Entravision Communications Corporation — Q1 2013 Form 10-Q
Business context and reporting period
Reports unaudited results for the three months ended March 31, 2013, compared with Q1 2012. Entravision operates Spanish-language television and radio businesses, with 56 primary television stations and 49 radio stations. It also uses mobile, digital and interactive platforms. Revenue is generated primarily from advertising and television retransmission-consent agreements.
Financial results and liquidity
Amounts below are in millions of dollars unless stated otherwise.
| Metric | Q1 2013 | Q1 2012 |
|---|---|---|
| Net revenue | $49.1 | $46.5 |
| Operating income | $8.7 | $7.3 |
| Operating margin | 17.8% | 15.7% |
| Interest expense | $7.8 | $9.1 |
| Net loss | $(1.0) | $(3.4) |
| Adjusted EBITDA, non-GAAP | $13.4 | $11.6 |
| Cash from operating activities | $(1.6) | $(6.3) |
| Capital expenditures | $1.9 | $1.3 |
Adjusted EBITDA margin was 27% versus 25%. The company reported cash of $32.3 million at March 31, 2013, down from $36.1 million at year-end 2012. Current assets were $83.6 million and current liabilities $30.2 million. Total debt carrying value was $340.9 million, including $20.0 million outstanding on the term loan; the balance-sheet amount for the notes is net of discount. Stockholders’ equity was $5.7 million.
The $324 million aggregate principal amount of 8.75% senior secured notes mature in 2017. The company had not drawn its $30 million revolving facility and had approximately $0.6 million of letters of credit outstanding. Its leverage ratio was 4.2x at March 31, 2013, below the stated 7.0x maximum. The company reported $14.4 million of cash interest payments in the quarter.
Material changes versus Q1 2012
- Revenue rose 6%: television revenue increased 5% to $35.0 million and radio revenue increased 6% to $14.1 million.
- Television growth was attributed mainly to local advertising and retransmission-consent revenue; radio growth mainly to national advertising. Retransmission-consent revenue was $5.3 million, compared with $5.0 million.
- Direct operating expenses rose 12% to $24.2 million, while selling, general and administrative expenses fell 18% to $7.7 million. Management attributed much of the shift between expense categories to a new management structure that reclassified certain salaries.
- Corporate expenses increased 16% to $4.5 million, primarily due to higher non-cash stock-based compensation. Depreciation and amortization declined 9% to $4.0 million.
- Operating income increased 20%, and interest expense declined 14%, primarily reflecting debt repurchases in 2012. The net loss narrowed, but the company remained unprofitable.
- Operating cash use improved to $1.6 million from $6.3 million, but remained negative. The balance of accounts payable, accrued expenses and other liabilities declined by $8.7 million during the quarter, a major cash-flow factor.
Outlook, commentary and risks
- Management expected positive operating cash flow for full-year 2013 and anticipated cash on hand, operating cash flow and available credit would cover expected needs for at least the next 12 months. It forecast approximately $9 million of 2013 capital expenditures.
- Management anticipated 2013 retransmission-consent revenue would exceed 2012 levels and remain a growing revenue source. It also warned of a challenging advertising environment and the absence of political-advertising revenue that benefited 2012.
- Management expected direct operating expenses to continue increasing and SG&A to continue decreasing due primarily to the management-structure changes; corporate expense was expected to rise, partly from stock-based compensation.
- The company stated that deferred tax assets were not expected to be fully realized and maintained a full valuation allowance against them. Q1 income tax expense was $1.9 million despite pretax income of $1.0 million.
- Debt agreements impose restrictions on additional borrowing, liens, acquisitions, investments, restricted payments and other actions. The notes bear fixed-rate interest; the $20 million term loan had a 3.95% rate at quarter-end. Management estimated a 100-basis-point LIBOR increase would add about $0.2 million to annual interest expense.
- Most television stations are affiliated with Univision or UniMás. Univision is the exclusive national advertising sales representative for those stations and negotiates retransmission-consent terms under a proxy arrangement expiring in December 2014. The company reported $7.1 million due from Univision at quarter-end.
- Management said ordinary-course litigation was not expected to have a material adverse effect; the filing reported no material change in risk factors. Disclosure controls were assessed as effective, with no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether revenue growth and retransmission-consent gains continue to offset the challenging advertising outlook, particularly without 2012’s political-advertising contribution.
- Whether operating cash flow turns positive as management expected, and how working-capital movements affect cash generation.
- Debt service capacity and compliance with debt covenants; adjusted EBITDA is a non-GAAP measure and should be considered alongside GAAP earnings and cash flow.
- The sustainability of the expense-category shifts, higher corporate stock compensation, and the full-year capital-expenditure plan.
- Univision-related receivables, affiliation and sales arrangements, and the retransmission-consent proxy agreement’s approaching expiration.