AUDACY, INC. - Quarter Report: 2023 March (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the quarterly period ended March 31, 2023
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||
For the transition period from __________to ___________
Commission File Number: 001-14461
Audacy, Inc.
(Exact name of registrant as specified in its charter)
Pennsylvania | 23-1701044 | |||||||
(State or other jurisdiction of incorporation or organization) | (I.R.S. employer identification no.) | |||||||
2400 Market Street, 4th Floor
Philadelphia, Pennsylvania 19103
(Address of principal executive offices and zip code)
(610) 660-5610
(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. Yes ☒ 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). Yes ☒ 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 | ☐ | Accelerated filer | ☒ | Emerging growth company | ☐ | ||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☒ | ||||||||||||||
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 ☒
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||||||||
| Class A Common Stock, par value $.01 per share | AUD | New 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 – 146,302,307 Shares Outstanding as of April 30, 2023
Class B common stock, $0.01 par value – 4,045,199 Shares Outstanding as of April 30, 2023
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AUDACY, INC.
INDEX
Table of Contents | Page | |||||||
Private Securities Litigation Reform Act Safe Harbor Statement
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.
iii
PART I
FINANCIAL INFORMATION
ITEM 1. Financial Statements
AUDACY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
(unaudited)
| MARCH 31, 2023 | DECEMBER 31, 2022 | ||||||||||
ASSETS: | |||||||||||
Cash | $ | 83,773 | $ | 103,344 | |||||||
Accounts receivable, net of allowance of $9,391 in 2023 and $9,425 in 2022 | 220,432 | 261,357 | |||||||||
Prepaid expenses, deposits and other | 90,324 | 72,350 | |||||||||
Total current assets | 394,529 | 437,051 | |||||||||
Investments | 3,005 | 3,005 | |||||||||
| Net property and equipment | 347,477 | 344,690 | |||||||||
Operating lease right-of-use assets | 211,259 | 211,022 | |||||||||
Radio broadcasting licenses | 2,084,269 | 2,089,226 | |||||||||
Goodwill | 63,915 | 63,915 | |||||||||
Assets held for sale | 5,842 | 5,474 | |||||||||
| Other assets, net of accumulated amortization | 119,730 | 130,510 | |||||||||
TOTAL ASSETS | $ | 3,230,026 | $ | 3,284,893 | |||||||
LIABILITIES: | |||||||||||
Accounts payable | $ | 9,507 | $ | 14,002 | |||||||
Accrued expenses | 80,880 | 72,488 | |||||||||
Other current liabilities | 64,419 | 80,549 | |||||||||
Operating lease liabilities | 39,195 | 40,815 | |||||||||
Total current liabilities | 194,001 | 207,854 | |||||||||
| Long-term debt | 1,881,363 | 1,880,362 | |||||||||
Operating lease liabilities, net of current portion | 201,824 | 196,654 | |||||||||
| Net deferred tax liabilities | 444,631 | 453,378 | |||||||||
Other long-term liabilities | 22,545 | 26,026 | |||||||||
Total long-term liabilities | 2,550,363 | 2,556,420 | |||||||||
Total liabilities | 2,744,364 | 2,764,274 | |||||||||
CONTINGENCIES AND COMMITMENTS | |||||||||||
SHAREHOLDERS' EQUITY: | |||||||||||
Class A common stock $0.01 par value; voting; authorized 200,000,000 shares; issued and outstanding 146,219,399 and 141,159,834 shares at March 31, 2023 and December 31, 2022 respectively | 1,463 | 1,412 | |||||||||
Class B common stock $0.01 par value; voting; authorized 75,000,000 shares; issued and outstanding 4,045,199 shares at March 31, 2023 and December 31, 2022 | 40 | 40 | |||||||||
Class C common stock $0.01 par value; non voting; authorized 50,000,000 shares; no shares issued and outstanding | — | — | |||||||||
Additional paid-in capital | 1,678,554 | 1,676,843 | |||||||||
Accumulated deficit | (1,196,497) | (1,160,618) | |||||||||
| Accumulated other comprehensive income | 2,102 | 2,942 | |||||||||
Total shareholders' equity | 485,662 | 520,619 | |||||||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ | 3,230,026 | $ | 3,284,893 | |||||||
See notes to condensed consolidated financial statements.
1
AUDACY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands, except share and per share data)
(unaudited)
| THREE MONTHS ENDED | |||||||||||
| MARCH 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| NET REVENUES | $ | 259,635 | $ | 275,295 | |||||||
| OPERATING EXPENSE: | |||||||||||
| Station operating expenses | 233,927 | 227,045 | |||||||||
| Depreciation and amortization expense | 17,442 | 13,539 | |||||||||
| Corporate general and administrative expenses | 25,298 | 25,911 | |||||||||
| Restructuring charges | 2,421 | 886 | |||||||||
| Impairment loss | 5,050 | 1,521 | |||||||||
| Net gain on sale or disposal | (12,404) | (2,458) | |||||||||
| Other expenses | 110 | 350 | |||||||||
| Total operating expense | 271,844 | 266,794 | |||||||||
| OPERATING INCOME (LOSS) | (12,209) | 8,501 | |||||||||
| NET INTEREST EXPENSE | 32,381 | 23,471 | |||||||||
| OTHER (INCOME) EXPENSE | — | — | |||||||||
| (LOSS) BEFORE TAXES (BENEFIT) | (44,590) | (14,970) | |||||||||
| TAX (BENEFIT) EXPENSE | (8,689) | (3,897) | |||||||||
| NET LOSS | (35,901) | (11,073) | |||||||||
| NET LOSS PER SHARE - BASIC | $ | (0.25) | $ | (0.08) | |||||||
| NET LOSS PER SHARE - DILUTED | $ | (0.25) | $ | (0.08) | |||||||
| WEIGHTED AVERAGE SHARES: | |||||||||||
| Basic | 141,114,573 | 138,122,432 | |||||||||
| Diluted | 141,114,573 | 138,122,432 | |||||||||
See notes to condensed consolidated financial statements.
2
AUDACY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(amounts in thousands)
(unaudited)
THREE MONTHS ENDED | ||||||||||||||
| March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| NET LOSS | $ | (35,901) | $ | (11,073) | ||||||||||
| OTHER COMPREHENSIVE INCOME, NET OF TAXES: | ||||||||||||||
| Net unrealized (loss) gain on derivatives, net of taxes (benefit) | (840) | 1,223 | ||||||||||||
| COMPREHENSIVE LOSS | $ | (36,741) | $ | (9,850) | ||||||||||
See notes to condensed consolidated financial statements.
3
AUDACY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(amounts in thousands, except share data)
(unaudited)
| Common Stock | Additional Paid-in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Total | |||||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 | 141,159,834 | $ | 1,412 | 4,045,199 | $ | 40 | $ | 1,676,843 | $ | (1,160,618) | $ | 2,942 | $ | 520,619 | |||||||||||||||||||||||||||||||||
| Net loss | — | — | — | — | — | (35,901) | — | (35,901) | |||||||||||||||||||||||||||||||||||||||
| Compensation expense related to granting of stock awards | 5,871,732 | 59 | — | — | 1,890 | — | — | 1,949 | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock related to the Employee Stock Purchase Plan ("ESPP") | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||||||||
| Purchase of vested employee restricted stock units | (812,167) | (8) | — | — | (119) | — | — | (127) | |||||||||||||||||||||||||||||||||||||||
| Payment of dividends on common stock | — | — | — | — | (60) | — | — | (60) | |||||||||||||||||||||||||||||||||||||||
| Dividend equivalents, net of forfeitures | — | — | — | — | — | 22 | — | 22 | |||||||||||||||||||||||||||||||||||||||
| Net unrealized gain (loss) on derivatives | — | — | — | — | — | — | (840) | (840) | |||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2023 | 146,219,399 | $ | 1,463 | 4,045,199 | $ | 40 | $ | 1,678,554 | $ | (1,196,497) | $ | 2,102 | $ | 485,662 | |||||||||||||||||||||||||||||||||
4
AUDACY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(amounts in thousands, except share data)
(unaudited)
| Common Stock | Additional Paid-in Capital | (Accumulated Deficit) | Accumulated Other Comprehensive Income (Loss) | Total | |||||||||||||||||||||||||||||||||||||||||||
| Class A | Class B | ||||||||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 | 140,060,355 | $ | 1,401 | 4,045,199 | $ | 40 | $ | 1,671,195 | $ | (1,020,142) | $ | (289) | $ | 652,205 | |||||||||||||||||||||||||||||||||
| Net income (loss) available to the Company | — | — | — | — | — | (11,073) | — | (11,073) | |||||||||||||||||||||||||||||||||||||||
| Compensation expense related to granting of stock awards | (59,352) | (1) | — | — | 2,699 | — | — | 2,698 | |||||||||||||||||||||||||||||||||||||||
| Issuance of common stock related to the Employee Stock Purchase Plan ("ESPP") | 61,009 | 1 | — | — | 176 | — | — | 177 | |||||||||||||||||||||||||||||||||||||||
| Purchase of vested employee restricted stock units | (621,876) | (6) | — | — | (1,833) | — | — | (1,839) | |||||||||||||||||||||||||||||||||||||||
| Payment of dividends on common stock | — | — | — | — | (174) | — | — | (174) | |||||||||||||||||||||||||||||||||||||||
| Dividend equivalents, net of forfeitures | — | — | — | — | — | 202 | — | 202 | |||||||||||||||||||||||||||||||||||||||
| Net unrealized gain (loss) on derivatives | — | — | — | — | — | — | 1,223 | 1,223 | |||||||||||||||||||||||||||||||||||||||
| Balance, March 31, 2022 | 139,440,136 | $ | 1,395 | 4,045,199 | $ | 40 | $ | 1,672,063 | $ | (1,031,013) | $ | 934 | $ | 643,419 | |||||||||||||||||||||||||||||||||
See notes to condensed consolidated financial statements.
