MediaCo Holding Inc. — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020. Financial amounts below are in millions of dollars unless stated otherwise. Comparisons require care: Q1 2019 reflects carved-out radio operations only; Q1 2020 includes a full quarter of outdoor advertising after the December 2019 Fairway acquisition, as well as new public-company costs and debt.
Business context
MediaCo operates New York radio stations WQHT-FM and WBLS-FM and outdoor advertising businesses in the Southeast and Mid-Atlantic, with approximately 3,300 advertising structures. It earns primarily from radio and outdoor advertising. The company became publicly traded in January 2020 following distribution of its Class A shares by Emmis.
Key financial results
| Metric | Q1 2019 | Q1 2020 |
|---|---|---|
| Net revenue | $8.146 | $11.785 |
| Operating income | $0.917 | $0.136 |
| Interest expense | — | $2.238 |
| Consolidated net income (loss) | $0.628 | $(1.485) |
| Preferred dividends | — | $0.529 |
| Net income (loss) attributable to common shareholders | $0.628 | $(2.014) |
| Basic and diluted EPS | $0.38 | $(0.28) |
| Operating cash flow | $3.588 | $(1.563) |
| Capital expenditures | $0.080 | $0.197 |
Revenue increased 44.7%, largely reflecting the acquired outdoor business; radio revenue grew 2.4% to $8.339 million. Outdoor revenue was $3.446 million in the segment results ($3.267 million in the revenue-source table; the filing does not explain the difference). The company reported a 1.2% operating margin in Q1 2020, versus 11.3% in Q1 2019. The decline reflected corporate expenses, higher depreciation and amortization, and lower comparable radio operating income after accounting for prior-year Emmis allocations.
Cash and cash equivalents were $4.405 million at March 31, 2020, versus $2.083 million at year-end 2019. Net working capital was negative $1.7 million. Total assets were $166.993 million; total liabilities were $128.604 million. Long-term debt, net of current maturities and discount, was $81.890 million, with $3.672 million of current maturities. Debt principal outstanding totaled $88.039 million before the $2.477 million unamortized discount. Operating lease liabilities totaled $25.261 million.
Changes and significant items
- Fairway Outdoor, acquired in December 2019 for approximately $43.1 million, contributed the first full quarter of outdoor results. Its preliminary purchase-price allocation included $11.5 million of goodwill; the allocation remained subject to adjustment.
- Corporate expense was $1.165 million, with no comparable standalone corporate cost in the carved-out 2019 results. It included public-company, acquisition-related and Emmis management costs.
- Bad-debt provision rose to $0.373 million from $0.020 million as the company increased reserves for advertisers’ ability to pay. Radio costs also reflected higher on-air talent compensation and ratings expense.
- Financing cash flow was $4.082 million, primarily from $5.181 million of debt proceeds. SG Broadcasting advanced $5.0 million during Q1, bringing its note principal to $11.250 million. The company also paid $0.918 million of long-term debt principal.
- The Senior Credit Facility was amended in March 2020 to reduce the minimum liquidity covenant to $1.0 million through September 2020 and lower the fixed-charge coverage requirement to 1.00x for June through December 2020. The amendment also allowed qualifying SG Broadcasting contributions or loans to count toward covenant EBITDA, increased the permitted SG note amount to $20 million and added an approximately $0.2 million fee to senior debt.
Outlook, risks and contingencies
- Going concern: Management concluded substantial doubt exists about the company’s ability to continue as a going concern through May 15, 2021. COVID-19’s duration and severity, future operating cash flows, borrowing availability, debt covenant compliance and borrowing-base limits were uncertain at filing.
- COVID-19: The company said the pandemic’s Q1 financial impact was not material overall, but business results deteriorated rapidly after quarter-end, particularly in New York radio, as advertisers cancelled or reduced orders. Collections on already-aired advertising were also uncertain. Management expected revenue and profitability to decline over the following months but gave no quantified forecast.
- Near-term obligations: Approximately $10.5 million of senior-facility debt service was due within 12 months. A separate $5.0 million working-capital amount was due to Emmis on August 25, 2020; MediaCo said it did not expect to generate sufficient excess operating cash to repay it, and Standard General guaranteed payment if MediaCo could not pay. Management said it might seek covenant relief or additional Standard General borrowing, with no assurance of success.
- Subsequent agreement: On April 22, 2020, Emmis agreed to use some of its Paycheck Protection Program proceeds for wages of employees leased to MediaCo and to waive up to $1.5 million of reimbursement obligations to the extent the PPP loan is forgiven. MediaCo could owe part of any amount Emmis must repay; Standard General guaranteed MediaCo’s obligations under the agreement.
- FCC licenses, approximately $63.3 million or 38% of assets, and acquired goodwill and other intangibles are exposed to potential impairment if conditions worsen. No interim impairment test was considered necessary in Q1; future impairment charges or deferred-tax valuation allowances were possible.
- Management reported no pending legal proceedings believed likely to have a material adverse effect. The filing describes a controlled-company structure and ongoing management, employee-leasing, debt and preferred-stock arrangements with Emmis and Standard General.
Most important facts for investors to verify
- Subsequent-quarter advertising trends, advertiser cancellations and collections, and the resulting cash-flow outlook.
- Compliance with senior-debt covenants and borrowing-base limits, and whether waivers or additional affiliate financing are obtained.
- Ability to meet the approximately $10.5 million of next-12-month senior debt service and the $5.0 million August payment to Emmis.
- Final Fairway acquisition allocation and any impairment indicators for FCC licenses, goodwill or other intangibles.
- Terms and potential dilution from SG Broadcasting and Emmis convertible notes and the Series A preferred stock, including conversion rights becoming exercisable in May 2020.