NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2021 AND 2020
1. BASIS OF PRESENTATION AND SIGNIFICANT POLICIES
Audacy, Inc. (formerly Entercom Communications Corp.) was formed as a Pennsylvania corporation in 1968. On March 30, 2021, the Company filed Articles of Amendment (the "Amendment") to change the Company's name to Audacy, Inc. The Amendment was approved by the Board of Directors of the Company in accordance with the Pennsylvania Business Corporation Law as amended. The effective date of the Amendment (and the Company's name change) was April 9, 2021. The Company's ticker symbol on the New York Stock Exchange changed from "ETM" to "AUD" on April 9, 2021.
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, 2020, and filed with the SEC on March 1, 2021, as part of the Company’s Annual Report on Form 10-K. 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 its Form 10-K for the year ended December 31, 2020, that was filed with the SEC on March 1, 2021.
COVID-19
In December 2019, a novel strain of coronavirus ("COVID-19") surfaced which resulted in an outbreak of infections throughout the world, which has affected operations and global supply chains. On March 11, 2020, the World Health Organization declared COVID-19 a pandemic. The COVID-19 pandemic has led to emergency measures to combat its spread, including government-issued stay-at-home orders, implementation of travel bans, restrictions and limitations on social gatherings, closures of factories, schools, public buildings and businesses and the implementation of alternative work arrangements. While certain of these measures have been relaxed or reversed to varying degrees throughout the world, many have been subsequently reinstated, adding an additional layer of uncertainty. These emergency measures have had and are expected to continue to have an adverse effect on the Company's business and operations. 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.
In response to the COVID-19 pandemic, the Company took certain measures to mitigate the resultant financial impact, including, but not limited to: (i) temporary salary reductions implemented across senior management and the broader organization; (ii) temporary freezing of contractual salary increases in 2020; (iii) furlough and termination of select employees; (iv) suspension of new employee hiring, travel and entertainment, 401(k) matching program, employee stock purchase program, and quarterly dividend program; and (v) reduction of sales and promotions spend as well as certain consulting and other discretionary expenses.
The COVID-19 pandemic has had, and is expected to continue to have, a material impact on the Company's business operations, financial position, cash flows, liquidity, and capital resources and results of operations. The full extent to which the COVID-19 pandemic impacts the Company's business, results of operations, and financial condition will depend on future developments, which are highly uncertain and cannot be accurately estimated at this time.
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 as noted below or those included in the notes to the Company’s consolidated financial statements contained in its Form 10-K for the year ended December 31, 2020, that was filed with the SEC on March 1, 2021) that might have a material impact on the Company’s financial position, results of operations or cash flows.
2. BUSINESS COMBINATIONS
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 for book purposes and amortized for tax purposes.
2021 Podcorn Acquisition
On March 9, 2021, the Company completed the acquisition of podcast influencers marketplace, Podcorn Media, Inc. ("Podcorn") for $14.6 million in cash and a performance-based earn out over the next two years (the "Podcorn Acquisition"). Based upon the timing of the Podcorn Acquisition, the Company's condensed consolidated financial statements for the three months ended March 31, 2021, reflect the results of Podcorn for the portion of the period after the completion of the Podcorn Acquisition. The Company's condensed consolidated financial statements for the three months ended March 31, 2020 do not reflect the results of Podcorn.
The Podcorn Acquisition includes a contingent consideration arrangement that requires additional consideration to be paid by the Company to Podcorn based upon the achievement of certain annual performance benchmarks over a two-year period. A portion of the contingent consideration could be paid out in 2023 and a portion of the contingent consideration could be paid out in 2024. The timing of the payment of the contingent consideration is dependent upon Adjusted EBITDA values for 2022 and 2023, as defined in the purchase agreement. The range of the total undiscounted amounts the Company could pay under the contingent consideration agreement over the two-year period is between $0 and $45.2 million. The fair value of the contingent consideration recognized on the acquisition date of $7.7 million was estimated by applying probability-weighted, discounted future cash flows at current tax rates. The significant unobservable inputs (Level 3) used to estimate the fair value include the projected Adjusted EBITDA values, as defined in the purchase agreement, for 2022 and 2023, and the discount rate.
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 condensed consolidated balance sheet. 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 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. Differences between the preliminary and final valuation could be substantially different from the initial estimate.
|
|
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|
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|
|
|
|
|
|
|
|
|
Useful Lives in Years
|
|
Preliminary Value
|
From
|
To
|
|
(amounts in thousands)
|
|
|
Assets
|
|
|
|
Cash
|
$
|
702
|
|
|
|
Prepaid expenses, deposits and other
|
18
|
|
non-amortizing
|
Other assets, net of accumulated amortization
|
2,545
|
|
5
|
5
|
Goodwill
|
19,579
|
|
non-amortizing
|
Deferred tax asset
|
72
|
|
|
|
|
|
|
|
|
|
|
|
Net working capital
|
95
|
|
|
|
Preliminary fair value of net assets acquired
|
$
|
23,011
|
|
|
|
2020 QL Gaming Group Acquisition
On November 9, 2020, the Company completed the acquisition of sports data and iGaming affiliate platform QL Gaming Group ("QLGG") in an all cash deal for approximately $32 million (the "QLGG Acquisition"). Based upon the timing of the QLGG Acquisition, the Company's condensed consolidated financial statements for the three months ended March 31, 2021, reflect the results of QLGG. The Company's condensed consolidated financial statements for the three months ended March 31, 2020 do not reflect the results of QLGG.
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 condensed consolidated balance sheet. Management believes that this acquisition provides the Company with an opportunity to benefit from acquired technology, 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 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. Differences between the preliminary and final valuation could be substantially different from the initial estimate.
|
|
|
|
|
|
|
|
|
Preliminary Value
|
|
(amounts in thousands)
|
Assets
|
|
Net property and equipment
|
$
|
8
|
|
Other assets, net of accumulated amortization
|
14,608
|
|
Goodwill
|
18,323
|
|
Total intangible and other assets
|
32,931
|
|
Deferred tax liabilities
|
(1,348)
|
|
Net working capital
|
12
|
|
Preliminary fair value of net assets acquired
|
$
|
31,603
|
|
2020 Dispositions
During the second quarter of 2020, the Company entered into an agreement with Truth Broadcasting Corporation ("Truth") to dispose of property and equipment and two broadcasting licenses in Greensboro, North Carolina. During the fourth quarter of 2020, the Company completed this sale for $0.4 million in cash. The Company reported a loss, net of expenses, of approximately $0.1 million.
Integration Costs
The Company incurred integration costs of $0.6 million during the three months ended March 31, 2020. Integration costs were expensed as a separate line item in the condensed consolidated statements of operations. These costs primarily relate to change management consultants and technology-related costs incurred subsequent to the CBS Radio business acquisition in November 2017.
Unaudited Pro Forma Summary of Financial Information
The following unaudited pro forma information for the three months ended March 31, 2021 and March 31, 2020 assumes that the acquisitions in 2021 had occurred as of January 1, 2020 and the acquisitions in 2020 had occurred as of January 1, 2019.
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, 2020, and filed with the SEC on March 1, 2021, for a description of the Company’s acquisition and disposition activities.
The unaudited pro forma information presented gives effect to certain adjustments, including: (i) depreciation and amortization of assets; (ii) change in the effective tax rate; (iii) merger and acquisition costs; and (iv) interest expense on any debt incurred to fund the acquisitions which would have been incurred had such acquisitions been consummated at an earlier time.
This unaudited pro forma information has been prepared based on estimates and assumptions, which management believes are reasonable. These unaudited pro forma results have been prepared for comparative purposes only and do not purport to be indicative of what would have occurred had the acquisitions been made as of that date or results which may occur in the future.
