Cumulus Media Inc.

11/01/2024 | Press release | Distributed by Public on 11/01/2024 06:05

Quarterly Report for Quarter Ending September 30, 2024 (Form 10-Q)

cmls-20240930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-38108
Cumulus Media Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 82-5134717
(State or Other Jurisdiction of
Incorporation or Organization) 		(I.R.S. Employer
Identification No.)
780 Johnson Ferry Road NE Suite 500 Atlanta, GA 30342
(Address of Principal Executive Offices) (ZIP Code)
(404) 949-0700
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Trading Symbol(s) Name of each exchange on which registered
Class A common stock CMLS Nasdaq Global Market
Class A common stock purchase rights N/A Nasdaq Global Market
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesþNo ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Date File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YesþNo ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act:
Large Accelerated Filer ¨ Accelerated Filer ☑
Non-accelerated Filer ¨ Smaller Reporting Company ☑
Emerging Growth Company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨No þ
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes þNo ¨
As of October 25, 2024, the registrant had 16,985,663 outstanding shares of common stock consisting of: 16,673,622 shares of Class A common stock and 312,041 shares of Class B common stock.
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Cumulus Media Inc.
INDEX
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of September 30, 2024 and December 31, 2023
3
Condensed Consolidated Statements of Operations For the Three and Nine Months Ended September 30, 2024 and 2023
4
Condensed Consolidated Statements of Stockholders' Equity For the Nine Months Ended September 30, 2024 and 2023
5
Condensed Consolidated Statements of Cash Flows For the Nine Months Ended September 30, 2024 and 2023
7
Notes to Condensed Consolidated Financial Statements
8
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
21
Item 3. Quantitative and Qualitative Disclosures about Market Risk
30
Item 4. Controls and Procedures
30
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
31
Item 1A. Risk Factors
31
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
31
Item 5. Other Information
31
Item 6. Exhibits
31
Signatures
31
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Cumulus Media Inc.
Condensed Consolidated Balance Sheets
(Unaudited)
Dollars in thousands (except for share data) September 30, 2024 December 31, 2023
Assets
Current assets:
Cash and cash equivalents $ 52,154 $ 80,660
Accounts receivable, less allowance for doubtful accounts of $5,804 and $5,983 at September 30, 2024 and December 31, 2023, respectively
167,914 180,706
Trade receivable 4,075 1,495
Prepaid expenses and other current assets 30,392 24,036
Total current assets 254,535 286,897
Property and equipment, net 166,246 180,596
Operating lease right-of-use assets 106,220 118,646
Broadcast licenses 741,635 741,716
Other intangible assets, net 83,672 95,913
Other assets 12,046 16,533
Total assets $ 1,364,354 $ 1,440,301
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued expenses $ 104,593 $ 114,072
Current portion of operating lease liabilities 26,431 27,515
Trade payable 3,358 2,152
Total current liabilities 134,382 143,739
Long-term debt 670,313 672,424
Operating lease liabilities 101,207 113,141
Financing liabilities, net 201,489 205,890
Other liabilities 5,757 6,200
Deferred income tax liabilities 14,427 12,325
Total liabilities 1,127,575 1,153,719
Commitments and contingencies (Note 10)
Stockholders' equity:
Class A common stock, par value $0.0000001 per share; 100,000,000 shares authorized; 22,154,838 and 21,456,675 shares issued; 16,673,622 and 16,237,939 shares outstanding at September 30, 2024 and December 31, 2023, respectively
- -
Convertible Class B common stock, par value $0.0000001 per share; 100,000,000 shares authorized; 312,041 shares issued and outstanding at September 30, 2024 and December 31, 2023
- -
Treasury stock, at cost, 5,481,216 and 5,218,736 shares at September 30, 2024 and December 31, 2023, respectively
(46,833) (45,747)
Additional paid-in-capital 357,189 353,732
Accumulated deficit (73,577) (21,403)
Total stockholders' equity 236,779 286,582
Total liabilities and stockholders' equity $ 1,364,354 $ 1,440,301
See accompanying notes to the unaudited condensed consolidated financial statements.
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Cumulus Media Inc.
Condensed Consolidated Statements of Operations
(Unaudited)
Dollars in thousands (except for share and per share data) Three Months Ended September 30, Nine Months Ended September 30,
2024 2023 2024 2023
Net revenue $ 203,598 $ 207,419 $ 608,500 $ 623,247
Operating expenses:
Content costs 76,368 76,740 235,056 238,939
Selling, general and administrative expenses 93,890 91,834 283,009 280,536
Depreciation and amortization 14,721 13,950 44,270 43,780
Corporate expenses 11,934 15,926 59,483 54,048
Loss (gain) on sale or disposal of assets or stations 6 (8,614) 60 (15,895)
Total operating expenses 196,919 189,836 621,878 601,408
Operating income (loss) 6,679 17,583 (13,378) 21,839
Non-operating expense:
Interest expense (17,043) (17,862) (52,029) (53,468)
Interest income 34 634 526 1,715
Gain on early extinguishment of debt - 843 170 9,849
Other (expense) income, net (32) (26) 14,774 (312)
Total non-operating expense, net (17,041) (16,411) (36,559) (42,216)
(Loss) income before income taxes (10,362) 1,172 (49,937) (20,377)
Income tax benefit (expense) 41 1,550 (2,237) 564
Net (loss) income $ (10,321) $ 2,722 $ (52,174) $ (19,813)
Basic and diluted (loss) earnings per common share (see Note 9, "(Loss) Earnings Per Share"):
Basic: (Loss) Earnings per share $ (0.61) $ 0.17 $ (3.10) $ (1.13)
Diluted: (Loss) Earnings per share $ (0.61) $ 0.16 $ (3.10) $ (1.13)
Weighted average basic common shares outstanding 16,936,749 16,466,814 16,836,679 17,525,245
Weighted average diluted common shares outstanding 16,936,749 16,502,186 16,836,679 17,525,245
See accompanying notes to the unaudited condensed consolidated financial statements.
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Cumulus Media Inc.
Condensed Consolidated Statements of Stockholders' Equity
(Unaudited)
For the nine months ended September 30, 2024
Dollars in thousands Class A
Common Stock 		Class B
Common Stock 		Treasury
Stock
Number of
Shares 		Par
Value 		Number of
Shares 		Par
Value 		Number of
Shares 		Value Additional
Paid-In
Capital 		Accumulated Deficit Total
Balance at December 31, 2023
16,237,939 $ - 312,041 $ - 5,218,736 $ (45,747) $ 353,732 $ (21,403) $ 286,582
Net loss - - - - - - - (14,154) (14,154)
Shares returned in lieu of tax payments - - - - 261,668 (1,084) - - (1,084)
Issuance of common stock 335,837 - - - - - - - -
Stock based compensation expense - - - - - - 1,072 - 1,072
Balance at March 31, 2024 16,573,776 $ - 312,041 $ - 5,480,404 $ (46,831) $ 354,804 $ (35,557) $ 272,416
Net loss - - - - - - - (27,699) (27,699)
Shares returned in lieu of tax payments - - - - 812 (2) - - (2)
Issuance of common stock 50,394 - - - - - - - -
Stock based compensation expense - - - - - - 1,336 - 1,336
Balance at June 30, 2024 16,624,170 $ - 312,041 $ - 5,481,216 $ (46,833) $ 356,140 $ (63,256) $ 246,051
Net loss - - - - - - - (10,321) (10,321)
Issuance of common stock 49,452 - - - - - - - -
Stock based compensation expense - - - - - - 1,049 - 1,049
Balance at September 30, 2024 16,673,622 $ - 312,041 $ - 5,481,216 $ (46,833) $ 357,189 $ (73,577) $ 236,779
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For the nine months ended September 30, 2023
Dollars in thousands Class A
Common Stock 		Class B
Common Stock 		Treasury
Stock
Number of
Shares 		Par
Value 		Number of
Shares 		Par
Value 		Number of
Shares 		Value Additional
Paid-In
Capital 		Retained Earnings Total
Balance at December 31, 2022
17,925,010 $ - 312,041 $ - 2,927,739 $ (36,533) $ 348,462 $ 96,476 $ 408,405
Net loss - - - - - - - (21,467) (21,467)
Shares returned in lieu of tax payments - - - - 220,949 (1,421) - - (1,421)
Issuance of common stock 252,245 - - - - - - - -
Stock based compensation expense - - - - - - 1,126 - 1,126
Treasury stock purchased under share repurchase program (323,285) - - - 323,285 (1,511) - - (1,511)
Balance at March 31, 2023 17,853,970 $ - 312,041 $ - 3,471,973 $ (39,465) $ 349,588 $ 75,009 $ 385,132
Net loss - - - - - - - (1,068) $ (1,068)
Shares returned in lieu of tax payments - - - - 1,758 (5) - - (5)
Issuance of common stock 45,354 - - - - - - - -
Stock based compensation expense - - - - - - 1,492 - 1,492
Treasury stock purchased under share repurchase program (1,745,005) - - - 1,745,005 (6,277) - - (6,277)
Balance at June 30, 2023 16,154,319 $ - 312,041 $ - 5,218,736 $ (45,747) $ 351,080 $ 73,941 $ 379,274
Net income - - - - - - - 2,722 2,722
Issuance of common stock 41,810 - - - - - - - -
Stock based compensation expense - - - - - - 1,471 - 1,471
Balance at September 30, 2023 16,196,129 $ - 312,041 $ - 5,218,736 $ (45,747) $ 352,551 $ 76,663 $ 383,467
See accompanying notes to the unaudited condensed consolidated financial statements.
