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

Welcome to the 51st Annual JPMorgan TMC Conference. I'm Sebastiano Petti. I cover the media and communications sectors at JPMorgan. I'm pleased to welcome Bob Pittman, Chairman and CEO of iHeartMedia; and Rich Bressler, CFO and COO of iHeartMedia. Gentlemen, thanks for joining us.

Thanks.

Thank you.

So difficult ad environment out there today, which we can delve into later. But I wanted to start with iHeart and its multi-platform strategy. Why are these assets the right mix for the company? And how have you positioned iHeart for long-term growth?

Well, I think if you look at sort of fundamentally how you build a business in the consumer space is you look at the consumer. And our business is pretty simple. We build engaged relationships with the consumer and then we monetize them. And the more relationships we have, the more engaged they are, the more valuable they are to advertisers. And obviously, we have to turn those relationships into something that can be used easily by the advertisers, which is why we've invested in the ad tech. But when I look at the various businesses here, think about this company. It started in broadcast radio, had about a 90% reach of the American public. Today, it has about a 90% reach of the American public with the broadcast radio assets. But what we've done in that period of time is we built a digital radio business, iHeartRadio, which is, by the way, 5x the size of the next largest digital radio group. We have built an events business, whether it's the iHeartRadio Music Awards or the iHeartRadio Jingle Ball or the iHeartRadio Music Festival, which is, onto itself, a nice business, but also brings a lot of advertisers in. And we've been able to build businesses like the podcast business, which is the fastest-growing media business and continues to grow. Today, podcasting is bigger than Netflix in terms of weekly users. And we built a method to monetize them all and to tie them together. And we positioned it so that all these businesses are what the advertisers ultimately need, which is reach and the ability to engage with the consumer.

Great. And iHeart guided to mid-single-digit revenue declines in 2Q, comprised of high single-digit multi-platform declines, mid-single-digit digital audio growth and high single-digit audio and media services decline. What are you guys seeing in the business today?

Do you want to...

No, go ahead, Bob.

Well, I think in terms of the business, we can't say much other than what we said at the conference call a few weeks ago. But we're continuing -- our view of the world is that we think the ad market is a little stronger than we had expected at the beginning of the year. And our expectation is that if it holds for the economy and the conditions in the macro hold, that the ad market is getting slowly better through the year, and that we expect next year to be back on our growth trajectory. One thing we know about advertisers, as we look at the marketplace, is small advertisers and people that have to advertise to ring the cash register the next day have continued to spend through this. So it says the consumer is still there. I think the weakness has been more in the big companies that have the luxury to hold back some ad dollars. And by the way, if the CEO of the company says, hey, we got to hold some dollars. I'm not sure where the world is going. I want my stock look good. The easiest place to go is to your advertising budget. And very easy to hold money in Q1, it's the lowest sales quarter for most companies, almost impossible to hold them in Q4. And if you remember last year, we had some slowness began in last year, but Q4 was the best fourth quarter we've ever had for this company. And I think that was an indication that Q4 is the one quarter advertisers can't hold back and don't have the luxury to hold back. So I think that sort of feeds into the narrative that as we go through the year, it gets better. And I don't see -- I don't think we see anything that, right now, on the macro that worries us about that.

Yes. And maybe just the 2 things I might jump on and add is, one is, I think we're all -- observe different businesses, people invest in different businesses. To Bob's point, I think the advertising environment has probably been a little divorced or a little separated, not totally separated, but from some of the other things, what we meant in terms of the challenges with the economy, even with the uncertainty we're having with advertising. And one of the things we've said, if you look at our Q1 results, we talked about Q2 for EBITDA being between $180 million and $200 million in EBITDA, and that's about double or more than double what we had in Q1. We're kind of right in that ZIP code. So you kind of see the improvement. And also, when you look at this challenging period of time and you go back to what happened, just to address one question we get often during the pandemic. I think at the low point there, our Multiplatform Group was down like 30%. Here in Q1, it's back -- it's down about 7%. So I think also when you think about iHeart and you think about, gee, how we think about the economy, how you're looking at your assets, the asset base that you started question one with, I think one of the things we're looking at, too, is we are a different company coming out than we were in terms of our capabilities. I'm sure we'll talk about our ad tech platform, our ability to service the advertisers, and I think you're -- and obviously, the variety of the products we have in terms of digital and podcasting. So I think you're seeing that reflected in the numbers. And very often, when you've got some headwinds, we are often the first medium and kind of the first company to hit the headwinds on the downside. And when you've got a fixed cost base, you really feel it. But when you start on the upside, you really get the benefit moving up when you start to get the tailwinds behind you.

