iHeartMedia, Inc. Reports Results for 2020 Third Quarter

SAN ANTONIO–(BUSINESS WIRE)–iHeartMedia, Inc. (Nasdaq: IHRT) today reported financial results for the quarter ended September 30, 2020.

Financial Highlights

Quarterly and Monthly Revenue Comparisons Continue to Show Sequential Improvement

  • Q3 Revenue up 53% sequentially, moving from down 47% YoY in Q2 to down 22% YoY in Q3
  • July, August & September down 27%, 21% and 18% YoY, respectively
  • October revenue increased 2% YoY, benefitting from significant political advertising

Digital Revenue Increased 17% YoY, Validating our Multi-Platform Growth Strategy

  • YoY increase includes 74% YoY growth in our Podcasting Business
  • Digital Revenue excluding Podcasting grew 8% YoY

Received Declaratory Ruling from the FCC Granting our Request to Allow up to 100% of our Common Stock to be Owned by Non-US Persons, Subject to Certain Limitations

  • Ruling allows for the simplification of our capital structure and will enhance the liquidity of our Class A common stock by facilitating the conversion of the warrants, which on an as-converted basis to common stock, represents approximately 52% of the Company’s total equity as of September 30, 2020

Completed Strategic Acquisition of Voxnest in October, Further Strengthening our Market-Leading Podcasting Platform, While Continuing to Expand our Content with Industry Leading Creators

  • Entered into an exclusive agreement with Pushkin Industries, Malcolm Gladwell’s podcasting network, to distribute and monetize its best in class content, and co-produce a whole new slate of shows
  • Launched standalone podcast Joint Venture with Charlamagne tha God, the Black Effect, which is the largest podcast publisher dedicated to Black listeners, bringing together the most influential and trusted voices in Black culture
  • Launched the iHeartMedia Latino Podcast Network with Enrique Santos, targeting Latino audiences across the country

Exceptionally Well-Positioned for Growth and Margin Expansion as Advertising Activity Continues to Recover

  • Execution on track to deliver $250M of cost savings in 2020 from modernization and COVID-19-related initiatives
  • Patient capital structure, ample liquidity, strong free cash flow model provide high financial resilience even if macroeconomic environment remains soft

Third Quarter

  • Revenue of $744 million, declined 22% YoY; increased 53% QoQ
  • YoY performance by revenue stream:

    • Broadcast revenue declined 29% from $573 million to $404 million; increased 66% QoQ
    • Networks revenue declined 26% from $160 million to $119 million; increased 24% QoQ
    • Digital revenue increased 17%, from $97 million to $113 million, led by a 74% increase in podcasting revenue; increased 21% QoQ
    • Sponsorship and Events declined 48% from $56 million to $29 million; increased 95% QoQ
    • Audio & Media Services increased 25% from $60 million to $75 million, driven by political advertising; increased 91% QoQ
  • GAAP Operating income of $39 million, compared to GAAP Operating income of $141 million in the prior-year-period; substantial increase from GAAP Operating loss of $(159) million in Q2
  • Adjusted EBITDA declined to $162 million, compared to $275 million in the prior year period; substantial increase from Q2 level of $(29)M
  • Cash flows provided by operating activities of $33 million; improved from Q2 level of $11M
  • Free cash flow of $14 million; improved from Q2 level of $(7)M
  • Cash balance of $714 million as of September 30, 2020
  • Total available liquidity1 was approximately $879 million as of September 30, 2020

Year-to-Date

  • Revenue of $2,013 million, declined 24% YoY

    • Digital revenue increased 13% YoY driven primarily by an 85% increase in podcasting revenue
  • GAAP Operating loss of $1,850 million, driven primarily by non-cash impairment charges in Q1 and the impact of COVID-19
  • Adjusted EBITDA declined to $273 million, compared to $695 million in the prior year period
__________  

1 Total available liquidity defined as cash and cash equivalents plus available borrowings under our ABL Facility. We use total available liquidity to evaluate our capacity to access cash to meet obligations and fund operations.

