What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-11-14 compared with 2022-08-12 · 60 added, 51 removed, 129 unchanged (46% of the section changed)

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Certain statements included in this report or in the financial statements contained herein which are not statements of historical fact, including but not limited to those identified with the words “expect,” “should,” “will” or “look” are intended to be, and are, by this Note, identified as “forward-looking statements,” as defined in the Securities and Exchange Act of 1934, as amended.

Such statements involve known and unknown risks, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future result, performance or achievement expressed or implied by such forward-looking statement.

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

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

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

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

(dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30,

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

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We are participating in a joint venture with other broadcasters to provide the bandwidth that a third party uses to transmit location-based data to hand-held and in-car navigation devices.

The number of radio receivers incorporating HD Radio has increased in the past year, particularly in new automobiles.

The number of radio receivers incorporating HD Radio has increased in the past few years, particularly in new automobiles.

It is unclear what impact HD Radio will have on the markets in which we operate.

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

Market revenues in New York as measured by Miller Kaplan Arase LLP (“Miller Kaplan”), an independent public accounting firm used by the radio industry to compile revenue information, were 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.

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 2.8% for the nine months ended September 30, 2022 , as compared to the same period of the prior year.

Our gross revenues reported to Miller Kaplan were down 8.7%, as compared to the same period of the prior year.

The decreases for our New York Cluster were largely driven by lower healthcare spend, which our stations benefited from more than those serving the general population due to the targeted nature of the awareness campaigns.

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 or otherwise monetize assets when we believe it is appropriate to do so.

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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.

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

If apprehension persists around interest rate volatility, supply chain disruptions, and COVID-19, consumer spending may be adversely i mpacted, 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 entered into Amendment No.

5 to its Senior Credit Facility, which lowered the minimum liquidity requirement to $2.0 million through December 31, 2022 and $3.0 million thereafter and removed the testing requirement for the minimum consolidated fixed charge coverage ratio covenant for the period from September 30, 2022 to December 31, 2022.

There is substantial doubt that the Company will be in compliance with these covenants in subsequent 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.

See Note 1 to the condensed consolidated financial statements, "Liquidity and Going Concern," for additional information.

MediaCo has been impacted by the rising interest rate environment in the financial markets, driving the interest paid on the Senior Credit Facility to increase.

At this time, we do not anticipate LIBOR rates to decline.

CRITICAL ACCOUNTING ESTIMATES

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RESULTS OF OPERATIONS

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

Three-Month and Nine-Month Periods Ended September 30, 2022 compared to September 30, 2021

Net revenues:

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

Three Months Ended September 30, Nine Months Ended September 30, 2022

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

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Total net revenues $ 11,825 $ 17,820 $ (5,995) (33.6) % $ 39,512 $ 41,939 $ (2,427) (5.8) %

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.

Net radio revenues decreased for the three-month and nine -month periods ended September 30, 2022 as a result of a substantial decline in healthcare spend as the COVID-19 vaccination awareness campaigns have slowed, partially offset by stronger tourism advertising spend as the restrictions on travel, social gatherings, and business activities have continued to ease.

Additionally, net radio revenues further decreased for the three month ended September 30, 2022 as a result of the absence in the current period of ticket sales for, and broadcast and streaming sponsorships of, our annual outdoor concert, Summer Jam, which was held in the second quarter of the current year compared to the third quarter of the prior year.

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 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.

Miller Kaplan reported gross revenues for the New York radio market increased 2.8% for the nine-month period ended September 30, 2022, as compared to the same period of the prior year.

Our gross revenues reported to Miller Kaplan were down 8.7% for the nine -month period ended September 30, 2022 , 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, 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:

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

(dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022

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

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Total operating expenses excluding depreciation and amortization expense $ 9,602 $ 12,540 $ (2,938) (23.4) % $ 32,850 $ 28,119 $ 4,731 16.8 %

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.

Radio operating expenses excluding depreciation and amortization expense decreased during the three-month period ended September 30, 2022 due to expenses associated with Summer Jam, which was held in the third quarter of the prior year.