5
AUDACY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
| THREE MONTHS ENDED MARCH 31, | |||||||||||
| 2023 | 2022 | ||||||||||
OPERATING ACTIVITIES: | |||||||||||
| Net loss | $ | (35,901) | $ | (11,073) | |||||||
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: | |||||||||||
Depreciation and amortization | 17,442 | 13,539 | |||||||||
Net amortization of deferred financing costs (net of original issue discount and debt premium) | 1,008 | 1,002 | |||||||||
Net deferred taxes (benefit) and other | (8,442) | (4,039) | |||||||||
Provision for bad debts | 471 | 49 | |||||||||
| Net (gain) loss on sale or disposal | (12,404) | (2,458) | |||||||||
Non-cash stock-based compensation expense | 1,949 | 2,698 | |||||||||
Deferred compensation | 292 | (1,725) | |||||||||
Impairment loss | 5,050 | 1,521 | |||||||||
| Change in fair value of contingent consideration | — | 282 | |||||||||
Accounts receivable | 40,454 | 48,135 | |||||||||
Prepaid expenses and deposits | (17,974) | (18,574) | |||||||||
Accounts payable and accrued liabilities | (9,134) | (9,202) | |||||||||
Accrued interest expense | (1,660) | (1,454) | |||||||||
| Other long-term liabilities | (3,773) | (3,481) | |||||||||
| Net cash (used in) provided by operating activities | (22,622) | 15,220 | |||||||||
INVESTING ACTIVITIES: | |||||||||||
| Additions to property, equipment and software | (13,618) | (14,522) | |||||||||
| Proceeds from sale of property, equipment, intangibles and other assets | 16,866 | 2,464 | |||||||||
| Net cash provided by (used in) investing activities | 3,248 | (12,058) | |||||||||
6
AUDACY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
| THREE MONTHS ENDED MARCH 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| FINANCING ACTIVITIES: | |||||||||||
| Payments of long-term debt | (10) | — | |||||||||
| Payments of revolving senior debt | — | (22,727) | |||||||||
| Proceeds from issuance of employee stock plan | — | 177 | |||||||||
| Purchase of vested employee restricted stock units | (127) | (1,839) | |||||||||
| Payment of dividend equivalents on vested restricted stock units | (60) | (174) | |||||||||
| Net cash (used in) provided by financing activities | (197) | (24,563) | |||||||||
| NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS | (19,571) | (21,401) | |||||||||
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 103,344 | 59,439 | |||||||||
| CASH, CASH EQUIVALENTS AND RESTRICTED CASH, END OF PERIOD | $ | 83,773 | $ | 38,038 | |||||||
| SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | |||||||||||
| Cash paid (received) during the period for: | |||||||||||
| Interest | $ | 32,692 | $ | 23,616 | |||||||
| Income taxes | $ | 239 | $ | (15,201) | |||||||
7
AUDACY, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 2023 AND 2022
1. BASIS OF PRESENTATION AND SIGNIFICANT POLICIES
Audacy, Inc. (formerly Entercom Communications Corp.) was formed as a Pennsylvania corporation in 1968. On April 9, 2021, the Company changed its name to Audacy, Inc. and changed its New York Stock Exchange ticker symbol from "ETM" to "AUD."
The interim unaudited condensed consolidated financial statements included herein have been prepared by Audacy, Inc. and its subsidiaries (collectively, the “Company”) in accordance with: (i) generally accepted accounting principles (“U.S. GAAP”) for interim financial information; and (ii) the instructions of the Securities and Exchange Commission (the “SEC”) for Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for annual financial statements. In the opinion of management, the condensed consolidated financial statements reflect all adjustments considered necessary for a fair statement of the results of operations and financial position for the interim periods presented. All such adjustments are of a normal and recurring nature. The Company’s results are subject to seasonal fluctuations and, therefore, the results shown on an interim basis are not necessarily indicative of results for a full year.
This Form 10-Q should be read in conjunction with the consolidated financial statements and related notes included in the Company’s audited consolidated financial statements as of and for the year ended December 31, 2022, and filed with the SEC on March 16, 2023, as part of the Company’s Annual Report on Form 10-K (the "2022 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 2022 Annual Report.
Going Concern
In accordance with Accounting Standards Codification ("ASC") 205-40, Going Concern, the Company continues to critically review its liquidity and anticipated capital requirements in light of the significant uncertainty created by the current macroeconomic conditions and determine whether these conditions and events, when considered in the aggregate, raise substantial doubt about its ability to continue as a going concern within twelve months after the date that the accompanying unaudited consolidated financial statements are issued.
Current macroeconomic conditions have created, and may continue to create, significant uncertainty in operations, including rising inflation and interest rates, significant volatility in financial markets, decreases in advertising revenue, and increased competition for advertising expenditures, which have had, and are expected to continue to have, a material adverse effect on the Company’s forecasted revenue. As a result, management continues to execute on cash management and strategic operational plans to manage liquidity and debt covenant compliance, including evaluating contractual obligations and workforce reductions, managing operating expenses, divesting non-strategic assets of the Company, and initiating a variety of transactions to manage the Company’s liabilities, which could include extending maturities or otherwise reorganizing the Company’s debt to decrease overall leverage. The Company is unable to predict with certainty the impact that the current macroeconomic conditions will have on its ability to consummate these transactions or maintain compliance with the financial covenants contained in the Company’s debt agreements.
As of March 31, 2023, the Company was in compliance with such debt covenants. Based on the Company’s cash and cash equivalents balance, the current maturities of its existing debt facilities, and its forecasted business plan in light of current macroeconomic conditions. The Company’s current forecast of future revenue over the next twelve months indicates that such revenue is unlikely to be sufficient for the Company to be able to maintain compliance with the financial covenants under our debt agreements for at least twelve months from the issuance of the accompanying unaudited consolidated financial statements. Failure to meet these covenant requirements in the future would cause the Company to be in default and could cause the maturity of the related debt to be accelerated and become immediately payable. This could require the Company to obtain waivers or amendments in order to maintain compliance, and there can be no assurance that any such waiver or amendment would be available on acceptable terms or at all. If the Company is unable to obtain necessary waivers or amendments and its debt is accelerated, there can be no assurance that the Company would be able to obtain replacement financing or to satisfy its obligations. This uncertainty surrounding compliance with the Company’s debt covenants raises substantial doubt regarding the Company’s ability to continue as a going concern for a period of twelve months from the issuance of the accompanying unaudited consolidated financial statements.
8
The accompanying unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates realization of assets and satisfaction of liabilities in the ordinary course of business. As such, they do not include any adjustments to the recoverability and reclassification of recorded amounts that might be necessary should the Company be unable to continue as a going concern.
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 2022 Annual Report) that might have a material impact on the Company’s financial position, results of operations or cash flows.
2. BUSINESS COMBINATIONS AND EXCHANGES
The Company records acquisitions under the acquisition method of accounting, and allocates the purchase price to the assets and liabilities based upon their respective fair values as determined as of the acquisition date. Merger and acquisition costs are excluded from the purchase price as these costs are expensed as incurred for book purposes and amortized for tax purposes.
2023 Dispositions
During the first quarter of 2023, the Company completed the sale of tower assets for $16.9 million. The Company recognized a gain on the sale, net of commissions and other expenses, of $12.4 million.
2022 Dispositions
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. In aggregate, these assets had a carrying value of approximately $4.2 million. In the third quarter of 2022, the Company completed this sale. The Company recognized a gain on the sale, net of commissions and other expenses, of approximately $10.6 million in the third quarter of 2022.
During the third quarter of 2022, the Company entered into an agreement to dispose of land and equipment in Nevada. On November 2, 2022 the Company completed the sale of land and equipment for $39.1 million cash and reported a gain of approximately $35.3 million.
Beasley Exchange
On December 22, 2022, the Company completed a transaction with Beasley Media Group Licenses, LLC and Beasley Media Group, LLC. ("Beasley") in which the Company exchanged its Station KXTE located in Pahrump, Nevada for Beasley's Station KDWN located in Las Vegas, Nevada (the "Beasley Vegas Exchange"). The Company and Beasley began programming the respective stations under local marketing agreements ("LMAs") on November 14, 2022. During the period of the LMAs, the Company's consolidated financial statements excluded net revenues and station operating expenses associated with station KXTE (the "divested station") and included net revenues and station operating expenses associated with station KDWN (the "acquired station").
Upon completion of the Beasley Vegas Exchange, the Company: (i) removed from its consolidated balance sheet the assets of the divested station; (ii) recorded the assets of the acquired station at fair value; and (iii) recognized a loss on the exchange of approximately $2.0 million.
9
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 | 535 | ||||
| Total tangible property | $ | 535 | |||
| Radio broadcasting licenses | 2,002 | ||||
| Total intangible assets | $ | 2,002 | |||
| Total assets | $ | 2,537 | |||
3. RESTRUCTURING CHARGES
Restructuring Charges
The following table presents the components of restructuring charges.
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
(amounts in thousands) | |||||||||||
Costs to exit duplicative contracts | $ | 395 | $ | — | |||||||
Workforce reduction | 1,860 | 721 | |||||||||
| Other restructuring costs | 166 | 165 | |||||||||
Total restructuring charges | $ | 2,421 | $ | 886 | |||||||
Restructuring Plan
During the first quarter of 2023, the Company initiated a restructuring plan to help mitigate the adverse impact that the current macroeconomic conditions are having on financial results and business operations. The Company continues to evaluate what, if any, further actions may be necessary related to the current macroeconomic conditions. The restructuring plans primarily included workforce reduction charges that included one-time termination benefits and related costs to mitigate the adverse impacts of the current macroeconomic conditions.
