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 Part I, Item 1 of this Quarterly Report on Form 10-Q of iHeartMedia, Inc. (the "Company," "iHeartMedia," "we," "our," or "us"). We report based on three reportable segments: ▪ the Multiplatform Group, which includes our Broadcast radio, Networks and Sponsorships and Events businesses; ▪ the 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. This structure provides visibility into the underlying performance, results, and margin profiles of our distinct businesses and enables senior management to 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. Our segment profitability metric is Segment Adjusted EBITDA, which is 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. We have transitioned our business from a single platform radio broadcast operator to a company with multiple platforms including digital, podcasting, networks and events, as well as ad technology capabilities. 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 insight into our broadcast radio business and our 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 twelve months. Description of our Business Our strategy centers on delivering entertaining and informative content where our listeners want to find us across our various platforms. Multiplatform Group 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. Management looks at our Multiplatform Group's operations’ overall revenue as well as the revenue from each revenue stream including Broadcast Spot, Networks, and Sponsorship and Events. We periodically review and refine our selling structures in all regions and markets in an effort to maximize the value of our offering to advertisers and, therefore, our revenue. Management also looks at Multiplatform Group's revenue by region and market size. Typically, larger markets can reach larger audiences with wider demographics than smaller markets. Additionally, management reviews our share of audio advertising revenues in markets where such information is available, as well as our share of target demographics listening in an average quarter hour. This metric gauges how well our formats are attracting and retaining listeners. 18 Management also monitors revenue generated through our programmatic ad-buying platform, and our data analytics advertising product, to measure the success of our enhanced marketing optimization tools. We have made significant investments so we can provide the same ad-buying experience that once was only available from digital-only companies and enable our clients to better understand how our assets can successfully reach their target audiences. Management monitors average advertising rates and cost per mille, the cost of every 1,000 advertisement impressions (“CPM”), which are principally based on the length of the spot and how many people in a targeted audience listen to our stations, as measured by an independent ratings service. In addition, our advertising rates are influenced by the time of day the advertisement airs, with morning and evening drive-time hours typically priced the highest. Our price and yield information systems enable our station managers and sales teams to adjust commercial inventory and pricing based on local market demand, as well as to manage and monitor different commercial durations in order to provide more effective advertising for our customers at what we believe are optimal prices given market conditions. Yield is measured by management in a variety of ways, including revenue earned divided by minutes of advertising sold. A portion of our Multiplatform Group segment’s expenses vary in connection with changes in revenue. These variable expenses primarily relate to costs in our programming and sales departments, including profit sharing fees and commissions, and bad debt. Our content costs, including music license fees for music delivered via broadcast, vary with the volume and mix of songs played on our stations. Digital Audio Group The primary source of revenue in the Digital Audio Group segment is the sale of advertising on the Company’s podcast network, iHeartRadio mobile application and website, and station websites. Revenues for digital advertising are recognized over time based on impressions delivered or time elapsed, depending upon the terms of the contract. Digital Audio Group’s contracts with advertisers are typically a year or less in duration and are generally billed monthly upon satisfaction of the performance obligations. Through our Digital Audio Group, we continue to expand the choices for listeners. We derive revenue in this segment by developing and delivering our content and selling advertising across multiple digital distribution channels, including via our iHeartRadio mobile application, our station websites and other digital platforms that reach national, regional and local audiences. Our strategy has enabled us to extend our leadership in the growing podcasting sector, and iHeartMedia is the number one podcast publisher in America. Our reach now extends across more than 250 platforms and thousands of different connected devices, and our digital business is comprised of streaming, subscription, display advertisements, and other content that is disseminated over digital