Entravision Communications Corporation — Q1 2020 Form 10-Q
Reporting period: Three months ended March 31, 2020; comparisons are with Q1 2019 unless noted. Entravision operates television, radio and digital media businesses, primarily serving U.S. Hispanic audiences. Results were affected by COVID-19 and a substantial noncash impairment charge.
Key financial metrics
| Metric | Q1 2020 | Q1 2019 / comparison |
|---|---|---|
| Revenue | $64.2 million | $64.7 million; down 1% |
| Operating income (loss) | $(35.2) million | $5.0 million |
| Net income (loss) | $(35.6) million; $(0.42) per share | $1.4 million; $0.02 per share |
| Impairment charge | $39.8 million | None |
| Operating cash flow | $12.0 million | $14.3 million |
| Capital expenditures | $3.7 million | $6.8 million |
| Adjusted EBITDA (non-GAAP) | $9.7 million; 15% of revenue | $8.1 million; 12% of revenue |
| Cash and marketable securities | $128.2 million at March 31 | $124.8 million at December 31, 2019 |
| Debt | $217.5 million outstanding; $215.4 million carrying amount net of issuance costs and discount | $3.0 million current maturities |
Revenue mix: television $39.2 million, up 2%; radio $11.7 million, down 2%; digital $13.3 million, down 8%. Broadcast advertising rose to $38.7 million from $34.7 million, while digital advertising fell to $13.3 million from $14.5 million and spectrum-usage revenue declined to $1.4 million from $5.1 million. Retransmission consent revenue increased to $9.6 million from $8.8 million.
Direct operating expenses declined to $26.7 million from $28.9 million, or 42% of revenue versus 45%. Digital cost of revenue was 55% of digital revenue, compared with 53% in Q1 2019. The $39.8 million impairment comprised approximately $0.8 million of digital goodwill, $32.3 million of FCC licenses and $6.8 million of digital long-lived assets. It drove the reported operating and net losses.
Financial position and liquidity
At March 31, total assets were $613.1 million, total liabilities $364.9 million and stockholders’ equity $248.2 million. Cash and cash equivalents were $53.5 million; marketable securities were $74.7 million. Operating, investing and financing cash flows were respectively $12.0 million provided, $13.8 million provided and $5.5 million used. Investing cash flow included $16.6 million in marketable-security proceeds. Financing outflows included $4.2 million of dividends and $0.8 million of debt repayment.
The Term Loan B matures November 30, 2024; its rate was 4.35% at quarter-end. The company reported a 3.3-to-1 total leverage ratio, versus 3.1-to-1 a year earlier, and said it was in compliance with credit-facility covenants. The facility has no financial covenants. Management estimated that a 100-basis-point increase in the Eurodollar rate would raise annual interest expense by approximately $2.2 million.
Material changes, outlook and risks
- COVID-19-related advertising cancellations and reduced new bookings increased sharply in the final weeks of Q1, especially in radio. Management expected a more pronounced effect in Q2 and warned that Q1 may not indicate full-year 2020 results.
- Management anticipated lower full-year revenue and operating cash flow, with the extent and duration of the pandemic uncertain. It said available cash and securities were expected to cover needs for at least the next 12 months, while acknowledging that revenue and cash flow could fall significantly.
- Cost actions included furloughs, some layoffs, a company-wide salary reduction of 2.5%–22.5% effective April 16, and suspended share repurchases. Repurchases were halted March 26; Q1 purchases totaled $0.5 million. The quarterly dividend declared was $0.05 per share.
- Management forecast approximately $6.5 million of 2020 capital expenditures, including about $3.3 million for broadcast-station repacking, expected to be reimbursed by the FCC.
- Digital faces international revenue declines, programmatic-advertising price and margin pressure, and rapid competition and technology changes. Management expected digital margin pressure to continue. Traditional-media advertising migration, audience ratings and demographic shifts are additional risks.
- COVID-19 triggered interim asset reviews and impairment charges. Management reported that television reporting-unit fair value exceeded carrying value by 28%; the digital reporting unit was impaired. Further impairment remains a risk if conditions worsen.
- Disclosure controls were deemed ineffective because a previously identified material weakness in digital revenue and Headway controls had not been fully remediated. Management said remediation was ongoing and no material misstatement was identified in the reported periods.
- Management said ordinary-course legal claims were not expected to materially affect the company. KMCC-TV was sold for $4.0 million; the sale closed April 2, 2020, after quarter-end.
Most important facts for investors to verify
- Subsequent quarterly revenue, cancellations and bookings—particularly radio and television advertising—and whether COVID-19 disruption persisted beyond Q1.
- Cash generation, liquidity use, debt and leverage, covenant compliance, and the assumptions supporting management’s 12-month liquidity assessment.
- Whether impairment estimates remain appropriate as advertising forecasts and market valuations change.
- Progress remediating the digital/Headway material weakness and any effect on reported results or disclosures.
- Digital segment revenue, cost mix and margins, and the success of management’s strategy to offset programmatic pricing pressure.
- The terms and completion accounting for asset sales, FCC repack reimbursements, and the continuation of dividends after the repurchase suspension.