Mediaco Holding Inc 10-Q for FY2021 Q1
Mediaco Holding Inc. (MDIA)
About this 10-Q
Mediaco Holding Inc filed this 10-Q on May 24, 2021, covering the quarter ended March 31, 2021 (FY2021 Q1).
Headline figures
Quarter ended March 31, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $9.74M
- down 17.3% from $11.79M a year earlier
- Net loss
- $3.25M
- compared with a net loss of $1.49M a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2021
Commission File Number 001-39029
MEDIACO HOLDING INC.
(Exact name of registrant as specified in its charter)
INDIANA
(State of incorporation or organization)
84-2427771
(I.R.S. Employer Identification No.)
ONE EMMIS PLAZA
40 MONUMENT CIRCLE, SUITE 700
INDIANAPOLIS, INDIANA 46204
(Address of principal executive offices)
(317) 266-0100
(Registrant’s Telephone Number, Including Area Code)
NOT APPLICABLE
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class |
Trading symbol(s) |
Name of each exchange on which registered |
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Class A common stock, $0.01 par value |
MDIA |
Nasdaq Capital Market |
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filer |
☐ |
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Accelerated filer |
☐ |
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Non-accelerated filer |
☐ |
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Smaller reporting company |
☒ |
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Emerging growth company |
☒ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
The number of shares outstanding of each of MediaCo Holding Inc.’s classes of common stock, as of May 18, 2021, was:
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2,437,550 |
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Shares of Class A Common Stock, $.01 Par Value |
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5,413,197 |
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Shares of Class B Common Stock, $.01 Par Value |
|
— |
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Shares of Class C Common Stock, $.01 Par Value |
PART I — FINANCIAL INFORMATION
MEDIACO HOLDING INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
|
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Three Months Ended March 31, |
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|||||
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2020 |
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2021 |
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||
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NET REVENUES |
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$ |
11,785 |
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$ |
9,743 |
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OPERATING EXPENSES: |
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Operating expenses excluding depreciation and amortization expense |
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9,457 |
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7,761 |
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Corporate expenses |
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1,165 |
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1,641 |
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Depreciation and amortization |
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1,027 |
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981 |
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Gain on disposal of assets |
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— |
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(6 |
) |
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Total operating expenses |
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11,649 |
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10,377 |
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OPERATING INCOME (LOSS) |
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136 |
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(634 |
) |
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OTHER EXPENSE: |
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Interest expense |
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(2,238 |
) |
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(2,538 |
) |
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LOSS BEFORE INCOME TAXES |
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(2,102 |
) |
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(3,172 |
) |
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(BENEFIT) PROVISION FOR INCOME TAXES |
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(617 |
) |
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81 |
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CONSOLIDATED NET LOSS |
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(1,485 |
) |
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(3,253 |
) |
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PREFERRED STOCK DIVIDENDS |
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529 |
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634 |
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NET LOSS |
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$ |
(2,014 |
) |
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$ |
(3,887 |
) |
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Basic and diluted loss per share attributable to common shareholders |
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$ |
(0.28 |
) |
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$ |
(0.55 |
) |
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Basic and diluted weighted average number of common shares outstanding |
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7,084 |
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7,115 |
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The accompanying notes are an integral part of these unaudited condensed consolidated statements.
- 3 -
MEDIACO HOLDING INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
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December 31, 2020 |
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March 31, 2021 |
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(Unaudited) |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
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$ |
4,171 |
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$ |
4,490 |
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Accounts receivable, net |
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8,508 |
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7,264 |
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Prepaid expenses |
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1,247 |
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1,648 |
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Other current assets |
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1,274 |
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1,059 |
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Total current assets |
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15,200 |
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14,461 |
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PROPERTY AND EQUIPMENT, NET |
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27,650 |
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27,086 |
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INTANGIBLE ASSETS, NET |
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79,217 |
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78,903 |
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OTHER ASSETS: |
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Operating lease right of use assets |
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23,953 |
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23,178 |
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Deposits and other |
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331 |
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290 |
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Total other assets |
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24,284 |
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23,468 |
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Total assets |
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$ |
146,351 |
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$ |
143,918 |
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LIABILITIES AND DEFICIT |
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CURRENT LIABILITIES: |
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Accounts payable and accrued expenses |
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$ |
2,557 |
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$ |
2,207 |
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Current maturities of long-term debt |
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1,836 |
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2,754 |
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Accrued salaries and commissions |
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|
709 |
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647 |
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Deferred revenue |
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1,535 |
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1,750 |
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Operating lease liabilities |
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3,573 |
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3,503 |
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Other current liabilities |
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549 |
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1,740 |
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Total current liabilities |
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10,759 |
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12,601 |
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LONG TERM DEBT, NET OF CURRENT |
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93,918 |
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93,147 |
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OPERATING LEASE LIABILITIES, NET OF CURRENT |
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20,176 |
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19,305 |
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ASSET RETIREMENT OBLIGATIONS |
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6,316 |
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6,481 |
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DEFERRED INCOME TAXES |
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1,711 |
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1,792 |
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OTHER NONCURRENT LIABILITIES |
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221 |
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125 |
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Total liabilities |
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133,101 |
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133,451 |
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COMMITMENTS AND CONTINGENCIES |
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SERIES A CUMULATIVE CONVERTIBLE PARTICIPATING PREFERRED STOCK, $0.01 PAR VALUE, 10,000,000 SHARES AUTHORIZED; 220,000 SHARES ISSUED AND OUTSTANDING |
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24,258 |
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24,892 |
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DEFICIT: |
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Class A common stock, $0.01 par value; authorized 170,000,000 shares; issued and outstanding 1,785,880 shares and 2,437,550 shares at December 31, 2020, and March 31, 2021, respectively |
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18 |
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24 |
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Class B common stock, $0.01 par value; authorized 50,000,000 shares; issued and outstanding 5,413,197 shares at December 31, 2020, and March 31, 2021 |
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54 |
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54 |
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Class C common stock, $0.01 par value; authorized 30,000,000 shares; none issued |
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— |
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— |
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Additional paid-in capital |
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20,772 |
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21,236 |
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Accumulated deficit |
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(31,852 |
) |
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(35,739 |
) |
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Total deficit |
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(11,008 |
) |
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(14,425 |
) |
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Total liabilities and deficit |
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$ |
146,351 |
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$ |
143,918 |
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The accompanying notes are an integral part of these unaudited condensed consolidated statements.
- 4 -
MEDIACO HOLDING INC.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (DEFICIT)
(Unaudited)
(In thousands, except share data)
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Class A Common Stock |
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Class B Common Stock |
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Shares |
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Amount |
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Shares |
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Amount |
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APIC |
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Accumulated Deficit |
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Total |
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BALANCE, DECEMBER 31, 2019 |
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1,666,667 |
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$ |
17 |
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5,359,753 |
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$ |
54 |
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$ |
20,644 |
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|
$ |
(2,951 |
) |
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$ |
17,764 |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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(1,485 |
) |
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|
(1,485 |
) |
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Adjustments related to distribution of common shares |
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16,596 |
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— |
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53,444 |
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— |
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— |
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— |
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Preferred stock dividends |
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— |
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— |
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— |
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— |
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— |
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(529 |
) |
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(529 |
) |
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BALANCE, MARCH 31, 2020 |
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1,683,263 |
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$ |
17 |
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5,413,197 |
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$ |
54 |
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$ |
20,644 |
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|
$ |
(4,965 |
) |
|
$ |
15,750 |
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BALANCE, DECEMBER 31, 2020 |
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1,785,880 |
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$ |
18 |
|
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5,413,197 |
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|
$ |
54 |
|
|
$ |
20,772 |
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|
$ |
(31,852 |
) |
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$ |
(11,008 |
) |
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Net loss |
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— |
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|
— |
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|
— |
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— |
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— |
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(3,253 |
) |
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(3,253 |
) |
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Issuance of class A to employees, officers and directors |
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651,670 |
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6 |
|
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— |
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|
— |
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|
|
464 |
|
|
|
— |
|
|
|
470 |
|
|
Preferred stock dividends |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(634 |
) |
|
|
(634 |
) |
|
BALANCE, MARCH 31, 2021 |
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|
2,437,550 |
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|
$ |
24 |
|
|
|
5,413,197 |
|
|
$ |
54 |
|
|
$ |
21,236 |
|
|
$ |
(35,739 |
) |
|
$ |
(14,425 |
) |
The accompanying notes are an integral part of these unaudited condensed consolidated statements.
- 5 -
MEDIACO HOLDING INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
|
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Three Months Ended March 31, |
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|||||
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2020 |
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2021 |
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CASH FLOWS FROM OPERATING ACTIVITIES: |
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Net loss |
|
$ |
(1,485 |
) |
|
$ |
(3,253 |
) |
|
Adjustments to reconcile net loss to net cash provided by (used in) operating activities - |
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Depreciation and amortization |
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1,027 |
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|
981 |
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|
Amortization of debt discount |
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|
140 |
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|
146 |
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Noncash lease expense |
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|
631 |
|
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|
775 |
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Provision for bad debts |
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|
373 |
|
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|
61 |
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Accretion of asset retirement obligation |
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|
182 |
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|
165 |
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(Benefit) provision for deferred income taxes |
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(617 |
) |
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|
81 |
|
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Noncash compensation |
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|
— |
|
|
|
634 |
|
|
Loss (gain) on sale of property and equipment |
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|
78 |
|
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|
(6 |
) |
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Changes in assets and liabilities - |
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Accounts receivable |
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|
335 |
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|
1,183 |
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Prepaid expenses and other current assets |
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|
909 |
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(186 |
) |
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Other assets |
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(44 |
) |
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|
39 |
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Accounts payable and accrued liabilities |
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(2,783 |
) |
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(412 |
) |
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Deferred revenue |
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(182 |
) |
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|
215 |
|
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Other liabilities |
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(127 |
) |
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|
155 |
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Net cash provided by (used in) operating activities |
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(1,563 |
) |
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|
578 |
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CASH FLOWS FROM INVESTING ACTIVITIES: |
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Purchases of property and equipment |
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(197 |
) |
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(206 |
) |
|
Proceeds from the sale of property and equipment |
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— |
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|
111 |
|
|
Net cash used in investing activities |
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(197 |
) |
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|
(95 |
) |
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CASH FLOWS FROM FINANCING ACTIVITIES: |
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Payments of long-term debt |
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(918 |
) |
|
|
— |
|
|
Proceeds from long-term debt |
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|
5,181 |
|
|
|
— |
|
|
Payments for debt-related costs |
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|
(181 |
) |
|
|
— |
|
|
Settlement of tax withholding obligations |
|
|
— |
|
|
|
(164 |
) |
|
Net cash provided by (used in) financing activities |
|
|
4,082 |
|
|
|
(164 |
) |
|
INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH |
|
|
2,322 |
|
|
|
319 |
|
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CASH, CASH EQUIVALENTS AND RESTRICTED CASH: |
|
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|
|
|
|
|
|
|
Beginning of period |
|
|
2,083 |
|
|
|
4,171 |
|
|
End of period |
|
$ |
4,405 |
|
|
$ |
4,490 |
|
|
SUPPLEMENTAL DISCLOSURES: |
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Cash paid for interest |
|
$ |
1,148 |
|
|
$ |
1,157 |
|
The accompanying notes are an integral part of these unaudited condensed consolidated statements.
