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Price Allocation for Wide Orbit Streaming
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(Exact name of registrant as specified in its charter)
iPennsylvania
i23-1701044
(State
or other jurisdiction of incorporation or organization)
(I.R.S. employer identification no.)
i2400 Market Street, i4th Floor
iPhiladelphia,
iPennsylvaniai19103
(Address of principal executive offices and zip code)
i(610)i660-5610
(Registrant’s telephone number, including area code)
(Former name, former address and former fiscal year, if changed since last report)
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 (section 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, smaller reporting company, or an emerging growth company. See the 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
☒
Emerging growth company
i☐
Non-accelerated
filer
☐
Smaller reporting 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 7(a)(2)(B) of the Securities Act and 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☒
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, par value $.01 per share
iAUD
iNew
York Stock Exchange
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class A common stock, $0.01 par value – i141,289,225 Shares Outstanding as of July 31, 2022
Class B common stock, $0.01 par value – i4,045,199
Shares Outstanding as of July 31, 2022
In addition to historical information, this report contains statements by us with regard to our expectations as to financial results and other aspects of our business that involve risks and uncertainties and may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements are presented for illustrative purposes only and reflect our current expectations concerning future results and events. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, without limitation, any projections of earnings, revenues or other financial items; any statements
of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements of belief; and any statements of assumptions underlying any of the foregoing.
You can identify forward-looking statements by our use of words such as “anticipates,”“believes,”“continues,”“expects,”“intends,”“likely,”“may,”“opportunity,”“plans,”“potential,”“project,”“will,”“could,”“would,”“should,”“seeks,”“estimates,”“predicts” and similar expressions which identify forward-looking statements, whether in the negative or the affirmative. We cannot guarantee that we actually will achieve these plans, intentions or expectations. These forward-looking statements are subject
to risks, uncertainties and other factors, some of which are beyond our control, which could cause actual results to differ materially from those forecasted or anticipated in such forward-looking statements. You should not place undue reliance on these forward-looking statements, which reflect our view only as of the date of this report. We undertake no obligation to update these statements or publicly release the result of any revision(s) to these statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.
1. iBASIS
OF PRESENTATION AND SIGNIFICANT POLICIES
Audacy, Inc. (formerly Entercom Communications Corp.) was formed as a Pennsylvania corporation in 1968. On April 9, 2021, the Company changed its name to Audacy, Inc. and changed its New York Stock Exchange ticker symbol from "ETM" to "AUD".
i
The interim unaudited condensed consolidated financial statements included herein have been prepared by Audacy, Inc. and its subsidiaries
(collectively, the “Company”) in accordance with: (i) generally accepted accounting principles (“U.S. GAAP”) for interim financial information; and (ii) the instructions of the Securities and Exchange Commission (the “SEC”) for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of management, the condensed consolidated financial statements reflect all adjustments considered necessary for a fair statement of the results of operations and financial position for the interim periods presented. All such adjustments are of a normal and recurring nature. The Company’s results are subject to seasonal fluctuations and, therefore, the results shown on an interim basis are not necessarily indicative of results for a full year.
This
Form 10-Q should be read in conjunction with the consolidated financial statements and related notes included in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2021, and filed with the SEC on March 1, 2022, as part of the Company’s Annual Report on Form 10-K (the "2021 Annual Report"). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules and regulations.
There have been no material changes from Note 2, Significant Accounting Policies, as described in the notes to the
Company’s consolidated financial statements contained in the 2021 Annual Report.
i
COVID-19 and Current Macroeconomic Conditions
In December 2019, a novel strain of coronavirus ("COVID-19") surfaced which resulted in an outbreak of infections throughout the world, which has affected operations and global supply chains. On March 11, 2020, the World Health Organization declared COVID-19
a pandemic. While the full impact of this pandemic is not yet known, the Company took proactive actions in an effort to mitigate its effects and is continually assessing its effects on the Company's business, including how it has and will continue to impact advertisers, professional sports and live events.
The COVID-19 pandemic and current macroeconomic conditions have had, and are expected to continue to have, a material impact on the Company's business operations, financial position, cash flows, liquidity, and capital resources and results of operations. Therefore, the results for the six months ended June 30,
2022, may not be indicative of the results for the year ending December 31, 2022. The full extent to which the current macroeconomic conditions impact the Company's business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be accurately estimated at this time, but the Company believes the impact could be material if conditions persist.
i
Consolidated
VIE - Accounts Receivable Facility
On July 15, 2021, the Company and certain of its subsidiaries entered into a $i75.0 million accounts receivable securitization facility (the "Receivables Facility") to provide additional liquidity, to reduce the
Company's cost of funds and to repay outstanding indebtedness under the Company's Credit Facility (as defined in Note 8, Long-Term Debt, below).
The documentation for the Receivables Facility includes (i) a Receivables Purchase Agreement (the “Receivables Purchase Agreement”) entered into by and among Audacy Operations, Inc., a Delaware corporation and wholly-owned subsidiary of the Company (“Audacy Operations”), Audacy Receivables, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company, as seller (“Audacy Receivables”), the investors party thereto (the “Investors”), and DZ BANK AG Deutsche Zentral-Genossenschaftsbank,
Frankfurt AM Main, as agent (“DZ BANK”); (ii) a Sale and Contribution Agreement (the “Sale and Contribution Agreement”), by and among Audacy Operations, Audacy New York, LLC, a Delaware limited liability company and wholly-owned subsidiary of the Company (“Audacy NY”), and Audacy Receivables; and (iii) a Purchase and Sale Agreement (the “Purchase and Sale Agreement,” and together with the Receivables Purchase Agreement and the Sale and Contribution Agreement, the “Agreements”) by and among certain wholly-owned subsidiaries of the Company (together with Audacy NY, the “Originators”), Audacy Operations and Audacy NY.
Audacy Receivables is considered a special purpose vehicle ("SPV") as it is an entity that has a special, limited purpose and it was created to sell accounts receivable, together with customary related security and interests in the proceeds thereof, to the Investors in exchange for cash investments.
The SPV is a bankruptcy remote, limited liability company wholly owned by Audacy NY and its assets are not available to creditors of the Company, Audacy Operations or Audacy NY. Pursuant to the Receivables Facility, Audacy NY sells certain of its receivables and certain related rights to payment and obligations of Audacy NY with respect to such receivables, and certain other related rights to Audacy Receivables, LLC, which, in turn, obtains loans secured by the receivables
from financial institutions (the “Lenders”). Amounts received from the Lenders, the pledged receivables and the corresponding debt are included in Accounts receivable and Long-term debt, respectively, on the Condensed Consolidated Balance Sheets. The aggregate principal amount of the loans made by the Lenders cannot exceed $i75.0 million outstanding at any time. The Receivables Facility will expire on July 15, 2024, unless earlier terminated or subsequently extended.
The
SPV is considered a Variable Interest Entity ("VIE") because its equity capitalization is insufficient to support its operations. The most significant activities that impact the economic performance of the SPV are decisions made to manage receivables. Audacy NY is considered the primary beneficiary and consolidates the SPV as it makes these decisions. No additional financial support was provided to the SPV during the six months ended June 30, 2022 or is expected to be provided in the future that was not previously contractually required. As of June 30, 2022, the SPV has $i226.7 million
of net accounts receivable and has outstanding borrowings of $i75.0 million under the Receivables Facility.
Consolidated VIE - Qualified Intermediary
Periodically, the Company enters into like-kind exchange agreements upon the disposition or acquisition of certain properties. Pursuant to the terms of these agreements, the proceeds from the sales are placed into
an escrow account administered by a third party qualified intermediary ("QI") and are unavailable for the Company's use until released. The proceeds are recorded as restricted cash on the condensed consolidated balance sheets and released: (i) if they are utilized as part of a like-kind exchange agreement, (ii) if the Company does not identify a suitable replacement property within 45 days after the agreement date, or (iii) when a like-kind exchange agreement is not completed within the remaining allowable time period.
During 2022, the Company entered into an agreement with a third party QI, under which the
Company entered into an exchange of real property held for productive use or investment. This agreement relates to the sale of real property and identification and acquisition of replacement property.
The QI is considered a VIE because its equity capitalization is insufficient to support its operations. The most significant activity that impacts the economic performance of the QI is its holding of proceeds from the sale of real property in an interest bearing account. The Company is considered the primary beneficiary as it has the right to direct the activities that were most significant to the VIE and the Company has the obligation to absorb losses or the right to receive returns that would be significant to the VIE during the period of the agreement.
The use of a QI in a like-kind exchange will enable the Company to reduce its current tax liability in connection with certain asset dispositions. Under Section 1031 of the Internal Revenue Code (the “Code”), the property to be exchanged in the like-kind exchange is required to be received by the Company within 180 days.
Total results of operations of the VIE for the six months ended June 30, 2022 were not significant. The consolidated VIE had cash as of June 30, 2022, which was reflected as restricted cash on the condensed consolidated balance sheet. The VIE had no other assets or liabilities as of June 30,
2022. The assets of the Company’s consolidated VIE could only be used to settle the obligations of the VIE. There was a lack of recourse by the creditors of the VIE against the Company’s general creditors. Refer to Note 15, Contingencies And Commitments, for additional information.
i
Recent Accounting Pronouncements
All new accounting pronouncements
that are in effect that may impact the Company’s financial statements have been implemented. The Company does not believe that there are any other new accounting pronouncements that have been issued (other than those included in the notes to the Company’s consolidated financial statements contained in its 2021 Annual Report) that might have a material impact on the Company’s financial position, results of operations or cash flows.
The Company records acquisitions under the acquisition method of accounting, and allocates the purchase price to the assets and liabilities based upon their respective fair values as determined as of the acquisition date. Merger and acquisition costs are excluded from the purchase price as these costs
are expensed as incurred for book purposes and amortized for tax purposes.
2021 WideOrbit Streaming Acquisition
On October 20, 2021, the Company completed an acquisition of WideOrbit's digital audio streaming technology and the related assets and operations of WideOrbit Streaming for approximately $i40.0 million (the "WideOrbit
Streaming Acquisition"), which included certain employees. The assets acquired included $i31.5 million of developed technology and $i8.0 million
of intangible licenses. The Company determined this acquisition was a business combination. The Company operates WideOrbit Streaming under the name AmperWave ("AmperWave"). The Company funded this acquisition through a draw on its revolving credit facility (the "Revolver"). Based upon the timing of the WideOrbit Streaming Acquisition, the Company's condensed consolidated financial statements for the period ended June 30, 2022, reflect the results of AmperWave. The Company's
condensed consolidated financial statements for the period ended June 30, 2021 do not reflect the results of AmperWave.
The Company's fair value analysis contains assumptions based on past experience, reflects expectations of industry observers and includes judgments about future performance using industry normalized information. Using a residual method, any excess between the consideration paid and the fair value of net assets acquired was recorded as goodwill. The Company recorded goodwill on its books. Management believes that this acquisition provides the Company with an opportunity to benefit from acquired technology,
technical knowledge and trade secrets.
i
The allocations presented in the table below are based upon management's estimate of the fair values using valuation techniques including income, cost and market approaches. The following preliminary purchase price allocations are based upon the valuation of assets and these estimates and assumptions are subject to change as the Company obtains additional information during
the measurement period, which may be up to one year from the acquisition date. The final valuation could be substantially different from the initial estimate.
Preliminary Value
Adjustment
As Adjusted
(amounts in thousands)
Assets
Operating
lease right-of-use assets
$
i142
$
i—
$
i142
Net
property and equipment
i38
i—
i38
Other
assets, net of accumulated amortization
i39,532
i—
i39,532
Goodwill
i520
(i134)
i386
Total
intangible and other assets
i40,052
(i134)
i39,918
Operating
lease liabilities
(i142)
i—
(i142)
Deferred
tax asset
i—
i134
i134
Preliminary
fair value of net assets acquired
$
i40,090
$
i—
$
i40,090
/
The
aggregate fair value purchase price allocation for the assets acquired in the WideOrbit Streaming Acquisition as previously reported was revised during the six months ended June 30, 2022 due to the identification of additional transaction costs which were required to be capitalized for tax purposes, which resulted in a decrease to acquired goodwill.
2021 Urban One Exchange
On April 20, 2021, the Company completed a transaction with Urban One, Inc. ("Urban One") under which the Company exchanged its four station cluster in Charlotte, North Carolina for one station in St. Louis, Missouri, one station in Washington,
D.C., and one station in Philadelphia, Pennsylvania (the "Urban One Exchange"). The Company and Urban One began programming the respective stations under local marketing agreements ("LMAs") on November 23, 2020. During the period of the LMAs, the Company's consolidated financial statements excluded net revenues and station operating expenses associated with the four station cluster in Charlotte, North Carolina (the "Divested Stations") and included net revenues and station
operating
expenses associated with the stations in St. Louis, Missouri, Washington, D.C., and Philadelphia, Pennsylvania (the "Acquired Stations").