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Cumulus Media Inc.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Dollars in thousands Nine Months Ended September 30,
2024 2023
Cash flows from operating activities:
Net loss $ (52,174) $ (19,813)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization 44,270 43,780
Amortization and write-off of debt issuance costs 1,002 1,602
Amortization of debt discount (2,261) -
Provision for doubtful accounts 1,952 2,284
Loss (gain) on sale or disposal of assets or stations 60 (15,895)
Gain on sale of BMI (14,846) -
Gain on early extinguishment of debt (170) (9,849)
Impairment of right-of-use assets 944 9,050
Change in fair value of contingent consideration - (2,000)
Deferred income taxes 2,102 (702)
Stock-based compensation expense 3,457 4,089
Non-cash interest expense on financing liabilities 2,982 2,941
Non-cash imputed rental income (3,670) (3,560)
Changes in assets and liabilities (excluding acquisitions and dispositions):
Accounts receivable 14,953 34,511
Trade receivable (2,580) (572)
Prepaid expenses and other current assets (5,926) (4,421)
Operating leases, net (1,536) (1,116)
Other assets 435 (1,049)
Accounts payable and accrued expenses (9,883) (11,966)
Trade payable 1,206 629
Other liabilities (447) 447
Net cash (used in) provided by operating activities (20,130) 28,390
Cash flows from investing activities:
Proceeds from sale of assets or stations 56 17,814
Proceeds from sale of BMI 14,846 -
Capital expenditures (15,881) (21,026)
Net cash used in investing activities (979) (3,212)
Cash flows from financing activities:
Repayment of borrowings under Term Loan due 2026 - (7,900)
Repayments of borrowings under Senior Notes due 2026 (330) (25,861)
Treasury stock purchases - (7,788)
Payment of contingent consideration - (2,000)
Financing costs on Revolving Credit Agreement
(275) -
Shares returned in lieu of tax payments (1,086) (1,426)
Repayments of financing liabilities (4,900) (4,235)
Repayments of finance lease obligations (806) (594)
Net cash used in financing activities (7,397) (49,804)
Decrease in cash and cash equivalents (28,506) (24,626)
Cash and cash equivalents at beginning of period 80,660 107,433
Cash and cash equivalents at end of period $ 52,154 $ 82,807
See accompanying notes to the unaudited condensed consolidated financial statements.
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Notes to Condensed Consolidated Financial Statements (Unaudited)
1. Nature of Business, Interim Financial Data and Basis of Presentation
Cumulus Media Inc. (and its consolidated subsidiaries, except as the context may otherwise require, "Cumulus Media," "we," "us," "our," or the "Company") is a Delaware corporation, organized in 2018, and successor to a Delaware corporation with the same name that had been organized in 2002.
Nature of Business
Cumulus Media(NASDAQ: CMLS) 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 400 owned-and-operated radio stations across 84 markets; delivers nationally-syndicated sports, news, talk, and entertainment programming from iconic brands including the NFL, the NCAA, the Masters, Infinity Sports Network, AP News, the Academy of Country Music Awards, and many other world-class partners across more than 9,800 affiliated stations through Westwood 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 Mediaprovides 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. For more information visit www.cumulusmedia.com.
Basis of Presentation
The accompanying unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company has one reportable segment. In the opinion of management, the Company's unaudited Condensed Consolidated Financial Statements include all adjustments of a normal recurring nature necessary for a fair statement of the results for the interim periods presented herein. The accompanying condensed consolidated balance sheet as of December 31, 2023, was derived from the Company's audited financial statements as of December 31, 2023, and our accompanying unaudited Condensed Consolidated Financial Statements as of September 30, 2024, and for the periods ended September 30, 2024 and 2023, have been prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. The financial condition and results for the interim periods are not necessarily indicative of those that may be expected for any future interim period or for the full year. The unaudited Condensed Consolidated Financial Statements herein should be read in conjunction with our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2023.
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, leases 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.
Comprehensive Loss
Comprehensive loss includes net loss and certain items that are excluded from net loss and recorded as a separate component of stockholders' equity. During the nine months ended September 30, 2024 and 2023, the Company had no items of other comprehensive loss and, therefore, comprehensive loss does not differ from reported net loss.
Assets Held for Sale
Long-lived assets to be sold are classified as held for sale in the period in which they meet all the criteria for the disposal of long-lived assets. As of September 30, 2024 and December 31, 2023, assets held for sale were not material.
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Proceeds from BMI Sale
The Company received $14.8 million in cash proceeds related to the February 2024 sale of Broadcast Music, Inc. ("BMI") to a shareholder group led by New Mountain Capital, LLC. The Company's equity ownership in BMI began decades ago and changed through acquisitions and divestitures of other broadcast stations and companies over the years. The Company recorded the proceeds in the other (expense) income, net, financial statement line item of the Company's Condensed Consolidated Statements of Operations for the nine months ended September 30, 2024.
Leases
The Company has entered into various lease agreements both as the lessor and lessee. We determine if an arrangement is or contains a lease at contract inception and determine its classification as an operating or finance lease at lease commencement. Leases have been classified as either operating or finance leases in accordance with ASU 2016-02, Leases (Topic 842)and its related amendments (collectively, known as "ASC 842") and primarily consist of leases for land, tower space, office space, certain office equipment and vehicles. A right-of-use asset and lease liability have been recorded on the balance sheet for all leases except those with an original lease term of twelve months or less. The Company also has sublease arrangements that provide a nominal amount of income.
Supplemental Cash Flow Information
The following summarizes supplemental cash flow information to be read in conjunction with the unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2024 and 2023 (dollars in thousands):
Nine Months Ended September 30,
2024 2023
Supplemental disclosures of cash flow information:
Interest paid $ 57,542 $ 53,026
Income taxes paid 149 501
Supplemental disclosures of non-cash flow information:
Trade revenue $ 47,919 $ 41,696
Trade expense 45,865 41,194
Noncash principal change in financing liabilities 390 (373)
During the second quarter of 2024, the Company exchanged a total of $651.3 million of its debt principal for $618.2 million, resulting in a $33.1 million difference which will be amortized to interest expense (thereby reducing interest expense) over the life of the debt. See "Note 5 - Long-Term Debt" for further discussion of the exchange offers.
New Accounting Pronouncements
ASU 2023-07 - Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"). In November 2023, the FASB issued ASU 2023-07, which is intended to improve reportable segment disclosure requirements, primarily through additional disclosures about significant segment expenses. The standard is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments should be applied retrospectively to all prior periods presented in the financial statements. The Company is currently evaluating the potential effect that the updated standard will have on our financial statement disclosures.
ASU 2023-09 - Improvements to Income Tax Disclosures("ASU 2023-09"). In December 2023, the FASB issued ASU 2023-09, which requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024, may be applied prospectively or retrospectively, and allows for early adoption. The Company is currently evaluating the potential effect that the updated standard will have on our financial statement disclosures.
2. Disposition
WDRQ Sale
On July 31, 2023, the Company completed the sale of WDRQ-FM, in Detroit, MI (the "WDRQ Sale") for $10.0 million in cash. The Company recorded a gain on the WDRQ Sale of $8.6 million which was included in the loss (gain)
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on sale or disposal of assets or stations financial statement line item of the Company's Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023.
WFAS Sale
On February 6, 2023, the Company completed the sale of WFAS-FM, in Bronxville, NY (the "WFAS Sale") for $7.3 million in cash. The Company recorded a gain on the WFAS Sale of $7.1 million which was included in the loss (gain) on sale or disposal of assets or stations financial statement line item of the Company's Condensed Consolidated Statements of Operations for the nine months ended September 30, 2023.
3. Revenues
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.
The following table presents revenues disaggregated by revenue source (dollars in thousands):
Three Months Ended September 30,
2024 2023
Broadcast radio revenue:
Spot $ 96,397 $ 105,890
Network 42,564 40,360
Total broadcast radio revenue 138,961 146,250
Digital 40,020 37,215
Other 24,617 23,954
Net revenue $ 203,598 $ 207,419
Nine Months Ended September 30,
2024 2023
Broadcast radio revenue:
Spot $ 288,776 $ 310,668
Network 126,032 130,355
Total broadcast radio revenue 414,808 441,023
Digital 113,864 106,842
Other 79,828 75,382
Net revenue $ 608,500 $ 623,247
Broadcast Radio Revenue
Most of our revenue is generated through the sale of terrestrial, broadcast radio spot advertising time to local, regional, and national clients. 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 to reach a broader national audience.
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 streaming audio advertising networks in the U.S., including owned and operated internet radio simulcasted stations with either digital ad-inserted or simulcasted ads. We sell display ads across local radio station websites, mobile applications, and ancillary custom client microsites. In addition, we sell an array of local digital marketing services to new and existing advertisers such as, email marketing, geo-targeted display, video solutions and search engine marketing within our Cumulus C-Suite portfolio, and website and microsite building and hosting, social media management, reputation management, listing management, and search engine optimization within our Boost product suite.
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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, and proprietary software licensing.
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 three months ended September 30, 2024 and 2023, amounts reflected under trade and barter transactions were: (1) trade and barter revenues of $14.5 million and $13.2 million, respectively; and (2) trade and barter expenses of $15.9 million and $13.2 million, respectively. For the nine months ended September 30, 2024 and 2023, amounts reflected under trade and barter transactions were: (1) trade and barter revenues of $47.9 million and $41.7 million, respectively; and (2) trade and barter expenses of $45.9 million and $41.2 million, respectively.
Capitalized Costs of Obtaining a Contract
The Company capitalizes certain incremental costs of obtaining contracts with customers which it expects to recover. For new local direct contracts where the new and renewal commission rates are not commensurate, management capitalizes commissions and amortizes the capitalized commissions over the average customer life. These costs are recorded within selling, general and administrative expenses in our unaudited Condensed Consolidated Statements of Operations. As of September 30, 2024 and December 31, 2023, the Company recorded an asset of approximately $6.3 million and $6.5 million, respectively, related to the unamortized portion of commission expense on new local direct revenue.
