Good day and thank you for standing by. Welcome to the iHeartMedia Third Quarter 2021 Earnings Call. At this time all participants are in listen-only mode. After the speakers presentation there will be question-and-answer session. [Operator Instructions]. And please be advised that today's call is being recorded. [Operator Instructions].

I'd now like to hand the conference over to your speaker today, Mr. Mike McGuinness, Head of Investor Relations. Please go ahead..

Good afternoon, everyone, and thank you for taking the time to join us on our third quarter 2021 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.

Please note that in addition to our press release, we have an investor presentation that you can use to follow along with our remarks. Before we begin, let me quickly cover the Safe Harbor statements on Slide 2.

During this call, we will make forward-looking statements, including the current and expected impact of COVID-19 on the company's liquidity, financial position and results of operations. These estimates are based on current expectations and assumptions that are subject to risks and uncertainties.

Actual results could materially differ from these expectations and assumptions, and these risks and uncertainties are discussed in more detail in our filings with the SEC. During this call, we will refer to certain non-GAAP financial measures.

Reconciliations between our GAAP and non-GAAP financial measures can be found in our earnings release or in the investor presentation available on our website. And now, I'll turn the call over to Bob..

Thanks, Mike, and good afternoon, everybody. Thank you for joining our third quarter 2021 earnings conference call. We feel great about being able to deliver a quarter like this.

We think it's further evidence of the success of our company's continuing transformation, data-led digital and podcast focus, along with the unparalleled audience reach of our broadcast radio assets, supported by the largest sales force and the only unified ad tech stack in audio advertising, all with the strong flywheel effect of our scale and leadership position.

Rich and I want to again acknowledge our employees. It's their ongoing commitment to innovation and creativity that's behind our momentum and the strong results we're announcing today, and it will set the stage for a full recovery to 2019 adjusted EBITDA levels by the end of this year.

Rich will take you through our detailed financials, sharing the performance of our individual business segments and highlighting both the strong growth and potential of our digital business, including podcasting and the strong recovery and growth potential of our radio business.

We hope this gives you the information you need to accurately evaluate each of our business segments and our business as a whole. Our business continues its strong revenue and profit growth in the third quarter. Our third quarter consolidated revenue grew 25% compared to prior-year.

You'll recall that our guidance was an increase of 20% versus prior-year. When excluding political, Q3 revenue increased 31% versus prior-year. We generated adjusted EBITDA of $230 million, which grew by 42% versus prior-year, while generating $45 million of free cash flow.

Our revenue in Q3 2021 is now 98% of our revenue in Q3 2019, continuing our trend of sequential quarterly improvement compared to 2019. The Multiplatform Group grew Q3 revenue by 19% versus prior-year and adjusted EBITDA by 50%. And the Digital Audio Group grew Q3 revenue by 77% versus prior-year and adjusted EBITDA by 91%.

Podcast revenue was up 184% versus the prior-year, and Digital ex-Podcast revenue was up 51% versus the prior-year. Additionally, our adjusted EBITDA margin significantly expanded in the quarter, reflecting the revenue growth, the success of our previously announced savings initiatives and our continued focus on expense management.

We have a high operating leverage business. In Q3 2021, the Multiplatform Group margins were 32% and the Digital Audio Group margins were 33%, both of which represent year-over-year and sequential quarterly margin expansion.

Turning now to the results of our two largest segments; our iHeartMedia Digital Audio Group, which includes our high growth podcasting business and the iHeartRadio digital service, the industry's number one digital radio service with a 5x lead in digital usage over the next largest commercial broadcast company as measured by Triton.

It also includes our websites and newsletters with their monthly audience of over 135 million unique users in the United States according to Omniture, our digital services and programs for both national and local partners and our digital ad tech companies.

Our iHeartRadio service also has a social footprint that includes 241 million fans and followers, which is approximately 7x larger than the next largest audio player.

The Digital Audio Group continues to increase its importance relative to the company's consolidated results and it delivered another strong performance in the third quarter with revenues up 77% year-over-year and adjusted EBITDA up 91% year-over-year, making it one of the best digital performers in the marketplace today.

Digital revenues are now about one-third the size of our Multiplatform Group revenues and have more than doubled over the last five quarters.

