iHeartMedia - Q2 2024

Transcript

Operator (participant)

Good morning, and welcome to the iHeartMedia Q2 2024 earnings call. All participants are in a listen-only mode. After the speaker's remarks, we will have a question-and-answer session. To ask a question, please press star followed by the number one on your telephone keypad. As a reminder, 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 morning, everyone, and thank you for taking the time to join us for our second 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. 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. Now I'll turn the call over to Bob.

Bob Pittman (Chairman and CEO)

Thanks, Mike, and good morning, everyone. We are pleased to report that our second quarter 2024 results were in line with our previously provided Adjusted EBITDA and revenue guidance ranges. We're seeing sequential improvement in our revenue growth. While the marketplace continues to be dynamic, with a changing outlook on interest rates, inflation trends, global uncertainty, and a rapidly evolving domestic political landscape, we continue to see strong momentum in our podcast business, our digital and podcast business, and the sequential improvement of our Multiplatform Group's year-over-year revenue performance. As we look at the back half of the year, our results will reflect the continuing positive impact on an ad market recovery year, material upside from political advertising, as well as the benefit of our ongoing focus on cost efficiencies. Now, let me take you through some of the key financial results of the quarter.

In the second quarter, we generated Adjusted EBITDA of $150 million in the middle of the guidance range we provided of $140 million-$160 million. Our consolidated revenues for the quarter were up 1% compared to the prior year quarter, a little above the guidance range of approximately flat year-over-year. Excluding the impact of political, our consolidated revenues were up 0.1% compared to the prior year quarter. This marks the first quarter that our consolidated revenues increased year-over-year since Q4 2022. Turning now to our individual operating segments, the Digital Audio Group generated second quarter revenues of $286 million, up 10% versus prior year, just above our previously provided guidance of up high single digits and represented 31% of the company's total revenue.

For the quarter, the Digital Audio Group generated adjusted EBITDA of $92 million, up 9% versus prior year. The Digital Audio Group's adjusted EBITDA margins were 32%, continuing the trend of sequential margin improvement from first to second quarter. Within the Digital Audio Group are our podcast revenues, which grew 8% versus prior year. We expect our podcast revenues to return to double-digit year-over-year growth for the third quarter, the fourth quarter, and the full year. Our non-podcast digital revenues grew 10% versus prior year, and we expect that strength to continue as well. In June, 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 PODTRAC.

Our financial discipline in podcasting continues to pay off, as our podcasting EBITDA margins remain accretive to our total company adjusted EBITDA margins. As a reminder, our leadership position in podcasting is, in part, the result of the power of our broadcast radio assets. We've used those assets to build not only the podcast business, but also the iHeartRadio app, which is the number one digital radio service, and our marquee Live Events business, which includes the recent iHeartRadio Music Awards and the iHeartCountry Festival.

In addition to our industry-leading podcast business and our digital radio streaming service, which has 5 times the digital listening of our closest competitor, we also have the largest social footprint of any audio service by a factor of 7, and we operate 3,000 national and local websites that reach more than 110 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 Multi-Platform Group, which includes our broadcast radio, networks, and events businesses. In the second quarter, revenues were $576 million, down 3% versus prior year, slightly better than our previously provided guidance of down mid-single digits and down 4%, excluding the impact of political advertising.

Adjusted EBITDA was $104 million, compared to $162 million in the prior year quarter, due primarily to the timing of certain non-cash marketing expenses associated with our iHeartRadio Music Awards, which we discussed last quarter. Additionally, we expect the Multi-Platform Group to have positive year-over-year revenue growth in the back half of the year, yet another indication of the continuing strengthening of the ad market and our performance within it. And this year, iHeart is serving as the exclusive audio home for the NBC coverage of the 2024 Summer Olympics in Paris, with original new podcasts from the Olympic Village, as well as station streaming real-time, play-by-play coverage of the games, all in partnership with NBCU....

