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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2021

or

  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                       to                        

Commission file number:   001-35886

HEMISPHERE MEDIA GROUP, INC.

(Exact name of registrant as specified in its charter)

Delaware

80-0885255

(State or other jurisdiction of incorporation or
organization)

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

Hemisphere Media Group, Inc.

4000 Ponce de Leon Boulevard

Suite 650

Coral Gables, FL

33146

(Address of principal executive offices)

(Zip Code)

(305) 421-6364

(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, par value $0.0001 per share

HMTV

The NASDAQ Stock Market LLC

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 provided 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 Exchange Act). Yes   No 

Class of Stock

    

Shares Outstanding as of May 5, 2021

Class A common stock, par value $0.0001 per share

20,407,673 shares

Class B common stock, par value $0.0001 per share

19,720,381 shares

Table of Contents

HEMISPHERE MEDIA GROUP, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

March 31, 2021

(Unaudited)

 

PAGE
NUMBER

PART I - FINANCIAL INFORMATION

7

Item 1. Financial Statements

7

Notes to Condensed Consolidated Financial Statements

13

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

29

Item 3. Quantitative and Qualitative Disclosures About Market Risk

36

Item 4. Controls and Procedures

36

PART II - OTHER INFORMATION

37

Item 1. Legal Proceedings

37

Item 1A. Risk Factors

37

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

38

Item 3. Defaults Upon Senior Securities

39

Item 4. Mine Safety Disclosures

39

Item 5. Other Information

39

Item 6. Exhibits

40

SIGNATURES

41

2

Table of Contents

PART I

Unless otherwise indicated or the context requires otherwise, in this disclosure, references to the “Company,” “Hemisphere,” “registrant,” “we,” “us” or “our” refers to Hemisphere Media Group, Inc., a Delaware corporation and, where applicable, its consolidated subsidiaries; “ASG Latin” refers to ASG Latin, LLC, a Delaware limited liability company, a joint venture among Pantelion 2.0, LLC, a subsidiary of Pantaya, and ASG Music Group, LLC; “Business” refers collectively to our consolidated operations; “Cable Networks” refers to our Networks (as defined below) with the exception of WAPA and WAPA Deportes; “Canal 1” refers to a joint venture among us and Radio Television Interamericana S.A., Compania de Medios de Informacion S.A.S. and NTC Nacional de Television y Comunicaciones S.A. to operate a broadcast television network in Colombia; “Centroamerica TV” refers to HMTV Centroamerica TV, LLC, a Delaware limited liability company; “Cinelatino” refers to Cine Latino, Inc., a Delaware corporation; “Distributors” refers collectively to satellite systems, telephone companies (“telcos”), and cable multiple system operators (“MSO”s), and the MSO’s affiliated regional or individual cable systems; “Holdings” refers to “Hemisphere Media Holdings, LLC, a Delaware limited liability company and indirect, wholly owned subsidiary of Hemisphere; “HMTV Cable” refers to HMTV Cable, Inc., a Delaware corporation, the parent company of the entities for the acquired networks consisting of Pasiones, TV Dominicana, and Centroamerica TV; “HMTV Distribution” refers to HMTV Distribution, LLC, a Delaware limited liability company, the parent company of Snap Media; “HMTV DTC” refers to HMTV DTC, LLC, a Delaware limited liability company, the parent company of Pantaya; “MarVista” refers to Mar Vista Entertainment, LLC, a Delaware limited liability company; “MVS” refers to Grupo MVS, S.A. de C.V., a Mexican Sociedad Anonima de Capital Variable (variable capital corporation) and its affiliates, as applicable; “Networks” refers collectively to WAPA, WAPA Deportes, WAPA America, Cinelatino, Pasiones, Centroamerica TV and Television Dominicana; “Nielsen” refers to Nielsen Media Research; “Pantaya” refers to Pantaya, LLC, a Delaware limited liability company and its consolidated subsidiaries; “Pasiones” refers collectively to HMTV Pasiones US, LLC, a Delaware limited liability company, and HMTV Pasiones LatAm, LLC, a Delaware limited liability company; “REMEZCLA” refers to Remezcla, LLC, a New York limited liability company; “Second Amended Term Loan Facility” refers to our Term Loan Facility amended on February 14, 2017 as set forth on Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017; “Snap Media” refers to Snap Global, LLC, a Delaware limited liability company and its consolidated subsidiaries; “Television Dominicana” refers to HMTV TV Dominicana, LLC, a Delaware limited liability company; “Term Loan Facility” refers to our term loan facility amended on July 31, 2014 as set forth on Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017; “Third Amended Term Loan Facility” refers to our Term Loan Facility amended on March 31, 2021 as set forth on Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021; “WAPA” refers to Televicentro of Puerto Rico, LLC, a Delaware limited liability company; “WAPA America” refers to WAPA America, Inc., a Delaware corporation; “WAPA Deportes” refers to a sports television network in Puerto Rico operated by WAPA; “WAPA Holdings” refers to WAPA Holdings, LLC (formerly known as InterMedia Español Holdings, LLC), a Delaware limited liability company, the parent company of WAPA and WAPA America; and “WAPA..TV” refers to a news and entertainment website in Puerto Rico operated by WAPA; “United States” or “U.S.” refers to the United States of America, including its territories, commonwealths and possessions.

FORWARD-LOOKING STATEMENTS

CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.

Statements in this Quarterly Report on Form 10-Q (this “Quarterly Report”), including the exhibits attached hereto, future filings by us with the Securities and Exchange Commission, our press releases and oral statements made by, or with the approval of, our authorized personnel, that relate to our future performance or future events, may contain certain statements about Hemisphere Media Group, Inc. (the “Company”) and its consolidated subsidiaries that do not directly or exclusively relate to historical facts. These statements are, or may be deemed to be, “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.

These forward-looking statements are necessarily estimates reflecting the best judgment and current expectations, plans, assumptions and beliefs about future events (in each case subject to change) of our senior management and management of our subsidiaries (including target businesses) and involve a number of risks, uncertainties and other factors, some of which may be beyond our control that could cause actual results to differ materially from those expressed or implied in such forward-looking statements. Without limitation, any statements preceded or followed by or that include the words “targets,” “plans,” “believes,” “expects,” “intends,” “will,” “likely,” “may,” “anticipates,” “estimates,” “projects,” “should,” “would,” “could,” “might,” “expect,” “positioned,”

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“strategy,” “future,” “potential,” “forecast,” or words, phrases or terms of similar substance or the negative thereof, are forward-looking statements. These include, but are not limited to, the Company's future financial and operating results (including growth and earnings), plans, objectives, expectations and intentions and other statements that are not historical facts.

