Audacy granted a 30 day extension to make its missed bond payment

[MarkW]

Cash flow after capex (capex is only captured by the statement of cash flows and not reported on the P&L) is not sufficient to cover ongoing interest expense. Lefty61 is correct. Levered basis free cash flow is negative by a significant amount. The "Adjusted Free Cash Flow" line on the linked document is one method of measuring this.

The company had been drawing down its revolver to partially backfill the cash burn hole. They no longer have that ability.

More specifically, $46 million in net cash was consumed in the first 9 months of the year despite the company borrowing $39 million in new funds and despite the company receiving $33 million in asset divestiture proceeds. In other words - all else equal - they would've been out of cash already by 9-30 had those two sources of cash not been tapped.

 

[Kelly A]

More specifically, $46 million in net cash was consumed in the first 9 months of the year despite the company borrowing $39 million in new funds and despite the company receiving $33 million in asset divestiture proceeds. In other words - all else equal - they would've been out of cash already by 9-30 had those two sources of cash not been tapped.

They've been moving money around, but you're right, their cash burn is significant. Need to believe they're looking at likely a significant batch of cuts to whittle the burn rate down. The challenge with this particular business is making significant cuts without harming the product in areas that are providing the most cash flow. Ultimately with the dim future for the radio biz, even if they can slow the leak for now they've done it with chewing gum which won't last for long considering advertising headwinds are increasing.

 

[MarkW]

I agree completely.

 

[Kelly A]

Granted this report attached is sprinkled with sugar, but it is somewhat telling. Especially as it relates to the "Impairment Loss" and "Operating Loss" lines. What stood out to me is both lines jumped considerably nine months ending Sep. 30 over the same in 2022.
Granted these numbers jumping aren't giant killers, but it is curious why such significant jumps year to year.
Would be interesting to see more detail on the various expense lines, but they're not required to publish those:

https://audacyinc.com/wp-content/uploads/2023/11/AUD-3Q-2023-earnings-release-vf.pdf

 

[Kelly A]

After studying the report further, I'm guessing they're rolling the loan/revolver payments into the operating or impairment loss categories. That's why the jumps.

And here's a radio finance lesson regarding ratings kids, so pay attention. Just because stations have good ratings, it doesn't necessarily translate into cash flow. For example; in the report I linked, Audacy rightfully claimed:
"Strong Ratings Performance. Our radio stations continue to gain ratings share from our
competitors as Audacy brands in PPM markets had their sixth consecutive quarter of year
over year share growth in the key A25-54 demographic. Our gains came across many
markets with 70% (24 of 34) of our PPM markets seeing ratings improvement."
I believe that statement is likely accurate. All media companies, TV or radio, whatever the format, are facing the same advertising and economic challenges as the stations with lesser ratings. The big difference is when it comes to levels of debt obligations carried during those challenges.

 

[TheBigA]

There are still assets in Audacy Atlas that AFAIK have not been sold. Mostly tower sites. Audacy Atlas was created last March. They placed radio stations in Buffalo and Memphis that were ultimately sold to EMF. No word on the status of the tower properties. This list is from RadioInsight:

In addition to Radio.com, FCC and public records searches show that fifteen tower sites have also been moved into the holding company. These include the pending to be sold sites for 610 KILT Houston and 720 KDWN/1140 KXST Las Vegas. Other sites moved into the LLC include the tower land for 550 WGR/1520 WWKB Buffalo, 670 WSCR/780 WBBM Chicago, 830 WCCO Minneapolis (both primary and auxiliary), 850 WEEI Boston, 1080 KFXX Portland, 1080 WTIC Hartford, 92.5 WBEE Rochester, 97.1 KFTK-FM St. Louis, 101.9 WLIF Baltimore, 106.7 KROQ Los Angeles, 107.7 WLKK Buffalo, and 107.9 WLZL Washington DC.

 

[Kelly A]

There are still assets in Audacy Atlas that AFAIK have not been sold. Mostly tower sites. Audacy Atlas was created last March. They placed radio stations in Buffalo and Memphis that were ultimately sold to EMF. No word on the status of the tower properties. This list is from RadioInsight:

They could sell land under the AM stations, but tower companies aren't interested in AM towers because they typically don't have enough elevation, and trying to attach other antennas to a hot tower is more trouble than it's worth. But even if they sell the AM site land, there likely would be a pretty significant cost and time in duplexing (combining) with another local AM station once they vacate the land. That, and they'll now be paying rent to the competitor, which means a ton of capital to combine, and opex in rent going forward.

 

[TheBigA]

That, and they'll now be paying rent to the competitor, which means a ton of capital to combine, and opex in rent going forward.

There seems to be an ongoing process taking place around broadcasting to change from ownership to leasing. I'm not an accountant, so I don't know the advantages. But we're seeing that in tower property as well as office space.

 

[RadioGuy1864]

There seems to be an ongoing process taking place around broadcasting to change from ownership to leasing. I'm not an accountant, so I don't know the advantages. But we're seeing that in tower property as well as office space.

The sale-lease back model for towers eliminates the expense of moving/diplexing. But it won't save Audacy from the inevitable. There's a saying, "How long can this go on? Answer: Until it can't." Looks like Audacy is approaching it's "until it can't" moment.

