Audacy Stock Trading Halted

[Deus Ex Machiato]

You know how to make a small fortune in the restaurant business?

Start with a large fortune....

I used to work in the restaurant business a long time ago. Whenever a friend or co-worker says they'd like to open their own restaurant, I ask "so do you have a drinking problem, or are you looking to get one?"

Jokes aside, when Entercom had finally taken over the CBS stations, I heard tell that David Field gave a speech to those stations brought into the fold where he praised iHeart's way of doing business. And that's when the countdown to the current situation started.

IIRC, iHeart (nee, Clear Channel) learned a lot of expensive lessons during the years when they were teetering on the edge of bankruptcy/taken over by vulture capitalists/eventually came out with something that worked on the other side of all that.

Audacy seems to have tried to become iHeart 2.0, without understanding any of those lessons. As 101tm said above, they tried to nationalize some programming, make an app, etc. but it didn't exactly work. iHeart's been building their machine for what...25 years now? Audacy has been at it for maybe 5?

I took a swipe earlier at McDonald's, but truth be told, Mickey D's is successful because they've been doing it for a long time and have worked out most or all of the kinks. Just like iHeart. Audacy is trying to duplicate that, but they obviously haven't worked out the kinks.

 

[PTBoardOp94]

Hey Tibbs, the problem isn't what it's worth. The problem is nobody would buy it. The cash flow is around $20 million. Who would pay a multiple of that for one station? What, to you, is "the right price?" By the time the price gets low enough, the business isn't worth owning anymore. We may already be there. We probably are for AMs.

Lots of people would pay good money to cash flow $20 million. The problem is the whole Audacy chain has negative cash flow, so selling their successful properties like the NYC cluster would likely worsen the company's situation.

Last quarter, Audacy as a whole had operating income of -$12 million, before paying any of their debts. When operating income goes negative, a company is an express train to insolvency.

This gets back to the question I asked: Who makes that decision? It won't be the Fields, because it turned their stock into confetti.

A bankruptcy petition can be voluntary or involuntary. Nearly all of the time, bankrupt corporations file voluntarily (i.e following a vote of the Directors). But in the event the Fields are too proud to sign the paperwork, the creditors can go to court and file an involuntary petition.

 

[TheBigA]

Jokes aside, when Entercom had finally taken over the CBS stations, I heard tell that David Field gave a speech to those stations brought into the fold where he praised iHeart's way of doing business. And that's when the countdown to the current situation started.

But they really haven't done anything like iHeart to the stations. Still lots of local talent. Still lots of local sales autonomy. Still no real digital strategy. No podcasting after buying two podcasting companies. Very little of importance has changed except the name and a lot fewer employees. But you can't just fire people and expect to make money. Remember: They're in the business of MAKING money, not saving it. Right now they're doing neither and that's why they're in this situation.

 

[TheBigA]

But in the event the Fields are too proud to sign the paperwork, the creditors can go to court and file an involuntary petition.

That won't happen until they miss a payment. Next big payment is due in November 2024. They say they have $125 million in cash and about $50 million in their for-sale LLC. So the creditors have no basis yet.

 

[davideduardo]

Lots of people would pay good money to cash flow $20 million. The problem is the whole Audacy chain has negative cash flow, so selling their successful properties like the NYC cluster would likely worsen the company's situation.

Audacy does not have negative cash flow. They have positive EBITDA. But with interest, amortization, depriciation and taxes, they have a huge loss.

Last quarter, Audacy as a whole had operating income of -$12 million, before paying any of their debts. When operating income goes negative, a company is an express train to insolvency.

They have had positive cash flow in every quarter up to now. Q1 has been a true disaster for a wide range of businesses due to being on the brink of a true recession.

A bankruptcy petition can be voluntary or involuntary. Nearly all of the time, bankrupt corporations file voluntarily (i.e following a vote of the Directors). But in the event the Fields are too proud to sign the paperwork, the creditors can go to court and file an involuntary petition.

But they are not yet in default. They are working on solutions for the due dates coming next year; simply refinancing to kick the can down the road is possible, as is an exchange of debt for equity.

A lot will depend on whether the U.S. economy gets even worse. In that case, the lenders will have no desire to get equity; they would prefer to take a haircut and recover partial values than to be saddled with a business that is not growing.

