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5: EX-32.2 Certification -- §906 - SOA'02 HTML 20K
11: R1 Cover HTML 78K
12: R2 Condensed Consolidated Statements of Operations HTML 102K
13: R3 Condensed Consolidated Balance Sheets HTML 139K
14: R4 Condensed Consolidated Balance Sheets HTML 50K
(Parenthetical)
15: R5 Condensed Consolidated Statements of Changes in HTML 67K
Retained Deficit
16: R6 Condensed Consolidated Statements of Cash Flows HTML 110K
17: R7 Summary of Significant Accounting Policies HTML 67K
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23: R13 Leases HTML 47K
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25: R15 Segment Information HTML 91K
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(Policies)
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(Tables)
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31: R21 Revenue (Tables) HTML 49K
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33: R23 Leases (Tables) HTML 49K
34: R24 Asset Retirement Obligations (Tables) HTML 25K
35: R25 Segment Information (Tables) HTML 86K
36: R26 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - HTML 52K
Narrative (Details)
37: R27 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - HTML 67K
Reconciliation of Basic and Diluted Net Loss per
Share Attributable to Common Shareholders
(Details)
38: R28 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - HTML 34K
Schedule of Convertible Equity Shares and
Restricted Stock Awards Excluded from Calculation
of Diluted Net Loss per Share (Details)
39: R29 INTANGIBLE ASSETS AND GOODWILL - Schedule of HTML 36K
Intangible Assets (Details)
40: R30 INTANGIBLE ASSETS AND GOODWILL - Narrative HTML 39K
(Details)
41: R31 INTANGIBLE ASSETS AND GOODWILL - Schedule of HTML 29K
Definite-Lived Intangible Assets (Details)
42: R32 REVENUE - Narrative (Details) HTML 24K
43: R33 REVENUE - Schedule of Disaggregation of Revenue HTML 51K
(Details)
44: R34 LONG-TERM DEBT - Schedule of Long-Term Debt HTML 36K
(Details)
45: R35 LONG-TERM DEBT - Narrative (Details) HTML 142K
46: R36 LONG-TERM DEBT - Schedule of Mandatory Principal HTML 47K
Payments of Long-Term Debt (Details)
47: R37 REGULATORY, LEGAL AND OTHER MATTERS - Additional HTML 49K
Information (Details)
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50: R40 LEASES - Schedule of Impact of Operating Leases to HTML 32K
Condensed Consolidated Financial Statements
(Details)
51: R41 LEASES - Schedule of Annual Minimum Lease Payments HTML 38K
of Operating Lease Liabilities (Details)
52: R42 LEASES - Schedule of Minimum Fixed Lease HTML 32K
Consideration Under Non-cancelable Operating
Leases Excluding Variable Lease Consideration
(Details)
53: R43 ASSET RETIREMENT OBLIGATIONS - Schedule of HTML 29K
Information Related to Asset Retirement
Obligations (Details)
54: R44 SEGMENT INFORMATION - Additional Information HTML 21K
(Details)
55: R45 SEGMENT INFORMATION - Schedule of Results of HTML 62K
Operations of Business Segments (Details)
56: R46 RELATED PARTY TRANSACTIONS - Transaction Agreement HTML 56K
with Emmis and SG Broadcasting (Details)
57: R47 RELATED PARTY TRANSACTIONS - Convertible HTML 77K
Promissory Notes (Details)
58: R48 RELATED PARTY TRANSACTIONS - Convertible Preferred HTML 44K
Stock (Details)
59: R49 RELATED PARTY TRANSACTIONS - Loan Proceeds HTML 25K
Participation Agreement (Details)
60: R50 RELATED PARTY TRANSACTIONS - Management Agreement HTML 32K
for Billboards LLC (Details)
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(Exact name of registrant as specified in its charter)
______________________________________
iIndiana
(State of incorporation or organization)
i84-2427771
(I.R.S.
Employer Identification No.)
i395 Hudson Street, iFloor 7
iNew
York, iNew Yorki10014
(Address of principal executive offices)
(i212)
i229-9797
(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:
Title
of each class
Trading symbol(s)
Name of each exchange on which registered
iClass A common stock, $0.01 par value
iMDIA
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. iYesx No o
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). iYesx No o
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.
