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. This structure provides improved visibility into the underlying performances, results, and margin profiles of our distinct businesses and enables senior management to better monitor trends at the operational level and address opportunities or issues as they arise via regular review of segment-level results and forecasts with operational leaders. 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 six months ended June 30, 2020 and June 30, 2021 was negatively impacted. Beginning in March 2020 and continuing in the following months, we saw a sharp decline in each of our Broadcast radio, 26 Networks and Sponsorships revenue streams. Although revenues significantly increased in the six months ended June 30, 2021 compared to the prior year for our Broadcast radio, Networks and Sponsorships revenue streams of our Multiplatform Group, revenue from these revenue streams has not fully recovered from the impact of COVID-19. 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. Our investments in modernization delivered approximately $50 million of in-year savings in 2020 and remain on track to achieve the target of $100 million of cost savings. 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 the 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 six months ended June 30, 2021, we recognized non-cash impairment charges of $37.7 million as a result of these cost-savings initiatives. 27 Executive Summary Although our results for the second quarter of 2021 continued to be impacted by the effects of the COVID-19 pandemic, our revenues increased significantly across all of our revenue streams, including revenue from our Multiplatform segment, which includes our broadcast radio, networks and sponsorship and events businesses. Digital revenue, including podcasting, continued to grow year-over-year and we experienced significant growth in our Audio & Media Services segment. The key developments that impacted our business during the quarter are summarized below: • Consolidated Revenue of $861.6 million increased $374.0 million, or 76.7% during the quarter ended June 30, 2021 compared to Revenue of $487.6 million in the prior year's second quarter. • Revenue and Adjusted EBITDA from our Multiplatform Group increased $248.7 million and $195.8 million compared to the prior year's second quarter, respectively. • Revenue and Adjusted EBITDA from our Digital Audio Group increased $104.7 million and $35.4 million compared to the prior year's second quarter, respectively. • Revenue and Adjusted EBITDA from our Audio & Media Services Group increased $21.9 million and $20.2 million compared to the prior year's second quarter, respectively. • Operating income of $28.1 million was up from an Operating loss of $159.1 million in the prior year’s second quarter. • Net loss of $32.0 million improved from a Net loss of $197.3 million in the prior year's second quarter. • Adjusted EBITDA (1) of $184.5 million, was up $213.8 million from $(29.3) million in prior year's second quarter. • Cash flows provided by operating activities of $29.1 million increased from Cash flows provided by operating activities of $11.4 million in the prior year's second quarter. • Free cash flow (2) of $(3.0) million improved from $(6.5) million in the prior year's second quarter. The table below presents a summary of our historical results of operations for the periods presented: (In thousands) Three Months Ended June 30, % 2021 2020 Change Revenue $ 861,605 $ 487,648 76.7 % Operating income (loss) $ 28,126 $ (159,087) NM Net loss $ (31,960) $ (197,317) NM Cash provided by operating activities $ 29,129 $ 11,369 156.2 % Adjusted EBITDA (1) $ 184,508 $ (29,283) NM Free cash flow (2) $ (2,982) $ (6,513) NM (1) For a definition of Adjusted EBITDA and a reconciliation to Operating income (loss), the most closely comparable GAAP measure, and to Net income (loss), please see "Reconciliation of Operating Income (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 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” in this MD&A. 28 Results of Operations The tables below present the comparison of our historical results of operations for the three and six months ended June 30, 2021 to the three and six months ended June 30, 2020: (In thousands) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Revenue $ 861,605 $ 487,648 $ 1,568,270 $ 1,268,282 Operating expenses: Direct operating expenses (excludes depreciation and amortization) 320,515 244,142 613,328 538,063 Selling, general and administrative expenses (excludes depreciation and amortization) 372,640 293,362 714,970 685,163 Depreciation and amortization 127,945 103,347 235,308 200,115 Impairment charges — 5,378 37,744 1,733,235 Other operating expense, net 12,379 506 15,150 1,572 Operating