iHeartMedia, Inc. Reports Results for 2019 Fourth Quarter and Full Year

SAN ANTONIO, Texas–(BUSINESS WIRE)–iHeartMedia, Inc. (Nasdaq: IHRT) today reported financial results for the quarter and year ended December 31, 2019.

Financial Highlights

  • Solid GAAP revenue performance in Q4 ’19 and FY ’19, flat in the quarter and up 2.0% year-over-year; GAAP revenue excluding political grew 4.3% in Q4 ’19 and 4.2% in FY ’19
  • Q4’19 and FY 2019 GAAP earnings year-over-year comparisons highly affected by one-time items related to bankruptcy and emergence (completed in May 2019), resulting in a decrease in Operating income of 36.5% and 26.6%, respectively
  • FY 2019 Adjusted EBITDA1 increased 2.5% year-over-year
  • Key actions initiated since emergence to improve the financial performance of the Company include:

    • The completion of three debt transactions that will reduce annualized run-rate interest expense by ~$40 million2
    • Modernization initiatives that are expected to deliver $100 million run-rate savings by the middle of 2021; expect to achieve approximately 50% of run-rate savings in 2020
  • FY 2020 guidance reflects significant growth in revenues, Adjusted EBITDA1 and Free Cash Flow1, powered by multiple drivers

Full Year 2019

  • Revenue of $3,683.5 million, up 2.0% year-over-year; excluding political revenue1, revenue increased 4.2%, driven by growth across all revenue streams

    • Digital revenue increased 32.2% year-over-year
  • GAAP Operating income of $506.7 million was down from $690.1 million in the year ended December 31, 2018, driven primarily by the impact of fresh start accounting and higher impairment charges
  • Adjusted EBITDA1 of $1,000.7 million, up 2.5% year-over-year
  • Strong cash generation in the fourth quarter resulted in year-end cash balance of $400.3 million

Fourth Quarter

  • Revenue of $1,026.1 million, flat year-over-year, excluding political revenue1, revenue increased 4.3%, driven by growth across all revenue streams

    • Digital revenue increased 33.6% year-over-year
  • GAAP Operating income of $165.1 million was down 36.5% year-over-year, driven primarily by the impact of fresh start accounting
  • Adjusted EBITDA1 of $306.1 million, down (0.6)% year-over-year

2020 Guidance

  • Revenue Growth: up mid-single digits, driven primarily by political and continued growth in Digital
  • Adjusted EBITDA1: up high-single digits with margins improving to 28% – 29% (vs. 27.2% in FY 2019) driven by:

    • Contribution of high-margin political revenue from presidential election year
    • Continued Digital growth driven by podcasting
    • Modernization efficiencies
  • Free Cash Flow1 of $300 million to $330 million driven by strong earnings growth and including investments in modernization initiatives totaling ~$100 million; $400 to $430 million on a normalized basis

1 See Supplemental Disclosure Regarding Non-GAAP Financial Information.

2 Compared to the expected annualized cash interest payments indicated by the terms of the debt structure originally issued upon iHeartCommunications’ emergence from bankruptcy on May 1, 2019.

Statement from Senior Management

“We are extremely proud of all that iHeart and its employees accomplished in 2019. After emerging from Chapter 11 in May with a healthier capital structure and listing on the Nasdaq in July, we continued to execute on our strategic plans to build our strong operating business and drive shareholder value,” said Bob Pittman, Chairman and Chief Executive Officer of iHeartMedia, Inc. “As the number one audio company in the U.S. based on reach, we look forward to expanding our unequaled multi-platform leadership position and leveraging the investments that we have made to modernize our infrastructure and become more efficient, effective and competitive. The audio environment has never been more exciting, and we look forward to leading – and capitalizing on it in 2020 and beyond.”

“Our financial performance in 2019 was underpinned by the reach and resilience of our traditional business, profitable growth in our other platforms including our Digital businesses and proactive improvement of our capital structure,” said Rich Bressler, President, Chief Operating Officer and Chief Financial Officer. “Through our innovation and thought leadership in areas like podcasting and our SmartAudio suite of targeting, analysis and attribution services for advertisers, we are at the forefront of driving the audio revolution. We will continue to work to build long-term shareholder value by maximizing our Free Cash Flow and de-leveraging our balance sheet.”

