MediaCo Holding Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Financial statements are unaudited; figures below are in millions of dollars unless noted. MediaCo operates two New York radio stations and approximately 3,500 outdoor advertising displays across the Southeast and Mid-Atlantic, with revenue primarily from advertising.
Financial performance
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Net revenue | $11.8 | $17.8 | $39.5 | $41.9 |
| Operating income (loss) | $(0.2) | $1.8 | $(1.4) | $5.0 |
| Consolidated net loss | $(2.7) | $(1.2) | $(9.8) | $(3.5) |
| Net loss attributable to common shareholders | $(3.5) | $(1.9) | $(12.3) | $(5.5) |
| Basic and diluted loss per share | $(0.21) | $(0.26) | $(1.14) | $(0.77) |
Q3 operating margin was approximately negative 1.4%, versus positive 10.0% a year earlier; the nine-month margin was negative 3.6%, versus positive 11.8%. Interest expense was $2.4 million in Q3 and $8.2 million for the nine months. Preferred dividends were $0.8 million in Q3 and $2.5 million for the nine months.
- Revenue mix and changes: Q3 radio revenue fell 42.4% to $8.3 million, while outdoor advertising grew 2.8% to $3.6 million. Nine-month radio revenue declined 8.8% to $28.9 million; outdoor rose 3.6% to $10.6 million. The filing attributes radio weakness largely to lower healthcare advertising and, for Q3, the timing of the Summer Jam concert. Q3 nontraditional revenue also declined sharply because the concert occurred in Q2 2022 rather than Q3 2021.
- Costs and profitability: Nine-month operating expenses excluding depreciation and amortization increased 16.8% to $32.9 million, including increased radio investment in digital and sales staffing and the absence of prior-year employee retention credits. Q3 expenses declined, in part because Summer Jam costs were in the prior-year quarter. Outdoor operating income for the nine months fell to $0.1 million from $1.2 million.
- Cash flow: Nine-month operating cash flow was $4.7 million, compared with $4.2 million, helped by accounts receivable collections. Investing cash outflow was $1.8 million, including $1.3 million for internally developed software and $0.5 million for property and equipment. Financing cash outflow was $3.2 million. Cash decreased $0.2 million to $5.9 million.
Balance sheet, debt and liquidity
At September 30, 2022, cash was $5.9 million, working capital was $0.6 million (versus $7.7 million at year-end 2021), and total assets were $139.9 million. Total liabilities were $108.5 million. Debt consisted of $66.7 million outstanding under the senior credit facility and $6.1 million owed to Emmis; the balance sheet reports $71.6 million of debt net of current maturities and unamortized discount. The senior facility borrowing rate was 10.6% at quarter-end and is variable. Preferred stock was carried at $29.5 million.
Management estimated $11.1 million of senior-facility debt service over the 12 months following the filing date, including $3.7 million of principal and $7.4 million of interest. The facility matures November 25, 2024. Management stated that substantial doubt exists about the Company’s ability to continue as a going concern through November 14, 2023, citing uncertain operating cash flows, debt service and future covenant compliance. The filing does not provide assurance that cash, projected operations or further financing will cover liquidity needs.
Material developments, outlook and risks
- On July 28, SG Broadcasting converted $28.0 million of principal and $1.9 million of accrued interest into 12.9 million Class A shares. This reduced debt and increased equity by approximately $29.9 million, but substantially increased the Class A share count.
- On November 12, after quarter-end, MediaCo amended its senior facility: minimum liquidity was reduced to $2.0 million through December 15, 2022 and $3.0 million thereafter, and the September 30 fixed-charge coverage covenant test was removed. Management nevertheless warned of substantial doubt about compliance in later periods and may seek further waivers, amendments or Standard General funding; none is assured.
- Management expects COVID-19-related disruption, supply-chain issues, interest-rate volatility, inflation and labor pressures to potentially continue weighing on revenue, profitability and liquidity for an undetermined period. It noted that higher rates are increasing senior-debt interest expense and that it does not anticipate LIBOR rates to decline. No quantitative earnings or revenue guidance was provided.
- MediaCo regained compliance with Nasdaq’s stockholders’ equity requirement following the debt conversion, but Nasdaq will monitor ongoing compliance; failure to maintain it could lead to delisting proceedings.
- The Company reported no pending legal proceedings expected by management to have a material adverse effect. Management said disclosure controls were effective at September 30, 2022, with no material change in internal control over financial reporting during the quarter.
Key facts for investors to verify
- Near-term cash generation, liquidity relative to the amended minimums, and ability to meet the estimated $11.1 million of senior-facility debt service.
- Subsequent covenant compliance and whether additional lender waivers, amendments or Standard General financing are obtained.
- Radio advertising trends, including healthcare-category demand and the sustainability of outdoor advertising growth.
- Effects of the July conversion on share count, ownership and potential dilution from remaining convertible securities and preferred stock.
- Nasdaq’s ongoing assessment of the Company’s stockholders’ equity compliance.
- Potential impairment of FCC licenses, goodwill or other assets if operating conditions deteriorate; no impairment charge was reported in this filing.