iHeartMedia, Inc. 10-Q Summary
Business Context and Reporting Period
Results cover the three months ended March 31, 2020. iHeartMedia operates primarily through its Audio segment, including broadcast radio, digital audio, podcasting, networks, sponsorships and events, and through Audio & Media Services, including Katz Media and RCS.
The company emerged from Chapter 11 on May 1, 2019 and adopted fresh start accounting. Accordingly, 2020 Successor results are not fully comparable with 2019 Predecessor results. The Clear Channel Outdoor businesses were separated and are presented as discontinued operations in prior-period information.
Financial Performance and Key Metrics
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $780.6 million | $795.8 million | Down 1.9% |
| Operating income (loss) | $(1,730.8) million | $19.1 million | Declined materially |
| Net loss | $(1,688.7) million | $(135.6) million | Loss increased |
| Adjusted EBITDA | $140.3 million | $157.1 million | Down 10.6% |
| Operating cash flow | $91.5 million | $89.0 million | Continuing-operations cash flow down 33.0% |
| Free cash flow from continuing operations | $69.9 million | $113.7 million | Down 38.6% |
Operating margin was approximately negative 221.7%, primarily due to $1.7 billion of non-cash impairment charges. Adjusted EBITDA margin was approximately 18.0%, compared with 19.7% in the prior-year period.
- Broadcast Radio revenue declined to $461.7 million from $487.2 million, primarily due to lower local and national advertising, partially offset by higher political advertising.
- Digital revenue increased to $92.8 million from $75.9 million, driven by podcasting and other digital services.
- Networks revenue decreased to $134.6 million from $138.2 million.
- Sponsorship and Events revenue declined to $29.3 million from $39.7 million due to event postponements and cancellations.
- Audio & Media Services revenue increased to $60.2 million from $51.4 million, largely reflecting higher political revenue.
Cash Flow, Debt and Liquidity
- Cash and cash equivalents were $646.8 million at March 31, 2020, compared with $400.3 million at December 31, 2019. Cash, cash equivalents and restricted cash totaled $658.1 million.
- Total debt was $5.95 billion, including $5.92 billion of long-term debt and $30.0 million of current maturities. Net debt was approximately $5.31 billion.
- The company drew $350.0 million under its $450.0 million asset-based revolving credit facility as a precautionary measure. After $47.3 million of letters of credit, reported availability was $52.7 million, subject to borrowing-base and other restrictions.
- The company prepaid $150.0 million of its term loan and amended the facility to reduce the applicable interest-rate margin.
- Approximately 42% of aggregate principal debt bore floating interest rates. The weighted-average interest rate was 5.5% at March 31, 2020.
- Capital expenditures were $21.7 million. Cash interest paid was $101.4 million, compared with $103.9 million in the prior-year quarter, although continuing-operations cash interest increased substantially following the post-bankruptcy debt restructuring.
Material Changes Versus the Prior Comparable Period
- Revenue declined modestly overall, but March revenue fell sharply as COVID-19 reduced advertiser spending and disrupted events. January and February had reportedly shown strong growth.
- Direct operating expenses increased 6.6% and SG&A increased 5.9%, partly due to modernization initiatives, severance, podcasting and digital costs, trade and barter expenses, and higher bad debt expense.
- Depreciation and amortization increased 152.7% to $96.8 million, primarily because fresh start accounting increased the recorded values of tangible and intangible assets.
- Interest expense increased by approximately $90.2 million because the company began recognizing interest on debt issued in connection with emergence from bankruptcy; the prior-year period benefited from the suspension of interest accrual on certain pre-petition debt.
- The company recognized $502.7 million of FCC-license impairment and approximately $1.2 billion of goodwill impairment. These charges reduced total assets to $9.31 billion from $11.02 billion at year-end 2019.
- Stockholders’ equity declined to $1.26 billion from $2.95 billion, primarily because of the first-quarter net loss.
Guidance, Outlook, Risks and Unusual Items
- The company withdrew its previously issued 2020 financial guidance on March 26, 2020 because of uncertainty related to COVID-19 and advertiser spending.
- Management expects COVID-19 to negatively affect revenue, operating results, cash flows and financial position, but stated that the financial impact could not yet be reasonably estimated.
- Management implemented expense and cash-preservation measures, including hiring, travel, consulting and discretionary-spending reductions, lower planned capital expenditures, compensation reductions, employee furloughs and expected reductions in variable expenses.
- Management projected approximately $86 million of cash interest payments in the second quarter of 2020 and approximately $258 million during the remainder of 2020. It expected 2020 cash income-tax payments to be insignificant and anticipated deferring certain employment taxes.
- Management stated that available cash and expected operating cash flow should fund operations, capital expenditures, obligations and interest payments for at least the next 12 months. This assessment depends on the duration and severity of the pandemic, advertising recovery and access to financing.
- Further material impairment charges remain possible if economic conditions, advertising demand, forecast cash flows or valuation assumptions deteriorate.
- The FCC had not ruled on the company’s petition seeking permission for foreign ownership and voting rights above applicable limits. The public-comment period closed March 26, 2020, and the matter was referred to Team Telecom.
- Legal proceedings arise in the ordinary course, including commercial, defamation, employment, intellectual-property, regulatory and tax matters; the filing states that outcomes could materially affect results.
- After quarter-end, the board adopted a short-term stockholder rights plan, generally triggered by an acquisition of 10% or more of Class A common stock, subject to specified exceptions.
Important Facts for Investors to Verify
- Whether advertising demand and revenue trends deteriorated further after March 31, 2020 and the pace of recovery in broadcast, digital and events.
- Actual cash burn, cost savings, capital-expenditure reductions and compliance with the ABL Facility borrowing base and availability requirements.
- Debt maturities, interest obligations, covenant amendments and the company’s ability to refinance or raise additional capital.
- Potential additional FCC-license, goodwill or other asset impairments.
- Status and outcome of the FCC foreign-ownership petition and related Team Telecom review.
- Whether the company’s liquidity assessment remains valid under prolonged COVID-19 disruption and reduced advertiser spending.
- The effect of fresh start accounting and discontinued operations when comparing 2020 results with 2019 or later periods.