Q3 2022 iHeartMedia Inc Earnings Call

Good afternoon, My name is Rob and I'll be your conference operator today at this time I'd like to welcome everyone to the I Heart Media third quarter 2022 earnings Conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.

To withdraw your question again press the Star one. Thank you I will now turn the call over to Mike Mcginnis.

Deputy CFO and head of Investor Relations. Please go ahead.

Good afternoon, everyone and thank you for taking the time to join US for our third quarter 2022 earnings call. Joining me for today's discussion are Bob Pittman, our chairman and CEO and rich Bressler, our president COO and CFO at the conclusion of our prepared remarks management will take your questions. In addition to our press.

Please leave an investor presentation available on our website that you can use to follow along with our remarks. Please note that this call may include forward looking statements regarding our financial performance and operating results. These statements are based on management's current expectations and actual results could differ from what is stated as a result of certain factors identified on.

Today's call and in the company's SEC filings. Additionally, during this call we will refer to certain non-GAAP financial measures reconciliations between GAAP and non-GAAP financial measures are included in our earnings release, Investor presentations, and our SEC filings, which are available on the Investor Relations section of our website.

And now I'll turn the call over to Bob Thanks, Mike and good afternoon, everyone. Thank you for joining our third quarter 2022 earnings conference call. We're pleased to report another quarter of solid operating results for I heart and consumer usage revenue and earnings growth before I take it through our results I want to thank our team members who made this performance possible.

And in particular, the inspiring local teams who worked tirelessly through hurricane E N and in some cases, even put their well being on the line to ensure that listeners could find critically important updates safety information resources and above all a vital personal connection when they needed. It. The most radio is often the only media platform there.

It's consistently available during natural disasters and we're proud of this critical role we play in our communities the strong community connection and dedication to serve especially in times of crisis and need is what sets radio and indeed, our company apart from all other media now let me take it through some of the highlights of our performance.

In the third quarter consolidated revenues grew 7% compared to prior year at the high end of the guidance range, we provided of up approximately 3% to 7%.

We generated adjusted EBITDA of $252 million for the quarter also at the high end of the guidance range, we provided of $240 million to $255 million and our Q3 adjusted EBITDA margins were 25.5%, a 70 basis point improvement versus prior year, We believe the company performed well in.

An uncertain macroeconomic environment growing adjusted EBITDA by 10% compared to prior year. Our performance in this environment is a strong indication of the successful transformation. This company has undergone where high growth digital revenues comprised 26% of total company revenues, it's clear that our digital business is now significantly.

Enough to meaningfully impact our overall financial performance.

Turning to our individual operating segments. The digital audio group continues to deliver industry, leading growth. According to magna with revenue for the quarter, increasing 23% versus prior year, adjusted EBITDA, increasing 17% versus prior year and adjusted EBITDA margins of 31%.

Within the digital audio group, our podcast revenues, which grew 42% versus prior year outperforming the overall podcast industry growth of 22% year over year. According to Magna and our digital ex podcast revenues, which were up 15% versus prior year also outperforming the industry growth of 10% year over year. According to Magna.

As a reminder included in our digital X pod casting business, our streaming products third party extension products, Social O T T display advertising and our AD Tech businesses. This range of products allows us to offer holistic advertising solutions, leveraging our deep relationships with our consumers to our tens of thousands of advertisers.

And highest ranked content is measured bipod track and we're the only publisher with ranked continent. All 19 categories. We believe our experience and capabilities as audio content creators combined with our unique ability to promote and build audience for our podcast through our broadcast radio assets, which reached 90 per cent of you.

S. Consumers every month [noise] gives us an important edge, what that leadership position and with those assets. We believe we will continue to take user and revenue share in the expanding podcasts marketplace, while maintaining our strong podcast EBITDA margin.

Turning to our Multiplatform group, which includes our broadcast radio networks and events business [noise] in the third quarter, both revenues and adjusted EBITDA were essentially flat compared to the prior year [noise] and our adjusted EBITDA margins were 31.4% are.

