Ladies and gentlemen thank you for standing by. Welcome to the iHeartMedia 2019 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session; instructions will be given at that time. [Operator Instructions]. As a reminder, today's call is being recorded. I would now like to turn the conference over to your host Kareem Chin. Please go ahead.

Good morning everyone. Thank you for taking the time to join us for our second quarter 2019 earnings call. Joining me for today's discussion are Bob Pittman, our Chairman and CEO; and Rich Bressler, our President, COO, and CFO. Please note that in addition to our press release, we have an accompanying slide presentation that you can follow along with our remarks. I want to refer you to Slide number 2 in the presentation and remind you that certain statements made on this call are forward-looking statements that involve risks and uncertainties. These statements include management's expectations, beliefs, and projections around the company's performance and represent management's current beliefs. There can be no assurance that management's expectations beliefs or projections will be achieved or that actual results will not differ from expectations. These risks and uncertainties are discussed in more detail in our filings with the SEC. Today's remarks will focus on adjusted results which do not conform to generally accepted accounting principles. Reconciliations for non-GAAP financial information discussed on this call can be found in our earnings release or in the presentation available on our website. And now I'll turn the call over to Bob.

Thanks Kareem and good morning everybody. Thank you for joining our second quarter earnings conference call. I'm going to keep my prepared remarks concise and focused to leave plenty of time for Q&A since this is the first time you'll be hearing from all of us and we want to find out what you're most interested in and specifically address any questions you may have. We successfully emerged from Chapter 11 on May 1st, thanks to the focused dedication of our employees and overwhelming support from our advertising partners and all our stakeholders including our new shareholders. We're also pleased that the restructuring process resulted in a capital structure that matches our successful operating business. And with the separation of Clear Channel Outdoor Holdings, we have an iHeart business that will focus exclusively on increasing our lead as the number one audio company in the U.S. I also want to take a moment to recognize our new Board of Directors whose breadth of experience and expertise we view as a significant strategic asset. Rich and I and our entire management team are looking forward to closely working with them to maximize shareholder value. We're also looking forward to engaging with shareholders at investor conferences where we'll be able to update you on our continuing progress. Before we get started, I just want to make one point. This company has an attractive business model. We have one of a kind assets with strong free cash flow generation dynamics and I want to assure you that Rich and I and the entire management team intend to use those assets and that strong free cash flow to deliver shareholder value and delever our balance sheet. Now to kick off today's call as we reintroduce ourselves to the public equity world, I wanted to…

Thanks, Bob. I'd like to start by providing the financial highlights for the quarter. As Bob mentioned, we made important progress in the quarter to position iHeartMedia for continued profitable growth. Our financial performance reflects the resilience of our broadcast and networks revenue streams and the strong growth in our digital revenue all of which benefit from a largely fixed cost base coupled with low capital expenditures and minimum working capital requirements that result in strong operating leverage and free cash flow generation. Now let's turn to slide 12 and review our key financial results. As you have seen in our earnings release and Form 10-Q, our reported results for the quarter are split between the predecessor period and the successor period as a result of our emergence from Chapter 11 bankruptcy during the quarter. In order to provide a meaningful comparison, I'll be discussing the combined predecessor and successor period in the second quarter of 2019 compared to the second quarter of 2018. Our consolidated revenue, increased by 2.4% over the prior year. Comparability of our year-over-year results is impacted by the fact that 2018 was a mid-term congressional election year. Excluding the impact of political revenue in the prior year quarter, revenues grew by 3.9%. Adjusted EBITDA grew 3.2% over the prior year with margins improving to 28.8% in the quarter. Operating income increased slightly. Our Q2, 2019 adjusted EBITDA and operating income were impacted by fresh start accounting adjustments, arising from our emergence from bankruptcy. The net impact of the fresh start adjustments was not material and favorably impacted adjusted EBITDA in Q2 by less than $1 million. The impact on operating income was more significant with depreciation and amortization increasing approximately $30 million as a result of writing off our long-lived assets to estimated fair values.…

Thank you. [Operator Instructions] Your first question comes from the line of Jessica Reif Ehrlich from Bank of America. Please go ahead.

Thank you. Good morning. A couple questions, the market is so focused on recession. Just wondering, can you give us the things that you look for or indicators where you would see kind of a turn in the business model? And what shows do you have now to offset a potential downturn in broadcast advertising that you may not have had in the past?

