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
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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, 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.
Cost Savings Initiatives
In the first three quarters 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
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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 economic uncertainty has delayed our expected recovery and has had an adverse impact on the Company's revenues, cash flows, and the trading values of the Company's debt and equity securities for a sustained period. This challenging environment could continue to have a significant impact on our financial results. We therefore performed interim impairment tests as of June 30, 2024 on our indefinite-lived Federal Communication Commission ("FCC") licenses and goodwill. The June 30, 2024 testing resulted in non-cash impairment charges of $304.1 million and $616.1 million to reduce the FCC license and goodwill balances, respectively.
We perform our annual impairment test on goodwill and indefinite-lived intangible assets, including FCC licenses, as of July 1 of each year. No impairment was required as part of the 2024 or 2023 annual impairment testing.
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Executive Summary
Consolidated revenues for the third 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 $1,008.1 million increased $55.1 million, or 5.8%, during the quarter ended September 30, 2024 compared to Consolidated Revenue of $953.0 million in the prior year's third quarter.
• Multiplatform Group Revenue decreased $6.8 million, or 1.1%, and Segment Adjusted EBITDA decreased $32.6 million, or 20.1%, compared to the prior year's third quarter, respectively.
• Digital Audio Group Revenue increased $33.8 million, or 12.7%, and Segment Adjusted EBITDA increased $6.3 million, or 6.8%, compared to the prior year's third quarter, respectively.
• Audio & Media Services Group Revenue increased $28.1 million, or 45.3%, and Segment Adjusted EBITDA increased $27.4 million, or 161.6%, compared to the prior year's third quarter, respectively, primarily driven by an increase in political revenue.
• Operating income of $76.7 million increased $7.7 million from $69.0 million in the prior year’s third quarter.
• Net loss of $41.3 million increased $32.3 million from $9.0 million in the prior year's third quarter.
• Cash flows provided by operating activities of $102.8 million increased from cash flow provided by operating activities of $96.2 million in the prior year's third quarter.
• Adjusted EBITDA (1) of $204.6 million, was up $0.8 million from $203.8 million in prior year's third quarter.
• Free cash flow (2) of $73.3 million increased from $67.7 million in the prior year's third quarter.
The table below presents a summary of our historical results of operations for the periods presented:
(In thousands) Three Months Ended
September 30,
2024 2023
Revenue $ 1,008,133 $ 952,989
Operating income 76,720 68,965
Net loss (41,325) (8,969)
Cash provided by operating activities 102,765 96,169
Adjusted EBITDA (1)
$ 204,585 $ 203,782
Free cash flow (2)
73,345 67,651
(1) For a definition of Adjusted EBITDA and a reconciliation to Operating income, the most closely comparable U.S. generally accepted accounting principles ("GAAP") measure, and to Net loss, please see "Reconciliation of Operating income to Adjusted EBITDA" and "Reconciliation of Net loss to EBITDA and Adjusted EBITDA" in this MD&A.
(2) For a definition of Free cash flow and a reconciliation to Cash provided by operating activities, the most closely comparable GAAP measure, please see “Reconciliation of Cash provided by operating activities to Free cash flow” in this MD&A.