 

[Deus Ex Machiato]

But you can't just fire people and expect to make money.

As I remember things, that's what Clear Channel did in the early years of their expansion. Buy a bunch of stations, take on a lot of debt, and try to cut their way to profitability...or at least better debt servicing. Yeah, they eliminated a lot of jobs through consolidation of operations and voice-tracking, but it took them a minute to develop a bank of national talent, followed by the diversification of the business into events, then podcasting and an online presence with an app. Audacy seems to be lost somewhere in this process. Because they're hoping to replicate that success without the institutional knowledge that iHeart learned along the way.

 

[TheBigA]

As I remember things, that's what Clear Channel did in the early years of their expansion.

I keep hearing people say that, but nationally their staffing situation has been fairly constant. They fired people in one job, and hired new people in other jobs. Or they hired the same people they fired. Scott Lindy worked for them several times in different markets. He's not the only one.

You may have misunderstood David Field. It's not so much that he liked iHeart, but that he hated CBS. When he had a choice between two competing stations in the same market, he either sold the CBS station, or changed the format of the CBS station. He wiped out the R&D people who created the streaming platform. He figured it would run itself. Only now is he at a point where he's thinking about selling heritage Entercom stations. But 6 years ago, he blew up lots of CBS formats. I can't think of many new formats that have been successful. He's been better turning FM stations into simulcasts of AMs, as he did in LA.

 

[Deus Ex Machiato]

I keep hearing people say that, but nationally their staffing situation has been fairly constant. They fired people in one job, and hired new people in other jobs. Or they hired the same people they fired.

Fairly constant for how long?

In the late 90s/early 2000s CC were all about paring down the staffing. I talked to a regional VP of programming who was offered a 10 percent bonus for each on air position he replaced with a VT jock. Eliminate a 50k/yr midday jock in (fill in the blank market)? He would pocket 5k.

Granted, that was 20 some years ago, but they definitely cut their stations' staffing in a mad dash to save money at the time. Very top-down.

Around the same time, CBS was relatively de-centralized. If a local market was doing good business, Mason would let them be. In fact I think the quote from him was "look...as long as you keep sending us checks, you'll never see me here again." When he came back around for his second run at CBS, it was a similar approach, if I remember correctly.

What baffles me is why Field would let his hatred of CBS overcome his love of money. The CBS stations were collectively making money hand over fist. As others have said, it wasn't that they weren't profitable...it was just that Les didn't want to do radio anymore. So just buy them, put them on the books, and collect the cash...right? Nope. And now a roll of dimes can buy 100 shares of Audacy.

 

[TheBigA]

Granted, that was 20 some years ago, but they definitely cut their stations' staffing in a mad dash to save money at the time. Very top-down.

You act like this is something new. It's not. Every time a company buys another company, they publicly announce to the financial community that there will be "efficiencies" and "synergies" and "merging of staffs," and they even present an exact amount of money they will save. These announcements are published, so everyone knows what the game is. Nobody goes into debt to buy a company, and then adds even more debt by hiring more staff. They have to at least give the impression that they intend to pay off their debt. David Field did the exact same thing, and fired lots of people. For the most part, if you look at the vast majority of the stations, their staffing really hasn't changed. In fact some of them have re-hired some positions that had been eliminated during the pandemic. Here's just one example:

Kevin Weatherly Returns to KROQ After Two Years at Spotify

Kevin Weatherly is returning to run Los Angeles' KROQ after two years as head of North American programming at Spotify.

variety.com

 

[davideduardo]

In fact some of them have re-hired some positions that had been eliminated during the pandemic. Here's just one example:

Kevin Weatherly Returns to KROQ After Two Years at Spotify

Kevin Weatherly is returning to run Los Angeles' KROQ after two years as head of North American programming at Spotify.

variety.com

It's now been 53 weeks since he returned. And looking back... in the second month after he arrived, KROQ got a 2.8 in 25-54. In the just-out April of 2023, he got a 2.2. KYSR has a 3.8.

 

[PTBoardOp94]

Q1 has been a true disaster for a wide range of businesses due to being on the brink of a true recession.

