Entravision Communications Corporation — Q3 2015 Form 10-Q
Business context and period. The company operates television, radio and digital media businesses serving primarily U.S. Hispanic audiences. This unaudited report covers the quarter and nine months ended September 30, 2015; comparisons are with the same 2014 periods. Dollar amounts below are in millions unless noted.
Key financial results
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $69.3 | $62.3 | $188.7 | $176.8 |
| Operating income | $19.0 | $16.2 | $43.0 | $45.0 |
| Net income | $9.3 | $8.1 | $19.8 | $21.2 |
| Diluted EPS | $0.10 | $0.09 | $0.22 | $0.23 |
- Revenue and segments: Q3 revenue rose 11%; nine-month revenue rose 7%. Q3 television revenue was $43.4 million (+5%), radio $20.9 million (+15%), and digital $5.0 million (+73%). Nine-month television revenue declined 2% to $119.3 million; radio increased 10% to $56.8 million; digital was $12.6 million, with comparison limited by Pulpo’s June 2014 acquisition.
- Profitability and margins: Q3 operating margin was approximately 27.5% versus 26.0% a year earlier; nine-month operating margin was approximately 22.8% versus 25.5%. Nine-month adjusted EBITDA, a non-GAAP measure, was $57.5 million versus $57.9 million; its revenue margin fell to 30% from 33%. Adjusted EBITDA for Q3 is not clearly provided in the filing text.
- Cash flow and investment: Nine-month operating cash flow was $46.9 million, up from $34.1 million. Investing outflow was $11.5 million versus $21.4 million, including the prior-year $15.0 million Pulpo acquisition. Financing outflow was $8.6 million. Capital expenditures were $11.5 million versus $6.7 million.
- Liquidity and debt: September 30 cash was $58.0 million, versus $31.3 million at December 31, 2014. Current assets were $135.0 million and current liabilities $32.8 million. Long-term debt, including current maturities, was $337.5 million; net debt after cash was approximately $279.5 million. The term loan’s effective rate was 3.5%. The company reported a 4.0x total leverage ratio and compliance with its covenant; the stated maximum is 6.5x when the revolver is drawn.
- Dividends: Dividends declared were $0.03 per share in Q3 and $0.08 per share year to date. Cash dividends paid over nine months totaled $6.6 million.
Material changes versus prior period
- Q3 growth came despite the absence of 2014 World Cup and significant political advertising revenue. Higher local and national radio advertising, digital growth, television retransmission revenue and channel-modification-related payments offset those headwinds.
- Television channel modifications generated approximately $5.5 million of Q3 revenue and $10.5 million year to date. Nine-month television revenue nevertheless declined, reflecting weaker advertising and the absence of prior-year event-related revenue.
- Q3 operating income and net income improved, while nine-month operating income and net income declined. Higher nine-month operating costs included digital costs following Pulpo’s acquisition; SG&A increased 16% for the period.
- Cash increased substantially from year-end. Debt declined through scheduled payments; interest expense also benefited from a $20.0 million term-loan prepayment made in December 2014.
Outlook, commentary and risks
- Management expected positive operating cash flow for full-year 2015, and said cash, operating cash flow and available credit were expected to cover requirements for at least the next 12 months. Full-year 2015 capital expenditures were estimated at approximately $13.5 million.
- Management anticipated higher full-year 2015 revenue from digital media and retransmission consent, partly offset by the lack of World Cup and significant political advertising compared with 2014. It expected retransmission consent revenue to exceed 2014 and remain a growing revenue source.
- The Univision proxy agreement for negotiating retransmission consent was extended through November 30, 2015. The company intended to negotiate an extension or replacement, but gave no assurance an agreement would be reached or on its terms. Univision was also a major network affiliate, national sales representative and related party; affiliation agreements expire in 2021.
- Interest-rate exposure remains material: $337.5 million of debt carried variable rates, and a 100-basis-point LIBOR increase was estimated to raise annual interest expense and reduce operating cash flow by approximately $1.1 million. Swaps covering $186.0 million were scheduled to take effect December 31, 2015, fixing that portion at an all-in rate of 5.23% through December 2018.
- Other stated risks include substantial indebtedness and credit-agreement restrictions, advertising cancellations or rate declines, competition, economic uncertainty, dependence on Univision and retransmission consent revenue, and acquisition integration. Management said ordinary-course litigation was not expected to materially affect the company; risk factors were reported as unchanged. Disclosure controls were assessed as effective.
- Pulpo contingent consideration was reduced to $0.1 million after management concluded it was unlikely to earn the 2015 performance payment; $1.0 million was paid in Q1 for 2014 performance.
Important facts for investors to verify
- Whether the Univision retransmission proxy arrangement was renewed or replaced after its November 30, 2015 extension, and the resulting economics and continuity of payments.
- Progress in digital revenue growth and profitability, given Q3 growth and the digital segment’s year-to-date operating loss of $0.5 million.
- Whether retransmission consent and channel-modification revenue are recurring, and how much they offset advertising weakness.
- Debt, leverage covenant headroom, variable-rate exposure and implementation of the $186.0 million interest-rate swaps.
- Delivery against management’s full-year cash-flow and $13.5 million capital-expenditure expectations, alongside the quarterly dividend.