iHeartMedia, Inc. (NASDAQ:IHRT) Q4 2023 Earnings Call Transcript
iHeartMedia, Inc. (NASDAQ:IHRT) Q4 2023 Earnings Call Transcript February 29, 2024
iHeartMedia, Inc. misses on earnings expectations. Reported EPS is $0.01 EPS, expectations were $0.05. IHRT isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, thank you for standing by, and welcome to the iHeartMedia Q4 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. [Operator Instructions] As a reminder, today's call is being recorded. I will now hand today's call over to Mike McGuinness, Head of Investor Relations. Please go ahead, sir.
Mike McGuinness: Good morning, everyone, and thank you for taking the time to join us for our fourth quarter 2023 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, 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: Thanks Mike, and good morning everyone. We're pleased to report that our fourth quarter 2023 results were in line with our previously provided adjusted EBITDA and revenue guidance ranges. Before I take you through the fourth quarter highlights, I want to share some thoughts on the year we've just had. While the advertising marketplace ended up being more uncertain than we had originally anticipated when we began the year, we navigated that ad environment and at the same time continued to make important strides in the initiatives that are critical to our longer-term success, including substantial progress in developing our proprietary technology platform to enhance our advertising business, which will unlock programmatic and automated trading revenue for our broadcast inventory, the application of AI to translate our podcast content, enabling cost-effective international expansion into non-English language markets, and continuing to extend our audience leadership position beyond just AMFM and onto new devices and platforms.
At the same time we continue to look at our cost base and have built a culture within the organization that is relentless in driving efficiencies. And of course, we have a new tool to use to fuel that, which is AI. Now let me take you through some of the key financial results of the quarter. In the fourth quarter, we generated adjusted EBITDA of $208 million within the guidance range, we provided of $205 million to $215 million. Our consolidated revenues for the quarter were down 5.2%, compared to the prior year quarter, a little better than the guidance we provided of down high-single-digits. Excluding the impact of political, our consolidated revenues were flat and we generated $142 million of free cash flow. Turning now to our individual operating segments, the Digital Audio Group generated fourth quarter revenues of $318 million, up 5.5% versus prior year, and now represents approximately 30% of the company's total revenue.
And for the full-year, the Digital Audio Group generated over $1 billion of revenue. For the quarter, the Digital Audio Group generated adjusted EBITDA of $117 million, up 17.3% versus prior year, and the Digital Audio Group's adjusted EBITDA margins were 37%, up from 33% in Q4 2022. This was the highest margin we've ever achieved in a quarter for the Digital Audio Group and I would note that for the full-year this was the Digital Audio Group's best adjusted EBITDA and adjusted EBITDA margin as well at approximately $350 million of adjusted EBITDA with a margin of 33%. Within the Digital Audio Group, our podcast revenues grew 16.6% versus prior year. Podcasting continues to be the hottest new consumer medium and as we are the industry leader, it remains a strong growth engine for the company.
Additionally, our financial discipline has paid off as our podcasting EBITDA margins continue to be accretive to our total company EBITDA margins. In December, iHeart was once again ranked the number one podcast publisher in the U.S. with more monthly downloads than the next two largest podcast publishers combined, according to pod track. Our leadership position in podcasting is, in part, the result of the power of our broadcast radio assets, which we have used to build new lines of business for the company, starting out with the iHeart Radio app over 10-years ago, our marquee live events business, including the iHeart Radio Jingle Ball Tour, and most recently with podcasting. In addition to our industry-leading podcast business, we also have the number one streaming digital radio service, which has 5 times the listening of our closest competitor.
We have the largest social footprint of any audio service by a factor of seven and we operate 3,000 national and local websites that reach more than 120 million people in the United States each month, all of which represent additional opportunities for our advertising partners to interact with our highly engaged consumer base and provide additional revenue growth for the company. Turning now to the Multiplatform Group, which includes our broadcast radio, networks, and events businesses. In the fourth quarter, revenues were $684 million, down 6.7% versus prior year, and down 3.2% excluding the impact of political advertising. Adjusted EBITDA was $142 million, down 38.5% versus prior year. And as a reminder, we're comparing this performance to Q4 2022, which benefited significantly from the impact of record political advertising spend for non-presidential election year.
As we look to the year ahead, we see 2024 as a recovery year, and we expect a return to growth mode, which will benefit all of our assets with a disproportionate adjusted EBITDA benefit to our Multiplatform Group and broadcast radio assets because of the higher operating leverage in that segment. We expect to see our Multiplatform Group performance improve quarter-by-quarter throughout the year and of course as 2024 is a presidential election year we expect to see a material benefit from political advertising the back half of the year as well. And looking at our Digital Audio Group, we're excited about the growth of the overall digital audio TAM, as well as our own growth within it. And now I'll turn it over to Rich.
Rich Bressler: Thank you, Bob. As I take you through our results, you'll notice that, as Bob mentioned, our fourth quarter 2023 results were in line with our previously provided adjusted EBITDA and revenue guidance ranges. Our Q4 2023 consolidated revenues were down 5.2% year-over-year, a little better than the guidance we provided of down high-single-digits. Excluding the impact of political, our consolidated revenues were flat. Our consolidated direct operating expenses increased 0.4% for the quarter. This small increase was primarily driven by higher broadcast content fees and higher variable content costs resulting from an increase in digital segment revenue, including profit sharing cost and production costs, but somewhat mitigated by lower third-party digital cost and reduced compensation expense as a result of our ongoing cost savings initiatives.
