of numbers about right for the full year. So, you know, I'm applying that the second half spend will be about half the rate of the first half spend. And of course, you know, when we're looking from a maintenance perspective, you know, that number is in the high teams.
So there's a lot of flexibility to dial back our spend in 2023. And we expect we may need to do that if you know, not advertising market conditions don't start to rebound. But advertising market conditions don't start to rebound.
I appreciate it. I'll turn it over. Thank you.
Thanks, everyone.
Our next question comes from a line of Stephen Cahill with Wells Fargo. Please proceed with your question.
Thanks. Maybe first, Rich, just to follow up on a few of those questions in this line of thinking, will you just add it all up, including the lower CapEx in the second half and some of the working capital movements in the business? Do you expect that you'll generate cash this year? That would be before any debt reduction or that sort of thing. Just trying to figure out in a tough macro environment, do you think you can generate cash or is that going to be challenging unless the macro improves?
but it seems like the capital structure was built on the company with a different level of earnings power in mind. I know a lot has happened, including COVID, including recession since then. When you think about the capital structure, do you think that it is possible to maintain it at this level? Or is the business better off in some way, shape or form with a different capital structure and being prepared for an environment or just the run rate earnings?
even in a more normalized environment are a little bit lower. Thanks.
normalized environment are a little bit lower. Thanks. I'm just gonna zoom you strand the need and then can you see it's
Let's again put some context around this, right? As I mentioned in my earlier remarks, in 2019 we had 341 million in EBITDA and we were heading to the high 300s in 2020 before COVID hit and very much heading to a four time multiple. And we're a stronger company today in terms of earnings power and potential than we were before. And I think, again, demonstrably across.
So many areas of business that frankly didn't even exist three years ago and today We've established leadership positions whether it's podcasting and the exciting opportunities in this next wave of our you know enhancement of our Auditing digital platform our digital marketing solutions business our sports betting business and so much more so we absolutely see that potential there it's unfortunate that the pandemic and the
recent macro slowdown have impacted us at a time when we're making big strategic transformative investments. So yes, we're at an uncertain time, but as a stronger company, the opportunity is there for us to drive through this, capitalize on the move we made, I would refer you also back to the list of the six key drivers that are all substantial, and we're focused very much on executing against that soberly.
but capitalizing on a lot of hard work to put us in the strategic position that we're in today. Which?
Look, I just would echo that comment that, you know, we think this is a good company. We think we have a lot of opportunity for growth and we've all had some tough knocks. And, um,
But we think we can muscle our way through what looks to be a slowdown. And on the other side, we think there's a lot of things that give us confidence that the company is going to see accelerated growth. We don't know how. But you know.
We are
making meaningful progress, building the capabilities that will enable us to more fully participate in the growth in digital audio advertising. We have not had all of the bricks in place, but we're getting there. And so we're focused on execution, and we're sure, of course, hopeful that the economic outlook starts to turn.
meaningful progress, building the capabilities that will enable us to more fully participate in the growth in digital audio advertising. We have not had all of the bricks in place, but we're getting there. And so we're focused on execution, and we're sure, of course, hopeful that the economic outlook starts to turn. And that's how we see it.
Thanks, and then maybe just as a follow up, we're wondering if you could just drill down on the podcast business a little bit. What kind of growth do you see ahead? Is there any negative impact there in the slowing-out environment, or is it really a unique one? And where are you on margins these days in podcast? Thanks. Let me start on that, and then Rich, maybe you may want to add some additional words.
You know, as we mentioned, we're still seeing really strong growth in the podcast business with downloads up 40% during the quarter. And we also mentioned that we have some ad tech improvements coming online, which we believe will significantly accelerate our growth. Our podcasting revenue growth was looks like pretty much in line with industry numbers that we have seen. But we continue to make strategic.
tweets or pivots within the business looking to drive the higher margin areas from our self-generated podcasting, our local business. We've mentioned the 2400 Sports Studio, which is an organic launch to really ramp up our sports podcasting content. So there are a lot of moving pieces, but we are not seeing any significant macro impact on demand within podcasting.
and we still see great opportunity going forward for this business, which again, we have a very strong position and Rich, I should have looked you on the head of that.
Look, I'd like to add to that by saying right now, you know, we're punching above our weight in terms of our audience share versus our revenue share.
