Earnings Call Transcript - IHRT Q4 2024

Operator, Operator

Good afternoon, and welcome to the iHeartMedia Q4 2024 Earnings Call. This conference call is being recorded. I would now like to turn the call over to Mike McGuinness, Head of Investor Relations. Thank you. Please go ahead.

Mike McGuinness, Head of Investor Relations

Good afternoon, everyone, and thank you for taking the time to join us on our fourth quarter 2024 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. Before I take you through the fourth quarter financial results, I want to share two key highlights from last year. We successfully completed the comprehensive exchange transaction that we discussed on our third-quarter call. This exchange accomplished three things: one, it extended the majority of our debt maturities by three years; two, it kept our current consolidated annual cash interest expense essentially flat; and three, it provided overall debt reduction. This improved capital structure provides the company with the flexibility it needs to remain focused on creating shareholder value. An important part of creating that value is the continued modernization of our company. In 2024, we took another significant step in that journey, flattening our organization, eliminating redundancies, and breaking down silos. It will be easier to do business with us and easier for us to get our business done, which will help to accelerate earnings growth as well. As we discussed last quarter, the actions we took over the course of 2024 will generate over $200 million of annual cost reductions. There will be some ordinary course add-backs of approximately $50 million to our expense base, which results in net savings of approximately $150 million. And with that, I’ll turn to our fourth quarter financial results. In the fourth quarter, we generated adjusted EBITDA of $246 million, up 18.2% versus the prior year. Our consolidated revenues for the quarter were up 4.8% compared to the prior year quarter. Excluding the impact of political, our consolidated revenues were down 1.8%. Turning to our individual operating segments, the Digital Audio Group generated fourth quarter revenues of $339 million, up 6.7% versus the prior year, which represents approximately 30% of the company’s revenue. The Digital Audio Group generated fourth quarter adjusted EBITDA of $119 million, up 2.1% versus the prior year, and the Digital Audio Group’s adjusted EBITDA margins were 35%. I’ll also note that this was the Digital Audio Group’s best full year performance on record, generating over $1.1 billion of revenue and approximately $380 million of adjusted EBITDA. Within the Digital Audio Group, our podcast revenues grew 5.7% compared to the prior year, and our non-podcast digital revenues grew 7.1% compared to the prior year. Our podcasting financial discipline continues to fuel what we believe is the most profitable podcasting business in the United States. Additionally, our podcasting EBITDA margins remain accretive to our total company EBITDA margins. As Rich will discuss later, our podcasting revenues in Q1 are expected to grow in the high teens. In January, iHeart was once again ranked the number one podcast publisher in the U.S. according to Podtrac, and iHeart is the number one sales network in podcasting as well, with approximately three times the downloads and monthly audience of the next largest U.S. sales network according to Podtrac, with a similar leadership position globally as well. To that end, this week, iHeart Podcast served as the official podcast partner for the 2025 Web Summit Qatar, where our marquee talent, including Malcolm Gladwell and Jay Shetty, led panel discussions. On Monday, we announced a groundbreaking multiyear partnership with the Government Communications Office of the State of Qatar to help create a thriving podcasting industry in the Middle East and North Africa. We see this as further validation of the continued growth potential of the podcast industry and of our ability to expand our leadership position as the largest U.S. podcast publisher to the global market as well. In