Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion should be read in conjunction with Item 1. Business and the consolidated financial statements and notes thereto of Saga Communications, Inc. and its subsidiaries contained elsewhere herein. The following discussion is presented on a consolidated basis. We serve twenty-eight radio markets (reporting units) that aggregate into one operating segment (Radio), which also qualifies as a reportable segment. We operate under one reportable business segment for which segment disclosure is consistent with the management decision-making process that determines the allocation of resources and the measuring of performance. Corporate general and administrative expenses, interest expense, interest income, other (income) expense, and income tax provision are managed on a consolidated basis.
The discussion of our operating performance focuses on station operating income because we manage our stations primarily on station operating income. Operating performance is evaluated for each individual market.
We use certain financial measures that are not calculated in accordance with generally accepted accounting principles in the United States of America (GAAP) to assess our financial performance. For example, we evaluate the performance of our markets based on “station operating income” (operating income plus corporate general and administrative expenses, depreciation and amortization, other operating (income) expenses, impairment of intangible assets and impairment of goodwill) and use “same station” financial information when analyzing year over year variances. Station operating income is generally recognized by the broadcasting industry as a measure of performance, is used by analysts who report on the performance of the broadcasting industry, and it serves as an indicator of the market value of a group of stations. In addition, we use it to evaluate individual stations, market-level performance, overall operations and as a primary measure for incentive-based compensation of executives and other members of management. Station operating income is not necessarily indicative of amounts that may be available to us for debt service requirements, other commitments, reinvestment or other discretionary uses. Station operating income is not a measure of liquidity or of performance in accordance with GAAP, and should be viewed as a supplement to, and not a substitute for, our results of operations presented on a GAAP basis. Same station financial information excludes stations that we did not own or operate for the entire comparable period.
General
We are a media company primarily engaged in acquiring, developing and operating broadcast properties including opportunities complementary to our core radio business including digital, e-commerce and non-traditional revenue initiatives. We actively seek and explore opportunities for expansion through the acquisition of additional broadcast properties. We review acquisition opportunities on an ongoing basis.
Radio Stations and Complementary Digital Marketing Services
Our radio stations’ primary source of revenue is from the sale of advertising for broadcast on our stations. Depending on the format of a particular radio station, there are a predetermined number of advertisements available to be broadcast each hour.
Most advertising contracts are short-term and generally run for a few weeks only. The majority of our revenue is generated from local advertising, which is sold primarily by each radio market’s sales staff. For the years ended December 31, 2025 and 2024, approximately 91% and 88%, respectively, of our radio stations’ gross revenue was from local advertising. To generate national advertising sales, we engage independent advertising sales representative firms that specialize in national sales for each of our broadcast markets.
Our revenue varies throughout the year. Advertising expenditures, our primary source of revenue, generally have been lowest during the winter months, which include the first quarter of each year. Political revenue was significantly lower in 2025 due to the decreased number of national, state, and local elections in most of our markets as compared to 2024. Our gross political revenue for the years ended December 31, 2025 and 2024 was $650,000 and $3,263,000, respectively. We expect political revenue in 2026 to increase from 2025 levels as a result of more elections in 2026 at the local, state and national levels.
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Our net operating revenue, station operating expense and operating income vary from market to market based upon the market’s rank or size which is based upon population and the available radio advertising revenue in that particular market.
The broadcasting industry and advertising in general is influenced by the state of the overall economy, including unemployment rates, inflation, energy prices and consumer interest rates. Our stations broadcast primarily in small to midsize markets. Historically, these markets have been more stable than major metropolitan markets during downturns in advertising spending, but may not experience increases in such spending as significant as those in major metropolitan markets in periods of economic improvement.
Our financial results are dependent on a number of factors, the most significant of which is our ability to generate advertising revenue through rates charged to advertisers. The rates a station is able to charge are, in large part, based on a station’s ability to attract audiences in the demographic groups targeted by its advertisers. In a number of our markets, this is measured by periodic reports generated by independent national rating services. In the remainder of our markets it is measured by the results advertisers obtain through the actual running of an advertising schedule. Advertisers measure these results based on increased demand for their goods or services and/or actual revenues generated from such demand. Various factors affect the rate a station can charge, including the general strength of the local and national economies, population growth, ability to provide popular programming, local market competition, target marketing capability of radio compared to other advertising media, and signal strength.
