Q2 2022 iHeartMedia Inc Earnings Call
Any secondary effects have added uncertainty to the advertising marketplace. While there are certainly some pockets of advertising softness given the strong positions of our digital audio in a multiplatform groups with both consumers and advertisers are industry, leading unified AD Tech stack for audio and our unparalleled reach combined with our focus on.
Unnecessary cost reductions and our disciplined capital allocation as well as the Companys strong free cash flow characteristics. We believe by heart is well positioned for the future and rich will share with you some specific expectations along with the details of our earnings rich.
Bob as I take you through our results Youll notice that as Bob mentioned, we performed well despite external factors that have been impacting the economy.
Turning to slide 19 of our Investor deck on our consolidated revenues were up 10, 7% year over year within the guidance range, we provided of up 10% to 14% our direct operating expenses increased 14% for the quarter driven primarily by the increase in revenue, which drives higher content and profit sharing expenses third part.
Digital costs and expenses related to the return of local and National live events, our SG&A expenses increased 2% for the quarter driven by increased compensation expense related to investments in key growth areas as discussed on our Q1 call higher sales commissions due to higher revenue and increased bad debt expense.
<unk>, partially offset by lower trade and barter expense and lower bonus expense compared to our over target performance from prior year, our second quarter GAAP operating income was $82 9 million compared to an operating income of $28 1 million in the prior year quarter and our second quarter adjusted EBITDA was 230.
Seven 2 million compared to $184 5 million in the prior year quarter.
If you turn back to slide four I will provide you additional color on the performance of our operating segments and as a note. There are additional slides in the investor presentation on our segment revenue performance Digital audio group revenues were up 28% year over year, and adjusted EBITDA was up 45% year over year within the <unk>.
Digital audio group or our podcast and revenues, which grew 60% year over year and our non podcast in digital revenues, which grew 15% year over year as a point of reference slide seven through 12 in our investor deck, showing detailed podcast ecosystem dynamics and our leadership position in this high.
Value segment of publisher.
Looking again at the digital audio group as a whole margins expand in the second quarter to 31, 2% up from 27, 4% in the prior year quarter, even with the incremental sales support investments. We noted on our Q1 earnings call. We had significant adjusted EBITDA margin expansion in the second quarter. This margin.
Expansion reflects the success of our products in the previous investments we made in our digital business as well as the natural margin expansion. We expect as a result of our operating leverage multi platform group revenues were up 5% year over year, and adjusted EBITDA was up 7% year over year.
<unk> platform group adjusted EBITDA margins were 37% up 80 basis points from 29, 9% in Q2 2021.
I'll remind you that as we noted on last year's earnings call. In Q2, 2021, we benefited from some COVID-19 related bad debt reversals, which makes our prior year expense comparisons challenging if we normalize for bad debt reversal, our adjusted EBITDA flow through in Q2 for multi platform would be in the normal range.
We expect of 70% to 85% and as a reminder, the vast majority of our political spend occurs in the back half of the year, primarily in the fourth quarter.
<unk> Media services group revenues were up 16% year over year, and adjusted EBITDA was up 8% year over year on slide 23, there is a summary of our debt at quarter end, we had approximately $5 3 billion of net debt outstanding which includes a cash balance of $295 million. We also continue to <unk>.
Prove our net debt to adjusted EBITDA leverage ended Q2 with net debt leverage of five nine times an improvement from six four times at the end of last quarter.
As a reminder, the terms of our debt structure include no material maintenance covenants and there are no debt maturities prior to 2026 during the quarter. We also took a number of actions designed to fortify our financial position, we proactively repurchased $114 million of the principal balance.
Our eight and three eight senior unsecured notes for $105 million of cash below par value, which we expect to generate approximately $10 million of annualized interest savings and we entered into a new ABL facility, which is due in may 2027, replacing the previous ABL facility.
Which was set to expire in 2023.
We will continue to actively monitor market conditions, and we'll look to improve and optimize our capital structure as opportunities arise as Bob mentioned, one of the company's most important financial attributes is our strong free cash flow generation and we are pleased that in the second quarter, we generated $106 million of free cash flow.
And this was with elevated levels of capital expenditures due to our real estate consolidation project when including the proceeds from real estate sales, our adjusted free cash flow was $127 million, resulting in a very strong adjusted free cash flow conversion of 54% our.
Our cash balance is $295 million and our total available liquidity is $715 million.
We remain focused on free cash flow generation and are committed to utilizing that cash and amount of that creates the most value for our shareholders as Bob mentioned the rest of the year is characterized by advertiser uncertainty. So in that context, we would like to provide the following guidance starting with the third quarter, we expect our Q.
Q3, 2022 revenues to be up approximately 3% to 7% year over year. We are still closing the month of July but our preliminary July consolidated revenues were up approximately 4% compared to 2021 as a reminder, the majority of our political advertising costs in Q4.
We will have only a small impact on our Q3 revenues. We also expect to generate $240 million to $255 million of adjusted EBITDA in Q3 2022.
As we're looking at full year adjusted EBITDA guidance, even with this uncertainty we still think we'll be in the zone of $1 billion.
And I'll remind you that the fourth quarter is always the biggest advertising revenue quota for the year and it will be enhanced with political advertising this year as well.
I also want you to understand that while we're not calling out specific numbers today, we continue to maintain a rigorous allocation of capital and to work on identifying additional cost efficiencies utilizing new technologies to increase our efficiencies, reducing our lower ROI discretionary spending and ensuring that we have.
Right organizational structure and cost base in place to support our growing businesses today and into the future.
Further for the full year, despite being a full cash taxpayer, we expect to generate in the range of $350 million.
