BEASLEY BROADCAST GROUP, INC. General
We are a multi-platform media company whose primary business is operating radio stations throughoutthe United States . We offer local and national advertisers integrated marketing solutions across audio, digital and event platforms. We own and operate radio stations in the following radio markets:Atlanta, GA ,Augusta, GA ,Boston, MA ,Charlotte, NC ,Detroit, MI ,Fayetteville, NC ,Fort Myers -Naples, FL ,Las Vegas, NV ,Middlesex, NJ ,Monmouth, NJ ,Morristown, NJ ,Philadelphia, PA ,Tampa -Saint Petersburg, FL ,West Palm Beach -Boca Raton, FL , andWilmington, DE . We refer to each group of radio stations in each radio market as a market cluster. Recent Developments InMarch 2020 , coronavirus disease 2019 ("COVID-19") was recognized as a pandemic by theWorld Health Organization . The COVID-19 pandemic has resulted in a widespread health crisis that has adversely affected businesses, economies, and financial markets worldwide, and has caused significant volatility inU.S. and international debt and equity markets. We have been impacted by deteriorating general economic conditions, which have caused a downturn in the advertising industry. The decreased demand for advertising has negatively impacted our net revenue, and many advertisers have reduced or ceased advertising spend due to the COVID-19 pandemic and its related economic impact. Specifically, we observed a rapid increase in cancellations and a reduction of new sales beginning midway through the month ofMarch 2020 . The cancellations were broad-based but more severe in industries that were severely impacted by the COVID-19 pandemic. While this disruption is currently expected to be temporary, there is considerable uncertainty around the duration however cancellations have decreased significantly and sales have begun to recover throughout the month ofJune 2020 . We are actively monitoring the COVID-19 situation. However, due to continuing uncertainty regarding COVID-19, it is impossible to predict the total impact that it will have on the Company. If public and private entities continue to implement restrictive measures, the material adverse effect on our results of operations, financial condition and cash flows could persist. In response, we made safety a priority, implementing a work-at-home initiative for many of our employees, with only certain essential employees remaining in the stations to continue live programming. We also encouraged our listeners to practice social distancing and hand washing by displaying customized messages on car dashboard displays through the Quu platform. We delivered vital and breaking news on-air, opened our phone lines to listeners and hosted live virtual concerts on certain stations with participating artists.
To help listeners and businesses in the communities we serve, we launched the "We are all in this together" Community of Caring Campaign that includes:
• creating webinars to help struggling businesses deal with the crisis;
• launching "Operation Gift Card" where businesses upload gift card
information on our websites so that listeners can supportbusinesses
by purchasing the gift cards for future use; and
• expanding local initiatives to include collecting medical supplies and
delivering food to healthcare workers.
We also implemented certain expense control initiatives, such as reductions in
compensation for management and other employees, reductions in planned capital
expenditures, negotiated vendor pricing reductions, furloughs and headcount
reductions for certain employees and suspensions of new employee hiring and
travel and entertainment expenses. We expect these initiatives to reduce our
expenses beginning in the second quarter of 2020.
Due to the impact of the COVID-19 pandemic on the U.S. economy, we tested our
FCC licenses for impairment during the first quarter of 2020. As a result of the
quantitative impairment test performed as of March 31, 2020 , we recorded
impairment losses of $6.8 million related to the FCC licenses in our Atlanta,
GA , Middlesex, NJ , Monmouth, NJ , Morristown, NJ , Las Vegas, NV , West Palm
Beach -Boca Raton, FL , and Wilmington, DE market clusters. The impairment losses
were primarily due to a decrease in projected revenue in these markets due to
the impact of the COVID-19 pandemic and an increase in the discount rate used in
the discounted cash flow analyses to estimate the fair value of our FCC licenses
due to certain risks specifically associated with the Company and the radio
broadcasting industry.
On March 26, 2020 and April 7, 2020 , we borrowed $7.5 million and $1.5 million ,
respectively, from our revolving credit facility as a precautionary measure to
increase our cash position and preserve financial flexibility due to the
uncertainty of economic conditions in the U.S. resulting from the COVID-19
pandemic. Following the April 7, 2020 borrowing, we have no available
commitments under our revolving credit facility.
