iHeartMedia, Inc.

Good day, everyone. My name is Kellyanne. I'll be your conference operator for today. At this time, I'd like to welcome everyone to the iHeartMedia Q4 2022 earnings call. Today's call is being recorded. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1 on your telephone keypad. If you would like to withdraw your question, please press star 1 again. At this time, I'd like to turn the conference over to Mr. Mike McGinnis, Head of Investor Relations. Please go ahead, sir.

Good afternoon, everyone, and thank you for taking the time to join us for our fourth 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 release, we have an earnings 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 presentation, and our SEC filings, which are available in the investor relations section of our website. And now I'll turn the call over to Bob.

Thanks, Mike, and good afternoon, everybody. We're pleased to report another quarter of solid operating results for iHeart in consumer usage, revenue, and earnings growth. Even in this continuing challenging and uncertain economic environment, We're continuing our transformation of this company. Before I take you through the fourth quarter highlights, I want to take a step back and talk about the year we've just had. As a reminder, 2022 began strong for us and was poised to be robust for iHeart. However, as we're all aware, a number of macroeconomic factors led to increased volatility and uncertainty, which moderated our 2022 results. Despite these headwinds, we continued to innovate and find new ways to engage with our consumers and advertising partners. We remained committed to evolving our business and we maintained our focus on expense management. And our financials reflect these commitments. The fourth quarter was our best quarter for revenue and adjusted EBITDA ever. And on a full year basis in 2022, we generated the highest revenue and second highest adjusted EBITDA and free cash flow year in iHeart's history. We continue to make strong progress in our transformation of iHeart into a true multi-platform audio company driven by innovation, supported by data and technology, and powered by the largest sales force in audio, executing our unique multi-platform go-to-market strategy of any seller, anywhere, can sell anything. iHeart's relationship with the consumer has never been stronger, and consumers are now spending 30% of their daily media time with audio, and yet audio only captures 9% of total advertising spend. Not only do we believe that the allocation of advertising revenue to audio will increase, but because our broadcast radio assets alone reach 90% of consumers in the United States each month, which, by the way, is now more than twice the reach of the largest TV network, four times the reach of the largest ad-enabled streaming music audio service, and two and a half times the reach of the next largest broadcast radio company, we also expect to continue to take an increasing share of audio advertising spend, driven in part by our large and well-trained sales force. While our digital assets continue to grow, the most traditional of our platforms, our broadcast radio assets, are importantly performing much better than they did during previous advertising downturns. To put this in perspective, in 2020, our multi-platform group revenues declined 28%, but they were up 4% for the full year in 2022. And in 2020, at the beginning of the pandemic, digital accounted for 12% of the company's revenues, and today it's over 25%. And we expect that percentage to continue to grow significantly over the long term, even as broadcast radio grows as well. Broadcast radio, with its unparalleled reach, will also continue to power the development of new platforms and opportunities for us, like our high-growth digital assets. This includes the iHeartRadio app, our podcast business, our new Metaverse platform, and our leading positions on all major social media platforms with our nearly 300 million followers, which is seven times larger than the next largest audio company, and which includes our most recent successful expansion into TikTok, where our follower count grew 300% in 2022 to 27 million TikTok users with twice as many user engagements as the next largest audio company. We remain committed to meeting our listeners wherever they are with the products and services they expect and to effectively monetizing those relationships, which is reflected in the diversity of our products and platforms, as well as our early adoption of new technologies like AI, which we began rolling out in 2020 to enhance our music programming and scheduling. By providing real-time evaluation of listener sentiment and predicting audience engagement and reactions, We give our programmers a unique advantage and are able to deliver the best experience possible to our listeners. Stations where we rolled out this proprietary system saw a 15% increase year-over-year in the average quarter-hour share of adults 18 to 49. This validates our ability to identify an opportunity, design the strategy, and execute it successfully, and often, as we did here, using new technology. As those who have been following this company for some time know, we're constantly evaluating our cost structure and technology usage, looking for ways to make our operations more efficient. To illustrate this point, back in 2020, before the pandemic began, we announced changes we were making to prepare iHeart for the future. We began to significantly reduce our real estate footprint, reimagine the structure of our sales force and go-to-market strategy, restructured some of our operational organizations, and identified new key ways that new technologies could make us both more efficient and better at our jobs. Specifically, since the beginning of 2020, we've reduced our office space by half, and we have reduced our U.S. workforce by approximately 20%. This clearly illustrates the progress we're making to create a more efficient and effective organization. Over the past three years, we've completed savings programs of approximately $250 million, and on our third quarter 2022 earnings call, we announced a new cost program that will generate $75 million in annualized savings, which we will benefit from in 2023. In light of the ongoing economic uncertainty and in support of our focus on free cash flow generation, We're also reducing our in-year capital expenditures to below 2022 levels. With that