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Item 7. Management’s Discussion and Analysis

2022-03-24 compared with 2021-03-30 · 107 added, 215 removed, 106 unchanged (75% of the section changed)

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and its subsidiaries (collectively, “MediaCo” or the “Company”).

We own and operate two radio stations located in New York City and outdoor advertising businesses geographically focused in Southern Georgia 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 both 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.

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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 ten-month period ended December 31, 2019 and the year ended December 31, 2020.

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

The following table summarizes the sources of our revenues for the years ended December 31, 2021, and 2020.

The category “Nontraditional” principally consists of ticket sales and sponsorships of events our stations conduct in their local markets.

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

Ten Months Ended

(Dollars in thousands)

December 31, 2021

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Net revenues:

Non Traditional

Radio Advertising

Outdoor Advertising

Nontraditional

Total net revenues

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Our stations have also aggressively worked to harness the power of broadband and mobile media distribution in the development of emerging business opportunities by developing highly interactive websites with content that engages our listeners, deploying mobile applications and streaming our content, and harnessing the power of digital video on our websites and YouTube channels.

The results of our radio operations are solely dependent on the results of our stations in the New York market.

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

Market revenues in New York as measured by Miller Kaplan Arase LLP (“Miller Kaplan”), an independent public accounting firm used by the radio industry to compile revenue information, were up 2.6% for the ten months ended December 31, 2019, but down 31.3% for the year ended December 31, 2020, as compared

to the same perio d s of the prior year.

The results of our broadcast radio operations are solely dependent on the results of our stations in the New York market .

S ome 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 41.2 % for the year ended December 31, 20 2 1 , but down 31.3 % for the year ended December 31, 2020, as compared to the same perio d s of the prior year.

During these period s , revenues for our New York cluster were up 62.2 % and down 42.1 %, respectively .

O ur outperformance in the ten months ended December 31, 2019 was principally due to record-setting ticket sales associated with our largest annual concert, Summer Jam, in June 2019 ;

however , our underperformance in the year ended December 31, 2020 was largely driven by the cancellation of that event in 2020 due to the COVID-19 pandemic .

The increases in the year ended December 31, 20 21, as compared to the prior year w ere largely driven by revenues generated by our largest outdoor concert, Summer Jam, which was held in August 2021 , but was cancelled in 2020 due to the pandemic, which led to reduced revenues in the year ended December 31, 2020 .

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.

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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 have 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.

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.

Furthermore, the restrictions on public gatherings in and around New York City during 2020 forced us to cancel our largest annual concert, Summer Jam.

In addition, 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 as a variant strain, 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.

CRITICAL ACCOUNTING POLICIES

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.

Throughout 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 ESTIMATES

Critical accounting policies are defined as those that encompass significant judgments and uncertainties, and potentially derive materially different results under different assumptions and conditions.

We believe that our critical accounting policies are those described below.

Revenue Recognition

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

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

These criteria are generally met at the time the advertisement is aired for broadcasting revenue or displayed for outdoor revenue.

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

We have made acquisitions in the past for which a significant amount of the purchase price was allocated to FCC licenses and goodwill assets.

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

In the case of our radio stations, we would not be able to operate the properties without the related FCC license for each property.

As of December 31, 2021, we have recorded approximately $63.3 million for FCC licenses, which represents approximately 43% of our total assets.

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

FCC licenses are renewed every eight years;

consequently, we continually monitor our stations’ compliance with the various regulatory requirements.

Historically, all of our FCC licenses have been renewed at the end of their respective periods, and we expect that all FCC licenses will continue to be renewed in the future.

We consider our FCC licenses to be indefinite-lived intangibles.

Historically, each of our FCC licenses has been renewed at the end of its respective period, and we expect that each FCC license will continue to be renewed in the future.

We consider our FCC licenses to be indefinite-lived intangible.

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

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

In our case, radio stations in a geographic market cluster are considered a single unit of accounting.

In the ten-month period ended December 31, 2019, we completed our annual impairment test on November 25, 2019, the date the stations were transferred by Emmis.

