iHeartMedia, Inc.

Hello and thank you for standing by. Welcome to the iHeartMedia Q1 2023 earnings call. 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 and instructions will be provided at that time. I will now turn the conference over to Mike McGinnis, Head of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for taking the time to join us for our first quarter 2023 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 earnings 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 morning, everyone. We're pleased to report that our first quarter 2023 results were a little above the high end of our adjusted EBITDA and revenue guidance ranges. More importantly, while both the macroeconomic climate and the advertising marketplace remain uncertain, the advertising market was a bit stronger in the quarter than we had initially anticipated. Additionally, we expect that our second quarter adjusted EBITDA, while still below 2022 levels, will be approximately double what we generated in the first quarter. This second quarter outlook, in combination with our first quarter performance relative to guidance, gives us confidence that our adjusted EBITDA results will continue to improve throughout 2023, and if this advertising market recovery trend continues in 2024, we expect to resume our growth trajectory that was interrupted by this period of advertising softness. Rich will provide additional thoughts on our forward-looking estimates during his remarks. With that backdrop, let me take you through some of the key financial results of the quarter. In the first quarter, we generated adjusted EBIT of $93 million, slightly exceeding the guidance range we provided of $80 to $90 million. Our consolidated revenues for the quarter were down 3.8% compared to the prior year quarter, a little better than the guidance we provided of down in the mid-single digits. Our free cash flow for the quarter was negative $133 million. As a reminder, Q1 is seasonally our lowest free cash flow quarter of the year, and we will generate positive free cash flow in each of the remaining quarters in 2023. Finally, operating expenses remain a strong focus of ours, and we continue to adjust our operating structure to drive additional efficiencies and you'll see even more of that in Q2. And we're also continuing to explore using AI to substantially transform our operating structure and cost base over time. Turning now to our individual operating segments. In the first quarter, our digital audio group revenues were $223 million, up 4.3% versus the prior year quarter. Adjusted EBIT was $54 million, up 3.1% versus prior year. And our digital audio group adjusted EBIT margins were 24.2%. As we said on our last call, in 2022, we have made changes to certain sales initiatives and commission structures, which had a negative impact on our digital audio group margins in Q4. Those changes were reversed at the end of 2022, and while we saw some of those negative effects continuing to our first quarter results, as we anticipated on our last earnings call, we are confident that our second quarter flow-through will be back on track. Within the digital audio group, our podcast revenues, even in the slow ad market, grew 12% versus prior year, and our digital ex-podcast revenues grew approximately 1% versus prior year. In terms of audience reach, in March, 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. Three data points further illustrate the tremendous opportunity we have in podcasting. First, over 60% of Americans have now listened to a podcast, according to Edison, making it one of the fastest growing mediums ever. Second, podcasting now reaches more consumers every month than the biggest streaming music service. And third, there are now more weekly podcast listeners in the U.S. than Netflix subscribers. In the investor deck, we've included some new slides that show the growth in daily reach and time spent among podcast users since 2015. Additionally, you'll see a slide that shows where podcasting is drawing its Spoiler alert, of those surveyed, 70% said they replaced time spent with social media platforms, 50% said they replaced time spent with YouTube, and 46% said they replaced time spent with streaming music services. And most important, not much podcast listening was drawn from broadcast radio listening, illustrating the truly complementary nature of broadcast radio