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4. Intangible Assets
The gross carrying amount and accumulated amortization of the Company's intangible assets as of September 30, 2024 and December 31, 2023 are as follows (dollars in thousands):
Indefinite-Lived Definite-Lived Total
Gross Carrying Amount Broadcast licenses Trademarks Affiliate and producer relationships Tower income contracts
Balance as of December 31, 2023
$ 741,716 $ 19,020 $ 145,000 $ 13,507 $ 919,243
Dispositions (81) (1) - (2) (84)
Balance as of September 30, 2024
$ 741,635 $ 19,019 $ 145,000 $ 13,505 $ 919,159
Accumulated Amortization
Balance as of December 31, 2023
$ - $ - $ (73,235) $ (8,379) $ (81,614)
Amortization expense - - (11,114) (1,124) (12,238)
Balance as of September 30, 2024
$ - $ - $ (84,349) $ (9,503) $ (93,852)
Net Book Value as of September 30, 2024
$ 741,635 $ 19,019 $ 60,651 $ 4,002 $ 825,307
The Company performs impairment testing of its indefinite-lived intangible assets annually as of December 31 of each year and on an interim basis if events or circumstances indicate that its indefinite-lived intangible assets may be impaired. The Company reviews the carrying amount of its definite-lived intangible assets for recoverability whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. Events and circumstances did not necessitate any interim impairment tests during the nine months ended September 30, 2024 and 2023, respectively. We will continue to monitor changes in economic and market conditions, and if any events or circumstances indicate a triggering event has occurred, we will perform an interim impairment test of our intangible assets at the appropriate time.
5. Long-Term Debt
The Company's long-term debt consisted of the following as of September 30, 2024 and December 31, 2023 (dollars in thousands):
September 30, 2024 December 31, 2023
Term Loan due 2026 $ 1,203 $ 329,510
Senior Notes due 2026 22,697 346,245
Term Loan due 2029 (1)
327,205 -
Senior Notes due 2029 (2)
321,889 -
Less: Total unamortized debt issuance costs (2,681) (3,331)
Long-term debt, net $ 670,313 $ 672,424
Future maturities of the Company's long-term debt obligations as of September 30, 2024 are as follows (dollars in thousands):
2024 $ -
2025 -
2026 23,900
2027 -
2028 -
Thereafter (1) (2)
618,217
Total $ 642,117
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(1) As a result of the Exchange Offer (as defined below), $328.3 million of principal was exchanged for $311.8 million of principal resulting in a difference of $16.5 million which will be amortized to interest expense (thereby reducing interest expense) over the life of the debt. As of September 30, 2024, $15.4 million of the difference is unamortized.
(2) As a result of the Exchange Offer, $323.0 million of principal was exchanged for $306.4 million of principal resulting in a difference of $16.6 million which will be amortized to interest expense (thereby reducing interest expense) over the life of the debt. As of September 30, 2024, $15.5 million of the difference is unamortized.
2026 Credit Agreement (Term Loan due 2026)
On September 26, 2019, the Company entered into a credit agreement by and among Cumulus Media Intermediate, Inc. ("Intermediate Holdings"), a direct wholly-owned subsidiary of the Company, Cumulus Media New Holdings Inc., a Delaware corporation and an indirect 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 "2026 Credit Agreement"). Pursuant to the 2026 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"). On June 9, 2023, Intermediate Holdings and certain of the Company's other subsidiaries (collectively, with Holdings and Intermediate Holdings, the ("Credit Parties") entered into a second amendment ("Amendment No. 2") to the 2026 Credit Agreement. Amendment No. 2, among other things, modifies certain terms of the Term Loan due 2026 to replace the relevant benchmark provisions from the London Interbank Offered Rate ("LIBOR") to the Secured Overnight Financing Rate ("SOFR").
Prior to the execution of Amendment No. 2, amounts outstanding under the 2026 Credit Agreement bore interest at a per annum rate equal to (i) the London Inter-bank Offered Rate ("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 the Federal Reserve Bank of New York, plus 1/2 of 1.0%, (ii) the rate identified by Bank of America, N.A. as its "Prime Rate" and (iii) one-month LIBOR plus 1.00%. Subsequent to the execution of Amendment No. 2, amounts outstanding under the 2026 Credit Agreement bore interest at a per annum rate equal to (i) SOFR plus a SOFR Adjustment, subject to a SOFR floor of 1.00%, and an applicable margin of 3.75%, or (ii) the Alternative Base Rate. As of September 30, 2024, the Term Loan due 2026 bore interest at a rate of 8.71% 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, the Company is no longer required to make such quarterly installments. The maturity date of the Term Loan due 2026 is March 31, 2026.
In connection with the Term Loan Exchange Offer (as defined below), Holdings also solicited consents from lenders of the Term Loan due 2026 to make certain proposed amendments to the 2026 Credit Agreement which eliminated substantially all restrictive covenants, eliminated certain events of default, subordinated the liens on the collateral to the liens securing the Term Loan due 2029 and the Senior Notes due 2029 and modified or eliminated certain other provisions. After receiving the requisite consents, on May 2, 2024, Holdings entered into an exchange agreement effectuating such amendment.
During the nine months ended September 30, 2023, the Company repaid $8.9 million principal amount of the Term Loan due 2026. The repayment resulted in a gain on extinguishment of debt of $1.0 million. The Term Loan due 2026 was repaid with cash on hand. The Company wrote-off debt issuance costs as a result of the repayment which were not material.
As of September 30, 2024, we were in compliance with all required covenants under the 2026 Credit Agreement.
2029 Credit Agreement (Term Loan Due 2029)
On May 2, 2024, Holdings completed its previously announced offer (the "Term Loan Exchange Offer" and, together with the Notes Exchange Offer, the "Exchange Offer") to exchange its Term Loan due 2026, for new senior secured term loans due May 2, 2029 (the "Term Loan due 2029") issued under a new credit agreement. In connection with the Term Loan Exchange Offer, Holdings exchanged $328.3 million in aggregate principal amount of the Term Loan due 2026 for $311.8 million in aggregate principal amount of the Term Loan due 2029. After giving effect to the Term Loan Exchange Offer, including fees and expenses, as of May 2, 2024, there was $1.2 million in aggregate principal amount outstanding under Term Loan due 2026 and $311.8 million in aggregate principal amount outstanding under the Term Loan due 2029.
Upon consummation of the Term Loan Exchange Offer, Holdings entered into a new term loan credit agreement (the "2029 Credit Agreement"), by and among Holdings, Intermediate 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 maturity
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date of the Term Loan due 2029 is May 2, 2029, and amounts outstanding thereunder bear interest at a per annum rate equal to (i) SOFR, subject to a SOFR floor of 1.00%, and an applicable margin of 5.00%, or (ii) the Alternative Base (as defined therein) and an applicable margin of 4.00%. Subject to certain exceptions, the 2029 Credit Agreement has substantially similar representations and events of default as the 2026 Credit Agreement has (prior to giving effect to the Term Loan Exchange Offer). As of September 30, 2024, the Term Loan due 2029 bore interest at a rate of 10.24% per annum.
The 2029 Credit Agreement contains customary terms and conditions as well as various affirmative, negative and financial covenants that, among other things, may restrict the ability of us and our subsidiaries to incur additional indebtedness, pay dividends or repurchase stock. The Term Loan due 2029 and related guarantees are secured by first-priority (with respect to the Term Loan Priority Collateral (as defined in the 2029 Credit Agreement)) and second-priority (with respect to the ABL Priority Collateral (as defined in the 2029 Credit Agreement)) security interests in, subject to permitted liens and certain exceptions, substantially all of the existing and future assets of Holdings and the Existing Guarantors, which assets also secure the 2020 Revolving Credit Agreement (as defined below) and the Senior Notes due 2029 and do not secure the Senior Notes due 2026. In addition, the Term Loan due 2029 is guaranteed by certain subsidiaries that are designated as unrestricted under the Term Loan due 2026 and the Senior Notes due 2026 and secured by first-priority security interests in, subject to permitted liens and certain exceptions, the assets of such subsidiaries. The Senior Notes due 2026 and Term Loan due 2026 do not have the benefit of such additional guarantees and collateral.
The exchange was accounted for as a modification resulting in a prospective yield adjustment, in accordance with ASC 470-50, and the carrying value was not changed. The $16.5 million difference between the carrying value of exchanged Term Loan due 2026 and Term Loan due 2029, as well as previously deferred issuance costs, will be amortized over the term of the Term Loan due 2029 utilizing the effective interest method (thereby reducing interest expense). Previously deferred issuance costs for the Term Loan due 2026 that were not exchanged were not material and written off at the time of the exchange. As the Term Loan Exchange Offer was accounted for as a modification, fees paid to third-parties were expensed.
As of September 30, 2024, we were in compliance with all required covenants under the 2029 Credit Agreement.
2020 Revolving Credit Agreement
On March 6, 2020, Holdings and certain of the Company's other subsidiaries, as borrowers (the "Borrowers"), and Intermediate 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 of March 6, 2020, with Fifth Third Bank, as a lender and Administrative Agent and certain other lenders from time to time party thereto. On May 2, 2024, the Borrowers and Intermediate Holdings entered into a sixth amendment (the "Sixth Amendment") to the 2020 Revolving Credit Agreement which, among other things, (i) extended the maturity date of all borrowings under the 2020 Revolving Credit Facility to March 1, 2029, provided, that if any indebtedness for borrowed money of Holdings or one of its restricted subsidiaries with an aggregate principal amount in excess of the lesser of (A) $50.0 million and (B) the greater of (x) $35.0 million and (y) the aggregate principal amount of indebtedness outstanding under the 2026 Credit Agreement and the 2026 Notes Indenture (as defined below) is outstanding on the date that is 90 days prior to the stated maturity of such indebtedness (each such date, a "Springing Maturity Date"), then the Initial Maturity Date shall instead be such Springing Maturity Date, and (ii) increased the aggregate commitments under the 2020 Revolving Credit Agreement to $125.0 million. Except as modified by the Sixth Amendment, the existing terms of the 2020 Revolving Credit Agreement remained in effect.
