The Q1 Net Loss For iHeart: Worse Than Forecast

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Six days ago, iHeartMedia submitted a “NT 10Q” filing with the Securities and Exchange Commission with details on what the nation’s No. 1 radio broadcasting company expected to report as its Q1 2018.


We now know that iHeart was mostly correct with its math. It turns out that the company’s consolidated net loss is a bit wider than it predicted.

In the NT 10Q, iHeart reported that its consolidated net loss would widen to $412 million, from $388.2 million in Q1 2017. Official financial results submitted late Tuesday to the SEC in a formal 10-Q filing show iHeart’s net loss widening to $415.7 million ($4.88), from $388.2 million ($4.58) in the year-ago period.

The good news — sort of — is iHeart’s other financial prognostications came in on target. Consolidated revenue was indeed $1.37 billion in Q1 2018, rising 3.1% from $1.33 billion in the year-ago period.

But, the company’s consolidated operating income for iHeart dipped to $62.3 million, compared to consolidated operating income of $114.1 million in Q1 2017.

If there’s any silver lining, it is that iHeart’s consolidated operating income came in $300,000 ahead of what it said it would be on May 16.

The results submitted to the SEC are unaudited, and also show a 5.3% rise in direct operating expenses to $601.3 million, from $571.3 million.

A Q1 conference call with Wall Street financial analysts is not scheduled, as iHeartMedia on March 14 filed voluntary petitions for relief under Chapter 11 of the U.S. Bankruptcy Code in a Houston federal court.

The Q1 2018 results are reflective of a new accounting standard implemented by iHeart on Jan. 1, ASC 606, Revenue from Contracts with Customers.

“This standard provides guidance for the recognition, measurement and disclosure of revenue from contracts with customers and supersedes previous revenue recognition guidance under U.S. GAAP,” the company explained in its 10-Q filing. “The company has applied this standard using the full retrospective method and concluded that its adoption did not have a material impact on the company’s balance sheets, statements of comprehensive loss, or statements of cash flows for prior periods.”

As a result of adopting this new accounting standard, iHeart “has updated its significant accounting policies for accounts receivable and revenue recognition,” it says.

RADIO SEGMENTS LAGS IN REVENUE GROWTH

What drove Q1 revenue increases for iHeartMedia?

It wasn’t its eponymous segment from which the company’s key revenues are derived.

Revenue for the “iHeartMedia,” or “IHM,” segment of the company fell 1.7% to $744.6 million, from $757.2 million, in the first three months of the year. Operating income slid 16%, to $123.9 million, from $147.7 million.

This division includes all of the company’s radio stations, and iHeart explains that the declines are due to lower national and local spot revenue. But, this is partially offset by higher revenue from digital subscription revenue derived from the iHeartRadio on-demand service. Local revenue decreased as a result of lower spot revenue, partially offset by local trade and barter. The decrease in national revenue was primarily driven by lower national traffic and weather revenue.

So, what drove consolidated revenue for iHeart in the quarter? Look outside of the Americas. “International Outdoor” revenue grew to $342.9 million, from $284.4 million.

This offset a dip in the “Americas Outdoor” segment to $255.85 million, from $260.35 million in the prior year.

DEBT BUSTING IN PROGRESS

Where iHeart executives can truly toot their collective horns is in the area of debt reduction.

As of March 31, iHeart’s total consolidated secured debt came in at $383.4 million.

This is a significant reduction from Dec. 31, 2017, as iHeart eliminated from the equation its senior secured credit facilities; a series of 9% priority guarantee notes; 11.25% priority guarantee notes due 2021; and 10.625% priority guarantee notes due 2023.

This suggests that iHeart’s reorganization efforts will effectively eliminate some $12,900,451 in secured debt. But, this doesn’t solve the debt bomb that iHeart so desperately wants to defuse: iHeart’s long-term debt stood at $5.64 billion on March 31, compared to $5.68 billion on Dec. 31, 2017.

As iHeart explains, “the $6.3 billion outstanding under the Senior Secured Credit Facilities, the $1,999.8 million outstanding under the 9.0% Priority Guarantee Notes due 2019, the $1,750.0 million outstanding under the 9.0% Priority Guarantee Notes due 2021, the $870.5 million of 11.25% Priority Guarantee Notes due 2021, the $1,000.0 million outstanding under the 9.0% Priority Guarantee Notes due 2022, the $950.0 million outstanding under the 10.625% Priority Guarantee Notes due 2023, $6.1 million outstanding Other Secured Subsidiary debt, the $1,781.6 million outstanding under the 14.0% Senior Notes due 2021, the $475.0 million outstanding under the Legacy Notes, and $17.2 million outstanding Other Subsidiary Debt have been reclassified to Liabilities subject to compromise in the company’s Consolidated Balance Sheet as of March 31, 2018. As of the Petition Date, the company ceased accruing interest expense in relation to long-term debt reclassified as Liabilities subject to compromise.”

 

 


RBR+TVBR OBSERVATION: Wouldn’t it be great if all industry trade publications provided you all of the information you need — like all of the financial details of iHeartMedia’s Q1 2018 performance? These details weren’t in Inside Radio, which refuses to acknowledge in any of its reporting that it is owned by iHeartMedia. As such, Inside Radio is neglecting to tell its readers that its corporate owner had a wider net loss in Q1 2018 and instead focused on total revenue growth. As any economist can tell you, revenue growth means nothing if you have a net loss — especially one that continues to widen while Chapter 11 bankruptcy restructuring is ongoing in a Texas federal court. We love competition — it makes us better and stronger. We just don’t love competition that tries to put a coat of fresh icing on a moldy piece of cake. We also dislike competition that refuses to acknowledge who its owner is. RBR+TVBR is proudly owned by Streamline Publishing. If we have to report on our company, we will acknowledge it. Inside Radio won’t — shouldn’t advertisers and readers really know who is behind the iHeartPRBlog?