Annual Report for Fiscal Year Ending December 31, 2025 (Form 10-K)

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

The following discussion of our consolidated results of operations and cash flows for the years ended December 31, 2025, 2024 and 2023 and consolidated financial condition as of December 31, 2025 and 2024 should be read in conjunction with our consolidated financial statements and the related notes included elsewhere in this annual report on Form 10-K.

The discussion and analysis of our financial condition and results of operations for 2025 compared to 2024 appears below. As a smaller reporting company, we have chosen to omit the discussion and analysis of our financial condition and results of operations for 2024 compared to 2023.

OVERVIEW

We are a global media and advertising technology company. We have organized our operations into two reportable segments, media and ATS, and we manage and report our financial results through these two operating segments.

Our Media business owns and operates one of the largest groups of Spanish-language television and radio stations in the United States. Our mission is to serve our Latino audience as a trusted provider of news, information, and entertainment. We serve our advertisers by providing marketing capabilities across broadcast and digital media.

Our ATS business empowers advertisers, primarily mobile app developers, to grow their businesses globally. We provide programmatic advertising solutions through two brands. Smadex is our demand-side platform, which uses proprietary AI to automate media buying. Adwake is our performance-based digital marketing agency.

In 2024, we discontinued and divested a significant portion of our operations, which consisted primarily of several acquisitions that had been completed prior to 2024, and which operations comprised the majority of our former digital segment.

Our net revenue for the year ended December 31, 2025 was $447.6 million. Of this amount, revenue generated by our media segment accounted for approximately 39%, and revenue generated by our advertising technology & services segment accounted for approximately 61% of total revenue.

See "Item 1. Business" for detailed information about our business, the industry in which we operate, certain industry trends and important recent business developments.

2025 Highlights

During the year ended December 31, 2025, our revenue grew by double digits, driven primarily by revenue growth of 90% in our advertising technology & services segment, partially offset by a decrease in revenue in our media segment compared to the year ended December 31, 2024. In addition, during the year ended December 31, 2025:

Dispositions

See Note 3 to Notes to Consolidated Financial Statements for details.

RESULTS OF OPERATIONS

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

* Percentage not meaningful.

Asset information by segment is not reported because we do not use this measure to assess performance or make decisions to allocate resources

Year Ended December 31, 2025 Compared to Year Ended December 31, 2024

Consolidated Operations

Net Revenue.Net revenue increased to $447.6 million for the year ended December 31, 2025 from $364.9 million for the year ended December 31, 2024. This increase was primarily due to an increase of $128.0 million in net revenue from our advertising technology & services segment, partially offset by a decrease of $45.4 million in net revenue from our media segment.

Cost of revenue.Cost of revenue increased to $184.1 million for the year ended December 31, 2025 from $102.2 million for the year ended December 31, 2024. This increase was primarily due to an increase of $1.5 million in cost of revenue from our media segment, and an increase of $80.4 million in cost of revenue from our advertising technology & services segment.

Effective July 1, 2024, with the realignment of our operations and reassignment of certain responsibilities, certain costs that were previously included as corporate expenses, primarily salaries, are now included in direct operating expenses and in selling, general and administrative expenses.

Direct Operating Expenses.Direct operating expenses increased to $156.8 million for the year ended December 31, 2025 from $136.3 million for the year ended December 31, 2024. This increase was primarily due to an increase of $21.9 million in direct operating expenses in our advertising technology & services segment, partially offset by a decrease of $1.4 million in direct operating expenses in our media segment.

Selling, General and Administrative Expenses.Selling, general and administrative expenses increased to $66.8 million for the year ended December 31, 2025 from $62.9 million for the year ended December 31, 2024. This increase was primarily due to an increase of $1.2 million in selling, general and administrative expenses in our media segment, and an increase of $2.7 million in selling, general and administrative expenses in our advertising technology & services segment.

Depreciation and Amortization.Depreciation and amortization decreased to $12.3 million for the year ended December 31, 2025 from $16.8 million for the year ended December 31, 2024, primarily due to fully depreciated assets and fully amortized intangible assets.

