iHeartMedia, Inc. 2020 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2020. iHeartMedia operates two segments: Audio, including broadcast radio, digital audio, podcasting, networks and events; and Audio & Media Services, including Katz Media and RCS. The Company owned and operated 858 U.S. radio stations and reported approximately 10,200 employees as of February 2021.
Comparability is limited because iHeartMedia emerged from Chapter 11 on May 1, 2019, separated its former outdoor business, and adopted fresh-start accounting. The 2020 Successor results are not directly comparable with Predecessor results before emergence. Management presents a non-GAAP combined 2019 comparison for operating trends.
Financial performance and key metrics
| Metric | 2020 | Combined 2019 | Change |
|---|---|---|---|
| Revenue | $2,948.2 million | $3,683.5 million | Down 20.0% |
| Operating income (loss) | $(1,737.6) million | $506.7 million | Declined to loss |
| Net income (loss) attributable to Company | $(1,914.7) million | $11,296.7 million | Declined to loss |
| Adjusted EBITDA | $538.7 million | $1,000.7 million | Down 46.2% |
| Operating cash flow from continuing operations | $215.9 million | $461.4 million | Down 53.2% |
| Free cash flow from continuing operations | $130.7 million | $349.2 million | Down 62.6% |
Operating margin was approximately (58.9)%, versus approximately 13.8% on combined 2019 operating income. Adjusted EBITDA margin was approximately 18.3%, versus 27.2% in 2019. The reported net loss was driven primarily by $1.7 billion of non-cash impairment charges, including $1.2 billion for goodwill and $502.7 million for FCC licenses.
| Revenue stream | 2020 | Change versus combined 2019 |
|---|---|---|
| Broadcast radio | $1,604.9 million | Down 28.1% |
| Digital | $474.4 million | Up 26.1% |
| Networks | $485.0 million | Down 21.1% |
| Sponsorship and events | $107.7 million | Down 48.6% |
| Audio & Media Services | $274.7 million | Up 16.1% |
Podcasting revenue was approximately $101 million, up 90.6% from the prior year. Digital growth and political advertising partially offset declines in broadcast radio, networks and events. Political revenue benefited from the 2020 presidential election cycle.
Liquidity, debt and cash flow
- Cash and cash equivalents were $720.7 million at December 31, 2020, compared with $400.3 million at December 31, 2019.
- Total debt was $6.017 billion, and net debt was $5.296 billion after cash. Secured debt was $4.601 billion and unsecured debt was $1.457 billion, before debt discounts and fees.
- The $450 million ABL facility had no principal outstanding, $32.9 million of letters of credit, and approximately $172 million of availability after contractual restrictions. Management reported total available liquidity of approximately $893 million.
- 2020 financing activities included $450 million of incremental term loans, producing $425.8 million of net proceeds. The proceeds helped repay the remaining ABL balance and provided approximately $190.6 million for general corporate purposes.
- The Company paid $357.2 million of cash interest in 2020 and expects approximately $335 million of cash interest payments in 2021.
- Capital expenditures were $85.2 million, down from $112.2 million on a combined 2019 basis. Cash used for acquisitions was $62.1 million, including the $50 million Voxnest acquisition.
Material changes versus the prior comparable period
- COVID-19 caused a sharp reduction in advertiser spending beginning in March 2020. Revenue declined in every quarter year over year, although sequential improvement occurred after the second quarter.
- Broadcast radio revenue fell $628.4 million, while sponsorship and events revenue fell $101.9 million because of canceled or virtual events.
- Digital revenue increased $98.2 million, reflecting podcasting and other digital growth. Audio & Media Services revenue increased $38.1 million, primarily from political revenue.
- Management achieved approximately $250 million of total cost savings in 2020, including approximately $50 million from modernization initiatives and approximately $200 million from COVID-related reductions. Annualized modernization savings were expected to reach approximately $100 million by mid-2021.
- The Company prepaid $150 million of term debt in February 2020 and reduced the applicable term-loan interest rate. It subsequently issued incremental term loans in July 2020.
- Goodwill and FCC-license balances declined by approximately $1.2 billion and $507.4 million, respectively, primarily because of impairment charges.
Guidance, outlook, risks and unusual items
The Company withdrew its previously issued 2020 financial guidance on March 26, 2020 because of COVID-19 uncertainty. It did not provide clear formal 2021 financial guidance in the filing. Management stated that COVID-19 was expected to continue negatively affecting operations, cash flows and financial position, but believed available cash, operating cash flow and ABL availability were sufficient to fund operations and obligations for at least the next 12 months.
- Key risks include continued weakness in advertising, economic recession, competition from streaming, podcasting and other digital platforms, loss of key talent, execution of restructuring initiatives, cybersecurity and privacy compliance, FCC regulation, music royalties, litigation and future impairment charges.
- Approximately 43% of aggregate principal debt carried floating interest rates, creating exposure to LIBOR and other benchmark-rate changes.
- The Company has substantial contractual obligations, including $6.1 billion of future debt maturities, $2.1 billion of projected interest payments, $1.3 billion of operating lease commitments and $262.3 million of employment and talent contracts.
- Music royalty rates for digital services and future regulatory or litigation outcomes involving ASCAP, BMI, SoundExchange and other rights holders could increase expenses.
- The FCC authorized aggregate foreign ownership of up to 100%, subject to conditions. On January 8, 2021, 67.5 million Special Warrants were exchanged for approximately 45.1 million Class A shares and 22.3 million Class B shares, substantially increasing potential dilution and shares outstanding.
- In the first quarter of 2021, the Company agreed to acquire Triton Digital for $230 million in cash, subject to customary closing conditions and regulatory approval.
- The Company adopted a short-term stockholder rights plan in May 2020, expiring May 5, 2021 unless terminated earlier.
Most important facts for investors to verify
- Whether advertising demand and broadcast-radio revenue recover sufficiently to offset continued competition and pandemic-related weakness.
- Actual 2021 operating cash flow, free cash flow and cash interest coverage relative to approximately $335 million of expected cash interest.
- Remaining borrowing capacity under the ABL facility after contractual restrictions and any changes to debt covenants.
- Debt maturities, refinancing requirements and exposure to floating rates or the transition away from LIBOR.
- Potential further impairment of goodwill, FCC licenses or other intangible assets if recovery assumptions deteriorate.
- The closing, financing and regulatory status of the Triton Digital acquisition and the integration of Voxnest.
- Fully diluted share count after the January 2021 Special Warrant exchange and future warrant or Class B share conversions.
- Pending royalty disputes, FCC license renewals, foreign-ownership compliance, tax matters and other legal contingencies.