What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-08-12 compared with 2022-05-12 · 73 added, 66 removed, 107 unchanged (57% of the section changed)

9 unchanged sentences

regulatory requirements for owning and operating media broadcasting channels and our ability to maintain regulatory licenses granted by the FCC;

• Pending U.S.

regulatory requirements for paying royalties to performing artists;

19 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 months end ed March 3 1 , 202 2 and 2021 .

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

The following table summarizes the sources of our revenues for the three and six months ended June 30, 2022 and 2021.

The category “Nontraditional” 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 March 31,

(dollars in thousands)

(dollars in thousands) Three Months Ended June 30, Six Months Ended June 30,

2022 % of Total 2021 % of Total 2022 % of Total 2021 % of Total

Net revenues:

1 unchanged sentence

Outdoor Advertising (1)

3,337 20.7 % 3,238 22.5 % 6,461 23.3 % 6,210 25.7 %

Nontraditional 3,189 19.7 % 292 2.0 % 3,357 12.1 % 429 1.8 %

Digital 1,588 9.8 % 665 4.6 % 2,318 8.4 % 1,150 4.8 %

Other 1,219 7.6 % 1,268 8.9 % 2,555 9.3 % 2,462 10.2 %

Total net revenues $ 16,152 $ 14,376 $ 27,687 $ 24,119

17 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 25.4% for the three months ended March 31, 2022, but down 8.7% for the three months ended March 31, 2021, as compared to the same periods of the prior year.

During these periods, revenues for our New York cluster were up 24.1% and down 21.0%, respectively.

The increases in the three months ended March 31, 2022, as compared to the prior year were largely driven by overall advertising revenues rebounding from the COVID-19 pandemic, in particular sports betting and various state and local departments vaccination education and awareness campaigns.

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

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 13.3% and 37.9% for the six months ended June 30, 2022 and 2021 , respectively, as compared to the same periods of the prior year.

During these periods, revenues for our New York cluster were up 16.0% and 46.1%, respectively.

These increases for our New York Cluster were largely driven by ticket sales and broadcast and streaming sponsorships of our annual outdoor concert, Summer Jam, which was held in the third quarter of the prior year.

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.

5 unchanged sentences

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.

MediaCo is in compliance with the debt covenants as of June 30, 2022 and anticipates being in compliance in future periods.

MediaCo’s business units are highly correlated to the economic environment, which recently have been impacted by macroeconomic uncertainty, inflationary and labor market pressures, as well as continued COVID-19 concerns.

If some or all of these factors continue to influence the economic environment, then MediaCo's liquidity, financial condition or results of operations may be adversely affected.

CRITICAL ACCOUNTING ESTIMATES

5 unchanged sentences

RESULTS OF OPERATIONS

Three-Month Periods Ended March 31, 2022 compared to March 31, 2021

Net revenues:

For the Three Months

Ended March 31,

(dollars in thousands)

Three-Month and Six-Month Periods Ended June 30, 2022 compared to June 30, 2021

Net revenues:

Three Months Ended June 30, Six Months Ended June 30, 2022

(dollars in thousands) 2022 2021 $ Change % Change 2022 2021 $ Change % Change

Radio $ 12,531 $ 10,851 $ 1,680 15.5 % $ 20,644 $ 17,353 $ 3,291 19.0 %

Outdoor Advertising 3,621 3,525 96 2.7 % 7,043 6,766 277 4.1 %

Total net revenues $ 16,152 $ 14,376 $ 1,776 12.4 % $ 27,687 $ 24,119 $ 3,568 14.8 %

Net radio revenues increased for the three-month period ended March 31, 2022, as a result of overall advertising revenues rebounding from the COVID-19 pandemic, in particular various state and local departments vaccination education and awareness campaigns and sports betting.

Net radio revenues increased for the three-month and six -month periods ended June 30, 2022 , as a result ticket sales, and broadcast and streaming sponsorships of our annual outdoor concert, Summer Jam, which was held in the third quarter of the prior year, partially offset by softer overall advertising revenues.

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 25.4% for the three-month period ended March 31, 2022, as compared to the same period of the prior year.

Our gross revenues reported to Miller Kaplan were up 24.1% for the three-month period ended March 31, 2022, as compared to the same period of the prior year.

Outdoor advertising revenues increased for the three-month period ended March 31, 2022, attributable to overall advertising revenues rebounding from the COVID-19 pandemic.

Miller Kaplan reported gross revenues for the New York radio market increased 13.3% for the six-month period ended June 30, 2022, as compared to the same period of the prior year.

Our gross revenues reported to Miller Kaplan were up 16.0% for the six -month period ended June 30, 2022 , 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, 2022 , attributable to slight increases in bulletin occupancy and rates as overall advertising revenues continued to rebound 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.