For the year ended December 31, 2020, we completed our annual impairment tests on October 1 and will continue to perform our assessments on this date in future years.

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

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

For the years ended December 31, 2021, and 2020, we completed our annual impairment tests on October 1 of each year and will continue to perform our assessments on this date in future years.

Valuation of Indefinite-lived Broadcasting Licenses

Fair value of our FCC licenses is estimated to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

To determine the fair value of our FCC licenses, the Company considered both income and market valuation methods when it performed its impairment tests.

Under the income method, the Company projects cash flows that would be generated by each of its units of accounting assuming the unit of accounting was commencing operations in its respective market at the beginning of the valuation period.

Fair value of our FCC licenses is estimated to be the stick value that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

To determine the fair value of our FCC licenses, the Company considers both income and market valuation methods when it performs its impairment tests.

Under the income method, the Company projects cash flows that would be generated by its unit of accounting assuming the unit of accounting was commencing operations in its respective market at the beginning of the valuation period.

This cash flow stream is discounted to arrive at a value for the FCC license.

The Company assumes the competitive situation that exists in each market remains unchanged, with the exception that its unit of accounting commenced operations at the beginning of the valuation period.

The Company assumes the competitive situation that exists in the unit of accounting’s market remains unchanged, with the exception that the unit of accounting commenced operations at the beginning of the valuation period.

In doing so, the Company extracts the value of going concern and any other assets acquired, and strictly values the FCC license.

Major assumptions involved in this analysis include market revenue, market revenue growth rates, unit of accounting audience share, unit of accounting revenue share and discount rate.

Each of these assumptions may change in the future based upon changes in general economic conditions, audience behavior, consummated transactions, and numerous other variables

that may be beyond our control.

The projections incorporated into our license valuations take current economic conditions into consideration.

Under the market method, the Company uses recent sales of comparable radio stations for which the sales value appeared to be concentrated entir ely in the value of the license , to arrive at an indication of fair value.

Each of these assumptions may change in the future based upon changes in general economic conditions, audience behavior, consummated transactions, and numerous other variables that may be beyond our control.

The projections incorporated into our license valuations take then current economic conditions into consideration.

Under the market method, the Company uses recent sales of comparable radio stations for which the sales value appeared to be concentrated entirely in the value of the license, to arrive at an indication of fair value

Below are some of the key assumptions used in our income method annual impairment assessments.

In recent years, we have reduced long-term growth rates in the New York market in which we operate based on recent industry trends and our expectations for the market going forward.

November 25, 2019

L ong-term growth rates in the New York market in which we operate are based on recent industry trends and our expectations for the market going forward.

October 1, 2021

October 1, 2020

Discount Rate

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Valuation of Goodwill

As a result of the Fairway Acquisition, the Company has recorded $13.1 million of goodwill.

This accounts for all goodwill on the consolidated balance sheet as of December 31, 2020.

The Fairway Acquisition closed on December 13, 2019 and all assets acquired and liabilities assumed were valued as of that date, resulting in a goodwill valuation of $13.1 million.

The Company has recorded $13.1 million of goodwill on the consolidated balance sheet as of December 31, 2021, of which all is part of the Outdoor Advertising segment.

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

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

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

We perform this assessment annually as of October 1.

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

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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.

If the Company determines that a deferred tax asset is not likely to be realized, a valuation allowance will be established against that asset to record it at its expected realizable value.

RESULTS OF OPERATIONS

TEN MONTHS ENDED DECEMBER 31, 2019 COMPARED TO YEAR ENDED DECEMBER 31, 2020

Year ended December 31, 2021 compared to year ended December 31, 2020

Net revenues:

For the ten months ended

December 31, 2019

For the year ended

December 31, 2020

(As reported, amounts in thousands)

Year ended December 31,

(Dollars in thousands)

Net revenues:

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Total net revenues

Radio net revenues decreased for the year ended December 31, 2020 compared to the ten-month period ended December 31, 2019.