income (loss) 28,126 (159,087) (48,230) (1,889,866) Interest expense, net 84,887 81,963 170,008 172,052 Gain (loss) on investments, net 49,644 1,280 49,835 (8,675) Equity in loss of nonconsolidated affiliates (31) (31) (59) (595) Other expense, net (363) (1,258) (1,170) (9,118) Loss before income taxes (7,511) (241,059) (169,632) (2,080,306) Income tax benefit (expense) (24,449) 43,742 (104,384) 194,253 Net loss (31,960) (197,317) (274,016) (1,886,053) Less amount attributable to noncontrolling interest 326 — (7) — Net loss attributable to the Company $ (32,286) $ (197,317) $ (274,009) $ (1,886,053) The tables below present the comparison of our revenue streams for the three and six months ended June 30, 2021 to the three and six months ended June 30, 2020: (In thousands) Three Months Ended June 30, % Six Months Ended June 30, % 2021 2020 Change 2021 2020 Change Broadcast Radio $ 451,142 $ 244,035 84.9 % $ 809,678 $ 705,695 14.7 % Networks 123,586 96,330 28.3 % 238,672 230,907 3.4 % Sponsorship and Events 28,585 14,809 93.0 % 50,978 44,157 15.4 % Other 2,537 1,943 30.6 % 4,419 5,967 (25.9) % Multiplatform Group 605,850 357,117 69.7 % 1,103,747 986,726 11.9 % Digital, excluding Podcast 144,502 71,984 100.7 % 263,703 148,905 77.1 % Podcast 53,428 21,243 151.5 % 91,780 37,098 147.4 % Digital Audio Group 197,930 93,227 112.3 % 355,483 186,003 91.1 % Audio & Media Services Group 61,175 39,251 55.9 % 116,312 99,478 16.9 % Eliminations (3,350) (1,947) (7,272) (3,925) Revenue, total $ 861,605 $ 487,648 76.7 % $ 1,568,270 $ 1,268,282 23.7 % 29 Consolidated results for the three and six months ended June 30, 2021 compared to the consolidated results for the three and six months ended June 30, 2020 were as follows: Revenue Consolidated revenue increased $374.0 million during the three months ended June 30, 2021 compared to the same period of 2020. The increase in Consolidated revenue is attributable to the continued recovery from 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 non-essential businesses and shelter-in-place orders. The impact continued through 2020 and the first and second quarters of 2021, resulting in revenue declines impacting most of our revenue streams primarily as a result of a decrease in broadcast radio advertising spend. The most significant quarterly revenue decline was felt in the second quarter of 2020. We experienced significant increases in all of our revenue streams in the three months ended June 30, 2021 compared to the same period in 2020. Multiplatform revenue increased $248.7 million, primarily resulting from strengthening demand for broadcast advertising compared to the second quarter of 2020. Digital Audio revenue increased $104.7 million, driven primarily by continuing increases in demand for digital advertising, including continued growth in podcasting. Audio & Media Services revenue increased $21.9 million primarily due to the continued recovery from the impact of COVID-19. Consolidated revenue increased $300.0 million during the six months ended June 30, 2021 compared to the same period of 2020. The increase in Consolidated revenue is attributable to the continued recovery from 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 non-essential businesses and shelter-in-place orders. The impact continued through 2020 and the first and second quarters of 2021, resulting in revenue declines impacting most of our revenue streams primarily as a result of a decrease in broadcast radio advertising spend. The most significant quarterly revenue decline was felt in the second quarter of 2020. We experienced significant increases in most of our revenue streams in the six months ended June 30, 2021 compared to the same period of 2020. Multiplatform revenue increased $117.0 million, primarily resulting from strengthening demand for broadcast advertising. Digital Audio revenue increased $169.5 million, driven primarily by continuing increases in demand for digital advertising, including continued growth in podcasting. Audio & Media Services revenue increased $16.8 million primarily due to the continued recovery from the impact of COVID-19. Direct Operating Expenses Consolidated direct operating expenses increased $76.4 million during the three months ended June 30, 2021 compared to the same period of 2020, primarily as a result of the significant increase in revenue. The increase in Direct operating expenses was driven by higher talent and profit sharing expenses, third-party digital costs, music license fees and performance royalty fees. Variable expenses related to events also increased as a result of the return of certain live events. The increase in Consolidated direct operating expenses was partially offset by lower employee compensation expenses resulting from our modernization initiatives and cost-reduction