Earnings Call Transcript - IHRT Q1 2025

Operator, Operator

Good afternoon. My name is Audra, and I will be your conference operator today. I would like to welcome everyone to the iHeartMedia First Quarter 2025 Earnings Call. Today's conference is being recorded, and all lines have been muted to prevent background noise. I will now turn the conference over to Mike McGuinness, Head of Investor Relations. Please go ahead.

Mike McGuinness, Head of Investor Relations

Good afternoon, everyone, and thank you for taking the time to join us for our first quarter 2025 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, including our recent 8-K filing. 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, earnings 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.

Bob Pittman, Chairman and CEO

Thanks, Mike, and good afternoon, everyone. I know all of you are trying to read the tea leaves on this advertising marketplace in this uncertain environment and so are we. At this point in time, we're seeing generally stable ad spend, but we, of course, continue to monitor it closely due to the lack of visibility. Even with that lack of visibility, let me remind you that over the past few years, we've repeatedly shown our ability to take quick and decisive action on both cost and growth opportunities for the benefit of both the immediate and long-term and to leverage new technologies that significantly reduce our operating expenses without reducing our capabilities. We remain committed to identifying opportunities across our organization to operate more efficiently and take advantage of new and evolving technologies like programmatic and AI, which are critical to delivering short-term results and long-term growth even during periods of economic uncertainty. Now let me jump to the financial results. In the first quarter, we generated adjusted EBITDA of $105 million, flat to prior year and consistent with our previously provided guidance. Our consolidated revenue for the quarter was up 1% compared to the prior year quarter, above our guidance of down low single digits. Excluding the impact of political, our consolidated revenue was up 1.8%. Turning to our individual operating segments. The Digital Audio Group generated first quarter revenue of $277 million, up 16% versus prior year. The Digital Audio Group generated first quarter adjusted EBITDA of $87 million, up 27.8% versus prior year, and the Digital Audio Group's adjusted EBITDA margins were 31.4% compared to 28.5% in the prior year, making continued progress toward our stated goal of achieving adjusted EBITDA margins in the mid-30s. Within the Digital Audio Group, our podcast revenue grew 28% compared to prior year, well above our revenue guidance of up high teens. We're beginning to feel the flywheel effect of being the strong number one in podcast publishing. Our podcasting financial discipline and our focus on the high-margin podcast publishing sector continue to fuel what we believe is the most profitable podcasting business in the United States and to accelerate our growth. Importantly, our podcasting EBITDA margins remain accretive to our total company EBITDA margins. Our non-podcast digital revenues grew 8.7% compared to prior year. Turning now to the Multiplatform Group, which includes our broadcast radio, networks, and events businesses. In the first quarter, revenue was $473 million, down 4.2% versus prior year, and excluding the impact of political advertising, revenue was down 3.4%. The Multiplatform Group's adjusted EBITDA was $70 million, down 9.3% versus prior year. Let me share with you a data point from this quarter which we believe illustrates the progress we're making in moving our broadcast radio business back into growth mode. Included in our Multiplatform Group is our premiere broadcast radio networks business which sells broadcast radio advertising with national reach instead of market-by-market or local advertising. Our Premiere Broadcast Networks revenue returned to growth in Q1 and was up 2.1% compared to prior year. We believe this is an important indicator of the growing strength broadcast radio has among national advertisers and evidence of the progress we're making in returning broadcast radio to revenue growth. Additionally, we continue to increase our share of the radio industry advertising revenue pie. In the first quarter, iHeart grew to 40% of the advertising revenue in markets measured by Miller-Kaplan. Given our audience reach plus the investments we've made in ad tech and data coupled with the fact that we have the largest sales force in audio, we expect that share growth to continue. Turning to the Audio & Media Services Group, revenue was $59 million, down 14.2% year-over-year, and adjusted EBITDA was $16 million, down 33.3%, and most of that decline was driven by Katz Television. Excluding the impact of political, the Audio & Media Services Group revenue was down 11.8%. In summary, we believe we're demonstrating: one, our ability to generate positive financial results even in an uncertain environment; two, our continued podcast outperformance as we submit our number one leadership position; three, our commitment to reignite growth in our broadcast radio business; and four, that our modernization program remains on track to generate $150 million net savings in 2025, driven primarily by technology and AI. And now I'll turn it over to Rich.