The estimated amount of unpaid restructuring charges as of March 31, 2023 includes amounts in accrued expenses that are expected to be paid in less than one year.
| Three Months Ended March 31, 2023 | Twelve Months Ended December 31, 2022 | ||||||||||
| (amounts in thousands) | |||||||||||
| Restructuring charges, beginning balance | $ | 2,750 | $ | 2,623 | |||||||
| Additions | 2,421 | 10,008 | |||||||||
| Payments | (1,720) | (9,881) | |||||||||
| Restructuring charges unpaid and outstanding | 3,451 | 2,750 | |||||||||
| Restructuring charges - current portion | $ | 3,451 | $ | 2,750 | |||||||
10
4. REVENUE
Spot Revenues
The Company sells air-time to advertisers and broadcasts commercials at agreed upon dates and times. The Company's performance obligations are broadcasting advertisements for advertisers at specifically identifiable days and dayparts. The amount of consideration the Company receives and revenue it recognizes is fixed based upon contractually agreed upon rates. The Company recognizes revenue at a point in time when the advertisements are broadcast and the performance obligations are satisfied. Revenues are recorded on a net basis, after the deduction of advertising agency fees by the advertising agencies.
Digital Revenues
The Company provides targeted advertising through the sale of streaming and display advertisements on its national platforms, audacy.com and eventful.com, the Audacy ® app, and its station websites. Performance obligations include delivery of advertisements over the Company's platforms or delivery of targeted advertisements directly to consumers. The Company recognizes revenue at a point in time when the advertisements are delivered and the performance obligations are satisfied. Revenues are recorded on a net basis, after the deduction of advertising agency fees by the advertising agencies.
Through its podcast studio, Cadence 13, LLC. ("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 LLC ("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.
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The Company earns trade and barter revenue by providing advertising broadcast time in exchange for certain products, supplies, and services. The Company includes the value of such exchanges in both net revenues and station operating expenses. Trade and barter value is based upon management's estimate of the fair value of the products, supplies and services received.
Contract Balances
Refer to the table below for information about receivables, contract assets and contract liabilities from contracts with customers. Accounts receivable balances in the table below exclude other receivables that are not generated from contracts with customers. These amounts are $1.3 million and $0.8 million as of March 31, 2023 and December 31, 2022, respectively.
Description | March 31, 2023 | December 31, 2022 | ||||||||||||
(amounts in thousands) | ||||||||||||||
| Receivables, net, included in Accounts receivable net of allowance for doubtful accounts | $ | 219,164 | $ | 260,509 | ||||||||||
Unearned revenue - current | 13,527 | 13,687 | ||||||||||||
Unearned revenue - noncurrent | 385 | 403 | ||||||||||||
Changes in Contract Balances
The timing of revenue recognition, billings and cash collections results in accounts receivable (billed or unbilled), and customer advances and deposits (unearned revenue) on the Company’s condensed consolidated balance sheet. At times, however, the Company receives advance payments or deposits from its customers before revenue is recognized, resulting in contract liabilities. The contract liabilities primarily relate to 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 sheet on a contract-by-contract basis at the end of each respective reporting period within other current liabilities and other long-term liabilities.
Significant changes in the contract liabilities balances during the period are as follows:
| Three Months Ended March 31, 2023 | ||||||||
| Unearned Revenue | (amounts in thousands) | |||||||
| Beginning balance on January 1, 2023 | $ | 14,090 | ||||||
| Revenue recognized during the period that was included in the beginning balance of contract liabilities | (447) | |||||||
| Additions, net of revenue recognized during period | 269 | |||||||
| Ending balance | $ | 13,912 | ||||||
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Disaggregation of Revenue
The following table presents the Company’s revenues disaggregated by revenue source:
| Three Months Ended March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Revenue by Source | (amounts in thousands) | |||||||||||||
| Spot revenues | $ | 159,309 | $ | 175,135 | ||||||||||
| Digital revenues | 56,925 | 58,039 | ||||||||||||
| Network revenues | 19,868 | 21,141 | ||||||||||||
| Sponsorships and event revenues | 12,444 | 10,327 | ||||||||||||
| Other revenues | 11,089 | 10,653 | ||||||||||||
| Net revenues | $ | 259,635 | $ | 275,295 | ||||||||||
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:
| Lease Cost | Three Months Ended March 31, | |||||||||||||
| 2023 | 2022 | |||||||||||||
(amounts in thousands) | ||||||||||||||
Operating lease cost | $ | 12,304 | $ | 12,585 | ||||||||||
Variable lease cost | 2,850 | 2,904 | ||||||||||||
Total lease cost | $ | 15,154 | $ | 15,489 | ||||||||||
Supplemental Cash Flow
Supplemental cash flow information related to leases was as follows:
| Three Months Ended March 31, | ||||||||||||||
| 2023 | 2022 | |||||||||||||
| Description | (amounts in thousands) | |||||||||||||
| Cash paid for amounts included in measurement of lease liabilities | ||||||||||||||
| Operating cash flows from operating leases | $ | 13,469 | $ | 13,610 | ||||||||||
| Right-of-use assets obtained in exchange for lease obligations | ||||||||||||||
| Operating leases (1) | $ | 16,476 | $ | 2,769 | ||||||||||
(1) As of March 31, 2023, the Company has not entered into any leases that have not yet commenced.
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6. INTANGIBLE ASSETS AND GOODWILL
Goodwill and certain intangible assets are not amortized for book purposes. They may, however, be 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, 2023 | December 31, 2022 | ||||||||||
| (amounts in thousands) | |||||||||||
| Broadcasting licenses balance as of January 1, | $ | 2,089,226 | $ | 2,251,546 | |||||||
| Disposition of radio stations (See Note 2) | — | (4,377) | |||||||||
| Acquisitions (See Note 2) | — | 2,002 | |||||||||
| — | (159,089) | ||||||||||
| Assets held for sale (See Note 14) | (4,957) | (856) | |||||||||
| Ending period balance | $ | 2,084,269 | $ | 2,089,226 | |||||||
The following table presents the changes in goodwill. Refer to Note 2, Business Combinations, for additional information.
| Goodwill Carrying Amount | |||||||||||
| March 31, 2023 | December 31, 2022 | ||||||||||
| (amounts in thousands) | |||||||||||
| Goodwill balance before cumulative loss on impairment as of January 1, | $ | 1,062,588 | $ | 1,062,723 | |||||||
| Accumulated loss on impairment as of January 1, | (998,673) | (980,547) | |||||||||
| Goodwill beginning balance after cumulative loss on impairment as of January 1, | 63,915 | 82,176 | |||||||||
| Loss on impairment | $ | — | (18,126) | ||||||||
| Measurement period adjustments to acquired goodwill (See Note 2) | — | (135) | |||||||||
| Ending period balance | $ | 63,915 | $ | 63,915 | |||||||
Broadcasting Licenses Impairment Test
The Company evaluated whether the facts and circumstances and available information result in the need for an impairment assessment for its FCC broadcasting licenses, 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 an interim impairment assessment was not warranted.
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.
There were no events or changes in circumstances since the previous annual impairment assessment conducted that indicated an interim review of broadcasting licenses was required.
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Goodwill Impairment Test
The Company 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 an interim impairment assessment was not warranted.
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.
There were no events or changes in circumstances since the previous annual impairment assessment conducted 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, 2023 | December 31, 2022 | ||||||||||
| (amounts in thousands) | |||||||||||
| Accrued compensation | $ | 14,996 | $ | 25,730 | |||||||
| Accounts receivable credits | 3,843 | 4,333 | |||||||||
| Advertiser obligations | 8,642 | 6,465 | |||||||||
| Accrued interest payable | 13,273 | 14,933 | |||||||||
| Unearned revenue | 13,527 | 13,687 | |||||||||
| Accrued sports rights | 163 | 3,397 | |||||||||
| Accrued benefits | 5,644 | 7,640 | |||||||||
| Non-income tax liabilities | 1,877 | 1,804 | |||||||||
| Other | 2,454 | 2,560 | |||||||||
| Total other current liabilities | $ | 64,419 | $ | 80,549 | |||||||
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8. LONG-TERM DEBT
Long-term debt was comprised of the following as of the periods indicated:
| Long-Term Debt | |||||||||||
| March 31, 2023 | December 31, 2022 | ||||||||||
| (amounts in thousands) | |||||||||||
| Credit Facility | |||||||||||
| Revolver | $ | 180,000 | $ | 180,000 | |||||||
| Term B-2 Loan, due November 17, 2024 | 632,415 | 632,415 | |||||||||
| Plus unamortized premium | 1,046 | 1,116 | |||||||||
| 813,461 | 813,531 | ||||||||||
| 2027 Notes | |||||||||||
6.500% notes due May 1, 2027 | 460,000 | 460,000 | |||||||||
| Plus unamortized premium | 3,035 | 3,220 | |||||||||
| 463,035 | 463,220 | ||||||||||
| 2029 Notes | |||||||||||
6.750% notes due March 31, 2029 | 540,000 | 540,000 | |||||||||
| 540,000 | 540,000 | ||||||||||
| Accounts receivable facility | 75,000 | 75,000 | |||||||||
| Other debt | 44 | 23 | |||||||||
| Total debt before deferred financing costs | 1,891,540 | 1,891,774 | |||||||||
| Deferred financing costs (excludes the revolving credit) | (10,177) | (11,412) | |||||||||
| Total long-term debt, net of current debt | $ | 1,881,363 | $ | 1,880,362 | |||||||
| Outstanding standby letters of credit | $ | 7,488 | $ | 5,909 | |||||||
(A) Senior Debt
The 2027 Notes
During 2019, the Company and its finance subsidiary, Audacy Capital Corp. (formerly, Entercom Media Corp.) ("Audacy Capital Corp."), issued $325.0 million in aggregate principal amount of senior secured second-lien notes due 2027 (the "Initial 2027 Notes") under an Indenture dated as of April 30, 2019 (the "Base Indenture").
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. Until May 1, 2022, only a portion of the Initial 2027 Notes could be redeemed at a price of 106.500% of their principal amount plus accrued interest. On or after May 1, 2022, the Initial 2027 Notes may be redeemed, in whole or in part, at a price of 104.875% of their principal amount plus accrued interest. The prepayment premium continues to decrease over time to 100% of their principal amount plus accrued interest.
