iHeartMedia, Inc. 10-Q

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Format of Presentation Management’s discussion and analysis of financial condition and results of operations (“MD&A”) should be read in conjunction with the consolidated financial statements and related footnotes contained in Item 1 of this Quarterly Report on Form 10-Q of iHeartMedia, Inc. (the "Company," "iHeartMedia," "we," or "us"). Beginning on January 1, 2021, we began reporting based on three reportable segments: ▪ the iHeartMedia Multiplatform Group, which includes our Broadcast radio, Networks and Sponsorships and Events businesses; ▪ the iHeartMedia Digital Audio Group, which includes our Digital businesses, including Podcasting; and ▪ the Audio & Media Services Group, which includes Katz Media Group (“Katz Media”), our full-service media representation business, and RCS Sound Software ("RCS"), a provider of scheduling and broadcast software and services. These reporting segments reflect how senior management operates the Company, align with certain leadership and organizational changes implemented in the first quarter of 2021 and provide improved visibility into the underlying performances, results, and margin profiles of our distinct businesses. Additionally, beginning on January 1, 2021, Segment Adjusted EBITDA became the segment profitability metric reported to the Company's Chief Operating Decision Maker for purposes of making decisions about allocation of resources to, and assessing performance of, each reportable segment. Segment Adjusted EBITDA is calculated as Revenue less operating expenses, excluding Restructuring expenses (as defined below) and share-based compensation expenses. Over the past ten years, we have transitioned our business from a single platform radio broadcast operator to a company with multiple platforms including podcasting, networks and live events. We have also invested in numerous technologies and businesses to increase the competitiveness of our inventory with our advertisers and our audience. We believe the presentation of our results by segment provides additional insight into our broadcast radio business and our fast-growing digital business. We believe that our ability to generate cash flow from operations from our business initiatives and our current cash on hand will provide sufficient resources to fund and operate our business, fund capital expenditures and other obligations and make interest payments on our long-term debt for at least the next 12 months. Description of our Business Our strategy centers on delivering entertaining and informative content where our listeners want to find us across our Multiplatform Group, including broadcast and events, and our Digital Audio Group, including podcasting and streaming services. The primary source of revenue for our Multiplatform Group is from selling local and national advertising time on our radio stations, with contracts typically less than one year in duration. The programming formats of our radio stations are designed to reach audiences with targeted demographic characteristics. We work closely with our advertising and marketing partners to develop tools and leverage data to enable advertisers to effectively reach their desired audiences. Our Multiplatform Group also generates revenue from network syndication, nationally recognized events and other miscellaneous transactions. Through our Digital Audio Group, we continue to expand the choices for listeners and we derive revenue by delivering our content and selling advertising across multiple digital distribution channels, including via our iHeartRadio mobile application, our station websites and other digital platforms which reach national, regional and local audiences. Audio & Media Services Group revenue is generated by services provided to broadcast industry participants through our Katz Media and RCS businesses. As a media representation firm, Katz Media generates revenue via commissions on media sold on behalf of the radio and television stations that it represents, while RCS generates revenue by providing broadcast and webcast software and technology and services to radio stations, television music channels, cable companies, satellite music networks and Internet stations worldwide. Our advertising revenue is highly correlated to changes in gross domestic product (“GDP”) as advertising spending has historically trended in line with GDP. A recession or downturn in the U.S. economy could have a significant impact on the Company’s ability to generate revenue. As a result of the impact of the coronavirus pandemic (“COVID-19”) and the resulting impact on the U.S. economy, our revenue for the three months ended March 31, 2021 has declined compared to the first quarter of 2020. Beginning in March 2020 and continuing in the following months, we saw a sharp decline in each of our Broadcast radio, Networks and Sponsorships revenue streams. Although revenue increased substantially from the second quarter of 2020 to the third and fourth quarters of 2020 and the first quarter of 2021, we have continued to experience year-over-year declines 22 during these quarters in the Broadcast radio, Networks and Sponsorships revenue streams of our Multiplatform Group. Our Digital Audio Group revenues, including podcasting, have continued to grow each quarter year-over-year during the COVID-19 pandemic. As the business environment continues to build positive momentum, we expect that the traditional promotional use of radio to be a strong benefit to us. As businesses continue to recover, we believe that we are advantaged by our unparalleled reach and the live and local trusted voices that advertisers need to get their messages out quickly. In January 2020, we announced key modernization initiatives designed to take advantage of the significant investments that the Company has made in new technologies to build an improved operating infrastructure to upgrade products and deliver incremental 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 stockholders. As we had targeted, our investments in modernization delivered approximately $50 million of in-year savings in 2020, and we remain on track