Our multiplatform group has again demonstrated its resiliency during this economic period [noise] generating adjusted EBITDA margins in the low thirties, [noise], which we expect to expand as revenue recovers over the long haul [noise]. The multiplatform group will also benefit from this year's political AD spin due to our unique speed to market scale reach and data capabilities.

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I also want to remind you that each month or radio assets reach more than twice as many people as the largest T V network [noise] five times more than the largest AD enabled streaming audio service [noise] and slightly more than even Facebook and Google in the U S. [noise]. This unparalleled consumer reach [noise] gives us the unique ability to create new products and platforms from the iheartradio.

Apt to events pod casting and now to even the met averse as well as providing a truly unique asset to our advertising partners.

That unparalleled reach along with radio pricing per user lower than most other major media [noise] combined with our adtec platforms and the unified buying platforms emerging at agencies and clients [noise] gives us confidence in the long term growth potential of this segment of our business before I turn it over to rich, let me share a couple of additional thoughts with Ya.

Although advertising is certainly softens since the robust performance we saw at the beginning of the year [noise]. We don't think advertising has been as hard hit by an economic downturn [noise] is it would have been in past times. Let me tell you why we think that is the people controlling advertising decisions today are in most cases, the same people who controlled advertising decisions during the last economic and.

Using downturn according to analytic partners advertisers that cut their advertising budgets. During the last recession saw their sales declined by approximately 18% [noise], while those who maintained or increased their advertising spend over that same period saw their sales increase by approximately 17% [noise], we think advertisers learned a stark less.

<unk> [noise], which we suspect this causing many of them the moderate advertising cutbacks and looking at our data year over year. We also see a revenue growth rate differential between large advertisers and the long tail small business advertisers and the fact that our advertising partner skewed toward the larger companies [noise] relative to the skew of the big digital advertising companies [noise] is <unk>.

Probably a slight advantage during this period of uncertainty.

As a final thought I'd like to give you some insight into how we think about investing in our business. We believe that the focus of any new products always needs to be profitability. Even in the earliest stages [noise]. This belief guided us as we built the iheartradio app as we built our tent pole events like the Iron Radio Jingle Ball tour, the Iheartradio Music Festival, the I hit radio.

Music Awards, and more [noise] and most recently as we built out our podcast business now as we look at our next new platform. The met of Earth [noise], we remain committed to building for profitability as well as users [vocalized-noise], even though we're in the very early stages of development in the third quarter, we launched in the matters [noise] building I heartland in both for.

At night, and roadblocks [noise] partnering with state farm, Intel and others are sponsors and reaching millions of users immediately [noise] among all the games available in Roblox I Heartland is among the top 1% based on daily active players in total daily Playtime and import night, among our competitive set [noise] I Heartland is in the top 1%.

Maps [noise] based on player counts and playtime [noise]. These men of Earth's launches were hit with consumers, but more importantly, they were done profitably. We have also used the flywheel effect of the Unparallel consumer scale of our radio business and leadership position across audio a rigorous cost discipline and are strong.

Ashen engine to build platform after platform for future growth and we'd done it or making sure that each platform is a profitable one [noise]. We can assure you that as a management team that we will build new adjacent businesses and more importantly, as we do so that we will continue to focus on profitability and free cash flow as we look ahead, we can.

<unk> formed the company [noise] and we're also proactively preparing should a prolonged economic downturn occurred [noise]. We believed the strong positions of our digital audio multiplatform groups with both consumers and advertisers [noise] give us the ability to navigate through this period of economic uncertainty and position us for continued growth through the recovery and be.

<unk> and now now turn it over to rich.

Thanks, Bob is I take you through our results you'll notice that as Bob mentioned, we perform well despite the uncertain macro economic environment.

The slide 19 of our Investor deck.

Consolidated revenues were up approximately 7% year over year at the high end of the guidance range, we provided of up approximately 3% to 7%.

