# ENTRAVISION COMMUNICATIONS CORP (EVC) FY 2022 MD&A

Verbatim Item 7 Management's Discussion and Analysis from ENTRAVISION COMMUNICATIONS CORP's 10-K for fiscal year 2022.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1109116/000095017023008445/evc-20221231.htm
Accession: 0000950170-23-008445
Filing date: 2023-03-16
Report date: 2022-12-31
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/
Previous year: /company/EVC/mda/fy2021/ (FY 2021)
Next year: /company/EVC/mda/fy2023/ (FY 2023)

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, 2022, 2021 and 2020 and consolidated financial condition as of December 31, 2022 and 2021 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 2022 compared to 2021 appears below. As permitted by SEC rules, we have omitted the discussion and analysis of our financial condition and results of operations for 2021 compared to 2020. 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, 2021, 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, 2022 was $956.2 million. Of that amount, revenue attributed to our digital segment accounted for approximately 78%, revenue attributed to our television segment accounted for approximately 15%, and revenue attributed to our audio (formerly radio) segment accounted for approximately 7%.

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

•
our digital commercial partnerships business;

•
Smadex, our programmatic ad purchasing platform;

•
our mobile growth 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 (formerly known as Facebook Inc.), Twitter, ByteDance, which owns the TikTok platform, and 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 programmatic ad 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 mobile growth solutions business, which provides managed services to advertisers looking to connect with consumers, primarily on mobile devices. This business allows us to manage programmatic media buys for our advertising customers or their ad agencies through multiple ad purchasing platforms in real time across multiple channels.

Our digital audio business provides digital audio advertising solutions for advertisers in the Americas. Our advertising customers and their ad agencies use these solutions to promote their brands on online audio streams, and provides them with tools to target specific users by demographic and geographic categories.

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

63

TelevisaUnivision Inc., or TelevisaUnivision, and TelevisaUnivision’s UniMás network. We own and operate 45 radio stations in 14 U.S. markets. Our radio stations consist of 37 FM and 8 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.

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 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 agreement 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

During 2022, our consolidated revenue increased to $956.2 million from $760.2 million in the prior year, primarily due to an increase in advertising revenue in our digital segment, an increase in political advertising revenue in our television and radio segments, and an increase in local advertising revenue in our audio segment. Revenue from political advertising represented a company record for any election cycle, including prior presidential cycles. These increases were partially offset by decreases in local and national advertising revenue, retransmission consent revenue and spectrum usage rights revenue in our television segment, and a decrease in national advertising revenue in our radio segment.

Net revenue for our digital segment increased to $747.1 million in 2022, from $555.3 million in 2021. This increase of approximately $191.8 million was primarily due to advertising revenue growth from our digital commercial partnerships business. In addition, the increase was due to revenue generated by the companies we acquired or in which we made investments, as more fully described below.

As part of the expansion of our digital segment we engaged in several transactions during the years ended December 31, 2022 and 2021:

64

•
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.;

•
On September 1, 2021 we acquired the remaining 49% of the issued and outstanding shares of Cisneros Interactive stock, as of which date we own 100% of the issued and outstanding shares of stock of Cisneros Interactive;

•
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;

•
On August 3, 2022 we made an investment in exchange for approximately 15% of the issued and outstanding shares of stock of Jack of Digital, a digital marketing services company that serves as the exclusive advertising sales partner of ByteDance in Pakistan; and

•
On August 5, 2022 we made a loan to an entity affiliated with owners of a majority interest in Adsmurai, a company engaged in the sale and marketing of digital advertising, which loan is convertible into a majority of the issued and outstanding shares of Adsmurai stock;

Each of these acquisitions and investments began to contribute to our financial results in our digital segment in the quarter beginning with the date of the respective investment or acquisition.

Net revenue for our television segment decreased to $144.7 million in 2022, from $146.8 million in 2021. This decrease of approximately $2.1 million was primarily due to a decreases in local and national advertising revenue, a decrease in spectrum usage rights revenue, and a decrease in retransmission consent revenue. These decreases were mainly attributed to the expiration of our Univision and UniMás network affiliation agreements in Orlando, Tampa and Washington, D.C. on December 31, 2021. The decrease was partially offset by an increase in political advertising revenue. We generated a total of $36.0 million in retransmission consent revenue for the year ended December 31, 2022 compared to $37.0 million for the year ended December 31, 2021. We generated a total of $6.0 million in spectrum usage rights revenue for the year ended December 31, 2022 compared to $6.2 million for the year ended December 31, 2021.

Net revenue for our audio segment increased to $64.4 million in 2022, from $58.0 million in 2021. This increase of approximately $6.4 million was primarily due to increases in political advertising revenue and local advertising revenue, partially offset by a decrease in national 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.

The COVID-19 pandemic did not have a material effect on our business, from both an operational and financial perspective, during the year ended December 31, 2022. Subject to the extent and duration of possible resurgences of the pandemic from time to time and the continuing uncertain economic environment that has resulted, in part, from the pandemic, we anticipate that the pandemic will continue to have little or no material effect on our business, from both an operational and financial perspective, in future periods. Nonetheless, we cannot give any assurance whether a resurgence or more prolonged impact of the pandemic in any location where our operations have employees or where we operate would not adversely affect our operations and/or results of operations.

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 and paid the remainder of the deferred amount on or before December 31, 2022.

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.

65

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 three markets – Albuquerque, Boston and Denver.

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, 2022, 2021 and 2020, retransmission consent revenue accounted for approximately $36.0 million, $37.0 million and $36.8 million, respectively, of which $24.9 million, $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 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 “Cisneros 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 “Cisneros Put and Call Agreement”). Subject to the terms of the Cisneros Put and Call Agreement, if certain minimum EBITDA targets are met, the Sellers had the right (the “Cisneros 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 Cisneros Sellers also had the right to exercise the Cisneros Put Option upon the occurrence of certain events, between March 2022 and April 2024.