backdrop, let me take you through some of the highlights of our performance. In the fourth quarter, consolidated revenues grew 6% compared to the prior year at the high end of the guidance range we provided of up approximately 2% to 6%. We generated adjusted EBITDA of $316 million for the quarter. In the middle of the guidance range, we provided a $305 to $325 million. And our Q4 adjusted EBITDA margins were 28%, a 34 basis point improvement versus prior year. And as I mentioned earlier, our fourth quarter revenue and adjusted EBITDA results were record highs for any quarter in the company's history. Turning to our individual operating segments, in the fourth quarter, our digital audio group revenues increased 10% versus prior year, adjusted EBITDA was flat versus prior year, and adjusted EBITDA margins were 33%. Within the digital audio group are our podcast revenues, which grew 17% versus prior year, and our digital ex-podcast revenues, which grew 7% versus prior year. The macroeconomic conditions are certainly impacting the entire advertising marketplace, and even the podcasting industry is not immune to some effects of the advertising slowdown. For additional context, our podcasting business was also up against some very strong prior year comps. As a reminder, Q4 2021 revenues were up 130% year over year. In January, iHeart was again ranked the number one podcast publisher in the U.S. with more monthly downloads than the next two largest podcast publishers combined, according to PodTrack. The podcasting industry remains the fastest-growing mass-reach medium. According to a recent Edison survey, in 2022, total daily podcast listeners grew by 20%, with podcasting now reaching over 60% of Americans. And marketers are following their customers. with a recent advertiser perception poll revealing that marketers plan to continue to increase their podcasting spending in 2023, even in a slow advertising market. Continuing to look at the podcasting marketplace as a whole, the industry seems to be going through a transition toward more rational behaviors in terms of content expenditures, a trim we've discussed with you before. We've deliberately avoided engaging in uneconomic behavior in podcasting, and we think this new market behavior will have a positive ripple effect across the entire industry, including us. iHeartMedia also has a depth of digital assets beyond just our high-profile iHeartRadio app, our streaming services, and podcasting. We have over 160 million unique visitors a month across a network of 3,000 websites for our national shows, local broadcast stations, our on-air talent influencers and podcast titles. Influencers continue to be hot in the advertising marketplace and our influencers are an important iHeart asset. And in 2022, our top 50 influencers reach two out of three Americans every month. And our iHeart land destinations in the metaverse specifically on Roblox and Fortnite, lead the industry in terms of engagement, with almost 10 million visits and a recent Fall Out Boy concert we hosted on Roblox generated three times the concurrent audience of competing events. Considering the macroeconomic challenges in the current environment, we think our digital and podcasting business has performed well in the fourth quarter, but we also see concrete ways to improve the performance going forward. The Digital Audio Group is a growth engine for us. and comprises a range of growth channels with very attractive margins, and we're constantly looking for adjacent growth opportunities when they look attractive. In that spirit, during Q4, we increased our emphasis through sales initiatives and commission structures on targeting certain incremental revenue streams. In retrospect, we believe those decisions had a negative impact on our revenue growth and margin for the quarter. We've learned from this Q4 experience and have already initiated steps to realign our sales force's focus back to higher margin digital revenue opportunities. We believe we'll start seeing the positive impact of those adjustments in both revenue growth and margins as early as Q2. Let's turn now to our multi-platform group, which includes our broadcast radio, networks, and events business. In the fourth quarter, revenues were up 1% versus prior year, adjusted EBITDA was down 8% versus prior year, and our adjusted EBITDA margins were 31.4%. Our multi-platform group has again demonstrated its resiliency during this challenging economic climate, generating adjusted EBITDA margins in the low 30s, which we expect to expand as the economy recovers and our revenue follows. Our broadcast radio assets alone reach more people than any other media company in the U.S. This is important because reach is at the very core of marketing. Marketers convert a certain percentage of people who hear their messages into customers. Therefore, the more people they can reach with their message, the more customers they can acquire. So our unparalleled consumer reach is a compelling benefit to advertisers and is also a huge advantage for us as we've used it to build our own new high-growth businesses. The advertising world also continues to move toward unified media buying and planning, considering all media together rather than in silos. How this plays out is unique for each agency and advertiser, but given that broadcast radio has traditionally been underbought relative to the reach and scale it offers, we think iHeart's broadcast radio will be a beneficiary of this shift to data-driven planning algorithms making media allocation decisions instead of human beings that have both personal and historical biases. Before I turn it over to Rich, I want to leave you with this final thought. We're taking all appropriate actions and executing with agility to navigate the current macroeconomic environment, an environment that Rich and I and our broader leadership team are no strangers to, given our long history leading organizations. At the same time, we remain steadfast in continuing to transform and position iHeart to take advantage of the coming economic recovery and the upturn in advertising. We're laser-focused on deploying our strong cash flow to improve our balance sheet and investing growth and leveraging our core strengths, including our scale, deep industry expertise, operational prowess, and seasoned sales force to deliver revenue and profit growth as well as shareholder returns over the long term. And now, I'll turn it over to Rich.