initiatives executed in 2020 and 2021. Consolidated direct operating expenses increased $75.3 million during the six months ended June 30, 2021 compared to the same period of 2020. The increase in Direct operating expenses was driven primarily by higher variable compensation expenses, along with higher third-party digital costs and talent and profit sharing expenses due to higher revenue. In addition, variable operating expenses, including music license and performance royalty fees, also increased as a result of higher revenue. Variable expenses related to events also increased as a result of the return of live events. The increase in Consolidated direct operating expenses was partially offset by lower employee compensation expenses resulting from our modernization initiatives and cost reduction initiatives executed in 2020 and early 2021. Selling, General and Administrative (“SG&A”) Expenses Consolidated SG&A expenses increased $79.3 million during the three months ended June 30, 2021 compared to the same period of 2020. The increase in Consolidated SG&A expenses was driven primarily by increased employee compensation expenses due to higher variable employee compensation resulting primarily from higher bonus expense based on financial performance and higher sales commission expenses as a result of higher revenue. In the prior year the Company did not pay bonuses to the vast majority of employees. In addition, increased headcount resulting from investments in our digital businesses contributed to the increase in Consolidated SG&A expenses. Trade expenses also increased, primarily as a result of the return of live events. These increases were partially offset by lower employee compensation expenses resulting from cost reduction initiatives taken in response to the COVID-19 pandemic and lower bad debt expense. 30 Consolidated SG&A expenses increased $29.8 million during the six months ended June 30, 2021 compared to the same period of 2020. The increase in SG&A expenses was driven primarily by higher employee compensation expenses, due to an increase in variable employee compensation resulting from higher bonus accruals based on financial performance as well as an increase in headcount resulting from investments in our digital businesses. In addition, sales commission expenses increased as a result of higher revenue. These increases were partially offset by lower employee compensation expenses resulting from cost reduction initiatives taken in response to the COVID-19 pandemic and lower bad debt expense. Depreciation and Amortization Depreciation and amortization increased $24.6 million and $35.2 million during the three and six months ended June 30, 2021 compared to the same periods 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. 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. In the first quarter of 2021, we recognized non-cash impairment charges of $37.7 million as a result of these cost-savings initiatives. We recognized no impairment charges in the three months ended June 30, 2021. In the first quarter of 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. We recognized impairment charges of $5.4 million in the three months ended June 30, 2020 related to the write-down of right-of use assets. Other Operating Expense, Net Other operating expense, net of $12.4 million and $0.5 million for the three months ended June 30, 2021 and 2020, respectively, and Other operating expense, net of $15.2 million and $1.6 million for the six months ended June 30, 2021 and 2020, respectively, relate primarily to net losses recognized on asset disposals. Interest Expense Interest expense increased $2.9 million during the three months ended June 30, 2021 compared to the same period of 2020, primarily as a result of the issuance of incremental term loans in the third quarter of 2020, partially offset by the impact of lower LIBOR rates. Interest expense decreased $2.0 million during the six months ended June 30, 2021 compared to the same period of 2020, primarily as a result of the impact of lower LIBOR rates, partially offset by the issuance of incremental term loans in the third quarter of 2020. Gain (Loss) on Investments, Net During the three months ended June 30, 2021 and 2020, we recognized a gain on investments, net of $49.6 million and $1.3 million, respectively. During the six months ended June 30, 2020, we recognized a gain of $49.8 million and a loss of $8.7 million, respectively. The gain on investments, net recognized during the three and six months ended June 30, 2021 was driven primarily by the sale of our investment in the San Antonio Spurs. The loss on investments, net recognized during the six months ended June 30, 2020 was primarily in connection with estimated credit losses and declines in the value of our investments. Other Expense, Net Other expense, net was $0.4 million and $1.3 million for the three months ended June 30, 2021 and 2020, respectively, and $1.2 million and $9.1 million for the six months ended June 30, 2021 and 2020, respectively. Other expense, net for the six months ended June 30, 2020 related primarily to costs incurred to amend our Term Loan Facility and professional fees incurred. 