Upon completion of the Urban One Exchange, the Company: (i) removed from its condensed consolidated balance sheet the assets of the Divested Stations, which were previously classified as assets held for sale; (ii) recorded the assets of the Acquired Stations at fair value; and (iii) recognized a gain on the exchange of approximately $i4.0 million. Based
upon the timing of the Urban One Exchange, the Company's condensed consolidated financial statements for the six months ended June 30, 2022: (a) reflect the results of the Acquired Stations; and (b) do not reflect the results of the Divested Stations. The Company's condensed consolidated financial statements for the six months ended June 30, 2021: (i) reflect the results of the Acquired Stations for the portion of the period in which the LMAs were in effect and after the completion of the Urban One Exchange; and (ii) do not reflect the results of the Divested Stations.
The allocations presented in the table below are based upon management's estimate of the
fair values using valuation techniques including income, cost and market approaches. The following table reflects the final allocation of the purchase price to the assets acquired.
Final Value
(amounts in thousands)
Assets
Net
property and equipment
$
i2,254
Total tangible property
i2,254
Radio
broadcasting licenses
i23,233
Total intangible assets
$
i23,233
Total
assets
$
i25,487
2021 Podcorn Acquisition
On March 9, 2021, the
Company completed the acquisition of podcast influencers marketplace, Podcorn Media, Inc. ("Podcorn") for $i14.6 million in cash and a performance-based earnout over the next itwo
years (the "Podcorn Acquisition"). The Company's condensed consolidated financial statements for the six months ended June 30, 2022 reflect the results of Podcorn. The Company's condensed consolidated financial statements for the six months ended June 30, 2021 reflect the results of Podcorn for the portion of the period after the completion of the Podcorn Acquisition.
The Podcorn Acquisition includes a contingent consideration arrangement that requires additional consideration to be paid by the Company to Podcorn based upon the achievement of certain annual
performance benchmarks over a itwo-year period. A portion of the contingent consideration could be paid out in 2023 and a portion of the contingent consideration could be paid out in 2024. The timing of the payment of the contingent consideration is dependent upon Adjusted EBITDA values for 2022 and 2023, as defined in the purchase agreement. The range of the total undiscounted amounts the Company could pay under the contingent consideration agreement over the itwo-year
period is between $i0 and $i45.2 million. The
fair value of the contingent consideration recognized on the acquisition date of $i7.7 million was estimated by applying probability-weighted, discounted future cash flows at current tax rates. The significant unobservable inputs (Level 3) used to estimate the fair value include the projected Adjusted EBITDA values, as defined in the purchase agreement, for 2022 and 2023, and the discount rate. Since the acquisition date, fluctuation in the market-based inputs used to develop the discount rate resulted in an increase in the
discount rate, which resulted in a lower expected present value of the contingent consideration. As a result, the fair value of the contingent consideration at June 30, 2022 decreased to $i1.2 million. Changes in the fair value of the contingent consideration are recorded to the Station Operating Expenses line item on the Statement of Operations.
The
Company's fair value analysis contains assumptions based on past experience, reflects expectations of industry observers and includes judgments about future performance using industry normalized information. Using a residual method, any excess between the consideration paid and the fair value of net assets acquired was recorded as goodwill. Management believes that this acquisition provides the Company with an opportunity to benefit from customer relationships, technical knowledge and trade secrets.
The allocations presented in the table below are based upon management's
estimate of the fair values using valuation techniques including income, cost and market approaches. The following table reflects the final allocation of the purchase price to the assets acquired and liabilities assumed.
Final Value
(amounts
in thousands)
Assets
Cash
$
i702
Prepaid
expenses, deposits and other
i18
Other assets, net of accumulated amortization
i2,545
Goodwill
i19,637
Deferred
tax asset
i72
Net
working capital
i63
Preliminary fair value of net assets acquired
$
i23,037
Unaudited
Pro Forma Summary of Financial Information
The following unaudited pro forma information for the six and three months ended June 30, 2021 assumes that the acquisitions in 2021 had occurred as of January 1, 2021.
Refer to information within this Note 2, Business Combinations, and to the consolidated financial statements and related notes included in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2021, and filed with the SEC on March 1, 2022, for a description of the
Company’s acquisition and disposition activities.
The unaudited pro forma information presented gives effect to certain adjustments, including: (i) depreciation and amortization of assets; (ii) change in the effective tax rate; (iii) merger and acquisition costs; and (iv) interest expense on any debt incurred to fund the acquisitions which would have been incurred had such acquisitions been consummated at an earlier time.
i
This unaudited pro forma information has been prepared based on estimates and assumptions, which
management believes are reasonable. These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisitions been made as of that date or results which may occur in the future.
During the first quarter of 2020, the Company initiated a restructuring plan to help mitigate the adverse impact that the COVID-19 pandemic is having on financial results and business operations. The Company continues to evaluate what, if any, further actions may be necessary related to the COVID-19 pandemic. The restructuring plan primarily included workforce reduction charges that included one-time termination benefits and related costs to mitigate the adverse impacts of the COVID-19 pandemic.
i
The
estimated amount of unpaid restructuring charges as of June 30, 2022 includes amounts in accrued expenses that are expected to be paid in less than one year.
The
Company sells air-time to advertisers and broadcasts commercials at agreed upon dates and times. The Company's performance obligations are broadcasting advertisements for advertisers at specifically identifiable days and dayparts. The amount of consideration the Company receives and revenue it recognizes is fixed based upon contractually agreed upon rates. The Company recognizes revenue at a point in time when the advertisements are broadcast and the performance obligations are satisfied. Revenues are recorded on a net basis, after the deduction of advertising agency fees by the advertising agencies.
Digital Revenues
The
Company provides targeted advertising through the sale of streaming and display advertisements on its national platforms, audacy.com and eventful.com, the Audacy app, and its station websites. Performance obligations include delivery of advertisements over the Company's platforms or delivery of targeted advertisements directly to consumers. The Company recognizes revenue at a point in time when the advertisements are delivered and the performance obligations are satisfied. Revenues are recorded on a net basis, after the deduction of advertising agency fees by the advertising agencies.
Through its podcast studio, Cadence 13, Inc.
("Cadence13"), the Company embeds advertisements in its owned and operated podcasts and other on-demand content. Performance obligations include delivery of advertisements. The Company recognizes revenue at a point in time when the advertisements are delivered and the performance obligations are satisfied. Revenues are recorded on a net basis, after the deduction of advertising agency fees by the advertising agencies.
Through its podcast studio, Pineapple Street Media ("Pineapple"), the Company creates podcasts, for which it earns production fees. Performance obligations include the delivery of episodes. These revenues are fixed based upon contractually
agreed upon terms. The Company recognizes revenue over the term of the production contract.
Network Revenues
The Company sells air-time on the Company's Audacy Audio Network. The amount of consideration the Company receives and revenue it recognizes is fixed based upon contractually agreed upon rates. The Company recognizes revenue at a point in time when the
advertisements are broadcast and the performance obligations are satisfied. Revenues are recorded on a net basis, after the deduction of advertising agency fees by the advertising agencies.
Sponsorship and Event Revenues
The Company sells advertising space at live and local events hosted by the Company across the country. The Company also earns revenues from attendee-driven ticket sales and merchandise sales. Performance obligations include the presentation of the advertisers' branding in highly visible areas at the event. These revenues are recognized at a point in time, when the event occurs and the performance obligations
are satisfied.
The Company also sells sponsorships including, but not limited to, naming rights related to its programs or studios. Performance obligations include the mentioning or displaying of the sponsors' name, logo, product information, slogan or neutral descriptions of the sponsors' goods or services in acknowledgement of their support. These revenues are fixed based upon contractually agreed upon terms. The Company recognizes revenue over the length of the sponsorship agreement based upon the fair value of the deliverables included.
Other Revenues
The Company earns revenues
from on-site promotions and endorsements from talent. Performance obligations include the broadcasting of such endorsement at specifically identifiable days and dayparts or at various local events. The Company recognizes revenue at a point in time when the performance obligations are satisfied.
The Company earns trade and barter revenue by providing advertising broadcast time in exchange for certain products, supplies, and services. The Company includes the value of such exchanges in both net revenues and station operating expenses. Trade and barter value is based upon management's estimate of the fair value of the products, supplies and services received.
Refer to the table below for information
about receivables, contract assets and contract liabilities from contracts with customers. Accounts receivable balances in the table below exclude other receivables that are not generated from contracts with customers. These amounts are $i1.2
million and $i2.8 million as of June 30, 2022 and December 31, 2021, respectively.
The timing of revenue recognition, billings and cash collections results in accounts receivable (billed or unbilled), and customer advances and deposits (unearned revenue) on the Company’s condensed consolidated balance sheets. At times, however, the Company receives advance payments or deposits from its customers before revenue is recognized, resulting in contract liabilities. The contract liabilities primarily relate to consideration received in advance from customers
on certain contracts. For these contracts, revenue is recognized upon satisfaction of the underlying performance obligations. The contract liabilities are reported on the condensed consolidated balance sheets on a contract-by-contract basis at the end of each respective reporting period within other current liabilities and other long-term liabilities.
Significant changes in the contract
liabilities balances during the period are as follows:
The Company recognizes the assets and liabilities that arise from leases on the commencement date of the lease. The Company recognizes the liability to make lease payments as a lease liability as well as a right-of-use ("ROU") asset representing the right to use the underlying asset for the lease term, on the condensed consolidated balance sheet.
Goodwill and certain intangible assets are not amortized for book purposes. They may be, however, amortized for tax purposes. The Company accounts for its acquired broadcasting licenses as indefinite-lived intangible assets and, similar to goodwill, these assets are reviewed at least annually for impairment. At the time of each review, if the fair value is less than the carrying value of the reporting unit, then a charge is recorded to the results of operations.
i
The
following table presents the changes in the carrying value of broadcasting licenses. Refer to Note 2, Business Combinations, and Note 14, Assets Held For Sale, for additional information.
Goodwill
balance before cumulative loss on impairment as of January 1,
$
i1,062,723
$
i1,042,762
Accumulated
loss on impairment as of January 1,
(i980,547)
(i980,547)
Goodwill
beginning balance after cumulative loss on impairment as of January 1,
i82,176
i62,215
Acquisitions
(See Note 2)
i—
i20,099
Measurement
period adjustments to acquired goodwill (See Note 2)
(i134)
(i138)
Ending
period balance
$
i82,042
$
i82,176
/
Broadcasting
Licenses Impairment Test
During the fourth quarter of 2021, the Company completed its annual impairment test for broadcasting licenses and determined that the fair value of its broadcasting licenses was greater than the amount reflected in the balance sheet for each of the Company's markets and, accordingly, ino
impairment was recorded.
As of June 30, 2022, the Company evaluated whether the facts and circumstances and available information resulted in the need for an interim impairment assessment for any of its broadcasting licenses, particularly the increase in interest rates and related impact on the weighted average cost of capital, and concluded no impairment was indicated. The Company will continue to evaluate the impacts of the current macroeconomic conditions on its business, including the impacts of overall economic conditions.
If actual market conditions are less favorable than those projected by the industry or the
Company, or if events occur or circumstances change that would reduce the fair value of the Company’s broadcasting licenses below the amount reflected in the condensed consolidated balance sheet, the Company may be required to conduct an interim test and possibly recognize impairment charges, which may be material, in future periods. The current macroeconomic conditions increase the uncertainty with respect to such market and economic conditions and, as such, increases the risk of future impairment.
Goodwill Impairment Test
In March 2021, the Company completed the Podcorn Acquisition. Cadence13, Pineapple and Podcorn represent
a single podcasting division one level beneath the single operating segment. Since the operations are economically similar, Cadence13,
Pineapple and Podcorn were aggregated into a single podcasting reporting unit for the quantitative impairment assessment conducted in the fourth quarter of 2021. During the fourth quarter of 2021, the Company completed its annual impairment test for its podcasting reporting unit and determined that the fair value of its podcast reporting unit was greater than the carrying value and, accordingly, ino
impairment was recorded.
During the fourth quarter of 2021, the Company completed its annual impairment test for the BetQL reporting unit and determined that the fair value of its BetQL reporting unit was greater than the carrying value and, accordingly, ino impairment was recorded.
In October 2021, the
Company completed the WideOrbit Streaming Acquisition. AmperWave represents a separate division one level beneath the single operating segment and its own reporting unit. For the goodwill acquired in the WideOrbit Streaming Acquisition, similar valuation techniques that were applied in the valuation of goodwill under purchase price accounting were also used in the annual impairment testing process. The valuation of the acquired goodwill approximated fair value.