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As ofMarch 31, 2020 , we were in compliance with all applicable financial covenants under the credit agreement. However, due to the impact of the COVID-19 pandemic on our financial performance, we projected that we would not be in compliance with the First Lien Leverage Ratio (as defined in its credit agreement) financial covenant as ofJune 30, 2020 . OnJune 30, 2020 , we entered into Amendment No. 2 to the credit agreement with certain of our lenders (the "Amendment") and now project that we will be in compliance with all applicable financial covenants, as amended, throughJune 30, 2021 . See "Liquidity and Capital Resources" for additional information regarding the Amendment. In response to the COVID-19 pandemic, the board of directors suspended future quarterly dividend payments until it is determined that resumption of dividend payments is in the best interest of the Company's stockholders. In addition, the Amendment limits our ability to pay dividends until certain leverage-based milestones have been achieved. The COVID-19 pandemic continues to create significant uncertainty and disruption in the global economy and financial markets. It is reasonably possible that these uncertainties could materially impact the Company's significant accounting estimates related to, but not limited to, allowance for doubtful accounts, impairment ofFCC licenses and goodwill, and determination of right-of-use assets. As a result, many of the Company's estimates and assumptions require increased judgment and carry a higher degree of variability and volatility. The Company's estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in its consolidated financial statements.
Cautionary Note Regarding Forward-Looking Statements
This report contains "forward-looking statements" about the Company within the meaning of the Private Securities Litigation Reform Act of 1995, which relate to future, not past, events. All statements other than statements of historical fact included in this document are forward-looking statements. These forward-looking statements are based on the current beliefs and expectations of the Company's management and are subject to known and unknown risks and uncertainties. Forward-looking statements, which address the Company's expected business and financial performance and financial condition, among other matters, contain words such as: "expects," "anticipates," "intends," "plans," "believes," "estimates," "may," "will," "plans," "projects," "could," "should," "would," "seek," "forecast," or other similar expressions. Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The Company undertakes no obligation to update or revise any forward-looking statements. Forward-looking statements involve a number of risks and uncertainties, and actual results or events may differ materially from those projected or implied in those statements. Factors that could cause actual results or events to differ materially from these forward-looking statements include, but are not limited to:
• the effects of the COVID-19 pandemic, including its potential effects on
the economic environment and the Company's results of operations,
liquidity and financial condition, and the increased risk of impairments
of the Company's
federal, state or local government laws, regulations or orders in
connection with the pandemic;
• external economic forces that could have a material adverse impact on the
Company's advertising revenues and results of operations;
• the ability of the Company's radio stations to compete effectively in
their respective markets for advertising revenues;
• the ability of the Company to develop compelling and differentiated
digital content, products and services;
• audience acceptance of the Company's content, particularly its radio
programs;
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• the ability of the Company to respond to changes in technology, standards
and services that affect the radio industry;
• the Company's dependence on federally issued licenses subject to
extensive federal regulation;
• actions by the FCC or new legislation affecting the radio industry;
• the Company's dependence on selected market clusters of radio stations
for a material portion of its net revenue;
• credit risk on the Company's accounts receivable;
• the risk that the Company's FCC licenses and/or goodwill could become
impaired;
• the Company's substantial debt levels and the potential effect ofrestrictive debt covenants on the Company's operational flexibility and
ability to pay dividends, including restrictions on the ability to pay
dividends in the near term as a result of the Amendment to the Company's
credit agreement;
• the potential effects of hurricanes on the Company's corporate offices
and radio stations;
• the failure or destruction of the internet, satellite systems andtransmitter facilities that the Company depends upon to distribute its
programming;
• disruptions or security breaches of the Company's information technology
infrastructure;
• the loss of key personnel;
• the Company's ability to integrate acquired businesses and achieve fully
the strategic and financial objectives related thereto and their impact
on the Company's financial condition and results of operations;
• the fact that the Company is controlled by the Beasley family, whichcreates difficulties for any attempt to gain control of the Company; and
• other economic, business, competitive, and regulatory factors affectingthe businesses of the Company, including those set forth in the Company's
filings with the
Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. We do not intend, and undertake no obligation, to update any forward-looking statement.