to deliver annualized run-rate cost savings of approximately $100 million by mid-year 2021. In April 2020, we announced approximately $200 million of incremental in-year operating-expense-saving initiatives in response to the weaker economic environment caused by the COVID-19 pandemic. As previously announced, the Company has implemented plans to make the majority of these savings permanent. For more information, please see the Liquidity and Capital Resources - Anticipated Cash Requirements section below. Impairment Charges As part of our operating-expense-savings initiatives, we have taken proactive steps to streamline our real estate footprint and reduce related structural lease expenses incurred by the Company. These strategic actions typically result in impairment charges due to the write-down of the affected right-of-use assets and related fixed assets, including leasehold improvements. For the three months ended March 31, 2021, we recognized non-cash impairment charges of $37.7 million as a result of these cost-savings initiatives. As a result of the changes in the Company's management structure and its reportable segments, we were required to perform interim impairment tests on goodwill as of January 1, 2021. No impairment charges were recorded in the first quarter of 2021 in connection with the interim impairment test. While we believe we made reasonable estimates and utilized reasonable assumptions to calculate the fair values of our long-lived assets, indefinite-lived FCC licenses and reporting units, it is possible a material change could occur to the estimated fair value of these assets. If our actual results are not consistent with our estimates, we could be exposed to future impairment losses that could be material to our results of operations. 23 Executive Summary Although we believe economic conditions are improving, our results for the first quarter of 2021 continued to be impacted by the weaker economic conditions as a result of the COVID-19 pandemic. While Digital revenue, including podcasting, continued to grow year-over-year, our other revenue streams, including broadcast radio, networks and sponsorship and events declined in the first quarter of 2021 compared to the first quarter of 2020. The year-over-year percentage decline for the first quarter of 2021 is less than the period-over-period declines experienced during 2020, and consolidated revenue for the month of March 2021 grew compared to March 2020. The extent of the economic downturn and the timing of recovery, as well as the future impact on our operations, are subject to significant uncertainty. The key developments that impacted our business during the quarter are summarized below: • Consolidated Revenue of $706.7 million decreased 9.5% during the quarter ended March 31, 2021 compared to Revenue of $780.6 million in the prior year's first quarter. • Revenue and Adjusted EBITDA from our Multiplatform Group decreased 20.9% and 30.9% compared to the prior year's first quarter. • Revenue and Adjusted EBITDA from our Digital Audio Group increased 69.8% and 141.1% compared to the prior year's first quarter. • Revenue and Adjusted EBITDA from our Audio & Media Services Group decreased 8.5% and 13.3% compared to the prior year's first quarter. • Operating loss of $76.4 million was down from $1,730.8 million in the prior year’s quarter due to impairment charges of $1,727.9 million recognized in the first quarter of 2020. • Net loss of $242.1 million decreased from $1,688.7 million in the prior year's quarter. • Adjusted EBITDA (1) of $102.2 million, was down from $140.3 million compared to prior year's quarter. • Cash flows provided by operating activities of $71.7 million decreased from Cash flows provided by operating activities of $91.5 million in the prior year's quarter. • Free cash flow (2) from operations of $52.8 million decreased from $69.9 million in the prior year's quarter. The table below presents a summary of our historical results of operations for the periods presented: (In thousands) Three Months Ended March 31, % 2021 2020 Change Revenue $ 706,665 $ 780,634 (9.5) % Operating loss $ (76,356) $ (1,730,779) NM Net loss $ (242,056) $ (1,688,736) NM Cash provided by operating activities $ 71,728 $ 91,540 (21.6) % Adjusted EBITDA (1) $ 102,247 $ 140,339 (27.1) % Free cash flow from operations (2) $ 52,778 $ 69,876 (24.5) % (1) For a definition of Adjusted EBITDA and a reconciliation to Operating income, the most closely comparable GAAP measure, and to Net income (loss), please see "Reconciliation of Operating Loss to Adjusted EBITDA" and "Reconciliation of Net Loss to EBITDA and Adjusted EBITDA" in this MD&A. (2) For a definition of Free cash flow from operations and a reconciliation to Cash provided by operating activities, the most closely comparable GAAP measure, please see “Reconciliation of Cash provided by operating activities to Free cash flow from operations” in this MD&A. 24 Results of Operations The tables below present the comparison of our historical results of operations for the periods presented: (In thousands) Three Months Ended March 31, 2021 2020 Revenue $ 706,665 $ 780,634 Operating expenses: Direct operating expenses (excludes depreciation and amortization) 292,813 293,921 Selling, general and administrative expenses (excludes depreciation and amortization) 342,330 391,801 Depreciation and amortization 107,363 96,768 Impairment charges 37,744 1,727,857 Other operating expense, net 2,771 1,066 Operating loss (76,356) (1,730,779) Interest expense, net 85,121 90,089 Gain (loss) on investments, net 191 (9,955) Equity in loss of nonconsolidated affiliates (28) (564) Other expense, net (807) (7,860) Loss before income taxes (162,121) (1,839,247) Income tax benefit (expense) (79,935) 150,511 Net loss (242,056) (1,688,736) Less amount attributable to noncontrolling interest (333) — Net loss attributable to the Company $ (241,723) $ (1,688,736) The tables below present the comparison of our revenue streams for the periods presented: (In thousands) Three Months Ended March 31, % 2021 2020 Change Broadcast Radio $ 358,536 $ 461,660 (22.3) % Networks 115,086 134,577 (14.5) % Sponsorship and Events 22,393 