iHEARTMEDIA, Inc. Reports Results for 2020 Second Quarter

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

Financial Highlights

  • Financial performance in the second quarter was significantly negatively impacted by the economic downturn resulting from the COVID-19 pandemic (“COVID-19”).
  • Total company revenue declined 47% in Q2 compared to the prior-year period

    • Rate of YoY revenue decline has improved in each month since the April low-point: April (50)%, May (49)%, June (41)% and July (27)%
  • YoY Podcasting revenue grew 103% in Q2
  • Continued position of ample liquidity and resilient capital structure:

    • Cash balance of $518 million as of June 30, 2020; Adjusted1 cash balance as of June 30, 2020 was $708 million
    • Total available liquidity is approximately $868 million as of June 30, 2020 on an adjusted basis2
    • Over 90% of long-term debt maturing in 2026 or later
    • Favorable debt terms: no maintenance covenants for Term Loan Facility or Senior Secured Notes
    • Analyzed three COVID-19 scenarios: (i) recovery beginning in Q3; (ii) recovery beginning in Q4 and (iii) prolonged recession in 2021; under each of these scenarios we project that we will have sufficient liquidity for an extended period
  • Total direct operating expense savings in 2020 are expected to be approximately $250 million

    • Modernization initiatives expected to deliver $100 million in run-rate savings by mid-2021; approximately $50 million expected to be achieved in 2020
    • Remain on track to achieve the previously-announced $200 million of additional savings in 2020
    • Streamlined cost structure expected to provide long-term margin improvement
    • Continuing to evaluate cost structure to identify sustainable efficiencies and align cost structure with revenue
  • CARES Act free cash flow benefit: estimating approximately $100 million reduction in tax-related cash payments in 2020

Second Quarter

  • Revenue of $488 million, declined 47% YoY
  • YoY performance by revenue stream:

    • Broadcast revenue declined 57% from $561 million to $244 million
    • Networks revenue declined 38% from $156 million to $96 million
    • Digital revenue increased 2%, from $91 million to $93 million, led by a 103% increase in podcasting revenue
    • Sponsorship and Events declined 65% from $42 million to $15 million
    • Audio & Media Services declined 33% from $59 million to $39 million
  • GAAP Operating loss of $159 million, compared to GAAP Operating income of $182 million in the prior-year-period
  • Adjusted EBITDA declined to $(29) million, compared to $263 million in the prior year period
  • Cash flows provided by operating activities from continuing operations of $11 million
  • Free cash flow (used in) continuing operations of $(7) million

Year-to-Date

  • Revenue of $1,268 million, down (26)% YoY; excluding political revenue, revenue decreased 27%

    • Digital revenue increased 11% YoY driven by a 92% increase in podcasting revenue
  • GAAP Operating loss of $1,890 million, driven primarily by non-cash impairment charges in Q1 and COVID-19
  • Adjusted EBITDA declined to $111 million, compared to $420 million in the prior year period

____________________________________________________

1

Adjusted for the impact of the amendment entered into in July 2020 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 from the issuance was used to repay the remaining balance outstanding under the ABL Facility of $235.0 million, with the remaining $190.6 million of the proceeds available for general corporate purposes.

 

 

2

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

“The challenges that we have faced due to COVID-19 were unprecedented and had a severe, negative impact on our revenue in the second quarter,” said Bob Pittman, Chairman and Chief Executive Officer of iHeartMedia, Inc. “Despite those financial challenges, we retained our strong relationship with the consumer as the #1 audio company in America and the #1 media company in America by reach. As the advertising marketplace is recovering, we are working hard to ensure that we have the products and services to fully capitalize on the opportunity while proactively taking steps to fortify our balance sheet and our liquidity. Finally, I want to thank our employees for their commitment and creativity under such difficult and challenging circumstances.”

“In response to COVID-driven market weakness, we acted rapidly and decisively to further streamline our cost structure and capital-spending programs, while continuing to implement pre-COVID cost savings programs through our modernization initiatives,” said Rich Bressler, iHeartMedia, Inc. President, Chief Operating Officer and Chief Financial Officer. “These actions played an important role in minimizing the negative impact on our free cash flow results against the backdrop of the significant revenue declines we saw in the second quarter. We believe that these actions, in combination with our proactive capital structure management provides the Company with sufficient liquidity to operate effectively even in an extended period of economic weakness.”

