Item 2. Management’s Discussion and Analysis
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 reporting 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 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 businesses 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 Radio, 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.
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
21
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.
Digital Audio Group
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. 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 500 platforms and thousands of different connected devices, and our digital business is comprised of podcasting, 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. 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, cash flows, and cost of capital are impacted by changes in economic conditions. Higher interest rates and 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. economy could have a significant impact on our ability to generate revenue and cash flows.
22
Cost Savings Initiatives
During the first half of 2024, we implemented operating expense savings initiatives to change and streamline our organization, increase automation and use of technology, examine our sourcing strategies, and leverage our scale to drive greater efficiency. We have incurred certain costs in connection with executing on these initiatives and we continue to explore opportunities for further efficiencies.
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, this economic uncertainty has had a significant impact on the trading values of our debt and equity securities for a sustained period. We therefore performed interim impairment tests as of June 30, 2024 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, 2024.
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 $304.1 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 two of our reporting units were below their carrying values, including goodwill, which required us to recognize a non-cash impairment charge of $616.1 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 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.
23
Executive Summary
Consolidated revenues for the second quarter of 2024 increased due to a continued increase in demand for digital advertising and increased political revenues as 2024 is a presidential election year, partially offset by lower spending on radio advertising as a result of continued uncertain market conditions.
The key developments that impacted our business during the quarter are summarized below:
• Consolidated Revenue of $929.1 million increased $9.1 million, or 1.0%, during the quarter ended June 30, 2024 compared to Consolidated Revenue of $920.0 million in the prior year's second quarter.
• Multiplatform Group Revenue decreased $20.0 million, or 3.4%, and Segment Adjusted EBITDA decreased $58.1 million, or 35.8%, compared to the prior year's second quarter, respectively.
• Digital Audio Group Revenue increased $24.8 million, or 9.5%, and Segment Adjusted EBITDA increased $7.3 million, or 8.6%, compared to the prior year's second quarter, respectively.
• Audio & Media Services Group Revenue increased $4.3 million, or 6.5%, and Segment Adjusted EBITDA increased $5.4 million, or 28.9%, compared to the prior year's second quarter, respectively.
• Operating loss of $909.7 million increased $12.5 million from $897.2 million in the prior year’s second quarter, primarily due to the increase in direct operating expense and SG&A expense as discussed further below, partially offset by the decrease in non-cash impairment charges of $920.2 million recognized in the second quarter of 2024 compared to the $960.6 million of non-cash impairment charges recognized in the prior year period. The non-cash impairment charges primarily related to goodwill and FCC license impairments in both periods.
• Net loss of $982.0 million increased $99.0 million from $883.0 million in the prior year's second quarter, primarily due to a decrease in deferred tax benefits recorded in 2024 compared to the prior year period.
• Cash flows provided by operating activities of $26.7 million decreased from cash flow provided by operating activities of $56.8 million in the prior year's second quarter.
• Adjusted EBITDA (1) of $150.2 million, was down $41.0 million from $191.2 million in prior year's second quarter.
• Free cash flow (2) of $5.6 million decreased from $34.0 million in the prior year's second quarter.
The table below presents a summary of our historical results of operations for the periods presented:
(In thousands) Three Months Ended
June 30,
2024 2023
Revenue $ 929,092 $ 920,014
Operating loss (909,667) (897,194)
Net loss (981,989) (882,982)
Cash provided by operating activities 26,729 56,772
Adjusted EBITDA (1)
$ 150,207 $ 191,181
Free cash flow (2)
5,557 33,999
(1) For a definition of Adjusted EBITDA and a reconciliation to Operating loss, the most closely comparable U.S. generally accepted accounting principles ("GAAP") measure, and to Net loss, please see "Reconciliation of Operating loss to Adjusted EBITDA" and "Reconciliation of Net loss to EBITDA and Adjusted EBITDA" in this MD&A.
(2) For a definition of Free cash flow 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.
