What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-12 compared with 2021-08-13 · 82 added, 81 removed, 176 unchanged (48% of the section changed)

19 unchanged sentences

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

We own and operate two radio stations located in New York City and outdoor advertising businesses geographically focused in the Southeast (Georgia, Alabama and Tennessee) and Eastern Kentucky.

We own and operate two radio stations located in New York City and outdoor advertising businesses geographically focused in the Southeast (Georgia, Alabama, South Carolina and Florida) and the Mid-Atlantic (Kentucky, West Virginia and Ohio) regions.

Our revenues are mostly affected by the advertising rates our entities charge, as advertising sales are the primary component of our consolidated revenues.

These rates are in large part based on our radio stations’ ability to attract audiences in demographic groups targeted by their advertisers and the number of persons exposed to our billboards.

The Nielsen Company generally measures radio station ratings weekly for markets measured by the Portable People Meter™, which includes all of our radio stations.

Because audience ratings in a station’s local market are critical to the station’s financial success, our strategy is to use market research, advertising and promotion to attract and retain audiences in each station’s chosen demographic target group.

The Nielsen Company generally measures radio station ratings weekly for markets measured by the Portable People Meter™, which includes all of our radio stations, while Geopath Insight Suite is the annual audience location measurement used for our billboards.

Because audience ratings in a radio station’s local market are critical to the station’s financial success, our strategy is to use market research, advertising and promotion to attract and retain audiences in each station’s chosen demographic target group.

Our revenues vary throughout the year.

4 unchanged sentences

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

The following table summarizes the sources of our revenues for the three and six months end ed June 30 , 2020 and 2021 .

The following table summarizes the sources of our revenues for the three and nine months end ed September 30 , 2020 and 2021 .

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

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

For the Three Months Ended June 30,

For the Six Months Ended June 30,

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

(Amounts in thousands)

22 unchanged sentences

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

Market revenues in New York as measured by Miller Kaplan Arase LLP (“Miller Kaplan”), an independent public accounting firm used by the radio industry to compile revenue information, were up 37.9% for the six months ended June 30, 2021, as compared to the same period of the prior 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 up 44.1% for the nine months ended September 30, 2021, as compared to the same period of the prior year.

During this period, as measured by Miller Kaplan, revenues for our stations were up 73.1%.

Our outperformance was driven by market share gains in both local and national radio advertising revenues.

Due to our audience demographics, our stations secured a disproportionate share of spending by various state and local departments of health promoting COVID-19 vaccination efforts.

Our outperformance was largely driven by our largest outdoor concert, Summer Jam, which was held in August 2021.

Due to the pandemic, we cancelled the concert in 2020, so there are no comparative revenues in the prior year related to this event.

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

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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.

Furthermore, some of our advertisers have seen a material decline in their businesses and may not be able to pay amounts owed to us when they come due.

If the spread of COVID-19 continues, or is suppressed but later reemerges, and public and private entities continue to implement restrictive measures, we expect that our results of operations, financial condition and cash flows will continue to be negatively affected, the extent to which is difficult to estimate at this time.

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

Beginning in the first quarter of 2021, with the increased availability of vaccines, the U.S.

experienced an easing of restrictions on travel as well as social gatherings and business activities.

However, the broad economic impact of the COVID-19 pandemic remains across multiple sectors, specifically disrupting logistics and global supply chains.

If the spread of COVID-19 reaccelerates, or if supply chain disruptions persist, causing certain advertising categories (e.g., automotive dealers) to advertise less, we expect that our results of operations, financial condition and cash flows will continue to be negatively affected, the extent to which is difficult to estimate at this time.

CRITICAL ACCOUNTING POLICIES

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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, 2020 and June 30, 2021, we have recorded approximately $63.3 million in FCC licenses, which represents approximately 43% of our total assets.

As of December 31, 2020 and September 30, 2021, we have recorded approximately $63.3 million in FCC licenses, which represents approximately 43% and 42% of our total assets, respectively.

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

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We do not amortize indefinite-lived intangible assets, but rather test for impairment at least annually or more frequently if events or circumstances indicate that an asset may be impaired.

When evaluating our radio broadcasting licenses for impairment, the testing is performed at the unit of accounting level as determined by ASC Topic 350-30-35.

When evaluating our radio broadcasting licenses for impairment, the testing is performed at the unit of accounting level as determined by Accounting Standards Codification (“ASC”) Topic 350-30-35.

In our case, radio stations in a geographic market cluster are considered a single unit of accounting, provided that they are not being operated under a Local Marketing Agreement by another broadcaster.

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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 June 30, 2021 is assigned to our Outdoor Advertising segment.

While the COVID-19 pandemic has negatively affected our outdoor operations, as of June 30, 2021, we don’t believe the long-term value of the outdoor business, and thus the associated goodwill, has been impaired.

All goodwill on the condensed consolidated balance sheets as of December 31, 2020 and September 30, 2021 is assigned to our Outdoor Advertising segment.

While the COVID-19 pandemic has negatively affected our outdoor operations, as of September 30, 2021, we don’t believe the long-term value of the outdoor business, and thus the associated goodwill, has been impaired.