Consolidated Results of Operations

Second Quarter 2020 Results

Our financial results for Q2 were significantly and negatively impacted by the COVID-19 pandemic, which began to unfold into a global pandemic in early March 2020, resulting in a significant economic downturn as a result of the shut-down of non-essential businesses and shelter-in-place orders, resulting in significant revenue declines impacting most of our revenue streams primarily as a result of a decrease in advertising spend. In Q2, revenue was down 46.6% YoY on a reported basis and 47.1% excluding political revenue. Our broadcast revenue declined by 56.5%, while Networks was more resilient declining 38.4% YoY. Sponsorship and Events revenue decreased by $27.6 million, primarily as a result of the postponement or cancellations of events. Digital revenue grew 2.4%, led by continued growth in podcasting, which increased by 102.7% YoY. Audio & Media Services revenue decreased 32.9% on a reported basis and decreased by 36.3% excluding the impact of political revenue.

Direct operating expenses decreased 15.9%, 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. Variable expenses related to events also decreased as a result of the postponement or cancellation of events. Selling, General & Administrative (“SG&A”) expenses decreased 19.0%, driven by lower employee compensation expenses, along with lower sales commissions. Trade and barter expenses also decreased. The decrease in SG&A expenses was partially offset by higher bad debt expense.

Corporate expenses decreased 36.1% compared to the prior-year period, as a result of lower employee compensation, including variable incentive expenses and employee benefits, resulting from cost reduction initiatives.

GAAP Operating loss of $159.1 million compared to GAAP Operating income of $181.6 million in the second quarter of 2019 was driven by lower revenue.

Adjusted EBITDA decreased to $(29.3) million compared to $262.9 million in the prior-year period.

The Company generated operating cash flow of $11.4 million, compared to $(61.0) million in the prior-year period and used Free Cash Flow of $(6.5) million, compared to $(91.6) million in the prior-year period. These YoY changes were primarily driven by cash paid in the prior-year period in relation to our emergence from bankruptcy, offset by an increase in cash interest payments related to the debt issued upon our emergence in May 2019.

Year-to-Date 2020 Results

Year-to-date revenue decreased 25.8%, or $440.8 million YoY and decreased 27.4% excluding the impact of political revenue. Broadcast revenue declined by 32.7%, while Networks declined 21.6% YoY. Sponsorship and Events revenue decreased by $38.0 million, primarily as a result of the postponement or cancellations of events. Our Digital revenue grew 11.4%, led by continued growth in podcasting, which increased by 92.0% YoY, as well as other digital revenue. Audio & Media Services revenue decreased 9.5% on a reported basis and decreased by 17.8% excluding the impact of political revenue.

Direct operating expenses decreased 4.9% 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 6.5% driven by lower employee compensation expenses, along with lower sales commissions. Trade and barter expenses also decreased. The decrease in SG&A expenses was partially offset by higher bad debt expense.

Corporate expenses decreased 17.5% compared to the prior-year period, 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 GAAP Operating loss of $1,889.9 million for the six months ended June 30, 2020, compared to GAAP Operating income of $200.7 million in the six months ended June 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 is today. 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 quarter 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 six months ended June 30, 2020 decreased to $111.1 million compared to $419.9 million in the prior-year period, with margins decreasing to 8.8% from 24.6%.

 

GAAP and Non-GAAP Measures

 

(In thousands)

Successor

Company

 

Successor

Company

 

Predecessor

Company

 

Non-GAAP

Combined3

 

 

 

Three Months

Ended June 30,

 

Period from

May 2, 2019

through June 30,

 

Period from

April 1, 2019

through May 1,

 

Three Months

Ended June 30,

 

%

 

2020

 

2019

 

2019

 

2019

 

Change

Revenue

$

487,648

 

 

$

635,646

 

 

$

277,674

 

 

$

913,320

 

 

(46.6

)%

Operating income (loss)

$

(159,087

)

 

$

133,688

 

 

$

47,891

 

 

$

181,579

 

 

NM

Adjusted EBITDA1

$

(29,283

)

 

$

194,753

 

 

$

68,097

 

 

$

262,850

 

 

NM

Net income (loss)

$

(197,317

)

 

$

38,793

 

 

$

11,300,714

 

 

$

11,339,507

 

 

NM

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

$

11,369

 

 

$

83,201

 

 

$

(144,171

)

 

$

(60,970

)

 

NM

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

$

(6,513

)

 

$

65,766

 

 

$

(157,415

)