and podcasting. These trends are significant because advertisers and their marketing dollars follow consumer usage. Indeed, according to a recent advertising perception poll, 60% of marketers who invest in audio plan to increase their podcast spending in 2023, a reflection of podcasting's strong performance and upside potential with advertisers. Also, as we mentioned last quarter, we continue to see positive changes in the podcasting industry, specifically as it relates to content cost. While some podcast publishers had chased uneconomic deals that drove up content cost across the podcasting marketplace, we're now seeing a reversal of this trend. We think this return to rational economic behavior across the marketplace is good news for iHeart and good news for the podcasting industry as a whole. And finally, I remind you that at its core, podcasting is an adjacent and truly complementary business to iHeart's broadcast radio assets, which gives us a natural advantage in podcast content creation, promotion, marketing, and advertising sales, as you can see in our consumer engagement, revenue, and profitability metrics. We've included a new slide in the investor presentation that shows that 68% of broadcast radio listening happens out of the home and that 69% of podcast listening occurs in-home, clearly illustrating that broadcast radio and podcasting are complementary and mutually additive businesses in terms of consumer usage. In addition to our industry-leading podcast business, we also have the number one streaming radio service, which is five times larger than our closest competitor. We have the largest social footprint of any audio service by a factor of seven, and we operate 3,000 national and local websites that reach almost 150 million people in the United States alone, all of which represent additional opportunities for our marketing partners to interact with a highly engaged consumer base. Let's turn now to our multi-platform group, which includes our broadcast radio, networks, and events businesses. In the first quarter, revenues were $529 million, down 7.4% versus prior year. Adjusted EBITDA was $87 million, down 35% versus prior year. And our multi-platform group adjusted EBITDA margins were 16.5%. The multi-platform group was impacted more than the digital audio group by some of the advertising softness we saw in the first quarter. However, we see this softness as being directly tied to the uncertain macro environment, and we have great confidence in radio's continued importance to both consumers and advertisers. To give that some context, in this period of softness, broadcast radio's performance relative to the performance of the large digital companies has been significantly better than it was during the 2020 advertising downturn. We think that is validation of our technology and data investments to make our broadcast radio assets more like digital for our advertisers, leading to stronger revenue growth potential. And as we look at overall advertising revenue potential, today our broadcast radio assets reach over 90% of Americans every month and actually reach more people than Facebook and Google in the United States. That strength with consumers also supports our conviction that broadcast radio will continue to have long-term sustainable revenue growth remember advertising follows the consumer and consumers are on the radio and are staying on radio unlike the substantial consumer declines experienced by newspapers magazines and linear TV for example the CBS television network which is currently the largest linear TV network according to the latest Nielsen ratings has seen its consumer reach cut in half since the early 2000s while over that same 20-year time period iHeart's broadcast radio consumer reach has actually grown slightly and now reaches more than twice as many people as CBS. Before I turn it over to Rich, I want to leave you with this final thought. Rich and I and our entire management team remain laser-focused on identifying and targeting revenue growth opportunities while aggressively managing our expense base. And with the actions we've taken over the past few months and a presidential election year ahead, we believe we'll see a ramp-up in our performance throughout 2023, leading to a strong 2024 and beyond for iHeart in terms of revenue growth, profitability, and free cash flow generation. And now...

