iHeartMedia(IHRT) - 2021 Q4 - Annual Report

PART I Business iHeartMedia, a leading U.S. audio media company, operates three segments: Multiplatform, Digital Audio, and Audio & Media Services, leveraging a multi-platform strategy for growth and monetization - iHeartMedia is the number one audio media company in the U.S. by consumer reach, operating in the 'companionship' sector including radio and podcasting[19][24] - Effective January 1, 2021, the company realigned its business into three reportable segments for enhanced performance visibility[15][29][33] Segment Revenue (2019-2021) | Segment | 2021 Revenue (in millions) | 2020 Revenue (in millions) | 2019 Revenue (in millions) | | :--- | :--- | :--- | :--- | | Multiplatform Group | $2,489.0 | $2,206.9 | $3,078.3 | | Digital Audio Group | $834.5 | $474.4 | $376.2 | | Audio & Media Services Group | $248.0 | $274.7 | $236.7 | Business Segments The company's operations are divided into three main segments: Multiplatform, Digital Audio, and Audio & Media Services, each with distinct revenue streams - The Multiplatform Group, including broadcast radio and networks, generated $1.81 billion from broadcast radio in 2021[29][32] - The Digital Audio Group, encompassing podcasting and digital services, saw podcasting revenue grow to $252.6 million in 2021 from $101.7 million in 2020[39][41] - The Audio & Media Services Group provides media representation through Katz Media and broadcast software through RCS to over 3,400 and 10,000 stations respectively[44][48] Growth Strategy iHeartMedia's growth strategy focuses on leveraging multi-platform assets to capture advertising spend, broaden listener engagement, and drive higher CPMs through data-driven solutions - The company aims to capture a larger share of advertising spend across all mediums using its SmartAudio suite for data-driven targeting and attribution[46][47] - A key strategy is to broaden audio engagement by launching new content networks and expanding presence on connected devices[50][52] - iHeartMedia employs technology, including acquisitions like Unified, Voxnest, and Triton Digital, to create a complete ad tech and measurement solution for all audio forms[54] - The company aims to drive uplift in Cost Per Mille (CPM) by bundling advertising inventory, including high-value digital products like podcasts[55] Regulation of our Business The company's radio broadcasting operations are extensively regulated by the FCC, covering licensing, ownership limits, and foreign ownership, with iHeartMedia authorized for up to 100% foreign ownership - Radio broadcasting is subject to extensive FCC regulation governing license issuance, renewal, transfer, ownership limits, and program content[73] - The Communications Act restricts foreign ownership to 25%, but iHeartMedia received a November 2020 FCC ruling authorizing up to 100% foreign ownership under conditions[82][83] - The company pays significant license fees to PROs and SoundExchange for musical compositions and sound recordings, with rates subject to renegotiation and CRB review[87][88][90] - The business is subject to evolving privacy and data protection laws like CCPA, which can restrict data collection and impact targeted advertising capabilities[95][96] Risk Factors The company faces risks including COVID-19 impact, economic uncertainty, intense competition, substantial indebtedness, extensive FCC regulation, and evolving data privacy laws - The COVID-19 pandemic has adversely impacted and is expected to continue impacting the business through reduced ad budgets, event changes, and increased competition[100][101] - The company faces intense competition from other radio businesses, streaming audio services, satellite radio, and podcasts for audiences and advertising revenues[104][106] - Substantial indebtedness, including $4.3 billion in secured debt and $1.45 billion in unsecured debt, may limit operating flexibility[119] - Extensive FCC regulation could limit operations, and potential legislation or litigation may require additional music royalties, adversely affecting financial results[122][124] - Evolving data privacy regulations like CCPA and GDPR could hinder operations by restricting listener data use for targeted advertising and increasing compliance costs[128][129] Properties The company's corporate headquarters are leased in San Antonio, with radio station properties including offices, studios, and transmitter/antenna sites, mostly leased - Corporate headquarters are leased in San Antonio, TX, with radio station properties (offices, studios, transmitter/antenna sites) either owned or leased[153][154] - The company leases substantially all towers and antennas, while owning most other business equipment[155] Legal Proceedings The company is involved in legal proceedings, including an FCC foreign ownership matter where a December 2021 ruling approved GMEI Investors' stake and authorized up to 100% aggregate foreign ownership - The company filed a Remedial PDR with the FCC after Global Media & Entertainment Investments Ltd (GMEI Investors) acquired over 5% of its stock, inconsistent with foreign ownership rules[160] - On December 22, 2021, the FCC granted the Remedial PDR, approving GMEI Investors' stake, allowing increases up to 14.99%, and restating authorization for up to 100% aggregate foreign ownership[162] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities The company's