addition to our industry-leading podcast business, we also have the number one streaming digital radio service, which has five times the listening of our closest competitor. We have the largest social footprint of any audio service by a factor of five, and we operate 3,000 national and local websites with more than 140 million unique users in the United States each month. In the fourth quarter, we launched the next generation of our iHeartRadio app, which combines the key features of the car radio that listeners know and love with innovative technological enhancements. We’ve had a strong positive response from our listeners. So if you’ve not done so already, I encourage everyone to check out the redesigned iHeartRadio app and see for yourselves. Turning now to the Multiplatform Group, which includes our broadcast radio, networks, and events businesses. In the fourth quarter, revenues were $684 million, flat versus the prior year. Excluding the impact of political advertising, revenues were down 5%. The Multiplatform Group’s adjusted EBITDA was $150 million, up 5.9% versus the prior year. As we look at the Multiplatform Group, let me take a moment to focus on broadcast radio and tell you why we continue to believe it’s a growth engine for our company, not a declining business. Broadcast radio has more listeners today than it did 20 years ago. In an environment where broadcast and cable TV audiences have dwindled and print audiences have disappeared, broadcast radio audiences have remained strong, and our broadcast radio is the undisputed leader in monthly audience reach even when compared to Google and Facebook. As we look at our advertising growth opportunities for broadcast radio, the most important variable for advertising on any medium is what’s happening to the audience. On that front, broadcast radio is not only healthy but robust. Additionally, when audio is added to a social media campaign, the response rate jumps by 83%. This is powerful evidence that in addition to reaching more potential consumers for advertisers, we can also meaningfully improve the response rates for their other media as well. This, combined with the ad tech innovations we are rolling out to inject our broadcast radio inventory into data-infused digital buying platforms like programmatic, makes us more confident than ever in the growth of broadcast radio revenue. Turning to the Audio and Media Services Group, revenues were $98 million, up 44.7% year-over-year and adjusted EBITDA was $49 million, up 136% from $21 million in the prior year. Excluding the impact of political, the Audio and Media Services Group’s revenues were down 1.6%. As we look to the year ahead, we remain focused on supporting our high-growth businesses like podcasting, while, as I said before, finding new ways to unlock the power and value of our broadcast radio assets, including our ongoing work to integrate our broadcast radio inventory into programmatic platforms. As evidence of our progress, I’m excited to announce that in March of this year, our broadcast radio inventory will be available via the Yahoo! DSP and Google’s DV360 for digital buyers to purchase alongside other programmatic assets like CTV. This is a critical early step in aligning our broadcast assets with digital buying behavior, which will allow iHeart’s broadcast radio assets to participate in the growing digital and programmatic TAMs. As we continue to innovate and grow, our operational efficiency is critical to our success, and we remain relentlessly focused on cost efficiencies and on our commitment to take advantage of new and evolving technologies like programmatic and AI to deliver both short- and long-term results. Before I turn it over to Rich, I’d like to take a moment to briefly mention the devastating Los Angeles wildfires. Serving our local communities is at the heart of everything we do, and I want to acknowledge the incredible work of our teams on the ground during that time of crisis. It’s moments like this and the hurricanes last fall that the dramatic value of what we do becomes apparent. And now I’ll turn it over to Rich.