With the unparalleled reach and audience of iHeart's platforms, our coverage of the games results in significant engagement on our broadcast, digital, and podcast platforms, and invaluable cross-promotion to our partner, NBCU, showing the strength of our relationship with our listeners and validating the ability of our audio assets to drive off-platform behavior, too. Looking at the company as a whole, we remain focused on growth, from expanding businesses and developing new consumer and revenue opportunities, to the development of programmatic platforms that enable the automated buying, selling, and planning of our broadcast radio inventory, which allow us to participate in the growing and substantial digital and programmatic TAMs. Our continued focus on expense management, driving efficiencies, and structuring our business using technology, including AI, drives both short- and long-term profitability. Now I'll turn it over to Rich.

Rich Bressler (President, COO and CFO)

Thank you, Bob. As I take you through our results, you'll notice that our second quarter 2024 results were in line, and in some cases, slightly above our revenue and Adjusted EBITDA guidance ranges. Our Q2 2024 consolidated revenues were up 1% year-over-year, a little above the guidance we provided of approximately flat year-over-year. Our consolidated direct operating expenses increased 7.6% for the quarter. This increase was primarily driven by higher variable content costs related to the increase in digital revenues, as well as an increase to event costs related to the timing of the 2024 iHeartRadio Music Awards, which was in the second quarter of 2024 and the first quarter of 2023, as mentioned in our last earnings call.

Our consolidated SG&A expenses increased 9.6% for the quarter. The increase was driven primarily by higher non-cash marketing expense due to the timing of the iHeartRadio Music Awards, as mentioned before, as well as the costs incurred in connection with executing on our cost savings initiatives, partially offset by lower bad debt expense and lower bonus expense. We generated a second quarter GAAP operating loss of $909.7 million, compared to a loss of $897.2 million in the prior year quarter. Included in our GAAP operating loss was the impact of a $920 million non-cash intangible impairment related to our FCC licenses and goodwill.

Our second quarter adjusted EBITDA was $150 million, within the guidance range we provided of $140 million-$160 million, and compared to $191 million in the prior year quarter. 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 second quarter, the Digital Audio Group's revenues were $286 million, up 9.5% year-over-year, and they comprised 31% of our second quarter consolidated revenues. The Digital Audio Group's adjusted EBITDA was $92 million, up 8.6% year-over-year, and our Q2 margins were 32.2%.

Within the Digital Audio Group, are our podcasting revenues of $105 million, which grew 8.1% year-over-year. We expect to resume double-digit revenue growth trajectory in the third quarter, the fourth quarter, and for the full year as well. Our non-podcasting digital revenues of $181 million, which grew 10.3% year-over-year, reflecting the investments we have made in building out our more diversified digital capabilities. The Multiplatform Group's revenues were $576 million, down 3.4% year-over-year, but down 4% excluding the impact of political. Adjusted EBITDA was $104 million, down from $162 million in the prior year quarter, and the Multiplatform Group's adjusted EBITDA margins were 18.1%.

Turning to the Audio and Media Services Group, revenues were $70 million, up 6.5% year over year, and Adjusted EBITDA was $24 million, up 28.9% from $18 million in the prior year. Excluding the impact of political, the Audio and Media Services Group revenues were up 0.1%. As we've highlighted on our past calls, we remain focused on financing opportunities available to us, including with respect to our debt maturities, the earliest of which is May 2026. We are engaged in active dialogue with the group holding more than a majority of our debt, and we look forward to sharing an update regarding our ongoing refinancing activities when appropriate.

At quarter end, we had approximately $4.85 billion of net debt outstanding, which was the lowest net debt position in the history of our company. Our total liquidity was $791 million at quarter end, which includes a cash balance of $365 million. Our quarter-ending net debt to Adjusted EBITDA ratio was 7.3 times, and in 2024, we expect to make progress towards our goal of a net debt to Adjusted EBITDA ratio of approximately 4 times. In the second quarter, our free cash flow was $6 million, compared to $34 million in the prior year quarter.