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

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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.

Results of Operations for the Three-Month and Six-Month Periods Ended June 30, 2021 , Compared to June 30, 2020

Results of Operations for the Three-Month and Nine-Month Periods Ended September 30, 2021 , Compared to September 30, 2020

Net revenues:

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

Ended September 30,

For the Nine Months

Ended September 30,

(As reported, amounts in thousands)

2 unchanged sentences

Total net revenues

Net radio revenues increased for both the three-month and six-month periods ended June 30, 2021, as a result of overall advertising revenues rebounding from the COVID-19 pandemic.

Net radio revenues increased for both the three-month and nine-month periods ended September 30, 2021, as a result of overall advertising revenues rebounding from the COVID-19 pandemic.

In addition, various state and local departments of health increased their advertising to drive education and awareness surrounding vaccination efforts.

Our stations benefited more than stations serving the general population due to the targeted nature of the awareness campaigns.

Also, during the third quarter of the current year, we held our annual outdoor concert, Summer Jam, which was cancelled in the second quarter of the prior year due to the COVID-19 pandemic.

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

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

Miller Kaplan reported gross revenues for the New York radio market increased 37.9% for the six-month period ended June 30, 2021, as compared to the same period of the prior year.

Our gross revenues reported to Miller Kaplan were up 46.1% for the six-month period ended June 30, 2021, as compared to the same period of the prior year.

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

Miller Kaplan reported gross revenues for the New York radio market increased 44.1% for the nine-month period ended September 30, 2021, as compared to the same period of the prior year.

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

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

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

1 unchanged sentence

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

Ended September 30,

For the Nine Months

Ended September 30,

(As reported, amounts in thousands)

2 unchanged sentences

Total operating expenses excluding depreciation and amortization expense

Radio operating expenses excluding depreciation and amortization expense increased during the three-month period ended June 30, 2021 due to revenue-related expenses, such as commission expense, and a nonrecurring benefit in the second quarter of 2020.

In the three months ended June 30, 2020, we recognized a reduction in expenses of $1.5 million related to the Loan Proceeds Participation Agreement with Emmis.

In the three months ended June 30, 2021, we recorded approximately $0.5 million of employee retention credits, which reduce operating expenses.

For the six months ended June 30, 2021, the increase described above for the second quarter was offset by personnel and non-personnel cost reductions implemented in response to the decline in revenues caused by the COVID-19 pandemic.

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

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

however, we recorded approximately $0.3 million of employee retention credits during the three months ended June 30, 2021, which reduced operating expenses when compared to the three and six-month periods ended June 30, 2020.

however, we recorded approximately $0.3 million and $0.6 million of employee retention credits in the three and nine-month periods ended September 30, 2021, respectively, which reduced operating expenses when compared to the three and nine-month periods ended September 30, 2020.

Corporate expenses

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

Ended September 30,

For the Nine Months

Ended September 30,

(As reported, amounts in thousands)

Corporate expenses

The increase in corporate expenses for both the three and six-month periods ended June 30, 2021 relate to personnel hires in advance of the management agreement between the Company and Emmis ending in November 2021, as well as noncash compensation expense associated with restricted stock grants.

These increases were partially offset by approximately $0.1 million of employee retention credits recorded in the three months ended June 30, 2021.

The increase in corporate expenses for both the three and nine-month periods ended September 30, 2021 relate to personnel hires in advance of the management agreement between the Company and Emmis ending in November 2021, as well as noncash compensation expense associated with restricted stock grants.

These increases were partially offset by approximately $0.1 million and $0.2 million of employee retention credits recorded in the three and nine-month periods ended September 30, 2021, respectively.

Depreciation and amortization:

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

Ended September 30,

For the Nine Months

Ended September 30,

(As reported, amounts in thousands)

3 unchanged sentences

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

Outdoor advertising depreciation and amortization declined due to revisions to the preliminary purchase price allocation recorded during 2020 and associated adjustments to depreciation and amortization.

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

Loss (gain) on sale of assets:

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

Ended September 30,

For the Nine Months

Ended September 30,

(As reported, amounts in thousands)

2 unchanged sentences

Total loss (gain) on sale of assets

The gain on sale of assets in the six months ended June 30, 2021 principally relates to the disposal of certain outdoor advertising assets during the second quarter.

The loss on disposal of assets in the six months ended June 30, 2020 relates to the disposal of three outdoor advertising structures in the first quarter of the prior year.

Operating income (loss):

The gain on sale of assets in the nine months ended September 30, 2021 principally relates to the disposal of certain outdoor advertising assets during the second quarter.

The loss on disposal of assets in the three and nine-month periods ended September 30, 2020 also relates to the disposal of certain outdoor advertising structures in the normal course of business.

Operating (loss) income:

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

Ended September 30,

For the Nine Months

Ended September 30,

(As reported, amounts in thousands)

Operating income (loss)

Operating (loss) income

Outdoor Advertising

Total operating income (loss)

Radio and outdoor advertising operating income increase in the three and six- month periods ended June 30, 2021, due to advertising revenues rebounding from the impact of the pandemic in the prior year.

