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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

☒

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2021

☐

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

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.)

395 HUDSON STREET, FLOOR 7

New york, new york 10014

(Address of principal executive offices)

(212) 229-9797

(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

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.

 

Large accelerated filer

☐

 

 

Accelerated filer

☐

 

 

 

 

 

 

Non-accelerated filer

☐

 

 

Smaller reporting company

☒

 

 

 

 

 

 

 

 

 

 

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 November 8, 2021, was:

 

 

 

3,085,909

 

Shares of Class A Common Stock, $.01 Par Value

5,413,197

 

Shares of Class B Common Stock, $.01 Par Value

—

 

Shares of Class C Common Stock, $.01 Par Value

 

 

 

INDEX

 

 

Page

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

3

Condensed Consolidated Statements of Operations for the three-month and nine-month periods ended September 30, 2020 and 2021

3

Condensed Consolidated Balance Sheets as of December 31, 2020 and September 30, 2021

4

Condensed Consolidated Statement of Changes in Equity (Deficit) for the three-month and nine-month periods ended September 30, 2020 and 2021

5

Condensed Consolidated Statements of Cash Flows for the nine-month periods ended September 30, 2020 and 2021

6

Notes to Condensed Consolidated Financial Statements

7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

20

Item 3. Quantitative and Qualitative Disclosures about Market Risk

27

Item 4. Controls and Procedures

27

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings

27

Item 5. Other Information

27

Item 6. Exhibits

28

Signatures

29

 

 

 

PART I — FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

MEDIACO HOLDING INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

NET REVENUES

 

$

9,360

 

 

$

17,820

 

 

$

28,141

 

 

$

41,939

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses excluding depreciation and amortization expense

 

 

7,752

 

 

 

12,540

 

 

 

23,615

 

 

 

28,119

 

Corporate expenses

 

 

1,214

 

 

 

2,422

 

 

 

3,311

 

 

 

5,908

 

Depreciation and amortization

 

 

896

 

 

 

1,068

 

 

 

3,086

 

 

 

3,027

 

Loss (gain) on disposal of assets

 

 

103

 

 

 

—

 

 

 

185

 

 

 

(78

)

Total operating expenses

 

 

9,965

 

 

 

16,030

 

 

 

30,197

 

 

 

36,976

 

OPERATING (LOSS) INCOME

 

 

(605

)

 

 

1,790

 

 

 

(2,056

)

 

 

4,963

 

OTHER EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

(2,411

)

 

 

(2,895

)

 

 

(6,928

)

 

 

(8,134

)

Loss on debt extinguishment

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(81

)

LOSS BEFORE INCOME TAXES

 

 

(3,016

)

 

 

(1,105

)

 

 

(8,984

)

 

 

(3,252

)

(BENEFIT) PROVISION FOR INCOME TAXES

 

 

(22

)

 

 

83

 

 

 

13,854

 

 

 

246

 

CONSOLIDATED NET LOSS

 

 

(2,994

)

 

 

(1,188

)

 

 

(22,838

)

 

 

(3,498

)

PREFERRED STOCK DIVIDENDS

 

 

534

 

 

 

709

 

 

 

1,591

 

 

 

2,012

 

NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS

 

$

(3,528

)

 

$

(1,897

)

 

$

(24,429

)

 

$

(5,510

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per share attributable to common shareholders

 

$

(0.50

)

 

$

(0.26

)

 

$

(3.44

)

 

$

(0.77

)

Basic and diluted weighted average number of common shares outstanding

 

 

7,096

 

 

 

7,201

 

 

 

7,110

 

 

 

7,168

 

 

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)

 

 

 

December 31,

2020

 

 

September 30,

2021

 

 

 

 

 

 

 

(Unaudited)

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

4,171

 

 

$

7,395

 

Accounts receivable, net

 

 

8,508

 

 

 

14,504

 

Prepaid expenses

 

 

1,247

 

 

 

1,257

 

Other current assets

 

 

1,274

 

 

 

686

 

Total current assets

 

 

15,200

 

 

 

23,842

 

PROPERTY AND EQUIPMENT, NET

 

 

27,650

 

 

 

27,059

 

INTANGIBLE ASSETS, NET

 

 

79,217

 

 

 

78,271

 

OTHER ASSETS:

 

 

 

 

 

 

 

 

Operating lease right of use assets

 

 

23,953

 

 

 

22,197

 

Deposits and other

 

 

331

 

 

 

312

 

Total other assets

 

 

24,284

 

 

 

22,509

 

Total assets

 

$

146,351

 

 

$

151,681

 

LIABILITIES AND DEFICIT

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

2,557

 

 

$

5,629

 

Current maturities of long-term debt

 

 

1,836

 

 

 

1,836

 

Accrued salaries and commissions

 

 

709

 

 

 

761

 

Deferred revenue

 

 

1,535

 

 

 

1,967

 

Operating lease liabilities

 

 

3,573

 

 

 

4,220

 

Other current liabilities

 

 

549

 

 

 

3,552

 

Total current liabilities

 

 

10,759

 

 

 

17,965

 

LONG TERM DEBT, NET OF CURRENT

 

 

93,918

 

 

 

95,339

 

OPERATING LEASE LIABILITIES, NET OF CURRENT

 

 

20,176

 

 

 

17,593

 

ASSET RETIREMENT OBLIGATIONS

 

 

6,316

 

 

 

6,924

 

DEFERRED INCOME TAXES

 

 

1,711

 

 

 

1,957

 

OTHER NONCURRENT LIABILITIES

 

 

221

 

 

 

108

 

Total liabilities

 

 

133,101

 

 

 

139,886

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

SERIES A CUMULATIVE CONVERTIBLE PARTICIPATING PREFERRED STOCK, $0.01 PAR VALUE, 10,000,000 SHARES AUTHORIZED; 220,000 SHARES ISSUED AND OUTSTANDING

 

 

24,258

 

 

 

26,270

 

DEFICIT:

 

 

 

 

 

 

 

 

Class A common stock, $0.01 par value; authorized 170,000,000 shares; issued and outstanding 1,785,880 shares and 3,071,001 shares at December 31, 2020, and September 30, 2021, respectively

 

 

18

 

 

 

31

 

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 September 30, 2021

 

 

54

 

 

 

54

 

Class C common stock, $0.01 par value; authorized 30,000,000 shares; none issued

 

 

—

 

 

 

—

 

Additional paid-in capital

 

 

20,772

 

 

 

22,802

 

Accumulated deficit

 

 

(31,852

)

 

 

(37,362

)

Total deficit

 

 

(11,008

)

 

 

(14,475

)

Total liabilities and deficit

 

$

146,351

 

 

