iHeartMedia Inc (IHRT) 2017 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the 2017 First Quarter Earnings Conference Call for iHeartMedia and Clear Channel Outdoor Holdings, Inc. (Operator Instructions) And as a reminder, this conference is being recorded.

I'd now like to turn the conference over to our host, Eileen Mclaughlin, Vice President, Investor Relations. Please go ahead.

Good morning, and thank you for joining our first quarter 2017 earnings call. On the call today are Rich Bressler, President, Chief Operating Officer and Chief Financial Officer; and Brian Coleman, Senior Vice President and Treasurer. We will provide an overview of the first quarter of 2017 financial and operating performances of iHeartMedia, Inc. and its subsidiaries, iHeartMedia Capital I, LLC; iHeart Communications, Inc., Clear Channel Outdoor Holdings, Inc. and Clear Channel International BV. For purposes of this call, when we describe the financial and operating performance of iHeartMedia Inc., it also describes the performance of its subsidiaries, iHeartMedia Capital I LLC, iHeart Communications, Inc. and Clear Channel Outdoor Holdings Inc.

After an introduction and a review of the quarter, we will open up the line for questions. Before we begin, I'd like to remind everyone that this conference call includes forward-looking statements. These statements include management's expectations, beliefs and projections about performance and represents management's current beliefs. There can be no assurance that management's expectations, beliefs or projections will be achieved or that actual results will not differ from expectations. Please review the statements of risks contained in our earnings press release and filings with the SEC.

Pacing data will also be mentioned during the call. For those of you not familiar with pacing data, it reflects orders booked at a specific date versus the comparable date in the prior period, and may or may not reflect the actual revenue growth rate at the end of the period. During today's call, we will provide certain performance measures that do not conform to generally accepted accounting principles. We provide schedules that reconcile these non-GAAP measures with our reported results on a GAAP basis as part of our earnings press releases and the earnings conference call presentation, which can be found on the Investors section of our website, iheartmedia.com and clearchanneloutdoor.com.

Please note that our 2 earnings releases and the slide presentation are available on our website, www.iheartmedia.com and www.clearchanneloutdoor.com, and are integral to our earnings conference call. They provide a detailed breakdown of foreign exchange and non-cash compensation expense items as well as segment revenues, operating income and OIBDAN, among other important information. For that reason, we ask that you view each slide as Rich comments on it. Also, please note that the information provided on this call speaks only to management's views as of today, May 4, and may no longer be accurate at the time of replay.

With that, I will now turn the call over to Rich Bressler.

Thank you, Eileen, and good morning, everyone. Thanks for joining us. As a true multiplatform 21st century media and entertainment company, we're leveraging our leading broadcast radio, digital, outdoor, mobile, social, live events and data businesses to continue to innovate for the benefit of our advertising and marketing partners. In the first quarter, our consolidated revenues declined. However, adjusting for the sale of the outdoor U.S. markets and international businesses in addition to foreign exchange, our revenues increased, with all 3 segments driving growth. Operating income and OIBDAN were down.

At our iHeartMedia segment, this quarter marked the 16th consecutive quarter of year-over-year increases in revenue. We achieved that result in what is turning out to be a slower-than-expected ad market for traditional media companies. We believe that our ability to generate this revenue growth was driven in large part by the investments we're making in innovations, including our digital and data products and platforms that strengthen our business. Before expanding on our first quarter financial performance, I do want to highlight the strong fundamentals of our core businesses and several of our exciting new initiatives. As you know, based on reach, iHeartMedia is the #1 media company in the U.S., with a total of 0.25 billion consumers monthly.

In fact, only Google and Facebook, among all other media companies, have monthly reach of more than 200 million. It all starts with the scale and strength of our 850-plus broadcast radio stations. For nearly 50 years now, broadcast radio has maintained its reach of 93% of adults over 18, #1 among all media in the U.S. Meanwhile, TV screens is headed downward, now at 87%. Among millennials, ages 18 to 34, radio reaches 92%, even surpassing smartphones at 91%, with TV lagging behind at 76%. And radio's reach among teens ages 12 to 17, is even higher at 95%, with live TV at 87% and Facebook at only 34%. Given that teens or Generation Z'ers make up nearly 1/4 of the U.S. population and can be tough to reach, the ability to connect with more than 9 out of 10 of them through radio is a huge opportunity for our advertisers.

The great appeal of radio to Generation Z'ers and millennials might come as a surprise to those who think that radio is an old and declining medium and it certainly says a lot about the future of radio compared to other media platforms. Beyond reach, iHeartMedia leads in engagement with 31 minutes a day compared to 30 minutes for Facebook, 19 minutes for Google, 14 minutes for NBC and just 7 minutes for Snapchat for adults 18 and over based on the latest available data.

We believe that people spend more time listening to radio because they want the sense of community and companionship that it provides them. A recent column in Media Post highlighted this point, reporting that millennials, even with their access to on-demand media, are still craving the more human touch derived from interacting with their local community. Radio hosts help them feel even more connected and it feels special to them to know that others in their community are tuning into the same thing at the same time. The ability of our industry-leading personalities to connect with their audiences over a vast array of platforms, from broadcast radio and digitally through iHeartRadio, to social media and events, allows us to create communities and build close personal relationships with our listeners.

