NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2022 AND 2021
1. BASIS OF PRESENTATION AND SIGNIFICANT POLICIES
Audacy, Inc. (formerly Entercom Communications Corp.) was formed as a Pennsylvania corporation in 1968. On April 9, 2021, the Company changed its name to Audacy, Inc. and changed its New York Stock Exchange ticker symbol from "ETM" to "AUD".
The interim unaudited condensed consolidated financial statements included herein have been prepared by Audacy, Inc. and its subsidiaries (collectively, the “Company”) in accordance with: (i) generally accepted accounting principles (“U.S. GAAP”) for interim financial information; and (ii) the instructions of the Securities and Exchange Commission (the “SEC”) for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of management, the condensed consolidated financial statements reflect all adjustments considered necessary for a fair statement of the results of operations and financial position for the interim periods presented. All such adjustments are of a normal and recurring nature. The Company’s results are subject to seasonal fluctuations and, therefore, the results shown on an interim basis are not necessarily indicative of results for a full year.
This Form 10-Q should be read in conjunction with the consolidated financial statements and related notes included in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2021, and filed with the SEC on March 1, 2022, as part of the Company’s Annual Report on Form 10-K (the "2021 Annual Report"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations.
There have been no material changes from Note 2, Significant Accounting Policies, as described in the notes to the Company’s consolidated financial statements contained in the 2021 Annual Report.
COVID-19
In December 2019, a novel strain of coronavirus ("COVID-19") surfaced which resulted in an outbreak of infections throughout the world, which has affected operations and global supply chains. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. While the full impact of this pandemic is not yet known, the Company took proactive actions in an effort to mitigate its effects and is continually assessing its effects on the Company's business, including how it has and will continue to impact advertisers, professional sports and live events.
The COVID-19 pandemic has had, and is expected to continue to have, a material impact on the Company's business operations, financial position, cash flows, liquidity, and capital resources and results of operations. The full extent to which the COVID-19 pandemic impacts the Company's business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be accurately estimated at this time.
Consolidated VIE - AR Facility
On July 15, 2021, the Company and certain of its subsidiaries entered into a $75.0 million accounts receivable securitization facility (the "Receivables Facility") to provide additional liquidity, to reduce the Company's cost of funds and to repay outstanding indebtedness under the Company's Credit Facility (as defined in Note 8, Long-Term Debt, below).
The documentation for the Receivables Facility includes (i) a Receivables Purchase Agreement (the “Receivables Purchase Agreement”) entered into by and among Audacy Operations, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Audacy Operations”), Audacy Receivables, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company, as seller (“Audacy Receivables”), the investors party thereto (the “Investors”), and DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt AM Main, as agent (“DZ BANK”); (ii) a Sale and Contribution Agreement (the “Sale and Contribution Agreement”), by and among Audacy Operations, Audacy New York, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (“Audacy NY”), and Audacy Receivables; and (iii) a Purchase and Sale Agreement (the “Purchase and Sale Agreement,” and together with the Receivables Purchase Agreement and the Sale and Contribution Agreement, the “Agreements”) by and among certain wholly-owned subsidiaries of the Company (together with Audacy NY, the “Originators”), Audacy Operations and Audacy NY.
Audacy Receivables is considered a special purpose vehicle ("SPV") as it is an entity that has a special, limited purpose and it was created to sell accounts receivable, together with customary related security and interests in the proceeds thereof, to the Investors in exchange for cash investments.
The SPV is a bankruptcy remote, limited liability company wholly owned by Audacy NY and its assets are not available to creditors of the Company, Audacy Operations or Audacy NY. Pursuant to the Receivables Facility, Audacy NY sells certain of its receivables and certain related rights to payment and obligations of Audacy NY with respect to such receivables, and certain other related rights to Audacy Receivables, LLC, which, in turn, obtains loans secured by the receivables from financial institutions (the “Lenders”). Amounts received from the Lenders, the pledged receivables and the corresponding debt are included in Accounts receivable and Long-term debt, respectively, on the Condensed Consolidated Balance Sheets. The aggregate principal amount of the loans made by the Lenders cannot exceed $75.0 million outstanding at any time. The Receivables Facility will expire on July 15, 2024, unless earlier terminated or subsequently extended.
The SPV is considered a Variable Interest Entity ("VIE") because its equity capitalization is insufficient to support its operations. The most significant activities that impact the economic performance of the SPV are decisions made to manage receivables. Audacy NY is considered the primary beneficiary and consolidates the SPV as it makes these decisions. No additional financial support was provided to the SPV during the three months ended March 31, 2022 or is expected to be provided in the future that was not previously contractually required. As of March 31, 2022, the SPV has $191.8 million of net accounts receivable and has outstanding borrowings of $75.0 million under the Receivables Facility.
Consolidated VIE - Qualified Intermediary
Periodically, the Company enters into like-kind exchange agreements upon the disposition or acquisition of certain properties. Pursuant to the terms of these agreements, the proceeds from the sales are placed into an escrow account administered by a third party qualified intermediary ("QI") and are unavailable for the Company's use until released. The proceeds are recorded as restricted cash on the condensed consolidated balance sheets and released: (i) if they are utilized as part of a like-kind exchange agreement, (ii) if the Company does not identify a suitable replacement property within 45 days after the agreement date, or (iii) when a like-kind exchange agreement is not completed within the remaining allowable time period.
During 2022, the Company entered into an agreement with a third party QI, under which the Company entered into an exchange of real property held for productive use or investment. This agreement relates to the sale of real property and identification and acquisition of replacement property.
The QI is considered a VIE because its equity capitalization is insufficient to support its operations. The most significant activity that impacts the economic performance of the QI is its holding of proceeds from the sale of real property in an interest bearing account. The Company is considered the primary beneficiary as it has the right to direct the activities that were most significant to the VIE and the Company has the obligation to absorb losses or the right to receive returns that would be significant to the VIE during the period of the agreement.
The use of a QI in a like-kind exchange will enable the Company to reduce its current tax liability in connection with certain asset dispositions. Under Section 1031 of the Internal Revenue Code (the “Code”), the property to be exchanged in the like-kind exchange is required to be received by the Company within 180 days.
Total results of operations of the VIE for the three months ended March 31, 2022 were not significant. The consolidated VIE had cash as of March 31, 2022, which was reflected as restricted cash on the condensed consolidated balance sheet. The VIE had no other assets or liabilities as of March 31, 2022. The assets of the Company’s consolidated VIE could only be used to settle the obligations of the VIE. There was a lack of recourse by the creditors of the VIE against the Company’s general creditors. Refer to Note 15, Contingencies And Commitments, for additional information.
Recent Accounting Pronouncements
All new accounting pronouncements that are in effect that may impact the Company’s financial statements have been implemented. The Company does not believe that there are any other new accounting pronouncements that have been issued (other than those included in the notes to the Company’s consolidated financial statements contained in its 2021 Annual Report) that might have a material impact on the Company’s financial position, results of operations or cash flows.
2. BUSINESS COMBINATIONS AND EXCHANGES
The Company records acquisitions under the acquisition method of accounting, and allocates the purchase price to the assets and liabilities based upon their respective fair values as determined as of the acquisition date. Merger and acquisition costs are excluded from the purchase price as these costs are expensed as incurred for book purposes and amortized for tax purposes.
2021 WideOrbit Streaming Acquisition
On October 20, 2021, the Company completed an acquisition of WideOrbit's digital audio streaming technology and the related assets and operations of WideOrbit Streaming for approximately $40.0 million (the "WideOrbit Streaming Acquisition"), which included certain employees. The assets acquired included $31.5 million of developed technology and $8.0 million of intangible licenses. The Company determined this acquisition was a business combination. The Company will operate WideOrbit Streaming under the name AmperWave ("AmperWave"). The Company funded this acquisition through a draw on its revolving credit facility (the "Revolver"). Based upon the timing of the WideOrbit Streaming Acquisition, the Company's condensed consolidated financial statements for the period ended March 31, 2022, reflect the results of AmperWave. The Company's condensed consolidated financial statements for the period ended March 31, 2021 do not reflect the results of AmperWave.
The Company's fair value analysis contains assumptions based on past experience, reflects expectations of industry observers and includes judgments about future performance using industry normalized information. Using a residual method, any excess between the consideration paid and the fair value of net assets acquired was recorded as goodwill. The Company recorded goodwill on its books. Management believes that this acquisition provides the Company with an opportunity to benefit from acquired technology, technical knowledge and trade secrets.
