Good day, and thank you for standing by. Welcome to the iHeartMedia First Quarter 2022 Earnings Call. [Operator Instructions] Please be advised today's call is being recorded. [Operator Instructions] I would like to hand the conference over to your speaker today, Mr. Michael McGuinness, Deputy CFO. Please go ahead.

Good afternoon, everyone, and thank you for taking the time to join us for our first 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 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, this call will include certain non-GAAP financial measures. Reconciliations of 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. Thank you for joining our first quarter 2022 earnings conference call. We're pleased to report another quarter of strong results for iHeart during the quarter when we, like all businesses, faced a unique combination of macroeconomic challenges. We believe our performance this quarter is further evidence of the successful execution of our digital transformation and multi-platform strategy, which delivered solid results while operating in a turbulent macro environment. The digital transformation of the company continues as a priority and the investments we've made and will continue to make in that effort present significant opportunities for the company to participate in exciting new and developing markets. Our recent announcement of the NFT-based Non-Fun Squad Media Franchise and our Super League roadblocks partnership are examples of how we think iHeart can leverage our existing non-cash resources to build a position in these exciting new Metaverse and Web3 areas. As you may have seen in March, we announced that Sam Englebardt, Co-Founder and partner of Galaxy Digital, joined our Board of Directors. In addition to a wealth of operating experience, Sam has expertise, key relationships and a deep understanding of Web3 and emerging consumer tech platforms. That experience, coupled with Sam's background and media and entertainment, will be uniquely valuable to the company as this space develops. We are committed to building on the momentum of iHeart's successful transformation into a data-led, digital-driven business with leading consumer platforms like podcasting, all powered by the scale, an unparalleled reach of our highly profitable Broadcast radio assets, the largest audio sales force and the only unified ad tech stack in audio advertising. We believe our first quarter performance is further evidence of the resiliency and high growth potential of our business and that we are poised for continued success…

Thanks, Bob. As I take you through our results, you'll notice that, as Bob mentioned, we performed well despite external factors that have been impacting the economy. Our consolidated revenues were up 19.4% year-over-year, slightly exceeding the high end of the revenue guidance range we provided. Our direct operating expenses increased 13% for the quarter, driven primarily by the significant 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 live events. Our SG&A expenses increased 12% for the quarter, driven by increased compensation expense related to investments in key growth areas and higher sales commissions due to higher revenue. In a moment, I will talk more about the key investments we are making. Our first quarter GAAP operating income was $12.3 million compared to an operating loss of $76.4 million in the prior year quarter. And our first quarter adjusted EBITDA was $145.2 million compared to $102.2 million in the prior year quarter. If you turn back to Slide 4, I will provide you additional color on the performance of our operating segments. And as a note, there are additional slides in the investor presentation on our segment revenue performance. Digital Audio Group revenues were up 36% year-over-year and adjusted EBITDA was up 31% year-over-year. Within the digital audio group is our podcasting business, whose revenues grew 79% year-over-year our non-podcasting digital revenues, which grew 22% year-over-year. Podcasting is the fastest-growing area of the media industry today, but we know as a new marketplace, the dynamics can be complex and confusing. So let me take a minute to go through it. On Slide 11 of the investor deck, we provided a view of the podcast value chain. To the left is the high end of…

[Operator Instructions]. Our first question comes from the line of Jessica Reif Ehrlich with BofA Securities.

A couple of questions. When you -- I guess starting -- I don't know where to start, but so can we talk about the trajectory of costs? You talked about $12 million incremental costs. Could you -- what's the cadence of that? And how should we think about just generally cadence of costs throughout the year. You gave your outlook for sort of outlook for revenue. And is there anything we should be thinking about in terms of podcast content in terms of timing?