31 Income Tax Benefit (Expense) The effective tax rate for the Company for the three and six months ended June 30, 2021 was (325.5)% and (61.5)%, respectively. The effective tax rate for the six months ended June 30, 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 and six months ended June 30, 2020 was 18.1% and 9.3%, respectively. The effective tax rate for the six months ended June 30, 2020 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 Loss Attributable to the Company Net loss attributable to the Company decreased $165.0 million to $32.3 million during the three months ended June 30, 2021 compared to a Net loss attributable to the Company of $197.3 million during the three months ended June 30, 2020, primarily as a result of the increase in revenue from the continuing recovery from the macroeconomic effects of the COVID-19 pandemic and the gain on the sale of our investment in the San Antonio Spurs. Net loss attributable to the Company decreased $1,612.0 million to $274.0 million during the six months ended June 30, 2021 compared to Net loss attributable to the Company of $1,886.1 million during the six months ended June 30, 2020, primarily as a result of the impairment charge recognized during the first quarter of 2020 and the increase in revenue from the continuing recovery from the macroeconomic effects of the COVID-19 pandemic. Multiplatform Group Results (In thousands) Three Months Ended June 30, Six Months Ended June 30, % 2021 2020 % Change 2021 2020 Change Revenue $ 605,850 $ 357,117 69.7 % $ 1,103,747 $ 986,726 11.9 % Operating expenses (1) 424,452 371,498 14.3 % 817,558 848,963 (3.7) % Segment Adjusted EBITDA $ 181,398 $ (14,381) NM $ 286,189 $ 137,763 107.7 % Segment Adjusted EBITDA margin 29.9 % (4.0) % 25.9 % 14.0 % (1) Operating expenses consist of Direct operating expenses and Selling, general and administrative expenses, excluding Restructuring expenses. Three Months Revenue from our Multiplatform Group increased $248.7 million compared to the comparative period in the prior year, primarily as a result of the continued recovery from the negative impact of the COVID-19 pandemic in 2020 on our traditional radio business. Broadcast revenue grew $207.1 million, or 84.9%, year-over-year, while Networks grew $27.3 million, or 28.3%, year-over-year. Revenue from Sponsorship and Events increased by $13.8 million, or 93.0%, year-over-year, primarily as a result of the return of live events. Operating expenses increased $53.0 million, driven primarily by higher variable compensation expenses and talent and profit sharing fees related to revenue growth and higher trade expense due to the return of live events, along with higher variable operating expenses, including music license fees and sales commissions, resulting from higher revenue. These increases were partially offset by lower employee compensation expenses resulting from our cost-reduction initiatives executed in 2020 and early 2021, as well as lower bad debt expense as a result of improved economic conditions. Six Month s 32 Revenue from our Multiplatform Group increased $117.0 million compared to the comparative period in the prior year, primarily as a result of the continued recovery from the negative impact of the COVID-19 pandemic on our traditional radio business in 2020. Broadcast revenue increased $104.0 million, or 14.7%, year-over-year, while Networks grew $7.8 million, or 3.4%, year-over-year. Revenue from Sponsorship and Events increased by $6.8 million, or 15.4%, year-over-year, primarily as a result of the return of live events. Operating expenses decreased $31.4 million, driven primarily by lower bad debt expense and lower employee compensation expenses resulting from our modernization and cost-reduction initiatives. The decrease was partially offset by higher variable operating expenses, including variable compensation, which consisted primarily of talent and profit sharing fees, music license fees and sales commissions, resulting from higher revenue recognized during the period. Variable expenses related to events also increased as a result of the return of live events. Digital Audio Group Results (In thousands) Three Months Ended June 30, Six Months Ended June 30, % 2021 2020 % Change 2021 2020 Change Revenue $ 197,930 $ 93,227 112.3 % $ 355,483 $ 186,003 91.1 % Operating expenses (1) 143,640 74,365 93.2 % 261,182 150,547 73.5 % Segment Adjusted EBITDA $ 54,290 $ 18,862 187.8 % $ 94,301 $ 35,456 166.0 % Segment Adjusted EBITDA margin 27.4 % 20.2 % 26.5 % 19.1 % (1) Operating expenses consist of Direct operating expenses and Selling, general and administrative expenses, excluding Restructuring expenses. Three Months Revenue from our Digital Audio Group increased $104.7 million compared to the comparative period in the prior year, led by Digital, excluding Podcast revenue, which grew $72.5 million, or 100.7%, year-over-year, driven by increased demand for digital advertising. Podcast revenue also increased by $32.2 million, or 151.5%, year-over-year, driven by higher revenues from the development of our podcast slate as well as growth from existing podcasts. Digital Audio Group revenue increased as a result of general increased demand for digital advertising, the growing popularity of podcasting, the continued addition of premium content to our industry-leading podcast business and our improving ability to monetize our digital audiences and inventory, partially driven by investments in the digital space. Operating expenses increased $69.3 million 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 investments in the digital space, as well as higher variable compensation expenses including sales commissions and bonus arrangements. Six Month s Revenue from our Digital Audio Group increased $169.5 million compared to the comparative period in the prior year, led by Digital, excluding Podcast revenue, which grew $114.8 million, or 77.1%, year-over-year, driven by increased demand for digital advertising. Podcast revenue also increased by $54.7 million, or 147.4%, year-over-year, driven by higher revenues from the development of our podcast slate as well as growth from existing podcasts. Digital Audio Group revenues increased as a result of general increased demand for digital advertising, the growing popularity of podcasting, the continued addition of premium content to our industry-leading podcast business and our improving ability to monetize our digital audiences and inventory, partially driven by investments in the digital space. 33 Operating expenses increased $110.6 million, 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 investments in the digital space, as well as higher variable compensation expenses including sales commissions and bonus arrangements. Audio & Media Services Group Results (In thousands) Three Months Ended June 30, Six Months Ended June 30, % 2021 2020 % Change 2021 2020 Change Revenue $ 61,175 $ 39,251 55.9 % $ 116,312 $ 99,478 16.9 % Operating expenses (1) 40,704 39,000 4.4 % 80,492 81,527 (1.3) % Segment Adjusted EBITDA $ 20,471 $ 251 NM $ 35,820 $ 17,951 99.5 % Segment Adjusted EBITDA margin 33.5 % 0.6 % 30.8 % 18.0 % (1) Operating expenses consist of Direct operating expenses and Selling, general and administrative expenses, excluding Restructuring expenses. Three Months Revenue from our Audio & Media Services Group increased $21.9 million compared to the comparative period in the prior year, as a result of the continued recovery from the negative impact of the COVID-19 pandemic. Operating expenses increased $1.7 million driven primarily by higher variable employee compensation and sales commissions, due to the increase in revenue, partially offset by lower employee compensation expenses resulting from our cost-reduction initiatives. Six Month s Revenue from our Audio & Media Services Group increased $16.8 million compared to the comparative period in the prior year, as a result of the continued recovery from the negative impact of the COVID-19 pandemic. Operating expenses decreased $1.0 million driven primarily by lower rent expense and lower employee compensation expenses resulting from our modernization and cost-reduction initiatives, partially offset by higher variable employee compensation and sales commissions, due to the increase in revenue. Reconciliation of Operating Income (Loss) to Adjusted EBITDA (In thousands) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Operating income (loss) $ 28,126 $ (159,087) $ (48,230) $ (1,889,866) Depreciation and amortization 127,945 103,347 235,308 200,115 Impairment charges — 5,378 37,744 1,733,235 Other operating expense, net 12,379 506 15,150 1,572 Share-based compensation expense 5,903 4,218 11,588 8,843 Restructuring expenses 10,155 16,355 35,195 57,157 Adjusted EBITDA (1) $ 184,508 $ (29,283) $ 286,755 $ 111,056 34 Reconciliation of Net Loss to EBITDA and Adjusted EBITDA (In thousands) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Net loss $ (31,960) $ (197,317) $ (274,016) $ (1,886,053) Income tax (benefit) expense 24,449 (43,742) 104,384 (194,253) Interest expense, net 84,887 81,963 170,008 172,052 Depreciation and amortization 127,945 103,347 235,308 200,115 EBITDA $ 205,321 $ (55,749) $ 235,684 $ (1,708,139) Loss (Gain) on investments, net (49,644) (1,280) (49,835) 8,675 Other expense, net 363 1,258 1,170 9,118 Equity in loss of nonconsolidated affiliates 31 31 59 595 Impairment charges — 5,378 37,744 1,733,235 Other operating expense, net 12,379 506 15,150 1,572 Share-based compensation expense 5,903 4,218 11,588 8,843 Restructuring expenses 10,155 16,355 35,195 57,157 Adjusted EBITDA (1) $ 184,508 $ (29,283) $ 286,755 $ 111,056 (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 (income) expense, 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 (income) expense, 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. 