What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-14 compared with 2024-09-18 · 52 added, 51 removed, 163 unchanged (39% of the section changed)

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

We own and operate two radio stations located in New York City, which serve the New York City demographic market area that primarily targets Black, Hispanic, and multi-cultural consumers, and as a result of the Estrella Acquisition, Estrella’s network, content, digital, and commercial operations, including network affiliation and program supply agreements with Estrella for its 11 radio stations serving Los Angeles, CA, Houston, TX, and Dallas, TX and nine television stations serving Los Angeles, CA, Houston, TX, Denver, CO, and Miami, FL Among the Estrella brands that joined MediaCo are the EstrellaTV network and its influential linear and digital video content business and Estrella’s expansive digital channels, including its four FAST channels - EstrellaTV, Estrella News, Cine EstrellaTV, and Estrella Games - and the EstrellaTV app.

We own and operate two radio stations located in New York City, which serve the New York City demographic market area and primarily target Black, Hispanic, and multi-cultural consumers, and as a result of the Estrella Acquisition, Estrella’s network, content, digital, and commercial operations, including network affiliation and program supply agreements with Estrella for its 11 radio stations serving Los Angeles, CA, Houston, TX, and Dallas, TX and nine television stations serving Los Angeles, CA, Houston, TX, Denver, CO, and Miami, FL.

Among the Estrella brands that joined MediaCo are the EstrellaTV network and its influential linear and digital video content business and Estrella’s expansive digital channels, including its four FAST channels - EstrellaTV, Estrella News, Cine EstrellaTV, and Estrella Games - and the EstrellaTV app.

See Note 3 — Business Combinations in our condensed consolidated financial statements included elsewhere in this report for additional information on the Estrella Acquisition.

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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 from continuing operations for the three and six months ended June 30, 2024 and 2023.

The following table summarizes the sources of our revenues from continuing operations for the three and nine months ended September 30, 2024 and 2023.

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

2024 % of Total 2023 % of Total 2024 % of Total 2023 % of Total

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(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, television and other traditional media and created a proliferation of advertising inventory and (ii) the fragmentation of the radio and television audiences and time spent listening and viewing caused by satellite radio, audio and video streaming services, and podcasts has led some investors and advertisers to conclude that the effectiveness of broadcast advertising has diminished.

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

Our network and stations have aggressively worked to harness the power of broadband and mobile media distribution in the development of emerging business opportunities by capitalizing on the rapidly growing Free Ad-Supported Streaming TV marketplace (“FAST”) through several operated channels, creating highly interactive direct-to-consumer (“D2C”) apps and websites with content that engages our audience and harnessing the power of digital video on our D2C platforms, YouTube, and connected TV publishers, vMVPDs and OEMs.

The results of our NY Audio, Digital & Events segment broadcast operations are highly 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 3.5% for the six months ended June 30, 2024, as compared to the same period of the prior year.

Market revenues in New York as measured by Miller Kaplan Arase LLP (“Miller Kaplan”), an independent public accounting firm used by the radio industry to compile revenue information, were up 3.5% for the nine months ended September 30, 2024, as compared to the same period of the prior year.

Our gross revenues reported to Miller Kaplan were down 11.3%, as compared to the same period of the prior year.

The decreases for our New York Cluster were largely driven by lower spend in the media and financial sectors.

For Estrella MediaCo, as of June 27, 2024, local radio revenue was up 3% over the same period in 2023, while MAGNA, a leading global media investment and intelligence company, estimated the market would be down 6%.

Local television revenue was down 22%, versus the MAGNA market estimate of down 12%.

Audio network revenue was up 41%, versus the MAGNA market estimate of down 6%.

Television network revenue was down 5% versus the MAGNA market estimate of down 6%.

Digital revenue was up 48% versus the MAGNA market estimate of up 13%.

In total, as of June 27, 2024, Estrella MediaCo’s revenue was up 3% over the same period in 2023, in contrast with MAGNA’s estimate for the total market being down 2.7%.

According to Nielsen, from January to June 2024 the EstrellaTV network ratings were down 35% when compared to the same period in 2023, while Hispanic television viewing in general was down 19%.

Local television ratings were down 18% in the same time period for the Estrella VIE television stations, while Hispanic television viewing in those markets was down 10%.

Local radio ratings were up 3% for the Estrella VIE radio stations, while Spanish-language listenership in those markets was down 17%.

For Estrella MediaCo, as of September 30, 2024, EM-ADE revenue was down 3.3% over the same period in 2023, while MAGNA, a leading global media investment and intelligence company, estimated the market would be up 0.3%.

EM-VD revenue was down 7.2%, versus the MAGNA market estimate of up 6.9%.

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.

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.

As part of the Estrella acquisition integration, in the three months ended September 30, 2024, we developed a plan to close and relocate certain studio and marketing operations.

