HEMISPHERE MEDIA GROUP, INC. - Quarter Report: 2019 June (Form 10-Q)

Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x      QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2019

 

or

 

o         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                    to

 

Commission file number: 001-35886

 

HEMISPHERE MEDIA GROUP, INC.

(Exact name of registrant as specified in its charter)

 

 

 

(305) 421-6364

(Registrant’s telephone number, including area code)

 

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

Class of Stock		Shares Outstanding as of August 2, 2019
Class A common stock, par value $0.0001 per share		19,751,791 shares
Class B common stock, par value $0.0001 per share		19,720,381 shares

 

 

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HEMISPHERE MEDIA GROUP, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

June 30, 2019

(Unaudited)

 

		PAGE NUMBER
PART I -	FINANCIAL INFORMATION	6
Item 1.	Financial Statements	6
	Notes to Unaudited Condensed Consolidated Financial Statements	12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	29
Item 4.	Controls and Procedures	29
PART II -	OTHER INFORMATION	30
Item 1.	Legal Proceedings	30
Item 1A.	Risk Factors	30
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	30
Item 3.	Defaults Upon Senior Securities	30
Item 4.	Mine Safety Disclosures	30
Item 5.	Other Information	30
Item 6.	Exhibits	31
SIGNATURES		32

 

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PART I

 

Unless otherwise indicated or the context requires otherwise, in this disclosure, references to the “Company,” “Hemisphere,” “registrant,” “we,” “us” or “our” refers to Hemisphere Media Group, Inc., a Delaware corporation and, where applicable, its consolidated subsidiaries; “Business” refers collectively to our consolidated operations; “Cable Networks” refers to our Networks (as defined below) with the exception of WAPA and WAPA Deportes; “Canal 1” refers to a joint venture among us and Radio Television Interamericana S.A., Compania de Medios de Informacion S.A.S. and NTC Nacional de Television y Comunicaciones S.A. to operate a broadcast television network in Colombia; “Centroamerica TV” refers to HMTV Centroamerica TV, LLC, a Delaware limited liability company; “Cinelatino” refers to Cine Latino, Inc., a Delaware corporation; “Distributors” refers collectively to satellite systems, telephone companies (“telcos”), and cable multiple system operators (“MSO”s), and the MSO’s affiliated regional or individual cable systems; “MarVista” refers to Mar Vista Entertainment, LLC, a Deleware limited liability company; “MVS” refers to Grupo MVS, S.A. de C.V., a Mexican Sociedad Anonima de Capital Variable (variable capital corporation) and its affiliates, as applicable; “Networks” refers collectively to WAPA, WAPA Deportes, WAPA America, Cinelatino, Pasiones, Centroamerica TV and Television Dominicana; “Nielsen” refers to Nielsen Media Research; “Pantaya” refers to Pantaya, LLC, a Delaware limited liability company, a joint venture among us and a subsidiary of Lions Gate Entertainment, Inc.; “Pasiones” refers collectively to HMTV Pasiones US, LLC, a Delaware limited liability company, and HMTV Pasiones LatAm, LLC, a Delaware limited liability company; “REMEZCLA” refers to Remezcla, LLC, a New York limited liability company; “Second Amended Term Loan Facility” refers to our Term Loan Facility amended on February 14, 2017 as set forth on Exhibit 10.6 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017; “Snap Media” refers to Snap Global, LLC, a Delaware limited liability company and its wholly owned subsidiaries; “Television Dominicana” refers to HMTV TV Dominicana, LLC, a Delaware limited liability company; “Term Loan Facility” refers to our term loan facility amended on July 31, 2014 as set forth on Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2017; “WAPA” refers to Televicentro of Puerto Rico, LLC, a Delaware limited liability company; “WAPA America” refers to WAPA America, Inc., a Delaware corporation; “WAPA Deportes” refers to a sports television network in Puerto Rico operated by WAPA; “WAPA.TV” refers to a news and entertainment website in Puerto Rico operated by WAPA; “United States” or “U.S.” refers to the United States of America, including its territories, commonwealths and possessions.

 

FORWARD-LOOKING STATEMENTS

 

CAUTIONARY STATEMENT FOR PURPOSES OF THE “SAFE HARBOR” PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.

 

Statements in this Quarterly Report on Form 10-Q (this “Quarterly Report”), including the exhibits attached hereto, future filings by us with the Securities and Exchange Commission, our press releases and oral statements made by, or with the approval of, our authorized personnel, that relate to our future performance or future events, may contain certain statements about Hemisphere Media Group, Inc. (the “Company”) and its consolidated subsidiaries that do not directly or exclusively relate to historical facts. These statements are, or may be deemed to be, “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995.

