Entravision Communications Corporation — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; financial statements are unaudited. Dollar amounts below are in millions unless otherwise noted.
Business context
Entravision operates digital advertising, U.S. Hispanic-focused television, and audio businesses. Digital generated 84% of Q3 revenue. Its digital operations span multiple regions and include advertising partnerships, programmatic platform Smadex, mobile growth services, and digital audio. The company owns or operates 49 primary television stations and 45 radio stations.
Financial results and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $274.4 | $241.0 | $786.8 | $659.9 |
| Operating income | $5.1 | $15.9 | $12.3 | $33.5 |
| Net income attributable to common stockholders | $2.7 | $9.4 | $2.8 | $19.7 |
| Diluted EPS | $0.03 | $0.11 | $0.03 | $0.23 |
| Operating cash flow | Not stated for quarter | Not stated for quarter | $69.1 | $78.1 |
| Capital expenditures | $4.0 | $4.2 | $18.8 | $7.6 |
| Consolidated EBITDA (non-GAAP) | Not stated for quarter | Not stated for quarter | $41.4 | $66.6 |
Q3 operating margin was approximately 1.9%, compared with 6.6% a year earlier; nine-month operating margin was approximately 1.6%, compared with 5.1%. Digital cost of revenue was 86% of digital revenue in both Q3 and the nine-month period, versus 83% and 84%, respectively, in 2022. Nine-month consolidated EBITDA margin declined to 5% from 10%.
At September 30, cash and cash equivalents were $110.6 and marketable securities were $18.1. Current assets were $385.3 and current liabilities $256.2, for working capital of approximately $129.0. Balance-sheet debt was approximately $209.9, net of debt issuance costs; the company reported $209.0 of variable-rate bank debt outstanding. The $75.0 revolving facility had $11.5 drawn at origination; the filing does not clearly state the quarter-end undrawn availability. The company reported compliance with credit agreement covenants.
Q3 dividends declared were $0.05 per common share; nine-month dividends were $0.15 per share. Cash dividends paid during the nine months were $13.2. The company ended the period with $111.4 of cash, cash equivalents, and restricted cash.
Material changes versus prior comparable periods
- Revenue rose 14% in Q3 and 19% for the nine months, driven by digital growth and acquisitions. Digital revenue increased 23% and 27%, respectively.
- Television revenue fell 17% in Q3 and 9% for the nine months; audio revenue fell 19% and 11%. Management cited lower political and national advertising, with television also partly offset by local advertising, spectrum usage, and retransmission revenue.
- Despite higher revenue, operating income fell 68% in Q3 and 63% for the nine months. Higher digital media costs, selling and corporate expenses, and stock-based compensation contributed; segment operating profit fell across digital, television, and audio.
- Interest expense increased 46% in Q3 and 77% for the nine months, reflecting higher borrowing rates. Nine-month operating cash flow declined about 12% year over year.
- The company refinanced its prior facility in March 2023 with a $200.0 term A loan and $75.0 revolver, maturing March 2028. The new variable-rate debt carried an 8.16% rate at September 30; refinancing resulted in a $1.6 debt-extinguishment loss.
Outlook, commentary, and risks
- Management expects 2023 revenue to increase, primarily from digital growth and acquisitions; it also expects positive operating cash flow for 2023. It anticipates full-year capital expenditures of $21.5.
- Management expects digital margins to remain under pressure from programmatic mix, advertiser demands for lower costs, and negotiating dynamics with media partners. The largest digital commercial partner reduced the payment rate on Entravision’s sales beginning in the second half of 2023.
- A single global media company represented 54% of Q3 revenue and 53% of nine-month revenue. Entravision says this dependence is expected to continue; loss or reduction of that relationship could materially affect liquidity and cash flow.
- Variable-rate debt exposes the company to interest-rate increases. Management estimated a 100-basis-point SOFR increase would raise annual interest expense and reduce operating cash flow by approximately $2.1.
- Other stated risks include advertising demand and economic conditions, digital competition and rapid industry change, audience migration from broadcast to streaming and social media, foreign exchange exposure, privacy and regulatory developments, acquisition integration, and credit risk in digital advertising.
- Unusual items included a $1.0 impairment charge following termination of a digital media-partner agreement and $8.9 of nine-month gains from changes in fair value of contingent consideration. The Adsmurai transaction created $47.3 of redeemable noncontrolling interest. Management said ordinary-course legal matters were not expected to have a material adverse effect; the filing’s Risk Factors item reports no new risk factors.
Most important facts for investors to verify
- Whether digital revenue growth can offset lower digital margins, including the reduced payment rate from the largest media partner.
- Current revolver availability, debt-covenant headroom, and the effect of variable rates on interest expense and cash flow.
- Whether full-year revenue, positive operating cash flow, and $21.5 million capital expenditure expectations remain achievable.
- The performance and future cash requirements of acquisitions, including Adsmurai put/call options and contingent consideration.
- Trends in political and other broadcast advertising, audience migration, and the company’s significant dependence on one global media company.