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...