A free cash flow consistent with our previous guidance, we expect our capital expenditures to be between 150 and $165 million.
And finally, we continue to make significant progress towards our previously announced leverage target of approximately four times.
We appreciate you joining our second quarter earnings call and again I'd like to thank the entire IR team, who continue to deliver for our communities advertisers and our shareholders now.
Now, we will turn it over to the operator to take your questions. Thank you.
Thank you Sir once again, if he would like to ask a question Codelco Star one on your telephone keypad.
We'll take our first question from Daniel <unk> B Riley.
Yeah. Good morning, guys. I. Appreciate you taking my questions. Just first of all maybe just drill a little more down into the commentary around how July pacing up 4% a lot of your other radio peers have reported.
National certainly appears to be weaker than local so maybe just parse that out are we looking at year over year declines in national it with local holding up pretty well so far.
Or what exactly are you guys seeing after quarter end.
It's a little hard we noticed we don't break out national from local because we think that that distinction is sort of blurred and a company like ours, where any seller anywhere can sell anything and so we look at it overall and again.
We pointed out in the past we've got no advertising category, that's over 5% of our revenue no single advertiser over 2%. So we have a remarkable diversity here and even in times like this you've got some folks who are it's good for their business as you find some people that.
Our softer and I think that mix, probably plays pretty well for us.
The only thing I might add is just not quite sure how you've put in the category of competitors.
But at least from a radio standpoint, our audio standpoint, nobody else has got the national footprint that we have also saw that kind of looking at that makes if anybody else can peg ourselves.
It was probably a little bit apples and Orange is just to the composition of our assets.
Sure.
Understood and then follow up for me I know.
The focus with the free cash flow on debt reduction you guys have done a great job and did a great job in the quarter with taxes. When you look at where the stock is trading right. Now is there a level, where you think the buyback Matt is just makes too much sense and you might switch to share repurchases before you get to that Forex net debt leverage goal or is that just.
Not something Youre considering.
It's something that.
We're.
I was answering ourselves how do we improve the balance sheet. The total capital structure of the company.
We saw and we highlighted on the call that we bought back.
Well over $100 million alright.
This quarter as part of the overall debt reduction and we bought them back at attractive pricing.
Matt and it's got a great yield on that.
This part we made that decision.
To continue to stay the course may get as we talked about approximately four times and we think thats, the best way to create shareholder value, especially in <unk>.
Levered capital structure, which I think you'd agree, but it's something we're constantly challenging ourselves on and the board.
Yes.
Okay. That's all I had appreciate you guys, taking my questions I'll turn it over.
Thank you.
Just a reminder, it is star one if you have a question next step is Steve Cahall Wells Fargo.
Thank you.
Thanks for the 4% growth number for July with love to just kind of put that in context of a trend line I think it feels like a lot of advertisers maybe slowed down proactively in June so we'd love to get your sense did you start to see things improve in July so any kind of inflection maybe on on July versus June weather weather upwards or downwards.
And then rich just a couple of housekeeping ones first the $3 50 and free cash flow.
Does it matter if that includes or excludes the real estate sales I know you kind of had them in free cash flow in the press release.
And then also you said $1 billion and EBITDA, what would be kind of in the zone.
Yes, it's $900 million zone at 950, <unk> zone. It is just kind of a new frame so sorry for that annoying one thanks.
Well, let me just hit the one about the monthly.
It's up.
Up and down a little bit, but we have seen a trend that we see more softness of the first month of the quarter than we do the other two months of the quarter and our thesis is that in times of uncertainty first months of the quarter, everybody takes a beat and weights and looks and then continues to spend than the other months. So.
Other than that I can't give you much insight and.
We continue to watch it.
Again, having a diverse group of advertisers gives us some.
Some advantage there.
And then Steve.
Just a couple of your second question. So on the free cash flow just to be clear.
We generated $106 million of free cash flow.
That included about $20 million of proceeds from real estate sales. If you kind of adjusted free cash flow was $127 million or so and I think we also have you kind of look at the investor deck.
Transparency standpoint, well laid out there and that's a 54% EBITDA free cash flow conversion. So we feel very good about that from the $1 billion EBITDA.
And you are spot on.
But we just want to make sure we are reflecting the uncertainty of marketplace, but let me give you or everybody a little bit of a roadmap that hopefully gives everybody. Some comfort if you take our first six months EBITDA and then you combine the midpoint of our guidance range that we just gave you an articulated you would get to $630 million of EBITDA.
For the first nine months of the year. So that's just math first six months take the midpoint of Q3 add them together you get to <unk>.
<unk> 30, so if you do the math that would say we'd have to be approximately $370 million in Q4 overall just as a reminder, Q4 is by far our biggest quarter in the company and just to be clear. It always has been our biggest quarter in the company.
Think last year, we did approximately $294 million EBITDA in Q4, but again this is a political year. So we expect the <unk>.
Fourth quarter, none of it to the significantly benefit by political spending.
Out there and I think we highlighted this on the call. The majority of political spending comes in the second half of the year and by far the biggest piece of that comes in the fourth quarter of the year. So hopefully that's helpful to yourself and everybody else are both in our roadmap and giving you comfort.
How we are thinking about it.
Thanks for all the color.
Great. Thanks, Steve.
At this time there are no further questions I'll hand, the conference back to our speakers for any closing.
Closing remark.
Well look we want to thank everybody for the questions. Thank everybody. Thanks, everyone on the call for listening to the <unk> story and thank you for your continued support and Bob and I and it might be to get us to the team are always available for follow ups and we look forward to speaking to everybody soon thank you.
And everyone that does conclude today's conference. Thank you all for your participation.
Okay.
Yes.
Yes.