I'll turn it over to Rich. Thanks, Bob. As I take you through our results, you'll notice that, as Bob mentioned, we slightly exceed our previously provided guidance for the quarter. Our Q1 2023 consolidated revenues were down 3.8% year-over-year compared to the guidance range we provided of down in the mid-single digits. Our consolidated direct operating expenses increased 4.3% for the quarter, driven primarily by the increase in digital revenue, which drives higher content and profit-sharing expenses, increased third-party digital costs due to the short-term concentration of lower margin revenues we discussed earlier, as well as additional costs incurred in connection with the execution of some additional cost reductions we made in Q1. To look ahead for a moment, we expect our second quarter direct operating costs to be down slightly year-over-year, excluding the impact of restructuring costs. Our consolidated SG&A expenses increased 4.8% for the quarter, primarily driven by investments in key growth areas like podcasting, certain credits which benefited the prior year quarter, as well as additional costs incurred in connection with the execution of some additional cost reductions we made in Q1. We generated a first quarter gap operating loss of $49 million compared to operating income of $12 million in the prior year quarter. Our first quarter just at IBITDA was 93 million compared to 145 million in the prior year quarter and a little above the high end of the guidance range we provided of 80 to 90 million. Turning out the performance of our operating segments, And as a reminder, there are slides in the earnings presentation on our segment performances. In the first quarter, digital audio group revenues were $223 million of 4.3% year-over-year, and they comprised approximately 28% of our first quarter consolidated revenues. Digital audio group adjusted EBITDA was $54 million of 3.1% year-over-year, and our Q1 margins were 24.2%. Within the digital audio group, our podcasting revenues grew 12% year over year, and our non-podcasting digital revenues grew approximately 1% year over year. As we mentioned in our last earnings call, in Q4, we had increased our emphasis on certain incremental revenue streams. through sales initiatives and commission structures, which resulted in an unintended negative impact on our digital adjusted EBITDA margins in Q4. We have corrected the issue, and although there were some lingering impacts on Q1 margins, it will not be an issue by the second quarter. We expect our digital business to get back to our normal EBITDA flow-through starting in Q2, and we continue to believe our digital audio group will be a 35% adjusted EBITDA margin business. Multi-platform group revenues were $529 million, down 7.4% year-over-year. Adjusted EBITDA was $87 million, down 35% year-over-year. And adjusted EBITDA margins were 16.5%. These margins reflect a high operating leverage nature of the multi-platform group revenues, with the vast majority of the revenue declines dropping directly to EBITDA, in addition to certain credits which benefited the prior year quarter and impacted the year-over-year EBITDA decline. We expect our normal flow through to resume in Q2. Audio and media services group revenues were $61 million, up approximately 1% year over year, and adjusted EBITDA was $15 million, down from $16 million in the prior year. At quarter end, we had approximately $5.2 billion of net debt outstanding, and our total liquidity was $601 million, which includes a cash balance of $188 million. Our quarter ending net debt to adjusted EBITDA ratio was 5.8 times. Although we can't predict when the advertising marketplace will fully recover from this period of softness, we remain committed to our long-term goal of net debt to adjusted EBITDA ratio of approximately four times. As highlighted on past calls, we have no material maintenance covenants and no debt maturities until 2026. In the current macro environment, this type of debt profile positions us to be both resilient and opportunistic in responding to debt market developments. In Q1, we proactively repurchased $20 million of the principal balance of our 8 and 3As senior unsecured notes, which brings our repurchase total to $350 million and results in an aggregate annualized interest savings of approximately $30 million. We were able to repurchase these notes in the market at a meaningful discount to their par value, generating both earnings and free cash flow accretion. We will continually monitor market conditions and we'll look to further improve and optimize our capital structure as opportunities arise. In the first quarter, we generated negative $133 million of free cash flow. As a reminder, the first quarter is always our lowest free cash flow quarter, in part because the first quarter is our smallest revenue and adjusted EBITDA quarter for the year, as is for most media companies. As Bob mentioned earlier, we expect to generate positive free cash flow for each subsequent quarter in 2023. I want to turn now to our outlook for Q2, as well as some thoughts on the full year. We expect our Q2 2023 revenues to be down mid-single digits year over year, and down low single digits, excluding the impact of political revenue. Looking at our segment revenues individually, we expect the multi-platform group to be down high single digits, the digital audio group to be up mid-single digits, and audio media services to be down high single digits or down low single digits, excluding the impact of political. In the month of April, our consolidated revenues were down approximately 5% year over year. Turning to adjusted EBITDA, for Q2 2023, we expect to generate adjusted EBITDA in the range of $180 to $200 million. Let me provide some updated assumptions regarding cash. While we initially expected to be a full cash taxpayer in 2023, we have since implemented tax planning initiatives that we expect will reduce our 2023 annual cash tax payments and now expect to pay between $25 to $30 million of cash taxes in 2023. We now expect our full year 2023 capital expenditures to be approximately $90 billion below our previously provided guidance of between $100 and $120 million, which was already a significant year-over-year reduction from $161 million in 2022. We expect our cash restructuring expenses to be down dramatically year-over-year. We continue to be impacted by the current interest rate environment as approximately 40% of our debt is floating. but we remain committed to further opportunistically improving our capital structure and reducing our interest expense as the market allows. I also want to reiterate Bob's comment on our outlook for the company as we move forward. Assuming a continued improvement in the advertising marketplace, we believe that our multi-platform revenues will continue to recover and that our digital audio group revenues will continue to grow throughout 2023. This second quarter outlook in combination with our first quarter performance relative to guidance, gives us confidence that our adjusted EBITDA results will continue to improve throughout 2023. And if this advertising market recovery continues, in 2024, we expect to resume our growth trajectory that was interrupted by this period of advertising softness. I hope this extended guidance helps to paint a clear picture of the company's future as we see it. We remain committed to driving shareholder value through our rigorous allocation of capital, identifying additional cost savings opportunities, utilizing new technologies to expand our product offerings, and improving our operational efficiency. And finally, on behalf of our entire senior management team, Bob and I want to thank our team members, who work to deliver for their communities and for iHeart every day. They are the engine that drives our company. Now we will turn it over to the operator to take your questions. Thank you.

