Ladies and gentlemen, thank you for standing by, and welcome to the 2017 Second Quarter Earnings Conference Call for IHeartMedia and Clear Channel Outdoor Holdings, Incorporated. At this time, all participants are in a listen-only mode. Later, we’ll conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, today's call is being recorded. I'd now like to turn the conference over to your host, Eileen Mclaughlin, Vice President of Investor Relations. Please go ahead.

Good morning, and thank you for joining our second quarter 2017 earnings call. On the call today are Rich Bressler, President, Chief Operating Officer and Chief Financial Officer; and Brian Coleman, Senior Vice President and Treasurer. We'll provide an overview of the second quarter of 2017 financial and operating performances of iHeartMedia, Inc. and its subsidiaries, iHeartMedia Capital I, LLC, iHeart Communications, Inc., Clear Channel Outdoor Holdings, Inc. and Clear Channel International, B.V. For purposes of this call, when we describe the financial and operating performance of iHeartMedia Inc., that also describes the performance of its subsidiaries, iHeartMedia Capital I, LLC, iHeart Communications, Inc. and Clear Channel Outdoor Holdings, Inc. After an introduction and a review of the quarter, we'll open up the line for questions. Before we begin, I'd like to remind everyone that this conference call includes forward-looking statements. These statements include management's expectations, beliefs and projections about performance and represents management's current beliefs. There can be no assurance that management's expectations, beliefs or projections will be achieved or that the actual results will not differ from expectations. Please review the statements of risks contained in our earnings press releases and filings with the SEC. Pacing data will also be mentioned during the call. For those of you not familiar with pacing data, it reflects the orders booked at a specific date versus the comparable date in the prior period and may or may not reflect the actual revenue growth rate at the end of the period. During today's call, we will provide certain performance measures that do not conform to generally accepted accounting principles. We provided schedules that reconcile these non-GAAP measures with our reported results on a GAAP basis as part of our earnings press releases and the earnings conference call presentation, which can be found on the Investors section of our website, iheartmedia.com and clearchanneloutdoor.com. Please note that our 2 earnings releases and the slide presentation are available on our website, www.iheartmedia.com and www.clearchanneloutdoor.com, and are integral to our earnings conference call. They provide a detailed breakdown of foreign exchange and non-cash compensation expense items as well as segment revenues, operating income and OIBDAN, among other important information. For that reason, we ask that you view each slide as Rich comments on it. Also, please note that the information provided on this call speaks only to management's views as of today, August 3rd, and may no longer be accurate at the time of a replay. With that, I will now turn the call over to Rich Bressler.

Thank you, Eileen, and good morning, everyone. Thanks for joining us for our second quarter earnings conference call. Our reported consolidated revenues declined in the quarter with the last year's sale of certain International Outdoor businesses. Adjusting for these sales and the impact of foreign exchange rate fluctuations, our consolidated revenues were up 1.7%, with both the IHeartMedia and International Outdoor segments contributing to the increase. To date, the IHeartMedia segment has delivered 17 consecutive quarters of year-over-year revenue growth. Consolidated operating income also increased in the quarter, although consolidated OIBDAN declined due in part to investments in our businesses and a weaker-than-expected advertising market. However, in this quarter, we were able to make significant progress in reducing our consolidated OIBDAN decline. Before getting into the details of our second quarter financial performance, I want to underscore the powerful fundamentals of our core businesses as well as our latest initiatives. Let me start with the IHeartMedia segment. IHeartMedia is build on the power of sound and the power of broadcast radio, and we continue to build that our capabilities has a true 21st century multi-platform media and entertainment company. Based on our monthly reach, IHeartMedia is the number 1 media company in the U.S., with over 0.25 billion listeners over the age of 6 to our broadcast radio assets alone. In fact, among media companies, only Google and Facebook come close, each reaching more than 200 million people monthly in the U.S. What sets us apart from these and other companies is the scale and strength of our more than 850 broadcast radio stations and the other platforms we've built using that base. We have created a powerful national footprint and the ability to provide local execution to our clients. This is unique not just to the radio business, it's…

[Operator Instructions]. Our first question comes from the line of Avi Steiner from J. P. Morgan.

