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spk00: 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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.
spk02: Hi, good morning. This is Rich Schmeling. Welcome to Odyssey's first quarter earnings conference call. This call is being recorded. A replay will be available shortly after the conclusion of today's call at the replay link or 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, risk 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 reference certain non-GAAP financial measures. We refer you to the investors page of our website at odysseyinc.com for the reconciliations of such measures and other pro forma financial information. With that, I'll turn it over to David Field.
spk03: Thanks, Rich. Good morning, everybody. Thanks for joining Odyssey's first quarter earnings call. I'm pleased to report that Odyssey had a great first quarter, posting strong top line 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 continue 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, Odyssey 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, our exclusive digital audio content, and our unrivaled leadership position in local sports and news radio. We are the flagship home of 38 proteins plus dozens of college programs and are also now the exclusive podcasting and digital audio sales partner of Major League Baseball. And with the addition of Amperwave, 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 lag somewhat farther behind 2019 in most of our larger and our coastal markets, which have been most impacted by the pandemic disruption. but the progress is clear and we are on our way. I'd 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, or ADAN, an addressable aggregate of over 60 million listeners across our app, streaming content, and podcast lineup, enabling precision targeting at scale, coupled with real-time optimization and reporting. ADAN is fully integrated into our emerging tech stack, bringing actionable brand insights and detailed campaign reporting for our customers. ADAN 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. ADAN 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 Amperwave as a customer of our cloud-based distribution and monetization platform. We will also be enabling Odyssey's patented Rewind technology to make Fox News Audio's live streams fully interactive. Odyssey will also be the exclusive third-party ad sales representative for all of Fox News Audio's streaming inventories. Amber Wave is emerging as an important addition to our capabilities. As we noted when we made this acquisition in the fall of 21, Amber Wave 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 rolling 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 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 podcasting 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. Podcast growth was supported by strong double-digit growth in downloads and unique listeners. 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 CPMs and RPMs. We also had a strong contribution from our industry-leading premium-branded 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 a podcast slate deal with Amazon, in which they will purchase a slate of at least four podcast series from our Pineapple Street studios. This deal marks the first time Amazon has done a content slate deal with any podcast studio. We delivered the first show, We'll 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, with a guest list that includes most of the legion of SNL stars who appeared over the years. And we also produce the companion podcast for Netflix film Don't Look Up and HBO Max's Winning Time, the story of the rise of the L.A. Lakers dynasty. Podcorn, the largest native advertising marketplace for podcasts, 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 Podcorn 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 MAUs and PLH, 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 large customers from 2021 were inactive 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. Our work is far from done, but we are 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, full participation in digital advertising, and substantially larger shares of ad spending. With that, I'll turn it over to Rich and then your questions. Thanks.
spk02: 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 core spot revenues were also up 14% in the first quarter, driven by local, which increased by 18%. During the first quarter, we saw 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, D.C., 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 were in the aggregate up over 180% year over year in one queue. 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%. These 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 our spot revenues, led by local, will continue to strongly recover. Our largest spot advertising category, automotive, remains significantly disruptive and was down mid-single digits year over year in one queue and was down about 40%. in 1Q 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 as supply chain issues were resolved, and so far, it hasn't. 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 release 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 believe this experience will drive increased 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 project that our total revenues will be up mid to upper single digits year over year. The pace of business coming on the books has slowed, versus the first quarter and since the outset of the war in Ukraine. Moving to our operating expense performance, our total operating expenses for the first quarter came in at $266.8 million and excluding one-time and unusual items and adjusting out non-cash costs, our total cash operating expenses were $249.3 million or 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 EBITDA margin for the first quarter was 9.4%, up five percentage points from the prior year. Turning to our financial position, our compliance basis first lien net leverage was 3.4 at quarter end compared to our covenant of four times. we continue to expect to make significant further progress in leveraging over the remainder of this year. During the first quarter, we received a $15 million 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 $14.5 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?
spk00: Thank you. At this time, we'll be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question today comes from Stephen Cahill of Wells Fargo. Please proceed with your question.
spk06: 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 slow due to 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 categories that sort of incrementally slowed that it more feels like we're based on the macro.
spk03: Steven, it's David. I'll take that. I think it's a little more... Yeah, good morning. I think it's a little more the 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 we're still growing. Business conditions remain good. It's just the trajectory of the growth has dampened from where we were before. And that's what we're seeing.