Consolidated Results of Operations

Full Year 2019 Results

Revenue for the year ended December 31, 2019 increased 2.0%, or 4.2% excluding the impact of political revenue year-over-year. Our growth was driven primarily by our Digital and Networks revenue streams, which grew 32.2% and 5.6%, respectively. Podcasting and other digital revenue were the primary drivers of our Digital revenue growth, while growth in our Networks business was driven by both our Total Traffic & Weather network and our Premiere network. Broadcast revenue declined by (1.4)% on a reported basis, and grew 0.3% excluding the impact of political revenue. Audio & Media Services declined (10.4)% on a reported basis and increased by 3.2% excluding the impact of political revenue. Sponsorship revenue increased by 4.4% year-over-year. On a full-year basis, all of our revenue streams grew year-over-year excluding the impact of political revenue.

Direct operating expenses increased 9.9% compared to the prior year, driven primarily by higher compensation-related expenses, including from the acquisitions of Stuff Media and Jelli in the fourth quarter of 2018, as well as higher music license fees, digital royalties and content costs from higher podcasting, subscription and other digital revenue. Included in this increase is the impact of updated estimates to music license fee expenses primarily related to prior years for which payments were made under interim agreements with performance rights organizations and that are subject to ongoing negotiations. The increase in direct operating expenses also includes a $6.3 million increase in lease expense due to the impact of the adoption of the new leasing standard in the first quarter of 2019 and the application of fresh start accounting. SG&A expenses decreased (0.3)% for the year ended December 31, 2019 driven by lower commissions as a result of our revenue mix, lower bad debt expense resulting from improved collections, and lower trade and barter expenses, primarily resulting from timing. The decrease in SG&A expenses was partially offset by higher third-party digital fees, driven by the increase in digital revenue, along with higher employee costs, primarily resulting from the acquisitions of Stuff Media and Jelli in the fourth quarter of 2018.

Corporate expenses increased $7.1 million during the year ended December 31, 2019 compared to 2018, as a result of higher share-based compensation expense, which increased $24.8 million as a result of our new equity compensation plan entered into in connection with our Plan of Reorganization. This increase was partially offset by lower employee benefit costs and lower amortization of retention bonuses related to the bankruptcy for which amortization ceased on the May 1, 2019 emergence date.

Operating income decreased 26.6% due primarily to higher depreciation and amortization expense as a result of fresh start accounting applied upon our emergence from bankruptcy in May 2019, higher non-cash impairment charges, share-based compensation expense in connection with our new equity incentive plan and the impact of updated estimates to music license fee expenses related to prior years.

Adjusted EBITDA for the year ended December 31, 2019 grew 2.5% year-over-year to $1,000.7 million, with margins increasing to 27.2% from 27.0%.

Fourth Quarter 2019 Results

In the fourth quarter of 2019, total company revenue was flat year-over-year on a reported basis and excluding the impact of political revenue, total company revenue grew 4.3%. In our traditional radio business, broadcast revenue declined by (2.7)% on a reported basis and increased 0.8% excluding the impact of political revenue, while Networks grew 2.2% year-over-year driven primarily by growth in our Total Traffic & Weather network. Our Digital revenue stream grew 33.6% primarily driven by growth in podcasting as well as other digital revenue. Audio & Media Services declined (19.9)% on a reported basis and increased by 4.5% excluding the impact of political revenue. Sponsorship revenue increased by 5.3% year-over-year. All of our revenue streams grew year-over-year excluding the impact of political revenue, demonstrating the continued momentum in our business.

Direct operating expenses increased 15.0% driven primarily by higher music license fees, mostly related to higher podcasting, subscription and other digital revenue. Included in this increase is the non-cash impact of updated estimates to music license fee expenses primarily related to prior years for which payments were made under interim agreements with performance rights organizations and that are subject to ongoing negotiations. Selling, General & Administrative (“SG&A”) expenses decreased (1.3)% driven primarily by lower commissions as a result of our revenue mix and lower bad debt expense. The decrease in SG&A expenses was partially offset by higher revenue-driven third-party digital fees.