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|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
(amounts in thousands except share and per share data)
|
|
Actual
|
|
Pro Forma
|
|
|
|
|
Net revenues
|
$
|
241,200
|
|
|
$
|
297,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(21,911)
|
|
|
$
|
(11,117)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share - basic
|
$
|
(0.16)
|
|
|
$
|
(0.08)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per common share - diluted
|
$
|
(0.16)
|
|
|
$
|
(0.08)
|
|
|
|
|
|
Weighted shares outstanding basic
|
135,379,321
|
|
|
134,890,401
|
|
|
|
|
|
Weighted shares outstanding diluted
|
135,379,321
|
|
|
134,890,401
|
|
|
|
|
|
3. RESTRUCTURING CHARGES
Restructuring Charges
The following table presents the components of restructuring charges.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2021
|
|
2020
|
|
(amounts in thousands)
|
|
|
|
|
Workforce reduction
|
$
|
183
|
|
|
$
|
4,160
|
|
Other restructuring costs
|
2
|
|
|
49
|
|
Total restructuring charges
|
$
|
185
|
|
|
$
|
4,209
|
|
Restructuring Plan
During the first quarter of 2020, the Company initiated a restructuring plan to help mitigate the adverse impact that the COVID-19 pandemic is having on financial results and business operations. The Company continues to evaluate what, if any, further actions may be necessary related to the COVID-19 pandemic. The restructuring plan primarily included workforce reduction charges that included one-time termination benefits and related costs to mitigate the adverse impacts of the COVID-19 pandemic.
During the fourth quarter of 2017, the Company initiated a restructuring plan as a result of the integration of radio stations acquired from CBS Radio Inc. ("CBS Radio") in November 2017. The restructuring plan included: (i) workforce reduction and realignment charges that included one-time termination benefits and related costs; and (ii) costs associated with realigning radio stations within the overlap markets between CBS Radio and the Company.
The estimated amount of unpaid restructuring charges as of March 31, 2021 includes amounts in accrued expenses that are expected to be paid in less than one year and long-term restructuring costs for lease abandonment costs covering the remaining non-cancellable lease term.
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021
|
|
Twelve Months Ended December 31, 2020
|
|
(amounts in thousands)
|
Restructuring charges, beginning balance
|
$
|
2,988
|
|
|
$
|
4,251
|
|
Additions
|
185
|
|
|
11,981
|
|
Payments
|
(1,550)
|
|
|
(13,244)
|
|
Restructuring charges unpaid and outstanding
|
1,623
|
|
|
2,988
|
|
Restructuring charges - noncurrent portion
|
(95)
|
|
|
(812)
|
|
Restructuring charges - current portion
|
$
|
1,528
|
|
|
$
|
2,176
|
|
4. REVENUE
Nature of Goods and Services
The Company generates revenue from the sale to advertisers of various services and products, including but not limited to: (i) spot revenues; (ii) digital advertising; (iii) network revenues; (iv) sponsorship and event revenues; and (v) other revenue. Services and products may be sold separately or in bundled packages. The typical length of a contract for service is less than 12 months.
The Company recognizes revenue when it satisfies a performance obligation by transferring control over a product or service to a customer, in an amount that reflects the consideration it expects to be entitled to in exchange for those products or services.
Revenues presented in the condensed consolidated financial statements are reflected on a net basis, after the deduction of advertising agency fees by the advertising agencies. The Company also evaluates when it is appropriate to recognizes revenue based on the gross amount invoiced to the customer or the net amount retained by the Company if a third party is involved.
Revenue is recognized when or as performance obligations under the terms of a contract with customers are satisfied. This typically occurs at the point in time that advertisements are broadcast, marketing services are provided, or as an event occurs. For spot revenues, digital advertising, and network revenues the Company recognizes revenue at the point in time when the advertisement is broadcast. For event revenues, the Company recognizes revenues at a point in time, as the event occurs. For sponsorship revenues, the Company recognizes revenues over the length of the sponsorship agreement. For trade and barter transactions, revenue is recognized at the point in time when the promotional advertising is aired.
For bundled packages, the Company accounts for each product or performance obligation separately if they are distinct. A product or service is distinct if it is separately identifiable from other items in the bundled package and if a customer can benefit from it on its own or with other resources that are readily available to the customer. The consideration is allocated between separate products and services in a bundle based on their stand-alone selling prices. The stand-alone selling prices are determined based on the prices at which the Company separately sells the commercial broadcast time, digital advertising, or digital product and marketing solutions
Spot Revenues
The Company sells air-time to advertisers and broadcasts commercials at agreed upon dates and times. The Company's performance obligations are broadcasting advertisements for advertisers at specifically identifiable days and dayparts. The amount of consideration the Company receives and revenue it recognizes is fixed based upon contractually agreed upon rates. The Company recognizes revenue at a point in time when the advertisements are broadcast and the performance obligations are satisfied. Revenues are recorded on a net basis, after the deduction of advertising agency fees by the advertising agencies.
Digital Revenues
The Company provides targeted advertising through the sale of streaming and display advertisements on its national platforms, audacy.com and eventful.com, and its station websites. Performance obligations include delivery of advertisements over the Company's platforms or delivery of targeted advertisements directly to consumers. The Company recognizes revenue at a point in time when the advertisements are delivered and the performance obligations are satisfied. Revenues are recorded on a net basis, after the deduction of advertising agency fees by the advertising agencies.
Through its acquisition of Cadence13, Inc. ("Cadence13") (the "Cadence13 Acquisition"), the Company embeds advertisements in its owned and operated podcasts and other on-demand content. Performance obligations include delivery of advertisements. The Company recognizes revenue at a point in time when the advertisements are delivered and the performance obligations are satisfied. Revenues are recorded on a net basis, after the deduction of advertising agency fees by the advertising agencies.
Through its acquisition of Pineapple Street Media ("Pineapple") (the "Pineapple Acquisition"), the Company creates podcasts, for which it earns production fees. Performance obligations include the delivery of episodes. These revenues are fixed based upon contractually agreed upon terms. The Company recognizes revenue over the term of the production contract.
Network Revenues
The Company sells air-time on the Company's Audacy 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, as the event occurs and the performance obligations are satisfied.
The Company also sells sponsorships including, but not limited to, naming rights related to its programs or studios. Performance obligations include the mentioning or displaying of the sponsors' name, logo, product information, slogan or neutral descriptions of the sponsors' goods or services in acknowledgement of their support. These revenues are fixed based upon contractually agreed upon terms. The Company recognizes revenue over the length of the sponsorship agreement based upon the fair value of the deliverables included.
Other Revenues
The Company earns revenues from on-site promotions and endorsements from talent. Performance obligations include the broadcasting of such endorsement at specifically identifiable days and dayparts or at various local events. The Company recognizes revenue at a point in time when the performance obligations are satisfied.
The Company earns trade and barter revenue by providing advertising broadcast time in exchange for certain products, supplies, and services. The Company includes the value of such exchanges in both net revenues and station operating expenses. Trade and barter value is based upon management's estimate of the fair value of the products, supplies and services received.
