Friday, February 28, 2020

iHeartMedia To Continue Infrastructure 'Modernization'

iHeartMedia, Inc. Thursday reported financial results for the quarter and year ended December 31, 2019.

Financial Highlights
  • Solid GAAP revenue performance in Q4 '19 and FY '19, flat in the quarter and up 2.0% year-over-year; GAAP revenue excluding political grew 4.3% in Q4 '19 and 4.2% in FY '19
  • Q4’19 and FY 2019 GAAP earnings year-over-year comparisons highly affected by one-time items related to bankruptcy and emergence (completed in May 2019), resulting in a decrease in Operating income of 36.5% and 26.6%, respectively
  • FY 2019 Adjusted EBITDA1 increased 2.5% year-over-year
  • Key actions initiated since emergence to improve the financial performance of the Company include:
The completion of three debt transactions that will reduce annualized run-rate interest expense by ~$40 million2
Modernization initiatives that are expected to deliver $100 million run-rate savings by the middle of 2021; expect to achieve approximately 50% of run-rate savings in 2020
  • FY 2020 guidance reflects significant growth in revenues, Adjusted EBITDA1 and Free Cash Flow1, powered by multiple drivers
Full Year 2019
  • Revenue of $3,683.5 million, up 2.0% year-over-year; excluding political revenue1, revenue increased 4.2%, driven by growth across all revenue streams
  • Digital revenue increased 32.2% year-over-year
  • GAAP Operating income of $506.7 million was down from $690.1 million in the year ended December 31, 2018, driven primarily by the impact of fresh start accounting and higher impairment charges
  • Adjusted EBITDA1 of $1,000.7 million, up 2.5% year-over-year
  • Strong cash generation in the fourth quarter resulted in year-end cash balance of $400.3 million
Fourth Quarter
  • Revenee of $1,026.1 million, flat year-over-year, excluding political revenue1, revenue increased 4.3%, driven by growth across all revenue streams
  • Digital revenue increased 33.6% year-over-year
  • GAAP Operating income of $165.1 million was down 36.5% year-over-year, driven primarily by the impact of fresh start accounting
  • Adjusted EBITDA1 of $306.1 million, down (0.6)% year-over-year
1 See Supplemental Disclosure Regarding Non-GAAP Financial Information.

2 Compared to the expected annualized cash interest payments indicated by the terms of the debt structure originally issued upon iHeartCommunications’ emergence from bankruptcy on May 1, 2019.

Bob Pittman
“We are extremely proud of all that iHeart and its employees accomplished in 2019. After emerging from Chapter 11 in May with a healthier capital structure and listing on the Nasdaq in July, we continued to execute on our strategic plans to build our strong operating business and drive shareholder value,” said Bob Pittman, Chairman and Chief Executive Officer of iHeartMedia, Inc.

“As the number one audio company in the U.S. based on reach, we look forward to expanding our unequaled multi-platform leadership position and leveraging the investments that we have made to modernize our infrastructure and become more efficient, effective and competitive. The audio environment has never been more exciting, and we look forward to leading - and capitalizing on it in 2020 and beyond.”

During the analysts conference call, Pittman elaborated:

“Our decision to invest in modernization is, at its core, a re-imagining of what a true multi-platform media company looks like today, including using technology and AI to improve the quality of the decisions we make and the experience we provide for our consumers, enabling us to be better and more robust partners for our advertisers, and providing unique resources to help our employees be as efficient and as effective as possible — helping them reach their full potential. We believe this is essential to our future. Importantly, our investments in modernization are expected to deliver meaningful cost savings of approximately $100 million on a run-rate basis by the second half of 2021.

“Some of the key operational changes that are being made as part of these initiatives will be: a new organizational structure for our markets group that maximizes the performance for each of our markets using our one-of-a-kind scale of multiple platforms; our leadership in audio and technology; and, our expertise and extensive experience in data and artificial intelligence. We’ve also created centers of excellence which will consolidate functional areas of expertise in specific locations to deliver the best possible products and services for the entire company, assuring consistent and high quality across every single market in which we operate. These centers of excellence were made possible by the half-billion-dollar investment we made in technology and building out our core infrastructure. And it allows us to provide services from anywhere in the company for the benefit of anywhere else in the company — meaning distance is no longer a barrier.”

Consolidated Results of Operations

Full Year 2019 Results

Revenue for the year ended December 31, 2019 increased 2.0%, or 4.2% excluding the impact of political revenue year-over-year. iHM growth was driven primarily by our Digital and Networks revenue streams, which grew 32.2% and 5.6%, respectively. Podcasting and other digital revenue were the primary drivers of our Digital revenue growth, while growth in our Networks business was driven by both our Total Traffic & Weather network and our Premiere network. Broadcast revenue declined by (1.4)% on a reported basis, and grew 0.3% excluding the impact of political revenue. Audio & Media Services declined (10.4)% on a reported basis and increased by 3.2% excluding the impact of political revenue. Sponsorship revenue increased by 4.4% year-over-year. On a full-year basis, all of our revenue streams grew year-over-year excluding the impact of political revenue.

Direct operating expenses increased 9.9% compared to the prior year, driven primarily by higher compensation-related expenses, including from the acquisitions of Stuff Media and Jelli in the fourth quarter of 2018, as well as higher music license fees, digital royalties and content costs from higher podcasting, subscription and other digital revenue.

Corporate expenses increased $7.1 million during the year ended December 31, 2019 compared to 2018, as a result of higher share-based compensation expense, which increased $24.8 million as a result of our new equity compensation plan entered into in connection with our Plan of Reorganization. This increase was partially offset by lower employee benefit costs and lower amortization of retention bonuses related to the bankruptcy for which amortization ceased on the May 1, 2019 emergence date.

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