Entravision Communications Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; comparisons are with the corresponding 2022 periods. Entravision operates digital advertising, television and audio businesses. Digital generated 84% of Q2 revenue; television 11% and audio 5%.
Financial performance and position
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $273.4M | $221.7M | $512.4M | $418.9M |
| Operating income | $0.5M | $13.4M | $7.2M | $17.6M |
| Net income (loss) attributable to common stockholders | $(2.0)M | $8.5M | $0.1M | $10.4M |
| Basic and diluted EPS | $(0.02) | $0.10 | $0.00 | $0.12 |
| Cash provided by operating activities | — | $47.1M | $62.9M |
- Revenue by segment, Q2: Digital $229.9M, up 32%; television $29.9M, down 8%; audio $13.5M, down 9%. Digital revenue growth reflected commercial-partnership advertising and acquisitions.
- Margins and operating costs: Digital cost of revenue was 85% of digital revenue in Q2, versus 83% a year earlier; for the first half it was 85%, versus 84%. Six-month consolidated EBITDA, a non-GAAP measure, was $27.2M, or 5% of revenue, versus $40.6M, or 10%.
- Liquidity: June 30 cash and cash equivalents were $99.6M and marketable securities were $26.9M. Current assets were $374.2M and current liabilities $249.5M. Cash, cash equivalents and restricted cash totaled $100.3M.
- Debt: The company reported $210.3M of variable-rate borrowings outstanding under its 2023 Credit Facility; balance-sheet debt carrying value was approximately $211.4M including current maturities. The facility’s stated rate was 7.95% at June 30. A 100-basis-point increase in SOFR would, the company estimates, increase annual interest expense and reduce operating cash flow by $2.1M.
- Investment and shareholder distributions: First-half capital expenditures were $14.8M; dividends paid were $8.8M. The Q2 dividend declared was $0.05 per share, compared with $0.03 a year earlier.
Material changes and unusual items
- Revenue rose 23% in Q2 and 22% for the first half, led by digital; television and audio revenue declined. Political and national advertising weakness affected traditional-media segments.
- Operating income fell to $0.5M in Q2 from $13.4M, as digital media costs rose faster than digital revenue and selling, general and administrative and corporate expenses increased. First-half interest expense doubled to $8.3M from $4.2M, primarily reflecting higher borrowing rates.
- On March 17, 2023, Entravision refinanced its prior facility with a $200M Term A loan and a $75M revolver, of which $11.5M was drawn at closing. The new facility matures in March 2028. Refinancing resulted in a $1.6M debt-extinguishment loss.
- Acquisitions included a 51% interest in Adsmurai and the remaining shares of Jack of Digital in April, and BCNMonetize in May. Adsmurai’s put/call options resulted in a $47.3M redeemable noncontrolling interest. Contingent consideration liability declined to $31.0M from $63.8M at year-end, including $31.7M of payments and a $2.9M first-half fair-value gain.
- First-half operating cash flow decreased by $15.8M year over year. Financing cash outflow included $31.7M in contingent-consideration payments; investing cash flow included an $8.1M loan receivable and $6.9M in business purchases.
Outlook, commentary and risks
- Management expects 2023 revenue to increase, driven primarily by digital growth and acquired businesses; it also expects positive operating cash flow for the year. Full-year capital expenditures are estimated at $19.5M, including an expected $3.9M reimbursement related to the new office lease.
- Management expects lower digital margins as programmatic advertising pressures pricing and the company’s largest commercial partner reduces its payment rate beginning in the second half of 2023. That partner represented 53% of Q2 revenue and 52% of first-half revenue; Entravision expects this dependence to continue.
- The company says it expects to fund working capital, capital expenditures and debt service for at least the next 12 months from cash and operating cash flow. It reported compliance with its credit covenants at June 30. The facility includes maximum total net leverage of 3.25-to-1.00 and minimum interest coverage of 3.00-to-1.00.
- Key risks include variable-rate debt, digital-advertising competition and margin pressure, reliance on a single global media partner, foreign-exchange exposure, advertiser credit risk, and audience and advertising shifts away from traditional television and radio. Some cash in Argentina and South Africa may be harder to repatriate.
- Management stated ordinary-course legal claims are not expected to materially affect results. The filing reports effective disclosure controls and no material change in internal control over financial reporting.
Important facts for investors to verify
- How the largest partner’s lower payment rate affects digital gross profit and margins from the second half onward.
- Revenue and profitability attributable to acquisitions, including Adsmurai’s redeemable minority interest, option terms and future purchase obligations.
- Current borrowing, revolver availability, interest-rate exposure and covenant headroom; the filing does not provide a clear reported covenant ratio.
- Whether management’s full-year revenue, operating-cash-flow and capital-expenditure expectations are achieved amid traditional-media declines and acquisition integration.
- Collection performance and advertiser credit exposure in the digital business, as the company may owe media partners for inventory even when customer amounts are not collected.