Ladies and gentlemen, thank you for standing by, and welcome to the iHeartMedia Q3 Earnings Conference Call. [Operator Instructions]. I would now like to hand the conference over to your speaker today, Mike McGuinness, Deputy CFO and Head of Investor Relations. Thank you. Please go ahead, sir.

Good afternoon, everyone, and thank you for taking the time to join us for our third quarter 2020 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. Please note that in addition to our press release, we have an investor presentation that you can use to follow along with our remarks. Before we begin, let me quickly cover the safe harbor seen on slide show. During this call, we will make forward-looking statements, including the current and expected impact of COVID-19 on the company's liquidity, financial position and results of operations. These estimates are based on current expectations and assumptions that are subject to risks and uncertainties. Actual results could materially differ from these expectations and assumptions, and these risks and uncertainties are discussed in more detail in our filings with the SEC. In addition, as noted in our March 26, 2020 press release, due to the uncertainty surrounding the impact of COVID-19, we reiterate that the company will not be providing full year 2020 financial guidance on this call. During this call, we will refer to certain non-GAAP financial measures. Reconciliations between our GAAP and non-GAAP financial measures can be found in our earnings release or in the investor presentation available on our website. And now I'll turn the call over to Bob.

Thanks, Mike, and good afternoon, everybody. Thank you for joining our third quarter 2020 earnings conference call. I'd like to start by recognizing our employees, who continued their strong performance despite what is the most challenging environment any of us have ever encountered. Despite these challenges, our employees continue to make great strides cross the organization, moving key initiatives forward, building out new products, testing new ideas and serving our communities and our clients. We have developed plans in accordance with the most up-to-date safety guidelines to open each of our markets when their individual local safety criteria are met. And in fact, approximately half of our 160 markets have returned to the office. And we expect more to open in the coming months. And it's encouraging to see that on average, in Q3, markets whose offices are open are performing about 600 basis points better than markets that are not. Providing us with even more confidence in our post-COVID growth opportunities. I want to mention a few headlines before I get into the third quarter results. One, we are pleased that revenue continues to recover and improve sequentially. While revenue in the third quarter remained below prior year, it substantially improved when compared to the second quarter and continues to improve sequentially month-over-month. Two, we feel our results this quarter clearly validate the value of our multi-platform product and revenue strategy and the investments we've made in our growth areas. Our revenue is now split approximately 50% broadcast revenue and 50% other revenue lines. These other revenue lines, which include digital and podcasting and networks, all of which are businesses that have been the focal point of our growth efforts had meaningfully better revenue performance than our broadcast segment. For example, digital grew 17% year-over-year and was still up…

Thanks, Rob. The challenging macroeconomic environment which began in April has improved significantly. And while we've experienced a partial improvements in each of the months that have followed and see multiple areas that give us reason for optimism, we continue to experience year-over-year revenue declines. In terms of our third quarter results, if you turn to Slide 7 of our investor deck. On a reported basis, our consolidated revenue decreased by 22% over the prior year period. Direct operating expenses decreased 13%, driven primarily by cost reductions associated with our modernization initiatives as well as those taken in response to COVID-19. In addition, variable operating expenses decreased 13%, in line with lower revenue recognized during the period. SG&A expenses decreased 11%, driven by cost reduction initiatives and lower sales commissions, which were driven by the decrease in revenue. Corporate expenses decreased 41% during the third quarter compared to the prior year quarter, primarily as a result of lower employee compensation, including variable incentive expenses and employee benefits resulting from expense reduction initiatives. The decrease also included the impact of an $11 million decrease in share-based compensation expense compared to the prior year quarter. The declines in our third quarter GAAP operating income to $39 million compared to $141 million in the prior year quarter, as well as the declines in our adjusted EBITDA to $162 million, down from $275 million in the prior year quarter, were driven by lower revenue. Turning to Slide 9. I'll provide additional color on the performance of our revenue streams. In our broadcast business, revenue declined by 29% on a reported basis, while networks declined by 26% year-over-year. Our digital revenue stream grew 17%, driven by continued growth in podcasting, which increased 74% year-over-year. Audio and media services increased by 25% on a reported basis,…

[Operator Instructions]. Your first question comes from the line of Jessica Reif Ehrlich of Bank of America.

You guys talked a lot about the cost savings and the continued benefits from that. So you've been streamlining. How are you thinking about opportunities to invest in growth as you continue on this path of recovery and all the news lately has been really good news. So hopefully sequential -- we'll see sequential improvement, but how do you think about the size of investments and growth in areas like podcasting versus like deleveraging the balance sheet. So it seems like you'll have great operating leverage? And then secondly, can you just talk a little bit about the -- you mentioned -- and it's in the press release, the agreement with Pushkin Industries to distribute (inaudible) content. Is this something that we should expect more of? Can you talk about the economics of the deal like this, how it's structured? What are the benefits to coproducing shows? How does it affect you producing your own podcasts?

