iHeartMedia, Inc. (IHRT) Earnings Call Transcript & Summary

All set. Thanks, gentlemen. And so thanks for joining us at J.P. Morgan TMC Conference.

So, Rich, Bob, given these unprecedented times, can you talk about what iHeart is doing to address this for both customers and employees? And some of the longer-term structural changes that you expect to happen across the business? And how does this change your view of how you invest in the business and priorities from here?

Sure. Well, let me start, and I'll let Rich join in. Let me start with the employees first is we switched, as most companies did, to basically a work-from-home company. Even most of our air talent is now working from home. We have some essential employees that are in our stations, but fortunately, they're about the only people in the station. So we feel they're safe and secure there. And probably more importantly, we're proud of what our employees have done to serve the communities. We're licensed by the SEC to serve our communities, and I think they've done extraordinarily well, which I'm sure we'll get into some today. I think in terms of our company, we do actually a daily monitor of public -- of consumer sentiment, put together out of our programming group, which is primarily used for programming, which allows us to monitor these changes. And by the way, I've never seen such changes day to day and week to week in terms of perceptions, but what it does is allows us to stay completely in tune with the consumer. And if you think about what we are at iHeart, we are companionship. There are 2 sectors of the audio business. There's your music collection and there's radio, which is companionships, sort of mirror images. And in times like this is when people need that companionship more than ever. As a matter of fact, if you ask people, what's the first thing you want to do when you get out of this lockdown? They say I want to hang out with people. So we found that people have been coming to us for that. And it's interesting. If you look at the digital platforms, because we're now on 250 listing platforms in addition to AM/FM, and the streaming music collections are just on the digital platforms, so it's sort of apples-to-apples there. Whereas they're down substantially, we've actually been up substantially. And I think that shows that the music collection is when I want to escape the world, I want to go into my own little bubble. I don't want to hear advertising. I don't want to hear announcers. I don't want to hear information. I just want to hear music. I want to go into a zone. Radio is the opposite, and I think we benefited from that. And I think we've seen it before in smaller doses in hurricanes, floods, tornadoes, earthquakes, shootings, et cetera, where we really have to serve the community in a different way. So we're doing this now sort of full time. I think in terms of the business, some of the decisions we made turned out to be very helpful during this time. And I'll talk about some of the strategic decisions. We long ago decided that we wanted to be where our listeners are with the products and services they expected from us, not be locked to just AM/FM devices as the only means to get our product, and so we built out -- and we're now in over 250 different listing platforms. And as people have shifted into the home, that's been great for us because we're on smart TV, we're on the smart speaker, we're on the gaming consoles, we're on Alexa, we're on Google Home. And that has allowed us to serve the listener no matter where they are. The second thing we did is that we really took a hard look at what -- and so we built out these multi-platforms. And if you think about it on broadcast radio, we have about a 2x lead over the next largest broadcaster. On digital, which illustrates the power of our digital platforms, we have a 5x lead over the next largest broadcast company. And so we've also then, in addition to these multi-platforms, which, by the way, include podcasts and social and events, et cetera, we've also built out the capability to talk to advertisers about data and analytics, the way Google and Facebook have. 10 years ago, we were probably fighting it and just trying to sell our spots, we embraced it a number of years ago and built out this full capability. And I would say probably not just in broadcast radio, but it broadcasting, including TV and cable players, we -- traditional media, we probably have the best suite of data and analytics or among the best, and that's allowed us, I think, especially in a time like this where the advertisers, and coming out of it are going to say, find this cohort, find that cohort, we'll be able to do it. I think the third is that we found another listening platform, which was podcasting. And that we thought was radio-like, and we have invested in that, built it out. We're the #1 commercial podcast or actually this month, we're the #1 podcast where we go back and forth with NPR for that, and we're about twice the size of the next largest commercial podcaster, and I think those give us real advantages. Coming out of it, what we expect to do is get more and more efficient. Rich and I, a while back said, look, let's figure out what this company would be and how we would structure it and what the cost would be if we started it today using all the technology and techniques of operation today. Then let's look at where we are and let's build ourselves toward that goal. And in February, we announced a modernization effort of the company. And we said we were taking out a $100 million run rate and cost to be $50 million of this year. When this started, we did what any company should do that has high operating leverage is we went in and took a lot of fixed cost out, about another $200 million in this year. Some of those will stick into next year and will be permanent. We're going to learn from this how we can do business a different way. Yes, there are going to be some employees that we have that can work from home forever. There are employees that can work some from home and some from the office, who probably shrink our real estate needs, will allow us to be more nimble in new and different ways. And probably most important, it taught our employees how to use new technology, new ways of communication. And I think that will have a long-lasting benefit for us. Rich, do you want to add to it?

