Entravision Communications Corporation — Q2 2012 Form 10-Q
Reporting period: Three and six months ended June 30, 2012; unaudited. Entravision operates television and radio broadcasting businesses, primarily serving Hispanic audiences in the United States. Amounts below are in millions of dollars unless noted.
Financial results and liquidity
| Metric | Q2 2012 | Q2 2011 | First half 2012 | First half 2011 |
|---|---|---|---|---|
| Revenue | $54.5 | $50.3 | $101.0 | $94.3 |
| Operating income | $13.7 | $10.3 | $21.0 | $15.8 |
| Net income (loss) | $2.1 | $(0.4) | $(1.3) | $(4.8) |
| Operating margin | 25.2% | 20.5% | 20.8% | 16.8% |
| Cash from operating activities | Not presented quarterly | Not presented quarterly | $6.4 | $9.1 |
- First-half adjusted EBITDA, a non-GAAP measure, was $29.9 million, up 15% from $26.0 million; management reported a 30% margin versus 28%.
- At June 30, cash was $40.8 million, down from $58.7 million at year-end 2011. Current assets were $94.8 million and current liabilities $37.6 million (about 2.5x current coverage).
- Long-term debt, net of discount, was $360.2 million, versus $379.7 million at year-end. The company repurchased $20 million principal amount of its 8.75% secured notes in May, paying 103% plus accrued interest; it recorded a $1.2 million extinguishment loss. The notes mature in 2017.
- The $50 million revolving facility had no borrowings and approximately $0.7 million of letters of credit outstanding; it expires July 2013. The reported leverage ratio was 6.1x at June 30, within the stated 7.0x covenant limit. Stockholders’ equity remained slightly negative at $(0.9) million.
Changes and operating drivers
- Q2 revenue rose 8%; first-half revenue rose 7%. Television drove the gains: Q2 television revenue increased 13% to $37.4 million, while radio revenue was essentially flat at $17.1 million.
- Management attributed television growth to core and political advertising and retransmission-consent revenue. Retransmission revenue was $5.2 million in Q2 and $10.2 million for the first half, compared with $4.4 million and $8.6 million, respectively, in 2011.
- First-half operating income improved 33%. Expense growth was modest relative to revenue, and depreciation and amortization declined as certain assets became fully depreciated. Interest expense also fell with lower debt.
- Despite stronger operating performance, first-half net loss persisted; Q2 returned to net income. The first-half result included the debt-repurchase loss and income tax expense.
- First-half operating cash flow was positive but lower year over year ($6.4 million versus $9.1 million), including a $3.8 million cash use from increased receivables. Investing used $3.6 million and financing used $20.7 million, principally for the debt repurchase. Cash declined $18.0 million.
Outlook, risks and notable items
- Management anticipated full-year 2012 revenue growth, especially from core and political advertising and retransmission fees, and said retransmission revenue should exceed 2011. It also expected positive operating cash flow and approximately $10 million of full-year capital expenditures. These are expectations, not quantified earnings guidance.
- Management cautioned that the advertising environment remained challenging and uncertain. Advertising orders may be cancelled, reduced or postponed; revenue is seasonal and political advertising typically benefits even-numbered years.
- Other key risks include substantial indebtedness, debt restrictions and covenant compliance, competition, dependence on Univision affiliation and services, and continued reliance on retransmission-consent arrangements. The company said deferred tax assets would not be fully realized and maintained a full valuation allowance against them.
- Univision-affiliated stations’ national advertising sales representation fees paid to Univision were $4.7 million in the first half, up from $3.5 million. Univision owed Entravision $8.9 million related to carriage agreements at June 30. The filing describes ordinary-course litigation but says management does not expect it to have a material adverse effect; no material risk-factor change was reported.
Important facts for investors to verify
- Whether television advertising and retransmission-consent growth continued, and whether radio revenue remained flat.
- Cash conversion and receivables collections, given lower first-half operating cash flow and rising receivables.
- Debt principal and cash interest requirements, refinancing options before the revolving facility’s July 2013 expiry, and covenant headroom.
- Progress against the company’s full-year revenue, positive operating cash flow and approximately $10 million capital-expenditure expectations.
- The sustainability of adjusted EBITDA improvement and the implications of the tax valuation allowance and Univision-related arrangements.