Rich Bressler, President, COO and CFO

Thank you, Bob, and good afternoon. Our Q1 2025 consolidated revenue was up 1% year-over-year, above the guidance we provided of down low single digits due to March coming in slightly better than we were expecting in both our Multiplatform and Digital segments. Let me provide you with some additional granularity on our advertising revenue performance this quarter. As a reminder, we have no advertising category greater than about 5% of our total advertising revenue and no individual advertiser that is more than 2% of our total advertising revenue. In the first quarter, our top five largest advertising categories in terms of total revenue were healthcare, financial services, homebuilding and improvement, entertainment, and auto. In terms of gains and declines in absolute dollars, as you can see on Slide 9, the four largest gains in the first quarter were professional services, tech and telco, beauty and fitness, and education. And the four categories that declined the most were restaurants, auto, gambling, and political. Our consolidated direct operating expenses increased 4.4% for the quarter. This increase was primarily driven by higher variable content costs associated with the growth in our digital business, including higher podcast profit sharing expenses and third-party digital costs, partially offset by a decrease in employee compensation costs in connection with our modernization initiatives taken in 2024. Our consolidated SG&A expenses decreased 1.1% for the quarter, driven primarily by our modernization initiatives, including decreased employee compensation costs, partially offset by an increase in employee health and benefit expenses, including the reestablishment of the 401-K matching program during the first quarter of 2025 and additional bad debt expense. We generated a first quarter GAAP operating loss of $25.4 million compared to an operating loss of $34.7 million in the prior year quarter. We generated first quarter adjusted EBITDA of $105 million flat to prior year and at the midpoint of our previously provided guidance range. Before I turn to our segment performances, I wanted to spend a moment on the modernization initiative we announced on last quarter's call. As a reminder, these actions will generate net savings of $150 million in 2025 when compared to 2024, and our Q1 results included the benefit of $27 million of net savings. This quarter, we have included a slide in our investor presentation, Slide 5, that provides a few different ways of identifying the cost savings, including by segment, function, and type. Hopefully, this level of granularity is helpful as you update your models. Turning now to the performance of our operating segments. And as a reminder, there are slides in the earnings presentation on our segment performances. In the first quarter, the Digital Audio Group's revenue was $277 million, up 16% year-over-year and above our guidance of up low double digits. The Digital Audio Group's adjusted EBITDA was $87 million, up 27.8% year-over-year and our Q1 margins were 31.4%, up from 28.5% in the prior year. Within the Digital Audio Group, our podcasting revenues were $116 million, which grew 28% year-over-year and well above the guidance we provided of up high teens. Podcasting's strong Q1 performance with its high EBITDA flow through helped expand the segment's Q1 adjusted EBITDA margin by nearly 300 basis points compared to prior year. Our first quarter non-podcast digital revenue grew 8.7% year-over-year to $161 million. The Multiplatform Group revenue was $473 million, down 4.2% compared to the prior year and in line with our guidance of down mid-single digits. Excluding the impact of political revenue, our Multiplatform Group revenue was down 3.4%, adjusted EBITDA was $70 million, down 9.3% from $77 million in the prior year quarter. Multiplatform Group's adjusted EBITDA margins were 14.8% compared to 15.6% in the prior year quarter. Turning to the Audio & Media Services Group, revenue was $59 million, down 14.2% year-over-year and adjusted EBITDA was $16 million, down 33.3% from $24 million in the prior year and most of that decline was driven by Katz Television. Excluding the impact of political, the Audio & Media Services Group revenue was down 11.8%. At quarter end, our net debt was approximately $4.6 billion, our total liquidity was $569 million and our cash balance was $168 million. Our quarter-ending net debt to adjusted EBITDA ratio was 6.5x. In the first quarter, our free cash flow was a negative $80.7 million, essentially flat to the negative $80.9 million in the prior year quarter. As a reminder, Q1 is our seasonal low point for free cash flow in the year and we expect to generate positive free cash flow in each of the remaining quarters in 2025. With Bob's comments on the advertising marketplace as a backdrop, let me now turn to our second quarter guidance. We expect to generate second quarter adjusted EBITDA in the range of $140 million to $160 million compared to $150 million in the prior year. We expect our consolidated Q2 2025 revenue to be down low single digits compared to prior year. Our April pacing was down 2% compared to prior year and down 1.4% excluding the impact of political. Turning to the individual segments for Q2, we expect the Digital Audio Group's revenue to be up low double digits with Podcasting revenue expected to grow in the low 20s. We expect the Multiplatform Group's revenue to be down mid to high-single digits. And we expect the Audio & Media Services Group revenue to be down approximately 5% due primarily to the impact of political advertising. The full year guidance we issued last quarter did not contemplate the current macro volatility we are all seeing. Therefore, for us to date our full year guidance, we will need some positive movement in the macro and improvement to the uncertainty in the back half of the year to avoid the possible negative impact on the advertising marketplace for audio. Now we will turn it over to the operator to take your questions. Thank you.