When we acquire and/or begin to operate a station or group of stations we generally increase programming and advertising and promotion expenses to increase our share of our target demographic audience. Our strategy sometimes requires levels of spending commensurate with the revenue levels we plan on achieving in two to four years. During periods of economic downturns, or when the level of advertising spending is flat or down across the industry, this strategy may result in the appearance that our cost of operations are increasing at a faster rate than our growth in revenues, until such time as we achieve our targeted levels of revenue for the acquired station or group of stations.
The number of advertisements that can be broadcast without jeopardizing listening levels (and the resulting ratings) is limited in part by the format of a particular radio station. Our stations strive to maximize revenue by constantly managing the number of commercials available for sale and by adjusting prices based upon local market conditions and ratings. While there may be shifts from time to time in the number of advertisements broadcast during a particular time of the day, the total number of advertisements broadcast on a particular station generally does not vary significantly from year to year. Any change in our revenue, with the exception of those instances where stations are acquired or sold, is generally the result of inventory sell out ratios and pricing adjustments, which are made to ensure that the station efficiently utilizes available inventory.
Our radio stations employ a variety of programming formats. We periodically perform market research, including music evaluations, focus groups and strategic vulnerability studies. Because reaching a large and demographically attractive audience is crucial to a station’s financial success, we endeavor to develop strong listener loyalty. Our stations also employ audience promotions to further develop and secure a loyal following. We believe that the diversification of formats on our radio stations helps to insulate us from the effects of changes in musical tastes of the public on any particular format.
The primary operating expenses involved in owning and operating radio stations are employee salaries and related benefit costs, sales commissions, programming expenses, depreciation, and advertising and promotion expenses.
The radio broadcasting industry is subject to rapid technological change, evolving industry standards and the emergence of new media technologies and services. These new technologies and media are gaining advertising share against radio and other traditional media.
The advertising industry continues to evolve as businesses increasingly utilize multiple media channels to reach consumers. In response to these industry trends, we have expanded the range of advertising solutions offered to our clients to include both broadcast radio advertising and complementary digital marketing services.
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We continue to execute Saga’s digital strategy focused on the consumer journey. Our integrated advertising approach allows advertisers to combine the reach and audience engagement of radio with digital advertising tools that enable more targeted consumer engagement and campaign measurement. These services include paid search advertising, targeted digital display advertising, streaming advertising, social media advertising, online video advertising, website-based advertising, on-line news services and other related digital marketing services.
Paid search advertising campaigns are designed to reach consumers actively searching for products or services. Targeted digital display advertising campaigns are delivered through programmatic advertising platforms and allow advertisers to reach audiences based on geographic location, behavioral attributes, contextual relevance and other targeting parameters. Most of our radio stations are able to be streamed on third party music platforms and our customers advertise between songs played on the streaming service. Additionally, we have online news sites, where advertisers place web banners that link to the client’s website. For the years ended December 31, 2025 and 2024, approximately 15% and 12%, respectively, of our radio stations’ gross revenue was from digital advertising.
Our digital advertising services are supported by a centralized team of digital implementation specialists who work in conjunction with local market personnel to execute and optimize campaigns. Campaign performance is monitored throughout the duration of the advertising schedule and clients are generally provided periodic reports which may include impressions, clicks, website visits, calls generated and other campaign performance indicators.
Our digital advertising services rely on a number of third-party technology platforms and advertising exchanges, including major search, social media and programmatic advertising providers. Changes in the policies, technologies or pricing structures of these platforms could affect the manner in which digital advertising services are delivered.
We expect the use of integrated advertising strategies combining broadcast and digital media to continue evolving as advertisers seek broader reach, targeted messaging and measurable marketing outcomes.
During the years ended December 31, 2025 and 2024, our Charleston, South Carolina; Columbus, Ohio; Milwaukee, Wisconsin; Norfolk, Virginia; and Portland, Maine markets, when combined, represented approximately 34% and 36%, respectively, of our consolidated net operating revenue. An adverse change in any of these radio markets or relative market position in those markets could have a significant impact on our operating results as a whole.
