What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-08-08 compared with 2023-05-02 · 237 added, 105 removed, 305 unchanged (53% of the section changed)

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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.

The primary source of revenue in the Digital Audio Group segment is the sale of advertising on our 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.

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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.

Increasing interest rates and high inflation have contributed to a challenging macroeconomic environment since 2022.

This challenging environment has led to broader market uncertainty which has impacted our revenues and cash flows.

The current market uncertainty and macroeconomic conditions, a recession, or a downturn in the U.S.

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Impairment Charges

Economic uncertainty due to inflation and higher interest rates since 2022 has resulted in, among other things, lower advertising spending by businesses.

This challenging environment has led to broader market uncertainty, and has delayed our expected recovery and has had an adverse impact on our revenue and cash flows.

This challenging environment could have a significant impact on our financial results.

In addition, the economic uncertainty has had a significant impact on the trading values of our debt and equity securities for a sustained period.

As a result, we performed impairment tests as of June 30, 2023 on our indefinite-lived Federal Communication Commission ("FCC") licenses and goodwill.

The uncertainty surrounding the demand for advertising and the adverse impact on the trading values of our debt and equity securities impacted the key assumptions used in the models that are utilized to value our FCC licenses and goodwill.

As a result, the fair values of certain of our FCC licenses and reporting units have decreased.

Our FCC licenses are valued using a direct valuation approach, with the key assumptions being market revenue growth rates, profit margin, and the risk-adjusted discount rate as well as other assumptions including market share, duration and profile of the build-up period, estimated start-up costs and capital expenditures.

This data is populated using industry normalized information representing an average asset within a market.

We obtained the most recent broadcast radio industry revenue projections for use in our valuation model, as well as various other sources to analyze media and broadcast industry market forecasts and other data in developing the assumptions used for purposes of performing impairment testing on our FCC licenses as of June 30, 2023.

Considerations in developing these assumptions included the expected impact on advertising revenues given the current market uncertainty, ranges of expected timing of recovery, discount rates and other factors.

Based on our interim testing, the estimated fair value of our FCC licenses was below their carrying values.

As a result, we recognized a non-cash impairment charge of $363.6 million on our FCC licenses.

The goodwill impairment test requires us to measure the fair value of our reporting units, which is compared to the carrying value of the reporting units, including goodwill.

Each of our reporting units is valued using a discounted cash flow model which requires estimating future cash flows expected to be generated from the reporting unit, discounted to their present value using a risk-adjusted discount rate.

Terminal values were also estimated and discounted to their present value.

Assessing the recoverability of goodwill requires us to make estimates and assumptions about sales, operating margins, growth rates and discount rates based on our budgets, business plans, economic projections, anticipated future cash flows and marketplace data.

There are inherent uncertainties related to these factors and in management’s judgment in applying these factors.

The economic environment resulting from inflation, higher interest rates, and the related uncertainty in the markets negatively impacted the trading values of our debt and equity securities and also impacted certain assumptions used to estimate the fair values of our reporting units for purposes of performing the interim goodwill impairment test.

Based on our valuation analysis, we determined that the estimated fair values of three of our reporting units were below their carrying values, including goodwill, which required us to recognize a non-cash impairment charge of $595.5 million to reduce our goodwill balance.

While we believe we have made reasonable estimates and utilized reasonable assumptions to calculate the fair values of our long-lived assets, indefinite-lived FCC licenses and reporting units, it is possible a material change could occur to the estimated fair value of these assets as a result of the uncertainty regarding the magnitude of the impact of current market conditions, as well as the timing of any recovery.

If our actual results are not consistent with our estimates, we could be exposed to future impairment losses that could be material to our results of operations.

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.

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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.

Revenues for the second 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.

• Consolidated Revenue of $920.0 million decreased $34.0 million, or 3.6%, during the quarter ended June 30, 2023 compared to Consolidated Revenue of $954.0 million in the prior year's second quarter.

• Revenue and Segment Adjusted EBITDA from our Multiplatform Group decreased $37.4 million and $32.1 million compared to the prior year's second quarter, respectively.

• Revenue and Segment Adjusted EBITDA from our Digital Audio Group increased $8.3 million and $5.7 million compared to the prior year's second quarter, respectively.

