10-Q 1 ck0001784254-10q_20200930.htm 10-Q ck0001784254-10q_20200930.htm

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE

SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

Commission File Number 001-39029

 

MEDIACO HOLDING INC.

(Exact name of registrant as specified in its charter)

 

INDIANA

(State of incorporation or organization)

84-2427771

(I.R.S. Employer Identification No.)

ONE EMMIS PLAZA

40 MONUMENT CIRCLE, SUITE 700

INDIANAPOLIS, INDIANA 46204

(Address of principal executive offices)

(317) 266-0100

(Registrant’s Telephone Number, Including Area Code)

NOT APPLICABLE

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Class A common stock, $0.01 par value

MDIA

Nasdaq Capital Market

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes       No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes       No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes       No  

The number of shares outstanding of each of MediaCo Holding Inc.’s classes of common stock, as of November 9, 2020, was:

 

 

 

1,785,880

 

Shares of Class A Common Stock, $.01 Par Value

5,413,197

 

Shares of Class B Common Stock, $.01 Par Value

 

Shares of Class C Common Stock, $.01 Par Value

 

 


INDEX

 

 

Page

PART I — FINANCIAL INFORMATION

 

Item 1. Financial Statements

3

Condensed Consolidated and Combined Statements of Operations for the three-month and nine-month periods ended September 30, 2019 and 2020

3

Condensed Consolidated Balance Sheets as of December 31, 2019 and September 30, 2020

4

Condensed Consolidated and Combined Statement of Changes in Equity (Deficit) for the three-month and nine-month periods ended September 30, 2019 and 2020

5

Condensed Consolidated and Combined Statements of Cash Flows for the nine-months periods ended September 30, 2019 and 2020

6

Notes to Condensed Consolidated and Combined Financial Statements

7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

22

Item 3. Quantitative and Qualitative Disclosures about Market Risk

29

Item 4. Controls and Procedures

29

PART II — OTHER INFORMATION

 

Item 1. Legal Proceedings

29

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

29

Item 6. Exhibits

31

Signatures

32

 

 


PART I — FINANCIAL INFORMATION

ITEM 1.     FINANCIAL STATEMENTS

MEDIACO HOLDING INC.

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF OPERATIONS

(Unaudited)

(In thousands, except per share data)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

NET REVENUES

 

$

11,007

 

 

$

9,360

 

 

$

35,487

 

 

$

28,141

 

OPERATING EXPENSES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses excluding depreciation and amortization expense

 

 

8,672

 

 

 

7,752

 

 

 

27,837

 

 

 

23,615

 

Corporate expenses

 

 

 

 

 

1,214

 

 

 

 

 

 

3,311

 

Depreciation and amortization

 

 

280

 

 

 

896

 

 

 

931

 

 

 

3,086

 

Loss on disposal of assets

 

 

 

 

 

103

 

 

 

 

 

 

185

 

Total operating expenses

 

 

8,952

 

 

 

9,965

 

 

 

28,768

 

 

 

30,197

 

OPERATING INCOME (LOSS)

 

 

2,055

 

 

 

(605

)

 

 

6,719

 

 

 

(2,056

)

OTHER EXPENSE:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

 

 

 

 

(2,411

)

 

 

 

 

 

(6,928

)

INCOME (LOSS) BEFORE INCOME TAXES

 

 

2,055

 

 

 

(3,016

)

 

 

6,719

 

 

 

(8,984

)

PROVISION (BENEFIT) FOR INCOME TAXES

 

 

613

 

 

 

(22

)

 

 

2,129

 

 

 

13,854

 

CONSOLIDATED NET INCOME (LOSS)

 

 

1,442

 

 

 

(2,994

)

 

 

4,590

 

 

 

(22,838

)

PREFERRED STOCK DIVIDENDS

 

 

 

 

 

534

 

 

 

 

 

 

1,591

 

NET INCOME (LOSS)

 

$

1,442

 

 

$

(3,528

)

 

$

4,590

 

 

$

(24,429

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted income (loss) per share attributable to common shareholders

 

$

0.87

 

 

$

(0.50

)

 

$

2.75

 

 

$

(3.44

)

Basic and diluted weighted average number of common shares outstanding

 

 

1,667

 

 

 

7,096

 

 

 

1,667

 

 

 

7,110

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated and combined statements.

