General Overview
The following discussion of our financial condition and results of operations should be read in conjunction with the other information contained in this Form 10-K, including our consolidated financial statements and notes thereto beginning on page F-2 in this Form 10-K, as well as the information set forth in Item 1A, "Risk Factors." This discussion, as well as various other sections of this Annual Report, contains and refers to statements that constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and other federal securities laws. Such statements are any statements other than those of historical fact and relate to our intent, belief or current expectations primarily with respect to our future operating, financial and strategic performance. Any such forward-looking statements are not guarantees of future performance and may involve risks and uncertainties. Actual results may differ from those contained in or implied by the forward-looking statements as a result of various factors. For more information, see "Cautionary Statement Regarding Forward-Looking Statements" within Item 1A, "Risk Factors." For additional information about certain of the matters discussed and described in the following Management's Discussion and Analysis of Financial Condition and Results of Operations, including certain defined terms used herein, see the notes to the accompanying audited consolidated financial statements included elsewhere in this Form 10-K.
Our Business and Operating Overview
CUMULUS MEDIA is an audio-first media company delivering premium content to over a quarter billion people every month - wherever and whenever they want it.CUMULUS MEDIA engages listeners with high-quality local programming through 406 owned-and-operated stations across 86 markets; delivers nationally-syndicated sports, news, talk, and entertainment programming from iconic brands including the NFL, theNCAA , the Masters,CNN , the AP, theAcademy of Country Music Awards , and many other world-class partners across more than 9,500 affiliated stations throughWestwood One , the largest audio network in America; and inspires listeners through the CUMULUS Podcast Network, its rapidly growing network of original podcasts that are smart, entertaining and thought-provoking.CUMULUS MEDIA provides advertisers with personal connections, local impact and national reach through broadcast and on-demand digital, mobile, social, and voice-activated platforms, as well as integrated digital marketing services, powerful influencers, full-service audio solutions, industry-leading research and insights, and live event experiences.CUMULUS MEDIA is the only audio media company to provide marketers with local and national advertising performance guarantees. Our primary source of revenue is the sale of advertising time. Our sales of advertising time are primarily affected by the demand from local, regional and national advertisers, which also impacts the advertising rates we charge. Advertising demand and rates are based primarily on the ability to attract audiences in the demographic groups targeted by such advertisers, as measured principally by various ratings agencies on a periodic basis. We endeavor to provide compelling programming and form connections between our on-air talent and listeners in order to develop strong listener loyalty, and we believe that the diversification of our formats and programs, including non-music formats and proprietary content, helps to insulate us from the effects of changes in the musical tastes of the public with respect to any particular format. We strive to maximize revenue by managing our on-air inventory of advertising time and adjusting prices based on supply and demand. The optimal number of advertisements available for sale depends on the programming format of a particular radio program. Each program has a general target level of on-air inventory available for advertising. This target level of advertising inventory may vary at different times of the day but tends to remain stable over time. We seek to broaden our base of advertisers in each of our markets by providing a wide array of audience demographic segments across each cluster of stations, thereby providing potential advertisers with an effective means to reach a targeted demographic group. Our advertising contracts are generally short-term.
We generate revenue across the following three major revenue streams:
Broadcast radio revenue. Most of our revenue is generated through the sale of terrestrial, broadcast radio advertising time to local, regional, and national clients. Local spot and regional spot advertising is sold by Cumulus-employed sales personnel. National spot advertising for our owned and operated stations is marketed and sold by both our internal national sales team andKatz Media Group, Inc. , in an outsourced arrangement. 26 -------------------------------------------------------------------------------- Table of
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In addition to local, regional and national spot advertising revenues, we monetize our available inventory in the network sales marketplace. To effectively deliver network advertising for our customers, we distribute content and programming through third party affiliates in order to reach a broader national audience. Typically, in exchange for the right to broadcast radio network programming, third party affiliates remit a portion of their advertising time to us, which is then aggregated into packages focused on specific demographic groups and sold by us to our advertiser clients that want to reach those demographic groups on a national basis. Network advertising airing across our owned, operated and affiliated stations is sold by our internal sales team located across theU.S. to predominantly national and regional advertisers. Digital revenue. We generate digital advertising revenue from the sale of advertising and promotional opportunities across our podcasting network, streaming audio network, websites, mobile applications and digital marketing services. We sell premium advertising adjacent to, or embedded in, podcasts through our network of owned and distributed podcasts. We also operate one of the largest streaming audio advertising networks in theU.S. , including owned and operated internet radio simulcasted stations with either digital ad-inserted or simulcasted ads. We sell display ads across more than 400 local radio station websites, mobile applications, and ancillary custom client microsites. In addition, we sell an array of digital marketing services such as, email marketing, geo-targeted display and video solutions, website and microsite building and hosting, social media management, reputation management and search engine marketing and optimization within our Cumulus C-Suite digital marketing solutions portfolio to existing and new advertisers. Other revenue. Other revenue includes trade and barter transactions, remote and event revenues, and non-advertising revenue. Non-advertising revenue represents fees received for licensing content, imputed tower rental income, satellite rental income, revenues from our digital commerce platform, and proprietary software licensing. We continually evaluate opportunities to increase revenues through new platforms, including technology-based initiatives. As a result of those revenue increasing opportunities, our operating results in any period may be affected by the incurrence of advertising and promotion expenses that typically do not have an effect on revenue generation until future periods, if at all. In addition, as part of this evaluation we also from time to time reorganize and discontinue certain redundant and/or unprofitable content vehicles across our platform which we expect will impact our broadcast revenues in the future.
