10-Q 1 a17-8849_110q.htm 10-Q

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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 March 31, 2017

 

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)

 

Delaware

 

80-0885255

(State or other jurisdiction of incorporation or
organization)

 

(I.R.S. Employer
Identification No.)

 

Hemisphere Media Group, Inc.

 

 

4000 Ponce de Leon Boulevard

 

 

Suite 650

 

 

Coral Gables, FL

 

33146

(Address of principal executive offices)

 

(Zip Code)

 

(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)

 

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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.

 

Large accelerated filer o

 

Accelerated filer x

Non-accelerated filer o

 

Smaller reporting company o

 

 

Emerging growth company o

 

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 May 8, 2017

 

Class A common stock, par value $0.0001 per share

 

21,875,087 shares

 

Class B common stock, par value $0.0001 per share

 

20,800,998 shares

 

 

 

 



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HEMISPHERE MEDIA GROUP, INC. AND SUBSIDIARIES

INDEX TO FORM 10-Q

March 31, 2017

(Unaudited)

 

 

 

PAGE
NUMBER

 

 

 

PART I -

FINANCIAL INFORMATION

6

 

 

 

Item 1.

Financial Statements

6

 

 

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

11

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

25

 

 

 

Item 4.

Controls and Procedures

26

 

 

 

PART II -

OTHER INFORMATION

27

 

 

 

Item 1.

Legal Proceedings

27

 

 

 

Item 1A.

Risk Factors

27

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

27

 

 

 

Item 3.

Defaults Upon Senior Securities

27

 

 

 

Item 4.

Mine Safety Disclosures

27

 

 

 

Item 5.

Other Information

27

 

 

 

Item 6.

Exhibits

27

 

 

 

SIGNATURES

29

 

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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 WAPA2 Deportes; “Canal Uno” 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; “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, WAPA2 Deportes, WAPA America, Cinelatino, Pasiones, Centroamerica TV and Television Dominicana; “Nielsen” refers to Nielsen Media Research; “Pasiones” refers collectively to HMTV Pasiones US, LLC, a Delaware limited liability company and HMTV Pasiones LatAm, LLC, a Delaware 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 our Annual Report on Form 10-K filed with the SEC on March 15, 2017; “Television Dominicana” refers to HMTV TV Dominicana, LLC, a Delaware limited liability company; “WAPA” refers to Televicentro of Puerto Rico, 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, 2015;  “WAPA America” refers to WAPA America, Inc., a Delaware corporation; “WAPA2 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.

 

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 us and our 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:

 

·                  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;

 

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·                  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;

 

·                  changes in the nature of key strategic relationships with partners and Distributors;

 

·                  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.

 

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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)

 

 

 

March 31,

 

December 31,

 

 

 

2017

 

2016

 

 

 

(Unaudited)

 

 

 

Assets

 

 

 

 

 

Current Assets

 

 

 

 

 

Cash

 

$

164,372

 

$

163,090

 

Accounts receivable, net of allowance for doubtful accounts of $1,712 and $1,711, respectively

 

24,132

 

25,566

 

Due from related parties

 

1,406

 

1,505

 

Programming rights

 

7,721

 

5,450

 

Prepaids and other current assets

 

6,805

 

7,904

 

Total current assets

 

204,436

 

203,515

 

Programming rights

 

11,227

 

10,450

 

Property and equipment, net

 

24,820

 

25,501

 

Broadcast license

 

41,356

 

41,356

 

Goodwill

 

164,887

 

164,887

 

Other intangibles, net

 

61,499

 

64,849

 

Deferred taxes

 

18,638

 

18,638

 

Other assets

 

651

 

1,245

 

Total Assets

 

$

527,514

 

$

530,441

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

Current Liabilities

 

 

 

 

 

Accounts payable

 

$

2,773

 

$

3,525

 

Due to related parties

 

499

 

413

 

Accrued agency commissions

 

1,844

 

6,725

 

Accrued compensation and benefits

 

3,624

 

4,488

 

Accrued marketing

 

6,091

 

6,378

 

Taxes payable

 

2,867

 

1,619

 

Other accrued expenses

 

3,073

 

3,610

 

Programming rights payable

 

3,660

 

3,293

 

Current portion of long-term debt

 

2,133

 

 

Total current liabilities

 

26,564

 

30,051

 

 

 

 

 

 

 

Programming rights payable

 

744

 

107

 

Long-term debt, net of current portion

 

206,671

 

210,270

 

Deferred taxes

 

17,829

 

17,829

 

Defined benefit pension obligation

 

2,551

 

2,844

 

Total Liabilities

 

254,359

 

261,101

 

 

 

 

 

 

 

Stockholders’ Equity

 

 

 

 

 

Preferred stock, $0.0001 par value; 50,000,000 shares authorized; 0 shares issued and outstanding at March 31, 2017 and December 31, 2016

 

 

 

Class A common stock, $.0001 par value; 100,000,000 shares authorized; and 24,944,913 shares issued at March 31, 2017 and December 31, 2016

 

2

 

2

 

Class B common stock, $.0001 par value; 33,000,000 shares authorized; 20,800,998 shares issued and outstanding at March 31, 2017 and December 31, 2016

 

2

 

2

 

Additional paid-in capital

 

262,121

 

261,051

 

Treasury stock, at cost 3,606,696 at March 31, 2017 and December 31, 2016

 

(35,069

)

(35,069

)

Retained earnings

 

46,582

 

43,837

 

Accumulated other comprehensive loss

 

(483

)

(483

)

Total Stockholders’ Equity

 

273,155

 

269,340

 

Total Liabilities and Stockholders’ Equity

 

$

527,514

 

$

530,441

 

 

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 March 31,

 

 

 

2017

 

2016

 

Net revenues

 

$

33,159

 

$

30,971

 

 

 

 

 

 

 

Operating Expenses:

 

 

 

 

 

Cost of revenues

 

10,245

 

10,183

 

Selling, general and administrative

 

9,492

 

9,256

 

Depreciation and amortization

 

4,115

 

4,356

 

Other expenses

 

2,250

 

13

 

Gain on disposition of assets

 

 

(1

)

Total operating expenses

 

26,102

 

23,807

 

 

 

 

 

 

 

Operating income

 

7,057

 

7,164

 

 

 

 

 

 

 

Other Expenses:

 

 

 

 

 

Interest expense, net

 

(2,628

)

(2,956

)

 

 

 

 

 

 

Income before income taxes

 

4,429

 

4,208

 

 

 

 

 

 

 

Income tax expense

 

(1,684

)

(1,508

)

 

 

 

 

 

 

Net income

 

$

2,745

 

$

2,700

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

Basic

 

$

0.07

 

$

0.06

 

Diluted

 

$

0.07

 

$

0.06

 

 

 

 

 

 

 

Weighted average shares outstanding:

 

 

 

 

 

Basic

 

40,514

 

43,142

 

Diluted

 

40,760

 

44,469

 

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements.

 

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HEMISPHERE MEDIA GROUP, INC.