Despite having two additional months of results in the current year, revenues decreased as a result of the decline in advertising revenues due to the COVID-19 pandemic, coupled with the cancellation of Summer Jam, our largest outdoor concert which is held annually in June.

We were able to hold the event in June 2019, but we were forced to cancel the event in June 2020.

We typically monitor the performance of our stations against the performance of the New York radio market based on reports for the periods prepared by Miller Kaplan.

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

A summary of market revenue performance and MediaCo’s revenue performance in the New York market for the year ended December 31, 2020 is presented below:

For the year ended December 31, 2020

Overall Market

Our underperformance as compared to the overall market revenue performance in the year ended December 31, 2020 was largely driven by the cancellation of Summer Jam in 2020, as discussed above.

We acquired two outdoor advertising businesses principally located in Southern Georgia and Eastern Kentucky on December 13, 2019, so there is only minimal activity in our reported results for the ten months ended December 31, 2019.

Net radio revenues increased due to 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 current year, we held our annual outdoor concert, Summer Jam, which was cancelled in 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 41.2% for the year ended December 31, 2021, as compared to the prior year.

Our gross revenues reported to Miller Kaplan were up 62.2% for the year ended December 31, 2021, as compared to the prior year.

Outdoor advertising revenues increased due to overall advertising revenues rebounding from the COVID-19 pandemic.

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.

O perating expenses excluding depreciation and amortization expense:

Year ended December 31,

(Dollars in thousands)

Operating expenses excluding depreciation and amortization expense:

For the ten months ended December 31, 2019

For the year ended December 31, 2020

(As reported, amounts in thousands)

Operating expenses excluding depreciation and amortization

Outdoor Advertising

Total operating expenses excluding depreciation and

amortization expense

Operating expenses excluding depreciation and amortization expense for our radio division decreased, despite two additional months of results in the current year.

Our largest outdoor concert, Summer Jam, is held annually in June, but due to the COVID-19 pandemic, it was cancelled in 2020.

Therefore, we did not incur the costs of producing the event for the year ended December 31, 2020.

Expenses also declined due to lower payroll costs in the second quarter as a result of the Loan Proceeds Participation Agreement with Emmis, and cost reductions put in place in response to the decline in revenues caused by the COVID-19 pandemic.

Corporate expenses excluding depreciation and amortization expense:

For the ten months ended December 31, 2019

For the year ended December 31, 2020

(As reported, amounts in thousands)

Corporate expenses excluding depreciation and amortization expense

Corporate expenses excluding depreciation and amortization expense for the ten months ended December 31, 2019, mostly relate to nonrecurring transaction costs associated with the acquisition of a controlling interest in the Company from Emmis in November 2019 and two outdoor advertising businesses in December 2019.

Corporate expenses excluding depreciation and amortization expense for the year ended December 31, 2020, principally consist of the costs associated with being a public company, corporate staff to oversee the outdoor advertising business, and management fees paid to Emmis.

Total operating expenses excluding depreciation and amortization expense

Radio operating expenses excluding depreciation and amortization expense increased during the year ended December 31, 2021 due to expenses associated with holding Summer Jam, partially offset by $1.1 million of employee retention credits for the year ended December 31, 2021.

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

however, we recorded approximately $0.6 million of employee retention credits in the year ended December 31, 2021, which reduced operating expenses when compared to the prior year.

Corporate expenses:

Year ended December 31,

(Dollars in thousands)

Corporate expenses

The increase in corporate expenses was related to personnel hires as the management agreement with Emmis ended in November 2021, as well as noncash compensation expense associated with restricted stock awards.

These increases were partially offset by $0.2 million of employee retention credits in the current year.

Depreciation and amortization:

For ten months ended December 31, 2019

For the year ended December 31, 2020

(As reported, amounts in thousands)

Year ended December 31,

(Dollars in thousands)

Depreciation and amortization:

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Total depreciation and amortization

Radio depreciation and amortization expense decreased due to a number of assets becoming fully depreciated during the year ended December 31, 2020.