spk06: 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 is as digital grows and just becomes a bigger part of the portfolio, what 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? as you kind of get through the spot recovery?
spk02: Yeah, so our model projects that as we get back to the 2019 levels of EBITDA, 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 margins And the company's longer-term projections show our EBITDA margin expanding by several points over time.
spk06: Got it. And then with the Odyssey Digital Audience Network, is that something that it seems like is kind of comprised of a lot of the investments and acquisitions you've made over the last couple of years? When do you think we could see a material amount of revenue that's generated from it? Or is it more of like a catalyst that helps generate revenue in other businesses within the company?
spk03: I think both, right? It's... You know, we're a work in progress. And if you think about all the pieces that we've been building in terms of the strength of our broadcast business and our differentiated content there, our 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 with the addition of the Odyssey Digital Audience Network. 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 in bringing it together to make us that much more compelling and easy to access for some of the larger holdcos and ad agencies and brands across the country. And we think that'll make a material difference in the appeal of our products to those customers going forward.
spk06: 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. I know 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.
spk02: Yeah, 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 covenant. We think we'll be very comfortably compliant and we'll get increasingly so as this year progresses.
spk07: Great. Thank you.
spk00: Thank you. The next question is from Dan Day of B. Reilly Securities. Please proceed with your question.
spk04: Yeah. Morning, guys. Thanks for taking my questions. So first one on the cost in a quarter, looks like they actually came in a little below what you had guided to. You've been typically guiding to half of revenue growth year over year. So just any commentary on what led to the sort of better than expected cost in the quarter, how sustainable that might be moving forward?
spk02: Yeah, I think that we are absolutely, you know, being very judicious about our expense investments and have moderated some of our investments as this year unfolds. And that's why in 2Q, we do expect that our costs will 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 versus prior year.
spk04: 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 midterm years, and even I know it's going to be a contentious one, so maybe even approaching presidential years.
spk03: 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, um, ad cycle and a robust, uh, robustly, uh, contentious, uh, election. And we would expect the, uh, our level of political advertising to reflect that.
spk04: Uh, great. And then last one for me, just kind of on the model. Um, if we take out the, it looks like you got the income tax refund during the quarter. If we put that to the side for a minute, just expectations for cash taxes for this year.
spk02: Yeah, the outlook for our cash taxes this year is less than $10 million.
spk04: Okay, great. Thanks, Rich. Thanks, David. Thanks, Dan. I appreciate you taking my questions, and I'll turn it over.
spk00: The next question is from Avi Steiner of J.P. Morgan. Please proceed with your question.
spk05: Uh, thanks. I have a couple here. Uh, first off, you have a unique view of the small and medium sized business advertiser. And I guess away from the slowing national, you called out, I'm wondering if you can talk about what you're seeing there on the local side in light of the volatile economic backdrop backdrop, and then concern around an economic pullback more broadly. Thank you.
spk03: Sure. I mean, we look, we're in constant touch as you might imagine with our, our sales and market leadership all around the country. Uh, 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.
spk05: Okay, great. And then – and if I miss this in the remarks, I apologize – but the pineapple slate deal – 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. Thanks, and I have one more.
spk03: Sure. I mean, we have not disclosed that amount or the nature of the deal, but yes, we're being compensated by Amazon for that. And again, I want to underline what it says about the caliber of work that our podcasting team does. The fact that we that Amazon, this is the only time they've ever done a deal with an outside podcast studio, and they chose our Pineapple Street folks who are the best in the business. I also think the fact that we are continuing to be the branded content or the partner on companion podcasts of choice for the Netflix and HBOs and Nikes of 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.
spk05: Great. And then the last one, and I appreciate the time and all the comments on the call. Just following up on Otto and what was said about the second quarter and kind of the backdrop, I'm wondering how you think about 2022. I think you previously said that EBITDA would be about the same level as 2019, and I'm wondering if you can help triangulate maybe current thoughts. And, again, appreciate the time. Thanks all.
spk03: Sure. So first quarter was great. We were right on track. In fact, we're running better in 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 litany of, you know, inflation, Ukraine, stock market, et cetera. And that has had some impact on ad 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're growing nicely. We feel 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, you know, that I think could be affected here, of course, by what's happening outside of our control.
spk05: Appreciate all the comments. Thank you.
spk00: Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question is from Craig Huber of Huber Research Partners. Please proceed with your question.