Corporate expenses decreased $(1.3) million during the quarter ended December 31, 2019 compared to the three months ended December 31, 2018, as a result of lower employee benefit costs, partially offset by share-based compensation expense, which increased $5.8 million as a result of our new equity compensation plan entered into in connection with our Plan of Reorganization.

Operating income decreased (36.5)% due primarily to higher depreciation and amortization expense as a result of fresh start accounting applied upon our emergence from bankruptcy in May 2019 and the impact of updated estimates to music license fee expenses primarily related to prior years.

Adjusted EBITDA decreased year-over-year by (0.6)% to $306.1 million with a margin of 29.8%. Adjusted EBITDA was impacted by comparisons against a mid-term political election year in which revenue was weighted to the fourth quarter of 2018, as well as changes in overall revenue mix.

We generated robust operating cash flow of $205.4 million, down (8.9)% year-over-year and Free Cash Flow of $175.7 million, down (6.4)% year-over-year. These year-over-year decreases were primarily driven by an increase in cash interest payments of $103.4 million related to the debt issued upon our emergence in May 2019. This compares to the prior year when our cash interest payments were $1.2 million as the Company was in bankruptcy. The Operating and Free Cash Flow that we generated during the quarter increased our cash balance to $400.3 million at December 31, 2019.

GAAP and Non-GAAP Measures

(In thousands)

Successor Company

 

 

Predecessor Company

 

 

 

Three Months Ended December 31,

 

 

Three Months Ended December 31,

 

%

 

2019

 

 

2018

 

Change

Revenue

$

1,026,072

 

 

 

$

1,026,295

 

 

%

Operating income

$

165,126

 

 

 

$

259,951

 

 

(36.5

)%

Adjusted EBITDA1

$

306,140

 

 

 

$

308,094

 

 

(0.6

)%

Net income

$

62,132

 

 

 

$

224,908

 

 

(72.4

)%

Cash provided by operating activities from continuing operations3

$

205,363

 

 

 

$

225,506

 

 

(8.9

)%

Free cash flow from continuing operations1,3

$

175,675

 

 

 

$

187,709

 

 

(6.4

)%

(In thousands)

Successor Company

 

 

Predecessor Company

 

Non-GAAP Combined2

 

Predecessor Company

 

 

 

Period from May 2, 2019 through December 31,

 

 

Period from January 1, 2019 through May 1,

 

Year Ended December 31,

 

Year Ended December 31,

 

%

 

2019

 

 

2019

 

2019

 

2018

 

Change

Revenue

$

2,610,056

 

 

 

$

1,073,471

 

 

$

3,683,527

 

 

$

3,611,323

 

 

2.0

%

Operating income

$

439,636

 

 

 

$

67,040

 

 

$

506,676

 

 

$

690,144

 

 

(26.6

)%

Adjusted EBITDA1

$

775,549

 

 

 

$

225,149

 

 

$

1,000,698

 

 

$

976,655

 

 

2.5

%

Net income (loss)

$

113,299

 

 

 

$

11,165,113

 

 

$

11,278,412

 

 

$

(202,639

)

 

nm

Cash provided by (used in) operating activities from continuing operations3

$

468,905

 

 

 

$

(7,505

)

 

$

461,400

 

 

$

741,219

 

 

(37.8

)%

Free cash flow from (used in) continuing operations1,3

$

392,912

 

 

 

$

(43,702

)

 

$

349,210

 

 

$

655,974

 

 

(46.8

)%

Certain prior period amounts have been reclassified to conform to the 2019 presentation of financial information throughout the press release.

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) cash provided by operating activities from continuing operations to Free Cash Flow from continuing operations, (iv) revenue, excluding political advertising revenue, to revenue and (v) Total Debt to Net Debt. See also the definitions of Adjusted EBITDA, Free Cash Flow and Adjusted EBITDA margin under the Supplemental Disclosure section in this release.

2 See Supplemental Disclosure Regarding Non-GAAP Financial Information.

3 We made cash interest payments from continuing operations of $104.5 million in the three months ended December 31, 2019, compared to $1.2 million in the three months ended December 31, 2018. We made cash interest payments from continuing operations of $187.6 million in the year ended December 31, 2019, compared to $22.5 million in the year ended December 31, 2018.

iHeartMedia Modernization Initiatives

In January 2020, the Company announced its modernization initiatives, which will take advantage of the significant investments we have made in new technologies to build an operating infrastructure that provides better quality and newer products and delivers new cost efficiencies. Our modernization is a multi-pronged set of strategic initiatives that will position the company for sustainable long-term growth, margin expansion and drive shareholder value.

