Quarterly Report (10-q)

Date : 11/14/2019 @ 8:44PM
Source : Edgar (US Regulatory)
Stock : Spanish Broadcasting System Inc (QB) (SBSAA)
Quote : 0.34  -0.04 (-10.53%) @ 7:09PM

Quarterly Report (10-q)

 

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, 2019

OR

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 000-27823

 

 

 

Spanish Broadcasting System, Inc.

(Exact name of registrant as specified in its charter)

 

 

Delaware

 

13-3827791

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

7007 NW 77th Ave.

Miami, Florida 33166

(Address of principal executive offices) (Zip Code)

 

(305) 441-6901

(Registrant’s telephone number, including area code)

 

Securities registered pursuant to Section 12(g) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

SBSAA

OTCQB Venture 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, 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 provided pursuant to Section 13(a) of the Exchange Act. 

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

 

As of November 7, 2019, 4,241,991 shares of Class A common stock, par value $0.0001 per share, 2,340,353 shares of Class B common stock, par value $0.0001 per share and 380,000 shares of Series C convertible preferred stock, $0.01 par value per share, which are convertible into 760,000 shares of Class A common stock, were outstanding.

 

 

 

 


SPANISH BROADCASTING SYSTEM, INC.

INDEX

 

 

 

 

2


Special Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains both historical and forward-looking statements. All statements other than statements of historical fact are, or may be deemed to be, forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

Spanish Broadcasting System, Inc. intends such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and includes this statement for purposes of such safe harbor provisions.

“Forward-looking” statements, as such term is defined by the Securities Exchange Commission (the “SEC”) in its rules, regulations and releases, represent our expectations or beliefs, including, but not limited to, statements concerning our operations, economic performance, financial condition, our recapitalization plan and restructuring efforts, growth and acquisition strategies, investments and future operational plans. Without limiting the generality of the foregoing, words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “forecast,” “seek,” “plan,” “predict,” “project,” “could,” “estimate,” “might,” “continue,” “seeking” or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements.   These statements, by their nature, involve substantial risks and uncertainties, certain of which are beyond our control, and actual results may differ materially depending on a variety of important factors, including, but not limited to, those identified in our Annual Report on Form 10-K for the year ended December 31, 2018 as filed with the SEC on April 1, 2019 (the “Annual Report”), and those described from time to time in our future reports filed with the SEC. All forward-looking statements made herein are qualified by these cautionary statements and risk factors and there can be no assurance that the actual results, events or developments referenced herein will occur or be realized.

We do not have any obligation to publicly update any forward-looking statements to reflect subsequent events or circumstances.

 

 

 

3


PART I. FINANCIAL INFORMATION

Item 1. Financial Statements—Unaudited

SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except share data)

 

 

September 30,

 

 

December 31,

 

Assets

2019

 

 

2018

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents

$

18,924

 

 

$

22,468

 

Receivables:

 

 

 

 

 

 

 

Trade

 

32,331

 

 

 

32,769

 

Barter

 

205

 

 

 

431

 

 

 

32,536

 

 

 

33,200

 

Less allowance for doubtful accounts

 

949

 

 

 

1,649

 

Net receivables

 

31,587

 

 

 

31,551

 

Prepaid expenses and other current assets

 

4,444

 

 

 

7,480

 

Total current assets

 

54,955

 

 

 

61,499

 

Property and equipment, net of accumulated depreciation of $62,268 in 2019 and $60,446 in 2018

 

23,209

 

 

 

22,414

 

FCC broadcasting licenses

 

321,714

 

 

 

321,714

 

Goodwill

 

32,806

 

 

 

32,806

 

Other intangible assets, net of accumulated amortization of $1,308 in 2018

 

 

 

 

1,239

 

Operating lease right-of-use assets

 

16,859

 

 

 

 

Other assets

 

5,633

 

 

 

4,640

 

Total assets

$

455,176

 

 

$

444,312

 

Liabilities and Stockholders’ Deficit

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable and accrued expenses

$

18,260

 

 

$

20,370

 

Accrued interest

 

1,513

 

 

 

1,513

 

Unearned revenue

 

774

 

 

 

798

 

Other liabilities

 

 

 

 

9

 

Operating lease liabilities

 

1,163

 

 

 

 

12.5% senior secured notes (note 10)

 

249,864

 

 

 

249,864

 

10 3/4% Series B cumulative exchangeable redeemable preferred stock outstanding and dividends

   outstanding, $0.01 par value, liquidation value $1,000 per share. Authorized 280,000 shares: 90,549

   shares issued and outstanding at September 30, 2019 and December 31, 2018 and $92,067 and $84,766

   of dividends payable as of September 30, 2019 and December 31, 2018, respectively (note 11)