Seasonality and Cyclicality
Our advertising revenues vary by quarter throughout the year. As is typical with advertising revenue supported businesses, our first calendar quarter typically produces the lowest revenues of any quarter during the year, as advertising generally declines following the winter holidays. The second and fourth calendar quarters typically produce the highest revenues for 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.
Non-GAAP Financial Measure
From time to time, we utilize certain financial measures that are not prepared or calculated in accordance with GAAP to assess our financial performance and profitability. Consolidated adjusted earnings before interest, taxes, depreciation, and amortization ("Adjusted EBITDA") is the financial metric by which management and the chief operating decision maker allocate resources of the Company and analyze the performance of the Company as a whole. Management also uses this measure to determine the contribution of our core operations to the funding of our corporate resources utilized to manage our operations and our non-operating expenses including debt service and acquisitions. In addition, consolidated Adjusted EBITDA is a key metric for purposes of calculating and determining our compliance with certain covenants contained in our Refinanced Credit Agreement. In determining Adjusted EBITDA, we exclude the following from net income (loss): interest, taxes, depreciation, amortization, stock-based compensation expense, gain or loss on the exchange, sale, or disposal of any assets or stations or early extinguishment of debt, local marketing agreement fees, restructuring costs, expenses relating to acquisitions and divestitures, non-routine legal expenses incurred in connection with certain litigation matters, and non-cash impairments of assets, if any. Management believes that Adjusted EBITDA, although not a measure that is calculated in accordance with GAAP, is commonly employed by the investment community as a measure for determining the market value of a media company and comparing the operational and financial performance among media companies. Management has also observed that Adjusted EBITDA is routinely utilized to evaluate and negotiate the potential purchase price for media companies. Given the relevance to our overall value, management believes that investors consider the metric to be extremely useful. 27 -------------------------------------------------------------------------------- Table of
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Adjusted EBITDA should not be considered in isolation or as a substitute for net income (loss), operating income (loss), cash flows from operating activities or any other measure for determining our operating performance or liquidity that is calculated in accordance with GAAP. In addition, Adjusted EBITDA may be defined or calculated differently by other companies, and comparability may be limited.
Consolidated Results of Operations
Analysis of Consolidated Statements of Operations
The following selected data from our audited Consolidated Statements of Operations and other supplementary data provides information that our management believes is relevant to an assessment and understanding of our results of operations and financial condition. This discussion should be read in conjunction with our audited Consolidated Statements of Operations and notes thereto appearing elsewhere herein (dollars in thousands). Year ended Year Ended December 31, 2021 December 31, 2020 2021 vs 2020 Change $ %
STATEMENT OF OPERATIONS DATA:
Net revenue$ 916,467 $ 816,218 $ 100,249 12.3 % Content costs 358,691 337,078 21,613 6.4 % Selling, general & administrative expenses 376,832 367,695 9,137 2.5 % Depreciation and amortization 53,545 52,290 1,255 2.4 % Local marketing agreement fees 1,075 3,149 (2,074) -65.9 % Corporate expenses 74,824 49,199 25,625 52.1 % (Gain) loss on sale of assets or stations (17,616) 8,761 (26,377) N/A Impairment of capitalized software development costs - 4,139 (4,139) -100.0 % Impairment of intangible assets - 4,509 (4,509) -100.0 % Operating income (loss) 69,116 (10,602) 79,718 N/A Interest expense (67,847) (68,099) 252 -0.4 % Gain on early extinguishment of debt 20,000 - 20,000 N/A Other expense, net (1,009) (267) (742) 277.9 % Income (loss) before income taxes 20,260 (78,968) 99,228 N/A Income tax (expense) benefit (2,982) 19,249 (22,231) N/A Net income (loss) $ 17,278$ (59,719) $ 76,997 N/A KEY NON-GAAP FINANCIAL METRIC: Adjusted EBITDA$ 134,857 $ 81,257 $ 53,600 66.0 %
Year Ended
Net Revenue
Net revenue for the year endedDecember 31, 2021 compared to Net revenue for the year endedDecember 31, 2020 increased as national and local broadcast advertising revenue strengthened from COVID-19 economic recovery. In addition, digital advertising revenue increased which was driven by growth in streaming and podcasting. Higher trade and remote/event revenue resulted from the return of sporting and other events in 2021 that were canceled or postponed in 2020 because of COVID-19. These increases were offset by lower political revenue from election cycle seasonality. Content Costs Content costs consist of all costs related to the licensing, acquisition and development of our programming. Content costs for the year endedDecember 31, 2021 compared to Content costs for the year endedDecember 31, 2020 increased primarily as a result of higher broadcast rights fees associated with the return of sporting events in 2021 that were canceled or postponed in 2020 because of COVID-19, higher revenue share costs driven by increased revenue and an increase in digital advertising costs attributed to digital growth. These increases were partially offset by lower spend on third-party station inventory, lower personnel costs, both internally and externally, related to cost-saving actions and station dispositions and the 28 -------------------------------------------------------------------------------- Table of
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cancellation of our news service subscription resulting from the elimination of
Selling, General & Administrative Expenses
Selling, general and administrative expenses consist of expenses related to our sales efforts and distribution of our content across our platform and overhead in our markets. Selling, general and administrative expenses for the year endedDecember 31, 2021 compared to Selling, general and administrative expenses for the year endedDecember 31, 2020 increased from higher incentive accruals, based on revenue growth and improved Company performance, and higher trade expenses primarily related to the return of sporting and other events in 2021 that were canceled or postponed in 2020 because of COVID-19. These increases were partially offset by lower bad debt expense.
