NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in Thousands Unless Indicated Otherwise)
(Unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
MediaCo Holding Inc. (“MediaCo” or the “Company”) is an owned and operated multi-media company formed in Indiana in 2019, focused on radio, outdoor, and digital advertising.
Our assets consist of two radio stations, WQHT-FM and WBLS-FM (the “Stations”), which serve the New York City demographic market area that primarily targets Black, Hispanic, and multi-cultural consumers, as well as approximately 3,500 outdoor advertising displays in the Southeast (Georgia, Alabama, South Carolina and Florida) and the Mid-Atlantic (Kentucky, West Virginia and Ohio) regions of the United States. We derive our revenues primarily from radio, outdoor, and digital advertising sales, but we also generate revenues from events, including sponsorships and ticket sales, licensing, and syndication.
Unless the context otherwise requires, references to “we”, “us” and “our” refer to MediaCo and its subsidiaries.
Capital Structure Changes
On July 28, 2022, SG Broadcasting LLC ("SG Broadcasting") exercised its right to convert the outstanding principal and accrued but unpaid interest on the SG Broadcasting Promissory Notes (as defined in Note 10) of $28.0 million and $1.9 million, respectively, into 12.9 million shares of the Company's Class A common stock. See Note 5.
Basis of Presentation and Consolidation
Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All significant intercompany balances and transactions have been eliminated. In the opinion of management, all adjustments necessary for fair presentation (including normal recurring adjustments) have been included.
Cash and Cash Equivalents
We consider time deposits, money market fund shares and all highly liquid debt investment instruments with original maturities of nine months or less to be cash equivalents. At times, such deposits may be in excess of FDIC insurance limits.
Fair Value Measurements
Fair value is the exchange price to sell an asset or transfer a liability (an exit price) in an orderly transaction between market participants at the measurement date. The Company uses market data or assumptions market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs may be readily observable, corroborated by market data, or generally unobservable. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. We have 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 including those described in Note 2, Intangible Assets and Goodwill, and are adjusted to fair value only when the carrying values are more than the fair values. The categorization of the framework used to price the assets is considered a Level 3 measurement due to the subjective nature of the unobservable inputs used to determine the fair value (see Note 2 for more discussion).
The Company’s long-term debt is not actively traded and is considered a Level 3 measurement. The Company believes the current carrying value of its long-term debt approximates its fair value.
Estimates
The preparation of financial statements requires management to make estimates and assumptions that affect the amounts reported in the unaudited condensed consolidated financial statements and accompanying notes. Due to the COVID-19 pandemic, the global economy and financial markets have been disrupted and there is uncertainty about the length and severity of the consequences caused by the pandemic. The Company has considered information available to it as of the date of issuance of these financial statements and is not aware of any specific events or circumstances that would require an update to its estimates or judgments, or a revision to the carrying value of its assets or liabilities. These estimates may change as new events occur and additional information becomes available. Actual results could differ materially from these estimates.
Earnings Per Share
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 Class A and Class B common shareholders:
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| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Net loss | $ | (2,651) | | | $ | (1,188) | | | $ | (9,847) | | | $ | (3,498) | |
| Preferred dividends | 838 | | | 709 | | | 2,456 | | | 2,012 | |
| | | | | | | |
| Net loss attributable to common shareholders | $ | (3,489) | | | $ | (1,897) | | | $ | (12,303) | | | $ | (5,510) | |
| | | | | | | |
| Basic and diluted weighted average common shares outstanding | 16,853 | | | 7,201 | | | 10,778 | | | 7,168 | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Basic and diluted net loss attributable to common shareholders | $ | (0.21) | | | $ | (0.26) | | | $ | (1.14) | | | $ | (0.77) | |
| | | | | | | |
On August 20, 2021, MediaCo Holding Inc. entered into an At Market Issuance Sales Agreement with B. Riley Securities, Inc. ("B. Riley”), pursuant to which the Company may offer and sell, from time to time through or to B. Riley, as agent or principal, shares of the Company’s Class A Common Stock, having an aggregate offering price of up to $12.5 million. No shares were sold during the nine-month period ended September 30, 2022.
The following convertible equity shares and restricted stock awards were excluded from the calculation of diluted net (loss) income per share because their effect would have been anti-dilutive.
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| (in thousands) | 2022 | | 2021 | | 2022 | | 2021 |
| Convertible Emmis promissory note | 2,494 | | | 1,614 | | | 1,386 | | | 2,237 | |
| Convertible Standard General promissory notes | 4,693 | | | 6,198 | | | 2,543 | | | 8,610 | |
| Series A convertible preferred stock | 10,840 | | | 7,002 | | | 6,022 | | | 9,703 | |
| Restricted stock awards | 375 | | | 915 | | | 429 | | | 861 | |
| Total anti-dilutive shares | 18,402 | | | 15,729 | | | 10,380 | | | 21,411 | |
Liquidity and Going Concern
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Pursuant to ASC Topic 205-40, “Going Concern,” the Company is required to evaluate whether there is substantial doubt about its ability to continue as a going concern each reporting period. In evaluating the Company’s ability to continue as a going concern for this reporting period, management evaluated the conditions and events that could raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date of the filing of these financial statements (November 14, 2022). Management considered the Company’s ability to forecast future cash flows, current financial condition, sources of liquidity and debt service obligations due on or before November 14, 2023.