$

151,681

 

 

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)

 

 

 

Class A Common Stock

 

 

Class B Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

APIC

 

 

Accumulated Deficit

 

 

Total

 

BALANCE, DECEMBER 31, 2019

 

 

1,666,667

 

 

$

17

 

 

 

5,359,753

 

 

$

54

 

 

$

20,644

 

 

$

(2,951

)

 

$

17,764

 

Net loss

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1,485

)

 

 

(1,485

)

Adjustments related to distribution of common shares

 

 

16,596

 

 

 

—

 

 

 

53,444

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

Preferred stock dividends

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(529

)

 

 

(529

)

BALANCE, MARCH 31, 2020

 

 

1,683,263

 

 

$

17

 

 

 

5,413,197

 

 

$

54

 

 

$

20,644

 

 

$

(4,965

)

 

$

15,750

 

Net loss

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(18,359

)

 

 

(18,359

)

Preferred stock dividends

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(528

)

 

 

(528

)

BALANCE, JUNE 30, 2020

 

 

1,683,263

 

 

$

17

 

 

 

5,413,197

 

 

$

54

 

 

$

20,644

 

 

$

(23,852

)

 

$

(3,137

)

Net loss

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(2,994

)

 

 

(2,994

)

Issuance of class A to employees, officers and directors

 

 

102,617

 

 

 

1

 

 

 

—

 

 

 

—

 

 

 

43

 

 

 

—

 

 

 

44

 

Preferred stock dividends

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(534

)

 

 

(534

)

BALANCE, SEPTEMBER 30, 2020

 

 

1,785,880

 

 

$

18

 

 

 

5,413,197

 

 

$

54

 

 

$

20,687

 

 

$

(27,380

)

 

$

(6,621

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, DECEMBER 31, 2020

 

 

1,785,880

 

 

$

18

 

 

 

5,413,197

 

 

$

54

 

 

$

20,772

 

 

$

(31,852

)

 

$

(11,008

)

Net loss

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(3,253

)

 

 

(3,253

)

Issuance of class A to employees, officers and directors

 

 

651,670

 

 

 

6

 

 

 

—

 

 

 

—

 

 

 

464

 

 

 

—

 

 

 

470

 

Preferred stock dividends

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(634

)

 

 

(634

)

BALANCE, MARCH 31, 2021

 

 

2,437,550

 

 

$

24

 

 

 

5,413,197

 

 

$

54

 

 

$

21,236

 

 

$

(35,739

)

 

$

(14,425

)

Net income

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

943

 

 

 

943

 

Issuance of class A to employees, officers and directors

 

 

390,794

 

 

 

4

 

 

 

—

 

 

 

—

 

 

 

595

 

 

 

—

 

 

 

599

 

Preferred stock dividends

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(669

)

 

 

(669

)

BALANCE, JUNE 30, 2021

 

 

2,828,344

 

 

$

28

 

 

 

5,413,197

 

 

$

54

 

 

$

21,831

 

 

$

(35,465

)

 

$

(13,552

)

Net loss

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(1,188

)

 

 

(1,188

)

Sale of class A common shares

 

 

19,701

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

180

 

 

 

—

 

 

 

180

 

Issuance of class A to employees, officers and directors

 

 

222,956

 

 

 

3

 

 

 

—

 

 

 

—

 

 

 

791

 

 

 

—

 

 

 

794

 

Preferred stock dividends

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

—

 

 

 

(709

)

 

 

(709

)

BALANCE, SEPTEMBER 30, 2021

 

 

3,071,001

 

 

$

31

 

 

 

5,413,197

 

 

$

54

 

 

$

22,802

 

 

$

(37,362

)

 

$

(14,475

)

 

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)

 

 

 

Nine Months Ended September 30,

 

 

 

2020

 

 

2021

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net loss

 

$

(22,838

)

 

$

(3,498

)

Adjustments to reconcile net loss to net cash (used in) provided by operating activities -

 

 

 

 

 

 

 

 

Loss on debt extinguishment

 

 

—

 

 

 

81

 

Depreciation and amortization

 

 

3,086

 

 

 

3,027

 

Amortization of debt discount

 

 

440

 

 

 

471

 

Noncash interest expense

 

 

—

 

 

 

280

 

Noncash lease expense

 

 

1,969

 

 

 

2,173

 

Provision for bad debts

 

 

538

 

 

 

40

 

Accretion of asset retirement obligation

 

 

566

 

 

 

526

 

Provision for deferred income taxes

 

 

13,856

 

 

 

246

 

Noncash compensation

 

 

44

 

 

 

2,360

 

Loss (gain) on sale of property and equipment

 

 

185

 

 

 

(78

)

Changes in assets and liabilities

 

 

 

 

 

 

 

 

Accounts receivable

 

 

3,318

 

 

 

(6,036

)

Prepaid expenses and other current assets

 

 

1,005

 

 

 

578

 

Other assets

 

 

138

 

 

 

(398

)

Accounts payable and accrued liabilities

 

 

(9,108

)

 

 

3,124

 

Deferred revenue

 

 

(138

)

 

 

432

 

Other liabilities

 

 

(266

)

 

 

849

 

Net cash (used in) provided by operating activities

 

 

(7,205

)

 

 

4,177

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(339

)

 

 

(1,428

)

Proceeds from the sale of property and equipment

 

 

—

 

 

 

146

 

Net cash used in investing activities

 

 

(339

)

 

 

(1,282

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Payments of long-term debt

 

 

(1,837

)

 

 

(3,000

)

Proceeds from long-term debt

 

 

14,281

 

 

 

4,000

 

Payments for debt-related costs

 

 

(281

)

 

 

(354

)

Proceeds from issuance of class A common stock

 

 

—

 

 

 

180

 

Settlement of tax withholding obligations

 

 

—

 

 

 

(497

)

Net cash provided by financing activities

 

 

12,163

 

 

 

329

 

INCREASE IN CASH AND CASH EQUIVALENTS

 

 

4,619

 

 

 

3,224

 

CASH AND CASH EQUIVALENTS:

 

 

 

 

 

 

 

 

Beginning of period

 

 

2,083

 

 

 

4,171

 

End of period

 

$

6,702

 

 

$

7,395

 

SUPPLEMENTAL DISCLOSURES:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

4,732

 

 

$

4,626

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated statements.

- 6 -

MEDIACO HOLDING INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(IN THOUSANDS UNLESS INDICATED OTHERWISE, EXCEPT SHARE DATA)

September 30, 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 3,600 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 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 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. While not a material amount, some of our advertisers experienced a material decline in their businesses and were not able to pay amounts owed to us when they came due. Beginning in the first quarter of 2021, 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.