Additionally, subject to the terms of the Cisneros Put and Call Agreement, we had the right (the “Cisneros 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 Cisneros Put Option and Call Option redemption features, and because the redemption was not solely within our control, the noncontrolling interest was considered redeemable, and was classified in temporary equity within our Consolidated

66

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 Cisneros 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 Cisneros 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):

[[GREPCENT_TABLE]]
[["Cash","$","8.7"],["Accounts receivable","","50.5"],["Other assets","","8.3"],["Intangible assets subject to amortization","","41.7"],["Goodwill","","10.5"],["Current liabilities","","(48.1",")"],["Deferred tax","","(10.9",")"],["Redeemable noncontrolling interest","","(30.8",")"]]
[[/GREPCENT_TABLE]]

Intangible assets subject to amortization acquired includes:

67

[[GREPCENT_TABLE]]
[["Intangible Asset","EstimatedFair Value(in millions)","","Weightedaveragelife (in years)"],["Publisher relationships","$","34.4","","10.0"],["Advertiser relationships","","5.2","","4.0"],["Trade name","","1.7","","2.5"],["Non-Compete agreements","","0.4","","4.0"]]
[[/GREPCENT_TABLE]]

The fair value of the assets acquired included trade receivables of $50.5 million. The gross amount due under contract was $54.0 million, of which $3.5 million was 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 our operations.

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% of the issued and outstanding shares of Cisneros Interactive Stock, we agreed to pay the Cisneros 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 our 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 our acquisition of the remaining 49% of the issued and outstanding shares of Cisneros Interactive stock, the Cisneros 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 Cisneros Sellers who are individual persons an accelerated earn-out in the aggregate amount of $14.7 million based on the EBITDA for calendar year 2021, which was paid in January 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 expense is reflected in the Consolidated Statements of Operations.

In April 2022, we paid all the Cisneros Sellers an earn-out in the aggregate amount of $28.9 million based on the final EBITDA for calendar year 2021. Additionally, effective September 13, 2022, the Company agreed to pay Sorin Properties, S.L., one of the Cisneros Sellers, an accelerated earn-out of $21.7 million based on EBITDA for the four prior fiscal quarters, which amount was paid in September 2022.

As of December 31, 2022 the contingent liability was adjusted to its current fair value of $41.4 million, of which $30.0 million is a current liability and $11.4 million is a noncurrent liability. The change in the fair value of the contingent liability of $9.6 million expense is reflected in the Consolidated Statements of Operations..

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

68

[[GREPCENT_TABLE]]
[["","Years Ended December 31,"],["","2021","","","2020"],["Beginning balance","$","33,285","","","$","-"],["Initial fair value of redeemable noncontrolling interests","","-","","","","30,762"],["Net income (loss) attributable to redeemable noncontrolling interest","","5,938","","","","2,523"],["Acquisition of redeemable noncontrolling interest","","(39,223",")","","","-"],["Ending balance","$","-","","","$","33,285"]]
[[/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 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]]
[["In thousands, except share and per share data","","Year Ended"],["","","December 31,"],["","","2020"],["Pro Forma:"],["Total revenue","","$","488,137"],["Net income (loss) attributable to common stockholders","","$","(86",")"],["Basic and diluted earnings per share:"],["Net income (loss) per share, attributable to common stockholders, basic and diluted","","$","(0.00",")"],["Weighted average common shares outstanding, basic and diluted","","","84,231,212"]]
[[/GREPCENT_TABLE]]

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.

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

[[GREPCENT_TABLE]]
[["Cash","$","4.3"],["Accounts receivable","","9.9"],["Other assets","","1.8"],["Intangible assets subject to amortization","","22.8"],["Goodwill","","13.2"],["Current liabilities","","(10.1",")"],["Deferred tax","","(4.0",")"],["Debt","","(1.7",")"]]
[[/GREPCENT_TABLE]]

69

Intangible assets subject to amortization acquired includes:

[[GREPCENT_TABLE]]
[["Intangible Asset","EstimatedFair Value(in millions)","","Weightedaveragelife (in years)"],["Publisher relationships","$","16.9","","10.0"],["Advertiser relationships","","3.7","","4.0"],["Trade name","","2.0","","5.0"],["Non-Compete agreements","","0.2","","4.0"]]
[[/GREPCENT_TABLE]]

As noted above, the acquisition of MediaDonuts includes a contingent consideration arrangement that requires additional consideration to be paid by us to the selling stockholders of 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.

As of December 31, 2021 the contingent liability was adjusted to its current fair value of $15.8 million, all of which is a noncurrent liability. The change in the fair value of the contingent liability for the year ended December 31, 2021 of $4.5 million income is reflected in the Consolidated Statements of Operations.

As of December 31, 2022 the contingent liability was adjusted to its current fair value of $22.2 million, of which $6.5 million is a current liability and $15.7 million is a noncurrent liability. The change in the fair value of the contingent liability for the year ended December 31, 2022 of $6.4 million expense is reflected in the Consolidated Statements of Operations.

The fair value of the assets acquired included trade receivables of $9.9 million. The gross amount due under contract was $10.2 million, of which $0.3 million was 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 our operations.

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]]
[["In thousands, except share and per share data","","Year Ended","","","Year Ended"],["","","December 31,","","","December 31,"],["","","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. Subsequently, the purchase price was adjusted to $3.5 million based on a predetermined multiple of EBITDA for the trailing twelve month period ended March 31, 2022. Additionally, the transaction includes contingent earn-out payments based upon the achievement of certain EBITDA targets in calendar years 2022,

70

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 $5.5 million.

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

[[GREPCENT_TABLE]]
[["Cash","$","0.5"],["Accounts receivable","","1.1"],["Intangible assets subject to amortization","","2.2"],["Goodwill","","3.7"],["Current liabilities","","(1.4",")"],["Deferred tax","","(0.6",")"]]
[[/GREPCENT_TABLE]]

Intangible assets subject to amortization acquired includes:

[[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 the selling stockholders of 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.

As of December 31, 2021 the contingent liability has been reflected in the Consolidated Balance Sheet as noncurrent liabilities of $2.0 million and has not changed materially between the acquisition date and December 31, 2021.

As of December 31, 2022 the contingent liability was adjusted to its current fair value of $0.2 million, all of which is a noncurrent liability. The change in the fair value of the contingent liability for the year ended December 31, 2022 of $1.8 million income is reflected in the Consolidated Statements of Operations.