Depreciation and Amortization
Depreciation and amortization for the year ended
Local Marketing Agreement Fees
Local marketing agreements are those agreements under which one party programs a radio station on behalf of another party. LMA fees for the year endedDecember 31, 2021 compared to LMA fees for the year endedDecember 31, 2020 decreased as the Company ceased programming forKESN-FM under the LMA agreement which ended inOctober 2020 . Corporate Expenses Corporate expenses consist primarily of compensation and related costs for our executive, accounting, finance, human resources, information technology and legal personnel, and fees for professional services. Professional services are principally comprised of audit, consulting and outside legal services. Corporate expenses also include restructuring expenses and stock-based compensation expense. Corporate expenses for the year endedDecember 31, 2021 compared to Corporate expenses for the year endedDecember 31, 2020 increased primarily as a result of higher personnel costs, including incentive and stock-based compensation expense which were driven by Company performance and temporary cost-saving actions implemented during 2020 that did not recur in 2021, and a legal settlement.
(Gain) Loss on Sale or Disposal of Assets or Stations
The Gain on sale or disposal of assets or stations for the year endedDecember 31, 2021 of$17.6 million was primarily driven by the Nashville Sale and insurance proceeds received for 2020 hurricane damage which were slightly offset by fixed asset dispositions. See Note 2, "Acquisitions and Dispositions," in the notes to the accompanying audited consolidated financial statements included elsewhere in the Form 10-K for further discussion of the Nashville Sale. The Loss on sale or disposal of assets or stations for the year endedDecember 31, 2020 of$8.8 million was primarily a result of the sale of certain land located inBethesda, MD used in conjunction with the Company'sWashington, D.C. operations to Toll Brothers (the "DC Land"), fixed asset dispositions related to the exit of certain facilities and the sale ofWABC-AM inNew York, NY , toRed Apple Media, Inc. (the "WABC Sale"). See Note 2, "Acquisitions and Dispositions," in the notes to the accompanying audited consolidated financial statements included elsewhere in the Form 10-K for further discussion of the WABC Sale and the sale of the DC Land.
Impairment of Capitalized Software Development Costs
The Company's strategic reassessment of a customized technology project resulted in a$4.1 million impairment of capitalized internally developed software costs for the year endedDecember 31, 2020 . See Note 4, "Property and Equipment" in the notes to the accompanying audited consolidated financial statements included elsewhere in the Form 10-K for further discussion. 29 -------------------------------------------------------------------------------- Table of
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Impairment of Intangible Assets
The impairment of intangible assets for the year ended
Interest Expense
Total interest expense for the year endedDecember 31, 2021 decreased as compared to total interest expense for the year endedDecember 31, 2020 . The below table details the components of our interest expense by debt instrument (dollars in thousands): Year Ended December Year Ended December 31, 2021 31, 2020 $ Change Term Loan due 2026 $ 19,354 $ 25,682$ (6,328) 6.75% Senior Notes 30,456 33,237 (2,781) 2020 Revolving Credit Facility 274 812 (538) Financing liabilities 14,238 3,969 10,269 Other, including debt issue cost amortization and write-off 3,525 4,399 (874) Interest expense $ 67,847 $ 68,099 $ (252) Income Tax Benefit (Expense) For the year endedDecember 31, 2021 , we recorded an income tax expense of$3.0 million on pre-tax book income of$20.3 million . The income tax expense recorded for the year endedDecember 31, 2021 was primarily the result of federal, state and local income taxes, PPP loan forgiveness, and the effects of certain statutory non-deductible expenses including disallowed executive compensation and parking. For the year endedDecember 31, 2020 , we recorded income tax benefit of$19.2 million on pre-tax book loss of$79.0 million . The income tax benefit recorded for the year endedDecember 31, 2020 was primarily the result of federal, state and local income taxes. Adjusted EBITDA As a result of the factors described above, Adjusted EBITDA for the year endedDecember 31, 2021 compared to Adjusted EBITDA for the year endedDecember 31, 2020 increased. 30 -------------------------------------------------------------------------------- Table of
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Reconciliation of Non-GAAP Financial Measure
The following table reconciles Adjusted EBITDA to net income (loss) (the most directly comparable financial measure calculated and presented in accordance with GAAP) as presented in the accompanying consolidated statements of operations (dollars in thousands): Year Ended December Year Ended December 31, 2021 31, 2020 GAAP net income (loss) $ 17,278 $ (59,719) Income tax expense (benefit) 2,982 (19,249) Non-operating expenses, including net interest expense 68,856 68,366 Local marketing agreement fees 1,075 3,149 Depreciation and amortization 53,545 52,290 Stock-based compensation expense 5,191 3,337 (Gain) loss on sale of assets or stations (17,616) 8,761 Impairment of capitalized software development costs - 4,139 Impairment of intangibles - 4,509 Restructuring costs 14,604 14,859 Non-routine legal expenses 8,257 - Gain on early extinguishment of debt (20,000) - Franchise taxes 685 815 Adjusted EBITDA $ 134,857 $ 81,257
Segment Results of Operations
The Company has one reportable segment and presents the comparative periods on a consolidated basis to reflect the one reportable segment.
