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(Exact name of registrant as specified in its charter)
iDelaware
i27-1996555
(State
or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
iOne Manhattanville Road
iSuite
202
iPurchase,
iNew York
i10577
(Address
of Principal Executive Offices, including Zip Code)
(i203) i861-0900
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title
of each class
Trading Symbol(s)
Name of each exchange on which registered
iClass A Common Stock, $0.01 par value per share
iTSQ
iThe
New York Stock Exchange
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. iYes ☒ No ☐
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). iYes ☒ No ☐
Indicate by check mark whether the registrant
is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer,""accelerated filer,""smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
☐
iAccelerated
filer
☒
Non-accelerated filer
☐
Smaller reporting company
i☒
Emerging growth company
i☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No i☒
As
of August 4, 2022, the registrant had 17,153,348 outstanding shares of common stock consisting of: (i) i12,876,711 shares of Class A common stock, par value $0.01 per share; (ii) i815,296
shares of Class B common stock, par value $0.01 per share; and (iii) i3,461,341 shares of Class C common stock, par value $0.01 per share.
Accounts
receivable, net of allowance of $i5,561 and $i6,743, respectively
i63,458
i57,647
Prepaid
expenses and other current assets
i12,205
i12,086
Total
current assets
i98,488
i120,238
Property
and equipment, net
i109,944
i106,717
Intangible
assets, net
i300,935
i278,265
Goodwill
i166,324
i157,947
Investments
i16,445
i18,217
Operating
lease right-of-use assets
i49,910
i42,996
Other
assets
i2,067
i1,437
Restricted
cash
i494
i494
Total assets
$
i744,607
$
i726,311
LIABILITIES
AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable
$
i8,783
$
i5,676
Deferred
revenue
i10,435
i10,208
Accrued
compensation and benefits
i9,453
i14,411
Accrued
expenses and other current liabilities
i25,684
i22,512
Operating
lease liabilities, current
i8,651
i7,396
Accrued
interest
i15,197
i15,754
Total
current liabilities
i78,203
i75,957
Long-term
debt, net of deferred finance costs of $i7,348 and $i8,479, respectively
i523,418
i541,521
Deferred
tax liability
i22,395
i20,081
Operating
lease liability, net of current portion
i44,151
i38,743
Other
long-term liabilities
i16,965
i425
Total
liabilities
i685,132
i676,727
Stockholders’
equity:
Class A common stock, par value $ii0.01/
per share; ii300,000,000/ shares authorized;
ii12,876,711/ and ii12,573,654/
shares issued and outstanding, respectively
i129
i126
Class
B common stock, par value $ii0.01/ per share; ii50,000,000/
shares authorized; ii815,296/ and ii815,296/
shares issued and outstanding, respectively
i8
i8
Class
C common stock, par value $ii0.01/ per share; ii50,000,000/
shares authorized; ii3,461,341/ and ii3,461,341/
shares issued and outstanding, respectively
i35
i35
Total
common stock
i172
i169
Treasury stock, at cost;
i25,623 and izero shares of Class A common stock, respectively
(i225)
i—
Additional
paid-in capital
i306,997
i302,724
Accumulated
deficit
(i250,017)
(i256,635)
Non-controlling
interest
i2,548
i3,326
Total
stockholders’ equity
i59,475
i49,584
Total
liabilities and stockholders’ equity
$
i744,607
$
i726,311
See
Notes to Unaudited Consolidated Financial Statements
(1)
Includes i150,000 shares issued in the form of stock awards that vested immediately.
(2) Represents shares repurchased under the terms of the Company's stock repurchase plan pursuant to which the
Company is authorized to repurchase up to $i50 million of the
Company’s issued and outstanding Class A common stock over a ithree-year period, the "2021
Stock Repurchase Plan."
(1)
On March 9, 2021, the Company repurchased all outstanding securities previously held by certain affiliates of Oaktree Capital Management L.P. (“Oaktree”), including i1,595,224 shares of Class A Common Stock, i2,151,373
shares of Class B Common Stock and i8,814,980 warrants.
(2) See Note 9, Stockholders' Equity, in our Notes to Consolidated Financial Statements for further discussion related to the share repurchase.
(3) On May 13, 2021, a direct holder of Class A Common Stock converted i2,625,000
shares into an equal number of Class C Common Stock. Except as expressly provided in our certificate of incorporation, the Class A common stock, Class B common stock and Class C common stock have equal economic rights and rank equally, share ratably and are identical in all respects as to all matters. Class C common stock is not redeemable, but is convertible i1:1 (including automatically upon certain transfers) into Class A common stock.
See
Notes to Unaudited Consolidated Financial Statements
Investments acquired in exchange for advertising (1)
$
i1,500
$
i6,100
Property
and equipment acquired in exchange for advertising (1)
i519
i1,642
Accrued
capital expenditures
i1,517
i183
Accrued
financing fees
i—
i150
Supplemental
Disclosure of Cash Flow Information relating to Leases:
Cash paid for amounts included in the measurement of operating lease liabilities, included in operating cash flows
$
i5,036
$
i5,243
Right-of-use
assets obtained in exchange for operating lease obligations
i5,211
i1,662
Reconciliation
of cash, cash equivalents and restricted cash
Cash and cash equivalents
$
i22,825
$
i25,146
Restricted
cash
i494
i494
$
i23,319
$
i25,640
(1)
Represents total advertising services provided by the Company in exchange for equity interests and property and equipment acquired during each of the six months ended June 30, 2022 and 2021, respectively.
See Notes to Unaudited Consolidated Financial Statements
7
TOWNSQUARE MEDIA, INC.
NOTES TO UNAUDITED
CONSOLIDATED FINANCIAL STATEMENTS
Note 1. iOrganization and Basis of Presentation
Description of the Business
Townsquare
is a community-focused digital media and digital marketing solutions company with market leading local radio stations, principally focused outside the top 50 markets in the U.S.. Our integrated and diversified products and solutions enable local, regional and national advertisers to target audiences across multiple platforms, including digital, mobile, social, video, streaming, e-commerce, radio and events. Our assets include a subscription digital marketing services business (“Townsquare Interactive”), providing website design, creation and hosting, search engine optimization, social platforms and online reputation management for approximately i29,000
small to medium sized businesses; a robust digital advertising division (“Townsquare Ignite,” or “Ignite”), a powerful combination of a) an owned and operated portfolio of more than i400 local news and entertainment websites and mobile apps along with a network of leading national music and entertainment brands, collecting valuable first party data and b) a proprietary digital programmatic advertising
technology stack with an in-house demand and data management platform; and a portfolio of i356 local terrestrial radio stations in i74 U.S. markets strategically situated outside the Top 50 markets in the United States. Our portfolio
includes local media brands such as WYRK.com, WJON.com and NJ101.5.com, and premier national music brands such as XXLmag.com, TasteofCountry.com, UltimateClassicRock.com, and Loudwire.com.
i
Basis of Presentation
The
accompanying Unaudited Consolidated Financial Statements should be read in conjunction with the Company’s audited Consolidated Financial Statements and related notes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2021 (the "2021 Annual Report on Form 10-K"). The accompanying unaudited interim Consolidated Financial Statements include the consolidated accounts of the Company and its wholly-owned subsidiaries, with all significant intercompany balances and transactions eliminated in consolidation. These financial statements
have been prepared in accordance with Generally Accepted Accounting Principles in the United States ("U.S. GAAP") for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. All adjustments (consisting only of normal, recurring adjustments) necessary for a fair presentation of results of operations and financial condition as of the end of the interim periods have been included. The results of operations for the three and six months ended June 30, 2022, cash flows for the six months ended June 30, 2022, and the Company’s financial condition as of such date are not necessarily indicative of the results of operations or cash flows that can be expected
for, or the Company’s financial condition as of, any other interim period or for the fiscal year ending December 31, 2022. The Consolidated Balance Sheet as of December 31, 2021 is derived from the audited Consolidated Financial Statements at that date.
i
Segment Reporting
The
Company’s operations are organized internally by the types of products and services provided. In December of 2021, the Company changed its reporting segments in order to reflect its strategic focus, organizational structure and the information reviewed by its Chief Operating Decision Maker ("CODM") as a digital media and digital marketing solutions company with market leading radio stations, represented by ithree segments: Subscription Digital Marketing Solutions, which
includes the results of the Company’s subscription digital marketing solutions business, Townsquare Interactive; Digital Advertising, which includes digital advertising on its owned and operated digital properties and its digital programmatic advertising platform; and Broadcast Advertising, which includes our local, regional and national advertising products and solutions delivered via terrestrial radio broadcast, and other miscellaneous revenue that is associated with its broadcast advertising platform. The remainder of the Company’s business is reported in the Other category, which includes owned and operated live events. The Company has presented segment information for the three and six months ended June
30, 2021 in conformity with the current period’s segment information.
/
i
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent
8
assets and liabilities. On an ongoing basis, the Company evaluates its significant estimates, including those related to assumptions used in determining the fair value of assets and liabilities acquired in a business combination, impairment testing of intangible assets, valuation and impairment testing of long-lived tangible assets and investments, the present value of leasing arrangements, share-based payment expense and the calculation of allowance for doubtful accounts and income taxes. The Company bases its estimates on historical experience and on various assumptions that are believed to
be reasonable under the circumstances, the result of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.