platforms. A portion of our Digital Audio Group segment’s expenses vary in connection with changes in revenue. These variable expenses primarily relate to our content costs including profit sharing fees and third-party content costs, as well as sales commissions and bad debt. Certain of our content costs, including digital music performance royalties, vary with the volume of listening hours on our digital platforms. Audio & Media Services Group 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 software and media streaming, along with research services for radio stations, broadcast television stations, cable channels, record labels, ad agencies and Internet stations worldwide. Economic Conditions Our advertising revenue is correlated to changes in economic conditions. Increasing interest rates and high inflation contributed to a challenging macroeconomic environment beginning in the third quarter of 2022. This challenging environment has led to broader market uncertainty which impacted our revenue in the first quarter of 2023. The current market uncertainty and macroeconomic conditions, a recession, or a downturn in the U.S. economy could have a significant impact on our ability to generate revenue. 19 Cost Savings Initiatives We have implemented key modernization initiatives and operating-expense-saving initiatives over recent years to take advantage of the significant investments we have made in new technologies to deliver incremental cost efficiencies, including initiatives to streamline our real estate footprint. We continue to explore opportunities for further efficiencies. Impairment Charges As part of our operating-expense-savings initiatives, we have taken proactive steps to streamline our real estate footprint and reduce related lease and operating 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. 20 Executive Summary Revenues for the first quarter of 2023 decreased for our Multiplatform Group segment due to lower spending on radio advertising in connection with the uncertain market conditions, and increased for our Digital Audio Group segment. The key developments that impacted our business during the quarter are summarized below: • Consolidated Revenue of $811.2 million decreased $32.2 million, or 3.8% during the quarter ended March 31, 2023 compared to Consolidated Revenue of $843.5 million in the prior year's first quarter. • Revenue and Segment Adjusted EBITDA from our Multiplatform Group decreased $42.1 million and $46.9 million compared to the prior year's first quarter, respectively. • Revenue and Segment Adjusted EBITDA from our Digital Audio Group increased $9.2 million and $1.6 million compared to the prior year's first quarter, respectively. • Revenue and Segment Adjusted EBITDA from our Audio & Media Services Group increased $0.5 million and decreased $1.0 million compared to the prior year's first quarter, respectively. • Operating loss of $48.9 million, decreased $(61.2) million from Operating income of $12.3 million in the prior year’s first quarter. • Net loss of $222.4 million, increased $173.6 million from Net Loss of $48.7 million in the prior year's first quarter. • Cash flows used for operating activities of $(94.0) million increased from $(52.2) million used for operating activities in the prior year's first quarter. • Adjusted EBITDA (1) of $93.4 million, was down $(51.8) million from $145.2 million in prior year's first quarter. • Free cash flow (2) of $(133.1) million decreased from $(74.8) million in the prior year's first quarter. The table below presents a summary of our historical results of operations for the periods presented: (In thousands) Three Months Ended March 31, 2023 2022 Revenue $ 811,239 $ 843,458 Operating income (loss) (48,862) 12,335 Net loss (222,363) (48,739) Cash used for operating activities (93,983) (52,212) Adjusted EBITDA (1) $ 93,424 $ 145,218 Free cash flow (2) (133,148) (74,769) (1) For a definition of Adjusted EBITDA and a reconciliation to Operating income (loss), the most closely comparable GAAP measure, and to Net 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 used for operating activities, the most closely comparable GAAP measure, please see “Reconciliation of Cash used for operating activities to Free cash flow” in this MD&A. 21 Results of Operations The tables below present the comparison of our historical results of operations for the three months ended March 31, 2023 to the three months ended March 31, 2022: (In thousands) Three Months Ended March 31, 2023 2022 Revenue $ 811,239 $ 843,458 Operating expenses: Direct operating expenses (excludes depreciation and amortization) 344,620 330,524 Selling, general and administrative expenses (excludes depreciation and amortization) 402,801 384,344 Depreciation and amortization 108,512 114,051 Impairment charges 3,947 1,334 Other operating expense, net 221 870 Operating income (loss) (48,862) 12,335 Interest expense, net 95,457 79,219 Loss on investments, net (6,505) (1,765) Equity in earnings (loss) of nonconsolidated affiliates 40 (29) Gain on extinguishment of debt 4,625 — Other expense, net (99) (270) Loss before income taxes (146,258) (68,948) Income tax benefit (expense) (76,105) 20,209 Net loss (222,363) (48,739) Less amount attributable