iHeartMedia(IHRT) - 2020 Q1 - Quarterly Report

Part I – Financial Information Financial Statements The Q1 2020 financial statements, reflecting the company as a Successor, show a $1.69 billion net loss driven by a $1.73 billion impairment charge due to COVID-19, reducing total assets to $9.3 billion Consolidated Balance Sheets As of March 31, 2020, total assets decreased to $9.31 billion due to impairment charges, while cash increased to $646.8 million and total stockholders' equity fell to $1.26 billion Consolidated Balance Sheet Highlights (in thousands) | Balance Sheet Item | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $646,774 | $400,300 | | Indefinite-lived intangibles - licenses | $1,774,999 | $2,277,735 | | Goodwill | $2,101,204 | $3,325,622 | | Total Assets | $9,312,060 | $11,021,099 | | Liabilities & Equity | | | | Total Current Liabilities | $645,844 | $667,398 | | Long-term debt | $5,923,666 | $5,756,504 | | Retained earnings (Accumulated deficit) | ($1,577,657) | $112,548 | | Total Stockholders' Equity | $1,259,302 | $2,945,441 | | Total Liabilities and Stockholders' Equity | $9,312,060 | $11,021,099 | Consolidated Statements of Comprehensive Loss Q1 2020 saw a $1.69 billion net loss, primarily due to a $1.73 billion impairment charge on goodwill and FCC licenses, with revenue declining 1.9% to $780.6 million Q1 2020 vs. Q1 2019 Performance (in thousands, except per share data) | Metric | Q1 2020 (Successor) | Q1 2019 (Predecessor) | | :--- | :--- | :--- | | Revenue | $780,634 | $795,797 | | Impairment charges | $1,727,857 | $91,382 | | Operating income (loss) | ($1,730,779) | $19,149 | | Net loss | ($1,688,736) | ($135,601) | | Net loss attributable to the Company | ($1,688,736) | ($114,383) | | Basic net loss per share | $(11.60) | $(1.34) | Consolidated Statements of Cash Flows Q1 2020 cash flows show $91.5 million from operations, $31.8 million used in investing, and $187.3 million from financing, resulting in a $246.5 million net cash increase Cash Flow Summary (in thousands) | Cash Flow Activity | Three Months Ended March 31, 2020 | | :--- | :--- | | Net cash provided by operating activities | $91,540 | | Net cash used for investing activities | ($31,800) | | Net cash provided by financing activities | $187,283 | | Net increase in cash, cash equivalents and restricted cash | $246,499 | - Financing activities were primarily driven by proceeds of $350.0 million from long-term debt and credit facilities, offset by payments of $162.4 million[19] Notes to Consolidated Financial Statements Notes detail COVID-19 impacts, including guidance withdrawal, a $350 million ABL draw, and impairment charges, alongside fresh start accounting and debt structure - The company withdrew its fiscal year 2020 financial guidance due to uncertainty from the COVID-19 pandemic[25] - As a precautionary measure, the company borrowed $350.0 million under its ABL Facility to enhance financial flexibility amid the pandemic[25] - The company emerged from Chapter 11 on May 1, 2019, and adopted fresh start accounting, making financial statements after this date not comparable to prior periods[31][32] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses COVID-19's impact, including a 1.9% revenue decline, a $1.7 billion impairment charge, and proactive $350 million ABL draw and cost-saving measures, with Adjusted EBITDA down 10.6% - The company's revenue saw strong growth in January and February 2020 but experienced a sharp decline in March due to the COVID-19 pandemic[145][146] - Due to the economic downturn caused by COVID-19, the company recorded non-cash impairment charges of $1.7 billion against goodwill and intangible assets[133][146] - To preserve financial flexibility, the company borrowed $350.0 million from its ABL facility and implemented cost-reduction measures, including expense cuts, reduced capital expenditures, and management compensation reductions[132][183][184] Q1 2020 Key Financial Metrics (in thousands) | Metric | Q1 2020 (Successor) | Q1 2019 (Predecessor) | % Change | | :--- | :--- | :--- | :--- | | Revenue | $780,634 | $795,797 | (1.9)% | | Operating income (loss) | $(1,730,779) | $19,149 | nm | | Net loss | $(1,688,736) | $(135,601) | nm | | Adjusted EBITDA | $140,339 | $157,051 | (10.6)% | | Free cash flow from continuing operations | $69,876 | $113,713 | (38.6)% | Impairment Charges An interim impairment test due to COVID-19 resulted in a $502.7 million non-cash charge on FCC licenses and a $1.2 billion non-cash charge to goodwill - A non-cash impairment charge of $502.7 million was recognized on the company's indefinite-lived FCC licenses[136] - A non-cash impairment charge of $1.2 billion was recognized to reduce goodwill after the estimated fair value of a reporting unit fell below its carrying value[138] Results of Operations Q1 2020 