Financial Statement Presentation
The following discussion provides a brief description of certain key items that appear in our financial statements and general factors that impact these items.
Net Revenue. Our net revenue is primarily derived from the sale of commercial spots to advertisers directly or through national, regional or local advertising agencies. Revenues are reported at the amount we expect to be entitled to receive under the contract. Local revenue generally consists of commercial advertising sales, digital advertising sales and other sales to advertisers in a radio station's local market either directly to the advertiser or through the advertiser's agency. National revenue generally consists of commercial advertising sales through advertiser agencies. National advertiser agencies generally purchase advertising for multiple markets. National sales are generally facilitated by our national representation firm, which serves as our agent in these transactions. Our net revenue is generally determined by the advertising rates that we are able to charge and the number of advertisements that we can broadcast without jeopardizing listener levels. Advertising rates are primarily based on the following factors:
• a radio station's audience share in the demographic groups targeted by
advertisers as measured principally by periodic reports issued by Nielson
Audio;
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• the number of radio stations, as well as other forms of media, in the
market competing for the attention of the same demographic groups;
• the supply of, and demand for, radio advertising time; and
• the size of the market.
Our net revenue is affected by general economic conditions, competition and our
ability to improve operations at our market clusters. Seasonal revenue
fluctuations are also common in the radio broadcasting industry and are
primarily due to variations in advertising expenditures by local and national
advertisers. Our revenues are typically lowest in the first calendar quarter of
the year. In addition, our revenues tend to fluctuate between years, consistent
with, among other things, increased advertising expenditures in even-numbered
years by political candidates, political parties and special interest groups.
This political spending typically is heaviest during the fourth quarter of such
years.
We use trade sales agreements to reduce cash paid for operating costs and
expenses by exchanging advertising airtime for goods or services; however, we
endeavor to minimize trade revenue in order to maximize cash revenue from our
available airtime.
We also continue to invest in digital support services to develop and promote
our radio station websites, applications, and other distribution platforms. We
derive revenue from our websites through the sale of advertiser promotions and
advertising on our websites and the sale of advertising airtime during audio
streaming of our radio stations over the internet. We also generate revenue from
selling third-party digital products and services.
Operating Expenses. Our operating expenses consist primarily of programming,
engineering, sales, advertising and promotion, and general and administrative
expenses incurred at our radio stations. We strive to control our operating
expenses by centralizing certain functions at our corporate offices and
consolidating certain functions in each of our market clusters.
Critical Accounting Estimates
The preparation of financial statements in conformity withU.S. generally accepted accounting principles requires us to make estimates and assumptions that affect reported amounts and related disclosures. We consider an accounting estimate to be critical if:
• it requires assumptions to be made that were uncertain at the time the
estimate was made; and
• changes in the estimate or different estimates that could have beenselected could have a material impact on our results of operations or
financial condition.
FCC Licenses. We are required to test our licenses on an annual basis, or more frequently if events or changes in circumstances indicate that our licenses might be impaired. We assess qualitative factors to determine whether it is more likely than not that our licenses are impaired. If we determine it is more likely than not that our licenses are impaired then we are required to perform the quantitative impairment test. The quantitative impairment test compares the fair value of our licenses with their carrying amounts. If the carrying amounts of the licenses exceed their fair value, an impairment loss is recognized in an amount equal to that excess. For the purpose of testing our licenses for impairment, we combine our licenses into reporting units based on our market clusters. Due to the impact of the COVID-19 pandemic on theU.S. economy, we tested ourFCC licenses for impairment during the first quarter of 2020. As a result of the quantitative impairment test performed as ofMarch 31, 2020 , we recorded impairment losses of$6.8 million related to theFCC licenses in ourAtlanta, GA ,Middlesex, NJ ,Monmouth, NJ ,Morristown, NJ ,Las Vegas, NV ,West Palm Beach -Boca Raton, FL , andWilmington, DE market clusters. The impairment losses were primarily due to a decrease in projected revenue in these markets due to the impact of the COVID-19 pandemic and an increase in the discount rate used in the discounted cash flow analyses to estimate the fair value of ourFCC licenses due to certain risks specifically associated with our company and the radio broadcasting industry.