to noncontrolling interest (103) (157) Net loss attributable to the Company $ (222,260) $ (48,582) The table below presents the comparison of our revenue streams for the three months ended March 31, 2023 to the three months ended March 31, 2022: (In thousands) Three Months Ended March 31, % 2023 2022 Change Broadcast Radio $ 383,238 $ 415,242 (7.7) % Networks 107,954 117,558 (8.2) % Sponsorship and Events 32,587 33,601 (3.0) % Other 5,234 4,759 10.0 % Multiplatform Group 529,013 571,160 (7.4) % Digital, excluding Podcast 146,585 145,675 0.6 % Podcast 76,811 68,544 12.1 % Digital Audio Group 223,396 214,219 4.3 % Audio & Media Services Group 61,351 60,857 0.8 % Eliminations (2,521) (2,778) Revenue, total $ 811,239 $ 843,458 (3.8) % 22 Consolidated results for the three months ended March 31, 2023 compared to the consolidated results for the three months ended March 31, 2022 were as follows: Revenue Consolidated revenue decreased $32.2 million during the three months ended March 31, 2023 compared to the same period of 2022. Multiplatform Group revenue decreased $42.1 million, or 7.4%, primarily resulting from a decrease in broadcast advertising due to a more challenging macroeconomic environment as discussed above, as well as a decline in political advertising. Digital Audio Group revenue increased $9.2 million, or 4.3%, driven primarily by continuing increases in demand for digital advertising. Audio & Media Services revenue increased $0.5 million primarily due to continued growth in digital revenues, partially offset by a decrease in political revenue. Direct Operating Expenses Consolidated direct operating expenses increased $14.1 million during the three months ended March 31, 2023 compared to the same period of 2022. The increase in direct operating expenses was primarily driven by higher variable content costs resulting from an increase in digital revenue, including profit sharing expenses, third-party digital costs, and production costs, as well as costs incurred in connection with executing on our cost saving initiatives. Selling, General and Administrative (“SG&A”) Expenses Consolidated SG&A expenses increased $18.5 million during the three months ended March 31, 2023 compared to the same period of 2022. The increase in Consolidated SG&A expenses was driven primarily by higher share-based compensation and employee compensation, higher bad debt expense, as well as costs incurred in connection with executing on our cost reduction initiatives. These increases were partially offset by lower sales commissions. Depreciation and Amortization Depreciation and amortization decreased $5.5 million during the three months ended March 31, 2023 compared to the same period of 2022, primarily as a result of a lower fixed asset base due to properties sold in 2022 in connection with our real estate optimization initiatives, and lower amortization expense due to certain intangible assets being fully amortized. 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. During the three months ended March 31, 2023, we recognized non-cash impairment charges of $3.9 million primarily related to changes in sublease assumptions for certain operating leases previously determined to be subleased as part of strategic actions to streamline our real estate footprint. We recorded non-cash impairment charges of $1.3 million during the three months ended March 31, 2022. Interest Expense Interest expense increased $16.2 million during the three months ended March 31, 2023 compared to the same period of 2022, primarily as a result of the increase in LIBOR borrowing rates, partially offset by the 2022 repurchases of $329.6 million aggregate principal amount of iHeartCommunications, Inc.'s 8.375% Senior Unsecured Notes due 2027 for $299.4 million in cash. Loss on Investments, Net During the three months ended March 31, 2023 and March 31, 2022, we recogn ized a loss on in vestments, net of $6.5 million and $1.8 million, respectively, related to declines in the value of our investments. Gain on Extinguishment of Debt During the three months ended March 31, 2023, we recognized a gain on extinguishment of debt of $4.6 million in connection with the open market repurchases of $20.0 million aggregate principal amount of iHeartCommunications, Inc.'s 8.375% Senior Unsecured Notes due 2027 for $15.4 million in cash. 23 Income Tax Benefit (Expense) The effective tax rate for the Company for the three months ended March 31, 2023 and March 31, 2022 was (52.0)% and 29.3%, respectively. The effective tax rate was primarily impacted by the forecasted increase in valuation allowance against certain deferred tax assets, related primarily to disallowed interest expense carryforwards, due to uncertainty regarding the Company’s ability to utilize those assets in future periods. Net Loss Attributable to the Company Net loss attributable to the Company of $222.3 million during the three months ended March 31, 2023 increased $173.7 million compared to Net loss attributable to the Company of $48.6 million during the three months ended March 31, 2022, primarily as a result of lower consolidated revenues, higher content costs, and costs incurred in connection with the execution of cost reduction initiatives. Multiplatform Group