MediaCo Holding Inc. — Q2 2020 Form 10-Q
Reporting period: Three and six months ended June 30, 2020. Dollar amounts below are in millions unless otherwise noted. Comparisons are with the corresponding 2019 periods; 2019 results are historical carve-out figures, and the outdoor advertising business acquired in December 2019 was not included in those comparable periods.
Business context and results
MediaCo operates New York radio stations WQHT-FM and WBLS-FM and, following its 2019 acquisition of Fairway Outdoor, approximately 3,300 outdoor advertising displays across parts of the Southeast and Mid-Atlantic. Revenue is primarily advertising-based.
| Metric | Q2 2020 | Q2 2019 | Six months 2020 | Six months 2019 |
|---|---|---|---|---|
| Net revenue | $7.0 | $16.3 | $18.8 | $24.5 |
| Operating income (loss) | $(1.6) | $3.7 | $(1.5) | $4.7 |
| Interest expense | $2.3 | — | $4.5 | — |
| Net income (loss) attributable to common shareholders | $(18.9) | $2.5 | $(20.9) | $3.1 |
| Operating cash flow | Not separately provided | Not separately provided | $(0.4) | $6.0 |
Revenue fell 57.2% in Q2 and 23.3% for the first half. Radio revenue was $3.8 million in Q2, down 76.6%, and $12.2 million for six months, down 50.3%. Outdoor revenue was $3.2 million in Q2 and $6.6 million for six months, with no prior-year comparable segment revenue. Q2 operating margin was approximately (22.7)%, versus 22.9% a year earlier; first-half operating margin was approximately (7.7)%, versus 19.0%.
The first-half net loss included a $15.6 million deferred-tax valuation allowance recorded in Q2, reflecting uncertainty about realizing deferred tax assets. The reported income-tax provision was $14.5 million for Q2 and $13.9 million for the first half. Basic and diluted loss per share was $2.66 for Q2 and $2.95 for the first half.
Cash, debt and liquidity
- Cash and cash equivalents were $4.6 million at June 30, 2020, up from $2.1 million at December 31, 2019. Net working capital was negative $5.0 million, compared with negative $4.7 million at year-end.
- First-half operating cash flow was negative $0.4 million; capital spending was $0.2 million. Financing provided $3.2 million, including $5.2 million of debt proceeds, partially offset by debt payments and related costs.
- Debt carrying amounts at June 30 included $70.9 million under the senior credit facility, $5.0 million payable to Emmis, and $11.3 million payable to SG Broadcasting. Total scheduled principal payments were $87.1 million, before considering debt discounts. Senior facility interest is LIBOR plus 7.5%, subject to a 2.0% LIBOR floor.
- The company disclosed approximately $10.3 million of senior-facility debt service due from August 14, 2020 through August 14, 2021, and a $5.0 million payment to Emmis due August 25, 2020. Standard General guaranteed the Emmis payment if MediaCo cannot pay it.
- Management concluded there was substantial doubt about the company’s ability to continue as a going concern through August 14, 2021. It could not determine whether available cash, projected operating cash flows, and potential additional borrowings would meet liquidity needs or whether it would remain compliant with debt covenants and borrowing-base limits. Management may seek covenant relief and further Standard General funding, but gave no assurance of success.
Material changes, outlook and risks
- Management attributed the sharp advertising downturn to COVID-19 restrictions and economic disruption. New York radio-market gross revenue declined 35.7% for the first half; MediaCo’s reported radio gross revenue declined 50.1%. The company cited the cancellation of its Summer Jam concert as an additional driver of lower radio and nontraditional revenue.
- Cost reductions, lower event costs, and a $1.5 million employee-cost waiver under an agreement with Emmis partly offset revenue declines. The waiver depended on forgiveness of Emmis’s PPP loan; Emmis believed the loan would be forgiven as of the filing date.
- Management expected revenue and profitability to decline over the following several months versus the prior year, but said the duration and severity of COVID-19 effects were uncertain. Further asset impairments were possible. No numerical financial guidance was provided.
- During Q2, MediaCo elected not to pay certain studio and broadcast-tower rent obligations and remained delinquent as of the filing date. It was working to pay them by the expected expiration of relevant New York executive orders on August 20, 2020.
- The senior facility was amended to ease certain liquidity and fixed-charge coverage requirements and permit qualifying SG Broadcasting support to count in covenant calculations. SG Broadcasting also advanced $5.0 million under its note during the first half.
- The company reported no pending legal proceeding it believed likely to have a material adverse effect. Its FCC licenses represented approximately 43% of total assets; management did not identify an interim impairment requirement for them at June 30, but future impairment charges remained possible.
Most important facts for investors to verify
- Whether MediaCo paid the $5.0 million due to Emmis on August 25, 2020, and the status and timing of its delinquent lease payments.
- Subsequent operating cash flows, access to SG Broadcasting funding, senior-facility covenant compliance, borrowing-base availability, and any waivers or amendments.
- Whether advertising demand recovered after Q2, particularly in New York radio, and the effects of the canceled Summer Jam and COVID-19 disruption.
- The final Fairway acquisition purchase-price allocation and any impairment testing or charges affecting FCC licenses, goodwill, or other assets.
- Whether Emmis’s PPP loan was forgiven and whether any amount became payable by MediaCo under the Loan Proceeds Participation Agreement.