As of June 30, 2022, the Company evaluated whether the facts and circumstances and available information resulted in the need for an interim impairment assessment for any of its goodwill, particularly the results of operations, increase in interest rates and related impact on the weighted average cost of capital and changes in stock
price, and concluded ino impairment was indicated. The Company will continue to evaluate the impacts of the current macroeconomic conditions on its business, including the impacts of overall economic conditions.
If actual market conditions are less favorable than those projected by the industry or the Company, or if events occur or circumstances change that would
reduce the fair value of the Company’s goodwill below the amount reflected in the condensed consolidated balance sheet, the Company may be required to conduct an interim test and possibly recognize impairment charges, which could be material, in future periods. The current macroeconomic conditions increase the uncertainty with respect to such market and economic conditions and, as such, increases the risk of future impairment.
7. iOTHER
CURRENT LIABILITIES
i
Other current liabilities consist of the following as of the periods indicated:
Deferred
financing costs (excludes the revolving credit)
(i13,926)
(i16,409)
Total
long-term debt, net of current debt
$
i1,834,134
$
i1,782,131
Outstanding
standby letters of credit
$
i6,069
$
i6,069
/
(A)
Senior Debt
The 2027 Notes
During 2019, the Company and its finance subsidiary, Audacy Capital Corp., issued $i425.0 million in aggregate principal amount of senior secured second-lien notes due May 1, 2027 (the "Initial 2027 Notes"). Interest on the Initial 2027 Notes accrues at the rate of i6.500%
per annum and is payable semi-annually in arrears on May 1 and November 1 of each year. The Initial 2027 Notes are governed by an indenture dated as of April 30, 2019 (the "Base Indenture"), as supplemented by a first supplemental indenture dated December 13, 2019 (the "First Supplemental Indenture"), (collectively, the "Indenture").
A portion of the Initial 2027
Notes was issued at premium. As of any reporting period, the unamortized premium on the Initial 2027 Notes is reflected on the balance sheet as an addition to the Initial 2027 Notes.
During the fourth quarter of 2021, Audacy Capital Corp., issued $i45.0 million of additional i6.500%
senior secured second-lien notes due 2027 (the "Additional 2027 Notes"). The Additional 2027 Notes were issued as additional notes under the Indenture. The Additional 2027 Notes are treated as a single series with the Initial 2027 Notes (collectively, the "2027 Notes") and have substantially the same terms as the Initial 2027 Notes. The Additional 2027 Notes were issued at a price of i100.750% of their principal amount.
During the six
months ended June 30, 2022, the Company repurchased $i10.0 million of its 2027 Notes through open market purchases. This repurchase activity generated a gain on retirement of the 2027 Notes in the amount of $i0.6 million.
As
of any reporting period, the unamortized premium on the 2027 Notes is reflected on the balance sheet as an addition to the $i460.0 million 2027 Notes.
The Credit Facility
The
Company's credit agreement (the "Credit Facility"), as amended, is comprised of a $i250.0 million Revolver and a term B-2 loan (the "Term B-2 Loan").
The Credit Facility has usual and customary covenants including, but not limited to, a net first lien leverage ratio, restricted payments and the incurrence of additional debt. Specifically, the Credit Facility requires the Company to comply with a certain financial covenant which is a defined term within the
agreement, including a maximum Consolidated Net First-Lien Leverage Ratio that cannot exceed i4.0 times at June 30, 2022. In certain circumstances, if the Company consummates additional acquisition activity permitted under the terms of the Credit Facility, the Consolidated Net First-Lien Leverage Ratio will be increased to i4.5
times for a ione year period following the consummation of such permitted acquisition. As of June 30, 2022, the Company’s Consolidated Net First Lien Leverage Ratio was i3.6
times.
Failure to comply with the Company’s financial covenant or other terms of its Credit Facility and any subsequent failure to negotiate and obtain any required relief from its lenders could result in a default under the Company’s Credit Facility. Any event of default could have a material adverse effect on the Company’s business and financial condition. The acceleration of the Company’s debt repayment could have a material adverse effect on its business. The Company may seek from time to time
to amend its Credit Facility or obtain other funding or additional funding, which may result in higher interest rates.
As of June 30, 2022, the Company is in compliance with the financial covenant and all other terms of the Credit Facility in all material respects. The Company’s ability to maintain compliance with its covenant is highly dependent on its results of operations. The cash available from the Revolver is dependent on the Company’s Consolidated Net First-Lien Leverage Ratio at the time of such borrowing.
The 2029 Notes
During
the first quarter of 2021, the Company and its finance subsidiary, Audacy Capital Corp., issued $i540.0 million in aggregate principal amount of senior secured second-lien notes due March 31, 2029 (the "2029 Notes"). Interest on the 2029 Notes accrues at the rate of i6.750%
per annum and is payable semi-annually in arrears on March 31 and September 30 of each year.
The Company used net proceeds of the offering, along with cash on hand, to: (i) repay $i77.0 million of existing indebtedness under the Term B-2 Loan; (ii) repay $i40.0 million
of drawings under the Revolver; and (iii) fully redeem all of its $i400.0 million aggregate principal amount of i7.250% senior notes due 2024 (the "Senior Notes") and to pay fees and expenses
in connection with the redemption.
In connection with this activity, during the first quarter of 2021, the Company: (i) recorded $i6.6 million of new debt issuance costs attributable to the 2029 Notes; and (ii) $i0.4 million
of debt issuance costs attributable to the Revolver which will be amortized over the remaining term of the Revolver on a straight line basis. The Company also incurred $i0.5 million of costs which were classified within refinancing expenses.
The Credit Facility - Amendment No. 5
On July 20, 2020, Audacy Capital Corp. entered into an amendment ("Amendment
No. 5") to the Credit Agreement, dated October 17, 2016 (as previously amended, the "Existing Credit Agreement" and, as amended by Amendment No. 5, the "Credit Agreement"), with the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent. Amendment No. 5, among other things:
(a) amended the Company's financial covenants under the Credit Agreement by: (i) suspending the testing of the Consolidated Net First Lien Leverage Ratio (as defined in the Credit Agreement) through the Test Period (as defined in the Credit Agreement) ending December 31, 2020; (ii) adding a new minimum liquidity covenant of $i75.0 million
until December 31, 2021, or such earlier date as the Company may elect (the "Covenant Relief Period"); and (iii) imposing certain restrictions during the Covenant Relief Period, including among other things, certain limitations on incurring additional indebtedness and liens, making restricted payments or investments, redeeming notes and entering into certain sale and lease-back transactions;
(b) increased the interest rate and/or fees under the Credit Agreement during the Covenant Relief Period applicable to: (i) 2024
Revolving Credit Loans (as defined in the Credit Agreement) to (x) in the case of Eurodollar Rate Loans (as defined in the Credit Agreement), a customary Eurodollar rate formula plus a margin of i2.50% per annum, and (y) in the case of Base Rate Loans (as defined in the Credit Agreement), a customary base rate formula plus a margin of i1.50%
per annum, and (ii) Letter of Credit (as defined in the Credit Agreement) fees to i2.50% times the daily maximum amount available to be drawn under any such Letter of Credit; and
(c) modified the definition of Consolidated EBITDA by setting fixed amounts for the fiscal quarters ending June 30, 2020, September 30, 2020, and December 31, 2020, for purposes of testing compliance with the Consolidated Net First Lien
Leverage Ratio financial covenant during the Covenant Relief Period, which fixed amounts correspond to the Borrower's Consolidated EBITDA as reported under the Existing Credit Agreement for the Test Period ended March 31, 2020, for the fiscal quarters ending June 30, 2019, September 30, 2019, and December 31, 2019, respectively.
The Credit Facility - Amendment No. 6
On March 5, 2021, Audacy Capital Corp. entered into an amendment ("Amendment No. 6") to the Credit Agreement, dated October 17, 2016 (as previously amended, the “Existing Credit Agreement” and, as amended by Amendment
No. 6, the “Credit Agreement”), with the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent.
Under the Existing Credit Agreement, during the Covenant Relief Period the Company was subject to a $i75.0 million limitation on investments in joint ventures, Affiliates, Unrestricted Subsidiaries
and Non-Guarantor Subsidiaries (each as defined in the Existing Credit Agreement) (the “Covenant Relief Period Investment Limitation”). Amendment No. 6, among other things, excludes from the Covenant Relief Period Investment Limitation any investments made in connection with a permitted receivables financing facility. The Covenant Relief Period ended in the fourth quarter of 2021.
Accounts Receivable Facility
On July 15, 2021, the Company and certain of its subsidiaries entered into a $i75.0 million
Receivables Facility to provide additional liquidity, to reduce the Company's cost of funds and to repay outstanding indebtedness under the Credit Facility.
The documentation for the Receivables Facility includes (i) a Receivables Purchase Agreement entered into by and among Audacy Operations, Audacy Receivables as seller, the Investors, and DZ BANK, as agent; (ii) a Sale and Contribution Agreement, by and among Audacy Operations, Audacy NY, and Audacy Receivables; and (iii) a Purchase and Sale Agreement and together with the Receivables Purchase Agreement and the Sale and Contribution Agreement, the “Agreements”) by and among certain wholly-owned subsidiaries of the
Company (together with Audacy NY, the “Originators”), Audacy Operations and Audacy NY.
Pursuant to the Purchase and Sale Agreement, the Originators (other than Audacy NY) have sold, and will continue to sell on an ongoing basis, their accounts receivable, together with customary related security and interests in the proceeds thereof, to Audacy NY. Pursuant to the Sale and Contribution Agreement, Audacy NY has sold and contributed, and will continue to sell and contribute on an ongoing basis, its accounts receivable, together with customary related security and interests in the proceeds thereof, to Audacy Receivables. Pursuant to the Receivables Purchase Agreement, Audacy Receivables has sold and will continue to sell on an ongoing basis such accounts receivable, together with customary related security and interests in the proceeds thereof, to the Investors in exchange for cash investments.
Yield
is payable to Investors under the Receivables Purchase Agreement at a variable rate based on either the Secured Overnight Financing Rate ("SOFR") or commercial paper rates plus a margin. Collections on the accounts receivable: (x) will be used to either: (i) satisfy the obligations of Audacy Receivables under the Receivables Facility; or (ii) purchase additional accounts receivable from the Originators; or (y) may be distributed to Audacy NY, the sole member of Audacy Receivables. Audacy Operations acts as the servicer under the Agreements.
The Agreements contain representations, warranties and covenants that are customary for bankruptcy-remote securitization transactions, including covenants requiring Audacy Receivables to be treated at all times as an entity separate from the Originators, Audacy Operations, the
Company or any of its other affiliates and that transactions entered into between Audacy Receivables and any of its affiliates shall be on arm’s-length terms. The Receivables Purchase Agreement also contains customary default and termination provisions which provide for acceleration of amounts owed under the Receivables Purchase Agreement upon the occurrence of certain specified events with respect to Audacy Receivables, Audacy Operations, the Originators, or the Company, including, but not limited to: (i) Audacy Receivables’ failure to pay yield and other amounts due;
(ii)
certain insolvency events; (iii) certain judgments entered against the parties; (iv) certain liens filed with respect to assets; and (v) breach of certain financial covenants and ratios.
The Company has agreed to guarantee the performance obligations of Audacy Operations and the Originators under the Receivables Facility documents. The Company has not agreed to guarantee any obligations of Audacy Receivables or the collection of any of the receivables and will not be responsible for any obligations to the extent the failure to perform such obligations by Audacy Operations or any Originator results from receivables being uncollectible on account of the insolvency, bankruptcy or lack of creditworthiness or other financial
inability to pay of the related obligor.
In general, the proceeds from the sale of the accounts receivable are used by the SPV to pay the purchase price for accounts receivables it acquires from Audacy NY and may be used to fund capital expenditures, repay borrowings on the Credit Facility, satisfy maturing debt obligations, as well as fund working capital needs and other approved uses.
Although the SPV is a wholly owned consolidated subsidiary of Audacy NY, the SPV is legally separate from Audacy NY. The assets of the SPV (including the accounts receivables) are not available to creditors of Audacy NY, Audacy Operations or the Company, and the accounts receivables are not legally assets of Audacy NY, Audacy Operations
or the Company. The Receivables Facility is accounted for as a secured financing.
The Receivables Facility will expire on July 15, 2024, unless earlier terminated or subsequently extended pursuant to the terms of the Receivables Purchase Agreement. The pledged receivables and the corresponding debt are included in Accounts receivable, net and Long-term debt, net of current portion, respectively, on the Condensed Consolidated Balance Sheet. At June 30, 2022, the Company had outstanding borrowings of $i75.0 million
under the Receivables Facility.
(B) Senior Unsecured Debt
The Senior Notes
Simultaneously with entering into a business combination and assuming the Credit Facility on November 17, 2017, the Company also assumed the i7.250% unsecured senior notes (the “Senior Notes”) that were subsequently modified and
were set to mature on November 1, 2024 in the amount of $i400.0 million. The Senior Notes were originally issued by CBS Radio (now Audacy Capital Corp.) on October 17, 2016.