Corporate Expenses. Corporate expenses decreased to $27.0 million for the year ended December 31, 2025 from $37.5 million for the year ended December 31, 2024. This decrease was primarily due to a decrease of $2.6 million in salaries, including a reduction in the base salary and cash bonus components of our three most senior executives' compensation, a decrease of $2.9 million in non-cash stock-based compensation, a decrease of $1.1 million in severance expense, a decrease of $1.3 million in audit fees and other professional service, a decrease of $0.7 million in rent expense, a decrease of $0.3 million in cloud expense, and a decrease of $1.5 million in corporate expenses due to the realignment of our operations as noted above.

Change in fair value of contingent consideration. As a result of the change in fair value of the contingent consideration, primarily related to earnouts of certain past acquisitions, we recognized income of $0.6 million for the year ended December 31, 2024.

Impairment. For the year ended December 31, 2025, we incurred impairment charges of $55.4 million, of which $29.4 million was primarily related to assets held for sale, and $26.0 million was related to certain FCC licenses in our media segment. For the year ended December 31, 2024, we incurred impairment charges of $61.2 million, of which $43.3 million was related to goodwill impairment and $17.9 million was related to certain FCC licenses in our media segment.

Loss on lease abandonment. During the first quarter of 2025, we incurred a loss on lease abandonment of $25.2 million related to our previous Santa Monica lease. See Note 7 to Notes to Consolidated Financial Statements.

Restructuring costs. During the third quarter of 2025 our management began to implement the Plan, which is intended to support revenue growth and reduce expenses, primarily in our media operations. As a result, we recorded $2.8 million in restructuring costs for the year ended December 31, 2025. See Note 2 to Notes to Consolidated Financial Statements.

Foreign currency loss. We had a foreign currency loss of $0.5 million for the year ended December 31, 2025 compared to a foreign currency loss of $0.7 million for the year ended December 31, 2024. Foreign currency gains and losses are primarily due to currency fluctuations that affect our operations located outside the United States.

Interest Expense, net.Interest expense, net decreased to $12.8 million for the year ended December 31, 2025 from $14.0 million for the year ended December 31, 2024. This decrease was primarily due to lower interest rate on our debt and a lower principal balance.

Gain (loss) on debt extinguishment. We recorded a loss on debt extinguishment of $0.2 million for the year ended December 31, 2025 due to a prepayment of $10.0 million of our Credit Facility made in the second quarter of 2025 and the amendment of the Original 2023 Credit Agreement in the third quarter of 2025. We recorded a loss on debt extinguishment of $0.1 million for the year ended December 31, 2024 due to prepayments totaling $20.0 million under our Credit Facility.

Realized gain (loss) on marketable securities.We recorded a de minimis amount of realized gain on marketable securities for the year ended December 31, 2025. We recorded a realized loss on marketable securities of $0.1 million for the year ended December 31, 2024.

Income Tax Expense or Benefit.Income tax benefit for the year ended December 31, 2025 was $18.0 million. The effective tax rate for the year ended December 31, 2025 was different from our statutory rate due to foreign and state taxes, non-deductible executive compensation, differences in tax rates in foreign jurisdictions, and return to provision adjustments from certain foreign jurisdictions. Income tax expense for the year ended December 31, 2024 was $4.1 million. The effective tax rate for the year ended December 31, 2024 was different from our statutory rate due to foreign and state taxes, changes in valuation allowances on deferred tax assets, non deductible executive compensation, changes in the fair value of the contingent consideration liability, capital loss on disposal of subsidiaries, changes in uncertain tax benefits, worthless stock deduction, and goodwill impairment.

The Organization for Economic Co-operation and Development ("OECD") Pillar 2 guidelines address the increasing digitalization of the global economy, re-allocating taxing rights among countries. The OECD, many other member states and various other governments have adopted, or are in the process of adopting, Pillar 2 which calls for a global minimum tax of 15% to be effective for tax years beginning in 2024. The OECD guidelines published to date include transition and safe harbor rules around the implementation of the Pillar 2, global minimum tax. On January 5, 2026, the OECD released the "Side-by-Side" (SbS) Safe Harbor guidance, effective January 1, 2026. This guidance provides a framework for coordinating the U.S. tax system with Pillar 2 rules, potentially limiting top-up tax liabilities for qualifying periods. The Company included the tax impact of Pillar 2 in the income tax for the year ended December 31, 2025, based on the rules effective for that period, and continues to evaluate the impact of the Side-by-Side guidance on future periods.