Operating expenses excluding depreciation and amortization expense:

For the Three Months

Ended March 31,

(dollars in thousands)

Operating expenses excluding depreciation and amortization expense

(dollars in thousands) Three Months Ended June 30, Six Months Ended June 30, 2022

2022 2021 $ Change % Change 2022 2021 $ Change % Change

Radio $ 11,324 $ 5,739 $ 5,585 97.3 % $ 17,947 $ 11,030 $ 6,917 62.7 %

Outdoor Advertising 2,592 2,079 513 24.7 % 5,301 4,549 752 16.5 %

Total operating expenses excluding depreciation and amortization expense $ 13,916 $ 7,818 $ 6,098 78.0 % $ 23,248 $ 15,579 $ 7,669 49.2 %

Radio operating expenses excluding depreciation and amortization expense increased during the three-month period ended March 31, 2022 due to investment in our labor force with a higher focus on sales and digital as well as increases in costs that are commensurate with revenue.

Radio operating expenses excluding depreciation and amortization expense increased during the three-month and six -month periods ended June 30, 2022 due to expenses associated with Summer Jam as well as investment in our labor force with a higher focus on sales and digital as well as increases in costs that are commensurate with revenue.

Additionally, in the prior year, we recorded employee retention credits that reduced operating expenses, which we did not receive in the current year.

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

however, the increase in expenses primarily relates to two small acquisitions in the second quarter of 2021.

however, in the prior year, we recorded employee retention credits that reduced operating expenses, which we did not receive in the current year.

Corporate expenses:

For the Three Months

Ended March 31,

(dollars in thousands)

(dollars in thousands) Three Months Ended June 30, Six Months Ended June 30, 2022

2022 2021 $ Change % Change 2022 2021 $ Change % Change

Corporate expenses $ 1,339 $ 1,845 $ (506) (27.4) % $ 3,826 $ 3,486 $ 340 9.8 %

The increase in corporate expenses for the three-month period ended March 31, 2022 relates primarily to personnel costs associated with the build out of the corporate functions that were previously part of the management agreement between the Company and Emmis which ended in November 2021.

Depreciation and amortization:

For the Three Months

Ended March 31,

(dollars in thousands)

The decrease in corporate expenses for the three-month period ended June 30, 2022 was primarily due to fees from the Emmis Management Agreement that ended in November 2021.

The increase in corporate expenses for the six -month period ended June 30, 2022 relates primarily to personnel costs for the entire period associated with the build out of the corporate functions that were previously part of the management agreement between the Company and Emmis which ended in November 2021.

Depreciation and amortization:

(dollars in thousands) Three Months Ended June 30, Six Months Ended June 30, 2022

2022 2021 $ Change % Change 2022 2021 $ Change % Change

Radio $ 86 $ 183 $ (97) (53.0) % $ 187 $ 374 $ (187) (50.0) %

Outdoor Advertising $ 818 $ 795 $ 23 2.9 % $ 1,647 $ 1,585 $ 62 3.9 %

1 unchanged sentence

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 depreciation expense associated with two small asset acquisitions that closed in the second quarter of the prior year.

Loss (gain) on sale of assets:

For the Three Months

Ended March 31,

(dollars in thousands)

Outdoor advertising depreciation and amortization increased due to depreciation expense associated with two small asset acquisitions that closed in the May of the prior year.

Loss (gain) on sale of assets:

(dollars in thousands) Three Months Ended June 30, Six Months Ended June 30, 2022

2022 2021 $ Change % Change 2022 2021 $ Change % Change

Outdoor Advertising $ 27 $ (72) $ 99 (137.5) % $ 45 $ (78) $ 123 (157.7) %

2 unchanged sentences

Operating (loss) income:

For the Three Months

Ended March 31,

(dollars in thousands)

Operating (loss) income

(dollars in thousands) Three Months Ended June 30, Six Months Ended June 30, 2022

2022 2021 $ Change % Change 2022 2021 $ Change % Change

Radio $ 1,121 $ 4,929 $ (3,808) (77.3) % $ 2,510 $ 5,949 $ (3,439) (57.8) %

Outdoor Advertising 184 723 (539) (74.6) % 50 710 (660) (93.0) %

All other $ (1,339) $ (1,845) $ 506 (27.4) % $ (3,826) $ (3,486) $ (340) 9.8 %

Total operating (loss) income $ (34) $ 3,807 $ (3,841) (100.9) % $ (1,266) $ 3,173 $ (4,439) (139.9) %

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

See “Net revenues,” “Operating expenses excluding depreciation and amortization,” "Depreciation and amortization," "Loss (gain) on sale of assets," and “Corporate expenses” above.

Interest expense:

For the Three Months

Ended March 31,

(dollars in thousands)

(dollars in thousands) Three Months Ended June 30, Six Months Ended June 30, 2022

2022 2021 $ Change % Change 2022 2021 $ Change % Change

Interest expense $ (2,783) $ (2,701) $ (82) 3.0 % $ (5,781) $ (5,239) $ (542) 10.3 %

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 2021, 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 being paid in kind in the fourth quarter of 2021, (iii) accrued interest on the SG Broadcasting Promissory Notes being paid in kind in the fourth quarter of 2021 and the second quarter of 2022, and (iv) 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.

