UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, ~~2021~~2022

☐ 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)

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



Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Class A common stock, par value $0.0001 per share	HMTV	The NASDAQ Stock Market LLC

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 ☒ No ☐

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 ☒ No ☐

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	☐	Accelerated filer	☒
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

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. ☐

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

Class of Stock		Shares Outstanding as of August ~~5, 2021~~4, 2022
Class A common stock, par value $0.0001 per share		~~20,484,602~~20,827,861 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, ~~2021~~2022

(Unaudited)


	PAGE NUMBER
PART I - FINANCIAL INFORMATION	76

Item 1. Financial Statements	76

Notes to Condensed Consolidated Financial Statements	1312

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	3027

Item 3. Quantitative and Qualitative Disclosures About Market Risk	3834

Item 4. Controls and Procedures	3834

PART II - OTHER INFORMATION	3935

Item 1. Legal Proceedings	3935

Item 1A. Risk Factors	3935

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	3936

Item 3. Defaults Upon Senior Securities	3936

Item 4. Mine Safety Disclosures	3936

Item 5. Other Information	3936

Item 6. Exhibits	4037

SIGNATURES	4138

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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; ~~“ASG Latin” refers to ASG Latin, LLC, a Delaware limited liability company, a joint venture among Pantelion 2.0, LLC, a subsidiary of Pantaya, and ASG Music Group, LLC;~~ “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; “Holdings” refers to “Hemisphere Media Holdings, LLC, a Delaware limited liability company~~systems, other MVPDs (as defined below), and indirect, wholly owned subsidiary of Hemisphere; “HMTV Cable” refers to HMTV Cable, Inc., a Delaware corporation, the parent company of the entities for the acquired networks consisting of Pasiones, TV Dominicana, and Centroamerica TV; “HMTV Distribution” refers to HMTV Distribution, LLC, a Delaware limited liability company, the parent company of Snap Media; “HMTV DTC” refers to HMTV DTC, LLC, a Delaware limited liability company, the parent company of Pantaya;where applicable, app distribution platforms; “MarVista” refers to Mar Vista Entertainment, LLC, a Delaware limited liability company; “MVPDs” refers to multi-channel video distributors, such as cable, satellite and telecommunications companies, and where applicable, virtual MVPDs as well as non-facilities based platforms; “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, and its ~~consolidated~~wholly owned subsidiaries; “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~~10-K for the year ended December 31, ~~2017;~~2021; “Snap Media” refers to Snap Global, LLC, a Delaware limited liability company and its ~~consolidated~~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~~10-K for the year ended December 31, ~~2017;~~2021; “Third Amended Term Loan Facility” refers to our Term Loan Facility amended on March 31, 2021 as set forth on Exhibit ~~10.1~~10.7 to the Company’s ~~Quarterly~~Annual Report on Form ~~10 Q~~10-K for the ~~quarter~~year ended ~~March~~December 31, 2021; “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 Holdings” refers to WAPA Holdings, LLC (formerly known as InterMedia Español Holdings, LLC), a Delaware limited liability company, the parent company of WAPA and WAPA America; and “WAPA..TV”“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.

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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,” “could,” “might,” “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.

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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. Additionally, many of these risks are currently amplified by and may, in the future, continue to be amplified by the prolonged impact of the COVID-19 pandemic. In addition to the risk factors described in “Item 1A-Risk Factors” in this Quarterly Report on Form 10-Q, those factors include:

●

the deterioration of general economic conditions, political instability, social unrest, and public health crises, such as the occurrence of a global pandemic like COVID-19, including measures taken by governmental authorities to address the pandemic, which may precipitate or exacerbate other risks and/or uncertainties, recent increases in, and any additional waves of, COVID-19 cases, new variants of the virus, such as the Delta or Omicron variant and their subvariants, as well as the availability and efficacy of a vaccine and treatments for the disease and whether individuals choose to vaccinate themselves, either nationally or in the local markets in which we operate, including, without limitation, in the Commonwealth of Puerto Rico;

●

Puerto Rico’s ~~uncertain~~ political climate, as well as delays in the pace of disbursement of earmarked federal ~~funds on the local economy and advertising market;~~funds;

●

the effects of extreme weather and climate events on our ~~Business~~consolidated operations, as well as our counterparties, customers, employees, third-party vendors and suppliers;

●

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

●

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

●

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

●

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

~~Table of Contents~~

●

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 ~~including our recent acquisition of Pantaya,~~ 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, including satellite systems, telephone companies (“telcos”), app distribution platforms, as applicable, and cable multiple system operators (“MSO”s), and the MSO’s affiliated regional or individual cable systems) and other important third parties;

●

continued consolidation of Distributors in the marketplace;

●

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

●

disagreements with our Distributors over contract interpretation;

●

our success in acquiring, investing in and integrating businesses;

●

the outcome of any pending or threatened litigation;

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●

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~~agreement on mutually favorable terms;

●

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;

●

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;

●

our ability to timely and fully recover proceeds under our insurance policies;

●

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

●

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

~~Table of Contents~~

●

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,

2021

2020

(Unaudited)

Assets

Current Assets

Cash

$
72,439

$
134,471
Accounts receivable, net of allowance for doubtful accounts of $915 and $919, respectively

37,937

35,955
Due from related parties

677

943
Programming rights

9,482

8,301
Prepaids and other current assets

12,379

9,298
Total current assets

132,914

188,968
Programming rights, net of current portion

16,330

13,430
Property and equipment, net

33,038

31,798
Operating lease right-of-use assets

1,544

1,820
Broadcast license

41,356

41,356
Goodwill

309,774

165,597
Other intangibles, net

50,741

24,761
Equity method investments

25,290

29,782
Other assets

11,482

4,333
Total Assets

$
622,469

$
501,845

Liabilities and Stockholders’ Equity

Current Liabilities

Accounts payable

14,261

2,350
Due to related parties

920

648
Accrued agency commissions

4,310

6,529
Accrued compensation and benefits

4,772

5,934
Accrued marketing

7,708

7,066
Other accrued expenses

29,260

8,137
Income taxes payable

4,821

2,233
Programming rights payable

16,319

7,626
Current portion of long-term debt

2,686

2,134
Total current liabilities

85,057

42,657
Programming rights payable, net of current portion

2,586

776
Long-term debt, net of current portion

247,603

200,856
Deferred income taxes

19,509

19,306
Other long-term liabilities

3,335

3,932
Defined benefit pension obligation

2,872

2,832
Total Liabilities

360,962

270,359

Stockholders’ Equity

Preferred stock, $0.0001 par value; 50,000,000 shares authorized; 0 shares issued at June 30, 2021 and December 31, 2020

—

—
Class A common stock, $.0001 par value; 100,000,000 shares authorized; 25,988,325 and 25,457,709 shares issued at June 30, 2021 and December 31, 2020, respectively

3

3
Class B common stock, $.0001 par value; 33,000,000 shares authorized; 19,720,381 shares issued at June 30, 2021 and December 31, 2020

2

2
Additional paid-in capital

285,373

279,800
Class A treasury stock, at cost 5,997,339 and 5,710,416 at June 30, 2021 and December 31, 2020, respectively

(64,719)

(61,453)
Retained earnings

41,912

14,840
Accumulated other comprehensive loss

(1,513)

(2,187)
Total Hemisphere Media Group Stockholders’ Equity

261,058

231,005
Equity attributable to non-controlling interest

449

481
Total Stockholders’ Equity

261,507

231,486
Total Liabilities and Stockholders’ Equity

$
622,469

$
501,845


	June 30,		December 31,
	2022		2021
	(unaudited)
Assets
Current Assets
Cash	$	28,894	$	49,477
Accounts receivable, net of allowance for doubtful accounts of $776 and $771, respectively		27,078		33,738
Due from related parties		701		925
Programming rights		8,620		10,938
Prepaid expenses		6,537		7,767
Other current assets		2,270		23,519
Current assets held for sale		41,512		—
Total current assets		115,612		126,364
Programming rights, net of current portion		13,528		20,955
Property and equipment, net		30,286		31,554
Operating lease right-of-use assets		1,027		1,281
Broadcast license		41,356		41,356
Goodwill		165,597		231,710
Other intangibles, net		17,319		115,110
Deferred income taxes		3,928		—
Equity method investments		21,938		24,171
Other assets		4,677		7,410
Noncurrent assets held for sale		175,255		—
Total Assets	$	590,523	$	599,911

Liabilities and Stockholders’ Equity
Current Liabilities
Accounts payable		2,557		11,533
Due to related parties		998		1,383
Accrued agency commissions		6,901		7,729
Accrued compensation and benefits		5,120		7,031
Accrued marketing		9,105		10,526
Other accrued expenses		16,216		10,418
Deferred revenue		655		7,400
Programming rights payable		5,486		13,242
Income taxes payable		424		1,353
Current portion of long-term debt		2,656		2,656
Current liabilities held for sale		28,930		—
Total current liabilities		79,048		73,271
Programming rights payable, net of current portion		97		2,820
Long-term debt, net of current portion		246,231		246,919
Deferred income taxes		20,682		22,427
Defined benefit pension obligation		2,985		2,895
Other long-term liabilities		587		2,031
Noncurrent liabilities held for sale		6,017		—
Total Liabilities		355,647		350,363

Stockholders’ Equity
Preferred stock, $0.0001 par value; 50,000,000 shares authorized; 0 shares issued at June 30, 2022 and December 31, 2021		—		—
Class A common stock, $.0001 par value; 100,000,000 shares authorized; 26,328,741 and 25,999,998 shares issued at June 30, 2022 and December 31, 2021, respectively		3		3
Class B common stock, $.0001 par value; 33,000,000 shares authorized; 19,720,381 shares issued at June 30, 2022 and December 31, 2021		2		2
Additional paid-in capital		290,900		288,703
Class A treasury stock, at cost; 6,012,599 shares and 6,003,139 shares at June 30, 2022 and December 31, 2021, respectively		(64,847)		(64,780)
Retained earnings		9,213		26,352
Accumulated other comprehensive loss		(395)		(732)
Total Stockholders’ Equity		234,876		249,548
Total Liabilities and Stockholders’ Equity	$	590,523	$	599,911

See accompanying Notes to 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,				Three Months Ended June 30,				Six Months Ended June 30,
		2021		2020		2021		2020		2022		2021		2022		2021
Net revenues		$	50,460	$	34,735	$	88,037	$	67,144	$	54,174	$	50,460	$	102,973	$	88,037
Operating expenses:
Cost of revenues			14,798		12,560		26,577		23,527		18,348		14,798		33,473		26,577
Selling, general and administrative	��		24,908		10,208		36,299		21,441		25,911		24,908		56,569		36,299
Depreciation and amortization			4,337		2,794		7,002		5,925		3,335		4,337		10,964		7,002
Other expenses			1,363		27		8,091		3,048		8,939		1,363		10,057		8,091
(Gain) loss from FCC spectrum repack and other			(2,124)		182		(2,176)		173
Gain from FCC spectrum repack and other											(95)		(2,124)		(141)		(2,176)
Total operating expenses			43,282		25,771		75,793		54,114		56,438		43,282		110,922		75,793
Operating income			7,178		8,964		12,244		13,030
Operating (loss) income											(2,264)		7,178		(7,949)		12,244
Other (expense) income:
Interest expense and other, net			(3,165)		(2,496)		(5,523)		(5,282)		(3,111)		(3,165)		(6,275)		(5,523)
(Loss) gain on equity method investment activity			(8,569)		(10,189)		24,040		(17,208)
Impairment of equity method investment			—		—		—		(5,479)
Gain (loss) on equity method investment activity											2,283		(8,569)		(2,489)		24,040
Other expense, net			—		—		(668)		—		—		—		—		(668)
Total other (expense) income			(11,734)		(12,685)		17,849		(27,969)		(828)		(11,734)		(8,764)		17,849
(Loss) income before income taxes			(4,556)		(3,721)		30,093		(14,939)		(3,092)		(4,556)		(16,713)		30,093
Income tax expense			(1,785)		(2,884)		(3,053)		(1,209)		(819)		(1,785)		(426)		(3,053)
Net (loss) income			(6,341)		(6,605)		27,040		(16,148)		(3,911)		(6,341)		(17,139)		27,040
Net loss (income) attributable to non-controlling interest			55		(77)		32		38
Net loss attributable to non-controlling interest											—		55		—		32
Net (loss) income attributable to Hemisphere Media Group, Inc.		$	(6,286)	$	(6,682)	$	27,072	$	(16,110)	$	(3,911)	$	(6,286)	$	(17,139)	$	27,072

(Loss) income per share attributable to Hemisphere Media Group, Inc.:
Basic		$	(0.16)	$	(0.17)	$	0.69	$	(0.41)	$	(0.10)	$	(0.16)	$	(0.43)	$	0.69
Diluted		$	(0.16)	$	(0.17)	$	0.68	$	(0.41)	$	(0.10)	$	(0.16)	$	(0.43)	$	0.68

Weighted average shares outstanding:
Basic			39,641		39,444		39,511		39,378		39,991		39,641		39,861		39,511
Diluted			39,641		39,444		39,900		39,378		39,991		39,641		39,861		39,900

See accompanying Notes to Condensed Consolidated Financial Statements.

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HEMISPHERE MEDIA GROUP, INC.

Condensed Consolidated Statement of Comprehensive (Loss) Income

(Unaudited)

(amounts in thousands)

Three Months Ended June 30,

Six Months Ended June 30,


2021

2020

2021

2020

Net (loss) income

$
(6,341)

$
(6,605)

$
27,040

$
(16,148)
Other comprehensive income (loss):

Change in fair value of interest rate swap, net of income taxes

330

81

674

(1,806)
Comprehensive (loss) income

(6,011)

(6,524)

27,714

(17,954)
Comprehensive loss (income) attributable to non-controlling interest

55

(77)

32

38
Comprehensive (loss) income attributable to Hemisphere Media Group, Inc.

$
(5,956)

$
(6,601)

$
27,746

$
(17,916)


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net (loss) income	$	(3,911)	$	(6,341)	$	(17,139)	$	27,040
Other comprehensive income :
Change in fair value of interest rate swap, net of income taxes		—		330		337		674
Comprehensive (loss) income		(3,911)		(6,011)		(16,802)		27,714
Comprehensive loss attributable to non-controlling interest		—		55		—		32
Comprehensive (loss) income attributable to Hemisphere Media Group, Inc.	$	(3,911)	$	(5,956)	$	(16,802)	$	27,746

See accompanying Notes to 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, 2022

(Unaudited)

(amounts in thousands)


	Class A			Class B			Additional		Class A				Accumulated
	Common Stock			Common Stock			Paid In		Treasury		Retained		Comprehensive
	Shares	Par Value		Shares	Par Value		Capital		Stock		Earnings		Loss		Total
Balance at March 31,2022	26,080	$	3	19,720	$	2	$	290,077	$	(64,831)	$	13,124	$	(395)	$	237,980
Net loss	—		—	—		—		—		—		(3,911)		—		(3,911)
Vesting of restricted stock	249		0	—		—		—		(16)		—		—		(16)
Stock-based compensation	—		—	—		—		823		—		—		—		823
Balance at June 30, 2022	26,329	$	3	19,720	$	2	$	290,900	$	(64,847)	$	9,213	$	(395)	$	234,876


	Class A			Class B			Additional		Class A				Accumulated
	Common Stock			Common Stock			Paid In		Treasury		Retained		Comprehensive
	Shares	Par Value		Shares	Par Value		Capital		Stock		Earnings		Loss		Total
Balance at December 31, 2021	26,000	$	3	19,720	$	2	$	288,703	$	(64,780)	$	26,352	$	(732)	$	249,548
Net loss	—		—	—		—		—		—		(17,139)		—		(17,139)
Vesting of restricted stock	329		0	—		—		—		(67)		—		—		(67)
Stock-based compensation	—		—	—		—		2,197		—		—		—		2,197
Other comprehensive income, net of tax	—		—	—		—		—		—		—		337		337
Balance at June 30, 2022	26,329	$	3	19,720	$	2	$	290,900	$	(64,847)	$	9,213	$	(395)	$	234,876

See accompanying Notes to Condensed Consolidated Financial Statements.

Table of Contents

HEMISPHERE MEDIA GROUP, INC.