The Company has been and continues to be negatively impacted by the broad economic impact of the COVID-19 pandemic, which remains across multiple sectors, specifically disrupting logistics and global supply chains. If apprehension persists around interest rate volatility, supply chain disruptions, and COVID-19, consumer spending may be adversely impacted, causing certain advertising categories (e.g., automotive dealers) to advertise less. The Company expects continued negative impact on revenues and profitability for an undetermined period of time. Management has considered these circumstances in assessing the Company’s liquidity over the next year. Liquidity is a measure of an entity’s ability to meet potential cash requirements, maintain its assets, fund its operations, and meet the other general cash needs of its business. The Company’s liquidity is impacted by general economic, financial, competitive, and other factors beyond its control. The Company’s liquidity requirements consist primarily of funds necessary to pay its expenses, principally debt service and operational expenses, such as labor costs, and other related expenditures. The Company generally satisfies its liquidity needs through cash provided by operations. In addition, the Company has taken steps to enhance its ability to fund its operational expenses by reducing various costs and is prepared to take additional steps as necessary.
The Company has debt service obligations of approximately $11.1 million due under its Senior Credit Facility from November 14, 2022, the date of issuance of these financial statements, through November 14, 2023. Because the Company’s operating results and financial condition have been adversely impacted by the broad economic impacts of the COVID-19 pandemic, the Company’s revenues and profitability may continue to decline over the next several months, as compared to the same periods of the prior year. Because the duration and severity of the impact is unknown as of the filing of this Form 10-Q, management is unable to determine with certainty that the Company will be able to meet its liquidity needs for the next twelve months with cash and cash equivalents on hand, projected cash flows from operations, and/or additional borrowings. Under the terms of its Senior Credit Facility, the Company has certain financial covenants. Management is also unable to determine whether the Company will be in compliance with its debt covenants for the next twelve months. On November 12, MediaCo entered into Amendment No. 5 to its Senior Credit Facility, which lowered the minimum liquidity requirement to $2.0 million through December 15, 2022 and $3.0 million thereafter and removed the testing requirement for the minimum consolidated fixed charge coverage ratio covenant on September 30, 2022. There is substantial doubt that the Company will be in compliance with these covenants in subsequent periods. If necessary, management intends to request a waiver or amendment to its Senior Credit Facility and seek additional borrowings from Standard General. While the Company has been successful in obtaining waivers and amendments under its Senior Credit Facility and has also received additional liquidity from Standard General in the past, no assurances can be made that the Company will be successful or receive such liquidity in the future. Additionally, management regularly reviews our portfolio of assets and may opportunistically dispose of or otherwise monetize assets when we believe it is appropriate to do so.
Based on our evaluation of ASC Topic 205-40, “Going Concern,”, there is substantial doubt about our ability to continue as a going concern through November 14, 2023. Furthermore, depending on the duration and severity of the impacts on our businesses discussed above, we may record impairments of assets in the future.
Recent Accounting Pronouncements Not Yet Implemented
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-13, Financial Instruments – Credit Losses, which introduces new guidance for an approach based on using expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides a simplified accounting model for purchased financial assets with credit deterioration since their origination. Instruments in scope include loans, held-to-maturity debt securities and net investments in leases as well as reinsurance and trade receivables. This standard will be effective for us as of January 1, 2023. We do not expect the adoption of the new standard to have a significant impact on our condensed consolidated financial statements.
2. INTANGIBLE ASSETS AND GOODWILL
As of September 30, 2022 and December 31, 2021, intangible assets consisted of the following:
| | | | | | | | | | | |
| | September 30, 2022 | | December 31, 2021 |
| Indefinite-lived intangible assets | | | |
| FCC licenses | $ | 63,266 | | | $ | 63,266 | |
| Trade name | 733 | | | 733 | |
| Goodwill | 13,102 | | | 13,102 | |
| Definite-lived intangible assets | | | |
| Customer list | 201 | | | 929 | |
| Software | 1,295 | | | — | |
| Total | $ | 78,597 | | | $ | 78,030 | |
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 September 30, 2022 and December 31, 2021. Pursuant to our accounting policy, stations in a geographic market cluster are considered a single unit of accounting. The stations perform an annual impairment test of indefinite-lived intangibles as of October 1 of each year. When indicators of impairment are present, we will perform an interim impairment test. There have been no indicators of impairment since we performed our annual impairment assessment as of October 1, 2021 and therefore there has been no need to perform an interim impairment assessment. Future impairment tests may result in additional impairment charges in subsequent periods.
Fair value of our FCC licenses is estimated to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To determine the fair value of our FCC licenses, the Company considers both income and market valuation methods when it performs its impairment tests. Under the income method, the Company projects cash flows that would be generated by its unit of accounting assuming the unit of accounting was commencing operations in its market at the beginning of the valuation period. This cash flow stream is discounted to arrive at a value for the FCC license. The Company assumes the competitive situation that exists in its market remains unchanged, with the exception that its unit of accounting commenced operations at the beginning of the valuation period. In doing so, the Company extracts the value of going concern and any other assets acquired, and strictly values the FCC license.
Major assumptions involved in this analysis include market revenue, market revenue growth rates, unit of accounting audience share, unit of accounting revenue share and discount rate. Each of these assumptions may change in the future based upon changes in general economic conditions, audience behavior, consummated transactions, and numerous other variables that may be beyond our control. The projections incorporated into our license valuations take into consideration then current economic conditions. Under the market method, the Company uses recent sales of comparable radio stations for which the sales value appeared to be concentrated entirely in the value of the license, to arrive at an indication of fair value. When evaluating our radio broadcasting licenses for impairment, the testing is performed at the unit of accounting level as determined by ASC Topic 350-30-35. In our case, radio stations in a geographic market cluster are considered a single unit of accounting.
Valuation of Goodwill
All goodwill on the condensed consolidated balance sheets as of September 30, 2022 and December 31, 2021 is part of the Outdoor Advertising segment. The Company tests goodwill for impairment at least annually. We have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value as a basis for determining whether it is necessary to perform an annual quantitative goodwill impairment test. We perform this assessment annually as of October 1, unless indicators of impairment exist at an interim period.
When performing a quantitative assessment for impairment, the Company uses a market approach to determine the fair value of the reporting unit. Management determines the fair value for the reporting unit by multiplying the cash flows of the reporting unit by an estimated market multiple. Management believes this methodology for valuing outdoor advertising businesses is a common approach and believes that the multiples used in the valuation are reasonable given our peer comparisons, analyst reports, and market transactions. To corroborate the fair values determined using the market approach described above, management also uses an income approach, which is a discounted cash flow method to determine the fair value of the reporting unit. If the carrying value of a reporting unit’s goodwill exceeds its fair value, the Company recognizes an impairment charge equal to the difference in the statement of operations.
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. We assess the trade name annually for impairment on October 1 of each year, unless indications of impairment exist during an interim period.
Definite-lived intangibles
The following table presents the weighted-average useful life at September 30, 2022, and the gross carrying amount and accumulated amortization at September 30, 2022, and December 31, 2021, for our definite-lived intangible assets:
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| | | September 30, 2022 | | December 31, 2021 |
| Weighted Average Remaining Useful Life (in years) | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount | | Gross Carrying Amount | | Accumulated Amortization | | Net Carrying Amount |
| Customer list | 0.2 | | $ | 2,906 | | | $ | 2,705 | | | $ | 201 | | | $ | 2,906 | | | $ | 1,977 | | | $ | 929 | |
| Software | 5.7 | | $ | 1,295 | | | $ | — | | | $ | 1,295 | | | $ | — | | | $ | — | | | $ | — | |
The customer list was acquired as part of the purchase of our Outdoor Advertising segment and was valued as part of the purchase price allocation performed at closing. Customer relationships represent a source of repeat business. The information contained in such relationships usually includes the preferences of the customer, the buying patterns of the customer, and the history of purchases that have been made by the customer. In calculating the value of Fairway Outdoors’ customer relationships, we employed the multiperiod excess earnings method of the income approach, which estimates value based on the present value of future economic benefits. This methodology resulted in a valuation of $2.9 million. A useful life of three years was assigned to the customer list.
The software was developed internally by our Radio segment and represents our updated website and mobile application, which offer increased functionality and opportunities to grow and interact with our audience. They cost $1.3 million to develop and useful lives of five years and seven years were assigned to the application and website, respectively.
Total amortization expense from definite-lived intangible assets for the three and nine-month periods ended September 30, 2022 was $0.2 million and $0.7 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 Company estimates amortization expense of $0.3 million for the remainder of the year ending December 31, 2022 and $0.2 million each year for the next five years.
3. 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.
Outdoor Advertising
Our outdoor advertising business has approximately 3,500 faces consisting of bulletins, posters, and digital billboards. Bulletins are generally large, illuminated advertising structures that are located on major highways and target vehicular traffic. Posters are generally smaller advertising structures that are located on major traffic arteries and city streets and target vehicular and pedestrian traffic. Digital billboards are computer controlled LED displays where six to eight advertisers rotate continuously, each one having seven to ten seconds to display a static image. Digital billboards are generally located on major traffic arteries and streets. A substantial portion of this revenue is lessor revenue derived from operating leases accounted for under ASC 842, “Leases.” Rental revenue is recognized on a straight-line basis over the term of the respective lease.
Nontraditional
Nontraditional revenues principally consist of ticket sales and sponsorship of events our stations conduct in their local market. These revenues are recognized when our performance obligations are fulfilled, which generally coincides with the occurrence of the related event.
Digital
Digital revenue relates to revenue generated from the sale of digital marketing services (including display advertisements and video pre-roll and sponsorships, but excluding digital billboard advertisements) to advertisers on Company-owned websites and applications from revenue generated from content distributed across other digital platforms. Digital revenues are generally recognized as the digital advertising is delivered.
Other
Other revenue includes barter revenue, network revenue, and production revenue. The Company provides advertising broadcast time in exchange for certain products and services, including on-air radio programming. These barter arrangements generally allow the Company to preempt such bartered broadcast time in favor of advertisers who purchase time for cash consideration. These barter arrangements are valued based upon the Company’s estimate of the fair value of the products and services received. Revenue is recognized on barter arrangements when we broadcast the advertisements. Advertisements delivered under barter arrangements are typically aired during the same period in which the products and services are consumed. The Company also sells certain remnant advertising inventory to third-parties for cash, and we refer to this as network revenue. The third-parties aggregate our remnant inventory with other broadcasters' remnant inventory for sale to third parties, generally to large national advertisers. This network revenue is recognized as we broadcast the advertisements. In connection with certain outdoor advertising arrangements, the customer may request that the Company produce the billboard wrap (commonly printed on a vinyl material) displaying the customer’s advertisement on our outdoor structure. This production revenue is recognized as the deliverable is made available to the customer or attached to our outdoor structure. Other revenue also includes the management fee received from Billboards LLC (see Note 10).
Disaggregation of revenue
The following table presents the Company's revenues disaggregated by revenue source:
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| Three Months Ended September 30, | | Nine Months Ended September 30, |
| 2022 | | % of Total | | 2021 | | % of Total | | 2022 | | % of Total | | 2021 | | % of Total |
| Revenue by Source: | | | | | | | | | | | | | | | |
| Radio Advertising | $ | 6,029 | | | 51.0 | % | | $ | 8,073 | | | 45.3 | % | | $ | 19,025 | | | 48.1 | % | | $ | 21,941 | | | 52.3 | % |
Outdoor Advertising (1) | 3,273 | | | 27.7 | % | | 3,197 | | | 17.9 | % | | 9,734 | | | 24.6 | % | | 9,407 | | | 22.4 | % |
| Nontraditional | 276 | | | 2.3 | % | | 4,206 | | | 23.6 | % | | 3,633 | | | 9.2 | % | | 4,635 | | | 11.1 | % |
| Digital | 962 | | | 8.1 | % | | 1,001 | | | 5.6 | % | | 3,280 | | | 8.3 | % | | 2,151 | | | 5.1 | % |
| Other | 1,285 | | | 10.9 | % | | 1,343 | | | 7.6 | % | | 3,840 | | | 9.8 | % | | 3,805 | | | 9.1 | % |
| Total net revenues | $ | 11,825 | | | | | $ | 17,820 | | | | | $ | 39,512 | | | | | $ | 41,939 | | | |
(1) A substantial portion of this revenue is from lessor revenue derived from operating leases accounted for under ASC 842, “Leases.”
4. LONG-TERM DEBT
Long-term debt was comprised of the following at September 30, 2022, and December 31, 2021:
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| Senior credit facility | $ | 66,737 | | | $ | 68,343 | |
| Notes payable to Emmis | 6,124 | | | 6,154 | |
| Notes payable to SG Broadcasting | — | | | 27,574 | |
| Less: Current maturities | (3,672) | | | (2,754) | |
| Less: Unamortized original issue discount | (1,306) | | | (1,790) | |
| Total long-term debt, net of current portion and debt discount | $ | 67,883 | | | $ | 97,527 | |
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 1.0% incremental interest rate paid in kind under certain circumstances (as discussed below). The Senior Credit Facility matures on November 25, 2024. Prior to subsequent amendments discussed below, the Senior Credit Facility required interest payments on the first business day of each calendar month, and quarterly payments on the principal in an amount equal to one and one quarter percent of the initial aggregate principal amount were due on the last day of each calendar quarter. At its inception, the Senior Credit Facility included covenants pertaining to, among other things, the ability to incur indebtedness, restrictions on the payment of dividends, minimum liquidity requirements, collateral maintenance, minimum Consolidated Fixed Charge Coverage Ratio of 1.10:1.00, and other customary restrictions.
As of September 30, 2022, a number of amendments had been entered into by the Company and GACP to modify, among other things, certain provisions relating to the repayment of the Term Loan (as defined in the Senior Credit Facility). Most recently, on May 19, 2021, the Company entered into Amendment No. 4 to its Senior Credit Facility. Under the terms of Amendment No. 4:
•SG Broadcasting agreed to contribute up to $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 September 30, 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 1.0% 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.
For the period May 19, 2021 through March 31, 2022, 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 1.0% applied during this period and additional interest payments of $0.2 million were paid in kind during the three-month period ended March 31, 2022, all of which were added to the principal balance outstanding. For the period from April 1, 2022 to September 30, 2022, the incremental annual interest rate of 1.0% did not apply as the principal balance outstanding was less than the minimum borrowing base.
As of September 30, 2022, there was $66.7 million outstanding under the Senior Credit Facility, carried net of a total unamortized discount of $1.3 million.
On November 12, 2022, MediaCo entered into Amendment No. 5 to its Senior Credit Facility, which lowered the minimum liquidity requirement to $2.0 million through December 15, 2022 and $3.0 million thereafter and removed the testing requirement for the minimum consolidated fixed charge coverage ratio covenant on September 30, 2022. There is substantial doubt that the Company will be in compliance with these covenants in subsequent periods. See further discussion in Note 1.
Emmis Convertible Promissory Note
The Emmis Convertible Promissory Note (as defined below) carries interest at a base rate equal to the interest on any senior credit facility, including any applicable paid in kind rate, or if no senior credit facility is outstanding, of 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, 2022, the principal balance outstanding under the Emmis Convertible Promissory Note was $6.1 million.
Second Amended and Restated SG Broadcasting Promissory Note, Additional SG Broadcasting Promissory Note and May 2021 SG Broadcasting Promissory Note
The Second Amended and Restated SG Broadcasting Promissory Note and Additional SG Broadcasting Promissory Note (the “SG Broadcasting Promissory Notes”) carry interest at a base rate equal to the interest on any senior credit facility, including any applicable paid in kind rate, or if 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 SG Broadcasting Promissory Notes mature on May 25, 2025. Additionally, interest under the SG Broadcasting Promissory Notes is payable in kind through maturity, and is convertible into MediaCo Class A common stock at the option of SG Broadcasting at a strike price equal to the thirty day volume weighted average price of the MediaCo Class A common stock on the date of conversion.
On May 19, 2021, the Company issued to SG Broadcasting a subordinated convertible promissory note (the “May 2021 SG Broadcasting Promissory Note”), in return for which SG Broadcasting contributed $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.
On March 18, 2022, the Company and SG Broadcasting agreed to amend the May 2021 SG Broadcasting Promissory Note to extend the Company’s ability to draw the remaining $3.0 million on the May 2021 SG Broadcasting Promissory Note from June 30, 2022 to June 30, 2023.
On July 28, 2022, SG Broadcasting exercised its right to convert the outstanding principal and accrued but unpaid interest on the SG Broadcasting Promissory Notes of $28.0 million and $1.9 million, respectively, for 12.9 million of the Company's Class A common stock. See Note 5.
Based on amounts outstanding at September 30, 2022, mandatory principal payments of long-term debt for the next five years and thereafter are summarized below:
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Year ended December 31, | | Senior Credit Facility | | Emmis Note | | | | Total Payments |
Remainder of 2022 | | $ | 918 | | | $ | — | | | | | $ | 918 | |
| 2023 | | 3,672 | | | — | | | | | 3,672 | |
| 2024 | | 62,147 | | | 6,124 | | | | | 68,271 | |
| Thereafter | | — | | | — | | | | | — | |
| | | | | | | | |
| Total | | $ | 66,737 | | | $ | 6,124 | | | | | $ | 72,861 | |
5. 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.
On April 1, 2022, the Company received a deficiency letter (the “Nasdaq Letter”) from the Nasdaq Listing Qualifications Department, notifying the Company that the Company is not in compliance with Nasdaq Listing Rule 5550(b)(3), which requires the Company to maintain net income from continuing operations of $0.5 million from continuing operations in the most recently completed fiscal year, or in two of the three most recently completed fiscal years (the “Minimum Net Income Requirement”), nor is it in compliance with either of the alternative listing standards, market value of listed securities or stockholders’ equity. The Company’s failure to comply with the Minimum Net Income Requirement was based on the Company’s filing of its Annual Report on Form 10-K for the year ended December 31, 2021, reporting net loss from continuing operations of $6.1 million.
Pursuant to the Nasdaq Letter, the Company had 45 calendar days from the date of the Nasdaq Letter to submit a plan to regain compliance, and submitted such a plan during this period. The plan was accepted and Nasdaq granted an extension of up to 180 calendar days from the date of the Nasdaq Letter to evidence compliance.
On July 28, 2022, the holder exercised its right under the SG Broadcasting Promissory Notes to convert the outstanding principal and accrued but unpaid interest of $28.0 million and $1.9 million, respectively, for 12.9 million shares of the Company's Class A common stock. The Note Conversion increased the Company’s stockholders’ equity by approximately $29.9 million. As a result, the Company regained compliance with the stockholders’ equity requirement based upon the transactions and events described above.
On August 1, 2022, Nasdaq sent the Company a letter confirming conditional compliance with Listing Rule 5550(b)(1), reminding the Company that it must maintain compliance on a go forward basis (the “Nasdaq Compliance Letter”).
The Company understands that Nasdaq will continue to monitor the Company’s ongoing compliance with the stockholders’ equity requirement. In the event the Company fails to maintain compliance within the plan period, the Company may be subject to delisting from Nasdaq. The Company would have the right to a hearing before an independent panel with respect to a delisting decision, which hearing request would stay the decision pending the conclusion of the hearing process.
Neither the Nasdaq Letter nor the Nasdaq Compliance Letter, have an immediate effect on the listing or trading of the Company’s common stock, which will continue to trade on The Nasdaq Capital Market under the symbol “MDIA.”
6. INCOME TAXES
The effective tax rate for the nine months ended September 30, 2022, and 2021 was (2)% and (8)%, respectively. Our effective tax rate for the nine months ended September 30, 2022 differs from the statutory tax rate primarily due to the recognition of additional valuation allowance.
7. 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 the commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. We use the implicit rate if it is readily determinable. Our lease terms may include options to extend or terminate the lease, which we treat as exercised when it is reasonably certain and there is a significant economic incentive to exercise that option. Our Outdoor Advertising segment treats evergreen leases as though they will be automatically renewed at the end of each term.
Operating lease expense for operating lease assets is recognized on a straight-line basis over the lease term. Variable lease payments, which represent lease payments that vary due to changes in facts or circumstances occurring after the commencement date other than the passage of time, are expensed in the period in which the obligation for these payments was incurred. Variable lease expense for the nine months ended September 30, 2022 and 2021 was $0.1 million. Variable lease expense for the three months ended September 30, 2022 and 2021 was not material.
We elected not to apply the recognition requirements of ASC 842, “Leases”, to short-term leases, which are deemed to be leases with a lease term of twelve months or less. Instead, we recognized lease payments in the condensed consolidated statements of operations on a straight-line basis over the lease term and variable payments in the period in which the obligation for these payments was incurred. We elected this policy for all classes of underlying assets. Short-term lease expense recognized in the three and nine months ended September 30, 2022 and 2021 was not material.
The impact of operating leases to our condensed consolidated financial statements was as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended
September 30, | | Nine Months Ended
September 30, |
| 2022 | | 2021 | | 2022 | | 2021 |
| Operating lease cost | $ | 1,278 | | | $ | 1,265 | | | $ | 3,846 | | | $ | 3,769 | |
| Operating cash flows from operating leases | 1,300 | | | 1,274 | | | 4,120 | | | 3,860 | |
| Right-of-use assets obtained in exchange for new operating lease liabilities | 50 | | | — | | | 415 | | | 314 | |
| | | | | | | | | | | |
| September 30, 2022 | | December 31, 2021 |
| Weighted average remaining lease term - operating leases (in years) | 8.4 | | 8.5 |
| Weighted average discount rate - operating leases | 9.6 | % | | 9.4 | % |
As of September 30, 2022, the annual minimum lease payments of our operating lease liabilities were as follows:
| | | | | |
Year ending December 31, |
Remainder of 2022 | $ | 1,420 | |
| 2023 | 4,476 | |
| 2024 | 2,892 | |
| 2025 | 2,874 | |
| 2026 | 2,743 | |
| After 2026 | 12,927 | |
| Total lease payments | 27,332 | |
| Less imputed interest | (8,700) | |
| Total recorded lease liabilities | $ | 18,632 | |
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, 2022, is as follows:
| | | | | |
Year ending December 31, |
Remainder of 2022 | $ | 2,397 | |
| 2023 | 3,479 | |
| 2024 | 206 | |
| 2025 | 42 | |
| 2026 | 4 | |
| After 2026 | — | |
8. ASSET RETIREMENT OBLIGATIONS
The Company’s asset retirement obligations include the costs associated with the removal of its structures, resurfacing of the land, and retirement cost, if applicable, related to the Company’s outdoor advertising portfolio. The following table reflects information related to our asset retirement obligations.
| | | | | |
Balance at December 31, 2021 | $ | 7,267 | |
| Additions to asset retirement obligations | 51 | |
| Accretion expense | 586 | |
| Liabilities settled | (77) | |
Balance at September 30, 2022 | $ | 7,827 | |
9. SEGMENT INFORMATION
The Company’s operations are aligned into two business segments: Radio and Outdoor Advertising. Radio includes the operations and results of WQHT-FM and WBLS-FM, and Outdoor Advertising includes the operations and results of the Fairway businesses acquired in December 2019 and additional acquisitions thereafter. The Company groups activities that are not considered operating segments in the “All Other” category.
These business segments are consistent with the Company’s management of these businesses and its financial reporting structure. Corporate expenses, including transaction costs, are not allocated to reportable segments. The Company’s segments operate exclusively in the United States.
The accounting policies as described in the summary of significant accounting policies included in the Company’s Annual Report filed on Form 10-K for the year ended December 31, 2021, and in Note 1 to these condensed consolidated financial statements, are applied consistently across segments.
The following tables present the Company's segment results for the three and nine months ended September 30, 2022 and 2021:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, 2022 | | Radio | | Outdoor Advertising | | All Other | | Consolidated |
| Net revenues | | $ | 8,270 | | | $ | 3,555 | | | $ | — | | | $ | 11,825 | |
| Operating expenses excluding depreciation and amortization expense | | 6,983 | | | 2,619 | | | — | | | 9,602 | |
| Corporate expenses | | — | | | — | | | 1,460 | | | 1,460 | |
| Depreciation and amortization | | 85 | | | 821 | | | — | | | 906 | |
| Loss on disposal of assets | | — | | | 26 | | | — | | | 26 | |
| Operating income (loss) | | $ | 1,202 | | | $ | 89 | | | $ | (1,460) | | | $ | (169) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
| Gain on disposal of assets | | — | | | — | | | — | | | — | |
| Operating income (loss) | | $ | 3,715 | | | $ | 497 | | | $ | (2,422) | | | $ | 1,790 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Nine Months Ended September 30, 2022 | | Radio | | Outdoor Advertising | | All Other | | Consolidated |
| Net revenues | | $ | 28,914 | | | $ | 10,598 | | | $ | — | | | $ | 39,512 | |
| Operating expenses excluding depreciation and amortization expense | | 24,930 | | | 7,920 | | | — | | | 32,850 | |
| Corporate expenses | | — | | | — | | | 5,286 | | | 5,286 | |
| Depreciation and amortization | | 272 | | | 2,468 | | | — | | | 2,740 | |
| Loss on disposal of assets | | — | | | 71 | | | — | | | 71 | |
| Operating income (loss) | | $ | 3,712 | | | $ | 139 | | | $ | (5,286) | | | $ | (1,435) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| 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 | |
| | | | | | | | | | | | | | | | | | | | |
| Total Assets | | Radio | | Outdoor Advertising | | Consolidated |
| September 30, 2022 | | $ | 84,843 | | | $ | 55,081 | | | $ | 139,924 | |
| December 31, 2021 | | 90,485 | | | 57,725 | | | 148,210 | |
10. RELATED PARTY TRANSACTIONS
Transaction Agreement with Emmis and SG Broadcasting
On June 28, 2019, MediaCo entered into a Contribution and Distribution Agreement with Emmis Communications Corporation ("Emmis") and SG Broadcasting, pursuant to which (i) Emmis contributed the assets of its radio stations WQHT-FM and WBLS-FM, in exchange for $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.
The sale closed on November 25, 2019, at which time MediaCo and Emmis also entered into a management agreement (the “Management Agreement”), an employee leasing agreement (the “Employee Leasing Agreement”) and certain other ancillary agreements. The Management Agreement with Emmis Operating Company was for an initial term of two years (cancellable by MediaCo after 18 months) under which Emmis provided various services to us, including accounting, human resources, information technology, legal, public reporting and tax. The Management Agreement was terminated in November 2021 at the expiration of the initial term. For the nine months ended September 30, 2021, MediaCo recorded $0.9 million of management fee expense, which is included in corporate expenses in the accompanying condensed consolidated statements of operations. The Employee Leasing Agreement was terminated in January 2021 at the expiration of the initial term.
Convertible Promissory Notes
As a result of the transaction described above, on November 25, 2019, we issued convertible promissory notes to both Emmis (such note, the "Emmis Convertible Promissory Note") and SG Broadcasting (such note, the "November 2019 SG Broadcasting Promissory Note") in the amounts of $5.0 million and $6.3 million, respectively. On February 28, 2020, the Company and SG Broadcasting amended and restated the November 2019 SG Broadcasting Promissory Note such that the maximum aggregate principal amount issuable under the note was increased from $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 November 2019 SG Broadcasting Promissory Note for working capital purposes.
On March 27, 2020, the Company and SG Broadcasting further amended and restated the November 2019 SG Broadcasting Promissory Note (as so amended and restated, the "Second Amended and Restated SG Broadcasting Promissory Note") such that the maximum aggregate principal amount issuable under the note was increased from $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 Broadcasting 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 Broadcasting 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 an additional promissory note (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 November 2019 and Additional SG Broadcasting Promissory Notes, respectively.
On May 19, 2021, the Company issued to SG Broadcasting an additional promissory note (the "May 2021 SG Broadcasting Promissory Note" and, collectively with the November 2019 and Additional SG Broadcasting Promissory Notes, the "SG Broadcasting Promissory Notes"), in return for which SG Broadcasting loaned $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 November 2019 and Additional SG Broadcasting Promissory Notes was paid in kind and added to the principal balance outstanding.
On November 25, 2021, annual interest of $0.6 million and $2.2 million was paid in kind and added to the principal balances of the Emmis Convertible Promissory Note and the SG Broadcasting Promissory Notes, respectively.
On May 19, 2022, annual interest of $0.4 million was paid in kind and added to the principal balance of the SG Broadcasting Promissory Notes.
On July 28, 2022, SG Broadcasting exercised its right under the SG Broadcasting Promissory Notes to fully convert the outstanding principal and accrued but unpaid interest into the Company's Class A common stock. See Note 5.
On August 19, 2022, Emmis exercised its right under the Emmis Convertible Promissory Note to convert $30 thousand of the outstanding principal for 11 thousand shares of the Company's Class A common stock.
Consequently, the principal amount outstanding as of September 30, 2022 under the Emmis Convertible Promissory Note was $6.1 million.
The Company recognized interest expense of $0.6 million and $0.5 million related to the Emmis Convertible Promissory Note for the nine months ended September 30, 2022, and 2021, respectively. The Company recognized interest expense of $1.8 million related to the SG Broadcasting Promissory Notes for both the nine months ended September 30, 2022, and 2021.
The terms of these notes are described in Note 4.
Convertible Preferred Stock
On December 13, 2019, in connection with the purchase of our Outdoor Advertising segment, the Company issued to SG Broadcasting 220,000 shares of MediaCo Series A Convertible Preferred Stock.
MediaCo Series A Preferred Shares rank senior in preference to the MediaCo Class A common stock, MediaCo Class B common stock, and the MediaCo Class C common stock. Pursuant to the Articles of Amendment, the ability of the Company to make distributions with respect to, or make a liquidation payment on, any other class of capital stock in the Company designated to be junior to, or on parity with, the MediaCo Series A Preferred Shares, will be subject to certain restrictions, including that (i) the MediaCo Series A Preferred Shares shall be entitled to receive the amount of dividends per share that would be payable on the number of whole common shares of the Company into which each share of MediaCo Series A Preferred Share could be converted, and (ii) the MediaCo Series A Preferred Shares, upon any liquidation, dissolution or winding up of the Company, shall be entitled to a preference on the assets of the Company. Issued and outstanding shares of MediaCo Series A Preferred Shares shall accrue cumulative dividends, payable in kind, at an annual rate equal to the interest rate on any senior debt of the Company (see Note 4), or if no senior debt is outstanding, 6%, plus additional increases of 1% on December 12, 2020 and each anniversary thereof. On December 13, 2021, dividends of $2.7 million 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.
MediaCo Series A Preferred Shares are redeemable for cash at the option of SG Broadcasting at any time on or after June 12, 2025, and so the shares are classified outside of permanent equity. The Series A Preferred Shares are also convertible into shares of Class A common stock at the option of SG Broadcasting, with the number of shares of common stock determined by dividing the original contribution, plus accrued dividends, by the 30-day volume weighted average share price of Class A common shares. The Series A Preferred Shares are participating securities and we calculate earnings per share using the two-class method.
Dividends on Series A Convertible Preferred Stock held by SG Broadcasting were $2.5 million and $2.0 million, respectively, for the nine months ended September 30, 2022, and 2021. As of September 30, 2022, and December 31, 2021, unpaid cumulative dividends were $2.6 million and $0.2 million, respectively, and included in the balance of preferred stock in the accompanying condensed consolidated balance sheets.
Loan Proceeds Participation Agreement
On April 22, 2020, MediaCo and Emmis entered into a certain Loan Proceeds Participation Agreement (the “LPPA”) pursuant to which (i) Emmis agreed to use certain of the proceeds of the loan Emmis received pursuant to the Paycheck Protection Program (“PPP”) under Division A, Title I of the CARES Act to pay certain wages of employees leased to MediaCo pursuant to the Employee Leasing Agreement, between Emmis and MediaCo, (ii) Emmis agreed to waive up to $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 2021, Emmis received notification the full amount of the loan was 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, a term of three years, and customary provisions on limitation of liability and indemnification. $0.1 million of income was recognized for the nine months ended September 30, 2022 and 2021. $0.2 million and $0.1 million of out-of-pocket expenses were incurred for the nine months ended September 30, 2022 and 2021, respectively, in relation to the Billboard Agreement, $0.1 million of which was outstanding at September 30, 2022 and December 31, 2021.
11. SUBSEQUENT EVENTS
On November 12, 2022, MediaCo entered into Amendment No. 5 to its Senior Credit Facility, which lowered the minimum liquidity requirement to $2.0 million through December 15, 2022 and $3.0 million thereafter and removed the testing requirement for the minimum consolidated fixed charge coverage ratio covenant on September 30, 2022. There is substantial doubt that the Company will be in compliance with these covenants in subsequent periods. See further discussion in Note 1.