MediaCo Holding Inc. — FY2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The primary comparison is with the ten months ended December 31, 2019, so year-over-year comparisons are not like-for-like. Dollar figures below are in millions unless stated otherwise.
Business context
MediaCo operates New York City radio stations WQHT-FM and WBLS-FM and outdoor advertising businesses in the Southeast and Mid-Atlantic, acquired in December 2019. Revenue is primarily advertising-related. COVID-19 disrupted advertising demand and forced cancellation of the 2020 Summer Jam concert. The filing provides no formal financial guidance.
Financial performance and liquidity
| Metric | FY2020 | Comparable period |
|---|---|---|
| Net revenue | $39.3 | $40.8 (10 months ended Dec. 31, 2019) |
| Operating income (loss) | $(1.7) | $4.3 |
| Net income (loss) | $(26.8) | $1.9 |
| Net income (loss) attributable to common shareholders | $(28.9); $(4.07) per share | $1.8; $0.80 per share |
| Cash flow from operations | $(9.6) | $3.6 |
- Radio revenue was $26.0 million, down 35% against the shorter 2019 comparison period; outdoor advertising revenue was $13.2 million, with limited 2019 contribution because the acquisition closed in December 2019. Total revenue fell 3.8% despite two additional months in FY2020.
- Operating margin was approximately negative 4.3%. Interest expense was $9.5 million. The $15.6 million income-tax provision included an $18.8 million valuation allowance against deferred tax assets; the company reported no impairment charges in 2020.
- At year-end, cash was $4.2 million and working capital was negative $62.5 million, largely because senior debt was classified as current. Excluding that reclassification, working capital was $6.3 million.
- Total debt was approximately $97.9 million: $71.0 million under the senior credit facility and $26.9 million in notes payable to Emmis and SG Broadcasting. The senior facility’s year-end borrowing rate was 9.5% and its rate is variable.
Changes, outlook and material risks
- New York radio-market revenue fell 31.3% in 2020, while MediaCo’s New York cluster revenue fell 42.1%. Management attributed the additional decline largely to Summer Jam’s cancellation. Cost reductions and waived leased-employee costs partly offset weaker revenue.
- Management expects COVID-19 to continue to affect revenue and profitability, but says the duration and severity are uncertain. Advertiser payment risk and event restrictions remain concerns.
- Management concluded there is substantial doubt about the company’s ability to continue as a going concern within one year. It anticipates being unable to meet liquidity needs and comply with senior-facility covenants over the next 12 months using available cash, projected operating cash flow and/or additional borrowings. The auditor’s report includes a going-concern explanatory paragraph.
- Approximately $8.6 million of senior-facility debt service is expected from March 30, 2021 through March 30, 2022. A loan-to-value test could require an approximately $8.0 million repayment if the lender accepts the October 2020 FCC-license appraisal. A going-concern event of default gives the lender discretion to accelerate debt and/or raise the interest rate by 3%. Management intends to seek a waiver or amendment and additional Standard General funding; success is not assured.
- Emmis’ management agreement expires in November 2021, and Emmis indicated it does not intend to extend it. The employee-leasing arrangement ended January 1, 2021, when MediaCo hired the leased employees and assumed related employment agreements.
- SG Broadcasting held approximately 97.42% of voting interests as of March 2021. Other notable risks include concentration of radio operations in New York, FCC-license renewal and outdoor-advertising regulation, variable-rate debt, and limited access to acquisitions under debt restrictions.
Important facts for investors to verify
- Whether MediaCo obtains lender waivers, cures the existing default and meets the $2.5 million minimum-liquidity requirement through November 2021 and $3.0 million thereafter.
- Whether the lender accepts the FCC-license appraisal and whether any loan-to-value repayment is required.
- Actual post-year-end cash flow, debt service, covenant compliance and availability of further related-party funding.
- Recovery in radio and outdoor advertising, Summer Jam’s ability to resume, and the effects of the employee and management-service transitions.
- The effect of preferred-stock dividends and convertible related-party notes on future claims, dilution and common-shareholder value.