Thanks, Jess for the question. Just – so let me take the second one first just in terms of tools and everything else. A couple different things, I mean, if you look at page 11 in the deck we talk about the generation of free cash flow. First and foremost, we have the ability our capital expenditure is $110 million to $120 million a year. Only about $30 million of that is maintenance capital expenditures, and we can clearly turn that down and the rest is really what I call growth capital expenditures. So we have the ability to deliver that. And also, when you look at the rest of our cost base, yes, we do have a fixed cost base, but we've been pretty good over the years in terms of margin expansion even when we haven't had significant revenue growth. And to that ability to go out and continue to cut costs there on – the variable costs that we have will also give us some benefits.

Well, I think also Jessica I just want to add in sort of a perverse way and we're certainly not praying for a downturn, our biggest issue is getting advertisers to try radio to give it a shot. And when times are good and business is good people tend to do the same thing they've been doing, when ain't broke don't fix it. But when things turned down, they're much more willing to give things a shot. And so we think in a downturn given the price of radio and the efficiency and the superior ROI that I think we may find as an opportunity to get people to try it and to try some major media mix changes like – by the way like P&G did. And by the way, if you look back to 2008, 2009 that's the time social and digital really took off. And I think it was because business was in a rough shape and people were willing to try some new things. So, although again, we're not looking for it we do think there are some unique opportunities there as well.

Your next question comes from the line Sebastiano Petti from JPMorgan. Please go ahead.

Hi. Thanks for taking the question. Just a quick follow-up to Jessica's question. Just can you drill into maybe some of the areas of cost savings for the year just in the context of your adjusted EBITDA guide particularly as it is a pretty sizable political comp in the back half? And then related to that, any color perhaps you could give? Obviously, broadcast was up, I think, you called out ex-political, but just any color on local versus national trends?

Well, let me start with and I'll let Rich get into some of the details, but I think if you look at the business overall, we're continuing to look at technology to provide efficiency, not only does it provide I think better service, more speed and often more reliability. It also reduces cost. And if you look at some of the investments we've made in IT over the past number of years, we've been building toward that kind of efficiency and we'll continue to drive that. I think on the -- even on the programming front, we're finding the use of technology assist for our programmers to improve their decision making, speed things up and again provide more cost efficiency as well.

Yes. And the only other piece I'd build upon that and add, as we've talked about getting back into the 30s on our EBITDA margins, if you look this quarter, we got to I think 28.8% some slight increases than we've had in the past and we'll continue to make improvement on that. And part of the way we're getting that improvement in addition to revenue growth on a fixed-cost base is, as Bob articulated, investing capital expenditures for efficiency. And actually, if you kind of think about our long-term plans and look at our long-term plans and the capital spending, you can almost track the increase in the EBITDA margins to the capital that we're putting in and therefore reducing our overall cost.

I also think when you start talking about slowdowns or how you can control costs there are things we're working on that will provide future value to the company and they're embedded in the OpEx. Should we hit a downturn, we do have the opportunity to pause those efforts and put that money on the bottom line as opposed to investing there. Obviously, you lose a little bit of timing in terms of getting it -- getting the benefit for the future, but we think obviously in a downturn that becomes the priority.

Thank you, guys.

Your next question comes from the line of Stephen Kehoe [ph] from Wells Fargo. Please go ahead.

Thanks. I got a couple for Bob and then maybe a follow-up for Rich. Bob maybe just first off at the top level. I mean, you've been running the company through Chapter 11, I imagine that's not an easy process to manage your corporate strategy through. So what do you feel like you all can do now that you've emerged and kind of have the shackles off, that makes your job a little easier, or your growth a little more effective? So what are you kind of excited about to do over the next couple of years?

Well, it's interesting. I think going through that process, the worst thing that we had to deal with was just negative press. Negative press affects clients, it affects employees it affects partners. And just getting rid of that that cloud has been great for us. In terms of efficiencies, I think, we've already -- we managed even with all of that to build out SmartAudio to build the podcast platform. We made two acquisitions during bankruptcy for HowStuffWorks, which turns out to be a very strong acquisition and Jelli which was really on the tech stack, core to our making our broadcast inventory look like digital inventory. So I think from our standpoint, we are excited about having a future that doesn't have the blemishes on it, doesn't have the worries on it on an important constituencies, and being able to drive it through and obviously having this ability to generate this kind of free cash flow gives us pretty good feeling.