I've got a couple on business, and then balance sheet, liquidity, et cetera. Just on the business side, Rich, I think you've noted that with costs up and a different ad revenue environment, you're now going to actively manage it. And I'm wondering if you can get back to historical trends and maybe get operating expenses, particularly in the M&E business, ex barter, down.

Great, Avi. Thanks. Appreciate the question. So a couple of things. Maybe just take a step back for a second, and we are actively managing expenses. I think if you look at the decline we had in the first quarter in our margin, we improved significantly from that. And just that one data point, I think if you look at our margins compared to any of our peers or the peer set for the U.S. advertising industry we're significantly higher than anybody else to start with. Having said that, we did, and I talked about this a little bit in the first quarter, we anticipated a more robust advertising market, quite frankly, this year, and we had made some investments for future growth and we thought our revenue would even be growing more. And just given the reality that the market advertising market has been slower than we expected, we're continually focused to right-size the overall core estates of the company to deal with the advertising revenue that's there. Then if you drill down a little bit further on that, so expenses were up about $40 million, $41 million in the quarter. About one-third of that's in direct, about two-third of that is SG&A. You highlighted, as you noted them in the question, some of it relates directly to the mix of revenues, in terms of some of it relates to higher content and programming costs and a piece relates to as we invested in the future for our national business, which again if you look at our disclosure what I mentioned in my remarks and if you look at our 10-Q disclosure is really reading our growth. And some relates, as I said, to some increases in trade and barter and higher cost for sales and commission expense. The…

Thank you. And turning to liquidity. You've outlined upcoming interest payments provide a picture of the cash needs. Can management tell us what the company's current cash position is as of today and should we expect working capital to turn positive in the second half, and if you could discuss liquidity levers that you may be able to pull?

Avi, I don't know I'm able to give you a cash balance as of today, I think. You've seen the cash balance in our financial report as of the end of the quarter. The 2 biggest events subsequent to the quarter are public. We had a large cash interest payment at the beginning of August, which is public. We drew down under our ABL facility $60 million. That's also in our financials. So you can do some quick math and get a pretty good estimate. But no, we're not going to provide a cash balance as of today. I'm not even sure our accounting systems could get it to me as of today. So yes, that's the cash balance. In terms of liquidity and liquidity levers, we've added a lot of disclosure to the financial statements about the efforts that the company undertakes with respect to creating additional liquidity. We certainly are aware of liquidity situation, but I'm not going to get in any specifics beyond the disclosure that is -- the additional disclosure that's been put in our financial statement. Suffice it to say, the company continues to focus on its levers. We've looked at liquidity and addressed the issue for a number of years, and we'll continue to do what we can to ensure that there's adequate liquidity going forward to the extent we can. You asked several questions. Beyond that, I think I forgot what the question was. So what did I miss?

That's good. I'm going to move on because I've got 3 more I want to get through. You've got two maturities coming up. This is all one question. Is company is so confident that it can extend its receivables base facility. And then turning to Outdoor and the promissory note, which I believe also matures December of this year between Outdoor and iHeart, is an extension there simply an Outdoor board decision? How do we think about that?

Yes. So I'll take those on reverse order. With respect to the inter-company note, I would expect that note to be extended. We continue to work at it. Obviously, the Outdoor board is part of that negotiation and will have to approve it as well. But I think at this point in time, we anticipate being able to extend that note prior to its maturity. With respect to the ABL, nothing really has changed since the last earnings call. We believe that the ABL, given the nature of that facility, is something that can be extended and we'll continue to work toward extending it prior to its maturity.

Two more left. The first is, am I right that given the balance under the 10s is now below $100 million if that security for whatever reason was not repaid, it wouldn't be a cross default?

That may technically be correct. I haven't thought of it that way. I wouldn't say that the recent transaction where we brought it down below $100 million was in any way designed, it's still below $100 million. So I think the answer is yes. A cross default in our major debt agreements is $100 million, so it being less than $100 million would not create a cross default. I believe that is correct.