Even with the expected growth of our Multiplatform Group, we believe Digital will ultimately grow to Multiplatform Group revenue levels and beyond due to the high growth assets of the Digital Audio Group and the size and expected expansion of the digital advertising TAM.

Included in the digital revenues are our podcasting revenues, which were up 184% year-over-year. It's important to note that our Podcast business is not only profitable, but has margins that are actually accretive to our overall company margin. Our Podcast business continues to reach new levels for revenue, profitability, listenership and downloads.

According to Podtrac, the industry standard for third-party podcast measurement, we are the number one podcast publisher with 30 million U.S. unique monthly listeners and 282 million global monthly downloads and streams, an all-time high.

Not only do we generate an audience 1.5x larger than the second largest publisher in the space, it was 3x larger than the next largest commercial podcaster. Also consider the scale of our podcast offerings, iHeart has 2.5x as many ranked shows and top 10 shows across Podtrac's 19 content categories than the next largest podcast network.

We also have the most shows with over one million downloads. These stats highlight the breadth and depth of our leadership position and the power of the flywheel effect that comes with it. And remember, the economics in podcasting are with the publisher, not the distributor.

It is the publisher that generates the ad revenue and profit, and we are the number one podcast publisher by a substantial margin. Our non-podcast digital business also continued its strong performance, growing 51% in Q3.

These revenues, which include our digital audio streaming product, display advertising and digital services outperformed the digital ex-podcasting industry growth of 34% as reported by Magna for Q3 2021.

This strong outperformance is driven in part by the fact that we have the largest audio sales force in the United States, executing our strategy of any seller anywhere can sell anything, supported by our unique technology.

Although our podcasting success understandably gets a lot of attention, we want to make sure that we also highlight the strength of our non-podcasting digital businesses.

Now, let's move to the iHeartMedia Multiplatform Group, which includes the largest broadcast radio group in America by all metrics, reach, audience size, revenue, earnings and even number of stations.

It also includes our National Sales organization, our live and virtual events business, our Networks business and our BIN, Black Information Network business.

The Multiplatform Group audience is twice the size of the next largest broadcast radio company and also has twice the audience of the largest digital music streaming service and almost 5x their ad-enabled audience. We are the only audio player in broadcast or digital that has broad national reach in addition to an unparalleled local footprint.

The iHeartMedia Multiplatform Group also reaches more people every month with its broadcast radio assets alone than any other media company in America, and that includes both Google and Facebook.

Multiplatform Group revenues were up 19% year-over-year in Q3 and were down only 17% compared to 2019, continuing our sequential quarterly improvement compared to 2019.

These year-over-year and sequential results are evidence that our Multiplatform Group revenues are well on their way to recovering to 2019 levels and that they will continue to grow beyond that.

Our share of the Broadcast radio sector revenues continues to expand, outperforming the Broadcast sector as a whole, as reported by Miller Kaplan, which measures the revenue performance of select broadcast markets.

I'd like to give you a couple of data points about why we're so confident in the growth potential of the Multiplatform Group and the future of Broadcast radio as an advertising medium. Let's start with a quick overview of the entire audio listening landscape and the revenue potential for each segment.

Using Nielsen and comScore, which are the industry standards for audience measurement, when looking at the split of listening between broadcast radio and streaming digital audio, broadcast gets about 75% of all listening and streaming digital audio, which includes Spotify, Apple Music, Amazon Music, Pandora and iHeartRadio, among others, gets about 25% of the listening.

Now, let me translate that into advertising potential. It's important to remember that there are two sectors of audio. One is comprised of music services like Apple Music, Amazon Music, Spotify and even Pandora. It's where listeners go for their personal music collection, replacing CDs, LPs and music downloads.

Consumers go to their music collection when they want to shut out the world. It has no weather or traffic, no talker information, no personalities and any ads that run there are perceived as interruptions of this pure music experience. Radio on the other hand is the opposite. It's social.

It's where people go when they want to know what's going on in the world, where they go for companionship, music, news, gossip, information, humor, who's hot and who's not. In this environment, information is key and even commercials are part of that experience.