And Stephen, it's Rich. Let me just add one other point and -- I probably should have -- we probably should have mentioned earlier, starting with Jess's question. When you think about, if the economy hit some headwinds and Bob and I have both run companies during recessionary periods of time, but nothing prepares you more for running a company in tough times to be more scrappy, to be more resourceful than the period of time that we've gone through with iHeart, where prior to this restructuring, we had $1.8 billion of cash interest expense every year that was staring us in the face. And yet, we managed to have 20, 21 consecutive revenue growth quarters. We imagined -- we were able to figure out how to invest for the future, as Bob just articulated, so we could be talking to you about all these opportunities that we have here today. But you could see at the start, you see like our digital line increasing by well over 30% for this quarter. So, again, there's a theoretical experience about running a company with some headwinds in the economy and then there's the practical experience that the two of us have done in the last six to seven years.

Any time you're making a decision, you have several solutions; one of them is spend money. Going through the period Rich and I have lived through spending money was the worst solution for us and the one we came to last. Now that we have some financial flexibility, we intend to keep that same discipline though as we developed before we had that opportunity. And we still want to find smarter solutions, more efficient solutions than just spending money.

Okay. And then, maybe a follow-up on podcasting. I think your digital revenue is up like 30% year-to-date through the first half. Maybe you can just help us disaggregate a little bit of what the inorganic versus organic component was, just to help us model that out. And then relatedly, we've seen some M&A around podcasting. Spotify and INTERCOM have also done some acquisitions. I think your platform is a little unique, because you do a lot of coproduction with a talent like Will Ferrell and Chelsea Handler. So I'm guessing valuations are getting pretty rich for some of the studios. How do you kind of think about how you scale that, or it's already at scale, or I guess grow the platform in terms of inorganically buying stuff versus just continuing to kind of let the talent come to you from a platform basis?

Well, let me start with the last question and I'll let Rich take the first one. I think on the podcast side, we are the only podcaster that really is significantly multi-genre. We got great true crime monster series, the line of monster and then Zodiac. We've got comedy with Will Ferrell. We've got the radio on-demand with Charlemagne and Bobby Bones. We've got business, we've got all these ways to hit the consumer and that's very important to us. We also have the capability because we've got this tremendous promotional machine to bring people to us. And I think as we're talking to people coming aboard. I think their first goal is not what kind of split you're going to give me or how much will you pay me, but the first question is can you make my podcast a hit? And I think, the Disgraceland, example is really an eye-opener when you had this fantastic music storytelling podcast. And it was doing about -- I think the last month, it did 100,000 downloads on its previous platform, moved to our platform it did two million. And I think again that's the biggest selling point we have to people is look, there's nothing like success and we have the best opportunity for success. And I think, it's telling that even with the acquisition Spotify has made, they're still not in the top 10 podcast publishers. And so I think, it is not just having a podcast presence, but it's having all the tools to build it. If you think about HowStuffWorks and look at the numbers, we were barely the number one commercial podcaster. We bought HowStuffWorks which is about almost our size and sort of doubled. And then, we organically grew another -- what 30% to 50% above that. So, you begin to see that once you've got the platform built and once we've got this promotional tools built in, how we're able to build on those platforms in ways that I think others really don't have available to them.

Yes. And just -- and then I'm going to address the first question. Again, it's no mistake as Bob pointed out in his opening remarks that our unique audience were up over 260% year-over-year more growth than anybody else. And also no mistake that by far the two biggest podcasters are the two biggest broadcasters ourself and NPR. In terms of the digital number, we don't break out the pieces of the digital number in terms of podcasting, but let me just give you some operating stats. They're really driving our overall TLH, our total listening hours which is driving our revenue. We continue again the multi-platform things like proliferation of -- in addition to podcasting by the way proliferation of smart speakers. Live radio listening on smart speakers grew 150% Q2, 2019 to Q2, 2018. Bob mentioned a couple of our bigger podcasts and Ron Burgundy, but we also have over 2,000 locally produced podcasts including our on-demand radio shows. And we also have other things like our third-party assets which we take to market something called the SLATE banner. And then we've got some minor revenue from international licensing and so forth. So you kind of look at all, there's no one piece that's dominating the digital line. Clearly podcast is leading that, but we're really benefiting from all the listening trends and our strategy being where the listeners are.

Great. And then last one for me just on leverage. That free cash flow slide in the deck is really helpful, so thanks for that. I'm kind of back on the envelope getting to deleveraging of kind of one to 1.5 turns by the end of 2020. I know you put in there that you're trying to get to four times as your stated target, just wondering if you could comment if I'm kind of in the ballpark on the pace of that deleveraging over the next 18 months? Thanks.