Last month, we launched On The Move with Enrique Santos, our first ever major programming and marketing effort targeting the English language first Hispanic households. Not only does iHeartMedia's 91% monthly reach among the U.S. Hispanic population surpass any other U.S. media company, but 43% of iHeartMedia Hispanic listeners live in English language first households. Last quarter, we celebrated Elvis Duran who is receiving his star on the legendary Hollywood Walk of Fame. The star honored his 2 decades on Z100 in New York, where the Elvis Duran and the Morning Show ranks #1 in the market. The program is also syndicated across nearly 80 radio stations, reaching over 10 million listeners monthly. And we're excited to announce that Elvis recently signed a new 5-year deal with us.

The Breakfast Club on New York's Power 105.1 and syndicated nationally saw their ratings grow 18% year-over-year in the quarter among adults 18 to 49, while the ratings of The Bobby Bones Show were up 21% among people 12 and over in the first quarter. In LA, as you know, we have the #1 urban contemporary CHR rhythmic morning show with Big Boy's Neighborhood on Real 92.3, which is also syndicated nationwide. The Woody Show is the morning market leader in alternative rock at Alt 98.7 while Valentine's Morning Drive Show on 104.3 MYFM ranks #1 among adults and females. We recently re-signed Steve Harvey, who will continue in his role as host of the top-rated The Steve Harvey Morning Show, which is syndicated nationally on nearly 100 radio stations and reaches nearly 7 million weekly listeners.

Last month, Delilah, whose evening show reaches more than 10 million monthly listeners across about 150 radio stations, was inducted into the National Association of Broadcasters Broadcasting Hall of Fame. This marked the first time a woman has been chosen for this honor in the past 35 years. And Ryan Seacrest, whose On-air with Ryan Seacrest with LA's Kiss FM is syndicated to over 150 radio stations nationwide, is expanding his multiplatform presence with his return to TV on Live with Kelly and Ryan. It's clear that consumers love radio today, just as much as they did nearly half a century ago. Thanks to our wide variety of talented personalities and programming available over multiple platforms such as broadcast, digital and podcast, people can finally connect with the personalities and content they want when they want to hear it.

And we're making sure advertising agencies and brands know that and know how to find the consumers. For us, it's a simple equation. Radio does incredibly well among consumers, accounting for about 20% of all media consumption, but radio only attracts 6% to 8% of advertising dollars. We continue to believe there's tremendous untapped value here. Radio is being undermonetized, given its reach and engagement across all audiences, including the tough to target millennials and Gen Z'ers. Indeed, the major focus of our efforts is to close that gap. We have the unique ability to offer a suite of advertising solutions and tightly integrated multiplatform campaigns to advertisers. These solutions provide them access to national scale and reach that we believe is unmatched by any other media outlet in the U.S.

To help our marketing partners take full advantage of these growing opportunities, we continue to innovate in the programmatic and data space, recently introducing SmartAudio ad products. At our SoundBoard event for brands and agencies in March, we launched SmartAudio, the latest feature of Sound Point, our groundbreaking programmatic solution. SmartAudio combines the massive scale of our broadcast radio reach with the power of digital data and more informed audience targeting that advertisers expect. So now brands can buy broadcast radio from iHeartMedia the same way they buy digital media. With SmartAudio, iHeartMedia can now utilize this digital data from more than 100 million who registered on the iHeartMedia radio app and the 100 million who registered on the iHeartMedia broadcast radio station websites to create robust audience segment profiles.

Additionally, we introduced SmartAudio dynamic creative capabilities so clients can leverage the power of live broadcast media to run different creative based on real-time triggers like weather or sports scores. By utilizing the iHeartMedia SmartAudio capabilities, brands will receive the massive scale of broadcast radio and the targetability and real-time adaptability of digital media. Our Outdoor business is one of the world's largest outdoor advertising companies and we have almost 600,000 displays in 35 countries across 5 continents, including 43 of the 50 largest U.S. markets.

In the first quarter, we continued to deliver on our Outdoor strategic initiatives of investing in our industry-leading data rich analytics capabilities and automated ad buying solutions, building out our digital networks and winning and renewing contracts for the benefit of our marketing partners. It's been 1 year since we launched RADAR, Americas Outdoor's data analytics tools for ad campaign planning, measurement and attribution. Although still early in the process, RADAR is already delivering for brands. RADAR customers, including auto, quick service restaurants, retail and cable TV, among others, are seeing in-store visits or tune-in climb by 15% to 30%.

Additionally, some of these brands are choosing to complement their out of home RADAR campaigns with our mobile retargeting solutions that reinforce the outcomes of our advertising products. Americas Outdoor's first to market private marketplace programmatic solution, which launched late in the quarter, includes Digital Billboard inventory that reaches over 60 million adults monthly. It also reaches 18 million adults monthly in our airports, including in 3 of the U.S.'s top 5 busiest airports.

In April, we introduced Europe's first out-of-home automated ad buying tool in the U.K., 3 months after its successful launch in Belgium. Now our U.K. customers can access and buy audience based packages on an automated guarantee basis through Storm, International Outdoor's premium digital outdoor network in the U.K. At the same time, we continued our global expansion of our digital out-of-home platform, including winning new contracts in the U.S. and Europe. Given all of these opportunities, we continue to invest in innovation to empower us to do business as a true, multiplatform 21st century company. Given their sustained leadership and mass market reach, Radio and Outdoor remain undermonetized. That's why we continue to develop the right tools to enhance the abilities of advertisers, agencies and brands to reach their targeted audiences, enabling them to take full advantage of the opportunities our platforms offer them.