 

Statement from Senior Management

“I am pleased that we have seen strong signs of recovery this quarter as we continue to address challenges resulting from the macroeconomic impact of COVID-19; in the third quarter, our revenue has substantially improved when compared to the second quarter and continues to improve sequentially month-over-month,” said Bob Pittman, Chairman and Chief Executive Officer of iHeartMedia, Inc. “As the number one audio company in America, we feel our results this quarter are strong validation of our multiplatform product and revenue strategy, our ongoing modernization efforts and the investments we have made in new areas, like podcasting, where we are the number one commercial podcast publisher and continue to grow our leadership position. Our relationship with our consumers has grown even stronger during this downturn, and we are seeing encouraging trends across the markets that indicate we are on a path toward normalcy and growth. We expect further improvement in both revenue and Adjusted EBITDA in the fourth quarter.”

“The early action we took during the pandemic to focus on cost management and maximize liquidity prepared us for a potential protracted recovery scenario, and the fact that we’ve been able to quickly return to meaningfully positive Adjusted EBITDA of $162 million in Q3 and free cash flow generation is proof of our strict cost controls, of our sequentially improving revenue trends, and most importantly, of the Company’s strong free cash flow characteristics,” said Rich Bressler, President, Chief Operating Officer and Chief Financial Officer of iHeartMedia, Inc. “We continue to focus on cost management and maximizing liquidity and we believe that we are poised to take full advantage as the economy continues to recover.”

Consolidated Results of Operations

Third Quarter 2020 Results

Our financial results for Q3 continued to be negatively impacted by the COVID-19 pandemic; however, we have seen our financial results recover significantly since our low-point in April 2020. In Q3, revenue was down 21.5% YoY on a reported basis and down 25.1% excluding political revenue. Our broadcast revenue declined by 29.4%, while Networks declined 25.7% YoY. Sponsorship and Events revenue decreased by $26.6 million or 48.0%, primarily as a result of the postponement or cancellations of events. Digital revenue grew 16.5%, led by continued growth in podcasting, which increased by 73.6% YoY. Excluding Podcasting, Digital grew 7.6%. Audio & Media Services revenue increased 25.3% on a reported basis and decreased by 1.8% excluding the impact of political revenue.

Direct operating expenses decreased 12.6%, driven primarily by lower employee compensation expenses resulting from cost reduction initiatives. In addition, variable operating expenses, including music license and performance royalty fees, decreased in relation to lower revenue and variable expenses related to events also decreased as a result of the postponement or cancellation of events.

Selling, General & Administrative (“SG&A”) expenses decreased 10.6%, driven by lower employee compensation expenses, along with lower sales commissions. Travel and entertainment expenses also decreased. These expense reductions were primarily a result of the cost savings initiatives we implemented in response to COVID-19.

Corporate expenses decreased 40.8% compared to the prior-year period, primarily as a result of lower employee compensation expenses, including variable incentive expenses and employee benefits, resulting from cost reduction initiatives. This decrease also resulted from an $11.2 million decrease in share-based compensation expense as a result of incremental share-based compensation expense being recognized in the third quarter of 2019 upon vesting of grants in connection with our listing on Nasdaq.

GAAP Operating income of $39.4 million compared to $140.8 million in the third quarter of 2019 was driven by lower revenue.

Adjusted EBITDA decreased to $162.1 million compared to $274.7 million in the prior-year period.

The Company generated operating cash flow of $33.3 million, compared to $180.3 million in the prior-year period and generated Free Cash Flow of $14.3 million, compared to $151.5 million in the prior-year period. These YoY changes were primarily driven by lower operating cash flow resulting from the negative macroeconomic impact of COVID-19.

Year-to-Date 2020 Results

Year-to-date revenue decreased 24.3%, or $644.8 million YoY, and decreased 26.6% excluding the impact of political revenue. Broadcast revenue declined by 31.5%, while Networks declined 23.0% YoY. Sponsorship and Events revenue decreased by $64.6 million, or 46.9%, primarily as a result of the postponement or cancellations of events. Our Digital revenue grew 13.2%, led by continued growth in podcasting, which increased by 84.5% YoY. Audio & Media Services revenue increased 2.8% on a reported basis and decreased by 12.2% excluding the impact of political revenue.

Direct operating expenses decreased 7.6% compared to the prior year, driven primarily by lower employee compensation expenses resulting from cost reduction initiatives. In addition, variable operating expenses, including music license and performance royalty fees, decreased in relation to lower revenue recognized during the period. Variable expenses related to events also decreased. The decrease in direct operating expenses was partially offset by incremental costs related to our modernization initiatives, which were incurred mainly in January and February.

SG&A expenses decreased 7.9% driven by lower employee compensation expenses, along with lower sales commissions. Travel and entertainment expenses, as well as trade and barter expenses also decreased. The decrease in SG&A expenses was partially offset by higher bad debt expense.