The allocations presented in the table below are based upon management's estimate of the fair values using valuation techniques including income, cost and market approaches. The following preliminary purchase price allocations are based upon the valuation of assets and these estimates and assumptions are subject to change as the Company obtains additional information during the measurement period, which may be up to one year from the acquisition date. The final valuation could be substantially different from the initial estimate.
| | | | | | | | | |
| | | |
| Preliminary Value | | | | |
| (amounts in thousands) | | | | |
| Assets | | | | | |
| Operating lease right-of-use assets | $ | 142 | | | | | |
| Net property and equipment | 38 | | | | | |
| | | |
| Other assets, net of accumulated amortization | 39,532 | | | | | |
| Goodwill | 520 | | | |
| Total intangible and other assets | 40,052 | | | |
| | | | | |
| Operating lease liabilities | (142) | | | | | |
| | | |
| Preliminary fair value of net assets acquired | $ | 40,090 | | | | | |
2021 Urban One Exchange
On April 20, 2021, the Company completed a transaction with Urban One, Inc. ("Urban One") under which the Company exchanged its four station cluster in Charlotte, North Carolina for one station in St. Louis, Missouri, one station in Washington, D.C., and one station in Philadelphia, Pennsylvania (the "Urban One Exchange"). The Company and Urban One began programming the respective stations under local marketing agreements ("LMAs") on November 23, 2020. During the period of the LMAs, the Company's consolidated financial statements excluded net revenues and station operating expenses associated with the four station cluster in Charlotte, North Carolina (the "divested stations") and included net revenues and station operating expenses associated with the stations in St. Louis, Missouri, Washington, D.C., and Philadelphia, Pennsylvania (the "acquired stations").
Upon completion of the Urban One Exchange, the Company: (i) removed from its condensed consolidated balance sheet the assets of the divested stations, which were previously classified as assets held for sale; (ii) recorded the assets of the
acquired stations at fair value; and (iii) recognized a gain on the exchange of approximately $4.0 million. Based upon the timing of the Urban One Exchange, the Company's condensed consolidated financial statements for the three months ended March 31, 2022: (a) reflect the results of the acquired stations; and (b) do not reflect the results of the divested stations. The Company's condensed consolidated financial statements for the three months ended March 31, 2021: (i) reflect the results of the acquired stations for the portion of the period in which the LMAs were in effect; and (ii) do not reflect the results of the divested stations.
The allocations presented in the table below are based upon management's estimate of the fair values using valuation techniques including income, cost and market approaches. The following table reflects the final allocation of the purchase price to the assets acquired.
| | | | | | | |
| | |
| Final Value | | |
| (amounts in thousands) | | |
| Assets | | | |
| Net property and equipment | $ | 2,254 | | | |
| Total tangible property | 2,254 | | | |
| Radio broadcasting licenses | 23,233 | | |
| Total intangible assets | $ | 23,233 | | | |
| Total assets | $ | 25,487 | | | |
2021 Podcorn Acquisition
On March 9, 2021, the Company completed the acquisition of podcast influencers marketplace, Podcorn Media, Inc. ("Podcorn") for $14.6 million in cash and a performance-based earnout over the next two years (the "Podcorn Acquisition"). The Company's condensed consolidated financial statements for the three months ended March 31, 2022 reflect the results of Podcorn. The Company's condensed consolidated financial statements for the three months ended March 31, 2021 reflect the results of Podcorn for the portion of the period after the completion of the Podcorn Acquisition.
The Podcorn Acquisition includes a contingent consideration arrangement that requires additional consideration to be paid by the Company to Podcorn based upon the achievement of certain annual performance benchmarks over a two-year period. A portion of the contingent consideration could be paid out in 2023 and a portion of the contingent consideration could be paid out in 2024. The timing of the payment of the contingent consideration is dependent upon Adjusted EBITDA values for 2022 and 2023, as defined in the purchase agreement. The range of the total undiscounted amounts the Company could pay under the contingent consideration agreement over the two-year period is between $0 and $45.2 million. The fair value of the contingent consideration recognized on the acquisition date of $7.7 million was estimated by applying probability-weighted, discounted future cash flows at current tax rates. The significant unobservable inputs (Level 3) used to estimate the fair value include the projected Adjusted EBITDA values, as defined in the purchase agreement, for 2022 and 2023, and the discount rate. Since the acquisition date, fluctuation in the market-based inputs used to develop the discount rate resulted in an increase in the discount rate which was offset by a reduction in the payment period, and in total, resulted in a higher expected present value of the contingent consideration. As a result, the fair value of the contingent consideration at March 31, 2022 increased to $9.1 million. Changes in the fair value of the contingent consideration are recorded to the Station Operating Expenses line item on the Statement of Operations.
The Company's fair value analysis contains assumptions based on past experience, reflects expectations of industry observers and includes judgments about future performance using industry normalized information. Using a residual method, any excess between the consideration paid and the fair value of net assets acquired was recorded as goodwill. Management believes that this acquisition provides the Company with an opportunity to benefit from customer relationships, technical knowledge and trade secrets.
The allocations presented in the table below are based upon management's estimate of the fair values using valuation techniques including income, cost and market approaches. The following table reflects the final allocation of the purchase price to the assets acquired and liabilities assumed.
| | | | | | | | | | | |
| | | | | | |
| | | | | Final Value | | |
| | | | | (amounts in thousands) | | |
| Assets | | | | | | | |
| Cash | | | | | $ | 702 | | | |
| Prepaid expenses, deposits and other | | | | | 18 | | |
| Other assets, net of accumulated amortization | | | | | 2,545 | | | |
| Goodwill | | | | | 19,637 | | |
| Deferred tax asset | | | | | 72 | | | |
| | | | | | | |
| | | | | | | |
| Net working capital | | | | | 63 | | | |
| Preliminary fair value of net assets acquired | | | | | $ | 23,037 | | | |
Unaudited Pro Forma Summary of Financial Information
The following unaudited pro forma information for the three months ended March 31, 2021 assumes that the acquisitions in 2021 had occurred as of January 1, 2020.
Refer to information within this Note 2, Business Combinations, and to the consolidated financial statements and related notes included in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2021, and filed with the SEC on March 1, 2022, for a description of the Company’s acquisition and disposition activities.
The unaudited pro forma information presented gives effect to certain adjustments, including: (i) depreciation and amortization of assets; (ii) change in the effective tax rate; (iii) merger and acquisition costs; and (iv) interest expense on any debt incurred to fund the acquisitions which would have been incurred had such acquisitions been consummated at an earlier time.
This unaudited pro forma information has been prepared based on estimates and assumptions, which management believes are reasonable. These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisitions been made as of that date or results which may occur in the future.
| | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | |
| 2022 | | 2021 | | | | |
| (amounts in thousands except share and per share data) |
| Actual | | Pro Forma | | | | |
| Net revenues | $ | 275,295 | | | $ | 242,374 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Net income (loss) | $ | (11,073) | | | $ | (23,744) | | | | | |
| | | | | | | |
| | | | | | | |
| Net income (loss) per common share - basic | $ | (0.08) | | | $ | (0.18) | | | | | |
| | | | | | | |
| | | | | | | |
| Net income (loss) per common share - diluted | $ | (0.08) | | | $ | (0.18) | | | | | |
| Weighted shares outstanding basic | 138,122,432 | | | 135,379,321 | | | | | |
| Weighted shares outstanding diluted | 138,122,432 | | | 135,379,321 | | | | | |
3. RESTRUCTURING CHARGES
Restructuring Charges
The following table presents the components of restructuring charges.
| | | | | | | | | | | |
| Three Months Ended
March 31, |
| 2022 | | 2021 |
| (amounts in thousands) |
| | | |
| Workforce reduction | $ | 721 | | | $ | 183 | |
| Other restructuring costs | 165 | | | 2 | |
| Total restructuring charges | $ | 886 | | | $ | 185 | |
Restructuring Plan
During the first quarter of 2020, the Company initiated a restructuring plan to help mitigate the adverse impact that the COVID-19 pandemic is having on financial results and business operations. The Company continues to evaluate what, if any, further actions may be necessary related to the COVID-19 pandemic. The restructuring plan primarily included workforce reduction charges that included one-time termination benefits and related costs to mitigate the adverse impacts of the COVID-19 pandemic.
