Audacy

Greetings. Welcome to the Odyssey, Inc. Second 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. 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 begin.

Thank you, Alex. Welcome to Odyssey's second quarter earnings conference call. A replay of this call will be available shortly after the conclusion 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 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 odysseyinc.com for reconciliations 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 EBITDA 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 increasing uncertainty has caused ad spending headwinds, which have 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. 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 moved 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 2,400 sports podcast studio. 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 U.S. podcast listeners. Streaming listeners grew 18% during the quarter, and we also achieved solid CPM growth on 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%. On today's call, Rich 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 300s in 2020 and approach four 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 Q1. 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 Odyssey's 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 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. Let me walk you through the key drivers at a high level. Number one, we are making meaningful progress in bolstering our ad tech capabilities, addressing, frankly, an area of weakness. We have historically relied on third parties for services, which has adversely impacted revenues, increasingly so in recent quarters. Our acquisition of Amperwave at 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 ad tech will enable us to unlock new pools of digital advertising demand, increasing our sell-through rates and improving yield, 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, 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 owned and partnered broadcasts. 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 podcasts. Our aspirations for the new platform are high, and we expect to see significant increases in our digital audience usage and engagement, along with richer data 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 and scope and capabilities of Odyssey today. We believe our efforts are bearing fruit and will be successful in driving increased national ad 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 GAAP 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. Number six, expenses. We are working to enact substantial investments 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 EBITDA 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 BetMGM, in which they have become the official sportsbook of our BetQL audio network. We continue to make strong progress enhancing and building our exclusive podcast 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 Newsy 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 Street Studios continued their best-in-class, critically acclaimed work, which included Will Be Wild, part of our Amazon Podcast Slate Partnership, an in-depth investigation into the January 6th event that hit number one on the Apple Podcasts list, plus Project Unibomb, which we developed in partnership with with Apple TV. And one additional noteworthy data point that speaks to the health of the overall audio market, Americans are now spending 20 more minutes per day listening to audio, an 8% increase over Q2 2021, according to the Edison Research share of your 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. With the additions of a strong leadership position in podcasting, a meaningfully enhanced national sales organization, the rollout 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.