24
Results of Operations
The table below presents the comparison of our historical results of operations:
(In thousands) Three Months Ended
June 30, Six Months Ended
June 30,
2024 2023 2024 2023
Revenue $ 929,092 $ 920,014 $ 1,728,130 $ 1,731,253
Operating expenses:
Direct operating expenses (excludes depreciation and amortization)
382,049 355,061 723,409 699,681
Selling, general and administrative expenses (excludes depreciation and amortization)
431,614 393,773 816,758 796,574
Depreciation and amortization 104,356 108,065 209,518 216,577
Impairment charges 920,224 960,570 921,732 964,517
Other operating (income) expense, net 516 (261) 1,088 (40)
Operating loss (909,667) (897,194) (944,375) (946,056)
Interest expense, net 95,577 98,693 191,092 194,150
Gain (loss) on investments, net (412) (6,038) 91,582 (12,543)
Equity in loss of nonconsolidated affiliates (61) (44) (106) (4)
Gain on extinguishment of debt — 22,902 — 27,527
Other expense, net (231) (272) (727) (371)
Loss before income taxes (1,005,948) (979,339) (1,044,718) (1,125,597)
Income tax benefit 23,959 96,357 44,621 20,252
Net loss (981,989) (882,982) (1,000,097) (1,105,345)
Less amount attributable to noncontrolling interest
(331) 1,488 69 1,385
Net loss attributable to the Company $ (981,658) $ (884,470) $ (1,000,166) $ (1,106,730)
The table below presents the comparison of our revenue streams for the three and six months ended June 30, 2024 to the three and six months ended June 30, 2023:
(In thousands) Three Months Ended
June 30, % Six Months Ended
June 30, %
2024 2023 Change 2024 2023 Change
Broadcast Radio $ 425,490 $ 429,152 (0.9) % $ 784,828 $ 812,390 (3.4) %
Networks 106,591 122,168 (12.8) % 208,642 230,122 (9.3) %
Sponsorship and Events 39,121 38,210 2.4 % 66,950 70,797 (5.4) %
Other 4,705 6,414 (26.6) % 8,950 11,648 (23.2) %
Multiplatform Group 575,907 595,944 (3.4) % 1,069,370 1,124,957 (4.9) %
Digital, excluding Podcast 181,093 164,147 10.3 % 329,437 310,732 6.0 %
Podcast 104,521 96,707 8.1 % 195,145 173,518 12.5 %
Digital Audio Group 285,614 260,854 9.5 % 524,582 484,250 8.3 %
Audio & Media Services Group 70,082 65,804 6.5 % 139,250 127,155 9.5 %
Eliminations (2,511) (2,588) (5,072) (5,109)
Revenue, total $ 929,092 $ 920,014 1.0 % $ 1,728,130 $ 1,731,253 (0.2) %
25
Consolidated results for the three and six months ended June 30, 2024 compared to the consolidated results for the three and six months ended June 30, 2023 were as follows:
Revenue
Consolidated revenue increased $9.1 million during the three months ended June 30, 2024 compared to the same period of 2023. Multiplatform Group revenue decreased $20.0 million, or 3.4%, primarily resulting from a decrease in broadcast advertising in connection with continued uncertain market conditions, partially offset by an increase in non-cash trade revenues and political revenues as 2024 is a presidential election year. Digital Audio Group revenue increased $24.8 million, or 9.5%, driven primarily by continuing increases in demand for digital advertising. Audio & Media Services revenue increased $4.3 million, or 6.5%, primarily as a result of higher political revenue.
Consolidated revenue decreased $3.1 million during the six months ended June 30, 2024 compared to the same period of 2023. Multiplatform Group revenue decreased $55.6 million, or 4.9%, primarily resulting from a decrease in broadcast advertising in connection with continued uncertain market conditions, partially offset by an increase in non-cash trade revenues and political revenues as 2024 is a presidential election year. Digital Audio Group revenue increased $40.3 million, or 8.3%, driven primarily by continuing increases in demand for digital advertising. Audio & Media Services revenue increased $12.1 million, or 9.5%, primarily as a result of contract termination fees earned by Katz Media and due to higher political revenue.
Direct Operating Expenses
Consolidated direct operating expenses increased $27.0 million, or 7.6%, during the three months ended June 30, 2024 compared to the same period of 2023. The increase was primarily driven by higher variable content costs, including higher profit sharing expenses and third-party digital costs related to the increase in digital revenues and an increase in music license fees, as well as an increase in event costs related to the timing of the iHeartRadio Music Awards which was in the second quarter of 2024 and the first quarter of 2023.