Contract Balances
Refer to the table below for information about receivables, contract assets and contract liabilities from contracts with customers. Accounts receivable balances in the table below exclude other receivables that are not generated from contracts with customers. These amounts are $3.7 million and $3.8 million as of March 31, 2021 and December 31, 2020, respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description
|
|
March 31,
2021
|
|
December 31,
2020
|
|
|
(amounts in thousands)
|
Receivables, included in "Accounts receivable net of allowance for doubtful accounts"
|
|
$
|
205,038
|
|
|
$
|
272,321
|
|
Unearned revenue - current
|
|
12,608
|
|
|
15,651
|
|
Unearned revenue - noncurrent
|
|
1,089
|
|
|
1,294
|
|
Changes in Contract Balances
The timing of revenue recognition, billings and cash collections results in billed accounts receivable (billed or unbilled), and customer advances and deposits (unearned revenue) on the Company’s condensed consolidated balance sheet. At times, however, the Company receives advance payments or deposits from its customers before revenue is recognized, resulting in contract liabilities. The contract liabilities primarily relate to the advance consideration received from customers on certain contracts. For these contracts, revenue is recognized in a manner that is consistent with the satisfaction of the underlying performance obligations. The contract liabilities are reported on the condensed consolidated balance sheet on a contract-by-contract basis at the end of each respective reporting period within the other current liabilities and other long-term liabilities line items.
Significant changes in the contract liabilities balances during the period are as follows:
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31, 2021
|
Description
|
|
Unearned Revenue
|
|
|
(amounts in thousands)
|
Beginning balance on January 1, 2021
|
|
$
|
16,945
|
|
Revenue recognized during the period that was included in the beginning balance of contract liabilities
|
|
(11,606)
|
|
Additional amounts recognized during period
|
|
8,358
|
|
Ending balance
|
|
$
|
13,697
|
|
Disaggregation of Revenue
The following table presents the Company’s revenues disaggregated by revenue source:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
2021
|
|
2020
|
Revenue by Source
|
|
(amounts in thousands)
|
Spot revenues
|
|
$
|
154,294
|
|
|
$
|
203,414
|
|
Digital revenues
|
|
49,840
|
|
|
42,510
|
|
Network revenues
|
|
17,570
|
|
|
21,295
|
|
Sponsorships and event revenues
|
|
9,158
|
|
|
16,856
|
|
Other revenues
|
|
9,902
|
|
|
12,955
|
|
Net revenues
|
|
$
|
240,764
|
|
|
$
|
297,030
|
|
Performance Obligations
A contract’s transaction price is allocated to each distinct performance obligation and is recognized as revenue when the performance obligation is satisfied. Some of the Company’s contracts have one performance obligation which requires no allocation. For other contracts with multiple performance obligations, the Company allocates the contract’s transaction price to
each performance obligation using its best estimate of the standalone selling price of each distinct good or service in the contract.
The Company’s performance obligations are primarily satisfied at a point in time and revenue is recognized when an advertisement is aired and the customer has received the benefits of advertising. In rare instances, the Company will enter into contracts where performance obligations are satisfied over a period of time. In these instances, inputs are expended evenly throughout the performance period and the Company recognizes revenue on a straight line basis over the life of the contract. Contract lives are typically less than 12 months.
Practical Expedients
As a practical expedient, when the period of time between when the Company transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less, the Company will not adjust the promised amount of consideration for the effects of a significant financing component.
The Company has contracts with customers which will result in the recognition of revenue beyond one year. From these contracts, the Company expects to recognize $1.1 million of revenue in excess of one year.
The Company elected to apply the practical expedient which allows the Company to recognize the incremental costs of obtaining contracts as an expense when incurred if the amortization period of the assets that the Company otherwise would have recognized is one year or less. These costs are included in station operating expenses on the condensed consolidated statements of operations.
Significant Judgments
For performance obligations satisfied at a point in time, the Company does not estimate when a customer obtains control of the promised goods or services. Rather, the Company recognizes revenues at the point in time in which performance obligations are satisfied.
The Company records a provision against revenues for estimated sales adjustments when information indicates allowances are required.
For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using its best estimate of the standalone selling price of each distinct good or service in the contract.
For all revenue streams with the exception of barter revenues, the transaction price is contractually determined. For trade and barter revenues, the Company estimates the consideration by estimating the fair value of the goods and services received.
Net revenues from network barter programming are recorded on a net basis.
5. LEASES
Leasing Guidance
The Company recognizes the assets and liabilities that arise from leases on the commencement date of the lease. The Company recognizes the liability to make lease payments as a lease liability as well as a right-of-use ("ROU") asset representing the right to use the underlying asset for the lease term, on the condensed consolidated balance sheet.
Lease Expense
The components of lease expense were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
Lease Cost
|
|
2021
|
|
2020
|
|
|
(amounts in thousands)
|
Operating lease cost
|
|
$
|
12,371
|
|
|
$
|
12,146
|
|
Variable lease cost
|
|
2,957
|
|
|
2,767
|
|
|
|
|
|
|
Total lease cost
|
|
$
|
15,328
|
|
|
$
|
14,913
|
|
Supplemental Cash Flow
Supplemental cash flow information related to leases was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
Description
|
|
2021
|
|
2020
|
|
|
(amounts in thousands)
|
Cash paid for amounts included in measurement of lease liabilities
|
|
|
|
|
Operating cash flows from operating leases
|
|
$
|
13,694
|
|
|
$
|
12,997
|
|
Right-of-use assets obtained in exchange for lease obligations
|
|
|
|
|
Operating leases
|
|
$
|
6,432
|
|
|
$
|
701
|
|
As of March 31, 2021, the Company has not entered into any leases that have not yet commenced.
6. INTANGIBLE ASSETS AND GOODWILL
Goodwill and certain intangible assets are not amortized for book purposes. They may be, however, amortized for tax purposes. The Company accounts for its acquired broadcasting licenses as indefinite-lived intangible assets and, similar to goodwill, these assets are reviewed at least annually for impairment. At the time of each review, if the fair value is less than the carrying value of the reporting unit, then a charge is recorded to the results of operations.
The following table presents the changes in the carrying value of broadcasting licenses. Refer to Note 2, Business Combinations, and Note 14, Assets Held For Sale, for additional information.
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadcasting Licenses
Carrying Amount
|
|
March 31,
2021
|
|
December 31,
2020
|
|
(amounts in thousands)
|
Broadcasting licenses balance as of January 1,
|
$
|
2,229,016
|
|
|
$
|
2,508,121
|
|
Disposition of radio stations (See Note 2)
|
—
|
|
|
(432)
|
|
|
|
|
|
Loss on impairment
|
—
|
|
|
(261,929)
|
|
Assets held for sale (See Note 14)
|
—
|
|
|
(16,744)
|
|
Ending period balance
|
$
|
2,229,016
|
|
|
$
|
2,229,016
|
|
The following table presents the changes in goodwill. Refer to Note 2, Business Combinations, for additional information.
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill Carrying Amount
|
|
March 31,
2021
|
|
December 31,
2020
|
|
(amounts in thousands)
|
Goodwill balance before cumulative loss on impairment as of January 1,
|
$
|
1,042,762
|
|
|
$
|
1,024,467
|
|
Accumulated loss on impairment as of January 1,
|
(980,547)
|
|
|
(980,547)
|
|
Goodwill beginning balance after cumulative loss on impairment as of January 1,
|
62,215
|
|
|
43,920
|
|
|
|
|
|
|
|
|
|
Acquisitions (See Note 2)
|
19,579
|
|
|
18,323
|
|
Measurement period adjustments to acquired goodwill
|
—
|
|
|
(28)
|
|
Ending period balance
|
$
|
81,794
|
|
|
$
|
62,215
|
|
Broadcasting Licenses Impairment Test
During the second and third quarters of 2020, the Company conducted interim impairment assessments on its broadcasting licenses. The interim impairment assessments indicated that the fair value of the Company's broadcasting licenses was less than their respective carrying amounts for certain of its markets. Accordingly, the Company recorded an impairment loss of $4.1 million ($3.0 million, net of tax) and $11.8 million ($8.7 million, net of tax) during the second and third quarters of 2020, respectively.