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Results of Operations
The table below presents the comparison of our historical results of operations:
(In thousands) Three Months Ended
September 30, Nine Months Ended
September 30,
2024 2023 2024 2023
Revenue $ 1,008,133 $ 952,989 $ 2,736,263 $ 2,684,242
Operating expenses:
Direct operating expenses (excludes depreciation and amortization)
409,745 379,997 1,133,154 1,079,678
Selling, general and administrative expenses (excludes depreciation and amortization)
418,833 393,628 1,235,591 1,190,202
Depreciation and amortization 101,331 106,451 310,849 323,028
Impairment charges 412 570 922,144 965,087
Other operating expense 1,092 3,378 2,180 3,338
Operating income (loss) 76,720 68,965 (867,655) (877,091)
Interest expense, net 95,715 99,509 286,807 293,659
Gain (loss) on investments, net (103) (7,381) 91,479 (19,924)
Equity in loss of nonconsolidated affiliates (2,587) (3,514) (2,693) (3,518)
Gain on extinguishment of debt — 23,947 — 51,474
Other income (expense), net 1,195 (738) 468 (1,109)
Loss before income taxes (20,490) (18,230) (1,065,208) (1,143,827)
Income tax benefit (expense) (20,835) 9,261 23,786 29,513
Net loss (41,325) (8,969) (1,041,422) (1,114,314)
Less amount attributable to noncontrolling interest
(60) 84 9 1,469
Net loss attributable to the Company $ (41,265) $ (9,053) $ (1,041,431) $ (1,115,783)
The table below presents the comparison of our revenue streams for the three and nine months ended September 30, 2024 to the three and nine months ended September 30, 2023:
(In thousands) Three Months Ended
September 30, % Nine Months Ended
September 30, %
2024 2023 Change 2024 2023 Change
Broadcast Radio $ 448,808 $ 455,103 (1.4) % $ 1,233,636 $ 1,267,493 (2.7) %
Networks 115,310 116,334 (0.9) % 323,952 346,456 (6.5) %
Sponsorship and Events 50,329 49,500 1.7 % 117,279 120,297 (2.5) %
Other 5,097 5,446 (6.4) % 14,047 17,094 (17.8) %
Multiplatform Group 619,544 626,383 (1.1) % 1,688,914 1,751,340 (3.6) %
Digital, excluding Podcast 186,996 164,559 13.6 % 516,433 475,291 8.7 %
Podcast 114,045 102,663 11.1 % 309,190 276,181 12.0 %
Digital Audio Group 301,041 267,222 12.7 % 825,623 751,472 9.9 %
Audio & Media Services Group 90,050 61,979 45.3 % 229,300 189,134 21.2 %
Eliminations (2,502) (2,595) (7,574) (7,704)
Revenue, total $ 1,008,133 $ 952,989 5.8 % $ 2,736,263 $ 2,684,242 1.9 %
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Consolidated results for the three and nine months ended September 30, 2024 compared to the consolidated results for the three and nine months ended September 30, 2023 were as follows:
Revenue
Consolidated revenue increased $55.1 million during the three months ended September 30, 2024 compared to the same period of 2023 primarily due to increases in Digital Audio Group revenue and political revenue as 2024 is a presidential election year. Multiplatform Group revenue decreased $6.8 million, or 1.1%, primarily resulting from a decrease in broadcast advertising in connection with continued uncertain market conditions, partially offset by increases in political revenues and non-cash trade revenues. Digital Audio Group revenue increased $33.8 million, or 12.7%, driven primarily by continuing increases in demand for digital advertising. Audio & Media Services revenue increased $28.1 million, or 45.3%, primarily as a result of higher political revenue and an increase in digital revenue.
Consolidated revenue increased $52.0 million during the nine months ended September 30, 2024 compared to the same period of 2023. Multiplatform Group revenue decreased $62.4 million, or 3.6%, primarily resulting from a decrease in broadcast advertising in connection with continued uncertain market conditions, partially offset by increases in political revenues as 2024 is a presidential election year, and non-cash trade revenues. Digital Audio Group revenue increased $74.2 million, or 9.9%, driven primarily by continuing increases in demand for digital advertising, including podcast. Audio & Media Services revenue increased $40.2 million, or 21.2%, primarily as a result of higher political revenue, as well as digital revenue and contract termination fees earned by Katz Media.
Direct Operating Expenses
Consolidated direct operating expenses increased $29.7 million, or 7.8%, during the three months ended September 30, 2024 compared to the same period of 2023. The increase was primarily driven by higher variable content costs, including higher third-party digital costs and podcast profit sharing expenses related to the increase in digital revenues.
Consolidated direct operating expenses increased $53.5 million, or 5.0%, during the nine months ended September 30, 2024 compared to the same period of 2023. The increase was primarily driven by higher variable content costs, including higher podcast profit sharing expenses and third-party digital costs related to the increase in digital revenues.
Selling, General and Administrative (“SG&A”) Expenses
Consolidated SG&A expenses increased $25.2 million, or 6.4%, during the three months ended September 30, 2024 compared to the same period of 2023. The increase was driven primarily by higher non-cash trade expense related to the 2024 Summer Olympics and the 2024 iHeartRadio Music Festival and an increase in costs incurred in connection with executing on our cost savings initiatives.