Actual amounts and results may differ materially from these estimates under different assumptions or conditions.
Note 2. iSummary
of Significant Accounting Policies
There have been no significant changes in the Company’s accounting policies since December 31, 2021. For the Company's detailed accounting policies please refer to the Consolidated Financial Statements and related notes thereto included in the Company's 2021 Annual Report on Form 10-K filed with the Securities and Exchange Commission ("SEC") on March 16, 2022.
i
Recently
Issued Standards That Have Not Yet Been Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which adds a new Topic 326 to the Codification and removes the thresholds that companies apply to measure credit losses on financial instruments measured at amortized cost, such as loans, receivables, and held-to-maturity debt securities. The guidance will remove all recognition thresholds and will require companies to recognize an allowance for credit losses for the difference between the amortized cost basis of a financial instrument and the amount of amortized cost that the company expects to collect over the instrument's contractual life. The new guidance
is effective for smaller reporting companies for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Early adoption, either of the entire standard or only the provisions that eliminate or modify requirements, is permitted. The Company expects to adopt the new guidance in the first quarter of 2023. The Company is evaluating the impacts of the adoption of this ASU and does not anticipate the impact on its Consolidated Financial Statements to be significant.
Note 3. iRevenue
Recognition
i
The following tables present a disaggregation of our revenue by reporting segment and revenue from political sources and all other sources (in thousands) for the three and six months ended June 30, 2022 and 2021:
Revenue
from contracts with customers is recognized as an obligation until the terms of a customer contract are satisfied; generally this occurs with the transfer of control as we satisfy contractual performance obligations over time. Our contractual performance obligations include the performance of digital marketing solutions, placement of internet-based advertising campaigns, broadcast of commercials on our owned and operated radio stations, and the operation of live events.
9
Revenue is measured at contract
inception as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Our contracts are at a fixed price at inception and do not include any variable consideration or financing components by normal course of business practice. Sales, value add, and other taxes that are collected concurrently with revenue producing activities, are excluded from revenue.
i
The
primary sources of net revenue are the sale of digital and broadcast advertising solutions on our owned and operated websites, radio stations’ online streams, and mobile applications, radio stations, and on third party websites through our in-house digital programmatic advertising platform. Through our digital programmatic advertising platform, we are able to hyper-target audiences for our local, regional and national advertisers by combining first and third party audience and geographic location data, providing them the ability to reach a high percentage of their online audience. We deliver these solutions across desktop, mobile, connected TV, email, paid search and social media platforms utilizing display, video and native executions.
We also offer subscription digital marketing solutions under the brand name Townsquare Interactive to small and mid-sized local and regional businesses in markets outside the top 50 across the United States, including the markets in which we operate radio stations. Townsquare Interactive includes traditional and mobile-enabled website development and hosting services, e-commerce platforms, search engine and online directory optimization services, online reputation monitoring, social media management, and website retargeting.
Political net revenue includes the sale of advertising for political advertisers. Contracted performance obligations under political
contracts consist of the broadcast and placement of digital advertisements. Management views political revenue separately based on the episodic nature of election cycles and local issues calendars.
Net revenue for digital and broadcast advertisements are recognized as the contractual performance obligations for Townsquare services are satisfied. We measure progress towards the satisfaction of our contractual performance obligations in accordance with the contractual arrangement. We recognize the associated contractual revenue as delivery takes place and the right to invoice for services performed is met.
Our advertising contracts
are short-term (less than one year) and payment terms are generally net i30-i60 days for traditional customer contracts
and net i60-i90 days for national agency customer contracts.
Our billing practice is to invoice customers on a monthly basis for services delivered to date (representing the right to invoice). Our contractual arrangements do not include rights of return and do not include any significant judgments by nature of the products and services.
Net revenue from digital subscription-based contractual performance obligations is recognized ratably over time as our performance obligations are satisfied. Subscription-based service fees are typically billed in advance of the month of service at a fixed monthly fee that is contractually agreed upon at contract inception. The measure of progress in such arrangements is the number of days of successful delivery of the contracted service.
For
all customer contracts, we evaluate whether we are the principal (i.e., report revenue on a gross basis) or the agent (i.e., report revenue on a net basis). Generally, we report revenue for advertising placed on Townsquare properties on a gross basis (the amount billed to our customers is recorded as revenue, and the amount paid to our publishers is recorded as a cost of revenue). We are the principal because we control the advertising inventory before it is transferred to our customers. Our control is evidenced by our sole ability to monetize the advertising inventory, being primarily responsible to our customers, having discretion in establishing pricing, or a combination of these factors. We also generate revenue through agency relationships in which revenue is reported net of agency commissions. Agency commissions are calculated based on a stated percentage applied to gross
billing revenue for advertisers that use agencies.
/
i
The following tables provides information about receivables, contract assets and contract liabilities from contracts
with customers (in thousands):
We
receive payments from customers based upon contractual billing schedules; contract receivables are recognized in the period the Company provides services when the Company’s right to consideration is unconditional. Payment terms
10
vary by the type and location of our customer and the products or services offered. Payment terms for amounts invoiced are typically net i30-i60
days.
Our contract liabilities include cash payments received or due in advance of satisfying our performance obligations and digital subscriptions in which payment is received in advance of the service and month. These contract liabilities are recognized as revenue as the related performance obligations are satisfied. As of June 30, 2022, and December 31, 2021, the balance in the contract liabilities was $i10.4 million
and $i10.2 million, respectively. The increase in the contract liabilities balance at June 30, 2022 is primarily driven by cash payments received or due in advance of satisfying our performance obligations, offset by $i1.3 million
and $i7.7 million of recognized revenue for the three and six months ended June 30, 2022, respectively. For the three and six months ended June 30, 2021, respectively, we recognized $i0.7 million
and $i6.5 million of revenue that was previously included in our deferred revenue balance. No significant changes in the time frame of the satisfaction of contract liabilities have occurred during the three and six months ended June 30, 2022.
Our capitalized contract
acquisition costs include amounts related to sales commissions paid for signed contracts with perceived durations exceeding one year. We defer the related sales commission costs and amortize such costs to expense in a manner that is consistent with how the related revenue is recognized over the duration of the related contracts. We have evaluated the average customer contract duration (initial term and any renewals) to determine the appropriate amortization period for these contractual arrangements. Capitalized contract acquisition costs are recognized in prepaid expenses and other current assets in the accompanying
consolidated balance sheets. As of June 30, 2022 and December 31, 2021, we had a balance of $i6.3 million and $i5.4 million,
respectively, in capitalized contract acquisition costs and recognized $i1.2 million and $i2.4 million
of amortization for the three and six months ended June 30, 2022, respectively. For the three and six months ended June 30, 2021, we recognized $i1.2 million and $i2.1 million
of amortization, respectively. iiiiNo///
impairment losses have been recognized or changes made to the time frame for performance of the obligations related to deferred contract assets during the three and six months ended June 30, 2022 and 2021.
Arrangements with Multiple Performance Obligations
In contracts with multiple performance obligations, we identify each performance obligation and evaluate whether the performance obligations are distinct within the context of the contract at contract
inception. When multiple performance obligations are identified, we identify how control transfers to the customer for each distinct contract obligation and determine the period when the obligations are satisfied. If obligations are satisfied in the same period, no allocation of revenue is deemed to be necessary. In the event performance obligations within a bundled contract do not run concurrently, we allocate revenue to each performance obligation based on its relative standalone selling price. We generally determine standalone selling prices based on the prices charged to customers or by using expected cost-plus margins. Performance obligations that are not distinct at contract inception are combined.
Performance
Obligations
We do not disclose the value of unsatisfied performance obligations for (i) contracts with an original expected length of one year or less and (ii) contracts for which we recognize revenue at the amount to which we have the right to invoice for services performed as amounts related to those performance obligations with expected durations of greater than one year are at a fixed price per unit and do not include any upfront or minimum payments requiring any estimation or allocation of revenue.
11
Note
4. iAcquisitions and Divestitures
Acquisitions and Divestitures
On March 24, 2022, the Company executed an asset purchase agreement to acquire Cherry Creek Broadcasting LLC (“Cherry Creek”). Following regulatory approval, the acquisition
was completed on June 17, 2022 for a cash purchase price of $i18.4 million, net of closing adjustments. The purchase price was in excess of the fair value of net assets acquired, resulting in the recognition of goodwill. The Company expects to finalize the allocation of the purchase price for Cherry Creek as soon as possible, but in any event, no later than one year from the acquisition date. The preliminary
purchase price allocation is subject to change pending a final valuation of the assets and liabilities acquired.
i
The preliminary acquisition date fair values of major classes of net assets acquired are as follows (in thousands):
Preliminary Acquisition Date Fair Value
Net
tangible assets acquired
$
i1,366
Intangible assets, net (1)
i8,676
Goodwill
i8,377
Total
Purchase Price
$
i18,419
(1)Intangible assets include FCC licenses and content rights in the amount of $i8.0 million
and $i0.7 million, respectively.
