# ENTRAVISION COMMUNICATIONS CORP (EVC) FY 2021 MD&A

Verbatim Item 7 Management's Discussion and Analysis from ENTRAVISION COMMUNICATIONS CORP's 10-K for fiscal year 2021.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1109116/000095017022003821/evc-20211231.htm
Accession: 0000950170-22-003821
Filing date: 2022-03-16
Report date: 2021-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/EVC/
All MD&A years: /company/EVC/mda/
Next year: /company/EVC/mda/fy2022/ (FY 2022)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our consolidated results of operations and cash flows for the years ended December 31, 2021, 2020 and 2019 and consolidated financial condition as of December 31, 2021 and 2020 should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on Form 10-K.

The discussion and analysis of our financial condition and results of operations for 2021 compared to 2020 appears below. As permitted by SEC rules, we have omitted the discussion and analysis of our financial condition and results of operations for 2020 compared to 2019. See Item 7, “Management’s Discussions and Analysis of Financial Condition and Results of Operations”, in our Annual Report on Form 10-K for the year ended December 31, 2020, for this discussion.

OVERVIEW

We are a leading global advertising solutions, media and technology company. Our operations encompass integrated, end-to-end advertising solutions across multiple media, comprised of digital, television and audio properties. Our digital segment, whose operations are primarily located in Latin America, Europe, the United States, Asia and Africa, reaches a global market, with a focus on advertisers in emerging economies that wish to advertise on digital platforms owned and operated primarily by global media companies. Our television and audio operations reach and engage U.S. Hispanics in the United States. For financial reporting purposes, we report in three segments based upon the type of advertising medium: digital, television and audio (formerly radio). Our net revenue for the year ended December 31, 2021 was $760.2 million. Of that amount, revenue attributed to our digital segment accounted for approximately 73%, revenue attributed to our television segment accounted for approximately 19%, and revenue attributed to our audio (formerly radio) segment accounted for approximately 8%.

We provide digital end-to-end advertising solutions that allow advertisers to reach online users worldwide. These solutions are comprised of four separate business units:

•
our digital commercial partnerships business;

•
Smadex, our programmatic ad purchasing platform;

•
our branding and mobile performance solutions business; and

•
our digital audio business.

Through our digital commercial partnerships business – the largest of our digital business units – we act as an intermediary between primarily global media companies and advertising customers or their ad agencies. The global media companies we represent include Meta Platforms, or Meta (formerly known as Facebook Inc.), Twitter, Inc., or Twitter, ByteDance Ltd., also known as TikTok, and Spotify AB, or Spotify, as well as other media companies, in 30 countries throughout the world. Our dedicated local sales teams sell advertising space on these media companies' digital platforms to our advertising customers or their ad agencies for the placement of ads directed to online users of a wide range of Internet-connected devices. We also provide some of our advertising customers billing, technological and other support, including strategic marketing and training, which we refer to as managed services.

Smadex is our proprietary automated purchasing platform, on which advertisers can purchase ad inventory. This practice – the purchase and sale of advertising inventory electronically – is referred to in our industry as programmatic advertising. Smadex is also a “demand-side" platform, which allows advertisers to purchase space from online marketplaces on which media companies list their advertising inventory. Most advertisements acquired through Smadex are placed on mobile devices, but they may also be placed on computers and Internet-connected televisions. We also provide managed services to some of our advertising customers in connection with their use of our Smadex platform.

We also offer a branding and mobile performance solutions business, which provides managed services to advertisers looking to connect with consumers, primarily on mobile devices. Our digital audio business provides digital audio advertising solutions for advertisers in the Americas.

We have a diversified media portfolio that targets Hispanic audiences. We own and/or operate 49 primary television stations located primarily in California, Colorado, Connecticut, Florida, Kansas, Massachusetts, Nevada, New Mexico, Texas and Washington, D.C. Our television operations comprise the largest affiliate group of both the top-ranked primary Univision television network of TelevisaUnivision Inc., or TelevisaUnivision, and TelevisaUnivision’s UniMás network. We own and operate 46 radio stations in 14 U.S. markets. Our radio stations consist of 37 FM and 9 AM stations located in Arizona, California, Colorado, Florida, Nevada, New Mexico and Texas. We also sell advertisements and syndicate radio programming to more than 100 markets across the United States.

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In our digital segment, we generate revenue primarily from sales of advertising that are placed by our advertising customers or their ad agencies on the digital platforms of third-party media companies for which we act as commercial partner or placed directly with online digital marketplaces through our Smadex platform. In our television and audio segments, we generate revenue primarily from sales of national and local advertising time on television stations and radio stations, retransmission consent agreements that are entered into with multichannel video programming distributors, or MVPDs, and agreements associated with our television stations’ spectrum usage rights. Advertising rates are, in large part, based on each medium’s ability to attract audiences in demographic groups targeted by advertisers. In our digital segment, we recognize advertising revenue when display or other digital advertisements record impressions on the websites and mobile and Internet-connected television apps of media companies on whose digital platforms the advertisements are placed or as the advertiser’s previously agreed-upon performance criteria are satisfied. In our television and audio segments, we recognize advertising revenue when commercials are broadcast. We do not obtain long-term commitments from our advertisers across any of our operations and, consequently, they may cancel, reduce or postpone orders without penalties. In our television and audio segments, we pay commissions to agencies for local and national advertising. For contracts we have entered into directly with agencies, we record net revenue from these agencies.

We refer to the revenue generated by agreements with MVPDs as retransmission consent revenue, which represents payments from MVPDs for access to our television station signals so that they may rebroadcast our signals and charge their subscribers for this programming. We recognize retransmission consent revenue earned as the television signal is delivered to an MVPD.

Our FCC licenses grant us spectrum usage rights within each of the television markets in which we operate. These spectrum usage rights give us the authority to broadcast our stations’ over-the-air television signals to our viewers. We regard these rights as a valuable asset. With the proliferation of mobile devices and advances in technology that have freed up spectrum capacity, the monetization of our spectrum usage rights has become a significant source of revenue in recent years. We generate revenue from agreements associated with these television stations’ spectrum usage rights from a variety of sources, including but not limited to agreements with third parties to utilize spectrum for the broadcast of their multicast networks; charging fees to accommodate the operations of third parties, including moving channel positions or accepting interference with our broadcasting operations; and modifying and/or relinquishing spectrum usage rights while continuing to broadcast through channel sharing or other arrangements. Revenue generated by such agreements is recognized over the period of the lease or when we have relinquished all or a portion of our spectrum usage rights for a station or have relinquished our rights to operate a station on the existing channel free from interference. In addition, subject to certain restrictions contained in our 2017 Credit Agreement, we will consider strategic acquisitions of television stations to further this strategy from time to time, as well as additional monetization opportunities expected to arise as the television broadcast industry implements the standards contained in ATSC 3.0.

In our digital segment, our primary expense is cost of revenue which consists primarily of the costs of online media acquired from the media companies for which we act as commercial partner or purchased directly from online digital marketplaces through our Smadex platform, as well as third party server costs. Our primary expenses in our television and audio segments, and a secondary expense in our digital segment, is employee compensation, including commissions paid to our sales staff and amounts paid to our national sales representative firms, as well as expenses for general and administrative functions, promotion and selling, engineering, marketing, and local programming.

Highlights

As part of the expansion of our digital segment we engaged in several acquisitions during the year ended December 31, 2021:

•
we acquired the remaining 49% of the issued and outstanding shares of Cisneros Interactive stock, and we now own 100% of the issued and outstanding shares of stock of Cisneros Interactive;

•
we acquired 100% of the issued and outstanding shares of stock of MediaDonuts, a digital advertising solutions company in Southeast Asia.; and

•
we acquired 100% of the issued and outstanding shares of stock of 365 Digital, a digital advertising solutions company headquartered in South Africa.

During 2021, our consolidated revenue increased to $760.2 million from $344.0 million in the prior year, primarily due to an increase in advertising revenue attributed to our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021. Additionally, the increase in revenue was attributed to our acquisitions of MediaDonuts and 365 Digital during the third and fourth quarters of 2021, respectively, increases in local and national advertising revenue, revenue from spectrum usage rights and retransmission consent revenue, partially offset by a decrease in political advertising revenue.

Net revenue for our digital segment increased to $555.3 million in 2021, from $143.3 million in 2020. This increase of approximately $412.0 million was primarily due to an increase in advertising revenue attributed to our acquisition of a majority

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interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and due to acquisitions of MediaDonuts and 365 Digital during the third and fourth quarters of 2021, respectively.

Net revenue for our television segment decreased to $146.8 million in 2021, from $154.5 million in 2020. This decrease of approximately $7.7 million was primarily due to a decrease in political advertising revenue, partially offset by increases in local and national advertising revenue, revenue from spectrum usage rights and retransmission consent revenue. We generated a total of $37.0 million in retransmission consent revenue for the year ended December 31, 2021 compared to $36.8 million for the year ended December 31, 2020. We generated a total of $6.2 million in spectrum usage rights revenue for the year ended December 31, 2021 compared to $5.4 million for the year ended December 31, 2020.

Net revenue for our audio segment increased to $58.0 million in 2021, from $46.3 million in 2020. This increase of approximately $11.7 million was primarily due to increases in local and national advertising revenue, partially offset by a decrease in political advertising revenue.

The Impact of the COVID-19 Pandemic on our Business

This section of this report should be read in conjunction with the rest of this item, “Forward-Looking Statements” and Notes to Consolidated Financial Statements appearing herein, for a more complete understanding of the impact of the COVID-19 pandemic on our business.

Notwithstanding periodic increases in COVID-19 cases from time to time during 2021, the COVID-19 pandemic had a lessened impact on our business during the quarter and year ended December 31, 2021 compared to previous periods since the pandemic began in March 2020. Subject to the extent and duration of possible resurgences of the pandemic and the uncertain economic environment that has resulted from the pandemic, we anticipate that the pandemic will continue to have diminishing or little effect on our business, from both an operational and financial perspective, in future periods. Nonetheless, we remain cautious due to the unpredictable nature of the pandemic and its effects.

Operational Impact

Most of our employees in our digital segment work remotely and we have not seen a significant interruption in our digital operations to date. However, we cannot give any assurance at this time whether a resurgence or more prolonged impact of the pandemic in any location where our digital operations have employees or operate would not adversely affect our digital operations.

To date, we have experienced no significant interruption of our broadcasts in our television and audio segments in any of the markets in which we own and/or operate stations. Most of our personnel have returned to work at our stations, subject to brief periods if they have tested positive and are recovering from COVID-19. However, we cannot give any assurance at this time whether a resurgence or more prolonged impact of the pandemic in any of our markets would not adversely affect our ability to continue staffing our stations at appropriate levels to continue broadcasts without interruption.

Our corporate office is located in Santa Monica, California. Most of our personnel have returned to work in our corporate office, subject to brief periods if they have tested positive and are recovering from COVID-19, with some personnel continuing to work remotely. We have not experienced any significant interruption in any of our corporate or administrative departments, including without limitation our finance and accounting departments.

Financial Impact

Despite publicly available information that the U.S. economy is recovering, such improvement is uneven geographically and by industry, and remains uneven in many parts of the world, including places where we have digital operations. Our operations and results of operations may be adversely impacted by any resurgence of the pandemic, the rate of vaccinations of the population and other factors beyond our control. Accordingly, the effect of the economic disruption that has resulted from the pandemic continues to be felt by us to some degree and may continue to be felt by us in future periods, particularly as our international operations continue to expand to include parts of the world where vaccination rates are generally lower and infection rates are generally higher. We are also closely monitoring the impact of the current omicron variant, which began toward the end of the fourth quarter of 2021, with very high infection rates throughout the world, including the United States.