Thank you. We will now begin the question and answer session. If you have a question, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, press star 1 again. Your first question comes from the line of Jessica Reeve-Ehrlich with Bank of America Securities. Please go ahead.

Thank you. Good morning, everybody. I guess two questions. The first is on your comments on April revenue, down 5% versus down 4% in Q1. I don't know what you can say about May. It seems like there's very little visibility, but And I heard what you said about the long-term outlook. I'm just wondering if you think that things are getting a little bit maybe marginally worse. And then it's obvious, I'm saying the obvious, but there's probably the most challenging macro and secular challenging environment that you've had in a, I don't know, a really long time when competition isn't going away. You've explained some of the margin challenges, but they are down. And you've already aggressively cut costs. I'm just wondering, like, what else can be done? You explained the margins on the digital side. Do you just need a recovery in revenue, or is there more to do?

Hey, Jess, it's Rich. Thank you. So let me start a couple of things. I'm sure Bob will jump in, too. You know, the picture we portrayed, we said April was down 5%, but then also reading on, that we said ex-political, we expect the rest of the quarter to get down to be down low single digits. So I think we've seen, you know, we are seeing, you know, what we think is a slightly improving trend. And I think if you go back to Q1, what we said in the beginning of Q1 for the first month, we expected to see a trend, particularly with national advertisers, excuse me, as we went through the quarter. I think Bob said in his earnings script that it was slightly better, the advertising environment that we thought. And I think our guidance in Q2, quite frankly, continues to reflect that. And when you look at the margin question back to your overall, yes, you know, we've taken a significant amount of costs out. And by the way, quite frankly, as we said, just taking advantage of the capital expenditure, which we've made, taking advantage of efficiencies, dramatically reducing our real estate footprint. And yes, margins are down in Q1, and you referred to digital. But just to go back to what we talked about as we left Q4 again to frame the reference, that we had, as we went, as we did in Q4, we had emphasized some revenue that was lower margin revenue. We said that we were going to change a number of our initiatives and commission structure that was going to take us not just Q4, but Q1 to work through that. We iterated that here. And we said we expect that to be fully behind us when we get to Q2. And we expect, when you think about modeling, fully expect the digital business to be 35% EBITDA margins. And if you just look at our overall guidance for Q2, the $180 to $200 million of EBITDA, there's a lot of pieces to the revenue numbers, but I think you just kind of do the math. you get from like $811 million revenue Q1 to about $905, $906 million. In Q2, again, just doing the math that we gave out, the general guidance, and then I think you see some pretty significant margin improvement there. And as a reminder, Q1, and I repeat this above and I repeat this often, is our smallest quarter of the year, so you get the lure of small numbers when you're computing other margins.

Just let me jump in on your question. issue about secular competition. I think we are, when we look at both the consumer and the advertising, I think we're pretty pleased with the progress we've made on a relative basis in the competitive marketplace. Radio has just held up extraordinarily well, and you've seen some of the charts we put in this time just to show where the usage of podcasting is coming from, and it's not really coming from radio. It's coming from streaming music, it's coming from YouTube, and it's coming from social primarily, which I think is very good news for us. And I think on the advertising side, and by the way, on the radio side too, the reach continues to be rock solid on radio and at a time when linear TV and others have declined precipitously, as I mentioned in the comments. On the advertising front, again, I think the investments we've made in making our broadcast radio more like digital offerings has really paid off. And, you know, we've commented a little bit about comparing this to the last downturn in 2020. If you go back to 2020, I think multi-platform group in that first quarter was down something like 50%. And I think the next quarter was 30% and the fourth quarter was 22%. I think multi-platform group was down almost 30% for the year. whereas this year in this downturn, multi-platform groups down 7%, much, much closer to the digital companies and I think a market improvement on a relative basis. So again, and we point to, again, the idea that we were taking that broadcast radio, adding technology and data, making it more like a digital offering, and I think, again, we're seeing traction with that.

Thank you.

Your next question comes from the line of Steven Cahill with Wells Fargo. Please go ahead.

Thank you. Maybe first was just hoping to dig into the ad market a little deeper. I was wondering if you could contrast trends you're seeing in multi-platform versus digital and maybe even within digital, podcast versus non-podcast. I'm sort of specifically thinking about categories. You know, I've heard that auto is coming back pretty strongly in local. So we'd just love to take your commentary about what outperformed expectations and maybe some of those categories and how they're trending across your different channels.

Well, let me hit the high level that we do think the ad market, we're probably seeing a slightly better marketplace than we had expected. And our expectation based on what we see today is that it's going to continue to get better through the year. I think also major advertisers We felt we're holding back, trying to put away some money for the year in Q1. We think that as the year goes on, and especially as you get to the biggest sales quarter for most companies, which is Q4, that again, that money begins to flow. And we're seeing evidence of that happening. I think in terms of categories, I think you're right about auto. We are seeing strength there. We're seeing strength in a couple of other categories. that are a little unexpected. But again, I think that's going to the point that the advertisers realize that advertising works. The lesson they learned and a hard lesson to learn in the 2020 downturn is that if they stayed out of the marketplace, it actually cost them more to get back in when things turned up. And hopefully that's a lesson that is moderating the impact of this downturn.

