Beasley Broadcast Group Inc: Form 10-Q for the period ended Jun 30, 2020

General

We are a multi-platform media company whose primary business is operating radio stations throughout the United States. We offer local and national advertisers integrated marketing solutions across audio, digital and event platforms. We own and operate radio stations in the following radio markets: Atlanta, GA, Augusta, GA, Boston, MA, Charlotte, NC, Detroit, MI, Fayetteville, NC, Fort Myers-Naples, FL, Las Vegas, NV, Middlesex, NJ, Monmouth, NJ, Morristown, NJ, Philadelphia, PA, Tampa-Saint Petersburg, FL, West Palm Beach-Boca Raton, FL, and Wilmington, DE. We refer to each group of radio stations in each radio market as a market cluster.

Recent Developments

In March 2020, coronavirus disease 2019 (“COVID-19”) was recognized as a pandemic by the World Health Organization. The COVID-19 pandemic has resulted in a widespread health crisis that has adversely affected businesses, economies, and financial markets worldwide, and has caused significant volatility in U.S. and international debt and equity markets. We have been impacted by deteriorating general economic conditions, which have caused a downturn in the advertising industry. The decreased demand for advertising has negatively impacted our net revenue, and many advertisers have reduced or ceased advertising spend due to the COVID-19 pandemic and its related economic impact. Specifically, we observed a rapid increase in cancellations and a reduction of new sales beginning midway through the month of March 2020. The cancellations were broad-based but more severe in industries that were severely impacted by the COVID-19 pandemic. Sales have begun to recover throughout the month of June 2020 and cancellations have decreased significantly. We are actively monitoring the COVID-19 pandemic. While this disruption is currently expected to be temporary, there is considerable uncertainty around the duration. Thus, it is impossible to predict the total impact that it will have on the Company. If public and private entities continue to implement restrictive measures, the material adverse effect on our results of operations, financial condition and cash flows could persist.

In response, beginning in March 2020, we made safety a priority, implementing a work-at-home initiative for many of our employees, with only certain essential employees remaining in the stations to continue live programming. We also encouraged our listeners to practice social distancing and hand washing by displaying customized messages on car dashboard displays through the Quu platform. We delivered vital and breaking news on-air, opened our phone lines to listeners and hosted live virtual concerts on certain stations with participating artists.

To help listeners and businesses in the communities we serve, we launched the “We are all in this together” Community of Caring Campaign that includes:

• creating webinars to help struggling businesses deal with the crisis;
• launching “Operation Gift Card” where businesses upload gift card information on our websites so that listeners can support businesses by purchasing the gift cards for future use; and
• expanding local initiatives to include collecting medical supplies and delivering food to healthcare workers.

Beginning in March 2002, we also implemented certain expense control initiatives, such as reductions in compensation for management and other employees, reductions in planned capital expenditures, negotiated vendor pricing reductions, furloughs and headcount reductions for certain employees and suspensions of new employee hiring and travel and entertainment expenses. We expect these initiatives to continue reducing our expenses in the third quarter of 2020. Our board of directors also suspended future quarterly dividend payments until it is determined that resumption of dividend payments is in the best interest of the Company’s stockholders. In addition, the Amendment (as defined below) limits our ability to pay dividends until certain leverage-based milestones have been achieved.

Due to the impact of the COVID-19 pandemic on the U.S. economy, we tested our FCC licenses for impairment during the first quarter of 2020. As a result of the quantitative impairment test, we recorded impairment losses of $6.8 million related to the FCC licenses in our Atlanta, GA, Middlesex, NJ, Monmouth, NJ, Morristown, NJ, Las Vegas, NV, West Palm Beach-Boca Raton, FL, and Wilmington, DE market clusters. The impairment losses were primarily due to a decrease in projected revenue in these markets due to the impact of the COVID-19 pandemic and an increase in the discount rate used in the discounted cash flow analyses to estimate the fair value of our FCC licenses due to certain risks specifically associated with the Company and the radio broadcasting industry. We did not identify any triggering events for impairment during the second quarter of 2020. Therefore we did not test our FCC licenses for impairment as of June 30, 2020

In June 2020, we entered into Amendment No. 2 to our credit agreement (the “Amendment”) and into an amendment to the Promissory Note (as defined below). See “Liquidity and Capital Resources” for additional information.