/
Goodwill totaling $i8.4 million
represents the excess of the Cherry Creek purchase price over the fair value of net assets acquired, representing future economic benefits that are expected to be achieved as a result of the acquisition, and is included in the Broadcast Advertising segment. Goodwill generated from the Cherry Creek acquisition is deductible for income tax purposes. The Company believes the acquisition of Cherry Creek, which includes a portfolio of local media brands, will further its goal of becoming the number one local media company in markets outside of the Top 50 cities in the United States. In addition, the acquisition provides an opportunity to bring our digital assets and solutions to the Cherry Creek markets and accelerate their digital growth with our Digital First strategy.
The results of Cherry Creek's operations
have been included in our Unaudited Consolidated Financial Statements, following closing of the acquisition on June 17, 2022. Pro forma information has not been presented because the effect of the acquisition is not material.
Simultaneously, due to FCC ownership limitations, the Company sold isix radio stations in Missoula, MT for an immaterial amount
and has placed ione radio station in Tri-Cities, WA in a divestiture trust. On July 19, 2022, the Company acquired a radio station in Tri-Cities, WA for an immaterial amount. As of July 19, 2022, we now own i357
local terrestrial radio stations in i74 markets.
12
Note 5. iProperty
and Equipment, net
i
Property and equipment, net consisted of the following (in thousands):
Depreciation
and amortization expense for property and equipment was $i4.0 million and $i4.7 million for the three months ended June 30, 2022 and 2021,
respectively $i8.5 million and $i9.2 million for the six months ended June 30, 2022 and 2021, respectively.
During
the three months ended June 30, 2022, the Company entered into an agreement to sell land and a building in Quincy-Hannibal, IL. The Company recognized $i0.8 million in impairment charges related to the agreement. There were iino/
impairment charges related to long-lived assets for the three and six months ended June 30, 2021.
On June 24, 2022, the Company executed a lease for office space of approximately i11,900 square feet in Phoenix, AZ, in order to support the growth of the Subscription Digital Marketing Solutions segment. The lease is expected to commence
sometime during the third quarter of 2022 and has an ieleven-year term, with the option to extend the lease for itwo consecutive ifive-year
periods.
Indefinite-lived assets consist of FCC broadcast licenses, goodwill and investment in digital assets.
FCC Broadcast Licenses
FCC licenses represent a substantial portion of the Company’s total assets. The FCC licenses are renewable in the ordinary course of business, generally for a maximum of ieight
years. The fair value of FCC licenses is primarily dependent on the future cash flows of the radio markets and other assumptions, including, but not limited to, forecasted revenue growth rates, profit margins and a risk-adjusted discount rate. The Company has selected December 31st as the annual testing date.
The Company evaluates its FCC licenses for impairment annually or more frequently if events or changes in circumstances indicate that the assets might be impaired. Due to changes in forecasted traditional broadcast revenue in the markets in which we operate in and increases in the weighted average cost of capital, the
Company quantitatively evaluated the fair value of its FCC licenses at June 30 and March 31, 2022.
iThe key assumptions used in applying the direct valuation method as of June 30, 2022 and March 31, 2022, respectively, are summarized as follows:
*Market share assumption used when reliable third-party data is available. Otherwise, Company results and forecasts are utilized.
Based on the results of the interim impairment assessment of our FCC licenses as of June 30, 2022 we incurred an impairment charge of $ii5.2/
million for FCC licenses in i6 of our i74 local markets for the three and six months ended June 30, 2022. The impairment charge was primarily driven by
increases in the discount rate applied in the valuation of our FCC licenses due to an increase in the weighted average cost of capital and the estimate of initial capital costs due to rising prices. The Company recorded no impairment charges on its FCC licenses for the three and six months ended June 30, 2021.
Unfavorable changes in key assumptions utilized in the impairment assessment of our FCC licenses may affect future testing results. For example, keeping all other assumptions constant, a i100-basis
point increase in the weighted average cost of capital as of the date of our last quantitative assessment would cause the estimated fair values of our FCC licenses to decrease by $i59.0 million, which would have resulted in an impairment charge of $i20.0 million.
Assumptions used to estimate the fair value of our FCC licenses are also dependent upon the expected performance and growth of our traditional broadcast operations. In the event our broadcast revenue experiences actual or anticipated declines, such declines will have a negative impact on the estimated fair value of our FCC licenses, and the Company could recognize additional impairment charges, which could be material.
Goodwill
For goodwill impairment testing, the Company has selected December 31st as the annual testing date. In addition
to the annual impairment test, the Company regularly assesses whether a triggering event has occurred, which would require interim impairment testing. As of December 31, 2021, the fair values of our National Digital, Townsquare Ignite, Analytical Services, Townsquare Interactive and Live Events reporting units were in excess of their respective carrying values by approximately i703%, i164%,
i281%, i497% and i117%,
respectively. The local advertising businesses reporting unit had ino goodwill as of December 31, 2021.
The Company considered whether any events have occurred or circumstances have changed from the last quantitative analysis performed as of December 31, 2021 that would indicate that the fair value of the
Company's reporting units may be below their carrying amounts. Based on such analysis, the Company determined that there have been no indicators that the fair value of its reporting units may be below their carrying amounts as of June 30, 2022.
iChanges in the carrying value of the Company's
goodwill by segment during the six months ended June 30, 2022 are summarized as follows (in thousands):
(1)
Based on the preliminary purchase price allocation. For further information see Note 4, Acquisitions and Divestitures.
Digital Assets
During the first quarter of 2022, the Company invested an aggregate of $i5.0 million in digital assets. They are accounted for as indefinite-lived
intangible assets in accordance with ASC 350, Intangibles - Goodwill and Other, included as a component of intangible assets, net on the Consolidated Balance Sheet. We have ownership of and control over our digital assets and we use third-party custodial services to secure it. Any decrease in the digital assets' fair values below our carrying values at any time subsequent to acquisition requires the Company to recognize impairment charges. No upward revisions for any market price increases are recognized until a sale of the digital assets occurs.
The fair value of the digital assets was based upon quoted prices (unadjusted) on the active exchange that the Company determined was the principal market for our digital
assets, Level 1 measurements under the fair value measurement hierarchy established under Fair Value Measurement (Topic 820). The Company performed an analysis to identify whether events or changes in circumstances, principally decreases in the quoted prices on the active exchange, indicated that it was more likely than not that our digital assets were impaired. In determining if an impairment had occurred, the Company considered the lowest market price of one unit of digital asset quoted on the active exchange since the date the Company acquired the digital assets. Any observed declines in the market values of our digital assets below their current carrying values
results in an impairment loss equal to the difference between the digital assets carrying values and the lowest observed market price, even if the overall market values of these assets subsequently increase.
During the three and six months ended June 30, 2022, the Company recorded $i2.2 million and $i2.6 million,
respectively, in impairment losses resulting from changes in the fair value of the Company's digital assets observed during the period. As of June 30, 2022, the carrying value of the Company's digital assets is $i2.4 million. The Company views its investment in digital assets as liquid due to the ability to
readily convert the investment to cash through sale on an active exchange. The Company may decrease its holdings of digital assets at any time based on our view of market conditions.
Definite-lived intangible assets
The Company’s definite-lived intangible assets were acquired primarily in various acquisitions as well as in connection with the acquisition of software and music licenses.
Content Rights
The
Company enters into multi-year content licensing agreements pursuant to which the Company is required to make payments over the term of the license agreement. These licensing agreements are accounted for as a license of program material in accordance with ASC 920-350, Broadcasters - Intangibles - Goodwill and Other. The Company capitalizes the content licenses and records a related liability at fair value, which includes a discount, on the effective date of the respective license agreement. Amortization of capitalized content licenses is included as a component of direct operating expenses in the Consolidated Statement of Operations. The difference between the gross and net liability is amortized over the term of the license agreements and reflected as a component of interest expense.
15
ii
The
following tables present details of our intangible assets as of June 30, 2022 and December 31, 2021, respectively (in thousands):
Amortization
for definite-lived intangible assets was $i1.4 million and $i0.3 million for the three months ended June
30, 2022 and 2021, respectively and $i2.5 million and $i0.6 million for the six months ended
June 30, 2022 and 2021, respectively.
i
Estimated future amortization expense for each of the five succeeding fiscal years and thereafter as of June 30, 2022 is as follows (in thousands):
2022
(remainder)
$
i2,899
2023
i5,533
2024
i4,865
2025
i1,653
2026
i1,653
Thereafter
i3,799
$
i20,402
/
Note
7. iInvestments
Long-term investments consists of minority holdings in various companies. As management does not exercise significant control over operating and financial policies of the investees, the investments are not consolidated or accounted for under the equity method of accounting. The initial valuation of equity securities is based upon an estimate of market value at the time of
investment, or upon a combination of valuation analyses using both observable and unobservable inputs categorized as Level 2 and Level 3 within the ASC 820 framework, respectively.
16
In accordance with ASC 321, Investments - Equity Securities, the Company measures its equity securities at cost minus impairment, as their fair values are not readily determinable and the investments do not qualify for the net asset value per share practical expedient. The Company monitors its investments for any subsequent observable price changes in orderly transactions for the
identical or a similar investment of the same investee, at which time the Company would adjust the then current carrying values of the related investment. Additionally, the Company evaluates its investments for any indicators of impairment.
Equity securities measured at cost minus impairment
During the six months ended June 30, 2022, the Company acquired a total additional $i1.5 million
interest in two existing investees. During the three months ended June 30, 2022, the Company recorded a $i1.2 million impairment charge for an existing investee based on the implied fair value of the investee as a result of a private transaction.
There
were iino/
impairment charges recorded for the three and six months ended June 30, 2021, respectively.
Equity securities measured at fair value
On July 2, 2021, one of the Company's investees completed its registration with the SEC and became a publicly traded company. Based on the market price of the investee's common stock as of June 30, 2022, the fair value of the Company's investment in the common stock of the investee was approximately $i1.2 million
resulting in a total unrealized loss of $i0.7 million and $i2.2 million during the three and six months ended June
30, 2022, respectively. Unrealized loss is included as a component of other expense (income) on the Unaudited Consolidated Financial Statements. The market price of the investee's common stock is categorized as Level 1 within the ASC 820 framework.
Note 8. iLong-Term Debt
i
Total
debt outstanding is summarized as follows (in thousands):
During
the three months ended June 30, 2022, the Company voluntarily repurchased an aggregate $i19.2 million principal amount of its 2026 Notes at or below par, plus accrued interest. The Company wrote-off approximately $i0.3 million
of unamortized deferred financing costs, recognizing a total net gain of $i0.1 million in connection with the voluntary repurchases of its 2026 Notes. The repurchased notes were canceled by the Company.
The 2026 Notes indenture contains certain covenants that may limit, among other things, our ability
to; incur additional indebtedness, declare or pay dividends, redeem stock, transfer or sell assets, make investments or agree to certain restrictions on the ability of restricted subsidiaries to make payments to the Company. Certain of these covenants will be suspended if the 2026 Notes are assigned an investment grade rating by Standard & Poor’s Investors Ratings Services, Moody’s Investors Service, Inc. or Fitch Ratings, Inc. and no event of default has occurred and is continuing.
As of June 30, 2022, based on available market information, the estimated fair value of the 2026 Notes was $i473.7 million. The Company used Level 2 measurements under the fair value measurement hierarchy established under Fair Value Measurement (Topic 820).
iAnnual
maturities of the Company's long-term debt as of June 30, 2022 are as follows (in thousands):
17
2022 (remainder)
$
i—
2023
i—
2024
i—
2025
i—
2026
i530,766
$
i530,766
Note
9. iIncome Taxes
The Company's effective tax rate for the three months ended June 30, 2022 and 2021 was approximately i19.7%
and i28.3%, respectively. The Company's effective tax rate for the six months ended June 30, 2022 and 2021 was approximately i25.8%
and i43.7%, respectively. The decrease in the effective tax rate for the three and six months ended June 30, 2022 is primarily driven by discrete items for the period, including unrealized losses on investments in equity securities and adjustments to the valuation allowance for certain state interest expense carryforwards.
The effective tax rate may vary significantly from period to period, and can be influenced by many factors. These
factors include, but are not limited to, changes to the statutory rates in the jurisdictions where the Company has operations and changes in the valuation of deferred tax assets and liabilities. The difference between the effective tax rate and the federal statutory rate of 21% primarily relates to certain non-deductible items, state and local income taxes and the valuation allowance for deferred tax assets.
18
Note 10. iNet
Income Per Share
Basic earnings per common share (“EPS”) is generally calculated as income available to common shareholders divided by the weighted average number of common shares outstanding. Diluted EPS is generally calculated as income available to common shareholders divided by the weighted average number of common shares outstanding plus the dilutive effect of common share equivalents.
i
The following table
sets forth the computations of basic and diluted net income per share for the three and six months ended June 30, 2022 and 2021 (in thousands, except per share data):
Weighted
average shares of common stock outstanding
i16,986
i16,087
i16,891
i17,187
Weighted
average shares of participating securities outstanding
i—
i163
i—
i3,474
Total
weighted average basic shares outstanding
i16,986
i16,250
i16,891
i20,661
Effect
of dilutive common stock equivalents
ii1,709/
i2,587
ii2,286/
i2,069
Weighted
average diluted common shares outstanding
i18,695
i18,837
i19,177
i22,730
Basic
income per share:
Attributable to common shares
$
i0.26
$
i0.58
$
i0.39
$
i0.14
Attributable
to participating shares (1)
$
i—
$
i0.58
$
i—
$
i0.14
Diluted
income per share
$
i0.24
$
i0.50
$
i0.35
$
i0.13
(1)
On March 9, 2021, the Company repurchased i8,814,980 warrants outstanding from Oaktree. On August 16, 2021, a warrant holder exercised i152,074
warrants, and on December 14, 2021, a warrant holder exercised i10,622 warrants, each as more fully discussed in Note 11, Stockholders' Equity, included in the Company's 2021 Annual Report on Form 10-K. For the three and six months ended June 30, 2022, there were no warrants outstanding. Income (loss) attributable
to participating shares and diluted income (loss) per share for 2021 was calculated utilizing the weighted-average method, as applicable.
The Company had the following dilutive securities that were not included in the computation of diluted net income per share as they were considered anti-dilutive (in thousands):
Operating segments are organized internally by type of products and services provided. Based on the information reviewed by the Company's CEO in his capacity as CODM, the Company has identified iithree/
segments: Subscription Digital Marketing Solutions, Digital Advertising and Broadcast Advertising. The remainder of our business is reported in the Other category.
The Company operates in ione geographic area. The Company's assets and liabilities are managed within markets outside the top 50 across the United States where
the Company conducts its business and are reported internally in the same manner as the Consolidated Financial Statements; thus, no additional information regarding assets and liabilities of the Company’s reportable segments is produced for the Company's CEO or included in these Consolidated Financial Statements. Intangible assets consist principally of FCC broadcast licenses and other definite-lived intangible assets and primarily support the Company’s Broadcast Advertising segment. For further information see Note 6, Goodwill and Other Intangible Assets, Net. The
Company does not have any material inter-segment sales.
The Company's management evaluates segment operating income, which excludes unallocated corporate expenses and the impact of certain items that are not directly attributable to the reportable segments' underlying operating performance, and primarily includes expenses related to corporate stewardship and administration activities, transaction related costs and non-cash impairment charges.
i
The
following tables present the Company's reportable segment results for the three months ended June 30, 2022 (in thousands):
Subscription
Digital Marketing Solutions
Digital Advertising
Broadcast Advertising
Other
Corporate and Other Reconciling Items
Total
Net revenue
$
i22,983
$
i37,198
$
i56,975
$
i4,768
$
i—
$
i121,924
Direct
operating expenses, excluding depreciation, amortization and stock-based compensation
i16,293
i26,104
i37,542
i3,894
i—
i83,833
Depreciation
and amortization
i313
i145
i3,157
i49
i650
i4,314
Corporate
expenses
i—
i—
i—
i—
i5,739
i5,739
Stock-based
compensation
i133
i15
i84
i3
i604
i839
Transaction
and business realignment costs
i—
i—
i—
i6
i818
i824
Impairment
of long-lived assets, intangible assets and investments
i—
i—
i5,951
i—
i3,468
i9,419
Net
loss on sale and retirement of assets
i—
i—
i89
i—
i—
i89
Operating
income (loss)
$
i6,244
$
i10,934
$
i10,152
$
i816
$
(i11,279)
$
i16,867
/
20
The
following table presents the Company's reportable segment results for the three months ended June 30, 2021 (in thousands):
Subscription
Digital Marketing Solutions
Digital Advertising
Broadcast Advertising
Other
Corporate and Other Reconciling Items
Total
Net revenue
$
i20,220
$
i29,655
$
i56,422
$
i1,041
$
i—
$
i107,338
Direct
operating expenses, excluding depreciation, amortization and stock-based compensation
i14,125
i19,731
i37,045
i690
i—
i71,591
Depreciation
and amortization
i281
i112
i3,258
i41
i1,304
i4,996
Corporate
expenses
i—
i—
i—
i—
i5,452
i5,452
Stock-based
compensation
i128
i11
i63
i3
i689
i894
Transaction
and business realignment costs
i—
i—
i—
i4
i452
i456
Impairment
of long-lived and intangible assets
i—
i—
i—
i—
i95
i95
Net
loss on sale and retirement of assets
i—
i—
i—
i—
i34
i34
Operating
income (loss)
$
i5,686
$
i9,801
$
i16,056
$
i303
$
(i8,026)
$
i23,820
The
following tables present the Company's reportable segment results for the six months ended June 30, 2022 (in thousands):
Subscription
Digital Marketing Solutions
Digital Advertising
Broadcast Advertising
Other
Corporate and Other Reconciling Items
Total
Net revenue
$
i44,833
$
i66,437
$
i105,180
$
i5,716
$
i—
$
i222,166
Direct
operating expenses, excluding depreciation, amortization and stock-based compensation
i31,769
i47,115
i73,980
i4,732
i—
i157,596
Depreciation
and amortization
i590
i210
i6,302
i87
i1,890
i9,079
Corporate
expenses
i—
i—
i—
i—
i10,148
i10,148
Stock-based
compensation
i265
i30
i171
i6
i1,236
i1,708
Transaction
and business realignment costs
i—
i—
i—
i12
i1,264
i1,276
Impairment
of long-lived assets, intangible assets and investments
i—
i—
i5,958
i120
i3,819
i9,897
Net
gain on sale and retirement of assets
i—
i—
(i183)
i—
(i36)
(i219)
Operating
income (loss)
$
i12,209
$
i19,082
$
i18,952
$
i759
$
(i18,321)
$
i32,681
21
The
following tables present the Company's reportable segment results for the six months ended June 30, 2021 (in thousands):
Subscription
Digital Marketing Solutions
Digital Advertising
Broadcast Advertising
Other
Corporate and Other Reconciling Items
Total
Net revenue
$
i39,217
$
i54,731
$
i101,108
$
i1,043
$
i—
$
i196,099
Direct
operating expenses, excluding depreciation, amortization and stock-based compensation
i27,190
i37,543
i70,627
i758
i—
i136,118
Depreciation
and amortization
i697
i335
i6,529
i86
i2,078
i9,725
Corporate
expenses
i—
i—
i—
i—
i9,586
i9,586
Stock-based
compensation
i283
i32
i190
i9
i1,442
i1,956
Transaction
and business realignment costs
i—
i—
i—
i18
i5,343
i5,361
Impairment
of long-lived and intangible assets
i—
i—
i—
i—
i95
i95
Net
loss on sale and retirement of assets
i—
i—
i—
i—
i627
i627
Operating
income (loss)
$
i11,047
$
i16,821
$
i23,762
$
i172
$
(i19,171)
$
i32,631
22
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following management’s discussion and analysis is intended to provide the reader with an overall understanding of our financial condition, results of operations, cash flows and sources and uses of cash. This section also includes general information about our business and a discussion of our management’s analysis of certain trends, risks and opportunities in our industry. In addition, we also provide a discussion of accounting policies that require critical judgments and estimates. This discussion should be read in conjunction with our Unaudited Consolidated Financial Statements and related notes appearing elsewhere in this quarterly report.
Note
About Forward-Looking Statements
This report includes estimates, projections, statements relating to our business plans, objectives and expected operating results that are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Forward-looking statements often discuss our current expectations and projections relating to our financial condition, results of operations, plans, objectives, future performance and business. You can identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. These statements may include words such as “aim,”“anticipate,”“estimate,”“expect,”“forecast,”“outlook,”“potential,”“project,”“projection,”“plan,”“intend,”“seek,”“believe,”“may,”“could,”“would,”“will,”“should,”“can,”“can have,”“likely,” the negatives thereof and other words and terms. Actual events or results may differ materially from the results anticipated in these forward-looking statements as a result of a variety of factors. While it is impossible to identify all such factors, factors that could cause actual results to differ materially from those estimated by us include the impact of general economic conditions in the United States, or in the specific markets in which we currently do business including supply chain disruptions, inflation, labor shortages and the effect on advertising activity,industry conditions, including existing competition and future competitive technologies, the popularity of
radio as a broadcasting and advertising medium, cancellations, disruptions or postponements of advertising schedules in response to national or world events, including the COVID-19 pandemic, our ability to develop and maintain digital technologies and hire and retain technical and sales talent, our dependence on key personnel, our capital expenditure requirements, our continued ability to identify suitable acquisition targets, and consummate and integrate any future acquisitions, legislative or regulatory requirements, risks and uncertainties relating to our leverage and changes in interest rates, our ability to obtain financing at times, in amounts and at rates considered appropriate by us, our ability to access the capital markets as and when needed and on terms that we consider favorable to us and other factors discussed in this section entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this report and under
“Risk Factors” in our 2021 Annual Report on Form 10-K, as well as other risks discussed from time to time in our filings with the SEC. Many of these factors are beyond our ability to predict or control. In addition, as a result of these and other factors, our past financial performance should not be relied on as an indication of future performance. The cautionary statements referred to in this section also should be considered in connection with any subsequent written or oral forward-looking statements that may be issued by us or persons acting on our behalf. The forward-looking statements included in this report are made only as of the date hereof or as of the date specified herein. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Format
of Presentation
Townsquare is a community-focused digital media and digital marketing solutions company with market leading local radio stations, principally focused outside the top 50 markets in the United States. Our integrated and diversified products and solutions enable local, regional and national advertisers to target audiences across multiple platforms, including digital, mobile, social, video, streaming, e-commerce, radio and events. Our assets include a subscription digital marketing services business (“Townsquare Interactive”), providing website design, creation and hosting, search engine optimization, social platforms and online reputation management as well as other monthly digital services for approximately 29,000 small to
medium sized businesses; a robust digital advertising division (“Townsquare Ignite,” or “Ignite”), a powerful combination of a) an owned and operated portfolio of more than 400 local news and entertainment websites and mobile apps along with a network of leading national music and entertainment brands, collecting valuable first party data and b) a proprietary digital programmatic advertising technology stack with an in-house demand and data management platform; and a portfolio of 356 local terrestrial radio stations in 74 U.S. markets strategically situated outside the Top 50 markets in the United States. Our portfolio includes local media brands such as WYRK.com, WJON.com and NJ101.5.com,and premier
national music brands such as XXLmag.com, TasteofCountry.com, UltimateClassicRock.com, and Loudwire.com.
23
We believe that our diversified product offering substantially differentiates us from our competition. This diversification allows us to provide superior solutions to our advertisers and engaging experiences for our audience, underpins our growth strategy and, we believe, helps to mitigate the risks associated with advertising revenue dependency.
The Company has identified three operating
segments, which are Subscription Digital Marketing Solutions, Digital Advertising and Broadcast Advertising. The remainder of our business is reported in the Other category.
Subscription Digital Marketing Solutions
Our Subscription Digital Marketing Solutions segment encompasses Townsquare Interactive, our subscription digital marketing solutions business. Townsquare Interactive offers digital marketing solutions, on a subscription basis, to small and medium-sized business (“SMBs”) in markets outside the top 50 across the United States, including but importantly not limited to the markets in which we operate radio stations. We offer a variety of digital marketing solutions, which enables SMBs to choose the optimal features for their specific business.
Digital
Advertising
Our Digital Advertising segment, marketed externally as Townsquare Ignite, is a combination of our owned and operated digital properties, our proprietary digital programmatic advertising platform, and an in-house demand and data management platform collecting valuable first party data.
Broadcast Advertising
Our primary source of Broadcast Advertising net revenue is the sale of advertising on our local radio stations to local, regional and national spot advertisers, and national network advertisers. We believe we are the largest and best-capitalized owner and operator of radio stations focused solely on markets outside the top 50 markets in the United States. Given the stability of radio’s audience, its broad reach and
its relatively low cost as compared to competing advertising media such as television, we believe radio continues to offer an attractive value proposition to advertisers. The price point for radio advertising on a cost per thousand basis is lower than most other local media that deliver similar scale. This makes radio more affordable and accessible for the type of small and mid-sized businesses typically found in our local markets outside the top 50 markets in the U.S.
Other
We report the remainder of our revenue in the Other category, and it includes revenue from our live events. Our primary source of live events net revenue is ticket sales. Our live events also generate substantial revenue through the sale of sponsorships, food and other concessions, merchandise and other ancillary products and services.
Due to the COVID-19 pandemic we cancelled the majority of scheduled live events in 2020, and operated a significantly reduced schedule in 2021. We are operating more events in 2022, however, we are still below historical levels.
Overall
We generate a majority of our advertising revenue by selling directly to local advertisers, as well as to local and regional advertising agencies which affords us the opportunity to better present our products, cross-sell products and more directly influence their advertising and marketing expenditure decisions. A significant percentage of our advertising revenue is generated from the sale of advertising to the automotive, financial services, health services, entertainment, and retail industries.
Our
most significant expenses are sales personnel, programming, digital, marketing and promotional, engineering, and general and administrative expenses. We strive to control these expenses by closely monitoring and managing each of our local markets and through efficiencies gained from the centralization of finance, accounting, legal and human resources functions and management information systems. We also use our scale and diversified geographic portfolio to negotiate favorable rates with vendors where feasible.
A portion of our expenses are variable. These variable expenses primarily relate to sales costs, such as commissions and inventory costs, as well as certain programming costs, such as music license fees, and certain costs related to production. Other programming, digital, engineering and general and administrative expenses are primarily fixed costs.
24
Seasonality
Our
revenue varies throughout the year. Typically, we expect that our first calendar quarter will produce the lowest net revenue for the year, as advertising expenditures generally decline following the winter holidays. During even-numbered years, net revenue generally includes increased advertising expenditures by political candidates, political parties and special interest groups. Political spending is typically highest during the fourth quarter. Our operating results in any period may be affected by the incurrence of advertising and promotion expenses that typically do not have an effect on net revenue generation until future periods, if at all.
Macroeconomic Indicators
The U.S. economy
and financial markets may continue to experience volatility due to the COVID-19 pandemic, including as a result of the development of COVID-19 variants, vaccination rates and government legislative and regulatory responses. The effects of the COVID-19 pandemic began to impact our operations in early March 2020, and included significant advertising cancellations and material declines in the purchase of new advertising by our clients, impairments to the carrying values of our FCC licenses and the cancellation of live events. As local public health conditions improved, our advertising revenue also improved.
