Entravision Communications Corporation — 2020 Form 10-K
Reporting period: Fiscal year ended December 31, 2020. The filing was signed April 12, 2021. Entravision operates television, radio and digital advertising businesses, with U.S. Hispanic audiences central to its broadcast operations and digital activity primarily in Spain and Latin America.
Financial performance and position
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | $344.0 million | $273.6 million |
| Operating income (loss) | $6.6 million | $(1.7) million |
| Net income (loss) attributable to common stockholders | $(3.9) million; $(0.05) per share | $(19.7) million; $(0.23) per share |
| Cash from operating activities | $63.4 million | $31.5 million |
| Capital expenditures | $9.5 million | $25.3 million |
| Consolidated adjusted EBITDA | $60.4 million; 18% of revenue | $41.2 million; 15% of revenue |
Revenue increased 26%, but the increase primarily reflects the October 2020 acquisition of a 51% interest in Cisneros Interactive; it should not be read as equivalent organic growth. Reported revenue by segment was television $154.5 million, digital $143.3 million and radio $46.3 million. Digital revenue included $89.2 million from Cisneros Interactive after acquisition.
- Television: Revenue rose 3% to $154.5 million, supported by political advertising and retransmission consent revenue. Retransmission consent revenue was $36.8 million versus $35.4 million; spectrum usage rights revenue fell to $5.4 million from $13.1 million.
- Digital: Revenue more than doubled to $143.3 million, largely due to Cisneros Interactive. Digital cost of revenue increased to $106.9 million, or 75% of segment revenue versus 53% in 2019. Segment operating profit was $3.2 million, compared with a $4.8 million loss.
- Radio: Revenue declined 16% to $46.3 million as local and national advertising weakened. Segment operating profit was $2.7 million, compared with a $3.6 million loss.
Cash, liquidity and debt: At year-end, cash and cash equivalents were $119.2 million and marketable securities were $28.0 million. Long-term debt principal was $215.3 million, including $3.0 million of current maturities; the loan matures in November 2024 and carried a 2.90% rate at year-end. Reported total leverage was 2.3x, down from 3.5x in 2019. The company reported $63.4 million of operating cash flow, $38.1 million of investing cash inflow and $15.5 million of financing cash outflow. It paid $10.5 million in dividends; annual dividends per share fell to $0.13 from $0.20.
Material changes versus 2019
- Revenue growth was driven chiefly by the Cisneros Interactive acquisition and political advertising; broadcast advertising remained pressured by the pandemic and audience and competitive trends.
- Operating results improved despite a $40.0 million impairment charge, compared with $32.1 million in 2019. The 2020 charge included write-downs of broadcast licenses, digital goodwill and other digital long-lived assets.
- Operating cash flow approximately doubled, while capital expenditures declined to $9.5 million from $25.3 million. Cash and marketable securities together increased to $147.2 million from $124.8 million.
- Interest expense declined to $8.3 million from $13.7 million; net interest expense was $6.5 million versus $10.3 million.
Outlook, commentary and risks
- Management expected 2021 revenue to increase, mainly because Cisneros Interactive would contribute for a full year, partly offset by lower political advertising than in 2020. Management also expected positive operating cash flow and approximately $8.0 million of capital expenditures. No specific revenue or earnings target was provided.
- Management said the pandemic continued to cause advertising cancellations and reduced new placements, particularly in radio, and that results for 2020 might not indicate future performance. Advertising rates were reduced, especially in radio, and credit terms were eased for some clients.
- Management expected digital programmatic growth to pressure margins and could produce a structurally higher-volume, lower-margin business. Traditional television and radio also face audience shifts and competition from digital and streaming media.
- COVID-19, advertiser credit risk, changing audience behavior, reliance on Univision programming and agreements, retransmission consent negotiations, foreign exchange and privacy/data-use restrictions are material risks. A 100-basis-point increase in LIBOR was estimated to raise annual interest expense by about $2.2 million.
- The Cisneros Interactive deal cost approximately $29.9 million for 51%. The sellers have a conditional put on the remaining 49% in 2024, and Entravision has a call option in 2024; the price is based on six times specified EBITDA. The purchase price allocation was still subject to final tax-related items.
- Entravision recorded a $0.6 million gain on the sale of KMCC-TV and $6.9 million of other operating gains, primarily associated with station repacking and asset sales.
- Controls: Management and the auditor concluded internal control over financial reporting was ineffective at December 31, 2020 due to material weaknesses at newly acquired Cisneros Interactive involving opening balances, revenue and expense/liability reporting. The prior-year digital-control weakness was reported as remediated. The financial statement audit opinion was unqualified; the separate internal-control audit opinion was adverse.
- Management stated it believed liquidity was adequate for at least 12 months. The credit agreement has restrictive covenants; the company also disclosed it missed the 90-day deadline for delivery of 2020 financial information but believed the filing within the agreement’s additional 30-day period satisfied the requirement.
Important facts for investors to verify
- How much of 2021 growth and digital profitability is attributable to Cisneros Interactive versus legacy operations, and how programmatic mix affects margins.
- Whether advertising demand and radio audiences recover, and the extent to which 2020 political advertising boosted comparisons.
- Cash conversion and receivables collection: trade receivables rose to $142.0 million from $71.4 million, alongside the acquisition and increased digital activity.
- Debt repayment capacity, variable-rate exposure, covenant compliance and the eventual put/call cost for Cisneros Interactive’s remaining 49%.
- Remediation of Cisneros Interactive’s material weaknesses and the status of its internal controls in the next reporting period.
- Potential further impairment of broadcast licenses, goodwill or other assets, given the 2020 write-downs and sensitivity of valuations to forecasts and discount rates.
- Renewal or expiration of Univision-related agreements in Orlando, Tampa and Washington, D.C. in 2021, and the expected cessation of XHRIO-TV broadcasting when its license expires at year-end 2021.