Condensed Consolidated Statements of Changes in Stockholders’ Equity

Three and Six Months Ended June 30, 2021

(Unaudited)

(amounts in thousands)

Class A

Class B

Additional

Class A

Accumulated

Non-

Common Stock

Common Stock

Paid In

Treasury

Retained

Comprehensive

controlling


Shares

Par Value

Shares

Par Value

Capital

Stock

Earnings

Loss

Interest

Total
Balance at March 31, 2021

25,712

$
3

19,720

$
2

$
283,883

$
(63,904)

$
48,198

$
(1,843)

$
504

$
266,843
Net loss

—

—

—

—

—

—

(6,286)

—

(55)

(6,341)
Vesting of restricted stock

276

—

—

—

—

(815)

—

—

—

(815)
Stock-based compensation

—

—

—

—

1,490

—

—

—

—

1,490
Other comprehensive income, net of tax

—

—

—

—

—

—

—

330

—

330
Balance at June 30, 2021

25,988

$
3

19,720

$
2

$
285,373

$
(64,719)

$
41,912

$
(1,513)

$
449

$
261,507

Class A

Class B

Additional

Class A



Accumulated

Non-


Common Stock

Common Stock

Paid In

Treasury

Retained

Comprehensive

controlling


Shares

Par Value

Shares

Par Value

Capital

Stock

Earnings

Loss

Interest

Total
Balance at December 31, 2020

25,458

$
3

19,720

$
2

$
279,800

$
(61,453)

$
14,840

$
(2,187)

$
481

$
231,486
Net income (loss)

0

0

0

0

0

0

27,072

0

(32)

27,040
Vesting of restricted stock

279

0

0

0

0

(825)

0

0

0

(825)
Issuance of Class A Common Stock

238

—

—

—

2,778

(1,077)

—

—

—

1,701
Repurchases of Class A Common Stock

—

—

—

—

—

(1,321)

—

—

—

(1,321)
Stock-based compensation

0

0

0

0

2,795

0

0

0

0

2,795
Exercise of stock options

13

—

—

—

(0)

(43)

—

—

—

(43)
Other comprehensive income, net of tax

0

0

0

0

0

0

0

674

0

674
Balance at June 30, 2021

25,988

$
3

19,720

$
2

$
285,373

$
(64,719)

$
41,912

$
(1,513)

$
449

$
261,507

~~See accompanying Notes to Condensed Consolidated Financial Statements.~~

~~Table of Contents~~

~~HEMISPHERE MEDIA GROUP, INC.~~

~~Condensed Consolidated Statements of Changes in Stockholders’ Equity~~

~~Three and Six Months Ended June 30, 2020~~

~~(Unaudited)~~

~~(amounts in thousands)~~


	Class A			Class B			Additional		Class A		Retained		Accumulated		Non-				Class A			Class B			Additional		Class A				Accumulated		Non-
	Common Stock			Common Stock			Paid In		Treasury		Earnings		Comprehensive		controlling				Common Stock			Common Stock			Paid In		Treasury		Retained		Comprehensive		controlling
	Shares	Par Value		Shares	Par Value		Capital		Stock		(Deficit)		Loss		Interest		Total		Shares	Par Value		Shares	Par Value		Capital		Stock		Earnings		Loss		Interest		Total
Balance at March 31, 2020	25,202	$	3	19,720	$	2	$	275,798	$	(60,521)	$	6,647	$	(2,679)	$	1,269	$	220,519
Net (loss) income	—		—	—		—		—		—		(6,682)		—		77		(6,605)
Balance at March 31, 2021																			25,712	$	3	19,720	$	2	$	283,883	$	(63,904)	$	48,198	$	(1,843)	$	504	$	266,843
Net loss																			—		—	—		—		—		—		(6,286)		—		(55)		(6,341)
Vesting of restricted stock																			276		—	—		—		—		(815)		—		—		—		(815)
Stock-based compensation	0		0	0		0		1,356		0		0		0		0		1,356	—		—	—		—		1,490		—		—		—		—		1,490
Vesting of restricted stock	237		—	—		—		—		(510)		—		—		—		(510)
Other comprehensive income, net of tax	—		—	—		—		—		—		—		81		—		81	—		—	—		—		—		—		—		330		—		330
Balance at June 30, 2020	25,439	$	3	19,720	$	2	$	277,154	$	(61,031)	$	(35)	$	(2,598)	$	1,346	$	214,841
Balance at June 30, 2021																			25,988	$	3	19,720	$	2	$	285,373	$	(64,719)	$	41,912	$	(1,513)	$	449	$	261,507

Class A

Class B

Additional

Class A

Retained

Accumulated

Non-


Common Stock

Common Stock

Paid In

Treasury

Earnings

Comprehensive

controlling


Shares

Par Value

Shares

Par Value

Capital

Stock

(Deficit)

Loss

Interest

Total
Balance at December 31, 2019

25,202

$
3

19,720

$
2

$
274,518

$
(60,521)

$
16,075

$
(792)

$
1,384

$
230,669
Net loss

—

—

—

—

—

—

(16,110)

—

(38)

(16,148)
Stock-based compensation

—

—

—

—

2,636

—

—

—

—

2,636
Vesting of restricted stock

237

—

—

—

—

(510)

—

—

—

(510)
Other comprehensive loss, net of tax

—

—

—

—

—

—

—

(1,806)

—

(1,806)
Balance at June 30, 2020

25,439

$
3

19,720

$
2

$
277,154

$
(61,031)

$
(35)

$
(2,598)

$
1,346

$
214,841


	Class A			Class B			Additional		Class A				Accumulated		Non-
	Common Stock			Common Stock			Paid In		Treasury		Retained		Comprehensive		controlling
	Shares	Par Value		Shares	Par Value		Capital		Stock		Earnings		Loss		Interest		Total
Balance at December 31, 2020	25,458	$	3	19,720	$	2	$	279,800	$	(61,453)	$	14,840	$	(2,187)	$	481	$	231,486
Net income (loss)	—		—	—		—		—		—		27,072		—		(32)		27,040
Vesting of restricted stock	279		—	—		—		—		(825)		—		—		—		(825)
Issuance of Class A Common Stock	238		—	—		—		2,778		(1,077)		—		—		—		1,701
Repurchases of Class A Common Stock	—		—	—		—		—		(1,321)		—		—		—		(1,321)
Stock-based compensation	—		—	—		—		2,795		—		—		—		—		2,795
Exercise of stock options	13		—	—		—		(0)		(43)		—		—		—		(43)
Other comprehensive income, net of tax	—		—	—		—		—		—		—		674		—		674
Balance at June 30, 2021	25,988	$	3	19,720	$	2	$	285,373	$	(64,719)	$	41,912	$	(1,513)	$	449	$	261,507

See accompanying Notes to 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,				Six Months Ended June 30,
	2021		2020		2022		2021
Reconciliation of Net Income (Loss) to Net Cash Provided by Operating Activities:
Net income (loss)	$	27,040	$	(16,148)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Reconciliation of Net (loss) income to Net Cash Provided by Operating Activities:
Net (loss) income					$	(17,139)	$	27,040
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Depreciation and amortization		7,002		5,925		10,964		7,002
Program amortization		7,353		8,784
Programming amortization						10,783		7,353
Amortization of deferred financing costs and original issue discount		530		292		762		530
Stock-based compensation		2,795		2,636		2,197		2,795
Provision for bad debts		49		929		30		49
(Gain) loss from FCC repack and other		(2,176)		173
(Gain) loss on equity method investment activity		(24,040)		17,208
Gain from FCC spectrum repack and other						(141)		(2,176)
Deferred tax expense						(3,106)		—
Loss (gain) on equity method investment activity						2,489		(24,040)
Amortization of operating lease right-of-use assets		276		252		344		276
Other non-cash acquisition charges		1,258		—
Impairment of equity method investment		—		5,479
Other non-cash acquistion charges						—		1,258
Changes in assets and liabilities:
Decrease (increase) in:
Accounts receivable		836		(3,337)		385		836
Due from related parties, net		538		967		(776)		538
Programming rights		(12,102)		(5,858)		(22,010)		(12,102)
Prepaids and other assets		(2,923)		585		(6,401)		(2,923)
(Decrease) increase in:
Accounts payable		9,104		3,121		(198)		9,104
Other accrued expenses		5,335		(1,893)		6,589		5,335
Programming rights payable		(3,884)		2,526		(1,111)		(3,884)
Income taxes payable		2,588		—		(931)		2,588
Other liabilities		320		(207)		223		320
Net cash provided by operating activities		19,899		21,434
Net cash (used in) provided by operating activities						(17,047)		19,899
Cash Flows From Investing Activities:
Funding of equity method investments		(1,561)		(6,449)		(256)		(1,561)
Capital expenditures		(2,853)		(613)		(1,911)		(2,853)
FCC repack proceeds		2,176		38		26		2,176
Cash paid for acquisition of Pantaya		(122,621)		—		—		(122,621)
Net cash used in investing activities		(124,859)		(7,024)		(2,141)		(124,859)
Cash Flows From Financing Activities:
Purchases of common stock		(3,266)		(510)		(67)		(3,266)
Repayments of long-term debt		(1,168)		(1,068)		(1,328)		(1,168)
Proceeds from incremental term loan		48,000		—		—		48,000
Payment of financing fees		(638)		—		—		(638)
Net cash provided by (used in) financing activities		42,928		(1,578)
Net (decrease) increase in cash		(62,032)		12,832
Net cash (used in) provided by financing activities						(1,395)		42,928
Net decrease in cash						(20,583)		(62,032)
Cash:
Beginning		134,471		92,151		49,477		134,471
Ending	$	72,439	$	104,983	$	28,894	$	72,439

Supplemental Disclosures of Cash Flow Information:
Cash payments for:
Interest	$	5,073	$	5,213	$	5,449	$	5,073
Income taxes	$	1,520	$	5	$	4,077	$	1,520
Non-cash investing activity (acquisition related):
Issuance of Class A Common Stock	$	2,188	$	—	$	—	$	2,188
Effective settlement of pre-existing receivables and payables, net	$	1,499	$	—	$	—	$	1,499

See accompanying Notes to Condensed Consolidated Financial Statements.

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Notes to Condensed Consolidated Financial Statements

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. (“HMTV Cable”), the parent company of the entities for the ~~acquired~~ networks consisting of Pasiones, TV Dominicana, and Centroamerica TV, HMTV Distribution, LLC (“HMTV Distribution”), the parent of Snap Global, LLC, and its wholly owned subsidiaries (“Snap Media”), ~~which we acquired a 75% interest on November 26, 2018,~~ and HMTV DTC, LLC (“HMTV DTC”), the parent company of Pantaya, LLC, and its subsidiaries (“Pantaya”), ~~including a joint venture, ASG Latin, LLC,~~ which we acquired on March 31, 2021 (see below). 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.

Prior to March 31, 2021, the Company owned a 25% equity interest in Pantaya, the Spanish language streaming platform, which was accounted for as an equity method investment. On March 31, 2021 (“Acquisition Date”), the Company acquired the remaining 75% equity interest in Pantaya, ~~(the “Pantaya Acquisition”),~~ for a cash purchase price of $123.6 million. As a result of the acquisition, Pantaya is now a wholly owned consolidated subsidiary. ~~For more information, see Note 3, “Business Combination”~~The Company accounted for the acquisition of ~~Notes~~the 75% equity interest of Pantaya as a step acquisition, which required remeasurement of the Company’s existing 25% ownership in Pantaya to fair value prior to completing the acquisition method of accounting. Using step acquisition accounting, the Company increased the value of its existing equity interest to fair value resulting in the recognition of a non-cash gain of $30.1 million, which was included in (loss) gain on equity method investment activity in the accompanying Condensed Consolidated ~~Financial Statements.~~Statement of Operations for the three months ended March 31, 2021.

On May 9, 2022, the Company entered into a definitive agreement to be acquired for $7.00 per share in cash by a subsidiary of Gato Investments LP (“Gato”), a portfolio investment of Searchlight Capital Partners, L.P. Upon completion of the transaction, Hemisphere will become a private company wholly owned by Gato. Concurrently, on May 9, 2022, the Company entered into an agreement to sell Pantaya to TelevisaUnivision, Inc. (“TelevisaUnivision”) in exchange for $115 million in cash plus TelevisaUnivision’s Puerto Rican radio business, subject to certain adjustments. Each transaction is subject to customary closing conditions, including the Gato transaction being subject the completion of the Pantaya transaction. The prior description is subject to, and is qualified in its entirety by reference to, that certain Agreement and Plan of Merger, dated as of May 9, 2022, by and among the Company, Hemisphere Media Holdings, LLC (“Hemisphere Holdings”), HWK Parent, LLC, HWK Merger Sub 1, Inc., and HWK Merger Sub 2, LLC, that certain Voting and Support Agreement, dated as of May 9, 2022, by and among the Company and certain stockholders of the Companies that are signatories thereto, that certain Membership Interest Purchase Agreement, dated as of May 9, 2022, by and among Univision Puerto Rico Station Operating Company (“Univision”), HMTV DTC, Pantaya and Hemisphere Holdings, and that certain Share Purchase Agreement, dated as of May 9, 2022, by and among HMTV DTC, Univision of Puerto Rico, Inc., Univision and TelevisaUnivision (collectively, the “Transaction Agreements”).

Reclassification: Certain prior year amounts on the presented ~~Condensed~~Consolidated Balance Sheets and Consolidated Statement of Cash Flows have been reclassified to conform towith current ~~year~~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, ~~2021~~2022 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, ~~2021.~~2022. 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, ~~2020.~~

~~Net (loss) income per common share:~~ Basic (loss) income per share is computed by dividing loss attributable to Hemisphere Media Group, Inc. common stockholders by the number of weighted-average outstanding shares of common stock. Diluted (loss) income 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.2021.

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Net (loss) income per common share: Basic (loss) income per share is computed by dividing (loss) income attributable to Hemisphere Media Group, Inc. 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) income per share attributable to Hemisphere Media Group, Inc. (amounts in thousands, except per share ~~amounts)~~amounts):


	Three Months Ended June 30,				Six Months Ended June 30,				Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020		2022		2021		2022		2021
Numerator for (loss) income per common share calculation:
Net (loss) income attributable to Hemisphere Media Group, Inc.	$	(6,286)	$	(6,682)	$	27,072	$	(16,110)	$	(3,911)	$	(6,286)	$	(17,139)	$	27,072

Denominator for (loss) income per common share calculation:
Weighted-average common shares, basic		39,641		39,444		39,511		39,378		39,991		39,641		39,861		39,511
Effect of dilutive securities
Stock options and restricted stock		—		—		389		—		—		—		—		389
Weighted-average common shares, diluted		39,641		39,444		39,900		39,378		39,991		39,641		39,861		39,900

(Loss) income per share attributable to Hemisphere Media Group, Inc.
Basic	$	(0.16)	$	(0.17)	$	0.69	$	(0.41)	$	(0.10)	$	(0.16)	$	(0.43)	$	0.69
Diluted	$	(0.16)	$	(0.17)	$	0.68	$	(0.41)	$	(0.10)	$	(0.16)	$	(0.43)	$	0.68

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 ~~(loss) income~~loss per common share calculation. Per the Accounting Standards Codification (“ASC”) 260, 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)~~ income 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 ~~1.6 million~~4.1 and ~~3.9~~1.6 million shares of common stock for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, were excluded from the computation of diluted ~~loss~~(loss) income per common share for ~~these periods~~this period because their effect would have been anti-dilutive. Potentially dilutive securities representing ~~2.1~~4.1 million and ~~2.8~~2.1 million shares of common stock for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, were excluded from the computation of diluted (loss) income per common share for these periods because their effects would have been anti-dilutive. The net (loss) income per share attributable to Hemisphere Media Group, Inc. amounts are the same for our Class A and Class B common stock because the holders of each class are legally entitled to equal per share distributions whether through dividends or in liquidation.

As a result of the net loss ~~from operations~~ for the three months ended June 30, 2022 and 2021, outstanding awards totaling 0.1 million and ~~2020,~~ 0.4 million, ~~and 0.0 million,~~ respectively, ~~outstanding awards~~ were ~~excluded from~~not included in the computation of diluted loss per share because their effect was anti-dilutive. As a result of the net loss ~~from operations~~ for the six months ended June 30, ~~2020, 0.3~~2022, 0.1 million outstanding awards were ~~excluded from~~not included in the computation of diluted loss per share because their effect was anti-dilutive.

~~Risks~~Held for sale: In accordance with ASC 360, the sale of Pantaya qualified as assets and ~~uncertainties:~~ In March 2020, the World Health Organization characterized the coronavirus (“COVID-19”) as a pandemic, and the President of the United States declared the COVID-19 outbreak a national emergency. The rapid spread of COVID-19 and the continuously evolving responses to combat it have had a negative impact on the global economy. Even during these unprecedented times, we have continued the production of news and entertainment programming, as our viewers rely on our Networks to keep them informed.

~~Table of Contents~~

The impact of COVID-19 and measures to prevent its spread have continued to affect our businesses in a number of ways. Beginning in March 2020, the Company experienced adverse advertising revenue impacts. Operationally, most non-production and programming personnel are working remotely, andliabilities held for sale as: (i) the Company has ~~restricted business travel. The Company~~committed to a plan to sell, (ii) the disposal entities are available for immediate sale, (iii) the buyer has ~~managed~~been identified and has committed to purchase, subject to satisfaction of certain closing conditions, and (iv) it is probable to occur within 1 year from the remote workforce transition effectively and there have been no material adverse impacts on operations through June 30, 2021. While the Company’s advertising revenue improved in second half of 2020 and continued into the first half of 2021, the Company is unable to reasonably predict the impact that a significant change in circumstances, including the ability of our workforce and/or key personnel to work effectively because of illness, government actions or other restrictions in connection with the COVID-19 pandemic, may have on our businesses in the future. The nature and full extentdate of the ~~impact~~classification. Assets and liabilities held for sale are measured at the lower of the COVID-19 pandemic on our future operations will depend on numerous factors, all of which are highly uncertain and cannot be reasonably predicted. These factors include the length and severity of the outbreak, including the extent of surges in positive cases related to variants of COVID-19, such as the Delta variant, as well as the availability and efficacy of vaccines and treatments for the disease and whether individuals choose to vaccinate themselves, the responses of private sector businesses and governments, including the timing andcarrying amount of government stimulus, the impact on economic activity and the impact on our customers, employees and suppliers. For more information on the risks associated with the COVID-19 pandemic, see “Item 1A-Risk Factors” included elsewhere in this Quarterly Report.

The Company has evaluated and continues to evaluate the potential impact of the COVID-19 pandemic on its Condensed Consolidated Financial Statements, including the impairment of goodwill and indefinite-lived intangible assets and the fair value ~~of equity method investments. The ultimate impact of~~less cost to sell. Intangible assets and fixed assets are not amortized or depreciated once classified as held for sale. Assets and liabilities classified as held for sale are presented separately as current and non-current items in the ~~COVID-19 pandemic, including the extent of any adverse impact on our business, results of operations and financial condition, remains uncertain.~~Condensed Consolidated Balance Sheets.

