iHeartMedia, Inc. — 2019 First-Quarter Form 10-Q
Reporting period: Three months ended March 31, 2019, compared with the three months ended March 31, 2018. Results are presented while the company operated as a debtor-in-possession under Chapter 11. The filing was dated April 25, 2019.
Business context
iHeartMedia operates broadcast and digital audio, events, syndication and media representation businesses through iHM, plus Americas and International outdoor advertising segments. The company’s advertising businesses are seasonal, with the first quarter typically representing the weakest period.
The company filed for Chapter 11 protection on March 14, 2018. The Bankruptcy Court confirmed its plan of reorganization on January 22, 2019. Management expected emergence and the separation of Clear Channel Outdoor Holdings, Inc. on or about May 1, 2019, subject to conditions.
Key financial metrics
| Metric | Q1 2019 | Q1 2018 | Change |
|---|---|---|---|
| Revenue | $1.382 billion | $1.370 billion | Up 0.9% |
| Operating income | $28.3 million | $60.9 million | Down 53.6% |
| Consolidated net loss | $135.6 million | $433.0 million | Improved |
| Net loss attributable to the company | $114.4 million | $417.0 million | Improved |
| Loss per diluted share | $1.34 | $4.89 | Improved |
| Cash flow from operating activities | $89.0 million | $175.5 million | Down $86.5 million |
| Capital expenditures | $51.1 million | $38.7 million | Up $12.4 million |
| Cash paid for interest | $103.9 million | $94.5 million | Up $9.4 million |
Margins: Operating margin was approximately 2.0% in Q1 2019 versus 4.4% in Q1 2018. The filing does not present a clear adjusted EBITDA or consolidated EBITDA value in the provided text.
Liquidity and balance sheet: Cash and cash equivalents were $448.1 million at March 31, 2019, compared with $406.5 million at December 31, 2018. Cash, cash equivalents and restricted cash totaled $469.6 million. Total assets were $14.286 billion, while total stockholders’ deficit was $11.566 billion.
Debt: Total debt before reclassification was $20.484 billion, including $15.144 billion classified as debt subject to compromise. Long-term debt reported outside liabilities subject to compromise was $5.293 billion. The company had no borrowings outstanding under its $450 million DIP facility, with $330.3 million of excess availability after letters of credit and the availability block.
Segment performance and material changes
- iHM: Revenue increased 2.9% to $765.8 million, while operating income increased 29.6% to $160.6 million. Digital revenue grew $16.6 million, helped by podcasting and the October 2018 acquisition of Stuff Media. National broadcast and network revenue increased, but local broadcast revenue declined $19.4 million.
- Americas outdoor: Revenue increased 6.6% to $272.7 million and operating income increased 36.1% to $51.1 million, driven by airports and digital and print billboards.
- International outdoor: Revenue decreased 8.2% to $314.4 million, primarily because certain contracts in Italy and Spain were not renewed and because of foreign exchange movements. The operating loss improved to $8.8 million from $10.9 million.
- Foreign exchange: Excluding a $24.7 million negative foreign-exchange impact, consolidated revenue increased $37.0 million year over year.
- Operating costs: Direct operating expenses increased 2.1%. SG&A decreased 3.6%, and corporate expense decreased 5.1%, partly because sponsor management fees were no longer recognized after the bankruptcy filing.
- Impairment: The company recorded a $91.4 million noncash impairment charge related to FCC licenses, attributed to an increase in the weighted average cost of capital.
- Reorganization costs: Reorganization items declined to $36.1 million from $192.1 million, but remained material and consisted primarily of bankruptcy-related professional fees in 2019.
- Interest expense: Reported interest expense fell to $114.8 million from $418.4 million because the company stopped accruing contractual interest on debt classified as liabilities subject to compromise. Contractual interest not accrued in Q1 2019 was $397.5 million.
Outlook, restructuring and risks
Under the confirmed plan, management expected consolidated debt to decline from approximately $20.5 billion to approximately $5.8 billion at emergence. The planned post-emergence capital structure included a $3.5 billion senior secured term loan, $1.45 billion of new senior unsecured notes due 2027, $800 million of new senior secured notes due 2026 and a $450 million senior secured asset-based revolving facility. Expected annual cash interest after emergence was less than $400 million.
Management expected approximately $60 million of cash at emergence after settlement payments and professional fees. Anticipated emergence-related cash payments included approximately $107 million to Clear Channel Outdoor, $17.7 million to cure contracts, $19.7 million for general unsecured claims and approximately $124 million of professional fees. Planned 2019 capital expenditures were approximately $129 million, with an additional $47.4 million payment expected for two businesses acquired in late 2018.
Substantial doubt existed regarding the company’s ability to continue as a going concern because of its financial condition, debt defaults and the risks surrounding the Chapter 11 proceedings. The plan’s effective date was not guaranteed, and liabilities subject to compromise could change materially as claims were reconciled.
Other notable risks and contingencies included advertising demand sensitivity to economic conditions, foreign currency exposure, interest-rate risk, competition from alternative media, regulatory and privacy risks, litigation, and the ongoing China investigation involving Clear Media employees. The company also expected to pay the remaining portion of an estimated approximately $17 million Italian VAT obligation during the second half of 2019; approximately $8.6 million had been paid in 2018.
On April 8, 2019, the company disclosed a preferred equity commitment for $60 million of iHeart Operations preferred stock and $45 million of Clear Channel Outdoor preferred stock. The preferred securities carry cumulative dividend features and various redemption and repurchase rights.
Most important facts for investors to verify
- Whether the Chapter 11 plan became effective on or about May 1, 2019 and whether the Clear Channel Outdoor separation was completed as planned.
- The final post-emergence debt balances, interest rates, maturities, covenants and available borrowing capacity.
- The ultimate allowed amounts and settlement treatment of the $16.829 billion of liabilities subject to compromise.
- Actual cash available after emergence-related payments, professional fees, contract cures and the approximately $107 million Clear Channel Outdoor settlement payment.
- Whether operating cash flow can support capital expenditures, working capital, preferred dividends and expected annual cash interest below $400 million.
- The outcome and potential financial impact of the China investigation, Italian VAT matter and other litigation.
- The sustainability of iHM digital and podcast growth, the decline in local broadcast revenue and the recovery of International outdoor advertising.