Consolidated direct operating expenses increased $23.7 million, or 3.4%, during the six months ended June 30, 2024 compared to the same period of 2023. The increase was primarily driven by higher variable content costs, including higher profit sharing expenses and third-party digital costs related to the increase in digital revenues and an increase in broadcast music license fees, partially offset by lower broadcast profit sharing expense.
Selling, General and Administrative (“SG&A”) Expenses
Consolidated SG&A expenses increased $37.8 million, or 9.6%, during the three months ended June 30, 2024 compared to the same period of 2023. The increase was driven primarily by higher non-cash trade expense due to the timing of the iHeartRadio Music Awards which was in the second quarter of 2024 and the first quarter of 2023 and an increase in costs incurred in connection with executing on our cost savings initiatives, partially offset by lower bad debt expense and lower bonus expense based on results.
Consolidated SG&A expenses increased $20.2 million, or 2.5%, during the six months ended June 30, 2024 compared to the same period of 2023. The increase was driven primarily by an increase in certain costs incurred in connection with executing on our cost savings initiatives and higher non-cash trade and barter expense primarily related to the 2024 iHeartRadio Music Awards, partially offset by lower bonus expense based on results.
Depreciation and Amortization
Depreciation and amortization decreased $3.7 million and $7.1 million during the three and six months ended June 30, 2024 compared to the same periods of 2023, respectively, primarily as a result of a lower fixed asset base due to properties sold in 2022 and 2023 in connection with our real estate optimization initiatives.
26
Impairment Charges
During the three months ended June 30, 2024 and 2023, we recorded non-cash impairment charges of $920.2 million and $960.6 million, respectively, primarily to reduce the carrying values of our indefinite-lived FCC licenses and our goodwill to their estimated fair values. During the six months ended June 30, 2024 and 2023, we recorded non-cash impairment charges of $921.7 million and $964.5 million, respectively, primarily to reduce the carrying values of our indefinite-lived FCC licenses and our goodwill to their estimated fair values. The impairment charges 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 4 , 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.
Interest Expense, net
Interest expense decreased $3.1 million during the three and six months ended June 30, 2024 compared to the same periods of 2023, primarily as a result of the lower outstanding aggregate principal of iHeartCommunications, Inc.'s 8.375% Senior Unsecured Notes due 2027 due to the repurchases of $204.0 million of the notes for $147.3 million in cash made during 2023, partially offset by the increase in floating borrowing rates.
Gain (Loss) on Investments, Net
During the three months ended June 30, 2024, we recogn ized a loss on investments, net of $0.4 million, related to declines in the value of our investments. During the six months ended June 30, 2024, we recognized a gain on investments, net of $91.6 million, primarily due to the $101.4 million gain recognized on the sale of our investment in BMI in the first quarter of 2024, partially offset by declines in the value of certain 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.
Gain on Extinguishment of Debt
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. There were no repurchases during the three and six months ended June 30, 2024.
Income Tax Benefit
The effective tax rates for the Company for the three and six months ended June 30, 2024 were 2.4% and 4.3%, 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 recorded during the second quarter, as discussed in Note 4, Property, Plant and Equipment, Intangible Assets and Goodwill . The deferred tax benefit primarily consists of $77.3 million related to the FCC license impairment charges recorded during the second quarter of 2024. The deferred benefit was partially offset by deferred tax expense recorded for valuation allowances against certain deferred tax assets.
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. The deferred tax benefit primarily consists of $92.9 million related to the FCC license impairment charges recorded during the second quarter of 2023.
27
Net Loss Attributable to the Company
Net loss attributable to the Company of $981.7 million during the three months ended June 30, 2024 reflected an increase of $97.2 million compared to Net loss attributable to the Company of $884.5 million during the three months ended June 30, 2023, primarily due to a decrease in deferred tax benefits recorded in 2024 compared to the prior year period.