The Company used net proceeds of the offering, along with cash on hand and $89.0 million borrowed under its Revolver, to repay $425.0 million of existing indebtedness under the Company's term loan outstanding at that time (the "Term B-1 Loan").
In connection with this refinancing activity described above, during the second quarter of 2019, the Company: (i) wrote off $1.6 million of unamortized deferred financing costs associated with the Term B-1 Loan; (ii) wrote off $0.2 million of unamortized premium associated with the Term B-1 Loan; and (iii) recorded $3.9 million of new deferred financing costs which will be amortized over the term of the Initial 2027 Notes under the effective interest rate method.
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During the fourth quarter of 2019, the Company and its finance subsidiary, Audacy Capital Corp., issued $100.0 million of additional 6.500% senior secured second-lien notes due 2027 (the "Additional Notes"). The Additional Notes were issued as additional notes under the Base Indenture, as supplemented by a first supplemental indenture, dated December 13, 2019 (the "First Supplemental Indenture"), and, together with the Base Indenture (the "Indenture"). As of December 31, 2021, the Additional Notes were treated as a single series with the $325.0 million Initial 2027 Notes (together, with the Additional Notes, the "Notes") and have substantially the same terms as the Initial 2027 Notes. The Additional Notes were issued at a price of 105.0% of their principal amount, plus accrued interest from November 1, 2019. The unamortized premium on the Notes is reflected on the balance sheet as an addition to the Notes.
The Company used net proceeds of the Additional Notes offering to repay $96.7 million of existing indebtedness under the Company's Term B-1 Loan. Contemporaneous with this partial pay-down of the Term B-1 Loan, the Company replaced the remaining amount outstanding under the Term B-1 Loan with a Term B-2 loan (the "Term B-2 Loan").
In connection with this refinancing activity described above, during the fourth quarter of 2019, the Company: (i) wrote off $0.3 million of unamortized deferred financing costs associated with the Term B-1 Loan; and (ii) recorded $3.8 million of new deferred financing costs.
During the fourth quarter of 2021, the Company and its finance subsidiary, Audacy Capital Corp., issued $45.0 million of additional 6.500% senior secured second-lien notes due 2027 (the "Additional 2027 Notes"). The Additional 2027 Notes were issued as additional notes under the Indenture. The Additional 2027 Notes are treated as a single series with the $325.0 million Initial 2027 Notes and the $100.0 million Additional 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. The premium on the Additional 2027 Notes will be amortized over the term under the effective interest rate method. As of any reporting period, the unamortized premium on the 2027 Notes is reflect on the balance sheet as an addition to the 2027 Notes.
During the second quarter of 2022, the Company repurchased $10.0 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 $0.6 million. As of any reporting period, the unamortized premium on the 2027 Notes is reflected on the balance sheet as an addition to the 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 Company executed Amendment No. 4 which established a new class of revolving credit commitments from a portion of its existing revolving commitments with a later maturity date than the revolving credit commitments immediately prior to the effectiveness of the amendment. All but one of the original lenders in the Revolver agreed to extend the maturity date from November 17, 2022, to August 19, 2024.
As a result, approximately $227.3 million (the "New Class Revolver") of the $250.0 million Revolver has a maturity date of August 19, 2024, and approximately $22.7 million (the "Original Class Revolver") of the $250.0 million Revolver had a maturity date of November 17, 2022.
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, 2023. 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, 2023, the Company’s Consolidated Net First Lien Leverage Ratio was 3.8 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.
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As of March 31, 2023, 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. Refer to Note 1, Basis of Presentation And Significant Policies - Liquidity and Capital Resources, for additional information.
The 2029 Notes
During the first quarter of 2021, the Company and its finance subsidiary, Audacy Capital Corp., issued $540.0 million in aggregate principal amount of senior secured second-lien notes due March 31, 2029 (the "2029 Notes"). Interest on the 2029 Notes accrues at the rate of 6.750% per annum and is payable semi-annually in arrears on March 31 and September 30 of each year.
The Company used net proceeds of the offering, along with cash on hand, to: (i) repay $77.0 million of existing indebtedness under the Term B-2 Loan; (ii) repay $40.0 million of drawings under the Revolver; and (iii) fully redeem all of its $400.0 million aggregate principal amount of 7.250% senior notes due 2024 (the "Senior Notes") and to pay fees and expenses in connection with the redemption.
In connection with this activity, during the first quarter of 2021, the Company: (i) recorded $6.6 million of new debt issuance costs attributable to the 2029 Notes; and (ii) $0.4 million of debt issuance costs attributable to the Revolver which will be amortized over the remaining term of the Revolver on a straight line basis. The Company also incurred $0.5 million of costs which were classified within refinancing expenses.
The Credit Facility - Amendment No. 5
On July 20, 2020, Audacy Capital Corp. entered into an amendment ("Amendment No. 5") to the Credit Agreement dated October 17, 2016 (as previously amended, the "Existing Credit Agreement" and, as amended by Amendment No. 5, the "Credit Agreement"), with the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent. Amendment No. 5, among other things:
(a) amended the Company's financial covenants under the Credit Agreement by: (i) suspending the testing of the Consolidated Net First Lien Leverage Ratio (as defined in the Credit Agreement) through the Test Period (as defined in the Credit Agreement) ending December 31, 2020; (ii) adding a new minimum liquidity covenant of $75.0 million until December 31, 2021, or such earlier date as the Company may elect (the "Covenant Relief Period"); and (iii) imposing certain restrictions during the Covenant Relief Period, including among other things, certain limitations on incurring additional indebtedness and liens, making restricted payments or investments, redeeming notes and entering into certain sale and lease-back transactions;
(b) increased the interest rate and/or fees under the Credit Agreement during the Covenant Relief Period applicable to: (i) 2024 Revolving Credit Loans (as defined in the Credit Agreement) to (x) in the case of Eurodollar Rate Loans (as defined in the Credit Agreement), a customary Eurodollar rate formula plus a margin of 2.50% per annum, and (y) in the case of Base Rate Loans (as defined in the Credit Agreement), a customary base rate formula plus a margin of 1.50% per annum, and (ii) Letter of Credit (as defined in the Credit Agreement) fees to 2.50% times the daily maximum amount available to be drawn under any such Letter of Credit; and
(c) modified the definition of Consolidated EBITDA by setting fixed amounts for the fiscal quarters ending June 30, 2020, September 30, 2020, and December 31, 2020, for purposes of testing compliance with the Consolidated Net First Lien Leverage Ratio financial covenant during the Covenant Relief Period, which fixed amounts correspond to the Borrower's Consolidated EBITDA as reported under the Existing Credit Agreement for the Test Period ended March 31, 2020, for the fiscal quarters ending June 30, 2019, September 30, 2019, and December 31, 2019, respectively.
The Credit Facility - Amendment No. 6
On March 5, 2021, Audacy Capital Corp. entered into an amendment ("Amendment No. 6") to the Credit Agreement dated October 17, 2016 (as previously amended, the “Existing Credit Agreement” and, as amended by Amendment No. 6, the “Credit Agreement”), with the guarantors party thereto, the lenders party thereto and JPMorgan Chase Bank, N.A., as administrative agent and collateral agent.
Under the Existing Credit Agreement, during the Covenant Relief Period the Company was subject to a $75.0 million limitation on investments in joint ventures, Affiliates, Unrestricted Subsidiaries and Non-Guarantor Subsidiaries (each as
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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 $75.0 million Receivables Facility to provide additional liquidity, to reduce the Company's cost of funds and to repay outstanding indebtedness under the Credit Facility.
The documentation for the Receivables Facility includes (i) a Receivables Purchase Agreement entered into by and among Audacy Operations, Audacy Receivables as seller, the Investors, and DZ BANK, as agent; (ii) a Sale and Contribution Agreement, by and among Audacy Operations, Audacy NY, and Audacy Receivables; and (iii) a Purchase and Sale Agreement and together with the Receivables Purchase Agreement and the Sale and Contribution Agreement, the “Agreements”) by and among certain wholly-owned subsidiaries of the Company (together with Audacy NY, the “Originators”), Audacy Operations and Audacy NY.
Pursuant to the Purchase and Sale Agreement, the Originators (other than Audacy NY) have sold, and will continue to sell on an ongoing basis, their accounts receivable, together with customary related security and interests in the proceeds thereof, to Audacy NY. Pursuant to the Sale and Contribution Agreement, Audacy NY has sold and contributed, and will continue to sell and contribute on an ongoing basis, its accounts receivable, together with customary related security and interests in the proceeds thereof, to Audacy Receivables. Pursuant to the Receivables Purchase Agreement, Audacy Receivables has sold and will continue to sell on an ongoing basis such accounts receivable, together with customary related security and interests in the proceeds thereof, to the Investors in exchange for cash investments.
Yield is payable to Investors under the Receivables Purchase Agreement at a variable rate based on either 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 special purpose vehicle ("SPV") to pay the purchase price for accounts receivable 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 receivable) are not available to creditors of Audacy NY, Audacy Operations or the Company, and the accounts receivable 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 has usual and customary covenants including, but not limited to, a net first lien leverage ratio, a required minimum tangible net worth, and a minimum liquidity requirement (the "financial covenants"). Specifically, the
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Receivables 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, 2023.
As of March 31, 2023, the Company’s Consolidated Net First Lien Leverage Ratio was 3.8 times. The Receivables Facility also requires the Company to maintain a minimum tangible net worth, as defined within the agreement, of at least $300.0 million. Additionally, the Receivables Facility requires the Company to maintain liquidity of $25 million. As of March 31, 2023, the Company was compliant with the financial covenants.
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. As of March 31, 2023, the SPV has $190.1 million of net accounts receivable and has outstanding borrowings of $75.0 million under the Receivables Facility.