revenue decreased 1.9% due to COVID-19's impact on broadcast and events, despite digital and political growth, leading to a $1.73 billion operating loss - Revenue decreased by $15.2 million, primarily due to a decline in broadcast spot revenue ($25.6 million) and sponsorship/events revenue ($10.4 million) caused by COVID-19[152] - The revenue decline was partially offset by a $16.8 million increase in Digital revenue (driven by podcasting) and a $14.9 million increase in political advertising revenue[152] - Direct operating expenses and SG&A expenses increased by $18.8 million and $19.2 million, respectively, driven by costs related to modernization initiatives, higher digital content costs, and increased bad debt expense[153][154] - Depreciation and amortization increased by $58.5 million primarily due to higher asset values resulting from the application of fresh start accounting[156] Liquidity and Capital Resources The company's liquidity, including $646.8 million cash and a $350 million ABL draw, is bolstered by cost-saving measures, with sufficient funds for the next 12 months despite anticipated $258 million in interest payments - As of March 31, 2020, the company had $646.8 million in cash on hand, which includes a $350.0 million precautionary draw on its ABL Facility[181] - The company implemented several cost-saving measures in response to COVID-19, including: suspension of hiring, T&E, and 401(k) match; reduction in planned capital expenditures; and compensation reductions for senior management[184] - The company anticipates cash interest payments of approximately $86 million in Q2 2020 and $258 million for the remainder of 2020[182] - On February 3, 2020, the company made a $150.0 million prepayment on its Term Loan Facility and amended the facility to reduce the interest rate by 100 bps[149][186] Quantitative and Qualitative Disclosures About Market Risk The company faces market risk from 42% variable-rate debt, with a 50% LIBOR change impacting interest expense by $5.3 million, and manages inflation risk through advertising rate adjustments - The company has significant interest rate risk, with 42% of its long-term debt at variable rates as of March 31, 2020[198] - A 50% change in LIBOR is estimated to change quarterly interest expense by $5.3 million[198] Controls and Procedures Management concluded disclosure controls were effective as of March 31, 2020, with no material impact on internal controls from the shift to remote work due to COVID-19 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of March 31, 2020[208] - There were no changes in internal control over financial reporting during the quarter that materially affected, or are reasonably likely to materially affect, internal controls[209] Part II – Other Information Legal Proceedings The company faces ordinary legal proceedings and a significant FCC Foreign Ownership Rule issue, having filed a PDR to permit up to 100% foreign ownership, with uncertain outcome - The company is involved in various legal proceedings arising in the ordinary course of business[212][213] - A significant issue is compliance with the FCC's Foreign Ownership Rule. The company has filed a Petition for Declaratory Ruling (PDR) to allow for higher foreign ownership, which is pending review[214][216] Risk Factors Key risks include the ongoing adverse impact of the COVID-19 pandemic on advertising and operations, alongside anti-takeover provisions and a new stockholder rights plan - The COVID-19 pandemic has adversely impacted and is expected to continue to adversely impact the business, results of operations, and financial position[218] - Specific pandemic-related risks include reduced ad spending, event cancellations, inability of customers to pay, and potential for additional goodwill impairment charges[220] - The company's certificate of incorporation, bylaws, and a new stockholder rights plan contain anti-takeover provisions that may prevent or delay a change in control[222][225] Unregistered Sales of Equity Securities and Use of Proceeds In Q1 2020, the company repurchased 4,965 Class A common shares at an average of $17.53 per share, primarily for employee tax withholding Share Repurchases in Q1 2020 | Period | Total Shares Purchased | Average Price Paid per Share | | :--- | :--- | :--- | | January 2020 | 863 | $16.61 | | February 2020 | 4,102 | $17.72 | | March 2020 | — | — | | Total | 4,965 | $17.53 | Defaults Upon Senior Securities This section is not applicable for the current reporting period Mine Safety Disclosures This section is not applicable for the current reporting period Other Information No other material information is reported in this section Exhibits This section lists exhibits filed with the Form 10-Q, including the Plan of Reorganization, corporate governance documents, and CEO/CFO certifications