Good day, everyone. My name is Kelly, and I’ll be your conference operator for today. At this time, I’d like to welcome everyone to the iHeartMedia Q4 2022 Earnings Call. Today’s call is being recorded. [Operator Instructions] At this time, I’d like to turn the conference over to Mr. Mike McGuinness, Head of Investor Relations. Please go ahead, sir.

Good afternoon, everyone, and thank you for taking the time to join us for our fourth 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 earnings presentation available on our website that you can use to follow along with our remarks. Please note that this call may include forward-looking statements regarding our financial performance and operating results. These statements are based on management’s current expectations, and actual results could differ from what is stated as a result of certain factors identified on today’s call and in the company’s SEC filings. Additionally, during 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 presentation and our SEC filings, which are available in the Investor Relations section of our website. And now I’ll turn the call over to Bob.

Thanks, Mike, and good afternoon, everybody. We’re pleased to report another quarter of solid operating results for iHeart and consumer usage, revenue and earnings growth. Even in this continuing challenging and uncertain economic environment, we’re continuing our transformation of this company. Before I take you through the fourth quarter highlights, I want to take a step back and talk about the year we’ve just had. As a reminder, 2022 became strong for us and was poised to be robust for iHeart. However, as you’re all aware, a number of macroeconomic factors led to increased volatility and uncertainty, which moderated our 2022 results. Despite these headwinds, we continue to innovate and find new ways to engage with our consumers and advertising partners, we remain committed to evolving our business, and we maintained our focus on expense management, and our financials reflect these commitments. The fourth quarter was our best quarter for revenue and adjusted EBITDA ever, and on a full year basis, in 2022, we generated the highest revenue and second highest adjusted EBITDA and free cash flow year in iHeart’s history. We continue to make strong progress in our transformation of iHeart into a true multi-platform audio company, driven by innovation, supported by data and technology and powered by the largest sales force and audio, executing our unique multi-platform go-to-market strategy of any seller anywhere can sell anything. iHeart’s relationship with the consumer has never been stronger, and consumers are now spending 30% of their daily media time with audio and yet audio only captures 9% of total advertising spend. Not only do we believe that the allocation of advertising revenue to audio will increase, but because our broadcast radio assets alone reach 90% of consumers in the United States each month, which, by the way, is now more than…

Thanks Bob. As I take you through our results, you’ll notice that, as Bob mentioned, we performed well despite the increasingly challenging macroeconomic environment. Our Q4 2022 consolidated revenues were up approximately 6% year-over-year, at the high end of the guidance range we provided of up approximately 2% to 6%. Our direct operating expenses increased 7% for the quarter, driven primarily by the increase in revenue, which drives higher content and profit-generating expenses, third-party digital costs and expenses related to the timing and return of local and national live events. Our SG&A expenses increased 4% for the quarter, driven primarily by investments in key high-growth areas and expenses related to the timing and return of local and national live events, partially offset by lower bonus expense compared to our over target bonus performance in the prior year. Our fourth quarter GAAP operating income was $173 million compared to an operating income of $123 million in the prior year quarter. Our fourth quarter adjusted EBITDA was $316 million compared to $294 million in the prior year quarter at the middle of the guidance range we provided of $305 million to $325 million. Turning now to the performance of our operating segments. And as a reminder, there are slides in the earnings presentation on our segment revenue performance. In the fourth quarter, Digital Audio Group revenues were up 10% year-over-year, while adjusted EBITDA was flat, and our Q4 margins were 33%. Within the Digital Audio Group are our podcasting revenues, which grew 17% year-over-year and our non-podcasting digital revenues, which grew 7% year-over-year. To reiterate what Bob said in his remarks, about our Q4 2022 performance. First, we are comparing to an exceptionally strong prior year quarter when Q4 2021 podcasting revenues were up 130% year-over-year. And second, we were impacted by…

Thank you. [Operator Instructions] We’ll hear first today from Steven Cahall with Wells Fargo.

Thanks. Maybe just, Rich, could you provide a little more context in the Q1 EBITDA guide? It was a kind of surprisingly low number and it was lower than you did in 1Q 2021, even – so I know 2022 was a really strong quarter, but is there anything in the OpEx line? Are you making any significant investments there just because the top-line seems a little more what we expected, but that was a bigger surprise? So any color would be great.

Steve, thanks for the question. Not really any additional insight. Just as a reminder, we do always deal with the large – small numbers because of the fixed cost nature of certain parts of our business. And just as a reminder, our Q1, when you compare it to not just the strength of last year, but just the absolute number size is always, I don’t know about significantly smaller than the fourth quarter of the year just started compared to two out there. So just really nothing more than that.

I think also, I would just add, the one thing that we did reference is that in Q4, we self-inflicted, trying to push some new revenue streams; change some of our commission and sales plans. And I think it had a negative impact on the product mix within that, I think we’re expecting that to continue into Q1 and probably right itself by Q2.