Net loss attributable to the Company of $1,000.2 million during the six months ended June 30, 2024 reflected a decrease of $106.5 million compared to Net loss attributable to the Company of $1,106.7 million during the six months ended June 30, 2023, primarily due to the non-cash impairment charges of $921.7 million recognized in 2024 compared to the $964.5 million recognized in the prior year period.
Multiplatform Group Results
(In thousands) Three Months Ended
June 30, % Six Months Ended
June 30, %
2024 2023 Change 2024 2023 Change
Revenue $ 575,907 $ 595,944 (3.4) % $ 1,069,370 $ 1,124,957 (4.9) %
Operating expenses (1)
471,644 433,542 8.8 % 887,925 875,503 1.4 %
Segment Adjusted EBITDA $ 104,263 $ 162,402 (35.8) % $ 181,445 $ 249,454 (27.3) %
Segment Adjusted EBITDA margin 18.1 % 27.3 % 17.0 % 22.2 %
(1) Operating expenses consist of Direct operating expenses and Selling, general and administrative expenses, excluding Restructuring expenses.
Three Months
Revenue from our Multiplatform Group decreased $20.0 million compared to the prior year primarily due to a decrease in broadcast and networks advertising in connection with continued uncertain market conditions, partially offset by an increase in non-cash trade revenue and political revenues. Broadcast revenue declined $3.7 million, or 0.9%, year-over-year, driven by lower spot revenue, partially offset by an increase in non-cash trade revenues and political advertising. Networks declined $15.6 million, or 12.8%, year-over-year due primarily to the impact of non-returning advertisers. Revenue from Sponsorship and Events increased $0.9 million, or 2.4%, year-over-year.
Operating expenses increased $38.1 million, driven primarily by higher non-cash trade expense and live event costs due to the timing of the iHeartRadio Music Awards which was in the second quarter of 2024 and the first quarter of 2023 and higher broadcast music license fees.
Six Months
Revenue from our Multiplatform Group decreased $55.6 million compared to the prior year primarily due to a decrease in broadcast advertising in connection with continued uncertain market conditions, partially offset by an increase in non-cash trade revenue and political revenues. Broadcast revenue declined $27.6 million, or 3.4%, year-over-year, driven by lower spot revenue, partially offset by an increase in political advertising and non-cash trade revenues. Networks declined $21.5 million, or 9.3%, year-over-year due primarily to the impact of non-returning advertisers. Revenue from Sponsorship and Events decreased 3.8 million, or 5.4%, year-over-year.
Operating expenses increased $12.4 million, driven primarily by higher non-cash trade expense related to the 2024 iHeartRadio Music Awards and higher broadcast music license fees, partially offset by lower bonus expense based on results.
28
Digital Audio Group Results
(In thousands) Three Months Ended
June 30, % Six Months Ended
June 30, %
2024 2023 Change 2024 2023 Change
Revenue $ 285,614 $ 260,854 9.5 % $ 524,582 $ 484,250 8.3 %
Operating expenses (1)
193,744 176,272 9.9 % 364,585 345,549 5.5 %
Segment Adjusted EBITDA $ 91,870 $ 84,582 8.6 % $ 159,997 $ 138,701 15.4 %
Segment Adjusted EBITDA margin 32.2 % 32.4 % 30.5 % 28.6 %
(1) Operating expenses consist of Direct operating expenses and Selling, general and administrative expenses, excluding Restructuring expenses.
Three Months
Revenue from our Digital Audio Group increased $24.8 million compared to the prior year, driven by Digital, excluding Podcast revenue, which grew $16.9 million, or 10.3% year-over-year, primarily due to an increase in demand for digital advertising, and Podcast revenue which increased by $7.8 million, or 8.1% year-over-year, primarily due to the continued increase in demand for podcasting from advertisers and higher non-cash trade revenue.
Operating expenses increased $17.5 million, primarily driven by higher variable content costs, including higher profit sharing agreements and third-party digital costs related to the increase in revenues.
Six Months
Revenue from our Digital Audio Group increased $40.3 million compared to the prior year, driven by Podcast revenue which increased by $21.6 million, or 12.5% year-over-year, primarily due to a continued increase in demand for podcasting from advertisers, and Digital, excluding Podcast revenue, which increased $18.7 million, or 6.0% year-over-year, primarily due to an increase in demand for digital advertising, partially offset by a decrease in COVID-19 related advertisers.
