Even as some radio groups find themselves at risk of default, one Wall Street analyst is giving praise to iHeartMedia for continuing to “chip away” at its debt load. In a report to clients, B. Riley Securities analyst Daniel Day noted that iHeartMedia retired $80 million of debt and it has repaid $430 million to lenders since second quarter 2022. That has reduced the outstanding debt amount from $1.45 billion to approximately $1 billion.
“We expect nearly all free cash flow moving forward to be allocated toward debt reduction,” Day said in the report. “We don't see the company achieving this target until early 2025 but believe shares can more than double from current levels of deleveraging progress alone.”
During the company’s second quarter conference call Tuesday, iHeart President/COO/CFO Rich Bressler said that they “remain committed” to reducing its debt and recent cost-cutting efforts and real estate sales have helped achieve that goal. At the end of second quarter, iHeart had $5.2 billion of net debt outstanding.
“We expect to have a strong 2024 with the resumption of our growth story in terms of revenue, profitability, and free cash flow generation. And of course, this growth will increase our ability to continue to improve our capital structure,” Bressler said. He also pointed out that iHeart has no maintenance covenants and no debt maturities until mid-2026. “In the current macro environment, this type of debt profile positions us to be both resilient and opportunistic in responding to debt market developments,” Bressler said.
Despite what Day says have been the “conservative” budgets by many large brand advertisers, Day says the “relatively upbeat tone” around the potential for a “swift recovery” in advertising budgets in fourth quarter and into 2024 were reasons to be optimistic and says iHeart’s stock remains worthy of a “buy” rating with “limited” risk to potential downsides. “We recognize that amidst a challenging ad spend backdrop and few hard catalysts outside of progress on debt reduction, investors may need to be patient with the name for a few quarters,” Day said.
The Podcast Benefit
As he issued his quarterly assessment of radio’s largest operator, Day said he is also encouraged by the 13% growth in iHeart’s podcast business during the second quarter, which was an improvement over the first quarter gain of 12%. “We expect podcast growth in the teens or better through year-end and expect a reacceleration to 20%+ growth in 2024 and beyond,” he told investors.
“In the second quarter, podcasting was by far the best performing segment of the advertising marketplace, and we continued to have the largest podcast audience reach in the United States,” CEO Bob Pittman said Tuesday. He reminded investors that the combination of radio and podcasts continues to work in iHeart’s favor.
That has proven out with the true crime podcast Paper Ghosts. After iHeart recently began to promote the series extensively on its broadcast radio stations, Pittman says within two weeks its downloads more than doubled and it reached the Top 10 in Apple's Podcast: True Crime charts. “And as the podcasting industry at large continues to embrace more rational content costs, iHeart as the leading publisher in the industry will continue to benefit,” he added.
While audio consumption lines continue to blur as more listening is done online, Pittman believes that podcasting and broadcast radio are complementary businesses – and don’t compete for the same time. He points out 68% of broadcast radio listening happens out of home while 69% of podcast listening occurs in the home. “Both are companionship mediums, and both keep their listeners company, just at different times and locations throughout the day,” Pittman said. “And the natural synergy between these 2 mediums gives us a real advantage in podcast content creation, promotion, marketing and advertising sales as you can see in our consumer engagement, revenue and profitability metrics. And critically for us, podcast usage does not come at the expense of radio usage.”
The recently-released iHeartMedia State of Podcasting 2023 report has shown radio’s biggest group that its efforts in on-demand audio are not cannibalizing what it does on-air. It shows 70% of podcast listeners said they replaced time spent with social media platforms, 50% said they replaced time spent with YouTube, and 46% said they replaced time spent with streaming music services.