• Revenue and Segment Adjusted EBITDA from our Audio & Media Services Group decreased $5.3 million and $3.6 million compared to the prior year's second quarter, respectively.

• Operating loss of $897.2 million, decreased $980.1 million from Operating income of $82.9 million in the prior year’s second quarter mainly due to the non-cash impairment charges of $960.6 million, primarily related to our goodwill and indefinite-lived intangible assets balances.

• Net loss of $883.0 million, a decrease of $898.2 million from Net income of $15.2 million in the prior year's second quarter primarily related to the non-cash impairment charge of $960.6 million, primarily related to our goodwill and indefinite-lived intangible assets.

• Cash flows provided by operating activities of $56.8 million decreased from $155.8 million provided by operating activities in the prior year's second quarter.

• Adjusted EBITDA (1) of $191.2 million, was down $46.0 million from $237.2 million in prior year's second quarter.

• Free cash flow (2) of $34.0 million decreased from $106.1 million in the prior year's second quarter.

The table below presents a summary of our historical results of operations for the periods presented:

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Operating income (loss) (897,194) 82,869

Net loss (222,363) (48,739)

Cash used for operating activities (93,983) (52,212)

Net income (loss) (882,982) 15,182

Cash provided by operating activities 56,772 155,801

Adjusted EBITDA (1)

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33,999 106,148

(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.

(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 income (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 (used for) operating activities to Free cash flow” in this MD&A.

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:

The tables below present the comparison of our historical results of operations for the three and six months ended June 30, 2023 to the three and six months ended June 30, 2022:

(In thousands) Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Revenue $ 920,014 $ 954,005 $ 1,731,253 $ 1,797,463

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Interest expense, net 98,693 81,494 194,150 160,713

Loss on investments, net (6,505) (1,765)

Equity in earnings (loss) of nonconsolidated affiliates 40 (29)

Gain (loss) on investments, net (6,038) 9,590 (12,543) 7,825

Equity in loss of nonconsolidated affiliates (44) (29) (4) (58)

Gain on extinguishment of debt 22,902 8,203 27,527 8,203

Other expense, net (272) (2,175) (371) (2,445)

Loss before income taxes (146,258) (68,948)

Income (loss) before income taxes (979,339) 16,964 (1,125,597) (51,984)

Income tax benefit (expense) 96,357 (1,782) 20,252 18,427

Net loss (222,363) (48,739)

Net income (loss) (882,982) 15,182 (1,105,345) (33,557)

Less amount attributable to noncontrolling interest

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:

1,488 781 1,385 624

Net income (loss) attributable to the Company $ (884,470) $ 14,401 $ (1,106,730) $ (34,181)

The table below presents the comparison of our revenue streams for the three and six months ended June 30, 2023 to the three and six months ended June 30, 2022:

(In thousands) Three Months Ended

2023 2022 Change

June 30, % Six Months Ended

2023 2022 Change 2023 2022 Change

Broadcast Radio $ 429,152 $ 462,547 (7.2) % $ 812,390 $ 877,789 (7.5) %

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Revenue, total $ 920,014 $ 954,005 (3.6) % $ 1,731,253 $ 1,797,463 (3.7) %

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:

Consolidated revenue decreased $32.2 million during the three months ended March 31, 2023 compared to the same period of 2022.

Consolidated results for the three and six months ended June 30, 2023 compared to the consolidated results for the three and six months ended June 30, 2022 were as follows:

Consolidated revenue decreased $34.0 million during the three months ended June 30, 2023 compared to the same period of 2022.

Multiplatform Group revenue decreased $37.4 million, or 5.9%, primarily resulting from a decrease in broadcast advertising due to a challenging macroeconomic environment as discussed above, as well as a decline in political advertising.

Digital Audio Group revenue increased $8.3 million, or 3.3%, driven primarily by continuing increases in demand for podcast advertising.

Audio & Media Services revenue decreased $5.3 million primarily due to a decrease in political revenue, partially offset by continued growth in digital revenues.

Consolidated revenue decreased $66.2 million during the six months ended June 30, 2023 compared to the same period of 2022.