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 SOFR plus (i) 0.10% and (ii) 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" by Fifth Third Bank. In addition, the unused portion of the 2020 Revolving Credit Facility will be subject to a commitment fee of 0.25%.
As of September 30, 2024, $4.4 million was outstanding under the 2020 Revolving Credit Facility, representing letters of credit. As of September 30, 2024, Holdings was in compliance with all required covenants under the 2020 Revolving Credit Agreement.
Senior Notes due 2026
On June 26, 2019, Holdings and certain of the Company's other subsidiaries, entered into an indenture, dated as of June 26, 2019 (the "2026 Notes Indenture") with U.S. Bank National Association, as trustee, governing the terms of the
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Holdings' $500,000,000 aggregate principal amount of 6.75% Senior Secured First-Lien Notes due 2026 (the "Senior Notes due 2026"). The Senior Notes due 2026 were issued on June 26, 2019. The net proceeds from the issuance of the Senior Notes due 2026 were applied to partially repay existing indebtedness under the Term Loan due 2022. In conjunction with the issuance of the Senior Notes due 2026, debt issuance costs of $7.3 million were capitalized and are being amortized over the term of the Senior Notes due 2026.
Interest on the Senior Notes due 2026 is payable on January 1 and July 1 of each year, commencing on January 1, 2020. The Senior Notes due 2026 mature on July 1, 2026.
In connection with the Notes Exchange Offer (as defined below), Holdings solicited consents from holders of the Senior Notes due 2026 to certain proposed amendments to the 2026 Notes Indenture (such amendments, the "Proposed Amendments"), which, among other things, eliminated substantially all restrictive covenants, eliminated certain events of default, modified or eliminated certain other provisions, and released all the collateral securing the Senior Notes due 2026. As a result of receiving consents from holders representing over 66 2/3% of the Senior Notes due 2026, Holdings entered into the First Supplemental Indenture, dated as of May 2, 2024, between Holdings and the U.S. Bank Trust Company, National Association, as trustee, containing such Proposed Amendments.
During the nine months ended September 30, 2024, the Company repaid $0.5 million principal amount of the Senior Notes due 2026. The repayment resulted in a gain on extinguishment of debt of $0.2 million. The Senior Notes due 2026 were repaid with cash on hand. The Company wrote-off debt issuance costs as a result of the repayment which were not material.
During the nine months ended September 30, 2023, the Company repaid $34.7 million principal amount of the Senior Notes due 2026. The repayments resulted in a gain on extinguishment of debt of $8.8 million. The Senior Notes due 2026 were repaid with cash on hand. The Company wrote-off $0.3 million of debt issuance costs as a result of the repayment.
As of September 30, 2024, Holdings was in compliance with all required covenants under the Indenture.
Senior Notes due 2029
On May 2, 2024, Holdings consummated its previously announced offer (the "Notes Exchange Offer") to exchange any and all of its outstanding Senior Notes due 2026 for new 8.00% Senior Secured First-Lien Notes due 2029 (the "Senior Notes due 2029"). In connection with the Notes Exchange Offer, Holdings accepted $323.0 million in aggregate principal amount of Senior Notes due 2026 tendered in the Notes Exchange Offer in exchange for $306.4 million in aggregate principal amount of Senior Notes due 2029. After giving effect to the Notes Exchange Offer, including fees and expenses, as of May 2, 2024, there was $23.2 million in aggregate principal amount of Senior Notes due 2026 outstanding and $306.4 million in aggregate principal amount of Senior Notes due 2029 outstanding.
The Senior Notes due 2029 were issued pursuant to an Indenture (the "2029 Notes Indenture"), dated as of May 2, 2024, by and among Holdings, the guarantors party thereto, and U.S. Bank Trust Company, National Association, as trustee. Interest on the Senior Notes due 2029 is payable on March 15 and September 15 of each year, commencing on September 15, 2024. The Senior Notes due 2029 mature on July 1, 2029. Holdings may redeem the Senior Notes due 2029, in whole or in part, at any time at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but excluding, the date of redemption.
The Senior Notes due 2029 are fully and unconditionally guaranteed by Intermediate Holdings and the present and future wholly-owned restricted subsidiaries of Holdings (the "Senior Notes Guarantors"), subject to the terms of the 2029 Notes Indenture. Other than certain assets secured on a first priority basis under the 2020 Revolving Credit Facility (as to which the Senior Notes due 2029 are secured on a second-priority basis), the Senior Notes due 2029 and related guarantees are secured on a first-priority basis pari passu with the Term Loan due 2029 (subject to certain exceptions) by liens on substantially all of the assets of the Holdings and the Senior Notes Guarantors.
The 2029 Notes Indenture contains customary terms and conditions as well as various affirmative, negative and financial covenants that, among other things, may restrict the ability of us and our subsidiaries to incur additional indebtedness, pay dividends or repurchase stock. A default under the Senior Notes due 2029 could cause a default under the 2029 Credit Agreement.
The exchange was accounted for as a modification resulting in a prospective yield adjustment, in accordance with ASC 470-50, and the carrying value was not changed. The $16.6 million difference between the carrying value of exchanged Senior Notes due 2026 and Senior Notes due 2029 will be amortized over the term of the Senior Notes due 2029 utilizing the effective interest method (thereby reducing interest expense). Previously deferred issuance costs for the Senior Notes due 2026 that were
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not exchanged will continue to be amortized over the term of the Senior Notes due 2026. As the Notes Exchange Offer was accounted for as a modification, fees paid to third-parties were expensed.
As of September 30, 2024, Holdings was in compliance with all required covenants under the 2029 Notes Indenture.
The Senior Notes due 2026 and the Senior Notes due 2029 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 Senior Notes due 2029 for resale under the Securities Act of 1933, as amended (the "Securities Act"), or the securities laws of any other jurisdiction and is not required to exchange the Senior Notes due 2026 or the Senior Notes due 2029 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 the Securities and Exchange Commission ("SEC") is not applicable and no separate financial statements are required for the guarantor subsidiaries.
6. Fair Value Measurements
The following table shows the gross amount and fair value of the Term Loans due 2026 and 2029 and the Senior Notes due 2026 and 2029 based on third party trading prices (dollars in thousands):
September 30, 2024 December 31, 2023
Term Loan due 2026:
Gross value $ 1,203 $ 329,510
Fair value - Level 2 $ 541 $ 250,428
Term Loan due 2029:
Gross value $ 327,205 $ -
Fair value - Level 2 $ 141,516 $ -
Senior Notes due 2026:
Gross value $ 22,697 $ 346,245
Fair value - Level 2 $ 17,847 $ 231,119
Senior Notes due 2029:
Gross value $ 321,889 $ -
Fair value - Level 2 $ 128,756 $ -
The Company invests in governmental money market funds that have a maturity of three months or less at the date of purchase which are classified as cash equivalents. Due to the short maturity, the Company believes the carrying amount of the cash equivalents approximates fair value. The following table details the fair value measurements of the Company's investments as of September 30, 2024 and December 31, 2023 (dollars in thousands):
Level 1 Level 2 Level 3
September 30, 2024 December 31, 2023 September 30, 2024 December 31, 2023 September 30, 2024 December 31, 2023
Cash equivalents $ - $ 49,092 $ - $ - $ - $ -
7. Income Taxes
For the three months ended September 30, 2024, the Company recorded an immaterial income tax benefit on pre-tax book loss of $10.4 million, resulting in an effective tax rate of approximately 0.4%. For the three months ended September 30, 2023, the Company recorded an income tax benefit of $1.6 million on pre-tax book income of $1.2 million, resulting in an effective tax rate of approximately (132.3)%.
For the nine months ended September 30, 2024, the Company recorded an income tax expense of $2.2 million on pre-tax book loss of $49.9 million, resulting in an effective tax rate of approximately (4.5)%. For the nine months ended September 30, 2023, the Company recorded an income tax benefit of $0.6 million on pre-tax book loss of $20.4 million, resulting in an effective tax rate of approximately 2.8%.
The differences between the effective tax rates and the federal statutory rate of 21.0% for the three and nine month periods ended September 30, 2024 and 2023, primarily relate to the valuation allowance recognized during the year and
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discussed further below, changes to our projected full year effective tax rate, state and local income taxes, and the effect of certain statutory non-deductible expenses.
The Company recognizes the benefits of deferred tax assets only as its assessment indicates that it is more likely than not that the deferred tax assets will be recognized in accordance with ASC Topic 740, Income Taxes. The Company reviews the available positive and negative evidence to estimate whether sufficient future taxable income will be generated to utilize existing deferred tax assets. As of September 30, 2024 and December 31, 2023, the Company recorded a valuation allowance against its deferred tax assets related to a portion of disallowed interest expense carryforwards and other attributes generated during the year because it is more likely than not that some of the tax benefits of these assets will not be realized in the future. The Company will continue to monitor the valuation of deferred tax assets and tax liabilities, which requires judgment in assessing the likely future tax consequences of events that are recognized in the Company's financial statements or tax returns as well as judgment in projecting future profitability.
8. Stockholders' Equity
Common Stock
Pursuant to the Company's Charter, the Company is authorized to issue an aggregate of 300,000,000 shares of stock divided into three classes consisting of: (i) 100,000,000 shares of new Class A common stock; (ii) 100,000,000 shares of new Class B common stock; and (iii) 100,000,000 shares of preferred stock.