Key elements of our modernization initiatives include:

  • Leveraging our investments in artificial intelligence and technology to improve the efficiency of the business processes and expand support for our content creators and sales force to make the Company more competitive in today’s digitally-focused media environment
  • Optimizing our real estate footprint
  • Re-aligning our organizational model to emphasize operating similarities, maximize performance and drive cost efficiencies
  • Creating a more efficient and up-to-date workplace for our employees

Our investments in these modernization initiatives are expected to result in an increase in incremental capital expenditures related to real estate optimization of approximately $40 to $50 million in 2020. While we expect some additional capital expenditures impact from our modernization in 2021, the majority of this investment in capital expenditures is expected to impact 2020 and to be weighted to the second-half of the year. Additionally, we anticipate approximately $45 to $55 million of restructuring costs related to achieving our cost savings. These combined investments in modernization are expected to deliver annualized run-rate cost savings from our modernization initiatives of approximately $100 million by mid-year 2021 and we expect to achieve approximately 50% of our run-rate savings in 2020.

Liquidity and Financial Position

As of December 31, 2019, we had $400.3 million of cash on our balance sheet. For the year ended December 31, 2019, cash provided by operating activities from continuing operations was $461.4 million, cash used for investing activities by continuing operations was $112.1 million and cash used for financing activities by continuing operations was $165.3 million. As of December 31, 2019, our Net Debt to Adjusted EBITDA ratio was 5.4x1.

Capital expenditures related to continuing operations for the year ended December 31, 2019 were $112.2 million compared to $85.2 million in the year ended December 31, 2018 as a result of increased investment in our programmatic platforms and IT software and infrastructure.

Our primary sources of liquidity are cash on hand, which consisted of $400.3 million as of December 31, 2019, cash flow from operations and borrowing capacity under our ABL Facility. As of December 31, 2019, we had no borrowings outstanding under the ABL Facility, a facility size of $450.0 million and $48.1 million of outstanding letters of credit, resulting in $401.9 million of availability, resulting in total liquidity of approximately $802 million.

On August 7, 2019, we completed the sale of $750.0 million in aggregate principal amount of 5.25% Senior Secured Notes due 2027 in a private placement. We used the net proceeds from the notes, together with cash on hand, to prepay at par $740.0 million of borrowings outstanding under our term loan facility.

On November 22, 2019, we completed the sale of $500.0 million in aggregate principal amount of 4.75% Senior Secured Notes due 2028 in a private placement. We used the net proceeds from the notes, together with cash on hand, to prepay at par $500.0 million of borrowings outstanding under our term loan facility.

On February 3, 2020, iHeartCommunications made a $150.0 million prepayment using cash on hand and entered into an agreement to amend the Term Loan Facility to reduce the interest rate to LIBOR plus a margin of 3.00%, or the Base Rate (as defined in the Credit Agreement) plus a margin of 2.00% and to modify certain covenants contained in the Credit Agreement.

The prepayment and the 100 basis points reduction in interest rate under the Term Loan Facility, combined with the refinancing transactions completed in August and November 2019, are expected to result in a reduction of approximately $40 million in annualized cash interest payments compared to the expected annualized cash interest payments indicated by the terms of the debt structure originally issued upon iHeartCommunications’ emergence from bankruptcy on May 1, 2019.

1 See Supplemental Disclosure Regarding Non-GAAP Financial Information.

Update on FCC Petition for Declaratory Ruling

On February 25, 2020, the Federal Communications Commission (the “FCC”) issued a notice seeking public comment on the petition for declaratory ruling that we filed regarding foreign ownership. Our current equity structure consists of our listed Class A common stock and also Class B common stock and special warrants and was designed to comply with the statutory prohibition on broadcast companies having foreign ownership above 25%. The FCC petition for declaratory ruling was filed to simplify this capital structure and enhance the liquidity of our Class A common stock by facilitating the conversion of the special warrants.

