Entravision Communications Corporation — FY2022 Form 10-K
Reporting period: Year ended December 31, 2022. The filing is an annual report, not a standalone fourth-quarter report. Comparisons below are primarily with FY2021.
Business context
Entravision operates digital advertising businesses globally and television and audio businesses focused on U.S. Hispanic audiences. FY2022 revenue mix was approximately 78% digital, 15% television and 7% audio. Digital advertising is largely an intermediary business: the company sells advertising inventory on third-party platforms, including Meta, and recognizes revenue gross while bearing payment obligations to media partners.
Financial results and liquidity
| Metric | FY2022 | FY2021 | Change |
|---|---|---|---|
| Revenue | $956.2 million | $760.2 million | +26% |
| Operating income | $40.3 million | $60.5 million | -33% |
| Net income attributable to common stockholders | $18.1 million; $0.21 per diluted share | $29.3 million; $0.33 per diluted share | -38% |
| Adjusted EBITDA (non-GAAP) | $103.1 million | $88.0 million | +17%; margin 11% vs. 12% |
| Cash flow from operating activities | $78.9 million | $65.3 million | +$13.7 million |
Digital revenue grew 35% to $747.1 million, while digital segment operating profit rose 28% to $36.9 million. Digital cost of revenue was 84% of segment revenue in both years; management expects continued pricing and mix pressure as programmatic advertising grows. Television revenue declined 1% to $144.7 million and segment operating profit declined 2% to $51.6 million. Audio revenue increased 11% to $64.4 million and segment operating profit rose 23% to $20.3 million. Political advertising reached a company record for an election cycle, supporting television and audio results.
At year-end, cash and cash equivalents were $110.7 million and marketable securities were $44.5 million. Current assets were $407.9 million and current liabilities $248.2 million. Reported debt, net of unamortized issuance costs, was approximately $212.5 million; the term loan carried a 7.13% variable rate. The company reported a 1.3-to-1 total leverage ratio, down from 1.6-to-1 in 2021, and said it was in compliance with material credit agreement covenants. The term loan matures November 30, 2024, with approximately $207.4 million of scheduled debt maturities in 2024. A 100-basis-point rate increase would add an estimated $2.1 million to annual interest expense.
Investing cash outflow was $60.5 million, including $46.6 million net purchases of marketable securities and $11.5 million of capital expenditures. Financing cash outflow was $92.8 million, including $65.3 million of contingent consideration payments, $11.3 million of share repurchases and $8.5 million of dividends. The company repurchased 1.8 million shares under a $20 million authorization. A February 2023 announcement doubled the quarterly dividend to $0.05 per share from $0.025.
Material changes and unusual items
- Digital revenue increased by $191.8 million, reflecting growth in commercial partnerships and contributions from acquisitions and investments. Digital represented a larger share of the business.
- Television revenue was affected by the expiration at year-end 2021 of Univision and UniMás affiliation agreements in Orlando, Tampa and Washington, D.C. Retransmission consent revenue fell to $36.0 million from $37.0 million; spectrum usage rights revenue fell to $6.0 million from $6.2 million.
- Operating income included $14.2 million of expense from fair-value changes in acquisition earn-out liabilities, versus $8.2 million in 2021; $1.6 million of FCC license impairment; and $3.0 million of foreign currency losses, versus $0.5 million in 2021. Corporate expenses rose to $49.4 million, including $8.1 million of severance expense following CEO Walter F. Ulloa’s death on December 31, 2022.
- In August 2022, the company made a €12.5 million (about $12.8 million) two-year loan to Adsmurai at 5%, with an option to convert into 51% ownership. It consolidated Adsmurai as a variable interest entity, including $31.7 million of revenue and $2.0 million of net income from the consolidation date through year-end. It also invested approximately $0.1 million for 15% of Jack of Digital and consolidated that entity as a VIE.
Outlook, risks and contingencies
Management expected FY2023 revenue to increase, primarily from digital growth and a full year of Adsmurai operations, and expected positive operating cash flow. It forecast approximately $19.5 million of FY2023 capital expenditures, with about $3.9 million expected to be reimbursed in connection with a new office lease. These are management expectations, not guaranteed results.
Key risks include dependence on Meta, which accounted for 49% of consolidated revenue in 2022 (55% in 2021); the top five digital media partners represented 60% of revenue. Digital partner agreements are generally short-term and may be terminated or renegotiated. The business also faces digital advertising competition and margin pressure, restrictions on tracking and use of personal data, cybersecurity and credit-collection exposure, foreign exchange and repatriation risks, and declining traditional broadcast audiences. The secured debt, variable interest rate and 2024 maturity create refinancing and liquidity risks; credit agreement restrictions also limit acquisitions, asset dispositions and certain payments. TelevisaUnivision remains a key programming and retransmission partner; its Class U ownership gives it consent rights over certain transactions. Management said COVID-19 had no material FY2022 operational or financial effect. Management reported no legal proceeding expected to have a material adverse effect. Auditors issued unqualified opinions on the FY2022 financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether digital growth can continue while protecting margins, and how much growth reflects acquired or consolidated businesses versus organic performance.
- Meta and other media-partner concentration, renewal terms, termination rights and any minimum-sales or guaranteed-payment obligations.
- Funding or refinancing plans for the substantial debt due in 2024, and sensitivity to variable interest rates and covenant restrictions.
- Realization and timing of acquisition earn-outs, including the remaining contingent consideration liability and any future cash requirements.
- Progress toward 2023 revenue, cash flow and capital expenditure expectations, and the sustainability of the increased dividend.
- Effects of privacy regulation, platform tracking changes, foreign currency controls and broadcast affiliation or retransmission changes on results and cash availability.