Audacy Inc. Q1 2023 Earnings Call
Good morning, and welcome to Odysseys first quarter 2023 earnings release Conference call.
At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
This conference is being recorded I would now like to introduce your first speaker for todays call Mr. Richard Schmeling.
CFO and executive Vice President Sir you may begin.
Thanks, Rob welcome to Odysseys first quarter earnings Conference call.
A replay will be available shortly after the conclusion of today's call at the replay link or number.
Denise.
During this call the company made forward looking statements, which are based upon the company's current expectations and involve risks and uncertainties companies.
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 factors section of the company's annual report on Form 10-K, as such risks and uncertainties updated from time to time in the company's SEC filings.
Assume no obligation to update any forward looking statements, except as maybe required by law.
During this call we may reference certain non-GAAP financial measures.
On the investors page of our website at Odyssey.
Dot com for reconciliations of such measures and other pro forma financial information.
Now.
During the call the game field, our CD book.
Yeah Rich welcome all to enter to Odysseys first quarter earnings call. Thank you for joining us today.
This morning. In addition to sharing our first quarter results and our second quarter outlook. He will share some additional color on our progress as we continue our work to navigate the storm drive our recovery.
This is of course, a challenging time for our company as we battle through the difficult AD market headwinds impacting companies all across the media landscape.
As a reminder, over the past few years Odyssey achieve scale to our acquisition of CBS radio roughly tripling her size and establishing a strong differentiated position with our exclusive premium content, leading positions across the country's largest markets and unrivaled leadership in sports and news radio.
In addition, we have been pursuing a broad based digital transformation to capitalize on our scale and establish the company as a true multi platform audio company through a number of acquisitions investments and initiatives.
As a result today, we are one of the country's leading broadcasters and built an emerging high potential innovative audio streaming platform and are working to build competitive AD tech and data capabilities.
It is unfortunate but of course, the unanticipated reality that we have pursued our transformative work in the midst of a global pandemic sustained supply chain disruption.
And then extended add recession.
This is obviously placed stress on the companys finances exacerbated by the businesses high degree of operating leverage.
And yet notwithstanding the financial challenges the fundamental inherent value proposition of Odyssey, and our ability to serve listeners and customers remains intact and distinctive and we continue to play offense investing in people platforms technology content capabilities and growth initiatives to better serve listen.
And the customers and enable a brighter future.
First quarter results were impacted by the ongoing challenges across the AD market.
Revenues declined five 7% in line with our forecasted decline of mid single digits.
For spot radio revenues were down 9%.
Local revenues held up considerably stronger than national including local digital up 19%.
Total digital revenues were down 2%, excluding pod casting digital revenues were up 3% led by a strong quarter for our digital marketing solutions business.
Total broadcasting revenues were down in the quarter, although podcast advertising revenues were actually up 14%. Excluding the departure of our largest podcast network publishing partner, which moved off of that platform last night.
I'm pleased to report that we continue to make solid progress in a number of fronts and our team continues to execute our strategic plans during the first quarter. We completed the sale of broadcast towers for $17 million. We also expect to close on a $15 $5 million sale of two radio stations in either second or third quarter and have a number of other real estate sales working.
Their way forward.
We also continue to take additional actions to reduce expenses significantly while at the same time, making sure that we continue to drive investment in critical transformational growth initiatives and capabilities, which will provide further color on all of this in a few moments.
We also continue to see significant opportunity to reduce expenses over time as we work to reduce our physical space requirements significantly capitalize on new technologies and reduce our exposure to select sports and podcast content deals that are meaningfully underwater.
Turning to our emerging auto Europe Odyssey streaming platform, we are seeing some organic acceleration in our digital platform usage metrics as listeners discover the innovative enhancements, we're making to the listening experience.
Monthly listeners on our digital platform grew by 8% year over year.
Organic app installations growth accelerated to 59%.
Total listening hours to our O&M stations and exclusive content grew by 4% for the quarter accelerating to 7% in March and 9% in April led by a surge in T. O H two we liked our technology, enabling on demand DVR functionality now enhanced with our <unk>.
Gruesome chapter third content descriptions on the Odyssey Yep, we believe that play and further enhancements to the streaming listener experience to the Odyssey up together with our unique and proprietary content will continue to power our screening listener growth.
