What changed in this filing

/stocks — the workspaceLOADING

Item 7. Management’s Discussion and Analysis

2023-03-31 compared with 2022-03-24 · 72 added, 109 removed, 104 unchanged (64% of the section changed)

2 unchanged sentences

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 the Southeast (Georgia, Alabama, South Carolina and Florida) and the Mid-Atlantic (Kentucky, West Virginia and Ohio) regions.

On December 9, 2022, Fairway Outdoor LLC, FMG Kentucky, LLC and FMG Valdosta, LLC (collectively, "Fairway”), all of which are wholly owned direct and indirect subsidiaries of MediaCo, entered into an Asset Purchase Agreement (the “Purchase Agreement”), with The Lamar Company, L.L.C., a Louisiana limited liability company (the “Purchaser”).

The transactions contemplated by the Purchase Agreement closed as of the date of the Purchase Agreement.

The purchase price was $78.6 million, subject to certain customary adjustments, paid at closing in cash.

The sale resulted in a pre-tax gain of $46.9 million in the fourth quarter of 2022.

We have classified the related assets and liabilities associated with our Fairway business as discontinued operations in our consolidated balance sheets and the results of our Fairway business have been presented as discontinued operations in our consolidated statements of income for all periods presented through December 9, 2022 as the sale represented a strategic shift in our business that had a major effect on our operations and financial results.

Unless otherwise noted, discussion in management's discussion and analysis refers to the Company's continuing operations.

See Note 2 — Discontinued Operations in our consolidated financial statements included elsewhere in this report for additional information.

We own and operate two radio stations located in New York City.

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 both of our radio stations, while Geopath Insight Suite is the annual audience location measurement used for our billboards.

These rates are in large part based on our radio stations’ ability to attract audiences in demographic groups targeted by their advertisers.

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

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.

Revenue and operating income are usually lowest in the first calendar quarter for both our radio and outdoor advertising segments, partly because retailers cut back their advertising spending immediately following the holiday shopping season.

Revenue and operating income are usually lowest in the first calendar quarter, partly because retailers cut back their advertising spending immediately following the holiday shopping season.

In addition to the sale of advertising time for cash, stations typically exchange advertising time for goods or services, which can be used by the station in its business operations.

4 unchanged sentences

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.

(Dollars in thousands)

December 31, 2021

December 31, 2020

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

Year Ended December 31,

Net revenues:

Radio Advertising $ 25,790 66.8 % $ 30,012 71.9 %

Outdoor Advertising

Nontraditional 3,973 10.3 % 4,864 11.7 %

Digital 4,713 12.2 % 2,864 6.9 %

Other 4,119 10.7 % 3,987 9.5 %

Total net revenues $ 38,595 $ 41,727

6 unchanged sentences

Management believes this is principally the result of two factors:

(1) new media, such as various media distributed via the Internet, telecommunication companies and cable interconnects, as well as social networks, have gained advertising share against radio and other traditional media and created a proliferation of advertising inventory and (2) the fragmentation of the radio audience and time spent listening caused by satellite radio, audio streaming services and podcasts has led some investors and advertisers to conclude that the effectiveness of radio advertising has diminished.

(i) new media, such as various media distributed via the Internet, telecommunication companies and cable interconnects, as well as social networks, have gained advertising share against radio and other traditional media and created a proliferation of advertising inventory and (ii) the fragmentation of the radio audience and time spent listening caused by satellite radio, audio streaming services and podcasts has led some investors and advertisers to conclude that the effectiveness of radio advertising has diminished.

Along with the rest of the radio industry, our stations have deployed HD Radio ® .

6 unchanged sentences

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 .

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 .

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 1.6% for the year ended December 31, 2022, and up 41.2% for the year ended December 31, 2021, as compared to the same periods of the prior year.

During these periods, revenues for our New York cluster were down 8.5% and up 62.2%, respectively.

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 in the prior year 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.

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

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

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

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

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

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.

Throughout 2021 and 2022, 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.

However, the lingering pandemic impact has caused increases in inflation and general economic disruption.

If apprehension persists around interest rate volatility, supply chain disruptions, and COVID-19, consumer spending may be adversely impacted, 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 has been impacted by the rising interest rate environment in the financial markets, driving the interest paid on the Senior Credit Facility to increase as well as increasing the cost of any potential future borrowings.

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

CRITICAL ACCOUNTING ESTIMATES

3 unchanged sentences

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;

FCC broadcast licenses are renewed every eight years;

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

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 consider our FCC licenses to be indefinite-lived intangibles.

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.

15 unchanged sentences

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

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

Long-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, 2022 October 1, 2021

Discount Rate 12.7% 12.1%

2 unchanged sentences

Operating Profit Margin 23.5-29.0% 24.2-29.0%

Valuation of Goodwill

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.

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.

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

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

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

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

Deferred Taxes

5 unchanged sentences

Year ended December 31, 2022 compared to year ended December 31, 2021

The following discussion refers to the Company’s continuing operations.

See Note 2 — Discontinued Operations in our consolidated financial statements included elsewhere in this report for additional information.

Net revenues:

Year ended December 31,

Year ended December 31, Change

(Dollars in thousands) 2022 2021 $ %

Net revenues $ 38,595 $ 41,727 $ (3,132) (7.5) %

Outdoor Advertising

Total net revenues

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.

Net radio revenues decreased due to a substantial decline in healthcare spend as COVID-19 vaccination awareness campaigns have slowed, partially offset by stronger tourism advertising spend as restrictions on travel, social gatherings, and business activities have continued to ease.