Multiplatform Group revenue decreased $79.5 million, or 6.6%, 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 $17.5 million, or 3.7%, 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.

Audio & Media Services revenue decreased $4.8 million primarily due to a decrease in political revenue, partially offset by continued growth in digital revenues.

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.

Consolidated direct operating expenses decreased $10.3 million during the three months ended June 30, 2023 compared to the same period of 2022.

The decrease in direct operating expenses was primarily driven by lower digital performance royalty fees including the impact of expenses recorded in 2022 upon the settlement of amounts related to prior years, as well as lower employee compensation as a result of cost savings initiatives.

The decrease was partially offset by higher variable content costs resulting from an increase in digital revenue, including third-party digital costs and production costs.

Consolidated direct operating expenses increased $3.8 million during the six months ended June 30, 2023 compared to the same period of 2022.

The increase was partially offset by lower performance royalty fees.

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.

Consolidated SG&A expenses increased $14.7 million during the three months ended June 30, 2023 compared to the same period of 2022.

The increase in Consolidated SG&A expenses was driven primarily by higher variable bonus expense and higher bad debt expense, partially offset by lower sales commissions.

Consolidated SG&A expenses increased $33.2 million during the six months ended June 30, 2023 compared to the same period of 2022.

The increase in Consolidated SG&A expenses was driven primarily by higher variable bonus expense, share-based compensation, bad debt expense, as well as an increase in 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.

Depreciation and amortization decreased $2.7 million and $8.3 million during the three and six months ended June 30, 2023, respectively, compared to the same periods 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.

We recorded a non-cash impairment charge of $959.1 million in the second quarter of 2023 to reduce the carrying values of our indefinite-lived FCC licenses and our goodwill to their estimated fair values.

This impairment charge resulted from the economic uncertainty due to inflation and higher interest rates that has had an adverse impact on our results, and has resulted in a significant decrease in the trading values of our debt and equity securities for a sustained period.

See Note 5, Property, Plant and Equipment, Intangible Assets and Goodwill , to the consolidated financial statements located in Item 1 of this Quarterly Report on Form 10-Q for a further description of the impairment charges.

In addition, as part of our operating expense-savings initiatives, we have taken strategic actions to streamline our real estate footprint and related expenses.

During the three and six months ended June 30, 2023, we recognized non-cash impairment charges of $1.5 million and $5.5 million, respectively, 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.

During the three and six months ended June 30, 2022, we recognized non-cash impairment charges of $0.3 million and $1.6 million, respectively, due to the write-down of certain right-of-use assets and related fixed assets, including leasehold improvements.

Other Operating Expense, net

Other operating expense, net of $15.7 million and $16.5 million for the three and six months ended June 30, 2022, respectively, relates primarily to non-cash net book losses recognized on asset disposals in connection with our real estate optimization initiatives.

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.

Interest expense increased $17.2 million and $33.5 million during the three and six months ended June 30, 2023 compared to the same periods of 2022, primarily as a result of the increase in LIBOR borrowing rates, partially offset by the lower outstanding aggregate principal of iHeartCommunications, Inc.'s 8.375% Senior Unsecured Notes due 2027 due to the repurchases of $349.6 million of the notes for $314.8 million in cash made during 2022 and the first quarter of 2023.

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.

During the three and six months ended June 30, 2023, we recogn ized a loss on in vestments, net of $6.0 million and $12.5 million, respectively, related to declines in the value of our investments.

During the three and six months ended June 30, 2022, we recognized a gain on investments, net of $9.6 million and $7.8 million, respectively, in connection with increases 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.

During the three months ended June 30, 2023, we recognized a gain on extinguishment of debt of $22.9 million in connection with the open market repurchases of $79.9 million aggregate principal amount of iHeartCommunications, Inc.'s 8.375% Senior Unsecured Notes due 2027 for $57.0 million in cash.

During the six months ended June 30, 2023, we recognized a gain on extinguishment of debt of $27.5 million, in connection with the open market repurchases of $99.9 million aggregate principal amount of iHeartCommunications, Inc.'s 8.375% Senior Unsecured Notes due 2027 for $72.4 million in cash.