Consolidated SG&A expenses increased $45.4 million, or 3.8%, during the nine months ended September 30, 2024 compared to the same period of 2023. The increase was driven primarily by higher non-cash trade expense related to the 2024 iHeartRadio Music Awards, the 2024 Summer Olympics, and the 2024 iHeartRadio Music Festival, as well as an increase in certain costs incurred in connection with executing on our cost savings initiatives, partially offset by lower bonus expense based on results and lower bad debt expense.
Depreciation and Amortization
Depreciation and amortization decreased $5.1 million and $12.2 million during the three and nine months ended September 30, 2024 compared to the same periods of 2023, respectively, primarily as a result of a lower fixed asset base due to lower levels of capital expenditures.
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Impairment Charges
During the nine months ended September 30, 2024 and 2023, we recorded non-cash impairment charges of $922.1 million and $965.1 million, respectively, primarily to reduce the carrying values of our indefinite-lived FCC licenses and our goodwill to their estimated fair values as a result of the interim impairment assessments performed in the second quarter of 2024 and 2023, respectively. 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.
We perform our annual impairment test on our goodwill and FCC licenses as of July 1 of each year. No impairment was required as part of the 2024 or 2023 annual impairment tests for our goodwill or FCC licenses.
Interest Expense, net
Interest expense decreased $3.8 million and $6.9 million during the three and nine months ended September 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 during 2023.
Gain (Loss) on Investments, Net
During the nine months ended September 30, 2024, we recognized a gain on investments, net of $91.5 million, primarily due to the $101.4 million gain recognized on the sale of our investment in Broadcast Music, Inc. ("BMI") in the first quarter of 2024, partially offset by declines in the value of certain investments.
During the three and nine months ended September 30, 2023, we recogn ized a loss on in vestments, net of $7.4 million and $19.9 million, respectively, related to declines in the value of certain investments.
Gain on Extinguishment of Debt
During the three months ended September 30, 2023, we recognized a gain on extinguishment of debt of $23.9 million in connection with the open market repurchases of $89.1 million aggregate principal amount of iHeartCommunications, Inc.'s 8.375% Senior Unsecured Notes due 2027 for $65.2 million in cash. During the nine months ended September 30, 2023, we recognized a gain on extinguishment of debt of $51.5 million in connection with the open market repurchases of $189.0 million aggregate principal amount of iHeartCommunications, Inc.'s 8.375% Senior Unsecured Notes due 2027 for $137.5 million in cash. There were no repurchases during the three and nine months ended September 30, 2024.
Income Tax Benefit (Expense)
The effective tax rates for the Company for the three and nine months ended September 30, 2024 were (101.7)% and 2.2%, respectively. The three month effective tax rate was primarily impacted by changes in the forecasted increase in valuation allowances recorded 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 nine month effective tax rate was primarily impacted by impairment charges to non-deductible goodwill recorded during the second quarter of 2024, as discussed in Note 4, Property, Plant and Equipment, Intangible Assets and Goodwill .
The effective tax rates for the Company for the three and nine months ended September 30, 2023 were 50.8% and 2.6%, respectively. The three month 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 nine month effective tax rate was primarily impacted by impairment charges to non-deductible goodwill recorded in the second quarter of 2023.
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Net Loss Attributable to the Company
Net loss attributable to the Company of $41.3 million during the three months ended September 30, 2024 reflected an increase of $32.2 million compared to Net loss attributable to the Company of $9.1 million during the three months ended September 30, 2023, primarily due to changes in the valuation allowances recorded against certain deferred tax assets as discussed above.
Net loss attributable to the Company of $1,041.4 million during the nine months ended September 30, 2024 reflected an improvement of $74.4 million compared to Net loss attributable to the Company of $1,115.8 million during the nine months ended September 30, 2023, primarily due to the $101.4 million gain recognized on the sale of our investment in BMI in the first quarter of 2024.