Bob, look -- I think you went through obviously and covered a lot. The only couple of things I'd add is when you said, or what Bob was talking about right in the beginning in terms of being responsive to the consumers -- in response to the consumers' sentiment. I don't believe that we mentioned -- by the way, as part of that, we added an extra hour per day to our morning shows. So really kind of [ found ] sort of, used to be 6 a.m. to 10 a.m. and for the bulk of our morning shows, we went 6 a.m. to 11 a.m. And that really was just in response to what consumers telling us in terms of the way they were living that day, which I just think is a great example. And it also enabled us, which is critical to our advertisers, for searching for ways to remain relevant when the consumer is at home. And it's also interesting just in terms of what we're seeing in terms of listening patterns. I think, as Bob articulated our strategy that we embarked on many, many years ago to be wherever our listeners are. When you look at the stats, and when we announced our first quarter earnings, we went through this with everybody. But you look at things, like our web listening is up over 40%; smart TV, listening through smart TV is up over 30%; game consoles, 20%. And Bob talked about it and just touched upon podcasting, the term strong again, too, in more detail. But just to give you kind of one headline number, there's only 2 podcasters that have been up during this period of time, ourselves and the New York Times on The Daily podcast that they have. And we recently -- we kind of go back and forth with NPR as to who's the #1 podcaster. Clearly, we're the #1 commercial podcaster. And last week, we were #1, but we keep going back and forth in terms of that. But I think maybe most important, when people talk about podcasting and monetizing the usage, we were up 35% year-to-date usage this year in podcasting and our revenue pacing, again, which we mentioned the other day, but just to remind us all, is up over 100%. So I just wanted to put a little more granular stats to what Bob just articulated, which has just evidenced the manifestation about that our strategy is working well even during this pandemic period of time. Again, not to be naive, we're being hit just like everybody else. But I really think, it goes to Bob's major point about us just being well positioned to capture the advertising revenue when the demand comes back.

Yes. And I think going to that. I don't think there's anything we could do to blunt the downturn. I think it hit everybody, but I think what we can see in it is the areas we invested in and that we thought was the strategic future of the company actually, in the case of podcasting, are up nicely. And in the case of stuff like SmartAudio, is down, but it's down only half as much as Broadcast radio, although it lives in that revenue line. So we are feeling good about that, and we're feeling good about that sort of validated the strategy. And going forward, as Rich said, when the demand comes back, we think we're well positioned, and we continue every day to adjust that to try and be better and better positioned.

Great guide. I think we touched on a lot of interesting stuff I want to come back to, but keeping a high level for a second, some investors have worried about, in the past, Broadcast radio's ability to withstand a recession given radio dollars never really recovered from the contraction following 2008 and 2009. What's different this time? Why is iHeart better positioned today to weather the COVID-19 storm versus prior recessions?