Results (In thousands) Three Months Ended March 31, % 2023 2022 Change Revenue $ 529,013 $ 571,160 (7.4) % Operating expenses (1) 441,961 437,253 1.1 % Segment Adjusted EBITDA $ 87,052 $ 133,907 (35.0) % Segment Adjusted EBITDA margin 16.5 % 23.4 % (1) Operating expenses consist of Direct operating expenses and Selling, general and administrative expenses, excluding Restructuring expenses. Revenue from our Multiplatform Group decreased $(42.1) million compared to the prior year as a result of the challenging macroeconomic environment, and a decline in political advertising. Broadcast revenue declined $(32.0) million, or 7.7%, year-over-year, driven by lower spot revenue. Networks declined $(9.6) million, or 8.2%, year-over-year. Revenue from Sponsorship and Events decreased by $(1.0) million, or 3.0%, year-over-year. Operating expenses increased $4.7 million, driven primarily by higher content and production costs, partially offset by decreased sales commissions. 24 Digital Audio Group Results (In thousands) Three Months Ended March 31, % 2023 2022 Change Revenue $ 223,396 $ 214,219 4.3 % Operating expenses (1) 169,277 161,711 4.7 % Segment Adjusted EBITDA $ 54,119 $ 52,508 3.1 % Segment Adjusted EBITDA margin 24.2 % 24.5 % (1) Operating expenses consist of Direct operating expenses and Selling, general and administrative expenses, excluding Restructuring expenses. Revenue from our Digital Audio Group increased $9.2 million compared to the prior year, led by Podcast revenue which increased by $8.3 million, or 12.1%, year-over-year, driven primarily by increased demand for podcast, and growth from Digital, excluding Podcast revenue, which grew $0.9 million, or 0.6%, year-over-year, driven by increased demand for digital advertising. Operating expenses increased $7.6 million due to higher variable content and production costs primarily resulting from the development of new podcasts, higher third-party digital costs, and profit share expenses primarily resulting from higher revenue. Audio & Media Services Group Results (In thousands) Three Months Ended March 31, % 2023 2022 Change Revenue $ 61,351 $ 60,857 0.8 % Operating expenses (1) 46,007 44,470 3.5 % Segment Adjusted EBITDA $ 15,344 $ 16,387 (6.4) % Segment Adjusted EBITDA margin 24.9 % 26.9 % (1) Operating expenses consist of Direct operating expenses and Selling, general and administrative expenses, excluding Restructuring expenses. Revenue from our Audio & Media Services Group increased $0.5 million compared to the comparative period in the prior year driven by continued growth in digital revenues, partially offset by a decrease in political revenue. Operating expenses increased $1.5 million primarily as a result of higher software costs. Reconciliation of Operating income (loss) to Adjusted EBITDA (In thousands) Three Months Ended March 31, 2023 2022 Operating income (loss) $ (48,862) $ 12,335 Depreciation and amortization 108,512 114,051 Impairment charges 3,947 1,334 Other operating expense, net 221 870 Share-based compensation expense 10,152 5,535 Restructuring expenses 19,454 11,093 Adjusted EBITDA (1) $ 93,424 $ 145,218 25 Reconciliation of Net loss to EBITDA and Adjusted EBITDA (In thousands) Three Months Ended March 31, 2023 2022 Net loss $ (222,363) $ (48,739) Income tax benefit (expense) 76,105 (20,209) Interest expense, net 95,457 79,219 Depreciation and amortization 108,512 114,051 EBITDA $ 57,711 $ 124,322 Loss on investments, net 6,505 1,765 Gain on extinguishment of debt (4,625) — Other expense, net 99 270 Equity in earnings (loss) of nonconsolidated affiliates (40) 29 Impairment charges 3,947 1,334 Other operating expense, net 221 870 Share-based compensation expense 10,152 5,535 Restructuring expenses 19,454 11,093 Adjusted EBITDA (1) $ 93,424 $ 145,218 (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, net. Alternatively, Adjusted EBITDA is calculated as Net loss, adjusted to exclude Income tax (benefit) expense, Interest expense, net, Depreciation and amortization, Loss on investments, net, Gain on extinguishment of debt, Other expense, net, Equity in earnings (loss) of nonconsolidated affiliates, net, Impairment charges, Other operating expense, net, Share-based compensation expense, and restructuring expenses. Restructuring expenses primarily include 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 (loss) 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 (loss) 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. 