Condensed Consolidated Statement of Comprehensive Income

(Unaudited)

(amounts in thousands)

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

2016

 

 

 

 

 

 

 

Net income

 

$

2,745

 

$

2,700

 

Other comprehensive loss

 

 

(8

)

Comprehensive income

 

$

2,745

 

$

2,692

 

 

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 Months Ended March 31, 2017

(Unaudited)

(amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

Additional

 

Class A

 

 

 

Other

 

 

 

 

 

Class A Common Stock

 

Class B Common Stock

 

Paid-In

 

Treasury

 

Retained

 

Comprehensive

 

 

 

 

 

Shares

 

Par Value

 

Shares

 

Par Value

 

Capital

 

Stock

 

Earnings

 

Loss

 

Total

 

Balance at December 31, 2016

 

24,944

 

$

2

 

20,801

 

$

2

 

$

261,051

 

$

(35,069

)

$

43,837

 

$

(483

)

$

269,340

 

Net income

 

 

 

 

 

 

 

2,745

 

 

2,745

 

Stock-based compensation

 

 

 

 

 

1,070

 

 

 

 

1,070

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at March 31, 2017

 

24,944

 

$

2

 

20,801

 

$

2

 

$

262,121

 

$

(35,069

)

$

46,582

 

$

(483

)

$

273,155

 

 

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)

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

2016

 

Reconciliation of Net Income to Net Cash Provided by Operating Activities:

 

 

 

 

 

Net income

 

$

2,745

 

$

2,700

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

Depreciation and amortization

 

4,115

 

4,356

 

Program amortization

 

3,463

 

3,041

 

Amortization of deferred financing costs

 

93

 

125

 

Amortization of original issue discount

 

88

 

94

 

Stock-based compensation

 

1,070

 

1,399

 

Provision for bad debts

 

1

 

64

 

Gain on disposition of assets

 

 

(1

)

Deferred tax expense

 

 

341

 

Changes in assets and liabilities:

 

 

 

 

 

Decrease (increase) in:

 

 

 

 

 

Accounts receivable

 

1,433

 

569

 

Due from related parties

 

99

 

(115

)

Programming rights

 

(6,511

)

(4,837

)

Prepaids and other assets

 

1,693

 

(502

)

(Decrease) increase in:

 

 

 

 

 

Accounts payable

 

(752

)

424

 

Due to related parties

 

86

 

174

 

Accrued expenses

 

(6,569

)

(7,593

)

Programming rights payable

 

1,004

 

372

 

Taxes payable

 

1,248

 

1,125

 

Other liabilities

 

(293

)

50

 

Net cash provided by operating activities

 

3,013

 

1,786

 

Cash Flows From Investing Activities:

 

 

 

 

 

Proceeds from sale of assets

 

 

1

 

Capital expenditures

 

(84

)

(1,178

)

Net cash used in investing activities

 

(84

)

(1,177

)

Cash Flows From Financing Activities:

 

 

 

 

 

Repayments of long-term debt

 

(533

)

(8,278

)

Financing fees

 

(1,114

)

 

Purchase of treasury stock

 

 

(1,335

)

Warrant repurchase

 

 

(976

)

Warrant exercise

 

 

420

 

Exercise of stock options

 

 

155

 

Excess tax benefits

 

 

(4

)

Net cash used in financing activities

 

(1,647

)

(10,018

)

 

 

 

 

 

 

Net increase (decrease) in cash

 

1,282

 

(9,409

)

Cash:

 

 

 

 

 

Beginning

 

163,090

 

179,532

 

Ending

 

$

164,372

 

$

170,123

 

 

 

 

 

 

 

Supplemental Disclosures of Cash Flow Information:

 

 

 

 

 

Cash payments for:

 

 

 

 

 

Interest

 

$

2,502

 

$

2,792

 

Income taxes

 

$

47

 

$

 

 

See accompanying notes to Unaudited Condensed Consolidated Financial Statements.

 

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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”), and HMTV Cable, Inc., the parent company of the entities for the acquired networks consisting of Pasiones, TV Dominicana, and Centroamerica TV (see below). Hemisphere was incorporated in Delaware on January 16, 2013, and consummated its initial public offering on April 4, 2013. In these notes, the terms “Company,” “we,” “us” or “our” mean Hemisphere and all subsidiaries included in our Consolidated Financial Statements.

 

On April 1, 2014, we acquired the assets of three Spanish-language cable television networks from Media World, LLC, a Florida limited liability company, for $101.9 million in cash. The three acquired cable networks include Pasiones, Centroamerica TV and TV Dominicana.

 

On November 3, 2016, we acquired a minority interest in a newly formed joint venture with Lions Gate Films Inc. (“Lionsgate”) to launch a Spanish-language over-the-top (“OTT”) movie service (the “OTT JV”). The service plans to launch in the fiscal year ending December 31, 2017. The OTT JV had no activity from operations in the three months ended March 31, 2017, and the Company did not make any capital contributions to the OTT JV in the three months ended March 31, 2017.

 

On November 30, 2016, we, in partnership with Colombian content producers, Radio Television Interamericana S.A., Compania de Medios de Informacion S.A.S and NTC Nacional de Television y Comunicaciones S.A., were awarded a ten (10) year renewable broadcast television concession for Canal Uno in Colombia (the “Canal Uno JV”). Canal Uno is one of only three national broadcast television networks in Colombia. The Canal Uno JV began operations of the network through a newly formed joint venture vehicle on May 1, 2017.  We account for the investment under the equity method. For more information on the OTT JV and the Canal Uno JV, see Note 4, “Equity Method Investments” of Notes to Consolidated Financial Statements, included in this Quarterly Report on Form 10-Q.

 

Basis of presentation:  The accompanying unaudited 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 months ended March 31, 2017 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, 2017. These Condensed Consolidated Financial Statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2016.

 

Net earnings per common share:  Basic earnings per share (“EPS”) are computed by dividing income attributable to common stockholders by the number of weighted-average outstanding shares of common stock.  Diluted EPS 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.

 

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The following table sets forth the computation of the common shares outstanding used in determining basic and diluted EPS (amounts in thousands, except per share amounts):

 

 

 

Three Months Ended March 31,

 

 

 

2017

 

2016

 

Numerator for earnings per common share calculation:

 

 

 

 

 

Net income

 

$

2,745

 

$

2,700

 

 

 

 

 

 

 

Denominator for earnings per common share calculation:

 

 

 

 

 

Weighted-average common shares, basic

 

40,514

 

43,142

 

Effect of dilutive securities

 

 

 

 

 

Stock options, restricted stock and warrants

 

246

 

1,327

 

Weighted-average common shares, diluted

 

40,760

 

44,469

 

 

 

 

 

 

 

EPS

 

 

 

 

 

Basic

 

$

0.07

 

$

0.06

 

Diluted

 

$

0.07

 

$

0.06

 

 

We apply the treasury stock method to measure the dilutive effect of our outstanding stock options and restricted stock awards and include the respective common share equivalents in the denominator of our diluted income per common share calculation. Potentially dilutive securities representing 2.1 million shares of common stock as of the three months ended March 31, 2017,  were excluded from the computation of diluted income per common share for this period because their effect would have been anti-dilutive. The net income per share amounts are the same for our Class A common stock, par value $0.0001 per share (“Class A common stock”) and Class B common stock, par value $0.0001 per share (“Class B common stock”), because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation.

 

Use of estimates:  In preparing these financial statements, management had to make estimates and assumptions that affected the reported amounts of assets and liabilities and the disclosures of contingent assets and liabilities as of the balance sheet dates, and the reported revenues and expenses for the three months ended March 31, 2017 and 2016. Such estimates are based on historical experience and other assumptions that are considered appropriate in the circumstances. However, actual results could differ from those estimates.

 

Recent accounting pronouncements: In March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”, “Update”) 2017-07 — Compensation - Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost in order to improve the presentation of net periodic pension cost and net periodic postretirement benefit cost. The amendments in this Update require that an employer report the service cost component in the same line item or items as other compensation costs arising from services rendered by the pertinent employees during the period. The other components of net benefit cost as defined the ASU are required to be presented in the income statement separately from the service cost component and outside a subtotal of income from operations, if one is presented. This ASU is effective for public business entities for annual periods beginning after December 15, 2017, including interim periods within those annual periods. We are currently evaluating the impact on our unaudited condensed consolidated financial statements.