- 6 -
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS UNLESS INDICATED OTHERWISE, EXCEPT SHARE DATA)
March 31, 2021
(Unaudited)
Note 1. Summary of Significant Accounting Policies
Organization
MediaCo Holding Inc. (“MediaCo” or the “Company”) is an Indiana corporation formed in 2019, focused on radio and outdoor advertising.
Our assets consist of two radio stations, WQHT-FM and WBLS-FM, which serve the New York City metropolitan area, as well as approximately 3,500 outdoor advertising displays in the Southeast (Valdosta) region and Mid-Atlantic (Kentucky) region of the United States. We derive our revenues primarily from radio and outdoor advertising sales, but we also generate revenues from events, including sponsorships and ticket sales.
Unless the context otherwise requires, references to “we”, “us” and “our” refer to MediaCo and its subsidiaries.
Basis of presentation
Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). All significant intercompany balances and transactions have been eliminated. In the opinion of management, all adjustments necessary for fair presentation (including normal recurring adjustments) have been included.
Cash and Cash Equivalents
We consider time deposits, money market fund shares and all highly liquid debt investment instruments with original maturities of three months or less to be cash equivalents. At times, such deposits may be in excess of FDIC insurance limits.
Fair Value Measurements
As defined in Accounting Standards Codification (“ASC”) Topic 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). We have no assets or liabilities for which fair value is measured on a recurring basis using Level 3 inputs.
The Company has certain assets that are measured at fair value on a non-recurring basis under circumstances and events that include those described in Note 3, Intangible Assets, and are adjusted to fair value only when the carrying values are more than the fair values. The categorization of the framework used to price the assets is considered a Level 3 measurement due to the subjective nature of the unobservable inputs used to determine the fair value (see Note 3 for more discussion).
The Company’s long-term debt is not actively traded and is considered a Level 3 measurement. The Company believes the current carrying value of its long-term debt approximates its fair value.
Use of Estimates
The Company has been actively monitoring the COVID-19 situation and its impact globally, as well as domestically and in the markets we serve. Our priority has been the safety of our employees, as well as the informational needs of the communities that we serve. Through the first few months of calendar 2020, the disease became widespread around the world, and on March 11, 2020, the World Health Organization declared a pandemic. In an effort to mitigate the continued spread of COVID-19, many federal, state and local governments have mandated various restrictions, including travel restrictions, restrictions on non-essential businesses and services, restrictions on public gatherings and quarantining of people who may have been exposed to the virus. These restrictions, in turn, caused the United States economy to decline and businesses to cancel or reduce amounts spent on advertising, negatively impacting our advertising-based businesses. Furthermore, some of our advertisers have seen a material decline in their businesses and may not be able to pay amounts owed to us when they come due. If the spread of COVID-19 continues, or is suppressed but later reemerges as a variant strain, and public and private entities continue to implement restrictive measures, we expect that our results of operations, financial condition and cash flows will continue to be negatively affected, the extent to which is difficult to estimate at this time.
- 7 -
The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Due to the uncertain future impacts of the COVID-19 pandemic and the related economic disruptions, actual results could differ from those estimates particularly as it relates to estimates reliant on forecasts and other assumptions reasonably available to the Company. The extent to which the COVID-19 pandemic and related economic disruptions impact the Company’s business and financial results will depend on future developments including, but not limited to: (i) the continued spread, duration and severity of the COVID-19 pandemic, (ii) the occurrence, spread, duration and severity of any subsequent wave or waves of outbreaks after the initial outbreak has subsided, (iii) the actions taken by the U.S. and foreign governments to contain the COVID-19 pandemic, address its impact or respond to the reduction in global and local economic activity, (iv) the occurrence, duration and severity of a global, regional or national recession, depression or other sustained adverse market event, and (v) how quickly and to what extent normal economic and operating conditions can resume. The accounting matters assessed included, but were not limited to, allowance for doubtful accounts, our ability to realize our deferred tax assets, and the carrying value of goodwill, FCC licenses and other long-lived assets.
As discussed in Note 7, during the year ended December 31, 2020, as a result of a sharp deterioration of business activity related to the COVID-19 pandemic, the Company determined that it was more likely than not that it would be unable to realize its deferred tax assets and recorded a $18.8 million valuation allowance against these assets through an increase to our provision for income taxes. The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material changes to the estimates and material impacts to the Company’s condensed consolidated financial statements in future reporting periods.
Per Share Data
Our basic and diluted net loss per share is computed using the two-class method. The two-class method is an earnings allocation that determines net income per share for each class of common stock and participating securities according to their participation rights in dividends and undistributed earnings or losses. Shares of Series A preferred stock include rights to participate in dividends and distributions to common stockholders on an if-converted basis, and accordingly are considered participating securities. During periods of undistributed losses however, no effect is given to our participating securities since they are not contractually obligated to share in the losses. We did not have any participating securities for the three-month period ended March 31, 2020, as the preferred stock only became convertible to common stock on May 25, 2020. The following is a reconciliation of basic and diluted net loss per share attributable to Class A and Class B common shareholders:
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2020 |
|
|
2021 |
|
||
|
Net loss |
$ |
(1,485 |
) |
|
$ |
(3,253 |
) |
|
Preferred dividends |
|
529 |
|
|
|
634 |
|
|
Net loss attributable to common shareholders |
$ |
(2,014 |
) |
|
$ |
(3,887 |
) |
|
Basic and diluted weighted average Class A shares outstanding |
|
1,680 |
|
|
|
1,702 |
|
|
Net loss per share attributable to Class A shareholders |
$ |
(0.28 |
) |
|
$ |
(0.55 |
) |
|
Basic and diluted weighted average Class B shares outstanding |
|
5,404 |
|
|
|
5,413 |
|
|
Net loss per share attributable to Class B shareholders |
$ |
(0.28 |
) |
|
$ |
(0.55 |
) |
Because we have incurred a net loss for all periods where the Company had potentially dilutive securities, diluted net loss per common share is the same as basic net loss per common share. The following convertible equity shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive. There were no potentially dilutive shares for the three-month period ended March 31, 2020 as neither the convertible promissory notes issued to Emmis and SG Broadcasting described in Note 5, nor the Series A convertible preferred stock, were convertible until May 25, 2020. The Company did not issue any restricted stock awards until the three months ended September 30, 2020.
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
2020 |
|
|
2021 |
|
||
|
Convertible Emmis promissory note |
$ |
— |
|
|
$ |
2,126 |
|
|
Convertible Standard General promissory notes |
|
— |
|
|
|
8,219 |
|
|
Series A convertible preferred stock |
|
— |
|
|
|
9,560 |
|
|
Restricted stock awards |
|
— |
|
|
|
174 |
|
|
Total |
$ |
— |
|
|
$ |
20,079 |
|
- 8 -
Recent Accounting Pronouncements Not Yet Implemented
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-13, Financial Instruments – Credit Losses, which introduces new guidance for an approach based on using expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides a simplified accounting model for purchased financial assets with credit deterioration since their origination. Instruments in scope include loans, held-to-maturity debt securities and net investments in leases as well as reinsurance and trade receivables. This standard will be effective for us as of January 1, 2023. We are currently evaluating the impact that the adoption of the new standard will have on our condensed consolidated financial statements.
Note 2. Share Based Payments
The amounts recorded as share based compensation expense consist of restricted stock awards issued to employees and directors. Awards to officers are typically made pursuant to employment agreements. Restricted stock awards are granted out of the Company’s 2020 Equity Compensation Plan.
The following table presents a summary of the Company’s restricted stock grants outstanding at March 31, 2021, and restricted stock activity during the three months ended March 31, 2021 (“Price” reflects the weighted average share price at the date of grant):
|
|
|
Awards |
|
|
Price |
|
||
|
Grants outstanding, beginning of period |
|
|
102,617 |
|
|
$ |
5.41 |
|
|
Granted |
|
|
718,816 |
|
|
|
3.34 |
|
|
Vested |
|
|
141,412 |
|
|
|
3.17 |
|
|
Grants outstanding, end of period |
|
|
680,021 |
|
|
|
3.69 |
|
Recognized Non-Cash Compensation Expense
The following table summarizes stock-based compensation expense recognized by the Company during the three months ended March 31, 2020 and 2021. The Company did not recognize any tax benefits related to stock-based compensation during the periods presented below.
|
|
|
For the Three Months Ended March 31, |
|
|||||
|
|
|
2020 |
|
|
2021 |
|
||
|
Operating expenses, excluding depreciation and amortization |
|
$ |
— |
|
|
$ |
259 |
|
|
Corporate expenses |
|
|
— |
|
|
|
375 |
|
|
Share-based compensation expense |
|
$ |
— |
|
|
$ |
634 |
|
As of March 31, 2021, there was $2.2 million of unrecognized compensation cost, net of estimated forfeitures, related to nonvested share-based compensation arrangements. The cost is expected to be recognized over a weighted average period of approximately 1.4 years.
Note 3. Intangible Assets
As of December 31, 2020 and March 31, 2021, intangible assets consisted of the following:
|
|
|
As of December 31, 2020 |
|
|
As of March 31, 2021 |
|
||
|
Indefinite-lived intangible assets |
|
|
|
|
|
|
|
|
|
FCC Licenses |
|
$ |
63,266 |
|
|
$ |
63,266 |
|
|
Trade Name |
|
|
733 |
|
|
|
733 |
|
|
Goodwill |
|
|
13,102 |
|
|
|
13,102 |
|
|
Definite-lived intangible assets |
|
|
|
|
|
|
|
|
|
Programming contract |
|
|
220 |
|
|
|
147 |
|
|
Customer list |
|
|
1,896 |
|
|
|
1,655 |
|
|
Total |
|
$ |
79,217 |
|
|
$ |
78,903 |
|
Valuation of Indefinite-lived Broadcasting Licenses
In accordance with ASC Topic 350, “Intangibles—Goodwill and Other,” the Company’s FCC licenses are considered indefinite-lived intangibles; therefore, they are not subject to amortization, but are tested for impairment at least annually as discussed below.