As of September 30, 2024, the Company had 22,466,879 aggregate issued shares of common stock, and 16,985,663 outstanding shares consisting of: (i) 22,154,838 issued shares and 16,673,622 outstanding shares designated as Class A common stock; and (ii) 312,041 issued and outstanding shares designated as Class B common stock.
Shareholder Rights Plan
On February 21, 2024, our Board adopted a rights plan and declared a dividend of (a) one Class A right (a "Class A Right") in respect of each share of the Company's Class A common stock, par value $0.0000001 per share (the "Class A Common Shares") and (b) one Class B right (a "Class B Right," and, together with the Class A Rights, the "Rights") in respect of each share of the Company's Class B common stock, par value $0.0000001 per share (the "Class B Common Shares" and together with the Class A Common Shares, the "Common Shares"). The dividend distribution was made on March 4, 2024 to the Company's stockholders of record on that date. The terms of the Rights and the rights plan are set forth in a Stockholder Rights Agreement, dated as of February 21, 2024 (the "Rights Agreement"), by and between the Company and Continental Stock Transfer & Trust Company, as rights agent (or any successor rights agent), as it may be amended from time to time.
In the event that a person or group that is or becomes the beneficial owner of 15% or more of the Company's outstanding Class A Common Shares without prior approval of the Board, subject to certain exceptions (such person or group, an "Acquiring Person"), (a) each Class A Right would allow its holder to purchase from the Company one ten-thousandth of a Class A Common Share for a purchase price of $25.00 and (b) each Class B Right would allow its holder to purchase from the Company one ten-thousandth of a Class B Common Share for a purchase price of $25.00. Prior to exercise, a Right does not give its holder any dividend, voting or liquidation rights.
After the date that the Rights become exercisable (the "Distribution Date"), if a person or group is or becomes an Acquiring Person, all holders of Rights, except the Acquiring Person, may exercise their (a) Class A Rights, upon payment of the applicable purchase price, to purchase Class A Common Shares (or other securities or assets as determined by the Board) with a market value of two times the applicable purchase price, and (b) Class B Rights, upon payment of the applicable purchase price, to purchase Class B Common Shares (or other securities or assets as determined by the Board) with a market value of two times the applicable purchase price. After the date that the Rights become exercisable, if a flip-in event has already occurred and the Company is acquired in a merger or similar transaction, all holders of Rights, except such Acquiring Person, may exercise their Rights, upon payment of the purchase price, to purchase shares of the acquiring corporation with a market value of two times the applicable purchase price of the Rights.
In addition, after the later of the Distribution Date and the date of the Company's first public announcement that a person or group has become an Acquiring Person, the Board may exchange each Right (other than Rights that have become null and void) at an exchange ratio of (a) one Class A Common Share per Class A Right and (b) one Class B Common Share per Class B Right. The Board may redeem all (but not less than all) of the Rights for a redemption price of $0.001 per Right at any time before the date of the Company's first public announcement or disclosure that a person or group has become an Acquiring Person.
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The Board may adjust the purchase price of Common Shares, the number of Common Shares issuable and the number of outstanding Rights to prevent dilution that may occur as a result of certain events, including among others, a stock dividend, a stock split or a reclassification of the Company's Common Shares. No adjustments to the purchase price of less than 1% will be made. Before the time Rights cease to be redeemable, the Board may amend or supplement the Rights Agreement without the consent of the holders of the Rights, except that no amendment may decrease the Redemption Price below $0.001 per Right. At any time thereafter, the Board may amend or supplement the Rights Agreement to cure an ambiguity, to alter time period provisions, to correct inconsistent provisions or to make any additional changes to the Rights Agreement, to the extent that those changes do not impair or adversely affect any Rights holder and do not result in the Rights again becoming redeemable. The limitations on the Board's ability to amend the Rights Agreement do not affect the Board's power or ability to take any other action that is consistent with its fiduciary duties and the terms of the Rights Agreement, including without limitation, accelerating or extending the Expiration Date of the Rights, making any amendment to the Rights Agreement that is permitted by the Rights Agreement or adopting a new Rights Agreement with such terms as the Board determines in its sole discretion to be appropriate. Unless earlier redeemed or exchanged, the Rights will expire on February 20, 2025.
Share Repurchase Program
On May 4, 2022, the Board of Directors authorized a share repurchase program (the "Prior Share Repurchase Authorization") for up to $50.0 million of outstanding Class A common stock. Under the Prior Share Repurchase Authorization, on May 12, 2023, the Company commenced a modified Dutch tender offer to purchase up to $10.0 million of shares of its Class A common stock at a price not greater than $3.25 and not less than $2.85 per share of Class A common stock, to the tendering shareholder in cash, less any applicable withholding taxes and without interest (the "2023 Offer"). The 2023 Offer expired on June 9, 2023. Through the 2023 Offer, the Company accepted for payment a total of 1,745,005 shares of the Company's Class A Common stock at a purchase price of $3.25 per share, for an aggregate cost of approximately $5.7 million, excluding fees and expenses.The Prior Share Repurchase Authorization expired on November 3, 2023.
On October 27, 2023, the Company announced that the Board of Directors authorized a new share repurchase program (the "Current Share Repurchase Authorization") for up to $25.0 million of outstanding Class A common stock. The Current Share Repurchase Authorization superseded and replaced our Prior Share Repurchase Authorization, and expires on May 15, 2025. Purchases made pursuant to the program may be made from time to time, at the Company's discretion, in the open market, through privately negotiated transactions or through other manners as permitted by federal securities laws including, but not limited to, 10b5-1 trading plans, accelerated stock repurchase programs and tender offers. The extent that the Company repurchases its shares, the number of shares and the timing of any repurchases will depend on general economic and market conditions, regulatory and legal requirements, alternative investment opportunities and other considerations. The repurchase program does not require the Company to repurchase a minimum number of shares, and it may be modified, suspended or terminated at any time without prior notice. We are currently subject to significant restrictions under the terms of our debt agreements with respect to payment to repurchase shares of our common stock. See "Note 5 - Long-Term Debt" for further discussion of the restrictions in our debt agreements.
During the nine months ended September 30, 2024, the Company did not repurchase any shares of its outstanding Class A Common stock in the open market. During the nine months ended September 30, 2023, the Company repurchased 323,285 shares of its outstanding Class A common stock in the open market at an average purchase price of $4.65 per share for an aggregate cost of approximately $1.5 million, excluding fees and expenses. Shares repurchased were accounted for as treasury stock, and the total cost of shares repurchased was recorded as a reduction of stockholder's equity in the unaudited condensed consolidated balance sheet.
The Inflation Reduction Act of 2022, which was enacted into law on August 16, 2022, imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022. Excise tax is owed on the fair market value of stock repurchases reduced by the fair market value of stock issued, subject to a $1,000,000 de minimis exception. Excise tax owed on shares repurchased during the nine months ended September 30, 2023, was not material.
As of September 30, 2024, $25.0 million of the Company's outstanding Class A common stock remained available for repurchase under the share repurchase program, subject to restrictions under the terms of our debt agreements.
9. (Loss) Earnings Per Share
The Company calculates basic (loss) earnings per share by dividing net (loss) earnings by the weighted average number of common shares outstanding. The Company calculates diluted (loss) earnings per share by dividing net (loss) earnings by the weighted average number of common shares outstanding plus the dilutive effect of all outstanding share-based awards, including stock options and restricted stock awards.
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For the three and nine months ended September 30, 2024 and nine months ended 2023, given the net loss attributable to the Company common stockholders, potential common shares that would have caused dilution, such as employee stock options, restricted shares and other stock awards, were excluded from the diluted share count because their effect would have been anti-dilutive. For the three months ended September 30, 2023, potential common shares related to the Company's stock options were excluded from the diluted share count as the exercise price of the options was greater than the average market price of the common shares and, as such, their effect would have been anti-dilutive.
The Company applies the two-class method to calculate (loss) earnings per share. Because both classes share the same rights in dividends and losses, (loss) earnings per share (basic and diluted) is the same for both classes.
The following tables present the basic and diluted (loss) earnings per share, and the reconciliation of basic to diluted weighted average common shares (in thousands):
Three Months Ended September 30,
2024 2023
Basic (Loss) Earnings Per Share
Numerator:
Undistributed net (loss) income from operations $ (10,321) $ 2,722
Basic net (loss) income attributable to common shares $ (10,321) $ 2,722
Denominator:
Basic weighted average shares outstanding 16,937 16,467
Basic undistributed net (loss) income per share attributable to common shares $ (0.61) $ 0.17
Diluted (Loss) Earnings Per Share
Numerator:
Undistributed net (loss) income from operations $ (10,321) $ 2,722
Diluted net (loss) income attributable to common shares $ (10,321) $ 2,722
Denominator:
Basic weighted average shares outstanding 16,937 16,467
Effect of dilutive options and restricted share units - 35
Diluted weighted average shares outstanding 16,937 16,502
Diluted undistributed net (loss) income per share attributable to common shares $ (0.61) $ 0.16
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Nine Months Ended September 30,
2024 2023
Basic Loss Per Share
Numerator:
Undistributed net loss from operations $ (52,174) $ (19,813)
Basic net loss attributable to common shares $ (52,174) $ (19,813)
Denominator:
Basic weighted average shares outstanding 16,837 17,525
Basic undistributed net loss per share attributable to common shares $ (3.10) $ (1.13)
Diluted Loss Per Share
Numerator:
Undistributed net loss from operations $ (52,174) $ (19,813)
Diluted net loss attributable to common shares $ (52,174) $ (19,813)
Denominator:
Basic weighted average shares outstanding 16,837 17,525
Effect of dilutive options and restricted share units - -
Diluted weighted average shares outstanding 16,837 17,525
Diluted undistributed net loss per share attributable to common shares $ (3.10) $ (1.13)
10. Commitments and Contingencies
Legal Proceedings
We currently are, and expect in the future to be, a party to various legal proceedings, arbitrations, 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. When a loss contingency is not both probable and reasonably estimable, we do not record a loss accrual.