Commercials are native content on radio, but they are interruptions to the music collection. And these differences in product appeal are why music collection services can't run anywhere near the same amount of advertising inventory as broadcast radio.

That, combined with the listening differential, means broadcast radio has a significant revenue potential advantage over streaming music collections. In the past, radio revenue has been limited by its lack of data and from not being of the modern advertising ecosystem that the digital giants pioneered. But that's changing.

And you've seen the progress we've made with both SmartAudio and our ad tech platform led by Triton. The music collection services, on the other hand, are limited by audience reach, time spent and probably more importantly, advertising load possibilities in their music-only environment.

When I analyze the advertising revenue potential of both sectors, I definitely prefer our hand by a lot. Now, let me give you a few more facts about the power of broadcast radio.

When it comes to competing with other media formats, it might surprise you to know that consumers spend about 50% more time with broadcast radio every day than they do social media and broadcast radio has actually grown its number of listeners in the past 15 years.

Digital listening has also grown, but the key here is that the overall listing pie is getting bigger as new listening platforms are added. This growth of the pie is driven by the strength of broadcast radio and the music collection services converting CD and music download listeners into music streamers.

We know that ad revenue inevitably follows consumer usage, and we're seeing this happen in real time with the decline of linear TV. A WARC study released in September shows that media spending is still out of whack. TV consumption has dropped to 24% of total media time, while audio consumption has grown to 31% of total usage.

However, only 9% of advertising spend goes to audio indicating that some advertisers have been slow to react to this new reality. And additionally, with 40% of TV viewers classified as light TV viewers, as an advertising medium, TV now faces a significant reach gap.

Broadcast radio is uniquely capable of filling this gap for TV advertisers, reaching 90% of light TV viewers compared to only 50% for OTT options.

Our ability to address both the reach and light TV viewer gaps gives us access to the $58 billion TV TAM, which is further support for our confidence in the growth potential of our Multiplatform Group revenues. Now, let me move to our Events business; also included in our Multiplatform Group where the consumer demand for our live events is strong.

Our Q3 2021 Sponsorship and Events revenue were up 48% compared to prior-year. And this quarter includes the impact of the return to live marquee iHeartRadio Music Festival, which was virtual last year. Ticket sales exceeded 2019 levels and the event generated over 15 billion social impressions, which was 20x larger than Lollapalooza.

The high consumer demand for live events can also be seen in the recent success of the iHeartRadio Fiesta Latina and this past weekend's live iHeart Country Festival. Live events are back and coming up as our 11-day live and in-person iHeartRadio Jingle Ball tour in December. I'd like to take a minute now to address a couple of relevant topics.

COVID, of course, continues to affect the country. While its human and social toll is real, the advertising revenue impact appears to be behind us. Supply chain issues are also making headlines, but they have not had a material impact on our business. And finally, I also want to touch on Apple's recent change to their data and privacy policy.

Some digital companies have said they are feeling a negative impact to their ad revenue as a result of Apple's new policy. We aren't and there are several reasons why. First, we have our own platforms with our own first-party data.

Second, we built for the future using smart audio digital-like broadcast inventory around cohorts, which are defined target audiences like auto buyers or new parents, not one-to-one using cookies and mobile IDs. Even with our purely digital inventory, we've stressed cohorts instead of focusing on one-to-one.

Third, our audio ad tech platform makes us the only audio company that can seamlessly target and serve to the same cohorts across all platforms from podcast to digital to broadcast. Big picture, we believe that cohorts are replacing one-to-one marketing, and we think we are well positioned for the shift toward data-infused ad buy.

Due to the changes in privacy restrictions and other factors, we see the world moving past one-to-one targeting, past cookies, past mobile IDs and toward premium platforms that are brand-safe, measurable and that have real scale, like ours.

In this new world of advertising, iHeart is uniquely positioned to deliver targetable cohorts in audio comprised of highly engaged audiences with scale that is unparalleled in the U.S. Before I turn it over to Rich, I want to touch upon the important announcement that we made yesterday about our multiyear strategic partnership with DraftKings.

This partnership is in one of the fastest-growing advertising categories and will enable DraftKings to use the assets of the number one audio company in sports, iHeart.