- 3 -


 

MEDIACO HOLDING INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share data)

 

 

 

December 31,

2019

 

 

September 30,

2020

 

 

 

 

 

 

 

(Unaudited)

 

ASSETS

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

2,083

 

 

$

6,702

 

Accounts receivable, net

 

 

11,101

 

 

 

7,046

 

Prepaid expenses

 

 

1,111

 

 

 

975

 

Other current assets

 

 

1,798

 

 

 

956

 

Total current assets

 

 

16,093

 

 

 

15,679

 

PROPERTY AND EQUIPMENT, NET

 

 

31,563

 

 

 

28,270

 

INTANGIBLE ASSETS, NET

 

 

78,949

 

 

 

79,499

 

OTHER ASSETS:

 

 

 

 

 

 

 

 

Deferred tax assets

 

 

13,863

 

 

 

 

Operating lease right of use assets

 

 

26,339

 

 

 

24,369

 

Deposits and other

 

 

359

 

 

 

331

 

Total other assets

 

 

40,561

 

 

 

24,700

 

Total assets

 

$

167,166

 

 

$

148,148

 

LIABILITIES AND EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

Accounts payable and accrued expenses

 

$

11,184

 

 

$

2,213

 

Current maturities of long-term debt

 

 

3,672

 

 

 

918

 

Accrued salaries and commissions

 

 

728

 

 

 

636

 

Deferred revenue

 

 

1,688

 

 

 

1,543

 

Operating lease liabilities

 

 

3,161

 

 

 

3,055

 

Other current liabilities

 

 

346

 

 

 

2,136

 

Total current liabilities

 

 

20,779

 

 

 

10,501

 

LONG TERM DEBT, NET OF CURRENT

 

 

77,668

 

 

 

93,025

 

OPERATING LEASE LIABILITIES, NET OF CURRENT

 

 

22,983

 

 

 

21,056

 

ASSET RETIREMENT OBLIGATIONS

 

 

5,623

 

 

 

6,176

 

OTHER NONCURRENT LIABILITIES

 

 

239

 

 

 

310

 

Total liabilities

 

 

127,292

 

 

 

131,068

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

SERIES A CUMULATIVE CONVERTIBLE PARTICIPATING PREFERRED STOCK, $0.01 PAR VALUE, 10,000,000 SHARES AUTHORIZED; 220,000 SHARES ISSUED AND OUTSTANDING

 

 

22,110

 

 

 

23,701

 

EQUITY (DEFICIT):

 

 

 

 

 

 

 

 

Class A common stock, $0.01 par value; authorized 170,000,000 shares; issued and outstanding 1,666,667 shares and 1,785,880 shares at December 31, 2019, and September 30, 2020, respectively

 

 

17

 

 

 

18

 

Class B common stock, $0.01 par value; authorized 50,000,000 shares; issued and outstanding 5,359,753 shares and 5,413,197 shares at December 31, 2019, and September 30, 2020, respectively

 

 

54

 

 

 

54

 

Class C common stock, $0.01 par value; authorized 30,000,000 shares; none issued

 

 

 

 

 

 

Additional paid-in capital

 

 

20,644

 

 

 

20,687

 

Accumulated deficit

 

 

(2,951

)

 

 

(27,380

)

Total equity (deficit)

 

 

17,764

 

 

 

(6,621

)

Total liabilities and equity (deficit)

 

$

167,166

 

 

$

148,148

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated and combined statements.

- 4 -


MEDIACO HOLDING INC.

CONDENSED CONSOLIDATED AND COMBINED STATEMENT OF CHANGES IN EQUITY (DEFICIT)

(Unaudited)

(In thousands, except share data)

 

 

 

Class A Common Stock

 

 

Class B Common Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

APIC

 

 

Net Parent Investment

 

 

Accumulated Deficit

 

 

Total

 

BALANCE, DECEMBER 31, 2018

 

 

 

 

$

 

 

 

 

 

$

 

 

$

 

 

$

79,810

 

 

$

 

 

$

79,810

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

628

 

 

 

 

 

 

628

 

Net distributions to Emmis Communications Corp.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(3,451

)

 

 

 

 

 

(3,451

)

BALANCE, MARCH 31, 2019

 

 

 

 

$

 

 

 

 

 

$

 

 

$

 

 

$

76,987

 

 

$

 

 

$

76,987

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2,520

 

 

 

 

 

 

2,520

 

Net distributions to Emmis Communications Corp.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,352

)

 

 

 

 

 

(2,352

)

BALANCE, JUNE 30, 2019

 

 

 

 

$

 

 

 

 

 

$

 

 

$

 

 

$

77,155

 

 

$

 

 

$

77,155

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,442

 

 

 

 

 

 

1,442

 

Net distributions to Emmis Communications Corp.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,403

)

 

 

 

 

 

(2,403

)

BALANCE, SEPTEMBER 30, 2019

 

 

 

 

$

 

 

 

 

 

$

 

 

$

 

 

$

76,194

 

 

$

 

 

$

76,194

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, DECEMBER 31, 2019

 