If the loss (or an additional loss in excess of any prior accrual) is reasonably possible and material, we disclose an estimate of the possible loss or range of loss, if such estimate can be made. The assessment of whether a loss is probable or reasonably possible and whether the loss or a range of loss is estimable, involves a series of judgments about future events, which are often complex. Even if a loss is reasonably possible, we may not be able to estimate a range of possible loss, particularly where (i) the damages sought are substantial or indeterminate, (ii) the proceedings are in the early stages, (iii) the matters involve novel or unsettled legal theories or a large number of parties, or (iv) various factors outside of our control could lead to vastly different outcomes. In such cases, there is considerable uncertainty regarding the ultimate resolution of such matters, including the amount of any possible loss.
Alien Ownership Restrictions and FCC Petition for Declaratory Ruling
The Communications Act of 1934 and Federal Communications Commission ("FCC") regulation prohibit foreign entities and individuals from having direct or indirect ownership or voting rights of more than 25% in a corporation controlling the licensee of a radio broadcast station unless the FCC finds greater foreign ownership to be in the public interest. The Company previously filed a petition for declaratory relief (the "PDR") requesting the FCC to permit the Company to be up to 100% foreign-owned.
As previously disclosed, on May 29, 2020, the Media Bureau of the FCC issued a Declaratory Ruling (the "Declaratory Ruling") granting the relief requested in the PDR. The Declaratory Ruling permits up to 100% of the Company's equity and voting stock to be owned by non-U.S. persons, subject to the condition that the Company obtain specific FCC approval for any non-U.S. individual, entity or group to hold, directly or indirectly, more than 5% (or in the case of certain institutional investors 10%) of the Company's equity or voting stock, or a controlling interest in the Company.
On February 23, 2024, the Company filed a remedial petition for declaratory ruling (the "Remedial PDR") with the FCC. The Remedial PDR relates to the acquisition by Renew Private Group Ltd. (together with its affiliates, the "Group") of the
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Company's outstanding Class A shares. Specifically, on January 24, 2024, the Group filed a Schedule 13D with the SEC, in which the Group disclosed beneficial ownership of 1,621,426 shares of the Company's Class A shares, representing 10.01% of the Company's outstanding Class A shares. This ownership interest is inconsistent with the FCC's foreign ownership rules and the Declaratory Ruling issued by the FCC relating to the Company's foreign ownership on May 29, 2020, both of which limit a foreign investor in the Group's position to holding no more than 5% of the Company's voting equity or total equity without prior FCC approval. The Remedial PDR, which was filed pursuant to the rules and regulations of the FCC, seeks (a) specific approval for the more than 5% equity and voting interests in the Company presently held by the Group and (b) advance approval for the Group to increase their equity and voting interest in the Company up to any non-controlling amount not to exceed 14.99%. The Remedial PDR remains pending before the FCC.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
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-Q, including our unaudited Condensed Consolidated Financial Statements and notes thereto included elsewhere in this Form 10-Q, as well as our audited Consolidated Financial Statements and notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2023 ("2023 Form 10-K"), filed with the SEC. This discussion, as well as various other sections of this Form 10-Q, contain and refer 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. These risks and uncertainties include, but are not limited to, those described in Part I, "Item 1A. Risk Factors," and elsewhere in our 2023 Form 10-K and elsewhere in this report, and those described from time to time in other reports filed with the SEC. 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" in our 2023 Form 10-K.
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 a 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 credit agreements.
In determining Adjusted EBITDA, we exclude the following from net 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, 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.
Adjusted EBITDA should not be considered in isolation or as a substitute for net (loss) income, 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.
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Consolidated Results of Operations
Analysis of Consolidated Results of Operations
The following selected data from our unaudited Condensed 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 unaudited Condensed Consolidated Statements of Operations and notes thereto appearing elsewhere herein (dollars in thousands).
Three Months Ended September 30,
2024 2023
2024 vs 2023 Change
$ %
STATEMENT OF OPERATIONS DATA:
Net revenue $ 203,598 $ 207,419 $ (3,821) (1.8) %
Content costs 76,368 76,740 (372) (0.5) %
Selling, general and administrative expenses 93,890 91,834 2,056 2.2 %
Depreciation and amortization 14,721 13,950 771 5.5 %
Corporate expenses 11,934 15,926 (3,992) (25.1) %
Loss (gain) on sale or disposal of assets or stations 6 (8,614) 8,620 N/A
Operating income 6,679 17,583 (10,904) (62.0) %
Interest expense (17,043) (17,862) 819 4.6 %
Interest income 34 634 (600) (94.6) %
Gain on early extinguishment of debt - 843 (843) (100.0) %
Other expense, net (32) (26) (6) (23.1) %
(Loss) income before income taxes (10,362) 1,172 (11,534) N/A
Income tax benefit 41 1,550 (1,509) (97.4) %
Net (loss) income $ (10,321) $ 2,722 $ (13,043) N/A
KEY NON-GAAP FINANCIAL METRIC:
Adjusted EBITDA $ 24,051 $ 26,925 $ (2,874) (10.7) %
Nine Months Ended September 30,
2024 2023
2024 vs 2023 Change
$ %
STATEMENT OF OPERATIONS DATA:
Net revenue $ 608,500 $ 623,247 $ (14,747) (2.4) %
Content costs 235,056 238,939 (3,883) (1.6) %
Selling, general and administrative expenses 283,009 280,536 2,473 0.9 %
Depreciation and amortization 44,270 43,780 490 1.1 %
Corporate expenses 59,483 54,048 5,435 10.1 %
Loss (gain) on sale or disposal of assets or stations 60 (15,895) 15,955 N/A
Operating (loss) income (13,378) 21,839 (35,217) N/A
Interest expense (52,029) (53,468) 1,439 2.7 %
Interest income 526 1,715 (1,189) (69.3) %
Gain on early extinguishment of debt 170 9,849 (9,679) (98.3) %
Other income (expense), net 14,774 (312) 15,086 N/A
Loss before income taxes (49,937) (20,377) (29,560) (145.1) %
Income tax (expense) benefit (2,237) 564 (2,801) N/A
Net loss $ (52,174) $ (19,813) $ (32,361) (163.3) %
KEY NON-GAAP FINANCIAL METRIC:
Adjusted EBITDA $ 57,669 $ 67,930 $ (10,261) (15.1) %
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Three Months Ended September 30, 2024 compared to the Three Months Ended September 30, 2023
Net Revenue
Net revenue for the three months ended September 30, 2024, compared to net revenue for the three months ended September 30, 2023, decreased $3.8 million, or 1.8%. The decrease is primarily driven by a reduction in spot revenue of $9.5 million resulting from current macroeconomic conditions. This decrease was primarily offset by $2.8 million of higher digital advertising revenue largely driven by growth in digital marketing services, $2.2 million of increased network revenue resulting from improved sports advertising, and $0.7 million of incremental other revenue primarily from higher trade revenue.
Content Costs
Content costs consist of all costs related to the licensing, acquisition and development of our programming. Content costs for the three months ended September 30, 2024, compared to content costs for the three months ended September 30, 2023, decreased $0.4 million, or 0.5%, primarily as a result of reduced spend on third party station inventory and lower syndicated programming costs. These decreases were mostly offset by higher digital costs, which grew in line with digital advertising revenue.
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 three months ended September 30, 2024, compared to selling, general and administrative expenses for the three months ended September 30, 2023, increased $2.1 million, or 2.2%. Selling, general and administrative expenses increased primarily from higher trade expense.
Depreciation and Amortization
Depreciation and amortization expense for the three months ended September 30, 2024, as compared to depreciation and amortization expense for the three months ended September 30, 2023, increased $0.8 million, or 5.5%. Depreciation and amortization expense increased primarily as a result of additional fixed assets placed into service.
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 principally consist of audit, consulting and outside legal services. Corporate expenses also include restructuring costs and stock-based compensation expense. Corporate expenses for the three months ended September 30, 2024, compared to corporate expenses for the three months ended September 30, 2023, decreased $4.0 million, or 25.1%. Corporate expenses decreased primarily as a result of lower incentive compensation expense resulting from Company performance and lower restructuring expenses.
Loss (Gain) on Sale or Disposal of Assets or Stations
The loss on sale or disposal of assets or stations for the three months ended September 30, 2024, was not material.
The gain on sale or disposal of assets or stations for the three months ended September 30, 2023, was primarily related to the sale of WDRQ-FM.
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Interest Expense
Total interest expense for the three months ended September 30, 2024, decreased $0.8 million, or 4.6%, when compared to the total interest expense for the three months ended September 30, 2023. The below table details the components of our interest expense by debt instrument (dollars in thousands):
Three Months Ended September 30,
2024 2023 $ Change
Term Loan due 2026 $ 28 $ 7,945 $ (7,917)
Term Loan due 2029 8,050 - 8,050
Senior Notes due 2026 383 5,842 (5,459)
Senior Notes due 2029 6,127 - 6,127
Financing liabilities 3,551 3,569 (18)
Amortization of debt discount (1,370) - (1,370)
Other, including amortization and write-off of debt issuance costs 274 506 (232)
Interest expense $ 17,043 $ 17,862 $ (819)
Gain on Early Extinguishment of Debt
The gain on early extinguishment of debt for the three months ended September 30, 2023 of $0.8 million was driven by the Company's repurchases of $5.2 million principal amount of the Term Loan due 2026.