Hey, Steven, and the only thing I might add, you know, normally, and you've heard us consistently talk about that we've got no individual advertiser more than 2% and no category more than 5%, but actually a slight modification to that, and I think this is good news and builds a bond with Bob said, is actually auto and now financial services are slightly more than 5%. And again, I think it goes back to Bob's point about having strength and even strength where we haven't had it recently in terms of advertising categories.

Great. And then a couple more kind of on the housekeeping side. Rich, you said you expect digital margins, I think, to get back to that 35% range. I wasn't sure, was that a Q2 guidance commentary or was that just a little bit more general? And then also on the cash side, do you have an outlook for cash interest at this point? Or should we just do our best estimates based on kind of the rate curve?

So two things. On the EBITDA margin, and thank you, because I probably wasn't as clear as I could have been. I expect to get back in the longer term to 35% EBITDA margins for the DAG group, digital audio group. But you should expect to see significant improvement in the DAG margin from Q1 to Q2. In terms of free cash and just to reiterate what we said earlier, because I do think it's significant for the rest of the year, and make sure everybody focuses on it. We've talked about our cash taxes for the year being dramatically down, being in the $20 to $30 million on a full-year basis for 2023, significant reduction in our capital expenditures from 110, they were previous guidance of 110 to 120, down to $90 million. For this year, just as a reminder, over the last couple of years, we've actually been at $160 million in capital expenditures, so a significant reduction there. And you should think about our cash interest expense being about $390 million overall for the year.

Great. Thank you for all that color.

Thanks, Steve.

Your next question comes from the line of Dan Day from B. Reilly Securities. Please go ahead.

Yeah. Morning, guys. Thanks for taking the questions. So we've heard recently a lot about the discrepancy between large and small markets from some other radio station groups and then national versus local. Maybe just if you could share what you're seeing, you got a more diversified footprint, whether these larger NFL cities are underperforming the ones outside the top 50 and then just then differential between national versus the SMBs. Thanks.

Yeah, the issues we've seen has been more of the businesses that have to advertise to get the cash register ring tomorrow. They've tended to be stronger and more persistent. Advertisers that had the luxury to say, I'm building my brand, but if I don't build it so much this month, I'll pick it up next month or whatever. I think you've seen that has been where you've seen a little slower. As we said earlier, I think, and again, we sort of don't look at it as national or local or big markets or small market, look more at sort of what's the mix of the particular advertisers. And again, our expectation is that those large advertisers continue to come back into the marketplace because they are going to be building up to bigger and bigger sales quarters for themselves, and they will have to enter the marketplace. I think Q1, because it's such a slow sales quarter for most companies, people do have the luxury to hold back then.

Thanks, Bob. And one more from me. So you put out a bunch of press releases on new podcast partnerships over the last couple of months. You talked in your prepared remarks about sort of rationalization of this market with a lot of the bigger guys pulling back. I'm just wondering if you could maybe compare and contrast the terms at which you're getting these partnerships today versus one or two years ago, whether there's meaningfully better economics, whether there's just the nature of the deals, whether who owns the IP, the split of the ad dollars, et cetera, et cetera, whether that's changed at all, and whether the economics are getting any better for you.

It's interesting. We have always held to good economics and podcasting. We refuse to do uneconomic deals, deliberate uneconomic deals. We don't believe there's such a thing as I'm going to buy my way into the we think all those are losing propositions. What I think I would say is that it's easier in the sense that there are not some crazy deals being offered out there. You know, when we look at it and say if we're the biggest and we've got probably the best opportunity to monetize a podcast, if we don't think it's economic, how on earth is somebody smaller than us or less able to monetize paying multiples of what we've offered? You know, the good news along the way for us, even in the past, is many folks like NFL, et cetera, are looking at creating a long-term, sustainable podcast business. That means they're looking actually to building the biggest podcast they can, not necessarily getting a payment which would compensate the group for not getting the best possible podcast built. And so what's nice now is that I think people are not having to make that hard decision. And I think, look, there's some podcasters that if somebody pays them a crazy amount of money, they just say, look, if I have a choice between building a big podcast or getting paid this check, I'll take the check. I think those are going away. And I think that's healthy because now it puts everybody on some level playing field, which is what are the economics of podcasting? How many users are we going to get? How well can we monetize it?