Liquidity and Capital Resources
As ofDecember 31, 2021 and 2020, we had$177.0 million and$271.8 million , respectively, of cash and cash equivalents. We generated cash from operating activities of$68.5 million and$33.2 million , respectively, for the years endedDecember 31, 2021 and 2020. Historically, our principal sources of funds have been cash flow from operations and borrowings under credit facilities in existence from time to time. Our cash flow from operations remains subject to factors such as fluctuations in advertising media preferences and changes in demand caused by shifts in population, station listenership, demographics and audience tastes, some of which may be exacerbated by the COVID-19 pandemic. In addition, our cash flows may be affected if customers are not able to pay, or delay payment of, accounts receivable that are owed to us, which risks may also be exacerbated in challenging or otherwise uncertain economic periods. In certain periods, the Company has experienced reductions in revenue and profitability from prior historical periods because of market revenue pressures and cost escalations built into certain contracts. Notwithstanding this, we believe that our national platform and extensive station portfolio representing a broad diversity in format, listener base, geography, and advertiser base help us maintain a more stable revenue stream by reducing our dependence on any single demographic, region or industry. However, future reductions in revenue or profitability are possible and could have a material adverse effect on the Company's business, results of operations, financial condition or liquidity. Although there is uncertainty related to the anticipated impact of the COVID-19 pandemic on the Company's future results, we believe our business model, our current cash reserves and the recent steps we have taken to strengthen our balance sheet, such as the sale of substantially all of the Company's broadcast communications tower sites and certain other related assets (the "Tower Sale"), sale of land inBethesda, MD ,Nashville Sale , and the PPP Loans, will help us manage our business and anticipated liquidity needs. See Note 2, "Acquisitions and Dispositions," in the notes to the accompanying audited consolidated financial statements included elsewhere in the Form 10-K for further discussion of the Nashville Sale, Tower Sale and the sale of the land inBethesda, MD . See Note 7, "Long-Term Debt," in the notes to the accompanying audited consolidated financial statements included elsewhere in the Form 10-K for further discussion of the PPP Loans. 31 -------------------------------------------------------------------------------- Table of
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We continually monitor our capital structure, and from time to time, we have evaluated, and expect that we will continue to evaluate, opportunities to obtain additional capital from the divestiture of radio stations or other assets, when we determine that it would further our strategic and financial objectives, as well as from the issuance of equity and/or debt securities, in each case, subject to market and other conditions in existence at that time. There can be no assurance that any such financing would be available on commercially acceptable terms, or at all. Future volatility in the capital and credit markets, caused by COVID-19 or otherwise, may increase costs associated with issuing debt instruments or affect our ability to access those markets. In addition, it is possible that our ability to access the capital and credit markets could be limited at a time when we would like, or need, to do so, which could have an adverse impact on our ability to refinance maturing debt on terms or at times acceptable to us, or at all, and/or react to changing economic and business conditions.
Refinanced Credit Agreement (Term Loan due 2026)
OnSeptember 26, 2019 , the Company entered into a new credit agreement by and amongCumulus New Holdings Inc. , aDelaware corporation and an indirectly wholly-owned subsidiary of the Company ("Holdings"), certain other subsidiaries of the Company,Bank of America, N.A ., as Administrative Agent, and the other banks and financial institutions party thereto as Lenders (the "Refinanced Credit Agreement"). Pursuant to the Refinanced Credit Agreement, the lenders party thereto provided Holdings and its subsidiaries that are party thereto as co-borrowers with a$525.0 million senior secured Term Loan (the "Term Loan due 2026"), which was used to refinance the remaining balance of the then outstanding term loan (the "Term Loan due 2022"). Amounts outstanding under the Refinanced Credit Agreement bear interest at a per annum rate equal to (i) LIBOR plus an applicable margin of 3.75%, subject to a LIBOR floor of 1.00%, or (ii) the Alternative Base Rate (as defined below) plus an applicable margin of 2.75%, subject to an Alternative Base Rate floor of 2.00%. The Alternative Base Rate is defined, for any day, as the per annum rate equal to the highest of (i) the Federal Funds Rate, as published by theFederal Reserve Bank of New York , plus 1/2 of 1.0%, (ii) the rate identified byBank of America, N.A . as its "Prime Rate" and (iii) one-month LIBOR plus 1.0%. As ofDecember 31, 2021 , the Term Loan due 2026 bore interest at a rate of 4.75% per annum. Amounts outstanding under the Term Loan due 2026 amortize in equal quarterly installments of 0.25% of the original principal amount of the Term Loan due 2026 with the balance payable on the maturity date. As a result of the mandatory prepayments discussed below, the Company is no longer required to make such quarterly installments. The maturity date of the Term Loan due 2026 isMarch 26, 2026 . The Refinanced Credit Agreement contains representations, covenants and events of default that are customary for financing transactions of this nature. Events of default in the Refinanced Credit Agreement include, among others: (a) the failure to pay when due the obligations owing thereunder; (b) the failure to comply with (and not timely remedy, if applicable) certain covenants; (c) certain defaults and accelerations under other indebtedness; (d) the occurrence of bankruptcy or insolvency events; (e) certain judgments against Holdings or any of its subsidiaries; (f) the loss, revocation or suspension of, or any material impairment in the ability to use, any one or more of, any material FCC licenses; (g) any representation or warranty made, or report, certificate or financial statement delivered, to the lenders subsequently proven to have been incorrect in any material respect; and (h) the occurrence of a Change in Control (as defined in the Refinanced Credit Agreement). Upon the occurrence of an event of default, the Administrative Agent (as defined in the Refinanced Credit Agreement) may, with the consent of, or upon the request of, the required lenders, accelerate the Term Loan due 2026 and exercise any of its rights as a secured party under the Refinanced Credit Agreement and the ancillary loan documents provided, that in the case of certain bankruptcy or insolvency events with respect to a borrower, the Term Loan due 2026 will automatically accelerate.