Okay. And then just following up on how we're thinking about expectations for the second quarter, any change in visibility in terms of what you're seeing? And then in terms of maybe brand, national versus DR, similar or consistent with what we discussed or what was discussed on the earnings?

I can't give you any new information. And I think that was just a few weeks ago. So no changes to that.

And then just to confirm as well, Bob, I mean, you're kind of reiterating that maybe some budgets will be held back. But you expect that unlock to occur as -- or anticipation of unlock to occur in terms of ad budget as we kind of move through the year because of 4Q and the relevance of...

Well, look, in the beginning of the year, when we gave guidance for Q1, we said, look, we expect that there's going to be a hold back. We thought it was going to be worse than it was. We did a little better than we had guided to. And I think we've -- in the last earnings call, we basically said we expect that to continue and to continue to improve.

Okay. We've been talking about unified buying for some time. And Bob, on the call, you talked about having invested in tools and infrastructure over the last several years to support that. When does unified buying become a reality? And what gives you confidence that this will benefit iHeart?

Well, I think it's already beginning. It happens in stages. It happens in pieces. Some people do unified buying by looking at many DMPs. They're all trying to put their own together. But again, I go back to the point Rich made. If you want some evidence of how that's helping us, our broadcast radio in the 2020 downturn was down 30% Multiplatform Group. First quarter was down 7%. And the delta between that and the performance of the big digital companies was enormous in 2020 and very small in Q1. And I think that's an indication of the success. And we expect the more we do of it and the more we can begin to be like digital and make our broadcast inventory like that, the better it will be. We offer 2 things in a buy. If we look at the reach on the big 3 services, if we look at Spotify, Instagram and TikTok, both -- all -- I think Instagram has about a 40%, 45% reach of the country. TikTok only has about a 25% reach of the country. And the ad-supported Spotify, I think, has about a 30% reach of the country or 25% reach of the country. Those don't add together to give you 75%. Turns out they're all sitting on top of each other. What it gives you is a frequency of 3 with about the same reach. So what the advertisers need is they need additional people to talk to because the more people they can talk to, the more customers they can find. They need the extra reach we have. Remember, we reach 90% of America. And our podcasting, by the way, when I plot those 3 sitting on top of each other and I look at podcast, it only overlaps a little. So even within the digital space, our podcasting provides fresh customers, radio more. So if we can deliver that and deliver it at a better price than they're getting elsewhere, that's sort of the double win for the advertisers. And I think they're all moving in that direction, one form or another. And we have built the products now. And the Triton acquisition was key to us being able to put that final piece in place that we can connect to any of the unified systems they have and for the benefit of them and for us.

I want to follow up on some stuff that you brought up there. You brought up Triton. Just sticking with that for a sec. I mean can you -- I feel like it doesn't necessarily get enough attention. How has that acquisition performed versus expectations?

Well, it's done better than we expected it to do when we did the acquisition and the original model just as a business. And then what it's done more importantly is it's been the foundation for us to build out the iHeart Audience Network. It's been the foundation for us unifying all of the audio platforms all onto one tech stack and allowing an advertiser now who decides they want to buy an audience, auto intenders, for example, they can now buy seamlessly across podcasting, digital audio and broadcast radio. And I think that becomes critically important for our strategy of both putting our broadcast radio inventory into the digital pool and in terms of giving the advertiser the maximum way to reach that audience effectively and efficiently.

And by the way, we just -- and then I think from a financial standpoint, the natural extension of that, and again, just contrasting it to previous times in our company's lives and challenging economics environment and coming out of this economic environment, if you think about it, historically, we would, as a company, go after the radio [ TAM ] money, which is like whatever. It used to be $20 billion. Now you got $18 billion, $19 billion radio, the ad-supported TV [ TAM ] money out there, which we all -- I think we're all well aware, was happening to ad-supported TV. And the dollars will continue to follow that because by the way, dollars always follow the audience. But now we have really enhanced capabilities. We could do everything the big digital players could do, the Facebooks, the Google. Although we can't do one to one, but the world, as we all know, is going away from one to one. We do one, 2 and 4, many, as Bob articulated, wanted cohorts. And that pool of money is, let's say, $160 billion, $170 billion, $180 billion in terms of the digital pool of money. So if you think about it, from an iHeart standpoint, our optimism about the future and from an investor standpoint, we don't have to take much money away from that pool. There doesn't have to be a seismic shift to make a dramatic difference back to iHeart. And by the way, not just on broadcast, Bob brought it up. But if you look at our digital revenue, today, digital revenue is about 28%, 29% of the revenue stream of this company, the Digital Audio Group. If you go back 3 or 4 years, it was 7%, 8% of the company. And if you go back 5 years, it was 0 in terms of company. So I think the evidence just of what we're building in the facts and the data and then you tie that in with the significant improvement in Multiplatform Group, and we've continued to see that improve. And I say, gee, those are some proof points that we are reaching advertisers in the way they want to be reached.