Yes. I mean look, you're definitely within the ballpark. And I think just to be clear we haven't really kind of formally given out a target. What we've said is when we get to around four times leverage and by the way we picked that just looking at other media sites out there well-traded media sites in terms of how the equity trades. But then, when we get to about four times leverage, we would look to other uses of our free cash flow. But at that time, Bob and myself and the Board will make the decision that -- in terms of what's the right way to allocate capital to drive the shareholder and equity value of this company.

Thank you.

And I think we'll take one more question if we can.

Okay. That question comes from the line of Marci Ryvicker from Wolfe Research. Please go ahead.

Thanks. I have a couple of clarifications from the Q2 release. In terms of podcasting just dialing down a little bit, you say that with Stuff Media podcast grew. So excluding Stuff Media, did podcast grow in the quarter?

Yes. But I also think again, I think the most important thing is that we have fully integrated HowStuffWorks now. So there are not two podcast groups there's one. As you know Conal Byrne came over who is the CEO of HowStuffWorks and we brought him over and basically put he and his management team in charge of our entire podcast network. And the goal was think of it as one, use all the assets of the radio and think of this as one company no silos. So yes, I mean we've -- the growth of broadcast have been so tremendous that everything is growing.

Yeah. Marci and just a final point on the last sentence that Bob just stated is the numbers were so insignificant on a relative basis last year whether it was the HowStuffWorks number on their own or even our numbers again on relative basis that there was significant growth on an apples-to-apples basis, I think that's what your question is.

Yeah. And then you called out programmatic, which was up, so just curious how big that's become as a percent of revenue and what is the I guess the market there the market potential?

Let me hit the last one first then I'll let Rich talk about it. I think what's important to think about programmatic is, if you think about the company and the use of inventory, this is not like TV where sort of all your inventory is sold, there are slots cut in and they're finite. Even in our primetime, I would say probably our sellout is under 80%. Now it's under 80% sort of like concerts, don't get sold out, because you got a few tickets here and a few tickets there and you can't put groups together. Using programmatic allows us to fill in those holes. Again, I use that old analogy of, we've got a bunch of rocks in a jar, I can't put any more rocks in, but I can pour a lot of sand around it. And we think a programmatic is being able to use those audience impressions as opposed to selling specific time-based spots on specific stations to really fill that in. And to us we think that's looking at our sellout levels tremendous opportunity and probably the only logical way to really use that unused inventory to improve the performance of the company. And obviously, it allows us to play in the digital pool now where people are beginning to look for that as the way they do business. When you look on the digital side, they don't think cost per point they think CPM, they're looking at impressions, not spots. So it's an entirely different mentality of how they buy and plan. And now we're able to play in that world as well as the traditional broadcast way.

Yeah. And Marci in terms of a couple points. In terms of the absolute number, we don't break out separately. It's safe to assume from an annual basis, it's not a significant piece today of our total revenue base, but it is growing very rapidly for all the reasons that Bob talked about. And then the only thing I'd add to that is again, when you look at things like our out performance on the Miller Kaplan compared to the rest of broadcast radio industry of 360 points and 200 basis points, since 2010, it is multi-platform approach, it's no one item out there. And programmatic which allows us to play as Bob pointed out in the $80 billion digital pool of money out there is another tool we have to drive the overall results. Just as a reminder. We don't really care when the revenue comes. We don't really care where it starts. We're looking at the multi-platform to drive our total top line growth. We have one cost base out there which is why we have such high margins and drive efficiently more profit and free cash flow at the bottom line.

Yeah. One of the ways to think about multi-platform is not only is it a way to stay better connected to the consumer through all these different touch points. It's also a way for us to let advertisers come into our company through any one of these doors, and we have examples of people who have come, because they wanted they were interested in the big event we did. And over time, they became very big broadcast radio advertisers or they come through podcasts and then they again spread to some of the other platforms. So we're using that I think in new ways. And clearly, SmartAudio is an important component of that and something that unifies them all.

Thank you very much.

Thank you, Marci.

Well, thanks everybody. Thanks everybody for taking the time for the call. Kareem will be available the rest of the day until -- the rest of the day and going forward for questions. We are here. And by the way also I'd say, I think on behalf of Bob and I any thoughts comments since this is our first call with all of you in terms of our coming out with our new equity security in terms of the presentations or the style of the call we welcome any input.

Thank you all.

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