Now let's turn to Slide 4 and review our key financial highlights. Before we get started, I want to remind you that as part of our GAAP results discussion, I'll also talk about results adjusting for foreign exchange and excluding the impact of the markets and businesses we sold in 2016 and the first quarter. We believe this improves the comparability of our results to the prior year. I'll refer to these results as adjusted revenues and adjusted OIBDAN and I'll refer to the direct operating and SG&A expenses as expenses.

Consolidated revenues were down 2.4%, with the growth at iHeartMedia offset by the declines in Americas Outdoor and International Outdoor. Results of both Americas Outdoor and International Outdoor were impacted by the sale of certain U.S. markets and international businesses. Adjusted consolidated revenues grew 1.6% driven by increases of 2.5% at iHeartMedia and 3.1% in International Outdoor, with Americas Outdoor up slightly. Operating income was down $306.7 million or 72.9%, due primarily to the net gain of $278.3 million on the sale of nonstrategic Americas Outdoor markets in the first quarter of 2016. That compares to the net gain of $28.6 million on the sale of our Americas Outdoor Indianapolis market in the first quarter of 2017. Adjusted OIBDAN was down $54 million or 19%, with OIBDAN down in all segments. I'll provide additional detail on these results as we discuss each segment's financial performance later in this presentation.

Moving to Slide #5, iHeartMedia's key non-financial highlights. IHeartRadio, our all-in-one digital music, podcasting and live streaming radio service, surpassed 100 million registered users in the quarter. That's a 20% increase over the prior year and iHeartRadio continues to reach user milestones at a rate faster than any other digital music service. Our cumulative downloads and upgrades of the iHeartRadio app topped 1.4 billion in the quarter. And total listening hours were up as compared to the prior quarter, while mobile accounted for 73% of the total listening hours. As I mentioned, our new SmartAudio product is enhancing the ad buying process for advertisers, making it look and feel like buying digital advertising to them.

Moving on to our tentpole events that took place in the quarter. We staged the fourth annual iHeartRadio Music Awards on March 5, generating 165 billion social impressions throughout the event and promotional period. That's over 40% more than we did in the prior year. The show was simulcast on TBS, TNT and True TV and it was also broadcast live on iHeartMedia broadcast radio stations and across the iHeartRadio digital platform. There were a total of 20 million both watching and listening to the live broadcast.

Underscoring our commitment to innovation in social media, for the first time, iHeartRadio Music Awards announced winners of several award categories through the artist acceptance speeches through Snapchat stories. And they were also televised during the broadcast on TBS, TNT and True TV. We also announced that the sixth annual iHeartRadio Music Festival will be held on September 22 and 23 in Las Vegas. And we have partnered with AT&T on our next two tentpole events. This Saturday is the iHeart Country Festival in Austin, Texas and this June's iHeart Summer '17 weekend. These are another great example of how our tentpole events provide promotion and brand building opportunities for our advertising and marketing partners in addition to showcasing the most popular artists across multiple genres in music today.

Turning to Outdoor on Slide 6. Our investments in innovative digital technology continue to contribute to revenue growth for both Americas Outdoor and International Outdoor. In the first quarter, we installed a total of 23 new digital billboards in our North American markets and added 31 additional boards in Atlanta as part of our sale of our Indianapolis market. We now have 1,167 digital billboards across 28 markets in North America. In International's Outdoor markets, we installed 577 digital displays in the quarter for a total of more than 12,500 digital displays as of March 31.

Building on our digital platform, both Americas Outdoor and International Outdoor recently entered into new agreements that include new digital displays. Americas Outdoor signed a new 10-year partnership with the Honolulu International Airport to provide a comprehensive digital advertising network throughout the airport that will include state-of-the-art digital assets. We are the first media company to have advertising in the Honolulu International Airport. We also won a new 5-year contract to provide the Milwaukee International Airport with an immersive digital media program that integrates the latest innovative advertising media and technologies.

In Los Angeles, we've begun selling and posting the new wallscapes and bulletins at the Sunset Millennium real estate development project. They are among the largest out of home media available in the area and offers advertisers the opportunity to reach consumers in the heart of Sunset Strip.

International Outdoor plans to install more than 100 digital screens in shopping malls across Sweden, increasing their presence in the country's top 20 cities. In Switzerland, we have strengthened our position with a recent contract to install digital screens and to operate street furniture poster sites in Basel. We have installed over 150 additional Adshel Live screens, including over 75 phone box products in London. We now have over 1,000 Adshel Live screens throughout the U.K.

Now on to the review of our business segment results, starting with iHeartMedia on Slide 7. In the first quarter, iHeartMedia's reported revenues were up 2.5% and excluding political, revenues grew 3.8%. That marked the 16th consecutive quarter of year-over-year increase in revenue, a notable achievement given the overall radio industry's performance as well as those of other U.S. media companies over the same period. The 3.8% increase in revenues was driven primarily by trade and barter, sponsorship and other revenues related to our live events and digital as well as our core radio business. These increases were partially offset by lower revenue on traffic and weather business.