We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all forward-looking statements.

Forward-looking statements are not guarantees of performance. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance, or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Additionally, many of these risks are currently amplified by and may, in the future, continue to be amplified by the prolonged impact of the COVID-19 pandemic. In addition to the risk factors described in “Item 1A-Risk Factors” in this Quarterly Report on Form 10-Q, those factors include:

the deterioration of general economic conditions, political instability, social unrest, and public health crises, such as the occurrence of a global pandemic like COVID-19, including measures taken by governmental authorities to address the pandemic, which may precipitate or exacerbate other risks and/or uncertainties, recent increases in, and any additional waves of, COVID-19 cases, new variants of the virus, and the availability and efficacy of a vaccine and treatments for the disease, either nationally or in the local markets in which we operate, including, without limitation, in the Commonwealth of Puerto Rico;
Puerto Rico’s uncertain political climate, as well as delays in the disbursement of earmarked federal funds on the local economy and advertising market;
the effects of extreme weather and climate events on our Business as well as our counterparties, customers, employees, third-party vendors and suppliers;
changes in technology, including changes in the distribution and viewing of television programming, including expanded deployment of personal video recorders, subscription and advertising video on-demand, internet protocol television, mobile personal devices and personal tablets and their impact on subscription and television advertising revenue;
the reaction by advertisers, programming providers, strategic partners, the Federal Communications Commission (the “FCC”) or other government regulators to businesses that we acquire;
the potential for viewership of our Networks’ programming to decline or unexpected reductions in the number of subscribers to our Networks;
the risk that we may fail to secure sufficient or additional advertising and/or subscription revenue;
the inability of advertisers or affiliates to remit payment to us in a timely manner or at all;
the risk that we may become responsible for certain liabilities of the businesses that we acquire, including our recent acquisition of Pantaya, or joint ventures we enter into;
future financial performance, including our ability to obtain additional financing in the future on favorable terms;
the failure of our Business to produce projected revenues or cash flows;
reduced access to capital markets or significant increases in borrowing costs;
our ability to successfully manage relationships with customers and Distributors and other important third parties;
continued consolidation of Distributors in the marketplace;
a failure to secure affiliate agreements or the renewal of such agreements on less favorable terms;

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disagreements with our Distributors over contract interpretation;
our success in acquiring, investing in and integrating businesses;
the outcome of any pending or threatened litigation;
the loss of key personnel and/or talent or expenditure of a greater amount of resources attracting, retaining and motivating key personnel than in the past;
strikes or other union job actions that affect our operations, including, without limitation, failure to renew our collective bargaining agreements on mutually favorable terms;
the failure or destruction of satellites or transmitter facilities that we depend upon to distribute our Networks;
uncertainties inherent in the development of new business lines and business strategies;
changes in pricing and availability of products and services;
uncertainties regarding the financial results of equity method investees and changes in the nature of key strategic relationships with partners and Distributors;
changes in domestic and foreign laws or regulations under which we operate;
changes in laws or treaties relating to taxation, or the interpretation thereof, in the U.S. or in the countries in which we operate;
the ability of suppliers and vendors to deliver products and services;
our ability to timely and fully recover proceeds under our insurance policies;
fluctuations in foreign currency exchange rates and political unrest and regulatory changes in the international markets in which we operate;
changes in the size of the U.S. Hispanic population, including the impact of federal and state immigration legislation and policies on both the U.S. Hispanic population and persons emigrating from Latin America;
changes in, or failure or inability to comply with, government regulations including, without limitation, regulations of the FCC, and adverse outcomes from regulatory proceedings; and
competitor responses to our products and services.

The list of factors above is illustrative, but by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. All subsequent written and oral forward-looking statements concerning the matters addressed in this Quarterly Report and attributable to us or any person acting on our behalf are qualified by these cautionary statements.

The forward-looking statements are based on current expectations about future events and are not guarantees of future performance, and are subject to certain risks, uncertainties and assumptions. Although we believe that the expectations reflected in the forward-looking statements are reasonable, these expectations may not be achieved. We may change our intentions, beliefs or expectations at any time and without notice, based upon any change in our assumptions or otherwise. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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PART I - FINANCIAL INFORMATION

ITEM I. FINANCIAL STATEMENTS

HEMISPHERE MEDIA GROUP, INC.

Condensed Consolidated Balance Sheets

(amounts in thousands, except share and par value amounts)

March 31,

December 31,

    

2021

    

2020

(Unaudited)

Assets

Current Assets

Cash

$

194,388

$

134,471

Accounts receivable, net of allowance for doubtful accounts of $928 and $919, respectively

 

32,909

 

35,955

Due from related parties

 

471

 

943

Programming rights

 

9,115

 

8,301

Prepaids and other current assets

 

9,655

 

9,298

Total current assets

 

246,538

 

188,968

Programming rights, net of current portion

 

12,414

 

13,430

Property and equipment, net

 

33,709

 

31,798

Operating lease right-of-use assets

1,683

1,820

Broadcast license

 

41,356

 

41,356

Goodwill

 

310,082

 

165,597

Other intangibles, net

 

54,017

 

24,761

Equity method investments

33,159

29,782

Other assets

10,049

4,333

Total Assets

$

743,007

$

501,845

Liabilities and Stockholders’ Equity

Current Liabilities

Accounts payable

5,824

2,350

Due to related parties

 

215

 

648

Accrued agency commissions

 

4,950

 

6,529

Accrued compensation and benefits

 

3,869

 

5,934

Accrued marketing

7,486

7,066

Other accrued expenses

 

28,193

 

8,137

Income taxes payable

2,864

2,233

Programming rights payable

 

20,516

 

7,626

Current portion of long-term debt

 

2,656

 

2,134

Payable for acquisition of Pantaya

123,605

Total current liabilities

 

200,178

 

42,657

Programming rights payable, net of current portion

 

2,414

 

776

Long-term debt, net of current portion

 

247,946

 

200,856

Deferred income taxes

 

19,410

 

19,306

Other long-term liabilities

3,339

3,932

Defined benefit pension obligation

 

2,877

 

2,832

Total Liabilities

 

476,164

 

270,359

Stockholders’ Equity

Preferred stock, $0.0001 par value; 50,000,000 shares authorized; 0 shares issued at March 31, 2021 and December 31, 2020

