MediaCo Holding Inc. — Q3 2020 Form 10-Q
Business context and reporting period. This unaudited report covers the three and nine months ended September 30, 2020. MediaCo operates New York radio stations WQHT-FM and WBLS-FM and, following its December 2019 acquisition of Fairway Outdoor, outdoor advertising businesses in the Southeast and Mid-Atlantic. Unless otherwise noted, financial figures below are in millions of dollars.
Key financial results
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Net revenue | $9.36 | $11.01 | $28.14 | $35.49 |
| Operating income (loss) | $(0.61) | $2.06 | $(2.06) | $6.72 |
| Interest expense | $2.41 | — | $6.93 | — |
| Consolidated net income (loss) | $(2.99) | $1.44 | $(22.84) | $4.59 |
| Net income (loss) attributable to common shareholders | $(3.53) | $1.44 | $(24.43) | $4.59 |
| Basic and diluted loss per share | $(0.50) | $0.87 | $(3.44) | $2.75 |
- Operating margin was approximately negative 6.5% in Q3 2020 and negative 7.3% for the first nine months of 2020, versus positive 18.7% and 18.9%, respectively, in the comparable 2019 periods.
- For the first nine months, operating cash flow was $(7.21), investing cash flow $(0.34), and financing cash flow $12.16. Cash increased by $4.62 to $6.70.
- At September 30, cash was $6.70 and working capital was $5.2, compared with $2.08 and negative $4.7 at December 31, 2019.
- Debt principal totaled $96.22: $70.97 under the senior credit facility, $5.00 owed to Emmis, and $20.25 owed to SG Broadcasting. Debt on the balance sheet was $93.94 net of the $2.28 unamortized discount. Operating lease liabilities were $24.11.
- Total assets were $148.15, total liabilities $131.07, preferred stock carrying value $23.70, and stockholders’ deficit $6.62.
Changes versus the prior comparable periods
- Revenue fell 15.0% in Q3 and 20.7% year to date. Radio revenue declined 43.7% and 48.2%, respectively. Management said radio revenue was hurt by pandemic-related advertising reductions; radio market gross revenue was down 34.5% year to date, while MediaCo’s reported gross radio revenue was down 48.0%.
- Fairway contributed $3.16 of Q3 revenue and $9.77 for the first nine months of 2020; it was acquired in December 2019, so 2019 reported results contain no comparable outdoor operations. The acquisition also increased depreciation and amortization.
- Nontraditional revenue dropped to $0.20 in Q3 and $0.45 year to date, from $1.03 and $8.00. The nine-month decline chiefly reflected cancellation of Summer Jam, the company’s largest concert, due to COVID-19.
- Operating expenses excluding depreciation and amortization fell 10.6% in Q3 and 15.2% year to date, reflecting cost reductions and lower variable costs; year-to-date comparisons also include the cancelled event and the prior-year carve-out’s allocated Emmis costs. Corporate expenses of $1.21 in Q3 and $3.31 year to date reflect public-company costs, acquisition-related professional services, and management fees.
- Results also reflect debt and interest that were not allocated to MediaCo in the 2019 carve-out statements. The 2019 and 2020 periods therefore are not fully comparable.
Outlook, risks and unusual items
- Going concern and liquidity: Management reported substantial doubt about the company’s ability to continue as a going concern through November 13, 2021. It cited uncertain COVID-19 effects, approximately $7.7 million of senior-facility debt service due during the following 12 months, and uncertainty about meeting liquidity needs, covenants, and borrowing-base limits. Management may seek waivers or amendments and additional Standard General funding, but cannot assure success.
- Credit amendments and related-party funding: The August 2020 senior facility amendment suspended quarterly principal payments through June 2021 and covenant testing of the fixed-charge coverage ratio through June 2021. SG Broadcasting provided working-capital loans; its promissory notes totaled $20.25 million at quarter end and are convertible into Class A shares under specified terms. The notes and Series A preferred stock create potential dilution and related-party considerations.
- Tax and asset valuation: The company recorded a $15.6 million valuation allowance against deferred tax assets in Q2 after concluding realization was no longer more likely than not, contributing to year-to-date tax expense of $13.85 million. No interim impairment test of FCC licenses was deemed necessary, and management did not believe Fairway goodwill was impaired as of September 30; future impairments remain possible.
- Operating and market risks: COVID-19 reduced advertising and event activity and may continue to affect revenue, collections, profitability, and cash flows. Management also cited competition from digital media, radio-industry and New York market trends, FCC licensing requirements, and dependence on the New York radio market.
- Other notable items: MediaCo deferred certain studio and tower rent payments and entered into a deferred payment arrangement with a landlord. Emmis waived $1.5 million of leased-employee expense under an agreement tied to its PPP loan; forgiveness was expected but not assured. The company gave no quantified revenue or earnings guidance.
Important facts for investors to verify
- Whether operating cash flow and advertising revenues recover sufficiently to cover ongoing expenses and debt service, and whether the going-concern uncertainty is resolved.
- Compliance with the amended senior credit facility, borrowing-base limits, minimum liquidity requirements, and upcoming principal and interest obligations.
- Availability and terms of further Standard General support, including potential conversion and dilution from its notes and preferred shares.
- Whether the deferred tax asset valuation allowance, FCC licenses, Fairway goodwill, or other assets require further charges.
- Comparability of reported results, particularly the December 2019 Fairway acquisition, pandemic effects, cancelled Summer Jam, and different corporate-cost and debt structures between periods.
- Status of deferred rent and the PPP-related employee-cost waiver, and the ongoing costs of the Emmis management and employee-leasing arrangements.