Entravision Communications Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; unaudited. Entravision is a Hispanic-focused media company operating television, radio and digital businesses, primarily in the United States.
Financial performance and liquidity
| Metric | Q1 2015 | Q1 2014 / prior date |
|---|---|---|
| Revenue | $59.6 million | $52.7 million; up 13% |
| Operating income | $12.0 million | $10.8 million; up 12% |
| Operating margin | 20.2% | 20.5% |
| Net income; diluted EPS | $5.3 million; $0.06 | $4.4 million; $0.05 |
| Net margin | 8.9% | 8.3% |
| Adjusted EBITDA (non-GAAP) | $16.8 million; 28% of revenue | $15.0 million; 28% of revenue |
| Operating cash flow | $24.8 million | $6.7 million |
| Cash and cash equivalents | $49.9 million | $31.3 million at December 31, 2014 |
| Total debt | $339.4 million | Approximately $340.3 million at December 31, 2014, based on reported debt balances |
| Current assets / current liabilities | $110.5 million / $31.3 million | $107.4 million / $36.1 million at December 31, 2014 |
Interest expense was $3.2 million, down 6%. The company declared dividends of $0.03 per common share. Capital expenditures were $3.2 million per the segment disclosure; cash purchases of property, equipment and intangibles were $3.0 million.
Business results and changes versus prior year
- Television revenue rose 5% to $39.5 million. The quarter included approximately $5.0 million from station channel modifications for a telecommunications operator; lower advertising and retransmission consent revenue partly offset that contribution.
- Radio revenue increased 10% to $16.3 million, primarily from higher local and national advertising.
- Digital revenue was $3.7 million, with a $0.7 million segment operating loss. Comparisons with Q1 2014 are not available because Pulpo Media, acquired in June 2014, was not then a reported segment.
- Consolidated revenue growth also reflects the new digital business. Direct operating expenses increased 7%, while selling, general and administrative expenses rose 22%, partly reflecting Pulpo and cost reclassifications. Adjusted EBITDA grew 12%, while its margin was unchanged at 28%.
- Television retransmission consent revenue was $6.4 million, versus $6.7 million in Q1 2014.
Outlook, risks and other notable items
- Management expected full-year 2015 revenue to benefit from digital media and retransmission consent, but to be lower from the absence of 2014 World Cup and significant political advertising. It expected 2015 capital expenditures of approximately $13.5 million and positive operating cash flow for the year.
- Management stated that cash, operating cash flow and available credit were expected to cover anticipated needs for at least the next 12 months. The company reported a 3.9x total leverage ratio at March 31, 2015, versus a 6.5x maximum when the revolver is drawn, and said it was in compliance. The filing reports a $30 million revolving facility; it does not clearly state the amount available or drawn at quarter-end.
- Debt is variable-rate, with a 1% LIBOR floor and a reported effective rate of 3.5%. Management estimated a 100-basis-point LIBOR increase would raise annual interest expense and reduce operating cash flow by approximately $0.9 million. Swaps covering $186 million of debt begin December 31, 2015, and fix the LIBOR component at 2.73% through December 2018.
- The Univision retransmission-consent proxy agreement was extended through June 30, 2015. Entravision intended to seek an extension or new agreement, but gave no assurance one would be reached. Substantially all television stations are Univision- or UniMás-affiliated.
- Pulpo contingent consideration: $1.0 million was paid in Q1 after 2014 performance targets were met; remaining estimated fair value for 2015–2016 targets was $0.3 million at March 31, 2015.
- Management said ordinary-course legal claims were not expected to materially affect the company. Risk factors had no material change, and management concluded disclosure controls were effective.
- Key disclosed risks include substantial debt and credit-agreement restrictions, advertising demand and competition, dependence on Univision, retransmission consent revenue, and possible impairment or regulatory changes.
Investor verification points
- Assess how much reported television growth depended on the one-time $5.0 million channel-modification revenue and whether it recurs.
- Verify the status and terms of any post-June 30, 2015 Univision proxy agreement and the resulting retransmission consent economics.
- Track digital segment profitability and Pulpo’s contribution separately from broadcast growth.
- Review debt amortization, revolver availability, covenant calculations and interest-rate exposure, including the timing and effectiveness of the swaps.
- Reconcile operating cash flow growth with working-capital movements: the filing reports a $16.0 million accounts-receivable decrease in Q1 2015.
- Compare actual 2015 revenue, cash flow and capital expenditures with management’s stated expectations.