You know, by the way, just to add one thing, I think It's probably taking the course of a lot of other businesses, right? For all of us that have been following businesses, you get, you know, this initial rush. And as Bob said, you wind up with, you know, quarter cases that are uneconomical. And if we can't make the money work, surprisingly, everybody else can. And, you know, I think we've used this before. You know, I think general direction, the belief is out there. We do, you know, 20 plus percent of the industry podcasting reviews and probably about 90 percent or so. best we could tell of the profitability. And that's been, by the way, whether there were all the quarter cases out there where people paying a lot of money are trying to put something behind the paywall. And we've continued to be steady in that. And I really would encourage everybody on the call. We've added a number of new slides this quarter to the investment debt, but particularly in podcasting. And Bob touched upon this, I think, a few different times in the script. And when he responded to Jessica's question, But there's a slide there that just shows two things, how complimentary our assets are. About 69% of podcasting listening is inside the home and 68% or so of radio listening is outside the home. Again, that just factually shows you that. And then there's another interesting slide that shows, because we get this question all the time, where podcasting listening is coming from and 70% is coming from social media. So you see that slide 14 in the deck. So I don't have to walk through all the slides, but it really is an enhanced deck based on all the questions that we've been getting and to give back to you what the actual facts are, not the speculation.

All right. Very thorough answer. Thanks, guys.

Your next question comes from the line of Ben Swinburne with Morgan Stanley. Please go ahead.

Thanks. Good morning, guys. A couple questions. You guys have a fairly large digital business outside of podcasting. I think last year almost $700 million. I know there's a lot of sort of third-party business inventory that you're selling and bundling with your other properties. Can you just talk about why that's a good business for iHeart? Does it allow you to maximize the value of your sales force? Maybe it helps drive podcasting? Because I think a lot of that is selling other people's inventory, which is typically a lower margin business. So I was just curious if you could comment on that. And then, Rich, on the cost side, the cash tax reduction is obviously significant this year. Is that timing or sort of permanent savings as we think about your free cash flow heading into the next couple of years? I'm just wondering if maybe there's been a significant change in your cash tax outlook for the company. Thank you.

Well, let me start with the digital. Actually, the biggest areas we focus on are podcasting and our own streaming service, the iHeartRadio service. We've also used with Triton, been able to build out some marketplaces which allow us to capture some additional revenue coming into that world based on the strength of our own streaming service and our own podcasting business. And then we look at other businesses that we can either put on our platform or and or we can use our sales force for. And, you know, we've got the biggest sales force in audio by a lot. And that's one of our great assets. We have trained people to sell, every seller to sell anything from anywhere, anytime. So that allows us geographically to be able to capture clients that are not necessarily in New York or LA, which are the traditional hubs of advertising. And again, in looking at those, We're pretty particular about the margins we get. As we said, we had a particular problem at the end of last year because we tried to get some incremental revenue on some products that didn't have as good a margin as we normally have, thinking it would be incremental to everything else we have. Instead, we found a little bit of float out of where we had higher margin business, so we made some corrections there. And by Q2, that effect will be gone.

Yeah, and on taxes, Ben, I'm not going to comment any detail on anything going forward, but we've done or commented on the details of our tax planning initiatives. But, you know, I think the team has done a really nice job at looking at all the tax initiatives and the opportunities that we have to maximize value for shareholders. And that's enabled us to reduce our overall cash taxes for this year quite significantly. Okay. Thank you.

Your next question comes from the line of Sebastiano Petty with JP Morgan. Please go ahead. Hi.

Thanks for taking the question. I just wanted to maybe follow up on some of the digital on Ben's question there. But, you know, we talked about some of these, you know, social extension or other products that you sold within the, you know, that are still working their way through the system, we're supposed to, you know, drag or weigh on digital margins, but margins didn't seem to be all that bad in the digital audio group. But conversely, on the broadcast side is the worst margins we've seen since 2Q20. So, I mean, what, can you unpack maybe what occurred there? The OpEx obviously up in the multi-platform group, but Can you just give us a little bit of help on how we should perhaps think about the trend in multi-platform group in the context of your guidance for, you know, not only the second quarter, but just expectations for continued recovery there?

It's rich. Look, we expect to continue to make improvement, you know, in the multi-platform group. And, you know, we're just going back. You know, as it's had in terms of the challenges in the advertising environment that we've, I think, all talked about and you've heard from many other companies out there, multi-platform group has been a little bit harder hit. It's absolutely a higher fixed cost business that we talked about. And so when you look at the flow through, it gets hit higher on the flow through. We've announced a number of, you know, cost programs. You know, the $250 million in total that we announced going before Q4 of 2022. We announced another $75 million in the fourth quarter of last year. And I think as you go into Q2 of this year, and I kind of gave you some sense how to think about overall revenues for the company. I think you'll continue to look to see improvement in multi-platform revenues, and I think you'll see some significant improvement in flow-through in Q2 also. And I'll go back to one thing I've said a couple different times, and I say on every call, any time you look at margins, it just gets greatly accentuated in Q1 because of the lower small numbers, which I know we all know is probably, and I appreciate sometimes hard, to accept. But if you look at our Q2 numbers versus Q2, excuse me, Q1 numbers versus Q2 and Q3, which are dramatically larger than Q1 historically and roughly in that same size zip code. And then you go to Q4, which is dramatically bigger. So we just get hit very hard in Q1 on margin, particularly when you have down revenues.