Q1 23 was quite good for corporate earnings and revenues. 80% of companies in the S&P 500 reported same-or-better than Wall Street's expected earnings for Q1 2023, compared to 20% reporting less. Roughly the same ratio was true for the S&P 600, which tracks smaller companies. Q1 23 was among the 20 best quarters for that metric going back to 1990. https://insight.factset.com/sp-500-earnings-season-update-may-5-2023

But they are not yet in default. They are working on solutions for the due dates coming next year; simply refinancing to kick the can down the road is possible, as is an exchange of debt for equity.

Indeed, they are not in default today. And they probably won't be for at least 6 months.
The debt isn't the chief problem any more, the cash flow is. At least, that's what the auditor says in the latest Audacy quarterly report:

[T]he Company’s current forecast of future revenue over the next twelve months indicates that such revenue is unlikely to be sufficient for the Company to be able to maintain compliance with the financial covenants under our debt agreements for at least twelve months

What that means is they expect long-term debts to be called early.

 

[TheBigA]

It's now been 53 weeks since he returned. And looking back... in the second month after he arrived, KROQ got a 2.8 in 25-54. In the just-out April of 2023, he got a 2.2. KYSR has a 3.8.

One could also point out that since he returned, Audacy replaced the format in NY with a simulcast of WINS.

 

[101tm]

You may have misunderstood David Field. It's not so much that he liked iHeart, but that he hated CBS. When he had a choice between two competing stations in the same market, he either sold the CBS station, or changed the format of the CBS station. He wiped out the R&D people who created the streaming platform. He figured it would run itself. Only now is he at a point where he's thinking about selling heritage Entercom stations. But 6 years ago, he blew up lots of CBS formats. I can't think of many new formats that have been successful. He's been better turning FM stations into simulcasts of AMs, as he did in LA.

And the heritage Entercom stations are some of the best in the company. I very highly doubt the Fields were thrilled with letting go of WTSS or WMC-FM, but at this point, what else can they do?

CBS had some clunkers, and there are some ex-CBS stations still lingering around that still aren’t doing that well. I thought the “day one” blowups of some CBS properties like WJMK were timed in the way they were to make a statement. K-Hits was a classic CBS creation, as was AMP in NYC. I’m surprised they kept 97.1 in LA as CHR as long as they did.

Good stations came from the CBS deal too, but the problem there is many of them are in large markets and there’s nobody to buy. Those are the ones that could get the most cash. But now, even EMF is in many of the biggest markets. I doubt any other companies would be interested in swapping in, say, San Francisco.

In my market, the Audacy stations are heritage Entercom stations. It seems like air staff and engineering have been cut the most. Stations have audio issues for weeks until it gets addressed by somebody. Automation frequently has issues where there are gaps, liners play on top of songs, volume levels are off, RDS is wrong or in some kind of weird jumbled mess. It wasn’t like that under Entercom. Technology like that should be improving, not going backwards. iHeart and even Summit have none of these problems, or if they do, they’ve been addressed quickly as I haven’t noticed them.

 

[Deus Ex Machiato]

You act like this is something new.

Really? I related experiences from the late 90s, early 2000s, and noted that they were from decades ago. How you took away "oh my gosh this all stared with Entercom 5 years ago" is beyond me.

Over those last couple of decades, we are all well aware of the regular "reduction in force" layoffs at Clear Channel/iHeart which often happened around the holidays. It appeared (to me, at least) that Field was taking the same approach. Not merely "we just bought all these stations and we need to look for efficiencies." You pick up another couple stations in a market where you already have a presence, and of course you're going to combine operations and any redundant staff (HR, receptionist, engineer, etc.) and as you said you do have to show the shareholders that you're doing something to handle the debt. That's normal.

What it looked like (particularly with the above-mentioned alternative and country formats) was that Audacy made some serious missteps in their quest to be the next iHeart (or at least their closest competitor). If I were a shareholder (and with the $12 in my wallet I can buy a lot of shares) I'd have some serious concerns about the way the company is doing business.

 

[TheBigA]

Over those last couple of decades, we are all well aware of the regular "reduction in force" layoffs at Clear Channel/iHeart which often happened around the holidays. It appeared (to me, at least) that Field was taking the same approach.

My point is every new owner does the same thing. Not just Field. Cumulus did the same thing when they bought Citadel. It's happening in the TV industry as well. Elon Musk cleaned house when he bought twitter. To give some kind of "credit" to iHeart is unnecessary.