On July 4, 2025, the President signed into law the One Big Beautiful Bill Act, which made certain changes to the current tax law and extended certain other tax provisions. We have analyzed the impact of these changes, noting that the main tax law changes that impacted us in 2025 are related to depreciation and Section 163(j) interest expense limitation. We have not taken bonus depreciation in 2025 since given our tax position, the impact on this is nil. Regarding the Section 163(j) limitation, we believe that this will result in less taxable income to us.

Segment Operations

In our former EGP business, we acted as an intermediary between primarily global media companies and advertisers, which consisted of either the enterprise or its ad agency running the advertisement. Our customers were both these primarily global media companies and advertisers. On March 4, 2024, we received a communication from Meta that it intended to wind down its ASP program globally and end its relationship with all of its ASPs, including us, by July 1, 2024. As a result of this communication from Meta, our CEO, who is also our CODM, led a thorough review of our operations, cost structure, digital strategy and organization of our business. This review led to the decision to sell the enterprises comprising our EGP business -- the largest business unit of what was then our digital segment. Following this decision, during the second quarter of 2024, we entered into a definitive agreement to sell substantially all of our EGP business to IMS. The transaction was completed on June 28, 2024. The remaining parts of our EGP business, Jack of Digital and Adsmurai, were each sold back to their respective founders in separate transactions during the second quarter of 2024. See Note 2 to Notes to Consolidated Financial Statements.

Prior to the sale of the EGP business, for financial reporting purposes we reported in three segments - digital, television and audio, based on the type of medium in which we sold advertising. Our digital segment was the largest segment in terms of revenue and our EGP business was the largest component of our digital segment. The sale of the EGP business allowed us to focus our operations on the products and services we sell instead of the type of advertising medium in which we sell them, which had been our historic operational approach. As a result of the sale of our EGP business, effective July 1, 2024, we realigned our operating segments into two segments - media and ATS - consistent with our current operational and management structure, as well as the basis that is now used for internal management reporting and how our CEO evaluates our business. Our reportable segments are the same as our operating segments.

Our media segment consists of sales of advertising through various media, including television, radio and digital. We own and/or operate one of the largest groups of Spanish-language television and radio stations in the United States. Our assets include 47 television stations and 44 radio stations (37 FM and 7 AM). These stations are concentrated in 13 of the 20 highest-density Latino markets in the United States. We are the largest affiliate group of the Spanish-language Univision and UniMás networks, which are owned by TelevisaUnivision. We also provide digital marketing services for businesses targeting Latino consumers.

Our ATS segment provides global performance marketing solutions primarily to mobile app developers. We operate this segment through two distinct business units: Smadex, our programmatic advertising platform, and Adwake, our performance-based marketing agency.

Media

Net Revenue. Net revenue in our media segment decreased to $176.7 million for the year ended December 31, 2025 from $222.1 million for the year ended December 31, 2024. This decrease was primarily due to a decrease of $39.8 million in

broadcast advertising revenue, a decrease of $4.4 million in retransmission consent revenue, a decrease of $0.7 million in spectrum usage rights revenue, and a decrease of $2.0 million in other revenue, partially offset by an increase of $1.6 million in digital advertising revenue.

In general, the traditional broadcast industry is continuing to experience dramatic transformation. Most of our broadcast stations face declining audiences, which we believe is the situation across the industry, competitive factors with the other major Spanish-language broadcasters, and changing demographics and preferences of audiences, particularly younger audiences, in terms of the media they prefer to consume, including streaming and social media. We anticipate that these changes in viewer habits and preferences will persist at least for the foreseeable future and possibly permanently. Additionally, we have previously noted a trend for advertising to move increasingly from traditional media, such as television and radio, to new media, such as digital media, and we expect this trend will also continue at least for the foreseeable future and possibly permanently. While we believe that none of these new technologies and services can completely replace local broadcast stations due to the element of localism that traditional broadcasting offers, the challenges we face in our broadcast operations from new technologies and services will persist and continue to present significant challenges, requiring attention, adaptability and action from management. We must continue to address these changes, including the need to further adjust our business strategies accordingly. Among the steps we have taken so far has been an emphasis on increasing local news and digital offerings, and their integration with our broadcast offerings. No assurances can be given that these or other strategies will be successful in meeting the changes and challenges we face.