Operating expenses increased $19.1 million, primarily driven by higher variable content costs, including higher third-party digital costs and profit sharing related to the increase in revenues, partially offset by lower compensation expense.
Audio & Media Services Group Results
(In thousands) Three Months Ended
June 30, % Six Months Ended
June 30, %
2024 2023 Change 2024 2023 Change
Revenue $ 70,082 $ 65,804 6.5 % $ 139,250 $ 127,155 9.5 %
Operating expenses (1)
46,233 47,305 (2.3) % 91,706 93,312 (1.7) %
Segment Adjusted EBITDA $ 23,849 $ 18,499 28.9 % $ 47,544 $ 33,843 40.5 %
Segment Adjusted EBITDA margin 34.0 % 28.1 % 34.1 % 26.6 %
(1) Operating expenses consist of Direct operating expenses and Selling, general and administrative expenses, excluding Restructuring expenses.
Three Months
Revenue from our Audio & Media Services Group increased $4.3 million compared to the prior year period, primarily due to higher political revenue as 2024 is a presidential election year.
Operating expenses decreased $1.1 million, primarily as a result of a favorable shift in the sales mix toward services and a decrease in employee compensation expense.
Six Months
Revenue from our Audio & Media Services Group increased $12.1 million compared to the prior year period primarily due to contract termination fees earned by Katz Media and higher political revenue as 2024 is a presidential election year.
29
Operating expenses decreased $1.6 million primarily as a result of a favorable shift in the sales mix toward services and a decrease in employee compensation expense.
Reconciliation of Operating loss to Adjusted EBITDA
(In thousands) Three Months Ended
June 30, Six Months Ended
June 30,
2024 2023 2024 2023
Operating loss $ (909,667) $ (897,194) $ (944,375) $ (946,056)
Depreciation and amortization 104,356 108,065 209,518 216,577
Impairment charges 920,224 960,570 921,732 964,517
Other operating (income) expense, net 516 (261) 1,088 (40)
Restructuring expenses 27,558 10,789 51,161 30,243
Share-based compensation expense 7,220 9,212 15,700 19,364
Adjusted EBITDA (1)
$ 150,207 $ 191,181 $ 254,824 $ 284,605
Reconciliation of Net loss to EBITDA and Adjusted EBITDA
(In thousands) Three Months Ended
June 30, Six Months Ended
June 30,
2024 2023 2024 2023
Net loss $ (981,989) $ (882,982) $ (1,000,097) $ (1,105,345)
Income tax benefit (23,959) (96,357) (44,621) (20,252)
Interest expense, net 95,577 98,693 191,092 194,150
Depreciation and amortization 104,356 108,065 209,518 216,577
EBITDA $ (806,015) $ (772,581) $ (644,108) $ (714,870)
(Gain) loss on investments, net 412 6,038 (91,582) 12,543
Gain on extinguishment of debt — (22,902) — (27,527)
Other expense, net 231 272 727 371
Equity in loss of nonconsolidated affiliates 61 44 106 4
Impairment charges 920,224 960,570 921,732 964,517
Other operating (income) expense, net 516 (261) 1,088 (40)
Restructuring expenses 27,558 10,789 51,161 30,243
Share-based compensation expense 7,220 9,212 15,700 19,364
Adjusted EBITDA (1)
$ 150,207 $ 191,181 $ 254,824 $ 284,605
(1) We define Adjusted EBITDA as consolidated Operating loss adjusted to exclude restructuring expenses included within Direct operating expenses and SG&A expenses, and share-based compensation expenses included within SG&A expenses, as well as the following line items presented in our Statements of Operations: Depreciation and amortization, Impairment charges and Other operating (income) expense, net. Alternatively, Adjusted EBITDA is calculated as Net loss, adjusted to exclude Income tax benefit, 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, 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. 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
30
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 loss or net loss as an indicator of operating performance and may not be comparable to similarly titled measures employed by other companies. Adjusted EBITDA is not necessarily a measure of our ability to fund our cash needs. Because it excludes certain financial information compared with operating income and compared with consolidated net income (loss), the most directly comparable GAAP financial measures, users of this financial information should consider the types of events and transactions which are excluded.