Great. And then just on what you’re seeing in the ad market. So a lot of what we’ve heard is that December was kind of bad across the market, and then it’s been a little better since I think you had January down 1%, but your guidance for Q1 is down a little more than that. So are you expecting a deterioration? Or is that something related to some of those changes in product strategy, Bob, that you were just talking about? Or how else should we read into that?

Yes. I think on revenue. I think it is sort of the anomaly of Q1. If you look at most advertisers, Q1 is the worst sales quarter of the year. It is historically significantly, as Rich mentioned, a lower revenue than Q4, for example, Q2 and Q3. So I think in periods of uncertainty, what we find is advertisers holding back and taking a look at what the year might be. If they’ve got an opportunity to hold back, it’s certainly in Q1. And through the year last year, we saw that the big advertisers were stronger than the small advertisers in Q1 that has reversed it, which makes sense if you agree with the thesis we have. Because when you’re a brand advertiser, you can actually pull back more than you can if you’re an advertiser who is advertising directly to get sales at that moment. And I think that’s what we’re seeing in Q1. And again, we continue to watch it. But I think it’s a function primarily of uncertainty and people holding back spend to see what happens.

Steven, and I would just add one last point, which you didn’t ask, but just in terms of fundamentally, the business and Bob pointed out, the writing on the digital line. But as you think about this model we are going forward, we still feel exactly the same from the margin profile that we felt about the business is just look at Q4, I think we had a 52% conversion rate of into free cash flow. And then – so from a long-term – as you go forward to model out, kind of that mid-single-digit modeling for our that margins, the digital – orders for EBITDA is still something we’re very comfortable with.

And then maybe just related to that on podcasting, it does seem like there’s been a real cooling off in some of the higher-priced content deals out there. Do you feel like that gives you some opportunity to be more aggressive in podcasting? Or does it change your investment strategy at all now that the market’s kind of rationalized to the point that you were always kind of playing for with it? Thanks.

Yes, I think you’ve hit the nail on the head. Yes, I do think there’s an opportunity there. I think it will have a positive ripple effect through the podcast business. I think there were people who thought they were buying share, but we’re really buying losses. And I think there’s a certain rationality that’s returned, which is good for us, obviously, with our size and scale, if we’re really bidding on product based on economics, we’re in very good shape.

Anything further Mr. Cahall?

Nope. I’m all set. Thank you.

Thank you, Steve.

We’ll hear next from Dan Day with B. Riley Securities.

Yes, good afternoon guys. Appreciate for taking the questions. Maybe just to go back to podcasting. Just anything you can provide so far in 2023 in terms of pricing, volume and impression growth. Anything that could just anchor us in our models as we set up for 2023 on the broadcasting line? Thanks.

Yes. We haven’t given any of that guidance. But again, I would say if you look at the revenue streams in media, podcasting appears to be the strongest of them all, but certainly is not immune from the downdraft of an ad slowdown.

The only thing, Dan, I might add to that is, and you’ve heard us say this before about all the platforms we have and all the businesses we have is advertising revenue always follows the consumer and always follows consumer engagement. I think Bob noted that podcast now reaches over 60% of Americans and the fundamental aspects of podcasting in terms of the amount of time people spend the larger advertisers that are coming to podcasting, which is really starting to happen in the last couple of years. None of those have changed in our mind and we continue to be very optimistic, but it really starts with consumer engagement, which is rock solid.

Got it. And then on the other line within digital, the digital ex-podcasting, any like – I know there’s some like social media reselling in there, some third-party extension. Just wondering how those are doing just given the kind of volatility we’ve seen in social media lens the last few quarters? And whether that 7% growth, whether there’s a big difference between like the radio streaming inventory sold versus the other buckets? Thanks.

We haven’t given that breakout. So, I don’t want to do it here, but I will say I’ll refer back to – we did a couple of lower-margin aspects of it by accident. We didn’t intend to do it at the expense of the others. And we are reconfiguring our sales priorities and commissions to rectify that going forward.

Okay, that’s all I have guys. Thanks for the time.

Thanks. Appreciate it.

[Operator Instructions] We’ll move next to Jim Goss with Barrington.

Thanks. A couple of questions about political advertising or I guess, the categories in which they showed up, but absent those. And the Multiplatform Group, primarily broadcast radio, I presume, there tends not to be a lot of displacement. I’m wondering what accounted for the slide and ad revenues then in that category? Were there any key categories that were to blame?

Well, I think you just saw the ad slowdown continuing into Q4 and slowing down enough that the political advertising could not offset it the whole way.

Okay. And the other area, the Audio & Media Services Group, whether it’s mostly CAPS [ph], which is more directional.

Yes, and it’s got TV in that too.

Jim, maybe on CAPS, as I know you know, but just as a quick reminder, we benefited greatly from political advertising on the TV side.