(B) Senior Unsecured Debt
The Senior Notes
Simultaneously with entering into a business combination and assuming the Credit Facility on November 17, 2017, the Company also assumed the 7.250% unsecured senior notes (the “Senior Notes”) that were subsequently modified and were set to mature on November 1, 2024 in the amount of $400.0 million. The Senior Notes were originally issued by CBS Radio Inc. (now Audacy Capital Corp.) on October 17, 2016.
Interest on the Senior Notes accrued at the rate of 7.250% per annum and was payable semi-annually in arrears on May 1 and November 1 of each year.
In connection with the redemption of the Senior Notes during the first quarter of 2021, the Company wrote off the following amounts to gain/loss on extinguishment of debt: (i) $14.5 million in prepayment premiums for the early retirement of the Senior Notes; (ii) $8.7 million of unamortized premium attributable to the Senior Notes; (iii) $1.0 million of unamortized debt issuance costs attributable to the Senior Notes; and (iv) $1.3 million of unamortized debt issuance costs attributable to the Term B-2 Loan.
(C) Net Interest Expense
The components of net interest expense are as follows:
| Net Interest Expense | |||||||||||
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (amounts in thousands) | |||||||||||
| Interest expense | $ | 31,372 | $ | 22,539 | |||||||
| Amortization of deferred financing costs | 1,265 | 1,259 | |||||||||
| Amortization of original issue premium of senior notes | (256) | (256) | |||||||||
| Interest income and other investment income | — | (71) | |||||||||
| Total net interest expense | $ | 32,381 | $ | 23,471 | |||||||
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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, 2023, 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% | |||||||||||||||||||||||||||||||||||||||||||
| Collar | $ | 220.0 | Jun. 25, 2019 | Floor | 0.402% | Jun. 28, 2024 | Jun. 28, 2023 | $ | 90.0 | |||||||||||||||||||||||||||||||||||
| Total | $ | 220.0 | ||||||||||||||||||||||||||||||||||||||||||
For the three months ended March 31, 2023, the Company recorded the net change in the fair value of this derivative as a loss of $0.8 million (net of tax benefit of $0.3 million as of March 31, 2023) 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, 2023, the fair value of these derivatives was an asset of $2.9 million, and is recorded within other assets, net of accumulated amortization on the condensed consolidated balance sheet. The Company does not expect to reclassify any of this amount to the condensed consolidated statement of operations over the next twelve months.
The following table presents the accumulated derivative gain (loss) recorded in other comprehensive income (loss) as of March 31, 2023 and December 31, 2022:
| Accumulated Derivative Gain (Loss) | ||||||||||||||
| Description | March 31, 2023 | December 31, 2022 | ||||||||||||
| (amounts in thousands) | ||||||||||||||
| Accumulated derivative unrealized gain (loss) | $ | 2,102 | $ | 2,942 | ||||||||||
The following tables present the accumulated net derivative gain (loss) recorded in other comprehensive income (loss) for the three months ended March 31, 2023 and March 31, 2022:
| 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 | |||||||||||||||||||
| Three Months Ended March 31, | ||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||
| (amounts in thousands) | ||||||||||||||||||||
| $ | (840) | $ | 1,223 | $ | — | $ | 232 | |||||||||||||
Undesignated Derivatives
The Company is subject to equity market risks due to changes in the fair value of the notional investments selected by its employees as part of its non-qualified deferred compensation plans. During the quarter ended June 30, 2020, the Company entered into a Total Return Swap ("TRS") in order to manage the market risks associated with its non-qualified deferred
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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.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. The contract term of the TRS expires April 2023 and will not be renewed.
For the three months ended March 31, 2023, 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 $0.8 million expense. Of this amount, a $0.3 million expense was recorded in corporate, general and administrative expenses and a $0.5 million expense was recorded in station operating expenses.
10. NET INCOME (LOSS) PER COMMON SHARE
The following tables present the computations of basic and diluted net income (loss) per share from continuing operations:
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (amounts in thousands, except per share data) | |||||||||||
| Basic (Loss) Per Share | |||||||||||
| Numerator | |||||||||||
| Net loss | $ | (35,901) | $ | (11,073) | |||||||
| Denominator | |||||||||||
| Basic weighted average shares outstanding | 141,115 | 138,122 | |||||||||
| Net loss per share - Basic | $ | (0.25) | $ | (0.08) | |||||||
| Diluted (Loss) Per Share | |||||||||||
| Numerator | |||||||||||
| Net loss | $ | (35,901) | $ | (11,073) | |||||||
| Denominator | |||||||||||
| Basic weighted average shares outstanding | 141,115 | 138,122 | |||||||||
| Effect of RSUs and options under the treasury stock method | — | — | |||||||||
| Diluted weighted average shares outstanding | 141,115 | 138,122 | |||||||||
| Net loss per share - Diluted | $ | (0.25) | $ | (0.08) | |||||||
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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 | 2023 | 2022 | |||||||||
| (amounts in thousands, except per share data) | |||||||||||
| Shares excluded as anti-dilutive under the treasury stock method: | |||||||||||
| Options | 609 | 609 | |||||||||
| Price range of options: from | $ | 3.54 | $ | 3.54 | |||||||
| Price range of options: to | $ | 13.98 | $ | 13.98 | |||||||
| RSUs with service conditions | 3,687 | 1,073 | |||||||||
| RSUs excluded with service and market conditions as market conditions not met | 750 | 75 | |||||||||
| Excluded shares as anti-dilutive when reporting a net loss | 881 | 2,189 | |||||||||
11. SHARE-BASED COMPENSATION
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
The 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) | Aggregate Intrinsic Value as of March 31, 2023 | |||||||||||||||||||||||||
| (amounts in thousands) | |||||||||||||||||||||||||||||
| RSUs outstanding as of: | December 31, 2022 | 6,070 | |||||||||||||||||||||||||||
| RSUs awarded | March 31, 2023 | 6,012 | |||||||||||||||||||||||||||
| RSUs released | March 31, 2023 | (2,846) | |||||||||||||||||||||||||||
| RSUs forfeited | March 31, 2023 | (140) | |||||||||||||||||||||||||||
| RSUs outstanding as of: | March 31, 2023 | 9,096 | $ | — | 1.84 | $ | 1,299 | ||||||||||||||||||||||
| RSUs vested and expected to vest as of: | March 31, 2023 | 9,096 | $ | — | 1.84 | $ | 1,294 | ||||||||||||||||||||||
| RSUs exercisable (vested and deferred) as of: | March 31, 2023 | 5 | $ | — | $ | — | $ | — | |||||||||||||||||||||
| Weighted average remaining recognition period in years | 2.76 | ||||||||||||||||||||||||||||
| Unamortized compensation expense | $ | 6,680 | |||||||||||||||||||||||||||
RSUs with Service and Market Conditions
The Company issued RSUs with service and market conditions that are included in the table above.
Option Activity
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There were no options exercised for the three months ended March 31, 2023 and 2022 respectively.
The following table presents the option activity during the current period under the Plan:
| Period Ended | Number of Options | Weighted Average Exercise Price | Weighted Average Remaining Contractual Term (Years) | Intrinsic Value as of March 31 2023 | |||||||||||||||||||||||||
| (amounts in thousands) | |||||||||||||||||||||||||||||
| Options outstanding as of: | December 31, 2022 | 609 | $ | 11.33 | |||||||||||||||||||||||||
| Options exercised | March 31, 2023 | — | — | ||||||||||||||||||||||||||
| Options outstanding as of: | March 31, 2023 | 609 | $ | 11.33 | 1.56 | $ | — | ||||||||||||||||||||||
| Options vested and expected to vest as of: | March 31, 2023 | 609 | $ | 11.33 | 1.56 | $ | — | ||||||||||||||||||||||
| Options vested and exercisable as of: | March 31, 2023 | 609 | $ | 11.33 | 1.56 | $ | — | ||||||||||||||||||||||
| Weighted average remaining recognition period in years | 0.0 | ||||||||||||||||||||||||||||
| Unamortized compensation expense | $ | — | |||||||||||||||||||||||||||
The following table summarizes significant ranges of outstanding and exercisable options as of the current period:
| Options Outstanding | Options Exercisable | |||||||||||||||||||||||||||||||||||||
| (amounts in thousands) | ||||||||||||||||||||||||||||||||||||||
| Range of Exercise Prices | Number of Options Outstanding March 31, 2023 | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | Number of Options Exercisable March 31, 2023 | Weighted Average Exercise Price | |||||||||||||||||||||||||||||||||
| From | To | |||||||||||||||||||||||||||||||||||||
| $ | 3.54 | 7.01 | 67 | 6.2 | 5.40 | 67 | $ | 5.40 | ||||||||||||||||||||||||||||||
| $ | 9.66 | 13.98 | 542 | 1 | 12.06 | 542 | $ | 12.06 | ||||||||||||||||||||||||||||||
| $ | 3.54 | 13.98 | 609 | 1.56 | 11.33 | 609 | $ | 11.33 | ||||||||||||||||||||||||||||||
Recognized Non-Cash Stock-Based Compensation Expense
The following non-cash stock-based compensation expense, which is related primarily to RSUs, is included in each of the respective line items in the Company’s statement of operations:
| Three Months Ended March 31, | |||||||||||
| 2023 | 2022 | ||||||||||
| (amounts in thousands) | |||||||||||
| Station operating expenses | $ | 712 | $ | 1,170 | |||||||
| Corporate general and administrative expenses | 1,178 | 1,820 | |||||||||
| Stock-based compensation expense included in operating expenses | 1,890 | 2,990 | |||||||||
Income tax benefit (1) | 504 | 671 | |||||||||
| After-tax stock-based compensation expense | $ | 1,386 | $ | 2,319 | |||||||
(1) Amounts exclude impact from any compensation expense subject to Section 162(m) of the Code, which is nondeductible for income tax purposes.