Multiplatform Group Results
(In thousands) Three Months Ended
September 30, % Nine Months Ended
September 30, %
2024 2023 Change 2024 2023 Change
Revenue $ 619,544 $ 626,383 (1.1) % $ 1,688,914 $ 1,751,340 (3.6) %
Operating expenses (1)
489,672 463,939 5.5 % 1,377,597 1,339,441 2.8 %
Segment Adjusted EBITDA $ 129,872 $ 162,444 (20.1) % $ 311,317 $ 411,899 (24.4) %
Segment Adjusted EBITDA margin 21.0 % 25.9 % 18.4 % 23.5 %
(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 $6.8 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 political revenues and non-cash trade revenue. Broadcast revenue declined $6.3 million, or 1.4%, year-over-year, driven by lower spot revenue, partially offset by an increase in political advertising and non-cash trade revenues. Networks declined $1.0 million, or 0.9%, year-over-year. Revenue from Sponsorship and Events increased $0.8 million, or 1.7%, year-over-year.
Operating expenses increased $25.7 million, driven primarily by higher non-cash trade expense related to the 2024 Summer Olympics and the 2024 iHeartRadio Music Festival, an increase in broadcast music license fees, and an increase in tower rent as a result of the tower sale leaseback transaction completed at the end of the third quarter of 2023.
Nine Months
Revenue from our Multiplatform Group decreased $62.4 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 political and non-cash trade revenues. Broadcast revenue declined $33.9 million, or 2.7%, year-over-year, driven by lower spot revenue, partially offset by an increase in political advertising and non-cash trade revenues. Networks declined $22.5 million, or 6.5%, year-over-year due primarily to the impact of non-returning advertisers. Revenue from Sponsorship and Events decreased $3.0 million, or 2.5%, year-over-year.
Operating expenses increased $38.2 million, driven primarily by higher non-cash trade expense related to the 2024 Summer Olympics, the 2024 iHeartRadio Music Festival, and the 2024 iHeartRadio Music Awards, as well as higher broadcast music license fees, and an increase in tower rent as a result of the tower sale leaseback transaction completed at the end of the third quarter of 2023.
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Digital Audio Group Results
(In thousands) Three Months Ended
September 30, % Nine Months Ended
September 30, %
2024 2023 Change 2024 2023 Change
Revenue $ 301,041 $ 267,222 12.7 % $ 825,623 $ 751,472 9.9 %
Operating expenses (1)
201,035 173,565 15.8 % 565,620 519,115 9.0 %
Segment Adjusted EBITDA $ 100,006 $ 93,657 6.8 % $ 260,003 $ 232,357 11.9 %
Segment Adjusted EBITDA margin 33.2 % 35.0 % 31.5 % 30.9 %
(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 $33.8 million compared to the prior year, driven by Digital, excluding Podcast revenue, which grew $22.4 million, or 13.6% year-over-year, primarily due to an increase in demand for digital advertising, and Podcast revenue which increased by $11.4 million, or 11.1% year-over-year, primarily due to the continued increase in demand for podcasting from advertisers.
Operating expenses increased $27.5 million, primarily driven by higher variable content costs, including higher podcast profit sharing and third-party digital costs related to the increase in revenues.
Nine Months
Revenue from our Digital Audio Group increased $74.2 million compared to the prior year, driven by Digital, excluding Podcast revenue, which increased $41.1 million, or 8.7% year-over-year, primarily due to an increase in demand for digital advertising, partially offset by a decrease in COVID-19 related advertisers, and Podcast revenue which increased by $33.0 million, or 12.0% year-over-year, primarily due to a continued increase in demand for podcasting from advertisers.
Operating expenses increased $46.5 million, primarily driven by higher variable content costs, including higher podcast profit sharing and third-party digital costs related to the increase in revenues.
Audio & Media Services Group Results
(In thousands) Three Months Ended
September 30, % Nine Months Ended
September 30, %
2024 2023 Change 2024 2023 Change
Revenue $ 90,050 $ 61,979 45.3 % $ 229,300 $ 189,134 21.2 %
Operating expenses (1)
45,641 45,003 1.4 % 137,347 138,315 (0.7) %
Segment Adjusted EBITDA $ 44,409 $ 16,976 161.6 % $ 91,953 $ 50,819 80.9 %
Segment Adjusted EBITDA margin 49.3 % 27.4 % 40.1 % 26.9 %
(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 $28.1 million compared to the prior year period, primarily due to higher political revenue as 2024 is a presidential election year and increased demand for digital advertising, partially offset by decreases in broadcast advertising.