The carrying amounts of the Company’s FCC licenses were $63.3 million as of December 31, 2020 and March 31, 2021. Pursuant to our accounting policy, stations in a geographic market cluster are considered a single unit of accounting. The stations perform an annual impairment test of indefinite-lived intangibles as of October 1 of each year. When indicators of impairment are present, we will perform an interim impairment test. There have been no indicators of impairment since we performed our annual
- 9 -
impairment assessment as of October 1, 2020 and therefore there has been no need to perform an interim impairment asset. Future impairment tests may result in additional impairment charges in subsequent periods.
Fair value of our FCC licenses is estimated to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To determine the fair value of our FCC licenses, the Company considers both income and market valuation methods when it performs its impairment tests. Under the income method, the Company projects cash flows that would be generated by its unit of accounting assuming the unit of accounting was commencing operations in its market at the beginning of the valuation period. This cash flow stream is discounted to arrive at a value for the FCC license. The Company assumes the competitive situation that exists in its market remains unchanged, with the exception that its unit of accounting commenced operations at the beginning of the valuation period. In doing so, the Company extracts the value of going concern and any other assets acquired, and strictly values the FCC license. Major assumptions involved in this analysis include market revenue, market revenue growth rates, unit of accounting audience share, unit of accounting revenue share and discount rate. Each of these assumptions may change in the future based upon changes in general economic conditions, audience behavior, consummated transactions, and numerous other variables that may be beyond our control. The projections incorporated into our license valuations take into consideration then current economic conditions. Under the market method, the Company uses recent sales of comparable radio stations for which the sales value appeared to be concentrated entirely in the value of the license, to arrive at an indication of fair value. When evaluating our radio broadcasting licenses for impairment, the testing is performed at the unit of accounting level as determined by ASC Topic 350-30-35. In our case, radio stations in a geographic market cluster are considered a single unit of accounting.
Valuation of Goodwill
ASC Topic 350-20-35 requires the Company to test goodwill for impairment at least annually. Under ASC 350 we have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value as a basis for determining whether it is necessary to perform an annual quantitative goodwill impairment test. Given the macroeconomic environment as a result of the COVID-19 pandemic we have elected not to perform the qualitative assessment. When performing a quantitative assessment for impairment, the Company uses a market approach to determine the fair value of the reporting unit. Management determines the fair value for the reporting unit by multiplying the cash flows of the reporting unit by an estimated market multiple. Management believes this methodology for valuing outdoor advertising businesses is a common approach and believes that the multiples used in the valuation are reasonable given our peer comparisons, analyst reports, and market transactions. To corroborate the fair values determined using the market approach described above, management also uses an income approach, which is a discounted cash flow method to determine the fair value of the reporting unit. If the carrying value of a reporting unit’s goodwill exceeds its fair value, the Company recognizes an impairment charge equal to the difference in the statement of operations. All goodwill on the condensed consolidated balance sheets as of December 31, 2020 and March 31, 2021 is assigned to our Outdoor Advertising segment. While the COVID-19 pandemic has negatively affected our outdoor operations, as of March 31, 2021, we don’t believe the long-term value of the outdoor business, and thus the associated goodwill, has been impaired. The Company conducts its impairment test as of October 1 of each year, unless indications of impairment exist during an interim period.
Valuation of Trade Name
As a result of the purchase of our outdoor advertising segment, the Company acquired the trade name “Fairway”. The trade name is well known in the industry and is being retained for continued market use following the acquisition. This trade name favorably factors into customer purchasing decisions. For the purchase price allocation, the trade name was valued using the relief from royalty method. This method is based on what a company would be willing to pay for a royalty in order to exploit the related benefits of the trade name. The value of the trade name is determined by discounting the inherent after-tax royalty savings associated with ownership or possession of the trade name. The valuation assigned to the trade name as a result of the purchase price accounting was $0.7 million. The trade name is an indefinite-lived intangible asset based on our intention to renew it when legally required and to utilize it going forward. We assess the trade name annually for impairment as of October 1 of each year, unless indications of impairment exist during an interim period.
Definite-lived intangibles
The following table presents the weighted-average useful life at March 31, 2021, and the gross carrying amount and accumulated amortization for our definite-lived intangible assets at December 31, 2020, and March 31, 2021:
|
|
|
As of December 31, 2020 |
|
|
As of March 31, 2021 |
||||||||||||||||||||
|
|
|
(in 000's, except years) |
|||||||||||||||||||||||
|
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Amount |
|
|
Gross Carrying Amount |
|
|
Accumulated Amortization |
|
|
Net Carrying Amount |
|
Weighted Average Remaining Useful Life (in years) |
||||||
|
Programming agreement |
|
$ |
2,154 |
|
|
$ |
1,934 |
|
|
$ |
220 |
|
|
$ |
2,154 |
|
|
$ |
2,007 |
|
|
$ |
147 |
|
0.5 |
|
Customer list |
|
|
2,906 |
|
|
|
1,010 |
|
|
|
1,896 |
|
|
|
2,906 |
|
|
|
1,251 |
|
|
|
1,655 |
|
1.7 |
- 10 -
In accordance with Accounting Standards Codification paragraph 360-10, the Company performs an analysis to (i) determine if indicators of impairment of a long-lived asset are present, (ii) test the long-lived asset for recoverability by comparing undiscounted cash flows of the long-lived asset to its carrying value and (iii) measure any potential impairment by comparing the long-lived asset's fair value to its current carrying value.
Total amortization expense from definite-lived intangibles for the three-month periods ended March 31, 2020 and 2021 was $0.4 million and $0.3 million, respectively. The following table presents the Company's estimate of future amortization expense for definite-lived intangibles:
|
Year ending December 31, |
|
Expected Amortization Expense |
|
|
|
Remainder of 2021 |
|
$ |
874 |
|
|
2022 |
|
|
928 |
|
Note 4. Revenue
The Company generates revenue from the sale of services including, but not limited to: (i) on-air commercial broadcast time, (ii) display advertising on outdoor structures, (iii) non-traditional revenues including event-related revenues and event sponsorship revenues, and (iv) digital advertising. Payments received from advertisers before the performance obligation is satisfied are recorded as deferred revenue. Substantially all deferred revenue is recognized within twelve months of the payment date. We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. Advertising revenues presented in the condensed consolidated financial statements are reflected on a net basis, after the deduction of advertising agency fees, usually at a rate of 15% of gross revenues.
Radio Advertising
On-air broadcast revenue is recognized when or as performance obligations under the terms of a contract with a customer are satisfied. This typically occurs over the period of time that advertisements are provided, or as an event occurs. Revenues are reported at the amount the Company expects to be entitled to receive under the contract. Payments received from advertisers before the performance obligation is satisfied are recorded as deferred revenue in the condensed consolidated balance sheet. Substantially all deferred revenue is recognized within twelve months of the payment date.
Outdoor Advertising
Our outdoor advertising business has approximately 3,500 faces consisting of bulletins, posters and digital billboards. Bulletins are generally large, illuminated advertising structures that are located on major highways and target vehicular traffic. Posters are generally smaller advertising structures that are located on major traffic arteries and city streets and target vehicular and pedestrian traffic. Digital billboards are computer controlled LED displays where six to eight advertisers rotate continuously, each one having seven to ten seconds to display a static image. Digital billboards are generally located on major traffic arteries and streets. A substantial portion of this revenue is lessor revenue derived from operating leases accounted for under ASC 842, “Leases.” Rental revenue is recognized on a straight-line basis over the term of the respective lease.
Nontraditional
Nontraditional revenues principally consist of ticket sales and sponsorship of events our stations conduct in their local market. These revenues are recognized when our performance obligations are fulfilled, which generally coincides with the occurrence of the related event.
Digital
Digital revenue relates to revenue generated from the sale of digital marketing services (including display advertisements and video sponsorships, but excluding digital billboard advertisements) to advertisers. Digital revenues are generally recognized as the digital advertising is delivered.
Other
Other revenue includes barter revenue, network revenue, and production revenue. The Company provides advertising broadcast time in exchange for certain products and services, including on-air radio programming. These barter arrangements generally allow the Company to preempt such bartered broadcast time in favor of advertisers who purchase time for cash consideration. These barter arrangements are valued based upon the Company’s estimate of the fair value of the products and services received. Revenue is recognized on barter arrangements when we broadcast the advertisements. Advertisements delivered under barter arrangements are typically aired during the same period in which the products and services are consumed. The Company also sells certain remnant advertising inventory to third-parties for cash, and we refer to this as network revenue. The third-parties aggregate our remnant inventory with other broadcasters' remnant inventory for sale to third parties, generally to large national advertisers. This network revenue is recognized as we broadcast the advertisements. In connection with certain outdoor advertising arrangements, the customer
- 11 -
may request that the Company produce the billboard wrap (commonly printed on a vinyl material) displaying the customer’s advertisement on our outdoor structure. This production revenue is recognized as the deliverable is made available to the customer or attached to our outdoor structure. Other revenue also includes the management fee received from Billboards LLC (See Note 11.)
Disaggregation of revenue
The following table presents the Company's revenues disaggregated by revenue source:
|
|
|
For the Three Months Ended March 31, |
|
|||||||||||
|
|
|
2020 |
|
% of Total |
|
|
2021 |
|
% of Total |
|
||||
|
Revenue by Source: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio Advertising |
|
$ |
6,380 |
|
|
54.1 |
% |
|
$ |
4,955 |
|
|
50.9 |
% |
|
Outdoor Advertising (1) |
|
|
3,267 |
|
|
27.7 |
% |
|
|
2,972 |
|
|
30.5 |
% |
|
Nontraditional |
|
|
168 |
|
|
1.4 |
% |
|
|
137 |
|
|
1.4 |
% |
|
Digital |
|
|
674 |
|
|
5.7 |
% |
|
|
485 |
|
|
5.0 |
% |
|
Other |
|
|
1,296 |
|
|
11.1 |
% |
|
|
1,194 |
|
|
12.2 |
% |
|
Total net revenues |
|
$ |
11,785 |
|
|
|
|
|
$ |
9,743 |
|
|
|
|
(1) A substantial portion of this revenue is from lessor revenue derived from operating leases accounted for under ASC 842, “Leases.”
