Entravision Communications Corporation — Q3 2013 Form 10-Q
Reporting period: Three and nine months ended September 30, 2013; filed November 8, 2013. Entravision operates television and radio broadcasting businesses, focused primarily on U.S. Hispanic audiences, and also uses mobile and digital platforms. Amounts below are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $57.8 | $58.5 | $163.8 | $159.5 |
| Operating income | $15.2 | $17.1 | $38.9 | $38.1 |
| Operating margin | 26.3% | 29.3% | 23.7% | 23.9% |
| Interest expense | $5.4 | $8.7 | $21.0 | $26.7 |
| Debt-extinguishment loss | $29.4 | — | $29.5 | $1.2 |
| Net income (loss) | $(21.4) | $7.2 | $(17.3) | $5.9 |
| Basic and diluted EPS | $(0.24) | $0.08 | $(0.20) | $0.07 |
- For the first nine months, cash from operations was $18.0 versus $13.7 in 2012; capital spending was $7.6 versus $6.5. Ending cash was $53.5, up from $36.1 at December 31, 2012.
- At September 30, total debt was $375.0, all under the Term Loan B, and the effective interest rate was 3.5%. Cash less debt was approximately $321.5 net debt. The company reported a 4.5x total leverage ratio, compared with 5.2x a year earlier, and stated it was in covenant compliance.
- Current assets were $111.0 and current liabilities $32.9; stockholders’ equity was a deficit of $5.6. The nine-month adjusted EBITDA, a non-GAAP measure, was $53.2 versus $51.5, or 32% of revenue in both periods.
Changes versus prior period
- Q3 revenue declined 1%; television revenue fell 3% to $39.7, while radio revenue rose 3% to $18.0. For the nine months, revenue increased 3%, with both segments up 3%.
- Q3 operating income fell 11%, as direct operating costs increased 11% and revenue edged down. Management said the new management structure shifted some salaries from SG&A into direct operating expenses, so expense comparisons between categories are not fully comparable. Nine-month operating income rose 2%.
- Net losses in 2013 chiefly reflect the $29.5 debt-extinguishment charge from refinancing; lower interest expense partly offset that charge. Q3 interest expense fell 38% year over year.
Outlook, commentary and risks
- Management expected positive operating cash flow for full-year 2013, and said cash, operations and available credit should meet anticipated needs for at least twelve months. It anticipated approximately $9.5 million of 2013 capital expenditures.
- Management expected 2013 retransmission-consent revenue to exceed 2012 and to remain a growing revenue source. It also anticipated a challenging advertising environment for the remainder of 2013, without the political advertising that benefited 2012.
- In May 2013, the company established a secured credit facility; in August it drew $375 million under Term Loan B, repaid Term Loan A and redeemed approximately $324 million principal of 8.75% senior notes at 106.563% plus accrued interest. The notes were fully retired. The new term loan matures May 31, 2020; the $30 million revolver matures May 31, 2018. The facility restricts certain actions and has leverage-related covenant provisions, including a covenant applicable if the revolver is drawn.
- All $375 million of term debt is variable-rate, with a 1% LIBOR floor and 2.5% LIBOR margin. A 100-basis-point LIBOR increase was estimated to raise annual interest expense and reduce operating cash flow by about $0.7 million. The company must arrange interest-rate protection covering at least half the principal within two years of facility commencement.
- Key business risks include advertising cancellations and rate pressure, competition, economic uncertainty, dependence on Univision affiliation and retransmission arrangements, indebtedness and covenant compliance, and potential asset impairment. Management reported no material change in risk factors, no material litigation expected to adversely affect the company, and effective disclosure controls.
Investor verification priorities
- Review the credit agreement’s repayment schedule, leverage definitions, covenant triggers and restrictions, as well as the company’s ability to service variable-rate debt.
- Assess whether retransmission-consent growth and local advertising can offset softer political and national advertising, and whether segment cost increases persist.
- Reconcile the $29.5 million refinancing charge and assess recurring earnings apart from that unusual item; consider adjusted EBITDA’s non-GAAP definition and limitations.
- Monitor the deferred-tax valuation allowance: the company said it did not expect to realize all deferred tax assets and maintained a full valuation allowance against them.
- Check subsequent filings for actual full-year cash flow, capital spending, hedge arrangements and developments in the Univision relationship or legal contingencies.