The COVID-19 pandemic continues to create significant uncertainty and disruption in the global economy and financial markets. It is reasonably possible that these uncertainties could materially impact the Company’s significant accounting estimates related to, but not limited to, allowance for doubtful accounts, impairment of FCC licenses and goodwill, and determination of right-of-use assets. As a result, many of the Company’s estimates and assumptions require increased judgment and carry a higher degree of variability and volatility. The Company’s estimates may change as new events occur and additional information emerges, and such changes are recognized or disclosed in its consolidated financial statements.

Cautionary Note Regarding Forward-Looking Statements

This report contains “forward-looking statements” about the Company within the meaning of the Private Securities Litigation Reform Act of 1995, which relate to future, not past, events. All statements other than statements of historical fact included in this document are forward-looking statements. These forward-looking statements are based on the current beliefs and expectations of the Company’s management and are subject to known and unknown risks and uncertainties. Forward-looking statements, which address the Company’s expected business and financial performance and financial condition, among other matters, contain words such as: “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” “may,” “will,” “plans,” “projects,” “could,” “should,” “would,” “seek,” “forecast,” or other similar expressions.

Forward-looking statements by their nature address matters that are, to different degrees, uncertain. Although the Company believes the expectations reflected in such forward-looking statements are based upon reasonable assumptions, it can give no assurance that the expectations will be attained or that any deviation will not be material. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The Company undertakes no obligation to update or revise any forward-looking statements.

Forward-looking statements involve a number of risks and uncertainties, and actual results or events may differ materially from those projected or implied in those statements. Factors that could cause actual results or events to differ materially from these forward-looking statements include, but are not limited to:

• the effects of the COVID-19 pandemic, including its potential effects on the economic environment and the Company’s results of operations, liquidity and financial condition, and the increased risk of impairments of the Company’s FCC licenses and/or goodwill, as well as any changes to federal, state or local government laws, regulations or orders in connection with the pandemic;
• external economic forces that could have a material adverse impact on the Company’s advertising revenues and results of operations;
• the ability of the Company’s radio stations to compete effectively in their respective markets for advertising revenues;
• the ability of the Company to develop compelling and differentiated digital content, products and services;
• audience acceptance of the Company’s content, particularly its radio programs;
• the ability of the Company to respond to changes in technology, standards and services that affect the radio industry;
• the Company’s dependence on federally issued licenses subject to extensive federal regulation;
• actions by the FCC or new legislation affecting the radio industry;
• the Company’s dependence on selected market clusters of radio stations for a material portion of its net revenue;
• credit risk on the Company’s accounts receivable;
• the risk that the Company’s FCC licenses and/or goodwill could become impaired;
• the Company’s substantial debt levels and the potential effect of restrictive debt covenants on the Company’s operational flexibility and ability to pay dividends, including restrictions on the ability to pay dividends in the near term as a result of the Amendment to the Company’s credit agreement;
• the potential effects of hurricanes on the Company’s corporate offices and radio stations;
• the failure or destruction of the internet, satellite systems and transmitter facilities that the Company depends upon to distribute its programming;
• disruptions or security breaches of the Company’s information technology infrastructure;
• the loss of key personnel;
• the Company’s ability to integrate acquired businesses and achieve fully the strategic and financial objectives related thereto and their impact on the Company’s financial condition and results of operations;
• the fact that the Company is controlled by the Beasley family, which creates difficulties for any attempt to gain control of the Company; and
• other economic, business, competitive, and regulatory factors affecting the businesses of the Company, including those set forth in the Company’s filings with the SEC.

Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. We do not intend, and undertake no obligation, to update any forward-looking statement.

Financial Statement Presentation

The following discussion provides a brief description of certain key items that appear in our financial statements and general factors that impact these items.

Net Revenue. Our net revenue is primarily derived from the sale of commercial spots to advertisers directly or through national, regional or local advertising agencies. Revenues are reported at the amount we expect to be entitled to receive under the contract. Local revenue generally consists of commercial advertising sales, digital advertising sales and other sales to advertisers in a radio station’s local market either directly to the advertiser or through the advertiser’s agency. National revenue generally consists of commercial advertising sales through advertiser agencies. National advertiser agencies generally purchase advertising for multiple markets. National sales are generally facilitated by our national representation firm, which serves as our agent in these transactions.

Our net revenue is generally determined by the advertising rates that we are able to charge and the number of advertisements that we can broadcast without jeopardizing listener levels. Advertising rates are primarily based on the following factors:

• a radio station’s audience share in the demographic groups targeted by advertisers as measured principally by periodic reports issued by Nielson Audio;
• the number of radio stations, as well as other forms of media, in the market competing for the attention of the same demographic groups;
• the supply of, and demand for, radio advertising time; and
• the size of the market.