Jess, it's Rich. Thanks for the question. No, I don't think we highlighted the $12 million of which in Q2, which we said, think about it as $6 million additive fixed cost is ongoing, and that $6 million was one-time. And when you think about cost, we gave guidance or directional that we expect to get back to mid-30s margins in the digital business. And I think we've been very consistent with that. Just -- since we broke it out as a separate segment, but we expect that the business operate kind of in the mid-30s range. And just to put a fine point on the cost, these are costs that we put into the business because it's just the tremendous growth we've had in digital, and we see that continuing to be a very strong growth both with and without podcasting for us. And so really putting a digital ad sales support and things like that to the digital business. And when you do that in the first quarter, you have it, you take a little bigger hit, which is why we broke it out and emphasize what was onetime and what was ongoing.

I think to put a fine point on that, too, Rich, is talking about fixed cost on that, which is why as the revenue grows, that becomes more and more efficient as we get our operating leverage. And your point on podcasting is we continue to have a podcast margin that's greater than our overall margin. We watch very carefully the cost on podcasting, especially whatever rev shares we do with anybody with partners, et cetera. And I think being as big as we are, we have the luxury of being pretty picky on economic deals for podcasting. And we have the courage to walk away from something that sounds big. But if we can make money on it, we're not interested.

And then just one follow-up on [indiscernible]. On the revenue, I mean the guidance -- the revenue growth double digit really underlying if you make that adjustment for April. It's still very strong, especially in this environment. Can you just give us some color on what you're seeing in the marketplace from different categories, especially given it feels like there's pockets of softness and the newer areas are making up. But you guys are there day to day. What are you seeing?

Yes, it's interesting. It's sort of this tug of war that's interesting to watch because you got a consumer that is so ready for the pandemic to be over. That has money, wants to spend it, wants to do things, want to make up for all the time, they couldn't do it. And then on the other hand, obviously, we got those macro issues, but I think the advertisers -- and this probably be expected, the smart advertisers, at least are saying, I got a consumer who wants to spend. I got a consumer that's willing. I want to advertise and attract that consumer at this moment when they're hot, and I think that continues. So if there's a tug of war, I think the consumer wins, and I think the advertiser follows the consumer. And we're seeing that even in some of the areas that have been that have had supply chain constraints. What's been interesting is that a number -- a surprising number of advertisers, I know I don't have anything to sell, but I'm going to keep advertising because I know it will be more expensive for me to regain that customer once I have the product than it would be to just continue to have the relationship and the pent-up demand. And we've been playing into that pretty well as well.

Yes. And just the only thing I might just add, to what Bob said. And I think he really covered in his remarks, I think if you kind of go back and look at what we've built out here in this company, and built out the audio tech stack, and there are some slides in the investor deck there that people could refer to. Our ability now to go to market, and particularly, we're the only reach medium over 90% of American to really host -- there is no other alternative out there in terms of a reach medium out there. If you look at now what's happened broadcast TV, I think the biggest broadcast is down to less than 50%. I think the biggest cable network is down like 20%. So that decline overall clearly works to our benefit. And then couple that with the capabilities that we've built out and what's happening in terms of advertisers moving more to cohort away from 1 to 1 to all the things we know about just continues to benefit. And I think you see the strength in our numbers. And then every once a while, you get like a little bit of a chop like we said, in this environment like April, but that's why it was so important to point out what's happening in May and June.

Your next question comes from the line of Steve Cahall with Wells Fargo.

Maybe first, just to follow up on Jessica's question to dig a little deeper into the ad market. Could you give a little more just color commentary on maybe where you're seeing categories be real dynamic. We've heard the things like maybe QSR and CPG have slowed down a little bit. It sounds like you're probably seeing that offset by some categories that have picked up, particularly in May and June. And with that, I was wondering if you could tell us what percentage you've sold of May and June that gives you some confidence in the Q2 outlook.