 

 

Class A common stock, $.0001 par value; 100,000,000 shares authorized; 25,712,338 and 25,457,709 shares issued at March 31, 2021 and December 31, 2020, respectively

 

3

 

3

Class B common stock, $.0001 par value; 33,000,000 shares authorized; 19,720,381 shares issued at March 31, 2021 and December 31, 2020

 

2

 

2

Additional paid-in capital

 

283,883

 

279,800

Class A treasury stock, at cost 5,934,443 and 5,710,416 at March 31, 2021 and December 31, 2020, respectively

 

(63,904)

 

(61,453)

Retained earnings

 

48,198

 

14,840

Accumulated other comprehensive loss

 

(1,843)

 

(2,187)

Total Hemisphere Media Group Stockholders’ Equity

266,339

231,005

Equity attributable to non-controlling interest

504

481

Total Stockholders' Equity

 

266,843

 

231,486

Total Liabilities and Stockholders' Equity

$

743,007

$

501,845

See accompanying Notes to Condensed Consolidated Financial Statements.

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HEMISPHERE MEDIA GROUP, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(amounts in thousands, except per share amounts)

Three Months Ended March 31,

    

2021

    

2020

Net revenues

$

37,577

$

32,409

Operating Expenses:

Cost of revenues

 

11,779

 

10,967

Selling, general and administrative

 

11,391

 

11,233

Depreciation and amortization

 

2,665

 

3,131

Other expenses

 

6,728

 

3,021

Gain from FCC repack and other

 

(52)

 

(9)

Total operating expenses

 

32,511

 

28,343

Operating income

 

5,066

 

4,066

Other income (expense):

Interest expense and other, net

 

(2,358)

 

(2,786)

Gain (loss) on equity method investment activity

 

32,609

 

(7,019)

Impairment of equity method investment

(5,479)

Other expense, net

(668)

Total other income (expense)

 

29,583

 

(15,284)

Income (loss) before income taxes

 

34,649

 

(11,218)

Income tax (expense) benefit

 

(1,268)

 

1,675

Net income (loss)

33,381

(9,543)

Net (income) loss attributable to non-controlling interest

(23)

115

Net income (loss) attributable to Hemisphere Media Group, Inc.

$

33,358

$

(9,428)

Income (loss) per share attributable to Hemisphere Media Group, Inc.:

Basic

$

0.85

$

(0.24)

Diluted

$

0.84

$

(0.24)

Weighted average shares outstanding:

Basic

 

39,380

 

39,313

Diluted

 

39,756

 

39,313

See accompanying Notes to Condensed Consolidated Financial Statements.

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HEMISPHERE MEDIA GROUP, INC.

Condensed Consolidated Statement of Comprehensive Income (Loss)

(Unaudited)

(amounts in thousands)

Three Months Ended March 31,

    

2021

    

2020

Net income (loss)

$

33,381

$

(9,543)

Other comprehensive income (loss):

Change in fair value of interest rate swap, net of income taxes

344

(1,887)

Comprehensive income (loss)

33,725

(11,430)

Comprehensive (income) loss attributable to non-controlling interest

(23)

115

Comprehensive income (loss) attributable to Hemisphere Media Group

$

33,702

$

(11,315)

See accompanying Notes to Condensed Consolidated Financial Statements.

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HEMISPHERE MEDIA GROUP, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three Months Ended March 31, 2021

(Unaudited)

(amounts in thousands)

Class A

Class B

Additional

Class A

Accumulated

Non-

 

Common Stock

Common Stock

Paid In

Treasury

Retained

Comprehensive

controlling

 

    

Shares

    

Par Value

    

Shares

    

Par Value

    

Capital

    

Stock

    

Earnings

    

Loss

    

Interest

    

Total

Balance at December 31, 2020

 

25,458

$

3

 

19,720

$

2

$

279,800

$

(61,453)

$

14,840

$

(2,187)

$

481

$

231,486

Net income

 

 

 

 

 

 

 

33,358

 

 

23

 

33,381

Vesting of restricted stock.

3

(10)

(10)

Repurchases of Class A Common Stock

(1,321)

(1,321)

Stock-based compensation

 

 

 

 

 

1,305

 

 

 

 

 

1,305

Issuance of Class A Common Stock

238

2,778

(1,077)

1,701

Exercise of stock options

13

(0)

(43)

(43)

Other comprehensive loss, net of tax

 

 

 

 

 

 

 

 

344

 

 

344

Balance at March 31, 2021

 

25,712

$

3

 

19,720

$

2

$

283,883

$

(63,904)

$

48,198

$

(1,843)

$

504

$

266,843

See accompanying Notes to Condensed Consolidated Financial Statements.

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HEMISPHERE MEDIA GROUP, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three Months Ended March 31, 2020

(Unaudited)

(amounts in thousands)

    

Class A 

    

Class B

    

Additional

    

Class A

    

    

Accumulated

    

Non-

    

Common Stock

 Common Stock

Paid In

Treasury

Retained

Comprehensive

controlling

    

Shares

    

Par Value

    

Shares

        

Par Value

    

Capital

    

Stock

    

Earnings

    

Loss

    

Interest

    

Total

Balance at December 31, 2019

 

25,202

$

3

 

19,720

$

2

$

274,518

$

(60,521)

$

16,075

$

(792)

$

1,384

$

230,669

Net loss

 

(9,428)

(115)

(9,543)

Stock-based compensation

1,280

1,280

Other comprehensive loss, net of tax

(1,887)

(1,887)

Balance at March 31, 2020

 

25,202

$

3

 

19,720

$

2

$

275,798

$

(60,521)

$

6,647

$

(2,679)

$

1,269

$

220,519

See accompanying Notes to Condensed Consolidated Financial Statements.