Our net revenue is affected by general economic conditions, competition and our ability to improve operations at our market clusters. Seasonal revenue fluctuations are also common in the radio broadcasting industry and are primarily due to variations in advertising expenditures by local and national advertisers. Our revenues are typically lowest in the first calendar quarter of the year. In addition, our revenues tend to fluctuate between years, consistent with, among other things, increased advertising expenditures in even-numbered years by political candidates, political parties and special interest groups. This political spending typically is heaviest during the fourth quarter of such years.

We use trade sales agreements to reduce cash paid for operating costs and expenses by exchanging advertising airtime for goods or services; however, we endeavor to minimize trade revenue in order to maximize cash revenue from our available airtime.

We also continue to invest in digital support services to develop and promote our radio station websites, applications, and other distribution platforms. We derive revenue from our websites through the sale of advertiser promotions and advertising on our websites and the sale of advertising airtime during audio streaming of our radio stations over the internet. We also generate revenue from selling third-party digital products and services.

Operating Expenses. Our operating expenses consist primarily of programming, engineering, sales, advertising and promotion, and general and administrative expenses incurred at our radio stations. We strive to control our operating expenses by centralizing certain functions at our corporate offices and consolidating certain functions in each of our market clusters.

Critical Accounting Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect reported amounts and related disclosures. We consider an accounting estimate to be critical if:

• it requires assumptions to be made that were uncertain at the time the estimate was made; and
• changes in the estimate or different estimates that could have been selected could have a material impact on our results of operations or financial condition.

FCC Licenses. We are required to test our licenses on an annual basis, or more frequently if events or changes in circumstances indicate that our licenses might be impaired. We assess qualitative factors to determine whether it is more likely than not that our licenses are impaired. If we determine it is more likely than not that our licenses are impaired then we are required to perform the quantitative impairment test. The quantitative impairment test compares the fair value of our licenses with their carrying amounts. If the carrying amounts of the licenses exceed their fair value, an impairment loss is recognized in an amount equal to that excess. For the purpose of testing our licenses for impairment, we combine our licenses into reporting units based on our market clusters.

Due to the impact of the COVID-19 pandemic on the U.S. economy, we tested our FCC licenses for impairment during the first quarter of 2020. As a result of the quantitative impairment test, we recorded impairment losses of $6.8 million related to the FCC licenses in our Atlanta, GA, Middlesex, NJ, Monmouth, NJ, Morristown, NJ, Las Vegas, NV, West Palm Beach-Boca Raton, FL, and Wilmington, DE market clusters. The impairment losses were primarily due to a decrease in projected revenue in these markets due to the impact of the COVID-19 pandemic and an increase in the discount rate used in the discounted cash flow analyses to estimate the fair value of our FCC licenses due to certain risks specifically associated with our company and the radio broadcasting industry. We did not identify any triggering events for impairment during the second quarter of 2020. Therefore, we did not test our FCC licenses for impairment as of June 30, 2020.

The fair value of the FCC licenses in the Atlanta, GA, Middlesex, NJ, Monmouth, NJ, Morristown, NJ, Las Vegas, NV, West Palm Beach-Boca Raton, FL, and Wilmington, DE market clusters were estimated using an income approach. The income approach is based upon discounted cash flow analyses incorporating variables such as projected radio market revenues, projected growth rate for radio market revenues, projected radio market revenue shares, projected radio station operating income margins, and a discount rate appropriate for the radio broadcasting industry. The key assumptions used in the discounted cash flow analyses are as follows:

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The carrying amount of our FCC licenses for each reporting unit and the percentage by which fair value exceeded the carrying amount are as follows:

Goodwill. We are required to test our goodwill for impairment on an annual basis, or more frequently if events or changes in circumstances indicate that our goodwill might be impaired. We assess qualitative factors to determine whether it is necessary to perform a quantitative assessment for each reporting unit. If the quantitative assessment is necessary, we will determine the fair value of each reporting unit. If the fair value of any reporting unit is less than the carrying amount, we will recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss recognized will not exceed the total amount of goodwill allocated to the reporting unit. For the purpose of testing our goodwill for impairment, we have identified our market clusters and esports as our reporting units.