- 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, including supply chain disruptions and other logistical difficulties, 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 three-month period ended June 30, 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 $15.6 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. The following is a reconciliation of basic and diluted net loss per share attributable to common shareholders:

 

For the Three Months

Ended September 30,

 

 

2020

 

 

2021

 

 

Net Loss

 

 

Shares

 

 

Net Loss Per Share

 

 

Net Loss

 

 

Shares

 

 

Net Loss Per Share

 

Basic and diluted net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(2,994

)

 

 

 

 

 

 

 

 

 

$

(1,188

)

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Preferred dividends

 

534

 

 

 

 

 

 

 

 

 

 

 

709

 

 

 

 

 

 

 

 

 

Net loss attributable to common shareholders

$

(3,528

)

 

 

7,096

 

 

$

(0.50

)

 

$

(1,897

)

 

 

7,201

 

 

$

(0.26

)

 

 

For the Nine Months

Ended September 30,

 

 

2020

 

 

2021

 

 

Net Loss

 

 

Shares

 

 

Net Loss Per Share

 

 

Net Loss

 

 

Shares

 

 

Net Loss Per Share

 

Basic and diluted net loss per common share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

$

(22,838

)

 

 

 

 

 

 

 

 

 

$

(3,498

)

 

 

 

 

 

 

 

 

Less:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  Preferred dividends

 

1,591

 

 

 

 

 

 

 

 

 

 

 

2,012

 

 

 

 

 

 

 

 

 

Net loss attributable to common shareholders

$

(24,429

)

 

 

7,110

 

 

$

(3.44

)

 

$

(5,510

)

 

 

7,168

 

 

$

(0.77

)

On August 20, 2021, MediaCo Holding Inc. entered into an At Market Issuance Sales Agreement with B. Riley Securities, Inc., 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, $0.01 par value per share, having an aggregate offering price of up to $12.5 million. During the three-month period ending September 30, 2021, Class A stock totaling $0.2 million was sold under the agreement.

 

- 8 -

 

The following convertible equity shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive.

 

 

For the Three Months

Ended September 30,

 

 

For the Nine Months

Ended September 30,

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

 

(In thousands)

 

Convertible Emmis promissory note

 

977

 

 

 

1,614

 

 

 

1,238

 

 

 

2,237

 

Convertible Standard General promissory notes

 

3,979

 

 

 

6,198

 

 

 

5,023

 

 

 

8,610

 

Series A convertible preferred stock

 

4,525

 

 

 

7,002

 

 

 

5,734

 

 

 

9,703

 

Restricted stock awards

 

20

 

 

 

915

 

 

 

8

 

 

 

861

 

Total anti-dilutive shares

 

9,501

 

 

 

15,729

 

 

 

12,003

 

 

 

21,411

 

 

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 and 2021 Equity Compensation Plans.

The following table presents a summary of the Company’s restricted stock grants outstanding at September 30, 2021, and restricted stock activity during the nine months ended September 30, 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

 

 

1,366,334

 

 

 

3.37

 

Vested

 

 

221,490

 

 

 

3.65

 

Forfeited

 

 

15,916

 

 

 

3.11

 

Grants outstanding, end of period

 

 

1,231,545

 

 

 

3.49

 

Recognized Non-Cash Compensation Expense

The following table summarizes stock-based compensation expense recognized by the Company during the three and nine months ended September 30, 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 September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

Operating expenses, excluding depreciation and amortization

 

$

—

 

 

$

338

 

 

$

—

 

 

$

710

 

Corporate expenses

 

 

44

 

 

 

789

 

 

 

44

 

 

 

1,650

 

Share-based compensation expense

 

$

44

 

 

$

1,127

 

 

$

44

 

 

$

2,360

 

As of September 30, 2021, there was $3.0 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 1.1 years.

- 9 -

Note 3. Intangible Assets

As of December 31, 2020 and September 30, 2021, intangible assets consisted of the following:

 

 

 

As of December 31, 2020

 

 

As of September 30, 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

 

 

 

—

 

   Customer list

 

 

1,896

 

 

 

1,170

 

Total

 

$

79,217

 

 

$

78,271

 

 

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 September 30, 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, 2020 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

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 September 30, 2021 is assigned to our Outdoor Advertising segment. While the COVID-19 pandemic has negatively affected our outdoor operations, as of September 30, 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.

- 10 -

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 September 30, 2021, and the gross carrying amount and accumulated amortization for our definite-lived intangible assets at December 31, 2020, and September 30, 2021:

 

 

 

As of December 31, 2020

 

 

As of September 30, 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

 

 

$

2,154

 

 

$

—

 

—

Customer list

 

 

2,906

 

 

 

1,010

 

 

 

1,896

 

 

 

2,906

 

 

 

1,736

 

 

 

1,170

 

1.2

 

In accordance with ASC 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 intangible assets for the three and nine-month periods ended September 30, 2020 was $0.5 million and $1.0 million, respectively. Total amortization expense from definite-lived intangible assets for the three and nine-month periods ended September 30, 2021 was $0.3 million and $0.9 million, respectively. The following table presents the Company's estimate of future amortization expense for definite-lived intangible assets:

 

Year ending December 31,

 

Expected Amortization Expense

 

Remainder of 2021

 

$

243

 

2022

 

 

927

 

 

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 sheets. Substantially all deferred revenue is recognized within twelve months of the payment date.

- 11 -

Outdoor Advertising

Our outdoor advertising business has approximately 3,600 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 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 13).

Disaggregation of revenue

The following table presents the Company's revenues disaggregated by revenue source:

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

2020

 

% of Total

 

 

2021

 

% of Total

 

 

2020

 

% of Total

 

 

2021

 

% of Total

 

Revenue by Source:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Radio Advertising

 

$

4,633

 

 

49.5

%

 

$

8,073

 

 

45.3

%

 

$

13,641

 

 

48.5

%

 

$

21,941

 

 

52.3

%

Outdoor Advertising (1)

 

 

2,957

 

 

31.6

%

 

 

3,197

 

 

17.9

%

 

 

9,254

 

 

32.9

%

 

 

9,407

 

 

22.4

%

Nontraditional

 

 

203

 

 

2.2

%

 

 

4,206

 

 

23.6

%

 

 

451

 

 

1.6

%

 

 

4,635

 

 

11.1

%

Digital

 

 

476

 

 

5.1

%

 

 

1,001

 

 

5.6

%

 

 

1,490

 

 

5.3

%

 

 

2,151

 

 

5.1

%

Other

 

 

1,091

 

 

11.6

%

 

 

1,343

 

 

7.6

%

 

 

3,305

 

 

11.7

%

 

 

3,805

 

 

9.1

%

Total net revenues

 

$

9,360

 

 

 

 

 

$

17,820

 

 

 

 

 

$

28,141

 

 

 

 

 

$

41,939

 

 

 

 

(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 September 30, 2021:

 

 

December 31,

2020

 

 

September 30,

2021

 

Senior credit facility

 

$

70,972

 

 

$

68,170

 

Notes payable to Emmis

 

 

5,535

 

 

 

5,535

 

Notes payable to SG Broadcasting

 

 

21,400

 

 

 

25,425

 

Less: Current maturities

 

 

(1,836

)

 

 

(1,836

)

Less: Unamortized original issue discount

 

 

(2,153

)

 

 

(1,955

)

Total long-term debt, net of current portion and debt discount

 

$

93,918

 

 

$

95,339

 

- 12 -

 

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 and a 1% incremental interest rate paid in kind under certain circumstances (as discussed below). 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 1.10:1.00, and other customary restrictions.