29,348 (23.7) % Other 1,882 4,024 (53.2) % Multiplatform Group 497,897 629,609 (20.9) % Digital, excluding Podcast 119,201 76,921 55.0 % Podcast 38,352 15,855 141.9 % Digital Audio Group 157,553 92,776 69.8 % Audio & Media Services Group 55,137 60,227 (8.5) % Eliminations (3,922) (1,978) Revenue, total $ 706,665 $ 780,634 (9.5) % Consolidated results for the three months ended March 31, 2021 compared to the consolidated results for the three months ended March 31, 2020 were as follows: Revenue Consolidated Revenue decreased $74.0 million during the three months ended March 31, 2021 compared to the same period of 2020. The decrease in Consolidated revenue is attributable to the macroeconomic effects of COVID-19, which began to unfold into a global pandemic in early March 2020, resulting in a significant economic downturn due to the shut-down of 25 non-essential businesses and shelter-in-place orders. The impact continued through 2020 and the first quarter of 2021, resulting in revenue declines impacting most of our revenue streams primarily as a result of a decrease in broadcast radio advertising spend. Multiplatform revenue decreased $131.7 million, primarily resulting from a decrease in Broadcast revenue. Digital Audio revenue increased $64.8 million, driven primarily by increased demand for digital advertising, as well as continued growth in podcasting. Audio & Media Services revenue decreased $5.1 million primarily due to a $5.4 million decrease in political revenue as a result of 2020 being a presidential election year. Direct Operating Expenses Consolidated direct operating expenses decreased $1.1 million during the three months ended March 31, 2021 compared to the same period of 2020. The decrease in Consolidated direct operating expenses was driven primarily by lower employee compensation expenses resulting from our modernization initiatives and 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 as a result of the postponement or cancellation of events in response to the COVID-19 pandemic. The decrease in Consolidated direct operating expenses was partially offset by higher variable digital costs, resulting from an increase in digital revenue. Selling, General and Administrative (“SG&A”) Expenses Consolidated SG&A expenses decreased $49.5 million during the three months ended March 31, 2021 compared to the same period of 2020. The decrease in Consolidated SG&A expenses was driven primarily by lower employee compensation expenses resulting from cost reduction initiatives, along with lower sales commissions, which were impacted by the decrease in revenue. Trade and barter expenses also decreased primarily as a result of the cancellation / postponement of events, in addition to lower travel and entertainment expenses resulting from operating-expense-saving initiatives put into place in response to the COVID-19 pandemic. These decreases, which primarily impacted our Multiplatform Group, were partially offset by higher expenses for our Digital Audio Group and other increases compared to the first quarter of 2020 including higher variable compensation across our businesses and corporate functions. Depreciation and Amortization Depreciation and amortization increased $10.6 million during the three months ended March 31, 2021 compared to the same period of 2020, primarily as a result of accelerated amortization of certain intangible assets and accelerated depreciation related to leasehold improvements related to our cost-saving initiatives, as well as higher depreciation resulting from our investments in IT infrastructure and amortization recognized on intangible assets of businesses acquired in 2020. Impairment Charges As part of our operating-expense-savings initiatives, we have taken strategic actions to streamline our real estate footprint and related expenses, resulting in impairment charges due to the write-down of right-of-use assets and related fixed assets, including leasehold improvements. For the three months ended March 31, 2021, we recognized non-cash impairment charges of $37.7 million as a result of these cost-savings initiatives. We perform our annual impairment test on our goodwill and FCC licenses as of July 1 of each year. In addition, we test for impairment of intangible assets whenever events and circumstances indicate that such assets might be impaired. As discussed above, as a result of the changes in the Company's management structure and its reportable segments, we performed an interim impairment test on goodwill as of January 1, 2021. No impairment charges were recorded in the first quarter of 2021 in connection with the interim impairment test. In the three months ended March 31, 2020, we recognized non-cash impairment charges to our indefinite-lived intangible assets and goodwill of $1.7 billion as a result of the adverse effects caused by the COVID-19 pandemic on estimated future cash flows. Other Operating Expense, Net Other operating expense, net of $2.8 million and $1.1 million for the three months ended March 31, 2021 and 2020, respectively, relate to net losses recognized on asset disposals. Interest Expense Interest expense decreased $5.0 million during the three months ended March 31, 2021 compared to the same period of 2020, primarily as a result of the impact of lower LIBOR rates. 