Due to the impact of the COVID-19 pandemic, we tested our goodwill for impairment during the first quarter of 2020. We assessed qualitative factors for the esports reporting unit and did not identify any triggering events, however our assessment of qualitative factors for the market clusters identified triggering events for impairment. As a result of the impairment test performed on the market clusters during the first quarter of 2020, we determined that the estimated fair value of each market cluster exceeded the carrying amount by at least five percent at each market cluster as of March 31, 2020. We did not identify any triggering events for impairment during the second quarter of 2020. Therefore, we did not test our goodwill for impairment as of June 30, 2020.

We believe we have made reasonable estimates and assumptions to calculate the estimated fair value of our FCC licenses and goodwill, however, these estimates and assumptions are highly judgmental in nature. Actual results can be materially different from estimates and assumptions. If actual market conditions are less favorable than those projected by the industry or by us, or if events occur or circumstances change that would reduce the estimated fair value of our indefinite-lived intangible assets below the amounts reflected on our balance sheet, we may recognize future impairment charges, the amount of which may be material.

Our remaining critical accounting estimates are described in Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2019. There have been no additional material changes to our critical accounting estimates during the second quarter of 2020.

Recent Accounting Pronouncements

There were no recent accounting pronouncements that have or will have a material effect on our financial condition or results of operations.

Three Months Ended June 30, 2020 Compared to the Three Months Ended June 30, 2019

The following summary table presents a comparison of our results of operations for the three months ended June 30, 2019 and 2020 with respect to certain of our key financial measures. These changes illustrated in the table are discussed in greater detail below. This section should be read in conjunction with the financial statements and notes to financial statements included in Item 1 of this report.

Net Revenue. Net revenue decreased $35.3 million during the three months ended June 30, 2020 as compared to the three months ended June 30, 2019. Significant factors affecting net revenue included a decrease in commercial advertising, digital advertising, and other revenue primarily due to the impact of the COVID-19 pandemic, partially offset by an increase in esports revenue. Net revenue for the three months ended June 30, 2020 also included additional revenue from the acquisition of WDMK-FM in Detroit on August 31, 2019.

Operating Expenses. Operating expenses decreased $6.4 million during the three months ended June 30, 2020 as compared to the three months ended June 30, 2019. The decrease in operating expenses was due to the expense control initiatives we implemented in response to the COVID-19 pandemic, including employee furloughs and headcount reductions, partially offset by an increased allocation of digital expenses from corporate to the radio market clusters and additional expenses from the acquisition of WDMK-FM.

Corporate Expenses. Corporate expenses decreased $1.7 million during the three months ended June 30, 2020 as compared to the three months ended June 30, 2019. The primary factors affecting corporate expenses included an increased allocation of digital expenses from corporate to the radio market clusters and a decrease in compensation and travel expenses due to the COVID-19 pandemic.

Interest Expense. Interest expense decreased $0.7 million during the three months ended June 30, 2020 as compared to the three months ended June 30, 2019. The primary factor affecting interest expense was a decrease in interest rates that offset the increase in long-term debt outstanding.

Loss on Modification of Long-Term Debt. We recorded a loss on modification of long-term debt of $2.8 million during the three months ended June 30, 2020, resulting from the Amendment to our credit agreement.

Income Tax Expense (Benefit). Our effective tax rate was approximately 31% and (25)% for the three months ended June 30, 2019 and 2020, respectively. These rates differ from the federal statutory rate of 21% due to the effect of state income taxes and certain expenses that are not deductible for tax purposes.

Net Income (Loss). Net loss for the three months ended June 30, 2020 was $18.2 million compared to net income of $4.3 million for the three months ended June 30, 2019 as a result of the factors described above.

Six Months Ended June 30, 2020 Compared to the Six Months Ended June 30, 2019

The following summary table presents a comparison of our results of operations for the six months ended June 30, 2019 and 2020 with respect to certain of our key financial measures. These changes illustrated in the table are discussed in greater detail below. This section should be read in conjunction with the financial statements and notes to financial statements included in Item 1 of this report.

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Net Revenue. Net revenue decreased $35.3 million during the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. Significant factors affecting net revenue included a decrease in commercial advertising and other revenue primarily due to the impact of the COVID-19 pandemic, partially offset by an increase in esports revenue and digital advertising. Net revenue for the six months ended June 30, 2020 also included additional revenue from the acquisition of WDMK-FM in Detroit on August 31, 2019.