The fair value of the assets acquired included trade receivables of $1.1 million. The gross amount due under contract was $1.1 million, of which a de minimis amount was 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 our operations.

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.

71

[[GREPCENT_TABLE]]
[["In thousands, except share and per share data","","Year Ended","","","Year Ended"],["","","December 31,","","","December 31,"],["","","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]]

Variable Interest Entities

Adsmurai

On August 5, 2022, we made a loan in the principal amount of €12,535,000 (approximately $12.8 million as of that date) to an entity affiliated with owners of a majority interest in Adsmurai, S.L. (“Adsmurai”), a company engaged in the sale and marketing of digital advertising. The loan has a two-year term, bears interest at a rate of 5% annually, and can be converted into 51% of the issued and outstanding shares of stock of Adsmurai at our sole discretion. If we elect not to convert the loan, the borrower has the option to repay the loan at maturity either in cash or with 51% of the issued and outstanding shares of stock of Adsmurai.

We have determined for accounting purposes that (i) Adsmurai is a VIE because the equity investors at risk, as a group, lack the characteristics of a controlling financial interest; and (ii) we are the primary beneficiary because the conversion right gives us the power to direct the activities of the entity that most significantly impact the entity’s economic performance. See Note 2 to Notes to Consolidated Financial Statements for more details.

We have determined that Adsmurai is a business and has accounted for its consolidation under the provisions of ASC 805, “Business Combinations”, and included Adsmurai's results of operations since the date of the loan in our Consolidated Statements of Operations. We are in the process of completing the purchase price allocation for Adsmurai. The following is a summary of the preliminary purchase price allocation (in millions):

[[GREPCENT_TABLE]]
[["Cash","$","7.4"],["Accounts receivable","","12.2"],["Other assets","","0.7"],["Fixed assets","","2.8"],["Intangible assets subject to amortization","","8.2"],["Goodwill","","13.0"],["Current liabilities","","(14.4",")"],["Deferred tax","","(2.0",")"],["Debt","","(2.8",")"],["Noncontrolling interest","","(12.3",")"],["Convertible loan","","(12.8",")"]]
[[/GREPCENT_TABLE]]

Intangible assets subject to amortization acquired includes:

[[GREPCENT_TABLE]]
[["Intangible Asset","EstimatedFair Value(in millions)","","Weightedaveragelife (in years)"],["Advertiser relationships","$","4.7","","7.0"],["Existing technology","","2.4","","5.0"],["Trade name","","1.1","","5.0"]]
[[/GREPCENT_TABLE]]

72

The fair value of the trade receivables is $12.2 million. The gross amount due under contract is $12.3 million, of which $0.1 million is expected to be uncollectable.

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

Subsequent to the consolidation through December 31, 2022, we consolidated Adsmurai's revenues of $31.7 million, and net income of $2.0 million.

The following unaudited pro forma information has been prepared to give effect to our consolidation of Adsmurai as if the transaction had occurred on January 1, 2021. This pro forma information was adjusted to exclude acquisition fees and costs of $0.6 million for the year ended December 31, 2022, which were expensed in connection with the transaction. This pro forma information does not purport to represent what our actual results of operations would have been had this transaction occurred on such date, nor does it purport to predict the results of operations for any future periods.

[[GREPCENT_TABLE]]
[["In thousands, except share and per share data","","Year Ended"],["","","December 31,"],["","","2022","","","2021"],["Pro Forma:"],["Total revenue","","$","984,566","","","$","801,436"],["Net income (loss) attributable to common stockholders","","$","19,283","","","$","29,696"],["Basic and diluted earnings per share:"],["Net income (loss) per share, attributable to common stockholders, basic","","$","0.23","","","$","0.35"],["Net income (loss) per share, attributable to common stockholders, diluted","","$","0.22","","","$","0.34"],["Weighted average common shares outstanding, basic","","","85,391,163","","","","85,301,603"],["Weighted average common shares outstanding, diluted","","","87,769,762","","","","87,910,603"]]
[[/GREPCENT_TABLE]]

Jack of Digital

On August 3, 2022, we made an investment of $0.1 million in cash in exchange for approximately 15% of the issued and outstanding stock of Jack of Digital, a digital marketing services company that serves as the exclusive advertising sales partner of ByteDance in Pakistan.

We have determined for accounting purposes that (i) Jack of Digital is a VIE because the equity investors at risk, as a group, lack the characteristics of a controlling financial interest; and (ii) we are the primary beneficiary because we have the power to direct the activities of the entity that most significantly impact the entity’s economic performance. See Note 2 to Notes to Consolidated Financial Statements for more details.

Subsequent to the consolidation through December 31, 2022, we consolidated Jack of Digital's revenues of $1.7 million, and de minimis net income.

The following unaudited pro forma information has been prepared to give effect to our consolidation of Jack of Digital as if the transaction had occurred on January 1, 2021. This pro forma information was adjusted to exclude acquisition fees and costs of $0.3 million for the year ended December 31, 2022, which were expensed in connection with the transaction. This pro forma information

73

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

[[GREPCENT_TABLE]]
[["In thousands, except share and per share data","","Year Ended"],["","","December 31,"],["","","2022","","","2021"],["Pro Forma:"],["Total revenue","","$","959,693","","","$","761,130"],["Net income (loss) attributable to common stockholders","","$","18,602","","","$","29,285"],["Basic and diluted earnings per share:"],["Net income (loss) per share, attributable to common stockholders, basic","","$","0.22","","","$","0.34"],["Net income (loss) per share, attributable to common stockholders, diluted","","$","0.21","","","$","0.33"],["Weighted average common shares outstanding, basic","","","85,391,163","","","","85,301,603"],["Weighted average common shares outstanding, diluted","","","87,769,762","","","","87,910,603"]]
[[/GREPCENT_TABLE]]

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

[[GREPCENT_TABLE]]
[["","Year Ended December 31,"],["","2022"],["Beginning balance","$","-"],["Initial fair value of noncontrolling interests","","12,897"],["Net income (loss) attributable to noncontrolling interest","","2,050"],["Ending balance","$","14,947"]]
[[/GREPCENT_TABLE]]