 

In May 2014, the FASB issued ASU 2014-09 - Revenue from Contracts with Customers, a comprehensive revenue recognition model that supersedes the current revenue recognition requirements and most industry-specific guidance. Subsequent accounting standard updates have also been issued which amend and/or clarify the application of ASU 2014-09. The guidance provides a five-step framework to recognize revenue to depict the transfer of goods or services to customers in an amount that reflects the consideration it expects to be entitled to in exchange for those goods or services. The guidance will be effective for the first interim period of our 2018 fiscal year and allows adoption either under a full retrospective or a modified retrospective approach. The Company has identified retransmission consent fees/ subscriber fees and advertising sales as significant and is currently in the process of analyzing each of these revenue streams in accordance with the new guidance to determine the impact on the unaudited condensed consolidated financial statements. When the Company has completed its evaluation, it will determine the method of transition that will be used in adopting the new standard.

 

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Note 2. Related party transactions

 

The Company has various agreements with MVS, a Mexican media and television conglomerate, which has directors and stockholders in common with the Company as follows:

 

·                  An agreement through August 1, 2017, pursuant to which MVS provides Cinelatino with satellite and support services including origination, uplinking and satellite delivery of two feeds of Cinelatino’s channel (for U.S. and Latin America), master control and monitoring, dubbing, subtitling and close captioning, and other support services (the “Satellite and Support Services Agreement”). This agreement was amended on May 20, 2015, to expand the services MVS provides to Cinelatino to include commercial insertion and editing services to support advertising sales on Cinelatino’s U.S. feed. Expenses incurred under this agreement are included in cost of revenues in the accompanying unaudited condensed consolidated statements of operations. Total expenses incurred were $0.6 million for each of the three months ended March 31, 2017 and 2016, and are included in cost of revenues.

 

·                  A ten-year master license agreement through July 2017, which grants MVS the non-exclusive right (except with respect to pre-existing distribution arrangements between MVS and third party distributors in effect at the time of the consummation of our initial public offering) to duplicate, distribute and exhibit Cinelatino’s service via cable, satellite or by any other means in Latin America and in Mexico to the extent that Mexico distribution is not owned by MVS. In February 2016, MVS terminated the agreement.  We continued to operate under the terms of the agreement through December 31, 2016.  As of January 1, 2017, we assumed the management of the rights for most Latin American third party distributors, and MVS retained the non-exclusive right to duplicate, distribute and exhibit Cinelatino’s service in Mexico and to certain other Latin American distributors. Pursuant to the agreement, Cinelatino receives revenue net of MVS’s distribution fee, which is presently equal to 13.5% of all license fees collected by MVS from third party distributors.  Total revenues recognized were $0.5 million and $1.4 million for the three months ended March 31, 2017 and 2016, respectively.

 

·                  An affiliation agreement through August 1, 2017, for the distribution and exhibition of Cinelatino’s programming service through Dish Mexico (d/b/a Comercializadora de Frecuencias Satelitales, S. de R.L. de C.V.), an MVS affiliate that transmits television programming services throughout Mexico. Total revenues recognized were $0.6 million and $0.6 million for the three months ended March 31, 2017 and 2016, respectively.

 

·                  In November 2013, Cinelatino licensed six movies from MVS. Expenses incurred under this agreement are included in cost of revenues and amounted to $0.0 million for the three months ended March 31, 2017 and 2016.   At March 31, 2017, and December 31, 2016, $0.0 million is included in programming rights related to this agreement.

 

Amounts due from MVS pursuant to the agreements noted above amounted to $1.4 million and $1.5 million at March 31, 2017 and December 31, 2016, respectively, and are remitted monthly. Amounts due to MVS pursuant to the agreements noted above amounted to $0.6 million and $0.5 million at March 31, 2017 and December 31, 2016, respectively, and are remitted monthly.

 

We renewed the three-year consulting agreement effective April 9, 2016 with James M. McNamara, a member of the Company’s board of directors, to provide the development, production and maintenance of programming, affiliate relations, identification and negotiation of carriage opportunities, and the development, identification and negotiation of new business initiatives including sponsorship, new channels, direct-to-consumer programs and other interactive initiatives. Total expenses incurred under these agreements are included in selling, general and administrative expenses and amounted to $0.2 million and $0.1 million for the three months ended March 31, 2017 and 2016, respectively. Amounts due to this related party totaled $0 at March 31, 2017 and December 31, 2016.

 

We have entered into programming agreements with Panamax Films, LLC (“Panamax”), an entity owned by James M. McNamara, for the licensing of three specific movie titles. Expenses incurred under this agreement are included in cost of revenues in the accompanying unaudited condensed consolidated statements of operations, and amounted to $0.0 million for each of the three month periods ended March 31, 2017 and 2016.  At March 31, 2017 and December 31, 2016, $0.1 million is included in programming rights in the accompanying unaudited condensed consolidated balance sheets related to these agreements.

 

We entered into agreements to license the rights to motion pictures from Lionsgate for a total license fee of $1.0 million. Some of the titles are owned or controlled by Pantelion Films, LLC (“Pantelion”), for which Lionsgate acts as Pantelion’s exclusive licensing agent. Pantalion is a joint venture made up of several organizations, including Panamax (an entity owned by James M. McNamara), Lionsgate and Grupo Televisa. Fees paid by Cinelatino to Lionsgate may be remunerated to Pantelion in accordance with their financial arrangements. Expenses incurred under this agreement are included in cost of revenues in the accompanying unaudited condensed consolidated statements of operations, and amounted to $0.1 million for each of the three month periods ended March 31, 2017 and 2016, respectively. At March 31, 2017 and December 31, 2016, $0.2 million and $0.3 million, respectively, is included in programming rights in the accompanying unaudited condensed consolidated balance sheets.

 

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We entered into a services agreement with InterMedia Advisors, LLC (“IMA”) which has officers, directors and stockholders in common with the Company for services including, without limitation, office space and operational support pursuant to a reimbursement agreement with IMA’s affiliate, InterMedia Partners VII, L.P. Expenses incurred under this agreement are included in selling, general and administrative expenses in the accompanying unaudited condensed consolidated statements of operations and amounted to $0.0 million for each of the three month periods ended March 31, 2017 and 2016. The amounts due from this related party totaled $0.1 million as of  March 31, 2017 and December 31, 2016.

 

Note 3. Goodwill and intangible assets

 

Goodwill and intangible assets consist of the following at March 31, 2017 and December 31, 2016 (amounts in thousands):

 

 

 

March 31,

 

December 31,

 

 

 

2017

 

2016

 

Broadcast license

 

$

41,356

 

$

41,356

 

Goodwill

 

164,887

 

164,887

 

Other intangibles

 

61,499

 

64,849

 

Total intangible assets

 

$

267,742

 

$

271,092

 

 

A summary of changes in the Company’s goodwill and other indefinite-lived intangible assets, on a net basis, for the three months ended March 31, 2017 is as follows (amounts in thousands):

 

 

 

Net Balance at
December 31, 2016

 

Additions

 

Impairment

 

Net Balance at
March 31, 2017

 

Broadcast license

 

$

41,356

 

$

 

$

 

$

41,356

 

Goodwill

 

164,887

 

 

 

164,887

 

Brands

 

15,986

 

 

 

15,986

 

Other intangibles

 

700

 

 

 

700

 

Total indefinite-lived intangibles

 

$

222,929

 

$

 

$

 

$

222,929

 

 

A summary of the changes in the Company’s other amortizable intangible assets for each of the three months ended March 31, 2017 is as follows (amounts in thousands):

 

 

 

Net Balance at
December 31, 2016

 

Additions

 

Amortization

 

Net Balance at
March 31, 2017

 

Affiliate relationships

 

$

44,468

 

$

 

$

(3,075

)

$

41,393

 

Advertiser relationships

 

1,792

 

 

(138

)

1,654

 

Non-compete agreement

 

1,784

 

 

(137

)

1,647

 

Other intangibles

 

119

 

9

 

(9

)

119

 

Total finite-lived intangibles

 

$

48,163

 

$

9

 

$

(3,359

)

$

44,813

 

 

The aggregate amortization expense of the Company’s amortizable intangible assets was $3.4 million for the three months ended March 31, 2017 and 2016.  The weighted average remaining amortization period is 4.0 years at March 31, 2017.

