10-Q: MediaCo Holding Inc. Reports Second Quarter 2024 Results, Impacted by Estrella Acquisition and Diminished Revenue

MediaCo Holding Inc.'s second quarter results show a significant net loss, influenced by the recent Estrella acquisition and a decline in revenue from their New York operations.

Summary

• MediaCo Holding Inc. reported a net loss of $48.3 million for the second quarter of 2024, compared to a net loss of $0.4 million in the same period last year.
• The company's net revenues increased to $26.2 million, up from $12.1 million in the second quarter of 2023, primarily due to the acquisition of Estrella Broadcasting.
• Operating expenses also increased significantly to $39.5 million, compared to $12.2 million in the prior year, due to the Estrella acquisition and increased corporate expenses.
• The company's loss from continuing operations before income taxes was $48.1 million, compared to a loss of $0.4 million in the second quarter of 2023.
• The Estrella acquisition, completed on April 17, 2024, included a warrant to purchase 28.2 million shares of Class A common stock, 60,000 shares of Series B Preferred Stock, a $30 million second lien term loan, and a $25.5 million cash payment.
• The company's liquidity is impacted by diminished revenues and profitability, driven in part by weaker sales for their annual Summer Jam concert.
• The company has $6.5 million outstanding to Emmis under a convertible promissory note with debt service obligations of approximately $7.3 million due by September 18, 2025.
• In September 2024, the company amended its First Lien Credit Agreement, providing an additional $7.5 million in delayed draw term loan commitments and waiving mandatory prepayment requirements up to $7.3 million.

Sentiment

Score: 3

Explanation: The document presents a challenging financial picture with a significant net loss and increased expenses. While the Estrella acquisition has boosted revenue, the overall tone is negative due to the substantial losses and operational challenges. The company is taking steps to improve liquidity, but the outlook remains uncertain.

Positives

• The Estrella acquisition significantly increased net revenues, demonstrating the potential for growth through strategic acquisitions.
• The amendment to the First Lien Credit Agreement provides additional liquidity and flexibility for the company.
• The company is taking steps to enhance its ability to fund its operational expenses by reducing various costs.

Negatives

• The company experienced a substantial net loss of $48.3 million in Q2 2024, a significant increase from the $0.4 million loss in Q2 2023.
• Operating expenses increased significantly due to the Estrella acquisition and higher corporate costs.
• The company's New York operations experienced a decline in revenue, driven by weaker sales for their annual Summer Jam concert.
• The company has a significant amount of debt, including $6.5 million outstanding to Emmis with debt service obligations of approximately $7.3 million due by September 18, 2025.
• The company's liquidity is impacted by diminished revenues and profitability.

Risks

• The company's ability to maintain profitability is uncertain due to diminished revenues and increased operating expenses.
• The company faces challenges in integrating the Estrella acquisition and realizing its full potential.
• The company's debt obligations and interest expenses could impact its financial stability.
• The company's New York operations are facing challenges due to weaker sales and lower spending in key sectors.
• The company's ability to compete with new media channels and the fragmentation of the radio and television audiences could impact its revenue.

Future Outlook

Management anticipates the company will be able to meet its liquidity needs for the next twelve months with cash and cash equivalents on hand, additional draws on its First Lien Term Loan, and projected cash flows from operations.

Management Comments

• Management has considered these circumstances in assessing the Companys liquidity over the next year.
• The Company generally satisfies its liquidity needs through cash provided by operations.
• In addition, the Company has taken steps to enhance its ability to fund its operational expenses by reducing various costs and is prepared to take additional steps as necessary.

Industry Context

The U.S. traditional radio and television broadcasting industries are mature industries and their growth rate has stalled due to new media gaining advertising share and the fragmentation of audiences. MediaCo is working to harness the power of broadband and mobile media distribution to develop emerging business opportunities.

Comparison to Industry Standards

• Market revenues in New York, as measured by Miller Kaplan, were up 3.5% for the six months ended June 30, 2024, while MediaCo's gross revenues reported to Miller Kaplan were down 15.9% for the same period.
• For Estrella MediaCo, local radio revenue was up 3% over the same period in 2023, while MAGNA estimated the market would be down 6%.
• Local television revenue was down 22%, versus the MAGNA market estimate of down 12%.
• Audio network revenue was up 41%, versus the MAGNA market estimate of down 6%.
• Television network revenue was down 5% versus the MAGNA market estimate of down 6%.
• Digital revenue was up 48% versus the MAGNA market estimate of up 13%.
• In total, as of June 27, 2024, Estrella MediaCo's revenue was up 3% over the same period in 2023, in contrast with MAGNA's estimate for the total market being down 2.7%.
• According to Nielsen, from January to June 2024 the EstrellaTV network ratings were down 35% when compared to the same period in 2023, while Hispanic television viewing in general was down 19%.
• Local television ratings were down 18% in the same time period for the Estrella VIE television stations, while Hispanic television viewing in those markets was down 10%.
• Local radio ratings were up 3% for the Estrella VIE radio stations, while Spanish-language listenership in those markets was down 17%.

Legal Proceedings

• The company received a notification letter from Nasdaq for not being in compliance with Nasdaq Listing Rule 5250(c)(1) due to the late filing of its Quarterly Report on Form 10-Q for the quarter ended June 30, 2024.

Related Party Transactions

• The company has a convertible promissory note with Emmis Communications Corporation.
• The company has consulting agreements with five consultants that are currently employed by affiliates of Standard General.
• The company made payments of $15,000 to the National Association of Investment Companies, of which a member of our board of directors is the President & CEO.

Stakeholder Impact

• Shareholders are negatively impacted by the significant net loss and the potential for share dilution due to the warrant issued in the Estrella acquisition.
• Employees may be affected by cost-cutting measures and potential restructuring.
• Customers may experience changes in programming and advertising content due to the Estrella acquisition.
• Creditors may be concerned about the company's ability to meet its debt obligations.

Next Steps

• The company intends to submit a compliance plan to Nasdaq and take the necessary steps to regain compliance with the Listing Rule as soon as practicable.
• The company will continue to evaluate potential acquisitions of businesses that it believes hold promise for long-term appreciation in value and leverage our strengths.

Key Dates

Keywords

MediaCo Holding Inc., Estrella Broadcasting, acquisition, net loss, revenue, operating expenses, debt, liquidity, radio, television, digital advertising, First Lien Credit Agreement, Emmis, Summer Jam