74

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"],["","","","2022","","","","2021","","","","2020","","","2022 to 2021","","","2021 to 2020"],["Net Revenue"],["Digital","","$","747,103","","","$","555,338","","","$","143,309","","","","35","%","","","288","%"],["Television","","","144,730","","","","146,839","","","","154,456","","","","(1",")%","","","(5",")%"],["Audio","","","64,376","","","","58,015","","","","46,261","","","","11","%","","","25","%"],["Consolidated","","","956,209","","","","760,192","","","","344,026","","","","26","%","","","121","%"],["Cost of revenue - digital","","","623,916","","","","466,517","","","","106,928","","","","34","%","","","336","%"],["Direct operating expenses"],["Digital","","","32,518","","","","25,481","","","","15,227","","","","28","%","","","67","%"],["Television","","","61,301","","","","63,016","","","","61,145","","","","(3",")%","","","3","%"],["Audio","","","28,792","","","","27,952","","","","28,537","","","","3","%","","","(2",")%"],["Consolidated","","","122,611","","","","116,449","","","","104,909","","","","5","%","","","11","%"],["Selling, general and administrative expenses"],["Digital","","","41,612","","","","26,123","","","","15,404","","","","59","%","","","70","%"],["Television","","","20,657","","","","18,381","","","","19,748","","","","12","%","","","(7",")%"],["Audio","","","12,896","","","","12,081","","","","13,252","","","","7","%","","","(9",")%"],["Consolidated","","","75,165","","","","56,585","","","","48,404","","","","33","%","","","17","%"],["Depreciation and amortization"],["Digital","","","12,148","","","","8,377","","","","2,561","","","","45","%","","","227","%"],["Television","","","11,126","","","","12,477","","","","12,918","","","","(11",")%","","","(3",")%"],["Audio","","","2,423","","","","1,566","","","","1,803","","","","55","%","","","(13",")%"],["Consolidated","","","25,697","","","","22,420","","","","17,282","","","","15","%","","","30","%"],["Segment operating profit (loss)"],["Digital","","","36,909","","","","28,840","","","","3,189","","","","28","%","","","804","%"],["Television","","","51,646","","","","52,965","","","","60,645","","","","(2",")%","","","(13",")%"],["Audio","","","20,265","","","","16,416","","","","2,669","","","","23","%","","","515","%"],["Consolidated","","","108,820","","","","98,221","","","","66,503","","","","11","%","","","48","%"],["Corporate expenses","","","49,404","","","","32,993","","","","27,807","","","","50","%","","","19","%"],["Change in fair value of contingent consideration","","","14,210","","","","8,224","","","","\u2014","","","","73","%","","*"],["Impairment charge","","","1,600","","","","3,023","","","","40,035","","","","(47",")%","","","(92",")%"],["Foreign currency (gain) loss","","","2,972","","","","508","","","","(1,052",")","","","485","%","","*"],["Other operating (gain) loss","","","382","","","","(6,998",")","","","(6,895",")","","*","","","","1","%"],["Operating income (loss)","","$","40,252","","","$","60,471","","","$","6,608","","","","(33",")%","","","815","%"],["Net income (loss) attributable to common stockholders","","$","18,119","","","$","29,292","","","$","(3,910",")","","","(38",")%","","*"],["Consolidated adjusted EBITDA (1)","","$","103,090","","","$","88,033","","","$","60,419","","","","17","%","","","46","%"],["Capital expenditures"],["Television","","$","5,887","","","$","2,833","","","$","7,184"],["Digital","","","6,186","","","","2,073","","","","1,659"],["Audio","","","561","","","","705","","","","641"],["Consolidated","","$","12,634","","","$","5,611","","","$","9,484"],["Total assets"],["Television","","$","363,904","","","$","433,303","","","$","425,899"],["Digital","","","408,027","","","","309,347","","","","196,020"],["Audio","","","108,910","","","","108,692","","","","125,426"],["Consolidated","","$","880,841","","","$","851,342","","","$","747,345"]]
[[/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

75

nonconsolidated affiliate, non-cash losses, syndication programming amortization less syndication programming payments, revenue from the Federal Communications Commission, or FCC, spectrum incentive auction less related expenses, expenses associated with investments, EBITDA attributable to noncontrolling and 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 noncontrolling and 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): 2022, 1.3 to 1; 2021, 1.6 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 U.S. GAAP measures when evaluating our business. Consolidated adjusted EBITDA is also used to make executive compensation decisions.