Trade and barter as well as event revenues increased, due in part to the timing of the iHeartRadio Awards Show, which was held in the second quarter in 2016. And once again, we outperformed the radio market as measured by Miller Kaplan. We believe our outperformance is driven partially by our unique ability to offer an innovative suite of advertising solutions and tightly integrated multiplatform campaigns to advertisers that provides them with access to a national scale and reach.

Expenses were up 11.2%. This increase resulted primarily from higher trade and barter, programming costs, investments in sales capabilities and variable compensation related to increased revenue. As I noted earlier, we had expected a more robust add market this year. We were a bit surprised by this softness. We continue to focus on driving advertising revenue in whatever environment we find ourselves in and at the same time, we remain focused on actively balancing our core space against our revenue opportunities.

As a result of these higher expenses, operating income declined 19.8% and OIBDAN was down 15.3%. Now let's review our second quarter pacings for 2017. As you've heard me say before, these pacings are just a snapshot in time and certainly don't include everything we do as a company. IHeartMedia's second quarter 2017 pacings are down 2.6%, based on our most recent information. The decline in pacing is due partly to the reduction in political revenues and the timing of the iHeartRadio Awards Show. In addition, we believe our pacing data reflects the challenging ad market.

Now on to Slide 8, Americas Outdoor financials. Americas Outdoor reported revenues declined 1.1% in the first quarter. Adjusted revenues increased slightly, with growth from new airport contracts and digital billboards. This was offset by declines in our Spectacolor business, due primarily to the loss of inventory. As you can see in our results, our strategic approach to airport media through buildouts, renewals and acquisitions in both 2016 and the first quarter is paying off. And our investments in digital continue to drive revenue growth. That said, the market has certainly been challenging, with some of our national advertisers pulling back on their advertising campaign spending.

Expenses were up 1.7% in the quarter. Adjusted expenses increased $4.9 million or 2.6%, due primarily to higher site lease expenses related to the new airport contracts and printed displays. Operating income was down 12.8%, resulting mainly from the sale of the nonstrategic markets in the first quarter of 2016. Adjusted OIBDAN declined $4.2 million or 4.9% due to an increase in fixed site lease expenses. In addition to the 9 nonstrategic markets we sold in the first quarter of 2016, we closed the sale of our Indianapolis market, $43 million in cash and certain assets in Atlanta during the first quarter of 2017. The net gain on the sale was $28.6 million. Our second quarter pacings, which have been adjusted for the sale of the nonstrategic markets in the first quarter as well as foreign exchange are up 0.4%, based on our most recent information. As a reminder, pacing data reflects a point in time and we believe the softness in the second quarter pacing data is due in large part to the challenging ad market.

Turning to Slide 9 and our International Outdoor financials. As I mentioned previously, in October 2016, International Outdoor sold its interest in the Australian out of home media company, Adshel to our joint venture partner APN News and Media. Our reported results were impacted by this sale, with revenues declining 13.4%. Adjusted revenues grew $8.3 million or 3.1%. The increase in adjusted revenues is attributed to growth from our new contracts in Madrid and Barcelona, the U.K. and in Switzerland as well as our expanded digital inventory. Expenses during the quarter were down 10.3% on a reported basis and up $14 million or 5.7% on an adjusted basis. The increase in expenses resulted in large part from higher site lease and production expenses.

Our operating loss of $12.5 million increased $5.7 million during the quarter and adjusted OIBDAN declined $5.6 million to $19.2 million. Included in the higher site lease expenses are fixed rent fees from new contracts, including Madrid and Barcelona, which negatively impacted our margins in the first quarter. Our 2017 second quarter pacings for International Outdoor were up 2.7% based on the most recent data available. Once again, pacings are a point in time metric and as you'd expect, there's an inherent level of volatility week-to-week. The pacing data has been adjusted to exclude the businesses we sold in 2016 and foreign exchange rate fluctuations.

Before we go on to the rest of the slides, I'd like to make a few comments on CCIBV's results. For the first quarter, CCIBV's consolidated revenues totaled $223.9 million. The impact of foreign exchange rate was $14.2 million. CCIBV's operating loss in the quarter was $20.7 million as compared to $14.6 million in the prior year's quarter.

On to Slide 10. This slide highlights the items impacting comparability of our results. I won't lead you through all the numbers on this call but as you can see, our International Outdoor operations were affected by foreign exchange fluctuations of about 5% on both revenues and expenses in the quarter. And as I've said, Americas Outdoor and International businesses both were impacted by the sales of certain markets and businesses over the year. Lastly, as expected, political revenues were down in the quarter for both iHeartMedia and Catch Media.

Turning to Slide 11. Capital expenditures for the first quarter totaled $51 million. The iHeartMedia segment's capital expenditures related to leasehold improvements and IT infrastructure. In Americas Outdoor they were associated primarily with the construction of new advertising structures such as digital displays. And International Outdoor's capital expenditures related mainly to billboard and street furniture advertising structures. This year, we expect capital expenditures to be in the range of $300 million to $325 million.