Note 5. Long Term Debt
Long-term debt was comprised of the following at December 31, 2020, and March 31, 2021:
|
|
|
December 31, 2020 |
|
|
March 31, 2021 |
|
||
|
Senior credit facility |
|
$ |
70,972 |
|
|
$ |
70,972 |
|
|
Notes payable to Emmis |
|
|
5,535 |
|
|
|
5,535 |
|
|
Notes payable to SG Broadcasting |
|
|
21,400 |
|
|
|
21,400 |
|
|
Less: Current maturities |
|
|
(1,836 |
) |
|
|
(2,754 |
) |
|
Less: Unamortized original issue discount |
|
|
(2,153 |
) |
|
|
(2,006 |
) |
|
Total long-term debt, net of current portion and debt discount |
|
$ |
93,918 |
|
|
$ |
93,147 |
|
Senior secured term loan agreement
The Company has a five-year senior secured term loan agreement (the “Senior Credit Facility”) with GACP Finance Co., LLC, (“GACP”) a Delaware limited liability company, as administrative agent and collateral agent. The Senior Credit Facility bears interest at a rate equal to the London Interbank Offered Rate ("LIBOR"), plus 7.5%, with a 2.0% LIBOR floor. Prior to subsequent amendments discussed below, and in Note 12, Subsequent Event, the Senior Credit Facility required interest payments on the first business day of each calendar month, and quarterly payments on the principal in an amount equal to one and one quarter percent of the initial aggregate principal amount were due on the last day of each calendar quarter. At its inception, the Senior Credit Facility included covenants pertaining to, among other things, the ability to incur indebtedness, restrictions on the payment of dividends, minimum liquidity requirements, collateral maintenance, minimum Consolidated Fixed Charge Coverage Ratio of 1.10:1.00, and other customary restrictions.
As of March 31, 2021, a number of amendments had been entered into by the Company and GACP to modify, among other things, certain provisions relating to the repayment of the Term Loan (as defined in the Senior Credit Facility) such that no quarterly payments are required beginning with the fiscal quarter ending September 30, 2020 through and including the fiscal quarter ending June 30, 2021 and the testing of the Consolidated Fixed Charge Coverage Ratio (as defined in the Senior Credit Facility) is suspended through and including June 30, 2021. The Senior Credit Facility currently requires us to maintain Minimum Liquidity (as defined in the Senior Credit Facility) of $2.5 million until November 25, 2021, and $3.0 million for the period thereafter. In addition, the Senior Credit Facility includes a loan to value calculation, whereby the amount of debt outstanding thereunder is limited to a formula based on 60% of the fair value of the Company’s FCC licenses plus a multiple of the Company’s Billboard Cash Flow (as defined in the Senior Credit Facility).
There is $71.0 million outstanding and the Senior Credit Facility is carried net of a total unamortized discount of $2.0 million at March 31, 2021.
See Note 12, Subsequent Event, for a discussion of Amendment No. 4 to the Senior Credit Facility, executed on May 19, 2021.
- 12 -
Emmis Convertible Promissory Note
The Emmis Convertible Promissory Note carries interest at a base rate equal to the interest on any senior credit facility, or if no senior credit facility is outstanding, of 6.0%, plus an additional 1.0% on any payment of interest in kind and, without regard to whether the Company pays such interest in kind, an additional increase of 1.0% following the second anniversary of the date of issuance and additional increases of 1.0% following each successive anniversary thereafter. Because the Senior Credit Facility prohibits the Company from paying interest in cash on the Emmis Convertible Promissory Note, the Company has been accruing interest since inception using the rate applicable if the interest will be paid in kind. The Emmis Convertible Promissory Note is convertible, in whole or in part, into MediaCo Class A common stock at the option of Emmis and at a strike price equal to the thirty day volume weighted average price of the MediaCo Class A common stock on the date of conversion. The Emmis Convertible Promissory Note matures on November 25, 2024. As of March 31, 2021, the principal balance outstanding under the Emmis Convertible Promissory Note is $5.5 million.
Second Amended and Restated SG Broadcasting Promissory Note and Additional SG Broadcasting Promissory Note
The Second Amended and Restated SG Broadcasting Promissory Note carries interest at a base rate equal to the interest on any senior credit facility, or if no senior credit facility is outstanding, of 6.0%, and an additional increase of 1.0% following the second anniversary of the date of issuance and additional increases of 1.0% following each successive anniversary thereafter. The Second Amended and Restated SG Broadcasting Promissory Note matures on May 25, 2025. Additionally, interest under the Second Amended SG Broadcasting Promissory Note is payable in kind through maturity, and is convertible into MediaCo Class A common stock at the option of SG Broadcasting at a strike price equal to the thirty day volume weighted average price of the MediaCo Class A common stock on the date of conversion.
The Additional SG Broadcasting Promissory Note carries interest at a base rate equal to the interest on any senior credit facility, or if no senior credit facility is outstanding, of 6.0%, and an additional increase of 1.0% following the second anniversary of the date of issuance and additional increases of 1.0% following each successive anniversary thereafter. The Additional SG Broadcasting Promissory Note matures on March 30, 2025. Additionally, interest under the Additional SG Broadcasting Promissory Note is payable in kind through maturity, and is convertible into MediaCo Class A common stock at the option of SG Broadcasting at a strike price equal to the thirty day volume weighted average price of the MediaCo Class A common stock on the date of conversion.
As of March 31, 2021, there was a total of $21.4 million outstanding under the Second Amended and Restated SG Broadcasting Promissory Note and the Additional SG Broadcasting Promissory Note.
See Note 12, Subsequent Event, for discussion of an additional contribution from Standard General in the form of subordinated debt subsequent to March 31, 2021, on May 19, 2021.
Based on amounts outstanding at March 31, 2021, mandatory principal payments of long-term debt for the next five years and thereafter are summarized below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
Senior Credit Facility |
|
|
Emmis Note |
|
|
SG Broadcasting Notes |
|
|
Total Payments |
|
||||
|
Remainder of 2021 |
|
$ |
2,754 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
2,754 |
|
|
2022 |
|
|
3,672 |
|
|
|
— |
|
|
|
— |
|
|
|
3,672 |
|
|
2023 |
|
|
3,672 |
|
|
|
— |
|
|
|
— |
|
|
|
3,672 |
|
|
2024 |
|
|
60,874 |
|
|
|
5,535 |
|
|
|
— |
|
|
|
66,409 |
|
|
2025 |
|
|
— |
|
|
|
— |
|
|
|
21,400 |
|
|
|
21,400 |
|
|
Total |
|
$ |
70,972 |
|
|
$ |
5,535 |
|
|
$ |
21,400 |
|
|
$ |
97,907 |
|
Note 6. Regulatory, Legal and Other Matters
From time to time, our stations are parties to various legal proceedings arising in the ordinary course of business. In the opinion of management of the Company, however, there are no legal proceedings pending against the Company that we believe are likely to have a material adverse effect on the Company.
- 13 -
Note 7. Income Taxes
The effective tax rate for the three months ended March 31, 2020 and 2021 was (29)%, and 3% respectively. During the year ended December 31, 2020, as a result of a sharp deterioration of business activity related to the COVID-19 pandemic, the Company determined that it was more likely than not that it would be unable to realize its deferred tax assets and recorded a $18.8 million valuation allowance against these assets through an increase to our provision for income taxes. Our effective tax rate for the three months ended March 31, 2021 differs from the statutory tax rate due to the recognition of additional valuation allowance.
Note 8. Leases
We determine if an arrangement is a lease at inception. We have operating leases for office space, sites upon which advertising structures are built, tower space, equipment and automobiles expiring at various dates through October 2049. Some leases have options to extend and some have options to terminate. Operating leases are included in operating lease right-of-use assets, current operating lease liabilities, and noncurrent operating lease liabilities in our condensed consolidated balance sheet.
Operating lease assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate if it is readily determinable. Our lease terms may include options to extend or terminate the lease, which we treat as exercised when it is reasonably certain and there is a significant economic incentive to exercise that option. Our outdoor advertising segment treats evergreen leases as though they will be automatically renewed at the end of each term.
Operating lease expense for operating lease assets is recognized on a straight-line basis over the lease term. Variable lease payments, which represent lease payments that vary due to changes in facts or circumstances occurring after the commencement date other than the passage of time, are expensed in the period in which the obligation for these payments was incurred. Variable lease expense recognized in the three months ended March 31, 2021 was not material.
We elected not to apply the recognition requirements of Accounting Standards Codification 842, “Leases”, to short-term leases, which are deemed to be leases with a lease term of twelve months or less. Instead, we recognized lease payments in the condensed consolidated statements of operations on a straight-line basis over the lease term and variable payments in the period in which the obligation for these payments was incurred. We elected this policy for all classes of underlying assets. Short-term lease expense recognized in the three months ended March 31, 2021, was not material.
The impact of operating leases to our condensed consolidated financial statements was as follows:
|
|
|
Three Months Ended March 31, |
|
|
Three Months Ended March 31, |
|
||
|
|
|
2020 |
|
|
2021 |
|
||
|
Lease Cost |
|
|
|
|
|
|
|
|
|
Operating lease cost |
|
$ |
1,248 |
|
|
$ |
1,247 |
|
|
Other Information |
|
|
|
|
|
|
|
|
|
Operating cash flows from operating leases |
|
|
1,490 |
|
|
|
1,290 |
|
|
Right-of-use assets obtained in exchange for new operating lease liabilities |
|
|
— |
|
|
|
— |
|
|
Weighted average remaining lease term - operating leases (in years) |
|
|
9.1 |
|
|
|
8.6 |
|
|
Weighted average discount rate - operating leases |
|
|
10.5 |
% |
|
|
9.1 |
% |
As of March 31, 2021, the annual minimum lease payments of our operating lease liabilities were as follows:
|
Year ending December 31, |
|
|
|
|
|
Remainder of 2021 |
|
$ |
4,019 |
|
|
2022 |
|
|
5,254 |
|
|
2023 |
|
|
4,270 |
|
|
2024 |
|
|
2,855 |
|
|
2025 |
|
|
2,847 |
|
|
After 2025 |
|
|
15,915 |
|
|
Total lease payments |
|
|
35,160 |
|
|
Less imputed interest |
|
|
12,352 |
|
|
Total recorded lease liabilities |
|
$ |
22,808 |
|
- 14 -
Our outdoor advertising business generates lessor revenue derived from operating leases accounted for under ASC 842, “Leases.” Minimum fixed lease consideration under non-cancelable operating leases for each of the next five years and thereafter, excluding variable lease consideration, as of March 31, 2021, is as follows:
|
Year ending December 31, |
|
|
|
|
Remainder of 2021 |
$ |
6,097 |
|
|
2022 |
|
1,231 |
|
|
2023 |
|
— |
|
|
2024 |
|
— |
|
|
2025 |
|
— |
|
|
After 2025 |
|
— |
|
Note 9. Asset Retirement Obligations
The Company’s asset retirement obligation includes the costs associated with the removal of its structures, resurfacing of the land and retirement cost, if applicable, related to the Company’s outdoor advertising portfolio. The following table reflects information related to our asset retirement obligations.
|
Balance at December 31, 2020 |
|
|
$ |
6,316 |
|
|
Accretion expense |
|
|
|
165 |
|
|
Balance at March 31, 2021 |
|
|
$ |
6,481 |
|
Note 10. Segment Information
The Company’s operations are aligned into two business segments: (i) Radio, and (ii) Outdoor advertising. Radio includes the operations and results of WQHT-FM and WBLS-FM, and outdoor advertising includes the operations and results of the Fairway businesses acquired in December 2019. The Company groups activities that are not considered operating segments in the “All Other” category.