This partnership builds on iHeart's industry-leading audio sports assets, including the largest sports podcast network in the industry, which includes partnerships with the NFL, the NBA and sports podcast led by marquee talent like Colin Cowherd and Dan Patrick as well as the iHeart Sports Network, which reaches 75 million Americans according to Nielsen, our sports talk and sports betting stations and also our ongoing live coverage of professional teams on select iHeart stations across the country.

We expect sports and sports betting to be a significant growth engine for us going forward, and this partnership with DraftKings is further evidence of that potential.

Rich and I and the rest of the iHeart management team are excited about the tangible results iHeart's unique audio assets are delivering, driven by our unparalleled consumer reach across broadcast radio, digital radio and podcasting, and supported by our unmatched ad tech platform and suite of data analytic capabilities.

We believe the revenue potential of our assets is superior to anything else in the audio sector and we're excited about using these assets to continue to drive growth into 2022 and beyond. And with that, I'd like to turn it over to Rich..

Thanks, Bob, and good afternoon, everyone. As Bob laid out, we delivered strong results in the third quarter, which reflect continued success of our operating strategies and the power of our unique audio assets as well as improving trends in the macroeconomic environment.

Turning to Slide 12 of our investor deck; our consolidated revenues were up 25% year-over-year exceeding our guidance for the quarter of up 20% year-over-year. When excluding Political revenues, Q3 increased 31% year-over-year. We are also extremely pleased with our continued sequential improvement against 2019.

Our revenue in Q3 2021 was down only 2% from Q3 2019, improving from being down 6% in Q2 2021 compared to 2019 and improving from being down 11% in Q1 2021 compared to 2019.

Direct operating expenses increased 20%, driven primarily by the significant increase in revenue, which drives higher content and profit-sharing expenses, third-party digital costs and expenses related to the return of local and national live events like the iHeartRadio Music Festival.

These increases were partially offset by lower employee compensation and other reductions resulting from our significant modernization and cost reduction initiatives.

SG&A expenses increased 17%, driven by increased employee compensation expenses, resulting primarily from higher variable bonus expense based on financial performance and higher sales commissions due to higher revenue. As a reminder, last year, the vast majority of our employees did not get paid a bonus.

And as a result, you'll see our corporate expenses increase year-over-year. In addition, increased headcount from the investments in our fast-growing digital business contributed to the increases in SG&A. These increases were partially offset by the impact of our significant modernization and cost reduction initiatives and lower bad debt expense.

Our third quarter GAAP operating income was $80.1 million compared to an operating income of $39.4 million in the prior-year quarter, and our third quarter adjusted EBITDA was $230.2 million compared to $162.1 million in the prior quarter. If you turn back to Slide 4, I'll provide additional color on the performance of our operating segments.

And as a note, there are additional slides in the investor presentation on our segment revenue performance. Digital Audio Group revenues were up 77% year-over-year and adjusted EBITDA was up 91% year-over-year.

Within the Digital Audio Group is our podcasting business, whose revenues grew 184% year-over-year, and our non-podcasting digital revenues, which grew 51% year-over-year, also continuing their strong performance.

And importantly, we expanded our third quarter Digital Audio Group margins to 33%, a 230 basis point improvement year-over-year and a sequential improvement of 520 basis points from Q2 2021, which as we mentioned last quarter were negatively impacted by a few onetime expenses.

Multiplatform Group revenues were up 19% in Q3 and continued our sequential improvement compared to 2019. Q3 revenues were down only 17% compared to 2019, a 390 basis point improvement from Q2 2021, which was down 21% versus Q2 2019. And a significant improvement compared to Q1 2021, which was down 26% versus Q1 2019.

Q3 adjusted EBITDA margins were 32%, a significant improvement from 25% adjusted EBITDA margins in Q3 2020 and on a sequential basis, margins improved 170 basis points from Q2 2021.

That margin improvement was achieved even though the quarter included the return to live and the associated expenses for the iHeartRadio Music Festival, which profitable, does not have the same margin profile as the rest of our Multiplatform Group businesses. Looking at the revenue streams within the Multiplatform Group.