And so there's a gap today between our audience share and our revenue share, and we think there's a significant opportunity to close that gap over the next 12 months or so. And so there's some inherent growth potential in our current position that we haven't been yet able to fully capitalize, we're coming around the bend. And then when I think about the profitability of our podcast business, we've made some tough choices to reshape the mix of...
our content. And as I said earlier in response to Aaron Watts' question, we've increased our podcast gross margin year-to-date by over 10 points.
And so we are on our way for that business to be a low 20s contribution margin. And so it's, you know, the...
We expect it's going to be an increasingly profitable business over the next several years. And it's a really attractive adjacency, of course, to our core radio business. And we think a really important part of the overall audio proposition on our platform. So important strategically to our total audio proposition and a market space that's seen very significant demand.
And frankly, as I said, we are doing substantially better from an audience share than a revenue share, but that's hopefully a gap that we're going to close over the next month.
Great.
Thank you. Our next question comes from the line of Craig Huber with Huber Research Partners. Please proceed with your question.
Great, thank you. Why don't we start with podcasting, please? Maybe I missed this early on, but what was the podcast revenue in the quarter or the year over year percent change, please? Thank you.
What we announced is that the...
The podcast revenues were up 27% excluding the departure of quick and media which left our platform in early May.
What was the all-in percent change then if you don't want me asking?
Overe Choose.
Okay, great, thank you. Now if I could ask in your guidance, I think you said the total revenue flat down slightly in the third quarter, if I have that right,
Are you assuming a significant slowdown in podcasting in digital in the third quarter or somewhat similar trend? How you sort of think about that with the data you're seeing so far?
Yeah, we still expect digital growth in the quarter. And we are seeing some slowdown as we saw in 2Q in spot advertising. And so look, I don't think that...
digital advertising is immune, but I think we've seen at least in 2Q that across the audio companies that digital audio advertising has been relatively stronger than other digital media. And we're seeing continued strength in the third quarter. And we're seeing continued strength in the third quarter.
and then rich on your spot at revenue categories.
What categories are materially trending different in the third quarter versus what you saw in the second quarter? Anything you'd want to call out on the positive and negative side that's trending materially different.
Sure, so we did see in the second quarter a pretty meaningful slowdown in the mortgage lender category that is our third largest category. It really did slow down quite a bit from how it performed in the first quarter and it's still quite slow at this point in the third quarter we also saw auto insurance slow down quite a bit.
They had spent more in 2021 than they had pre-pandemic and it looks like they're kind of re-burning more toward the mean. But it slowed down quite a bit. We've seen a slowdown in the government category. We did have...
quite a bit of money last year for you know Department of Health related communications that slowed down as you can imagine and And then you know what's interesting so far at least is we reported Craig that the auto dealer category which typically has been about 75% of our total auto money so the tier 3 money the dealers themselves
typically have been about 75% of our total auto money. It did get its nose above water, plus 1% in 2Q, and we are seeing in 3Q pacing that the auto category in total, both tier two and tier three, is pacing up more strongly. Hope that sticks, but so far at least, auto is pacing more strongly in 3Q than it did perform in 2Q.
But on the cost side, you guys obviously get a hirkeling job on the costs in the throws of the pandemic two years ago and stuff. I assume a lot of those cost savings were permanently embedded in your cost space here and stuff. That's where the thing forward from where you're at right now.
How hard is it to try and take out material costs here on a permanent basis given with the economy's on a bad right now unfortunately?
Look, we have the ability to reshape our cost structure and adapt to market conditions, and we are actively working to do that now. We are actively working to do that now.
But you know, it is...
you know, it's not getting easier. But we look forward to sharing with you the results of this work during our third quarter call and I think you'll see that we're making and will have made significant progress. And I tried to point it out, Craig, that if you look at the sequential performance up eight, up six, up one to two and three Q, we are already making very substantive progress and we'll make further progress still.
So, we'll give you more detail in our third quarter call. I appreciate that. My last question, guys, ratings for your legacy radio operations. Is there any updated data that you can give us there how that's trending versus a year ago?
Yeah, I mentioned in my remarks that the ratings of our aggregate station group were up 5% in second quarter over first quarter and that compared to industry growth of 3%.
That's great, okay, cool, thanks guys. I'm going to try it.
Thank you ladies and gentlemen we have reached the end of the question and answer session. I'm announcing the call back over to David Fields for closing remarks. Well we appreciate everybody joining us here this morning and look forward to reporting back to you again next quarter. Thanks so much. Take care.
Thank you, this concludes today's conference and you may disconnect your lines at this time. Thank you for your participation and have a wonderful day. Thank you.
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