Interest on the Senior Notes accrued at the rate of i7.250%
per annum and was payable semi-annually in arrears on May 1 and November 1 of each year.
In connection with the redemption of the Senior Notes during the first quarter of 2021, the Company wrote off the following amounts to gain/loss on extinguishment of debt: (i) $i14.5 million in prepayment premiums for the early retirement of the Senior Notes; (ii) $i8.7 million
of unamortized premium attributable to the Senior Notes; (iii) $i1.0 million of unamortized debt issuance costs attributable to the Senior Notes; and (iv) $i1.3 million
of unamortized debt issuance costs attributable to the Term B-2 Loan.
(C) Net Interest Expense
i
The components of net interest expense are as follows:
Amortization
of original issue premium of senior notes
(i256)
(i242)
Interest
income and other investment income
i—
(i52)
Total
net interest expense
$
i24,529
$
i22,553
9. iDERIVATIVE
AND HEDGING ACTIVITIES
The Company from time to time enters into derivative financial instruments, such as interest rate collar agreements (“Collars”), to manage its exposure to fluctuations in interest rates under the Company’s variable rate debt.
Hedge Accounting Treatment
i
As of June 30,
2022, the Company had the following derivative outstanding, which was designated as a cash flow hedge that qualified for hedge accounting treatment:
For
the six months ended June 30, 2022, the Company recorded the net change in the fair value of this derivative as a gain of $i1.8 million (net of tax benefit of $i0.6
million as of June 30, 2022) to the condensed consolidated statement of comprehensive income (loss). The fair value of this derivative was determined using observable market-based inputs (a Level 2 measurement) and the impact of credit risk on a derivative’s fair value (the creditworthiness of the Company for liabilities). As of June 30, 2022, the fair value of these derivatives was an asset of $i2.0
million, and is recorded within other assets, net of accumulated amortization on the condensed consolidated balance sheet. The Company does not expect to reclassify any of this amount to the condensed consolidated statement of operations over the next twelve months.
The
following table presents the accumulated derivative gain (loss) recorded in other comprehensive income (loss) as of June 30, 2022 and December 31, 2021:
The
following tables presents the accumulated net derivative gain (loss) recorded in other comprehensive income (loss) for the three months ended June 30, 2022 and June 30, 2021:
Other Comprehensive Income (Loss)
Net Change in Accumulated Derivative Unrealized Gain (Loss)
Net
Amount of Accumulated Derivative Gain (Loss) Reclassified to the Consolidated Statement of Operations
The Company is subject to equity market risks due to changes in the fair value of the notional investments selected by its employees as part of its non-qualified deferred compensation plans. During the quarter ended June 30, 2020, the Company entered into a Total Return Swap ("TRS") in order to manage the market risks associated with its non-qualified deferred compensation plan liabilities. The Company pays a floating rate, based on the SOFR, on the notional amount of the TRS. The TRS is designed to substantially offset changes in its non-qualified deferred compensation
plan's liabilities due to changes in the value of the investment options made by employees. As of June 30, 2022, the notional investments underlying the TRS amounted to $i24.2 million. The contract term of the TRS is through March 2023 and is settled on a monthly basis, therefore limiting counterparty performance risk. The Company did not designate the
TRS as an accounting hedge. Rather, the Company records all changes in the fair value of the TRS to earnings to offset the market value changes of its non-qualified deferred compensation plan liabilities.
For the six months ended June 30, 2022, the Company recorded the net change in the fair value of the TRS in station operating expenses and corporate, general and administrative expenses in the amount of a $i4.6 million
expense. Of this amount, a $i1.5 million expense was recorded in corporate, general and administrative expenses and a $i3.1 million
expense was recorded in station operating expenses.
Under the Company's equity compensation plan (the “Plan”), the Company is authorized to issue share-based compensation awards to key employees, directors and consultants.
Restricted
Stock Units (“RSUs”) Activity
iThe following is a summary of the changes in RSUs under the Plan during the current period:
Period
Ended
Number of Restricted Stock Units
Weighted Average Purchase Price
Weighted Average Remaining Contractual Term (Years)
The following non-cash stock-based compensation expense, which is related primarily to RSUs, is included in each of the respective line items in the Company’s statement of operations:
Stock-based
compensation expense included in operating expenses
i3,103
i2,612
Income
tax benefit (1)
i683
i501
After-tax
stock-based compensation expense
$
i2,420
$
i2,111
(1)
Amounts exclude impact from any compensation expense subject to Section 162(m) of the Code, which is nondeductible for income tax purposes.
12. iINCOME TAXES
Tax Rate for the Six and Three Months Ended June 30, 2022
The
Company recognized an income tax benefit at an effective income tax rate of i25.9% and i23.8% for the six and three months ended June 30,
2022, respectively. The effective income tax rate was determined using a forecasted tax rate based upon projected taxable income for the year. The effective income tax rate for the period was impacted by permanent items, state tax expense, discrete income tax expense items related to stock based compensation, a valuation allowance for certain state net operating losses, and interest and penalties associated with uncertain tax positions.
On March 27, 2020, the United States enacted the CARES Act. The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effects of the COVID-19 pandemic. The CARES Act includes significant business tax provisions that, among other things, includes the removal of certain limitations on utilization of net operating losses,
increases the loss carry back period for certain losses to five years, and increases the ability to deduct interest expense, as well as amending certain provisions of the previously enacted Tax Cuts and Jobs Act. The Company was able to carryback its 2020 federal income tax loss to prior tax years and file a refund claim with the IRS for $i15.2 million.
Tax Rate for the Six and Three Months Ended June 30, 2021
The
Company recognized an income tax benefit at an effective income tax rate of i46.8% and i417.6% for the six and three months ended June 30,
2021, respectively, which was determined using a forecasted rate based upon projected taxable income for the full year.
Net Deferred Tax Assets and Liabilities
The income tax accounting process to determine the deferred tax liabilities involves estimating all temporary differences between the tax and financial reporting bases of the Company’s assets and liabilities, based on enacted tax laws and statutory tax rates applicable to the period in which the differences are expected to affect taxable income. The Company estimated the current exposure by assessing the temporary differences and computing the provision for income taxes by applying the estimated effective tax rate to income.
Fair Value of Financial Instruments Subject to Fair Value Measurements
Recurring Fair Value Measurements
i
The
following table sets forth the Company's financial assets and/or liabilities that were accounted for at fair value on a recurring basis and are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value and its placement within the fair value hierarchy levels. During the periods presented, there were no transfers between fair value hierarchical levels.
(1)The
Company’s deferred compensation liability, which is included in other long-term liabilities, is recorded at fair value on a recurring basis. The unfunded plan allows participants to hypothetically invest in various specified investment options.
(2)The fair value of underlying investments in collective trust funds is determined using the net asset value (“NAV”) provided by the administrator of the fund as a practical expedient. The NAV is determined by each fund’s trustee based upon the fair value of the underlying assets owned by the fund, less liabilities, divided by outstanding units. In accordance with appropriate accounting guidance, these investments have not been classified in the fair value hierarchy.
(3)The Company’s interest rate
collar, which is included in other long-term liabilities at December 31, 2021 and other assets, net of accumulated amortization at June 30, 2022, is recorded at fair value on a recurring basis. The derivatives are not exchange listed and therefore the fair value is estimated using models that reflect the contractual terms of the derivative, yield curves, and the credit quality of the counterparties. The models also incorporate the Company’s creditworthiness in order to appropriately reflect non-performance risk. Inputs are generally observable and do not contain a high level of subjectivity.
(4)In connection with the Podcorn Acquisition, the
Company recorded a liability for contingent consideration payable based upon the achievement of certain annual performance benchmarks over i2 years. The fair value of the liability is estimated using probability-weighted, discounted future cash flows at current tax rates using a scenario based model, and remeasured quarterly. The significant unobservable inputs (Level 3) used to estimate the fair value include the
projected Adjusted EBITDA values for 2022 and 2023, as defined in the purchase agreement, and the discount rate. Using an initial discount rate of i10.5%, the fair value of the contingent consideration was $i7.7 million
at the acquisition date. Due to fluctuation in the market-based inputs used to develop the discount rate, the discount rate increased to i11.0% at June 30, 2022. Additionally, a reduction in projected Adjusted EBITDA values for 2022 resulted in a lower expected present value of the contingent consideration. As a result, the fair value of the contingent consideration at June 30, 2022 decreased to $i1.2 million. This
balance is included in other long-term liabilities.
Non-Recurring Fair Value Measurements
The Company has certain assets that are measured at fair value on a non-recurring basis and are adjusted to fair value only when the carrying values are more than the fair values. The categorization of the framework used to price the assets is considered Level 3, due to the subjective nature of the unobservable inputs used to determine the fair value.
During the three months ended June 30, 2022 and 2021, there were no events or changes in circumstances which indicated the Company’s
broadcasting licenses, goodwill, investments, property and equipment, ROU assets, other intangible assets, or assets held for sale may not be recoverable.
Fair Value of Financial Instruments Subject to Disclosures
The carrying amounts of the following assets and liabilities approximate fair value due to the short maturity of these instruments: (i) cash and cash equivalents; (ii) accounts receivable; and (iii) accounts payable, including accrued liabilities.
i
The
following table presents the carrying value of financial instruments and, where practicable, the fair value as of the dates indicated:
The
following methods and assumptions were used to estimate the fair value of financial instruments:
(1)The Company utilizes a Level 2 valuation input based upon the market trading price of the Term B-2 Loan to compute the fair value as the Term B-2 Loan is traded in the debt securities market. The fair value of the Term B-2 Loan is considered a Level 2 measurement as the pricing inputs are other than quoted prices in active markets.
(2)The fair value of the Revolver was considered to approximate the carrying value as the interest payments are based on LIBOR rates that reset periodically. The Revolver is considered a Level 2 measurement as the pricing inputs are other than quoted prices in active markets.
(3)The
Company utilizes a Level 2 valuation input based upon the market trading prices of the 2029 Notes and 2027 Notes to compute the fair value as these 2029 Notes and 2027 Notes are traded in the debt securities market. The 2029 Notes and 2027 Notes are considered a Level 2 measurement as the pricing inputs are other than quoted prices in active markets.
(4)The Company does not believe it is practicable to estimate the fair value of the accounts receivable facility, other debt or the outstanding standby letters of credit.
Long-lived assets to be sold are classified as held for sale in the period in which they meet all the criteria for the disposal of long-lived assets. The Company measures assets held for sale at the lower of their carrying
amount or fair value less cost to sell. Additionally, the Company determined that these assets comprise operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Company.
During the fourth quarter of 2020, the Company announced that it had entered into an exchange agreement with Urban One, pursuant to which the Company would exchange its ifour
station cluster in Charlotte, North Carolina for ione station in St. Louis, Missouri, ione station in Washington, D.C.,
and ione station in Philadelphia, Pennsylvania (the "Urban One Exchange"). The Company conducted an analysis and determined the assets met the criteria to be classified as held for sale at December 31, 2020. In aggregate, these assets had a carrying value of $i21.4 million.
Upon the closing of the Urban One Exchange on April 20, 2021, the Company: (i) removed the assets which had been classified as assets held for sale; (ii) recorded the assets of the acquired stations at fair value; and (iii) recognized a gain on the exchange of approximately $i4.0 million. Refer to Note 2, Business Combinations,
for additional information.
During the second quarter of 2021, the Company entered into an agreement with a third party to dispose of land and land improvements and equipment. The Company conducted an analysis and determined the assets met the criteria to be classified as held for sale. In aggregate, these assets had a carrying value of approximately $i0.5 million. In
the fourth quarter of 2021, the Company completed this sale. The Company recognized a gain on the sale, net of commissions and other expenses, of approximately $i4.6 million.
During the fourth quarter of 2021, the
Company entered into an agreement with a third party to dispose of land, equipment and an FCC license in connection with a sale of a station in San Francisco, California. The Company conducted an analysis and determined the assets met the criteria to be classified as held for sale. In aggregate, these assets have a carrying value of approximately $i1.0 million. In the second quarter of 2022, the
Company completed this sale. The Company recognized a loss on the sale, net of commissions and other expenses, of approximately $i0.5 million.
During the second quarter of 2022, the Company entered into an agreement with a third party to dispose of land, and equipment
in Houston, Texas. The Company conducted an analysis and determined the assets met the criteria to be classified as held for sale. In aggregate, these assets have a carrying value of approximately $i4.2 million. The transaction is expected to close within ione
year.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. This is considered a Level 3 measurement.
i
The major categories of these assets held for sale are as follows as of the dates indicated:
The Company temporarily suspended the ESPP following the purchase of shares under the ESPP for the first quarter of 2020. The ESPP resumed on July 1, 2021. iThe following table presents the amount of shares purchased and non-cash compensation expense recognized in connection with
the ESPP as of the periods indicated:
During the six months ended June 30, 2022, the Company did inot repurchase any shares under the 2017 Share Repurchase Program. As of June 30, 2022, $i41.6 million
is available for future share repurchases under the 2017 Share Repurchase Program.