The estimated amount of unpaid restructuring charges as of March 31, 2022 includes amounts in accrued expenses that are expected to be paid in less than one year.
| | | | | | | | | | | |
| Three Months Ended March 31, 2022 | | Twelve Months Ended December 31, 2021 |
| (amounts in thousands) |
| Restructuring charges, beginning balance | $ | 2,623 | | | $ | 2,988 | |
| Additions | 886 | | | 5,671 | |
| Payments | (1,757) | | | (6,036) | |
| Restructuring charges unpaid and outstanding | 1,752 | | | 2,623 | |
| Restructuring charges - noncurrent portion | — | | | — | |
| Restructuring charges - current portion | $ | 1,752 | | | $ | 2,623 | |
4. REVENUE
Spot Revenues
The Company sells air-time to advertisers and broadcasts commercials at agreed upon dates and times. The Company's performance obligations are broadcasting advertisements for advertisers at specifically identifiable days and dayparts. The amount of consideration the Company receives and revenue it recognizes is fixed based upon contractually agreed upon rates. The Company recognizes revenue at a point in time when the advertisements are broadcast and the performance obligations are satisfied. Revenues are recorded on a net basis, after the deduction of advertising agency fees by the advertising agencies.
Digital Revenues
The Company provides targeted advertising through the sale of streaming and display advertisements on its national platforms, audacy.com and eventful.com, the Audacy app, and its station websites. Performance obligations include delivery of advertisements over the Company's platforms or delivery of targeted advertisements directly to consumers. The Company recognizes revenue at a point in time when the advertisements are delivered and the performance obligations are satisfied. Revenues are recorded on a net basis, after the deduction of advertising agency fees by the advertising agencies.
Through its acquisition of Cadence 13, Inc. ("Cadence13") (the "Cadence13 Acquisition"), the Company embeds advertisements in its owned and operated podcasts and other on-demand content. Performance obligations include delivery of advertisements. The Company recognizes revenue at a point in time when the advertisements are delivered and the performance obligations are satisfied. Revenues are recorded on a net basis, after the deduction of advertising agency fees by the advertising agencies.
Through its acquisition of Pineapple Street Media ("Pineapple") (the "Pineapple Acquisition"), the Company creates podcasts, for which it earns production fees. Performance obligations include the delivery of episodes. These revenues are fixed based upon contractually agreed upon terms. The Company recognizes revenue over the term of the production contract.
Network Revenues
The Company sells air-time on the Company's Audacy Audio Network. The amount of consideration the Company receives and revenue it recognizes is fixed based upon contractually agreed upon rates. The Company recognizes revenue at a point in time when the advertisements are broadcast and the performance obligations are satisfied. Revenues are recorded on a net basis, after the deduction of advertising agency fees by the advertising agencies.
Sponsorship and Event Revenues
The Company sells advertising space at live and local events hosted by the Company across the country. The Company also earns revenues from attendee-driven ticket sales and merchandise sales. Performance obligations include the presentation of the advertisers' branding in highly visible areas at the event. These revenues are recognized at a point in time, when the event occurs and the performance obligations are satisfied.
The Company also sells sponsorships including, but not limited to, naming rights related to its programs or studios. Performance obligations include the mentioning or displaying of the sponsors' name, logo, product information, slogan or neutral descriptions of the sponsors' goods or services in acknowledgement of their support. These revenues are fixed based upon contractually agreed upon terms. The Company recognizes revenue over the length of the sponsorship agreement based upon the fair value of the deliverables included.
Other Revenues
The Company earns revenues from on-site promotions and endorsements from talent. Performance obligations include the broadcasting of such endorsement at specifically identifiable days and dayparts or at various local events. The Company recognizes revenue at a point in time when the performance obligations are satisfied.
The Company earns trade and barter revenue by providing advertising broadcast time in exchange for certain products, supplies, and services. The Company includes the value of such exchanges in both net revenues and station operating expenses. Trade and barter value is based upon management's estimate of the fair value of the products, supplies and services received.
Contract Balances
Refer to the table below for information about receivables, contract assets and contract liabilities from contracts with customers. Accounts receivable balances in the table below exclude other receivables that are not generated from contracts with customers. These amounts are $1.7 million and $2.8 million as of March 31, 2022 and December 31, 2021, respectively.
| | | | | | | | | | | | | | |
Description | | March 31,
2022 | | December 31,
2021 |
| | (amounts in thousands) |
| Receivables, net, included in Accounts receivable net of allowance for doubtful accounts | | $ | 226,137 | | | $ | 273,217 | |
Unearned revenue - current | | 10,778 | | | 10,638 | |
Unearned revenue - noncurrent | | 455 | | | 474 | |
Changes in Contract Balances
The timing of revenue recognition, billings and cash collections results in accounts receivable (billed or unbilled), and customer advances and deposits (unearned revenue) on the Company’s condensed consolidated balance sheet. At times, however, the Company receives advance payments or deposits from its customers before revenue is recognized, resulting in contract liabilities. The contract liabilities primarily relate to the advance consideration received from customers on certain contracts. For these contracts, revenue is recognized in a manner that is consistent with the satisfaction of the underlying performance obligations. The contract liabilities are reported on the condensed consolidated balance sheets on a contract-by-contract basis at the end of each respective reporting period within other current liabilities and other long-term liabilities.
Significant changes in the contract liabilities balances during the period are as follows:
| | | | | | | | |
| | Three Months Ended
March 31, 2022 |
| Description | | Unearned Revenue |
| | (amounts in thousands) |
| Beginning balance on January 1, 2022 | | $ | 11,112 | |
| Revenue recognized during the period that was included in the beginning balance of contract liabilities | | (11,112) | |
| Additions, net of revenue recognized during period | | 11,233 | |
| Ending balance | | $ | 11,233 | |
Disaggregation of Revenue
The following table presents the Company’s revenues disaggregated by revenue source:
| | | | | | | | | | | | | | |
| | Three Months Ended
March 31, |
| | 2022 | | 2021 |
| Revenue by Source | | (amounts in thousands) |
| Spot revenues | | $ | 175,135 | | | $ | 154,294 | |
| Digital revenues | | 58,039 | | | 49,840 | |
| Network revenues | | 21,141 | | | 17,570 | |
| Sponsorships and event revenues | | 10,327 | | | 9,158 | |
| Other revenues | | 10,653 | | | 9,902 | |
| Net revenues | | $ | 275,295 | | | $ | 240,764 | |
5. LEASES
Leasing Guidance
The Company recognizes the assets and liabilities that arise from leases on the commencement date of the lease. The Company recognizes the liability to make lease payments as a lease liability as well as a right-of-use ("ROU") asset representing the right to use the underlying asset for the lease term, on the condensed consolidated balance sheet.
Lease Expense
The components of lease expense were as follows:
| | | | | | | | | | | | | | |
| | Three Months Ended
March 31, |
| Lease Cost | | 2022 | | 2021 |
| | (amounts in thousands) |
Operating lease cost | | $ | 12,585 | | | $ | 12,371 | |
| Variable lease cost | | 2,904 | | | 2,957 | |
| | | | |
Total lease cost | | $ | 15,489 | | | $ | 15,328 | |
Supplemental Cash Flow
Supplemental cash flow information related to leases was as follows:
| | | | | | | | | | | | | | |
| | Three Months Ended March 31, |
| Description | | 2022 | | 2021 |
| | (amounts in thousands) |
| Cash paid for amounts included in measurement of lease liabilities | | | | |
| Operating cash flows from operating leases | | $ | 13,610 | | | $ | 13,694 | |
| Right-of-use assets obtained in exchange for lease obligations | | | | |
Operating leases | | $ | 2,769 | | | $ | 6,432 | |
As of March 31, 2022, the Company has not entered into any leases that have not yet commenced.
6. INTANGIBLE ASSETS AND GOODWILL
Goodwill and certain intangible assets are not amortized for book purposes. They may be, however, amortized for tax purposes. The Company accounts for its acquired broadcasting licenses as indefinite-lived intangible assets and, similar to goodwill, these assets are reviewed at least annually for impairment. At the time of each review, if the fair value is less than the carrying value of the reporting unit, then a charge is recorded to the results of operations.