 

$

(91,649

)

 

NM

(In thousands)

Successor

Company

 

Successor

Company

 

Predecessor

Company

Non-GAAP

Combined3

 

 

 

Six Months

Ended June 30,

 

Period from

May 2, 2019

through June 30,

 

Period from

January 1, 2019

through May 1,

Six Months

Ended June 30,

 

%

 

2020

 

2019

 

2019

 

2019

 

Change

Revenue

$

1,268,282

 

 

$

635,646

 

 

$

1,073,471

 

 

$

1,709,117

 

 

(25.8

)%

Operating income (loss)

$

(1,889,866

)

 

$

133,688

 

 

$

67,040

 

 

$

200,728

 

 

NM

Adjusted EBITDA1

$

111,056

 

 

$

194,753

 

 

$

225,149

 

 

$

419,902

 

 

(73.6

)%

Net income (loss)

$

(1,886,053

)

 

$

38,793

 

 

$

11,165,113

 

 

$

11,203,906

 

 

NM

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

$

102,909

 

 

$

83,201

 

 

$

(7,505

)

 

$

75,696

 

 

36.0

%

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

$

63,363

 

 

$

65,766

 

 

$

(43,702

)

 

$

22,064

 

 

187.2

%

______________________________________________________

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 $84.0 million in the three months ended June 30, 2020, compared to $2.8 million in the three months ended June 30, 2019. We made cash interest payments from continuing operations of $185.4 million in the six months ended June 30, 2020, compared to $4.2 million in the six months ended June 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.

The Company anticipates approximately $50 million of restructuring costs related to achieving our cost savings. 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
  • Furloughing of certain employees that are non-essential at this time
  • Suspension of new employee hiring, travel and entertainment expenses and 401(k) matching program
  • Major reduction of consultant fees and other discretionary expenses

The total expected 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 achieved in 2020. We also continue to identify additional efficiencies 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.

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 June 30, 2020, we had $517.7 million of cash on our balance sheet. For the six months ended June 30, 2020, cash provided by operating activities from continuing operations was $102.9 million, cash used for investing activities by continuing operations was $50.7 million and cash provided by financing activities by continuing operations was $65.5 million.

Capital expenditures related to continuing operations for the six months ended June 30, 2020 were $39.5 million compared to $53.6 million in the six months ended June 30, 2019. Capital expenditures during the six months ended June 30, 2020 consisted primarily of investments in our programmatic platforms and IT software and infrastructure.

On March 13, 2020, iHeartCommunications borrowed $350.0 million principal amount under our $450.0 million senior secured asset-based revolving credit facility (the “ABL Facility”) to preserve financial flexibility in light of the current uncertainty in the global economy resulting from the COVID-19 pandemic. During the three months ended June 30, 2020, we repaid $115.0 million principal amount drawn under our ABL credit facility.

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. Adjusted for the issuance, the repayment of the ABL Facility and related transaction costs, the Company’s cash balance as of June 30, 2020 was approximately $708 million3.

As of June 30, 2020, the Company had approximately $5,837.1 million of total debt and $5,319.4 million of net debt. The terms of our capital structure include no material maintenance covenants, and there are no material debt maturities prior to 2023, providing structural resilience in the current uncertain macro-environment.

Our primary sources of liquidity are cash on hand, which consisted of $517.7 million as of June 30, 2020, cash flow from operations and borrowing capacity under our $450.0 million ABL Facility. Following the repayment of all outstanding borrowings under the ABL Facility, due to current restrictions contained primarily in our mandatorily redeemable preferred stock agreements, we had the ability to incur approximately $160 million under the ABL Facility. Together with our adjusted cash balance3 as of June 30, 2020 of approximately $708 million and our borrowing capacity under the ABL Facility, our total available liquidity was approximately $868 million4.

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.

__________________________________________

3

Adjusted for the impact of the amendment entered into in July 2020 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 from the issuance was used to repay the remaining balance outstanding under the ABL Facility of $235.0 million, with the remaining $190.6 million of the proceeds available for general corporate purposes.

 

 

4

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.