In the first quarter of 2021, we experienced some cancellations of advertising and a decrease in new advertising placements in our television segment and especially in our audio segment, continuing a trend that we had begun to experience since the beginning of the pandemic in March 2020, although this trend ended during the second quarter of 2021. During the quarter ended December 31, 2021, and for the full year ended December 31, 2021, we did not experience material cancellations of advertising or a decrease in new

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advertising placements in our television and audio segments. Nonetheless, at this time we do not know if certain behavioral changes by audiences in their television viewership and radio listening habits during the pandemic are permanent and the impact any such changes could have on our results of operations in future periods.

In order to preserve cash during this uncertain period, we have instituted certain cost reduction measures that are still in effect. On March 26, 2020, we suspended repurchases under our share repurchase program. Effective May 16, 2020, we suspended company matching of employee contributions to their 401(k) retirement plans. We reduced our dividend by 50% beginning in the second quarter of 2020, and we may continue to do so in future periods. Other cost reduction measures that we instituted during 2020 were restored to original levels by the end of 2020. We will continue to monitor all of these actions closely in light of current and changing conditions and may institute such additional actions as we may believe are appropriate at a future date.

Additionally, we have elected to defer the employer portion of the social security payroll tax (6.2%) as provided in the Coronavirus Aid, Relief and Economic Security Act of 2020, commonly known as the CARES Act. The deferral was effective from March 27, 2020 through December 31, 2020. The deferred amount is considered to be timely paid if 50% is paid by December 31, 2021 and the remainder is paid by December 31, 2022. During the year ended December 31, 2021, we paid 50% of the deferred amount.

Because of unprecedented uncertainties regarding the extent and duration of the pandemic and the continuing economic disruption that has resulted from the pandemic, our results of operations for the quarter and year ended December 31, 2021 may not be indicative of our results of operations for any future period. We do not know how soon the global, U.S. and local economies will fully recover to pre-pandemic levels. Therefore, we may continue to experience an adverse financial impact on our business and results of operations, albeit at a potentially slower rate, and possibly our financial condition, for an unknown period of time. Additionally, any resurgence of the pandemic; reimposition of lockdown, shelter-in-place, stay-at-home and similar orders; prolongation of the continuing economic disruption that has resulted from the pandemic; or permanent changes in consumer behavior, could intensify this adverse impact and adversely affect our business, results of operations and financial condition in future periods during the course of the pandemic, or beyond. We continue to closely monitor the situation across all fronts and will need to continue to remain flexible in order to respond to developments as and if they occur. However, we cannot give any assurance if, or the extent to which, we will be successful in any such efforts.

Relationship with TelevisaUnivision

Substantially all of our television stations are Univision- or UniMás-affiliated television stations. Our network affiliation agreement with TelevisaUnivision provides certain of our owned stations the exclusive right to broadcast TelevisaUnivision’s primary Univision network and UniMás network programming in their respective markets. Under the network affiliation agreement, we retain the right to sell no less than four minutes per hour of the available advertising time on stations that broadcast Univision network programming, and the right to sell approximately four and a half minutes per hour of the available advertising time on stations that broadcast UniMás network programming, subject to adjustment from time to time by TelevisaUnivision.

Under the network affiliation agreement, TelevisaUnivision acts as our exclusive third-party sales representative for the sale of certain national advertising on our Univision- and UniMás-affiliate television stations, and we pay certain sales representation fees to TelevisaUnivision relating to sales of all advertising for broadcast on our Univision- and UniMás-affiliate television stations.

We also generate revenue under two marketing and sales agreements with TelevisaUnivision, which give us the right to manage the marketing and sales operations of TelevisaUnivision-owned Univision affiliates in six markets – Albuquerque, Boston, Denver, Orlando, Tampa and Washington, D.C.

Under our proxy agreement with TelevisaUnivision, we grant TelevisaUnivision the right to negotiate the terms of retransmission consent agreements for our Univision- and UniMás-affiliated television station signals. Among other things, the proxy agreement provides terms relating to compensation to be paid to us by TelevisaUnivision with respect to retransmission consent agreements entered into with MVPDs. During the years ended December 31, 2021 and 2020, retransmission consent revenue accounted for approximately $37.0 million and $36.8 million, respectively, of which $25.9 million and $26.8 million, respectively, relate to the TelevisaUnivision proxy agreement. The term of the proxy agreement extends with respect to any MVPD for the length of the term of any retransmission consent agreement in effect before the expiration of the proxy agreement.

On October 2, 2017, we entered into the current affiliation agreement with TelevisaUnivision, which superseded and replaced our prior affiliation agreements with TelevisaUnivision. Additionally, on the same date, we entered into the current proxy agreement and current marketing and sales agreements with TelevisaUnivision, each of which superseded and replaced the prior comparable agreements with TelevisaUnivision. The term of each of these current agreements expires on December 31, 2026 for all of our

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Univision and UniMás network affiliate stations, except that each current agreement expired on December 31, 2021 with respect to our Univision and UniMás network affiliate stations in Orlando, Tampa and Washington, D.C.

Univision currently owns approximately 11% of our common stock on a fully-converted basis. Our Class U common stock, all of which is held by TelevisaUnivision, has limited voting rights and does not include the right to elect directors. Each share of Class U common stock is automatically convertible into one share of Class A common stock (subject to adjustment for stock splits, dividends or combinations) in connection with any transfer of such shares of Class U common stock to a third party that is not an affiliate of TelevisaUnivision. In addition, as the holder of all of our issued and outstanding Class U common stock, so long as TelevisaUnivision holds a certain number of shares of Class U common stock, we may not, without the consent of TelevisaUnivision, merge, consolidate or enter into a business combination, dissolve or liquidate our company or dispose of any interest in any FCC license with respect to television stations which are affiliates of TelevisaUnivision, among other things.

Acquisitions and Dispositions

Cisneros Interactive

On October 13, 2020, we acquired from certain individuals (collectively, the “Sellers”), 51% of the issued and outstanding shares of stock of a digital advertising solutions company that, together with its subsidiaries, does business under the name Cisneros Interactive. The acquisition, funded from cash on hand, included a purchase price of approximately $29.9 million in cash. We concluded that the remaining 49% of the issued and outstanding shares of Cisneros Interactive stock was considered to be a noncontrolling interest.

In connection with the acquisition, we also entered into a Put and Call Option Agreement (the “Put and Call Agreement”). Subject to the terms of the Put and Call Agreement, if certain minimum EBITDA targets are met, the Sellers had the right (the “Put Option”), between March 15, 2024 and June 13, 2024, to cause us to purchase all (but not less than all) the remaining 49% of the issued and outstanding shares of Cisneros Interactive stock at a purchase price to be based on a pre-determined multiple of six times Cisneros Interactive’s 12-month EBITDA in the preceding calendar year. The Sellers also had the right to exercise the Put Option upon the occurrence of certain events, between March 2022 and April 2024.

Additionally, subject to the terms of the Put and Call Agreement, we had the right (the “Call Option”), in calendar year 2024, to purchase all (but not less than all) the remaining 49% of the issued and outstanding shares of Cisneros Interactive stock at a purchase price to be based on a pre-determined multiple of six times of Cisneros Interactive’s 12-month EBITDA in calendar year 2023.

Applicable accounting guidance requires an equity instrument that is redeemable for cash or other assets to be classified outside of permanent equity if it is redeemable (a) at a fixed or determinable price on a fixed or determinable date, (b) at the option of the holder, or (c) upon the occurrence of an event that is not solely within the control of the issuer.

As a result of the Put Option and Call Option redemption features, and because the redemption was not solely within the control of the Company, the noncontrolling interest was considered redeemable, and was classified in temporary equity within our Consolidated Balance Sheets initially at its acquisition date fair value. The noncontrolling interest was adjusted each reporting period for income (or loss) attributable to the noncontrolling interest as well as any applicable distributions made. Since the noncontrolling interest was not then redeemable under the terms of the Put and Call Agreement and it was not probable that it would become redeemable, we were not required to adjust the amount presented in temporary equity to its redemption value in prior periods. The fair value of the redeemable noncontrolling interest which includes the Put and Call Agreement recognized on the acquisition date was $30.8 million.

The following is a summary of the final purchase price allocation (in millions):

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[[/GREPCENT_TABLE]]

Intangibles assets subject to amortization acquired includes:

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The fair value of the assets acquired includes trade receivables of $50.5 million. The gross amount due under contract is $54.0 million, of which $3.5 million is expected to be uncollectable. Subsequent to the initial purchase price allocation, and during the measurement period, we increased other assets and deferred tax by $2.1 million and $0.3 million, respectively, and decreased goodwill by $1.8 million, to reflect final tax amounts.

The goodwill, which is not expected to be deductible for tax purposes, is assigned to our digital segment and is attributable to Cisneros Interactive’s workforce and synergies from combining Cisneros Interactive’s operations with those ours.

On September 1, 2021, we acquired the remaining 49% of the issued and outstanding shares of Cisneros Interactive stock, and as of that date we own 100% of the issued and outstanding shares of stock of Cisneros Interactive. As consideration for the acquisition of the remaining 49%, we agreed to pay the Sellers contingent earn-out payments, based on a predetermined multiple of six times Cisneros Interactive’s 12-month EBITDA targets in calendar years 2021, 2022 and 2023, each divided by three, and an additional payment equal to $10,000,000, less an amount (up to $10,000,000) equal to 49 percent of any amounts paid by Cisneros Interactive for future acquisitions. The fair value of the contingent consideration recognized on the acquisition date was $84.4 million, which was estimated by applying the real options approach. Key assumptions include risk-neutral expected growth rates based on management’s assessments of expected growth in EBITDA, adjusted by appropriate factors capturing their correlation with the market and volatility, discounted at a cost of debt rate ranging from 6.5% to 7.2% over the three-year period. These are significant inputs that are not observable in the market, which ASC 820-10-35 refers to as Level 3 inputs. We recognize any future changes in fair value of the contingent liability in earnings.

As part of the Company’s acquisition of the remaining 49% of the issued and outstanding shares of Cisneros Interactive stock, the Put and Call Agreement was terminated effective September 1, 2021. Applicable accounting guidance requires changes in our ownership interest while we retain controlling financial interest in our subsidiary to be accounted for as an equity transaction. Therefore, no gain or loss was recognized in relation to the acquisition of the remaining 49% of the issued and outstanding shares of stock of Cisneros Interactive. As of the acquisition date, the carrying amount of the noncontrolling interest was adjusted to reflect the change in our ownership interest, and the difference between the fair value of the contingent consideration and the amount by which the noncontrolling interest was recognized as a decrease to paid-in capital in the Consolidated Balance Sheets and the Statements of Stockholders' Equity.

Effective December 31, 2021, we agreed to pay certain of the Sellers an accelerated earn-out based on the EBITDA for calendar year 2021, payable in early 2022. As of December 31, 2021 the contingent liability was adjusted to its current fair value of $97.1 million, of which $44.6 million is a current liability and $52.5 million is a noncurrent liability. The change in the fair value of the contingent liability of $12.7 million loss is reflected in the Consolidated Statements of Operations. The remaining Sellers may elect to accelerate their earn-out payments upon the occurrence of certain events.

The table below presents the reconciliation of changes in redeemable noncontrolling interests (in thousands):

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[[/GREPCENT_TABLE]]

During the year ended December 31, 2021, Cisneros Interactive generated net revenue and net income of $453.9 million and $12.1 million, respectively. During the year ended December 31, 2020, since the acquisition date, Cisneros Interactive generated net revenue and net income of $89.2 million and $5.1 million, respectively.

The following unaudited pro forma information has been prepared to give effect to our wholly-owned acquisition of Cisneros Interactive as if the acquisition had occurred on January 1, 2020. This pro forma information was adjusted to exclude acquisition fees and costs of $0.9 million for the year ended December 31, 2020, which were expensed in connection with the acquisition. This pro

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forma information does not purport to represent what our actual results of operations would have been had this acquisition occurred on such date, nor does it purport to predict the results of operations for any future periods.