Loss on disposal of assets:

For ten months ended December 31, 2019

For the year ended December 31, 2020

(As reported, amounts in thousands)

Loss on disposal of assets

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

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

(Gain) loss on disposal of assets:

Year ended December 31,

(Dollars in thousands)

(Gain) loss on disposal of assets:

Outdoor Advertising

Loss on disposal of assets

(Gain) loss on disposal of assets

The gain on sale of asset for the year ended December 31, 2021 principally relates to the disposal of certain outdoor advertising assets.

Loss on disposal of assets for the year ended December 31, 2020, relates to the disposal of various billboard structures in the ordinary course of business.

Operating income (loss):

For the ten months ended December 31, 2019

For the year ended December 31, 2020

(As reported, amounts in thousands)

Year ended December 31,

(Dollars in thousands)

Operating income (loss):

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Total operating income (loss)

Despite having two additional months of results in the current year, operating income decreased due to the impact of the COVID-19 pandemic.

See “Net revenues,” “Operating expenses excluding depreciation and amortization,” and “Corporate expenses” above.

Interest expense:

For the ten months ended December 31, 2019

For the year ended December 31, 2020

(As reported, amounts in thousands)

Year ended December 31,

(Dollars in thousands)

Interest expense

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 two outdoor advertising businesses in December 2019.

These debt instruments have been outstanding for all of 2020, which caused the increase in interest expense as compared to the ten months ended December 31, 2019.

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.

Provision for income taxes:

For the ten months ended December 31, 2019

For the year ended December 31, 2020

(As reported, amounts in thousands)

Year ended December 31,

(Dollars in thousands)

Provision for income taxes

During the year ended December 31, 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 an $18.8 million valuation allowance against these assets.

Consolidated net income (loss):

For the ten months ended December 31, 2019

For the year ended December 31, 2020

(As reported, amounts in thousands)

Consolidated net income (loss)

Consolidated net income decreased 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 .

As a result of a sharp deterioration of business activity related to the COVID-19 pandemic during 2020, the Company concluded that it was more likely than not that it would be unable to realize its deferred tax assets and recorded a valuation allowance against these assets.

Consolidated net loss:

Year ended December 31,

(Dollars in thousands)

Consolidated net loss

See “Net revenues,” “Operating expenses excluding depreciation and amortization,”, “Corporate expenses,” “Interest expense,” and “Provision for income taxes” above.

LIQUIDITY AND CAPITAL RESOURCES

Senior secured term loan agreement

On November 25, 2019, the Company entered into a $50.0 million, five-year senior secured term loan agreement (the “Senior Credit Facility”) with GACP Finance Co., LLC, a Delaware limited liability company, as administrative agent and collateral agent.

The Senior Credit Facility provides for initial borrowings of up to $50.0 million, of which net proceeds of $48.3 million after debt discount of $1.7 million, were paid concurrently to Emmis in connection with SG Broadcasting’s acquisition of a controlling interest in the Company, as well as one tranche of additional borrowings of $25.0 million.

The Senior Credit Facility bears interest at a rate equal to the London Interbank Offered Rate ("LIBOR"), plus 7.5%, with a 2.0% LIBOR floor.

The Senior Credit Facility requires interest payments on the first business day of each calendar month, and quarterly payments on the principal in an amount equal to one and one quarter percent of the initial aggregate principal amount are due on the last day of each calendar quarter.

The Senior Credit Facility includes covenants pertaining to, among other things, the ability to incur indebtedness, restrictions on the payment of dividends, minimum Liquidity (as defined in the Senior Credit Facility) of $2.0 million for the period from the effective date until November 25, 2020, $2.5 million for the period from November 26, 2020 until November 25, 2021, and $3.0 million for the period thereafter, collateral maintenance, minimum Consolidated Fixed Charge Coverage Ratio (as defined in the Senior Credit Facility) of 1.10:1.00, and other customary restrictions.

The Company borrowed $23.4 million of the remaining available borrowings to fund the Fairway Acquisition on December 13, 2019.

Proceeds received were $22.6 million, net of a debt discount of $0.8 million.