76

Consolidated adjusted EBITDA is a non-GAAP measure. The most directly comparable U.S. 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,"],["","","2022","","","2021","","","2020"],["Consolidated adjusted EBITDA (1)","","$","103,090","","","$","88,033","","","$","60,419"],["EBITDA attributable to redeemable noncontrolling interest","","","\u2014","","","","9,127","","","","3,436"],["EBITDA attributable to noncontrolling interest","","","3,399","","","","\u2014","","","","\u2014"],["Interest expense","","","(10,876",")","","","(7,020",")","","","(8,265",")"],["Interest income","","","2,864","","","","245","","","","1,748"],["Realized gain (loss) on marketable securities","","","(532",")","","","-","","","","-"],["Income tax (expense) benefit","","","(11,559",")","","","(18,679",")","","","(1,506",")"],["Amortization of syndication contracts","","","(468",")","","","(475",")","","","(504",")"],["Payments on syndication contracts","","","470","","","","473","","","","458"],["Non-cash stock-based compensation included in direct operating expenses","","","(5,694",")","","","(3,234",")","","","(1,247",")"],["Non-cash stock-based compensation included in corporate expenses","","","(14,340",")","","","(6,361",")","","","(3,878",")"],["Depreciation and amortization","","","(25,697",")","","","(22,420",")","","","(17,282",")"],["Change in fair value of contingent consideration","","","(14,210",")","","","(8,224",")","","","\u2014"],["Other operating gain (loss)","","","(382",")","","","6,998","","","","6,895"],["Impairment charge","","","(1,600",")","","","(3,023",")","","","(40,035",")"],["Non-recurring severance charge","","","(4,316",")","","","(423",")","","","(1,654",")"],["Dividend income","","","20","","","","213","","","","28"],["Net (income) loss attributable to redeemable noncontrolling interest","","","\u2014","","","","(5,938",")","","","(2,523",")"],["Net (income) loss attributable to noncontrolling interest","","","(2,050",")","","","\u2014","","","","\u2014"],["Net income (loss) attributable to common stockholders","","","18,119","","","","29,292","","","","(3,910",")"],["Depreciation and amortization","","","25,697","","","","22,420","","","","17,282"],["Deferred income taxes","","","(3,708",")","","","14,554","","","","(6,225",")"],["Amortization of debt issue costs","","","1,314","","","","604","","","","649"],["Amortization of syndication contracts","","","468","","","","475","","","","504"],["Payments on syndication contracts","","","(470",")","","","(473",")","","","(458",")"],["Non-cash stock-based compensation","","","20,034","","","","9,595","","","","5,125"],["(Gain) loss on disposal of property and equipment","","","(636",")","","","(4,629",")","","","(731",")"],["Realized (gain) loss on marketable securities","","","532","","","","\u2014","","","","\u2014"],["Net income (loss) attributable to redeemable noncontrolling interest","","","\u2014","","","","5,938","","","","2,523"],["Net income (loss) attributable to noncontrolling interest","","","2,050","","","","\u2014","","","","\u2014"],["Impairment charge","","","1,600","","","","3,023","","","","40,035"],["Change in fair value of contingent consideration","","","14,210","","","","8,224","","","","\u2014"],["Changes in assets and liabilities:"],["(Increase) decrease in accounts receivable","","","(9,687",")","","","(49,109",")","","","(20,100",")"],["(Increase) decrease in prepaid expenses and other current assets, operating leases right of use asset and other assets","","","2,017","","","","6,782","","","","11,526"],["Increase (decrease) in accounts payable, accrued expenses and other liabilities","","","7,377","","","","18,557","","","","17,229"],["Cash flows from operating activities","","$","78,917","","","$","65,253","","","$","63,449"]]
[[/GREPCENT_TABLE]]

(footnotes on preceding page)

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Consolidated Operations

Net Revenue. Net revenue increased to $956.2 million for the year ended December 31, 2022 from $760.2 million for the year ended December 31, 2021, an increase of approximately $196.0 million. Of the overall increase, approximately $191.8 million was attributable to our digital segment and was primarily due to advertising revenue growth from our digital commercial partnerships business. In addition, the increase in net revenue in our digital segment was due to our acquisitions and investments, as more fully described under “Highlights” above. In addition, of the overall increase, approximately $6.4 million was attributable to our audio segment primarily due to increases in political advertising revenue and local advertising revenue, partially offset by a decrease in national advertising revenue. The overall increase was partially offset by a decrease of approximately $2.1 million attributable to our television segment, primarily due decreases in local and national advertising revenue, a decrease in spectrum usage rights revenue, and a decrease in retransmission consent revenue. These decreases were mainly attributed to the expiration of our Univision and UniMás

77

network affiliation agreements in Orlando, Tampa and Washington, D.C. on December 31, 2021. The decrease in our television segment revenue was partially offset by an increase in political advertising revenue.

We believe that for the full year 2023, net revenue will increase, primarily as a result of growth in our digital segment and operating Adsmurai for a full year in 2023 compared to approximately five months in 2022.

Cost of revenue-Digital. Cost of revenue in our digital segment increased to $623.9 million for the year ended December 31, 2022 from $466.5 million for the year ended December 31, 2021, an increase of $157.4 million, primarily due to increased cost of revenue related to advertising revenue growth from our digital commercial partnerships business, and due to our acquisitions and investments, as more fully described under “Highlights” above.

Direct Operating Expenses. Direct operating expenses increased to $122.6 million for the year ended December 31, 2022 from $116.4 million for the year ended December 31, 2021, an increase of approximately $6.2 million. Of the overall increase, approximately $7.0 million was attributable to our digital segment primarily due to an increase in expenses associated with the increase in digital advertising revenue. In addition, the increase in direct operating expenses in our digital segment was due to our acquisitions and investments, as more fully described under “Highlights” above, and due to an increase in non-cash stock-based compensation. In addition, of the overall increase, approximately $0.8 million was attributable to our audio segment, primarily due to an increase in expenses associated with the increase in local advertising revenue. The overall increase was partially offset by a decrease of approximately $1.7 million that was attributable to our television segment and was primarily due to a decrease in expenses associated with the decrease in local and national advertising revenue, partially offset by an increase in non-cash stock-based compensation. As a percentage of net revenue, direct operating expenses decreased to 13% for the year ended December 31, 2022 from 15% for the year ended December 31, 2021, because the rate of increase in revenue exceeded the rate of increase in expenses.

We believe that direct operating expenses will increase during 2023, primarily as a result of growth in our digital segment and operating Adsmurai for a full year in 2023 compared to approximately five months in 2022.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased to $75.2 million for the year ended December 31, 2022 from $56.6 million for the year ended December 31, 2021, an increase of approximately $18.6 million. Of the overall increase, approximately $15.5 million was attributable to our digital segment and was primarily due to increase in salary expense. In addition, the increase in selling, general and administrative expenses in our digital segment was due to our acquisitions and investments, as more fully described under “Highlights” above. In addition, of the overall increase, approximately $2.3 million was attributable to our television segment, primarily due to an increase in rent expense and an increase in bad debt expense. Additionally, of the overall increase, approximately $0.8 million was attributable to our audio segment, primarily due to an increase in rent expense. As a percentage of net revenue, selling, general and administrative expenses increased to 8% for the year ended December 31, 2022 from 7% for the year ended December 31, 2021, because the rate of increase in expenses exceeded the rate of increase in revenue.

We believe that selling, general and administrative expenses will increase during 2023, primarily as a result of growth in our digital segment and operating Adsmurai for a full year in 2023 compared to approximately five months in 2022.

Corporate Expenses. Corporate expenses increased to $49.4 million for the year ended December 31, 2022 from $33.0 million for the year ended December 31, 2021, an increase of $16.4 million. The increase was primarily due to $8.1 million of severance expense incurred upon the passing of our late Chief Executive Officer, and due to increases in non-cash stock-based compensation and an increase in salaries. As a percentage of net revenue, corporate expenses increased to 5% for the year ended December 31, 2022 from 4% for the year ended December 31, 2021.