The fair value of the
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radio market revenues, projected radio market revenue shares, projected radio
station operating income margins, and a discount rate appropriate for the radio
broadcasting industry. The key assumptions used in the discounted cash flow
analyses are as follows:
Revenue growth rates (14.1)% - 7.9%
Market revenue shares at maturity 0.6% - 39.0%
Operating income margins at maturity 26.5% - 35.4%
Discount rate 9.5%
The carrying amount of our
FCC broadcasting Market cluster licenses Excess Atlanta, GA$ 832,300 - Augusta, GA 6,113,075 87.9 % Boston, MA 137,856,160 2.4 Charlotte, NC 58,584,551 2.5 Detroit, MI 29,978,201 19.8 Fayetteville, NC 8,974,679 44.7 Fort Myers-Naples, FL 9,555,146 22.9 Las Vegas, NV 34,689,500 - Middlesex, Monmouth, Morristown, NJ 21,896,900 - Philadelphia, PA 119,674,192 23.1 Tampa-Saint Petersburg, PA 61,787,351 33.0 West Palm Beach-Boca Raton, FL 2,791,900 - Wilmington, DE 17,990,000 -Goodwill . We are required to test our goodwill for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that our goodwill might be impaired. We assess qualitative factors to determine whether it is necessary to perform a quantitative assessment for each reporting unit. If the quantitative assessment is necessary, we will determine the fair value of each reporting unit. If the fair value of any reporting unit is less than the carrying amount, we will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit's fair value. The loss recognized will not exceed the total amount of goodwill allocated to the reporting unit. For the purpose of testing our goodwill for impairment, we have identified our market clusters and esports as our reporting units. Due to the impact of the COVID-19 pandemic, we tested our goodwill for impairment during the first quarter of 2020. We assessed qualitative factors for the esports reporting unit and did not identify any triggering events however our assessment of qualitative factors for the market clusters identified triggering events for impairment. As a result of the impairment test performed on the market clusters as ofMarch 31, 2020 , we determined that the estimated fair value of each market cluster exceeded the carrying amount by at least five percent at each market cluster as ofMarch 31, 2020 . We believe we have made reasonable estimates and assumptions to calculate the estimated fair value of ourFCC licenses and goodwill, however, these estimates and assumptions are highly judgmental in nature. Actual results can be materially different from estimates and assumptions. If actual market conditions are less favorable than those projected by the industry or by us, or if events occur or circumstances change that would reduce the estimated fair value of our indefinite-lived intangible assets below the amounts reflected on our balance sheet, we may recognize future impairment charges, the amount of which may be material. Our remaining critical accounting estimates are described in Item 7 of our Annual Report on Form 10-K for the year endedDecember 31, 2019 . There have been no additional material changes to our critical accounting estimates during the first quarter of 2020.
Recent Accounting Pronouncements
There were no recent accounting pronouncements that have or will have a material effect on our financial condition or results of operations.