Yes. Jessica, let me start with the second one, and I'll let Rich jump in on the first part of that. I think on the agreement we announced today with one of the major podcasters, Pushkin Industries, which is Malcolm Gladwell and Jacob Weisberg, who are the founders. I think that what we got and it gets into this whole area about the talent wars in podcasting, is we probably have the best weapon anyone does, which is we have the biggest platform. And if you've got a podcast or you think you're going to have a big podcast, you really want it on the biggest platform. You want to be able to use the power we got of our radio promotional platform behind it. And we've got the largest sales force in audio and podcasting to maximize monetization. So as opposed to us having to go buy people, we're able to offer them something that's very healthy, which is an opportunity to have the biggest return on their investment, creative investment and dollar investment by joining our platform. And I think if you look at the podcast we have today, we make some -- are completely ourselves with absolutely no profit participants. We have some like this is like doing television show or movies. We have some that have small profit participation, some have larger, some that we do in partnerships, some we coproduce. And it's the full range of it. But for us, we're very cognizant of profitability, and we're very cognizant of margin. And we want to make sure we keep our podcast margin higher than the overall margin of the company. So this indeed is a growth business in every way. Rich, you want to add to that?

Yes. Thanks, Bob. And Jess, thanks for the question. Just -- I mean, just one thing I'll end with when on Bob's point on podcasting or to your point on cost. As Bob noted in his opening remarks, the people that are, not just Pushkin, and so if you kind of look back at facts as opposed to what people say to reiterate Bob's point factually whether it was Will Ferrell that we all know about, or Hillary Clinton, or Bobby Brown or Charlamagne and committing to us the Black Effect Network, which is our partnership with Charlamagne. Enrique Santos talked about as remarks, everybody could say a lot of words, but I think the proof is in the facts of our people that are both committed to us and recommitted to us because of our asset base. And the ability for both of us to make money in partnership with all of our talent. On the cost side, again, we highlighted in the opening remarks, and I think I highlighted in my remarks, that we expect a substantial piece of the cost savings that we announced this year of the $215 million to be permitted. I'm not going to give you any exact number on that because that would really be kind enough to give you guidance, and we're not giving guidance for the rest of this year. Other than Bob's comments, that he talked about on revenue for Q4 or going into next year. But I think like a lot of companies in America we've learned to be, honestly, just wildly more efficient than we've been in the past. And I would say we all, as a management team, that's Bob, myself, or Mike McGuinness who's on this call or the rest of our leadership. And by the…

Can I add one other thing to it, too, is that I think on your point, Jessica, when we look at our future and where our growth opportunities are. We look at the pieces that are necessary to make it happen. And we look at, do we make, buy or partner. And when we buy, we want to buy efficiently. We try and buy something that has what we need, but that can benefit from what we can add, so that we don't have to pay outrageous prices for it, we're able to buy the piece, and then we add a lot of value by putting our scale to it. And I think you've seen us do that, as Rich mentioned, with Jelli, you've seen us do that with Stuff media, where we bought less than 5 million unique users. Today, I think our podcast number is over 27 million. So we really added 22 million on top of the 5 million organically. And those are the kinds of acquisitions we go for, ones that we think we get enormous leverage out of and that we think are the most efficient way and the most effective way to get the value creation as opposed to making it ourselves or partnering for it.

Your next question comes from the line of Steven Cahall from Wells Fargo.

Just wanted to dive a little more into podcasting. So maybe first, where did the inventory for Voxnest primarily come from? And we've seen some similar ad tech investments from SiriusXM and from Spotify. And I was just wondering if you think about that as competition at this point? Or is it kind of everybody growing the pie and getting advertisers to commit more funding to this? So is it a market share battle? Or is it kind of a good for the whole industry right now as everyone invests in ad tech?

We're seeing a huge expansion of the pie. So I think for the foreseeable future, we're all benefiting from a growing marketplace. I think when you look at Voxnest, what it really allows us to do in simple terms is have an electronic trading platform for our non-premium inventory. We've done extraordinarily well selling the big premium inventory for our -- these very high profile, big podcast we have. But there's always a piece of it that remains unsold. It's not premium inventory in the sense of what podcasting will get on the premium level. And so by putting an electronic platform together, being able to combine that with data, being able to combine these fragmented podcast marketplaces that are out there and being able to deliver it as a real-time bidding platform, I think, give us a tremendous way to add additional value to what we already have and becomes important to us. And then there's some secondary benefits. There are some tools, there's some ad serving capabilities, et cetera. But I think the marketplace and going after any unsold inventory or getting more efficient with unsold inventory, is a great way to help the bottom line of the company and the top line.

