iHeartMedia, Inc. — Form 10-Q Summary
Business context and reporting period
This filing covers the quarter and six months ended June 30, 2017. iHeartMedia operates through iHeartMedia, Americas outdoor advertising, International outdoor advertising and related businesses. The iHeartMedia segment provides broadcast, digital, syndication and event services; outdoor segments sell traditional and digital advertising displays.
Financial performance and liquidity
| Metric | Three months ended June 30 | Six months ended June 30 |
|---|---|---|
| Revenue | $1.590 billion, down 1.5% | $2.920 billion, down 1.9% |
| Operating income | $310.7 million; 19.5% margin | $424.7 million; 14.5% margin |
| Net loss attributable to Company | $174.0 million; $(2.05) per share | $562.3 million; $(6.63) per share |
| Cash flow from operating activities | Not separately presented for the quarter | $(454.4) million |
| Capital expenditures | Not separately presented in the cash-flow statement | $136.6 million |
| Cash and equivalents | $260.5 million at June 30, 2017 | |
| Total debt | $20.381 billion at June 30, 2017 |
Interest expense was $463.2 million in the second quarter and $918.5 million for the first six months. Cash interest paid was $876.0 million for the six-month period. Net debt was approximately $20.120 billion at June 30, compared with $19.520 billion at December 31, 2016, primarily reflecting the decline in cash.
At June 30, the receivables-based credit facility had $305.0 million outstanding, $42.3 million of letters of credit and $144.1 million of reported excess availability. On July 31, 2017, the Company borrowed an additional $60.0 million, bringing borrowings under the facility to $365.0 million.
Material changes versus the prior comparable period
- Second-quarter revenue declined $24.1 million, while revenue for the first six months declined $56.6 million. Excluding foreign exchange effects, management reported declines of $8.6 million and $28.3 million, respectively.
- iHeartMedia revenue increased 1.9% in the quarter and 2.2% for the six months, but operating income declined 7.2% and 12.1%, respectively, as content, programming, trade-and-barter, digital sales and other expenses increased.
- International outdoor revenue declined 8.9% in the quarter and 10.9% for the six months, principally because of 2016 sales of the Australia and Turkey businesses. International outdoor operating income declined 9.2% and 25.9%, respectively.
- Americas outdoor revenue declined modestly, and operating income decreased 1.7% in the quarter and 5.6% for the six months.
- Operating income increased 22.9% in the quarter but declined 36.9% for the six months. The prior-year six-month result included substantially larger gains from outdoor asset sales.
- Other operating income included a $28.9 million gain from the Indianapolis outdoor-market transaction in the first quarter and a $6.8 million gain on the sale of a Belgian joint-venture interest in the second quarter.
- Operating cash use increased from $181.7 million in the first six months of 2016 to $454.4 million in 2017. Investing cash flow shifted from $436.9 million provided in 2016, largely from asset-sale proceeds, to $81.3 million used in 2017.
Guidance, outlook, risks and unusual items
The filing does not provide formal revenue or earnings guidance. Management forecasts continued net losses and negative operating cash flow because of the Company’s debt burden and interest expense.
Management determined that substantial doubt exists regarding the Company’s ability to continue as a going concern for the 12-month period following August 3, 2017. The principal near-term obligations include approximately $365.0 million under the receivables-based credit facility maturing December 24, 2017, $96.5 million of 10% senior notes due January 15, 2018, and $175.0 million of 6.875% senior notes due June 15, 2018. Forecast cash interest obligations were approximately $549.9 million for the third quarter of 2017, $337.4 million for the fourth quarter, and approximately $1.8 billion over the following 12 months.
Management’s planned mitigations include refinancing or extending the receivables-based facility, completing notes exchange offers and term-loan offers, conserving cash and pursuing other liquidity-generating transactions. The filing states that these actions may not be completed or may not provide sufficient liquidity. If unsuccessful, the Company may need to reduce activities or capital expenditures, sell assets, seek additional capital or file for bankruptcy protection.
The Company reported compliance with its material financing covenants as of June 30, 2017, except for the disclosed non-payment of $57.1 million of legacy notes held by an affiliate. The senior secured debt covenant ratio was 7.5:1 versus a maximum permitted ratio of 8.75:1. A future going-concern qualification in the audit opinion could trigger a financing-covenant default unless waived or amended.
Other notable matters include pending stockholder litigation involving Clear Channel Outdoor Holdings, an ongoing international outdoor-advertising investigation by competition authorities, exposure to floating interest rates on approximately 32% of principal debt, foreign-exchange risk and advertising-market sensitivity to economic conditions.
Investor verification checklist
- Verify the status and final terms of the notes exchange offers, term-loan offers and any amendments to the receivables-based credit facility.
- Track cash balances, operating cash flow and the ability to fund the stated 2017 and 2018 interest and debt maturities.
- Assess whether iHeartMedia revenue growth can offset higher programming, sales, trade-and-barter and other operating costs.
- Review covenant compliance, any waiver requirements related to a going-concern audit opinion, and potential cross-default or acceleration provisions.
- Monitor developments in the Clear Channel stockholder appeal, competition-authority investigation and other litigation or contingencies.
- Consider the effect of asset sales and other unusual gains when comparing operating income across periods.