Okay. And then With digital ex-podcasting, any help on sizing, obviously, your streaming product? Can you perhaps unpack the revenue contribution in the digital ex-podcasting? How should we think about the social extension versus perhaps some of the other maybe organic, for lack of a better term, like the streaming product? Because in terms of your guidance and the context of the mid-single digit, just trying to unpack how we should be thinking about the trend through the year there.

Well, we've got two things which we focus on, obviously, is our streaming service, iHeartRadio, which does very well. It's the digital version of our radio stations and other products as well. We also have digital. We've used that strength and also our acquisition of Trident to build out some interesting audience networks and marketplaces as well. That continues to expand. And keep in mind, we also have a big social footprint ourselves. We have about seven times a larger social footprint than the next largest audio player and the ways we monetize that in addition to the social extension products that we have and others as well. And for us, we look at anything that sort of fits with the needs of our advertisers and that our sales force can bundle together with other things we're selling. and that we think gives us a good economics, not just top line.

Thank you.

Your next question comes from the line of Jim Goss with Barrington Research. Please go ahead.

Thanks and good morning. Regarding your optimism about multi-platform revenues, rebounding. Are you suggesting that the sluggishness in ad spending to this point has largely taken into account any recessionary risks? Or do you think if a recession were to occur, given the relationship to GDP historically, that there could be another down draft?

Well, I'm not smart enough to be able to predict all the economic futures. here but I think what we're seeing is certainly as it relates to multi-platform group and specifically as it relates to radio that we're seeing much better relative performance in this downturn than we did the last and I think that is again probably linked to how we have changed how we are selling and presenting broadcast radio to make it look much more like a digital product that was really behind our acquisition of Triton It's why we built out that digital ad tech stack. We've been able to include broadcast in that. We've been able to go to cohorts and audiences. With the loss of cookies and mobile ID, digital is moving from one-to-one, and we think moving more to cohorts and audiences that people are targeting, tracking, and looking for the attribution on. That we can do with broadcasting. We're not limited by the fact that we can't do one-to-one with broadcasting. as the marketplace changes. So I think that's probably positive for us, and I think that relative performance differential between now and 2020 is tied to that.

Okay, thank you. And regarding REACH, you brought that up, and one of the trades, the Odyssey CMO, was talking about REACH and monetization. That should be an opportunity, but that's been around for decades, a lot of years in terms of achieving a better monetization relative to your product. Are you thinking that what you were just describing is your means of maybe closing that gap right now that might be more successful historically, Ben?

I think you've hit it exactly right. I think that, look, the reach is what we're selling. It's why we're there. It's also, if you look at, which we just recently were running some numbers on, if you look at the overlap a lot of digital overlaps. So whereas people thought they were adding one digital product to another digital product to another digital product to get more reach, it turns out they were just getting more frequency among the same people. That radio does offer not only reach, but a unique reach that you can't get with a lot of the other products in the marketplace. But I think the way in which the advertiser is buying those products is not like it was 20 years ago or 10 years ago. They're not so much interested in buying spots as they are reaching audiences, and they're expecting data and technology to help them. And over time, they're all building basically unified planning and buying systems, at least the major agencies, and I think other platforms emerging as well. And we have built our products so that we can be a part of those platforms. And I think that has some really long-term terrific benefits for us because if we can get an algorithm to start doing the media mix as opposed to personal bias doing the media mix, we know we will do much better. Audio today is about, I think, 31%, 32% of all media usage every day. By the way, according to Nielsen, radio finally passed TV in terms of usage in addition to reach. You know, the idea is how do we get at that in terms of full monetization? We've invested heavily in the tools. We've invested over the past five or six years in building out the infrastructure to do it. And I think, again, we're beginning to see some of the positive benefits of that. And coming out of any slowdown, that should just accelerate.