Operating Expenses. Operating expenses decreased $2.9 million during the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. The decrease in operating expenses was due to the expense control initiatives we implemented in response to the COVID-19 pandemic, including employee furloughs and headcount reductions, partially offset by an increased allocation of digital expenses from corporate to the radio market clusters and additional expenses from the acquisition of WDMK-FM.

Corporate Expenses. Corporate expenses decreased $2.1 million during the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. The primary factors affecting corporate expenses included an increased allocation of digital expenses from corporate to the radio market clusters and a decrease in travel expenses due to the COVID-19 pandemic.

Gain on Dispositions. On March 28, 2019, we completed the sale of certain land and improvements in our Augusta, GA market cluster for $0.5 million. As a result of the sale, we recorded a gain of $0.4 million in the first quarter of 2019. On March 15, 2019, we agreed to cancel a broadband radio service license in Chattanooga, TN in exchange for a fee of $3.3 million. As a result of the license cancelation, we recorded a gain of $3.1 million in the first quarter of 2019.

Impairment Losses. Due to the impact of the COVID-19 pandemic on the U.S. economy, we tested our FCC licenses for impairment during the first quarter of 2020. As a result of the quantitative impairment test, we recorded impairment losses of $6.8 million related to the FCC licenses in our Atlanta, GA, Middlesex, NJ, Monmouth, NJ, Morristown, NJ, Las Vegas, NV, West Palm Beach-Boca Raton, FL, and Wilmington, DE market clusters. The impairment losses were primarily due to a decrease in projected revenue in these markets due to the impact of the COVID-19 pandemic and an increase in the discount rate used in the discounted cash flow analyses to estimate the fair value of our FCC licenses due to certain risks specifically associated with the Company and the radio broadcasting industry.

Interest Expense. Interest expense decreased $1.1 million during the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. The primary factor affecting interest expense was a decrease in interest rates that offset the increase in long-term debt outstanding.

Loss on Modification of Long-Term Debt. We recorded a loss on modification of long-term debt of $2.8 million during the six months ended June 30, 2020, resulting from the Amendment to our credit agreement.

Income Tax Expense (Benefit). Our effective tax rate was approximately 31% and (24)% for the six months ended June 30, 2019 and 2020, respectively. These rates differ from the federal statutory rate of 21% due to the effect of state income taxes and certain expenses that are not deductible for tax purposes.

Net Income (Loss). Net loss for the six months ended June 30, 2020 was $27.1 million compared to net income of $5.6 million for the six months ended June 30, 2019 as a result of the factors described above.

Liquidity and Capital Resources

Overview. Our primary sources of liquidity are internally generated cash flow and our revolving credit facility (as defined below). Our primary liquidity needs have been, and for the next twelve months and thereafter, are expected to continue to be, for working capital, debt service, and other general corporate purposes, including capital expenditures and radio station acquisitions. Historically, our capital expenditures have not been significant. In addition to property and equipment associated with radio station acquisitions, our capital expenditures have generally been, and are expected to continue to be, related to the maintenance of our office and studio space, the maintenance of our radio towers and equipment, and digital products and information technology. We have also purchased or constructed office and studio space in some of our markets to facilitate the consolidation of our operations.

In response to the COVID-19 pandemic, our board of directors has suspended future quarterly dividend payments until it is determined that resumption of dividend payments is in the best interest of the Company’s stockholders. In addition, as discussed in “Credit Facility” below, the Amendment to our credit agreement limits us from paying dividends until certain leverage-based milestones have been achieved.

Credit Facility. On November 17, 2017 we and our wholly owned subsidiary, Beasley Mezzanine Holdings, LLC, entered into a credit agreement (the “credit agreement”) with U.S. Bank, National Association, as administrative agent and collateral agent, providing for a term loan B facility in the amount of $225.0 million (the “term loan facility”) and a revolving credit facility of $20.0 million (the “revolving credit facility,” and together with the term loan facility, the “credit facility”). On September 27, 2018, we borrowed an additional $35.0 million from the term loan facility. The proceeds were used for the acquisition of WXTU-FM in Philadelphia. On August 31, 2019, we borrowed $10.0 million from our revolving credit facility. The proceeds were used for the acquisition of substantially all of the assets used to operate WDMK-FM in Detroit. On March 26, 2020 and April 7, 2020, we borrowed $7.5 million and $1.5 million, respectively, from our revolving credit facility as a precautionary measure to increase our cash position and preserve financial flexibility due to the uncertainty of economic conditions in the U.S. resulting from the COVID-19 pandemic.