Turning to podcast and we moved our primary podcast and studios under common leadership last month, placing general waste permit in charge of our podcast content and partnership efforts, including our <unk> 13, and Pineapple Street Studios.
Who should enable us to drive significant synergies and enhanced business practices that we expect to yield meaningfully higher future profitability.
One of the country's largest and most award winning podcasts businesses with 44 million listeners last year, we began to shift our strategic focus to more profitable areas of the business and we are now starting to realize the benefits of that transition for example in first quarter. We grew the number of listeners to our locally produced podcasts the most profitable part of our business.
By 26%, we expanded our partnership work with H B O, adding the last of US companion podcast, which was number one on the Apple charts, along with our succession companion podcast, we also announced new projects with Amy Poehler, the WNBA and fleet the Red Hot Chili Peppers, and we continue to lean into our leadership in sports.
With our 2400 sports studio, which we launched last year and is experiencing very rapid growth.
I also want to share a couple of thoughts and are developing ad tech.
A half ago, we acquired the audio AD tech business of White orbit and rebranded it as ample ways. Since then we have been pursuing an aggressive roadmap to develop our own proprietary tech stack and add product capabilities.
We recognize that we are playing catch up with some of our leading peers in the audio space and are working hard and had considerable expense to drive this transformation.
Like any company launching emerging tech capacity, there have been some bumps along the way, but it is great to see the progress of our tech team is making and we expect to deliver a number of important AD products. Later this year that should enable us to deliver meaningfully higher levels of streaming audio sales performance tapping into demand pulls and data opportunities that we are currently unable to access it.
Where it does come at a cost, but notwithstanding market challenges, we continue to build capacity across our tech and engineering teams as well as our Rev ops team.
The second quarter Pacings as you have heard from others AD market conditions remain quite challenging.
Local has held steady and actually slightly better than Q1, but there has been no improvement in national conditions, which remain quite weak.
We are currently pacing down 7% and expect revenues to decline by mid to high single digits for the quarter.
We do note that our comps will get easier as we continue through the year.
We are beginning to see some improvement in our largest AD category automotive.
After a modestly positive first quarter second quarter auto pacings are currently up 13% and we note that a handful of major national and local customers who have been dark since the start of the pandemic have recently place business with us.
To be clear the auto business remains way behind pre pandemic levels, but the signs are at least encouraging.
In closing notwithstanding the market challenges, we are enduring the opportunities to capitalize on our key growth drivers and deliver significantly higher future levels of EBITDA remain intact.
We fully recognize that in these uncertain times. It is hard to look beyond current circumstances, but we remain excited about numerous growth opportunities across the company, notably, including our various digital businesses the impact of our enhanced national enterprise sales team and our deepening customer and agency engagement.
Potentially accelerated audience growth from our streaming audio platform.
New pools of AD demand that will be unlocked with the upcoming completion of various AD tech AD product and data enhancements.
And planned business model and margin improvements.
Furthermore, we note that as economic conditions, ultimately normalize roughly 90% of any future recovery in radio revenues would flow through to EBITDA.
We noticed we had before that we can achieve a healthy level of EBITDA recovery at substantially lower levels of radio ad spend than before.
Finally, before turning it over to rich I want to acknowledge the outstanding team at Odyssey and express my deep appreciation for their excellent work and dedication, which we continue to execute our plans and drive our business forward.
Current economic challenges rich.
Thanks, David and good morning, our total net revenues for the first quarter came in at $260 million down five 7% year over year.
Our core spot revenues were down 9% for the first quarter in local spot continues to be stronger than national.
Our digital revenues came in at 57 million in the first quarter and were down 2% year over year as both our streaming and podcast revenues weakened sequentially.
Network advertising revenues were down 6% year over year, but strengthened later in the quarter and were up 1% in March.
Turning to the outlook for our second quarter revenues, we projected our total revenues will be down mid to upper single digits for the quarter and this is in comparison to softer prior year comps.
As you will recall, we and others experienced a slowdown in advertising demand starting at the end of the first quarter of last year as inflation ran and the fed began tightening interest rates and the.