Amendment No.1 to senior secured term loan agreement

On February 28, 2020, the Company entered into Amendment No.

1 to its Senior Credit Facility, in order to, among other things, increase the maximum aggregate principal amount issuable under the SG Broadcasting Promissory Note to $10.3 million.

Amendment No.2 to senior secured term loan agreement

On March 27, 2020, the Company entered into Amendment No.

2 (“Amendment No.

2”) to its Senior Credit Facility, in order to, among other things, (i) reduce the required Consolidated Fixed Charge Coverage Ratio (as defined in the Senior Credit Facility) to 1.00x from June 30, 2020 to December 31, 2020, (ii) reduce the minimum Liquidity (as defined in the Senior Credit Facility) requirement to $1.0 million through September 30, 2020, (iii) permit equity contributions and loans during calendar year 2020 under the SG Broadcasting Promissory Note and any amendments thereto to count toward Consolidated EBITDA (as defined in the Senior Credit Facility) for purposes of the Consolidated Fixed Charge Coverage Ratio calculation, and (iv) increase the maximum aggregate principal amount issuable under the Second Amended and Restated SG Broadcasting Promissory Note (as defined below) from $10.3 million to $20.0 million.

In connection with Amendment No.

Company incurred an amendment fee of approximately $0.2 million, which was added to the principal amount of the Senior Credit Facility then outstanding.

Amendment No.3 to senior secured term loan agreement

On August 28, 2020, the Company entered into Amendment No.

3 (“Amendment No.

3”) to its Senior Credit Facility, in order, among other things, (i) to modify certain provisions relating to the repayment of the Term Loan (as defined in the Senior Credit Facility) such that no quarterly payments shall be required beginning with the fiscal quarter ending September 30, 2020 through and including the fiscal quarter ending June 30, 2021 and (ii) to suspend the testing of the Consolidated Fixed Charge Coverage Ratio (as defined in the Senior Credit Facility) from July 1, 2020 through and including June 30, 2021.

In connection with Amendment No.

3, the Company incurred an amendment fee of approximately $0.1 million, which was added to the principal amount of the Senior Credit Facility then outstanding.

Emmis Convertible Promissory Note

On November 25, 2019, as part of the consideration owed to Emmis in connection with SG Broadcasting’s acquisition of a controlling interest in the Company , the Company issued to Emmis the Emmis Convertible Promissory Note in the amount of $5.0 million.

The Emmis Convertible Promissory Note carries interest at a base rate equal to the interest on any senior credit facility, or if no senior credit facility is outstanding, of 6.0%, plus an additional 1.0% on any payment of interest in kind and, without regard to whether the Company pays such interest in kind, an additional increase of 1.0% following the second anniversary of the date of issuance and additional increases of 1.0% following each successive anniversary thereafter.

Because the Senior Credit Facility prohibits the Company from paying interest in cash on the Emmis Convertible Promissory Note, the Company accrues interest using the rate applicable for interest paid in kind.

The Emmis Convertible Promissory Note is convertible, in whole or in part, into MediaCo Class A common stock at the option of Emmis beginning six months after issuance and at a strike price equal to the thirty day volume weighted average price of the MediaCo Class A common stock on the date of conversion.

The Emmis Convertible Promissory Note matures on November 25, 2024.

SG Broadcasting Promissory Note and amendments thereto

On November 25, 2019, the Company issued the SG Broadcasting Promissory Note, a subordinated convertible promissory note payable by the Company to SG Broadcasting, in return for which SG Broadcasting contributed to MediaCo $6.3 million for working capital and general corporate purposes.

The SG Broadcasting Promissory Note carries interest at a base rate equal to the interest on any senior credit facility, or if no senior credit facility is outstanding, of 6.0%, and an additional increase of 1.0% following the second anniversary of the date of issuance and additional increases of 1.0% following each successive anniversary thereafter.

The SG Broadcasting Promissory Note matures on May 25, 2025.