The continued impact of the COVID-19 pandemic, including any increases in infection rates, new variants, further actions taken to mitigate the impact of the pandemic and the pace of continued economic recovery cannot be estimated.
OVERVIEW
OF OUR PERFORMANCE
Changes in our Business
Acquisition of Cherry Creek
On March 24, 2022, the Company executed an asset purchase agreement to acquire Cherry Creek Broadcasting LLC (“Cherry Creek”). Following regulatory approval, the acquisition was completed on June 17, 2022 for a cash purchase price of $18.4 million, net of closing adjustments. The results of Cherry Creek's operations have been included in our Unaudited Consolidated Financial Statements, following the closing of the acquisition on June 17, 2022. Pro forma information
has not been presented because the effect of the acquisition is not material. For further discussion on the Cherry Creek acquisition, see Note 4, Acquisitions and Divestitures in the Notes to Unaudited Consolidated Financial Statements.
Highlights of Our Financial Performance
Certain key financial developments in our business for the three months ended June 30, 2022 as compared to the same period in 2021 are summarized below:
•Net revenue increased $14.6 million, or 13.6%, primarily driven by a $7.5 million increase in our Digital Advertising net revenue, a $2.8 million increase in our Subscription Digital Marketing Solutions net revenue
as a result of additional subscribers, and a $3.7 million increase in our Other net revenue due to live events held during the period.
•Operating income decreased $7.0 million, or 29.2%, for the three months ended June 30, 2022. Operating income decreased due to higher direct operating expenses to support the growth of our digital segments and total non-cash impairment charges in the amount of $9.4 million. These decreases were offset by a $14.6 million increase in net revenue.
•The Digital Advertising segment reported operating income of $10.9 million for the three months ended June 30, 2022, which represents an increase of $1.1 million, as compared to operating
income of $9.8 million for the same period in 2021. The increase is primarily due to an increase in net revenue of $7.5 million, partially offset by an increase of $6.4 million in direct operating expenses. Subscription Digital Marketing Solutions reported operating income of $6.2 million, an increase of $0.6 million from the three months ended June 30, 2021, primarily due to growth in net subscribers. Increases in operating income were offset by a decrease in Broadcast Advertising operating income of $5.9 million, primarily due to non-cash impairment charges to our FCC licenses.
25
Certain
key financial developments in our business for the six months ended June 30, 2022, as compared to the same period in 2021 are summarized below:
•Net revenue for the six months ended June 30, 2022 as compared to the same period in 2021, increased $26.1 million, or 13.3%, primarily driven by a $11.7 million increase in our Digital Advertising net revenue, an increase of $5.6 million in our Subscription Digital Marketing Solutions net revenue as a result of additional subscribers, an increase of $4.7 million in our Other net revenue due to live events held during the period, and a $4.1 million increase in our Broadcast Advertising net revenue.
•Operating income
increased $0.1 million, or 0.2%, for the six months ended June 30, 2022. Operating income increased due to an increase in net revenue of $26.1 million and a decrease in transaction and business realignment costs of $4.1 million, partially offset by a $21.5 million increase in direct operating expenses and an increase in impairment charges of $9.8 million.
•Cash and cash equivalents decreased $27.7 million from $50.5 million as of December 31, 2021 to $22.8 million as of June 30, 2022, primarily due to the acquisition of Cherry Creek for a cash purchase price of $18.4 million, net of closing adjustments, and total repurchases of $19.2 million of our 2026 Notes, at or below par, during the second quarter of 2022.
The following table summarizes our historical consolidated results of operations:
($
in thousands)
Three Months Ended June 30,
Statement of Operations Data:
2022
2021
$ Change
% Change
Net revenue
$
121,924
$
107,338
$
14,586
13.6
%
Operating
costs and expenses:
Direct operating expenses, excluding depreciation, amortization, and stock-based compensation
83,833
71,591
12,242
17.1
%
Depreciation and amortization
4,314
4,996
(682)
(13.7)
%
Corporate
expenses
5,739
5,452
287
5.3
%
Stock-based compensation
839
894
(55)
(6.2)
%
Transaction
and business realignment costs
824
456
368
80.7
%
Impairment of long-lived assets, intangible assets and investments
9,419
95
9,324
**
Net
loss on sale and retirement of assets
89
34
55
161.8
%
Total operating costs and expenses
105,057
83,518
21,539
25.8
%
Operating
income
16,867
23,820
(6,953)
(29.2)
%
Other expense (income):
Interest expense, net
10,044
9,809
235
2.4
%
Gain
on repurchases of debt
(108)
—
(108)
**
Other expense (income), net
806
(40)
846
**
Income from operations before tax
6,125
14,051
(7,926)
(56.4)
%
Income
tax provision
1,206
3,977
(2,771)
(69.7)
%
Net
income
$
4,919
$
10,074
$
(5,155)
(51.2)
%
** not meaningful
Segment Results
The following table presents the Company's reportable segment net revenue and direct
operating expenses for the three months ended June 30, 2022 and 2021 (in thousands):
Net revenue for the three months ended June 30, 2022 increased $14.6 million, or 13.6%, as compared to the same period in 2021. Our Digital Advertising net revenue for the three months ended June 30, 2022 increased $7.5 million, or 25.4%, and our Subscription Digital Marketing Solutions net revenue for the three months ended June 30, 2022 increased $2.8 million, or 13.7%, as compared to the same period in 2021 due in part to the addition of approximately 1,150 net subscribers during the second quarter of 2022.
Our Other net revenue increased $3.7 million due to an increase in the number of live events held in the current period and our Broadcast Advertising
net revenue increased $0.6 million, or 1.0%, as compared to the same period in 2021, due to increases in the purchase of new advertising by our clients.
Direct Operating Expenses
Direct operating expenses for the three months ended June 30, 2022 increased by $12.2 million, or 17.1%, as compared to the same period in 2021. Our Digital Advertising direct operating expenses for the three months ended June 30, 2022 increased $6.4 million, or 32.3%, while our Subscription Digital Marketing Solutions direct operating expenses for the three months ended June 30, 2022 increased $2.2 million, or 15.3%, as compared to the same period in 2021. The increase was primarily
driven by increases in headcount related expenses to support revenue and subscriber growth. Our Other direct operating expenses increased $3.2 million due to an increase in live events during the period, as compared to the same period a year ago.
Depreciation and Amortization
Depreciation and amortization expense for the three months ended June 30, 2022 decreased $0.7 million, or 13.7%, as compared to the same period in 2021, due to decreases in the amortization of software development costs, partially offset by amortization of content rights.
Corporate Expenses
Corporate expenses are of
a general corporate nature or managed on a corporate basis. These costs (net of allocations to the business segments) primarily represent corporate stewardship and administration activities. Corporate expenses for the three months ended June 30, 2022 increased $0.3 million, or 5.3%, as compared to the same period in 2021 primarily due to higher professional fees.
Transaction and Business Realignment Costs
Transaction and business realignment costs for the three months ended June 30, 2022 increased $0.4 million as compared to the same period in 2021, primarily due to the acquisition of Cherry Creek.
Impairment of Long-Lived
Assets, Intangible Assets and Investments
The Company recorded total impairment charges of $9.4 million related to our long-lived and intangible assets, and investments during the three months ended June 30, 2022. We recorded an impairment charge of $5.2 million related to FCC licenses in 6 of our 74 local markets during the quarter ended June 30, 2022, as compared to no impairment charges to FCC licenses in the same period a year ago. The impairment charge was primarily driven by increases in the discount rate applied in the valuation of our FCC licenses due to an increase in the weighted average cost of capital and the estimate of initial capital costs due to rising prices. We recorded a $2.2 million
impairment charge resulting from changes in the fair value of the Company's digital assets. For further discussion, see Note 6, Goodwill and Other Intangible Assets in the Notes to Unaudited Consolidated Financial Statements. The Company recorded an impairment charge of $1.2 million related to one of our investments during the three months ended June 30, 2022. For further discussion, see Note 7, Investments in the Notes to Unaudited Consolidated Financial Statements. The Company recorded an impairment charge of $0.8 million related to the pending sale of land and a building
in Quincy-Hannibal, IL, during the three months ended June 30, 2022.
28
Unfavorable changes in key assumptions utilized in the impairment assessment of our FCC licenses may affect future testing results. For example, keeping all other assumptions constant, a 100-basis point increase in the weighted average cost of capital as of the date of our last quantitative assessment would cause the estimated fair values of our FCC licenses to decrease by $59.0 million, which would have resulted in an impairment charge of $20.0 million. Assumptions used to estimate the fair value of our FCC licenses are also dependent upon the expected performance and growth of our traditional broadcast operations.
In the event our broadcast revenue experiences actual or anticipated declines, such declines will have a negative impact on the estimated fair value of our FCC licenses, and the Company could recognize additional impairment charges, which could be material.
Interest Expense, net
The following table illustrates the components of our interest expense, net for the periods indicated (in thousands):
During the three months ended June 30, 2022, the Company voluntarily repurchased an aggregate $19.2 million principal amount of its 2026 Notes at or below par, plus accrued interest. The Company wrote-off approximately $0.3 million of unamortized deferred financing costs, recognizing a total net gain of $0.1 million in connection with the voluntary repurchases of its 2026 Notes.