As a reminder, our free cash flow typically builds throughout the year, and we expect to see significant sequential quarterly growth in our free cash flow in each of the remaining quarters in 2024. We also expect to generate robust political advertising this year, and as a reminder, that political revenue is paid upfront, which will help further fuel our free cash flow generation in Q3 and Q4. Turning now to our outlook for Q3 and the full year. We expect our Q3 2024 revenues to be up mid-single digits. We are still closing the books for the month of July, but expect revenues to be up low single digits. Turning to the individual segments for Q3, we expect the Digital Audio Group's revenue and our podcasting revenue to both be up low double digits.

We expect the Multi-Platform Group's revenues to be down low single digits. We expect the Audio and Media Services Group's revenues to be up approximately 40%. We expect to generate third quarter Adjusted EBITDA in the range of $200 million-$220 million, compared to $204 million in the prior year quarter. We expect our full year 2024 revenues to be up mid-single digits. Our full year 2024 political revenues are currently pacing approximately 20% higher than the last presidential election cycle and have sequentially improved from the up 16% we discussed on our Q1 call, which gives us confidence that this will be a record political year for us and that we will outperform the $167 million of political revenue we generated in 2020.

We expect to generate full year adjusted EBITDA in the range of $760 million-$800 million, compared to $697 million in the prior year. Within that guidance range, our second half revenues will be up 8%-11% year-over-year, and our adjusted EBITDA will be up 25%-30% year-over-year. 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 now expected to be approximately $90 million. Cash restructuring expenses will be approximately $70 million this year as we continue to execute on new opportunities to optimize our organization for efficiency and growth.

On behalf of our entire management team, Bob and I want to thank our team members who work to deliver for their communities, our advertising partners, and for iHeart every day. Now, we will turn it over to the operator to take your questions. Thank you.

Operator (participant)

If you would like to ask a question, please press star, followed by the number one on your telephone keypad. To withdraw any questions, press star one again. We'll pause for just a moment to compile the Q&A roster. Our first question comes from Jim Goss from Barrington Research. Please go ahead. Your line is open.

Jim Goss (VP and Senior Investment Analyst)

All right, thank you. What was the reason for the podcast gains to be so depressed in the latest quarter relative to the rest of digital? And why are you pretty confident that you can return to double-digit growth?

Rich Bressler (President, COO and CFO)

Hey, Jim, it's Rich. Thank you. Well, by the way, when we say depressed, you know, still had 8% revenue growth in podcasting. And I think as, you know, Bob's comment, what he highlighted, two things. One is, you know, we did have a tough comparison to last year, but I think more importantly, we said back to double-digit revenue growth for podcasting, for both Q3 and Q4, and for the full year growth overall. So, you know, and you'll see in this quarter, we gave not just, quarterly guidance, but also, you know, just in terms of the way you think about the business, not just quarter to quarter, but also, we gave you full year EBITDA guidance.

We gave guidance for the second half of the year for the total company of 8%-11% revenue growth and 25%-30% EBITDA growth. And sometimes it's just some timing aspects, but the business continues to be extremely healthy and we're as optimistic as we've ever been.

Bob Pittman (Chairman and CEO)

You know, let me just add a little specificity, too, that when we talk about unusual comps, we have one that was prior year related to COVID vaccine. As you can imagine, there was zero chance that was coming back for this year. So it was a few things like that that we were up against in terms of comps, which we think are an absolute anomaly and don't recur in the year.

Jim Goss (VP and Senior Investment Analyst)

Okay, so it's more of a comp issue, so that's good to know. And in fact, just a little bit more on the evolution of the podcasting business in terms of content costs and ad demand, I think that a lot more attention is being paid to it. I'm just wondering where you think how you think these develop and where you think we are in the maturity cycle for that business. Is it still very early, or are we getting, you know, a little more second or third inning? Where would you say we are in terms of the development of podcasting?

Bob Pittman (Chairman and CEO)

Well, yeah, it's a great question. I think in terms of audience usage, if you follow the statistics, not only are more people using podcasting, coming to podcasting, but they are spending more time with it. So you have two growth vectors, an increasing audience and an increasing usage by the existing audience. And I don't see that abating anytime soon. As you know, that has surpassed the reach now of the streaming music services, and I think obviously a very positive sign. I think in terms of monetization, we're still in the early days of understanding how to monetize it, although we're making great progress on it, and I think the industry is as well. Advertisers have a great interest, a great desire in podcasting.