Excluding the impact of political Arkansas date revenues were up approximately 4% year over year.

Ah direct operating expenses increased 14% for the quarter drip.

Driven primarily by the increase in revenue [noise], which drives higher content and profit sharing expenses third party digital costs and expenses related to the return of local and national events [noise] R.

R. S. G&A expenses increased 3% for the quarter [noise], primarily driven by one time charges related to a cost reduction initiatives. We began in Q3, [noise] and highest sales commissions due to a higher revenue, partially offset by a low a bonus expense compared to our over target bonus performance in prior years.

Our third quarter gap operating loss was $211 million compared to an operating income of $80 million in the prior year quarter.

As a result of a non-cash impairment of $302 million on R. F. C C licenses [noise] <unk>.

Prior to this impairment, we had approximately $1.8 billion of intangible assets on our balance sheet [noise] related to F. C. C licenses [noise] at each year, we are required to test these intangible assets for impairment the.

The fair value analysis is highly sensitive to changes in weighted average cost a capo [noise] and the significant increase in interest rates since March [noise] has triggered a non-cash impairment on those intangible assets.

Our third quarter, adjusted EBITDA was $252 million compared to $230 million in the prior year quarter at the high end of the guidance range, we provided of $240 million to $255 million.

If you turn back to slide for all provide additional color on the performance of our operating segments and as a note there are additional slides and the investor presentation on our segment revenue performance.

Digital audio group revenues rough twenty-three percent year over Europe , and adjusted EBITDA was up 17% year over year [noise] within the digital audio group or a pod casting revenues, which grew 42% year over year, [noise] and our nod pod casting digital revenues, which grew 15% year over year as a point of reference so.

Wide seven through 12 in our Investor deck show in detail, the podcasts ecosystem dynamics and our leadership position as high value segment of publisher looking.

Looking at the digital audio group as a whole margins declined slightly in the third quarter, the 30.8% down from 32.6% in the prior year. This decline is due to the timing of certain expenses related to content launches in this quarter and we feel confident that the adjusted EBITDA margin for Q4.

Or read back in the 35% range.

Multiplatform group revenues and adjusted EBITDA, we'll both essentially flat year over year.

Excluding the impact of political multiplatform group revenues would have been down 2% year over year multi.

Multiplatform group adjusted EBITDA margins with 31.4% of 70 basis points sequentially from 30.7% in Q2, 2022, and down 20 basis points from 31.6% in Q3 2021.

And as a reminder, slightly over half of our political spin occurs in the fourth quarter.

Audio media services group revenues were up 18% year over year and adjusted EBITDA. It was up 33% year over year. These increases were primarily attributable to expense management as well as radio and television political revenues within our cats business.

Turning to slide twenty-three, there's a summary of our deck a quarter and we had approximately $5.3 billion of net debt outstanding which includes a cash balance of $295 million.

Within each quarters performance. We also continue to improve our net debt to adjusted EBITDA ratio. We have now move that ratio into the mid fives and we expect to continue to make progress towards our goal of moving that ratio to approximately four times. The we're expanding adjusted EBITDA as well as to efficiently <unk>.

Burning these earnings and to free cash flow and using their free cash flow to reduce our overall debt.

As highlighted our past calls we have no material maintenance covenant and no debt maturities until 2026, and the current macro environment. This type of debt profile positions us to be both resilient and opportunistic and responding to that market developments in Q3, we proactively repurchased 70.

$5 million of the principle of are eight and three eighths senior unsecured notes, adding to the 114 million dollar principal repurchases, we completed in queue to.

As of September 30th we have repurchased a total of $189 million or even three A's senior unsecured notes, resulting in annualized interest savings of approximately $16 million, we have been able to repurchase these notes in the market at a meaningful discount to their par value generating both earn.

Things and free cash flow accretion, we will continually monitor market conditions.

Look to further improve and optimize our capital structure as opportunities arise.

