Entravision Communications Corporation — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012. The filing also reports quarterly results; it is an annual report, not a standalone Q4 filing. Amounts below are in U.S. dollars unless stated otherwise.
Business context
Entravision operates Spanish-language television and radio businesses, alongside digital and interactive offerings, serving U.S. Hispanic audiences and border markets in Mexico. It reported 56 primary television stations and 49 radio stations. Revenue comes mainly from advertising, plus television retransmission-consent payments. Television generated about 70% of 2012 revenue and radio about 30%.
Key financial metrics
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Net revenue | $223.3 million | $194.4 million |
| Operating income | $58.8 million | $35.0 million |
| Operating margin | 26.3% | 18.0% |
| Net income (loss) | $13.6 million | $(8.2) million |
| Diluted earnings (loss) per share | $0.16 | $(0.10) |
| Cash provided by operating activities | $40.0 million | $17.6 million |
| Capital expenditures | $9.9 million | $8.2 million |
| Adjusted EBITDA (non-GAAP) | $76.9 million; 34% of revenue | $55.5 million; 29% of revenue |
Television revenue rose 19% to $156.8 million and radio revenue rose 6% to $66.4 million. Retransmission-consent revenue increased to $20.2 million from $17.1 million. Direct operating expenses increased 4%, slower than revenue growth; depreciation and amortization declined to $16.4 million.
At year-end, cash and cash equivalents were $36.1 million, down from $58.7 million. Current assets were $88.4 million and current liabilities $39.4 million. Total debt was approximately $343.8 million on a principal basis (balance-sheet carrying value, including current maturities, was about $340.8 million). Stockholders’ equity was $5.4 million; accumulated deficit was $925.4 million.
Cash used in financing was $52.8 million, including $61.8 million of debt repayments, $10.3 million of dividends and $20.0 million of new term-loan proceeds. Cash used in investing was $9.9 million. The company paid a $0.12-per-share dividend in 2012, versus $0.06 in 2011.
Fourth-quarter results
Q4 2012 revenue was $63.8 million, compared with $50.0 million in Q4 2011. Q4 net income was $7.7 million, or $0.09 per share, versus a net loss of $2.0 million, or $0.02 per share, a year earlier.
Material changes and unusual items
- Annual revenue increased 15%, driven by political advertising, core advertising and retransmission-consent growth. Political advertising was not material in 2011; the 2012 election cycle therefore contributed to the year-over-year increase.
- Operating income increased 68%. Segment operating profit rose 55% in television to $66.3 million and 35% in radio to $10.5 million.
- The company repurchased $60 million principal amount of its 8.75% senior secured notes during 2012, at 103% of principal plus accrued interest. The transactions contributed to a $3.7 million debt-extinguishment loss. Notes mature August 2017.
- In December 2012, Entravision entered a new credit facility: a $20 million four-year term loan and a $30 million revolving facility, maturing in December 2016. The term loan was drawn; the revolver was undrawn at year-end. The reported leverage ratio was 4.3x, versus a 7.0x maximum.
- No impairment charge was recorded in 2012, compared with $36.1 million in 2010. Goodwill and other intangible assets remained significant; management reported the radio reporting unit’s fair value exceeded carrying value by 15%.
Outlook, risks and contingencies
Management expected 2013 retransmission-consent revenue to exceed 2012 levels, anticipated about $9 million of capital expenditures and expected positive operating cash flow. It also cautioned that advertising conditions could remain challenging and that the company would not have the political-advertising benefit that supported 2012 results. Management expected certain operating, selling and corporate expenses to rise, particularly due to salary increases and interactive-media spending. Management stated that cash, operating cash flow and available credit were expected to cover anticipated requirements for at least the next 12 months.
- High leverage and substantial debt-service needs remain important risks. The notes and credit facility are secured by substantially all assets and contain restrictions on additional debt, acquisitions, asset sales, dividends and other actions. A covenant breach or default could trigger acceleration or restrict further borrowing.
- Advertising orders are not long-term commitments and may be cancelled, reduced or postponed. Results are seasonal and political advertising varies by election cycle.
- The television business depends substantially on Univision programming and commercial relationships. Retransmission-consent arrangements, network affiliation terms and MVPD carriage are also material exposures.
- FCC licensing and spectrum-policy changes, including potential spectrum auctions or repacking, could affect station coverage and operations, particularly low-power stations.
- Goodwill and indefinite-lived broadcast licenses depend on management forecasts and valuation assumptions; adverse operating or market changes could lead to future impairment. Deferred tax assets are subject to a substantial valuation allowance.
- Management reported no litigation expected to have a material adverse effect. The independent auditor gave an unqualified opinion on the financial statements, and management and the auditor reported effective internal control over financial reporting as of December 31, 2012.
Important facts for investors to verify
- Whether 2013 revenue and cash generation can hold up without the 2012 political-advertising uplift, and whether core advertising trends support management’s outlook.
- The timing, economics and renewal terms of retransmission-consent agreements, including the effect of the Univision proxy arrangement, which was scheduled to expire in December 2014.
- Debt repayment capacity, liquidity and covenant headroom, including the exact terms and borrowing conditions of the new credit facility and the 2017 notes.
- The sustainability of the $0.12 dividend given debt restrictions, cash needs and the decline in year-end cash.
- Key impairment assumptions for broadcast licenses and goodwill, and any changes in market conditions, station performance or FCC spectrum policy.