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MediaDonuts

On July 1, 2021, we acquired 100% of the issued and outstanding shares of stock of MediaDonuts, a digital advertising solutions company in Southeast Asia. The acquisition, funded from cash on hand, includes a purchase price of approximately $15.1 million in cash, which amount was adjusted at closing to approximately $17.1 million due to customary purchase price adjustments for cash, indebtedness and estimated working capital. Subsequently, the purchase price was adjusted downward by approximately $1.2 million, based on actual working capital acquired. Additionally, the transaction includes up to $7.4 million in contingent earn-out payments based upon the achievement of certain EBITDA targets in calendar years 2021 and 2022, and an additional earn-out based upon the achievement of certain year-over-year EBITDA growth targets in calendar years 2023 and 2024, calculated as a pre-determined multiple of EBITDA for each of those years. The total purchase price for the acquisition, including the fair value of the contingent consideration, was $36.2 million.

We are in the process of completing the purchase price allocation for our acquisition of MediaDonuts. The measurement period remains open pending the finalization of the pre-acquisition tax-related items. The following is a summary of the purchase price allocation (in millions):

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Intangibles assets subject to amortization acquired includes:

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[[/GREPCENT_TABLE]]

As noted above, the acquisition of MediaDonuts includes a contingent consideration arrangement that requires additional consideration to be paid by us to MediaDonuts based on a pre-determined multiple of MediaDonuts' 12-month EBITDA targets in calendar years 2021 through 2024. The fair value of the contingent consideration recognized on the acquisition date of $20.3 million was estimated by applying the real options approach. Key assumptions include risk-neutral expected growth rates based on management’s assessments of expected growth in EBITDA, adjusted by appropriate factors capturing their correlation with the market and volatility, discounted at a cost of debt rate ranging from 5.8% to 6.7% over the three year period. These are significant inputs that are not observable in the market, which ASC 820-10-35 refers to as Level 3 inputs. This contingent liability was subsequently adjusted and has been reflected in the Consolidated Balance Sheet as of December 31, 2021 as noncurrent liabilities of $15.8 million. For the

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year ended December 31, 2021, we recognized $4.5 million gain in the Consolidated Statements of Operations to reflect changes in fair value of the contingent liability.

The fair value of the assets acquired includes trade receivables of $9.9 million. The gross amount due under contract is $10.2 million, of which $0.3 million is expected to be uncollectable.

During the year ended December 31, 2021, MediaDonuts generated net revenue and net income of $30.9 million and $5.6 million, respectively.

The goodwill, which is not expected to be deductible for tax purposes, is assigned to our digital segment and is attributable to MediaDonuts' workforce and expected synergies from combining MediaDonuts' operations with those of the ours.

The following unaudited pro forma information has been prepared to give effect to our acquisition of MediaDonuts as if the acquisition had occurred on January 1, 2020. This pro forma information was adjusted to exclude acquisition fees and costs of $0.7 million for the year ended December 31, 2021, which were expensed in connection with the acquisition. This pro forma information does not purport to represent what our actual results of operations would have been had this acquisition occurred on such date, nor does it purport to predict the results of operations for any future periods.

[[GREPCENT_TABLE]]
[["","Years Ended"],["","Ended December 31,"],["(in thousands, except share and per share data)","2021","","","2020"],["Pro Forma:"],["Total revenue","$","781,835","","","$","372,519"],["Net income (loss) attributable to common stockholders","","32,997","","","","(522",")"],["Basic and diluted earnings per share:"],["Net income (loss) per share, attributable to common stockholders, basic","$","0.39","","","$","(0.01)"],["Net income (loss) per share, attributable to common stockholders, diluted","$","0.38","","","","(0.01)"],["Weighted average common shares outstanding, basic","","85,301,603","","","","84,231,212"],["Weighted average common shares outstanding, diluted","","87,910,603","","","","84,231,212"]]
[[/GREPCENT_TABLE]]

365 Digital

On November 1, 2021, we acquired 100% of the issued and outstanding shares of stock of 365 Digital, a digital advertising solutions company headquartered in South Africa. The acquisition, funded from cash on hand, includes a purchase price of approximately $1.8 million in cash, which amount was adjusted at closing to approximately $1.9 million due to customary purchase price adjustments for cash, indebtedness and estimated working capital. Additionally, the transaction includes contingent earn-out payments based upon the achievement of certain EBITDA targets in calendar years 2022, 2023 and 2024, calculated as a pre-determined multiple of EBITDA for each of those years. The total purchase price for the acquisition, including the fair value of the contingent consideration, was $3.9 million.

We are in the process of completing the purchase price allocation for our acquisition of 365 Digital. The measurement period remains open pending the finalization of the pre-acquisition tax-related items. The following is a summary of the purchase price allocation (in millions):

[[GREPCENT_TABLE]]
[["Cash","$","0.5"],["Accounts receivable","","1.1"],["Intangible assets subject to amortization","","2.2"],["Goodwill","","2.1"],["Current liabilities","","(1.4",")"],["Deferred tax","","(0.6",")"]]
[[/GREPCENT_TABLE]]

Intangibles assets subject to amortization acquired includes:

67

[[GREPCENT_TABLE]]
[["Intangible Asset","EstimatedFair Value(in millions)","","Weightedaveragelife (in years)"],["Publisher relationships","$","1.7","","9.0"],["Advertiser relationships","","0.2","","4.0"],["Trade name","","0.2","","5.0"],["Non-Compete agreements","","0.1","","4.0"]]
[[/GREPCENT_TABLE]]

As noted above, the acquisition of 365 Digital includes a contingent consideration arrangement that requires additional consideration to be paid by us to 365 Digital based on a pre-determined multiple of 365 Digital's 12-month EBITDA targets in calendar years 2022 through 2024. The fair value of the contingent consideration recognized on the acquisition date of $2.0 million was estimated by applying the real options approach. Key assumptions include risk-neutral expected growth rates based on management’s assessments of expected growth in EBITDA, adjusted by appropriate factors capturing their correlation with the market and volatility, discounted at a cost of debt rate ranging from 7.6% to 8.3% over the three year period. These are significant inputs that are not observable in the market, which ASC 820-10-35 refers to as Level 3 inputs. This contingent liability has been reflected in the Consolidated Balance Sheet as of December 31, 2021 as noncurrent liabilities of $2.0 and has not changed materially between the acquisition date and December 31, 2021.

The fair value of the assets acquired includes trade receivables of $1.1 million. The gross amount due under contract is $1.1 million, of which a de minimis amount is expected to be uncollectable.

During the year ended December 31, 2021, 365 Digital generated net revenue and net income of $1.9 million and $0.1 million, respectively.

The goodwill, which is not expected to be deductible for tax purposes, is assigned to our digital segment and is attributable to 365 Digital's workforce and expected synergies from combining 365 Digital's operations with those of ours.

The following unaudited pro forma information has been prepared to give effect to our acquisition of 365 Digital as if the acquisition had occurred on January 1, 2020. This pro forma information was adjusted to exclude acquisition fees and costs of $0.2 million for the year ended December 31, 2021, which were expensed in connection with the acquisition. This pro forma information does not purport to represent what our actual results of operations would have been had this acquisition occurred on such date, nor does it purport to predict the results of operations for any future periods.

[[GREPCENT_TABLE]]
[["","Years Ended"],["","Ended December 31,"],["(in thousands, except share and per share data)","2021","","","2020"],["Pro Forma:"],["Total revenue","$","762,300","","","$","344,965"],["Net income (loss) attributable to common stockholders","","30,642","","","","(3,747",")"],["Basic and diluted earnings per share:"],["Net income (loss) per share, attributable to common stockholders, basic","$","0.36","","","$","(0.04)"],["Net income (loss) per share, attributable to common stockholders, diluted","$","0.35","","","","(0.04)"],["Weighted average common shares outstanding, basic","","85,301,603","","","","84,231,212"],["Weighted average common shares outstanding, diluted","","87,910,603","","","","84,231,212"]]
[[/GREPCENT_TABLE]]

68

RESULTS OF OPERATIONS

Separate financial data for each of the Company’s operating segments is provided below. Segment operating profit (loss) is defined as operating profit (loss) before corporate expenses, change in fair value of contingent consideration, impairment charge, other operating (gain) loss, and foreign currency (gain) loss. The Company evaluates the performance of its operating segments based on the following (in thousands):

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,","","","% Change","","","% Change"],["","","","2021","","","","2020","","","","2019","","","2021 to 2020","","","2020 to 2019"],["Net Revenue"],["Digital","","$","555,338","","","$","143,309","","","$","68,908","","","","288","%","","","108","%"],["Television","","","146,839","","","","154,456","","","","149,654","","","","(5",")%","","","3","%"],["Audio","","","58,015","","","","46,261","","","","55,013","","","","25","%","","","(16",")%"],["Consolidated","","","760,192","","","","344,026","","","","273,575","","","","121","%","","","26","%"],["Cost of revenue - digital","","","466,517","","","","106,928","","","","36,757","","","","336","%","","","191","%"],["Direct operating expenses"],["Digital","","","25,481","","","","15,227","","","","18,357","","","","67","%","","","(17",")%"],["Television","","","63,016","","","","61,145","","","","61,778","","","","3","%","","","(1",")%"],["Audio","","","27,952","","","","28,537","","","","39,277","","","","(2",")%","","","(27",")%"],["Consolidated","","","116,449","","","","104,909","","","","119,412","","","","11","%","","","(12",")%"],["Selling, general and administrative expenses"],["Digital","","","26,123","","","","15,404","","","","13,904","","","","70","%","","","11","%"],["Television","","","18,381","","","","19,748","","","","22,638","","","","(7",")%","","","(13",")%"],["Audio","","","12,081","","","","13,252","","","","17,423","","","","(9",")%","","","(24",")%"],["Consolidated","","","56,585","","","","48,404","","","","53,965","","","","17","%","","","(10",")%"],["Depreciation and amortization"],["Digital","","","8,377","","","","2,561","","","","4,723","","","","227","%","","","(46",")%"],["Television","","","12,477","","","","12,918","","","","10,059","","","","(3",")%","","","28","%"],["Audio","","","1,566","","","","1,803","","","","1,866","","","","(13",")%","","","(3",")%"],["Consolidated","","","22,420","","","","17,282","","","","16,648","","","","30","%","","","4","%"],["Segment operating profit (loss)"],["Digital","","","28,840","","","","3,189","","","","(4,833",")","","","804","%","","*"],["Television","","","52,965","","","","60,645","","","","55,179","","","","(13",")%","","","10","%"],["Audio","","","16,416","","","","2,669","","","","(3,553",")","","","515","%","","*"],["Consolidated","","","98,221","","","","66,503","","","","46,793","","","","48","%","","","42","%"],["Corporate expenses","","","32,993","","","","27,807","","","","28,067","","","","19","%","","","(1",")%"],["Change in fair value of contingent consideration","","","8,224","","","","\u2014","","","","(6,478",")","","*","","","","(100",")%"],["Impairment charge","","","3,023","","","","40,035","","","","32,097","","","","(92",")%","","","25","%"],["Foreign currency (gain) loss","","","508","","","","(1,052",")","","","754","","","*","","","*"],["Other operating (gain) loss","","","(6,998",")","","","(6,895",")","","","(5,994",")","","","1","%","","","15","%"],["Operating income (loss)","","$","60,471","","","$","6,608","","","$","(1,653",")","","","815","%","","*"],["Net income (loss) attributable to common stockholders","","$","29,292","","","$","(3,910",")","","$","(19,712",")","","*","","","","(80",")%"],["Consolidated adjusted EBITDA (1)","","$","88,033","","","$","60,419","","","$","41,209","","","","46","%","","","47","%"],["Capital expenditures"],["Television","","$","2,833","","","$","7,184","","","$","24,174"],["Digital","","","2,073","","","","1,659","","","","318"],["Audio","","","705","","","","641","","","","792"],["Consolidated","","$","5,611","","","$","9,484","","","$","25,284"],["Total assets"],["Television","","$","433,303","","","$","425,899","","","$","465,758"],["Digital","","","309,347","","","","196,020","","","","51,979"],["Audio","","","108,692","","","","125,426","","","","138,463"],["Consolidated","","$","851,342","","","$","747,345","","","$","656,200"]]
[[/GREPCENT_TABLE]]

* Percentage not meaningful.