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HEMISPHERE MEDIA GROUP, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(amounts in thousands)

Three Months Ended March 31, 

    

2021

    

2020

Reconciliation of Net Income (Loss) to Net Cash Provided by Operating Activities:

Net income (loss)

$

33,381

$

(9,543)

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

Depreciation and amortization

 

2,665

 

3,131

Program amortization

 

3,688

 

3,311

Amortization of deferred financing costs and original issue discount

 

148

 

147

Stock-based compensation

 

1,305

 

1,280

Provision for bad debts

 

24

 

600

Gain from FCC repack and other

(52)

(9)

(Gain) loss on equity method investment activity

(32,609)

7,019

Amortization of operating lease right-of-use assets

120

115

Other non-cash acquisition charges

1,258

Impairment of equity method investment

5,479

Changes in assets and liabilities, net of effects from acquisition:

Decrease (increase) in:

Accounts receivable

 

5,679

 

(543)

Due from related parties, net

 

39

 

580

Programming rights

 

1,313

 

(3,657)

Prepaids and other assets

 

(4,091)

 

(1,593)

(Decrease) increase in:

Accounts payable

 

667

 

612

Other accrued expenses

 

3,799

 

1,060

Programming rights payable

 

(87)

 

2,267

Income taxes payable

 

631

 

Other liabilities

 

(100)

 

(75)

Net cash provided by operating activities

 

17,778

 

10,181

Cash Flows From Investing Activities:

Funding of equity method investments

(861)

(6,449)

Capital expenditures

(2,413)

(349)

Net cash of acquired business

984

FCC repack proceeds

52

9

Net cash used in investing activities

 

(2,238)

 

(6,789)

Cash Flows From Financing Activities:

Repayments of long-term debt

(534)

(534)

Purchases of common stock

 

(2,451)

 

Proceeds from incremental term loan

 

48,000

 

Payment of financing fees

(638)

Net cash provided by (used) in financing activities

44,377

(534)

Net increase in cash

59,917

2,858

Cash:

Beginning

134,471

92,151

Ending

$

194,388

$

95,009

Supplemental Disclosures of Cash Flow Information:

Cash payments for:

Interest

$

2,301

$

2,767

Income taxes

$

$

2

Non-cash investing activity (acquisition related):

Payable for acquisition of Pantaya

$

123,605

$

Issuance of Class A Common Stock

$

2,188

$

Effective settlement of pre-existing receivables and payables, net

$

1,709

$

See accompanying Notes to Condensed Consolidated Financial Statements.

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Notes to Condensed Consolidated Financial Statements

Note 1. Nature of Business

Nature of business: The accompanying Condensed Consolidated Financial Statements include the accounts of Hemisphere Media Group, Inc. (“Hemisphere” or the “Company”), the parent holding company of Cine Latino, Inc. (“Cinelatino”), WAPA Holdings, LLC (formerly known as InterMedia Español Holdings, LLC) (“WAPA Holdings”), HMTV Cable, Inc. (“HMTV Cable”), the parent company of the entities for the acquired networks consisting of Pasiones, TV Dominicana, and Centroamerica TV, HMTV Distribution, LLC (“HMTV Distribution”), the parent of Snap Global, LLC, and its wholly owned subsidiaries (“Snap Media”), which we acquired a 75% interest on November 26, 2018, and HMTV DTC, LLC (“HMTV DTC”), the parent company of Pantaya, LLC, and its subsidiaries (“Pantaya”), including a joint venture, ASG Latin, LLC, which we acquired on March 31, 2021 (see below). Hemisphere was formed on January 16, 2013 for purposes of effecting its initial public offering, which was consummated on April 4, 2013. In these notes, the terms “Company,” “we,” “us” or “our” mean Hemisphere and all subsidiaries included in our Condensed Consolidated Financial Statements.

On March 31, 2021, the Company acquired the remaining seventy five percent (75%) equity interest in Pantaya (the “Pantaya Acquisition”), for a cash purchase price of $123.6 million. Prior to the transaction, Hemisphere owned 25% of Pantaya, and as a result of the acquisition, Pantaya is now a wholly owned consolidated subsidiary. For more information, see Note 3, “Business Combination” of Notes to Condensed Consolidated Financial Statements.

Basis of presentation:   The accompanying Condensed Consolidated Financial Statements for Hemisphere and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. In our opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement have been included. Our financial condition as of, and operating results, for the three months ended March 31, 2021 are not necessarily indicative of the financial condition or results that may be expected for any future interim period or for the year ending December 31, 2021. These Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and Notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Net income (loss) per common share:  Basic income (loss) per share is computed by dividing loss attributable to Hemisphere Media Group, Inc. common stockholders by the number of weighted-average outstanding shares of common stock. Diluted income (loss) per share reflects the effect of the assumed exercise of stock options and vesting of restricted shares only in the periods in which such effect would have been dilutive.

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The following table sets forth the computation of the common shares outstanding used in determining basic and diluted income (loss) per share attributable to Hemisphere Media Group, Inc. (amounts in thousands, except per share amounts):

Three Months Ended March 31,

    

2021

    

2020

Numerator for income (loss) per common share calculation:

Net income (loss) attributable to Hemisphere Media Group, Inc.

$

33,358

$

(9,428)

Denominator for income (loss) per common share calculation:

Weighted-average common shares, basic

 

39,380

 

39,313

Effect of dilutive securities

Stock options and restricted stock

 

376

 

Weighted-average common shares, diluted

 

39,756

 

39,313

Income (loss) per share attributable to Hemisphere Media Group, Inc.

Basic

$

0.85

$

(0.24)

Diluted

$

0.84

$

(0.24)

We apply the treasury stock method to measure the dilutive effect of our outstanding stock options and restricted stock awards and include the respective common share equivalents in the denominator of our diluted loss per common share calculation. Per the Accounting Standards Codification (“ASC”) 260, under the treasury stock method, the incremental shares (difference between the number of shares assumed issued and the number of shares assumed purchased) shall be included in the denominator of the diluted income (loss) per share computation (ASC 260-10-45-23). The assumed exercise only occurs when the options are “In the Money” (exercise price is lower than the average market price for the period). If the options are “Out of the Money” (exercise price is higher than the average market price for the period), the exercise is not assumed since the result would be anti-dilutive. Potentially dilutive securities representing 2.5 million and 1.6 million shares of common stock for the three months ended March 31, 2021 and 2020, respectively, were excluded from the computation of diluted income (loss) per common share for this period because their effect would have been anti-dilutive. The net income (loss) per share attributable to Hemisphere Media Group, Inc. amounts are the same for our Class A and Class B common stock because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation.

As a result of the loss from operations for the three months ended March 31, 2020, 0.5 million outstanding awards were not included in the computation of diluted loss per share because their effect was anti-dilutive.

Risks and Uncertainties: In March 2020, the World Health Organization characterized the coronavirus (“COVID-19”) as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The rapid spread of COVID-19 and the continuously evolving responses to combat it have had a negative impact on the global economy. Even during these unprecedented times, we have continued the production of news and entertainment programming, as our viewers rely on our Networks to keep them informed.