 

1,666,667

 

 

$

17

 

 

 

5,359,753

 

 

$

54

 

 

$

20,644

 

 

$

 

 

$

(2,951

)

 

$

17,764

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1,485

)

 

 

(1,485

)

Adjustments related to distribution of common shares

 

 

16,596

 

 

 

 

 

 

53,444

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(529

)

 

 

(529

)

BALANCE, MARCH 31, 2020

 

 

1,683,263

 

 

$

17

 

 

 

5,413,197

 

 

$

54

 

 

$

20,644

 

 

$

 

 

$

(4,965

)

 

$

15,750

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(18,359

)

 

 

(18,359

)

Preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(528

)

 

 

(528

)

BALANCE, JUNE 30, 2020

 

 

1,683,263

 

 

$

17

 

 

 

5,413,197

 

 

$

54

 

 

$

20,644

 

 

$

 

 

$

(23,852

)

 

$

(3,137

)

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(2,994

)

 

 

(2,994

)

Issuance of class A to employees, officers and directors

 

 

102,617

 

 

 

1

 

 

 

 

 

 

 

 

 

43

 

 

 

 

 

 

 

 

 

44

 

Preferred stock dividends

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(534

)

 

 

(534

)

BALANCE, SEPTEMBER 30, 2020

 

 

1,785,880

 

 

$

18

 

 

 

5,413,197

 

 

$

54

 

 

$

20,687

 

 

$

 

 

$

(27,380

)

 

$

(6,621

)

 

The accompanying notes are an integral part of these unaudited condensed consolidated and combined statements.

- 5 -


MEDIACO HOLDING INC.

CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)

 

 

 

Nine Months Ended September 30,

 

 

 

2019

 

 

2020

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

4,590

 

 

$

(22,838

)

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities -

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

931

 

 

 

3,086

 

Amortization of debt discount

 

 

 

 

 

440

 

Provision for bad debts

 

 

184

 

 

 

538

 

Accretion of asset retirement obligation

 

 

 

 

 

566

 

Provision for deferred income taxes

 

 

1,690

 

 

 

13,856

 

Noncash compensation

 

 

192

 

 

 

44

 

Loss on sale of property and equipment

 

 

 

 

 

186

 

Changes in assets and liabilities -

 

 

 

 

 

 

 

 

Accounts receivable

 

 

248

 

 

 

3,317

 

Prepaid expenses and other current assets

 

 

(70

)

 

 

1,005

 

Other assets

 

 

986

 

 

 

2,107

 

Accounts payable and accrued liabilities

 

 

833

 

 

 

(9,108

)

Deferred revenue

 

 

(20

)

 

 

(138

)

Income taxes

 

 

371

 

 

 

 

Other liabilities

 

 

(1,457

)

 

 

(266

)

Net cash provided by (used in) operating activities

 

 

8,478

 

 

 

(7,205

)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Purchases of property and equipment

 

 

(175

)

 

 

(339

)

Net cash used in investing activities

 

 

(175

)

 

 

(339

)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Payments of long-term debt

 

 

 

 

 

(1,837

)

Proceeds from long-term debt

 

 

 

 

 

14,281

 

Payments for debt-related costs

 

 

 

 

 

(281

)

Net transactions with Emmis Communications Corp.

 

 

(8,303

)

 

 

 

Net cash (used in) provided by financing activities

 

 

(8,303

)

 

 

12,163

 

INCREASE IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH

 

 

 

 

 

4,619

 

CASH, CASH EQUIVALENTS AND RESTRICTED CASH:

 

 

 

 

 

 

 

 

Beginning of period

 

 

 

 

 

2,083

 

End of period

 

$

 

 

$

6,702

 

SUPPLEMENTAL DISCLOSURES:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

 

 

$

4,732

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated and combined statements.

- 6 -


MEDIACO HOLDING INC.

NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

(IN THOUSANDS UNLESS INDICATED OTHERWISE, EXCEPT SHARE DATA)

September 30, 2020

(Unaudited)

Note 1. Organization

MediaCo Holding Inc. (“MediaCo” or the “Company”) is an Indiana corporation formed in 2019 by Emmis Communications Corporation (“Emmis”) to facilitate the sale of a controlling interest in Emmis’ radio stations WQHT-FM and WBLS-FM (the “Stations”) to SG Broadcasting LLC (“SG Broadcasting”), an affiliate of Standard General L.P. (“Standard General”) pursuant to an agreement entered into on June 28, 2019. The sale (the “Transaction”) closed on November 25, 2019. On November 26, 2019, the Company’s Form 10 was declared effective and the Company became subject to SEC periodic filing requirements. As of December 31, 2019, all of the Company’s Class A common stock was held by Emmis and all the Company’s Class B common stock was held by SG Broadcasting. On January 17, 2020, Emmis distributed the Class A common stock pro rata to Emmis’ shareholders, making MediaCo a publicly traded company listed on the Nasdaq Capital Market.