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 each of the three and six months ended June 30, ~~2021~~2022 and ~~2020.~~2021. Such estimates are based on

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historical experience and other assumptions that are considered appropriate in the circumstances. However, actual results could differ from those estimates.

~~Recently adopted Accounting Standards:~~ ~~On January 1, 2021, we adopted Financial Accounting Standards Board (“the FASB”)~~ ~~ASU 2019-12—Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes.~~ The updated guidance simplifies the accounting for income taxes in several areas by removing certain exceptions and by clarifying and amending existing guidance applicable to accounting for income taxes. The adoption of this ASU did not have an impact on our accompanying Condensed Consolidated Financial Statements as of and for the six months ended June 30, 2021.

Accounting guidance not yet adopted: In March 2020, the FASB issued ASU 2020-04-Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. The update provides optional expedients and exceptions for applying U.S. GAAP principles to contracts, hedging relationships, and other transactions that reference London Interbank Offered Rate (LIBOR) or another reference rate expected to be discontinued due to reference rate reform. This guidance was effective beginning on March 12, 2020, and can be adopted on a prospective basis no later than December 31, ~~2022, with early adoption permitted.~~2022. We are currently evaluating the impact, if any, that the updated accounting guidance will have on our ~~accompanying~~ Condensed Consolidated Financial Statements.

~~Table of Contents~~

Note 2. Revenue Recognition

The following is a description of principal activities from which we generate our revenue:

Subscriber revenue: We enter into arrangements with multi-channel video ~~distributors,~~Distributors, such as cable, satellite and telecommunications companies (referred to as “MVPDs”) and non-facilities based distributors also known as virtual multi-channel video distributors (referred to as “VMVPDs”) to provide a continuous feed of our Networks generally based on a per subscriber fee pursuant to multi-year contracts, referred to as “affiliation agreements”, which typically provide for annual rate increases. We have used the practical expedient related to the right to invoice and recognize revenue at the amount to which we have the right to invoice for services performed. The specific subscriber revenue we earn varies from period to period, ~~distributor~~Distributor to ~~distributor~~Distributor, and also ~~vary~~varies among our Networks, but ~~are~~is generally based upon the number of each ~~distributor’s~~Distributor’s paying subscribers who subscribe to our Networks. Changes in subscriber revenue are primarily derived from changes in contractual per subscriber rates charged for our Networks and changes in the number of subscribers. ~~MVPDs~~Distributors report their subscriber numbers to usour Networks generally on a two month lag. We record revenue based on estimates of the number of subscribers utilizing the most recently received remittance reporting of each MVPD, which is consistent with our past practice and industry practice. Revenue is recognized on a month by month basis when the performance obligations to provide service to the ~~MVPDs~~Distributors is satisfied. Payment is typically due and received within sixty days of the remittance. We also generate subscriber revenue from ~~monthly~~ subscriptions to Pantaya, our ~~subscription video on demand (“SVOD”) service. The SVOD service~~streaming platform. Pantaya is available directly to consumers through our web application as well as through distribution partners. Certain distribution partners charge a fee, which is recorded in cost of revenues. Subscribers are billed at the start of their monthly or annual membership and revenue is recognized ratably over each applicable membership period. Subscriber revenue varies from period to period and is generally based upon the number of paying subscribers to our ~~SVOD~~ service. Estimates of revenue generated but not yet reported by the Company’s third party ~~distributors~~Distributors are made based on the estimated number of subscribers using ~~recent reporting.~~the most recently received remittance reporting from each Distributor, which is consistent with our past practice and industry practice.

Advertising revenue: Advertising revenue is generated from the sale of commercial time, which is typically sold pursuant to sale orders with advertisers providing for an agreed upon commitment and price per spot. We recognize revenue from the sale of advertising as performance obligations are satisfied upon airing of the advertising; therefore, revenue is recognized at a point in time when each advertising spot is transmitted. ~~Agency~~Advertising agency fees are calculated based on a stated percentage applied to the gross billing revenue for our advertising inventory and are reported as a reduction of advertising revenue. Payment is typically due and received within thirty days of the invoice date.

Other revenue: Other revenues are derived primarily through the licensing of content to third ~~parties.~~parties including advertising video on demand (“AVOD”) platforms. We enter into agreements to license content and recognize revenue when the performance obligation is satisfied and control is transferred, which is generally upon delivery of the content.

~~The following table presents the revenues disaggregated by revenue source~~ ~~(amounts in thousands):~~

Three months ended June 30,
Revenues by type

2021

2020
Subscriber revenue

$
32,218

$
19,273
Advertising revenue

17,269

12,378
Other revenue

973

3,084
Total revenue

$
50,460

$
34,735

Six months ended June 30,
Revenues by type

2021

2020
Subscriber revenue

$
52,167

$
39,106
Advertising revenue

33,175

24,194
Other revenue

2,695

3,844
Total revenue

$
88,037

$
67,144

~~Table of Contents~~

~~Note 3. Business Combination~~

Prior to March 31, 2021, the Company owned a 25% equity interest in Pantaya, which was accounted for as an equity method investment. On March 31, 2021, the Company acquired the remaining 75% equity interest in Pantaya (the “Pantaya Acquisition”). As a result of the acquisition, Pantaya is now a wholly owned consolidated subsidiary. Pantaya is the leading U.S. Hispanic subscription streaming service offering the largest selection of current and classic, commercial free blockbusters and critically acclaimed movies and series from Latin America and the U.S. including original productions from Pantaya’s production arm, Pantelion, and titles from our library, as well as titles from third party providers such as Lionsgate and Grupo Televisa.

Total cash purchase price in connection with the Pantaya Acquisition was $123.6 million. Under the terms of the purchase agreement (“Securities Purchase Agreement”), control of Pantaya transferred to the Company on March 31, 2021 (“Acquisition Date”), with cash consideration transferred on April 1, 2021. Cash consideration was funded with a combination of cash on hand and an add-on to our Term Loan Facility. For more information, see Note 8, “Long-Term Debt” of Notes to Condensed Consolidated Financial Statements. Fees and expenses incurred in connection with the Pantaya Acquisition were $1.4 million and $8.1 million for the three and six months ended June 30, 2021, respectively, consisting primarily of professional fees and certain non-cash charges, which are included in other expenses in the accompanying Condensed Consolidated Statement of Operations.

Prior to the closing of the Pantaya Acquisition, the Company accounted for the existing 25% equity interest in Pantaya using the equity method, and the net book value was $0 as of March 31, 2021. The Company accounted for the acquisition of the 75% equity interest of Pantaya as a step acquisition, which required remeasurement of the Company’s existing 25% ownership interest in Pantaya to fair value prior to completing the acquisition method of accounting. Using step acquisition accounting, the Company increased the value of its existing equity interest to its fair value resulting in the recognition of a non-cash gain of $30.1 million, which was included in gain (loss) on equity method investment activity in the accompanying Condensed Consolidated Statement of Operations for the six months ended June 30, 2021. For more information, see Note 10, “Fair Value Measurements” of Notes to Condensed Consolidated Financial Statements.

The Pantaya Acquisition was accounted for as a business combination by applying the acquisition method of accounting pursuant to ASC Topic 805, “Business Combinations”. Due to the timing of the Pantaya Acquisition, the amounts recorded for assets acquired, liabilities assumed, total consideration, and our existing 25% equity interest in Pantaya reflects preliminary fair value estimates based on management analysis, which the Company is still in the process of reviewing and finalizing. Until the Company finalizes the valuation process, there may be adjustments during the measurement period.

~~The following table summarizes the purchase price consideration in connection with the Pantaya Acquisition as of March 31, 2021 (~~~~amounts in thousands~~):

Total cash consideration

$
123,605
Class A common stock consideration^(a)

2,188
Effective settlement of pre-existing receivables and payables, net^(b)

1,499
Total consideration

127,292
Fair value of existing 25% equity interest

30,092
Total

$
157,384

~~(a)~~Calculated as 238,436 shares issued to certain employees, who held Pantaya stock-based compensation awards, multiplied by $11.65, which was the closing price of a share of the Company’s common stock on March 31, 2021, reduced by post-combination expense of approximately $0.6 million associated with the excess fair value over replacement awards.

~~(b)~~Effective settlement of pre-existing accounts receivable of $2.3 million for content licensed to Pantaya and programming rights payable of $0.8 million for content licensed from Pantaya prior to the Acquisition Date.

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The following table ~~summarizes~~presents the ~~preliminary fair values of the assets acquired, liabilities assumed and resulting goodwill in the Pantaya Acquisition as of March 31, 2021~~ revenues disaggregated by revenue source (amounts in ~~thousands~~thousands):):

March 31, 2021
Cash

$
985
Accounts receivable

5,203
Fixed assets

602
Finite-lived intangible assets – programming rights

30,767
Other assets

6,731
Accounts payable

(2,807)
Accrued expenses

(13,049)
Film obligations

(15,225)
Goodwill

144,177
Fair value of net assets acquired

$
157,384

Three months ended June 30,
Revenues by type

2022

2021
Subscriber revenue

$
31,979

$
32,218
Advertising revenue

17,088

17,269
Other revenue

5,107

973
Total revenue

$
54,174

$
50,460

Six months ended June 30,
Revenues by type

2022

2021
Subscriber revenue

$
64,188

$
52,167
Advertising revenue

33,058

33,175
Other revenue

5,727

2,695
Total revenue

$
102,973

$
88,037

~~The preliminary fair value~~Deferred Revenue: As of ~~the accounts receivable is based on the net realizable value and 0 amounts are believed to be uncollectible.~~
The preliminary fair value of the finite-lived intangible assets, which consists of programming rights, is $30.8 million. This finite-lived intangible asset will be amortized on a straight-line basis over the weighted-average useful life of 4.6 years. The Company has not yet finalized the estimated fair values of the net assets acquired.

Goodwill of $144.2 million represents Company-specific operational synergies and the future growth opportunities of Pantaya’s subscription streaming service. The goodwill associated with the transaction is expected to be deductible for tax purposes.

~~Supplemental Pro Forma Information (Unaudited)~~

~~The following table sets forth the unaudited supplemental pro forma results of operations assuming that the Pantaya Acquisition occurred on January 1, 2020:~~

Three months ended June 30,


2021

2020
Net revenue

$
50,460

$
45,168
Operating income (loss)

8,524

(654)

Six months ended June 30,


2021

2020
Net revenue

$
99,367

$
88,282
Operating income (loss)

12,057

(8,615)

These unaudited supplemental pro forma results, as if the Pantaya Acquisition occurred on January 1,2020, are presented for illustrative purposes and are not intended to represent or be indicative of the actual results of operations of the combined company nor are they intended to represent or be indicative of future results of operations. The unaudited supplemental pro forma results of operations for all periods set forth above includes the combined historical operating results of Hemisphere and Pantaya, as adjusted by including the amortization of finite-lived intangible assets identified as a result of the Pantaya Acquisition of $1.7 million for the three months ended June 30, ~~2020~~2022 and ~~$1.7~~December 31, 2021, the Company had deferred revenue of $0.7 million and ~~$3.4~~$7.4 million, for the six months ended June 30, 2021 and 2020, respectively, and excluding all revenues and expenses from the business conducted between the Company and Pantaya. Results for the three and six months ended June, 2020, also includes non-recurring costs incurred in connection with the Pantaya Acquisition of $1.4 million and $8.1 million,~~respectively, which have been excluded from~~respectively. For the three and six months ended June 30, 2022, the Company recognized $0.2 and $3.0 million of revenue that was included in the deferred revenue balance as of December 31, 2021, respectively. The decrease in deferred revenue from December 31, 2021 to June 30, 2022 was also due to the Held for Sale classification of Pantaya’s assets and liabilities. For more information, see Note 4, “Held for Sale” of Notes to Condensed Consolidated Financial Statements.

The Pantaya Acquisition closed at the end of the day on March 31, 2021 and the operating results of Pantaya are included in our Condensed Consolidated Statements of Operations for the three months ended June 30, 2021.

~~Table of Contents~~

Note 4.3. 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:

●

MVS provides Cinelatino with satellite and support services including origination, uplinking and satellite delivery of 2 feeds of Cinelatino’s channel (for U.S. and Latin America), master control and monitoring, dubbing, subtitling and closed captioning, and other support services. Expenses incurred under this agreement are included in cost of revenues in the accompanying Condensed Consolidated Statements of Operations. Total expenses incurred were ~~$0.7~~$0.5 million and ~~$0.6~~$0.7 million for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Total expenses incurred were $1.1 million and $1.3 million for ~~each of~~ the six months ended June 30, 2022 and 2021, ~~and 2020.~~respectively. Amounts due to MVS pursuant to the ~~agreement~~agreements noted above amounted to $1.0 million and $0.4 million ~~and $0.6 million at~~as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

●

Dish Mexico (d/b/a Comercializadora de Frecuencias Satelitales, S. de R.L. de C.V.), is an MVS affiliate ~~that~~and operates a subscription satellite television service throughout Mexico, and in connection with the services distributes ~~Cinelatino as part of its service.~~Cinelatino. Total revenue recognized was $0.2 million ~~and $0.3 million~~ for each of the three months ended June 30, ~~2021~~2022 and ~~2020, respectively.~~2021. Total revenue recognized was ~~$0.5~~$0.4 million and ~~$0.6~~$0.5 million for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Amounts due from Dish Mexico amounted to ~~$0.2~~$0.4 million and ~~$0.3~~$0.1 million atas of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

●

MVS has the non-exclusive right to duplicate, distribute and exhibit Cinelatino’s service via cable, satellite or by any other means in Mexico. Cinelatino receives revenues net of MVS’s distribution fee, which is equal to 13.5% of all license fees collected from third party distributors managed but not owned by MVS. Total revenues recognized ~~were~~was $0.2 million for each of the three months ended June 30, ~~2021~~2022 and ~~2020.~~2021. Total revenues recognized were $0.3 million and $0.4 million for ~~each of~~ the six months ended June 30, 2022 and 2021, ~~and 2020.~~respectively. Amounts due from MVS pursuant to ~~this agreement~~the agreements noted above amounted to ~~$0.2~~$0.3 million and ~~$0.4~~$0.0 million atas of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively.

~~Pantaya~~15

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The Company has ~~an agreement~~various agreements with ~~Univision Communications, Inc. (“UCI”)~~TelevisaUnivision (including its various divisions and affiliates), which has directors in common with the Company (who may hold a material financial interest in UCI), for the purchase of advertising on UCI’s television and radio properties. Expenses under this agreement are included in selling, general and administrative expenses in the accompanying Condensed Consolidated Statement of Operations. Total expenses incurred were $0.5 million for the three months ended June 30, 2021. Amounts due to UCI pursuant to this agreement totaled $0.5 million at June 30, 2021. At June 30, 2021, the Company has a remaining commitment of $5.2 million, which is included in Note 14, “Commitments” of Notes to Condensed Consolidated Financial Statements.TelevisaUnivision).

●

Pantaya has an agreement for the purchase of advertising on TelevisaUnivision’s television and radio properties. Expenses under this agreement are included in selling, general and administrative expenses in the accompanying Condensed Consolidated Statement of Operations. Total expenses incurred were $0 million for each of the three and six months ended June 30, 2022. Total expenses incurred were $0.5 million for each of the three and six months ended June 30, 2021. Amounts due to TelevisaUnivision pursuant to this agreement totaled $0 million and $0.1 million as of June 30, 2022 and December 31, 2021, respectively. The Company had remaining commitments of $4.0 million as of June 30, 2022 which is included in Note 14, “Commitments” of Notes to Condensed Consolidated Financial Statements.

●

Pantaya has various content output agreements with Videocine, S.A. de C.V. (“Videocine”), a division of TelevisaUnivision pursuant to which Pantaya licenses content from Videocine or licenses content to Videocine. There were no revenues earned or expenses incurred under these agreements for the three and six months ended June 30, 2022 and 2021. Deferred revenue related to the agreements was $2.5 million as of June 30, 2022 and December 31, 2021. Amounts due from Videocine pursuant to the agreements noted above amounted to $0.2 million and $0.6 million as of June 30, 2022 and December 31, 2021, respectively. Amounts due to Videocine pursuant to the agreements noted above amounted to $1.3 million and $0.9 million as of June 30, 2022 and December 31, 2021, respectively. For more information, see Note 4, “Held for Sale” of Notes to Condensed Consolidated Financial Statements.

●

The Company has various licensing agreements with TelevisaUnivision pursuant to which the Company licenses content from TelevisaUnivision or licenses content to TelevisaUnivision. Total revenues recognized were $0.0 million for each of the three months ended June 30, 2022 and 2021. TelevisaUnivision. Total revenues recognized were $0.1 million for each of the six months ended June 30, 2022 and 2021. Total expenses incurred were $0.0 million for each of the three months ended June 30, 2022 and 2021. Total expenses incurred were $0.1 million for each of the six months ended June 30, 2022 and 2021. Amounts due from TelevisaUnivision pursuant to the agreements noted above amounted to $1.8 million and $0 million as of June 30, 2022 and December 31, 2021, respectively. NaN amounts were due to TelevisaUnivision as of June 30, 2022 and December 31, 2021.

The Company entered into an amended and restated consulting agreement with James M. McNamara, a member of the Company’s board of directors, on August 13, 2019, 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 this agreement are included in selling, general and administrative expenses in the accompanying Condensed Consolidated Statements of Operations and amounted to $0.1 million for each of the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, and $0.2 million for each of the six months ended June 30, ~~2021~~2022 and ~~2020.~~2021. NaN amounts were due to this related party atas of June 30, ~~2021~~2022 and December 31, ~~2020.~~2021.