The FCC will act on the petition only after a group of representatives from the executive branch, referred to as “Team Telecom,” approves it. We expect the Team Telecom process to begin shortly and have been working diligently – and will continue to work diligently – with the government to obtain all necessary approvals as quickly as possible.

Revenue Streams

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

(In thousands)

Successor Company

 

 

Predecessor Company

 

 

 

Three Months Ended December 31,

 

 

Three Months Ended December 31,

 

%

 

2019

 

 

2018

 

Change

Broadcast Radio1

$

611,794

 

 

 

$

628,487

 

 

(2.7

)%

Digital

112,495

 

 

 

84,177

 

 

33.6

%

Networks

160,072

 

 

 

156,683

 

 

2.2

%

Sponsorship and Events

71,856

 

 

 

68,266

 

 

5.3

%

Audio and Media Services1

66,882

 

 

 

83,479

 

 

(19.9

)%

Other

4,989

 

 

 

6,827

 

 

(26.9

)%

Eliminations

(2,016

)

 

 

(1,624

)

 

 

Revenue, total1

$

1,026,072

 

 

 

$

1,026,295

 

 

%

(In thousands)

Successor Company

 

 

Predecessor Company

 

Non-GAAP Combined3

 

Predecessor Company

 

 

 

Period from May 2, 2019 through December 31,

 

 

Period from January 1, 2019 through May 1,

 

Year Ended December 31,

 

Year Ended December 31,

 

%

 

2019

 

 

2019

 

2019

 

2018

 

Change

Broadcast Radio2

$

1,575,382

 

 

 

$

657,864

 

 

$

2,233,246

 

 

$

2,264,058

 

 

(1.4

)%

Digital

273,389

 

 

 

102,789

 

 

376,178

 

 

284,565

 

 

32.2

%

Networks

425,631

 

 

 

189,088

 

 

614,719

 

 

582,302

 

 

5.6

%

Sponsorship and Events

159,187

 

 

 

50,330

 

 

209,517

 

 

200,605

 

 

4.4

%

Audio and Media Services2

167,292

 

 

 

69,362

 

 

236,654

 

 

264,061

 

 

(10.4

)%

Other

14,211

 

 

 

6,606

 

 

20,817

 

 

22,240

 

 

(6.4

)%

Eliminations

(5,036

)

 

 

(2,568

)

 

(7,604

)

 

(6,508

)

 

 

Revenue, total2

$

2,610,056

 

 

 

$

1,073,471

 

 

$

3,683,527

 

 

$

3,611,323

 

 

2.0

%

1Excluding the impact of the decrease in political revenue, Revenue from Broadcast Radio, from Audio and Media Services and in Total increased by 0.8%, 4.5% and 4.3%, respectively. See the end of this press release for a reconciliation of revenue, excluding political advertising revenue, to revenue.

2Excluding the impact of the decrease in political revenue, Revenue from Broadcast Radio, from Audio and Media Services and in Total increased by 0.3%, 3.2% and 4.2%, respectively. See the end of this press release for a reconciliation of revenue, excluding political advertising revenue, to revenue.

3See Supplemental Disclosure Regarding Non-GAAP Financial Information.

Conference Call

iHeartMedia, Inc. will host a conference call to discuss results on February 27, 2020, at 4:30 p.m. Eastern Time. The conference call number is (844) 588-3850 (U.S. callers) and (825) 312-2273 (International callers) and the passcode for both is 9767198. 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 9767198. 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; 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 information services for local communities. The company uses its unparalleled national reach to target both nationally and locally on behalf of its advertising partners, and uses the latest technology solutions to transform the company’s products and services for the benefit of its consumers, communities, partners and advertisers. 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. In addition, any statements that refer to expectations or other characterizations of future events or circumstances, such as statements about our expected costs, savings and timing of our modernization initiatives, our business plans, strategies and initiatives, our expectations about certain markets and our anticipated financial performance and liquidity, are forward-looking statements.

Contacts

Media
Wendy Goldberg

Executive Vice President and Chief Communications Officer

(212) 377-1105

Investors
Kareem Chin

Senior Vice President and Head of Investor Relations

(212) 377-1336

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