Reconciliation of Cash provided by (used for) operating activities to Free Cash Flow
(In thousands) Three Months Ended
June 30, Six Months Ended
June 30,
2024 2023 2024 2023
Cash provided by (used for) operating activities $ 26,729 $ 56,772 $ (32,548) $ (37,211)
Purchases of property, plant and equipment (21,172) (22,773) (42,754) (61,938)
Free cash flow (1)
$ 5,557 $ 33,999 $ (75,302) $ (99,149)
(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. 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. On February 23, 2023, our Board adopted an amendment to the 2021 Plan, which provided for an increase to the shares authorized for issuance under the 2021 Plan. At our 2023 Annual Meeting of Stockholders, the amendment 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 $7.2 million and $9.2 million for the three months ended June 30, 2024 and 2023, respectively. Share-based compensation expenses were $15.7 million and $19.4 million for the six months ended June 30, 2024 and 2023, respectively.
As of June 30, 2024, there was $44.8 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 1.7 years and assumes Performance RSUs will be fully earned at target. See Note 8 , Stockholders' Deficit , for more information.
31
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The following discussion highlights cash flow activities during the periods presented:
(In thousands) Six Months Ended
June 30,
2024 2023
Cash provided by (used for):
Operating activities $ (32,548) $ (37,211)
Investing activities 55,871 (59,260)
Financing activities (4,816) (74,875)
Free Cash Flow (1)
(75,302) (99,149)
(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 provided by (used for) operating activities to Free Cash Flow” in this MD&A.
Operating Activities
Cash used for operating activities was $32.5 million during the six months ended June 30, 2024 compared to $37.2 million during the six months ended June 30, 2023. The improvement was primarily due to an improvement in the timing of receivable collections, largely offset by a decrease in revenue from our Multiplatform Group, and an increase in cash bonus payments in 2024 compared to 2023.
Investing Activities
Cash provided by investing activities of $55.9 million during the six months ended June 30, 2024 primarily reflects $101.4 million of proceeds received from the sale of our investment in BMI, partially offset by $42.8 million in cash used for capital expenditures. For capital expenditures during the period, we spent $24.6 million in our Multiplatform Group segment primarily related to our IT infrastructure and real estate optimization initiatives, $11.1 million in our Digital Audio Group segment primarily related to IT infrastructure, $4.5 million in our Audio & Media Services Group segment, primarily related to software, and $2.6 million in Corporate primarily related to equipment and software purchases.
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. For capital expenditures during the period, we spent $41.3 million 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.
Financing Activities
Cash used for financing activities totaled $4.8 million during the six months ended June 30, 2024 primarily due to distributions to noncontrolling interest holders .
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.
32
Sources of Liquidity and Anticipated Cash Requirements
Our primary sources of liquidity are cash on hand, which consisted of cash and cash equivalents of $364.7 million as of June 30, 2024, 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, 2024, iHeartCommunications had no amounts outstanding under the ABL Facility, a facility size of $450.0 million and $23.7 million in outstanding letters of credit, resulting in $426.3 million of borrowing base availability. Our total available liquidity 1 as of June 30, 2024 was $791.0 million.
We regularly evaluate the impact of economic conditions on our business. A challenging macroeconomic environment has led to market uncertainty which has continued to negatively impact 2024 revenues and cash flows. For the six months ended June 30, 2024, our revenues increased compared to the six months ended June 30, 2023 primarily due to revenue growth in our Digital Audio Group, 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 June 30, 2024, 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 2024 will be to fund our working capital and maintain operations, make interest and tax payments, fund capital expenditures, make voluntary debt repayments and pursue other strategic opportunities.
Assuming the current level of borrowings and interest rates in effect at June 30, 2024, we anticipate that we will have approximately $196.3 million of cash interest payments in the remainder of 2024 compared to $197.2 million of cash interest payments during the same period in 2023, primarily due to the lower outstanding debt balance as a result of the note repurchases in 2023, partially offset by an increase in floating interest rates. Future increases in interest rates could have a significant impact on our cash interest payments.