(1)
Consolidated adjusted EBITDA means net income (loss) plus gain (loss) on sale of assets, depreciation and amortization, non-cash impairment charge, non-cash stock-based compensation included in operating and corporate expenses, net interest expense, other operating gain (loss), gain (loss) on debt extinguishment, income tax (expense) benefit, equity in net income (loss) of

69

nonconsolidated affiliate, non-cash losses, syndication programming amortization less syndication programming payments, revenue from the FCC spectrum incentive auction less related expenses, expenses associated with investments, EBITDA attributable to redeemable noncontrolling interest, acquisitions and dispositions and certain pro-forma cost savings. We use the term consolidated adjusted EBITDA because that measure is defined in our 2017 Credit Agreement and does not include gain (loss) on sale of assets, depreciation and amortization, non-cash impairment charge, non-cash stock-based compensation, net interest expense, other income (loss), gain (loss) on debt extinguishment, income tax (expense) benefit, equity in net income (loss) of nonconsolidated affiliate, non-cash losses, syndication programming amortization less syndication programming payments, revenue from FCC spectrum incentive auction less related expenses, expenses associated with investments, EBITDA attributable to redeemable noncontrolling interest, acquisitions and dispositions and certain pro-forma cost savings.

Since consolidated adjusted EBITDA is a measure governing several critical aspects of our 2017 Credit Facility, we believe that it is important to disclose consolidated adjusted EBITDA to our investors. We may increase the aggregate principal amount outstanding by an additional amount equal to $100.0 million plus the amount that would result in our total net leverage ratio, or the ratio of consolidated total senior debt (net of up to $75.0 million of unrestricted cash) to trailing-twelve-month consolidated adjusted EBITDA, not exceeding 4.0. In addition, beginning December 31, 2018, at the end of every calendar year, in the event our total net leverage ratio is within certain ranges, we must make a debt prepayment equal to a certain percentage of our Excess Cash Flow, which is defined as consolidated adjusted EBITDA, less consolidated interest expense, less debt principal payments, less taxes paid, less other amounts set forth in the definition of Excess Cash Flow in the 2017 Credit Agreement. The total leverage ratio was as follows (in each case as of December 31): 2021, 1.6 to 1; 2020, 2.3 to 1.

While many in the financial community and we consider consolidated adjusted EBITDA to be important, it should be considered in addition to, but not as a substitute for or superior to, other measures of liquidity and financial performance prepared in accordance with accounting principles generally accepted in the United States of America, such as cash flows from operating activities, operating income (loss) and net income (loss). As consolidated adjusted EBITDA excludes non-cash gain (loss) on sale of assets, non-cash depreciation and amortization, non-cash impairment charge, non-cash stock-based compensation expense, net interest expense, other income (loss), non-recurring cash expenses, gain (loss) on debt extinguishment, income tax (expense) benefit, equity in net income (loss) of nonconsolidated affiliate, non-cash losses, syndication programming amortization less syndication programming payments, revenue from FCC spectrum incentive auction less related expenses, expenses associated with investments, EBITDA attributable to redeemable noncontrolling interest, acquisitions and dispositions and certain pro-forma cost savings, consolidated adjusted EBITDA has certain limitations because it excludes and includes several important financial line items. Therefore, we consider both non-GAAP and GAAP measures when evaluating our business. Consolidated adjusted EBITDA is also used to make executive compensation decisions.

70

Consolidated adjusted EBITDA is a non-GAAP measure. The most directly comparable GAAP financial measure to consolidated adjusted EBITDA is cash flows from operating activities. A reconciliation of this non-GAAP measure to cash flows from operating activities follows (in thousands):

[[GREPCENT_TABLE]]
[["","","Years Ended December 31,"],["","","2021","","","2020","","","2019"],["Consolidated adjusted EBITDA (1)","","$","88,033","","","$","60,419","","","$","41,209"],["EBITDA attributable to redeemable noncontrolling interest","","","9,127","","","","3,436","","","","\u2014"],["Interest expense","","","(7,020",")","","","(8,265",")","","","(13,683",")"],["Interest income","","","245","","","","1,748","","","","3,353"],["Gain (loss) on debt extinguishment","","","\u2014","","","","-","","","","(255",")"],["Income tax (expense) benefit","","","(18,679",")","","","(1,506",")","","","(8,158",")"],["Amortization of syndication contracts","","","(475",")","","","(504",")","","","(505",")"],["Payments on syndication contracts","","","473","","","","458","","","","543"],["Non-cash stock-based compensation included in direct operating expenses","","","(3,234",")","","","(1,247",")","","","(732",")"],["Non-cash stock-based compensation included in corporate expenses","","","(6,361",")","","","(3,878",")","","","(3,645",")"],["Depreciation and amortization","","","(22,420",")","","","(17,282",")","","","(16,648",")"],["Change in fair value of contingent consideration","","","(8,224",")","","","\u2014","","","","6,478"],["Other operating gain (loss)","","","6,998","","","","6,895","","","","5,994"],["Impairment charge","","","(3,023",")","","","(40,035",")","","","(32,097",")"],["Non-recurring severance charge","","","(423",")","","","(1,654",")","","","(2,250",")"],["Dividend income","","","213","","","","28","","","","918"],["Equity in net income (loss) of nonconsolidated affiliates","","","\u2014","","","","\u2014","","","","(234",")"],["Net (income) loss attributable to redeemable noncontrolling interest","","","(5,938",")","","","(2,523",")","","","\u2014"],["Net income (loss) attributable to common stockholders","","","29,292","","","","(3,910",")","","","(19,712",")"],["Depreciation and amortization","","","22,420","","","","17,282","","","","16,648"],["Deferred income taxes","","","14,554","","","","(6,225",")","","","5,311"],["Amortization of debt issue costs","","","604","","","","649","","","","881"],["Amortization of syndication contracts","","","475","","","","504","","","","505"],["Payments on syndication contracts","","","(473",")","","","(458",")","","","(543",")"],["Equity in net (income) loss of nonconsolidated affiliate","","","\u2014","","","","\u2014","","","","234"],["Non-cash stock-based compensation","","","9,595","","","","5,125","","","","4,377"],["(Gain) loss on disposal of property and equipment","","","(4,629",")","","","(731",")","","","158"],["(Gain) loss on debt extinguishment","","","\u2014","","","","\u2014","","","","255"],["Net (income) loss attributable to redeemable noncontrolling interest","","","5,938","","","","2,523","","","","\u2014"],["Impairment charge","","","3,023","","","","40,035","","","","32,097"],["Changes in assets and liabilities:"],["(Increase) decrease in accounts receivable","","","(49,109",")","","","(20,100",")","","","8,610"],["(Increase) decrease in prepaid expenses and other assets","","","6,782","","","","11,526","","","","2,102"],["Increase (decrease) in accounts payable, accrued expenses and other liabilities","","","26,781","","","","17,229","","","","(19,384",")"],["Cash flows from operating activities","","$","65,253","","","$","63,449","","","$","31,539"]]
[[/GREPCENT_TABLE]]

(footnotes on preceding page)

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Consolidated Operations

Net Revenue. Net revenue increased to $760.2 million for the year ended December 31, 2021 from $344.0 million for the year ended December 31, 2020, an increase of approximately $416.2 million. Of the overall increase, approximately $412.0 million was attributable to our digital segment and was primarily due to advertising revenue resulting from our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and due to advertising revenue resulting from our acquisitions of MediaDonuts and 365 Digital during the third and fourth quarters of 2021, respectively. In addition, of the overall increase, approximately $11.7 million was attributable to our audio segment primarily due to increases in local and national advertising revenue, partially offset by a decrease in political advertising revenue. The overall increase was partially offset by a decrease of approximately $7.7 million attributable to our television segment, primarily due a decrease in political advertising revenue, partially offset by increases in local and national advertising revenue, revenue from spectrum usage rights and retransmission consent revenue.

We believe that for the full year 2022, net revenue will increase primarily as a result of growth in our digital segment and operating MediaDonuts and 365 Digital for a full year in 2022 compared to 2021. In addition, we believe that for the full year 2022, net revenue will increase as a result of an increase in political advertising revenue compared to 2021.

Cost of revenue-Digital. Cost of revenue in our digital segment increased to $466.5 million for the year ended December 31, 2021 from $106.9 million for the year ended December 31, 2020, an increase of $359.6 million, primarily due to increased costs of

71

revenue following our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and our acquisitions of MediaDonuts and 365 Digital during the third and fourth quarters of 2021, respectively.

Direct Operating Expenses. Direct operating expenses increased to $116.4 million for the year ended December 31, 2021 from $104.9 million for the year ended December 31, 2020, an increase of approximately $11.5 million. Of the overall increase, approximately $10.3 million was attributable to our digital segment primarily due to our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and direct operating expenses resulting from our acquisitions of MediaDonuts and 365 Digital during the third and fourth quarters of 2021, respectively, partially offset by decreases in salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic. Additionally, approximately $1.9 million of the overall increase was attributable to our television segment and was primarily due to increases in non-cash stock-based compensation and program fees expense, partially offset by a decrease in expenses associated with the decrease in political advertising revenue and decreases in salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic. The overall increase was partially offset by a decrease of approximately $0.5 million that was attributable to our audio segment and was primarily due to decreases in salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic. As a percentage of net revenue, direct operating expenses decreased to 15% for the year ended December 31, 2021 from 30% for the year ended December 31, 2020, because the rate of increase in revenue exceeded the rate of increase in expenses.

We believe that direct operating expenses will increase during 2022, primarily as a result of growth in our digital segment and operating MediaDonuts and 365 Digital for a full year in 2022 compared to less than a full year in 2021.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $56.6 million for the year ended December 31, 2021 from $48.4 million for the year ended December 31, 2020, an increase of approximately $8.2 million. Of the overall increase, approximately $10.7 million was attributable to our digital segment and was primarily due to our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and selling, general and administrative expenses resulting from our acquisitions of MediaDonuts and 365 Digital during the third and fourth quarters of 2021, respectively, partially offset by decreases in salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic. The overall increase was partially offset by a decrease of approximately $1.3 million that was attributable to our television segment and was primarily due to decreases in bad debt and salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic. Additionally, the overall increase was partially offset by a decrease of approximately $1.2 million attributable to our audio segment and was primarily due to decreases in salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic. As a percentage of net revenue, selling, general and administrative expenses decreased to 7% for the year ended December 31, 2021 from 14% for the year ended December 31, 2020, because the rate of increase in revenue exceeded the rate of increase in expenses.

We believe that selling, general and administrative expenses will increase during 2022, primarily as a result of growth in our digital segment and operating MediaDonuts and 365 Digital for a full year in 2022 compared to less than a full year in 2021.

Corporate Expenses. Corporate expenses increased to $33.0 million for the year ended December 31, 2021 from $27.8 million for the year ended December 31, 2020, an increase of $5.2 million. The increase was primarily due to increases in salaries, non-cash stock-based compensation expense and audit fees. As a percentage of net revenue, corporate expenses decreased to 4% for the year ended December 31, 2021 from 8% for the year ended December 31, 2020.

We believe that corporate expenses will not change significantly during 2022 compared to 2021.