Corporate expenses decreased 27.3% compared to the prior-year period, primarily as a result of lower employee compensation, including variable incentive expenses and employee benefits, resulting from cost reduction initiatives.

Non-cash goodwill and intangible asset impairment charges of $1,733.2 million recognized in the first quarter of 2020 drove a GAAP Operating loss of $1,850.5 million for the nine months ended September 30, 2020, compared to GAAP Operating income of $341.6 million in the nine months ended September 30, 2019. We applied fresh start accounting upon our emergence from bankruptcy in May 2019, at a point when the macroeconomic environment was significantly different than it was in March 2020. This required stating the Company’s assets and liabilities, including intangible assets and goodwill, at estimated fair values at the time of emergence. These non-cash charges reflect impairments to such goodwill and intangible asset book values and are based on the assumptions regarding the future adverse effects of the COVID-19 pandemic. No impairment charge on goodwill or intangible assets was recognized in the second or third quarters of 2020. In addition, depreciation and amortization expense was higher as a result of fresh start accounting applied upon our emergence from bankruptcy in May 2019.

Adjusted EBITDA for the nine months ended September 30, 2020 decreased to $273.2 million compared to $694.6 million in the prior-year period, with margins decreasing to 13.6% from 26.1%.

GAAP and Non-GAAP Measures

(In thousands)

Successor Company

 

 

 

Three Months Ended September 30,

 

%

 

2020

 

2019

 

Change

Revenue

$

744,406

 

 

$

948,338

 

 

(21.5)%

Operating income

$

39,395

 

 

$

140,822

 

 

(72.0)%

Adjusted EBITDA1

$

162,124

 

 

$

274,656

 

 

(41.0)%

Net income (loss)

$

(32,112

)

 

$

12,374

 

 

NM

Cash provided by operating activities from continuing operations2

$

33,252

 

 

$

180,341

 

 

(81.6)%

Free cash flow from continuing operations1,2

$

14,275

 

 

$

151,471

 

 

(90.6)%

 

(In thousands)

Successor

Company

 

Successor

Company

 

 

Predecessor

Company

 

Non-GAAP

Combined3

 

 

 

Nine Months

Ended

September 30,

 

Period from May

2, 2019 through

September 30,

 

 

Period from

January 1, 2019

through May 1,

 

Nine Months

Ended

September 30,

 

%

 

2020

 

2019

 

 

2019

 

2019

 

Change

Revenue

$

2,012,688

 

 

$

1,583,984

 

 

 

$

1,073,471

 

 

$

2,657,455

 

 

(24.3

)%

Operating income (loss)

$

(1,850,471

)

 

$

274,510

 

 

 

$

67,040

 

 

$

341,550

 

 

NM

Adjusted EBITDA1

$

273,180

 

 

$

469,409

 

 

 

$

225,149

 

 

$

694,558

 

 

(60.7

)%

Net income (loss)

$

(1,918,165

)

 

$

51,167

 

 

 

$

11,165,113

 

 

$

11,216,280

 

 

NM

Cash provided by (used for) operating activities from continuing operations2

$

136,161

 

 

$

263,542

 

 

 

$

(7,505

)

 

$

256,037

 

 

(46.8

)%

Free cash flow from (used for) continuing operations1,2

$

77,638

 

 

$

217,237

 

 

 

$

(43,702

)

 

$

173,535

 

 

(55.3

)%

__________

1

See the end of this press release for reconciliations of (i) Adjusted EBITDA to Operating income, (ii) Adjusted EBITDA to net income (loss), (iii) Free Cash Flow from continuing operations to cash provided by operating activities from continuing operations, (iv) revenue, excluding political advertising revenue, to revenue and (v) Net Debt to Total Debt. See also the definitions of Adjusted EBITDA, Free Cash Flow and Adjusted EBITDA margin under the Supplemental Disclosure section in this release.

2

We made cash interest payments from continuing operations of $85.6 million in the three months ended September 30, 2020, compared to $78.8 million in the three months ended September 30, 2019. We made cash interest payments from continuing operations of $271.0 million in the nine months ended September 30, 2020, compared to $83.0 million in the nine months ended September 30, 2019.

3

See Supplemental Disclosure Regarding Non-GAAP Financial Information.

Certain prior period amounts have been reclassified to conform to the 2020 presentation of financial information throughout the press release.