Okay. And I'll end on this, Rich, for your and/or Brian. I think we all understand the company is engaged with discussions around the existing capital structure, but we have never heard your view, I guess, on what you see is an appropriate capital structure and what it should look like to achieve sustainability.

Yes. I appreciate the question. You're probably going to understand the answer. There's, we talk about the desire of the company to have a sustainable capital structure post any discussions that we have. We haven't defined those metrics, and I don't think it's a point, I think it is probably a range, but that's not something I think we're prepared to discuss at this point in time.

Our next question is going to be from the line of Jason Kim from Goldman Sachs.

Coming back to the margin side of things a little bit. So you mentioned this in your prepared remarks, in answering the prior question as well, but just, can you just talk about the level of flexibility you think you have to manage your expenses as an aggregate through the balance of the year? And specifically, I'm referring non-barter expenses, so your core business OpEx. And I know these are, that there a lot of moving parts, but what was the ballpark dollar amount of the investments in the business that you were planning to make at the start of the year when the top line environment seem more robust?

Thanks. Jason, it's Rich. So a couple of things. Well, first of all, in the second question, we're not going to talk about that publicly other than to say that clearly, as I said before, the environment, we expected it to be stronger. We still expect it to be stronger as the years gone on, and that has not materialized. Even with our significant outperformance than everybody else, it's still not at a level we thought it was going to be. In terms of managing expenses, variable expenses, the one thing I will tell you, and those of you that know us and the company and Bob or myself and followed us throughout our careers, we are actively managing expenses. That's what I'll tell you. There are certain expenses, obviously, that are fixed. There are certain expenses, you said ex trade and barter, that I went through a few minutes on, that's just to give you a flavor of the type of things we're investing for the future. I think if you go back to prior periods of time, we invested, around 2012, '11, '12, and then you saw growth happen. After that, as we, and I think our jobs are in a very challenging and very fast-paced changing advertising environment that constantly evolve and change and evolve and change so we can meet the needs of our advertisers and follow our listeners wherever they are. And that's what we're doing. But I promise you that we're actively managing those. I'm not going to ballpark that, but rest assured, we're not trying to waste $1 here.

Okay. And then on the balance sheet and liquidity side, so looking at things historically, a question for Brian, is it fair to say the borrowing base of your ABL facility typically is stable or even grows in third quarter and fourth quarter from June levels? And in terms of some of the shorter-term initiatives you could be pursuing to bolster your liquidity, is it fair to say that you are not really looking into the Outdoor side of the business for any liquidity measures? Thank you.

So the borrowing base is tied to the receivables of our media and entertainment business. And so to the extent that there's greater revenues in the first -- I'm sorry, the third and fourth quarters. And I think that's generally accurate, then you would expect the borrowing base to increase. So the answer to the first question is a yes. I think on the Outdoor side, the right way to characterize our look at liquidity levers is nothing's off the table, we're looking across the companies. That being said, there are some limitations at Outdoor, including we would need board approval to continue everything there, a lot of the RP basket that was under the ventures that's public but that has been utilized. So I wouldn't limit it to say that anything is off-limits. I think we're looking at everything we can do, but obviously, we have certain things to consider with respect to the Outdoor group. I also have -- I'm sorry. I also have a comment on the previous cross default question. It was a great question by Avi, but it caught me a little offguard. We actually do have $57 million of indebtedness under the 2016 legacy notes that used to be included in the computation of the cross acceleration trigger. So Avi asked a good question. I didn't answer it properly. But hopefully, that clarifies that of the $100 million, we have actually have a forbearance against $57 million. And so the number is actually smaller than $100 million.

Our next question then is going to come from the line of Lance Vitanza from Cowen.