When we walk in the door to talk to advertisers, podcasting usually, usually top of their list of things they want to talk about. I think in terms of the economics of it, I think that's still working through the system, although I think it's getting better. I mean, there was a time in which people were, in our opinion, paying uneconomic, prices for the content of the podcasting. I think they've all pretty much acknowledged that that didn't make money, and you're seeing, you know, company after company come out with statements saying they're pulling back and, being more rational there. Again, that's usually the way industries go. When they start, there's sort of an exuberance, and people think the normal laws of economics don't apply. They do. When they realize that, you see them beginning to normalize.

I think we're sort of in the normalizing phase of that... We've had extraordinary discipline, which is why we've been able to generate a nice, healthy profit on our podcasting almost since the beginning, and continues to be an important profit driver for us, not just revenue driver.

Rich Bressler (President, COO and CFO)

Jim, maybe just to add one thing and build upon what Bob said. If you look at, you know, there's lots of projections out there by different people that do that for a living. You know, most of them say, you know, have the, you know, U.S. advertising podcasting market, you know, I don't know, in and around, you know, $2 billion, $1.08 billion, $2 billion, you know, again, depending on the estimates. When you go out, you know, three years, four years, five years, and again, they're only projections, and there's a wide range out there. But under any scenario, it shows a U.S. podcasting industry, whether it's, you know, you know, $4 billion, $5 billion, $6 billion, it's very healthy, significant growth.

Just one last thing, you know, we talk about being, you know, in what inning, and I'm not the best sports guy, you know, in terms of analogies, but the one thing that is clear is, you know, big advertisers, you know, to Bob's point, in terms of audience and level of engagement, there's a level of engagement, you know, have just recently, over the last couple of years, started to come to podcasting, and so that's important because big advertisers bring big dollars, so.

Bob Pittman (Chairman and CEO)

I would also just add one final point, which we make often, but it's probably worth repeating here, is that we have chosen, since the beginning, to play in the publisher segment of the podcasting industry, which is where we think profit lies. We have shied away from sales rep deals, although we have pieces of our company that do some sales reps for podcasting as part of other businesses. But as the focus of the company, we've been in publishing sector and think that is really the right place to be.

Jim Goss (VP and Senior Investment Analyst)

Okay, and one other question, if I might, or a broader category. You alluded to some of the discussions that might be involved in the debt maturities that are, I think the earliest ones are in May of 2026, I think you mentioned. Aside from extending maturities or refinancings, are there any other options on the table, including debt equity swaps or ATMs or other things? I assume you want to get certain things done well ahead of that deadline. I'm just wondering if you might frame out some of the broader implications, since I know you can't describe the specifics.

Rich Bressler (President, COO and CFO)

Yeah, Jim. So thanks again for the question. But, no surprise, we're not gonna talk about, you know, any of the details. Just to say we continue to be in active discussions with a group of debt holders, you know, across the company, obviously bound by confidentiality agreements. We remain incredibly focused on, you know, improving our capital structure, working with the market to improve our capital structure. And obviously, we'll be back to you all when we have more to say on that.

Jim Goss (VP and Senior Investment Analyst)

Great. Appreciate you taking my questions.

Bob Pittman (Chairman and CEO)

Thank you.

Operator (participant)

Our next question comes from Jessica Reif Ehrlich from Bank of America Securities. Please go ahead. Your line is open.

Jessica Reif Ehrlich (Managing Director)

Thank you. Obviously, the two most important topics have already been covered, so maybe moving on to other drivers. Can you maybe talk about where else you can find cost savings? You've kind of been going through efficiencies for the last couple of years, so just where else could you find something? And then secondly, in terms of revenue, you guys have talked about programmatic. Can you talk about what the opportunity is and when we should start seeing a benefit?