The following table presents the changes in the carrying value of broadcasting licenses. Refer to Note 2, Business Combinations, and Note 14, Assets Held For Sale, for additional information.
| | | | | | | | | | | |
| Broadcasting Licenses
Carrying Amount |
| March 31,
2022 | | December 31,
2021 |
| (amounts in thousands) |
| Broadcasting licenses balance as of January 1, | $ | 2,251,546 | | | $ | 2,229,016 | |
| | | |
| Acquisitions (See Note 2) | — | | | 23,233 | |
| | | |
| Assets held for sale (See Note 14) | — | | | (703) | |
| Ending period balance | $ | 2,251,546 | | | $ | 2,251,546 | |
The following table presents the changes in goodwill. Refer to Note 2, Business Combinations, for additional information.
| | | | | | | | | | | |
| Goodwill Carrying Amount |
| March 31,
2022 | | December 31,
2021 |
| (amounts in thousands) |
| Goodwill balance before cumulative loss on impairment as of January 1, | $ | 1,062,723 | | | $ | 1,042,762 | |
| Accumulated loss on impairment as of January 1, | (980,547) | | | (980,547) | |
| Goodwill beginning balance after cumulative loss on impairment as of January 1, | 82,176 | | | 62,215 | |
| | | |
| | | |
| Acquisitions (See Note 2) | — | | | 20,099 | |
| Measurement period adjustments to acquired goodwill (See Note 2) | — | | | (138) | |
| Ending period balance | $ | 82,176 | | | $ | 82,176 | |
Broadcasting Licenses Impairment Test
During the fourth quarter of 2021, the Company completed its annual impairment test for broadcasting licenses and determined that the fair value of its broadcasting licenses was greater than the amount reflected in the balance sheet for each of the Company's markets and, accordingly, no impairment was recorded.
If actual market conditions are less favorable than those projected by the industry or the Company, or if events occur or circumstances change that would reduce the fair value of the Company’s broadcasting licenses below the amount reflected in the condensed consolidated balance sheet, the Company may be required to conduct an interim test and possibly recognize impairment charges, which may be material, in future periods. The COVID-19 pandemic increases the uncertainty with respect to such market and economic conditions and, as such, increases the risk of future impairment.
There were no events or changes in circumstances since the previous annual impairment assessment conducted during the fourth quarter of 2021 that indicated an interim review of broadcasting licenses was required.
Goodwill Impairment Test
In March 2021, the Company completed the Podcorn Acquisition. Cadence13, Pineapple and Podcorn represent a single podcasting division one level beneath the single operating segment. Since the operations are economically similar, Cadence13, Pineapple and Podcorn were aggregated into a single podcasting reporting unit for the quantitative impairment assessment conducted in the fourth quarter of 2021. During the fourth quarter of 2021, the Company completed its annual impairment test for its podcasting reporting unit and determined that the fair value of its podcast reporting unit was greater than the carrying value and, accordingly, no impairment was recorded.
During the fourth quarter of 2021, the Company completed its annual impairment test for the QLGG reporting unit and determined that the fair value of its QLGG reporting unit was greater than the carrying value and, accordingly, no impairment was recorded.
In October 2021, the Company completed the WideOrbit Streaming Acquisition. AmperWave represents a separate division one level beneath the single operating segment and its own reporting unit. For the goodwill acquired in the WideOrbit Streaming Acquisition, similar valuation techniques that were applied in the valuation of goodwill under purchase price accounting were also used in the annual impairment testing process. The valuation of the acquired goodwill approximated fair value.
If actual market conditions are less favorable than those projected by the industry or the Company, or if events occur or circumstances change that would reduce the fair value of the Company’s goodwill below the amount reflected in the condensed consolidated balance sheet, the Company may be required to conduct an interim test and possibly recognize impairment charges, which could be material, in future periods. The COVID-19 pandemic increases the uncertainty with respect to such market and economic conditions and, as such, increases the risk of future impairment.
There were no events or changes in circumstances since the previous annual impairment assessment conducted during the fourth quarter of 2021 that indicated an interim review of goodwill was required.
7. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following as of the periods indicated:
| | | | | | | | | | | |
| Other Current Liabilities |
| March 31,
2022 | | December 31,
2021 |
| (amounts in thousands) |
| Accrued compensation | $ | 36,817 | | | $ | 35,917 | |
| Accounts receivable credits | 2,889 | | | 2,506 | |
| Advertiser obligations | 3,717 | | | 2,504 | |
| Accrued interest payable | 13,207 | | | 14,662 | |
| Unearned revenue | 10,778 | | | 10,638 | |
| | | |
| Unfavorable sports liabilities | 4,492 | | | 4,492 | |
| Accrued benefits | 6,841 | | | 6,894 | |
| Non-income tax liabilities | 1,996 | | | 1,897 | |
| | | |
| Other | 4,339 | | | 4,620 | |
| Total other current liabilities | $ | 85,076 | | | $ | 84,130 | |
8. LONG-TERM DEBT
Long-term debt was comprised of the following as of the periods indicated:
| | | | | | | | | | | |
| Long-Term Debt |
| March 31,
2022 | | December 31,
2021 |
| (amounts in thousands) |
| Credit Facility | | | |
| Revolver | $ | 75,000 | | | $ | 97,727 | |
| Term B-2 Loan, due November 17, 2024 | 632,415 | | | 632,415 | |
| Plus unamortized premium | 1,326 | | | 1,397 | |
| 708,741 | | | 731,539 | |
| 2027 Notes | | | |
6.500% notes due May 1, 2027 | 470,000 | | | 470,000 | |
| Plus unamortized premium | 3,778 | | | 3,964 | |
| 473,778 | | | 473,964 | |
| | | |
| 2029 Notes | | | |
6.750% notes due March 31, 2029 | 540,000 | | | 540,000 | |
| 540,000 | | | 540,000 | |
| | | |
| Accounts receivable facility | 75,000 | | | 75,000 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| Other debt | 797 | | | 764 | |
| Total debt before deferred financing costs | 1,798,316 | | | 1,821,267 | |
| Current amount of long-term debt | — | | | (22,727) | |
| Deferred financing costs (excludes the revolving credit) | (15,772) | | | (16,409) | |
| Total long-term debt, net of current debt | $ | 1,782,544 | | | $ | 1,782,131 | |
| Outstanding standby letters of credit | $ | 6,069 | | | $ | 6,069 | |
(A) Senior Debt
The 2027 Notes
During 2019, the Company and its finance subsidiary, Audacy Capital Corp. (formerly Entercom Media Corp.) ("Audacy Capital Corp."), issued $425.0 million in aggregate principal amount of senior secured second-lien notes due May 1, 2027 (the "Initial 2027 Notes"). Interest on the Initial 2027 Notes accrues at the rate of 6.500% per annum and is payable semi-annually in arrears on May 1 and November 1 of each year. The Initial 2027 Notes are governed by an indenture dated as of April 30, 2019 (the "Base Indenture"), as supplemented by a first supplemental indenture dated December 13, 2019 (the "First Supplemental Indenture"), (collectively, the "Indenture").
A portion of the Initial 2027 Notes was issued at premium. As of any reporting period, the unamortized premium on the Initial 2027 Notes is reflected on the balance sheet as an addition to the Initial 2027 Notes.
During the fourth quarter of 2021, Audacy Capital Corp., issued $45.0 million of additional 6.500% senior secured second-lien notes due 2027 (the "Additional 2027 Notes"). The Additional 2027 Notes were issued as additional notes under the Indenture. The Additional 2027 Notes are treated as a single series with the Initial 2027 Notes (collectively, the "2027 Notes") and have substantially the same terms as the Initial 2027 Notes. The Additional 2027 Notes were issued at a price of 100.750% of their principal amount. As of any reporting period, the unamortized premium on the 2027 Notes is reflected on the balance sheet as an addition to the $470.0 million 2027 Notes.
The Credit Facility
The Company's credit agreement (the "Credit Facility"), as amended, is comprised of a $250.0 million Revolver and a term B-2 loan (the "Term B-2 Loan").
The Credit Facility has usual and customary covenants including, but not limited to, a net first lien leverage ratio, restricted payments and the incurrence of additional debt. Specifically, the Credit Facility requires the Company to comply with a certain financial covenant which is a defined term within the agreement, including a maximum Consolidated Net First-Lien Leverage Ratio that cannot exceed 4.0 times at March 31, 2022. In certain circumstances, if the Company consummates additional acquisition activity permitted under the terms of the Credit Facility, the Consolidated Net First-Lien Leverage Ratio will be increased to 4.5 times for a one year period following the consummation of such permitted acquisition. As of March 31, 2022, the Company’s Consolidated Net First Lien Leverage Ratio was 3.4 times.
Failure to comply with the Company’s financial covenant or other terms of its Credit Facility and any subsequent failure to negotiate and obtain any required relief from its lenders could result in a default under the Company’s Credit Facility. Any event of default could have a material adverse effect on the Company’s business and financial condition. The acceleration of the Company’s debt repayment could have a material adverse effect on its business. The Company may seek from time to time to amend its Credit Facility or obtain other funding or additional funding, which may result in higher interest rates.