 

[Kelly A]

The sale-lease back model for towers eliminates the expense of moving/diplexing.

The problem with an AM land lease-back at least for a longer term is; what comes with the agreement is a six month termination clause. In other words; a landlord can tell the AM station they need to move out six months from the notification date. Depending on how far down the road something like that were to occur, it wouldn't allow all the work to move the station. On the flip side, if long enough, then the station may be at it's end anyway.

But it won't save Audacy from the inevitable. There's a saying, "How long can this go on? Answer: Until it can't." Looks like Audacy is approaching it's "until it can't" moment.

I'll agree it's not looking great from public-facing documents and reports, but they still have other remedies including Chapter 11 reorganization just like other radio companies did successfully years ago.

 

[Kelly A]

There seems to be an ongoing process taking place around broadcasting to change from ownership to leasing. I'm not an accountant, so I don't know the advantages. But we're seeing that in tower property as well as office space.

That's because quick cash for FM/TV tower sites is alluring, but like any lease, there are escalators baked-in. The new owner will recover their investment as quickly as possible. All selling specifically an FM tower site amounts to kicking the financial can down the road.

 

[TheBigA]

All selling specifically an FM tower site amounts to kicking the financial can down the road.

What other choice do they have? Unless they come up with a new revenue stream, all they can do is sell assets.

This was a company that bought CBS Radio, that in its final years was trying to shift into a multi-platform content company. Instead of learning from that, and building the Entercom stations up to that level, they instead fired all the R&D people and brought CBS Radio down to the traditional local sales model that Entercom used. That model is dying. Advertisers are not looking to spend more money on local radio unless there's more to the package besides on-air :30 spots. That seems to be all Audacy is selling.

 

[Theater of My Mind]

A new 8K was just posted and a new batch of payment extensions were announced. Now, the delinquent payment grace periods have been extended to December 10 or December 11:

They've gone from kicking the can down the road to kicking the plastic cup down the road.

 

[TheBigA]

They've gone from kicking the can down the road to kicking the plastic cup down the road.

The only option they have is double the number of spots on their radio stations. 25 spots an hour will create enough new revenue to start paying down the debt. At least for the short term, until the audience goes away. Otherwise, what else can they do? Fire more staff and sell more assets?

 

[Kelly A]

What other choice do they have? Unless they come up with a new revenue stream, all they can do is sell assets.

The problem with that list of Audacy stations is a bunch of them are AM's, and I can see right off the bat that some of the FM's are already operating on leased towers. Portland and Washington, D.C for example. Add all the actual owned real estate up, and I'd be willing to bet that wouldn't equal even one of their senior secured note payments. Combined with having to pay capital gains on the sale, I wouldn't look for tower or AM site property or remaining owned-FM site to be some form of silver bullet.

This was a company that bought CBS Radio, that in its final years was trying to shift into a multi-platform content company. Instead of learning from that, and building the Entercom stations up to that level, they instead fired all the R&D people and brought CBS Radio down to the traditional local sales model that Entercom used. That model is dying. Advertisers are not looking to spend more money on local radio unless there's more to the package besides on-air :30 spots. That seems to be all Audacy is selling.

Yeah at the end of the day, that CBS Radio acquisition and reorg was a bad idea. 'Let's buy something on the cusp of a direction we need to go, then blow up any hopes of recovering the costs by cutting the very expense that will ultimately give us a digital presence.'

 

[Theater of My Mind]

The only option they have is double the number of spots on their radio stations. 25 spots an hour will create enough new revenue to start paying down the debt.

Not if they're the same junky P.I. spots they seems to run endlessly already.

 

[Theater of My Mind]

Yeah at the end of the day, that CBS Radio acquisition and reorg was a bad idea. 'Let's buy something on the cusp of a direction we need to go, then blow up any hopes of recovering the costs by cutting the very expense that will ultimately give us a digital presence.'

They'll do a Chapter 11 like every other bloated radio corporation has already done following their own misguided growth sprees. Screw the lenders and vendors, RIF some more creative people, pay out fat executive bonuses for 'saving the company', lather, rinse, repeat. It's the American way of doing big business.

 

[Kelly A]

They'll do a Chapter 11 like every other bloated radio corporation has already done following their own misguided growth sprees. Screw the lenders and vendors, RIF some more creative people, pay out fat executive bonuses for 'saving the company', lather, rinse, repeat. It's the American way of doing big business.

There's a well-informed, unbiased, not cynical view. Actually, no, none of those.

 

[Theater of My Mind]

There's a well-informed, unbiased, not cynical view. Actually, no, none of those.

Stay tuned for season X of Big Radio Bankruptcy. We can all see for ourselves if it is or not.

 

[TheBigA]

Yeah at the end of the day, that CBS Radio acquisition and reorg was a bad idea.

Which came after buying Lincoln Financial and WBEB. They kept buying and buying the same old style business, digging the hole deeper and deeper. How did any of this position them for the future?

They'll do a Chapter 11 like every other bloated radio corporation has already done following their own misguided growth sprees. Screw the lenders and vendors,

The lenders never get screwed in a Chap 11. They get all the assets. The problem is that the lenders don't want to own 300 radio stations. They want money. The venders can sue, and as Ed Stolz found out, if you don't pay your venders, they can force a sale of your assets to get paid.