Both radio and TV.

Okay. So the TV side. Okay. Also, what do you think is a sustainable growth rate in podcasting now? We have the sort of the surge, it was a little more modest now. Is the 17% growth you had something that is more normal? Or will it fade from there as the category matures somewhat?

Yes, I don’t think we see the category maturing, but I do think it is – as we said, it’s high casting is not immune from the slowdown, but we do fully expect podcasting to continue to be the highest growth sector of the media business. And looking at the usage from consumers, I think, is probably a lead for us going to what Rich’s earlier said, is that the advertising does follow consumers. And I think that’s a very positive trend.

Okay. And last thing, your TikTok exposure. Could you talk about that a little bit more and discuss whether there are risks that we ought to be concerned about?

Well, I don’t think we got a lot of revenue coming on TikTok. We use it primarily as a marketing tool for us. And as you know, TikTok has been super hot, but we’ve got roughly 300 million social followers, about 27 million TikTok followers. So we are willing to go and able to go and have a platform to go in whatever direction the consumer goes. So if there’s any limitations on TikTok, wherever the consumers go, will be, we’ll follow them.

And Jim, I’ll just give you one data point for context for Bob’s number of the 300 million social followers, that’s about seven times larger than the next largest audio service, Spotify there. So...

Okay, thank you very much. Appreciate it.

Thank you.

And from JPMorgan, we’ll hear next from Sebastiano Petti.

Hi guys. Thanks for taking the question. I just want to kind of go back to the EBITDA margin guide – EBITDA guide for the first quarter. If you – it assumes a, call it, at the midpoint 11% implied EBITDA margin, which is below. So the revenue flow-through, if you were to just do a midpoint decline is higher than what you had in 2020, 2019, everything besides 2022. But the implied EBITDA margin of 11% is also below prior years, excluding the pandemic period. So anything to unpack there. Is there anything going on at the segment level that we should perhaps be thinking about as well.

I don’t think anything different than we’ve talked about. We’ve highlighted – Bob mentioned there and we highlighted the flow through in terms of, I think that what Bob used was kind of goosing something on less high-margin businesses in Q4. I think we’ve talked about that and we’ve rectified that, but we won’t fully work through that until you get to Q2. And then when you have the advertising headwinds that we talked about as we turn the page into 2023 and the continued uncertainty in the environment. And I think as you all know, the Multiplatform business, in particular, that we have all high-margin businesses, but that’s like 75% to 80% incremental flow through budget, but at the same time, when you don’t have this robust revenue number there, as we’ve talked about in Q1, you get hit on the downside of the margin. But at the same time, and I’m just going to go back to a comment that Bob made, not just commenting on the results here, but also that we’re in addition to be focused on cost and taking out cost and generating cash flow, we want to make sure that we’re very well positioned as the economy starts to come back stronger as advertising revenue starts to come back stronger, we’re there to capture it.

Yes. Look, I think Q1 is simply you’re seeing operating leverage. And you’re seeing – when revenue goes down, the operating leverage bites you; when things go up, it’s your friend. And we have hyper focused the company on being ready for the recovery, making sure we’re well prepared for it and can take full advantage of it. And at that point, we’re going to see the operating leverage again as our helper.

And then could you perhaps unpack a little bit some of the – some of these new businesses that you kind of delved into this that you put it goosed at high-margin growth businesses. Rich, I think you talked about realigning the sales force. Anything that we should be thinking about or can you unpack that a little bit.

Sure. In DAG [ph] Group, we’ve got a number of digital businesses, which some have pretty high margins, some have not ridiculously much lower margins. And for us, the proper balance is to make sure whatever we’re doing at low margin is incremental to the higher-margin business. We don’t want a flow of revenue going from high margin to low margin. And we may have overdone it a bit trying to do some of these lower-margin businesses, which we thought could all be incremental, they turned out not to be, learned our lesson less, and we’ve adjusted.

I just want to come back to just what I said, I think in response to when Steve was asking a couple of those questions. Just again, as we wanted to obviously share and be fully transparent these are the steps we made, some of the missteps we made, the changes that we’ve made. But as you think about modeling out, we still are committed to believe that the Digital Audio Group is in mid-30s kind of EBITDA margin business.

And just a quick follow-up. Is this more pronounced, some of these not high-margin businesses. Were they more pronounced perhaps in the fourth quarter? Or is this something that’s perhaps been building? Just as we’re kind of thinking about extrapolating into the go forward in terms of 2023 and beyond?

We really think the impact was in Q4, and we think it will continue into Q1. We think we will have it rebalanced by Q2.

Thanks for the time.

Okay. Well, thank you very much for joining us today, and thanks for all your support.

Yes. Thanks. And Mike and the team are available also with any follow-up questions, as are Bob and I.

And that does conclude today’s conference. Again, thank you all for joining us, and you may now disconnect.