And then on ad sales, I was wondering if you could maybe give us what political ad sale dollars were in Q3 and maybe also in Q4? And just as we think about the core trend, is it possible for you to help us think about how core advertising is improving, excluding what the impacts of political might be since that can shift it around on those month pacing that you gave?

Sure. Rich, do you want to hit that?

Sure. Sure. So first of all, we've said, in terms of political, this will be by far the biggest political year that we've ever had. And just as a reminder, we also benefited not just from the core of the iHeart business, but we also benefited from the fact that we have Cats. Remember, Cats, again in the TV rep business is one of the largest TV rep firms out there. But if you look at it, we were in Q3 political revenue, we were approximately about $40 million. October was up also, and we were about $55 million in October. And then as you look forward, we'll continue to benefit from political. But I'd say November, much less an extent than we did in October, but we'll still get some significant benefits there in total. But just to be clear, so $40 million, October was $55 million. And then we'll get some benefit in November, which will be less than October out there. And then we continue to see, as Bob, I think, pointed out in his remarks. Just as a reminder, we're dealing all the same inventory here. Clearly, we're getting a benefit from political. We're getting a benefit both within the company and the tightening of the inventory in the advertising market. And then we talk out -- the only thing I'll say about going forward in terms of the value is the guidance we gave for Q4, would be low to mid-teens digit down in revenue, but we continue to expect to see sequential improvement in Q4 compared to Q3, even as we leave the benefits of political as we talk today.

Yes. Let me just add to it, to be clear. Without political, we still have seen the sequential improvement of ad revenue, which I think you were asking.

Yes. Great. That's perfect. And then last one for me. Rich, you have the cash tax benefit this year, which you called out. As we just think about how you might convert adjusted EBITDA into cash flow next year? Anything else, I mean, you talked about maybe some CapEx stepping up and I guess, become a full cash taxpayer. Anything else we should be thinking about in terms of your cash generation?

No. I mean, look, again, we haven't given any guidance, but I would -- as you go through the 10-Q, and again, none of us know what the tax landscape is, we could all speculate, but it's never good to speculate, but none of us is going to know what the tax landscape may or may not look like next year -- any changes. But just as a reminder, as everybody kind of goes through the 10-Q today, we still have some pretty significant tax attributes starting with NOL -- NOLs, excuse me, that we can utilize for the company going forward, obviously, we're including 2021. And so the bottom line is just going back to what I said earlier, the attributes of this company on the ability to generate free cash flow. I think we've demonstrated this year, and we expect to continue to demonstrate going forward.

Your next question comes from the line of John Janedis from Wolfe Research.

Maybe a quick follow-up to Steve's question on podcasting. You talked about the EBITDA margins and monetization along with Voxnest. Given the current margins and cost of the content, is there meaningful upside on the margin front in podcasting from here? And I think you alluded to this a little bit. But from an advertising perspective, is that bucket of money coming from a different part of the client budget? Away from traditional broadcast?

Yes. Too -- I mean, the good news about podcast is it is sort of the shiny new thing. And I -- look, I'm an old guy, so I go back all the way to when cable networks came about and what's interesting is every time there's been a big economic downturn, the advertiser decided to take a chance on something new. In good times, when you say, hey, I've got a great new idea. These cable networks, they say, sounds great, but my business is doing well. I don't want to rock the boat. When things are not so great, they say, okay, I'll try that new thing. If you look in the recession of '88, that was really the time at which the advertisers begin to give cable networks a shot. You saw a big upturn in revenue there. In the later '90s, you saw '97, the downturn there, you saw them give a chance to be Internet -- Internet advertising. The turn of the new century, we saw Search emerge. In '08, '09 we saw social emerge, and we're seeing podcasting as that now. And what's interesting to us that we really love about podcast because we're bringing some advertisers into podcasting, who were not major advertisers and anything in audio, much less just radio. And they are pulling the money from wherever they pull it from presumably TV or digital budgets, I think it's probably more aligned with digital budgets in their minds. And they are making this a priority spend and then things fall behind podcasting. All really good news for us. And I see no signs of that abating. If anything, I think it is increasing. What it also does is it's one more door to get people to do business in audio. We've had some advertisers that have started in podcasting and then decided they wanted to use -- they liked it and want to use some radio too. At first associated with the podcast. Second, to just say, I like the way it works. I'm getting an understanding of audio and the impact it can have. And so we spread them across our other assets. So if we think about all of our platforms as separate doors, to bring advertisers in. By the way, we've brought some major advertisers into the company initially through events that did not think they wanted to buy radio. Didn't think they wanted to buy audio, they just wanted to be associated with an event and eventually became huge advertisers on radio as well. So we see podcasting as that and probably stronger than we've seen with any other platform. So we're very encouraged by that.