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12. INCOME TAXES
The Company recognized an income tax benefit at an effective income tax rate of 19.5% for the three months ended March 31, 2023. The effective income tax rate was determined using a forecasted tax rate based upon projected taxable income for the year. The effective income tax rate for the period was impacted by permanent items, state tax expense, and discrete income tax expense items primarily related to stock based compensation.
The Company recognized an income tax benefit at an effective income tax rate of 26.0% for the three months ended March 31, 2022, which was determined using a forecasted rate based upon projected taxable income for the full year.
The Company was able to carryback its 2020 federal income tax loss to prior tax years and filed two refund claims with the IRS for a total of $20.4 million. We received a refund of $15.2 million in connection with the first claim during the first quarter of 2022.
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, 2023 | Quoted prices in active markets Level 1 | Significant other observable inputs Level 2 | Significant unobservable inputs Level 3 | Measured at Net Asset Value as a Practical Expedient (2) | |||||||||||||||||||||||||||
| (amounts in thousands) | ||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||
| Interest Rate Cash Flow Hedge (3) | $ | 2,867 | $ | — | $ | 2,867 | $ | — | $ | — | ||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||
| Deferred compensation plan liabilities (1) | $ | 20,651 | $ | 16,518 | $ | — | $ | — | $ | 4,133 | ||||||||||||||||||||||
| Contingent Consideration (4) | $ | 30 | $ | — | $ | — | $ | 30 | $ | — | ||||||||||||||||||||||
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Fair Value Measurements At Reporting Date | ||||||||||||||||||||||||||||||||
| Description | Balance at December 31, 2022 | Quoted prices in active markets Level 1 | Significant other observable inputs Level 2 | Significant unobservable inputs Level 3 | Measured at Net Asset Value as a Practical Expedient (2) | |||||||||||||||||||||||||||
| (amounts in thousands) | ||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||
| Interest Rate Cash Flow Hedge (3) | $ | 4,012 | $ | — | $ | 4,012 | $ | — | $ | — | ||||||||||||||||||||||
| Liabilities | ||||||||||||||||||||||||||||||||
| Deferred compensation plan liabilities (1) | $ | 24,123 | $ | 19,944 | $ | — | $ | — | $ | 4,179 | ||||||||||||||||||||||
| Contingent Consideration (4) | $ | 12 | $ | — | $ | — | $ | 12 | $ | — | ||||||||||||||||||||||
(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, 2022 and other assets, net of accumulated amortization at March 31, 2023, is recorded at fair value on a recurring basis. The derivatives are not exchange listed and therefore the fair value is estimated using models that reflect the contractual terms of the derivative, yield curves, and the credit quality of the counterparties. The models also incorporate the Company’s creditworthiness in order to appropriately reflect non-performance risk. Inputs are generally observable and do not contain a high level of subjectivity.
(4)In connection with the Podcorn Acquisition, the Company recorded a liability for contingent consideration payable based upon the achievement of certain annual performance benchmarks over 2 years. The fair value of the liability is estimated using probability-weighted, discounted future cash flows at current tax rates using a scenario based model, and remeasured quarterly. The significant unobservable inputs (Level 3) used to estimate the fair value include the projected Adjusted EBITDA values for 2022 and 2023, as defined in the purchase agreement, and the discount rate.
Non-Recurring Fair Value Measurements
The Company has certain assets that are measured at fair value on a non-recurring basis and are adjusted to fair value only when the carrying values are more than the fair values. The categorization of the framework used to price the assets is considered Level 3, due to the subjective nature of the unobservable inputs used to determine the fair value.
During the three months ended March 31, 2023 and 2022, there were no events or changes in circumstances which indicated the Company’s investments, property and equipment, ROU assets, other intangible assets, or assets held for sale may not be recoverable.
Fair Value of Financial Instruments Subject to Disclosures
The carrying amounts of the following assets and liabilities approximate fair value due to the short maturity of these instruments: (i) cash and cash equivalents; (ii) accounts receivable; and (iii) accounts payable, including accrued liabilities.
The following table presents the carrying value of financial instruments and, where practicable, the fair value as of the dates indicated:
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| March 31, 2023 | December 31, 2022 | ||||||||||||||||||||||
Carrying Value | Fair Value | Carrying Value | Fair Value | ||||||||||||||||||||
| (amounts in thousands) | |||||||||||||||||||||||
Term B Loans (1) | $ | 632,415 | $ | 408,698 | $ | 632,415 | $ | 454,548 | |||||||||||||||
Revolver (2) | $ | 180,000 | $ | 180,000 | $ | 180,000 | $ | 180,000 | |||||||||||||||
2029 Notes (3) | $ | 540,000 | $ | 36,113 | $ | 540,000 | $ | 92,138 | |||||||||||||||
2027 Notes (3) | $ | 460,000 | $ | 30,188 | $ | 460,000 | $ | 82,513 | |||||||||||||||
Accounts receivable facility (4) | $ | 75,000 | $ | 75,000 | |||||||||||||||||||
Other debt (4) | $ | 44 | $ | 752 | |||||||||||||||||||
Letters of credit (4) | $ | 7,488 | $ | 5,909 | |||||||||||||||||||
The following methods and assumptions were used to estimate the fair value of financial instruments:
(1)The Company utilizes a Level 2 valuation input based upon the market trading price of the Term B-2 Loan to compute the fair value as the Term B-2 Loan is traded in the debt securities market. The fair value of the Term B-2 Loan is considered a Level 2 measurement as the pricing inputs are other than quoted prices in active markets.
(2)The fair value of the Revolver was considered to approximate the carrying value as the interest payments are based on LIBOR rates that reset periodically. The Revolver is considered a Level 2 measurement as the pricing inputs are other than quoted prices in active markets.
(3)The Company utilizes a Level 2 valuation input based upon the market trading prices of the 2029 Notes and 2027 Notes to compute the fair value as these 2029 Notes and 2027 Notes are traded in the debt securities market. The 2029 Notes and 2027 Notes are considered a Level 2 measurement as the pricing inputs are other than quoted prices in active markets.
(4)The Company does not believe it is practicable to estimate the fair value of the accounts receivable facility, other debt or the outstanding standby letters of credit.
14. ASSETS HELD FOR SALE
Assets Held for Sale
Long-lived assets to be sold are classified as held for sale in the period in which they meet all the criteria for the disposal of long-lived assets. The Company measures assets held for sale at the lower of their carrying amount or fair value less cost to sell. Additionally, the Company determined that these assets comprise operations and cash flows that can be clearly distinguished, operationally and for financial reporting purposes, from the rest of the Company.
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.
During the fourth quarter of 2022, the Company entered into an agreement to sell its license and assets of a station in Palm Desert, California. During the first quarter of 2023, the Company entered into an agreement with a third party to sell licenses and assets in Memphis, Tennessee and Buffalo, New York as well as certain intellectual property. The Company conducted an analysis and determined the assets met the criteria to be classified as held for sale at March 31, 2023. In aggregate, these assets had a carrying value of approximately $5.8 million. The transactions are expected to close within one year.
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The major categories of these assets held for sale are as follows as of the dates indicated:
Assets Held for Sale | |||||||||||
| March 31, 2023 | December 31, 2022 | ||||||||||
(amounts in thousands) | |||||||||||
| Net property and equipment | 30 | 4,618 | |||||||||
| Radio broadcasting licenses | 5,812 | 856 | |||||||||
| Net assets held for sale | $ | 5,842 | $ | 5,474 | |||||||
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, 2023 | December 31, 2022 | |||||||||||||||
(amounts in thousands) | |||||||||||||||||
Short-term | Other current liabilities | $ | 161 | $ | 229 | ||||||||||||
Long-term | Other long-term liabilities | 19 | 1 | ||||||||||||||
Total | $ | 180 | $ | 230 | |||||||||||||
Employee Stock Purchase Plan
The Company temporarily suspended the ESPP effective January 1, 2023. 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, | |||||||||||
| 2023 | 2022 | ||||||||||
| (amounts in thousands) | |||||||||||
| Number of shares purchased | — | 61 | |||||||||
| Non-cash compensation expense recognized | $ | — | $ | 26 | |||||||
Share Repurchase Program
During the three months ended March 31, 2023, the Company did not repurchase any shares under the 2017 Share Repurchase Program.
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 16, 2023.
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17. SUBSEQUENT EVENTS
Events occurring after March 31, 2023, 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.
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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 16, 2023. 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 three months ended March 31, 2023 as compared to the comparable periods 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 three months ended March 31, 2023, as compared to the three months ended March 31, 2022:
Restructuring Charges
In response to the current macroeconomic conditions, we incurred restructuring charges, including workforce reductions and other restructuring costs of $2.4 million and $0.9 million for three months ended March 31, 2023 and March 31, 2022, respectively. Amounts were expensed as incurred and are included in restructuring charges.
Impairment Loss
The impairment loss incurred during the three months ended March 31, 2023 includes $5.1 million related to an early termination of a lease. The impairment loss incurred during the three months ended March 31, 2022 includes $1.1 million related to an early termination of a lease and a $0.4 million write down of property and equipment.
Net (Gain) Loss on Sale or Disposal
During the three months ended March 31, 2023, we recognized a gain of approximately $12.4 million on the sale of tower assets in the following markets: (i) Los Angeles, California, (ii) St Louis, Missouri, (iii) Rochester, New York, (iv) Baltimore, Maryland and, (v) Washington DC.