Additionally, interest under the SG Broadcasting Promissory Note is payable in kind through maturity, and is convertible into MediaCo Class A common stock at the option of SG Broadcasting beginning six months after issuance and at a strike price equal to the thirty day volume weighted average price of the MediaCo Class A common stock on the date of conversion.

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.

Series A Convertible Preferred Stock

On December 13, 2019, in connection with the Fairway Acquisition, the Company issued to SG Broadcasting 220,000 shares of MediaCo Series A Convertible Preferred Stock.

The MediaCo Series A Convertible Preferred Stock ranks senior in preference to the MediaCo Class A common stock, MediaCo Class B common stock, and the MediaCo Class C common stock.

Pursuant to our Articles of Amendment, the ability of the Company to make distributions with respect to, or make a liquidation payment on, any other class of capital stock in the Company designated to be junior to, or on parity with, the MediaCo Series A Convertible Preferred Stock, will be subject to certain restrictions, including that (i) the MediaCo Series A Convertible Preferred Stock shall be entitled to receive the amount of dividends per share that would be payable on the number of whole common shares of the Company into which each share of MediaCo Series A Convertible Preferred Stock could be converted when such conversion becomes active, and (ii) the MediaCo Series A Convertible Preferred Stock, upon any liquidation, dissolution or winding up of the Company, shall be entitled to a preference on the assets of the Company.

Issued and outstanding shares of MediaCo Series A Convertible Preferred Stock shall accrue cumulative dividends, payable in kind, at an annual rate equal to the interest rate on any senior credit facility of the Company, or if no senior debt is outstanding, 6.0%, plus additional increases of 1.0% on December 12, 2020 and each anniversary thereof.

Other liquidity matters

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.

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 year ended December 31, 2020.

Going concern

The accompanying consolidated and combined financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

Pursuant to ASC Topic 205-40, “ Going Concern ,” the Company is required to evaluate whether there is substantial doubt about its ability to continue as a going concern within one year of the date of the filing of these financial statements (March 30, 2021).

Management considered the Company’s ability to forecast future cash flows, current financial condition, sources of liquidity and debt service obligations due on or before March 30, 2022.

The Company has been negatively impacted by COVID-19, and expects COVID-19 to continue to negatively impact revenues and profitability for an undetermined period of time.

Management has considered these circumstances in assessing the Company’s liquidity over the next year.

Liquidity is a measure of an entity’s ability to meet potential cash requirements, maintain its assets, fund its operations, and meet the other general cash needs of its business.

The Company’s liquidity is impacted by general economic, financial, competitive, and other factors beyond its control.

The Company’s liquidity requirements consist primarily of funds necessary to pay its expenses, principally debt service and operational expenses, such as labor costs, and other related expenditures.

The Company generally satisfies its liquidity needs through cash provided by operations.

In addition, the Company has taken steps to enhance its ability to fund its operational expenses by reducing various costs and is prepared to take additional steps as necessary.

The Company has debt service obligations of approximately $8.6 million due under its Senior Credit Facility from March 30, 2021 (the date of issuance of these financial statements) through March 30, 2022.

In addition, our Senior Credit Facility requires us to maintain Minimum Liquidity (as defined in the Senior Credit Facility) of $2.5 million until November 25, 2021, and $3.0 million for the period thereafter.

During the year ended December 31, 2020, the Company obtained amendments to our Senior Credit Facility in order to, among other things, suspend the testing of the Consolidated Fixed Charge Coverage Ratio (as defined in the Senior Credit Facility) until July 1, 2021, at which time the Company will once again be required to comply with a Fixed Charge Coverage Ratio of 1.10:1.00.

The Company expects its revenues and profitability will continue to be adversely impacted by the COVID-19 pandemic, and the duration and severity of the impact is unknown as of the date of issuance of these financial statements.

Management anticipates that the Company will be unable to meet its liquidity needs and comply with the covenants of our Senior Credit Facility for the next twelve months with cash and cash equivalents on hand, projected cash flows from operations, and/or additional borrowings.