Our Broadcast revenues grew 20% year-over-year. Within the Broadcast line is SmartAudio, our data-infused programmatic platform. SmartAudio was up 43% year-over-year in the third quarter. As a reminder, it uses the same inventory as the rest of Broadcast radio, highlighting the value of data and ad tech.

And as we continue to add new technologies and data capabilities, we expect that our SmartAudio product will generate revenue from the digital and TV TAMs, especially considering the changes to the advertising landscape that Bob discussed earlier.

Our Networks revenues were up 8% compared to prior-year, which includes our Premier Networks, which were up 2% compared to prior-year as well as TTWN, the Total Traffic and Weather Network, which was up 14% compared to the prior-year. And as a reminder, our premier business was less impacted by COVID in 2020, which affects the comparison.

Our Q3 2021 Sponsorship and Events revenues were up 48% compared to prior-year. As Bob mentioned, this reflects the strength of the iHeart brand, the high demand for live music and advertisers' desire to interact with this engaged and enthusiastic customer base. The Audio & Media Services Group revenue was down 12% on a reported basis.

Excluding the impact of Political, revenues in this segment were up 13% year-over-year. On Slide 18, there is a summary of our debt.

At quarter-end, we had approximately $5.4 billion of net debt outstanding, which includes a cash balance of $369 million, and these figures include the previously announced voluntary prepayment of $250 million of our term loan.

We will also benefit from the concurrent repricing of the term loan, which will have a positive impact on our interest expense on a go-forward basis. At the end of October, we repurchased the full balance of our $60 million preferred stock prior to its call date of May 1, 2022, which is not included in these figures.

In doing so, we realized interest savings, but more importantly, we exited the most expensive and restrictive instruments on the iHeart balance sheet, reinforcing iHeart's commitment to improving our capital structure and demonstrating our confidence in our business moving forward.

As a reminder, the terms of our debt structure include no material maintenance covenants and there are no material debt maturities prior to 2026. We continue to actively monitor market conditions and will opportunistically optimize our capital structure. We ended Q3 2021 net debt-to-EBITDA leverage of 6.9x.

We remain committed to achieving our previously announced leverage target of approximately 4x, and we expect to continue our progress towards that goal. In the third quarter, we generated $45 million of free cash flow.

As we mentioned last quarter, the accelerated consolidation of our real estate footprint, which is part of our previously announced modernization and cost savings initiatives has enabled us to sell certain redundant assets, which has partially offset the real estate initiatives, gross capital expenditures.

Free cash flow, including net proceeds from these real estate asset sales would be $54 million for Q3. As a reminder, our capital expenditures are elevated this year as a result of onetime spend related to our real estate consolidation. We continue to successfully execute against our previously announced savings initiatives.

As a reminder, our pre-COVID modernization initiatives achieved a $100 million run rate target by mid-2021, and we remain on target to replicate the majority of the previously announced $200 million post-COVID savings in 2021.

We believe these actions, coupled with our continuing revenue growth, leaves us well positioned for margin expansion as evidenced in Q3. Consolidated margins were 25%, up from 21% in Q2 2021, 14% in Q1 2021 and up 300 basis points from 22% in Q3 2020.

Multiplatform Group margins were 32%, up from 30% in Q2 2021, 21% in Q1 2021 and up 660 basis points from 25% in Q3 2020. Digital Audio Group margins were 33%, up from 27% in Q2 2021, 25% in Q1 2021 and up 230 basis points from 30% in Q3 2020. As we look forward to Q4, I want to provide you with the following.

Our October consolidated revenues were up approximately 1% compared to 2019 and approximately flat year-over-year. It is important to note that October 2020 was our biggest month for Political revenue. Excluding the impact of Political, October's year-over-year growth would have been approximately 22%.

For the fourth quarter, we expect revenue to be up approximately 10% year-over-year or 22%, excluding the impact of Political, implying our Q4 revenues will be slightly higher compared to 2019. And consistent with our previous guidance, we reaffirm that we expect to return to 2019 adjusted EBITDA levels by the end of 2021.

No matter what valuation method you use, utilizing a valuation of the some of the parts, potential future revenue and earnings growth, free cash flow per share, et cetera, we think iHeart is undervalued using any metric. We hope the information we have provided today gives you confidence in the value of this company.