As of March 31, 2022, the Company is in compliance with the financial covenant and all other terms of the Credit Facility in all material respects. The Company’s ability to maintain compliance with its covenant is highly dependent on its results of operations. The cash available from the Revolver is dependent on the Company’s Consolidated Net First-Lien Leverage Ratio at the time of such borrowing.
The 2029 Notes
During the first quarter of 2021, the Company and its finance subsidiary, Audacy Capital Corp., issued $540.0 million in aggregate principal amount of senior secured second-lien notes due March 31, 2029 (the "2029 Notes"). Interest on the 2029 Notes accrues at the rate of 6.750% per annum and is payable semi-annually in arrears on March 31 and September 30 of each year.
The Company used net proceeds of the offering, along with cash on hand, to: (i) repay $77.0 million of existing indebtedness under the Term B-2 Loan; (ii) repay $40.0 million of drawings under the Revolver; and (iii) fully redeem all of its $400.0 million aggregate principal amount of 7.250% senior notes due 2024 (the "Senior Notes") and to pay fees and expenses in connection with the redemption.
In connection with this activity, during the first quarter of 2021, the Company: (i) recorded $6.6 million of new debt issuance costs attributable to the 2029 Notes; and (ii) $0.4 million of debt issuance costs attributable to the Revolver which will be amortized over the remaining term of the Revolver on a straight line basis. The Company also incurred $0.5 million of costs which were classified within refinancing expenses.
The Credit Facility - Amendment No. 5
On July 20, 2020, Audacy Capital Corp. entered into an amendment ("Amendment No. 5") to the Credit Agreement, dated October 17, 2016 (as previously amended, the "Existing Credit Agreement" and, as amended by Amendment No. 5, the "Credit Agreement"), with the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent. Amendment No. 5, among other things:
(a) amended the Company's financial covenants under the Credit Agreement by: (i) suspending the testing of the Consolidated Net First Lien Leverage Ratio (as defined in the Credit Agreement) through the Test Period (as defined in the Credit Agreement) ending December 31, 2020; (ii) adding a new minimum liquidity covenant of $75.0 million until December 31, 2021, or such earlier date as the Company may elect (the "Covenant Relief Period"); and (iii) imposing certain restrictions during the Covenant Relief Period, including among other things, certain limitations on incurring additional indebtedness and liens, making restricted payments or investments, redeeming notes and entering into certain sale and lease-back transactions;
(b) increased the interest rate and/or fees under the Credit Agreement during the Covenant Relief Period applicable to: (i) 2024 Revolving Credit Loans (as defined in the Credit Agreement) to (x) in the case of Eurodollar Rate Loans (as defined in the Credit Agreement), a customary Eurodollar rate formula plus a margin of 2.50% per annum, and (y) in the case of Base Rate Loans (as defined in the Credit Agreement), a customary base rate formula plus a margin of 1.50% per annum, and (ii) Letter of
Credit (as defined in the Credit Agreement) fees to 2.50% times the daily maximum amount available to be drawn under any such Letter of Credit; and
(c) modified the definition of Consolidated EBITDA by setting fixed amounts for the fiscal quarters ending June 30, 2020, September 30, 2020, and December 31, 2020, for purposes of testing compliance with the Consolidated Net First Lien Leverage Ratio financial covenant during the Covenant Relief Period, which fixed amounts correspond to the Borrower's Consolidated EBITDA as reported under the Existing Credit Agreement for the Test Period ended March 31, 2020, for the fiscal quarters ending June 30, 2019, September 30, 2019, and December 31, 2019, respectively.
The Credit Facility - Amendment No. 6
On March 5, 2021, Audacy Capital Corp. entered into an amendment ("Amendment No. 6") to the Credit Agreement, dated October 17, 2016 (as previously amended, the “Existing Credit Agreement” and, as amended by Amendment No. 6, the “Credit Agreement”), with the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent.
Under the Existing Credit Agreement, during the Covenant Relief Period the Company is subject to a $75.0 million limitation on investments in joint ventures, Affiliates, Unrestricted Subsidiaries and Non-Guarantor Subsidiaries (each as defined in the Existing Credit Agreement) (the “Covenant Relief Period Investment Limitation”). Amendment No. 6, among other things, excludes from the Covenant Relief Period Investment Limitation any investments made in connection with a permitted receivables financing facility.
Accounts Receivable Facility
On July 15, 2021, the Company and certain of its subsidiaries entered into a $75.0 million Receivables Facility to provide additional liquidity, to reduce the Company's cost of funds and to repay outstanding indebtedness under the Credit Facility.
The documentation for the Receivables Facility includes (i) a Receivables Purchase Agreement entered into by and among Audacy Operations, Audacy Receivables as seller, the Investors, and DZ BANK, as agent; (ii) a Sale and Contribution Agreement, by and among Audacy Operations, Audacy NY, and Audacy Receivables; and (iii) a Purchase and Sale Agreement and together with the Receivables Purchase Agreement and the Sale and Contribution Agreement, the “Agreements”) by and among certain wholly-owned subsidiaries of the Company (together with Audacy NY, the “Originators”), Audacy Operations and Audacy NY.
Pursuant to the Purchase and Sale Agreement, the Originators (other than Audacy NY) have sold, and will continue to sell on an ongoing basis, their accounts receivable, together with customary related security and interests in the proceeds thereof, to Audacy NY. Pursuant to the Sale and Contribution Agreement, Audacy NY has sold and contributed, and will continue to sell and contribute on an ongoing basis, its accounts receivable, together with customary related security and interests in the proceeds thereof, to Audacy Receivables. Pursuant to the Receivables Purchase Agreement, Audacy Receivables has sold and will continue to sell on an ongoing basis such accounts receivable, together with customary related security and interests in the proceeds thereof, to the Investors in exchange for cash investments.
Yield is payable to Investors under the Receivables Purchase Agreement at a variable rate based on either one-month LIBOR or commercial paper rates plus a margin. Collections on the accounts receivable: (x) will be used to either: (i) satisfy the obligations of Audacy Receivables under the Receivables Facility; or (ii) purchase additional accounts receivable from the Originators; or (y) may be distributed to Audacy NY, the sole member of Audacy Receivables. Audacy Operations acts as the servicer under the Agreements.
The Agreements contain representations, warranties and covenants that are customary for bankruptcy-remote securitization transactions, including covenants requiring Audacy Receivables to be treated at all times as an entity separate from the Originators, Audacy Operations, the Company or any of its other affiliates and that transactions entered into between Audacy Receivables and any of its affiliates shall be on arm’s-length terms. The Receivables Purchase Agreement also contains customary default and termination provisions which provide for acceleration of amounts owed under the Receivables Purchase Agreement upon the occurrence of certain specified events with respect to Audacy Receivables, Audacy Operations, the Originators, or the Company, including, but not limited to: (i) Audacy Receivables’ failure to pay yield and other amounts due; (ii) certain insolvency events; (iii) certain judgments entered against the parties; (iv) certain liens filed with respect to assets; and (v) breach of certain financial covenants and ratios.
The Company has agreed to guarantee the performance obligations of Audacy Operations and the Originators under the Receivables Facility documents. The Company has not agreed to guarantee any obligations of Audacy Receivables or the collection of any of the receivables and will not be responsible for any obligations to the extent the failure to perform such obligations by Audacy Operations or any Originator results from receivables being uncollectible on account of the insolvency, bankruptcy or lack of creditworthiness or other financial inability to pay of the related obligor.
In general, the proceeds from the sale of the accounts receivable are used by the SPV to pay the purchase price for accounts receivables it acquires from Audacy NY and may be used to fund capital expenditures, repay borrowings on the Credit Facility, satisfy maturing debt obligations, as well as fund working capital needs and other approved uses.
Although the SPV is a wholly owned consolidated subsidiary of Audacy NY, the SPV is legally separate from Audacy NY. The assets of the SPV (including the accounts receivables) are not available to creditors of Audacy NY, Audacy Operations or the Company, and the accounts receivables are not legally assets of Audacy NY, Audacy Operations or the Company. The Receivables Facility is accounted for as a secured financing. The pledged receivables and the corresponding debt are included in Accounts receivable and Long-term debt, respectively, on the Consolidated Balance Sheets.
The Receivables Facility will expire on July 15, 2024, unless earlier terminated or subsequently extended pursuant to the terms of the Receivables Purchase Agreement. The pledged receivables and the corresponding debt are included in Accounts receivable, net and Long-term debt, net of current portion, respectively, on the Condensed Consolidated Balance Sheet. At March 31, 2022, the Company had outstanding borrowings of $75.0 million under the Receivables Facility.