Note 4. Held for Sale

On May 9, 2022, the Company entered into an agreement to sell Pantaya to TelevisaUnivision in exchange for $115 million in cash plus TelevisaUnivision’s Puerto Rican radio business, subject to certain adjustments. The sale of Pantaya is expected to close in the third quarter of 2022. The Company determined that Pantaya met the held for sale criteria as of May 9, 2022 and, as a result, related assets and liabilities were classified as held for sale in the Condensed Consolidated Balance Sheets as of June 30, 2022. As part of classifying Pantaya as held for sale in accordance with U.S. GAAP, the Company is required to measure Pantaya at the lower of its carrying amount or fair value less cost to sell. As of June 30, 2022, the Company determined there was no impairment and will reassess at the close of the transaction. The prior description is subject to, and is qualified in its entirety by reference to, the terms of the Transaction Agreements.

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The following table summarizes the Company’s assets and liabilities held for sale by major class (amounts in thousands):


June 30, 2022
Accounts receivable, net

$
6,245
Due from related parties

1,915
Programming rights

6,034
Prepaid expenses

1,957
Other current assets

25,361
Current assets held for sale

$
41,512

Programming rights

14,938
Goodwill

66,113
Other intangibles, net

89,530
Operating lease right-of-use assets

773
Other assets

3,901
Non-current assets held for sale

$
175,255

Accounts payable

$
8,779
Due to related parties

1,300
Other accrued expenses

5,191
Deferred revenue

6,502
Programming rights payable

7,158
Current liabilities held for sale

$
28,930

Programming rights payable

2,210
Deferred income taxes

2,669
Other long-term liabilities

1,138
Non-current liabilities held for sale

$
6,017

Pantaya had a pre-tax loss of $7.0 million and $4.9 million for the three months ended June 30, 2022 and 2021, respectively, and $21.1 million and $4.9 million for the six months ended June 30, 2022 and 2021, respectively.

Note 5. Goodwill and Intangible Assets

Goodwill and intangible assets consist of the following as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 (amounts in thousands):

June 30,

December 31,

June 30,

December 31,


2021

2020

2022

2021
Broadcast license

$
41,356

$
41,356

$
41,356

$
41,356
Goodwill

309,774

165,597

165,597

231,710
Other intangibles

50,741

24,761

17,319

115,110
Total intangible assets

$
401,871

$
231,714

$
224,272

$
388,176

A summary of changes in the Company’s goodwill and other indefinite-lived intangible assets, on a net basis, for the six months ended June 30, 2022 is as follows (amounts in thousands):

Net Balance at

Held for Sale

Net Balance at


December 31, 2021

Additions

Reclassification

June 30, 2022
Broadcast license

$
41,356

$
0

$
0

$
41,356
Goodwill

231,710

0

(66,113)

165,597
Brands

15,986

0

0

15,986
Other intangibles

700

0

0

700
Total indefinite-lived intangibles

$
289,752

$
0

$
(66,113)

$
223,639

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~~A summary of changes in the Company’s goodwill and other indefinite-lived intangible assets, on a net basis, for the six months ended June 30, 2021 is as follows~~ ~~(amounts in thousands)~~:

Net Balance at

Net Balance at


December 31, 2020

Additions

Impairment

June 30, 2021
Broadcast license

$
41,356

$
—

$
—

$
41,356
Goodwill

165,597

144,177

—

309,774
Brands

15,986

—

—

15,986
Other intangibles

700

—

—

700
Total indefinite-lived intangibles

$
223,639

$
144,177

$
—

$
367,816

A summary of the changes in the Company’s other amortizable intangible assets for the six months ended June ~~30, 2021~~30,2022 is as follows (amounts in thousands):

Net Balance at

Net Balance at

Net Balance at

Held for Sale

Net Balance at


December 31, 2020

Additions

Amortization

June 30, 2021

December 31, 2021

Additions

Reclassification

Amortization

June 30, 2022
Affiliate and customer relationships

$
7,304

$
—

$
(2,886)

$
4,418

$
50,681

$
0

$
(45,262)

$
(5,339)

$
80
Non-compete agreement

329

—

(180)

149
Programming contracts

427

30,767

(1,710)

29,484

24,981

0

(22,380)

(2,308)

293
Other intangibles

15

—

(11)

4
Brands

22,762

260

(21,888)

(874)

260
Total finite-lived intangibles

$
8,075

$
30,767

$
(4,787)

$
34,055

$
98,424

$
260

$
(89,530)

$
(8,521)

$
633

The aggregate amortization expense of the Company’s amortizable intangible assets was ~~$3.2~~$2.1 million and ~~$1.6~~$3.2 million for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$4.8~~$8.5 million and ~~$3.5~~$4.8 million for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. The weighted average remaining amortization period is ~~3.9~~3.1 years at June 30, ~~2021.~~2022.

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

Year Ending December 31,

Amount

Amount
Remainder of 2021

$
6,415
2022

8,210
Remainder of 2022

$
100
2023

6,772

199
2024

6,772

199
2025 and thereafter

5,886
2025

135
2026 and thereafter

0
Total

$
34,055

$
633

Note 6. Equity Method Investments

The Company makes investments that support its underlying business strategy and enables it to enter new markets. The Company holds equity investments in Canal 1 and Snap JV (in each case, as defined and discussed below), which are variable interest entities (“VIEs”), for which the Company is not the primary beneficiary. The primary beneficiary is the party involved with the VIE that (i) has the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance, and (ii) has the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. The activities of each VIE that most significantly impact the VIE’s economic performance are controlled by the VIE’s board of directors and the Company’s representation on the board of directors of each VIE is commensurate with its voting equity interest. As the Company does not hold a majority voting interest or disproportionate voting or other rights, it does not have the power to direct the activities that most significantly impact the economic performance of any of these VIEs.

2018

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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 television broadcast concession license for Canal 1 in Colombia. The partnership began operating Canal 1 on May 1, 2017. On February 7, 2018, Colombian regulatory authorities approved an increase in our ownership in the joint venture from 20% to 40%. In July 2019, the Colombian government enacted legislation resulting in the extension of the concession license for Canal 1 for an additional ten years for 0 additional consideration. The concession is now due to expire on April 30, 2037 and is renewable for an additional 20-year period. The joint venture is deemed a VIE that is accounted for under the equity method. As of June 30, ~~2021,~~2022, we have funded ~~$121.1~~$126.6 million in capital contributions to Canal 1. The Canal 1 joint venture losses-to-date have exceeded the capital contributions of the common equity partners and in accordance with equity method accounting, losses in excess of the common equity have been recorded against the next layer of the capital structure, in this case, preferred equity. The Company is currently the sole preferred equity holder in Canal 1 and therefore, the Company has recorded nearly 100% of the losses of the joint venture. We record the income or loss on investment on a one quarter lag. For ~~the~~ three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, we recorded $2.3 million gain on equity method investment and $8.6 million ~~and $10.2 million in~~ loss onfrom equity method investment in the accompanying Condensed Consolidated Statements of Operations, respectively. For the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, we recorded ~~$6.0~~$2.5 million ~~and $17.0 million in~~ loss on equity method investment and $6.1 million loss from equity method investment activity in the accompanying Condensed Consolidated Statements of Operations, respectively. The net balance recorded in equity method investments ~~related to the Canal 1 joint venture was $25.4 million and $29.9 million as of June 30, 2021 and December 31, 2020, respectively, and is included~~ in the accompanying Condensed Consolidated Balance ~~Sheets. As of~~Sheets related to Canal 1 was $22.0 million and $24.2 million at June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, respectively. At June 30, 2022 and December 31, 2021 we had a receivable balance ~~from Canal 1~~ of $2.6 million, ~~and~~which is included in other assets in the accompanying Condensed Consolidated Balance Sheets.

On April 28, 2017, we acquired a 25.5% interest in REMEZCLA, a digital media company targeting English speaking and bilingual U.S. Hispanic millennials through innovative content, for $5.0 million. At March 31, 2020, given the negative impacts caused by the COVID-19 pandemic and the associated liquidity and going-concern uncertainties related to REMEZCLA, the Company determined that the investment in REMEZCLA was other-than-temporarily impaired and recorded a non-cash impairment charge of $5.5 million reflecting the write-off of the full carrying amount of our investment. ~~The write-off was recorded in impairment of equity method investment in the Condensed Consolidated Statements of Operations.~~ Due to the write-off of the investment carrying value, we did not record any share of the loss from the investment for the three and six months ended June 30, ~~2021~~2022 and ~~2020.~~2021. The net balance recorded in equity method investments ~~related to REMEZCLA~~in the accompanying Condensed Consolidated Balance Sheets was $0 million as of June 30, ~~2021~~2022 and December 31, ~~2020.~~2021. For more information, see Note 15, "Subsequent Events" of Notes to Condensed Consolidated Financial Statements.

On November 26, 2018, Snap Media acquired a 50% interest in Snap JV, LLC (“Snap JV”) ~~(we own 75%~~(as of July 15, 2021, the Company owns 100% of Snap Media), a newly formed joint venture with Mar Vista Entertainment, LLC (“MarVista”), to co-produce original movies and series. The investment is deemed a VIE that is accounted for under the equity method. As of June 30, ~~2021,~~2022, we have funded $0.4 million into Snap JV. We record the income or loss on investment on a one quarter lag. For ~~each of~~ the three months ended June 30, 2022 and 2021, ~~and 2020,~~ we have recorded $0.0 million and $0 million, respectively, in loss on equity method investments in the accompanying Condensed Consolidated Statements of Operations. For the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, we recorded $0$0.0 million and ~~$0.2~~$0 million, respectively, in loss on equity method investments in the accompanying Condensed Consolidated Statements of Operations. The net balance recorded in equity method investments related to Snap JV was ~~$0.1~~$0.0 million as of June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, and is included in equity method investments in the accompanying Condensed Consolidated Balance Sheets.

On March 31, 2021, the Company acquired the remaining 75% equity interest in Pantaya. As a result of the acquisition, Pantaya is now a wholly owned consolidated subsidiary, and as of April 1, 2021, is no longer treated as an equity method investment. For more information, see Note 3, “Business Combination” of Notes to Condensed Consolidated Financial Statements.

The Company records the income or loss on investments on a one quarter lag. Summary unaudited financial data for our equity method investments in the aggregate as of and for the ~~six~~three months ended March 31, ~~2021~~2022, are included below (amounts in thousands):

Total Equity Investees
Current assets

$
14,021
Non-current assets

$
26,216
Current liabilities

$
64,151
Non-current liabilities

$
4,254
Net revenue

$
5,409
Operating loss

$
(6,638)
Net loss

$
(16,238)

Total Equity Investees
Current assets

$
12,434
Non-current assets

$
22,804
Current liabilities

$
8,572
Non-current liabilities

$
80,604
Net revenue

$
5,334
Operating loss

$
(4,451)
Net loss

$
(14,410)

2119

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Note 7. Income Taxes

The 2017 Tax Cuts and Jobs Act (“Jobs Act”) was enacted on December 22, 2017. The Jobs Act revised the U.S. corporate income tax by lowering the statutory corporate tax rate from 35% to 21% in 2018. The Company generates income in higher tax rate foreign locations, which result in foreign tax credits. The lower federal corporate tax rate reduces the likelihood of our utilization of foreign tax credits created by income taxes paid in Puerto Rico and Latin America, resulting in a valuation allowance. Additionally, the Company evaluated the potential interest limitation established under the tax act and determined that ~~no limitation~~it would affect the ~~2021~~2022 provision for income taxes.

The Company has historically calculated the provision for income taxes during interim periods by applying an estimated annual effective tax rate for the full fiscal year to income (loss) before income taxes for the reporting period. Since the Company determined that relatively small changes in estimated annual income (loss) before income taxes could result in significant changes in the estimated annual effective tax rate, the Company has calculated the income tax provision using a discrete rate of 8.1% based on the actual income before income taxes for the six months ended June 30, 2022, for all jurisdictions, except for Puerto Rico, as permitted under ASC 740-270-30-36,”Income Taxes - Interim Reporting”. The difference between the discrete rate of 8.1% and the statutory Federal income tax rate of 21% in the six months ended June 30, 2022, is primarily due to permanent items, foreign tax credit limitation, and limitations on the deductibility of executive compensation under Internal Revenue Code Section 162(m). The losses at Canal 1 are excluded from the provision expense since these losses create a deferred tax asset, and due to the uncertainty of the realizability, the Company has recorded a full valuation allowance. The Puerto Rico jurisdiction continues to be computed utilizing an estimated annual effective rate of 25.5%. The difference between the Puerto Rico tax rate of 37.5% and the estimated annual effective rate of 25.5%, is primarily due to a reduced income tax rate in Puerto Rico on specific revenue related to local programming.

For the six months ended June 30, 2021, ~~and 2020,~~ our income tax expense has been computed utilizing an estimated annual effective tax rate of 46.7% ~~and 35.7%~~, respectively. The difference between the annual effective rate of 46.7% and the statutory Federal income tax rate of 21% in the six month period ended June 30, 2021, is primarily due to the impact of the Tax Act, which impacted the valuation allowance on foreign tax credits, and limitations on the deductibility of executive compensation under Internal Revenue Code Section 162(m). The annual effective tax rate related to income generated in the U.S. is 31.8%. Due to the reduced U.S. tax rate, the Company determined that a portion of its foreign income, which is taxed at a higher rate, will result in the generation of excess foreign tax credits that will not be available to offset U.S. income tax. As a result, 14.9% of the annual effective rate relates to the required valuation allowance against the excess foreign tax credits, bringing the annual effective tax rate for the six month period ended June 30, 2021 to 46.7%. Additionally, the gain related to the step acquisition of Pantaya of $30.1 million was determined to be significant and infrequent, and as a result, this item has not been included in the annual effective tax rate.

The difference between the annual effective rate of 35.7% and the statutory Federal income tax rate of 21% in the six month period ended June 30, 2020, is primarily due to the impact of the Tax Act , which impacted the valuation allowance on foreign tax credits, and limitations on the deductibility of executive compensation under Internal Revenue Code Section 162(m). The annual effective tax rate related to income generated in the U.S. is 26.3%. Due to the reduced U.S. tax rate, the Company determined that a portion of its foreign income, which is taxed at a higher rate, will result in the generation of excess foreign tax credits that will not be available to offset U.S. income tax. As a result, 9.4% of the annual effective rate relates to the required valuation allowance against the excess foreign tax credits, bringing the annual effective tax rate for the six month period ended June 30, 2020 to 35.7%.

Income tax expense was ~~$1.8~~$0.8 million and ~~$2.9~~$1.8 million for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively. Income tax expense was ~~$3.1~~$0.4 million and ~~$1.2~~$3.1 million for the six months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively.

Note 8. Long-Term Debt

Long-term debt as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 consists of the following (amounts in thousands):


June 30, 2021

December 31, 2020

June 30, 2022

December 31, 2021
Senior Notes due February 2024

$
250,289

$
202,990

$
248,887

$
249,575
Less: Current portion

2,686

2,134

2,656

2,656

$
247,603

$
200,856

$
246,231

$
246,919

On February 14, 2017, Hemisphere Media Holdings, LLC (“Holdings”) and InterMedia Español, Inc. (together with Holdings, the “Borrowers”), both wholly owned, indirect subsidiaries of the Company, 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, and matures on February 14, 2024. The Second Amended Term Loan Facility bore interest at the Borrowers’ option of either (i) London Inter-bank Offered Rate (“LIBOR”) plus a margin of 3.50% or (ii) an Alternate Base Rate (“ABR”) plus a margin of 2.50%.

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On March 31, 2021 (the “Closing Date”), the Borrowers amended the Term Loan Facility, as previously amended (the “Third Amended Term Loan Facility”), for the borrowing of a new tranche of term loans in the aggregate principal amount of $50.0 million and matures on February 14, 2024. The Third Amended Term Loan Facility bears interest at the Borrowers’ option of either (i) LIBOR plus a margin of 3.50% or (ii) an ABR plus a margin of 2.50%. There is no LIBOR floor. The add-on to the term loan B facility was issued with 4.0% of original issue discount (“OID”).

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Additionally, the Third Amended Term Loan Facility provides for a revolving loan (the “Revolving Facility”) allowing for an aggregate principal amount of up to $30.0 million. The Revolving Facility is secured on a pari passu basis by the collateral securing the Third Amended Term Loan Facility and will mature on November 15, 2023. The Revolving Facility ~~will bear~~bears interest at the Borrowers’ option of either (i) LIBOR (which will not be less than 0) plus a margin of 2.75% or (ii) or an ABR plus a margin of 1.75%, in each case, with a 25 basis points (“bps”) step-up at a First Lien Net Leverage Ratio level of 3.50:1.00 and two 25 bps step-downs at a First Lien Net Leverage Ratio level of 2.50:1.00 and 1.50:1.00. The First Lien Net Leverage Ratio limits the amount of cash netted against debt to a maximum amount of $60.0 million. The Borrowers are also required to pay a quarterly commitment fee on the undrawn balance of the Revolving Facility at 37.5 bps per annum. As of June 30, ~~2021,~~2022, the Revolving Facility was undrawn.

The Third Amended Term Loan Facility does not have any maintenance covenants. The Revolving Facility will have a springing First Lien Net Leverage Ratio of no greater than 5.00:1.00, tested commencing with the last day of the fiscal quarter ending June 30, 2021, and the last day of each fiscal quarter thereafter, solely to the extent that on such day, the aggregate amount of revolving loans and letter of credit exposure (excluding up to $5.0 million of undrawn letters of credit and cash collateralized or backstopped letters of credit) exceeds 35% of the aggregate commitments under the Revolving Facility.