Rich Bressler, President, COO, and CFO

Thank you, Bob, and good afternoon, everyone. Our Q4 2024 consolidated revenues were up 4.8% year-over-year, below the guidance we provided of up high single digits due primarily to lower political advertising revenue than we had originally expected, both before and after the election. Additionally, we saw a slowdown in non-political advertising revenue just before the Presidential election, which, as we said on our Q3 call, we had hoped would be re-expressed after the election. In the end, it was not. Our consolidated direct operating expenses increased 9.9% for the quarter. This increase was primarily driven by higher variable content costs related to the increase in digital revenues as well as costs incurred in connection with cost savings initiatives implemented in the fourth quarter. Our consolidated SG&A expenses decreased 1.7% for the quarter. The decrease was driven primarily by lower compensation expense and the timing of non-cash marketing expenses due to the iHeartRadio Music Festival, partially offset by costs incurred in connection with cost savings initiatives implemented in the fourth quarter. We generated fourth quarter GAAP operating income of $104.5 million compared to income of $79.8 million in the prior year quarter. We generated fourth quarter adjusted EBITDA of $246 million, up 18.2% versus prior year, which was below the guidance of approximately $290 million due to the advertising impacts I just mentioned. 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 fourth quarter, the Digital Audio Group’s revenues were $339 million, up 6.7% year-over-year and in line with our guidance of up high single digits. The Digital Audio Group’s adjusted EBITDA was $119 million, up 2.1% year-over-year, and our Q4 margins were 35%. Within the Digital Audio Group are our podcasting revenues of $140 million, which grew 6% year-over-year. For the full year, our podcasting revenues were up 10% year-over-year. Our first quarter non-podcasting digital revenues grew 7% year-over-year to $199 million. As those of you that follow us know, our podcasting revenues typically have a higher margin than our non-podcasting digital revenues, and the flow-through we saw in Q4 reflected this revenue mix. We expect to turn our flow-through performance around in the first quarter with our podcasting revenues up in the high teens, as Bob mentioned, and to comprise the majority of our digital revenue growth, which will help us to continue our year-over-year Digital Audio Group margin expansion. The Multiplatform Group’s revenues were $684 million, flat compared to prior years and below the guidance of mid-single digits. Excluding the impact of political revenues, our Multiplatform Group revenues were down 5%. Adjusted EBITDA was $150 million, up 5.9% from $142 million in the prior year quarter. Multiplatform Group’s adjusted EBITDA margins were 21.9% compared to 20.7% in the prior year quarter. Turning to the Audio and Media Services Group, revenues were $98 million, up 44.7% year-over-year and adjusted EBITDA was $49 million, up 136% from $21 million in the prior year. Excluding the impact of political, the Audio and Media Services Group revenues were down 1.6%. At quarter end, we had the lowest net debt position in the history of the company, approximately $4.52 billion of net debt outstanding. Our total liquidity was $686 million at quarter end, which includes a cash balance of $260 million. Our quarter-ending net debt to adjusted EBITDA ratio was 6.4x, and we expect to end the year at approximately 5.5x and remain on track to attain our goal of achieving 3.2x by the end of 2028. As Bob mentioned in his remarks, we have completed the comprehensive exchange transaction with a group of debt holders representing, on an aggregate basis, approximately 92% of the company’s outstanding debt. To reiterate some of the key highlights, the result of the exchange transaction is that our new notes and term loans have maturities ranging from 2029 to 2031 with reduced total debt levels, and importantly, our annual cash interest expense remains essentially flat. Notably, none of the exchange transactions had any impact on the equity capitalization of the company. This transaction strengthens the company’s financial flexibility while providing iHeart with ample runway to achieve our strategic growth initiatives. In the fourth quarter, due to fees and the acceleration of certain interest payments related to the debt transaction, our free cash flow was negative $24 million. Our free cash flow would have been $111 million when adjusting for the debt transaction-related expenses. Additionally, further impacting our fourth quarter free cash flow were costs associated with the modernization program. As a point of reference, we recorded $33.5 million of restructuring expenses in the fourth quarter, with a portion of those payments hitting Q4 and negatively impacting our Q4 free cash flow. As we look ahead to Q1 2025, although the year began with optimism, many companies are now focusing on how potential tariffs, inflation, and higher interest rates may impact their businesses, introducing an element of uncertainty. An indication of that uncertainty, as I’m sure you’ve seen, is the conference board's measure of consumer confidence, which reported that February saw the largest single monthly decline in consumer confidence since August 2021. We’ve done our best to incorporate the impact of this uncertainty into our guidance. Our first quarter results will also be impacted by the wildfires in Los Angeles. Not only is Los Angeles our largest revenue market, but our national major account sales team is based there as well, affecting revenue beyond just Los Angeles, all of which is compounded by the fact that Q1 is always our smallest revenue quarter for the year. With that in mind, we expect to generate consolidated first quarter adjusted EBITDA in the range of $100 million to $110 million compared to $105 million in the prior year quarter. We expect our consolidated Q1, 2025 revenues to be down low single digits compared to the prior year. As a reflection of the optimism the year began with and then the uncertainty that rolled in later, our January revenues were up 5.5%, and our February pacing is down approximately 7%. Turning to the individual segments for Q1, we expect the Digital Audio Group’s revenues to be up low double digits, with podcasting revenues expected to grow in the high teens. We expect the Multiplatform Group’s revenues to be down mid-single digits, and we expect the Audio and Media Services Group’s revenue to be down approximately 15% due to the impact of political advertising spend in the prior year period. At this point, we remain optimistic about the year ahead, even with the uncertainty in the economy, and we want to reiterate our full-year 2025 guidance. We expect our full-year 2025 revenues to be approximately flat compared to 2024. We expect to generate full-year adjusted EBITDA of approximately $770 million, and we expect to generate free cash flow of approximately $200 million. The following assumptions are included in our free cash flow guidance. We expect our cash taxes to be approximately 10% of our adjusted EBITDA. We expect our full-year capital expenditures to be approximately $90 million. We expect our cash restructuring expenses to be approximately $45 million. At year-end 2025, we expect our net debt to adjusted EBITDA ratio to be approximately 5.5x and we remain on track to achieve our goal of 3.2x by the end of 2028. Now I will turn it over to the operator to take your questions. Thank you.