Moving on to debt on Slide 12. As of March 31, iHeartMedia's debt was $20.4 billion, basically flat with year-end 2016. In February, we exchanged $234.9 million principal amount of our 10% senior notes due 2018 with $234.9 million of newly issued 11.25% priority guarantee notes in 2021. IHeartMedia's consolidated weighted average cost of debt was 8.6% as of March 31. Cash interest expense in the first quarter was $543.3 million, and we expect cash interest expense in 2017 to be $1.7 billion.

Now we turn to our balance sheet information and the debt ratios on Slide 13. IHeartMedia's consolidated cash totaled approximately $365 million as of March 31. Our secured leverage ratio was 7.4x, with total leverage at 11.9x. Clear Channel Outdoor ended the year with $200.6 million in cash, with a senior leverage ratio of 4.3x and consolidated leverage ratio of 8.2x. The largest use of cash for iHeartMedia in the quarter's interest expense, which totaled $543.3 million. Clear Channel Outdoor used cash of $86.8 million for interest and paid dividends totaling $282.5 million, including $254 million received by iHeartMedia.

Before opening up the call for questions, I want to thank you again for joining us this morning. As a multi-platform 21st century media and entertainment company, we continue to invest in innovation to strengthen our broadcast radio, digital, outdoor, mobile, social, live events and data businesses. We're making great progress in developing industry-leading data rich analytics capabilities and automated ad buying solutions to benefit our advertising and marketing partners. In the quarter, we launched SmartAudio for iHeartMedia broadcast radio advertisers, expanded RADAR, Americas Outdoor programmatic solution and introduced International Outdoor's programmatic buying solution in the U.K. And our iconic events like the iHeartRadio Music Awards and the iHeartRadio Music Festival continued to create greater brand awareness, social media engagement, TV ratings and investments from our marketing partners. And the launch of our new on-demand subscription services iHeartRadio Plus and iHeartRadio All Access extends the value of our iHeartRadio to its users.

As a company, our multiple platforms and our ability to integrate them provide our advertising partners with more and better ways to connect with their target audiences. Although the ad market continues to be weaker than expected, we continue to believe that radio, outdoor and our other platforms are undermonetized, especially given radio's sustained popularity with consumers and Outdoor's continued leadership as a mass reach vehicle.

Just remember, as I told you in my opening, radio makes up about 20% of all media consumption but attracts only 6% to 8% of each advertising dollar. That sums up our challenge and our opportunity. So we're redoubling our efforts to close that gap by working with advertisers, agencies and brands to underscore the opportunities we offer them to engage with the right audience at the right time with the right messages and the right tools. That's how we'll continue to make the most of the power of audio, the power of outdoor, the power of social, the power of data, the power of mobile and the power of our national local brands as well as our industry leading personalities.

Now let's open the line for questions.

(Operator Instructions) Our first question comes from the line of Avi Steiner with JPMorgan.

I've got 4 categories I'd like to touch on. The first one is on expense growth, clearly well above trend this quarter and I'm curious if you can talk to how much of that may be related to the retention bonuses, related to the work that has gone to the exchange and I think a few thousand pages now, the launch, expenses related to the launch of Plus and All Access and maybe anything related to tax work you would have done in outdoor and then I've got a couple more.

It's Rich. Again, I'm not going to comment on and break out any numbers specifically. There's a lot of things that's affecting our expense growth. There's the timing. As I noted in both the earnings release and the call, of trade and barter costs, there's counterprogramming costs, we had, and I'm talking particularly on the iHeart side, a number of other sales initiatives that are driving and quite frankly also as I said earlier, we had expected a more robust advertising market. Just to be transparent, we've been a bit surprised by the softness on it. What I can tell you is that Bob, myself and the rest of the management team, that we are laser focused both in terms of driving advertising revenue but also making sure that we've got the right cost structure to support the, right size the cost structure to support the advertising environment that we're in and so we continue to focus on that. So that's really on the iHeart side.

If you look at the outdoor piece and if you look at international, that's really due much more to the seasonality of our revenues where we have lower margins in the first quarter compared to the fourth quarter and we had some higher site lease expenses and some production expenses and we had some new contracts in Madrid and Barcelona. So again, part of that is just timing first quarter versus fourth quarter, which is or any other quarter which the first quarter is always smaller and then we've got some site leases and some new things, new contracts that I just highlighted. And on the U.S. outdoor piece, yes, we've had some growth in airports, which has been great, on the overall growth in airports but they're also lower margin businesses and they've offset declines in some of the higher margin print businesses. Then we also had some contractual increase in our fixed site leases. So I think that touches on all 3. And by the way, and the other expense is just, when you look at the press release, anything with respect to the expenses on the exchange offer and term loan offer are in other expenses below the line.

Okay, moving on to topic 2, free cash flow was lower than we had expected. Obviously, there's a variance in EBITDA here but working capital seems to be the biggest and particularly on the AR and increase in prepaid expense lines and I'm curious if there's anything to call out in those categories specifically.

No, I'll ask Bryan to comment in a second here but not really. I mean mostly impacted by some accounts receivable and prepaid expenses. As always, AR, accounts receivable, generally we find the first quarter, due to the seasonality of our businesses and in 2017 we also had a decline in the first quarter because remember we had the sale of Australia and our Turkey businesses in 2016, which also affected the decline in first quarter working capital but nothing out of the ordinary. And prepaid was up just as the timing of payments.