As of September 30, 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). 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 contributed on 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;

 

•

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.

As a result of the $3.0 million payment made under the amendment, the Company recorded a loss on debt extinguishment of $81 thousand during the three-month period ended June 30, 2021.

For the period May 19, 2021 through September 30, 2021, the multiple applied to billboard cash flow was in excess of 3.5x and the advance rate applied to the Company's FCC Licenses exceeded 60% in order for the Company to achieve minimal compliance with its loan to value covenant. Therefore, the incremental annual interest rate of 1% applied during this period and additional interest payments of $174 thousand and $199 thousand were paid in kind during the three and nine month periods ended September 30, 2021, respectively, all of which were added to the principal balance outstanding. $57 thousand of incremental interest was accrued for at September 30, 2021 and was paid in kind after September 30, 2021.

As of September 30, 2021, there is $68.2 million outstanding under the Senior Credit Facility, which is carried net of a total unamortized discount of $2.0 million.

Emmis Convertible Promissory Note

The Emmis Convertible 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 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 September 30, 2021, the principal balance outstanding under the Emmis Convertible Promissory Note is $5.5 million.

- 13 -

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 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 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, including any applicable paid in kind rate, 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 May 25, 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. On September 30, 2021, annual interest of $25 thousand was paid in kind and added to the principal balance outstanding.

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, including any applicable paid in kind rate, 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.

On June 1, 2021, SG Broadcasting contributed $1.0 million to the Company under the May 2021 SG Broadcasting Promissory Note as required by Amendment No. 4 to the Senior Credit Facility.

As of September 30, 2021, there was a total of $25.4 million outstanding under the Second Amended and Restated SG Broadcasting Promissory Note, the Additional SG Broadcasting Promissory Note and the May 2021 SG Broadcasting Promissory Note.

Based on amounts outstanding at September 30, 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

 

$

—

 

 

$

—

 

 

$

—

 

 

$

—

 

2022

 

 

2,754

 

 

 

—

 

 

 

—

 

 

 

2,754

 

2023

 

 

3,672

 

 

 

—

 

 

 

—

 

 

 

3,672

 

2024

 

 

61,744

 

 

 

5,535

 

 

 

—

 

 

 

67,279

 

2025

 

 

—

 

 

 

—

 

 

 

25,425

 

 

 

25,425

 

Total

 

$

68,170

 

 

$

5,535

 

 

$

25,425

 

 

$

99,130

 

 

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.

- 14 -

Note 7. Income Taxes

The effective tax rate for the nine months ended September 30, 2020 and 2021 was (154)% and (8)%, respectively. During the three-month period ended June 30, 2020, as a result of a sharp deterioration of business activity related to the COVID-19 pandemic and the significant operating losses expected in 2020, the Company determined that it was more likely than not that it would be unable to realize its deferred tax assets and recorded a $15.6 million valuation allowance against these assets through an increase to our provision for income taxes. Our effective tax rate for the nine months ended September 30, 2021 differs from the statutory tax rate due to the recognition of additional valuation allowance.

Note 8. Acquisitions

On May 25, 2021, the Company purchased 24 outdoor advertising structures consisting of 41 faces from DS Outdoor LLC dba Hotspots Outdoor for $0.4 million. The structures are located in Alabama.

On June 25, 2021, the Company purchased 8 outdoor advertising structures consisting of 26 faces from Carpenter Outdoor, LLC for $0.4 million. The structures are located in Georgia.

Both acquisitions are accounted for as asset purchases and our accounting for these transactions was finalized during the three months ended June 30, 2021. The assets associated with both acquisitions are assigned to our Outdoor Advertising segment. In connection with the two asset acquisitions, the Company recorded $0.9 million of property, plant and equipment, $0.3 million of right-of-use assets and corresponding operating lease liabilities and $0.1 million of additional asset retirement obligations.

Note 9. 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 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 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 nine months ended September 30, 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 nine months ended September 30, 2021, was not material.

The impact of operating leases to our condensed consolidated financial statements was as follows:

 

Three Months Ended

September 30,

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

2020

 

 

2021

 

 

2020

 

 

2021

 

Operating lease cost

$

1,247

 

 

$

1,265

 

 

$

3,740

 

 

$

3,769

 

 

 

Nine Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

2020

 

 

2021

 

Operating cash flows from operating leases

$

3,754

 

 

$

3,860

 

Right-of-use assets obtained in exchange for new operating lease liabilities

 

—

 

 

 

314

 

- 15 -

 

 

 

As of December 31,

 

 

As of September 30,

 

 

2020

 

 

2021

 

Weighted average remaining lease term - operating leases (in years)

 

9.0

 

 

 

9.5

 

Weighted average discount rate - operating leases

 

9.1

%

 

 

9.3

%

As of September 30, 2021, the annual minimum lease payments of our operating lease liabilities were as follows:

Year ending December 31,

 

 

 

 

Remainder of 2021

 

$

1,367

 

2022

 

 

5,368

 

2023

 

 

4,346

 

2024

 

 

2,845

 

2025

 

 

2,829

 

After 2025

 

 

15,358

 

Total lease payments

 

 

32,113

 

Less imputed interest

 

 

10,300

 

Total recorded lease liabilities

 

$

21,813

 

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 September 30, 2021, is as follows:

Year ending December 31,

 

 

 

Remainder of 2021

$

2,662

 

2022

 

3,180

 

2023

 

73

 

2024

 

8

 

2025

 

—

 

After 2025

 

—

 

 

Note 10. 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

 

Additions to asset retirement obligations

 

 

 

161

 

Accretion expense

 

 

 

526

 

Liabilities settled

 

 

 

(79

)

Balance at September 30, 2021

 

 

$

6,924

 

 

Note 11. 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 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, 2020, and in Note 1 to these condensed consolidated financial statements, are applied consistently across segments.