Other expense (income), net
Other expense (income), net includes unrealized losses related to measuring
the fair value of one of the Company's investees. Based on the market price of the investee's common stock as of June 30, 2022, the fair value of the Company's investment in the common stock of the investee was approximately $1.2 million, resulting in a net unrealized loss of $0.7 million during the three months ended June 30, 2022. See Note 7, Investments, in our Notes to Consolidated Financial Statements for further discussion related to this investment.
Provision for income taxes
We
recognized an income tax provision of $1.2 million for the three months ended June 30, 2022, as compared to $4.0 million for the same period in 2021. Our effective tax rate for the three months ended June 30, 2022 and 2021 was approximately 19.7% and 28.3%, respectively. The decrease in the effective tax rate is primarily driven by discrete items for the period, including unrealized losses on investments in equity securities and adjustments to the valuation allowance for certain state interest expense carryforwards.
Our effective tax rate may vary significantly from period to period and can be influenced by many factors. These factors include, but are not limited to, changes to statutory rates in the jurisdictions where we have operations
and changes in the valuation of deferred tax assets and liabilities. The difference between the effective tax rate and the federal statutory rate of 21%, primarily relates to certain non-deductible items, state and local income taxes and the valuation allowance for deferred tax assets.
The
following table summarizes our historical consolidated results of operations:
($ in thousands)
Six Months Ended June 30,
Statement of Operations Data:
2022
2021
$
Change
% Change
Net revenue
$
222,166
$
196,099
$
26,067
13.3
%
Direct
operating expenses, excluding depreciation, amortization, and stock-based compensation
157,596
136,118
21,478
15.8
%
Depreciation and amortization
9,079
9,725
(646)
(6.6)
%
Corporate
expenses
10,148
9,586
562
5.9
%
Stock-based compensation
1,708
1,956
(248)
(12.7)
%
Transaction
and business realignment costs
1,276
5,361
(4,085)
(76.2)
%
Impairment of long-lived assets, intangible assets and investments
9,897
95
9,802
**
Net
(gain) loss on sale and retirement of assets
(219)
627
(846)
**
Total operating costs and expenses
189,485
163,468
26,017
15.9
%
Operating
income
32,681
32,631
50
0.2
%
Other expense (income):
Interest expense, net
20,071
19,964
107
0.5
%
(Gain)
loss on repurchases, extinguishment and modification of debt
(108)
5,997
(6,105)
**
Other expense (income), net
2,394
(377)
2,771
**
Income
from operations before income taxes
10,324
7,047
3,277
46.5
%
Income tax provision
2,664
3,082
(418)
(13.6)
%
Net
income
$
7,660
$
3,965
$
3,695
93.2
%
** not meaningful
Segment Results
The following table presents the Company's
reportable segment net revenue and direct operating expenses for the six months ended June 30, 2022 and 2021 (in thousands):
Net revenue for the six months ended June 30, 2022, increased $26.1 million, or 13.3%, as compared to the same period in 2021. Our Digital Advertising net revenue for the six months ended June 30, 2022, increased $11.7 million, or 21.4% and our Subscription Digital Marketing Solutions net revenue for six months ended June 30, 2022 increased $5.6 million, or 14.3% as compared to the same period in 2021 due in part to the addition of approximately 2,200 net subscribers during the six months ended June 30, 2022.
Our Other net revenue increased $4.7 million due to the increase in live events held during the period,
as compared to the same period a year ago. Our Broadcast Advertising net revenue increase $4.1 million, or 4.0%, due to increases in the purchase of new advertising by our clients.
Direct Operating Expenses
Direct operating expenses for the six months ended June 30, 2022, increased by $21.5 million, or 15.8%, as compared to the same period in 2021. Our Digital Advertising direct operating expenses for six months ended June 30, 2022 increased $9.6 million, or 25.5%, while our Subscription Digital Marketing Solutions direct operating expenses for six months ended June 30, 2022 increased $4.6 million, or 16.8%, as compared to the same period in 2021. The increase
was primarily driven by increases in headcount related expenses to support revenue and subscriber growth.
Our Other direct operating expenses for the six months ended June 30, 2022, increased $4.0 million, as compared to the same period in 2021, due to an increase in live events during the period, as compared to the same period a year ago.
Depreciation and Amortization
Depreciation and amortization expense for the six months ended June 30, 2022, decreased $0.6 million, or 6.6%, as compared to the same period in 2021 due to decrease in the amortization of software development costs, partially offset by the amortization of
content rights.
Corporate Expenses
Corporate expenses are of a general corporate nature or managed on a corporate basis. These costs (net of allocations to the business segments) primarily represent corporate stewardship and administration activities. Corporate expenses for the six months ended June 30, 2022, increased $0.6 million, or 5.9%, as compared to the same period in 2021, primarily due to professional fees.
Transaction and Business Realignment Costs
Transaction and business realignment costs for the six months ended June 30, 2022,
decreased $4.1 million as compared to the same period in 2021, primarily due to $4.5 million paid under the terms of the March 2021 settlement agreement related to share repurchase with certain affiliates of Oaktree Capital Management L.P. (the “Settlement Agreement”), partially offset by approximately $1.0 million in acquisition costs incurred related to the Cherry Creek acquisition in 2022.
Impairment of Long-Lived Assets, Intangible Assets and Investments
The Company recorded total impairment charges of $9.9 million related to our long-lived and intangible assets, and investments during the six months ended June 30, 2022. We recorded an impairment charge of
$5.2 million related to FCC licenses in 6 of our 74 local markets during the quarter ended June 30, 2022, as compared to no impairment charges to FCC licenses in the same period a year ago. The impairment charge was primarily driven by increases in the discount rate applied in the valuation of our FCC licenses due to an increase in the weighted average cost of capital and the estimate of initial capital costs due to rising prices. We recorded $2.6 million in impairment losses during the six months ended June 30, 2022 resulting from changes in the fair value of the Company's digital assets. For further discussion, see Note 6, Goodwill and Other Intangible Assets in the Notes to Unaudited Consolidated Financial Statements. The
Company recorded an impairment charge of $1.2 million related to one of our investments. For further discussion, see Note 7, Investments in the Notes to Unaudited Consolidated Financial Statements. The Company recorded an impairment charge of $0.8 million related to the pending sale of land and a building in Quincy-Hannibal, IL.
31
Interest Expense, net
The following table illustrates the components of our interest expense, net for the periods indicated (in thousands):
During the six months ended June 30, 2022, the Company voluntarily repurchased an aggregate $19.2 million principal amount of its 2026 Notes at or below par plus accrued interest. The Company wrote-off approximately $0.3 million of unamortized
deferred financing costs, recognizing a total net gain of $0.1 million in connection with the voluntary repurchases of its 2026 Notes.
Other expense (income), net
Other expense (income), net includes unrealized gains related to measuring the fair value of one of the Company's investees. During the six months ended June 30, 2022, the Company recorded total unrealized losses of $2.2 million based on the market price of the investee's common stock. See Note 7, Investments, in our Notes to Consolidated Financial Statements for further discussion
related to this investment.
Provision for income taxes
We recognized an income tax provision of $2.7 million for the six months ended June 30, 2022, as compared to $3.1 million for the same period in 2021. Our effective tax rate for the period was approximately 25.8% for the six months ended June 30, 2022 as compared to 43.7% for the six months ended June 30, 2021. The decrease in the effective tax rate is primarily driven by discrete items for the period, including unrealized losses on investments in equity securities and adjustments to the valuation allowance for certain state interest expense carryforwards.
Our
effective tax rate may vary significantly from period to period and can be influenced by many factors. These factors include, but are not limited to, changes to statutory rates in the jurisdictions where we have operations and changes in the valuation of deferred tax assets and liabilities. The difference between the effective tax rate and the federal statutory rate of 21.0%, primarily relates to certain non-deductible items, state and local income taxes and the valuation allowance for deferred tax assets.
32
Liquidity and Capital Resources
The
following table summarizes our change in cash and cash equivalents (in thousands):
Net decrease in cash and cash equivalents and restricted cash
$
(27,680)
$
(58,083)
Operating Activities
Net cash provided by operating activities was $23.0 million for the six months ended June 30,
2022, as compared to $31.1 million for the same period in 2021. This decrease was primarily related to increases in payments for interest due to the February 1 interest payment on the 2026 Notes and increases in accounts receivable in 2022, as compared to 2021, due higher net revenue.
Investing Activities
Net cash used in investing activities was $30.5 million for the six months ended June 30, 2022 as compared to $4.1 million for the same period in 2021. The increase in net cash used in investing activities was primarily due to the acquisition of Cherry Creek for $18.4 million, net of closing adjustments, and purchases of digital assets in 2022.
Financing Activities
Net
cash used in financing activities was $20.2 million for the six months ended June 30, 2022, as compared to $85.2 million for the same period in 2021. Net cash used in financing activities in 2022 was primarily used for $18.9 million in voluntary repurchases of our 2026 Notes. Net cash used in financing activities in 2021 was primarily used for: the repayment of $557.4 million of principal amount of the 2023 unsecured senior notes and term loan facility, including total accrued interest of $7.2 million and a $4.4 million prepayment premium; cash consideration for the Company's repurchase of the outstanding shares and warrants of Oaktree in the amount of $80.4 million; partially offset by the issuance of $541.0 million of the 2026 Notes, net of fees and proceeds from stock option exercises.