Sure, Phil. Let me -- I think you've got a couple of questions in there. So let me break it apart a bit. One is that when we were in the last recession, it wasn't we, it was a company called Clear Channel, predecessor company, that was an outdoor and radio company, and that's what they did. They were radio and they were outdoor. Since that time we've become iHeart, outdoor has left us. We focused just on audio. We built out multiple platforms. We have -- we don't just deal with radio buyers, or as you point out, radio dollars. We're now putting our foot in all the pools of revenue. We have digital days in that $100 billion digital pool. We have video and TV substitution that goes into that $50 billion pool. And so I think we're in a much different position than we were at that predecessor company. Second element I would say to it is that when you talk about rate, Broadcast radio didn't recover, I think you really have to look at that during times of change like that recession are generally the times that advertisers will adopt new media and begin to spend heavily against it. In good times when you tell people, I've got this great new thing, the advertiser goes, you know, my business is great. I don't want to rock the boat. When things go bad, they go, okay, now is the time for me to try that. And if you go all the way back to the first one I lived through '87, '88 is when the cable networks suddenly got a shot in the arm with a lot of money. '97, '98 went online, I was at AOL then, got a big shot of money. And '01, '02 was when search suddenly appeared and '08, '09 was when social appeared. So when you say radio didn't fully return, actually, everybody gave a little bit of their money to fund social. What's interesting about it, though, that if you look at social, digital, look at a company like Procter & Gamble, that shifted during that period of time, almost completely out of radio and outdoor as well. Last year, they were either the #1 or, I think, #2 advertiser on radio. In about a 3-year period, they went from not being in the top 200 to being in that position because they had found that although they made that big move in the '08, '09 recession, that the results, their bottom line had not gone up. When they made the switch back to radio and also outdoor, I might add, took $200 million out of digital. As you know, they've had records performance. Organic sales from the advertising, and we were seeing a lot of that interest in that going into -- from other advertisers going into this recession. So we think this is a time for this downturn, a time for people to relook at audio. And we think that this one, this downturn may be the time people put money in audio. If you look at a lot of the ad trades, they're talking about audio, this with audio, that with audio. Certainly, podcasting is a perfect prime example of how people are putting money there. We think radio, audio, our digital audio services are all going to get a hard second look during this period. So our hope is that as each of these downturns is a chance to recalibrate, that we're the beneficiary of that recalibration this time instead of -- and our Broadcast segment of our business was a contributor in the last -- Rich, you want to jump in?

Yes. Yes. And just -- yes, I would just add, the only thing I'd answer is maybe just to take a step back for one second. We remember, this is not like this trend that we're talking about in the trends in audio directionally that Bob's articulated. And then I gave some more statistics on -- this didn't just start at the beginning of the pandemic, I just want to remind us all. I mean if you look at our -- you look at our results, once we emerged from -- particularly once we emerged from the restructuring in the second quarter of last year, third quarter of last year, fourth quarter last year. The operating results driven by whether it was broadcasting, whether it was networks, whether it was the over 30% growth we had on our digital platform, including podcasting, whether it was the capabilities we've developed for marketing solutions to meet advertiser needs. So we're out of the RFP bucket. We're in the marketing solution bucket. They've taken us out of anything like the CPM game or anything else, things like SmartAudio that Bob touched upon earlier, that enables our broadcast assets to look like and act like our digital assets. That enables us to tap into the advertising buckets for the big digital players. And I just -- again, and just to remind us all, these are trends that started years ago and then started manifesting itself in our results in the last 2 to 3 quarters of 2019. And by the way, as we said on our earnings call the other day, we had a very strong January and February of this year. So this is just a continuation of these trends that are out there. So again, I don't want an answer to the question, why we're better positioned to benefit as we come out of the pandemic, and why this is different. It's all the points that Bob pointed out why this is different than a '07, '08 or '87, '88 in terms of recession period of time. But fundamentally, the business itself is in a dramatically different place with a lot more momentum than it had during those periods of times.

And then just kind of wrapping it all together. I mean, with the concern about some of the contraction in ad dollars kind of prefaced in my earlier question, but if radio companies are able to withstand this economic contraction, do you think that should be worth a higher multiple on your business?