The
Company is subject to various outstanding claims which arise in the ordinary course of business and to other legal proceedings. Management anticipates that any potential liability of the Company, which may arise out of or with respect to these matters, will not materially affect the Company’s financial position, results of operations or cash flows. There were no material changes from the contingencies listed in the Company’s Form 10-K, filed with the SEC on March 1, 2022.
Events occurring after June 30, 2022, and through the date that these condensed consolidated financial statements were issued, were evaluated to ensure that any subsequent events that met the criteria for recognition have been included and are as follows:
NYSE Notice of Failure to Satisfy a Continued Listing Rule or Standard
On
August 1, 2022, the Company was notified by the NYSE that the Company is not in compliance with Rule 802.01C of the NYSE's Listed Company Manual relating to the minimum average closing price of its Class A common stock required over a consecutive 30 trading-day period. The notice does not result in the immediate delisting of the Company's common stock from the NYSE.
The Company intends to timely notify the NYSE within i10
business days of its intent to regain compliance with the minimum price condition within the six-month cure period provided by NYSE rules. The Company can regain compliance at any time within the cure period if, on the last trading day of any calendar month during the cure period, the common stock has a closing share price of at least $1.00 and an average closing share price of at least $1.00 over the 30 trading-day period ending on the last trading day of that month.
The Company intends to consider available alternatives, including, but not limited to, a reverse stock split, subject to shareholder approval no later than at the Company's next annual meeting of shareholders,
if necessary, to regain compliance. Under the NYSE's rules, if the Company determines that it will regain compliance by taking an action that will require shareholder approval at its next annual meeting of shareholders, the minimum price condition will be deemed cured if the price promptly exceeds $1.00 per share, and the price remains above that level for at least the following 30 trading days.
During this time, the Company's common stock will continue to be listed on the NYSE, subject to the Company's compliance with other NYSE continued listing requirements. However, there can be no assurance about the
Company's ability to regain compliance with the minimum price condition within the applicable cure periods.
ITEM 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations
In preparing the discussion and analysis contained in this Item 2, we presume that readers have read or have access to the discussion and analysis contained in our Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on March
1, 2022. In addition, you should read the following discussion and analysis of our financial condition and results of operations in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this report. The following results of operations include a discussion of the six and three months ended June 30, 2022 as compared to the comparable period in the prior year. Our results of operations during the relevant periods represent the operations of the radio stations owned or operated by us.
The following discussion and analysis contains forward-looking statements about our business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions. You should not place undue reliance on any of these forward-looking statements. In addition, any forward-looking statement speaks only
as of the date on which it is made, and we undertake no obligation to update any forward-looking statement or statements to reflect events or circumstances after the date on which the statement is made, to reflect the occurrence of unanticipated events or otherwise, except as required by law. New factors emerge from time to time, and it is not possible for us to predict which will arise or to assess with any precision the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.
Results of Operations for the Year-To-Date
The following significant factors affected our results of operations for the six months ended June 30,
2022, as compared to the six months ended June 30, 2021:
COVID-19 Pandemic and Current Macroeconomic Conditions
In December 2019, a novel strain of coronavirus ("COVID-19") surfaced which resulted in an outbreak of infections throughout the world, which has affected operations and global supply chains. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. While the full impact of this pandemic is not yet known, we have taken proactive actions in an effort to mitigate its effects and are continually assessing its effects on our business, including how it has and will continue to impact advertisers, professional sports and live events.
In March 2020, we began to experience adverse effects due to the pandemic. During
the second quarter of 2020, we experienced significant declines in revenue performance. April revenues were most significantly impacted and we began to experience sequential month over month improvement in our revenue performance in May through December of 2020.
Due to the seasonality of the business, the month over month improvement in net revenues did not continue into the first quarter of 2021. However, net revenues in each month from March 2021 to December 2021 exceeded net revenues in each month from March 2020 to December 2020. Again, due to the seasonality of the business, the month over month improvement in net revenues did not continue into the first quarter of 2022. However, net revenues in each month from January 2022 to June 2022 exceeded net revenues in each month from January 2021 to June 2021. While we experienced sequential growth in net revenues month-over-month through June 2022, the pace of such growth
began to slow down in June 2022 due to the current macroeconomic conditions.
We are currently unable to predict the extent of the impact that the current macroeconomic conditions will have on our financial condition, results of operations and cash flows in future periods due to numerous uncertainties, but we believe the impact could be material if conditions persist.
The extent to which the current macroeconomic conditions impact our business, operations and financial results is inherently uncertain and will depend on numerous evolving factors that we may not be able to accurately predict. Therefore, the results for the six months ended June 30, 2022, may not be indicative of the results for the year ending December 31, 2022.
WideOrbit
Streaming Acquisition
On October 20, 2021, we completed an acquisition of WideOrbit's digital audio streaming technology and the related assets and operations of WideOrbit Streaming for approximately $40.0 million (the "WideOrbit Streaming Acquisition"). We will operate WideOrbit Streaming under the name AmperWave ("AmperWave"). We funded this acquisition through a draw on our revolving credit facility (the "Revolver"). Based upon the timing of the WideOrbit Streaming Acquisition, our condensed
consolidated
financial statements for the six months ended June 30, 2022, reflect the results of AmperWave. Our condensed consolidated financial statements for the six months ended June 30, 2021 do not reflect the results of AmperWave.
Urban One Exchange
In April 2021, we completed a transaction with Urban One, Inc. ("Urban One") under which we exchanged our four station cluster in Charlotte, North Carolina for one station in St. Louis, Missouri, one station in Washington, D.C., and one station in Philadelphia, Pennsylvania (the "Urban One Exchange"). We began programming the respective stations under local marketing agreements ("LMAs") on November 23, 2020. Based on the timing of this transaction, our condensed consolidated
financial statements for the six months ended June 30, 2022: (i) reflect the results of the acquired stations; and (ii) do not reflect the results of the divested stations. Our condensed consolidated financial statements for the six months ended June 30, 2021: (i) reflect the results of the acquired stations for the portion of the period in which the LMAs were in effect; and (ii) do not reflect the results of the divested stations.
Podcorn Acquisition
In March 2021, we completed an acquisition of podcast influencers marketplace, Podcorn Media, Inc. ("Podcorn") for $14.6 million in cash and a performance-based earn out which is based upon the achievement of certain annual performance benchmarks over a two year period (the "Podcorn Acquisition"). Based on the timing
of this transaction, our condensed consolidated financial statements for the six months ended June 30, 2022, reflect the results of Podcorn. Our condensed consolidated financial statements for the six months ended June 30, 2021, reflect the results of Podcorn for the portion of the period after the completion of the Podcorn Acquisition.
Restructuring Charges
In connection with the CBS Radio business acquisition in November 2017 (the "Merger") and the COVID-19 pandemic, we incurred restructuring charges, including workforce reductions and other restructuring costs of $1.9 million during each of the six months ended June 30, 2022 and June 30, 2021. Amounts were expensed as incurred
and are included in Restructuring charges.
Note Issuance - The 2029 Notes
During the first quarter of 2021, we issued $540.0 million in aggregate principal amount of senior secured second-lien notes due March 31, 2029 (the "2029 Notes"). Interest on the 2029 Notes accrues at the rate of 6.750% per annum and is payable semi-annually in arrears on March 31 and September 30 of each year.
We used net proceeds of the offering, along with cash on hand, to: (i) repay $77.0 million of existing indebtedness under our term B-2 loan (the "Term B-2 Loan"); (ii) repay $40.0 million of drawings under our revolving credit facility (the "Revolver"); and (iii) fully redeem all of our $400.0 million aggregate principal amount of 7.250% senior notes due 2024 (the "Senior Notes")
and to pay fees and expenses in connection with the redemption.
In connection with this activity, during the first quarter of 2021, we: (i) recorded $6.6 million of new debt issuance costs attributable to the 2029 Notes; and (ii) $0.4 million of debt issuance costs attributable to the Revolver. We also incurred $0.5 million of costs which were classified within refinancing expenses.
In connection with the redemption of the Senior Notes during the first quarter of 2021, we wrote off the following amounts to gain/loss on extinguishment of debt: (i) $14.5 million in prepayment premiums for the early retirement of the Senior Notes; (ii) $8.7 million of unamortized premium attributable to the Senior Notes; (iii) $1.0 million of unamortized debt issuance costs attributable to the Senior Notes; and (iv) $1.3 million of unamortized debt issuance costs attributable to the Term B-2 Loan.
Note
Issuance - The 2027 Notes
During 2019, we, issued $425.0 million in aggregate principal amount of senior secured second-lien notes due May 1, 2027 (the "Initial 2027 Notes"). Interest on the Initial 2027 Notes accrues at the rate of 6.500% per annum and is payable semi-annually in arrears on May 1 and November 1 of each year. The Initial 2027 Notes are governed by an indenture dated as of April 30, 2019 (the "Base Indenture"), as supplemented by a first supplemental indenture dated December 13, 2019
(the "First Supplemental Indenture"), (collectively, the "Indenture").
During the fourth quarter of 2021, we issued $45.0 million of additional 6.500% senior secured second-lien notes due 2027 (the "Additional 2027 Notes"). The Additional 2027 Notes are treated as a single series with the Initial 2027 Notes. We used net proceeds of the Additional 2027 Notes offering to repay $44.6 million of existing indebtedness under the Term B-2 Loan. Increases in our interest
expense occurred due to the issuance of the Additional 2027 Notes which have a higher interest rate than the Term B-2 Loan. In connection with this note issuance: (i) we incurred third party costs of approximately $1.1 million, of which approximately $0.8 million was capitalized and approximately $0.4 million was captured as refinancing expenses.
During the six months ended June 30, 2022, we repurchased $10.0 million of our 2027 Notes through open market purchases. This repurchase activity generated a gain on retirement of the 2027 Notes in the amount of $0.6 million.
Impairment Loss
The impairment loss incurred during the six months ended June 30, 2022 includes $3.2 million related to an early termination of leases in several markets. The
impairment loss incurred during the six months ended June 30, 2021 includes a $0.8 million write down of property and equipment and $0.5 million related to an early termination of certain leases.
Net (Gain) Loss on Sale or Disposal
During 2022, we entered into an agreement with a third party Qualified Intermediary ("QI"), under which we entered into an exchange of real property held for productive use or investment. This agreement relates to the sale of real property and identification and acquisition of replacement property. Total proceeds from the sale resulted in a gain of approximately $2.5 million. During the six months ended June 30, 2022, we finalized the sale of assets which had previously been classified within assets held for sale and recognized a loss of $0.5 million. Additionally,
we also recognized a gain of $0.6 million in connection with the bond repurchase activity discussed above.
Revenues increased compared to prior year primarily due to economic recovery and improvements across all segments of our business from the depressed levels of the prior year. Prior year revenues
were negatively impacted from the economic slowdown triggered by the COVID-19 pandemic. In the current year, we continued to report sequential growth in net revenues month-over-month. This trend may not continue in future periods due to the current macroeconomic conditions.
Net revenues were also positively impacted by: (i) growth in our spot revenues; (ii) growth in our digital revenues; and (iii) the operations of AmperWave for the full period;
Net revenues increased the most for our stations located in the New York City and Philadelphia markets. Net revenues decreased the most for our stations located in the Minneapolis and Sacramento markets.
Station Operating Expenses
Station operating expenses increased compared to prior year primarily due to: (i) an increase in payroll and related
expenses in the current year; (ii) an increase in digital expenses related to user acquisition, content licenses and podcast host and talent fees; and (iii) an increase in 2022 revenues which resulted in a corresponding increase in variable sales-related expenses.
Station operating expenses include non-cash compensation expense of $2.2 million and $2.1 million for the six months ended June 30, 2022 and June 30, 2021, respectively.
Depreciation and Amortization Expense
Depreciation and amortization expense increased primarily due to an increase in amortization of intangible assets in 2022 relative to 2021. The increase in amortization is due to the addition of amortizable intangible assets in the WideOrbit Streaming Acquisition and the Podcorn
Acquisition. Additionally, depreciation and amortization expense increased due to an increase in capital expenditures in 2022 relative to 2021.
Corporate General and Administrative Expenses
Corporate general and administrative expenses increased primarily as a result of an increase in payroll and related expenses in the current year. This increase was partially offset by a decrease in corporate rebranding costs in connection with our corporate name change in 2021, which is nonrecurring in nature.
Corporate general and administrative expenses include non-cash compensation expense of $3.9 million and $3.2 million for the six months ended June 30, 2022 and June 30, 2021, respectively.