Large accelerated filer
o
Accelerated filer
o
iNon-accelerated
filer
o
Smaller reporting company
ix
Emerging growth company
ix
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. io
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes io
No x
The number of shares outstanding of each of MediaCo Holding Inc.’s classes of common stock, as of August 5, 2022, was:
Accounts
receivable, net of allowance for doubtful accounts of $i210 and $i313, respectively
i10,490
i13,756
Prepaid
expenses
i1,661
i1,238
Other
current assets
i145
i526
Total current assets
i18,827
i21,641
PROPERTY
AND EQUIPMENT, NET
i26,448
i26,533
INTANGIBLE
ASSETS, NET
i77,545
i78,030
OTHER
ASSETS:
Operating lease right of use assets
i20,225
i21,663
Deposits
and other
i344
i343
Total
other assets
i20,569
i22,006
Total
assets
$
i143,389
$
i148,210
LIABILITIES
AND DEFICIT
CURRENT LIABILITIES:
Accounts payable and accrued expenses
$
i4,057
$
i2,710
Current
maturities of long-term debt
i3,672
i2,754
Accrued
salaries and commissions
i722
i1,284
Deferred
revenue
i2,159
i2,022
Operating
lease liabilities
i4,414
i3,801
Other
current liabilities
i2,865
i1,412
Total
current liabilities
i17,889
i13,983
LONG
TERM DEBT, NET OF CURRENT
i96,679
i97,527
OPERATING
LEASE LIABILITIES, NET OF CURRENT
i15,077
i16,909
ASSET
RETIREMENT OBLIGATIONS
i7,634
i7,267
DEFERRED
INCOME TAXES
i2,218
i2,069
OTHER
NONCURRENT LIABILITIES
i4
i16
Total
liabilities
i139,501
i137,771
COMMITMENTS
AND CONTINGENCIES
i
i
SERIES A CUMULATIVE CONVERTIBLE PARTICIPATING PREFERRED STOCK, $ii0.01/
PAR VALUE, ii10,000,000/
SHARES AUTHORIZED; iiii220,000///
SHARES ISSUED AND OUTSTANDING
i28,628
i27,010
RETAINED
DEFICIT:
Class A common stock, $ii0.01/
par value; authorized ii170,000,000/ shares;
issued and outstanding ii3,130,298/ shares and ii3,056,757/
shares at June 30, 2022, and December 31, 2021, respectively
i31
i31
Class
B common stock, $ii0.01/ par value; authorized ii50,000,000/
shares; issued and outstanding iiii5,413,197///
shares at June 30, 2022, and December 31, 2021
i54
i54
Class
C common stock, $ii0.01/ par value; authorized ii30,000,000/
shares; iiiinone///
issued
i—
i—
Additional
paid-in capital
i24,675
i24,030
Accumulated
deficit
(i49,500)
(i40,686)
Total
deficit
(i24,740)
(i16,571)
Total
liabilities and deficit
$
i143,389
$
i148,210
The
accompanying notes are an integral part of these unaudited condensed consolidated statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands Unless Indicated Otherwise)
(Unaudited)
1. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
ii
Organization
MediaCo Holding Inc. (“MediaCo” or the “Company”) is an owned and operated multi-media company formed in Indiana
in 2019, focused on radio, outdoor, and digital advertising.
Our assets consist of itwo radio stations, WQHT-FM and WBLS-FM (the “Stations”), which serve the New York City demographic market area that primarily targets Black, Hispanic, and multi-cultural consumers, as well as approximately i3,500
outdoor advertising displays in the Southeast (Georgia, Alabama, South Carolina and Florida) and the Mid-Atlantic (Kentucky, West Virginia and Ohio) regions of the United States. We derive our revenues primarily from radio, outdoor, and digital advertising sales, but we also generate revenues from events, including sponsorships and ticket sales, licensing, and syndication.
Unless the context otherwise requires, references to “we”, “us” and “our” refer to MediaCo and its subsidiaries.
Capital Structure Changes
On July 28, 2022, SG Broadcasting LLC ("SG Broadcasting") exercised its right to convert the outstanding principal and accrued but unpaid interest on the SG Broadcasting
Promissory Notes (as defined in Note 10) of $i28.0 million and $i1.9 million, respectively, for i12.9 million
of the Company's Class A common stock. See Note 5.
/i
Basis of Presentation and Consolidation
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.
i
Cash and Cash Equivalents
We consider time deposits, money market fund shares and all highly liquid debt investment instruments with original maturities of six months or less to be cash equivalents. At times, such deposits may be in excess of FDIC insurance limits.
i
Fair
Value Measurements
Fair value is the exchange price to sell an asset or transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The Company uses market data or assumptions 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 may be readily observable, corroborated by market data, or generally unobservable. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. We have iino/
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 including those described in Note 2, Intangible Assets and Goodwill, 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 2 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.
/
iEstimates
The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Due to the COVID-19 pandemic, the global economy and financial markets
have been disrupted and there is uncertainty about the length and severity of the consequences caused by the pandemic. The Company has considered information available to it as of the date of issuance of these financial statements and is not aware of any specific events or circumstances that would require an update to its estimates or judgments, or a revision to the carrying value of its assets or liabilities. These estimates may change as new events occur and additional information becomes available. Actual results could differ materially from these estimates.