We acknowledge the challenges posed by the market uncertainty as a result of global economic and geo-political conditions, current levels of interest rates, the continuing impact of inflation on consumer spending and in turn, advertising spend, 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. 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.
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.
33
Summary Debt Capital Structure
As of June 30, 2024 and December 31, 2023, we had the following debt outstanding, net of cash and cash equivalents:
(In thousands) June 30, 2024 December 31, 2023
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 3,159 3,367
Total Secured Debt $ 4,318,411 $ 4,318,619
8.375% Senior Unsecured Notes due 2027 916,357 916,357
Other Subsidiary Debt 694 —
Original issue discount (6,003) (7,558)
Long-term debt fees (10,644) (12,268)
Total Debt $ 5,218,815 $ 5,215,150
Less: Cash and cash equivalents 364,744 346,382
Net Debt 1
$ 4,854,071 $ 4,868,768
1 Net Debt is a non-GAAP financial metric that is used by management and investors to assess our ability to meet financial obligations, including our ability to service our long-term debt obligations. We define Net Debt as Total Debt less Cash and cash equivalents.
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 June 30, 2024, 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, 2024. Other than our ABL Facility, none of our long-term debt includes maintenance covenants that could trigger early repayment. As of June 30, 2024, we were in compliance with all covenants related to our debt agreements. 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.
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 and six months ended June 30, 2024, and Capital I’s and its consolidated restricted subsidiaries’ financial information for the same period. Further, as of June 30, 2024, we were in compliance with all covenants related to our debt agreements.
34
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 June 30, 2024, approximately 43% 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, 2024 would have changed by $11.5 million.
In the event of an adverse change in interest rates, management may take actions to mitigate our exposure. However, due to the uncertainty of the actions that would be taken and their possible effects, the preceding interest rate sensitivity analysis assumes no such actions. Further, the analysis does not consider the effects of the change in the level of overall economic activity that could exist in such an environment.
Inflation
Inflation is a factor in 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
35
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. 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, 2023.
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, 2024 on our 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, 2024, we performed an interim impairment test in accordance with ASC 350-30-35 and we concluded that a $304.1 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 1.0% 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 16.3%, depending on market size; and
• Assumed discount rates of 9.5% for large markets and 10.0% for small 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)
$ 123,114 $ 120,132 $ 142,164
At June 30, 2024, the carrying value of our FCC licenses was $809.9 million after the impairment of $304.1 million . 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.
36
Goodwill
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, 2024 has resulted in a decrease in the fair values of our reporting units. The carrying values of our Multiplatform and RCS reporting units exceeded their fair values. The fair values of our Digital and Katz reporting units exceeded their carrying values.
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, 2024, we performed our interim impairment test in accordance with ASC 350-30-35, resulting in a $616.1 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 2024 through 2028. 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 2028 are projected to grow at a perpetual growth rate, which we estimated at 1.0% for our Multiplatform Reporting unit (beyond 2033), 3.0% for our Digital Audio Reporting unit (beyond 2032), and 2.0% for our RCS and Katz Media Reporting units.
• Profit margins beyond 2028 utilize the 2028 margin implied in the multi-year forecasts.
• In order to risk adjust the cash flow projections in determining fair value, we utilized discounts rates between 17% and 20% 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 $ 127,528 $ 98,208 $ 114,259
Digital 61,541 61,790 58,055
Katz Media 10,342 8,189 9,614
RCS 8,342 4,356 6,684
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.
37
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, 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 and dispositions, 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. 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 and geopolitical conditions and their impact on the level of expenditures for advertising;
• risks related to the COVID-19 pandemic or other future pandemics, or public health crises and any related reduction in demand for advertising;
• 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, 2023, as updated by other filings with the Securities and Exchange Commission (“SEC”).
This list of factors that may affect future performance and the accuracy of forward-looking statements is illustrative and is not intended to be exhaustive. Accordingly, all forward-looking statements should be evaluated with the understanding of their inherent uncertainty.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Required information is presented under “Market Risk” within Item 2 of this Part I.
38
Text extracted from the filing as submitted to EDGAR. Formatting, tables and exhibits are simplified for reading; the original document is authoritative for anything you rely on.