As of June 30, 2020, the credit facility consisted of the term loan facility with a remaining balance of $238.0 million and a revolving credit facility with an outstanding balance of $20.0 million and a maximum commitment of $20.0 million. As of June 30, 2020, we had no available commitments under the revolving credit facility. As of June 30, 2020, following the entry into the Amendment as described below, at our option, the credit facility bore interest at either (i) the London Interbank Offered Rate (“LIBOR”) plus a margin of 4.25% or (ii) the base rate (as defined in the credit agreement) plus a margin of 3.25%. The LIBOR interest rate for the term loan is subject to a 1% floor and the base rate is subject to a 2% floor. Interest payments are, for loans based on LIBOR, due at the end of each applicable interest period unless the interest period is longer than three months, in which case they are due at the end of each three month period. Interest payments for loans based on the base rate are due quarterly. The revolving credit facility carried interest, based on LIBOR, at 5.25% as of June 30, 2020 and matures on November 17, 2022. The term loan carried interest, based on LIBOR, at 5.25% as of June 30, 2020 and matures on November 1, 2023.

On June 30, 2020, we entered into the Amendment that amended and modified the credit agreement to, among other things, (i) increase the interest rate applicable to the term loans and revolving credit facility by 25 basis points per annum, (ii) add fees of 300 basis points payable on December 31, 2021 and 150 basis points payable on December 31, 2022, if the credit agreement is not refinanced prior to such time, (iii) impose additional reporting requirements, (iv) revise the Excess Cash Flow prepayment requirement such that when the Total Leverage Ratio is greater than 4.5x, 75% of Excess Cash Flow must be prepaid, with such prepayment amounts stepping down to 50%, 25% and 0% upon achievement of certain Total Leverage Ratio milestones, and (v) reduce the flexibility to incur certain additional indebtedness, liens and investments and make certain restricted payments, subject to the achievement of certain leverage-based milestones.

Additionally, the Amendment modified the financial covenant to remove the maximum First Lien Leverage Ratio previously tested quarterly through the fiscal quarter ended March 31, 2020. In its place, the Amendment added (i) a minimum liquidity covenant of $8.5 million (the “Minimum Liquidity Amount”), which will be tested every other week until the Total Leverage Ratio is less than 5.0x, (ii) a minimum EBITDA (as defined in the credit agreement, as amended by the Amendment) covenant, which will be tested monthly beginning October 31, 2020 through June 30, 2021 and (iii) a maximum First Lien Leverage Ratio covenant, which will be tested quarterly beginning with the fiscal quarter ending September 30, 2021. The Amendment also modifies the definition of Consolidated EBITDA to remove certain add-backs with respect to the calculation of Consolidated EBITDA and EBITDA for financial covenants and other similar calculations and reduces the amount of cash that can be netted for the calculation of the First Lien Leverage Ratio for purposes of testing the First Lien Leverage Ratio financial covenant, when applicable.

Also, as a condition to entering into the Amendment, George Beasley, the Company’s Chairman, provided a $5 million loan to the Company that accrues payment-in-kind interest at 6% per annum with no cash payments due until the loan’s maturity in December 2023. Mr. Beasley and GGB Family Limited Partnership also each entered into standby letters of credit in combined aggregate face amount of $5,000,000 in favor of U.S. Bank, National Association for the benefit of the Company as a source of backup liquidity that may be drawn by U.S. Bank, National Association in the event that the Company fails to maintain the Minimum Liquidity Amount.

The credit facility is secured by substantially all assets of the Company and its subsidiaries and is guaranteed jointly and severally by the Company and its subsidiaries. If we default under the terms of the credit agreement, the Company and its subsidiaries may be required to perform under their guarantees. As of June 30, 2020, the maximum amount of undiscounted payments the Company and its applicable subsidiaries would have been required to make in the event of default was $258.0 million. The guarantees for the credit facility expire on November 17, 2022 for the revolving credit facility and on November 1, 2023 for the term loan facility.

Failure to comply with financial covenants, scheduled interest payments, scheduled principal repayments, or any other terms of our credit agreement, as amended by the Amendment, could result in the acceleration of the maturity of our outstanding debt, which could have a material adverse effect on our business or results of operations.