And the third quarter regenerate $63 million, a free cash flow when including the proceeds from real estate sales are adjusted free cash flow was $70 million or cash balance is $295 million and our total available liquidity is $718 million as Bob highlighted we remain focused on free cash.

Cash flow generation and are committed to utilizing that cash in the amount of that create the most value for our shareholders.

Despite this uncertain environment, we've been discussing our business has continued to achieve year over year growth and both revenues adjusted EBITDA and free cash flow now let me provide you with some specific guidance for Q4 weeks.

We expect our queue for 2022 revenues to be up approximately 2% to 6% year over year. We're still closing the month of October but our preliminary October consolidated revenues were up approximately 8% year over year much of it based on the strength of political we also expect to generate Q4.

Justin EBITDA in the range of 305, and $325 million, which implies a full year 2022, adjusted EBITDA guidance range of $940 million to $960 million, which will yield the second highest full year, if a D. A in the company's history.

Further for the full year, we expected generate in the range of 325, the premiere of $50 million of free cash flow.

As we think ahead I'll want to remind you all that in 2020, the worst year, we have ever seen the company's still generated positive free cash flow and we expect those strong free cash flow generating characteristics to persist.

We also expect political advertising B a record for a midterm political year, we anticipate full year political advertising to be at the midpoint between the last midterm year in 2018, and the last presidential election in 2020.

We expect our full year capital expenditures to be between 150 and $160 million and finally, we will continue to make significant progress towards our previously announced net leveraged chaga of approximately four times I want to leave you with this we are committed to ensuring that we have the right organizational structure.

And cost base in place to support our growing businesses today and into the future. We continue to maintain a rigorous allocation of capital and to work on identifying additional cost savings opportunities utilizing new technologies to increase our efficiency and reducing our lower R. O y discretion.

Expanding this focus enabled us to execute a savings program of approximately 250 million from 2000, 22021, which represent a reduction or historical annualized cost base of approximately 10%.

And with that context in mind, we have targeted an additional $75 million of annual savings some of which was executed at the end of the third quarter the remainder to be executed on in the fourth quarter and we will see the full benefit of these actions and our 2000 twenty-three results.

They're made significant macro uncertainty in the marketplace, but we believe we are taking all appropriate actions to further bolster our financial position today in order to remain resilient and outperform there are any potential economic downturn we.

We appreciate you joining our third quarter earnings call in again I'd like to thank the entire I heart team, who continued to deliver for our communities advertisers and shareholders.

Now, we will turn off to the operator to take your questions. Thank you.

At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad.

And your first question comes from a line of Steven K Hall from Wells Fargo, you're lying is open.

Thank you and thanks for the guidance detailed doesn't sound like you're seeing much of a slowdown in the AD market place now that we're into November and most of the election political bookings are kinda behind you.

Could you help us kinda just unpack the strength honor and X political basis, maybe you can talk a little bit about how digital and multiplatform are performing I think we're all trying to get a handle as to what the trends look like as we get into next year.

So again as a real positive outlier here, maybe you can just help us unpack a little bit of what you see for the rest of the year once that political tailwind and next week and then I have a quick follow up.

Sure, let me spell I'll, let rich ads for specifics, but I think overall I mean, certainly this advertising here is not what we thought it was gonna be the way it began.

And so we are I don't think it has the robustness that we expected. However, I think you see in our business that we've not had a degradation of audience and I think that if you've seen people falling off of it Ah some of it's been associated with audience erosion I think the other pieces that you know we are a.

Business that is concentrated more toward the larger advertisers. We ran out analysis recently in Q3, and our our largest advertisers are substantially outperformed are smaller advertisers and I think that goes to you know we ask ourselves okay, what's behind that and I think you know a large advertiser has the ability.

Alrighty to spend even in slower economic times, and I think the 2020 experience, which we highlighted in the in the earnings call, where there was a sharp difference between the people who spent through the the the downturn the people who did not I think most of those people that's lessons recent and there are things.