The Refinanced Credit Agreement does not contain any financial maintenance covenants. The Refinanced Credit Agreement provides that Holdings will be permitted to enter into either a revolving credit facility or receivables facility, subject to certain conditions (see below).
The Company may elect, at their option, to prepay amounts outstanding under the Refinanced Credit Agreement without premium or penalty. The borrowers may be required to make mandatory prepayments of the Term Loan due 2026 upon the occurrence of specified events as set forth in the Refinanced Credit Agreement, including upon the sale of certain assets and from Excess Cash Flow (as defined in the Refinanced Credit Agreement). Amounts outstanding under the Refinanced Credit Agreement are guaranteed byCumulus Media Intermediate Holdings, Inc. , aDelaware corporation and a direct wholly-owned subsidiary of the Company ("Intermediate Holdings "), and the present and future wholly-owned subsidiaries of Holdings that are not borrowers thereunder, subject to certain exceptions as set forth in the Refinanced Credit Agreement (the "Guarantors") and secured by a security interest in substantially all of the assets of Holdings, the subsidiaries of Holdings party to the Refinanced Credit Agreement as borrowers, and the Guarantors. 32 -------------------------------------------------------------------------------- Table of
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The issuance of the Term Loan due 2026 and repayment of the Term Loan due 2022 were evaluated in accordance with ASC 470-50-40 - Debt-Modifications and Extinguishments-Derecognition ("ASC 470-50-40"), to determine whether the refinancing transaction should be accounted for as a debt modification or extinguishment of the Term Loan due 2022. Each lender involved in the refinancing transaction was analyzed to determine if its participation was a debt modification or an extinguishment. Debt issuance costs for exiting lenders who chose not to participate in the Term Loan due 2026 were accounted for as extinguishments. Debt discounts and costs incurred with third parties for the issuance of the Term Loan due 2026 totaling$3.6 million for new lenders were capitalized and amortized over the term of the Term Loan due 2026. An additional$1.5 million of debt discount for the issuance of the Term Loan due 2026 was capitalized for continuing lenders deemed to be modified. These capitalized fees associated with new and continuing lenders are presented as cash flows from financing activities on the Consolidated Statements of Cash Flows. Costs incurred with third-parties for the issuance of the Term Loan due 2026 of$3.5 million related to modification for continuing lenders were expensed and included in Interest Expense in the Consolidated Statements of Operations. Debt discounts and issuance costs of$5.1 million were capitalized and amortized over the term of the Term Loan due 2026. OnAugust 7, 2020 , the Company entered into an agreement withVertical Bridge REIT, LLC , for the Tower Sale. OnSeptember 30, 2020 , pursuant to the Term Loan due 2026, the Company was required to pay down at closing of the Tower Sale$49.0 million . As a result of the pay down, the Company wrote-off approximately$0.4 million of debt issuance costs related to the Term Loan due 2026. The Company was also required by the provisions of the Term Loan due 2026 to prepay any remaining amounts of the net proceeds from the Tower Sale and the Company's previously announced sale of land inBethesda, MD , inJune 2020 (the "DC Land Sale" and, together with the Tower Sale, the "Sale") not reinvested in accordance with the Term Loan. OnMay 25, 2021 , the Company repaid approximately$89 million of its Term Loan due 2026 related to this mandatory prepayment obligation. Approximately$65 million of the prepayment related to the Land Sale and approximately$23 million of the prepayment related to the Tower Sale. Additionally, as a result of the expiration of theMay 2021 Tender Offer (as defined below), the Company applied the untendered amount of approximately$23 million towards an incremental prepayment of the Term Loan due 2026. In conjunction with the prepayments, the Company wrote-off approximately$0.9 million of debt issuance costs related to the Term Loan due 2026.