Operating expenses increased $0.6 million, primarily driven by higher sales commissions related to the increased demand for digital advertising.
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Nine Months
Revenue from our Audio & Media Services Group increased $40.2 million compared to the prior year period primarily due to higher political revenue as 2024 is a presidential election year as well as the increased demand for digital advertising and contract termination fees earned by Katz Media.
Operating expenses decreased $1.0 million primarily as a result of our cost savings initiatives, partially offset by higher sales commissions related to increased demand for digital advertising.
Reconciliation of Operating income (loss) to Adjusted EBITDA
(In thousands) Three Months Ended
September 30, Nine Months Ended
September 30,
2024 2023 2024 2023
Operating income (loss) $ 76,720 $ 68,965 $ (867,655) $ (877,091)
Depreciation and amortization 101,331 106,451 310,849 323,028
Impairment charges 412 570 922,144 965,087
Other operating expense 1,092 3,378 2,180 3,338
Restructuring expenses 16,767 16,227 67,928 46,469
Share-based compensation expense 8,263 8,191 23,963 27,555
Adjusted EBITDA (1)
$ 204,585 $ 203,782 $ 459,409 $ 488,386
Reconciliation of Net loss to EBITDA and Adjusted EBITDA
(In thousands) Three Months Ended
September 30, Nine Months Ended
September 30,
2024 2023 2024 2023
Net loss $ (41,325) $ (8,969) $ (1,041,422) $ (1,114,314)
Income tax (benefit) expense 20,835 (9,261) (23,786) (29,513)
Interest expense, net 95,715 99,509 286,807 293,659
Depreciation and amortization 101,331 106,451 310,849 323,028
EBITDA $ 176,556 $ 187,730 $ (467,552) $ (527,140)
(Gain) loss on investments, net 103 7,381 (91,479) 19,924
Gain on extinguishment of debt — (23,947) — (51,474)
Other (income) expense, net (1,195) 738 (468) 1,109
Equity in loss of nonconsolidated affiliates 2,587 3,514 2,693 3,518
Impairment charges 412 570 922,144 965,087
Other operating expense 1,092 3,378 2,180 3,338
Restructuring expenses 16,767 16,227 67,928 46,469
Share-based compensation expense 8,263 8,191 23,963 27,555
Adjusted EBITDA (1)
$ 204,585 $ 203,782 $ 459,409 $ 488,386
(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. Alternatively, Adjusted EBITDA is calculated as Net 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 (income) expense, net, Equity in loss of nonconsolidated affiliates, Impairment charges, Other operating expense, 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
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and forecasting of future periods, as well as for measuring performance for compensation of executives and other members of management. We believe this measure is an important indicator of our operational strength and performance of our business because it provides a link between operational performance and operating income. It is also a primary measure used by management in evaluating companies as potential acquisition targets. We believe the presentation of this measure is relevant and useful for investors because it allows investors to view performance in a manner similar to the method used by management. We believe it helps improve investors’ ability to understand our operating performance and makes it easier to compare our results with other companies that have different capital structures or tax rates. In addition, we believe this measure is also among the primary measures used externally by our investors, analysts and peers in our industry for purposes of valuation and comparing our operating performance to other companies in our industry. Since Adjusted EBITDA is not a measure calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, operating 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 operating activities to Free Cash Flow
(In thousands) Three Months Ended
September 30, Nine Months Ended
September 30,
2024 2023 2024 2023
Cash provided by operating activities $ 102,765 $ 96,169 $ 70,217 $ 58,958
Purchases of property, plant and equipment (29,420) (28,518) (72,174) (90,456)
Free cash flow (1)
$ 73,345 $ 67,651 $ (1,957) $ (31,498)
(1) We define Free cash flow ("Free Cash Flow") as Cash provided by operating activities less capital expenditures, which is disclosed as Purchases of property, plant and equipment in the Company's Consolidated Statements of Cash Flows. We use Free Cash Flow, among other measures, to evaluate the Company’s liquidity and its ability to generate cash flow. We believe that Free Cash Flow is meaningful to investors because we review cash flows generated from operations after taking into consideration capital expenditures due to the fact that these expenditures are considered to be a necessary component of ongoing operations. In addition, we believe that Free Cash Flow helps improve investors' ability to compare our liquidity with other companies. Since Free Cash Flow is not a measure calculated in accordance with GAAP, it should not be considered in isolation of, or as a substitute for, Cash provided by (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 $8.3 million and $8.2 million for the three months ended September 30, 2024 and 2023, respectively. Share-based compensation expenses were $24.0 million and $27.6 million for the nine months ended September 30, 2024 and 2023, respectively.