- 16 -

Three Months Ended September 30, 2021

 

Radio

 

 

Outdoor Advertising

 

 

All Other

 

 

Consolidated

 

Net revenues

 

$

14,361

 

 

$

3,459

 

 

$

—

 

 

$

17,820

 

Operating expenses excluding depreciation and amortization expense

 

 

10,467

 

 

 

2,073

 

 

 

—

 

 

 

12,540

 

Corporate expenses

 

 

—

 

 

 

—

 

 

 

2,422

 

 

 

2,422

 

Depreciation and amortization

 

 

179

 

 

 

889

 

 

 

—

 

 

 

1,068

 

Operating income (loss)

 

$

3,715

 

 

$

497

 

 

$

(2,422

)

 

$

1,790

 

 

Three Months Ended September 30, 2020

 

Radio

 

 

Outdoor Advertising

 

 

All Other

 

 

Consolidated

 

Net revenues

 

$

6,200

 

 

$

3,160

 

 

$

—

 

 

$

9,360

 

Operating expenses excluding depreciation and amortization expense

 

 

5,573

 

 

 

2,179

 

 

 

—

 

 

 

7,752

 

Corporate expenses

 

 

—

 

 

 

—

 

 

 

1,214

 

 

 

1,214

 

Depreciation and amortization

 

 

208

 

 

 

688

 

 

 

—

 

 

 

896

 

Loss on disposal of assets

 

 

—

 

 

 

103

 

 

 

—

 

 

 

103

 

Operating income (loss)

 

$

419

 

 

$

190

 

 

$

(1,214

)

 

$

(605

)

 

Nine Months Ended September 30, 2021

 

Radio

 

 

Outdoor Advertising

 

 

All Other

 

 

Consolidated

 

Net revenues

 

$

31,714

 

 

$

10,225

 

 

$

—

 

 

$

41,939

 

Operating expenses excluding depreciation and amortization expense

 

 

21,497

 

 

 

6,622

 

 

 

—

 

 

 

28,119

 

Corporate expenses

 

 

—

 

 

 

—

 

 

 

5,908

 

 

 

5,908

 

Depreciation and amortization

 

 

553

 

 

 

2,474

 

 

 

—

 

 

 

3,027

 

Gain on disposal of assets

 

 

—

 

 

 

(78

)

 

 

—

 

 

 

(78

)

Operating income (loss)

 

$

9,664

 

 

$

1,207

 

 

$

(5,908

)

 

$

4,963

 

 

Nine Months Ended September 30, 2020

 

Radio

 

 

Outdoor Advertising

 

 

All Other

 

 

Consolidated

 

Net revenues

 

$

18,368

 

 

$

9,773

 

 

$

—

 

 

$

28,141

 

Operating expenses excluding depreciation and amortization expense

 

 

16,509

 

 

 

7,106

 

 

 

—

 

 

 

23,615

 

Corporate expenses

 

 

—

 

 

 

—

 

 

 

3,311

 

 

 

3,311

 

Depreciation and amortization

 

 

689

 

 

 

2,397

 

 

 

—

 

 

 

3,086

 

Loss on disposal of assets

 

 

—

 

 

 

185

 

 

 

—

 

 

 

185

 

Operating income (loss)

 

$

1,170

 

 

$

85

 

 

$

(3,311

)

 

$

(2,056

)

 

Total Assets

 

Radio

 

 

Outdoor Advertising

 

 

Consolidated

 

As of December 31, 2020

 

$

84,219

 

 

$

62,132

 

 

$

146,351

 

As of September 30, 2021

 

 

89,090

 

 

 

62,591

 

 

 

151,681

 

 

Note 12. Employee Retention Credits

The Consolidated Appropriations Act, passed in December 2020, expanded the employee retention credit program. The credits cover 70% of qualified wages, plus the cost to continue providing health benefits to our employees, subject to a $7 thousand cap per employee per quarter. Due to revenue declines we have experienced, we qualified for approximately $0.9 million and $1.0 million of employee retention credits during the second quarter and third quarter of 2021, respectively. During the third quarter, the Company received a payment of $0.9 million related to the second quarter employee retention credits and retained $0.8 million of employment tax withholdings. Approximately $0.2 million of employee retention credits are recorded in other current assets in the accompanying condensed consolidated balance sheets and are expected to be collected by the Company after filing its Form 941 Employer's Quarterly Federal Tax Return for the third quarter of 2021. 

- 17 -

Note 13. 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 continues to provide management services to the Stations under a Management Agreement, subject to the direction of the MediaCo board of directors, which now consists of five 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 nine months ended September, 2020 and 2021, MediaCo recorded $0.9 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 September 30, 2021 and December 31, 2020, and is included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets. Emmis has given formal notice that it does not intend to extend the Management Agreement beyond the initial term, which expires in November 2021.

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 $7.0 million for the nine months ended September 30, 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.

On May 19, 2021, the Company issued to SG Broadcasting the May 2021 SG Broadcasting Promissory Note, in return for which SG Broadcasting loaned $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. 

On June 1, 2021, SG Broadcasting loaned $1.0 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 $25 thousand on the Second Amended Promissory Note was paid in kind and added to the principal balance outstanding. Consequently, the principal amount outstanding under the Emmis Convertible Promissory Note and the SG Broadcasting Promissory Notes as of September 30, 2021 was $5.5 million and $25.4 million, respectively.

The Company recognized interest expense of $0.4 million and $0.5 million related to the Emmis Convertible Promissory Note for the nine months ended September 30, 2020 and September 30, 2021, respectively. The Company recognized interest expense of $0.8 million and $1.8 million related to the SG Promissory Notes for the nine months ended September 30, 2020 and September 30, 2021, respectively.

The terms of these notes are described in Note 5.

 

- 18 -

 

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 Shares 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, including any applicable paid in kind rate (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 September 30, 2021 is 11.5%.

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 $1.6 million and $2.0 million for the nine months ended September 30, 2020 and 2021, respectively. As of December 31, 2020, and September 30, 2021, unpaid cumulative dividends were $0.1 million and $2.1 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 $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. During the nine months ended September 30, 2021, Emmis received notification that the full amount of the loan has been forgiven.

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. Income recognized in relation to the Billboard Agreement for the nine-month periods ended September 30, 2020 and 2021 was $17 thousand and $0.1 million, respectively. Additionally, Fairway incurred $0.1 million of out-of-pocket expenses for both of the nine-month periods ended September 30, 2020 and 2021. As of both December 31, 2020 and September 30, 2021, there was $0.2 million due from Billboards in relation to the Billboard Agreement and recorded as a receivable in the accompanying condensed consolidated balance sheets, comprised of both the management fee and out of pocket expenses due to Fairway.