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. iThe following is a reconciliation of basic and diluted net loss per share attributable to Class A and Class B common shareholders:
Undistributed
earnings allocated to participating securities
ii—/
ii136/
ii—/
ii—/
Net
(loss) income attributable to common shareholders
$
(ii3,683/)
$
ii138/
$
(ii8,814/)
$
(ii3,613/)
Basic
weighted average common shares outstanding
i7,808
i7,187
i7,687
i7,151
Impact
of restricted stock awards
i—
i179
i—
i—
Diluted
weighted average common shares outstanding
i7,808
i7,366
i7,687
i7,151
Basic
net (loss) income attributable to common shareholders
$
(i0.47)
$
i0.02
$
(i1.15)
$
(i0.51)
Diluted
net (loss) income attributable to common shareholders
$
(i0.47)
$
i0.02
$
(i1.15)
$
(i0.51)
On
August 20, 2021, MediaCo Holding Inc. entered into an At Market Issuance Sales Agreement with B. Riley Securities, Inc. (B. Riley”), pursuant to which the Company may offer and sell, from time to time through or to B. Riley, as agent or principal, shares of the Company’s Class A Common Stock, $i0.01 par value per share, having an aggregate offering price of up
to $i12.5 million. iNo shares were sold during the six-month period ended June 30,
2022.
i
The following convertible equity shares and restricted stock awards were excluded from the calculation of diluted net (loss) income per share because their effect would have been anti-dilutive.
Three
Months Ended June 30,
Six Months Ended June 30,
(in thousands)
2022
2021
2022
2021
Convertible Emmis promissory note
i1,352
i1,655
i1,368
i2,206
Convertible
Standard General promissory notes
i5,156
i6,371
i5,225
i8,501
Series
A convertible preferred stock
i5,861
i7,179
i5,933
i9,567
Restricted
stock awards
i449
i10
i529
i176
Total
anti-dilutive shares
i12,818
i15,215
i13,055
i20,450
//i
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 do not expect the adoption of the new standard to have a significant impact on our condensed consolidated
financial statements.
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 $ii63.3/
million as of June 30, 2022 and December 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 impairment assessment as of October 1, 2021 and therefore there has been no need to perform an interim impairment assessment. 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
All goodwill on the condensed consolidated balance sheets as of June 30, 2022 and December 31, 2021 is part of the Outdoor Advertising segment. The Company tests goodwill for impairment at least annually. 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. We perform this assessment annually as of October 1, unless indicators of impairment exist at an interim period.
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.
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 $i0.7
million. We assess the trade name annually for impairment on October 1 of each year, unless indications of impairment exist during an interim period.
Definite-lived intangibles
i
The following table presents the weighted-average useful life at June 30, 2022, and the gross carrying amount and accumulated amortization at June 30, 2022, and December 31, 2021, for our
definite-lived intangible asset:
The
customer list was acquired as part of the purchase of our Outdoor Advertising segment and was valued as part of the purchase price allocation performed at closing. Customer relationships represent a source of repeat business. The information contained in such relationships usually includes the preferences of the customer, the buying patterns of the customer, and the history of purchases that have been made by the customer. In calculating the value of Fairway Outdoors’ customer relationships, we employed the multiperiod excess earnings method of the income approach, which estimates value based on the present value of future economic benefits. This methodology resulted in a valuation of $i2.9
million. A useful life of ithree years was assigned to the customer list.
Total amortization expense from definite-lived intangible assets for the three and six-month periods ended June 30, 2022 was $i0.2
million and $i0.5 million, respectively. Total amortization expense from definite-lived intangible assets for the three and six-month periods ended June 30, 2021 was $i0.3
million and $i0.6 million, respectively. The Company estimates amortization expense of $i0.4
million for the remainder of the year ending December 31, 2022 and none thereafter.
3. REVENUE
i
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 i15%
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 sheets. Substantially all deferred revenue is recognized within twelve months of the payment
date.
Outdoor Advertising
Our outdoor advertising business has approximately i3,500 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
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 pre-roll and sponsorships, but excluding digital billboard advertisements) to advertisers on Company-owned websites and applications from revenue generated from content distributed across other digital platforms. 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 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 10).
Disaggregation of revenue
i
The following table presents the Company's revenues disaggregated by revenue source:
The Company has a ifive-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 i7.5%,
with a i2.0% LIBOR floor and a i1.0% incremental interest rate paid in kind under certain circumstances (as discussed below). The Senior Credit Facility matures on
November 25, 2024. Prior to subsequent amendments discussed below, 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 i1.10:1.00,
and other customary restrictions.