Operator, Operator

Thank you. Our first question comes from Jessica Reif Ehrlich from Bank of America. Please go ahead. Your line is open.

Jessica Reif Ehrlich, Analyst

Thank you. I have a couple of questions, if that’s okay. So first, Bob and Rich, I know you both consistently talked about the resilience of broadcast listening. Can you talk about how you are thinking about monetizing that going forward? And maybe in that context, I know, Bob, you mentioned both programmatic and AI, how much of a needle mover will programmatic be? What does the ramp look like? And then I have a follow-up. Thanks.

Bob Pittman, Chairman and CEO

Sure. Look, I think programmatic is an essential part of what we are doing. It’s a growing part of the ad market. You are correct in implying that the answer lies in how we take this incredible amount of listening we have, the strong relationships we've built with our consumers. Podcasting is also an area benefiting from this transition. Measured broadcast radio shows remarkable performance for performance marketers by delivering critical metrics. The challenge for us is ensuring our inventory aligns with current buying systems, which are very digital-centric. So programmatic is just part of the answer. It may involve automated buying, and it could even be supported by live conversations, executed through an automated platform to be placed alongside other digital options. Our expectation is that algorithms, as they evolve, will favor radio as opposed to traditional media, which have suffered from significant audience drops. We're making great strides with our automated platform and integrating our inventory into systems that can provide data where it’s needed. We are optimistic about rolling out these tools this year. While we expect to learn a lot this year, we foresee potential revenue generation happening this year, but the full impact may be felt next year and the following year.

Rich Bressler, President, COO, and CFO

Hey Jess. The only thing I would add, just quickly, to what Bob said, is you talked about the ramp and everything. Before we can see the ramp, we first need to get into the platforms. That’s why Bob’s point about the DV360 and Yahoo is significant for us.

Jessica Reif Ehrlich, Analyst

Right. Okay. And then maybe just two more quick ones. Could you address the video podcasting opportunity? Spotify has been talking about that a bit, and you obviously have a really strong position in podcasting. And then, just finally, on the overall market outlook, I mean, obviously, there are a lot of puts and takes, as you guys have outlined, but L.A. is your biggest market. Can you give us some color on what the impact was in Q4 and how it looks moving forward?

Bob Pittman, Chairman and CEO

Sure. First, let’s address video podcasting. There has been considerable discussion about this trend. YouTube would prefer everything to be video, but research indicates that only around 10% of podcast users prefer video, while many are amenable to it. The vast majority prefers audio. They engage with podcasting because it's convenient for multitasking—be it cooking, driving, or exercising, where they cannot watch. Furthermore, many hosts and content are personal and conversational. Podcasting distinguishes itself from TV-style production due to its casual nature. The connection people feel with podcast hosts is like that of companionship. While opportunities in video exist, our priority remains the audio experience that users desire. We will evaluate it and explore it more if our listeners express a clear interest. As the leading podcast publisher, we have the creative space to explore offered opportunities. Regarding the L.A. market, it experienced disruptions due to the wildfires. However, we believe it’s now returning to normal. Not only were we impacted, but our direct client sales group, which is crucial for us, is based there. Employees faced personal hardships due to the wildfires, affecting operations. Fortunately, we did not encounter a loss of life, only property damage. We believe the disruption in L.A. will be a minor setback. On a brighter note, we see more workers returning to the office, leading to increased traffic—a driver for our business, as it correlates with longer commutes and hence more people listening to the radio.

Rich Bressler, President, COO, and CFO

Yes. You're right, and just one point on the broader advertising environment: we have laid out the puts and takes in our opening remarks. We have heard from other ad-supported companies' earnings reports that they are witnessing similar trends to those we've outlined. It's essential to reiterate our confidence in the business moving forward. Despite the prevailing uncertainties surrounding tariffs and consumer confidence, we remain optimistic about the upcoming year.

Bob Pittman, Chairman and CEO

Yes. What we encounter during periods of change is a natural pause as companies assess their strategies. The recent shift between administrations is significant, and businesses are digesting this change. The uncertainty is neither surprising nor unexpected, but looking ahead, we anticipate stabilization, maintaining our optimism for the year.