- 19 -

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 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 all 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.

- 20 -

The following table summarizes the sources of our revenues for the three and nine months ended September 30, 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 September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

2020

 

% of Total

 

 

2021

 

% of Total

 

 

2020

 

% of Total

 

 

2021

 

% of Total

 

 

 

(Amounts in thousands)

 

Revenue by Source:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Radio Advertising

 

$

4,633

 

 

49.5

%

 

$

8,073

 

 

45.3

%

 

$

13,641

 

 

48.5

%

 

$

21,941

 

 

52.3

%

Outdoor Advertising (1)

 

 

2,957

 

 

31.6

%

 

 

3,197

 

 

17.9

%

 

 

9,254

 

 

32.9

%

 

 

9,407

 

 

22.4

%

Nontraditional

 

 

203

 

 

2.2

%

 

 

4,206

 

 

23.6

%

 

 

451

 

 

1.6

%

 

 

4,635

 

 

11.1

%

Digital

 

 

476

 

 

5.1

%

 

 

1,001

 

 

5.6

%

 

 

1,490

 

 

5.3

%

 

 

2,151

 

 

5.1

%

Other

 

 

1,091

 

 

11.6

%

 

 

1,343

 

 

7.6

%

 

 

3,305

 

 

11.7

%

 

 

3,805

 

 

9.1

%

Total net revenues

 

$

9,360

 

 

 

 

 

$

17,820

 

 

 

 

 

$

28,141

 

 

 

 

 

$

41,939

 

 

 

 

(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 up 44.1% for the nine months ended September 30, 2021, as compared to the same period of the prior year. During this period, as measured by Miller Kaplan, revenues for our stations were up 73.1%. Our outperformance was largely driven by our largest outdoor concert, Summer Jam, which was held in August 2021. Due to the pandemic, we cancelled the concert in 2020, so there are no comparative revenues in the prior year related to this event.

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.

- 21 -

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. While not a material amount, some of our advertisers experienced a material decline in their businesses and were not able to pay amounts owed to us when they came due. Beginning in the first quarter of 2021, 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.

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 September 30, 2021, we have recorded approximately $63.3 million in FCC licenses, which represents approximately 43% and 42% of our total assets, respectively. 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 Accounting Standards Codification (“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.

- 22 -

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 September 30, 2021 is assigned to our Outdoor Advertising segment. While the COVID-19 pandemic has negatively affected our outdoor operations, as of September 30, 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 and Nine-Month Periods Ended September 30, 2021, Compared to September 30, 2020

Net revenues:

 

 

 

For the Three Months

Ended September 30,

 

 

 

 

 

 

 

 

 

 

For the Nine Months

Ended September 30,

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2021

 

 

$ Change

 

 

% Change

 

 

2020

 

 

2021

 

 

$ Change

 

 

% Change

 

 

 

(As reported, amounts in thousands)

 

Net revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Radio

 

$

6,200

 

 

$

14,361

 

 

$

8,161

 

 

 

131.6

%

 

$

18,368

 

 

$

31,714

 

 

$

13,346

 

 

 

72.7

%

   Outdoor Advertising

 

 

3,160

 

 

 

3,459

 

 

 

299

 

 

 

9.5

%

 

 

9,773

 

 

 

10,225

 

 

 

452

 

 

 

4.6

%

Total net revenues

 

$

9,360

 

 

$

17,820

 

 

$

8,460

 

 

 

90.4

%

 

$

28,141

 

 

$

41,939

 

 

$

13,798

 

 

 

49.0

%

Net radio revenues increased for both the three-month and nine-month periods ended September 30, 2021, as a result of overall advertising revenues rebounding from the COVID-19 pandemic. In addition, various state and local departments of health increased their advertising to drive education and awareness surrounding vaccination efforts. Our stations benefited more than stations serving the general population due to the targeted nature of the awareness campaigns. Also, during the third quarter of the current year, we held our annual outdoor concert, Summer Jam, which was cancelled in the second quarter of the prior year due to the COVID-19 pandemic.

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 44.1% for the nine-month period ended September 30, 2021, as compared to the same period of the prior year. Our gross revenues reported to Miller Kaplan were up 73.1% for the nine-month period ended September 30, 2021, as compared to the same period of the prior year.

Outdoor advertising revenues increased for the three-month and nine-month periods ended September 30, 2021, attributable to overall advertising revenues rebounding from the COVID-19 pandemic, which didn’t meaningfully impact our performance until the second quarter of 2020. 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.

- 23 -

Operating expenses excluding depreciation and amortization expense:

 

 

 

For the Three Months

Ended September 30,

 

 

 

 

 

 

 

 

 

 

For the Nine Months

Ended September 30,

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2021

 

 

$ Change

 

 

% Change

 

 

2020

 

 

2021

 

 

$ Change

 

 

% Change

 

 

 

(As reported, amounts in thousands)

 

Operating expenses excluding depreciation and amortization expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Radio

 

$

5,573

 

 

$

10,467

 

 

$

4,894

 

 

 

87.8

%

 

$

16,509

 

 

$

21,497

 

 

$

4,988

 

 

 

30.2

%

   Outdoor Advertising

 

 

2,179

 

 

 

2,073

 

 

 

(106

)

 

 

(4.9

)%

 

 

7,106

 

 

 

6,622

 

 

 

(484

)

 

 

(6.8

)%

Total operating expenses excluding depreciation and amortization expense

 

$

7,752

 

 

$

12,540

 

 

$

4,788

 

 

 

61.8

%

 

$

23,615

 

 

$

28,119

 

 

$

4,504

 

 

 

19.1

%

Radio operating expenses excluding depreciation and amortization expense increased during the three-month and nine-month periods ended September 30, 2021 due to expenses associated with Summer Jam, our largest outdoor concert held in August 2021, but cancelled in the second quarter of the prior year due to the COVID-19 pandemic.

Outdoor advertising operating expenses excluding depreciation and amortization are largely fixed in nature; however, we recorded approximately $0.3 million and $0.6 million of employee retention credits in the three and nine-month periods ended September 30, 2021, respectively, which reduced operating expenses when compared to the three and nine-month periods ended September 30, 2020.