26 Gain (Loss) on Investments, Net During the three months ended March 31, 2021 and 2020, we recognized a gain on investments, net of $0.2 million and a loss on investments of $10.0 million, respectively. The loss on investments, net recognized during the three months ended March 31, 2020 was primarily in connection with estimated credit losses and declines in the value of our investments. Other Income (Expense), Net Other expense, net was $0.8 million and $7.9 million for the three months ended March 31, 2021 and 2020, respectively. Other expense, net for the three months ended March 31, 2020 related primarily to costs incurred to amend our Term Loan Facility and professional fees incurred. Income Tax Benefit (Expense) The effective tax rate for the Company for the three months ended March 31, 2021 was (49.3)%. The effective tax rate for the three months ended March 31, 2021 was primarily impacted by the deferred tax expense recorded for the valuation allowance against certain deferred tax assets for disallowed interest expense and net operating loss carryforwards due to the uncertainty of the Company’s ability to utilize those assets in future periods. The effective tax rate for the three months ended March 31, 2020 was 8.2%. The effective tax rate for the period was primarily impacted by the impairment charges discussed above. The deferred tax benefit primarily consists of $125.5 million related to the FCC license impairment charges recorded during the period. Net Income (Loss) Attributable to the Company Net loss attributable to the Company decreased $1,447.0 million to $241.7 million during the three months ended March 31, 2021 compared to Net loss attributable to the Company of $1,688.7 million during the three months ended March 31, 2020, primarily as a result of the impairment charge recognized during the first quarter of 2020. First Quarter 2021 Multiplatform Group Results (In thousands) Three Months Ended March 31, 2021 2020 % Change Revenue $ 497,897 $ 629,609 (20.9) % Operating expenses (1) 393,106 478,004 (17.8) % Segment Adjusted EBITDA $ 104,791 $ 151,605 (30.9) % Segment Adjusted EBITDA margin 21.0 % 24.1 % (1) Operating expenses consist of Direct operating expenses and Selling, general and administrative expenses, excluding Restructuring expenses. Revenue from our Multiplatform Group decreased 20.9% compared to the comparative period in prior year, primarily as a result of the negative impact of the COVID-19 pandemic on our traditional radio business. Broadcast revenue declined 22.3% year-over-year, while Networks declined 14.5% year-over-year. Revenue from Sponsorship and Events decreased by 23.7% year-over-year, primarily as a result of the postponement or cancellations of events in response to the COVID-19 pandemic. However, we continue to see sequential recovery from the low-point in 2020. Revenue for the Multiplatform Group was down 4.6% in March 2021 compared to the same month in the prior year. Operating expenses decreased 17.8%, driven primarily by lower employee compensation expenses resulting from our modernization and cost-reduction initiatives. In addition, variable operating expenses, including music license fees, sales commissions and trade and barter expenses, decreased in relation to lower revenue recognized during the period. Variable expenses related to events also decreased as a result of the postponement or cancellation of events in response to the COVID-19 pandemic. First Quarter 2021 Digital Audio Group Results 27 (In thousands) Three Months Ended March 31, 2021 2020 % Change Revenue $ 157,553 $ 92,776 69.8 % Operating expenses (1) 117,542 76,182 54.3 % Segment Adjusted EBITDA $ 40,011 $ 16,594 141.1 % Segment Adjusted EBITDA margin 25.4 % 17.9 % (1) Operating expenses consist of Direct operating expenses and Selling, general and administrative expenses, excluding Restructuring expenses. Revenue from our Digital Audio Group increased 69.8% compared to the comparative period in the prior year, led by continued growth in Podcast, which increased by 141.9% year-over-year. Digital, excluding Podcast revenue grew 55.0%, driven by increased demand for digital advertising. Digital revenues increased as a result of general increased demand for digital advertising, the continued addition of premium content to our industry-leading podcast business, our improving ability to monetize our digital audiences and inventory, as well as a general improvement to the macroeconomic environment. Operating expenses increased 54.3%, in connection with our Digital Audio Group’s significant revenue growth, including the impact of variable content and talent costs and third-party digital costs due to higher revenue, as well as increased content and production costs primarily resulting from the development of new podcasts. In addition, operating expenses increased due to additional headcount resulting from recent acquisitions, as well as higher variable compensation expenses including sales commissions and bonus arrangements. First Quarter 2021 Audio & Media Services Group Results (In thousands) Three Months Ended March 31, 2021 2020 % Change Revenue $ 55,137 $ 60,227 (8.5) % Operating expenses (1) 39,788 42,527 (6.4) % Segment Adjusted EBITDA $ 15,349 $ 17,700 (13.3) % Segment Adjusted EBITDA margin 27.8 % 29.4 % (1) Operating expenses consist of Direct operating expenses and Selling, general and administrative expenses, excluding Restructuring expenses. Revenue from our Audio & Media Services Group decreased 8.5% compared to the comparative period in prior year, as a result of the presidential election in the prior year, which significantly impacted revenue from our Katz business. Operating expenses decreased 6.4% driven primarily by lower employee compensation expenses resulting from our modernization and cost-reduction initiatives. In addition, variable operating expenses, including sales commissions, decreased in relation to lower revenue recognized during the period. Reconciliation of Operating Loss to Adjusted EBITDA (In thousands) Three Months Ended March 31, 2021 2020 Operating loss $ (76,356) $ (1,730,779) Depreciation and amortization 107,363 96,768 Impairment charges 37,744 1,727,857 Other operating expense, net 2,771 1,066 Share-based compensation expense 5,685 4,625 Restructuring expenses 25,040 40,802 Adjusted EBITDA (1) $ 102,247 $ 140,339 28 Reconciliation of Net Loss to EBITDA and Adjusted EBITDA (In thousands) Three Months Ended March 31, 2021 2020 Net loss $ (242,056) $ (1,688,736) Income tax (benefit) expense 79,935 (150,511) Interest expense, net 85,121 90,089 Depreciation and amortization 107,363 96,768 EBITDA $ 30,363 $ (1,652,390) Loss (Gain) on investments, net (191) 9,955 Other expense, net 807 7,860 Equity in loss of nonconsolidated affiliates 28 564 Impairment charges 37,744 1,727,857 Other operating expense, net 2,771 1,066 Share-based compensation expense 5,685 4,625 Restructuring expenses 25,040 40,802 Adjusted EBITDA (1) $ 102,247 $ 140,339 (1) We define Adjusted EBITDA as consolidated Operating income (loss) adjusted to exclude