Meredith Corporation
Q3 2021 Earnings Call Transcript

Published: 29 Apr 2021

[Operator:]

Good day, and thank you for standing by. Welcome to the Meredith Fiscal 2021 Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Mr. Mike Lovell. Please go ahead.

[Mike Lovell:]

Good morning, everyone, and thanks for joining the call. We will begin with comments from Chairman and Chief Executive Officer, Tom Harty; followed by Chief Financial Officer, Jason Frierott. Remarks this morning will include forward-looking statements, and actual results may differ from our forecasts. Reasons for the differences are described at the end of our news release that was issued earlier this morning and in our SEC filings. Certain financial measures that we are discussing on this call are expressed on a non-GAAP basis and have been adjusted to exclude the impact of special items. Reconciliations of these non-GAAP measures are included in our slide presentation. Our earnings release and slide presentation are available in the Investor Relations section of meredith.com. An archive of our prepared comments will be available on our website later today.

[Thomas Harty:]

Thank you, Mike, and good morning. I hope you've had the chance to see our news release and our related slide presentation issued earlier this morning, which includes disclosures you'll find very useful. I'll start with Slide 3. Our digital advertising, licensing and digital consumer revenues continued to deliver record results. Our performance was driven in part by strong consumer traffic growth enabled by our data analytics and capabilities along with the flexibility that our digital platform offers. Mature media revenue performance was mixed as our Local Media Group delivered revenue growth beating our expectations, while our magazine-related businesses, which has a longer advertising sales cycle continue to be impacted by economic uncertainty. As we've previously discussed, we continue to pursue a two-pronged strategy. First, net debt reduction is our number one priority. We've made tangible progress on this goal with a $251 million repayment of our debt during the third quarter. We ended the quarter with net debt at $2.6 billion and had more than $230 million of cash in the bank. Second, we continued strengthening and enhancing our digital advertising and consumer-focused capabilities. We repeated a critical milestone in the third quarter as digital advertising revenues surpassed magazine for the second consecutive quarter, and our licensing and digital consumer businesses reached record highs. Meanwhile, consumer engagement remains strong as sessions to our National Media Group digital properties continue to expand. National Media Group consumer-related revenues account for 50% of the segment and we believe we have strong opportunities for growth ahead. With that, let's dive deeper into our performance for the quarter. Starting with the digital side of the National Media Group, our team delivered outstanding performance. Digital advertising revenues were $102 million, up 21% from the prior year period and a record high for a third quarter. Powering our digital business is our proprietary technology platform that brings together all of our content, our unique taxonomy, first-party data and our user graph. This platform provides a comprehensive view of the consumer and how they interact with our brands, content and products, providing valuable insights and predictive trends. This holistic view and our analytic capabilities provide us with deep insights into user behavior we use to drive advertising and performance marketing dollars as well as our own content and product development strategy.

[Jason Frierott:]

Thanks, Tom. I'll start on Slide 4. Looking at the third quarter of 2021 consolidated performance, revenues were $665 million, down 5% from the prior year period. As a reminder, we finished cycling through portfolio changes, so all comparisons today and going forward are on an apples-to-apples basis.

[Thomas Harty:]

Thanks, Jason. Our consumers today continue to focus on celebrity and entertainment news, house and home, food, style, health, fitness and parenting as well as news and information about the local communities. These fundamental lifestyle categories are Meredith’s cornerstone and even more relevant today because of the pandemic. Summarizing our priorities today, I want to leave you with four key thoughts.

[Operator:]

Thank you. Our first question comes from the line of Dan Kurnos with The Benchmark Company. Your line is open.

[Daniel Kurnos:]

Great. Thank you. Good morning. Tom, how are you? What a long way we've come to have a straight quarter like that and still be consented to EBITDA by $15 million. So I guess that the question is really two-fold, which is one, on the quarter itself and kudos to you guys obviously for managing your costs. But how much of it was potential outperformance at PEOPLE. Obviously, I think maybe this is the first week of the year where we didn't have the Royal on the headlines. Thank God. Not for you guys, unfortunately. But how do we think about the outperformance in PEOPLE probably in the quarter as a contributing factor relative to just the underlying improvement in the subscription base and the other cost savings you've done in light of the print number? And then on the print side, flat next quarter, you're getting back there. Magazine seems like a very safe place to advertise and TV is doing particularly well. So thanks for the color on bottom of funnel. Just curious on sort of how you view print now getting back towards the – they grow next year, getting back towards whatever you think the normalized level is?