Other Expense
Other expense for the three months ended September 30, 2024 and 2023, was not material.
Income Tax Benefit
For the three months ended September 30, 2024, the Company recorded an immaterial income tax benefit on pre-tax book loss of $10.4 million, resulting in an effective tax rate of approximately 0.4%. For the three months ended September 30, 2023, the Company recorded an income tax benefit of $1.6 million on pre-tax book income of $1.2 million, resulting in an effective tax rate of approximately (132.3)%.
The differences between the effective tax rates and the federal statutory rate of 21.0% for the three month periods ended September 30, 2024 and 2023, primarily relate to the valuation allowance recognized, changes to our projected full year effective tax rate, state and local income taxes, and the effect of certain statutory non-deductible expenses.
Adjusted EBITDA
As a result of the factors described above, Adjusted EBITDA of $24.1 million for the three months ended September 30, 2024, compared to the Adjusted EBITDA of $26.9 million for the three months ended September 30, 2023, decreased $2.9 million.
Nine Months Ended September 30, 2024 compared to the Nine Months Ended September 30, 2023
Net Revenue
Net revenue for the nine months ended September 30, 2024, compared to net revenue for the nine months ended September 30, 2023, decreased $14.7 million, or 2.4%. The decrease is primarily driven by reductions in spot and network revenues of $21.9 million and $4.3 million, respectively, as a result of current macroeconomic conditions. These decreases were primarily offset by $7.0 million of higher digital advertising revenue largely driven by growth in digital marketing services and a $4.5 million increase in other revenue primarily resulting from higher trade revenue.
Content Costs
Content costs consist of all costs related to the licensing, acquisition and development of our programming. Content costs for the nine months ended September 30, 2024, compared to content costs for the nine months ended September 30, 2023, decreased $3.9 million, or 1.6%, primarily resulting from reductions in syndicated programming costs, third party station inventory, and music licensing fees, all driven by declining revenue. These decreases were partially offset by higher digital costs, which grew in line with digital advertising revenue.
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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 nine months ended September 30, 2024, compared to selling, general and administrative expenses for the nine months ended September 30, 2023, increased $2.5 million or 0.9%. Selling, general and administrative expenses increased from higher trade expense and higher personnel costs largely driven by an expanded digital sales force. These increases were partially offset by reduced research expense resulting from a contract renewal and lower rent expense arising from actions taken to reduce our real estate footprint.
Depreciation and Amortization
Depreciation and amortization expense for the nine months ended September 30, 2024, as compared to depreciation and amortization expense for the nine months ended September 30, 2023, increased $0.5 million, or 1.1%. Depreciation and amortization expense increased as a result of additional fixed assets placed into service which was mostly offset by certain definite-lived intangibles that were fully amortized during the second quarter of 2023.
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 principally consist of audit, consulting and outside legal services. Corporate expenses also include restructuring costs and stock-based compensation expense. Corporate expenses for the nine months ended September 30, 2024, compared to corporate expenses for the nine months ended September 30, 2023, increased $5.4 million, or 10.1%. Corporate expenses increased primarily from $16.4 million of debt exchange costs in 2024 and higher legal fees. These increases were partially offset by a $9.1 million impairment, recorded during the second quarter of 2023, for a certain lease which is expected to be sublet at an amount less than the current contractual agreement and lower incentive compensation expense resulting from Company performance.
Loss (Gain) on Sale or Disposal of Assets or Stations
The loss on sale or disposal of assets or stations for the nine months ended September 30, 2024, was not material.
The gain on sale or disposal of assets or stations for the nine months ended September 30, 2023, was primarily related to the sales of WDRQ-FM and WFAS-FM.
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Interest Expense
Total interest expense for the nine months ended September 30, 2024, decreased $1.4 million, or 2.7%, when compared to the total interest expense for the nine months ended September 30, 2023. The below table details the components of our interest expense by debt instrument (dollars in thousands):
Nine Months Ended September 30,
2024 2023 $ Change
Term Loan due 2026 $ 10,423 $ 22,557 $ (12,134)
Term Loan due 2029 13,554 - 13,554
Senior Notes due 2026 8,493 18,384 (9,891)
Senior Notes due 2029 10,144 - 10,144
Financing liabilities 10,545 10,782 (237)
Amortization of debt discount (2,261) - (2,261)
Other, including amortization and write-off of debt issuance costs 1,131 1,745 (614)
Interest expense $ 52,029 $ 53,468 $ (1,439)
Interest Income
Interest income for the nine months ended September 30, 2024, decreased $1.2 million, or 69.3% when compared to interest income for the nine months ended September 30, 2023. Interest income decreased as a result of reduced investment in government money market funds during 2024 when compared to 2023.
Gain on Early Extinguishment of Debt
The gain on early extinguishment of debt for the nine months ended September 30, 2024 of $0.2 million was driven by the Company's repurchase of $0.5 million principal amount of the Senior Notes due 2026.
The gain on early extinguishment of debt for the nine months ended September 30, 2023 of $9.8 million was primarily driven by the Company's repurchases of $34.7 million and $8.9 million principal amount of the 6.75% Senior Notes and Term Loan due 2026, respectively.
Other Income (Expense)
Other income for the nine months ended September 30, 2024, of $14.8 million, represents the gain recognized on the February 2024 sale of Broadcast Music, Inc. (the "BMI Sale") to a shareholder group led by New Mountain Capital, LLC.
Other expense for the nine months ended September 30, 2023, was not material.
Income Tax Expense (Benefit)
For the nine months ended September 30, 2024, the Company recorded an income tax expense of $2.2 million on pre-tax book loss of $49.9 million, resulting in an effective tax rate of approximately (4.5)%. For the nine months ended September 30, 2023, the Company recorded an income tax benefit of $0.6 million on pre-tax book loss of $20.4 million, resulting in an effective tax rate of approximately 2.8%.
The differences between the effective tax rates and the federal statutory rate of 21.0% for the nine month periods ended September 30, 2024 and 2023, primarily relate to the valuation allowance recognized during the year, changes to our projected full year effective tax rate, state and local income taxes, and the effect of certain statutory non-deductible expenses.
Adjusted EBITDA
As a result of the factors described above, Adjusted EBITDA of $57.7 million for the nine months ended September 30, 2024, compared to the Adjusted EBITDA of $67.9 million for the nine months ended September 30, 2023, decreased $10.3 million.
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Reconciliation of Non-GAAP Financial Measure
The following tables reconcile Adjusted EBITDA to net (loss) income (the most directly comparable financial measure calculated and presented in accordance with GAAP) as presented in the accompanying unaudited Condensed Consolidated Statements of Operations (dollars in thousands):
Three Months Ended September 30,
2024 2023
GAAP net (loss) income $ (10,321) $ 2,722
Income tax benefit (41) (1,550)
Non-operating expenses, including net interest expense 17,041 17,254
Depreciation and amortization 14,721 13,950
Stock-based compensation expense 1,049 1,471
Loss (gain) on sale or disposal of assets or stations 6 (8,614)
Gain on early extinguishment of debt - (843)
Restructuring costs 357 2,212
Debt exchange costs 98 -
Non-routine legal expenses 960 122
Franchise taxes 181 201
Adjusted EBITDA $ 24,051 $ 26,925
Nine Months Ended September 30,
2024 2023
GAAP net loss $ (52,174) $ (19,813)
Income tax expense (benefit) 2,237 (564)
Non-operating expenses, including net interest expense 36,729 52,065
Depreciation and amortization 44,270 43,780
Stock-based compensation expense 3,457 4,089
Loss (gain) on sale or disposal of assets or stations 60 (15,895)
Gain on early extinguishment of debt (170) (9,849)
Restructuring costs 4,475 13,219
Debt exchange costs 16,369 -
Non-routine legal expenses 1,848 298
Franchise taxes 568 600
Adjusted EBITDA $ 57,669 $ 67,930
Liquidity and Capital Resources
As of September 30, 2024, we had $52.2 million of cash and cash equivalents. The Company used $20.1 million of cash for operating activities in the nine months ended September 30, 2024, and generated cash from operating activities of $28.4 million in the nine months ended September 30, 2023.
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. 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 various content platforms, including an extensive number of local stations, national reach, and growing digital businesses, represent a broad diversity in format, listener base, geography, and advertiser base which 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
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are possible and could have a material adverse effect on the Company's business, results of operations, financial condition or liquidity.
We are a party to many contractual obligations involving commitments to make payments to third parties. These obligations impact our short-term and long-term liquidity and capital resource needs. Certain contractual obligations are reflected on the Consolidated Balance Sheet as of September 30, 2024, while others are considered future commitments. Our contractual obligations primarily consist of long-term debt and related interest payments, commitments under non-cancelable operating lease agreements, and employment and talent contracts. In addition to our contractual obligations, we expect that our primary anticipated uses of liquidity in 2024 will be to fund our working capital, make interest and tax payments, fund capital expenditures, execute our strategic plan and maintain operations.
Although there remains uncertainty related to the current macroeconomic conditions on the Company's future results, we believe our business model, our current cash reserves and borrowings from time to time under the Revolving Credit Agreement (or any such other credit facility as may be in place at the appropriate time) will help us manage our business and anticipated liquidity needs for at least the next twelve months and the foreseeable future thereafter.
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 the current macroeconomic conditions 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.
2026 Credit Agreement (Term Loan due 2026)
On September 26, 2019, Holdings entered into the 2026 Credit Agreement providing for the Term Loan due 2026. See Part I, "Item 1 - Financial Statements - Notes to unaudited Condensed Consolidated Financial Statements - Note 5 - Long-Term Debt," for further discussion of the 2026 Credit Agreement.