Hi, thanks for taking the question. First, I wanted to go back to the investments that you're making. I mean, it reminds me, the investments in the P&L, it reminds me a lot of what you guys did back in 2012. You made a lot of investments and strategic initiatives in digital and so forth, which at that time depressed EBITDA but proved absolutely essential and were largely responsible for the significant outperformance in revenue and EBITDA that you went on to post over the 2013 to 2016 period. So honestly, coming in today's earnings, I was worried that you might sacrifice the future of the business to some extent in favor of short-term EBITDA targets. So I just -- I want say I applaud you for sticking with the investments despite the soft revenue. I think it's absolutely going to prove to be in the best interest of the stakeholders at the end of the day. Now that said, radio pacing down 1.6%, it doesn't sound good, but if remember correctly, you were pacing down 3% or so as of the first quarter earnings call. Obviously, you came in plus 2%. So rather than focus on pacings, could you just describe the advertising environment today versus what you saw in the first quarter, better, worse or about the same?

Great. Well, first of all, Lance, really, we very much appreciate your opening comment and the confidence that you've expressed to the management team and quite frankly, the confidence you have in us in the judgments that we're making. Your memory is correct in terms of pacing. And I probably think I said this 3 times in my opening remarks, and I probably say it 3 or 4 times in every single call, and everybody around the table here is laughing when I say the old time's about, that pacing is just a point in time. And quite frankly, because of -- and I made this comment earlier, because of the fact that we are in an environment and have been in an environment, I don't expect it's going to change that advertising gets placed closer and closer to the airing days. I think that's happening quite frankly with the entire industry. And it goes back, again, just to tie together why it's so important that we make investments to meet advertisers' needs and I talked about programmatic and ad-based serving technology and cloud computing and everything I mentioned before, that all enables people. One, it enables us to meet the needs of our advertisers and more targeting; but two, quite frankly, it probably enhances the ability to do things later. So I would say absolutely, I think pacings are less important and more a point in time than they have ever been before. And I think we, particularly in our businesses, so I think we evidenced that every quarter that goes by. In terms of the advertising market, just a couple of things. It continues to be extremely competitive. You've seen some of the large digital players, which have just had extraordinary growth like Facebook and Google, and I…

And then just one last question from me regarding the recent $16 million bond exchange. And I'm sorry if I missed this earlier, but did that exhaust your ability to move unsecured debt up into the secured level of the cap structure? Or do you have additional room there?

Yes, that actually didn't impact the debt baskets because the senior debt that was used as exchange currency was in an unrestricted subsidiary. So it was neutral with respect to the baskets.

Okay, great. So in theory then, with respect to, I guess I'm just trying to get to is could you essentially, if you have willing participants, could you satisfy the rest of the maturity or the rest of obligation in that fashion?

Well, I guess it would depend on exchange ratio but at par, yes, we could.

If certainly we had willing participants.

Well, great, which brings me to, were any of the $16 million that got exchanged in July, were any of those held by iHeart subsidiaries?

No. This was a reverse inquiry from a third party on a privately negotiated exchange.

We have a question from the line of David Phipps from Citigroup.

A couple of things on CCO. When you look at the International, the FX impact for the third quarter and fourth quarter, it seems like it's improving. Is that part of what you would expect for the business?

Yes, I mean, look, we've got, and I think you see it -- you saw it in the results, and you see in the pacing, we operate, quite frankly, in a lot of different countries outside the U.S. We've seen -- it's interesting, we've seen some strength in the overall business, particularly like in places like the U.K., in Spain and in Switzerland. We've seen some nice increases in the overall business. And actually, I think I mentioned in my opening remarks our U.K. business is performing incredibly well and even at a higher level than since we lost the London underground, which turned out to be an incredibly prudent and smart financial decision recommend by William Eccleshare and his team. And we've also seen the benefit of investing in our digital billboard network, advertisers and particularly outside the United States. And again, I think the U.K. is a great example. If you look at what we're doing in the U.K., we're significantly outperforming our competitor. And the reason why is because we've built these digital networks that the U.K. team has done a great job presenting to advertisers. So those environments have paid off. And usually, and we'll see if this follows through, the U.K. tends to be a little bit of a leading indicator in Western Europe in terms of the advertising revenues there and the advertising environment. So I'm hoping that follows, the rest of the countries follow as we go forward.

The thing I would add to Richard's comments is keep in mind, we reinvest a lot of the excess free cash flow that comes out of International back into the International business. So while FX fluctuations affects the reported numbers, there isn't a whole lot in terms of impact on actual cash movement back and forth.