 

These forward-looking statements are necessarily estimates reflecting the best judgment and current expectations, plans, assumptions and beliefs about future events (in each case subject to change) of our senior management and management of our subsidiaries (including target businesses) and involve a number of risks, uncertainties and other factors, some of which may be beyond our control that could cause actual results to differ materially from those expressed or implied in such forward-looking statements. Without limitation, any statements preceded or followed by or that include the words “targets,” “plans,” “believes,” “expects,” “intends,” “will,” “likely,” “may,” “anticipates,” “estimates,” “projects,” “should,” “would,” “expect,” “positioned,” “strategy,” “future,” “potential,” “forecast,” or words, phrases or terms of similar substance or the negative thereof, are forward-looking statements. These include, but are not limited to, the Company’s future financial and operating results (including growth and earnings), plans, objectives, expectations and intentions and other statements that are not historical facts.

 

We claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 for all forward-looking statements.

 

Forward-looking statements are not guarantees of performance. If one or more of these factors materialize, or if any underlying assumptions prove incorrect, our actual results, performance, or achievements may vary materially from any future results, performance or achievements expressed or implied by these forward-looking statements. In addition to the risk factors described in “Item 1A—Risk Factors” in this Quarterly Report on Form 10-Q, those factors include:

 

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·                  the effects of Hurricanes Irma and Maria in the short and long-term on our business, including, without limitation, affiliate revenue that we receive and the advertising market in Puerto Rico as well as our customers, employees, third-party vendors and suppliers and the short and long-term migration shifts in Puerto Rico;

 

·                  our ability to timely and fully recover proceeds under our insurance policies in Puerto Rico following Hurricanes Maria and Irma, including one of our policies with an insurance carrier which was recently placed under an order of rehabilitation;

 

·                  the reaction by advertisers, programming providers, strategic partners, the Federal Communications Commission (the “FCC”) or other government regulators to businesses that we acquire;

 

·                  the potential for viewership of our Networks’ programming to decline or unexpected reductions in the number of subscribers to our Networks;

 

·                  the risk that we may fail to secure sufficient or additional advertising and/or subscription revenue;

 

·                  the inability of advertisers or affiliates to remit payment to us in a timely manner or at all;

 

·                  the risk that we may become responsible for certain liabilities of the businesses that we acquire or joint ventures we enter into;

 

·                  future financial performance, including our ability to obtain additional financing in the future on favorable terms;

 

·                  the failure of our Business to produce projected revenues or cash flows;

 

·                  reduced access to capital markets or significant increases in borrowing costs;

 

·                  our ability to successfully manage relationships with customers and Distributors and other important third parties;

 

·                  continued consolidation of Distributors in the marketplace;

 

·                  a failure to secure affiliate agreements or renewal of such agreements on less favorable terms;

 

·                  disagreements with our Distributors over contract interpretation;

 

·                  our success in acquiring, investing in and integrating complementary businesses;

 

·                  the outcome of any pending or threatened litigation;

 

·                  the loss of key personnel and/or talent or expenditure of a greater amount of resources attracting, retaining and motivating key personnel than in the past;

 

·                  strikes or other union job actions that affect our operations, including, without limitation, failure to renew our collective bargaining agreements on mutually favorable terms;

 

·                  changes in technology, including changes in the distribution and viewing of television programming, expanded deployment of personal video recorders, video on demand, internet protocol television, mobile personal devices and personal tablets and their impact on subscription and television advertising revenue;

 

·                  the failure or destruction of satellites or transmitter facilities that we depend upon to distribute our Networks;

 

·                  uncertainties inherent in the development of new business lines and business strategies;

 

·                  changes in pricing and availability of products and services;

 

·                  uncertainties regarding the financial results of equity method investees and changes in the nature of key strategic relationships with partners and Distributors;

 

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·                  changes in domestic and foreign laws or regulations under which we operate;

 

·                  changes in laws or treaties relating to taxation, or the interpretation thereof, in the U.S. or in the countries in which we operate;

 

·                  the ability of suppliers and vendors to deliver products and services;

 

·                  fluctuations in foreign currency exchange rates and political unrest and regulatory changes in the international markets in which we operate;

 

·                  the deterioration of general economic conditions, either nationally or in the local markets in which we operate, including, without limitation, in the Commonwealth of Puerto Rico;

 

·                  changes in the size of the U.S. Hispanic population, including the impact of federal and state immigration legislation and policies on both the U.S. Hispanic population and persons emigrating from Latin America;

 

·                  changes in, or failure or inability to comply with, government regulations including, without limitation, regulations of the FCC, and adverse outcomes from regulatory proceedings; and

 

·                  competitor responses to our products and services.

