Good afternoon. My name is Rob, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the iHeartMedia Third Quarter 2022 Earnings Conference Call. [Operator Instructions] I will now turn the call over to Mike McGuinness, Deputy CFO and Head of Investor Relations. Please go ahead.

Good afternoon, everyone, and thank you for taking the time to join us for our third quarter 2022 earnings call. Joining me for today's discussion are Bob Pittman, our Chairman and CEO; and Rich Bressler, our President, COO and CFO. At the conclusion of our prepared remarks, management will take your questions. In addition to our press release, we have an investor presentation available on our website that you can use to follow along with our remarks. Please note that this call may include forward-looking statements regarding our financial performance and operating results. These statements are based on management's current expectations and actual results could differ from what is stated as a result of certain factors identified on today's call and in the company's SEC filings. Additionally, during this call, we will refer to certain non-GAAP financial measures. Reconciliations between GAAP and non-GAAP financial measures are included in our earnings release, investor presentations and our SEC filings, which are available on the Investor Relations section of our website. And now I'll turn the call over to Bob.

Thanks, Mike, and good afternoon, everyone. Thank you for joining our third quarter 2022 earnings conference call. We're pleased to report another quarter of solid operating results for iHeart and consumer usage, revenue and earnings growth. Before I take you through our results, I want to thank our team members who made this performance possible. And in particular, the inspiring local teams who worked tirelessly through Hurricane Ian and in some cases, even put their well-being on the line to ensure that listeners could find critically important updates safety information, resources and above all, a vital personal connection when they needed it the most. Radio is often the only media platform that is consistently available during natural disasters, and we're proud of this critical role we play in our communities. The strong community connection and dedication to serve, especially in times of crisis and need is what sets radio and indeed our company apart from all other media. Now let me take you through some of the highlights of our performance. In the third quarter, consolidated revenues grew 7% compared to prior year at the high end of the guidance range we provided of approximately 3% to 7%. We generated adjusted EBITDA of $252 million for the quarter, also at the high end of the guidance range we provided of $240 million to $255 million and our Q3 adjusted EBITDA margins were 25.5%, a 70 basis point improvement versus prior year. We believe the company performed well in an uncertain macroeconomic environment. Growing adjusted EBITDA by 10% compared to prior year. Our performance in this environment is a strong indication of the successful transformation this company has undergone where our high-growth digital revenues comprised 26% of total company revenues. It's clear that our digital business is now significant enough to…

Thanks, Bob. As I take you through our results, you'll notice that, as Bob mentioned, we performed well despite the uncertain macroeconomic environment. Turning to Slide 19 of our investor deck. Our consolidated revenues were up approximately 7% year-over-year at the high end of the guidance range we provided of up approximately 3% to 7%. Excluding the impact of political, our consolidated revenues were up approximately 4% year-over-year. Our direct operating expenses increased 14% for the quarter, driven primarily by the increase in revenue, which drives higher content and profit sharing expenses, third-party digital costs and expenses related to the return of local and national events. Our SG&A expenses increased 3% for the quarter primarily driven by onetime charges related to our cost reduction initiatives we began in Q3 and higher sales commissions due to higher revenue, partially offset by a lower bonus expense compared to our over target bonus performance in prior years. Our third quarter GAAP operating loss was $211 million compared to an operating income of $80 million in the prior year quarter. As a result of a noncash impairment of $302 million on our FCC licenses. Prior to this impairment, we had approximately $1.8 billion of intangible assets in our balance sheet related to FCC licenses. And each year, we are required to test these intangible assets for impairment. The fair value analysis is highly sensitive to changes in weighted average cost of capital and the significant increase in interest rates since March has triggered a noncash impairment on those intangible assets. Our third quarter adjusted EBITDA was $252 million compared to $230 million in the prior year quarter at the high end of the guidance range we provided of $240 million to $255 million. If you turn back to Slide 4, I'll provide additional color…

[Operator Instructions] And your first question comes from the line of Steven Cahall from Wells Fargo.

And thanks for the guidance detail. It doesn't sound like you're seeing much of a slowdown in the ad marketplace. Now that we're into November and most of the election political bookings are kind of behind you. Could you help us kind of just unpack the strength on an ex-political basis. Maybe you can talk a little bit about how digital and multi-platform are performing. I think we're all trying to get a handle as to what the trends look like as we get into next year. And so again, as a real positive outlier here, maybe you can just help us unpack a little bit of what you see for the rest of the year once that political tailwind ends next week? And then I'll have a quick follow-up.