Corporate expenses

 

 

 

For the Three Months

Ended September 30,

 

 

 

 

 

 

 

 

 

 

For the Nine Months

Ended September 30,

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2021

 

 

$ Change

 

 

% Change

 

 

2020

 

 

2021

 

 

$ Change

 

 

% Change

 

 

 

(As reported, amounts in thousands)

 

Corporate expenses

 

$

1,214

 

 

$

2,422

 

 

$

1,208

 

 

 

99.5

%

 

$

3,311

 

 

$

5,908

 

 

$

2,597

 

 

 

78.4

%

The increase in corporate expenses for both the three and nine-month periods ended September 30, 2021 relate to personnel hires in advance of the management agreement between the Company and Emmis ending in November 2021, as well as noncash compensation expense associated with restricted stock grants. These increases were partially offset by approximately $0.1 million and $0.2 million of employee retention credits recorded in the three and nine-month periods ended September 30, 2021, respectively.

Depreciation and amortization:

 

 

 

For the Three Months

Ended September 30,

 

 

 

 

 

 

 

 

 

 

For the Nine Months

Ended September 30,

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2021

 

 

$ Change

 

 

% Change

 

 

2020

 

 

2021

 

 

$ Change

 

 

% Change

 

 

 

(As reported, amounts in thousands)

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Radio

 

$

208

 

 

$

179

 

 

$

(29

)

 

 

(13.9

)%

 

$

689

 

 

$

553

 

 

$

(136

)

 

 

(19.7

)%

   Outdoor Advertising

 

 

688

 

 

 

889

 

 

$

201

 

 

 

29.2

%

 

 

2,397

 

 

 

2,474

 

 

 

77

 

 

 

3.2

%

Total depreciation and amortization

 

$

896

 

 

$

1,068

 

 

$

172

 

 

 

19.2

%

 

$

3,086

 

 

$

3,027

 

 

$

(59

)

 

 

(1.9

)%

 

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 revisions to the preliminary purchase price allocation recorded during 2020 and associated adjustments to depreciation and amortization, coupled with depreciation expense associated with two small asset acquisitions that closed in the second quarter of the current year.

 

- 24 -

 

Loss (gain) on sale of assets:

 

 

 

For the Three Months

Ended September 30,

 

 

 

 

 

 

 

 

For the Nine Months

Ended September 30,

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2021

 

 

$ Change

 

 

% Change

 

2020

 

 

2021

 

 

$ Change

 

 

% Change

 

 

 

(As reported, amounts in thousands)

 

Loss (gain) on sale of assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Outdoor Advertising

 

$

103

 

 

$

—

 

 

$

(103

)

 

N/M

 

$

185

 

 

$

(78

)

 

$

263

 

 

 

142.2

%

Total loss (gain) on sale of assets

 

$

103

 

 

$

—

 

 

$

(103

)

 

N/M

 

$

185

 

 

$

(78

)

 

$

263

 

 

 

142.2

%

The gain on sale of assets in the nine months ended September 30, 2021 principally relates to the disposal of certain outdoor advertising assets during the second quarter. The loss on disposal of assets in the three and nine-month periods ended September 30, 2020 also relates to the disposal of certain outdoor advertising structures in the normal course of business.

Operating (loss) income:

 

 

 

For the Three Months

Ended September 30,

 

 

 

 

 

 

 

 

 

 

For the Nine Months

Ended September 30,

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2021

 

 

$ Change

 

 

% Change

 

 

2020

 

 

2021

 

 

$ Change

 

 

% Change

 

 

 

(As reported, amounts in thousands)

 

Operating (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

   Radio

 

$

419

 

 

$

3,715

 

 

$

3,296

 

 

 

786.6

%

 

$

1,170

 

 

$

9,664

 

 

$

8,494

 

 

 

726.0

%

   Outdoor Advertising

 

 

190

 

 

 

497

 

 

 

307

 

 

 

161.6

%

 

 

85

 

 

 

1,207

 

 

 

1,122

 

 

 

1320.0

%

   All Other

 

 

(1,214

)

 

 

(2,422

)

 

 

(1,208

)

 

 

(99.5

)%

 

 

(3,311

)

 

 

(5,908

)

 

 

(2,597

)

 

 

(78.4

)%

Total operating (loss) income

 

$

(605

)

 

$

1,790

 

 

$

2,395

 

 

 

395.9

%

 

$

(2,056

)

 

$

4,963

 

 

$

7,019

 

 

 

341.4

%

Radio and outdoor advertising operating income increased in the three and nine-month periods ended September 30, 2021, due to advertising revenues rebounding from the impact of the pandemic in the prior year. In addition, for the three and nine-month periods ended September 30, 2021, the Company qualified for employee retention credits of $1.0 million and $1.9 million, respectively, and recorded the benefit as a reduction to operating expenses.

Interest expense

 

 

 

For the Three Months

Ended September 30,

 

 

 

 

 

 

 

 

 

 

For the Nine Months

Ended September 30,

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2021

 

 

$ Change

 

 

% Change

 

 

2020

 

 

2021

 

 

$ Change

 

 

% Change

 

 

 

(As reported, amounts in thousands)

 

Interest expense

 

$

(2,411

)

 

$

(2,895

)

 

$

(484

)

 

 

20.1

%

 

$

(6,928

)

 

$

(8,134

)

 

$

(1,206

)

 

 

17.4

%

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 and SG Broadcasting Promissory Notes being paid in kind in the fourth quarter of 2020, and (iii) 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.

Loss on debt extinguishment

 

 

For the Three Months

Ended September 30,

 

 

 

 

 

 

 

 

For the Nine Months

Ended September 30,

 

 

 

 

 

 

 

 

 

2020

 

 

2021

 

 

$ Change

 

 

% Change

 

2020

 

 

2021

 

 

$ Change

 

 

% Change

 

 

(As reported, amounts in thousands)

Loss on debt extinguishment

 

$

—

 

 

$

—

 

 

$

—

 

 

N/A

 

$

—

 

 

$

(81

)

 

$

(81

)

 

N/M

The loss on debt extinguishment recorded during the nine months ended September 30, 3021 relates to the unscheduled principal payment of $3 million required under Amendment No. 4 to the senior credit facility. In connection with this principal payment, we wrote-off a pro rata portion of the unamortized debt discount and recognized this as a loss on debt extinguishment.

- 25 -

(Benefit) provision for income taxes:

 

 

 

For the Three Months

Ended September 30,

 

 

 

 

 

 

 

 

 

 

For the Nine Months

Ended September 30,

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2021

 

 

$ Change

 

 

% Change

 

 

2020

 

 

2021

 

 

$ Change

 

 

% Change

 

 

 

(As reported, amounts in thousands)

 

(Benefit) provision for income taxes

 

$

(22

)

 

$

83

 

 

$

105

 

 

 

(477.3

)%

 

$

13,854

 

 

$

246

 

 

$

(13,608

)

 

 

(98.2

)%

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. During the three months ended June 30, 2020, the Company concluded that it was more likely than not that it would be unable to realize its deferred tax assets and recorded a valuation allowance against these assets.