During the three and six months ended June 30, 2022, we recognized a gain on extinguishment of debt of $8.2 million in connection with the open market repurchases of $113.5 million aggregate principal amount of iHeartCommunications, Inc.'s 8.375% Senior Unsecured Notes due 2027 for $105.3 million in cash.

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.

The effective tax rates for the Company for the three and six months ended June 30, 2023 were 9.8% and 1.8%, respectively.

The effective tax rates were 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, as well as by impairment charges to non-deductible goodwill as discussed in Note 4, Property, Plant and Equipment, Intangible Assets and Goodwill .

The deferred tax benefit primarily consists of $92.9 million related to the FCC license impairment charges recorded during the period.

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.

Net loss attributable to the Company of $884.5 million during the three months ended June 30, 2023 reflected a decrease of $898.9 million compared to Net income attributable to the Company of $14.4 million during the three months ended June 30, 2022, primarily due to the non-cash impairment charges of $960.6 million to our goodwill and indefinite-lived intangible assets balances.

Net loss attributable to the Company of $1,106.7 million during the six months ended June 30, 2023 increased $1,072.5 million compared to Net loss attributable to the Company of $34.2 million during the six months ended June 30, 2022, primarily due to the non-cash impairment charges of $964.5 million to our goodwill and indefinite-lived intangible assets balances.

Multiplatform Group Results

(In thousands) Three Months Ended

2023 2022 Change

June 30, % Six Months Ended

2023 2022 Change 2023 2022 Change

Revenue $ 595,944 $ 633,300 (5.9) % $ 1,124,957 $ 1,204,460 (6.6) %

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Revenue from our Multiplatform Group decreased $37.4 million compared to the prior year as a result of the challenging macroeconomic environment and a decline in political advertising.

Broadcast revenue declined $33.3 million, or 7.2%, year-over-year, driven by lower spot revenue and a decrease in political advertising.

Networks declined $5.4 million, or 4.2%, year-over-year.

Revenue from Sponsorship and Events increased $0.1 million, or 0.3%, year-over-year.

Operating expenses decreased $5.3 million, driven primarily by cost savings initiatives and sales commissions, partially offset by higher bad debt expense.

Revenue from our Multiplatform Group decreased $79.5 million compared to the prior year as a result of the challenging macroeconomic environment and a decline in political advertising.

Broadcast revenue declined $65.4 million, or 7.5%, year-over-year, driven by lower spot revenue.

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Revenue from Sponsorship and Events decreased by $0.9 million, or 1.2%, year-over-year.

Operating expenses increased $4.7 million, driven primarily by higher content and production costs, partially offset by decreased sales commissions.

Operating expenses decreased $0.6 million, driven primarily decreased sales commissions, offset by higher bad debt expense and higher content and production costs.

Digital Audio Group Results

(In thousands) Three Months Ended

2023 2022 Change

June 30, % Six Months Ended

2023 2022 Change 2023 2022 Change

Revenue $ 260,854 $ 252,561 3.3 % $ 484,250 $ 466,780 3.7 %

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(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.

Revenue from our Digital Audio Group increased $8.3 million compared to the prior year, driven by Podcast revenue which increased by $11.0 million, or 12.8%, year-over-year, driven primarily by continued increased demand for podcasting from advertisers, partially offset by Digital, excluding Podcast revenue, which declined $2.7 million, or 1.6%, year-over-year, driven by a decrease in COVID-19 related advertisers.

Operating expenses increased $2.6 million due to higher variable costs, including third-party digital costs and sales commissions primarily resulting from higher revenue, partially offset by a decrease in performance royalty fees.

Revenue from our Digital Audio Group increased $17.5 million compared to the prior year, driven by Podcast revenue which increased by $19.3 million, or 12.5%, year-over-year, driven primarily by increased demand for podcasting from advertisers, partially offset by Digital, excluding Podcast revenue, which declined $1.8 million, or 0.6%, year-over-year, driven primarily by a decrease in COVID-19 related advertisers and digital subscriptions.

Operating expenses increased $10.2 million due to higher variable content and production costs primarily resulting from the development of new podcasts, higher third-party digital costs, and sales commissions primarily resulting from higher revenue, partially offset by a decrease in performance royalty fees.