These business segments are consistent with the Company’s management of these businesses and its financial reporting structure. Corporate expenses, including transaction costs, are not allocated to reportable segments. The Company’s segments operate exclusively in the United States.
The accounting policies as described in the summary of significant accounting policies included in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2020, and in Note 1 to these condensed consolidated financial statements, are applied consistently across segments.
|
Three Months Ended March 31, 2021 |
|
Radio |
|
|
Outdoor Advertising |
|
|
All Other |
|
|
Consolidated |
|
||||
|
Net revenues |
|
$ |
6,502 |
|
|
$ |
3,241 |
|
|
$ |
— |
|
|
$ |
9,743 |
|
|
Operating expenses excluding depreciation and amortization expense |
|
|
5,291 |
|
|
|
2,470 |
|
|
|
— |
|
|
|
7,761 |
|
|
Corporate expenses |
|
|
— |
|
|
|
— |
|
|
|
1,641 |
|
|
|
1,641 |
|
|
Depreciation and amortization |
|
|
191 |
|
|
|
790 |
|
|
|
— |
|
|
|
981 |
|
|
Loss on disposal of assets |
|
|
— |
|
|
|
(6 |
) |
|
|
— |
|
|
|
(6 |
) |
|
Operating income (loss) |
|
$ |
1,020 |
|
|
$ |
(13 |
) |
|
$ |
(1,641 |
) |
|
$ |
(634 |
) |
|
Three Months Ended March 31, 2020 |
|
Radio |
|
|
Outdoor Advertising |
|
|
All Other |
|
|
Consolidated |
|
||||
|
Net revenues |
|
$ |
8,339 |
|
|
$ |
3,446 |
|
|
$ |
— |
|
|
$ |
11,785 |
|
|
Operating expenses excluding depreciation and amortization expense |
|
|
6,931 |
|
|
|
2,526 |
|
|
|
— |
|
|
|
9,457 |
|
|
Corporate expenses |
|
|
— |
|
|
|
— |
|
|
|
1,165 |
|
|
|
1,165 |
|
|
Depreciation and amortization |
|
|
249 |
|
|
|
778 |
|
|
|
— |
|
|
|
1,027 |
|
|
Operating income (loss) |
|
$ |
1,159 |
|
|
$ |
142 |
|
|
$ |
(1,165 |
) |
|
$ |
136 |
|
|
Total Assets |
|
Radio |
|
|
Outdoor Advertising |
|
|
Consolidated |
|
|||
|
As of December 31, 2020 |
|
$ |
84,219 |
|
|
$ |
62,132 |
|
|
$ |
146,351 |
|
|
As of March 31, 2021 |
|
|
81,812 |
|
|
|
62,106 |
|
|
|
143,918 |
|
- 15 -
Note 11. Related Party Transactions
Transaction Agreement with Emmis and SG Broadcasting
On June 28, 2019, MediaCo entered into a Contribution and Distribution Agreement with Emmis and SG Broadcasting, pursuant to which (i) Emmis contributed the assets of its radio stations WQHT-FM and WBLS-FM, in exchange for $91.5 million in cash, a $5.0 million note and 23.72% of the common stock of MediaCo, (ii) Standard General purchased 76.28% of the common stock of MediaCo, and (iii) the common stock of MediaCo received by Emmis was distributed pro rata in a taxable dividend to Emmis’ shareholders on January 17, 2020. The common stock of MediaCo acquired by Standard General is entitled to ten votes per share and the common stock acquired by Emmis and distributed to Emmis’ shareholders is entitled to one vote per share. Emmis will continue to provide management services to the Stations under a Management Agreement, subject to the direction of the MediaCo board of directors which currently consists of four directors appointed by Standard General and three directors appointed by Emmis. MediaCo pays Emmis an annual management fee of $1.25 million, plus reimbursement of certain expenses directly related to the operation of MediaCo’s business. The sale closed on November 25, 2019, at which time MediaCo and Emmis also entered into the management agreement (the “Management Agreement”), an employee leasing agreement (the “Employee Leasing Agreement”) and certain other ancillary agreements.
For the three months ended March 31, 2020 and 2021, MediaCo recorded $0.3 million of management fee expense, which is included in corporate expenses in the accompanying condensed consolidated statements of operations. $0.1 million was unpaid as of March 31, 2021 and December 31, 2020 and is included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets. Emmis has informed us that it does not intend to extend the Management Agreement beyond the initial term which expires in November 2021, but has not yet given formal notice to that effect.
Under the Employee Leasing Agreement, the employees of the Stations remained employees of Emmis and we reimbursed Emmis for the cost of these employees, including health and benefit costs. Expense related to the Employee Leasing Agreement, which is included in operating expenses, was $3.1 million for the three months ended March 31, 2020. No amount of expense related to the Employee Leasing Agreement remained unpaid as of December 31, 2020. Effective January 1, 2021, the Employee Leasing Agreement was terminated, and the Company hired all of the leased employees and assumed the employment and collective bargaining agreements related to leased employees. The Employee Leasing Agreement was terminated at the expiration of the initial term, so no early termination penalties were incurred.
Convertible Promissory Notes
As a result of the transaction described above, on November 25, 2019, we issued convertible promissory notes to both Emmis and SG Broadcasting in the amounts of $5.0 million and $6.3 million, respectively. On February 28, 2020, the Company and SG Broadcasting amended and restated the SG Broadcasting Promissory Note such that the maximum aggregate principal amount issuable under the note was increased from $6.3 million to $10.3 million. Also on February 28, 2020, SG Broadcasting loaned an additional $2.0 million to the Company pursuant to the amended note for working capital purposes.
On March 27, 2020, the Company and SG Broadcasting further amended and restated the SG Broadcasting Promissory Note such that the maximum aggregate principal amount issuable under the note was increased from $10.3 million to $20.0 million. On March 27, 2020, SG Broadcasting loaned an additional $3.0 million to the Company pursuant to the Second Amended and Restated SG Promissory Note for working capital purposes.
On August 28, 2020, SG Broadcasting loaned an additional $8.7 million to the Company pursuant to the Second Amended and Restated SG Promissory Note for working capital purposes, bringing the total principal amount outstanding to $20.0 million.
On September 30, 2020, SG Broadcasting loaned an additional $0.3 million to the Company pursuant to the Additional SG Broadcasting Promissory Note for working capital purposes.
On November 25, 2020, annual interest of $0.5 million and $1.1 million was paid in kind and added to the principal balances of the Emmis Convertible Promissory Note and the SG Broadcasting Promissory Note, respectively. Consequently, the principal amount outstanding under the Emmis Convertible Promissory Note and the two SG Broadcasting Promissory Notes as of March 31, 2021 was $5.5 million and $21.4 million, respectively.
The Company recognized interest expense of $0.1 million related to the Emmis Convertible Promissory Note for the three months ended March 31, 2020 and March 31, 2021.
The Company recognized interest expense of $0.2 million and $0.5 million related to the SG Promissory Notes for the three months ended March 31, 2020 and March 31, 2021, respectively.
The terms of these notes are described in Note 5.
See Note 12, Subsequent Event, for discussion of an additional contribution from Standard General in the form of subordinated debt subsequent to March 31, 2021, on May 19, 2021.
- 16 -
Convertible Preferred Stock
On December 13, 2019, in connection with the purchase of our outdoor advertising segment, the Company issued to SG Broadcasting 220,000 shares of MediaCo Series A Convertible Preferred Stock.
MediaCo Series A Preferred Shares rank senior in preference to the MediaCo Class A common stock, MediaCo Class B common stock, and the MediaCo Class C common stock. Pursuant to the Articles of Amendment, the ability of the Company to make distributions with respect to, or make a liquidation payment on, any other class of capital stock in the Company designated to be junior to, or on parity with, the MediaCo Series A Preferred Shares, will be subject to certain restrictions, including that (i) the MediaCo Series A Preferred Shares shall be entitled to receive the amount of dividends per share that would be payable on the number of whole common shares of the Company into which each share of MediaCo Series A Preferred Share could be converted, and (ii) the MediaCo Series A Preferred Shares, upon any liquidation, dissolution or winding up of the Company, shall be entitled to a preference on the assets of the Company. Issued and outstanding shares of MediaCo Series A Preferred Shares shall accrue cumulative dividends, payable in kind, at an annual rate equal to the interest rate on any senior debt of the Company (see Note 5), or if no senior debt is outstanding, 6%, plus additional increases of 1% on December 12, 2020 and each anniversary thereof. The current rate in effect at March 31, 2021 is 10.5%.
MediaCo Series A Preferred Shares are redeemable for cash at the option of SG Broadcasting at any time on or after June 12, 2025, and so the shares are classified outside of permanent equity. The Series A Preferred Shares are also convertible into shares of Class A common stock at the option of SG Broadcasting at any time after May 25, 2020, with the number of shares of common stock determined by dividing the original contribution, plus accrued dividends, by the 30-day volume weighted average share price of Class A common shares. The Series A Preferred Shares are considered participating securities for the purposes of calculating earnings per share under the two-class method.
On December 13, 2020, $2.1 million of dividends were paid in kind. The payment in kind increased the accrued value of the preferred stock and no additional shares were issued as part of this payment. Dividends on Series A Convertible Preferred Stock held by SG Broadcasting were $0.5 million and $0.6 million for the three months ended March 31, 2020 and 2021, respectively. As of December 31, 2020, and March 31, 2021, unpaid cumulative dividends were $0.1 million and $0.8 million, and included in the balance of preferred stock in the accompanying condensed consolidated balance sheets.