Three Months Ended
The following summary table presents a comparison of our results of operations for the three months endedMarch 31, 2019 and 2020 with respect to certain of our key financial measures. These changes illustrated in the table are discussed in greater detail below. This section should be read in conjunction with the financial statements and notes to financial statements included in Item 1 of this report. Three Months ended March 31, Change 2019 2020 $ % Net revenue$ 57,687,554 $ 57,650,426 $ (37,128 ) (0.1 )% Operating expenses 47,451,182 50,900,477 3,449,295 7.3 Corporate expenses 4,962,414 4,513,092 (449,322 ) (9.1 ) Gain on dispositions 3,545,755 - (3,545,755 ) (100.0 ) Impairment losses - 6,804,412 6,804,412 - Interest expense 4,590,885 4,184,811 (406,074 ) (8.8 ) Income tax expense (benefit) 632,847 (2,417,780 ) (3,050,627 ) (482.0 ) Net income (loss) 1,353,263 (8,836,561 ) (10,189,824 ) (753.0 ) Net Revenue. Net revenue was essentially flat during the three months endedMarch 31, 2020 as compared to the three months endedMarch 31, 2019 . Significant factors affecting net revenue included a decrease in non-political commercial advertising, primarily due to the impact of the COVID-19 pandemic during March, partially offset by an increase in political commercial advertising, digital advertising, and esports revenue. Net revenue for the three months endedMarch 31, 2020 also included additional revenue from the acquisition ofWDMK-FM inDetroit onAugust 31, 2019 . Operating Expenses. Operating expenses increased$3.4 million during the three months endedMarch 31, 2020 as compared to the three months endedMarch 31, 2019 . Significant factors affecting operating expenses included an increase in digital advertising expenses and esports expenses. The increase in operating expenses also included an increased allocation of digital expenses from corporate to the radio market clusters and additional expenses from the acquisition ofWDMK-FM . Corporate Expenses. Corporate expenses decreased$0.4 million during the three months endedMarch 31, 2020 as compared to the three months endedMarch 31, 2019 . The primary factors affecting corporate expenses included an increased allocation of digital expenses from corporate to the radio market clusters, partially offset by an increase in compensation expense, which was primarily due to an increase in the number of employees at our corporate offices. Gain on Dispositions. OnMarch 28, 2019 , we completed the sale of certain land and improvements in ourAugusta, GA market cluster for$0.5 million . As a result of the sale, we recorded a gain of$0.4 million in the first quarter of 2019. OnMarch 15, 2019 , we agreed to cancel a broadband radio service license inChattanooga, TN in exchange for a fee of$3.3 million . As a result of the license cancelation, we recorded a gain of$3.1 million in the first quarter of 2019. 17
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Impairment Losses. Due to the impact of the COVID-19 pandemic on theU.S. economy, we tested ourFCC licenses for impairment during the first quarter of 2020. As a result of the quantitative impairment test performed as ofMarch 31, 2020 , we recorded impairment losses of$6.8 million related to theFCC licenses in ourAtlanta, GA ,Middlesex, NJ ,Monmouth, NJ ,Morristown, NJ ,Las Vegas, NV ,West Palm Beach -Boca Raton, FL , andWilmington, DE market clusters. The impairment losses were primarily due to a decrease in projected revenue in these markets due to the impact of the COVID-19 pandemic and an increase in the discount rate used in the discounted cash flow analyses to estimate the fair value of ourFCC licenses due to certain risks specifically associated with the Company and the radio broadcasting industry.
Interest Expense. Interest expense decreased
Income Tax Expense (Benefit). Our effective tax rate was approximately 32% and (21)% for the three months endedMarch 31, 2019 and 2020, respectively. These rates differ from the federal statutory rate of 21% due to the effect of state income taxes and certain expenses that are not deductible for tax purposes.
Net Income (Loss). Net loss for the three months ended
Liquidity and Capital Resources