Unless the context otherwise requires, references to “we”, “us” and “our” refer to MediaCo after giving effect to the contribution of the Stations by Emmis, as well as to the Stations while they were wholly owned by Emmis and other businesses owned by MediaCo. Prior to November 25, 2019, MediaCo had not conducted any business as a separate company and had no assets or liabilities. The operations of the Stations contributed to us by Emmis on November 25, 2019, are presented as if they were our operations for all historical periods described and at the carrying value of such assets and liabilities reflected in Emmis’ books and records.

On December 9, 2019, the Company’s Board approved the assumption from an affiliate of SG Broadcasting of an agreement to purchase FMG Valdosta, LLC and FMG Kentucky, LLC (“Fairway Outdoor”) from Fairway Outdoor Advertising Group, LLC (the “Fairway Acquisition”). Closing of the transaction occurred on December 13, 2019. FMG Valdosta, LLC and FMG Kentucky, LLC are outdoor advertising businesses that operate advertising displays principally across Kentucky, West Virginia, Florida and Georgia.

Our assets consist of two radio stations, WQHT-FM and WBLS-FM, which serve the New York City metropolitan area, as well as approximately 3,300 outdoor advertising displays in the Southeast (Valdosta) region and Mid-Atlantic (Kentucky) region of the United States. We derive our revenues primarily from radio and outdoor advertising sales, but we also generate revenues from events, including sponsorships and ticket sales.

On October 25, 2019, in order to more closely align our operations and internal controls with standard market practice, our Board of Directors approved the change in our fiscal year end from the last day in February to December 31.

Note 2. Basis of Presentation and Combination

Our condensed consolidated and combined financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). All significant intercompany balances and transactions have been eliminated. In the opinion of management, all adjustments necessary for fair presentation (including normal recurring adjustments) have been included.

For the nine months ended September 30, 2019, MediaCo was 100% owned by Emmis. Our financial statements for this period are derived from the books and records of Emmis and were carved-out from Emmis at a carrying value reflective of historical cost in Emmis’ records. Our historical combined financial results include an allocation of expense related to certain Emmis corporate functions, including executive oversight, legal, finance, human resources, and information technology. These expenses have been allocated to us based on direct usage or benefit where specifically identifiable, with the remainder allocated primarily on a pro rata basis of revenue, headcount and other measures. We consider this expense allocation methodology and results thereof to be reasonable. However, the allocations may not be indicative of the actual expense that would have been incurred had we operated as an independent, publicly traded company for all periods presented. It is impracticable to estimate what the standalone costs of MediaCo would have been in the historical periods.

The equity balance in the condensed consolidated and combined financial statements prior to the Transaction represents the excess of total assets over total liabilities. All transactions between the Stations and Emmis were considered to be effectively settled in the condensed consolidated and combined financial statements at the time the intercompany transaction was recorded. The total net effect of the settlement of these intercompany transactions is reflected in the condensed consolidated and combined statements of cash flow as a financing activity and in the condensed consolidated and combined statements of changes in equity as net parent company investment.

Upon consummation of the Transaction, the debt which the Company assumed in connection with transactions between shareholders was recorded to equity, and the total amount of net parent company investment was reclassified to additional paid in capital in the accompanying condensed consolidated and combined financial statements.

- 7 -


Note 3. Summary of Significant Accounting Policies

Allocation Policies

The following allocation policies were established by management of Emmis for the three and nine-month periods ended September 30, 2019. In the opinion of management, the methods for allocating these costs were reasonable. It is not practicable to estimate the costs that would have been incurred by us if we had been operated on a stand‑alone basis.

(i)  Specifically Identifiable Operating Expenses

Costs which related entirely to the operations of the Stations were attributed entirely to the Stations. These expenses consisted of costs of personnel who are 100% dedicated to the operations of the Stations, all costs associated with locations that conducted only the business of the Stations and amounts paid to third parties for services rendered to the Stations. In addition, any costs incurred by Emmis, which were specifically identifiable to the operations of the Stations, were attributed to the Stations.

(ii)  Shared Operating Expenses

Emmis incurred the cost of certain corporate general and administrative services and shared services that benefited all of its entities, including the Stations. These shared services included radio executive management, legal, accounting, information services, telecommunications, human resources, insurance, and intellectual property compliance and maintenance.  These costs were allocated to the Stations based on one of the following allocation methods: (1) percentage of Company revenues, (2) percentage of Company’s radio revenues, (3) headcount, and (4) pro rata portion based on the number of stations owned by Emmis. Management determined which allocation method was appropriate based on the nature of the shared service being provided.

