Audacy

Greetings. Welcome to Odyssey, Inc. Third 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 Richard Schmelling, Chief Financial Officer. Thank you. You may begin.

Thank you operator and welcome to our third quarter call. As mentioned, 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 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. With that, I'll turn it over to David Fields.

Thanks, Rich, and good morning, everybody. Needless to say, this is a challenging time for our company as we navigate through macroeconomic pressures and advertising headwinds. After a very strong start to the year, which had us on an accelerated path toward pre-pandemic numbers, we have, of course, seen a substantial deterioration in market conditions. And this has obviously taken a toll on our EBITDA and leverage and has raised concerns. As we present our third quarter earnings results and an update on the business, I want to address a few key questions that weigh on investors' minds. Will Odyssey successfully navigate the economic turbulence? How well positioned is Odyssey competitively? And what is the earnings capacity and value proposition of Odyssey once business conditions normalize? Notwithstanding a difficult third quarter as we look forward, we believe that Odyssey has been fundamentally enhanced and is today a much stronger company with substantially elevated products and capabilities to serve listeners and customers than the one that generated $341 million in EBITDA in 2019. At that time, we were one of the industry's two strongest radio broadcasting groups, with a terrific scaled local station lineup across the country's largest markets and an unrivaled leadership position in news and sports. But we had no podcasting business, essentially no ad tech, a skeletal streaming platform, and no meaningful national business development capacity. Since then, we have transformed into a leading multi-platform audio content and entertainment company that now also includes premium podcast publishing, emerging ad tech capabilities, a reimagined innovative competitive streaming platform, and a strong national enterprise sales team driving elevated partnerships with key national agencies and clients. And in a world in which there are multiple quality providers of music, including ourselves, being the news and or sports leader in most of the country's largest markets, coupled with our deep roster of exclusive, compelling local personalities and national award-winning podcasts, makes us, we believe, the number one creator of original premium audio content. But the timing of the current marketplace challenges has been poor, and it hit us at a time when we are in transition, building significant new capabilities and products to drive revenue and EBITDA growth, and bearing the investment and operating expenses of our transformation, but not yet reaping a large portion of the revenue benefits. There are a number of positive developments across our various businesses that point to stronger performance ahead, a few of which I will touch on momentarily. Furthermore, we have made good progress in executing our action plan to generate additional financial cushion to navigate forward successfully. But before providing additional color in those areas, let's turn to our third quarter results. Q3 was a challenging quarter with market conditions worse than our expectations, impacting performance across our various channels. Excuse me. Revenues were down 3.8%. Radio revenues were down 6%, including network, with network revenues up 1% and total spot down 7% with local outperforming national. Looking at the three components of our digital business, we had solid double-digit growth across streaming, up 14%, and digital marketing solutions, also up 14%. However, our podcasting business had a rough quarter and was down 23%. Podcasting results were impacted by the departure of Crooked Media, which moved off of our platform in May, and the timing of licensing revenue last year. Ex-Crooked and licensing, our podcasting revenues were down 2%. Fourth quarter podcasting pacings have improved significantly. I would add that our podcast listenership continues to grow, with third quarter downloads up 29%. During the quarter, we launched a number of new shows, including No Mercy with Stephen A. Smith, Project Univon in partnership with Apple TV+, and Sunshine Place, which hit number one on the Apple chart. And finally, on podcasting, we are seeing strong growth in listenership on our 2,400 sports podcasting studios, with 50 new shows launched in the past four months and downloads up over five times since Q2. Some additional color on Q3 results. Our radio revenues were highly impacted by our market mix. Our smaller markets, defined as markets 50 and smaller, grew 8% faster than the largest markets, 1 to 25, according to Miller Kaplan. And to be clear, I'm speaking of total market revenues, not just Odyssey's results. Given that our company is significantly more concentrated in the largest markets relative to our peers, that caused a big relative performance challenge. We don't believe that the market growth differential