35 Reconciliation of Cash Provided by Operating Activities to Free Cash Flow (In thousands) Three Months Ended June 30, Six Months Ended June 30, 2021 2020 2021 2020 Cash provided by operating activities $ 29,129 $ 11,369 $ 100,857 $ 102,909 Purchases of property, plant and equipment (32,111) (17,882) (51,061) (39,546) Free cash flow (1) $ (2,982) $ (6,513) $ 49,796 $ 63,363 (1) We define Free cash flow ("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 (the "2021 Plan") was approved by stockholders and replaced the 2019 Plan. Pursuant to our 2021 Plan, we will grant restricted stock units and options to purchase shares of the Company's Class A common stock to certain key individuals. Share-based compensation expenses are recorded in SG&A expenses and were $5.9 million and $4.2 million for the three months ended June 30, 2021 and 2020, respectively, and $11.6 million and $8.8 million for the six months ended June 30, 2021 and 2020, respectively. As of June 30, 2021, there was $48.7 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 2.5 years. In addition, as of June 30, 2021, there was $0.6 million of unrecognized compensation costs related to unvested share-based compensation arrangements that will vest based on performance conditions. 36 LIQUIDITY AND CAPITAL RESOURCES Cash Flows The following discussion highlights cash flow activities during the periods presented: (In thousands) Six Months Ended June 30, 2021 2020 Cash provided by (used for): Operating activities $ 100,857 $ 102,909 Investing activities $ (218,263) $ (50,681) Financing activities $ (19,882) $ 65,512 Free Cash Flow (1) $ 49,796 $ 63,363 (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 $102.9 million in the six months ended June 30, 2020 to $100.9 million in the six months ended June 30, 2021 primarily as a result of changes in working capital balances, particularly accounts receivable, which was impacted by the timing of collections, and accrued expenses, which was impacted by the timing of payments. The decrease in cash provided by operating activities was partially offset by an increase in cash flows from operations as the Company's businesses continue to recover from the impact of the COVID-19 pandemic. Investing Activities Cash used for investing activities of $218.3 million during the six months ended June 30, 2021 primarily reflects the net cash payment made to acquire Triton Digital for $228.5 million. In addition, $51.1 million in cash was used for capital expenditures. We spent $31.5 million for capital expenditures in our Multiplatform Group segment and $11.7 million for capital expenditures in our Digital Audio Group segment primarily related to IT infrastructure, $2.2 million in our Audio & Media Services Group segment, primarily related to software and $5.7 million in Corporate primarily related to equipment and software purchases. Cash used for investing activities was offset by cash from investing activities primarily related to proceeds received of $50.8 million from the sale of our investment in the San Antonio Spurs. Cash used for investing activities of $50.7 million during the six months ended June 30, 2020 primarily reflects $39.5 million in cash used for capital expenditures. We spent $22.8 million for capital expenditures in our Multiplatform Group segment primarily related to IT infrastructure, $6.7 million in our Digital Audio Group segment primarily related to investments in our digital platform, $1.6 million in our Audio & Media Services Group segment, primarily related to acquired software and $8.4 million in Corporate primarily related to equipment and software purchases. 