Overview. Our primary sources of liquidity are internally generated cash flow and our revolving credit facility (as defined below). Our primary liquidity needs have been, and for the next twelve months and thereafter, are expected to continue to be, for working capital, debt service, and other general corporate purposes, including capital expenditures and radio station acquisitions. Historically, our capital expenditures have not been significant. In addition to property and equipment associated with radio station acquisitions, our capital expenditures have generally been, and are expected to continue to be, related to the maintenance of our office and studio space, the maintenance of our radio towers and equipment, and digital products and information technology. We have also purchased or constructed office and studio space in some of our markets to facilitate the consolidation of our operations. In response to the COVID-19 pandemic, our board of directors has suspended future quarterly dividend payments until it is determined that resumption of dividend payments is in the best interest of the Company's stockholders. In addition, as discussed in "Credit Facility" below, the Amendment to our credit agreement limits us from paying dividends until certain leverage-based milestones have been achieved. Credit Facility. OnNovember 17, 2017 we and our wholly owned subsidiary,Beasley Mezzanine Holdings, LLC , entered into a credit agreement (the "credit agreement") withU.S. Bank, National Association , as administrative agent and collateral agent, providing for a term loan B facility in the amount of$225.0 million (the "term loan facility") and a revolving credit facility of$20.0 million (the "revolving credit facility," and together with the term loan facility, the "credit facility"). OnSeptember 27, 2018 , we borrowed an additional$35.0 million from the term loan facility. The proceeds were used for the acquisition of WXTU-FMin Philadelphia. OnAugust 31, 2019 , we borrowed$10.0 million from our revolving credit facility. The proceeds were used for the acquisition of substantially all of the assets used to operateWDMK-FM inDetroit . OnMarch 26, 2020 andApril 7, 2020 , we borrowed$7.5 million and$1.5 million , respectively, from our revolving credit facility as a precautionary measure to increase our cash position and preserve financial flexibility due to the uncertainty of economic conditions in theU.S. resulting from the COVID-19 pandemic. Following theApril 7, 2020 borrowing, we have no available commitments under our revolving credit facility. As ofMarch 31, 2020 , the credit facility consisted of the term loan facility with a remaining balance of$238.0 million and a revolving credit facility with an outstanding balance of$18.5 million and a maximum commitment of$20.0 million . As ofMarch 31, 2020 , we had$1.5 million in available commitments under the revolving credit facility. As ofMarch 31, 2020 , at our option, the credit facility bore interest at either (i) the London Interbank Offered Rate ("LIBOR") plus a margin of 4.0% or (ii) the base rate (as defined in the credit agreement) plus a margin of 3.0%. The LIBOR interest rate for the term loan is subject to a 1% floor and the base rate is subject to a 2% floor. Interest payments are, for loans based on LIBOR, due at the end of each applicable interest period unless the interest period is longer than three months, in which case they are due at the end of each three month period. Interest payments for loans based on the base rate are due quarterly. The revolving credit facility carried interest, based on LIBOR, at 4.9% as ofMarch 31, 2020 and matures onNovember 17, 2022 . The term loan carried interest, based on LIBOR, at 4.9% as ofMarch 31, 2020 and matures onNovember 1, 2023 . 18
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As ofMarch 31, 2020 , the credit agreement required mandatory prepayments equal to 50% of Excess Cash Flow (as defined in the credit agreement) when our Total Leverage Ratio (as defined in the credit agreement) is greater than 3.5x; mandatory prepayments equal to 25% of Excess Cash Flow when our Total Leverage Ratio is less than or equal to 3.5x but greater than 3.0x; and no mandatory prepayments when our Total Leverage Ratio is less than or equal to 3.0x. Mandatory prepayments of Excess Cash Flow are due approximately 95 days after year end. The credit agreement also required mandatory prepayments for defined amounts from net proceeds of asset sales, net insurance proceeds, and net proceeds of certain debt issuances. As ofMarch 31, 2020 , the credit agreement required us to comply with certain financial covenants which were defined in the credit agreement. These financial covenants included a First Lien Leverage Ratio tested at the end of each quarter. The maximum First Lien Leverage Ratio was 5.25x forMarch 31, 2020 . As ofMarch 31, 2020 , we were in compliance with all applicable financial covenants under our credit agreement. However, due to the impact of the COVID-19 pandemic, we projected that we would not be in compliance with the First Lien Leverage Ratio financial covenant as ofJune 30, 2020 and entered into the Amendment as discussed below. We now project that we will be in compliance with all applicable financial covenants, as amended, throughJune 30, 2021 .