Bob Pittman (Chairman and CEO)

Sure. Let me, let me hit the first one, Jessica, in terms of where we can find cost savings. Look, we, we think technology has unlocked a lot of cost savings. Technology provides efficiency. It always has, has over the past 40 or 50 years. And we think we're in probably one of the greatest technological jumps we've seen since probably the mid-1990s, when the internet entered the picture in terms of a productivity tool. Rich and I spend an enormous amount of our time sort of looking at the company and saying: If we started this company today, how would we structure it? How would we use technology? Given the fact that we are, we do have some technology systems already, we do have a structure already, and then we look and compare it to where we are today.

The areas where there's a big delta between where we do it, if we started today and where we are, are areas that we look at. We're fortunate to have, I think, a very robust and talented management team, and one committed to increasing the efficiencies. The efficiencies not only help the cost, but they also help everybody who works here feel better because they can get their work done better and faster, and give us, I think, a competitive advantage. As you know, we've invested in technology systems, you know, substantially upgrading what we had and building out things like the programmatic platform. I will say on the programmatic platform has several benefits for us.

One, it unifies all of our old existing technology systems that had to do with serving, advertising, tracking, inventory, billing, et cetera. So we're putting together one system. So even if you want to use it the old way, I mean, I'm gonna make a phone call and manually interact, you'll be interacting with exactly the same system of inventory, and then having that system like that. And as you know, we had investments like Jelli, which allowed us to take our broadcast radio stations and grab their inventory, so we can deal with it the same way we can our digital products. So it also allows us now to have a programmatic platform, which allows us to be on all the important DSPs with our broadcast inventory.

You know, our digital inventory, podcasting inventory, it is already on most of those DSPs. But the real win for us is taking broadcast inventory and putting data to it and putting it on a system that is usable inside those DSPs, which is our programmatic platform. We also think we provide a fantastic benefit to the advertising community because they clearly want to buy on these digitally driven, digitally developed systems, and now they're trying to add everything to those platforms. And what we provide for them is the actual reach and audience they need. If you think about it, in audio, unlike video, the reach is in broadcast radio. Reach 90% of America with our AM/FM radio stations.

And when you think about the biggest TV network, that's about 38%. The biggest cable network's less than 20%. Spotify, Pandora, the other audio players in digital-only, are at 20% and 16% for the ad-enabled products. So if you're an advertiser, how do you reach the audience? And broadcast radio has that. So there's a desire to get it in there, to add the reach to these buys that you can't get without broadcast radio. So we think there's both a need in the marketplace for what we deliver, and two, a benefit to us of joining that parade.

Rich Bressler (President, COO and CFO)

Hey, hey, just two quick things. Just one thing, just back on the cost, you know, Bob said. I think if you just go back over our history, not just taking advantage of, you know, technologies, but just in terms of just finding ways to be just more efficient, you know, in general, combining different operations, you know, just we've got a pretty good track record of taking costs out, whether there's been specifically announced cost programs or just, you know, just the way we do business, to Bob said. Just really just want to emphasize that, in terms of the amount of costs we've taken out. And then the only other thing I might add on programmatic is, to Bob's point, is, look, we know the market is there already.

You just look at the amount of dollars that are going through programmatic and subsets of that on things like retail media networks, and which is just always a subset of that. And we are actually on a one DSP platform now called Magnite, again, testing some proof of concepts out there. So we're actually live in the marketplace. Again, in a test, I think you and I have talked about this before, in a test concept out there.

Bob Pittman (Chairman and CEO)

I would add one more thing on, you know, to Rich's point, because I think he's, you know, right on it, just in terms of our own culture of cost, is since 2019, we've taken a substantial amount of cost out of the Multi-Platform Group, and I think it's about 7%, and we have used those savings to fund our higher growth and new initiatives. So we constantly are looking at reallocation of resources. We don't keep adding costs on top of cost.

Jessica Reif Ehrlich (Managing Director)

Thank you.

Operator (participant)

Our next question comes from Stephen Laszczyk from Goldman Sachs. Please go ahead. Your line is open.

Stephen Laszczyk (VP)

Hey, great. Thank you. Maybe two, if I could. Bob, on the ad market, could you maybe just talk a little bit more about what you're hearing from your advertising partners that gives you confidence in the back half outlook for improvement in multi-platform? And then to the extent you see opportunity, you know, to the upside in that outlook, I'd be curious what verticals you think they could come from. And then just quickly on political, I think you called out your degree of confidence is increasing on the political side. What's driving that? And then, I guess, specifically in some of these battleground states, could you remind us what your footprint looks like, and to the extent you have exposure, the sizing and magnitude of that? Thank you.