 

The list of factors above is illustrative, but by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty. All subsequent written and oral forward-looking statements concerning the matters addressed in this Quarterly Report and attributable to us or any person acting on our behalf are qualified by these cautionary statements.

 

The forward-looking statements are based on current expectations about future events and are not guarantees of future performance, and are subject to certain risks, uncertainties and assumptions. Although we believe that the expectations reflected in the forward-looking statements are reasonable, these expectations may not be achieved. We may change our intentions, beliefs or expectations at any time and without notice, based upon any change in our assumptions or otherwise. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

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PART I - FINANCIAL INFORMATION

 

ITEM I. FINANCIAL STATEMENTS

 

HEMISPHERE MEDIA GROUP, INC.

Condensed Consolidated Balance Sheets

(amounts in thousands, except share and par value amounts)

 

		June 30,			December 31,
		2019			2018
		(Unaudited)			(Audited)
Assets
Current Assets
Cash		$	79,481		$	94,478
Accounts receivable, net of allowance for doubtful accounts of $673 and $2,645, respectively		31,943			30,840
Due from related parties		1,196			970
Programming rights		10,492			10,735
Prepaids and other current assets		7,841			7,801
Total current assets		130,953			144,824
Programming rights, net of current portion		14,657			15,321
Property and equipment, net		34,939			32,209
Operating lease right-of-use assets		2,090			—
Broadcast license		41,356			41,356
Goodwill		170,068			169,994
Other intangibles, net		33,997			39,086
Deferred income taxes		4,824			4,290
Equity method investments		53,858			51,658
Other assets		1,285			2,529
Total Assets		$	488,027		$	501,267
Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable		$	2,347		$	2,515
Due to related parties		619			626
Accrued agency commissions		2,636			5,061
Accrued compensation and benefits		4,619			5,855
Accrued marketing		4,867			5,619
Other accrued expenses		5,629			6,810
Income taxes payable		—			2,265
Programming rights payable		4,786			4,051
Investee losses in excess of investment		2,409			4,982
Current portion of long-term debt		2,133			2,134
Total current liabilities		30,045			39,918
Programming rights payable, net of current portion		1,678			1,133
Long-term debt, net of current portion		203,182			203,957
Deferred income taxes		19,520			19,520
Other long-term liabilities		3,657			1,080
Defined benefit pension obligation		2,194			2,260
Total Liabilities		260,276			267,868
Stockholders’ Equity
Preferred stock, $0.0001 par value; 50,000,000 shares authorized; 0 shares issued and outstanding at June 30, 2019 and December 31, 2018		—			—
Class A common stock, $.0001 par value; 100,000,000 shares authorized; 25,033,981 and 24,849,589 shares issued at June 30, 2019 and December 31, 2018, respectively.		3			2
Class B common stock, $.0001 par value; 33,000,000 shares authorized; 19,720,381 shares issued and outstanding at June 30, 2019 and December 31, 2018		2			2
Additional paid-in capital		271,117			270,345
Treasury stock, at cost 5,547,078 and 5,523,838 at June 30, 2019 and December 31, 2018, respectively		(59,573		)	(59,088		)
Retained earnings		15,398			19,495
Accumulated other comprehensive (loss) income		(647		)	1,155
Total Hemisphere Media Group, Inc. Stockholders’ Equity		226,300			231,911
Equity attributable to non-controlling interest		1,451			1,488
Total Stockholders’ Equity		227,751			233,399
Total Liabilities and Stockholders’ Equity		$	488,027		$	501,267

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements.

 

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HEMISPHERE MEDIA GROUP, INC.