The Third Amended Term Loan Facility requires the Borrowers to make amortization payments (in quarterly installments) equal to 1.00% per annum with respect to the Third Amended Term Loan Facility with any remaining amount due at final maturity. The Third Amended Term Loan Facility principal payments commenced on June 30, 2021, with a final installment due on February 14, 2024. Voluntary prepayments are permitted, in whole or in part, subject to certain minimum prepayment requirements.

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, 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. Pursuant to the terms of the ~~Second~~Third Amended Term Loan Facility, ~~our Net Leverage Ratio was 2.3x at December 31, 2020, resulting in an excess cash flow percentage of 0% and therefore,~~ no excess cash flow payment was due in March ~~2021.~~2022.

In accordance with ASC 470 – Debt,, the Incremental Facility borrowing was deemed a modification of the Second Term Loan Facility and as such, an additional $2.0 million of ~~OID~~original issue discount (“OID”) incurred in connection with the Third Amended Term Loan Facility was added to the existing ~~OID. As~~OID.As of June ~~30, 2021,~~30,2022, the ~~original issue discount~~OID balance was ~~$2.7~~$1.7 million, net of accumulated amortization of ~~$2.8~~$3.8 million and was recorded as a reduction to the principal amount of the long-term debt outstanding as presented on the accompanying Condensed Consolidated Balance Sheets and will be amortized as a component of interest expense over the term of the Third Amended Term Loan Facility. Financing costs of $0.6 million incurred in connection with the Third Amended Term Loan Facility were expensed in accordance with ASC 470 – Debt and are included in other expenses in the accompanying Condensed Consolidated Statement of Operations at ~~June 30,~~March 31, 2021. 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 ~~$0.7~~$0.4 million, net of accumulated amortization of ~~$2.6~~$2.9 million, are presented as a reduction to the Third Amended Term Loan Facility outstanding at June 30, ~~2021~~2022 as presented on the accompanying Condensed Consolidated Balance Sheets, and will be amortized as a component of interest expense over the term of the Third Amended Term Loan Facility. An additional $0.6 million of deferred costs incurred on the Revolving Facility, in connection with the Third Amended Term Loan Facility, was recorded to prepaid and other current assets and other non-current assets in the accompanying Condensed Consolidated Balance Sheets and will be amortized on a straight-line basis through maturity on November 15, 2023. As of June 30, ~~2021,~~2022, deferred costs for the Revolving Facility were ~~$0.6~~$0.3 million, net of accumulated amortization of ~~$0.1~~$0.3 million.

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The carrying value of the long-term debt approximates fair value at June 30, ~~2021~~2022 and December 31, ~~2020,~~2021, 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 June ~~30, 2021~~30,2022 (amounts in thousands):

Year Ending December 31,

Amount

Amount
Remainder of 2021

$
1,358
2022

2,656
Remainder of 2022

$
1,328
2023

2,656

2,656
2024

246,976

246,976
Total

$
253,646

$
250,960

Note 9. Derivative Instruments

We use derivative financial instruments in the management of our interest rate exposure. Our strategy is to eliminate the cash flow risk on a portion of the variable rate debt caused by changes in the designated benchmark interest rate, LIBOR. The Company does not enter into or hold derivative financial instruments for speculative trading purposes.

On May 4, 2017, we entered into two identical pay-fixed, receive-variable, interest rate swaps with two different counterparties, to hedge the variability in the LIBOR interest payments on an aggregate notional value of $100.0 million of our Senior Notes, through the expiration of the swaps on March 31, 2022. At inception, these interest rate swaps were designated as cash flow hedges of interest rate risk, and as such, the unrealized changes in fair value are recorded in accumulated other comprehensive income (“AOCI”).

The change in the fair value of the interest rate swap agreements for the ~~three~~six months ended June 30, ~~2021 and 2020,~~2022, resulted in an unrealized gain of $0.4 million, and ~~$0.1 million, respectively, and~~ was included in ~~AOCI~~OCI net of taxes. The change in the fair value of the interest rate swap agreements for the three and six months ended June 30, 2021, ~~and 2020,~~ resulted in an unrealized gain of ~~$0.9~~$0.4 million and an unrealized ~~loss~~gain of ~~$2.3~~$0.9 million, respectively, which were included in AOCI net of taxes. The Company paid $0.5 million and $0.4 million of net interest on the settlement of the interest rate swap agreements for each of the three months ended June 30, 2021 and 2020, respectively. The Company paid $0.9 million and $0.4 million of net interest on the settlement of the interest rate swap agreements for the six months ended June 30, ~~2021~~2022. The Company paid $0.5 million and ~~2020, respectively. As~~$0.9 million of ~~June 30, 2021,~~net interest on the ~~Company estimates that none~~settlement of the ~~unrealized loss included in AOCI related to these~~ interest rate swap agreements ~~will be realized~~for each of the three and ~~reported in operations within~~six months ended June 30, 2021, respectively. As a result of the ~~next twelve months. NaN~~expiration of the interest rate swaps on March 31, 2022, 0 gain or loss was recorded in ~~the accompanying Condensed Consolidated Statement of Operations~~operations for the three and six months ended June 30, ~~2021~~2022. NaN gain or loss was recorded in operations for the three and ~~2020.~~

six months ended June 30, 2021. The aggregate fair value of the interest rate swaps was ~~$1.4 million and $2.2~~$0.4 million as of ~~June 30, 2021 and~~ December 31, ~~2020, respectively,~~2021 and was recorded in other long-term liabilities on the accompanying Condensed Consolidated Balance Sheets.

By entering into derivative instrument contracts, we are exposed to counterparty credit risk. Counterparty credit risk is the failure of the counterparty to perform under the terms of the derivative contract. When the fair value of a derivative contract is in an asset position, the counterparty has a liability to us, which creates credit risk for us. We attempt to minimize this risk by selecting counterparties with investment grade credit ratings and regularly monitoring our market position with each counterparty. Our derivative instruments do not contain any credit-risk related contingent features.

Note 10. Fair Value Measurements

Our derivatives are valued using a discounted cash flow analysis that incorporates observable market parameters, such as interest rate yield curves, classified as Level 2 within the valuation hierarchy. Derivative valuations incorporate credit risk adjustments that are necessary to reflect the probability of default by us or the counterparty.

~~Table of Contents~~

The following table presents our assets and liabilities measured at fair value on a recurring basis and the levels of inputs used to measure fair value, which include derivatives designated as cash flow hedging instruments, as well as their location on our accompanying Condensed Consolidated Balance Sheets as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 (amounts in thousands):

Estimated Fair Value

June 30, 2021
Category

Balance Sheet Location

Level 1

Level 2

Level 3

Total
Cash flow hedges:










Interest rate swap

Other long-term liabilities

—

$
1,355

—

$
1,355

Estimated Fair Value

June 30, 2022
Category
Balance Sheet Location
Level 1
Level 2
Level 3
Total
Cash flow hedges:

Interest rate swap

Other long-term liabilities
—

—
—

—

Estimated Fair Value

Estimated Fair Value

December 31, 2020

December 31, 2021
Category

Balance Sheet Location

Level 1

Level 2

Level 3

Total

Balance Sheet Location

Level 1

Level 2

Level 3

Total
Cash flow hedges:








Interest rate swap

Other long-term liabilities

—

$
2,231

—

$
2,231

Other long-term liabilities

—

$
439

—

$
439

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Certain non-financial assets and liabilities are measured at fair value on a nonrecurring basis. These assets and liabilities are not measured at fair value on an ongoing basis but are subject to periodic impairment tests. These items primarily include long-lived assets, goodwill, other intangible assets, and equity method investments. On March 31, 2021, the Company acquired the remaining 75% equity interest in Pantaya. The Company accounted for the acquisition of the remaining 75% equity interest of Pantaya as a step acquisition, which required remeasurement of the Company’s existing 25% equity interest to fair value prior to completing the acquisition method of accounting. The Company utilized a market-based valuation approach to determine the fair value of the existing equity interest by adjusting for a control premium, which was based on comparable market transactions. As a result, the Company increased the value of its existing equity interest to its fair value resulting in the recognition of a non-cash gain of $30.1 million, which was included in (loss) gain on equity method investment activity in the accompanying Condensed Consolidated Statement of Operations for the six months ended June 30, 2021. For more information, see Note 3, “Business Combination” of Notes to Condensed Consolidated Financial Statements. There were no other changes to the fair value of non-financial assets and liabilities measured on a nonrecurring basis.

The carrying amounts of cash, accounts receivable and accounts payable approximate fair value because of the short maturity of these items. The carrying value of the long-term debt approximates fair value because this instrument bears interest at a variable rate, is pre-payable, and is at terms currently available to the Company.

Note 11. Stockholders’ Equity

Capital stock

As of June 30, ~~2021,~~2022, the Company had ~~20,484,602~~20,827,861 shares of Class A common stock, and 19,720,381 shares of Class B common stock, issued and outstanding.

On November 18, 2020, the Company announced that its Board of Directors authorized the repurchase of up to $20.0 million of the Company’s Class A common stock, par value $0.0001 per share (“Class A common stock”). Under the Company’s stock repurchase program, management is authorized to purchase shares of the Company’s common stock from time to time through open market purchases at prevailing prices, subject to stock price, business and market conditions and other factors. The expiration date for the repurchase plan is November 19, 2021. For the six months ended June 30, 2021, the Company repurchased 127,458 shares of Class A common stock under the repurchase program for an aggregate purchase price of $1.3 million. As of June 30, 2021, the Company repurchased 0.2 million shares of Class A common stock under the repurchase program for an aggregate purchase price of $1.7 million, and the repurchased shares were recorded as treasury stock on the accompanying Condensed Consolidated Balance Sheets. As of June 30, 2021, the Company had $18.3 million remaining for future repurchases under the existing stock repurchase program.

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Equity incentive plans

Effective May 25, 2021, 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 “Equity Incentive Plan”) to increase the number of shares of Class A common stock that may be delivered under the Equity Incentive Plan to an aggregate of 10.2 million shares of our Class A common stock. At June 30, ~~2021, 3.2~~2022, 2.9 million shares remained available for issuance of stock options or other ~~stock-based~~stock based awards under our 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 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 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 3 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 performance-based restricted stock awards and option awards vest based on the achievement of certain non-market-based performance metrics of the Company, subject to the grantee’s continued employment or service with the Company. The ~~event-based~~event based restricted stock awards granted to certain members of our Board vest on the day preceding the Company’s annual ~~stockholder~~shareholder meeting.

Stock-based compensation

Stock-based compensation expense ~~related~~relates to both stock options and restricted ~~stock~~stock. Stock-based compensation expense was ~~$1.5~~$0.8 million and ~~$1.4~~$1.5 million for the three months ended June 30, ~~2021~~2022 and ~~2020,~~2021, respectively, and ~~$2.8~~$2.2 million and ~~$2.6~~$2.8 million for the six months ended June 30, 2022 and 2021, ~~and 2020,~~ respectively. ~~As of~~At June 30, ~~2021,~~2022, there was ~~$3.9~~$2.2 million of total unrecognized compensation cost related to unvested stock options, which is expected to be recognized over a weighted-average period of ~~2.0~~1.9 years. ~~As of~~At June 30, ~~2021,~~2022, there was ~~$5.0~~$3.7 million of total unrecognized compensation cost related to unvested restricted stock, which is expected to be recognized over a weighted-average period of 1.8 years.

~~Stock options~~

The fair value of stock options granted is estimated at the date of grant using the Black-Scholes pricing model for time-based options and performance-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 0 dividend yield, as dividends have never been paid to stock or option holders and will not be paid for the foreseeable future.

Six Months Ended

Year Ended

Black-Scholes Option Valuation Assumptions

June 30, 2021

December 31, 2020

Risk-free interest rate

0.97% – 1.08
%

0.42% - 0.50
%
Dividend yield

—

—

Volatility

37.3% - 39.8
%

44.2% - 46.1
%
Weighted-average expected term (years)

6.0

6.0

~~Table of Contents~~

~~The following table summarizes stock option activity for the six months ended June 30, 2021~~ ~~(shares and intrinsic value in thousands)~~:

Weighted-

Weighted- average

average

remaining contractual

Aggregate intrinsic


Number of shares

exercise price

term

value
Outstanding at December 31, 2020

3,935

$
11.69

5.1

$
291
Granted

495

11.87

6.0

—
Exercised

(50)

10.20

—

—
Forfeited

—

—

—

—
Expired

—

—

—

—
Outstanding at June 30, 2021

4,380

$
11.68

5.1

$
2,356
Vested at June 30, 2021

3,452

$
11.64

4.2

$
2,188
Exercisable at June 30, 2021

3,452

$
11.64

4.2

$
2,188

The weighted average grant date fair value of options granted for the six months ended June 30, 2021 was $4.64. At June 30, 2021, 0.5 million options granted and included in the table above are unvested performance-based options.

~~Restricted stock~~

Certain employees and directors have been awarded restricted stock under the 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.

~~The following table summarizes restricted share activity for the six months ended June 30, 2021 (~~~~shares in thousands~~):

Weighted-average


Number of shares

grant date fair value
Outstanding at December 31, 2020

499

$
11.26
Granted

512

11.87
Vested

(518)

11.29
Forfeited

—

—
Outstanding at June 30, 2021

493

$
11.87

~~Note 12. 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 13. Leases~~

~~The Company is a lessee under leases for land, office space and equipment with third parties, all of which are accounted for as operating leases. These leases generally have an initial term of~~ ~~one~~ to seven years and provide for fixed monthly payments. Some of these leases provide for future rent escalations and renewal options and certain leases also obligate us to pay the cost of maintenance, insurance and property taxes. Total lease cost was $0.3 million and $0.2 million for the three months ended June 30, 2021 and 2020, respectively, and $0.5 million and $0.4 million for the six months ended June 30, 2021 and 2020, respectively. Leases with a term of one year or less are classified as short-term and are not recognized in the Condensed Consolidated Balance Sheets.

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Stock options

The fair value of stock options granted is estimated at the date of grant using the Black-Scholes pricing model for time-based options and performance-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. As of January 1, 2022, the Company determined that it had sufficient trading history to provide a reliable measure of expected volatility. As a result, the Company transitioned from peer group volatility to the Company’s historical volatility as a basis for expected volatility. 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. As of January 1, 2022, the Company determined that it had sufficient historical data to utilize its own forfeiture rate. As a result, the Company transitioned from an estimated forfeiture rate of 1.5% to a historical forfeiture rate of 2.6%. The Company 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.

Six Months Ended

Year Ended

Black-Scholes Option Valuation Assumptions

June 30, 2022

December 31, 2021

Risk-free interest rate

1.93
%

0.94% – 1.29
%
Dividend yield

—

—

Volatility

40.4
%

37.3% – 40.7
%
Weighted-average expected term (years)

6.0

6.0

The following table summarizes stock option activity for the six months ended June 30, 2022 (shares and intrinsic value in thousands):

Weighted-

average

Weighted-

remaining

Aggregate

Number of

average

contractual

intrinsic


shares

exercise price

term

value
Outstanding at December 31, 2021

4,445

$
11.69

4.8

$
—
Granted

105

5.44

6.0

—
Exercised

—

—

—

—
Forfeited

(182)

11.55

—

—
Expired

(8)

10.39

—

—
Outstanding at June 30, 2022

4,360

$
11.55

4.3

$
221
Vested at June 30, 2022

3,785

$
11.69

3.6

$
—
Exercisable at June 30, 2022

3,785

$
11.69

3.6

$
—

The weighted average grant date fair value of options granted for the six months ended June 30, 2022 was $2.26. At June 30, 2022, 0.3 million options granted and included in the table above are unvested performance-based options.

Restricted stock

Certain employees and directors have been awarded restricted stock under the Equity Incentive Plan. The time-based restricted stock grants vest primarily over a period of three years. Performance-based restricted stock grants vest over a period of three years upon satisfaction of the performance condition.

The following table summarizes restricted share activity for the six months ended June 30, 2022 (shares in thousands):

Number of

Weighted-average


shares

grant date fair value
Outstanding at December 31, 2021

614

$
11.79
Granted

285

6.09
Vested

(329)

12.09
Forfeited

(59)

12.00
Outstanding at June 30, 2022

511

$
8.40

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Non-controlling interest

Effective July 15, 2021, the Company entered into an omnibus modification agreement with Snap Distribution, Inc., a British Virgin Islands company, pursuant to which Snap Distribution, Inc. relinquished the non-controlling 25% interest in Snap Media, at which point Snap Media became a wholly owned subsidiary of the Company. The Company recorded the relinquishment of this non-controlling interest by Snap Distribution, Inc. as a transaction between shareholders with no gain or loss reported.

Note 12. 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 13. Leases

The Company is a lessee under leases for office space, land and equipment with third parties, all of which are accounted for as operating leases. These leases generally have an initial term of one to seven years and provide for fixed monthly payments. Some of these leases provide for future rent escalations and renewal options and certain leases also obligate us to pay the cost of maintenance, insurance and property taxes. Total lease cost was $0.3 million for the each of the three months ended June 30, 2022 and 2021, respectively, and $0.5 million for each of the the six months ended June 30, 2022 and 2021, respectively. Leases with a term of one year or less are classified as short-term and are not recognized in the Condensed Consolidated Balance Sheets.

