Entravision Communications Corporation — Q2 2013 Form 10-Q
Reporting period: Three and six months ended June 30, 2013; balance-sheet comparisons are to December 31, 2012. The company operates television and radio stations, primarily serving U.S. Hispanic audiences, and earns revenue mainly from advertising and retransmission consent fees.
Financial performance
Amounts in millions, except per-share data. Comparisons are with the corresponding 2012 periods.
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $57.0 | $54.5 | $106.0 | $101.0 |
| Operating income | $15.0 | $13.7 | $23.7 | $21.0 |
| Operating margin | 26.3% | 25.2% | 22.4% | 20.8% |
| Net income (loss) | $5.1 | $2.1 | $4.1 | $(1.3) |
| EPS, basic and diluted | $0.06 | $0.02 | $0.05 | $(0.02) |
| Operating cash flow | Not separately stated | Not separately stated | $12.8 | $6.4 |
- Q2 television revenue rose 6% to $39.6 million; radio revenue rose 2% to $17.4 million. For the first half, television revenue increased 6% to $74.5 million and radio revenue increased 3% to $31.5 million.
- Six-month adjusted EBITDA, a non-GAAP measure, was $33.4 million versus $29.9 million; the company reported margins of 31% and 30%, respectively.
- At June 30, cash was $41.1 million, current assets $98.0 million and current liabilities $38.1 million. Long-term debt was $340.8 million, plus $0.2 million current maturities. Stockholders’ equity was $14.2 million.
- Six-month investing cash outflow was $4.6 million, primarily capital spending; financing cash outflow was $3.3 million. Capital expenditures were $4.2 million for the first half.
Changes and management commentary
- Revenue grew 5% in both Q2 and the first half, chiefly from local and national advertising and higher retransmission consent revenue. Television retransmission consent revenue was $5.7 million in Q2 versus $5.2 million, and $11.0 million for six months versus $10.2 million.
- Direct operating expenses increased 14% in Q2 and 13% in the first half; SG&A declined 23% and 21%, respectively. Management attributed much of the shift between expense categories to a new management structure that moved certain salaries from SG&A to direct expenses. Corporate expenses rose, primarily due to increased non-cash stock-based compensation.
- Operating income improved, while interest expense declined to $7.9 million in Q2 and $15.7 million for six months, partly reflecting lower debt after prior note repurchases. First-half 2013 net income compared with a loss in 2012; the prior-period loss included a larger debt-extinguishment charge.
Debt, outlook and risks
- On May 31, 2013, the company entered a secured credit facility of up to $405 million: a $20 million Term Loan A, a $375 million Term Loan B and a $30 million revolver. At June 30, $20 million was outstanding under Term Loan A; the Term Loan B and revolver had no borrowings. The company reported a 4.0-to-1 total net leverage ratio, within the 7.0-to-1 maximum.
- After quarter-end, the company drew Term Loan B borrowings on August 1, repaid Term Loan A and redeemed approximately $324 million principal of 8.75% senior secured notes on August 2. The redemption price was 106.563% of principal plus accrued interest; the notes were fully cancelled. The filing does not state the exact Term Loan B amount drawn or the resulting post-redemption debt balance.
- Management expected positive operating cash flow for 2013 and believed cash, operating cash generation and available facility borrowings would meet anticipated needs for at least 12 months. It forecast full-year capital expenditures of $9.0–$9.5 million and expected retransmission consent revenue to exceed 2012 levels.
- Management cautioned that advertising conditions remained challenging, particularly because 2013 would not have the political advertising contribution that benefited 2012. Advertising orders may be cancelled or deferred. Other stated risks include substantial indebtedness, credit-agreement covenants and compliance, competition, economic uncertainty, and reliance on Univision relationships.
- Most television stations are Univision- or UniMás-affiliated; affiliation agreements run through 2021. Univision negotiates retransmission consent arrangements under a proxy agreement that expires in December 2014. Litigation was described as ordinary-course and not expected to have a material adverse effect; the filing reported no material change in risk factors.
- The company reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Key investor verification points
- Confirm the final Term Loan B borrowing, fees, redemption cash cost and post-refinancing debt, interest expense and covenant position.
- Assess whether advertising growth and retransmission consent revenue can offset the expected absence of political advertising and rising direct operating costs.
- Review cash conversion, receivables and the assumptions behind the full-year capital expenditure and liquidity outlook.
- Monitor Univision-related fees, the retransmission proxy agreement’s 2014 expiry, and the company’s ongoing reliance on Univision-affiliated programming and sales arrangements.
- Evaluate adjusted EBITDA alongside GAAP earnings and operating cash flow; the company notes adjusted EBITDA is non-GAAP and has limitations.