The first quarter of last year, our revenues were up 14% year over year, and our growth rate slipped to up 5% year over year in the second quarter.
Moving to our first quarter expense performance, our cash operating expenses came in at $256 million or up 3% year over year, driven largely by an increase in our variable selling expenses tied to our digital marketing solutions product line.
The company has continued to work to further reduce expenses and we expect that our expenses for the second quarter will be down about 3% year over year.
And we expect that our expenses over the last three quarters of this year will be down by around 4% or by greater than $35 million.
Turning to our financial position, our compliance basis firsthand.
Net leverage was three eight at the end of March compared to our maintenance covenant of four times.
And our liquidity was $124 million down $29 million from year end.
Since the first quarter.
Advertising demand has further softened and we are concerned that it could get worse before it gets better.
The company is continuing to work to accelerate revenue growth.
Develop and execute added cost reduction actions and to sell other noncore assets. However.
Due to the uncertainty of the advertising outlook. These actions may not be sufficient to fully mitigate the impact of potential further advertising weakness.
This outlook increases the risk that we may not be able to sustain compliance with our first lien maintenance covenant over the next 12 months and this uncertainty led the company to include a disclosure about its ability to continue as a going concern in the footnotes to its financial statements in our first quarter 10-Q, which will be filed.
Later today.
This assessment is not an event of default under any of the company's debt agreements. It doesn't impact our day to day operations and it is merely based on our current projections of our future operating results.
First lien maintenance covenant is only for the benefit of our revolving lenders and our relationship banks have historically been willing to amend covenants to provide relief during recessionary periods, but there can be no assurance, we would be willing to provide such relief in the future.
The company is finalizing its preparation to commence discussions with its lenders to explore refinancing and strategies to manage its liabilities and we continue to expect to initiate this process before the end of this quarter.
As part of this process. We will also seek an amendment of our first lien maintenance covenant.
Beyond these statements will not be providing any further details about our plans at this time.
With that Bob will go to questions.
Thank you.
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Our first question is from Dan Day with B Riley Securities. Please proceed with your question.
Yeah morning, guys. Appreciate you taking the question. So first one for me I think.
Some of the other media businesses.
You know experienced stocker bond prices that reflect an elevated probability of restructuring is it maybe some other advertisers or other important partners or vendors might be hesitant to make longer term or significant commitments. Just how do you prevent that from happening as you navigate this turnaround.
We see no evidence of that today and either on the buy side or sell side as rich noted it's business as usual.
He cited you know our cash position and so forth and again, we feel.
Right now we've had no evidence of any meaningful concerns along the lines that you are referencing.
Yeah.
Okay. So I looked at the Capex number you got that down to about 30 million in 2020, I'm, assuming that's effectively a bare bones level.
I'm just getting a situation any reason, we shouldn't expect capex to be pinned down effectively at those levels in 2023.
So our capex investments that.
Have a very strong ROI in a fairly short period of time and then we have a number of projects in flight.
Particularly in the real estate side of our business that you know, we're swinging hammers as we speak so no I don't we don't expect those apparel arms, the capex back to that same level.
Dan but.
Yeah, we're scrutinizing every dollar for sure.
Well continue to work as we said to reduce our costs.
We were practically possible.
Alright, that's all I had thanks guys.
Thank you.
Our next question is from Craig Huber with Huber Research Partners. Please proceed with your question.
Great. Thank you can you go through for me if you would.
Planned divestitures, what do you think that might you might get for planned divestitures that would close the rest of the year and then say again, if you would please what happened in the first quarter, we closed on the dollar amounts.
So we sold we sold $17 million of towers in the first quarter, we Didnt mentioned we have.
Our pending sale for a couple of radio stations.
About $15 million that we expect to close in either <unk> or <unk> and then as we said last time, we can set ourselves first of the year will be another another chance so $25 million plus and we're working on more now and hopefully next time, we speak we'll have.
More to report.
Working on building the pipeline.
What do you see more to report do you think would be overly significant.
So if you could put on the market.
I I I I I don't know at this point, there's a number of conversations we're in the midst of.
But you know in order of magnitude you know could it be another.
$20 million sure in that ballpark, but not you know 50 or 100.