As of June 30, 2022, 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). Most recently, 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 $i7.0
million to the Company in the form of subordinated debt, with $i3.0 million contributed at closing, $i1.0
million contributed on June 1, 2021, and up to an additional $i3.0 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 $i3.0
million to reduce borrowings outstanding under the Senior Credit Facility;
•ino quarterly scheduled principal payments are required through and including the quarter ending June 30, 2022;
•the Minimum Consolidated Fixed Charge Coverage Ratio (as defined in the Senior Credit Facility) was reduced to i1.00:1.00
from April 1, 2020 through and including December 31, 2022, with it increasing to i1.10:1.00 on and after January 1, 2023;
•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 i3.5 to i5.0
and the advance rate applied to the radio stations’ FCC licenses increased from i60% to i70%;
•at
any time the multiple applied to Billboard Cash Flow exceeds i3.5 or the advance rate applied to the radio stations’ FCC licenses exceeds i60%, an incremental
annual interest rate of i1.0% applies and is paid in kind monthly;
•certain specified events of default were waived; and
•an amendment fee of $i0.4
million was paid in cash.
For the period May 19, 2021 through March 31, 2022, the multiple applied to billboard cash flow was in excess of i3.5x and the advance rate applied to the Company's FCC licenses exceeded i60%
in order for the Company to achieve minimal compliance with its loan to value covenant. Therefore, the incremental annual interest rate of i1.0% applied during this period and additional interest payments of $i0.2
million were paid in kind during the three-month period ended March 31, 2022, all of which were added to the principal balance outstanding. For the period from April 1, 2022 to June 30, 2022, the incremental annual interest rate of i1.0% did not apply as the principal balance outstanding was less than the minimum borrowing base.
As of June 30,
2022, there was $i67.7 million outstanding under the Senior Credit Facility, carried net of a total unamortized discount of $i1.5 million.
MediaCo
is in compliance with the debt covenants as of June 30, 2022 and anticipates being in compliance in future periods.
The Emmis Convertible Promissory Note (as defined below) carries interest at a base rate equal to the interest on any senior credit facility, including any applicable paid in kind rate, or if no senior credit facility is outstanding, of i6.0%,
plus an additional i1.0% on any payment of interest in kind and, without regard to whether the Company pays such interest in kind, an additional increase of i1.0%
following the second anniversary of the date of issuance and additional increases of i1.0% 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 June 30, 2022, the principal balance outstanding under the Emmis Convertible Promissory Note was $i6.2
million.
Second Amended and Restated SG Broadcasting Promissory Note, Additional SG Broadcasting Promissory Note and May 2021 SG Broadcasting Promissory Note
The Second Amended and Restated SG Broadcasting Promissory Note and Additional SG Broadcasting Promissory Note (the “SG Broadcasting Promissory Notes”) carry interest at a base rate equal to the interest on any senior credit facility, including any applicable paid in kind rate, or if ino senior
credit facility is outstanding, of i6.0%, and an additional increase of i1.0% following the second anniversary of the date of issuance and additional
increases of i1.0% following each successive anniversary thereafter. The SG Broadcasting Promissory Notes mature on May 25, 2025. Additionally, interest under the SG Broadcasting Promissory Notes 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.
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 $i3.0 million to the Company to make the prepayment of Senior Credit Facility debt required under Amendment No. 4. Up to
$i7.0 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, including any applicable paid in kind rate, or if no senior credit facility is outstanding, of i6.0%,
and an additional increase of i1.0% on November 25, 2021 and additional annual increases of i1.0%
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.
On June 1, 2021, SG Broadcasting contributed $i1.0
million to the Company under the May 2021 SG Broadcasting Promissory Note as required by Amendment No. 4 to the Senior Credit Facility.
On March 18, 2022, the Company and SG Broadcasting agreed to amend the May 2021 SG Broadcasting Promissory Note to extend the Company’s ability to draw the remaining $i3.0
million on the May 2021 SG Broadcasting Promissory Note from June 30, 2022 to June 30, 2023.
As of June 30, 2022, there was a total of $i28.0 million outstanding under the SG Broadcasting Promissory Notes and the May 2021 SG Broadcasting Promissory Note.
On July 28, 2022, SG Broadcasting
exercised its right to convert the outstanding principal and accrued but unpaid interest on the SG Broadcasting Promissory Notes of $i28.0 million and $i1.9 million,
respectively, for i12.9 million of the Company's Class A common stock. See Note 5.
i
Based
on amounts outstanding at June 30, 2022, mandatory principal payments of long-term debt for the next five years and thereafter are summarized below:
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 ino
legal proceedings pending against the Company that we believe are likely to have a material adverse effect on the Company.