As of September 30, 2024, there was $38.1 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 1.6 years and assumes Performance RSUs will be fully earned at target. See Note 8 , Stockholders' Deficit , for more information.
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LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
The following discussion highlights cash flow activities during the periods presented:
(In thousands) Nine Months Ended
September 30,
2024 2023
Cash provided by (used for):
Operating activities $ 70,217 $ 58,958
Investing activities 23,517 (39,991)
Financing activities (8,443) (141,957)
Free Cash Flow (1)
(1,957) (31,498)
(1) For a definition of Free Cash Flow and a reconciliation to Cash provided by operating activities, the most closely comparable GAAP measure, please see “Reconciliation of Cash provided by operating activities to Free Cash Flow” in this MD&A.
Operating Activities
Cash provided by operating activities was $70.2 million during the nine months ended September 30, 2024 compared to $59.0 million during the nine months ended September 30, 2023. The increase was primarily due to an improvement in the timing of receivable collections and timing of payable payments, 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 $23.5 million during the nine months ended September 30, 2024 primarily reflects $101.4 million of proceeds received from the sale of our investment in BMI, partially offset by $72.2 million in cash used for capital expenditures. For capital expenditures during the period, we spent $38.2 million in our Multiplatform Group segment primarily related to our IT infrastructure and real estate optimization initiatives, $17.0 million in our Digital Audio Group segment primarily related to IT infrastructure, $5.8 million in our Audio & Media Services Group segment, primarily related to software, and $11.1 million in Corporate primarily related to equipment and software purchases.
Cash used for investing activities of $40.0 million during the nine months ended September 30, 2023 primarily reflects $90.4 million in cash used for capital expenditures. For capital expenditures during the period, we spent $52.1 million in our Multiplatform Group segment primarily related to our real estate optimization initiatives, $17.3 million in our Digital Audio Group segment primarily related to IT infrastructure, $6.3 million in our Audio & Media Services Group segment, primarily related to software, and $14.7 million in Corporate primarily related to equipment and software purchases. This was partially offset by the proceeds from the disposal of assets, which mainly consisted of $45.3 million related to the sale of broadcast tower sites and related assets. We are leasing back space on the broadcast towers and related assets under long-term operating leases.
Financing Activities
Cash used for financing activities totaled $8.4 million during the nine months ended September 30, 2024 primarily due to distributions to noncontrolling interest holders .
Cash used for financing activities totaled $142.0 million during the nine months ended September 30, 2023 primarily due to the repurchases of $189.0 million aggregate principal amount of our 8.375% Senior Unsecured Notes due 2027 for $137.5 million in cash, reflecting a discounted purchase price from the face value of the notes.
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Sources of Liquidity and Anticipated Cash Requirements
Our primary sources of liquidity are cash on hand, which consisted of cash and cash equivalents of $431.8 million as of September 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 (as amended from time to time, the "ABL Facility"). As of September 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 September 30, 2024 was $858.1 million.
In September 2023, we sold 122 of our broadcast tower sites and related assets for net proceeds of $45.3 million. We simultaneously leased back space on 121 of the broadcast towers and related assets under long-term operating leases.
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 nine months ended September 30, 2024, our consolidated revenues increased compared to the nine months ended September 30, 2023 primarily due to revenue growth in our Digital Audio Group, as well as political revenue, partially offset by lower revenue in our Multiplatform 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 September 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 September 30, 2024, we anticipate that we will have approximately $85.4 million of cash interest payments in the remainder of 2024 compared to $88.5 million of cash interest payments during the same period in 2023, primarily due to lower interest rates on our floating rate. 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 geopolitical 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.