The following tables describe the percentage of our consolidated net operating revenue represented by each of these markets:
Percentage of Consolidated
Net Operating Revenue
for the Years
Ended December 31,
Market:
Charleston, South Carolina
Columbus, Ohio
Milwaukee, Wisconsin
Norfolk, Virginia
Portland, Maine
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During the years ended December 31, 2025 and 2024, the radio stations in our five largest markets when combined, represented approximately 39% and 40%, respectively, of our consolidated station operating income (loss). The following tables describe the percentage of our consolidated station operating income (loss) represented by each of these markets:
Percentage of Consolidated
Station Operating Income(*)
for the Years Ended
December 31,
Market:
Charleston, South Carolina
Columbus, Ohio
Milwaukee, Wisconsin
Norfolk, Virginia
Portland, Maine
Operating income (loss) plus corporate general and administrative expenses, depreciation and amortization, other operating (income) expenses, impairment of goodwill and impairment of intangible assets.
Results of Operations
The following tables summarize our results of operations for the two years ended years ended December 31, 2025 and 2024.
Consolidated Results of Operations
Years Ended December 31,
$ Increase
% Increase
(Decrease)
(Decrease)
(In thousands, except %’s and per share information)
Net operating revenue
Station operating expense
Corporate general and administrative
Depreciation and amortization
Other operating (income) expense, net
Impairment of goodwill
Impairment of intangible assets
Operating (loss) income
Interest expense
Interest income
Other income
Income before income tax expense
Income tax provision
Net (loss) income
(Loss) earnings per share (diluted)
N/M = Not Meaningful
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Year Ended December 31, 2025 Compared to Year Ended December 31, 2024
For the year ended December 31, 2025, consolidated net operating revenue was $107,112,000 compared with $112,919,000 for the year ended December 31, 2024, a decrease of $5,807,000 or 5.1%. We had an increase of approximately $725,000 that was attributable to stations that we did not own or operate for the entire comparable period, offset by a decrease of $6,532,000 generated by stations we owned or operated for the comparable period in 2024 (“same station”). The decrease in same station revenue in 2025 was due to decreases in gross local revenues of $5,202,000, gross political revenue of $2,613,000, gross national revenue of $1,741,000 and gross non-spot revenue of $235,000 partially offset by increases in gross interactive or digital revenue of $2,603,000 and a decrease in agency commission of $985,000 from 2024. The most significant decreases in gross local revenue occurred in our Columbus, Ohio; Des Moines, Iowa; Ithaca, New York; Jonesboro, Arkansas; Keene, New Hampshire/Brattleboro, Vermont; and Norfolk, Virginia markets partially offset by an increase at our Asheville, North Carolina market. The gross political revenue decreased due to a decrease in the number of national, state and local elections. The decrease in gross national revenue is primarily due to decreases in our Charleston, South Carolina; Columbus, Ohio; Manchester, New Hampshire; Ocala, Florida; and Portland Maine, partially offset by an increase in our Norfolk, Virginia market. The increase in gross digital revenue is primarily due to an increase in our streaming, website advertising, search engine management (“SEM”) and targeted display revenue. The decrease in our agency commissions is due to the decrease in local agency revenue.
Station operating expense was $91,781,000 for the year ended December 31, 2025, compared with $91,835,000 for the year ended December 31, 2024, a decrease of $54,000 or 0.1%. We had an increase of approximately $842,000 that was attributable to stations that we did not own or operate for the comparable period offset with a decrease of $896,000 generated by stations we owned or operated for the comparable period in 2024. The decrease in same station operating expenses was primarily a result of decreases in compensation-related expenses, advertising and promotional expenses, bad debt expenses and maintenance and repairs expenses of $2,323,000, $470,000, $316,000 and $225,000, respectively, partially offset by increases in music licensing expenses and digital services expenses of $2,121,000 and $367,000, respectively from 2024. As disclosed in Note 12 in the accompanying notes to the consolidated financial statements, on August 19, 2025 the RMLC announced (as did each of ASCAP and BMI, respectively) that the RMLC had entered into separate settlement agreements with each of ASCAP and BMI to resolved rate-setting proceedings pending in the United States District Court for the Southern District of New York. The settlements established final license fee rates which apply retroactively for the period January 1, 2022 through December 31, 2025 and on a go forward basis until December 31, 2029. During the year ended December 31, 2025, the Company recorded an aggregate of approximately $2.2 million related to the ASCAP and BMI retroactive adjustments in station operating expenses in the Company’s Consolidated Statement of Income (Loss).