Condensed Consolidated Statements of Operations

(Unaudited)

(amounts in thousands, except per share amounts)

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2019			2018			2019			2018
Net revenues		$	39,147		$	34,791		$	74,257		$	63,826
Operating expenses:
Cost of revenues		11,317			10,834			21,531			20,261
Selling, general and administrative		10,813			11,108			21,714			21,692
Depreciation and amortization		2,556			4,020			6,623			8,017
Other expenses		422			541			653			774
Gain from FCC spectrum repack and other		(45		)	(35		)	(1,507		)	(38		)
Total operating expenses		25,063			26,468			49,014			50,706
Operating income		14,084			8,323			25,243			13,120
Other expenses, net:
Interest expense, net		(3,005		)	(3,019		)	(5,965		)	(5,903		)
Loss on equity method investments		(9,784		)	(8,826		)	(17,160		)	(18,621		)
Total other expenses, net		(12,789		)	(11,845		)	(23,125		)	(24,524		)
Income (loss) before income taxes		1,295			(3,522		)	2,118			(11,404		)
Income tax expense		(3,643		)	(1,584		)	(6,199		)	(1,261		)
Net loss		(2,348		)	(5,106		)	(4,081		)	(12,665		)
Net (income) loss attributable to non-controlling interest		(10		)	—			37			—
Net loss attributable to Hemisphere Media Group, Inc.		$	(2,358	)	$	(5,106	)	$	(4,044	)	$	(12,665	)
Loss per share attributable to Hemisphere Media Group, Inc.:
Basic		$	(0.06	)	$	(0.13	)	$	(0.10	)	$	(0.32	)
Diluted		$	(0.06	)	$	(0.13	)	$	(0.10	)	$	(0.32	)
Weighted average shares outstanding:
Basic		39,164			39,021			39,098			38,988
Diluted		39,164			39,021			39,098			38,988

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements.

 

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HEMISPHERE MEDIA GROUP, INC.

Condensed Consolidated Statement of Comprehensive Loss

(Unaudited)

(amounts in thousands)

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2019			2018			2019			2018
Net loss		$	(2,348	)	$	(5,106	)	$	(4,081	)	$	(12,665	)
Other comprehensive (loss) income:
Change in fair value of interest rate swap, net of income taxes		(1,177		)	487			(1,855		)	1,637
Comprehensive loss		(3,525		)	(4,619		)	(5,936		)	(11,028		)
Comprehensive (income) loss attributable to non-controlling interest		(10		)	—			37			—
Comprehensive loss attributable to Hemisphere Media Group, Inc.		$	(3,535	)	$	(4,619	)	$	(5,899	)	$	(11,028	)

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements.

 

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HEMISPHERE MEDIA GROUP, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three and Six Months Ended June 30, 2019

(Unaudited)

(amounts in thousands)

 

		Class A Common Stock					Class B Common Stock					Additional Paid In			Class A Treasury			Retained			Accumulated Comprehensive			Non- controlling
		Shares		Par Value			Shares		Par Value			Capital			Stock			Earnings			Income (Loss)			Interest			Total
Balance at March 31, 2019		24,850		$	2		19,720		$	2		$	270,674		$	(59,013	)	$	17,756		$	530		$	1,441		$	231,392
Net (loss) income		—		—			—		—			—			—			(2,358		)	—			10			(2,348		)
Stock-based compensation		—		—			—		—			443			—			—			—			—			443
Vesting of restricted stock		184		1			—		—			—			(532		)	—			—			—			(531		)
Repurchases of Class A common Stock		—		—			—		—			—			(135		)	—			—			—			(135		)
Issuance of treasury shares for option exercise		—		—			—		—			—			107			—			—			—			107
Other comprehensive loss, net of tax		—		—			—		—			—			—			—			(1,177		)				(1,177		)
Balance at June 30, 2019		25,034		$	3		19,720		$	2		$	271,117		$	(59,573	)	$	15,398		$	(647	)	$	1,451		$	227,751

 

		Class A Common Stock					Class B Common Stock					Additional Paid In			Class A Treasury			Retained			Accumulated Comprehensive			Non- controlling
		Shares		Par Value			Shares		Par Value			Capital			Stock			Earnings			Income (Loss)			Interest			Total
Balance at December 31, 2018		24,850		$	2		19,720		$	2		$	270,345		$	(59,088	)	$	19,495		$	1,155		$	1,488		$	233,399
Net loss		—		—			—		—			—			—			(4,044		)	—			(37		)	(4,081		)
Issuance of treasury shares for acquisition of Snap Media		—		—			—		—			(588		)	588			—			—			—			—
Stock-based compensation		—		—			—		—			1,360			—			—			—			—			1,360
Vesting of restricted stock		184		1			—		—			—			(532		)	—			—			—			(531		)
Repurchases of Class A common Stock		—		—			—		—			—			(648		)	—			—			—			(648		)
Issuance of treasury shares for option exercise		—		—			—		—			—			107			—			—			—			107
Adoption of accounting standards		—		—			—		—			—			—			(53		)	53			—			—
Other comprehensive loss, net of tax		—		—			—		—			—			—			—			(1,855		)				(1,855		)
Balance at June 30, 2019		25,034		$	3		19,720		$	2		$	271,117		$	(59,573	)	$	15,398		$	(647	)	$	1,451		$	227,751

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements.