And does -- so if CCO were to sell some assets in the near term, would they have capacity to continue to dividend out those, some of the asset proceeds?

The restricted payment capacity under the Outdoor venture is all but exhausted.

Okay. And then finally, congrats on the radio business. It was a tough quarter for the rest of the industry, certainly better than the industry. Are there any things that are unusual in this third quarter as compared to the last third quarter. So something that might be in there that wasn't in there last year or vice versa as we think about the third quarter.

You mean think about the third quarter coming up…

Yes, the quarter, like a special event side, yes?

Yes. No, no, we had some -- if you remember, last year, in the third quarter, we had some contract reserve reversals for some talent last year in the third quarter that we talked about and if you go back and look at our third quarter earnings call last year, but that's the only thing that came out -- that comes to mind of any size and scale. And also, don't forget, last year, we had about 11 -- I'm going to say about $11 million, if I remember it correctly, of political revenue last year in the third quarter, which obviously we're not going to have this year in the third quarter. So that reserve on the expenses accrued in the talent and not having political revenue are -- state the obvious in that $11 million.

And then finally, on the International Outdoor business, you had rising revenues and declining expenses in that business, so it had some nice margin pick-up in that. Was there anything particularly unusual about this quarter? Is that something that you're starting to gain operating leverage on in the International markets?

Yes, yes. Again, I just -- it's just, quite frankly, just a really great management. And I don't mean just ourselves. I mean, our team over there just in terms of focusing, rightsizing the business, in terms of the revenue that was anticipated. And again, I think, starting to see the fruits of, I think London is the best example, where we walked away from some business that wasn't going to be profitable, built out a different digital network and we're reaping the benefits now of that.

And our final question comes from the line of Aaron Watts from Deutsche Bank.

Just 2 from me. One on the app. Any color in terms of the 104 million registered users on the uptake your getting with some of your streaming subscription offerings that you launched earlier this year. Just trying to think about monetizing that big user base. And then Rich, secondly, I know this is a touch one, but any specific factors you can call out that you think dragged down on radio on an industry performance this year-to-date and caused it to be a little softer than you had initially thought? And any reason to be optimistic towards the tail end of this year into 2018 on why that can get a little better?

Sure. So a couple of things. Thanks for the question. Remember, just, again, just to level set on, and I think the question really relates to iHeartRadio Plus and iHeartRadio All Access, the way to think about this is it's a great example of how we can add additional products and value to our listeners by introducing new revenue streams. And so far, the performance is right in line with our expectation. And again, just go back to the theme of what I keep saying. Our job is to continue to invest to meet the needs of our advertisers and then we rent our consumers to our advertisers. That's what generates our advertising revenue. And therefore, we need to follow our consumers wherever they go. The financial impact to us at this point is not significant. What's great about our 2 in-demand subscription services and what's so much different from our competitors is our business model is not entirely based on streaming service. This is an add-on, again, to meet the needs of our consumers. So we don't, we're seeing the detailed subscription numbers. And I'm going to say, we're not going to be the same thing financially and the financial back is not material, but we feel great about the service. In terms of ourselves and the industry. I really can't comment about the rest of the industry and their overall performance. What I can say is that I do think everything we're going to build out a multi-platform, we say those words all the time and you guys may get maybe not sick of hearing them, but say, okay. Here he goes again, talking about multi-platform 21st century media entertainment company. But again, that's what we're doing, just constantly expand our offerings. And yes, I think, I'm not going to predict what advertising revenue is going to be, but I think we are still wildly under-monetized. Our ROI, as measured by Nielsen, is 6:1. So our advertisers continue to get great value. And if you look at where our growth is coming from, and again, it's outlined in the 10-Q, as of today, it's from the national platform. So we're getting lots of big, blue-chip advertisers in lots of different categories and continuing to drive our local business. So I think we have every reason to be optimistic because of the value proposition that we deliver to advertisers and the way we meet the needs of our consumers, our listeners.

All right. Thank you, everybody for participating in the call today. We really appreciate it. And as in the past, Brian and I will be available to take any calls today and tomorrow. Thank you.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.