A summary of the classification of operating leases on our Condensed Consolidated Balance Sheets as of June 30, ~~2021~~2022 and December 31, ~~2020~~2021 (amounts in thousands):


June 30,

December 31,


June 30,

December 31,



2021

2020


2022

2021
Operating lease right-of-use assets



$
1,544

$
1,820



$
1,027

$
1,281
Operating lease liability, current

(Other accrued expenses)

678

609

(Other accrued expenses)

605

538
Operating lease liability, non-current

(Other long-term liabilities)

$
1,079

$
1,400

(Other long-term liabilities)

$
587

$
890

The decrease in lease assets and liabilities as of June 30, 2022 is due to the Held for Sale classification of Pantaya's assets and liabilities. For more information, see Note 4, "Held for Sale" of Notes to Condensed Consolidated Financial Statements.
Components of lease cost reflected in our Condensed Consolidated Statement of Operations for the three and six months ended June 30, ~~2021~~2022 and ~~2020~~2021 (amounts in thousands):

Three months ended June 30,

Three months ended June 30,


2021

2020

2022

2021
Operating lease cost

$
168

$
152

$
203

$
168
Short-term lease cost

135

12

49

135
Total lease cost

$
303

$
164

$
252

$
303

Six months ended June 30,

Six months ended June 30,


2021

2020

2022

2021
Operating lease cost

$
337

$
320

$
397

$
337
Short-term lease cost

178

85

93

178
Total lease cost

$
515

$
405

$
490

$
515

A summary of weighted-average remaining lease term and weighted-average discount rate as of June 30, ~~2021:~~2022:

Weighted-average remaining lease term

~~3.3~~2.7
years
Weighted average discount rate

~~6.2~~6.0
%

~~Supplemental cash flow and other non-cash information for the six months ended June 30, 2021 and 2020 (~~~~amounts in thousands~~):

Six months ended June 30,


2021

2020
Operating cash flows from operating leases

$
304

$
288
Operating lease right-of-use assets obtained in exchange for new operating lease liabilities

—

—

~~Future annual minimum lease commitments as of June 30, 2021 were as follows (~~~~amounts in thousands~~):


June 30, 2021
Remainder of 2021

$
407
2022

614
2023

494
2024

226
2025

201
Total minimum payments

$
1,942
Less: amount representing interest

(185)
Lease liability

$
1,757

2825

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Supplemental cash flow and other non-cash information for the six months ended June 30, 2022 and 2021 (amounts in thousands):

Six months ended June 30,


2022

2021
Operating cash flows from operating leases

$
352

$
304

Future annual minimum lease commitments as of June 30, 2022 were as follows (amounts in thousands):


June 30, 2022
Remainder of 2022

$
333
2023

517
2024

232
2025

146
2026

58
Total minimum payments

$
1,286
Less: amount representing interest

(95)
Lease liability

$
1,191

Note 14. Commitments

The Company has other commitments, primarily related to programming, in addition to the various operating leases included in Note 13, “Leases” of Notes to Condensed Consolidated Financial ~~Statements, primarily programming and marketing.~~Statements.

Future minimum payments as of June 30, ~~2021,~~2022, are as follows (amounts in thousands):


June 30, 2021

June 30, 2022
Remainder of 2021

$
16,662
2022

11,752
Remainder of 2022

$
24,224
2023

2,626

7,664
2024

685

4,653
2025 and thereafter

575
2025

1,758
2026 and thereafter

417
Total

$
32,300

$
38,716

Note 15. Subsequent Events

~~Effective~~On July ~~15, 2021,~~1, 2022, the Company ~~entered into an agreement with Snap Distribution, Inc., a British Virgin Islands company, pursuant to which, Snap Distribution, Inc. will relinquish the 25% minority~~sold its 25.5% ownership interest in ~~Snap Global, LLC, at which point Snap Global, LLC will become~~REMEZCLA, a ~~wholly owned subsidiary of the Company. Additionally, Snap Distribution, Inc. waived the remaining consideration payment of $0.5~~digital media company targeting English speaking and bilinigual U.S. Hispanic millennials through innovative content, for $3.0 million ~~which would have been payable~~ in ~~the fourth quarter of 2021.~~cash.

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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 a premium Spanish-language streaming ~~broadcast and cable television platforms including~~platform distributed in the U.S., five Spanish-language cable television networks distributed in the U.S., two Spanish-language cable television networks distributed in Latin America, the #1-rated broadcast television network in Puerto Rico, ~~the leading Spanish-language subscription streaming service in the U.S.,~~ a leading distributor of content to television and digital media platforms in Latin America and ~~have an ownership~~a 40% interest in ~~a leading~~the #3-rated broadcast television network in Colombia.
Headquartered in Miami, Florida, our portfolio consists of the following:
● Pantaya: the first ever premium subscription streaming service of Spanish-language media offering the largest selection of current and classic, commercial free blockbusters and exclusive rights to critically acclaimed movies and series from Latin America and the U.S. including original productions and titles from our library, as well as titles from third party producers. The Company formed Pantaya in partnership with Lionsgate and launched the service in August 2017 with a 25% equity interest. On March 31, 2021, the Company acquired the remaining 75% equity interest from Lionsgate, and Pantaya is now a wholly-owned consolidated subsidiary of the Company. As of June 30, 2022, Pantaya had close to one million subscribers. On May 9, 2022, the Company entered into an agreement to sell Pantaya to TelevisaUnivision. For more information, see Note 4, “Held for Sale” of Notes to Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report.
● Cinelatino: the leading Spanish-language cable movie network with approximately ~~3.6~~3.3 million⁽¹⁾ subscribers in the U.S. and ~~14.0~~13.3 million⁽¹⁾ subscribers across Latin America and Canada. Cinelatino is programmed with a lineup featuring the best contemporary films and original television series from Mexico, Latin America, and the United States. Driven by the strength of its programming and distribution, Cinelatino is the highest rated Spanish-language original movie network in the U.S.
● 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 since the start of Nielsen audience measurement ~~eleven~~twelve years ago. WAPA is Puerto Rico’s news leader and the largest local producer of news and entertainment programming, producing over 6770 hours in the aggregate each week. Additionally, we operate WAPA.TV, a leading news and entertainment website in Puerto Rico, as well as mobile apps, featuring content produced by WAPA.
● WAPA Deportes: through its multicast signal, WAPA distributes WAPA Deportes, a leading sports television network in Puerto Rico, featuring ~~MLB~~Major League Baseball (MLB), ~~NBA~~National Basketball Association (NBA) and professional sporting events from Puerto Rico.
● WAPA America: a cable television network serving primarily Puerto Ricans and other Caribbean Hispanics living in the U.S. WAPA America’s programming features news and entertainment programming produced by WAPA. WAPA America is distributed in the U.S. to over ~~3.4~~3.2 million⁽¹⁾ ~~subscribers, excluding digital basic~~ 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 top-rated telenovelas from Latin America, Turkey, India, and South Korea (dubbed into Spanish), and is currently the highest rated telenovela cable television network in primetime. Pasiones has approximately ~~3.9~~3.6 million⁽¹⁾ subscribers in the U.S. and ~~15.5~~15.4 million⁽¹⁾ subscribers in Latin America.
● Centroamerica TV: a cable television network targeting Central Americans living in the U.S., 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 ~~over 3.3~~approximately 3.1 million⁽¹⁾ subscribers.

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●

Television Dominicana: a cable television network targeting Dominicans living in the U.S., the ~~fifth~~fourth largest U.S. Hispanic national group. Television Dominicana airs the most popular news and entertainment programs from the Dominican Republic, as well as the Dominican Republic professional baseball league, featuring current and former players from MLB. Television Dominicana is distributed in the U.S. to ~~over~~approximately 2.2 million⁽¹⁾ ~~subscribers.~~

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●

~~Pantaya:~~ the first ever premium subscription streaming service of Spanish-language offering the largest selection of current and classic, commercial free blockbusters and critically acclaimed movies and series from Latin America and the U.S. including original productions from Pantaya’s production arm, Pantelion, and titles from our library, as well as titles from third party providers such as Lionsgate and Grupo Televisa. The Company formed Pantaya in partnership with Lionsgate and launched the service in August 2017. On March 31, 2021, the Company acquired the remaining 75% equity interest from Lionsgate, and is now a consolidated subsidiary of the Company effective as of the Acquisition Date. As of June 30, 2021, Pantaya had nearly 1.0 million subscribers.

●

Snap Media: a distributor of content to broadcast and cable television networks and OTT, SVOD and AVOD platforms in Latin America. On November 26, 2018, we acquired a 75% interest in Snap Media, and in connection with the acquisition, Snap Media entered into a joint venture with MarVista, an independent entertainment studio and a shareholder of Snap Media, to produce original movies and series. Snap Media is responsible for the distribution of content owned and/or controlled by our Networks, as well as content to be produced by the production joint venture between Snap Media and MarVista. On July 15, 2021, the Company entered into an omnibus agreement, pursuant to which, minority shareholders relinquished the 25% non-controlling interest in Snap Media, at which point Snap Media became a wholly owned subsidiary of the Company.

●

Canal 1: the #3-rated broadcast television network in Colombia. We own a 40% interest in Canal 1 in partnership with leading producers of news and entertainment content in Colombia. The partnership was awarded a 10-year renewable broadcast television concession in 2016. The partnership began operating Canal 1 on May 1, 2017 and launched a new programming lineup on August 14, 2017. In July 2019, the Colombian government enacted legislation resulting in the extension of the concession license for an additional ten years for no additional consideration. The concession is now due to expire on April 30, 2037 and is renewable for an additional 20-year period.

●

REMEZCLA: a digital media company targeting English speaking and bilingual U.S. Hispanic millennials through innovative content. On April 28, 2017, we acquired a 25.5% interest in REMEZCLA. For more information, see Note 15, “Subsequent Events” of Notes to Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report.

⁽¹⁾

⁽¹⁾Subscriber amounts are based on most recent remittances received from our Distributors as of the period end date, which are typically two months prior to the period end date.

Our two primary sources of revenues are advertising revenue and subscriber revenue. All of our Networks derive revenues from advertising. Advertising revenue is generated from the sale of advertising time, which is typically sold pursuant to advertising orders with ~~advertisers providing for an agreed upon advertising commitment and price per spot.~~advertisers. Our advertising revenue is tied to the success of our programming, including the popularity of our programming with our target audience. 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 ~~increased~~political advertising ~~sales~~ in an election year. For example, in 2020, we experienced higher advertising sales as a result of political advertising spending during the 2020 Puerto Rico gubernatorial elections. ~~The next election~~Elections in Puerto Rico ~~will be in 2024.~~occur every 4 years.

~~Table of Contents~~

All of our Networks receive fees paid by ~~distributors, including cable, satellite and telecommunications service providers.~~Distributors. These revenues are generally based on a per subscriber fee pursuant to multi-year contracts, commonly referred to as “affiliation agreements,” which typically provide for annual rate increases. The specific subscriber revenue we earn varies from period to period, ~~distributor~~Distributor to ~~distributor~~Distributor and also varies among our Networks, but is generally based upon the number of each ~~distributor’s~~Distributor’s paying subscribers who receive our Networks. The terms of certain non-U.S. affiliation agreements provide for payment of a fixed contractual monthly fee. Changes in subscriber revenue at our Networks 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~~Distributors report their subscriber numbers to our ~~programming to ensure that it is maximizing our Networks’ viewership and giving our Networks’ subscribers~~Networks generally on a ~~premium, high-value experience. The growth in our subscriber~~two month lag. We record revenue ~~will, to a certain extent, be dependent~~based on ~~the growth in subscribers~~estimates of the ~~cable, satellite~~number of subscribers utilizing the most recently received remittance reporting of each MVPD, which is consistent with our past practice and ~~telecommunication~~industry practice. Revenue is recognized on a month by month basis when the performance obligations to provide service ~~providers distributing our Networks, new system launches~~to the Distributors is satisfied. Payment is typically due and ~~continued carriage~~received within sixty days of ~~our channels by our distribution partners. Additionally, our revenues benefit from contractual rate increases stipulated in most of our affiliation agreements.~~the remittance. We also generate subscriber revenue from ~~monthly~~ subscriptions to Pantaya, our ~~subscription video on demand (“SVOD”) service. The SVOD service~~streaming platform. Pantaya is available directly to consumers through our web application as well as through distribution partners. Certain distribution partners charge a fee, which is recorded in cost of revenues. Subscribers are billed at the start of their monthly or annual membership and revenue is recognized ratably over each applicable membership period. Subscriber revenue varies from period to period and is generally based upon the number of paying subscribers to our ~~SVOD service.~~streaming platform. Estimates of revenue generated but not yet reported by the Company’s third party ~~distributors~~Distributors are made based on the

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estimated number of subscribers using ~~recent reporting.~~the most recently received remittance reporting from each Distributor, which is consistent with our past practice and industry practice.

WAPA has been the #1-rated broadcast television network in Puerto Rico since the start of Nielsen audience measurement ~~eleven~~twelve years ago and management believes it is highly valued by its viewers and cable, satellite and telecommunications service providers. WAPA is distributed by all pay-TV distributors in Puerto Rico and has been successfully growing ~~subscriber~~affiliate revenue. WAPA’s primetime household rating ~~in 2020~~for the year ended December 31, 2021 was nearly ~~five~~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 since the start of Nielsen audience measurement, management believes WAPA is well positioned for future growth in subscriber revenue.

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. cable 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 growth in the U.S. Hispanic population, which is expected to continue its long-term upward trajectory.

Hispanics represent ~~over~~ 18% of the total U.S. television household population and 11% of the total U.S. buying power, but the aggregate linear television 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.~~market.

Management expects ~~Pantaya and~~ our U.S. ~~television~~ networks to benefit from growth in the U.S. Hispanic population, as it continues its long-term growth. ~~The~~According to the 2020 U.S. Census, ~~Bureau estimated that~~ nearly ~~60.5~~62.1 million Hispanics resided in the United States in ~~2019,~~2020, representing an increase of more than 2527 million people between 2000 and ~~2019,~~2020, and that number is projected to grow to approximately 75 million by 2030. U.S. Hispanic television households grew by ~~36%~~35% during the period from 2010 to 2021, from 12.9 million households to ~~17.6~~17.5 million households.

Similarly, management expects Cinelatino and Pasiones to benefit from growth in Latin America. Pay-TV subscribers in Latin America (excluding Brazil) are projected to grow from 5553 million in ~~2020~~2021 to 60 million by 2025. Furthermore, as of December 31, ~~2020,~~2021, Cinelatino and Pasiones were ~~each~~ distributed to ~~only~~approximately 26% and 29% of total pay-TV subscribers throughout Latin America (excluding Brazil)., respectively.

Colombia, where we own 40% of Canal 1, the #3-rated broadcast television network, is a large and ~~attractive~~appealing market for broadcast television. Colombia had aan estimated population of 5151.6 million as of ~~December 31, 2020,~~January 1, 2022, the second largest in Latin America (excluding Brazil). According to IBOPE, the three major broadcast networks in Colombia receive a ~~59%~~55% share of overall ~~television~~

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viewing. ~~These factors resulted in an annual market for~~According to ASOMEDIOS, the free-to-air television advertising ofmarket was approximately ~~$207~~$256 million for ~~2020~~2021 (as converted utilizing the average foreign exchange rate during the period).

MVS, one of our stockholders, provides operational, technical and distribution services to Cinelatino pursuant to several agreements, including an agreement pursuant to which MVS provides satellite and technical support and other administrative support services, an agreement that grants MVS the non-exclusive right to distribute the Cinelatino service to third party distributors in Mexico, and an agreement between Cinelatino and Dish Mexico (an affiliate of MVS), pursuant to which Dish Mexico distributes Cinelatino and pays subscriber fees to Cinelatino. While some of these agreements have expired, we are continuing to operate as though these agreements are in effect while we negotiate their renewals (which may be on different terms).

~~COVID-19 Pandemic~~

~~In March 2020, the World Health Organization characterized the coronavirus~~As of January 31, 2022, Univision Holdings II, Inc., together with its wholly-owned subsidiary, Univision Communications, Inc. and Grupo Televisa, S.A.B. (“~~COVID-19”~~Televisa”) ascompleted a ~~pandemic, and the President of the United States declared the COVID-19 outbreak~~merger to establish a national emergency. The rapid spread of COVID-19 and the continuously evolving responses to combat it have had a negative impact on the global economy. Even during these unprecedented times, we have continued the production of news and entertainment programming, as our viewers rely on our Networks to keep them informed.

The impact of COVID-19 and measures to prevent its spread have continued to affect our businesses in a number of ways. Beginning in March 2020, the Company experienced adverse advertising revenue impacts. Operationally, most non-production and programming personnel are working remotely, and the Company has restricted business travel.new combined company named TelevisaUnivision, Inc. (“TelevisaUnivision”). The Company has ~~managed the remote workforce transition effectively~~various agreements with TelevisaUnivision (including its various divisions and ~~there have been no material adverse impacts on operations through June 30, 2021. While the Company’s advertising revenue improved~~affiliates), which has directors in ~~second half of 2020 and continued into the first half of 2021,~~common with the Company is unable to reasonably predict the impact that a significant change in circumstances, including the ability of our workforce and/or key personnel to work effectively because of illness, government actions or other restrictions in connection with the COVID-19 pandemic,(who may have on our businesses in the future. The nature and full extent of the impact of the COVID-19 pandemic on our future operations will depend on numerous factors, all of which are highly uncertain and cannot be reasonably predicted. These factors include the length and severity of the outbreak, including the extent of surges in positive cases related to variants of COVID-19 , such as the Delta variant, as well as the availability and efficacy of vaccines and treatments for the disease and whether individuals choose to vaccinate themselves, the responses of private sector businesses and governments, including the timing and amount of government stimulus, the impact on economic activity and the impact on our customers, employees and suppliers.

The Company has evaluated and continues to evaluate the potential impact of the COVID-19 pandemic on its Condensed Consolidated Financial Statements, including the impairment of goodwill and indefinite-lived intangible assets and the fair value of equity method investments. The ultimate impact of the COVID-19 pandemic, including the extent of any adverse impact on our business, results of operations and financial condition, remains uncertain. The Company believes it has substantial liquidity to satisfy its financial commitments.