Bob Pittman (Chairman and CEO)

Sure. Look, I think in the ad market, you know, you're probably hearing the same things we're hearing. The major holding companies are reporting their numbers. I think other companies are talking about how they're spending advertising. I think if anything, there's probably the benefit. We've heard people say first part of the year is they were nervous about spending, and in last year, they had taken a lot of money out of mass market advertising and put it way down in the bottom of the funnel to try to get the performance. What they're, I think, all saying, and sort of the buzz around the industry is, unfortunately, that's running out of steam because the top of the funnel wasn't full. So I think they're looking back to full funnel advertisers, advertising partners like us. They're looking to...

They've just got to get reach. They got to find some new people to talk to, to get them to do whatever. They're also finding that if they put advertising like ours on top of their performance advertising, that it indeed boost the response rate. So, you know, if you're an advertiser and you say, "Look, I'm really heavy into digital, and I need some more customers, I can either go to new people, new lists, if you will, or I can try and get more out of the existing people I'm already talking to." We help them in both. And so that, I think, has been a big advantage for us. But I think, you know, we've called this a recovery year in the ad market. Ad market tends to lead, as you know.

I think it was, you know, slowed down last year, and, and we see it coming back this year and see no signs of that abating. I think in terms of verticals, remember, we have a really diverse, group of advertisers, which is one of the strengths of this company. There's no category that's over 5% of our advertising revenue, no advertiser over 2 percent.... I think that continues, and we have not really seen, had particular focus on verticals. I think there are opportunities within almost every vertical. So we mentioned probably not COVID vaccines, but other than that, on a narrow one, they're, they're pretty much, all looking for what they do either now or, planning for 2025. On the political front, I think our footprint helps us enormously.

If you've got 9 in 10 Americans listening, we've got almost every voter within our listening population. So for political advertisers, the question is: How do you access those people regardless of state, city, or nationally? And you know, it's not only candidates, but it's also a lot of these initiatives that are on the ballots, which are, you know, additional opportunities for us as well, and obviously, the PACs are spending heavily this year.

Rich Bressler (President, COO and CFO)

By the way, and if you just look at, you know, just even some of the data, I mean, obviously, we, you know, we also with the, the Fed set, last week and speculation on rate cuts, probably saw the unemployment data, today, which was, you know, pretty encouraging. And also, I think we referred to, in our remarks that we're actually, pacing about 20% ahead this year. Just as a reminder, 2020 was the, best, presidential cycle, political year we had as a company, which was $167 million. And again, pacing is just an indication. It's a point in time, but we're pacing 20% ahead this year, and the bulk of that, you know, is obviously the second half of the year.

I look, I think we all read the same press out there. There's not gonna be anything new in terms of the fundraising that's happening on, on both sides, not just from a, on the presidential election, but on the Senate and the House and the down ballot amount of money. There just seems to be an enormous amount of money that's coming to the marketplace, coupled with what we said about the economy is our confidence in the second half of the year.

Jim Goss (VP and Senior Investment Analyst)

That's great. Thank you both.

Rich Bressler (President, COO and CFO)

Okay.

Operator (participant)

Our next question comes from David Hamburger from Morgan Stanley. Please go ahead. Your line is open.

David Hamburger (Head of US Sector Corporate Credit Research)

Hi, thank you for the question. So could you unpack for us a little bit the trends and what's driving the growth in digital and podcasts? And then maybe you can help us understand better the complexion of the margin differential between the podcast business and the digital business broadly. You did mention, you know, how tied the podcast business is back to your broadcast radio business. So maybe you can help us understand better the complexion of the margins in the podcast business and how you see those evolving.