(iii)  Taxes

The Stations' allocated share of the consolidated Emmis federal tax provision was determined using the separate return method. Under the separate return method, tax expense or benefit was calculated as if the Stations were subject to their own tax returns. State income taxes generally were allocated in a similar manner. Deferred tax assets and liabilities were determined based on differences between the financial reporting and tax bases of assets and liabilities carried by the Stations, and were measured using the enacted tax rates that are expected to be in effect in the period in which these differences were expected to reverse. The principal components of deferred taxes related to tax amortization of indefinite-lived intangibles, namely FCC licenses, which are not amortized (but subject to impairment testing) for financial reporting purposes.

(iv)  Allocated Charges

Allocations of Emmis’ costs were included in the condensed consolidated and combined statements of operations of the Stations as follows:

 

For the Three Months

Ended September 30,

 

 

For the Nine Months

Ended September 30,

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

Station operating expenses, excluding depreciation and amortization expense

$

596

 

 

$

 

 

$

1,810

 

 

$

 

Noncash compensation

 

60

 

 

 

 

 

 

192

 

 

 

 

Allocated charges from Emmis

$

656

 

 

$

 

 

$

2,002

 

 

$

 

Intercompany accounts between the Stations and Emmis were included in combined equity.

Cash and Cash Equivalents

We consider time deposits, money market fund shares and all highly liquid debt investment instruments with original maturities of three months or less to be cash equivalents. At times, such deposits may be in excess of FDIC insurance limits.

Fair Value Measurements

As defined in Accounting Standards Codification (“ASC”) Topic 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). We have no assets or liabilities for which fair value is measured on a recurring basis using Level 3 inputs.

- 8 -


The Company has certain assets that are measured at fair value on a non-recurring basis under circumstances and events that include those described in Note 5, Intangible Assets, and are adjusted to fair value only when the carrying values are more than the fair values. The categorization of the framework used to price the assets is considered a Level 3 measurement due to the subjective nature of the unobservable inputs used to determine the fair value (see Note 5 for more discussion).

Use of Estimates

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 have mandated various restrictions, including travel restrictions, restrictions on non-essential businesses and services, restrictions on public gatherings and quarantining of people who may have been exposed to the virus. These restrictions, in turn, caused the United States economy to decline and businesses to cancel or reduce amounts spent on advertising, negatively impacting our advertising-based businesses. Furthermore, some of our advertisers have seen a material decline in their businesses and may not be able to pay amounts owed to us when they come due. If the spread of COVID-19 continues, or is suppressed but later reemerges, and public and private entities continue to implement restrictive measures, we expect that our results of operations, financial condition and cash flows will continue to be negatively affected, the extent to which is difficult to estimate at this time.

The preparation of condensed consolidated and combined financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Due to the uncertain future impacts of the COVID-19 pandemic and the related economic disruptions, actual results could differ from those estimates particularly as it relates to estimates reliant on forecasts and other assumptions reasonably available to the Company. The extent to which the COVID-19 pandemic and related economic disruptions impact the Company’s business and financial results will depend on future developments including, but not limited to: (i) the continued spread, duration and severity of the COVID-19 pandemic, (ii) the occurrence, spread, duration and severity of any subsequent wave or waves of outbreaks after the initial outbreak has subsided, (iii) the actions taken by the U.S. and foreign governments to contain the COVID-19 pandemic, address its impact or respond to the reduction in global and local economic activity, (iv) the occurrence, duration and severity of a global, regional or national recession, depression or other sustained adverse market event, and (v) how quickly and to what extent normal economic and operating conditions can resume. The accounting matters assessed included, but were not limited to, allowance for doubtful accounts, our ability to realize our deferred tax assets, and the carrying value of goodwill, FCC licenses and other long-lived assets.

As discussed in Note 9, as a result of a sharp deterioration of business activity related to the COVID-19 pandemic and the significant operating losses expected in 2020, we were unable to conclude that it was more likely than not that we would be able to realize our deferred tax assets as of June 30, 2020; accordingly, we recorded a $15.6 million valuation allowance against these assets.  The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material changes to the estimates and material impacts to the Company’s condensed consolidated and combined financial statements in future reporting periods.