(B) Senior Unsecured Debt
The Senior Notes
Simultaneously with entering into a business combination and assuming the Credit Facility on November 17, 2017, the Company also assumed the 7.250% unsecured senior notes (the “Senior Notes”) that were subsequently modified and were set to mature on November 1, 2024 in the amount of $400.0 million. The Senior Notes were originally issued by CBS Radio (now Audacy Capital Corp.) on October 17, 2016.
Interest on the Senior Notes accrued at the rate of 7.250% per annum and was payable semi-annually in arrears on May 1 and November 1 of each year.
In connection with the redemption of the Senior Notes during the first quarter of 2021, the Company wrote off the following amounts to gain/loss on extinguishment of debt: (i) $14.5 million in prepayment premiums for the early retirement of the Senior Notes; (ii) $8.7 million of unamortized premium attributable to the Senior Notes; (iii) $1.0 million of unamortized debt issuance costs attributable to the Senior Notes; and (iv) $1.3 million of unamortized debt issuance costs attributable to the Term B-2 Loan.
(C) Net Interest Expense
The components of net interest expense are as follows:
| | | | | | | | | | | |
| Net Interest Expense |
| Three Months Ended
March 31, |
| 2022 | | 2021 |
| (amounts in thousands) |
| Interest expense | $ | 22,539 | | | $ | 20,967 | |
| Amortization of deferred financing costs | 1,259 | | | 1,041 | |
| Amortization of original issue premium of senior notes | (256) | | | (848) | |
| Interest income and other investment income | (71) | | | — | |
| Total net interest expense | $ | 23,471 | | | $ | 21,160 | |
9. DERIVATIVE AND HEDGING ACTIVITIES
The Company from time to time enters into derivative financial instruments, such as interest rate collar agreements (“Collars”), to manage its exposure to fluctuations in interest rates under the Company’s variable rate debt.
Hedge Accounting Treatment
As of March 31, 2022, the Company had the following derivative outstanding, which was designated as a cash flow hedge that qualified for hedge accounting treatment:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Type
Of
Hedge | | Notional
Amount | | Effective
Date | | Collar | | Fixed
LIBOR
Rate | | Expiration
Date | | Notional
Amount
Decreases | | Amount
After
Decrease |
| | (amounts
in millions) | | | | | | | | | | | | (amounts
in millions) |
| | | | | | Cap | | 2.75% | | | | Jun. 28, 2022 | | $ | 220.0 | |
| Collar | | $ | 340.0 | | | Jun. 25, 2019 | | Floor | | 0.402% | | Jun. 28, 2024 | | Jun. 28, 2023 | | $ | 90.0 | |
| Total | | $ | 340.0 | | | | | | | | | | | | | |
For the three months ended March 31, 2022, the Company recorded the net change in the fair value of this derivative as a gain of $1.2 million (net of tax benefit of $0.4 million as of March 31, 2022) to the condensed consolidated statement of comprehensive income (loss). The fair value of this derivative was determined using observable market-based inputs (a Level 2 measurement) and the impact of credit risk on a derivative’s fair value (the creditworthiness of the Company for liabilities). As of March 31, 2022, the fair value of these derivatives was an asset of $1.3 million, and is recorded within other assets, net of accumulated amortization on the condensed consolidated balance sheet. The Company does not expect to reclassify any of this amount to the condensed consolidated statement of operations over the next twelve months.
The following table presents the accumulated derivative gain (loss) recorded in other comprehensive income (loss) as of March 31, 2022 and December 31, 2021:
| | | | | | | | | | | | | | |
| | Accumulated Derivative Gain (Loss) |
| Description | | March 31,
2022 | | December 31,
2021 |
| | (amounts in thousands) |
| Accumulated derivative unrealized gain (loss) | | $ | 934 | | | $ | (289) | |
The following tables presents the accumulated net derivative gain (loss) recorded in other comprehensive income (loss) for the three months ended March 31, 2022 and March 31, 2021:
| | | | | | | | | | | | | | | | | | | | |
| Other Comprehensive Income (Loss) |
| Net Change in Accumulated Derivative Unrealized Gain (Loss) | | Net Amount of Accumulated Derivative Gain (Loss) Reclassified to the Condensed Consolidated Statement of Operations |
| Three Months Ended March 31, |
| 2022 | | 2021 | | 2022 | | 2021 |
| (amounts in thousands) |
| $ | 1,223 | | | $ | 553 | | | $ | 232 | | | $ | 307 | |
Undesignated Derivatives
The Company is subject to equity market risks due to changes in the fair value of the notional investments selected by its employees as part of its non-qualified deferred compensation plans. During the quarter ended June 30, 2020, the Company entered into a Total Return Swap ("TRS") in order to manage the market risks associated with its non-qualified deferred compensation plan liabilities. The Company pays a floating rate, based on the Secured Overnight Financing Rate ("SOFR"), on the notional amount of the TRS. The TRS is designed to substantially offset changes in its non-qualified deferred compensation plan's liabilities due to changes in the value of the investment options made by employees. As of March 31, 2022, the notional investments underlying the TRS amounted to $24.0 million. The contract term of the TRS is through March 2023 and is settled on a monthly basis, therefore limiting counterparty performance risk. The Company did not designate the TRS as an accounting hedge. Rather, the Company records all changes in the fair value of the TRS to earnings to offset the market value changes of its non-qualified deferred compensation plan liabilities.
For the three months ended March 31, 2022, the Company recorded the net change in the fair value of the TRS in station operating expenses and corporate, general and administrative expenses in the amount of a $1.4 million expense. Of this amount, a $0.5 million expense was recorded in corporate, general and administrative expenses and a $0.9 million expense was recorded in station operating expenses.
10. NET INCOME (LOSS) PER COMMON SHARE
The following tables present the computations of basic and diluted net income (loss) per share from continuing operations:
| | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | |
| 2022 | | 2021 | | | | |
| (amounts in thousands except per share data) |
| Basic Income (Loss) Per Share | | | | | | | |
| Numerator | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Net income (loss) | $ | (11,073) | | | $ | (21,648) | | | | | |
| Denominator | | | | | | | |
| Basic weighted average shares outstanding | 138,122 | | | 135,379 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Net income (loss) per share - Basic | $ | (0.08) | | | $ | (0.16) | | | | | |
| Diluted Income (Loss) Per Share | | | | | | | |
| Numerator | | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Net income (loss) | $ | (11,073) | | | $ | (21,648) | | | | | |
| Denominator | | | | | | | |
| Basic weighted average shares outstanding | 138,122 | | | 135,379 | | | | | |
| Effect of RSUs and options under the treasury stock method | — | | | — | | | | | |
| Diluted weighted average shares outstanding | 138,122 | | | 135,379 | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Net income (loss) per share - Diluted | $ | (0.08) | | | $ | (0.16) | | | | | |
Disclosure of Anti-Dilutive Shares
The following table presents those shares excluded as they were anti-dilutive:
| | | | | | | | | | | | | | | |
| Three Months Ended
March 31, | | |
| Impact Of Equity Issuances | 2022 | | 2021 | | | | |
| (amounts in thousands, except per share data) |
| Shares excluded as anti-dilutive under the treasury stock method: | | | | | | | |
| Options | 609 | | | 588 | | | | | |
| Price range of options: from | $ | 3.54 | | | $ | 4.88 | | | | | |
| Price range of options: to | $ | 13.98 | | | $ | 13.98 | | | | | |
| RSUs with service conditions | 1,073 | | | 84 | | | | | |
| RSUs excluded with service and market conditions as market conditions not met | 75 | | | — | | | | | |
| Excluded shares as anti-dilutive when reporting a net loss | 2,189 | | | 2,378 | | | | | |
11. SHARE-BASED COMPENSATION
Under the Company's two equity compensation plans (the “Plans”), the Company is authorized to issue share-based compensation awards to key employees, directors and consultants.