Bob Pittman (Chairman and CEO)

Well, let me start with the margin issue that I think in podcast, as we said, we're in the publisher side of the business, which has the much better margin. And I, you know, being the publisher, obviously, is a better margin business. In the rest of digital, we have some things like our own streaming service, in which we have a very high margin because that's all of our product, but we also resell some of the products and even including OTT, those are at lower margins. So it's a mix of products there, and we try and manage that mix very carefully to maximize the margin for us. If a seller can get $1,000, where are you gonna put it?

Well, first thing you have to do is put it somewhere that's gonna be really great for the client. But within that, we also want to manage the mix, so it's also good for our business, and we're also very cognizant of margin.

Rich Bressler (President, COO and CFO)

Yeah, and by the way, just, you know, building upon that, David. You know, so if you look at our podcasting business, I'm sorry, our digital business ex podcasting, which we had a very strong quarter, I think that really should just, you know, continue to demonstrate, and we've been talking about this, the growth, and I think we've actually said historically, we expect that growth to demonstrate to everyone the diversity of our digital business offerings.

That, yes, you know, we talk a lot about podcasting, but to Bob's point, whether streaming, websites, social extensions out there, and there are, by the way, a range of, I think what we've said publicly is 40%-70% EBITDA margins for those businesses, obviously, and we don't talk about a lot of the details, but just, you know, pretty clearly the higher end margin business, and Bob talked about publishing on podcasting and things. When you own a substantially on all of the IP that you have in the monetization of that, and then the other extreme, when you engage with third party to provide a total solution to clients out there, it won't be as high on the higher end of that margin business.

And then the only thing I'd say about podcasting, since you've talked about it, just again, to reiterate the example, yes, the strength of our podcasting business. But just as a reminder, you know, things like, you know, we made a strategic decision years ago that every seller has the ability to sell anything, all of our products, anytime, anywhere. And so if you're one of about 1,000+ sellers in this company, you know, you're out there not just selling broadcast, not just selling streaming, but you've got the ability to sell podcast every single day in terms of taking advantage of it. The ability, I think there's something around like 3 million or so, 4 million podcasts in the United States right now.

You've got the greatest podcasting in the world, but you don't have awareness about podcasting, not just podcast to podcast, but using our broadcast airwaves to promote podcasting out there. So you know, I think getting a little bit at your question, how we think about podcasting, and incorporating to our business, you know, they really are, you know, tied to the benefits of our other businesses also.

Bob Pittman (Chairman and CEO)

You know, I, I would add one more thing, and you didn't specifically ask this, but I think it's an important part inherent in your question, is you're also seeing, I think, in the performance of the digital group as a whole, and certainly in the digital, even ex podcasting, is you're beginning to see our platforms.

... We talked about the platforms we're building out to try and get the broadcast radio onto the digital buying systems. Well, we've already got a lot of our digital onto the digital buying systems, and I think you're beginning to see the impact of that in terms of the growth. And so, you know, if you sort of say, "Can you show me some early value of this investment you've made in Triton and Jelly and places like that?" Yes, you know, look at the digital numbers, and we expect that to continue to grow in terms of importance, not only for our broadcast radio, but also for our digital as well.

Thank you.

Operator (participant)

Our last question will come from Marlane Pereiro from Bank of America Securities. Please go ahead. Your line is open.

Marlane Pereiro (Research Analyst)

Great. Thank you for taking my questions. I just wanted to touch on the full year Adjusted EBITDA guide of $760-$778, excuse me, $760-$800. Can you just, you know, I know you touched on this a bit, but walk through any one-time items that are impacting that guide for this year?

Rich Bressler (President, COO and CFO)

There are no one-time items that are impacting that guide for the year. We just, you know, we gave, you know, full year guidance. We obviously also gave, you know, Q3 guidance within that number. So if you just kind of, you know, do some, you know, math, you know, and you look at kind of the ranges, you'd look at Q3 in the $205 range or something, just, you know, even though we gave a range out there, or pick any number you want. Then you look at Q4, which would kind of be around $320, I think, if you just use the midpoint of the overall consensus.

