Entravision Communications Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022; unaudited. Amounts below are in U.S. dollars unless stated otherwise.
Business context
Entravision operates digital advertising, U.S. Hispanic television and audio businesses. Digital generated 78% of Q3 revenue and was the main growth driver. The company owns or operates 49 primary television stations and 45 radio stations.
Financial performance and liquidity
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $241.0m | $199.0m | $659.9m | $526.3m |
| Operating income | $15.9m | $20.5m | $33.5m | $48.1m |
| Net income | $9.1m | $13.9m | $19.4m | $31.4m |
| Net income attributable to common stockholders | $9.4m | $12.1m | $19.7m | $25.4m |
| Diluted EPS | $0.11 | $0.14 | $0.23 | $0.29 |
- Revenue mix and growth: Q3 digital revenue rose 29% to $188.9m; television fell 2% to $35.7m; audio was essentially flat at $16.5m. Nine-month digital revenue rose 37% to $517.0m, while television declined 7% to $98.9m and audio increased 5% to $44.0m.
- Margins and costs: Digital cost of revenue was 83% of digital revenue in Q3 versus 85% a year earlier, and 84% in both nine-month periods. Consolidated operating margin was approximately 6.6% in Q3 versus 10.3% a year earlier. SG&A and corporate expenses increased, while digital programmatic activity and media-partner economics continue to pressure digital margins.
- Cash flow: Nine-month operating cash flow was $78.1m, up from $53.8m. Investing activities used $56.0m and financing activities used $85.7m; cash, cash equivalents and restricted cash declined $63.5m to $122.3m.
- Liquidity: September 30 cash and cash equivalents were $121.6m, with $43.2m of marketable securities. Current assets were $402.4m and current liabilities $251.5m. Management said resources and operating cash flow were expected to cover needs for at least 12 months.
- Debt: The filing reports $210.0m of variable-rate bank debt outstanding and a 5.27% Term Loan B rate at September 30; the loan matures November 30, 2024. The balance sheet lists current and long-term debt totaling approximately $212.9m, while a note gives a $208.6m Term Loan B carrying amount net of debt costs and discount. Investors should reconcile these reported amounts. The facility has no financial covenants; the reported total leverage ratio was 1.4:1 versus 1.6:1 a year earlier.
- Adjusted EBITDA: Nine-month consolidated adjusted EBITDA, a non-GAAP measure, was $66.6m versus $55.2m, and 10% of revenue in both periods.
Material changes and unusual items
- Q3 revenue growth principally reflected digital advertising, including the contribution of Adsmurai and 365 Digital, plus political advertising and spectrum-rights revenue. Television advertising and retransmission consent revenue declined.
- Operating income fell despite higher revenue, reflecting higher operating costs, $0.7m of Q3 expense from contingent-consideration remeasurement, $2.0m of foreign-currency loss and increased interest expense. Nine-month contingent-consideration remeasurement expense was $6.8m.
- The company paid $65.3m of acquisition-related contingent consideration during the first nine months. The remaining contingent-consideration liability was $56.4m at September 30.
- Entravision began consolidating Adsmurai after making a convertible loan of approximately $12.8m in August; the loan may convert into 51% ownership. It also consolidated Jack of Digital, despite an initial investment of approximately $0.1m for about 15% ownership, based on its VIE assessment.
- Marketable-securities purchases and sales were significant: $92.5m purchased and $46.9m received from sales during the nine months. The company also repurchased and retired 1.8m Class A shares for $11.3m under its $20m authorization; no shares were repurchased in Q3.
Outlook, commentary and risks
- Management expected full-year 2022 revenue to increase, citing digital growth, a full year of MediaDonuts and 365 Digital, newly consolidated VIEs, and higher political advertising. It expected positive operating cash flow and approximately $12m of capital expenditures, including about $2m expected to be reimbursed. No specific full-year revenue or earnings target was provided.
- Management expected retransmission consent revenue from Orlando, Tampa and Washington, D.C. to continue declining and cease over the next two years following the expiration of the Univision and UniMás affiliation agreements in those markets.
- One global media-company relationship represented 49% of Q3 revenue and 51% of nine-month revenue; management expects this dependence to continue. The filing does not identify that customer in the cited concentration disclosure.
- Key risks include digital advertising competition and margin pressure, foreign-exchange exposure, reliance on global media partners, declining traditional television and radio audiences, and variable-rate debt. A 100-basis-point rate increase was estimated to raise annual interest expense by approximately $2.1m.
- Management said COVID-19 had minimal Q3 impact but cautioned that renewed disruption or broader economic weakness could affect results. Ordinary-course legal matters were not expected by management to materially affect the company. Disclosure controls were assessed as effective.
Important facts for investors to verify
- Reconcile the debt carrying-value figures and assess refinancing or repayment capacity ahead of the November 2024 maturity.
- Track the largest media partner’s revenue contribution, contract status and any change in commercial terms.
- Assess whether digital growth can continue while programmatic mix, media costs and foreign-exchange movements pressure margins.
- Review the remaining contingent-consideration obligations, their assumptions and cash-payment timing.
- Monitor the continuing retransmission-revenue decline in the three markets that lost network affiliation agreements, and compare actual results with management’s outlook.