Loan Proceeds Participation Agreement
On April 22, 2020, MediaCo and Emmis entered into a certain Loan Proceeds Participation Agreement (the “LPPA”) pursuant to which (i) Emmis agreed to use certain of the proceeds of the loan Emmis received pursuant to the Paycheck Protection Program (“PPP”) under Division A, Title I of the CARES Act to pay certain wages of employees leased to MediaCo pursuant to the Employee Leasing Agreement, between Emmis and MediaCo (ii) Emmis agreed to waive up to $1.5 million in reimbursement obligations of MediaCo to Emmis under the Employee Leasing Agreement to the extent that the PPP Loan is forgiven, and (iii) MediaCo agreed to promptly pay Emmis an amount equal to 31.56% of the amount of the PPP Loan, if any, that Emmis is required to repay, up to the amount of the reimbursement obligations forgiven under (ii) above. Standard General L.P., on behalf of all of the funds for which it serves as an investment advisor, agreed to guaranty MediaCo’s obligations under the LPPA. As of the date of these financial statements, Emmis believes that the loan will be forgiven as Emmis believes it has spent the proceeds on qualifying expenditures.
Management Agreement for Billboards LLC
On August 11, 2020, the board of directors of the Company unanimously authorized the entry into a certain Management Agreement (the “Billboard Agreement”) between Fairway Outdoor LLC (a subsidiary of the Company, “Fairway”) and Billboards LLC (an affiliate of Standard General, “Billboards”). Under the Billboard Agreement, Fairway will manage the billboard business of Billboards in exchange for payments of $25 thousand per quarter and reimbursement of all out-of-pocket expenses incurred by Fairway in the performance of its duties under the Billboard Agreement. The Billboard Agreement has an effective date of August 1, 2020, has a term of three years, and has customary provisions on limitation of liability and indemnification. $25 thousand of income was recognized in the three months ended March 31, 2021 in relation to the Billboard Agreement, all of which was outstanding as of March 31, 2021. Additionally, Fairway incurred $49 thousand of out-of-pocket expenses for the period, none of which has been reimbursed as of March 31, 2021.
Note 12. Subsequent Event
On May 19, 2021, the Company entered into Amendment No. 4 to its Senior Credit Facility. Under the terms of Amendment No. 4:
|
|
• |
SG Broadcasting agreed to contribute up to $7.0 million to the Company in the form of subordinated debt, with $3.0 million contributed at closing, $1.0 million to be contributed by June 1, 2021, and up to an additional $3.0 million to be contributed through June 30, 2022, if necessary, to satisfy certain conditions described in Amendment No. 4; |
|
|
• |
the Company made a principal payment of $3.0 million to reduce borrowings outstanding under the Senior Credit Facility; |
|
|
• |
no quarterly scheduled principal payments are required through and including the quarter ending March 31, 2022; |
|
|
• |
the Minimum Consolidated Fixed Charge Coverage Ratio (as defined in the Senior Credit Facility) was reduced to 1.00:1.00 from April 1, 2020 through and including December 31, 2022, with it increasing to 1.10:1.00 on and after January 1, 2023; |
- 17 -
|
|
• |
for purposes of calculating compliance with the Minimum Consolidated Fixed Charge Coverage Ratio, Consolidated EBITDA (as defined in the Senior Credit Facility) includes certain amounts contributed by SG Broadcasting in the form of subordinated debt or equity, including those described above; |
|
|
• |
for purposes of calculating the Company’s borrowing base under the Senior Credit Facility, the multiple applied to Billboard Cash Flow (as defined in the Senior Credit Facility) increased from 3.5 to 5.0 and the advance rate applied to the radio stations’ FCC licenses increased from 60% to 70%; |
|
|
• |
at any time the multiple applied to Billboard Cash Flow exceeds 3.5 or the advance rate applied to the radio stations’ FCC licenses exceeds 60%, an incremental annual interest rate of 1% applies and is paid in kind monthly; |
|
|
• |
certain specified events of default were waived; and |
|
|
• |
an amendment fee of $0.4 million was paid in cash. |
Also on May 19, 2021, the Company issued to SG Broadcasting a subordinated convertible promissory note (the “May 2021 SG Broadcasting Promissory Note”), in return for which SG Broadcasting contributed $3.0 million to the Company to make the prepayment of Senior Credit Facility debt required under Amendment No. 4. Up to $7.0 million may be borrowed pursuant to the May 2021 SG Broadcasting Promissory Note. The May 2021 SG Broadcasting Promissory Note carries interest at a base rate equal to the interest on any senior credit facility, or if no senior credit facility is outstanding, of 6.0%, and an additional increase of 1.0% on November 25, 2021 and additional annual increases of 1.0% following each successive anniversary thereafter. The May 2021 SG Broadcasting Promissory Note matures on May 25, 2025 and interest is payable in kind through maturity. Subject to prior shareholder approval of the issuance of the shares, the May 2021 SG Broadcasting Promissory Note is convertible into MediaCo Class A common stock at the option of SG Broadcasting at a strike price equal to the thirty day volume weighted average price of the MediaCo Class A common stock on the date of conversion.
- 18 -
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Note: Certain statements included in this report or in the financial statements contained herein which are not statements of historical fact, including but not limited to those identified with the words “expect,” “should,” “will” or “look” are intended to be, and are, by this Note, identified as “forward-looking statements,” as defined in the Securities and Exchange Act of 1934, as amended. Such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future result, performance or achievement expressed or implied by such forward-looking statement. Such factors include, among others:
|
|
• |
Our relationship with Emmis and Emmis Operating Company’s ability to effectively manage our operations; |
|
|
• |
Potential conflicts of interest with SG Broadcasting and our status as a “controlled company”; |
|
|
• |
Our ability to operate as a standalone public company and to execute on our business strategy; |
|
|
• |
Our ability to compete with, and integrate into our operations, new media channels, such as digital video, YouTube, and real-time media delivery; |
|
|
• |
Our ability to continue to exchange advertising time for goods or services; |
|
|
• |
Our ability to use market research, advertising and promotions to attract and retain audiences; |
|
|
• |
U.S. regulatory requirements for owning and operating media broadcasting channels and our ability to maintain regulatory licenses granted by the FCC; |
|
|
• |
Industry and economic trends within the U.S. radio industry, generally, and the New York City radio industry, in particular; |
|
|
• |
Our ability to finance our operations or to obtain financing on terms that are favorable to MediaCo; |
|
|
• |
Our ability to successfully complete and integrate any future acquisitions; |
|
|
• |
The impact of COVID-19 and other pandemics; |
|
|
• |
The accuracy of management’s estimates and assumptions on which the Company’s financial projections are based; and |
|
|
• |
Other factors mentioned in documents filed by the Company with the Securities and Exchange Commission. |
For a more detailed discussion of these and other risk factors, see the Risk Factors section of our Annual Report on Form 10-K and the Risk Factors included in Exhibit 99.1 on Form 8-K, filed with the Securities and Exchange Commission on March 30, 2021 and May 21, 2021, respectively. MediaCo does not undertake any obligation to publicly update or revise any forward-looking statements because of new information, future events or otherwise.
GENERAL
We own and operate two radio stations located in New York City and outdoor advertising businesses geographically focused in Southern Georgia and Eastern Kentucky. Our revenues are mostly affected by the advertising rates our entities charge, as advertising sales are the primary component of our consolidated revenues. These rates are in large part based on our radio stations’ ability to attract audiences in demographic groups targeted by their advertisers and the number of persons exposed to our billboards. The Nielsen Company generally measures radio station ratings weekly for markets measured by the Portable People Meter™, which includes all of our radio stations. Because audience ratings in a station’s local market are critical to the station’s financial success, our strategy is to use market research, advertising and promotion to attract and retain audiences in each station’s chosen demographic target group.
Our revenues vary throughout the year. Revenue and operating income are usually lowest in the first calendar quarter for both our radio and outdoor advertising segments, partly because retailers cut back their advertising spending immediately following the holiday shopping season.
In addition to the sale of advertising time for cash, stations typically exchange advertising time for goods or services, which can be used by the station in its business operations. These barter transactions are recorded at the estimated fair value of the product or service received. We generally confine the use of such trade transactions to promotional items or services for which we would otherwise have paid cash. In addition, it is our general policy not to preempt advertising spots paid for in cash with advertising spots paid for in trade.
- 19 -
The following table summarizes the sources of our revenues for the three months ended March 31, 2020 and 2021. The category “Non Traditional” principally consists of ticket sales and sponsorships of events our stations conduct in their local market. The category “Other” includes, among other items, revenues related to network revenues, production of billboard advertisements and barter.
|
|
|
For the Three Months Ended March 31, |
|
|||||||||||
|
|
|
2020 |
|
% of Total |
|
|
2021 |
|
% of Total |
|
||||
|
Revenue by Source: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio Advertising |
|
$ |
6,380 |
|
|
54.1 |
% |
|
$ |
4,955 |
|
|
50.9 |
% |
|
Outdoor Advertising (1) |
|
|
3,267 |
|
|
27.7 |
% |
|
|
2,972 |
|
|
30.5 |
% |
|
Nontraditional |
|
|
168 |
|
|
1.4 |
% |
|
|
137 |
|
|
1.4 |
% |
|
Digital |
|
|
674 |
|
|
5.7 |
% |
|
|
485 |
|
|
5.0 |
% |
|
Other |
|
|
1,296 |
|
|
11.1 |
% |
|
|
1,194 |
|
|
12.2 |
% |
|
Total net revenues |
|
$ |
11,785 |
|
|
|
|
|
$ |
9,743 |
|
|
|
|
(1) A substantial portion of this revenue is from lessor revenue derived from operating leases accounted for under ASC 842, “Leases.”
Roughly 20% of our expenses varies in connection with changes in revenue. These variable expenses primarily relate to costs in our sales department, such as salaries, commissions and bad debt. Our costs that do not vary as much in relation to revenue are mostly in our programming and general and administrative departments, such as talent costs, ratings fees, rent, utilities and salaries. Lastly, our costs that are highly discretionary are costs in our marketing and promotions department, which we primarily incur to maintain and/or increase our audience and market share.
KNOWN TRENDS AND UNCERTAINTIES
The U.S. radio industry is a mature industry and its growth rate has stalled. Management believes this is principally the result of two factors: (1) new media, such as various media distributed via the Internet, telecommunication companies and cable interconnects, as well as social networks, have gained advertising share against radio and other traditional media and created a proliferation of advertising inventory and (2) the fragmentation of the radio audience and time spent listening caused by satellite radio, audio streaming services and podcasts has led some investors and advertisers to conclude that the effectiveness of radio advertising has diminished.
Along with a large portion of the radio industry, our stations have deployed HD Radio®. HD Radio offers listeners advantages over standard analog broadcasts, including improved sound quality and additional digital channels. In addition to offering secondary channels, the HD Radio spectrum allows broadcasters to transmit other forms of data. We are participating in a joint venture with other broadcasters to provide the bandwidth that a third party uses to transmit location-based data to hand-held and in-car navigation devices. The number of radio receivers incorporating HD Radio has increased in the past year, particularly in new automobiles. It is unclear what impact HD Radio will have on the market in which we operate.
