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Summary of Significant Accounting Policies (Policies)

6 Months Ended

Jun. 30, 2021

MediaCo Holding Inc. (“MediaCo” or the “Company”) is an Indiana corporation formed in 2019, focused on radio and outdoor advertising.

Our assets consist of two radio stations, WQHT-FM and WBLS-FM, which serve the New York City metropolitan area, as well as approximately 3,600 outdoor advertising displays in the Southeast (Georgia, Alabama and Tennessee) region and Mid-Atlantic (Kentucky) region of the United States. We derive our revenues primarily from radio and outdoor advertising sales, but we also generate revenues from events, including sponsorships and ticket sales.

Unless the context otherwise requires, references to “we”, “us” and “our” refer to MediaCo and its subsidiaries.

Basis of Presentation

Our condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). All significant intercompany balances and transactions have been eliminated. In the opinion of management, all adjustments necessary for fair presentation (including normal recurring adjustments) have been included.

Cash and Cash Equivalents

We consider time deposits, money market fund shares and all highly liquid debt investment instruments with original maturities of three months or less to be cash equivalents. At times, such deposits may be in excess of FDIC insurance limits.

Fair Value Measurements

As defined in Accounting Standards Codification (“ASC”) Topic 820, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. The Company utilizes valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. ASC Topic 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurement) and the lowest priority to unobservable inputs (Level 3 measurement). We have no assets or liabilities for which fair value is measured on a recurring basis using Level 3 inputs.

The Company has certain assets that are measured at fair value on a non-recurring basis under circumstances and events that include those described in Note 3, Intangible Assets, and are adjusted to fair value only when the carrying values are more than the fair values. The categorization of the framework used to price the assets is considered a Level 3 measurement due to the subjective nature of the unobservable inputs used to determine the fair value (see Note 3 for more discussion).

The Company’s long-term debt is not actively traded and is considered a Level 3 measurement. The Company believes the current carrying value of its long-term debt approximates its fair value.

Use of Estimates

The Company has been actively monitoring the COVID-19 situation and its impact globally, as well as domestically and in the markets we serve. Our priority has been the safety of our employees, as well as the informational needs of the communities that we serve. Through the first few months of calendar 2020, the disease became widespread around the world, and on March 11, 2020, the World Health Organization declared a pandemic. In an effort to mitigate the continued spread of COVID-19, many federal, state and local governments mandated various restrictions, including travel restrictions, restrictions on non-essential businesses and services, restrictions on public gatherings and quarantining of people who may have been exposed to the virus. These restrictions, in turn, caused the United States economy to decline and businesses to cancel or reduce amounts spent on advertising, negatively impacting our advertising-based businesses. Furthermore, some of our advertisers have seen a material decline in their businesses and may not be able to pay amounts owed to us when they come due. If the spread of COVID-19 continues, or is suppressed but later reemerges as a variant strain, and public and private entities continue to implement restrictive measures, we expect that our results of operations, financial condition and cash flows will continue to be negatively affected, the extent to which is difficult to estimate at this time.

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as

of the date of the financial statements, as well as the reported amounts of revenue and expenses during the reporting period. Due to the uncertain future impacts of the COVID-19 pandemic and the related economic disruptions, actual results could differ from those estimates particularly as it relates to estimates reliant on forecasts and other assumptions reasonably available to the Company. The extent to which the COVID-19 pandemic and related economic disruptions impact the Company’s business and financial results will depend on future developments including, but not limited to: (i) the continued spread, duration and severity of the COVID-19 pandemic, (ii) the occurrence, spread, duration and severity of any subsequent wave or waves of outbreaks after the initial outbreak has subsided, (iii) the actions taken by the U.S. and foreign governments to contain the COVID-19 pandemic, address its impact or respond to the reduction in global and local economic activity, (iv) the occurrence, duration and severity of a global, regional or national recession, depression or other sustained adverse market event, and (v) how quickly and to what extent normal economic and operating conditions can resume. The accounting matters assessed included, but were not limited to, allowance for doubtful accounts, our ability to realize our deferred tax assets, and the carrying value of goodwill, FCC licenses and other long-lived assets.

As discussed in Note 7, during the three-month period ended June 30, 2020, as a result of a sharp deterioration of business activity related to the COVID-19 pandemic, the Company determined that it was more likely than not that it would be unable to realize its deferred tax assets and recorded a $15.6 million valuation allowance against these assets through an increase to our provision for income taxes. The Company’s future assessment of the magnitude and duration of COVID-19, as well as other factors, could result in material changes to the estimates and material impacts to the Company’s condensed consolidated financial statements in future reporting periods.

Per Share Data

Our basic and diluted net loss per share is computed using the two-class method. The two-class method is an earnings allocation that determines net income per share for each class of common stock and participating securities according to their participation rights in dividends and undistributed earnings or losses. Shares of Series A preferred stock include rights to participate in dividends and distributions to common stockholders on an if-converted basis, and accordingly are considered participating securities. During periods of undistributed losses however, no effect is given to our participating securities since they are not contractually obligated to share in the losses. The following is a reconciliation of basic and diluted net loss per share attributable to common shareholders:

	For the Three Months Ended June 30,
	2020								2021
	Net Income			Shares		Net Income Per Share			Net Income		Shares		Net Income Per Share
Basic net (loss) income per common share:
Net (loss) income	$	(18,359	)		—				$	943		—
Less:					—							—
Preferred dividends		528			—					669		—
Undistributed earnings allocated to participating securities		—			—					136		—
Net (loss) income attributable to common shareholders	$	(18,887	)		7,096	$	(2.66	)	$	138		7,187	$	0.02
Impact of restricted stock awards		—			—					—		179
Diluted net (loss) income per common share:
Net (loss) income attributable to common shareholders	$	(18,887	)		7,096	$	(2.66	)	$	138		7,366	$	0.02

	For the Six Months Ended June 30,
	2020								2021
	Net Income			Shares		Net Income Per Share			Net Income			Shares		Net Income Per Share
Basic and diluted net loss per common share:
Net loss	$	(19,844	)		—				$	(2,310	)		—
Less:					—								—
Preferred dividends		1,057			—					1,303			—
Net loss attributable to common shareholders	$	(20,901	)		7,090	$	(2.95	)	$	(3,613	)		7,151	$	(0.51	)

The following convertible equity shares were excluded from the calculation of diluted net loss per share because their effect would have been anti-dilutive. The Company did not issue any restricted stock awards until the three months ended September 30, 2020.

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2020		2021		2020		2021
	(In thousands)
Convertible Emmis promissory note		1,238		1,655		1,238		2,206
Convertible Standard General promissory notes		2,785		6,371		2,785		8,501
Series A convertible preferred stock		5,734		7,179		5,734		9,567
Restricted stock awards		—		10		—		176
Total		9,757		15,215		9,757		20,450

Recent Accounting Pronouncements Not Yet Implemented

In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-13, Financial Instruments – Credit Losses, which introduces new guidance for an approach based on using expected losses to estimate credit losses on certain types of financial instruments. It also modifies the impairment model for available-for-sale debt securities and provides a simplified accounting model for purchased financial assets with credit deterioration since their origination. Instruments in scope include loans, held-to-maturity debt securities and net investments in leases as well as reinsurance and trade receivables. This standard will be effective for us as of January 1, 2023. We are currently evaluating the impact that the adoption of the new standard will have on our condensed consolidated financial statements.