Bob and I and the rest of the management team are excited by these results, and the audience, revenue and earnings momentum in our business. And as a reminder, we'll give specific 2022 guidance on our fourth quarter earnings call. I'd like to close on the same note that Bob began on.

We thank our employees, without whom this journey would not be possible, the communities we serve and our business partners. We appreciate everyone joining our third quarter earnings call. And now we will turn it over to the operator to take your questions. Thank you..

[Operator Instructions] Your first question comes from the line of Jessica Ehrlich from BofA Securities. Your line is open..

Thanks. Hi, I have two questions or two topics. One is on DraftKings. Can you give us a little bit more color on the economics, timing of impact? And is it exclusive, meaning can you do other sports betting deals? And can they do other radio deals? And then just one on podcasting.

With more players coming into the market, there's just some -- so much money kind of chasing content. How is it impacting your costs? Or how do you expect it will impact your costs? And on the other side of that, maybe how is it impacting industry growth? Is it driving growth higher than expected? Thanks..

Let me start with the second one, and I'll let Rich hit the first one on DraftKings. I think on podcasting, I think you saw, Jessica, in the numbers here that if you look at Podtrac, we're actually increasing our lead over the other podcast publishers. And if you look at the revenue, I think it's on Slide 8.

If you look at the Magna estimates, with an industry, including us, it's up 60%, we're up 184%, again, clear evidence that we continue to gain share. And I think that is really the flywheel effect that we have. And no matter how much money people bring to the party to play in the podcast game, the reality is it's about having a hit show.

And every creator who comes to podcasting has a dream of having a hit show. The best way to get a hit show is to start with the biggest podcaster publisher which is us. So, we journey on sort of that flywheel is because we tend to get first look as a result of being the biggest.

In terms of costs, not only do we do deals with Shonda Rhimes, with the NBA, with the NFL, but we also produce podcast ourselves internally with no profit participation. And we have hits there as well. So we have sort of a marvelous diversity here, which gives us a lot of control over it.

And by being number one and probably getting more looks at product than anyone else, we're able to be pickier. And given our kind of economic position, we're able to say no to something that doesn't make sense. And really carefully watch the economics and not fall into the trap some people do of chasing profitless prosperity.

You're not going to see that from us..

Jess, it's Rich. Let me -- I just want to add one thing to what Bob commented on podcasting and then go specifically to your question on DraftKings. Just to remind everybody, we, as Bob articulated, now get 184% of revenue in this quarter. But if you go back, I think the numbers already up 142% in Q1 on revenues. We were up 152% in Q2 on revenues.

And obviously, we're starting to lap bigger and bigger numbers in terms of the overall growth. So I think that really proves out and you've been hearing from us about podcasting for some period of time.

This strategy that we're on, the ad-supported strategy as opposed to going behind a paywall and the way to Bob's point in terms of the flywheel effect, the benefit we get, not just on the top line on the numbers, but obviously also on the bottom line, as we said, because it's accretive to our overall margin.

So I just wanted to remind everybody that with respect to podcasting because there is a lot of noise in the marketplace out there. When it comes to DraftKings, we really can't disclose any more financial details.

What I would say is, as we're all well aware, this is one of the fastest-growing advertising categories and then to partner with DraftKings and the number one company in audio is pretty exciting, I think, for all of us.

And I think also the larger point because there's a lot of people making a lot of claims out there, but we've got the leading audio sports assets and Bob articulated this during the release. But just as a reminder, we're with the largest sports podcast network in the industry, we have our deal with the NFL. We have our deal with the NBA.

We've got the iHeart Sports Network, which reaches 75 million people. So yes, this deal is significant. And what I think -- and by the way, it is not exclusive. And what I think you should think about is it's a deal that touches all of our platforms.

And as everybody starts to think about modeling out the future and we continue the momentum into 2022 into the fourth quarter this year and into 2022. Looking at this, should give everybody a lot of confidence in terms of projecting out our future growth..

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

Maybe first just to talk about what you're seeing in the ad market, Bob, I think you're the first advertising company this quarter to say that what's going on in supply chain isn't really impacting the business. And I know you had AudioCon in Las Vegas recently.