We had an operating loss for the year ended December 31, 2025 of $11,044,000 compared to operating income of $2,355,000 for the year ended December 31, 2024, a decrease of $13,399,000. The primary reasons for the operating loss in 2025 compared to 2024 is because of the non-cash impairment charge of $20,397,000 recorded in the fourth quarter of 2025 (as described in Note 3 in the accompanying notes to the consolidated financial statements) partially offset by operating income of $11,522,000 primarily related to the sale of 24 telecommunications towers and related real property and other assets located at 22 tower sites. The recent economic slowdown has negatively affected the radio broadcasting industry as advertising revenues continued to decline in latter part of 2025 and our digital advertising growth did not outpace the declines in radio broadcasting advertising. The revenue decline in the fourth quarter for the industry and the Company were greater than those originally forecasted and experienced in the first part of the year which was the primary reason for the impairment to broadcast license at our Ithaca, New York market and our goodwill for the Company. In 2025, we recorded a gain on the sale of fixed assets of $11,522,000 compared to a loss on sale of fixed assets and intangibles of $1,048,000 in 2024 as described in Note 16 (Sale-Leaseback Transaction) and Note 9 (Acquisitions and Disposals). The remaining decrease was a result of the decrease in net operating revenue, partially offset by the decrease in station operating expense, described above, partially offset by a decrease in our corporate general and administrative expenses of $76,000 and a decrease in depreciation and amortization expense of $105,000. The decrease in corporate general and administrative expenses was primarily attributable to decreases in the expense related to the income tax obligation relating to the transfer of a split dollar life insurance policy to our former CEO, Ed Christian’s estate of $500,000 recorded in 2024, and other travel related and manager meetings expenses totaling $182,000 partially offset but increases related to shareholder activism and a potential proxy contest of $226,000, and increases in our stock-based compensation and insurance-related expenses of $162,000 and $138,000, respectively.
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We generated a net loss of $7,899,000 ($1.22 per share on a fully diluted basis) during the year ended December 31, 2025, compared to net income $3,460,000 ($0.55 per share on a fully diluted basis) for the year ended December 31, 2024, a decrease of $11,359,000. The decrease in net income is due to the decrease of operating income, resulting primarily from the non-cash impairment charges described above. We also experienced an increase in interest expense of $86,000, a decrease in interest income of $143,000, a decrease in other income of $1,411,000 which were partially offset by a decrease in income taxes of $3,680,000. The increase in interest expense is due to an increase in debt outstanding. The decrease in interest income is related to the decrease in the amount of short-term investment accounts. The other income in 2025 of $105,000 is related to insurance proceeds and in 2024 it is related to $1,133,000 received related to the sale of an investment in BMI and $383,000 in insurance proceeds. The gain on gain on insurance claims are recorded in other (income) expense, net in the Company’s Consolidated Statement of Income (Loss). The decrease in our income tax expense is due to the net loss before income tax benefit compared to the net income before income tax expense for the comparable period.
Liquidity and Capital Resources
Debt Arrangements and Debt Service Requirements
In connection with the Sale-Leaseback Transaction described in Note 16 to the accompanying consolidated financial statements, the Company entered into a Fourth Amendment (“Fourth Amendment”) to its Credit Agreement, dated as of August 18, 2015 and amended on September 1, 2017, June 17, 2018, and December 19, 2022, between the Company, JPMorgan Chase Bank, N.A. and The Huntington National Bank (collectively, the “Lenders”), and JPMorgan Chase Bank, N.A., in its capacity as Administrative Agent for the Lenders (“Agent”), (i) reducing the aggregate amount of the Lender’s revolving commitments from $50,000,000 to $40,000,000, and (ii) releasing the Agent’s security interest in the GTC Assets, but not any proceeds paid for the GTC Assets or any other collateral. Previously, on December 19, 2022, we entered into a Third Amendment to our Credit Facility, (the “Third Amendment”), which extended the maturity date to December 19, 2027, reduced the lenders to JPMorgan Chase Bank, N.A., and the Huntington National Bank (collectively, the “Lenders”), established an interest rate equal to the secured overnight financing rate (“SOFR”) as administered by the SOFR Administrator (currently established as the Federal Reserve Bank of New York) as the interest base and increased the basis points.
