Audacy ‘Going Concern’ Statement, Hints of Sales, Sink Stock

It’s been a bruising 2023 for Audacy Inc., the company founded as Entercom in the late 1960s by Joseph Field today led by his son, David Field. Second quarter 2023 financial results were quietly released on Friday, sans an earnings call for analysts, debtholders and shareholders. A 1-for-30 reverse stock split didn’t fully cure the company’s noncompliance issues with the NYSE, as “AUDA” — trading on the Over the Counter market — was down to 95 cents just after 11am on Tuesday.

Now, some stakeholders in Audacy may be nervous thanks to a 10-Q filing made Monday with the Securities and Exchange Commission that shares the company’s status as a “Going Concern” — and how plans are in the works to sell “certain assets” in two top markets.

Every company in a 10-Q filing offers the SEC, in accordance with Accounting Standards Codification 205-40, a “Going Concern” statement. For Audacy, the company shared that it continues to “critically review its liquidity and anticipated capital requirements in light of the significant uncertainty created by the current macroeconomic conditions and determine whether these conditions and events, when considered in the aggregate, raise substantial doubt about its ability to continue as a going concern within twelve months after the date that the accompanying unaudited consolidated financial statements are issued.”

With macroeconomic conditions improving for Audacy’s biggest industry peer, iHeartMedia, showing glimmers of improvement, Audacy shared with the SEC that “current macroeconomic conditions have created, and continue to create, significant uncertainty in operations, including rising inflation and interest rates, significant volatility in financial markets, decreases in advertising revenue, and increased competition for advertising expenditures, which have had, and are expected to continue to have, a material adverse effect on the company’s forecasted revenue.”

As a result, Audacy management “continues to execute on cash management and strategic operational plans to manage liquidity and debt covenant compliance, including evaluating contractual obligations and workforce reductions, managing operating expenses, divesting non-strategic assets of the company, and initiating a variety of transactions to manage the company’s liabilities, which could include extending maturities or otherwise reorganizing the company’s debt to decrease overall leverage.”

Divesting non-strategic assets has been seen in Buffalo, and in Memphis, so far in 2023. But, there are even bigger deals on the horizon. In the 10-Q filing, Audacy shared for the first time that during Q2 2023, the company entered into letters of intent to sell “certain assets” located in Phoenix and Boston, respectively.

But, don’t expect a station sale in either of these markets. Audacy conducted an analysis, and it determined the assets met the criteria to be classified as held for sale at June 30.

In aggregate, Audacy shared, these assets have a carrying value of approximately $2.5 million.

The transactions are expected to close within one year.

DEBT THREAT?

With nearly $2.5 million coming from the sale of non-essential holdings, this could help in some way to combat the macroeconomic conditions that continue to cloud Audacy’s ability to maintain compliance with its financial covenants contained in Audacy’s debt agreements.

Importantly, as of June 30, Audacy was in compliance with such debt covenants.

However, based on the company’s cash and cash equivalents balance, the current maturities of its existing debt facilities, its forecasted business plan in light of current macroeconomic conditions and Audacy’s current forecast of future revenue over the next twelve months, there’s trouble ahead.

“[I]ndications suggest that such forecasts are unlikely to be sufficient for the company to be able to maintain compliance with the financial covenants under our debt agreements for at least twelve months from the issuance of the accompanying unaudited consolidated financial statements,” Audacy said.

Failure to meet the covenant requirements in the future would cause Audacy to be in default, and, the company said, this could cause the maturity of the related debt to be accelerated and become immediately payable.

What happens then? “This could require the company to obtain waivers or amendments in order to maintain compliance, and there can be no assurance that any such waiver or amendment would be available on acceptable terms or at all.”

If Audacy is unable to obtain the necessary waivers or amendments and its debt is accelerated, the company warns that there can be no assurance that it would be able to obtain replacement financing or satisfy its obligations.

In this case, Audacy may pursue a process to restructure its indebtedness under the protection of a bankruptcy court.

Indeed, Chapter 11 could be on the horizon for Audacy.

“[T]he uncertainty surrounding compliance with the company’s debt covenants raises substantial doubt regarding the company’s ability to continue as a going concern for a period of twelve months from the issuance of the accompanying unaudited consolidated financial statements,” Audacy said.

In 2024, $926.4 million of debt is set to mature.

It begins with a Accounts Receivable Facility, which has $75 million of outstanding borrowings at June 30 and a maturity date of July 2024.

AUDA was priced at $1 as of 2pm Eastern on Tuesday.