On November 14, 2019, the Company acquired a majority interest in an esports team and issued a promissory note for $16.5 million to the seller (the “Promissory Note”). The Promissory Note had a remaining balance of $13.5 million as of December 31, 2019. On June 30, 2020, the Company entered into an amendment to the Promissory Note (as amended, the “Amended Promissory Note”). As of June 30, 2020, the Amended Promissory Note has a balance of $10.0 million. On July 8, 2020, the Company issued an initial stock payment of 1,276,596 Class A common stock at a fixed price of $2.35 per share that reduced the principal by $2.25 million. The Amended Promissory Note bears cash-pay interest at 5% per annum payable quarterly in arrears and additional payment-in-kind interest at 10% per annum. The Amended Promissory Note provides for cash principal payments of $2.25 million on December 31, 2020. For subsequent stock issuances, which begin on June 30, 2021, the principal reduction amount will be the lesser of (i) the value of the stock issued based on 20-day moving average on the day prior to issuance or (ii) the “principal reduction amount,” which is 50% of the value of the stock based on a fixed price of $2.35 per share. The number of shares to be issued was fixed at the time of the signing of the note and will not exceed 3,191,489 in the aggregate (including the July 2020 issuance). All accrued but unpaid interest and the then outstanding principal amount of the Amended Promissory Note will be paid in full in cash on December 31, 2023. The Amended Promissory Note will mature on December 31, 2023 and may be prepaid at any time at the option of the Company.

The aggregate scheduled principal repayments of the credit facility and Amended Promissory Note for the remainder of 2020 and the next three years are as follows:

The Amendment permits us to repurchase sufficient shares of our common stock to fund withholding taxes in connection with the vesting of restricted stock units and shares of restricted stock up to an aggregate amount of $1.0 million per year. We paid approximately $14,000 to repurchase 31,919 shares during the six months ended June 30, 2020.

We expect to provide for future liquidity needs through one or a combination of the following sources of liquidity:

• internally generated cash flow;
• our revolving credit facility when commitments are available;
• additional borrowings, other than under our revolving credit facility, to the extent permitted under our credit facility; and
• additional equity offerings.

We believe that we will have sufficient liquidity and capital resources to permit us to provide for our liquidity requirements and meet our financial obligations for the next twelve months. However, poor financial results or unanticipated expenses could give rise to defaults under our credit facility, additional debt servicing requirements or other additional financing or liquidity requirements sooner than we expect, and we may not secure financing when needed or on acceptable terms.

Our ability to reduce our Total Leverage Ratio by increasing operating cash flow and/or decreasing long-term debt will determine how much, if any, of the commitments under our revolving credit facility will be available to us in the future. Poor financial results or unanticipated expenses could result in our failure to maintain or lower our Total Leverage Ratio and we may not be permitted to make any additional borrowings under our revolving credit facility. We have no available commitments under our revolving credit facility.

Cash Flows. The following summary table presents a comparison of our capital resources for the six months ended June 30, 2019 and 2020 with respect to certain of our key measures affecting our liquidity. The changes set forth in the table are discussed in greater detail below. This section should be read in conjunction with the financial statements and notes to financial statements included in Item 1 of this report.

Net Cash Provided By Operating Activities. Net cash provided by operating activities decreased $4.4 million during the six months ended June 30, 2020 as compared to the six months ended June 30, 2019. Significant factors affecting the decrease in net cash provided by operating activities included a $16.6 million decrease in cash receipts from revenue, partially offset by a $6.8 million decrease in cash paid for operating expenses, a $2.4 million decrease in income tax payments, a $1.4 million decrease in cash paid for corporate expenses, and a $0.9 million decrease in interest payments.

Net Cash Used In Investing Activities. Net cash used in investing activities during the six months ended June 30, 2020 included payments of $6.0 million for capital expenditures and payments of $1.0 million for investments. Net cash used in investing activities for the same period in 2019 included payments of $4.7 million for capital expenditures and payments of $2.5 million for investments, partially offset by proceeds of $3.8 million from dispositions.

Net Cash Provided By (Used In) Financing Activities. Net cash provided by financing activities during the six months ended June 30, 2020 included proceeds of $9.0 million from the issuance of indebtedness under our revolving credit facility and proceeds from the $5.0 million loan provided by George Beasley, partially offset by credit facility and promissory note repayments of $4.5 million, payments of $2.8 million for cash dividends, and payments of $2.6 million for debt issuance costs related to the Amendment. Net cash used in financing activities for the same period in 2019 included repayments of $6.5 million under our credit facility and payments of $2.8 million for cash dividends.

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that these disclosure controls and procedures are effective as of the end of the period covered by this report.

There were no changes in our internal control over financial reporting during the quarter ended June 30, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There have been no material changes to our risk factors as disclosed in Item 1A, “Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2019, other than the updates noted below.