Depreciation and Amortization. Depreciation and amortization increased to $22.4 million for the year ended December 31, 2021 from $17.3 million for the year ended December 31, 2020, an increase of $5.1 million. The increase was primarily attributable to amortization of the intangible assets from the acquisitions of Cisneros Interactive and MediaDonuts, and fixed assets additions in our television segment as part of the broadcast television repack following the FCC auction for broadcast spectrum that concluded in 2017, partially offset by a decrease due to long-lived assets in our digital segment that were impaired in the first quarter of 2020.

Change in fair value of contingent consideration. As a result of the change in fair value of the contingent consideration related to our acquisitions of Cisneros Interactive and Media Donuts, we recognized expense of $8.2 million for the year ended December 31, 2021.

Foreign currency loss. Historically, our revenues have primarily been denominated in U.S. dollars, and the majority of our current revenues continue to be, and are expected to remain, denominated in U.S. dollars. However, we have operations in countries other than the United States, primarily related to our digital advertising solutions business, and as a result, a portion of our revenues is denominated in currencies other than the U.S. dollar, primarily the Mexican peso, Argentine peso, certain other Latin American currencies and various other currencies. As a result, we have operating expense, attributable to foreign currency, that is primarily

72

related to the operations related to our digital business. Foreign currency loss was $0.5 million for the year ended December 31, 2021, compared to foreign currency gain of $1.1 million for the year ended December 31, 2020, primarily due to currency fluctuations that affected our digital segment operations located outside the United States, primarily related to the digital business.

Other operating gain. Other operating gain increased to $7.0 million for the year ended December 31, 2021 from $6.9 million for the year ended December 31, 2020, an increase of $0.1 million, primarily due to gains in connection with the required relocation of certain television stations to a different channel as part of the broadcast television repack following the FCC auction for broadcast spectrum that concluded in 2017, and gains from the sale of certain assets.

Impairment. We incurred an impairment charge related to indefinite life intangible assets totaling $1.3 million due to a termination of an agreement with a media company for which we act as commercial partner in our digital segment, and impairment charges related to assets held for sale of $1.7 million for the year ended December 31, 2021.

We incurred impairment charges related to indefinite life intangible assets of $32.5 million, impairment charge related to intangible assets subject to amortization of $5.3 million, impairment charge related to goodwill of $0.8 million, and impairment charge related to property and equipment of $1.5 million for the year ended December 31, 2020.

These write-downs were made pursuant to ASC 350, “Intangibles – Goodwill and Other”, which requires that goodwill and certain intangible assets be tested for impairment at least annually, or more frequently if events or changes in circumstances indicate the assets might be impaired.

Operating Income (Loss). As a result of the above factors, operating income was $60.5 million for the year ended December 31, 2021, compared to operating income of $6.6 million for the year ended December 31, 2020.

Interest Expense, net. Interest expense, net increased to $6.8 million for the year ended December 31, 2021 from $6.5 million for the year ended December 31, 2020, an increase of $0.3 million, primarily due to lower interest income as our available-for-sale securities have matured, partially offset by a decrease in interest expense due to lower principal balance and a lower interest rate.

Dividend Income. Dividend Income was $0.2 million for the year ended December 31, 2021 due to a dividend received on a cost method investment.

Income Tax Expense or Benefit. Income tax expense for the year ended December 31, 2021 was $18.7 million. The effective tax rate for the year ended December 31, 2021 was different from our statutory rate due to foreign and state taxes, a valuation allowance on deferred tax assets in our Spanish, Paraguay and Mexico digital entities, changes in the fair value of the contingent consideration liability, and non-taxable non-territorial income. Income tax expense for the year ended December 31, 2020 was $1.5 million. The effective tax rate for the year ended December 31, 2020 was different from our statutory rate due to foreign and state taxes, a valuation allowance on deferred tax assets in our Spanish entity, adjustments to our state tax return filings as a result of gain that was previously deferred, and nondeductible expenses, primarily goodwill impairment charges.

Our management periodically evaluates the realizability of the deferred tax assets and, if it is determined that it is more likely than not that the deferred tax assets are realizable, adjusts the valuation allowance accordingly. Valuation allowances are established and maintained for deferred tax assets on a “more likely than not” threshold. The process of evaluating the need to maintain a valuation allowance for deferred tax assets and the amount maintained in any such allowance is highly subjective and is based on many factors, several of which are subject to significant judgment calls.

Based on our analysis, we determined that it was more likely than not that our deferred tax assets would be realized for all jurisdictions with the exception of our digital operations located in Spain, Paraguay and Mexico. As a result of recurring losses from our digital operations in Spain, Paraguay and Mexico, management has determined that it is more likely than not that deferred tax assets of approximately $1.9 million at December 31, 2021 will not be realized and therefore we have established a valuation allowance on those assets.

Segment Operations

Digital

Net Revenue. Net revenue in our digital segment increased to $555.3 million for the year ended December 31, 2021 from $143.3 million for the year ended December 31, 2020, an increase of $412.0 million. The increase was primarily due to advertising revenue resulting from our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and due to advertising revenue resulting from our acquisitions of MediaDonuts and 365 Digital during the third and fourth quarters of 2021, respectively.

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Cost of revenue. Cost of revenue in our digital segment increased to $466.5 million for the year ended December 31, 2021 from $106.9 million for the year ended December 31, 2020, an increase of $359.6 million, primarily due to increased costs of revenue following our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and our acquisitions of MediaDonuts and 365 Digital during the third and fourth quarters of 2021, respectively. As a percentage of digital net revenue, cost of revenue increased to 84% for the year ended December 31, 2021 from 75% for the year ended December 31, 2020, primarily due to the acquisition of a majority interest in Cisneros Interactive which operates with lower margins compared to our other digital operations. We have previously noted a trend in our domestic digital operations whereby revenue is shifting more to programmatic revenue, and this trend is now growing in markets outside the United States. As a result, advertisers are demanding more efficiency and lower cost from intermediaries like us. In response to this trend, we are offering programmatic alternatives to advertisers, which is putting pressure on margins. Additionally, we experienced lower margins related to revenue generated from the media companies for which we act as commercial partner as a result of relative negotiating strength and industry trends generally. We expect these trends will continue in future periods, likely resulting in a higher volume, lower margin business in our digital segment. The digital advertising industry remains dynamic and is continuing to undergo rapid changes in technology and competition. We expect this trend to continue and possibly accelerate. We must continue to remain vigilant to meet these dynamic and rapid changes including the need to further adjust our business strategies accordingly. No assurances can be given that such strategies will be successful.

Direct operating expenses. Direct operating expenses in our digital segment increased to $25.5 million for the year ended December 31, 2021 from $15.2 million for the year ended December 31, 2020, an increase of $10.3 million. The increase was primarily due to our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and direct operating expenses resulting from our acquisitions of MediaDonuts and 365 Digital during the third and fourth quarters of 2021, respectively, partially offset by decreases in salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic.

Selling, general and administrative expenses. Selling, general and administrative expenses in our digital segment increased to $26.1 million for the year ended December 31, 2021 from $15.4 million for the year ended December 31, 2020, an increase of $10.7 million. The increase was primarily due to our acquisition of a majority interest in Cisneros Interactive during the fourth quarter of 2020, which became wholly-owned during the third quarter of 2021, and selling, general and administrative resulting from our acquisitions of MediaDonuts and 365 Digital during the third and fourth quarters of 2021, respectively, partially offset by decreases in salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic.

Television

Net Revenue. Net revenue in our television segment decreased to $146.8 million in 2021, from $154.5 million in 2020. This decrease of approximately $7.7 million was primarily due to a decrease in political advertising revenue, partially offset by increases in local and national advertising revenue, revenue from spectrum usage rights and retransmission consent revenue. We generated a total of $37.0 million in retransmission consent revenue for the year ended December 31, 2021 compared to $36.8 million for the year ended December 31, 2020. We generated a total of $6.2 million in spectrum usage rights revenue for the year ended December 31, 2021 compared to $5.4 million for the year ended December 31, 2020.

In general, our television segment faces declining audiences, which we believe is present across the industry, competitive factors with the other major Spanish-language broadcaster, and changing demographics and preferences of audiences. Additionally, notwithstanding the increases in local and national advertising revenue, we have previously noted a trend for advertising to move increasingly from traditional media, such as television, to new media, such as digital media, and we expect this trend to continue.

Direct Operating Expenses. Direct operating expenses in our television segment increased to $63.0 million for the year ended December 31, 2021 from $61.1 million for the year ended December 31, 2020, an increase of approximately $1.9 million. The increase was primarily due to increases in non-cash stock-based compensation and program fees expense, partially offset by a decrease in expenses associated with the decrease in political advertising revenue and decreases in salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic.

Selling, General and Administrative Expenses. Selling, general and administrative expenses in our television segment decreased to $18.4 million for the year ended December 31, 2021 from $19.7 million for the year ended December 31, 2020, a decrease of approximately $1.3 million. The decrease was primarily due to decreases in bad debt and salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic.

Audio

Net Revenue. Net revenue in our audio segment increased to $58.0 million in 2021, from $46.3 million in 2020. This increase of approximately $11.7 million was primarily due to increases in local and national advertising revenue, partially offset by a decrease in

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political advertising revenue.

In general, our audio segment faces declining audiences, which we believe is present across the industry, competitive factors with other major Spanish-language broadcasters, and changing demographics and preferences of audiences. Additionally, notwithstanding the increases in local and national advertising revenue, we have previously noted a trend for advertising to move increasingly from traditional media, such as radio, to new media, such as digital media, and we expect this trend to continue.

Direct Operating Expenses. Direct operating expenses in our audio segment decreased to $28.0 million for the year ended December 31, 2021 from $28.5 million for the year ended December 31, 2020, a decrease of approximately $0.5 million. The decrease was primarily due to decreases in salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic.

Selling, General and Administrative Expenses. Selling, general and administrative expenses in our audio segment decreased to $12.1 million for the year ended December 31, 2021 from $13.3 million for the year ended December 31, 2020, a decrease of approximately $1.2 million. The decrease was primarily due to due to decreases in salary expense associated with furloughs and layoffs that occurred in 2020 because of the COVID-19 pandemic.

Liquidity and Capital Resources

While we have a history of operating losses in some periods and operating income in other periods, we also have a history of generating significant positive cash flows from our operations. We had net income attributable to common stockholders of $29.3 million for the year ended December 31, 2021, and net losses attributable to common stockholders of $3.9 million and $19.7 million for the years ended December 31, 2020 and 2019, respectively. We had positive cash flow from operations of $65.3 million, $63.4 million and $31.5 million for the years ended December 31, 2021, 2020 and 2019, respectively. For at least the next twelve months, we expect to fund our working capital requirements, capital expenditures and payments of principal and interest on outstanding indebtedness, with cash on hand and cash flows from operations.

We currently believe that our cash position is capable of meeting our operating and capital expenses and debt service requirements for at least the next twelve months from the issuance of this annual report. We believe that our position is strengthened by cash and cash equivalents on hand, in the amount of $185.1 million as of December 31, 2021. Our liquidity is not materially impacted by the amounts held in accounts outside the United States.

2017 Credit Facility

On November 30, 2017 (the “Closing Date”), we entered into our 2017 Credit Facility pursuant to the 2017 Credit Agreement. The 2017 Credit Facility consists of a $300.0 million senior secured Term Loan B Facility (the “Term Loan B Facility”), which was drawn in full on the Closing Date. In addition, the 2017 Credit Facility provides that we may increase the aggregate principal amount of the 2017 Credit Facility by up to an additional $100.0 million plus the amount that would result in our first lien net leverage ratio (as such term is used in the 2017 Credit Agreement) not exceeding 4.0 to 1.0, subject to us satisfying certain conditions.