 

Future estimated amortization expense is as follows (amounts in thousands):

 

Year Ending December 31,

 

Amount

 

Remainder of 2017

 

$

9,924

 

2018

 

13,208

 

2019

 

8,458

 

2020

 

6,033

 

2021 and thereafter

 

7,190

 

 

 

$

44,813

 

 

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Note 4. Equity method investments

 

On November 3, 2016, we acquired a minority interest in a newly formed joint venture with Lionsgate to launch a Spanish-language OTT movie service. The service plans to launch in 2017. This joint venture had no activity from operations in the quarter ended March 31, 2017.

 

On November 30, 2016, we, in partnership with Colombian content producers, Radio Television Interamericana S.A., Compania de Medios de Informacion S.A.S. and NTC Nacional de Television y Comunicaciones S.A., were awarded a ten (10) year renewable broadcast television concession for Canal Uno in Colombia. Canal Uno is one of only three national broadcast television networks in Colombia. The Canal Uno JV began operating Canal Uno on May 1, 2017. For the quarter ended March 31, 2017, we accounted for the investment under the equity method.

 

Note 5. Income taxes

 

For the three months ended March 31, 2017 and 2016, our income tax expense has been computed utilizing the estimated annual effective rates of 35.9% and 35.8%, respectively. The difference between the annual effective rate of 35.9% and the statutory Federal income tax rate of 35% in the three month period ended March 31, 2017, is primarily due to foreign withholding taxes offset by foreign tax credits. The difference between the annual effective rate of 35.8% and the statutory Federal income tax rate of 35% in the three month period ended March 31, 2016, is primarily due to state and foreign income taxes.

 

Income tax expense was $1.7 million and $1.5 million for the three month period ended March 31, 2017 and 2016, respectively.

 

Note 6. Long-term debt

 

Long-term debt at March 31, 2017 and December 31, 2016 consists of the following (amounts in thousands):

 

 

 

March 31, 2017

 

December 31, 2016

 

Senior Notes due February 2024

 

$

208,804

 

$

 

Senior Notes due July 2020

 

 

210,270

 

Less: Current portion

 

2,133

 

 

 

 

$

206,671

 

$

210,270

 

 

On July 31, 2014, certain of our subsidiaries (the “Borrowers”) entered into an amended credit agreement providing for a $225.0 million senior secured term loan B facility (the “Term Loan Facility”), which was due to mature on July 30, 2020. Pricing on the Term Loan Facility was LIBOR plus 400 basis points (subject to a LIBOR floor of 1.00).

 

On February 14, 2017 (the “Closing Date”), the Borrowers amended the Term Loan Facility (the “Second Amended Term Loan Facility”).  The Second Amended Term Loan Facility provides for a $213.3 million senior secured term loan B facility, which matures on February 14, 2024. The  Second Amended Term Loan Facility, was issued with 0.5% of original issue discount (“OID”), bear interest at the Borrowers’ option of either (i) LIBOR plus a margin of 3.50% (decreased from a margin of 4.00% under the Term Loan Facility) or (ii) or an Alternate Base Rate (“ABR”) plus a margin of 2.50% (decreased from a margin of 3.00% under the Term Loan Facility). There is no LIBOR floor (a decrease from a LIBOR floor of 1.00% under the Term Loan Facility).  The Second Amended Term Loan Facility, among other terms, provides for an uncommitted incremental loan option (the “Incremental Facility”) allowing for increases for borrowings under the Second Amended Term Loan Facility and borrowing of new tranches of term loans, up to an aggregate principal amount equal to (i) $65.0 million plus (ii) an additional amount (the “Incremental Facility Increase”) provided, that after giving effect to such Incremental Facility Increase (as well as any other additional term loans), on a pro forma basis, the First Lien Net Leverage Ratio (as defined in the Second Amended Term Loan Facility) for the most recent four consecutive fiscal quarters does not exceed 4.00:1.00 and the Total Net Leverage Ratio (as defined in the Second Amended Term Loan Facility) for the most recent four consecutive fiscal quarters does not exceed 6.00:1.00. The First Lien Net Leverage Ratio and the Total Net Leverage Ratio each caps the cash netted against debt up to a maximum amount of $60.0 million. Additionally, the Second Amended Term Loan Facility also provides for an uncommitted incremental revolving loan option (the “Incremental Revolving Facility”) allowing for an aggregate principal amount of up to $30.0 million, which will be secured on a pari passu basis by the collateral securing the Second Amended Term Loan Facility.

 

The Second Amended Term Loan Facility requires the Borrowers to make amortization payments (in quarterly installments) equal to 1.00% per annum with respect to the Second Amended Term Loan Facility with any remaining amount due at final maturity. The Second Amended Term Loan Facility principal payments commenced on March 31, 2017, with a final installment

 

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due on February 14, 2024. Voluntary prepayments are permitted, in whole or in part, subject to certain minimum prepayment requirements; provided that any prepayments made within six months of February 14, 2017, will be required to include a 1.00% prepayment premium.

 

In addition, pursuant to the terms of the Term Loan Facility and the Second Amended Term Loan Facility, within 90 days after the end of each fiscal year, the Borrowers are required to make a prepayment of the loan principal in an amount equal to a percentage of the excess cash flow of the most recently completed fiscal year. Excess cash flow is generally defined as net income plus depreciation and amortization expense, less mandatory prepayments of the term loan, interest charges, income taxes and capital expenditures, and adjusted for the change in working capital. The percentage of the excess cash flow used to determine the amount of the prepayment of the loan declines from 50% to 25%, and again to 0% at lower leverage ratios. Our net leverage ratio was 2.6x at December 31, 2016, resulting in an excess cash flow percentage of 0%, and therefore, no  excess cash flow payment was required in March 2017.

 

In accordance with Accounting Standards Codification (“ASC”) 470 - Debt, the refinancing arrangement was deemed a modification of the Term Loan Facility and as such, an additional $1.1 million of OID incurred in connection with the Second Amended Term Loan Facility was added to the existing OID.  As of March 31, 2017, the OID balance was $2.3 million, net of accumulated amortization of $1.2 million and is presented as a reduction to the principal amount of the Second Amended Term Loan Facility outstanding as presented on the unaudited condensed consolidated Balance Sheets and will be amortized as a component of interest expense over the term of the Second Amended Term Loan Facility.  Financing costs of $1.4 million incurred in connection with the Second Amended Term Loan Facility were expensed in the period in accordance with ASC 470 — Debt and are included in Other expenses in the unaudited condensed consolidated Statement of Operations at March 31, 2017.  In accordance with ASU 2015-15 Interest — Imputation of Interest (Subtopic 835-30) Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line of Credit Arrangements, deferred financing fees of $1.7 million, net of accumulated amortization of $2.2 million, are presented as a reduction to the Second Amended Term Loan Facility outstanding at March 31, 2017 as presented on the unaudited condensed consolidated Balance Sheet, and will be amortized as a component of interest expense over the term of the Second Amended Term Loan Facility.