In addition, the Senior Credit Facility includes a loan to value calculation, whereby the amount of debt outstanding thereunder is limited to a formula based on 60% of the fair value of the Company’s FCC licenses plus a multiple of the Company’s Billboard Cash Flow (as defined in the Senior Credit Facility).

If the most recent appraisal of the fair value of our FCC licenses obtained in connection with our annual impairment testing as of October 1, 2020 is deemed to be an Acceptable Appraisal (as defined in the Senior Credit Facility) by our lender in its sole discretion, we will have a shortfall in this calculation, requiring a repayment of approximately $8.0 million of Senior Credit Facility debt.

Our lender is not required to accept this appraisal and has the right to obtain a different appraisal, which could result in a different repayment amount, if any.

As a result of the conditions identified above, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued.

The Company’s independent auditor has included an explanatory paragraph regarding the Company’s ability to continue as a going concern in its report on these consolidated and combined financial statements, which constitutes an event of default under the Senior Credit Facility.

Upon this event of default, under the Senior Credit Facility, the lender may, but is not required to, declare all or any portion of the unpaid principal amount of the Senior Credit Facility, including interest accrued and unpaid, to be immediately due and payable, and/or to increase the annual interest rate in effect by 3% .

Consequently, amounts outstanding under the Senior Credit Facility as of December 31, 2020 have been classified as current liabilities in the accompanying consolidated and combined financial statements.

Furthermore, depending on the duration and severity of the impact the COVID-19 pandemic has on our businesses and any action our lender may take, we may record impairments of assets in the future.

Management intends to request a waiver or amendment to its Senior Credit Facility and seek additional borrowings from Standard General to cure the existing event of default and anticipated future covenant violations.

While the Company has been successful in obtaining waivers and amendments under its Senior Credit Facility and has also received additional liquidity from Standard General in the past, no assurances can be made that the Company will be successful or receive such liquidity in the future.

SOURCES OF LIQUIDITY

Our primary sources of liquidity are cash provided by operations and cash available through borrowings under the SG Broadcasting Promissory Note.

Our primary sources of liquidity are cash provided by operations, cash available through borrowings under the SG Broadcasting Promissory Note, and our At Market Issuance Sales Agreement, under which we had $12.2 million of availability as of March 16, 2022.

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

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

This decrease in net working capital is due to the reclassification of our Senior Credit Facility as a current liability.

Excluding the current maturity of our Senior Credit Facility, our working capital at December 31, 2020 would be $6.3 million, an increase in net working capital from December 31, 2019.

The increase is largely due to the decrease in accounts payable and accrued expenses as working capital amounts due to Emmis as of December 31, 2019, were paid during the year ended December 31, 2020.

This was principally financed with additional borrowings.

Operating Activities

Cash flows provided by operating activities were $3.6 million for the ten months ended December 31, 2019 versus cash flows used in operating activities of $9.6 million for the year ended December 31, 2020.

The decrease in cash flows provided by operating activities was mostly attributable to a decline in revenues as a result of the COVID-19 pandemic, increased interest expense when compared to the prior period, and the payment of working capital amounts due to Emmis during the year ended December 31, 2020.

Investing Activities

Cash flows used in investing activities of $0.4 million for the year ended December 31, 2020, was attributable to capital expenditures.

Cash flows used in investing activities of $43.2 million for the ten months ended December 31, 2019 consisted of $43.1 million used to purchase Fairway Outdoor and $0.1 million used for capital expenditures.

Financing Activities

Cash provided by financing activities of $12.1 million for the year ended December 31, 2020, primarily consisted of proceeds of debt of $12.2 million, net of debt payments.

Cash provided by financing activities of $41.7 million for the ten months ended December 31, 2019 primarily consisted of proceeds of debt of $29.4 million and proceeds from the issuance of stock of $22.0 million.

This was partially offset by net transactions with Emmis of $6.3 million and payments of debt related costs of $2.5 million.

As of December 31, 2020, MediaCo had outstanding $71.0 million of borrowings under the Senior Credit Facility, of which $1.8 million is current.