Borrowings under the Term Loan B Facility were used on the Closing Date (a) to repay in full all of our and our subsidiaries’ then outstanding obligations under the previous 2013 credit agreement, or 2013 Credit Agreement, and to terminate the 2013 Credit Agreement, (b) to pay fees and expenses in connection with the 2017 Credit Facility, and (c) for general corporate purposes.

The 2017 Credit Facility is guaranteed on a senior secured basis by certain of our existing and future wholly-owned domestic subsidiaries, and is secured on a first priority basis by our and those subsidiaries’ assets.

Our borrowings under the 2017 Credit Facility bear interest on the outstanding principal amount thereof from the date when made at a rate per annum equal to either: (i) the Eurodollar Rate (as defined in the 2017 Credit Agreement) plus 2.75%; or (ii) the Base Rate (as defined in the 2017 Credit Agreement) plus 1.75%. As of December 31, 2021, the interest rate on our Term Loan B was 2.84%. The Term Loan B Facility expires on November 30, 2024 (the “Maturity Date”).

Subject to certain exceptions, the 2017 Credit Facility contains covenants that limit the ability of us and our restricted subsidiaries to, among other things:

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incur liens on our property or assets;

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make certain investments;

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incur additional indebtedness;

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consummate any merger, dissolution, liquidation, consolidation or sale of substantially all assets;

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•
dispose of certain assets;

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make certain restricted payments;

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make certain acquisitions;

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enter into substantially different lines of business;

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enter into certain transactions with affiliates;

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use loan proceeds to purchase or carry margin stock or for any other prohibited purpose;

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change or amend the terms of our organizational documents or the organization documents of certain restricted subsidiaries in a materially adverse way to the lenders, or change or amend the terms of certain indebtedness;

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enter into sale and leaseback transactions;

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make prepayments of any subordinated indebtedness, subject to certain conditions; and

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change our fiscal year, or accounting policies or reporting practices.

The 2017 Credit Facility also provides for certain customary events of default, including the following:

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default for three (3) business days in the payment of interest on borrowings under the 2017 Credit Facility when due;

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default in payment when due of the principal amount of borrowings under the 2017 Credit Facility;

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failure by us or any subsidiary to comply with the negative covenants and certain other covenants relating to maintaining the legal existence of the Company and certain of its restricted subsidiaries and compliance with anti-corruption laws;

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failure by us or any subsidiary to comply with any of the other agreements in the 2017 Credit Agreement and related loan documents that continues for thirty (30) days (or ten (10) days in the case of failure to comply with covenants related to inspection rights of the administrative agent and lenders and permitted uses of proceeds from borrowings under the 2017 Credit Facility) after our officers first become aware of such failure or first receive written notice of such failure from any lender;

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default in the payment of other indebtedness if the amount of such indebtedness aggregates to $15.0 million or more, or failure to comply with the terms of any agreements related to such indebtedness if the holder or holders of such indebtedness can cause such indebtedness to be declared due and payable;

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certain events of bankruptcy or insolvency with respect to us or any significant subsidiary;

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final judgment is entered against us or any restricted subsidiary in an aggregate amount over $15.0 million, and either enforcement proceedings are commenced by any creditor or there is a period of thirty (30) consecutive days during which the judgment remains unpaid and no stay is in effect;

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any material provision of any agreement or instrument governing the 2017 Credit Facility ceases to be in full force and effect; and

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any revocation, termination, substantial and adverse modification, or refusal by final order to renew, any media license, or the requirement (by final non-appealable order) to sell a television or radio station, where any such event or failure is reasonably expected to have a material adverse effect.

The Term Loan B Facility does not contain any financial covenants. In connection with our entering into the 2017 Credit Agreement, we and our restricted subsidiaries also entered into a Security Agreement, pursuant to which we and all of the companies existing in future wholly-owned domestic subsidiaries each granted a first priority security interest in the collateral securing the 2017 Credit Facility for the benefit of the lenders under the 2017 Credit Facility.

We did not make prepayments in 2021 and 2020.

On April 30, 2019, we entered into an amendment to the 2017 Credit Agreement, which became effective on May 1, 2019.

The 2017 Credit Agreement contains a covenant that we deliver our financial statements and certain other information for each fiscal year within 90 days after the end of each fiscal year.

On June 4, 2021, we entered into the Second Amendment (the "Amendment") to the 2017 Credit Agreement, by and among the Company, Bank of America, N.A., as Administrative Agent, and the other financial institutions party thereto as Lenders (collectively, the “Lenders”). The Amendment amends the 2017 Credit Agreement, primarily to permit additional investments in restricted subsidiaries that are not loan parties, and make certain changes to the definition of “Consolidated Net Income” for the purpose of

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calculating EBITDA as defined by the 2017 Credit Agreement. Pursuant to the Amendment, we agreed to pay to the Lenders consenting to the Amendment a fee equal to 0.375% of the aggregate principal amount of the outstanding loans held by such Lenders under the 2017 Credit Agreement as of June 4, 2021. This fee totaled approximately $0.6 million and will be amortized as interest expense over the remaining term of the Term Loan B.

The carrying amount of the Term Loan B Facility as of December 31, 2021 was $210.5 million, net of $1.9 million of unamortized debt issuance costs and original issue discount. The estimated fair value of the Term Loan B Facility as of December 31, 2021 was $209.1 million. The estimated fair value is based on quoted prices in markets where trading occurs infrequently.

Share Repurchase Program

On July 13, 2017, our Board of Directors approved a share repurchase program of up to $15.0 million of our outstanding Class A common stock. On April 11, 2018, our Board of Directors approved the repurchase of up to an additional $15.0 million of our outstanding Class A common stock, for a total repurchase authorization of up to $30.0 million. On August 27, 2019, the Board of Directors approved the repurchase of up to an additional $15.0 million of the Company’s Class A common stock, for a total repurchase authorization of up to $45.0 million. Under the share repurchase program, we are authorized to purchase shares from time to time through open market purchases or negotiated purchases, subject to market conditions and other factors. The share repurchase program may be suspended or discontinued at any time without prior notice. On March 26, 2020, we suspended share repurchases under the plan in order to preserve cash during the continuing economic crisis resulting from the COVID-19 pandemic.

In the year ended December 31, 2021, we did not repurchase any shares of our Class A common stock. As of December 31, 2021, we have repurchased a total of approximately 8.6 million shares of Class A common stock at an average price per share of $3.76, for an aggregate purchase price of approximately $32.2 million. All repurchased shares were retired as of December 31, 2021.

Consolidated Adjusted EBITDA

Consolidated adjusted EBITDA (as defined below) increased to $88.0 million for the year ended December 31, 2021 from $60.4 million for the year ended December 31, 2020, an increase of $27.6 million, or 46%. As a percentage of net revenue, consolidated adjusted EBITDA decreased to 12% for the year ended December 31, 2021, from 18% for the year ended December 31, 2020.

Consolidated adjusted EBITDA, as defined in our 2017 Credit Agreement, means net income (loss) plus gain (loss) on sale of assets, depreciation and amortization, non-cash impairment charge, non-cash stock-based compensation included in operating and corporate expenses, net interest expense, other income (loss), non-recurring cash expenses, gain (loss) on debt extinguishment, income tax (expense) benefit, equity in net income (loss) of nonconsolidated affiliate, non-cash losses, syndication programming amortization less syndication programming payments, revenue from FCC spectrum incentive auction less related expenses, expenses associated with investments, EBITDA attributable to redeemable noncontrolling interest, acquisitions and dispositions and certain pro-forma cost savings. We use the term consolidated adjusted EBITDA because that measure is defined in our 2017 Credit Agreement and does not include gain (loss) on sale of assets, depreciation and amortization, non-cash impairment charge, non-cash stock-based compensation, net interest expense, other income (loss), non-recurring cash expenses, gain (loss) on debt extinguishment, income tax (expense) benefit, equity in net income (loss) of nonconsolidated affiliate, non-cash losses, syndication programming amortization less syndication programming payments, revenue from FCC spectrum incentive auction less related expenses, expenses associated with investments, EBITDA attributable to redeemable noncontrolling interest, acquisitions and dispositions and certain pro-forma cost savings.

Since consolidated adjusted EBITDA is a measure governing several critical aspects of our 2017 Credit Facility, we believe that it is important to disclose consolidated adjusted EBITDA to our investors. We may increase the aggregate principal amount outstanding by an additional amount equal to $100.0 million plus the amount that would result in our total net leverage ratio, or the ratio of consolidated total senior debt (net of up to $75.0 million of unrestricted cash) to trailing-twelve-month consolidated adjusted EBITDA, not exceeding 4.0. In addition, beginning December 31, 2018, at the end of every calendar year, in the event our total net leverage ratio is within certain ranges, we must make a debt prepayment equal to a certain percentage of our Excess Cash Flow, which is defined as consolidated adjusted EBITDA, less consolidated interest expense, less debt principal payments, less taxes paid, less other amounts set forth in the definition of Excess Cash Flow in the 2017 Credit Agreement. The total leverage ratio was as follows (in each case as of December 31): 2021, 1.6 to 1; 2020, 2.3 to 1.

While many in the financial community and we consider consolidated adjusted EBITDA to be important, it should be considered in addition to, but not as a substitute for or superior to, other measures of liquidity and financial performance prepared in accordance with accounting principles generally accepted in the United States of America, such as cash flows from operating activities, operating income (loss) and net income (loss). As consolidated adjusted EBITDA excludes non-cash gain (loss) on sale of assets, non-cash depreciation and amortization, non-cash impairment charge, non-cash stock-based compensation expense, net interest expense, other income (loss), non-recurring cash expenses, gain (loss) on debt extinguishment, income tax (expense) benefit, equity in net income (loss) of nonconsolidated affiliate, non-cash losses, syndication programming amortization less syndication programming payments, revenue from FCC spectrum incentive auction less related expenses, expenses associated with investments, EBITDA

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attributable to redeemable noncontrolling interest, acquisitions and dispositions and certain pro-forma cost savings, consolidated adjusted EBITDA has certain limitations because it excludes and includes several important financial line items. Therefore, we consider both non-GAAP and GAAP measures when evaluating our business. Consolidated adjusted EBITDA is also used to make executive compensation decisions.

Consolidated adjusted EBITDA is a non-GAAP measure. For a reconciliation of consolidated adjusted EBITDA to cash flows from operating activities, its most directly comparable GAAP financial measure, please see page 71.

Cash Flow

Net cash flow provided by operating activities was $65.3 million for the year ended December 31, 2021 compared to net cash flow provided by operating activities of $63.4 million for the year ended December 31, 2020. We had net income of $35.2 million for the year ended December 31, 2021, which included non-cash items such as deferred income taxes of $14.6 million, depreciation and amortization expense of $22.4 million, non-cash stock-based compensation expense of $9.6 million, and impairment charge of $3.0 million. We had net loss of $1.4 million for the year ended December 31, 2020, which included non-cash items such as deferred income taxes of $6.2 million, depreciation and amortization expense of $17.3 million, and impairment charge of $40.0 million. We expect to have positive cash flow from operating activities for the 2022 year.

Net cash flow provided by investing activities was $17.3 million for the year ended December 31, 2021, compared to net cash flow provided by investing activities of $38.1 million for the year ended December 31, 2020. During the year ended December 31, 2021, we had proceeds of $27.8 million from the maturity of marketable securities and proceeds of $10.4 million from the sale of property and equipment and intangibles, and we spent $14.3 million on the acquisitions of MediaDonuts and 365 Digital, net of cash acquired, $5.8 million on net capital expenditures, and $0.8 million on the purchase of investment. During the year ended December 31, 2020, we had proceeds of $63.5 million from the maturity of marketable securities and proceeds of $5.1 million from the sale of property and equipment and intangibles, and we spent $21.3 million on the acquisition of a majority interest in Cisneros Interactive net of cash acquired, $9.1 million on net capital expenditures, and $0.2 million on the purchase of intangible assets. We anticipate that our capital expenditures will be approximately $16.4 million during the full year 2022. Of this amount, we expect that approximately $3.6 million will be reimbursed in connection with a new office lease (see Note 19 to Notes to Consolidated Financial Statements). The amount of our anticipated capital expenditures may change based on future changes in business plans and our financial condition and general economic conditions. We expect to fund capital expenditures with cash on hand and net cash flow from operations.