 

The carrying value of the long-term debt approximates fair value at March 31, 2017 and December 31, 2016 and was derived from quoted market prices by independent dealers (Level 2 in the fair value hierarchy under ASC 820, Fair Value Measurements and Disclosures). The following are the maturities of our long-term debt as of March 31, 2017 (amounts in thousands):

 

Year Ending December 31,

 

 

 

Remainder of 2017

 

$

1,600

 

2018

 

2,133

 

2019

 

2,133

 

2020

 

2,133

 

2021 and thereafter

 

204,815

 

 

 

$

212,814

 

 

Note 7.  Stockholders’ equity

 

Equity incentive plans

 

Effective May 16, 2016, the stockholders of all classes of capital stock of the Company approved at the annual stockholder meeting the Hemisphere Media Group, Inc. Amended and Restated 2013 Equity Incentive Plan (the “2013 Equity Incentive Plan”) to increase the number of shares of Class A common stock that may be delivered under the 2013 Equity Incentive Plan to an aggregate of 7.2 million shares of our Class A common stock. At March 31, 2017, 2.8 million shares remained available for issuance of stock options or other stock-based awards under our 2013 Equity Incentive Plan (including shares of restricted Class A common stock surrendered to the Company in payment of taxes required to be withheld in respect of vested shares of restricted Class A common stock, which are available for re-issuance). The expiration date of the 2013 Equity Incentive Plan, on and after which date no awards may be granted, is April 4, 2023. The Company’s board of directors, or a committee thereof, administers the 2013 Equity Incentive Plan and has the sole and plenary authority to, among other things: (i) designate participants; (ii) determine the type, size, and terms and conditions of awards to be granted; and (iii) determine the method by which an award may be settled, exercised, canceled, forfeited or suspended.

 

The Company’s time-based restricted stock awards and option awards generally vest in three equal annual installments beginning on the first anniversary of the grant date, subject to the grantee’s continued employment or service with the Company. The Company’s event-based restricted stock awards and option awards generally vest upon the Company’s Class A common stock attaining a $15.00 closing price per share, as quoted on the NASDAQ Global Market, on at least 10 trading days, subject to the

 

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grantee’s continued employment or service with the Company. Other event-based restricted stock awards granted to certain members of our Board vest on the day preceding the Company’s annual stockholder meeting.

 

Stock-based compensation

 

Stock-based compensation expense related to stock options and restricted stock was $1.1 million and $1.4 million for the three months ended March 31, 2017 and 2016, respectively.   At March 31, 2017, there was $3.1 million of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of 1.9 years. At March 31, 2017, there was $2.7 million of total unrecognized compensation cost related to unvested restricted stock, which is expected to be recognized over a weighted-average period of 1.9 years.

 

Stock options

 

The fair value of stock options granted is estimated at the date of grant using the Black-Scholes option pricing model for time-based options and the Monte Carlo simulation model for event-based options. The expected term of options granted is derived using the simplified method under ASC 718-10-S99-1/SEC Topic 14.D for “plain vanilla” options and the Monte Carlo simulation for event-based options. Expected volatility is based on the historical volatility of the Company’s competitors given its lack of trading history. The risk-free interest rate is based on the U.S. Treasury yield for a period consistent with the expected term of the option in effect at the time of the grant. The Company has estimated forfeitures of 1.5%, as the awards are granted to management for which the Company expects lower turnover, and has assumed no dividend yield, as dividends have never been paid to stock or option holders and will not be paid for the foreseeable future.

 

Black-Scholes Option Valuation Assumptions

 

Three Months Ended
March 31, 2017

 

Year Ended
December 31, 2016

 

Risk-free interest rate

 

 

1.6%-2.4%

 

Dividend yield

 

 

 

Volatility

 

 

26.4%-32.4%

 

Weighted-average expected term (years)

 

 

6.2

 

 

The following table summarizes stock option activity for the three months ended March 31, 2017 (shares and intrinsic value in thousands):

 

 

 

Number of shares

 

Weighted-average
exercise price

 

Weighted-average
remaining contractual
term

 

Aggregate intrinsic
value

 

Outstanding at December 31, 2016

 

2,920

 

$

11.64

 

7.6

 

$

1,274

 

Granted

 

 

 

 

 

Exercised

 

 

 

 

 

Forfeited

 

 

 

 

 

Expired

 

 

 

 

 

Outstanding at March 31, 2017

 

2,920

 

$

11.64

 

7.4

 

$

2,010

 

Vested at March 31, 2017

 

1,565

 

$

11.59

 

6.3

 

$

1,535

 

Exercisable at March 31, 2017

 

1,565

 

$

11.59

 

6.3

 

$

1,535

 

 

No options were granted for the three months ended March 31, 2017.  At March 31, 2017, 0.3 million options granted are unvested, event-based options.

 

Restricted stock

 

Certain employees and directors have been awarded restricted stock under the 2013 Equity Incentive Plan.  The time-based restricted stock grants vest primarily over a period of three years.  The fair value and expected term of event-based restricted stock grants is estimated at the grant date using the Monte Carlo simulation model.

 

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The following table summarizes restricted share activity for the three months ended March 31, 2017 (shares in thousands):

 

 

 

Number of shares

 

Weighted-average
grant date fair value

 

Outstanding at December 31, 2016

 

561

 

$

10.58

 

Granted

 

 

 

Vested

 

 

 

Forfeited

 

 

 

Outstanding at March 31, 2017

 

561

 

$

10.58

 

 

At March 31, 2017, 0.2 million shares of restricted stock issued were unvested, event-based shares.

 

Warrants

 

At March 31, 2017, 12.3 million warrants, exercisable into 6.1 million shares of our Class A common stock, were issued and outstanding. Each warrant entitles the holder to purchase one-half of one share of our Class A common stock at a price of $6.00 per half share. Warrants may be exercised only through the date of expiration and are only exercisable for a whole number of shares of common stock (i.e. only an even number of warrants may be exercised at any given time by a registered holder). As a result, a holder must exercise a least two warrants at an effective exercise price of $12.00 per share. At the option of the Company, 7.6 million warrants may be called for redemption, provided that the last sale price of our Class A common stock reported has been at least $18.00 per share on each of 20 trading days within the 30-day period ending on the third business day prior to the date on which notice of redemption is given. The warrants expire on April 4, 2018.  During the three months ended March 31, 2017, no warrants were repurchased or exercised.

 

Note 8.  Contingencies

 

We are involved in various legal actions, generally related to our operations.  Management believes, based on advice from legal counsel, that the outcomes of such legal actions will not adversely affect our financial condition.

 

Note 9. Commitments

 

We have entered into certain rental property contracts with third parties, which are accounted for as operating leases. Rental expense was $0.2 million for each of the three months ended March 31, 2017 and 2016.

 

We have certain commitments including various operating leases.

 

Future minimum payments for these commitments and other commitments, primarily programming, are as follows (amounts in thousands):

 

Year Ending December 31,

 

Operating Leases

 

Other
Commitments

 

Total

 

Remainder of 2017

 

$

396

 

$

4,216

 

$

4,612

 

2018

 

456

 

3,482

 

3,938

 

2019

 

449

 

1,635

 

2,084

 

2020

 

358

 

622

 

980

 

2021 and thereafter

 

997

 

10

 

1,007

 

Total

 

$

2,656

 

$

9,965

 

$

12,621

 

 

Note 10. Subsequent events

 

On April 28, 2017, we invested $5.0 million for a minority stake in REMEZCLA, an influential digital media company targeting English speaking and bilingual U.S. Hispanics aged 18-35.  REMEZCLA is the most authentic creator of content for young Latinos.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

OVERVIEW

 

Our Company

 

We are a leading U.S. Spanish-language media company serving the fast growing and highly attractive U.S. Hispanic and Latin American markets with five Spanish-language cable television networks distributed in the U.S., two Spanish-language cable television networks distributed in Latin America and the #1-rated broadcast television network in Puerto Rico, and have ownership interests in a new broadcast television network in Colombia and a Spanish-language OTT service in the U.S.  Our portfolio consists of:

 

·                  Cinelatino:  the leading Spanish-language cable movie network with over 20.6 million subscribers across the U.S., Latin America and Canada. Cinelatino is programmed with a lineup featuring the best contemporary films and original television series from Mexico, Latin America, the U.S. and Spain. Driven by the strength of its programming and distribution, Cinelatino is the #2-Nielsen rated Spanish-language cable television network in the U.S. overall, based on coverage ratings.

