Entravision Communications Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Entravision operates digital advertising, U.S. Hispanic television and audio businesses. Amounts below are in U.S. dollars; financial statement figures are in millions unless stated otherwise.
Key financial results
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $197.2 | $148.9 | +32% |
| Operating income | $4.2 | $11.4 | -63% |
| Net income attributable to common stockholders | $1.9 | $5.4 | -65% |
| Diluted earnings per share | $0.02 | $0.06 | Down $0.04 |
| Adjusted EBITDA (non-GAAP) | $18.1 | $14.2 | +28% |
| Cash provided by operating activities | $53.2 | $23.5 | +$29.8 |
Revenue growth was led by digital, which generated $153.7 million, up 51%, and represented about 78% of revenue. Television revenue fell 14% to $30.9 million; audio revenue rose 11% to $12.6 million. Digital segment operating profit was $5.9 million, television $8.7 million and audio $2.4 million. Adjusted EBITDA margin declined to about 9% from 10%; operating margin declined to about 2.1% from 7.6%, and net margin attributable to common stockholders to about 1.0% from 3.6%.
Digital cost of revenue rose 53% to $129.9 million, consuming 85% of digital revenue versus 84% a year earlier. Management cited programmatic mix, advertiser demands for lower costs, and bargaining dynamics with media partners as continuing margin pressures.
Cash, debt and capital allocation
- At March 31, cash and cash equivalents were $126.6 million and marketable securities were $85.0 million; combined, $211.6 million. Cash and equivalents had been $185.1 million at December 31, 2021, as the company invested $85.5 million in marketable securities.
- Balance-sheet debt, including current maturities, was approximately $211.8 million. The company separately reported $211.5 million of variable-rate bank debt outstanding; the Term Loan B matures November 30, 2024. Its interest rate was 2.96% at quarter-end. A 100-basis-point rate increase would, according to the filing, increase annual interest expense by about $2.1 million.
- Cash from operations was $53.2 million, supported by working-capital movements, including a $29.4 million decrease in accounts receivable. Investing cash outflow was $86.9 million, mainly marketable-security purchases; financing cash outflow was $24.8 million, including a $14.7 million contingent-consideration payment, $7.1 million of stock repurchases and $2.2 million of dividends.
- The company repurchased 1.1 million Class A shares for $7.1 million, averaging $6.41 per share, under a new authorization of up to $20 million. It declared dividends of $0.03 per share.
- Management said cash on hand and operating cash flows should fund working capital, capital expenditures and debt service for at least 12 months. It expects 2022 capital expenditures of approximately $16.4 million, of which about $3.6 million is expected to be reimbursed in connection with a new office lease.
Material changes, outlook and risks
- Digital growth reflected advertising growth and the full-quarter contribution of MediaDonuts and 365 Digital, acquired in 2021. The company expects full-year 2022 revenue to increase, primarily due to digital growth, a full year of those acquisitions and higher political advertising revenue. It also expects positive operating cash flow for 2022. No specific revenue or earnings targets were provided.
- Television revenue declined partly because Univision and UniMás affiliation agreements in Orlando, Tampa and Washington, D.C. expired on December 31, 2021. Lower local and national advertising, spectrum-usage revenue and retransmission-consent revenue were partly offset by political advertising. Audio benefited from local and political advertising.
- Contingent consideration fair-value expense was $5.1 million, reducing operating income. At quarter-end, total contingent consideration was $105.3 million, including $82.9 million related to Cisneros Interactive, $17.4 million to MediaDonuts and $5.0 million to 365 Digital. These valuations use significant unobservable inputs and may change.
- A single digital media-company partner accounted for 53% of revenue, down from 56% a year earlier; the largest advertiser accounted for 18%, up from 10%. The filing identifies dependence on media-company agreements and advertiser concentration as exposures.
- Other stated risks include digital-industry competition and rapid technological change, migration of audiences and advertising away from traditional media, foreign-currency exposure, variable interest rates, and substantial debt. The credit facility has restrictive covenants but no financial maintenance covenants; the term loan matures in 2024. COVID-19 had minimal reported impact in Q1, though management cautioned that future effects remain uncertain.
- The company continued suspending its 401(k) match and had reduced its dividend by 50% beginning in 2020. It reported no new risk factors in this 10-Q, and management said ordinary-course legal matters were not expected to materially affect financial position, results or cash flows. Management concluded disclosure controls were effective.
Important facts for investors to verify
- Whether digital growth can continue while digital cost of revenue and partner concentration pressure margins.
- The durability of revenue after the three market affiliation agreements expired, and the trajectory of television and audio advertising and retransmission revenue.
- Cash conversion: operating cash flow benefited from receivables collection; review subsequent-quarter working-capital movements alongside earnings and adjusted EBITDA.
- The timing and amount of contingent earn-out payments and changes in their fair values, as well as the company’s ability to meet debt obligations through the November 2024 maturity.
- Execution of the 2022 outlook, including expected positive operating cash flow, approximately $16.4 million of capital expenditures and the expected lease reimbursement.