Audio & Media Services Group Results

(In thousands) Three Months Ended

2023 2022 Change

June 30, % Six Months Ended

2023 2022 Change 2023 2022 Change

Revenue $ 65,804 $ 71,065 (7.4) % $ 127,155 $ 131,922 (3.6) %

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(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.

Revenue from our Audio & Media Services Group decreased $5.3 million compared to the prior year period driven by a decrease in political revenue, partially offset by continued growth in digital revenues.

Operating expenses decreased $1.7 million primarily as a result of lower cost of sales due to lower revenues.

Revenue from our Audio & Media Services Group decreased $4.8 million compared to the prior year period driven by a decrease in political revenue, partially offset by continued growth in digital revenues.

Operating expenses decreased $0.2 million primarily as a result of lower cost of sales due to lower revenues, partially offset by a new purchase agreement with third-parties for specific inventory spots.

Reconciliation of Operating income (loss) to Adjusted EBITDA

(In thousands) Three Months Ended

June 30, Six Months Ended

2023 2022 2023 2022

Operating income (loss) $ (897,194) $ 82,869 $ (946,056) $ 95,204

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Impairment charges 960,570 245 964,517 1,579

Other operating expense, net 221 870

Share-based compensation expense 10,152 5,535

Other operating (income) expense, net (261) 15,664 (40) 16,534

Restructuring expenses 10,789 19,009 30,243 30,102

Share-based compensation expense 9,212 8,610 19,364 14,145

Adjusted EBITDA (1)

$ 191,181 $ 237,185 $ 284,605 $ 382,403

Reconciliation of Net loss to EBITDA and Adjusted EBITDA

Reconciliation of Net income (loss) to EBITDA and Adjusted EBITDA

(In thousands) Three Months Ended

Net loss $ (222,363) $ (48,739)

June 30, Six Months Ended

2023 2022 2023 2022

Net income (loss) $ (882,982) $ 15,182 $ (1,105,345) $ (33,557)

Income tax benefit (expense) (96,357) 1,782 (20,252) (18,427)

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EBITDA $ (772,581) $ 209,246 $ (714,870) $ 333,568

Loss on investments, net 6,505 1,765

Gain (loss) on investments, net 6,038 (9,590) 12,543 (7,825)

Gain on extinguishment of debt (22,902) (8,203) (27,527) (8,203)

Other expense, net 272 2,175 371 2,445

Equity in earnings (loss) of nonconsolidated affiliates (40) 29

Equity in loss of nonconsolidated affiliates 44 29 4 58

Impairment charges 960,570 245 964,517 1,579

Other operating expense, net 221 870

Share-based compensation expense 10,152 5,535

Other operating (income) expense, net (261) 15,664 (40) 16,534

Restructuring expenses 10,789 19,009 30,243 30,102

Share-based compensation expense 9,212 8,610 19,364 14,145

Adjusted EBITDA (1)

$ 191,181 $ 237,185 $ 284,605 $ 382,403

(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.

(1) We define Adjusted EBITDA as consolidated Operating income 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, net, Depreciation and amortization, (Gain) loss on investments, net, Gain on extinguishment of debt, Other 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 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.

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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.

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 (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.

Reconciliation of Cash used for operating activities to Free Cash Flow

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.

Reconciliation of Cash provided by (used for) operating activities to Free Cash Flow

(In thousands) Three Months Ended

Cash used for operating activities $ (93,983) $ (52,212)

June 30, Six Months Ended

2023 2022 2023 2022

Cash provided by (used for) operating activities $ 56,772 $ 155,801 $ (37,211) $ 103,589

Purchases of property, plant and equipment (22,773) (49,653) (61,938) (72,210)

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$ 33,999 $ 106,148 $ (99,149) $ 31,379

(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.

(1) We define Free cash flow ("Free Cash Flow") as Cash provided by (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.

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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.

At our 2023 Annual Meeting of Stockholders, an increase to the shares authorized for issuance under the 2021 Plan was approved.

Pursuant to our 2021 Plan, we may 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 $9.2 million and $8.6 million for the three months ended June 30, 2023 and 2022, respectively, and $19.4 million and $14.1 million for the six months ended June 30, 2023 and 2022, respectively.

