Entravision Communications Corporation — Q3 2012 Form 10-Q
Reporting period: Three and nine months ended September 30, 2012, compared with the corresponding 2011 periods. Entravision operates television and radio broadcasting businesses, primarily serving U.S. Hispanic audiences. Amounts below are in millions of dollars unless noted.
Financial performance and liquidity
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Net revenue | $58.5 | $50.1 | $159.5 | $144.4 |
| Operating income | $17.1 | $10.0 | $38.1 | $25.8 |
| Operating margin | 29.3% | 20.0% | 23.9% | 17.9% |
| Net income (loss) | $7.2 | $(1.4) | $5.9 | $(6.2) |
| Diluted earnings (loss) per share | $0.08 | $(0.02) | $0.07 | $(0.07) |
| Adjusted EBITDA, as defined by the company | Not provided | Not provided | $51.5 | $41.1 |
In the first nine months, operating cash flow was $13.7, versus $4.7 in 2011; investing cash outflow was $6.5, and financing cash outflow was $20.7, principally reflecting $20.0 of note repurchases plus the redemption premium. Cash declined to $45.2 at September 30 from $58.7 at year-end 2011. Capital expenditures were $7.1 for the period.
At September 30, total assets were $451.5, current assets $100.2, current liabilities $32.5, and long-term debt carrying value $360.3. Stockholders’ equity was $7.1, up from a deficit of $0.6 at year-end. The reported current ratio was approximately 3.1. The company had no borrowings under its $50 million revolving credit facility and approximately $0.7 of outstanding letters of credit. Its 8.75% secured notes mature August 1, 2017; estimated fair value was $393.8. The facility expires July 27, 2013.
Changes versus prior periods
- Q3 revenue rose 17%; nine-month revenue increased 10%. Television drove most of the growth: segment revenue increased 22% in Q3 and 15% year to date. Radio revenue rose 6% in Q3 and 2% year to date.
- Management attributed television growth to political and core advertising and retransmission consent revenue. Q3 retransmission revenue was $4.9 versus $4.2; nine-month revenue was $15.0 versus $12.8. Political advertising was not material in the 2011 comparison period.
- Nine-month operating income increased 48%, while net income turned positive from a prior-year loss. Interest expense declined to $26.7 from $28.3, in part following debt repurchases. The company recorded a $1.2 debt-extinguishment loss in 2012.
- Direct operating expenses increased 3% in both Q3 and year to date, slower than revenue growth. Selling, general and administrative expenses rose 11% in Q3 and 5% year to date; corporate expenses rose 15% and 10%, respectively. Depreciation and amortization fell 20% in Q3 and 12% year to date.
Outlook, risks and notable items
- Management expected full-year 2012 revenue to increase, supported by core and political advertising and retransmission consent; it also expected retransmission revenue to exceed 2011. Management cautioned that the advertising environment remained challenging amid economic uncertainty and customers’ ability to cancel or reduce orders.
- Management expected positive operating cash flow for 2012 and believed cash, operating cash flow, and available revolver capacity would cover anticipated needs for at least 12 months. It anticipated approximately $10 million of full-year 2012 capital expenditures.
- The company reported a 5.5x total leverage ratio at September 30, versus 6.9x a year earlier, against a stated 7.0x maximum under the credit facility. The filing identifies substantial indebtedness, covenant restrictions, advertising-market weakness, competition, and dependence on Univision-related arrangements and retransmission revenue as risks.
- Univision-affiliated stations’ long-term network agreements run to 2021; Univision’s authority to negotiate certain retransmission consent terms expires in December 2014. Univision owed Entravision $6.1 for station-signal carriage arrangements at September 30.
- Management said deferred tax assets would not be fully realized and maintained a full valuation allowance against them. The company was evaluating a new accounting standard for impairment testing of indefinite-lived intangible assets.
- Management said ordinary-course litigation was not expected to materially adversely affect the company. No material change in risk factors was reported, and disclosure controls were judged effective.
Important facts for investors to verify
- Whether revenue growth, especially political advertising and retransmission consent, is sustainable after the 2012 election cycle.
- Debt terms, the July 2013 revolver expiration, covenant headroom, and the company’s capacity to service its 8.75% notes.
- Cash-flow conversion and liquidity, including the effect of working-capital movements and planned capital spending.
- Univision-related fees, receivables, affiliation and retransmission arrangements, and the effect of their contractual terms.
- The assumptions supporting deferred-tax valuation allowances and the carrying values of indefinite-lived intangible assets.