King about it I think when you get to the long tail Advertiser those are really small businesses at their business turned it down. They just don't have the money to spend on advertising. So what has been sort of one of our areas. We were looking for for growth, which was how do we get into that Super long tail. It turns out to be probably a positive in in these days.

Okay. Let me just had a couple of minutes to a bar set which may.

Not knowing your policy question, but just maybe a little deeper what are the things we say all year.

And again operating it is challenging environment I think of uncertainty that we've seen is that we've got an incredibly resilient business and began to Bob's point 90, Jack with yearly fault, we're going to have to show the second best year, probably they're gonna basis, and and probably the best year, we've ever had first or second.

This year, we've ever had company at free cash flow very soon and again just as an aside.

Based on the guidance, we've just given that guidance would tell you. This will be the best revenue inhibitor quarter that iheart as ever had as a company that would be forward and fewer point, which was you know in terms of being an outlier I think what you were just saying is a combination of.

<unk> pointed out our reach the resiliency of the medium the efficiency of the medium as we've continued a pointed out the diversity of our advertising base just as a reminder, we have no category.

Copy that's more than 5% of our revenues we have no individual advertising that's more than.

2% men again, you know when you've got a challenging period of time, which none of us we'd like to operate and if we didn't have it there but at the same time. It allows US you have some things to come through that don't come through and other companies and then with respect to political really know changed what we said in the past and I think Bob Highway.

It is comments this'll be the best non presidential political here that we've had adjusted to reorder I think the previous number was approximately $110 million is a company. The best political yeah. We've ever had his I'm sorry, the best President political year presidential year we've.

It was approximately $160 million in your company and I think we should all be somewhere between those two numbers and that hasn't changed.

And by the way one last thing I would add to your for your number a majority of political advertising does come in queue for just to give you some such a complaint in the sphere models.

Great and then and then just as a follow up I know, it's too early to guide to 20 twenty-three Uhm you announce some of the incremental cost reduction, which is certainly going to support it and again it sounds like you have some real revenue strength as we head into the year. So should we just if nothing else think that you'll be able to continue to delever.

Age between either free cash flow or EBITDA generation, and 20 twenty-three versus where you might in 2022 at I know deleveraging as a consistent target. So curious your thoughts there. Thank you.

Your first day, there will be the guiding got one to my answer here that we have been providing at age 40 twenty-three guidance and we're not going to provide that now and I think you're seeing as we highlighted marriage released we came down into the mid fives.

We said 325 to 350, a I'm sorry, methodically in terms of leverage ratio.

We.

Talk about free cash flow number for the year 325 to 350, which if you look at the conversion a vivid area free cash flow, but I think if you put us up again and stuff.

Other companies are registered we feel good about that conversion is Bob and I, along with Mike always articulate we're free cash flow people free Cashflow management team and that will continue to be our focus and this is a industry, particularly your business that just generates free cash flow, which I think generally.

A lot of equity value for our shareholders.

Great. Thank you.

And your next question comes from the line of Dan Day from be Riley Securities. Your line is open.

Yeah, that's the new guys. Appreciate you taking the questions here. So you ended the quarter with a little under 300 million of cash that the guidance for free cash loan <unk> well over $200 million of free cash on the fourth quarter. So just maybe if you could talk about what you think is good cash balance level here, and then Italy uncertain X.

Alex environment, and how much you'd be willing to sort of just let that cash bill versus be as aggressive as you, possibly can by that date back <unk>.

This counterpart.

Well, it's rach I look I think the facts.

Speak for themselves we gave you the.

The guidance as you know yeah, we're fixed costs business.

Q for is our biggest revenue quarter of the year that always has been and this year will be no different showed how surprised they're just when you look at the numbers and do the math.

Free cash flow will be well it always has been the biggest free cash flow quarter and the general got it we made I think you've seen it executed in Q2 Q3 is that we're always looking to be optimistic I'm, sorry, opportunistic and optimistic about opportunistic on our capital structure.