 

·                  WAPA:  the leading broadcast television network and television content producer in Puerto Rico. WAPA has been the #1-rated broadcast television network in Puerto Rico for the last eight years. WAPA is Puerto Rico’s news leader and the largest local producer of news and entertainment programming, producing approximately 70 hours in the aggregate each week. Through its multicast signal, WAPA distributes WAPA2 Deportes, a leading sports television network in Puerto Rico, featuring Major League Baseball (“MLB”), National Basketball Association (“NBA”) and professional sporting events from Puerto Rico. Additionally, we operate WAPA.TV, the leading broadband news and entertainment website in Puerto Rico featuring news and content produced by WAPA.

 

·                  WAPA America:  a cable television network serving primarily Puerto Ricans and other Caribbean Hispanics in the U.S. WAPA America’s programming includes approximately 70 hours per week of news and entertainment programming produced by WAPA. WAPA America is distributed in the U.S. to approximately 5.3 million subscribers.

 

·                  Pasiones:  a cable television network dedicated to showcasing the most popular telenovelas and serialized dramas, distributed in the U.S. and Latin America. Pasiones features many of the best telenovelas licensed from the most popular television networks and major distributors. Pasiones has over 18.1 million subscribers across the U.S. and Latin America.

 

·                  Centroamerica TV:  a cable television network targeting Central Americans, the third largest U.S. Hispanic group and the fastest growing segment of the U.S. Hispanic population. Centroamerica TV features the most popular news and entertainment from Central America, as well as soccer programming from the top professional soccer leagues in the region. Centroamerica TV is distributed in the U.S. to approximately 4.1 million subscribers.

 

·                  Television Dominicana: a cable television network targeting Dominicans living in the U.S., the fourth largest U.S. Hispanic group. Television Dominicana features the most popular news and entertainment from the Dominican Republic and is distributed in the U.S. to over 3.3 million subscribers.

 

·                  Canal Uno: a partnership with leading Colombian content producers, Canal Uno is one of only three national broadcast television networks in Colombia. The partnership was awarded a 10-year renewable broadcast television concession for Canal Uno in Colombia in 2016. The concession provides the partnership with a rare opportunity to access one of Latin America’s most robust and stable economies with an attractive television advertising market. It also provides Hemisphere the opportunity to produce high quality content which can be repurposed on our channels and syndicated internationally.  The partnership began operating the network on May 1, 2017.

 

·            OTT Platform: a joint venture with Lionsgate to launch a Spanish-language OTT movie service that is well positioned to be the dominant player in the Spanish-language digital/OTT space. The service will allow audiences to access many of the best and most current Spanish-language films and is expected to launch in 2017. It will include content from our movie library, Pantelion’s U.S. theatrical titles, Lionsgate’s movie library, and Groupo Televisa’s theatrical releases in Mexico. The service will utilize STARZ’s technology platform and leverage Univision’s marketing and distribution.

 

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Our two primary sources of revenues are advertising revenues and retransmission/subscriber fees. All of our Networks derive revenues from advertising, including Cinelatino, which introduced advertising in July 2015. Advertising revenues are generated from the sale of advertising time, which is typically pursuant to advertising orders with advertisers providing for an agreed upon advertising commitment and price per spot. Our advertising revenues are tied to the success of our programming, including the popularity of our programming as measured by Nielsen. Our advertising is variable in nature and tends to reflect seasonal patterns of our advertisers’ demand, which is generally greatest during the fourth quarter of each year, driven by the holiday buying season. In addition, Puerto Rico’s political election cycle occurs every four years and we benefit from political advertising spending in an election year. For example, in 2016, we experienced higher advertising sales as a result of political advertising spending during the 2016 gubernatorial elections. The next election in Puerto Rico will be in 2020.

 

All of our Networks receive fees paid by distributors, including cable, satellite and telecommunications service providers. These revenues are generally based on a per subscriber fee pursuant to multi-year contracts, commonly referred to as “affiliation agreements,” which generally provide for annual rate increases. The specific retransmission/subscriber fees we earn vary from period to period, distributor to distributor and also vary among our Networks, but are generally based upon the number of each distributor’s subscribers who receive our Networks. The terms of certain non-U.S. affiliation agreements provide that the fee revenues are paid as a fixed contractual monthly fee. Changes in retransmission/subscriber fees are primarily derived from changes in contractual affiliation rates charged for our Networks and changes in the number of subscribers. Accordingly, we continually review the quality of our programming to ensure that it is maximizing our Networks’ viewership and giving our Networks’ subscribers a premium, high-value experience. The continued growth in our retransmission/subscriber fees will, to a certain extent, be dependent on the growth in subscribers of the cable, satellite and telecommunication service providers distributing our Networks, and new system launches. Our revenues may also increase over time through contractual rate increases stipulated in most of our affiliation agreements.

 

WAPA has been the #1-rated broadcast television network in Puerto Rico for the last eight years and management believes it is highly valued by its viewers and Distributors. WAPA is distributed by all pay-TV distributors in Puerto Rico and has been successfully growing retransmission fees. WAPA’s primetime household rating in 2016 was nearly four times higher than the most highly rated English-language U.S. broadcast network in the U.S., CBS, and higher than the combined ratings of CBS, NBC, ABC, FOX and the CW. As a result of its ratings success in the last eight years, management believes WAPA is well positioned for future growth in retransmission fees, similar to the growth in retransmission fees that the four major U.S. networks (ABC, CBS, NBC and Fox) have experienced in the U.S.

 

WAPA America, Cinelatino, Pasiones, Centroamerica TV and Television Dominicana occupy a valuable and unique position as they are among the small group of Hispanic cable networks to have achieved broad distribution in the U.S. As a result, management believes our U.S. networks are well-positioned to benefit from growth in both the growing national advertising spend targeted at the highly sought-after U.S. Hispanic cable television audience, and significant growth in subscribers, as the U.S. Hispanic population continues its long-term growth. Cinelatino and WAPA America are presently rated by Nielsen.

 

Hispanics represent 18% of the total U.S. population and approximately 10% of the total U.S. buying power, but the aggregate media spend targeted at U.S. Hispanics significantly under-indexes both of these metrics. As a result, advertisers have been allocating a higher proportion of marketing dollars to the Hispanic market, but U.S. Hispanic cable advertising still under-indexes relative to its consumption. U.S. Hispanic cable network advertising revenue grew at a 14% CAGR from 2009 to 2016, more than doubling from $204 million to $520 million. Going forward, U.S. Hispanic cable advertising is expected to continue to grow at a 11% CAGR from 2016 to 2019, outpacing forecasted growth for U.S. cable advertising, U.S. Hispanic broadcast advertising and U.S. general market broadcast advertising.

 

Management expects our U.S. networks to benefit from significant growth in subscribers, as the U.S. Hispanic population continues its long-term growth. The U.S. Census Bureau estimated that 57 million Hispanics resided in the United States in 2015, representing an increase of approximately 21 million people between 2000 and 2015, and that number is projected to grow to 70 million by 2025. Hispanic television households grew by 34% during the period from 2007 to 2017, from 11.6 million households to 15.6 million households. Similarly, Hispanic pay-TV subscribers increased 39% since 2007 to 12.2 million subscribers in 2017. The continued long-term growth of Hispanic television households and pay-TV subscribers creates a significant opportunity for all of our U.S. Networks.

 

Similarly, management expects Cinelatino and Pasiones to benefit from significant growth in Latin America. Fueled by a sizeable and growing population, a strong macroeconomic backdrop, rising disposable incomes and investments in network infrastructure resulting in improved service and performance, pay-TV subscribers in Latin America (excluding Brazil) grew by 44%

 

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from 2012 to 2016, and are projected to grow an additional 15 million from 53 million in 2016 to 69 million by 2021, representing projected growth of over 28%. Furthermore, Cinelatino and Pasiones are each presently distributed to only 29% and 25%, respectively, of total pay-TV subscribers throughout Latin America. Accordingly, growth through new system launches represents a significant growth opportunity. Management believes Cinelatino and Pasiones have widespread appeal throughout Latin America, and therefore will be able to expand distribution throughout the region.