In fulfilling this plan, we incurred involuntary termination costs of $1.4 million in the three and nine months ended September 30, 2024, included in operating expenses excluding depreciation and amortization on our condensed consolidated statements of operations included elsewhere in this report.

MediaCo has been impacted by the rising interest rate environment in the financial markets, driving the interest accrued and paid on the Emmis Convertible Promissory Note to increase as well as providing uncertainty on our First Lien Term Loan and Second Lien Term Loan, which have variable interest rates.

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RESULTS OF OPERATIONS

Three-Month and Six-Month Periods Ended June 30, 2024 compared to June 30, 2023

Three-Month and Nine-Month Periods Ended September 30, 2024 compared to September 30, 2023

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

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Net revenues:

Three Months Ended June 30, Six Months Ended June 30, 2024

Three Months Ended September 30, Nine Months Ended September 30, 2024

(dollars in thousands) 2024 2023 $ Change % Change 2024 2023 $ Change % Change

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Total $ 29,859 $ 6,447 $ 23,412 363.1 % $ 62,767 $ 25,862 $ 36,905 142.7 %

For our EM-VD and EM-ADE segments, net revenues increased for the three and six months ended June 30, 2024 due to the Estrella Acquisition.

For our NY-ADE segment, net revenues decreased for the three and six months ended June 30, 2024 driven by weaker sales for our annual Summer Jam concert as well as lower spend in the media, retail and beverages categories partially offset by stronger political and telecommunications spend.

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.

For our EM-VD and EM-ADE segments, net revenues increased for the three and nine months ended September 30, 2024 due to the Estrella Acquisition.

For our NY-ADE segment, net revenues increased for the three months ended September 30, 2024 driven by stronger telecommunications spend, partially offset by weaker broadcast and print media spend.

For our NY-ADE segment, net revenues decreased for the nine months ended September 30, 2024 driven by weaker sales for our annual Summer Jam concert as well as lower spend in the media, retail and beverages categories partially offset by stronger political and telecommunications spend.

We typically monitor the performance of our NY-ADE 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 trade and syndication arrangements.

Miller Kaplan reported that gross revenues for the New York radio market increased 3.5% for the six-month period ended June 30, 2024, as compared to the same period of the prior year.

Our gross revenues reported to Miller Kaplan were down 15.9% for the six-month period ended June 30, 2024, as compared to the same period of the prior year.

Miller Kaplan reported that gross revenues for the New York radio market increased 3.5% for the nine-month period ended September 30, 2024, as compared to the same period of the prior year.

Our gross revenues reported to Miller Kaplan were down 11.3% for the nine-month period ended September 30, 2024, as compared to the same period of the prior year.

Operating expenses excluding depreciation and amortization expense:

(dollars in thousands) Three Months Ended June 30, Six Months Ended June 30, 2024

(dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2024

2024 2023 $ Change % Change 2024 2023 $ Change % Change

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Total $ 32,672 $ 7,175 $ 25,497 355.4 % $ 73,969 $ 25,458 $ 48,511 190.6 %

For our EM-VD and EM-ADE segments, operating expenses excluding depreciation and amortization expense increased for the three and six months ended June 30, 2024 due to the Estrella Acquisition.

For our NY Audio segment, operating expenses excluding depreciation and amortization expense decreased for the three and six months ended June 30, 2024 compared to the same period in the prior year due to lower production costs for our annual Summer Jam concert and lower lease costs as our new office lease commenced in February 2023 and the prior office lease did not terminate until the third quarter of 2023.

For our EM-VD and EM-ADE segments, operating expenses excluding depreciation and amortization expense increased for the three and nine months ended September 30, 2024 due to the Estrella Acquisition.

For our NY-ADE segment, operating expenses excluding depreciation and amortization expense decreased for the three months ended September 30, 2024 driven by lower employee costs and professional service fees as compared to the same period of the prior year.

For our NY-ADE segment, operating expenses excluding depreciation and amortization expense decreased for the nine months ended September 30, 2024 driven by lower production costs for our annual Summer Jam concert, lower lease costs as our new office lease commenced in February 2023 and the prior office lease did not terminate until the third quarter of 2023, lower employee costs and lower professional service fees, partially offset by increased information technology costs.

Corporate expenses:

(dollars in thousands) Three Months Ended June 30, Six Months Ended June 30, 2024

(dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2024

2024 2023 $ Change % Change 2024 2023 $ Change % Change

Corporate expenses $ 2,319 $ 1,095 $ 1,224 111.8 % $ 9,154 $ 3,981 $ 5,173 129.9 %

Corporate expenses increased for the three and six months ended June 30, 2024 due to higher professional service fees driven by the Estrella Acquisition, partially offset by lower salary and stock based compensation expenses.