As of December 31, 2020, the borrowing rate under our Senior Credit Facility was 9.5%.

Additionally, MediaCo had $5.5 and $21.4 million of promissory notes outstanding at December 31, 2020 to Emmis and SG Broadcasting, respectively, all of which is classified as long term debt.

The increase in net working capital is due to an increase in cash and accounts receivable resulting from improved business operations, partially offset by an increase in accrued interest due to the timing of payments.

During 2021, MediaCo benefitted from The Consolidated Appropriations Act, passed in December 2020, which expanded the employee retention credit program.

The credits cover 70% of qualified wages, plus the cost to continue providing health benefits to our employees, subject to a $7 thousand cap per employee per quarter.

Due to revenue declines, we qualified for approximately $1.9 million of employee retention credits during 2021, of which $1.1 million was received in cash and $0.8 million of employment tax withholdings were retained.

At December 31, 2021, we had $68.3 million of borrowings outstanding under the Senior Credit Facility, of which $2.8 million is current.

The borrowing rate under our Senior Credit Facility was 9.5% at December 31, 2021.

Additionally, at December 31, 2021, we had $6.2 million and $27.6 million of promissory notes outstanding to Emmis and SG Broadcasting, respectively, all of which is classified as long-term.

The debt service requirements of MediaCo over the next twelve-month period are expected to be $9.3 million related to our Senior Credit Facility ($2.8 million of principal repayments and $6.5 million of interest payments).

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However, our Senior Credit Facility substantially limits our ability to make acquisitions.

As of December 31, 2020, approximately 43% of our total assets consisted of FCC licenses.

In the case of our radio stations, we would not be able to operate the properties without the related FCC license for each property.

FCC licenses are renewed every eight years;

consequently, we continually monitor the activities of our stations for compliance with regulatory requirements.

Historically, all of our FCC licenses have been renewed (or a waiver has been granted pending renewal) at the end of their respective eight-year periods, and we expect that all of our FCC licenses will continue to be renewed in the future.

Operating Activities

Cash provided by operating activities was $2.9 million for the year ended December 31, 2021 compared to cash used in operating activities of $9.6 million for the year ended December 31, 2020.

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

Investing Activities

Cash used in investing activities of $1.3 million and $0.4 million for the years ended December 31, 2021, and 2020, respectively, was attributable to capital expenditures.

Financing Activities

Cash provided by financing activities of $0.3 million for the year ended December 31, 2021, was due to debt proceeds of $4.0 million and proceeds from the issuance of Class A common stock of $0.3 million, partially offset by debt payments and debt related costs of $3.4 million and settlement of tax withholding obligations of $0.7 million.

Cash provided by financing activities of $12.1 million for the year ended December 31, 2020, primarily consisted of proceeds of debt of $12.2 million, net of debt payments.

Our results of operations are usually subject to seasonal fluctuations, which result in higher second quarter revenues and operating income.

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OFF-BALANCE SHEET FINANCINGS AND LIABILITIES

Other than legal contingencies incurred in the normal course of business, and contractual commitments to purchase goods and services, all of which are discussed in Note 12 to the consolidated and combined financial statements, which is incorporated by reference herein, the Company does not have any material off-balance sheet financings or liabilities.

The Company does not have any majority-owned and controlled subsidiaries that are not included in the consolidated and combined financial statements, nor does the Company have any interests in or relationships with any “special-purpose entities” that are not reflected in the consolidated and combined financial statements or disclosed in the Notes to Consolidated and Combined Financial Statements.

Other than legal contingencies incurred in the normal course of business, and contractual commitments to purchase goods and services, all of which are discussed in Note 12 to the consolidated financial statements, which is incorporated by reference herein, the Company does not have any material off-balance sheet financings or liabilities.

The Company does not have any majority-owned and controlled subsidiaries that are not included in the consolidated financial statements, nor does the Company have any interests in or relationships with any “special-purpose entities” that are not reflected in the consolidated financial statements or disclosed in the Notes to consolidated financial statements.

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-K

Item 7. Management’s Discussion and Analysis