Key Initiatives to Improve Cost Structure and Margins

In January 2020, iHeartMedia announced key modernization initiatives designed to take advantage of the significant investments that it has made in new technologies to build an operating infrastructure that provides better quality and newer products and delivers new cost efficiencies. This modernization is a multi-pronged set of strategic initiatives that we believe positions the Company for sustainable long-term growth, margin expansion and value creation for shareholders.

Our investments in modernization are expected to deliver annualized run-rate cost savings of approximately $100 million by mid-year 2021, and we expect to achieve approximately 50% of our anticipated run-rate savings in 2020.

In April 2020, the Company announced incremental operating-expense-saving initiatives in response to the currently weak economic environment resulting from the COVID-19 pandemic. These savings are expected to generate an additional $200 million in operating cost savings for 2020 driven by:

  • Reductions in compensation for senior management and other employees
  • Suspension of 401(k) matching program
  • Significant reduction in new employee hiring and travel and entertainment expenses, along with major reductions of consultant fees and other discretionary expenses
  • Continued modernization of the Company

The total operating expense savings resulting from our modernization initiatives and the operating cost savings initiatives that were developed in response to the impact from the COVID-19 pandemic are expected to total approximately $250 million in 2020. We also continue to identify additional efficiencies, including opportunities to reduce our real estate footprint in response to changes brought on by the COVID-19 pandemic, that we believe will deliver lasting savings starting in 2021.

The Company also expects to see decreased variable sales expense and commissions associated with lower revenue to continue through at least the fourth quarter of 2020.

Our full-year capital expenditures guidance remains unchanged at approximately $75 to $95 million. The Company expects to continue to make key investments in its strategic initiatives related to Smart Audio and Digital, including podcasting.

The Company also expects that certain provisions of The CARES Act will partially offset the negative impact of COVID-19 on its 2020 free cash flow and is estimating a reduction in tax-related cash payments in 2020 of approximately $100 million.

Liquidity and Financial Position

As of September 30, 2020, we had $713.7 million of cash on our balance sheet. For the nine months ended September 30, 2020, cash provided by operating activities from continuing operations was $136.2 million, cash used for investing activities by continuing operations was $71.2 million and cash provided by financing activities by continuing operations was $248.6 million.

Capital expenditures related to continuing operations for the nine months ended September 30, 2020 were $58.5 million compared to $82.5 million in the nine months ended September 30, 2019. Capital expenditures during the nine months ended September 30, 2020 consisted primarily of investments in our programmatic platforms and IT software and infrastructure.

On July 16, 2020, iHeartCommunications entered into an amendment to its credit agreement governing the $2.5 billion aggregate principal amount of senior secured term loans to issue $450.0 million of incremental term loan commitments, resulting in net proceeds of $425.8 million, after original issue discount and debt issuance costs. A portion of the proceeds was used to repay the remaining balance outstanding on our ABL Facility of $235.0 million, with the remaining $190.6 million of the proceeds available for general corporate purposes.

As of September 30, 2020, the Company had approximately $6,021.8 million of total debt and $5,308.1 million of net debt. The terms of our capital structure include no material maintenance covenants, and there are no material debt maturities prior to 2026, with the exception of the ABL, which matures in 2023, providing structural resilience in the current uncertain macro-environment.

The Company believes its previously announced modernization initiatives and other cost saving actions – in combination with the Company’s resilient capital structure – will substantially expand the Company’s financial flexibility, provide sufficient liquidity to operate effectively even in an extended period of economic weakness, and position the Company for solid growth as advertising demand returns to normal levels.

Update on FCC Petition for Declaratory Ruling

On November 5, 2020, the Company received a Declaratory Ruling from the Federal Communications Commission (the “FCC”) granting the Company’s request to allow up to 100% of the Company’s common stock to be owned by non-U.S. persons, subject to certain conditions contained in the Declaratory Ruling. This ruling will allow for the simplification of the Company’s capital structure and enhance the liquidity of the Company’s Class A common stock by facilitating the conversion of the warrants. Warrant holders will be receiving instructions via U.S. mail from Computershare, the Company’s warrant agent, regarding how to participate in the exchange of warrants.