As of
Our credit agreement restricts our ability to pay cash dividends and to repurchase additional shares of our common stock. As ofMarch 31, 2020 , the credit agreement did permit, however, (i) dividends of up to an aggregate amount of$7.5 million each year if our Total Leverage Ratio is greater than 3.5x and up to an aggregate amount of$10.0 million each year if our Total Leverage Ratio is less than or equal to 3.5x, (ii) an amount equal to our excess cash flow each year that is not required to prepay the credit agreement, subject to maintaining a Total Leverage Ratio of no greater than 3.75x and (iii) unlimited dividends each year if our Total Leverage Ratio is less than 3.5x and our First Lien Leverage Ratio is less than 2.5x. We paid cash dividends of$1.4 million during the three months endedMarch 31, 2020 . OnMarch 4, 2020 , our board of directors declared a cash dividend of$0.05 per share on our Class A and Class B common stock. The dividend of$1.4 million in the aggregate was paid onApril 7, 2020 , to stockholders of record onMarch 31, 2020 . In response to the COVID-19 pandemic, our board of directors has suspended future quarterly dividend payments until it is determined that resumption of dividend payments is in the best interest of the Company's stockholders. In addition, as discussed below, the Amendment to our credit agreement limits us from paying dividends until certain leverage-based milestones have been achieved. OnJune 30, 2020 , we entered into the Amendment to the credit agreement. Specifically, the Amendment amended and modified the credit agreement to, among other things, (i) increase the interest rate applicable to the term loans and revolving credit facility by 25 basis points per annum, (ii) add fees of 300 bps payable onDecember 31, 2021 and 150 bps payable onDecember 31, 2022 , if the credit agreement is not refinanced prior to such time, (iii) impose additional reporting requirements, (iv) revise the Excess Cash Flow prepayment requirement such that when the Total Leverage Ratio is greater than 4.5x, 75% of Excess Cash Flow must be prepaid, with such prepayment amounts stepping down to 50%, 25% and 0% upon achievement of certain Total Leverage Ratio milestones, and (v) reduce the flexibility to incur certain additional indebtedness, liens and investments and make certain restricted payments, subject to the achievement of certain leverage based milestones. Additionally, the Amendment modified the financial covenant to remove the maximum First Lien Leverage Ratio previously tested quarterly through the fiscal quarter endedMarch 31, 2020 . In its place, the Amendment added (i) a minimum liquidity covenant of$8.5 million (the "Minimum Liquidity Amount"), which will be tested every other week until the Total Leverage Ratio is less than 5.0x, (ii) a minimum Consolidated EBITDA (as defined in the credit agreement, as amended by the Amendment) covenant, which will be tested monthly throughJune 30, 2021 and (iii) a maximum First Lien Leverage Ratio covenant, which will be tested quarterly beginning with the fiscal quarter endingSeptember 30, 2021 . The Amendment also modifies the definition of Consolidated EBITDA to remove certain add-backs with respect to the calculation of Consolidated EBITDA for financial covenants and other similar calculations and reduces the amount of cash that can be netted for the calculation of the First Lien Leverage Ratio for purposes of testing the First Lien Leverage Ratio financial covenant, when applicable. Also, as a condition to entering into the Amendment,George Beasley , the Company's Chairman, will provide a$5 million loan to the Company that will accrue payment-in-kind interest at 6% per annum with no cash payments due until the loan's maturity inDecember 2023 .Mr. Beasley and GGB Family Limited Partnership will also each enter into standby letters of credit in combined aggregate face amount of$5,000,000 in favor ofU.S. Bank, National Association for the benefit of the Company as a source of backup liquidity that may be drawn byU.S. Bank, National Association in the event that the Company fails to maintain the Minimum Liquidity Amount. 19
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Failure to comply with financial covenants, scheduled interest payments, scheduled principal repayments, or any other terms of our credit agreement, as amended by the Amendment, could result in the acceleration of the maturity of our outstanding debt, which could have a material adverse effect on our business or results of operations. The credit facility is secured by substantially all assets of the Company and its subsidiaries and is guaranteed jointly and severally by the Company and its subsidiaries. If we default under the terms of the credit agreement, the Company and its subsidiaries may be required to perform under their guarantees. As ofMarch 31, 2020 , the maximum amount of undiscounted payments the Company and its applicable subsidiaries would have been required to make in the event of default was$256.5 million . The guarantees for the credit facility expire onNovember 17, 2022 for the revolving credit facility and onNovember 1, 2023 for the term loan facility.
The aggregate scheduled principal repayments of the credit facility for the remainder of 2020 and the next three years are as follows:
2020 $ -
2021 -
2022 18,500,000
2023 238,000,000
Total $ 256,500,000
On November 14, 2019 , the Company acquired a majority interest in an esports
team and issued a promissory note for $16.5 million to the seller (the
"Promissory Note"). The Promissory Note bears interest at 5% per annum and had a
remaining balance of $10.5 million as of March 31, 2020 . Interest is payable
quarterly in arrears. Principal payments are due each quarter until repaid in
full on December 31, 2021 .