Our stations have also aggressively worked to harness the power of broadband and mobile media distribution in the development of emerging business opportunities by developing highly interactive websites with content that engages our listeners, deploying mobile applications and streaming our content, and harnessing the power of digital video on our websites and YouTube channels.
The results of our radio operations are solely dependent on the results of our stations in the New York market. Some of our competitors that operate larger station clusters in the New York market are able to leverage their market share to extract a greater percentage of available advertising revenue through packaging a variety of advertising inventory at discounted unit rates. Market revenues in New York as measured by Miller Kaplan Arase LLP (“Miller Kaplan”), an independent public accounting firm used by the radio industry to compile revenue information, were down 8.7% for the three months ended March 31, 2021, as compared to the same period of the prior year. During this period, as measured by Miller Kaplan, revenues for our stations were down 21%. While our stations performed better than the New York market for both national and local advertising revenues during the quarter, we significantly underperformed the market in digital revenues.
As part of our business strategy, we continually evaluate potential acquisitions of businesses that we believe hold promise for long-term appreciation in value and leverage our strengths. However, MediaCo’s long-term debt agreements substantially limit our ability to make acquisitions. We also regularly review our portfolio of assets and may opportunistically dispose of or otherwise monetize assets when we believe it is appropriate to do so.
- 20 -
The Company has been actively monitoring the COVID-19 situation and its impact globally, as well as domestically and in the markets we serve. Our priority has been the safety of our employees, as well as the informational needs of the communities that we serve. Through the first few months of calendar 2020, the disease became widespread around the world, and on March 11, 2020, the World Health Organization declared a pandemic. In an effort to mitigate the continued spread of COVID-19, many federal, state and local governments mandated various restrictions, including travel restrictions, restrictions on non-essential businesses and services, restrictions on public gatherings and quarantining of people who may have been exposed to the virus. These restrictions, in turn, caused the United States economy to decline and businesses to cancel or reduce amounts spent on advertising, negatively impacting our advertising-based businesses. Furthermore, some of our advertisers have seen a material decline in their businesses and may not be able to pay amounts owed to us when they come due. If the spread of COVID-19 continues, or is suppressed but later reemerges, and public and private entities continue to implement restrictive measures, we expect that our results of operations, financial condition and cash flows will continue to be negatively affected, the extent to which is difficult to estimate at this time.
CRITICAL ACCOUNTING POLICIES
Critical accounting policies are defined as those that encompass significant judgments and uncertainties, and potentially lead to materially different results under different assumptions and conditions. We believe that our critical accounting policies are those described below.
Revenue Recognition
Broadcasting revenue is recognized as advertisements are aired and outdoor revenue is recognized over the life of the applicable lease of each billboard. Both broadcasting revenue and outdoor advertising revenue recognition is subject to meeting certain conditions such as persuasive evidence that an arrangement exists and collection is reasonably assured. These criteria are generally met at the time the advertisement is aired for broadcasting revenue or displayed for outdoor advertising revenue. Broadcasting advertising revenues presented in the financial statements are reflected on a net basis, after the deduction of advertising agency fees, usually at a rate of 15% of gross revenues.
FCC Licenses
As of December 31, 2020 and March 31, 2021, we have recorded approximately $63.3 million in FCC licenses, which represents approximately 43% and 44%, respectively, of our total assets. We would not be able to operate our radio stations without the related FCC license for each property. FCC licenses are renewed every eight years; consequently, we continually monitor our stations’ compliance with the various regulatory requirements. Historically, each of our FCC licenses has been renewed at the end of its respective period, and we expect that each FCC license will continue to be renewed in the future. We consider our FCC licenses to be indefinite-lived intangibles.
We do not amortize indefinite-lived intangible assets, but rather test for impairment at least annually or more frequently if events or circumstances indicate that an asset may be impaired. When evaluating our radio broadcasting licenses for impairment, the testing is performed at the unit of accounting level as determined by ASC Topic 350-30-35. In our case, radio stations in a geographic market cluster are considered a single unit of accounting, provided that they are not being operated under a Local Marketing Agreement by another broadcaster. Consequently, our two radio stations in New York are considered a single unit of accounting.
We perform the annual impairment test of our FCC Licenses as of October 1 of each year and perform additional interim impairment testing whenever triggering events suggest such testing is warranted.
Valuation of Indefinite-lived Broadcasting Licenses
Fair value of our FCC licenses is estimated to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To determine the fair value of our FCC licenses, the Company considers both income and market valuation methods when it performs its impairment tests. Under the income method, the Company projects cash flows that would be generated by its unit of accounting assuming the unit of accounting was commencing operations in its respective market at the beginning of the valuation period. This cash flow stream is discounted to arrive at a value for the FCC license. The Company assumes the competitive situation that exists in the unit of accounting’s market remains unchanged, with the exception that the unit of accounting commenced operations at the beginning of the valuation period. In doing so, the Company extracts the value of going concern and any other assets acquired, and strictly values the FCC license. Major assumptions involved in this analysis include market revenue, market revenue growth rates, unit of accounting audience share, unit of accounting revenue share and discount rate. Each of these assumptions may change in the future based upon changes in general economic conditions, audience behavior, consummated transactions, and numerous other variables that may be beyond our control. The projections incorporated into our license valuations take then current economic conditions into consideration. Under the market method, the Company uses recent sales of comparable radio stations for which the sales value appeared to be concentrated entirely in the value of the license, to arrive at an indication of fair value.
- 21 -
Valuation of Goodwill
ASC Topic 350-20-35 requires the Company to test goodwill for impairment at least annually. Under ASC 350 we have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value as a basis for determining whether it is necessary to perform an annual quantitative goodwill impairment test. Given the macroeconomic environment as a result of the COVID-19 pandemic we have elected not to perform the qualitative assessment. When performing a quantitative assessment for impairment, the Company uses a market approach to determine the fair value of the reporting unit. Management determines the fair value for the reporting unit by multiplying the cash flows of the reporting unit by an estimated market multiple. Management believes this methodology for valuing outdoor advertising businesses is a common approach and believes that the multiples used in the valuation are reasonable given our peer comparisons, analyst reports, and market transactions. To corroborate the fair values determined using the market approach described above, management also uses an income approach, which is a discounted cash flow method to determine the fair value of the reporting unit. If the carrying value of a reporting unit’s goodwill exceeds its fair value, the Company recognizes an impairment charge equal to the difference in the statement of operations. All goodwill on the condensed consolidated balance sheets as of December 31, 2020 and March 31, 2021 is assigned to our Outdoor Advertising segment. While the COVID-19 pandemic has negatively affected our outdoor operations, as of March 31, 2021, we don’t believe the long-term value of the outdoor business, and thus the associated goodwill, has been impaired. The Company conducts its impairment test as of October 1 of each fiscal year, unless indications of impairment exist during an interim period.
Deferred Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequence of events that have been recognized in the Company’s financial statements or income tax returns. Income taxes are recognized during the year in which the underlying transactions are reflected in the consolidated statements of operations. Deferred taxes are provided for temporary differences between amounts of assets and liabilities recorded for financial reporting purposes as compared to amounts recorded for income tax purposes. After determining the total amount of deferred tax assets, the Company determines whether it is more likely than not that some portion of the deferred tax assets will not be realized.
Results of Operations for the Three-Month Period Ended March 31, 2021, Compared to March 31, 2020
Net revenues:
|
|
|
For the Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
|
(As reported, amounts in thousands) |
|
|||||||||||||
|
Net revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
8,339 |
|
|
$ |
6,502 |
|
|
$ |
(1,837 |
) |
|
|
(22.0 |
)% |
|
Outdoor Advertising |
|
|
3,446 |
|
|
|
3,241 |
|
|
|
(205 |
) |
|
|
(5.9 |
)% |
|
Total net revenues |
|
$ |
11,785 |
|
|
$ |
9,743 |
|
|
$ |
(2,042 |
) |
|
|
(17.3 |
)% |
Net radio revenues decreased for the three-month period ended March 31, 2021 due to a decline in advertising revenues as a result of the ongoing COVID-19 pandemic, which didn’t meaningfully impact our revenues in the prior year until the second quarter.
We typically monitor the performance of our stations against the aggregate performance of the market in which we operate based on reports for the period prepared by Miller Kaplan. Miller Kaplan reports are generally prepared on a gross revenues basis and exclude revenues from barter and syndication arrangements. Miller Kaplan reported gross revenues for the New York radio market decreased 8.7% for the three-month period ended March 31, 2021, as compared to the same period of the prior year. Our gross revenues reported to Miller Kaplan were down 21.0% for the three-month period ended March 31, 2021, as compared to the same period of the prior year.
Outdoor advertising revenues also decreased for the three-month period ended March 31, 2021, attributable to the impact of the ongoing COVID-19 pandemic, which didn’t meaningfully impact our revenues in the prior year until the second quarter. Revenues in our outdoor advertising business have been less volatile than our radio business due to greater geographic diversification and longer duration advertising contracts with customers.
- 22 -
Operating expenses excluding depreciation and amortization expense:
|
|
|
For the Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
|
(As reported, amounts in thousands) |
|
|||||||||||||
|
Operating expenses excluding depreciation and amortization expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
6,931 |
|
|
$ |
5,291 |
|
|
$ |
(1,640 |
) |
|
|
(23.7 |
)% |
|
Outdoor Advertising |
|
|
2,526 |
|
|
|
2,470 |
|
|
|
(56 |
) |
|
|
(2.2 |
)% |
|
Total operating expenses excluding depreciation and amortization expense |
|
$ |
9,457 |
|
|
$ |
7,761 |
|
|
$ |
(1,696 |
) |
|
|
(17.9 |
)% |
Radio operating expenses excluding depreciation and amortization expense declined during the three-month period ended March 31, 2021 due to personnel and non-personnel cost reductions implemented in response to the decline in revenues caused by the COVID-19 pandemic.
Outdoor advertising operating expenses excluding depreciation and amortization are largely fixed in nature; however, we did implement expense reductions where possible in response to the decline in revenues caused by the pandemic.
Corporate expenses
|
|
|
For the Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
|
(As reported, amounts in thousands) |
|
|||||||||||||
|
Corporate expenses |
|
$ |
1,165 |
|
|
$ |
1,641 |
|
|
$ |
476 |
|
|
|
40.9 |
% |
Corporate expenses increased during the three months ended March 31, 2021 due to noncash compensation expense associated with restricted stock issued during the quarter, coupled with an increase in professional fees. There were no equity awards outstanding in the three months ended March 31, 2020.