So maybe you can just talk about what you think is going on there? I mean, is it that folks are moving share into audio? Or how can you maybe kind of put some context around maybe the difference in what you're seeing in ad trends versus a lot of your peers..

Sure. Well, look, I think certainly, there are some people that are being affected by it, but there are some people that are doing better at the same time, so it's sort of give and takes.

But I think we also see is anytime somebody -- and what we're hearing is anytime somebody's got a temporary supply problem, but they've got demand, they -- I think most people we talk to realize they're going to get their supply sooner or later. And what is important is to hold that demand.

During a period like this, we probably have -- and it's hard to prove this, but probably have a slight advantage because we're more efficient. If you look at TV, for example, most people think TV and radio deliver about the same impact at the same weight level, yet TV is about 3x to 4x the CPM of radio.

So if you want to keep your demand, one of the most efficient/cheapest ways to keep your demand is to substitute radio into some of the slots for some of the more expensive media.

So in a sort of a strange perverse way, people who want to hold on to the demand, but don't yet have a supply to fulfill it, probably are looking for efficiencies in marketing. And if they're really thoughtful about it, we probably are a good solution to that. So look, I think that's sort of the major issue.

And again, as we talk to people, I don't think we've talked to any advertisers that think this is sort of a permanent supply problem or they're going to have to sell diminished quantities. So they think they'll catch up.

And I think every one of them is focused on, wait a minute, I don't want to have to restart my demand because they realize if they step away from having that desire for the product, they are giving up a huge advantage they have in something they've built..

Steve, the only thing I just -- again, just to reinforce one of a few things we mentioned early in support of what Bob just said, there is the general trend, obviously, in terms of audio being hot.

Second thing is, I think, again, brings to light a Multiplatform because whether you've got broadcast or network or TTWN or everything we're talking about podcasting or digital or digital ex podcasting, a lot of events that Bob touched upon, you can work with us in so many different ways in terms of coming into our company.

And then I also think we've got the technology solution and the ability to meet the needs of advertisers and play in the big digital TAM and capabilities, and you've heard us say this before that we didn't really have a year ago or even 6 months ago, that full and integrated acquisition of Triton.

And then finally, we benefit from the diversity of our advertising base. We have no one category that's more than 5%. We have no individual advertisers that's more than 2%. And that really touches upon Bob's comment is, sure, we have some categories that are down but we've also benefited greatly from some categories that are up also.

So it's a total mixture..

Yes.

And then maybe expanding on that, could you talk about what SmartAudio is running as a percentage of Multiplatform sales and maybe where you see that going over the next year or 2?.

Well, we haven't given out the number, but obviously, we think that is going to continue to increase. We've built out the whole SmartAudio platform so that our broadcast radio can be bought and sold like digital can be built around the cohorts.

And with the Triton marketplace, which we announced, which we're going to launch in January of next year, we're talking about the first truly integrated audio marketplace in which you will be able to buy one set of audiences cohorts on an integrated basis across podcasting, digital radio, into broadcast radio using SmartAudio.

And I think that gives us -- not only us, but I think the audio industry, a great new tool to bring money broadly into this business. And when you look at the kind of reach radio has, every advertiser today has got a problem. They need reach. Digital doesn't reach the numbers that radio does. TV is declining, and certainly doesn't reach what radio does.

And people at least have to be able to see or hear your commercial for it to have an impact. So radio winds up, I think, in this pretty good position of being this reach enhancer for everyone. Well, by using SmartAudio, we're able to put it into a language and a technology that they're comfortable with and looking for us to do.

So I think as an overall percentage of our advertising on broadcast radio, we look for SmartAudio to be continuing to climb..

And by the way, Steve, and if you think about it, if you look at the significant progress we continue to make on the Multiplatform line and what Bob just touched upon, which includes SmartAudio, and we've talked about as people growing past but getting back to '19 levels, and we've talked about as a total company, and we commonly get the question, do you want to get back there on the Multiplatform line and your confidence in getting back on the Multiplatform line.

Remember what Bob just articulated, our capabilities of SmartAudio in the Multiplatform line, that too enables us to tap into the digital TAM, the $160 billion plus $170 billion digital TAM. It's not just our digital line that could tap into it, but it's also our Multiplatform line..