We have pledged substantially all of our assets (excluding our FCC licenses and certain other assets) in support of the Credit Facility and each of our subsidiaries has guaranteed the Credit Facility and has pledged substantially all of their assets (excluding their FCC licenses and certain other assets) in support of the Credit Facility.
Interest rates under the Credit Facility are payable, at our option, at alternatives equal to SOFR (3.87% at December 31, 2025), plus 1% to 2% or the base rate plus 0% to 1%. The spread over SOFR and the base rate vary from time to time, depending upon our financial leverage. Letters of credit issued under the Credit Facility will be subject to a participation fee (which is equal to the interest rate applicable to Eurocurrency Loans, as defined in the Credit Agreement) payable to each of the Lenders and a fronting fee equal to 0.25% per annum payable to the issuing bank. Under the Third Amendment, we now pay quarterly commitment fees of 0.25% per annum on the unused portion of the Credit Facility. We previously paid quarterly commitment fees of 0.2% to 0.3% per annum on the unused portion of the Credit Facility.
The Credit Facility contains a number of financial covenants (all of which we were in compliance with at December 31, 2025) which, among other things, require us to maintain specified financial ratios and impose certain limitations on us with respect to investments, additional indebtedness, dividends, distributions, guarantees, liens and encumbrances.
We had $5,000,000 debt outstanding at December 31, 2025 and December 31, 2024 that we borrowed in conjunction with our Lafayette acquisition.
We had approximately $35 million and $45 million unused borrowing capacity under the Revolving Credit Facility at December 31, 2025 and 2024, respectively.
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Sources and Uses of Cash
During the years ended December 31, 2025 and 2024, we had net cash flows from operating activities of $5,464,000 and $13,772,000, respectively. We believe that cash flow from operations will be sufficient to meet any quarterly debt service requirements for interest and scheduled payments of principal under the Credit Facility if we borrow in the future. However, if such cash flow is not sufficient, we may be required to sell additional equity securities, refinance our obligations or dispose of one or more of our properties in order to make such scheduled payments. There can be no assurance that we would be able to effect any such transactions on favorable terms, if at all.
In March 2013, our Board of Directors authorized an increase to our Stock Buy-Back Program (the “Buy-Back Program”) to allow us to purchase up to $75.8 million of our Class A Common Stock. From the Buy-Back Program’s inception in 1998 through December 31, 2025, we have repurchased 2.4 million shares of our Class A Common Stock for $60.6 million. During the year ended December 31, 2025, approximately 184,000 shares were repurchased for $2,100,000 under privately negotiated transactions and approximately 35,000 shares were retained for payment of withholding taxes for $400,000 related to the vesting of restricted stock. We continue to monitor economic conditions to determine if and when it makes sense to make additional buybacks under our plan.
Our capital expenditures, exclusive of acquisitions, for the year ended December 31, 2025 were $3,041,000 ($3,767,000 in 2024). We anticipate capital expenditures in 2026 to be approximately $3.5 million to $4.5 million, which we expect to finance through funds generated from operations.
On October 17, 2025 (the “Closing Date”), the Company entered into an Asset Purchase Agreement (the “Purchase Agreement”) by and among the Company, GTC Uno, LLC (“GTC”) and certain of the Company’s subsidiaries (the “Subsidiaries”), under which the Subsidiaries agreed to sell 24 telecommunications towers and related real property and other assets located at 22 sites (the “GTC Assets”) for a total cash purchase price of approximately $10.7 million (the “Sale-Leaseback Transaction”). The Purchase Agreement contains customary representations and warranties made by the Company, GTC and the Subsidiaries. On the Closing Date, the parties closed on the sale of the 22 tower sites. Sales proceeds, net of brokerage commissions and certain adjustments, of approximately $10.1 million were paid to the Company, with the remaining purchase price of $400 thousand paid into escrow. The Company recognized a gain on sale of $11.6 million, which includes the purchase price net of certain closing costs and legal expenses plus the estimated fair value of the difference between the present value of the contractual lease payments and the present value of estimated market lease payments obtained at closing of approximately $5.2 million less the carrying value of the towers. This gain is included in Other operating (income) expense, net in the consolidated statements of income (loss) for the year ended December 31, 2025. The Sale-Leaseback transaction is part of the Company’s previously announced plan to optimize its portfolio of assets including monetizing non-productive assets.