Sure. Let me -- I'll let Rich add some specifics. I think overall, I mean, certainly, this advertising year is not what we thought it was going to be the way it began. And so we are -- I don't think it has the robustness that we expected. However, I think you see in our business that we've not had a degradation of audience. And I think that if you've seen people falling off, it's -- some of it's been associated with audience erosion. I think the other piece is that we are a business that is concentrated more towards the larger advertisers. We run an analysis recently in Q3. And our largest advertisers substantially outperformed our smaller advertisers. And I think that goes to -- we asked ourselves, okay, what's behind that? And I think a large advertiser has the ability to spend even in slower economic times. And I think the 2020 experience, which we highlighted in the earnings call, where there was a sharp difference between the people who spent through the downturn, the people who did not. I think most of those people that lessons recent and they're thinking about it. I think when you get to the long tail advertiser, those are really small businesses. And if their business turns down, they just don't have the money to spend on advertising. So what has been sort of 1 of our areas we were looking for, for growth, which was how do we get into that super long tail turns out to be probably a positive in these days.

Steven, let me just add a couple of things to what Bob said, which may -- not knowing your follow-up question, but just maybe a little deeper. One of the things we've said all year and again, operating in this challenging environment. I think if uncertainty that we've seen is that we've got an incredibly resilient business, and again, to Bob's point, not exactly the year we thought we were going to have is still the second best year probably -- basis. And probably the best year we've ever had versus the second of this year, we've ever as a company on a free cash flow basis. And again, just as a decide, based on the guidance we've just given that guidance would tell you this will be the best revenue and EBITDA quarter than iHeart has ever had as a company going forward. And to your point, which was in terms of being an outlier, I think what you're just seeing is a combination of, as Bob pointed out, our reach the resiliency of the medium, the efficiency of the medium as we've continued to point it out, the diversity of our advertiser base. Just as a reminder, we have no category in our company that's more than 5% of our revenues. We have no individual advertisers that's more than 2%. And again, when you've got a challenging period of time, which none of us would like to operate it if we didn't have to. But at the same time, it allows us some things to come through that don't come through in other companies. And then with respect to political, really no change to what we said in the past, and I think Bob highlighted in his comments, this will be the best non-presidential political year that we've had. And just as regarded, I think the previous number was approximately $110 million as a company. The best political year we've ever had is -- I'm sorry, best President -- political presently we've had was approximately $160 million as a company. And I think we still be somewhere between kind of those 2 numbers, and that hasn't changed. And by the way, 1 last thing I'd add to you for your the majority of political advertising does come in Q4, just to give you some sense of completeness for your models.

Great. And then just as a follow-up, I know it's too early to guide to 2023. You announced some of the incremental cost reduction, which is certainly going to support it. And again, it sounds like you have some real revenue strength as we head into the year. So should we just if nothing else think that you'll be able to continue to deleverage between either free cash flow or EBITDA generation in 2023 versus where you might end 2022 at? I know deleveraging is a consistent target. So curious your thoughts there?

Well, I think your first statement will be the guiding on to my answer here that we haven't provided any 2023 guidance, and we're not going to provide that now. I think you see, as we highlighted in the earnings release, we came down into the mid-5s, we said $325 million to $350 million, I'm sorry, mid-5s in terms of leverage ratio. We talked about free cash flow number for the year of $325 million to $350 million, which if you look at the conversion of EBITDA to free cash flow. And I think if you put us up against other companies in our industry, we feel good about that conversion. As Bob and I, along with Mike always articulate with free cash flow people through cash flow, management team, and that will continue to be our focus. And this is an industry, particularly a business that just generates free cash flow, which I think generates a lot of equity value for our shareholders.

And your next question comes from the line of Dan Day from B. Riley Securities.

Yes, ended the quarter with a little under $300 million of cash. The guidance for free cash flow implies well over $200 million of free cash flow in the fourth quarter. So just maybe if you could talk about what you think is a good cash balance level here in an admittedly uncertain economic environment, and how much you'd be willing to sort of just let that cash build versus be as aggressive as you possibly can buying the debt back given it's being at a discount to par.