[Thomas Harty:]

Yes. Thanks. Dan. So first of all, we are very pleased with the quarter. I think we – for the company as a whole and also for the National Media Group, and as to your point, we over-delivered from a consensus basis on the bottom line. And really what’s driving most of that outperformance is that our digital. We've talked about this on our comments that we've reached that inflection point with our digital business is bigger than our magazine business. And we're seeing outsized performance in the digital area. Now we are a little disappointed from an advertising perspective on the magazine side, it's not unexpected. And there are a couple of factors that go into that, right. So last year because we've talked about this on a lot of calls over the years, that magazines have a long lead time from an advertiser commitment standpoint, it's almost two months. So when you – now we're in a period right now where we feel like brighter days are ahead. But if you go back to the beginning of January, there was a lot of uncertainty and clients want to have flexibility. So the other part of it is, is that we're up against the tougher comp. So last year in our fiscal third quarter, print wasn't really affected at all related to the pandemic because of the long lead times where our TV business had – and our digital business had a slight increase. So we know clients want flexibility and in this uncertain times, magazines don't give all that flexibility. And as I said in my comments, the biggest part of it is that clients in these uncertain economic times are really focused on transactional spending related to – that went really as well with digital. At that point, bottom of the funnel, mix sale and magazines are a great branding environment for that. So as I look to the future – the answer to your question was, we believe that we will see improvement as the economy and the uncertainty kind of evaporates for their advertisers as we go through this calendar year. So we believe brighter days are ahead. PEOPLE as a whole, now when you look at the print portfolio, it's not one brand versus the other, it's basically across the whole portfolio we’re seeing this and actually – we're actually taking share. So the positive side is it's not our execution in our sales teams that were just kind of waiting for clients to make those longer term commitments. We're in touch with all of them. They're all talking very optimistically about the whole calendar year, but it's just been a lot slower to start from a print perspective.

[Daniel Kurnos:]

Got it. Super helpful. And the guidance is excellent especially on digital even above our expectations. So you're seeing nice sequential improvement. I don't know if Catherine is there wants to comment on just some of the benefits you're seeing from the platform unification or the push towards video. But just any incremental color on sort of what's driving the increase traction would be helpful.

[Thomas Harty:]

Great. Catherine, do you want to take that?

[Catherine Levene:]

Yes. Sure. It's pretty much everything across the board that’s growing on the digital side of the business. So that's extremely positive. Of course, you have session growth, right. So that drives up open programmatic revenue. But it's not just session growth, it’s also TTM growth. We have our direct sole business up significantly and particularly in our big clients, our big retail clients who do deep data integrations with that. So our scale, our platform, the data and insights and taxonomy all allow us to deliver data – targeting with data and insights at scale. And they're coming back to us for that. Video was up as well and as was premium programmatic. So as you know, only 40% of our revenue comes from open. Our direct salesforce sells our premium programmatic pipes, and people are coming to us as well for that. And that's where they can get our first-party data. I think that's going to be increasingly important as third-party cookies just go away. Does that helpful?

[Daniel Kurnos:]

Yes. Very helpful. Thank you. I'll leave you with Tom, if you care to comment at all on the unsubstantiated TV sale rumors as is always the fun topic, and especially in light of the fact that your NMG business looks like, it's very much on the path towards a growth trajectory at this point.

[Thomas Harty:]

Yes. Thanks. Dan. Obviously, we get this question many, many times before. And listen, as part of our strategic process, the Management Team and our Board, multiple times a year, we sit down and talk about strategically how we enhance shareholder value. And as we've talked about in the past, there's a lot of questions around, is the Local Media Group and the National Media Group, do they need to be together and is there shareholder value to be created if these businesses were separated. So again, we review this, we talk about it all the time. We get the question almost on every single quarter over the years. But we really, as a matter of policy, we don't make any public comments about our strategic process and our discussions with our Board about that decision.

