iHeartMedia, Inc. — Form 10-Q Summary
Reporting period: Three and nine months ended September 30, 2016, compared with the corresponding 2015 periods. The company operates iHeartMedia, Americas outdoor advertising, and International outdoor advertising segments. Interim results are subject to seasonality and may not indicate full-year performance.
Financial performance and key metrics
| Metric | Q3 2016 | Q3 2015 | 9M 2016 | 9M 2015 |
|---|---|---|---|---|
| Revenue | $1.570 billion | $1.580 billion | $4.552 billion | $4.524 billion |
| Operating income | $299.4 million | $267.1 million | $972.8 million | $772.5 million |
| Operating margin | 19.1% | 16.9% | 21.4% | 17.1% |
| Net loss attributable to company | $35.0 million | $221.9 million | $402.4 million | $661.3 million |
| Loss per diluted share | $0.41 | $2.63 | $4.76 | $7.85 |
| Cash flow from operations | Not separately provided | Not separately provided | $(272.6) million | $(363.1) million |
| Capital expenditures | $77.3 million | $67.6 million | $201.0 million | $192.5 million |
Operating income improved despite modest revenue pressure, primarily because of lower direct operating expenses, reduced depreciation and amortization, and lower impairment charges. Net loss improved substantially, aided by a $157.6 million gain on extinguishment of debt.
- Segment revenue: Q3 iHM revenue rose 1.2% to $857.1 million; Americas outdoor revenue fell 7.0% to $323.0 million; International outdoor revenue increased 0.3% to $350.1 million.
- Segment operating income: Q3 iHM increased 14.0% to $298.1 million; Americas outdoor declined 11.7% to $78.3 million; International outdoor increased 70.6% to $18.3 million.
- Balance sheet: Cash was $542.9 million at September 30, 2016, down from $772.7 million at December 31, 2015. Total debt was $20.454 billion, compared with $20.721 billion at year-end 2015. Shareholders’ deficit was $11.0 billion.
- Liquidity: The receivables-based credit facility had $422.6 million of borrowing-base capacity, $230.0 million outstanding, and $44.1 million of letters of credit, leaving reported excess availability of $148.5 million.
- Interest burden: Cash interest paid was $1.434 billion for the first nine months, compared with $1.364 billion in 2015. Management anticipated approximately $1.8 billion of cash interest payments for full-year 2016.
Material changes versus the prior comparable period
- Q3 revenue decreased 0.6%, while nine-month revenue increased 0.6%. Excluding foreign exchange effects, management reported a $3.2 million Q3 decline and a $55.8 million nine-month increase.
- iHM benefited from higher political advertising during the presidential election year, digital and broadcast advertising growth, events, and network and syndication businesses. Contract renegotiations reduced iHM direct operating expenses by approximately $33.8 million.
- Americas outdoor results were adversely affected by the sale of nine non-strategic U.S. markets, which reduced nine-month revenue by approximately $74.8 million versus 2015.
- International outdoor revenue was affected by the loss of the London bus contract, the Turkey disposition, foreign exchange, and growth from digital assets and new contracts in other countries.
- Q3 operating expenses declined, including a 5.0% reduction in direct operating expenses and a 4.7% reduction in depreciation and amortization. Corporate expenses increased 16.1% in Q3 and 8.5% for the nine-month period.
- Impairment charges declined to $8.0 million from $21.6 million. The 2016 charges primarily related to goodwill in one International outdoor market and $0.7 million of FCC license impairment.
- The company repurchased approximately $383.0 million principal amount of 10.0% senior notes due 2018 for approximately $222.2 million, reducing annual cash interest obligations by approximately $38.3 million and generating the $157.6 million debt extinguishment gain.
Outlook, liquidity, risks and unusual items
- Management stated that cash on hand, operating cash flow, available borrowing capacity, and other liquidity-generating transactions were expected to fund requirements for at least the next 12 months, subject to significant assumptions and continued access to liquidity-generating transactions.
- The company continued to explore asset sales, asset monetizations, debt financing, and potential capital-structure transactions. Management cautioned that these transactions might not occur on acceptable terms or at all.
- Debt maturities were reported at $196.8 million in 2016, $244.5 million in 2017, and $564.3 million in 2018. The company warned that insufficient operating cash flow, refinancing, or asset-sale proceeds could create substantial liquidity problems, defaults, or acceleration of debt.
- The company was in compliance with its material debt covenants at September 30, 2016. Its secured net debt-to-consolidated EBITDA ratio was 6.6:1 versus an 8.75:1 maximum.
- Approximately 32% of aggregate principal debt bore floating interest rates. A 100% change in LIBOR was estimated to change nine-month interest expense by approximately $22.9 million.
- On October 4, 2016, after quarter-end, iHeartCommunications obtained consent to increase permitted Credit Facility indebtedness under the 2021 Notes indenture by $500 million to $17.3 billion, paying an $8.6 million consent fee.
- On October 24, 2016, after quarter-end, the company sold its Australia Outdoor business for $203.9 million in cash proceeds.
- Legal matters include noteholder litigation concerning debt covenants and repurchases, a CCOH stockholder derivative action, and an ongoing international outdoor advertising competition investigation. The filing states that litigation outcomes could materially affect results.
- Other unusual items included a $14.5 million Q3 loss on a cost-method investment, a $278.3 million gain on sales of nine Americas outdoor markets, and a $56.6 million loss on the Turkey disposition.
Most important facts for investors to verify
- Whether operating cash flow can improve sufficiently to cover approximately $1.8 billion of annual cash interest and upcoming debt maturities.
- The availability, timing, and economic cost of future asset sales, monetizations, refinancings, or other liquidity transactions.
- Compliance with debt covenants and the potential impact of cross-default or acceleration provisions.
- The sustainability of iHM revenue growth after election-related political advertising and the effect of contract renegotiations on future margins.
- The continuing effects of outdoor-market dispositions, foreign exchange movements, contract losses, and potential further impairments.
- The outcome and potential financial exposure from noteholder, stockholder, competition, tax, and other legal proceedings.