Entravision Communications Corporation — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; comparisons are primarily with fiscal 2020. This is an annual filing, not a standalone fourth-quarter report. Amounts are in U.S. dollars.
Business context
Entravision operates digital advertising, television and audio businesses. Digital advertising, focused largely on commercial partnerships with global media platforms and programmatic ad buying, generated approximately 73% of 2021 revenue. Television and audio primarily serve U.S. Hispanic audiences. The company owns or operates 49 primary television stations and 46 radio stations.
Key financial results
| Metric | 2021 | 2020 | Change / context |
|---|---|---|---|
| Revenue | $760.2 million | $344.0 million | Up 121%, largely from acquisitions and digital growth |
| Operating income | $60.5 million | $6.6 million | Operating margin approximately 8.0%, versus 1.9% |
| Net income (loss) attributable to common stockholders | $29.3 million | $(3.9) million | Basic EPS $0.34; diluted EPS $0.33 |
| Adjusted EBITDA (non-GAAP) | $88.0 million | $60.4 million | Up 46%; margin declined to approximately 12% from 18% |
| Cash from operating activities | $65.3 million | $63.4 million | Up modestly |
| Capital expenditures | $5.6 million | $9.5 million | 2022 estimate: approximately $16.4 million |
Digital revenue rose to $555.3 million from $143.3 million, while digital cost of revenue increased to $466.5 million; cost of revenue was 84% of digital revenue, compared with 75% in 2020. Digital segment operating profit was $28.8 million. Television revenue declined 5% to $146.8 million and segment operating profit fell to $53.0 million. Audio revenue increased 25% to $58.0 million and segment operating profit increased to $16.4 million.
Retransmission-consent revenue was $37.0 million, versus $36.8 million; spectrum-usage-rights revenue was $6.2 million, versus $5.4 million. Political advertising decreased from 2020, contributing to lower television revenue and partially offsetting audio growth.
Liquidity, debt and capital
At year-end, cash and cash equivalents were $185.1 million, restricted cash was $0.7 million, and current assets were $408.5 million against current liabilities of $224.9 million. The reported current ratio was approximately 1.8. Total debt principal was $212.3 million; the balance-sheet carrying amount was $212.3 million including current maturities, net of issuance costs. The company reported a 1.6-to-1 total leverage ratio, down from 2.3-to-1 in 2020, and stated it was in compliance with credit-agreement covenants.
The senior secured Term Loan B matures November 30, 2024; scheduled principal due in 2024 is $206.3 million. The loan bears variable-rate interest; the stated rate at December 31, 2021 was 2.84%. Management estimated a 100-basis-point rate increase would raise annual interest expense by approximately $2.1 million. The credit agreement restricts, among other things, additional debt, acquisitions, asset sales and dividends.
Material changes, outlook and unusual items
- 2021 acquisitions expanded digital operations: Entravision acquired the remaining 49% of Cisneros Interactive, making it wholly owned, acquired MediaDonuts in Southeast Asia, and acquired 365 Digital in South Africa. Management expects 2022 revenue to increase, citing digital growth, a full year of MediaDonuts and 365 Digital operations, and higher political advertising than in 2021. No quantified revenue or earnings guidance was provided.
- Acquisition-related contingent consideration was significant. At year-end it totaled $114.9 million, including $97.1 million for Cisneros Interactive and $15.8 million for MediaDonuts; the remaining amount related to 365 Digital. The 2021 income statement included an $8.2 million expense from fair-value changes in contingent consideration. A portion of the Cisneros earn-out was accelerated and was payable in early 2022.
- Management expects digital cost of revenue and operating expenses to rise in 2022 as the acquired businesses contribute for a full year. It also cautioned that digital growth is shifting toward higher-volume, lower-margin business amid pricing pressure and programmatic competition.
- Management said COVID-19 had a lessened effect in 2021 and anticipated diminishing or little impact, while warning that resurgence, economic disruption or lasting audience behavior changes could affect results. The company retained some cash-preservation measures, including suspended share repurchases and a dividend reduced by 50% beginning in 2020.
- Unusual items included a $3.0 million impairment charge in 2021, versus $40.0 million in 2020, and $7.0 million of other operating gains, mainly associated with broadcast-station repacking and asset sales. Income tax expense was $18.7 million; the effective rate was affected by foreign and state taxes, contingent-consideration changes, and valuation allowances.
- The TelevisaUnivision affiliation, proxy and marketing agreements expired in Orlando, Tampa and Washington, D.C. on December 31, 2021; management said it was arranging replacement programming in affected markets. The company also stopped broadcasting XHRIO-TV in January 2022 after not prepaying required Mexican license fees.
- Management reported that previously identified material weaknesses in controls related to Cisneros Interactive were remediated in 2021. The auditor gave unqualified opinions on the financial statements and internal control; controls at MediaDonuts and 365 Digital were excluded from the year-end assessment because of acquisition timing.
Principal risks and investor verification
- Revenue concentration: Meta accounted for 55% of consolidated revenue in 2021, versus 24% in 2020; the top five commercial-partner media companies accounted for 61%, versus 26%. Verify partner contract terms, renewal prospects and advertiser/platform concentration.
- Acquisition economics: Verify earn-out assumptions, subsequent payments and cash impact, including the $114.9 million year-end contingent-consideration liability and final purchase-price allocations.
- Margins and cash conversion: Assess whether digital revenue growth can offset lower digital margins, rising costs and working-capital needs; accounts receivable increased to $201.7 million from $142.0 million.
- Debt and liquidity: Verify refinancing or repayment plans for the $206.3 million scheduled 2024 maturity, variable-rate exposure, and compliance with restrictive covenants.
- Broadcast and partner exposure: Monitor replacement programming and carriage in markets where TelevisaUnivision agreements expired, retransmission-consent renewals, and the potential effects of losing key programming relationships.
- Digital privacy and technology: Track restrictions on mobile identifiers, cookies and targeted advertising, including privacy-law compliance and platform policy changes that could affect targeting, measurement and revenue.
- Other exposures: Review international currency, political, regulatory and cash-repatriation risks; impairment assumptions for goodwill and broadcast licenses; and the execution and controls integration of recent acquisitions.