Given the global nature of the COVID-19 pandemic, our investment in Canal 1, which operates in Colombia, is also negatively impacted. Colombia’s President Ivan Duque declared a state of emergency, locking down the country on March 20, 2020. Since then, the restrictions on business and other activities have been lifted gradually but have never been totally eliminated, and the state of emergency declaration has been extended to November 25, 2021. Currently, restrictions remain, including limiting operating capacity of the airline industry, restaurants, and hotels to a maximum of 30%, while movie theaters are partially open, other entertainment venues remain closed, and most government discretionary spending continues to be frozen. All of these circumstances have hadhold a material adverse impact on advertising spending, and accordingly, have had a material adverse impact on Canal 1’s advertising revenue. It remains unclear when advertising will return to pre-COVID-19 levels. In May 2021, the third wave of the pandemic hit the country severely. As of July 20, 2021, 31 million vaccine dozes have arrived, and only 31% of the population target have received the full vaccination cycle.financial interest in TelevisaUnivision).

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Comparison of Consolidated Operating Results for the Three and Six Months Ended June 30, ~~2021~~2022 and ~~2020~~2021

(Unaudited)

(amounts in thousands)


	Three Months Ended				$ Change		% Change		Six Months Ended				$ Change		% Change		Three Months Ended				$ Change		% Change		Six Months Ended				$ Change		% Change
	June 30,				Favorable/		Favorable/		June 30,				Favorable/		Favorable/		June 30,				Favorable/		Favorable/		June 30,				Favorable/		Favorable/
	2021		2020		(Unfavorable)		(Unfavorable)		2021		2020		(Unfavorable)		(Unfavorable)		2022		2021		(Unfavorable)		(Unfavorable)		2022		2021		(Unfavorable)		(Unfavorable)
Net revenues	$	50,460	$	34,735	$	15,725	45.3	%	$	88,037	$	67,144	$	20,893	31.1	%	$	54,174	$	50,460	$	3,714	7.4	%	$	102,973	$	88,037	$	14,936	17.0	%
Operating expenses:
Cost of revenues		14,798		12,560		(2,238)	(17.8)	%		26,577		23,527		(3,050)	(13.0)	%		18,348		14,798		(3,550)	(24.0)	%		33,473		26,577		(6,896)	(25.9)	%
Selling, general and administrative		24,908		10,208		(14,700)	NM			36,299		21,441		(14,858)	(69.3)	%		25,911		24,908		(1,003)	(4.0)	%		56,569		36,299		(20,270)	(55.8)	%
Depreciation and amortization		4,337		2,794		(1,543)	(55.2)	%		7,002		5,925		(1,077)	(18.2)	%		3,335		4,337		1,002	23.1	%		10,964		7,002		(3,962)	(56.6)	%
Other expenses		1,363		27		(1,336)	NM			8,091		3,048		(5,043)	NM			8,939		1,363		(7,576)	NM			10,057		8,091		(1,966)	(24.3)	%
(Gain) loss from FCC spectrum repack and other		(2,124)		182		2,306	NM			(2,176)		173		2,349	NM
(Gain) from FCC spectrum repack and other																		(95)		(2,124)		(2,029)	(95.5)	%		(141)		(2,176)		(2,035)	(93.5)	%
Total operating expenses		43,282		25,771		(17,511)	(67.9)	%		75,793		54,114		(21,679)	(40.1)	%		56,438		43,282		(13,156)	(30.4)	%		110,922		75,793		(35,129)	(46.3)	%
Operating income		7,178		8,964		(1,786)	(19.9)	%		12,244		13,030		(786)	(6.0)	%
Operating (loss) income																		(2,264)		7,178		(9,442)	NM			(7,949)		12,244		(20,193)	NM
Other (expense) income:
Interest expense and other, net		(3,165)		(2,496)		(669)	(26.8)	%		(5,523)		(5,282)		(241)	(4.6)	%		(3,111)		(3,165)		54	1.7	%		(6,275)		(5,523)		(752)	(13.6)	%
(Loss) gain on equity method investment activity		(8,569)		(10,189)		1,620	15.9	%		24,040		(17,208)		41,248	NM
Impairment of equity method investment		—		—		—	—			—		(5,479)		5,479	100.0	%
Gain (loss) on equity method investment activity																		2,283		(8,569)		10,852	NM			(2,489)		24,040		(26,529)	NM
Other expense, net		—		—		—	—			(668)		—		(668)	NM			—		—		—	NM			—		(668)		668	100.0	%
Total other (expense) income		(11,734)		(12,685)		951	7.5	%		17,849		(27,969)		45,818	NM			(828)		(11,734)		10,906	92.9	%		(8,764)		17,849		(26,613)	NM
(Loss) income before income taxes		(4,556)		(3,721)		(835)	(22.4)	%		30,093		(14,939)		45,032	NM			(3,092)		(4,556)		1,464	32.1	%		(16,713)		30,093		(46,806)	NM
Income tax expense		(1,785)		(2,884)		1,099	38.1	%		(3,053)		(1,209)		(1,844)	NM			(819)		(1,785)		966	54.1	%		(426)		(3,053)		2,627	86.0	%
Net (loss) income		(6,341)		(6,605)		264	4.0	%		27,040		(16,148)		43,188	NM			(3,911)		(6,341)		2,430	38.3	%		(17,139)		27,040		(44,179)	NM
Net loss (income) attributable to non-controlling interest		55		(77)		132	NM			32		38		(6)	(15.8)	%
Net loss attributable to non-controlling interest																		—		55		(55)	(100.0)	%		—		32		(32)	(100.0)	%
Net (loss) income attributable to Hemisphere Media Group, Inc.	$	(6,286)	$	(6,682)	$	396	5.9	%	$	27,072	$	(16,110)	$	43,182	NM		$	(3,911)	$	(6,286)	$	2,375	37.8	%	$	(17,139)	$	27,072	$	(44,211)	NM

NM = Not meaningful

Net Revenues

Net revenues were ~~$50.5~~$54.2 million for the three months ended June 30, ~~2021,~~2022, an increase of ~~$15.7~~$3.7 million, or ~~45%~~7%, as compared to ~~$34.7~~$50.5 million for the comparable period in ~~2020,~~2021. Subscriber revenue decreased $0.2 million, or 1%, primarily due to a decline in U.S. cable subscribers, offset in part by contractual rate increases and new launches of our Cable Networks. Advertising revenue decreased $0.2 million, or 1%, driven by a decline in ~~both subscriber revenue and advertising revenue. Subscriber~~ad sales at our Cable Networks. Other revenue increased ~~$12.9~~$4.1 million driven primarily by the licensing of content to third parties.

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Net revenues were $103.0 million for the six months ended June 30, 2022, an increase of $14.9 million, or ~~67%~~17%, as compared to $88.0 million for the comparable period in 2021, primarily due to the inclusion of Pantaya, which the Company acquired on March 31, 2021, as well as, contractual rate increases and new launches of our television Networks, offset in part by a decline in U.S. cable subscribers. Advertising revenue increased $4.9 million, or 40%, primarily due to growth in the Puerto Rico television advertising market, coupled with an increase in WAPA’s share of the market, as well as an increase in advertising revenue at our Cable Networks. Other revenue decreased $2.1 million, or 69%, driven primarily by the timing of the licensing of content.

Net revenues were $88.0 million for the six months ended June 30, 2021, an increase of $20.9 million, or 31%, as compared to $67.1 million for the comparable period in 2020, due to increases in both subscriber revenue and advertising revenue.2021. Subscriber revenue increased ~~$13.1~~$12.0 million, or ~~33%~~23%, primarily due to the inclusion of ~~Pantaya, which the Company acquired on March 31, 2021, as well as, contractual rate increases and new launches of our television Networks, offset in part~~Pantaya. Advertising revenue decreased $0.1 million, driven by a decline in U.S. cable subscribers. Advertising revenue increased $9.0 million, or 37%, primarily due to growth in the Puerto Rico television advertising market, coupled with an increase in WAPA’s share of the market, as well as an increase in advertising revenuead sales at our Cable Networks. Other revenue ~~decreased $1.1~~increased $3.0 million ~~or 30%,~~ driven primarily by the ~~timing of the~~ licensing of ~~content.~~content to third parties.

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Operating Expenses

~~Cost of Revenues:~~Cost of revenues consists primarily of programming and production costs, programming amortization, ~~participation~~technical and ~~residual costs,~~ streaming delivery costs and distribution fees. Cost of revenues for the three months ended June 30, ~~2021,~~2022, were ~~$14.8~~$18.3 million, an increase of ~~$2.2~~$3.6 million, or ~~18%~~24%, compared to ~~$12.6~~$14.8 million for the comparable period in ~~2020.~~2021, due to programming costs related to content licensed to third parties. Cost of revenues for the six months ended June 30, ~~2021,~~2022, were ~~$26.6~~$33.5 million, an increase of ~~$3.1~~$6.9 million, or ~~13%~~26%, compared to ~~$23.5~~$26.6 million for the comparable period in ~~2020. These increases were~~2021, due to the inclusion of Pantaya ~~primarily~~and programming costs related to content ~~and streaming delivery costs and distribution expenses. Additionally, programming and production costs increased due~~licensed to ~~the postponement or cancelation of certain programming and sporting events in the prior year periods due to the pandemic.~~
third parties.
Selling, General and Administrative:Selling, general and administrative expenses consist principally of marketing, ~~and~~ research, employee costs, stock-based compensation, ~~employee costs, occupancy costs~~ and other general administrative costs. Selling, general, and administrative expenses for the three months ended June 30, ~~2021,~~2022, were ~~$24.9~~$25.9 million, an increase of ~~$14.7~~$1.0 million or 4%, compared to ~~$10.2~~$24.9 million for the comparable period in ~~2020.~~2021, due to higher personnel costs, offset in part by a decrease in stock compensation. Selling, general, and administrative expenses for the six months ended June 30, ~~2021,~~2022, were ~~$36.3~~$56.5 million, an increase of ~~$14.9~~$20.3 million, or ~~69%~~56%, compared to ~~$21.4~~$36.3 million for the comparable period in ~~2020. These increases were~~2021, due to the inclusion of Pantaya, ~~primarily~~including higher marketing and personnel ~~expenses, as well as higher advertising sales commissions due to higher advertising revenue, and higher stock-based~~costs, offset in part by a decrease in stock compensation. The increases were also due to cost reductions implemented in the prior year periods in response to the pandemic that we did not have in the current year periods including voluntary salary reductions and employee retention credits.

Depreciation and Amortization: Depreciation and amortization expense consists of depreciation of fixed assets and amortization of intangibles. Depreciation and amortization for the three months ended June 30, ~~2021,~~2022, was ~~$4.3~~$3.3 million, ~~an increase~~a decrease of ~~$1.5~~$1.0 million, or ~~55%~~23%, compared to ~~$2.8~~$4.3 million for the comparable period in ~~2020.~~2021. Depreciation and amortization for the six months ended June 30, ~~2021,~~2022, was ~~$7.0~~$11.0 million, an increase of ~~$1.1~~$4.0 million, or ~~18%~~57%, compared to ~~$5.9~~$7.0 million for the comparable period in ~~2020. These increases~~2021. For the three months period ended June 30, 2022, the decrease is primarily due to the amortization of certain intangible assets that were fully amortized in the prior quarter. For the six months period ended June 30, 2022, the increase was primarily due to the amortization of intangible assets recognized as part of the acquisition of Pantaya, ~~Acquisition,~~ offset in part by the amortization of certain intangible assets that were fully amortized in during the prior year.

Other Expenses: Other expenses include legal and financial advisory fees, and other fees incurred in connection with ~~acquisitions~~transactions and corporate finance activities, including debt and equity financings. Other expenses for the three months ended June 30, ~~2021,~~2022, were ~~$1.4~~$8.9 million, an increase of ~~$1.4~~$7.6 million, compared to ~~$0.0~~$1.4 million in the comparable period in ~~2020,~~2021, due to transaction expenses ~~incurred in connection with~~related to the ~~Pantaya Acquisition.~~announced transactions. Other expenses for the six months ended June 30, ~~2021,~~2022, were ~~$8.1~~$10.1 million, an increase of ~~$5.1~~$2.0 million, compared to ~~$3.0~~$8.1 million in the comparable period in ~~2020,~~2021, due to transaction expenses related to the announced transactions, offset in part by the expenses incurred in connection with the acquisition of Pantaya ~~Acquisition~~ and the incremental borrowing on our Third Amended Term Loan Facility.

~~(Gain) Loss~~Gain from FCC repack and other: ~~(Gain) loss~~Gain from FCC spectrum repack and other primarily reflects reimbursements we have received from the FCC for equipment ~~we have~~ purchased as a result of the FCC ~~mandated~~ spectrum repack, and gain or loss from the sale of assets no longer utilized in the operations of the business. Gain from FCC spectrum repack and other for the three months ended June 30, ~~2021,~~2022, was ~~$2.1~~$0.1 million as compared to ~~a loss of $0.2~~$2.1 million in the comparable period of ~~2020.~~2021. Gain from FCC spectrum repack and other for the six months ended June 30, ~~2021,~~2022, was ~~$2.2~~$0.1 million as compared to ~~a loss of $0.2~~$2.2 million in the comparable period of ~~2020.~~2021. These ~~increases~~decreases were due to reimbursements received in the prior year period from the FCC for equipment purchases required as a result of the FCC ~~mandated~~ spectrum repack and the disposal of assets no longer utilized in the operations of the business during the prior year period.

Other Expenses

Interest Expense and other, net: Interest Expense and other, net: Interest expense for the three ~~and~~months ended June 30, 2022, decreased $0.1 million, or 2%, due to the expiration of our interest rate swaps on March 31, 2022, offset in part by higher average interest rates in the current year period. Interest expense for the six months ended June 30, ~~2021,~~2022, increased ~~$0.7~~$0.8 million, or ~~27% and $0.2 million, or 5%~~14%, ~~respectively. These increases were~~ due to the incremental borrowing on our Third Amended Term Loan Facility ~~and the unfavorable impact from our swaps,~~on March 31, 2021, offset in part by ~~lower average~~the expiration of our interest ~~rates due to the decline in LIBOR.~~
rate swaps.

3531

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Gain (Loss) ~~Gain~~ on Equity Method Investment Activity: ~~Loss~~Gain on equity method investment activity for the three months ended June 30, ~~2021,~~2022, was ~~$8.6~~$2.3 million, ~~a decrease~~an improvement of ~~$1.6~~$10.9 million compared to ~~$10.2~~a loss of $8.6 million for the comparable period in ~~2020,~~2021, due to lower losses at Canal 1 as a result ~~of the favorable impact~~ of unrealized foreign currency gains on U.S. dollar denominated obligations and improved operating results. ~~Gain~~Loss on equity method investment activity for the six months ended June 30, ~~2021,~~2022, was ~~$24.0~~$2.5 million, as compared to a ~~loss~~gain of ~~$17.2~~$24.0 million for the comparable period in ~~2020,~~2021, primarily due to a $30.1 million one-time non-cash gain recognized on the existing 25% equity interest in Pantaya upon the step acquisition of the remaining 75% equity interest on March 31, 2021. The improvement was also due to lower losses at Canal 1 due to a non-recurring non-cash charge in the prior year period, the favorable impact of unrealized foreign currency gains on U.S. dollar denominated obligations and improved operating results. For more information, see Note 3, “Business Combination” of Notes to Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report.

~~Impairment of Equity Method Investment~~: As of March 31, 2020, we deemed our investment in REMEZCLA to be impaired given the uncertainty caused by the COVID-19 pandemic and the associated going-concern risks. As a result, we recorded a non-cash impairment charge of $5.5 million reflecting the write-off of the full valuation of our investment in REMEZCLA. For more information, see Note 6, “Equity Method Investments” of Notes to Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report.

Other expense, net:Other expense, net for the six months ended June 30, ~~2021,~~2022, was $0 million, a decrease of $0.7 million, ~~due~~compared to an expense of $0.7 million in the comparable period in 2021, which reflected the write-off of the net book value of programming ~~rights at the Company for content~~ licensed from Pantaya prior to the Acquisition Date.

Income Tax Expense

Income tax expense for the three months ended June 30, ~~2021,~~2022, was ~~$1.8~~$0.8 million as compared to ~~$2.9~~$1.8 million for the comparable period in ~~2020, due to lower taxable income in the current year period.~~2021. Income tax expense for the six months ended June 30, ~~2021,~~2022, was ~~$3.1~~$0.4 million as compared to ~~income tax expense of $1.2~~$3.1 million for the comparable period in ~~2020, due to higher taxable income in the current year period.~~2021. For more information, see Note 7, “Income Taxes” of Notes to Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report.

Net (Loss) Income

Net loss for the three months ended June 30, ~~2021,~~2022, was ~~$6.3~~$3.9 million as compared to ~~$6.6~~$6.3 million for the comparable period in ~~2020.~~2021. Net ~~income~~loss for the six months ended June 30, ~~2021,~~2022, was ~~$27.0~~$17.1 million as compared to net ~~loss~~income of ~~$16.1~~$27.0 million for the comparable period in ~~2020,~~2021, as the ~~current~~prior year period benefitted from a one-time non-cash gain of $30.1 million recognized on the existing 25% equity interest in Pantaya upon the step acquisition of the remaining 75% equity interest.