Okay. That's helpful. Thank you can you just because of the wide disparity between the national spot performance versus local can you just break that out for me just quantify in the first quarter, how each is trending where they were.
And maybe talk about the trends for the current quarter.
If you can quantify that please yes, so the spread was.
No for us local was down.
About 5% year over year and national was down.
Yes.
Mid to upper teens, and just started dovetail off of Rich's comment he was referring to radio and as I noted our local digital performance actually was up in the high teens.
Okay, and then would you say the second quarter trends for local and National how would you break that out how it's pacing. So far we haven't broken that out we haven't broken that out frankly, but it is it has softened somewhat versus the first quarter sequential.
Although I think as I mentioned in my comments local is essentially the same you've seen a little more weakness on the national side.
So national has gone a little bit worse in the second quarter, but not so much local and so what you're saying.
But you know I think it's important it's important to note Craig and citizen all comments that.
You know last year was the first quarter was fairly strong we were up 14% year over year.
Why not wait a squirrel fell back to just 5% so.
We backed off by nine points from <unk>, So we're up against softer comps well.
Going into Q, and a and b.
Variances look similar.
What they can look like in the first quarter year over year.
And then my last question has come a point here.
About the cost I mean.
And I feel really bad positioning your companies.
Is facing now given the environment or not I'm not trying to be derogatory here at all but you know these numbers a lot better than I do rich, but I mean.
Adjusted EBITDA of 2 million in the first quarter versus $25 million a year ago.
You have some capex Ethernet against that $32 million of interest expense I mean to be honest with you why our costs not down a lot more here I mean, I know you're trying to preserve the company for the long term.
I'm worried youre not going to get to the medium term, let alone the longterm wider cost not down honestly like 10% right now I mean, what.
Yeah, So Craig.
Upfront for Gregory.
Well I I understand Craig.
Look the first quarter, we had given guidance that we thought our cost to be flat to down slightly for the full year. We're now.
<unk> updated that guidance.
And our costs over the last three quarters of the year, but we expect to be down.
By around 4% or by by over $35 million. So the company is continuing to work to reduce costs, but I think you need to recognize that.
If you have as a mental model what the company did in 2020.
Kicked it out how things are different in 2022 are quite different in 2020 buoying the outset of the great.
The pandemic for example, pretty much every major.
Fortunately it was disrupted.
And we were able to reduce our sports rights fees quite significantly because lots of games were canceled.
Backbone you know we took some actions from.
In terms of deferral of.
Salary increases deferral of compensation on wall box, we did some things that were in the context of the moment.
Palatable.
And of course, the employment environment today is quite different vantage.
Fiercely competing for talent as are other companies. So there's a lot of things are different today than what they were in 2020 and the company as you know I look at it Craig.
You know our costs this year will be down versus 2019, so look back.
Two 2019.
Three years ago.
Four years ago, and totally totally down by greater than $60 million versus 2019.
A lot's happened in between in terms of inflation et cetera. So.
I assure you I understand what you're saying I wish I had a magic wand.
We are doing everything that we think is practical and prudent to.
Mitigate well persistence.
Advertising weakness that we have experienced in this.
Since the onset of this call, but you know happy anniversary, it's been a year.
Since the advertising environment turned down that.
The outset of the Fed's tightening cycle on this this is persistent.
For a year.
No signs no signs of abating, yet, but that will come of course, but I think we have.
Likely a few difficult quarters ahead of us So I assume you Craig we're doing everything we think is appropriate and practical.
And you know.
That's where we're at but I feel bad for the position you guys are now not being derogatory. There obviously the revenues that you guys know we're down 300 million for 2019, so take out 60 million might've been a herculean effort.
Relative to where your interest expense is now in a rising rate environment.
And a rock and a hard place here and I am just editorialize I'm here because I just worry long term you guys aren't going to get the long term. If you don't take out of the 510% plus of the cost like today.
That's all I had my own personal phone to watch this from the outside.
Yeah.
Yeah. Thank you I appreciate your thoughts on it thank you guys.
Thank you Craig.
There are no further questions at this time I'd like to turn the floor back over to David field for closing comments.
Great well, thanks, again, Rob and thanks to everybody for joining US here. This morning, and we look forward to our next report thanks, so much bye.
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