We just hosted Kevin Latek (Chief Legal & Development Officer) and Jim Ryan (CFO) for a day in NYC. Our biggest takeaway is how investor focus has turned from short-term data points (i.e. pacings) to the longer-term opportunities. In fact, you’ll be shocked to hear that not a single person we met with asked about the current ad environment – or what to expect for 2020.
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We’ve finally had the time to digest the Q3 prints – for which we provide our observations and lessons learned. We also answer the question: “How can I make money from now until year-end?” as well as provide investor feedback now that we are through the last earnings cycle of 2019. Our note has a lot of cool charts – such as how each company did relative to Consensus expectations for Q3, and where Consensus estimates have gone up and gone down for both 2019 and 2020.
To sum it up, revenue, EBITDA and FCF came in ahead of expectations with the biggest surprises coming from: same-station revenue (ex. political) growth of +3.9%, spot (ex. political) of +1%, network of +4.9%, and digital of +51.4%. CMLS also paid down another $29MM of debt in the quarter, hitting a leverage ratio of 4.5x, the lowest in its post-bankruptcy history.
This (11/8/19) was a rollercoaster of a day, with SSP opening -5%, but ending the day +7% (vs. S&P, flat). There were many different sets of numbers to go through after a really long week; and retrans continues to be a bit of a pain point. However, the fact that core is trending +4% and political is already coming in ahead of expectations put retrans concerns to the wayside. To characterize this print: Q3 beat, the Q4 guide was a touch light, but our 2019 and 2020 estimates remain relatively unchanged.
With ETM’s foray into the podcast space circa Cadence13 and Pineapple, it’s easy to get lost in all the moving pieces. At the end of the day, core broadcast ex-political was +1% in Q3 and is pacing about the same in Q4. Comparing ETM to it’s peers, we’d call this outperformance since both BBGI and IHRT were essentially flat in the quarter, while BBGI is pacing down LSD ex-political in Q4 (we aren’t 100% sure about IHRT, but it is likely the same).
After a huge reset last quarter – recall the F’20 EBITDA guide of $640-675MM was 15-20% below us and the Street at the time – there was a belief that the worst was over. Hence, the stock rebounded 15% into the 11/7 print (vs. the S&P +3%). But clearly there are still some issues for mgmt. to work through, as we saw in FQ1. Some were out of their control (like the 60-day DISH blackout), and some were in their control (such as magazine portfolio changes and digital growth). At the end of the day, it’s a slow start but the F’20 guide remains unchanged – and we believe they will do everything they can to hit it.
This is going to be short and sheet as we now say……given we had 18 companies report and my wrist hurts.
In perhaps the shortest press release we have received all earnings season (which we greatly appreciate so thank you, Rich!), ETM beat Q3 revenue AND EBITDA.
On an as-reported basis for Q3, it looks like core and political advertising were better than expected; while retrans missed.
When we look at PF, overall revenue came in line likely due to political, while core missed by 40bps and retrans was again ~200bps lighter.
Spot was slightly better than flat (in line with what we heard from BBGI and also relatively in line with what we had been expecting), but the real standouts were Network and Digital. What we’ve heard from our contacts is that while the Local radio market remains somewhat soft, the National marketplace is really healthy – with most of the share gains accruing to IHRT. This is clearly a testament to IHRT’s unique portfolio of assets.
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