Transaction Support Agreement and Exchange Offer
On November 6, 2024, we entered into a Transaction Support Agreement (the “TSA”) with certain lenders and holders (or their managers, advisors, or sub-advisors) of iHeartCommunications' outstanding notes and term loans (collectively, the “Supporting Holders”). The Supporting Holders represent approximately 77% of the aggregate principal amount of iHeartCommunications’ outstanding senior secured notes due 2026, 79% of the aggregate principal amount of our outstanding senior secured notes due 2027, 38% of the aggregate principal amount of our outstanding senior secured notes due 2028, 71% of the aggregate principal amount of our outstanding senior unsecured notes due 2027, and 92% of the aggregate principal amount of our outstanding term loans (collectively, the “Existing Debt”).
We and the Supporting Holders have agreed to the terms of, and to support, (i) exchange offer transactions that will be offered to all holders of the Existing Debt, consisting of two alternative exchange transaction structures, each of which will extend the maturity of the Existing Debt tendered in the exchange offer transactions by three years, and (ii) concurrent consent solicitations to amend certain provisions in the indentures and credit agreement governing the Existing Debt. In the first
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.
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transaction structure, if certain thresholds of holder participation are met, iHeartCommunications will issue new secured debt in exchange for the Existing Debt held by participating holders. Alternatively, if certain thresholds of holder participation are not met, newly-formed subsidiaries of the Company holding certain transferred assets and an intercompany note (to be issued by iHeartMedia + Entertainment, Inc., a wholly owned subsidiary of iHeartCommunications) will issue new secured debt in exchange for the Existing Debt held by participating holders. Completion of either exchange transaction will result in a strengthened financial position, providing us with additional flexibility to execute on our strategy and business initiatives.
The TSA may be terminated under various circumstances, including if the exchange offer transactions are not consummated on or before December 31, 2024, unless such date is extended pursuant to the terms of the TSA.
Concurrently with entry into the TSA, we also entered into an amendment to our ABL Facility (the “ABL Amendment”) to, among other things, permit both exchange transaction alternatives and other transactions related to the exchange, amend certain of the covenants, default provisions contained therein, and increase the interest rate on the ABL Facility by (a) if the first transaction is consummated, 0.50%, and (b) if the alternative transaction is consummated, 1.00%. The amendments contained in the ABL Amendment will become effective upon the satisfaction or waiver of certain conditions, including the consummation of one of the transactions contemplated by the TSA. We anticipate commencing the exchange offer in the near term.
The amount of anticipated cash payments will vary depending on the transaction structure and level of participation and will include partial cash consideration, accrued interest on participating debt, and transaction fees and expenses. We estimate total cash payments to range from $250 million to $295 million.
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Summary Debt Capital Structure
As of September 30, 2024 and December 31, 2023, we had the following debt outstanding, net of cash and cash equivalents:
(In thousands) September 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 3,076 3,367
Total Secured Debt $ 4,318,328 $ 4,318,619
8.375% Senior Unsecured Notes due 2027 916,357 916,357
Other Subsidiary Debt 2,191 —
Original issue discount (5,213) (7,558)
Long-term debt fees (9,816) (12,268)
Total Debt $ 5,221,847 $ 5,215,150
Less: Cash and cash equivalents 431,764 346,382
Net Debt 1
$ 4,790,083 $ 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 September 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 September 30, 2024. Other than our ABL Facility, none of our long-term debt includes maintenance covenants that could trigger early repayment. As of September 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 nine months ended September 30, 2024, and Capital I’s and its consolidated restricted subsidiaries’ financial information for the same period. Further, as of September 30, 2024, we were in compliance with all covenants related to our debt agreements.
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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 September 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 nine months ended September 30, 2024 would have changed by $17.2 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
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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 has impacted and could further 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.
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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.
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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, the consummation of the transactions contemplated by the TSA, 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 and our ability to consummate the transactions contemplated by the TSA on the timeline contemplated or at all, and our ability to realize the intended benefits thereof;
• 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.
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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.