During the fourth quarter of 2020, the Company completed its annual impairment test for broadcasting licenses and determined that the fair value of its broadcasting licenses was less than their respective carrying amounts for certain of its markets. Accordingly, the Company recorded an impairment loss of $246.0 million ($180.4 million, net of tax).
If actual market conditions are less favorable than those projected by the industry or the Company, or if events occur or circumstances change that would reduce the fair value of the Company’s broadcasting licenses below the amount reflected in the condensed consolidated balance sheet, the Company may be required to conduct an interim test and possibly recognize impairment charges, which may be material, in future periods. The COVID-19 pandemic increases the uncertainty with respect to such market and economic conditions and, as such, increases the risk of future impairment.
There were no events or changes in circumstances since the previous annual impairment assessment conducted during the fourth quarter of 2020 that indicated an interim review of broadcasting licenses was required.
Goodwill Impairment Test
In November 2020, the Company completed the QLGG Acquisition. QLGG represents a separate division one level beneath the single operating segment and its own reporting unit. For the goodwill acquired in the QLGG 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.
The acquired goodwill attributable to the Company's podcast reporting unit, primarily consisting of the acquired goodwill in the 2019 acquisition of Cadence13, Inc. ("Cadence13") (the "Cadence13 Acquisition") and the 2019 acquisition of Pineapple Street Media ("Pineapple") (the "Pineapple Acquisition"), was subject to a qualitative annual impairment test conducted in the
fourth quarter of 2020. As a result of the qualitative impairment test, the Company determined it was more likely than not that the fair value of the goodwill attributable to Cadence13 and Pineapple exceeded their respective carrying amounts. Accordingly, no quantitative impairment assessment was conducted and no impairment was recorded.
In March 2021, the Company completed the Podcorn Acquisition. For the goodwill acquired in the Podcorn Acquisition, similar valuation techniques that were applied in the valuation of goodwill under purchase price accounting were also used in the Company's impairment testing process. The valuation of the acquired goodwill approximated fair value.
If actual market conditions are less favorable than those projected by the industry or the Company, or if events occur or circumstances change that would reduce the fair value of the Company’s goodwill below the amount reflected in the condensed consolidated balance sheet, the Company may be required to conduct an interim test and possibly recognize impairment charges, which could be material, in future periods. The COVID-19 pandemic increases the uncertainty with respect to such market and economic conditions and, as such, increases the risk of future impairment.
There were no events or changes in circumstances since the previous annual impairment assessment conducted during the fourth quarter of 2020 that indicated an interim review of goodwill was required.
7. OTHER CURRENT LIABILITIES
Other current liabilities consist of the following as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Current Liabilities
|
|
March 31,
2021
|
|
December 31,
2020
|
|
(amounts in thousands)
|
Accrued compensation
|
$
|
34,168
|
|
|
$
|
25,264
|
|
Accounts receivable credits
|
2,393
|
|
|
1,683
|
|
Advertiser obligations
|
5,820
|
|
|
4,844
|
|
Accrued interest payable
|
12,402
|
|
|
9,804
|
|
Unearned revenue
|
12,608
|
|
|
15,651
|
|
|
|
|
|
Unfavorable sports liabilities
|
4,634
|
|
|
4,634
|
|
Accrued benefits
|
6,521
|
|
|
6,944
|
|
Non-income tax liabilities
|
1,633
|
|
|
1,332
|
|
Income taxes payable
|
515
|
|
|
—
|
|
Other
|
3,352
|
|
|
3,841
|
|
Total other current liabilities
|
$
|
84,046
|
|
|
$
|
73,997
|
|
8. LONG-TERM DEBT
Long-term debt was comprised of the following as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Term Debt
|
|
March 31,
2021
|
|
December 31,
2020
|
|
(amounts in thousands)
|
Credit Facility
|
|
|
|
Revolver
|
$
|
74,727
|
|
|
$
|
114,727
|
|
Term B-2 Loan, due November 17, 2024
|
677,006
|
|
|
754,006
|
|
Plus unamortized premium
|
1,610
|
|
|
1,681
|
|
|
753,343
|
|
|
870,414
|
|
2027 Notes
|
|
|
|
6.500% notes due May 1, 2027
|
425,000
|
|
|
425,000
|
|
Plus unamortized premium
|
4,148
|
|
|
4,318
|
|
|
429,148
|
|
|
429,318
|
|
|
|
|
|
2029 Notes
|
|
|
|
6.750% notes due March 31, 2029
|
540,000
|
|
|
—
|
|
|
540,000
|
|
|
—
|
|
|
|
|
|
Senior Notes
|
|
|
|
7.25% senior unsecured notes, due November 1, 2024
|
—
|
|
|
400,000
|
|
Plus unamortized premium
|
—
|
|
|
9,306
|
|
|
—
|
|
|
409,306
|
|
|
|
|
|
Other debt
|
793
|
|
|
808
|
|
Total debt before deferred financing costs
|
1,723,284
|
|
|
1,709,846
|
|
Current amount of long-term debt
|
—
|
|
|
(5,488)
|
|
Deferred financing costs (excludes the revolving credit)
|
(17,622)
|
|
|
(14,409)
|
|
Total long-term debt, net of current debt
|
$
|
1,705,662
|
|
|
$
|
1,689,949
|
|
Outstanding standby letters of credit
|
$
|
6,069
|
|
|
$
|
6,229
|
|
(A) Senior Debt
The 2027 Notes
During 2019, the Company and its finance subsidiary, Audacy Capital Corp. (formerly, Entercom Media Corp.), issued $425.0 million in aggregate principal amount of senior secured second-lien notes due May 1, 2027 (the "2027 Notes"). Interest on the 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.
A portion of the 2027 Notes was issued at premium. The premium on the 2027 Notes will be amortized over the term under the effective interest rate method. As of any reporting period, the unamortized premium on the Notes is reflected on the balance sheet as an addition to the 2027 Notes.
The Credit Facility
The Company's credit agreement (the "Credit Facility"), as amended, is comprised of a $250.0 million Revolver and a term B-2 loan (the "Term B-2 Loan").
The Credit Facility has usual and customary covenants including, but not limited to, a net first lien leverage ratio, restricted payments and the incurrence of additional debt. Specifically, the Credit Facility requires the Company to comply with a certain financial covenant which is a defined term within the agreement, including a maximum Consolidated Net First-Lien Leverage Ratio that cannot exceed 4.0 times at March 31, 2021. In certain circumstances, if the Company consummates additional acquisition activity permitted under the terms of the Credit Facility, the Consolidated Net First-Lien Leverage Ratio will be increased to 4.5 times for a one year period following the consummation of such permitted acquisition. As of March 31, 2021, the Company’s Consolidated Net First Lien Leverage Ratio was 2.3 times.
Failure to comply with the Company’s financial covenant or other terms of its Credit Facility and any subsequent failure to negotiate and obtain any required relief from its lenders could result in a default under the Company’s Credit Facility. Any event of default could have a material adverse effect on the Company’s business and financial condition. The acceleration of the Company’s debt repayment could have a material adverse effect on its business. The Company may seek from time to time to amend its Credit Facility or obtain other funding or additional funding, which may result in higher interest rates.
As of March 31, 2021, 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.
2021 Debt Refinancing - The 2029 Notes
During the first quarter of 2021, the Company and its finance subsidiary, Audacy Capital Corp. (formerly, Entercom Media Corp.), issued $540.0 million in aggregate principal amount of senior secured second-lien notes due March 31, 2029 (the "2029 Notes"). Interest on the 2029 Notes accrues at the rate of 6.750% per annum and is payable semi-annually in arrears on March 31 and September 30 of each year.