 

182,616

 

 

 

175,315

 

Total current liabilities

 

454,190

 

 

 

447,869

 

Other liabilities, less current portion

 

2,701

 

 

 

3,598

 

Operating lease liabilities - net of current portion

 

15,958

 

 

 

 

Deferred tax liabilities

 

67,743

 

 

 

72,224

 

Total liabilities

 

540,592

 

 

 

523,691

 

Commitments and contingencies (note 8)

 

 

 

 

 

 

 

Stockholders’ deficit:

 

 

 

 

 

 

 

Series C convertible preferred stock, $0.01 par value and liquidation value. Authorized 600,000 shares;

     380,000 shares issued and outstanding at September 30, 2019 and December 31, 2018

 

4

 

 

 

4

 

Class A common stock, $0.0001 par value. Authorized 100,000,000 shares; 4,241,991 shares

     issued and outstanding at September 30, 2019 and December 31, 2018

 

 

 

 

 

Class B common stock, $0.0001 par value. Authorized 50,000,000 shares; 2,340,353 shares

     issued and outstanding at September 30, 2019 and December 31, 2018

 

 

 

 

 

Additional paid-in capital

 

526,200

 

 

 

526,191

 

Accumulated deficit

 

(611,620

)

 

 

(605,574

)

Total stockholders’ deficit

 

(85,416

)

 

 

(79,379

)

Total liabilities and stockholders’ deficit

$

455,176

 

 

$

444,312

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

4


SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Operations

(In thousands, except per share data)

 

 

Three-Months Ended

 

 

Nine-Months Ended

 

 

September 30,

 

 

September 30,

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net revenue

$

36,261

 

 

$

34,038

 

 

$

110,547

 

 

$

102,724

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Engineering and programming

 

7,270

 

 

 

6,368

 

 

 

21,357

 

 

 

19,425

 

Selling, general and administrative

 

15,344

 

 

 

14,444

 

 

 

49,508

 

 

 

42,458

 

Corporate expenses

 

2,961

 

 

 

2,132

 

 

 

8,510

 

 

 

8,175

 

Depreciation and amortization

 

899

 

 

 

910

 

 

 

2,671

 

 

 

2,906

 

Total operating expenses

 

26,474

 

 

 

23,854

 

 

 

82,046

 

 

 

72,964

 

Loss (gain) loss on disposal of assets, net of disposal costs

 

131

 

 

 

(12,671

)

 

 

92

 

 

 

(12,721

)

Recapitalization costs

 

1,915

 

 

 

2,286

 

 

 

5,289

 

 

 

4,727

 

Executive severance expenses

 

 

 

 

 

 

 

1,844

 

 

 

 

Impairment charges

 

 

 

 

 

 

 

 

 

 

483

 

Other operating loss (income)

 

1

 

 

 

 

 

 

(16

)

 

 

 

Operating income

 

7,740

 

 

 

20,569

 

 

 

21,292

 

 

 

37,271

 

Other expense:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense, net

 

(7,807

)

 

 

(7,748

)

 

 

(23,419

)

 

 

(24,013

)

Dividends on Series B preferred stock classified as interest expense (note 11)

 

(2,434

)

 

 

(2,434

)

 

 

(7,301

)

 

 

(7,301

)

(Loss) income before income tax

 

(2,501

)

 

 

10,387

 

 

 

(9,428

)

 

 

5,957

 

Income tax (benefit) expense

 

(2,156

)

 

 

1,722

 

 

 

(3,382

)

 

 

2,659

 

Net (loss) income

$

(345

)

 

$

8,665

 

 

$

(6,046

)

 

$

3,298

 

Class A and B net income (loss) per common share (note 4)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

$

(0.05

)

 

$

1.18

 

 

$

(0.82

)

 

$

0.45

 

Diluted

$

(0.05

)

 

$

1.18

 

 

$

(0.82

)

 

$

0.45

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.  

 

 

5


SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

 

 

Nine-Months Ended

 

 

September 30,

 

 

2019

 

 

2018

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net (loss) income

$

(6,046

)

 

$

3,298

 

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

 

 

 

 

 

 

 

Dividends on Series B preferred stock classified as interest expense (note 11)

 

7,301

 

 

 

7,301

 

Loss (gain) on the disposal of assets, net of disposal costs

 

161

 

 

 

(12,541

)

Gain on insurance proceeds received for damage to equipment

 

(69

)

 

 

(180

)

Impairment charges

 

 

 

 

483

 

Stock-based compensation

 

9

 

 

 

39

 

Depreciation and amortization

 

2,671

 

 

 

2,906

 

Net barter income

 

(716

)

 

 

(86

)

Provision for trade doubtful accounts

 

569

 

 

 

268

 

Deferred income taxes

 

(4,481

)

 

 

961

 

Unearned revenue

 

471

 

 

 

192

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Trade receivables

 

(844

)

 

 

2,906

 

Prepaid expenses and other current assets

 

3,121

 

 

 

(1,809

)

Other assets

 

(993

)

 

 

(304

)

Accounts payable and accrued expenses

 

(1,464

)

 

 

473

 

Accrued interest

 

 

 

 

(304

)

Other liabilities

 

148

 

 

 

164

 

Net cash (used in) provided by operating activities

 

(162

)

 

 

3,767

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of property and equipment

 

(3,251

)

 

 

(1,746

)

Net payments towards FCC repack assets

 

(201

)

 

 

 

Proceeds from the sale of property and equipment

 

1

 

 

 

12,950

 

Insurance proceeds received for damage to equipment

 

69

 

 

 

297

 

Net cash (used in) provided by investing activities

 

(3,382

)

 

 

11,501

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Paydown of 12.5% senior secured notes

 

 

 

 

(10,410

)

Net cash used in financing activities

 

 

 

 

(10,410

)

Net (decrease) increase in cash and cash equivalents

 

(3,544

)

 

 

4,858

 

Cash and cash equivalents at beginning of period

 

22,468

 

 

 

16,141

 

Cash and cash equivalents at end of period

$

18,924

 

 

$

20,999

 

Supplemental cash flows information:

 

 

 

 

 

 

 

Interest paid

$

23,434

 

 

$

24,336

 

Income tax paid

$

2,113

 

 

$

1,197

 

 

See accompanying notes to the unaudited condensed consolidated financial statements.

 

 

 

6


SPANISH BROADCASTING SYSTEM, INC. AND SUBSIDIARIES

NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

1. Basis of Presentation

The unaudited condensed consolidated financial statements include the accounts of Spanish Broadcasting System, Inc. and its subsidiaries (the Company, we, us, our or SBS). All intercompany balances and transactions have been eliminated in consolidation. The accompanying unaudited condensed consolidated financial statements as of September 30, 2019 and December 31, 2018 and for the three- and nine-month periods ended September 30, 2019 and 2018 have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. They do not include all information and notes required by U.S. GAAP for complete financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with our consolidated financial statements as of, and for the fiscal year ended December 31, 2018, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018 as filed by the Company on April 1, 2019 (the “Annual Report”). In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments, which are all of a normal and recurring nature, necessary for a fair presentation of the results of the interim periods. Additionally, we evaluated subsequent events after the balance sheet date of September 30, 2019 through the financial statements issuance date. The results of operations for the nine-months ended September 30, 2019 are not necessarily indicative of the results for the entire year ending December 31, 2019, or for any other future interim or annual periods.

Our consolidated financial statements have been prepared assuming we will continue as a going-concern, and do not include any adjustments that might result if we were unable to do so, and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. As of September 30, 2019 and December 31, 2018, we had a working capital deficit due primarily to the classification of our 10¾% Series B Cumulative Exchangeable Redeemable Preferred Stock (the “Series B preferred stock”) as a current liability and the classification of our 12.5% Senior Secured Notes due 2017 (the “Notes”) as a current liability. Under Delaware law, our state of incorporation, the Series B preferred stock is deemed equity. Because the holders of the Series B preferred stock are not creditors, they do not have rights of, or remedies available to, creditors. Delaware law does not recognize a right of preferred stockholders to force redemptions or repurchases where the corporation does not have funds legally available. Currently, we do not have sufficient funds legally available to be able to redeem or repurchase the Series B preferred stock and its accumulated unpaid dividends. If we are successful in repaying or refinancing our Notes, and are able to generate legally available funds under Delaware law, we may be required to pay all or a portion of the accumulated preferred dividends and redeem all or a portion of the Series B preferred stock, to the extent of the funds legally available. The Company is currently involved in litigation with some holders of the Series B preferred stock.  See Note 8 elsewhere in these Notes to the Unaudited Condensed Consolidated Financial Statements for additional detail regarding the Series B preferred stock litigation.  

As discussed in Note 10, the Notes became due on April 15, 2017. Cash from operations and proceeds from the sale of assets and the FCC spectrum auction were not sufficient to repay the Notes when they became due. We have worked and continue to work with our advisors regarding a consensual recapitalization or restructuring of our balance sheet, including through the issuance of new debt or equity to raise the necessary funds to repay the Notes.  The Series B preferred stock litigation and the foreign ownership issue have complicated our efforts at a successful refinancing of the Notes.  The resolution of the recapitalization or restructuring of our balance sheet, the litigation with the purported holders of our Series B preferred stock and the foreign ownership issue are subject to several factors currently beyond our control.  Our efforts to effect a consensual refinancing of the Notes, the Series B preferred stock litigation and the foreign ownership issue will likely continue to have a material adverse effect on us if they are not successfully resolved.  

The Company has incurred $1.9 million and $5.3 million, respectively, for the three- and nine-months ended September 30, 2019 of recapitalization costs, primarily due to professional fees and costs directly related to our recapitalization efforts.  Also included in these amounts are the legal and financial advisory fees incurred by the holders of the Notes.    

The Company used $0.2 million of net cash from operating activities during the nine-month period ended September 30, 2019, management has evaluated its cash requirements for the next twelve-month period after the date of the filing of this quarterly report on Form 10-Q and determined that it anticipates generating sufficient cash flows, together with cash on hand, to meet its obligations regarding ordinary course operating activities.  

7


Although the Company expects to maintain cash on hand sufficient to meet its operating obligations, its inability to obtain financing in adequate amounts and on acceptable terms necessary to repay our Notes and redeem or refinance our Series B preferred stock, obtain a favorable resolution to the Series B preferred stock litigation, or finance future acquisitions, negatively impacts our business, financial condition, results of operations and cash flows and raises substantial doubt about our ability to continue as a going concern. The financial statements do not include adjustments, if any, that might arise from the outcome of this uncertainty.

Changes in Accounting Policies – Leases

In February 2016, the FASB issued ASU No. 2016-02 Leases (Topic 842). This new standard requires organizations that lease assets to recognize on the balance sheet the lease assets and lease liabilities for the rights and obligations created by those leases (with the exception of short-term leases) and disclose key information about the leasing agreements. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the statement of operations. The new standard also requires expanded disclosures regarding leasing arrangements. In July 2018, the FASB issued ASU No. 2018-10, Codification Improvements to Topic 842, Leases, intended to clarify the Codification or to correct unintended application of the guidance and ASU No. 2018-11, Leases (Topic 842) – Targeted improvements, which provides an alternative modified retrospective transition method. Under this method, the cumulative-effect adjustment to the opening balance of retained earnings is recognized on the date of adoption. We adopted this ASU on January 1, 2019 using the modified retrospective approach and have elected the transition option, which allows us to continue to apply the legacy guidance for comparative periods, including disclosure requirements, in the year of adoption. We have elected to use the package of practical expedients available to us, including the short-term lease exception. Adoption of the new standard resulted in the recording of right-of-use assets and lease liabilities of $13.9 million and $13.9 million, respectively, as of January 1, 2019. The operating lease right-of-use asset includes the impact upon adoption of ASC Topic 842 of the derecognition of lease incentives, deferred rent, below-market lease intangibles, and prepaid rent balances recognized in prepaid expenses and other current assets, other intangible assets, accounts payable and other accrued liabilities and other liabilities on the consolidated balance sheets as of December 31, 2018. The standard did not materially impact our consolidated statements of operations or consolidated statements of cash flows. Additionally, we did not record a cumulative effect adjustment to opening accumulated deficit. The comparative information has not been restated and continues to be reported under the accounting guidance in effect for that period.

 

Recently Issued Accounting Pronouncements

In March 2019, the FASB issued ASU No. 2019-02, Entertainment—Films—Other Assets—Film Costs (Subtopic 926-20) and Entertainment—Broadcasters—Intangibles—Goodwill and Other (Subtopic 920-350): Improvements to Accounting for Costs of Films and License Agreements for Program Materials. ASU 2019-02 helps organizations align their accounting for production costs for films and episodic content produced for television and streaming services.  The standard addresses when an organization should assess films and license agreements for program material for impairment at the film-group level, revises presentation requirements; requires new disclosures about content that is either produced or licensed; and, addresses cash flow classification for license agreements. The standard is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted.  The Company is currently evaluating the effect the update will have on its financial statements.

In August 2018, the FASB issued ASU No. 2018-15 Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40)Customers Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract, which provides additional guidance on the accounting for costs of implementation activities performed in a cloud computing arrangement that is a service contract. The update is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption is permitted, including adoption in any interim period. The amendments align the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).  This update should be applied either retrospectively or prospectively to all implementation costs incurred after the date of adoption. The Company is currently evaluating the effect the update will have on its financial statements.

In August 2018, the FASB issued ASU No. 2018-13 Fair Value Measurement (Topic 820)Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement, which modifies the disclosure requirements to all entities required to make disclosures about recurring and nonrecurring fair value measurements. The update is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019.  The amendments on changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty should be applied prospectively for only the most recent interim or annual period presented in the initial fiscal year of adoption. All other amendments should be applied retrospectively to all periods presented upon their effective date. Early adoption is permitted. The guidance eliminates the requirement to disclose the valuation process for Level 3 fair value measurements. The methodology used to arrive at the fair value of the Series B preferred stock results in a Level 3 classification.  The Company has not currently adopted this ASU, however, the new guidance will not have an impact on our financial position or results of operations.  Upon adoption, the Company will revise its disclosures in accordance with the requirements of this ASU.

8


In June 2018, the FASB issued ASU No. 2018-07 Compensation—Stock Compensation (Topic 718)Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of share-based compensation guidance to include share-based payment transactions for acquiring goods and services from nonemployees. The update is effective for fiscal years beginning after December 15, 2019 and for interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted, but no earlier than the adoption date for ASC 606 on revenue recognition. The update is effective through a cumulative-effect adjustment to retained earnings as of the beginning of the year of adoption. The Company is currently evaluating the effect the update will have on its financial statements.

In June 2016, the FASB issued ASU No. 2016-13 Financial Instruments—Credit Losses (Topic 326)—Measurement of Credit Losses on Financial Instruments which introduces a new forward-looking approach, based on expected losses, to estimate credit losses on certain types of financial instruments, including trade receivables and held-to-maturity debt securities, which will require entities to incorporate considerations of historical information, current information and reasonable and supportable forecasts. This ASU also expands disclosure requirements and will be applied using the modified-retrospective approach. The update is effective for fiscal years beginning after December 15, 2019 and for interim periods within those fiscal years. Early adoption is permitted as of the fiscal years beginning after December 31, 2018, including interim periods within those fiscal years. The Company has not currently adopted this ASU. Based on our preliminary assessment, the Company does not expect the adoption of this update to have a material impact on our financial position, results of operations or cash flows.

 

 

 

2. Revenue

 

In accordance with ASC 606, revenue is recognized when a customer obtains control of promised services. The amount of revenue recognized and reported reflects the consideration to which the Company expects to be entitled to receive in exchange for these services and entitled under the contract. Substantially all deferred revenue is recognized within twelve months of the payment date.  To achieve this core principle, the Company applies the following five steps:

 

1)  Identify the contract with a customer,

2)  Identify the performance obligations in the contract,

3)  Determine the transaction price,

4)  Allocate the transaction price to performance obligations in the contract, and

5)  Recognize revenue when or as the Company satisfies a performance obligation.

 

Disaggregation of Revenue

 

The following table summarizes revenue from contracts with customers for the three- and nine-months ended September 30, 2019 and 2018 (in thousands):

 

 

 

Three-Months Ended

 

 

Nine-Months Ended

 

 

 

September 30,

 

 

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Local, national, digital and network

 

$

37,932

 

 

$

35,870

 

 

$

107,407

 

 

$

101,825

 

Special events

 

 

444

 

 

 

53

 

 

 

8,158

 

 

 

6,766

 

Barter

 

 

1,965

 

 

 

1,770

 

 

 

5,945

 

 

 

4,042

 

Other

 

 

1,329

 

 

 

1,594

 

 

 

4,484

 

 

 

5,068

 

Gross revenue

 

 

41,670

 

 

 

39,287

 

 

 

125,994

 

 

 

117,701

 

Less: Agency commissions and other

 

 

5,409

 

 

 

5,249

 

 

 

15,447

 

 

 

14,977

 

Net revenue

 

$

36,261

 

 

$

34,038

 

 

$

110,547

 

 

$

102,724

 

 

9


Nature of Products and Services

(a)

Local, national, digital and network advertising

Local and digital revenues generally consist of advertising airtime sold in a station’s local market, the Company’s La Musica application or its websites either directly to the advertiser or through an advertiser’s agency. Local revenue includes local spot sales, integrated sales, sponsorship sales and paid-programming (or infomercials). National revenue generally consists of advertising airtime sold to agencies purchasing advertising for multiple markets. National sales are generally facilitated by an outside national representation firm, which serves as an agent in these transactions. Revenues from national advertisers are presented as net of agency commissions as this is the amount that the Company expects to be entitled to receive in exchange for these services and entitled to under the contract. Network revenue generally consists of advertising airtime sold on the AIRE Radio Networks platform by network sales staff.

A contract for local, national, digital and network advertising exists only at the time commercial substance is present. For each contract, the Company considers the promise to air or display advertisements, each of which is distinct, to be the identified performance obligation. The price as specified on a customer purchase order is considered the standalone selling price as it is an observable input which depicts the price as if sold to a similar customer in similar circumstances. Revenue is recognized when control is transferred to the customer (i.e., when the Company’s performance obligation is satisfied), which typically occurs as an advertisement airs or appears.

(b)

Special events

Special events revenue is generated from ticket sales, as well as through profit-sharing arrangements for producing or co-producing live concerts and events promoted by radio and television stations.

In addition to ticket sales, the Company enters into profit-sharing arrangements to produce or co-produce live concerts and events with partners which may also purchase various production services from the company. These contracts include multiple promises that the Company evaluates to determine if the promises are separate performance obligations. Once the Company determines the performance obligations and the transaction price, including estimating the amount of variable consideration, the Company then allocates the transaction price to each performance obligation in the contract based on a relative stand-alone selling price method or using the variable consideration allocation exception if the required criteria are met. The corresponding revenues are recognized as the related performance obligations are satisfied, which may occur over time (i.e. term of agreement) or at a point in time (i.e. event completion).  In order to determine if revenue should be reported gross as principal or net as agent, the Company considers indicators such as if it is the party primarily responsible for fulfillment, has inventory risk, and has discretion in establishing price to determine control. When management determines it controls an event, it is acting as the principal and records revenue gross. When management determines it does not control an event, it is acting as an agent and records revenue net.

(c)

Barter advertising

Barter sales agreements are used to reduce cash paid for operating costs and expenses by exchanging advertising airtime for goods or services.

A contract for barter advertising exists only at the time commercial substance is present. For each contract, the Company considers the promise to air or display advertisements, each of which is distinct, to be the identified performance obligation. The price as specified on a counterparty’s purchase order is considered the standalone selling price as it is an observable input which depicts the price as if sold to a similar customer in similar circumstances. Revenue is recognized when control is transferred to the customer (i.e., when the Company’s performance obligation is satisfied), which typically occurs as an advertisement airs or displays.

For the three-months ended September 30, 2019 and 2018, barter revenue of $2.0 million and $1.8 million, respectively, was offset by barter expense of $1.8 million and $1.9 million, respectively.

For the nine-months ended September 30, 2019 and 2018, barter revenue of $5.9 million and $4.0 million, respectively, was offset by barter expense of $5.7 million and $3.9 million, respectively.

(d)

Other revenue

Other revenue consists of syndication revenue, subscriber revenue and other revenue. Syndication revenue is recognized from licensing various MegaTV content and is payable on a usage-based model. Subscriber revenue is payable in a per subscriber form from cable and satellite providers. Other revenue consists primarily of renting available tower space or sub-channels.

The Company considers signed license or subscriber agreements to be the contract with a customer for the sale of syndicated or subscriber related content. For each contract, the Company considers making content available to the customer to be the identified

10


performance obligation. The price as specified on a counterparty’s agreement, which is generally stated on a per user basis, is considered the standalone selling price as it is an observable input which depicts the price as if sold to a similar customer in similar circumstances. Revenue is recognized when control is transferred to the customer (i.e., when the Company’s performance obligation is satisfied), which typically occurs on a month-to-month basis. Other revenues related to renting tower space are recognized in accordance with ASC 842 - Leases.

Significant Judgments

As part of its consideration of the existence of contracts, the Company evaluates certain factors including the customer’s ability to pay (or credit risk). Advertising contracts are for one year or less. In determining the transaction price the Company evaluates whether the price is subject to refund or adjustment to determine the net consideration to which the Company expects to be entitled. In determining whether control has transferred, the Company considers if there is a present right to payment and legal title, along with risks and rewards of ownership having transferred to the customer.

Contract Balances

During the three-months ended September 30, 2019 there were no local, national, digital and network revenue recognized that were included in the unearned revenue balances at the beginning of the period and $0.3 million of local, national, digital and network revenue was recognized during the nine-months ended September 30, 2019, that was included in the unearned revenue balances at the beginning of the period.  During the three-months ended September 30, 2019, there were no special events revenue recognized that were included in the unearned balances at the beginning of period and $0.1 million of special events revenue recognized during the nine-months ended September 30, 2019 that were included in the unearned balances at the beginning of period.  During the three-months ended September 30, 2019 barter revenue recognized that were included in the unearned revenue balances at the beginning of the period were not significant and $0.4 million of barter revenue was recognized during the nine-months ended September 30, 2019, that was included in the unearned revenue balances at the beginning of the period.  Other revenue recognized during the three- and nine-months ended September 30, 2019 that were included in unearned revenue balances at the beginning of the period were not significant. At September 30, 2019 there was $1.4 million of variable consideration in the form of agency based volume discounts accrued as contract liabilities within accrued expenses as compared to $1.0 million and $2.1 million for the quarter-ended June 30, 2019 and the year-ended December 30, 2018, respectively. Variable consideration in the form of agency based volume discounts of $0.4 million and $1.3 million were recognized and recorded as contract liabilities within accrued expenses during the three- and nine-months ended September 30, 2019, respectively.

  

 

 

3. Leases

 

The Company has commitments under operating leases for office space and radio tower sites used in its operations. Our leases have initial lease terms that expire between 2019 and 2082, most of which include options to extend or renew the leases. Currently, we do not have finance leases. Our annual rental expenses can range from less than $3 thousand up to $0.5 million. The Company determines if an arrangement is a lease at contract inception. A lease exists when a contract conveys to the customer the right to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. The definition of a lease embodies two conditions: (1) there is an identified asset in the contract that is land or a depreciable asset (i.e., property, plant, and equipment), and (2) the customer has the right to control the use of the identified asset.

Certain rental agreements for office space and radio towers contain non-lease components such as common area maintenance and utilities. The Company elected to apply the practical expedient that permits lessees to make an accounting policy election to account for each separate lease component of an office space and radio tower lease contract and its associated non-lease components as a single lease component. Certain rental agreements for office space and radio towers also include taxes and insurance which are not considered lease components.

Consideration for office space and radio tower site leases generally includes fixed monthly payments. The lease term begins at the commencement date and is determined on that date based on the term of the lease, together with periods covered by an option to extend the lease if the Company is reasonably certain to exercise that option. When evaluating whether the Company is reasonably certain to exercise an option to renew the lease, the Company is required to assess all relevant factors that create an economic incentive for the Company to exercise the renewal.

The various discount rates are based on the Company’s incremental borrowing rate due to the rate implicit in the leases being not readily determinable. The Company’s incremental borrowing rate is the rate of interest that the Company would have to pay to

11


borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. The Company used publicly available information about low-grade debt, adjusted for the effects of collateralization, to determine the various rates it would pay to finance transactions over similar time periods.

The Company elected to apply a package of practical expedients that allows it not to reassess (i) whether any expired or existing contracts are or contain leases, (ii) lease classification for any expired or existing leases, and (iii) initial direct costs for any expired or existing leases.

The following table summarizes the components of lease cost for the three- and nine-months ended September 30, 2019 (in thousands):

 

 

Three-Months Ended

 

 

Nine-Months Ended

 

 

September 30, 2019

 

 

September 30, 2019

 

Operating lease cost

$

1,006

 

 

$

3,167

 

Sublease income

 

(387

)

 

 

(1,460

)

Total lease cost

$

619

 

 

$

1,707

 

Lease costs for the three- and nine-months ended September 30, 2018 include minimum rental payments under operating leases recognized on a straight-line basis over the term of the lease including any periods of free rent. Rental expense for operating leases during the three- and nine-months ended September 30, 2018 amounted to $1.1 million and $2.8 million, respectively.

At September 30, 2019, amounts reported in the Consolidated Balance Sheet are as follows (in thousands):

 

 

Nine-Months Ended

 

Operating Leases:

September 30, 2019

 

Operating lease right-of-use assets

$

16,859

 

 

 

 

 

Operating lease liabilities

 

1,163

 

Operating lease liabilities - net of current portion

 

15,958

 

Total operating lease liabilities

$

17,121

 

 

 

 

 

Other information

 

 

 

Operating cash flows from operating leases

$

1,280

 

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

$

4,488

 

Weighted-average remaining lease term

11.4 years

 

Weighted average discount rate

12.7%

 

Future minimum lease payments under operating leases as of September 30, 2019 are as follows (in thousands):

 

Year ending December 31:

 

 

 

2019 (excluding the nine-months ended September 30, 2019)

$

885

 

2020

 

3,067

 

2021

 

2,839

 

2022

 

2,820

 

2023

 

2,726

 

Thereafter

 

22,791

 

Total undiscounted lease payments

$

35,128

 

Less: imputed interest

 

18,007

 

Total lease liabilities

$

17,121

 

12


At December 31, 2018, future minimum lease payments under such leases are as follows (in thousands):

 

Year ending December 31:

 

 

 

2019

$

3,766

 

2020

 

2,545

 

2021

 

2,280

 

2022

 

2,249

 

2023

 

2,113

 

Thereafter

 

15,554

 

Total minimum lease payments

$

28,507

 

As of September 30, 2019, the Company has entered into an additional operating lease that has not yet commenced of approximately $5.8 million. The lease is expected to commence in 2019 and has a lease term of 15.5 years.

We have agreements to sublease our radio frequencies and portions of our tower sites and buildings. Such agreements provide for payments through 2024.  Future minimum rental income to be received under these agreement as of September 30, 2019 is as follows:

 

Year ending December 31:

 

 

 

2019 (excluding the nine-months ended September 30, 2019)

$

349

 

2020

 

939

 

2021

 

479

 

2022

 

354

 

2023

 

140

 

Thereafter

 

17

 

Total undiscounted lease payments

$

2,278

 

 

 

 

 

4. Basic and Diluted Net (Loss) Income Per Common Share

In calculating net (loss) income per share, the Company follows the two-class method, which distinguishes between classes of securities based on the proportionate participation rights of each security type in the Company’s undistributed net loss.  The Company’s Class A common stock, Class B common stock and Series C convertible preferred stock share equally on an as-converted basis with respect to net (loss) income.  

Basic net (loss) income per share is computed by dividing net (loss) income applicable to stockholders by the weighted average number of shares for each period on an as-converted basis. Diluted net (loss) income per common share is computed by giving effect to common stock equivalents as if they were outstanding for the entire period.

13


The following tables set forth the computation of basic and diluted net (loss) income available to stockholders for the three- and nine-month periods ended September 30, 2019 and 2018 (in thousands):

 

 

Three-Months Ended September 30,

 

 

2019

 

 

2018

 

 

Class A

 

 

Class B

 

 

Series C

 

 

Class A

 

 

Class B

 

 

Series C

 

Basic net (loss) income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allocation of undistributed (losses) earnings

$

(199

)

 

 

(110

)

 

 

(36

)

 

$

5,002

 

 

 

2,765

 

 

 

898

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares used in per share computation (as converted)

 

4,242

 

 

 

2,340

 

 

 

760

 

 

 

4,234

 

 

 

2,340

 

 

 

760

 

Basic net (loss) income per share

$

(0.05

)

 

 

(0.05

)

 

 

(0.05

)

 

$

1.18

 

 

 

1.18

 

 

 

1.18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net (loss) income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allocation of undistributed (losses) earnings

$

(199

)

 

 

(110

)

 

 

(36

)

 

$

5,002

 

 

 

2,765

 

 

 

898

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares used in basic computation

 

4,242

 

 

 

2,340

 

 

 

760

 

 

 

4,234

 

 

 

2,340

 

 

 

760

 

Weighted-average impact of dilutive equity instruments

 

 

 

 

 

 

 

 

 

 

9

 

 

 

 

 

 

 

Number of shares used in per share computation (as converted)

 

4,242

 

 

 

2,340

 

 

 

760

 

 

 

4,243

 

 

 

2,340

 

 

 

760

 

Diluted net (loss) income per share

$

(0.05

)

 

 

(0.05

)

 

 

(0.05

)

 

$

1.18

 

 

 

1.18

 

 

 

1.18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock equivalents excluded from calculation of

   diluted net (loss) income per share as the effect would

   have been anti-dilutive:

 

445

 

 

 

 

 

 

 

 

 

380

 

 

 

 

 

 

 

 

 

 

Nine-Months Ended September 30,

 

 

2019

 

 

2018

 

 

Class A

 

 

Class B

 

 

Series C

 

 

Class A

 

 

Class B

 

 

Series C

 

Basic net (loss) income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allocation of undistributed (losses) earnings

$

(3,493

)

 

$

(1,927

)

 

$

(626

)

 

$

1,901

 

 

$

1,055

 

 

$

342

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares used in per share computation (as converted)

 

4,242

 

 

 

2,340

 

 

 

760

 

 

 

4,217

 

 

 

2,340

 

 

 

760

 

Basic net (loss) income per share

$

(0.82

)

 

$

(0.82

)

 

$

(0.82

)

 

$

0.45

 

 

$

0.45

 

 

$

0.45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diluted net (loss) income per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Allocation of undistributed (losses) earnings

$

(3,493

)

 

$

(1,927

)

 

$

(626

)

 

$

1,901

 

 

$

1,055

 

 

$

342

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares used in basic computation

 

4,242

 

 

 

2,340

 

 

 

760

 

 

 

4,217

 

 

 

2,340

 

 

 

760

 

Weighted-average impact of dilutive equity instruments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares used in per share computation (as converted)

 

4,242

 

 

 

2,340

 

 

 

760

 

 

 

4,217

 

 

 

2,340

 

 

 

760

 

Diluted net (loss) income per share

$

(0.82

)

 

$

(0.82

)

 

$

(0.82

)

 

$

0.45

 

 

$

0.45

 

 

$

0.45

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock equivalents excluded from calculation of

   diluted net (loss) income per share as the effect would

   have been anti-dilutive:

 

445

 

 

 

 

 

 

 

 

 

380

 

 

 

 

 

 

 

 

 

 

 

14


5. Stockholders’ Deficit

 

The changes in stockholders' deficit for the three- and nine-month periods ended September 30, 2019 and 2018 are as follows:  

 

 

Three-Months Ended