On June 30, 2020 , the Company entered into an amendment to the Promissory Note
(the "Amended Promissory Note"). The Amended Promissory Note has a balance of
$10.5 million and bears cash-pay interest at 5% per annum payable quarterly in
arrears and additional payment-in-kind interest at 10% per annum. The Amended
Promissory Note provides for cash principal payments of $500,000 on June 30,
2020 and $2,250,000 on December 31, 2020 . Pursuant to the Amended Promissory
Note, the Company will issue an initial stock payment of 1,276,596 Class A
common stock at a fixed price of $2.35 per share which will reduce the principal
amount by $2,250,000 . For subsequent stock issuances, which begin on June 30,
2021 , the principal reduction amount will be the lesser of (i) the value of the
stock issued based on 20-day moving average on the day prior to issuance or (ii)
the "principal reduction amount," which is 50% of the value of the stock based
on a fixed price of $2.35 per share. The number of shares to be issued was fixed
at the time of the signing of the note and will not exceed 3,191,489 in the
aggregate (including the June 2020 issuance). All accrued but unpaid interest
and the then outstanding principal amount of the Amended Promissory Note will be
paid in full in cash on December 31, 2023 . The Amended Promissory Note will
mature on December 31, 2023 and may be prepaid at any time at the option of the
Company.
We expect to provide for future liquidity needs through one or a combination of the following sources of liquidity:
• internally generated cash flow; • our revolving credit facility when commitments are available;
• additional borrowings, other than under our revolving credit facility, to
the extent permitted under our credit facility; and
• additional equity offerings.
We believe that we will have sufficient liquidity and capital resources to
permit us to provide for our liquidity requirements and meet our financial
obligations for the next twelve months. However, poor financial results or
unanticipated expenses could give rise to defaults under our credit facility,
additional debt servicing requirements or other additional financing or
liquidity requirements sooner than we expect, and we may not secure financing
when needed or on acceptable terms.
Our ability to reduce our Total Leverage Ratio by increasing operating cash flow
and/or decreasing long-term debt will determine how much, if any, of the
commitments under our revolving credit facility will be available to us in the
future. Poor financial results or unanticipated expenses could result in our
failure to maintain or lower our Total Leverage Ratio and we may not be
permitted to make any additional borrowings under our revolving credit facility.
As of April 7, 2020 , we have no available commitments under our revolving credit
facility.
Cash Flows. The following summary table presents a comparison of our capital
resources for the three months ended March 31, 2019 and 2020 with respect to
certain of our key measures affecting our liquidity. The changes set forth in
the table are discussed in greater detail below. This section should be read in
conjunction with the financial statements and notes to financial statements
included in Item 1 of this report.
Three Months ended March 31,
2019 2020
Net cash provided by operating activities $ 7,410,986 $ 1,953,723
Net cash used in investing activities (541,132 ) (4,193,430 )
Net cash provided by (used in) financing activities (3,910,113 ) 2,070,737
Net increase (decrease) in cash and cash equivalents
$ (168,970 ) 20
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Table of Contents
Net Cash Provided By Operating Activities. Net cash provided by operating activities decreased$5.5 million during the three months endedMarch 31, 2020 as compared to the three months endedMarch 31, 2019 . Significant factors affecting the decrease in net cash provided by operating activities included a$4.0 million decrease in cash receipts from revenue and a$3.3 million increase in cash paid for operating expenses, partially offset by a$0.9 million decrease in income tax payments and a$0.3 million decrease in interest payments.Net Cash Used In Investing Activities. Net cash used in investing activities during the three months endedMarch 31, 2020 included payments of$3.4 million for capital expenditures and payments of$0.7 million for investments. Net cash used in investing activities for the same period in 2019 included payments of$2.5 million for investments and payments of$1.8 million for capital expenditures, partially offset by proceeds of$3.8 million from dispositions. Net Cash Provided By (Used In) Financing Activities. Net cash provided by financing activities during the three months endedMarch 31, 2020 included proceeds of$7.5 million from the issuance of indebtedness under our revolving credit facility partially offset by credit facility and promissory note repayments of$4.0 million and payments of$1.4 million for cash dividends. Net cash used in financing activities for the same period in 2019 included repayments of$2.5 million under our credit facility and payments of$1.4 million for cash dividends.
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