On April 1, 2022, the Company received a deficiency letter (the “Nasdaq Letter”) from the Nasdaq Listing Qualifications Department, notifying the Company that the Company is not in compliance with Nasdaq Listing Rule 5550(b)(3), which requires the
Company to maintain net income from continuing operations of $i0.5 million from continuing operations in the most recently completed fiscal year, or in two of the three most recently completed fiscal years (the “Minimum Net Income Requirement”), nor is it in compliance with either of the alternative listing standards, market value of listed securities or stockholders’ equity. The Company’s failure to comply with the Minimum Net Income Requirement was based on the
Company’s filing of its Annual Report on Form 10-K for the year ended December 31, 2021, reporting net loss from continuing operations of $i6.1 million.
Pursuant to the Nasdaq Letter, the Company had 45 calendar days from the date of the Nasdaq Letter to submit a plan to regain compliance, and submitted such a plan during this period. The plan was accepted and Nasdaq granted an extension of
up to 180 calendar days from the date of the Nasdaq Letter to evidence compliance. In the event the Company fails to regain compliance within the plan period, the Company would have the right to a hearing before an independent panel. The hearing request would stay any suspension or delisting action pending the conclusion of the hearing process and the expiration of any additional extension period granted by the panel following the hearing.
The Company intends to take all reasonable measures available to regain compliance under the Nasdaq Listing Rules and remain listed on Nasdaq. One component of the
Company's plan to evidence compliance, as accepted by Nasdaq, is the conversion by the holder of the SG Broadcasting Promissory Notes of the entire amount of outstanding principal and accrued but unpaid interest into shares of the Company's Class A common stock. On July 28, 2022, the holder exercised its right under the SG Broadcasting Promissory Notes to convert the outstanding principal and accrued but unpaid interest on the SG Broadcasting Promissory Notes of $i28.0 million
and $i1.9 million, respectively, for i12.9 million shares of the
Company's Class A common stock.
Neither the Nasdaq Letter nor the Company’s noncompliance have an immediate effect on the listing or trading of the Company’s common stock, which will continue to trade on The Nasdaq Capital Market under the symbol “MDIA.”
/
6. INCOME TAXES
iThe
effective tax rate for the six months ended June 30, 2022, and 2021 was i2% and i8%,
respectively. Our effective tax rate for the six months ended June 30, 2022 differs from the statutory tax rate primarily due to the recognition of additional valuation allowance./
7. LEASES
i
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 sheets.
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 the 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 for the six months ended June 30, 2022
and 2021 was $ii0.1/ million. Variable
lease expense for the three months ended June 30, 2022 and 2021 was not material.
We elected not to apply the recognition requirements of ASC 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 and six months ended June 30, 2022 and 2021 was not material.
Weighted average remaining lease term - operating leases (in years)
i8.4
i8.5
Weighted
average discount rate - operating leases
i9.6
%
i9.4
%
/i
As
of June 30, 2022, the annual minimum lease payments of our operating lease liabilities were as follows:
Year ending December 31,
Remainder of 2022
$
i2,710
2023
i4,477
2024
i2,893
2025
i2,874
2026
i2,743
After
2026
i12,924
Total lease payments
i28,621
Less
imputed interest
(i9,130)
Total recorded lease liabilities
$
i19,491
/i
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 June 30, 2022, is as follows:
Year ending December 31,
Remainder of 2022
$
i3,884
2023
i1,885
2024
i136
2025
i26
2026
i8
After
2026
i—
/
8. ASSET RETIREMENT OBLIGATIONS
i
The
Company’s asset retirement obligations include 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. iThe following table reflects information related to our asset retirement obligations.
The Company’s operations are aligned into itwo
business segments: Radio and 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 and additional acquisitions thereafter. 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, 2021, and in Note 1 to these condensed consolidated financial statements, are applied consistently across segments.
The following tables present the Company's segment results for the three and six months ended June 30, 2022 and 2021:
Transaction Agreement with Emmis and SG Broadcasting
On June 28, 2019, MediaCo entered into a Contribution and Distribution Agreement with Emmis Communications Corporation ("Emmis") and SG Broadcasting, pursuant to which (i) Emmis contributed the assets of its radio stations WQHT-FM and WBLS-FM, in exchange for $i91.5
million in cash, a $i5.0 million note and i23.72% of the common stock of MediaCo, (ii) Standard General purchased i76.28%
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 iten votes per share and the common stock acquired by Emmis and distributed to Emmis’ shareholders is entitled to ione
vote per share.
The sale closed on November 25, 2019, at which time MediaCo and Emmis also entered into a management agreement (the “Management Agreement”), an employee leasing agreement (the “Employee Leasing Agreement”) and certain other ancillary agreements. The Management Agreement with Emmis Operating Company was for an initial term of itwo years (cancellable by MediaCo after i18
months) under which Emmis provided various services to us, including accounting, human resources, information technology, legal, public reporting and tax. The Management Agreement was terminated in November 2021 at the expiration of the initial term. For the six months ended June 30, 2021, MediaCo recorded $i0.6 million of management fee expense, which is included in corporate expenses in the accompanying condensed consolidated statements
of operations. The Employee Leasing Agreement was terminated in January 2021 at the expiration of the initial term.