On February 13, 2024, we entered into an agreement to purchase the assets of WKOA (FM), WKHY (FM), WASK (FM), WXXB (FM), WASK (AM) and W269DJ from Neuhoff Communications, Inc. serving the Greater Lafayette, Indiana radio market for $5.3 million, subject to certain purchase price adjustments. The Company closed on this transaction on May 31, 2024, using funds from operations and borrowings under our credit agreement, of $5,832,000, which included the purchase price of $5,300,000, the purchase of $499,000 in accounts receivable and transactional costs of approximately $121,000 offset by $88,000 in certain closing adjustments.
During 2025, the Company’s Board of Directors declared four quarterly cash dividends on its Class A Common Stock. These dividends, totaling $1.00 per share and approximately $6.4 million were paid during 2025.
During 2024, the Company’s Board of Directors declared four quarterly cash dividends and a variable dividend on its Class A Common Stock. These dividends, totaling $1.60 per share and approximately $10.0 million were paid during 2024.
During 2025, we used the proceeds from our U.S. Treasury Bills to purchase additional U.S. Treasury Bills when they were up for redemption at various times through the year. We redeemed $18.2 million in U.S. Treasury Bills and purchased an additional $18.2 million in U.S. Treasury Bills. At December 2025, we have recorded $9.3 million of
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held-to-maturity U.S. Treasury Bills at amortized cost basis that have a fair market value of $9.3 million. Our held-to-maturity U.S. Treasury Bills all have original maturity dates ranging from January 2026 to May 2026.
We anticipate that any future acquisitions of radio stations and dividend payments will be financed through funds generated from operations, borrowings under the Credit Agreement, additional debt or equity financing, or a combination thereof. However, there can be no assurances that any such financing will be available on acceptable terms, if at all.
Critical Accounting Policies and Estimates
Our consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States, which require us to make estimates, judgments and assumptions that affect the reported amounts of certain assets, liabilities, revenues, expenses and related disclosures and contingencies. We evaluate estimates used in preparation of our financial statements on a continual basis, including estimates related to the following:
Purchase Accounting: We account for our acquisitions under the purchase method of accounting. The total cost of acquisitions is allocated to the underlying net assets, based on their respective estimated fair values as of the acquisition date. The excess of consideration paid over the estimated fair values of the net assets acquired is recorded as goodwill. Determining the fair values of the net assets acquired and liabilities assumed requires management’s judgment and often involves the use of significant estimates including assumptions with respect to future cash inflows and outflows, discount rates, asset lives and market multiples, among other items.
Broadcast Licenses and Goodwill: As of December 31, 2025, we have recorded approximately $90,311,000 in broadcast licenses, which represents 45% of our total assets. In assessing the recoverability of these assets, we must conduct impairment testing and charge to operations an impairment expense only in the periods in which the carrying value of these assets is more than their fair value. We conduct the impairment testing of broadcast licenses and goodwill annually or more frequently if events or changes in circumstances indicate that the asset might be impaired. During the fourth quarter of 2025, we recorded an impairment loss of $20,397,000 for broadcast licenses and goodwill. There was no impairment of broadcast licenses or goodwill in 2024.
We believe our estimate of the value of our broadcast licenses is a critical accounting estimate as the value is significant in relation to our total assets, and our estimate of the value uses assumptions that incorporate variables based on past experiences and judgments about future operating performance of our stations. These variables include but are not limited to: (1) the forecast growth rate of each radio market, including population, household income, retail sales and other expenditures that would influence advertising expenditures; (2) market share and profit margin of an average station within a market; (3) estimated capital start-up costs and losses incurred during the early years; (4) risk-adjusted discount rate; (5) the likely media competition within the market area; and (6) terminal values. Changes in our estimates of the fair value of these assets could result in material future period write-downs in the carrying value of our broadcast licenses. As a result of our annual broadcast license impairment test in the fourth quarter of 2025, we noted that the fair value exceeded the carrying value of our broadcast license in Ithaca, New York, resulting in a $1.2 million non-cash impairment charge. For illustrative purposes only, during our 2025 impairment test had the discount rate of our broadcasting licenses that had been quantitatively tested been higher by 0.5% we would have recorded an additional broadcast license impairment of approximately $670,000.
