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Radio On the Mend: Takeaways From iHeart, Audacy and Cumulus’ Q1 Earnings

Radio stations were among the hardest hit entertainment companies in 2020, but they’re battling back to recapture some of their losses. This was reflected in the first quarter 2021 earnings reports issued last week by iHeartMedia, Audacy (formerly Entercom, pronounced like “odyssey”) and Cumulus, the three largest radio companies in the U.S.

For all the gains in digital radio and podcasts, the recovery of radio companies comes down to broadcast advertising, still the backbone of these increasingly diversified businesses. Unfortunately, broadcast radio isn’t close to full health. iHeartMedia’s broadcast radio revenue, which accounted for 50.7% of total revenue, was 47% greater than 2020’s second quarter, the pandemic’s low point, but still 22.3% below Q1 2020. Audacy’s local and national broadcast advertising was down 24.2% year over year and also came in below Q3 2020 and Q4 2020. At Cumulus, broadcast radio revenue of $154.9 million was 17.4% below Q1 2020.

Investors had a mixed reaction to these earnings releases. iHeartMedia’s Q1 revenue dropped 9.5% year over year but beat the company’s guidance of an 11% to 13% decline, driving its share price up 17.8% to $23.39 the following day. Cumulus shares took two days after the May 5 earnings call to rise, after some analysts increased their price target or improved their buy rating. On May 7, Cumulus shares reached $10.88, up 19.4% from $9.11 before the earnings release. Audacy was unchanged immediately after its May 7 earnings call but fell 10% on May 10.

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Here are some takeaways from the major radio companies’ Q1 2021 earnings releases.

Q2 2021 will blow away Q2 2020

Get ready for huge year-over-year gains in the second quarter: iHeartMedia says its Q2 2021 will be up 65% and that April revenues were up 85%. Audacy says its Q2 2021 will be up 71% to 76% and predicts its digital business growth rate will more than double from Q1 2021. Those numbers require an asterisk for greater context, however. Revenues have nowhere to go but up after the pandemic depressed revenues in the second quarter of 2020. At their projected growth rates, iHeart’s revenue will grow 14% to about $800 million from the first to second quarter of 2021.

We’ll get back to 2019 in 3-2…

iHeartMedia chairman and CEO Bob Pittman said during the company’s earnings call that he expects to return to 2019 earnings before interest, taxes, depreciation and amortization “by the end of 2021.” Audacy’s chairman, CEO and president David Field said during its earnings call that “there’s no reason why we shouldn’t be back to 2019 EBITDA levels in 2022.” While Cumulus did not provide specific guidance on its recovery, president and CEO Mary Berner said during the company’s call that it had already “nearly doubled” the commitments for 2021 versus all of 2020. Each company’s recovery will be part economic turnaround and part pandemic-related cost savings that have been made permanent.

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We have the podcasts

With broadcast sales in decline, radio companies like to make sure that people see they’re making progress in the nascent podcasting business. iHeartMedia’s Pittman wasted little time before mentioning that podcast revenue grew 142% in Q1 2021 (it’s just 5.4% of total revenue). At Audacy, which acquired three podcast companies in the first quarter (Popcorn, C13 and Pineapple Street Studios), Q1 2021 podcast revenue accounted for 21% of digital revenues versus 10% in 2019. Cumulus improved its podcast revenue 35% year-over-year but didn’t break out its revenue.

Radio companies also emphasize their work on original podcast content, a strategy also seen with podcast network acquisitions by Spotify (The Ringer, Gimlet, Parcast) and Amazon (Wondery). Original content is better financially for the publisher: Audacy’s executive vp and chief financial officer, Richard Schmaeling, said during the company’s May 7 earnings call that Pushkin Industries, which did not re-up with Audacy and left a hole in Q1 2021 podcast revenue, was its “lowest margin partner.” Keep in mind that major labels’ original podcasts compete against those put out by the radio giants. Universal Music Group has partnered with Wondery and FIFA, world soccer’s governing body; Sony Music has multiple partnerships and invested in production company Neon Hum; and Warner Music Group partnered with Spotify.

Podcasts are great, but broadcast radio still dominates

Broadcast radio is to the radio business what the CD was to the record business in 2011: While it brings in the majority of income, it’s on a downward trajectory. Even though companies’ earnings talking points are heavy with digital and podcast information, broadcast is critical. In Q1 2021, iHeartMedia received 50.7% of total revenue from broadcast radio, down from 59.1% a year earlier. At Cumulus, broadcast radio’s share of revenue dropped from 82.3% in Q1 2020 to 76.8% in Q1 2021.

The companies’ executives believe improvements in local ad sales will help broadcast radio revenues in Q2 2021. Berner cited a U.S. Census Bureau study that found that 10% of small businesses are either closed or anticipate operating below pre-pandemic levels. While she focused on the 90% of businesses that plan to operate at normal levels, losing 10% of potential small business advertisers is problematic for an industry in recovery.

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In theory, radio companies should mitigate falling broadcast revenues by making up those amounts with sales from digital platforms and podcasts. That’s why radio companies have spent hundreds of millions of dollars acquiring digital companies in recent years. iHeartMedia alone has purchased Jelli, Radiojar, Voxnest and Triton Digital to sell ads across multiple platforms.

Reorganizing and re-branding

At some point, a company will restructure itself so that a growing division can be managed separately, have room to grow and increase transparency to investors. iHeartMedia reorganized itself in Q1 2021 by separating its digital business, now called Digital Audio Group, from its broadcast division, now the Multiplatform Group, that encompasses its 860 stations in 160 markets.Before the change, podcast revenue wasn’t broken out of digital revenue — not surprising when it was such a small number. Now, investors have a better view of where the company is headed and how the investments in podcast companies and original content are paying off.

Entercom went full gonzo by rebranding itself as Audacy on March 30 (it now trades under the AUD ticket). The company now calls itself “a scaled, multi-platform audio content and entertainment organization” with reach across “the dynamic and growing audio market” that includes podcasting and digital as well as the broadcasting of music, sports and news. Leading up to the rebrand, Entercom had acquired CBS Radio, launched Radio.com and acquired three podcast content publishers, as well as sports data provider QL Gaming Group.

We have the liquidity

Since the beginning of the pandemic, the larger radio businesses have avoided financial peril by tapping the capital markets. That work continued in Q1 2021 as they shored up liquidity, refinanced debt to push back maturity dates, and added to cash reserves. Audacy has $221 million of liquidity — $52 million of cash and $169 million in its revolver; it also issued $540 million of notes to pay down debt and put $30 million of cash on its balance sheet. Also in the first quarter, Beasley Broadcast Group issued $300 million in aggregate principal amount of 8.625% senior secured notes due 2026.

iHeartMedia, which has $707 million of total liquidity, had good timing: it exited bankruptcy in May 2019 with debt lowered from $16 billion to (currently) $5.5 billion and a waiver on debt covenants while it gains financial footing. Without strict covenants, iHeartMedia doesn’t have to worry that its debt-to-EBITDA ratio went haywire in 2020.