iHeartMedia, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended June 30, 2016. The filing covers iHeartMedia’s iHM media and entertainment, Americas outdoor advertising, International outdoor advertising, Other and Corporate activities. Results are unaudited and seasonal.
Financial performance and liquidity
| Metric | Three months ended June 30, 2016 | Three months ended June 30, 2015 | Six months ended June 30, 2016 | Six months ended June 30, 2015 |
|---|---|---|---|---|
| Revenue | $1.619 billion | $1.600 billion | $2.982 billion | $2.944 billion |
| Operating income | $252.7 million | $412.2 million | $673.4 million | $505.3 million |
| Operating margin | 15.6% | 25.8% | 22.6% | 17.2% |
| Net loss attributable to iHeartMedia | $278.9 million | $54.5 million | $367.4 million | $439.4 million |
| Basic loss per share | $3.30 | $0.65 | $4.35 | $5.22 |
| Cash used in operating activities | Not separately provided | Not separately provided | $181.7 million | $239.6 million |
Second-quarter revenue increased 1.2%; excluding foreign exchange effects, management reported a 1.6% increase. Six-month revenue increased 1.3%, or 2.0% excluding foreign exchange. Operating income declined in the quarter primarily because 2015 included significant gains from asset sales, while six-month operating income benefited from the $280.0 million gain on the sale of nine non-strategic Americas outdoor markets.
Interest expense was $466.0 million in the second quarter and $929.9 million for the six months, up from $453.0 million and $894.7 million, respectively. Other expense was $34.0 million for the quarter and $39.7 million for the six months, primarily reflecting foreign-exchange losses on intercompany notes. Effective tax rates were negative 10.9% for the quarter and negative 12.3% for the six months, largely due to valuation allowances on deferred tax assets.
Cash and cash equivalents were $951.9 million at June 30, 2016, including $439.5 million held by CCOH and $156.5 million held outside the United States. Net cash increased $179.2 million during the first six months, primarily because of $595.8 million of asset-disposal proceeds. Capital expenditures were $123.7 million.
Total debt was $20.785 billion, compared with $20.721 billion at December 31, 2015; net debt was approximately $19.833 billion. The weighted-average interest rate was 8.5%, and approximately 31% of principal debt carried floating interest rates. The receivables-based credit facility had $160.5 million of excess availability at June 30, 2016, subject to financing-agreement limitations.
Segment results and material changes
- iHM: Revenue increased 3.2% to $867.9 million in the quarter and 4.4% to $1.607 billion for the six months. Operating income increased 3.6% and 7.3%, respectively, supported by broadcast and digital advertising, events, traffic and weather services, political advertising and syndication.
- Americas outdoor: Revenue declined 4.6% in both the quarter and six months, mainly because nine non-strategic U.S. markets were sold. Operating income decreased 3.6% in the quarter and 2.8% for the six months. Digital billboard deployments, airport contracts and higher occupancy partly offset the divestitures.
- International outdoor: Quarterly revenue increased 1.3% and operating income increased 4.5%. Six-month revenue decreased 0.8% because of foreign exchange, while operating income increased 21.0%. Growth in Australia, France and China partly offset weakness in the U.K. and Switzerland.
- In the first quarter, the Company sold nine Americas outdoor markets for approximately $594.0 million of proceeds and recognized a $280.0 million gain. In the second quarter, it sold its Turkey outdoor business and recognized a $56.6 million loss, including $32.2 million of cumulative translation adjustments.
- Corporate expenses increased 9.2% in the quarter and 5.0% for the six months, driven by variable compensation, employee benefits, professional fees and debt-related litigation costs.
- Strategic revenue and efficiency costs were $6.9 million in the quarter and $13.5 million for the six months, compared with $7.0 million and $17.1 million in the comparable 2015 periods.
Outlook, risks and unusual items
Management stated that cash on hand, operating cash flow, available borrowing capacity and additional liquidity-generating transactions are expected to fund requirements for at least the next 12 months. This conclusion depends on assumptions including no material adverse business or liquidity developments and the timely completion of additional transactions. The Company acknowledged that it must continue improving operating performance, refinancing debt and generating liquidity to service its obligations.
- Debt maturities were expected to total $199.2 million in 2016, $244.0 million in 2017 and $943.3 million in 2018. Expected 2016 cash interest obligations were approximately $1.8 billion.
- The Company was in compliance with its financing covenants at June 30, 2016. The senior secured net debt-to-EBITDA ratio was 6.6:1 versus a maximum permitted ratio of 8.75:1. Breach could trigger defaults, acceleration, cross-defaults and loss of borrowing capacity.
- On July 15, 2016, after quarter-end, Broader Media repurchased approximately $383.0 million principal amount of 10.0% iHeartCommunications notes due 2018 for approximately $222.2 million. The transaction reduced consolidated 2018 maturities and annual cash interest obligations by approximately $38.3 million.
- The Company continued to rely on asset sales, dividends from CCOH and other liquidity-generating transactions. Such actions may reduce assets or future cash flow and could increase interest obligations.
- Material litigation includes disputes with holders of senior secured debt regarding alleged covenant breaches and debt repurchases, a CCOH stockholder derivative action, and competition-authority investigations involving International outdoor operations.
- Brexit was identified as a risk because International outdoor is headquartered in the U.K. and operates across Europe; potential currency weakness, economic uncertainty and reduced advertising spending could adversely affect results.
- Advertising revenue is sensitive to GDP, economic conditions, competition, technology, consumer demographics and foreign exchange. Seasonality makes interim results not necessarily indicative of full-year performance.
- Management’s disclosure controls and procedures were evaluated as effective as of June 30, 2016, with no reported material changes in internal control over financial reporting.
Investor verification points
- Verify the Company’s ability to refinance or otherwise fund substantial debt maturities and approximately $1.8 billion of expected 2016 cash interest obligations.
- Assess whether operating cash flow can improve from the reported $181.7 million use during the first six months and reduce reliance on asset sales, CCOH dividends and other liquidity transactions.
- Evaluate the sustainability of iHM growth and whether digital advertising and outdoor-market performance can offset divestitures, currency pressure and weaker international markets.
- Monitor compliance with debt covenants, including the 6.6:1 secured net debt-to-EBITDA ratio, and the effect of pending creditor litigation.
- Confirm the accounting and liquidity effects of the July 2016 repurchase of approximately $383.0 million of 2018 notes.
- Review the potential financial impact of the CCOH stockholder litigation, international competition investigation, Brexit-related risks and other contingencies; the filing does not provide a clear quantified maximum exposure.