With a vote on a reverse stock split coming at its annual shareholders meeting, allowing its shares to remain on the NYSE, Audacy Corp. has been suffering of late from severe fiscal challenges.
In Q1, the company formerly known as Entercom reported mixed results: the audio content creation and distribution company’s revenue surpassed analysts’ forecasts, but its earnings per share loss was wider than what they predicted by 2 cents.
That led one analyst to ask the CEO and CFO of Audacy some tough questions on its quarterly earnings call.
On net revenue of $259.64 million, down from $279.3 million, and higher station expenses of $233.22 million, from $225.88 million one year ago, Audacy’s net loss widened in Q1 to $35.9 million (-$0.25 per diluted share) from $11.07 million (-$0.08).
The EPS finish compares to a -$0.23 consensus estimate from the two analysts that track Audacy Corp.
Revenue, however, surpassed their consensus estimate of $258.55 million.
Adjusted EBITDA declined to $3.5 million, from $26 million a year ago.
Audacy broke down the revenue by type and by the format of its radio stations:
As shown above, the 2023 results, in the left column, are discouraging. While peer Townsquare Media has shown digital prowess since the start of January, digital revenue declined to $56.93 million from $58.04 million in Q1 for Audacy.
Only “Sponsorships and Events” was up, albeit slightly.
Meanwhile, Sports showed a small year-over-year gain in revenue when looking at music formats.
With Audacy’s first quarter earnings call heading into Q&A with Dan Day of B. Riley Securities starting the questioning, the company’s shares rose 63.1% from Monday’s close.
However, given its small valuation, that climb put AUD at $0.1868.
By 11am Eastern, the gain was 22.36%, putting Audacy stock at $0.1401.
LOCAL STRENGTH, BUT BIG EXPENSES
With $17 million in towers closed in Q1, and a forthcoming $15 million intake from the pending sale of two stations (in Memphis and Buffalo, respectively), local sales are “significantly outperforming” national as challenging ad markets persisted.
Local was down 5% year-over-year. Mid-to-upper teen National radio performance, by comparison, was seen in Q1, CFO Rich Schmaeling told analyst Craig Huber during the Audacy call.
With softer comps in Q2, “the variances look similar to what they look like in the first quarter,” Schameling added.
Huber pointed to the $2 million in adjusted EBITDA in the first quarter versus $25 million a year ago. Capital expenditures don’t help, and neither does $32 million in interest expense, he added.
“To be honest with you, why are costs not down a lot more,” Huber asked. “I know you’re trying to preserve the company for the long term. I’m worried that you’re not going to get to the medium term.
Schmaeling replied that in preparation for the first quarter Audacy’s guidance posted to flat or slightly down costs for the full year. For now, Audacy has updated that guidance. Costs for the last three quarters of the year are expected to decline by 4%, reflecting $35 million in savings.
“The company is continuing to work to reduce its costs, but I think you need to recognize that, if you have as a mental model, what the company did in 2020, and think about how different things are in 2023, they are quite different,” Schmaeling said.
He pointed to a reduction of sports rights fees in the last three quarters of 2020. Salary compensation deferrals were seen. Today, the employment environment means Audacy is “fiercely competing for talent, as are other companies.” Hence, there are costs to take into account. And, there’s history to consider, too. “Our costs this year will be down versus 2019,” Schmaeling said.
He added in his response to Huber that inflation should be considered when looking at the numbers. “I wish a had a magic wand … We are doing everything that we think is practical and prudent to mitigate the persistent advertising weakness we have experienced,” he said. There are few signs of the year-long slowdown abating as of yet.
What does that mean for Audacy? “I think he have likely a few difficult quarters ahead of us,” Schameling warned.
Even with the “difficult economic headwinds,” Field said that Audacy remains “steadfastly focused on delivering significantly higher future levels of adjusted EBITDA, capitalizing on our multiple growth drivers and our differentiated premium competitive position in the dynamic audio market.”
Convincing Huber, and perhaps others, that Audacy can do so in the long-term nevertheless remains challenging as the analyst noted he feels “bad given the position the company is really facing right now, given the environment.”
In his closing comments, Huber pointed to how Audacy’s revenue is down $300 million compared to 2019. Relative to interest rate expenses in a rising rate environment, “you are between a rock and a hard place here, and I just worry long-term you guys aren’t going to get to the long term if you don’t take out another 5% or 10%-plus in costs — like today.”
Neither Field nor Schmaeling responded, and with no further questions they thanked those who had dialed in as Field said the management team looked forward to its next quarterly earnings report.
In his prepared remarks, distributed before the 10am Eastern call on Wednesday, Field remained confident in Audacy’s abilities. “We are making progress on each of our drivers, including our podcasting and digital marketing solutions businesses, our reinvented streaming audio platform, our emerging ad tech and ad products, and our enhanced national enterprise business development efforts,” he said. “In addition, we are encouraged to see some positive signs in our auto business as we continue our vigorous work to weather the storm and await future improvements in market conditions.”
While Audacy has less cash on hand ($83.77 million) as of March 31 compared to the end of 2022 ($103.34 million), its outstanding debt was unchanged.