As of June 30, 2023, there was $42.3 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 2.8 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.

In addition, as of June 30, 2023, there were unrecognized compensation costs of $24.6 million for the 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 3-year or 50-month period from the date of issuance.

See Note 8, Stockholders' Equity , for more information

LIQUIDITY AND CAPITAL RESOURCES

The following discussion highlights cash flow activities during the periods presented:

(In thousands) Three Months Ended

Cash used for:

(In thousands) Six Months Ended

Cash provided by (used for):

Operating activities $ (37,211) $ 103,589

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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.

Cash used for operating activities was $37.2 million during the six months ended June 30, 2023 compared to cash provided by operating activities of $103.6 million during the six months ended June 30, 2022.

The decrease was primarily due to a decrease in broadcast radio revenue due to a more challenging macroeconomic environment, higher interest expense due to an increase in 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.

Cash used for investing activities of $59.3 million during the six months ended June 30, 2023 primarily reflects $61.9 million in cash used for capital expenditures.

We spent $41.3 million for capital expenditures in our Multiplatform Group segment primarily related to our real estate optimization initiatives, $11.3 million in our Digital Audio Group segment primarily related to IT infrastructure, $4.8 million in our Audio & Media Services Group segment, primarily related to software, and $4.6 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.

Cash used for investing activities in the six months ended June 30, 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 $49.7 million during the six months ended June 30, 2022 primarily reflects $72.2 million in cash used for capital expenditures.

We spent $48.7 million for capital expenditures in our Multiplatform Group segment primarily related to our real estate optimization initiatives, $11.1 million in our Digital Audio Group segment primarily related to IT infrastructure, $4.1 million in our Audio & Media Services Group segment, primarily related to software, and $8.3 million in Corporate primarily related to equipment and software purchases.

Cash used for investing activities was partially offset by proceeds from the sale of certain properties related to our real estate optimization initiatives.

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.

Cash used for financing activities totaled $74.9 million during the six months ended June 30, 2023 primarily due to the repurchases of $99.9 million aggregate principal amount of our 8.375% Senior Unsecured Notes due 2027 for $72.4 million in cash, reflecting a discounted purchase price from the face value of the notes.

Cash used for financing activities totaled $110.7 million during the six months ended June 30, 2022 primarily due to the open market repurchases of $113.5 million aggregate principal amount of our 8.375% Senior Unsecured Notes due 2027 for $105.3 million in cash, reflecting a discounted purchase price from the face value of the notes.

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.

Our primary sources of liquidity are cash on hand, which consisted of cash and cash equivalents of $165.3 million as of June 30, 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 June 30, 2023, iHeartCommunications had no amounts outstanding under the ABL Facility, a borrowing base of $444.5 million and $24.9 million in outstanding letters of credit, resulting in $419.6 million of borrowing base availability.

Together with our cash balance of $165.3 million as of June 30, 2023 and our borrowing capacity under the ABL Facility, our total available liquidity 1 was approximately $585 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.

A challenging macroeconomic environment has led to market uncertainty which has impacted 2023 revenues.

For the six months ended June 30, 2023, our revenues decreased compared to the six months ended June 30, 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.

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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.

Certain contractual obligations are reflected on the Consolidated Balance Sheet as of June 30, 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.

On June 15, 2023, iHeartCommunications, Inc.

("iHeartCommunications") entered into an amendment to the credit agreement governing its term loan credit facilities (the "Term Loan Facility").

The amendment replaces the prior Eurocurrency interest rate, based upon LIBOR, with the Secured Overnight Financing Rate (“SOFR”) successor rate plus a SOFR adjustment as specified in the credit agreement.

The Term Loan Facility margins remain the same with the Term Loan Facility due 2026 containing margins of 3.00% for Term SOFR Loans (as defined in the credit agreement) and 2.00% for Base Rate Loans (as defined in the credit agreement), and the Incremental Term Loan Facility due 2026 containing margins of 3.25% for Term SOFR Loans with a floor of 0.50% and 2.25% for Base Rate Loans with a floor of 1.50%.

Assuming the current level of borrowings and interest rates in effect at June 30, 2023, we anticipate that we will have approximately $197.0 million of cash interest payments in the remainder of 2023 compared to $182.4 million of cash interest payments during the same period in 2022, primarily related to the increase in interest rates, including SOFR.