Convertible Promissory Notes
As a result of the transaction described above, on November 25, 2019, we issued convertible promissory notes to both Emmis (such note, the "Emmis Convertible Promissory Note") and SG Broadcasting (such note, the "November 2019 SG Broadcasting Promissory Note") in the amounts of $i5.0 million
and $i6.3 million, respectively. On February 28, 2020, the Company and SG Broadcasting amended and restated the November 2019 SG Broadcasting Promissory Note such that the maximum aggregate principal amount issuable under the note was increased from $i6.3
million to $i10.3 million. Also on February 28, 2020, SG Broadcasting loaned an additional $i2.0 million to the
Company pursuant to the November 2019 SG Broadcasting Promissory Note for working capital purposes.
On March 27, 2020, the Company and SG Broadcasting further amended and restated the November 2019 SG Broadcasting Promissory Note (as so amended and restated, the "Second Amended and Restated SG Broadcasting Promissory Note") such that the maximum aggregate principal amount issuable under the note was increased from $i10.3
million to $i20.0 million. On March 27, 2020, SG Broadcasting loaned an additional $i3.0 million to the
Company pursuant to the Second Amended and Restated SG Broadcasting Promissory Note for working capital purposes.
On August 28, 2020, SG Broadcasting loaned an additional $i8.7 million to the Company pursuant to the Second Amended and Restated SG Broadcasting Promissory Note for working capital purposes, bringing the total principal amount outstanding to $i20.0
million.
On September 30, 2020, SG Broadcasting loaned an additional $i0.3 million to the Company pursuant to an additional promissory note (the "Additional SG Broadcasting Promissory Note") for working capital purposes.
On November 25, 2020, annual interest of $i0.5
million and $i1.1 million was paid in kind and added to the principal balances of the Emmis Convertible Promissory Note and the November 2019 and Additional SG Broadcasting Promissory Notes, respectively.
On May 19, 2021, the Company issued to SG Broadcasting an additional promissory note (the "May 2021 SG Broadcasting Promissory Note" and, collectively with the November 2019 and Additional SG
Broadcasting Promissory Notes, the "SG Broadcasting Promissory Notes"), in return for which SG Broadcasting loaned $i3.0 million to the Company to make the prepayment of Senior Credit Facility debt required under Amendment No. 4. Up to $i7.0
million may be borrowed pursuant to the May 2021 SG Broadcasting Promissory Note.
On June 1, 2021, SG Broadcasting loaned $i1.0 million to the Company under the May 2021 SG Broadcasting Promissory Note as required by Amendment No. 4 to the Senior Credit Facility.
On September 30, 2021, annual interest of $i25
thousand on the November 2019 and Additional SG Broadcasting Promissory Notes was paid in kind and added to the principal balance outstanding.
On November 25, 2021, annual interest of $i0.6 million and $i2.2
million was paid in kind and added to the principal balances of the Emmis Convertible Promissory Note and the SG Broadcasting Promissory Notes, respectively.
On May 19, 2022, annual interest of $i0.4
million was paid in kind and added to the principal balance of the SG Broadcasting Promissory Notes.
Consequently, the principal amount outstanding as of June 30, 2022 under the Emmis Convertible Promissory Note and the SG Broadcasting Promissory Notes was $i6.2 million and $i28.0
million, respectively.
The Company recognized interest expense of $i0.4 million and $i0.3
million related to the Emmis Convertible Promissory Note for the six months ended June 30, 2022, and 2021, respectively. The Company recognized interest expense of $i1.5 million and $i1.1
million related to the SG Broadcasting Promissory Notes for the six months ended June 30, 2022, and 2021, respectively.
The terms of these notes are described in Note 4.
On July 28, 2022, SG Broadcasting exercised its right under the SG Broadcasting Promissory Notes to convert the outstanding principal and accrued but unpaid interest on the SG Broadcasting Promissory Notes. See Note 5.
Convertible Preferred Stock
On December 13, 2019, in connection with the purchase of our Outdoor Advertising segment, the Company
issued to SG Broadcasting i220,000 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 4), or if ino senior debt is outstanding, i6%,
plus additional increases of i1% on December 12, 2020 and each anniversary thereof. On December 13, 2021, dividends of $i2.7
million were paid in kind. The payment in kind increased the accrued value of the preferred stock and ino additional shares were issued as part of this payment.
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, 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 participating securities and we calculate earnings per share using the two-class method.
Dividends on Series A Convertible Preferred Stock held by SG Broadcasting were $i1.6 million and $i1.3
million, respectively, for the six months ended June 30, 2022, and 2021. As of June 30, 2022, and December 31, 2021, unpaid cumulative dividends were $i1.8 million and $i0.2
million, respectively, 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 $i1.5
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 i31.56% 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. During 2021, Emmis received notification the full amount of the
loan was forgiven.