Revenue Streams

The tables below present the comparison of our historical revenue streams (including political revenue) for the periods presented:

(In thousands)

Successor Company

 

 

 

Three Months Ended September 30,

 

%

 

2020

 

2019

 

Change

Broadcast Radio1

$

404,460

 

 

$

573,048

 

 

(29.4

)%

Digital

112,589

 

 

96,656

 

 

16.5

%

Networks

118,982

 

 

160,133

 

 

(25.7

)%

Sponsorship and Events

28,898

 

 

55,541

 

 

(48.0

)%

Audio and Media Services1

75,039

 

 

59,873

 

 

25.3

%

Other

6,368

 

 

4,986

 

 

27.7

%

Eliminations

(1,930

)

 

(1,899

)

 

 

Revenue, total1

$

744,406

 

 

$

948,338

 

 

(21.5

)%

 

(In thousands)

Successor

Company

 

Successor

Company

 

 

Predecessor

Company

 

Non-GAAP

Combined

 

 

 

Nine Months

Ended

September 30,

 

Period from May

2, 2019 through

September 30,

 

 

Period from

January 1, 2019

through May 1,

 

Nine Months

Ended

September 30,

 

%

 

2020

 

2019

 

 

2019

 

2020

 

Change

Broadcast Radio2

$

1,110,155

 

 

$

963,588

 

 

 

$

657,864

 

 

$

1,621,452

 

 

(31.5

)%

Digital

298,592

 

 

160,894

 

 

 

102,789

 

 

263,683

 

 

13.2

%

Networks

349,889

 

 

265,559

 

 

 

189,088

 

 

454,647

 

 

(23.0

)%

Sponsorship and Events

73,055

 

 

87,331

 

 

 

50,330

 

 

137,661

 

 

(46.9

)%

Audio and Media Services2

174,517

 

 

100,410

 

 

 

69,362

 

 

169,772

 

 

2.8

%

Other

12,335

 

 

9,222

 

 

 

6,606

 

 

15,828

 

 

(22.1

)%

Eliminations

(5,855

)

 

(3,020

)

 

 

(2,568

)

 

(5,588

)

 

 

Revenue, total2

$

2,012,688

 

 

$

1,583,984

 

 

 

$

1,073,471

 

 

$

2,657,455

 

 

(24.3

)%

1

Excluding the impact of the increase in political revenue, Revenue from Broadcast Radio, from Audio and Media Services and in Total decreased by 32.3%, 1.8% and 25.1%, respectively. See the end of this press release for a reconciliation of revenue, excluding political advertising revenue, to revenue.

2

Excluding the impact of the decrease in political revenue, Revenue from Broadcast Radio, from Audio and Media Services and in Total decreased by 33.6%, 12.2% and 26.6%, respectively. See the end of this press release for a reconciliation of revenue, excluding political advertising revenue, to revenue.

Conference Call

iHeartMedia, Inc. will host a conference call to discuss results on November 9, 2020, at 4:30 p.m. Eastern Time. The conference call number is (833) 350-1328 (U.S. callers) and (236) 389-2425 (International callers) and the passcode for both is 5780107. A live audio webcast of the conference call will also be available on the Investors homepage of iHeartMedia’s website investor.iheartmedia.com. After the live conference call, a replay will be available for a period of thirty days. The replay numbers are (800) 585-8367 (U.S. callers) and (416) 621-4642 (International callers) and the passcode for both is 5780107. An archive of the webcast will be available beginning 24 hours after the call for a period of thirty days.

About iHeartMedia, Inc.

iHeartMedia, Inc. (Nasdaq: IHRT) is the number one audio company in America based on consumer reach. The Company’s leadership position in audio extends across multiple platforms, including through more than 850 live broadcast stations in over 160 markets nationwide; through its iHeartRadio service, which is available across more than 250 platforms and 2,000 devices including smart speakers, smartphones, TVs and gaming consoles; through its influencers; social; live events; podcasting; and other digital products and newsletters. The company uses its unparalleled national reach to target both nationally and locally on behalf of its advertising partners, and uses its proprietary SmartAudio data and analytics to provide unique advertising products across all its platforms. More information is available at investor.iheartmedia.com.

Certain statements herein constitute “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors which may cause the actual results, performance or achievements of iHeartMedia, Inc. and its subsidiaries to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. The words or phrases “guidance,” “believe,” “expect,” “anticipate,” “estimates,” “forecast” and similar words or expressions are intended to identify such forward-looking statements.

Contacts

Media
Wendy Goldberg

Chief Communications Officer

(212) 377-1105

Investors
Mike McGuinness

Executive Vice President of Finance, Deputy Chief Financial Officer and Head of Investor Relations

(212) 377-1336

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