Entravision Communications Corporation — Q2 2015 Form 10-Q
Business and period: Entravision operates television, radio and digital media businesses serving primarily U.S. Hispanic audiences. This filing covers the three and six months ended June 30, 2015; comparisons are with the corresponding 2014 periods. Amounts below are in USD millions unless noted.
Financial performance
| Metric | Q2 2015 | Q2 2014 | Six months 2015 | Six months 2014 |
|---|---|---|---|---|
| Revenue | $59.9 | $61.8 | $119.4 | $114.5 |
| Operating income | $12.0 | $18.1 | $24.0 | $28.9 |
| Operating margin | 20.0% | 29.2% | 20.1% | 25.2% |
| Net income | $5.2 | $8.7 | $10.5 | $13.1 |
| Diluted EPS | $0.06 | $0.10 | $0.12 | $0.14 |
| Adjusted EBITDA (non-GAAP) | Not stated for quarter | Not stated for quarter | $33.7 | $37.1 |
- Q2 revenue fell 3%, while first-half revenue rose 4%. Q2 weakness was principally television; radio and digital partly offset it.
- First-half adjusted EBITDA declined 9% and was 28% of revenue versus 32% in 2014. The company cautions that adjusted EBITDA is a non-GAAP measure and should not replace GAAP measures.
- First-half operating cash flow was $33.9, up from $19.7. Investing cash outflow was $8.6 versus $19.1; financing cash outflow was $5.7 versus $4.6. Cash increased to $50.9 from $31.3 at year-end 2014.
- Capital expenditures were $9.7 in the first half versus $4.3 a year earlier. Dividends paid were $4.4; scheduled debt payments were $1.9; the company also paid $1.0 of Pulpo contingent consideration.
Segments and drivers
- Television: Q2 revenue decreased 16% to $36.4; first-half revenue decreased 6% to $75.9. The company cited the absence of 2014 World Cup and significant political advertising, lower national advertising, and—in the first half—lower local advertising. Retransmission-consent revenue was $7.2 in Q2 and $13.6 in the first half.
- Radio: Q2 revenue increased 5% to $19.6; first-half revenue increased 7% to $35.9, driven by local and national advertising growth.
- Digital: Revenue was $3.9 in Q2 and $7.6 in the first half, primarily reflecting Pulpo, acquired in June 2014. Digital segment operating loss was $0.1 in Q2 and $0.8 in the first half; prior-year comparisons are unavailable because the segment was established in Q3 2014.
Balance sheet, debt and liquidity
- At June 30, cash was $50.9; total assets were $534.4; total liabilities were $380.5; and stockholders’ equity was $153.9.
- Debt totaled approximately $338.4, including $3.8 of current maturities. The effective interest rate was 3.5%; debt is variable-rate and the term loan matures May 2020. A $30.0 revolving facility matures May 2018.
- Reported leverage was 4.2x at June 30, 2015, versus 4.5x a year earlier; the stated maximum is 6.5x when the revolver is drawn, and the company reported compliance. A 100-basis-point increase in LIBOR would increase annual interest expense and reduce operating cash flow by approximately $1.0, based on period-end debt.
- Interest-rate swaps cover $186.0 of debt beginning December 31, 2015 through December 31, 2018. Their fair-value liability was $5.4 at June 30.
- Management expects cash on hand, operating cash flow and available credit-facility borrowings to fund anticipated needs for at least the next 12 months. It expects positive operating cash flow for 2015.
Outlook, risks and notable items
- Management expects 2015 revenue growth from digital and retransmission-consent revenue, partly offset by the absence of World Cup and significant political advertising compared with 2014. It expects full-year retransmission-consent revenue to exceed 2014 and forecasts approximately $14.0 of 2015 capital expenditures.
- Management expects direct operating and SG&A expenses to rise during the remainder of 2015, citing Pulpo-related costs and employee salary increases; corporate expenses are also expected to increase, primarily due to salaries.
- The company received approximately $5.5 of revenue in Q3 2015 under a July 2 agreement related to accommodating a telecommunications operator. It had also recorded approximately $5.0 of such revenue in first-half 2015.
- The Univision proxy agreement for negotiating retransmission consent terms was extended through August 31, 2015. Management intended to seek an extension or replacement, but gave no assurance an agreement would be reached or on its terms. Univision owns approximately 10% of the company on a fully converted basis; substantially all television stations are Univision- or UniMás-affiliated.
- Key disclosed risks include substantial indebtedness and covenant restrictions, variable interest rates, advertising cancellations or rate pressure, competition, economic uncertainty, and dependence on Univision and retransmission-consent revenue. Ordinary-course litigation was not expected by management to have a material adverse effect; the filing reported no material change in risk factors. Disclosure controls were assessed as effective.
- Pulpo’s 2014 performance targets triggered a $1.0 payment in Q1 2015. The company reduced estimated remaining contingent consideration to $0.1 at June 30, anticipating no 2015 payment.
Important facts for investors to verify
- Whether television advertising and operating margins recover after the nonrecurring 2014 World Cup and political-advertising comparison.
- Progress on the Univision proxy agreement after its August 31, 2015 extension deadline, and the effect on retransmission-consent arrangements.
- Digital revenue growth, profitability and integration of Pulpo, alongside the higher operating and SG&A cost base.
- Debt repayment, leverage and interest-rate exposure, including the commencement and impact of the swaps in December 2015.
- Delivery of management’s 2015 revenue, positive-cash-flow and approximately $14.0 capital-expenditure expectations.