Well, the QSR, CPG, et cetera, I don't think we've seen, and I don't think we've predicted that as an overall category. It's a weak category, I think there may be some players that have been weak in it, but there are some that are strong as well. We have not seen it. Even though automotive, which I think people have thought is weak, has not been what you would expect it to be from the headlines because, again, you've got some dealers that say I want to maintain that relationship. You've also got some Tier 1 manufacturers at the highest level that are saying now is the opportunity for you to win consumers. So again, I go back to I think that you've got a strong consumer even if supply isn't there. And I think most advertisers recognize that's -- that's an important place for them to play and they sure don't want to be absent when the consumer is there. So again, I go back to if this is a tug of war, I think the consumer wins and drives the advertiser.

And Steve, just one item just to reiterate, I think that we covered during our prepared remarks is, again, no one category for us is bigger than 5% in advertising and no one advertiser for us. is bigger than 2% of our overall advertising. So there is no one category that's driving our results either historically or going forward that we talked about.

Yes. And then, Rich, maybe just to follow up on the EBITDA guide. So you all took out a lot of costs during the pandemic. I know some of that was benchmarked for reinvestment. If I look at the first quarter, revenue exceeded 2019. First quarter margin was about 250 basis points below. Second quarter revenue also is going to be above 2019 margins are even further below where they were. I know some of that is mixed because digital is a little lower than Multiplatform. But it just seems like it's one of these stories where you're making investments. The investments probably make sense internally. It's a little tougher for us on the outside to see when we see that margin start to catch back up to historical levels. So any outlook you could give on how we can think about the margin shape in the medium-term?

Sure, sure. And I appreciate the question and understand from the outside, which is why -- the one thing I just -- and then I'll go right to your question, Steve. Just to remind everybody, the first quarter, we do have when you look at margins, a little bit the law of small numbers, right? It's our smallest quarter by far the year historically, it's always been our smallest quarter by far for the year. And so you do have a cost base that you don't get the full flow-through benefit in any environment out there just due to the size of numbers. If you look at from the overall margin going forward, one of the reasons to your question, yes, we're investing some money that I articulated and answers to Jessica's question in the high-growth businesses. But at the same time, I said you'll continue to see margin expansion throughout the year, and we absolutely expect to be back to the guidance we've given of our mid-30s type of digital margins on a full year basis.

So can I also add? I just think -- when you look at this business, remember, structurally, we're a high operating leverage business, high fixed cost business. And when we start scaling and have some of these growth platforms like we've got, especially as it relates to digital and podcasting at a certain point, we have to expand the fixed cost structure to handle that future revenue stream. The first month we do it, the first quarter we do it is not going to be nearly as efficient as 3 or 4 quarters down the road. But I think we -- Rich and I spend a lot of time looking at the additional money we've got coming in and figuring out if we need to reinvest it in other places. Certainly, the investments we made in SmartAudio and in digital and probably most significantly in podcasting have all turned out to be very strong and important investments for us and have enabled the growth we're experiencing today. So we again, as we look at every quarter, we do look at it with that view and I think are pretty tough on cost. But at the same time, we want to spend what we need to spend.

Steve, and let me just one additional I just had, which I think hopefully will be helpful. As you think about us as a company, if you go to the midpoint to Q2 of our revenue and EBITDA guidance. So just kind of go to the midpoint. I think you see as a company that will work out somewhere between 24% and 25% overall margins as a company, which is up 400 basis points from Q2 of 2021, right? And so we're looking at 17% today, which is up from 14% in Q1 2021. But just to kind of help everybody because I do appreciate your question, think about Q2. I think if you just do that math I articulated, you'll see we're getting some -- we're going to have some pretty significant margin expansion starting right away in Q2.

The next question comes from the line of Sebastiano Petti with JPMorgan.

Just sticking with the EBITDA and cost commentary, I mean, is there a little bit of mix shift kind of going on underlying here within the EBITDA guidance and perhaps the results in the first quarter that we should be thinking about as perhaps live events comes back and some of these other business lines? And obviously, as political comes on, that will be very high incremental margins. But just as a quick follow-up. Is there anything just revenue mix wise that we should be cognizant of as we model an economic recovery in reopening care?