Operator, Operator

Thank you. We'll go first to Stephen Laszczyk at Goldman Sachs.

Stephen Laszczyk, Analyst

Hey, guys. Thanks for taking the questions. Maybe two, if I could. Bob, Rich, just on the ad market, I know you mentioned the lack of visibility that's out there at the moment. I'm curious if you could perhaps just add in a little bit of color to what you're seeing out there at the moment and conversations you're having with your ad partners. I would be curious to what extent they pulled back after the tariff announcements over the last couple of weeks, to what extent you might be starting to see them reengage over the last couple of days here, especially post this morning. And I'm curious to what extent or what do think we need to get visibility to return to the ad market here over the next couple of weeks and months?

Bob Pittman, Chairman and CEO

Well, I think the news like today is certainly helpful. And I think if you go back and look at the data point we had in for Premiere Networks, which is really our national advertising, we're up over 2% for the quarter. I think that's sort of an indication that the bigger advertisers were hanging in there and taking this in stride. I think the risk has been in the small and medium-sized businesses, which were I think a little more subject to any sort of bad news. And again, I think improving news like today helps that and we feel better about it.

Rich Bressler, President, COO and CFO

Yes, I don't have anything additional to add. In terms of what you're observing, we've provided the pacing numbers through April. As a reminder, our pacing is just a snapshot in time. When we provided guidance in Q1, we noted we were up 5% in January and down about 7% in February regarding pacing at that time. We projected a low single-digit decline in revenue for Q1, yet we reported being up 1%. This highlights that while it's an important data point, it's still just a snapshot in time.

Stephen Laszczyk, Analyst

Got it. That's helpful. And then Bob, maybe a higher-level question for you. I think you called out market share today, in and around 40% of the industry. I think investors think of you as a market share gainer, but I would just be curious if you speak a little bit more about the state of the terrestrial radio industry today and maybe what gives you confidence that you can take that market share from 40% today to something north of that over the next couple of years?

Bob Pittman, Chairman and CEO

Yes, I believe the main challenge facing broadcast radio is not the number of listeners, which has actually increased over the past decade, but rather how it monetizes. The industry is shifting from a traditional spot advertising model to leveraging electronic and digital platforms. We're making progress in this area, and our advertising technology is developing as planned. Programmatic advertising is starting to make its way into broadcast radio too. A key point in our favor for increasing market share is that larger advertising partners prefer to work with fewer companies, which positions us advantageously as a primary partner. While I can't predict who other radio partners are, this trend in consolidation is likely to work in our benefit.

Rich Bressler, President, COO and CFO

Yes. And Steve, it's Rich. I might just add just two very quick points. One of, as you look forward, if you kind of go back over the last, whatever, 8, 9, 10, 11 years, we've consistently taken share of the broadcast mill from the capital standpoint. So I think hopefully, if you can give everybody comfort as they look forward, they can from a credibility standpoint, we've taken share going back. And number two, we have heard feedback, which was very good about, okay, you've talked about the audience more, can you give us data points in terms of broadcast. And that's what we shared with you today that Bob just articulated with respect to Premiere Networks.