Net Loss ~~(Income)~~ Attributable to Non-controlling Interest

Net loss attributable to non-controlling interest, related to the 25% interest in Snap Media held by minority shareholders, for the three months ended June 30, ~~2021,~~2022, was ~~$0.1~~$0 million as compared to ~~net income attributable to non-controlling interest of~~ $0.1 million for the comparable period in ~~2020.~~2021. Net loss attributable to non-controlling interest, related to the 25% interest in Snap Media held by minority shareholders, for ~~each of~~ the six months ended June 30, 2022, was $0 million as compared to $0.0 million for the comparable period in 2021. Effective July 15, 2021, ~~and 2020 was $0.0 million.~~

the Company entered into an omnibus modification agreement with Snap Distribution, Inc., a British Virgin Islands company, pursuant to which Snap Distribution, Inc. relinquished the non-controlling 25% interest in Snap Media, at which point Snap Media became a wholly owned subsidiary of the Company. For more information, see Note 6, “Equity Method Investments” of Notes to Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report.

Net (Loss) Income ~~Available~~Attributable to Hemisphere Media Group, Inc.

Net loss available to Hemisphere Media Group, Inc. for the three months ended June 30, ~~2021,~~2022, was ~~$6.3~~$3.9 million as compared to ~~$6.7~~$6.3 million for the comparable period in ~~2020.~~2021. Net ~~income~~loss available to Hemisphere Media Group, Inc. for the six months ended June 30, ~~2021,~~2022, was ~~$27.1~~$17.1 million as compared to net ~~loss~~income of ~~$16.1~~$27.1 million for the comparable period in ~~2020.~~2021.

~~OFF-BALANCE SHEET ARRANGEMENTS~~

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

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LIQUIDITY AND CAPITAL RESOURCES

Sources and Uses of Cash

Our principal sources of cash are cash on hand, borrowings under our revolving credit facility and cash flows from operating ~~activities.~~activities and capacity under our revolving loan (“Revolving Facility”). At June 30, ~~2021,~~2022, we had ~~$72.4~~$28.9 million of cash on hand and ~~$30.0~~$30 million undrawn and available under our ~~Revolving Facility.~~revolving credit facility. 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 investments ~~acquisitions~~ and ~~repurchases~~acquisitions.

Management believes cash on hand, cash flow from operations and availability under our Revolving Facility will provide sufficient liquidity 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 ~~common stock.~~debt, commitments from the ordinary

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course of business that require cash payments to vendors and suppliers, particularly for programming, operating leases and other commitments. However, we do not expect to generate sufficient cash flow from operations to repay at maturity the entirety of the then outstanding balances of our debt. As a result, we will then be dependent upon our ability to access the capital and credit markets in order to repay or refinance the outstanding balances of our indebtedness. Failure to raise significant amounts of funding to repay these obligations at maturity would adversely affect our business. In such a circumstance, we would need to take other actions including selling assets, seeking strategic investments from third parties or reducing other discretionary uses of cash.

Cash Flows


	Six Months Ended June 30,				Six Months Ended June 30,
Amounts in thousands:	2021		2020		2022		2021
Cash provided by (used in):
Operating activities	$	19,899	$	21,434	$	(17,047)	$	19,899
Investing activities		(124,859)		(7,024)		(2,141)		(124,859)
Financing activities		42,928		(1,578)		(1,395)		42,928
Net (decrease) increase in cash	$	(62,032)	$	12,832
Net decrease in cash					$	(20,583)	$	(62,032)

Comparison for the Six Months Ended June 30, ~~2021~~2022 and June 30, ~~2020~~

2021

Operating Activities

Cash ~~provided by~~used in operating activities was primarily driven by our net income or loss, 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, gain or loss on equity method investment activity, ~~impairment of equity method investments,~~ amortization of operating lease right-of-use assets, provision for bad ~~debts, and other non-cash acquisition charges.~~

debts.

Net cash ~~provided by~~used in operating activities for the six months ended June 30, ~~2021~~2022 was ~~$19.9~~$17.0 million, a decrease of ~~$1.5~~$36.9 million, as compared to ~~$21.4~~provided by $19.9 million in the prior year period, due to a decrease in ~~non-cash items~~net loss of ~~$48.6~~$44.2 million and a decrease in net working capital of $24.0 million, offset in part by an ~~improvement~~increase in ~~net income~~non-cash items of ~~$43.2 million and an increase~~$31.3 million. The decrease in net working capital is due increases in programming rights of ~~$3.9~~$9.9 million, prepaids and other assets of $3.5 million, due from related parties of $1.3 million and accounts receivable of $0.5 million and decreases in accounts payable of $9.3 million, income taxes payable of $3.5 million, and other liabilities of $0.1 million, offset in part by increases in programming rights payable of $2.8 million and other accrued expenses of $1.3 million. The ~~decrease~~increase in non-cash items is due to a ~~$41.2~~$26.5 million ~~improvement~~increase in ~~gain~~loss on equity method investment activity primarily due to a $30.1 million one-time gain recognized in the prior year period on the existing 25% equity interest in Pantaya upon the step acquisition of the remaining 75% equity interest, and increases in depreciation and amortization of $4.0 million, programming amortization of $3.4 million, and a ~~$5.5 million impairment of equity method investment related to REMEZCLA~~decrease in the ~~prior year period, an increase in~~ gain from FCC spectrum repack ~~and other~~ of ~~$2.3 million, and decreases in programming amortization of $1.4 million and provision for bad debt of $0.9~~$2.2 million, offset in part by an increase in ~~depreciation and amortization~~deferred taxes of ~~$1.1~~$3.1 million and other non-cash acquisition related charges of $1.3 ~~million. The increase~~million in net working capital is due to a decrease in accounts receivable of $4.2 million and increases in other accrued expenses of $7.2 million, accounts payable of $6.0 million, income taxes payable of $2.6 million and other liabilities of $0.5 million, offset in part by a decrease in programming rights payable of $6.4 million and increases in programming rights of $6.2 million, prepaids and other assets of $3.5 million, and due to/from related parties of $0.4 million.the prior year period.

~~For more information, see Note 3, “Business Combination” of Notes to Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report.~~

~~For more information, see Note 6, “Equity Method Investments” of Notes to Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report.~~

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Investing Activities

Net cash used in investing activities for the six months ended June 30, ~~2021,~~2022, was ~~$124.9~~$2.1 million, an ~~increase~~improvement of ~~$117.8~~$122.7 million as compared to ~~$7.0~~$124.9 million in the prior year period. The ~~increase~~improvement was primarily due to the net cash paid in the prior year period for the acquisition of Pantaya ~~Acquisition~~ of $122.6 million and an increase in capital expenditures of $2.2 million, offset in part by a decline in funding of equity investments of $4.9 million and increased proceeds received from the FCC related to the spectrum repack of $2.1 million.

Financing Activities

Net cash ~~provided by~~used in financing activities for the six months ended June 30, ~~2021,~~2022, was ~~$42.9~~$1.4 million, ~~an increase~~a decrease of ~~$44.5~~$44.3 million as compared to net cash ~~used~~provided by of ~~$1.6~~$42.9 million in the prior year period. The ~~increase~~decrease is due to net proceeds of $47.4 million received from incremental borrowing under our Third Amended Term Loan Facility in connection with the acquisition of Pantaya ~~Acquisition, offset~~ in ~~part by an increase in repurchases of our Class A common stock of $2.8 million.~~

the prior year period.

For more information, see Note 8, “Long-Term Debt” of Notes to Condensed Consolidated Financial Statements, included elsewhere in this Quarterly Report.

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CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Our Consolidated Financial Statements are prepared in accordance with U.S. GAAP, which requires management to make estimates, judgments and assumptions that affect the amounts reported in the Condensed Consolidated Financial Statements and accompanying notes. Management considers an accounting policy to be critical if it is important to our financial condition and results of operations, and if it requires significant judgment and estimates on the part of management in its application. The development and selection of these critical accounting policies have been determined by management and the related disclosures have been reviewed with the Audit Committee of our Board of Directors. There have been no material changes to our critical accounting policies and estimates from the information provided in Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our Annual Report on Form 10-K for the year ended December 31, 2021.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

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 June 30, ~~2021.~~2022. Our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, ~~2021,~~2022, 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.

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Changes in Internal Controls

There were no changes to the Company’s internal controls over financial reporting (as defined in Exchange Act Rule 13a-15(f)) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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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, ~~2020,~~2021, 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 June 30, ~~2021~~2022 from the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, as updated in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021; provided, however, certain risks applicable to our Networks or our Business disclosed in our Annual Report on Form 10-K for the year ended December 31, 2020, may also be applicable to Pantaya effective as of the Acquisition Date, unless the context requires otherwise.2021.

Table of Contents

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

~~None.~~Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

3936

Table of Contents

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.

Exhibit Index

Exhibit No.

Description of Exhibit

~~31.1~~2.1

Agreement and Plan of Merger, dated as of May 9, 2022, by and among HWK Parent, LLC, HWK Merger Sub 1, Inc., HWK Merger Sub 2, LLC, Hemisphere Media Group, Inc. and Hemisphere Media Holdings, LLC (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 10, 2022) ±
2.2

Voting and Support Agreement, dated as of May 9, 2022, by and among the Company and certain stockholders of the Companies that are signatories thereto (incorporated herein by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the SEC on May 10, 2022)
2.3

Membership Interest Purchase Agreement, dated as of May 9, 2022, by and among Univision Puerto Rico Station Operating Company, HMTV DTC, LLC, Pantaya, LLC and Hemisphere Media Holdings, LLC (incorporated herein by reference to Exhibit 2.3 to the Company’s Current Report on Form 8-K filed with the SEC on May 10, 2022) ±
2.4

Share Purchase Agreement, dated as of May 9, 2022, by and among HMTV DTC, LLC, Univision of Puerto Rico, Inc., Univision of Puerto Rico Station Operating Company and TelevisaUnivision, Inc. (incorporated herein by reference to Exhibit 2.4 to the Company’s Current Report on Form 8-K filed with the SEC on May 10, 2022) ±
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~~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*

~~Inline XBRL Instance Document.~~
101.SCH*

~~Inline XBRL Taxonomy Extension Schema.~~
101.CAL

~~Inline~~ XBRL Taxonomy Extension Calculation Linkbase
101.LAB

~~Inline~~ XBRL Taxonomy Extension Label Linkbase
101.PRE

~~Inline~~ XBRL Taxonomy Extension Presentation Linkbase
101.DEF

~~Inline~~ XBRL Taxonomy Extension Definition Document
104

Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*
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.
#
Filed herewith.
±
Certain schedules and exhibits have been omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company hereby undertakes to furnish supplementally copies of any of the omitted schedules or exhibits upon request by the SEC.

4037

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: August ~~9, 2021~~08, 2022
By:
/s/ Alan J. Sokol

Alan J. Sokol

Chief Executive Officer and President

(Principal Executive Officer)

DATE: August ~~9, 2021~~08, 2022
By:
/s/ Craig D. Fischer

Craig D. Fischer

Chief Financial Officer

(Principal Financial and Accounting Officer)

4138


	Three months ended June 30,
Revenues by type	2021		2020
Subscriber revenue	$	32,218	$	19,273
Advertising revenue		17,269		12,378
Other revenue		973		3,084
Total revenue	$	50,460	$	34,735


Total cash consideration	$	123,605
Class A common stock consideration^(a)		2,188
Effective settlement of pre-existing receivables and payables, net^(b)		1,499
Total consideration		127,292
Fair value of existing 25% equity interest		30,092
Total	$	157,384


	March 31, 2021
Cash	$	985
Accounts receivable		5,203
Fixed assets		602
Finite-lived intangible assets – programming rights		30,767
Other assets		6,731
Accounts payable		(2,807)
Accrued expenses		(13,049)
Film obligations		(15,225)
Goodwill		144,177
Fair value of net assets acquired	$	157,384


	June 30, 2022
Accounts receivable, net	$	6,245
Due from related parties		1,915
Programming rights		6,034
Prepaid expenses		1,957
Other current assets		25,361
Current assets held for sale	$	41,512

Programming rights		14,938
Goodwill		66,113
Other intangibles, net		89,530
Operating lease right-of-use assets		773
Other assets		3,901
Non-current assets held for sale	$	175,255

Accounts payable	$	8,779
Due to related parties		1,300
Other accrued expenses		5,191
Deferred revenue		6,502
Programming rights payable		7,158
Current liabilities held for sale	$	28,930

Programming rights payable		2,210
Deferred income taxes		2,669
Other long-term liabilities		1,138
Non-current liabilities held for sale	$	6,017


	Net Balance at				Held for Sale		Net Balance at
	December 31, 2021		Additions		Reclassification		June 30, 2022
Broadcast license	$	41,356	$	0	$	0	$	41,356
Goodwill		231,710		0		(66,113)		165,597
Brands		15,986		0		0		15,986
Other intangibles		700		0		0		700
Total indefinite-lived intangibles	$	289,752	$	0	$	(66,113)	$	223,639


	Net Balance at						Net Balance at
	December 31, 2020		Additions		Impairment		June 30, 2021
Broadcast license	$	41,356	$	—	$	—	$	41,356
Goodwill		165,597		144,177		—		309,774
Brands		15,986		—		—		15,986
Other intangibles		700		—		—		700
Total indefinite-lived intangibles	$	223,639	$	144,177	$	—	$	367,816


Year Ending December 31,	Amount		Amount
Remainder of 2021	$	6,415
2022		8,210
Remainder of 2022			$	100
2023		6,772		199
2024		6,772		199
2025 and thereafter		5,886
2025				135
2026 and thereafter				0
Total	$	34,055	$	633


	Total Equity Investees
Current assets	$	14,021
Non-current assets	$	26,216
Current liabilities	$	64,151
Non-current liabilities	$	4,254
Net revenue	$	5,409
Operating loss	$	(6,638)
Net loss	$	(16,238)


	Total Equity Investees
Current assets	$	12,434
Non-current assets	$	22,804
Current liabilities	$	8,572
Non-current liabilities	$	80,604
Net revenue	$	5,334
Operating loss	$	(4,451)
Net loss	$	(14,410)


	Six Months Ended		Year Ended
Black-Scholes Option Valuation Assumptions	June 30, 2021		December 31, 2020
Risk-free interest rate	0.97% – 1.08	%		0.42% - 0.50	%
Dividend yield	—			—
Volatility	37.3% - 39.8	%		44.2% - 46.1	%
Weighted-average expected term (years)	6.0			6.0


		Weighted-		Weighted- average
		average		remaining contractual	Aggregate intrinsic
	Number of shares	exercise price		term	value
Outstanding at December 31, 2020	3,935	$	11.69	5.1	$	291
Granted	495		11.87	6.0		—
Exercised	(50)		10.20	—		—
Forfeited	—		—	—		—
Expired	—		—	—		—
Outstanding at June 30, 2021	4,380	$	11.68	5.1	$	2,356
Vested at June 30, 2021	3,452	$	11.64	4.2	$	2,188
Exercisable at June 30, 2021	3,452	$	11.64	4.2	$	2,188


		Weighted-average
	Number of shares	grant date fair value
Outstanding at December 31, 2020	499	$	11.26
Granted	512		11.87
Vested	(518)		11.29
Forfeited	—		—
Outstanding at June 30, 2021	493	$	11.87


	Number of	Weighted-average
	shares	grant date fair value
Outstanding at December 31, 2021	614	$	11.79
Granted	285		6.09
Vested	(329)		12.09
Forfeited	(59)		12.00
Outstanding at June 30, 2022	511	$	8.40


Weighted-average remaining lease term	~~3.3~~2.7	years
Weighted average discount rate	~~6.2~~6.0	%


Exhibit No.		Description of Exhibit

	~~31.1~~2.1		Agreement and Plan of Merger, dated as of May 9, 2022, by and among HWK Parent, LLC, HWK Merger Sub 1, Inc., HWK Merger Sub 2, LLC, Hemisphere Media Group, Inc. and Hemisphere Media Holdings, LLC (incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 10, 2022) ±
2.2		Voting and Support Agreement, dated as of May 9, 2022, by and among the Company and certain stockholders of the Companies that are signatories thereto (incorporated herein by reference to Exhibit 2.2 to the Company’s Current Report on Form 8-K filed with the SEC on May 10, 2022)
2.3		Membership Interest Purchase Agreement, dated as of May 9, 2022, by and among Univision Puerto Rico Station Operating Company, HMTV DTC, LLC, Pantaya, LLC and Hemisphere Media Holdings, LLC (incorporated herein by reference to Exhibit 2.3 to the Company’s Current Report on Form 8-K filed with the SEC on May 10, 2022) ±
2.4		Share Purchase Agreement, dated as of May 9, 2022, by and among HMTV DTC, LLC, Univision of Puerto Rico, Inc., Univision of Puerto Rico Station Operating Company and TelevisaUnivision, Inc. (incorporated herein by reference to Exhibit 2.4 to the Company’s Current Report on Form 8-K filed with the SEC on May 10, 2022) ±
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~~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*		~~Inline XBRL Instance Document.~~
101.SCH*		~~Inline XBRL Taxonomy Extension Schema.~~
101.CAL		~~Inline~~ XBRL Taxonomy Extension Calculation Linkbase
101.LAB		~~Inline~~ XBRL Taxonomy Extension Label Linkbase
101.PRE		~~Inline~~ XBRL Taxonomy Extension Presentation Linkbase
101.DEF		~~Inline~~ XBRL Taxonomy Extension Definition Document
104		Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


	HEMISPHERE MEDIA GROUP, INC.


DATE: August ~~9, 2021~~08, 2022	By:	/s/ Alan J. Sokol
		Alan J. Sokol
		Chief Executive Officer and President
		(Principal Executive Officer)


DATE: August ~~9, 2021~~08, 2022	By:	/s/ Craig D. Fischer
		Craig D. Fischer
		Chief Financial Officer
		(Principal Financial and Accounting Officer)