restructuring expenses included within Direct operating expenses and SG&A expenses, and share-based compensation expenses included within SG&A expenses, as well as the following line items presented in our Statements of Operations: Depreciation and amortization, Impairment charges and Other operating expense (income), net. Alternatively, Adjusted EBITDA is calculated as Net income (loss), adjusted to exclude Income tax (benefit) expense, Interest expense (income), net, Depreciation and amortization, (Gain) Loss on investments, net, Other (income) expense, net, Equity in loss of nonconsolidated affiliates, net, Impairment charges, Other operating expense (income), net, Share-based compensation expense, and restructuring expenses. Restructuring expenses primarily include severance expenses incurred in connection with cost-saving initiatives, as well as certain expenses, which, in the view of management, are outside the ordinary course of business or otherwise not representative of the Company's operations during a normal business cycle. We use Adjusted EBITDA, among other measures, to evaluate the Company’s operating performance. This measure is among the primary measures used by management for the planning and forecasting of future periods, as well as for measuring performance for compensation of executives and other members of management. We believe this measure is an important indicator of our operational strength and performance of our business because it provides a link between operational performance and operating income. It is also a primary measure used by management in evaluating companies as potential acquisition targets. We believe the presentation of this measure is relevant and useful for investors because it allows investors to view performance in a manner similar to the method used by management. We believe it helps improve investors’ ability to understand our operating performance and makes it easier to compare our results with other companies that have different capital structures or tax rates. In addition, we believe this measure is also among the primary measures used externally by our investors, analysts and peers in our industry for purposes of valuation and comparing our operating performance to other companies in our industry. Since Adjusted EBITDA is not a measure calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, operating income or net income (loss) as an indicator of operating performance and may not be comparable to similarly titled measures employed by other companies. Adjusted EBITDA is not necessarily a measure of our ability to fund our cash needs. Because it excludes certain financial information compared with operating income and compared with consolidated net income (loss), the most directly comparable GAAP financial measures, users of this financial information should consider the types of events and transactions which are excluded. 29 Reconciliation of Cash Provided by Operating Activities to Free Cash Flow from Operations (In thousands) Three Months Ended March 31, 2021 2020 Cash provided by operating activities $ 71,728 $ 91,540 Purchases of property, plant and equipment (18,950) (21,664) Free cash flow from operations (1) $ 52,778 $ 69,876 (1) We define Free cash flow from operations ("Free Cash Flow") as Cash provided by operating activities less capital expenditures, which is disclosed as Purchases of property, plant and equipment in the Company's Consolidated Statements of Cash Flows. We use Free Cash Flow, among other measures, to evaluate the Company’s liquidity and its ability to generate cash flow. We believe that Free Cash Flow is meaningful to investors because we review cash flows generated from operations after taking into consideration capital expenditures due to the fact that these expenditures are considered to be a necessary component of ongoing operations. In addition, we believe that Free Cash Flow helps improve investors' ability to compare our liquidity with other companies. Since Free Cash Flow is not a measure calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, Cash provided by operating activities and may not be comparable to similarly titled measures employed by other companies. Free Cash Flow is not necessarily a measure of our ability to fund our cash needs. Share-Based Compensation Expense Historically, we had granted restricted shares of the Company's Class A common stock to certain key individuals. Pursuant to our 2019 Equity Incentive Plan (the "2019 Plan"), we granted restricted stock units and options to purchase shares of the Company's Class A common stock to certain key individuals. On April 21, 2021, our 2021 Long-Term Incentive Award Plan was approved by stockholders and replaced the 2019 Plan. Share-based compensation expenses are recorded in SG&A expenses and were $5.7 million and $4.6 million for the three months ended March 31, 2021 and 2020, respectively. As of March 31, 2021, there was $48.4 million of unrecognized compensation cost related to unvested share-based compensation arrangements with vesting based on service conditions. This cost is expected to be recognized over a weighted average period of approximately 2.6 years. In addition, as of March 31, 2021, there was $1.1 million of unrecognized compensation costs related to unvested share-based compensation arrangements that will vest based on performance conditions. 