Well, I'm not going to get into higher multiples. So I'll let you guys figure all that out, but let me talk about the value of the business. I think that -- well, first, let me get say, I don't -- we don't think of ourselves as a radio company anymore. I think we're sort of a one-of-a-kind audio company. Even in broadcast radio, we're the only company that has national reach. As a matter of fact, we reach more people than Google and Facebook and certainly substantially more than any other audio company or TV company every month. So we're -- even within that limited piece, we are quite different. We also have a huge social platform. We have more social followers of any other audio player by a multiple of, I think, 2 or 3, which, by the way, is why when we do something like a year ago when we did the award show, we have more social impressions for that, twice as much as the Super Bowl or the Grammy's, 3x as much as the Academy Awards, other award shows. And that's the power of that social platform that we have, which allows us to amplify everything. Obviously, we've got the substantial digital platform. We're the #1 digital streaming radio service by a mile. We are the #1 commercial podcaster. And as you -- and by the way, events, which obviously, we've postponed or canceled a number of events. What's interesting, though, and I don't know how much people have caught on, we're actually playing around with and have had great success with virtual events. We did the iHeartRadio living room concert when this lockdown first started with Fox -- on Fox, where I think it raised about $13 million, $14 million. But what's interesting is also was -- and I haven't checked lately, but at that time, it was the highest-rated Sunday night non-sports show they had had for the year. So it is -- we're able to do that. We're doing now the Wednesday night living room concerts with one of our big sponsors. We're doing the Friday First Responders (sic) [ First Responder Fridays ] concerts with AT&T. We're managing to build out these virtual events. We're doing, which we're really proud of, commencement speeches for the class of 2020 with everybody from Bill Gates to Eli Manning and Tim Cook and Hillary Clinton and Halsey and John Legend, and we did a virtual prom. So we're -- unlike others in the event business, we never made our money on tickets. For us, it was a sponsorship opportunity and a way to tie advertisers in. We're using that same skill set to pull it together. So when you think about this company, it's quite different from a radio company. And I think what hopefully people will see, and I think the worry was, we have high operating leverage. Yes, that gives you that fantastic margin on the upside, but it also hurts you on the downside. We had always said we have the capability, and we have the determination to take fixed cost out if there is a downturn. Obviously, we saved a lot of money on commissions and sales expense as revenue goes down, but we took $250 million out of operating expense this year. $50 million we had already done just saying we want to get more efficient before this began, another $200 million when this took the downturn. And we are committed to showing people, and by the way, providing for our shareholders that we will reduce expenses to help mitigate some of that revenue downturn. I hope that when we come out of it, that we can prove we're well positioned for the future, that we are able to capture that demand as it returns, and that people have evidence that we were diligent managers and that we weren't stuck with cost on the downside, even though there were fixed costs, that we did have the ability to reduce them, and we did reduce them.

Yes. And by the way, the only thing I'd pick up and just add a couple of points to that because I think you started out the question. Sebastian, you talked about withstand or contraction in our advertising dollars, and you talked a little bit about multiples. A couple of things on both those points, right? Again, you guys and people on this phone will be much more experts than Bob or I are on predicting multiples. The one thing I would say, though, is because we are a multi-platform company, and we've got all these different platforms and you've seen the growth that we've had even during this period of time on digital, on podcast in terms of those high-growth businesses. I would just think because of the multi-platform and the nature of these, which no other broadcaster has, by definition, that provides more resiliency, more stability, more dependability -- excuse me, which, I think, always usually translates into a higher multiple. And in terms of the contraction of the business, which is clearly contracted of the advertising pool of dollars that are out there. One of the things, again, that we went through in our first quarter earnings call the other day, is that we've analyzed with ourselves and quite frankly, with our Board of Directors. Any, I think, scenario that you can envision here, whether it's a recovery in Q3, the beginning of recovery in Q4 or a prolonged recession into 2021 or further. And we don't start to see advertising dollars come back more until a later period of time. On all those scenarios, we have more than sufficient liquidity and generation of cash. And I think just again, to remind everybody on the call, we left March 31 about $647 million of cash on our balance sheet and over 90% of our long-term debt maturities mature in 2026 or later. So I think we did a good job, not just on the operating side of the business, preparing ourselves from the future, but also on the capital structure side business as we emerge from the restructuring period to compare ourselves for the future to weather anything.