 

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HEMISPHERE MEDIA GROUP, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three and Six Months Ended June 30, 2018

(Unaudited)

(amounts in thousands)

 

		Class A Common Stock					Class B Common Stock					Additional Paid In			Class A Treasury			Retained			Accumulated Comprehensive			Non- controlling
		Shares		Par Value			Shares		Par Value			Capital			Stock			Earnings			Income			Interest			Total
Balance at March 31, 2018		25,173		$	3		20,801		$	2		$	266,345		$	(57,337	)	$	22,842		$	1,622		—			$	233,477
Net loss		—		—			—		—			—			—			(5,106		)	—			—			(5,106		)
Stock-based compensation		—		—			—		—			1,002			—			—			—			—			1,002
Vesting of restricted stock		199		0			—		—			(0		)	(326		)	—			—			—			(326		)
Repurchases of Class A common Stock		—		—			—		—			—			(1,521		)	—			—			—			(1,521		)
Forfeiture of Class A common stock earnouts		(544	)	(0		)	—		—			0			—			—			—			—			—
Forfeiture of Class B common stock earnouts		—		—			(1,081	)	(0		)	0			—			—			—			—			—
Other comprehensive income, net of tax		—		—			—		—			—			—			—			487			—			487
Balance at June 30, 2018		24,828		$	3		19,720		$	2		$	267,347		$	(59,184	)	$	17,736		$	2,109		$	—		$	228,013

 

		Class A Common Stock					Class B Common Stock					Additional Paid In			Class A Treasury			Retained			Accumulated Comprehensive			Non- controlling
		Shares		Par Value			Shares		Par Value			Capital			Stock			Earnings			Income			Interest			Total
Balance at December 31, 2017		25,171		$	3		20,801		$	2		$	265,329		$	(57,303	)	$	30,401		$	472		—			$	238,904
Net loss		—		—			—		—			—			—			(12,665		)	—			—			(12,665		)
Stock-based compensation		—		—			—		—			1,998			—			—			—			—			1,998
Vesting of restricted stock		199		0			—		—			(0		)	(326		)	—			—			—			(326		)
Repurchases of Class A common Stock		—		—			—		—			—			(1,555		)	—			—			—			(1,555		)
Forfeiture of Class A common stock earnouts		(544	)	(0		)	—		—			0			—			—			—			—			—
Forfeiture of Class B common stock earnouts		—		—			(1,081	)	(0		)	0			—			—			—			—			—
Exercise of warrants		2		0			—		—			20			—			—			—			—			20
Other comprehensive income, net of tax		—		—			—		—			—			—			—			1,637			—			1,637
Balance at June 30, 2018		24,828		$	3		19,720		$	2		$	267,347		$	(59,184	)	$	17,736		$	2,109		$	—		$	228,013

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements.

 

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HEMISPHERE MEDIA GROUP, INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(amounts in thousands)

 

		Six Months Ended June 30,
		2019			2018
Reconciliation of Net Loss to Net Cash Provided by Operating Activities:
Net loss		$	(4,081	)	$	(12,665	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		6,623			8,017
Program amortization		6,953			5,537
Amortization of deferred financing costs and original issue discount		290			296
Stock-based compensation		1,360			1,998
Provision for bad debts		219			129
Gain on disposition of assets		39			(38		)
Loss on equity method investments		17,160			18,621
Gain from FCC spectrum repack		(1,546		)	—
Amortization of operating lease right-of-use assets		228			—
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable		(1,322		)	(5,599		)
Programming rights		(6,046		)	(9,263		)
Prepaids and other assets		(2,807		)	355
(Decrease) increase in:
Accounts payable		(168		)	708
Due to related parties, net		(233		)	907
Other accrued expenses		(5,594		)	(1,970		)
Programming rights payable		1,280			1,600
Income taxes payable		(2,265		)	—
Other liabilities		1,741			90
Net cash provided by operating activities		11,831			8,723
Cash Flows From Investing Activities:
Funding of equity method investments		(21,931		)	(24,878		)
Capital expenditures		(4,303		)	(6,172		)
FCC spectrum repack proceeds		1,546			—
Net cash used in investing activities		(24,688		)	(31,050		)
Cash Flows From Financing Activities:
Repayments of long-term debt		(1,067		)	(2,133		)
Purchases of common stock		(1,180		)	(1,881		)
Proceeds from exercise of warrants		—			20
Proceeds from exercise of options		107			—
Net cash used in financing activities		(2,140		)	(3,994		)
Net decrease in cash		(14,997		)	(26,321		)
Cash:
Beginning		94,478			124,299
Ending		$	79,481		$	97,978
Supplemental Disclosures of Cash Flow Information:
Cash payments for:
Interest		$	6,979		$	5,659
Income taxes		$	6,343		$	—
Non-cash investing activity:
Acquisition financed in part by treasury shares		$	588		$	—

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements.