The impact of COVID-19 and measures to prevent its spread have continued to affect our businesses in a number of ways. Beginning in March 2020, the Company has experienced adverse advertising revenue impacts. Operationally, most non-production and programming personnel are working remotely, and the Company has restricted business travel. The Company has managed the remote workforce transition effectively and there have been no material adverse impacts on operations through March 31, 2021. While the Company’s advertising revenue improved in second half of 2020 and continued into the first quarter of 2021, the Company is unable to predict the impact that a significant change in circumstances including the ability of our workforce and/or key personnel to work effectively because of illness, government actions or other restrictions in connection with the COVID-19 pandemic may have on our businesses in the future. The extent of the impact of the COVID-19 pandemic on our future operations will depend on numerous factors, all of which are highly uncertain and cannot be predicted. These factors include the length and severity of the outbreak, the responses of private sector businesses and governments including the timing and amount of government stimulus, the impact on economic activity and the impact on our customers, employees and suppliers. For more information on the risks associated with the COVID-19 pandemic, see “Item 1A-Risk Factors” included elsewhere in this Quarterly Report.

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The Company has evaluated and continues to evaluate the potential impact of the COVID-19 pandemic on its Condensed Consolidated Financial Statements, including the impairment of goodwill and indefinite-lived intangible assets and the fair value of equity method investments. The ultimate impact of the COVID-19 pandemic, including the extent of any adverse impact on our business, results of operations and financial condition, remains uncertain.

Use of estimates: In preparing these financial statements, management had to make estimates and assumptions that affected the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the balance sheet dates, and the reported revenues and expenses for the three months ended March 31, 2021 and 2020. Such estimates are based on historical experience and other assumptions that are considered appropriate in the circumstances. However, actual results could differ from those estimates.

Recently adopted Accounting Standards: On January 1, 2021, we adopted Financial Accounting Standards Board (“the FASB”) ASU 2019-12—Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. The updated guidance simplifies the accounting for income taxes in several areas by removing certain exceptions and by clarifying and amending existing guidance applicable to accounting for income taxes. The adoption of this ASU did not have an impact on our accompanying Condensed Consolidated Financial Statements as of and for the three months ended March 31, 2021.

Accounting guidance not yet adopted: In March 2020, the FASB issued ASU 2020-04-Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The update provides optional expedients and exceptions for applying U.S. GAAP principles to contracts, hedging relationships, and other transactions that reference London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued due to reference rate reform. This guidance was effective beginning on March 12, 2020, and can be adopted on a prospective basis no later than December 31, 2022, with early adoption permitted. We are currently evaluating the impact, if any, that the updated accounting guidance will have on our accompanying Condensed Consolidated Financial Statements.

Note 2. Revenue Recognition

The following is a description of principal activities from which we generate our revenue:

Subscriber revenue: We enter into arrangements with multi-channel video distributors, such as cable, satellite and telecommunications companies (referred to as “MVPDs”) to provide a continuous feed of our programming generally based on a per subscriber fee pursuant to multi-year contracts, referred to as “affiliation agreements”, which typically provide for annual rate increases. We have used the practical expedient related to the right to invoice and recognize revenue at the amount to which we have the right to invoice for services performed. The specific subscriber revenue we earn varies from period to period, distributor to distributor and also vary among our Networks, but are generally based upon the number of each distributor’s paying subscribers who subscribe to our Networks. Changes in subscriber revenue are primarily derived from changes in contractual per subscriber rates charged for our Networks and changes in the number of subscribers. MVPDs report their subscriber numbers to us generally on a two month lag. We record revenue based on estimates of the number of subscribers utilizing the most recently received remittance reporting of each MVPD, which is consistent with our past practice and industry practice. Revenue is recognized on a month by month basis when the performance obligations to provide service to the MVPDs is satisfied. Payment is typically received within sixty days of the remittance.

Advertising revenue: Advertising revenue is generated from the sale of commercial time, which is typically sold pursuant to sale orders with advertisers providing for an agreed upon commitment and price per spot. We recognize revenue from the sale of advertising as performance obligations are satisfied upon airing of the advertising; therefore, revenue is recognized at a point in time when each advertising spot is transmitted. Agency fees are calculated based on a stated percentage applied to gross billing revenue for our advertising inventory and are reported as a reduction of advertising revenue. Payment is typically due and received within thirty days of the invoice date.

Other revenue: Other revenue is derived primarily through the licensing of content to third parties. We enter into agreements to license content and recognize revenue when the performance obligation is satisfied and control is transferred, which is generally upon delivery of the content.

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The following table presents the revenues disaggregated by revenue source (amounts in thousands):

Three months ended March 31, 

Revenues by type

    

2021

    

2020

Subscriber revenue

$

19,949

$

19,833

Advertising revenue

 

15,906

 

11,816

Other revenue

 

1,722

 

760

Total revenue

$

37,577

$

32,409

Note 3. Business Combination

On March 31, 2021, the Company acquired the remaining seventy five percent (75%) equity interest in Pantaya (the “Pantaya Acquisition”). Prior to the Pantaya Acquisition, the Company owned a twenty five percent (25%) equity interest in Pantaya, and as a result of the acquisition, Pantaya is now a wholly owned consolidated subsidiary. Pantaya is the leading U.S. Hispanic subscription streaming service offering the largest selection of current and classic, commercial free blockbusters and critically acclaimed movies and series from Latin America and the U.S. including original productions from Pantaya’s production arm, Pantelion, and titles from our library, as well as titles from third party providers such as Lionsgate and Grupo Televisa.

Total cash purchase price in connection with the Pantaya Acquisition is $123.6 million. Under the terms of the purchase agreement (“Securities Purchase Agreement”), control of Pantaya transferred to the Company on March 31, 2021 (“Acquisition Date”), with cash consideration transferred on April 1, 2021. Cash consideration was funded with a combination of cash on hand and an add-on to our Term Loan Facility. For more information, see Note 8, “Long-Term Debt” of Notes to Condensed Consolidated Financial Statements. Fees and expenses incurred in connection with the Pantaya Acquisition totaled $6.7 million, consisting primarily of professional fees and certain non-cash charges, which are included in other expenses in the accompanying Condensed Consolidated Statement of Operations for the three months ended March 31, 2021.