Radio operating expenses excluding depreciation and amortization expense increased during the nine-month period ended September 30, 2022 due to investment in growing our digital business as well as in our labor force with a higher focus on sales.

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

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

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

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

Corporate expenses:

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

(dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022

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

Corporate expenses $ 1,460 $ 2,422 $ (962) (39.7) % $ 5,286 $ 5,908 $ (622) (10.5) %

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.

The decreases in corporate expenses for the three-month and nine -month periods ended September 30, 2022 were primarily due to fees from the Emmis Management Agreement that ended in November 2021, partially offset by personnel costs for the entire period associated with the corporate staff, performing the functions that were previously part of the management agreement.

Depreciation and amortization:

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

(dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022

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

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Total depreciation and amortization $ 906 $ 1,068 $ (162) (15.2) % $ 2,740 $ 3,027 $ (287) (9.5) %

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 May of the prior year.

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

Loss (gain) on sale of assets:

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

(dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022

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

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Operating (loss) income:

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

(dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022

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

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Interest expense:

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

(dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022

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

Interest expense $ (2,404) $ (2,895) $ 491 (17.0) % $ (8,185) $ (8,134) $ (51) 0.6 %

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.

Interest expense increased slightly for the nine-month period ended September 30, 2022 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, (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, and (v) rising interest rates.

These increases were partially offset by the conversion of the outstanding principal and accrued but unpaid interest of the SG Broadcasting Promissory Notes on July 28, 2022.

Interest expense decreased for the three-month period ended September 30, 2022 due to the conversion of the outstanding principal and accrued but unpaid interest of the SG Broadcasting Promissory Notes on July 28, 2022.

Provision for income taxes:

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

(dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2022

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

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Consolidated net loss:

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

(dollars in thousands) Three Months Ended September 30, Nine Months Ended September 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 %

Consolidated net loss $ (2,651) $ (1,188) $ (1,463) 123.1 % $ (9,847) $ (3,498) $ (6,349) 181.5 %

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

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.

Our primary sources of liquidity are cash provided by operations, cash available through additional borrowings under the SG Broadcasting Promissory Note, and our At Market Issuance Sales Agreement.

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

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

At September 30, 2022 , we had cash and cash equivalents of $5.9 million and net working capital of $0.6 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 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 decrease in net working capital was primarily driven by 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 September 30, 2022, we had $66.7 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 10.6% at September 30, 2022.

Additionally, at September 30, 2022, we had $6.1 million of promissory notes outstanding to Emmis, all of which was classified as long-term.

The debt service requirements of MediaCo over the next twelve-month period are expected to be $11.1 million related to our Senior Credit Facility ($3.7 million of principal repayments and $7.4 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 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.

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

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

On November 12, 2022 , MediaCo entered into Amendment No.

5 to its Senior Credit Facility, which lowered the minimum liquidity requirement to $2.0 million through December 15, 2022 and $3.0 million thereafter and removed the testing requirement for the minimum consolidated fixed charge coverage ratio covenant on September 30, 2022.

There is substantial doubt that the Company will be in compliance with these covenants in subsequent 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.

See Note 1 to the condensed consolidated financial statements, "Liquidity and Going Concern," for additional information.

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

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

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

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

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 $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.

Cash flows provided by operating activities were $4.7 million and $4.2 million for the nine months ended September 30, 2022 and 2021, respectively.

The increase was mainly attributable to significant collections in accounts receivable.

Cash flows used in investing activities were $1.8 million for the nine months ended September 30, 2022, attributable to capital expenditures related to a new digital platform project.

Cash flows used in investing activities were $1.3 million for the nine months ended September 30, 2021, attributable to capital expenditures, net of proceeds from the sale of property and equipment.

Cash flows used in financing activities were $3.2 million for the nine months ended September 30, 2022, attributable to principal payments on long-term debt and settlement of tax withholding obligations.

Cash flows provided by financing activities were $0.3 million for the nine months ended September 30, 2021, attributable to net debt proceeds.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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What changed 10-Q

Item 2. Management’s Discussion and Analysis