By the way, just to come back and put a very fine point, I would say, because you make the point about reach historically, I would say the two new data points that are there. One is the last point that Bob just said when Nielsen came out and talked about a reach over TV reach. I think that kind of was like a moment that got marketers and advertisers to stand up and say, well, I hadn't quite realized that. I think the other piece is it's only been within the last year or so in terms of our capabilities of a fully built out audio tech stack. since we completed the acquisition of Trident. We always had the relationship with Trident, but now we have the relationship. So now we can, with dealing with advertisers, plan with their campaigns, monitor their campaigns, and report on their campaigns, just like the big digital players could do. And as Bob pointed out, not one-to-one, but one-to, for many, one-to cohorts, which is the direction the industry is going in, as we all know. So those are two new different things that were not there before.

All right. Well, thank you very much. Appreciate it.

Your next question comes from the line of Stephen Lasik with Goldman Sachs. Please go ahead.

Hey, great. Good morning. Just on the expense structure, maybe for Rich, you did a great job taking expenses out of the business over the course of the pandemic. But you mentioned some of the continued flexibility. You think that there still is in the cost structure. It seems like you still might want to play offense heading into the political cycle next year. But I was wondering if you could speak a little bit more about how much opportunity you think there might be to reduce expenses if you entered a scenario where the macro or the ad market wasn't showing signs of a recovery over the longer term.

Well, thanks for the question. Look, you know, you've heard us say this a little bit before, so be consistent. You know, I think our job as a management team, starting with Bob and myself, is to constantly look for efficiencies in the company. And you mentioned the numbers during the pandemic. And I'll just repeat what I said earlier, is that we took out $250 million as we went into Q4 2022 on an annual basis. We announced another $75 million of cost savings to be realized in 2023. Quite frankly, I think as you look at Q2 2022 to give everybody some comfort, additional comfort level, hopefully in our guidance, you know, we expect about that 20 million of that 75 million you'll see flow through in Q2 for the year. So again, back to my earlier point about when people were asking about margins, whether it's multi-platform margins or the digital audio group margins, why we have a high level of confidence with our revenue guidance to see additional flow through to that. And the last piece I would mention, although it doesn't go under the word, you know, expense from an accounting gap P&L standpoint, we've always talked about our ability to aggressively manage capital expenditures to the highest ROI, return on investment projects, when there were kind of uncertain, you know, advertising economic environments. And I think with the guidance, the new guidance we gave today of $90 million a year in capital expenditures down from the 110 to 120 that we talked about going into the year and down from the 160 million or so that we've been spending the last couple years, I think, again, all of that to me, that reiterates what a great free cash flow company this is and the structure. enables us to generate a significant amount of free cash flow. And I think we pointed that out today with the numbers we gave you for the rest of the year, even in uncertain advertising environments and uncertain economic times. And I think Jessica started out with the first question, gee, these are about the most uncertain times I think any of us have seen in a long period of time. And I don't think Bob and I would With all the good news also we talked about, I don't think we would disagree with that, but it also shows you our ability and resiliency this company has to generate free cash flow even during this period of time.

Yeah, I just want to add one thing, which is a little longer term, but we're also looking, as every company is, at how we use AI. And I think AI can fundamentally change the operational cost structure of the company, and I think that's the primary value for us. and it will turn employees from doing lots of employees doing rote work to our employees doing more of editing and more of the higher-level work, which I think, one, will make their jobs more enjoyable. I think we'll do stuff faster, and our cost will be lower. So I'm in the boat, I think Rich and I both are, of thinking that AI is going to be a major productivity enhancer for American business if we fully intend to use it to its fullest.

Great. Thanks for that. And then maybe just one more on capital allocation, if I could. You've been fairly active in buying back your own debt the last few quarters, $20 million this past quarter. I was curious if maybe you could speak to the opportunity or what conditions you might be looking for to ramp on repurchases, just given how accretive it is and the trajectory of your cash flows later this year.

Look, we are, and I think I've demonstrated not just in words, we continue to aggressively look to improve our overall capital structure, aggressively look to improve our cost of capital. We've got, you know, nothing's changed. Bob used the word long-term in terms of AI. Long-term in terms of our leverage ratio, the company's target is still to get to four to one leverage ratio, which I think in the leverage capital structure that we have, taking that free cash flow, paying down debt, which gives the highest return, to our shareholders is a great way to return equity value to our shareholders. And we'll continue to look to improve the capital structure along those ways, which again, which is why it's so important and we're laser focused on the generation of free cash flow. So with that, I'd like to, Bob and I and the rest of the team would like to thank everybody. And we are here and available for more questions. But thank you all.

This concludes today's conference call. You may now disconnect your lines.