Restructuring
Charges
We incurred restructuring charges in 2022 and 2021 primarily in response to the COVID-19 pandemic. These costs primarily included workforce reduction charges.
Impairment Loss
The impairment loss incurred during the six months ended June 30, 2022 primarily consists of a $3.2 million charge related to an early termination of certain leases. The impairment loss incurred during the six months ended June 30, 2021 includes a $0.8 million write down of property and equipment and $0.5 million related to an early termination of certain leases.
Net Gain on Sale or Disposal
During the six months ended June 30,
2022, we recognized: (i) a gain of approximately $2.5 million on the sale of a land easement in San Francisco, California; and (ii) a gain on bond repurchases of $0.6 million. These gains were partially offset by a loss on sale of a station in San Francisco, California of $0.5 million.
Refinancing Expenses
We incurred $0.5 million of costs in connection with the issuance of the 2029 Notes during 2021.
In connection with the Podcorn Acquisition, we recorded a contingent consideration
liability during the first quarter of 2021, which is subject to fair value remeasurements. Due to fluctuation in the market-based inputs used to develop the discount rate, the discount rate has increased during the six months ended June 30, 2022. Additionally, a reduction in projected Adjusted EBITDA values resulted in a lower expected present value of the contingent consideration. As a result, the fair value of the contingent consideration decreased $7.7 million during the six months ended June 30, 2022.
Interest Expense
During the six months ended June 30, 2022, we incurred an additional $4.3 million in interest expense as compared to the six months ended June 30, 2021.
This
increase in interest expense was primarily attributable to an increase in the outstanding variable-rate indebtedness upon which interest is computed coupled with an increase in variable interest rates. This increase was partially offset by a reduction in outstanding fixed-rate indebtedness upon which interest is computed.
We recognized an income tax benefit at an effective income tax rate of 25.9% for the six months ended June 30, 2022. The effective income tax rate was determined using a forecasted tax rate based upon projected taxable income for the year. The effective income tax rate for the period was impacted by permanent items, state tax expense, discrete income tax
expense items related to stock based compensation, a valuation allowance for certain state net operating losses, and interest and penalties associated with uncertain tax positions.
On March 27, 2020, the United States enacted the Coronavirus Aid, Relief, and Economic Security Act (the "CARES Act"). The CARES Act is an emergency economic stimulus package that includes spending and tax breaks to strengthen the United States economy and fund a nationwide effort to curtail the effects of the COVID-19 pandemic. The CARES Act includes significant business tax provisions that, among other things, includes the removal of certain limitations on utilization of NOLs, increases the loss carry back period for certain losses to five years, and increases the ability to deduct interest expense, as well as amending certain provisions of the previously enacted Tax Cuts and Jobs Act. We
were able to carryback our 2020 federal income tax loss to prior tax years and file a refund claim with the Internal Revenue Service ("IRS") for $15.2 million.
On December 27, 2020, the United States enacted the Consolidated Appropriations Act, 2021 (the "Appropriations Act"), an additional stimulus package providing financial relief for individuals and small businesses. The Appropriations Act contains a variety of tax provisions, including full expensing of business meals in 2021 and 2022, and expansion of the employee retention tax credit. We do not currently expect the Appropriations Act to have a material tax impact.
We recognized an income tax benefit at an effective income
tax rate was 46.8% for the six months ended June 30, 2021, which was determined using a forecasted rate based upon projected taxable income for the year.
Revenues increased compared to prior year primarily due to economic recovery and improvements across all segments of our business from the depressed levels of the prior year. Prior year revenues were negatively impacted from the economic slowdown triggered by the COVID-19 pandemic. In the current year, we continued to report sequential growth in net revenues month-over-month. This trend may not continue in future periods due to the current macroeconomic conditions.
Net revenues were also positively impacted by: (i) growth in our spot revenues; (ii) growth in our digital revenues; and (iii) the operations of AmperWave for the full period.
Net revenues increased the most for our stations located in the New York City and Philadelphia markets. Net revenues decreased the most for our stations located in the Dallas and Sacramento
markets.
Station Operating Expenses
Station operating expenses increased compared to prior year primarily due to: (i) an increase in payroll and related expenses in the current year; (ii) an increase in digital expenses related to user acquisition, content licenses and podcast host and talent fees; and (iii) an increase in 2022 revenues which resulted in a corresponding increase in variable sales-related expenses.
Station operating expenses include non-cash compensation expense of $1.0 million for each of the three months ended June 30, 2022 and June 30, 2021.
Depreciation and Amortization Expense
Depreciation and amortization expense
increased primarily due to an increase in amortization of intangible assets in 2022 relative to 2021. The increase in amortization is due to the addition of amortizable intangible assets in the WideOrbit Streaming
Acquisition and the Podcorn Acquisition. Additionally, depreciation and amortization expense increased due to an increase in capital expenditures in 2022 relative to 2021.
Corporate General and Administrative Expenses
Corporate general and administrative expenses increased primarily as a result of an increase in payroll and related expenses in the current year.
Corporate
general and administrative expenses include non-cash compensation expense of $2.1 million and $1.6 million for the three months ended June 30, 2022 and June 30, 2021, respectively.
Restructuring Charges
We incurred restructuring charges in 2022 and 2021 primarily in response to the COVID-19 pandemic. These costs primarily included workforce reduction charges and were expensed as incurred.
Impairment Loss
The impairment loss incurred during the three months ended June 30, 2022 primarily consists of a $2.1 million charge related to an early termination of certain leases, which was partially offset by $0.4 million of gains recognized from removal of
certain leased assets. The impairment loss incurred during the three months ended June 30, 2021 primarily consists of a $0.5 million write down of property and equipment.
Net Gain on Sale or Disposal
During the three months ended June 30, 2022, we recognized a gain on bond repurchases of $0.6 million. These gains were partially offset by a loss on sale of a station in San Francisco, California of $0.5 million. During the three months ended June 30, 2021, we recognized a gain on the Urban One Exchange of $3.9 million and a sale of an investment of $0.9 million. These gains were partially offset by a loss related to disposal of property, plant and equipment in Pittsburgh, Pennsylvania of approximately $1.1 million.
Change
in Fair Value of Contingent Consideration
In connection with the Podcorn Acquisition, we recorded a contingent consideration liability during the first quarter of 2021, which is subject to fair value remeasurements. Due to fluctuation in the market-based inputs used to develop the discount rate, the discount rate has increased during the three months ended June 30, 2022. Additionally, a reduction in projected Adjusted EBITDA values resulted in a lower expected present value of the contingent consideration. As a result, the fair value of the contingent consideration decreased $8.0 million during the three months ended June 30, 2022.
Interest Expense
During the three months ended June 30, 2022,
we incurred an additional $1.9 million in interest expense as compared to the three months ended June 30, 2021.
This increase in interest expense was primarily attributable to an increase in the outstanding variable-rate indebtedness upon which interest is computed coupled with an increase in variable interest rates. This increase was partially offset by a reduction in outstanding fixed-rate indebtedness upon which interest is computed.
Income Tax Benefit
For the three months ended June 30, 2022, the effective income tax rate was 23.8%. The effective income tax rate for the quarter was impacted by permanent items, state tax expense, discrete income tax expense items related to stock based compensation, a valuation allowance for certain
state net operating losses, and interest and penalties associated with uncertain tax positions.
For the three months ended June 30, 2021, the effective income tax rate was 417.6%, which was determined using a forecasted rate based upon projected taxable income for the full year along with the impact of discrete items for the quarter.
Although
we have been, and expect to continue to be, negatively impacted by the COVID-19 pandemic and expect to continue to be negatively impacted by current macroeconomic conditions, we anticipate that our business will continue to generate sufficient cash flow from operating activities and we believe that these cash flows, together with our existing cash and cash equivalents and our ability to draw on current credit facilities, will be sufficient for us to meet our current and long-term liquidity and capital requirements. However, our ability to maintain adequate liquidity is dependent upon a number of factors, including our revenue, macroeconomic conditions, the length and severity of business disruptions, our ability to contain costs and to collect accounts receivable, and various other factors, many of which are beyond our control. Moreover, if the current macroeconomic conditions continue to create significant disruptions in the credit or financial markets, or impacts
our credit ratings, it could adversely affect our ability to access capital on attractive terms, if at all. We also expect the timing of certain priorities to be impacted, such as the pace of our debt reduction efforts and the delay of certain capital projects.
The Credit Facility, as amended, is comprised of the $250.0 million Revolver and the Term B-2 Loan. As of June 30, 2022, we had $632.4 million outstanding under the Term B-2 Loan and $135.0 million outstanding under the Revolver. In addition, we had $6.1 million in outstanding letters of credit. During the six months ended June 30, 2022, we repaid $22.7 million outstanding under our Revolver and borrowed an additional $60.0 million under our Revolver.
During the six months ended June 30,
2022, we repurchased $10.0 million of our 2027 Notes through open market purchases. This repurchase activity generated a gain on retirement of the 2027 Notes in the amount of $0.6 million.
As of June 30, 2022, total liquidity was $149.7 million, which was comprised of $109.1 million available under the Revolver and $40.6 million in cash, cash equivalents and restricted cash. For the six months ended June 30, 2022, we increased our outstanding debt by $29.3 million due to the previously discussed revolver pay down and borrowing activity and the bond repurchase activity against the 2027 Notes.
As of June 30, 2022, our Consolidated Net First Lien Leverage Ratio was 3.6 times as calculated in accordance with the terms of our Credit
Facility, which place restrictions on the amount of cash, cash equivalents and restricted cash that can be subtracted in determining consolidated first lien net debt.
Amendment and Repricing – CBS Radio (Now Audacy Capital Corp.) Indebtedness
In connection with the Merger, we assumed CBS Radio’s (now Audacy Capital Corp.’s) indebtedness outstanding under: (i) a credit agreement (the “Credit Facility”) among CBS Radio (now Audacy Capital Corp.), the guarantors named therein, the lenders named therein, and JPMorgan Chase Bank, N.A., as administrative agent; and (ii) the Senior Notes (described below).
The 2027 Notes
During 2019, we and our finance subsidiary, Audacy Capital Corp., issued $425.0 million in aggregate principal amount of senior secured second-lien notes due May
1, 2027 (the "Initial 2027 Notes"). Interest on the Initial 2027 Notes accrues at the rate of 6.500% per annum and is payable semi-annually in arrears on May 1 and November 1 of each year. The Initial 2027 Notes are governed by an indenture dated as of April 30, 2019 (the "Base Indenture"), as supplemented by a first supplemental indenture dated December 13, 2019 (the "First Supplemental Indenture), (collectively, the "Indenture").
A
portion of the Initial 2027 Notes was issued at a premium. As of any reporting period, the unamortized premium on the Initial 2027 Notes is reflected on the balance sheet as an addition to the Initial 2027 Notes.
We used net proceeds of the offering, along with cash on hand and amounts borrowed under our Revolver, to repay $521.7 million of existing indebtedness under our term loan component previously outstanding (the "Term B-1 Loan"). Contemporaneous with this partial pay-down of the Term B-1 Loan, we replaced the remaining amount outstanding under the Term B-1 Loan with the Term B-2 Loan.
During the fourth quarter of 2021, Audacy Capital Corp. issued $45.0 million of additional 6.500% senior secured second-line notes due 2027 (the "Additional 2027 Notes"). The Additional 2027 Notes were issued as additional notes under the Indenture. The
Additional 2027 Notes are treated as a single series with the Initial 2027 Notes (collectively, the "2027 Notes") and have substantially the same terms as the Initial 2027 Notes. The Additional 2027 Notes were issued at a price of 100.750%
of their principal amount. As of any reporting period, the unamortized premium on the 2027 Notes is reflected on the balance sheet as an addition to the $460.0 million 2027 Notes.
The 2027 Notes are fully and unconditionally guaranteed on a senior secured second-lien basis by most of the direct and indirect subsidiaries
of Audacy Capital Corp. The 2027 Notes and the related guarantees are secured on a second-lien priority basis by liens on substantially all of the assets of Audacy Capital Corp. and the guarantors.
A default under the 2027 Notes could cause a default under the Credit Facility and/or the 2029 Notes. Any event of default, therefore, could have a material adverse effect on our business and financial condition.
The 2027 Notes are not a registered security and there are no plans to register the 2027 Notes as a security in the future. As a result, Rule 3-10 of Regulation S-X promulgated by the SEC is not applicable and no separate financial statements are required for the guarantor subsidiaries.
The Credit Facility
The
Term B-2 Loan requires mandatory prepayments equal to a percentage of Excess Cash Flow, subject to incremental step-downs, depending on the Consolidated Net Secured Leverage Ratio. The Excess Cash Flow payment is based on the Excess Cash Flow and the Consolidated Net Secured Leverage Ratio for the prior year. We made our first Excess Cash Flow payment in the first quarter of 2020.