26 Reconciliation of Cash used for operating activities to Free Cash Flow (In thousands) Three Months Ended March 31, 2023 2022 Cash used for operating activities $ (93,983) $ (52,212) Purchases of property, plant and equipment (39,165) (22,557) Free cash flow (1) $ (133,148) $ (74,769) (1) We define Free cash flow ("Free Cash Flow") as Cash used for 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 (used for) 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 On April 21, 2021, our 2021 Long-Term Incentive Award Plan (the "2021 Plan") was approved by stockholders and replaced the prior plan. At our 2023 Annual Meeting of Stockholders, we are seeking to approve an increase to the shares authorized for issuance under the 2021 Plan. Pursuant to our 2021 Plan, we may grant restricted stock units covering 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 $10.2 million and $5.5 million for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, there was $37.7 million of unrecognized compensation cost related to unvested share-based compensation arrangements with vesting based solely on service conditions. This cost is expected to be recognized over a weighted average period of approximately 3.0 years. In addition, as of March 31, 2023, there were unrecognized compensation costs of $9.5 million of Q1 2022 Performance RSUs and $10.6 million of Q2 2022 Performance RSUs related to unvested share-based compensation arrangements that will vest based on performance and service conditions. These costs will be recognized over a 50-month period from the date of issuance for the Q1 2022 Performance RSUs and over a 3-year period from the date of issuance for the Q2 2022 Performance RSUs. 27 LIQUIDITY AND CAPITAL RESOURCES Cash Flows The following discussion highlights cash flow activities during the periods presented: (In thousands) Three Months Ended March 31, 2023 2022 Cash used for: Operating activities $ (93,983) $ (52,212) Investing activities (38,421) (19,690) Financing activities (15,938) (461) Free Cash Flow (1) (133,148) (74,769) (1) For a definition of Free Cash Flow and a reconciliation to Cash used for operating activities, the most closely comparable GAAP measure, please see “Reconciliation of Cash used for operating activities to Free Cash Flow” in this MD&A. Operating Activities Cash used for operating activities of $94.0 million during the three months ended March 31, 2023 increased from $52.2 million during the three months ended March 31, 2022 primarily due to a decrease in broadcast radio revenue due to a more challenging macroeconomic environment, an increase in LIBOR borrowing rates, and timing of payments. These decreases were partially offset by a decrease in bonus payments in 2023 compared to 2022. Investing Activities Cash used for investing activities of $38.4 million during the three months ended March 31, 2023 primarily reflects $39.2 million in cash used for capital expenditures. We spent $26.4 million for capital expenditures in our Multiplatform Group segment primarily related to our real estate optimization initiatives, $5.8 million in our Digital Audio Group segment primarily related to IT infrastructure, $3.9 million in our Audio & Media Services Group segment, primarily related to software, and $3.1 million in Corporate primarily related to equipment and software purchases. Cash used for investing activities in the three months ended March 31, 2023 includes $12.7 million of cash paid in the current period related to assets acquired in the fourth quarter of 2022. Cash used for investing activities of $19.7 million during the three months ended March 31, 2022 primarily reflects $22.6 million in cash used for capital expenditures. We spent $12.3 million for capital expenditures in our Multiplatform Group segment primarily related to our real estate optimization initiatives, $5.2 million in our Digital Audio Group segment primarily related to IT infrastructure, $1.7 million in our Audio & Media Services Group segment, primarily related to software, and $3.4 million in Corporate primarily related to equipment and software purchases. Financing Activities Cash used for financing activities totaled $15.9 million during the three months ended March 31, 2023 primarily due to the repurchases of $20.0 million aggregate principal amount of our 8.375% Senior Unsecured Notes due 2027 for $15.4 million in cash, reflecting a discounted purchase price from the face value of the notes. Cash used for financing activities totaled $0.5 million during the three months ended March 31, 2022. Due to the $250.0 million voluntary repayment of our term loan credit facilities in the third quarter of 2021, our Term Loan Facility no longer requires quarterly principal payments. 28 Sources of Liquidity and Anticipated Cash Requirements Our primary sources of liquidity are cash on hand, which consisted of cash and cash equivalents of $187.9 million as of March 31, 2023, cash flows from operations and borrowing capacity under our $450.0 million senior secured asset-based revolving credit facility entered into on May 17, 2022 (the "ABL Facility"). As of March 31, 2023, iHeartCommunications had no amounts outstanding under the ABL Facility, a borrowing base of $438.3 million and $25.0 million in outstanding letters of credit, resulting in $413.3 million of borrowing base availability. Together with our cash balance of $187.9 million as of March 31, 2023 and our borrowing capacity under the ABL Facility, our total available liquidity 1 was approximately $601 million. We regularly evaluate the impact of economic conditions on our business. A challenging macroeconomic environment has led to market uncertainty which impacted Q1 2023 revenues. For the three months ended March 31, 2023, our revenues decreased compared to the three months ended March 31, 2022 primarily due to the decrease in broadcast radio revenue driven by market uncertainty from the challenging macroeconomic environment, among other factors discussed in the Results of Operations section