Most of the efficiencies Field used at Audacy were reversed, as I said, and lots of eliminated positions in country and alternative were filled. The previously eliminated PD position at KILT in Houston was revived and filled one year later. The same station added a third on-air host to it's morning show. They seem to be going in the opposite direction. Most of the stations had been running VT when owned by CBS, not initiated by Field. He hasn't launched some new radio syndication company or format service such as iHeart's 'Premium Choice. In fact, his lack of innovation is a big reason why the company is in the state it's in. If he actually had eliminated so many jobs, his expenses might have gone down, which has not been the case.

 

[101tm]

Essentially it seems like they’re going back to some of the old Entercom ways. Entercom stations generally weren’t cheaply run. They were one of the last major companies to take advantage of voicetracking even….this was fine pre-CBS but obviously not feasible now.

The alternative and country ideas could have had legs, but there should have been test markets. Not a nationwide roll out assuming everybody everywhere wants to hear the same thing. Even iHeart allows the Premium Choice service to be customized to an extent for each market.

 

[TheBigA]

The alternative and country ideas could have had legs, but there should have been test markets.

All of the required national shows in the alternative format were dropped, and local hosts and PDs were rehired. The corporate VP of alternative who proposed all of these economies left the company in December. Lots of new local programming people were hired, and it's starting to have success in markets such as Dallas. But I doubt the new ratings are enough to cover the higher costs. Which is why they're at this point.

 

[Deus Ex Machiato]

My point is every new owner does the same thing. Not just Field. Cumulus did the same thing when they bought Citadel. It's happening in the TV industry as well. Elon Musk cleaned house when he bought twitter. To give some kind of "credit" to iHeart is unnecessary.

Most of the efficiencies Field used at Audacy were reversed, as I said, and lots of eliminated positions in country and alternative were filled. The previously eliminated PD position at KILT in Houston was revived and filled one year later. The same station added a third on-air host to it's morning show. They seem to be going in the opposite direction. Most of the stations had been running VT when owned by CBS, not initiated by Field. He hasn't launched some new radio syndication company or format service such as iHeart's 'Premium Choice. In fact, his lack of innovation is a big reason why the company is in the state it's in. If he actually had eliminated so many jobs, his expenses might have gone down, which has not been the case.

Yes, every new owner consolidates and cuts costs. No, iHeart did not invent this. What they did "innovate" (and it didn't work out so well) was to continue to cut long after they'd "trimmed all the fat" from their then-new acquisitions. They eventually righted the ship, so to speak, through things like finding top talent and building out things like Premium Choice, the iHeartRadio app, live entertainment, an awards show, and other innovations and diversification.

If most of the efficiencies at Audacy were reversed, then maybe they weren't "efficiencies" at all.

 

[TheBigA]

Yes, every new owner consolidates and cuts costs. No, iHeart did not invent this. What they did "innovate" (and it didn't work out so well) was to continue to cut long after they'd "trimmed all the fat" from their then-new acquisitions.

What happened (and this was 15 years ago) was replace broadcasters with people who could also do digital content. So you'd see articles in the trades about staff cuts, but what you didn't see was the same company was hiring lots of people for their streaming and podcasting platforms. The net result, as I said, was that overall staffing at the company level remained about the same, but staffing for DJs declined. That situation was industry-wide, as just about every company eliminated 7-midnight staff and either did some local VT (that's what CBS Radio did) or they carried syndication. But I'm going back 10-15 years. None of this is recent. Audacy tried national programming during the pandemic and failed.

 

[davideduardo]

Q1 23 was quite good for corporate earnings and revenues. 80% of companies in the S&P 500 reported same-or-better than Wall Street's expected earnings for Q1 2023, compared to 20% reporting less. Roughly the same ratio was true for the S&P 600, which tracks smaller companies. Q1 23 was among the 20 best quarters for that metric going back to 1990. https://insight.factset.com/sp-500-earnings-season-update-may-5-2023

My investment advisers have mentioned that some of the "good" Q1 results are "artificial" and due to extensive cost cutting with staff downsizing, closing of less productive retail locations and, even. people spending "more" due to higher prices due to our four-decade record inflation.

Apple is often used as the "canary in the mine" and it was off 5% compared to Q1 of 2022 (They do not have a calendar fiscal year) and net income is off, too.