As of
2020 Revolving Credit Agreement
On March 6,2020, Holdings and certain of the Company's other subsidiaries, as borrowers (the "Borrowers"), andIntermediate Holdings entered into a$100.0 million revolving credit facility (the "2020 Revolving Credit Facility") pursuant to a Credit Agreement (the "2020 Revolving Credit Agreement"), dated as ofMarch 6, 2020 , withFifth Third Bank , as a lender and Administrative Agent and certain other lenders from time to time party thereto. The 2020 Revolving Credit Facility refinances and replaces the Company's 2018 Revolving Credit Agreement (as defined below) entered into pursuant to that certain Credit Agreement dated as ofAugust 17, 2018 , by and among Holdings, the Borrowers,Intermediate Holdings and certain lenders and Deutsche Bank AG New York Branch, as a lender and Administrative Agent. The 2020 Revolving Credit Facility has a maturity date ofMarch 6, 2025 . Availability under the 2020 Revolving Credit Facility is tied to a borrowing base equal to 85% of the accounts receivable of the Borrowers, subject to customary reserves and eligibility criteria and reduced by outstanding letters of credit. Under the 2020 Revolving Credit Facility, up to$10.0 million of availability may be drawn in the form of letters of credit and up to$10.0 million of availability may be drawn in the form of swing line loans. Borrowings under the 2020 Revolving Credit Facility bear interest, at the option of Holdings, based on LIBOR plus a percentage spread of 1.00% or the Alternative Base Rate. The Alternative Base Rate is defined, for any day, as the per annum rate equal to the rate identified as the "Prime Rate" byFifth Third Bank . In addition, the unused portion of the 2020 Revolving Credit Facility will be subject to a commitment fee of 0.25%. The 2020 Revolving Credit Facility contains customary LIBOR successor provisions. The 2020 Revolving Credit Agreement contains representations, covenants and events of default that are customary for financing transactions of this nature. Events of default in the 2020 Revolving Credit Agreement include, among others: (a) the failure to pay when due the obligations owing thereunder; (b) the failure to perform (and not timely remedy, if applicable) certain covenants; (c) certain defaults and accelerations under other indebtedness; (d) the occurrence of bankruptcy or insolvency events; (e) certain judgments againstIntermediate Holdings or any of its subsidiaries; (f) the loss, revocation or suspension of, or any material impairment in the ability to use, any one or more of, any material FCC licenses; (g) any 33 -------------------------------------------------------------------------------- Table of
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representation or warranty made, or report, certificate or financial statement delivered, to the lenders subsequently proven to have been incorrect in any material respect; and (h) the occurrence of a Change in Control (as defined in the 2020 Revolving Credit Agreement). Upon the occurrence of an event of default, the lenders may terminate the loan commitments, accelerate all loans and exercise any of their rights under the 2020 Revolving Credit Agreement and the ancillary loan documents as a secured party. The 2020 Revolving Credit Agreement does not contain any financial maintenance covenants with which the Company must comply. However, if average excess availability under the 2020 Revolving Credit Facility is less than the greater of (a) 12.5% of the total commitments thereunder or (b)$10.0 million , the Company must comply with a fixed charge coverage ratio of not less than 1.0:1.0. Amounts outstanding under the 2020 Revolving Credit Agreement are guaranteed byIntermediate Holdings and the present and future wholly-owned subsidiaries ofIntermediate Holdings that are not borrowers thereunder, subject to certain exceptions as set forth in the 2020 Revolving Credit Agreement (the "2020 Revolver Guarantors") and secured by a security interest in substantially all of the assets of Holdings, the subsidiaries of Holdings party to the 2020 Revolving Credit Agreement as borrowers, and the 2020 Revolver Guarantors. The issuance of the 2020 Revolving Credit Agreement was determined to be a modification of the 2018 Revolving Credit Agreement (as defined below) in accordance with ASC 470-50-40. The Company expensed approximately$0.6 million of unamortized debt issuance costs related to the exiting lender. Costs incurred with third parties for issuance of the 2020 Revolving Credit Agreement totaled approximately$0.4 million and were capitalized and will be amortized over the term of the 2020 Revolving Credit Agreement. OnMay 17, 2021 , the Company completed a$60.0 million repayment of the 2020 Revolving Credit Facility. As ofDecember 31, 2021 ,$4.3 million was outstanding under the 2020 Revolving Credit Facility, representing letters of credit. As ofDecember 31, 2021 , the Company was in compliance with all required covenants under the 2020 Revolving Credit Agreement.
6.75% Senior Notes
OnJune 26, 2019 , Holdings (the "Issuer"), and certain of the Company's other subsidiaries, entered into an indenture, dated as ofJune 26, 2019 (the "Indenture") withU.S. Bank National Association , as trustee, governing the terms of the Issuer's$500,000,000 aggregate principal amount of 6.75% Senior Secured First-Lien Notes due 2026 (the "6.75% Senior Notes"). The 6.75% Senior Notes were issued onJune 26, 2019 . The net proceeds from the issuance of the 6.75% Senior Notes were applied to partially repay existing indebtedness under the Term Loan due 2022 (see above). In conjunction with the issuance of the 6.75% Senior Notes, debt issuance costs of$7.3 million were capitalized and are being amortized over the term of the 6.75% Senior Notes. Interest on the 6.75% Senior Notes is payable onJanuary 1 andJuly 1 of each year, commencing onJanuary 1, 2020 . The 6.75% Senior Notes mature onJuly 1, 2026 .
The Issuer may redeem some or all of the 6.75% Senior Notes at any time, or from
time to time, on or after
Year Price 2022 103.3750 % 2023 101.6875 % 2024 and thereafter 100.0000 % Prior toJuly 1, 2022 , the Issuer may redeem all or part of the 6.75% Senior Notes upon not less than 30 nor more than 60 days prior notice, at 100% of the principal amount of the 6.75% Senior Notes redeemed plus a "make whole" premium. The 6.75% Senior Notes are fully and unconditionally guaranteed byIntermediate Holdings and the present and future wholly-owned subsidiaries of Holdings (the "Senior Notes Guarantors"), subject to the terms of the Indenture. Other than certain assets secured on a first priority basis under the 2020 Revolving Credit Facility (as to which the 6.75% Senior Notes are secured on a second-priority basis), the 6.75% Senior Notes and related guarantees are secured on a first-priority basis pari passu with the Term Loan due 2026 (subject to certain exceptions) by liens on substantially all of the assets of the Issuer and the Senior Notes Guarantors. 34 -------------------------------------------------------------------------------- Table of
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The Indenture contains representations, covenants and events of default customary for financing transactions of this nature. As ofDecember 31, 2021 , the Issuer was in compliance with all required covenants under the Indenture. A default under the 6.75% Senior Notes could cause a default under the Refinanced Credit Agreement. The 6.75% Senior Notes have not been and will not be registered under the federal securities laws or the securities laws of any state or any other jurisdiction. The Company is not required to register the 6.75% Senior Notes for resale under the Securities Act, or the securities laws of any other jurisdiction and is not required to exchange the 6.75% Senior Notes for notes registered under the Securities Act or the securities laws of any other jurisdiction and has no present intention to do so. As a result, Rule 3-10 of Regulation S-X promulgated by theSEC is not applicable and no separate financial statements are required for the guarantor subsidiaries. OnNovember 3, 2020 , the Company completed a tender offer (the "November 2020 Tender Offer") pursuant to which it accepted and cancelled$47.2 million in aggregate principal amount of the 6.75% Notes as a result of the Tower Sale. As a result of theNovember 2020 Tender Offer, the Company wrote-off approximately$0.6 million of debt issuance costs related to the 6.75% Notes accepted and canceled in the transaction. Pursuant to the terms of the Indenture, the Company made a tender offer (the "May 2021 Tender Offer") with respect to the prorated portion of the remaining net proceeds from the Tower Sale which it determined would not be reinvested by the end of the reinvestment period of approximately$26 million of the 6.75% Notes. OnJune 23, 2021 , theMay 2021 Tender Offer expired and approximately$3 million aggregate principal amount of the 6.75% Notes was validly tendered and accepted for cancellation. The Company directed the untendered amount of approximately$23 million towards an additional prepayment of the Term Loan due 2026.