30 LIQUIDITY AND CAPITAL RESOURCES Cash Flows The following discussion highlights cash flow activities during the periods presented: (In thousands) Three Months Ended March 31, 2021 2020 Cash provided by (used for): Operating activities $ 71,728 91,540 Investing activities $ (249,324) $ (31,800) Financing activities $ (13,811) $ 187,283 Free Cash Flow (1) $ 52,778 $ 69,876 (1) For a definition of Free cash flow from operations and a reconciliation to Cash provided by operating activities from operations, the most closely comparable GAAP measure, please see “Reconciliation of Cash provided by operating activities from operations to Free cash flow from operations” in this MD&A. Operating Activities Cash provided by operating activities decreased from $91.5 million in the three months ended March 31, 2020 to $71.7 million in the three months ended March 31, 2021 primarily as a result of a decrease in Revenue driven by the decline in advertising spend resulting from the economic slow-down impacted by the COVID-19 pandemic. The decrease was offset by changes in working capital balances, particularly accrued expenses, which was impacted by the timing of payments. Investing Activities Cash used for investing activities of $249.3 million during the three months ended March 31, 2021 primarily reflects the net cash payment made to acquire Triton Digital for $228.4 million. In addition, $19.0 million in cash was used for capital expenditures. We spent $10.1 million for capital expenditures in our Multiplatform Group segment and $5.4 million for capital expenditures in our Digital Audio Group segment primarily related to IT infrastructure, $1.1 million in our Audio & Media Services Group segment, primarily related to software and $2.4 million in Corporate primarily related to equipment and software purchases. Cash used for investing activities of $31.8 million during the three months ended March 31, 2020 primarily reflects $21.7 million in cash used for capital expenditures. We spent $13.3 million for capital expenditures in our Multiplatform Group segment primarily related to IT infrastructure, $3.5 million in our Digital Audio Group segment primarily related to investments in our digital platform, $0.7 million in our Audio & Media Services Group segment, primarily related to acquired software and $4.2 million in Corporate primarily related to equipment and software purchases. 31 Financing Activities Cash used for financing activities of $13.8 million during the three months ended March 31, 2021 primarily resulted from required quarterly principal payments made on the Term Loan Facility and repayment of a subsidiary note payable. Cash provided by financing activities of $187.3 million during the three months ended March 31, 2020 primarily resulted from a $350.0 million draw on our ABL Facility, partially offset by a $150.0 million prepayment on our Term Loan Facility. Anticipated Cash Requirements Our primary sources of liquidity are cash on hand, which consisted of cash and cash equivalents of $529.1 million as of March 31, 2021, cash flow from operations and borrowing capacity under our $450.0 million ABL Facility. As of March 31, 2021, iHeartCommunications had no amounts outstanding under the ABL Facility, a borrowing base of $348.5 million and $32.1 million in outstanding letters of credit, resulting in $316.4 million of borrowing base availability. As a result of certain restrictions in the Company's debt and preferred stock agreements, as of March 31, 2021, approximately $178 million was available to be drawn upon under the ABL Facility. Together with our cash balance of $529.1 million as of March 31, 2021 and our borrowing capacity under the ABL Facility, our total available liquidity 1 was approximately $707 million. We continue to evaluate the full extent of COVID-19’s impact on our business. While the challenges that COVID-19 has created for advertisers and consumers have had a significant impact on our revenue for the three months ended March 31, 2021 and have created a business outlook that is less clear in the near term, we believe that we have sufficient liquidity to continue to fund our operations. We expect that our primary anticipated uses of liquidity will be to fund our working capital, make interest payments, fund capital expenditures, pursue certain strategic opportunities and maintain operations and other obligations. We anticipate that we will have approximately $254 million of cash interest payments in the remainder of 2021. Over the past several years, we have transitioned our business from a single-platform radio broadcast operator to a company with multiple platforms, including digital, podcasting, networks and live and virtual events. In January 2020, we announced key modernization initiatives designed to take advantage of the significant investments that we have made in new technologies to build an improved operating infrastructure to upgrade products and deliver incremental 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 stockholders. As we had targeted, our investments in modernization delivered approximately $50 million of in-year savings in 2020, and we remain on track to deliver annualized run-rate cost savings of approximately $100 million by mid-year 2021. In April 2020, we announced approximately $200 million of incremental in-year operating-expense-saving initiatives in response to the weaker economic environment caused by the COVID-19 pandemic. As previously announced, we have implemented plans to make the majority of these savings permanent. We believe that our cash balance, our cash flow from operations and availability under our ABL Facility provide us with sufficient liquidity to fund our core operations, maintain key personnel and meet our other material obligations. In addition, none of our long-term debt includes maintenance covenants that could trigger early repayment. We fully appreciate the unprecedented challenges posed by the COVID-19 pandemic, however, we remain confident in our business, our employees and our strategy. We believe that our ability to generate cash flow from operations from our business initiatives, our current cash on hand and availability under the ABL Facility will provide sufficient resources to continue to fund and operate our business, fund capital expenditures and other obligations and make interest payments on our long-term debt. If these sources of liquidity need to be augmented, additional cash requirements would likely be financed through the issuance of debt or equity securities; however, there can be no assurances that we will be able to obtain additional debt or equity financing on acceptable terms or at all in the future. We frequently evaluate strategic opportunities, and we expect from time to time to pursue acquisitions or dispose of certain businesses, which may or may not be material. For example, on March 31, 2021, we used a portion of our cash on hand to acquire Triton Digital, a global leader in digital audio and podcast technology and measurement services, from The E.W. Scripps Company for $228.4 million in cash, excluding transaction costs, which we believe will be a transaction accretive to stockholder value. 