 

MVS, one of our stockholders, provides operational and technical, and distribution services to Cinelatino pursuant to several agreements. One of the agreements, which had granted MVS the non-exclusive right to distribute the service throughout Latin America was terminated by MVS effective February 29, 2016. We continued to operate under the terms of the agreement through December 31, 2016.  As of January 1, 2017, we assumed the management of the rights for most Latin American third party distributors and MVS retained the non-exclusive right to duplicate, distribute and exhibit Cinelatino’s service in Mexico and to certain other Latin American distributors.

 

An agreement between Cinelatino and Dish Mexico (an affiliate of MVS), pursuant to which Dish Mexico distributes the network and Cinelatino receives revenue, expires on August 1, 2017.

 

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Comparison of Consolidated Operating Results for the Three Months Ended March 31, 2017 and 2016

(Unaudited)

(amounts in thousands)

 

 

 

Three

 

$  Change

 

% Change

 

 

 

Months Ended March 31,

 

Favorable/

 

Favorable/

 

 

 

2017

 

2016

 

(Unfavorable)

 

(Unfavorable)

 

 

 

 

 

 

 

 

 

 

 

Net revenues

 

$

33,159

 

$

30,971

 

$

2,188

 

7.1

%

Operating Expenses:

 

 

 

 

 

 

 

 

 

Cost of revenues

 

10,245

 

10,183

 

(62

)

(0.6

)%

Selling, general and administrative

 

9,492

 

9,256

 

(236

)

(2.5

)%

Depreciation and amortization

 

4,115

 

4,356

 

241

 

5.5

%

Other expenses

 

2,250

 

13

 

(2,237

)

NM

 

Gain on disposition of assets

 

 

(1

)

(1

)

NM

 

Total operating expenses

 

26,102

 

23,807

 

(2,295

)

(9.6

)%

 

 

 

 

 

 

 

 

 

 

Operating income

 

7,057

 

7,164

 

(107

)

1.5

%

 

 

 

 

 

 

 

 

 

 

Other Expenses:

 

 

 

 

 

 

 

 

 

Interest expense, net

 

(2,628

)

(2,956

)

328

 

11.1

%

 

 

 

 

 

 

 

 

 

 

Income before income taxes

 

4,429

 

4,208

 

221

 

5.3

%

 

 

 

 

 

 

 

 

 

 

Income tax expense

 

(1,684

)

(1,508

)

(176

)

11.7

%

Net Income

 

$

2,745

 

$

2,700

 

$

45

 

1.7

%

 

NM = Not meaningful

 

Net Revenues

 

Net revenues increased $2.2 million, or 7%, for the three months ended March 31, 2017, due to growth in both of our primary revenue streams, subscriber and retransmission fees and advertising revenue. Subscriber and retransmission fees increased $1.6 million, or 9%, due to growth in subscribers and annual rate increases.  Advertising revenue increased $0.7 million, or 5%, due primarily to the World Baseball Classic, televised on WAPA.

 

The following table presents estimated subscriber information:

 

 

 

Subscribers (a)
(amounts in thousands)

 

 

 

March 31, 2017

 

December 31, 2016

 

March 31, 2016

 

U.S. Cable Networks:

 

 

 

 

 

 

 

WAPA America (b)

 

4,231

 

4,189

 

4,017

 

Cinelatino

 

4,597

 

4,588

 

4,482

 

Pasiones

 

4,645

 

4,620

 

4,417

 

Centroamerica TV

 

4,099

 

4,063

 

3,990

 

Television Dominicana

 

3,330

 

3,249

 

3,041

 

Total

 

20,902

 

20,709

 

19,947

 

 

 

 

 

 

 

 

 

Latin America Cable Networks:

 

 

 

 

 

 

 

Cinelatino

 

16,012

 

15,430

 

12,331

 

Pasiones

 

13,524

 

13,235

 

10,069

 

Total

 

29,536

 

28,665

 

22,940

 

 


(a)         Amounts presented are based on most recent remittances received from our Distributors as of the respective dates shown above.

 

(b)         Excludes digital basic subscribers. Subscribers to WAPA America including digital basic subscribers increased 1.2% from March 31, 2016 to March 31, 2017, and decreased by 0.4% from December 31, 2016 to March 31, 2017.

 

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Operating Expenses

 

Cost of Revenues: Cost of revenues consists primarily of programming and production costs, programming amortization and distribution costs.  Cost of revenues for the three months ended March 31, 2017, was consistent with the prior year’s quarter as the rights fee for the World Baseball Classic was offset by reductions in other programming costs.

 

Selling, General and Administrative: Selling, general and administrative expenses consist principally of promotion, marketing and research, stock-based compensation, employee costs, rent and other general administrative costs. Selling, general and administrative expenses increased $0.2 million, or 3%, for the three months ended March 31, 2017, driven by higher marketing and personnel costs, offset in part by lower stock compensation expense of $0.3 million.

 

Depreciation and Amortization: Depreciation and amortization expense consists of depreciation of fixed assets and amortization of intangibles. Depreciation and amortization expense decreased $0.2 million, or 6%, for the three months ended March 31, 2017, due to the expiration of the useful lives of certain fixed assets, which were fully reflected in depreciation and amortization expense in the prior year period.

 

Other Expenses: Other expenses include legal, financial advisory and other fees incurred in connection with corporate finance activities, including debt and equity financings, and acquisition activities. Other expenses for the three months ended March 31, 2017, increased $2.2 million, primarily related to costs incurred in connection with the amendment of the Term Loan during the current year period, as well as costs incurred with regards to acquisition and joint venture investment activity.

 

Gain on Disposition of Assets: Gain on disposition of assets reflects gains on disposal of equipment no longer used in our operations.

 

Interest Expense, net

 

For the three months ended March 31, 2017, interest expense decreased $0.3 million, or 11%, as compared to the prior year due to a lower outstanding loan balance in the current period as compared to the prior year period, and due to the amendment of our Term Loan Facility, which resulted in a reduction in the spread to LIBOR from 400 basis points to 350 basis points and the removal of the LIBOR floor.

 

Income Tax Expense

 

Income tax expense increased by $0.2 million for the three months ended March 31, 2017 primarily due to higher income before income taxes.  For more information, see Note 5, “‘Income taxes” of  Notes to Unaudited Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report.

 

Net Income

 

Net income increased 2% for the three months ended March 31, 2017.

 

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Table of Contents

 

OFF-BALANCE SHEET ARRANGEMENTS

 

We do not have any off-balance sheet financing arrangements.

 

LIQUIDITY AND CAPITAL RESOURCES

 

Sources and Uses of Cash

 

Our principal sources of cash are cash on hand and cash flows from operating activities. At March 31, 2017, we had $164.4 million of cash on hand.  Our primary uses of cash include the production and acquisition of programming, operational costs, personnel costs, equipment purchases, principal and interest payments on our outstanding debt and income tax payments, and cash may be used to fund acquisitions.

 

Management believes cash on hand and cash flow from operations will be sufficient to meet our current contractual financial obligations and to fund anticipated working capital and capital expenditure requirements for existing operations. Our current financial obligations include maturities of debt, operating lease obligations and other commitments from the ordinary course of business that require cash payments to vendors and suppliers.

 

Cash Flows

 

 

 

Three Months Ended March 31,

 

Amounts in thousands:

 

2017

 

2016

 

Cash provided by (used in):

 

 

 

 

 

Operating activities

 

$

3,013

 

$

1,786

 

Investing activities

 

(84

)

(1,177

)

Financing activities

 

(1,647

)

(10,018

)

Net increase (decrease) in cash

 

$

1,282

 

$

(9,409

)

 

Comparison for the Three Months Ended March 31, 2017 and March 31, 2016

 

Operating Activities

 

Cash provided by operating activities was primarily driven by our net income, adjusted for non-cash items and changes in working capital.  Non-cash items consist primarily of depreciation of property and equipment, amortization of intangibles, programming amortization, amortization of deferred financing costs, stock-based compensation expense and provision for bad debts.