We face risks related to health epidemics, natural disasters and other catastrophes, which have materially and adversely affected our results of operations, liquidity and financial condition.

We are subject to social and natural catastrophic events that are beyond our control, such as health epidemics, natural disasters and other catastrophes, which have materially and adversely affected our business and may continue to materially and adversely affect our results of operations, liquidity and financial condition.

In March 2020, COVID-19 was recognized as a pandemic by the World Health Organization. The COVID-19 pandemic has resulted in a widespread health crisis that has adversely affected businesses, economies, and financial markets worldwide, and has caused significant volatility in U.S. and international debt and equity markets. We have been, and continue to be, impacted by deteriorating general economic conditions, which have caused a downturn in the advertising industry. The decreased demand for advertising has materially negatively impacted our results of operations, liquidity and financial condition. We expect the current environment to continue for some time and for our results of operations, liquidity and financial condition to be materially adversely impacted during that time.

Impairments of our FCC licenses and/or goodwill related to the impact of the COVID-19 pandemic will adversely affect our operating results and we may be required to record further impairment losses in the future.

As of June 30, 2020, our FCC licenses and goodwill represented 73% of our total assets. Due to the impact of the COVID-19 pandemic on the U.S. economy, we tested our FCC licenses and goodwill for impairment during the first quarter of 2020. As a result of the quantitative impairment test performed on our FCC licenses, we recorded impairment losses of $6.8 million related to the FCC licenses in our Atlanta, GA, Middlesex, NJ, Monmouth, NJ, Morristown, NJ, Las Vegas, NV, West Palm Beach-Boca Raton, FL, and Wilmington, DE market clusters. Also, as a result of the testing performed during the first quarter of 2020, we identified two market clusters, Boston, MA and Charlotte, NC, where the estimated fair value of the FCC licenses exceeded the carrying amount by 2.4% and 2.5%, respectively. Therefore, the FCC licenses in these two markets may carry an increased risk of impairment losses in the future. As a result of the impairment test performed on our goodwill during the first quarter of 2020, we determined that the estimated fair value of each market cluster exceeded the carrying amount by at least five percent at each market cluster. We did not identify any triggering events for impairment during the second quarter of 2020. Therefore, we did not test our FCC licenses and goodwill for impairment as of June 30, 2020.

The impairment losses were primarily due to a decrease in projected revenue in these markets due to the impact of the COVID-19 pandemic and an increase in the discount rate used in the discounted cash flow analyses to estimate the fair value of our licenses due to certain risks specifically associated with the Company and the radio broadcasting industry. To the extent the COVID-19 pandemic and the related economic downturn continues or worsens, we may be required to record further impairment losses in the future.

The valuation of our FCC licenses and goodwill is based on estimates rather than precise calculations. The fair value measurements for both our FCC licenses and goodwill use significant unobservable inputs which reflect our own assumptions about the estimates that market participants would use in measuring fair value including assumptions about risk. If actual future results are not consistent with the assumptions and estimates used, we may be exposed to impairment charges in the future, which could be material and could adversely affect our results of operations and financial condition.

A decrease in projected revenue due to the COVID-19 pandemic may hinder our ability to meet certain financial ratios and financial condition tests under our credit facility and could lead to an event of default.

Our credit facility requires us to maintain specified financial ratios and to satisfy certain financial condition tests. The decreased demand for advertising as a result of the COVID-19 pandemic has materially negatively impacted our revenues. We expect the current adverse economic environment to continue through at least the end of this year and for our results of operations to be materially adversely impacted during that time. As a result, it may become increasingly difficult for us to meet these financial covenants.

A breach of any of the covenants, ratios, tests or restrictions under our credit facility, could result in an event of default thereunder. If an event of default exists under our credit facility, the lenders could elect to declare all amounts outstanding thereunder to be immediately due and payable. If the lenders accelerate the payment of the indebtedness, we cannot assure you that our assets would be sufficient to repay that indebtedness in full. Such conditions could force us to seek protection under federal bankruptcy laws and could significantly or entirely reduce the value of our equity.

We entered into the Amendment to our credit agreement on June 30, 2020 to modify certain financial covenants, among other provisions. However, there can be no assurance that we will be successful in obtaining additional amendments or waivers, if needed. Further, the terms of the amended credit agreement subject us to additional and different restrictive covenants that could further limit our operational flexibility or subject us to other events of default.