Entravision Communications Corporation — Q1 2014 Form 10-Q
Reporting period: Three months ended March 31, 2014; comparative figures are for Q1 2013. Financial statements are unaudited. Entravision operates Spanish-language television, radio, and digital media businesses, primarily serving U.S. Hispanic audiences. Unless noted otherwise, financial figures below are in millions of dollars.
Financial performance
| Metric | Q1 2014 | Q1 2013 | Change |
|---|---|---|---|
| Revenue | $52.7 | $49.1 | +7% |
| Operating income | $10.8 | $8.7 | +24% |
| Operating margin | 20.5% | 17.8% | Higher |
| Interest expense | $3.4 | $7.8 | Down 56% |
| Income before taxes | $7.4 | $1.0 | Up substantially |
| Income tax expense | $3.0 | $1.9 | Higher |
| Net income (loss) | $4.4 | $(1.0) | Turned profitable |
| Diluted earnings per share | $0.05 | $(0.01) | Improved |
| Adjusted EBITDA (non-GAAP) | $15.0 | $13.4 | +12%; 28% vs. 27% of revenue |
| Operating cash flow | $6.7 | $(1.6) | Turned positive |
| Capital expenditures | $1.8 | $1.9 | Lower |
Segments and material changes
- Television: Revenue rose 8% to $37.7 million, mainly from local advertising and retransmission consent. Retransmission consent revenue was $6.7 million, versus $5.3 million. Segment operating profit increased 21% to $15.6 million.
- Radio: Revenue rose 6% to $14.9 million, primarily from national advertising. Segment operating profit declined to $0.1 million from $0.4 million, as direct and selling, general and administrative expenses increased.
- Consolidated direct expenses increased 3%, while selling, general and administrative expenses rose 12%. Depreciation and amortization declined 11%, partly because certain assets were fully depreciated.
- Interest expense fell primarily because the company replaced its 8.75% senior notes with lower-rate term debt. The 2013 refinancing had previously resulted in a $29.7 million debt-extinguishment loss in 2013; it is not a Q1 2014 charge.
Financial position, liquidity and debt
- At March 31, 2014, cash and cash equivalents were $47.1 million, total current assets $111.8 million, and current liabilities $28.2 million. Total assets were $534.8 million.
- Total debt was approximately $363.1 million, including $3.8 million of current maturities; year-end 2013 debt was approximately $364.1 million. The debt is principally the senior secured Term Loan B, maturing May 2020. The $30 million revolving facility matures May 2018.
- The company reported a total leverage ratio of 4.6x at March 31, 2014, compared with 4.1x a year earlier, and stated it was in compliance. The 7.0x maximum applies when the revolving facility is drawn.
- Operating cash flow improved despite a $7.0 million net decrease in accounts payable, accrued expenses and other liabilities. The company paid $2.2 million in dividends and $0.9 million toward debt; cash increased $3.3 million during the quarter.
- The company declared a $0.03-per-share dividend. Management said cash on hand, operating cash flows and available credit-facility borrowings should fund anticipated requirements for at least the next 12 months.
Outlook, risks and unusual items
- Management anticipated revenue growth for the remainder of 2014, citing World Cup-related and political advertising and growing retransmission consent revenue. It expected full-year 2014 retransmission consent revenue to exceed 2013 levels.
- Management expected positive operating cash flow for 2014 and approximately $10 million of full-year capital expenditures. It also expected direct, SG&A and corporate expenses to rise in dollar terms, including from salary increases and interactive-media spending.
- Interest-rate exposure remains material: the $363.1 million of debt was variable-rate debt, with a 1.0% LIBOR floor and a 2.5% margin. A 100-basis-point LIBOR increase was estimated to raise annual interest expense and reduce operating cash flow by approximately $0.6 million. Swaps covering $186 million begin December 31, 2015, so they do not hedge that exposure during the near term.
- The Univision proxy agreement for negotiating retransmission-consent terms expires in December 2014. Entravision intended to seek an extension or replacement, but gave no assurance one would be reached. Univision affiliations and the related business relationship are significant; Univision also held about 10% of common stock on a fully converted basis and specified Class U approval rights.
- Advertising orders may be cancelled, reduced or postponed without penalty. Other stated risks include competition, economic conditions, substantial indebtedness and debt covenants, and reliance on retransmission revenue. Management said ordinary-course legal matters were not expected to have a material adverse effect; the filing reported no material change in risk factors.
- Interest-rate swaps generated a $0.6 million after-tax loss in other comprehensive income. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether 2014 advertising and retransmission-consent growth, including the stated World Cup and political-advertising contribution, materialized.
- Whether Univision and Entravision extended or replaced the retransmission-consent proxy agreement before its December 2014 expiration, and the resulting economic terms.
- Debt reduction, leverage, covenant compliance, and refinancing or interest-rate exposure, including the timing and coverage of the swaps.
- Whether operating cash flow and capital spending tracked management’s full-year expectations, and whether dividends remained supportable.
- The sustainability of improved profitability, particularly radio segment performance and rising SG&A costs. Adjusted EBITDA is a non-GAAP measure; compare it with GAAP earnings and cash flow.