[Daniel Kurnos:]

This is not what I expected, but I have to try anyway since there are rumors out there. Thank you, Tom. Appreciate all the color everybody.

[Thomas Harty:]

Thanks, Dan.

[Operator:]

Our next question comes from the line of Kyle Evans with Stephens. Your line is open.

[Kyle Evans:]

Hi. Thanks. Follow-on for Catherine. If we look at the very strong session growth over the last two quarters, how sustainable is that? What are the drivers of that? What kind of control do you have there? It seems to be the outsized contributor to the digital strength. I'm just trying to get a sense for what that could look like for the rest of the calendar year as maybe people go back outside and messing around with the Internet as much as they have?

[Catherine Levene:]

Yes. Well, a couple of things. One is, as I mentioned, our growth is driven by all of the channels that I talked about, not just by open programmatic, which is driven both by session growth, but also by TTM. So I don't want to underestimate the growth of TTM. In terms of sessions, well, I think it's all questionable about when everybody is back to the office and out and about, we've all been stuck in front of our computers for a long time. I don't expect our session growth to be up as strong as that opens up, but we still believe we are going to have and maintain our strong session. So there'll be some growth particularly in the categories that have been down, travel and leisure and some of our luxury properties. But I don't think the growth will be as strong, but we do believe there's still leverage in TTMs and the open category and all of our other revenue streams will continue to grow.

[Kyle Evans:]

Great. And then is Patrick on the phone?

[Thomas Harty:]

Patrick is on.

[Patrick McCreery:]

Hi, Kyle.

[Kyle Evans:]

Hey, you knew I wasn’t going to let you get away. Maybe just some detail around your fiscal 4Q pacing and then maybe just any kind of core outlook that you can provide for the rest of calendar 2021. And then if you care to kind of throw down the gauntlet on political in 2022 versus 2020 on a calendar basis. Thanks.

[Patrick McCreery:]

All right. Well, taking them in order. Look, we gave guide on the fourth quarter for – plus 40 for the Local Media segment. But professional services continues to show strength in growth. I think you’ve heard Jason explained it earlier. It's now a full 25% of our local core advertising business and auto makes up about 20%. And we saw very modest growth for auto in Q3 at like plus 3. Look, as soon as these chips and rubber and foam shortages – right themselves and sort themselves out, I would say for the rest of the calendar year as that recovers so will the advertising piece behind auto. But we do continue to see strength in professional and home, and we don't look for those to abate. For political, I'm very excited about our 2022 cycle even against our amazing 2020 cycle. We have 13 Governor's races and 13 Senate seats. And you've heard me say this before. Even though we had a great Presidential run in 2020, the reality is a larger percentage of our political revenues come from those hotly contested Governor and Senate races. And we're going to have a full slate of those across our footprint. So I think what you'll see, it will be a record setting.

[Kyle Evans:]

And then maybe just lastly, what have you, and then I'll get back in queue. Your subscription and network renewal timeline looking out over the last two years, whatever you can provide. Thanks.

[Patrick McCreery:]

Yes. I know, of course. Thank you for asking that. We have one affiliate relations renewal coming up for our NBC at the end of the year in Nashville. And then on retrain side with cable operators, we've got two large deals up at the end of the year with Cox and Comcast.

[Kyle Evans:]

And that's calendar year Patrick, right?

[Patrick McCreery:]

Calendar year, correct, not fiscal. Thank you.

[Kyle Evans:]

Thank you for clarifying that. Thank you, guys. Appreciate it.

[Thomas Harty:]

Thanks, Kyle.

[Operator:]

There are no further questions at this time. I’ll turn the call back over to Tom Harty.

[Thomas Harty:]

Great. Well, we appreciate everyone's time and support, and we appreciate all of our employees that have delivered great results during a very difficult year. I'd like to just make one comment and say that, we're thinking about our colleagues. We have 350 colleagues in our India operation who are coping with the devastating outbreak of COVID. And we want you to know that you're all in our thoughts and your health and safety remain the top priority for us as it is for all of our employees in the U.S. So we feel brighter days are ahead for our employees and our business, and just want to thank all of our employees. So thank you for your attention. Have a great day.

[Operator:]

That concludes today's conference call. Thank you for participating. You may now disconnect.