iHeartMedia, Inc.

Good morning. My name is Rob and I will be your conference operator today. At this time, I would like to welcome everyone to the iHeartMedia second quarter 2023 earnings conference 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. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. Thank you. Mike McGinnis, Head of Investor Relations, you may begin your conference.

Good morning, everyone, and thank you for taking the time to join us for our second 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 a 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 the 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 second quarter 2023 results were in line with our previously provided adjusted EBITDA and revenue guidance ranges. The signs of improvement in the advertising marketplace that we called on in our first quarter call have continued, and we're seeing indications of improving macroeconomic trends, which we expect to have a positive impact on us in the second half of the year, and similar to what you've probably heard from others, we expect most of that positive impact in Q4. While we're carefully monitoring these improving macroeconomic conditions, we're also continuing our expense management work. These actions and the work we've done over the past couple of years to make our organization more efficient have allowed us to be resilient during this recent period of advertising softness. These actions have also freed up additional capital that enabled us to continue reducing our highest cost debt at advantageous prices while also continuing to reinvest in our high growth areas like podcasting. The continued positive performance of our digital audio group, led by our podcast business, and the significantly improved relative performance of a multi-platform group during the soft advertising period compared to the last downturn in 2020 are encouraging metrics for us. Additionally, while the advertising environment remains challenging in the short term, we note that there are some opportunities that iHeart is uniquely positioned to take advantage of. Linear TVs, viewership continues its precipitous decline. The Hollywood labor strikes have already had an impact on content distribution and will likely have an impact on future content creation, both of which could have a negative impact on video audiences. And there's an ongoing and well-publicized upheaval in social media platforms. These opportunities, along with the important and first-of-its-kind Dentsu study about the audio sector that just came out last week, clearly demonstrate the unique and powerful impact of audio, including both podcasting and radio, and creates maybe the best environment we've had to make our case to advertisers and their agencies about the power and value of audio media with radio and podcasting at the forefront. With that backdrop, let me take you through some key financial results of the quarter. In the second quarter, we generated adjusted EBITDA of $191 million, slightly above the midpoint of the guidance range we provided of $180 to $200 million, and more than double the adjusted EBITDA we generated in the first quarter. Our second quarter adjusted EBITDA was down 19.4% year-over-year, which is a significant improvement from Q1, which was down 35.7% year-over-year. Our consolidated revenues for the quarter were down 3.6% compared to the prior year quarter, a little better than the guidance we provided of down mid-single digits. And excluding the impact of political, our consolidated revenues were down 1.8%. Turning now to our individual operating segments, in the second quarter, our digital audio group revenues were $261 million, up 3.3% versus prior year. Adjusted EBITDA was $85 million, up 7.2% versus prior year. And our digital audio group adjusted EBITDA margins were 32.4%. We believe the digital audio group's adjusted EBITDA performance benefited from the strategic fixed cost investments we've made in the past few quarters. This quarter also illustrates the strong flow-through characteristics of the business, as our Q2 digital audio group margins expanded 120 basis points year-over-year and were 820 basis points better than the first quarter. Within the digital audio group, our podcast revenues, even in the slower ad market, grew 13% versus prior year. Further evidence about our leadership position in the industry and illustrating how powerful podcasting is as both a short-term and long-term growth engine for the company. Our digital X podcast revenues were down 1.6% versus prior year, with the prior year benefiting from non-returning COVID-related advertising spend. We expect our digital ex-podcasting revenues to be back to positive growth in the third quarter. In the second quarter, podcasting was by far the best-performing segment of the advertising marketplace, and we continue to have the largest podcast audience reach in the United States. In June, iHeart was once 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. Our leadership position in podcasting is, in part, the result of the unparalleled scale of our complete audio platform that we use to promote our shows across our digital products and across our broadcast assets, which have three times the consumer reach of the largest TV network and twice the reach of the next largest audio service. A great example of this is the story of Paper Ghost, one of our true crime podcasts that we recently began to promote extensively on our broadcast radio stations. Within two weeks, its downloads jumped by more than 100%, and it reached the top 10 in Apple's podcast true crime charts. Our leadership position with podcast listeners is also driven by the breadth and depth of the content we create. We're the only publisher with podcasts ranked in all 19 of PodTrack's content categories, and we have the most top 10 shows of any publisher as well. And as the podcasting industry at large continues to embrace more rational content cost, iHeart, as the leading publisher in the industry, will continue to benefit. The overall podcasting industry has also reached a significant milestone. It now surpasses all the ad-enabled streaming music services and daily usage, according to Edison, and there are now more weekly podcast listeners than there are Netflix subscribers. In addition to podcast listeners' extraordinary engagement with the medium, We think this audience diversity and reach advantage is a compelling value proposition for advertising partners as well. And finally, podcasting and broadcast radio are truly complementary businesses. As you can see by their listening profiles, 68% of broadcast radio listening happens out of home and 69% of podcast listening occurs in the home. These listening patterns are complementary because at their core, they provide the same benefit to listeners. Both are