The Company used net proceeds of the offering, along with cash on hand, to: (i) repay $77.0 million of existing indebtedness under the Term B-2 Loan; (ii) repay $40.0 million of drawings under the Revolver; and (iii) fully redeem all of its $400.0 million aggregate principal amount of 7.250% senior notes due 2024 (the "Senior Notes") and to pay fees and expenses in connection with the redemption.
In connection with this activity, during the first quarter of 2021, the Company: (i) recorded $6.6 million of new debt issuance costs attributable to the 2029 Notes which will be amortized over the term of the 2029 Notes under the effective interest method; and (ii) $0.4 million of debt issuance costs attributable to the Revolver which will be amortized over the remaining term of the Revolver on a straight line basis. The Company also incurred $0.5 million of costs which were classified within refinancing expenses.
The 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. (formerly, Entercom Media Corp.) A default under the Company's 2029 Notes could cause a default under the Company's Credit Facility or the 2027 Notes. Any event of default, therefore, could have a material adverse effect on the Company's 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.
(B) Senior Unsecured Debt
The Senior Notes
Simultaneously with entering into the Merger and assuming the Credit Facility on November 17, 2017, the Company also assumed the 7.250% unsecured senior notes (the “Senior Notes”) that were subsequently modified and were set to mature on November 1, 2024 in the amount of $400.0 million. The Senior Notes were originally issued by CBS Radio (now Audacy Capital Corp.) on October 17, 2016. The deferred financing costs and debt premium on the Senior Notes were amortized over the term under the effective interest rate method. As of any reporting period, the amount of any unamortized debt finance costs and debt premium costs were reflected on the balance sheet as a subtraction and an addition to the $400.0 million liability, respectively.
Interest on the Senior Notes accrued at the rate of 7.250% per annum and was payable semi-annually in arrears on May 1 and November 1 of each year.
In connection with the redemption of the Senior Notes during the first quarter of 2021, the Company wrote off the following amounts to gain/loss on extinguishment of debt: (i) $14.5 million in prepayment premiums for the early retirement of the Senior Notes; (ii) $8.7 million of unamortized premium attributable to the Senior Notes; (iii) $1.0 million of unamortized debt issuance costs attributable to the Senior Notes; and (iv) $1.3 million of unamortized debt issuance costs attributable to the Term B-2 Loan.
The Credit Facility - Amendment No. 5
On July 20, 2020, Audacy Capital Corp. (formerly, Entercom Media Corp.), a wholly-owned subsidiary of the Company, entered into an amendment ("Amendment No. 5") to the Credit Agreement, dated October 17, 2016 (as previously amended, the "Existing Credit Agreement" and, as amended by Amendment No. 5, the "Credit Agreement"), with the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent. Amendment No. 5, among other things:
(a) amended the Company's financial covenants under the Credit Agreement by: (i) suspending the testing of the Consolidated Net First Lien Leverage Ratio (as defined in the Credit Agreement) through the Test Period (as defined in the Credit Agreement) ending December 31, 2020; (ii) adding a new minimum liquidity covenant of $75.0 million until December 31, 2021, or such earlier date as the Company may elect (the "Covenant Relief Period"); and (iii) imposing certain restrictions during the Covenant Relief Period, including among other things, certain limitations on incurring additional indebtedness and liens, making restricted payments or investments, redeeming notes and entering into certain sale and lease-back transactions;
(b) increased the interest rate and/or fees under the Credit Agreement during the Covenant Relief Period applicable to: (i) 2024 Revolving Credit Loans (as defined in the Credit Agreement) to (x) in the case of Eurodollar Rate Loans (as defined in the Credit Agreement), a customary Eurodollar rate formula plus a margin of 2.50% per annum, and (y) in the case of Base Rate Loans (as defined in the Credit Agreement), a customary base rate formula plus a margin of 1.50% per annum, and (ii) Letter of Credit (as defined in the Credit Agreement) fees to 2.50% times the daily maximum amount available to be drawn under any such Letter of Credit; and
(c) modified the definition of Consolidated EBITDA by setting fixed amounts for the fiscal quarters ending June 30, 2020, September 30, 2020, and December 31, 2020, for purposes of testing compliance with the Consolidated Net First Lien Leverage Ratio financial covenant during the Covenant Relief Period, which fixed amounts correspond to the Borrower's Consolidated EBITDA as reported under the Existing Credit Agreement for the Test Period ended March 31, 2020, for the fiscal quarters ending June 30, 2019, September 30, 2019, and December 31, 2019, respectively.
The Credit Facility - Amendment No. 6
On March 5, 2021, Audacy Capital Corp. (formerly, Entercom Media Corp.) a wholly owned subsidiary of the Company, entered into an amendment ("Amendment No. 6") to the Credit Agreement, dated October 17, 2016 (as previously amended, the “Existing Credit Agreement” and, as amended by Amendment No. 6, the “Credit Agreement”), with the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent.
Under the Existing Credit Agreement, during the Covenant Relief Period the Company is subject to a $75.0 million limitation on investments in joint ventures, Affiliates, Unrestricted Subsidiaries and Non-Guarantor Subsidiaries (each as defined in the Existing Credit Agreement) (the “Covenant Relief Period Investment Limitation”). Amendment No. 6, among other things, excludes from the Covenant Relief Period Investment Limitation any investments made in connection with a permitted receivables financing facility.
(C) Net Interest Expense
The components of net interest expense are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Expense
|
|
Three Months Ended
March 31,
|
|
2021
|
|
2020
|
|
(amounts in thousands)
|
Interest expense
|
$
|
20,967
|
|
|
$
|
23,554
|
|
Amortization of deferred financing costs
|
1,041
|
|
|
946
|
|
Amortization of original issue discount (premium) of senior notes
|
(848)
|
|
|
(849)
|
|
Interest income and other investment income
|
—
|
|
|
(30)
|
|
Total net interest expense
|
$
|
21,160
|
|
|
$
|
23,621
|
|
9. DERIVATIVE AND HEDGING ACTIVITIES
The Company from time to time enters into derivative financial instruments, such as interest rate collar agreements (“Collars”), to manage its exposure to fluctuations in interest rates under the Company’s variable rate debt.
Hedge Accounting Treatment
As of March 31, 2021, the Company had the following derivative outstanding, which was designated as a cash flow hedge that qualified for hedge accounting treatment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Type
Of
Hedge
|
|
Notional
Amount
|
|
Effective
Date
|
|
Collar
|
|
Fixed
LIBOR
Rate
|
|
Expiration
Date
|
|
Notional
Amount
Decreases
|
|
Amount
After
Decrease
|
|
|
(amounts
in millions)
|
|
|
|
|
|
|
|
|
|
|
|
(amounts
in millions)
|
|
|
|
|
|
|
Cap
|
|
2.75%
|
|
|
|
Jun. 28, 2021
|
|
$
|
340.0
|
|
Collar
|
|
$
|
460.0
|
|
|
Jun. 25, 2019
|
|
Floor
|
|
0.402%
|
|
Jun. 28, 2024
|
|
Jun. 28, 2022
|
|
$
|
220.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jun. 28, 2023
|
|
$
|
90.0
|
|
Total
|
|
$
|
460.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended March 31, 2021, the Company recorded the net change in the fair value of this derivative as a gain of $0.8 million (net of taxes benefit of $0.2 million as of March 31, 2021) to the condensed consolidated statement of comprehensive income (loss). The fair value of this derivative was determined using observable market-based inputs (a Level 2 measurement) and the impact of credit risk on a derivative’s fair value (the creditworthiness of the Company for liabilities). As of March 31, 2021, the fair value of these derivatives was a liability of $1.7 million, and is recorded as other long-term liabilities on the condensed consolidated balance sheet. The Company expects to reclassify approximately $1.0 million of this amount to the condensed consolidated statement of operations over the next twelve months.