Rich hit working capital, Avi, the first quarter I think most people know is our weakest operating quarter. It's also a quarter that has a disproportionate share of our cash interest expense. So when you take a look at the cash movement during Q1, you see a typical pattern of cash burn due to that cash interest expense, the working capital, CapEx. I think if you compare it to Q1 2016, we had some asset sale proceeds come in so there's a dramatic variance quarter-over-quarter. But Q1 cash interest and low operating performance, seasonality, related to seasonality is the main driver there.

Okay, third topic. There's language in the 10-Q around possibly reducing or delaying CapEx in order to have sufficient cash to meet maturities. Curious if this would be at the Outdoor level or just the parent. I don't think I saw that language at the Outdoor level and how do you feel about that in the context of your strategy of trying to grow in this tough ad environment?

Let me just start and I'll let Brian chime in. We are, as we've done for years, there's nothing new about -- and if you go back over the years, we are always proactively working our capital expenditures and we're proactively working on expenses. Our job is to really grow revenue whether it's this ad environment; it's a tough environment, it's softer than we expected and we have got to manage our expenses and working capital and capital expenditures in that environment. And so we're going to be, moving forward, we'll continue to be nimble and continue to adjust things to meet the environment we're in.

I would point out and I think I've up-to-date if you look overall compared to let's say the traditional media companies, traditional radio companies, have all announced at least as of up to a half hour or so ago and you look at our U.S. revenue, I think for the most part, particularly on the iHeart level, we've significantly outperformed both the radio industry and the traditional U.S. media companies on their U.S. revenue out there. So not pleased where advertising revenue is today as a company but we're really proud of our team at iHeart, U.S. Outdoor and International Outdoor how we significantly outperformed the marketplace.

Okay. I'm going to end it on this. The press is reporting that a group has formed to oppose the deal in its current form and by your own disclosure, at least at the TGM level, participation would seem to be low, very low. And I'm curious as to whether you would consider changing tracks if this persists and maybe look to engage the group directly in hopes of coming to a consensual resolution?

I think you're going to know my response. As you know and this will pertain to all questions with respect to the private transactions that are currently out there, they are private and SEC rules prohibit us from commenting on those transactions.

Our next question is from the line of Jason Kim, Goldman Sachs.

Coming back to the expense side again, I wanted to ask from a different angle, you had mentioned that you were a bit surprised by the softness in the advertising markets but in terms of first quarter revenues, they were actually not that different from your pacing guidance that you had given back in February. So I'm trying to reconcile those comments at least with respect to the increases in first quarter expenses and the impact to margins in the context of revenues, actually not being that much weaker than at least what we had originally modeled. And then as a follow-up to that, how much flexibility do you think you have in terms of bringing back down your OpEx levels to be more in line with the more muted revenue environment in the near term?

Yes, well look, I'm not going -- in terms of the guidance and pacing and probably everyone on the phone is going to sigh when I say this and you'll sigh for the next 100 years when I say this, but remember pacings are a point in time. And so if you look at our pacings I think we gave out at year end, we were above the pacings we gave out to iHeart. We were below the pacing information we gave out to the Outdoor business because again, they're points in time. And the other thing I would say to be careful about pacings, the business and I've commented I think on this on a number of previous calls, the business continues to evolve where placement of advertising and I think we're all seeing this in the advertising industry, not only has it been softer I think than many of us expected but also the placement is later and later and later. It's like in terms of the number of sleepless nights I have and I think we all have is because it gets closer and closer to the airing dates and closer and closer to being placed on all of our outdoor signs and billboards and digital billboards out there.

So quite frankly I think pacings are becoming less and less of an indicator quite frankly of what's going to happen and what you're going to wind up with. In terms of the expense side, there's a couple of things. As I said, we are aggressively managing our expenses to balance it with where our revenues are going and at the same time, the transformation to a digital and data rich company for both the radio and the outdoor business, we're looking to capitalize on the benefits and the demand for the mass reach media and the world of the dwindling TV that's out there. We also have another dynamic that's going on and I'm sure many of you on the phone are aware of is the transformation of how advertising is bought and sold. And so we're also investing in programmatic buying platforms.

I commented in my opening remarks about our research analytics tool that we're really excited about called SmartAudio. But at the end of the day, we continue to feel very strongly that we've got about 20% or so, which I think I mentioned also earlier in the call of media, the way people spend their time and we're only getting 6% of the advertising revenue dollars that's being spent out there. So we have tremendous opportunity, tremendous upside and we believe that with our audience size, investing in programmatic we've got a unique position with our advertisers in both radio and outdoors, that will open up significant digital revenues as we go forward. So we think we've taken all the right steps and like I said, we were just a little surprised overall, don't look at any one point in time, about the softness in the advertising environment.

Got it. And then if I can just follow up to the ad environment again, any big differences between national and local? I think you did call out national but I was wondering if there was any, in terms of percentages or anything like that, you can share with us?

Yes, I'm not going to break out any of the individual percentages. Clearly, our national business has been stronger. It has been stronger than our local business is all I?m going to say and again, I think if you look at some of the earnings releases that came out yesterday and even early this morning, when you look at advertising North American traditional -- the North American revenues, in particular for the traditional, large traditional media companies, I think if you look at our results compared to theirs, we've significantly outperformed them. So nothing else beyond that and I'd say local has been a little bit softer.

Our next question is from the line of David Phipps, Citi.