Consolidated net loss:

 

 

 

For the Three Months

Ended September 30,

 

 

 

 

 

 

 

 

 

 

For the Nine Months

Ended September 30,

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2021

 

 

$ Change

 

 

% Change

 

 

2020

 

 

2021

 

 

$ Change

 

 

% Change

 

 

 

(As reported, amounts in thousands)

 

Consolidated net loss

 

$

(3,528

)

 

$

(1,897

)

 

$

1,631

 

 

 

(46.2

)%

 

$

(24,429

)

 

$

(5,510

)

 

$

18,919

 

 

 

(77.4

)%

Net loss decreased for the three and nine-month periods ended September 30, 2021, primarily due to an increase in operating income and, in the case of the nine-month period, a decrease in provision for income taxes, partially offset by an increase in interest expense.

Liquidity and Capital Resources

At September 30, 2021, we had cash and cash equivalents of $7.4 million and net working capital of $5.9 million. At December 31, 2020, we had cash and cash equivalents of $4.2 million and net working capital of $4.4 million. The increase in net working capital is mostly due to an increase in cash and accounts receivable resulting from improved business operations. The impact of this is partially offset by an increase in accrued interest due to the timing of annual interest paid in kind on the Emmis Convertible Promissory Note and the promissory notes due to SG Broadcasting.

Cash flows provided by operating activities were $4.2 million for the nine months ended September 30, 2021 versus cash flows used in operating activities of $7.2 million for the nine months ended September 30, 2020. The increase was mainly attributable to an increase in operating income as we recover from the COVID-19 pandemic.

Cash flows used in investing activities were $1.3 million for the nine months ended September 30, 2021, attributable to the acquisition of billboard structures and routine capital expenditures, partially offset by the proceeds from the sale of certain outdoor advertising assets. Cash flows used in investing activities were $0.3 million for the nine months ended September 30, 2020, attributable to capital expenditures.

Cash flows provided by financing activities were $0.3 million for the nine months ended September 30, 2021, due to debt proceeds of $4.0 million and proceeds from the issuance of Class A common stock of $0.2 million, net of debt payments and debt-related costs of $3.4 million and settlement of tax withholding obligations of $0.5 million. Cash flows provided by financing activities were $12.2 million for the nine months ended September 30, 2020, due to $14.3 million of debt proceeds, partially offset by debt payments and debt-related costs of $2.1 million.

Our primary sources of liquidity are cash provided by operations, cash available through borrowings from Standard General, and sales of Class A common stock. 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 September 30, 2021, approximately 42% 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.

- 26 -

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 September 30, 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 September 30, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II — OTHER INFORMATION

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.

Item 5.    Other Information

On November 10, 2021, MediaCo entered into an employment agreement with Rahsan-Rahsan Lindsay, effective as of July 1, 2021, to serve as the Company’s Chief Executive Officer through June 30, 2023.  Under the agreement, Mr. Lindsay’s annual base salary rate is $550,000.  His annual incentive bonus target is 60% of his base salary.  The annual incentive bonus will be paid, if at all, based upon achievement of certain performance goals to be determined by the Company. The Company retains the right to pay such annual incentive bonus in cash or shares of our Class A common stock.  Mr. Lindsay also retains the right to participate in all of our employee benefit plans for which he is otherwise eligible.  On July 1, 2021, Mr. Lindsay was granted 191,174 restricted shares of the Company’s Class A common stock, which are scheduled to vest in eight equal quarterly installments, with the first installment vesting on October 1, 2021.  If the Agreement is terminated (i) by the Company during the term other than for “Cause” (as defined in the agreement) or other than upon Mr. Lindsay’s death or Disability (as defined in the Agreement), or (ii) by Mr. Lindsay for “Good Reason” (as defined in the agreement), Mr. Lindsay will be entitled to severance equal to six months’ base salary and the vesting of his equity grants will accelerate, provided in each case he signs a separation agreement and general release.  The agreement also contains customary confidentiality, non-competition, non-solicitation and anti-raiding restrictions that apply to Mr. Lindsay during and after the term.  This description of the employment agreement is qualified in its entirety by reference to the employment agreement, a copy of which is attached as Exhibit 10.1 to this Quarterly Report on Form 10-Q, and is incorporated herein by reference.

 

- 27 -

 

Item 6.    Exhibits

 

(a)

Exhibits.

The following exhibits are filed or incorporated by reference as a part of this report:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit

 

 

 

 

 

Incorporated by Reference

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

 

Amended and Restated Code of Bylaws of MediaCo Holding Inc.

 

 

 

10-K

 

12/31/2020

 

3.2

 

3/30/2021

10.1

 

Employment agreement, effective as of July 1, 2021, by and between MediaCo Holding Inc. and Rahsan-Rahsan Lindsay

 

X

 

 

 

 

 

 

 

 

31.1

 

Certification of Principal Executive Officer of MediaCo Holding Inc. pursuant to Rule 13a-14(a) under the Exchange Act

 

X

 

 

 

 

 

 

 

 

31.2

 

Certification of Principal Financial Officer of MediaCo Holding Inc. pursuant to Rule 13a-14(a) under the Exchange Act

 

X

 

 

 

 

 

 

 

 

32.1

 

Certification of Principal Executive Officer of MediaCo Holding Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

X

 

 

 

 

 

 

 

 

32.2

 

Certification of Principal Financial Officer of MediaCo Holding Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

X

 

 

 

 

 

 

 

 

101.INS

 

Inline XBRL Instance Document

 

X

 

 

 

 

 

 

 

 

101.SCH

 

Inline XBRL Taxonomy Extension Schema Document

 

X

 

 

 

 

 

 

 

 

101.CAL

 

Inline XBRL Taxonomy Extension Calculation Linkbase Document

 

X

 

 

 

 

 

 

 

 

101.LAB

 

Inline XBRL Taxonomy Extension Labels Linkbase Document

 

X

 

 

 

 

 

 

 

 

101.PRE

 

Inline XBRL Taxonomy Extension Presentation Linkbase Document

 

X

 

 

 

 

 

 

 

 

101.DEF

 

Inline XBRL Taxonomy Extension Definition Linkbase Document

 

X

 

 

 

 

 

 

 

 

104

 

Cover Page Interactive Data File (embedded within the Inline XBRL document)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

- 28 -

 

SIGNATURES

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: November 12, 2021

By:

/s/ RYAN A. HORNADAY

 

 

Ryan A. Hornaday

 

 

Executive Vice President, Chief Financial Officer and

 

 

Treasurer

 

 

 

 

 

 

 

 

 

 

 

 

 

- 29 -

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