Depreciation and amortization:
|
|
|
For the Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
|
(As reported, amounts in thousands) |
|
|||||||||||||
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
249 |
|
|
$ |
191 |
|
|
$ |
(58 |
) |
|
|
(23.3 |
)% |
|
Outdoor Advertising |
|
|
778 |
|
|
|
790 |
|
|
|
12 |
|
|
|
1.5 |
% |
|
Total depreciation and amortization |
|
$ |
1,027 |
|
|
$ |
981 |
|
|
$ |
(46 |
) |
|
|
(4.5 |
)% |
Radio depreciation and amortization expense decreased due to certain assets becoming fully depreciated in the prior year.
- 23 -
Operating income (loss):
|
|
|
For the Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
|
(As reported, amounts in thousands) |
|
|||||||||||||
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Radio |
|
$ |
1,159 |
|
|
$ |
1,020 |
|
|
$ |
(139 |
) |
|
|
(12.0 |
)% |
|
Outdoor Advertising |
|
|
142 |
|
|
|
(13 |
) |
|
|
(155 |
) |
|
|
(109.2 |
)% |
|
All Other |
|
|
(1,165 |
) |
|
|
(1,641 |
) |
|
|
(476 |
) |
|
|
40.9 |
% |
|
Total operating income (loss) |
|
$ |
136 |
|
|
$ |
(634 |
) |
|
$ |
(770 |
) |
|
|
(566.2 |
)% |
Radio and outdoor advertising operating income decreased in the three-month period ended March 31, 2021, due to the impact of the COVID-19 pandemic, which didn’t meaningfully affect the prior year’s results until the second quarter.
Interest expense
|
|
|
For the Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
|
(As reported, amounts in thousands) |
|
|||||||||||||
|
Interest expense |
|
$ |
(2,238 |
) |
|
$ |
(2,538 |
) |
|
$ |
(300 |
) |
|
|
13.4 |
% |
Interest expense increased for the three-month period ended March 31, 2021, due to an increase in debt outstanding from additional borrowings and interest paid in kind.
(Benefit) provision for income taxes:
|
|
|
For the Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
|
(As reported, amounts in thousands) |
|
|||||||||||||
|
(Benefit) provision for income taxes |
|
$ |
(617 |
) |
|
$ |
81 |
|
|
$ |
698 |
|
|
|
(113.1 |
)% |
Given the uncertainty in the economy due to the ongoing COVID-19 pandemic, particularly in the New York market, the Company concluded it could not reasonably estimate pre-tax income for the year ended December 31, 2021, so the Company is calculating its provision for income taxes on a discrete basis until there is greater clarity.
Consolidated net loss:
|
|
|
For the Three Months Ended March 31, |
|
|
|
|
|
|
|
|
|
|||||
|
|
|
2020 |
|
|
2021 |
|
|
$ Change |
|
|
% Change |
|
||||
|
|
|
(As reported, amounts in thousands) |
|
|||||||||||||
|
Consolidated net loss |
|
$ |
(2,014 |
) |
|
$ |
(3,887 |
) |
|
$ |
(1,873 |
) |
|
|
93.0 |
% |
Net income decreased for the three-month period ended March 31, 2021 primarily due to a decline in operating income, an increase in interest expense and an increase in the provision for income taxes, each as discussed above.
Liquidity and Capital Resources
At March 31, 2021, we had cash and cash equivalents of $4.5 million and net working capital of $1.9 million. At December 31, 2020, we had cash and cash equivalents of $4.2 million and net working capital of $4.4 million. The decrease in working capital is mostly due to a decrease in accounts receivable due to the seasonal nature of billings in our radio segment, an increase in accrued interest due to the timing of quarterly payments and an increase in current maturities of debt due to the timing of scheduled principal payments as of March 31, 2021.
Cash flows provided by operating activities were $0.6 million for the three months ended March 31, 2021 versus cash flows used in operating activities of $1.6 million for the three months ended March 31, 2020. The increase was mainly attributable to more efficient working capital management.
- 24 -
Cash flows used in investing activities were $0.2 million for the three months ended March 31, 2021, attributable to capital expenditures, and $0.1 million for the three months ended March 31, 2021, attributable to capital expenditures, net of proceeds from the sale of property and equipment.
Cash flows used in financing activities were $0.2 million for the three months ended March 31, 2021, attributable to the settlement of tax withholding obligations, versus cash flows provided by financing activities of $4.1 million for the three months ended March 31, 2020, primarily provided by $5.2 million of debt proceeds.
Our primary sources of liquidity are cash provided by operations and cash available through borrowings from Standard General. Our primary uses of capital have been, and are expected to continue to be, capital expenditures, working capital, debt service requirements and acquisitions.
The Company continually projects its anticipated cash needs, which include its operating needs, capital needs, and principal and interest payments on its indebtedness.
Intangibles
As of March 31, 2021, approximately 44% of our total assets consisted of FCC broadcast licenses, the values of which depend significantly upon various factors including, among other things, market revenues, market growth rates and the operational results of our businesses. We would not be able to operate the properties without the related FCC license for each property. FCC licenses are renewed every eight years; consequently, we continually monitor our stations’ compliance with the various regulatory requirements. Historically, substantially all FCC licenses have been renewed at or after the end of their respective periods, and we expect that our FCC licenses will be renewed in the future.
Regulatory, Legal and Other Matters
From time to time, our stations are parties to various legal proceedings arising in the ordinary course of business. In the opinion of management of the Company, however, there are no legal proceedings pending against the Company that we believe are likely to have a material adverse effect on the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As an emerging growth company, we are not required to provide this information.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company evaluated the effectiveness of the design and operation of its “disclosure controls and procedures” (“Disclosure Controls”). This evaluation (the “Controls Evaluation”) was performed under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”).
Based upon the Controls Evaluation, our CEO and CFO concluded that as of March 31, 2021, our Disclosure Controls are effective to ensure that information relating to MediaCo Holding Inc. and Subsidiaries that is required to be disclosed by us in the reports that we file or submit is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and is accumulated and communicated to our management, including our principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control Over Financial Reporting.
There were no changes in our internal control over financial reporting (as defined in Rule 13a-15(f)) that occurred during the quarter ended March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. However, during the quarter ended March 31, 2021, the employees hired as a result of the termination of the Employee Leasing Agreement with Emmis were migrated to the payroll system utilized by our outdoor advertising segment.
Refer to Part I, Item 2 “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. In the opinion of management of the Company there are no legal proceedings pending against the Company that we believe are likely to have a material adverse effect on the Company.
- 25 -
|
|
(a) |
Exhibits. |
The following exhibits are filed or incorporated by reference as a part of this report:
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Exhibit |
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Incorporated by Reference |
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Number |
|
Exhibit Description |
|
Filed Herewith |
|
Form |
|
Period Ending |
|
Exhibit |
|
Filing Date |
||
|
3.1 |
|
Amended and Restated Articles of Incorporation of MediaCo Holding Inc., as amended |
|
|
|
10-KT |
|
12/31/2019 |
|
3.1 |
|
3/27/2020 |
||
|
3.2 |
|
|
|
|
10-K |
|
12/31/2020 |
|
3.2 |
|
3/30/2021 |
|||
|
10.1 |
|
|
|
|
8-K |
|
|
|
10.1 |
|
5/21/2021 |
|||
|
10.2 |
|
|
|
|
8-K |
|
|
|
10.2 |
|
5/21/2021 |
|||
|
31.1 |
|
|
X |
|
|
|
|
|
|
|
|
|||
|
31.2 |
|
|
X |
|
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|||
|
32.1 |
|
|
X |
|
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|||
|
32.2 |
|
|
X |
|
|
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|
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|
|||
|
101.INS |
|
XBRL Instance Document |
|
X |
|
|
|
|
|
|
|
|
||
|
101.SCH |
|
XBRL Taxonomy Extension Schema Document |
|
X |
|
|
|
|
|
|
|
|
||
|
101.CAL |
|
XBRL Taxonomy Extension Calculation Linkbase Document |
|
X |
|
|
|
|
|
|
|
|
||
|
101.LAB |
|
XBRL Taxonomy Extension Labels Linkbase Document |
|
X |
|
|
|
|
|
|
|
|
||
|
101.PRE |
|
XBRL Taxonomy Extension Presentation Linkbase Document |
|
X |
|
|
|
|
|
|
|
|
||
|
101.DEF |
|
XBRL Taxonomy Extension Definition Linkbase Document |
|
X |
|
|
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||
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- 26 -
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
MEDIACO HOLDING INC. |
|
|
|
|
|
|
Date: May 24, 2021 |
By: |
/s/ RYAN A. HORNADAY |
|
|
|
Ryan A. Hornaday |
|
|
|
Executive Vice President, Chief Financial Officer and |
|
|
|
Treasurer |
- 27 -
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
I, Jeffrey H. Smulyan, certify that:
|
|
1. |
I have reviewed this quarterly report on Form 10-Q of MediaCo Holding Inc.; |
|
|
2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
|
|
3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
|
|
4. |
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
|
|
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
|
|
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
|
|
(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
|
|
(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
|
|
5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
|
|
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
|
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date: May 24, 2021 |
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/s/ JEFFREY H. SMULYAN |
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Jeffrey H. Smulyan |
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Chief Executive Officer |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
I, Ryan A. Hornaday, certify that:
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1. |
I have reviewed this quarterly report on Form 10-Q of MediaCo Holding Inc.; |
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2. |
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
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3. |
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
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4. |
The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
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(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
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(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
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(c) |
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
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(d) |
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
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5. |
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
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(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
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(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
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Date: May 24, 2021 |
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/s/ RYAN A. HORNADAY |
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Ryan A. Hornaday |
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Executive Vice President, Chief Financial Officer and |
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Treasurer |
Exhibit 32.1
SECTION 1350 CERTIFICATION
The undersigned hereby certifies, in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of MediaCo Holding Inc. (the “Company”), that, to his knowledge:
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(1) |
the Quarterly Report of the Company on Form 10-Q for the period ended March 31, 2021, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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Date: May 24, 2021 |
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/s/ JEFFREY H. SMULYAN |
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Jeffrey H. Smulyan |
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Chief Executive Officer |
Exhibit 32.2
SECTION 1350 CERTIFICATION
The undersigned hereby certifies, in accordance with 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in his capacity as an officer of MediaCo Holding Inc. (the “Company”), that, to his knowledge:
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(1) |
the Quarterly Report of the Company on Form 10-Q for the period ended March 31, 2021, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
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(2) |
the information contained in such report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
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Date: May 24, 2021 |
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/s/ RYAN A. HORNADAY |
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Ryan A. Hornaday |
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Executive Vice President, Chief Financial Officer and |
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Treasurer |