Prior to the closing of the Pantaya Acquisition, the Company accounted for the existing 25% equity interest in Pantaya using the equity method, and the net book value was $0 as of March 31, 2021. The Company accounted for the acquisition of the remaining 75% equity interest of Pantaya as a step acquisition, which required remeasurement of the Company’s existing 25% ownership interest in Pantaya to fair value prior to completing the acquisition method of accounting. Using step acquisition accounting, the Company increased the value of its existing equity interest to its fair value resulting in the recognition of a non-cash gain of $30.1 million, which was included in gain (loss) on equity method investment activity in the accompanying Condensed Consolidated Statement of Operations for the three months ended March 31, 2021. For more information, see Note 10, “Fair Value Measurements” of Notes to Condensed Consolidated Financial Statements.

The acquisition was accounted for as a business combination by applying the acquisition method of accounting pursuant to ASC Topic 805, “Business Combinations”. Due to the timing of the acquisition, the amounts recorded for assets acquired, liabilities assumed, total consideration, and our existing 25% equity interest in Pantaya reflects preliminary fair value estimates based on management analysis. The Company is in the process of measuring all of the preliminary fair values, and, until the valuation process is complete, there may be adjustments during the measurement period.

The following table summarizes the purchase price consideration in connection with the Pantaya Acquisition as of March 31, 2021 (amounts in thousands):

Total cash consideration(a)

    

$

123,605

Class A common stock consideration(b)

 

2,188

Effective settlement of pre-existing receivables and payables, net(c)

 

1,709

Total consideration

 

127,502

Fair value of existing 25% equity interest

30,092

Total

$

157,594

(a)Amount classified as payable for the acquisition of Pantaya on the accompanying Condensed Consolidated Balance Sheet at March 31, 2021, with payment having occurred on April 1, 2021.

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(b)Calculated as 238,436 shares issued to certain employees, who held Pantaya stock-based compensation awards, multiplied by $11.65, which was the closing price of a share of the Company’s common stock on March 31, 2021, reduced by post-combination expense of approximately $0.6 million associated with the excess fair value over replacement awards.

(c)Effective settlement of pre-existing accounts receivable of $2.5 million for content licensed to Pantaya and programming rights payable of $0.8 million for content licensed from Pantaya prior to the Acquisition Date.

The following table summarizes the preliminary fair values of the assets acquired, liabilities assumed and resulting goodwill in the Pantaya Acquisition as of March 31, 2021 (amounts in thousands):

    

March 31, 2021

Cash

$

984

Accounts receivable

5,203

Fixed assets

 

602

Finite-lived intangible assets – programming rights

 

30,817

Other assets

 

6,794

Accounts payable

 

(2,807)

Accrued expenses

 

(13,032)

Film obligations

(15,452)

Goodwill

144,485

Fair value of net assets acquired

$

157,594

The preliminary fair value of the accounts receivable is based on the net realizable value and no amounts are believed to be uncollectible.

The preliminary fair value of the finite-lived intangible assets, which consists of programming rights, is $30.8 million. This finite-lived intangible asset will be amortized on a straight-line basis over the weighted-average useful life of 4.6 years. The Company has not yet finalized the estimated fair values of the net assets acquired.

Goodwill of $144.5 million represents Company-specific operational synergies and the future growth opportunities of Pantaya’s subscription streaming service. The goodwill associated with the transaction is expected to be deductible for tax purposes.

Supplemental Pro Forma Information (Unaudited)

The following table sets forth the unaudited supplemental pro forma results of operations assuming that the Pantaya Acquisition occurred on January 1, 2020:

Three months ended March 31,

    

2021

    

2020

Net revenue

    

$

48,907

    

$

43,114

Operating income (loss)

 

3,530

 

(7,964)

These unaudited supplemental pro forma results are presented for illustrative purposes and are not intended to represent or be indicative of the actual results of operations of the combined company that would have been achieved had the Pantaya Acquisition occurred on January 1, 2020, nor are they intended to represent or be indicative of future results of operations. The unaudited supplemental pro forma results of operations for all periods set forth above includes the combined historical operating results of Hemisphere and Pantaya, as adjusted by including the amortization of finite-lived intangible assets identified as a result of the Pantaya Acquisition of $1.7 million, and excluding all revenues and expenses from the business conducted between the Company and Pantaya. Results for the three months ended March 31, 2020, also includes non-recurring costs incurred in connection with the Pantaya Acquisition of $6.7 million, which have been excluded from the three months ended March 31, 2021.

The Pantaya Acquisition closed at the end of day on March 31, 2021, and therefore no net revenue or operating income of Pantaya is included in our Condensed Consolidated Statements of Operations for the three months ended March 31, 2021.

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Note 4. Related Party Transactions

The Company has various agreements with MVS, a Mexican media and television conglomerate, which has directors and stockholders in common with the Company as follows:

MVS provides Cinelatino with satellite and support services including origination, uplinking and satellite delivery of two feeds of Cinelatino’s channel (for U.S. and Latin America), master control and monitoring, dubbing, subtitling and closed captioning, and other support services. Expenses incurred under this agreement are included in cost of revenues in the accompanying Condensed Consolidated Statements of Operations. Total expenses incurred were $0.6 million for each of the three months ended March 31, 2021 and 2020. Amounts due to MVS pursuant to the agreement amounted to $0.2 million and $0.6 million at March 31, 2021 and December 31, 2020, respectively.

Dish Mexico (d/b/a Comercializadora de Frecuencias Satelitales, S. de R.L. de C.V.), an MVS affiliate that operates a subscription satellite television service throughout Mexico and distributes Cinelatino as part of its service. Total revenues recognized were $0.3 million for each of the three months ended March 31, 2021 and 2020. Amounts due from Dish Mexico amounted to $0.2 million and $0.3 million at March 31, 2021 and December 31, 2020, respectively.

MVS has the non-exclusive right to duplicate, distribute and exhibit Cinelatino’s service via cable, satellite or by any other means in Mexico. Cinelatino receives revenues net of MVS’s distribution fee, which is equal to 13.5% of all license fees collected from third party distributors managed but not owned by MVS. Total revenues recognized were $0.2 million for each of the three months ended March 31, 2021 and 2020. Amounts due from MVS pursuant to this agreement amounted to $0.1 million and $0.4 million at March 31, 2021 and December 31, 2020, respectively.