of the MD&A. Although we cannot predict future economic conditions or the impact of any potential contraction of economic growth on our business, we believe that we have sufficient liquidity to continue to fund our operations for at least the next twelve months. We are a party to many contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the Consolidated Balance Sheet as of March 31, 2023, while others are considered future commitments. Our contractual obligations primarily consist of long-term debt and related interest payments, commitments under non-cancelable operating lease agreements, and employment and talent contracts. In addition to our contractual obligations, we expect that our primary anticipated uses of liquidity in 2023 will be to fund our working capital, make interest and tax payments, fund capital expenditures, pursue certain strategic opportunities, and maintain operations. Assuming the current level of borrowings and interest rates in effect at March 31, 2023, we anticipate that we will have approximately $287.5 million of cash interest payments in the remainder of 2023 compared to $266.3 million of cash interest payments during the same period in 2022, primarily related to the increase in interest rates, including LIBOR. Future increases in interest rates could have a significant impact on our cash interest payments. 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 for at least the next twelve months. We acknowledge the challenges posed by the market uncertainty as a result of global economic weakness, the recent slowdown in economic activity, rising interest rates, high inflation and other macroeconomic trends, however, we remain confident in our business, our employees and our strategy. Further, we believe our available liquidity will allow us to 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. During the three months ended March 31, 2023, we repurchased $20.0 million in aggregate principal amount of iHeartCommunications, Inc.'s 8.375% Senior Unsecured Notes due 2027 for $15.4 million in cash, reflecting a discounted purchase price from the face value of the notes. We expect from time to time to pursue other strategic opportunities such as acquisitions or disposals of certain businesses, which may or may not be material. Tax Matters Agreement In connection with the separation (the "Separation") of Clear Channel Outdoor Holdings, Inc. as part of our plan of reorganization, we entered into the Tax Matters Agreement by and among iHeartMedia, iHeartCommunications, iHeart Operations, Inc., Clear Channel Holdings, Inc., and Clear Channel Outdoor Holding, Inc. (the "Outdoor Group"), to allocate the responsibility of iHeartMedia and its subsidiaries, on the one hand, and the Outdoor Group 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 the Outdoor Group and its subsidiaries, 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 the Outdoor Group indemnify iHeartMedia for certain income taxes paid by iHeartMedia on behalf of the Outdoor Group and its subsidiaries. 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. 29 Summary Debt Capital Structure As of March 31, 2023 and December 31, 2022, we had the following debt outstanding, net of cash and cash equivalents: (In thousands) March 31, 2023 December 31, 2022 Term Loan Facility due 2026 $ 1,864,032 $ 1,864,032 Incremental Term Loan Facility due 2026 401,220 401,220 Asset-based Revolving Credit Facility due 2027 — — 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 4,296 4,462 Total Secured Debt $ 4,319,548 $ 4,319,714 8.375% Senior Unsecured Notes due 2027 1 1,100,366 1,120,366 Other Subsidiary Debt — 52 Original issue discount (9,828) (10,569) Long-term debt fees (14,629) (15,396) Total Debt $ 5,395,457 $ 5,414,167 Less: Cash and cash equivalents 187,933 336,236 Net Debt 2 $ 5,207,524 $ 5,077,931 1 During the first quarter of 2023, we repurchased $20.0 million aggregate principal amount of iHeartCommunications, Inc.’s 8.375% Senior Unsecured Notes due 2027 for $15.4 million in cash, excluding accrued interest, via open market transactions. The repurchased notes were subsequently cancelled and retired, resulting in a gain on extinguishment of debt of $4.6 million. 2 Net Debt is a non-GAAP financial metric that is used by management and investors to assess our ability to meet financial obligations. Our ABL Facility contains a springing fixed charge coverage ratio that is effective if certain triggering events related to borrowing capacity under the ABL Facility occur. As of March 31, 2023, no triggering event had occurred and, as a result, we were not required to comply with any fixed charge coverage ratio as of or for the period ended March 31, 2023. Other than our ABL Facility, none of our long-term debt includes maintenance covenants that could trigger early repayment. As of March 31, 2023, we were in compliance with all covenants related to our debt agreements in all material respects. For additional information regarding our debt, refer to Note 5, Long-Term Debt . Our subsidiaries have from time to time repurchased certain debt obligations of iHeartCommunications, and may in the future, as part of various financing and investment strategies, purchase additional outstanding