Adding and improve our cost of capital and I think we highlighted are opening remarks that we bought back approximately $180 million or a little bit more of the 83 ish note, which will result in annual cash savings of $16 million and when you look at any type of yield analysis I think that's a pretty good return on our cats.

And will continue that's.

That's been our focus since since Bob an Avenue to run the company and it continues to be our focus today with migrant let me hurry App on your point about what kind of cash balance we need 2020th was probably the swiftest I'm worst downturn either below through and even in that year, we have positive free cash flow.

So I think we feel confident that we will we will have plenty of cash plenty of liquidity, regardless of what we see.

Great appreciate it and one more if I could just if you could provide some color on what you're seeing specifically on the digital side like after quarter and at the end of the fourth quarter here, especially on podcasts thing I think it would be you know obviously, the the revenue growth decelerate slapping the the tougher comps and with the macro stuff.

Just anything you can point to as far as podcast revenue growth in the fourth quarter.

Yeah, well I mean, you sure I think you know I'm not going to talk about it in charge of everything after quite around we indicated that we closed out I think October .

Our coaches rough over 8% if you look at our at our quarters year over year and look at how we perform again against the industry are you specifically asked about digital and we have this highlighted in our investor deck.

The digital excluding pod casting according to Magna the industry was up by 10% and we were up 15% I believe and the pod casting industry again also according tobacco.

22% and we were up 42% overall, so if you look at our digital business. It continues to be very strong we don't really see any changes to that and we talked about that we expect to be back to 35% EBITDA margins and the digital audio group in queue for them.

Alright, that's appreciate it best of luck.

Thanks, Thank you.

Your next question comes from the line Jim Goss from Barrington Research. Your line is open.

Alright. Thank you uhm the write down I was wondering about that a little bit.

Certainly, it's non-cash but aside from discount rate. So it does seem to have applications about.

Revenue expectations for the industry and maybe station values or maybe maybe you think it doesn't typically I just wanted to comment then.

Whatever implications you feel it has.

No I don't I don't think I I think it's.

Significantly refractive the interest rate environment that we're in <unk>.

Majority of it if not almost entirely is that this is a.

Just to be clear it non-cash.

Hi, Roger Thank you for that and it's just a very mathematical exercise.

Which is incredibly sensitive to to the interest rate environment.

I don't think it is any indication in church in the future value of a rash or charges of the value of the revenue generation capability whatsoever.

Okay.

But also we we are well I'm wondering elect for economic expectations are and if we were to.

<unk>, a deeper recession of furniture and one now.

Is this round too, but hopefully not as severe as what you experienced during the.

Situation.

Now how would you how would you think you would fare.

If if there was a step lower and the economy.

I can't imagine things get much worse than what we saw in 2020, because businesses just shut down and consumers were locked in their houses consumer spending turned into savings et cetera, but I think what's interesting here is normally between downturns. There is 178 10 years and people sort of forget.

And they do the same mistake again.

I can't remember one more two years later, we've got one so I think no matter how severe that means I'm guessing no matter how severe this guest I think the fact that those people who made advertising decisions in 2020, and then when they came out realized how much they have lost at how much more expensive it was to restart.

Will remember that and I think it will moderate some any effect on on on advertising downturn, which obviously for US is the source of our revenue. So no matter what happens in the economy. What we're watching is okay, and how does that impact ad revenue.

Okay.

I'd add to that is.

I just think you look at our results in this quarter and I already gave you a number attached compared to the industry. You're located married out of a box boy, how we perform during the pandemic.

Or at a time, so again, you'll all run your own motto upon following.

We don't have any better visibility as to what's gonna happen to the economy than you do.

And we can't control that but.

There are things, we can control at our ability to operate through that and make sure. We watch our cost and watch our free cash flow and on this camera create value for our shareholders. So.

We want to thank.

Everybody for listening to the IHOP store you got a call. We are all available for follow up questions and I appreciate everybody's support.

This concludes today's conference call. Thank you for your participation you may now disconnect.

Please wait the conference will begin shortly mmm.

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Yeah.

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