 

Net cash provided by operating activities for the three months ended March 31, 2017 was $3.0 million, an increase of $1.2 million, as compared to $1.8 million in the prior year period, due primarily to a $1.8 million increase in net working capital, offset in part by a $0.6 million decrease in non-cash items.  Non-cash items decreased primarily as a result of a $0.3 million decrease in deferred tax expense, a $0.3 million decrease in stock-based compensation, and a $0.2 million decrease in depreciation and amortization expense, offset in part by a $0.4 million increase in programming amortization.

 

Investing Activities

 

Net cash used in investing activities for the three months ended March 31, 2017, was $0.1 million, a decrease of $1.1 million as compared to $1.2 million in the prior year period.  The decrease is primarily due to lower capital expenditures, which is driven by the timing of capital projects.

 

Financing Activities

 

For the three months ended March 31, 2017 net cash used in financing activities was $1.6 million, as compared to $10.0 million in the prior year period.  This decrease is primarily due to higher principal debt payments made in the prior year period driven by the excess cash flow payment of $8.3 million pursuant to the terms of the Term Loan Facility, which the Company was not obligated to make in the current year period.   The decrease was also due to the repurchases in 2016 of Class A common stock and warrants totaling $2.3 million, offset in part by $1.1 million of financing fees incurred in connection with the Second Amended Term Loan Facility in the current period.  For more information, see Note 6, “Long-term debt” and Note 7, “Stockholders’ equity” of Notes to Unaudited Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report.

 

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Table of Contents

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

We finance our capital needs through our Second Amended Term Loan Facility at our indirect wholly-owned subsidiary, Hemisphere Media Holdings, LLC.

 

The variable rate of interest on the Second Amended Term Loan Facility exposes us to market risk for changes in interest rates. Loans thereunder bear interest at rates that vary with changes in prevailing market rates. With respect to the Second Amended Term Loan Facility, we currently do not speculate on the future direction of interest rates. As of March 31, 2017, our exposure to changing market rates with respect to the Second Amended Term Loan Facility was as follows (amounts in thousands):

 

 

 

March 31, 2017

 

Variable rate debt

 

$

212.8

 

Interest rate

 

4.5

%

 

As of March 31, 2017, the total outstanding balance on the Second Amended Term Loan Facility was approximately $212.8 million. In the event of an increase in the interest rate of 100 basis points, assuming a principal of $212.8 million, we would incur an increase in interest expense of approximately $2.1 million per year. Such potential increases or decreases in interest expense are based on certain simplifying assumptions, including a constant level of debt, no interest rate swap or hedge in place, and an immediate, across-the-board increase in the level of interest rates with no other subsequent changes for one year.

 

Derivative Financial Instruments

 

On May 4, 2017, we entered into interest rate swap agreements with an effective date of May 31, 2017 with Royal Bank of Canada and CIT Bank, N.A. to fix the LIBOR portion of the interest rate on our Second Amended Term Loan Facility.   The interest rate swaps have a combined notional value of $100.0 million and fix LIBOR to 1.904% and mature on March 31, 2022.

 

Foreign Currency Exchange Risk

 

Although we currently conduct business in various countries outside the United States, we are not subject to any material currency risk because our cash flows are collected primarily in U.S. dollars. Reported earnings and assets may be reduced in periods in which the U.S. dollar increases in value relative to those currencies.

 

Our objective in managing exposure to foreign currency fluctuations is to reduce volatility of earnings and cash flow. Accordingly, we may enter into foreign currency derivative instruments that change in value as foreign exchange rates change, such as foreign currency forward contracts or foreign currency options. Any gains and losses on the fair value of derivative contracts would be largely offset by gains and losses on the underlying assets being hedged. We held no foreign currency derivative financial instruments at March 31, 2017.

 

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Table of Contents

 

ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure Controls and Procedures

 

Our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated our disclosure controls and procedures, as of March 31, 2017. Our Chief Executive Officer and Chief Financial Officer concluded that, as of March 31, 2017, our disclosure controls and procedures were effective to ensure that all information required to be disclosed is recorded, processed, summarized and reported within the time periods specified, and that information required to be filed in the reports that we file or submit under the Securities Exchange Act of 1934 (the “Exchange Act”) is accumulated and communicated to our management, including our principal executive and principal financial officers, to allow timely decisions regarding required disclosure.

 

Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error and mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by management override of controls.

 

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or because the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.

 

Changes in Internal Controls

 

No change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) occurred during the fiscal quarter ended March 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

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Table of Contents

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, we or our subsidiaries may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties and determination as to the amount of the accrual required for such contingencies is highly subjective and requires judgments about future events. An adverse result in these or other matters may arise from time to time that may harm our Business. Neither we nor any of our subsidiaries are presently a party to any material litigation, nor to the knowledge of management is any litigation threatened against us or our subsidiaries, which may materially affect us.

 

ITEM 1A. RISK FACTORS

 

You should carefully consider the risk factors included in our Annual Report on Form 10-K for the year ended December 31, 2016, in addition to other information included in this Quarterly Report on Form 10-Q, including under the section entitled, “Forward-Looking Statements,” and in other documents we file with the SEC, in evaluating our Company and our Business.  If any of the risks occur, our Business, financial condition, liquidity and results of operations could be materially adversely affected. We caution the reader that these risk factors may not be exhaustive.  We operate in a continually changing business environment and new risks emerge from time to time.  Management cannot predict such new risk factors, nor can we assess the impact, if any, of such new risk factors on our Business or the extent to which any factor or combination of factors may impact our Business. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our Business, financial condition and/or operating results.

 

There have not been any material changes during the quarter ended March 31, 2017 from the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2016.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

None

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

ITEM 5. OTHER INFORMATION

 

None.

 

ITEM 6. EXHIBITS

 

The exhibits listed on the accompanying Exhibit Index are filed, furnished or incorporated by reference (as stated therein) as part of this Quarterly Report.

 

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Table of Contents

 

Exhibit Index

 

Exhibit No.

 

Description of Exhibit

 

 

 

31.1

 

Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

31.2

 

Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

32.1*

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

32.2*

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

101.INS

 

XBRL Instance Document

101.SCH

 

XBRL Taxonomy Extension Schema

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase

101.LAB

 

XBRL Taxonomy Extension Label Linkbase

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase

101.DEF

 

XBRL Taxonomy Extension Definition Document

 


*                                         A signed original of the written statement required by Section 906 has been provided to the Company and will be retained by the Company and forwarded to the SEC or its staff upon request.

 

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Table of Contents

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

 

HEMISPHERE MEDIA GROUP, INC.

 

 

 

 

DATE: May 9, 2017

By:

/s/ Alan J. Sokol

 

 

Alan J. Sokol

 

 

Chief Executive Officer and President

 

 

(Principal Executive Officer)

 

 

 

 

 

 

DATE: May 9, 2017

By:

/s/ Craig D. Fischer

 

 

Craig D. Fischer

 

 

Chief Financial Officer

 

 

(Principal Financial and Accounting Officer)

 

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Table of Contents

 

Exhibit Index

 

Exhibit No.

 

Description of Exhibit

 

 

 

31.1

 

Certification of Chief Executive Officer required by Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

31.2

 

Certification of Chief Financial Officer required by Rule 13a-14(a)/15d-14(a) under the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)

32.1*

 

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

32.2*

 

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished herewith)

101.INS

 

XBRL Instance Document

101.SCH

 

XBRL Taxonomy Extension Schema

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase

101.LAB

 

XBRL Taxonomy Extension Label Linkbase

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase

101.DEF

 

XBRL Taxonomy Extension Definition Document

 


*                                         A signed original of the written statement required by Section 906 has been provided to the Company and will be retained by the Company and forwarded to the SEC or its staff upon request.

 

30