Cost of revenue. Cost of revenue in our media segment increased to $18.2 million for the year ended December 31, 2025 from $16.7 million for the year ended December 31, 2024, primarily due to the increase in costs associated with the increase in digital advertising revenue and a decrease in gross margins.

Direct operating expenses. Direct operating expenses in our media segment decreased to $109.6 million for the year ended December 31, 2025 from $111.0 million for the year ended December 31, 2024, primarily due to a decrease of $2.6 million in expenses associated with the decrease in revenue and a decrease of $1.2 million in non-cash stock-based compensation, partially offset by an increase of $1.8 million in salaries and other employee benefits, an increase of $0.2 million in ratings services, an increase of $0.2 million in expenses due to the realignment of our operations as noted above, and an increase of $0.2 million in other items which were individually immaterial.

Selling, general and administrative expenses. Selling, general and administrative expenses in our media segment increased to $44.0 million for the year ended December 31, 2025 from $42.8 million for the year ended December 31, 2024, primarily due to an increase of $1.0 million in salaries and other employee benefits, and an increase of $1.3 million in expenses due to the realignment of our operations as noted above. The increase was partially offset by a decrease in rent expense of $1.0 million.

Advertising Technology & Services

Net Revenue.Net revenue in our advertising technology & services segment increased to $270.9 million for the year ended December 31, 2025 from $142.9 million for the year ended December 31, 2024. The increase was primarily due to increase in advertising revenue from Smadex, including a large customer that we acquired in the second half of 2025; the results of investments we made in the AI capabilities of our platform; and increased sales capacity, which enabled increased monthly active advertisers and revenue per monthly active advertiser, and increase in advertising revenue from Adwake.

Cost of revenue. Cost of revenue in our advertising technology & services segment increased to $165.9 million for the year ended December 31, 2025 from $85.5 million for the year ended December 31, 2024, primarily due to costs associated with the increase in digital advertising revenue.

We have previously noted a trend on a global basis in our ATS operations whereby advertisers are demanding more efficiency and lower cost from intermediaries like us. In response to this general trend, we have been offering our programmatic purchasing platform, Smadex, to advertisers, which lowers cost to our advertising customers. Among other things, this has led to lower margins in the products and services we sell, which we anticipate will persist for at least the foreseeable future and possibly permanently. The digital advertising industry as a whole remains dynamic and continues to undergo rapid changes in technology, customer expectation and competition. We expect this trend to continue and possibly accelerate. We must continue to address these dynamic and rapid changes, including the need to further adjust our business strategies, make appropriate investments in our technology and offer new products and services as appropriate. No assurances can be given that the strategies we have pursued and investments we have made, and those we may pursue or make in the future will be successful.

Direct Operating Expenses.Direct operating expenses in our advertising technology & services segment increased to $47.2 million for the year ended December 31, 2025 from $25.3 million for the year ended December 31, 2024, primarily due to an increase of $17.0 million in cloud infrastructure expenses, an increase of $4.5 million in salaries and bonus expense, and an increase of $0.4 million in other items which were individually immaterial.

Selling, General and Administrative Expenses.Selling, general and administrative expenses in our advertising technology & services segment increased to $22.8 million for the year ended December 31, 2025, from $20.1 million for the year ended December 31, 2024, primarily due to salaries expense.

Liquidity and Capital Resources

While we have a history of operating losses in some periods and operating income in other periods, we also have a history of generating significant positive cash flows from our operations. We had net loss attributable to common stockholders of $79.2 million, $148.9 million and $15.4 million for the years ended December 31, 2025, 2024 and 2023, respectively. We had positive cash flow from operations of $10.6 million, $74.7 million and $75.2 million for the years ended December 31, 2025, 2024 and 2023, respectively. For at least the next twelve months, we expect to fund our working capital requirements, capital expenditures and payments of principal and interest on outstanding indebtedness, with cash on hand and cash flows from operations.

We currently believe that our cash position is sufficient to meet our operating and capital expenses and debt service requirements for at least the next twelve months from the issuance of this report. We believe that our position is strengthened by cash and cash equivalents on hand, in the amount of $59.4 million, and available for sale marketable securities in the additional amount of $3.8 million, as of December 31, 2025. Our liquidity is not materially affected by the amounts held in accounts outside the United States.

On March 4, 2024, we received a communication from Meta that it intended to wind down its authorized sales partner, or ASP, program globally and end its relationship with all of its ASPs, including us, by July 1, 2024. As a result, we conducted a thorough review of our digital strategy, operations and cost structure, and during the second quarter of 2024 made the decision to dispose of the operations of EGP, our then digital commercial partnerships business, which was completed during the second quarter of 2024.

The disposition of our EGP business, the largest business unit of what was then our digital segment, has had, and will continue to have, a material effect on our results of operations in that total revenue from our advertising technology & services operations, and consolidated revenue, has been, and is expected to remain, significantly lower than it was prior to the disposition of our EGP business. As a result, cash flow from operations will be materially adversely affected in future periods, which could also adversely affect our liquidity.

To the extent that our then-current liquidity is insufficient to fund our business activities or if we do not remain in compliance with our financial covenants under the Amended Credit Agreement, we may be required to seek additional equity or debt financing in the future to satisfy capital requirements. There is no guarantee that any such capital would be available to us on favorable terms, or at all. The failure to obtain any required capital could have a material adverse effect on our operations and financial condition.

Credit Facility

On March 17, 2023, we entered into our Credit Facility, pursuant to the Original 2023 Credit Agreement, by and among us, Bank of America, N.A., as Administrative Agent, and the other financial institutions party thereto as Lenders (collectively, the "Lenders"). The Original 2023 Credit Agreement amended, restated and replaced in its entirety our previous credit agreement. The Original 2023 Credit Agreement was amended on July 15, 2025, effective as of June 30, 2025, with respect to certain financial covenants and certain other provisions of our Credit Facility.

In March 2024, we made a prepayment of $10.0 million under our Credit Facility.

In June 2024, we made an additional prepayment of $10.0 million under our Credit Facility, of which $4.9 million was a mandatory prepayment as a result of the EGP disposition.

In June 2025, we made an additional prepayment of $10.0 million under our Credit Facility.

On July 15, 2025, the Lenders and we entered into the Amended Credit Agreement, effective as of June 30, 2025. Effective June 30, 2025, the Lenders and we also corrected certain administrative and clerical errors in the Amended Credit Agreement.

For more information, see Item 1A, "Risk Factors", Note 9 to Notes to Consolidated Financial Statements, and the Amended Credit Agreement, which is filed as an exhibit to this report.

Cash Flow

Net cash flow provided by operating activities was $10.6 million for the year ended December 31, 2025, compared to net cash flow provided by operating activities of $74.7 million for the year ended December 31, 2024. The decrease in cash flow from operating activities was primarily due to a decrease in net changes in our working capital of positive $9.1 million for year ended December 31, 2025 compared to positive $58.6 million for the year ended December 31, 2024. The net changes in working capital were primarily due to the timing of cash payments to publishers and collections from customers. The decrease in cash flow from operating activities was also due to a decrease in net income after adjusting for non-cash items. Significant non-cash items in the year ended December 31, 2025 included impairment charges of $55.4 million, loss on lease abandonment charges of $25.2 million, depreciation and amortization expense of $12.3 million, deferred income tax of $25.1 million, and non-cash stock based compensation of $11.0 million. Significant non-cash items for the year ended December 31, 2024 included impairment charges of $110.7 million, the loss on sale related to our former EGP business of $45.2 million, depreciation and amortization expense of $20.8 million, non-cash stock based compensation of $13.8 million, income related to the change in fair value of contingent consideration of $13.2 million, deferred income taxes of $10.3 million, and income attributable to redeemable noncontrolling interest of $2.8 million.

Net cash flow used in investing activities was $6.1 million for the year ended December 31, 2025, compared to $26.8 million for the year ended December 31, 2024. The decrease in net cash flow used in investing activities was primarily due to cash divested of $40.5 million, partially offset by proceeds from loan receivable of $13.6 million for the year ended December 31, 2024, related to the sale of our former EGP business, which did not recur in the year ended December 31, 2025. Additionally, the decrease in net cash flow used in investing activities was partially offset by reduction in proceeds from the sale of marketable securities to $2.6 million for the year ended December 31, 2025 compared to $10.8 million for the year ended December 31, 2024.

We anticipate that our capital expenditures will be approximately $8.0 million during the full year 2026. The amount of our anticipated capital expenditures may change based on future changes in business plans and our financial condition and general economic conditions. We expect to fund capital expenditures with cash on hand and net cash flow from operations.