Per Share Data

Our basic and diluted net loss per share is computed using the two-class method. The two-class method is an earnings allocation that determines net income per share for each class of common stock and participating securities according to their participation rights in dividends and undistributed earnings or losses. Shares of Series A preferred stock include rights to participate in dividends and distributions to common stockholders on an if-converted basis, and accordingly are considered participating securities. During periods of undistributed losses however, no effect is given to our participating securities since they are not contractually obligated to share in the losses. We did not have any participating securities for the three and nine-month periods ended September 30, 2019, as the preferred stock only became convertible to common stock on May 25, 2020. For the three and nine-month periods ended September 30, 2019, only the Class A shares issued to Emmis at the close of the Transaction have been assumed to be outstanding. The following is a reconciliation of basic and diluted net loss per share attributable to Class A and Class B common shareholders:

 

- 9 -


 

For the Three Months

Ended September 30,

 

 

For the Nine Months

Ended September 30,

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

Net income (loss)

$

1,442

 

 

$

(2,994

)

 

$

4,590

 

 

$

(22,838

)

Preferred dividends

 

 

 

 

534

 

 

 

 

 

 

1,591

 

Net income (loss) attributable to common shareholders

$

1,442

 

 

$

(3,528

)

 

$

4,590

 

 

$

(24,429

)

Basic and diluted weighted average Class A shares outstanding

 

1,667

 

 

 

1,683

 

 

 

1,667

 

 

 

1,700

 

Net income (loss) per share attributable to Class A shareholders

$

0.87

 

 

$

(0.50

)

 

$

2.75

 

 

$

(3.44

)

Basic and diluted weighted average Class B shares outstanding

 

 

 

 

5,413

 

 

 

 

 

 

5,410

 

Net loss per share attributable to Class B shareholders

$

 

 

$

(0.50

)

 

$

 

 

$

(3.44

)

Because we have incurred a net loss for all periods where the Company had potentially dilutive securities, diluted net loss per common share is the same as basic net loss per common share. The following convertible equity shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive. There were no potentially dilutive shares for the three and nine-month periods ended September 30, 2019 as neither the convertible promissory notes issued to Emmis and SG Broadcasting described in Note 7, nor the Series A convertible preferred stock, were convertible until May 25, 2020.

 

 

For the Three Months

Ended September 30,

 

 

For the Nine Months

Ended September 30,

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

Convertible Emmis promissory note

$

 

 

$

977

 

 

$

 

 

$

1,238

 

Convertible Standard General promissory notes

 

 

 

 

3,979

 

 

 

 

 

 

5,023

 

Series A convertible preferred stock

 

 

 

 

4,525

 

 

 

 

 

 

5,734

 

Total

 

 

 

 

$

9,481

 

 

$

 

 

$

11,995

 

 

Liquidity and Going Concern

The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Pursuant to ASC Topic 205-40, “Going Concern,” the Company is required to evaluate whether there is substantial doubt about its ability to continue as a going concern each reporting period. In evaluating the Company’s ability to continue as a going concern for this reporting period, management evaluated the conditions and events that could raise substantial doubt about the Company’s ability to continue as a going concern within one year of the date of the filing of these financial statements (November 13, 2020). Management considered the Company’s ability to forecast future cash flows, current financial condition, sources of liquidity and debt service obligations due on or before November 13, 2021.

The Company has been and continues to be negatively impacted by COVID-19, which the Company expects to negatively impact revenues and profitability for an undetermined period of time. Management has considered these circumstances in assessing the Company’s liquidity over the next year.  Liquidity is a measure of an entity’s ability to meet potential cash requirements, maintain its assets, fund its operations, and meet the other general cash needs of its business. The Company’s liquidity is impacted by general economic, financial, competitive, and other factors beyond its control. The Company’s liquidity requirements consist primarily of funds necessary to pay its expenses, principally debt service and operational expenses, such as labor costs, and other related expenditures. The Company generally satisfies its liquidity needs through cash provided by operations.  In addition, the Company has taken steps to enhance its ability to fund its operational expenses by reducing various costs and is prepared to take additional steps as necessary.

The Company has debt service obligations of approximately $7.7 million due under its Senior Credit Facility from November 13, 2020, the date of issuance of these financial statements, through November 13, 2021. The Company expects its revenues and profitability will continue to be adversely impacted by the COVID-19 pandemic. Because the duration and severity of the impact is unknown as of the filing of this Form 10-Q, management is unable to determine with certainty that the Company will be able to meet its liquidity needs for the next twelve months with cash and cash equivalents on hand, projected cash flows from operations, and/or additional borrowings. Under the terms of its Senior Credit Facility, the amount of debt outstanding thereunder is limited to a formula based on 60% of the fair value of the Company’s FCC licenses plus a multiple of the Company’s Billboard Cash Flow (as defined in the Senior Credit Facility). Management is also unable to determine whether the Company will be in compliance with its debt covenants and the limits of its borrowing base for the next twelve months. If necessary, management intends to request a waiver or amendment to its Senior Credit Facility and seek additional borrowings from Standard General. While the Company has been successful in obtaining waivers and amendments under its Senior Credit Facility and has also received additional liquidity from Standard General in the past, no assurances can be made that the Company will be successful or receive such liquidity in the future. Accordingly, there is substantial doubt about our ability to continue as a going concern through November 13, 2021. Furthermore,