As of June 30, 2022, we were in compliance with the financial covenant then applicable and all other terms of the Credit Facility in all material respects. Our ability to maintain compliance with our financial covenant under the Credit Facility is highly dependent on our results of operations. Currently, given the impact of COVID-19, the outlook is highly uncertain.
Failure to comply with our financial covenant or other terms of our Credit Facility and
any subsequent failure to negotiate and obtain any required relief from our lenders could result in a default under the Credit Facility. We will continue to monitor our liquidity position and covenant obligations and assess the impact of the COVID-19 pandemic on our ability to comply with the covenants under the Credit Facility.
Any event of default could have a material adverse effect on our business and financial condition. We may seek from time to time to amend our Credit Facility or obtain other funding or additional funding, which may result in higher interest rates on our debt. However, we may not be able to do so on terms that are acceptable or to the extent necessary to avoid a default, depending upon conditions in the credit markets, the length and depth of the market reaction to the COVID-19 pandemic and our ability to compete in this environment.
The Credit Facility
- Amendment No. 5
On July 20, 2020, Audacy Capital Corp. entered into an amendment ("Amendment No. 5") to the Credit Agreement, dated October 17, 2016 (as previously amended, the "Existing Credit Agreement" and, as amended by Amendment No. 5, the "Credit Agreement"), with the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent. Amendment No. 5, among other things:
(a) amended our financial covenants under the Credit Agreement by: (i) suspending the testing of the Consolidated Net First Lien Leverage Ratio (as defined in the Credit Agreement) through the Test Period (as defined in the Credit Agreement) ending December 31, 2020; (ii) adding
a new minimum liquidity covenant of $75.0 million until December 31, 2021, or such earlier date as we may elect (the "Covenant Relief Period"); and (iii) imposing certain restrictions during the Covenant Relief Period, including among other things, certain limitations on incurring additional indebtedness and liens, making restricted payments or investments, redeeming notes and entering into certain sale and lease-back transactions;
(b) increased the interest rate and/or fees under the Credit Agreement during the Covenant Relief Period applicable to: (i) 2024 Revolving Credit Loans (as defined in the Credit Agreement) to (x) in the case of Eurodollar Rate Loans (as defined in the Credit Agreement), a customary Eurodollar rate formula plus a margin of 2.50% per annum, and (y) in the case of Base Rate Loans (as defined in the Credit Agreement), a customary base rate formula
plus a margin of 1.50% per annum, and (ii) Letter of Credit (as defined in the Credit Agreement) fees to 2.50% times the daily maximum amount available to be drawn under any such Letter of Credit; and
(c) modified the definition of Consolidated EBITDA by setting fixed amounts for the fiscal quarters ending June 30, 2020, September 30, 2020, and December 31, 2020, for purposes of testing compliance with the Consolidated Net First Lien Leverage
Ratio financial covenant
during the Covenant Relief Period, which fixed amounts correspond to the Borrower's Consolidated EBITDA as reported under the Existing Credit Agreement for the Test Period ended March 31, 2020, for the fiscal quarters ending June 30, 2019, September 30, 2019, and December 31, 2019, respectively.
The Credit Facility - Amendment No. 6
On March 5, 2021, Audacy Capital Corp. entered into an amendment ("Amendment No. 6") to the Credit Agreement, dated October 17, 2016 (as previously amended, the “Existing Credit Agreement” and, as amended by Amendment No. 6, the “Credit Agreement”),
with the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent.
Under the Existing Credit Agreement, during the Covenant Relief Period the Company was subject to a $75.0 million limitation on investments in joint ventures, Affiliates, Unrestricted Subsidiaries and Non-Guarantor Subsidiaries (each as defined in the Existing Credit Agreement) (the “Covenant Relief Period Investment Limitation”). Amendment No. 6, among other things, excludes from the Covenant Relief Period Investment Limitation any investments made in connection with a permitted receivables financing facility. The
Covenant Relief Period ended in the fourth quarter of 2021.
Accounts Receivable Facility
On July 15, 2021, we and certain of our subsidiaries entered into a $75.0 million accounts receivable securitization facility (the "Receivables Facility") to provide additional liquidity, to reduce our cost of funds and to repay outstanding indebtedness under the Credit Facility.
The documentation for the Receivables Facility includes (i) a Receivables Purchase Agreement (the “Receivables Purchase Agreement”) entered into by and among Audacy Operations, Inc., a Delaware corporation and our wholly-owned subsidiary (“Audacy Operations”), Audacy Receivables, LLC, a Delaware limited liability
company and our wholly-owned subsidiary, as seller (“Audacy Receivables”), the investors party thereto (the “Investors”), and DZ BANK AG Deutsche Zentral-Genossenschaftsbank, Frankfurt AM Main, as agent (“DZ BANK”); (ii) a Sale and Contribution Agreement (the “Sale and Contribution Agreement”), by and among Audacy Operations, Audacy New York, LLC, a Delaware limited liability company and our wholly-owned subsidiary (“Audacy NY”), and Audacy Receivables; and (iii) a Purchase and Sale Agreement (the “Purchase and Sale Agreement,” and together with the Receivables Purchase Agreement and the Sale and Contribution Agreement, the “Agreements”) by and among certain of our wholly-owned subsidiaries (together with Audacy NY, the “Originators”), Audacy Operations and Audacy NY.
Audacy Receivables
is considered a special purpose vehicle ("SPV") as it is an entity that has a special, limited purpose and it was created to sell accounts receivable, together with customary related security and interest in the proceeds thereof, to the Investors in exchange for cash investments.
Yield is payable to Investors under the Receivables Purchase Agreement at a variable rate based on either one-month LIBOR or commercial paper rates plus a margin. Collections on the accounts receivable: (x) will be used to: (i) satisfy the obligations of Audacy Receivables under the Receivables Facility; or (ii) purchase additional accounts receivable from the Originators; or (y) may be distributed to Audacy NY, the sole member of Audacy Receivables. Audacy Operations acts as the servicer under the Agreements.
The Agreements contain representations, warranties
and covenants that are customary for bankruptcy-remote securitization transactions, including covenants requiring Audacy Receivables to be treated at all times as an entity separate from the Originators, Audacy Operations, the Company or any of its other affiliates and that transactions entered into between Audacy Receivables and any of its affiliates shall be on arm’s-length terms. The Receivables Purchase Agreement also contains customary default and termination provisions which provide for acceleration of amounts owed under the Receivables Purchase Agreement upon the occurrence of certain specified events with respect to Audacy Receivables, Audacy Operations, the Originators, or the Company, including, but not limited to: (i) Audacy Receivables’ failure to pay yield and other amounts due; (ii)
certain insolvency events; (iii) certain judgments entered against the parties; (iv) certain liens filed with respect to assets; and (v) breach of certain financial covenants and ratios.
We have agreed to guarantee the performance obligations of Audacy Operations and the Originators under the Receivables Facility documents. We have not agreed to guarantee any obligations of Audacy Receivables or the collection of any of the receivables and will not be responsible for any obligations to the extent the failure to perform such obligations by Audacy Operations or any Originator results from receivables being uncollectible on account of the insolvency, bankruptcy or lack of creditworthiness or other financial inability to pay of the related obligor.
In general, the proceeds from the sale of the accounts receivable are used by the SPV to pay the purchase price for accounts receivables it acquires from Audacy NY and may be used to fund capital expenditures, repay borrowings on the Credit Facility, satisfy maturing debt obligations, as well as fund working capital needs and other approved uses.
Although the SPV is a wholly owned consolidated subsidiary of Audacy NY, the SPV is legally separate from Audacy NY. The assets of the SPV (including the accounts receivables) are not available to creditors of Audacy NY, Audacy Operations or the Company, and the accounts receivables are not legally assets of Audacy NY, Audacy Operations or the
Company. The Receivables Facility is accounted for as a secured financing. The pledged receivables and the corresponding debt are included in Accounts receivable and Long-term debt, respectively, on the Consolidated Balance Sheets.
The Receivables Facility will expire on July 15, 2024, unless earlier terminated or subsequently extended pursuant to the terms of the Receivables Purchase Agreement. The pledged receivables and the corresponding debt are included in Accounts receivable, net and Long-term debt, net of current portion, respectively, on the Condensed Consolidated Balance Sheet. At June 30, 2022, we had outstanding borrowings of $75.0 million under the Receivables Facility.
The 2029 Notes
During the first quarter of 2021, we
and our finance subsidiary, Audacy Capital Corp., issued $540.0 million in aggregate principal amount of senior secured second-lien notes due March 31, 2029 (the "2029 Notes"). Interest on the 2029 Notes accrues at the rate of 6.750% per annum and is payable semi-annually in arrears on March 31 and September 30 of each year.
We used net proceeds of the offering, along with cash on hand, to: (i) repay $77.0 million of existing indebtedness under the Term B-2 Loan; (ii) repay $40.0 million of drawings under the Revolver; and (iii) fully redeem all of our $400.0 million aggregate principal amount of 7.250% senior notes due 2024 (the "Senior Notes") and to pay fees and expenses in connection with the redemption.
In connection with this activity, during the first quarter of 2021, we: (i) recorded $6.6 million of new debt
issuance costs attributable to the 2029 Notes; and (ii) $0.4 million of debt issuance costs attributable to the Revolver which will be amortized over the remaining term of the Revolver on a straight line basis. We also incurred $0.5 million of costs which were classified within refinancing expenses.
The 2029 Notes are fully and unconditionally guaranteed on a senior secured second priority basis by each of the direct and indirect subsidiaries of Audacy Capital Corp. A default under the 2029 Notes could cause a default under our Credit Facility or the 2027 Notes. Any event of default, therefore, could have a material adverse effect on our business and financial condition.
The 2029 Notes are not a registered security and there are no plans to register the 2029 Notes as a security in the future. As
a result, Rule 3-10 of Regulation S-X promulgated by the SEC is not applicable and no separate financial statements are required for the guarantor subsidiaries.
The Senior Notes
Simultaneously with entering into the Merger and assuming the Credit Facility on November 17, 2017, we also assumed the Senior Notes that were set to mature on November 1, 2024 in the amount of $400.0 million (the “Senior Notes”). The Senior Notes, which were originally issued by CBS Radio (now Audacy Capital Corp.) on October 17, 2016, were valued at a premium as part of the fair value measurement on the date of the Merger. The premium on the Senior Notes was
amortized over the term under the effective interest rate method. As of any reporting period, the unamortized premium on the Senior Notes was reflected on the balance sheet as an addition to the $400.0 million liability.
As discussed above, during the six months ended June 30, 2021, we issued a call notice to redeem our Senior Notes with an effective date of April 10, 2021. We incurred interest on the Senior Notes until the redemption date. In connection with the redemption, we deposited the following funds to satisfy our obligations under the Senior Notes and discharge the Indenture governing the Senior Notes: (i) $400.0 million to redeem the Senior Notes in full; (ii) $14.5 million for a call premium for the early retirement of the Senior
Notes; and (iii) $12.8 million for accrued and unpaid interest through April 10, 2021. As a result of the refinancing, we recorded an $8.2 million loss on extinguishment of debt that included the call premium, the write off of unamortized debt issuance costs, and the write off of unamortized premium on the Senior Notes.
Net cash flows used in operating activities were $0.4 million for the six months ended June 30, 2022. Net cash flows provided by operating
activities were $28.4 million for the six months ended June 30, 2021.
The cash flows provided by operating activities decreased primarily due to: (i) an increase in net investment in working capital of $17.9 million; (ii) a decrease in loss on extinguishment of debt of $8.2 million; (iii) a decrease in net gains on deferred compensation of $7.8 million; and (iv) an increase in gain on remeasurement of contingent consideration of $7.7 million.
These decreases in cash flows provided by operating activities were partially offset by a decrease in net loss, as adjusted for certain non-cash charges and income tax benefits of $8.8 million.
The increase in investment in working capital is primarily due to the timing of: (i) collections of accounts receivable; (ii) settlements of accounts payable
and accrued liabilities; (iii) settlements of accrued interest expense; (iv) settlements of prepaid expenses; and (v) settlements of other long-term liabilities.
The decrease in net loss, as adjusted for certain non-cash charges and income tax benefits is primarily attributable to: (i) a reduction in net loss of $8.4 million; (ii) an increase in impairment loss of $1.9 million; and (iii) an increase in deferred tax benefits of $1.5 million.
Investing Activities
Net cash flows used in investing activities were $44.0 million and $33.7 million for the six months ended June 30, 2022 and June 30, 2021, respectively.
During 2022, net cash flows used in investing activities increased primarily due to an
increase in additions to tangible and intangible assets of $27.3 million in connection with investments in our A2 platform. This increase in cash flows used in financing activities was partially offset by: (i) a decrease in purchases of business and audio assets of $15.3 million; and (ii) an increase in proceeds from the sale of property, equipment, intangibles and other assets of $1.8 million.