Future increases in interest rates could have a significant impact on our cash interest payments.

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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.

During the six months ended June 30, 2023, we repurchased $99.9 million in aggregate principal amount of iHeartCommunications, Inc.'s 8.375% Senior Unsecured Notes due 2027 for $72.4 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.

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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.

(the "Outdoor Group"), to allocate the

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.

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.

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.

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

As of June 30, 2023 and December 31, 2022, we had the following debt outstanding, net of cash and cash equivalents:

(In thousands) June 30, 2023 December 31, 2022

Term Loan Facility due 2026 $ 1,864,032 $ 1,864,032

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$ 5,151,070 $ 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.

1 During the three and six months ended June 30, 2023, we repurchased $79.9 million and $99.9 million, respectively, of aggregate principal amount of iHeartCommunications, Inc.’s 8.375% Senior Unsecured Notes due 2027 for $57.0 million and $72.4 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 for the three and six months ended June 30, 2023 of $22.9 million and $27.5 million, respectively.

2 Net Debt is a non-GAAP financial metric that is used by management and investors to assess our ability to meet financial obligations.

See above under “Sources of Liquidity and Cash Requirements” for details regarding the amendment to our Term Loan Facility entered into on June 15, 2023.

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.

As of June 30, 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 June 30, 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.

As of June 30, 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 .

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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.

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, 2023, and Capital I’s and its consolidated restricted subsidiaries’ financial information for the same period.

Further, as of June 30, 2023, we were in compliance with all covenants related to our debt agreements.

Commitments, Contingencies and Guarantees

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Interest Rate Risk

On June 15, 2023, iHeartCommunications, Inc.

("iHeartCommunications") entered into an amendment to the credit agreement governing its Term Loan credit facilities.

A significant amount of our long-term debt bears interest at variable rates.

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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.

As of June 30, 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 floating interest rates, it is estimated that our interest expense for the six months ended June 30, 2023 would have changed by $11.4 million.

In the event of an adverse change in interest rates, management may take actions to mitigate our exposure.

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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.

Other than the following, 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.

Economic uncertainty due to higher interest rates since 2022 has resulted in, among other things, lower advertising spending by businesses.

This challenging environment has led to broader market uncertainty, and has delayed our expected recovery and has had an adverse impact on our revenue and cash flows.

This challenging environment could have a significant impact on our financial results.

In addition, the economic uncertainty has had a significant impact on the trading values of our debt and equity securities for a sustained period.

As a result, we performed an impairment test as of June 30, 2023 on our long-lived assets, intangible assets, indefinite-lived FCC licenses and goodwill.

Indefinite-lived Intangible Assets

Indefinite-lived intangible assets, such as our FCC licenses, are reviewed for impairment using the direct valuation method as prescribed in ASC 805-20-S99.

Under the direct valuation method, the estimated fair value of the indefinite-lived intangible assets was calculated at the market level as prescribed by ASC 350-30-35.

Under the direct valuation method, it is assumed that rather than acquiring indefinite-lived intangible assets as a part of a going concern business, the buyer hypothetically obtains indefinite-lived intangible assets and builds a new operation with similar attributes from scratch.

Thus, the buyer incurs start-up costs during the build-up phase which are normally associated with going concern value.

Initial capital costs are deducted from the discounted cash flows model, which results in value that is directly attributable to the indefinite-lived intangible assets.

Our key assumptions using the direct valuation method are market revenue growth rates, profit margin, and the risk-adjusted discount rate as well as other assumptions including market share, duration and profile of the build-up period, estimated start-up costs and capital expenditures.

This data is populated using industry normalized information representing an average asset within a market.

On June 30, 2023, we performed an interim impairment test in accordance with ASC 350-30-35 and we concluded that a $363.6 million impairment of the indefinite-lived intangible assets was required.

In determining the fair value of our FCC licenses, the following key assumptions were used:

• Revenue forecasts published by BIA Financial Network, Inc.