Net cash flow used in financing activities was $16.6 million for the year ended December 31, 2021, compared to net cash flow used in financing activities of $15.5 million for the year ended December 31, 2020. During the year ended December 31, 2021, we made dividend payments of $8.5 million, principal debt repayments of $3.0 million, payments for financing costs of $0.6 million, and spent $4.7 million for taxes related to shares withheld for share-based compensation plans. During the year ended December 31, 2020, we made dividend payments of $10.5 million, principal debt repayments of $3.0 million, paid $0.5 million for the repurchase of stock, and spent $1.4 million for taxes related to shares withheld for share-based compensation plans.

Commitments and Contractual Obligations

Our material contractual obligations at December 31, 2021 which are not reflected as liabilities in the Consolidated Balance Sheets include media research and ratings providers, to provide television and radio audience measurement services of approximately $17.3 million, and other amounts consist primarily of obligations for software licenses utilized by our sales team of approximately $3.7 million.

We have also entered into employment agreements with certain of our key employees, including Walter F. Ulloa, Jeffery A. Liberman, Christopher T. Young, Karl Meyer, and Juan Saldivar.

Other than the foregoing commitments, legal contingencies incurred in the normal course of business and employment contracts for key employees, we do not have any off-balance sheet financing arrangements or liabilities. We do not have any majority-owned

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subsidiaries or any interests in or relationships with any variable-interest entities that are not included in our consolidated financial statements.

Application of Critical Accounting Policies and Accounting Estimates

Critical accounting policies are defined as those that are the most important to the accurate portrayal of our financial condition and results of operations. Critical accounting policies require management’s subjective judgment and may produce materially different results under different assumptions and conditions. We have discussed the development and selection of these critical accounting policies with the Audit Committee of our Board of Directors, and the Audit Committee has reviewed and approved our related disclosure in this Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Goodwill

We believe that the accounting estimates related to the fair value of our reporting units and indefinite life intangible assets and our estimates of the useful lives of our long-lived assets are “critical accounting estimates” because: (1) goodwill and other intangible assets are our most significant assets, and (2) the impact that recognizing an impairment would have on the assets reported on our balance sheet, as well as on our results of operations, could be material. Accordingly, the assumptions about future cash flows on the assets under evaluation are critical

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination. We test our goodwill and other indefinite-lived intangible assets for impairment annually on the first day of our fourth fiscal quarter, or more frequently if certain events or certain changes in circumstances indicate they may be impaired. In assessing the recoverability of goodwill and indefinite life intangible assets, we must make a series of assumptions about such things as the estimated future cash flows and other factors to determine the fair value of these assets.

In testing the goodwill of our reporting units for impairment, we first determine, based on a qualitative assessment, whether it is more likely than not that the fair value of each of our reporting units is less than their respective carrying amounts. We have determined that each of our operating segments is a reporting unit.

If it is deemed more likely than not that the fair value of a reporting unit is less than the carrying value based on this initial assessment, the next step is a quantitative comparison of the fair value of the reporting unit to its carrying amount. If a reporting unit’s estimated fair value is equal to or greater than that reporting unit’s carrying value, no impairment of goodwill exists and the testing is complete. If the reporting unit’s carrying amount is greater than the estimated fair value, then an impairment loss is recorded for the amount of the difference.

As of our annual goodwill testing date, October 1, 2021, we had $28.2 million of goodwill in our digital reporting unit. We did not reach a definitive conclusion on the digital reporting unit based on a qualitative assessment alone so we performed a quantitative test and compared the fair value of the digital reporting unit to its carrying amount. The fair value of our digital reporting unit exceeded its carrying value by 237%, resulting in no impairment charge. As discussed in Note 5 to Notes to Consolidated Financial Statements, the calculation of the fair value of the digital reporting unit requires estimates of the discount rate and the long term projected growth rate. If that discount rate were to increase by 1%, the fair value of the digital reporting unit would decrease by 8%. If the long term projected growth rate were to decrease by 0.5%, the fair value of the digital reporting unit would decrease by 2%.

As of our annual goodwill testing date, October 1, 2021, we had $40.5 million of goodwill in our television reporting unit. We did not reach a definitive conclusion on the television reporting unit based on a qualitative assessment alone so we performed a quantitative test and compared the fair value of the television reporting unit to its carrying amount. The fair value of our television reporting unit exceeded its carrying value by 44%, resulting in no impairment charge. As discussed in Note 5 to Notes to Consolidated Financial Statements, the calculation of the fair value of the television reporting unit requires estimates of the discount rate and the long term projected growth rate. If that discount rate were to increase by 0.5%, the fair value of the television reporting unit would decrease by 6%. If the long term projected growth rate were to decrease by 0.5%, the fair value of the television reporting unit would decrease by 4%.

As of our annual goodwill testing date, October 1, 2021, we had no goodwill in our radio reporting unit.

When a quantitative analysis is performed, the estimated fair value of goodwill is determined by using a combination of a market approach and an income approach. The market approach estimates fair value by applying sales, earnings and cash flow multiples to each reporting unit’s operating performance. The multiples are derived from comparable publicly-traded companies with similar operating and investment characteristics to our reporting units. The market approach requires us to make a series of assumptions, such as selecting comparable companies and comparable transactions and transaction premiums. The current economic conditions have led to a decrease in the number of comparable transactions, which makes the market approach of comparable transactions and transaction premiums more difficult to estimate than in previous years.

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The income approach estimates fair value based on our estimated future cash flows of each reporting unit, discounted by an estimated weighted-average cost of capital that reflects current market conditions, which reflect the overall level of inherent risk of that reporting unit. The income approach also requires us to make a series of assumptions, such as discount rates, revenue projections, profit margin projections and terminal value multiples. We estimated our discount rates on a blended rate of return considering both debt and equity for comparable publicly-traded companies in the television, radio and digital media industries. These comparable publicly-traded companies have similar size, operating characteristics and/or financial profiles to us. We also estimated the terminal value multiple based on comparable publicly-traded companies in the television, radio and digital media industries. We estimated our revenue projections and profit margin projections based on internal forecasts about future performance.

Uncertain economic conditions, fiscal policy and other factors beyond our control potentially could have an adverse effect on the capital markets, which would affect the discount rate assumptions, terminal value estimates, transaction premiums and comparable transactions. Such uncertain economic conditions could also have an adverse effect on the fundamentals of our business and results of operations, which would affect our internal forecasts about future performance and terminal value estimates. Furthermore, such uncertain economic conditions could have a negative impact on the advertising industry in general or the industries of those customers who advertise on our stations, including, among others, the automotive, financial and other services, telecommunications, travel and restaurant industries, which in the aggregate provide a significant amount of our historical and projected advertising revenue. The activities of our competitors, such as other broadcast television stations and radio stations, could have an adverse effect on our internal forecasts about future performance and terminal value estimates. Changes in technology or our audience preferences, including increased competition from other forms of advertising-based mediums, such as Internet, social media and broadband content providers serving the same markets, could have an adverse effect on our internal forecasts about future performance, terminal value estimates and transaction premiums. Finally, the risk factors that we identify from time to time in our SEC reports could have an adverse effect on our internal forecasts about future performance, terminal value estimates and transaction premiums.

There can be no assurance that our estimates and assumptions made for the purpose of our goodwill impairment testing will prove to be accurate predictions of the future. If our assumptions regarding internal forecasts of future performance of our business as a whole or of our units are not achieved, if market conditions change and affect the discount rate, or if there are lower comparable transactions and transaction premiums, we may be required to record additional goodwill impairment charges in future periods. It is not possible at this time to determine if any such future change in our assumptions would have an adverse impact on our valuation models and result in impairment, or if it does, whether such impairment charge would be material.

Indefinite Life Intangible Assets

We believe that our broadcast licenses are indefinite life intangible assets. An intangible asset is determined to have an indefinite useful life when there are no legal, regulatory, contractual, competitive, economic or any other factors that may limit the period over which the asset is expected to contribute directly or indirectly to future cash flows. The evaluation of impairment for indefinite life intangible assets is performed by a comparison of the asset’s carrying value to the asset’s fair value. When the carrying value exceeds fair value, an impairment charge is recorded for the amount of the difference. The unit of accounting used to test broadcast licenses represents all licenses owned and operated within an individual market cluster, because such licenses are used together, are complimentary to each other and are representative of the best use of those assets. Our individual market clusters consist of cities or nearby cities. We test our broadcasting licenses for impairment based on certain assumptions about these market clusters.

The estimated fair value of indefinite life intangible assets is determined by using an income approach. The income approach estimates fair value based on the estimated future cash flows of each market cluster that a hypothetical buyer would expect to generate, discounted by an estimated weighted-average cost of capital that reflects current market conditions, which reflect the overall level of inherent risk. The income approach requires us to make a series of assumptions, such as discount rates, revenue projections, profit margin projections and terminal value multiples. We estimate the discount rates on a blended rate of return considering both debt and equity for comparable publicly-traded companies in the television, radio and digital media industries. These comparable publicly-traded companies have similar size, operating characteristics and/or financial profiles to us. We also estimated the terminal value multiple based on comparable publicly-traded companies in the television, radio and digital media industries. We estimated the revenue projections and profit margin projections based on various market clusters signal coverage of the markets and industry information for an average station within a given market. The information for each market cluster includes such things as estimated market share, estimated capital start-up costs, population, household income, retail sales and other expenditures that would influence advertising expenditures. Alternatively, some stations under evaluation have had limited relevant cash flow history due to planned or actual conversion of format or upgrade of station signal. The assumptions we make about cash flows after conversion are based on the performance of similar stations in similar markets and potential proceeds from the sale of the assets.

The fair values of our television FCC licenses for each of our market clusters exceeded the carrying values in amounts ranging from 50% to over 1,000%.

The carrying value of one radio FCC license exceeded its fair value. As a result, we incurred an impairment charge in the amount of $0.1 million. The fair values of our radio FCC licenses for each of the remaining market clusters exceeded the carrying values in amounts ranging from 0% to over 100%.

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Uncertain economic conditions, fiscal policy and other factors beyond our control potentially could have an adverse effect on the capital markets, which would affect the discount rate assumptions, terminal value estimates, transaction premiums and comparable transactions. Such uncertain economic conditions could also have an adverse effect on the fundamentals of our business and results of operations, which would affect our internal forecasts about future performance and terminal value estimates. Furthermore, such uncertain economic conditions could have a negative impact on the advertising industry in general or the industries of those customers who advertise on our stations, including, among others, the automotive, financial and other services, telecommunications, travel and restaurant industries, which in the aggregate provide a significant amount of our historical and projected advertising revenue. The activities of our competitors, such as other broadcast television stations and radio stations, could have an adverse effect on our internal forecasts about future performance and terminal value estimates. Changes in technology or our audience preferences, including increased competition from other forms of advertising-based mediums, such as Internet, social media and broadband content providers serving the same markets, could have an adverse effect on our internal forecasts about future performance, terminal value estimates and transaction premiums. Finally, the risk factors that we identify from time to time in our SEC reports could have an adverse effect on our internal forecasts about future performance, terminal value estimates and transaction premiums.

