Entravision Communications Corporation — Q2 2016 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2016; comparisons are to the corresponding 2015 periods. Entravision operates television, radio and digital media businesses focused on Hispanic audiences.
Financial performance and liquidity
| Metric | Q2 2016 | Six months 2016 |
|---|---|---|
| Revenue | $64.8 million, up 8% | $122.9 million, up 3% |
| Operating income | $13.3 million, up 11%; 20.6% margin | $21.0 million, down 13%; 17.1% margin |
| Net income | $5.7 million, up 9%; diluted EPS $0.06 | $8.0 million, down 24%; diluted EPS $0.09 |
| Operating cash flow | Not separately provided for the quarter | $24.4 million, versus $33.9 million |
| Adjusted EBITDA | Not clearly stated for the quarter | $30.8 million, down 9%; 25% of revenue versus 28% |
- Q2 net margin was approximately 8.8%, compared with 8.7% in Q2 2015; six-month net margin was approximately 6.5%, versus 8.8%.
- Television revenue rose 8% in Q2 to $39.2 million; radio revenue was essentially flat at $19.6 million; digital revenue rose 55% to $6.1 million. For the first half, digital grew 41% to $10.7 million, radio grew 1% to $36.4 million, and television was nearly flat at $75.8 million.
- At June 30, cash was $31.4 million and short-term investments were $30.0 million. Current assets were $128.2 million and current liabilities $29.6 million.
- Balance-sheet debt was $311.8 million, including current maturities and net of debt issuance costs; the filing gives principal debt of approximately $314.7 million. The effective interest rate was 3.5%. The company reported a 4.0x total leverage ratio and compliance with its stated covenant.
- Six-month investing cash outflow of $34.7 million included the $30.0 million certificate of deposit purchase and $4.7 million of capital expenditures. Financing cash outflow was $6.2 million, including $5.6 million of dividends and $1.9 million of debt payments.
Material changes versus 2015
- Q2 revenue growth reflected stronger television national and political advertising, higher retransmission consent revenue, and digital advertising growth. Q2 retransmission consent revenue was $7.5 million versus $7.2 million.
- First-half television revenue was affected by approximately $5.0 million of 2015 channel-modification revenue that did not recur. First-half retransmission consent revenue increased to $14.9 million from $13.6 million.
- First-half operating income and net income declined despite revenue growth, as operating expenses rose and interest expense increased 19% to $7.7 million. Management attributed higher interest expense primarily to swaps that began operating in 2016.
- First-half operating cash flow decreased by $9.4 million year over year. Capital expenditures declined to $4.6 million from $9.7 million; the 2015 comparison also included a $1.0 million contingent-consideration payment in financing activities.
Outlook, risks and unusual items
- Management expects 2016 revenue growth from digital media, retransmission consent and political advertising, and expects positive operating cash flow for the full year. It anticipates approximately $10.5 million of 2016 capital expenditures.
- Management expects direct operating, selling, general and administrative, and corporate expenses to continue rising in dollar terms during the remainder of 2016, primarily due to salary increases.
- The company says available operating cash flow, cash on hand and credit-facility availability should meet anticipated needs for at least the next 12 months. This is forward-looking and subject to business and market conditions.
- The Univision proxy agreement for negotiating retransmission-consent terms was extended through August 31, 2016. Entravision intended to negotiate an extension or replacement, but gave no assurance an agreement would be reached. Univision-related station affiliation agreements run through 2021.
- Interest-rate risk remains: $186 million of debt is covered by swaps through December 2018, while the filing estimates a 100-basis-point LIBOR increase would raise annual interest expense and reduce operating cash flow by about $0.8 million.
- Key risks include advertising cancellations and rate pressure, competition and digital-market change, substantial indebtedness and credit-agreement restrictions, dependence on Univision and retransmission-consent revenue, and regulatory or media-license developments. The filing reports no material change in risk factors, no litigation expected by management to have a material adverse effect, and effective disclosure controls.
Important facts for investors to verify
- Whether Univision and Entravision extended or replaced the retransmission-consent proxy agreement after August 31, 2016, and the resulting economics.
- Whether the expected 2016 growth in political, digital and retransmission-consent revenue materialized, including the associated segment margins.
- Debt principal, cash and investment balances, covenant definitions and compliance, and the effect of rates on unhedged borrowings.
- How rising operating costs and lower first-half adjusted EBITDA affect full-year profitability and cash generation.
- The filing provides no precise numerical full-year revenue or earnings guidance; its outlook is directional.