Entravision Communications Corporation — FY 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This is an annual report, not a standalone fourth-quarter filing. The company operates television, radio and digital advertising businesses focused on Hispanic audiences in the U.S. and certain border markets of Mexico.
Financial performance and liquidity
| Metric | FY 2015 | FY 2014 | Change |
|---|---|---|---|
| Net revenue | $254.1 million | $242.0 million | Up 5% |
| Operating income | $55.2 million | $59.7 million | Down 7% |
| Net income | $25.6 million | $27.1 million | Down 6% |
| Diluted EPS | $0.28 | $0.30 | Down $0.02 |
| Adjusted EBITDA | $76.3 million | $79.3 million | Down 4%; margin 30% vs. 33% |
| Cash flow from operations | $62.3 million | $54.4 million | Up $7.9 million |
| Capital expenditures | $13.5 million | $9.1 million | Up $4.4 million |
| Cash and cash equivalents, year-end | $47.9 million | $31.3 million | Up $16.7 million |
| Total debt, year-end | $316.6 million | $340.3 million | Down $23.8 million |
Year-end total assets were $528.2 million, total liabilities $360.9 million and stockholders’ equity $167.3 million. Current assets were $120.0 million and current liabilities $33.5 million. The company prepaid $20.0 million of term-loan principal in December 2015. Its reported leverage ratio was 3.9x, against a maximum of 6.5x when the revolver is drawn; the company said it was in compliance.
Fourth-quarter revenue was $65.4 million versus $65.3 million in 2014; net income was $5.8 million versus $5.9 million, and diluted EPS was $0.06 versus $0.07.
Business mix and material changes
- Television revenue was $159.1 million, down 4%; segment operating profit was $66.8 million, down 10%. Lower political and World Cup advertising and weaker local advertising were partly offset by retransmission consent and channel-modification revenue.
- Radio revenue was $76.2 million, up 9%; segment operating profit was $11.0 million, up 30%, reflecting stronger local and national advertising.
- Digital revenue was $18.9 million, compared with $6.6 million in 2014. The comparison is not like-for-like because Pulpo, acquired in June 2014, contributed for only part of 2014. Digital segment operating loss narrowed to $48,000 from $652,000.
- Television channel modifications made to accommodate a telecommunications operator generated approximately $10.5 million of revenue in 2015. Retransmission consent revenue rose to $27.9 million from $26.4 million.
- Revenue growth occurred despite the absence of 2014 World Cup revenue and significant political advertising, neither of which was material in 2015. Higher digital and radio revenue and channel-modification revenue contributed to the increase.
Outlook, risks and unusual items
- Management anticipated 2016 revenue growth from political advertising, retransmission consent and digital media. It expected retransmission consent revenue to exceed 2015 and operating expenses to rise, primarily due to salary increases. Planned 2016 capital expenditures were approximately $10.5 million.
- The Univision retransmission-consent proxy agreement was extended only through March 31, 2016. Entravision intended to negotiate an extension or replacement, but gave no assurance on terms or completion. Univision is also a key programming and national-sales partner; the main affiliation agreements expire in 2021.
- The company had $316.6 million of variable-rate debt. Interest-rate swaps effective December 31, 2015 fixed the LIBOR component on $186.0 million of debt through December 31, 2018. Management estimated a 100-basis-point LIBOR increase would raise annual interest expense and reduce operating cash flow by about $0.8 million, before considering the swaps.
- Entravision applied to participate in the FCC’s voluntary spectrum incentive auction, scheduled to begin March 29, 2016. Auction results and potential effects of spectrum repacking were unknown; low-power stations face possible displacement or loss of service.
- Material risks include dependence on advertising demand and economic conditions, competition and changing media technology, substantial debt and restrictive credit covenants, FCC licensing and spectrum changes, digital privacy and data-security regulation, and reliance on Univision relationships. Advertisers generally have no long-term commitments and may cancel or reduce orders.
- No 2015 impairment charge was recorded. The company reported $287 million of goodwill and other intangible assets; impairment testing depends on forecasts and valuation assumptions. The 2014 radio goodwill impairment was $0.7 million. The Pulpo acquisition’s contingent consideration was reduced to zero by year-end 2015 after a $1.0 million payment in the first quarter.
- Management said ordinary-course litigation was not expected to materially adversely affect the company. The independent auditor issued an unqualified opinion, and management and the auditor concluded internal control over financial reporting was effective as of December 31, 2015.
Most important facts for investors to verify
- Whether the Univision proxy agreement was renewed or replaced after March 31, 2016, and the resulting economics of retransmission consent.
- How much 2016 revenue and cash flow came from political advertising, retransmission consent, digital growth and channel modifications, and whether those sources offset television weakness.
- Debt repayment capacity, covenant headroom, variable-rate exposure and the cash-flow impact of scheduled principal and interest obligations.
- Results of the spectrum auction and repacking, including any impact on station operations, licenses and revenue.
- Digital segment profitability and the sensitivity of goodwill and broadcast-license valuations to forecast assumptions and market conditions.