Significant Cash Payments
The following table summarizes our significant non-operating cash payments made
for the years ended
Year Ended December Year EndedDecember 31, 2021 31, 2020
Repayments of borrowings under Term Loan due 2026 $ 113,171
$ 54,277 Repayments of borrowings under 6.75% Senior Notes $ 3,141 $ 47,164 Interest payments $ 59,666 $ 62,513 Capital expenditures $ 29,091 $ 14,868
Net Cash Provided by Operating Activities
Year Ended December Year Ended December (Dollars in thousands) 31, 2021 31, 2020 Net cash provided by operating activities $ 68,518 $ 33,210 Net cash provided by operating activities for the year endedDecember 31, 2021 compared to the year endedDecember 31, 2020 increased primarily as a result of higher income offset by overall net decreases in non-cash items and the impact of COVID-19 on sales.
Year Ended December Year Ended December (Dollars in thousands) 31, 2021 31, 2020 Net cash (used in) provided by investing activities $ (1,541) $ 64,359 For the year endedDecember 31, 2021 , net cash used in investing activities consists primarily of capital expenditures and the purchase of affiliate advertising relationships, which were mostly offset by proceeds from the Nashville Sale. For additional detail about the purchase of affiliate advertising relationships and the Nashville Sale, see Note 2, "Acquisitions and Dispositions," in the notes to the accompanying audited consolidated financial statements included elsewhere in the Form 10-K. For the year endedDecember 31, 2020 , net cash provided by investing activities primarily includes the proceeds received from the sales of the DC Land and WABC partially offset by capital expenditures. For additional detail about the sale of the DC Land and the WABC Sale, see Note 2, "Acquisitions and Dispositions," in the notes to the accompanying audited consolidated financial statements included elsewhere in the Form 10-K. 35 -------------------------------------------------------------------------------- Table of
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Year Ended December Year Ended December (Dollars in thousands) 31, 2021 31, 2020
Net cash (used in) provided by financing activities
$ 157,185
For the year endedDecember 31, 2021 , net cash used in financing activities is primarily comprised of the total$115.0 million mandatory prepayments required by the terms of the Company's debt agreements from the proceeds of the DC Land and Tower Sales and a$60.0 million voluntary pay down of the total amount previously outstanding under the 2020 Revolving Credit Agreement. In addition, the Company paid$3.0 million of contingent consideration related to an asset acquisition. These payments were partially offset by the proceeds received from the PPP loans. See Note 7, "Long-Term Debt," for further discussion of the mandatory prepayments related to the remaining net proceeds from the asset sales described above, voluntary pay down of the amount previously outstanding under the 2020 Revolving Credit Agreement, and the PPP Loans. See Note 2, "Acquisitions and Dispositions," in the notes to the accompanying audited consolidated financial statements included elsewhere in the Form 10-K for further discussion of the DC Land and Tower Sales and the asset acquisition. For the year endedDecember 31, 2020 , net cash used in financing activities primarily reflects$202.3 million of cash received from the Tower Sale, after transaction costs and closing adjustments, and$60.0 million of proceeds received from borrowings under the 2020 Revolving Credit Agreement partially offset by the$49 million pay down of the Term Loan due 2026 and the$47.2 million pay down of the 6.75% Senior Notes as a result of the Tender Offer, each as required at closing of the Tower Sale.
Critical Accounting Policies
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including significant estimates related to bad debts, intangible assets, income taxes, stock-based compensation, contingencies, litigation, valuation assumptions for impairment analysis, certain expense accruals and, if applicable, purchase price allocations. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, and which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual amounts and results may differ materially from these estimates.
Revenue Recognition
Revenues are recognized when control of the promised goods or services are transferred to the customer, in an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Broadcast radio revenue is recognized as commercials are broadcast. Digital podcasting and streaming revenues are recognized when the advertisements are delivered. Revenues for digital marketing services are recognized over time as the services are provided depending on the terms of the contract. Remote and event revenues are recognized at the time services, for example hosting an event, are delivered. Revenues are recorded on a net basis, after the deduction of advertising agency fees. In those instances, in which the Company functions as the principal in the transaction, the revenue and associated operating costs are presented on a gross basis. In those instances where the Company functions as an agent or sales representative, the effective commission is presented as revenue on a net basis with no corresponding operating expenses. The Company's payment terms vary by the type and location of customer and the products or services offered. The term between invoicing and when payment is due is generally not significant. There are no further obligations for returns, refunds or similar obligations related to the contracts. The Company records deferred revenues when cash payments including amounts which are refundable are received in advance of performance.