Restricted Stock Units (“RSUs”) Activity
The following is a summary of the changes in RSUs under the Plans during the current period: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period Ended | | Number of Restricted Stock Units | | Weighted Average Purchase Price | | Weighted Average Remaining Contractual Term (Years) | | Aggregate Intrinsic Value as of March 31,
2022 |
| (amounts in thousands) |
| RSUs outstanding as of: | December 31, 2021 | | 7,342 | | | | | | | |
| RSUs awarded | March 31, 2022 | | — | | | | | | | |
| RSUs released | March 31, 2022 | | (1,926) | | | | | | | |
| RSUs forfeited | March 31, 2022 | | (59) | | | | | | | |
| RSUs outstanding as of: | March 31, 2022 | | 5,357 | | | $ | — | | | 1.4 | | $ | 16,363 | |
| RSUs vested and expected to vest as of: | March 31, 2022 | | 5,357 | | | $ | — | | | 1.4 | | $ | 16,363 | |
| RSUs exercisable (vested and deferred) as of: | March 31, 2022 | | 5 | | | $ | — | | | 0.0 | | $ | 16 | |
| Weighted average remaining recognition period in years | | | 2.0 | | | | | | |
| Unamortized compensation expense | | | $ | 5,498 | | | | | | | |
RSUs with Service and Market Conditions
The Company issued RSUs with service and market conditions that are included in the table above.
Option Activity
The following table provides summary information related to the exercise of stock options:
| | | | | | | | | | | | | | |
| | Three Months Ended
March 31, |
| Option Exercise Data | | 2022 | | 2021 |
| | (amounts in thousands) |
| Intrinsic value of options exercised | | $ | — | | | $ | 241 | |
| Tax benefit from options exercised | | $ | — | | | $ | 64 | |
| Cash received from exercise price of options exercised | | $ | — | | | $ | 15 | |
The following table presents the option activity during the current period under the Plans:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period Ended | | Number of Options | | Weighted Average Exercise Price | | Weighted Average Remaining Contractual Term (Years) | | Intrinsic Value as of March 31
2022 |
| (amounts in thousands) |
| Options outstanding as of: | December 31, 2021 | | 609 | | | $ | 11.33 | | | | | |
| | | | | | | | | |
| Options exercised | March 31, 2022 | | — | | | — | | | | | |
| | | | | | | | | |
| | | | | | | | | |
| Options outstanding as of: | March 31, 2022 | | 609 | | | $ | 11.33 | | | 2.5 | | $ | — | |
| Options vested and expected to vest as of: | March 31, 2022 | | 609 | | | $ | 11.33 | | | 2.5 | | $ | — | |
| Options vested and exercisable as of: | March 31, 2022 | | 609 | | | $ | 11.33 | | | 2.5 | | $ | — | |
| Weighted average remaining recognition period in years | | | 0.0 | | | | | | |
| Unamortized compensation expense | | | $ | — | | | | | | | |
The following table summarizes significant ranges of outstanding and exercisable options as of the current period: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | Options Outstanding | | Options Exercisable |
| | | | (amounts in thousands) |
Range of
Exercise Prices | | Number of Options Outstanding March 31,
2022 | | Weighted
Average
Remaining
Contractual
Life | | Weighted
Average
Exercise
Price | | Number of Options Exercisable March 31,
2022 | | Weighted
Average
Exercise
Price |
| From | | To |
| $ | 3.54 | | | 7.01 | | | 67 | | | 7.2 | | 5.40 | | | 67 | | | $ | 5.40 | |
| $ | 9.66 | | | 13.98 | | | 542 | | | 2.0 | | 12.06 | | | 542 | | | $ | 12.06 | |
| $ | 3.54 | | | 13.98 | | | 609 | | | 2.5 | | 11.33 | | | 609 | | | $ | 11.33 | |
Recognized Non-Cash Stock-Based Compensation Expense
The following non-cash stock-based compensation expense, which is related primarily to RSUs, is included in each of the respective line items in the Company’s statement of operations:
| | | | | | | | | | | |
| Three Months Ended
March 31, |
| 2022 | | 2021 |
| (amounts in thousands) |
| Station operating expenses | $ | 1,170 | | | $ | 1,073 | |
| Corporate general and administrative expenses | 1,820 | | | 1,667 | |
| Stock-based compensation expense included in operating expenses | 2,990 | | | 2,740 | |
Income tax benefit (1) | 671 | | | 664 | |
| After-tax stock-based compensation expense | $ | 2,319 | | | $ | 2,076 | |
(1) Amounts exclude impact from any compensation expense subject to Section 162(m) of the Code, which is nondeductible for income tax purposes.
12. INCOME TAXES
Tax Rate for the Three Months Ended March 31, 2022
The Company recognized an income tax benefit at an effective income tax rate of 26.0% for the three months ended March 31, 2022. The effective income tax rate was determined using a forecasted tax rate based upon projected taxable income for the year. The effective income tax rate for the period was impacted by permanent items, state tax expense and discrete income tax expense related to stock based compensation.
On March 27, 2020, the United States enacted the CARES Act. The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effects of the COVID-19 pandemic. The CARES Act includes significant business tax provisions that, among other things, includes the removal of certain limitations on utilization of net operating losses, increases the loss carry back period for certain losses to five years, and increases the ability to deduct interest expense, as well as amending certain provisions of the previously enacted Tax Cuts and Jobs Act. The Company was able to carryback its 2020 federal income tax loss to prior tax years and file a refund claim with the IRS for $15.2 million.
Tax Rate for the Three Months Ended March 31, 2021
The Company recognized an income tax benefit at an effective income tax rate of 42.3% for the three months ended March 31, 2021, which was determined using a forecasted rate based upon projected taxable income for the full year.
Net Deferred Tax Assets and Liabilities
The income tax accounting process to determine the deferred tax liabilities involves estimating all temporary differences between the tax and financial reporting bases of the Company’s assets and liabilities, based on enacted tax laws and statutory tax rates applicable to the period in which the differences are expected to affect taxable income. The Company estimated the current exposure by assessing the temporary differences and computing the provision for income taxes by applying the estimated effective tax rate to income.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments Subject to Fair Value Measurements
Recurring Fair Value Measurements
The following table sets forth the Company's financial assets and/or liabilities that were accounted for at fair value on a recurring basis and are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value and its placement within the fair value hierarchy levels. During the periods presented, there were no transfers between fair value hierarchical levels.
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| | Fair Value Measurements At Reporting Date |
Description | | Balance at March 31,
2022 | | Quoted prices in active markets Level 1 | | Significant other observable inputs Level 2 | | Significant unobservable inputs Level 3 | | Measured at Net Asset Value as a Practical Expedient (2) |
| | (amounts in thousands) |
| Assets | | | | | | | | | | |
Interest Rate Cash Flow Hedge (3) | | $ | 1,274 | | | $ | — | | | $ | 1,274 | | | $ | — | | | $ | — | |
| Liabilities | | | | | | | | | | |
Deferred compensation plan liabilities (1) | | $ | 28,006 | | | $ | 22,643 | | | $ | — | | | $ | — | | | $ | 5,363 | |
| | | | | | | | | | |
Contingent Consideration (4) | | $ | 9,114 | | | $ | — | | | $ | — | | | $ | 9,114 | | | $ | — | |
Description | | Balance at December 31,
2021 | | Quoted prices in active markets Level 1 | | Significant other observable inputs Level 2 | | Significant unobservable inputs Level 3 | | Measured at Net Asset Value as a Practical Expedient (2) |
| | (amounts in thousands) |
Liabilities | | | | | | | | | | |
Deferred compensation plan liabilities (1) | | $ | 32,730 | | | $ | 26,839 | | | $ | — | | | $ | — | | | $ | 5,891 | |
Interest Rate Cash Flow Hedge (3) | | $ | 394 | | | $ | — | | | $ | 394 | | | $ | — | | | $ | — | |
Contingent Consideration (4) | | $ | 8,783 | | | $ | — | | | $ | — | | | $ | 8,783 | | | $ | — | |
(1)The Company’s deferred compensation liability, which is included in other long-term liabilities, is recorded at fair value on a recurring basis. The unfunded plan allows participants to hypothetically invest in various specified investment options.
(2)The fair value of underlying investments in collective trust funds is determined using the net asset value (“NAV”) provided by the administrator of the fund as a practical expedient. The NAV is determined by each fund’s trustee based upon the fair value of the underlying assets owned by the fund, less liabilities, divided by outstanding units. In accordance with appropriate accounting guidance, these investments have not been classified in the fair value hierarchy.
(3)The Company’s interest rate collar, which is included in other long-term liabilities at December 31, 2021 and other assets, net of accumulated amortization at March 31, 2022, is recorded at fair value on a recurring basis. The derivatives are not exchange listed and therefore the fair value is estimated using models that reflect the contractual terms of the derivative, yield curves, and the credit quality of the counterparties. The models also incorporate the Company’s creditworthiness in order to appropriately reflect non-performance risk. Inputs are generally observable and do not contain a high level of subjectivity.