Class A common stock trades on Nasdaq under 'IHRT'; no public market exists for Class B, and the company does not intend to pay dividends - Class A common stock trades on Nasdaq under "IHRT", with no public market for Class B common stock[167][168] Outstanding Shares and Warrants (as of Feb 18, 2022) | Security | Outstanding | | :--- | :--- | | Class A Common Stock | 120,270,406 | | Class B Common Stock | 21,589,449 | | Special Warrants | 5,293,069 | - The company currently has no intention to pay dividends on its Class A common stock[171] Issuer Purchases of Equity Securities (Q4 2021) | Period | Total Shares Purchased | Average Price Paid per Share (USD) | | :--- | :--- | :--- | | Oct 1 - Oct 31 | 73 | $24.99 | | Nov 1 - Nov 30 | 1,799 | $24.23 | | Dec 1 - Dec 31 | 4,095 | $21.88 | | Total | 5,967 | $22.63 | Management's Discussion and Analysis of Financial Condition and Results of Operations In 2021, iHeartMedia's financial performance showed significant recovery, with consolidated revenue up 20.7% to $3.56 billion, operating income turning positive, and strong liquidity Key Financial Results (2021 vs. 2020) | Metric | 2021 (in millions) | 2020 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Revenue | $3,558.3 | $2,948.2 | 20.7% | | Operating Income (Loss) | $154.9 | $(1,737.6) | NM | | Net Loss | $(158.4) | $(1,915.2) | NM | | Adjusted EBITDA | $811.1 | $538.7 | 50.6% | | Free Cash Flow | $147.2 | $130.7 | 12.6% | - The significant improvement in operating income and net loss in 2021 is primarily due to the absence of $1.7 billion in goodwill and FCC license impairment charges recorded in 2020[214][221] - As of December 31, 2021, the company had total available liquidity of approximately $775 million, including $352.1 million in cash and $423.1 million ABL facility availability[283] Results of Operations Consolidated revenue increased 20.7% to $3.56 billion in 2021, driven by strong Digital Audio growth and Multiplatform recovery, with operating income turning positive Revenue by Segment (2021 vs. 2020) | Segment | 2021 Revenue (in millions) | 2020 Revenue (in millions) | % Change | | :--- | :--- | :--- | :--- | | Multiplatform Group | $2,489.0 | $2,206.9 | 12.8% | | Digital Audio Group | $834.5 | $474.4 | 75.9% | | Audio & Media Services Group | $248.0 | $274.7 | (9.8)% | | Total Revenue | $3,558.3 | $2,948.2 | 20.7% | - The Digital Audio Group's revenue growth was driven by a 148.4% increase in Podcast revenue and a 56.1% increase in Digital (excluding Podcast) revenue[224] - The Multiplatform Group's revenue increased due to stronger broadcast advertising demand and the return of live events, with Sponsorship and Events revenue up 48.9%[222] - Operating expenses increased due to higher variable costs from revenue growth, including compensation, digital costs, and live event expenses, partially offset by cost-saving initiatives[211][212] Liquidity and Capital Resources The company's liquidity is strong, with $775 million available, driven by $330.6 million cash from operations, while investing activities included the Triton Digital acquisition and debt was reduced to $5.74 billion Cash Flow Summary (2021 vs. 2020) | Cash Flow Activity (in millions) | 2021 | 2020 | | :--- | :--- | :--- | | Operating Activities | $330.6 | $215.9 | | Investing Activities | $(346.8) | $(147.8) | | Financing Activities | $(352.1) | $241.2 | - Key uses of cash in 2021 included the acquisition of Triton Digital for $228.5 million and a voluntary debt prepayment of $250.0 million on Term Loan facilities[276][280] Debt Summary (as of Dec 31) | (In millions) | 2021 | 2020 | | :--- | :--- | :--- | | Total Debt | $5,738.9 | $6,016.9 | | Less: Cash & cash equivalents | $352.1 | $720.7 | | Net Debt | $5,386.7 | $5,296.3 | - Capital expenditures increased to $183.4 million in 2021 from $85.2 million in 2020, reflecting increased spending on infrastructure and IT[298] Critical Accounting Estimates Critical accounting estimates include the valuation of indefinite-lived intangible assets (FCC licenses) and goodwill, tested annually for impairment, and other estimates like allowance for doubtful accounts and lease accounting - The valuation of indefinite-lived intangible assets (FCC licenses) and goodwill are critical estimates, with no impairment recorded in the July 1, 2021 test[323][328] - The fair value of FCC licenses is sensitive to assumptions; a 100 basis point increase in discount rate would decrease fair value by an estimated $459.4 million[323][324] - Goodwill fair value is sensitive to assumptions; a 100 basis point increase in discount rate would decrease Multiplatform and Digital units by estimated $650 million and $270 million respectively[329][330] - Other critical estimates include allowance for doubtful accounts, lease accounting, income tax provisions, and litigation accruals[312][314][331] Financial Statements and Supplementary Data This section presents the audited consolidated financial statements for 2021, including balance sheets, income statements, cash flows, and detailed notes on accounting policies, segment data, debt, and fresh start accounting Note 2 – REVENUE This note disaggregates 2021 revenue by segment: Multiplatform Group generated $2.49 billion, Digital Audio Group $834.5 million, and Audio & Media Services Group $248.0 million Disaggregated Revenue by Segment and Stream (2021) | Segment | Revenue Stream | Revenue (in