spk01: 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 they're performing in Washington, D.C., Baltimore, Philly, et cetera. I didn't hear you say anything on New York City, obviously an important market for you guys. Maybe you could touch on that, what's going on there for starters.
spk03: New York's doing really well. 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. You know, again, New York, L.A., San Francisco, these are markets that were disproportionately impacted by COVID in terms of shutdowns and et cetera. Those markets are recovering. As I mentioned earlier, they're behind their counterparts in smaller markets and then Western markets and Southern markets. And that has put a that 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're growing.
spk01: 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. And how did that do in the quarter, and what's the sort of outlook there for the second quarter?
spk02: I don't know if the first one is correct. You said local services. We look at at restaurant 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 up actually quite significantly year over year in the first quarter, over 80%. And so that category was quite strong. Fast food, but not nearly as strong as casual dining. And then on your point about local services, I know there's a lot of stuff that we break out and look at probably separately. And we still see that, you know, categories like hardware stores and contractors, builders, they're doing well and recovering well. year over year. So if you look at the scanning on our list, looking at things that are kind of local services, they're up year over year for the most part and are getting better. We saw, as we mentioned, very rapid growth in 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 a lot of opportunity for the local advertising spend to recover strongly. And, you know, we think that's likely to continue recovering. As we said, the get-out-and-go categories are pacing up over 90% in the second quarter.
spk01: And then my other question I wanted to ask you, and I'm not trying to be derogatory about this at all, but when you look at your first quarter revenue, spot ad revenue and compare it to one Q of 19. It looks like it was down about 23%. Obviously, tough environment going through COVID and all that. But when you look at local television, you know, that's down called zero to 5% versus, you know, call one Q 18 on Apple's Apple space or even one Q 19. Why do you think I've asked you this before? Why do you think radio is still lagging in the recovery here on the traditional legacy business?
spk03: Well, we have spoken about before, Craig, 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, that recovered, are recovering or have recovered, what have you, slower than I think the composition of business that a television 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 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 signs going forward for that to continue to recover, and we're working hard at it.
spk02: I just want to tack on to that, Craig, because... You know, being formerly a CFO of a local television 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 of a local TV station. And what you see is like categories we talked about, get up and go, like gyms and movie theaters. You don't typically see that on television. These are categories that you see on radio you do not see on television. So, look, we are different, and these categories were more severely impacted by COVID. They are recovering nicely, up 180% year over year in one queue. And we look at it and believe that as things get better, they're going to continue to get better, and it's just a question of time.
spk01: And then maybe just to ask a little bit further, and that's a good response. I appreciate that. The get-up-and-go categories, what percent of your spot ad revenue maybe did that represent in the first quarter? And same question for Otto, please.
spk02: So those categories were 7% of our first quarter 2022 revenues, Historically, they were about 10%. So I mentioned in my prepared marks that in the first quarter of 2021, they comprised 3%. They were 7% this year. Historically, they were 10. We feel pretty confident they're going to get back to 10. The auto category, you know, 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 one queue than it is in two queue through rest of the year. Coming off the holidays, it's 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's still meaningfully off what it's been historically as a percentage of our total spot revenues.
spk03: And I would add to the same seasonality on the 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.
spk01: Okay, my last question, if I could sneak this in. What is your outlook for the podcast margins for the year? If you could isolate that versus all of digital, what's your best sense? Or maybe how the first quarter was, how do you think that's going to track?
spk02: Yep, so we're pretty excited to see great progress in our podcast business, building our EBITDA margin for that business on a marginal basis. And we're on track to get to about a low 20% EBITDA margin, call it a contribution margin, this year. So, you know, that team's doing an excellent job executing the plan to improve the profitability of that business. We see a ton of headroom for growth in podcasting. We see a lot of upside. And there's some things that have to get done to enable that success. that growth, but we're on our way and we're excited about the outlook. You might have saw this morning that IABPWC projected that the podcast segment would grow by 47% this year. So we think we're going to be a full participant in that growth and we look forward to, you know, over time seeing that accelerated growth show up in our books.
spk01: That's great. Thank you, guys.
spk07: Thank you.
spk00: There are no additional questions at this time. I'd like to turn the call back to David Field for closing remarks.
spk03: Great. Thank you all. Appreciate your joining the call this morning, and we all look forward to reporting back to you at the end of second quarter. Bye-bye.
spk00: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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