Well, it's Rich, look, I think the facts speak for themselves, we gave you the guidance. As you know, we're a fixed cost business. And Q4 is our biggest revenue quarter of the year always has been and this year will be no different. So it's no surprise that just when you look at the numbers and do the math, that free cash flow will be well and always has been the biggest free cash flow quarter. And the general comment we've made, and I think you've seen it executed in Q2 and Q3 is that we're always looking to be optimistic, I'm sorry, opportunistic and think but opportunistic on our capital structure and improve our cost of capital. And I think we highlighted in our opening remarks, that we bought back approximately $180 million, a little bit more of the 83-ish note, which resulted in an annual cash savings of $16 million. And when you look at any type of yield analysis, I think that's a pretty good return on our cash. And we'll continue -- that's been our focus since Bob and I have been in to run the company, and it continues to be our focus today with Mike.

And let me add on your point about what kind of cash balance we need 2020 was probably the swiftest and worst downturn either we look through. And even in that year, we have positive free cash flow. So I think we feel confident that we will have plenty of cash, plenty of liquidity regardless of what we always see.

Great. Appreciate it. And 1 more, if I could. Just if you could provide some color on what you're seeing specifically on the digital side, like after quarter end in the fourth quarter here, especially on podcasting. I think it would be obviously, the revenue growth decelerates lapping the tougher comps and the macro stuff. Just anything you can point to as far as podcast revenue growth in the fourth quarter?

Yes. Look, I mean, you saw -- I think I can talk about in terms of everything after quarter end, we indicated we closed out, I think October, preliminary closes were up over 8%. If you look at our quarters year-over-year and look at how we performed against the industry, you specifically asked about digital, and we have this highlight in our Investor deck, the digital excluding podcasting, according to MAGNA, the industry was up 10%, and we were up 15%, I believe. And the podcasting industry, again, also called -- was up 22%, and we were up 42% overall. So if you look at our digital business, it continues to be very strong. We don't really see any changes to that. And we talked about that we expect to be back to 35% EBITDA margins in the digital audio group in Q4.

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

All right. The write-down, I was wondering about that a little bit. Certainly, it's noncash. But aside from discount rates, it does seem to have implications about revenue expectations for the industry and maybe station values? Or maybe you think it doesn't. I just wonder if you can comment on whatever implications you feel it has?

No, I don't think -- I think it's significantly reflective of the interest rate environment that we're in. A majority of it, if not almost entirely, is at Again, this is a just to be clear, noncash, as you highlighted, so thank you for that. And it's just a very mathematical exercise, which is incredibly sensitive to the interest rate environment. I don't think it has any indication in terms of the future value of our assets or the value of the revenue generation capability whatsoever.

Okay. But also, we are Well, I'm wondering what your economic expectations are. And if we were to move into a deeper recession, if we are in 1 now, -- is this around 2, but hopefully not as severe as what you experienced during the COVID situation? And how would you think you would fare if there was a step lower in the economy.

I can't imagine things get much worse than what we saw in 2020 because businesses shut down. and consumers were locked in their houses, consumer spending turned into savings, et cetera. But I think what's interesting here is normally between downturns, there's, what, 7, 8, 10 years, and people sort of forget and they do the same mistake again. So I can't remember 1 where 2 years later, we've got one. So I think no matter how severe, I mean I'm guessing, won't about how severe this gets, I think the fact that those people who made advertising decisions in 2020, and then when they came out, realized how much they had lost and how much more expensive it was to restart. We'll remember that. And I think it will moderate some -- any effect on advertising downturn, which obviously, for us, is the source of our revenue. So no matter what happens in the economy, what we're watching is okay, and how does that impact ad revenue.

And the only thing I'd add to that is, is just if you look at our results in this quarter, and I already gave you a number of test compared to the industry, you look at -- point, how we performed during the pandemic period of time. So again, you'll all run your own models on the phone and we don't have any better visibility into what's going to happen in the economy than you do, and we can't control that, but there are things we can control and our ability to operate through that and make sure we watch our costs and watch our free cash flow and understand what creates value for our shareholders. So -- so with that, we want to thank everybody for listening to the ad-hoc story, call. We are all available for follow-up questions and appreciate everybody's support.

This concludes today's conference call. Thank you for your participation. You may now disconnect.