The Company entered into an amended and restated consulting agreement with James M. McNamara, a member of the Company’s board of directors, on August 13, 2019, to provide the development, production and maintenance of programming, affiliate relations, identification and negotiation of carriage opportunities, and the development, identification and negotiation of new business initiatives including sponsorship, new channels, direct-to-consumer programs and other interactive initiatives. Total expenses incurred under this agreement are included in selling, general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations and amounted to $0.1 million for each of the three months ended March 31, 2021 and 2020. No amounts were due to this related party at March 31, 2021 and December 31, 2020.

Note 5. Goodwill and Intangible Assets

Goodwill and intangible assets consist of the following as of March 31, 2021 and December 31, 2020 (amounts in thousands):

March 31, 

December 31, 

    

2021

    

2020

Broadcast license

$

41,356

$

41,356

Goodwill

 

310,082

 

165,597

Other intangibles

 

54,017

 

24,761

Total intangible assets

$

405,455

$

231,714

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A summary of changes in the Company’s goodwill and other indefinite-lived intangible assets, on a net basis, for the three months ended March 31, 2021 is as follows (amounts in thousands):

Net Balance at

Net Balance at

    

December 31, 2020

    

Additions

    

Impairment

    

March 31, 2021

Broadcast license

$

41,356

$

$

$

41,356

Goodwill

 

165,597

 

144,485

 

 

310,082

Brands

15,986

15,986

Other intangibles

 

700

 

 

 

700

Total indefinite-lived intangibles

$

223,639

$

144,485

$

$

368,124

A summary of the changes in the Company’s other amortizable intangible assets for the three months ended March 31, 2021 is as follows (amounts in thousands):

Net Balance at

Net Balance at

    

December 31, 2020

    

Additions

Amortization

    

March 31, 2021

Affiliate and customer relationships

$

7,304

$

$

(1,444)

$

5,860

Non-compete agreement

329

(90)

239

Programming contracts

427

30,817

(22)

31,222

Other intangibles

15

(5)

10

Total finite-lived intangibles

$

8,075

$

30,817

$

(1,561)

$

37,331

The aggregate amortization expense of the Company's amortizable intangible assets was $1.6 million and $1.9 million for the three months ended March 31, 2021 and 2020, respectively. The weighted average remaining amortization period is 4.0 years at March 31, 2021.

Future estimated amortization expense is as follows (amounts in thousands):

Year Ending December 31, 

    

Amount

Remainder of 2021

$

9,649

2022

 

8,221

2023

 

6,783

2024

6,783

2025 and thereafter

 

5,895

Total

$

37,331

Note 6. Equity Method Investments

The Company makes investments that support its underlying business strategy and enable it to enter new markets. The Company holds equity investments in Pantaya (until the closing of the Pantaya Acquisition), Canal 1, Snap JV and ASG Latin (effective as of the closing of the Pantaya Acquisition) (in each case, as defined and discussed below), which are variable interest entities (“VIEs”), for which the Company is not the primary beneficiary. The primary beneficiary is the party involved with the VIE that (i) has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (ii) has the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The activities of each VIE that most significantly impact the VIE’s economic performance are controlled by the VIE’s board of directors and the Company’s representation on the board of directors of each VIE is commensurate with its voting equity interest. As the Company does not hold a majority voting interest or disproportionate voting or other rights, it does not have the power to direct the activities that most significantly impact the economic performance of any of these VIEs.

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On November 3, 2016, we acquired a 25% equity interest in Pantaya, a Spanish-language streaming service formed in partnership with Lionsgate. The service launched on August 1, 2017. Prior to the Pantaya Acquisition, the investment was deemed a variable interest entity (“VIE”) that was accounted for under the equity method. We recorded the income or loss on investment on a one quarter lag. As of March 31, 2019, our applicable pro rata share of the inception-to-date losses exceeded our contractual funding commitment of $10 million. As such, our cumulative share of the losses is limited to $10 million and no additional losses have been recorded following the three months ended March 31, 2019. As a result, we did not record any share of the loss from the investment for the three months ended March 31, 2021 and 2020. The net balance recorded in equity method investments related to the Pantaya joint venture was $0 at March 31, 2021 and December 31, 2020. At December 31, 2020, we had a receivable balance from Pantaya of $3.8 million, and is included in accounts receivable and other assets in the accompanying Condensed Consolidated Balance Sheets. The accounts receivable balance from Pantaya was $2.3 million immediately prior to the Acquisition Date, and this amount was effectively settled as a result of the Pantaya Acquisition. On March 31, 2021, the Company acquired the remaining 75% equity interest in Pantaya, upon which Pantaya became a wholly owned consolidated subsidiary of the Company. For more information, see Note 3, “Business Combination” of Notes to Condensed Consolidated Financial Statements.

On November 30, 2016, we, in partnership with Colombian content producers, Radio Television Interamericana S.A., Compania de Medios de Informacion S.A.S. and NTC Nacional de Television y Comunicaciones S.A., were awarded a ten (10) year renewable television broadcast concession license for Canal 1 in Colombia. The partnership began operating Canal 1 on May 1, 2017. On February 7, 2018, Colombian regulatory authorities approved an increase in our ownership in the joint venture from 20% to 40%. In July 2019, the Colombian government enacted legislation resulting in the extension of the concession license for Canal 1 for an additional ten years for no additional consideration. The concession is now due to expire on April 30, 2037 and is renewable for an additional 20-year period. The joint venture is deemed a VIE that is accounted for under the equity method. As of March 31, 2021, we have funded $120.4 million in capital contributions to Canal 1. The Canal 1 joint venture losses-to-date have exceeded the capital contributions of the common equity partners and in accordance with equity method accounting, losses in excess of the common equity have been recorded against the next layer of the capital structure, in this case, preferred equity. The Company is currently the sole preferred equity holder in Canal 1 and therefore, the Company has recorded nearly 100% of the losses of the joint venture. We record the income or loss on investment on a one quarter lag. For the three months ended March 31, 2021 and 2020, we recorded $2.5 million in gain from equity method investment and $6.8 million in loss on equity method investment in the accompanying Condensed Consolidated Statements of Operations, respectively. The net balance recorded in equity method investments related to the Canal 1 joint venture was $33.2 million and $29.9 million at March 31, 2021 and December 31, 2020, respectively, and is included in the accompanying Condensed Consolidated Balance Sheets. At March 31, 2021 and December 31, 2020, we had a receivable balance from Canal 1 of $2.6 million, and is included in other assets in the accompanying Condensed Consolidated Balance Sheets.