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 $i25 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, a term of ithree
years, and customary provisions on limitation of liability and indemnification. $i50 thousand of income was recognized and $i105
thousand of out-of-pocket expenses were incurred for the six months ended June 30, 2022 in relation to the Billboard Agreement, $i16 thousand of which was outstanding at June 30, 2022.
11. SUBSEQUENT EVENTS
iOn
July 28, 2022, SG Broadcasting exercised its right under the SG Broadcasting Promissory Notes to convert the outstanding principal and accrued but unpaid interest on the SG Broadcasting Promissory Notes. See Note 5.
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:
•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, live video streaming, YouTube, and other 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;
•Pending U.S. regulatory requirements for paying royalties to performing artists;
•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, filed with the Securities and Exchange Commission on March 24, 2022. 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 the Southeast (Georgia, Alabama, South Carolina and Florida) and the Mid-Atlantic (Kentucky,
West Virginia and Ohio) regions. 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 both of our radio stations, while Geopath Insight Suite is the annual audience location measurement used for our billboards. Because audience ratings in a radio 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.
The following table summarizes the sources of our revenues for the three and six months ended June 30, 2022 and 2021. The category “Nontraditional” 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.
(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 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 slowed considerably. 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, which 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 the rest 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 markets 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,
YouTube channels and other third-party social media outlets.
The results of our broadcast 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 up 13.3% and 37.9% for the six months ended June 30, 2022 and 2021, respectively, as compared to
the same periods of the prior year. During these periods, revenues for our New York cluster were up 16.0% and 46.1%, respectively. These increases for our New York Cluster were largely driven by ticket sales and broadcast and streaming sponsorships of our annual outdoor concert, Summer Jam, which was held in the third quarter of the prior year.
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.
Throughout 2021 and into 2022, with the increased availability of vaccines, the U.S. experienced an easing of restrictions on travel as well as social gatherings and business activities. However, the broad economic impact of the COVID-19 pandemic remains across multiple sectors, specifically disrupting logistics and global supply chains. If the spread of COVID-19 reaccelerates, or if supply chain disruptions persist, causing certain advertising categories (e.g., automotive dealers) to advertise less, 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.
MediaCo is in compliance with the debt covenants as of June 30, 2022 and anticipates being
in compliance in future periods. MediaCo’s business units are highly correlated to the economic environment, which recently have been impacted by macroeconomic uncertainty, inflationary and labor market pressures, as well as continued COVID-19 concerns. If some or all of these factors continue to influence the economic environment, then MediaCo's liquidity, financial condition or results of operations may be adversely affected.
CRITICAL ACCOUNTING ESTIMATES
Due to the COVID-19 pandemic, the global economy and financial markets have been disrupted and there is uncertainty about the length and severity of the consequences caused by the pandemic. We have considered information available to us as of the date of issuance of these financial statements and are not aware
of any specific events or circumstances that would require an update to our estimates or judgments, or a revision to the carrying value of our assets or liabilities. Our estimates may change as new events occur and additional information becomes available. Our actual results may differ materially from these estimates.
A complete description of our critical accounting estimates is contained in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with the Securities and Exchange Commission on March 24, 2022.
Net
radio revenues increased for the three-month and six-month periods ended June 30, 2022, as a result ticket sales, and broadcast and streaming sponsorships of our annual outdoor concert, Summer Jam, which was held in the third quarter of the prior year, partially offset by softer overall advertising revenues.
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 increased 13.3% for the six-month period ended June 30,
2022, as compared to the same period of the prior year. Our gross revenues reported to Miller Kaplan were up 16.0% for the six-month period ended June 30, 2022, as compared to the same period of the prior year.
Outdoor advertising revenues increased for the three-month and six-month periods ended June 30, 2022, attributable to slight increases in bulletin occupancy and rates as overall advertising revenues continued to rebound from the COVID-19 pandemic. 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.
Total operating expenses
excluding depreciation and amortization expense
$
13,916
$
7,818
$
6,098
78.0
%
$
23,248
$
15,579
$
7,669
49.2
%
Radio
operating expenses excluding depreciation and amortization expense increased during the three-month and six-month periods ended June 30, 2022 due to expenses associated with Summer Jam as well as investment in our labor force with a higher focus on sales and digital as well as increases in costs that are commensurate with revenue. Additionally, in the prior year, we recorded employee retention credits that reduced operating expenses, which we did not receive in the current year.
Outdoor advertising operating expenses excluding depreciation and amortization are largely fixed in nature; however, in the prior year, we recorded employee retention credits that reduced operating expenses, which we did not receive in the current year.
