It’s a tale of two worlds. For some media companies, the second quarter of 2022 demonstrated top prowess in attracting political ad dollars, in particular in the broadcast television sector. Of the audio content creation and distribution companies, the overall performance was positive. In particular, Cumulus Media enjoyed revenue that surpassed Wall Street estimates as it swung to net income from a Q2 2021 net loss.
These upbeat second quarter earnings reports are in sharp contrast to the Q2 2022 earnings report delivered Friday by Audacy Corp., the company formerly known as Entercom and led by President/CEO David Field.
The lackluster Q2 ’22 earnings were distributed right after an expected notification from the New York Stock Exchange on August 1 that its Class A common stock is not in compliance with the NYSE’s continued listing standard. It has not been in compliance since June 28.
The earnings report didn’t help Audacy on the stock exchange, as shares dipped 15% to $0.5947. In pre-trading ahead of Monday’s Opening Bell, AUD was priced at $0.6247.
Why did Audacy experience such a disappointing second quarter? Speaking on the company’s earnings call for analysts and investors, Field opened his comments by noting how strong the company’s Q1 2022 performance was. “It looked like we were on a path to deliver 2022 financial results in the ballpark of 2019 results,” he said.
Then, things turned sour for Audacy. Since then, he continued, “Deteriorating macroeconomic conditions and increasing uncertainty has caused ad spending headwinds, which had impacted our business. In second quarter our 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.”s
Political ad dollars, unlike the situation in broadcast TV, was a minor factor. Including electoral activity, spot radio was up 1% with core flat. “Podcast revenues led the way at 27%,” Field remarked. This excludes the “low-margin” Crooked Media business, which moved off of Audacy’s platform in May.
WHERE AUDACY IS
While the podcasting growth is encouraging, that’s not enough to offset the declines elsewhere across Audacy. So, just where is the company as it pushes further into the third quarter? Field and EVP/CFO Rich Schmaeling shared with those on the earnings call an assessment of where the company is today, where the company is headed, and how the C-Suite leadership intends to arrive there.
Field started with COVID-19, and how Q1 2022 saw Audacy get off to a great start in “getting back close to 2019 this year.” Other companies in the U.S. broadcast media space have, including Townsquare Media. Why not at Audacy?
Field said, “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 impact of the pandemic and slowdown on our business and Audacy’s fundamental strength and earnings potential going forward.”
In his view, even with the Wall Street weakness and Q2 performance that came in short of Street estimates, “Audacy has been meaningfully enhanced and is today a much stronger company than the one that generated $341 million in EBITDA in 2019.”
How so? “We have transformed and elevated our products and capabilities, and emerged as a scale multi-platform leader in audio, content and entertainment, with greater capacity to serve listeners and customers,” Field said, shifting the conversation with marketing language often seen at investor conferences. He continued, “Building on 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 intact.”
Examples how Audacy in Field’s view is a stronger company than in 2019 include a bolstering of the company’s ad tech capabilities, “addressing frankly an area of weakness.” This cuts down on the reliance of third-party services, thanks to the 2021 Amperwave acquisition. Field also cited a reimagined digital platform, the result of “a large investment” in building and developing “new innovative technology.” The enhancements, he believes, will attract a bigger audience and, hence, more revenue.
What about the foundational AM and FM radio properties owned by Audacy, which include heritage CBS Radio brands including Sports WFAN in New York and a reinvigorated Alternative KROQ in Los Angeles?
“Under the leadership of former Spotify Chief Revenue Officer Brian Benedik, 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 and scope and capabilities of Audacy today,” Field said. “We believe our efforts are bearing fruit and will be successful in driving increased nationalized spending.”
AUTOMOTIVE ENGINE TROUBLE
One can debate whether or not we’re currently in a recession. For Field, “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.”
As has been reported by RBR+TVBR, Audacy overindexes compares to its peers on Automotive dollars. While other categories are performing strongly, and 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 a gap versus 2019 revenues,” Field said. “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.”
But, when is that day? With some on Wall Street indicating that the first half of 2023 will remain soft for Automotive, Townsquare Media noted on its Q2 ’22 earnings call that a meaningful recovery for the category may not arrive until 2024.
“GM made some encouraging remarks on their earnings call last week … we shall see,” Field said.
‘SUBSTANTIAL SUSTAINABLE SAVINGS’
Is a reduction-in-force coming to Audacy? Tackling expenses is a priority, and Field said the company is working to enact “substantial sustainable savings through a number of measures to improve margins and profitability across the business.” The company’s C-Suite leaders believe it will be able to deliver “meaningful cost reductions” without hindering its strategic priorities and growth plans.
The sale of assets deemed non-strategic, including a parcel of land in Houston, will also help the balance sheet in the short term. That deal is expected to close by the end of August.
Field concluded his remarks with a rally cry for investors. “These are uncertain times in our world, with many challenges and risks, but the potential exists for extraordinary investment returns,” he said. “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 challenges, we are excited by our plans and our robust set of opportunities and are deeply committed to the work ahead.”
AUDACY’S KEY Q2 2022 FINANCIAL HIGHLIGHTS
- Core spot revenue was flat
- Local spot was up by more than 3%
- National spot was down in the mid-single-digit percentage range
- Hospitals and Clinics, Audacy’s second-largest ad category, was up 25%
- Casual dining and QSRs were up 20%
- Automotive inched ahead by 1%
A SHAKY THIRD QUARTER UNFOLDING
Forecasts for the three-month period ending September 30 aren’t so great. According to Schmaeling, “Based on where we are today, we projected revenues for the quarter will come in flat to down low single digits.”
With that, analysts were invited on the Audacy call to inquire about the company’s performance. Aaron Watts of Deutsche Bank was curious as to how the declining macro conditions and the ad market headwinds the company is experiencing played out in Audacy’s markets in terms of both volume and rates?
Field replied, “[T]here is just some pause … 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.”
With July “flattish,” Field shifted attention to the fourth quarter, with pacing up 10% “with political really not in that number yet at all.”
“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 but we think we can muscle our way through what looks to be a slowdown.” — Rich Schmaeling
Also on the call: Steven Cahall of Wells Fargo, the analyst that adjusted Audacy’s target price down to zero. He asked about cash generation, before any debt reduction.
Field declined to give guidance for the remainder of 2022, to which Cahall replied, “Yeah, that’s fair.”
But, he then offered perhaps the biggest question of the day — and the top talking point and takeaway from the call. He remarked, “It seems like the capital structure was built … with a different level of earnings power in mind. I know a lot has happened, including COVID, and including recessions 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 where just the run rate earnings even in a more normalized environment are a little bit lower?”
Field referred Cahall back to the “six key drivers” positively impacting Audacy in the long-term, shared earlier in the call. Schmaeling’s comments were perhaps the most poignant.
“We think this is a good company,” he said. “We think we have a lot of opportunity for growth. And we’ve all had some tough knocks. And 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. No doubt, 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 and that’s how we see it.”