Additionally, revenues from the Summer Jam event were lower in 2022 due to depressed market conditions, in particular as they affected attendance at concerts and festivals.

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.

1 unchanged sentence

Miller Kaplan reported gross revenues for the New York radio market increased 1.6% for the year ended December 31, 2022, 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,

Our gross revenues reported to Miller Kaplan were down 8.5% for the year ended December 31, 2022, as compared to the prior year.

Operating expenses excluding depreciation and amortization expense:

Year ended December 31, Change

(Dollars in thousands) 2022 2021 $ %

Operating expenses excluding depreciation and amortization expense:

Outdoor Advertising

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.

$ 32,847 $ 28,667 $ 4,180 14.6 %

Radio operating expenses excluding depreciation and amortization expense increased during the year ended December 31, 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.

Corporate expenses:

Year ended December 31,

Year ended December 31, Change

(Dollars in thousands) 2022 2021 $ %

Corporate expenses $ 6,463 $ 8,434 $ (1,971) (23.4) %

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.

The decrease in corporate expenses for the year ended December 31, 2022 was primarily due to fees from the Emmis Management Agreement that ended in November 2021 and consulting fees incurred in the prior year.

These decreases were partially offset by employee retention credits recorded in the prior year that reduced operating expenses, which were not available in the current year.

Depreciation and amortization:

Year ended December 31,

Year ended December 31, Change

(Dollars in thousands) 2022 2021 $ %

Depreciation and amortization $ 666 $ 688 $ (22) (3.2) %

Outdoor Advertising

Total depreciation and amortization

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

(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.

Radio depreciation and amortization expense was flat compared to the prior year due to additions in the current year offset by certain assets becoming fully depreciated in the prior year.

Operating income (loss):

Year ended December 31,

Year ended December 31, Change

(Dollars in thousands) 2022 2021 $ %

Operating income (loss):

Outdoor Advertising

Total operating income (loss)

Operating (loss) income $ (1,386) $ 3,938 $ (5,324) (135.2) %

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

Interest expense:

Year ended December 31,

Year ended December 31, Change

(Dollars in thousands) 2022 2021 $ %

Interest expense $ (6,980) $ (7,707) $ 727 (9.4) %

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.

Interest expense decreased slightly due to the conversion of the SG Broadcasting Promissory Notes (as defined below) in July 2022, which notes were outstanding for all of the prior year, and a lower interest rate after the pay down of the SG Broadcasting Promissory Notes partially offset by accrued interest on the Emmis Convertible Promissory Note being paid in kind in the fourth quarter of 2021, which increased the principal balance for the entirety of the current year.

Provision for income taxes:

Year ended December 31,

Year ended December 31, Change

(Dollars in thousands) 2022 2021 $ %

Provision for income taxes $ 336 $ 348 $ (12) (3.4) %

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,

See Note 12 — Income Taxes in our consolidated financial statements included elsewhere in this report.

Consolidated net income (loss):

Year ended December 31, Change

(Dollars in thousands) 2022 2021 $ %

Consolidated net loss

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

Consolidated net income (loss) $ 30,914 $ (6,082) $ 36,996 (608.3) %

The increase in consolidated net income (loss) was due to the gain on sale of Fairway in December 2022, partially offset by lower operating income of continuing operations.

See “Net revenues,” “Operating expenses excluding depreciation and amortization,”, “Corporate expenses,” “Interest expense,” and “Provision for income taxes” above and Note 2 — Discontinued Operations in our consolidated financial statements included elsewhere in this report.

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, 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.

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

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

The increase in 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).

These anticipated payments assume our lender does not accelerate the debt as a result of non-compliance with any debt covenant described above.

The Senior Credit Facility bears interest at a variable rate.

The Company estimates interest payments by using the amounts outstanding as of December 31, 2021 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.

Our primary sources of liquidity are cash provided by operations 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, and acquisitions.

At December 31, 2022 we had cash, cash equivalents and restricted cash of $15.3 million and net working capital of $15.2 million.

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

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

At December 31, 2022, we had $6.0 million outstanding to Emmis under the Emmis Convertible Promissory Note, all of which is classified as long-term and has no debt service requirements over the next twelve-month period.

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.

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.

Cash provided by continuing operating activities was $2.3 million for the year ended December 31, 2022 compared to cash used in continuing operating activities of $0.6 million for the year ended December 31, 2021.

The increase in operating cash flows was mainly attributable to improved collections of accounts receivable.

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.

Cash provided by continuing investing activities was $77.6 million for the year ended December 31, 2022 primarily attributable to the proceeds from the sale of Fairway, partially offset by capital expenditures.

Cash used in investing activities of $0.4 million for the year ended December 31, 2021 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.

Cash used in continuing financing activities was $70.1 million for the year ended December 31, 2022, was due to the pay down of outstanding long-term debt of $68.6 million and settlement of tax withholding obligations of $1.3 million.

Cash provided by continuing financing activities was $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.

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

2 unchanged sentences

The impact of inflation on operations has not been significant to date.

However, there can be no assurance that a high rate of inflation in the future would not have an adverse effect on operating results, particularly since our Senior Credit Facility is comprised entirely of variable-rate debt.

However, there can be no assurance that a high rate of inflation in the future would not have an adverse effect on operating results.

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 11 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.

The Company does not have any majority-owned or 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.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting 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-K

Item 7. Management’s Discussion and Analysis