Sebastiano Petti, Analyst

Hi. Thanks for taking the question. Podcasting in the first quarter coming through better-than-expected. Second quarter guide, Rich, talks about you're guiding to a continued acceleration in the 20% range plus. Help us think about what's underlying that. Obviously, you guys have been a leader in podcasting for quite some time, but we hear the narrative about consumption moving to video and video podcasting, YouTube now a larger player in the market. So any color around what's driving that and how you guys continue to accelerate that top line? And then one other kind of more thematic broader kind of question. I think, Bob, you said healthy for the market to consolidate. Maybe thinking about consolidation from a different angle. There is a bit of fair bit of focus on broadcast deregulation in the local TV space. How might radio be impacted if there isn't loosening up of ownership rules? Does that change how you guys view yourself as a buyer or seller of assets? Thank you.

Bob Pittman, Chairman and CEO

Let me start with why podcasting. I think it starts with the fact that we've got the podcast people want to listen to. We've got a large podcast audience and it's growing. If you look at Podtrac, which measures podcast listening, not only do we do extraordinarily well overall, I mean, a pretty substantial lead over the second largest podcast publisher, but we've also got it diversified across all 19 categories of podcast listening as measured by contract. So I think it starts with that. And second, when you get into how are people looking at podcasting, the vast majority want to listen to podcast. Are there some people who prefer to watch a podcast? Well, I think at that point, it's not really so much a podcast as much as it is a video show. And certainly, there goes on. Look at the success of YouTube, but I don't think that's the podcasting business per se. I mean, I understand that YouTube would like to take some of that podcasting revenue, and I don't blame them. But I think, again, the consumer has spoken. And so although we look at it and watch it carefully, I think we're in exactly the right position and feel very good about it.

Rich Bressler, President, COO and CFO

Yes, Sebastian, in response to your first question, I want to emphasize what Bob mentioned. A few years ago, we made a significant strategic decision not to put our content behind a paywall. Our goal was to ensure that all our podcasts were accessible everywhere. We also promote everyone else's podcasts to build a large inventory and maximize our monetization efforts. Bob noted that we have around 1,000 salespeople across the U.S. working hard to sell ads, including those for podcasts. This extensive ad sales team operates from over 150 offices. We have developed robust ad technology over the years that allows us to place, monitor, and report on ads across all our platforms. It's important to recognize that this isn’t a recent initiative; it reflects years of cumulative progress. Most crucially, the demand for our offerings underscores our capabilities. The effectiveness of podcast advertising is evident, and we’ve seen larger advertisers begin to engage with podcasting in meaningful ways over the last couple of years, which is critical since these advertisers typically allocate larger budgets.

Bob Pittman, Chairman and CEO

And look, I want to add one other point is, and we've talked about it before, but it's worth repeating here that podcasting is probably radio on demand, just like Netflix is probably TV on demand. It's an adjacent business to radio. So we have a natural advantage here, not only have an advantage in terms of creation and knowing how to do it and having the resources to do it, but we also have this incredible promotional vehicle called broadcast radio, where we're able to advertise these podcasts, promote them, talk about them to an audience that is very audio centric anyway and understands what we're doing here. So again, I think that is the sort of natural advantage for us.

Rich Bressler, President, COO and CFO

Yes. Regarding your second question, I believe it's related to regulation, specifically concerning FCC license industries. None of us have observed any significant dominance from rural areas as indicated by the same reports. From our perspective, we already cover over 90% of the country, which equates to a considerable number of Americans. Bob emphasized that one of our strengths is that our broadcast listening has actually increased compared to ten years ago. We have a solid presence throughout the U.S., and I do not foresee anything impacting our operating strategy.

Sebastiano Petti, Analyst

Thank you both.

Operator, Operator

We will move to our next question from Aaron Watts at Deutsche Bank.

Aaron Watts, Analyst

Hi, guys. Appreciate the expanded slide deck and thanks for taking the questions. I've got two, if I may. First on the costs, was the $27 million of cost savings you mentioned for first quarter run rate or actual impact in the quarter? And how should we think about the cadence of the balance of the savings coming through the rest of the year? Any lumpiness on the way to 150 at year-end?

Rich Bressler, President, COO and CFO

Aaron, thanks for that, and thank you for the comment on the slide. So the $27 million you shouldn't think about as run rate. Again, if you think about our costs and costs kind of supporting revenues, then you'd expect them to kind of the cadence speed along with the business. But I think at a high level, if you thought about them $27 million in Q2 and then $40 million per quarter in each of the next three quarters, that would be kind of a good way to think about those costs. And that comes basically to the $150 million.

Aaron Watts, Analyst

Okay. That's helpful. And Rich, should the revenue environment slow? I know that's not what we're hoping for. But if it happened, are there additional cost rationalization opportunities that could be identified?

Rich Bressler, President, COO and CFO

Yes, I believe it's important to refer to the details presented on Slide 5 of our deck regarding costs. This slide highlights the various levers that Bob, the management team, and I can focus on. Bob also noted in his opening that we have consistently sought out opportunities since we joined. A significant aspect of this effort is our ongoing commitment to utilizing AI technologies to enhance efficiency both in the medium and long term. We're also focused on leveraging new technologies while continuing to support our podcasting initiatives, which contribute to our growth. This balanced approach is reflected in the growth we're experiencing in podcasting revenue.

Aaron Watts, Analyst

Okay. That's helpful. If I could squeeze one last one in, and again, appreciate the time. Nielsen updated its ratings methodology recently. I'm curious your early observations on that and whether the new way of looking at listenership is resonating with advertisers?

Bob Pittman, Chairman and CEO

Well, I think the most important thing is that, and we're excited about it, is that Nielsen is making a priority to try and capture all the listening that's really happening. Not only is that important in terms of will it show us more listeners, but as advertisers do these econometric models, the media mix models, what's important is that when they see a signal of a purchase, a buy, they look back and see what caused it. If Nielsen is under measuring our listening, they don't show that person making it worse. We don't get credit, and someone else gets credit for what we did. So I think it's a step forward with Nielsen in terms of let's make Nielsen more representative and more accurate for us to use, not only in terms of pricing and selling our products but also in terms of the value for these sub media mix models.

Aaron Watts, Analyst

Thanks, Bob. Thanks, Rich.

Rich Bressler, President, COO and CFO

Thank you, Aaron.

Operator, Operator

Next, we will move to Patrick Sholl at Barrington Research.

Patrick Sholl, Analyst

Good afternoon. Thank you. I was just curious if you could talk a little bit on the adoption of transacting programmatically, if there's any sort of difference across categories and how that contributed to the Premiere Networks revenue trends?

Bob Pittman, Chairman and CEO

I don't think at this point it was material in terms of the performance of Premiere. I think that was probably more of an indication of how did the big national advertisers that are buying national footprint look versus the SMBs. But we continue to make great progress. As you know, we've already pretty much got our digital inventory up and running on most of the important platforms for programmatic and seeing some revenue coming in there. The big push for us is to get our broadcast inventory up on these as well. And I think we're making good progress there.

Rich Bressler, President, COO and CFO

Yes, and I think we announced last quarter in addition to being in Magnite about getting broadcast, just to be clear, inventory into DB360 and Yahoo, and we can continue to work with the other DSPs and recognize in terms of where the advertising marketplace is going, and we're adapting to that.

Patrick Sholl, Analyst

Okay. Thank you. And then maybe just one last on podcasting. On the growth in the quarter, I guess, much of that comes from just increased rates on the impressions you're delivering versus growing the amount of impressions?

Rich Bressler, President, COO and CFO

It's both. If you consider it year-over-year, there’s nothing unusual with any one-time item in the figures. It's a mix of both volume and rates. Keep in mind that we have a wide variety of podcasts and download levels, from our largest to smaller ones. Also, we have 1,000 people actively selling podcasts every day, along with our other products. So, it truly is a combination of both. Great. Just I'll pause for a second, make sure there are no other questions. And if there's not, thank you very much on behalf of Bob, myself, the rest of the management team. And we, along with Mike McGuinness and the team, are available for any follow-up questions. Thank you all.

Operator, Operator

And this conclude today's conference call. Thank you for your participation. You may now disconnect.