Following on the advertising, can you talk a bit about qualitatively about which geographies or which categories that you're seeing softness across all the different platforms within iHeart? Or maybe you could characterize them us was going to (inaudible)?

I'm not going to quantify each of the individual categories. I will say clearly we've got some great partners. I called some of them out in the earnings release. AT&T has been terrific and I mentioned we've got, I believe in my opening remarks, we've got the country music festival that we're working with them on. We've got our initial pool party for the summer that we're working with them on. Cap One has been a terrific partner and so we have a number of QSRs that have been very strong partners for us in the movie industry. Entertainment industry has been very strong pretty much across the board.

And I'd say the other side to that is, and you all notice if you look at the results that came out in the last while, auto continues to be -- the automobile industry continues to be great partners and a significant piece of our revenue but I think if we just look at -- I think the auto manufacturers are down to 6%, 7% overall in first quarter sales so it hasn't been quite as robust on the auto side as it has been in the past. But overall it's a mix out there of pluses and minuses and I'm not going to individually comment on.

And if you look it on a geographic basis, does it make much difference where it is in the U.S., where your radios operate or where the billboards operate for some of the advertising or is it sporadic, or is it anything broader than that?

No, it's really different down to the individual cities. Some areas, we're clearly benefiting by travel and tourism and home building improvements and again, if you kind of watch what's happening, if you take a step back and always remember what our job is and what we fundamentally do as a company, is we connect, we rent our relationships with our consumers to advertisers. Think about it. It's that simple. So if you look at things like travel and tourism and home building and things like computers and I mentioned the media industry and things like the gambling industry and if you think about places in the U.S. geography that benefit or are stronger in those industries, you could probably come up with your own theory or your own ideas as to where across the country where we were stronger based on those categories.

And could you maybe rank some of the biggest categories. Is auto one of your top 3, top 5 advertisers because we get a lot of questions about the auto softness at this point?

Yes, with auto, the automobile companies continue to be great partners for us and I'm not going to put them in top 3, top 5 but I'm going to say, you can judge or you can surmise that auto is a very important category for us in advertising revenue.

And finally, I want to ask this as gently as possible. A lot of investors that I've spoken with have followed iHeart for many, many years have looked and said this management team has managed well in a tough industry but expenses jumped up pretty significantly this past quarter. How did that happen when you are in the stage where you're looking to do something different with your balance sheet and as you say, facing some headwinds. So a management team that has consistently done well managing expenses which is a thing you can control and you seem to be way out of trend this time. So what would you say to that?

Yes, you can ask the question gently or not gently quite frankly and I'm fine, however you want to ask it. We've done and over the years, whether it's been Bob and myself and the team here, whether it's been here at iHeart or previous companies that the 2 of us have run, never look at one quarter or any specific quarter and I've said that since the day I've been here. This quarter, we happen to have a mix of trade and barter costs. We happen to have a mix of investments that we've made in terms of timing and our talent and new contracts. I mentioned I think on the call we just did a new deal with Elvis, but we've got a number of talent contracts that we renewed in the first quarter this year. We're investing in things like I said in terms of programmatic, a number of other sales initiatives that we've invested in. I talked, I think I don't have to repeat myself but I talked about SmartAudio earlier on the iHeart side.

But one thing I can assure you and you can take my word for it and you can ask our 20,000 employees in the company because I think everyone would say, we are aggressively managing both expenses, capital expenditures, cash and to balance with the revenue that we see coming in. And revenue was, in all honesty, the advertising environment was softer just to be transparent than we thought it was going be going into the quarter and so we're taking steps to look at our cost base and to balance it out against the revenue environment that we're in.

Just to follow on that, will some of the expenses reverse themselves in the second quarter or is most of it somewhat of a higher base?

I'm not going to comment on anything other than I think -- the benefit about being -- I always kid our team, the benefit about being old and being around a longtime in this business is you can look at credibility and look at track history. And so I wouldn't look at one quarter or 2 quarters or any individual quarters as a sign of anything other than what I've said before about the investments in the business, the mix of the revenue, I'm a little surprised by the softness that we saw in the advertising environment and you balance that with our aggressive management of our cost base against the revenues that we see coming in, working capital and capital expenditures and I think we've done that for years and years.

Our next question comes from the line of David Farber, Credit Suisse.

A number of my questions have already been asked. But I guess I wanted to touch base on the cash balance since a lot of the operational stuff has been asked. This could be maybe a question for Brian but I'd be curious to hear how you guys feel you're navigating the cash needs and what you're doing to improve liquidity perhaps given the '17 receivables maturity. How do you weigh cash burn versus the desire perhaps to find a working deal with creditors and then I have one follow up.

Sure, I'll try to respond to the question, David, and if I get off-track let me know. But I think with respect to how we manage liquidity, the focus is first and foremost on continuing to focus on operations and that's like everybody else in the company other than me and the treasury team. With respect to what we can do in finance and treasury, we've disclosed and talked about the need to refinance or extend the ABL. We are in a period of time where other things are going on and so we have to take the sequencing of that transaction within the context of everything else that's going on. We have additional disclosure about managing CapEx and other spending, Rich has addressed some of those things. But most significantly is the company's proactive steps that we've taken to address our capital structure and we can't go into a lot of detail but the information is out there. We have worked quite diligently to put forth offers, generate dialogue and we hope to continue to do the things that we need to do to address the capital structure. Because at the end of the day, the focus on operations, addressing our significant debt levels and cash interest expense and ensuring that we have liquidity to fuel the business are our top priorities.