On April 28, 2017, we acquired a 25.5% interest in REMEZCLA, a digital media company targeting English speaking and bilingual U.S. Hispanic millennials through innovative content, for $5.0 million. At March 31, 2020, given the negative impacts caused by the COVID-19 pandemic and the associated liquidity and going-concern uncertainties related to REMEZCLA, the Company determined that the investment in REMEZCLA was other-than-temporarily impaired and recorded a non-cash impairment charge of $5.5 million reflecting the write-off of the full carrying amount of our investment. The write-off was recorded in impairment of equity method investment in the Condensed Consolidated Statements of Operations. Due to the above mentioned write-off of the investment carrying value, we did not record any share of the loss from the investment for the three months ended March 31, 2021 and 2020. The net balance recorded in equity method investments related to REMEZCLA was $0 million at March 31, 2021 and December 31, 2020, respectively, and is included in the accompanying Condensed Consolidated Balance Sheets.

On November 26, 2018, Snap Media acquired a 50% interest in Snap JV, LLC (“Snap JV”) (we own 75% of Snap Media), a newly formed joint venture with Mar Vista Entertainment, LLC (“MarVista”), to co-produce original movies and series. The investment is deemed a VIE that is accounted for under the equity method. As of March 31, 2021, we have funded $0.4 million into Snap JV. We record the income or loss on investment on a one quarter lag. For the three months ended March 31, 2021 and 2020, we recorded $0 million and $0.2 million, respectively, in loss on equity method investment in the accompanying Condensed Consolidated Statements of Operations. The net balance recorded in equity method investments related to Snap JV was $0.1 million at March 31, 2021 and December 31, 2020, and is included in the accompanying Condensed Consolidated Balance Sheets.

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The Company records the income or loss on investments on a one quarter lag. Summary unaudited financial data for our equity investments, excluding Pantaya, in the aggregate as of and for the three months ended December 31, 2020, are included below (amounts in thousands):

Total Equity

    

Investees

Current assets

$

15,741

Non-current assets

$

30,854

Current liabilities

$

59,221

Non-current liabilities

$

4,156

Net revenue

$

3,041

Operating loss

$

(2,796)

Net loss

$

(2,234)

Note 7. Income Taxes

The 2017 Tax Cuts and Jobs Act (“Jobs Act”) was enacted on December 22, 2017. The Jobs Act revised the U.S. corporate income tax by lowering the statutory corporate tax rate from 35% to 21% in 2018. The Company generates income in higher tax rate foreign locations, which result in foreign tax credits. The lower federal corporate tax rate reduces the likelihood of our utilization of foreign tax credits created by income taxes paid in Puerto Rico and Latin America, resulting in a valuation allowance. Additionally, the Company evaluated the potential interest limitation established under the tax act and determined that no limitation would affect the 2021 provision for income taxes.

For the three months ended March 31, 2021 and 2020, our income tax expense has been computed utilizing the estimated annual effective rates of 47.2% and 38.6%, respectively. The difference between the annual effective rate of 47.2% and the statutory Federal income tax rate of 21% in the three month period ended March 31, 2021, is primarily due to the impact of the Tax Act, which impacted the valuation allowance on foreign tax credits, and limitations on the deductibility of executive compensation under Internal Revenue Code Section 162(m). The annual effective tax rate related to income generated in the U.S. is 31.8%. Due to the reduced U.S. tax rate, the Company determined that a portion of its foreign income, which is taxed at a higher rate, will result in the generation of excess foreign tax credits that will not be available to offset U.S. income tax. As a result, 15.4% of the annual effective rate relates to the required valuation allowance against the excess foreign tax credits, bringing the annual effective tax rate for the three month period ended March 31, 2021 to 47.2%. Additionally, the gain related to the step acquisition of Pantaya of $30.1 million was determined to be significant and infrequent, and as a result, this item has not been included in the annual effective tax rate.

The difference between the annual effective rate of 38.6% and the statutory Federal income tax rate of 21% in the three month period ended March 31, 2020, is primarily due to the impact of the Tax Act, which impacted the valuation allowance on foreign tax credits, and limitations on the deductibility of executive compensation under Internal Revenue Code Section 162(m). The annual effective tax rate related to income generated in the U.S. is 27.1%. Due to the reduced U.S. tax rate, the Company determined that a portion of its foreign income, which is taxed at a higher rate, will result in the generation of excess foreign tax credits that will not be available to offset U.S. income tax. As a result, 11.4% of the annual effective rate relates to the required valuation allowance against the excess foreign tax credits.

Income tax expense was $1.3 million for the three months ended March 31, 2021. Income tax benefit was $1.7 million for the three months ended March 31, 2020.

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Note 8. Long-Term Debt

Long-term debt as of March 31, 2021 and December 31, 2020 consists of the following (amounts in thousands):

    

March 31, 2021

    

December 31, 2020

Senior Notes due February 2024

$

250,602

$

202,990

Less: Current portion

 

2,656

 

2,134

$

247,946

$

200,856

On February 14, 2017, Hemisphere Media Holdings, LLC (“Holdings”) and InterMedia Español, Inc. (together with Holdings, the “Borrowers”), both wholly owned, indirect subsidiaries of the Company, amended the Term Loan Facility (the “Second Amended Term Loan Facility”). The Second Amended Term Loan Facility provides for a $213.3 million senior secured term loan B facility, and matures on February 14, 2024. The Second Amended Term Loan Facility bore interest at the Borrowers’ option of either (i) London Inter-bank Offered Rate (“LIBOR”) plus a margin of 3.50% or (ii) an Alternate Base Rate (“ABR”) plus a margin of 2.50%.

On March 31, 2021 (the “Closing Date”), the Borrowers amended the Term Loan Facility, as previously amended (the “Third Amended Term Loan Facility”), for the borrowing of a new tranche of term loans in the aggregate principal amount of $50.0 million and matures on February 14, 2024. The Third Amended Term Loan Facility bears interest at the Borrowers’ option of either (i) LIBOR plus a margin of 3.50% or (ii) an ABR plus a margin of 2.50%. There is no LIBOR floor. The add-on to the term loan B facility was issued with 4.0% of original issue discount (“OID”).

Additionally, the Third Amended Term Loan Facility provides for a revolving loan (the “Revolving Facility”) allowing for an aggregate principal amount of up to $30.0 million. The Revolving Facility is secured on a pari passu basis by the collateral securing the Third Amended Term Loan Facility and will mature on November 15, 2023. The Revolving Facility will bear interest at the Borrowers’ option of either (i) LIBOR (which will not be less than