37 Financing Activities Cash used for financing activities of $19.9 million during the six months ended June 30, 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 $65.5 million during the six months ended June 30, 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 and repayments of $115.0 million of amounts drawn under the ABL Facility. Anticipated Cash Requirements Our primary sources of liquidity are cash on hand, which consisted of cash and cash equivalents of $583.3 million as of June 30, 2021, cash flow from operations and borrowing capacity under our $450.0 million ABL Facility. As of June 30, 2021, iHeartCommunications had no amounts outstanding under the ABL Facility, a borrowing base of $437.8 million and $32.8 million in outstanding letters of credit, resulting in $405.0 million of borrowing base availability. As a result of certain restrictions in the Company's debt and preferred stock agreements, as of June 30, 2021, approximately $185 million was available to be drawn upon under the ABL Facility. Together with our cash balance of $583.3 million as of June 30, 2021 and our borrowing capacity under the ABL Facility, our total available liquidity 1 was approximately $768 million. On July 16, 2021, we amended the Term Loan credit facilities and voluntarily prepaid $250.0 million of borrowings outstanding under these facilities using cash on hand. The impact of these transactions on our available liquidity as of June 30, 2021 was a net reduction of approximately $30.0 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 six months ended June 30, 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 $162 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. Our investments in modernization delivered approximately $50 million of in-year savings in 2020 and remain on track to achieve the target of $100 million of cost savings. 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 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. 38 to acquire Triton Digital, a global leader in digital audio and podcast technology and measurement services, from The E.W. Scripps Company for $228.5 million in cash, excluding transaction costs, which we believe will be a transaction accretive to stockholder value. 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 June 30, 2021 and December 31, 2020, we had the following debt outstanding, net of cash and cash equivalents: (In thousands) June 30, 2021 December 31, 2020 Term Loan Facility due 2026 1 $ 2,069,752 $ 2,080,259 Incremental Term Loan Facility due 2026 1 445,500 447,750 Asset-based Revolving Credit Facility due 2023 — — 6.375% Senior Secured Notes due 2026 800,000 800,000 5.25% Senior Secured Notes due 2027 750,000 750,000 4.75% Senior Secured Notes due 2028 500,000 500,000 Other Secured Subsidiary Debt 21,405 22,753 Total Secured Debt $ 4,586,657 $ 4,600,762 8.375% Senior Unsecured Notes due 2027 1,450,000 1,450,000 Other Subsidiary Debt 273 6,782 Purchase accounting adjustments and original issue discount (17,216) (18,817) Long-term debt fees (20,334) (21,797) Total Debt $ 5,999,380 $ 6,016,930 Less: Cash and cash equivalents 583,341 720,662 $ 5,416,039 $ 5,296,268 1 On July 16, 2021, iHeartCommunications, Inc. ("iHeartCommunications") entered into an amendment to the credit agreement governing its Term Loan credit facilities. The amendment reduces the interest rate of its Incremental Term Loan Facility due 2026 to a Eurocurrency Rate of LIBOR plus a margin of 3.25% and floor of 0.50% (from LIBOR plus a margin of 4.00% and floor of 0.75%). The Base Rate interest amount was reduced to Base Rate plus a margin of 2.25% and floor of 1.50%. In connection with the amendment, iHeartCommunications voluntarily prepaid $250.0 million of borrowings outstanding under the Term Loan credit facilities with cash on hand, resulting in a reduction of $44.3 million of the existing Incremental Term Loan Facility due 2026 and $205.7 million of the Term Loan Facility due 2026. We expect to save $12.7 million in annual interest payments as a result of the repricing and repayment. 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. 39 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 119,067,917 shares of Class A common stock, 22,507,120 shares of Class B common stock and 5,365,086 Special Warrants outstanding on August 2, 2021. 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 and six months ended June 30, 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 86.6% of the Company's consolidated assets as of June 30, 2021. For the three and six months ended June 30, 2021, iHeart Operations and its subsidiaries comprised 85.1% and 85.0% 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 June 30, 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 six months ended June 30, 2021 would have changed by $0.7 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. 40 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. 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, expected interest rate savings from our recent amendment to and $250 million voluntary prepayment on our Term Loan credit facilities, 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 41 • 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. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Required information is presented under “Market Risk” within Item 2 of this Part I.