And proof points that you're perhaps taking some of that share from digital and from TV?

Yes.

And you just talked about Triton, talked about making your broadcast inventory look more like digital. Can you maybe remind us, I mean what are some of the other strategic investments that you guys have done over the years that have allowed you to do that, whether it be from measurement attribution, other perhaps analytics?

Well, we bought Jelli. I guess it was 2019, '18. We bought Jelli, which allowed us to take our broadcast inventory, control it centrally, and treat it like digital inventory. So that was critical to us. And also there was a DSP attached to that. And we've done Voxnest, which has been the heart of -- part of our platform for podcasting as well as the Triton marketplace. And we've done other smaller acquisitions like Radiojar, which allowed us to digitize all of our studios, so that we really moved our studios into the cloud and not equipment station by station. And that's it. As we look at what we need to do strategically, we look at make, buy or partner. We actually do most of what we do either make it or partner. But occasionally, it looks like the better opportunity and sometimes the only opportunity is to buy. And in those cases, that's when we make the acquisition.

Great. Sticking with digital for a moment here as well. Podcasting and digital ex podcasting remains resilient at iHeart even in this environment. What differentiates iHeart versus peers, specifically as we think about the podcasting space?

Well, I think in the podcast space is I'm going to go back to reach. Everybody can build a website, but what you really need for your website to be successful is traffic. Anybody can do a podcast, but what you need for your podcast to be successful is traffic. Because we reach 90% of America and because we have such a critical mass of podcast, we are the #1 podcast publisher, bigger than #2 and 3 combined. We're able to promote our podcast and get the audience to new podcast. So that ability to take a -- create the traffic for a podcast is invaluable because no one else reaches 90% of America. The next largest audio group reaches half of that. We have a unique asset there. The second point is because we are in the audio content business, remember, we are reaching 90% of America. They must like the content we create. We're expert at doing that. We already have big talents. Some of that have moved over, like Charlamagne Tha God and Elvis Duran and Bobby Bones to do successful podcast as well. And the third level is that we can monetize at a level no one else can. We have the biggest sales force in audio, about 1,500 sellers. And we have this audio tech stack that no one else has, which again allows us to maximize it. And sort of the proof of that is there are podcasters like Malcolm Gladwell came over to us, already had a successful podcast, came over to us, got more audience and better monetization. The NFL, they probably could have picked anyone they wanted to, picked us because what do they want more than anything else? A successful podcast. So I think you've got experienced, qualified people making that choice, which I think is a validation of those 3 claims.

Yes. And if we think about reach, traffic, the critical mass, being experts on content and the monetization differentiation that you bring to the table in podcasting, do you think that there are other -- could be other interesting acquisitions or M&A in this space kind of that you could plug and play and probably improve monetization and just feed into the flywheel?

If we can find them, we're open. We don't see them right now. We don't see a need. And again, we're not -- we don't build the company through acquisitions, looking for additional earnings. The only time we do acquisitions is when we think we need them to achieve a strategic goal.

And by the way, the only maybe finer point I'd put on that, if you look at all the reach numbers Bob has been talking about, whether it's broadcast or podcasting, we don't need reach -- any more reach. Remember, about 1/3 of the people spend their time on a daily basis with our medium or audio medium. And we're still only getting...

Actually, it's about 1/3 of the use...

It's 1/3 of the [ use separate from Facebook ]. And we're only getting about 9% of the advertising dollars out there. So for us, and if you think about -- Bob just talked about the audio tech stack, which were all very small acquisitions relative to the size of iHeart, but what they did is they made the iHeart asset base better. It gave us the ability, which you've seen in our numbers, to improve the ability to monetize our inventory.

That goes to the unified buying opportunity.