Okay, I just want to tackle this SG&A investment again. It sounds like you guys are not giving a tremendous amount of color around how we should think about the balance of the year or just if it will continue. But I guess maybe said a different way, would you be willing to help us understand if there was investment made in this, do you expect a return on this? Given the amount of time you've managed the business, I'm curious if there's any examples, or perhaps more color you could give us on what types of investments they are and how we should be thinking about them perhaps as a return component to it? Any additional color around understanding the SG&A would be great. And that's it from me.

Yes, it's Rich. I'll start and Brian can add anything. Again, I think I have covered this a couple different times. Let me start by first saying we always expect a return on every dollar we put out in this company. So fundamentally, we're about numbers and data and bottom line results. Secondly, just to be clear, this is something I've said also a couple different times is we're not managing the company for one quarter. And I think if you go back over the last number of years, I don't think anybody would accuse us in terms of being wallflowers about managing expenses and at the same time, we've significantly outperformed, as I said whether it's the radio industry or the other traditional media companies and quite frankly if you look at our margins compared to most of those companies, we've significantly outperformed those.

The third thing I'd say is just again and hopefully in terms of color and being transparent, I talked about and we've talked about in the earnings release and I talked about this morning in my remarks that the mix of revenue this quarter with trade and barter and then you add to that the investments that we made, with things like SmartAudio and programmatic and other sales initiatives, which we have to make in terms of continuing to evolve the business in terms of where the industry is going, and then you couple that with a softer advertising market than we all thought we were going to have, and again just look to the other companies that announced, we significantly outperformed. I think most of the other companies that announced the last couple of days are actually down significantly in revenues, organic revenues on a year-over-year basis. But I can assure you that we are active, proactively managing expense base to take into account what the real revenue growth is.

Our last question is from Aaron Watts, Deutsche Bank.

I just have 3 quick ones. I guess, Rich, just curious if you can clarify how much of the drag on radio pacings for 2Q is specifically due to the timing of the Awards Show, or how much of it is?

Yes, it's a good question but I don't think it's significant. The thing again I'd emphasize with pacings, I can't emphasize this enough is the -- -- I don't know if volatility is too strong a word, but the week-to-week change -- I mean, you guys, I know you'd like to see the week-to-week pacings but the week-to-week pacing change in this business is probably more dramatic than you think and I think it's probably for all the advertising industry and all the advertising businesses. The placement of advertising just is getting closer and closer to the air date and as I said, I'm a broken record on this, but pacings quite frankly to me is much less of an indicator as to what's really happening in the business, less than it has ever been in the 30 some odd years that I've been involved in media businesses.

And then maybe on that note just bigger picture, are you getting any sense from your advertisers on having -- are they sitting on their dollars or are they putting those dollars to work in other media and that's causing the softness for you specifically?

I think advertisers, I think there's a lot of things happening in the advertising world. I mean you saw, we all saw the Google numbers they came out a week or so ago, Facebook released their numbers last night obviously, they've had very strong revenue growth out there. And as I said, we continue to significantly outperform both the radio industry and the traditional media companies from a revenue standpoint. So I don't think that -- but the advertising market, having said that, is soft. It was softer than we thought it was going to be. And I think you're hearing -- look at all the data that's out there that's coming out on consumers, that's coming out on consumer spending and the numbers are -- the economy has been weak and softer and I think in the data that has come out in the last week or so, we all see the same stuff.

Really, I'm not going to speculate whether people are sitting on more dollars or there's allocation of more that's going on to the big digital players out there. But I think we're really proud of our team, our management team both at iHeart and the U.S. Outdoor and the International Outdoor business for the market share that we've been able to take with the dollars available. Having said that, we are still wildly, wildly undermonetized compared to the share of audience that we have, whether that's on the radio or the outdoor side and our job is to close that gap and that's what Bob, myself and the rest of the management team, that's what we're doing, I assure you, 24 by 7, is trying to close that revenue gap and again, manage the expense base with what the revenues are going to be.

Last one for me and I appreciate again the time. I recognize it's early days but can you talk about your initial experience in terms of the uptake of your enhanced or subscription offerings on the app and is there any realistic target we should think about in terms of percentage of your registered users you think you can get to ante up the premium offerings?

Yes, I mean, look, I'm not going to give any specifics on that. I mean we're really pleased about, you're referring to iHeartRadio Plus and iHeartRadio All Access, all on-demand services. I think the way to think about it is just a great example of our how we can get additional products and value for our listeners while also introducing new revenue streams. The revenue streams are not significant, the service has only been recently launched and clearly the adoption of the service is in line with our expectations that's out there. I'd say the financial impact is immaterial. But again, it's just another great example of our team here, the ability to launch that product, our relationship with the radio industry, sorry, the music industry has been great partners to us to make the services available out there to our listeners. And so far, everything has been in line with expectations and the reception has been great.

Operator, we're going to conclude the call for today. Thank you everyone for joining us. As you know, Brian and I will be available to take any calls over the next few days that you may have. Again, thank you again. Have a good day.

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