Additionally, our estimate of the value of our goodwill is a critical accounting estimate and our estimate of the value uses assumptions that incorporate variables based on past experiences and judgments about future operating performance. As part of our annual goodwill impairment test in the fourth quarter of 2025, which indicated that the fair value of the reporting unit was below its carrying value, we have reduced our goodwill to zero, resulting in a $19.2 million non-cash impairment charge. The impairment was driven by lower than expected revenue growth seen in the fourth quarter of 2025 for our radio advertising revenue and the radio industry as a whole which resulted in less than favorable market projections and operating profit margins used in our annual impairment calculation performed in the fourth quarter. We believe we have made reasonable estimates and assumptions to calculate the estimated fair value of our goodwill, however, these estimates and assumptions are highly judgmental in nature. Actual results can be
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materially different from estimate and assumptions. Following the impairment charge, no goodwill remains recorded for the reporting unit.
Sale Leaseback: During 2025, the Company completed a sale-leaseback transaction involving 24 of its towers at 22 tower sites (the “Sale-Leaseback Transaction”). In connection with the Sale-Leaseback transaction, the Company sold the property to a third party and simultaneously entered into a 25-year lease agreement that allows the Company to continue using the property without contractual lease payments.
The Company evaluated the Sale-Leaseback transaction under the sale-leaseback guidance in ASC 842 and concluded that the transfer of the property qualified as a sale. Because the leaseback was not determined to be at fair value, the Company recognized prepaid rent that is included within the balance of right-of-use (“ROU”) assets representing the difference between the present value of the contractual lease payments and the present value of market lease payments.
The determination of the difference between the present value of the contractual lease payments and the present value of market lease payments requires significant judgment and estimation and could materially affect the Company’s financial position and results of operations. Accordingly, the Company considers this estimate to be a critical accounting estimate. The Company estimated the present value of market lease payments by:
Estimating market rental rates for comparable properties in the relevant geographic market over the 25-year lease term;
Projecting the market rents that would have been payable over the lease term; and
Discounting the estimated market rents to present value using a discount rate.
The resulting present value represents the prepaid rent recorded in our right-of-use asset recognized at lease commencement, which is amortized on a straight-line basis over the 25-year lease term. The most significant assumptions used in estimating the fair value of the prepaid rent benefit include (1) Market rental rates for comparable properties in the relevant market; and (2) Discount rate. These assumptions were developed using a combination of third-party market data, comparable lease information, and internal analyses. Because the fair value of the prepaid rent benefit is based on estimates of market rental rates and discount rates, changes in these assumptions could materially affect the amount of the ROU asset recognized. Changes in these assumptions would also affect the amount of amortization expense recognized in future periods.
Tax Provisions: Our estimates of income taxes and the significant items giving rise to the deferred tax assets and liabilities are shown in the notes to our consolidated financial statements and reflect our assessment of actual future taxes to be paid on items reflected in the financial statements, giving consideration to both timing and probability of these estimates. Actual income taxes could vary from these estimates due to future changes in income tax law or results from the final review of our tax returns by federal, state or foreign tax authorities. We use our judgment to determine whether it is more likely than not that our deferred tax assets will be realized. Deferred tax assets are reduced by valuation allowances if the Company believes it is more than likely than not that some portion or the entire asset will not be realized.
Market Risk and Risk Management Policies
Our earnings are affected by changes in short-term interest rates as a result of our long-term debt arrangements. If we had borrowings against our long-term debt arrangements, in the event of an adverse change in interest rates, management may take actions to mitigate our exposure.
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Inflation
The impact of inflation on our operations has not been significant to date. We are however, starting to see the effects of higher inflation starting to impact costs of most goods and services. There can be no assurance that a high rate of inflation in the future would not have an adverse effect on our operations.
Recent Accounting Pronouncements
Recent accounting pronouncements are described in Note 1 to the accompanying financial statements.