The following table presents the accumulated derivative gain (loss) recorded in other comprehensive income (loss) as of March 31, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Derivative Gain (Loss)
|
Description
|
|
March 31,
2021
|
|
December 31,
2020
|
|
|
(amounts in thousands)
|
Accumulated derivative unrealized gain (loss)
|
|
$
|
(1,236)
|
|
|
$
|
(1,789)
|
|
The following table presents the accumulated net derivative gain (loss) recorded in other comprehensive income (loss) for the three months ended March 31, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income (Loss)
|
Net Change in Accumulated Derivative Unrealized Gain (Loss)
|
|
Net Amount of Accumulated Derivative Gain (Loss) Reclassified to the Condensed Consolidated Statement of Operations
|
Three Months Ended March 31,
|
2021
|
|
2020
|
|
2021
|
|
2020
|
(amounts in thousands)
|
$
|
553
|
|
|
$
|
(2,354)
|
|
|
$
|
307
|
|
|
$
|
—
|
|
Undesignated Derivatives
The Company is subject to equity market risks due to changes in the fair value of the notional investments selected by its employees as part of its non-qualified deferred compensation plans. During the quarter ended June 30, 2020, the Company entered into a Total Return Swap ("TRS") in order to manage the equity market risks associated with its non-qualified deferred compensation plan liabilities. The Company pays a floating rate, based on LIBOR, on the notional amount of the TRS. The TRS is designed to substantially offset changes in its non-qualified deferred compensation plan's liabilities due to changes in the value of the investment options made by employees. As of March 31, 2021, the notional investments underlying the TRS amounted to $24.7 million. The contract term of the TRS is through March 2022 and is settled on a monthly basis, therefore limiting counterparty performance risk. The Company did not designate the TRS as an accounting hedge. Rather, the Company records all changes in the fair value of the TRS to earnings to offset the market value changes of its non-qualified deferred compensation plan liabilities.
For the three months ended March 31, 2021, the Company recorded the net change in the fair value of the TRS in station operating expenses and corporate, general and administrative expenses in the amount of a $1.2 million benefit. Of this amount, a $0.4 million benefit was recorded in corporate, general and administrative expenses and a $0.8 million benefit was recorded in station operating expenses.
10. NET INCOME (LOSS) PER COMMON SHARE
The following tables present the computations of basic and diluted net income (loss) per share from continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
|
2021
|
|
2020
|
|
|
|
|
|
(amounts in thousands except per share data)
|
Basic Income (Loss) Per Share
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(21,648)
|
|
|
$
|
(9,138)
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
135,379
|
|
|
134,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - Basic
|
$
|
(0.16)
|
|
|
$
|
(0.07)
|
|
|
|
|
|
Diluted Income (Loss) Per Share
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
$
|
(21,648)
|
|
|
$
|
(9,138)
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding
|
135,379
|
|
|
134,890
|
|
|
|
|
|
Effect of RSUs and options under the treasury stock method
|
—
|
|
|
—
|
|
|
|
|
|
Diluted weighted average shares outstanding
|
135,379
|
|
|
134,890
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share - Diluted
|
$
|
(0.16)
|
|
|
$
|
(0.07)
|
|
|
|
|
|
Disclosure of Anti-Dilutive Shares
The following table presents those shares excluded as they were anti-dilutive:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
|
Impact Of Equity Issuances
|
2021
|
|
2020
|
|
|
|
|
|
(amounts in thousands, except per share data)
|
Shares excluded as anti-dilutive under the treasury stock method:
|
|
|
|
|
|
|
|
Options
|
588
|
|
|
609
|
|
|
|
|
|
Price range of options: from
|
$
|
4.88
|
|
|
$
|
3.54
|
|
|
|
|
|
Price range of options: to
|
$
|
13.98
|
|
|
$
|
13.98
|
|
|
|
|
|
RSUs with service conditions
|
84
|
|
|
2,698
|
|
|
|
|
|
RSUs excluded with service and market conditions as market conditions not met
|
—
|
|
|
199
|
|
|
|
|
|
Excluded shares as anti-dilutive when reporting a net loss
|
2,378
|
|
|
290
|
|
|
|
|
|
11. SHARE-BASED COMPENSATION
Under the Company's two equity compensation plans (the “Plans”), the Company is authorized to issue share-based compensation awards to key employees, directors and consultants.
Restricted Stock Units (“RSUs”) Activity
The following is a summary of the changes in RSUs under the Plans during the current period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
Number of Restricted Stock Units
|
|
Weighted Average Purchase Price
|
|
Weighted Average Remaining Contractual Term (Years)
|
|
Aggregate Intrinsic Value as of March 31,
2021
|
|
(amounts in thousands)
|
RSUs outstanding as of:
|
December 31, 2020
|
|
5,539
|
|
|
|
|
|
|
|
RSUs awarded
|
March 31, 2021
|
|
334
|
|
|
|
|
|
|
|
RSUs released
|
March 31, 2021
|
|
(1,050)
|
|
|
|
|
|
|
|
RSUs forfeited
|
March 31, 2021
|
|
(43)
|
|
|
|
|
|
|
|
RSUs outstanding as of:
|
March 31, 2021
|
|
4,780
|
|
|
$
|
—
|
|
|
1.3
|
|
$
|
22,681
|
|
RSUs vested and expected to vest as of:
|
March 31, 2021
|
|
4,780
|
|
|
$
|
—
|
|
|
1.3
|
|
$
|
22,681
|
|
RSUs exercisable (vested and deferred) as of:
|
March 31, 2021
|
|
40
|
|
|
$
|
—
|
|
|
0.0
|
|
$
|
204
|
|
Weighted average remaining recognition period in years
|
|
|
1.8
|
|
|
|
|
|
|
Unamortized compensation expense
|
|
|
$
|
13,859
|
|
|
|
|
|
|
|
RSUs with Service and Market Conditions
The Company issued RSUs with service and market conditions that are included in the table above.
Option Activity
The following table provides summary information related to the exercise of stock options:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
Option Exercise Data
|
|
2021
|
|
2020
|
|
|
(amounts in thousands)
|
Intrinsic value of options exercised
|
|
$
|
241
|
|
|
$
|
—
|
|
Tax benefit from options exercised
|
|
$
|
64
|
|
|
$
|
—
|
|
Cash received from exercise price of options exercised
|
|
$
|
15
|
|
|
$
|
—
|
|
The following table presents the option activity during the current period under the Plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period Ended
|
|
Number of Options
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Term (Years)
|
|
Intrinsic Value as of March 31
2021
|
|
(amounts in thousands)
|
Options outstanding as of:
|
December 31, 2020
|
|
809
|
|
|
$
|
8.63
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options exercised
|
March 31, 2021
|
|
(47)
|
|
|
0.33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding as of:
|
March 31, 2021
|
|
762
|
|
|
$
|
9.15
|
|
|
3.4
|
|
$
|
741
|
|
Options vested and expected to vest as of:
|
March 31, 2021
|
|
762
|
|
|
$
|
9.15
|
|
|
3.4
|
|
$
|
741
|
|
Options vested and exercisable as of:
|
March 31, 2021
|
|
567
|
|
|
$
|
11.73
|
|
|
3.1
|
|
$
|
45
|
|
Weighted average remaining recognition period in years
|
|
|
1.1
|
|
|
|
|
|
|
Unamortized compensation expense
|
|
|
$
|
173
|
|
|
|
|
|
|
|
The following table summarizes significant ranges of outstanding and exercisable options as of the current period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding
|
|
Options Exercisable
|
Range of
Exercise Prices
|
|
Number of Options Outstanding March 31,
2021
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Number of Options Exercisable March 31,
2021
|
|
Weighted
Average
Exercise
Price
|
From
|
|
To
|
$
|
0.40
|
|
|
7.01
|
|
|
219,212
|
|
|
4.3
|
|
1.96
|
|
|
24,856
|
|
|
$
|
4.47
|
|
$
|
9.66
|
|
|
13.98
|
|
|
542,582
|
|
|
3.0
|
|
12.06
|
|
|
542,582
|
|
|
$
|
12.06
|
|
$
|
0.40
|
|
|
13.98
|
|
|
761,794
|
|
|
3.4
|
|
9.15
|
|
|
567,438
|
|
|
$
|
11.73
|
|
Recognized Non-Cash Stock-Based Compensation Expense
The following non-cash stock-based compensation expense, which is related primarily to RSUs, is included in each of the respective line items in the Company’s statement of operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2021
|
|
2020
|
|
(amounts in thousands)
|
Station operating expenses
|
$
|
1,073
|
|
|
$
|
502
|
|
Corporate general and administrative expenses
|
1,667
|
|
|
1,278
|
|
Stock-based compensation expense included in operating expenses
|
2,740
|
|
|
1,780
|
|
Income tax benefit (1)
|
664
|
|
|
368
|
|
After-tax stock-based compensation expense
|
$
|
2,076
|
|
|
$
|
1,412
|
|
(1) Amounts exclude impact from any compensation expense subject to Section 162(m) of the Code, which is nondeductible for income tax purposes.