Our consolidated SG&A expenses increased 8.5% for the quarter, primarily driven by increased trade and barter marketing expense associated with the promotion of our events business in the quarter, including the streaming of our iHeartRadio Music Festival moving to Hulu, as well as increased variable bonus expense, which we stated on last quarter's call when discussing our Q4 guidance. These increases were partially offset by expense reductions driven by our ongoing cost savings initiatives. We generated fourth quarter GAAP operating income of $79.8 million, compared to $172.8 million in the prior year quarter. Our fourth quarter adjusted EBITDA was $208 million, compared to $316 million in the prior year quarter, which as a reminder was an election year, and within the guidance range we provided of $205 million to $215 million.
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 Groups revenues were $318 million, up 5.5% year-over-year and they comprised approximately 30% of our fourth quarter consolidated revenues. The Digital Audio Group's adjusted EBITDA was $117 million, up 17.3% year-over-year, and our Q4 margins were 36.7%, a year-over-year increase of 370 basis points. Within the Digital Audio Group are our podcasting revenues, which grew 16.6% year-over-year, and our non-podcasting digital revenues, which declined 1.1% year-over-year. The Multiplatform Groups' revenues were $684 million, down 6.7% year-over-year, or down 3.2%, excluding the impact of political.
Adjusted EBITDA was $142 million, down 38.5% year-over-year. The Multiplatform Groups adjusted EBITDA margins with 20.7%. The Multiplatform Groups' fourth quarter margins were primarily impacted by year-over-year increases in trade and barter marketing expenses, as I mentioned previously, as well as increases to certain programming fees and bad debt expenses, which were partially offset by the previously announced ongoing cost reduction programs. To take a step back, as you can see from the results in this quarter, we've continued to build out a successful and high growth digital business, which for the full-year 2023, generate over a billion dollars of revenue with a 33% adjusted EBITDA margin. What might not be as apparent is as part of our relentless focus on efficiencies, we've been reallocating capital from our lower growth Multiplatform Group to feed our higher growth Digital Audio Group.
In fact, since 2019, we have actually reduced our Multiplatform Group expenses by approximately 7%, which has in part helped us to fund the growth of our Digital Audio Group, whose adjusted EBITDA grew by approximately 270% over that same time period. And as digital has a higher growth rate than our Multiplatform Group, the adjusted EBITDA of the Digital Audio Group in Q4 2023 is now approximately 80% as large as the Multiplatform Groups adjusted EBITDA, up from 11% in Q4 2019. Turning to the Audio and Media Services Group, revenues were $68 million, down approximately 28.6% year-over-year, and adjusted EBITDA was $21 million, down from $45 million in the prior year. Excluding the impact of political in the prior year quarter, the Audio and Media Services Group's revenues were down 5.2%.
And as a reminder, the Audio and Media Services Group also includes television revenues, which has greater year-to-year peaks and troughs due to the impact of political advertising. At quarter end, we had approximately $4.9 billion of net debt outstanding, and our total liquidity was $772 million, which includes a cash balance of $346 million. Our quarter ending net debt to adjusted EBITDA ratio was 7 times. And in 2024, we expect to make progress towards our long-term goal of a net debt to adjusted EBITDA ratio of approximately 4 times. As highlighted on past calls, we have no material maintenance covenants and no debt maturities until May 2026. We continue to be opportunistic in responding to market developments and opportunities surrounding our capital structure.
In Q4, we repurchased $15 million of the principal balance of our 8 and 3As Senior Unsecured Notes at a meaningful discount to their par value, generating both earnings and free cash flow accretion. This brings our total repurchase of these notes to $534 million, reducing the outstanding amount from $1.45 billion to approximately $916 million, and results in aggregate annualized interest savings of approximately $45 million. In the fourth quarter, we generated $142 million of free cash flow. Turning now to our outlook for Q1. The first quarter got off to a slow start with January revenue down 8% year-over-year. However, we are seeing momentum in February and March, which are both pacing up low-single-digits. And we are now currently pacing slightly better than down 1% for the quarter.
And we expect our Q1 2024 revenues to be flat to down 2% year-over-year. And we are seeing that momentum continuing into Q2, which is pacing up low-single-digits as well. So we see this trajectory as further validation that January was an anomaly and a positive sign for us as we progress throughout the year. We expect to generate first quarter adjusted EBITDA in the range of $100 million to $110 million, compared to $93 million in the prior year quarter. Turning to the individual segments for Q1, we expect the Digital Audio Group revenues to be up mid-single-digits. We expect the multi-platform groups revenue to be down mid-single-digits. And we expect the Audio and Media Services Group revenue to be up approximately 10%. In terms of free cash flow, as a reminder, Q1 is always our lowest free cash flow quarter of the year and in Q1, 2023, we generated negative free cash flow before returning to positive free cash flow generation in all subsequent quarters.
Turning to some of the items affecting our full-year free cash flow. We expect our cash taxes to be approximately 10% of adjusted EBITDA in 2024. Our estimate of full-year 2024 capital expenditures is expected to be approximately $100 million. Cash restructuring expenses will be approximately $50 million. While not included in free cash flow calculation, in February 2024, we received $101 million of cash proceeds from our equity stake in the sale of BMI. As Bob mentioned, we expect 2024 to be back in growth mode as we continue to see signs of improvement throughout our business and the broader advertising marketplace. And as a reminder, during the last presidential election, we generated $167 million of political revenue. So in combination with our ongoing efficiency efforts, and given the power of technology now at our disposal, we expect to see a significant year-over-year improvement in our adjusted EBITDA performance.
And finally, on behalf of our entire management team, Bob and I want to thank our team members who work to deliver for their communities and for iHeart every single day. Now we'll turn it over to the operator to take your questions. Thank you.
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