(4)In connection with the Podcorn Acquisition, the Company recorded a liability for contingent consideration payable based upon the achievement of certain annual performance benchmarks over 2 years. The fair value of the liability is estimated using probability-weighted, discounted future cash flows at current tax rates using a scenario based model, and remeasured quarterly. The significant unobservable inputs (Level 3) used to estimate the fair value include the projected Adjusted EBITDA values for 2022 and 2023, as defined in the purchase agreement, and the discount rate. Using an initial discount of 10.5%, the fair value of the contingent consideration was $7.7 million at the acquisition date. Due to fluctuation in the market-based inputs used to develop the discount rate, the discount rate increased to 11.0% at March 31, 2022. This increase in the discount rate was offset by a reduction in the payment period which resulted in a higher expected present value of the contingent consideration. As a result, the fair value of the contingent consideration at March 31, 2022 increased to $9.1 million. This balance is included in other long-term liabilities.
Non-Recurring Fair Value Measurements
The Company has certain assets that are measured at fair value on a non-recurring basis and are adjusted to fair value only when the carrying values are more than the fair values. The categorization of the framework used to price the assets is considered Level 3, due to the subjective nature of the unobservable inputs used to determine the fair value.
During the three months ended March 31, 2022 and 2021, there were no events or changes in circumstances which indicated the Company’s broadcasting licenses, goodwill, investments, property and equipment, ROU assets, other intangible assets, or assets held for sale may not be recoverable.
Fair Value of Financial Instruments Subject to Disclosures
The carrying amounts of the following assets and liabilities approximate fair value due to the short maturity of these instruments: (i) cash and cash equivalents; (ii) accounts receivable; and (iii) accounts payable, including accrued liabilities.
The following table presents the carrying value of financial instruments and, where practicable, the fair value as of the dates indicated:
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| March 31,
2022 | | December 31,
2021 |
| Carrying Value | | Fair Value | | Carrying Value | | Fair Value |
| (amounts in thousands) |
Term B Loans (1) | $ | 632,415 | | | $ | 622,929 | | | $ | 632,415 | | | $ | 626,881 | |
Revolver (2) | $ | 75,000 | | | $ | 75,000 | | | $ | 97,727 | | | $ | 97,727 | |
| | | | | | | |
2029 Notes (3) | $ | 540,000 | | | $ | 503,550 | | | $ | 540,000 | | | $ | 527,850 | |
2027 Notes (3) | $ | 470,000 | | | $ | 441,800 | | | $ | 470,000 | | | $ | 460,600 | |
Accounts receivable facility (4) | $ | 75,000 | | | | | $ | 75,000 | | | |
Other debt (4) | $ | 797 | | | | | $ | 764 | | | |
Letters of credit (4) | $ | 6,069 | | | | | $ | 6,069 | | | |
The following methods and assumptions were used to estimate the fair value of financial instruments:
(1)The Company utilizes a Level 2 valuation input based upon the market trading price of the Term B-2 Loan to compute the fair value as the Term B-2 Loan is traded in the debt securities market. The fair value of the Term B-2 Loan is considered a Level 2 measurement as the pricing inputs are other than quoted prices in active markets.
(2)The fair value of the Revolver was considered to approximate the carrying value as the interest payments are based on LIBOR rates that reset periodically. The Revolver is considered a Level 2 measurement as the pricing inputs are other than quoted prices in active markets.
(3)The Company utilizes a Level 2 valuation input based upon the market trading prices of the 2029 Notes and 2027 Notes to compute the fair value as these 2029 Notes and 2027 Notes are traded in the debt securities market. The 2029 Notes and 2027 Notes are considered a Level 2 measurement as the pricing inputs are other than quoted prices in active markets.
(4)The Company does not believe it is practicable to estimate the fair value of the accounts receivable facility, other debt or the outstanding standby letters of credit.
14. ASSETS HELD FOR SALE
Assets Held for Sale
Long-lived assets to be sold are classified as held for sale in the period in which they meet all the criteria for the disposal of long-lived assets. The Company measures assets held for sale at the lower of their carrying amount or fair value less cost to sell. Additionally, the Company determined that these assets comprise operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Company.
During the fourth quarter of 2020, the Company announced that it had entered into an exchange agreement with Urban One, pursuant to which the Company would exchange its four station cluster in Charlotte, North Carolina for one station in St. Louis, Missouri, one station in Washington, D.C., and one station in Philadelphia, Pennsylvania (the "Urban One Exchange"). The Company conducted an analysis and determined the assets met the criteria to be classified as held for sale at December 31, 2020. In aggregate, these assets had a carrying value of $21.4 million.
Upon the closing of the Urban One Exchange on April 20, 2021, the Company: (i) removed the assets which had been classified as assets held for sale; (ii) recorded the assets of the acquired stations at fair value; and (iii) recognized a gain on the exchange of approximately $4.0 million. Refer to Note 2, Business Combinations, for additional information.
During the second quarter of 2021, the Company entered into an agreement with a third party to dispose of land and land improvements and equipment. The Company conducted an analysis and determined the assets met the criteria to be classified as held for sale. In aggregate, these assets had a carrying value of approximately $0.5 million. In the fourth quarter of 2021, the Company completed this sale. The Company recognized a gain on the sale, net of commissions and other expenses, of approximately $4.6 million.
During the fourth quarter of 2021, the Company entered into an agreement with a third party to dispose of land, equipment and an FCC license in connection with a sale of a station in San Francisco, California. The Company conducted an analysis and determined the assets met the criteria to be classified as held for sale. In aggregate, these assets have a carrying value of approximately $1.0 million. The transaction is expected to close within one year.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. This is considered a Level 3 measurement.
The major categories of these assets held for sale are as follows as of the dates indicated:
| | | | | | | | | | | |
| Assets Held for Sale |
| March 31, 2022 | | December 31, 2021 |
| (amounts in thousands) |
| | | |
| | | |
| | | |
| Net property and equipment | 330 | | | 330 | |
| Radio broadcasting licenses | 703 | | | 703 | |
| | | |
| | | |
| | | |
| Net assets held for sale | $ | 1,033 | | | $ | 1,033 | |
15. SHAREHOLDERS’ EQUITY
Dividend Equivalents
The following table presents the amounts accrued and unpaid dividends on unvested RSUs as of the dates indicated:
| | | | | | | | | | | | | | | | | |
| | | Dividend Equivalent Liabilities |
| Balance Sheet Location | | March 31,
2022 | | December 31,
2021 |
| | | (amounts in thousands) |
Short-term | Other current liabilities | | $ | 240 | | | $ | 351 | |
Long-term | Other long-term liabilities | | 1 | | | 92 | |
Total | | | $ | 241 | | | $ | 443 | |
Employee Stock Purchase Plan
Following the purchase of shares under the ESPP for the first quarter of 2020, the Company temporarily suspended the ESPP. The ESPP resumed on July 1, 2021. The following table presents the amount of shares purchased and non-cash compensation expense recognized in connection with the ESPP as of the periods indicated:
| | | | | | | | | | | |
| Three Months Ended
March 31, |
| 2022 | | 2021 |
| (amounts in thousands) |
| Number of shares purchased | 61 | | | — | |
| Non-cash compensation expense recognized | $ | 26 | | | $ | — | |
Share Repurchase Program
During the three months ended March 31, 2022, the Company did not repurchase any shares under the 2017 Share Repurchase Program. As of March 31, 2022, $41.6 million is available for future share repurchases under the 2017 Share Repurchase Program.
Shareholder Rights Agreement
On April 20, 2020, the Company entered into a Rights Agreement between the Company and American Stock Transfer & Trust Company, LLC, as Rights Agent (as amended from time to time, the "Rights Agreement"), which was previously approved by the Board of Directors of the Company (the "Board of Directors").
The Rights Agreement expired on April 20, 2021.
16. CONTINGENCIES AND COMMITMENTS
Contingencies
The Company is subject to various outstanding claims which arise in the ordinary course of business and to other legal proceedings. Management anticipates that any potential liability of the Company, which may arise out of or with respect to these matters, will not materially affect the Company’s financial position, results of operations or cash flows. There were no material changes from the contingencies listed in the Company’s Form 10-K, filed with the SEC on March 1, 2022.
17. SUBSEQUENT EVENTS
Events occurring after March 31, 2022, and through the date that these condensed consolidated financial statements were issued, were evaluated to ensure that any subsequent events that met the criteria for recognition have been included.