indebtedness of iHeartCommunications or its subsidiaries or our outstanding equity securities, in tender offers, open market purchases, privately negotiated transactions or otherwise. We or our subsidiaries may also sell certain assets, securities, or properties. These purchases or sales, if any, could have a material positive or negative impact on our liquidity available to repay outstanding debt obligations or on our consolidated results of operations. These transactions could also require or result in amendments to the agreements governing outstanding debt obligations or changes in our leverage or other financial ratios, which could have a material positive or negative impact on our ability to comply with the covenants contained in iHeartCommunications’ debt agreements. These transactions, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amounts involved may be material. 30 Supplemental Financial Information under Debt Agreements Pursuant to iHeartCommunications' material debt agreements, iHeartMedia Capital I, LLC ("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, 2023, and Capital I’s and its consolidated restricted subsidiaries’ financial information for the same period. Further, as of March 31, 2023, we were in compliance with all covenants related to our debt agreements. 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. Certain agreements relating to acquisitions provide for purchase price adjustments and other future contingent payments based on the financial performance of the acquired companies generally over a one to five-year period. The aggregate of these contingent payments, if performance targets are met, would not significantly impact our financial position or results of operations. We have future cash obligations under various types of contracts. We lease office space, certain broadcast facilities and equipment. Some of our lease agreements contain renewal options and annual rental escalation clauses (generally tied to the consumer price index), as well as provisions for our payment of utilities and maintenance. We also have non-cancellable contracts in our radio broadcasting operations related to program rights and music license fees. In the normal course of business, our broadcasting operations have minimum future payments associated with employee and talent contracts. These contracts typically contain cancellation provisions that allow us to cancel the contract with good cause. 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, we are impacted by political cycles and generally experience higher revenues in congressional election years, and particularly in presidential election years. This may affect the 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, foreign currency exchange rates and inflation. Interest Rate Risk A significant amount of our long-term debt bears interest at variable rates. Additionally, certain assumptions used within management's estimates are impacted by changes in interest rates. Accordingly, our earnings will be affected by changes in interest rates. As of March 31, 2023, 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 100 bps change in LIBOR, it is estimated that our interest expense for the three months ended March 31, 2023 would have changed by $5.7 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. 31 Inflation Inflation is a factor in our business and we continue to seek ways to mitigate its effect. Inflation has affected our performance in terms of higher costs for employee compensation, equipment and third party services. Although we are unable to determine the exact impact of inflation, we believe the impact will continue to be immaterial considering the actions we may take in response to these higher costs that may arise as a result of inflation. 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, 2022. 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, financial position and results of operations, macroeconomic trends including inflation and potential recessionary indicators, our expected costs, savings and timing of our modernization initiatives and other capital and operating expense reduction initiatives, debt repurchases, our business plans, strategies and initiatives, benefits of acquisitions, our expectations about certain markets and businesses, 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; • risks related to the COVID-19 pandemic or other future pandemics; • 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 and other factors within or beyond our control; • technological changes and innovations; • shifts in population and other demographics; • the impact of our substantial indebtedness; • the impact of acquisitions, dispositions and other strategic transactions; • legislative or regulatory requirements; • the impact of legislation, ongoing litigation or royalty audits on music licensing and royalties; • regulations and consumer concerns regarding privacy and data protection, and breaches of information security measures; • risks related to our Class A common stock; • 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, 2022, as updated by other filings with the Securities and Exchange Commission (“SEC”). 32 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.