- 10 -


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

Recent Accounting Pronouncements Not Yet Implemented

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-13, Financial Instruments – Credit Losses, which introduces new guidance for an approach based on using expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides a simplified accounting model for purchased financial assets with credit deterioration since their origination. Instruments in scope include loans, held-to-maturity debt securities and net investments in leases as well as reinsurance and trade receivables. This standard will be effective for us as of January 1, 2023. We are currently evaluating the impact that the adoption of the new standard will have on our condensed consolidated and combined financial statements.

Note 4. Share Based Payments

The amounts recorded as share based compensation expense consist of a restricted stock award issued to an officer that vests in three equal installments. Awards to officers are typically made pursuant to employment agreements. Restricted stock awards are granted out of the Company’s 2020 Equity Compensation Plan.

The following table presents a summary of the Company’s restricted stock grants outstanding at September 30, 2020, and restricted stock activity during the nine months ended September 30, 2020 (“Price” reflects the weighted average share price at the date of grant):

 

 

Awards

 

 

Price

 

Grants outstanding, beginning of period

 

 

 

 

$

 

Granted

 

 

102,617

 

 

 

5.41

 

Grants outstanding, end of period

 

 

102,617

 

 

 

5.41

 

Recognized Non-Cash Compensation Expense

The following table summarizes stock-based compensation expense recognized by the Company during the three and nine months ended September 30, 2019 and 2020. The Company did not recognize any tax benefits related to stock-based compensation during the periods presented below.

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

2019

 

 

2020

 

 

2019

 

 

2020

 

Operating expenses, excluding depreciation and amortization

 

$

60

 

 

$

 

 

$

192

 

 

$

 

Corporate expenses

 

 

 

 

 

44

 

 

 

 

 

 

44

 

Share-based compensation expense

 

$

60

 

 

$

44

 

 

$

192

 

 

$

44

 

 

Note 5. Intangible Assets

Valuation of Indefinite-lived Broadcasting Licenses

In accordance with ASC Topic 350, “Intangibles—Goodwill and Other,” the Company’s FCC licenses are considered indefinite-lived intangibles; therefore, they are not subject to amortization, but are tested for impairment at least annually as discussed below.

The carrying amounts of the Company’s FCC licenses were $63.3 million as of December 31, 2019 and September 30, 2020. Pursuant to our accounting policy, stations in a geographic market cluster are considered a single unit of accounting, provided that they are not being operated under an LMA with another broadcaster. The stations have historically performed an annual impairment test of indefinite-lived intangibles as of December 1 of each year. In connection with our change in fiscal years from one that ends in February to a traditional calendar year end, we plan to perform our annual impairment test of indefinite-lived intangible assets as of October 1 of each year. When indicators of impairment are present, we will perform an interim impairment test. Due to the impact the COVID-19 pandemic has had on our radio operations, we considered the need to perform an interim impairment test during the quarter ended September 30, 2020. However, given the cushion that exists between the most recently-available fair market values and current carrying values, the Company concluded no interim impairment testing was required. Future impairment tests may result in additional impairment charges in subsequent periods.

Fair value of our FCC licenses is estimated to be the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. To determine the fair value of our FCC licenses, the Company considers both income and market valuation methods when it performs its impairment tests. Under the income method, the Company projects cash flows that would be generated by its unit of accounting assuming the unit of accounting was commencing operations in its market at the beginning of the valuation period. This cash flow stream is discounted to arrive at a value for the FCC license. The Company assumes the competitive situation that exists in its market remains unchanged, with the exception that its unit of accounting commenced operations at the beginning of the valuation period. In doing so, the Company extracts the value of going concern and any other assets acquired, and strictly values the FCC license. Major assumptions involved in this analysis include market

- 11 -


revenue, market revenue growth rates, unit of accounting audience share, unit of accounting revenue share and discount rate. Each of these assumptions may change in the future based upon changes in general economic conditions, audience behavior, consummated transactions, and numerous other variables that may be beyond our control. The projections incorporated into our license valuations take into consideration then current economic conditions. Under the market method, the Company uses recent sales of comparable radio stations for which the sales value appeared to be concentrated entirely in the value of the license, to arrive at an indication of fair value. When evaluating our radio broadcasting licenses for impairment, the testing is performed at the unit of accounting level as determined by ASC Topic 350-30-35. In our case, radio stations in a geographic market cluster are considered a single unit of accounting, provided that they are not being operated under an LMA.