12. INCOME TAXES
Tax Rate for the Three Months Ended March 31, 2021
The Company recognized an income tax benefit at an effective income tax rate of 42.3% for the three months ended March 31, 2021, which was determined using a forecasted rate based upon taxable income for the year. The effective income tax rate for the quarter was impacted by discrete income tax expense items related to: (i) the benefit related to the carry back of the Company's 2020 federal net operating loss ("NOL") under the Coronavirus Aid, Relief and Economic Security Act (the "CARES Act"); and (ii) the shortfall associated with share-based awards.
The effective income tax rate is typically higher in the first quarter of the year primarily due to: (i) the seasonality of the business which results in a lower reported figure for income before income taxes; and (ii) the disproportionate impact that discrete items may have on such lower reported income before income taxes figures.
The Company estimates that its 2021 annual tax rate before discrete items, will be between 28% and 30%. The Company anticipates that it will be able to utilize certain net operating loss carryforwards to reduce future payments of federal and state income taxes.
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 continues to evaluate the impact the CARES Act will have on the Company’s tax obligations.
Tax Rate for the Three Months Ended March 31, 2020
The effective income tax rate was 25.5% for the three months ended March 31, 2020, which was determined using a forecasted rate based upon taxable income for the year.
Net Deferred Tax Assets and Liabilities
The income tax accounting process to determine the deferred tax liabilities involves estimating all temporary differences between the tax and financial reporting bases of the Company’s assets and liabilities, based on enacted tax laws and statutory tax rates applicable to the period in which the differences are expected to affect taxable income. The Company estimated the current exposure by assessing the temporary differences and computing the provision for income taxes by applying the estimated effective tax rate to income.
13. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments Subject to Fair Value Measurements
Recurring Fair Value Measurements
The following table sets forth the Company's financial assets and/or liabilities that were accounted for at fair value on a recurring basis and are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company's assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of fair value and its placement within the fair value hierarchy levels. During the periods presented, there were no transfers between fair value hierarchical levels.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements At Reporting Date
|
Description
|
|
Balance at March 31,
2021
|
|
Quoted prices
in active
markets
Level 1
|
|
Significant
other observable
inputs
Level 2
|
|
Significant
unobservable
inputs
Level 3
|
|
Measured at
Net Asset Value
as a Practical
Expedient (2)
|
|
|
(amounts in thousands)
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan liabilities (1)
|
|
$
|
30,846
|
|
|
$
|
24,524
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,322
|
|
Interest Rate Cash Flow Hedge (3)
|
|
$
|
1,684
|
|
|
$
|
—
|
|
|
$
|
1,684
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Contingent Consideration (4)
|
|
$
|
7,786
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
7,786
|
|
|
$
|
—
|
|
Description
|
|
Balance at December 31,
2020
|
|
Quoted prices
in active
markets
Level 1
|
|
Significant
other observable
inputs
Level 2
|
|
Significant
unobservable
inputs
Level 3
|
|
Measured at
Net Asset Value
as a Practical
Expedient (2)
|
|
|
(amounts in thousands)
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
Deferred compensation plan liabilities (1)
|
|
$
|
33,474
|
|
|
$
|
27,040
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6,434
|
|
Interest Rate Cash Flow Hedge (3)
|
|
$
|
2,439
|
|
|
$
|
—
|
|
|
$
|
2,439
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(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, is recorded at fair value on a recurring basis. The derivatives are not exchange listed and therefore the fair value is estimated using models that reflect the contractual terms of the derivative, yield curves, and the credit quality of the counterparties. The models also incorporate the Company’s creditworthiness in order to appropriately reflect non-performance risk. Inputs are generally observable and do not contain a high level of subjectivity.
(4)In connection with the Podcorn Acquisition, the Company recorded a liability for contingent consideration payable based upon the achievement of certain annual performance benchmarks over 2 years. The fair value of the liability is estimated using probability-weighted, discounted future cash flows at current tax rates. 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. The discount rate used was 10.5%. The contingent consideration measured at fair value using unobservable inputs as of March 31, 2021 is $7.8 million which 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 second, third, and fourth quarters of 2020, the Company conducted interim and annual impairment assessments on its broadcasting licenses. As a result of these impairment assessments, the Company determined the fair values of the broadcasting licenses were less than their respective carrying values. Accordingly, the Company recorded impairment charges in the second, third, and fourth quarters of 2020. Refer to Note 6, Intangible Assets and Goodwill, for additional information.
During the fourth quarter of 2020, the Company conducted a qualitative impairment assessment on its goodwill attributable to the podcast reporting unit. As a result of the qualitative impairment test, the Company determined it was more likely than not that the fair value of the goodwill attributable to the podcast reporting unit exceeded their respective carrying amounts. Refer to Note 6, Intangible Assets and Goodwill, for additional information.
The Company performs reviews of its ROU assets for impairment when evidence exists that the carrying value of an asset may not be recoverable. The Company recorded an immaterial impairment charge related to ROU asset impairment during the three months ended March 31, 2020.
During the three months ended March 31, 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 amount of the following assets and liabilities approximates fair value due to the short maturity of these instruments: (i) cash and cash equivalents; (ii) accounts receivable; and (iii) accounts payable, including accrued liabilities.
The following table presents the carrying value of financial instruments and, where practicable, the fair value as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31,
2021
|
|
December 31,
2020
|
|
Carrying
Value
|
|
Fair
Value
|
|
Carrying
Value
|
|
Fair
Value
|
|
(amounts in thousands)
|
Term B Loans (1)
|
$
|
677,006
|
|
|
$
|
665,158
|
|
|
$
|
754,006
|
|
|
$
|
740,811
|
|
Revolver (2)
|
$
|
74,727
|
|
|
$
|
74,727
|
|
|
$
|
114,727
|
|
|
$
|
114,727
|
|
Senior Notes (3)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
400,000
|
|
|
$
|
398,000
|
|
2029 Notes (3)
|
$
|
540,000
|
|
|
$
|
562,275
|
|
|
$
|
—
|
|
|
$
|
—
|
|
2027 Notes (3)
|
$
|
425,000
|
|
|
$
|
440,938
|
|
|
$
|
425,000
|
|
|
$
|
429,250
|
|
Other debt (4)
|
$
|
793
|
|
|
|
|
$
|
808
|
|
|
|
Letters of credit (4)
|
$
|
6,069
|
|
|
|
|
$
|
6,229
|
|
|
|
The following methods and assumptions were used to estimate the fair value of financial instruments:
(1)The Company’s determination of the fair value of the Term B-2 Loan was based on quoted prices for these instruments and 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 Senior Notes, 2029 Notes and 2027 Notes to compute the fair value as these Senior Notes, 2029 Notes and 2027 Notes are traded in the debt securities market. The Senior Notes, 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 other debt or the outstanding standby letters of credit.