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Results of Operations
The tables below present the comparison of our historical results of operations for the three months ended March 31, 2023 to the three months ended March 31, 2022:
| THREE MONTHS ENDED MARCH 31, | |||||||||||||||||
| 2023 | 2022 | % Change | |||||||||||||||
| (dollars in millions) | |||||||||||||||||
| NET REVENUES | $ | 259.6 | $ | 275.3 | (6) | % | |||||||||||
| OPERATING EXPENSE: | |||||||||||||||||
| Station operating expenses | 233.9 | 227.1 | 3 | % | |||||||||||||
| Depreciation and amortization expense | 17.4 | 13.5 | 29 | % | |||||||||||||
| Corporate general and administrative expenses | 25.3 | 25.9 | (2) | % | |||||||||||||
| Restructuring charges | 2.4 | 0.9 | 169 | % | |||||||||||||
| Impairment loss | 5.1 | 1.5 | 237 | % | |||||||||||||
| Net (gain) loss on sale or disposal | (12.4) | (2.5) | 396 | % | |||||||||||||
| Other expenses | 0.1 | 0.4 | (73) | % | |||||||||||||
| Total operating expense | 271.8 | 266.8 | 2 | % | |||||||||||||
| OPERATING INCOME (LOSS) | (12.2) | 8.5 | (244) | % | |||||||||||||
| INTEREST EXPENSE | 32.4 | 23.5 | 38 | % | |||||||||||||
| OTHER INCOME (EXPENSE) | — | — | |||||||||||||||
| LOSS BEFORE INCOME TAX BENEFIT | (44.6) | (15.0) | 197 | % | |||||||||||||
| INCOME TAX BENEFIT | (8.7) | (3.9) | 123 | % | |||||||||||||
| NET INCOME (LOSS) | $ | (35.9) | $ | (11.1) | 223 | % | |||||||||||
Net Revenues
Revenues decreased compared to prior year primarily due to a decrease in advertising spending in our spot, digital and network revenue streams triggered by the current macroeconomic conditions.
Partially offsetting these decreases, net revenues were positively impacted by growth in our sponsorship and events revenues.
Net revenues increased the most for our stations located in the Riverside and Phoenix markets. Net revenues decreased the most for our stations located in the New York City and San Francisco 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; and (ii) an increase in digital expenses related to user acquisition, content licenses and podcast host and talent fees.
Station operating expenses include non-cash compensation expense of $0.7 million and $1.2 million for the three months ended March 31, 2023 and March 31, 2022, respectively.
Depreciation and Amortization Expense
Depreciation and amortization expense increased primarily due to an increase in amortization of capitalized software intangible assets in 2023 relative to 2022. These intangible assets were placed into service in the third quarter of 2022.
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Corporate General and Administrative Expenses
Corporate general and administrative expenses decreased primarily as a result of a decrease in non-cash compensation expense. This reduction was attributable to the reversal of performance-based compensation expense upon reassessment.
Corporate general and administrative expenses include non-cash compensation expense of $1.2 million and $1.8 million for the three months ended March 31, 2023 and March 31, 2022, respectively.
Restructuring Charges
We incurred restructuring charges in 2023 and 2022 primarily in response to the current macroeconomic conditions. These costs primarily included workforce reduction charges and were expensed as incurred.
Impairment Loss
The impairment loss incurred during the three months ended March 31, 2023 includes $5.1 million related to an early termination of a lease. The impairment loss incurred during the three months ended March 31, 2022 includes $1.1 million related to an early termination of a lease and a $0.4 million write down of property and equipment.
Net Gain on Sale or Disposal
During the three months ended March 31, 2023, we recognized a gain of approximately $12.4 million on the sale of tower assets in the following markets: (i) Los Angeles, California, (ii) St Louis, Missouri, (iii) Rochester, New York, (iv) Baltimore, Maryland and, (v) Washington DC.
Interest Expense
During three months ended March 31, 2023, we incurred an additional $8.9 million in interest expense as compared to the three months ended March 31, 2022.
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.
Income Tax Benefit
Tax Rate for the three Months Ended March 31, 2023
We recognized an income tax benefit at an effective income tax rate of 19.5% for the three months ended March 31, 2023. The effective income tax rate for the period was impacted by permanent items, state tax expense, and discrete income tax expense items primarily related to stock based compensation.
Tax Rate for the three Months Ended March 31, 2022
The estimated annual effective income tax rate was 26.0% for the three months ended March 31, 2022, which was determined using a forecasted rate based upon projected taxable income for the year.
Liquidity and Capital Resources
Liquidity
In accordance with Accounting Standards Codification ("ASC") 205-40, Going Concern, the Company continues to critically review its liquidity and anticipated capital requirements in light of the significant uncertainty created by the current macroeconomic conditions and determine whether these conditions and events, when considered in the aggregate, raise substantial doubt about its ability to continue as a going concern within twelve months after the date that the accompanying unaudited consolidated financial statements are issued.
Current macroeconomic conditions have created, and may continue to create, significant uncertainty in operations, including rising inflation and interest rates, significant volatility in financial markets, decreases in advertising revenue, and
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increased competition for advertising expenditures, which have had, and are expected to continue to have, a material adverse effect on the Company’s forecasted revenue. As a result, management continues to execute on cash management and strategic operational plans to manage liquidity and debt covenant compliance, including evaluating contractual obligations and workforce reductions, managing operating expenses, divesting non-strategic assets of the Company, and initiating a variety of transactions to manage the Company’s liabilities, which could include extending maturities or otherwise reorganizing the Company’s debt to decrease overall leverage. The Company is unable to predict with certainty the impact that the current macroeconomic conditions will have on its ability to consummate these transactions or maintain compliance with the financial covenants contained in the Company’s debt agreements.
As of March 31, 2023, the Company was in compliance with such debt covenants. However, based on the Company’s cash and cash equivalents balance, the current maturities of its existing debt facilities, and its forecasted business plan in light of current macroeconomic conditions, the Company’s current forecast of future revenue over the next twelve months indicates that such revenue is unlikely to be sufficient for the Company to be able to maintain compliance with the financial covenants under our debt agreements for at least twelve months from the issuance of the accompanying unaudited consolidated financial statements. Failure to meet these covenant requirements in the future would cause the Company to be in default and could cause the maturity of the related debt to be accelerated and become immediately payable. This could require the Company to obtain waivers or amendments in order to maintain compliance, and there can be no assurance that any such waiver or amendment would be available on acceptable terms or at all. If the Company is unable to obtain necessary waivers or amendments and its debt is accelerated, there can be no assurance that the Company would be able to obtain replacement financing or to satisfy its obligations. This uncertainty surrounding compliance with the Company’s debt covenants raises substantial doubt regarding the Company’s ability to continue as a going concern for a period of twelve months from the issuance of the accompanying unaudited consolidated financial statements.
The Credit Facility, as amended, is comprised of the $250.0 million Revolver and the Term B-2 Loan. As of March 31, 2023, we had $632.4 million outstanding under the Term B-2 Loan and $180.0 million outstanding under the Revolver. In addition, we had $7.5 million in outstanding letters of credit.
As of March 31, 2023, total liquidity was $123.7 million, which was comprised of $39.9 million available under the Revolver and $83.8 million in cash, cash equivalents.
As of March 31, 2023, our Consolidated Net First Lien Leverage Ratio was 3.8 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 Inc. (Now Audacy Capital Corp.) Indebtedness
In connection with the CBS Radio business acquisition in November 2017 (the "Merger"), we assumed CBS Radio Inc.'s (now Audacy Capital Corp.’s) indebtedness outstanding under: (i) a credit agreement (the “Credit Facility”) among CBS Radio Inc. (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 $325.0 million in aggregate principal amount of senior secured second-lien notes due 2027 (the "Initial 2027 Notes") under an Indenture dated as of April 30, 2019 (the "Base Indenture").
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. Until May 1, 2022, only a portion of the Initial 2027 Notes could be redeemed at a price of 106.500% of their principal amount plus accrued interest. On or after May 1, 2022, the Initial 2027 Notes may be redeemed, in whole or in part, at a price of 104.875% of their principal amount plus accrued interest. The prepayment premium continues to decrease over time to 100% of their principal amount plus accrued interest.
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.
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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 March 31, 2023, 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 macroeconomic conditions, 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 the impact of current macroeconomic conditions 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 current macroeconomic conditions 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 (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
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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.
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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 receivable 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 receivable) are not available to creditors of Audacy NY, Audacy Operations or the Company, and the accounts receivable 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 has usual and customary covenants including, but not limited to, a net first lien leverage ratio, a required minimum tangible net worth, and a minimum liquidity requirement (the "financial covenants"). Specifically, the Receivables 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, 2023. As of March 31, 2023, the Company’s Consolidated Net First Lien Leverage Ratio was 3.8 times. The Receivables Facility also requires the Company to maintain a minimum tangible net worth, as defined within the agreement, of at least $300.0 million. Additionally, the Receivables Facility requires the Company to maintain liquidity of $25.0 million. As of March 31, 2023, the Company was compliant with the financial covenants.
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. As of March 31, 2023, the SPV has $221.5 million of net accounts receivable and has 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.
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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 Inc. (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.
Operating Activities
Net cash flows used in operating activities were $22.6 million for the three months ended March 31, 2023. Net cash flows provided by operating activities were $15.2 million for the three months ended March 31, 2022.
The cash flows used in operating activities increased primarily due to: (i) increase in net loss, as adjusted for certain non-cash charges and income tax benefits of $25.7 million; (ii) an increase in net gain on disposals of assets of $9.9 million; (iii) a decrease in net investment in working capital of $7.5 million; and (iv) an increase in net gains on deferred compensation of $2.0 million.
The increase in cash flows used in operating activities were partially offset by (i) an increase in depreciation and amortization of $3.9 million; and (ii) an increase in impairment loss of $3.5 million.
The decrease in investment in working capital is primarily due to the timing of: (i) settlements of accounts payable and accrued liabilities; (ii) collections of accounts receivable; (iii) settlements of other long-term liabilities; (iv) settlements of accrued interest expense; and (v) settlements of prepaid expenses.
The decrease in net loss, as adjusted for certain non-cash charges and income tax benefits is primarily attributable to an increase in net loss of $24.8 million which is offset by (i) an increase in deferred tax benefits of $4.4 million; and (ii) an increase in impairment loss of $3.5 million.
Investing Activities
Net cash flows provided by and used in investing activities were $3.2 million and $12.1 million for the three months ended March 31, 2023 and March 31, 2022, respectively.