There can be no assurance that our estimates and assumptions made for the purposes of our impairment testing will prove to be accurate predictions of the future. If our assumptions regarding internal forecasts of future performance of our business as a whole or of our units are not achieved, if market conditions change and affect the discount rate, or if there are lower comparable transactions and transaction premiums, we may be required to record additional impairment charges in future periods. It is not possible at this time to determine if any such future change in our assumptions would have an adverse impact on our valuation models and result in impairment, or if it does, whether such impairment charge would be material.

Long-Lived Assets, Including Intangibles Subject to Amortization

Depreciation and amortization of our long-lived assets is provided using the straight-line method over their estimated useful lives. Changes in circumstances, such as the passage of new laws or changes in regulations, technological advances, changes to our business model or changes in our capital strategy could result in the actual useful lives differing from initial estimates. In those cases where we determine that the useful life of a long-lived asset should be revised, we will depreciate the net book value in excess of the estimated residual value over its revised remaining useful life. Factors such as changes in the planned use of equipment, customer attrition, contractual amendments or mandated regulatory requirements could result in shortened useful lives.

Long-lived assets and asset groups are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The estimated future cash flows are based upon, among other things, assumptions about expected future operating performance and may differ from actual cash flows. Long-lived assets evaluated for impairment are grouped with other assets to the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. If the sum of the projected undiscounted cash flows (excluding interest) is less than the carrying value of the assets, the assets will be written down to the estimated fair value in the period in which the determination is made.

For the year ended December 31, 2021, we recorded an impairment charge related to Intangibles subject to amortization of $1.3 million in our digital reporting unit to reflect the termination effective in June 2022 of an agreement with a media company for which we act as commercial partner.

For the year ended December 31, 2021, we recorded an impairment charge related to Intangibles subject to amortization of $0.3 million and $1.3 million in our television and radio reporting units, respectively, to reflect the fair market value of assets held for sale.

Deferred Taxes

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and deferred liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when it is determined to be more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

In evaluating our ability to realize net deferred tax assets, we consider all reasonably available evidence including our past operating results, tax strategies and forecasts of future taxable income. In considering these factors, we make certain assumptions and judgments that are based on the plans and estimates used to manage our business.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial

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statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. We recognize interest and penalties related to uncertain tax positions in income tax expense.

Revenue Recognition

Revenue related to our digital segment is recognized when display or other digital advertisements record impressions on the websites and mobile and Internet-connected television apps of media companies on whose digital platforms the advertisements are placed or as the advertiser’s previously agreed-upon performance criteria are satisfied. In our arrangements with media companies for which we act as commercial partner, we have concluded that we are the principal in the transaction and therefore recognize revenue on a gross basis, primarily because we are responsible for fulfillment of the contract, including customer support, resolving customer complaints, and accepting responsibility for the quality or suitability of the product or service. Additionally, we have pricing discretion over the transaction and we carry inventory risk and are required to pay the media companies for which we act as commercial partner for all inventory purchased regardless of whether we are able to collect on a transaction. Cash payments received prior to services rendered result in deferred revenue, which is then recognized as revenue when the advertising time or space is actually provided.

Revenue related to the sale of advertising in our television and audio segments is recognized at the time of broadcast. Revenue for contracts with advertising agencies is recorded at an amount that is net of the commission retained by the agency. Revenue from contracts directly with advertisers is recorded as gross revenue and the related commission or national representation fee is recorded in operating expense.

We generate revenue under arrangements in which services are sold on a stand-alone basis within a specific segment, and those that are sold on a combined basis across multiple segments. We have determined that in such revenue arrangements which contain multiple products and services, revenues are allocated based on the relative fair value of each item and recognized in accordance with the applicable revenue recognition criteria for the specific unit of accounting. .

We generate revenue from retransmission consent agreements that are entered into with MVPDs. We refer to such revenue as retransmission consent revenue, which represents payments from MVPDs for access to our television station signals so that they may rebroadcast our signals and charge their subscribers for this programming. We recognize retransmission consent revenue earned as the television signal is delivered to the MVPD.

We also generate revenue from agreements associated with our television stations’ spectrum usage rights from a variety of sources, including but not limited to entering into agreements with third parties to utilize excess spectrum for the broadcast of their multicast networks, charging fees to accommodate the operations of third parties, including moving channel positions or accepting interference with broadcasting operations, and modifying and/or relinquishing spectrum usage rights while continuing to broadcast through channel sharing or other arrangements. Revenue from such agreements is recognized over the period of the lease or when we have relinquished all or a portion of our spectrum usage rights for a station or have relinquished our rights to operate a station on the existing channel free from interference.

Allowance for Doubtful Accounts

Our accounts receivable consist of a homogeneous pool of relatively small dollar amounts from a large number of customers. We evaluate the collectability of our trade accounts receivable based on a number of factors. When we are aware of a specific customer’s inability to meet its financial obligations to us, a specific reserve for bad debts is estimated and recorded which reduces the recognized receivable to the estimated amount we believe will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on our recent past loss history and an overall assessment of past due trade accounts receivable amounts outstanding.

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Business Combinations

We apply the acquisition method of accounting for business combinations in accordance with GAAP and use estimates and judgments to allocate the purchase price paid for acquisitions to the fair value of the assets, including identifiable intangible assets and liabilities acquired. Such estimates may be based on significant unobservable inputs and assumptions such as, but not limited to, revenue projections, gross margin projections, customer attrition rates, royalty rates, discount rates and terminal growth rate assumptions. We use established valuation techniques and may engage reputable valuation specialists to assist with the valuations. Management’s estimates of fair value are based upon assumptions believed to be reasonable, but which are inherently uncertain and unpredictable and, as a result, actual results may differ from estimates. Fair values are subject to refinement for up to one year after the closing date of an acquisition, as information relative to closing date fair values becomes available. Upon the conclusion of the measurement period, any subsequent adjustments are recorded to earnings.

Additional Information

For additional information on our significant accounting policies, please see Note 2 to Notes to Consolidated Financial Statements.

Recently Issued Accounting Pronouncements

For further information on recently issued accounting pronouncements, see Note 2 to Notes to Consolidated Financial Statements.

Sensitivity of Critical Accounting Estimates

We have critical accounting estimates that are sensitive to change. The most significant of those sensitive estimates relates to the impairment of intangible assets. Goodwill and indefinite life intangible assets are not amortized but instead are tested annually on October 1 for impairment, or more frequently if events or changes in circumstances indicate that the assets might be impaired. In assessing the recoverability of goodwill and indefinite life intangible assets, we must make assumptions about the estimated future cash flows and other factors to determine the fair value of these assets.

Digital

We conducted our annual review of our digital reporting unit as part of our goodwill testing and determined that the carrying value of our digital reporting unit exceeded the fair value. The fair value of the digital reporting unit was primarily determined by using a combination of a market approach and an income approach. The revenue projections and profit margin projections in the models are based on the historical performance of the business and projected trends in the digital industry and Hispanic market. Based on the assumptions and estimates described above, as of our annual goodwill testing date, October 1, 2021, the fair value of our digital reporting unit exceeded its carrying value by 237%, resulting in no impairment charge. As discussed in Note 5 to Notes to Consolidated Financial Statements, the calculation of the fair value of the digital reporting unit requires estimates of the discount rate and the long term projected growth rate. If that discount rate were to increase by 1%, the fair value of the digital reporting unit would decrease by 8%. If the long term projected growth rate were to decrease by 0.5%, the fair value of the digital reporting unit would decrease by 2%.

Television

In calculating the estimated fair value of our television FCC licenses, we used models that rely on various assumptions, such as future cash flows, discount rates and multiples. The estimates of future cash flows assume that the television segment revenues will increase significantly faster than the increase in the television expenses, and therefore the television assets will also increase in value. If any of the estimates of future cash flows, discount rates, multiples or assumptions were to change in any future valuation, it could affect our impairment analysis and cause us to record an additional expense for impairment.

We conducted a review of our television indefinite life intangible assets by using an income approach. The income approach estimates fair value based on the estimated future cash flows of each market cluster that a hypothetical buyer would expect to generate, discounted by an estimated weighted-average cost of capital that reflects current market conditions, which reflect the overall level of inherent risk. The income approach requires us to make a series of assumptions, such as discount rates, revenue projections, profit margin projections and terminal value multiples. We estimate the discount rates on a blended rate of return considering both debt and equity for comparable publicly-traded companies in the television, radio and digital media industries. These comparable publicly-traded companies have similar size, operating characteristics and/or financial profiles to us. We also estimated the terminal value multiple based on comparable publicly-traded companies in the television, radio and digital media industries. We estimated the revenue projections and profit margin projections based on various market clusters signal coverage of the markets and industry

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information for an average station within a given market. The information for each market cluster includes such things as estimated market share, estimated capital start-up costs, population, household income, retail sales and other expenditures that would influence advertising expenditures. The fair values of our television FCC licenses for each of our market clusters exceeded the carrying values in amounts ranging from 50% to over 1,000%.

We conducted our annual review of our television reporting unit as part of our goodwill testing and determined that the fair value of our television reporting unit exceeded the carrying value. The fair value of the television reporting unit was primarily determined by using a combination of a market approach and an income approach. The revenue projections and profit margin projections in the models are based on the historical performance of the business and projected trends in the television industry and Hispanic market. Based on the assumptions and estimates described above, as of our annual goodwill testing date, October 1, 2021, the television reporting unit’s fair value exceeded its carrying value by 44%, resulting in no impairment charge. As discussed in Note 5 to Notes to Consolidated Financial Statements, the calculation of the fair value of the television reporting unit requires estimates of the discount rate and the long term projected growth rate. If that discount rate were to increase by 0.5%, the fair value of the television reporting unit would decrease by 6%. If the long term projected growth rate were to decrease by 0.5%, the fair value of the television reporting unit would decrease by 4%.

Radio

In calculating the estimated fair value of our radio FCC licenses, we used models that rely on various assumptions, such as future cash flows, discount rates and multiples. The estimates of future cash flows assume that the audio segment revenues will increase significantly faster than the increase in the radio expenses, and therefore the radio assets will also increase in value. If any of the estimates of future cash flows, discount rates, multiples or assumptions were to change in any future valuation, it could affect our impairment analysis and cause us to record an additional expense for impairment.

We conducted a review of our radio indefinite life intangible assets by using an income approach. The income approach estimates fair value based on the estimated future cash flows of each market cluster that a hypothetical buyer would expect to generate, discounted by an estimated weighted-average cost of capital that reflects current market conditions, which reflect the overall level of inherent risk. The income approach requires us to make a series of assumptions, such as discount rates, revenue projections, profit margin projections and terminal value multiples. We estimate the discount rates on a blended rate of return considering both debt and equity for comparable publicly-traded companies in the television, radio and digital media industries. These comparable publicly-traded companies have similar size, operating characteristics and/or financial profiles to us. We also estimated the terminal value multiple based on comparable publicly-traded companies in the television, radio and digital media industries. We estimated the revenue projections and profit margin projections based on various market clusters signal coverage of the markets and industry information for an average station within a given market. The information for each market cluster includes such things as estimated market share, estimated capital start-up costs, population, household income, retail sales and other expenditures that would influence advertising expenditures. We noted that the carrying value of one radio FCC license exceeded its fair value. As a result, we incurred an impairment charge in the amount of $0.1 million. The fair values of our radio FCC licenses for each of the remaining market clusters exceeded the carrying values in amounts ranging from 0% to over 100%.

We did not have any goodwill in our radio reporting unit at December 31, 2021.

Impact of Inflation

We believe that inflation has not had a material impact on our results of operations for each of our fiscal years in the three-year period ended December 31, 2021. However, based on recent inflation trends, the economy in Argentina has been classified as highly inflationary. As a result, we applied the guidance in ASC 830, “Foreign Currency Matters”, by remeasuring non-monetary assets and liabilities at historical exchange rates and monetary-assets and liabilities using current exchange rates. There can be no assurance that future inflation would not have an adverse impact on our operating results and financial condition.