Valuation of Goodwill

As a result of the Fairway Acquisition discussed in Note 1 and the initial purchase price allocation, goodwill of $11.4 million was recognized in December 2019. We made a number of purchase price allocation adjustments during the nine months ended September 30, 2020, resulting in an increase to goodwill of $1.7 million from the initial valuation. The purchase price allocation of the Fairway Acquisition is preliminary and subject to adjustment. Any adjustment to the purchase price allocation may directly impact the value of goodwill. The goodwill relating to this acquisition accounts for all goodwill on the condensed consolidated balance sheets as of December 31, 2019 and September 30, 2020. ASC Topic 350-20-35 requires the Company to test goodwill for impairment at least annually. While the COVID-19 pandemic has negatively affected our outdoor operations, as of September 30, 2020, we don’t believe the long-term value of the outdoor business, and thus the associated goodwill, has been impaired. The Company will conduct its impairment test on October 1 of each fiscal year, unless indications of impairment exist during an interim period.

Valuation of Trade Name

As a result of the Fairway Acquisition, the Company acquired the trade name “Fairway”. The trade name is well known in the industry and is being retained for continued market use following the acquisition. This trade name favorably factors into customer purchasing decisions. For the purchase price allocation, the trade name was valued using the relief from royalty method. This method is based on what a company would be willing to pay for a royalty in order to exploit the related benefits of the trade name. The value of the trade name is determined by discounting the inherent after-tax royalty savings associated with ownership or possession of the trade name. The preliminary valuation assigned to the trade name as a result of the purchase price accounting was $0.7 million. The trade name is an indefinite-lived intangible asset based on our intention to renew it when legally required and to utilize it going forward. We will assess the trade name annually for impairment on October 1 of each year, unless indications of impairment exist during an interim period.

Definite-lived intangibles

The following table presents the weighted-average useful life at September 30, 2020, and the gross carrying amount and accumulated amortization for our definite-lived intangible assets at December 31, 2019, and September 30, 2020:

 

 

 

As of December 31, 2019

 

 

As of September 30, 2020

 

 

(in 000's, except years)

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Amount

 

 

Gross Carrying

Amount

 

 

Accumulated

Amortization

 

 

Net Carrying

Amount

 

Weighted

Average

Remaining

Useful Life

(in years)

Programming agreement

 

$

2,154

 

 

$

1,640

 

 

$

514

 

 

$

2,154

 

 

$

1,860

 

 

$

294

 

1.0

Customer list

 

 

3,030

 

 

 

14

 

 

 

3,016

 

 

 

2,906

 

 

767

 

 

 

2,139

 

2.2

 

In accordance with Accounting Standards Codification paragraph 360-10, the Company performs an analysis to (i) determine if indicators of impairment of a long-lived asset are present, (ii) test the long-lived asset for recoverability by comparing undiscounted cash flows of the long-lived asset to its carrying value and (iii) measure any potential impairment by comparing the long-lived asset's fair value to its current carrying value.

Total amortization expense from definite-lived intangibles for the nine-month periods ended September 30, 2019 and 2020 was less than $0.1 million and $1.0 million, respectively. The following table presents the Company's estimate of future amortization expense for definite-lived intangibles:

 

Year ending December 31,

 

Expected Amortization Expense

 

Remainder of 2020

 

$

316

 

2021

 

 

1,189

 

2022

 

 

928

 

 

- 12 -


Note 6. Revenue

The Company generates revenue from the sale of services including, but not limited to: (i) on-air commercial broadcast time, (ii) display advertising on outdoor structures, (iii) non-traditional revenues including event-related revenues and event sponsorship revenues, and (iv) digital advertising. Payments received from advertisers before the performance obligation is satisfied are recorded as deferred revenue. Substantially all deferred revenue is recognized within twelve months of the payment date. We do not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. Advertising revenues presented in the condensed consolidated and combined financial statements are reflected on a net basis, after the deduction of advertising agency fees, usually at a rate of 15% of gross revenues.

Radio Advertising

On-air broadcast revenue is recognized when or as performance obligations under the terms of a contract with a customer are satisfied. This typically occurs over the period of time that advertisements are provided, or as an event occurs. Revenues are reported at the amount the Company expects to be entitled to receive under the contract. Payments received from advertisers before the performance obligation is satisfied are recorded as deferred revenue in the condensed consolidated balance sheet. Substantially all deferred revenue is recognized within twelve months of the payment date.

Outdoor Advertising

Our outdoor advertising business has approximately 3,300 faces consisting of bulletins, posters and digital billboards. Bulletins are generally large, illuminated advertising structures that are located on major highways a