During 2023, net cash flows provided by investing activities increased primarily due to an increase in cash proceeds from the sale of property, equipment, intangibles and other assets of $14.4 million related to the sale of towers assets. This increase in cash flows provided by investing activities was partially offset by a decrease in additions to tangible and intangible assets of $0.9 million.
Financing Activities
Net cash flows used in financing activities were $0.2 million and $24.6 million for three months ended March 31, 2023 and March 31, 2022, respectively.
During 2023, net cash flows used in financing activities decreased primarily due to: (i) a decrease in payments against the Revolver of $22.7 million and (ii) a decrease of Purchase of vested employee restricted stock units of $1.7 million.
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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 three months ended March 31, 2023, we did not repurchase any shares under our share repurchase program (the "2017 Share Repurchase Program").
Income Taxes
During the three months ended March 31, 2022, we received a federal tax refund of approximately $15.2 million. We do not anticipate making any federal income tax payments in 2023 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 three months ended March 31, 2023 were $13.6 million. We anticipate that total capital expenditures in 2023 will be approximately $50 million as we increase our investment in the rapidly growing digital audio advertising market.
Contractual Obligations
As of March 31, 2023, 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, 2022, as filed with the SEC on March 16, 2023, other than as described below.
Off-Balance Sheet Arrangements
As of March 31, 2023, we did not have any material off-balance sheet transactions, arrangements or obligations, including contingent obligations.
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 March 31, 2023. 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, 2022, as filed with the SEC on March 16, 2023.
Goodwill Valuation Risk
Our remaining goodwill as of March 31, 2023 is limited to the goodwill acquired in the Cadence13 Acquisition and Pineapple Acquisition in 2019, and the goodwill acquired in the Podcorn Acquisition and AmperWave 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.
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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.
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 2022, the results indicated that there were 39 units of accounting where the fair value exceeded their carrying value by 10% or less. In aggregate, these 39 units of accounting had a carrying value of $1,981 million at December 31, 2022.
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.
As of March 31, 2023, we evaluated whether the facts and circumstances and available information result in the need for an impairment assessment for any of our broadcasting licenses, and concluded no assessment was required.
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 March 31, 2023, 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 $4.1 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 March 31, 2023.
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.
| 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% | |||||||||||||||||||||||||||||||||||||||||||
| Collar | $220.0 | Floor | 0.402% | Jun. 28, 2024 | Jun. 28, 2023 | $ | 90.0 | |||||||||||||||||||||||||||||||||||||
| Total | $220.0 | |||||||||||||||||||||||||||||||||||||||||||
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 March 31, 2023 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
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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 March 31, 2023 was $2.9 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 March 31, 2023, 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.
In recent months, inflation has continued to increase significantly, resulting in rising wages and other costs. If our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, results of operations or financial condition.
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.
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
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, 2022, filed with the Securities and Exchange Commission (the "SEC") on March 16, 2023. Refer to Note 16, Contingencies And Commitments, for additional information.
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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 16, 2023. 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 16, 2023.
We have identified conditions and events that could raise substantial doubt about our ability to continue as a going concern.
We have identified certain conditions or events, which, considered in the aggregate, could raise substantial doubt about our ability to continue as a going concern, including our continued compliance with certain financial covenants contained in our debt agreements.
Current macroeconomic conditions have created, and may continue to create, significant uncertainty in operations, including rising inflation and interest rates, significant volatility in financial markets, decreases in advertising revenue, and increased competition for advertising expenditures, which have had, and are expected to continue to have, a material adverse effect on our forecasted revenue. As a result, our management continues to execute on cash management and strategic operational plans to manage liquidity and debt covenant compliance, including evaluating contractual obligations and workforce reductions, managing operating expenses, divesting non-strategic assets, and initiating a variety of transactions to manage our liabilities, which could include extending maturities or otherwise reorganizing our debt to decrease overall leverage. We are unable to predict with certainty the impact that the current macroeconomic conditions will have on our ability to consummate these transactions or maintain compliance with the financial covenants contained in our debt agreements.
As of March 31, 2023, we were in compliance with such debt covenants. However, based on our cash and cash equivalents balance, the current maturities of our existing debt facilities, and our forecasted business plan in light of current macroeconomic conditions, however our current forecast of future revenue over the next twelve months indicates that such revenue is unlikely to be sufficient for us to be able to maintain compliance with the financial covenants under our debt agreements for at least twelve months from the issuance of the accompanying unaudited consolidated financial statements. Failure to meet these covenant requirements in the future would cause us to be in default and could cause the maturity of the related debt to be accelerated and become immediately payable. This could require us to obtain waivers or amendments in order to maintain compliance, and there can be no assurance that any such waiver or amendment would be available on acceptable terms or at all. If we are unable to obtain necessary waivers or amendments and our debt is accelerated, there can be no assurance that we would be able to obtain replacement financing or to satisfy our obligations. This uncertainty surrounding compliance with our debt covenants raises substantial doubt regarding our ability to continue as a going concern for a period of twelve months from the issuance of the accompanying unaudited consolidated financial statements.
The accompanying unaudited consolidated financial statements have been prepared on a going concern basis, which contemplates realization of assets and satisfaction of liabilities in the ordinary course of business. As such, they do not include any adjustments to the recoverability and reclassification of recorded amounts that might be necessary should we be unable to continue as a going concern. Any inability to continue as a going concern, or the perception that we will be unable to do so, could materially adversely affect our ability to meet our obligations and the value of your investment.
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ITEM 2. Unregistered Sales Of Equity Securities And Use Of Proceeds
The following table provides information on our repurchases during the quarter ended March 31, 2023:
Period (1)(2) | (a) Total Number Of Shares Purchased | (b) Average Price Paid Per Share | (c) Total Number Of Shares Purchased As Part Of Publicly Announced Plans Or Programs | (d) Maximum Approximate Dollar Value Of Shares That May Yet Be Purchased Under The Plans Or Programs | ||||||||||||||||||||||
| January 1, 2023 - January 31, 2023 | 10,894 | $ | 0.27 | — | $ | 41,578,230 | ||||||||||||||||||||
| February 1, 2023 - February 28, 2023 | 77,659 | $ | 0.29 | — | $ | 41,578,230 | ||||||||||||||||||||
| March 1, 2023 - March 31, 2023 | 723,189 | $ | 0.14 | — | $ | 41,578,230 | ||||||||||||||||||||
| Total | 811,742 | — | ||||||||||||||||||||||||
| (1) | 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) 10,894 shares at an average price of $0.27 in January 2023; (ii) 77,659 shares at an average price of $0.29 in February 2023; and (iii) 723,189 shares at an average price of $0.14 in March 2023. 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 March 31, 2023. | ||||
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Mine Safety Disclosures
Not applicable.
ITEM 5. Other Information
None.
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ITEM 6. Exhibits
| Exhibit Number | Description | |||||||
| 3.1 # | Amended and Restated Articles of Incorporation of Audacy, Inc. (Incorporated by reference to Exhibit 3.1 to our Current Report on Form 8-K as filed on May 19, 2021). | |||||||
| 3.2 # | Amended and Restated Bylaws of Audacy, Inc. (Incorporated by reference to Exhibit 3.2 to our Current Report on Form 8-K as filed on May 19, 2021). | |||||||
| 4.1 # | Indenture for Senior Secured Second-Lien Notes due May 1, 2027, by and among Audacy Capital Corp. (formerly, Entercom Media Corp.), the guarantors named therein, and Deutsche Bank Trust Company Americas, as trustee. (Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on May 1, 2019) | |||||||
| 4.2 # | Form of 6.500% Senior Secured Second-Lien Notes due 2027 (included in Exhibit 4.1) (Incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed on May 1, 2019 | |||||||
| 4.3 # | First Supplemental Indenture, dated as of December 13, 2019, by and among Audacy Capital Corp. (formerly, Entercom Media Corp.), the guarantors named therein, and Deutsche Bank Trust Company Americas, as trustee. (Incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed on December 16, 2019). | |||||||
| 4.4 # | Second Supplemental Indenture, dated as of October 20, 2021, by and among Audacy Capital Corp., the guarantors named therein, and Deutsche Bank Trust Company Americas (Incorporated by reference to Exhibit 4.3 to our Current Report on Form 8-K filed on October 20,2021) | |||||||
| 4.5 # | Indenture, dated as of March 25, 2021, by and among Audacy Capital Corp. (formerly, Entercom Media Corp.), the guarantors named therein, and Deutsche Bank Trust Company Americas. (Incorporated by reference to Exhibit 4.1 to our Current Report on Form 8-K filed on March 29, 2021 | |||||||
| 4.6 # | Form of 6.750% Senior Secured Second-Lien Note due 2029 (included in Exhibit 4.1) (Incorporated by reference to Exhibit 4.2 to our Current Report on Form 8-K filed on March 29, 2021 | |||||||
| 10.1 * | ||||||||
| 31.1 * | ||||||||
| 31.2 * | ||||||||
| 32.1 ** | ||||||||
| 32.2 ** | ||||||||
| 101.INS* | Inline XBRL Instance Document | |||||||
| 101.SCH* | Inline XBRL Taxonomy Extension Schema | |||||||
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase | |||||||
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase | |||||||
| 101.LAB* | Inline XBRL Taxonomy Extension Label Linkbase | |||||||
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase | |||||||
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL with applicable taxonomy extension information contained in Exhibits 101) | |||||||
| * | Filed Herewith | |||||||
| # | Incorporated by reference. | |||||||
| ** | Furnished herewith. Exhibit is “accompanying” this report and shall not be deemed to be “filed” herewith. | |||||||
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SIGNATURES
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.
AUDACY, INC. (Registrant) | |||||
| Date: May 10, 2023 | /S/ David J. Field Name: David J. Field Title: Chairman, Chief Executive Officer and President (principal executive officer) | ||||
| Date: May 10, 2023 | /S/ Richard J. Schmaeling Name: Richard J. Schmaeling Title: Executive Vice President - Chief Financial Officer (principal financial officer) | ||||
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