We believe that corporate expenses will increase during 2023 compared to 2022, without taking into consideration the expense incurred in 2022 upon the passing of our late Chief Executive Officer.

Depreciation and Amortization. Depreciation and amortization increased to $25.7 million for the year ended December 31, 2022 from $22.4 million for the year ended December 31, 2021, an increase of $3.3 million. The increase was primarily attributable to amortization of the intangible assets from our acquisitions and investments, as more fully described under “Highlights” above.

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, Media Donuts and 365 Digital, we recognized expense of $14.2 million for the year ended December 31, 2022. 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 business, and as a result, a portion of our revenues is denominated in

78

currencies other than the U.S. dollar, primarily the Mexican peso, Argentine peso, Uruguayan Pesos, Euros, certain other Latin American currencies and various Asian and African currencies. As a result, we have operating expense, attributable to foreign currency, that is primarily related to the operations related to our digital business. Foreign currency loss was $3.0 million and $0.5 million for the years ended December 31, 2022 and 2021, respectively. Foreign currency gains and losses are primarily due to currency fluctuations that affected our digital segment operations located outside the United States. In our digital operations outside the United States, we typically pay our global media partners in U.S. dollars but bill certain of our customers in their local currency. Therefore, during times of a strengthening U.S. dollar relative to other currencies, we may incur a loss based on the difference in value between what we pay in U.S dollars and what we ultimately receive in a local currency, when expres5sed in U.S. dollars.

Other operating (gain) loss. We had other operating loss of $0.4 million for the year ended December 31, 2022 compared to other operating gain of $7.0 million for the year ended December 31, 2021. This change of $7.4 million was primarily due to gains on assets held for sale in the prior year period, and a decrease in 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.

Impairment. We incurred an impairment charge related to certain FCC licenses in our television and audio segments totaling $1.6 million for the year ended December 31, 2022.

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. 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 $40.3 million for the year ended December 31, 2022, compared to operating income of $60.5 million for the year ended December 31, 2021.

Interest Expense, net. Interest expense, net increased to $8.0 million for the year ended December 31, 2022 from $6.8 million for the year ended December 31, 2021, an increase of $1.2 million. This increase was primarily due to a higher interest rate on our debt, partially offset by interest income on our available for sale securities. We anticipate that interest expense will continue to increase in future periods as long as interest rates increase, since our borrowings under the 2017 Credit Facility bear interest at a variable rate.

Realized gain (loss) on marketable securities. Realized loss on marketable securities for the year ended December 31, 2022 was $0.5 million, related to our available for sale securities.

Dividend Income. We had de minimis dividend income for the year ended December 31, 2022. 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, 2022 was $11.6 million. The effective tax rate for the year ended December 31, 2022 was different from our statutory rate due to foreign and state taxes, changes in valuation allowances on deferred tax assets , non deductible executive compensation, 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, 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 Spain, Paraguay and Mexico digital entities, changes in the fair value of the contingent consideration liability, and non-taxable non-territorial income.

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, or are not, 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 certain of our digital operations and certain U.S. Foreign Tax Credit carryovers. As a result of historical losses from our digital operations in Spain, Israel, Uruguay, Panama, Mexico, Argentina, Thailand and Ghana and certain U.S. Foreign Tax Credit carryovers, management has determined that it is more likely than not that deferred tax assets of approximately $4.9 million at December 31, 2022 will not be realized and therefore we have established a valuation allowance in that amount on those assets.

79

Segment Operations

Digital

Net Revenue. Net revenue in our digital segment increased to $747.1 million for the year ended December 31, 2022 from $555.3 million for the year ended December 31, 2021, an increase of $191.8 million. The increase was primarily due to advertising revenue growth from our digital commercial partnerships business. In addition, the increase in net revenue in our digital segment was due to our acquisitions and investments, as more fully described under “Highlights” above.

Cost of revenue. Cost of revenue in our digital segment increased to $623.9 million for the year ended December 31, 2022 from $466.5 million for the year ended December 31, 2021, an increase of $157.4 million, primarily due to increased cost of revenue related to advertising revenue growth from our digital commercial partnerships business, and due to our acquisitions and investments, as more fully described under “Highlights” above. As a percentage of digital net revenue, cost of revenue remained constant at 84% for each of the years ended December 31, 2022 and 2021.

We have previously noted a trend in our digital operations globally whereby revenue is shifting more to programmatic revenue. 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. Among our programmatic solutions is our Smadex ad purchasing platform. Additionally, we experienced lower margins related to revenue generated from the primarily global 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 further 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 $32.5 million for the year ended December 31, 2022 from $25.5 million for the year ended December 31, 2021, an increase of $7.0 million. The increase was primarily due to an increase in expenses associated with the increase in digital advertising revenue. In addition, the increase in direct operating expenses in our digital segment was due to our acquisitions and investments, as more fully described under “Highlights” above, and due to an increase in non-cash stock-based compensation.

Selling, general and administrative expenses. Selling, general and administrative expenses in our digital segment increased to $41.6 million for the year ended December 31, 2022 from $26.1 million for the year ended December 31, 2021, an increase of $15.5 million. The increase was primarily due to increase in salary expense. In addition, the increase in selling, general and administrative expenses in our digital segment was due to our acquisitions and investments, as more fully described under “Highlights” above.

Television

Net Revenue. Net revenue in our television segment decreased to $144.7 million in 2022, from $146.8 million in 2021. This decrease of approximately $2.1 million was primarily due to decreases in local and national advertising revenue, a decrease in spectrum usage rights revenue, and a decrease in retransmission consent revenue. These decreases were mainly attributed to the expiration of our Univision and UniMás network affiliation agreements in Orlando, Tampa and Washington, D.C. on December 31, 2021. The decrease in our television segment revenue was partially offset by an increase in political advertising revenue. We generated a total of $36.0 million in retransmission consent revenue for the year ended December 31, 2022 compared to $37.0 million for the year ended December 31, 2021. We generated a total of $6.0 million in spectrum usage rights revenue for the year ended December 31, 2022 compared to $6.2 million for the year ended December 31, 2021.