Sources
of Liquidity and Anticipated Cash Requirements
We fund our working capital requirements through a combination of cash flows from our operating, investing, and financing activities. Based on current and anticipated levels of operations and conditions in our markets and industry, we believe that our cash on hand and cash flows from our operating, investing, and financing activities will enable us to meet our working capital, capital expenditures, debt service, and other funding requirements for at least one year from the date of this report. These historical sources of funds have been and could continue to be impacted by the COVID-19 pandemic. Future capital requirements may be materially different than those currently planned in our budgeting and forecasting activities and depend on many factors, some of which are beyond our control. In particular during the period of uncertainty related
to the COVID-19 pandemic, we have focused on and will continue to monitor our liquidity.
As of June 30, 2022, we had $523.4 million of outstanding indebtedness, net of deferred financing costs of $7.3 million.
Based on the terms of our 2026 Notes, as of June 30, 2022, we expect our debt service requirements to be approximately $36.5 million over the next twelve months. See Note 8, Long-Term Debt, in our Notes to Consolidated Financial Statements for additional information related to our 2026 Notes.
33
As
of June 30, 2022 we had $22.8 million of cash and cash equivalents, and $63.5 million of receivables from customers, which historically have had an average collection cycle of approximately 55 days. We had restricted cash of $0.5 million at June 30, 2022 and December 31, 2021, that was held as collateral in connection with certain agreements. From time to time, such restricted funds could be returned to us or we could be required to pledge additional cash.
During the first quarter of 2022, the Company invested an aggregate of $5.0 million in digital assets. The Company
may decrease its holdings of digital assets at any time based on our view of market conditions. For any digital assets held now or in the future, any declines in the market values of these assets below their current carrying values may result in non-cash impairment charges even if the overall market values of these assets subsequently increase. See Note 6, Goodwill and Other Intangible Assets, in our Notes to Consolidated Financial Statements for additional information related to our digital assets.
During the second quarter of 2022, the Company voluntarily repurchased an aggregate $19.2 million in principal amount of its 2026 Notes. The Company may repurchase additional
amounts in future periods.
Our anticipated uses of cash in the near term include working capital needs, interest payments, other obligations, and capital expenditures. The Company believes that the cash generated by its operations should be sufficient to meet its liquidity needs for at least the next 12 months. However, our ability to fund our working capital needs, debt payments, other obligations, capital expenditures, and to comply with financial covenants under our debt agreements, depends on our future operating performance and cash flow, which are in turn subject to prevailing economic conditions, increases or decreases in advertising spending, changes in the highly competitive industry in which we operate, which may be rapid, and other factors, many of which are beyond our control. To the extent
that current and anticipated future sources of liquidity are insufficient to fund our future business activities and requirements, we may be required to seek additional equity or debt financing. The sale of additional equity would result in additional dilution to our stockholders, while the incurrence of debt financing would result in debt service obligations. Such debt instruments also could introduce covenants that might restrict our operations. We cannot assure you that we could obtain additional financing on favorable terms or at all.
Additionally, on a continuing basis, we evaluate and consider strategic acquisitions and divestitures to enhance our strategic and competitive position as well as our financial performance. Any future acquisitions, joint ventures or other similar transactions may require additional capital, which may not be available to us on acceptable terms, if at
all.
We closely monitor the impact of capital and credit market conditions on our liquidity as it relates to our debt. We also routinely monitor the changes in the financial condition of our customers and the potential impact on our results of operations.
COVID-19 Response
In response to the challenges and uncertainty in the economy, financial markets, and the Company’s business brought on by the COVID-19 pandemic, we have maintained certain precautionary measures that were instituted in 2020 to address the potential impact to our consolidated financial position, consolidated results of operations, and liquidity. These precautionary
measures include the deferral of the payment of certain payroll taxes until December 31, 2022 under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).
Other Liquidity Matters
Material changes to ourcommitments from those included in our 2021 Annual Report on Form 10-K are discussed in Note 6, Goodwill and Other Intangible Assets - Content Rights, in our Notes to Consolidated Financial Statements.
Off-Balance Sheet Arrangements
We
have no material off-balance sheet arrangements or transactions.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. On an ongoing basis, we evaluate our significant estimates, including those related to determining the
34
fair value of assets
and liabilities acquired in a business combination, impairment testing of intangible assets, valuation and impairment testing of long-lived tangible assets, the present value of leasing arrangements, share-based payment expense and the calculation of allowance for doubtful accounts and income taxes. We base our estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the result of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Our estimates may change, however, as new events occur and additional information is obtained, and any such changes will be recognized in the Consolidated Financial Statements. Actual results could differ from such estimates, and any such differences may be material to our financial statements.
We believe
the accounting policies and estimates discussed within “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Annual Report on Form 10-K reflects our more significant judgments and estimates used in the preparation of the Consolidated Financial Statements. There have been no material changes to the critical accounting policies and estimates as filed in such report.
Recent Accounting Standards
For a discussion of accounting standards updates that have been adopted or will be adopted in the future, please refer to Note 2, Summary of Significant Accounting Policies of the Notes to Unaudited
Consolidated Financial Statements included under Item 1.
35
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e)
under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our principal executive officer and our principal financial officer have concluded that as of the end of the period covered by this report our disclosure controls and procedures were not effective as of June 30, 2022, because of a material weakness in our internal control over financial reporting. This control deficiency was identified following an internal review by BDO USA, LLP, the independent registered public accounting firm of the Company, of its 2021 audit of the Company’s consolidated financial statements as reported in the Company’s Annual Report on Form
10-K for the fiscal year ended December 31, 2021, originally filed with the SEC on March 16, 2022. The Company did not maintain adequate documentation of its testing of the functionality of a software package. Thus, the controls over the completeness and accuracy of information prepared by the Company that is used specific to a log produced by one of the Company’s automation systems were not operating effectively.
Notwithstanding this material weakness, the
Company has concluded that no material misstatements exist in the consolidated financial statements, in all material respects, the financial position of the Company as of June 30, 2022 and December 31, 2021, and the results of its operations and its cash flows for the three and six months ended June 30, 2022 and 2021 and for the year ended December 31, 2021, in conformity with accounting principles generally accepted in the United States of America. Accordingly, there are no changes to the Company’s previously reported consolidated financial statements
and earnings releases.
Plan for Remediation of Material Weakness
The Company and its Board of Directors are committed to maintaining a strong internal control environment. Management has evaluated the material weakness described above and has made significant progress updating its documentation of its testing of the impacted software package to remediate the control deficiency and enhance the Company’s internal control environment. Management is committed to successfully implementing the remediation plan as promptly as possible, and currently plans to evaluate its documentation of the testing of the impacted software package to determine whether the documentation
of its testing controls have operated effectively during the third and fourth quarter of 2022 to fully remediate the material weakness in the Company’s internal control over financial reporting.
Changes in Internal Control Over Financial Reporting
As required by Rule 13a-15(d) under the Exchange Act, our management, including our principal executive officer and principal financial officer, has evaluated our internal control over financial reporting to determine whether any changes to our internal control over financial reporting occurred during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting. Based on that evaluation, no significant changes to our internal control over financial reporting occurred during the quarter ended June 30, 2022.
Inherent Limitations on Effectiveness of Controls
There are inherent limitations in the effectiveness of any control system, including the potential for human error and the possible circumvention or overriding of controls and procedures. Additionally, judgments in decision-making can be faulty and breakdowns can occur because of a simple error or mistake. An effective control system can provide only reasonable, not absolute, assurance that the control objectives of the system are adequately met. Accordingly, the management of the
Company, including its Chief Executive Officer and Chief Financial Officer, does not expect that the control system can prevent or detect all error or fraud. Finally, projections of any evaluation or assessment of effectiveness of a control system to future periods are subject to the risks that, over time, controls may become inadequate because of changes in an entity’s operating environment or deterioration in the degree of compliance with policies or procedures.
36
PART II. OTHER INFORMATION
Item
1. Legal Proceedings
There is no current material pending litigation to which we are a party and no material legal proceedings were terminated, settled or otherwise resolved during the three and six months ended June 30, 2022. In the normal course of business, the Company is subject to various regulatory proceedings, lawsuits, claims and other matters related to intellectual property, personal injury, employee, or other matters. These matters are subject to many uncertainties and outcomes are not predictable with assurance. However, we do not believe that the ultimate resolution of these matters will have a material adverse effect on our financial position or results of operations.
Item
1A. Risk Factors
Please refer to Part I, Item 1A, “Risk Factors,” in our 2021 Annual Report on Form 10-K for information regarding known material risks that could affect our results of operations, financial condition and liquidity. In addition to these risks, other risks that we presently do not consider material, or other unknown risks, could materially adversely impact our business, financial condition and results of operations in a future period.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Share
Repurchase Program
In December 2021, our Board of Directors approved a 3-year share repurchase program for up to $50 million. The following table provides certain information with respect to the Company's purchases of its common shares during the three months ended June 30,2022:
Period
Total
Number of Shares Purchased(1)
Average Price Paid per Share
Approximate dollar value of shares that may yet be purchased under the plan (in thousands)
XBRL
Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.