(“BIA”), varying by market, and revenue growth projections made by industry analysts were used for the initial five-year period;

• 2.0% over-the-air revenue growth and 3.0% digital revenue growth was assumed beyond the initial five-year period and 2.0% revenue growth was assumed in the terminal period;

• Revenue was grown proportionally over a build-up period, reaching market revenue forecast by year 3;

• Operating margins of 8.0% in the first year gradually climb to the industry average margin in year 3 of up to 18.2%, depending on market size;

• Assumed discount rates of 10.0% for all markets.

While we believe we have made reasonable estimates and utilized appropriate assumptions to calculate the fair value of our indefinite-lived intangible assets, it is possible a material change could occur.

If future results are not consistent with our assumptions and estimates, we may be exposed to impairment charges in the future.

The following table shows the decrease in the fair value of our indefinite-lived intangible assets that would result from a 100 basis point decline in our discrete and terminal period revenue growth rate and profit margin assumptions and a 100 basis point increase in our discount rate assumption:

Impact on the Fair Value of our FCC Licenses due to 100 bps Change in:

Revenue Growth Rate Profit Margin Discount Rate

(in thousands)

$ 201,609 $ 155,590 $ 222,563

At June 30, 2023, both the carrying value of our FCC licenses after the impairment of $363.6 million and the fair value of the FCC licenses was $1.1 billion .

Consequently, an increase in discount rates, a decrease in revenue growth rates or profit margins, or a decrease in BIA revenue forecasts could result in additional impairment to our FCC licenses.

We test goodwill at interim dates if events or changes in circumstances indicate that goodwill might be impaired.

The fair value of our reporting units is used to apply value to the net assets of each reporting unit.

To the extent that the carrying amount of net assets would exceed the fair value, an impairment charge may be required to be recorded.

The impairment testing performed as of June 30, 2023 has resulted in a decrease in the fair values of our reporting units.

The carrying values of our Multiplatform, Digital, and RCS reporting units exceeded their fair values.

The fair value of our Katz reporting unit exceeded its carrying value.

The valuation methodology we use for valuing goodwill involves considering the implied fair values of our reporting units based on market factors including the trading prices of our debt and equity securities, and estimating future cash flows expected to be generated from the related assets, discounted to their present values using a risk-adjusted discount rate.

Terminal values are also estimated and discounted to their present values.

On June 30, 2023, we performed our interim impairment test in accordance with ASC 350-30-35, resulting in a $595.5 million impairment of goodwill.

In determining the fair value of our reporting units, we considered industry and market factors including trading multiples of similar businesses and the trading prices of our debt and equity securities.

For purposes of assessing the discounted future cash flows of our reporting units, we used the following assumptions:

• Expected cash flows underlying our business plans for the periods 2023 through 2027.

Our cash flow assumptions are based on detailed, multi-year forecasts performed by each of our operating reporting units, and reflect the current advertising outlook across our businesses.

• Revenues beyond 2027 are projected to grow at a perpetual growth rate, which we estimated at 2.0% for our Multiplatform and RCS Reporting units, 3.0% for our Digital Audio Reporting unit (beyond 2031), and 2.0% for our Katz Media reporting unit (beyond 2032).

• In order to risk adjust the cash flow projections in determining fair value, we utilized discounts rates between 15% and 18% for each of our reporting units.

While we believe we have made reasonable estimates and utilized appropriate assumptions to calculate the estimated fair value of our reporting units, it is possible a material change could occur.

If future results are not consistent with our assumptions and estimates, we may be exposed to additional impairment charges in the future.

The following table shows the decline in the fair value of each of our reporting units that would result from a 100 basis point decline in our discrete and terminal period revenue growth rate and profit margin assumptions and a 100 basis point increase in our discount rate assumption:

(In thousands) Impact on the Fair Value of our Goodwill due to 100bps Change in:

Reporting Unit Revenue Growth Rate Profit Margin Discount Rate

Multiplatform $ 241,000 $ 137,000 $ 220,000

Digital 62,000 66,000 63,000

Katz Media 19,000 11,000 18,000

RCS 10,000 5,000 8,000

An increase in discount rates or a decrease in revenue growth rates or profit margins could result in additional impairment charges being required to be recorded for one or more of our reporting units.

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.

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, interest rates 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, future impairment charges 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.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis