What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-05-24 compared with 2020-11-13 · 59 added, 108 removed, 146 unchanged (53% of the section changed)

17 unchanged sentences

Other factors mentioned in documents filed by the Company with the Securities and Exchange Commission.

For a more detailed discussion of these and other risk factors, see the Risk Factors section of our Transition Report on Form 10-KT, filed with the Securities and Exchange Commission on March 27, 2020 .

For a more detailed discussion of these and other risk factors, see the Risk Factors section of our Annual Report on Form 10-K and the Risk Factors included in Exhibit 99.1 on Form 8-K, filed with the Securities and Exchange Commission on March 30, 2021 and May 21, 2021, respectively .

MediaCo does not undertake any obligation to publicly update or revise any forward-looking statements because of new information, future events or otherwise.

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In addition, it is our general policy not to preempt advertising spots paid for in cash with advertising spots paid for in trade.

The following table summarizes the sources of our revenues for the three and nine months ended September 30 , 2019 and 2020 .

The following table summarizes the sources of our revenues for the three months ended March 31, 2020 and 2021 .

The category “Non Traditional” principally consists of ticket sales and sponsorships of events our stations conduct in their local market.

The category “Other” includes, among other items, revenues related to network revenues , production of billboard advertisements and barter.

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

Revenue by Source:

3 unchanged sentences

Total net revenues

We derive a majority of our net revenues from radio advertising sales.

Our radio operations represent approximately two-thirds of our consolidated net revenues, with the remaining one-third coming from our outdoor advertising operations.

No customer represents more than 10% of our net revenues.

(1) A substantial portion of this revenue is from lessor revenue derived from operating leases accounted for under ASC 842, “ Leases .”

Roughly 20% of our expenses varies in connection with changes in revenue.

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Some of our competitors that operate larger station clusters in the New York market are able to leverage their market share to extract a greater percentage of available advertising revenue through packaging a variety of advertising inventory at discounted unit rates.

Market revenues in New York as measured by Miller Kaplan Arase LLP (“Miller Kaplan”), an independent public accounting firm used by the radio industry to compile revenue information, were down 34.5% for the nine months ended September 30, 2020, as compared to the same period of the prior year.

During this period, revenues for our stations were down 48.0%, exceeding the market average in large part due to the cancellation of Summer Jam, our largest concert which is typically held in June of each year.

Market revenues in New York as measured by Miller Kaplan Arase LLP (“Miller Kaplan”), an independent public accounting firm used by the radio industry to compile revenue information, were down 8.7% for the three months ended March 31, 2021, as compared to the same period of the prior year.

During this period, as measured by Miller Kaplan, revenues for our stations were down 21%.

While our stations performed better than the New York market for both national and local advertising revenues during the quarter, we significantly underperformed the market in digital revenues.

As part of our business strategy, we continually evaluate potential acquisitions of businesses that we believe hold promise for long-term appreciation in value and leverage our strengths.

However, MediaCo’s long-term debt agreements substantially limit our ability to make acquisitions.

We also regularly review our portfolio of assets and may opportunistically dispose of assets when we believe it is appropriate to do so.

We also regularly review our portfolio of assets and may opportunistically dispose of or otherwise monetize assets when we believe it is appropriate to do so.

The Company has been actively monitoring the COVID-19 situation and its impact globally, as well as domestically and in the markets we serve.

Our priority has been the safety of our employees, as well as the informational needs of the communities that we serve.

Through the first few months of calendar 2020, the disease became widespread around the world, and on Marc h 11, 2020, the World Health Organization declared a pandemic.

In an effort to mitigate the continued spread of COVID-19, many federal, state and local governments have mandated various restrictions, including travel restrictions, restrictions on non-essen tial businesses and services, restrictions on public gatherings and quarantining of people who may have been exposed to the virus.

Through the first few months of calendar 2020, the disease became widespread around the world, and on March 11, 2020, the World Health Organization declared a pandemic.

In an effort to mitigate the continued spread of COVID-19, many federal, state and local governments mandated various restrictions, including travel restrictions, restrictions on non-essential businesses and services, restrictions on public gatherings and quarantining of people who may have been exposed to the virus.

These restrictions, in turn, caused the United States economy to decline and businesses to cancel or reduce amounts spent on advertising, negatively impacting our advertising-based businesses.

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Revenue Recognition

Broadcasting revenue is recognized as advertisements are aired.

Broadcasting revenue is recognized as advertisements are aired and outdoor revenue is recognized over the life of the applicable lease of each billboard.

Both broadcasting revenue and outdoor advertising revenue recognition is subject to meeting certain conditions such as persuasive evidence that an arrangement exists and collection is reasonably assured.

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Broadcasting advertising revenues presented in the financial statements are reflected on a net basis, after the deduction of advertising agency fees, usually at a rate of 15% of gross revenues.

As of December 31, 2019 and September 30, 2020, we have recorded approximately $63.3 million in FCC licenses, which represents approximately 38% and 43%, respectively, of our total assets.

As of December 31, 2020 and March 31, 2021, we have recorded approximately $63.3 million in FCC licenses, which represents approximately 43% and 44%, respectively, of our total assets.

We would not be able to operate our radio stations without the related FCC license for each property.

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Consequently, our two radio stations in New York are considered a single unit of accounting.

We plan to perform the annual impairment test of our FCC Licenses as of October 1 of each year and to perform additional interim impairment testing whenever triggering events suggest such testing is warranted.

We perform the annual impairment test of our FCC Licenses as of October 1 of each year and perform additional interim impairment testing whenever triggering events suggest such testing is warranted.

Valuation of Indefinite-lived Broadcasting Licenses

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Valuation of Goodwill

As a result of the Fairway Acquisition discussed in Note 1 and the initial purchase price allocation, goodwill of $11.4 million was recognized in December 2019.

We made a number of purchase price allocation adjustments during the nine months ended September 30, 2020, resulting in an increase to goodwill of $1.7 million from the initial valuation.

The purchase price allocation of the Fairway Acquisition is preliminary and subject to adjustment.

Any adjustment to the purchase price allocation may directly impact the value of goodwill.

The goodwill relating to this acquisition accounts for all goodwill on the condensed consolidated balance sheets as of December 31, 2019 and September 30, 2020.

ASC Topic 350-20-35 requires the Company to test goodwill for impairment at least annually.

While the COVID-19 pandemic has negatively affected our outdoor operations, as of September 30, 2020, we don’t believe the long-term value of the outdoor business, and thus the associated goodwill, has been impaired.

The Company will conduct its impairment test on October 1 of each fiscal year, unless indications of impairment exist during an interim period.

Under ASC 350 we have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value as a basis for determining whether it is necessary to perform an annual quantitative goodwill impairment test.

Given the macroeconomic environment as a result of the COVID-19 pandemic we have elected not to perform the qualitative assessment.

When performing a quantitative assessment for impairment, the Company uses a market approach to determine the fair value of the reporting unit.

Management determines the fair value for the reporting unit by multiplying the cash flows of the reporting unit by an estimated market multiple.

Management believes this methodology for valuing outdoor advertising businesses is a common approach and believes that the multiples used in the valuation are reasonable given our peer comparisons, analyst reports, and market transactions.

To corroborate the fair values determined using the market approach described above, management also uses an income approach, which is a discounted cash flow method to determine the fair value of the reporting unit.

If the carrying value of a reporting unit’s goodwill exceeds its fair value, the Company recognizes an impairment charge equal to the difference in the statement of operations.

All goodwill on the condensed consolidated balance sheets as of December 31, 2020 and March 31, 2021 is assigned to our Outdoor Advertising segment.

While the COVID-19 pandemic has negatively affected our outdoor operations, as of March 31, 2021, we don’t believe the long-term value of the outdoor business, and thus the associated goodwill, has been impaired.

The Company conducts its impairment test as of October 1 of each fiscal year, unless indications of impairment exist during an interim period.

Deferred Taxes

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After determining the total amount of deferred tax assets, the Company determines whether it is more likely than not that some portion of the deferred tax assets will not be realized.

During the three-month period ended June 30, 2020, as a result of a sharp deterioration of business activity related to the COVID-19 pandemic and the significant operating losses expected in 2020, the Company was not able to conclude that it was more likely than not that it would be able to realize its deferred tax assets and recorded a $15.6 million valuation allowance against these assets through an increase to our provision for income taxes.

Results of Operations for the Three-Month and Nine-Month Periods Ended September 30, 2020 , Compared to September 30, 2019

Results of Operations for the Three-Month Period Ended March 31, 2021 , Compared to March 31, 2020

Net revenues:

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

Ended March 31,

(As reported, amounts in thousands)

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Total net revenues

Net radio revenues decreased for both the three and nine-month periods ended September 30, 2020.

The decrease in both periods is the result of the decline in advertising revenues as a result of the COVID-19 pandemic.

The decrease for the nine months ended September 30, 2020 also includes the cancellation of Summer Jam, our largest outdoor concert which is held in June of each year, including the prior year.

We typically monitor the performance of our stations against the aggregate performance of the markets in which we operate based on reports for the period prepared by Miller Kaplan.

Net radio revenues decreased for the three-month period ended March 31, 2021 due to a decline in advertising revenues as a result of the ongoing COVID-19 pandemic, which didn’t meaningfully impact our revenues in the prior year until the second quarter.

We typically monitor the performance of our stations against the aggregate performance of the market in which we operate based on reports for the period prepared by Miller Kaplan.

Miller Kaplan reports are generally prepared on a gross revenues basis and exclude revenues from barter and syndication arrangements.

Miller Kaplan reported gross revenues for our radio markets decreased 34.5% for the nine-month period ended September 30, 2020, as compared to the same period of the prior year.

Our gross revenues reported to Miller Kaplan were down 48.0% for the nine-month period ended September 30, 2020, as compared to the same period of the prior year.

We acquired outdoor advertising businesses principally located in Southern Georgia and Eastern Kentucky in mid-December 2019;

therefore, there is no comparable information in our reported results for the same periods of the prior year.

Miller Kaplan reported gross revenues for the New York radio market decreased 8.7% for the three-month period ended March 31, 2021, as compared to the same period of the prior year.

Our gross revenues reported to Miller Kaplan were down 21.0% for the three-month period ended March 31, 2021, as compared to the same period of the prior year.

Outdoor advertising revenues also decreased for the three-month period ended March 31, 2021, attributable to the impact of the ongoing COVID-19 pandemic, which didn’t meaningfully impact our revenues in the prior year until the second quarter.

Revenues in our outdoor advertising business have been less volatile than our radio business due to greater geographic diversification and longer duration advertising contracts with customers.

Operating expenses excluding depreciation and amortization expense:

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

Ended March 31,

(As reported, amounts in thousands)

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Total operating expenses excluding depreciation and amortization expense

Radio operating expenses excluding depreciation and amortization expense declined during nine-month period ended September 30, 2020 due to the cancellation of our largest outdoor concert, Summer Jam.

Summer Jam is typically held in June, but was cancelled this year due to the COVID-19 pandemic.

Therefore, we did not incur the costs of producing the event this year.

Expenses also declined during the nine-month period ended September 30, 2020 due to lower payroll costs as a result of the Loan Proceeds Participation Agreement with Emmis, described in Note 15, and cost reductions put in place in response to the decline in revenue caused by the COVID-19 pandemic.

The prior year, which is presented on a carve-out basis, includes approximately $2.0 million of allocated costs from Emmis.

Radio operating expenses excluding depreciation and amortization expense declined during the three-month period ended September 30, 2020 due to the cost reductions put in place in response to the decline in revenue caused by the COVID-19 pandemic coupled with lower variable expenses.

We acquired outdoor advertising businesses principally located in Southern Georgia and Eastern Kentucky in mid-December 2019;

therefore, there is no comparable information in our reported results for the same periods of the prior year.

Radio operating expenses excluding depreciation and amortization expense declined during the three-month period ended March 31, 2021 due to personnel and non-personnel cost reductions implemented in response to the decline in revenues caused by the COVID-19 pandemic.

Outdoor advertising operating expenses excluding depreciation and amortization are largely fixed in nature;

however, we did implement expense reductions where possible in response to the decline in revenues caused by the pandemic.

Corporate expenses

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

Ended March 31,

(As reported, amounts in thousands)

Corporate expenses

MediaCo became a public company in November 2019 and there were no corporate costs in the historical carve-out financial statements.

Corporate costs in the nine-month period ended September 30, 2020 principally consist of (1) professional fees associated with being a public company, (2) consulting fees associated with the acquisition of our outdoor advertising businesses and related accounting matters, and (3) management fees paid to Emmis.

Corporate expenses increased during the three months ended March 31, 2021 due to noncash compensation expense associated with restricted stock issued during the quarter, coupled with an increase in professional fees.

There were no equity awards outstanding in the three months ended March 31, 2020.

Depreciation and amortization:

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

Ended March 31,

(As reported, amounts in thousands)

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Total depreciation and amortization

The increase in depreciation and amortization expense in the three and nine-month periods ended September 30, 2020 relates to the acquisition of our outdoor advertising businesses in the quarter ended December 31, 2019.

Radio depreciation and amortization expense decreased due to certain assets becoming fully depreciated in the prior year.

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For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

Ended March 31,

(As reported, amounts in thousands)

2 unchanged sentences

Total operating income (loss)

Radio operating income decreased in both the three and nine-month periods ended September 30, 2020, due to the impact of the COVID-19 pandemic.

Operating income for radio in the prior year is net of $0.7 and $2.0 million of allocated costs from Emmis associated with the presentation of carve-out financial statements for the three and nine-month periods, respectively.

We acquired outdoor advertising businesses principally located in Southern Georgia and Eastern Kentucky in mid-December 2019;

therefore, there is no comparable information in our reported results for the same periods of the prior year.

There were no stand-alone corporate expenses in the prior year as MediaCo became a public company in November 2019.

Radio and outdoor advertising operating income decreased in the three-month period ended March 31, 2021, due to the impact of the COVID-19 pandemic, which didn’t meaningfully affect the prior year’s results until the second quarter.

Interest expense

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

Ended March 31,

(As reported, amounts in thousands)

Interest expense

For the three and nine-month periods ended September 30, 2019 there was no interest expense allocated to MediaCo from Emmis in connection with the presentation of carve-out financial statements.

During the quarter ended December 31, 2019, the Company entered into numerous debt instruments to finance SG Broadcasting’s acquisition of a controlling interest in the Company from Emmis in November 2019 and the Fairway Acquisition in December 2019.

Provision for income taxes:

Interest expense increased for the three-month period ended March 31, 2021, due to an increase in debt outstanding from additional borrowings and interest paid in kind.

(Benefit) provision for income taxes:

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

Ended March 31,

(As reported, amounts in thousands)

Provision for income taxes

During the quarter ended June 30, 2020, as a result of a sharp deterioration of business activity related to the COVID-19 pandemic, the Company concluded that it was more likely than not that it would be unable to realize its deferred tax assets and recorded a $15.6 million valuation allowance against these assets.

(Benefit) provision for income taxes

Given the uncertainty in the economy due to the ongoing COVID-19 pandemic, particularly in the New York market, the Company concluded it could not reasonably estimate pre-tax income for the year ended December 31, 2021, so the Company is calculating its provision for income taxes on a discrete basis until there is greater clarity.

Consolidated net income (loss):

Consolidated net loss:

For the Three Months

Ended September 30,

For the Nine Months

Ended September 30,

Ended March 31,

(As reported, amounts in thousands)

Consolidated net income (loss)

Net income decreased for the three and nine-month periods ended September 30, 2020 primarily due to a decline in operating income, an increase in interest expense and an increase in the provision for income taxes, each as discussed above.

Consolidated net loss

Net income decreased for the three-month period ended March 31, 2021 primarily due to a decline in operating income, an increase in interest expense and an increase in the provision for income taxes, each as discussed above.

Liquidity and Capital Resources

At September 30, 2020, we had cash and cash equivalents of $6.7 million and net working capital of $5.2 million.

At March 31, 2021, we had cash and cash equivalents of $4.5 million and net working capital of $1.9 million .

At December 31, 2020, we had cash and cash equivalents of $4.2 million and net working capital of $4.4 million.

The increase in cash and working capital is mostly due to additional funding received from SG Broadcasting during the nine months ending September 30, 2020 as described below.

On February 28, 2020, the Company and SG Broadcasting amended and restated the SG Broadcasting Promissory Note such that the maximum aggregate principal amount issuable under the note was increased from $6.3 million to $10.3 million.

Also on February 28, 2020, SG Broadcasting loaned an additional $2.0 million to the Company pursuant to the amended note for working capital purposes.

On March 27, 2020, the Company and SG Broadcasting further amended and restated the SG Broadcasting Promissory Note (the “Second Amended and Restated SG Promissory Note”) such that the maximum aggregate principal amount issuable under the note was increased from $10.3 million to $20.0 million.

On March 27, 2020, SG Broadcasting loaned an additional $3.0 million to the Company pursuant to the Second Amended and Restated SG Promissory Note for working capital purposes.

On August 28, 2020, SG Broadcasting loaned an additional $8.7 million to the Company pursuant to the Second Amended and Restated SG Promissory Note for working capital purposes.

On September 30, 2020, SG Broadcasting loaned an additional $0.3 million to the Company pursuant to an additional SG Broadcasting Promissory Note for working capital purposes.

Consequently, the principal amount outstanding under the SG Broadcasting promissory notes as of September 30, 2020 was $20.3 million.

On April 22, 2020, MediaCo and Emmis entered into a certain Loan Proceeds Participation Agreement (the “LPPA”) pursuant to which (i) Emmis agreed to use certain of the proceeds of the loan Emmis received pursuant to the Paycheck Protection Program (“PPP”) under Division A, Title I of the CARES Act to pay certain wages of employees leased to MediaCo pursuant to the Employee Leasing Agreement, between Emmis and MediaCo (ii) Emmis agreed to waive up to $1.5 million in reimbursement obligations of MediaCo to Emmis under the Employee Leasing Agreement to the extent that the PPP Loan is forgiven, and (iii) MediaCo agreed to promptly pay Emmis an amount equal to 31.56% of the amount of the PPP Loan, if any, that Emmis is required to repay, up to the amount of the reimbursement obligations forgiven under (ii) above.

