Business context and reporting period
Entravision Communications Corporation filed this unaudited Form 10-Q for the three months ended March 31, 2012, with comparison to Q1 2011. The Spanish-language media company operates television and radio broadcasting segments, with 53 primary TV stations and 48 radio stations. Amounts below are in millions of dollars unless stated otherwise.
Financial results and liquidity
| Metric | Q1 2012 | Q1 2011 | Change |
|---|---|---|---|
| Net revenue | $46.5 | $44.0 | +6% |
| Operating income | $7.3 | $5.5 | +32% |
| Operating margin | 15.7% | 12.5% | Improved |
| Net loss | $(3.4) | $(4.4) | Loss narrowed |
| Adjusted EBITDA (non-GAAP) | $11.6 | $10.4 | +12% |
| Cash from operating activities | $(6.3) | $(3.5) | More cash used |
| Capital expenditures | $1.3 | $2.8 | Lower |
Adjusted EBITDA margin was 25%, compared with 24%. Interest expense was $9.1 million, down from $9.4 million. Cash and cash equivalents were $51.2 million at March 31, down from $58.7 million at year-end 2011. Current assets were $98.7 million and current liabilities $28.3 million.
Long-term debt, net of discount, was $379.8 million; the notes carry an 8.75% fixed coupon and mature in 2017. No borrowings were outstanding under the $50 million revolving facility, with approximately $0.7 million in letters of credit. The reported total leverage ratio was 6.8x, against a 7.0x maximum; it was 6.2x a year earlier. Stockholders’ equity was a deficit of $3.7 million.
Material changes versus the prior comparable period
- Television revenue rose 8% to $33.2 million; radio revenue was essentially unchanged at $13.4 million. TV segment operating profit rose to $11.1 million from $9.0 million, while radio segment operating profit declined to $0.1 million from $0.2 million.
- TV retransmission consent revenue increased to $5.0 million from $4.2 million. Management also cited local advertising growth, while other discussion describes advertising trends as mixed.
- Operating expenses increased 2% overall, slower than revenue growth; depreciation and amortization declined 8% to $4.3 million.
- Operating cash use worsened, primarily reflecting a $11.5 million reduction in accounts payable, accrued expenses and other liabilities. Cash declined $7.6 million during the quarter.
- Q1 2011 included $0.7 million of other income from remeasuring the company’s previously held interest in Lotus/Entravision Reps LLC; there was no comparable item in Q1 2012.
Guidance, commentary, risks and unusual items
- Management expected 2012 revenue to increase, citing political advertising and retransmission consent, and expected retransmission revenue for full-year 2012 to exceed 2011. It also anticipated a challenging advertising environment.
- Management expected positive operating cash flow for full-year 2012, despite Q1 cash use, and estimated 2012 capital expenditures of approximately $9 million. It expected operating funds, cash on hand and available revolver capacity to cover anticipated needs for at least 12 months.
- Management expected direct, selling and administrative expenses to rise during 2012, primarily from salary increases and costs associated with anticipated revenue growth.
- On April 27, 2012, after quarter-end, the company announced it would redeem $20 million principal of notes on May 30 at 103% of principal plus accrued interest, funded with cash on hand. It expected approximately $364 million principal to remain afterward.
- In February 2012, the company amended its revolving credit agreement, revising financial covenant thresholds; from March 31, covenants generally do not apply unless loans are outstanding on the relevant date. Debt agreements restrict additional borrowing, distributions, share repurchases and other actions. Management reported covenant compliance at March 31.
- Key risks include substantial indebtedness, leverage and covenant constraints, advertising demand and competition, reliance on Univision affiliations and retransmission arrangements, and economic uncertainty. Univision owns about 10% of the company on a fully converted basis; $6.0 million was due from Univision for signal carriage at quarter-end.
- Management stated that deferred tax assets were not expected to be fully realized and maintained a full valuation allowance. It considered ordinary-course litigation not likely to materially adversely affect the company. No material change to reported risk factors was disclosed.
Most important facts for investors to verify
- Whether full-year revenue growth and positive operating cash flow materialized, given Q1 operating cash use and the expected political advertising contribution.
- Whether retransmission consent revenue continued to grow and how much of TV revenue growth came from advertising versus retransmission.
- Debt reduction following the announced redemption, remaining cash, revolver availability and the company’s leverage and covenant headroom.
- Whether the $9 million capital expenditure estimate and forecast expense increases affected liquidity and margins.
- The company’s ongoing cash conversion: Q1 adjusted EBITDA was $11.6 million, but operating cash flow was negative $6.3 million.