Well, certainly, Events is a lower margin, as we've said before, than our overall margins. So as we bring back Events, although it contributes to the bottom line, it does so at a lower margin and does pull back a bit. And you're right about a political. Political comes in an extraordinarily good margin and that is, as you know, almost all a third and fourth quarter impact.

Yes. And I really appreciate the question because I probably should have highlighted, honestly. And one of the first couple of questions. Remember, this year, we've come back to live events. Last year, we basically zero live events. And so that does come with a low margin. So really appreciate that. And again, I'm just going to reemphasize what I said 4 or 5 minutes ago because I think it's worth reemphasizing, we are dealing when we're talking about margins here for the smallest numbers of the year. So small numbers -- small changes, I'm sorry, have an impact on margins here disproportionately.

I have a quick follow-up. You have articulated that getting back to getting back to a net debt to adjusted EBITDA target of approximately 4% is kind of where you want to go before you start reevaluating capital return decision. But given what's going on in the macro environment, your confidence in the underlying business, does it make sense to perhaps think about returning capital maybe before you kind of get to that [4x] leverage?

Yes. So I would think about it is like, look, we're always evaluating everything with our Board of Directors, right? And so all these decisions are ultimately the Board of Directors' decision out there, but we have to constantly keep challenging ourselves. But sure, but our plan is just to be clear and so there's no ambiguity is to continue to use our free cash flow to pay down debt until we get to approximately [4 to 1]. And again, you'll see, we just continue to make progress on that, both in terms of generation of free cash flow. And there's always another part of a leverage ratio, which is called EBITDA and on the growth of the EBITDA of the company.

[Operator Instructions] Our next question comes from the line of Dan Day with B. Riley Securities.

Look, the question I keep getting on all the radio names is just people were worried about entering a recessionary environment over the next year or 2 and just -- I know you guys have been around this business for a while. Maybe just speak to what you've experienced historically as it relates to radio ad spend in that type of environment, what the puts and takes are that we should be thinking about in that regard?

Well, first and foremost, I think you'll see us today, we gave the percentages and the change in revenue mix since even 2020, pre-pandemic. That continues to give us, I think, comfort that we've got a pretty diversified revenue stream across not only Broadcast radio, but we've got it across digital radio. We've got it across other digital services and podcasting. Podcasting alone is almost 10% or I think it is about 10% of our revenue in this quarter. And so we think that gives us a much different profile than past downturns that you've seen in the economy with just the straight radio business. Additionally, I think being able to transform our Broadcast radio business into a digital-like inventory, impressions, data, infused, use data for targeting, attribution, again, allows us to play in a different world than traditionally this company or the radio business has played in. So I think all those are strengths in terms of us mitigating any possible negative effects in any sort of downturn.

Yes. And by the way, I just wanted to add one more, and I appreciate that question proactively. I don't know if people have had a chance probably not yet to really go through our investor deck. I would encourage you all to do so. We updated it quite a bit from the last call based on feedback and particularly in the area of digital and podcasting, we get a number of questions about ourselves as role as a podcaster as a publisher. And what really the difference is from an economic value in terms of the publisher and I covered it on the call, but we have 3 or 4 slides in there in terms of how the value chain works on podcasting. So I'd encourage everyone to look at that. And also, we also get a number of questions on what digital ex-podcasting looks like and what the opportunities are whether it's social or streaming audio or websites. So we also put a slide in there to kind of size the market and the TAM out there and our results.

Let me add this, end with one more thing on that, though, that I think audio is also hot now. And audio has not been -- the thing has not been hot for probably 25, 30 years. So having that moment, I think changes whatever trajectory might be historic for anyone in the audio business, including radio.

Well, thanks, everybody. Thanks for the questions. Thanks for taking the time to listen to the iHeart story. And we're all available to answer any follow-up questions. Thank you.

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