In general, our television segment faces declining audiences, which we believe is present across the industry, competitive factors with the other major Spanish-language broadcasters, and changing demographics and preferences of audiences in terms of the media they prefer to view, including streaming and social media. We anticipate that these changes in viewer habits will persist and may accelerate for at least for the foreseeable future and possibly permanently. Additionally, 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 decreased to $61.3 million for the year ended December 31, 2022 from $63.0 million for the year ended December 31, 2021, a decrease of approximately $1.7 million. The decrease was primarily due to a decrease in expenses associated with the decrease in local and national advertising revenue, partially offset by an increase in non-cash stock-based compensation.

Selling, General and Administrative Expenses. Selling, general and administrative expenses in our television segment increased

80

to $20.7 million for the year ended December 31, 2022 from $18.4 million for the year ended December 31, 2021, an increase of approximately $2.3 million. The increase was primarily due to an increase in rent expense and an increase in bad debt expense.

Audio

Net Revenue. Net revenue in our audio segment increased to $64.4 million in 2022, from $58.0 million in 2021. This increase of approximately $6.4 million was primarily due to increases in political advertising revenue and local advertising revenue, partially offset by a decrease in national advertising revenue.

Notwithstanding the foregoing, 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 listening audiences, including podcasts and other streaming services. We anticipate that these changes in listener habits will persist and may accelerate at least for at least for the foreseeable future and possibly permanently. Additionally, notwithstanding the increases in local 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 increased to $28.8 million for the year ended December 31, 2022 from $28.0 million for the year ended December 31, 2021, an increase of approximately $0.8 million. The increase was primarily due to an increase in expenses associated with the increase in local advertising revenue.

Selling, General and Administrative Expenses. Selling, general and administrative expenses in our audio segment increased to $12.9 million for the year ended December 31, 2022 from $12.1 million for the year ended December 31, 2021, an increase of approximately $0.8 million. The increase was primarily due to an increase in rent expense.

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 $18.1 million and $29.3 million for the years ended December 31, 2022 and 2021, respectively, and a net loss attributable to common stockholders of $3.9 million for the year ended December 31, 2020. We had positive cash flow from operations of $78.9 million, $65.3 million and $63.4 million for the years ended December 31, 2022, 2021 and 2020, 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 $110.7 million, and available for sale marketable securities in the additional amount of $44.5 million, as of December 31, 2022.

Our liquidity is not materially impacted by the amounts held in accounts outside the United States. The majority of our cash and cash equivalents is held outside the United States, primarily in Uruguay, Spain, Ecuador and Singapore, none of which countries have foreign currency controls. We hold smaller amounts in certain countries that do have foreign currency controls, including South Africa and Argentina, which could impact our ability to freely repatriate such funds from those countries to 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

81

Base Rate (as defined in the 2017 Credit Agreement) plus 1.75%. As of December 31, 2022, the interest rate on our Term Loan B was 7.13%. The Term Loan B Facility expires on November 30, 2024 (the “Maturity Date”).

The amounts outstanding under the 2017 Credit Facility may be prepaid at our option without premium or penalty, provided that certain limitations are observed, and subject to customary breakage fees in connection with the prepayment of a LIBOR rate loan. The principal amount of the Term Loan B Facility shall be paid in installments on the dates and in the respective amounts set forth in the 2017 Credit Agreement, with the final balance due on 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:

•
incur liens on our property or assets;

•
make certain investments;

•
incur additional indebtedness;

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

•
dispose of certain assets;

•
make certain restricted payments;

•
make certain acquisitions;

•
enter into substantially different lines of business;

•
enter into certain transactions with affiliates;

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

•
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;

•
enter into sale and leaseback transactions;

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

•
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:

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

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

•
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;

•
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;

•
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;

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

•
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;

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

•
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.

82

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 2022 and 2021.

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 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, 2022 was $208.1 million, net of $1.2 million of unamortized debt issuance costs and original issue discount. The estimated fair value of the Term Loan B Facility as of December 31, 2022 was $204.0 million. The estimated fair value is based on quoted prices in markets where trading occurs infrequently.

Share Repurchase Program

On March 1, 2022, our Board of Directors approved a share repurchase program of up to $20 million of our common stock. Under this 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. On the same date, the Board terminated our previous share repurchase program of up to $45 million of our common stock.

As of December 31, 2022, we have repurchased a total of 1.8 million shares of our Class A common stock under the new share repurchase program for an aggregate purchase price of $11.3 million, or an average price per share of $6.43. All such repurchased shares were retired as of December 31, 2022.

Consolidated Adjusted EBITDA

Consolidated adjusted EBITDA (as defined below) increased to $103.1 million for the year ended December 31, 2022 from $88.0 million for the year ended December 31, 2021, an increase of $15.1 million, or 17%. As a percentage of net revenue, consolidated adjusted EBITDA decreased to 11% for the year ended December 31, 2022, from 12% for the year ended December 31, 2021.

83

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): 2022, 1.3 to 1; 2021, 1.6 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 U.S. 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 U.S. GAAP financial measure, please see page 71.

Cash Flow

Net cash flow provided by operating activities was $78.9 million for the year ended December 31, 2022 compared to net cash flow provided by operating activities of $65.3 million for the year ended December 31, 2021. We had net income of $20.2 million for the year ended December 31, 2022, which included non-cash items such as deferred income taxes of $3.7 million, depreciation and amortization expense of $25.7 million, non-cash stock-based compensation expense of $20.0 million, and impairment charge of $1.6 million. 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 expect to have positive cash flow from operating activities for the 2023 year.