companionship mediums, and both keep their listeners company, just at different times and locations throughout the day. And the natural synergy between these two mediums gives us a real advantage in podcast content creation, promotion, marketing, and advertising sales, as you can see in our consumer engagement, revenue, and profitability metrics. And critically for us, podcast usage does not come at the expense of radio usage. Rather, instead, according to a recent survey, 70% of podcast listeners say they replaced time spent with social media platforms, 50% say they replaced time spent with YouTube, and 46% say they replaced time spent with streaming music services to make time for their podcast listening. In addition to our industry-leading podcast business, we also have the number one streaming digital 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 each month. all of which represent additional opportunities for our advertising partners to interact with our highly engaged consumer base and provide additional revenue growth for the company. Let's turn now to our multi-platform group, which includes our broadcast radio networks and events businesses. In the second quarter, revenues were $596 million, down 5.9% versus prior year, which is an improvement from down 7.4% in the first quarter. Adjusted EBITDA was $162 million, down 16.5% versus prior year, which is a substantial improvement from down 35% in the first quarter and nearly doubled the adjusted EBITDA we generated in the first quarter. Second quarter multi-platform group adjusted EBITDA margins were 27.3%. To put this recent performance in perspective, during the 2020 economic downturn, our second quarter multi-platform group revenues were down 53.4% year-over-year, compared to down just 5.9% year-over-year in Q2 of this year. We think that significant improvement is partly attributable to the technology and data investments we've made to make our broadcast radio assets more like digital assets for advertisers, including data-enabled targeting, algorithmic buying, attribution, and performance measurement capabilities, along with our unique smart audio product and our growing AI capabilities, leading to stronger revenue growth potential for our broadcast radio assets. The multi-platform group does continue to be impacted by some of the advertising uncertainty we called out in the first quarter. As we mentioned in our first quarter call, our smaller advertisers have been more likely to continue to spin through the uncertainty while there was some softness in our larger advertisers. In Q2, our smaller advertisers remained resilient and we saw a gradual improvement from our larger advertisers as well, which leads us to believe that we'll continue to see improvements in the business through the remainder of the year. I do want to point out that the biggest driver in terms of our full-year financial performance is always the fourth quarter. The fourth quarter is always our largest revenue, EBITDA, and free cash flow quarter of the year because it's also the largest quarter of the year for most of our advertising partners in terms of sales and advertising spend. If you remember last year, despite the slowdown in the macro trends throughout the year, the fourth quarter turned out to be the best quarter in iHeart's history as advertisers accelerated their spend. So the question will be, will the advertisers who've cut back or stood on the sidelines throughout the year start to spend as they enter the fourth quarter? Based on the improving trends we've mentioned here and how the fourth quarter of last year performed, we think the answer to that is most likely yes. But we'll have better insight into those trends as we near the end of the third quarter. Turning to the state of the broadcast radio industry, radio continues to be a vital and trusted source of information, entertainment, companionship, and support for hundreds of millions of Americans and is irreplaceable during times of crisis and disaster in local communities. There is no better evidence of that unique power that radio has with the consumers than what we saw happen in the Senate two weeks ago with the AM Radio for Every Vehicle Act, bipartisan legislation which would require automakers to keep AM radio in new cars, including EVs, at no additional cost to the consumer. This bill, introduced by Senators Markey and Cruz, and currently with 28 co-sponsors, equally divided between Democrats and Republicans, passed out of committee with near-unanimous, bipartisan support, importantly, with the full support of Chairwoman Cantwell, and is the result of listeners' strong feedback to Congress and reflects the passionate and vocal consumer base that radio enjoys. Broadcast radios reach, and the loyalty that audiences have to its variety of hosts, programs, and content is unmatched in media today. And iHeart's ability to connect those audiences with our advertising partners directly correlates to the advertising revenue potential of these assets. Remember, historically advertising has always followed the consumer, and consumers are on the radio and staying on the radio. So iHeart's mass reach will become even more important as advertisers and agencies struggle to replace the rapidly declining reach that has historically been provided by linear TV and cable networks. As a reminder, CBS, the largest TV network, has seen its consumer reach cut in half since the early 2000s, while iHeart's broadcast radio consumer reach grew over the same period and now reaches an audience almost twice the size of CBS. And critically, for our advertising partners, streaming video services have been unable to compensate for the decline in linear TV reach, which again, highlights the opportunity we have before us. Now, we know some are asking if broadcast radio is a revenue and earnings growth platform for the company, or if it's a declining business that digital must compensate for. Let me be clear. While it will likely advance at a lower growth rate than our digital business, we feel certain broadcast radio will provide long-term sustainable revenue and earnings growth for iHeart. Before I turn it over to Rich, I want to leave you with this final thought. As we look to the back half of 2023, we know we're up against some tough year-over-year comps as the second half of 2022 benefited from a very strong midterm political cycle as well as some non-returning COVID-related advertising. But with the actions we've taken to improve our operating efficiency, in combination with the gradual improvement we're seeing in the advertising marketplace, we believe we'll see a continued quarter-over-quarter sequential improvement. This will also help position us for a strong 2024, which, as a reminder, is also a presidential political year. And now I'll turn it over to Rich.