In addition, the Company qualified for employee retention credits of $0.9 million under the CARES Act for the three months ended June 30, 2021, and recorded the benefit as a reduction to operating expenses during this period.

Total operating (loss) income

Radio and outdoor advertising operating income increased in the three and nine-month periods ended September 30, 2021, due to advertising revenues rebounding from the impact of the pandemic in the prior year.

In addition, for the three and nine-month periods ended September 30, 2021, the Company qualified for employee retention credits of $1.0 million and $1.9 million, respectively, and recorded the benefit as a reduction to operating expenses.

Interest expense

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

Ended September 30,

For the Nine Months

Ended September 30,

(As reported, amounts in thousands)

Interest expense

Interest expense increased due to (i) the additional funding from SG Broadcasting during 2021, which took the form of additional loans, (ii) accrued interest on the Emmis Promissory Note and SG Broadcasting Promissory Notes being paid in kind in the final quarter of 2020, and (iii) an additional 1% paid in kind interest rate applicable beginning May 19, 2021 as a result of Amendment No.

Interest expense increased due to (i) the additional funding from SG Broadcasting during 2021, which took the form of additional loans, (ii) accrued interest on the Emmis Promissory Note and SG Broadcasting Promissory Notes being paid in kind in the fourth quarter of 2020, and (iii) an additional 1% paid in kind interest rate applicable beginning May 19, 2021 as a result of Amendment No.

4 to the senior credit facility.

1 unchanged sentence

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

Ended September 30,

For the Nine Months

Ended September 30,

(As reported, amounts in thousands)

Loss on debt extinguishment

The loss on debt extinguishment recorded during the three months ended June 30, 3021 relates to the unscheduled principal payment of $3 million required under Amendment No.

The loss on debt extinguishment recorded during the nine months ended September 30, 3021 relates to the unscheduled principal payment of $3 million required under Amendment No.

4 to the senior credit facility.

In connection with this principal payment, we wrote-off a pro rata portion of the unamortized debt discount and recognized this as a loss on debt extinguishment.

Provision for income taxes:

(Benefit ) p rovision for income taxes:

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

Ended September 30,

For the Nine Months

Ended September 30,

(As reported, amounts in thousands)

Provision for income taxes

(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.

2 unchanged sentences

For the Three Months

Ended June 30,

For the Six Months

Ended June 30,

Ended September 30,

For the Nine Months

Ended September 30,

(As reported, amounts in thousands)

Consolidated net income (loss)

Net income increased for the three-month period ended June 30, 2021 and net loss decreased for the six-month period ended June 30, 2021, primarily due to an increase in operating income and a decrease in provision for income taxes, partially offset by an increase in interest expense.

Consolidated net loss

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

Liquidity and Capital Resources

At June 30, 2021, we had cash and cash equivalents of $4.3 million and net working capital of $5.7 million .

At September 30, 2021, we had cash and cash equivalents of $7.4 million and net working capital of $5.9 million .

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

The increase in working capital is mostly due to an increase in accounts receivable resulting from the increase in radio advertising revenues and a decrease in current maturities of debt due to the timing of scheduled principal payments as of June 30, 2021.

The increase in net working capital is mostly due to an increase in cash and accounts receivable resulting from improved business operations.

The impact of this is partially offset by an increase in accrued interest due to the timing of annual interest paid in kind on the Emmis Convertible Promissory Note and the promissory notes due to SG Broadcasting.

Cash flows provided by operating activities were $0.6 million for the six months ended June 30, 2021 versus cash flows used in operating activities of $0.4 million for the six months ended June 30, 2020.

The increase was mainly attributable to an increase in operating income largely due to the net revenue recovery from the COVID-19 pandemic, which was partially offset by net investments in working capital.

Cash flows used in investing activities were $1.0 million for the six months ended June 30, 2021, attributable to the acquisition of billboard structures and routine capital expenditures, partially offset by the proceeds from the sale of certain outdoor advertising assets.

Cash flows used in investing activities were $0.2 million for the six months ended June 30, 2020, attributable to capital expenditures.

Cash flows provided by financing activities were $0.5 million for the six months ended June 30, 2021, due to debt proceeds of $4.0 million, net of debt payments and debt-related costs of $3.4 million.

Cash flows provided by financing activities were $3.2 million for the six months ended June 30, 2020, due to $5.2 million of debt proceeds, partially offset by debt payments and debt-related costs of $2.0 million.

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

Cash flows provided by operating activities were $4.2 million for the nine months ended September 30, 2021 versus cash flows used in operating activities of $7.2 million for the nine months ended September 30, 2020.

The increase was mainly attributable to an increase in operating income as we recover from the COVID-19 pandemic.

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

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

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

Cash flows provided by financing activities were $12.2 million for the nine months ended September 30, 2020, due to $14.3 million of debt proceeds, partially offset by debt payments and debt-related costs of $2.1 million.

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

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

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

As of June 30, 2021, 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 September 30, 2021, approximately 42% of our total assets consisted of FCC broadcast licenses, the values of which depend significantly upon various factors including, among other things, market revenues, market growth rates and the operational results of our businesses.

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

8 unchanged sentences

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