Entravision Communications Corporation — Q3 2020 Form 10-Q
Reporting period: Three and nine months ended September 30, 2020; comparisons are to the same 2019 periods. Amounts are in U.S. dollars. Entravision operates television, radio and digital media businesses, primarily serving U.S. Hispanic audiences.
Financial performance
| Metric | Q3 2020 | Q3 2019 | Nine months 2020 | Nine months 2019 |
|---|---|---|---|---|
| Revenue | $63.0m | $68.8m | $172.3m | $202.7m |
| Operating income (loss) | $14.3m | ($3.8m) | ($22.4m) | ($10.4m) |
| Net income (loss) | $9.0m | ($12.2m) | ($24.2m) | ($27.1m) |
| Net income (loss) per share | $0.11 | ($0.14) | ($0.29) | ($0.32) |
- Revenue fell 8% in Q3 and 15% year to date. The Q3 net margin was approximately 14%; the nine-month net loss margin was approximately 14%. Operating margin was approximately 23% in Q3 and negative 13% year to date.
- Q3 segment revenue: television $37.8m, up 4%; digital $13.7m, down 22%; radio $11.5m, down 22%. Television’s Q3 segment operating profit was $15.4m, digital’s was $0.4m and radio’s was $1.4m. For the nine months, segment operating results were $35.8m, ($2.9m) and ($1.8m), respectively.
- Q3 direct operating expenses were 38% of revenue, versus 45% a year earlier. Nine-month consolidated adjusted EBITDA was $27.8m, down from $29.8m; adjusted EBITDA margin was 16%, versus 15%. Adjusted EBITDA is a non-GAAP measure.
- Net cash provided by operating activities for the nine months was $25.7m, compared with $23.5m. Investing activities provided $35.7m, including $38.5m of marketable-securities proceeds and $5.1m from asset sales; financing activities used $11.2m, including $8.4m of dividends and $2.3m of debt repayments.
- At September 30, cash and cash equivalents were $83.3m, marketable securities $53.2m and restricted cash $0.7m. Total current assets were $212.1m versus current liabilities of $51.3m.
- Debt carrying value was $214.1m net of issuance costs and discount (approximately $216.0m outstanding before those deductions). The term loan matures in November 2024; its stated interest rate was 2.92%. The reported total leverage ratio was 3.6x, compared with 3.3x a year earlier. Operating lease liabilities totaled $39.9m.
Changes and drivers
- Management attributed revenue pressure to COVID-19-related advertising cancellations and fewer new placements, especially in radio, as well as ratings, competition and audience shifts from traditional to digital media. Digital revenue also weakened internationally and faced a shift toward lower-margin programmatic business.
- Q3 television revenue grew on political advertising and retransmission consent, partly offset by lower local and national advertising and spectrum-usage revenue. Political advertising partly cushioned declines in television and radio.
- Operating results improved in Q3 versus a year earlier, when the quarter included a $9.1m impairment charge. No impairment was recorded in Q3 2020. Nine-month 2020 impairment charges were $39.8m, mainly related to FCC licenses, digital goodwill and other digital long-lived assets; these charges contributed to the year-to-date operating loss.
- Cost reductions included salary cuts, suspended 401(k) matching and share repurchases, and a 50% dividend reduction beginning in Q2. Dividends declared were $0.03 per share in Q3 2020 versus $0.05 in Q3 2019.
Outlook, risks and unusual items
- Management expected full-year 2020 revenue and operating cash flow to decline from 2019, citing the pandemic and its continuing effects. It cautioned that Q3 results may not indicate future performance. Expected 2020 capital expenditures were approximately $8m, including about $3.6m for broadcast-station repacking expected to be reimbursed by the FCC.
- Management stated liquidity was adequate to meet expenses for at least the next 12 months using cash on hand and operating cash flows. Advertising weakness, further pandemic disruption, changing audience and advertising patterns, and pressure on digital margins remain risks. A hypothetical 100-basis-point increase in the Eurodollar rate was estimated to increase annual interest expense by about $2.2m.
- A material weakness in internal controls over the digital segment, including revenue and Headway accounting processes, remained unremediated at quarter-end. Management reported remediation work was underway; disclosure controls were considered ineffective because of this weakness.
- On October 13, 2020, after quarter-end, Entravision acquired 51% of Cisneros Interactive for approximately $29m cash. The sellers may put the remaining 49% starting in April 2022, and Entravision may call it in 2024; the stated pricing formula is six times specified 12-month EBITDA.
- Ordinary-course legal claims were not expected by management to materially affect financial position, results or cash flows. The filing reported no defaults on senior securities.
Most important facts to verify
- Whether advertising demand and pricing recovered after Q3, particularly in radio and international digital markets.
- Cash generation and liquidity after the $29m Cisneros Interactive acquisition, including any subsequent material cash uses.
- Debt balance, leverage, interest-rate exposure and compliance with credit-agreement covenants.
- Progress in remediating the digital-segment material weakness and whether future filings identify any misstatements.
- Performance and margin impact of programmatic digital advertising, and the terms or triggers for acquiring Cisneros Interactive’s remaining 49%.