Entravision Communications Corporation — Q2 2021 Form 10-Q
Reporting period: Three and six months ended June 30, 2021; financial statements are unaudited. Entravision operates digital, television and radio businesses. Digital operations, including the majority-owned Cisneros Interactive, accounted for about 73% of Q2 revenue.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $178.4 million | $45.1 million | $327.3 million | $109.4 million |
| Operating income (loss) | $16.2 million | $(1.4) million | $27.6 million | $(36.7) million |
| Net income (loss) attributable to common stockholders | $7.9 million | $2.3 million | $13.3 million | $(33.3) million |
| Diluted EPS | $0.09 | $0.03 | $0.15 | $(0.39) |
| Operating cash flow | Not presented by quarter | $44.4 million | $19.5 million |
- Q2 operating margin was approximately 9.1% (operating income divided by revenue); first-half operating margin was approximately 8.4%. Q2’s reported digital cost of revenue was $109.0 million, or 84% of digital revenue, reflecting Cisneros Interactive’s comparatively lower margins.
- Consolidated adjusted EBITDA, a non-GAAP measure, was $32.0 million for the first half, versus $11.4 million. Management reported it at 10% of revenue in both periods.
- At June 30, cash and cash equivalents were $171.9 million, marketable securities were $10.0 million, and restricted cash was $0.7 million. Total current assets were $354.9 million against current liabilities of $152.3 million.
- Debt carrying value was $211.6 million, net of debt costs and discount; reported variable-rate principal outstanding was $213.8 million. The term loan matures November 30, 2024. Leverage was 1.7x at June 30, 2021, versus 4.4x a year earlier.
- Capital expenditures were $2.6 million for the first half. Dividends paid were $4.3 million; the declared dividend was $0.03 per common share for Q2.
Changes versus the prior comparable periods
- Revenue rose sharply, chiefly because Cisneros Interactive was acquired in October 2020 and was not included in the prior-year comparison. Digital revenue was $130.2 million in Q2 versus $11.4 million; television revenue was $34.1 million versus $27.0 million; radio revenue was $14.1 million versus $6.8 million.
- Television and radio growth primarily reflected stronger local and national advertising, partly offset by lower political advertising. Retransmission consent revenue was essentially unchanged: $9.3 million in Q2 and $18.9 million for the first half.
- Profitability improved from the prior-year operating loss. The first-half 2020 comparison included $39.8 million of impairment charges; first-half 2021 impairment was $1.4 million, primarily related to assets held for sale.
- Operating cash flow increased to $44.4 million from $19.5 million. Investing cash flow was $15.0 million, largely reflecting $17.8 million in marketable-security proceeds, rather than solely operating investment returns.
Outlook, risks and unusual items
- Management expects 2021 revenue to increase mainly because Cisneros Interactive will contribute for a full year, partly offset by lower political advertising than in 2020. It expects positive operating cash flow for 2021 and approximately $8.0 million of full-year capital expenditures. No specific full-year revenue or earnings guidance was provided.
- Management said COVID-19’s impact had lessened and reported no material Q2 advertising cancellations or decline in new television and radio placements. It cautioned that resurgences, uneven international recovery and lasting audience behavior changes could affect results; credit terms for certain advertisers remained eased.
- On July 1, 2021, the company completed its acquisition of MediaDonuts, a Southeast Asian digital advertising business, for approximately $17.1 million at closing, with potential earn-out payments. This occurred after the reporting period.
- The June 2021 credit agreement amendment permitted additional investments in certain subsidiaries and revised an EBITDA definition. The company paid lenders an approximately $0.6 million fee, to be amortized over the remaining loan term. Debt is variable-rate; management estimated a 100-basis-point rate increase would add about $2.1 million to annual interest expense.
- COVID-related cost measures included suspended share repurchases and 401(k) matching and a dividend reduction begun in 2020. The company reported no Q2 2021 share repurchases. It deferred employer Social Security taxes, with repayment installments due by December 2021 and December 2022.
- Disclosure controls were deemed ineffective because of material weaknesses associated with Cisneros Interactive’s opening balances, revenue cycle, and accounts payable, accrued liabilities, taxes, payroll and other operating expenses. Management reported remediation efforts underway and said the weaknesses had not caused a material misstatement in the periods presented.
- Key risks include international expansion and foreign-currency exposure, advertising cyclicality and migration to digital media, competition and audience trends, reliance on Univision relationships and retransmission arrangements, debt restrictions, and the continuing effects of COVID-19. Management said ordinary-course legal matters were not expected to materially affect financial position, results or cash flows.
Important facts for investors to verify
- How much of reported growth and future revenue depends on Cisneros Interactive and the newly acquired MediaDonuts, and how their margins compare with the rest of the business.
- Whether the digital segment’s 84% cost-of-revenue ratio and the company’s adjusted EBITDA translate into durable cash generation; review the non-GAAP definition and reconciliation.
- Progress remediating the disclosed material weaknesses and whether disclosure controls become effective.
- Debt principal, variable interest-rate exposure, covenant compliance and the effect of any future acquisitions or earn-outs on liquidity and leverage.
- Whether advertising recovery continues, and the sensitivity of results to political-advertising comparisons, international conditions and foreign exchange.