14. ASSETS HELD FOR SALE
Assets Held for Sale
Long-lived assets to be sold are classified as held for sale in the period in which they meet all the criteria for the disposal of long-lived assets. The Company measures assets held for sale at the lower of their carrying amount or fair value less cost to sell. Additionally, the Company determined that these assets comprise operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Company.
As of December 31, 2020, the Company was party to an exchange agreement with Urban One, Inc. ("Urban One") pursuant to which the Company will exchange its four station cluster in Charlotte, North Carolina for one station in St. Louis, Missouri, one station in Washington, D.C., and one station in Philadelphia, Pennsylvania (the "Urban One Exchange"). The Company conducted an analysis and determined the assets met the criteria to be classified as held for sale at December 31, 2020. In aggregate, these assets had a carrying value of $21.4 million. The Company and Urban One began programming the respective stations under LMAs on November 23, 2020. During the period of the LMAs, the Company excluded net revenues and station operating expenses associated with the four station cluster in Charlotte, North Carolina in the Company's consolidated financial statements and included net revenues and station operating expenses associated with the stations in St. Louis, Missouri, Washington, D.C., and Philadelphia, Pennsylvania. The Urban One Exchange closed in the second quarter of 2021. Refer to Note 17, Subsequent Events, for additional information.
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. This is considered a Level 3 measurement.
The major categories of these assets held for sale are as follows as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets Held for Sale
|
|
March 31, 2021
|
|
December 31, 2020
|
|
(amounts in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net property and equipment
|
4,686
|
|
|
4,686
|
|
Radio broadcasting licenses
|
16,744
|
|
|
16,744
|
|
Operating lease right-of-use assets
|
1,292
|
|
|
1,292
|
|
Operating lease liabilities
|
(1,315)
|
|
|
(1,315)
|
|
|
|
|
|
Net assets held for sale
|
$
|
21,407
|
|
|
$
|
21,407
|
|
15. SHAREHOLDERS’ EQUITY
Dividend Equivalents
The following table presents the amounts accrued and unpaid dividends on unvested RSUs as of the dates indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend Equivalent Liabilities
|
|
Balance Sheet
Location
|
|
March 31,
2021
|
|
December 31,
2020
|
|
|
|
(amounts in thousands)
|
Short-term
|
Other current liabilities
|
|
$
|
240
|
|
|
$
|
437
|
|
Long-term
|
Other long-term liabilities
|
|
283
|
|
|
477
|
|
Total
|
|
|
$
|
523
|
|
|
$
|
914
|
|
Employee Stock Purchase Plan
Following the purchase of shares under the ESPP for the first quarter of 2020, the Company temporarily suspended the ESPP.
The following table presents the amount of shares purchased and non-cash compensation expense recognized in connection with the ESPP as of the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
March 31,
|
|
2021
|
|
2020
|
|
(amounts in thousands)
|
Number of shares purchased
|
—
|
|
|
166
|
|
Non-cash compensation expense recognized
|
$
|
—
|
|
|
$
|
43
|
|
Share Repurchase Program
During the three months ended March 31, 2021, the Company did not repurchase any shares under the 2017 Share Repurchase Program. As of March 31, 2021, $41.6 million is available for future share repurchases under the 2017 Share Repurchase Program.
Shareholder Rights Agreement
On April 20, 2020, the Company entered into a Rights Agreement between the Company and American Stock Transfer & Trust Company, LLC, as Rights Agent (as amended from time to time, the "Rights Agreement"), which was previously approved by the Board of Directors of the Company (the "Board of Directors").
In connection with the Rights Agreement, a dividend was declared of one preferred stock purchase right (each, a "Class A Right") for each share of the Company's Class A common stock, par value $0.01 per share (the "Class A Common Stock"), and one preferred stock purchase right (each, a "Class B Right" and, together with the Class A Rights, the "Rights") for each share of the Company's Class B common stock, par value $0.01 per share (the "Class B Common Stock" and, together with the Class A Common Stock, the "Common Stock"), outstanding at the close of business on May 5, 2020 (the "Record Date").
Once the Rights become exercisable, each Right entitled the holder of each Class A Right to purchase one one-thousandth of a share of the Company's Series A Junior Participating Convertible Preferred Stock, par value $0.01 per share (the "Series A Preferred"), and, with respect to each Class B Right, one one-thousandth of a share of the Company's Series B Junior Participating Convertible Preferred Stock, par value $0.01 per share (the "Series B Preferred"), at a price of $6.06 per one one-thousandth of a share of Series A Preferred or Series B Preferred, as applicable (in each case, the "Purchase Price"). At the election of the Board of Directors, shares of Series A Preferred and Series B Preferred are convertible into shares of Class A Common Stock and Class B Common Stock, respectively.
The Rights expired on April 20, 2021.
16. CONTINGENCIES AND COMMITMENTS
Contingencies
The Company is subject to various outstanding claims which arise in the ordinary course of business and to other legal proceedings. Management anticipates that any potential liability of the Company, which may arise out of or with respect to these matters, will not materially affect the Company’s financial position, results of operations or cash flows. There were no material changes from the contingencies listed in the Company’s Form 10-K, filed with the SEC on March 1, 2021, except as described below.
Music Licensing
The Radio Music Licensing Committee (the “RMLC”), of which we are a represented participant: (i) is currently engaged in arbitration proceedings with the American Society of Composers, Authors and Publishers ("ASCAP") regarding interpretation of the Most Favored Nations provision in the current ASCAP-2017 license as the result of the RMLC’s recent settlement with Broadcast Music, Inc. ("BMI") (as further described below), and the RMLC has filed a counterclaim against ASCAP alleging ASCAP fraudulently misrepresented its share of musical works at the time the ASCAP-2017 license was negotiated; (ii) entered into an industry-wide settlement with BMI resulting in a new license made available to RMLC members, which license is effective retroactively to January 1, 2017 and will expire on December 31, 2021; and (iii) entered into an industry-wide settlement with SESAC, Inc. ("SESAC") resulting in a new license made available to RMLC members,
which license is effective retroactively to January 1, 2019 and will expire December 31, 2022. Effective as of January 1, 2021, the Company entered into a direct license agreement with Global Music Rights, LLC.
The United States Copyright Royalty Board ("CRB") hearings to determine the royalty rates for the public digital performance of sound recordings on the Internet under federal statutory license for the 2021-2026 royalty period (the "Web V Proceedings"), originally scheduled for March 2020, were rescheduled due to the COVID-19 pandemic and held virtually in August 2020. As of the date of this filing, the CRB has not yet released its determination of rates resulting from the Web V Proceedings.
17. SUBSEQUENT EVENTS
Events occurring after March 31, 2021, and through the date that these 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:
Urban One Exchange
Upon completion of the Urban One Exchange on April 20, 2021, the Company: (i) removed from its records the assets of the divested stations, which were previously classified as assets held for sale at March 31, 2021; and (ii) recorded the assets of the acquired stations at fair value.