Corporate expenses increased for the three months ended September 30, 2024 due to higher professional service fees driven by work related to the debt amendment, the Estrella Acquisition and other corporate matters, partially offset by lower salary and stock based compensation expenses.

Corporate expenses increased for the nine months ended September 30, 2024 due to higher professional service fees driven by the Estrella Acquisition, partially offset by lower salary and stock based compensation expenses.

Depreciation and amortization:

(dollars in thousands) Three Months Ended June 30, Six Months Ended June 30, 2024

(dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2024

2024 2023 $ Change % Change 2024 2023 $ Change % Change

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Total $ 1,741 $ 130 $ 1,611 1239.2 % $ 3,305 $ 437 $ 2,868 656.3 %

For our EM-VD and EM-ADE segments, depreciation and amortization expense increased for the three and six months ended June 30, 2024 due to the Estrella Acquisition.

For our NY Audio segment, depreciation and amortization expense decreased for the three and six months ended June 30, 2024 due to certain assets becoming fully depreciated in the prior year.

For our EM-VD and EM-ADE segments, depreciation and amortization expense increased for the three and nine months ended September 30, 2024 due to the Estrella Acquisition.

For our NY-ADE segment, depreciation and amortization expense remained relatively flat for the three and nine months ended September 30, 2024 due to certain assets becoming fully depreciated in the prior year offset by new assets placed into service.

Loss (gain) on disposal of assets:

(dollars in thousands) Three Months Ended June 30, Six Months Ended June 30, 2024

(dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2024

2024 2023 $ Change % Change 2024 2023 $ Change % Change

EM-ADE $ — $ — $ — n/a $ 5 $ — $ 5 n/a

NY-ADE — — — n/a — (39) 39 (100.0) %

Total $ 5 $ — $ 5 n/a $ 5 $ (39) $ 44 (112.8) %

The gain on disposal of assets for the six months ended June 30, 2023 related to the sale of vehicles in the first quarter of 2023, while there were minimal disposals in the current year.

NY-ADE — 11 (11) (100.0) % — (28) 28 (100.0) %

Total $ — $ 11 $ (11) (100.0) % $ 5 $ (28) $ 33 (117.9) %

For our NY-ADE segment, the gain on disposal of assets for the nine months ended September 30, 2023 related to the sale of vehicles in the first quarter of 2023, while there were minimal disposals for the same period in the current year.

For our NY-ADE segment, the loss on disposal of assets for the three months ended September 30, 2023 related to the disposal of assets related to our previous office location, while there were no disposals for the quarter in the current year.

Operating loss:

(dollars in thousands) Three Months Ended June 30, Six Months Ended June 30, 2024

(dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2024

2024 2023 $ Change % Change 2024 2023 $ Change % Change

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Interest expense, net:

(dollars in thousands) Three Months Ended June 30, Six Months Ended June 30, 2024

(dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2024

2024 2023 $ Change % Change 2024 2023 $ Change % Change

Interest expense, net $ (3,274) $ (87) $ (3,187) 3,663.2 % $ (7,192) $ (306) $ (6,886) 2,250.3 %

Interest expense, net increased for the three and six months ended June 30, 2024 due to the additional long-term debt related to the Estrella Acquisition.

Interest expense, net increased for the three and nine months ended September 30, 2024 due to the additional long-term debt related to the Estrella Acquisition.

Change in fair value of warrant shares liabilities:

(dollars in thousands) Three Months Ended June 30, Six Months Ended June 30, 2024

(dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2024

2024 2023 $ Change % Change 2024 2023 $ Change % Change

Change in fair value of warrant shares liabilities $ 65,439 $ — $ 65,439 n/a $ 34,412 $ — $ 34,412 n/a

Change in fair value of warrant shares liabilities is driven by the increase in MediaCo’s share price from $2.50 at the initial recognition of the warrant shares liability to $3.60 as of June 30, 2024.

Change in fair value of warrant shares liabilities for the three months ended September 30, 2024 was driven by the decrease in MediaCo’s share price from $3.60 at the end of the previous quarter to $1.28 as of September 30, 2024.

Change in fair value of warrant shares liabilities for the nine months ended September 30, 2024 was driven by the decrease in MediaCo’s share price from $2.50 at the initial recognition of the warrant shares liability to $1.28 as of September 30, 2024.

Provision for income taxes:

(dollars in thousands) Three Months Ended June 30, Six Months Ended June 30, 2024

(dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2024

2024 2023 $ Change % Change 2024 2023 $ Change % Change

Provision for income taxes $ 342 $ 84 $ 258 307.1 % $ 608 $ 234 $ 374 159.8 %

Our provision for income taxes tax is primarily due to changes in deferred tax liabilities.

Consolidated net loss:

(dollars in thousands) Three Months Ended June 30, Six Months Ended June 30, 2024

Our provision for income taxes tax was primarily due to changes in deferred tax liabilities.

