Broadcast & Satellite

iHeartMedia Revenue Down 47%, Stock Tumbles

iHeartMedia revenue fell 47% in Q2 compared to the prior year. The broadcast radio giant’s second quarter was impacted by the economic downturn resulting from the COVID-19 pandemic.

iHeart stock fell 6.05% on the news closing at $8.08 USD. Earlier this year the stock was trading as high as $17.88.

iHeartMedia 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

____________________________________________________

1Adjusted 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.
  
2Total 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%
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