iHeartMedia, Inc. 2017 Q3 Form 10-Q Summary
Business context and reporting period
iHeartMedia, Inc. reported results for the three and nine months ended September 30, 2017. Its reportable segments were iHeartMedia (broadcast, digital, events and syndication), Americas outdoor advertising, and International outdoor advertising. Results are seasonal and may not indicate full-year performance.
Key financial metrics
| Metric | Q3 2017 | Q3 2016 | 9M 2017 | 9M 2016 |
|---|---|---|---|---|
| Revenue | $1.537 billion | $1.567 billion | $4.457 billion | $4.543 billion |
| Operating income | $228.3 million | $299.4 million | $653.0 million | $972.8 million |
| Operating margin | 14.8% | 19.1% | 14.7% | 21.4% |
| Net loss attributable to the Company | $248.2 million | $35.0 million | $810.4 million | $402.4 million |
| Loss per diluted share | $2.92 | $0.41 | $9.55 | $4.76 |
| Cash flow from operations | Not separately presented | Not separately presented | $(558.7) million | $(272.6) million |
- Q3 operating expenses increased despite lower revenue: direct operating expenses rose 5.1% and SG&A rose 4.0%. Corporate expense declined 10.2% and depreciation and amortization declined 5.5%.
- Interest expense was $470.3 million in Q3 and $1.389 billion for the first nine months. Cash interest paid was $1.426 billion during the first nine months.
- Total debt was $20.615 billion at September 30, 2017, compared with $20.365 billion at December 31, 2016. Net debt was approximately $20.329 billion.
- Cash and cash equivalents were $286.4 million, down from $845.0 million at year-end 2016. Receivables-based credit facility availability was $85.0 million after $365.0 million of borrowings and $49.1 million of letters of credit.
- Total assets were $12.257 billion and stockholders’ deficit was $11.678 billion at September 30, 2017.
Material changes versus the prior comparable period
- Consolidated revenue decreased 1.9% in both the quarter and nine-month period. Excluding foreign exchange, management reported declines of $39.4 million for Q3 and $67.6 million for the nine-month period.
- iHeartMedia revenue increased 0.3% in Q3 and 1.5% for the nine-month period, but operating income declined 16.8% and 14.0%, respectively, as content, programming, talent, trade and barter, and sales-related costs increased.
- Americas outdoor revenue declined 2.0% in Q3 and 1.2% for the nine-month period; operating income declined 6.4% and 5.9%, respectively.
- International outdoor revenue declined 5.1% in Q3 and 9.0% for the nine-month period; operating income declined 59.4% and 36.8%, respectively. The comparisons were affected by the 2016 sales of the Australia and Turkey businesses and the 2017 sale of the Canadian joint venture.
- Operating income declined 23.7% in Q3 and 32.9% for the nine-month period. The prior-year nine-month period benefited from $219.8 million of other operating income, primarily from asset sales, and a $157.6 million gain on extinguishment of debt.
- Q3 2017 included a $12.1 million loss on the sale of a Canadian joint venture, including a $6.3 million cumulative foreign-currency translation adjustment. The company also recorded $7.6 million of impairment charges.
- Operating cash outflow increased to $558.7 million from $272.6 million, primarily due to lower operating income and working-capital changes, including slower accounts-receivable collections.
Guidance, outlook, risks and unusual items
- Management stated that it expects continued net losses and negative operating cash flow because of the company’s substantial debt and related interest expense.
- Management determined that substantial doubt existed regarding the company’s ability to continue as a going concern for the 12 months following November 8, 2017.
- After October 2017 debt exchanges, near-term obligations included $365.0 million under the receivables-based credit facility due December 24, 2017, $51.5 million of 10% Senior Notes due January 15, 2018, $175.0 million of 6.875% Senior Notes due June 15, 2018, and $24.8 million of contractual AHYDO catch-up payments due in 2018.
- The company forecast approximately $1.8 billion of cash interest payments over the next 12 months, including $344.6 million in the fourth quarter of 2017 and $548.2 million in the first quarter of 2018.
- Notes exchange offers and term-loan offers launched in March 2017 remained open as of November 8, 2017, but were subject to revision and might not be completed. The company was also negotiating to refinance the receivables-based credit facility.
- If refinancing, exchanges, cost reductions or other liquidity actions are unsuccessful, the company stated it could be forced to reduce or delay activities, sell assets, seek additional capital or file for bankruptcy protection.
- The $1.051 billion intercompany note payable to Clear Channel Outdoor Holdings was payable on demand and subject to potential demands by CCOH or its intercompany note committee. A full demand could require approximately $110.4 million to be paid to CCOH’s public stockholders.
- Approximately 32% of aggregate principal debt carried floating interest rates. A 50% change in LIBOR was estimated to change nine-month interest expense by $26.2 million.
- The company remained exposed to advertising-cycle, economic, foreign-exchange, interest-rate, regulatory, litigation, covenant-compliance and refinancing risks. The Delaware Supreme Court affirmed dismissal of the CCOH stockholder derivative litigation on October 12, 2017, while an international outdoor advertising investigation remained ongoing.
- Disclosure controls and procedures were reported effective as of September 30, 2017, with no material changes to internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether the receivables-based credit facility was refinanced before its December 24, 2017 maturity.
- Whether the notes exchange offers and term-loan offers closed and produced sufficient principal reductions and interest savings.
- Actual cash balances, operating cash flow and cash interest requirements following the filing date.
- Compliance with debt covenants, including the senior secured net-debt-to-EBITDA covenant and the requirement for an unqualified going-concern audit opinion.
- Whether the intercompany note was extended or demanded and the resulting effect on liquidity and CCOH dividend obligations.
- Changes in iHeartMedia advertising revenue, digital growth, content costs and the performance of the outdoor advertising segments.
- Potential additional impairment charges, litigation or regulatory outcomes, and the company’s ability to remain a going concern.