Net cash flow used in financing activities was $41.0 million for the year ended December 31, 2025, compared to $57.7 million for the year ended December 31, 2024. The decrease in cash flow used in financing activities was primarily due to payments of contingent consideration of $15.7 million and distributions to noncontrolling interest of $1.1 million for the year ended December 31, 2024, which did not recur in the year ended December 31, 2025.

Commitments and Contractual Obligations

Our material contractual obligations at December 31, 2025 which are not reflected as liabilities in the Consolidated Balance Sheets include media research and ratings providers, to provide television and radio audience measurement services, of approximately $25.2 million, and other amounts consist primarily of obligations for software licenses utilized by our sales team of approximately $3.6 million.

We have also entered into employment agreements with certain of our key employees, including our current Chief Executive Officer.

Other than the foregoing commitments, legal contingencies incurred in the normal course of business and employment contracts for key employees, we do not have any off-balance sheet financing arrangements or liabilities. We do not have any majority-owned subsidiaries or any interests in or relationships with any variable-interest entities that are not included in our consolidated financial statements.

Application of Critical Accounting Policies and Accounting Estimates

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

Goodwill

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

Goodwill represents the excess of the purchase price over the fair value of the net tangible and identifiable intangible assets acquired in each business combination. We test our goodwill and other indefinite-lived intangible assets for impairment annually on October 1, or more frequently if certain events or certain changes in circumstances indicate they may be impaired. In assessing the recoverability of goodwill and indefinite life intangible assets, we must make a series of assumptions about such things as the estimated future cash flows and other factors to determine the fair value of these assets.

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

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

When a quantitative analysis is performed, the estimated fair value of goodwill is determined by using a combination of a market approach and an income approach. The market approach estimates fair value by applying sales, earnings and cash flow multiples to each reporting unit's operating performance. The multiples are derived from comparable publicly-traded companies with

similar operating and investment characteristics to our reporting units. The market approach requires us to make a series of assumptions, such as selecting comparable companies and comparable transactions and transaction premiums. The current economic conditions have led to a decrease in the number of comparable transactions, which makes the market approach of comparable transactions and transaction premiums more difficult to estimate than in previous years.

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

Indefinite Life Intangible Assets

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

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

Long-Lived Assets, Including Intangibles Subject to Amortization

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

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

Deferred Taxes

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

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

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. We recognize interest and penalties related to uncertain tax positions in income tax expense.

Revenue Recognition

Revenues are recognized when control of the promised services is transferred to our customers, in an amount equal to the consideration we expect to be entitled to in exchange for those services.

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

Digital Advertising. Revenue related to digital advertising is recognized when display or other digital advertisements record impressions on the websites and mobile and internet-connected television apps of media companies on whose digital platforms the advertisements are placed or as the advertiser's previously agreed-upon performance criteria are satisfied. We have concluded that we are the principal in the transaction and therefore recognize revenue on a gross basis, because we (i) are responsible for fulfillment of the contract, including customer support, resolving customer complaints, and accepting responsibility for the quality or suitability of the product or service; (ii) have pricing discretion over the transaction; and (iii) carry inventory risk for all inventory purchased regardless of whether we are able to collect on a transaction.

Retransmission Consent.We generate revenue from retransmission consent agreements that are entered into with MVPDs. We grant the MVPDs access to our television station signals so that they may rebroadcast the signals and charge their subscribers for this programming. Revenue is recognized as the television signal is delivered to the MVPD.

Spectrum Usage Rights. We generate revenue from agreements associated with our television stations' spectrum usage rights. Revenue is recognized in accordance with the contractual fees over the term of the agreement or when we have relinquished all or a portion of our spectrum usage rights for a station or have relinquished our rights to operate a station on the existing channel free from interference.

Business Combinations

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

Additional Information

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

Recently Issued Accounting Pronouncements

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

Sensitivity of Critical Accounting Estimates

We have critical accounting estimates that are sensitive to change. The most significant of those sensitive estimates relates to the impairment of intangible assets as discussed above.

Impact of Inflation

We believe that inflation has not had a material impact on our results of operations for each of our fiscal years in the three-year period ended December 31, 2025. However, there can be no assurance that future inflation would not have an adverse impact on our operating results and financial condition.