 

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Table of Contents

 

Notes to Condensed Consolidated Financial Statements (Unaudited)

 

Note 1. Nature of business

 

Nature of business:  The accompanying Condensed Consolidated Financial Statements include the accounts of Hemisphere Media Group, Inc. (“Hemisphere” or the “Company”), the parent holding company of Cine Latino, Inc. (“Cinelatino”), WAPA Holdings, LLC (formerly known as InterMedia Español Holdings, LLC) (“WAPA Holdings”), HMTV Cable, Inc., the parent company of the entities for the acquired networks consisting of Pasiones, TV Dominicana, and Centroamerica TV (see below), and HMTV Distribution, LLC, the parent of Snap Global, LLC, a Delaware limited liability company and its wholly owned subsidiaries (“Snap Media”), which we acquired a 75% interest on November 26, 2018. Hemisphere was formed on January 16, 2013 for purposes of effecting its initial public offering, which was consummated on April 4, 2013. In these notes, the terms “Company,” “we,” “us” or “our” mean Hemisphere and all subsidiaries included in our Condensed Consolidated Financial Statements.

 

Reclassification:  Certain prior year amounts on the presented condensed consolidated balance sheets and condensed consolidated statement of cash flows have been reclassified to conform with current period presentation.

 

Basis of presentation:  The accompanying Condensed Consolidated Financial Statements for Hemisphere and its subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, certain information and note disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to those rules and regulations, although we believe that the disclosures made are adequate to make the information not misleading. In our opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair statement have been included. Our financial condition as of, and operating results, for the three and six months ended June 30, 2019 are not necessarily indicative of the financial condition or results that may be expected for any future interim period or for the year ending December 31, 2019. These Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018.

 

Net loss per common share:  Basic loss per share is computed by dividing income attributable to Hemisphere Media Group common stockholders by the number of weighted-average outstanding shares of common stock. Diluted loss per share reflects the effect of the assumed exercise of stock options and vesting of restricted shares only in the periods in which such effect would have been dilutive.

 

The following table sets forth the computation of the common shares outstanding used in determining basic and diluted loss per share attributable to Hemisphere Media Group, Inc. (amounts in thousands, except per share amounts):

 

		Three Months Ended June 30,						Six Months Ended June 30,
		2019			2018			2019			2018
Numerator for loss per common share calculation:
Net loss attributable to Hemisphere Media Group, Inc.		$	(2,358	)	$	(5,106	)	$	(4,044	)	$	(12,665	)
Denominator for loss per common share calculation:
Weighted-average common shares, basic		39,164			39,021			39,098			38,988
Effect of dilutive securities
Stock options, restricted stock and warrants		—			—			—			—
Weighted-average common shares, diluted		39,164			39,021			39,098			38,988
Loss per share attributable to Hemisphere Media Group, Inc.
Basic		$	(0.06	)	$	(0.13	)	$	(0.10	)	$	(0.32	)
Diluted		$	(0.06	)	$	(0.13	)	$	(0.10	)	$	(0.32	)

 

We apply the treasury stock method to measure the dilutive effect of its outstanding stock options and restricted stock awards and include the respective common share equivalents in the denominator of our diluted loss per common share calculation. Per the Accounting Standards Codification (“ASC”) 260 accounting guidance, under the treasury stock method, the incremental shares (difference between the number of shares assumed issued and the number of shares assumed purchased) shall be included in the denominator of the diluted loss per share computation (ASC 260-10-45-23). The assumed exercise only occurs when the options are “In the Money” (exercise price is lower than the average market price for the period). If the options are “Out of the Money” (exercise price is higher than the average market price for the period), the exercise is not assumed since the result would be anti-dilutive. Potentially dilutive securities representing 0.9 million and 2.0 million shares of common stock for the three months ended June 30, 2019 and 2018, respectively, were excluded from the computation of diluted loss per common share for these periods because their

 

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