1 Total available liquidity is defined as cash and cash equivalents plus available borrowings under the ABL Facility. We use total available liquidity to evaluate our capacity to access cash to meet obligations and fund operations. 32 Tax Matters Agreement In connection with the separation (the "Separation") of Clear Channel Outdoor Holdings, Inc. ("CCOH") as part of the Company's plan of reorganization (the "Plan of Reorganization") for emergence from Chapter 11 bankruptcy, we entered into the Tax Matters Agreement by and among iHeartMedia, iHeartCommunications, iHeart Operations, Inc., Clear Channel Holdings, Inc., CCOH and Clear Channel Outdoor, Inc., to allocate the responsibility of iHeartMedia and its subsidiaries, on the one hand, and CCOH and its subsidiaries, on the other, for the payment of taxes arising prior and subsequent to, and in connection with, the Separation. The Tax Matters Agreement requires that iHeartMedia and iHeartCommunications indemnify CCOH and its subsidiaries, and their respective directors, officers and employees, and hold them harmless, on an after-tax basis, from and against certain tax claims related to the Separation. In addition, the Tax Matters Agreement requires that CCOH indemnify iHeartMedia for certain income taxes paid by iHeartMedia on behalf of CCOH and its subsidiaries. Summary Debt Capital Structure As of March 31, 2021 and December 31, 2020, we had the following debt outstanding, net of cash and cash equivalents: (In millions) March 31, 2021 December 31, 2020 Term Loan Facility due 2026 $ 2,075.0 $ 2,080.3 Incremental Term Loan Facility due 2026 446.6 447.8 Asset-based Revolving Credit Facility due 2023 — — 6.375% Senior Secured Notes due 2026 800.0 800.0 5.25% Senior Secured Notes due 2027 750.0 750.0 4.75% Senior Secured Notes due 2028 500.0 500.0 Other Secured Subsidiary Debt 22.2 22.7 Total Secured Debt 4,593.8 4,600.8 8.375% Senior Unsecured Notes due 2027 1,450.0 1,450.0 Other Subsidiary Debt 0.3 6.7 Purchase accounting adjustments and original issue discount (18.0) (18.8) Long-term debt fees (21.1) (21.8) Total Debt 6,005.0 6,016.9 Less: Cash and cash equivalents 529.1 720.7 $ 5,475.9 $ 5,296.2 For additional information regarding our debt refer to Note 5, Long-Term Debt. Exchange of Special Warrants On July 25, 2019, the Company filed a petition for declaratory ruling ("PDR") with the Federal Communications Commission (the "FCC") to permit up to 100% of the Company’s voting stock to be owned by non-U.S. individuals and entities. On November 5, 2020, the FCC issued a declaratory ruling granting the relief requested by the PDR (the "Declaratory Ruling"), subject to certain conditions set forth in the Declaratory Ruling. On January 8, 2021, the Company exchanged a portion of the outstanding Special Warrants into 45,133,811 shares of iHeartMedia Class A common stock, the Company’s publicly traded equity, and 22,337,312 Class B common stock in compliance with the Declaratory Ruling, the Communications Act and FCC rules. Following the Exchange, the Company's remaining Special Warrants continue to be exercisable for shares of Class A common stock or Class B common stock. There were 111,841,698 shares of Class A common stock, 29,065,297 shares of Class B common stock and 5,373,519 Special Warrants outstanding on May 3, 2021. 33 Supplemental Financial Information under Debt Agreements and Certificate of Designation Governing the iHeart Operations Preferred Stock Pursuant to iHeartCommunications' material debt agreements, Capital I, the parent guarantor and a subsidiary of iHeartMedia, is permitted to satisfy its reporting obligations under such agreements by furnishing iHeartMedia’s consolidated financial information and an explanation of the material differences between iHeartMedia’s consolidated financial information, on the one hand, and the financial information of Capital I and its consolidated restricted subsidiaries, on the other hand. Because neither iHeartMedia nor iHeartMedia Capital II, LLC, a wholly-owned direct subsidiary of iHeartMedia and the parent of Capital I, have any operations or material assets or liabilities, there are no material differences between iHeartMedia’s consolidated financial information for the three months ended March 31, 2021, and Capital I’s and its consolidated restricted subsidiaries’ financial information for the same periods. According to the certificate of designation governing the iHeart Operations Preferred Stock, iHeart Operations is required to provide certain supplemental financial information of iHeart Operations in comparison to the Company and its consolidated subsidiaries. iHeart Operations and its subsidiaries comprised 87.3% of the Company's consolidated assets as of March 31, 2021. For the three months ended March 31, 2021, iHeart Operations and its subsidiaries comprised 84.9% of the Company's consolidated revenue. Commitments, Contingencies and Guarantees We are currently involved in certain legal proceedings arising in the ordinary course of business and, as required, have accrued our estimate of the probable costs for resolution of those claims for which the occurrence of loss is probable and the amount can be reasonably estimated. These estimates have been developed in consultation with counsel and are based upon an analysis of potential results, assuming a combination of litigation and settlement strategies. It is possible, however, that future results of operations for any particular period could be materially affected by changes in our assumptions or the effectiveness of our strategies related to these proceedings. Please refer to “Legal Proceedings” in Part II, Item 1 of this Quarterly Report on Form 10-Q. SEASONALITY Typically, our businesses experience their lowest financial performance in the first quarter of the calendar year. We expect this trend to continue in the future. Due to this seasonality and certain other factors, the results for the interim periods may