2029 Credit Agreement (Term Loan Due 2029)
On May 2, 2024, Holdings completed its offer (the "Term Loan Exchange Offer" and, together with the Notes Exchange Offer, the "Exchange Offer") to exchange its Term Loan due 2026, for new senior secured term loans due May 2, 2029 (the "Term Loan due 2029") issued under a new credit agreement. In connection with the Term Loan Exchange Offer, Holdings exchanged $328.3 million in aggregate principal amount of its Term Loan due 2026 for $311.8 million in aggregate principal amount of Term Loan due 2029.
See Part I, "Item 1 - Financial Statements - Notes to Unaudited Condensed Consolidated Financial Statements - Note 5 - Long-Term Debt," for further discussion of the Term Loan Exchange Offer.
2020 Revolving Credit Agreement
On March 6, 2020, we entered into a $100.0 million Revolving Credit Facility which was amended on June 3, 2022 (and further amended on May 2, 2024, as discussed below). See Part I, "Item 1 - Financial Statements - Notes to unaudited Condensed Consolidated Financial Statements - Note 5 - Long-Term Debt," for further discussion of our 2020 Revolving Credit Agreement.
On May 2, 2024, the Borrowers and Intermediate Holdings entered into the Sixth Amendment to the 2020 Revolving Credit Agreement which, among other things, (i) extended the maturity date of all borrowings under the 2020 Revolving Credit Facility to March 1, 2029, provided, that if any indebtedness for borrowed money of Holdings or one of its restricted subsidiaries with an aggregate principal amount in excess of the lesser of (A) $50.0 million and (B) the greater of (x) $35.0 million and (y) the aggregate principal amount of indebtedness outstanding under the 2026 Credit Agreement and the 2026 Notes Indenture is outstanding on the date that is 90 days prior to the stated maturity of such indebtedness (each such date, a "Springing Maturity Date"), then the Initial Maturity Date shall instead be such Springing Maturity Date, and (ii) increased the aggregate commitments under the 2020 Revolving Credit Agreement to $125.0 million. Except as modified by the Sixth Amendment, the existing terms of the 2020 Revolving Credit Agreement remained in effect. See Part I, "Item 1 - Financial Statements - Notes to Unaudited Condensed Consolidated Financial Statements - Note 5 - Long-Term Debt," for further discussion of the Sixth Amendment.
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Senior Notes due 2026
On June 26, 2019, we entered into an indenture under which the Senior Notes due 2026 were issued. See Part I, "Item 1 - Financial Statements - Notes to Unaudited Condensed Consolidated Financial Statements - Note 5 - Long-Term Debt," for further discussion of the indenture and the Senior Notes due 2026.
Senior Notes due 2029
On May 2, 2024, Holdings consummated its Notes Exchange Offer to exchange any and all of its outstanding Senior Notes due 2026 for new 8.00% Senior Secured First-Lien Notes due 2029 (the "Senior Notes due 2029"). In connection with the Notes Exchange Offer, Holdings accepted $323.0 million in aggregate principal amount of Senior Notes due 2026 tendered in the Notes Exchange Offer in exchange for approximately $306.4 million in aggregate principal amount of Senior Notes due 2029. See Part I, "Item 1 - Financial Statements - Notes to Unaudited Condensed Consolidated Financial Statements - Note 5 - Long-Term Debt," for further discussion of the Notes Exchange Offer.
Share Repurchase Program
On May 4, 2022, the Board of Directors authorized a share repurchase program (the "Prior Share Repurchase Authorization") for up to $50.0 million of outstanding Class A common stock. The Prior Share Repurchase Authorization expired on November 3, 2023. On October 27, 2023, the Company announced that the Board of Directors authorized a new share repurchase program (the "Current Share Repurchase Authorization") for up to $25.0 million of outstanding Class A common stock. The Current Share Repurchase Authorization superseded and replaced our Prior Share Repurchase Authorization, and expires on May 15, 2025. Purchases made pursuant to the program may be made from time to time, at the Company's discretion, in the open market, through privately negotiated transactions or through other manners as permitted by federal securities laws including, but not limited to, 10b5-1 trading plans, accelerated stock repurchase programs and tender offers. The extent that the Company repurchases its shares, the number of shares and the timing of any repurchases will depend on general economic and market conditions, regulatory and legal requirements, alternative investment opportunities and other considerations. The repurchase program does not require the Company to repurchase a minimum number of shares, and it may be modified, suspended or terminated at any time without prior notice. We are currently subject to significant restrictions under the terms of our debt agreements with respect to payment to repurchase shares of our common stock. For a more detailed discussion of the restrictions in our debt agreements, See Part I, "Item 1 - Financial Statements - Notes to Unaudited Condensed Consolidated Financial Statements - Note 5 - Long-Term Debt."
During the nine months ended September 30, 2024, the Company did not repurchase any shares of its outstanding Class A Common stock in the open market. During the nine months ended September 30, 2023, the Company repurchased 323,285 shares of its outstanding Class A common stock in the open market at an average purchase price of $4.65 per share for an aggregate cost of approximately $1.5 million, excluding fees and expenses. Shares repurchased were accounted for as treasury stock and the total cost of shares repurchased was recorded as a reduction of stockholder's equity in the unaudited Condensed Consolidated Balance Sheet.
The Inflation Reduction Act of 2022, which was enacted into law on August 16, 2022, imposed a nondeductible 1% excise tax on the net value of certain stock repurchases made after December 31, 2022. Excise tax is owed on the fair market value of stock repurchases reduced by the fair market value of stock issued, subject to a $1,000,000 de minimis exception. Excise tax owed on shares repurchased during the nine months ended September 30, 2023, was not material.
As of September 30, 2024, $25.0 million of the Company's outstanding Class A common stock remained available for repurchase under the share repurchase program, subject to restrictions under the terms of our debt agreements.
Cash Flows (Used in) Provided by Operating Activities
Nine Months Ended September 30,
2024 2023
(Dollars in thousands)
Net cash (used in) provided by operating activities $ (20,130) $ 28,390
Net cash used in operating activities for the nine months ended September 30, 2024, compared to net cash provided by operating activities for the nine months ended September 30, 2023, decreased primarily as a result of reduced operating results and changes in working capital. Operating loss for the nine months ended September 30, 2024, included $16.4 million of debt exchange costs.
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Cash Flows Used in Investing Activities
Nine Months Ended September 30,
2024 2023
(Dollars in thousands)
Net cash used in investing activities $ (979) $ (3,212)
Net cash used in investing activities for the nine months ended September 30, 2024, consists primarily of capital expenditures which were largely offset by proceeds from the BMI Sale.
For the nine months ended September 30, 2023, net cash used in investing activities consists primarily of capital expenditures which were mostly offset by proceeds from the sales of WDRQ-FM and WFAS-FM.
Cash Flows Used in Financing Activities
Nine Months Ended September 30,
2024 2023
(Dollars in thousands)
Net cash used in financing activities $ (7,397) $ (49,804)
For the nine months ended September 30, 2024, net cash used in financing activities primarily relates to repayments of financing obligations and shares returned in lieu of tax payments for vested restricted stock.
For the nine months ended September 30, 2023, net cash used in financing activities primarily relates to the repurchase of $34.7 million principal amount of the 6.75% Senior Notes for $25.9 million, the repurchase of $8.9 million principal amount of Term Loan due 2026 for $7.9 million, and the purchase of $7.8 million of treasury stock.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2024.
Critical Accounting Policies and Estimates
For a description of our critical accounting policies and estimates, see our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. Our critical accounting policies and estimates have not changed materially during the nine months ended September 30, 2024.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 (as amended, the "Exchange Act") and are not required to provide the information under this item.
Item 4. Controls and Procedures
We maintain a set of disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934 designed to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Such disclosure controls and procedures are designed to ensure that information required to be disclosed in reports we file or submit under the Exchange Act is accumulated and communicated to our management, including, our President and Chief Executive Officer ("CEO") and Executive Vice President and Chief Financial Officer ("CFO"), the principal executive and principal financial officers, respectively, as appropriate, to allow timely decisions regarding required disclosure. At the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the CEO and CFO have concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2024.
There were no changes to our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f)) during the three months ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
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Table of Contents
Item 1. Legal Proceedings
As of the date of this filing, there have been no additional material legal proceedings or material developments in the legal proceedings disclosed in Part 1, Item 3, of our Annual Report on Form 10-K for the year ended December 31, 2023. For more information, see Part I, "Item 1 - Financial Statements - Notes to unaudited Condensed Consolidated Financial Statements - Note 10 - Commitments and Contingencies."
Item 1A. Risk Factors
Please refer to Part I, Item 1A, "Risk Factors," in our 2023 Form 10-K for information regarding known material risks that could materially affect our business, financial condition or future results. During the nine months ended September 30, 2024, there were no material changes to our previously disclosed risk factors. Additional factors not presently known to the Company, or that the Company does not currently believe to be material, may also cause actual results to differ materially from expectations.
Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities
None.
Item 5. Other Information
None of the Company's directors or officers adopted, modified or terminated a Rule 10b5-1 trading arrangement or a non-Rule 10b5-1 trading arrangement, as defined in Item 408 of Regulation S-K, during the Company's fiscal quarter ended September 30, 2024.
Item 6. Exhibits
Exhibit Number Description
31.1
Certification of the Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2
Certification of the Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1
Certification Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH Inline XBRL Taxonomy Extension Schema Document.
101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document.
101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document.
101.LAB Inline XBRL Taxonomy Extension Labels Linkbase Document.
101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document.
104 Cover Page Interactive Data File - (formatted as Inline XBRL and contained in Exhibit 101).
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Cumulus Media Inc.
November 1, 2024 By: /s/ Francisco J. Lopez-Balboa
Francisco J. Lopez-Balboa
Executive Vice President, Chief Financial Officer
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