Net cash flow used in investing activities was $60.5 million for the year ended December 31, 2022, compared to net cash flow provided by investing activities of $17.3 million for the year ended December 31, 2021. During the year ended December 31, 2022, we spent $106.4 million on purchases of marketable securities, spent $11.5 million in net capital expenditures, spent $5.2 million on investments in VIEs, net of cash consolidated, received $59.8 million from the sale of marketable securities, and received $2.7 million from the sale of property and equipment and intangibles. 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 an investment. We anticipate that our capital expenditures will be approximately $19.5 million during the full year 2023. Of this amount, we expect that approximately $3.9 million will be reimbursed in connection with a new office lease (see Note 20 to Notes to Consolidated Financial Statements). The amount of our anticipated capital

84

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 $92.8 million for the year ended December 31, 2022, compared to net cash flow used in financing activities of $16.6 million for the year ended December 31, 2021. During the year ended December 31, 2022, we made payments of contingent consideration of $65.3 million, dividend payments of $8.5 million, debt payments of $3.3 million, payments for taxes related to shares withheld for share-based compensation plans of $4.5 million, spent $11.3 million for the repurchase of Class A common stock, and received $0.2 million related to the issuance of common stock upon the exercise of stock options. 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.

On February 3, 2023, we announced that our Board of Directors approved a quarterly cash dividend to shareholders of $0.05 per share of the Company's Class A and Class U common stock, payable on March 31, 2023. This is double our previous quarterly dividend of $0.025 that was paid quarterly in 2022 and restores the dividend to its pre-pandemic level.

Credit Risk

We have credit risk in our digital segment insofar as we 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 from the local advertiser or its ad agency. We believe that we manage this credit risk effectively, in part by analyzing the creditworthiness of these customers; however, we can give no assurance that this will continue to be the case in future periods.

Additionally, we are dependent upon one single global media company for the majority of our consolidated revenue, which amounted to approximately 49% and 55% of our consolidated revenue for the years ended December 31, 2022 and 2021, respectively. We expect that dependence will continue. The loss of all or a substantial part of that revenue would have a significant impact on our liquidity and cash flow.

Commitments and Contractual Obligations

Our material contractual obligations at December 31, 2022 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 $7.4 million, and other amounts consist primarily of obligations for software licenses utilized by our sales team of approximately $3.9 million.

We have also entered into employment agreements with certain of our key employees, including Christopher T. Young, Jeffery A. Liberman, Karl Meyer, and Juan Saldivar, and we had an employment agreement with our late Chief Executive Officer, Walter F. Ulloa.

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 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

85

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 October 1, 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, 2022, we had $46.2 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 65%, resulting in no impairment charge. As discussed in Note 6 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 4%. If the long term projected growth rate were to decrease by 0.5%, the fair value of the digital reporting unit would decrease by 1%.

As of our annual goodwill testing date, October 1, 2022, 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 28%, resulting in no impairment charge. As discussed in Note 6 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 3%. If the long term projected growth rate were to decrease by 0.5%, the fair value of the television reporting unit would decrease by 2%.

As of our annual goodwill testing date, October 1, 2022, 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.

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.

86

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 significant 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 complementary 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 carrying value of one television FCC license exceeded its fair value. As a result, we incurred an impairment charge in the amount of $0.9 million. The fair values of our television FCC licenses for each of the remaining market clusters exceeded the carrying values in amounts ranging from 49% to over 1,000%.

The carrying value of four radio FCC license exceeded their fair value. As a result, we incurred an impairment charge in the amount of $0.7 million. The fair values of our radio FCC licenses for each of the remaining market clusters exceeded the carrying values in amounts ranging from 12% to over 70%.

87

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.

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 that 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 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.

88

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, because (i) 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; (ii) we have pricing discretion over the transaction; and (iii) we carry inventory risk and we 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 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 agreement 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.

Business Combinations

We apply the acquisition method of accounting for business combinations in accordance with U.S. 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.

Variable Interest Entities

In accordance with the provisions of the Financial Accounting Standards Board (FASB) or ASC 810, “Consolidation,” we evaluate entities for which control is achieved through means other than voting rights to determine if we are the primary beneficiary of a VIE. An entity is a VIE if it has any of the following characteristics: (1) the entity has insufficient equity to permit it to finance its activities without additional subordinated financial support; (2) equity holders, as a group, lack the characteristics of a controlling financial interest; or (3) the entity is structured with non-substantive voting rights. The primary beneficiary of a VIE is generally the entity that has (a) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and (b) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. We consolidate our investment in a VIE when we determine that we are the primary beneficiary of such entity.

89

In determining whether we are the primary beneficiary of a VIE, we consider qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE’s economic performance and which party controls such activities; and the significance of the our investment and other means of participation in the VIE’s expected profits/losses. Significant judgments related to these determinations include estimates about the current and future fair values and performance of assets held by these VIEs and general market conditions.

We may change our original assessment of a VIE upon subsequent events such as the modification of contractual arrangements that affect the characteristics or adequacy of the entity’s equity investments at risk and the disposition of all or a portion of an interest held by the primary beneficiary. We perform this analysis on an ongoing basis.

Contingent Consideration

If business combinations or variable interest entities provide for contingent consideration, we record the contingent consideration at fair value at the acquisition date. We adjust the contingent consideration liability at the end of each reporting period based on fair value inputs representing changes in forecasted revenue of the acquired entities and the probability of an adjustment to the purchase price. 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. Changes in the fair value of the contingent consideration after the acquisition date are included in earnings if the contingent consideration is recorded as a liability.

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.

90

Digital

We conducted our annual review of our digital reporting unit as part of our goodwill testing and determined that the fair value of our digital reporting unit exceeded the carrying 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, 2022, the fair value of our digital reporting unit exceeded its carrying value by 65%, resulting in no impairment charge. As discussed in Note 6 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 4%. If the long term projected growth rate were to decrease by 0.5%, the fair value of the digital reporting unit would decrease by 1%.

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 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 television FCC license exceeded its value. As a result, we incurred an impairment charge in the amount of $0.9 million. The fair values of our television FCC licenses for each of the remaining market clusters exceeded the carrying values in amounts ranging from 49% 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, 2022, the television reporting unit’s fair value exceeded its carrying value by 28%, resulting in no impairment charge. As discussed in Note 6 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 3%. If the long term projected growth rate were to decrease by 0.5%, the fair value of the television reporting unit would decrease by 2%.

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.

91

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 four radio FCC license exceeded their fair value. As a result, we incurred an impairment charge in the amount of $0.7 million. The fair values of our radio FCC licenses for each of the remaining market clusters exceeded the carrying values in amounts ranging from 12% to over 70%.

We did not have any goodwill in our radio reporting unit at December 31, 2022.

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, 2022. 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.