Stockholder Rights Plan

On May 6, 2020, the Company announced that its Board of Directors (the “Board”) approved the adoption of a short-term stockholder rights plan (the “Rights Plan”) in order to protect the best interests of all iHeartMedia stockholders during the current period of high equity-market volatility and price disruption. The Rights Plan is similar to rights plans adopted by other publicly traded companies and includes a number of recognized stockholder protections which highlight its limited focus and duration (under one year). The Rights Plan may also be terminated, or the rights may be redeemed, by action of the Company prior to the scheduled expiration date under certain circumstances, including if the Board determines that market and other conditions warrant, which the Board intends to monitor. For additional information, please see the Company’s May 6, 2020 press release regarding the Rights Plan.

Update on FCC Petition for Declaratory Ruling

Our current equity structure consists of our NASDAQ-listed Class A common stock and also Class B common stock and special warrants (each of which are convertible into our Class A common stock) and was designed at our emergence in May 2019 to comply with the statutory prohibition on broadcast companies having foreign ownership above 25%.

The Company filed its petition for declaratory ruling (the “PDR”) to increase permissible limits of foreign ownership with the Federal Communications Commission (the “FCC”) on July 25, 2019 to simplify our capital structure and enhance the liquidity of our Class A common stock by facilitating the conversion of our special warrants. On February 25, 2020, the FCC issued a notice seeking public comment on the PDR, which period closed on March 26, 2020. The FCC subsequently referred our PDR to Team Telecom – the interagency federal government group that analyzes requests for national security, law enforcement, and public safety issues. On June 29, 2020, Team Telecom indicated its consent to the grant by the FCC of the PDR. We cannot predict whether the FCC will issue a ruling granting the PDR.

Revenue Streams

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

(In thousands)

Successor

Company

 

Successor

Company

 

 

Predecessor

Company

 

Non-GAAP

Combined

 

 

 

Three Months

Ended June 30,

 

Period from

May 2, 2019

through June 30,

 

 

Period from

April 1, 2019

through May 1,

 

Three Months

Ended June 30,

 

%

 

2020

 

2019

 

 

2019

 

2019

 

Change

Broadcast Radio1

$

244,035

 

 

$

390,540

 

 

 

$

170,632

 

 

$

561,172

 

 

(56.5

)%

Digital

93,227

 

 

64,238

 

 

 

26,840

 

 

91,078

 

 

2.4

%

Networks

96,330

 

 

105,426

 

 

 

50,889

 

 

156,315

 

 

(38.4

)%

Sponsorship and Events

14,809

 

 

31,790

 

 

 

10,617

 

 

42,407

 

 

(65.1

)%

Audio and Media Services1

39,251

 

 

40,537

 

 

 

17,970

 

 

58,507

 

 

(32.9

)%

Other

1,943

 

 

4,236

 

 

 

1,483

 

 

5,719

 

 

(66.0

)%

Eliminations

(1,947

)

 

(1,121

)

 

 

(757

)

 

(1,878

)

 

 

Revenue, total1

$

487,648

 

 

$

635,646

 

 

 

$

277,674

 

 

$

913,320

 

 

(46.6

)%

(In thousands)

Successor

Company

 

Successor

Company

 

 

Predecessor

Company

 

Non-GAAP

Combined

 

 

 

Six Months

Ended June 30,

 

Period from

May 2, 2019

through June 30,

 

 

Period from

January 1, 2019

through May 1,

 

Six Months

Ended June 30,

 

%

 

2020

 

2019

 

 

2019

 

2020

 

Change

Broadcast Radio2

$

705,695

 

 

$

390,540

 

 

 

$

657,864

 

 

$

1,048,404

 

 

(32.7

)%

Digital

186,003

 

 

64,238

 

 

 

102,789

 

 

167,027

 

 

11.4

%

Networks

230,907

 

 

105,426

 

 

 

189,088

 

 

294,514

 

 

(21.6

)%

Sponsorship and Events

44,157

 

 

31,790

 

 

 

50,330

 

 

82,120

 

 

(46.2

)%

Audio and Media Services2

99,478

 

 

40,537

 

 

 

69,362

 

 

109,899

 

 

(9.5

)%

Other

5,967

 

 

4,236

 

 

 

6,606

 

 

10,842

 

 

(45.0

)%

Eliminations

(3,925

)

 

(1,121

)

 

 

(2,568

)

 

(3,689

)

 

 

Revenue, total2

$

1,268,282

 

 

$

635,646

 

 

 

$

1,073,471

 

 

$

1,709,117

 

 

(25.8

)%

Contacts

Media
Wendy Goldberg

Chief Communications Officer

(212) 377-1105

Investors
Kareem Chin

Senior Vice President and Head of Investor Relations

(212) 377-1336

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