I'm gonna go back, in terms of giving all of you, hopefully, the confidence that we have in those numbers. You know, again, the bulk of our political revenue is in Q3 and Q4, and I think we've talked about where we are with pacing. By the way, the last time we all spoke to you, at the end of Q1 earnings, I think we were pacing up about 16% year-over-year political, and now we're pacing up about 20% year-over-year in political. And I think as Bob talked about also in his comments, we've just continued to see improvement in the business from Q1 to Q2.

We expect to see it the rest of the year, and I, and I think just all of us watching the environment we're in, again, with Fed, we're talking about the rate cuts out there, and then the employment information today does nothing but reinforce our confidence in the back half of the year.

Marlane Pereiro (Research Analyst)

Got it. That's helpful. And then if we, if we do think about the full year number, excluding political, so if we take the high end, let's say $800, we assume political is $170, although I realize you commented it was pacing 20% up. But just back of the envelope, those numbers imply roughly $630. So how should we think about... Like, how much do you attribute that to crowd out? So for example, like, you know, how much of that political actually crowding out core advertising?

Rich Bressler (President, COO and CFO)

Yeah, I mean, you really can't, and I appreciate the question. Remember, you know, this is inventory, so if we didn't sell it to political, if it wasn't for that, we, we'd be selling the inventory out there. We, we'd be, you know, out there selling the inventory. I think one of the biggest benefits of political, quite frankly, we expect to have a very strong free cash flow year. Think about, by the way, political is another category. You know, Bob talks about all, talks about all the categories. You know, political, you know, if you think about it in simplest terms, another category. The great thing about that category is we get paid our cash upfront, which is the only category we have that does that.

But you really can't separate it out in that way.

Bob Pittman (Chairman and CEO)

I think what I will say about political, because you do see a better performance in political years, is that it does put extra pressure.

Rich Bressler (President, COO and CFO)

Yeah

Bob Pittman (Chairman and CEO)

... on the inventory. There's extra demand. There's a category that comes every other year. That's helpful because of not only what it does for political, but what it does for everyone else.

Marlane Pereiro (Research Analyst)

Got it. And are there any other expenses or cost-cut guidance, perhaps, that you could provide or something potentially that we could think about?

Rich Bressler (President, COO and CFO)

No, no, no real different. To go back to, I think it was, Jessica's question. I think it was Jessica's question-

Marlane Pereiro (Research Analyst)

Yeah

Rich Bressler (President, COO and CFO)

... a couple questions ago. I just think, you know, not even just looking at all words, and, and Bob talked about technology and taking advantage. I would just, you know, look at our track history over the last years. And, and Bob, I think, highlighted we've taken out 7% as a Multi-Platform Group, and both reinvested in our set, our high-growth businesses in the digital area, started with podcasting. But also I'd highlight, we've also brought a lot of that down to the bottom line for the benefit of all of our stakeholders. We've generated a significant amount of free cash flow, too. So we both invested, and brought free cash flow down to the bottom line.

But, you know, you know, taking out expenses is a way of life down here, as I think all of our management team, which has done a great job working with us, we tell you.

Bob Pittman (Chairman and CEO)

By the way, on the cost cuts, I wanna add one other thing. It's not only are we always looking for more efficiency, but when you try new things, you add additional expenses. They don't 100% all work out. And I think what's critical is to have the discipline as managers to constantly be saying, "Okay, we said we're gonna spend this money to get X. Did we get X? If we didn't get X, let's weed the garden. Let's get rid of that." And I think one of the problems in many companies, and it's something I think every company fights, is you tend to keep stuff because you go, "Well, it did something for me." Well, it didn't do what we said it was gonna do, and therefore, it's not worth that expenditure.

Having the discipline to continue to take out what didn't work, frees up a lot of cost and keeps your cost from getting bloated as well.

Marlane Pereiro (Research Analyst)

Great. Well, I appreciate the time and the commentary. That's all I have. Thank you.

Rich Bressler (President, COO and CFO)

Great. Thank you. Just wanted to make sure there are no other questions. And if not, you know, Bob and I and the entire management team, you know, thank you all for taking the time to listen and focus on iHeart, and we are all available for questions following up, Mike McGuinnis and the rest of the gang. So thank you all.

Operator (participant)

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