Financing Activities
Net cash flows provided by financing activities were $25.5 million and $19.0 million for the six months ended June 30, 2022 and June 30, 2021, respectively.
During 2022, net cash flows provided by financing activities increased primarily due to: (i) a decrease in cash outflows related to the redemption of fixed rate debt of $390.0
million; (ii) a decrease of payments of long-term debt of $77.0 million; (iii) a decrease of payments against the Revolver of $29.3 million; (iv) an increase in borrowing under the Revolver of $28.0 million; (v) a decrease in payments of call premiums and other fees of $14.5 million; and (vi) a decrease in payments for debt issuance costs of $6.9 million. These increases in cash flows provided by financing activities were partially offset by a decrease in proceeds from issuance of long term debt of $540.0 million.
Dividends
We presently do not pay a dividend. Any future dividends will be at the discretion of the Board based upon the relevant factors at the time of such consideration, including, without limitation, compliance with the restrictions set forth in our Credit Facility, the 2027 Notes and the 2029 Notes.
Share Repurchase Program
During
the six months ended June 30, 2022, we did not repurchase any shares under our share repurchase program (the "2017 Share Repurchase Program"). As of June 30, 2022, $41.6 million is available for future share repurchases under the 2017 Share Repurchase Program.
Income Taxes
Under the CARES Act, we were able to carry back our 2020 federal income tax loss to prior tax years and file a refund claim with the IRS for $15.2 million. During the six months ended June 30, 2022, we received a federal tax refund of
approximately $15.2 million. We do not anticipate making any federal income tax payments in 2022 primarily as a result of the availability of NOLs to offset federal tax due.
For federal income tax purposes, the acquisition of CBS Radio was treated as a reverse acquisition which caused us to undergo an ownership change under Section 382 of the Internal Revenue Code ("Code"). This ownership change will limit the utilization of our NOLs for post-acquisition tax years. We may need to make additional state estimated tax payments during the remainder of the year.
Capital Expenditures
Capital expenditures, including amortizable intangibles, for the six months ended June 30, 2022 were $46.9 million. We anticipate that total
capital expenditures in 2022 will be between $75 million and $78 million as we increase our investment in the rapidly growing digital audio advertising market.
Contractual Obligations
As of June 30, 2022, there have been no net material changes in the total amount from the contractual obligations listed in our Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 1, 2022, other than as described below.
As discussed above in the liquidity section, during the six months ended June 30, 2022, we made
a voluntary prepayments against our Revolver of $22.7 million. We borrowed an additional $60.0 million under our Revolver, and also made opportunist repurchases under our 2027 Notes in the amount of $10.0 million. As a result of this activity, the amounts outstanding under our long-term debt obligations increased by $29.3 million during the six months ended June 30, 2022.
Off-Balance Sheet Arrangements
As of June 30, 2022, we did not have any material off-balance sheet transactions, arrangements or obligations, including contingent obligations.
During 2022, we disposed of certain property that we considered as surplus
to our operations and that resulted in a gain of approximately $2.5 million. In order to minimize the tax impact on a certain portion of these taxable gains, we created an entity that serves as a qualified intermediary (“QI”) for tax purposes and that held the net sales proceeds of $2.5 million from this transaction. As of June 30, 2022, the balance in the account of the QI is $0.1 million and this amount is reflected as restricted cash on our condensed consolidated balance sheet. We used a portion of these funds in a tax-free exchange by using the net sales proceeds from relinquished property for the purchase of replacement property. This entity was treated as a variable interest entity (“VIE”) and is included in our consolidated financial statements as we are considered the primary beneficiary.
The use of a QI in a like-kind
exchange enables us to effectively minimize our tax liability in connection with certain asset dispositions. As discussed in Note 1, Basis of Presentation and Significant Policies, we sold real property in San Francisco, California for net proceeds of $2.5 million. During the second quarter of 2022, we used a portion of these proceeds to repurchase replacement property in the amount of $2.4 million. These net sales proceeds were deposited into the account of the QI to comply with requirements under Section 1031 of the Code to execute a like-kind exchange. The remaining unused portion of funds are reflected as restricted cash on our condensed consolidated balance sheet as of June 30, 2022. Restrictions on these deposits will lapse prior to the end of the third quarter of 2022.
We do not have any other relationships with unconsolidated entities or financial partnerships, such
as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet financial arrangements or other contractually narrow or limited purposes as of June 30, 2022. Accordingly, we are not materially exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in such relationships.
Critical Accounting Policies
There have been no material changes to our critical accounting policies from the information provided in Part II, Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations - Critical Accounting Policies, in our Annual Report on Form 10-K for the
year ended December 31, 2021, as filed with the SEC on March 1, 2022.
We no longer have any goodwill attributable to the broadcast reporting unit. Our remaining goodwill as of June 30, 2022 is limited to the goodwill acquired in the Cadence13 Acquisition and Pineapple Acquisition in 2019, the goodwill acquired in the BetQL
Acquisition in 2020, and the goodwill acquired in the Podcorn Acquisition and WideOrbit Streaming Acquisition in 2021.
Future impairment charges may be required on our goodwill, as the discounted cash flow model is subject to change based upon our performance, peer company performance, overall market conditions, and the state of the credit markets. We continue to monitor these relevant factors to determine if an interim impairment assessment is warranted.
A deterioration in our forecasted financial performance, an increase in discount rates, a reduction in long-term growth rates, a sustained decline in our stock price, or a failure to achieve analyst expectations could all be potential indicators of an impairment to the remaining goodwill, which could be material, in future periods. Due to the uncertainty of the current market and economic conditions, there is an increased risk
of future impairment.
As of June 30, 2022, we evaluated whether the facts and circumstances and available information result in the need for an impairment assessment for any goodwill, particularly the results of operations, increase in interest rates and related impact on the weighted average cost of capital and changes in stock price, and concluded no impairment was indicated. We will continue to evaluate the impacts of the current macroeconomic conditions on our business, including the impacts of overall economic conditions, which could result in the recognition of an impairment charge, which could be material, in the future.
Broadcasting License Valuation Risk
After
the annual impairment test conducted on our broadcasting licenses in the fourth quarter of 2021, the results indicated that there were 17 units of accounting where the fair value exceeded their carrying value by 10% or less. In aggregate, these 17 units of accounting had a carrying value of $875.2 million at December 31, 2021.
If overall market conditions or the performance of the economy deteriorates, advertising expenditures and radio industry results could be negatively impacted, including expectations for future growth. This could result in future impairment charges for these or other of our units of accounting, which could be material. Due to the uncertainty of the current market and economic conditions, there is an increased risk of future impairment.
As of June 30, 2022, we
evaluated whether the facts and circumstances and available information result in the need for an impairment assessment for any of our broadcasting licenses, particularly the increase in interest rates and related impact on the weighted average cost of capital, and concluded no impairment was indicated. We will continue to evaluate the impacts of the current macroeconomic conditions on our business, including the impacts of overall economic conditions, which could result in the recognition of an impairment charge, which could be material, in the future.
ITEM 3. Quantitative And Qualitative Disclosures About Market Risk
We are exposed to market risk from changes in interest rates on our variable-rate senior indebtedness (the Term B-2 Loan and Revolver). From
time to time, we may seek to limit our exposure to interest rate volatility through the use of derivative rate hedging instruments.
As of June 30, 2022, if the borrowing rates under LIBOR were to increase 1% above the current rates, our interest expense on: (i) our Term B-2 Loan would increase $6.3 million on an annual basis, including any increase or decrease in interest expense associated with the use of derivative rate hedging instruments as described below; and (ii) our Revolver would increase by $2.5 million, assuming our entire Revolver was outstanding as of June 30, 2022.
We may seek from time to time to amend our Credit Facility or obtain additional funding, which may result in higher interest rates on our indebtedness and could increase our exposure to variable-rate indebtedness.
During
the quarter ended June 30, 2019, we entered into the following derivative rate hedging transaction in the notional amount of $560.0 million to hedge our exposure to fluctuations in interest rates on our variable-rate debt. This rate hedging transaction is tied to the one-month LIBOR interest rate.
The
fair value (based upon current market rates) of the rate hedging transaction is included as derivative instruments in other assets, net of accumulated amortization at June 30, 2022 as the maturity dates on this instrument are greater than one year. The fair value of the hedging transaction is affected by a combination of several factors, including the change in the one-month LIBOR rate. Any increase in the one-month LIBOR rate results in a more favorable valuation, while any decrease in the one-month LIBOR rate results in a less favorable valuation.
Our credit exposure under our hedging agreement, or similar agreements we may enter into in the future, is the cost of replacing such agreements in the event of nonperformance by our counterparty. To minimize this risk, we select high credit quality counterparties. We do not anticipate nonperformance by such counterparties, but could
recognize a loss in the event of nonperformance. Our derivative instrument asset as of June 30, 2022 was $2.0 million.
From time to time, we invest all or a portion of our cash in cash equivalents, which are money market instruments consisting of short-term government securities and repurchase agreements that are fully collateralized by government securities. When such investments are made, we do not believe that we have any material credit exposure with respect to these assets. As of June 30, 2022, we did not have any investments in money market instruments.
Our credit exposure related to our accounts receivable does not represent a significant concentration of credit risk due to the quantity of advertisers, the minimal reliance on any one advertiser, the multiple markets in which
we operate and the wide variety of advertising business sectors.
See also additional disclosures regarding liquidity and capital resources made under Liquidity and Capital Resources in Part 1, Item 2, above.
ITEM 4. Controls And Procedures
Evaluation of Controls and Procedures
We maintain “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended) that are designed to provide reasonable assurance that: (i) information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s
rules and forms; and (ii) such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our President/Chief
Executive Officer and Executive Vice President/Chief Financial Officer concluded that our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
We currently and from time to time are involved in litigation incidental to the conduct of our business. Management anticipates that any potential liability of the Company, which may arise out of or with respect to these matters, will not materially affect the Company’s financial position, results of operations or cash flows. There were no material developments relating to the legal proceedings described in our Annual Report on Form 10-K for the year ended December
31, 2021, filed with the Securities and Exchange Commission (the "SEC") on March 1, 2022. Refer to Note 16, Contingencies And Commitments, for additional information.
ITEM 1A Risk Factors
Except as set forth below, there have been no material changes to the risk factors associated with our business previously described in our Annual Report on Form 10-K filed with the SEC on March 1, 2022. The risk factors set forth below update, and should be read together with, the risk factors described in "Item 1A, Risk Factors," in our Annual Report on Form 10-K filed with the SEC on March 1, 2022.
If
we are not in compliance with the continued listing standards of the New York Stock Exchange, our common stock may be delisted, which could have a material adverse effect on the liquidity of our common stock.
Our common stock is listed on the New York Stock Exchange ("NYSE"). On August 1, 2022, we were notified that we were not in compliance with the NYSE's continued listing requirements relating to the minimum average closing price per share of our common stock, because the average closing price of our common stock over a consecutive 30 trading-day period was below $1.00 per share.
We have a period of ten business days following the receipt of the notice to notify the NYSE of our intent to regain compliance with the minimum price condition within a six-month cure period provided by NYSE
rules.We can regain compliance at any time within the cure period if, on the last trading day of any calendar month during the cure period, our common stock has a closing share price of at least $1.00 and an average closing share price of at least $1.00 over the 30 trading-day period ending on the last trading day of that month. If we fail to regain compliance with the NYSE's minimum price condition by the end of the cure period, our common stock will be subject to the NYSE’s suspension and delisting procedures.
We intend to consider available alternatives, including, but not limited to, a reverse stock split, subject to shareholder approval no later than at our next annual meeting of shareholders, if necessary, to regain compliance.Under the NYSE’s rules, if we determine that we will
regain compliance by taking an action that will require shareholder approval at our next annual meeting of shareholders, the minimum price condition will be deemed cured if the price promptly exceeds $1.00 per share, and the price remains above that level for at least the following 30 trading days.
During this time, our common stock will continue to be listed on the NYSE, subject to our compliance with other NYSE continued listing requirements. However, there can be no assurance about our ability to regain compliance with the NYSE's minimum price condition within the applicable cure periods.
We
withheld shares upon the vesting of RSUs in order to satisfy employees’ tax obligations. As a result, we are deemed to have purchased: (i) 9,328 shares at an average price of $2.78 in April 2022; (ii) 11,939 shares at an average price of $1.94 in May 2022; and (iii) 1,547 shares at an average price of $1.20 in June 2022. These shares are included in the table above.
(2)
On November 2, 2017, our Board announced a share repurchase program (the “2017 Share Repurchase Program”) to permit us to purchase up to $100.0 million of our issued and outstanding shares of Class A common stock through open market purchases. In connection with the 2017 Share Repurchase Program, we did not repurchase any shares during the three months ended June 30,
2022.
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.