not be indicative of results for the full year. In addition, our Multiplatform Group and our Audio & Media Services Group are impacted by political cycles and generally experience higher revenues in congressional election years, and particularly in presidential election years. This cyclicality may affect comparability of results between years. MARKET RISK We are exposed to market risks arising from changes in market rates and prices, including movements in interest rates and inflation. Interest Rate Risk A significant amount of our long-term debt bears interest at variable rates. Accordingly, our earnings will be affected by changes in interest rates. As of March 31, 2021, approximately 42% of our aggregate principal amount of long-term debt bore interest at floating rates. Assuming the current level of borrowings and assuming a 50% change in LIBOR, it is estimated that our interest expense for the three months ended March 31, 2021 would have changed by $0.4 million. In the event of an adverse change in interest rates, management may take actions to mitigate our exposure. However, due to the uncertainty of the actions that would be taken and their possible effects, the preceding interest rate sensitivity analysis assumes no such actions. Further, the analysis does not consider the effects of the change in the level of overall economic activity that could exist in such an environment. Inflation Inflation is a factor in the economies in which we do business and we continue to seek ways to mitigate its effect. Inflation has affected our performance in terms of higher costs for wages, salaries and equipment. Although the exact impact of inflation is indeterminable, we believe we have offset these higher costs by increasing the effective advertising rates of most of our broadcasting stations in our Multiplatform operations. 34 Critical Accounting Estimates The preparation of our financial statements in conformity with U.S. GAAP requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of expenses during the reporting period. On an ongoing basis, we evaluate our estimates that are based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances. The result of these evaluations forms the basis for making judgments about the carrying values of assets and liabilities and the reported amount of expenses that are not readily apparent from other sources. Because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such difference could be material. There have been no significant changes to our critical accounting policies and estimates disclosed in “Critical Accounting Estimates” of Item 7, Management’s Discussion and Analysis of our Annual Report on Form 10-K for the year ended December 31, 2020 except as disclosed in Note 1, Basis of Presentation to our consolidated financial statements. CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. This report contains various forward-looking statements which represent our expectations or beliefs concerning future events, including, without limitation, our future operating and financial performance, the anticipated impacts of and recovery from the COVID-19 pandemic on our business, financial position and results of operations, our expected costs, savings and timing of our modernization initiatives and other capital and operating expense reduction initiatives, our business plans, strategies and initiatives, benefits of acquisitions, our expectations about certain markets, expected cash interest payments and our anticipated financial performance and liquidity. Statements expressing expectations and projections with respect to future matters are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. We caution that these forward-looking statements involve a number of risks and uncertainties and are subject to many variables which could impact our future performance. These statements are made on the basis of management’s views and assumptions, as of the time the statements are made, regarding future events and performance. There can be no assurance, however, that management’s expectations will necessarily come to pass. Actual future events and performance may differ materially from the expectations reflected in our forward-looking statements. We do not intend, nor do we undertake any duty, to update any forward-looking statements. A wide range of factors could materially affect future developments and performance, including but not limited to: • risks associated with weak or uncertain global economic conditions and their impact on the level of expenditures for advertising; • the impact of the COVID-19 pandemic on our business, financial position and results of operations; • intense competition including increased competition from alternative media platforms and technologies; • dependence upon the performance of on-air talent, program hosts and management as well as maintaining or enhancing our master brand; • fluctuations in operating costs; • technological changes and innovations; • shifts in population and other demographics; • the impact of our substantial indebtedness; • the impact of future acquisitions, dispositions and other strategic transactions; • legislative or regulatory requirements; • the impact of legislation or ongoing litigation on music licensing and royalties; • regulations and consumer concerns regarding privacy and data protection, and breaches of information security measures; • risks associated with our emergence from the Chapter 11 Cases; • risks related to our Class A common stock, including our significant number of outstanding warrants; • regulations impacting our business and the ownership of our securities; and • certain other factors set forth in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020, as updated by “Part II, Item 1A, “Risk Factors” in this Quarterly Report on Form 10-Q, and other filings with the Securities and Exchange Commission (“SEC”). This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative and is not intended to be exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty. 35 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Required information is presented under “Market Risk” within Item 2 of this Part I.