The
decrease in corporate expenses for the three-month period ended June 30, 2022 was primarily due to fees from the Emmis Management Agreement that ended in November 2021.
The increase in corporate expenses for the six-month period ended June 30, 2022 relates primarily to personnel costs for the entire period associated with the build out of the corporate functions that were previously part of the management agreement between the Company and Emmis which ended in November 2021.
Radio
depreciation and amortization expense decreased due to certain assets becoming fully depreciated in the prior year. Outdoor advertising depreciation and amortization increased due to depreciation expense associated with two small asset acquisitions that closed in the May of the prior year.
See
“Net revenues,”“Operating expenses excluding depreciation and amortization,”"Depreciation and amortization,""Loss (gain) on sale of assets,"and “Corporate expenses”above.
Interest
expense increased due to (i) the additional funding from SG Broadcasting during 2021, which took the form of additional loans, (ii) accrued interest on the Emmis Promissory Note being paid in kind in the fourth quarter of 2021, (iii) accrued interest on the SG Broadcasting Promissory Notes being paid in kind in the fourth quarter of 2021 and the second quarter of 2022, and (iv) an additional 1% paid in kind interest rate applicable beginning May 19, 2021 as a result of Amendment No. 4 to the senior credit facility.
See
“Net revenues,”“Operating expenses excluding depreciation and amortization,”"Depreciation and amortization,""Loss (gain) on sale of assets,"“Corporate expenses,” and“Interest expense” above.
LIQUIDITY AND CAPITAL RESOURCES
Our primary sources of liquidity are cash provided by operations, cash available through borrowings under the SG Broadcasting Promissory Note, and our At Market Issuance Sales Agreement. Our primary uses of capital have been, and are expected to continue to be, capital expenditures, working capital, debt service requirements and acquisitions.
At
June 30, 2022,we had cash and cash equivalents of $6.5 million and net working capital of $0.9 million. At December 31, 2021, we had cash and cash equivalents of $6.1 million and net working capital of $7.7 million. The decrease in net working capital was primarily driven by an increase in accrued interest due to the timing of annual interest paid in kind on the Emmis Convertible Promissory Note and the SG Broadcasting Promissory Notes, an increase in the current portion of long-term debt, cash paid for capital expenditures, principal payments on long term debt, and cash paid for the settlement of tax withholding obligations.
At June 30, 2022, we had $67.7 million of borrowings outstanding
under the Senior Credit Facility, of which $3.7 million was current. The borrowing rate under our Senior Credit Facility was 9.5% at June 30, 2022. Additionally, at June 30, 2022, we had $6.2 million and $28.0 million of promissory notes outstanding to Emmis and SG Broadcasting, respectively, all of which was classified as long-term.
The debt service requirements of MediaCo over the next twelve-month period are expected to be $10.1 million related to our Senior Credit Facility ($3.7 million of principal repayments and $6.4 million of interest payments). The
Senior Credit Facility bears interest at a variable rate. The Company estimates interest payments by using the amounts outstanding as of June 30, 2022 and then-current interest rates. There are no debt service requirements over the next twelve months for either the Emmis Convertible Promissory Note or the SG Broadcasting Promissory Notes.
MediaCo is in compliance with the debt covenants as of June 30, 2022 and anticipates being in compliance in future periods. MediaCo’s business units are highly correlated to the economic environment, which recently have been impacted by macroeconomic uncertainty, inflationary and labor market pressures, as well as continued COVID-19 concerns. If some or all of these factors continue to influence the economic
environment, then MediaCo's liquidity, financial condition or results of operations may be adversely affected.
On July 28, 2022, SG Broadcasting opted to convert $28.0 million plus $1.9 million of accrued interest into 12.9 million of Class A Common Shares. This event reduced the amount of accrued interest and long-term debt on the July 2022 balance sheet and increased the number of outstanding shares of Class A common stock to 16 million. We will continue to assess opportunities that will help transform our capital structure.
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, our Senior Credit Facility substantially limits our ability to make acquisitions.
Cash
flows provided by operating activities were $3.9 million and $0.6 million for the six months ended June 30, 2022 and 2021, respectively. The increase was mainly attributable to significant collections in accounts receivable and increased revenues as we recover from the COVID-19 pandemic.
Cash flows used in investing activities were $1.3 million for the six months ended June 30, 2022, attributable to capital expenditures related to a new digital platform project. Cash flows used in investing activities were $1.0 million for the six months ended June 30, 2021, attributable to capital expenditures, net of proceeds from the sale of property and equipment.
Cash flows used in financing activities
were $2.2 million for the six months ended June 30, 2022, attributable to settlement of tax withholding obligations. Cash flows used in financing activities were $0.5 million for the six months ended June 30, 2021, attributable to net debt proceeds.
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 June 30, 2022, 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 June 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART
II — OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
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.
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.