P rovision for income taxes:

For the Three Months

Ended March 31,

(dollars in thousands)

Provision for income taxes:

(dollars in thousands) Three Months Ended June 30, Six Months Ended June 30, 2022

2022 2021 $ Change % Change 2022 2021 $ Change % Change

Provision for income taxes $ 86 $ 82 $ 4 4.9 % $ 149 $ 163 $ (14) (8.6) %

Our provision for income taxes tax is primarily due to the recognition of additional valuation allowance.

Consolidated net loss:

For the Three Months

Ended March 31,

(dollars in thousands)

Consolidated net loss

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

(dollars in thousands) Three Months Ended June 30, Six Months Ended June 30, 2022

2022 2021 $ Change % Change 2022 2021 $ Change % Change

Consolidated net (loss) income $ (2,903) $ 943 $ (3,846) (407.8) % $ (7,196) $ (2,310) $ (4,886) 211.5 %

See “Net revenues,” “Operating expenses excluding depreciation and amortization,” "Depreciation and amortization," "Loss (gain) on sale of assets," “Corporate expenses,” and “Interest expense” above.

LIQUIDITY AND CAPITAL RESOURCES

1 unchanged sentence

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

At March 31, 2022, we had cash and cash equivalents of $8.8 million and net working capital of $3.5 million .

At June 30, 2022 , we had cash and cash equivalents of $6.5 million and net working capital of $0.9 million.

At December 31, 2021, we had cash and cash equivalents of $6.1 million and net working capital of $7.7 million.

The decrease in net working capital is primarily due to 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, an increase in the current portion of long-term debt, cash paid for capital expenditures, and cash paid for the settlement of tax withholding obligations.

At March 31, 2022, we had $68.5 million of borrowings outstanding under the Senior Credit Facility, of which $3.7 million is current.

The borrowing rate under our Senior Credit Facility was 9.5% at March 31, 2022.

Additionally, at March 31, 2022, 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 decrease in net working capital was primarily driven by an increase in accrued interest due to the timing of annual interest paid in kind on the Emmis Convertible Promissory Note and the SG Broadcasting Promissory Notes, an increase in the current portion of long-term debt, cash paid for capital expenditures, principal payments on long term debt, and cash paid for the settlement of tax withholding obligations.

At June 30, 2022, we had $67.7 million of borrowings outstanding under the Senior Credit Facility, of which $3.7 million was current.

The borrowing rate under our Senior Credit Facility was 9.5% at June 30, 2022.

Additionally, at June 30, 2022, we had $6.2 million and $28.0 million of promissory notes outstanding to Emmis and SG Broadcasting, respectively, all of which was classified as long-term.

The debt service requirements of MediaCo over the next twelve-month period are expected to be $10.1 million related to our Senior Credit Facility ($3.7 million of principal repayments and $6.4 million of interest payments).

The Senior Credit Facility bears interest at a variable rate.

The Company estimates interest payments by using the amounts outstanding as of March 31, 2022 and then-current interest rates.

There are no debt service requirements over the next twelve months for either the Emmis Convertible Promissory Note or the SG Broadcasting Promissory Note.

The Company estimates interest payments by using the amounts outstanding as of June 30, 2022 and then-current interest rates.

There are no debt service requirements over the next twelve months for either the Emmis Convertible Promissory Note or the SG Broadcasting Promissory Notes.

MediaCo is in compliance with the debt covenants as of June 30, 2022 and anticipates being in compliance in future periods.

If some or all of these factors continue to influence the economic environment, then MediaCo's liquidity, financial condition or results of operations may be adversely affected.

On July 28, 2022, SG Broadcasting opted to convert $28.0 million plus $1.9 million of accrued interest into 12.9 million of Class A Common Shares.

This event reduced the amount of accrued interest and long-term debt on the July 2022 balance sheet and increased the number of outstanding shares of Class A common stock to 16 million.

We will continue to assess opportunities that will help transform our capital structure.

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

Cash flows provided by operating activities were $4.7 million and $0.6 million for the three months ended March 31, 2022, and 2021, respectively.

Cash flows provided by operating activities were $3.9 million and $0.6 million for the six months ended June 30, 2022 and 2021, respectively.

The increase was mainly attributable to significant collections in accounts receivable and increased revenues as we recover from the COVID-19 pandemic.

Cash flows used in investing activities were $0.8 million for the three months ended March 31, 2022, attributable to capital expenditures related to a new digital platform project.

Cash flows used in investing activities were $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 $1.2 million for the three months ended March 31, 2022, attributable to settlement of tax withholding obligations.

Cash flows used in financing activities were $0.2 million for the three months ended March 31, 2021, attributable to settlement of tax withholding obligations.

Cash flows used in investing activities were $1.3 million for the six months ended June 30, 2022, attributable to capital expenditures related to a new digital platform project.

Cash flows used in investing activities were $1.0 million for the six months ended June 30, 2021, attributable to capital expenditures, net of proceeds from the sale of property and equipment.

Cash flows used in financing activities were $2.2 million for the six months ended June 30, 2022, attributable to settlement of tax withholding obligations.

Cash flows used in financing activities were $0.5 million for the six months ended June 30, 2021, attributable to net debt proceeds.

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