Standard General L.P., on behalf of all of the funds for which it serves as an investment advisor, agreed to guaranty MediaCo’s obligations under the LPPA.

As of the date of these financial statements, Emmis believes that the loan will be forgiven as Emmis believes it has spent the proceeds on qualifying expenditures.

Accordingly, $1.5 million of leased employee expense was waived by Emmis during the nine months ended September 30, 2020.

Cash flows used in operating activities were $7.2 million for the nine months ended September 30, 2020 versus cash flows provided by operating activities of $8.5 million for the nine months ended September 30, 2019.

The decrease was mainly attributable to a decrease in net income due to the COVID-19 pandemic as well as an increase of cash paid for interest as debt was not allocated to MediaCo from Emmis in connection with the presentation of carve-out financial statements in the prior year.

Cash flows used in investing activities were $0.1 million and $0.3 million for the nine months ended September 30, 2019 and 2020, respectively, attributable to capital expenditures in both periods.

Cash flows provided by financing activities were $12.2 million for the nine months ended September 30, 2020, due to $12.4 million of debt proceeds, net of debt payments, and debt-related costs of $0.3 million, versus cash flows used in financing activities of $8.3 million for the nine months ended September 30, 2019.

For the period ended September 30, 2019, the net amount of cash provided by operating activities and cash used in financing activities was swept to and retained by Emmis.

Our primary sources of liquidity are cash on hand and cash provided by operations.

Borrowings under the SG Broadcasting promissory notes have also provided significant liquidity during the nine months ended September 30, 2020.

The decrease in working capital is mostly due to a decrease in accounts receivable due to the seasonal nature of billings in our radio segment, an increase in accrued interest due to the timing of quarterly payments and an increase in current maturities of debt due to the timing of scheduled principal payments as of March 31, 2021.

Cash flows provided by operating activities were $0.6 million for the three months ended March 31, 2021 versus cash flows used in operating activities of $1.6 million for the three months ended March 31, 2020.

The increase was mainly attributable to more efficient working capital management.

Cash flows used in inv esting activities were $0.2 million for the three months ended March 31, 2021, attributable to capital expenditures, and $0.1 million for the three months ended March 31, 2021, attributable to capital expenditures, net of proceeds from the sale of property and equipment .

Cash flows used in financing activities were $0.2 million for the three months ended March 31, 2021, attributable to the settlement of tax withholding obligations, versus cash flows provided by financing activities of $4.1 million for the three months ended March 31, 2020, primarily provided by $5.2 million of debt proceeds .

Our primary sources of liquidity are cash provided by operations and cash available through borrowings from Standard General.

Our primary uses of capital have been, and are expected to continue to be, capital expenditures, working capital, debt service requirements and acquisitions.

As part of the acquisition of SG Broadcasting’s controlling interest in the Company from Emmis on November 25, 2019, Emmis retained the working capital of the stations, but the Company was permitted to collect and use, for a period of nine months, the first $5.0 million of net working capital attributable to the stations as of the closing date.

This amount was paid to Emmis during the three months ended September 30, 2020.

During the quarter ended June 30, 2020, MediaCo elected not to pay certain rent obligations under its studio and broadcast tower leases.

The Company entered into a deferred payment agreement with its landlord related to some of these amounts during the three months ended September 30, 2020 and expects to comply with the deferred payment arrangement in future periods.

The Company also paid deferred obligations to its other landlords during this period.

The Company continually projects its anticipated cash needs, which include its operating needs, capital needs, and principal and interest payments on its indebtedness.

As of the filing of this Form 10-Q and as more fully discussed in Note 3 to the accompanying condensed consolidated and combined financial statements, management is unable to determine with certainty that it will be able to meet its liquidity needs for the next twelve months with cash on hand, cash provided by operations, and/or additional borrowings.

As of September 30, 2020, approximately 43% of our total assets consisted of FCC broadcast licenses, the values of which depend significantly upon various factors including, among other things, market revenues, market growth rates and the operational results of our businesses.

As of March 31, 2021, approximately 44% of our total assets consisted of FCC broadcast licenses, the values of which depend significantly upon various factors including, among other things, market revenues, market growth rates and the operational results of our businesses.

We would not be able to operate the properties without the related FCC license for each property.

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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.

Quantitative a nd Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk

As an emerging growth company, we are not required to provide this information.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis