Entravision Communications Corporation — 2014 Form 10-K
Reporting period: Fiscal year ended December 31, 2014. The filing is an annual report, not a quarterly filing; fourth-quarter figures are separately disclosed below. Entravision operates television, radio and digital media businesses primarily serving U.S. Hispanic audiences. It acquired digital advertising company Pulpo in June 2014 and began reporting digital media as a separate segment in the third quarter.
Key financial results
| Metric | FY 2014 | FY 2013 | Change / context |
|---|---|---|---|
| Net revenue | $242.0 million | $223.9 million | Up 8%; 2014 included World Cup and political advertising, higher retransmission revenue, and Pulpo revenue. |
| Operating income | $59.7 million | $54.0 million | Up 11%; operating margin was approximately 24.7% versus 24.1%. |
| Net income | $27.1 million | $133.8 million | 2013 included a $134.1 million income tax benefit, primarily from releasing deferred-tax valuation allowances; 2014 included $18.4 million of tax expense. |
| Diluted EPS | $0.30 | $1.50 | 2013 EPS was substantially affected by the tax benefit. |
| Adjusted EBITDA | $79.3 million | $73.0 million | Up 9%; approximately 32.8% of revenue in 2014. This is a company-defined non-GAAP measure. |
| Cash from operations | $54.4 million | $32.8 million | Up from 2013; includes significant non-cash tax-related adjustments. |
| Capital expenditures | $9.1 million | $9.7 million | 2014 investing cash outflow also included $15.0 million for Pulpo. |
| Cash and cash equivalents | $31.3 million | $43.8 million | Down $12.6 million. |
| Total debt | $340.3 million | $364.1 million | Reduced by $23.8 million in 2014, including a $20 million prepayment. |
Segments and margins
- Television: Revenue of $165.5 million, up 5%; segment operating profit was $73.9 million. Retransmission consent revenue rose to $26.4 million from $22.2 million.
- Radio: Revenue of $69.9 million, up 4%; segment operating profit was $8.4 million.
- Digital: Revenue of $6.6 million after Pulpo’s acquisition; segment operating loss was $0.7 million.
- Consolidated net margin was approximately 11.2% in 2014. Segment operating profit is a company-reported measure before corporate expenses and impairment.
Fourth-quarter 2014
Revenue was $65.3 million, compared with $60.1 million in fourth-quarter 2013. Net income was $5.9 million, or $0.07 per diluted share, versus $151.1 million, or $1.67 per diluted share, in fourth-quarter 2013. The prior-year quarter’s reported profit was substantially affected by the deferred-tax valuation allowance release.
Liquidity, debt and capital allocation
- At year-end, current assets were $107.4 million and current liabilities were $36.1 million, implying a current ratio of approximately 3.0. Cash was $31.3 million.
- The $340.3 million term loan is variable-rate debt under the 2013 Credit Facility, with a reported effective rate of 3.5% at year-end. The facility matures in 2020; $3.8 million is scheduled as current maturities.
- Reported total net leverage was 4.0x at year-end, down from 4.7x in 2013; the facility’s stated maximum is 6.5x when its revolver is drawn. The company reported compliance with the applicable covenant.
- The company expects to fund working capital, capital expenditures and debt service from cash on hand, operating cash flow and available credit. Management said these sources should cover anticipated requirements for at least the next 12 months.
- 2014 financing outflows included $23.8 million of debt payments, $12.5 million of share repurchases and $8.9 million of dividends. The board authorized up to $20 million of repurchases; approximately 2.5 million Class A shares had been bought for $12.5 million by year-end.
- Contractual obligations totaled $507.7 million, including estimated debt principal and interest, operating leases of $68.9 million and media research commitments of $18.1 million. The debt and interest schedule is an estimate and may change.
Material changes, outlook and risks
- Revenue growth reflected World Cup advertising, political advertising, increased retransmission consent revenue and Pulpo. Television and radio also experienced declines in some local or national advertising, partially offsetting growth.
- Management expected 2015 retransmission consent and digital revenue to increase, while World Cup and significant political advertising would not recur at 2014 levels. It also expected positive operating cash flow and approximately $13.5 million of capital expenditures. The filing does not provide a clear forecast for total 2015 revenue or earnings.
- Management expected employee salary increases to contribute to higher operating, selling and corporate expenses in 2015. It anticipated quarterly dividends, subject to board approval and restrictions in the credit agreement.
- Univision is a key programming and sales partner. The retransmission-consent proxy agreement was extended only through March 31, 2015 as of the filing; the company intended to negotiate an extension or replacement but gave no assurance of agreement. Network affiliation agreements generally extend to 2021.
- Substantial indebtedness, secured by substantially all assets, and restrictive credit covenants could limit financing, acquisitions, dividends and other actions. Advertising orders are generally cancellable without penalty and are exposed to economic conditions, competition and audience changes.
- Broadcast operations face FCC licensing, ownership and spectrum-repacking risks, including possible effects on low-power stations. Digital operations face evolving privacy, data-protection and advertising regulation.
- The company recorded a $0.7 million radio goodwill impairment, eliminating radio goodwill at year-end; it reported no impairment of television goodwill or broadcast licenses. Future impairment remains sensitive to forecasts, discount rates and market assumptions.
- Management reported no litigation likely to have a material adverse effect. The financial statements received an unqualified audit opinion, and management and the auditor reported effective internal control over financial reporting; Pulpo was excluded from the control assessment.
Important facts for investors to verify
- Whether the Univision retransmission-consent proxy arrangement was renewed after March 31, 2015, and on what economic terms.
- Whether 2015 digital and retransmission growth offset the absence of 2014 World Cup and significant political advertising.
- Debt repayment capacity, covenant headroom, variable-rate exposure and the effect of the planned interest-rate swaps covering $186 million beginning December 31, 2015.
- Pulpo’s subsequent revenue, profitability and contingent-consideration payments; the 2014 performance target triggered a $1.0 million payment in 2015.
- Execution of the $13.5 million 2015 capital expenditure plan, dividend decisions and any additional share repurchases.
- Potential FCC spectrum-auction and repacking effects, especially on low-power stations, and any changes to privacy or digital-advertising compliance requirements.