And if I could just add one thing. I just want to maybe just come back on one point back to maybe each of the 3 questions so far on Bob's point. I think reinforcing our view. So you have another -- what you view -- I think it's a objective third-party view, is the point that Bob made when we made the announcement today with Malcolm Gladwell. And all the other podcasters we named. I don't have to repeat them. We don't know that (inaudible) you could assume that each of these individuals or teams that chose to come with iHeart all had many, many, many other choices. And while they were choices to go behind the paywall, other very appealing financial characteristics that maybe had more appealing guarantees, yet, not knowing anything. Each of the ones we named obviously chose to come with us. And they chose to come with us for all the attributes that Bob said. So I just think it's another validation and confirmation, not just in the medium but iHeart's place in that medium as it emerges.

And Rich, I think going to that point, to hit it head on. We've got the number one platform, and so we don't think we have a need to, and we don't intend to go buy share. We're looking for everything we do, we're looking to be profitable, we're looking to be a nice profit contributor. We put it through a pretty tough screen of economics for us. Now presumably, using our platform and our monetization engine, we probably can get more revenue out of any podcast than we think anyone else can. So it gives us the ability to perhaps reach a little further, just like with air talent, we have the ability to spread talent across multiple markets or to put them in a situation where they have a bigger platform. Therefore, the economics are better for them and better for us. So we see that in podcasting. And we are so far have been successful with that. We continue to -- the deals we've done is help people build hits, which, by the way, the more people we help build hits, the more people want to come to this platform for us to build them their hit.

That's helpful. And Rich, maybe a quick one. The release mentioned potential reduction in real estate footprint. I'm wondering if that includes potential asset sales?

No. Look, let me take one step back. So we have nothing -- there's nothing that's planned in terms of any asset sales, I think we -- not I think, we do have one job in this company, and you've heard Bob and I say it time and time again, which is to focus on driving the equity value of this company and driving the value for our stakeholders. So we're constantly challenging ourselves as to what the right asset base is today, I think Bob hit it head on and put a very fine point on it. We don't -- we reach 93% of Americans. When you look at all of our slots where there's podcasts or digital or all of our attributes, we don't see a need to add anything. And at the same time, as you go back over the last couple of year period of time, right down to the towers sale-leaseback we did a couple of years ago. We're saying, gee, what's the best financial transaction to do that gives us and maintains our strategic footprint, drives EBITDA but constantly keeps this unique asset base together in terms of size and scale and reach and uniqueness. So I don't see that's a little bit of a long-winded answer. But it combines both. But with the filter we have, I think Bob used the turn filter a number of different times, whether it's capital allocation, however you think about the term filter. Sales are in that same filter, but I don't see anything out there today that's going to come on to the market for us.

Let me also talk to the real estate. Rich, back just at the real estate point. Sure. I think that -- and we said it before, I just want to say it again? That we've learned a lot through COVID. And our people, if you think about it, they've had 10 years of technology learning in the 3 or 4 months. And as a result, we envision operating differently in terms of how we operate our space. I think they're going to be, although I think everyone will probably come to the office some, I don't think we're going to have the need for the same amount of space, even with the same number of employees, understanding that some people can get a lot more of their work done outside the office and don't have to be in the office, 100% of the time. And how they work and where they want to work in the office has also changed as a result of COVID. And I think we're taking that into account, and we're going to move aggressively on downsizing our footprint to accommodate that.

Your next question comes from the line of Jim Goss from Barrington Research.

In terms of downsizing your footprint, do you think, could that involve station sales, for example, might you not need to be in some of the smallest markets, for example?

Let me hit that head on. When I said footprint, I mean, in each location, we'll make do with less space than we have. We have no intention of walking away from any of our locations. And I think you see one of the real strategic values of this company that makes it different from everybody else is how many locations we're in. We're in 160 markets with owned stations. There's no one in America that comes close to that, radio or TV. And having that kind of distribution and that kind of control lets us offer things to advertisers, no one else can. It lets us develop these -- the value of scale. And indeed, you saw it in this political season is if we're everywhere and we're this kind of footprint, no matter what states are hot or cities are hot, we probably got a product there to take advantage of it. So we like that. We think it's one of our strengths. We don't see a need or value in reducing that because we think that's one of our strongest strategic differentiators. I mean, in radio, we're the only radio player that really offers national coverage with our own stations in addition to our networks. And I think that makes us very unique.