millions) | | :--- | :--- | :--- | | Multiplatform Group | Broadcast Radio | $1,812.3 | | | Networks | $503.1 | | | Sponsorship and Events | $160.3 | | | Other | $13.4 | | Digital Audio Group | Digital, excluding Podcast | $581.9 | | | Podcast | $252.6 | | Audio & Media Services Group | Audio & Media Services | $248.0 | - Trade and barter transactions generated $175.5 million in revenue and resulted in $149.8 million in expenses in 2021[434] Note 6 – LONG-TERM DEBT As of December 31, 2021, total debt was $5.74 billion, comprising $4.32 billion secured and $1.45 billion unsecured debt, with a $250.0 million voluntary prepayment on Term Loan facilities Long-Term Debt Outstanding (as of Dec 31, 2021) | Debt Instrument | Principal Amount (in millions) | | :--- | :--- | | Term Loan Facility due 2026 | $2,265.3 | | 6.375% Senior Secured Notes due 2026 | $800.0 | | 5.25% Senior Secured Notes due 2027 | $750.0 | | 4.75% Senior Secured Notes due 2028 | $500.0 | | 8.375% Senior Unsecured Notes due 2027 | $1,450.0 | | Other Debt | $5.4 | | Total Principal | $5,770.7 | - In July 2021, the company amended Term Loan facilities, reduced interest rates, and voluntarily prepaid $250.0 million of borrowings[292][486] - The company has a $450.0 million ABL Facility due 2023, with no outstanding borrowings and $423.1 million availability as of December 31, 2021[472][475] Note 15 - FRESH START ACCOUNTING Upon emerging from bankruptcy on May 1, 2019, the company adopted fresh start accounting, revaluing assets and liabilities to fair values, resulting in $3.32 billion goodwill and non-comparable financial statements - The company adopted fresh start accounting on May 1, 2019, upon emergence from Chapter 11 bankruptcy[612] - Enterprise value was estimated at $8.75 billion, resulting in a reorganization value of $10.71 billion, allocated to assets and liabilities at fair value[615][620] Key Fresh Start Intangible Asset Valuations | Intangible Asset | Estimated Fair Value (in millions) | Estimated Useful Life | | :--- | :--- | :--- | | FCC licenses | $2,281.7 | Indefinite | | Customer / advertiser relationships | $1,643.7 | 5 - 15 years | | Talent contracts | $373.0 | 2 - 10 years | | Trademarks and tradenames | $321.9 | 7 - 15 years | - The application of fresh start accounting resulted in the recognition of $3.32 billion in goodwill[639] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with an unqualified opinion from Ernst & Young LLP - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[658] - Management assessed internal control over financial reporting based on the COSO 2013 framework and concluded it was effective as of December 31, 2021[661] - Ernst & Young LLP, the independent auditor, issued an unqualified opinion on the company's internal control over financial reporting[662][666] PART III Directors, Executive Officers and Corporate Governance Information on directors, executive officers, and corporate governance, including the Code of Business Conduct and Ethics, is largely incorporated by reference from the 2022 Definitive Proxy Statement - Information regarding directors, executive officers, and corporate governance is largely incorporated by reference from the 2022 Definitive Proxy Statement[677][679] Executive Compensation All information concerning executive compensation is incorporated by reference from the company's forthcoming 2022 Definitive Proxy Statement - Details on executive compensation are incorporated by reference from the Definitive Proxy Statement[680] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters This section details equity compensation plans, including 10,136,602 securities to be issued upon exercise and 6,077,022 available for future issuance, with other information incorporated by reference Equity Compensation Plan Information | Plan Category | Securities to be issued upon exercise (A) | Weighted-Average exercise price of outstanding options (B) (USD) | Securities remaining available for future issuance (C) | | :--- | :--- | :--- | :--- | | Approved by security holders | 111,030 | $ — | 6,077,022 | | Not approved by security holders | 10,025,572 | $16.14 | — | | Total | 10,136,602 | $16.14 | 6,077,022 | Certain Relationships and Related Transactions, and Director Independence All information concerning certain relationships, related party transactions, and director independence is incorporated by reference from the 2022 Definitive Proxy Statement - Details on related party transactions and director independence are incorporated by reference from the Definitive Proxy Statement[683] Principal Accountant Fees and Services The company's independent auditor is Ernst & Young LLP, with all information concerning accountant fees and services incorporated by reference from the 2022 Definitive Proxy Statement - The company's independent auditor is Ernst & Young LLP; details on fees and services are incorporated by reference from the Definitive Proxy Statement[684] PART IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with the Form 10-K report, including Financial Statement Schedule II and a comprehensive list of exhibits - This item lists all financial statements, schedules, and exhibits filed with the 10-K report[686] - Financial Statement Schedule II, Valuation and Qualifying Accounts, is included, detailing changes in the allowance for doubtful accounts and deferred tax asset valuation allowance[688][690][691]