And maybe last one, kind of a housekeeping one.

As we think about next year, any major changes on either cash interest, cash tax or CapEx we should be mindful of?.

Well, we're going to see capital expenditures go down. I think we said this quarter, we spent approximately $50 million of capital expenditures, an increase from the mid-30s last year, and the major increase in that is due to our real estate, in terms of our downsizing of our real estate, just getting more efficient in that.

And again, those operating savings are already in the expense saving numbers that we've talked about on the modernization efforts and on the $200 million that we said would be -- a substantial piece would be permitted for this year. And also on interest expense, I think, as you all know, one is we just had the preferred that we retired.

That we retired early from May of last year, which is going to bring some interest expense savings coupled with the fact that reinforces our confidence in the business. And I think everybody should take our payment of the $60 million on both accounts.

And then finally, as a reminder, we do have the refinancing on -- coming up, which is about one-third of our interest expense. And we're heavily looking at our options, but rest assured that we expect that interest expense to go down and be another lever for value creation for us..

Our last question comes from the line of Dan Day from B. Riley Securities..

Just first one, we've talked about this 4x leverage target for a while, and you look to be getting there in the next quarter or two as long as -- at least on a forward-looking basis.

I guess once you're there, talk about the priorities for free cash flow between paying a dividend, buying back shares, how you weigh that against M&A opportunities, whether this is a business that you see given how cyclical it is, can even support a dividend there might be a debate out there on that. So, curious your thoughts on that..

Well, I'm not -- this won't surprise you and really appreciate the question, but I'm not going to comment on anything specifically including your comment on when we're going to get to -- including your comment on when we're going to get to 4x.

Again, all we've said is our target is to get to 4x leverage, and I think everybody could see the significant progress we've made toward doing that.

And when we get in around 4x leverage, Bob and myself working with our Board and working with Mike and the team will look at our options and what's the best way to get money back to our shareholders, which I would suggest that just paying down debt right now in our capital structure is just another form of returning capital to our shareholders because just from a numerical basis, what it goes to the equity value out there.

And we'll always continue to look at any potential assets that can help the total iHeart base.

But I think if you look at our history since Bob and I have been with the company, whether it's Jelli or StuffWorks or any of the assets -- acquisitions that we made, they've always been -- none of them, I would suggest, individually have been significant to overall iHeart, quite frankly, even in total, that make significantly iHeart capital structure, but each and every one of them have made the rest of the iHeart base more valuable.

And so I don't see any change to that pattern..

Got you. I want to turn to another topic. Just the DraftKings deal here that you announced. Obviously, sports betting being such a big opportunity here for radio advertisers.

I mean do you see either at the local or national level, maybe the calculation changing for how aggressive do you get in terms of going after the live sports radio rights? Is that something you see as changing and getting more aggressive there?.

We're actually pretty aggressive. And actually, we have quite a number of major teams carried on our radio stations play-by-play. We have a number of big sports talk radio stations. We have an -- even have some specific sports betting stations, The Gambler is the name of them, where we run them.

And then we are doing the iHeart Sports Network, which is sports information, even on our music stations, reaches about 75 million people according to Nielsen, and I think probably is the largest sports network. So we cover the gamut.

And when you go to podcasting, we've got the biggest sports podcasting network as well, not only the leagues that Rich talked about earlier, but also Colin Cowherd, Dan Patrick. We've got a lot of big names there with a lot of success. So we continue to invest heavily in it, and I think it's a great investment for us..

And by the way, one thing I'd say, maybe relative to all of these comments and the questions we're just talking about is our focus here is really to drive the value of this company -- drive the equity value of this company.

So everything you hear, Bob and I talking about, whether it's from an operating standpoint or a balance sheet standpoint is put through that filter with the two of us and our Board of Directors..

Awesome guys. I appreciate the commentary. Thanks for answering my questions. I'll turn it over. Best of luck..

Great. Well, first of all, there is no other questions. I want to thank everybody for taking the time to hear the iHeart story. Thank everybody for the support. And Bob, myself and Mike are available any time for follow-up in your questions..

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