Yes. And Bob -- Jim, if you wouldn't mind me just adding one thing to what Bob just covered. I think if you actually go back to Bob's opening remarks and those 4 points that I'll highlight in this company about our future and our growth strategy. One of those points was modernization, and we said end related cost savings. So it's a lot more than just cost savings. It's also developing the studios of the future that we've talked about utilizing cloud-based technology. And really taking advantage of AI, as Bob noted, after these number of years of investment and the experience of our team that really helps us maximize the performance, not just on advertising front. But quite frankly, on a listener front, on a programming front in each of our markets. And we've created centers of excellence across the organizations. They really consolidate key resources for the whole company to take advantage of increasing quality and improving costs and prudent service, I'm sorry. Cost reduction happens to be a benefit of that and a by-product of that, but we are improving quality and service at the same time for our listeners. And so I don't think -- Bob and I really need to emphasize that when we talk about footprint and efficiencies, it really is on both sides.

And then Rich, if I can just add to that because I think that's an important point that we should make sure to get out is we talked about how many markets we're number one in. And I think the reason we have that kind of audience advantage is because of the quality of the programming we do. And we've made great investments in tools to help our programmers. And one of the things we have today is, I think we have, if memory serves me correct, something like 3,000 data inputs into music selection, music balance, understanding how the flow goes. At that level of data inputs, a human mind can't absorb it, but AI can. So we built AI over time that can assist the people making those choices so they can make higher quality choices. And those kinds of things we've been building over the years are, I think, paying dividends and you can see it in the performance of the company. And we can -- so yes, it'll save money. Yes, it will make us more efficient. But I think primarily, it will make us better.

I was thinking of asking whether you were doing an additional multicasting using the top-tier talent that you have. But now I'm wondering if with the AI, that you've mentioned, I think in the past calls. If instead, you may look at spot loads, and maybe have fewer but perhaps more expensive ones and try to address a revenue situation that way, maybe not just now, but going forward as the economy begins to improve, hopefully, with the new vaccine?

Well, look, we look at everything. And I will say, though, we have not found spot loads to be an issue since the cassette player went into the car decades ago. Radio has not been the place you go if you want no commercials. Radio has been the place you go if you want companionship, and you want to find out what's going on in the world. And I actually think that if you've ever listened to a radio station with no commercials on it, you feel a little lost because those commercials actually tell you an awful lot about what's going on. That people are not coming to us for music for the primary goal because probably 25% of our stations don't even play music. They come to us for companionship. We're keeping people company. And what do people do when they have a relationship, they often play music for each other. So that's the reason we play music, we talk about it a lot. We have the people on the air who may get to talk about it. And part of our mix are commercial. So again, that's not a problem we're trying to solve for. We're trying to make sure that when people tune to us, that they indeed are engaged, they bond with us and it becomes a habit for them.

Okay. Maybe lastly, with this more optimistic look at a potential vaccine or multiple vaccines. What impact do you think that would have on maybe trends accelerating anything with your business model?

Right. That's a really good question and one we've been talking a lot about before today and certainly today, that I think the vaccine is certainly encouraging news for society, but certainly for our business, too. There have been harder hit categories which haven't come back much. From Q2 to Q3, a lot of our growth came from categories that were down a lot in Q2, and are just beginning to come back, like food and beverage, auto, restaurants, retail. But if we get a vaccine, we can see the return of some big spenders like movies, concerts, some of the retail that has not come back so much. Local businesses like the local restaurants. So we think it's -- it has a tremendous -- can have a tremendous impact on our business and are watching it carefully.

So maybe we have time for one more question, operator.

Unfortunately, we don't have any further questions at this time. I turn the call back over to Rich Bressler.

Well, first of all, I want to thank everybody on behalf of all of us for taking the time today. Thank you for listening to the iHeart story. One thing I will just add in closing, is that because I know for the last couple of years, when Bob and I have met and talked to a lot of you, we had constantly gotten the question about when we were going to get approval from the FCC. And I know it was in our press release and in my opening remarks. But I just want to reiterate that the FCC has approved the ability for our warrant holders to convert into Class A. There's a process they need to go through, which is on the website. We don't need to go through right here, but it's a fairly automatic process that will allow people to convert in the beginning of January, which will double -- approximately double the public float of our market capitalization out there. So again, that's been, I think, over -- at least some period of time, close to the number one question we've gotten from people. So I just wanted to proactively reiterate that before we close, and thank everybody again.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.