Consolidated net income (loss):

(dollars in thousands) Three Months Ended September 30, Nine Months Ended September 30, 2024

2024 2023 $ Change % Change 2024 2023 $ Change % Change

Consolidated net loss $ (48,307) $ (421) $ (47,886) 11374.3 % $ (51,984) $ (2,528) $ (49,456) 1956.3 %

Consolidated net income (loss) $ 54,926 $ (2,316) $ 57,242 (2471.6) % $ 2,942 $ (4,844) $ 7,786 (160.7) %

See “Net revenues,” “Operating expenses excluding depreciation and amortization,” "Depreciation and amortization," "Loss (gain) on disposal of assets," “Corporate expenses,” “Interest expense,” and “Change in fair value of warrant shares liability” above.

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Primary uses of capital have been, and are expected to continue to be, capital expenditures, debt service obligations, working capital and acquisitions.

At June 30, 2024 , the Company had cash, cash equivalents and restricted ca sh of $12.4 million and negative working capital of $(11.1) million .

At September 30, 2024 , the Company had cash, cash equivalents and restricted ca sh of $10.2 million and negative working capital of $(14.1) million .

At December 31, 2023, we had cash, cash equivalents and restricted cash of $7.1 million and net working capital of $2.2 million.

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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.

At June 30, 2024, we had $6.5 million outstanding to Emmis under the Emmis Convertible Promissory Note (as defined in Note 10), all of which is classified as current and has debt service obligations of approximately $7.3 million due under its Emmis Convertible Promissory Note from September 18, 2024 (the date of issuance of these financial statements) through September 18, 2025.

At September 30, 2024, we had $6.5 million outstanding to Emmis under the Emmis Convertible Promissory Note (as defined in Note 10 — Related Party Transactions in our condensed consolidated financial statements included elsewhere in this report for additional information), all of which is classified as current and has debt service obligations of approximately $7.3 million due under its Emmis Convertible Promissory Note from November 14, 2024 (the date of issuance of these financial statements) through November 14, 2025.

In September 2024, the Company entered into the First Amendment of the First Lien Credit Agreement, with White Hawk Capital Partners, LP, which provides for $7.5 million of additional Delayed Draw Term Loan Commitments for Delayed Draw Term Loans, and waives the requirement for mandatory prepayment of any net proceeds received as a result of any equity issuances, up to $7.3 million.

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Operating Activities

Cash flows used in continuing operating activities were $24.7 million compared to $3.7 million for the six months ended June 30, 2024 and 2023, respectivel y.

The increase in the use of cash in continuing operating activities was mainly attributable to lower net income as well as increased working capital requirements driven by the Estrella Acquisition.

Cash flows used in continuing operating activities were $30.7 million compared to $3.7 million for the nine months ended September 30, 2024 and 2023, respectivel y.

The increase in the use of cash in continuing operating activities was mainly attributable to lower operating income as well as increased working capital requirements driven by the Estrella Acquisition.

Investing Activities

Cash flows used in continuing investing activities were $7.0 million for the six months ended June 30, 2024, attributable to cash paid, net of cash received, for the Estrella Acquisition, as well as capital expenditures related to our NY Audio digital platform project and our build out of our new space for radio operations and corporate offices.

C ash flows used in continuing investing activities were $0.9 million for the six months ended June 30, 2023, attributable to capital expenditures related to our NY Audio digital platform project and our build out of our new space for radio operations and corporate offices.

Cash flows used in continuing investing activities were $7.6 million for the nine months ended September 30, 2024, attributable to cash paid, net of cash received, for the Estrella Acquisition, as well as capital expenditures related to our NY Audio digital platform project and our build out of our new space for radio operations and corporate offices.

C ash flows used in continuing investing activities were $1.1 million for the nine months ended September 30, 2023, attributable to capital expenditures related to our NY Audio digital platform project and our build out of our new space for radio operations and corporate offices.

Financing Activities

Cash flows provided by continuing financing activities were $37.0 million for the six months ended June 30, 2024, attributable to proceeds from the First Lien Term Loan, partially offset by payments of debt issuance costs and settlement of tax withholding obligations.

Cash flows used in continuing financing activities were $1.0 million for the six months ended June 30, 2023, attributable to repurchases of our Class A common stock and settlement of tax withholding obligations.

Cash flows provided by continuing financing activities were $41.4 million for the nine months ended September 30, 2024, attributable to proceeds from the First Lien Term Loan, partially offset by payments of debt issuance costs, finance lease principal payments, and settlement of tax withholding obligations.

Cash flows used in continuing financing activities were $1.1 million for the nine months ended September 30, 2023, attributable to repurchases of our Class A common stock and settlement of tax withholding obligations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

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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