Entravision Communications Corporation — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are to Q1 2020 unless stated otherwise. Entravision operates television, radio and digital advertising businesses. Results include Cisneros Interactive, acquired in October 2020, for the full quarter; it was not included in the prior-year period.
Financial performance
| Metric | Q1 2021 | Q1 2020 |
|---|---|---|
| Revenue | $148.9 million | $64.2 million |
| Operating income (loss) | $11.4 million | $(35.2) million |
| Net income (loss) | $7.0 million | $(35.6) million |
| Net income (loss) attributable to common stockholders | $5.4 million | $(35.6) million |
| Diluted EPS | $0.06 | $(0.42) |
| Operating cash flow | $23.5 million | $12.0 million |
| Adjusted EBITDA (non-GAAP) | $14.2 million; 10% of revenue | $9.7 million; 15% of revenue |
Revenue grew 132%, primarily because of Cisneros Interactive. Digital revenue was $101.5 million versus $13.3 million; digital cost of revenue was $84.8 million, or 84% of digital revenue, compared with 55% a year earlier. Management attributes the lower margin largely to Cisneros Interactive’s business mix. Television revenue declined 8% to $36.1 million; radio revenue declined 4% to $11.3 million. Retransmission consent revenue was approximately $9.6 million in both periods.
Segment operating profit was $13.0 million for television, $4.3 million for digital and $1.2 million for radio. The prior-year quarter included a $39.8 million impairment charge, compared with $1.3 million in Q1 2021, which related to assets held for sale. The company declared dividends of $0.03 per common share, down from $0.05.
Liquidity, debt and cash flows
- At March 31, cash and cash equivalents were $150.0 million, marketable securities were $15.7 million and restricted cash was $0.7 million. Cash, cash equivalents and restricted cash totaled $150.7 million.
- Debt carrying value was approximately $212.8 million, including current maturities; reported variable-rate borrowings were $214.5 million. The term loan matures November 2024 and has no financial maintenance covenants. Management reported total leverage of 2.1x, down from 3.3x at March 31, 2020.
- Operating cash flow was $23.5 million. Investing activities provided $10.3 million, mainly from $12.1 million in marketable-security maturities; financing activities used $2.9 million, including $2.1 million of dividends and $0.8 million of debt payments.
- Management said cash on hand and operating cash flows should fund working capital, capital expenditures and debt service for at least 12 months. It expected approximately $8.0 million of 2021 capital expenditures and positive operating cash flow for the year.
Outlook, risks and other notable matters
- Management expected 2021 revenue to increase, primarily because Cisneros Interactive would contribute for a full year, partly offset by lower political advertising than in 2020. No numerical revenue or earnings guidance was provided.
- Management expects digital programmatic advertising to pressure margins and potentially produce a lasting higher-volume, lower-margin business. It also cited competition, audience and ratings changes, and migration of advertising from traditional media to digital.
- COVID-19’s impact was described as more muted in Q1, but advertising cancellations and weaker new placements continued, especially in radio. Reduced commuting has weighed on radio audiences; management noted that changed behavior could persist. The company has eased credit terms for some advertisers.
- The company recorded a $1.3 million impairment after agreeing to sell WNUE-FM assets for $4.0 million; the sale agreement was signed April 12, 2021. Separate Houston and Laredo property sales remained pending.
- Variable-rate debt creates interest-rate exposure: a hypothetical 100-basis-point increase was estimated to raise annual interest expense and reduce operating cash flow by about $2.1 million. Foreign-currency exposure is increasing with international digital operations; the company reported no currency hedges.
- Disclosure controls were deemed ineffective because of material weaknesses tied to Cisneros Interactive’s opening balances, revenue cycle, and expense and liability processes. Management was implementing reporting-system and staffing improvements; the weaknesses had not resulted in a material misstatement of the reported statements.
- The company reported that it had cured a late delivery of 2020 financial information under its credit agreement by filing its 2020 Form 10-K on April 12, 2021, and believed it was in compliance with the agreement. Management said ordinary-course legal matters were not expected to have a material adverse effect.
Investor verification priorities
- Separate acquired growth from underlying digital performance, and monitor digital margins and Cisneros Interactive integration.
- Track advertising recovery by segment, particularly radio, and assess the effect of audience, competition and post-pandemic behavior changes.
- Review cash conversion, debt repayment, variable-rate interest exposure, and the assumptions behind the reported 2.1x leverage ratio.
- Follow remediation of the material weaknesses and evaluate future filings for control improvements.
- Confirm the status and proceeds of the WNUE-FM and property sales, and monitor the potential future put/call purchase of Cisneros Interactive’s remaining 49% interest.