Accounts Receivable, Allowance for Doubtful Accounts and Concentration of Credit Risk
Accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable. The Company determined the allowance based on several factors, including the length of time receivables are past due, trends and
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current economic factors. All balances are reviewed and evaluated quarterly on a consolidated basis. Account balances are charged off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. The Company does not have any off-balance sheet credit exposure related to its customers. The Company performs credit evaluations of its customers as needed and believes that adequate allowances for any uncollectible accounts receivable are maintained.
Intangible Assets
As ofDecember 31, 2021 , we had approximately$962.3 million of indefinite-lived and definite-lived intangible assets, which represented approximately 56.0% of our total assets. The Company's indefinite-lived intangible assets are comprised primarily of FCC licenses. We perform annual impairment tests of our indefinite-lived intangible assets as ofDecember 31 of each year and on an interim basis if events or circumstances indicated that indefinite-lived intangible assets may be impaired. Impairment exists when the asset carrying amounts exceed their respective fair values and the excess is then recorded as an impairment charge to operations. See Note 5, "Intangible Assets," in the notes to the accompanying audited consolidated financial statements included elsewhere in the Form 10-K for further discussion of the annual and interim impairment tests performed of our indefinite-lived intangible assets.
The Company's definite-lived intangible assets consist primarily of affiliate and producer relationships, which are amortized over the period of time the intangible assets are expected to contribute directly or indirectly to the Company's future cash flows.
Stock-based Compensation Expense
Stock-based compensation expense recognized for the years endedDecember 31, 2021 and 2020, was$5.2 million and$3.3 million , respectively. For awards with service conditions, stock-based compensation expense is recognized on a straight-line basis over the requisite service period for the entire award. In addition, the Company elected to recognize forfeitures of share-based awards as they occur in the period of forfeiture rather than estimating the number of awards expected to be forfeited at the grant date and subsequently adjusting the estimate when awards are actually forfeited. For stock options with service conditions only, we utilize the Black-Scholes option pricing model to estimate the fair value of options issued. The fair value of stock options is determined by the Company's stock price, historical stock price volatility, the expected term of the awards, risk-free interest rates and expected dividends. The fair value of time-based and performance-based restricted stock awards is the quoted market value of our stock on the grant date. For performance-based restricted stock awards, the Company evaluates the probability of vesting of the awards in each reporting period. In the event the Company determines it is no longer probable that the minimum performance criteria specified in the award will be achieved, all previously recognized compensation expense will be reversed in the period such a determination is made.
Income Taxes
The Company accounts for income taxes using the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates the Company expects will be applicable when those tax assets and liabilities are realized or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets when it is more likely than not that the asset will not be realized. We continually review the adequacy of our valuation allowance, if any, on our deferred tax assets and recognize the benefits of deferred tax assets only as the reassessment indicates that it is more likely than not that the deferred tax assets will be recognized in accordance with ASC Topic 740, Income Taxes ("ASC 740"). In assessing the need for a valuation allowance, the Company considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets. If the Company were to determine that it would be able to realize deferred tax assets in the future in excess of the Company's net recorded amount, an adjustment to the net deferred tax asset would increase income in the period that such determination was made. Likewise, should the Company determine that it would not be able to realize all or part of its net deferred tax assets in the future, an adjustment to the net deferred tax asset would decrease income in the period such determination was made. The Company recognizes a tax position as a benefit only if it is more-likely-than-not that the position would be sustained in an examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that has a greater than 50% likelihood of being realized on examination. For tax positions not meeting the more-likely-than-not test, no tax benefit is recorded. 37 --------------------------------------------------------------------------------
Table of Contents Legal Proceedings We have been, and expect in the future to be, a party to various legal proceedings, investigations or claims. In accordance with applicable accounting guidance, we record accruals for certain of our outstanding legal proceedings when it is probable that a liability will be incurred and the amount of loss can be reasonably estimated. We evaluate, at least on a quarterly basis, developments in our legal proceedings or other claims that could affect the amount of any accrual, as well as any developments that would result in a loss contingency to become both probable and reasonably estimable. Resolution of any legal proceedings in a manner inconsistent with management's expectations could have a material impact on the Company's financial condition and operating results. For more information, see Note 14, "Commitments and Contingencies," in the accompanying audited consolidated financial statements included elsewhere in this Form 10-K. Trade and Barter Transactions The Company provides commercial advertising inventory in exchange for goods and services used principally for promotional, sales, programming and other business activities. Programming barter revenue is derived from an exchange of programming content, to be broadcast on the Company's airwaves, for commercial advertising inventory, usually in the form of commercial placements inside the show exchanged. Trade and barter value is based upon management's estimate of the fair value of the products, supplies and services received. Trade and barter revenue is recorded when commercial spots are aired, in the same pattern as the Company's normal cash spot revenue is recognized. Trade and barter expense is recorded when goods or services are consumed. For the years endedDecember 31, 2021 and 2020, amounts reflected under trade and barter transactions were: (1) trade and barter revenues of$39.2 million and$34.2 million , respectively; and (2) trade and barter expenses of$39.0 million and$33.6 million , respectively.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of
New Accounting Standards
Refer to Note 1, "Nature of Business, Basis of Presentation and Summary of Significant Accounting Policies" in the notes to the accompanying audited consolidated financial statements included elsewhere in the Form 10-K.
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