Entravision Communications Corporation — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual report, not a standalone fourth-quarter filing. Amounts are in U.S. dollars.
Business context
Entravision operates digital advertising, television and audio businesses. Digital generated about 84% of 2023 revenue; television generated about 11% and audio about 5%. The company owns or operates 49 primary television stations and 44 radio stations, primarily serving U.S. Hispanic audiences, and has digital operations across multiple regions.
Financial performance and liquidity
| Metric | 2023 | 2022 |
|---|---|---|
| Revenue | $1,106.9 million | $956.2 million |
| Operating income (loss) | $(4.5) million | $40.3 million |
| Net income (loss) attributable to common stockholders | $(15.4) million; $(0.18) per share | $18.1 million; $0.21 per share |
| Cash from operating activities | $75.2 million | $78.9 million |
| Consolidated EBITDA (non-GAAP) | $57.7 million | $103.1 million |
- Revenue increased 16%, driven by digital advertising and acquisitions. Digital revenue rose 25% to $932.7 million; television revenue fell 16% to $120.9 million; audio revenue fell 17% to $53.2 million.
- Digital cost of revenue was $800.4 million, leaving a calculated digital revenue less cost of revenue of $132.3 million, or approximately 14.2% of digital revenue. Consolidated operating margin was approximately negative 0.4%.
- Segment operating profit fell 47% to $58.0 million: digital $20.5 million, television $29.5 million and audio $8.1 million. Higher digital costs and lower margins, weaker political advertising in broadcast, and increased impairment charges weighed on results.
- Cash and cash equivalents were $105.7 million and marketable securities were $13.2 million at year-end. Total assets were $865.9 million; total liabilities were $599.7 million.
- Year-end debt was $210.7 million before unamortized issuance costs and $209.5 million net of those costs. The variable-rate credit facility carried an 8.21% rate at year-end. Interest expense was $17.3 million, partly offset by $5.1 million interest income.
- Capital expenditures were $27.2 million, versus $12.6 million in 2022. Dividends paid were $17.6 million; no shares were repurchased during 2023.
Material changes versus 2022
- Despite revenue growth, operating results turned from $40.3 million of operating income to a $4.5 million loss, and common-stockholder net income turned to a $15.4 million loss.
- Digital revenue grew substantially, but digital segment operating profit declined 45% to $20.5 million. Management cited industry pricing pressure, a shift toward lower-margin programmatic revenue and lower payment rates on Meta sales beginning in the second half of 2023.
- Television and audio segment operating profit declined 43% and 60%, respectively, as political advertising revenue fell from the 2022 midterm election period.
- Impairment charges rose to $13.3 million, including $12.3 million for audio FCC licenses and $1.0 million for a digital intangible asset following termination of a commercial agreement. The company also recorded a $2.5 million gain from changes in contingent consideration fair value, compared with a $14.2 million expense in 2022.
- Cash from operations decreased by $3.7 million. The company refinanced in March 2023, replacing its prior facility with a $200 million term loan and a $75 million revolving facility; $11.5 million of the revolver was drawn at closing.
Outlook, risks and unusual items
- Major subsequent event: On March 4, 2024, Meta informed Entravision it intends to end its global Authorized Sales Partner program, including its relationship with Entravision, by July 1, 2024. Meta represented approximately 53% of consolidated revenue and 63% of digital segment revenue in 2023. Management expects a material adverse effect on future revenue and operating cash flow and has begun reviewing its digital strategy and cost structure. The company had not estimated the event’s impact on net income and was evaluating potential impairment of digital assets.
- Management stated it expects positive operating cash flow in 2024 and believed year-end liquidity could fund operations, capital expenditures and debt service for at least 12 months from the report date. These expectations predate or are qualified by the material Meta-related uncertainty; management cautioned that mitigation plans may not offset the lost revenue. Planned 2024 capital expenditures were approximately $6 million.
- Management invested in local news and political sales capacity for the 2024 election cycle, adding 107 weekly newscasts. The company anticipates a political advertising opportunity, but acknowledges the strategy may not deliver expected revenue.
- The credit agreement includes a maximum total net leverage ratio of 3.25 to 1.00 and a minimum interest coverage ratio of 3.00 to 1.00, as defined in the agreement. The company said it was in compliance at year-end. A hypothetical 100-basis-point increase in SOFR would raise annual interest expense by approximately $2.1 million, based on year-end debt.
- Other key exposures include dependence on a small number of digital platform partners, advertiser credit risk, data privacy and cybersecurity regulation, foreign exchange and cash-repatriation restrictions, and declining broadcast audiences. The company recorded no material cybersecurity incident and reported effective disclosure controls and internal control over financial reporting. Management said ordinary-course legal matters were not expected to have a material adverse effect.
Most important facts for investors to verify
- Meta’s termination timing and the resulting revenue, cash-flow and liquidity impact; whether cost reductions and replacement partnerships can mitigate the loss.
- Potential impairment of digital goodwill and other assets, including the $50.1 million digital goodwill balance and digital intangible assets.
- Ability to maintain credit-covenant compliance and service variable-rate debt if earnings and cash flow weaken.
- Whether the 2024 political advertising opportunity offsets continued broadcast revenue and audience declines.
- Digital segment margins, advertiser receivable collections and concentration in remaining platform partners after Meta exits.