That's helpful. On the call last week, just wanted to get an update. You talked about pacing in May above April, with June ahead of May and 3Q trending better than 2Q. Is that still the case? And what are your conversations with partners implying now in terms of pacing recovery?

Yes. We haven't updated it and won't update it, but we can refer back to what we said is we did say that pacing was slightly better in May, better in June, better in Q3, but I just want to caution, I don't think pacing is the end-all be-all. We sure don't know what pacing means today because certainly, it's not the same as it meant pre-COVID, especially with advertising down. So we just laid it out as data points because the truth is we can't see the future. And I think we don't want to predict the future, wouldn't dare do it, but we do want to share with you what we see. I will tell you, I think as we look ahead, one of the things, too, that I think we feel more comfortable about now than we have in the past is in the past, we primarily dealt with selling radio ads, media to somebody who wanted to buy radio ads. Over time, we've built out over the past 7 or 8 years, a pretty strong marketing solutions team, where we can talk to advertisers about their marketing plans, and we've become a partner, they bring us in early before they've even allocated money. And often, we'll give them an idea, and they'll fund the idea. It's not radio dollars. It's just -- it's an idea that's worth it to them, and they spend the money. What's been encouraging during this period of time is we have had a lot of discussions with our major advertisers about their plans, and what they're planning to do and what their needs are. And it's encouraging to me that they're including us in those discussions, which again, gives me some confidence that we will, again, participate in that revenue as demand does return.

Yes. And one point I just might add is that just for all of you that have followed the advertising business for a long period of time and as Bob and I have, and run advertising companies for a long period of time, the one aspect of certainty you always know is that advertising dollars follow consumer habits. And I think Bob articulated that when we looked at the prior recessions out there. I think you're starting to see companies like the Havas Group, one of the large advertising agency group, released a study in April, showing that 34% of respondents were doing more radio listening than they were doing pre-COVID. Mindshare also released some studies in March. And the reason why those data points we all feel are important is because those studies that they did and their communication are targeted towards other advertising or advertising clients. And they're all thinking now, okay, about planning buckets. What's the most efficient way and effective way to reach consumers with messaging and they say well for advertisers, but the key point is the dollars always follow the listening, and we don't have any reason to believe. Again, we can't predict the timing. I won't speculate the timing, as Bob said, but there's no reason to believe that, that will not happen again.

And if I can just add a couple of things on that, to Rich's point, because I think he's right on here, is that as we look ahead, we go, okay, what's going to turn the economy around? It's consumer demand for -- they want to consume. And what drives consumer demand? It's advertising. It's the fuel. And what's interesting about us is that we outreach TV, bigger reach. TV has about 40% light TV viewers. You can't reach them no matter how many spots you buy. We happen to reach 90% of those light TV viewers, and online video only reaches 50% of them. And then further, we have a cost advantage. We think most studies, and we believe, and most studies show, that radio and TV deliver about the same results at the same weight level, yet we're about 1/3 the cost per person -- reaching person than TV, 1/3 is CPM. So what you're really saying is if you believe that data and those analyses, then you can get the same impact for 1/3 price if you decided to use radio audio as opposed to television. We think in these times when all of the advertisers are under the same kind of cost pressures that we are, that whereas in the past, they go, "Yes, yes, that might be, but I've always used TV, I don't want to break the habit. I don't want to change anything, I don't want to rock the boat." That now they have a powerful incentive to rock the boat. We are hopeful that we see some break in pattern, again as a result of this being a downturn and the necessity of watching costs so carefully.