is permanent, although the gap has persisted for a while. Turning to categories, we are encouraged by an uptick in auto, our largest category, which was up 6% in the third quarter, albeit still down 39% under 2019. A Wall Street Journal story last week noted that the number of cars and trucks on lots or in retail stores at the end of September was up 46.9% versus the same month a year ago per awards intelligence. Rich will share some additional thoughts on our business categories. On our last call, I noted that we are deeply focused on executing our action plan to navigate the storm and emerge healthy and strong with compelling profitability and shareholder returns. I'm pleased to report that since then, we have executed $56 million of non-strategic real estate asset sales to provide additional liquidity. We have a number of other real estate assets that we plan to monetize and will continue to pursue other tools at our disposal to weather the storm. As a reminder, we have no maturities until 2024, and all of our junior debt isn't due until 2027 and 2029. In addition, we have made substantial fixed cost cuts across the business to reduce expenses. As a result, third quarter expenses were flat versus plus 8% in Q1 and plus 6% in Q2. Turning to the fourth quarter, ad market headwinds continue, but there has been some small sequential improvement across the business. Fourth quarter revenues are currently pacing flat, and we expect to finish flat to down low single digits versus prior year. Local, national, and digital businesses have improved slightly, and podcasting more so, while network is a bit worse. On our last earnings call, we noted our primary strategic focus areas, which we see as the key drivers of significant additional revenues and profitability. and they are ad tech, digital, national enterprise business development, auto and other disrupted category recovery, expenses, and the launch of our reimagined streaming platform. We continue to make progress on each of these fronts. Ad tech has been an area of weakness for us historically, as we have been entirely relying on third parties, limiting both our participation in important pools of demand, like the programmatic guarantee market, and our ad product capabilities. With our acquisition of AmpliWave a year ago, we have established our own ad tech capacity and are actively pursuing our product roadmap. We remain on track to roll out new ad tech to unlock these pools during 2023, enabling us to increase our sell-through rates and improve yield and develop new ad products that tap into our 200 million person audience. We've launched the next generation of our Odyssey direct-to-consumer streaming platform in late July, featuring a completely rebuilt backend as well as an improved user experience with innovative features such as enhancements to our patented Rewind technology, now including chapter descriptions for each segment of live radio shows so listeners can opt to listen to the specific content that interests them. New features and capabilities will continue to roll out over the next few months. We continue to bolster the content offerings on the platform, including a new partnership with Disney to expand our listener choices. In addition, we continue to add additional new Odyssey-created content, including new specialty shows and exclusive Odyssey artist check-ins with artists like Ed Sheeran, Muse, Lizzo, Billy Idol, and more. Since launch, we have seen a 25% increase in our digital listeners and a 15% increase in registrations. And our national enterprise business development team is making solid progress in reintroducing the transformed Odyssey brand and our enhanced products and capabilities to key national agencies and customers. Our national agency and client engagement has accelerated significantly, and based on what we are seeing, we believe we are well positioned for a greater share of national ad spending in 2023 and beyond. Before I turn it over to Rich, a couple of additional thoughts. In these turbulent times, we recognize it is difficult for many to look beyond the current challenges. But we don't want to lose sight of the broader perspective on Odyssey's competitive position and our opportunity set. The macroeconomic disruptions at a time of transformational change across our company has certainly made a great impact on our EBITDA. But that should not obfuscate the underlying fact that Odyssey has emerged as a fundamentally enhanced, scaled, multi-platform leader positioned to compete for significant growth in the dynamic audio market. And we see significant revenue headroom as we capitalize on our enhancements and the holistic value of our platforms. Putting all the pieces together takes time and we have work ahead of us, but we continue to make solid progress and are truly excited about our prospects going forward. We remain intensely focused on executing our plan to successfully navigate the storm and emerge healthy and strong and believe that in a normalized economy, the earnings potential of today's enhanced odyssey should exceed where we were in 2019. And with that, I'll turn it over to Rich.