Jessica Reif Ehrlich, Analyst

Thank you.

Operator, Operator

Our next question comes from Patrick Sholl from Barrington Research. Please go ahead.

Patrick Sholl, Analyst

Hi. I was wondering if you could talk a little bit more about the automated buying and how much that sort of contributes to the improving trends of the year to make up that difference in total advertising, as a result of the political comparison.

Bob Pittman, Chairman and CEO

Yes, that’s an excellent question. The contribution comes in phases. The initial step involves SmartAudio, which is a suite of data enhancements paired with our audiences to build out cohorts. A notable number of advertisers are now leveraging our data in various forms. The next phase focuses on enabling advertisers to transition from traditional phone calls and conventional methods of ad purchasing into a more streamlined process. The final stage incorporates programmatic advertising with the automated systems we're establishing, including real-time bidding. We already offer marketplaces and our iHeart Audience Network, which provides a diverse assortment of options for advertisers in the digital space. Integrating our broadcast radio benefits from this expansive audience is a tremendous opportunity. I reiterate that broadcast radio remains an underappreciated asset with significant potential.

Rich Bressler, President, COO, and CFO

To clarify, we are not assuming any significant contributions from the automated systems this year just yet, as we are still in learning mode. However, we are ecstatic about the opportunities such systems provide.

Patrick Sholl, Analyst

Okay. And then on – you talked about January advertising being up, and I realize that was short-lived, but what were some of the drivers of that turnaround from a slower than expected close to the year to at least the positive start?

Bob Pittman, Chairman and CEO

It’s curious. We previously noted a pause in advertising prior to the election, expecting that momentum to recur in December, but it didn't happen. However, January seemed to record a refreshing wave of optimism as reality kicked in. As many advertisers gear up for Q1—historically their slowest period—there tends to be less pressure to advertise. Yet, we remain hopeful that a shift back to comfort and confidence is underway.

Operator, Operator

Our last question comes from Stephen Laszczyk from Goldman Sachs. Please go ahead.

Stephen Laszczyk, Analyst

Hey guys. Thanks for taking the questions. Two, if I could, maybe first on podcasting for Bob and Rich, I was wondering if you could talk a little bit more about your expected drivers of growth in the podcasting business this year, perhaps between adding new content to the platform, improving engagement, and monetization. What do you see as the main drivers or the largest drivers of that expected growth in podcasting revenue? And then second, on political, you came in a little below what we had expected in the 2024 cycle. I was curious if you could talk about why that might have been the case and what you think that means, if anything, for the next few rounds of political spending as we approach the mid-terms and the next presidential cycle? Thank you.

Bob Pittman, Chairman and CEO

Certainly. The growth drivers of podcasting encompass all aspects: our product expansion, audience development, as well as value enhancement and pricing. Demand for podcasting is increasing to the point where advertisers see it as a must-have. We anticipate sustained growth throughout this year, if not beyond. Regarding political spending, the key takeaway from this election year highlights that campaigns increasingly rely on data. Our approach must evolve accordingly. We are enhancing our strategies for mid-terms and the presidential race, and even now, we are preparing and implementing the valuable lessons we’ve learned.

Rich Bressler, President, COO, and CFO

Yes, and over the past year, we witnessed double-digit revenue growth in podcasting. We continue to receive larger numbers and are anticipating double-digit revenue growth. As Bob mentioned, we project high-teen growth for Q1. We are vigilant in monitoring and assessing consumer usage, but the robust growth story of podcasting and our achievements remain clear.

Bob Pittman, Chairman and CEO

Additionally, there is a fine line between video and broadcast radio in terms of CPMs. However, podcasting doesn't show significant variances in value when video is introduced. Regarding politics, we discussed earlier the challenges posed by changes in candidates within the Democratic party, which we anticipated. We were hopeful for post-election spending, but it failed to materialize. However, despite not reaching our anticipated figures, our MPG's performance in Q4 still showed 8% EBITDA growth on relatively flat revenue, so our absolute performance was commendable.

Rich Bressler, President, COO, and CFO

Well, operator, if there are no other questions, we sincerely appreciate everyone taking the time to focus on the iHeart story. We are here to assist with any follow-ups. Thank you.

Operator, Operator

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